<PAGE>


                     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,  2001

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

        For  the  transition  period  from  _____  to  _____

COMMISSION  FILE  NUMBER:           0-21391


                           TURBODYNE TECHNOLOGIES INC.
                           ---------------------------
                    (Exact name of Registrant in its charter)

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


6155 Carpinteria Avenue, Carpinteria, California      93013
------------------------------------------------      -----------
(Address  of  principal  executive  offices)          (Zip  Code)


(805)  684-4551
-------------------------------
Registrant'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  PER  SHARE.

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. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation  S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the 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.  [  ]

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days.  (See definition of affiliate in
Rule 405, 17 CFR 230.405.)  $23,749,000 as of March 25, 2002, based on the
closing price  of  the  Registrant's  common  stock  on  the  Pink  Sheets on
that date.

There  were  86,423,544  shares  of  the  Registrant's  common  stock issued and
outstanding  as  of  April  9,  2002.

DOCUMENTS  INCORPORATED  BY  REFERENCE:     None


                                  Page 1 of 52

<PAGE>


                           TURBODYNE TECHNOLOGIES INC.
                           ANNUAL REPORT ON FORM 10-K

                                      INDEX
                                                                     PAGE
                                                                     ----

                                     PART I
                                     ------

Item  1.  Business                                                   3

Item 2. Properties                                                   19

Item 3. Legal and Administrative Proceedings                         19

Item 4. Submission of Matters to a Vote of Security Holders          24


                                     PART II
                                     -------

Item  5.  Market for Registrant's Common Equity
and Related Stockholder Matters                                      25

Item 6. Selected Consolidated Financial Data                         27

Item  7. Management's Discussion and Analysis of
Financial Condition and Results of Operations                        29

Item 7a.  Quantitative and Qualitative Disclosures
about Market Risk                                                    35

Item 8. Financial Statements and Supplementary Data                  36

Item  9.  Changes  in  and  Disagreements  with
Accountants  on  Accounting and
Financial Disclosure                                                 39

                                    PART III
                                    --------

Item  10.  Directors and Executive Officers of the Registrant        40

Item 11. Executive Compensation                                      43

Item 12. Security Ownership of Certain Beneficial
Owners and Management                                                47

Item 13. Certain Relationships and Related Transactions              49

                                     PART IV
                                     -------

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K                                              50

Signatures                                                           52

                                  Page 2 of 52
<PAGE>


                                     PART I

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.

ITEM  1.     BUSINESS.

GENERAL

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

We have incorporated our technology into two initial primary products, which are
(1)  the  Dynacharger(TM)  and  (2)  the  Turbopac(TM).  We  transferred  the
intellectual  property  associated with our Dynacharger and Turbopac products to
Honeywell, Inc. ("Honeywell") in 1999.  Our rights to these products are now the
subject of a license agreement and a joint development agreement with Honeywell.
We  are  now  involved  in  legal  proceedings  regarding  our  agreements  with
Honeywell.  See  Item  3.  -  Legal  Proceedings.

We are presently finalizing the development of additional products incorporating
new  technology,  including a product known as the TurboAir.  These new products
are  in  various stages of design and development.  Our ability to commercialize
these  new products is conditional upon us entering into arrangements with OEM's
that  provide  for  the  final  development  and manufacturing of these products

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  July  1998.

We  carry out our business operations through Turbodyne Systems Inc. ("Turbodyne
Systems"),  our  wholly  owned  subsidiary.   Turbodyne  Systems  is  a  Nevada
corporation.

We acquired our original technology from Edward M. Halimi, a former director and
our  former  chairman  of the board, former president and former chief executive
officer, in July 1993 for consideration of 4,150,000 shares of our common stock.
Of  these shares, 3,250,000 are being held in escrow until we reach certain cash
flow  targets.

The  assets  of  our  former  subsidiary,  Pacific Baja Light Metals Corporation
("Pacific  Baja"),  were  sold  in bankruptcy proceedings in December 1999.  See
below  under  "Bankruptcy  of  Pacific  Baja  Light  Metals  Corporation".

                                  Page 3 of 52
<PAGE>

DEVELOPMENT  OF  OUR  BUSINESS  DURING  2001

We  have  experienced  the  following significant changes since January 1, 2001:

1.     We  have  focused  our business strategy on becoming a leading design and
engineering  company  engaged  in the development of charging technology for the
automotive  industry.  Our  current  business strategy contemplates that we will
license  our  technology  to leading automotive Original Equipment Manufacturers
("OEM's").  We  anticipate  that  we  will  not  engage  in  further attempts to
manufacture  equipment  incorporating our technology for sale to OEM's or to the
automotive  product  after-market  due  to  the  high  costs  of  undertaking
manufacturing  for  the  automotive  industry  and  the  difficulty of competing
against  OEM's  with  manufactured  products.

2.     During  2001,  we re-focused our efforts on the research and developments
of products using our technology, including the development of prototypes of new
products  for  demonstration  and  evaluation  purposes.  Our  newly  developed
products  include  our  new  TurboAir  product.  We acquired significant license
rights  to this technology on October 15, 2001.  We have developed prototypes of
our  new  TurboAir  product  for  evaluation  and  demonstration  purposes.

3.     We  have continued to reduce our overhead and administration costs. These
reductions  to  overhead  and administration costs have been necessitated by our
inability  to  earn  significant  revenues  and to raise required capital. These
reduced  costs  are  also consistent with our transition to a technology company
engaged  principally  in  design  and  engineering.

4.     We commenced litigation against Honeywell in August 2001 claiming damages
against  Honeywell  arising  from  our  license  agreement and joint development
agreement  for  the  Turbopac  and  Dynacharger  technology  with Honeywell.  We
commenced  this litigation following the commencement of arbitration proceedings
by  Honeywell seeking termination of our license agreement and joint development
agreement  with  Honeywell.  As  a consequence of the status of our relationship
with  Honeywell, no sales of products incorporating the Turbopac and Dynacharger
technology  are  currently  being  achieved.

5.      We  re-acquired  non-exclusive  rights  to  the Turbopac and Dynacharger
products  in  January  2002  due  to  the  failure of Honeywell to reach certain
production  milestones  under  our  agreements  with  Honeywell.

6.     Our  former  board and directors and executive officers resigned in 2001.
We  now  have  a new board of directors and our business is currently managed by
new  principal  executive  officers.

7.     We have been able to reach settlement and resolution of many of the legal
proceedings that have been initiated against us. We have consented to a judgment
against  us  in favor of the Securities Exchange Commission in order to conclude
an  investigation that the SEC had commenced against us.  We also have reached a
settlement,  subject  to court approval, of a consolidated class action law suit
commenced  against  us  that  relates  to  the  matters investigated by the SEC.
However,  several key legal proceedings, including litigation with Honeywell and
litigation  in  connection  with  Pacific Baja Light Metals Holdings, our former
subsidiary,  have  been commenced and have not been settled to date. Our ongoing
legal  proceedings  have  had and will continue to have an adverse effect on our
ability  to  raise  capital  to fund our business operations.  See Risk Factors.

These corporate developments are discussed below. Detailed information regarding
our  legal  proceedings  is  contained in the section of this Form 10-K entitled
Item  3.  -  Legal  Proceedings.

HONEYWELL  AGREEMENTS

The  core  technology that we have developed in connection with the Turbopac and
Dynacharger  products  is  the  subject  of  technology  license and development
agreements  with  Honeywell. These agreements are currently the subject of legal
proceedings.   See  Item  3.  -  Legal  Proceedings.

                                  Page 4 of 52

<PAGE>

Original  Agreements

In  January  1999,  we  entered into a license agreement and a joint development
agreement with Honeywell. Each of these agreements was amended in December 1999.
Under  the  original  license  agreement,  we granted to Honeywell the exclusive
license  to  make,  use and sell products incorporating our Turbodyne technology
for  a  term  of  twenty years. This technology included all designs, processes,
data,  inventions,  developments  and  other proprietary information relating to
electrically  assisted turbochargers and motors and controls associated with the
Turbopac  and  Dynacharger  products. Under the joint development agreement with
Honeywell, we and Honeywell are required to engage in a concerted effort for the
research, development and engineering for mass production of the Dynacharger(TM)
and  other  electrically  assisted  charged  air  systems.

Assignment  Agreement

The  license  agreement and joint development agreement were amended in December
1999  concurrent  with  the  execution  of  an intellectual property and product
rights  agreement  between us and Honeywell. Under the terms of the intellectual
property  and  products  rights  agreement, we assigned our patent and trademark
portfolios,  including  Dynacharger(TM)  and Turbopac(TM), to Honeywell for $6.8
million.  The  assignment  covers  the  Turbopac,  Turboflow  and  Dynacharger
trademarks,  18  patents and 14 patent applications pending with the U.S. Patent
and  Trademark  Office. These trademarks, patents and applications encompass the
construction  of  the Dynacharger(TM) and Turbopac(TM) products. We have applied
for  numerous  patents  with  Honeywell  since joint development of our products
began.  These  patent  rights  are  held  jointly.  The assignment of the patent
portfolio  was  made  by  us subject to our license agreement with Honeywell, as
amended.

Amended  License  Agreement

Under our amended license agreement with Honeywell, we have granted to Honeywell
the  worldwide  exclusive  license  to all improvements related to the Turbodyne
technology  that  we  develop  through  our  efforts. In addition, Honeywell was
granted  all rights to manufacture and sell any motor driven compressor products
currently  sold  in  the  Turbopac  product line, including any developments and
improvements.  We  retained  the  right to manufacture and sell electrical motor
assistance systems for Cummins BHT turbochargers in the independent aftermarket.
In  exchange  for  the  assignment  of  our  patent  portfolio and the exclusive
licenses  granted  in the amended license agreement, Honeywell has agreed to pay
to  us  a  royalty  in  the amount of 3.7% of net sales achieved by Honeywell of
products  incorporating  the  Turbodyne  technology.

The  amended  license  agreement  provides  that  Honeywell  will  conduct  the
development  of  products incorporating the Turbodyne technology under the joint
development  agreement,  as  amended,  and  obtain a production commitment or an
advanced  development  program  from  a third party customer by July 1, 2001. If
this  milestone  was  not  achieved,  Honeywell  agreed that the license for the
improvements  to  the  Turbodyne  technology  developed  by  us  would  become
non-exclusive,  at  our election. If Honeywell was unable to obtain a production
commitment  by  January 1, 2002, Honeywell agreed to grant to us a non-exclusive
license  under the assigned patent portfolio with the right to us to sub-license
for our continued development of the Dynacharger and Turbopac products. Upon the
license  granted  by  us  under  the  amended  license  agreement  becoming
non-exclusive,  we  have  agreed  that the royalty payable would be reduced from
3.7%  of  net  sales to 3.2% of net sales. A production commitment is defined to
mean  an  order  placed by a third party for the licensed products in production
quantities.

Honeywell  also agreed to conduct development of the Turbopac products and honor
existing  supply  and  distributor  agreements pursuant to the joint development
agreement,  pursuing  after-market  and/or  OEM  customers  and  obtain  supply
commitments  by  January  1,  2002.  If  Honeywell  is  unable  to obtain supply
commitments  by January 1, 2003, Honeywell will grant to us an exclusive license
to  pursue  sales  of Turbopac products and our royalty will increase to 4.7% of
net  profits  for Dynacharger products. We will pay to Honeywell a royalty of 2%
of  net  profits  on  sales  of  Turbopac  products  by  Turbodyne.

In  addition,  Honeywell  agreed  to  grant  to us a license of all intellectual
property  and  trade  secrets  required to manufacture, market and sell electric
motors,  generators,  electronic  controllers  and  light

                                  Page 5 of 52

<PAGE>

metals  for the Dynacharger(TM) and Turbopac(TM) products and a license to us to
develop  intellectual  property  necessary to manufacture, market and sell these
component  parts.  The  agreement  to  grant this license is conditional upon us
producing  and  providing  exclusively  to Honeywell and Honeywell acquiring the
component  parts  solely  from  us  pursuant  to  Honeywell's standard terms and
conditions  for long term supply contracts. The price to Honeywell for component
parts  is  limited  to  cost  plus  7%.

The  license  also  gives  us the right to manufacture and sell electrical motor
assistance systems for Cummins BHT turbochargers in the aftermarket if Honeywell
decides  not  to  do  so.

Amended  Joint  Development  Agreement

We  have agreed with Honeywell to jointly develop new products incorporating the
Turbopac  and  Dynacharger  products.  We  have  agreed to contribute 40% of the
resources  to  this joint development, with Honeywell contributing 60%.  We have
agreed  that if we fail to contribute the required 40%, then the royalty payable
by  Honeywell  to  us  under the license agreement will be reduced by a ratio of
actual  percentage  share  investment  divided by 40% multiplied by 3.2%, plus a
0.5%  base  royalty.

Status  of  the  Joint  Development  Agreement  and  the  License  Agreement

In  March  2001,  we received a letter from Honeywell in which Honeywell alleged
that  we  have been chronically delinquent in meeting schedule commitments under
the  joint  development  agreement. Honeywell stated its belief that we would be
unable  to meet our contractual requirements and that such defaults appear to be
of  a nature that cannot be cured. Honeywell requested that we provide them with
adequate  assurances  of  our ability to cure past defaults and meet our ongoing
obligations  under  the  agreement  no  later  than March 23, 2001 or they would
consider  the agreement terminated. We responded to Honeywell on March 19, 2001,
stating  that  we believe we have met all of our obligations under the agreement
and have not caused serious delays in customer commitments or design and testing
programs. On March 23, 2001, we received another letter from Honeywell asking us
to  provide  Honeywell with specific assurances regarding our current and future
funding,  our  solvency,  our  ability  to  meet  the  capacity requirements for
producing components that meet automotive industry standards and our current and
future  management  and  technical  team. Honeywell sent us another letter dated
April  4, 2001, listing several alleged delinquencies in meeting our contractual

obligations  under  the  agreement  and  requesting  that  we  cure  the alleged
deficiencies  within  60  days.  Honeywell  has stated that it will consider our
failure  to adequately address its concerns to be a repudiation of the agreement
by  us  and  it  will  consider  its  obligations  under the agreement canceled.
Honeywell  claims that it will then proceed with alternative means to developing
the  products. We do not agree with Honeywell's position regarding delinquencies
and  intend  to  vigorously  defend  our  position  if  necessary to enforce the
contract.

On  July  2,  2001,  Honeywell  initiated  arbitration  proceedings  requesting
termination  of the joint development agreement.  We commenced legal proceedings
against  Honeywell  in  August  2001  claiming damages under the Sherman Act and
seeking  an  order  of  the  court  enjoining  Honeywell  from  prosecuting  the
arbitration  proceedings.

We served notice on Honeywell in January 2002 of our position that Honeywell had
failed  to  achieve the production commitments required by the license agreement
and  that under the license agreement we are entitled to a non-exclusive license
for  Turbodyne  improvements  and  a  non-exclusive  license,  with  right  to
sub-license, for the Turbopac and Dynacharger patent portfolio assigned by us to
Honeywell  in  December  1999.

Honeywell  assigned  the  Dynacharger  trademark  back  to  us  in  August 2001.

We have not earned any royalty fees under our agreements with Honeywell to date.

