---

**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 September 30, 2003

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

Commission File Number 000-21391

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

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

NOT APPLICABLE

(Former name, former address and former fiscal year end,
  if changed since last report)

Check whether the issuer (1) filed all reports required to
  be filed by Section 13 or 15(d) of the Securities 
  Exchange Act of 1934 during the preceding 12 months (or for such shorter period
  that the issuer was 
  required to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days **x****** Yes ** ̈******
  No

State the number of shares outstanding of each of the issuers
  classes of common stock, as of the latest 
  practicable date: 148,914,616 shares of common stock issued and outstanding
  as of December 10, 2003.

---

PART 1 - FINANCIAL INFORMATION

Item 1.           Financial
  Statements

---



Turbodyne Technologies, Inc.
  and Subsidiaries  Consolidated Financial Statements  For the nine-month periods ended 
  September 30, 2003 and 2002 
  (Unaudited  Expressed in US Dollars)




---



**Turbodyne Technologies, Inc. and Subsidiaries**Consolidated Financial Statements For the nine-month periods ended 
    September 30, 2003 and 2002 
    (Unaudited  Expressed in US Dollars)


|                                        | Contents
|--------------------------------------- | --------
|                                        |         
|Consolidated Financial Statements       |         
|                                        |         
|Balance
      Sheets                    |         
|                                        |         
|Statements
      of Operations          |         
|                                        |         
|Statements
      of Capital Deficit     |         
|                                        |         
|Statements
      of Cash Flows          |         
|                                        |         
|Notes
      to the Financial Statements |         

---

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



|                                                               |   | September 30 |   |   | December 31  |  
|-------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                               |   | 2003         |   |   | 2002         |  
|                                                               |   | (Unaudited)  |   |   |              |  
|Assets                                                         |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Cash                                                           | $ | 12,481       |   | $ | 137,517      |  
|Prepaid expenses and other
      current assets                |   | 13,094       |   |   | 14,194       |  
|Total
      current assets                                     |   | 25,575       |   |   | 151,711      |  
|                                                               |   |              |   |   |              |  
|Property and equipment, at cost, less accumulated depreciation |   | 125,381      |   |   | 168,918      |  
|Licenses, at cost less accumulated amortization                |   | 676,000      |   |   | 832,000      |  
|Total Assets                                                   | $ | 826,956      |   | $ | 1,152,629    |  
|                                                               |   |              |   |   |              |  
|Liabilities and Capital Deficit                                |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Liabilities                                                    |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Current                                                        |   |              |   |   |              |  
|Term debts                                                     | $ | 80,571       |   | $ | 73,071       |  
|Accounts payable                                               |   | 3,676,959    |   |   | 3,442,541    |  
|Accrued liabilities                                            |   | 2,186,332    |   |   | 5,061,515    |  
|Provisions for lawsuit
      settlements                       |   | 6,639,909    |   |   | 4,309,909    |  
|Loans payable (Note 3)                                         |   | 443,036      |   |   | 169,055      |  
|                                                               |   | 13,026,807   |   |   | 13,056,091   |  
|Deferred licensing fees (Note 5)                               |   | 394,450      |   |   | -            |  
|                                                               |   |              |   |   |              |  
|Total liabilities                                              |   | 13,421,257   |   |   | 13,056,091   |  
|                                                               |   |              |   |   |              |  
|Capital Deficit                                                |   |              |   |   |              |  
|Share Capital (Note 2)                                         |   |              |   |   |              |  
|Authorized                                                     |   |              |   |   |              |  
|1,000,000
      preferred shares, par value $ 0.001            |   |              |   |   |              |  
|150,000,000
      common shares, par value $ 0.001             |   |              |   |   |              |  
|Issued                                                         |   |              |   |   |              |  
|97,175
      preferred shares in 2003 (2002  Nil)             |   | 97           |   |   | -            |  
|147,746,749
      common shares in 2003 (2002 -115,620,517)    |   | 147,746      |   |   | 115,621      |  
|Treasury stock, at cost
      (378,580 shares) (Note 2)        |   | (1,907,612   | ) |   | (1,907,612   | )
|Additional paid-in capital                                     |   | 117,321,865  |   |   | 113,445,516  |  
|Accumulated other comprehensive
      income -                 |   |              |   |   |              |  
|Foreign
      exchange translation gain                        |   | 35,119       |   |   | 35,119       |  
|Accumulated deficit                                            |   | (128,191,516 | ) |   | (123,592,106 | )
|Total
      capital deficit                                    |   | (12,594,301  | ) |   | (11,903,462  | )
|                                                               |   |              |   |   |              |  
|Commitments and contingencies(Note 4)                          |   |              |   |   |              |  
|                                                               |   |              |   |   |              |  
|Total Liabilities
      and Capital Deficit                    | $ | 826,956      |   | $ | 1,152,629    |  

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

---

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



|                                          |   | Three-month        |   |   | Nine-month         |  
|----------------------------------------- | - | ------------------ | - | - | ------------------ | -
|                                          |   | periods ended      |   |   | periods ended      |  
|                                          |   | September
      30 |   |   | September
      30 |  
|                                          |   | 2003               |   |   | 2002               |  
|                                          |   |                    |   |   |                    |  
|Expenses                                  |   |                    |   |   |                    |  
|Selling, general and administrative       | $ | 353,140            |   | $ | 396,201            |  
|Research and development                  |   | 121,472            |   |   | 1,509,945          |  
|Litigation expense                        |   | 202,430            |   |   | 242,399            |  
|Depreciation and amortization             |   | 66,513             |   |   | 67,000             |  
|Total expenses                            |   | 743,555            |   |   | 2,215,045          |  
|Loss from operations                      |   | (743,555           | ) |   | (2,215,045         | )
|Other income (expenses)                   |   |                    |   |   |                    |  
|Interest expense, net                     |   | (4,920             | ) |   | -                  |  
|Other, net                                |   | -                  |   |   | -                  |  
|Net loss
      for the period             | $ | (748,475           | ) | $ | (2,215,045         | )
|                                          |   |                    |   |   |                    |  
|Loss per common share                     |   |                    |   |   |                    |  
|Basic
      and diluted                   | $ | (0.01              | ) | $ | (0.02              | )
|                                          |   |                    |   |   |                    |  
|Weighted
      average shares outstanding |   | 144,662,976        |   |   | 101,799,071        |  

