---

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

FORM 10-QSB

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

For the quarterly period ended June 30, 2004

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

For the transition period _____________ to _____________

Commission File Number 000-21391

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

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

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

Check whether the issuer (1) filed all reports required to
  be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the issuer was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days **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: 150,239,616
  shares of common stock issued and outstanding as of August 10, 2004.

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

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PART 1 - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL
  STATEMENTS.



2

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**Turbodyne Technologies, Inc.
  and Subsidiaries** Consolidated Financial StatementsFor the six-month periods ended June 30, 2004 and 2003
  (Unaudited  Expressed in US Dollars)



F-1

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**Turbodyne Technologies, Inc.
  and Subsidiaries** Consolidated Financial StatementsFor the six-month periods ended June 30, 2004 and 2003
  (Unaudited  Expressed in US Dollars)

|                                  |                                   | Contents  
|--------------------------------- | --------------------------------- | ----------
|                                  |                                   |           
|Consolidated Financial Statements |                                  
|                                  |                                   |           
|                                  | Balance Sheets                    | F-3       
|                                  |                                   |           
|                                  | Statements of Operations          | F-4       
|                                  |                                   |           
|                                  | Statements of Capital Deficit     | F-5       
|                                  |                                   |           
|                                  | Statements of Cash Flows          | F-6       
|                                  |                                   |           
|                                  | Notes to the Financial Statements | F-7 - F-14

F-2

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

|                                                               |   | June 30      |   |   | December 31  |  
|-------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                               |   | 2004         |   |   | 2003         |  
|                                                               |   |              |   |   |              |  
|Assets                                                         |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Cash and cash equivalents                                      | $ | 949,382      |   | $ | 2,145        |  
|Prepaid expenses and other current
      assets                |   | 112,684      |   |   | 28,840       |  
|                                                               |   |              |   |   |              |  
|Total current assets                                           |   | 1,062,066    |   |   | 30,985       |  
|                                                               |   |              |   |   |              |  
|Property and equipment, at cost, less accumulated depreciation |   | 132,019      |   |   | 110,867      |  
|                                                               |   |              |   |   |              |  
|Total Assets                                                   | $ | 1,194,085    |   | $ | 141,852      |  
|                                                               |   |              |   |   |              |  
|Liabilities and Capital Deficit                                |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Liabilities                                                    |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Term debts (Note 3)                                            | $ | -            |   | $ | 76,082       |  
|Accounts payable (Note 4c)                                     |   | 2,134,843    |   |   | 3,791,191    |  
|Accrued liabilities (Note 2)                                   |   | 138,787      |   |   | 3,068,259    |  
|Provisions for lawsuit settlements                             |   | 6,048,541    |   |   | 7,019,439    |  
|Loans payable                                                  |   | 422,026      |   |   | 767,578      |  
|                                                               |   |              |   |   |              |  
|Total current liabilities                                      |   | 8,744,197    |   |   | 14,722,549   |  
|                                                               |   |              |   |   |              |  
|Deferred revenue                                               |   | 374,838      |   |   | 385,950      |  
|                                                               |   |              |   |   |              |  
|Total liabilities                                              |   | 9,119,035    |   |   | 15,108,499   |  
|                                                               |   |              |   |   |              |  
|Capital Deficit                                                |   |              |   |   |              |  
|Share Capital (Note 2)                                         |   |              |   |   |              |  
|Authorized                                                     |   |              |   |   |              |  
|1,000,000 preferred shares, par value $0.001                   |   |              |   |   |              |  
|1,000,000,000 (150,000,000 - 2003) common                      |   |              |   |   |              |  
|shares, par value $0.001                                       |   |              |   |   |              |  
|Issued                                                         |   |              |   |   |              |  
|97,175 preferred shares in 2004 and 2003                       |   | 97           |   |   | 97           |  
|148,771,749 common shares in 2004 and 2003                     |   | 148,772      |   |   | 148,772      |  
|Treasury stock, at cost (378,580
      shares)                 |   | (1,907,612   | ) |   | (1,907,612   | )
|Additional paid-in capital                                     |   | 119,585,598  |   |   | 117,233,800  |  
|Accumulated other comprehensive
      income -                 |   |              |   |   |              |  
|foreign
      exchange translation gain                        |   | 35,119       |   |   | 35,119       |  
|Accumulated deficit                                            |   | (125,786,924 | ) |   | (130,476,823 | )
|                                                               |   |              |   |   |              |  
|Total capital deficit                                          |   | (7,924,950   | ) |   | (14,966,647  | )
|                                                               |   |              |   |   |              |  
|Total Liabilities and Capital Deficit                          | $ | 1,194,085    |   | $ | 141,852      |  

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

F-3

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

|                                               |   | Three-month   |   |   | Six-month     |  
|---------------------------------------------- | - | ------------- | - | - | ------------- | -
|                                               |   | periods ended |   |   | periods ended |  
|                                               |   | June 30       |   |   | June 30       |  
|                                               |   | 2004          |   |   | 2003          |  
|                                               |   |               |   |   |               |  
|Revenue                                        |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Licensing fees                                 | $ | 5,556         |   | $ | -             |  
|                                               |   |               |   |   |               |  
|Total Revenue                                  |   | 5,556         |   |   | -             |  
|                                               |   |               |   |   |               |  
|Expenses (Recovery)                            |   |               |   |   |               |  
|Selling, general and administrative            |   | 262,579       |   |   | 482,738       |  
|Research and development                       |   | 257,865       |   |   | 754,769       |  
|Litigation expense                             |   | 514,732       |   |   | 1,266,168     |  
|Depreciation and amortization                  |   | 14,513        |   |   | 66,513        |  
|Total expenses                                 |   | 1,049,689     |   |   | 2,570,188     |  
|Loss from operations                           |   | (1,044,133    | ) |   | (2,570,188    | )
|                                               |   |               |   |   |               |  
|Other income (expenses)                        |   |               |   |   |               |  
|Settlement of litigation (Note
      4)        |   | -             |   |   | -             |  
|Interest expense, net                          |   | (3,162        | ) |   | -             |  
|Interest Income                                |   | 7,220         |   |   | -             |  
|(Loss) on sale of asset                        |   | (4,471        | ) |   | -             |  
|Gain on settlement of term debt
      (Note 3) |   | -             |   |   | 2,948         |  
|                                               |   |               |   |   |               |  
|Income (loss) for the period                   | $ | (1,044,546    | ) | $ | (2,567,240    | )
|                                               |   |               |   |   |               |  
|Income (loss) per common share                 |   |               |   |   |               |  
|Basic and diluted                              | $ | (0.01         | ) | $ | (0.02         | )
|                                               |   |               |   |   |               |  
|Weighted average shares used for basic         |   | 148,771,749   |   |   | 135,690,639   |  
|income (loss) per share                        |   |               |   |   |               |  
|                                               |   |               |   |   |               |  
|Weighted average shares used for diluted       |   | 148,771,749   |   |   | 135,690,639   |  
|income (loss) per share                        |   |               |   |   |               |  

