---

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION** Washington, D.C. 20549

FORM 10-QSB

xQuarterly
  Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

 ̈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

TURBODYNE TECHNOLOGIES, INC.
  (Exact name of small business issuer as specified in its charter)

|NEVADA                                          | 95-4699061                       
|----------------------------------------------- | ---------------------------------
|(State or other jurisdiction of                 | (IRS Employer Identification No.)
|incorporation or organization)                  |                                  
|                                                |                                  
|6155 Carpinteria Avenue,                        |                                  
|Carpinteria, California                         | 93013                            
|(Address of principal executive offices)        | (Zip Code)                       
|                                                |                                  
|Issuer's telephone number, including area code: | (805) 684-4551                   

NOT APPLICABLE 
  (Former name, former address and former fiscal year end, if changed since last
  report)

Check whether the issuer (1) 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 issuer was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days xYes ̈No

State the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date: 158,340,822
  shares of common stock issued and outstanding as of November 10, 2004.

Transitional Small Business Disclosure Format (check one):
  Yes ̈  Nox

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PART I - FINANCIAL INFORMATION

ITEM 1.             FINANCIAL
  STATEMENTS.



2

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| | Turbodyne Technologies, Inc. and Subsidiaries
      Consolidated Financial Statements
      For the nine-month periods ended
      September 30, 2004 and 2003
      (Unaudited  Expressed in US Dollars)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-1

---

| | Turbodyne Technologies, Inc. and Subsidiaries
      Consolidated Financial Statements
      For the nine-month periods ended
      September 30, 2004 and 2003
      (Unaudited  Expressed in US Dollars)
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  |                                   | Contents
|--------------------------------- | --------------------------------- | --------
|Consolidated Financial Statements |                                  
|                                  |                                   |         
|                                  | Balance Sheets                    | F-3     
|                                  | Statements of Operations          | F-4     
|                                  | Statements of Capital Deficit     | F-5     
|                                  | Statements of Cash Flows          | F-6     
|                                  | Notes to the Financial Statements | F-7     

F-2

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Turbodyne Technologies, Inc. and SubsidiariesConsolidated Balance Sheets(Unaudited - Expressed in US Dollars)

|                                                               |   | September 30 |   |   | December 31  |  
|-------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                               |   | 2004         |   |   | 2003         |  
|                                                               |   |              |   |   |              |  
|Assets                                                         |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Cash                                                           | $ | 27,552       |   | $ | 2,145        |  
|Prepaid expenses and other current
      assets                |   | 93,955       |   |   | 28,840       |  
|                                                               |   |              |   |   |              |  
|Total current assets                                           |   | 121,507      |   |   | 30,985       |  
|                                                               |   |              |   |   |              |  
|Property and equipment, at cost, less accumulated depreciation |   | 138,652      |   |   | 110,867      |  
|Certificate of deposit (Note 4)                                |   | 315,000      |   |   | -            |  
|                                                               |   |              |   |   |              |  
|Total Assets                                                   | $ | 575,159      |   | $ | 141,852      |  
|                                                               |   |              |   |   |              |  
|Liabilities and Capital Deficit                                |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Liabilities                                                    |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Current portion of long-term debt
      (Note 3)               | $ | 6,360        |   | $ | 76,082       |  
|Accounts payable                                               |   | 2,003,501    |   |   | 3,791,191    |  
|Accrued liabilities (Note 2)                                   |   | 337,028      |   |   | 3,068,259    |  
|Provisions for lawsuit settlements                             |   | 6,370,398    |   |   | 7,019,439    |  
|Loans payable                                                  |   | 209,800      |   |   | 767,578      |  
|                                                               |   |              |   |   |              |  
|Total current liabilities                                      |   | 8,927,087    |   |   | 14,722,549   |  
|                                                               |   |              |   |   |              |  
|Long-term debt, less current maturities (Note 3)               |   | 28,584       |   |   | -            |  
|                                                               |   |              |   |   |              |  
|Deferred revenue                                               |   | 369,282      |   |   | 385,950      |  
|                                                               |   |              |   |   |              |  
|Total liabilities                                              |   | 9,324,953    |   |   | 15,108,499   |  
|                                                               |   |              |   |   |              |  
|Capital Deficit                                                |   |              |   |   |              |  
|Share Capital (Note 2)                                         |   |              |   |   |              |  
|Authorized                                                     |   |              |   |   |              |  
|1,000,000 preferred shares, par value $0.001                   |   |              |   |   |              |  
|1,000,000,000 (150,000,000  2003) common                      |   |              |   |   |              |  
|shares, par value $0.001                                       |   |              |   |   |              |  
|Issued                                                         |   |              |   |   |              |  
|87,175 preferred shares in 2004 (2003  97,175)                |   | 87           |   |   | 97           |  
|153,842,997 common shares in 2004 (2003 148,771,749)          |   | 153,843      |   |   | 148,772      |  
|Treasury stock, at cost (378,580
      shares)                 |   | (1,907,612   | ) |   | (1,907,612   | )
|Additional paid-in capital                                     |   | 120,179,941  |   |   | 117,233,800  |  
|Accumulated other comprehensive
      income -                 |   |              |   |   |              |  
|foreign
      exchange translation gain                        |   | 35,119       |   |   | 35,119       |  
|Accumulated deficit                                            |   | (127,211,172 | ) |   | (130,476,823 | )
|                                                               |   |              |   |   |              |  
|Total capital deficit                                          |   | (8,749,794   | ) |   | (14,966,647  | )
|                                                               |   |              |   |   |              |  
|Total Liabilities and Capital Deficit                          | $ | 575,159      |   | $ | 141,852      |  

The accompanying notes are an integral part of these consolidated
  financial statements.

F-3

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Turbodyne Technologies, Inc. and SubsidiariesConsolidated Statements of Operations(Unaudited  Expressed in US Dollars)

|                                               |   | Three-month   |   |   | Nine-month    |  
|---------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                               |   | periods ended |   |   | periods ended |  
|                                               |   | September 30  |   |   | September 30  |  
|                                               |   |               |   |   |               |  
|                                               |   | 2004          |   |   | 2003          |  
|                                               |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Revenue                                        |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Licensing fees                                 | $ | 5,556         |   | $ | -             |  
|                                               |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Expenses                                       |   |               |   |   |               |  
|Selling, general and administrative            |   | 571,400       |   |   | 353,140       |  
|Research and development                       |   | 486,640       |   |   | 121,472       |  
|Litigation expense                             |   | 353,586       |   |   | 202,430       |  
|Depreciation and amortization                  |   | 29,133        |   |   | 66,513        |  
|                                               |   |               |   |   |               |  
|Total
      expenses                           |   | 1,440,759     |   |   | 743,555       |  
|                                               |   |               |   |   |               |  
|Loss from operations                           |   | (1,435,203    | ) |   | (743,555      | )
|                                               |   |               |   |   |               |  
|Other income (expenses)                        |   |               |   |   |               |  
|Settlement of litigation (Note
      4)        |   | -             |   |   | -             |  
|Interest expense, net                          |   | (1,466        | ) |   | (4,920        | )
|Interest income                                |   | 5,372         |   |   | -             |  
|Gain on sale of assets                         |   | 7,049         |   |   | -             |  
|Gain on settlement of term debt
      (Note 3) |   | -             |   |   | -             |  
|                                               |   |               |   |   |               |  
|Net Income (loss) for the period               | $ | (1,424,248    | ) | $ | (748,475      | )
|                                               |   |               |   |   |               |  
|Income (loss) per common share                 |   |               |   |   |               |  
|Basic
      and diluted                        | $ | (0.01         | ) | $ | (0.01         | )
|                                               |   |               |   |   |               |  
|Weighted average shares used for basic         |   | 150,856,769   |   |   | 144,662,976   |  
|income (loss) per share                        |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Weighted average shares used for diluted       |   | 150,856,769   |   |   | 144,662,976   |  
|income (loss) per share                        |   |               |   |   |               |  

The accompanying notes are an integral part of these consolidated
  financial statements.