                                  Page 6 of 52

<PAGE>


INDUSTRY  BACKGROUND

Market  Demand  for  Charging  Technology  for  Internal  Combustion  Engines

We  believe  that  the  following  market  conditions will continue to shape the
demand  for  our  air  charging  technology  for  internal  combustion  engines:

-     Worldwide,  turbocharger diesel engines will continue to represent a large
share  of  the  power  plants  in  passenger  cars;

-     All  passenger cars equipped with diesel engines in the displacement range
of  1.8  to  3.5  litres, about 4 million of which were built worldwide in 2000,
share  the  common  problem of inadequate take-off performance when accelerating
from  low  engine  rpm  and  power,  more  commonly  known  as  "turbo  lag;"

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

-     The  automobile  industry  is  pursuing  downsizing of gasoline engines to
improve  engine  efficiency  and  fuel  economy  and 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;  and

-     The  passenger  car  industry appears committed to resolving the turbo lag
problem  and to the best of our knowledge the charging technology as used in our
product  is  currently  the  only  practical  solution  to  the  problem.

Turbocharging  Technology

The  prevailing  means  for  significantly increasing engine power and torque is
charging  the  internal  combustion reciprocal cycling engine. Turbocharging has
evolved  as  the  preferred  technology to accomplish this. This technology uses
exhaust  gas  energy, via a turbine, to drive a compressor that delivers air and
pressurizes  the  engine intake system.   These types of turbo engines have been
used  in passenger cars for many years, as well as light and medium duty trucks.
These  vehicles  show high peak performance but turbo lag, or inadequate takeoff
performance, continues to be a problem due to the absence of initial exhaust gas
energy.   Overcoming  turbo  lag requires the compressor to be driven by another
type  of  energy  until  the  engine  produces  sufficient  exhaust  gas energy.

For  several  decades,  the  automotive  industry  has  sought  a manufacturable
solution  to  turbo  lag. Although we know of no complete solution that has been
offered  or  implemented  into  mass production, we are aware of other competing
technologies.

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 resolve the problem of
turbo  lag  for  turbocharged engines, increase power and performance and reduce
the  pollution  of non-turbocharged engines and allow the downsizing of internal
combustion  engines.

THE  TURBODYNE  TECHNOLOGY

Our  technology  is  based  on the scientific principle that when fuel is burned
with the theoretically correct amount of air, perfect combustion will take place
with  the  result  that  a  maximum amount of thermal energy is released and the
pollution  released  is minimized.  Internal combustion engines produce power by
burning fuel, a process that requires flows of both air and fuel.  Sophisticated
systems  have  been  developed  for  the  regulation of the flow of fuel into an
engine.  Less  attention  has  been  paid  by

                                  Page 7 of 52

<PAGE>

automobile  manufacturers  to the regulation of the flow of air into the engine.
The  great majority of engines manufactured in the world today depend on ambient
air  pressure  to  supply  air  in  the combustion process. However, ambient air
pressure  is  not  a  perfectly efficient force for this process. In particular,
ambient air pressure fails to supply air in sufficient quantities when an engine
is  accelerating,  particularly  at  low  engine  speeds.  We have developed our
technology  to  address these inefficiencies of conventional internal combustion
engine  technology.

Turbopac  Product

We  have  developed the Turbopac product to increase the operational performance
and  efficiencies  of  non-turbocharged engines.  The Turbopac product is an air
blower  apparatus  that consists of a fan driven by a proprietary electric motor
and  managed  by  an  electronic management system.  The Turbopac incorporates a
high  speed,  high  power,  and electronically commutated electric motor that we
developed.  This  electric  motor  is  controlled by a rapid, high-powered DC/AC
electronic  controller  capable  of sustaining motor speeds in excess of 200,000
rpm.   This  electric  motor  is mounted coaxially with a compressor in order to
deliver  compressed  air  into  the  engine  when  required.

The Turbopac product is powered by the vehicle's electrical system and generates
and  feeds  high-pressure air into the engine when electronic controllers within
the  engine  request  additional air for optimization of the combustion process.
The  Turbopac  product is designed to manage and enhance the flow of air into an
engine  in  the  same manner as a fuel-injection system manages the flow of fuel
into  the  engine.  The  Turbopac  product  incorporates  an electric motor with
magnets.  The  electronic  management system for the Turbopac is external to the
air  blower device and is mounted separately within the vehicle compartment.  We
have  designed  the  Turbopac  product  with  the objective of making it easy to
install  on  any  type  of  internal  combustion  engine,  including  engines in
automobiles,  motorcycles,  trucks,  airplanes  and  locomotives.

Dynacharger  Product

We  have  developed  our  Dynacharger  product in order to address the turbo lag
problem that occurs in turbocharged internal combustion engines.  The underlying
engineering  requirement  to solving the turbo lag problem is an auxiliary drive
unit with a high power density capable of rapidly accelerating the compressor of
a  turbocharger  when  there  is insufficient exhaust gas energy to compress the
engine's  intake  air.

Our  Dynacharger  product incorporates a high speed, high power density electric
motor  that  is  mounted  coaxially  between  a  turbocharger's  turbine and the
compressor.  The  Dynacharger  is controlled by external controls that regulates
the  operation  of the electric motor that is connected to the compressor of the
turbocharger.  The  Dynacharger product enables the turbocharger's compressor to
compress  the  air  supply  delivered  to  the  engine during periods, including
start-up  and  acceleration, when the force provided by the engine's exhaust gas
is  insufficient  to  provide  adequate  power to the turbocharger's compressor.
Test  results  completed  on  engines  using our Dynacharger product demonstrate
substantial  increases  in  engine  power  during acceleration, reduced particle
emissions  and  improved  fuel  economy.

TurboAir  Products

We are currently in the process of developing our TurboAir product. This product
consists of an air-blower device incorporated into the air filter compartment of
a  vehicle engine. The TurboAir product incorporates an electric motor that does
not  use magnets that is used to drive a fan within the air blower that provides
a  pressurized  flow  of  air  into  the  engine. The TurboAir is designed to be
self-cooling  and to minimize the required electrical current from the vehicle's
electrical  system.  The  electronic  controls  for  the  TurboAir  product  are
incorporated internally, rather than being mounted separately within the vehicle
engine  compartment.  The electronic controls are designed to be linked into the
OEM's  vehicle  engine  management  system.  The incorporation of the electronic
controls into the vehicle's engine management system requires that each TurboAir
product  be  programmed in cooperation with the OEM. We are currently working on
prototypes  for  three  models  for vehicles with 12 volt electrical systems and
three  models  for  vehicles  with  24  volt electrical systems. We also plan to
develop models of the TurboAir product for vehicles using the 36 volt electrical
system  to  be  introduced  as  a  standard  in  Europe.

                                  Page 8 of 52

<PAGE>

INTELLECTUAL  PROPERTY

Turbopac  and  Dynacharger  Technology

As  of  December  17,  1999,  we  assigned the intellectual property and product
rights  for  our  patent  and  trademark  portfolios  of the Dynacharger(TM) and
Turbopac(TM)  to  Honeywell.  The  assignment covers the Turbopac, Turboflow and
Dynacharger  trademarks,  18 patents and 14 patent applications pending with the
U.S.  Patent  and  Trademark  Office. These trademarks, patents and applications
encompass  the construction of the Dynacharger(TM) and Turbopac(TM) products. We
have  applied for numerous patents with Honeywell since joint development of our
products  began.  These  patent  rights  are  held  jointly.

TurboAir  Technology

We  entered  into an exclusive license agreement dated October 15, 2001 with our
subsidiary,  Turbodyne  Systems,  and  Mr.  David  St.  James for the license of
certain  technology  that we are incorporating into our newly developed TurboAir
product.   The  technology  licensed  under  the  agreement  with  Mr. St. James
encompasses  new inventions relating to the optimization of the air/fuel mixture
in  internal combustion engines with the objective of increasing performance and
fuel  economy and reducing emissions. We issued an aggregate of 2,000,000 shares
of  our  common  stock and 2,000,000 share purchase warrants to Mr. St. James in
consideration  of  the  grant  of  this  license.  Each  share  purchase warrant
entitles Mr. St. James to purchase one additional share of our common stock at a
price of $0.30 per share for a period of four years from the date of the license
agreement.  We have agreed to pay a royalty equal to 2% of the gross sales price
of products manufactured and sold that incorporate the licensed technology.  The
royalty  is payable quarterly and is applicable to any products manufactured and
sold by any sub-licensee.     We have granted a pledge of all of the outstanding
and  issued  shares  of  Turbodyne  Systems to Mr. St. James as security for the
payment  of  this  royalty.

The  technology  licensed  to  us  by  Mr.  David St. James is presently not the
subject  of  patent  protection.  We  are  in  the  process  of preparing patent
applications  that we are proposing to file with the United States Patent Office
in order to seek patent protection for the technology. These patent applications
have  not been submitted to date and there is no assurance that any patents will
be  granted.

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.

STATUS  OF  THE  DEVELOPMENT,  MARKETING  AND  SALE  OF  OUR  PRODUCTS.

Turbopac  Product

We  completed  the  development  of  several  different versions of the Turbopac
products.  We  assigned  our  rights  to  the  Turbopac  product to Honeywell in
December  1999.  Our  rights  to  the  Turbopac  product are now governed by our
amended  license  agreement  and  amended  joint  development  agreement  with
Honeywell.  Honeywell advised us of their determination to terminate the program
for  commercialization of the Turbopac product in August 2000. Due to the rights
assigned  by  us  to  Honeywell,  we  were  unable  to  independently pursue the
commercialization of the Turbopac product. Accordingly, neither we nor Honeywell
are  making  any  sales  of  the  Turbopac  products.

We  have  acquired  non-exclusive  rights  to  proceed with the manufacturing of
Turbopac  products  under  our  amended license agreement with Honeywell. We are
currently  evaluating  whether to proceed with further attempts to commercialize
the  Turbopac  products.  This  determination will be based on our assessment of
demand for the Turbopac product and our ability to finance commercialization. We
anticipate  that  any  commercialization  would be through a license arrangement
with  an OEM. There is no assurance that we will be able to enter into a license
agreement  with  an OEM or to achieve commercialization of the Turbopac product.

                                  Page 9 of 52

<PAGE>

In  the  fourth  quarter  of  1997,  under  an  arrangement  with Detroit Diesel
Corporation  and  in  accordance with the United States Environmental Protection
Agency  Urban  Bus  Program,  our  Turbopac(TM) 2500 model was installed on city
buses in Toledo, Ohio, Riverside, California and Milwaukee, Wisconsin. Following
the  successful  installation of these products, Milwaukee Transit requested and
received  from  the  Environmental  Protection  Agency  approval  to  equip  10
additional  buses  with  the  Turbopac(TM)  2500  model.  In April 1998, the EPA
certified  the  Detroit  Diesel Corporation emission upgrade kit, which includes
the  Turbopac(TM)  2500  model,  under  the  Urban Bus Retrofit/Rebuild Program.
Following  EPA  approval,  we  entered  into  a  five-year  sales  and marketing
agreement with Detroit Diesel Corporation under which Detroit Diesel Corporation
will  exclusively  market  the  Turbopac(TM)  as  part  of its mechanical engine
rebuild  kit  for  the  EPA  Urban  Bus  Program. In June 1998, we delivered the
initial  stocking  order  of  100  Turbopacs(TM).  We  sold  approximately  575
Turbopacs(TM)  under  our  agreement  with Detroit Diesel Corporation. Under the
terms  of our joint development agreement with Honeywell, we agreed that further
sales  to  Detroit  Diesel  Corporation were to be made by Honeywell. No further
sales of the Turbopac products have been completed under this arrangement due to
Honeywell's determination to halt sales of Turbopac products, including sales of
Turbopac  products  to  Detroit  Diesel  Corporation.

We  are  currently undertaking refurbishment of Turbopac products sold under our
agreement  with  Detroit  Diesel  Corporation.  However,  no new sales are being
achieved.

Dynacharger  Products

We  completed  the  development  of  our  Dynacharger  products  for  prototype
evaluation  and  testing  purposes.  We  entered  into our license agreement and
joint development agreement with Honeywell with the objective of commercializing
the  Dynacharger  product  for  mass  production  and  sales  to  the automotive
industry.

We  have  acquired  non-exclusive  rights  to  proceed with the manufacturing of
Dynacharger products under our amended license agreement with Honeywell.  We are
currently  evaluating  whether to proceed with further attempts to commercialize
the  Dynacharger  products  independent  of Honeywell.    We anticipate that any
commercialization  would be through a license arrangement with an OEM in view of
the  expensive development work required.  There is no assurance that we will be
able  to  enter  into  a  license  agreement  with  an  OEM  or  to  achieve
commercialization  of  our  Dynacharger  products.  No  sales of the Dynacharger
product  have  been  completed  by  either  ourselves  or  Honeywell  to  date.

TurboAir  Products

We  are  currently completing the development of our TurboAir products.  We have
developed  prototypes  of this product for testing and evaluation purposes.  Our
plan is to pursue negotiations with OEM's for the license of this technology for
incorporation  into  vehicles  and engines manufactured by OEM's in exchange for
royalties  or  similar  license fees.  Under these arrangements, we would assist
the  OEM  in the final design and incorporation of the TurboAir product into the
OEM's  vehicles  and  engines.

BUSINESS  STRATEGY

Our  general  business  strategy  is  to  develop  products  incorporating  our
technology  and  to license these products to automotive OEM's for incorporation
into  their product lines. We have determined not to attempt to pursue the large
scale manufacturing of our products in view of the high costs and business risks
associated  with  manufacturing.  We  believe that the strategy of licensing our
products  to  OEM's  will enable the commercialization of products incorporating
our  technology  without  requiring  us  to  undertake the manufacturing process
ourselves.  OEM's 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.

Turbopac  Products

We  are in the process of determining whether to initiate discussions with OEM's
in  view  of  the  fact  that  we  recently  acquired a non-exclusive license to
manufacture the Turbopac product under our license

                                  Page 10 of 52

<PAGE>

agreement  with  Honeywell.  If  we  determine to pursue commercial sales of the
Turbopac  products, we anticipate that we would pursue license arrangements with
OEM's  who  would  undertake  manufacturing  and  sales  of Turbopac products in
consideration  of  the  payment  of  royalties  or  similar  license fees to us.

Dynacharger  Products

Commercial  production  of  the  Dynacharger  products depends on our ability to
enter  into  strategic  relationships with manufacturers of turbochargers due to
the  fact  that  this  product must be incorporated directly into a manufactured
turbocharger.  We  entered  into  our  license  agreement  and joint development
agreement  with Honeywell with the objective of achieving commercial production.
Our  arrangement  with  Honeywell  has  not  succeeded  in  achieving  this
commercialization as a result of Honeywell's determination not to pursue further
development  of  the  Dynacharger  product.

Prior  to  entering  into  our  agreements  with  Honeywell,  we were engaged in
discussions  with various large automotive OEM's for the manufacture of products
incorporating our Dynacharger technology.  We plan to again initiate discussions
with OEM's now that we have acquired a non-exclusive license for the Dynacharger
products  under  our  license  agreement  with  Honeywell.   We  plan  to pursue
development  agreements for the Dynacharger product whereby we would license our
technology  to a turbocharger manufacturer who would incorporate the Dynacharger
into  their  turbocharger  products.

