---

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

FORM 10-QSB

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

For the quarterly period ended March 31, 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 **x******
  Yes ** ̈******
  No

State the number of shares outstanding of each of the issuers
  classes of common stock, as of the latest practicable date: 148,914,616shares of common stock issued and outstanding as of May 14, 2004.

Transitional Small Business Disclosure Format (check one):
  Yes ** ̈******  No   **x******

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PART 1 - FINANCIAL INFORMATION

ITEM 1.            FINANCIAL
  STATEMENTS.



2

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**Turbodyne Technologies, Inc.
  and Subsidiaries**Consolidated Financial Statements 
  For the three-month periods ended
  March 31, 2004 and 2003 (Unaudited  Expressed in US Dollars)



F-1

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**Turbodyne Technologies, Inc.
  and Subsidiaries**Consolidated Financial Statements 
  For the three-month periods ended
  March 31, 2004 and 2003 (Unaudited  Expressed in US Dollars)

|Contents
|--------

Consolidated Financial Statements

Balance
  Sheets

Statements
  of Operations

Statements
  of Capital Deficit

Statements
  of Cash Flows

Notes
  to the Financial Statements



F-2

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Consolidated Balance
      Sheets (Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------

|                                                    |   | March 31     |   |   | December 31  |  
|--------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                    |   | 2004         |   |   | 2003         |  
|                                                    |   | (Unaudited)  |   |   |              |  
|Assets                                              |   |              |   |   |              |  
|                                                    |   |              |   |   |              |  
|Current                                             |   |              |   |   |              |  
|Cash                                                | $ | 1,669,148    |   | $ | 2,145        |  
|Prepaid expenses and other
      current assets     |   | 103,746      |   |   | 28,840       |  
|                                                    |   |              |   |   |              |  
|Total
      current assets                          |   | 1,772,894    |   |   | 30,985       |  
|                                                    |   |              |   |   |              |  
|Property and equipment                              |   | 68,633       |   |   | 110,867      |  
|                                                    |   |              |   |   |              |  
|Total Assets                                        | $ | 1,841,527    |   | $ | 141,852      |  
|                                                    |   |              |   |   |              |  
|Liabilities and Capital Deficit                     |   |              |   |   |              |  
|                                                    |   |              |   |   |              |  
|Liabilities                                         |   |              |   |   |              |  
|                                                    |   |              |   |   |              |  
|Current                                             |   |              |   |   |              |  
|Term debts (Note 3)                                 | $ | -            |   | $ | 76,082       |  
|Accounts payable (Note
      4)                     |   | 2,232,266    |   |   | 3,791,191    |  
|Accrued liabilities                                 |   | 2,273,415    |   |   | 3,068,259    |  
|Provision for lawsuit
      settlements (Note 4)    |   | 5,593,790    |   |   | 7,019,439    |  
|Loans payable                                       |   | 418,864      |   |   | 767,578      |  
|                                                    |   |              |   |   |              |  
|Total
      current liabilities                     |   | 10,518,335   |   |   | 14,722,549   |  
|                                                    |   |              |   |   |              |  
|Deferred revenue                                    |   | 380,394      |   |   | 385,950      |  
|                                                    |   |              |   |   |              |  
|Total
      liabilities                             |   | 10,898,729   |   |   | 15,108,499   |  
|                                                    |   |              |   |   |              |  
|Capital Deficit                                     |   |              |   |   |              |  
|Share Capital (Note 2)                              |   |              |   |   |              |  
|Authorized                                          |   |              |   |   |              |  
|1,000,000
      preferred shares, par value $ 0.001 |   |              |   |   |              |  
|150,000,000
      common shares, par value $ 0.001  |   |              |   |   |              |  
|Issued                                              |   |              |   |   |              |  
|97,175
      preferred shares in 2004 and 2003      |   | 97           |   |   | 97           |  
|148,771,749
      common shares in 2004 and 2003    |   | 148,772      |   |   | 148,772      |  
|Treasury stock, at cost
      (378,580 shares)      |   | (1,907,612   | ) |   | (1,907,612   | )
|Additional paid-in capital                          |   | 117,408,800  |   |   | 117,233,800  |  
|Other comprehensive income
      -                  |   |              |   |   |              |  
|Foreign
      exchange translation gain             |   | 35,119       |   |   | 35,119       |  
|Accumulated deficit                                 |   | (124,742,378 | ) |   | (130,476,823 | )
|                                                    |   |              |   |   |              |  
|Total
      capital deficit                         |   | (9,057,202   | ) |   | (14,966,647  | )
|                                                    |   |              |   |   |              |  
|Total Liabilities
      and Capital Deficit         | $ | 1,841,527    |   | $ | 141,852      |  