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

F-4

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

|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   | Additional  |   |   | Other  |  |   |              |   |   |             |  
|--------------------------------------------------------------------- | --------------- | - | ------------ | ------ | -------------- | ----------- |  | ------- | ------- |  | ------------- |  | - | ----------- | - | - | ----------- | - | - | ------ |  | - | ------------ | - | - | ----------- | -
|                                                                      | Preferred Stock |   | Common Stock |        | Treasury Stock |             |  | Paid-in |         |  | Comprehensive |  |   | Accumulated |   |   | Capital     |  
|                                                                      | Shares          |   |              | Amount |                | Shares      |  |         | Amount  |  | Shares        |  |   | Amount      |   |   | Capital     |   |   | Income |  |   | Deficit      |   |   | Deficit     |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Balance, January 1, 2003                                              | -               |   | $            | -      |                | 115,620,517 |  | $       | 115,621 |  | 378,580       |  | $ | (1,907,612  | ) | $ | 113,445,516 |   | $ | 35,119 |  | $ | (123,592,106 | ) | $ | (11,903,462 | )
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of Series X preferred shares (Note 2)                        | 122,175         |   |              | 122    |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 1,613,378   |   |   | -      |  |   | -            |   |   | 1,613,500   |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Exercise of stock options                                             | -               |   |              | -      |                | 10,294,000  |  |         | 10,294  |  | -             |  |   | -           |   |   | 567,026     |   |   | -      |  |   | -            |   |   | 577,320     |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Private placements of common stock                                    | -               |   |              | -      |                | 12,511,820  |  |         | 12,512  |  | -             |  |   | -           |   |   | 654,158     |   |   | -      |  |   | -            |   |   | 666,670     |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of stock for services                                        | -               |   |              | -      |                | 4,845,412   |  |         | 4,845   |  | -             |  |   | -           |   |   | 597,245     |   |   | -      |  |   | -            |   |   | 602,090     |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of stock for settlement of lawsuit                           | -               |   |              | -      |                | 3,000,000   |  |         | 3,000   |  | -             |  |   | -           |   |   | 1,047,000   |   |   | -      |  |   | -            |   |   | 1,050,000   |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Conversion of preferred Series X shares                               | (25,000         | ) |              | (25    | )              | 2,500,000   |  |         | 2,500   |  | -             |  |   | -           |   |   | (2,475      | ) |   | -      |  |   | -            |   |   | -           |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of stock options to non-employees for services               | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 1,130,526   |   |   | -      |  |   | -            |   |   | 1,130,526   |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Liability for settlement of equity instruments                        | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | (1,818,574  | ) |   | -      |  |   | -            |   |   | (1,818,574  | )
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Net loss for the year                                                 | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | -           |   |   | -      |  |   | (6,884,717   | ) |   | (6,884,717  | )
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Balance, December 31, 2003                                            | 97,175          |   |              | 97     |                | 148,771,749 |  |         | 148,772 |  | 378,580       |  |   | (1,907,612  | ) |   | 117,233,800 |   |   | 35,119 |  |   | (130,476,823 | ) |   | (14,966,647 | )
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Liability for settlement of equity instruments in first quarter       | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 175,000     |   |   | -      |  |   | -            |   |   | 175,000     |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Reversal of liability for settlement of equity instruments
      from |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|prior periods (Note 2(a))                                             | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 2,134,322   |   |   | -      |  |   | -            |   |   | 2,134,322   |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of stock options to non-employees for services               | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 35,226      |   |   | -      |  |   |              |   |   | 35,226      |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Issuance of stock options to employees                                | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | 7,250       |   |   | -      |  |   | -            |   |   | 7,250       |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Net loss for the period                                               | -               |   |              | -      |                | -           |  |         | -       |  | -             |  |   | -           |   |   | -           |   |   | -      |  |   | 4,689,899    |   |   | 4,689,899   |  
|                                                                      |                 |   |              |        |                |             |  |         |         |  |               |  |   |             |   |   |             |   |   |        |  |   |              |   |   |             |  
|Balance, June 30, 2004                                                | 97,175          |   | $            | 97     |                | 148,771,749 |  | $       | 148,772 |  | 378,580       |  | $ | (1,907,612  | ) | $ | 119,585,598 |   | $ | 35,119 |  | $ | (125,786,924 | ) | $ | (7,924,950  | )