TurboAir  Products

We  plan to pursue development and manufacturing arrangements with OEM's for our
newly  developed TurboAir products.  As each TurboAir product must be programmed
to  work  in  conjunction  with a vehicle's engine management system, it will be
necessary  to  us  to  finalize  development  of  each  TurboAir  product with a
manufacturer.  The  TurboAir  product  would then be incorporated into the OEM's
vehicle  and  engine.  We  anticipate that we would be paid a royalty or similar
license  fee  if  we  are  successful  in  entering  into any agreements for the
development  and  manufacture  of  our  TurboAir  products.

Additional  Elements  of  Our  Business  Strategy

Additional  key  elements  of  our  strategy  include:

-     Increasing  awareness  in  the  automotive  industry for our expertise and
      technology  in  the  field  of  charging  internal  combustion  engines;

-     Continuing  our  engineering  efforts  to  further advance our technology;

-     Establishing  additional  strategic  relationships  with  OEMs.


COMPETITION

We  do  not believe that there is any technology as used in our products that is
in  direct  competition  with our products. However, competition does exist from
existing  technology.  In  addition, new competitors are attempting to enter the
market.

We  expect  that  the  primary  competition  for  the  Turbopac(TM) and TurboAir
products  will  come  from improvements and refinements to conventional internal
combustion  engines  that  may  result in moderate, but sufficient, increases in
ongoing  power.  Implementing  these  improvements  may  be  less  costly  than
installing a Turbopac(TM) or TurboAir product. For the Dynacharger(TM) products,
we  expect  competition  on  large  engine  applications  from  improvements and
refinements to existing turbocharger technology which may be less expensive than
the  Dynacharger(TM)  products.  In  addition,  OEMs  and  consumers may be more
accepting  of  improvements  to  existing  technology  than  a  new  technology.

Competition for the Dynacharger(TM), Turbopac(TM) and TurboAir products may also
come  from  existing  products  manufactured by OEMs that do not incorporate our
products  into  their  final  product.  A relatively small number of OEMs have a
significant  share  of the automotive market. Accordingly, an OEM's

                                  Page 11 of 52

<PAGE>

decision  not  to  incorporate  our products into its product lines could pose a
significant  threat  to  our  success.

RESEARCH  AND  DEVELOPMENT

We  incurred  research  and development costs in the amount of $3,740,058 during
our  fiscal  year ended December 31, 2001.  We incurred research and development
costs  in  the  amount  of  $3,697,763 during our fiscal year ended December 31,
2000.  We  incurred  research  and development costs in the amount of $8,419,975
during  our  fiscal  year  ended December 31, 1999.  These expenditures included
amounts  on  research  and  development  with  the  objective  of  bringing  the
Dynacharger(TM)  and  Turbopac(TM)  into  full-scale  commercial  production and
amounts  on account of our research and development of our new TurboAir product.

Of  our  research  and development activities incurred in 2001, all research and
development  activities up to June 28, 2001 were incurred in connection with our
joint  development of the Turbopac and Dynacharger products with Honeywell under
our  agreements with Honeywell. These activities accounted for approximately 75%
of  our  research  and development expense in 2001. All research and development
activities  after  June  28,  2001 were incurred in connection with research and
development of our own technology that is not the subject of our agreements with
Honeywell.  These activities accounted for approximately 25% of our research and
development  expense  in  2001.

GOVERNMENT  REGULATION

In  the  United  States, emissions standards for diesel and gasoline engines are
imposed  by  the EPA and other regulatory agencies, including the California Air
Resources  Board.  The  presence of this government regulation has the potential
to  create  demand  for  our  products  as our products are designed to increase
engine  performance with resulting reductions in emissions and increases in fuel
economy.  However,  the  inability  of  our  products  to  enable  OEM's to meet
emissions  standards  will  result  in  decreased  demand  for  our  products.

In  April  1998,  we  received  certification  by the EPA for the Detroit Diesel
Corporation's  emission  reduction  kit,  which  includes  the Turbopac(TM) 2500
model, under the Urban Bus Retrofit/Rebuild Program. However, the government may
increase  emission  standards  to  a  level  that  our products currently do not
satisfy. If that occurs, we may be required to expend significant resources that
we do not currently have to develop and incorporate technology necessary to meet
the  increased  standards.  Any  such  expenditure  and  any  delays  in product
development  as  a  result  of  more  stringent  emission standards would have a
material  adverse  affect  on  our  results  of  operations.

In  March 1999, we received an executive order from the California Air Resources
Board  for  a universal exemption of the Turbopac(TM) 2500 for heavy-duty diesel
vehicles that are equipped with mechanical unit fuel injection and no electronic
injection timing or electronic throttle delay. The executive order enables us to
advertise,  market  and  install the Turbopac(TM) 2500 on vehicles equipped with
engines  covered  by  the  California  Air  Resources Board executive order. The
executive  order does not constitute a certification, accreditation, approval or
any  other  type  of  endorsement  by  the California Air Resources Board of any
claims  of  ours  concerning  antipollution  or  any  other  benefits  of  the
Turbopac(TM).   No  sales  of  the  Turbopac  2500  models  are  currently being
completed.

We  must continue to design and develop products that meet the vehicle emissions
standards  that are  imposed by the EPA and other regulatory agencies, including
the  California  Air Resources Board.  Testing to ensure our products meet these
government  regulations  will  be  an  integral  component  of  our research and
development  expense  on  new  products.

SEGMENT  REPORTING

We are currently only engaged in one business segment, being the development and
sale of products incorporating our Turbodyne technology.  We were engaged in the
aftermarket  wheels and automotive engine components business segments until the
sale  of  the  assets  of  Pacific  Baja  Light  Metals  Corporation, our former
subsidiary,  in  December  1999,  as  discussed  below.  The  following  table

                                  Page 12 of 52

<PAGE>


summarizes our revenues, gross profit, loss from operations and total assets for
each  of  our  business  segments  for  each  of  the  last  three fiscal years:

Sales from External Customers     2001                  2000           1999
Aftermarket Wheels                   -                     -     13,750,000

Automotive Engine Components         -                     -     34,753,000


Turbodyne Products               9,470               539,833      1,715,161
                              ---------------------------------------------
Total                            9,470               539,833     50,218,161
                              ---------------------------------------------

Gross Profit (Loss)               2001                  2000           1999
                              ---------------------------------------------
Aftermarket Wheels                   -                     -      1,079,000

Automotive Engine Components         -                     -      2,430,000


Turbodyne Products             354,310              (677,759)       278,963
                              ---------------------------------------------
Total                          354,310              (677,759)     3,787,963
                              ---------------------------------------------

Loss from Operations              2001                  2000           1999
                              ---------------------------------------------
Aftermarket Wheels                   -                     -     (3,216,000)

Automotive Engine Components         -                     -     (3,378,000)

Turbodyne Products          (7,357,137)          (16,841,491)   (20,257,161)
                              ---------------------------------------------
Total                       (7,357,137)          (16,841,491)   (26,851,161)


Total Assets                      2001                  2000           1999
                              ---------------------------------------------
Aftermarket Wheels                   -                     -              -

Automotive Engine Components         -                     -              -

Turbodyne Products           1,270,807             1,102,145      6,763,759
                              ---------------------------------------------
Total                        1,270,807             1,102,145      6,763,759
                              ---------------------------------------------


For  more information on our business segment financial information, see Note 10
of  our  audited  financial  statements included with this Annual Report on Form
10-K.

Our  business  operations  are  primarily  conducted within the United States at
present.  Accordingly,  we  do  not report our financial information on separate
geographic  segments.

BANKRUPTCY  OF  PACIFIC  BAJA  LIGHT  METALS  CORPORATION

In  September  1999,  Pacific  Baja  Light Metals Corporation, our former wholly
owned  subsidiary,  began Chapter 11 bankruptcy proceedings in the United States
Bankruptcy  Court  of  the Central District of California. In December 1999, the
Bankruptcy  Court  authorized  the  sale  of  substantially all of the assets of
Pacific  Baja  and  its  subsidiaries  for  a  combination  of  cash  and  other
consideration  totaling approximately $14.4 million. The purchase price included
the  assumption  of  certain  liabilities  of Pacific Baja and a cash payment to
Wells  Fargo  Bank,  which  had  a  financing  agreement  with  Pacific  Baja.

There  were  no  remaining assets and liabilities of Pacific Baja as of December
31,  1999.  Capital  leases  with  obligations totaling approximately $4 million
that  we  had  guaranteed  were  assumed  by  the buyer after December 31, 1999.
However,  we  had  guaranteed purchase commitments of Pacific Baja to TST, Inc.,
one  of  Pacific  Baja's  aluminum suppliers, totaling approximately $1,800,000.
These  purchase  commitments  were  not assumed in the bankruptcy sale.  We have
entered into settlement discussions with TST, Inc. whereby we anticipate that we
will  agree  to a stipulated judgment against us in respect of our obligation to
TST,  Inc. as a guarantor.   See Item 3. Legal Proceedings - Litigation Relating
to  Former  Subsidiary.  We  reached  an agreement for the settlement of amounts
owed  by  us  in respect of a

                                  Page 13 of 52
<PAGE>

guarantee  of  the lease obligations of Pacific Baja for certain premises in the
first  quarter  of 2001. Under the terms of the settlement, we paid an amount of
$38,000  and  agreed  to pay a further amount of $38,000 by March 2, 2001, which
amount we have not yet paid. In addition, we issued 800,000 shares of our common
stock  and  agreed  to  the  grant of warrants to purchase an additional 200,000
shares  of our common stock at a price of $0.25 per share for a three year term.

There  were  approximately $7,000,000 of unsecured creditor claims that remained
unpaid after completion of the sale of the assets of Pacific Baja.  These claims
remain  unsatisfied  to date.  The Bankruptcy Court established the Pacific Baja
Liquidating  Trust to assert any claims of the unsecured creditors.  The Pacific
Baja  Liquidating  Trust  commenced  legal proceedings against us and the former
directors  and officers of each of Turbodyne Systems and Pacific Baja.  See Item
3.  Legal  Proceedings  -  Litigation  Relating  to  Former  Subsidiary.


EMPLOYEES

As  of  April  8,  2002,  we  had approximately 14 full-time employee equivalent
consultants,  comprised  of  the  following:

1.     Our  two  executive  officers,  namely  Mr.  Daniel Black and Mr. Charles
       Caverno;
2.     Four  machinists  and  prototype  manufacturing  personnel;
3.     Two  administrative  personnel;  and
4.     Six  research  and  development  personnel.

RISK  FACTORS

We  face  risks  in  executing  our  business  plan and achieving revenues.  The
following  risks  are  material  risks  that  we  face.  We  also face the risks
identified  elsewhere  in this Annual Report on Form 10-K, including those risks
identified  under  Item  1 - Description of Business, Item 3 - Legal Proceedings
and  Item  6 - Management Discussion and Analysis or Plan of Operations.  If any
of  these  risks  occur,  our  business  and our operating results and financial
condition  could be seriously harmed and we may not be able to continue business
operations  as  a  going  concern.

RISKS  RELATING  TO  OUR  FINANCIAL  CONDITION

There  Is  A  Substantial Risk That We Will Not Be Able To Continue Our Business
Operations  Due  To  Our  Financial  Condition.

We  had  a working capital deficit of $9,328,295 as at December 31, 2001.  As we
are  not  earning revenues, we require substantial amounts of additional capital
in  order  to  continue  business  operations.  We  are seeking additional funds
through  private  placement  offerings  of  our common stock and we are pursuing
development  of  our  technology through joint development agreements. We do not
have  any  arrangements  in  place  for  any  financing.  In addition, if we are
successful  in  achieving  financing,  we anticipate that any financing would be
achieved by sales of additional shares of our common stock.  Sales of additional
shares  of  our  common stock will result in significant dilution to our current
stockholders.   If  we  do not achieve additional financing, we may be forced to
cease  business  operations.  In  addition,  the maximum number of shares of our
common  stock  that  we  can  issue  is 99,000,000 shares until such time as our
certificate  of  incorporation  is  amended  to  permit  an  increased number of
authorized  shares.  An amendment to our certificate of incorporate will require
the  approval  of  our  shareholders  in  accordance  with  Delaware  law.

There Is Substantial Doubt As To Our Ability To Raise Additional Capital Through
Sales  Of  Our  Common  Stock.

There is substantial doubt as to our ability to raise additional capital through
sales  of  our  common  stock  due  to  the  following  factors:

1.     We  have  a  substantial  working  capital  deficit;
2.     We  do  not  have  any  significant  revenues;

                                  Page 14 of 52
<PAGE>


3.     We  will  not  achieve  significant  revenues  until  we  complete  the
       commercialization of products incorporating our technology, whether
       by ourselves or  in  conjunction  with  automotive  OEM's;
4.     We  will  be  required  to  incur  substantial  research  and development
       expenses  prior  to the commercialization of  products incorporating  our
       technology;
5.     Our  relationship  with  Honeywell  is  the subject of legal proceedings;
6.     We  are  the  subject of outstanding judgments and legal proceedings; and
7.     The  presence of the other risks identified in this Annual Report on Form
       10-K.

There  Is  Substantial  Doubt  About Our Ability To Continue As A Going Concern.

We  reported  net  losses of $7,365,220 and $16,966,245 for the two fiscal years
ended  December  2001  and  2000  respectively. We suffered net losses in recent
years  resulting in an accumulated deficit of $114,589,361 at December 31, 2001,
have used cash in its operating activities in recent years, have disposed of our
most  significant  subsidiary  through  bankruptcy, are subject to lawsuits, and
based  on  our  projected cash flows for the ensuing year we will be required to
seek  additional  equity  or  debt  financing  in  order to continue our present
operations,  irrespective  of the amounts to be paid, if any, in connection with
the  aforementioned  lawsuits.  These  matters raise substantial doubt about our
ability  to  continue  as  a  going  concern.

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,  2001.

Substantially  All  Of  Our  Historical Revenues Were Derived From Pacific Baja,
Substantially  All Of The Assets Of Which Were Sold In Bankruptcy Proceedings In
1999.

Substantially all of our revenues on a consolidated basis have historically been
derived  from  Pacific  Baja,  our former subsidiary. The assets of Pacific Baja
were sold in bankruptcy proceedings in December 1999.  The sale of substantially
all  of the assets of Pacific Baja has had an adverse affect on our business and
results  of  operations.

We  Have  No  History  Of  Product  Sales.

None  of  the  Turbopac  or Dynacharger products have been commercially produced
except  for  the  limited  commercial production of the TurbopacTM 2500 product.
Sales  of  the  Turbopac  2500 product have been terminated by Honeywell.  Other
models  of  the  TurbopacTM  product  and  all  models  of the DynachargerTM and
TurboAir products remain in various stages of development.  We cannot assure you
that the TurbopacTM models, DynachargerTM or TurboAir products will be developed
timely or that they will be commercially accepted. The failure of the TurbopacTM
and DynachargerTM or TurboAir products to achieve commercial success will have a
material  adverse  effect  on  the  business,  operating  results  and financial
condition  of  the  Company.

