SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934


                           Commission File No. 0-21391



                           TURBODYNE TECHNOLOGIES INC.
             (Exact Name of Registrant as Specified in its Charter)


DELAWARE                                                      95-4699061
(State or other Jurisdiction of                            (I.R.S. Employer
Incorporation or Organization)                             Identification No.)


        21700 Oxnard Street, Suite 1550, Woodland Hills, California 91367
               (Address of Principal Executive Offices)               (Zip Code)


                                 (818) 593-2282
              (Registrant's Telephone Number, Including Area Code)






Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                         Yes    X          No
                                              ------            ------ 
<PAGE>

Shares of Common Stock,  par value $0.001,  outstanding as of November 10, 1998:
41,305,483 shares.

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                                    FORM 10-Q

                                TABLE OF CONTENTS



                          PART I. FINANCIAL INFORMATION

                                                                            PAGE

Item 1.    Financial Statements

           Condensed Consolidated Balance Sheets as of September 30, 1998
                    and December 31, 1997                                     3

           Condensed Consolidated Statements of Operations - Three and
                    Nine months ended September 30, 1998 and 1997             4

           Condensed Consolidated Statements of Cash Flows -  Nine months
                    ended September 30, 1998 and 1997                         5

           Notes to Condensed Consolidated Financial Statements             6-11

Item 2.    Management's Discussion and Analysis of Financial Condition
                    and Results of Operations                              11-17

Item 3.    Quantitative and Qualitative Disclosures about Market Risks        18



                           PART II. OTHER INFORMATION



Item 1.    Legal Proceedings                                                  18

Item 2.    Changes in Securities                                              19

Item 3.    Default Upon Senior Securities                                     20

Item 4.    Submission of Matters to Vote of Security Holders                  20

Item 5.    Other Information                                                  20

Item 6.    Exhibits and Reports on Form 8-K                                   20


PAGE 2

<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                     ASSETS
                                                                              1998                        1997
                                                                         ---------------             ----------------
Current Assets:
<S>                                                                          <C>                             <C>    
             Cash                                                            10,011,000                      949,000
             Trade accounts receivable, net                                  10,285,000                    9,214,000
             Inventories                                                      8,149,000                    5,469,000
             Prepaid expenses and other current assets                        1,934,000                    1,759,000
                                                                         ---------------             ----------------

                       Total current assets                                  30,379,000                   17,391,000

Property, Plant and Equipment, at cost, net                                  20,059,000                   18,122,000
Goodwill, net                                                                13,179,000                   13,740,000
Other Assets                                                                  1,866,000                      473,000
                                                                         ---------------             ----------------

                                                                             65,483,000                   49,726,000
                                                                         ===============             ================

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
             Current maturities of long term debt                               177,000                      607,000
             Current maturities of obligations under capital leases             734,000                    1,035,000
             Accounts payable                                                 6,373,000                    5,283,000
             Accrued liabilities                                              3,056,000                    1,850,000
             Income taxes payable                                                     -                       86,000
                                                                         ---------------             ----------------

                       Total current liabilities                             10,340,000                    8,861,000

Long term debt, less current maturities                                       9,605,000                    8,155,000
Obligations under capital leases, less current maturities                     2,790,000                    1,867,000
                                                                         ---------------             ----------------

                                                                             22,735,000                   18,883,000
                                                                         ---------------             ----------------
Stockholders' Equity:
             Preferred stock, $0.001 par value.  Authorized
                  1,000,000 shares;10,000 issued; issued and outstanding
                  none in 1998 and 10,000 shares in 1997                              -                    9,604,000
             Common stock, $0.001 par value.  Authorized
                  60,000,000 shares; issued and outstanding
                 41,230,097 shares in 1998 and 29,961,612
                 shares in 1997                                                  41,000                       30,000
             Additional paid in capital                                      79,140,000                   45,260,000
             Cumulative other comprehensive income                             (195,000)                      22,000
             Accumulated deficit                                            (36,238,000)                 (24,073,000)
                                                                         ---------------             ----------------

                       Total stockholders' equity                            42,748,000                   30,843,000
                                                                         ---------------             ----------------

                                                                             65,483,000                   49,726,000
                                                                         ===============             ================
</TABLE>


             See  accompanying   notes  to  condensed   consolidated   financial
statements.



PAGE 3

<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                              SEPTEMBER 30,
                                                             1998                1997                   1998                 1997
                                                      -------------------------------------       ----------------------------------
<S>                                                   <C>                   <C>                   <C>                  <C>
Net sales                                                 $  9,058,000      $    8,405,000        $   29,808,000       $ 28,558,000

Cost of goods sold                                           7,462,000           7,094,000            24,996,000         22,810,000
                                                      -------------------------------------       ----------------------------------

           Gross profit                                      1,596,000           1,311,000              4,812,000         5,748,000

Selling, research, general and administrative                4,419,000           3,801,000             14,795,000        12,427,000
    expenses
Relocation costs (note 2)                                    1,471,000                  --              1,471,000                --
                                                      -------------------------------------      -----------------------------------

           Loss from operations                             (4,294,000)         (2,490,000)           (11,454,000)       (6,679,000)

Other expense (income):
    Interest expense, net                                      (22,000)            207,000                559,000           578,000
    Other, net                                                 (15,000)             11,000                (11,000)          (10,000)
                                                      -------------------------------------      -----------------------------------

           Loss before income taxes                         (4,257,000)         (2,708,000)           (12,002,000)       (7,247,000)

Income tax expense (benefit)                                   (24,000)           (374,000)                    --           115,000
                                                      -------------------------------------      -----------------------------------

           Net loss                                       $ (4,233,000)     $   (2,334,000)      $    (12,002,000)   $   (7,362,000)
                                                      =====================================      ===================================


Net loss per common share:
    Basic loss per share                                 $      (0.11)      $        (0.09)      $          (0.35)    $       (0.35)
    Diluted loss per share                                      (0.11)               (0.09)                 (0.35)            (0.35)
                                                      =====================================      ===================================


Weighted average shares used for basic and
    diluted loss per share                                  37,054,000          25,287,000             34,264,000        21,173,000
                                                      =====================================      ===================================

</TABLE>

See accompanying notes to condensed consolidated financial statements.