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

F-5

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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                                         |   | 2004       |   |   | 2003       |  
|------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                |   |            |   |   |            |  
|Cash provided by (used in)                                                      |   |            |   |   |            |  
|                                                                                |   |            |   |   |            |  
|Operating activities                                                            |   |            |   |   |            |  
|Net income (loss) for the period                                                | $ | 4,689,899  |   | $ | (3,850,935 | )
|Adjustments to reconcile net loss
      for the period to net cash provided by  |   |            |   |   |            |  
|(used in)
      operating activities:                                           |   |            |   |   |            |  
|Amortization
      of deferred licensing fees                                   |   | (11,112    | ) |   | -          |  
|Depreciation
      and amortization                                             |   | 29,026     |   |   | 133,025    |  
|Gain
      on settlement of term debt                                           |   | (43,360    | ) |   | -          |  
|Loss
      on sale of asset                                                     |   | 371        |   |   | -          |  
|Recovery
      on lawsuit reserve from TST share sales (Note 4(a))              |   | (23,345    | ) |   | -          |  
|Stock
      option compensation                                                 |   | 42,476     |   |   | 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              |   | (406,000   | ) |   | (296,176   | )
|Increase in current assets                                                      |   |            |   |   |            |  
|Prepaid
      expenses and other current assets                                 |   | (83,844    | ) |   | (2,635     | )
|Increase (decrease) in current
      liabilities                                |   |            |   |   |            |  
|Accounts
      payable                                                          |   | (1,496,962 | ) |   | 195,693    |  
|Accrued
      liabilities and provisions for lawsuit settlements                |   | (1,161,703 | ) |   | (759,579   | )
|                                                                                |   |            |   |   |            |  
|                                                                                |   | 1,535,446  |   |   | (1,900,059 | )
|Investing activities                                                            |   |            |   |   |            |  
|Purchase of property and equipment                                              |   | (87,371    | ) |   | -          |  
|Proceeds on sale of assets                                                      |   | 4,100      |   |   | -          |  
|                                                                                |   | (83,271    | ) |   | -          |  
|Financing activities                                                            |   |            |   |   |            |  
|Repayment of loans payable                                                      |   | (504,938   | ) |   | -          |  
|Net proceeds from term debts                                                    |   | -          |   |   | 7,500      |  
|Issuance of common stock and stock
      subscriptions                          |   | -          |   |   | 1,426,414  |  
|Proceeds from loans payable                                                     |   | -          |   |   | 91,906     |  
|Deferred licensing fees                                                         |   | -          |   |   | 250,000    |  
|                                                                                |   |            |   |   |            |  
|                                                                                |   | (504,938   | ) |   | 1,775,820  |  
|                                                                                |   |            |   |   |            |  
|Net increase (decrease) in cash and cash equivalents                            |   | 947,237    |   |   | (124,239   | )
|                                                                                |   |            |   |   |            |  
|Cash and cash equivalents,beginning of period                                   |   | 2,145      |   |   | 137,517    |  
|                                                                                |   |            |   |   |            |  
|Cash and cash equivalents,end of period                                         | $ | 949,382    |   | $ | 13,278     |  
|                                                                                |   |            |   |   |            |  
|Supplementary disclosure of cash flow information                               |   |            |   |   |            |  
|Cash paid during the period                                                     |   |            |   |   |            |  
|Interest                                                                        | $ | 788        |   | $ | -          |  
|Income
      taxes                                                              | $ | 7,200      |   | $ | -          |  
|                                                                                |   |            |   |   |            |  
|Supplementary disclosure of non-cash investing and financing
      activities   |   |            |   |   |            |  
|Accounts payable transfer to loans
      payable                                | $ | 159,386    |   | $ | -          |  
|Stock option compensation                                                       | $ | 42,476     |   | $ | 1,032,612  |  
|Stock issued for services                                                       | $ | -          |   | $ | 597,935    |  
|Stock issued for settlement of
      lawsuit                                    | $ | -          |   | $ | 1,050,000  |  
|Preferred stock issued on settlement
      of accrued liabilities               | $ | -          |   | $ | 1,613,500  |  
|Return of asset to settle term
      debt                                       | $ | 76,082     |   | $ | -          |  
|Reduction in accounts payable as
      partial settlement of licensing fees     | $ | -          |   | $ | 150,000    |  
|Liability in connection with settlement
      of equity instruments             | $ | 581,000    |   | $ | 807,203    |  
|Reversal of liability in connection with settlement
      of equity instruments | $ | 2,134,322  |   | $ | -          |  

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

F-6

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

|1. | Nature of Business and Ability to Continue as
        a Going Concern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | Turbodyne Technologies, Inc., a Nevada corporation,
        and its subsidiaries (the Company) engineer, develop and market products
        designed to enhance performance and reduce emissions of internal combustion
        engines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   | The Company had suspended business operations in
        2003 due to a lack of financing. The Company received funds by entering
        into a settlement agreement and general release with Honeywell (Note 4(c)),
        which enabled the Company to resume operations and reduce its working
        capital deficiency.                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   | The interim financial statements included herein,
        presented in accordance with United States generally accepted accounting
        principles and stated in US dollars, have been prepared by the Company,
        without audit, pursuant to the rules and regulations of the Securities
        and Exchange Commission. Certain information and footnote disclosures
        normally included in financial statements prepared in accordance with
        generally accepted accounting principles have been condensed or omitted
        pursuant to such rules and regulations, although the Company believes
        that the disclosures are adequate to make the information presented not
        misleading.
|  
|   | These financial statements reflect all adjustments,
        consisting of normal recurring adjustments, which in the opinion of management
        are necessary for fair presentation of the information contained therein.
        It is suggested that these interim financial statements be read in conjunction
        with the audited financial statements of the Company for the years ended
        December 31, 2003 and 2002 included in the Company's 10-KSB Annual Report.
        The Company follows the same accounting policies in the preparation of
        interim reports.                                                                                                                                
|  
|   | Results of operations for the interim periods are
        not indicative of annual results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   | The accompanying consolidated financial statements
        have been prepared assuming that the Company will continue as a going
        concern. The Company has suffered recurring net operating losses, has
        an accumulated deficit of $125,786,924 at June 30, 2004 and a total capital
        deficit of $7,924,950 at June 30, 2004. It has used most of its available
        cash in its operating activities in recent years, has a significant working
        capital deficiency and is subject to lawsuits brought against it by other
        parties. These matters raise substantial doubt about the Company's ability
        to continue as a going concern.                                          
|  
|   | The Company's operations have been financed principally
        through a combination of private and public sales of equity and debt securities.
        There is no guarantee that the Company will be able to continue to finance
        operations by this method.                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F-7