RISKS  RELATING  TO  THE  STATUS  OF  OUR  AGREEMENTS  WITH  HONEYWELL

The  Termination  Of Our Joint Development And License Agreements With Honeywell
Would  Have  A  Material  Adverse  Effect  On  Our  Business.

Honeywell  has  initiated  arbitration  proceedings  against us to terminate our
license  agreement and joint development agreement with Honeywell as a result of
our  alleged inability to meet our commitments under the agreements.  We contest
Honeywell's  attempts  to terminate the agreements and disagree with Honeywell's
assertions  regarding alleged delinquencies. We have commenced legal proceedings
in  court in an attempt to enjoin Honeywell from proceeding with the arbitration
proceedings.  There  is  no  assurance  that  we will be successful in enjoining
these  proceedings.

There  Is  No  Assurance  That  Our Claims Against Honeywell Will Be Successful.

We  have  commenced  legal  proceedings  against  Honeywell  seeking substantial
damages as a result of Honeywell's conduct under our license agreement and joint
development  agreement  with  Honeywell.  There  is no assurance that we will be
successful  in  prosecuting these legal proceedings against

                                  Page 15 of 52
<PAGE>

Honeywell.  There  is  also no assurance that if an award of damages is obtained
against  Honeywell,  that  any  award  of  damages  would be in the range of the
damages  we  are  seeking  in  these  legal  proceedings.

We May Not Be Able To Continue In Business Even If We Retain Our Agreements With
Honeywell.

Due  to  our  past losses and our limited working capital, we may not be able to
stay  in business, even if we continue to develop our technology with Honeywell.
Honeywell has terminated sales of the Turbopac products that they have the right
to sell under our license agreement.  Honeywell is also not currently proceeding
with the commercial development of Dynacharger products and no sales of products
incorporating  the  Dynacharger  technology  are  being  made  under our license
agreement.  Accordingly, we are not earning revenues under our license and joint
development  agreements  with  Honeywell.  As  we do not have any other products
ready  for  commercial  sale  at this time, there is significant doubt as to our
ability  to  continue business operations even if Honeywell is not successful in
terminating  our license agreement and joint development agreement.  Our current
sources of working capital are not sufficient to meet our working capital needs.

RISKS  RELATING  TO  ADDITIONAL  LEGAL  PROCEEDINGS

We  Have  Been  Named  As  A  Defendant  In  Legal  Proceedings Arising From The
Bankruptcy  Of  Pacific  Baja.

We  have been named as a defendant in legal proceedings commenced by the Pacific
Baja  Liquidating  Trust  on  behalf  of  the  creditors of Pacific Baja seeking
damages  in  excess  of  $12  million from ourselves and the former officers and
directors  of  Pacific  Baja  and  Turbodyne  Systems.  If  the  Pacific  Baja
Liquidating  Trust  is  successful  in achieving an award of substantial damages
against  us,  we  may  be forced to cease business operations.  In addition, the
continuation  of  these  legal  proceedings  may  have  an adverse affect on our
ability  to  raise  additional  capital.

We Are Subject To Outstanding Judgments That May Adversely Impact Our Ability To
Continue  Operations.

We  are  the subject of a judgment in favor of Heartland Financial in the amount
of  approximately  $535,490.  While  we have appealed this judgment, there is no
assurance  our  appeal  will be successful.  We are the subject of a judgment in
the  amount  of  approximately  $50,000 in favour of Bowne.  The commencement of
execution  proceedings  by our judgment creditors will have an adverse impact on
our  ability  to  continue  as  a  going  concern.

We  Are  The  Subject Of Additional Legal Claims That Could Adversely Impact Our
Ability  To  Continue  Operations.

In addition to the claims described above, we are party to the legal proceedings
described  in  Item  3 - Legal Proceedings.  Our inability to settle these legal
claims  or  adverse  decisions against us in the proceedings may have an adverse
affect  on  our  ability  to  continue  operations  as  a  going  concern.

RISKS  RELATED  TO  OUR  BUSINESS  STRATEGY

Our  Business May Be Adversely Affected If We Are Not Able To Achieve Management
Stability.

There  is  no assurance that we will be able to retain a management team that is
capable  of  implementing  our  business  strategy  successfully.  Our  board of
directors and management has experienced a high rate of turnover recently, which
has  affected  our  ability to focus on the core elements of our business. It is
possible  that we will continue to experience turnover, although we believe that
our  executive  officers will retain their positions for the foreseeable future.
If  management resources continue to be diverted towards replacing directors and
executive officers, our ability to manage our business, achieve financing and to
further  develop  our  technology  will  be  impaired  with  the result that our
business  will  be adversely affected.   In addition, our current stability will
have  a  negative impact on the quality of management that we are able to retain
to  manage  our  business.

                                  Page 16 of 52
<PAGE>


Our  Business  Will  Not  Succeed If We Cannot Convince OEM's To Incorporate Our
Technology  Into  Their  Product  Lines.

Our  future financial performance depends primarily on our ability to enter into
agreements  with automotive OEM's that lead to the commercialization of products
incorporating  our  technology. If we are unable to convince automotive OEM's of
the  advantages  and  viability  of  our  technology, we will not be successful.

We  May  Expend A Significant Amount Of Time And Resources Testing Programs That
May  Not  Result  In  Any  Sales.

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

Our Business Could Be Materially Adversely Affected If We Encounter Problems And
Delays  In  Completing  The Development Of Products Incorporating Our Technology
For  Commercialization.

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

Future  Revenues  Depend  On  Our  Ability  To  Get  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. While we have assigned our patent and trademark rights relating to the
Turbopac(TM)  and  the  Dynacharger(TM)  to  Honeywell,  we have also obtained a
non-exclusive  license  for  these  patents  under  our  license  agreement with
Honeywell.  Accordingly,  we  depend  on  continued  patent protection for these
products.  We are also pursuing patent protection of new technology that we have
developed  and incorporated into our TurboAir product.  Patent applications have
been  filed  in  the United States and certain foreign jurisdictions relating to
these  products. The patents may not be issued, however, or, if issued, they may
be  modified.  If we are unable to obtain and 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.



Application  for  a  patent  offers no assurance that a patent will be issued or
issued  without  material  modification.  Moreover,  we  cannot  assure you that
patents  will  be  issued,  or  that  issued patents will not be circumvented or
invalidated,  that  proprietary information can be maintained as such or that we
will  be  able  to  achieve or maintain a technological advantage.  We may incur
substantial  costs  seeking to enforce our patent rights against infringement or
the  unauthorized  use  of  our proprietary technology by others or in defending
ourselves  against  similar claims of others.  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.

                                  Page 17 of 52
<PAGE>


If  New,  Commercially  Successful  Techniques  Similar  To  Our  Products  Are
Developed,  Our  Potential  Market  Share  Will  Be  Reduced.

The  business environment in which we operate is highly competitive. Although we
know of no products that are technologically similar to ours, future competitors
may  develop  related  technologies  that  improve  the  performance of internal
combustion  engines  or  products  that  are  not encompassed by our patents. In
addition,  competitors may be issued patents that inhibit our ability to develop
certain  products.  There  may also be improvements to current technologies that
compete  with  ours.  Successful  development  of  new techniques may reduce our
potential market share or make our products less attractive or obsolete, each of
which  would  adversely  affect  our  business.  In addition, a relatively small
number of OEM's hold a significant share of the automotive market. If any of the
OEM's  decides  not  to  incorporate  our products into their product lines, our
potential  market  share might be significantly reduced. Our products may not be
superior  to  existing or subsequently developed competitive products and we may
not  be  able to obtain significant market share or be able to adapt to evolving
markets  or  technologies.

We  Must  Keep  Pace  With  Technological  Change  To  Achieve  Success.

The  automotive  industries  in  which we compete are characterized by rapid and
significant  technological  change.  Our  success  depends  on  our  ability  to
continually  develop  new  technology  and  to refine products incorporating our
original technology.  We have been pursuing commercialization of Dynacharger(TM)
and  Turbopac(TM)  product  lines.  However, development of these products under
our  agreements  with Honeywell has not proceeded as planned.  Due to this delay
and the rapid pace of technological innovation in the automotive industry, there
is  a  risk  that  these products may be superceded by new technology and become
obsolete.  We  have  embarked  on  development of new technology to counter this
risk,  including the development of our new TurboAir product.  However, there is
no  assurance  that  our  new  technology  will  achieve  success

We  cannot assure you that our products will be commercially accepted or that we
will  be  able  to  enhance  existing products or develop new products.  We also
cannot  assure  you  that  technological  change  will  not  render  obsolete or
uneconomical any of our products.  Our ability to continue to develop and market
new  and  improved  products that can achieve significant market acceptance will
determine  our  future  sales  and  profitability.

Intense  Competition.

The business environment in which we operate is highly competitive.  Most of our
competitors  have  and  potential  competitors  may  have  greater  financial,
marketing,  technological  and  other  resources.  We  believe  that no products
technologically similar to the TurbopacTM and DynachargerTM or TurboAir products
have  been  sold.  However,  future competitors may develop related technologies
that  improve  the  performance  of  internal  combustion  engines and/or reduce
emissions that are not encompassed by our patents.  In addition, other companies
may  be issued patents which may inhibit our ability to develop certain products
encompassed  by  those  patents.  There  also  may  be  improvements to existing
technologies.

If new techniques are developed and are commercially successful, they may reduce
our  potential  market  share or make products incorporating our technology less
attractive  or  obsolete,  each of which will adversely affect our business.  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 the
TurbopacTM  products  into  its  product  line may force us to expend additional
amounts  to  gain  market share and/or significantly reduce our potential market
share.

RISKS  RELATING  TO  OUR  MARKET

Because  Our  Stock Is A Penny Stock, Shareholders Will Be More Limited In Their
Ability  To  Sell  Their  Stock.

Our  common  stock  is  traded in the over-the-counter markets through the "pink
sheets"  and  constitutes  a  penny stock under the Securities and Exchange Act.
Our  shares  will remain classified as a penny stock

                                  Page 19 of 52
<PAGE>

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  to  resell  their  shares  of  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 quarterly
variations  in the results of our operations, announcements of new technological
innovations  by  competitors,  our inability to achieve commercialization of our
products or enter into joint venture and licensing agreements, the operating and
stock price performance of other companies that investors may deem comparable to
us, and news relating to trends in our markets. In addition, the stock market in
general,  and  the  market  for  high  technology  stocks  in  particular,  has
experienced  extreme  volatility  that often has been unrelated to the operating
performance of these companies. These broad market and industry fluctuations may
adversely  affect  the  price  of  our common stock, regardless of our operating
performance.

Absence  Of  Dividends.

We  have never paid cash dividends on the common stock and no cash dividends are
expected  to  be paid on our common stock in the foreseeable future.  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  2.     PROPERTIES.

We  maintain  our corporate headquarters and our engineering, design and testing
facilities  in  approximately  28,000  square  feet  of  leased space located in
Carpinteria,  California.  These  premises  are  leased  for a monthly rental of
approximately  $28,840  plus  operating  costs,  including  taxes, insurance and
utilities  for  a  term  expiry  in  January  30,  2005.


We  believe  that our existing facilities are adequate for our current business.
We  are  currently  seeking  to sublet approximately half of our leased premises
that we are not using in order to reduce our administrative and operating costs.


ITEM  3.     LEGAL  PROCEEDINGS.

Honeywell  International,  Inc.

We  commenced  an  action against Honeywell in the Unites States District Court,
Central  District  of  California  in  August  2001.  We  have  alleged  that:

1.     Honeywell's  conduct  under  our  joint development agreement and license
agreement  constituted  a  restraint  of  trade in violation of the Sherman Act;

2.     the  individual  acts  and  decisions  of  Honeywell have resulted in the
suppression  of  our  technology  and  the  prevention  and  delay  of  the
commercialization  of  our  technology  in  contravention  of  the  Sherman Act;

3.     Honeywell's  actions  constitute instances of monopolization or attempted
monopolization  under  the  Sherman Act as a consequence of Honeywell's dominant
position  in  the  turbocharger  market;

                                  Page 19 of 52
<PAGE>


4.     Honeywell's  wrongful  interference  with  our  attempts  to  enter  into
manufacturing  arrangements  for  components  of  the  Turbopac  and Dynacharger
products  constituted  the  unlawful  restraint  of  trade,  an  instance  of
monopolization  or  attempted  monopolization  and  unfair  competition;

5.     Honeywell's  actions  constitute racketeering activity within the meaning
of  the  Racketeer  Influenced  and  Corrupt  Organizations  Act

We  have  claimed  damages  in  excess  of $3 billion arising as a result of the
alleged  breaches of the Sherman Act by Honeywell.  Honeywell has filed a motion
to dismiss our claim on the basis that we lack standing to sue under the Sherman
Act  and  the  Racketeer Influenced and Corrupt Organizations Act.  A hearing on
the motion to dismiss was originally scheduled for May 6, 2002.  The date of the
motion  to  dismiss  will  be adjourned to a later date to be agreed upon due to
illness  suffered  by  our  legal  counsel  in  the  matter.   We  will  contest
Honeywell's  motion  to  dismiss.

Prior  to  our  commencing  the above legal proceedings, Honeywell had initiated
arbitration  proceedings  with the American Arbitration Association in June 2001
under  our  license  agreement  and  joint development agreement with Honeywell.
Honeywell  is  seeking  termination  of  the  license  agreement  and  the joint
development agreement based on their allegations that we breached the agreements
and  are  unwilling  and  unable  to  perform  our  future obligations under the
agreements.  We  have  disputed that Honeywell is entitled to termination of the
license  agreement  and  the  joint development agreement.  We filed a motion to
stay  the  arbitration.  The  arbitrator  refused  to  grant  us  our  motion.

We  are  presently  seeking an order of the United States District Court against
Honeywell  enjoining  Honeywell  from  pursuing this arbitration proceeding.  We
maintain  that  the  filing  of  this  arbitration  proceeding  was in itself an
anti-competitive  act  under  the  Sherman  Act.

Litigation  Relating  to  Former  Subsidiary

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.  Substantially  all  of  the assets of Pacific Baja were
purchased  in  December  1999.

In  September  2001, the Pacific Baja Liquidating Trust commenced action against
us  in  the  United  States  Bankruptcy  Court, Central District of California -
Riverside Division. The Pacific Baja Liquidating Trust was established under the
Pacific  Baja  bankruptcy proceedings for the benefit of the unsecured creditors
of Pacific Baja. We did not become aware of this legal proceeding until February
2002.

The  Pacific  Baja  Liquidating  Trust  is  seeking:

1.     the re-characterization of our advances to Pacific Baja as equity and the
subordination  of  our  unsecured  claims  against  Pacific  Baja;

2.     the  re-conveyance  of  an  aggregate  of  up to approximately $7,190,000
transferred  by  Pacific  Baja  to  us  and Turbodyne Systems on the basis of an
allegation  of  fraudulent  transfer;

3.     an  order  that  we  are  liable  for  all  of  the debts of Pacific Baja
totalling  approximately  $7,000,000;

4.     damages  and  punitive  damages  against  us  and  certain  of our 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.

