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UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington, DC 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 June 30, 2003

 ̈ 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:144,535,320 shares of common stock issued and outstanding as of June
  30, 2003.

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PART 1 - FINANCIAL INFORMATION

Item 1.     Financial Statements





Turbodyne Technologies, Inc. and
  SubsidiariesConsolidated Financial Statements 
  For the six-month periods ended June 30, 2003 and 2002(Unaudited  Expressed in US Dollars)



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Turbodyne Technologies, Inc. and
  SubsidiariesConsolidated Financial StatementsFor the six-month periods ended June 30, 2003 and 2002 
  (Unaudited  Expressed in US Dollars)

Contents

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Consolidated Financial Statements

Balance Sheets

Statements of Operations

Statements of Capital Deficit

Statements of Cash Flows

Notes to the Financial Statements

F-1

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

|                                                               | June 30     |              | December 31 |  
|-------------------------------------------------------------- | ----------- | ------------ | ----------- | -
|                                                               | 2003        |              | 2002        |  
|                                                               | (Unaudited) |              |             |  
|Assets                                                         |             |              |             |  
|                                                               |             |              |             |  
|Current                                                        |             |              |             |  
|Cash                                                           | $           | 13,278       |             | $
|Prepaid expenses and other current assets                      |             | 16,829       |             |  
|Total current assets                                           |             | 30,107       |             |  
|                                                               |             |              |             |  
|Property and equipment, at cost, less accumulated depreciation |             | 139,893      |             |  
|Licenses, at cost less accumulated amortization                |             | 728,000      |             |  
|                                                               |             |              |             |  
|Total Assets                                                   | $           | 898,000      |             | $
|                                                               |             |              |             |  
|Liabilities and Capital Deficit                                |             |              |             |  
|                                                               |             |              |             |  
|Liabilities                                                    |             |              |             |  
|Current                                                        |             |              |             |  
|Term debts                                                     | $           | 80,571       |             | $
|Accounts payable                                               |             | 3,488,234    |             |  
|Accrued liabilities                                            |             | 1,599,685    |             |  
|Provisions for lawsuit settlements                             |             | 6,489,909    |             |  
|Loans payable (Note 3)                                         |             | 260,961      |             |  
|                                                               |             |              |             |  
|                                                               |             | 11,919,360   |             |  
|Deferred licensing fees (Note 5)                               |             | 400,000      |             |  
|Total liabilities                                              |             | 12,319,360   |             |  
|                                                               |             |              |             |  
|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                                                         |             |              |             |  
|116,175
      preferred shares in 2003 (2002  Nil)            |             | 116          |             |  
|144,535,320
      common shares in 2003 (2002 -115,620,517)    |             | 144,535      |             |  
|Treasury stock, at cost (378,580 shares) (Note 2)              |             | (1,907,612   | )           |  
|Additional paid-in capital                                     |             | 117,749,523  |             | ,
|Accumulated other comprehensive income -                       |             |              |             |  
|Foreign exchange translation gain                              |             | 35,119       |             |  
|Accumulated deficit                                            |             | (127,443,041 | )           |  
|Total capital deficit                                          |             | (11,421,360  | )           |  
|                                                               |             |              |             |  
|Commitments and contingencies(Note 4)                          |             |              |             |  
|Total Liabilities and Capital Deficit                          | $           | 898,000      |             | $

The accompanying notes are an integral part of these consolidated
  financial statements.
  F-2

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

|                                    | Three-month   |             | Six-month     |  
|----------------------------------- | ------------- | ----------- | ------------- | -
|                                    | periods ended |             | periods ended |  
|                                    | June 30       |             | June 30       |  
|                                    | 2003          |             | 2002          |  
|                                    |               |             |               |  
|Expenses                            |               |             |               |  
|Selling, general and administrative | $             | 482,738     |               |  
|Research and development            |               | 754,769     |               |  
|Litigation expense                  |               | 1,266,168   |               |  
|Depreciation and amortization       |               | 66,513      |               |  
|                                    |               |             |               |  
|Total expenses                      |               | 2,570,188   |               |  
|                                    |               |             |               |  
|Loss from operations                |               | (2,570,188  | )             |  
|                                    |               |             |               |  
|Other income (expenses)             |               |             |               |  
|Interest expense, net               |               | -           |               |  
|Other, net                          |               | 2,948       |               |  
|                                    |               |             |               |  
|Net loss for the period             | $             | (2,567,240  | )             | $
|                                    |               |             |               |  
|Loss per common share               |               |             |               |  
|Basic and diluted                   | $             | (0.02       | )             | $
|                                    |               |             |               |  
|Weighted average shares outstanding |               | 135,690,639 |               |  

The accompanying notes are an integral part of these consolidated
  financial statements.
  F-3

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Turbodyne Technologies, Inc. and SubsidiariesConsolidated Statements of 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, 2002                       | -               |   | $            | -      |                | 84,036,915  |   | $       | 84,037  |   | 378,580       |  | $           | (1,755,534 | ) | $       | 108,147,994 |   | $ | 35,119 | $ | (114,589,361 | ) | $ | (8,077,745)  |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Exercise of stock options                      | -               |   |              | -      |                | 5,377,143   |   |         | 5,377   |   | -             |  |             | -          |   |         | 550,337     |   |   | -      |   | -            |   |   | 555,714      |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Private placements of common stock             | -               |   |              | -      |                | 21,832,459  |   |         | 21,833  |   | -             |  |             | -          |   |         | 2,572,318   |   |   | -      |   | -            |   |   | 2,594,151    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of stock for services                 | -               |   |              | -      |                | 4,374,000   |   |         | 4,374   |   | -             |  |             | -          |   |         | 1,061,156   |   |   | -      |   | -            |   |   | 1,065,530    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of stock options to non-              |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|employees for services                         | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | 1,470,930   |   |   | -      |   | -            |   |   | 1,470,930    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Inception of Turbodyne Technologies Inc        |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|(Nevada Company) on August 15, 2002            | -               |   |              | -      |                | 1           |   |         | 1       |   | -             |  |             | -          |   |         | -           |   |   | -      |   | -            |   |   | 1            |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Adjustment for reverse acquisition of          |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Turbodyne Technologies, Inc. (Nevada           |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|company) on September 12, 2002                 | -               |   |              | -      |                | (1          | ) |         | (1      | ) | -             |  |             | -          |   |         | -           |   |   | -      |   | -            |   |   | (1           | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Obligation to acquire Company shares           | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | (152,078   | ) |         | -           |   |   | -      |   | -            |   |   | (152,078     | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Liability for settlement of equity instruments | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | (357,219    | ) |   | -      |   | -            |   |   | (357,219     | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Net loss for the year                          | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | -           |   |   | -      |   | (9,002,745   | ) |   | (9,002,745   | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Balance, December 31, 2002                     | -               |   |              | -      |                | 115,620,517 |   |         | 115,621 |   | 378,580       |  |             | (1,907,612 | ) |         | 113,445,516 |   |   | 35,119 |   | (123,592,106 | ) |   | (11,903,462  | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of Preferred Series X Shares (Note 2) | 122,175         |   |              | 122    |                | -           |   |         | -       |   | -             |  |             | -          |   |         | 1,613,378   |   |   | -      |   | -            |   |   | 1,613,500    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Exercise of stock options (Note 2)             | -               |   |              | -      |                | 8,681,000   |   |         | 8,681   |   | -             |  |             | -          |   |         | 512,939     |   |   | -      |   | -            |   |   | 521,620      |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Private placement of common stock (Note 2)     | -               |   |              | -      |                | 11,950,391  |   |         | 11,950  |   | -             |  |             | -          |   |         | 608,798     |   |   | -      |   | -            |   |   | 620,748      |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of stock for services (Note 2)        | -               |   |              | -      |                | 4,683,412   |   |         | 4,683   |   | -             |  |             | -          |   |         | 593,253     |   |   | -      |   | -            |   |   | 597,936      |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of stock for settlement of lawsuit    |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|(Note 4)                                       | -               |   |              | -      |                | 3,000,000   |   |         | 3,000   |   | -             |  |             | -          |   |         | 1,047,000   |   |   | -      |   | -            |   |   | 1,050,000    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Conversion of Preferred Series X shares        |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|(Note 2)                                       | (6,000          | ) |              | (6     | )              | 600,000     |   |         | 600     |   | -             |  |             | -          |   |         | (594        | ) |   | -      |   | -            |   |   | -            |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Issuance of stock options to non-              |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|employees for services (Note 2) -              | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | 1,032,612   |   |   | -      |   | -            |   |   | 1,032,612    |  
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Liability in connection with settlement of     |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|equity instruments (Note 2) -                  | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | (1,103,379  | ) |   | -      |   | -            |   |   | (1,103,379   | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Net loss for the period -                      | -               |   |              | -      |                | -           |   |         | -       |   | -             |  |             | -          |   |         | -           |   |   | -      |   | (3,850,935   | ) |   | (3,850,935   | )
|                                               |                 |   |              |        |                |             |   |         |         |   |               |  |             |            |   |         |             |   |   |        |   |              |   |   |              |  
|Balance, June 30, 2003 116,175                 | 116,176         |   | $            | 116    |                | 144,535,320 |   | $       | 144,535 |   | 378,580       |  | $           | (1,907,612 | ) | $       | 117,749,523 |   | $ | 35,119 | $ | (127,443,041 | ) | $ | (11,421,360) |  

