Wall Street Corp Reporter Interviews Mr. Walter F. Ware
Monday, January 25, 1999
companies.newspage.com
Jan 25, 1999 (Wall Street Corp Reporter) via NewsEdge Corporation - Mr. Ware started with an extensive engineering background in product development, product design and product application as an engineer. He spent over 20 years with AlliedSignal's Garrett Automotive Group, and AlliedSignal is the leading turbocharger supplier in the world who has 50% market share globally. Mr. Ware's product engineering and technical engine vehicle background is what brought the opportunity to be president and chief executive officer of Turbodyne to his attention. Turbodyne's technology Mr. Ware:
"Turbodyne's technology is basically an electronically driven supercharger that overcomes the inherent single greatest weakness in the turbocharger, which is the fact that it is very slow to respond to power input, and that is a phenomena called turbocharger lag. That is because it relies on the energy in the exhaust to drive the turbocharger turban before the turbocharger can put air into the engine.
"The uniqueness of Turbodyne's technology is that it takes stored energy in the battery and can, upon electronic signal, use that stored energy to spin the turbocharger to 40,000 or 70,000 RPMs within 250 milliseconds or instantaneously, depending on the size of the machine.
"Having spent the years that I did in the turbocharger industry trying to overcome this problem, it was quite a breakthrough when I discovered this technology that was invented by the chairman and founder of Turbodyne, Ed Halimi, and that was just over one year ago. So I think that my engineering background made me very sensitive to the opportunity within this patented and proprietary technology.
"My current career situation at the time was as senior vice president at Detroit Diesel Corporation and we had been confronted with new Environmental Protection Agency legislation that required a significant reduction in the particulate emissions or black smoke from city buses. Although there were other technologies available, they were not satisfactory to Detroit Diesel from a product durability/reliability/performance point of view.
Turbodyne Technologies Inc.
"Turbodyne Technologies is basically a young, hitech, startup company. It was originally formed as a public company in Canada in 1993 based upon the patents specific to an electronic supercharger or an electronic turbo supercharger. In July 1997, we redomesticated the Canadian company to the U.S. as a Delaware Corporation, have adopted all of the United States cap standards, and now report in U.S. dollars.
"We first moved to the NASDAQ stock exchange in March 1997 and then listed the company on ESDAQ in September 1997, basically to provide better service to our significant European and German investor group who today hold 25% of our stock.
"Turbodyne has two families of products that provide air to internal combustion engines instantaneously, when they need it the very most, in order to produce power to move a load, deliver passengers on a bus or in a mine hole situation. The technology is also useful for commercial or pleasure boats that need to get up on a plain and maintain a good speed, what happens is that more fuel is put in the engine when it is needed to get the engine going. There is not adequate air at that time, which results in the pollution due to less than optimum efficient combustion as the internal combustion engine basically burns air in combination with fuel.
"We are able to provide air at that most critical time, when no other technical solution has been able to do it today, to make efficient combustion, and therefore, reduced pollution while increasing the power of the engine under those same conditions.
Necessity of this technology
"One of the reasons that this technology is so important is to satisfactorily respond to impending pollution environmental legislation and ever increasing environmental legislation. Most of the pollution that is created by an internal combustion engine is when it is started up cold and each time it has to accelerate under a transient condition. Examples would be when a vehicle is entering the freeway or when a bus stops to pick up a load of passengers and then accelerates to legal speed.
"Every time that happens you create 75 to 80% of all of the pollution created by the use of the engine for the whole period of time. That is because that is a very inefficient period of the engine cycle and that is largely because there is not enough air to match with the fuel, and what we do is provide the air."
Engine recalls
"The recent EPA or federal action relative to the U.S. engine manufacturers being in non-compliance with the pollution laws is very relevant to our technology on several points. Specifically, this particular fine or penalty, which is in the $100 million range, is relative to nitrous oxide (NOX) pollution, which is a major contributor to photochemical smog. Our product has been evaluated at Southwest Research specifically as an EGR pump for exhaust gas recirculation, and has demonstrated that it helps the engine to significantly reduce the creation of NOX at that most critical time.