We  have filed an answer denying liability.  We also contend that if we did have
any  liability  to  the creditors of Pacific Baja, our liability would be setoff
against  the  full  amount  of  our claims against Pacific Baja in the amount of
approximately  $6,000,000,  which  the bankruptcy court has subordinated but did
not  disallow.

                                  Page 20 of 52
<PAGE>


We  are  pursuing  settlement negotiations in this proceeding.  We have proposed
that  we  would  surrender  our  claims  as  a  creditor  of  Pacific  Baja  in
consideration  for  a  release  of the other claims asserted by the Pacific Baja
Liquidating  Trust against us and the former officers and directors of Turbodyne
Systems  and  Pacific  Baja.  We will vigorously contest and defend any claim by
the Pacific Baja Liquidating Trust that would exceed our claims as a creditor of
Pacific  Baja  and that would be satisfied other than by a set-off of our claims
against  Pacific  Baja.

In  March 2000, TST, Inc., 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 sought damages of
approximately  $1.8  million.  However,  if  it  is determined that TST received
payment  in  preference to other creditors before Pacific Baja filed its Chapter
11  petition  in  bankruptcy,  TST will likely increase its claim by $2,130,000.

We  agreed  on  the  terms  of  settlement  with  TST  on October 4, 2001.  This

settlement  will  be  not be binding until a settlement agreement and release is
executed  between  TST  and  us.  We  have  agreed on the form of the settlement
agreement  and  release.  This  settlement  agreement  and  release has not been
executed  to  date.  Under  the  terms  of  the  settlement,  we  would:

     (i)  issue  1,000,000  shares  of our common stock to Mr. Andrew Stein, the
          president  of  TST, and we would agree to register the resale of these
          shares  by  Mr.  Stein  by  filing  a  registration statement with the
          Securities  and  Exchange  Commission;

     (ii) issue  2,000,000  shares  of  our  common  stock  to  TST;

     (iii)agree to the  stipulation for the  entry of judgment that will provide
          for  the  immediate  entry  of  judgment  against  us in the amount of
          $2,066,078 plus interest form the date of entry at the rate of 10% per
          annum.  This amount of this judgment would immediately increase by any
          amount  that TST is compelled by judgment or court order or settlement
          to return as a preferential transfer in connection with the bankruptcy
          proceedings  of  Pacific  Baja;

     (iv) any  proceeds received by TST or Mr. Stein from the sale of the issued
          shares  will  be automatically applied as a credit against that amount
          of  the  judgment  against  us  in  favor  of  TST.

We  have included an amount of $2,066,078 in our reserve for lawsuit settlements
on  our  consolidated  balance  sheet  as at December 31, 2001 in regard to this
settlement  with  TST.

In  May  2000, Heartland Financial Corporation filed a complaint for arbitration
against  us seeking approximately $600,000 representing a success fee it claimed
it is entitled to for investment banking services provided to Pacific Baja based
on  a  letter agreement between Heartland, Turbodyne and Pacific Baja. After the
letter  agreement  was  signed,  Pacific  Baja  filed  a  Chapter 11 petition in
bankruptcy.  At  the  conclusion  of  the bankruptcy proceedings, the bankruptcy
court awarded Heartland a portion of its fees. Heartland then sought the balance
of  the  fees  from  us.

Heartland  obtained  an  arbitration  award  against  us  in  the  amount  of
approximately  $535,490.  This  arbitration  award  was  entered  as  a judgment
against  us in the Superior Court of the State of California, City and County of
San  Francisco  in  June 2001.  We have appealed this judgment to the California
Court  of  Appeal  for  the  First  District.  We  are  awaiting  the  filing of
Heartland's  response  to  our  appeal.

We  filed  an action in Superior Court of the State of California for the County
of  Santa Barbara in March 2001 against Saddayapa K. Durairaj, one of our former
directors  and  Michael Joyce, Lennart Rennberg, Dr. Saxena, and Dr. Balabanian.
We  had  sought  damages for alleged fraud by the former shareholders of Pacific
Baja  in  connection  with  the sale of their shares of Pacific Baja to us.   We
determined to abandon this law suit and we filed a request for dismissal of this
legal proceeding in the Superior Court of California, County of Santa Barbara on
February  20,  2002.

                                  Page 21 of 52
<PAGE>


SEC  Investigation  and  Class  Action  Law  Suits

In  June  1999,  we received a formal request from the SEC for the production of
documents  relating  to press releases issued by our previous management between
May  1997  and  September 1998.  This investigation included an investigation of
the actions of Mr. Edward Halimi, one of our former chief executive officers and
a  former  director.  The  SEC  expanded  its  investigation  to  include  an
investigation  as  to  whether  we  had  issued  unregistered  shares without an
exemption  from the registration requirements of the SEC in contravention of the
Securities  Act  of  1933  (the  "1933  Act").

We consented to the entry of a final judgment of permanent injunction against us
as  part of a settlement reached by us with the SEC in January 2002.   Under the
stipulated  terms  of  this  settlement,  the  SEC filed an action against us on
January  25,  2002.  This action was concluded during February 2002 by the entry
of a final judgment in the United States District Court for the Central District
of  California,  Western  Division  in  the agreed form.  Under the terms of the
final  judgment,  it was ordered that we are permanently restrained and enjoined
from:

1.     violating  section  17(a) of the 1933 Act.  Section 17(a) of the 1933 Act
prohibits  fraudulent  devices  and  schemes,  misstatements  and  omissions  of
material  facts  and  acts  and  practices  that operate as a fraud or deceit in
connection  with  the  offer  or  sale  of  any  securities;

2.     violating section 10(b) of the Securities Exchange Act of 1934 (the "1934
Act"), including Rule 10b-5.  Section 10(b) of the 1934 Act prohibits fraudulent
devices  and schemes, misstatements and omissions of material facts and acts and
practices that operate as a fraud or deceit in connection with the offer or sale
of  any  securities;

3.     violating  section  13(a)  of  the  1934  Act  by causing the filing of a
periodic report with the SEC containing any misstatement or omission of material
facts.

A  similar judgment was consented to by Mr. Halimi enjoining him from violations
of  section  17(a)  of  the  1933 Act, section 10(b) of the 1934 Act and section
13(a)  of the 1934 Act.  In addition, Mr. Halimi consented to a judgment against
him  in  the  amount  of  $50,000.

In  January  through  March  of 1999, six purported class action complaints were
filed  against us and certain of our officers and directors in the United States
District  Court  for  the  Central  District  of  California,  as  follows:

Abbreviated  Case  Name                              Case  No.       Date  Filed
-----------------------                              ---------       -----------
Takeda, et al. v. Turbodyne Technologies, et al.     CV-99-00697-MMM   1/22/99
Zaks, et al. v. Turbodyne Technologies, et al.       CV-99-00743-MMM   1/25/99
Lincscott, et al. v. Turbodyne Technologies, et al.  CV-99-00933-MMM   1/28/99
Siebert, et al. v. Turbodyne Technologies, et al.    CV-99-01288-MMM   2/08/99
Gentile, et al. v. Turbodyne Technologies, et al.    CV-99-02194-MMM   3/01/99
Giammarco, et al. v. Turbodyne Technologies, et al.  CV-99-02751-MMM   3/16/99

In  June  1999,  the court consolidated the above actions for all purposes under
the  caption In Re Turbodyne Technologies Securities Litigation, Master File No.
CV-99-00697-MMM  (BQRx).

The  plaintiff's  third amended consolidated class action complaint was filed on
or  about  January 27, 2001.  The amended class action complaint asserted claims
for  violation  sections  10(b) and 20(a) of the Securities Exchange Act of 1934
and  rule  10b-5  thereunder.  In addition to Turbodyne, the defendants included
Edward  Halimi,  Leon  Nowek  and Walter Ware, each of whom is one of our former
directors  and  officers.  The  consolidated  action  purports  to be brought on
behalf  of  individuals  claiming that they purchased shares of our common stock
during  the  period  from March 1, 1997 through January 22, 1999. The plaintiffs
seek  unspecified  damages  arising  from  alleged misstatements concerning such
matters  as  the  technological capability and actual and potential sales of our
Turbopac(TM)  products  and the demand and acceptance of this and other products
of ours. The plaintiffs allege that these alleged misstatements

                                  Page 22 of 52
<PAGE>

caused  the  price  of  our  common stock to be artificially inflated during the
class  period.  These  actions  were  tendered  to  our  insurance  carriers who
appointed  counsel  to  represent  us.

We  have  reached  a  settlement agreement that we anticipate will result in the
final  disposition  of  these  legal proceedings.  This settlement agreement has
been approved by the insurance companies involved.  We have signed a stipulation
of  settlement  with  the  legal  counsel for the plaintiffs that sets forth the
terms  and  conditions  of  this settlement.  This stipulation of settlement has
been  submitted to the court for approval.  The settlement will not become final
until  such  time  as  court approval has been obtained, the time for appeal has
lapsed  and funds are released in accordance with the settlement agreement.  The
agreed  terms  of settlement provide for a stipulated judgment against us in the
amount  of  $7.9  million.  This  judgment  will be satisfied solely through our
director's  and  officer's liability insurance policies.  Our primary and excess
insurers  will  pay  approximately $2.9 million of this amount as a condition of
settlement.  The  balance of $5.0 million will be satisfied from the proceeds of
the  second layer of an excess policy issued by Reliance Insurance Company to be
assigned  to  the  plaintiffs.  The  plaintiff's  case  against  us  and  our
co-defendants  will  be  dismissed.  The  plaintiffs  will not have any right to
pursue  execution  against us or our assets upon finalization of the settlement.

We have commenced an action in Superior Court of the State of California for the
County  of  Santa Barbara against Sheppard, Mullin, Richter & Hampton ("Sheppard
Mullin")  in  February  2001.   Sheppard, Mullin were by us engaged as our legal
counsel  for  securities  matters  in 2000.    We are claiming against Sheppard,
Mullin  for  damages  in  excess  of  $100  million dollars.  Our action against
Sheppard,  Mullin  is  based  on  attorney  malpractice arising from the alleged
failure  of  Sheppard  Mullin  to  advise Easdaq of our concern that we may have
issued  unregistered  securities  without  an  available  exemption  from  the
registration  requirements  of  the  1933  Act.  We  allege  that the failure of
Sheppard, Mullin to advise Easdaq of this issue in a timely manner caused Easdaq
to suspend the trading of our common stock on the Easdaq market, with the result
that  the  market  price  for  our  common  stock  was  significantly  devalued.

Sheppard,  Mullin  have  filed  a  defence  in this legal proceeding denying any
liability  to  us.  Discovery  consisting  of  the  production  of  documents,
interrogatories  and  the  taking  of oral dispositions has been pursued by both
parties.  This  action  has  been  set  for  trial  in  June  2002.

We  filed  an action in Superior Court of the State of California for the County
of  Santa  Barbara  (Case  No. 01046250) in March 2001 against Wendell Anderson,
Gerhard  Delf,  Sadayappa  K.  Durairaj, Naresh C. Saxena, Mugerdish Balabanian,
Kenneth  Fitzpatrick,  Alain  G. Chardon, Joseph D. Castano and Marsha Chandler.

We  have  determined to abandon this law suit against all defendants, other than
Mr.  Anderson  and  Mr.  Gelf.  We  filed  a request for dismissal of this legal
proceeding  in  the  Superior  Court  of  California, County of Santa Barbara on
January  29,  2002  with  prejudice  as  to the defendants Joseph D. Castano and
Marsha Chandler only.  We filed a request for dismissal of this legal proceeding
in  the  Superior  Court  of California, County of Santa Barbara on February 20,
2002  with  prejudice  as  to  the  defendants  Sadayappa K. Durairaj, Naresh C.
Saxena,  Mugerdish  Balabanian and Kenneth Fitzpatrick only.  We filed a request
for  dismissal  of  this  legal  proceeding in the Superior Court of California,
County  of Santa Barbara on February 26, 2002 with prejudice as to the defendant
Alain  G.  Chardon  only.

We  are  proceeding  with  the  actions  against Mr. Anderson, one of our former
directors,  and  Mr.  Delf,  one  of  our  former directors and our former chief
executive  officer.  We are seeking damages for alleged breach of fiduciary duty
by  Mr.  Anderson and Mr. Delf in connection with their handling of our dealings
with Sheppard, Mullin, our former securities legal counsel, that have given rise
to  our litigation against Sheppard, Mullin and our acquisition of Pacific Baja.
This  action  has  been  set  for  trial  on  June  26,  2002.

Mr.  Leon  Nowek, one of our former directors and former officer, has threatened
to  take  action  against  us  for an alleged breach of his employment agreement
dated August 1, 1997, as amended July 27, 1998.  Mr. Nowek claims to be entitled
to  payment of $1,620,000 in respect of alleged breaches by us of the employment
agreement.  An  additional  amount  of  $32,511  is  claimed  by  Mr.  Nowek for
reimbursement  of  legal  costs incurred by Mr. Nowek in connection with the SEC
investigation and class action lawsuit in which Mr. Nowek was named a party.  We
have a claim against Mr. Nowek in the amount of $225,000 in respect of a housing
loan  that  we  advanced  to Mr. Nowek and that has not been repaid.  We were in

                                  Page 23 of 52
<PAGE>

settlement discussion with Mr. Nowek in 2000.  Negotiations broke down on August
11,  2000.  Mr.  Nowek  has  since  indicated to us that he is willing to resume
negotiations  and we expect to commence negotiations in late April of this year.
If  we  are  unable  to  reach  settlement,  we  intend  to refer the dispute to
arbitration  under  the  terms  of  the  employment  agreement.

Other  Legal  Proceedings

In  December  2000,  Alain  F. Lombard, one of our former consultants, served us
with  a  demand  for  arbitration.  Mr. Lombard alleged breach of contract.   We
agreed  to  a stipulated judgment against us in the amount of $180,535 in August
2001.  Repayment of this judgment is stipulated at $15,000 per month, commencing
October  2001.  We have completed the first payment of this stipulated judgment.
We  are  currently  five  months  in  arrears.  Mr.  Lombard  has  the  right to
accelerate  the  unpaid  portion of the judgment and enter judgment for the full
amount  if  we  default  on  our  payments  to  Mr.  Lombard.

In  December 2000, Bowne of Los Angeles served us with a complaint for breach of
contract  for  services  rendered.  Bowne  sought payment for past services plus
attorneys' fees and costs. Bowne was granted a judgment in the Superior Court of
Los  Angeles  against us in the amount of $49,427.74.  We have not yet paid this
judgment.


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

No  matters  were submitted to our security holders for a vote during the fourth
quarter  of  our  fiscal  year  ending  December  31,  2001.


                                  Page 24 of 52
<PAGE>

                                     PART II

ITEM  5.     MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
MATTERS.

PRICE  RANGE  OF  COMMON  STOCK

The following table sets forth the reported high and low closing sales prices of
our  common  stock  for the quarters indicated as reported on NASDAQ Europe. Our
common  stock  was traded on NASDAQ Europe under the symbol "TRBD" from July 30,
1997  to  August  1,  2000.  Trading  of  our  common stock on NASDAQ Europe was
terminated as a result of discipline hearings commenced against us in connection
with  issuances  of  news  releases.