The accompanying notes are an integral part of these consolidated
  financial statements.
  F-4

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

|For the six-month periods ended June 30                                     | 2003 |            | 2002 |  
|--------------------------------------------------------------------------- | ---- | ---------- | ---- | -
|                                                                            |      |            |      |  
|Cash provided by (used in)                                                  |      |            |      |  
|Operating activities                                                        |      |            |      |  
|Net loss for the period                                                     | $    | (3,850,935 | )    | $
|Adjustments to reconcile net loss for the period to
      net cash          |      |            |      |  
|used in operating activities:                                               |      |            |      |  
|Depreciation and
      amortization                                         |      | 133,025    |      |  
|Stock option compensation                                                   |      | 1,032,612  |      |  
|Stock issued for
      services                                             |      | 597,936    |      |  
|Stock issued for
      settlement of lawsuit                                |      | 1,050,000  |      |  
|Liability in connection
      with settlement of equity instrument          |      | (296,176   | )    |  
|Increase in assets                                                          |      |            |      |  
|Prepaid
      expenses and other current assets                             |      | (2,635     | )    |  
|Increase (decrease) in liabilities                                          |      |            |      |  
|Accounts
      payable                                                      |      | 195,693    |      |  
|Accrued
      liabilities and provisions for lawsuit settlements            |      | (759,579   | )    |  
|                                                                            |      |            |      |  
|                                                                            |      | (1,900,059 | )    |  
|                                                                            |      |            |      |  
|Financing activities                                                        |      |            |      |  
|Net proceeds from term debts                                                |      | 7,500      |      |  
|Issuance of common stock and stock subscriptions                            |      | 1,426,414  |      |  
|Loans payable                                                               |      | 91,906     |      |  
|Deferred licensing fees                                                     |      | 250,000    |      |  
|                                                                            |      |            |      |  
|                                                                            |      | 1,775,820  |      |  
|                                                                            |      |            |      |  
|Investing activity                                                          |      |            |      |  
|Purchase of property and equipment                                          |      | -          |      |  
|                                                                            |      |            |      |  
|Net increase (decrease) in cash                                             |      | (124,239   | )    |  
|Cash,beginning of period                                                    |      | 137,517    |      |  
|                                                                            |      |            |      |  
|Cash,end of period                                                          | $    | 13,278     |      | $
|                                                                            |      |            |      |  
|                                                                            |      |            |      |  
|Supplementary disclosure of cash flow information                           |      |            |      |  
|Cash paid during the period                                                 |      |            |      |  
|Interest                                                                    | $    | -          |      | $
|Income
      taxes                                                          | $    | -          |      | $
|Supplementary disclosure of non-cash investing and financing activities     |      |            |      |  
|Stock option compensation                                                   | $    | 1,032,612  |      | $
|Stock issued for services                                                   | $    | 597,936    |      | $
|Stock issued for settlement of lawsuit                                      | $    | 1,050,000  |      | $
|Preferred stock issued on settlement of accrued liabilities                 | $    | 1,613,500  |      | $
|Reduction in accounts payable as partial settlement
      of licensing fees | $    | 150,000    |      | $
|Liability in connection with settlement
      of equity instruments         | $    | 807,203    |      | $

The accompanying notes are an integral part of these consolidated
  financial statements.
  F-5

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|1. | Nature of Business and Ability to Continue as a Going Concern Turbodyne
        Technologies, Inc., a Delaware corporation, and its subsidiaries (the
        Company) has suspended its business operation subsequent to June 30, 2003
        due to a lack of financing. Prior to the suspension of operations, the
        Company engineered, developed and marketed products designed to enhance
        performance and reduce emissions of internal combustion engines.
      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, 2002 and 2001 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 suspended operations, has suffered recurring net losses,
        has an accumulated deficit of $127,443,041 at June 30, 2003, uses cash
        in its operating activities, has disposed of its most significant subsidiary
        through bankruptcy, is subject to lawsuits , and based on the Company's
        projected cash flows for the ensuing year, will be required to seek additional
        equity or debt financing in order to continue its present operations,
        irrespective of the amounts to be paid, if any, in connection with the
        aforementioned lawsuits. 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.
        Although the Company continues to raise operating funds with a combination
        of debt and equity instruments 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.
      The Company is examining alternatives for financing
        and fulfilling its working capital needs based on its working capital
        projections. If the Company is unable to resume operations and satisfactorily
        settle litigation, including its dispute with Honeywell Turbocharging
        Systems, a division of Allied Signal Inc. (Honeywell) (Note
        4(c)), the present holder of the Companys core technology and raise
        substantial monies or generate revenue to meet its working capital needs,
        it may have to cease operating and seek relief under appropriate statutes.
        If the going concern assumption was not appropriate for these consolidated
        financial statements, then adjustments would be necessary to the carrying
        value of assets and liabilities, the reported net loss and the balance
        sheet classifications used.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-6

