U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)
[X]   Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
      Act Of 1934

      For the fiscal year ended DECEMBER 31, 2005

[ ]   Transition Report Under Section 13 Or 15(d) Of The Securities Exchange
      Act Of 1934

      For the transition period from _____ to _____

COMMISSION FILE NUMBER: 000-21391
                        ---------

                          TURBODYNE TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)

NEVADA                                          95-4699061
-------------------------------                 --------------------------------
(State or other jurisdiction of                 (I.R.S. Employer Identification
 incorporation or organization)                  No.)

2848 SIOUX AVENUE
VENTURA, CALIFORNIA                             93001
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(Address of principal executive offices)        (Zip Code)

(805) 201-3133
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Issuer's telephone number

Securities registered under Section 12(b) of the Exchange Act: NONE.
                                                               -----

Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, PAR
                                                               VALUE $0.001
                                                               -----------------

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] NO [X]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]


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State issuer's revenues for its most recent fiscal year: $22,224

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $0.01.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 320,559,444 SHARES OF COMMON STOCK AS
OF JUNE 14, 2006

Transitional Small Business Disclosure Format (check one): Yes [ ] NO [X]


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                          TURBODYNE TECHNOLOGIES, INC.

                                   FORM 10-KSB

                                      INDEX

                                                                            PAGE

PART I

Item 1.     Description Of Business........................................... 4

Item 2.     Description Of Property...........................................15

Item 3.     Legal Proceedings.................................................15

Item 4.     Submission Of Matters To A Vote Of Security Holders...............17

PART II

Item 5.     Market For Common Equity And Related Stockholder Matters..........17

Item 6.     Management's Discussion And Analysis Or Plan Of Operation.........19

Item 7.     Financial Statements..............................................27

Item 8.     Changes In And Disagreements With Accountants On Accounting And
            Financial Disclosure..............................................28

Item 8A.    Controls and Procedures...........................................28

PART III

Item 9.     Directors, Executive Officers, Promoters And Control Persons;
            Compliance With Section 16(a) Of The Exchange Act.................29

Item 10.    Executive Compensation............................................31

Item 11.    Security Ownership Of Certain Beneficial Owners and Management
            and Related Stockholder Matters...................................34

Item 12.    Certain Relationships And Related Transactions....................36

Item 13.    Exhibits And Reports On Form 8-K..................................37

Item 14.    Principal Accountant Fees and Services............................38

Signatures ...................................................................39


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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

FORWARD LOOKING STATEMENTS

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

CORPORATE ORGANIZATION

We were incorporated under the laws of British Columbia, Canada in 1983. We
reincorporated under the laws of the State of Delaware in 1998. We
reincorporated under the laws of the State of Nevada in August 2002. See "Risk
Factors - Possible Voidable Reincorporation".

In 2005 we had two wholly owned significant subsidiaries: Turbodyne Systems,
Inc., a Nevada corporation, and Electronic Boosting Systems, Inc. We carried out
our business operations in 2004 and part of 2005 through Electronic Boosting
Systems, Inc. We now intend to carry out our future business through the parent.

As used in this annual report, the terms "we", "us", "our", "Turbodyne" and "our
Company" mean Turbodyne Technologies, Inc. and its subsidiaries, unless
otherwise indicated.

RECENT CORPORATE DEVELOPMENTS

On September 9, 2005 a majority owned subsidiary of Aspatuck Holdings Ltd.
("Aspatuck") was merged into our newly formed wholly owned subsidiary pursuant
to an AGREEMENT AND PLAN OF MERGER (the "Agreement"). Prior to the merger, this
subsidiary of Aspatuck entered into a consulting agreement ("CONSULTING
AGREEMENT") with Stamford Research LLC, which is obligated to provide the
services of Albert Case to the Company. Upon completion of the merger,
139,192,222 shares of the Company's Common Stock were issuable to holders of the
subsidiary of Aspatuck and 1,300,000 such shares became issuable to Stamford
Research LLC, under the Consulting Agreement. At this time Mr. Albert Case
became President and Chief Executive Officer and Mr. Jason Meyers, principal
shareholder of Aspatuck, became Chairman of the Board of Directors. Additional
shares are issuable to the former shareholders of the Aspatuck subsidiary when
the Company issues any securities related directly or indirectly to pre-merger
events.


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The new management has obtained some additional financing and has resumed
limited business activity including:

      o     Updating our financial statements and required SEC filings
      o     Assessment of our technology including patents and other rights
      o     Limited development of our Turbopac(TM) product line
      o     Review and negotiate to settle outstanding litigation and
            liabilities.
      o     Formulating business and marketing plans

There is no assurance we will be able to obtain sufficient financing to
implement full scale operations.

PRIOR TO THE MERGER:

      1.    We became unable to sustain our business operations due to a lack of
            financing and our working capital deficit. In April 2005, we laid
            off our employees, vacated our premises and relinquished the
            majority of the fixed assets to the landlord to sell and offset
            against rent payable.

      2.    On June 7, 2005 the Company's remaining cash was claimed in
            connection with a litigation settlement and prior attachment.

      3.    In March 2005 we suspended work on the development of our products
            and technologies as part of the suspension of our business
            operations.

GENERAL

We are an engineering Company and have been engaged, for over ten years, in the
design and development of forced-air induction (air-charging) technologies that
improve the performance of gas and diesel internal combustion engines. Optimum
performance of an internal combustion engine requires a proper ratio of fuel to
air. Power available from the engine is reduced when a portion of the fuel is
not used. In a wide range of gas and diesel engines additional air is needed to
achieve an optimal result. Traditional engineered solutions for this problem use
belts or exhaust gas (superchargers or turbochargers) to supply additional air
to an engine. Turbodyne, instead, uses electric motors to supply additional air.
Because an electric motor can be engaged more quickly, compared to the
mechanical delays inherent in a belt or exhaust gas device, Turbodyne's products
reduce this `turbolag' and otherwise adds to the effectiveness of gas and diesel
engines used in automotive, heavy vehicle, marine, and other internal combustion
installations.


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The focus of our business plan, now that we are implementing resumption of
operations, is to restructure the company's balance sheet and re-engineer our
financial plan. We are reviewing our plans for re-launching our products. Our
ability to complete commercialization of our products remains subject to our
ability to obtain additional financing. See "Plan of Operations", below.

INDUSTRY BACKGROUND

MARKET DEMAND FOR CHARGING TECHNOLOGY FOR INTERNAL COMBUSTION ENGINES

Turbodyne's management believes that the market demands for improved internal
combustion engine performance will continue. While many factors contribute to
demands for improved engine performance, we believe the key factors are:

      o     Worldwide, turbocharged diesel engines will continue to represent a
            large share of the power plants in passenger cars, trucks, boats,
            and other vehicles;

      o     Turbocharged gasoline engines are an advantageous alternative to
            larger displacement gasoline engines; they currently represent only
            approximately 1% of the power plants in passenger cars because of
            turbo-lag;

      o     All passenger cars equipped with diesel engines in the displacement
            range of 1.5 to 3.5 litres, about 4.5 million of which were built
            worldwide in 2003, share the common problem of trading steady-state
            power output with inadequate take-off performance when accelerating
            from low engine rpm and power, due to turbo-lag;

      o     The automobile industry is pursuing downsizing of gasoline and
            diesel engines to improve engine efficiency and fuel economy, as
            well as to reduce cost, weight, size, and pollution. Although the
            drop in engine torque and power associated with smaller engines can
            be prevented by charging the downsized engine, it must be
            accomplished without turbo lag to be successful;

      o     The passenger car industry appears committed to resolving the turbo
            lag problem and to the best of our knowledge the charging technology
            as used in our product is currently the most practical and effective
            solution to the problem; and

      o     New more stringent emissions standards requiring reduced levels of
            emissions during periods of engine acceleration are being introduced
            throughout the world. Our technology helps engine manufacturers
            comply with the new requirements without having to make their
            engines less responsive.


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MARKET OPPORTUNITY

Our market opportunity is to take advantage of these market conditions and
become a design and engineering company that undertakes the development of the
core technology for the automotive industry that will eliminate turbolag in
turbocharged engines, increase power and performance, reduce the pollution of
non-turbocharged engines, and facilitate the successful downsizing of internal
combustion engines.

TURBODYNE PROPRIETARY TECHNOLOGY

The history of using exhaust gas or belt driven air blowers to enhance internal
combustion engine performance has been used for approximately 100 years. In both
the exhaust gas ("turbocharger") and belt or chain driven ("supercharger") air
blowers the performance of the blower is directly related to the operating speed
of the engine (such as `revolutions per minute'). The technologies were
developed in airplane applications where the engine is usually run at a higher
constant operating speed, and then moved on to other vehicle applications (most
using turbochargers). In supercharger installations the energy losses at low
engine operating speeds hinders performance. `Turbolag' occurs when the operator
demand for a higher operating speed requires more air than the un-pressurized
air stream of the air intake produces until the turbocharger increases the air
intake pressure by blowing a higher volume of air into the engine. Until the
operating speed of the engine increases turbochargers don't have power to blow
substantially more air. For turbocharged engines, `turbolag', normally measured
in seconds, limits the vehicle driver's perception of the power and performance
of the vehicle.

The Turbopac(TM) uses a powerful electric motor, running off the vehicle
electrical system, to blow useful amounts of air into an engine during the
period when the turbocharger does not have enough exhaust gas to blow all the
air required for optimal engine acceleration performance. The improvement in
`take-off' (initial acceleration) performance is perceptible to the vehicle
driver, and thus improves the driver's perception of vehicle power and
performance.

The Turbopac(TM) can either be applied in a multi-stage combination with an
existing turbocharger or by itself ("standalone"). The Turbopac(TM) can be
turned on and off by the external engine control system or other means. When
combined with a turbocharger the Turbopac(TM) supplies air to the engine until
the turbocharger's performance meets engine air needs. When standalone the
Turbopac(TM) supplies air for brief periods during acceleration and has
applications, among others, for vehicles with frequent stops (refuse trucks) and
small motors.

BUSINESS STRATEGY

TURBOPAC(TM) SYSTEMS

Our general business strategy is to develop products incorporating our
technology. We contemplate that our first targets will be the aftermarket
industry such as speed shops, diesel truck fleets and the marine market where
our products can be used to enhance or upgrade already manufactured motors. We
also intend to offer licenses for our technology to the automotive industry. We
believe that the strategy of offering our products directly into low-volume
aftermarket applications will enable the most rapid commercialization of our
products. We believe that the strategy of licensing our products to OEM's will
also enable rapid commercialization of products incorporating our technology on
a large scale. We believe this process will take longer to implement than the
aftermarket, OEM's and major existing tier-one suppliers have the necessary
manufacturing economies of scale, including the ability to obtain volume
purchasing and mass production manufacturing, necessary to manufacture products
incorporating our technology at competitive costs.


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<PAGE>

We have decided to subcontract our manufacturing and not to attempt to pursue
the large scale manufacturing of our products in view of the high costs and
business risks associated with manufacturing. Indeed our operational strategy is
to outsource wherever possible, employing a minimal core of mechanical,
electrical, manufacturing and quality control engineers with significant project
management experience who manage outsourced engineering, testing and
manufacturing. By outsourcing wherever possible, we can substantially reduce the
requirements for capital equipment, and convert formerly fixed costs into
variable costs.

INTELLECTUAL PROPERTY

We now have a total of 28 patents and applications. The most significant patent
and applications are for the use of large scale motor for compressed air systems
for internal combustion engines and several patents relating to high speed
motors [in a heat sensitive environment]. We also received a license from
Honeywell for certain Dynacharger patents involving technology overlapping both
the Dynacharger and the Turbopac(TM). We also own the trademark for Turbopac.
The Company has agreed to pay a royalty equal to 2% of the gross sales of
products manufactured and sold that incorporate certain licensed technology
which is not being used.

The Company has issued Licenses covering some intellectual property that will
return Royalties as our Licenses generate revenues.

PROPRIETARY INFORMATION AGREEMENTS

It is our policy to require all of our employees, consultants and persons or
companies involved in testing our products to execute confidentiality agreements
with respect to all proprietary information regarding our products.

RESEARCH AND DEVELOPMENT

We incurred research and development costs in the amount of $371,485 during our
fiscal year end December 31, 2005, compared to research and development costs in
the amount of $1,246,128 during our fiscal year ended December 31, 2004. These
expenditures included amounts for research and development with the objective of
bringing our TurboPac(TM) product line into full-scale commercial production.


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<PAGE>

GOVERNMENT REGULATION

In the United States, emissions standards for diesel and gasoline engines are
imposed by the Environmental Protection Agency ("EPA") and other regulatory
agencies, including the California Air Resources Board. In Europe, the Euro 4
emissions standards will come into effect in 2005. The presence of these
government regulations has the potential to create demand for our products as
our products are designed to increase engine performance with resulting
reductions in emissions.

We must continue to design and develop products that help mitigate failures to
meet worldwide vehicle emissions standards that are imposed by regulatory
agencies. Testing to ensure our products help meet these government regulations
will be an integral component of our research and development expense on new
products.

EMPLOYEES

As of December 31, 2005 we had no full-time employees but several consultants,
which devote significant time to the Company's affairs.

RISK FACTORS

We face the following material risks in executing our business plan and
achieving revenues. We also face the risks identified elsewhere in this Annual
Report on Form 10-KSB, including those risks identified under "Item 3 - Legal
Proceedings" and "Item 6 - Management Discussion and Analysis or Plan of
Operations". If any of these risks occur, our business and our operating results
and financial condition could be seriously harmed and we may not be able to
continue and grow business operations as a going concern.

THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN

We reported net income of $221,328 for the fiscal year ended December 2005. We
have derived negligible revenue from operations and have substantial unpaid
liabilities. We have an accumulated deficit of $127,345,755 at December 31,
2005. Since our inception we have disposed of our most significant subsidiary
through bankruptcy, have been subject to lawsuits, used most of our available
cash to conduct our operating activities and are required to seek additional
equity or debt financing in order to continue operations. These matters raise
substantial doubt about our ability to continue as a going concern.

Our auditors have made reference to the substantial doubt about our ability to
continue as a going concern in their audit report on our audited financial
statements for the year ended December 31, 2005.


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<PAGE>

FINANCIAL HISTORY PROBLEMS

We anticipate difficulties arising from our adverse financial history. These
include substantial payables that must be paid or settled, damaged relationships
and adverse publicity, and interrupted contracts. There is no assurance that we
can overcome these difficulties.

VOIDABLE REINCORPORATION

It is possible that our reincorporation from Delaware to Nevada may be voidable
under Delaware law. Because of the similarity of the laws of the two states we
do not believe we will suffer substantial adverse consequences. However we may
suffer adverse consequences in such event. Moreover, in the process of
correcting any failure to have properly approved the merger we may incur
expenditures unrelated to operations.

COMPANY REQUIRES ADDITIONAL FUNDING

If we do not obtain sufficient funds from a private financing presently being
conducted we may not be able to continue in business. We may not be able to
obtain any such additional financing on favorable terms, if at all.

THE COMPANY WILL BE DEPENDENT ON THIRD PARTIES FOR THE PRODUCTION OF ITS PRODUCT

The Company will utilize unaffiliated third parties to assemble its products and
manufacture its components. The Company believes there are numerous
manufacturers available to satisfy anticipated requirements. The inability to
enter into arrangements with manufacturers would prevent or limit the Company's
future sales. Moreover, subsequent failures or termination of a manufacturer
could result in our inability to deliver adequate quantities of product on a
timely and competitive basis. Further, the inability to obtain favorable pricing
terms from third parties could effect our competitive situation and our profit
margins.