PAGE 4

<PAGE>


                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                  NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                                                          1998                   1997
                                                                                   -------------------    -------------------


Cash flows from operating activities:
<S>                                                                                  <C>                   <C>
    Net loss                                                                         $  (12,002,000)       $    (7,362,000)
    Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization of property and equipment                           2,670,000              2,001,000
        Stock compensation                                                                  375,000                     --
        (Increase) decrease in operating assets:
          Trade accounts receivable                                                      (1,071,000)            (1,425,000)
          Inventories                                                                    (2,680,000)            (3,335,000)
          Prepaid expenses and other current assets                                        (175,000)            (1,241,000)
          Other assets                                                                   (1,393,000)              (240,000)
        Increase (decrease) in operating liabilities:
          Trade accounts payable                                                          1,090,000              1,655,000
          Accrued expenses                                                                1,399,000               (586,000)
          Income taxes payable                                                              (86,000)                40,000
                                                                                     -----------------     ------------------
                  Net cash used in operating activities                                 (11,873,000)           (10,493,000)
                                                                                     -----------------     ------------------
Cash flows from investing activities:
    Purchase of property and equipment                                               $   (4,046,000)       $    (4,308,000)
                                                                                     -----------------     ------------------
                  Net cash used in investing activities                                  (4,046,000)            (4,308,000)
                                                                                     -----------------     ------------------
Cash flows from financing activities:
    Net proceeds from long-term borrowings                                           $    1,642,000        $     3,552,000
    Proceeds from subordinated convertible debentures                                     3,000,000                     --
    Net proceeds from preferred stock issue                                                      --              9,604,000
    Proceeds from exercise of stock options and warrants                                 20,715,000              6,564,000
    Issuance costs paid                                                                    (159,000)              (122,000)
                                                                                     -----------------     ------------------
                  Net cash provided by financing activities                              25,198,000             19,598,000
                                                                                     -----------------     ------------------
Effect of exchange rate changes on cash                                                    (217,000)                 8,000
                                                                                     -----------------     ------------------
                  Net increase (decrease) in cash                                         9,062,000              4,805,000

Cash at beginning of period                                                                 949,000              3,143,000
                                                                                     -----------------     ------------------

Cash at end of period                                                                $   10,011,000        $     7,948,000
                                                                                     =================     ==================
Supplemental disclosure of cash flow information: 
Cash paid during the year for:
           Interest                                                                  $    1,265,000                537,000
           Income taxes                                                                      47,000                120,000
                                                                                     =================     ==================
</TABLE>

See accompanying notes to condensed consolidated financial statements.


PAGE 5

<PAGE>


                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                    SEPTEMBER 30, 1998 AND DECEMBER 31, 1997

                                   (UNAUDITED)




NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

Turbodyne  Technologies  Inc., a Delaware  corporation,  and  subsidiaries  (the
Company)  manufactures  aluminum  cast  automotive  products,  including  engine
components and specialty wheels,  and develops  products to enhance  performance
and reduce emissions of internal combustion engines.

BASIS OF PRESENTATION

The accompanying  unaudited condensed  consolidated financial statements include
the  accounts  of the  Company  and its  wholly  owned  subsidiaries,  Turbodyne
Systems, Inc., Turbodyne U.K. Ltd., Turbodyne Europe GMBH and Pacific Baja Light
Metals Corp. (Pacific Baja). All material intercompany accounts and transactions
have been eliminated in consolidation.

Effective July 18, 1997, the Company  formally  delisted its shares from trading
on the Vancouver Stock Exchange.  On March 24, 1997, the Company's shares became
listed on the Nasdaq Small Capital  Market and continue to trade in that market.
As a result,  effective  January 1, 1998,  the  Company  changed  its  reporting
currency  from  the  Canadian   dollar  (Cdn$)  to  the  U.S.   dollar  (U.S.$).
Accordingly,  the unaudited condensed  consolidated financial statements for the
nine months and three months ended  September 30, 1997 have been restated to the
new reporting currency of U.S.$.

Additionally,  a cumulative translation adjustment of $195,000 has been included
as other comprehensive income in stockholders' equity reflecting the translation
of the Cdn$ reporting currency  consolidated  financial  statements to the newly
adopted  and  retroactively   applied  U.S.$  reporting   currency,   and  other
translation adjustments associated with the Company's foreign operations.  There
are no other items of  comprehensive  income in the nine months ended  September
30, 1998. The adoption of Statement of Financial  Accounting  Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130") did not have a material impact
on the Company's unaudited condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with U.S. generally accepted accounting principles. These
unaudited   consolidated   financial  statements  do  not  include  all  of  the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal  recurring  adjustments)  considered  necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 1998 are not necessarily  indicative of the results that may
be expected for the full year ending December 31, 1998. For further  information
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 20-F for the year ended December 31, 1997.


PAGE 6

<PAGE>


GOODWILL

Goodwill is associated  with the purchase of Pacific Baja on July 2, 1996 by the
Company  and is being  amortized  on a  straight-line  basis over 20 years.  The
Company  assesses  the  recoverability  of goodwill by  determining  whether the
amortization  of the balance over the  remaining  life can be recovered  through
undiscounted   future   operating  cash  flows  of  the  Company's   operations.
Accumulated amortization was $1,743,000 and $1,182,000 at September 30, 1998 and
December 31, 1997, respectively.

RECOGNITION OF REVENUE AND SIGNIFICANT CUSTOMERS

The Company recognizes  revenue upon shipment of product.  The Company had sales
to three significant customers  constituting  approximately 47%, 14% and 14% and
50%,  10% and 18%,  respectively,  of net  sales for the nine  months  and three
months  ended  September  30, 1998,  respectively.  The Company had sales to two
significant  customers  constituting  approximately 33% and 22% and 40% and 20%,
respectively,  of net sales for the nine months and three months ended September
30, 1997, respectively.  Additionally, these customers comprised 46%, 8% and 21%
and 31%, 23% and 12%, respectively, of accounts receivable at September 30, 1998
and December 31, 1997,  respectively.  The loss of any of these  customers could
have a material adverse effect on the Company.

EARNINGS PER SHARE

Net loss per share is  computed  using  the  weighted  average  number of common
shares  outstanding.  For the nine  months  ended  September  30, 1998 and 1997,
options and warrants to purchase 6,535,428 and 3,872,833 shares of common stock,
respectively,  at prices ranging from $2.35 to $8.50 were outstanding during the
periods  but were not  included  in the  computation  of diluted  loss per share
because the options and warrants would have an  antidilutive  effect on net loss
per share.

RESEARCH AND DEVELOPMENT

Research  and  development  costs  related to present  and future  products  are
charged to  operations  in the year  incurred.  Research and  development  costs
aggregated  $4,374,000 and  $4,178,000  for the nine months ended  September 30,
1998 and 1997, respectively,  and $1,249,000 and $1,042,000 for the three months
ended September 30, 1998 and 1997, respectively.