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|2. | Share Capital
      Transactions not disclosed elsewhere in these consolidated interim financial
        statements are as follows:
|-- | -----------------------------------------------------------------------------------------------------------------------------------
|   | a)                                                                                                                                 
|   | b)                                                                                                                                 

F-7

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

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

| |                        | Non-employees |   | Employees |      | Total   |          
| | ---------------------- | ------------- | - | --------- | ---- | ------- | ---------
| |                        |               |   |           |      |         |          
| |                        |               |   | Weighted  |      |         |          
| |                        |               |   | Average   |      |         |          
| |                        |               |   | Exercise  |      |         |          
| |                        | Options       |   | Price     |      | Options |          
| |                        |               |   |           |      |         |          
| | Outstanding at         |               |   |           |      |         |          
| | beginning of period    | 1,131,715     |   | $         | 1.28 |         | 2,291,700
| | Granted                | 11,507,666    |   | $         | 0.07 |         | 300,000  
| | Exercised              | (8,681,000    | ) | $         | 0.06 |         | -        
| | Forfeited              | (1,300,000    | ) | $         | 0.08 |         | (410,000 
| |                        |               |   |           |      |         |          
| | Outstanding at end of  |               |   |           |      |         |          
| | period                 | 2,658,381     |   | $         | 0.71 |         | 2,181,700
| |                        |               |   |           |      |         |          
| | Options exercisable at |               |   |           |      |         |          
| | end of period          | 2,658,381     |   | $         | 0.71 |         | 2,181,700
| |                        |               |   |           |      |         |          
| | Weighted average fair  |               |   |           |      |         |          
| | value of options       |               |   |           |      |         |          
| | granted during the     |               |   |           |      |         |          
| | period                 | -             |   | $         | 0.09 |         | 0        

| | Grant of Stock Options to Non-employees for Services
      The Company has recorded $1,032,612 (2002 - $Nil) 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 during 2003 and 2002 was $0.09 and $Nil, respectively, 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 135%; risk-free interest rate of between 1.14% and 3.98%
        and expected life equal to 1 to 4 years.
      Grant of Stock Options to Employees for Services
      The Company applies Accounting Principles Board
        (APB) Opinion 25 and related interpretations in accounting
        for stock options granted to employees. Generally, under APB No. 25 compensation
        expense is recognized for the difference between the market price and
        the underlying stock and the exercise price of the stock options. Accordingly,
        compensation cost of $Nil (2002 - $Nil) has been recognized in connection
        with options granted to employees. Had compensation cost been determined
        based upon the fair value of the stock options at the grant date consistent
        with the fair value method prescribed in Statement of Financial Accounting
        Standard (SFAS) No. 123, the Company's net loss and loss per
        share would have been increased to the following pro forma amounts:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-8

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|2. | Share Capital  Continued
|-- | -------------------------

| |                                                |   | For the       |   |   | For the       |  
| | ---------------------------------------------- | - | ------------- | - | - | ------------- | -
| |                                                |   | three-month   |   |   | six-month     |  
| |                                                |   | periods ended |   |   | periods ended |  
| |                                                |   | June 30       |   |   | June 30       |  
| |                                                |   | 2003          |   |   | 2003          |  
| |                                                |   |               |   |   |               |  
| | Net loss, as reported                          | $ | (2,567,240    | ) | $ | (3,850,935    | )
| | Deduct: Stock-based compensation expense       |   |               |   |   |               |  
| | determined under fair-value based
      method |   |               |   |   |               |  
| | for all awards not included in net loss        |   | -             |   |   | (42,490       | )
| |                                                |   |               |   |   |               |  
| | Pro-forma net loss                             | $ | (2,567,240    | ) | $ | (3,893,425    | )
| |                                                |   |               |   |   |               |  
| | Loss per share:                                |   |               |   |   |               |  
| | Basic and diluted  as reported                | $ | (0.02         | ) | $ | (0.03         | )
| | Basic and diluted  pro-forma                  | $ | (0.02         | ) | $ | (0.03         | )

| |    | The per share weighted average fair value of stock
        options granted to employees during 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 between 3.57% and 3.69%;
        and expected life equal to 12 months.
      Effective from the date of the option repricing, the
        Company regularly remeasures compensation expense for the options where
        there has been a substantive change and modification to such options.
        No compensation expenses were recorded as a result of repricing of options.
      Subsequent to June 30, 2003, the Company granted 1,250,000
        options to non-employees with an exercise price of $0.03 per share for
        a three year period under the 2003 Stock Incentive Plan as described in
        Note 2(f).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d) | Stock Purchase Warrants
      At June 30, 2003, the Company had 30,029,228 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 each
        warrant exercised. The warrants have exercise prices ranging from $0.12
        to $4.00 per share with a weighted average exercise price of $0.44 per
        share and expiration dates between 2003 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-9

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|2. | Share Capital  Continued                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | e)                                                                                                                                                                                                                                                                                                                              
|   | f)                                                                                                                                                                                                                                                                                                                              
|3. | Loans Payable
        The Company has received from shareholders and other parties $260,961
          (December 31, 2002 -$169,055) in unsecured, non-interest bearing advances.
          Management expects that the amounts owing will be settled through the
          issuance of common stock and share purchase warrants.
|4. | Commitments and Contingencies
        The Company is party to various legal claims and lawsuits which have
          arisen in the normal course of business. There have been no material
          changes in the status of these matters since the issuance of the most
          recent audited annual financial statements. 

F-10

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

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

F-11

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|4. | Commitments and Contingencies  Continued
|-- | -----------------------------------------
|   |                                          
|   |                                          
|   |                                          
|   |                                          
|   |                                          
|   |                                          

F-12

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|4. | Commitments and Contingencies  Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5. | Deferred Licensing Fees
      During the quarter, the Company entered into a licensing
        and technology transfer agreement. Under the terms of the agreement, the
        Company received a $150,000 credit against pre-existing indebtedness to
        the licensee and a payment of $250,000 for licensing of the Dynacharger
        technology and will receive royalties of 3% of the net sales of licensed
        products made, used or sold by the licensee. In the event that the licensee
        sells an aggregate of 200,000 or more units in any calendar year, and
        remains current in its royalty payments, then the royalty payable for
        each additional unit sold during such calendar year will be reduced to
        2% of net sales. As at June 30, 2003, the amount received under the agreement
        totalling $400,000 was recorded as deferred licencing fees and will be
        amortized over the term of the agreement estimated to be 18 years.