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

F-3

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|Turbodyne
      Technologies, Inc. and Subsidiaries Consolidated Statements
      of Operations (Unaudited  Expressed in US Dollars)
|-------------------------------------------------------------------------------------------------------------------------------------

|For
      the three-month periods ended March 31                       |   | 2004        |   |   | 2003        |  
|---------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                                       |   |             |   |   |             |  
|Licensing fees                                                         | $ | 5,556       |   | $ | -           |  
|                                                                       |   |             |   |   |             |  
|Expenses (recovery)                                                    |   |             |   |   |             |  
|Selling,
      general and administrative                              |   | (300,505    | ) |   | 361,225     |  
|Research
      and developments costs                                  |   | 196,385     |   |   | 1,001,214   |  
|Litigation
      expense (recovery)                                    |   | 781,108     |   |   | (144,791    | )
|Depreciation
      and amortization                                    |   | 14,513      |   |   | 66,514      |  
|                                                                       |   |             |   |   |             |  
|                                                                       |   | 691,501     |   |   | 1,284,162   |  
|                                                                       |   |             |   |   |             |  
|Loss from operations                                                   |   | (685,945    | ) |   | (1,284,162  | )
|                                                                       |   |             |   |   |             |  
|Other income (expense)                                                 |   |             |   |   |             |  
|Settlement
      of litigation (Note 4)                                |   | 6,375,000   |   |   | -           |  
|Other, net                                                             |   | -           |   |   | 467         |  
|Interest
      expense, net                                            |   | (2,070      | ) |   | -           |  
|Gain on sale
      of asset                                            |   | 4,100       |   |   | -           |  
|Gain on settlement
      of term debt (Note 3)                         |   | 43,360      |   |   | -           |  
|                                                                       |   |             |   |   |             |  
|Income
      (loss) for the year                                       | $ | 5,734,445   |   | $ | (1,283,695  | )
|                                                                       |   |             |   |   |             |  
|Income
      (loss) per common share basic and diluted                | $ | 0.04        |   | $ | (0.01       | )
|                                                                       |   |             |   |   |             |  
|Weighted
      average shares used for basic income (loss) per share   |   | 148,771,749 |   |   | 122,144,631 |  
|                                                                       |   |             |   |   |             |  
|Weighted
      average shares used for diluted income (loss) per share |   | 159,983,338 |   |   | 122,144,631 |  

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

F-4

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|Turbodyne
      Technologies, Inc. and Subsidiaries Consolidated Statements
      of Capital Deficit (Unaudited  Expressed in US Dollars)
|------------------------------------------------------------------------------------------------------------------------------------------

|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   | 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   | 122,175               |   | $                  | 122    |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | 1,613,378    |   |   | -       |  |   | -             |   |   | 1,613,500   |  
|shares (Note 2)                  |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Exercise of stock options        | -                     |   |                    | -      |                      | 10,294,000  |  |         | 10,294  |  | -             |  |   | -           |   |   | 567,026      |   |   | -       |  |   | -             |   |   | 577,320     |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Private placement of common      | -                     |   |                    | -      |                      | 12,511,820  |  |         | 12,512  |  | -             |  |   | -           |   |   | 654,158      |   |   | -       |  |   | -             |   |   | 666,670     |  
|stock                            |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Issuance of stock for services   | -                     |   |                    | -      |                      | 4,845,412   |  |         | 4,845   |  | -             |  |   | -           |   |   | 597,245      |   |   | -       |  |   | -             |   |   | 602,090     |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Issuance of stock for settlement | -                     |   |                    | -      |                      | 3,000,000   |  |         | 3,000   |  | -             |  |   | -           |   |   | 1,047,000    |   |   | -       |  |   | -             |   |   | 1,050,000   |  
|of lawsuits (Note 4)             |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Conversion of preferred Series   | (25,000               | ) |                    | (25    | )                    | 2,500,000   |  |         | 2,500   |  | -             |  |   | -           |   |   | (2,475       | ) |   | -       |  |   | -             |   |   | -           |  
|X shares                         |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Issuance of stock options to     | -                     |   |                    | -      |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | 1,130,526    |   |   | -       |  |   | -             |   |   | 1,130,526   |  
|non-employees forservices        |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|(Note 2)                         |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Liability for settlement of      | -                     |   |                    | -      |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | (1,818,574   | ) |   | -       |  |   | -             |   |   | (2,453,574  | )
|equity instruments               |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Net loss for the year            | -                     |   |                    | -      |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | -            |   |   | -       |  |   | (6,884,717    | ) |   | (6,186,717  | )
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|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 | )
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Liability for settlement of      | -                     |   |                    | -      |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | 175,000      |   |   | -       |  |   | -             |   |   | 175,000     |  
|equity instruments               |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Net Income for the period        | -                     |   |                    | -      |                      | -           |  |         | -       |  | -             |  |   | -           |   |   | -            |   |   | -       |  |   | 5,734,445     |   |   | 5,734,445   |  
|                                 |                       |   |                    |        |                      |             |  |         |         |  |               |  |   |             |   |   |              |   |   |         |  |   |               |   |   |             |  
|Balance,
      March 31, 2004    | 97,175                |   | $                  | 97     |                      | 148,771,749 |  | $       | 148,772 |  | 378,580       |  | $ | (1,907,612  | ) |   | $117,408,800 |   |   | $35,119 |  |   | $(124,742,378 | ) |   | $(9,057,202 | )