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

---

|                                                                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------
|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, 2002                       | -                     |   | $                  | -      |                      | 84,036,915  |   | $       | 84,037  |   | 378,580       | $ | (1,755,534 | )           | $ | 108,147,994 |         | $ | 35,119 |  | $ | (114,589,361 | ) | $ | (8,077,745  | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Exercise of stock options                      | -                     |   |                    | -      |                      | 5,377,143   |   |         | 5,377   |   | -             |   | -          |             |   | 550,337     |         |   | -      |  |   | -            |   |   | 555,714     |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Private placements of common stock             | -                     |   |                    | -      |                      | 21,832,459  |   |         | 21,833  |   | -             |   | -          |             |   | 2,572,318   |         |   | -      |  |   | -            |   |   | 2,594,151   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of stock for services                 | -                     |   |                    | -      |                      | 4,374,000   |   |         | 4,374   |   | -             |   | -          |             |   | 1,061,156   |         |   | -      |  |   | -            |   |   | 1,065,530   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of stock options to non-              |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|employees for services                         | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | 1,470,930   |         |   | -      |  |   | -            |   |   | 1,470,930   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Inception of Turbodyne Technologies Inc        |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|(Nevada Company) on August 15, 2002            | -                     |   |                    | -      |                      | 1           |   |         | 1       |   | -             |   | -          |             |   | -           |         |   | -      |  |   | -            |   |   | 1           |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Adjustment for reverse acquisition of          |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Turbodyne Technologies, Inc. (Nevada           |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|company) on September 12, 2002                 | -                     |   |                    | -      |                      | (1          | ) |         | (1      | ) | -             |   | -          |             |   | -           |         |   | -      |  |   | -            |   |   | (1          | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Obligation to acquire Company shares           | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | (152,078   | )           |   | -           |         |   | -      |  |   | -            |   |   | (152,078    | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Liability for settlement of equity instruments | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | (357,219    | )       |   | -      |  |   | -            |   |   | (357,219    | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Net loss for the year                          | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | -           |         |   | -      |  |   | (9,002,745   | ) |   | (9,002,745  | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Balance, December 31, 2002                     | -                     |   |                    | -      |                      | 115,620,517 |   |         | 115,621 |   | 378,580       |   | (1,907,612 | )           |   | 113,445,516 |         |   | 35,119 |  |   | (123,592,106 | ) |   | (11,903,462 | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of Preferred Series X Shares (Note 2) | 122,175               |   |                    | 122    |                      |             |   |         |         |   |               |   | -          |             |   | 1,613,378   |         |   | -      |  |   | -            |   |   | 1,613,500   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Exercise of stock options (Note 2)             | -                     |   |                    |        |                      | 9,931,000   |   |         | 9,931   |   | -             |   | -          |             |   | 554,189     |         |   | -      |  |   | -            |   |   | 564,120     |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Private placement of common stock (Note 2)     | -                     |   |                    |        |                      | 12,011,820  |   |         | 12,011  |   | -             |   | -          |             |   | 617,783     |         |   | -      |  |   | -            |   |   | 629,794     |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of stock for services (Note 2)        | -                     |   |                    |        |                      | 4,683,412   |   |         | 4,683   |   | -             |   | -          |             |   | 593,253     |         |   | -      |  |   | -            |   |   | 597,936     |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of stock for settlement of lawsuit    |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|(Note 4)                                       | -                     |   |                    |        |                      | 3,000,000   |   |         | 3,000   |   | -             |   | -          |             |   | 1,047,000   |         |   | -      |  |   | -            |   |   | 1,050,000   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Conversion of Preferred Series X shares        |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|(Note 2)                                       | (25,000               | ) |                    | (25    | )                    | 2,500,000   |   |         | 2,500   |   | -             |   | -          |             |   | (2,475      | )       |   | -      |  |   | -            |   |   | -           |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Issuance of stock options to non-              |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|employees for services (Note 2)                | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | 1,100,112   |         |   | -      |  |   | -            |   |   | 1,100,112   |  
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Liability in connection with settlement of     |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|equity instruments (Note 2)                    | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | (1,646,891  | )       |   | -      |  |   | -            |   |   | (1,646,891  | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Net loss for the period                        | -                     |   |                    | -      |                      | -           |   |         | -       |   | -             |   | -          |             |   | -           |         |   | -      |  |   | (4,599,410   | ) |   | (4,599,410  | )
|                                               |                       |   |                    |        |                      |             |   |         |         |   |               |   |            |             |   |             |         |   |        |  |   |              |   |   |             |  
|Balance,
      September 30, 2003              | 97,175                |   | $                  | 97     |                      | 147,746,749 |   | $       | 147,746 |   | 378,580       | $ | (1,907,612 | )           | $ | 117,321,865 |         | $ | 35,119 |  | $ | (128,191,516 | ) | $ | (12,594,301 | )