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

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

F-8

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

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

| |  |                          | 2004         
| |  | ------------------------ | -------------
| |  |                          |              
| |  |                          | Non-employees
| |  |                          |              
| |  |                          |              
| |  |                          |              
| |  |                          |              
| |  |                          | Options      
| |  |                          |              
| |  | Outstanding at           |              
| |  | beginning of period      | 2,131,666    
| |  |                          |              
| |  | Granted                  | 400,000      
| |  | Outstanding at end of    |              
| |  | period                   | 2,531,666    
| |  | Options exercisable at   |              
| |  | end of period            | 2,531,666    
| |  | Weighted average fair    |              
| |  | value of options         |              
| |  | granted during
      the |              
| |  | period                   | -            

| |  | 2004 Stock Incentive Plan
      On April 8, 2004, the Company established the 2004 Nevada
        stock incentive plan (the "2004 Plan"). Under the 2004 Plan, the Company
        may grant common stock or incentive stock options to its directors, officers,
        employees and consultants for up to 15,000,000 shares. The maximum term
        of the 2004 Plan is ten years. The Board of Directors will determine the
        terms and matters relating to any awards under the 2004 Plan including
        the type of awards, the exercise price of the options and the number of
        common shares granted. The value of the shares of common stock used in
        determining the awards shall not be less than 85% of the fair market value
        of the common shares of the Company on the date of grant.
      Grant of Stock Options to Non-employees for Services
      The Company has recorded $35,226 (2003 - $1,032,612)
        of compensation expense relating to stock options issued to non-employees
        for services rendered during the six-month period ended June 30, 2004.
      The per share weighted average fair value of stock options
        granted for the six-month period ended June 30, 2004 was $0.09 on the
        date of grant using the Black-Scholes option-pricing model with the following
        weighted average assumptions in 2004: expected dividend yield Nil%; expected
        volatility of 134%; risk-free interest rate of 3.74% expected life equal
        to 5 years.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

|2. | Share Capital  Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | 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 when the market price of the Company's common stock
        is in excess of the exercise price of the stock options granted to the
        Company's employees. Accordingly, no compensation cost in 2004 and 2003
        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 Financing Accounting Standard ("SFAS") No. 123, the Company's
        net loss and loss per share would have been increased to the following
        pro forma amounts:

| |  |                                                         |   | For the six-month periods |  
| |  | ------------------------------------------------------- | - | ------------------------- | -
| |  |                                                         |   | ended June 30             |  
| |  |                                                         |   | 2004                      |  
| |  |                                                         |   |                           |  
| |  | Net income (loss), as reported                          | $ | 4,689,899                 |  
| |  | Add: Stock based employee compensation                  |   |                           |  
| |  | expense included
      in reported net income,          |   |                           |  
| |  | net of related tax effects                              |   | 7,250                     |  
| |  | Deduct: Total stock-based employee compensation         |   |                           |  
| |  | expense determined under fair-value
      based         |   |                           |  
| |  | method for all
      awards, net of related tax effects |   | (76,581                   | )
| |  |                                                         |   |                           |  
| |  | Pro-forma net income(loss)                              | $ | 4,620,568                 |  
| |  |                                                         |   |                           |  
| |  | Income(loss) per share:                                 |   |                           |  
| |  | Basic and diluted  as reported                         | $ | 0.03                      |  
| |  | Basic and diluted
       pro-forma                     | $ | 0.03                      |  

| |  | The Company has recorded $7,250 of compensation expense
        relating to stock options issued to employees for services rendered during
        the period.
      The per share weighted average fair value of stock options
        granted to employees during 2004 was $0.05, calculated on the date of
        grant using the Black-Scholes option pricing model with the following
        weighted average assumptions in 2004: expected dividend yield Nil%; expected
        volatility of 138%; risk-free interest rate of 1.85%; and an expected
        life of 1 year.
      Effective from the date of the option repricing, the
        Company regularly remeasures compensation expense for the options where
        there has been a substantive change and modification to such options.
        No compensation expense was recorded as a result of repricing of options
        in the prior years.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

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

| |  |                                |            |  | Weighted
| |  | ------------------------------ | ---------- |  | --------
| |  |                                |            |  | Average 
| |  |                                |            |  | Exercise
| |  |                                | Warrants   |  | price   
| |  | Outstanding at January 1, 2004 | 21,634,809 |  | $0.34   
| |  | Expired                        | 5,499,887  |  | $0.41   
| |  | Outstanding at June 30, 2004   | 16,134,922 |  | $0.31   

|   | e)                                                                                                                                                                                                                                                                            | Subsequent to June 30, 2004, the Company issued
        325,000 shares for exercise of options, of which, 100,000 options were
        at $0.07 per share and 225,000 options were exercised at $0.04 per share.
        In July 2004, the Company also issued 1,000,000 shares for the conversion
        of 10,000 Series X preferred shares.                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | f)                                                                                                                                                                                                                                                                            | Subsequent to June 30, 2004, the Company granted
        950,000 options to employees and 6,549,000 options to consultants exercisable
        at $0.10. All options are immediately exercisable and have a five-year
        term.                                                                                                                                                                                     
|  
|   |                                                                                                                                                                                                                                                                              
|3. | Term Debts                                                                                                                                                                                                                                                                   
|  
|   | During 2004, the Company returned an asset that was not in
      use as a settlement of outstanding term debt and recorded a gain on the
      debt settlement of $43,360.                                                                                                   
|  
|   |                                                                                                                                                                                                                                                                              
|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.
|  
|   | a)                                                                                                                                                                                                                                                                            | Litigation                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |                                                                                                                                                                                                                                                                               | TST                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |                                                                                                                                                                                                                                                                               | In March 2000, TST, Inc. ("TST"), a vendor to a
        subsidiary of Pacific Baja (Note 4(b)) filed an action against the Company
        alleging that in order to induce TST to extend credit to a subsidiary
        of Pacific Baja, the Company executed guarantees in favor of TST. TST
        alleged that the subsidiary defaulted on the credit facility and that
        the Company is liable as guarantor.

F-11

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

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

F-12

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

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

F-13

---

|                                                                                                                                            
|--------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and SubsidiariesNotes to the Consolidated Financial Statements(Unaudited
       Expressed in US Dollars)
|                                                                                                                                            
|June
      30, 2004 and 2003                                                                                                                

|4. | Commitments and Contingencies 
        Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | The Company commenced an action for damages
        against Honeywell in the United States District Court, Central District
        of California in August 2001 alleging, among other matters, that Honeywell's
        conduct constituted a restraint of trade and the delay of the commercialization
        of the Company's technology. The Company was seeking unspecified damages
        and costs. This litigation has been withdrawn pending the outcome of the
        arbitration proceedings discussed below.
|  
|   | Prior to the Company commencing the above
        legal proceedings, Honeywell initiated arbitration proceedings under the
        joint development and licensing agreements. Honeywell was seeking unspecified
        damages and costs and termination of the license agreement and the joint
        development agreement based on their allegations that the Company breached
        the agreements and was unwilling and unable to perform future obligations
        under the agreements.                       
|  
|   | On January 23, 2004, the Company entered
        into a settlement agreement and general release (the "Settlement Agreement")
        with Honeywell whereby Honeywell agreed and paid $6,375,000 (net of legal
        fees to the Company).                                                                                                                                                                                                                                                                              
|  
|   | In connection with the Settlement Agreement,
        the Company and Honeywell agreed to terminate the agreements referred
        to above, settled on the ownership of certain patent interests and resolved
        the disputes that were subject to the arbitration proceedings.                                                                                                                                                                                                                                      
|  
|   | The receipt of the above-noted funds enabled
        the Company to commence settlement of certain amounts owed to creditors,
        to pay employee and director bonuses of $1,290,000 and to resume its business
        operations in February 2004.                                                                                                                                                                                                                                                                   
|  
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | Comparative Amounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   | Certain comparative amounts have been
        restated to conform to the current period's presentation                                                                                                                                                                                                                                                                                                                                                                                                                     