POTENTIAL PRODUCT LIABILITY

The Company faces substantial potential product liability in connection with the
sale and use of its products. It intends to take significant protective steps,
including a vigorous quality assurance program and the purchase of product
liability insurance. There can be no assurance that any insurance obtained will
be sufficient to cover potential claims or that coverage will be available at a
reasonable cost. A partially or completely uninsured successful claim against
the Company could have a material adverse effect on the Company.


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<PAGE>

DEPENDENCE KEY EXECUTIVES

The Company will be dependent on the services of Albert Case and Jason Meyers.
The Company has entered into consulting agreements with two firms that are
obligated to provide the services of Mr. Case and Mr. Meyers. If, however, their
services were not available, the Company would be severely adversely affected.

SUBSTANTIAL DILUTION- FUTURE ISSUANCE OF SHARES

The Company most likely will issue a significant number of additional shares in
the future in connection with additional financing and for other purposes. A
holder of the Company's common stock may face substantial dilution resulting
from future issuances of its securities.

CONTROL

Aspatuck Holdings, LTD beneficially owns a significant number of the outstanding
shares, with rights to additional shares, and will retain effective control of
the Company

WE HAVE NO CURRENT SALES AND MARKETING

We do not have dedicated sales and marketing professionals who are experienced
in dealing with the relevant OEM markets. Company personnel and agents on a
part-time basis perform sales and marketing functions along with other duties.
If existing resources are insufficient for the OEM markets, then no material OEM
revenues will be gained in a timely fashion.

INCREASED COMPLIANCE COSTS MAY BE A BURDEN

Pending actions by the PCAOB and the SEC may substantially increase compliance
costs (commonly referred to as "Sarbanes-Oxley" costs) in the short term. If the
Company fails to act because of a lack of funds then the ability of the Company
to operate as a public traded firm could be materially impaired.

WE HAVE NO HISTORY OF PRODUCT SALES

None of our products have been commercially produced. Except for the limited
sales of shop (or produced prototypes) products, we have had no recent sales.
The sales of prototypes have been treated as a reduction of research and
development cost. We cannot assure you that products will be commercially
developed in a timely manner or that sales will be commercially successful. The
failure of sales will have a material adverse effect on our business, operating
results and financial condition.


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OUR BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO HIRE AND RETAIN
MANAGEMENT

There is no assurance that we will be able to obtain and retain a management
team that is capable of implementing our business strategy successfully. If we
do not obtain and retain qualified personnel, our ability to manage our
business, achieve financing and to further develop our technology will be
impaired with the result that our business will be adversely affected. In
addition, our historical problems and financial position may make it more
difficult to attract personnel.

OUR BUSINESS POTENTIAL WILL BE LIMITED IF ULTIMATE USERS DO NOT ACCEPT OUR
PRODUCT LINE

We have a relatively new product and our success is dependent upon acceptance by
ultimate users in our target markets. If we are unable to convince our target
market of the advantages and viability of our technology, our market potential
may be severely limited.

WE MAY EXPEND A SIGNIFICANT AMOUNT OF TIME AND RESOURCES TESTING PROGRAMS THAT
MAY NOT RESULT IN ANY SALES

Although not now a priority in the Company's present plans, in the future a key
component of our business strategy may involve entering into joint development
agreements with automotive OEM's with the objective of having the OEM's
incorporate our technology into the OEM's products. Developing relationships
with OEM's involves lengthy periods of product development and performance
evaluation. During this period, we may provide certain products or services free
of charge or at a reduced rate. We also devote a significant amount of time and
attention to pursuing these programs in an effort to obtain commercialization
for products incorporating our technology. OEM's that we conduct joint
development work with are under no obligation to purchase our products and after
evaluation may determine not to incorporate any of our technology into their
products. Accordingly, we may devote substantial time and resources to
developing relationships and programs with OEM's that do not result in
commercialization of products incorporating our technology.

OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE ENCOUNTER PROBLEMS AND
DELAYS IN COMPLETING THE DEVELOPMENT OF OUR PRODUCTS

With the exception of limited commercial production of certain Turbopac(TM)
models several years ago, products incorporating our technology are in the
development stage. Historically, we have encountered delays in development due
to design defects or changes in specifications and we may continue to experience
delays. These delays could increase the cost of development of products
incorporating our technology and affect the timing of commercialization. Our
future revenues depend largely on sales of products incorporating our technology
and delays in commercialization will impact on our financial condition and
operating results. In addition, new products incorporating our technology may
not receive market acceptance and may not be sold at a profit.


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FUTURE REVENUES DEPEND ON OUR ABILITY TO OBTAIN AND ENFORCE PATENT PROTECTION
FOR OUR TECHNOLOGY

Protection of trade secrets and proprietary know how is critical to our success.
If our competitors independently develop similar or superior technologies or
gain access to our trade secrets, our business will be materially and adversely
affected. Accordingly, we depend on continued patent protection for these
products. If we are unable to maintain patent protection for our technology, we
may not be able to gain a competitive advantage or protect our technology and
our business will be adversely affected.

We may incur substantial costs seeking to enforce our patent rights against
infringement or unauthorized use. We are already aware of one or more
infringements. Our trade secrets and proprietary know how are critical for us to
achieve and maintain a competitive position. We cannot assure you that others
may not independently develop similar or superior technologies or gain access to
our trade secrets or know how.

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO ACHIEVE SUCCESS

The automotive industries in which we compete are characterized by rapid and
significant technological change. Our success depends on our ability to
continually develop new technology and to refine products incorporating our
original technology. We have been pursuing commercialization of our product
lines. Due to delay and the rapid pace of technological innovation in the
automotive industry, there is a risk that these products may be superseded by
new technology and become obsolete.

Our products may not be commercially accepted or we may not be able to enhance
existing products or develop new products. Future technological change may
render one or more of our products obsolete or uneconomical. Our ability to
continue to develop and market new and improved products that can achieve
significant market acceptance will determine our future sales and profitability.

INTENSE COMPETITION

The business environment in which we operate is highly competitive. Most of our
competitors and potential competitors may have greater financial, marketing,
technological and other resources. We believe that no products technologically
similar to TurbopacTM have been sold. Nevertheless we will face intense
competition if we introduce our products commercially. We believe the
effectiveness of our product may give us an advantage but there is no assurance
competitors will not develop equal or superior product.

In addition, a relatively small number of OEM's hold a significant share of the
automotive market and the determination of an OEM not to incorporate our
products into its product line may force us to expend additional amounts to gain
market share and/or significantly reduce our potential.


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RISKS RELATING TO OUR MARKET

OUR STOCK IS A PENNY STOCK, THEREFORE SHAREHOLDERS WILL BE MORE LIMITED IN THEIR
ABILITY TO SELL THEIR STOCK

Our common stock is traded on the OTC Bulletin Board and constitutes a penny
stock under the Securities and Exchange Act. Our common stock will remain
classified as a penny stock for the foreseeable future. The classification as a
penny stock makes it more difficult for a broker-dealer to sell the stock into a
secondary market, which makes it more difficult for a purchaser to liquidate his
or her investment. Any broker-dealer engaged by the purchaser for the purpose of
selling his or her shares will be subject to rules 15g-1 through 15g-10 of the
Securities and Exchange Act. Rather than having to comply with these rules, some
broker-dealers will refuse to attempt to sell a penny stock. These rules may
affect the ability of broker-dealers to sell our common stock and also may
affect the ability of holders of our common stock.

OUR STOCK PRICE IS EXTREMELY VOLATILE

The price of our common stock has been and may continue to be subject to wide
fluctuations in response to a number of events and factors, such as our ability
to finance our operations, the status of legal proceedings against us, our
inability to achieve commercialization of our products or enter into joint
venture and licensing agreements, the operating and stock price performance of
other companies that investors may deem comparable to us, and news relating to
trends in our markets. In addition, the stock market in general, and the market
for high technology stocks in particular, has experienced extreme volatility
that often has been unrelated to the operating performance of these companies.
These broad market and industry fluctuations may adversely affect the price of
our common stock, regardless of our operating performance.

ABSENCE OF DIVIDENDS

We have never paid cash dividends on the common stock and because of substantial
deficit may not legally do so. Cash dividends are not expected to be paid on our
common stock in the foreseeable future. Assuming we could eliminate the deficit,
any future determination to declare or pay dividends will be at the discretion
of the board of directors and will be dependent on our results of operations,
financial condition, contractual and legal restrictions and other factors deemed
relevant by the board of directors.


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ITEM 2. DESCRIPTION OF PROPERTY.

In March 2005 we vacated our corporate headquarters which included our
engineering, design and testing facilities in approximately 40,000 square feet
of leased space located in Carpinteria, California. to sell and offset against
rent payable less the amount paid to the County of Santa Barbara for past due
personal property taxes. In June 2006 the Company rented a small corporate
office in Ventura, California

ITEM 3. LEGAL PROCEEDINGS.

We are a party to the legal proceedings described below. We are not party to any
other material legal proceedings and to our knowledge, no such proceedings are
threatened or contemplated.

PACIFIC BAJA LIQUIDATING TRUST

In September 1999, Pacific Baja Light Metals Corporation, our former, wholly
owned subsidiary, filed a Chapter 11 petition in bankruptcy in the United States
Bankruptcy Court, Central District of California (Case No. RS99-26477MG) in
Riverside, California. ("Bankruptcy Proceeding") In September 2001, the Pacific
Baja Liquidating Trust (the "Trust") commenced action against us in the
aforesaid Bankruptcy Court. The Trust was established under the Pacific Baja
bankruptcy proceedings for the benefit of the unsecured creditors of Pacific
Baja. The Company settled the bankruptcy proceedings for $500,000 to be issued
in common stock or cash or a combination of both. Additionally the Company
assigned to the Bankruptcy Trust the rights to $9,500,000 claims under any
applicable directors and officers' liability insurance policies. The bankruptcy
Trust also agreed to a covenant not to execute against the Company regardless of
the outcome of the insurance claims. The Company has completed the assignment of
its insurance claims, but has not completed the cash/stock payment that was to
be paid to the Trust by December 9, 2005. We are negotiating with the Trustee
regarding this default

TST, INC.

In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of Pacific Baja,
filed an action against us in the California Superior Court, County of San
Bernardino alleging that we were liable under a guarantee that we granted to TST
in order to induce TST to extend credit to our subsidiary, Pacific Baja. TST
alleged that Pacific Baja had defaulted on the credit facility and that we are
liable as guarantor. TST originally sought damages of approximately $1.8
million.

We agreed on the terms of settlement with TST on October 4, 2001. Under the
terms of the settlement agreement, we agreed to issue 1,000,000 shares of our
common stock to Mr. Andrew Stein, the president of TST and 2,000,000 shares of
our common stock to TST.

The settlement provided for the immediate entry of judgment against us in the
amount of $2,068,078 plus interest from the date of entry at the rate of 10% per
annum. The amount of this judgment would immediately increase by any amount that
TST is compelled by judgment or court order or settlement to return as a
preferential transfer in connection with the bankruptcy proceedings of Pacific
Baja. Any proceeds received by TST or Mr. Stein from the sale of the issued
shares to be automatically applied as a credit against that amount of the
judgment against us in favor of TST.


                                       15
<PAGE>

TST and Pacific Baja settled the preference payment issue resulting in TST
paying $20,000 to Pacific Baja and TST relinquished the right to receive
$63,000, therefore the $2,130,000, that the Company had included in provision
for lawsuit settlements, has been reduced to $83,000. For the year ended
December 31, 2005 the $2,047,000 difference has been recorded as a lawsuit
settlement in other income. At December 31, 2005, the Company has included
$2,900,320 ($4,766,656 - 2004) in regard to the remaining matter in provision
for lawsuit settlements.

HOFBAUER ACTION

On May 20, 2004, an action entitled Hofbauer vs. Turbodyne Technologies, Inc. et
al. (Case No. 1157661) (the "Hofbauer Action") was filed with the Santa Barbara
Superior Court (the "Court"). Peter Hofbauer, a former officer of Turbodyne,
alleged that we failed to pay him $369,266 pursuant to the terms of an
agreement. In August 2004, Mr. Hofbauer attached certain of our bank accounts in
the amount of $315,000 (the "Attached Funds"). We entered into a stipulation to
settle the matter on October 27, 2004 pursuant to the terms of the stipulation:
we issued 4,000,000 unrestricted shares (the "Shares") of our common stock to
Mr. Hofbauer. The proceeds of the sale of this stock were applied against the
agreed upon claim amount of approximately $300,000. If at the end of six months
from the date of the stipulation, the Claim Amount had not been fully satisfied
Mr. Hofbauer had the option of: (i) releasing the Attached Funds to us and keep
and sell without restriction the unsold Shares, or (ii) satisfy the remaining
balance from the Attached Funds. After selling a portion of the shares and
claiming on June 7, 2005 the Attached Funds. 1,400,000 shares are to be returned
to the Company.

KRAMER ACTION

A former director of Turbodyne, Erwin Kramer (the "Plaintiff"), represented by
his attorney Claus Schmidt, a former attorney of Turbodyne at the time of the
alleged claim, filed a legal action in Germany against Turbodyne, our
non-operating subsidiary Turbodyne Europe GmbH ("Turbodyne GmbH"), and
ex-employees of Turbodyne GmbH, Peter Kitzinski and Marcus Kumbrick
(collectively the "Defendants"), with the Regional Frankfurt court (the "German
Court") in September, 2004. The Plaintiff claims damages of Euro 245,620 plus 5%
interest per annum against the Defendants in respect of actions taken by the
Defendants while employed with Turbodyne GmbH.

On September 9, 2004, the German Court, on a motion by the Defendants to the
suit, dismissed the Plaintiff's claims against Peter Kitzinski and Marcus
Kumbrick, and ordered that Turbodyne's patents in Munich be attached pending the
resolution of the Plaintiff's claim against Turbodyne and Turbodyne GmbH. On
June 13, 2005 the Court in Frankfurt dismissed the claim. The Plaintiff filed an
appeal against this judgment with the Higher Regional Court in Frankfurt.


                                       16
<PAGE>

The Plaintiff's attorney, Claus Schmidt, also filed similar suits on behalf of
Frank Walter and Herbert Taeuber. The German courts are indicating that all
three suits need to be filed in the United States not Germany. Presently the
suits have not been filed in the United States. We vigorously dispute this claim
and have retained German counsel to defend it and seek its dismissal. At
December 31, 2005, the Company has included $405,785 in regard to this matter in
the provision for lawsuit settlements.

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

Due to the closure of the Company in 2005 an annual meeting was not held,
therefore, no matters were presented to the security holders.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, PRICE RANGE OF
COMMON STOCK

..The Company's common shares are now listed in the "Pink Sheets" under the
symbol "TRBD.PK" and on the Berlin Stock Exchange under the symbol "TUD. The
following table indicates the high and low prices of the common shares during
the periods indicated:

                                   2004                    2005
                            ------------------------------------------
                             HIGH        LOW         HIGH        LOW
                            ------------------------------------------
First Quarter               $0.15       $0.07       $0.031      $0.002
Second Quarter              $0.14       $0.06       $0.027      $0.007
Third Quarter               $0.11       $0.03       $0.021      $0.014
Fourth Quarter              $0.04       $0.01       $0.018      $0.01

The source of the high and low price is BigCharts.com.

REGISTERED HOLDERS OF OUR COMMON STOCK

As of June 14, 2006, there were approximately 419 registered holders of record
of our common stock.