                            2001           2000
                            High    Low    High    Low
First  Quarter          $     -       -   $ 4.90   $ 2.48
Second  Quarter               -       -     3.88     1.95
Third  Quarter                -       -     2.30     1.70
Fourth  Quarter               -       -        -        -

Our  common  stock  has  been  traded on the Pink Sheets under the symbol "TRBD"
since  April  2, 1999. The following table shows the range of representative bid
prices for the common stock. The prices represent quotations between dealers and
do  not  include retail mark-up, markdown, or commission, and do not necessarily
represent  actual  transactions:

                            2001           2000
                            High    Low    High    Low
First  Quarter          $   0.46  $ 0.10  $ 4.82   $ 2.25
Second  Quarter             0.36    0.105   2.90     1.94
Third  Quarter              0.66    0.16    2.07     0.39
Fourth  Quarter             0.48    0.175   0.44     0.09

For  the  first quarter of 2002, the high closing price for our common stock was
$0.49  per  share  and  the  low  closing  price  was  $0.23  per  share.

Registered  Holders  of  Our  Common  Stock

As  of  April 8, 2002, there were approximately 279 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.

RECENT  SALES  OF  UNREGISTERED  SECURITIES

During the last quarter of our fiscal year ended December 31, 2001, we completed
the  sales  of the following securities that were not registered pursuant to the
Securities  Act  of  1933  (the  "1933  Act"):

                                  Page 25 of 52
<PAGE>


1.     We  issued  1,365,909  shares  of  our  common stock to a total of twenty
investors on October 17, 2001 for total proceeds of $222,283.  These shares were
issued  in  reliance  of  Regulation  S  of  the 1933 Act on the basis that each
investor  was  not  a  "U.S.  Person",  as  defined  in  Regulation  S.

2.     We  issued  143,750  shares  of  our  common  stock to three investors on
November  6, 2001 for total proceeds of $230,000 received in 1999.  These shares
were  issued in reliance on the exemption from registration provided by Rule 506
of  Regulation  D  of  the  1933  Act  on  the  basis  that each investor was an
"accredited  investor",  as  defined  in  Regulation  D.

3.     We  issued  800,956  shares  of  our  common stock to a total of thirteen
investors  on  November  11,  2001 for total proceeds of $113,000.  These shares
were  issued  in reliance of Regulation S of the 1933 Act on the basis that each
investor  was  not  a  "U.S.  Person",  as  defined  in  Regulation  S.

4.     We issued 340,000 shares of our common stock to two investors on November
21, 2001 for total proceeds of $51,000.  These shares were issued in reliance on
the exemption from registration provided by Rule 506 of Regulation D of the 1933
Act  on the basis that each investor was an "accredited investor", as defined in
Regulation  D.

5.     We  issued  214,286  shares  of  our  common stock to a private placement
investor  on  December 7, 2001 for total proceeds of $30,000.  These shares were
issued  in  reliance  of  Regulation  S  of  the  1933 Act on the basis that the
investor  was  not  a  "U.S.  Person",  as  defined  in  Regulation  S.

6.     We  issued 2,000,000 shares of our common stock to Mr. David St. James on
December  13,  2001  at  a  deemed  price of $0.40 per share.  These shares were
issued  pursuant  to  a patent license agreement entered into between us and Mr.
St.  James  in  accordance  with  the terms of the agreement.  These shares were
issued  in  reliance on the exemption from registration provided by Section 4(2)
of  the  1933  Act  on the basis that Mr. St. James is a sophisticated purchaser
capable  of bearing the risk of an investment in our common stock who had access
to  prospectus  level  information  respecting  our  business  and organization.

7.     We  issued  1,486,461  shares  of  our  common  stock  to  a total of six
investors  on  December  18,  2001 for total proceeds of $260,000.  These shares
were  issued in reliance on the exemption from registration provided by Rule 506
of  Regulation  D  of  the  1933  Act  on  the  basis  that each investor was an
"accredited  investor",  as  defined  in  Regulation  D.


                                  Page 26 of 52
<PAGE>

ITEM  6.     SELECTED  CONSOLIDATED  FINANCIAL  DATA.

The  following  selected consolidated financial data sets forth, for the periods
and  the  dates indicated, our summary consolidated financial data. The selected
consolidated  statements  of operations data presented below with respect to the
three years ended December 31, 2001, 2000 and 1999, and the consolidated balance
sheet  data at December 31, 2001 and 2000 are derived from, and are qualified by
reference  to,  the audited consolidated financial statements included elsewhere
in  this Form 10-K. The consolidated statements of operations data for the years
ended  December  31,  1998  and 1997, and the consolidated balance sheet data at
December  31,  1999,  1998,  and  1997 are derived from our audited consolidated
financial  statements not included herein. The financial data presented below is
qualified  by  reference  to  the  consolidated  financial  statements  included
elsewhere  in  this Annual Report on Form 10-K and should be read in conjunction
with  such  financial  statements  and  related  notes thereto and "Management's
Discussion  and  Analysis  of  Financial  Condition  and Results of Operations."

There is substantial doubt as to our ability to continue as a going concern.  We
have  included  a  note  to  our audited financial statements included with this
Annual  Report  on  Form  10-K stating that there is substantial doubt as to our
ability  to continue as a going concern.  This substantial doubt is attributable
to  the  following factors, in addition to other risk factors identified in this
Annual  Report  on  Form  10-K:

1.     We  have  suffered net losses in recent years resulting in an accumulated
deficit  of  $114,589,361  as  at  December  31,  2001;

2.     We  have  used  cash  in  our  operating  activities  in  recent  years;

3.     We  are  subject  to  various  lawsuits  that may have a material adverse
impact  on  our  ability  to  continue  operations;

4.     We  will be required to seek additional equity or debt financing in order
to  continue  our  current  operations based on our projected cash flows for our
2002  fiscal  year;

5.     If  we  are  unable  to  settle  litigation,  including  our dispute with
Honeywell,  and  raise  substantial  monies  to  meet  our  working  capital
requirements,  we  may have to cease operating and seek relief under appropriate
statues.

Our  auditors  have made reference to the substantial doubt as to our ability to
continue  as  a  going  concern  in  their audit report on our audited financial
statements for the year ended December 31, 2001 that are included in this Annual
Report  on  Form  10-K.

                                  Page 27 of 52

<PAGE>

The consolidated financial data presented below for the years ended December 31,
1999, 1998 and 1997 include the operations and financial results of Pacific Baja
Light  Metals  Corporation,  our  former  subsidiary.  Substantially  all of our
revenues  during  these fiscal years were derived from the operations of Pacific
Baja. The assets of Pacific Baja were sold in bankruptcy proceedings in December
1999.  See  Item  1 - Description of Business - Bankruptcy of Pacific Baja Light
Metals  Corporation.

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

                               Year Ended December 31,
                        (in thousands, except per share data)
                        -------------------------------------
STATEMENT OF
 OPERATIONS DATA:            2001        2000       1999       1998       1997
Sales                           9         540     50,218     40,858     39,165
Gross Profit                 (354)       (678)     3,788      5,033      6,839
Net Loss                   (7,365)    (16,966)   (35,989)   (30,033)   (13,185)
Net Loss per Common Share   (0.11)      (0.35)     (0.88)     (0.88)     (0.58)
--------------------------------------------------------------------------------
                               Year Ended December 31,
                        (in thousands, except per share data)
                        -------------------------------------
BALANCE SHEET DATA:          2001        2000       1999       1998       1997
Working Capital (Deficit)  (9,328)     (8,127)       350      4,185      8,205
Total Assets                1,271       1,102      6,764     55,046     49,726
Long-Term Liabilities           -          24         48     13,079     10,022
Total Liabilities           9,349       8,863      4,649     29,097     18,883
Shareholders'
 Equity (Deficiency)       (8,078)     (7,760)     2,115     25,949     30,843
Number of Shares
 Outstanding           84,036,915  58,151,821 51,044,816 41,313,816 29,961,612
--------------------------------------------------------------------------------

                                  Page 28 of 52
<PAGE>


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

We  are  currently  in  a transition phase of our business to an engineering and
design business from a business model that originally included manufacturing and
marketing  of products incorporating our technology.   Our operating results for
the  year  ended  December 31, 1999 included the operating results of our former
subsidiary,  Pacific  Baja  Light  Metals Holdings.  This subsidiary was sold in
bankruptcy  proceedings  in  1999.  Our  operating  results  for  the year ended
December  31,  1999 reflect our cessation of manufacturing activities due to our
license  and joint development agreements with Honeywell.  Our operating results
for  the  year  ended  December  31, 2001 reflect the fact that Honeywell is not
proceeding  with  the commercialization of the Turbopac and Dynacharger products
and  we  are  not  earning  revenues under our license agreement with Honeywell.

RESULTS  OF  OPERATIONS



YEAR  ENDED  DECEMBER  31,  2001  COMPARED  TO  YEAR  ENDED  DECEMBER  31,  2000

Net  Sales

Net sales for the year ended December 31, 2001 decreased to $9,470 from $539,833
for  the  year  ended December 31, 2000, representing a decrease of $530,363, or
approximately 98%. This decrease reflects the fact that we were not able to earn
any  revenues  pursuant to our license agreement with Honeywell as Honeywell did
not  achieve  any  sales  of  the  Turbopac or Dynacharger products during 2001.
There have been no sales of the Turbopac(TM) since June 2000.  Revenues realized
consisted  of  refurbishment  of  Turbopac products sold under our contract with
Detroit  Diesel  Corporation.  Sales in 2000 were comprised entirely of sales of
Dynacharger  prototypes  to  one  significant  customer.

We  anticipate  that  we  will  not  be able to generate additional sales of the
Turbopac  or Dynacharger products until we are successful in entering into a new
license  and manufacturing arrangement with a new automotive OEM.  We anticipate
that we will not be able to generate sales of our TurboAir products until we are
able to enter into an agreement with an automotive OEM for the final development
and  manufacture  of  this  product.

Cost  of  Goods  Sold

Cost  of  goods  sold decreased to $363,780 for the year ended December 31, 2000
compared to $1,217,592 for the year ended December 31, 2000.  Cost of goods sold
consisted  exclusively  of  inventory  write-downs  associated  with  Turbopac
products.  We  determined  to write down all of our remaining inventory in 2001.
We  did  not  incur  any  costs  of  goods  sold  for  2001 other than inventory
write-downs due to the fact that we did not engage in any manufacturing activity
during  this  year.  We  anticipate that we will not undertake any manufacturing
activity  during 2002, other than manufacturing of prototypes for evaluation and
demonstration  purposes.

Gross  Profit

Gross  profit for the year ended December 31, 2001 was ($354,310), compared to a
gross  profit  of  ($677,759)  for  the year ended December 31, 2000.  The gross
profit  reflects our minimal revenues, our cessation of manufacturing activities
and  our  inventory  write-downs.

Selling,  General  and  Administrative  Expenses

Selling,  general  and  administrative  expenses for the year ended December 31,
2001  decreased  to  $2,226,966  from $4,458,545 for the year ended December 31,
2000,  representing  a  decrease  of  $2,231,579  or  50%.   The decrease in our
selling,  general  and  administrative  expenses  was  attributable  to  our
determination  in  2001 to further scale back our business operations to reflect
our  lack  of  financing  and reduced marketing expenses as a result of the fact
that we were no longer directly marketing the Turbopac and Dynacharger products.
Selling,  general and administrative costs included expenses associated with our
Carpinteria,  California  office,  our European office, management compensation,

                                  Page 29 of 52
<PAGE>

administrative  staff and overhead.  Selling expenses were minimal as we did not
undertake  any  marketing  efforts  with respect to the Turbopac and Dynacharger
products  in  2001  as  these  products  were  governed  by  our agreements with
Honeywell.  Our  European  office  was  closed  subsequent to December 31, 2001.

Research  and  Development

Research and development costs for the year ended December 31, 2001 increased to
$3,740,058  from  $3,697,763  for  year ended December 31, 2000, representing an
increase  of  $42,295  or  approximately  1.1%.  Research  and development costs
included our participation in our joint development agreement with Honeywell and
the  continuation  of  our  own  independent research and development activities
until  June  28,  2001.  Research  and  development  associated  with  our joint
development  agreement  with  Honeywell  accounted  for approximately 75% of our
research  and  development  expenses during 2001. Research and development costs
attributable to our joint development agreement with Honeywell included expenses
attributable  to  the  testing and refining of the Dynacharger(TM) product line.
Research  and development costs attributable to our own independent research and
development  activities  include  costs  incurred  in  developing  and  testing
prototypes  of  our  TurboAir  products.


Compensation  Expense

During 2001, we granted options to purchase 5,389,566 shares of our common stock
to various consultants associated with marketing, legal and related matters that
we  deemed essential to our operations. As a result, we recognized $1,117,097 of
non-employee  compensation  expense  during  the  year  ended  December 31, 2001
compared  to  $351,230  during  the year ended December 31, 2000.  Of this stock
based  compensation  expense,  $893,678  was  included  in  our  research  and
development  expense  and  $223,419  was  included  in  our selling, general and
administrative  expense.  From time to time we may grant a significant number of
options  to  purchase  common  stock to non-employees. We recognize compensation
expense  in  accordance  with  APB  Opinion  25.

Litigation  Expense

We  incurred  expenses  related  to litigation in the amount of $885,058 for the
year  ended December 31, 2001 compared to $6,022,554 for the year ended December
31,  2000.  Litigation  expense  for 2001 included professional fees incurred in
connection  with  legal  proceedings  to  which  we  are  party.

Other  Income  and  Expenses

Other  income  and  expense during the year ended December 31, 2001 consisted of
interest  expense  in  the amount of $21,778 and a gain on disposal of assets of
$17,695.

Net  Loss

Our  net loss for the year ended December 31, 2001 was $7,365,220, compared to a
net  loss of $16,966,245 for the year ended December 31, 2000.  The reduction of
our  net  loss  in  the  amount  of  $9,601,025  was primarily reflective of the
decrease  in  the  amount  of  $9,484,354  to  our  expenses.


YEAR  ENDED  DECEMBER  31,  2000  COMPARED  TO  YEAR  ENDED  DECEMBER  31,  1999

Net  Sales

Sales  for  the  year  ended  December  31,  2000  decreased  to  $539,833  from
$50,218,161  for the year ended December 31, 1999, a decrease of $49,678,328, or
approximately  99%.  This  decrease  reflects  the  loss of sales related to the
operations of Pacific Baja, which ceased operations in December 1999. The assets
of  Pacific  Baja  were  sold  in  bankruptcy  proceedings  in  December  1999.

On a segment reporting basis (see Note 10), sale of Turbodyne products decreased
to  $539,833  for  the year ended December 31, 2000 from $1,715,161 for the year
ended  December  31,  1999,  a decrease of $1,175,328 or approximately 69%. This
decrease  was  primarily  attributable to the transfer of sales

                                  Page 30 of 52
<PAGE>

and  marketing  to  Honeywell,  pursuant to the joint development agreements, in
which  Honeywell  recognizes  sales  of prototypes to the OEMs, while we do not.
Furthermore,  there  have  been  no  sales  of the Turbopac(TM) since June 2000.