F-14

---

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

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB contains statements that
  constitute "forward-looking statements" within the meaning of Section 27A of
  the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities
  Exchange Act of 1934 (the "Exchange Act"). The words "expect," "estimate," "anticipate,"
  "project," "predict," "believe" and similar expressions and variations thereof
  are intended to identify forward-looking statements. Such statements appear
  in a number of places in this report and include statements regarding our intent,
  belief or current expectations and that of our officers or directors with respect
  to, among other things, trends affecting our financial condition and results
  of operations and our business and growth strategies. You are cautioned not
  to put undue reliance on these forward-looking statements. These forward-looking
  statements are not guarantees of future performance and involve risks and uncertainties.
  Actual results may differ materially from those projected in this Quarterly
  Report on Form 10-QSB. We undertake no obligation to publicly revise these forward-looking
  statements to reflect events or circumstances that arise after the date of this
  filing. You should carefully review the cautionary statements and risk factors
  contained in this and other documents that we file from time to time with the
  Securities and Exchange Commission (the "SEC").

As used in this Quarterly Report on Form 10-QSB, the terms
  "we", "us", "our", "Turbodyne" and "our company" mean Turbodyne Technologies,
  Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report
  on Form 10-QSB are in U.S. dollars unless otherwise stated.

OVERVIEW

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

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

The focus of our business plan is presently to create near-term
  cash flow through aftermarket sales of two improved versions of our Turbopac
  product. This is intended to provide us with the ability to pursue long-term
  business development activities and licensing agreements with OEM's and automotive
  suppliers, while reducing our need for further equity financing. We have nearly
  completed two production configuration versions of our improved TurbopacTM
  products. We intend to have the units ready for production by December 31, 2004.
  Our ability to complete commercialization of our products remains subject to
  our ability to obtain additional financing. See "Plan of Operations", below.

PLAN OF OPERATIONS

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

| | 1. | We resumed our business operations on February 2,
        2004, following our entry into the settlement agreement with Honeywell
        International Inc. ("Honeywell"). As part of the settlement, we agreed
        to terminate our joint development agreement and our license agreement
        relating to our Electrically Assisted Turbocharger and Electrically Driven
        Compressor technologies and products. In exchange, we have received from
        Honeywell $4,770,900 which represents the $8,500,000 settlement net of
        legal fees and creditor payments. We continue to use these net proceeds
        to fund the re-structuring of our business and to settle other outstanding
        debts.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

---

| | 2. | We plan to continue research and development of
        our Turbopac products with the objective of completing the necessary
        development work for commercialization of this product for the medium-duty
        truck and bus market by October 31, 2004. Over the next four months, we
        plan to spend approximately $70,000 per month in pursuing research and
        development in this area. This amount includes engineering payroll and
        purchasing and 60% of our overall monthly overhead.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 3. | By October 31, 2004, we plan to complete development
        of production ready Turbopac units for 1.5 to 3.5-litre turbocharged
        diesel and gasoline engines for aftermarket sales. We plan to spend approximately
        $20,000 in completing our development of these products over the next
        six-month period.                                                                                                                                                                                      
|
| | 4. | We plan to pursue negotiations with OEM's in the
        automobile industry for the incorporation of our Turbopac products
        into their product lines. Over the next twelve months, we plan to spend
        approximately $5,000 per month in product marketing costs.                                                                                                                                                                                                                                           
|
| | 5. | We plan to pursue resolution of the outstanding
        litigation against us, including resolution of the claims summarized in
        Item 1 of Part II of this Quarterly Report on Form 10-QSB. We plan to
        spend approximately $75,000 in litigation expenses over the next twelve
        months.                                                                                                                                                                                                             
|
| | 6. | We anticipate spending approximately $40,000 per
        month in administrative expenses over the next twelve months. We will
        maintain our head office and staff in our Carpinteria, California office
        until January 31, 2005, when our lease ends. We then plan on renegotiating
        a new lease for less space or moving to a smaller location.                                                                                                                                                    

We had cash and cash equivalents of $949,382 and a working
  capital deficit of $7,682,131 as at June 30, 2004. Our plan of operations calls
  for us to spend approximately $135,000per month over the next twelve
  months. Accordingly, we only have sufficient working capital to pursue our stated
  plan of operations without additional financing for the next eight months. As
  discussed below in Item 4 of Part II of this Quarterly Report on Form 10-QSB,
  our stockholders approved an increase in our authorized capital to one billion
  shares of common stock at our 2004 annual meeting. As such, we will be pursuing
  additional sales of our common stock and share purchase warrants to raise any
  additional financing necessary for us to continue operations.

Currently, we have no arrangements in place for additional
  equity financing and there is no assurance that such financing will be obtained.
  We believe that conventional debt financing is not an option at this time due
  to risks associated with the development stage of our products, our lack of
  revenues and the litigation to which we are party. Based on these risks, there
  is no assurance that we will be able to carry out our plan of operations beyond
  the next eight months. If we achieve less financing than required to pursue
  our stated plan of operations, then we will be forced to reduce our research
  and development activities and our administrative overhead costs.