DIVIDENDS

We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying cash dividends on our common stock in the foreseeable
future. We currently intend to retain any future earnings to finance our
operations and fund research and development. Any payment of future dividends
will be at the discretion of our board of directors and will depend upon, among
other things, our earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect to the payment of dividends
and other factors that our board of directors deems relevant.


                                       17
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

The following issuances of securities occurred during 2005 and were not
otherwise reported in our current reports.

We sold units of our securities in a private placement. Each unit consisted of
$100,000, 5% convertible note and warrants to purchase 2,000,000 of our shares
at $0.025. The note is convertible at any time prior to payment. The conversion
price is equal to the lesser of (i) 70% of the Market Price of (but not be less
than $.003) or (ii) $0.025. If the Market Price of the Common Stock is $.04 for
a period of 20 consecutive trading days then the Conversion Price shall be
$.025.The shares were issued pursuant to Section 4(2) of the Securities Act of
1933 and are exempt from the registration requirements under that act.

On November 16, 2005 we issued 140,492,222 restricted shares of our common stock
at a price of $0.01 per share to Aspatuck Holdings, LLC, its shareholders and a
consultant as merger consideration. The issuance was completed pursuant to Rule
506 of Regulation D of the Securities Act. All securities issued were endorsed
with a restrictive legend confirming that the securities cannot be resold
without registration under the Securities Act or an applicable exemption from
the registration requirements of the Securities Act. No commissions or fees were
paid in connection with the transaction.

On November 16, 2005, we issued 5,000,000 restricted shares of our common stock
at a price of $0.01 per share to Crescent Fund, LLC for public relations
services related to a six month contract. The shares were issued pursuant to
Section 4(2) of the Securities Act of 1933 and are exempt from the registration
requirements under that act.

The foregoing does not include options granted and/or exercised during 2005.


                                       18
<PAGE>

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

The following discussion and analysis of our financial condition as of December
31, 2005 and results of operations for the two years ended December 31, 2005 and
2004 should be read in conjunction with the consolidated financial statements
and related notes included in this annual report. This section adds additional
analysis of our operations and current financial condition and also contains
forward-looking statements and should be read in conjunction with the factors
set forth above under the heading "Forward-Looking Statements" under Item I -
Business. We resumed our business operations on February 2, 2004, following
settlement with Honeywell. We received a net amount from Honeywell of
$4,770,900, which represents the $8,500,000 settlement net of legal fees and
creditor payments. We used these net proceeds to fund resumption of our business
and to settle some other outstanding debts and award payments to our management
and employees.

Lack of funds caused the Company to again gradually curtail its operations until
it ceased almost all activities in 2005. During that period it had no business
operations, place of business and no employees. In September 2005, new
management took control with the purpose of attempting to resurrect the
Company's business and has been seeking financing for such purpose.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

                            ----------------------------------------------------
                                             Year Ended December 31
                            ----------------------------------------------------
                                                                     Percentage
                                2005               2004              (Decrease)
Total Revenue                  $22,224           $22,224                 Nil
Operating Expenses          ($1,833,112)       ($3,544,609)           (48.28%)
Net Loss From Operations    ($1,810,888)       ($3,522,385)           (48.59%)
Settlement of Litigation     $2,047,000         $6,375,000            (67.89%)
Other Income and Expenses     ($14,784)          $57,125              (125.88%)
Net Income                    $221,328          $2,909,740            (92.39%)


                                       19
<PAGE>

NET REVENUE

                            ----------------------------------------------------
                                           Year Ended December 31
                            ----------------------------------------------------
                                                                     Percentage
                                2005              2004                Increase
License Fee                   $22,224            $22,224                Nil

We had no revenue in 2005 other than recognition of amortized license fees.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for each of the years ended December
31, 2005 and 2004, $22,224 of licensing fees was recognized as income. Our
limited receipts (not reflected as revenue) are derived for the most part from
selling "shop" versions of our product and reflect the fact that our
Turbopac(TM) products are in the development stage. During 2005, we sold one
(2004 - two) prototype for $27,319 ($17,400 - 2004), which reduced our research
and development expenses. Our continued net losses from operations reflect our
continued operating expenses and our inability to generate revenues. We believe
that we will not be able to generate any significant revenues from TurboPac(TM)
until we complete our production models and enter into manufacturing and sales
arrangements.

COSTS OF SALES

We had no sales in 2004 and 2005; therefore we did not have any costs of sales
during any portion of these years.

OPERATING EXPENSES

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

<TABLE>
<CAPTION>
                                                ----------------------------------------------
                                                           Year Ended December 31
                                                ----------------------------------------------
                                                                                    Percentage
                                                  2005              2004             Increase
                                                                                    (Decrease)
<S>                                             <C>              <C>                 <C>
Selling, General and Administrative Expenses    $671,389          $592,241            13.36%
Research and Development Expenses               $371,485         $1,246,128          (70.19%)
Litigation Expenses                             $778,842         $1,554,431          (49.90%)
</TABLE>


                                       20
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The increase in our selling, general and administrative expenses was
attributable to: (i) upon the adoption of SFAS 123(R) "Accounting for
Stock-Based Compensation" we recorded $165,377 (additional compensation costs
and (ii) in 2004 the adjustment of the authorized capital deficiency. Through
March 2005 general and administrative costs included expenses associated with
our Carpinteria, California office, management compensation, administrative
staff and overhead.

RESEARCH AND DEVELOPMENT

The decrease in research and development costs in 2005 is due to the suspension
of our operations in April 2005. Our research and development costs related to
present and future products are charged to operations in the period incurred.
Our research and development activities during 2005 are associated with the
development of our Turbopac product.

LITIGATION EXPENSE

The decrease in litigation expense is primarily attributable to our settlement
of litigations and in 2004 the payment of $1,290,000 bonuses out of the
settlement of litigation with Honeywell.

COMPENSATION EXPENSE

For 2005, our stock based compensation for consultants and employees decreased
to $205,006 from $466,934 for 2004, representing a decrease of $261,928 or
approximately 56.10%.

During 2005, we granted 1,300,000 options to purchase shares of our common stock
to various consultants associated with legal and related matters that we deemed
essential to our operations, compared to options to purchase 2,857,500 shares
granted in 2004. As a result, we recognized $63,254 of non-employee compensation
expense during the year ended December 31, 2005 compared to $268,192 during the
year ended December 31, 2004. From time to time we may grant a significant
number of options to purchase common stock to non-employees.

Prior to January 1, 2005 we recognized compensation expense in accordance with
Accounting Principles Board Opinion No. 25. Generally, under APB No. 25
compensation expense is recognized for the difference between the market price
of the underlying stock and the exercise price of the stock options. This method
of accounting is different from the fair value method of accounting that is
prescribed by SFAS No. 123. For 2004 had we adopted the fair value method of
accounting, our total stock-based compensation expense would have increased from
$172,343 to $856,467 and our net income would have decreased from $2,909,740 or
$0.02 per share, to $2,225,616, or $0.01 per share. This pro forma information
is disclosed in further detail in our financial statements in the Summary of
Significant Accounting Policies under the heading "Stock-Based Compensation".


                                       21
<PAGE>

NET INCOME / LOSS

Our net income for the year ended December 31, 2005 decreased to $221,328 from
$2,909,740 for the year ended December 31, 2004, representing a decrease of
$2,688,412 or 92.39%. The decrease in our net income is primarily due to 2004
receipt of the Honeywell settlement in the amount of $6,375,000. Honeywell
agreed to pay us the aggregate amount of $8,500,000 in full settlement of our
claims against Honeywell subject to certain adjustments for legal expenses and
$911,030 owed to certain of our creditors and lien holders. We received
$4,770,900 net of legal fees and creditor liens from Honeywell. Our decrease in
the net operating loss was due to the suspension of our operations from April to
August 2005.

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

FINANCIAL CONDITION

At the end of 2004 we had no cash reserves and by early 2005 we were compelled
to suspend operations. Subsequent to September 2005 we received additional funds
from equity raises. We require additional financing to complete our plans.
During 2004 our available cash was from amounts received from the Honeywell
settlement.

CASH AND WORKING CAPITAL

                            ----------------------------------------------------
                                                                   Percentage
                            At December 31,    At December 31,       Increase/
                                      2005               2004       (Decrease)
                            ----------------------------------------------------
Current Assets                    $101,210            $51,670           96%
Current Liabilities            ($7,818,074)       ($8,680,295)         (10%)
Working Capital Deficit        ($7,716,864)       ($8,628,625)         (11%)
                            ====================================================

The reduction to our working capital deficit was primarily attributable to an
adjustment to provision for lawsuits regarding a settlement and an increase in
cash arising from convertible notes.


                                       22
<PAGE>

LIABILITIES

                            ----------------------------------------------------
                                                                   Percentage
                            At December 31,    At December 31,       Increase/
                                      2005               2004       (Decrease)
                            ----------------------------------------------------
Provisions for Lawsuit
Settlements                     $4,385,105         $6,013,198          (27%)
Accounts Payable                $2,491,259         $2,226,102           12%
Accrued Liabilities               $476,048           $285,935           66%
Short-Term Loans                  $465,662           $148,600          213%
Long-Term Debt                         $ -            $33,514         (100%)

The decrease in provision for lawsuits is primarily due to a settlement
adjustment of $2,047,000. Accounts payable and accrued liabilities increased due
to a lack of funds to pay creditors, short-term loans increased due to generate
cash.

We continue 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 payments to the
creditors. Our ability to continue our operations is also conditional upon the
forbearance of our creditors.

Included in short-term loans at December 31, 2005 are unsecured, non-interest
bearing advances of $148,600 that we anticipate will be converted into shares of
our common stock.

CASH FLOWS

                                                     ---------------------------
                                                           At December 31,
                                                     ---------------------------
                                                           2005           2004
                                                           ----           ----
Net Cash provided by (used in) Operating Activities   ($419,773)      $776,832
Net Cash provided by (used in) Investing Activities     $17,770      ($351,988)
Net Cash used in Financing Activities                 ($500,926)     ($425,374)
Net Increase (Decrease) in Cash During Period           $98,923          ($530)
                                                     ===========================

CASH USED IN OPERATING ACTIVITIES

The increase in cash used in operating activities was due to the 2004 use of the
Honeywell settlement proceeds to decrease liabilities and the fact that we had
almost no cash for most of 2005.


                                       23
<PAGE>

FINANCING REQUIREMENTS

As of December 31, 2004 we had minimal cash and working capital resources and
ultimately curtailed and finally ceased operations in early 2005.

We will require additional financing if we are to continue as a going concern
and to finance our business operations. While we have obtained some financing in
2005 and early 2006 we need substantially more capital. We may not be able to
obtain additional working capital on acceptable terms, or at all. Accordingly,
there is substantial doubt about our ability to continue as a going concern.

We are presently in the process of negotiating to raise working capital to
finance our operations which is no assurance that we will be able to raise the
additional capital that we require to continue operations. In the event that we
are unable to raise additional financing on acceptable terms, then we may have
to cease operating and seek relief under appropriate statutes.

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 financial statements included in Item 7 of this Form 10-KSB. Note
that our preparation of this Annual Report on Form 10-KSB requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates. We have identified certain accounting policies,
described below, that are the most important to the portrayal of our current
financial condition and results of operations.

SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN

Our audited consolidated financial statements included with this Annual Report
on Form 10-KSB have been prepared assuming that we will continue as a going
concern. We have suffered net losses in recent periods resulting in an
accumulated deficit of $127,345,755 at December 31, 2005, have used cash in our
operating activities in recent periods, have disposed of our most significant
subsidiary through bankruptcy, are subject to lawsuits brought against us by
shareholders and other parties, and based on our projected cash flows for the
ensuing year, we may be required to seek additional equity or debt financing in
order to continue our present operations. These matters raise substantial doubt
about our ability to continue as a going concern.


                                       24
<PAGE>

STOCK BASED COMPENSATION

Prior to January 1, 2005, the Company accounted for employee stock-based
compensation using the intrinsic value method supplemented by pro forma
disclosures in accordance with APB 25 and SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"), as amended by SFAS No.148 "Accounting for
Stock-Based Compensation--Transition and Disclosures." Under the intrinsic value
based method, compensation cost is the excess, if any, of the quoted market
price of the stock at grant date or other measurement date over the amount an
employee must pay to acquire the stock. Under the intrinsic value method, the
Company has recognized stock-based compensation common stock on the date of
grant.

Effective January 1, 2005 the Company adopted SFAS 123R using the modified
prospective approach and accordingly prior periods have not been restated to
reflect the impact of SFAS 123R. Under SFAS 123R, stock-based awards granted
prior to its adoption will be expensed over the remaining portion of their
vesting period. These awards will be expensed under the accelerated amortization
method using the same fair value measurements which were used in calculating pro
forma stock-based compensation expense under SFAS 123. For stock-based awards
granted on or after January 1, 2005, the Company will amortize stock-based
compensation expense on a straight-line basis over the requisite service period,
which is generally a five-year vesting period.

SFAS 123R requires forfeitures to be estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from initial
estimates. Stock-based compensation expense was recorded net of estimated
forfeitures for the year ended December 31, 2005 such that expense was recorded
only for those stock-based awards that are expected to vest. Previously under
APB 25 to the extent awards were forfeited prior to vesting, the corresponding
previously recognized expense was reversed in the period of forfeiture.

REVENUE RECOGNITION

Prior to the suspension of our operations in 2003, we recognized revenue upon
shipment of product. Since the re-commencement of operations in 2004, we
recognize license and royalty fees over the term of the license or royalty
agreement. During the year ended December 31, 2003, $400,000 in license fees
were deferred and amortized over 18 years. As a result, for the year ended
December 31, 2005, $22,224 (22,224 - 2004) of licensing fees was recognized as
income.

LICENSES

Licenses are recorded at cost and were being amortized at $208,000 per year over
their estimated useful life, which is estimated to be five years. At December
31, 2003, management determined that the licenses had been impaired and a
$624,000 impairment provision was recorded in our financial statements.


                                       25
<PAGE>

RESEARCH AND DEVELOPMENT

Research and development costs related to present and future products are
charged to operations in the year incurred. During the year ended December 31,
2005 sales of prototypes totaling $27,319 offset research and development costs.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an
amendment of APB Opinion No. 29. SFAS 153 addresses the measurement of exchanges
of nonmonetary assets. It eliminates the exception from fair value measurement
for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an
exception for exchanges that do not have commercial substance. This Statement
specifies that a nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company is considering the provisions
of SFAS No. 153 and its effect on nonmonetary exchanges in the future.

In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154 applies
to all voluntary accounting principle changes as well as the accounting for and
reporting of such changes. SFAS 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005.

SFAS 154 requires voluntary changes in accounting principle be retrospectively
applied to financial statements from previous periods unless such application is
impracticable. Changes in depreciation, amortization, or depletion for
long-lived, non-financial assets are accounted for as a change in accounting
estimate that is affected by a change in accounting principle, under the newly
issued standard.

SFAS 154 replaces APB Opinion No. 20 and SFAS 3. SFAS 154 carries forward many
provisions of Opinion 20 and SFAS 3 without change including those provisions
related to reporting a change in accounting estimate, a change in reporting
entity, correction of an error and reporting accounting changes in interim
financial statements. The FASB decided to completely replace Opinion 20 and SFAS
3 rather than amending them in keeping to the goal of simplifying U.S. GAAP. The
provisions of SFAS No. 154 are not expected to have a material effect on the
Company's consolidated financial position or results of operation. The
provisions of SFAS No. 154 are not expected to have a material effect on the
Company's consolidated financial position or results of operation.


