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

                                    FORM 10-K

 (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, 2009

[ ] 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 No.)
incorporation or organization)

888 SEVENTH AVENUE, 17TH FLOOR
NEW YORK, NY                                                     10106
----------------------------------------                       ---------
(Address of principal executive offices)                       (Zip Code)


(805) 512-9511
-----------------------------------------
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
                                                  ------------------------------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]Yes [X ] No

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]Yes [ X ] No

NOTE - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Exchange Act from their
obligations under those Sections.
<PAGE>


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ]Yes[ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not 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-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer       [  ]              Accelerated filer      [ ]
Non-accelerated filer         [  ] (Do not check if a smaller reporting company)
Smaller reporting company     [X]


Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
[  ]Yes           [ X ] No

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 last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.:
$2,202,053 as of June 30, 2009

As of March 26, 2010, 582,980,168 shares of Turbodyne Technologies, Inc. common
stock were outstanding.


                    DOCUMENTS INCORPORATED BY REFERENCE: None

<PAGE>


                          TURBODYNE TECHNOLOGIES, INC.
                                    FORM 10-K

                                      INDEX

                                                                            PAGE
PART I

Item 1. Description of Business.........................................       4

Item 1A. Risk Factors...................................................      10

Item 1B. Unresolved Staff Comments......................................      15

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, Related Stockholder Matters
           and Issuer Purchases of Equity Securities ...................      18

Item 6. Selected Financial Data ........................................      20

Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations .......................................      21

Item 7A. Quantitative and Qualitative Disclosures of Market Risk .......      30

Item 8.  Financial Statements and Supplementary Data ...................      30

Item 9.  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure ........................................      31

Item 9A.  Controls and Procedures ......................................      31

Item 9B.  Other Information ............................................      32

PART III

Item 10. Directors, Executive Officers and  Corporate Governance .......      33

Item 11.  Executive Compensation .......................................      35

Item 12. Security Ownership of Certain Beneficial Owners and
           Management and Related Stockholder Matters ..................      38

Item 13.  Certain Relationships and Related Transactions ...............      39

Item 14.  Principal Accountant Fees and Services .......................      42

PART IV

Item 15.  Exhibits and Financial Statement Schedules ...................      43


Signatures .............................................................      46



                                      -3-
<PAGE>


PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

FORWARD LOOKING STATEMENTS
 This Annual Report on Form 10-K 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-K. 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".

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.


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. In 2008 Albert Case resigned from the Board of Directors and as an
officer of the Company.

                                      -4-
<PAGE>


The Company entered into a Consulting Agreement with Mr. John Adams effective
January 1, 2008 pursuant to which he is engaged as the Chief Executive Officer
for term ending December 1, 2010. As compensation, the Company will issue
12,000,000 shares of the Company's common stock (the "Shares") to Mr. Adams. The
Shares will be subject to forfeiture by Mr. Adams and will vest in accordance
with a vesting schedule. Of such shares 4,000,000 Shares shall be "service
based" and 111,111.11 Shares will vest for each month of service. Another
4,000,000 Shares shall be "revenue based" and the final 4,000,000 Shares shall
be "EBITDA based" and the repurchase agreement will terminate upon filing of
reports with the Securities & Exchange Commission containing reviewed or audited
statements reflecting total EBITDA, or earnings before interest, taxes,
depreciation or amortization, of $1,000,000.The unvested Shares shall be subject
to forfeiture by Mr. Adams in accordance with an agreement to be entered into.

During 2009 management obtained less funding than it obtained from financing in
prior years and less than it anticipated. As a result it was not able to achieve
its goals in the timetable it set. All previous funding has been used and future
funding will be used for continued:

o Assessment of our technology including patents and other rights o 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 or to continue meaningful development.


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.

The focus of our business plan, upon resumption of operations in September 2005,
has been to reduce or satisfy our past liabilities while continuing development
of our products. Our ability to complete commercialization of our products
remains subject to our ability to obtain additional financing.

                                      -5-
<PAGE>


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    Turbocharged gasoline engines are an advantageous alternative to larger
     displacement gasoline engines; they currently represent only a small
     percentage of the power plants in passenger cars because of turbo-lag;

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    A 2007 Ricardo forecast says that combined diesel and hybrid gasoline will
     represent 15 per cent of the US light vehicle market by 2012, with sales of
     diesels growing past gasoline hybrids to 1.5 million units compared to 1.2
     million hybrids. A 2007 UBS report says that European automakers and a
     number of global suppliers look set to benefit from this diesel trend. The
     Diesel Technology Forum reported in 2007 that J.D. Power and Associates
     predicted diesel sales to approximately triple in the next 10 years,
     accounting for more than 10 percent of U.S. vehicle sales by 2015 - up from
     3.6 percent in 2005. Many existing diesel vehicles (such as those in large
     vehicle fleets) share the turbo-lag problem of trading steady-state power
     output with inadequate take-off performance when accelerating from low
     engine rpm and power;

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 a 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. (Such as "EPA Tier 2" and Euro 5&6 for 2009 and
     later.) Our technology helps engine manufacturers comply with the new
     requirements without having to make their engines less responsive.

                                      -6-
<PAGE>

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 and the use of hybrid 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's
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.

The TurboFlow product line provides computer-controlled, variable high pressure,
high volume air movement in a small, lightweight, low power package for a
variety of applications from small internal combustion engines to building
engineering and marine applications.

The TurboFlow process eliminates a direct mechanical coupling for a super- or
turbo-charger and avoids engine power reduction (supercharger) or lack of
take-off power (turbo-lag). This is because the system uses an electric motor
instead of mechanical linkages to run an air compressor injecting air into an
engine system. The system may be particularly suited for Hybrid vehicles, since
these vehicles have electricity in abundance compared with traditional vehicles.

                                      -7-
<PAGE>



BUSINESS STRATEGY

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 and
other industries. 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.

If we develop products for direct marketing we will subcontract our
manufacturing and will not attempt to pursue large scale manufacturing of our
products in view of the high costs and business risks associated with
manufacturing. 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 more than two dozen patents and applications including ongoing work
in the current fiscal period. 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.

On November 7, 2009 we received notification that The People's Republic of China
granted two patents to Turbodyne Technologies, Inc. on July 22, 2009 for Charge
Air Systems for Turbocharged Four-Cycle Internal Combustion Engines and Two
Stage Charge Air System for Four-Cycle Internal Combustion Engine. The original
applications for these patents were filed July 23, 1998. The People's Republic
of China represents one of the fastest growing markets for our products.

                                      -8-
<PAGE>


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

The research and development costs decreased to $112,950 in 2009 ($337,893 in
2008) due to decreased spending for limited development operations due to lack
of funding This reduction also reflects the decrease in non cash warrant expense
amount of $227 compared to $34,045 in 2008 as a result of the termination of
certain consulting agreements . (Financial Statement Note 7). Our research and
development costs are charged to operations in the period incurred and relate to
product development with 2009 costs related to the development of our TurboPac.


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 5
and 6 emissions standards will come into effect between 2009 and 2014. 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, 2009 we had no full-time employees but we have retained
several consultants, devoting significant time to the Company's affairs. There
is no assurance that we will be able to retain our consultants since funds are
not available to pay current or past due consulting fees.




                                      -9-
<PAGE>


ITEM 1A.  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-K, including those risks identified under "Item 3 - Legal
Proceedings" and "Item 7 - Management Discussion and Analysis of Financial
Condition and Results 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 commence business operations as a going concern.

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

We reported net loss of $865,379 for the fiscal year ended December 2009. We
have derived negligible revenue from operations and have substantial unpaid
liabilities. We have an accumulated deficit of $135,683,733 at December 31,
2009. 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, 2009.

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. These factors may impact our
ability to raise needed funds for development of our products. There is no
assurance that we can overcome these difficulties.

COMPANY REQUIRES ADDITIONAL FUNDING

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

NO ASSURANCE THAT A COMMERCIAL PRODUCT WILL BE DEVELOPED TIMELY IF AT ALL.

With the exception of limited commercial production of certain Turbopac(TM)
models several years ago, commercial 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 problems which may prevent development of commercial
precuts or technology or delay development. In addition we are experiencing
difficulties in development as a result of our financial situation. These delays
in turn increase the cost of development of products incorporating our
technology and affect the timing of commercialization. Moreover delays increase
the possibility that our products could be obsolete. Our future revenues depend
on sales of products or licensing revenue incorporating our technology. Failure
to timely develop any product will ultimately result in cessation of operations.

                                      -10-
<PAGE>


POSSIBLE CHANGES IN AUTOMOBILES MAY MAKE OUR PRODUCT OBSOLETE

There are numerous proposals to eliminate gasoline-powered, internal combustion
engines. If these proposals are adopted it could, in the long run, limit or
eliminate the need for our products.

DEPENDENCE ON KEY EXECUTIVES

The Company will be dependent on the services of John Adams and Jason Meyers.
The Company has entered into consulting agreements with a firm that is obligated
to provide the services of Mr. Meyers. If, for any reason, however, their
services were not available, the Company would be severely adversely affected.

WE HAVE NO SALES AND MARKETING EXPERIENCE.

No products utilizing our technology have been commercially produced. Except for
the limited sales of shop (or produced prototypes) products, we have had no
sales in the last several years. The sales of prototypes have been treated as a
reduction of research and development cost We do not have dedicated sales and
marketing professionals who are experienced in dealing with the relevant
markets. Company personnel and agents on a part-time basis perform sales and
marketing functions along with other duties. We cannot assure you that products
are commercially developed that sales will be commercially successful. The
failure of sales will have a material adverse effect on our business, operating
results and financial condition.

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

All our development work as well as other services is performed pursuant to
consulting arrangements. There is no assurance that we will be able to obtain
and retain these consultants necessary to implementing our business strategy
successfully. This is particularly so when funds are not available to pay
amounts past due under these arrangements. If we do not retain or replace
qualified consultants, our ability 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.


WE MAY NOT BE ABLE TO DEVELOP COMMERCIALLY VIABLE PRODUCT IF ULTIMATE USERS DO
NOT ACCEPT OUR PRODUCTS UTILIZING OUR TECHNOLOGY

If products are developed utilizing our technology our success is dependent upon
acceptance by ultimate users in our target markets. If we or any partners are
unable to convince our target market of the advantages and viability of our
technology, our market potential may be severely limited or non existent.

                                      -11-
<PAGE>


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

We may enter into licensing or other arrangements with third parties. Developing
relationships with any third party involves lengthy periods of product
development and performance evaluation by the third party. 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 arrangements to exploit commercialization for
products utilizing or incorporating our technology. Third Parties that we
conduct joint development work or other proposed arrangements with will be under
no obligation to enter into an arrangement and after evaluation may determine
not to proceed with an arrangement Accordingly, we may devote substantial time
and resources to developing relationships and programs that do not result in
commercialization of products incorporating our technology.


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 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 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.

                                      -12-
<PAGE>



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.


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.


INCREASED COMPLIANCE AS A PUBLIC COMPANY MAY BE A BURDEN

Pending actions by the Public Company Accounting Oversight Board and the
Securities and Exchange Commission may substantially increase compliance costs
under the Sarbanes-Oxley Act 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.


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.


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.

                                      -13-
<PAGE>


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.


THE ACCOUNTING TREATMENT OF FUTURE VESTING OF WARRANTS MAY RESULT IN SIGNIFICANT
LOSSES

We have approximately 27,733,334 consultant warrants which may vest over the
next two or more years upon the continuation of service of the holders and/or
the happening of a specific event. Effective January 1, 2005 the Company adopted
SFAS 123(R) pursuant to which the warrants will be valued and expensed as
vested.


THE COMPANY WILL BE DEPENDENT ON THIRD PARTIES FOR THE PRODUCTION OF ANY PRODUCT
WHICH MAY BE COMMERCIALIZED

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.


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.

                                      -14-
<PAGE>


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.



ITEM 1B.  UNRESOLVED STAFF COMMENTS

NONE.


ITEM 2.  DESCRIPTION OF PROPERTY.

In 2009 an affiliate of the Company provided office space to the Company in New
York, New York on a month to month basis.


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 Trust was seeking, among other matters the re-characterization of
Company advances to Pacific Baja as equity and the subordination of unsecured
claims against Pacific Baja; 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; an order that the Company is liable for
all of the previous debts of Pacific Baja totaling approximately $7,000,000; and
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. 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

                                      -15-
<PAGE>



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 issued 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 $2,068,079 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.

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 was recorded as a lawsuit settlement
in other income. At December 31, 2009, the Company has included the following
amounts in provision for lawsuit settlements.


                                      -------------------------------------

                                         Year Ended December 31
                                      -------------------------------------

                                            2009                   2008
Settlement amount                         $2,068,079            $2,068,079
Interest                                  $2,201,626            $1,815,594
Preference payment                           $83,000               $83,000
Proceeds of stock sale                     ($23,345)             ($23,345)
                                      --------------- ---------------------
 Total                                    $4,329,360            $3,943,328
                                      =============== =====================


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.

                                      -16-
<PAGE>


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, 2009, the Company has included $405,785 in regard to this matter in
the provision for lawsuit settlements.