USE OF ESTIMATES

Management  of Turbodyne  Technologies  Inc. has made a number of estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure  of contingent  assets and  liabilities  to prepare  these  unaudited
interim condensed consolidated financial statements in conformity with generally
accepted  accounting   principles.   Actual  results  could  differ  from  those
estimates.


PAGE 7

<PAGE>


NOTE 2.  RELOCATION OF OPERATIONS

During 1998, the Company commenced a relocation of certain of its operations and
has  incurred  expenses  aggregating  $1,471,000.  The  effect of these  unusual
expenses was $0.04 per common share. The Company is in the process of completing
a two-phase plan to  significantly  reduce  operating and overhead  cost,  while
increasing  capacity and improving product quality of its Light Metals Division.
The Company  expects  this action to  significantly  improve  profitability  and
provide the physical  capacity  required to increase sales of precision cast and
machined engine and vehicle components and assemblies.

The plan includes relocating all foundry and machine shop operations from the La
Mirada, California facility to consolidate all light metals manufacturing in its
new facility in Ensenada,  Mexico.  At the same time the Company is investing in
the modernization of both manufacturing facilities in Ensenada to further reduce
cost,  improve  quality and increase  capacity.  During the first nine months of
fiscal  1998,  the  Company  completed  the  relocation  of all wheel  machining
operations  and expects to complete the  relocation of the remaining  automotive
engine components foundry and machining operations by the end of the 1998 fiscal
year. In connection  with the relocation of the wheel  machining  operations and
the  majority  of  the  automotive  engine  components   foundry  and  machining
operations,  the Company incurred expenses in excess of management's projections
and  experienced  delays in the  relocation  process.  These costs include costs
associated  with the  relocation of machinery and equipment  from the La Mirada,
California  facility to the new facility in Ensenada,  Mexico, the hiring of new
employees at the Ensenada  facility,  retention and severance costs of the labor
force at the La Mirada facility,  overtime premiums and transportation  expedite
premiums incurred to meet increased demand in the automotive components business
and production inefficiencies incurred in operating two production plants during
the  relocation.  All such costs have been expensed as incurred and are included
in the  $1,471,000  described  above.  The  Company may  continue to  experience
substantial costs and delays in connection with the relocation of the automotive
engine  components  foundry and machining  operations which may adversely affect
the Company's results of operations and profitability. Such future costs will be
expensed as incurred.

NOTE 3.  INVENTORIES

Inventories  are  comprised of the  following at September 30, 1998 and December
31, 1997:

                                             1998                   1997
                                      --------------------   -------------------

       Raw materials               $         2,592,000              2,123,000
       Work in process                       2,661,000                686,000
       Finished goods                        2,896,000              2,660,000
                                      --------------------   -------------------

                                   $         8,149,000              5,469,000
                                      ====================   ===================


PAGE 8

<PAGE>


NOTE 4.  LONG-TERM DEBT

Long-term  debt at  September  30, 1998 and  December  31, 1997  consists of the
following:


<TABLE>
<CAPTION>

                                                                                1998                   1997
                                                                            -------------          --------------

<S>                                                                         <C>                     <C>
  Revolving bank lines of credit (A)                                        $  9,329,000              8,144,000
  Notes payable to bank, principal of $12,534 plus interest payable
       monthly at prime plus .25% through July 31, 2001                          426,000                547,000
  Other                                                                           27,000                 71,000
                                                                            -------------           -------------
  Total long-term debt                                                         9,782,000              8,762,000

  Less current maturities                                                        177,000                607,000
                                                                            -------------           -------------

  Long-term debt, excluding current maturities                              $  9,605,000              8,155,000
                                                                            =============           =============
</TABLE>


(A)    The Company's wholly owned subsidiary, Pacific Baja, has a revolving line
       of credit with a bank permitting borrowings up to $10 million, secured by
       all  receivables  and  inventory.  The  borrowings  bear  interest at the
       Company's option at LIBOR plus 2% or at prime. The line of credit expires
       June 1, 2000. The Company is a guarantor on this line of credit.

The Company was not in compliance with all of its financial covenants related to
its debt  facilities  at  September  30, 1998,  but has received an  appropriate
waiver from its lender.

NOTE 5.  STOCKHOLDERS' EQUITY AND STOCK OPTIONS

On September 4, 1998 the Board of Directors  approved an incentive  stock option
plan (the "1998 Plan").  The 1998 Plan was approved by the  stockholders  at the
1998 Annual  Meeting.  Under the 1998 Plan, the Company may grant options to its
directors,  officers,  employees and consultants  for up to 4,000,000  shares of
common stock. The option's maximum term is ten years. The Stock Option Committee
shall  determine the terms of any options or other rights granted under the 1998
Plan,  including the grant date of any option,  the exercise price and the term,
which in any event shall not exceed 10 years.  The  maximum  number of shares of
common  stock with respect to which  options or rights may be granted  under the
1998  Plan to any  participant  is  200,000  per  participant  per  year.  As of
September  30,  1998,  the Company had options to purchase  2,001,600  shares of
common stock outstanding under the 1998 Plan.

On March 3, 1997, the Company  established  an incentive  stock option plan (the
"1997  Plan").  Under  the 1997  Plan,  the  Company  may grant  options  to its
directors, officers and employees for up to 2,840,000 shares of common stock. As
of  September  30,  1998,  options to purchase  the maximum  number of shares of
common stock allowable under the 1997 Plan had been granted.

Options  granted under the 1997 Plan to  participants,  other than the Chairman,
President,  Chief Executive Officer, the Chief Financial Officer,  Secretary and
any directors of the Company or its subsidiaries,  shall be subject to a vesting
formula. The vesting formula will provide that options shall vest equally over a
three-year  period  commencing  on the date of the grant so that the options can
only be exercised  as to an  aggregate of 33.3% in the first year,  66.6% in the
second  year and 100% in the third  year and each year  thereafter.  No  options
granted to an employee of the Company or an  affiliate  of the Company  shall be
exercisable until the optionee has been employed


PAGE 9

<PAGE>


by the Company or affiliate for a period of six months.  The directors  have the
discretion to waive the vesting  requirements at their discretion in appropriate
circumstances.

At  September  30,  1998,  the Company had options to purchase an  aggregate  of
5,993,541 shares of common stock  outstanding.  The options have exercise prices
ranging  from $2.35 to $8.50 and  expiration  dates  between  December  1998 and
September 2003.