F-4

---

TurbodyneTechnologies,
  Inc. and Subsidiaries
  Consolidated Statements of Capital Deficit(UnauditedExpressedin USDollars)

|                                                        |                 |   |              |                |   |             |         |         |         |               |            |             |   | Additional  |         |   | Other  |   |              |   |   |             |  
|------------------------------------------------------- | --------------- | - | ------------ | -------------- | - | ----------- | ------- | ------- | ------- | ------------- | ---------- | ----------- | - | ----------- | ------- | - | ------ | - | ------------ | - | - | ----------- | -
|                                                        | Preferred Stock |   | Common Stock | Treasury Stock |   |             | Paid-in |         |         | Comprehensive |            | Accumulated |   |             | Capital |  
|                                                        | Shares          |   |              | Amount         |   | Shares      |         | Amount  | Shares  |               | Amount     |             |   | Capital     |         |   | Income |   | Deficit      |   |   | Deficit     |  
|                                                        |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|Balance, January 1, 2003                                | -               |   | $            | -              |   | 115,620,517 | $       | 115,621 | 378,580 | $             | (1,907,612 | )           | $ | 113,445,516 |         | $ | 35,119 | $ | (123,592,106 | ) | $ | (11,903,462 | )
|Issuance of Series X preferred shares                   |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|(Note 2)                                                | 122,175         |   |              | 122            |   | -           |         | -       | -       |               | -          |             |   | 1,613,378   |         |   | -      |   | -            |   |   | 1,613,500   |  
|Exercise of stock options                               | -               |   |              | -              |   | 10,294,000  |         | 10,294  | -       |               | -          |             |   | 567,026     |         |   | -      |   | -            |   |   | 577,320     |  
|Private placements of common stock                      | -               |   |              | -              |   | 12,511,820  |         | 12,512  | -       |               | -          |             |   | 654,158     |         |   | -      |   | -            |   |   | 666,670     |  
|Issuance of stock for services                          | -               |   |              | -              |   | 4,845,412   |         | 4,845   | -       |               | -          |             |   | 597,245     |         |   | -      |   | -            |   |   | 602,090     |  
|Issuance of stock for settlement of lawsuit             | -               |   |              | -              |   | 3,000,000   |         | 3,000   | -       |               | -          |             |   | 1,047,000   |         |   | -      |   | -            |   |   | 1,050,000   |  
|Conversion of preferred Series X shares                 | (25,000         | ) |              | (25            | ) | 2,500,000   |         | 2,500   | -       |               | -          |             |   | (2,475      | )       |   | -      |   | -            |   |   | -           |  
|Issuance of stock options to non-                       |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|employees for services                                  | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | 1,130,526   |         |   | -      |   | -            |   |   | 1,130,526   |  
|Liability for settlement of equity instruments          | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | (1,818,574  | )       |   | -      |   | -            |   |   | (1,818,574  | )
|Net loss for the year                                   | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | -           |         |   | -      |   | (6,884,717   | ) |   | (6,884,717  | )
|Balance, December 31, 2003                              | 97,175          |   |              | 97             |   | 148,771,749 |         | 148,772 | 378,580 |               | (1,907,612 | )           |   | 117,233,800 |         |   | 35,119 |   | (130,476,823 | ) |   | (14,966,647 | )
|Private placement of common stock (Note 2)              | -               |   |              | -              |   | 1,000,000   |         | 1,000   | -       |               | -          |             |   | 48,678      |         |   | -      |   | -            |   |   | 49,678      |  
|Liability for settlement of equity instruments          | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | 175,000     |         |   | -      |   | -            |   |   | 175,000     |  
|Reversal of liability for settlement of equity          |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|instruments from prior periods                          | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | 2,134,322   |         |   | -      |   | -            |   |   | 2,134,322   |  
|Exercise of stock options                               | -               |   |              | -              |   | 325,000     |         | 325     | -       |               | -          |             |   | 15,675      |         |   | -      |   | -            |   |   | 16,000      |  
|Issuance of stock for settlement of debt
      (Note 2) | -               |   |              | -              |   | 2,589,036   |         | 2,589   | -       |               | -          |             |   | 209,963     |         |   | -      |   | -            |   |   | 212,552     |  
|Issuance of stock for settlement of legal               |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|action (Note 2)                                         | -               |   |              | -              |   | 157,212     |         | 157     | -       |               | -          |             |   | 10,848      |         |   | -      |   | -            |   |   | 11,005      |  
|Issuance of stock options to non-                       |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|employees for services (Note 2)                         | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | 199,915     |         |   | -      |   | -            |   |   | 199,915     |  
|Issuance of stock options to employees                  | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | 152,730     |         |   | -      |   | -            |   |   | 152,730     |  
|Conversion of Preferred Series X shares                 |                 |   |              |                |   |             |         |         |         |               |            |             |   |             |         |   |        |   |              |   |   |             |  
|(Note 2)                                                | (10,000         | ) |              | (10            | ) | 1,000,000   |         | 1,000   | -       |               | -          |             |   | (990        | )       |   | -      |   | -            |   |   | -           |  
|Net income (loss) for the period                        | -               |   |              | -              |   | -           |         | -       | -       |               | -          |             |   | -           |         |   | -      |   | 3,265,651    |   |   | 3,265,651   |  
|Balance, September 30, 2004                             | 87,175          |   | $            | 87             |   | 153,842,997 | $       | 153,843 | 378,580 | $             | (1,907,612 | )           | $ | 120,179,941 |         | $ | 35,119 | $ | (127,211,172 | ) | $ | (8,749,794  | )




F-5

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Turbodyne Technologies, Inc. and SubsidiariesConsolidated Statements of Cash Flows(Unaudited  Expressed in US Dollars)