CRESCENT FUND, LLC

A former consultant has filed a complaint in Supreme Court of the State of New
York for the County of New York for an action entitled CRESCENT FUND, LLC v
TURBODYNE TECHNOLOGIES, INC. The action seeks $300,000 damages based upon claims
for alleged breaches of contract and covenants of good faith and fair dealing.
Plaintiff received a certificate for 5,000,000 shares of our common stock to
perform investor relations services for us under a contract. The damages, it is
claimed, arose because we failed to give plaintiff an opinion to sell the
shares. It is the Company's position that plaintiff failed to perform any of the
duties and obligations required of it under the aforesaid contract which was
fraudulently induced. Therefore plaintiff is not entitled to retain the shares.
The Company has filed an answer and counterclaim for the return of such shares
and damages based upon plaintiff's breach and fraud. The Company does not
anticipate a liability therefore has not included an amount in the provision for
lawsuit settlements. In 2008 the Company completed a nonmonetary settlement
permitting the plaintiff to retain a majority of its shares but releasing the
Company from all liability with any payments.




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

Due to the limited activity of the Company in 2009 an annual meeting was not
held, therefore, no matters were presented to the security holders.


                                      -17-
<PAGE>


PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
        PURCHASES OF EQUITY SECURITIES

The Company's common shares are now listed under the symbol "TRBD.OB" and on the
Frankfurt Stock Exchange under the symbol "TUD.F".

Set forth below are the high and low closing bid quotations for our common stock
for each quarter of the last two full fiscal years as reflected on the
electronic bulletin board. The quotations listed below represent prices between
dealers and do not include retail mark-up, markdown or commission, and there can
be no assurance that they represent actual transactions:

                                       2009                       2008
                            ----------------------------------------------------
                               HIGH            LOW          HIGH         LOW
                            ----------------------------------------------------
First Quarter                $   0.007      $ 0.004      $  0.038    ?$  0.018
Second Quarter               $   0.01       $ 0.003      $  0.052    ?$  0.016
Third Quarter                $   0.018      $ 0.006      $  0.038    ?$  0.011
Fourth Quarter               $   0.017      $ 0.006      $  0.015    ?$  0.002

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

REGISTERED HOLDERS OF OUR COMMON STOCK

As of March 25, 2010, there were approximately 467 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.


                                      -18-
<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES

The following issuances of securities occurred during 2009 and were not
otherwise reported in our current or quarterly reports.

On June 30, 2009 we issued 1,000,000 restricted shares of our common stock to
John Adams for the October 2008 to June 2009 service based stock according to
the Consulting Agreement effective January 1, 2008. 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.

In October 2009 we received total proceeds of $88,900 for 25,400,000 shares of
the Company's common stock from three accredited investors. These units were
issued in reliance on the exemption from registration provided by Rule 506 of
Regulation D of the Securities Act of 1933 and are exempt from the registration
requirements under that act on the basis that the investor was an "accredited
investor", as defined in Regulation D.

We issued 1,000,000 restricted shares of our common stock at a price of $0.0049
per share for a contract signed June 25, 2009 for the engineering services of
Augustin Thalhofer in Germany related to a product development 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.

We issued 666,667 restricted shares of our common stock to John Adams for the
July to December 2009 service based stock according to the Consulting Agreement
effective January 1, 2008. 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.




                                      -19-
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION


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>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

--------------------------------- ------------------------------ ------------------------------ ------------------------------

                                                                                                    Number of Securities
                                                                                                   Remaining Available for
                                                                                                Future Issuance Under Equity
                                   Number of Securities to be      Weighted-Average Exercise         Compensation Plans
                                     Issued Upon Exercise of     Price of Outstanding Options       (Excluding Securities
                                       Outstanding Options                                         Reflected in column (a)

--------------------------------- ------------------------------ ------------------------------ ------------------------------

Plan Category                                  (a)                            (b)                            (c)

--------------------------------- ------------------------------ ------------------------------ ------------------------------

Equity Compensation Plans               10,799,000 Shares          $0.06 per Share of Common          8,901,259 Shares
Approved By Security Holders             of Common Stock                     Stock

--------------------------------- ------------------------------ ------------------------------ ------------------------------

Equity Compensation Plans Not      63,211,099 Shares of Common     $0.02 per Share of Common          2,176,000 Shares
Approved By Security Holders                 Stock *                         Stock

--------------------------------- ------------------------------ ------------------------------ ------------------------------
</TABLE>


* Represents shares subject to (i) 56,211,099 warrants that are included in
  consultant contracts, 28,477,765 are vested as or December 31, 2009.






ITEM 6. SELECTED FINANCIAL DATA

Since the Company is a small reporting company, this item is not applicable.

                                      -20-
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

OVERVIEW

The following discussion and analysis of our financial condition as of December
31, 2009 and results of operations for each of the two years ended December 31,
2009 and 2008 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.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2009 COMPARED TO YEAR ENDED DECEMBER 31, 2008

                                     -------------------------------------------

                                                  Year Ended December 31
                                     -------------------------------------------
                                                                      Percentage
                                       2009             2008           Increase
                                                                      (Decrease)
                                     -------------------------------------------
Total Revenue                        $    22,224    $    22,224            Nil
Operating Expenses                   ($  936,697)   ($1,574,037)           (40%)
Net Loss From Operations             ($  914,473)   ($1,551,813)           (41%)
Net Other Income (Expenses)          $    50,694    ($1,077,906)           105%
Income tax expense                   ($    1,600)   ($    1,600)           Nil
Net Loss                             ($  865,379)   ($2,631,319)           (67%)


NET REVENUE
                                     -------------------------------------------

                                              Year Ended December 31
                                     -------------------------------------------
                                                                     Percentage
                                        2009            2008          Increase
                                     -------------------------------------------
License Fee                            $22,224        $22,224             Nil

We had no revenue in 2009 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, 2009 and 2008, $22,224 of licensing fees was recognized as income. 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 commercial arrangements.

                                      -21-
<PAGE>

COSTS OF SALES

We had no sales in 2009 and 2008; therefore we did not have any costs of sales
during any portion of these years.

OPERATING EXPENSES

Operating expenses decreased from the comparable period in 2008. The primary
components of our operating expenses are outlined in the table below:
                                                --------------------------------

                                                       Year Ended December 31
                                                --------------------------------
                                                                     Percentage
                                                  2009        2008     Increase
                                                                      (Decrease)
                                                --------------------------------
Selling, General and Administrative Expenses    $433,294    $873,988    (50.4%)
Research and Development Expenses               $112,950    $337,893    (66.6%)
Litigation Expenses                             $386,032    $356,147      8.4%

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative costs included management compensation and overhead
and decreased mostly due to a decline in consulting fees of $197,520 compared to
$326,611 in 2008 and non cash warrant and stock compensation expense amount of
$31,842 compared to $120,687 in 2008 as a result of the decrease in the per
share price of the Company's common stock. (Financial Statement Note 7)

RESEARCH AND DEVELOPMENT

The decrease in research and development costs in 2009 is due to decreased
spending for limited development operations due to a lack of funding and the
decrease in the consulting fees of $108,723 in 2009 compared to $279,362 in
2008, and non cash warrant expense amount of $4,227 in 2009 compared to $34,045
in 2008 as a result of the termination of certain consulting agreements and the
decrease in the per share price of the Company's common stock. (Financial
Statement Note 7) 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 2009 are associated with the development of
our TurboPac(TM).

LITIGATION EXPENSE

The most significant component of our litigation expense was the accrued
interest relating to TST, Inc. settlement as well as additional legal fees to
defend a new settled action discussed in Item 3.



COMPENSATION EXPENSE

As a result in of the termination of certain consulting agreements and the
decrease in the per share price of the Company's common stock our stock based
compensation for consultants decreased to $36,119 from $154,732 for 2008,
representing a decrease of $118,613 or approximately 64%.

                                      -22-
<PAGE>


During 2008 and 2009, warrants to purchase 78,200,000 shares of our common stock
were included as additional compensation in the contracts of various consultants
that we deemed essential to our operations. The termination of various
consultants or the expiration of contracts resulted in the cancellation of
54,013,889 warrants. The remaining 24,186,111 warrants vested in 2006 through
2009. In 2009 3,691,661 warrants were vested and reflected as an expense in
compared to 6,633,329 shares vested in 2008. As a result, we recognized $23,180
of non-employee compensation expense during the year ended December 31, 2009
compared to $126,621 during the year ended December 31, 2008. From time to time
we may grant a significant number of options or warrants to purchase common
stock to non-employees.

During 2009 we issued 1,666,667 shares of stock to John Adams as part of the
"service based" portion of his contract. As a result we recognized $11,552 of
non-employee compensation expense during the year ended December 31, 2009
compared to $28,111 in 2008.

OTHER INCOME (EXPENSE)

                                       -----------------------------------------
                                                 Year Ended December 31
                                       -----------------------------------------
                                                                     Percentage
                                          2009             2008        Increase
                                                                      (Decrease)
                                       ----------------------------------------
Debt Relief                            $   112,853      $   691,957      (83.7%)
                                       -----------      -----------      -----
OTHER EXPENSES
Interest Expense                       ($   54,009)     ($   74,478)     (27.5%)
Amortization of Discount
  on Convertible Notes                 ($    8,150)     ($  447,728)       (98%)
Inducement Expense                             -0-      ($1,247,657)      (100%)
                                       -----------      -----------      -----
TOTAL OTHER EXPENSES                   ($   62,159)     ($1,769,863)     (96.4%)
                                       -----------      -----------      -----
Net Other Income (Expenses)            $    50,694      ($1,077,906)       105%
                                       ===========      ===========      =====

The Company continues to negotiate with our creditors and trade debt holders on
settlement of accounts payable from periods prior to the current management
assuming operation of the Company. Also, the Company has decreased the accounts
payable for liabilities that have exceeded the statute of limitations for
collection. When achieved, this is represented as a debt relief of accounts
payable.

During 2009 the Company had total other expenses of $62,159 compared to
$1,769,863 in 2008. As indicated above, the reduction resulted from a reduction
in the amortization of discounts on convertible notes and value of detachable
warrants and related debt conversion expenses (Financial Statement Note 3).


                                      -23-
<PAGE>


NET INCOME / LOSS

Our net loss for the year ended December 31, 2009 decreased to $865,379 from net
loss of $2,631,319 for the year ended December 31, 2008, representing a decrease
of 67.1%.

We anticipate for the foreseeable future we will continue to have losses as we
will incur operating expenses in completing our development without any
revenues. Such losses will continue until such time as we generate revenue from
sales or licensing of our products in excess of our operating expenses.

FINANCIAL CONDITION

CASH AND WORKING CAPITAL

                                   ---------------------------------------------
                                     At December 31,  At December 31, Percentage
                                         2009            2008         Increase/
                                                                      (Decrease)
                                   ---------------------------------------------
Current Assets                       $     3,037      $        68        4,366%
Current Liabilities                  ($8,584,668)     ($8,043,097)         6.7%
                                     -----------      -----------      -------
Working Capital Deficit              ($8,581,631)     ($8,043,029)        (6.7%)
                                     ===========      ===========      =======

The increase to our working capital deficit was primarily attributable to the
increase in provision for lawsuit settlements for accrued interest as discussed
below.


LIABILITIES

                                   ---------------------------------------------
                                   At December 31,   At December 31,  Percentage
                                       2009             2008          Increase/
                                                                      (Decrease)
                                   ---------------------------------------------
Provisions for Lawsuit
Settlements                          $5,731,145      $5,345,113           7.22%
Accounts Payable                     $2,002,746      $1,869,757           7.11%
Accrued Liabilities                  $  300,000      $  320,000          (6.25%)
Short-Term Loans                     $  550,777      $  508,227           8.37%
Long-term loans payable              $  184,237      $     --              100%

                                      -24-
<PAGE>


The increase in provision for lawsuits is due to accrued interest on outstanding
judgments. Accounts payable increased due to a lack of funds to pay creditors.
The total accounts payable would have increased even more except the accounts
payable was decreased due to the expiration of the statute of limitation for
certain payables and the write off of these payables in the amount of $112,853.
Short-term loans increased due to accrued interest. (Financial Statement Note
3).

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.

In 2003, the Company entered into three private placement agreements for the
issuance of 2,433,810 shares for gross proceeds of $138,600, which was recorded
as loans payable. As of December 31, 2009 the shares have not been issued.

CASH FLOWS
                                                        ------------------------
                                                              At December 31,
                                                        ------------------------
                                                            2009         2008
                                                            ----         ----
Net Cash provided by (used in) Operating Activities      ($285,931)   ($255,093)
Net Cash provided  (used in) by Investing Activities          $-0-    ($ 14,325)
Net Cash provided by (used in) Financing Activities      $ 288,900    $ 266,700
                                                         ---------    ---------
Net Increase (Decrease) in Cash During Period            $   2,969    ($  2,718)
                                                         =========    =========


CASH USED IN OPERATING ACTIVITIES

The decrease in cash used in operating activities was due to a lack of funds in
2009 and a decrease in operations because of this lack of funds.