SPECIAL WARRANTS

On July 2, 1996, the Company  completed a private  placement of 3,750,000 Series
"A" Special Warrants at a price of $5.00 (Cdn$) per special warrant.  Commission
paid to the brokers  was 10% of the gross  proceeds  and the brokers  elected to
receive the commission in special warrants  (375,000 Series "A" Special Warrants
issued).  Each Series "A" Special  Warrant can be exercised into one unit of the
common stock for no additional  consideration.  Each unit consists of one common
stock and one nontransferable stock purchase warrant. The stock purchase warrant
entitles  the holder to purchase one share of common stock at $5.50 (Cdn$) until
July 2, 1997.

During  1997,  all of the Series "A"  Special  Warrants  were  exercised  for an
aggregate of 4,125,000  shares of common stock and stock  purchase  warrants for
the  purchase  of  an  additional   4,125,000  shares.  Total  net  proceeds  of
$12,943,000,  received upon the issuance of these special warrants less issuance
costs, were transferred to paid-in capital.  During 1997,  705,000 of the Series
"A" stock  purchase  warrants were exercised for common stock for total proceeds
of $2,791,800. The remaining Series "A" stock purchase warrants expired in 1997.

On December 6, 1996,  the Company  completed  a brokered  private  placement  of
500,000  Series "C"  Special  Warrants  at a price of $9.00  (Cdn$) per  special
warrant.  Each Series "C" Special  Warrant can be exercised into one unit of the
Company for no additional consideration.  Each unit consists of one common stock
and one stock  purchase  warrant.  Each Series "C" stock  purchase  warrant will
entitle the holder to purchase  one common stock at $9.50 (Cdn$) per share for a
period of one year.  During 1997, a warrant  amendment  was signed to change the
exercise  price of the Series "C" stock  purchase  warrant  from $9.50 (Cdn$) to
$4.50  (U.S.$) and extend the exercise  date of the Series "C" Special  Warrants
and Series "C" stock purchase warrant.

During 1997,  all of the Series "C" Special  Warrants were exercised into common
stock with stock purchase  warrants for an aggregate of 500,000 common stock and
stock purchase  warrants.  Total net proceeds of  $2,845,000,  received upon the
issuance of these special warrants, were transferred to paid-in capital. For the
six months ended June 30, 1998,  272,000 Series "C" stock purchase warrants were
exercised  for common  stock.  At June 30,  1998,  no Series "C" stock  purchase
warrants were outstanding.

STOCK PURCHASE WARRANTS

At  September  30,  1998,  the  Company  had  541,887  stock  purchase  warrants
outstanding.  These warrants were issued in connection  with private  placements
and other means of  financing.  The holders of these  warrants  are  entitled to
receive one share of common stock of the Company for one warrant exercised.  The
warrants have exercise  prices ranging from $3.50 to $5.00 and expiration  dates
between December 1998 and March 2003.

PREFERRED STOCK

On  September  19,  1997,  the Company  completed a private  placement of 10,000
shares of Series One  Convertible  Class A Preference  stock,  no par value (the
Class A Preferred),  for net proceeds of  $9,604,000.  Conversion of the Class A
Preferred  stock into common stock is at the option of the holder for any or all
the  outstanding  stock  after  January 8, 1998 or at the option of the  Company
after  September  8,  2000.  Each  share of the Class A  Preferred  stock may be
converted  into common  stock at a  conversion  price based on a floating  price
formula.  In the event of any  liquidation,  dissolution  or  winding  up of the
affairs of the Company, holders of the Class A Preferred stock 


PAGE 10

<PAGE>


shall be paid the  redemption  price plus all accrued  dividends  to the date of
liquidation,  dissolution  or winding up of affairs  before any payment to other
stockholders.  These shares have no voting rights and have a redemption price of
$1,000 per share, together with accrued and unpaid dividends thereon. Redemption
of these  shares  is at the  option  of the  Company.  Dividends  on the Class A
Preferred stock is cumulative and at the rate of 7% per annum payable in cash or
common stock at the date of conversion.

During 1998, all the holders of the Class A Preferred  stock elected to exercise
the  conversion  rights  under this class of shares.  The $10 million face value
amounts were converted into 4,742,522  common shares.  The total stock issued on
conversion  also includes the pay-out of 7% cumulative  dividends in the form of
additional  common  stock.  Dividends  paid out for the Class A Preferred  stock
amounted to $356,000.

SHARES IN ESCROW

Of the Company's issued and outstanding shares,  4,150,000 are held in escrow to
be released in accordance  with a formula  based on cumulative  cash flow of the
Company.

SHARE BUY-BACK PLAN

On  September  17,  1998,  the  Company  announced  that its Board of  Directors
authorized  the  Company  to buy up to $3.5  million of its  shares.  The actual
number of shares repurchased,  and the timing of the purchases, will be based on
the stock  price,  general  conditions  and other  factors.  The Company did not
repurchase any of its stock during the third quarter of 1998.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
financial statements and notes thereto appearing elsewhere herein.

GENERAL

Turbodyne  Technologies  Inc. and  subsidiaries  (the "Company" or  "Turbodyne")
designs,  develops,  manufactures and markets proprietary  products that enhance
performance  and reduce  emissions of internal  combustion  engines (the "Engine
Technology  Division")  and  manufactures  aluminum  cast  automotive  products,
including  automotive  engine  components and aftermarket  specialty wheels (the
"Light Metals Division").

The Company has developed a patented  technology  (the  "Turbodyne  Technology")
designed  to optimize  air flow to  internal  combustion  engines  resulting  in
efficient fuel combustion in both diesel and gasoline  engines.  The Company has
incorporated  the  Turbodyne  Technology  into  its two  primary  products:  the
Turbopac(TM) and the Dynacharger(TM) (collectively, the "Turbodyne Products").

Through  Pacific  Baja Light  Metals  Corp.  ("Pacific  Baja"),  a wholly  owned
subsidiary,  the Company manufactures  critical engine components and assemblies
including  intake  manifolds,  oil pans,  rocker arm  covers,  turbocharger  and
compressor  housings for OEMs in the automotive industry and aluminum wheels for
the automotive  aftermarket.  The Company also manufactures  engineered aluminum
components for the Turbodyne Products.