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

F-5

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|Turbodyne
      Technologies, Inc. and Subsidiaries Consolidated Statements
      of Cash Flows (Unaudited  Expressed in US Dollars)
|-------------------------------------------------------------------------------------------------------------------------------------

|For
      the three-month periods ended March 31                   |   | 2004       |   |   | 2003       |  
|------------------------------------------------------------------ | - | ---------- | - | - | ---------- | -
|                                                                   |   |            |   |   |            |  
|Cash provided by (used in)                                         |   |            |   |   |            |  
|Operating activities                                               |   |            |   |   |            |  
|Net income
      (loss) for the period                             | $ | 5,734,445  |   | $ | (1,283,695 | )
|Adjustments
      to reconcile net loss to net                     |   |            |   |   |            |  
|cash used
      in operating activities:                           |   |            |   |   |            |  
|Amortization
      of deferred licensing fees                      |   | (5,556     | ) |   | -          |  
|Depreciation
      and amortization                                |   | 14,513     |   |   | 66,514     |  
|Gain
      on settlement of term debt                              |   | (43,360    | ) |   | -          |  
|Gain
      on sale of asset                                        |   | (4,100     | ) |   | -          |  
|Recovery
      on lawsuit reserve from TST share sales             |   | (23,345    | ) |   | -          |  
|Stock
      option compensation                                    |   | -          |   |   | 746,692    |  
|Stock
      issued for services                                    |   | -          |   |   | 313,890    |  
|Liability
      in connection with settlement of equity instrument |   | (406,000   | ) |   | (267,459   | )
|(Increase)
      Decrease in operating assets                      |   |            |   |   |            |  
|Prepaid
      expenses and other current assets                    |   | (74,906    | ) |   | 900        |  
|Increase
      (decrease) in operating liabilities                 |   |            |   |   |            |  
|Accounts
      payable                                             |   | (1,399,539 | ) |   | 55,481     |  
|Accrued
      liabilities and provision for lawsuit settlements    |   | (1,616,148 | ) |   | (476,079   | )
|                                                                   |   |            |   |   |            |  
|                                                                   |   | 2,176,004  |   |   | (843,756   | )
|                                                                   |   |            |   |   |            |  
|Investing activity                                                 |   |            |   |   |            |  
|Purchase
      of property and equipment                           |   | (5,001     | ) |   | -          |  
|Proceeds
      on sale of asset                                    |   | 4,100      |   |   | -          |  
|                                                                   |   |            |   |   |            |  
|                                                                   |   | (901       | ) |   | -          |  
|                                                                   |   |            |   |   |            |  
|Financing activities                                               |   |            |   |   |            |  
|Net proceeds
      from loans payable and short-term               |   |            |   |   |            |  
|borrowings                                                         |   | -          |   |   | 7,500      |  
|Repayment
      of loans payable                                   |   | (508,100   | ) |   | (32,772    | )
|Issuance
      of common stock and stock subscriptions             |   | -          |   |   | 743,924    |  
|                                                                   |   |            |   |   |            |  
|                                                                   |   | (508,100   | ) |   | 718,652    |  
|                                                                   |   |            |   |   |            |  
|Net increase (decrease) in cash                                    |   | 1,667,003  |   |   | (125,104   | )
|                                                                   |   |            |   |   |            |  
|Cash,beginning of period                                           |   | 2,145      |   |   | 137,517    |  
|                                                                   |   |            |   |   |            |  
|Cash,end of period                                                 | $ | 1,669,148  |   | $ | 12,413     |  
|                                                                   |   |            |   |   |            |  
|Supplementary disclosure of cash flow information                  |   |            |   |   |            |  
|Cash paid
      during the year                                    |   |            |   |   |            |  
|Interest                                                           | $ | 788        |   | $ | -          |  
|Income
      taxes                                                 | $ | -          |   | $ | -          |  
|                                                                   |   |            |   |   |            |  
|Supplementary disclosure of non-cash                               |   |            |   |   |            |  
|investing and financing
      activities:                          |   |            |   |   |            |  
|Accounts
      payable transfer to loans payable                   | $ | 159,386    |   | $ | -          |  
|Liability
      for settlement of equity instruments               | $ | 581,000    |   | $ | 662,183    |  
|Preferred
      stock issued on settlement of accrued liabilities  | $ | -          |   | $ | 1,613,500  |  
|Return of
      asset to settle term debts                         | $ | 76,082     |   | $ | -          |  
|Stock option
      compensation                                    | $ | -          |   | $ | 746,692    |  
|Stock
      issued for services                                    | $ | -          |   | $ | 313,890    |  