4

---

RESULTS OF OPERATIONS

Second Quarter and Six Months Summary

|                  |                              |  |                         
|----------------- | ---------------------------- |  | ------------------------
|                  | Second Quarter Ended June 30 |  | Six Months Ended June 30
|                  |                              |  |                         
|                  | 2004                         |  | 2003                    
|                  |                              |  |                         
|Total Income      | $5,556                       |  | Nil                     
|                  |                              |  |                         
|Operating         | ($1,049,689)                 |  | ($2,570,188)            
|Expenses          |                              |  |                         
|                  |                              |  |                         
|Net Income (Loss) | ($1,044,133)                 |  | ($2,570,188)            
|from Operations   |                              |  |                         

The increase in our net income for the six months ended June
  30, 2004 as compared to 2003 was primarily due to the proceeds we received pursuant
  to our settlement withHoneywell. Our continued
  net losses from operations reflect our continued operating expenses and our
  current inability to generate revenues.

Net Sales

|            |                              |  |                         
|----------- | ---------------------------- |  | ------------------------
|            | Second Quarter Ended June 30 |  | Six Months Ended June 30
|            |                              |  |                         
|            | 2004                         |  | 2003                    
|            |                              |  |                         
|License Fee | $5,556                       |  | Nil                     

Our current revenues reflect the fact that our Turbopac
  products were in the development stage. During the three-months ended June 30,
  2004, we sold a prototype for $14,400 which reduced our research and development
  expenses. During 2004, we anticipate completing additional sales of prototypes
  designed and manufactured pursuant to existing development agreements. These
  sales will not be significant in relation to our overall operating costs. We
  intend to earn revenues during fiscal 2004 through the licensing of our technology.
  We believe that we will not be able to generate any significant revenues from
  the licensing of Turbopac until we are successful in entering into a license
  and manufacturing arrangement with an automotive OEM. We anticipate that we
  will be able to generate sales of our Turbopac product in the aftermarket
  arena in 2004.

Costs of Sales

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

5

---

Operating Expenses

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

|                        |                                    |  |                          |  |            |  |            |  |            |  |           
|----------------------- | ---------------------------------- |  | ------------------------ |  | ---------- |  | ---------- |  | ---------- |  | ----------
|                        | Second Quarter Ended June
      30 |  | Six Months Ended June 30
|                        |                                    |  |                          |  | Percentage |  |            |  |            |  | Percentage
|                        | 2004                               |  | 2003                     |  | Increase / |  | 2004       |  | 2003       |  | Increase /
|                        |                                    |  |                          |  | (Decrease) |  |            |  |            |  | (Decrease)
|Selling, General and    | $262,579                           |  | $482,738                 |  | (46%)      |  | ($37,314)  |  | $843,965   |  | (104%)    
|Administrative Expenses |                                    |  |                          |  |            |  |            |  |            |  |           
|                        |                                    |  |                          |  |            |  |            |  |            |  |           
|Research and            | $257,865                           |  | $754,769                 |  | (66%)      |  | $454,250   |  | $1,755,983 |  | (74%)     
|Development Expenses    |                                    |  |                          |  |            |  |            |  |            |  |           
|                        |                                    |  |                          |  |            |  |            |  |            |  |           
|Litigation Expense      | $514,732                           |  | $1,266,168               |  | (59%)      |  | $1,295,840 |  | $1,121,377 |  | 16%       
|                        |                                    |  |                          |  |            |  |            |  |            |  |           

Selling, General and Administrative Expenses

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

Research and Development Expenses

For the three months ended June 30, 2004 our research and
  development costs were reduced by $14,400 for the sale of a prototype. The decrease
  in research and development costs for the three months ended June 30, 2004 was
  a result of management's strategic efforts to streamline our operations. The
  decrease in research and development costs for the six months ending June 30,
  2004 was also attributable to the suspension of operations during our third
  quarter in 2003 to January 31, 2004 and the resumption of operations therafter
  on a smaller scale. Our research and development costs related to present and
  future products are charged to operations in the period incurred. Our research
  and development activities during the three months ended June 30, 2004 are associated
  with the development of our Turbopac product.

Litigation Expenses

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

Stock Based Compensation

Stock based compensation for the six months ended June 30,
  2004 decreased to $42,476 from $1,032,612 for the six months ended June 30,
  2003, representing a decrease of $990,136 or approximately 96%. We did not significantly
  rely on stock based compensation during the six month period ended June 30,
  2004 due to our receipt of funds from our settlement with Honeywell.

6

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

FINANCIAL CONDITION

Cash and Working Capital

|                        |                  |  |                      |  | Percentage           
|----------------------- | ---------------- |  | -------------------- |  | ---------------------
|                        | At June 30, 2004 |  | At December 31, 2003 |  | Increase / (Decrease)
|Current Assets          | $1,062,066       |  | $30,985              |  | 3,328%               
|Current Liabilities     | ($8,744,197)     |  | ($14,722,549)        |  | (41%)                
|Working Capital Deficit | ($7,682,131)     |  | ($14,691,564)        |  | (48%)                

We had cash and cash equivalents of $949,382 as at June 30,
  2004, compared with cash of $2,145 as at December 31, 2003. The reduction to
  our working capital deficit was primarily attributable to an increase in cash
  arising from the settlement of our claims against Honeywell, and a reduction
  in accounts payable, accrued liabilities, provisions for lawsuit settlements
  and loans payable as discussed below.

Liabilities

|                       |                  |  |                      |  | Percentage           
|---------------------- | ---------------- |  | -------------------- |  | ---------------------
|                       | At June 30, 2004 |  | At December 31, 2003 |  | Increase / (Decrease)
|Provisions for Lawsuit | $6,048,541       |  | $7,019,439           |  | (14%)                
|Settlements            |                  |  |                      |  |                      
|Accounts Payable       | $2,134,843       |  | $3,791,191           |  | (44%)                
|Accrued Liabilities    | $138,787         |  | $3,068,259           |  | (95%)                
|Short-Term Loans       | $422,026         |  | $767,578             |  | (45%)                

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

During 2004, we have continued 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 continue our operations
  is also conditional upon the forbearance of our creditors.

Included in short-term loans at June 30, 2004 are unsecured,
  non-interest bearing advances of $259,478 that we anticipate will be converted
  into shares of our common stock and share purchase warrants. Also included is
  $162,548 in accounts payable that have been converted into a short-term loan,
  accruing interest at 7% per annum. The lender has agreed to accept payment in
  common stock. These loans have not been converted to date.