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

---

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



|For
      the nine-month periods ended September 30                         |   | 2003       |   |   | 2002       |  
|--------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                            |   |            |   |   |            |  
|Cash provided by (used in)                                                  |   |            |   |   |            |  
|Operating activities                                                        |   |            |   |   |            |  
|Net loss for the period                                                     | $ | (4,599,410 | ) | $ | (4,510,695 | )
|Adjustments to reconcile
      net loss for the period to net cash          |   |            |   |   |            |  
|used
      in operating activities:                                         |   |            |   |   |            |  
|Depreciation
      and amortization                                         |   | 199,538    |   |   | 199,075    |  
|Stock
      option compensation                                             |   | 1,100,112  |   |   | 1,281,609  |  
|Stock
      issued for services                                             |   | 597,936    |   |   | 901,230    |  
|Stock
      issued for settlement of lawsuit                                |   | 1,050,000  |   |   | -          |  
|Liability
      in connection with settlement of equity instrument          |   | (253,994   | ) |   | -          |  
|Amortization
      of deferred licensing fees                               |   | (5,550     | ) |   | -          |  
|Increase in assets                                                          |   |            |   |   |            |  
|Prepaid
      expenses and other current assets                             |   | 1,100      |   |   | (4,775     | )
|Increase (decrease) in
      liabilities                                    |   |            |   |   |            |  
|Accounts
      payable                                                      |   | 384,418    |   |   | 147,636    |  
|Accrued
      liabilities and provisions for lawsuit settlements            |   | (22,615    | ) |   | 373,097    |  
|                                                                            |   | (1,548,465 | ) |   | (1,612,823 | )
|                                                                            |   |            |   |   |            |  
|Financing activities                                                        |   |            |   |   |            |  
|Net proceeds from term
      debts                                          |   | 7,500      |   |   |            |  
|Issuance of common stock
      and stock subscriptions                      |   | 891,948    |   |   | 1,307,197  |  
|Loans payable                                                               |   | 273,981    |   |   | 493,210    |  
|Deferred licensing fees                                                     |   | 250,000    |   |   | -          |  
|Amounts paid for acquisition
      of company stock                         |   | -          |   |   | (152,078   | )
|                                                                            |   | 1,423,429  |   |   | 1,648,329  |  
|Investing activity                                                          |   |            |   |   |            |  
|Purchase of property and
      equipment                                    |   | -          |   |   | (16,443    | )
|Net increase (decrease) in cash                                             |   | (125,036   | ) |   | 19,063     |  
|                                                                            |   |            |   |   |            |  
|Cash,beginning of period                                                    |   | 137,517    |   |   | 20,257     |  
|                                                                            |   |            |   |   |            |  
|Cash,end
      of period                                                    | $ | 12,481     |   | $ | 39,320     |  
|                                                                            |   |            |   |   |            |  
|Supplementary disclosure of cash flow information                           |   |            |   |   |            |  
|Cash paid during the period                                                 |   |            |   |   |            |  
|Interest                                                                    | $ | 4,920      |   | $ | -          |  
|Income
      taxes                                                          | $ | -          |   | $ | -          |  
|Supplementary disclosure of non-cash investing and financing activities     |   |            |   |   |            |  
|Stock option compensation                                                   | $ | 1,100,112  |   | $ | 1,281,609  |  
|Stock issued for services                                                   | $ | 597,936    |   | $ | 901,230    |  
|Stock issued for settlement
      of lawsuit                                | $ | 1,050,000  |   | $ | -          |  
|Preferred stock issued
      on settlement of accrued liabilities           | $ | 1,613,500  |   | $ | -          |  
|Reduction in accounts
      payable as partial settlement of licensing fees | $ | 150,000    |   | $ | -          |  
|Liability
      in connection with settlement of equity instruments         | $ | 1,392,897  |   | $ | -          |  

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

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

|**1.** | Nature of Business and Ability to Continue as a
        Going Concern
      Turbodyne Technologies, Inc., a Delaware corporation,
        and its subsidiaries (the Company) has suspended its business operation
        subsequent to September 30, 2003 due to a lack of financing. Prior to
        the suspension of operations, the Company engineered, developed and marketed
        products designed to enhance performance and reduce emissions of internal
        combustion engines.
      The interim financial statements included herein, presented
        in accordance with United States generally accepted accounting principles
        and stated in US dollars, have been prepared by the Company, without audit,
        pursuant to the rules and regulations of the Securities and Exchange Commission.
        Certain information and footnote disclosures normally included in financial
        statements prepared in accordance with generally accepted accounting principles
        have been condensed or omitted pursuant to such rules and regulations,
        although the Company believes that the disclosures are adequate to make
        the information presented not misleading.
      These financial statements reflect all adjustments,
        consisting of normal recurring adjustments, which in the opinion of management,
        are necessary for fair presentation of the information contained therein.
        It is suggested that these interim financial statements be read in conjunction
        with the audited financial statements of the Company for the years ended
        December 31, 2002 and 2001 included in the Companys 10-KSB Annual
        Report. The Company follows the same accounting policies in the preparation
        of interim reports.
      Results of operations for the interim periods are not
        indicative of annual results.
      The accompanying consolidated financial statements have
        been prepared assuming that the Company will continue as a going concern.
        The Company has suspended operations, has suffered recurring net losses,
        has an accumulated deficit of $128,191,516 at September 30, 2003, uses
        cash in its operating activities, has disposed of its most significant
        subsidiary through bankruptcy, is subject to lawsuits , and based on the
        Company's projected cash flows for the ensuing year, will be required
        to seek additional equity or debt financing in order to continue its present
        operations, irrespective of the amounts to be paid, if any, in connection
        with the aforementioned lawsuits. These matters raise substantial doubt
        about the Company's ability to continue as a going concern.
      The Company's operations have been financed principally
        through a combination of private and public sales of equity and debt securities.
        Although the Company continues to raise operating funds with a combination
        of debt and equity instruments there is no guarantee that the Company
        will be able to continue to finance operations by this method. The Company
        is also limited in raising funds through the sale of equity because of
        the limited remaining authorized shares available for sale.
      The Company is examining alternatives for financing
        and fulfilling its working capital needs. The Company is also attempting
        to settle outstanding accounts payable and accrued liabilities. If the
        Company is unable to resume operations and satisfactorily settle litigation,
        including its dispute with Honeywell Turbocharging Systems, a division
        of Allied Signal Inc. (Honeywell) (Note 4(c)), the present
        holder of the Companys core technology, make arrangements with its
        creditors and raise substantial monies or generate revenue to meet its
        working capital needs, it may have to cease operating and seek relief
        under appropriate statutes. If the going concern assumption was not appropriate
        for these consolidated financial statements, then adjustments would be
        necessary to the carrying value of assets and liabilities, the reported
        net loss and the balance sheet classifications used.
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