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

F-6

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**1.** | Nature of Business and Ability to Continue as a Going Concern
        Turbodyne Technologies, Inc., a Nevada corporation, and its subsidiaries
          (the Company) recommenced during the quarter ended March
          31, 2004 operations of engineering, developing and marketing products
          designed to enhance performance and reduce emissions of internal combustion
          engines.
        The Company had suspended business operations in 2003 due to a lack
          of financing. The Company received funds by entering into a settlement
          agreement and general release with Honeywell (Note 4(c)) which enabled
          the Company to resume operations and reduce its working capital deficiency.
        The interim financial statements included herein, presented in accordance
          with United States generally accepted accounting principles and stated
          in US dollars, have been prepared by the Company, without audit, pursuant
          to the rules and regulations of the Securities and Exchange Commission.
          Certain information and footnote disclosures normally included in financial
          statements prepared in accordance with generally accepted accounting
          principles have been condensed or omitted pursuant to such rules and
          regulations, although the Company believes that the disclosures are
          adequate to make the information presented not misleading.
        These financial statements reflect all adjustments, consisting of
          normal recurring adjustments, which in the opinion of management are
          necessary for fair presentation of the information contained therein.
          It is suggested that these interim financial statements be read in conjunction
          with the audited financial statements of the Company for the years ended
          December 31, 2003 and 2002 included in the Companys 10-KSB Annual
          Report. The Company follows the same accounting policies in the preparation
          of interim reports.
        Results of operations for the interim periods are not indicative of
          annual results.
        The accompanying consolidated financial statements have been prepared
          assuming that the Company will continue as a going concern. The Company
          has suffered net operating losses in recent periods, has an accumulated
          deficit of $124,742,378 at March 31, 2004 and a total capital deficit
          of $9,057,202 at March 31, 2004. It has used most of its available cash
          in its operating activities in recent years, has a significant working
          capital deficiency and is subject to lawsuits brought against it by
          other parties. These matters raise substantial doubt about the Company's
          ability to continue as a going concern.
        The Company's operations have been financed principally through a
          combination of private and public sales of equity and debt securities.
          There is no guarantee that the company will be able to continue to finance
          operations by this method. The Company is also limited in raising funds
          through the sale of equity because of the limited remaining authorized
          shares available for sale.
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-7

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|1. | Nature of Business and Ability to Continue
        as a Going Concern - Continued
      The Company continues to examine its operations and
        processes for further methods of cutting costs and gaining efficiencies.
        However, there is no assurance that the cost reductions will be realized
        in the full amount. The Company is examining alternatives for financing
        and fulfilling its working capital needs based on its working capital
        projections. The Company satisfactorily settled the dispute with Honeywell
        Turbocharging Systems (Honeywell), (Note 4(c)), and is working
        towards raising monies and generating revenue to meet its working capital
        needs. If it is unsuccessful, the Company may have to cease operating
        and seek relief under appropriate statutes. These consolidated financial
        statements have been prepared on the basis that the Company will be able
        to continue as a going concern and realize its assets and satisfy its
        liabilities and commitments in the normal course of business and do not
        reflect any adjustment which would be necessary if the Company is unable
        to continue as a going concern.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|2. | Share Capital
      Transactions not disclosed elsewhere in these consolidated
        interim financial statements are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-8

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**2.** | Share Capital - Continued
|------ | -------------------------
|       |                          
|       | c)                       

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 2004          | 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Non-employees | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | Options       | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |               | 
| |  | Outstanding and exercisable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |               | 
| |  | at beginning and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |               | 
| |  | end
      of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 2,131,666     | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | 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
      There were no stock options granted to non-employees
        during 2004. The Company has recorded $Nil (2003 - $746,692) of compensation
        expense relating to stock options issued to non-employees for services
        rendered during the period.
      The per share weighted average fair value of stock options
        granted for the three-month period ended March 31, 2003 was $0.12, on
        the date of grant using the Black-Scholes option-pricing model with the
        following weighted average assumptions in 2003: expected dividend yield
        Nil; expected volatility of 141%; risk-free interest rate of 2.56% and
        expected life equal to 1.89 years.

F-9

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**2.** | Share Capital - Continued
|------ | -------------------------
|       |                          
|       |                          

| |  |                                                      |   | For the three-month periods | 
| |  | ---------------------------------------------------- | - | --------------------------- | 
| |  |                                                      |   | ended March 31              | 
| |  |                                                      |   | 2004                        | 
| |  |                                                      |   |                             | 
| |  | Net income/(loss), as reported                       | $ | 5,734,445                   | 
| |  | Deduct: Stock-based employee compensation            |   |                             | 
| |  | expense
      determined under fair-value based      |   |                             | 
| |  | method for all awards
      not included in net loss |   | -                           | 
| |  |                                                      |   |                             | 
| |  | Pro-forma net income                                 | $ | 5,734,445                   | 
| |  |                                                      |   |                             | 
| |  | Income (loss) per share:                             |   |                             | 
| |  | Basic
      and diluted  as reported                | $ | 0.04                        | 
| |  | Basic and diluted
       pro-forma                  | $ | 0.04                        | 