                                       26
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

Included with this Annual Report on Form 10-KSB are our audited financial
statements for the years ended December 31, 2005 and 2004, which consists of the
following:

1.    Report of Independent Registered Public Accounting Firm Vasquez and
      Company, LLC;

2.    Consolidated Balance Sheets as at December 31, 2005 and December 31, 2004.

3.    Consolidated Statements of Operations for the years ended December 31,
      2005 and December 31, 2004.

4.    Consolidated Statements of Capital Deficit for the years ended December
      31, 2005 and December 31, 2004.

5.    Consolidated Statements of Cash Flows for the years ended December 31,
      2005 and December 31, 2004.

6.    Notes to the Consolidated Financial Statements.


                                       27
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004


                                      F-1
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

                                                                        Contents
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                      F-3

CONSOLIDATED FINANCIAL STATEMENTS

       Balance Sheets                                                        F-4

       Statements of Operations                                              F-5

       Statements of Capital Deficit                                         F-6

       Statements of Cash Flows                                              F-7

       Notes to the Financial Statements                                     F-8


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Turbodyne Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Turbodyne
Technologies, Inc. and subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, capital deficit, and cash flows
for the each of the years in the two-year period ended December 31, 2005. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Turbodyne Technologies, Inc.
and subsidiaries as of December 31, 2005 and 2004, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2005 in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As more fully discussed in Note 1
to the consolidated financial statements, the Company has incurred significant
losses in recent years, has an accumulated deficit of $127,345,755 and a total
capital deficit of $8,056,057 at December 31, 2005. It has used all of its
available cash in its operating activities in recent years, has a significant
working capital deficiency and is subject to lawsuits brought against it by
other parties. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in these regards are also
discussed in Note 1 to the consolidated financial statements. The aforementioned
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

As discussed in Note 1 to the consolidated financial statements, in 2005 the
Company adopted Statement of Financial Accounting Standards No. 123(R),
"Share-Based Payment", as revised, effective January 1, 2005.

Los Angeles, California
February 28, 2006


                                      F-3
<PAGE>

                 TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31                                                                     2005             2004
-----------------------------------------------------------------------------------------------------
<S>                                                                    <C>              <C>
ASSETS

CURRENT
       Cash                                                            $     100,538    $       1,615
       Prepaid expenses and other current assets                                 672           50,055
                                                                       ------------------------------
              TOTAL CURRENT ASSETS                                           101,210           51,670
PROPERTY AND EQUIPMENT (NOTE 2)                                                2,309           45,002
CERTIFICATE OF DEPOSIT (NOTE 12)                                                  --          240,000
                                                                       ------------------------------
TOTAL ASSETS                                                           $     103,519    $     336,672
=====================================================================================================
LIABILITIES AND CAPITAL DEFICIT
LIABILITIES
CURRENT
       Current portion of long-term debt (Note 3)                      $          --    $       6,460
       Accounts payable (Notes 3 and 6(a))                                 2,491,259        2,226,102
       Accrued liabilities                                                   476,048          285,935
       Provision for lawsuit settlements (Notes 6, 10, 12 and 13)          4,385,105        6,013,198
       Loans payable (Notes 4, 8(g))                                         465,662          148,600
                                                                       ------------------------------
              TOTAL CURRENT LIABILITIES                                    7,818,074        8,680,295
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 3)                                  --           27,054
DEFERRED LICENSING FEE                                                       341,502          363,726
                                                                       ------------------------------
              TOTAL LIABILITIES                                            8,159,576        9,071,075
                                                                       ------------------------------
CAPITAL DEFICIT
       Share Capital (Note 8)
            Authorized
                    1,000,000 preferred shares, par value $0.001
                    1,000,000,000 (150,000 - 2003) common
                    shares, par value $0.001
            Issued
                  12,675 preferred shares in 2005 (2004 - 52,175)                 12               52
                320,416,577 common shares in 2005 (2004-160,157,955)         320,417          160,158
       Treasury stock, at cost (378,580 shares)                           (1,907,612)      (1,907,612)
       Additional paid-in capital                                        120,841,762      120,544,963
       Other comprehensive income -
            Foreign exchange translation gain                                 35,119           35,119
       Accumulated deficit                                              (127,345,755)    (127,567,083)
                                                                       ------------------------------
              TOTAL CAPITAL DEFICIT                                       (8,056,057)      (8,734,403)
                                                                       ------------------------------
TOTAL LIABILITIES AND CAPITAL DEFICIT                                  $     103,519    $     336,672
=====================================================================================================
</TABLE>

         The accompanying summary of significant accounting policies and
     notes are an integral part of these consolidated financial statements.


                                      F-4
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31                                          2005             2004
----------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>
LICENSING FEES                                                  $      22,224    $      22,224
                                                                ------------------------------
EXPENSES
       Selling, general and administrative (Notes 6, 7 and 8)         671,389          592,241
       Research and developments costs (Notes 6 and 7)                371,485        1,246,128
       Litigation expense (Notes 6, 10, 11, 12 and 13)                778,842        1,554,431
       Depreciation and amortization                                   11,396          151,809
                                                                ------------------------------
            TOTAL EXPENSES                                          1,833,112        3,544,609
                                                                ------------------------------
LOSS FROM OPERATIONS                                               (1,810,888)      (3,522,385)
OTHER INCOME (EXPENSE)
       Settlement of litigation (Notes 6,11)                        2,047,000        6,375,000
       Interest expense                                                (3,093)          (7,390)
       Interest Income                                                  1,836           14,477
       Gain (loss) on sale of assets                                  (13,527)           6,678
       Gain on settlement of term debt (Note 3)                            --           43,360
                                                                ------------------------------
NET INCOME FOR THE PERIOD                                       $     221,328    $   2,909,740
==============================================================================================
INCOME PER COMMON SHARE - BASIC                                 $        0.00    $        0.02
==============================================================================================
INCOME PER COMMON SHARE - DILUTED                               $        0.00    $        0.02
==============================================================================================
WEIGHTED AVERAGE SHARES USED FOR BASIC INCOME PER SHARE           214,891,125      149,420,194
==============================================================================================
WEIGHTED AVERAGE SHARES USED FOR DILUTED INCOME PER SHARE         248,917,733      180,654,013
==============================================================================================
</TABLE>

         The accompanying summary of significant accounting policies and
     notes are an integral part of these consolidated financial statements


                                      F-5
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CAPITAL DEFICIT

<TABLE>
<CAPTION>
                                                       Preferred Stock           Common Stock             Treasury Stock
                                                      -----------------     ----------------------    ---------------------
                                                       Shares    Amount          Shares     Amount     Shares        Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>       <C>         <C>           <C>         <C>       <C>
Balance, January 1, 2004                               97,175   $    97     148,771,749   $148,772    378,580   $(1,907,612)

Private placements of common stock                         --        --       1,000,000      1,000         --            --

Reversal of liability for settlement of equity
instruments from prior periods (Note 8(a))                 --        --              --         --         --            --

Exercise of stock options  (Note 8 (e) )                   --        --       2,935,000      2,935         --            --

Issuance of stock for services (Note 8(c))                 --        --         332,500        332         --            --

Issuance of stock for settlement of debt (Note 8
(e))                                                       --        --       2,589,036      2,589         --            --

Issuance of stock for settlement of legal action
(Note 8 (e))                                               --        --       4,179,670      4,180         --            --

Issuance of stock options to non-employees for
services (Note 7)                                          --        --              --         --         --            --

Issuance of warrants to non-employees for
services                                                   --        --

Issuance of stock options to employees (Note 7)            --        --              --         --         --            --

Conversion of Preferred Series X shares (Note
8(f))                                                 (45,000)      (45)      4,500,000      4,500         --            --

Escrow shares (Note 8 (f)                                  --        --      (4,150,000)    (4,150)        --            --

Net income for the year                                    --        --              --         --         --            --
                                                      ---------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004                             52,175   $    52     160,157,955   $160,158    378,580   $(1,907,612)

Exercise of stock options (Note 8(e))                      --        --      10,816,400     10,816         --            --

Issuance of stock for services (Note 8(c))                 --        --       5,000,000      5,000         --            --

Issuance of stock options to non-employees for
services (Note 7)                                          --        --              --         --         --            --

Issuance of stock options to employees (Note 7)            --        --              --         --         --            --

Conversion of preferred Series X shares (Note
8(e),(f))                                             (39,500)      (40)      3,950,000      3,950         --            --

Merger Share accrual (Note 8(b),(e))                       --        --     140,492,222    140,493         --            --

Net income for the period                                  --        --              --         --         --            --
                                                      ---------------------------------------------------------------------
Balance, December 31, 2005                             12,675   $    12     320,416,577   $320,417    378,580   $(1,907,612)
                                                      =====================================================================

<CAPTION>
                                                       Additional            Other
                                                          Paid-in    Comprehensive       Accumulated          Capital
                                                          Capital           Income           Deficit          Deficit
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>              <C>               <C>
Balance, January 1, 2004                             $117,233,800     $     35,119     $(130,476,823)    $(14,966,647)

Private placements of common stock                         48,678               --                --           49,678

Reversal of liability for settlement of equity
instruments from prior periods (Note 8(a))              2,134,322               --                --        2,134,322

Exercise of stock options  (Note 8 (e) )                  103,989               --                --          106,924

Issuance of stock for services (Note 8(c))                 26,067               --                --           26,399

Issuance of stock for settlement of debt (Note 8
(e))                                                      209,963               --                --          212,552

Issuance of stock for settlement of legal action
(Note 8 (e))                                              288,173               --                --          292,353

Issuance of stock options to non-employees for
services (Note 7)                                         268,192               --                --          268,192

Issuance of warrants to non-employees for
services                                                   59,741                                              59,741

Issuance of stock options to employees (Note 7)           172,343               --                --          172,343

Conversion of Preferred Series X shares (Note
8(f))                                                      (4,455)              --                --               --

Escrow shares (Note 8 (f)                                   4,150               --                --               --

Net income for the year                                        --               --         2,909,740        2,909,740
---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2004                           $120,544,963     $     35,119     $(127,567,083)    $ (8,734,403)

Exercise of stock options (Note 8(e))                     178,196               --                --          189,012

Issuance of stock for services (Note 8(c))                 45,000               --                --           50,000

Issuance of stock options to non-employees for
services (Note 7)                                          63,254               --                --           63,254

Issuance of stock options to employees (Note 7)           141,752               --                --          141,752

Conversion of preferred Series X shares (Note
8(e),(f))                                                  (3,910)              --                --               --

Merger Share accrual (Note 8(b),(e))                     (127,493)              --                --           13,000

Net income for the period                                      --               --           221,328          221,328
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005                           $120,841,762     $     35,119     $(127,345,755)    $ (8,056,057)
=====================================================================================================================
</TABLE>

         The accompanying summary of significant accounting policies and
     notes are an integral part of these consolidated financial statements.


                                      F-6
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31                                                           2005            2004
--------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>             <C>
OPERATING ACTIVITIES
       Net income                                                                 $    221,328    $  2,909,740
       Adjustments to reconcile net income to net
       cash provided by (used in) operating activities:
           Amortization of deferred licensing fees                                     (22,224)        (22,224)
           Depreciation and amortization                                                11,396         151,809
           Gain on settlement of debt                                                       --         (43,360)
           Loss (gain) on sale of asset                                                 13,527          (6,678)
           Recovery on lawsuit reserve from TST share sales (Note 6(b))                     --         (23,345)
           Stock option compensation (Note 7)                                          205,006         440,535
           Stock issued for services (Note 8 (c))                                       50,000          26,399
           Stock issued for settlement of lawsuit                                           --         292,353
           Liability in connection with settlement of equity instrument                     --        (581,000)
           Extension of warrants                                                            --         122,635
       Increase (decrease) in operating assets
           Prepaid expenses and other current assets                                   289,383         (21,215)
       Increase (decrease) in operating liabilities
           Accounts payable                                                            247,729      (1,432,102)
           Accrued liabilities and provision for lawsuit settlements                (1,435,918)     (1,036,715)
                                                                                  ------------    ------------
                Net cash provided by (used in) operating activities                   (419,773)        776,832
                                                                                  ------------    ------------
INVESTING ACTIVITIES
       Purchase of property and equipment                                                   --        (123,137)
       Sale of capital assets                                                           17,770          11,149
       Purchase certificate of deposit                                                      --        (240,000)
                                                                                  ------------    ------------
                Net cash provided by (used in) investing activities                     17,770        (351,988)
                                                                                  ------------    ------------
FINANCING ACTIVITIES
       Net proceeds term debt                                                               --          33,514
       Loans payable                                                                   298,914        (565,812)
       Issuance of common stock and stock subscriptions                                     --         106,924
       Merger share issuance accrual                                                    13,000
       Proceeds from exercise of stock options                                         189,012              --
                                                                                  ------------    ------------
                Net cash provided by (used in) financing activities                    500,926        (425,374)
                                                                                  ------------    ------------
NET INCREASE (DECREASE) IN CASH                                                         98,923            (530)
CASH, beginning of year                                                                  1,615           2,145
                                                                                  ------------    ------------
CASH, end of year                                                                 $    100,538    $      1,615
==============================================================================================================
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
       Cash paid during the year
            Interest                                                              $         --    $      2,946
            Income taxes                                                          $         --    $      7,200
SUPPLEMENTARY DISCLOSURE OF NON-CASH
 INVESTING AND FINANCING ACTIVITIES:
       Accounts payable transferred to/(from) loans payable                       $    (17,428)   $    159,386
       Stock issued for settlement of loans payable                               $         --    $    212,552
       Return of asset to settle term debts                                       $         --    $     76,082
       Liability in connection with settlement of equity instruments              $         --    $    581,000
       Reversal of liability in connection with settlement of equity instrument   $         --    $  2,134,322

         The accompanying summary of significant accounting policies and
     notes are an integral part of these consolidated financial statements.
</TABLE>


                                      F-7
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS

      Turbodyne Technologies, Inc., a Nevada corporation, and its subsidiaries
      (the "Company") engineer, develop and market products designed to enhance
      performance and reduce emissions of internal combustion engines.

      The Company had a period of activity during 2004 and early 2005. Lack of
      funds caused the Company to gradually curtail its operations until it
      ceased almost all activities. In March 2005 the Company moved out of the
      business premises and relinquished the majority of the fixed assets to the
      landlord to sell and offset against rent payable.

      The Company had no current business operations, place of business and no
      employees when in September 2005, new management took control with the
      purpose of attempting to resurrect the Company's business and seek
      financing for such purpose. The Company entered into a merger agreement in
      September 2005 that resulted in new management, which is examining
      alternatives for financing, and fulfilling its working capital needs based
      on its working capital projections.

      New management took control pursuant to a merger completed as of September
      9, 2005 pursuant to which a majority owned subsidiary of Aspatuck Holdings
      Ltd. ("Aspatuck") was merged into our newly formed wholly owned
      subsidiary. Prior to the merger, this subsidiary of Aspatuck entered into
      a consulting agreement ("Consulting Agreement") with Stamford Research,
      LLC that is obligated to provide the services of Mr. Albert Case to the
      Company. Upon completion of the merger, 139,192,222 shares of the
      Company's Common Stock were issuable to holders of the subsidiary of
      Aspatuck and 1,300,000 such shares became issuable to Stamford Research
      LLC, under the Consulting Agreement. At this time Mr. Albert Case became
      president and chief executive officer and Mr. Jason Meyers, principal
      shareholder of Aspatuck, became Chairman of the Board of Directors.
      Additional shares are issuable to the former shareholders of the Aspatuck
      subsidiary in the event the Company issues any securities related directly
      or indirectly to pre-merger events.