F-13

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Turbodyne Technologies, Inc. and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited  Expressed in US Dollars)June 30, 2003 and 2002

|6. | Subsequent Event
      Subsequent to June 30, 2003, the Company entered into
        two loan agreements with a shareholder and a bank in Germany for an aggregate
        of $25,000. The loans are collateralized by promissory notes each bearing
        interest at 5% per annum payable at maturity which is the earlier of August
        31, 2004 or the date the Company receives proceeds from the Honeywell
        litigation (Note 4(c)) in excess of $5 million. In the event that the
        Company receives proceeds from the Honeywell litigation in excess of $5
        million, in lieu of interest due, the Company will pay each lender a bonus
        calculated at 50% of each of their loan principals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|7. | New Accounting Pronouncements
      FASB Interpretation (FIN) No. 46, Consolidation
        of Variable Interest Entities, clarifies the application of Accounting
        Research Bulletin No. 51, Consolidated Financial Statements,
        to certain entities in which equity investors do not have the characteristics
        of a controlling financial interest or do not have sufficient equity at
        risk for the entity to finance its activities without additional subordinated
        financial support from other parties. FIN 46 is applicable immediately
        for variable interest entities created after January 31, 2003. For variable
        interest entities created prior to January 31, 2003, the provisions of
        FIN 46 are applicable no later than July 1, 2003.
      On May 15, 2003, the Financial Accounting Standards
        Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS")
        No. 150, "Accounting for Certain Financial Instruments with Characteristics
        of both Liabilities and Equity". SFAS No. 150 changes the accounting for
        certain financial instruments that, under previous guidance, could be
        classified as equity or "mezzanine" equity, by now requiring those instruments
        to be classified as liabilities (or assets in some circumstances) in the
        balance sheet. Further, SFAS No. 150 requires disclosure regarding the
        terms of those instruments and settlement alternatives. SFAS No. 150 affects
        an entity's classification of the following freestanding instruments:
        a) Mandatory redeemable instruments b) Financial instruments to repurchase
        an entity's own equity instruments c) Financial instruments embodying
        obligations that the issuer must or could choose to settle by issuing
        a variable number of its shares or other equity instruments based solely
        on (i) a fixed monetary amount known at inception or (ii) something other
        than changes in its own equity instruments d) SFAS No. 150 does not apply
        to features embedded in a financial instrument that is not a derivative
        in its entirety. The guidance in SFAS No. 150 is generally effective for
        all financial instruments entered into or modified after May 31, 2003,
        and is otherwise effective at the beginning of the first interim period
        beginning after June 15, 2003.
        The implementation of these standards is not expected to have a material
        effect on the Companys financial statements.
|8. | Comparative Amounts
      Certain comparative amounts have been restated to conform
        to the current periods presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-14

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Item 2.     Managements Discussion and Analysis or Plan of Operations

FORWARD LOOKING STATEMENTS

The information in this discussion contains forward-looking
  statements within the meaning of Section 27A of the Securities Act of 1933,
  as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
  These forward-looking statements involve risks and uncertainties, including
  statements regarding the Company's capital needs, business strategy and expectations.
  Any statements contained herein that are not statements of historical facts
  may be deemed to be forward-looking statements. In some cases, you can identify
  forward-looking statements by terminology such as "may", "will", "should", "expect",
  "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential"
  or "continue", the negative of such terms or other comparable terminology. Actual
  events or results may differ materially. In evaluating these statements, you
  should consider various factors, including the risks outlined in the Risk Factors
  section below, and, from time to time, in other reports the Company files with
  the SEC. These factors may cause the Company's actual results to differ materially
  from any forward-looking statement. The Company disclaims any obligation to
  publicly update these statements, or disclose any difference between its actual
  results and those reflected in these statements. The information constitutes
  forward-looking statements within the meaning of the Private Securities Litigation
  Reform Act of 1995.

OVERVIEW

We have suspended our business operations subsequent to June
  30, 2003 due to a lack of financing. Accordingly, our ability to carry out our
  plan of operations has been materially and adversely affected. The events that
  have lead to our suspension of business operations and the current status of
  our business is discussed below under Recent Corporate Development.
  We are currently working on a re-structuring of our business that would involve
  a new management team that we plan to implement if we achieve the necessary
  financing. See Plan of Operations.

To the date of suspension of our business operations, we have
  been a design and 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. 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.

We have incorporated our technology into two initial primary
  products, which are (1) the Dynacharger and (2) the Turbopac. We
  transferred the intellectual property associated with our Dynacharger and Turbopac
  products to Honeywell, Inc. (Honeywell) in 1999. Our rights to these
  products are now the subject of a license agreement and a joint development
  agreement with Honeywell. We are now involved in legal proceedings regarding
  our agreements with Honeywell. Honeywell is seeking termination of the license
  agreement and joint development agreement and damages from us. See Item 1 of
  Part II  Legal Proceedings.

We are presently finalizing the development of additional
  products incorporating new technology, including a product known as the TurboAir.
  These new products are in various stages of design and development. Our ability
  to commercialize these new products is conditional upon us entering into arrangements
  with OEMs that provide for the final development and manufacturing of
  these products. We have begun to enter into development agreements for the manufacture
  of prototype TurboAir units that will be used for testing and evaluation purposes
  by original equipment manufacturers.

Prior to the suspension of our business activities, we were
  in a transition phase of our business to an engineering and design business
  from a business model that originally included manufacturing and marketing of
  products incorporating our technology. Our operating results for the six months
  ended June 30, 2003 reflect the fact that Honeywell is not proceeding with the
  commercialization of the Turbopac and Dynacharger products and we are not earning
  revenues under our license agreement with Honeywell.

3

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We are currently not earning any revenues under our license
  agreement with Honeywell or through sales of products incorporating our new
  technology. None of our products are currently being sold commercially.

RECENT CORPORATE DEVELOPMENTS

We have experienced the following recent corporate developments
  that have transpired since the end of our second quarter ended June 30, 2003
  that have led to us suspending our ceasing business operations pending receipt
  of additional financing:

| | 1. | Our chairman, Mr. Manfred Hanno Jansen resigned as our chairman and as
      a director in July, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 2. | Our founder, Mr. Edward Halimi, passed away in July 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 3. | We became unable to sustain our business operations
        due to a lack of financing and our working capital deficit. We have laid
        off our employees and vacated our leased premises as part of the suspension
        of our business operations. We have also suspended work on the development
        of our products and technologies as part of the suspension of our business
        operations. We are currently unable to continue development of products
        under product development agreements that we have entered into. As a result
        of our inability to pay employees, Mr. Daniel Black, our chief executive
        officer, has assumed the role of our chief financial officer, in place
        of Mr. Charles Caverno, our former chief financial officer.

As part of our efforts to resume business operations, we have
  entered into loan agreements with private individuals, as disclosed below, in
  order to provide us with minimal financings in order to enable us to sustain
  minimal corporate operations, including meeting our disclosure obligations under
  the Securities Exchange Act of 1934.