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

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

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

| |  |                                                                                       | Non-employees |   | Employees |          | Total |           
| |  | ------------------------------------------------------------------------------------- | ------------- | - | --------- | -------- | ----- | ----------
| |  |                                                                                       |               |   |           | Weighted |       |           
| |  |                                                                                       |               |   |           | Average  |       |           
| |  |                                                                                       |               |   |           | Exercise |       |           
| |  |                                                                                       | Options       |   |           | Price    |       | Options   
| |  | Outstanding at                                                                        |               |   |           |          |       |           
| |  | beginning of period                                                                   | 1,131,715     |   | $         | 1.28     |       | 2,291,700 
| |  | Granted                                                                               | 13,507,666    |   | $         | 0.07     |       | 1,300,000 
| |  | Exercised                                                                             | (9,931,000    | ) | $         | 0.06     |       | -         
| |  | Forfeited                                                                             | (1,900,000    | ) | $         | 0.12     |       | (1,131,700
| |  | Outstanding at end of                                                                 |               |   |           |          |       |           
| |  | period                                                                                | 2,808,381     |   | $         | 0.57     |       | 2,460,000 
| |  | Options exercisable at                                                                |               |   |           |          |       |           
| |  | end of period                                                                         | 2,808,381     |   | $         | 0.57     |       | 2,460,000 
| |  | Weighted average fair                                                                 |               |   |           |          |       |           
| |  | value of options                                                                      |               |   |           |          |       |           
| |  | granted during the                                                                    |               |   |           |          |       |           
| |  | period                                                                                | -             |   | $         | 0.05     |       | -         
| |  |                                                                                      
| |  | At September 30, 2003, the following is a summary of stock
      options outstanding:

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |           |  | Weighted-          | 
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- |  | ------------------ | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |           |  | Average            | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |           |  | Remaining          | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |           |  | Contractual        | 
| |  | Exercise                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Number    |  | Life
      (Years) | 
| |  | 0.00  0.10                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 2,659,666 |  | 4                  | 
| |  | 0.11  0.29                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 1,498,715 |  | 2                  | 
| |  | 0.30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 150,000   |  | 1                  | 
| |  | 0.35                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 760,000   |  | 2                  | 
| |  | 3.50  8.50                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 200,000   |  | 2                  | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 5,268,381 |  |                    | 
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | Grant of Stock Options to Non-employees
        for Services
      The Company has recorded $1,100,112 (2002 - $Nil) of
        compensation expense relating to stock options issued to non-employees
        for services rendered during the period.
      The per share weighted average fair value of stock options
        granted during 2003 and 2002 was $0.08 and $Nil, respectively, on the
        date of grant using the Black-Scholes option-pricing model with the following
        weighted average assumptions in 2003: expected dividend yield Nil%; expected
        volatility of 130%; risk-free interest rate of between 1.14% and 3.98%
        and expected life equal to 1 to 4 years.



---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | For the      |   |   | For the      |  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | three-month  |   |   | nine-month   |  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | period ended |   |   | period ended |  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | September 30 |   |   | September 30 |  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 2003         |   |   | 2003         |  
| |    | Net loss, as reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $ | (748,475     | ) | $ | (4,599,410   | )
| |    | Deduct: Stock-based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |              |   |   |              |  
| |    | determined under fair-value based
      method                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |   |   |              |  
| |    | for all awards not included in net loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | (42,750      | ) |   | (85,240      | )
| |    | Pro-forma net loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | $ | (791,225     | ) | $ | (4,684,650   | )
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |              |   |   |              |  
| |    | Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |              |   |   |              |  
| |    | Basic and diluted  as reported                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $ | (0.01        | ) | $ | (0.03        | )
| |    | Basic and diluted  pro-forma                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ | 0.01         |   | $ | (0.03        | )
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The per share
        weighted average fair value of stock options granted to employees during
        2003 was $0.06, calculated on the date of grant using the Black-Scholes
        option pricing model with the following weighted average assumptions in
        2003: expected dividend yield Nil%; expected volatility of 160%; risk-free
        interest rate of between 3.57% and 4.03%; and expected life equal to 1
        to 3 years.                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | d) | Stock Purchase Warrants
      At September 30, 2003, the Company had 26,248,120 stock
        purchase warrants outstanding. These warrants were issued in connection
        with private placements and other means of financing. The holders of these
        warrants are entitled to receive one share of common stock of the Company
        for each warrant exercised. The warrants have exercise prices ranging
        from $0.12 to $4.25 per share with a weighted average exercise price of
        $0.39 per share and expiration dates between 2004 and 2006. During the
        period ended September 30, 2003, the Company issued 1,809,237 warrants
        with exercise prices ranging from$0.12 to $0.38 and 8,695,453 warrants
        expired.

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

|2. | Share Capital  Continued
|-- | -------------------------
|   |                          
|   | e)                       
|   |                          
|   | f)                       
|   |                          
|   |                          
|3. |                          

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

|**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)                                                                                                                                                                                                                                                                                                                     
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       |                                                                                                                                                                                                                                                                                                                        
|       | b)                                                                                                                                                                                                                                                                                                                     

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

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

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

|4. | Commitments and Contingencies  Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|5. | Deferred Licensing Fees
        During the quarter, the Company entered into a licensing and technology
          transfer agreement. Under the terms of the agreement, the Company received
          a $150,000 credit against pre-existing indebtedness to the licensee
          and a payment of $250,000 for licensing of the DynachargerTMtechnology
          and will receive royalties of 3% of the net sales of licensed products
          made, used or sold by the licensee. In the event that the licensee sells
          an aggregate of 200,000 or more units in any calendar year, and remains
          current in its royalty payments, then the royalty payable for each additional
          unit sold during such calendar year will be reduced to 2% of net sales.
          As at September 30, 2003, the amount received under the agreement totalling
          $400,000 was recorded as deferred licencing fees and is being amortized
          over the term of the agreement estimated to be 18 years. During 2003,
          $5,550 has been amortized and recorded as a credit to selling, general
          and administrative expenses.