      The Company's operations have been financed principally through a
      combination of private and public sales of equity and debt securities. If
      the Company is unable to raise equity capital or generate revenue to meet
      its working capital needs, it may have to cease operating and seek relief
      under appropriate statutes. These consolidated financial statements have
      been prepared on the basis that the Company will be able to continue as a
      going concern and realize its assets and satisfy its liabilities and
      commitments in the normal course of business and do not reflect any
      adjustment which would be necessary if the Company is unable to continue
      as a going concern.


                                      F-8
<PAGE>

                 TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      CONTINUED

      GOING CONCERN

      The accompanying consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. The Company
      has suffered net operating losses in recent periods, has an accumulated
      deficit of $127,345,755 at December 31, 2005 and a total capital deficit
      of $8,056,057 at December 31, 2005. It has used most of its available cash
      in its operating activities in recent years, has a significant working
      capital deficiency and is subject to lawsuits brought against it by other
      parties. These matters raise substantial doubt about the Company's ability
      to continue as a going concern.

      PRINCIPLES OF CONSOLIDATION

      The accompanying consolidated financial statements, stated in United
      States dollars, include the accounts of Turbodyne Technologies, Inc. and
      its wholly owned subsidiaries, Turbodyne Systems, Inc., Turbodyne Germany
      Ltd., Electronic Boosting Systems Inc. and Pacific Baja Light Metals Corp.
      ("Pacific Baja"). All intercompany accounts and transactions have been
      eliminated on consolidation.

      DEPRECIATION AND AMORTIZATION

      Depreciation and amortization of property and equipment is computed using
      the straight-line method over estimated useful lives as follows:

            Machinery and equipment - 7 to 15 years
            Transportation equipment - 5 years
            Furniture and fixtures - 5 to 10 years

      LICENSES

      Licenses were recorded at cost and were being amortized at $208,000 per
      year over their estimated useful life, which was estimated to be five
      years. At December 31, 2003, management determined that the licenses had
      been impaired and a $624,000 impairment provision was recorded.

      VALUATION OF LONG-LIVED ASSETS

      The Company periodically reviews the carrying value of long-lived assets
      for indications of impairment in value and recognizes impairment of
      long-lived assets in the event the net book value of such assets exceeds
      the estimated undiscounted future cash flows attributable to such assets.
      Long-lived assets to be disposed of by sale are to be measured at the
      lower of carrying amount or fair value less cost of sale whether reported
      in continuing operations or in discontinued operations. No impairment was
      required to be recognized during 2005 and 2004.


                                      F-9
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      CONTINUED

      RECOGNITION OF REVENUE

      License fee revenue is recognized over the term of the license agreement.
      During the year ended December 31, 2003, $400,000 in license fees were
      deferred and are being amortized over 18 years. As a result, for the year
      ended December 31, 2005 $22,224 ($22,224 - 2004) of licensing fees was
      recognized as income.

      EARNINGS (LOSS) PER SHARE

      Earnings (loss) per share is computed in accordance with SFAS No. 128,
      "Earnings Per Share". Basic earnings (loss) per share is calculated by
      dividing the net income (loss) available to common stockholders by the
      weighted average number of shares outstanding during the year. Diluted
      earnings per share reflects the potential dilution of securities that
      could share in earnings of an entity. In a loss year, dilutive common
      equivalent shares are excluded from the loss per share calculation as the
      effect would be anti-dilutive.

      For the year ended December 31, 2005, 12,675 preferred shares convertible
      into 1,267,500 shares of common stock, options and warrants to purchase
      18,538,300 and 11,573,510 shares of common stock, convertible notes to
      purchase 32,353,316 shares of common stock were outstanding during the
      year. The weighted average dilutive cumulative equivalent shares of
      34,026,608 were included in the denominator for 2005 computation of
      diluted earnings (loss) per share. No other adjustments were made for
      purposes of per share calculations.

      For the year ended December 31, 2004, 52,175 preferred shares convertible
      into 5,217,500 shares of common stock, options and warrants to purchase
      14,928,666 and 15,084,922 shares of common stock were outstanding during
      the year. The weighted average dilutive cumulative equivalent shares of
      31,233,819 were included in the denominator for 2004 computation of
      diluted earnings (loss) per share. No other adjustments were made for
      purposes of per share calculations.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

      The fair values of the Company's cash, term debts, accounts payable,
      accrued liabilities and loans payable approximate their carrying values
      because of the short-term maturities of these instruments.


                                      F-10
<PAGE>

      STOCK-BASED COMPENSATION

      Prior to January 1, 2005, the Company accounted for employee stock-based
      compensation using the intrinsic value method supplemented by pro forma
      disclosures in accordance with APB 25 and SFAS 123 "Accounting for
      Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No.148
      "Accounting for Stock-Based Compensation--Transition and Disclosures."
      Under the intrinsic value based method, compensation cost is the excess,
      if any, of the quoted market price of the stock at grant date or other
      measurement date over the amount an employee must pay to acquire the
      stock. Under the intrinsic value method, the Company has recognized
      stock-based compensation common stock on the date of grant.


                                      F-11
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      CONTINUED

      STOCK-BASED COMPENSATION - CONTINUED

      Effective January 1, 2005 the Company adopted SFAS 123R using the modified
      prospective approach and accordingly prior periods have not been restated
      to reflect the impact of SFAS 123R. Under SFAS 123R, stock-based awards
      granted prior to its adoption will be expensed over the remaining portion
      of their vesting period. These awards will be expensed under the
      accelerated amortization method using the same fair value measurements
      which were used in calculating pro forma stock-based compensation expense
      under SFAS 123. For stock-based awards granted on or after January 1,
      2005, the Company will amortize stock-based compensation expense on a
      straight-line basis over the requisite service period, which is generally
      a five-year vesting period.

      SFAS No. 123 requires the Company to provide pro-forma information
      regarding net loss as if compensation cost for the stock options granted
      to the Company's employees had been determined in accordance with the fair
      value based method prescribed in SFAS No. 123. Options granted to
      non-employees are recognized in these financial statements as compensation
      expense under SFAS No. 123 (See Note 7) using the Black-Scholes
      option-pricing model.

      If the fair value based method under FAS 123 had been applied in measuring
      stock-based compensation expense for the year ended December 31, 2004,
      the pro forma on net income and net income per share would have been as
      follows, as previously disclosed:

                                                              December 31, 2004

Net Income, as reported                                       $       2,909,740
Add: Stock based employee compensation expense included
         in reported net income, net of related tax effects             172,343
Deduct: Total Stock-based employee compensation expense
        determined  under fair-value based method for all
        awards not included in net income                              (856,467)
                                                              -----------------
Pro-forma net income                                          $       2,225,616
                                                              =================
Income per share:
  Basic - as reported                                         $            0.02
                                                              -----------------
  Diluted - as reported                                       $            0.02
                                                              -----------------
  Basic and diluted - proforma                                $            0.01
                                                              -----------------

      RESEARCH AND DEVELOPMENT

      Research and development costs related to present and future products have
      been charged to operations in the year incurred. The sale of prototypes is
      offset against research and development costs.

      USE OF ESTIMATES

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      the disclosure of contingent assets and liabilities at the date of the
      financial statements and the reported amounts of revenue and expenses
      during the reporting period. Actual results could differ from those
      estimates.


                                      F-12
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      CONTINUED

      INCOME TAXES

      The Company accounts for income taxes under the asset and liability method
      of accounting for income taxes, which recognizes deferred tax assets and
      liabilities for the estimated future tax consequences attributable to
      differences between the financial statement carrying amounts of existing
      assets and liabilities and their respective tax bases. Deferred tax assets
      and liabilities are measured using enacted tax rates in effect for the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in
      tax rates is recognized in income in the period that includes the
      enactment date.

      COMPREHENSIVE INCOME

      The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
      SFAS No. 130 establishes standards to measure all changes in equity that
      result from transactions and other economic events other than transactions
      with owners. Comprehensive income is the total of net earnings (loss) and
      all other non-owner changes in equity. Except for net earnings (loss) and
      foreign currency translation adjustments, the Company does not have any
      transactions and other economic events that qualify as comprehensive
      income as defined under SFAS No. 130. As foreign currency translation
      adjustments were immaterial to the Company's consolidated financial
      statements, net earnings (loss) approximated comprehensive income for the
      year ended December 31, 2005 and 2004.

      LEGAL FEES

      The Company expenses legal fees in connection with litigation as incurred.

      NEW ACCOUNTING PRONOUNCEMENTS

      In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary
      Assets an amendment of APB Opinion No. 29. SFAS 153 addresses the
      measurement of exchanges of nonmonetary assets. It eliminates the
      exception from fair value measurement for nonmonetary exchanges of similar
      productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for
      Nonmonetary Transactions, and replaces it with an exception for exchanges
      that do not have commercial substance. This Statement specifies that a
      nonmonetary exchange has commercial substance if the future cash flows of
      the entity are expected to change significantly as a result of the
      exchange. SFAS 153 is effective for monetary asset exchanges occurring in
      fiscal periods beginning after June 15, 2005. The Company is considering
      the provisions of SFAS No. 153 and its effect on nonmonetary exchanges in
      the future.


                                      F-13
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
      CONTINUED

      NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

      In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error
      Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3.
      SFAS 154 applies to all voluntary accounting principle changes as well as
      the accounting for and reporting of such changes. SFAS 154 is effective
      for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005.

      SFAS 154 requires voluntary changes in accounting principle be
      retrospectively applied to financial statements from previous periods
      unless such application is impracticable. Changes in depreciation,
      amortization, or depletion for long-lived, non-financial assets are
      accounted for as a change in accounting estimate that is affected by a
      change in accounting principle, under the newly issued standard.

      SFAS 154 replaces APB Opinion No. 20 and SFAS 3. SFAS 154 carries forward
      many provisions of Opinion 20 and SFAS 3 without change including those
      provisions related to reporting a change in accounting estimate, a change
      in reporting entity, correction of an error and reporting accounting
      changes in interim financial statements. The FASB decided to completely
      replace Opinion 20 and SFAS 3 rather than amending them in keeping to the
      goal of simplifying U.S. GAAP. The provisions of SFAS No. 154 are not
      expected to have a material effect on the Company's consolidated financial
      position or results of operation. The provisions of SFAS No. 154 are not
      expected to have a material effect on the Company's consolidated financial
      position or results of operation.

2.    Property and Equipment

      Property and equipment, at cost, is summarized as follows:

                                                              2005         2004
                                                        -----------------------
      Machinery and equipment                           $   46,193   $1,637,484
      Transportation equipment                                  --       35,766
      Furniture and fixtures                                    --      142,999
      Leasehold improvements                                    --       97,948
                                                        -----------------------
                                                            46,193    1,914,197
      Less: accumulated depreciation, amortization
            and provision for impairment of assets          43,884    1,869,195
                                                        -----------------------
      Net property and equipment                        $    2,309   $   45,002
                                                        =======================


                                      F-14
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

3.    LONG-TERM DEBT

      Term debts at December 31, 2005 and 2004 consist of the following:

                                                              2005         2004
                                                        -----------------------
      Notes Payable                                     $       --   $   33,514
      Less current portion                                      --        6,460
                                                        -----------------------
      Long-term debt - net of current portion           $       --   $   27,054
                                                        =======================

      During 2004, the Company returned an asset that was not in use as a
      settlement of the 2003 outstanding note payable and recorded a gain on the
      debt settlement of $43,360.

      During the period ended September 30, 2004, the Company entered into a
      loan agreement with Bank of America. The loan was collateralized by a
      Mitsubishi Lancer automobile for an aggregate of $36,035. The Mitsubishi
      was repossessed on July 19, 2005 due to the Company's inability to make
      the loan payments. The Mitsubishi was sold at auction. The Company has
      included $17,428 in accounts payable, which is the difference between the
      note payable balance and the sales price.

4.    LOANS PAYABLE

                                                              2005         2004
                                                        -----------------------
      Unsecured, non-interest bearing loan payable,
      due on demand from stockholders and other parties $  148,600   $  148,600

      Convertible notes payable *                          317,062           --
                                                        -----------------------
      Total Loans Payable                               $  465,662   $  148,600
                                                        =======================

      *     Convertible notes payable, unsecured, bearing interest at 5% per
            annum, due in one year. Based on the December 30, 2005 market price
            of our common stock the notes would be convertible into 32,353,316
            shares at any time prior to payment. The conversion price is equal
            to the lesser of (i) 70% of the Market Price of the Common Stock or
            (ii) $.025 ("Fixed Conversion Price"); provided that the Conversion
            Price shall not be less than $.003. If the Market Price of the
            Common Stock is $.04 for a period of 20 consecutive trading days
            then the Conversion Price shall be the Fixed Conversion Price.


                                      F-15
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

5.    INCOME TAXES

      Income tax expense is comprised of the following for the years ended
      December 31, 2005 and 2004:

                                                              2005         2004
                                                        -----------------------
      Current
          State                                         $       --   $    7,291
                                                        =======================

      Total income tax expense for the years ended December 31, 2005 and 2004
      differed from the amounts computed by applying the statutory Federal
      income tax rate to earnings before income taxes as a result of the
      following:

                                                              2005         2004
                                                        -----------------------
      Computed "expected" income tax benefit            $       --   $       --
      Non-deductible stock option compensation             205,006      165,677
      Non-deductible expenses                            1,459,369    2,309,322
      Non-deductible stock for services                     50,000       86,140
      Non-deductible stock for settlement                       --      504,905
      Change in valuation allowance                     (1,714,375)  (3,066,044)
                                                        -----------------------
                                                        $       --   $       --
                                                        =======================

      The tax effects of temporary differences that give rise to the deferred
      tax assets and liabilities at December 31, 2005 and 2004 are as follows:

                                                              2005         2004
                                                       ------------------------
      Deferred tax assets
         Accrued liabilities                           $   190,419   $  114,374
         Reserve for lawsuit settlements                 1,754,042    2,405,279
         Property and equipment                                 --      186,504
         Alternative minimum tax credit                     55,000       55,000
         Net operating loss carryover                   26,590,646   27,543,324
                                                       ------------------------
            Gross deferred tax assets                   28,590,107   30,304,481
      Less valuation allowance                         (28,590,107) (30,304,481)
                                                       ------------------------
      Deferred tax assets, net of valuation allowance  $        --   $       --
                                                       ========================

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible. Management considers the scheduled reversal of deferred tax
      assets, projected future taxable income and tax planning strategies in
      making this assessment. Management believes it is not likely that the
      Company will realize the benefits of these deductible differences at
      December 31, 2005 or 2004. Accordingly, a valuation allowance has been
      provided for the total net deferred tax assets.

      At December 31, 2005, the Company had net operating loss carryforwards of
      approximately $78,000,000 for US income tax purposes, which if not used,
      will expire between the years 2010 and 2025. Due to change of ownership as
      defined in the Internal Revenue Code, restriction applies to the amount of
      net operating loss carryforward, which the Company can utilize to offset
      income for tax purposes in a year in the future.


                                      F-16
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

6.    COMMITMENTS AND CONTINGENCIES

      a)    Leases

            The Company leased certain factory and office premises in California
            under a non-cancelable operating lease expiring January 2005. Rental
            expense for 2005 and 2004 was approximately $17,800 and $370,000,
            respectively. In March 2005 the Company moved out of the premises
            and relinquished the majority of the fixed assets to the landlord to
            sell and offset against rent payable less amount paid to the County
            of Santa Barbara for past due personal property taxes.