From the date of the  acquisition  of the Turbodyne  Technology in April 1993 to
the  completion of the  acquisition  of Pacific  Baja,  the Company was engaged,
through Turbodyne Systems, a wholly owned subsidiary, principally in researching
and developing  products  incorporating  the Turbodyne  Technology.  During this
period,  the  Company  commenced   development  of  the  Turbodyne  System,  the
Turbopac(TM) product and the Dynacharger(TM) product. In 


PAGE 11

<PAGE>

addition,  the Company's  research and  development  activities  resulted in the
filing of patent applications in respect of the Turbodyne Products.  The Company
undertook low volume production of its products,  for the purpose of testing and
evaluation  with OEMs and major retrofit  customers.  The Company did not record
any  revenues  during  this  period  and at  September  30,  1998  had  expended
$17,508,000 as research and development  costs for the Turbodyne  Products.  The
development of the Turbodyne  Products was financed during this period primarily
from private placement equity financing.  The Company commenced limited sales of
the  Turbopac(TM)  2500 model in the second and third  quarters  of fiscal  1998
pursuant to a contract with Detroit  Diesel  Corporation,  a major global diesel
engine producer.

RESULTS OF OPERATIONS

Net sales for the nine months ended  September 30, 1998 increased to $29,808,000
from  $28,558,000  for the nine months ended  September 30, 1997, an increase of
$1,250,000 or 4.4% and for the three months ended  September 30, 1998  increased
to $9,058,000  from $8,405,000 for the three months ended September 30, 1997, an
increase of $653,000 or 7.8%. Sales in these periods were primarily attributable
to the Light  Metals  Division.  Sales  attributable  to the  Engine  Technology
Division were minimal during these  periods.  The increase in sales is primarily
attributable  to an increase in the automotive  components  segment of the Light
Metals business.

The less than expected  sales for the first nine months of 1998 primarily is the
result of much weaker than  expected  aftermarket  wheel  orders and slower than
expected  receipt  of sales  orders  from  Detroit  Diesel  for their  Urban Bus
Retrofit Rebuilt Kit (Turbopac(TM)  2500). The aftermarket demand for wheels has
been forecasted to be a slow-growth or declining  market as a result of the OEMs
providing more custom wheels on production  cars.  This has been a driving force
for the Light  Metals  Division's  strategy to  aggressively  pursue the growing
global OEM demand for precision  cast aluminum  components  and  assemblies  for
engine and vehicle application.

Aftermarket  wheel products represented 54% of the Light Metals Divisions' total
sales in the first nine months of 1997,  with the engine and vehicle  components
representing  only  46%.  For the  same  period  in  1998,  engine  and  vehicle
components   represented  65%  of  the  Light  Metals  Division's  total  sales.
Aftermarket wheels represented only 35% of total division sales.

Although the  automotive  components  segment of the Light Metals  Division grew
faster than  expected in the first nine months of the year, it did not grow fast
enough to offset the  decline in the  aftermarket  wheel  segment.  The  Company
expects a continued growth in the automotive  components segment of its business
and a continued  decline in the aftermarket wheel segment as a percentage of its
total business.  This is a forward looking  statement however and actual results
may differ.  For example,  if the  Company's  strategy to pursue the growing OEM
demand for precision cast aluminum  components and assemblies is not successful,
the automotive engine components segment may not continue to grow as expected.

Even though the aftermarket wheel segment is not a growth business,  the Company
believes that it is  financially  advantageous  to remain in that industry as it
provides  above  average  gross  margins and  accordingly  has  developed a plan
designed to ensure that Turbodyne  obtains a significant  and profitable  market
share position as one of the leading remaining wheel producers.

Profitability  of the Light Metals  Division is affected by seasonal  factors as
sales of aftermarket  wheel  products  typically peak in the spring of each year
while  operating costs continue  throughout the year and by increasing  aluminum
costs as the prices of its cast  aluminum  products are fixed under  contract in
advance of production.  See "Cautionary  Statements -- Potential Fluctuations in
Quarterly Results and Seasonality" and "Cautionary  Statements -- Raw Materials"
in the Company's Registration Statement on Form S-1 filed on October 1, 1998.


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<PAGE>

Cost of goods sold consists  primarily of material and labor costs  attributable
to the Light  Metals  Division.  Cost of goods  sold for the nine  months  ended
September 30, 1998 increased to $24,996,000 from $22,810,000 for the nine months
ended  September 30, 1997, an increase of $2,186,000 or 9.6%,  and for the three
months ended  September 30, 1998 increased to $7,462,000 from $7,094,000 for the
three months ended  September 30, 1997, an increase of $368,000 or 5.2%. Cost of
goods sold as a percentage of net sales for the nine months ended  September 30,
1998 increased to 83.9% from 79.9% for the nine months ended  September 30, 1997
and for the three months ended  September 30, 1998 decreased to 82.4% from 84.4%
for the three months ended  September  30, 1998.  The decrease in costs of goods
sold as a percentage of net sales in the third  quarter of 1998 is  attributable
to reduced  manufacturing  costs being realized as a result of the relocation of
all wheel  production  and the  majority  of the  automotive  engine  components
foundry to the new Ensenada, Mexico plant.

During the first nine months of 1998, the Light Metals  Division  incurred costs
and expenses  attributable to the  modernization  and relocation of all existing
aluminum foundry and machining  operations  currently in place in its La Mirada,
California facility to its newly acquired facility in Ensenada,  Mexico.  During
the third quarter of 1998, the Company began to realize favorable effects of the
modernization  and  relocation  on its  profit  margins  as a result of  greater
productivity  and  reduced  costs.  The  Company  expects  further   significant
improvements in the quality of its products,  and expects  greater  productivity
and  reduced  costs  as the  modernization  and  relocation  efforts  are  fully
completed.  In addition,  the Company  anticipates  that the new  facility  will
provide the Company with adequate capacity to meet current production volume and
expected  growth  from  both new  third  party  customers  as well as  increased
production  for the Turbodyne  Products.  These are forward  looking  statements
however and actual results may differ.  For example,  if the  modernization  and
relocation of the manufacturing  operations of the Company does not timely occur
or  if  the  costs   associated  with  these  activities   exceed   management's
expectations, the Company's results of operations may be adversely effected. The
Company  believes that its  investment in  modernization  and  relocation of the
aluminum  foundry and  machining  operations to Ensenada is essential to support
the expected  growth in both the engine  technology  and light metals  divisions
over at least the next three years.

Phase I of the relocation which consisted of the relocation and modernization of
all wheel machining  operations from the existing La Mirada facility to Ensenada
was  completed  during the first six months of 1998.  The Company  expects  that
Phase II, the final phase of the  relocation to Ensenada,  which consists of the
relocation  and  modernization  of the remaining  automotive  engine  components
foundry  and  machining  operations  located  in La Mirada  to the new  Ensenada
facility,  will be  completed  by the end of the fourth  quarter of fiscal 1998.
These are forward looking  statements however and actual results may differ. For
example,  if the set up of  operations  in the  new  facility  is not  completed
timely,  the Company may incur additional costs of production and its results of
operations may be adversely effected.