"We have a sales and marketing program that communicates the capabilities and achievements of our product as measured under laboratory test conditions. That information is then made available to the engineering departments and engineer manufacturers so that they can see the benefit of our product and potentially work with us to integrate our product into their future product.
"There are two situations relative to the Turbodyne product that makes it doubly exciting. Quite readily it can be incorporated on an existing engine to provide more air instantaneously with minor modifications that are external to the engine. It does have the benefit of being a retrofit upgrade product. In addition, it has tremendous potential to be integrated into a new design engine where you can optimize the rest of the engine components and systems around that increased airflow. In that way, you can actually leverage the benefit of increased air at critical operating points by rebalancing a number of parameters on the engine design."
Using the products domestically and internationally
"The way that we get people to use our products is to approach the engine manufacturers, present the capability of our product and actually encourage them to participate in joint demonstrations of what our product can do for their engine in their own laboratories.
"In Europe we have approached the French national bus operating organization that operates all of the city buses across the whole country of France. They were quite impressed with the initial demonstrations of our products in Paris, and are now evaluating the product in six French cities to look, not only at the pollution benefits, but also at the overall economic benefits of the potential for reduced fuel consumption.
An OEM supplier with these products
"It takes less time to do a retrofit upgrade to an existing engine vehicle already in service. The reason for that is once you begin to work with corporations and go through all of their processes, it takes an extended period of time to get to production that is measured in years. For example, to be incorporated in a new engine design, you are typically looking at a minimum of three years.
"In the U.S., we have already been certified by the U.S. and California EPA to use our product as a retrofitable emissions improvement. The technology certainly can be used in any country in the world and basically on any internal combustion engine, but it provides the greatest benefit on diesel engines, which are more predominant outside the U.S.
"Currently, we have units on evaluation with the French government and have been working with the Mexican government for quite some time, specifically in Mexico City where there is a very serious health and environmental problem. Likewise, you may be aware that we have gone through all of the technical and political requirements and actually have a commercial agreement in the city of Moscow where we are going through the process of the financial paperwork and bank support to assure that we can ultimately get paid.
"We are very active in foreign countries of the world, and sometime ago signed a Memo of Understanding with the national power utility company in China relative to their transportation vehicles for the whole country. When you are dealing with countries and governments, transactions tend to move slower than when you are dealing with corporations."
Potential for the company
"The ultimate potential is essentially taking every internal combustion engine that is in use, from a retrofitable point of view, that is being designed and going into production. Some engines are more responsive to the technology than others from the pollution point of view. The barriers to getting this technology into use so that we can all benefit from the environment is governmental issues. That is because what seems so logical, rational, reasonable and has already been validated by our own Environmental Protection Agency and the California Environmental Protection Agency, you still have to go through multiple other governmental validations, certifications, verifications and what they tend to do is certify for one engine family.
"That means that you have to go back to them for every engine family, and that is an endless process. You then find out that there are local jurisdictions on top of federal and state so you continue to run into political barriers that you have to find a way through. In California, there is a California EPA, an Air Resources Board, the federal EPA and the South Coast Air Quality Management District so you end up working with hundreds of entities to try to get your product incorporated and approved."
Turbodyne in the year 2000
"We see significant growth from where the company is today in the year 2000 as legislation becomes more severe on engine manufacturers. The legislation is increasing in every state of the union as well as on a national basis and it is also increasing significantly on a global basis where you have second and third world countries who are also very concerned about the environment. Brazil has passed very stringent penalties associated with polluting their environment in the last six months. There is actually a requirement for people to stop polluting and for the manufacturers to make engines that do not pollute in Brazil.
"Most people are aware of the KIOTO global conference on environmental warming and the pressures that have come out of there for improvements in that area. One of the mechanisms being discussed is an economic credit for any country or entity reducing their pollution, which means there would be the equivalent of moneys for doing that that are tradable. We see that as a motivating force for incorporating our technology as we go forward.