---

|                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------
|Turbodyne Technologies, Inc.
      and Subsidiaries Notes to the Consolidated Financial
      Statements (Unaudited  Expressed in US Dollars)
|September
      30, 2003 and 2002                                                                                                             

|6. | New Accounting Pronouncements
        FASB Interpretation (FIN) No. 46, Consolidation
          of Variable Interest Entities, clarifies the application of Accounting
          Research Bulletin No. 51, Consolidated Financial Statements,
          to certain entities in which equity investors do not have the characteristics
          of a controlling financial interest or do not have sufficient equity
          at risk for the entity to finance its activities without additional
          subordinated financial support from other parties. FIN 46 is applicable
          immediately for variable interest entities created after January 31,
          2003. For variable interest entities created prior to January 31, 2003,
          the provisions of FIN 46 are applicable for periods ending after December
          15, 2003.
        On May 15, 2003, the Financial Accounting Standards Board ("FASB")
          issued Statement of Financial Accounting Standard ("SFAS") No. 150,
          "Accounting for Certain Financial Instruments with Characteristics of
          both Liabilities and Equity". SFAS No. 150 changes the accounting for
          certain financial instruments that, under previous guidance, could be
          classified as equity or "mezzanine" equity, by now requiring those instruments
          to be classified as liabilities (or assets in some circumstances) in
          the balance sheet. Further, SFAS No. 150 requires disclosure regarding
          the terms of those instruments and settlement alternatives. SFAS No.
          150 affects an entity's classification of the following freestanding
          instruments: a) Mandatoryily redeemable instruments b) Financial instruments
          to repurchase an entity's own equity instruments c) Financial instruments
          embodying obligations that the issuer must or could choose to settle
          by issuing a variable number of its shares or other equity instruments
          based solely on (i) a fixed monetary amount known at inception or (ii)
          something other than changes in its own equity instruments d) SFAS No.
          150 does not apply to features embedded in a financial instrument that
          is not a derivative in its entirety. The guidance in SFAS No. 150 is
          generally effective for all financial instruments entered into or modified
          after May 31, 2003, and is otherwise effective at the beginning of the
          first interim period beginning after September 15, 2003.
        The implementation of these standards is not expected to have a material
          effect on the Companys financial statements.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|7. | Comparative Amounts
      Certain comparative amounts have been restated to conform to the current
        periods presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

---

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

FORWARD LOOKING STATEMENTS

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

OVERVIEW

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

To the date of suspension of our business operations, we have
  been a design and engineering company engaged in the design and development
  of air charging technology that enhances the performance of internal combustion
  engines. Our technology is based on DC/AC, high-speed, high-powered, electronically
  commutated electric motors. Our business strategy involves entering into license
  agreements with original equipment manufacturers (OEMs) in
  the automotive industry who would incorporate our technology into their product
  lines in exchange for the payment of royalties or other similar license fees.

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

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

Prior to the suspension of our business activities, we were
  in a transition phase of our business to an engineering and design business
  from a business model that originally included manufacturing and marketing of
  products incorporating our technology. Our operating results for the nine months
  ended September 30, 2003 and the nine months ended September 30, 2002 reflect
  the fact that Honeywell is not proceeding with the

3

---

commercialization of the Turbopac and Dynacharger products
  and we are not earning revenues under our license agreement with Honeywell.

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

RECENT CORPORATE DEVELOPMENTS

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

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

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

PLAN OF OPERATIONS

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

| | 1. | We are attempting to enter into short term loan agreements
        with our existing shareholders. While we have entered into several loan
        agreements to date, there is no assurance that we will be able to obtain
        sufficient funds from loan agreements in order to resume operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 2. | We are proposing to assemble a new management team
        that would be headed by Mr. David Willett who has previously been our
        vice-president of product development. Our plan to assemble this management
        team is on stand-by pending our achieving additional financing
        that would enable us to pursue our plan of operations for the development
        of our technology, as discussed below. We plan to enter into new management
        agreements with these individuals upon receipt of financing. We do not
        have any agreements in place with these individuals and there is no assurance
        that we will be able to negotiate to engage the individuals who we hope
        to include in the management team.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 3. | We are attempting to settle all legal proceedings
        that are currently against us, as disclosed in Item 3 of Part I of our
        Annual Report on Form 10-KSB for the year ended December 31, 2002 and
        in Item 1 of Part I of this Form 10-QSB. Our objective is to remove the
        uncertainty and potential liabilities associated with these legal proceedings
        in order to increase the likelihood that investors will invest in us in
        order to finance our business. There is no assurance that we will be successful                                                                                                                                                                                                       

4

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| |    | in our negotiations to settle the legal proceedings in which we are currently
      involved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 4. | We are attempting to settle our outstanding accounts
        payable and accrued liabilities with our creditors. If we are unable to
        settle these liabilities, then we plan to pursue forbearance agreements
        whereby the creditor would forbear from enforcement of the liability pending
        our resuming operations. Our ability to settle our accounts payable and
        accrued liabilities is presently compromised due to our lack of financing
        and working capital.                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 5. | We plan to proceed with a meeting of our shareholders
        in order to increase the number of our authorized shares of common stock.
        We have historically relied on equity financings of sales of our common
        stock and share purchase warrants in order to fund our operations. We
        believe that any new financings that we achieve, of which there is no
        assurance, will be through equity financings. Due to the fact that we
        had 148,914,616 shares of our common stock issued and outstanding as of
        December 10, 2003 and the number of authorized shares of our common stock
        is 150,000,000 shares, we will need to increase our authorized capital
        in order to achieve any equity financings. We currently do not have any
        arrangements in place for any equity financings and there is no assurance
        that any financings will be achieved.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 6. | We are planning on resuming development of our products
        and technologies and performance of our obligations under product development
        agreements once we have resumed operations. We have informed our product
        development partners as to the status of our operations. There is no assurance
        that we will be able to continue with our product development agreements
        due to our financial status. We anticipate proceeding with approximately
        seven employees and an estimated operating budjet of $70,000 per month.                                                                                                                                                                                                                                                                                                                                                           