FINANCING REQUIREMENTS

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
2009 we need substantially more capital to complete development and continue our
business. There is no assurance that we will be able to raise the required
additional capital. 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. Accordingly, there is substantial doubt about
our ability to continue as a going concern.

                                      -25-
<PAGE>



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 8 of this Form 10-K. Note
that our preparation of this Annual Report on Form 10-K 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-K 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 $135,683,733 at December 31, 2009, 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 must 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.


STOCK BASED COMPENSATION

In accordance with the provisions of ASC Topic 718, Compensation--Stock
Compensation, which requires the Company to establish assumptions and estimates
of the weighted-average fair value of stock options granted, as well as using a
valuation model to calculate the fair value of stock-based awards. The Company
uses the Black-Scholes option-pricing model to determine the fair-value of
stock-based awards. All options are amortized over the requisite service periods
of the awards, which are generally the vesting periods.

REVENUE RECOGNITION

Prior to the suspension of our operations in 2003, we recognized revenue upon
shipment of product. Since the re-commencement of operations, 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, 2009,
$22,224 ($22,224 in 2008) of licensing fees was recognized as income.

                                      -26-
<PAGE>



RESEARCH AND DEVELOPMENT

Research and development costs related to present and future products are
charged to operations in the period incurred. Previously, research prototypes
were sold and proceeds reflected by reductions in our research and development
costs. As new technology pre-production manufacturing units are produced and
related non-recurring engineer services are delivered we will recognize the
sales proceeds as revenue.

NEW ACCOUNTING PRONOUNCEMENTS


In February 2010, the FASB issued Accounting Standards Update 2010-09,
SUBSEQUENT EVENTS (TOPIC 855): AMENDMENTS TO CERTAIN RECOGNITION AND DISCLOSURE
REQUIREMENTS. ASU 2010-09 removes the requirement for an SEC filer to disclose a
date through which subsequent events have been evaluated in both issued and
revised financial statements. Revised financial statements include financial
statements revised as a result of either correction of an error or retrospective
application of U.S. GAAP. The FASB also clarified that if the financial
statements have been revised, then an entity that is not an SEC filer should
disclose both the date that the financial statements were issued or available to
be issued and the date the revised financial statements were issued or available
to be issued. The FASB believes these amendments remove potential conflicts with
the SEC's literature. In addition, the amendments in the ASU requires an entity
that is a conduit bond obligor for conduit debt securities that are traded in a
public market to evaluate subsequent events through the date of issuance of its
financial statements and must disclose such date. All of the amendments in the
ASU were effective upon issuance (February 24, 2010) except for the use of the
issued date for conduit debt obligors. That amendment is effective for interim
or annual periods ending after June 15, 2010. The provisions of ASU 2010-09 did
not have a material impact on the Company's financial statements.

In January 2010, the FASB issued Accounting Standards Update ("ASU") No.
2010-06, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING
DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU 2010-06 amends Codification
Subtopic 820-10 to add two new disclosures: (1) transfers in and out of Level 1
and 2 measurements and the reasons for the transfers, and (2) a gross
presentation of activity within the Level 3 roll forward. The proposal also
includes clarifications to existing disclosure requirements on the level of
disaggregation and disclosures regarding inputs and valuation techniques. The
proposed guidance would apply to all entities required to make disclosures about
recurring and nonrecurring fair value measurements. The effective date of the
ASU is the first interim or annual reporting period beginning after December 15,
2009, except for the gross presentation of the Level 3 roll forward information,
which is required for annual reporting periods beginning after December 15, 2010
and for interim reporting periods within those years. Early application is
permitted. The Company is currently assessing the impact that the adoption will
have on its financial statements.

                                      -27-
<PAGE>


In January 2010, the FASB issued two ASU's that (1) codify SEC Observer comments
made at the June 2009 EITF meeting and (2) make technical corrections to several
SEC sections of the FASB Codification. In general, the two ASU's, do not change
existing practice. ASU 2010-05, COMPENSATION--STOCK COMPENSATION (TOPIC
718)--ESCROWED SHARE ARRANGEMENTS AND THE PRESUMPTION OF COMPENSATION, codifies
EITF Topic D-110, ESCROWED SHARE ARRANGEMENTS AND THE PRESUMPTION OF
COMPENSATION, which provides the SEC staff's view on when an escrowed share
arrangement involving shareholders is presumed to be compensatory and the
factors to consider when analyzing whether that presumption has been overcome.
The SEC Observer announced the views captured in EITF Topic D-110 at the June
2009 EITF meeting. ASU 2010-04, ACCOUNTING FOR VARIOUS TOPICS--TECHNICAL
CORRECTIONS TO SEC PARAGRAPHS, primarily includes technical corrections to
various topics containing SEC guidance as a result of recently-issued
authoritative guidance and updates for Codification references. These two ASU's
do not have an impact on the Company's financial statements.

In October 2009, the FASB issued ASU 2009-15, ACCOUNTING FOR OWN-SHARE LENDING
ARRANGEMENTS IN CONTEMPLATION OF CONVERTIBLE DEBT ISSUANCE OR OTHER FINANCING.
ASU 2009-15 includes amendments to ASC Topic 470, DEBT, (SUBTOPIC 470-20), and
ASC Topic 260, EARNINGS PER SHARE (SUBTOPIC 260-10), to provide guidance on
share-lending arrangements entered into on an entity's own shares in
contemplation of a convertible debt offering or other financing. The provisions
of ASU 2009-15 are effective for fiscal years beginning on or after December 15,
2009, and interim periods within those fiscal years for arrangements outstanding
as of the beginning of those years. Retrospective application is required for
such arrangements. The provisions of ASU 2009-15 are effective for arrangements
entered into on (not outstanding) or after the beginning of the first reporting
period that begins on or after June 15, 2009. Certain transition disclosures are
also required. Early application is not permitted. The provisions of ASU 2009-15
are not expected to have an impact on the Company's financial statements.

In October 2009, the FASB published ASU 2009-14, SOFTWARE (TOPIC 985) - CERTAIN
REVENUE ARRANGEMENTS THAT INCLUDE SOFTWARE ELEMENTS. ASU 2009-14 changes the
accounting model for revenue arrangements that include both tangible products
and software elements. Under this guidance, tangible products containing
software components and non-software components that function together to
deliver the tangible product's essential functionality are excluded from the
software revenue guidance in ASC Subtopic 985-605, Software-Revenue Recognition.
In addition, hardware components of a tangible product containing software
components are always excluded from the software revenue guidance. The
provisions of ASU 2009-14 are effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June
15, 2010, or the Company's fiscal year beginning October 1, 2010. Early adoption
is permitted. The provisions of ASU 2009-14 are not expected to have an impact
on the Company's financial statements.

                                      -28-
<PAGE>

In October 2009, the FASB published ASU 2009-13, REVENUE RECOGNITION (TOPIC 605)
- MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. ASU 2009-13 addresses the
accounting for multiple-deliverable arrangements to enable vendors to account
for products or services (deliverables) separately rather than as a combined
unit. Specifically, this guidance amends the criteria in ASC Subtopic 605-25,
REVENUE RECOGNITION-MULTIPLE-ELEMENT ARRANGEMENTS, for separating consideration
in multiple-deliverable arrangements. This guidance establishes a selling price
hierarchy for determining the selling price of a deliverable, which is based on:
(a) vendor-specific objective evidence; (b) third-party evidence; or (c)
estimates. This guidance also eliminates the residual method of allocation and
requires that arrangement consideration be allocated at the inception of the
arrangement to all deliverables using the relative selling price method. In
addition, this guidance significantly expands required disclosures related to a
vendor's multiple-deliverable revenue arrangements. The provisions of ASU
2009-13 are effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15, 2010 or the
Company's fiscal year beginning October 1, 2010. Early adoption is permitted.
The provisions of ASU 2009-14 are not expected to have an impact on the
Company's financial statements.

In September 2009, the FASB published ASU No. 2009-12, FAIR VALUE MEASUREMENTS
AND DISCLOSURES (TOPIC 820) - INVESTMENTS IN CERTAIN ENTITIES THAT CALCULATE NET
ASSET VALUE PER SHARE (OR ITS EQUIVALENT). ASU 2009-12 amends ASC Subtopic
820-10, FAIR VALUE MEASUREMENTS AND DISCLOSURES--OVERALL, to permit a reporting
entity to measure the fair value of certain investments on the basis of the net
asset value per share of the investment (or its equivalent). It also requires
new disclosures, by major category of investments, about the attributes of
investments within the scope of this amendment to the Codification. The
provisions of ASU 2009-12 is effective for interim and annual periods ending
after December 15, 2009. Early application is permitted. The provisions of ASU
2009-14 is effective for the Company and did not have an impact on the Company's
financial statements.

In August 2009, the FASB published Accounting Standards Update 2009-05, FAIR
VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820) MEASURING LIABILITIES AT FAIR
VALUE. It clarifies that in circumstances in which a quoted market price in an
active market for the identical liability is not available, a reporting entity
is required to measure fair value using one of several acceptable valuation
techniques. ASU 2009-05 also clarifies (i) that when estimating the fair value
of a liability, a reporting entity is not required to include a separate input
or adjustments to other inputs relating the existence of a restriction that
prevents the transfer of the liability, and (ii) that both a "quoted price in an
active market for the identical liability at the measurement date" and the
"quoted price for the identical liability when traded as an asset in a active
market when no adjustments to the quoted price of the asset are required" are
Level 1 fair value measurements. ASU 2009-05 is effective in the fourth quarter
of 2009. The Company has not yet determined the impact of the adoption of ASU
2009-05 on its financial statements.

                                      -29-
<PAGE>






<PAGE>



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Since the Company is a small reporting company, this item is not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Included at the end of this Annual Report on Form 10-K, starting at page F-1,
are our audited financial statements for the years ended December 31, 2009 and
2008, which consists of the following:

1.   Report of Independent Registered Public Accounting Firm

2.   Consolidated Balance Sheets as at December 31, 2009 and December 31, 2008.

3.   Consolidated Statements of Operations for the years ended December 31, 2009
     and December 31, 2008.

4.   Consolidated Statements of Stockholders' Deficit for the years ended
     December 31, 2009 and December 31, 2008.

5.   Consolidated Statements of Cash Flows for the years ended December 31, 2009
     and December 31, 2008.

6.   Notes to the Consolidated Financial Statements.

Since the Company is a small reporting company, it is not required to provide
supplementary data as required by Item 302 of Regulation S-K.



                                      -30-
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

None.



ITEM 9A.          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.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). As required by Rule 13a-15 under the Exchange Act the Company's Chief
Executive Officer and its Chief Financial Officer assessed the effectiveness of
our internal control over financial reporting as of December 31, 2009. In making
its assessment of internal control over financial reporting, management used the
criteria described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

                                      -31-
<PAGE>


Based on this assessment management identified a material weaknesses in the
Company's internal controls over financial reporting due in a significant part
to the pervasive effect of the lack of resources, specifically the limited
number of personnel involved in the financial reporting including the number of
persons that are appropriately qualified in the areas of U.S. GAAP and SEC
reporting. These limitations include an inability to segregate functions.
Because of this weakness there is a possibility that a material misstatement of
the annual financial statements would not have been prevented or detected.
Nevertheless 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 of the
accuracy of the Company's financial statements at year end. The adverse effect
of the material weakness over internal controls, however, will become magnified
if the Company increases operations.

Due to the complexity of the accounting for the convertible notes with
detachable warrants, there were material additional adjustments made to our
annual financial statements prior to their publication in this report as well as
interim financial statements after filing. In management's view, this was not
the result of a material weakness in internal control but due to the complexity
of the accounting rules and their interpretations affecting transactions of this
nature.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.

ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

This Annual Report on Form 10-K does not include an attestation report of the
Company's registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management's report in this Annual Report on Form 10-K.



ITEM 9B. OTHER INFORMATION

NONE


                                      -32-
<PAGE>



PART III

ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors and their respective ages as of March 31,
2009 are as follows:

------------------- ------------------------------------------------------------
 NAME                AGE
------------------- ------------------------------------------------------------
 Jason Meyers        43        Director and Chairman/ Co-Chief Executive Officer
------------------- --------- --------------------------------------------------
 John Adams          69        President and Co-Chief Executive Officer
------------------- --------- --------------------------------------------------
 Debi Kokinos        57        Chief Financial Officer and Secretary
------------------- --------- --------------------------------------------------

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

JOHN ADAMS has been our Chief Executive Officer since January 2008. Mr. Adams
was President of Chemical Research and Licensing Company, a unit of Shell Oil
(NYSE-RDS-A), and Managing Director of CDTECH, a joint venture with Lummus
Technology Inc from 1988 until 2007. Prior to that position he worked for
Polystar LTD, a Canadian petrochemical company, subsequently acquired by Nova
Chemicals (NYSE_NCX). Mr. Adams led the acquisition of CR&L for Polystar. In
1997, CR&L was acquired by Shell Oil. He retired from CR&L in 2007.

JASON MEYERS has been our Chairman of the Board of Directors since September 1,
2005 and Co-Chief Executive Officer, with primary responsibilities for
compliance matters since March 2008. 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 18 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
extensive experience in accounting, management, taxation and computer
consulting.