PLAN OF OPERATIONS

Our immediate plan of operations is for us to obtain the necessary
  financing for us to resume our business operations. We anticipate that we require
  additional financing in the approximate amount of $600,000 plus the agreement
  of our creditors to the settlement of outstanding accounts payable and accrued
  liabilities or their agreement to forbear on collection of outstanding accounts
  payable and accrued liabilities in order for us to resume business operations.
  Our strategy for resuming business operations includes the following elements:

| | 1. | We are attempting to enter into short term loan agreements
        with our existing shareholders. While we have entered into several loan
        agreements to date, there is no assurance that we will be able to obtain
        sufficient funds from loan agreements in order to resume operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 2. | We are proposing to assemble a new management team
        that would headed by Mr. David Willett who has previously been our vice-president
        of product development. Our plan to assemble this management team is on
        stand-by pending our achieving additional financing that would
        enable us to pursue our plan of operations for the development of our
        technology, as discussed below. We plan to enter into new management agreements
        with these individuals upon receipt of financing. We do not have any agreements
        in place with these individuals and there is no assurance that we will
        be able to negotiate to engage the individuals who we hope to include
        in the management team.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | 3. | We are attempting to settle all legal proceedings
        that are currently against us, as disclosed in Item No. 1 of Part I of
        this Form 10-QSB. Our objective is to remove the uncertainty and potential
        liabilities associated with these legal proceedings in order to increase
        the likelihood that investors will invest in us in order to finance our
        business. There is no assurance that we will be successful in our negotiations
        to settle the legal proceedings in which we are currently involved.                                                                                                                                                                                                         

4

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| | 4. | We are attempting to settle our outstanding accounts
        payable and accrued liabilities with our creditors. If we are unable to
        settle these liabilities, then we plan to pursue forbearance agreements
        whereby the creditor would forbear from enforcement of the liability pending
        our resuming operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 5. | We plan to proceed with a meeting of our shareholders
        in order to increase the number of our authorized shares of common stock.
        We have historically relied on equity financings of sales of our common
        stock and share purchase warrants in order to fund our operations. We
        believe that any new financings that we achieve, of which there is no
        assurance, will be through equity financings. Due to the fact that we
        have in excess of 145,000,000 shares of our common stock issued and outstanding
        and the number of authorized shares of our common stock is 150,000,000
        shares, we believe that we will need to increase our authorized capital
        in order to achieve any equity financings. We currently do not have any
        arrangements in place for any equity financings and there is no assurance
        that any financings will be achieved.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 6. | We are planning on resuming development of our products
        and technologies and performance of our obligations under product development
        agreements once we have resumed operations. We have informed our product
        development partners as to the status of our operations. There is no assurance
        that we will be able to continue with our product development agreements
        due to our financial status.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

If we are successful in resuming business operations, then
  our plan of operations over the next twelve months will be to focus on developing
  our Dynacharger, Turbopac and Turboair products under product development agreements
  with original equipment manufactures under a scaled back plan of operations.
  This scaled back plan of operations would involve us having a smaller number
  of employees and reduced leased space. We also plan to re-evaluate our business
  strategy, including an evaluation as to the feasibility of pursuing joint venture
  development agreements with original equipment manufacturers. Both our plan
  of operations and our business strategy will be implemented based on the amount
  of the available funds that we have access to upon receipt of any financing
  that would enable us to resume business operations.

We had cash of $13,278 as at June 30, 2003 and a working capital
  deficit of $11,889,253 as at June 30, 2003. If we are successful in resuming
  our business operations, our plan of operations calls for us to spend approximately
  $1,000,000 over the next twelve months, with approximately half of this amount
  being incurred over the next six months. This amount is exclusive of any amounts
  that we will pay to settle outstanding accounts payable and accrued liabilities
  or to obtain the forbearance of our creditors. As discussed above, we are not
  able to pursue our stated plan of operations without substantial additional
  financing. We are pursuing possible short term loan agreements and possible
  sales of our common stock and share purchase warrants to raise the financing
  necessary for us to resume and continue operations. We have no arrangements
  in place for additional loan or equity financing and there is no assurance that
  additional loan or 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 resume or
  carry out our plan of operations. If we achieve less financing than required
  to resume operations, then we will not be able to carry out our plan of operations.

RESULTS OF OPERATIONS

Net Sales

We did not achieve any sales during the six months ended June
  30, 2003 or during the six months ended June 30, 2002. Our current inability
  to earn revenues reflects the fact that (i) our new TurboAir product and other
  new products remain in the development stage; and (ii) our Turbopac or Dynacharger
  products are currently not being sold under any license or development agreement.
  There have been no sales of the Turbopac product by Honeywell since June
  2000 and our Dynacharger product remains in development.

5

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We will not be able to achieve any revenues unless we are
  able to resume business operations. If we are able to resume operations, then
  we anticipate any revenues would be minimal and would be realized in connection
  with sales of prototypes 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 anticipate that we will not be able
  to generate any significant sales of the Turbopac or Dynacharger products until
  we are successful in entering into a new license and manufacturing arrangement
  with a new automotive OEM. We anticipate that we will not be able to generate
  sales of our TurboAir products until we are able to enter into an agreement
  with an automotive OEM for the final development and manufacture of this product.
  We anticipate sales of prototypes will be offset against corresponding expenses.

Costs of Sales

We did not have any costs of sales during the six months ended
  June 30, 2003 or the six months ended June 30, 2002 in view of the fact that
  we had no sales during each of these periods. We did not engage in any manufacturing
  activity during the six months ended June 30, 2003 or the six months ended June
  30, 2002. We anticipate that we will not undertake any manufacturing activity
  during 2003, other than manufacturing of prototypes for evaluation and demonstration
  purposes.

Gross Profit

Gross profit was nil for the six months ended June 30, 2003
  and for the six months ended June 30, 2002 and reflects the fact that we were
  not engaged in any manufacturing activities during each of these periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months
  ended June 30, 2003 increased to $843,965 from $365,272 for the six months ended
  June 30, 2002, representing an increase of $478,693 or 131%. Selling, general
  and administrative expenses for the three months ended June 30, 2003 increased
  to $482,738 from $97,597 for the three months ended June 30, 2002, representing
  an increase of $385,141 or 394%. The increase in our selling, general and administrative
  expenses was attributable to increased activity during the first half in connection
  with development agreements that we have entered into. 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 six months ended June
  30, 2003 increased to $1,755,983 from $1,343,088 for the six months ended June
  30, 2002, representing an increase of $412,895 or approximately 31%. Research
  and development costs for the three months ended June 30, 2003 increased to
  $754,769 from $388,235 for the three months ended June 30, 2002, representing
  an increase of $366,534 or approximately 94%. The increase in research and development
  costs was attributable to increased development work relating to the manufacture
  of prototypes for evaluation purposes under development agreements. Our research
  and development costs related to present and future products are charged to
  operations in the period incurred. Current research and development costs are
  associated with our development of our TurboAir products and new products.

Litigation Expense

We incurred litigation expense in the amount of $1,121,377
  for the six months ended June 30, 2003 compared to litigation expense in the
  amount of $459,580 for the six months ended June 30, 2002. We incurred litigation
  expense in the amount of $1,266,168 for the three months ended June 30, 2003
  compared to litigation expense in the amount of $188,679 for the three months
  ended June 30, 2002. The increased litigation expense is primarily attributable
  to our settlement of litigation with TST in consideration for the issuance of
  3,000,000 shares of common stock during our second quarter, which resulted in
  an expense of $1,050,000. Our litigation expenses are attributable to our involvement
  in the legal proceedings described in

6

---

Item 3 of Part I of our Annual Report on Form 10-KSB. The
  most significant component of our litigation expense remains legal expenses
  attributable to our litigation with Honeywell. Litigation expenses during the
  balance of 2003 are anticipated to consist primarily of legal expenses relating
  to the pending arbitration proceedings in the Honeywell dispute.