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

We had cash of $12,481 as at September 30, 2003 and a working
  capital deficit of $13,001,232 as at September 30, 2003. If we are successful
  in resuming our business operations, our plan of operations calls for us to
  spend approximately $1,000,000 over the next twelve months, with approximately
  half of this amount being incurred over the next six months. This amount is
  exclusive of any amounts that we will pay to settle outstanding accounts payable
  and accrued liabilities or to obtain the forbearance of our creditors. As discussed
  above, we are not able to pursue our stated plan of operations without substantial
  additional financing. We are pursuing possible short term loan agreements and
  possible sales of our common stock and share purchase warrants to raise the
  financing necessary for us to resume and continue operations. We have no arrangements
  in place for additional loan or equity financing and there is no assurance that
  additional loan or equity financing will be obtained. We believe that conventional
  debt financing is not a financing option to us due to the development stage
  of our products, our lack of revenues and the litigation to which we are party.
  Based on these risks, there is no assurance that we will be able to resume or
  carry out our plan of operations. If we achieve less financing than required
  to resume operations, then we will not be able to carry out our plan of operations.

RESULTS OF OPERATIONS

Net Sales

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

5

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of the Turbopac product by Honeywell since June 2000
  and our Dynacharger product remains in development.

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

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the nine
  months ended September 30, 2003 increased to $1,197,105 from $761,973 for the
  nine months ended September 30, 2002, representing an increase of $435,132 or
  57%. Selling, general and administrative expenses for the three months ended
  September 30, 2003 decreased to $353,140 from $396,201 for the three months
  ended September 30, 2002, representing a decrease of $43,061 or 11%. The increase
  in our selling, general and administrative expenses during the first nine months
  was attributable to increased activity during the first six months of 2003 in
  connection with development agreements that we had entered into. Selling, general
  and administrative expenses declined in our third quarter due to the fact that
  we suspended our operations in the third quarter. General and administrative
  costs included expenses associated with our Carpinteria, California office,
  management compensation, administrative staff and overhead. Selling expenses
  were minimal and reflected the fact that none of our products are being commercially
  sold at present.

Research and Development

Research and development costs for the nine months ended September
  30, 2003 decreased to $1,877,455 from $2,853,033 for the nine months ended September
  30, 2002, representing a decrease of $975,578 or approximately 34%. Research
  and development costs for the three months ended September 30, 2003 decreased
  to $121,472 from $1,509,945 for the three months ended September 30, 2002, representing
  a decrease of $1,388,473 or approximately 92%. Research and development expenses
  in the first two quarters of 2003 were attributable to development work relating
  to the manufacture of prototypes for evaluation purposes under development agreements.
  This research and development work was largely halted in our third quarter as
  we suspended our business operations, with the result that research and development
  expenses decreased substantially. Our research and development costs related
  to present and future products are charged to operations in the period incurred.
  Current research and development costs are associated with our development of
  our TurboAir products and new products.

Litigation Expense

We incurred litigation expense in the amount of $1,323,807
  for the nine months ended September 30, 2003 compared to litigation expense
  in the amount of $701,979 for the nine months ended September 30, 2002. We incurred
  litigation expense in the amount of $202,430 for the three months ended September
  30, 2003 compared to litigation expense in the amount of $242,399 for the three
  months ended September 30, 2002. The increased litigation expense for the nine
  months ended September 30, 2003 is primarily attributable to our settlement
  of litigation with TST in consideration for the issuance of 3,000,000 shares
  of common stock during our second quarter, which resulted in an expense of $1,050,000.
  Our litigation expenses are attributable to our involvement in the legal proceedings
  described in Item 3 of Part I of our Annual Report on Form 10-KSB. The most
  significant component of our litigation expense remains legal expenses attributable
  to our litigation and arbitration proceedings with Honeywell. Litigation expenses
  during the balance of 2003 are anticipated to consist primarily of legal expenses
  relating to the pending arbitration proceedings in the Honeywell dispute.

6

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Net Loss

Our net loss for the nine months ended September 30, 2003
  increased to $4,599,410 from a net loss of $4,510,695 for the nine months ended
  September 30, 2002, representing an increase of $88,715. Our net loss for the
  three months ended September 30, 2003 decreased to $748,475 from a net loss
  of $2,215,045 for the three months ended September 30, 2002, representing a
  decrease of $1,466,570. The decreased loss in our third quarter was attributable
  to the suspension of our business operations during this period. Our continued
  net losses reflect our increased selling, general and administrative expenses,
  our increased litigation expenses and our current inability to generate revenues.

FINANCIAL CONDITION

Cash and Working Capital

We had cash of $12,481 as at September 30, 2003, compared
  with cash of $137,517 as at December 31, 2002. Our working capital deficit increased
  to $12,953,732 as at September 30, 2003, compared to a working capital deficit
  of $13,001,232 as at December 31, 2002.

Liabilities

The largest component of our working capital deficit is a
  reserve for lawsuit settlements in the amount of $6,639,909 as at September
  30, 2003, compared to $4,309,909 as at December 31, 2002.

Our accounts payable and accrued liabilities remain substantial
  due to our inability to generate revenues and our limited ability to raise capital
  to fund our operations. Accounts payable increased to $3,676,959 as at September
  30, 2003 from $3,442,541 as at December 31, 2002. Accrued liabilities decreased
  to $2,138,832 as at September 30, 2003 from $5,061,515 as at December 31, 2002.
  We have continued during 2002 and are continuing during 2003 to negotiate with
  our creditors for the payment of our accounts payable and accrued liabilities.
  Payment of these liabilities is contingent on new funding being received that
  would enable us to make payment to the creditors. Our ability to resume and
  continue our operations is also conditional upon the forbearance of our creditors.