| |  | There were no stock options granted to employees during
        2004. The per share weighted average fair value of stock options granted
        to employees during the three-month period ended March 31, 2003 was $0.14,
        calculated on the date of grant using the Black-Scholes option pricing
        model with the following weighted average assumptions in 2003: expected
        dividend yield Nil%; expected volatility of 127%; risk-free interest rate
        of 3.63% and expected life equal to one year.
      Issuance of Stock Options to Officer of the
        Company
      During the three-month period ended March 31,
        2004, the Company, subject to approval, entered into an agreement to grant
        an officer of the Company 1,200,000 Company stock options. All options
        will be immediately exercisable and will have a five-year term. The officer
        has agreed not to exercise any options held by him unless the Company
        has sufficient authorized capital for the exercise of such options.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**2.** | Share Capital  Continued
|------ | -------------------------
|       |                          
|       |                          
|       |                          
|       | d)                       

|       |                                                                                                                                                                                                 |                                  |            |   |   | Weighted | 
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | ---------- | - | - | -------- | 
|       |                                                                                                                                                                                                 |                                  |            |   |   | Average  | 
|       |                                                                                                                                                                                                 |                                  |            |   |   | Exercise | 
|       |                                                                                                                                                                                                 |                                  | Warrants   |   |   | Price    | 
|       |                                                                                                                                                                                                 |                                  |            |   |   |          | 
|       |                                                                                                                                                                                                 | Outstanding at December 31, 2003 | 21,634,809 |   | $ | 0.34     | 
|       |                                                                                                                                                                                                 | Expired                          | (3,208,567 | ) |   | 0.42     | 
|       |                                                                                                                                                                                                 |                                  |            |   |   |          | 
|       |                                                                                                                                                                                                 | Outstanding at March 31, 2004    | 18,426,242 |   | $ | 0.32     | 
|       |                                                                                                                                                                                                 |                                  |            |   |   |          | 
|       |                                                                                                                                                                                                
|**3.** | Term Debts
      During 2004, the Company returned an asset that was
        not in use as a settlement of outstanding term debt and recorded a gain
        on the debt settlement of $43,360.

F-11

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**4.** | Commitments and Contingencies
      The Company is party to various legal claims and lawsuits
        which have arisen in the normal course of business. Except for the settlement
        of the dispute with Honeywell as described in Note 4 (c), 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 Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**4.** | Commitments and Contingencies
         Continued
|------ | -------------------------------------------------
|       |                                                  
|       | b)                                               
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  
|       |                                                  

F-13

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|**4.** | Commitments and Contingencies  Continued
|------ | -----------------------------------------
|       |                                          
|       |                                          
|       |                                          
|       | c)                                       

F-14

---

|Turbodyne
      Technologies, Inc. and Subsidiaries Notes to the Consolidated
      Financial Statements(Unaudited  Expressed in US Dollars)
|---------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                             
|March
      31, 2004 and 2003                                                                                                                

|4. | Commitments and Contingencies  Continued
|-- | -----------------------------------------
|   |                                          
|   |                                          
|   |                                          
|   | d)                                       
|   |                                          
|   |                                          
|5. |                                          

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" within the meaning of Section 27A of
  the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
  1934. 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.
  We undertake no obligation to publicly revise these forward-looking statements
  to reflect events or circumstances that arise after the date of this filing.
  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, the terms "we", "us", "our",
  Turbodyne and our company mean Turbodyne Technologies,
  Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report
  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 involves entering into license agreements with original equipment manufacturers
  (OEMs) in the automotive industry who would incorporate our
  technology into their product lines in exchange for the payment of royalties
  or other similar license fees, as well as developing 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 the OEMs and automotive
  suppliers, while reducing our need for further equity financing. We intend to
  complete and test two production configuration versions of our improved Turbopac
  products by mid 2004. 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. | Following our entry into the settlement agreement
        with Honeywell International Inc. (Honeywell) in January,
        2004, we resumed our business operations on February 2, 2004. Under the
        terms of the settlement agreement, among other things, we agreed with
        Honeywell to terminate our joint development agreement and the license
        agreement with Honeywell relating to the development of, and certain intellectual
        property associated with, Electrically Assisted Turbocharger technology
        and Electrically Driven Compressor technology and products, and 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 our settling amounts owed to certain of our creditors and
        lien holders of $911,000, which resulted in a net payment from Honeywell
        of $6,375,000. We have received $4,770,900 net of legal fees and creditor
        payments, in connection with our settlement with Honeywell. We plan to
        use the net proceeds of the settlement with Honeywell to fund the re-structuring
        of our business and to repay short-term loans obtained by us to provide
        us with working capital and settle our other outstanding debts.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

---

|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 by August 31, 2004. We plan to spend approximately
        $70,000 per month in pursuing this research and development over the next
        five-month period which includes engineering payroll and purchasing and
        60% of our overall monthly overhead;
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|3. | In connection with the overall development of our
        Turbopac products we plan to complete development of production
        ready units for the 1.5 to 3.5 litre turbodiesel and turbogasoline for
        aftermarket sales by September 30, 2004. In addition, we plan to spend
        approximately $20,000 in completing our development of these products
        over the next six-month period;                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | We plan to pursue negotiations with original equipment
        manufacturers in the automobile industry (OEMs) for
        the incorporation of our Turbopac products into the OEMs product
        lines. We plan to spend approximately $5,000 per month in product marketing
        costs over the next twelve-month period;                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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
        $25,000 in litigation expenses over the next twelve-month period; and                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|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 of $1,669,148 and a working capital deficit of
  $8,745,441 as at March 31, 2004. Our plan of operations calls for us to spend
  approximately $135,000per month over the next twelve months. Accordingly,
  we are not able to pursue our stated plan of operations without additional financing.
  We will be pursuing additional sales of our common stock and share purchase
  warrants to raise the financing necessary for us to continue operations, if
  we are successful in submitting to our stockholders a proposal to increase our
  authorized capital at our 2004 annual general meeting. If our stockholders do
  not vote in favor of the proposal, our limited authorized capital may continue
  to have adverse consequences on our business operations and our ability to raise
  additional capital.