                                      -33-
<PAGE>


AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors, which is also the audit committee, 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-k. We presently do
not have any other committees of the Board of Directors.

COMMITTEES

The Company's Board of Directors has no nominating or other separate committees.
The Board of Directors serves as the compensation committee.


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-K. 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.


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, 2009
management did not file reports but these reports are being prepared and will be
filed shortly.



                                      -34-
<PAGE>


ITEM 11.          EXECUTIVE COMPENSATION.


The following table sets forth certain compensation information for each of our
executive officers for the year ended December 31, 2009 and 2008:
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-----------------------------------------------------------------------------------------------------
Name and Principal                                Option/Warrant       All Other
position                    Year      Salary          Awards          Compensation        Total
-----------------------------------------------------------------------------------------------------
John Adams                  2009       $-0-         $8,889 (1)            -0-            $ 8,889
President (Co-Chief
Executive Officer)          2008       $-0-         $28,111 (1)           -0-           $ 28,111
(1)
-----------------------------------------------------------------------------------------------------
Jason Meyers                2009     $120,000       $17,658 (2)           -0-           $137,658
(Co-Chief Executive
Officer)                    2008     $120,000       $64,999 (2)           -0-           $184,999

-----------------------------------------------------------------------------------------------------
Debi Kokinos,               2009     $77,520        $5,297 (2)            -0-            $82,817
Chief Financial Officer
                            2008     $77,520        $19,500 (2)           -0-            $97,020

-----------------------------------------------------------------------------------------------------
</TABLE>

(1)  As compensation to Mr. Adams, the Company will issue 12,000,000 shares of
     the Company's common stock (the "Shares"). The Shares will be restricted
     from transfer in accordance with the securities laws and the right to
     receive such shares will be subject to forfeiture by Mr. Adams and will
     vest in accordance to a vesting schedule. Of such shares 4,000,000 shares
     shall be "service based" and 111,111.11 Shares will vest for each month of
     service. For each of the years ended December 31, 2009 and 2008, 1,333,333
     shares vested and were issued to Mr. Adams.

 (2) Represents, in each case, amounts recognized on vesting of warrants
     previously granted for financial reporting purposes in the applicable
     fiscal year. A description of the valuation method is set forth in Note 1
     and 7 to the Financial Statements. Warrants to purchase 3,555,552 shares
     vested in both 2009 and 2008 with respect to Mr. Meyers. In the case of Ms.
     Kokinos warrants to purchase 1,066,667 shares vested in both 2009 and 2008.

                                      -35-
<PAGE>


COMPENSATION ARRANGEMENTS

The Company has entered into a Consulting Agreement with Mr. Adams effective
January 1, 2008 pursuant to which he is engaged as the Chief Executive Officer
for term ending December 1, 2010. Mr. Adams is required to devote such time as
is necessary to his position but it is not contemplated the engagement will be
fulltime. As compensation to Mr. Adams, the Company will issue 12,000,000 shares
of the Company's common stock (the "Shares"). The Shares will be restricted from
transfer in accordance with the securities laws and the right to receive such
shares will be subject to forfeiture by Mr. Adams and will vest in accordance
with a vesting schedule. Of such shares 4,000,000 shares shall be "service
based" and 111,111.11 Shares will vest for each month of service. As of December
31, 2009 2,666,667 of these shares have been issued. Another 4,000,000 Shares
shall be "revenue based" and will vest upon filing of a report with the
Securities & Exchange Commission containing reviewed or audited statements the
recognition of revenue for reflecting the first sale of a production model of a
Company product after the date. The final 4,000,000 Shares shall be "EBITDA
based" and the repurchase agreement will terminate upon filing of reports with
the Securities & Exchange Commission containing reviewed or audited statements
reflecting total EBITDA, or earnings before taxes, interest or amortization, of
$1,000,000. The unvested Shares shall be subject to forfeiture by Mr. Adams in
accordance with an agreement to be entered into.

On April 1, 2009 we entered into a consulting agreement ("Consulting Agreement")
with Aspatuck Holdings, Ltd., which is obligated to provide the services of
Jason Meyers to the Company. Jason Meyers is our Co-Chief Executive Officer
since March 27, 2008.

The Agreement is for a three year term. The Company may terminate the Agreement
and convert the Agreement to an employment agreement with Mr. Meyers. As
compensation for Consultant's services, the Company is obligated to pay
Consultant a cash fee of not less than $120,000 per annum. As additional
consideration Consultant received seven year Warrants (the "Warrants") to
purchase 32,000,000 of shares of the common stock of the Company (the "Shares")
at an exercise price of $0.0117 per share. Such warrants shall "vest" and may be
exercised as follows:

o    Warrants to purchase 10,666,667 Shares are "service based" and 1/36th of
     such Shares shall vest at the end of each month that Mr. Meyers has
     provided services pursuant to the consulting agreement or any converted
     employment agreement.

o    Warrants to purchase 10,666,667 Shares are "revenue based" and shall vest
     in their entirety upon filing of a report with the Securities & Exchange
     Commission containing reviewed or audited statements reflecting the
     recognition of revenue for the first sale of a production model of a
     Company product after provided payment is made therefore and the product is
     not returned and provided further such sale occurs during the period that
     Mr. Meyers has provided services pursuant to the consulting agreement or
     any converted employment agreement.

o    Warrants to purchase 10,666,667 Shares are "earnings based" and vest in
     their entirety upon filing of a report with the Securities & Exchange
     Commission containing reviewed or audited statements reflecting EBITA or
     earnings before taxes, interest or amortization, of $1,000,000 and provided
     further such sale occurs during the period that Mr. Meyers has provided
     services pursuant to the consulting agreement or any converted employment
     agreement .

Debi Kokinos entered into a substantially identical agreement, providing for her
services as Chief Financial Officer. Ms. Kokinos is to receive annual
compensation of approximately $77,520 and the grant of warrants to purchase
9,600,000 shares of common stock. The warrants are divided equally into the same
three categories and vesting schedule as the warrants for Aspatuck Holdings.


                                      -36-
<PAGE>


OPTION INFORMATION

Set forth below is information concerning unexercised options; stock that has
not vested; and equity incentive plan awards for each named executive:

                                   Number of
                     Number of    Securities
                    Securities     Underlying
                    Underlying    Unexercised
                   Unexercised      Options
                     Options          Not          Options
  Name             Exercisable    Exercisable   Exercise Price   Expiration Date
--------------------------------------------------------------------------------
Jason Meyers       13,333,320     29,333,336         $0.0117       Dec 31, 2016
Debi Kokinos        4,000,001      6,399,999         $0.0117       Dec 31, 2016
Debi Kokinos          400,000             --          $0.100       Mar 31, 2014
Debi Kokinos          500,000             --          $0.020       Jan 27, 2010





COMPENSATION OF DIRECTORS

As of December 31, 2009, our directors were reimbursed for reasonable
out-of-pocket expenses in connection with attendance at board of director and
committee meetings.






                                      -37-
<PAGE>


ITEM 12. 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 the Company's common stock owned beneficially as of March 31 2009 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
of Beneficial Owner            Beneficial Ownership            Common Stock
----------------------------- ----------------------- -------------------------

Jason Meyers  (1) (2)               80,571,453                      16.60%
----------------------------- ----------------------- -------------------------

Aspatuck Holdings Ltd.(1)           66,349,245                        (1)
----------------------------- ----------------------- -------------------------

John Adams (3)                       3,922,222                       0.37%
----------------------------- ----------------------- -------------------------

Debi Kokinos  (4)                    5,344,446                       0.75%
----------------------------- ----------------------- -------------------------

All Officers and Directors
as a Group (3 persons)             102,508,192                     18.53%


----------------------------- ----------------------- -------------------------

(1)      Includes 66,349,245 shares owned of record by Aspatuck Holdings Ltd. of
         which Jason Meyers is the controlling party. 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.

                                      -38-
<PAGE>


(2)      Of the above number of shares 29,037,043 shares are subject to warrants
         owned by Mr. Meyers and presently exercisable within sixty days after
         March 31, 2010. An additional 29,333,336 shares are subject to warrants
         not presently exercisable or exercisable within sixty days of March 31,
         2010.

(3)      Excludes 9,000,000 shares subject to forfeiture pursuant to agreements
         between Mr. Adams and the Company, and includes 700,000 shares subject
         to warrants presently exercisable.

(4)      The above ownership consists of shares that are subject to options or
         stock warrants presently exercisable within sixty days after March 31,
         2010. An additional 8,533,333 shares are subject to warrants not
         presently exercisable or exercisable within sixty days of March 31,
         2010.


ITEM 13.    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 with an entity which is obligated to provide the services of Albert
Case to the Company.





                                      -39-
<PAGE>



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. A significant portion of the proceeds of the Company's prior
private placements were used to settle obligations of the Company arising prior
to the aforesaid merger. As a result of the anti-dilution provision, the Company
issued 13,939,740 shares of the Company's common stock to AHL in July 2008. The
number of shares was based on calculations presented to the board demonstrating
the relation of the equity issuances in such prior placements and the
satisfaction of pre merger obligations. As a controlling owner of AHL, Meyers is
the indirect beneficial owner of these shares subject to minority interests of
the survivor. Based on this formula substantial additional shares will be issued
as Merger Consideration.


The Company entered into a Consulting Agreement with Mr. John Adams effective
January 1, 2008 pursuant to which he is engaged as the Chief Executive Officer
for term ending December 1, 2010. As compensation for Mr. Adams, the Company
will issue 12,000,000 shares of the Company's common stock (the "Shares"). The
Shares will be subject to forfeiture by Mr. Adams and will vest in accordance
with a vesting schedule. Of such shares 4,000,000 Shares shall be "service
based" and 111,111.11 Shares will vest for each month of service. Another
4,000,000 Shares shall be "revenue based" and the final 4,000,000 Shares shall
be "EBITDA based" and the repurchase agreement will terminate upon filing of
reports with the Securities & Exchange Commission containing reviewed or audited
statements reflecting total EBITDA, or earnings before interest, taxes,
depreciation or amortization, of $1,000,000.The unvested Shares shall be subject
to forfeiture by Mr. Adams in accordance with an agreement to be entered into.


                                      -40-
<PAGE>

In February 2007 we entered into a patent assignment agreement with four of our
consultants relating to the assignment of patent rights. The four consultants,
including our then President Albert Case, are joint inventors of certain
inventions and/or improvements for which they have filed a provisional
application in the United States Patent and Trademark Office. Under the terms of
the agreement, the co-inventors assigned the rights to the patent application to
the Company .The Company was required to pay all accrued and unpaid compensation
owed under existing agreements to each inventor and keep payments to them
current under such agreements until termination of the patent assignment
agreement. We made the required payments and the agreement terminated.

Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers have
advanced an aggregate of $ 46,000 to the Company plus related interest expense
of $7,204 for 2009 and $4,904 for 2008. The advances are repayable on demand and
bear interest at 5 % per annum. See Note 3 Loan Payable. As of December 31, 2009
and 2008 the Company also owes Aspatuck Holdings Ltd consulting fees of $417,227
and $344,827, respectively, for the services of Jason Meyers. The Company has
included these consulting fees in accounts payable in the balance sheet. The
Company has included $120,000 of consulting compensation in the general and
administrative expense for the years ended December 31, 2009 and 2008. The
company also included $17,658 of non cash warrant expense for the year ended
December 31, 2009 and $64,999 for 2008.

John Adams, co-CEO has advanced an aggregate of $35,000 in convertible notes as
a private investor. The notes were due in November 2006 and July 2008 but remain
unpaid as of December 31, 2009 and 2008, with total outstanding balance of
$41,856 and $40,106, respectively, which includes accrued interest of $6,856 and
$5,106, respectively. The Company recorded $8,889 general and administrative
expense for the stock compensation issued to John Adams in 2009 and $28,111 for
2008.

As of December 31, 2009 the Company owes Debi Kokinos, CFO consulting fees of
$92,350. The Company has included these consulting fees in accounts payable in
the balance sheet. The Company has included $77,520 of consulting compensation
in the general and administrative expense for the years ended December 31, 2009
and 2008. The company also included $5,297 of non cash warrant expense for the
year ended December 31, 2009 and $19,500 for 2008.



                                      -41-
<PAGE>


ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.


AUDIT FEES

The aggregate fees billed for the two most recently completed fiscal years ended
December 31, 2009 and 2008 for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included in our Quarterly Reports on Form 10-Q and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for these fiscal periods.

Our audit committee pre-approves all non-audit services to be performed by our
principal accountant in accordance with our audit committee charter.

------------------------- ---------------------- -------------------------------

                                 YEAR ENDED                   YEAR ENDED
                             DECEMBER 31, 2009             DECEMBER 31, 2008

------------------------- ---------------------- -------------------------------
    Audit Related Fees            $57,225                      $121,686
------------------------- ---------------------- -------------------------------
   Tax Fees                         -                             -
------------------------- ---------------------- -------------------------------
    All Other Fees                   -                             -
------------------------- ---------------------- -------------------------------
    Total                         $57,225                      $121,686
------------------------- ---------------------- -------------------------------




                                      -42-
<PAGE>

PART IV

ITEM 15.    EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS

  EXHIBIT    DESCRIPTION OF EXHIBIT
  NUMBER
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)

10.2      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)

10.10     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

10.15     Consulting Agreement dated April 1, 2006 between the Registrant and
          Albert F. Case, Jr. ((10))

10.16     Consulting Agreement dated January 1, 2008 between the Registrant and
          John Adams

                                      -43-
<PAGE>


14.1      Code of Ethics. (5)

21.1      List of Subsidiaries. (5)

23.2      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
(10)      Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
          year ended December 31, 2006



                                      -44-
<PAGE>


a) CURRENT REPORTS ON FORM 8-K.