The Company  experienced  an  acceleration  of orders in the  automotive  engine
components  segment in the first nine months of 1998. These orders were received
by  the  Company  prior  to  the   relocation  of  its   automotive   components
manufacturing  operations  to the Ensenada  facility and  therefore  the Company
incurred extraordinary costs to ensure the customer orders were timely met.

The Company also  incurred  costs in the first nine months of 1998 due to a ramp
up of  production  activities  relating to the  Turbopac  2500  product  line to
satisfy the Company's  commitments  under its contract with Detroit Diesel.  The
Company  continues  to ramp up  production  activities  relating to the Turbopac
product  line  during  the third  fiscal  quarter  in  preparation  for  further
shipments  pursuant to its contract with Detroit  Diesel and the purchase  order
from, and initial deliveries to, the TransBusiness Group of Moscow,  Russia. The
first shipment to the  TransBusiness  Group currently is anticipated to begin in
the fourth fiscal quarter of 1998. This is a forward looking  statement  however
and actual results may differ. For example,  if the financing  arrangements with
respect


PAGE 13

<PAGE>

to the TransBusiness purchase order are not finalized,  then the Company may not
commence shipment to the TransBusiness  Group in the fourth fiscal quarter or at
all.

Gross  profit  for the  nine  months  ended  September  30,  1998  decreased  to
$4,812,000  or 16.1% of sales  from  $5,748,000  or 20.1% of sales  for the nine
months ended September 30, 1997, a decrease of $936,000, or 16.3%. For the three
months ended September 30, 1998 gross profit increased to $1,596,000 or 17.6% of
sales from $1,311,000 or 15.6% of sales for the three months ended September 30,
1997, an increase of $285,000, or 21.7%.

Gross profit improved to 17.6% of sales for the three months ended September 30,
1998 from 15.5% for the six months  ended June 30,  1998.  This  improvement  is
attributable  to the  reclassification  of  certain  costs  associated  with the
relocation  as  discussed  in note 2, and to the  completion  of Phase I and the
majority of Phase II of the  relocation.  During the third quarter of 1998,  the
Company began to realize  certain  favorable  effects of the  modernization  and
relocation on its profit margins as a result of greater productivity and reduced
costs.  The Company expects further  significant  improvements in the quality of
its  products,  and  expects  greater  productivity  and  reduced  costs  as the
modernization and relocation efforts are fully completed.

Selling, research, general and administrative expenses for the nine months ended
September 30, 1998 increased to $14,795,000 from $12,427,000 for the nine months
ended September 30, 1997, an increase of $2,368,000,  or 19.1% and for the three
months ended  September 30, 1998 increased to 4,419,000 from  $3,801,000 for the
three  months  ended  September  30,  1997,  an  increase  of $618,000 or 16.3%.
Selling,  research, general and administrative expenses as a percentage of sales
increased  to 49.6%  from  43.5%  for the  comparable  nine  month  periods  and
increased  to 48.9% from 45.2% for the  comparable  three month  periods.  These
changes are primarily  attributable to the additional  expenses  associated with
the Company's market development efforts in pursuit of commercial orders and new
strategic  relationships,   plus  the  recruiting,   hiring  and  employment  of
management to grow the technology  business,  in combination  with the increased
expenses  associated  with recruiting and training of the new labor force at the
new  Light  Metals  Division  facility  in  Ensenada.   The  increase  was  also
attributable  to  finalizing  the  Turbopac(TM)  1500  and  2500  models,  final
validation testing of the Turbopac(TM) 2500 model,  on-going  development of the
Dynacharger(TM)  product and preparing for full scale  commercial  production of
the  Turbopac(TM)  2500 and 1500  models.  Research and  development  costs also
included the operation of the Company's quality control  laboratory at Turbodyne
Systems. Based on the Company's historical  expenditures related to research and
development and its current  development goals, the Company  anticipates for the
foreseeable  future,  research  and  development  expenses  will  continue to be
significant.

Loss  from  operations  for  the  nine  months  ended  September  30,  1998  was
$11,454,000  and  excluding  the  Light  Metals  Division  relocation  costs  of
$1,471,000, was $9,983,000, an increase of $3,304,000 over the comparable period
a year earlier.  Loss from  operations for the three months ended  September 30,
1998  was  $4,294,000  and  excluding  the  year to  date  relocation  costs  of
$1,471,000,  was  $2,823,000,  resulting  in an increase  of  $333,000  over the
comparable  period  a year  earlier.  The  third  quarter  results  without  the
relocation costs represent a significant improvement over the first two quarters
of 1998. This improvement is the result of the near completion of the relocation
effort  and  the  related   productivity   improvements  and  reduced  costs  of
production.

Other  income  and  expense  consists  primarily  of  interest  expense  on bank
operating lines of credit and equipment finance contracts and interest income on
cash.  Interest  expense for the nine and three months ended  September 30, 1998
decreased  $19,000  or 3.3%  and  $229,000  or  110.6%,  respectively,  over the
comparable  periods  a  year  earlier.   The  decrease  was  attributable  to  a
capitalization of $211,000 of interest associated with the relocation efforts as
well as additional borrowings and financing for property and equipment purchases
offset by an  increase in  interest  income due to an increase in the  Company's
average daily cash position.


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<PAGE>

Based on the financial structure of the Company today net income/loss is closely
approximated by both  income/loss from operations and income /loss before taxes.
Net loss for the nine  months  ended  September  30, 1998 was  $12,002,000,  and
excluding the relocation costs of $1,471,000,  was  $10,531,000,  an increase of
$3,169,000.  Net loss for three months ended  September 30, 1998 was  $4,233,000
and excluding the relocation  costs of $1,471,000,  was $2,762,000,  an increase
of $428,000.

With the relocation  program close to completion,  management  expects sales and
profit on operations  (before any  relocation  costs) are expected to improve in
subsequent  quarters as capacity  increases and  productivity  improvements  are
realized.  This is a forward  looking  statement  however and actual results may
differ. For example,  if the relocation takes longer than anticipated,  improved
sales and profitability may not be realized.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet has strengthened from December 31, 1997 to September
30, 1998.  Cash on hand has  increased  by $9.1  million to $10  million.  Total
current assets have  increased by $13 million or 74.7% to $30.4  million,  while
total  assets of the company have  increased by $15.8  million or 31.7% to $65.5
million.  Current liabilities have increased slightly to $10.3 million resulting
in a very strong  current  ratio of 2.94  compared to 1.96 on December 31, 1997.
Both the debt to equity and debt to assets  ratios  improved from 37.8% to 31.1%
and from 23.5% to 20.3%,  respectively.  Total shareholders' equity increased by
$11.9 million or 38.6% to $42.7 million.