We have no arrangements in place for additional equity financing
  and there is no assurance that additional equity financing will be obtained.
  We believe that conventional debt financing is not a financing option to us
  due to the development 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, then we will be forced to
  reduce our research and development activities and our administrative overhead
  costs.

RESULTS OF OPERATIONS

Liability for Authorized Capital

Our authorized capital currently consists of 150,000,000 shares
  of common stock and 1,000,000 preferred shares. We had 148,914,616 shares of
  common stock outstanding as of May 14, 2004. In addition, as of March 31, 2004
  we had warrants to purchase 18,426,242 shares of our common stock outstanding,
  options to purchase 4,179,666 shares of our common stock outstanding and we
  had 97,175 shares of our Series X preferred shares outstanding that are convertible
  into an additional 9,717,500 shares of our common stock. If all share purchase
  warrants and options were exercised and all Series X preferred shares were converted,
  the number of required shares of common stock would exceed the authorized number
  of shares of common stock. Accordingly, we have recorded a liability of $2,134,322
  to account for the potential cash settlement of these outstanding options, share
  purchase warrants and convertible shares of Series X preferred stock in the
  accompanying financial statements. As a result of the recorded liability and
  the adjustments to reflect the market value of these equity instruments for
  our authorized capital deficiency, for the three months ended

4

---

March 31, 2004 we have decreased our accrued liabilities by
  $581,000 and selling, general and administrative expenses by $406,000. We have
  also increased our additional paid in capital by $175,000.

Our directors, Eugene OHagan and Andrew Martyn-Smith,
  and all of our employees have agreed not to exercise any options currently held
  by them until we have sufficient authorized capital for the exercise of such
  options. We intend to submit to our stockholders a proposal to increase our
  authorized capital at our 2004 annual general meeting.

Net Sales

We had license fee income of $5,556 during the three months
  ended March 31, 2004. We did not achieve any sales during the three months ended
  March 31, 2004 or 2003. Our current inability to earn revenues reflects the
  fact that our Turbopac products remain in the development stage.

We anticipate that we will complete sales of prototypes during
  2004 that are designed and manufactured pursuant to development agreements that
  we have entered into. These sales will not be significant in relation to our
  overall operating costs. We intend to earn revenues during fiscal 2004 through
  license and royalty fees from 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 new 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 three months
  ended March 31, 2004 and 2003 due to the fact that we had no sales during each
  of these periods. We did not engage in any manufacturing activity during the
  three months ended March 31, 2004 or the three months ended March 31, 2003.
  We anticipate that we will not undertake any manufacturing activity in the future,
  other than manufacturing of prototypes for evaluation and demonstration purposes
  as we intend to earn revenue through licensing and royalty fees and not product
  sales.

Gross Profit

Gross profit was $nil for the three months ended March 31,
  2004 and March 31, 2003, and reflects the fact that we were not engaged in any
  sales activities during each of these periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three
  months ended March 31, 2004 decreased from $361,225 for the three months ended
  March 31, 2003 to a recovery of $300,505, representing a decrease of $661,730
  or 183.2%. The decrease in our selling, general and administrative expenses
  was attributable to: (i) the suspension of our operations in 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. 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 none of our products are being commercially sold at present.

Research and Development

Research and development costs for the three months ended
  March 31, 2004 decreased to $196,385 from $1,001,214 for the three months ended
  March 31, 2003, representing a decrease of $804,829 or approximately 80.4%.
  The decrease in research and development costs was attributable to the suspension
  of operations during our third quarter in 2003 to January 31, 2004. 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 March 31, 2004 are associated with the development of
  our Turbopac product.

5

---

Compensation Expense

We did not rely on stock based compensation during the first
  quarter of 2004 due to our receipt of funds from our settlement with Honeywell.
  Stock based compensation included in expenses was $746,692 for the three months
  ended March 31, 2003.

We recognize compensation expense for stock options granted
  to employees in accordance with Accounting Principles Board Opinion No. 25.
  Generally, under APB No. 25 compensation expense is recognized for the amount
  that the market price of the underlying stock exceeds the exercise price of
  the stock options on the date of grant. This method of accounting is different
  from the fair value method of accounting that is prescribed by SFAS No. 123,
  which also requires us to provide pro-forma information regarding net loss as
  if compensation costs of the stock options granted to our employees had been
  determined in accordance with the fair value method prescribed in the standard.
  We did not grant any stock-based awards during the three months ended March
  31, 2004 therefore; our net income equals our pro-forma net income if we had
  adopted the fair value method of accounting.