Cost  of  Goods  Sold

Cost  of goods sold decreased to $1,217,592 for the year ended December 31, 2000
from  $46,430,198  for  the  year  ended  December  31,  1999 as a result of the
cessation  of  our  Pacific  Baja business in 1999.  Cost of goods sold for 2000
included  an  amount  of  $422,131  with respect to inventory write-downs of the
Turbopac  products.  Cost  of goods sold for 2000 also reflected the higher cost
of  goods  sold  as  a  percentage of net sales as the result of allocated fixed
costs  spread  over  a  smaller  number  of units because of decreased sales. In
addition,  the  cost  to manufacture limited unit prototypes results in a higher
per  unit  cost  as  compared  to  limited  run  production  units.

Gross  Profit

Gross  profit  for  the  year ended December 31, 2000 decreased to $(677,759) or
126%  of  sales, compared to $3,787,963 for the year ended December 31, 1999, or
8%  of  sales.  On  a  segment  reporting  basis  (see  Note  10),  gross profit
attributable to the Turbopac products decreased to $(677,759) for the year ended
December  31,  2000  from  $278,963  for  the  year  ended  December  31,  1999,
representing  a decrease of $956,722 or approximately 343%. The decline in gross
profit  was  primarily  attributable  a  write  down  to  obsolete  inventory as
explained  above  in  cost  of  goods  sold.

Selling,  General  and  Administrative  Expenses


Selling,  general  and  administrative  expenses decreased to $4,458,545 for the
year  ended  December  31, 2000 from $12,379,186 for the year ended December 31,
1999,  representing  a  decrease  of  $7,920,641  or  64%.  Selling, general and
administrative  expenses  as a percentage of sales increased to 826% from 25% in
1999. These changes were primarily attributable to bankruptcy sale of the assets
of  Pacific  Baja,  the  closure  of  satellite  offices  and  staff  reductions
implemented  by  management  as well as staff attrition. The increase in selling

general and administrative expenses as a percentage of sales was a result of the
loss  of  sales  related  to  the  operations of Pacific Baja and lower sales to
Detroit  Diesel  Corporation  in  the  first  half  of  the  year.

Research  and  Development

Research  and  development  costs  decreased  to  $3,697,763  for the year ended
December 31, 2000 from $8,419,975 for year ended December 31, 1999, representing
a  decrease  of  $4,722,212  or  approximately  56%.  The decrease was primarily
attributable  to Honeywell's increased participation in the development costs of
the  Dynacharger(TM)  product line during 2000 and recovery of those monies that
we expended that exceeded the amount required in the joint development agreement
from  the  previous  year.

Compensation  Expense

During  2000,  we granted options to purchase 417,400 shares of our common stock
to various consultants associated with marketing, legal and related matters that
we  deemed essential to our operations at prices ranging from $0.23 to $3.40. As
a  result,  we  recognized  $351,230 of compensation expense.   This stock based
compensation expense is included in our research and development expense and our
selling,  general  and  administrative  expense.

Litigation  Expense

We  incurred  expenses related to litigation in the amount of $6,022,554 for the
year  ended December 31, 2000 compared to $6,051,531 for the year ended December
31,  1999.  Litigation  expense  for  1999  included  payment  of an arbitration
judgment  that  was  obtained  against  us  in  the  amount  of $6,650,000, less
$1,500,000  recovered  from  insurance  proceeds.  This amount for 1999 included
claims  that  may arise from actions by creditors in the Pacific Baja Bankruptcy
seeking  claims  against  preferential payments

                                  Page 31 of 52
<PAGE>

made  to us and certain third parties as well as claims related to legal matters
involving  TST,  Inc.  and  Heartland  Financial  Corp.

Other  Income  and  Expense

Other  income  and  expense  consisted  of interest expense, gain on the sale of
patents and losses on disposal of assets.  Other income and expense decreased to
$120,754 for the year ended December 31, 2000 from $9,840,135 for the year ended
December  31,  1999.  Interest  expense  decreased to $50,528 for the year ended
December  31,  2000  from $1,538,529 from the year ended December 31, 1999.  The
decrease  in  interest  expense is attributable to the termination of our credit
facility  with Wells Fargo bank and the bankruptcy sale of the assets of Pacific
Baja.  Interest  expense  related  to  Pacific  Baja's  bank  borrowings, credit
facility  and  bank  fees  and  expenses  ended  in  1999. We realized a gain of
$5,996,789  in connection with our transfer of patents and trademarks associated
with  the Turbopac and Dynacharger products to Honeywell in 1999.  We incurred a
loss in the amount of $14,298,395 in 1999 associated with the bankruptcy sale of
the  assets  of  Pacific  Baja.

Net  Loss

Our net loss for the year ended December 31, 2000 was $16,966,245, compared to a
net  loss  for  the  year ended December 31, 1999 of $35,988,896, representing a
decrease  of  $19,022,651.  Of  the  items attributed to the net loss for fiscal
2000,  a  substantial  portion  was  on  a  nonrecurring basis consisting of (1)
$422,131  write down of obsolete inventory, (2) $790,397 attributed to the write
down  of  impaired  assets, (3) $6,022,554 as a reserve for lawsuit settlements,
(4)  $709,000  due  to the write off of employee advances and housing loans, and
(5)  $813,977  attributed  to  the  re-pricing  of  options.

LIQUIDITY  AND  CAPITAL  RESOURCES


We  had  cash of $20,257 as at December 31, 2001, compared with cash of $0 as at
December  31,  2000.  Our  working  capital  deficit  increased  to  $9,328,295,
compared  to  a  working  capital deficit of $8,127,206 as at December 31, 2000.
The  largest  component  of our working capital deficit is a reserve for lawsuit
settlements  in  the  amount  of  $6,169,238  as  at  December  31,  2001.

We  financed  our  business  operations during the first quarter of 2002 through
private  placement  sales of our common stock.  We raised approximately $400,000
during  the first quarter.  We had cash of approximately $45,000 as at March 31,
2002.

Cash  used  in  operating  activities  for  the year ended December 31, 2001 was
$2,202,546,  compared  to  $4,706,577  for  the  year  ended  December 31, 2000.

Cash  provided  by investing activities for the year ended December 31, 2001 was
$9,484, compared to $82,023 for the year ended December 31, 2000.  The reduction
in  cash provided by investing activities was attributable to a reduction in the
proceeds  from  the  sale  of  property,  plant  and  equipment.

Cash  provided  by financing activities for the year ended December 31, 2001 was
$2,213,319,  compared  to $4,583,732 for the year ended December 31, 2000.  Cash
provided  by financing activities in both 2001 and 2000 was primarily the result
of  sales  of  our  common  stock and exercises of outstanding stock options and
share  purchase  warrants.

Historically,  our  operations  have  been  financed  principally  through  a
combination  of  private  and  public  sales  of  equity  and  debt  securities,
borrowings  under  a  bank  credit  facility  and  cash flows from operations of
Pacific  Baja. The credit facility and cash flows from Pacific Baja ceased as of
October  1,  1999  when  Pacific Baja filed a Chapter 11 petition in bankruptcy.
Since  that  date,  we  have had to rely primarily on our ability to raise funds
through  the  private  sale  of  our  equity securities.  In an effort to create
operating  efficiencies  and  preserve  working  capital since the bankruptcy of
Pacific Baja, we are continuing with a restructuring program that began in 1999.
This  restructuring  program  has included the reduction of debts, settlement of
lawsuits,  closing  offices, efforts to sublet unused space at our headquarters,
staff  reduction and staff attrition, disposal of unnecessary assets and overall
attempts  at  reducing  operating costs. In

                                  Page 32 of 52
<PAGE>

addition  we  focused  our resources on research and development of our products
incorporating  our  proprietary  technology,  rather  than  manufacture  of  our
developed  products.

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

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

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 believe our most critical accounting policies
include  stock-based  compensation,  related  party  transactions  and  legal
contingencies  as  explained  below:

Stock  Based  Compensation

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

Related  Party  Transactions

Financial  Reporting Release (FRR) No. 61, "Effects of transactions with related
and  certain  other  parties," requires all companies to include a discussion of
all material transactions with related and certain other

                                  Page 33 of 52
<PAGE>


parties  to  the  Company.  As  discussed  in  Notes  8  and  9 of the financial
statements,  the  following  related  party  transactions  were  noted:

(a)     During  2001,  in  connection with a private placement, 3,500,000 shares
were  issued  to  a director without proper consideration being received.  While
management  is  of  the  opinion that these shares should have been returned for
cancellation  and  is vigorously pursuing the return of these shares, the amount
not  yet  received,  $1,470,000  has  been  recorded  as  selling,  general  and
administration  expense  in  these  financial  statements.

(b)     Rent  paid  in  2001  in  connection with our Carpenteria premises which
prior  to  July  1,  2001  was subleased from a company controlled by one of our
former  directors  was  $489,309  (2000  -  $357,828;  1999  -  $284,529).

Legal  Contingencies

We  are currently involved in legal proceedings regarding shareholder litigation
and  other  general  legal  proceedings.  As  discussed in Notes 6 and 12 of our
consolidated  financial  statements,  where appropriate, we have accrued amounts
which  we  believe  we will be required to pay to settle litigation.  We believe
that  the  other  lawsuits will be settled in our favor or are without merit and
intend  to  defend  against them vigorously. We do not believe these proceedings
will  have  a material adverse effect in our consolidated financial position. It
is  possible,  however,  that  future  results  of operations for any particular
quarterly  or  annual  period  could  be  materially  affected by changes in our
assumptions,  or  the  effectiveness  of  our  strategies,  related  to  these
proceedings

NEW  ACCOUNTING  PRONOUNCEMENTS

In  June  1998,  the  Financial  Accounting Standards Board issued SFAS No. 133,
"Accounting  for  Derivative  Instruments and Hedging Activities".  SFAS No. 133
requires  companies  to  recognize  all derivative contracts as either assets or
liabilities  on the balance sheet and to measure them at fair value.  If certain
conditions  are met, a derivative may be specifically designated as a hedge, the
objective  of  which  is  to match the timing of gain or loss recognition on the
hedging  derivative with the recognition of (i) the changes in the fair value of
the  hedged  assets  or  liabilities that are attributable to the hedged risk or
(ii) the earnings effect of the hedged forecasted transaction.  For a derivative
not designated as a hedging instrument, the gain or loss is recognized in income
in  the period of change.  SFAS No. 133 was effective for all quarters of fiscal
years  beginning after June 15, 2000.  Historically, the Company has not entered
into  derivative  contracts  either  to  hedge existing risks or for speculative
purposes.  Accordingly,  adoption  of  the  new  standards  did  not  affect the
Company's  financial  statements.

In  June  2001, the Financial Accounting Standards Board ("FASB") finalized SFAS
Statements  No.  141, Business Combinations (SFAS 141), and No 142, Goodwill and
Other  Intangible  Assets (SFAS 142).  SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling of interests method of
accounting  for  business  combinations initiated after June 30, 2001.  SFAS 141
also  requires  that the Company recognize acquired intangible assets apart from
goodwill  if  the  acquired  intangible  assets meet certain criteria.  SFAS 141
applies  to  all  business  combinations  initiated  after June 30, 2001 and for
purchase  business  combinations  completed  on  or after July 1, 2001.  It also
requires,  upon  adoption  of SFAS 142, that the Company reclassify the carrying
amounts  of  intangible  assets  and goodwill based on the criteria in SFAS 141.

SFAS  142  requires,  among  other  things,  that  companies  no longer amortize
goodwill,  but  instead  test  goodwill  for  impairment  at least annually.  In
addition,  SFAS  142  requires that the Company identify reporting units for the
purposes  of  assessing  potential  future impairments of goodwill, reassess the
useful  lives  of  other  existing  recognized  intangible  assets,  and  cease
amortization of intangible assets with an indefinite useful life.  An intangible
asset  with  an  indefinite  useful  life  should  be  tested  for impairment in
accordance with the guidance in SFAS 142.  SFAS 142 is required to be applied in
fiscal  years  beginning  after  December  15,  2001  to  all goodwill and other
intangible  assets recognized at that date, regardless of when those assets were
initially  recognized.  SFAS 142 requires the Company to complete a transitional
goodwill  impairment  test six months from the date of adoption.  The Company is
also required to reassess the useful lives of other intangible assets within the
first  interim  quarter  after  adoption  of  SFAS  142.

                                  Page 34 of 52
<PAGE>


The  Company will adopt these standards effective for its fiscal year commencing
January  1,  2002.  Such  adoption  is  not  expected  to  affect  the Company's
financial statements in respect of historical transactions.  Future acquisitions
are  required  to  adhere  to  these  new  standards.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets".  SFAS  No. 144 requires that those long-lived
assets  be  measured  at the lower of carrying amount or fair value less cost to
sell,  whether  reported in continuing operations or in discontinued operations.
Therefore,  discontinued operations will no longer be measured at net realizable
value  or include amounts for operating losses that have not yet occurred.  SFAS
No.  144 is effective for financial statements issued for fiscal years beginning
after  December  15,  2001  and, generally, is to be applied prospectively.  The
implementation of this new standard is not expected to have a material effect on
the  Company's  financial  statements.


ITEM  7A.    QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

We  are  exposed  to  minimal  financial market risks due to our working capital
deficit  position.

Interest  Rate  Risk

We are currently not exposed to any interest rate risk on investments as we have
a significant working capital deficit and minimal current assets.  To the extent
that we are able to obtain additional financing, we may undertake investments of
the  funds raised that would subject us to financial market risk due to interest
rate  fluctuations.  We  anticipate  that any investment portfolio that we would
have  would  consist  of money market funds, commercial paper and corporate debt
securities  with  maturities  of  one  year  or  less.  Our  primary  investment
objectives  would be preservation of principal, a high degree of liquidity and a
maximum total return consistent with the investment objectives.   Funds would be
invested  for  the  short  term pending our requirement that we use the funds to
fund  our  business  operations.

Foreign  Currency  Risk

We  expect  our  foreign  currency  risk  exposure to be insignificant, since we
ceased  our  European  operations  in  the  first  quarter  of  2002.

Equity  Price  Risk

We  do  not  own  any  significant  equity  instruments.

Our stock price is volatile.  The price volatility of our own stock puts at risk
our  ability  to  finance  our  business  operations through sales of our common
stock. Accordingly, the price volatility of our own common stock could adversely
impact  on  our  financial  position.

Other  Market  Sensitive  Risks

Historically,  we  have not entered into derivatives contracts, such as futures,
forwards,  swaps,  options  and  other  financial  instruments  with  similar
characteristics,  either  to  hedge  existing risks or for speculative purposes.

                                  Page 35 of 52
<PAGE>


ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA.

See  Item  14  of  this  Annual  Report  on  Form  10-K.

                                  Page 36 of 52
<PAGE>

Selected  Quarterly  Financial  Information

The  selected  quarterly  financial  data  of Turbodyne and its subsidiaries set
forth below for the quarters in the years ended December 31, 2000 and 2001, have
been  derived  from Turbodyne's unaudited consolidated financial statements that
have  been  prepared  on  the  same  basis as the audited consolidated financial
statements  and,  in  the  opinion  of  Turbodyne's  management,  include  all
adjustments,  consisting  only  of normal recurring adjustments, necessary for a
fair  presentation  of  such  financial  data  in  accordance  with  accounting
principles  generally  accepted  in the United States of America for the periods
presented.  The  financial  data  for  the  interim  periods are not necessarily
indicative  of  results that may be expected for any other interim period or for
the  year  as  a  whole.