The Company's operations have been financed principally through a combination of
private and public sales of equity and debt securities,  borrowings under a bank
credit facility and cash flows from the operations of Pacific Baja. At September
30, 1998, the principal  source of liquidity for the Company was  $10,011,000 of
cash as compared to $949,000 at December 31, 1997.

Cash used in operating  activities for the nine months ended  September 30, 1998
and 1997, was $11,873,000 and $10,493,000,  respectively,  primarily as a result
of net losses  from  operations  and the  finance of the  increase  in  accounts
receivable and inventory.

Cash used in investing  activities for the nine months ended  September 30, 1998
and 1997, was $4,046,000 and $4,308,000,  respectively, resulting primarily from
the purchase of property and equipment.

Cash provided by financing  activities  for the nine months ended  September 30,
1998 and 1997 was $25,198,000 and $19,598,000, respectively, resulting primarily
from  the  sale  of  equity  and  convertible  debt  securities  as well as bank
borrowings.

The Company  believes that funds generated from Pacific Baja,  existing  working
capital, and its existing financing activities will be sufficient to satisfy its
anticipated operating requirements for at least the next twelve months.

YEAR 2000

Many computer systems  experience  problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior to
the year  2000 in order to remain  functional.  The  Company  is  assessing  the
internal  readiness of its computer  systems for handling the year 2000 problem.
The  Company  has  commenced  a review of the  possible  effect of the Year 2000
problem on the computer and other  systems used by the Company.  As part of this
program,  the  Company  will be  contacting  each  of the  vendors  it uses  and
requesting  that  each  vendor  certify  to the  Company  that it is  Year  2000
compliant,  or is taking  action to ensure that its products or services will be
Year 2000 compliant before January 1, 2000. The Company expects to complete this
vendor review  process in the second  quarter of 1999. To date,  the Company has
not identified any internal systems


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<PAGE>

that  present a  material  risk of not being  Year  2000  ready,  or for which a
suitable alternative cannot be implemented. Based on the results of its internal
and external review to date,  which in large part solely addresses the readiness
of the  Company's  computer  systems,  the  Company  does not  believe  that any
significant financial expenditure or investments will be required by the Company
to conduct its business  from January 1, 2000  forward.  The Company has not yet
developed a contingency plan related to the Year 2000 problem, but will do so as
deemed  necessary.  There can be no assurance,  however,  that there will not be
delay  in,  or  increased  costs  associated  with  the  implementation  of  any
alternatives,  and the inability to implement such changes could have an adverse
effect on future  results of  operations.  Moreover,  the Company's  vendors may
indicate that they anticipate  problems  associated with Year 2000 issues which,
in turn, may adversely affect the Company's operations and profitability.

Readers are cautioned  that  forward-looking  statements  contained in this Year
2000  disclosure  should be read in conjunction  with the Company's  disclosures
under the heading,  "Special Note Regarding  Forward-looking  Information,"  set
forth  below.  Readers  should  understand  that the dates on which the  Company
believes  Year 2000  issues will be resolved  are based upon  Management's  best
estimates,  which were derived utilizing numerous  assumptions of future events,
including the availability of certain resources,  third-party modification plans
and other factors.  However, there can be no guarantee that these estimates will
be achieved, or that there will not be a delay in, or increased costs associated
with, the implementation of the Company's Year 2000 compliance  project. A delay
in specific  factors  that might cause  differences  between the  estimates  and
actual results  include,  but are not limited to, the  availability  and cost of
personnel  trained in these areas,  the ability of locating and  correcting  all
relevant computer code, timely responses to and corrections by third parties and
suppliers,  the ability to implement  interfaces between the new systems and the
systems  not being  replaced,  and  similar  uncertainties.  Due to the  general
uncertainty  inherent  in the Year  2000  problem,  resulting  in part  from the
uncertainty of the Year 2000 readiness of third parties and the inter-connection
of national and international businesses,  the Company cannot ensure that it has
the ability to timely and cost effectively  resolve problems associated with the
Year 2000 issue that may affect its  operations  and  business,  or expose it to
third party liability.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial  Accounting  Standards Board (FASB) issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("SFAS No.  130").  SFAS No. 130  establishes  standards  for the  reporting and
display of comprehensive income and its components  (revenues,  expenses,  gains
and losses) in a full set of general purpose financial statements.  SFAS No. 130
is effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS  No.  130  did  not  have a  material  impact  on the  Company's  financial
reporting.

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 establishes standards for public business enterprises to
report information about operating  segments in annual financial  statements and
selected  information  in the  notes  thereto.  SFAS No.  131 is  effective  for
financial  statements  for periods  beginning  after  December 15, 1997.  In the
initial year of application,  comparative information for earlier years is to be
restated.  SFAS No. 131 need not be applied to interim  financial  statements in
the year of adoption, but comparative information is required in the second year
of application.  The Company believes that the adoption of SFAS No. 131 will not
have a material impact on the Company's financial reporting.

In 1998, the FASB issued Statement of Financial  Statements No.133,  "Accounting
for Derivative  Instruments and Hedging  Activities"  ("SFAS No. 133"). SFAS No.
133  modifies  the  accounting  for  derivative  and hedging  activities  and is
effective  for fiscal years  beginning  after  December  15,  1999.  The Company
believes  that the  adoption of SFAS No. 133 will not have a material  impact on
the Company's financial reporting.


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<PAGE>


In 1998,  the AICPA issued  Statement of Position  (SOP) 98-1,  "Accounting  for
Costs of Computer Software  Developed or Obtained for Internal Use." The Company
believes  that the  adoption of SOP 98-1 will not have a material  impact on the
Company's financial reporting.