During the quarterly period ended December 31, 2009 we did not file any Form
8-K:

DATE OF FORM 8-K      DATE OF FILING WITH THE SEC    DESCRIPTION OF THE FORM 8-K
----------------      ---------------------------    ---------------------------

      Nil














                                      -45-
<PAGE>

                                   SIGNATURES

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

                                          Turbodyne Technologies, Inc.

Dated:   April 15, 2010                   BY: /S/ JASON MEYERS
                                          --------------------------
                                          Jason Meyers
                                          Co-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/ Jason Meyers            Co-Chief Executive Officer,        April 15, 2010
________________________    Director
Jason Meyers

/s/ Debi Kokinos            Chief Financial Officer            April 15, 2010
_________________________   and Chief Accounting Officer
Debi Kokinos





                                      -46-
<PAGE>


                                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED FINANCIAL STATEMENTS
                                  FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008



















                                      F-1
<PAGE>

                                  TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  CONSOLIDATED FINANCIAL STATEMENTS
                                  FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

                                                                        Contents
  ------------------------------------------------------------------------------

  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   F-3

  CONSOLIDATED FINANCIAL STATEMENTS

       Balance Sheets                                                       F-4

       Statements of Operations                                             F-5

       Statements of Stockholders' 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. and Subsidiaries
Ventura, California

We have audited the accompanying consolidated balance sheets of Turbodyne
Technologies, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended. 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 audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Turbodyne
Technologies, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
results of their operations and their cash flows for the years then ended 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 $135,683,733 and a total
stockholders' deficit of $9,005,066 at December 31, 2009. It has used all of its
available cash in its operating activities in recent years, has an $8,581,631
working capital deficiency and is subject to lawsuit settlements. 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.

/s/ Vasquez & Company LLP
-------------------------
Los Angeles, California
April 14, 2010


                                      F-3
<PAGE>

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------

                                                           TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                             CONSOLIDATED BALANCE SHEETS

------------------------------------------------------------------------------------------------------
  DECEMBER 31                                                                  2009             2008
------------------------------------------------------------------------------------------------------

ASSETS
CURRENT
<S>                                                                       <C>              <C>
     Cash                                                                 $       3,037    $          68
                                                                          -------------    -------------

          TOTAL CURRENT ASSETS                                                    3,037               68

PROPERTY AND EQUIPMENT, NET (NOTE 2)                                             13,408           17,829
                                                                          -------------    -------------

TOTAL ASSETS                                                              $      16,445    $      17,897
========================================================================================================

LIABILITIES AND CAPITAL DEFICIT

LIABILITIES

CURRENT
     Accounts payable                                                     $   2,002,746    $   1,869,757
     Accrued liabilities                                                        300,000          320,000
     Provision for lawsuit settlements (Notes  6, 9 and 11)                   5,731,145        5,345,113
     Loans payable (Notes 3)                                                    550,777          508,227
                                                                          -------------    -------------

          TOTAL CURRENT LIABILITIES                                           8,584,668        8,043,097

LONG-TERM

     Convertible loans payable ( Note 4)                                        184,237             --

     Deferred licensing fee                                                     252,606          274,830
                                                                          -------------    -------------

          TOTAL LONG-TERM LIABILITIES                                           436,843          274,830
                                                                          -------------    -------------

          TOTAL LIABILITIES                                                   9,021,511        8,317,927
                                                                          -------------    -------------

STOCKHOLDERS' DEFICIT
     Share Capital (Note 8)
         Authorized
                1,000,000 preferred shares, par value $0.001
                1,000,000,000 common shares, par value $0.001
         Issued
              Preferred shares - 12,675 in 2009 and 2008                             12               12
              Common shares - 577,580,158 in 2009 and 549,513,491
                    In 2008                                                     577,581          549,514
     Treasury stock, at cost - 5,278,580 common shares                       (1,963,612)      (1,963,612)

     Additional paid-in capital                                             128,029,567      127,897,291
     Other comprehensive income -
         Foreign exchange translation gain                                       35,119           35,119
     Accumulated deficit                                                   (135,683,733)    (134,818,354)
                                                                          -------------    -------------

          TOTAL STOCKHOLDERS' DEFICIT                                        (9,005,066)      (8,300,030)
                                                                          -------------    -------------

TOTAL LIABILITIES AND CAPITAL DEFICIT                                     $      16,445    $      17,897
========================================================================================================


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

                                      F-4
<PAGE>



--------------------------------------------------------------------------------------------------------------------

                                                                       TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                               CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31                                                          2009                2008

--------------------------------------------------------------------------------------------------------------------


LICENSING FEES                                                                $          22,224    $          22,224
                                                                              -----------------    -----------------

EXPENSES
     Selling, general and administrative (Notes 7, 8 and 9)                             433,294              873,988
     Research and developments costs (Notes 7 and 8)                                    112,950              337,893
     Litigation expense (Note 6)                                                        386,032              356,147
     Depreciation and amortization                                                        4,421                6,009
                                                                              -----------------    -----------------

         TOTAL EXPENSES                                                                 936,697            1,574,037
                                                                              -----------------    -----------------

LOSS FROM OPERATIONS                                                                   (914,473)          (1,551,813)

OTHER INCOME (EXPENSE)
     Interest expense                                                                   (54,009)             (74,478)
     Amortization of convertible note discounts and warrants                             (8,150)            (447,728)
     Inducement expense for the conversion of notes payable                                --             (1,247,657)
     Debt relief                                                                        112,853              691,957
                                                                              -----------------    -----------------

LOSS BEFORE INCOME TAXES                                                               (863,779)          (2,629,719)
--------------------------------------------------------------------------------------------------------------------

INCOME TAX EXPENSES                                                                       1,600                1,600
--------------------------------------------------------------------------------------------------------------------

NET LOSS FOR THE PERIOD                                                       $        (865,379)   $      (2,631,319)
====================================================================================================================

LOSS PER COMMON SHARE - BASIC AND DILUTED
                                                                              $           (0.00)   $           (0.01)
====================================================================================================================

WEIGHTED AVERAGE SHARES USED FOR BASIC AND DILUTED LOSS PER SHARE                   555,383,811          469,450,890
====================================================================================================================



               The accompanying notes are an integral part of these consolidated financial statements
</TABLE>



                                      F-5
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
-------------------------------------------------------------------------------------------------------------------------

                                                                            TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                                     Preferred Stock                Common Stock                    Treasury Stock
                                ------------------------      -----------------------        ----------------------------
                                  Shares         Amount         Shares        Amount            Shares           Amount
-------------------------------------------------------------------------------------------------------------------------
Balance,
January 1, 2008                   12,675   $          12     380,459,434   $     380,460       5,278,580   $  (1,963,612)

Issuance of stock
for services                        --              --         7,000,000           7,000            --              --

Issuance of stock for
payment of accounts                 --              --         6,000,000           6,000            --              --
payable

Conversion of
note payable                        --              --       142,114,317         142,114            --              --

Issuance of warrants
to consultants                      --              --              --              --              --              --

Issuance of warrants with
convertible                         --              --              --              --              --              --
notes (Note 3)

Merger Consideration                --              --        13,939,740          13,940            --              --

Inducement to convert
notes payable
(Note 3)                            --              --              --              --              --              --

Net  loss for the period            --              --              --              --              --              --
-------------------------------------------------------------------------------------------------------------------------

BALANCE,
DECEMBER 31, 2008                 12,675   $          12     549,513,491   $     549,514       5,278,580   $  (1,963,612)

Issuance of stock
for private placements        25,400,000          25,400          63,500          88,900

Issuance of stock
for services                        --              --         2,666,667           2,667            --              --

Issuance of warrants
to consultants                      --              --              --              --              --              --

Debt discount from
beneficial conversion               --              --              --              --              --              --
feature and Issuance
of warrants with
convertible notes
(Note 4)

Net loss for
the period                          --              --              --              --              --              --
-------------------------------------------------------------------------------------------------------------------------

Balance,
December 31, 2009                 12,675   $          12     577,580,158   $     577,581       5,278,580   $  (1,963,612)
=========================================================================================================================



                                 Additional        Other
                                  Paid-in      Comprehensive     Accumulated      Stockholders'
                                  Capital          Income          Deficit           Deficit
-----------------------------------------------------------------------------------------------
Balance,
January 1, 2008               $ 124,831,388    $      35,119   $(132,187,035)   $  (8,903,668)

Issuance of stock
for services                        135,112             --              --            142,112

Issuance of stock for
payment of accounts                 174,000             --              --            180,000
payable

Conversion of
note payable                      1,201,951             --              --          1,344,065

Issuance of warrants
to consultants                      126,621             --              --            126,621

Issuance of warrants with
convertible                         194,502             --              --            194,502
notes (Note 3)

Merger Consideration                (13,940)            --              --               --

Inducement to convert
notes payable
(Note 3)                          1,247,657             --              --          1,247,657

Net  loss for the period               --               --        (2,631,319)      (2,631,319)
-----------------------------------------------------------------------------------------------

BALANCE,
DECEMBER 31, 2008             $ 127,897,291    $      35,119   $(134,818,354    $  (8,300,030)

Issuance of stock
for private placements                6,500             --              --             89,900

Issuance of stock
for services                          8,885             --              --             11,552

Issuance of warrants
to consultants                       23,180             --              --             23,180

Debt discount from
beneficial conversion                36,711             --              --             36,711
feature and Issuance
of warrants with
convertible notes
(Note 4)

Net loss for
the period                             --               --          (865,379)        (865,379)
-----------------------------------------------------------------------------------------------

Balance,
December 31, 2009             $ 128,029,567    $      35,119   $(135,683,733)   $  (9,005,066)
===============================================================================================



 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                      F-6
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

-----------------------------------------------------------------------------------------------------

                                                        TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31                                              2009            2008
-----------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
     Net loss                                                              $  (865,379)   $(2,631,319)
     Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
        Amortization of deferred licensing fees                                (22,224)       (22,224)
        Depreciation and amortization                                            4,421          6,009
        Amortization of convertible note discounts and warrants (Note 3)         8,150        447,728
        Debt conversion expense (Note 3)                                          --        1,247,657
        Gain on settlement of debt                                            (112,853)      (691,957)
        Stock issued for services (Note 8 (e))                                  11,552        142,112
        Warrant compensation                                                    23,180        126,621
        Prepaid & other                                                            672
     Increase (decrease) in operating liabilities
         Accounts payable                                                      245,842        609,275
         Accrued liabilities and provision for lawsuit settlements             421,380        510,333
                                                                           --------------------------
            Net cash provided by (used in) operating activities               (285,931)      (255,093)
                                                                           --------------------------
INVESTING ACTIVITIES
     Purchase of capital asset                                                    --          (14,325)

                                                                           --------------------------
                  Net cash provided by (used in) investing activities             --          (14,325)
                                                                           --------------------------
FINANCING ACTIVITIES
     Proceeds from sale of shares of common stock                               88,900           --
     Proceeds from issuance of convertible notes                               200,000        300,000
     Proceeds from notes payable                                                  --           23,500
     Payments of notes payable                                                    --          (56,800)
                                                                           --------------------------
            Net cash provided by (used in) financing activities                288,900        266,700

NET INCREASE (DECREASE) IN CASH                                                  2,969         (2,718)

CASH, beginning of year                                                             68          2,786
                                                                           --------------------------

CASH, end of year                                                          $     3,037    $        68
=====================================================================================================


SUPPLEMENTARY DISCLOSURE OF NON-CASH FLOW INFORMATION

     Beneficial conversion feature of convertible debt                     $     7,646    $   122,250

     Value of warrants issued with convertible debt                        $    29,065    $    72,250

     Conversion of convertible debt and interest to common stock           $      --      $ 1,281,791

     Conversion of short-term notes and interest to common stock           $      --      $    60,937

     Shares of common stock issued in settlement of accounts payable       $      --      $   180,000
=====================================================================================================



   The accompanying 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, 2009 AND 2008
--------------------------------------------------------------------------------


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.

     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.

     In 2008 the Company issued 13,939,740 shares of the Company's common stock
     to comply with the anti-dilution clause of the Agreement and Plan of Merger
     (the "Agreement") dated September 1, 2005. The Agreement by and between the
     Company, Turbodyne Acquisition Corp. a wholly-owned subsidiary of Parent
     and Aspatuck Holdings Nevada Inc. provides that "it is the intent of the
     parties that the Merger Consideration Shares shall constitute 40% of the
     post merger fully diluted shares outstanding taking into account the
     issuance of shares of Parent Common Stock in settlement of the Pacific Baja
     Litigation and other shares relating in any manner to events or
     transactions prior to the Effective Date." A significant portion of the
     proceeds of the Company's private placements were used to settle prior
     obligations of the Company. Based on calculations presented to the board
     and the terms of the aforesaid Agreement the issuance of aforesaid shares
     was authorized.