Net Loss

Our net loss for the six months ended June 30, 2003 increased
  to $3,850,935 from a net loss of $2,294,650 for the six months ended June 30,
  2002, representing an increase of $1,556,285. Our net loss for the three months
  ended June 30, 2003 increased to $2,567,240 from a net loss of $737,916 for
  the three months ended June 30, 2002, representing an increase of $1,829,324.
  Our continued net losses reflect our increased selling, general and administrative
  expenses, our increased litigation expenses and our current inability to generate
  revenues.

FINANCIAL CONDITION

Cash and Working Capital

We had cash of $13,278 as at June 30, 2003, compared with
  cash of $137,517 as at December 31, 2002. Our working capital deficit decreased
  to $11,889,253 as at June 30, 2003, compared to a working capital deficit of
  $12,904,380 as at December 31, 2002. The reduction to our working capital deficit
  was primarily attributable to a reduction to accrued liabilities, as off-set
  by provisions for lawsuit settlements, as discussed below

Liabilities

The largest component of our working capital deficit is a
  reserve for lawsuit settlements in the amount of $6,489,909 as at June 30, 2003,
  compared to $4,309,909 as at December 31, 2002.

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 increased to $3,488,234 as at June
  30, 2003 from $3,442,541 as at December 31, 2002. Accrued liabilities decreased
  to $1,599,685 as at June 30, 2003 from $5,061,515 as at December 31, 2002. We
  have continued during 2002 and are continuing during 2003 to negotiate with
  our creditors for the payment of our accounts payable and accrued liabilities.
  Payment of these liabilities is contingent on new funding being received that
  would enable us to make payment to the creditors. Our ability to resume and
  continue our operations is also conditional upon the forbearance of our creditors.

Short term loans from shareholders and other parties increased
  to $260,961 as of June 30, 2003 from $169,055 as of December 31, 2002. These
  loans are unsecured, non-interest bearing advances that we anticipate will be
  converted into shares of our common stock and share purchase warrants. These
  loans have not been converted to date.

Cash Used in Operating Activities

Cash used in operating activities for the six months ended
  June 30, 2003 was $1,900,059, compared to $1,080,312 for the six months ended
  June 30, 2002, representing an increase of $819,747 or 76%. The increase in
  cash used in operating activities necessitated that we increase our financing
  activities in order to fund our operations.

Cash Provided by Financing Activities

We have continued to finance 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 provided by financing
  activities for the six months ended June 30, 2003 was $1,775,820, compared to
  $1,256,917 for the six months ended June 30, 2002.

7

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Financing Requirements

Our immediate plan of operations is for us to obtain the necessary
  financing for us to resume our business operations. We anticipate that we require
  approximately $600,000 in order for us to resume business operations, exclusive
  of any amounts to pay or settle outstanding accounts payable and accrued liabilities.
  Our strategy for resuming business operations includes the elements described
  above under plan of operations. If we are successful in resuming our business
  operations, our plan of operations calls for us to spend approximately $1,000,000
  over the next twelve months, with approximately half of this amount being incurred
  over the next six months. This amount is exclusive of any amounts that we will
  pay to settle outstanding accounts payable and accrued liabilities or to obtain
  the forbearance of our creditors. We are not able to resume or pursue our stated
  plan of operations without substantial additional financing.

We are pursuing possible short term loan agreements and possible
  sales of our common stock and share purchase warrants to raise the financing
  necessary for us to resume and continue operations. In September 2003, we entered
  into two loan agreements whereby we borrowed $25,000. The loans mature on August
  31, 2004, bear interest at the rate of 5% per annum and provide for a bonus
  of 50% of the principal amount if we receive settlement or execution proceeds
  from our arbitration proceeding with Honeywell in excess of $5,000,000, of which
  there is no assurance.

We currently have minimal cash and working capital resources.
  We do not have adequate financial resources in order to enable us to resume
  or continue our business operations without additional financing. Our current
  sources of working capital are not sufficient for us to resume business operations.
  We may not be able to obtain additional financing on acceptable terms, or at
  all. Accordingly, there is substantial doubt about our ability to continue as
  a going concern.

We will require additional financing if we are to resume our
  business operations and to continue as a going concern and to finance our business
  operations. We anticipate that any additional financing would be through short
  term loans, the sales of our common or preferred stock or placement of convertible
  debt. We are presently attempting to negotiate loan agreements and private placements
  of our securities to raise working capital to finance our operations. However,
  we do not have any arrangements in place for any loans or the sale of any of
  our securities and there is no assurance that we will be able to raise the additional
  capital that we require to resume and continue operations. In the event that
  we are unable to raise additional financing on acceptable terms, then we may
  not be able to resume our business operations. Even if we are able to resume
  business operations, 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 expectation in part on
  the expectation that we will incur increased operating expenses in completing
  our stated plan of operations and there is no assurance that we will generate
  revenues that exceed these expenses.

Our authorized capital currently includes 150,000,000 shares
  of common stock. We had 144,535,320 shares of common stock outstanding as of
  June 30, 2003. In addition, we had warrants to purchase 30,029,228 shares of
  our common stock outstanding as of June 30, 2003 and we had 116,175 shares of
  our Series X preferred shares outstanding that are convertible into an additional
  11,617,500 shares of our common stock. If all share purchase warrants 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 $1,164,422 to account for the potential
  cash settlement of these outstanding share purchase warrants and convertible
  shares of Series X preferred stock. Our limited remaining number of shares of
  authorized common stock may adversely impact on our ability to raise additional
  financing through additional private placements.

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

8

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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, 2002. 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 believe
  our most critical accounting policies include stock-based compensation and legal
  contingencies as explained below.

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

Our financial statements included with this Quarterly Report
  on Form 10-QSB have been prepared assuming that we will continue as a going
  concern. We have suffered net losses in recent periods resulting in an accumulated
  deficit of $127,443,041 at June 30, 2003, 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 will
  be required to seek additional equity or debt financing in order to continue
  our present operations, irrespective of the amounts to be paid, if any, in connection
  with the aforementioned lawsuits. These matters raise substantial doubt about
  our ability to continue as a going concern.

Stock Based Compensation

We account for our employee stock-based compensation plans
  in accordance with APB No. 25 Accounting for Stock Issued to Employees
  and Financial Accounting Standards Board Interpretation ("FIN") No.44, Accounting
  for Certain Transactions Involving Stock Compensation--an Interpretation of
  APB No. 25, and comply with the disclosure provisions of Statement of
  Financing Accounting Standard (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 extensions of the vesting period or changes in the exercise
  price, result in variable accounting in accordance with APB No. 25. 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.

Legal Contingencies

We are currently involved in legal proceedings regarding shareholder
  litigation and other general legal proceedings. These legal proceedings are
  discussed in Note 4 to our interim financial statements and in Item 1 of Part
  II of this Quarterly Report. Where appropriate, we have accrued amounts which
  we believe we will be required to pay to settle litigation. We believe that
  the other lawsuits will be settled in our favor or are without merit and intend
  to defend against them vigorously. We do not believe these proceedings will
  have a material adverse affect on our consolidated financial position. It is
  possible, however, that future results of operations for any particular quarterly
  or annual period could be materially affected by changes in our assumptions,
  or the effectiveness of our strategies, related to these proceedings.