Short term loans from shareholders and other parties increased
  to $443,036 as of September 30, 2003 from $169,055 as of December 31, 2002.
  A portion of these loans are unsecured, non-interest bearing advances that we
  anticipate will be converted into shares of our common stock and share purchase
  warrants. These loans have not been converted to date.

Cash Used in Operating Activities

Cash used in operating activities for the nine months ended
  September 30, 2003 was $1,548,465, compared to $1,612,823 for the nine months
  ended September 30, 2002, representing a decrease of $64,358 or 4%. The decrease
  in cash used in operating activities necessitated that we increase our financing
  activities in order to fund our operations.

Cash Provided by Financing Activities

We have continued to finance our business primarily through
  private placement sales of our common stock, exercises of stock options, short
  term loans, conversion of accrued liabilities into stock and through increases
  in our accrued liabilities and accounts payable. Cash provided by financing
  activities for the nine months ended September 30, 2003 was $1,423,429, compared
  to $1,648,329 for the nine months ended September 30, 2002. Cash provided by
  financing activities during the nine months ended September 30, 2003 was comprised
  primarily of cash provided by issuances of common stock in the amount of $891,948
  and cash from loans payable in the amount of $273,981.

7

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Financing Requirements

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

We are pursuing possible short term loan agreements and possible
  sales of our common stock and share purchase warrants to raise the financing
  necessary for us to resume and continue operations. Since September 2003, we
  have entered into eight loan agreements whereby we borrowed an aggregate of
  $122,000. The loans mature on the earlier of August 31, 2004 or the date that
  we receive proceeds from the Honeywell arbitration proceedings in excess of
  $5,000,000, of which there is no assurance. The loans bear interest at the rate
  of 5% per annum and provide for a bonus of 50% of the principal amount and forgiveness
  of interest if we receive settlement or execution proceeds from our arbitration
  proceeding with Honeywell in excess of $5,000,000, of which there is no assurance.

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

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

Our authorized capital currently includes 150,000,000 shares
  of common stock. We had 148,914,616 shares of common stock outstanding as of
  December 10, 2003. In addition, as of September 30, 2003 we had warrants to
  purchase 26,248,120 shares of our common stock outstanding, options to purchase
  5,268,381 shares of our common stock outstanding and we had 97,175 shares of
  our Series X preferred shares outstanding that are convertible into an additional
  9,717,500 shares of our common stock. If all share purchase warrants and options
  were exercised and all Series X preferred shares were converted, the number
  of required shares of common stock would exceed the authorized number of shares
  of common stock. Accordingly, we have recorded a liability of $2,004,110 to
  account for the potential cash settlement of these outstanding share purchase
  warrants and convertible shares of Series X preferred stock. Our limited remaining
  number of shares of authorized common stock may adversely impact on our ability
  to raise additional financing through additional private placements.

8

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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 our Annual Report
  on Form 10-KSB for the year ended December 31, 2002. Note that our preparation
  of this Quarterly Report on Form 10-QSB requires us to make estimates and assumptions
  that affect the reported amount of assets and liabilities, disclosure of contingent
  assets and liabilities at the date of our financial statements, and the reported
  amounts of revenue and expenses during the reporting period. There can be no
  assurance that actual results will not differ from those estimates. We believe
  our most critical accounting policies include stock-based compensation and legal
  contingencies as explained below.

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

Our financial statements included with this Quarterly Report
  on Form 10-QSB have been prepared assuming that we will continue as a going
  concern. We have suffered net losses in recent periods resulting in an accumulated
  deficit of $128,144,016 at September 30, 2003, have used cash in our operating
  activities in recent periods, have disposed of our most significant subsidiary
  through bankruptcy, are subject to lawsuits brought against us by shareholders
  and other parties, and based on our projected cash flows for the ensuing year,
  we will be required to seek additional equity or debt financing in order to
  continue our present operations, irrespective of the amounts to be paid, if
  any, in connection with the aforementioned lawsuits. These matters raise substantial
  doubt about our ability to continue as a going concern.

Stock Based Compensation

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

Legal Contingencies

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

9

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NEW ACCOUNTING PRONOUNCEMENTS

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

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

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

10

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ITEM 3.           Controls
  and Procedures

As required by Rule 13a-15 under the Securities Exchange Act
  of 1934 (the Exchange Act), we carried out an evaluation of the
  effectiveness of the design and operation of our disclosure controls and procedures
  as of September 30, 2003, being the date of our most recently completed fiscal
  quarter. This evaluation was carried out under the supervision and with the
  participation of our Chief Executive Officer and Chief Financial Officer, Mr.
  Daniel Black. Based upon that evaluation, our Chief Executive Officer and Chief
  Financial Officer concluded that our disclosure controls and procedures are
  effective in timely alerting management to material information relating to
  us required to be included in our periodic SEC filings. There have been no significant
  changes in our internal controls or in other factors that could significantly
  affect internal controls subsequent to the date we carried out our evaluation.

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

During our most recently completed fiscal quarter ended September
  30, 2003, there were no changes in our internal control over financial reporting
  that have materially affected, or are reasonably likely to affect, our internal
  control over financial reporting.

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

| | (1) | Pertain to the maintenance of records
        that in reasonable detail accurately and fairly reflect the transactions
        and dispositions of the assets of the registrant;                                                                                                                                                                                                 
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                  
| | (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.                                                                                                                                          

11

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PART II - OTHER INFORMATION

Item 1.           Legal
  Proceedings

We are a party to the legal proceedings described in our Annual
  Report on Form 10-KSB, as filed with the Securities and Exchange Commission
  on April 15, 2003. The presence of the law suits is one of the facts cited by
  our auditors as giving rise as to the substantial doubt about our ability to
  continue as a going concern. Accordingly, readers are encouraged to review the
  full disclosure regarding these legal proceedings, as disclosed in Item 3 of
  the Annual Report on Form 10-KSB, together with the disclosure regarding developments
  to these legal proceedings contained in our Quarterly Reports on Form 10-QSB
  for the three months ended March 31, 2003 and the six months ended June 30,
  2003.