|For the nine-month periods ended
      September 30                            |   | 2004       |   |   | 2003       |  
|------------------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
|                                                                               |   |            |   |   |            |  
|                                                                               |   |            |   |   |            |  
|Cash provided by (used in)                                                     |   |            |   |   |            |  
|                                                                               |   |            |   |   |            |  
|Operating activities                                                           |   |            |   |   |            |  
|Net income (loss) for the period                                               | $ | 3,265,651  |   | $ | (4,599,410 | )
|Adjustments to reconcile net loss
      for the period to net cash             |   |            |   |   |            |  
|used in operating activities:                                                  |   |            |   |   |            |  
|Amortization
      of deferred licensing fees                                  |   | (16,668    | ) |   | (5,550     | )
|Depreciation
      and amortization                                            |   | 58,159     |   |   | 199,538    |  
|Gain on settlement
      of debt                                               |   | (43,360    | ) |   | -          |  
|Gain on sale
      of asset                                                    |   | (6,678     | ) |   | -          |  
|Recovery on
      lawsuit reserve from TST share sales (Note 4(a))             |   | (23,345    | ) |   | -          |  
|Stock option
      compensation                                                |   | 352,645    |   |   | 1,100,112  |  
|Stock issued
      for services                                                |   | -          |   |   | 597,936    |  
|Stock issued
      for settlement of lawsuit                                   |   | 11,005     |   |   | 1,050,000  |  
|Liability
      in connection with settlement of equity instrument             |   | (406,000   | ) |   | (253,994   | )
|Warrants to
      be issued (Note 2(e))                                        |   | 59,741     |   |   | -          |  
|Extension
      of warrants (Note 2(e))                                        |   | 122,635    |   |   | -          |  
|                                                                               |   |            |   |   |            |  
|(Increase) decrease in assets                                                  |   |            |   |   |            |  
|Prepaid
      expenses and other current assets                                |   | (65,115    | ) |   | 1,100      |  
|Increase (decrease) in liabilities                                             |   |            |   |   |            |  
|Accounts
      payable                                                         |   | (1,628,304 | ) |   | 384,418    |  
|Accrued
      liabilities and provisions for lawsuit settlements               |   | (774,303   | ) |   | (22,615    | )
|                                                                               |   |            |   |   |            |  
|                                                                               |   | 906,063    |   |   | (1,548,465 | )
|Financing activities                                                           |   |            |   |   |            |  
|Net proceeds from term debts                                                   |   | 34,944     |   |   | 7,500      |  
|Issuance of common stock and stock
      subscriptions                         |   | 16,000     |   |   | 891,948    |  
|Proceeds from (Repayment) of loans
      payable                               |   | (504,612   | ) |   | 273,981    |  
|Deferred licensing fees                                                        |   | -          |   |   | 250,000    |  
|                                                                               |   |            |   |   |            |  
|                                                                               |   | (453,668   | ) |   | 1,423,429  |  
|Investing activity                                                             |   |            |   |   |            |  
|Purchase of property and equipment                                             |   | (123,137   | ) |   | -          |  
|Sale of capital assets                                                         |   | 11,149     |   |   | -          |  
|Purchase of certificate of deposit                                             |   | (315,000   | ) |   | -          |  
|                                                                               |   |            |   |   |            |  
|                                                                               |   | (426,988   | ) |   | -          |  
|                                                                               |   |            |   |   |            |  
|Net increase (decrease) in cash                                                |   | 25,407     |   |   | (125,036   | )
|                                                                               |   |            |   |   |            |  
|Cash,beginning of period                                                       |   | 2,145      |   |   | 137,517    |  
|                                                                               |   |            |   |   |            |  
|Cash,end of period                                                             | $ | 27,552     |   | $ | 12,481     |  
|                                                                               |   |            |   |   |            |  
|                                                                               |   |            |   |   |            |  
|Supplementary disclosure of cash flow information                              |   |            |   |   |            |  
|Cash paid during the period                                                    |   |            |   |   |            |  
|Interest                                                                       | $ | 2,254      |   | $ | 4,920      |  
|Income
      taxes                                                             | $ | 7,200      |   | $ | -          |  
|                                                                               |   |            |   |   |            |  
|Supplementary disclosure of non-cash investing and financing
      activities  |   |            |   |   |            |  
|Accounts payable transferred to
      loans payable                            | $ | 159,386    |   | $ | -          |  
|Stock option compensation                                                      | $ | 352,645    |   | $ | 1,100,112  |  
|Stock issued for services                                                      | $ | -          |   | $ | 597,936    |  
|Stock issued for settlement of
      lawsuit (Note 2(b))                       | $ | 11,005     |   | $ | 1,050,000  |  
|Stock issued for settlement of
      loans payable (Note 2b)                   | $ | 212,552    |   | $ | -          |  
|Preferred stock issued on settlement
      of accrued liabilities              | $ | -          |   | $ | 1,613,500  |  
|Return of asset to settle term
      debt                                      | $ | 76,082     |   | $ | -          |  
|Reduction in accounts payable as
      partial settlement of licensing fees    | $ | -          |   | $ | 150,000    |  
|Liability in connection with settlement
      of equity instruments            | $ | 581,000    |   | $ | 1,392,897  |  
|Reversal
      of liability in connection with settlement of equity instrument | $ | 2,134,322  |   | $ | -          |  

The accompanying notes are an integral part of these consolidated
  financial statements.

F-6

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|1.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 

F-7

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|**1.**                           
|                                 
|                                 
|                                 
|2.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 

F-8

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|2.                               
|                                 
|                                 
|                                 
|                                 

| |                        | Non-employees |   | Employees |          | Total |          
| | ---------------------- | ------------- | - | --------- | -------- | ----- | ---------
| |                        |               |   |           |          |       |          
| |                        |               |   |           | Weighted |       |          
| |                        |               |   |           | Average  |       |          
| |                        |               |   |           | Exercise |       |          
| |                        | Options       |   |           | Price    |       | Options  
| |                        |               |   |           |          |       |          
| | Outstanding at         |               |   |           |          |       |          
| | beginning of period    | 2,131,666     |   | $         | 0.15     |       | 2,048,000
| |                        |               |   |           |          |       |          
| | Granted                | 1,525,000     |   | $         | 0.10     |       | 7,824,000
| | Exercised              | (325,000      | ) | $         | 0.05     |       | -        
| | Outstanding at end of  |               |   |           |          |       |          
| | period                 | 3,331,666     |   | $         | 0.13     |       | 9,872,000
| | Options exercisable at |               |   |           |          |       |          
| | end of period          | 3,331,666     |   | $         | 0.13     |       | 9,872,000
| | Weighted average fair  |               |   |           |          |       |          
| | value of options       |               |   |           |          |       |          
| | granted during the     |               |   |           |          |       |          
| | period                 | -             |   | $         | 0.13     |       | -        

| | 2004 Stock Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | On April 8, 2004, the Company established the 2004
        Nevada stock incentive plan (the "2004 Plan"). Under the 2004 Plan, the
        Company may grant common stock or incentive stock options to its directors,
        officers, employees and consultants for up to 15,000,000 shares. The maximum
        term of the 2004 Plan is ten years. The Board of Directors will determine
        the terms and matters relating to any awards under the 2004 Plan including
        the type of awards, the exercise price of the options and the number of
        common shares granted. The value of the shares of common stock used in
        determining the awards shall not be less than 85% of the fair market value
        of the common shares of the Company on the date of grant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Grant of Stock Options to Non-employees for Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company has recorded $199,915 (2003 - $1,100,112)
        of compensation expense relating to stock options issued to non-employees
        for services rendered during the nine-month period ended September 30,
        2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The per share weighted average fair value of stock
        options granted for the nine-month period ended September 30, 2004 was
        $0.13 (2003 - $0.08) on the date of grant using the Black-Scholes option-pricing
        model with the following weighted average assumptions in 2004: expected
        dividend yield Nil%; expected volatility of 135%; risk-free interest rate
        of 3.38% and expected life equal to 5 years.                                                                                                                                                                                                                                                                                                                                                   