NEW ACCOUNTING PRONOUNCEMENTS

FIN 46, Consolidation of Variable Interest Entities,
  clarifies the application of Accounting Research Bulletin No. 51, Consolidated
  Financial Statements, to certain entities in which equity investors do
  not have the characteristics of a controlling financial interest or do not have
  sufficient equity at risk for the entity to finance its activities without additional
  subordinated financial support from other parties. FIN 46 is applicable immediately
  for variable interest entities created after January 31, 2003. For variable
  interest entities created prior to January 31, 2003, the provisions of FIN 46
  are applicable no later than July 1, 2003.

9

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On May 15, 2003, the Financial Accounting Standards Board
  ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 150,
  "Accounting for Certain Financial Instruments with Characteristics of both Liabilities
  and Equity". SFAS No. 150 changes the accounting for certain financial instruments
  that, under previous guidance, could be classified as equity or "mezzanine"
  equity, by now requiring those instruments to be classified as liabilities (or
  assets in some circumstances) in the balance sheet. Further, SFAS No. 150 requires
  disclosure regarding the terms of those instruments and settlement alternatives.
  SFAS No. 150 affects an entity's classification of the following freestanding
  instruments: a) Mandatory redeemable instruments b) Financial instruments to
  repurchase an entity's own equity instruments c) Financial instruments embodying
  obligations that the issuer must or could choose to settle by issuing a variable
  number of its shares or other equity instruments based solely on (i) a fixed
  monetary amount known at inception or (ii) something other than changes in its
  own equity instruments d) SFAS No. 150 does not apply to features embedded in
  a financial instrument that is not a derivative in its entirety. The guidance
  in SFAS No. 150 is generally effective for all financial instruments entered
  into or modified after May 31, 2003, and is otherwise effective at the beginning
  of the first interim period beginning after June 15, 2003.

The implementation of these standards is not expected to have
  a material effect on the Companys financial statements.

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 June 30, 2003, 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. Daniel Black.
  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 Securities
  and Exchange Commission'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 June
  30, 2003, 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;
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10

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| | (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.                                                                                                                                          

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 April 15, 2003. The presence of the law suits 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.

The company from which we leased a photocopier has obtained
  a judgment against us in the approximate amount of $80,000. Other than this
  judgement, 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. Set forth below is a description of material developments in
  the previously disclosed legal proceedings to which we are a party that have
  occurred since the date of our Annual Report on Form 10-KSB:

|1. | We filed an action in Superior
        Court of the State of California for the County of Santa Barbara (Case
        No. 01046250) in March 2001 against Wendell Anderson, Gerhard Delf, Sadayappa
        K. Durairaj, Naresh C. Saxena, Mugerdish Balabanian, Kenneth Fitzpatrick,
        Alain G. Chardon, Joseph D. Castano and Marsha Chandler. We have agreed
        to settle the counter-claims of Mr. Anderson against us made in this litigation
        by the payment of the amount of $39,495 by us to Mr. Anderson, provided
        that this amount will only be payable if we receive a monetary recovery
        resulting from our legal and arbitration proceedings with Honeywell International.
        The settlement is subject to the execution of definitive settlement agreements
        between us and Mr. Anderson. We determined to abandon this law suit against
        all other defendants, other than Mr. Delf. Mr. Delf is one of our former
        directors and our former chief executive officer. We are seeking damages
        for alleged breach of fiduciary duty by Mr. Delf in connection with his
        handling of our dealings with Sheppard, Mullin, our former securities
        legal counsel, that gave rise to our litigation against Sheppard, Mullin
        and our acquisition of Pacific Baja. Mr. Delf has filed a cross-complaint
        against us for indemnity and for compensation alleged to be payable by
        us to Mr. Delf relating to his former position as chief executive officer.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | In March 2000, TST, Inc.
        (TST), a vendor to a subsidiary of Pacific Baja, filed an
        action against us in the California Superior Court, County of San Bernardino
        alleging that we were liable under a guarantee that we granted to TST
        in order to induce TST to extend credit to our subsidiary, Pacific Baja.
        TST alleged that Pacific Baja had defaulted on the credit facility and
        that we are liable as guarantor. TST originally sought damages of approximately
        $1.8 million. However, if it is determined that TST received payment in
        preference to other creditors before Pacific Baja filed its Chapter 11
        petition in bankruptcy, TST will likely increase its claim by $2,130,000.
        We agreed on the terms of settlement with TST on October 4, 2001. Under
        the terms of the settlement agreement, we have agreed to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

11

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| | (ii)  | issue 2,000,000 shares of our common stock to TST;                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iii) | the stipulation for the entry of judgment
        that will provide for the immediate entry of judgment against us in the
        amount of $2,068,078 plus interest from the date of entry at the rate
        of 10% per annum. The amount of this judgment would immediately increase
        by any amount that TST is compelled by judgment or court order or settlement
        to return as a preferential transfer in connection with the bankruptcy
        proceedings of Pacific Baja;
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (iv)  | any proceeds received by TST or Mr.
        Stein from the sale of the issued shares will be automatically applied
        as a credit against that amount of the judgment against us in favor of
        TST                                                                                                                                                                                                                                                                                    

During our second quarter, we issued the 1,000,000 shares to Mr. Stein and the 2,000,000 shares to TST required by the settlement agreement.

Item 2.     Changes in Securities

During the three months ended June 30, 2003, we completed
  the sales of the following securities that were not registered pursuant to the
  Securities Act of 1933 (the 1933 Act):

| | 1. | On April 8, 2003, we completed the sale of 400,000
        units at a price of $0.05 per unit for total proceeds of $20,000. Each
        unit consists of one common share and one common share purchase warrant.
        Each common share purchase warrant entitles the warrant holder to purchase
        one common share at a price of $0.15 for a three year term from the date
        of closing. A total of 400,000 shares and 400,000 share purchase warrants
        were issued. No commissions or fees were paid in connection with the offering.
        The sale was completed pursuant to Section 4(2) of the Act on the basis
        that the purchaser is a sophisticated purchaser. The purchaser was a party
        with whom we have a distributorship agreement. All securities issued were
        endorsed with a restrictive legend confirming that the securities cannot
        be resold without registration under the Act or an applicable exemption
        from the registration requirements of the Act.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 2. | On April 9, 2003 we completed a private placement
        with one non-U.S. investor of 71,429 shares at a price of $0.09 per unit
        for total proceeds of $6,428. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Regulation S of
        the Act on the basis that the purchaser is a non-U.S. person, as defined
        under Regulation S of the Act. All securities issued were endorsed with
        a restrictive legend confirming that the securities cannot be resold without
        registration under the Act or an applicable exemption from the registration
        requirements of the Act.                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 3. | On April 14, 2003 we completed a private placement
        with one non-U.S. investor of 362,000 shares at a price of $0.043 per
        share for proceeds of $15,385. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Regulation S of
        the Act on the basis that the purchaser is a non-U.S. person, as defined
        under Regulation S of the Act. All securities issued were endorsed with
        a restrictive legend confirming that the securities cannot be resold without
        registration under the Act or an applicable exemption from the registration
        requirements of the Act.                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4. | On April 29, 2003, we completed the issue of 600,000
        shares of our common stock pursuant to the conversion of 6,000 shares
        of Series X Preferred Stock. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Section 4(2) of
        the Act on the basis that the purchaser is a sophisticated purchaser.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 5. | On April 30, 2003, we completed the issue of 1,000,000
        shares of our common stock to Mr. Andrew Stein, the president of TST Inc.,
        pursuant to our settlement agreement with TST. No commissions or fees
        were paid in connection with the offering. The sales were completed pursuant
        to Section 4(2) of the Act on the basis that the purchaser is a sophisticated
        purchaser.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