7

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|Cash Flows                                    |                                |  |             
|--------------------------------------------- | ------------------------------ |  | ------------
|                                              | Six Months Ended
      June 30
|                                              | 2004                           |  | 2003        
|Net Cash from (used in) Operating Activities  | $1,535,446                     |  | ($1,900,059)
|Net Cash from (used in) Investing Activities  | ($83,271)                      |  | Nil         
|Net Cash from (used in) Financing Activities  | ($504,938)                     |  | $1,775,820  
|Net Increase (decrease) in Cash During Period | 947,237                        |  | ($124,239)  

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

The increase in cash used in investment activities is a result
  of the purchase of $87,371 in new equipment for the development of prototypes.
  In prior years, we have financed our business primarily through private placement
  sales of our common stock, exercises of stock options, short term loans, conversion
  of accrued liabilities into stock and through increases in our accrued liabilities
  and accounts payable.

Financing Requirements

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

We settled our litigation with Honeywell, which has provided
  us with sufficient working capital to continue our operations for the next eight
  months; however, we will require further financing to continue our business
  operations past this period. We anticipate that any future financing will be
  achieved by sales of additional shares of our common stock. Sales of additional
  shares of our common stock will result in significant dilution to our current
  stockholders.

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

Our consolidated interim financial statements included with
  this Quarterly Report on Form 10-QSB have been prepared assuming that we will
  continue as a going concern. We have suffered net losses in recent periods resulting
  in an accumulated deficit of $125,786,924 at June 30, 2004. We have used cash
  in our operating activities in recent periods, have disposed of our most significant
  subsidiary through bankruptcy, and are subject to lawsuits brought against us
  by shareholders and other parties. Based on our projected cash flows for the
  ensuing year, we may be required to seek additional equity or debt financing
  in order to continue our present operations, irrespective of the amounts paid
  or to be paid, if any, in connection with the aforementioned lawsuits.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in
  accordance with accounting principles generally accepted in the United States
  of America. As such, some accounting policies have a significant impact on the
  amount reported in these financial statements. A summary of those significant
  accounting policies can be found in the Summary of Significant Accounting Policies
  in our consolidated audited financial statements included in Note 1 to our Annual
  Report on Form 10-KSB for the year ended

8

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December 31, 2003, as filed with the SEC on May 17, 2004.
  Note that our preparation of this Quarterly Report on Form 10-QSB requires us
  to make estimates and assumptions that affect the reported amount of assets
  and liabilities, disclosure of contingent assets and liabilities at the date
  of our financial statements, and the reported amounts of revenue and expenses
  during the reporting period. There can be no assurance that actual results will
  not differ from those estimates. We have identified certain accounting policies,
  described below, that are the most important to the portrayal of our current
  financial condition and results of operations.

Stock Based Compensation

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

Revenue Recognition

Prior to the suspension of our operations, we recognized sales
  revenue upon shipment of product. We recognize license and royalty fees over
  the term of the license or royalty agreement. The proceeds from the sale of
  prototypes are recognized, upon shipment of the prototype, as a reduction of
  the research and development expense.

Research and Development

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

NEW ACCOUNTING PRONOUNCEMENTS

There are no new accounting pronouncements that impact us.

ITEM 3.           CONTROLS
  AND PROCEDURES.

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

9

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

During our most recently completed fiscal quarter ended June
  30, 2004, there were no changes in our internal control over financial reporting
  that have materially affected, or are reasonably likely to affect, our internal
  control over financial reporting.

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

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

10

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PART II - OTHER INFORMATION

ITEM 1.           
  LEGAL PROCEEDINGS.

On May 20, 2004, Peter Hofbauer, one of our former officers,
  filed an action against us in the Santa Barbara Superior Court. The complaint
  alleges that we have failed to pay Mr. Hofbauer the sum of $369,265.88 pursuant
  to the terms of a purported settlement agreement, allegedly made for the purposes
  of settling amounts owed to Mr. Hofbauer for services rendered to us. Mr. Hofbauer
  is seeking: (i) damages for breach of contract in the amount of $296,088.71,
  (ii) prejudgment interest at a rate of 10% per annum from December 31, 2001,
  and (iii) attorney fees. On June 15, 2004, the court granted an order to issue
  a writ of attachment against us in the amount of $370,925 in order to secure
  Mr. Hofbauer's claim. We dispute Mr. Hofbauer's claims and have filed counterclaims
  seeking $518,977 for negligence committed by Mr. Hofbauer in the performance
  of his duties while acting as an officer of Turbodyne. We are currently in discussions
  with Mr. Hofbauer to settle his claim and our counterclaims.

We are also party to the legal proceedings described in our
  Annual Report on Form 10-KSB for the year ended December 31, 2003, as filed
  with the SEC on May 17, 2004. The presence of lawsuits is one of the factors
  cited by our auditors as giving rise to substantial doubt as to our ability
  to continue as a going concern. Accordingly, readers are encouraged to review
  the full disclosure regarding these legal proceedings, as disclosed in Item
  3 of that Annual Report, together with this disclosure.

ITEM 2.           CHANGES
  IN SECURITIES.

On July 2, 2004, we filed a Certificate of Amendment to our
  Articles of Incorporation with the Nevada Secretary of State increasing the
  number of authorized shares of our common stock, par value $0.001, from 150,000,000
  shares to 1,000,000,000 shares. As described in Part II, Item 4 of this Quarterly
  Report on Form 10-QSB, this amendment was approved by our shareholders at our
  Annual Meeting of the Shareholders, held on June 30, 2004.

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

On July 16, 2004, we completed the issue of 1,000,000 shares
  of our common stock pursuant to the conversion of 10,000 shares of our Series
  X Preferred Stock.

ITEM 3.           DEFAULTS
  UPON SENIOR SECURITIES.

None.

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

Our Annual Meeting of the Shareholders was held on June 30,
  2004.