            The Company signed a five-year copier lease on March 19, 2004 with
            payments of $375 per month. The Company returned the copier in April
            2005 defaulting on the lease. The $17,316 balance due on the lease
            is included in accounts payable.

      b)    Litigation

            In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of
            Pacific Baja (Note 10) filed an action against the Company alleging
            that in order to induce TST to extend credit to a subsidiary of
            Pacific Baja, the Company executed guarantees in favor of TST. TST
            alleged that the subsidiary defaulted on the credit facility and
            that the Company is liable as guarantor.

            The Company and TST entered into a settlement agreement and release.
            Under the terms of the agreement, the Company:

            i)    issued 1,000,000 shares of common stock to the president of
                  TST and agreed to register the resale of these shares by
                  filing a registration statement with the Securities and
                  Exchange Commission; valued at $350,000 based on the common
                  share trading price at the date the agreement was entered
                  into;

            ii)   issued 2,000,000 shares of common stock to TST; valued at
                  $700,000 based on the common share trading price at the date
                  the agreement was entered into;

            iii)  agreed to the immediate entry of judgment against the Company
                  in the amount of $2,068,078 plus interest from the date of
                  entry at the rate of 10% per annum. The amount of this
                  judgment will immediately increase by any amount that TST is
                  compelled by judgment or court order or settlement to return
                  as a preferential transfer in connection with the bankruptcy
                  proceedings of Pacific Baja; and

            iv)   any proceeds received by TST or its president from the sale of
                  the issued shares will be automatically applied as a credit
                  against the amount of the judgment against the Company in
                  favor of TST. Prior to March 31, 2004, 147,000 shares issued
                  in connection with the TST settlement had been sold which has
                  reduced the provision for lawsuit settlement by $23,345.


                                      F-17
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

6.    COMMITMENTS AND CONTINGENCIES - CONTINUED

      b)    Litigation - Continued

            At December 31, 2005, the Company has included $2,900,320
            ($4,766,656 - 2004) in regard to this matter in provision for
            lawsuit settlements. If it was determined that TST received payment
            in preference to other creditors before Pacific Baja filed its
            Chapter 11 petition in bankruptcy, TST would likely increase its
            claim by $2,130,000. TST and Pacific Baja settled the preference
            payment issue with TST paying $20,000 to Pacific Baja and TST
            relinquishing the right to receive $63,000, therefore the
            $2,130,000, that the Company had included in provision for lawsuit
            settlements, has been reduced to $83,000. For the year ended
            December 31, 2005 the $2,047,000 difference has been recorded as a
            lawsuit settlement in other income.

      c)    Other

            The Company is currently involved in various collection claims and
            other legal actions (Notes 10 and 13). It is not possible at this
            time to predict the outcome of some of the legal actions.

      d)    Royalties

            The Company has agreed to pay a royalty equal to 2% of gross sales
            of products manufactured and sold that incorporate certain licensed
            technology which is not being used.

7.    STOCK OPTIONS

      2003 Stock Incentive Plan

      On August 12, 2003, the Company established the 2003 Stock Incentive Plan
      (the "2003 Plan"). Under the 2003 Plan, the Company may grant common stock
      or incentive stock options to its directors, officers, employees and
      consultants for up to 15,000,000 shares. The maximum term of the 2003 Plan
      is ten years. The Board of Directors will determine the terms and matters
      relating to any awards under the 2003 Plan including the type of awards,
      the exercise price of the options and the number of common shares granted.
      The value of the shares of common stock used in determining the awards
      shall not be less than 85% of the fair market value of the common shares
      of the Company on the date of grant. As of December 31, 2005 and 2004, the
      number of unoptioned shares available for granting of options under the
      plan was 7,197,759.


                                      F-18
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

7.    STOCK OPTIONS - CONTINUED

      2004 Nevada Stock Incentive Plan

      On March 31, 2004, the Company established the 2004 Nevada Stock Incentive
      Plan (the "2004 Plan"). Under the 2004 Plan, the Company may grant common
      stock or incentive stock options to its directors, officers, employees and
      consultants for up to 15,000,000 shares. The maximum term of the 2004 Plan
      is ten years. The Board of Directors will determine the terms and matters
      relating to any awards under the 2004 Plan including the type of awards,
      the exercise price of the options and the number of common shares granted.
      The value of the shares of common stock used in determining the awards
      shall not be less than 85% of the fair market value of the common shares
      of the Company on the date of grant. As of December 31, 2005 and 2004, the
      number of unoptioned shares available for granting of options under the
      plan was 1,703,500.

      2005 Stock Incentive Plan

      On January 11, 2005 the Company established the 2005 Nevada Stock
      Incentive Plan (the "2005" Plan). Under the 2005 Plan, the Company may
      grant common stock on incentive stock options to its directors, officers,
      employees and consultants for up to 20,000,000 shares. The maximum term of
      the 2005 Plan is ten years. The Board of Directors will determine the
      terms and matters relating to any awards under the 2005 Plan including the
      type of awards, the exercise price of the options and the number of common
      shares granted. The value of the shares of common stock used in
      determining the awards shall not be less than 70% of the fair market value
      of the common shares of the Company on the date of grant. As of December
      31, 2005 the number of unoptioned shares available for granting of options
      under the plan was Nil.

      All options granted under the above plans are fully vested and exercisable
      immediately.

      The following summarizes information relating to stock options during 2005
      and 2004:

<TABLE>
<CAPTION>
                                                                    2005

                                    NON-EMPLOYEES            EMPLOYEES & DIRECTORS   TOTAL
                                    -----------------------------------------------------------------------
                                                 WEIGHTED                 WEIGHTED                 WEIGHTED
                                                  AVERAGE                  AVERAGE                  AVERAGE
                                                 EXERCISE                 EXERCISE                 EXERCISE
                                       OPTIONS      PRICE       OPTIONS      PRICE       OPTIONS      PRICE
                                    -----------------------------------------------------------------------
<S>                                 <C>            <C>       <C>            <C>      <C>             <C>
Outstanding at beginning of year     4,651,666     $ 0.11    10,277,000     $ 0.11    14,928,666     $ 0.11
Granted                              1,300,000     $ 0.02    18,700,000     $ 0.02    20,000,000     $ 0.02
Exercised                           (1,300,000)    $ 0.02    (9,516,400)    $ 0.02   (10,816,400)    $ 0.02
Expired                             (2,146,666)    $ 0.17    (3,427,300)    $ 0.09    (5,573,966)    $ 0.12
                                    ----------               ----------              -----------
Options outstanding and
exercisable at end of year           2,505,000     $ 0.08    16,033,300     $ 0.06    18,538,300     $ 0.06
                                    ==========               ==========              ===========
Weighted average fair value of
 options granted during the year                   $ 0.02                   $ 0.02                   $ 0.01
</TABLE>


                                      F-19
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

7.    STOCK OPTIONS - CONTINUED

<TABLE>
<CAPTION>
                                                                    2004

                                    NON-EMPLOYEES            EMPLOYEES               TOTAL
                                    -----------------------------------------------------------------------
                                                 WEIGHTED                 WEIGHTED                 WEIGHTED
                                                  AVERAGE                  AVERAGE                  AVERAGE
                                                 EXERCISE                 EXERCISE                 EXERCISE
                                       OPTIONS      PRICE       OPTIONS      PRICE       OPTIONS      PRICE
                                    -----------------------------------------------------------------------
<S>                                 <C>            <C>      <C>              <C>      <C>            <C>

Outstanding at beginning of year     2,131,666     $ 0.15     2,048,000      $0.16     4,179,666     $ 0.15
Change in 2002 options issued          720,000     $ 0.14            --      $  --       720,000     $ 0.14
Granted                              2,857,500     $ 0.08    10,439,000      $0.08    13,296,500     $ 0.08
Exercised                           (1,057,500)    $ 0.06    (2,210,000)     $0.05    (3,267,500)    $ 0.04
                                    ----------               ----------               ----------
Options outstanding and
exercisable at end of  year          4,651,666     $ 0.11    10,277,000      $0.11    14,928,666     $ 0.11
                                    =======================================================================
Weighted average fair value of
options granted during the year                    $ 0.09                    $0.09                   $ 0.09
                                    =======================================================================
</TABLE>

      At December 31, 2005, the following is a summary of stock options
      outstanding:

                                         Weighted Average       Weighted
                                                Remaining        Average
                                              Contractual       Exercise
      Exercise Price         Number          Life (Years)          Price
      ------------------------------------------------------------------
               $0.02      7,000,000                  4.08          $0.01
       $0.04 - $0.07      1,966,300                  4.82           0.05
       $0.09 - $0.10      9,572,000                  7.86           0.10
                         -----------------------------------------------
                         18,538,300                  6.11          $0.06
                         ===============================================

      During 2004 the Company waived the termination clause and extended the
      term for 9,824,000 Director, consultant and employee options outstanding
      by approximately five years to the option plan termination date as
      follows:

                                             Original                New
      Exercise Price        Number    Expiration Date    Expiration Date
      ------------------------------------------------------------------
              $0.040     1,000,000    August 26, 2008    August 12, 2013
              $0.095     1,650,000       May 10, 2009     March 31, 2014
              $0.100     7,174,000       July 9, 2009     March 31, 2014
      ------------------------------------------------------------------
                         9,824,000
      ==================================================================

      During 2005 the Company waived the termination clause for 7,000,000
      Director and employee options issued in 2005.


                                      F-20
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

7.    STOCK OPTIONS - CONTINUED

      Issuance of Stock Options to Non-employees for Services

      The Company has recorded in general and administrative expenses, $63,254
      and $268,192 of compensation expense in 2005 and 2004, respectively,
      relating to stock options issued to non-employees for services rendered
      during those years.

      The per share weighted average fair value of stock options expensed for
      the year ended December 31, 2005 was $0.01, $0.02 and $0.04 (2004 - $0.09)
      on the date of grant using the Black-Scholes option-pricing model with the
      following weighted average assumptions in 2005: expected dividend yield
      Nil%; expected volatility of 141%, 159% and 163% (2004 - 135%); risk-free
      interest rate of 2.89% and 3.75% (2004 - 3.63%)and expected life of 1 year
      and 5 years (2004 - 5 years).

      Issuance of Stock Options to Employees for Services

      Prior to January 1, 2005, the Company accounted for employee stock-based
      compensation using the intrinsic value method supplemented by pro forma
      disclosures in accordance with APB 25 and SFAS 123 "Accounting for
      Stock-Based Compensation" ("SFAS 123"), as amended by SFAS No.148
      "Accounting for Stock-Based Compensation--Transition and Disclosures."
      Under the intrinsic value method, compensation cost is measured as the
      excess of, if any, of the market price of the Company's common stock at
      the date of grant, or at any subsequent measurement date, over the amount
      an employee must pay to acquire the stock. Such amounts are amortized as
      compensation expense over the vesting period of the related stock options.
      Under the intrinsic value method, the Company was not required to
      recognize stock-based compensation.

      Effective January 1, 2005 the Company adopted SFAS 123R using the modified
      prospective approach and accordingly prior periods have not been restated
      to reflect the impact of SFAS 123R. Under SFAS 123R, stock-based awards
      granted prior to its adoption will be expensed over the remaining portion
      of their vesting period. These awards will be expensed under the
      accelerated amortization method using the same fair value measurements
      which were used in calculating pro forma stock-based compensation expense
      under SFAS 123. For stock-based awards granted on or after January 1,
      2005, the Company will amortize stock-based compensation expense on a
      straight-line basis over the requisite service period, which is generally
      a five-year vesting period.

      Upon our adoption of SFAS123R, we recorded $141,752 (2004 - $172,343) of
      compensation costs relating to stock options granted to employees. The
      amounts recorded represent equity-based compensation expense related to
      options that were issued in January 2005 as well as those issued prior to
      2005. The compensation costs are based on the fair value at the grant
      date. There was no such expense recorded during our fiscal year 2004.

      The per share weighted average fair value of stock options granted to
      employees during 2005 was $0.02 and $0.04 (2004 - $0.09), calculated on
      the date of grant using the Black-Scholes option pricing model with the
      following weighted average assumptions in 2005: expected dividend yield
      Nil%; expected volatility of 159% and 163% (2004 - 135%); risk-free
      interest rate of 3.75% (2004 - 3.25%); and an expected life of 5 years
      (2004 - 3 years).


                                      F-21
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

8.    SHARE CAPITAL

      a)    Authorized Capital

            In 2003, 150,000 of the 1 million preferred shares were designated
            as Series X preferred shares. These shares have a par value of
            $0.001 per share with each share being convertible into 100 common
            shares at the discretion of the holder.

            At the Annual General Meeting held on June 30, 2004, the
            shareholders approved an increase of authorized capital to
            1,000,000,000 common shares. Prior to this increase in authorized
            capital, the Company's potentially diluted common shares exceeded
            the authorized shares. Immediately prior to the increase in
            authorized capital, the Company had recorded $2,134,322 in accrued
            liabilities to account for the potential cash settlement of these
            financial instruments. As at June 30, 2004, the Company has reversed
            the $2,134,322 accrued liabilities since the potentially diluted
            common shares no longer exceeded authorized capital.

      b)    Merger

            New management took control pursuant to a merger completed as of
            September 9, 2005 pursuant to which a majority owned subsidiary of
            Aspatuck Holdings Ltd. ("Aspatuck") was merged into our newly formed
            wholly owned subsidiary. Prior to the merger, this subsidiary of
            Aspatuck entered into a consulting agreement ("Consulting
            Agreement") with Stamford Research, LLC that is obligated to provide
            the services of Mr. Albert Case to the Company. Upon completion of
            the merger, 139,192,222 shares of the Company's Common Stock were
            issuable to holders of the subsidiary of Aspatuck and 1,300,000 such
            shares became issuable to Stamford Research LLC, under the
            Consulting Agreement. At this time Mr. Albert Case became president
            and chief executive officer and Mr. Jason Meyers, principal
            shareholder of Aspatuck, became Chairman of the Board of Directors.
            Additional shares are issuable to the former shareholders of the
            Aspatuck subsidiary in the event the Company issues any securities
            related directly or indirectly to pre-merger events.

      c)    During 2005, the Company issued 5,000,000 (332,500 - 2004) shares to
            consultants in consideration for services, at ascribed value of
            $0.01 ($0.08 and $0.10 - 2004) per share (based on the trading price
            of the Company's common stock on the agreement date).


                                      F-22
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

8.    SHARE CAPITAL - CONTINUED

      d)    During 2002, in addition to 378,580 shares acquired under the 1998
            Share Buy-Back Plan, the Company entered into an agreement to
            acquire, from a director for cancellation, 3,500,000 shares for
            $152,078. The Company has paid $152,078 in connection with the
            acquisition of the 3,500,000 shares, has recorded amounts paid as a
            charge to Treasury shares. The related shares have not yet been
            received or cancelled.

      e)    During 2005, the Company issued 160,258,622 shares of common stock.
            The 160,258,622 included, 3,950,000 were issued for conversion of
            preferred shares, 140,492,222 were issued for payment of merger
            consideration, 10,816,400 shares were issued upon exercise of
            options with a weighted average exercise price of $0.02 and
            5,000,000 shares were issued for services with an ascribed value of
            $50,000 (based on the trading price of the Company's common stock on
            the dates service agreements were entered into).