The company from which we leased a photocopier has obtained
  a judgment against us in the approximate amount of $80,000. Other than this
  judgement, we are not party to any new legal proceedings that have been commenced
  since the date of our Annual Report on Form 10-KSB.

There were no material developments to our previously disclosed
  legal proceedings during our third quarter ended September 30, 2003.

We are currently in discussions with Honeywell with respect
  to a possible settlement of the outstanding disputes between us and Honeywell.
  No settlement has been reached as of the date of this Quarterly Report on Form
  10-QSB and there is no assurance that any settlement will be reached. Pending
  settlement, we are actively pursuing the completion of the liability phase of
  the arbitration hearings.

Item 2.           Changes
  in Securities

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

|1. | On August 27, 2003, we completed the issue of 750,000
        shares of our common stock pursuant to the conversion of 7,500 shares
        of Series X Preferred Stock. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Section 4(2) of
        the Act on the basis that the purchaser is a sophisticated purchaser.  
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                        
|2. | On September 8, 2003, we completed the issue of 750,000
        shares of our common stock pursuant to the conversion of 5,000 shares
        of Series X Preferred Stock. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Section 4(2) of
        the Act on the basis that the purchaser is a sophisticated purchaser.
|   |                                                                                                                                                                                                                                                                                                                                                                                        
|3. | On September 8, 2003, we completed the issue of 650,000
        shares of our common stock pursuant to the conversion of 6500 shares of
        Series X Preferred Stock. No commissions or fees were paid in connection
        with the offering. The sales were completed pursuant to Section 4(2) of
        the Act on the basis that the purchaser is a sophisticated purchaser. 

Item 3.           Defaults
  upon Senior Securities

None.

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

No matters were submitted to our security holders for a vote
  during the fiscal quarter ended September 30, 2003.

12

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Item 5.           Other
  Information

None.

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

EXHIBITS

|Exhibit Number | Description of Exhibit                                                                                                                                                                                   
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                          
|               |                                                                                                                                                                                                          
|3.1            | Restated Articles of Incorporation of
        Registrant (1)                                                                                                                                             
|               |                                                                                                                                                                                                          
|3.2            | Amended Bylaws of the Registrant (1)                                                                                                                                                                     
|               |                                                                                                                                                                                                          
|4.1            | Certificate of Merger, as filed by the
        Registrant with the Delaware Secretary of State (1)                                                                                                       
|               |                                                                                                                                                                                                          
|4.2            | Certificate of Merger, as filed by the
        Registrant with the Nevada Secretary of State (2)                                                                                                         
|               |                                                                                                                                                                                                          
|4.3            | Certificate of Designation creating
        Series X Preferred Stock, as filed by the Registrant with the Nevada Secretary
        of State (4)                                                          
|               |                                                                                                                                                                                                          
|10.1           | Joint Development Agreement dated January
        28, 1999 between Honeywell International, Inc. and the Registrant (2)                                                                                  
|               |                                                                                                                                                                                                          
|10.2           | License Agreement dated January 28,
        1999 between Honeywell International, Inc. and the Registrant (2)                                                                                            
|               |                                                                                                                                                                                                          
|10.3           | Amendment to License Agreement dated
        December 15, 1999 (2)                                                                                                                                       
|               |                                                                                                                                                                                                          
|10.4           | Amendment to Joint Development Agreement
        dated December 15, 1999 (2)                                                                                                                             
|               |                                                                                                                                                                                                          
|10.5           | Intellectual Property and Product Rights
        Agreement dated December 15, 1999 between Honeywell International, Inc.
        and the Registrant (2)                                                  
|               |                                                                                                                                                                                                          
|10.6           | Sub-Lease between Turbodyne Systems,
        Inc. and John E. King and Carole D. King dated July 1, 2001(3)                                                                                              
|               |                                                                                                                                                                                                          
|10.7           | Exclusive License Agreement between
        the Registrant, Turbodyne Systems, Inc. and David St. James dated October
        15, 2001(3)                                                                
|               |                                                                                                                                                                                                          
|10.8           | Licensing and Joint Development Agreement
        Between the Company and Ishikawajima-Harima Heavy Industries Co., Ltd.(1)                                                                              
|               |                                                                                                                                                                                                          
|10.9           | Settlement Agreement dated January 29,
        2003 between the Company, Turbodyne Systems Inc., Leon E. Nowek and L.N.
        Family Holdings Inc.(4)                                                  
|               |                                                                                                                                                                                                          
|10.10          | Settlement Agreement dated January 29,
        2003 between the Company, Turbodyne Systems Inc., Edward M. Halimi and
        March Technologies Inc.(2)                                                 
|               |                                                                                                                                                                                                          
|31.1           | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley
        Act of 2002 (5)
|               |                                                                                                                                                                                                          
|32.1           | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002 (5)
|               |                                                                                                                                                                                                          
|99.3           | Audit Committee Charter (4)                                                                                                                                                                              

13

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|   |   |                                                                                                                                                                
|-- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1 | ) | Filed as an exhibit to the Companys Current
        Report on Form 8-K filed with the SEC on September 18, 2002                                               
|   |   |                                                                                                                                                                
|(2 | ) | Previously filed with the Securities and Exchange
        Commission as an exhibit to the Registrants 10-K for the fiscal
        year ended December 31, 1999
|   |   |                                                                                                                                                                
|(3 | ) | Filed as an exhibit to the Companys Annual
        Report on Form 10-KSB for the fiscal year ended December 31, 2001                                          
|   |   |                                                                                                                                                                
|(4 | ) | Filed as an exhibit to the Companys Annual
        Report on Form 10-KSB for the fiscal year ended December 31, 2002                                          
|   |   |                                                                                                                                                                
|(5 | ) | Filed as an exhibit to this Quarterly Report on Form 10-QSB                                                                                                    
|   |   |                                                                                                                                                                

REPORTS ON FORM 8-K

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

14

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SIGNATURES

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

Date: December 19, 2003

TURBODYNE TECHNOLOGIES, INC.

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

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