     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 $135,683,733 and a total stockholders' deficit of $9,005,066 at December
     31, 2009. It has used most of its available cash in its operating
     activities in recent years, has an $8,581,631 working capital deficiency
     and is subject to lawsuit settlements. These matters raise substantial
     doubt about the Company's ability to continue as a going concern. The
     Company's operations have been financed principally through a combination
     of private and public sales of equity and debt securities. 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 and
     protection under appropriate legal 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, 2009 AND 2008
--------------------------------------------------------------------------------


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

     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.

     FASB ACCOUNTING STANDARDS CODIFICATION

     In June 2009, the FASB issued the FASB Accounting Standards Codification,
     or the Codification, which is the single source of authoritative
     nongovernmental U.S. generally accepted accounting principles, or GAAP.
     Rules and interpretive releases of the SEC under authority of federal
     securities laws are also sources of authoritative GAAP for SEC reporting
     companies. The Codification, which changes the referencing of financial
     standards, became effective for interim and annual periods ending on or
     after September 15, 2009. All existing non-SEC accounting standards are
     superseded as described in the Codification. All other non-SEC accounting
     literature not included in the Codification is non-authoritative. The
     adoption of the Codification did not have a significant impact on the
     Company's consolidated financial statements and references to standards
     issued prior to the Codification have been replaced with a description of
     the applicable FASB authoritative guidance or with the updated accounting
     standard codification number

     DEPRECIATION AND AMORTIZATION

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

            Computers and measurement equipment              - 3 years
            Machinery and equipment                          - 7 to 15 years
            Furniture and fixtures                           - 5 to 10 years

     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 2009 and 2008.


                                      F-9
<PAGE>



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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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

     FAIR VALUE MEASUREMENTS

     On January 1, 2008, the provisions of ASC Topic 820, FAIR VALUE
     MEASUREMENTS AND DISCLOSURES, became effective for the Company. Fair value
     is defined as the exchange price that would be received for an asset or
     paid to transfer a liability (an exit price) in the principal or most
     advantageous market for the asset or liability in an orderly transaction
     between market participants at the measurement date. The Company reports
     assets and liabilities that are measured at fair value using a three-level
     fair value hierarchy that prioritizes the inputs used to measure fair
     value. This hierarchy maximizes the use of observable inputs and minimizes
     the use of unobservable inputs. The three levels of inputs used to measure
     fair value are as follows:

          o    Level 1 -- Quoted prices in active markets for identical assets
               or liabilities.

          o    Level 2 -- Observable inputs other than quoted prices included in
               Level 1, such as quoted prices for similar assets and liabilities
               in active markets; quoted prices for identical or similar assets
               and liabilities in markets that are not active; or other inputs
               that are observable or can be corroborated by observable market
               data.

          o    Level 3 -- Unobservable inputs that are supported by little or no
               market activity and that are significant to the fair value of the
               assets or liabilities. This includes certain pricing models,
               discounted cash flow methodologies and similar techniques that
               use significant unobservable inputs.

     An asset's or liability's level within the fair value hierarchy is based on
     the lowest level of any input that is significant to the fair value
     measurement. At each reporting period, we perform a detailed analysis of
     our assets and liabilities that are measured at fair value. All assets and
     liabilities for which the fair value measurement is based on significant
     unobservable inputs or instruments which trade infrequently and therefore
     have little or no price transparency are classified as Level 3.

     All financial liabilities that are measured at fair value have been
     segregated into the most appropriate level within the fair value hierarchy
     based on the inputs used to determine the fair value at the measurement
     date in the table below. The Company believes that the carrying value of
     its cash, accounts payable and accrued liabilities as of December 31, 2009
     and 2008 approximate their fair values because of the short-term nature of
     those instruments.


                                      F-10
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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, 2009 $22,224 ($22,224 in 2008) of licensing fees was
     recognized as income.

     Prior to the suspension of our operations in 2003, we recognized revenue
     upon shipment of product. Previously, research prototypes were sold and
     proceeds reflected by reductions in our research and development costs. As
     new technology pre-production manufacturing units are produced and related
     non-recurring engineer services are delivered we will recognize the sales
     proceeds as revenue.

     EARNINGS (LOSS) PER SHARE

     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 reflect 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, 2009, 12,675 preferred shares convertible
     into 1,267,500 shares of common stock and options and warrants to purchase
     17,724,000 and 50,464,710 shares of common stock, convertible notes to
     purchase 51,325,956 shares of common stock were outstanding during the
     year. The weighted average cumulative equivalent shares of 555,383,811 were
     included in the denominator for 2009 computation of diluted earnings (loss)
     per share. No other adjustments were made for purposes of per share
     calculations.

     For the year ended December 31, 2008, 12,675 preferred shares convertible
     into 1,267,500 shares of common stock and options and warrants to purchase
     17,799,000 and 43,925,549 shares of common stock, convertible notes to
     purchase 27,524,801 shares of common stock were outstanding during the
     year. The weighted average cumulative equivalent shares of 469,450,890 were
     included in the denominator for 2009 computation of diluted earnings (loss)
     per share. No other adjustments were made for purposes of per share
     calculations.

     STOCK-BASED COMPENSATION

     In accordance with the provisions of ASC Topic 718, Compensation--Stock
     Compensation, which requires the Company to establish assumptions and
     estimates of the weighted-average fair value of stock options granted, as
     well as using a valuation model to calculate the fair value of stock-based
     awards, the Company uses the Black-Scholes option-pricing model to
     determine the fair-value of stock-based awards. All options are amortized
     over the requisite service periods of the awards, which are generally the
     vesting periods.


                                      F-11
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------

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

     RESEARCH AND DEVELOPMENT

     Research and development costs related to present and future products are
     charged to operations in the period incurred. Previously, research
     prototypes were sold and proceeds reflected by reductions in our research
     and development costs. As new technology pre-production manufacturing units
     are produced and related non-recurring engineer services are delivered we
     will recognize the sales proceeds as revenue.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles in the United States 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.

     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. The components of the deferred tax assets and liabilities are
     classified as current and non-current based on their characteristics. A
     valuation allowance is provided for certain deferred tax assets if it is
     more likely than not that the Company will not realize tax assets through
     future operations.

     COMPREHENSIVE INCOME

     ASC Topic 323, INVESTMENTS - EQUITY METHOD AND JOINT VENTURES, 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 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, 2009 and
     2008.


                                      F-12
<PAGE>


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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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

     LEGAL FEES

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

     NEW ACCOUNTING PRONOUNCEMENTS

     In February 2010, the FASB issued Accounting Standards Update 2010-09,
     SUBSEQUENT EVENTS (TOPIC 855): AMENDMENTS TO CERTAIN RECOGNITION AND
     DISCLOSURE REQUIREMENTS. ASU 2010-09 removes the requirement for an SEC
     filer to disclose a date through which subsequent events have been
     evaluated in both issued and revised financial statements. Revised
     financial statements include financial statements revised as a result of
     either correction of an error or retrospective application of U.S. GAAP.
     The FASB also clarified that if the financial statements have been revised,
     then an entity that is not an SEC filer should disclose both the date that
     the financial statements were issued or available to be issued and the date
     the revised financial statements were issued or available to be issued. The
     FASB believes these amendments remove potential conflicts with the SEC's
     literature. In addition, the amendments in the ASU requires an entity that
     is a conduit bond obligor for conduit debt securities that are traded in a
     public market to evaluate subsequent events through the date of issuance of
     its financial statements and must disclose such date. All of the amendments
     in the ASU were effective upon issuance (February 24, 2010) except for the
     use of the issued date for conduit debt obligors. That amendment is
     effective for interim or annual periods ending after June 15, 2010. The
     provisions of ASU 2010-09 did not have a material impact on the Company's
     financial statements.


     In January 2010, the FASB issued Accounting Standards Update ("ASU") No.
     2010-06, FAIR VALUE MEASUREMENTS AND DISCLOSURES (TOPIC 820): IMPROVING
     DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS. ASU 2010-06 amends Codification
     Subtopic 820-10 to add two new disclosures: (1) transfers in and out of
     Level 1 and 2 measurements and the reasons for the transfers, and (2) a
     gross presentation of activity within the Level 3 roll forward. The
     proposal also includes clarifications to existing disclosure requirements
     on the level of disaggregation and disclosures regarding inputs and
     valuation techniques. The proposed guidance would apply to all entities
     required to make disclosures about recurring and nonrecurring fair value
     measurements. The effective date of the ASU is the first interim or annual
     reporting period beginning after December 15, 2009, except for the gross
     presentation of the Level 3 roll forward information, which is required for
     annual reporting periods beginning after December 15, 2010 and for interim
     reporting periods within those years. Early application is permitted. The
     Company is currently assessing the impact that the adoption will have on
     its financial statements.


                                      F-13
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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

     NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

     In January 2010, the FASB issued two ASU's that (1) codify SEC Observer
     comments made at the June 2009 EITF meeting and (2) make technical
     corrections to several SEC sections of the FASB Codification. IN GENERAL,
     THE TWO ASU'S, DO NOT CHANGE EXISTING PRACTICE. ASU 2010-05,
     COMPENSATION--STOCK COMPENSATION (TOPIC 718)--ESCROWED SHARE ARRANGEMENTS
     AND THE PRESUMPTION OF COMPENSATION, codifies EITF Topic D-110, Escrowed
     Share Arrangements and the Presumption of Compensation, which provides the
     SEC staff's view on when an escrowed share arrangement involving
     shareholders is presumed to be compensatory and the factors to consider
     when analyzing whether that presumption has been overcome. The SEC Observer
     announced the views captured in EITF Topic D-110 at the June 2009 EITF
     meeting. ASU 2010-04, ACCOUNTING FOR VARIOUS TOPICS--TECHNICAL CORRECTIONS
     TO SEC PARAGRAPHS, primarily includes technical corrections to various
     topics containing SEC guidance as a result of recently-issued authoritative
     guidance and updates for Codification references. These two ASU's do not
     have an impact on the Company's financial statements.

     In October 2009, the FASB issued ASU 2009-15, ACCOUNTING FOR OWN-SHARE
     LENDING ARRANGEMENTS IN CONTEMPLATION OF CONVERTIBLE DEBT ISSUANCE OR OTHER
     FINANCING. ASU 2009-15 includes amendments to ASC Topic 470, DEBT,
     (Subtopic 470-20), and ASC Topic 260, EARNINGS PER SHARE (Subtopic 260-10),
     to provide guidance on share-lending arrangements entered into on an
     entity's own shares in contemplation of a convertible debt offering or
     other financing. The provisions of ASU 2009-15 are effective for fiscal
     years beginning on or after December 15, 2009, and interim periods within
     those fiscal years for arrangements outstanding as of the beginning of
     those years. Retrospective application is required for such arrangements.
     The provisions of ASU 2009-15 are effective for arrangements entered into
     on (not outstanding) or after the beginning of the first reporting period
     that begins on or after June 15, 2009. Certain transition disclosures are
     also required. Early application is not permitted. The provisions of ASU
     2009-15 are not expected to have an impact on the Company's financial
     statements.


     In October 2009, the FASB published ASU 2009-14, SOFTWARE (TOPIC 985) -
     CERTAIN REVENUE ARRANGEMENTS THAT INCLUDE SOFTWARE ELEMENTS. ASU 2009-14
     changes the accounting model for revenue arrangements that include both
     tangible products and software elements. Under this guidance, tangible
     products containing software components and non-software components that
     function together to deliver the tangible product's essential functionality
     are excluded from the software revenue guidance in ASC Subtopic 985-605,
     Software-Revenue Recognition. In addition, hardware components of a
     tangible product containing software components are always excluded from
     the software revenue guidance. The provisions of ASU 2009-14 are effective
     prospectively for revenue arrangements entered into or materially modified
     in fiscal years beginning on or after June 15, 2010, or the Company's
     fiscal year beginning October 1, 2010. Early adoption is permitted. The
     provisions of ASU 2009-14 are not expected to have an impact on the
     Company's financial statements.

                                      F-14
<PAGE>


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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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

     NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

     In October 2009, the FASB published ASU 2009-13, Revenue Recognition (Topic
     605) - Multiple-Deliverable Revenue Arrangements. ASU 2009-13 addresses the
     accounting for multiple-deliverable arrangements to enable vendors to
     account for products or services (deliverables) separately rather than as a
     combined unit. Specifically, this guidance amends the criteria in ASC
     Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for
     separating consideration in multiple-deliverable arrangements. This
     guidance establishes a selling price hierarchy for determining the selling
     price of a deliverable, which is based on: (a) vendor-specific objective
     evidence; (b) third-party evidence; or (c) estimates. This guidance also
     eliminates the residual method of allocation and requires that arrangement
     consideration be allocated at the inception of the arrangement to all
     deliverables using the relative selling price method. In addition, this
     guidance significantly expands required disclosures related to a vendor's
     multiple-deliverable revenue arrangements. The provisions of ASU 2009-13
     are effective prospectively for revenue arrangements entered into or
     materially modified in fiscal years beginning on or after June 15, 2010 or
     the Company's fiscal year beginning October 1, 2010. Early adoption is
     permitted. The provisions of ASU 2009-14 are not expected to have an impact
     on the Company's financial statements.