            During 2004, the Company issued 15,536,206 shares of common stock
            and 4,150,000 shares were returned from escrow. The 15,536,206
            included, 1,000,000 shares were issued in connection with private
            placements for net proceeds of $49,678, 4,500,000 were issued for
            conversion of preferred shares, 2,589,036 shares were issued for
            payment of $212,552 of debt, 4,179,670 shares were issued for
            payment of $292,353 of legal settlements, 2,935,000 shares were
            issued upon exercise of options with a weighted average exercise
            price of $0.05 and 332,500 shares were issued for services with an
            ascribed value of $26,399 (based on the trading price of the
            Company's common stock on the dates service agreements were entered
            into), which were issued under the 2004 stock option plan. The
            Company issued 1,000,000 warrants in connection with the
            above-mentioned private placements, which entitle the holder to
            purchase one common share at $0.10 for each warrant for a three-year
            period.

      f)    In 2003, the Company also issued 122,175 Series X preferred shares,
            of which 41,500 shares were exchanged for 4,150,000 common shares
            held in escrow, until December 2004, by a former director and a
            former officer, 45,000 shares were issued to a former director in
            settlement of administrative expenses and the remaining 35,675
            shares were issued to a former officer in connection with the
            settlement of outstanding litigation. During 2005, 39,500 (45,000 -
            2004) Series X preferred shares were converted into 3,950,000
            (4,500,000 - 2004) common shares. The 4,150,000 escrow shares were
            returned to treasury in December 2004.

      g)    During 2003, the Company entered into three private placement
            agreements for the issuance of 2,433,810 shares for gross proceeds
            of $148,600, which was recorded as loans payable. As of December 31,
            2005 the shares have not been issued.


                                      F-23
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

8.    SHARE CAPITAL - CONTINUED

      h)    Stock Purchase Warrants

            At December 31, 2005 and 2004, the Company had 11,573,510 and
            15,084,922 stock purchase warrants outstanding, respectively. These
            warrants were issued in connection with private placements and other
            means of financing. The holders of these warrants are entitled to
            receive one share of common stock of the Company for one warrant
            exercised. The warrants have exercise prices ranging from $0.025 to
            $0.39 per share with a weighted average exercise price of $0.09 per
            share and expiration dates between 2006 and 2010.

            Details of share purchase warrants issued and expired are as
            follows:

                                                                 Weighted
                                                                  Average
                                                                 Exercise
                                                    Warrants        Price
                                                 ------------------------
            Outstanding at January 1, 2004        21,634,809       $ 0.34
                Issued                             1,000,000         0.10
                Expired                          (7,549,887)         0.39
                                                 ------------------------
            Outstanding at December 31, 2004      15,084,922         0.30
                Issued                             6,300,000        0.025
                Expired                          (9,811,412)         0.36
                                                 ------------------------
            Outstanding at December 31, 2005      11,573,510       $ 0.09
                                                 ========================

            At December 31, 2005, the following is a summary of share purchase
            warrants outstanding and exercisable:

                                                 Weighted-
                                                   Average      Weighted
                                                 Remaining       Average
                                               Contractual      Exercise
            Exercise Price        Number      Life (Years)         Price
            ------------------------------------------------------------
                $0.025         6,300,000              4.88        $0.025
              0.10 - 0.15      2,500,000              0.88          0.12
              0.20 - 0.22      2,564,273              0.47          0.22
              0.24 - 0.38        209,237              0.09          0.29
                              ------------------------------------------
                              11,573,510              2.95         $0.09


                                      F-24
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

9.    RELATED PARTY TRANSACTIONS

      The Company made payments to related parties not disclosed elsewhere in
      these financial statements, as follows:

                                                    2005           2004
                                                -----------------------
      Rent                                      $     --      $ 370,000
                                                =======================

      The Company previously leased its premises from related parties (Note
      6(a)).

10.   PACIFIC BAJA BANKRUPTCY

      In July 1999, a major creditor of the Company's wholly-owned major
      subsidiary, Pacific Baja, began collection activities against Pacific Baja
      which threatened Pacific Baja's banking relationship with, and source of
      financing from, Wells Fargo Bank. As a result, Pacific Baja and its
      subsidiaries commenced Chapter 11 bankruptcy proceedings on September 30,
      1999.

      In September 2001, the Pacific Baja Liquidating Trust ("the Trust")
      commenced action against a former subsidiary in the United States
      Bankruptcy Court, Central District of California - Riverside Division. The
      Trust was established under the Pacific Baja bankruptcy proceedings for
      the benefit of the unsecured creditors of Pacific Baja.

      The Trust is seeking, among other matters:

      i)    the re-characterization of Company advances to Pacific Baja as
            equity and the subordination of unsecured claims against Pacific
            Baja;

      ii)   the re-conveyance of an aggregate of up to approximately $7,190,000
            transferred by Pacific Baja to the Company on the basis of an
            allegation of fraudulent transfer;

      iii)  an order that the Company is liable for all of the previous debts of
            Pacific Baja totaling approximately $7,000,000; and

      iv)   Damages and punitive damages against the Company and certain former
            officers and directors and the former officers and directors of
            Pacific Baja in the amount of up to approximately $12,000,000 based
            on various allegations of fraud, misrepresentation, breach of
            contract, alter ego and negligence.


                                      F-25
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

10.   PACIFIC BAJA BANKRUPTCY - CONTINUED

      The Company vigorously contested the Complaint until April 22, 2005 when
      the Company entered into a stipulation for entry of judgment and
      assignment in the Pacific Baja bankruptcy proceedings for $500,000 to be
      issued in common stock or cash or a combination. Additionally the Company
      assigned to the bankruptcy Trust the rights to $9,500,000 claims under any
      applicable directors and officers liability insurance policies. The
      bankruptcy Trust also agreed to a covenant not to execute against the
      Company regardless of the outcome of the insurance claims.

      The Company has completed the assignment of its insurance claims, but has
      not completed the cash/stock payment that was to be paid to the Trust by
      December 9, 2005. We are negotiating with the Trustee regarding this
      default.

11.   HONEYWELL INTERNATIONAL, INC.

      We entered into the Settlement Agreement with Honeywell effective January
      23, 2004. The Settlement Agreement resolved disputes between us and
      Honeywell that were the subject of arbitration proceedings initiated by
      Honeywell in June 2001 (the "Arbitration") and federal litigation
      commenced by us against Honeywell in August 2001 (the "Federal
      Litigation"). Honeywell agreed to pay us the aggregate amount of
      $8,500,000 in full settlement of our claims against Honeywell subject to
      $2,125,000 of contingency legal fees, $60,000 of legal costs, and $911,030
      owed to certain of our creditors and lien holders. The Directors also
      elected to pay the following amounts directly from settlement proceeds:
      $633,070 owed to note holders and $1,290,000 in bonuses to officers and
      employees. We received $3,480,900 ($4,770,900 less $1,290,000) which is
      the full settlement amount less legal fees, creditor liens, note payments
      and settlement bonuses. The Settlement Agreement also includes mutual
      releases of our Company and Honeywell in favor of the other and certain
      indemnification agreements. No payments were required to be made by us to
      Honeywell pursuant to the Settlement Agreement.


                                      F-26
<PAGE>

                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2005 AND 2004

12.   FORMER OFFICER

      On May 20, 2004, one of the Company's former officers, Mr. Peter Hofbauer,
      filed a motion against the Company alleging that the Company failed to pay
      him the sum of $369,266 pursuant to the terms of a purported settlement
      agreement, allegedly made for the purposes of settling amounts owed to the
      former officer for services to the Company. On August 3, 2004 a writ of
      attachment was applied to the Company's Certificate of Deposit for
      $315,000. On October 25, 2004 the former officer and the Company signed
      and filed with the court a Stipulation re: Settlement and Order. The
      stipulation ordered the Company to deliver 4,000,000 shares of common
      stock without restrictions to be used by the former officer to raise funds
      to settle amounts owed to him by the Company. As funds are raised to
      settle amounts owed, writs will be reversed from the Certificate of
      Deposit. If the funds raised are not adequate to settle amounts owed, the
      Company will be obligated to issue further shares to the former officer in
      order to settle amounts owed.

      During 2004 the Company issued the 4,000,000 shares. Mr. Hofbauer has sold
      2,600,000 shares and released $125,000 of the Certificate of Deposit. On
      June 7, 2005 Mr. Hofbauer claimed the remaining $210,496 in the
      Certificate of Deposit. The remaining 1,400,000 shares are to be returned
      to the Company.

13.   FORMER DIRECTORS

      A former director of Turbodyne, Erwin Kramer (the "Plaintiff"),
      represented by his attorney Claus Schmidt, a former attorney of Turbodyne
      at the time of the alleged claim, filed a legal action in Germany against
      Turbodyne, our non-operating subsidiary Turbodyne Europe GmbH ("Turbodyne
      GmbH"), and ex-employees of Turbodyne GmbH, Peter Kitzinski and Marcus
      Kumbrick (collectively the "Defendants"), with the Regional Frankfurt
      court (the "German Court") in September, 2004. The Plaintiff claims
      damages of Euro 245,620 plus 5% interest per annum against the Defendants
      in respect of actions taken by the Defendants while employed with
      Turbodyne GmbH.

      On September 9, 2004, the German Court, on a motion by the Defendants to
      the suit, dismissed the Plaintiff's claims against Peter Kitzinski and
      Marcus Kumbrick, and ordered that Turbodyne's patents in Munich be
      attached pending the resolution of the Plaintiff's claim against Turbodyne
      and Turbodyne GmbH. On June 13, 2005 the Court in Frankfurt dismissed the
      claim. The Plaintiff filed an appeal against this judgment with the Higher
      Regional Court in Frankfurt.

      The Plaintiff's attorney, Claus Schmidt, also filed similar suits on
      behalf of Frank Walter and Herbert Taeuber. The German courts are
      indicating that all three suits need to be filed in the United States not
      Germany. Presently the suits have not been filed in the United States. We
      vigorously dispute this claim and have retained German counsel to defend
      it and seek its dismissal. At December 31, 2005 and 2004, the Company has
      included $405,785 in regard to this matter in the provision for lawsuit
      settlements.


                                      F-27
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There were no changes in 2004. On November 7, 2005, BDO Dunwoody LLP ("BDO")
resigned as the Company's independent public accountants. The independent
auditors' report of BDO on the financial statements of the Company for the years
ended December 31, 2002 and December 31, 2003 did not contain any adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty (other than an explanatory paragraph regarding substantial doubt on
the Company's ability to continue as a going concern relating to the report for
these years), audit scope, or accounting principles. On November 7, 2005, the
Company retained Vasquez and Company, LLP as its principal independent
accountants for 2004. There were no disagreements with "BDO". The decision to
retain Vasquez and Company, LLP was approved by the Company's Board of Directors
acting as its audit committee.

ITEM 8A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company's Chief Executive Officer and its Chief
Financial Officer reviewed and evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)).These controls are designed to ensure that material information the
Company must disclose in its reports filed or submitted under the Exchange Act
is recorded, processed, summarized and reported on a timely basis. These
officers have concluded, based on that evaluation, that as of such date, the
Company's disclosure controls and procedures were effective at a reasonable
assurance level for a Company with substantially no activities and no personnel.
The Company believes it must devise new procedures as it increases its activity
and its personnel.

As required by Rule 13a-15 under the Exchange Act the Company's Chief
Executive Officer and its Chief Financial Officer reviewed and evaluated the
effectiveness of the Company's internal control over financial reporting (as
defined in Exchange Act Rule 13a-15(f)), The term "internal control over
financial reporting" is a process designed by, or under the supervision of, the
registrant's principal executive and principal financial officers, 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.

The Company's Chief Executive Officer and Chief Financial Officer believed that
for the limited operations of the Company internal controls over financial
reporting were adequate to provide reasonable assurance at yearend. Nevertheless
these controls indicated substantial weakness that must be rectified if the
Company increased operations, including a lack of segregation of duties.


                                       28
<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors and their respective ages as of June 15,
2006 are as follows:

NAME                          AGE
----                          ---
Jason Meyers                  39          Director and Chairman
Albert F. Case, Jr.           51          President and Chief Executive Officer
Debi Kokinos                  53          Chief Financial Officer and Secretary

Set forth below is a brief description of the background and business experience
of our executive officer and directors in 2005:

ALBERT F. (AL) CASE, JR., Director, Chief Executive Officer since October 6,
2005. Mr. Case is a seasoned business executive with over 30 years of
experience. He has served an officer or board member of private and publicly
traded companies since the late 1970s when he was first elected as the youngest
senior systems officer in the history of Marine Midland Banks (now HSBC). He has
extensive experience in mergers and acquisitions, day-to-day business
operations, and international operations in the Americas, Europe and
Asia/Pacific. Mr. Case also has extensive experience in turning around flagging
business operations, building marketing and sales teams, and streamlining
operations.

JASON MEYERS, Director, Chairman since September 1, 2005. Mr. Meyers is an
investment banker, based in New York City. Mr. Meyers has extensive experience
in re-capitalizing, funding and revitalizing distressed businesses and
recruiting management teams. Mr. Meyers has over 17 years of investment and
merchant banking experience and has led or participated in the origination and
syndication of dozens of private placements and initial public offerings in a
broad range of industries including entertainment, technology, healthcare, and
financial services.

DEBI KOKINOS, Chief Financial Officer and Corporate Secretary since October 6,
2005. Ms. Kokinos has been with the company since May 2003. Ms. Kokinos has been
a Certified Public Accountant since 1984 and has extensive experience in
accounting, management, taxation and computer consulting.

AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that none of the audit committee members
can be classified as an "audit committee financial expert" as defined in Item
401(e) of Regulation S-B. We presently do not have any other committees of the
Board of Directors.


                                       29
<PAGE>

CODE OF ETHICS

We adopted a Code of Ethics applicable to our Chief Executive Officer, Chief
Financial Officer, Corporate Controller and certain other finance executives,
which is a "code of ethics" as defined by applicable rules of the SEC. Our Code
of Ethics is attached to this Annual Report on Form 10-KSB. If we make any
amendments to our Code of Ethics other than technical, administrative, or other
non-substantive amendments, or grant any waivers, including implicit waivers,
from a provision of our Code of Ethics to our chief executive officer, chief
financial officer, or certain other finance executives, we will disclose the
nature of the amendment or waiver, its effective date and to whom it applies in
a Current Report on Form 8-K filed with the SEC.

COMPENSATION OF DIRECTORS

As of December 31, 2005, our directors were reimbursed for reasonable
out-of-pocket expenses in connection with attendance at board of director and
committee meetings, and were periodically granted options to purchase shares of
our common stock at the discretion of our board of directors or our stock option
committee, when constituted.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than ten percent of our equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based on our review of the copies of such forms
received by us, we believe that during the fiscal year ended December 31, 2005
new management did not file reports but these reports are being prepared and
will be filed shortly.


                                       30
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION.