F-9

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004 and
      2003
|---------------------------------
|                                 
|2.                               
|                                 
|                                 
|                                 
|                                 

| |                                                        |   | For the      |   |   | For the      |  
| | ------------------------------------------------------ | - | ------------ | - | - | ------------ | -
| |                                                        |   | nine-month   |   |   | nine-month   |  
| |                                                        |   | period ended |   |   | period ended |  
| |                                                        |   | September 30 |   |   | September 30 |  
| |                                                        |   | 2004         |   |   | 2003         |  
| |                                                        |   |              |   |   |              |  
| | Net income (loss), as reported                         | $ | 3,388,286    |   | $ | (4,599,410   | )
| | Add: Stock based employee compensation                 |   |              |   |   |              |  
| | expense included in
      reported net income (loss),  |   |              |   |   |              |  
| | net of related tax effects                             |   | 152,730      |   |   |              |  
| | Deduct: Stock-based compensation expense               |   |              |   |   |              |  
| | determined under fair-value based method               |   |              |   |   |              |  
| | for all awards not included
      in net income (loss) |   | (475,591     | ) |   | (85,240      | )
| |                                                        |   |              |   |   |              |  
| | Pro-forma net income (loss)                            | $ | 3,065,425    |   | $ | (4,684,650   | )
| |                                                        |   |              |   |   |              |  
| | Income (loss) per share:                               |   |              |   |   |              |  
| | Basic and diluted  as reported                        | $ | 0.02         |   | $ | (0.03        | )
| | Basic and diluted  pro-forma                          | $ | 0.02         |   | $ | (0.03        | )

| | The Company has recorded $152,730 of compensation
        expense relating to stock options issued to employees for services rendered
        during the period.                                                                                                                                                                                                                                                       
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The per share weighted average fair value of stock
        options granted to employees during 2004 was $0.06, calculated on the
        date of grant using the Black-Scholes option pricing model with the following
        weighted average assumptions in 2004: expected dividend yield Nil%; expected
        volatility of 135%; risk-free interest rate of 2.21%; and an expected
        life equal to 1 year.
| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Effective from the date of the option repricing,
        the Company regularly remeasures compensation expense for the options
        where there has been a substantive change and modification to such options.
        No compensation expense was recorded as a result of repricing of options
        in the prior years.                                                                                        

F-10

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004 and
      2003
|---------------------------------
|                                 
|2.                               
|                                 
|                                 
|                                 
|                                 
|                                 

| |                                   |            |  | Weighted | 
| | --------------------------------- | ---------- |  | -------- | 
| |                                   |            |  | Average  | 
| |                                   |            |  | Exercise | 
| |                                   | Warrants   |  | Price    | 
| |                                   |            |  |          | 
| | Outstanding at January 1, 2004    | 21,634,809 |  | $ 0.34   | 
| |                                   |            |  |          | 
| | Expired                           | 5,549,887  |  | $ 0.39   | 
| |                                   |            |  |          | 
| | Outstanding at September 30, 2004 | 16,084,922 |  | $ 0.31   | 

| | e) | Subsequent to September 30, 2004, in connection with financing completed
          during the period, the Company granted 1,000,000 warrants to an investor
          at $0.10 exercisable for a three-year term. The warrants were issued
          for services rendered to the Company during the nine-month period ended
          September 30, 2004, and were valued at $59,741 using the Black-Scholes
          option-pricing model with the following weighted average assumptions
          in 2004: expected dividend yield Nil%; expected volatility of 135%;
          risk-free interest rate of 2.80% and expected life equal to 3 years.
          The full amount of the value recorded for the warrants was included
          in accrued liabilities at September 30, 2004.
        Subsequent to September 30, 2004, the Company extended the term for
          3,564,273 warrants outstanding by one year previously expiring as follows:
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Exercise Price | Number    | Expiration Date     | 
| | -------------- | --------- | ------------------- | 
| | $ 0.12         | 1,100,000 | April 11, 2006      | 
| | $ 0.22         | 464,273   | July 2, 2005        | 
| | $ 0.22         | 2,000,000 | June 24,
      2005 | 
| |                | 3,564,273 |                     | 

| | The warrants were extended for a financing fee provided
        to the Company in prior periods and were valued at $122,635 using the
        Black-Scholes option-pricing model with the following assumptions in 2004:
        expected dividend yield Nil%; expected volatility of 117%; risk-free interest
        rate of 2.18% and an expected life of one year. The full amount of the
        value was recorded for the warrants was included in accrued liabilities
        as at September 30, 2004.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September
        30, 2004 and 2003
|-----------------------------------
|                                   
|3.                                 
|                                   
|                                   
|                                   
|                                   
|                                   
|                                   

| | 2005 | $ | 6,360  | 
| | ---- | - | ------ | 
| | 2006 |   | 6,796  | 
| | 2007 |   | 7,261  | 
| | 2008 |   | 7,758  | 
| | 2009 |   | 6,769  | 
| |      |   |        | 
| |      | $ | 34,944 | 

|4. | Commitments and Contingencies                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                           
|   | The Company is party to
        various legal claims and lawsuits that have arisen in the normal course
        of business. Other, than as discussed below, there have been no material
        changes in the status of these matters since the issuance of the most
        recent audited annual financial statements.
|   |                                                                                                                                                                                                                                                                                                                           
|   | a)                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                           

F-12

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|4.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 

F-13

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|4.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 

F-14

---

Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)

|September 30, 2004
      and 2003
|---------------------------------
|                                 
|4.                               
|                                 
|                                 
|                                 
|                                 
|                                 
|                                 

F-15

---

ITEM 2.             MANAGEMENT'S
  DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB contains statements that
  constitute "forward-looking statements". The words "expect," "estimate," "anticipate,"
  "project," "predict," "believe" and similar expressions and variations thereof
  are intended to identify forward-looking statements. Such statements appear
  in a number of places in this report and include statements regarding our intent,
  belief or current expectations and that of our officers or directors with respect
  to, among other things, trends affecting our financial condition and results
  of operations and our business and growth strategies. You are cautioned not
  to put undue reliance on these forward-looking statements. These forward-looking
  statements are not guarantees of future performance and involve risks and uncertainties.
  Actual results may differ materially from those projected in this Quarterly
  Report on Form 10-QSB. You should carefully review the cautionary statements
  and risk factors contained in this and other documents that we file from time
  to time with the Securities and Exchange Commission (the "SEC").

As used in this Quarterly Report on Form 10-QSB, 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-QSB are in U.S. dollars unless otherwise stated.

OVERVIEW

We are an engineering company engaged in the design and development
  of air charging technology that enhances the performance of internal combustion
  engines. Our technology is based on DC/AC, high-speed, high-powered, electronically
  commutated electric motors and high performance power electronics.

Our business strategy is to license our technology to original
  equipment manufacturers ("OEM's") in the automotive industry, allowing them
  to incorporate our technology into their own product lines in exchange for royalties
  or other similar licensing fees. We have also developed products suitable for
  direct sale to the retrofit and performance enhancement market segments.

The focus of our business plan is presently to create near-term
  cash flow through aftermarket sales of two improved versions of our Turbopac
  product. This is intended to provide us with the ability to pursue long-term
  business development activities and licensing agreements with OEM's and automotive
  suppliers, while reducing our need for further equity financing. Our ability
  to complete commercialization of our products remains subject to our ability
  to obtain additional financing. See "Plan of Operations", below.

PLAN OF OPERATIONS

Our plan of operations over the next twelve months is to undertake
  the following:

| | 1. | We resumed our business operations on February 2,
        2004, following our entry into the settlement agreement with Honeywell
        International Inc. ("Honeywell"). As part of the settlement, we agreed
        to terminate our joint development agreement and our license agreement
        relating to our Electrically Assisted Turbocharger and Electrically Driven
        Compressor technologies and products. In exchange, we have received from
        Honeywell $4,770,900 which represents the $8,500,000 settlement net of
        legal fees and creditor payments. We continue to use these net proceeds
        to fund the re-structuring of our business and to settle other outstanding
        debts.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. | We plan to continue research and development of
        our Turbopac products with the objective of completing the necessary
        development work for commercialization of this product for the medium-duty
        truck and bus market. Over the next three months, we plan to spend approximately
        $20,000 per month in continued research and development in this area.
        This amount includes engineering payroll and purchasing and 60% of our
        overall monthly overhead.                                                                                                                                                                                                                           