12

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| | 6. | On May 13, 2003, we completed the issue of 2,000,000
        shares of our common stock to TST Inc., pursuant to our settlement agreement
        with TST. No commissions or fees were paid in connection with the offering.
        The sales were completed pursuant to Section 4(2) of the Act on the basis
        that the purchaser is a sophisticated purchaser.                                                                  
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 7. | On June 11, 2003, we completed the sale of 2,500,000
        shares at a price of $0.11 per unit to five investors who are existing
        shareholders for consulting services which were provided to the Company.
        No commissions or fees were paid in connection with the offering. The
        sales were completed pursuant to Section 4(2) of the Act on the basis
        that the purchasers are sophisticated purchasers.

Subsequent to June 30, 2003, we completed the sale of 1,100,000
  units at a price of $0.05 per unit for proceeds of $55,000 to two investors.
  Each unit was comprised of one share of our common stock and one share purchase
  warrant. Each share purchase warrant entitles the holder to purchase one share
  of our common stock at a price of $0.12 per share for the three year period
  following closing. A total of 1,100,000 shares and 1,100,000 share purchase
  warrants were issued. The purchasers consisted of two accredited investors,
  as defined by Rule 501 of Regulation D of the Act. No commissions or fees were
  paid in connection with the offering. The sale was completed pursuant to Rule
  506 of Regulation D of the Act. All securities issued were endorsed with a restrictive
  legend confirming that the securities cannot be resold without registration
  under the Act or an applicable exemption from the registration requirements
  of the Act.

Subsequent to June 30, 2003, we completed the sale of 500,000
  shares at a price of $0.07 per unit for total proceeds of $35,000. No commissions
  or fees were paid in connection with the offering. The sale was completed pursuant
  to Section 4(2) of the Act on the basis that the purchaser is a sophisticated
  purchaser and an accredited investor as defined in Rule 501 of Regulation
  D. All securities issued were endorsed with a restrictive legend confirming
  that the securities cannot be resold without registration under the Act or an
  applicable exemption from the registration requirements of the Act. The share
  certificates in this private placement were issued subsequent to June 30, 2003.
  Funds for this private placement were received in our second quarter.

Subsequent to June 30, 2003, we completed the sale of 710,000
  shares at a price of $0.06997 per unit for total proceeds of $49,678. No commissions
  or fees were paid in connection with the offering. The sale was completed pursuant
  to Section 4(2) of the Act on the basis that the purchaser is a sophisticated
  purchaser and an accredited investor as defined in Rule 501 of Regulation
  D. All securities issued were endorsed with a restrictive legend confirming
  that the securities cannot be resold without registration under the Act or an
  applicable exemption from the registration requirements of the Act. The share
  certificates in this private placement were issued subsequent to June 30, 2003.
  Funds for this private placement were received in our second quarter.

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 June 30, 2003.

Item 5.     Other Information

None.

13

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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           |  | Joint Development Agreement dated January 28, 1999 between
      Honeywell International, Inc. and the Registrant (2)                                                                        
|               |  |                                                                                                                                                                                              
|10.2           |  | License Agreement dated January 28, 1999 between Honeywell
      International, Inc. and the Registrant (2)                                                                                  
|               |  |                                                                                                                                                                                              
|10.3           |  | Amendment to License Agreement dated December 15, 1999
      (2)                                                                                                                             
|               |  |                                                                                                                                                                                              
|10.4           |  | Amendment to Joint Development Agreement dated December
      15, 1999 (2)                                                                                                                   
|               |  |                                                                                                                                                                                              
|10.5           |  | Intellectual Property and Product Rights Agreement dated
      December 15, 1999 between Honeywell International, Inc. and the Registrant
      (2)                                          
|               |  |                                                                                                                                                                                              
|10.6           |  | Sub-Lease between Turbodyne Systems, Inc. and John E.
      King and Carole D. King dated July 1, 2001(3)                                                                                    
|               |  |                                                                                                                                                                                              
|10.7           |  | Exclusive License Agreement between the Registrant,
      Turbodyne Systems, Inc. and David St. James dated October 15, 2001(3)                                                              
|               |  |                                                                                                                                                                                              
|10.8           |  | Licensing and Joint Development Agreement Between the
      Company and Ishikawajima-Harima Heavy Industries Co., Ltd. (1)                                                                   
|               |  |                                                                                                                                                                                              
|10.9           |  | Settlement Agreement dated January 29, 2003 between
      the Company, Turbodyne Systems Inc., Leon E. Nowek and L.N. Family Holdings
      Inc.(4)                                          
|               |  |                                                                                                                                                                                              
|10.10          |  | Settlement Agreement dated January 29, 2003 between
      the Company, Turbodyne Systems Inc., Edward M. Halimi and March Technologies
      Inc.(2)                                         
|               |  |                                                                                                                                                                                              
|31.1           |  | Certification of Chief Executive Officer and Chief Financial
      Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002 (5)
|               |  |                                                                                                                                                                                              
|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 (5)
|               |  |                                                                                                                                                                                              
|99.3           |  | Audit Committee Charter (4)                                                                                                                                                                  

14

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|    |                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Filed as an exhibit to the Companys 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 the Registrants 10-K for the fiscal year ended December
      31, 1999
|    |                                                                                                                                                            
|(3) | Filed as an exhibit to the Companys Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2001                                        
|    |                                                                                                                                                            
|(4) | Filed as an exhibit to the Companys Annual Report on
      Form 10-KSB for the fiscal year ended December 31, 2002                                        
|    |                                                                                                                                                            
|(5) | Filed as an exhibit to this Quarterly Report on Form 10-QSB                                                                                                
|    |                                                                                                                                                            

REPORTS ON FORM 8-K

We did not file any Current Reports on Form 8-K during the
  fiscal quarter ended June 30, 2003 and we have not filed any Current Reports
  on Form 8-K since June 30, 2003.

15

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SIGNATURES

In accordance with the requirements of the Securities and
  Exchange Act of 1934, the Registrant has duly caused this report to be signed
  on its behalf by the undersigned, thereunto duly authorised.

Date: September 19, 2003

TURBODYNE TECHNOLOGIES INC.

| | By: | /s/ Daniel Black                                   
| | --- | ---------------------------------------------------
| |     |                                                    
| |     | Daniel Black, President and Chief Executive Officer
| |     | Chief Financial Officer                            
| |     | (Principal Executive Officer)                      
| |     | (Principal Financial Officer)                      

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