The following table sets forth certain compensation information as to the
following individuals who acted as chief executive officers in 2005:

<TABLE>
<CAPTION>
                                                     SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------------------------------
                                                                ANNUAL COMPENSATION                LONG TERM COMPENSATION
                                                          ------------------------------  ------------------------------------------
                                                                                                  AWARDS             PAYOUTS
                                                                                  Other   -------------------------  -------    All
                                                                                  Annual  Restricted                   LTIP    Other
                                                                                  Compen     Stock       Options/     payout  Compen
Name                   Title                      Year    Salary      Bonus      -sation    Awarded      SARs (#)       ($)   sation
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                        <C>     <C>       <C>           <C>      <C>         <C>              <C>     <C>
Albert F. Case, Jr.    President and Chief        2005    $96,000       0            0     1,300,000         0           0       0
                       Executive Officer                    (1)
------------------------------------------------------------------------------------------------------------------------------------
Andrew                 Former President, Chief    2005    $72,000       0            0         0         6,980,000       0       0
Martyn-Smith(2)        Executive Officer, Chief   2004    $72,000    $340,000        0         0         2,740,000       0       0
                       Financial Officer and      2003       0      $26,970(3)    $1,000       0          500,000        0       0
                       Treasurer
------------------------------------------------------------------------------------------------------------------------------------
David Willett(4)       Former Chief Operating     2005   $180,000       0            0         0         4,050,000       0       0
                       Officer                    2004   $180,000                                      3,424,000(5)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTES:

      (1)   Represents amounts paid to a corporation affiliated with Mr. Case
            for providing the services of Mr. Case who became President and
            chief executive officer in September 2006.

      (2)   Mr. Martyn-Smith resigned as our president, chief executive officer
            and all other positions as an officer and director in September
            2005.

      (3)   Mr. Martyn-Smith received a bonus payment of $26,970 upon settlement
            of our claims against Sheppard, Mullin and $340,000 upon the
            Honeywell settlement.

      (4)   In 2004 we made substantial payments, including a bonus out of
            proceeds of the Honeywell settlement, to a consulting firm owned by
            Mr. Willett.

      (5)   A portion of these options were granted to settle prior claims of
            Mr. Willett.


                                       31
<PAGE>

STOCK OPTION GRANTS

The following table sets forth information with respect to stock options granted
to each of our named executive officers during our most recent fiscal year ended
December 31, 2005:

<TABLE>
<CAPTION>
                                 OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                          (INDIVIDUAL GRANTS)
------------------------------------------------------------------------------------------------------
                        Number of Securities       % of Total         Exercise
                             Underlying          Options Granted       Price
Name                      Options Granted         To Employees      (per Share)       Expiration Date
------------------------------------------------------------------------------------------------------
<S>                          <C>                      <C>              <C>            <C>
Andrew Martyn-Smith          6,980,000                34.9             $0.02          January 27, 2010
------------------------------------------------------------------------------------------------------
</TABLE>


                                       32
<PAGE>

             EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

The following is a summary of the share purchase options exercised by our chief
executive officer and our named executive officers during the financial year
ended December 31, 2005:

<TABLE>
<CAPTION>
                                    AGGREGATED OPTION/SAR EXERCISES DURING THE LAST

                              FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR VALUES
---------------------------------------------------------------------------------------------------------------------
                                                                                                Value of Unexercised
                                                                                                    In-The-Money
                                                                      Unexercised Options at       Options/SARs at
---------------------------------------------------------------------------------------------------------------------
                                    Common Shares                     Financial Year-End (#)   Financial Year-End ($)
                                     Acquired on         Value            exercisable /             exercisable /
Name (#)                            Exercise ($)     Realized ($)         unexercisable             unexercisable
---------------------------------------------------------------------------------------------------------------------
<S>                                   <C>               <C>                 <C>                        <C>
Andrew Martyn-Smith                   4,520,000         $74,698             4,525,000                  NIL/NA
---------------------------------------------------------------------------------------------------------------------
</TABLE>

COMPENSATION ARRANGEMENTS

MANAGEMENT AGREEMENTS

We had entered into a 90 day consulting contract which terminated in December
2005 to provide the services of Albert C. Case, our chief executive officer.
Subsequent to December 31, 2005 Mr. Case and other management services were
provided pursuant to verbal consulting arrangements. The Company believes
written consulting contracts will be entered into for all management.


                                       33
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of June 15, 2006 by: (i) each
of our then directors; (ii) each of our named executive officers, and (iii)
officers and directors as a group. Unless otherwise indicated, the shareholders
listed possess sole voting and investment power with respect to the shares
shown.

--------------------------------------------------------------------------------
Name and Address                   Amount and Nature of     Percentage of Common
of Beneficial Owner                Beneficial Ownership            Stock
--------------------------------------------------------------------------------
Jason Meyers  (1)                       107,178,550                33.43%
--------------------------------------------------------------------------------
Aspatuck Holdings Ltd.(1)
--------------------------------------------------------------------------------
Albert F. Case, Jr. (2)                  1,300,000                  0.41%
--------------------------------------------------------------------------------
Debi Kokinos  (3)                         900,000                   0.28%
All Officers and Directors as           109,378,550                34.12%
a Group (3 persons) (4)
--------------------------------------------------------------------------------

      (1)   Represents shares owned of record by Aspatuck Holdings Ltd. of which
            Jason Myers is the controlling party and beneficial ownership. The
            above does not include substantial additional shares Aspatuck
            Holdings Ltd. may acquire under the AGREEMENT AND PLAN OF MERGER
            described under Item 12 - Certain Relationships and Related
            Transactions.

      (2)   Represents shares owned by Stamford Research LLC a corporation
            affiliated with Mr. Case

      (3)   The above ownership consists of shares that may be acquired upon the
            exercise of stock options within 60 days of May 5, 2006.

      (4)   The above does not include substantial additional shares Aspatuck
            Holdings Ltd. may acquire under the AGREEMENT AND PLAN OF MERGER
            described under Item 12 - Certain Relationships and Related
            Transactions.


                                       34
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

In 2005 we had equity compensation plans under which shares of our common stock
have been authorized for issuance to our officers, directors, employees and
eligible consultants. These equity compensation plans include our 2000 Stock
Option Plan, our 2002 Nevada Plan, our 2002 Stock Incentive Plan, our 2003 Stock
Incentive Plan, our 2004 Stock Incentive Plan and our 2005 Stock Incentive Plan.
In May 2004 there were 4,424,666 options subject to plans established prior to
2004. We do not intend to issue options under these Plans in the future.

On March 31, 2004, we established our 2004 Nevada stock incentive plan (the
"2004 Plan") and on January 27, 2005 established our 2005 Nevada stock incentive
plan (the "2005 Plan"). Under both plans, we may grant common stock to our
directors, officers, employees and consultants. The 2004 Plan calls for up to
15,000,000 shares while the 2005 Plan provides for 20,000,000. The maximum term
of each Plan is ten years. Our board of directors will determine the terms and
matters of any awards under the Plans including the type of awards and the
number of common shares granted. The value of the shares of common stock used in
determining the awards shall not be less than 85% of the fair market value of
our common shares on the date of the grant. As of May 19, 2006 the number of
options available for granting of options under the 2004 plan was 2,122,200 and
none were available under the 2005 plan.

The following summary information is presented for our Plans. For a more
detailed discussion, please refer to Note 8 of our financial statements included
in this annual report.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                                                                Number of Securities
                                                                                 Remaining Available
                                                                                 for Future Issuance
                                                                                    Under Equity
                             Number of Securities                                Compensation Plans
                               to be Issued Upon         Weighted-Average       (Excluding Securities
                                  Exercise of           Exercise Price of        Reflected in column
                              Outstanding Options      Outstanding Options              (a))
------------------------------------------------------------------------------------------------------
Plan Category                         (a)                      (b)                       (c)
------------------------------------------------------------------------------------------------------
<S>                          <C>                        <C>                       <C>
Equity Compensation Plans      3,944,666 Shares         $0.17 per Share of        2,122,200 Shares
Approved By Security            of Common Stock            Common Stock
Holders
------------------------------------------------------------------------------------------------------
Equity Compensation Plans    10,984,000 Shares of       $0.09 per Share of        27,197,759 Shares
Not Approved By Security         Common Stock              Common Stock
Holders
------------------------------------------------------------------------------------------------------
</TABLE>


                                       35
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company entered into an AGREEMENT AND PLAN OF MERGER (the "Agreement") dated
as of SEPTEMBER 2005, among it, its wholly owned subsidiary Turbodyne
Acquisition Corp. ("Merger Subsidiary" or the "Survivor") and Aspatuck Holdings
Nevada, Inc., (the "Nevada"). Nevada was a majority owned subsidiary of Aspatuck
Holdings Ltd. ("AHL"). Jason Meyers is the President of AHL. The agreement
contemplated the merger of Nevada and Merger Subsidiary with the Survivor as the
surviving entity. Prior to the merger, Nevada entered into a consulting
agreement ("CONSULTING AGREEMENT") with an entity which is obligated to provide
the services of Albert Case to the Company.

The merger was completed as of September 9, 2005. Upon completion of the merger,
the shareholders of Survivor were entitled under the Agreement to receive
("Merger Consideration") 40% of the Company's outstanding shares including the
number of shares of Common Stock issuable on the exercise, conversion or
exchange of securities, options, rights or other agreements ("Derivatives")
providing for the issuance of Common Stock. Upon the merger the shareholders of
Nevada were entitled to 139,192,222 of a total actual outstanding of 315,560,144
shares of the Company's Common Stock. There was no cash exchanged. These shares
then accounted for 44% of the presently outstanding shares. AHL is the
beneficial owner of 107,178,550 shares or approximately 34% of the outstanding
shares of the Company's Common Stock. As a controlling owner of AHL, Meyers is
the indirect beneficial owner of these shares. The number of Fully Diluted
Shares Outstanding and, consequently the Merger Consideration include shares of
Common Stock issued, or subject to Derivatives issued, after the merger,
relating, in any manner, to events or transactions prior to the merger including
securities of the Company issued to obtain funds to satisfy any Pre-merger
obligations. Based on this formula substantial additional shares will be issued
as Merger Consideration.

The Company is the beneficiary of the Consulting Agreement dated as of September
1, 2005, between Nevada and Stamford Research LLC, to provide the services of
Albert Case who is now the Company's chief executive officer. As compensation
for Consultant's services thereunder, the Company is to pay Consultant a total
of $33,000 payable; $20,000 cash and $13,000 which was paid by the issuance of
1,300,000 shares of the Company's Common Stock based upon market at the time of
the merger. The agreement is for a term of 90 days after the merger.


                                       36
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS

EXHIBIT
 NUMBER     DESCRIPTION OF EXHIBIT
--------    --------------------------------------------------------------------
   3.1      Restated Articles of Incorporation of Registrant.(1)

   3.2      Amended Bylaws of the Registrant.(1)

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

   4.1      Certificate of Merger, as filed by the Registrant with the Delaware
            Secretary of State.(1)

   4.2      Certificate of Merger, as filed by the Registrant with the Nevada
            Secretary of State.(2)

   4.3      Certificate of Designation creating Series X Preferred Stock, as
            filed by the Registrant with the Nevada Secretary of State.(4)

   4.4      Certificate of Designation creating Series X Preferred Stock, as
            filed by the Registrant with the Nevada Secretary of State. (4)

   4.5      Agreement and Plan of Merger (9)

   10.1     Sub-Lease between Turbodyne Systems, Inc. and John E. King and
            Carole D. King dated July 1, 2001.(3)

   10.2     Exclusive License Agreement between the Registrant, Turbodyne
            Systems, Inc. and David St. James dated October 15, 2001.(3)

   10.3     Licensing and Joint Development Agreement Between the Registrant and
            Ishikawajima-Harima Heavy Industries Co., Ltd.(1)

   10.4     Settlement Agreement dated January 29, 2003 between the Registrant,
            Turbodyne Systems Inc., Leon E. Nowek and L.N. Family Holdings
            Inc.(4)

   10.5     Settlement Agreement dated January 29, 2003 between the Registrant,
            Turbodyne Systems Inc., Edward M. Halimi and March Technologies
            Inc.(4)

   10.6     Settlement Agreement dated effective January 24, 2004 among the
            Registrant, Turbodyne Systems, Inc. and Honeywell International Inc.
            (5)

   10.7     Employment Agreement dated effective February 1, 2004 between the
            Registrant and Marsha Chandler. (6)

   10.8     Employment Agreement dated effective February 1, 2004 between the
            Registrant and Andrew Martyn-Smith. (6)

   10.9     Employment Agreement dated effective February 1, 2004 between the
            Registrant and David T. Willett. (6)

   10.10    2004 Stock Incentive Plan. (6)

   10.11    Consulting Agreement dated October 4, 2004 between the Registrant
            and Marsha Chandler. (8)

   10.12    Stipulation and Settlement Order dated October 27, 2004 between the
            Registrant and Peter Hofbauer. (8)

   10.13    Settlement and Release Agreement dated September 14, 2004 between
            the Registrant and John King. (8)

   10.14    2005 Stock Incentive Plan

   14.1     Code of Ethics. (5)

   21.1     List of Subsidiaries. (5)

   23.1     Consent of Vasquez & Company, LLP

   31.1     Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   32.1     Certification of Chief Executive Officer and Chief Financial Officer
            pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

   (1)      Filed as an exhibit to our Current Report on Form 8-K filed with the
            SEC on September 18, 2002.
   (2)      Filed with as an exhibit to our Form 10-K for the fiscal year ended
            December 31, 1999.
   (3)      Filed as an exhibit to our Annual Report on Form 10-KSB for the
            fiscal year ended December 31, 2001.
   (4)      Filed as an exhibit to our Annual Report on Form 10-KSB for the
            fiscal year ended December 31, 2002.
   (5)      Filed as an exhibit to our Annual Report on Form 10-KSB for the
            fiscal year ended December 31, 2003
   (6)      Filed as an exhibit to our Quarterly Report on Form 10-QSB for the
            fiscal quarter ended March 31, 2004.
   (7)      Filed as an exhibit to our Current Report on Form 8-K filed with the
            SEC on July 9, 2004.
   (8)      Filed as an exhibit to our Quarterly Report on Form 10-QSB for the
            fiscal quarter ended September 30,2004
   (9)      Filed as an exhibit to our Current Report on Form 8-K filed with the
            SEC October 2005


                                       37
<PAGE>

(A) CURRENT REPORTS ON FORM 8-K.

During the quarterly period ended December 31, 2005 we filed the following Form
8-K:

DATE OF FORM 8-K     DATE OF FILING WITH THE SEC    DESCRIPTION OF THE FORM 8-K
----------------     ---------------------------    ---------------------------
September 1, 2005         October 25, 2005          Agreement and Plan of Merger

November 7, 2005          November 10, 2005          Change in Certified Public
                                                             Accountant

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

We have appointed a new auditor for the fiscal years ended 2004 and 2005. The
aggregate fees billed for the two most recently completed fiscal years ended
December 31, 2005 and 2004 for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included our Quarterly Reports on Form 10-QSB and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for these fiscal periods.


                                   YEAR ENDED                YEAR ENDED
                               DECEMBER 31, 2005         DECEMBER 31, 2004
     ---------------------------------------------------------------------
     Audit Related Fees             $89,000                   $214,022
     Tax Fees                       $ 7,000                   $  8,478
     All Other Fees                    -                      $ 20,000
     Total                          $96,000                   $242,500


                                       38
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                         Turbodyne Technologies, Inc.


Dated: July 7, 2006                      By: /s/ Albert F. Case, Jr.
                                         ---------------------------
                                         Albert F. Case, Jr,
                                         Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
dates indicated.

Signature                       Title                               Date
                                -----                               ----


/s/ Albert F. Case, Jr          Chief Executive Officer,            July 7, 2006
------------------------        Director
Albert F. Case, Jr


/s/ Debi Kokinos                Chief Financial Officer             July 7, 2006
------------------------        and Chief Accounting Officer
Debi Kokinos


/s/ Jason M. Meyers
------------------------        Director                            July 7, 2006
Jason M. Meyers


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