3

---

| | 3. | In October, 2004 we completed development of production
        ready Turbopac units for 1 to 3 litre turbocharged diesel and gasoline
        engines for aftermarket sales. We unveiled our aftermarket Turbopac
        products at the SEMA (Special Equipment Manufacturers Association) convention
        in Las Vegas on November 2, 2004. We intend to launch a new "E" Commerce
        website for sales of the Turbopac products during the next three
        months.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 4. | We plan to pursue negotiations with OEM's in the
        automobile industry for the incorporation of our Turbopac products
        into their product lines. Over the next twelve months, we plan to spend
        approximately $5,000 per month in product marketing costs.                                                                                                                                                                                                      
|
| | 5. | We plan to pursue resolution of the outstanding
        litigation against us, including resolution of the claims summarized in
        Item 1 of Part II of this Quarterly Report on Form 10-QSB. We plan to
        spend approximately $75,000 in litigation expenses over the next twelve
        months.                                                                                                                                                                        
|
| | 6. | We anticipate spending approximately $40,000 per
        month in administrative expenses over the next twelve months. We will
        maintain our head office and staff in our Carpinteria, California office
        until January 31, 2005, when our lease ends. We then plan on renegotiating
        a new lease for less space or moving to a smaller location.                                                                                                               

We had cash and cash equivalents of $27,552 and a working
  capital deficit of $8,805,580 as at September 30, 2004. Our plan of operations
  calls for us to spend approximately $135,000per month over the next
  twelve months. Accordingly, we do not have sufficient working capital to continue
  operating without additional working capital. Our stockholders approved an increase
  in our authorized capital to one billion shares of common stock at our 2004
  annual meeting. As such, we are actively pursuing additional sales of our common
  stock and share purchase warrants to raise any additional financing necessary
  for us to continue our operations.

We are actively pursuing independent financing. We believe
  that conventional debt financing is not an option at this time due to risks
  associated with the current stage of our products, our lack of revenues and
  the litigation to which we are party. Based on these risks, there is no assurance
  that we will be able to carry out our plan of operations. If we achieve less
  financing than required to pursue our stated plan of operations, we will be
  forced to reduce our research and development activities and our administrative
  overhead costs.

RESULTS OF OPERATIONS

Third Quarter and Nine Months Summary

|                                  |                                        |            |                                     
|--------------------------------- | -------------------------------------- | ---------- | ------------------------------------
|                                  | Third Quarter Ended September
      30 |            | Nine Months Ended September
      30
|                                  |                                        |            |                                     
|                                  |                                        |            | Percentage                          
|                                  | 2004                                   | 2003       | Increase /                          
|                                  |                                        |            | (Decrease)                          
|                                  |                                        |            |                                     
|Total Income                      | $5,556                                 | Nil        | n/a                                 
|                                  |                                        |            |                                     
|Operating Expenses                | ($1,440,759)                           | ($743,555) | 94%                                 
|                                  |                                        |            |                                     
|Net Income (Loss) from Operations | ($1,435,203)                           | ($743,555) | 93%                                 
|                                  |                                        |            |                                     
|Total Net Income (Loss)           | ($1,424,248)                           | ($748,475) | 90%                                 

The increase in the net loss for the third quarter ended September
  30, 2004 is primarily due to the suspension of our operations from the third
  quarter of 2003 to January 31, 2004. The increase in our net income for the
  nine months ended September 30, 2004 as compared to 2003 was primarily due to
  the proceeds we received

4

---

pursuant to our settlement with Honeywell. Our continued net
  losses from operations reflect our continued operating expenses and our inability
  to generate revenues.

|            |                                        |      |                                     
|----------- | -------------------------------------- | ---- | ------------------------------------
|            | Third Quarter Ended September
      30 |      | Nine Months Ended September
      30
|            |                                        |      | Percentage                          
|            | 2004                                   | 2003 | Increase /                          
|            |                                        |      | (Decrease)                          
|License Fee | $5,556                                 | Nil  | n/a                                 

Our current revenues reflect the fact that our Turbopac
  products were in the development stage. During 2004, we anticipate completing
  additional sales of prototypes designed and manufactured pursuant to existing
  development agreements. These sales will not be significant in relation to our
  overall operating costs. We intend to earn revenues during fiscal 2004 through
  the licensing of our technology. We believe that we will not be able to generate
  any significant revenues from the licensing of Turbopac until we are successful
  in entering into a license and manufacturing arrangement with an automotive
  OEM. We anticipate that we will be able to generate sales of our Turbopac
  product in the aftermarket arena in 2004.

Costs of Sales

We did not have any costs of sales during the nine months
  ended September 30, 2004 and September 30, 2003 due to the fact that we had
  no sales during this period. We did not engage in any manufacturing activity
  during the nine months ended September 30, 2004 or the nine months ended September
  30, 2003. We anticipate that we will not undertake any manufacturing activities
  during 2004 other than manufacturing of prototypes for evaluation and demonstration
  purposes.

Operating Expenses

The primary components of our operating expenses are outlined
  in the table below:

|                        |                                        |         |                                     
|----------------------- | -------------------------------------- | ------- | ------------------------------------
|                        | Third Quarter Ended September
      30 |         | Nine Months Ended September
      30
|                        |                                        |         | Percentage                          
|                        | 2004                                   | 2003    | Increase /                          
|                        |                                        |         | (Decrease)                          
|Selling, General and    | 571,400                                | 353,140 | 62%                                 
|Administrative Expenses |                                        |         |                                     
|                        |                                        |         |                                     
|Research and            | 486,640                                | 121,472 | 301%                                
|Development Expenses    |                                        |         |                                     
|                        |                                        |         |                                     
|Litigation Expense      | 353,585                                | 202,430 | 75%                                 

Selling, General and Administrative Expenses

The increase in the selling, general and administrative expenses
  for the third quarter ended September 30, 2004 is primarily due to the suspension
  of our operations from the third quarter of 2003 to January 31, 2004. The decrease
  in our selling, general and administrative expenses for the nine months ended
  September 30, 2004 was attributable to: (i) the suspension of our operations
  from the third quarter of 2003 to January 31, 2004, (ii) the streamlining of
  our operations, (iii) reductions in our staff, and (iv) adjustments to the recorded
  liability for the authorized capital deficiency discussed below under "Liabilities".
  General and administrative costs included expenses associated with our Carpinteria,
  California office, management compensation, administrative staff and overhead.
  Selling expenses were minimal and reflected the fact that our products are not
  being commercially sold at present.

5

---

Research and Development Expenses

The increase in research and development costs for the three
  months ended September 30, 2004 was primarily due to the suspension of our operations
  from the third quarter of 2003 to January 31, 2004. The decrease in research
  and development costs for the nine months ending September 30, 2004 was primarily
  due to the streamlining of our operations and reductions in our staff. 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
  the three months ended September 30, 2004 are associated with the development
  of our Turbopac product.

Litigation Expenses

We recorded in non-operating expenses, a recovery related
  to litigation in the amount of $6,375,000 for the three months ended March 31,
  2004. The recovery was related to the Honeywell settlement during our first
  quarter in 2004. Honeywell agreed to pay us the aggregate amount of $8,500,000
  in full settlement of our claims against Honeywell subject to certain adjustments
  for legal expenses and $911,000 owed to certain of our creditors and lien holders.
  We have received $4,770,940 net of legal fees and creditor liens from Honeywell.
  Our litigation expenses are attributable to our involvement in the legal proceedings
  described in Item 3 of Part I of our Annual Report on Form 10-KSB filed with
  the SEC on May 17, 2004. The most significant component of our litigation expense
  was legal expenses attributable to our settlement with Honeywell. Litigation
  expenses during the balance of 2004 are anticipated to consist primarily of
  legal expenses relating to the proceedings involving our former subsidiary,
  Pacific Baja.