Litigation Expense

We had litigation expenses of $781,108 during the three months
  ended March 31, 2004. We recorded 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. 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.

Net Loss

Our net income for the three months ended March 31, 2004 was
  $5,734,445 compared to a net loss of $1,283,695 for the three months ended March
  31, 2003 representing an increase of $7,018,140. The increase in our net income
  was primarily due the proceeds we received pursuant to our settlement with Honeywell.
  Our continued net losses from operations reflect our continued operating expenses
  and our current inability to generate revenues.

FINANCIAL CONDITION

Cash and Working Capital

We had cash of $1,669,148 as at March 31, 2004, compared with
  cash of $2,145 as at December 31, 2003. Our working capital deficit decreased
  to $8,745,441 as at March 31, 2004, compared to a working capital deficit of
  $14,691,564 as at December 31, 2003. The reduction to our working capital deficit
  was primarily attributable to an increase in cash, and a reduction in accounts
  payable, accrued liabilities, provisions for lawsuit settlements and loans payable
  as discussed below.

Liabilities

The largest component of our working capital deficit is a
  reserve for lawsuit settlements in the amount of $5,593,790 as at March 31,
  2004, compared to $7,019,439 as at December 31, 2003.

Our accounts payable and accrued liabilities remain substantial
  due to our inability to generate revenues and our limited ability to raise capital
  to fund our operations. Accounts payable decreased to $2,232,266 as at March
  31, 2004 from $3,791,191 as at December 31, 2003. Accrued liabilities decreased
  to $2,273,415 as at March 31, 2004 from $3,068,259 as at December 31, 2003.
  We are continuing during 2004 to negotiate with our creditors for the payment
  of our accounts payable and accrued liabilities. Payment of these liabilities
  is

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contingent on new funding being received that would enable
  us to make payment to the creditors. Our ability to continue our operations
  is also conditional upon the forbearance of our creditors.

Short term loans from shareholders and other parties decreased
  to $418,864 as of March 31, 2004 from $767,578 as of December 31, 2003. Included
  at March 31, 2004 are unsecured, non-interest bearing advances of $259,478 that
  we anticipate will be converted into shares of our common stock and share purchase
  warrants. Also included is $159,386, which represents accounts payable converted
  into a short-term loan, including 7% interest due and payable in by June 1,
  2004. The lender has agreed to accept payment in common stock subject to increase
  in authorized shares by stockholders. These loans have not been converted to
  date.

Cash Used in Operating Activities

Cash received in operating activities for the three months
  ended March 31, 2004 was $2,176,004, compared to $843,756 used for the three
  months ended March 31, 2003. The increase in cash used in operating activities
  was due to the litigation recovery from the Honeywell settlement.

Cash Provided by Financing Activities

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. Cash used in financing activities
  for the three months ended March 31, 2004 was $508,100 compared to $718,652
  provided during the three months ended March 31, 2003.

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.

We settled our litigation with Honeywell which has provided
  us with sufficient working capital to continue our operations for the next ten
  months; however, we will require further financing to continue our business
  operations past this period. We anticipate that any future financing would be
  achieved by sales of additional shares of our common stock once our stockholders
  have approved the proposal to increase our authorized share capital at our 2004
  annual general meeting of stockholders. Sales of additional shares of our common
  stock will result in significant dilution to our current stockholders.

Our limited remaining number of shares of authorized common
  stock may adversely impact on our ability to raise additional financing through
  additional private placements. We intend to submit to our stockholders a proposal
  to increase our authorized capital at our 2004 annual general meeting. If our
  stockholders do not vote in favor of the proposal our limited authorized capital
  may continue to have adverse consequences on our business operations and our
  ability to raise additional capital.

We anticipate that we will continue to incur losses until
  such time as the revenues we are able to generate from licensing of 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.

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

7

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found in the Summary of Significant Accounting Policies in
  our consolidated audited financial statements included in our Annual Report
  on Form 10-KSB for the year ended December 31, 2003. 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.

Substantial Doubt as to Our Ability to Continue as a
  Going Concern

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 $124,742,378 at March 31, 2004, have used cash
  in our operating activities in recent periods, have disposed of our most significant
  subsidiary through bankruptcy, are subject to lawsuits brought against us by
  shareholders and other parties, and based on our projected cash flows for the
  ensuing year, we may 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.

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 in 2003, we recognized
  revenue upon shipment of product. Since the re-commencement of operations, we
  recognize license and royalty fees over the term of the license or royalty agreement.

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.

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ITEM 3.            CONTROLS
  AND PROCEDURES.

As required by Rule 13a-15 under the Securities Exchange Act
  of 1934 (the Exchange Act), we carried out an evaluation of the
  effectiveness of the design and operation of our disclosure controls and procedures
  as of March 31, 2004, being the date of our most recently completed fiscal quarter.
  This evaluation was carried out under the supervision and with the participation
  of our Chief Executive Officer and Chief Financial Officer, Mr. Andrew Martyn-Smith.
  Based upon that evaluation, our Chief Executive Officer and Chief Financial
  Officer concluded that our disclosure controls and procedures are effective
  in timely alerting management to material information relating to us required
  to be included in our periodic SEC filings. There have been no significant changes
  in our internal controls or in other factors that could significantly affect
  internal controls subsequent to the date we carried out our evaluation.