SPECIAL NOTE REGARDING FORWARD LOOKING INFORMATION

This Report contains  statements that  constitute  "forward-looking  statements"
within the  meaning of Section  21E of the  Exchange  Act and Section 27A of the
Securities  Act.  The  words  "expect,"  "estimate,"   "anticipate,"  "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 filing and include  statements  regarding  the intent,  belief or
current  expectations of the Company, its Directors or Officers with respect to,
among other things (a) trends  affecting the  financial  condition or results of
operations  of the Company and (b) the  business  and growth  strategies  of the
Company. The Company's  Stockholders  are cautioned not to put undue reliance on
such  forward-looking   statements.   Such  forward-looking  statement  are  not
guarantees to future  performance  and involve risks and  uncertainties.  Actual
results may differ  materially  from those  projected  in this  Report,  for the
reasons, among others, discussed under the caption, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Risk Factors" in
the Company's Registration Statement on Form S-1 filed on October 1, 1998; which
includes a discussion  of important  factors that could cause actual  results to
differ materially from the forward-looking  statements filed with the Securities
and Exchange Commission. The Company undertakes no obligation to publicly revise
these  forward-looking  statements to reflect events or circumstances that arise
after the date hereof. Readers should carefully review the risk factors referred
to above and the other  documents  the Company  files from time to time with the
Securities  and Exchange  Commission,  including the company's  Annual Report on
Form 10-K for the fiscal year 1998, the quarterly  reports on Form 10-Q filed by
the Company during the remainder of fiscal 1999, and any current reports on Form
8-K filed by the Company.


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<PAGE>


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not applicable.

                           PART II. OTHER INFORMATION


ITEM 1.           LEGAL PROCEEDINGS

GRAND TECHNOLOGIES ET. AL. V. TURBODYNE  TECHNOLOGIES,  ET. AL. On or about July
27, 1998,  Grand  Technologies,  Inc. and certain other  claimants  submitted an
action for arbitration  against the Company,  Turbodyne  Systems,  Inc.,  Edward
Halimi and  certain  other  respondents.  The action  states  claims  arising in
connection  with an alleged  agreement  between  the  Company and certain of the
plaintiffs  to form a  company  to market  and  exclusively  distribute  certain
products  of  the  Company,  including  the  Turbopac.  The  plaintiffs  request
compensatory and punitive damages in unspecified amounts.

On September 25, 1998, the  respondents  advised the arbitrator that there is no
jurisdiction  with respect to certain of the respondents  and claims  associated
with those  respondents  are  improper.  The  Company  also  denied all  claims,
submitted  affirmative  defenses and stated that the  agreement  was  terminated
because,  among other matters,  plaintiffs had falsified  information  about the
existence and scope of their distribution  network,  had failed to perform their
obligations  under the  agreement and had made false and  defamatory  statements
about the Turbodyne Products.

On October 22, 1998, the arbitrator ruled that respondents with respect to which
jurisdiction  is proper are the  Company,  Turbodyne  Systems,  Inc.  and Edward
Halimi and the only  claimant  with respect to which  jurisdiction  is proper is
Grand  Technologies,  Inc. The  arbitrator  also ruled that the only claims that
Grand  Technologies,  Inc.  may  pursue are for  breach of  contract,  breach of
purchase order, fraud and negligent misrepresentation. Currently the parties are
involved in the discovery process and the arbitration is scheduled for a hearing
on the merits on December 8, 1998.

POLLUTION RESEARCH & CONTROL CORP. ET. AL. V. TURBODYNE TECHNOLOGIES. On October
2, 1998,  Pollution Research and Control Corp., Dasibi  Environmental Corp., and
Logan Medical  Devices filed an action against the Company in the Superior Court
of the State of  California  for the County of Los  Angeles  alleging  claims in
connection with an alleged agreement between plaintiffs and the Company pursuant
to which the Company was to acquire all of the issued and  outstanding  stock of
Dasibi and Logan in exchange for $6.5 million.  Plaintiffs  also allege that the
agreement  required the Company to loan to  plaintiffs  the sum of $1.1 million.
Plaintiffs seek  compensatory and punitive damages in an unspecified  amount but
in excess of $2.0 million.  The Company  answered the complaint,  has denied the
allegations  contained therein and has asserted  thirteen  separate  affirmative
defenses.

The Company  believes  that the claims  described  above are  without  merit and
intends vigorously to defend against them.  However,  while the Company has been
advised by counsel in these  actions  that its  positions  are  meritorious,  no
assurance  can be given that the Company will  prevail in these  matters and the
possibility exists that an adverse decision might have a material adverse effect
on the financial condition of the Company.

BRADLEY  HOLT V.  TURBODYNE  TECHNOLOGIES.  The Company was a party to an action
commenced  in the Supreme  Court of British  Columbia on October 2, 1996 by Brad
Holt  seeking  specific  performance  and/or  damages,  in the  amount  of  Cdn.
$5,000,000, for breach of an alleged  agreement  by the  Company to grant to Mr.
Holt options to purchase an  aggregate of 650,000  shares of Common Stock of the
Company at prices varying from Cdn. $3.50 per shares to Cdn. $7.50 per share.


PAGE 18

<PAGE>
Trial in this action  commenced  on November 9, 1998.  Subsequent  thereto,  the
parties  reached a  settlement,  pursuant to which the Company  shall pay to Mr.
Holt $25,000.  In light of the  settlement  agreement,  the Court  dismissed the
action on November 12, 1998.

ITEM 2.           CHANGES IN SECURITIES

None


PAGE 19

<PAGE>


ITEM 3.           DEFAULT UPON SENIOR SECURITIES

None

ITEM 4.           SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The Annual  Meeting of  Stockholders  of the Company was held on  September  11,
1998.  The  stockholders  elected  the  persons  identified  below to serve  for
three-year  terms as Class I Directors of the Company and approved the Company's
1998 Stock  Incentive  Plan. Set forth below are the voting results with respect
to these two matters.


        PROPOSAL              VOTES FOR   VOTES AGAINST    ABSTAIN    NOT VOTED

1. Election of Directors
     Robert Taylor            11,324,194          7,144    102,338
     Walter F. Ware           11,330,794            544    102,338
2. Approval of the 1998
   Stock Incentive Plan        1,291,503        683,226     41,238     9,417,709


ITEM 5.           OTHER INFORMATION

None

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

        EXHIBITS
        --------
          11.1    Statement re computation of per share earnings
          27.1    Financial Data Schedule

        FORM 8-K
        --------
          Current Report of Form 8-K filed September 18, 1998, Item 5.
          Current Report on Form 8-K filed August 13, 1998, Item 5.


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<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.



                                            TURBODYNE TECHNOLOGIES INC.
                                            AND SUBSIDIARIES


Date:  November 10, 1998           By       /S/KHAL A. KADER
                                            ---------------------------
                                            Khal A. Kader
                                            Chief Financial Officer
                                            (Principal Accounting Officer)

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