Stock Based Compensation

Stock based compensation for the nine months ended September
  30, 2004 decreased to $352,645 from $1,100,112 for the nine months ended September
  30, 2003, representing a decrease of $913,512 or approximately 83%. We did not
  significantly rely on stock based compensation during the nine month period
  ended September 30, 2004 due to our receipt of funds from our settlement with
  Honeywell.

The method by which we account for stock based compensation
  is discussed below under "Critical Accounting Policies".

FINANCIAL CONDITION

|                        |                       |                      | Percentage           
|----------------------- | --------------------- | -------------------- | ---------------------
|                        | At September 30, 2004 | At December 31, 2003 | Increase / (Decrease)
|Current Assets          | $121,507              | $30,985              | 292%                 
|Current Liabilities     | ($8,927,087)          | ($14,722,549)        | (39%)                
|Working Capital Deficit | ($8,805,580)          | ($14,691,564)        | (40%)                

We had cash and cash equivalents of $27,552 as at September
  30, 2004, compared with cash of $2,145 as at December 31, 2003. The cash and
  cash equivalents decreased in the three months ended September 30, 2004 due
  to a $315,000 lien against certain of our bank accounts by a former officer.
  This is discussed below under "Legal Proceedings". The reduction to our working
  capital deficit was primarily attributable to an increase in cash arising from
  the settlement of our claims against Honeywell, and a reduction in accounts
  payable, accrued liabilities, provisions for lawsuit settlements and loans payable
  as discussed below.

6

---

|                       |                       |                      | Percentage           
|---------------------- | --------------------- | -------------------- | ---------------------
|                       | At September 30, 2004 | At December 31, 2003 | Increase / (Decrease)
|Provisions for Lawsuit | $6,370,398            | $7,019,439           | (9%)                 
|Settlements            |                       |                      |                      
|Accounts Payable       | $2,003,501            | $3,791,259           | (47%)                
|Accrued Liabilities    | $337,028              | $3,068,259           | (89%)                
|Short-Term Loans       | $209,800              | $767,578             | (73%)                

The decrease in accrued liabilities is primarily from the
  reversal of the liability for potentially diluted common shares. Prior to the
  annual shareholders meeting held on September 30, 2004, our potentially diluted
  common shares exceeded our authorized share capital and a $2,134,322 accrual
  was provided to account for potential share issues that could not previously
  have been settled due to the limited amount of authorized share capital. At
  our annual meeting the shareholders voted to increase our authorized capital
  to one billion shares of common stock. As a result, potentially diluted common
  shares do not presently exceed authorized capital and the corresponding liability
  has been reversed.

We continue to negotiate with our creditors for the payment
  of our accounts payable and accrued liabilities. Payment of these liabilities
  is contingent on new funding being received that would enable us to make payments
  to the creditors. Our ability to continue our operations is also conditional
  upon the forbearance of our creditors.

Included in short-term loans at September 30, 2004 are unsecured,
  non-interest bearing advances of $209,800 that we anticipate will be converted
  into shares of our common stock and share purchase warrants.

Cash Flows

|                                              | Nine Months
      Ended September 30
|--------------------------------------------- | ------------------------------------
|                                              | 2004                                
|Net Cash from (used in) Operating Activities  | $906,063                            
|Net Cash from (used in) Investing Activities  | ($426,988)                          
|Net Cash from (used in) Financing Activities  | ($453,668)                          
|Net Increase (decrease) in Cash During Period | $25,407                             

The increase in cash from operating activities was due to the
  litigation recovery from settlement of the Honeywell claims.

The increase in cash used in investment activities is primarily
  as a result of the purchase of $123,137 in new equipment for the development
  and demonstration of prototypes. In prior years, we have financed our business
  primarily through private placement sales of our common stock, exercises of
  stock options, short term loans, conversion of accrued liabilities into stock
  and through increases in our accrued liabilities and accounts payable.

Financing Requirements

We are continuing with a restructuring program that began
  in 1999 in order to reduce our working capital requirements. This restructuring
  program has included the reduction of debts, settlement of lawsuits, closing
  offices, efforts to sublet unused space at our headquarters, staff reduction
  and staff attrition, disposal of unnecessary assets and overall attempts at
  reducing operating costs. In addition we focused our resources on research and
  development of our products incorporating our proprietary technology, rather
  than manufacture of our developed products.

7

---

We will require further financing to continue our business
  operations past September 30, 2004. We anticipate that any future financing
  will be achieved by sales of additional shares of our common stock or independent
  financing. Sales of additional shares of our common stock will result in significant
  dilution to our current stockholders.

We anticipate that we will continue to incur losses until
  such time as the revenues we are able to generate from licensing our products
  exceed our increased operating expenses. We base this, in part, on the expectation
  that we will incur increased operating expenses in completing our stated plan
  of operations and there is no assurance that we will generate revenues that
  exceed these expenses.

Our consolidated interim financial statements included with
  this Quarterly Report on Form 10-QSB have been prepared assuming that we will
  continue as a going concern. We have suffered net losses in recent periods resulting
  in an accumulated deficit of $127,211,172 at September 30, 2004. We have used
  cash in our operating activities in recent periods, have disposed of our most
  significant subsidiary through bankruptcy, and are subject to lawsuits brought
  against us by shareholders and other parties. Based on our projected cash flows
  for the ensuing year, we will be required to seek additional equity or debt
  financing in order to continue our present operations, irrespective of the amounts
  paid or to be paid, if any, in connection with the aforementioned lawsuits.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in
  accordance with accounting principles generally accepted in the United States
  of America. As such, some accounting policies have a significant impact on the
  amount reported in these financial statements. A summary of those significant
  accounting policies can be found in the Summary of Significant Accounting Policies
  in our consolidated audited financial statements included in Note 1 to our Annual
  Report on Form 10-KSB for the year ended December 31, 2003, as filed with the
  SEC on May 17, 2004. Note that our preparation of this Quarterly Report on Form
  10-QSB requires us to make estimates and assumptions that affect the reported
  amount of assets and liabilities, disclosure of contingent assets and liabilities
  at the date of our financial statements, and the reported amounts of revenue
  and expenses during the reporting period. There can be no assurance that actual
  results will not differ from those estimates. We have identified certain accounting
  policies, described below, that are the most important to the portrayal of our
  current financial condition and results of operations.

Stock Based Compensation

We account for our employee stock-based compensation plans
  in accordance with APB Opinion No. 25 (APB No. 25) "Accounting for Stock Issued
  to Employees" and Financial Accounting Standards Board Interpretation No.44
  "Accounting for Certain Transactions Involving Stock Compensation--an Interpretation
  of APB Opinion No. 25", and comply with the disclosure provisions of Statement
  of Financial Accounting Standards Board ("SFAS") No. 123 (SFAS No. 123) "Accounting
  for Stock-Based Compensation". Accordingly, no compensation cost is recognized
  for any of our fixed stock options granted to employees when the exercise price
  of each option equals or exceeds the fair value of the underlying common stock
  as of the grant date for each stock option. Changes in the terms of stock option
  grants, such as changes in the exercise price, result in variable accounting
  in accordance with FIN No. 44. Accordingly, compensation expense is measured
  in accordance with APB No. 25 and recognized over the vesting period. If the
  modified grant is fully vested, any additional compensation costs are recognized
  immediately. Under variable accounting, changes in the underlying price of our
  stock may have a significant impact to earnings. A rise in the stock price would
  be treated as additional compensation expense and a decrease in the stock price
  would result in a reduction of reported compensation expense. We account for
  equity instruments issued to non-employees in accordance with the provisions
  of SFAS No. 123.