The following proposals were adopted by the margins indicated
  in the table below:

|1. | To elect Andrew Martyn-Smith as a Class I director
        and Randall Fox as a Class III director, to serve until the annual meeting
        to be held in 2007 and 2006, respectively, or until their successors have
        been elected and qualified.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

11

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|2. | To increase the number of our authorized shares
        of common stock, par value $0.001 per share, from 150,000,000 shares to
        1,000,000,000 shares.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. | To approve our 2004 Stock Incentive Plan.                                                                                                                    
|  
|4. | To ratify the appointment of BDO Dunwoody, LLP as
        our independent auditors for the year ending December 31, 2004.                                    

|           |  |                         |  |            |  | NUMBER OF SHARES |  |           |  |        
|---------- |  | ----------------------- |  | ---------- |  | ---------------- |  | --------- |  | -------
|           |  |                         |  |            |  |                  |  |           |  | BROKER 
|           |  |                         |  |            |  |                  |  | WITHHELD/ |  | NON-   
|PROPOSAL   |  |                         |  | FOR        |  | AGAINST          |  | ABSTAINED |  | VOTES  
|           |  |                         |  |            |  |                  |  |           |  |        
|Proposal 1 |  | Election of             |  |            |  |                  |  |           |  |        
|           |  | Directors               |  |            |  |                  |  |           |  |        
|           |  |                         |  |            |  |                  |  |           |  |        
|           |  | Andrew  Martyn-Smith    |  | 55,679,476 |  | 5,600            |  | 4,733     |  | 0      
|           |  | Randall Fox             |  | 55,646,601 |  | 6,600            |  | 26,608    |  | 10,000 
|           |  |                         |  |            |  |                  |  |           |  |        
|Proposal 2 |  | Increase of  Authorized |  |            |  |                  |  |           |  |        
|           |  | Capital                 |  | 61,759,338 |  | 1,255,565        |  | 131,133   |  | 0      
|           |  |                         |  |            |  |                  |  |           |  |        
|Proposal 3 |  | Approval of  2004 Stock |  |            |  |                  |  |           |  |        
|           |  | Incentive Plan          |  | 54,865,271 |  | 333,705          |  | 166,833   |  | 324,000
|           |  |                         |  |            |  |                  |  |           |  |        
|Proposal 4 |  | Appointment of          |  |            |  |                  |  |           |  |        
|           |  | Auditors                |  | 55,683,501 |  | 1,975            |  | 4,333     |  | 0      

The term of office of our sole Class II director, Eugene O'Hagan,
  will continue until his term expires at our 2005 annual general meeting or until
  his successor has been elected and qualified.

ITEM 5.           OTHER
  INFORMATION.

None.

12

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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)                                                                                          
|        |  |                                                                                                                               
|3.3     |  | Certificate of Amendment to Articles of Incorporation, as
      filed by the Registrant with the Nevada Secretary of State (7)

|4.1   |  | Certificate of Merger, as filed by the Registrant with the
      Delaware Secretary of State.(1)                                                                                          
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                           
|4.2   |  | Certificate of Merger, as filed by the Registrant with the
      Nevada Secretary of State. (2)                                                                                           
|      |  |                                                                                                                                                                                           
|4.3   |  | Certificate of Designation creating Series X Preferred Stock,
      as filed by the Registrant with the Nevada Secretary of State. (4)                                                    
|      |  |                                                                                                                                                                                           
|10.1  |  | Sub-Lease between Turbodyne Systems, Inc. and John E. King
      and Carole D. King dated July 1, 2001.(3)                                                                                
|      |  |                                                                                                                                                                                           
|10.2  |  | Exclusive License Agreement between the Registrant, Turbodyne
      Systems, Inc. and David St. James dated October 15, 2001. (3)                                                         
|      |  |                                                                                                                                                                                           
|10.3  |  | Licensing and Joint Development Agreement Between the Registrant
      and Ishikawajima-Harima Heavy Industries Co., Ltd. (1)                                                             
|      |  |                                                                                                                                                                                           
|10.4  |  | Settlement Agreement dated January 29, 2003 between the Registrant,
      Turbodyne Systems Inc., Leon E. Nowek and L.N. Family Holdings Inc.
      (4)                                   
|      |  |                                                                                                                                                                                           
|10.5  |  | Settlement Agreement dated January 29, 2003 between the Registrant,
      Turbodyne Systems Inc., Edward M. Halimi and March Technologies Inc.(4)                                         
|      |  |                                                                                                                                                                                           
|10.6  |  | Settlement Agreement dated effective January 24, 2004 among
      the Registrant, Turbodyne Systems, Inc. and Honeywell International
      Inc.(5)                                       
|      |  |                                                                                                                                                                                           
|10.7  |  | Employment Agreement dated effective February 1, 2004 between
      the Registrant and Marsha Chandler. (6)                                                                               
|      |  |                                                                                                                                                                                           
|10.8  |  | Employment Agreement dated effective February 1, 2004 between
      the Registrant and Andrew Martyn-Smith. (6)                                                                           
|      |  |                                                                                                                                                                                           
|10.9  |  | Employment Agreement dated effective February 1, 2004 between
      the Registrant and David T. Willett.(6)                                                                               
|      |  |                                                                                                                                                                                           
|10.10 |  | 2004 Stock Incentive Plan.(6)                                                                                                                                                             
|      |  |                                                                                                                                                                                           
|14.1  |  | Code of Ethics.(5)                                                                                                                                                                        
|      |  |                                                                                                                                                                                           
|21.1  |  | List of Subsidiaries. (5)                                                                                                                                                                 
|      |  |                                                                                                                                                                                           
|23.1  |  | Consent of BDO Dunwoody LLP.(5)                                                                                                                                                           
|      |  |                                                                                                                                                                                           
|31.1  |  | Certification of Chief Executive
      Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.                                               
|      |  |                                                                                                                                                                                           
|32.2  |  | Certification of Chief Executive
      Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
      as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|      |  |                                                                                                                                                                                           

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

13

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REPORTS ON FORM 8-K

During the quarterly period ended June 30, 2004, we filed the following Current Reports on Form 8-K:

|Date of Form 8-K | Date of Filing with the SEC | Description of the Form 8-K                                                                                                                 
|---------------- | --------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------
|                 |                             |                                                                                                                                             
|May 20, 2004     | June 15, 2004               | Disclosure of action entitled Hofbauer vs.
        Turbodyne Technologies, Inc., et al. filed with the Santa Barbara
        Superior Court.

The following Current Reports on Form 8-K were filed since the quarterly period
  ended June 30, 2004:

|Date of Form 8-K | Date of Filing with the SEC | Description of the Form 8-K                                                                
|---------------- | --------------------------- | -------------------------------------------------------------------------------------------
|                 |                             |                                                                                            
|July 2, 2004     | July 9, 2004                | Disclosure of increase to authorized capital and
        announcement of private placement.

14

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SIGNATURES

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



| | TURBODYNE TECHNOLOGIES, INC.
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| | By:                         
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