Disclosure controls and procedures are controls and other
  procedures that are designed to ensure that information required to be disclosed
  in our reports filed or submitted under the Exchange Act is recorded, processed,
  summarized and reported, within the time periods specified in the SEC's rules
  and forms. Disclosure controls and procedures include, without limitation, controls
  and procedures designed to ensure that information required to be disclosed
  in our reports filed under the Exchange Act is accumulated and communicated
  to management, including our Chief Executive Officer and Chief Financial Officer,
  to allow timely decisions regarding required disclosure.

During our most recently completed fiscal quarter ended March
  31, 2004, there were no changes in our internal control over financial reporting
  that have materially affected, or are reasonably likely to affect, our internal
  control over financial reporting.

The term internal control over financial reporting
  is defined as a process designed by, or under the supervision of, the registrant's
  principal executive and principal financial officers, or persons performing
  similar functions, and effected by the registrant's board of directors, management
  and other personnel, to provide reasonable assurance regarding the reliability
  of financial reporting and the preparation of financial statements for external
  purposes in accordance with generally accepted accounting principles and includes
  those policies and procedures that:

| | (1) | Pertain to the maintenance of records
        that in reasonable detail accurately and fairly reflect the transactions
        and dispositions of the assets of the registrant;                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                  
| | (2) | Provide reasonable assurance that transactions
        are recorded as necessary to permit preparation of financial statements
        in accordance with generally accepted accounting principles, and that
        receipts and expenditures of the registrant are being made only in accordance
        with authorizations of management and directors of the registrant; and
| |     |                                                                                                                                                                                                                                                                                                                                                                                  
| | (3) | Provide reasonable assurance regarding
        prevention or timely detection of unauthorized acquisition, use or disposition
        of the registrant's assets that could have a material effect on the financial
        statements.                                                                                                                                          

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PART II - OTHER INFORMATION

ITEM 1.            LEGAL
  PROCEEDINGS.

We are a party to the legal proceedings described in our Annual
  Report on Form 10-KSB, as filed with the Securities and Exchange Commission
  on May 17, 2004. The presence of the lawsuits is one of the facts cited by our
  auditors as giving rise as to the substantial doubt about 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 the Annual Report
  on Form 10-KSB, together with this disclosure.

We are not party to any new legal proceedings that have been
  commenced since the date of our Annual Report on Form 10-KSB. Our Annual Report
  on Form 10-KSB includes disclosure of material developments to legal proceedings
  to which we are or were a party during our first quarter.

ITEM 2.            CHANGES
  IN SECURITIES.

During the three months ended March 31, 2004, we did not complete
  any sales of the securities that were not registered pursuant to the Securities
  Act of 1933.

On March 31, 2004, we adopted our 2004 Stock Incentive Plan
  (the 2004 Plan). Under the 2004 Plan, we may grant common stock
  or incentive stock options to our directors, officers, employees and consultants
  for up to 15,000,000 shares. The maximum term of the 2004 Plan is ten years.
  Our 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 our common shares on the date of grant.

ITEM 3.            DEFAULTS
  UPON SENIOR SECURITIES.

None.

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

No matters were submitted to our security holders for a vote
  during the fiscal quarter ended March 31, 2004.

ITEM 5.            OTHER
  INFORMATION.

None.

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ITEM 6.            EXHIBITS
  AND REPORTS ON FORM 8-K.

EXHIBITS

|Exhibit |  |                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description of Exhibit                                                                                                                                                                    
|        |  |                                                                                                                                                                                           
|3.1     |  | Restated Articles of Incorporation of Registrant.(1)                                                                                                                                      
|        |  |                                                                                                                                                                                           
|3.2     |  | Amended Bylaws of the Registrant.(1)                                                                                                                                                      
|        |  |                                                                                                                                                                                           
|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)                                               
|        |  |                                                                                                                                                                                           
|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                                                                                    
|        |  |                                                                                                                                                                                           
|10.8    |  | Employment Agreement
      dated effective February 1, 2004 between the Registrant and Andrew Martyn-Smith                                                                                
|        |  |                                                                                                                                                                                           
|10.9    |  | Employment Agreement
      dated effective February 1, 2004 between the Registrant and David T. Willett                                                                                   
|        |  |                                                                                                                                                                                           
|10.10   |  | 2004 Stock Incentive
      Plan                                                                                                                                                           
|        |  |                                                                                                                                                                                           
|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)     |  | Previously filed with the Securities and Exchange
      Commission 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.                                                                                

REPORTS ON FORM 8-K

We did not file any Current Reports on Form 8-K during the
  fiscal quarter ended March 31, 2004 and we have not filed any Current Reports
  on Form 8-K since March 31, 2004.

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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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