Revenue Recognition

Prior to the suspension of our operations, we recognized sales
  revenue upon shipment of product. We recognize license and royalty fees over
  the term of the license or royalty agreement. The proceeds from the

8

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sale of prototypes are recognized, upon shipment of the prototype,
  as a reduction of the research and development expense.

Research and Development

Research and development costs related to present and future
  products are charged to operations in the year incurred.

NEW ACCOUNTING PRONOUNCEMENTS

There are no new accounting pronouncements that impact us.

ITEM 3.            
  CONTROLS AND PROCEDURES.

|(A) | Evaluation Of Disclosure Controls And Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | As of the end of the period covered by this report,
        we carried out an evaluation, under the supervision and with the participation
        of our Principal Executive Officer and Principal Financial Officer, of
        the effectiveness of the design and operation of our disclosure controls
        and procedures. Our disclosure controls and procedures are designed to
        provide a reasonable level of assurance of achieving our disclosure control
        objectives. Our Principal Executive Officer and Principal Accounting Officer
        have concluded that our disclosure controls and procedures are, in fact,
        effective at this reasonable assurance level as of the period covered.
|   
|(B) | Changes In Internal Controls Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    | In connection with the evaluation of our internal
        controls during our last fiscal quarter, our Principal Executive Officer
        and Principal Financial Officer have determined that there are no changes
        to our internal controls over financial reporting that has materially
        affected, or is reasonably likely to materially effect, our internal controls
        over financial reporting.                                                                                                                                                                                                                                                                                                        

9

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PART II - OTHER INFORMATION

ITEM 1.             LEGAL
  PROCEEDINGS.

Hofbauer Action

On May 20, 2004, an action entitled Hofbauer vs. Turbodyne
  Technologies, Inc., et al. (Case No. 1157661) (the "Hofbauer Action") was filed
  with the Santa Barbara Superior Court (the "Court"). The plaintiff in the Hofbauer
  Action, Peter Hofbauer, is a former officer of Turbodyne. Mr. Hofbauer alleged
  in his complaint that we failed to pay him the sum of $369,265.88 pursuant to
  the terms of a purported settlement agreement between Mr. Hofbauer and Turbodyne
  dated May 17, 2002, allegedly made for the purpose of settling amounts owed
  to Mr. Hofbauer for certain services provided to us by Mr. Hofbauer. On August
  3, 2004, pursuant to a writ of attachment, Mr. Hofbauer attached certain of
  our bank accounts in the amount of $315,000 (the "Attached Funds").

We entered into a stipulation with Mr. Hofbauer to resolve
  and conclude the Hofbauer Action. The stipulation was filed with the Court on
  October 27, 2004. Pursuant to the terms of the court ordered stipulation:

we agreed to transfer 4,000,000 unrestricted shares (the "Shares") of
      our common stock to Mr. Hofbauer.
    Mr. Hofbauer agreed to: (i) release $50,000 of the Attached Funds upon
      receipt of the Shares; (ii) sell the Shares through a publicly licensed
      broker at a rate of not more than 400,000 shares per week for no less than
      $0.04 per share until he receives net proceeds of $100,000, and at a rate
      of 200,000 shares per week for no less than $0.04 thereafter; (iii) release
      $25,000 of the Attached Funds upon realizing $50,000 from the sale of the
      Shares, and another $25,000 of the Attached Funds for each further $25,000
      in net proceeds realized by Mr. Hofbauer on the sale of the Shares; (iv)
      continue selling Shares until he receives $296,088.71 plus interest of 10%
      per annum from January 15, 2004 (the "Claim Amount");
    if all Shares have been sold and the net proceeds do not fully satisfy
      the Claim Amount, we agreed to issue blocks of 500,000 additional shares
      to be sold by Mr. Hofbauer until his claim is fully satisfied; and
    if at the end of six months from the date of the stipulation, the Claim
      Amount has not been fully satisfied Mr. Hofbauer has the option of: (i)
      releasing the Attached Funds to us and keep and sell without restriction
      the unsold Shares, or (ii) satisfy the remaining balance from the Attached
      Funds.


Kramer Action

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 Landgericht Frankfurt court (the "German Court") in September, 2004.
  The Plaintiff claims damages of Euro 326,798 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 Turbdodyne
  GmbH. We vigorously dispute this claim and have retained German counsel to defend
  it and seek its dismissal.

We are also party to the legal proceedings described in our
  Annual Report on Form 10-KSB for the year ended December 31, 2003, as filed
  with the SEC on May 17, 2004. The Annual Report on Form 10-KSB

10

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includes disclosure of material developments to legal proceedings
  during the quarter ended March 31, 2004. The presence of lawsuits is one of
  the factors cited by our auditors as giving rise to substantial doubt as to
  our ability to continue as a going concern. Accordingly, readers are encouraged
  to review the full disclosure regarding these legal proceedings, as disclosed
  in Item 3 of that Annual Report, together with this disclosure.

ITEM 2.             UNREGISTERED
  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the three months ended September 30, 2004, we completed
  the sale of the following securities that were not registered pursuant to the
  Securities Act:

On July 16, 2004, we completed the issuance of 1,000,000 shares
  of our common stock pursuant to the conversion of 10,000 shares of our Series
  X Preferred Stock. The issuance was completed pursuant to Section 4(2) of the
  Securities Act on the basis that it did not involve a public offering, the recipient
  took the shares for investment purposes and not for resale and we took appropriate
  measures to restrict transfer. No underwriters or agents were involved in the
  issuance and no underwriting discounts or commissions were paid by us in connection
  therewith.

On August 17, 2004, we issued 542,909 restricted shares of
  our common stock at a price of $0.09 per share to Mr. Kenneth Fitzpatrick in
  settlement of $48,862 owed to Mr. Fitzpatrick. The issuance was completed pursuant
  to Rule 506 of Regulation D of the Securities Act. All securities issued were
  endorsed with a restrictive legend confirming that the securities cannot be
  resold without registration under the Securities Act or an applicable exemption
  from the registration requirements of the Securities Act. No commissions or
  fees were paid in connection with the transaction.

On August 31, 2004, we completed the issuance of 2,046,127
  restricted shares of our common stock at a price of $0.08 per share to Mr. John
  King in payment of a $163,690 Note Payable. The issuance was completed pursuant
  to Rule 506 of Regulation D of the Securities Act. All securities issued were
  endorsed with a restrictive legend confirming that the securities cannot be
  resold without registration under the Securities Act or an applicable exemption
  from the registration requirements of the Securities Act. No commissions or
  fees were paid in connection with the transaction.

We completed the issuance of: (i) 1,000,000 shares of our
  common stock at a price of $0.495 per share on September 17, 2004, and (ii)
  1,000,000 warrants to purchase shares of our common stock at an exercise price
  of $0.10 per share on October 19, 2004, to an accredited investor. The shares
  and warrants were issued as part of a private offering that was completed in
  July, 2003. The securities subscribed for by the accredited investor remained
  unissued due to our insufficient authorized capital at the time. The issuance
  was completed pursuant to Rule 506 of Regulation D of the Securities Act. All
  securities issued were endorsed with a restrictive legend confirming that the
  securities cannot be resold without registration under the Securities Act or
  an applicable exemption from the registration requirements of the Securities
  Act. No commissions or fees were paid in connection with the offering.

In October, 2004, we completed the issuance of 179,670 shares
  of our common stock to Mr. Charles Caverno pursuant to a court ordered settlement.
  The issuance was completed pursuant to Section 3(a)(10) of the Securities Act.