"On a much smaller scale, today we released a press release that the company called Marbourg Industries, which is a large trash hauling company, has evaluated our product and signed a contract with us moving forward. Two of our units have been on demonstration for a number of months, and we have a very nice testimonial by the management of Marbourg Industries. Testimonials are the kinds of things we need for other people to see that people are actually using our products and they are working for them, and those companies are indeed promoting it."
Making some money
"The real issue is for us is to reach critical mass where the investment in R&D and putting in the physical capabilities necessary to deliver the product is exceeded. We expect orders to increase in 1999, continue to build in the year 2000, and for the company to achieve a break-even scenario certainly in that time frame.
Cash and/or credit
"We have been building our company as we go forward. Our cash position ending the third quarter is that our shareholder equity has increased this year by 31.8% ear. We have a shareholder equity base right now of $64.5 million, which has increased from $49.7 since the end of 1997.
"In addition, we currently have cash on hand of $10 million and our working capital is $23 million, which gives us a strong balance sheet for a company of our size with our startup situation. This is at the same time that we are heavily investing in the business, both in R&D and putting the physical structure in place to produce."
Keeping present focus going forward
"We are committed to be very focused on this business, and do not intend to be distracted by other opportunities that might come our way. Certainly, we are looking for related synergistic or leveraged type of situations that might help us achieve critical mass sooner and on a broader scale, but we will be very careful about those types of investments going forward.
"You are aware that in 1996, we acquired a light metals machine shop company for strategic reasons because we needed an operation that could make the components that were key to our product. We actually developed a relationship with that company because they were making our prototype hardware and had the capability to become a production supplier in the future. We also became attracted to them because of their capabilities. They were already selling engine components to customers that we expected to be selling and we were looking for a path to sell our technologies products to companies like Navistar, Cummins Engine Company and Detroit Diesel Corporation.
"We saw leverage in transaction because it helps a small startup company when they are already doing business with larger companies to bring in a new product, rather than just making a cold call on the purchasing or engineering departments, and we think that will help us going forward."
Reduces one of the very damaging pollutants
"When we look at the opportunity, we see that we have a product that has been laboratory tested, including by the EPA, that has demonstrated that it reduces one of the very damaging pollutants that comes from internal combustion engines and particularly diesel engines. The particulate emissions, which are the small, fine particles of unburned hydrocarbon, have been extremely effective and certified by the EPA in that regard.
"Recently, development testing in Southwest Research also indicated very significant reductions in NOX, which is the other major contributor to pollution, and in fact the one that the U.S. engine manufacturers are being fined so heavily on now for not being in compliance. In addition, we have demonstrated that we help to significantly reduce hydrocarbons and carbon monoxide pollutants, which are also critical contributors to photochemical smog as well as health problems."
Most important decision made
"I think the most important decisions made by the company has been to invest in the intellectual capital of the business in advance of the revenue stream of growing, but as a requirement to indeed develop that revenue stream. That is because we have a major market development challenge in front of us to go out and convince governments to make it not so difficult to incorporate proven technology that will improve the environment. We will work closely with major manufacturers around the world to understand and incorporate our technology into their engine production design and, further, work with governments and individual operating companies to see the benefits, evaluate them and ultimately incorporate our technology into their existing fleets. Around the world there are almost one billion engines in operation today and some of them are more than 30 years old, which means that we have a huge opportunity and significant challenge to show these people what we can do for their existing engines. That is really our 'low hanging fruit' in the sense that that is the revenue stream that could be generated first because the production engines take longer to get into the production cycle.
"Our investment has been heavily in the human infrastructure side to develop the market and continue to develop the product and also to put the physical resources in place to produce the product in anticipation of orders in the not too distant future."
(SYMBOL:(NASDAQ:TRBD )
Interview by John O'Hanlon
CT
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