     In September 2009, the FASB published ASU No. 2009-12, Fair Value
     Measurements and Disclosures (Topic 820) - Investments in Certain Entities
     That Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12
     amends ASC Subtopic 820-10, Fair Value Measurements and
     Disclosures--Overall, to permit a reporting entity to measure the fair
     value of certain investments on the basis of the net asset value per share
     of the investment (or its equivalent). It also requires new disclosures, by
     major category of investments, about the attributes of investments within
     the scope of this amendment to the Codification. The provisions of ASU
     2009-12 is effective for interim and annual periods ending after December
     15, 2009. Early application is permitted. The provisions of ASU 2009-14 is
     effective for the Company and did not have an impact on the Company's
     financial statements.

     In August 2009, the FASB published Accounting Standards Update 2009-05,
     Fair Value Measurements and Disclosures (Topic 820) Measuring Liabilities
     at Fair Value. It clarifies that in circumstances in which a quoted market
     price in an active market for the identical liability is not available; a
     reporting entity is required to measure fair value using one of several
     acceptable valuation techniques. ASU 2009-05 also clarifies (i) that when
     estimating the fair value of a liability, a reporting entity is not
     required to include a separate input or adjustments to other inputs
     relating the existence of a restriction that prevents the transfer of the
     liability, and (ii) that both a "quoted price in an active market for the
     identical liability at the measurement date" and the "quoted price for the
     identical liability when traded as an asset in a active market when no
     adjustments to the quoted price of the asset are required" are Level 1 fair
     value measurements. ASU 2009-05 is effective in the fourth quarter of 2009.
     The Company has not yet determined the impact of the adoption of ASU
     2009-05 on its financial statements.

                                      F-15
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------



2.   PROPERTY AND EQUIPMENT

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

                                                      2009        2008
                                                    --------------------
     Machinery and equipment                        $ 72,406    $ 72,406
     Less: accumulated depreciation                  (58,998)    (54,577)
                                                    --------------------
     Net property and equipment                     $ 13,408    $ 17,829
                                                    ====================

--------------------------------------------------------------------------------

3.   SHORT-TERM LOANS PAYABLE
                                                2009            2008
                                             -------------------------
     Unsecured, non-interest
     bearing loan payable, due on
     demand from stockholders
     and other parties                       $138,600         $138,600

     Note payable, 5% per annum                53,205           50,905


     Convertible notes payable                358,972          318,722
                                             -------------------------
     Total Short-term Loans Payable          $550,777         $508,227
                                             =========================


--------------------------------------------------------------------------------


                                      F-16
<PAGE>

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
-----------------------------------------------------------------------------------------------------------------------------------

                                                                                      TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                                                     NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                                                                              (UNAUDITED - EXPRESSED IN US DOLLARS)

DECEMBER 31, 2009 AND 2008
-----------------------------------------------------------------------------------------------------------------------------------


3.   SHORT-TERM LOANS PAYABLE - CONTINUED

     As of December 31, 2009, convertible notes consist of:

                                  Issued      Issued     Issued     Issued     Issued    Issued
                                  through      from       from       from       From       From
                                   Sept      Nov 06 to  Mar07 to   Sep 07 to  Jan 08 to  Apr 08 to
                                   2006       Feb 07     Aug 07     Dec 07     Mar 08     Jun 08        Total
                                 ----------- ---------- ---------- ---------- ---------- ---------- ---------------

Proceeds from issuances of
convertible debt                 $    615,000   $    95,000   $   441,000   $   200,000   $   100,000   $   200,000   $  1,651,000

Less: Debt conversions               (530,000)      (95,000)     (441,000)     (200,000)     (100,000)         --       (1,366,000)
                                 -------------------------------------------------------------------------------------------------

                                       85,000          --            --            --            --         200,000        285,000
                                 -------------------------------------------------------------------------------------------------

Discount on convertible debt

  Value allocated to warrants          88,144         8,041       118,485        51,035        24,198        48,052        337,955

  Beneficial conversion feature       521,756        86,959       322,515       148,965        54,198        68,052      1,202,445
                                 -------------------------------------------------------------------------------------------------

                                      609,900        95,000       441,000       200,000        78,396       116,104      1,540,400
  Accumulated amortization of
  value allocated to warrants         (88,144)       (8,041)     (118,485)      (51,035)      (24,198)      (48,052)      (337,955)
  Accumulated amortization of
  beneficial conversion feature      (521,756)      (86,959)     (322,515)     (148,965)      (54,198)      (68,052)    (1,202,445)
                                 -------------------------------------------------------------------------------------------------

                                          --            --            --            --            --            --             --
                                 -------------------------------------------------------------------------------------------------

  Accrued Interest                     16,072          --            --            --            --          57,900         73,972
                                 -------------------------------------------------------------------------------------------------

Net Convertible Debt             $    101,072   $      --     $      --     $      --     $      --     $   257,900   $    358,972
                                 =================================================================================================


                                   Lower of
                                    70% of
Original conversion price          market or
                                   $ 0.025      $     0.005   $     0.020   $     0.020   $     0.020   $     0.020           --

Modified conversion price        $      0.005           N/A           N/A           N/A           N/A           N/A           --

Interest rate                               5%            5%            5%           18%           18%           18%          --

Maturity from date of issuance         1 year        1 year        1 year      6 months      6 months      6 months           --



Warrants issued                    12,300,000     1,900,000     8,820,000     4,000,000     2,000,000     4,000,000     33,020,000


Warrants exercised                (11,900,000)         --            --            --            --            --      (11,900,000)
                                 -------------------------------------------------------------------------------------------------
Warrants remaining                    400,000     1,900,000     8,820,000     6,000,000     2,000,000     4,000,000     21,120,000
                                 -------------------------------------------------------------------------------------------------


Market value of warrants at
date of issuance                 $    150,884   $    48,863   $   398,872   $   140,612   $    41,498   $    69,572

Assumptions for Black-Scholes
valuation of warrants

  Original exercise price        $      0.025   $     0.025   $     0.020   $     0.020   $     0.020   $     0.020

  Modified exercise price        $      0.010         N/A           N/A           N/A           N/A           N/A
  Term                                5 years       5 years       5 years       5 years       5 years       5 years
                                                     153%-         112%-         112%-
  Volatility rate                    146%-151%       155%          155%          155%          109%          107%
                                       4.61%-        4.45%-        4.46%-        2.93%-
  Risk free interest rate              5.02%         4.69%         5.01%         5.01%         2.93%         1.90%

</TABLE>


                                      F-17
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


3.   SHORT-TERM LOANS PAYABLE - CONTINUED

     For the year ended 2009 the Company did not issue any short-term
     convertible notes.

     For the years ended December 31, 2008, 2007 and 2006, the Company issued
     $300,000, $691,000 and $660,000 of short-term convertible notes,
     respectively. The convertible notes were issued with detachable warrants to
     purchase 6,000,000, 13,820,000 and 13,200,000 shares of the Company's
     common stock, respectively. In recording the transaction, the Company
     allocated the value of the proceeds to the convertible notes and the
     warrants based on their relative fair values. Fair value of the warrants
     was determined using the Black-Scholes valuation model. It was also
     determined that the convertible notes contained a beneficial conversion
     feature since the fair market value of the common stock issuable upon the
     conversion of the notes exceeded the value allocated to the notes.

     The value of the beneficial conversion feature and the value of the
     warrants were recorded as a discount to convertible notes and were
     amortized over the term of the notes using the straight-line method. As of
     December 31, 2009 and 2008, debt discount from the warrants and the
     beneficial conversion feature have been fully amortized. Of the notes
     issued from 2006 through 2008, $285,000 remain outstanding and had accrued
     interest of $73,972 and $33,722 as of December 31, 2009 and 2008,
     respectively.

     The notes issued prior to September 1, 2007, bear interest at 5% and mature
     within one year from date of issuance. The notes issued after September 1,
     2007, bear interest at 18% and mature within six months from date of
     issuance. The warrants are to purchase the Company's common stock at
     exercise prices ranging from $0.010 to 0.025 per share expiring five years
     from the date of issue.


                                      F-18
<PAGE>


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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


4.   LONG-TERM CONVERTIBLE LOANS PAYABLE

     Long-Term convertible loans payable              $ 200,000         $   --
     Accrued interest                                    12,798             --
     Less Debt discount from beneficial
      conversion feature and warrants                   (28,561)            --
                                                      ------------------------
     Total long-term convertible loans payable        $ 184,237         $   --
                                                      ========================

     For the year ended December 31, 2009, the Company issued $200,000 of
     convertible notes. All of the convertible notes were issued with detachable
     warrants to purchase 4,000,000 shares of the Company's common stock. In
     recording the transaction, the Company allocated the value of the proceeds
     to the convertible notes and the warrants based on their relative fair
     values. Fair value of the warrants was determined using the Black-Scholes
     valuation model. It was also determined that the convertible notes
     contained a beneficial conversion feature since the fair market value of
     the common stock issuable upon the conversion of the notes exceeded the
     value allocated to the notes.

     The Convertible Notes have a two year maturity with 12% annual interest
     rate payable at maturity or at the time of conversion. The Note may be
     converted at the option of the note-holder at any time after issuance until
     the note is paid in full. The conversion price is at a price equal to $.01;
     provided that Conversion shall be subject to a minimum conversion amount of
     $10,000, or if less, the remaining Outstanding Obligation. The warrants
     will have an exercise price of $.01 and a 5-year expiration date.

     The value of the warrants has been recorded as a discount to the
     convertible notes and is being amortized over the term of the notes using
     the straight-line method. For the year ended December 31, 2009, the
     amortization of the discount was $7,720. As of December 31, 2009, the
     remaining balance of the detachable warrants was $21,345.



     The value of the beneficial conversion feature has been recorded as a
     discount to convertible notes and is being amortized over the term of the
     notes using the straight-line method. For the year ended December 31, 2009,
     the amortization of the discount was $429. As of December 31, 2009, the
     remaining balance of the beneficial conversion feature is was $7,216.


                                      F-19
<PAGE>


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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------



5.   INCOME TAXES

     Income tax expense is comprised of the following for the years ended
     December 31, 2009 and 2008:
<TABLE>
<CAPTION>

                                                                              2009             2008
                                                                          ---------------------------
Current
<S>                                                                       <C>             <C>
   State                                                                  $      1,600    $      1,600
                                                                          ============================

Total income tax expense for the years ended December 31, 2009 and 2008
differed from the amounts computed by applying the statutory Federal
income tax rate to earnings before income taxes as a result of the
following:
                                                                              2009            2008
                                                                          ---------------------------

Computed "expected" income tax benefit                                    $       --      $       --
Non-deductible stock option compensation                                        23,180         126,621
Non-deductible expenses                                                        119,807       1,695,385
Non-deductible stock for services                                               11,552         142,111
Change in valuation allowance                                                 (154,539)     (1,964,117)
                                                                          ----------------------------
                                                                          $       --      $       --
                                                                          ============================

The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities at December 31, 2009 and 2008 are as
follows:
                                                                              2009            2008
                                                                          ----------------------------
Deferred tax assets
   Accrued liabilities                                                    $    120,000    $    128,000
   Reserve for lawsuit settlements                                           2,292,458       2,138,045
   Fixed Assets                                                                  5,363           7,132
   Alternative minimum tax credit                                               55,000          55,000
   Net operating loss carryover                                             27,341,183      27,331,289
                                                                          ----------------------------

      Gross deferred tax assets                                             29,814,004      29,659,466
Less valuation allowance                                                   (29,814,004)    (29,659,466)
                                                                          ----------------------------

Deferred tax assets, net of valuation allowance                           $       --      $       --
                                                                          ============================
</TABLE>


     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, 2009 or 2008.
     Accordingly, a valuation allowance has been provided for the total net
     deferred tax assets.

     At December 31, 2009, the Company had net operating loss carryforwards of
     approximately $68,350,000 for US income tax purposes, which if not used,
     will expire between the years 2010 and 2029. 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-20
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


6.   COMMITMENTS AND CONTINGENCIES

     a) Litigation

        In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of Pacific
        Baja (Note 9) 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. TST originally sought damages of approximately $1.8
        million.

        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 $2,068,079 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-21
<PAGE>


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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------

6.   COMMITMENTS AND CONTINGENCIES - CONTINUED

     b) Litigation - Continued

        At December 31, 2009, the Company has included $4,329,360 ($3,943,328 in
        2008) 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 was recorded as a
        lawsuit settlement in other income.



                                                Year Ended December 31
                                          --------------------------------
                                              2009                 2008

        Settlement amount                 $ 2,068,079          $ 2,068,079

        Interest                          $ 2,201,626          $ 1,815,594

        Preference payment                $    83,000          $    83,000
        Proceeds of stock sale
                                          ($   23,345)         ($   23,345)
                                          --------------------------------
        Total                             $ 4,329,360          $ 3,943,328
                                          ================================

                                            c) Other

        The Company is currently involved in various collection claims and other
        legal actions (Notes 9 and 11). 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. No royalty payments were made in
        2009 and 2008.