On November 6, 2004, we completed the issuance of 4,000,000
  unrestricted shares of our common stock to Mr. Peter Hofbauer pursuant to a
  court ordered settlement. The issuance was completed pursuant to Section 3(a)(10)
  of the Securities Act.

ITEM 3.             DEFAULTS
  UPON SENIOR SECURITIES.

None.

ITEM 4.             SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

11

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ITEM 5.             OTHER
  INFORMATION.

Appointment of Secretary

On November 9, 2004, Marsha Chandler resigned as our secretary
  and was replaced by Debi Kokinos. Ms. Kokinos is a licensed California certified
  public accountant and has provided accounting services to us since July, 2003.

Settlement of Hofbauer Action

We entered into a stipulation with Mr. Hofbauer to resolve
  and conclude the Hofbauer Action. The stipulation was filed with the Court on
  October 27, 2004. Pursuant to the terms of the court ordered stipulation:

we agreed to transfer 4,000,000 unrestricted shares of our common stock
      to Mr. Hofbauer.Mr. Hofbauer agreed to: (i) release $50,000 of the Attached Funds upon
      receipt of the Shares; (ii) sell the Shares through a publicly licensed
      broker at a rate of not more than 400,000 shares per week for no less than
      $0.04 per share until he receives net proceeds of $100,000, and at a rate
      of 200,000 shares per week for no less than $0.04 thereafter; (iii) release
      $25,000 of the Attached Funds upon realizing $50,000 from the sale of the
      Shares, and another $25,000 of the Attached Funds for each further $25,000
      in net proceeds realized by Mr. Hofbauer on the sale of the Shares; (iv)
      continue selling Shares until he receives $296,088.71 plus interest of 10%
      per annum from January 15, 2004;
    if all Shares have been sold and the net proceeds do not fully satisfy
      the Claim Amount, we agreed to issue blocks of 500,000 additional shares
      to be sold by Mr. Hofbauer until his claim is fully satisfied;and
    if at the end of six months from the date of the stipulation, the Claim
      Amount has not been fully satisfied Mr. Hofbauer has the option of: (i)
      releasing the Attached Funds to us and keep and sell without restriction
      the unsold Shares, or (ii) satisfy the remaining balance from the Attached
      Funds.


See "Item 1. Legal Proceedings", above.

12

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ITEM 6.             EXHIBITS.

|Exhibit |  |                                                                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                        
|3.1     |  | Restated Articles of Incorporation
        of Turbodyne Technologies Inc. (the "Registrant").(1)                                                                                                       
|        |  |                                                                                                                                                                                                        
|3.2     |  | Amended Bylaws of the Registrant.(1)                                                                                                                                                                   
|        |  |                                                                                                                                                                                                        
|3.3     |  | Certificate of Amendment
        to Articles of Incorporation, as filed by the Registrant with the Nevada
        Secretary  of State.(7)                                                              
|        |  |                                                                                                                                                                                                        
|4.1     |  | Certificate of Merger, as
        filed by the Registrant with the Delaware Secretary of State.(1)                                                                                                     
|        |  |                                                                                                                                                                                                        
|4.2     |  | Certificate of Merger, as
        filed by the Registrant with the Nevada Secretary of State. (2)                                                                                                      
|        |  |                                                                                                                                                                                                        
|4.3     |  | Certificate of Designation
        creating Series X Preferred Stock, as filed by the Registrant with the
        Nevada  Secretary of State. (4)                                                      
|        |  |                                                                                                                                                                                                        
|4.4     |  | Promissory
        Note between Turbodyne Sytems, Inc. and John King dated February 23, 2004.                                                                                                          
|        |  |                                                                                                                                                                                                        
|10.1    |  | Sub-Lease between Turbodyne
        Systems, Inc. and John E. King and Carole D. King dated July 1, 2001.(3)                                                                                           
|        |  |                                                                                                                                                                                                        
|10.2    |  | Exclusive License Agreement
        between the Registrant, Turbodyne Systems, Inc. and David St. James  dated
        October 15, 2001. (3)                                                           
|        |  |                                                                                                                                                                                                        
|10.3    |  | Licensing and Joint Development
        Agreement Between the Registrant and Ishikawajima-Harima Heavy
      Industries Co., Ltd.(1)                                                                   
|        |  |                                                                                                                                                                                                        
|10.4    |  | Settlement Agreement dated
        January 29, 2003 between the Registrant, Turbodyne Systems Inc., Leon
        E.  Nowek and L.N. Family Holdings Inc. (4)                                           
|        |  |                                                                                                                                                                                                        
|10.5    |  | Settlement Agreement dated
        January 29, 2003 between the Registrant, Turbodyne Systems Inc., Edward
         M. Halimi and March Technologies Inc. (4)                                          
|        |  |                                                                                                                                                                                                        
|10.6    |  | Settlement Agreement dated
        effective January 24, 2004 among the Registrant, Turbodyne Systems, Inc.
         and Honeywell International Inc. (5)                                              
|        |  |                                                                                                                                                                                                        
|10.7    |  | Employment Agreement dated
        effective February 1, 2004 between the Registrant and Marsha Chandler.(6)                                                                                           
|        |  |                                                                                                                                                                                                        
|10.8    |  | Employment Agreement dated
        effective February 1, 2004 between the Registrant and Andrew Martyn- Smith.(6)                                                                                      
|        |  |                                                                                                                                                                                                        
|10.9    |  | Employment Agreement dated
        effective February 1, 2004 between the Registrant and David T. Willett.
        (6)                                                                                 
|        |  |                                                                                                                                                                                                        
|10.10   |  | 2004 Stock Incentive Plan.(6)                                                                                                                                                                          
|        |  |                                                                                                                                                                                                        
|10.11   |  | Consulting
        Agreement dated October 4, 2004 between the Registrant and Marsha Chandler.                                                                                                         
|        |  |                                                                                                                                                                                                        
|10.12   |  | Stipulation
        and Settlement Order dated October 27, 2004 between the Registrant and
        Peter Hofbauer.                                                                                     
|        |  |                                                                                                                                                                                                        
|10.13   |  | Settlement
        and Release Agreement dated September 14, 2004 among the Registrant and
        John King.                                                                                          
|        |  |                                                                                                                                                                                                        
|14.1    |  | Code of Ethics. (5)                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                        
|21.1    |  | List of Subsidiaries. (5)                                                                                                                                                                              
|        |  |                                                                                                                                                                                                        
|23.1    |  | Consent of BDO Dunwoody
        LLP. (5)                                                                                                                                                               
|        |  |                                                                                                                                                                                                        
|31.1    |  | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to Section
        302 of the  Sarbanes-Oxley Act of 2002.                                                       
|        |  |                                                                                                                                                                                                        
|32.1    |  | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.

|(1) | Filed as an exhibit to our Current Report on Form 8-K filed with the
      SEC on September 18, 2002.        
|--- | -------------------------------------------------------------------------------------------------------------
|(2) | Filed with as an exhibit to our Form 10-K for the fiscal year ended December
      31, 1999.                 
|(3) | Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2001.   
|(4) | Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2002.   
|(5) | Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2003.   
|(6) | Filed as an exhibit to our Quarterly Report on Form 10-QSB for the fiscal
      quarter ended March 31, 2004.
|(7) | Filed as an exhibit to our Current Report on Form 8-K filed with the
      SEC on July 9, 2004.              

14

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act,
  the Registrant caused this report to be signed on its behalf by the undersigned,
  thereunto duly authorized.

| | TURBODYNE TECHNOLOGIES, INC.
| | ----------------------------
| |                             
| |                             
| |                             
| | By:                         
| |                             
| |                             
| |                             
| |                             
| |                             
| |                             
| |                             

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