                                      F-22
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


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, 2009 and 2008, the
     number of unoptioned shares available for granting of options under the
     plan was 7,197,759.

     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, 2009 and 2008, the
     number of unoptioned shares available for granting of options under the
     plan was 1,703,500.

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

     VALUATION-GENERAL BLACK-SCHOLES

     The determination of fair value of share-based payment awards to employees,
     directors and non-employees on the date of grant using the Black-Scholes
     model is affected by the Company's stock price as well as assumptions
     regarding a number of highly complex and subjective variables. These
     variables include, but are not limited to, the expected stock price
     volatility over the term of the awards, and actual and projected employee
     stock option exercise behaviors. Management has used historical data to
     estimate forfeitures. The risk-free rate is based on U.S. Treasury rates in
     effect during the corresponding period of grant. The expected volatility is
     based on the historical volatility of the Company's stock price


                                      F-23
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


7.   STOCK OPTIONS - CONTINUED

     The following summarizes information relating to stock options issued prior
     to 2009:

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                         2008 AND 2009

                                 NON-EMPLOYEES        EMPLOYEES & DIRECTORS             TOTAL
                             -----------------------------------------------------------------------

                                                       WEIGHTED                 WEIGHTED    WEIGHTED
                                                       AVERAGE                  AVERAGE      AVERAGE
                                                      EXERCISE                  EXERCISE    EXERCISE
                             OPTIONS       PRICE       OPTIONS      PRICE       OPTIONS      PRICE
                          --------------------------------------------------------------------------
Outstanding at beginning    2,125,000    $   0.08    15,674,000   $   0.06     17,799,000   $  0.06
and ending of 2008

Expired                      (525,000)       0.10        --                      (525,000)
                          -----------                ----------               -----------

Balance at
December 31, 2009           1,600,000    $   0.08    15,674,000   $   0.06     17,274,000   $  0.06
                          ===========                ==========                ===========
</TABLE>



     At December 31, 2009, the following is a summary of stock options
     outstanding:

                                       Weighted Average           Weighted
                                              Remaining            Average
          Exercise                          Contractual           Exercise
            Price          Number          Life (Years)              Price
        -------------------------------------------------------------------

               $ 0.02      7,000,000             0.07      $   0.02
        $0.04 - $0.07      1,450,000             2.09          0.04
        $0.09 - $0.10      8,824,000             4.25          0.10
                           ---------
                          17,274,000             2.38      $   0.06
                          ==========


ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES

During 2006 and 2007, we granted warrants to purchase 78,200,000 shares of our
common stock to various consultants that we deemed essential to our operations.
The warrants that had not vested were cancelled as consultant contracts expired.
Details of the consultant warrants for the year ended December 31, 2009 are as
follows:

        Total consultant warrants granted                     78,200,000
        Vested prior to January 1, 2009                      (22,805,560)
        Vested January through December 2009                  (1,205,551)
        Cancelled                                            (54,188,889)
                                                             -------------
        Warrants not vested                                           -0-
                                                             =============


                                      F-24
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


7. STOCK OPTIONS - CONTINUED

   ISSUANCE OF STOCK OPTIONS TO NON-EMPLOYEES FOR SERVICES - CONTINUED

   During 2009 we granted warrants to purchase 41,600,000 shares of our common
   stock to various consultants that we deemed essential to our operations.

   Total consultant warrants granted                      41,600,000
   Vested January through December 2009                   (3,466,664)
                                                        --------------
   Warrants not vested                                    38,133,336
                                                        ==============

   During 2009 the Company using the Black-Scholes model recorded $23,180
   ($126,621 in 2008) of compensation expense, relating to the vesting of stock
   warrants previously issued to non-employees for services. The non-cash
   warrant expense is allocated with $22,953 ($92,576 in 2008) to general and
   administrative expenses and $227 ($34,045 in 2008) to research and
   development.

   The estimated fair value of warrants vested to non-employees during 2009 was
   between $0.0032 and $0.0088. Assumptions used to value the warrants: expected
   dividend yield Nil%; expected volatility between 113.23% and 176.34%;
   risk-free interest rate between 2.27% to 3.39% and an expected life of 7
   years.

   The estimated fair value of warrants vested to non-employees during 2008 was
   between $0.023 and $0.06. Assumptions used to value the warrants: expected
   dividend yield Nil%; expected volatility between 101% and 161%; risk-free
   interest rate between 1.87% to 3.68% and an expected life of 7 years.


8. STOCKHOLDERS' EQUITY

   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 common stock to 1,000,000,000 common
     shares.


                                      F-25
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


8. STOCKHOLDERS' EQUITY - CONTINUED

   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. During 2008, the Company issued 13,939,740 shares of the Company's
     common stock to comply with the anti-dilution clause of the Agreement and
     Plan of Merger

   c) During 2009, the Company issued 2,666,667 (13,000,000 in 2008) shares to
     consultants in consideration for services, at a range of ascribed values
     from $0.004 to $0.014 ($0.019 to $0.03 in 2008) per share (based on the
     trading price of the Company's common stock on the agreement date).

   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 2009, the Company issued 28,066,667 shares of common stock. The
     28,066,667 included, 25,400,000 for private placements and 2,666,667 shares
     were issued for services with an ascribed value of $11,552 (based on the
     trading price of the Company's common stock on the dates service agreements
     were entered into).

     During 2008, 142,114,317 shares of common stock were issued for conversion
     of notes payable and corresponding accrued interest, 6,000,000 shares were
     issued for settlement of $180,000 of accounts payable, 7,000,000 shares
     were issued for services with an ascribed value of $142,112 (based on the
     trading price of the Company's common stock on the dates service agreements
     were entered into) and 13,939,740 shares of the Company's common stock to
     comply with the anti-dilution clause of the Agreement and Plan of Merger.

   f) During 2003, the Company entered into three private placement agreements
     for the issuance of 2,433,810 shares for gross proceeds of $138,600, which
     was recorded as loans payable. As of December 31, 2009 the shares have not
     been issued.

                                      F-26
<PAGE>
================================================================================
                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


8. STOCKHOLDERS' EQUITY - CONTINUED

   g)   Stock Purchase Warrants

     At December 31, 2009 and 2008, the Company had 52,597,765 and 43,925,549
     stock purchase warrants outstanding and exercisable, respectively. These
     warrants were issued in connection with private placements, non-employee
     compensation 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 $0.0117
     to $0.04 per share with a weighted average exercise price of $0.02 per
     share and expiration dates between 2011 and 2015.

     In 2006 and 2007 consulting contracts were signed with a total of
     78,200,000 warrants of which only 6,633,329 warrants were vested in 2008
     (16,172,220 in 2006 and 2007). The termination of various consultants
     resulted in the cancellation of 22,044,436 warrants. The remaining warrants
     may vest over the next two or more years dependent upon the continuation of
     service of the holders and/or the happening of specific events.


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

<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                         2009

                                       INVESTORS         EMPLOYEES & CONSULTANTS              TOTAL
                                 ---------------------------------------------------------------------------

                                                WEIGHTED                WEIGHTED                    WEIGHTED
                                                 AVERAGE                 AVERAGE                     AVERAGE
                                                EXERCISE                EXERCISE                    EXERCISE
                                    WARRANTS       PRICE   WARRANTS        PRICE     WARRANTS          PRICE

Outstanding at beginning           21,120,000    $  0.02   22,805,549   $    0.01    43,925,549    $   0.02
of year
Granted                             4,000,000    $  0.01    4,986,104   $    0.01     8,986,104    $   0.01
Expired                                                      (313,888)                 (313,888)
                                 ------------               ---------                ----------
Warrants outstanding and
exercisable at end of
year                               25,120,000    $  0.02   27,477,765   $    0.01    52,597,765    $   0.02
                                 ============              ==========                ==========
Weighted average fair
value of
warrants granted during
the year                                         $    0.02              $    0.02                  $   0.02
                                 ==========================================================================
</TABLE>



     At December 31, 2009, 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
---------------------------------- ------------------------ -----------------

    $0.01              30,644,437                     4.46             $0.01
 0.025 -0.04           21,953,328                     2.70             $0.02
                    -------------

                       52,597,765                     3.96             $0.02
                    =============

                                      F-27
<PAGE>
================================================================================
                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


9. 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.

   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.

                                      F-28
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


10. 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 or $353,840 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, 2009 and 2008, the Company has included $405,785
   in regard to this matter in the provision for lawsuit settlements.

11. CRESCENT FUND, LLC


   A former consultant brought an action against the Company in the Supreme
   Court of the State of New York for the County of New York for an action
   entitled CRESCENT FUND, LLC v TURBODYNE TECHNOLOGIES, INC. The action sought
   $300,000 damages based upon claims for alleged breaches of contract and
   covenants of good faith and fair dealing allegedly arising because the
   Company failed to give plaintiff an opinion to sell the 5,000,000 shares of
   the Company's common stock received for services. The Company in the action
   sought the return of such shares and damages based upon plaintiff's breach
   and fraud based upon the failure to perform any of the duties and obligations
   required of it under the aforesaid contract which was fraudulently induced.
   The Company did not anticipate any liability and therefore did not include an
   amount in the provision for lawsuit settlements. The action has been settled
   pursuant to which the plaintiff retained a majority of the shares and
   released the Company from all liability with any payments.


                                      F-29
<PAGE>
================================================================================
                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------


12. RELATED PARTY 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.

   During 2008 the Company issued 13,939,740 shares of the Company's common
   stock to comply with the anti-dilution clause of the Agreement and Plan of
   Merger (the "Agreement") dated September 1, 2005. The Agreement among the
   Company. Turbodyne Acquisition Corp. a wholly-owned subsidiary of Parent and
   Aspatuck Holdings Nevada Inc. provides that "it is the intent of the parties
   that the Merger Consideration Shares shall constitute 40% of the post merger
   fully diluted shares outstanding talking into account the issuance of shares
   of Parent Common Stock in settlement of the Pacific Baja Litigation and other
   shares related in any manner to events or transactions prior to the Effective
   Date." A significant portion of the proceeds of the Company's private
   placement were used to pay prior obligations to the Company. Based on
   calculations presented to the board and terms of the aforesaid Agreement the
   issuances of aforesaid additional shares were authorized.


                                      F-30
<PAGE>

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

DECEMBER 31, 2009 AND 2008
--------------------------------------------------------------------------------

12. RELATED PARTY TRANSACTIONS - CONTINUED

   In February 2007 we entered into a patent assignment agreement with four of
   our consultants relating to the assignment of patent rights. The four
   consultants, including our then President Albert Case, are joint inventors of
   certain inventions and/or improvements for which they have filed a
   provisional application in the United States Patent and Trademark Office.
   Under the terms of the agreement, the co-inventors assigned the rights to the
   patent application to the Company .The Company is required to pay all accrued
   and unpaid compensation owed under existing agreements to each inventor and
   keep payments to them current under such agreements. Failure to make these
   payments may result in the return of the Patent to the inventors.

   Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers have
   advanced an aggregate of $ 46,000 to the Company plus related interest
   expense of $7,204 for 2009 and $4,904 for 2008. The advances are repayable on
   demand and bear interest at 5 % per annum. See Note 3 Loan Payable. As of
   December 31, 2009 and 2008 the Company also owes Aspatuck Holdings Ltd
   consulting fees of $417,227 and $344,827, respectively, for the services of
   Jason Meyers. The Company has included these consulting fees in accounts
   payable in the balance sheet. The Company has included $120,000 of consulting
   compensation in the general and administrative expense for the years ended
   December 31, 2009 and 2008. The company also included $17,658 of non cash
   warrant expense for the year ended December 31, 2009 and $64,999 for 2008.

   John Adams, co-CEO has advanced an aggregate of $35,000 in convertible notes
   as a private investor. The notes were due in November 2006 and July 2008 but
   remain unpaid as of December 31, 2009 and 2008, with total outstanding
   balance of $41,856 and $40,106, respectively, which includes accrued interest
   of $6,856 and $5,106, respectively. The Company recorded $8,889 general and
   administrative expense for the stock compensation issued to John Adams in
   2009 and $28,111 for 2008.

   As of December 31, 2009 the Company owes Debi Kokinos, CFO consulting fees of
   $92,350. The Company has included these consulting fees in accounts payable
   in the balance sheet. The Company has included $77,520 of consulting
   compensation in the general and administrative expense for the years ended
   December 31, 2009 and 2008. The company also included $5,297 of non cash
   warrant expense for the year ended December 31, 2009 and $19,500 for 2008.

13. SUBSEQUENT EVENTS

   In May 2009, the FASB issued subsequent events guidance, which establishes
   general standards of accounting for and disclosure of events that occur after
   the balance sheet date but before financial statements are issued. The
   Company has evaluated subsequent events for recognition or disclosure through
   the time of filing these financial statements on Form 10-K with the SEC on
   April 15, 2010 and no events, other than those described in these notes, have
   occurred that require disclosure pursuant to such guidance.


                                      F-31