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


Historical Consolidated
Statements of
Operations Data:  March 31, 2000  June 30, 2000   Sept. 30, 2000  Dec. 31, 2000
--------------------------------------------------------------------------------
Revenue           268,000         181,000         5,000           85,833



Gross Margin       14,000          64,000         5,000         (760,759)


Total Operating
 Expenses       2,098,000       3,115,000     2,783,000        8,167,732


Loss From
 Operations    (2,084,000)     (3,051,000)   (2,778,000)      (8,928,491)


Net Loss       (2,120,000)     (3,026,000)   (5,300,000)      (6,520,245)


Net Loss
 Attributable
 To Common
 Stockholders  (2,120,000)     (3,026,000)   (5,300,000)      (6,520,245)


Basic And
 Diluted Net
 Loss Per Share     (0.05)          (0.06)        (0.11)           (0.11)
--------------------------------------------------------------------------------

Historical Consolidated
Statements of
Operations
Data:  March 31, 2001 June 30, 2001(1)(2) Sept. 30, 2001(1)(3)     Dec. 31, 2001
--------------------------------------------------------------------------------
Revenue        10,443               (973)                   0                 0
Gross Margin    7,783             (1,213)              (9,740)         (351,140)

Total
Operating
Expenses    1,397,438          1,454,730            3,670,481           480,178
--------------------------------------------------------------------------------
Loss
From
Operations (1,389,655)        (1,455,943)          (3,680,221)         (831,318)

Net Loss   (1,376,182)        (1,455,563)          (3,696,420)         (833,055)

Net Loss
Attributable
To Common
Stock-
Holders    (1,376,182)        (1,455,563)          (3,696,420)         (837,055)

Basic And
Diluted
Net Loss
Per Share       (0.02)             (0.02)               (0.05)            (0.01)
--------------------------------------------------------------------------------

(1)     We  have made adjustments to our previously reported quarterly financial
information.  The  financial  statements  adjusted  included  the  financial
statements  included  in  our  Quarterly Report on Form 10-Qs for the six months
ended  June  30,  2001  and  the  nine  months  ended September 30, 2001.  These
previously  filed interim financial statements were not reviewed by BDO Dunwoody
or  McGowan  Gunterman,  our  previous  auditor.

(2)     The  following  adjustments  from  the  quarterly  financial information
reported  on our Quarterly Report on Form 10-Q for the six months ended June 30,
2001  are  noted  below.

----------          ----------          --------          ----------
Line  item          Historical          Adjusted          Difference
----------          ----------          --------          ----------
Total operating
expenses            1,467,001           1,454,730          12,271
Revenue                   603                (973)         (1,576)
Gross Margin              363              (1,213)         (1,576)
Loss from
operations         (1,466,638)         (1,455,943)        (10,695)
Net loss           (1,466,258)         (1,455,563)        (10,695)
Net loss
attributable to..  (1,466,258)         (1,455,563)        (10,695)

                                  Page 37 of 52
<PAGE>

The  adjustments  to  our  previously  reported  financial  information  are
attributable  to  the  following  items:

ITEM                                                               ADJUSTMENT

(a)     a  reduction  to  revenue  in the amount of $1,576
        to correct overstated revenue;                              $  1,576
(b)     a gain in the amount of $17,695 in
        respect of repossession of a vehicle;                         17,695
(c)     an  adjustment  in  the  net amount of
        $7,000 in respect of a settlement
        reached with a landlord of premises
        formerly leased by Pacific Baja;                              (7,000)
                                                                    ---------
TOTAL ADJUSTMENTS:                                                  $ 12,271
                                                                    ---------

(3)     The  following  adjustments  from  the  quarterly  financial information
reported  on  our  Quarterly  Report  on  Form  10-Q  for  the nine months ended
September  30,  2001  are  noted  below:

----------          ----------          --------          ----------
Line  item          Historical          Adjusted          Difference
----------          ----------          --------          ----------
Total operating
expenses             671,531            3,670,481         (2,998,950)
Revenue               20,300                    0            (20,300)
Gross Margin          10,560               (9,740)            20,300
Loss from
Operations          (660,971)          (3,680,221)         3,019,250
Net loss            (677,170)          (3,696,420)         3,019,250
Net loss
attributable
to                  (677,170)          (3,696,420)         3,019,250

The  adjustments  to  our  previously  reported  financial  information  are
attributable  to  the  following  items:

ITEM                                                           ADJUSTMENT

(a)     a reduction in the amount of $20,300 to correct
        overstated revenue;                                    $   (20,300)
(b)     an  increase  in  expenses  in  the amount of
        $501,600 in respect of our issuance  of
        2,400,000  shares  of our common stock for
        engineering services on September 19, 2001;                501,600
(c)     an  increase  in  expenses  in  the  amount
        of $33,600 in respect of our issuance  of
        160,000  shares  of our common stock for
        services on September 19, 2001;                             33,600
(d)     an  increase  in  expenses  in  the amount of
        $209,000 in respect of our issuance  of
        1,000,000 shares of our common stock for
        services on September 19, 2001;                            209,000
(e)     an  increase  in  expenses  in  the  amount of
        $46,200 in respect of our issuance  of
        220,000  shares  of our common stock for
        services on September 19, 2001;                             46,200
(f)     an  increase  in  expenses  in  the amount of
        $758,850 in respect of the allocation of options
        to consultants in our third quarter;                       758,850
(g)     an  increase  in  expenses in the amount of
        $1,470,000 in respect of our issuance of
        3,500,000 shares of our common stock to
        one of our directors.                                    1,470,000
                                                                ----------
TOTAL ADJUSTMENTS:                                              $3,019,250
--------------------------------------------------------------------------------

                                  Page 38 of 52
<PAGE>

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

McGowan Guntermann, the independent accounting firm which was previously engaged
as  the  principal  accountant  to  audit our financial statements, resigned and
confirmed  the cessation of the client-auditor relationship by letter dated July
16, 2001 to our board of directors. Unfortunately, the firm's letter of July 16,
2001  was  initially  routed to former members of management who had resigned on
July  3,  2001, and was not delivered to our current management until August 12,
2001.

The  principal accountant's reports on our financial statements for the past two
years did not contain an adverse opinion or disclaimer of opinion, nor were such
reports  qualified  or  modified  as  to  uncertainty, audit scope or accounting
principles.

The  decision  to  terminate  the  client-auditor  relationship  was made by the
auditor  and  was  not  recommended or approved by our board of directors or any
committee  of  our  board  of  directors.

There  were  not,  during  our  two  most recent fiscal years and any subsequent
interim  period  preceding  such  resignation, any disagreements with the former
accountant  on  any  matter  of  accounting  principles  or practices, financial
statement  disclosure or auditing scope or procedure, which disagreement, if not
resolved  to  the satisfaction of the former accountant, would have caused it to
make  a  reference  to the subject matter of the disagreement in connection with
its  report.

No  "reportable  events,"  as  defined in paragraphs (a)(2)(v)(A) through (D) of
Item  304 of Regulation S-K, occurred during our two most recent fiscal years or
any  subsequent  interim  period  preceding the former accountant's resignation.

We  filed  the  consent  of  McGowan  Guntermann  dated August 16, 2001 with the
Securities and Exchange Commission on August 17, 2001 confirming their agreement
to  the  above  statements.

Effective  on  March  6,  2002,  we  engaged  a  new independent accountant, BDO
Dunwoody, LLP, chartered accountants to audit our financial statements.  Neither
we  nor anyone on our behalf has, during the two most recent fiscal years or any
subsequent  interim  period  prior  to engaging BDO Dunwoody, consulted with BDO
Dunwoody  regarding any of the subject matters identified in paragraph (a)(2) of
Item  304  of  Regulation  S-K.


                                  Page 39 of 52
<PAGE>

                                    PART III

ITEM  10.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTOL PERSONS OF THE
REGISTRANT.

DIRECTORS  AND  EXECUTIVE  OFFICERS

Our  executive  officers  and directors and their respective ages as of April 8,
2002  are  as  follows:

DIRECTORS:

Name  of  Director          Age
------------------          ---
Manfred  Hanno  Janssen     63
-----------------------     --
Eugene  O'Hagan             63
---------------             --
Andrew  Martyn-Smith        53
--------------------        --
Lars  Neujeffski            25
----------------            --
Dieter  Neujeffski          58
------------------          --

OFFICERS:

Name  of  Officer          Age     Office  Held
-----------------          ---     ------------
Daniel  Black              46     President  and  Chief  Executive  Officer
-------------              --     -----------------------------------------
Charles  Caverno           50     Secretary  and  Chief  Financial  Officer
----------------           --     -----------------------------------------

Set forth below is a brief description of the background and business experience
of  each  of  our  executive  officers  and  directors  for the past five years:

Mr. Daniel Black has been our president and chief executive officer since August
15,  2001.  Mr.  Black  is also the president and chief executive officer of our
operating  subsidiary,  Turbodyne  Systems.  Mr.  Black was a test engineer with
Turbodyne  Systems  from  August  14,  1996 to February 15, 2000.  Mr. Black was
senior  development  engineer  with  Turbodyne Systems from February 15, 2000 to
August 15, 2001.   Mr. Black has six years of training in electrical engineering
at  the  University  of  Southern  California,  Santa  Barbara.

Mr.  Charles  Caverno  has  been our secretary and chief financial officer since
August  15, 2001.  Mr. Caverno has also been the vice-president of power systems
for our subsidiary, Turbodyne Systems, since January 21, 1997.   Mr. Caverno has
a  bachelors  of  science  degree  in theoretical physics from the University of
Massachusetts.

Mr.  Manfred  Hanno Janssen was appointed as one of our directors on November 9,
2001.  Mr.  Janssen is currently the head of asset management with Deutsche Bank
AG.  Mr.  Janssen  has  been  employed  by  Deutsche  Bank  AG  since  1961.

Mr.  Eugene  O'Hagan  was  appointed as one of our directors on August 19, 2001.
Mr.  O'Hagan's  principal  employment  has  been  in the business of real estate
brokerage  and  investments  since  1997.

Mr.  Andrew  Martyn-Smith  was  appointed  as one of our directors on August 19,
2001.  Mr.  Martyn-Smith's principal employment has been in the business of real
estate  brokerage  and  investments  since  1996.

                                  Page 40 of 52
<PAGE>

Mr.  Lars  Neujeffski  and  Mr. Dieter Neujeffski were appointed as directors on
July 3, 2001.  Mr. Lars Nejeffski is the son of Mr. Dieter Neujeffski.  Mr. Lars
Neujeffski  and  Mr.  Dieter  Neujeffski  own  and  operate  a beverage bottling
business in Dielman, Germany.  Mr. Lars Neujeffski and Mr. Dieter Neujeffski are
also  involved  in  the  business  of  real  estate  investment and development.

Arrangements  Regarding  Directors

Mr.  Lars  Neujeffski  and  Mr. Dieter Neujeffski were appointed to our board of
directors  on  July 3, 2001 pursuant to a proposal made by Mr. Dieter Neujeffski
to  provide the U.S. dollar equivalent of 4,000,000 German Deutsche Marks on the
condition  that all members of our board directors and management resign to make
possible  the restructuring of our organization.  The funding was to be advanced
as a private placement financing completed through sales of additional shares of
our  common stock.  Upon assurances made Mr. Neujeffski that he would enter into
a  written agreement with us legally obligating him to make available the agreed
upon  amount  of  working  capital,  all  then-current  members  of our board of
directors resigned upon adjournment of the meeting.  Mr. Neujeffski has not made
the  advances  agreed  upon  to  date.

Significant  Consultants

In addition to our officers and directors, Mr. Edward Halimi and Dr. Woolenweber
are  consultants  to  us  who  we  expect to make a material contribution to our
business.  We  have  retained Mr. Halimi and Mr. Woolenweber on an interim basis
in  view of their experience with our Turbodyne technology in order to enable us
to  transition  our  management  team and new board of directors.  We anticipate
that  the  roles of Mr. Halimi and Dr. Woolenweber in our business will diminish
as  we  are  able  to  put  in  place  a  new  management  team.

Mr.  Halimi  served  as chairman of our board of directors from our inception to
October  1999.  Mr.  Halimi  served as our president and chief executive officer
from  October  18,  1993  to  March  11,  1998.  Mr. Halimi developed a patented
Turbodyne  technology  designed  to  optimize  air  flow  to internal combustion
engines  resulting  in  efficient  fuel  combustion  in both diesel and gasoline
engines  and  to  reduce  the production and emission of harmful pollutants. Mr.
Halimi  spent  11  years  working  with FerroPlast Corporation, an international
company  specializing  in  the  engineering  and  manufacture of diesel engines,
pumps,  electric  motors  and  farm equipment. As a vice-president at FerroPlast
Corporation, Mr. Halimi worked in the engineering and manufacturing divisions in
the Middle East and Europe and was responsible for the home building and housing
operations in the United States. From 1988 to 1991, Mr. Halimi was the president
and  chief  executive  officer of Technodyne Corporation, a manufacturer of heat
management  and  temperature  control  units  and since 1989 has served as Chief
Executive  Officer  of Biosonics Corporation, a research and development company
in  the fields of ultrasonics, vibration control and semi-conductor research and
electronics.

Dr.  Woolenweber  is  one of the original co-inventors of the original Turbodyne
technology.  He  formerly  served  as  one  of  our vice-presidents and has been
involved  in  the  development  of  the  Turbopac and Dynacharger products.  Dr.
Woolenweber  current  provides  his  services  as  a  consultant.

BOARD  MEETINGS  AND  COMMITTEES

There  were  thirteen  meetings of our board of directors during our fiscal year
ended  December  31,  2001.

Our  board  of  directors  had  previously  established  an  audit  committee, a
compensation  committee,  a stock option committee, an executive committee and a
special  committee.  Each  of  these  committees was disbanded when our previous
board  of  directors  resigned  on  July  3,  2001.

We  constituted  an  executive committee made up of Mr. Janssen, Mr. O'Hagan and
Mr.  Martyn-Smith  on  April  12,  2002.

We  anticipate  that the other committees previously established by our board of
directors may be re-established subsequent to our next annual general meeting of
stockholders.

                                  Page 41 of 52
<PAGE>

ELECTION  OF  DIRECTORS  AND  OFFICERS

Our  board  of  directors  is  divided  into  three classes that are elected for
staggered  three-year  terms.  The  term  of  each  class  expires  as  follows:

     -     Class  I directors-terms expire at the annual meeting of stockholders
           in  2004;

     -     Class II directors-terms expire at the annual meeting of stockholders
           in  2002;  and

     -     Class  III  directors-terms  expire  at  the  annual  meeting  of
           stockholders  in  2003.

Each  director serves until the end of his term and until his successor has been
elected  and  qualified.

Our  officers  serve  at  the  discretion  of  our  board  of  directors.

Our  previous board of directors resigned on July 3, 2002 and appointed Mr. Lars
Neujeffski  and  Mr.  Dieter Neujeffski as directors effective upon the previous
board's  resignation.  As the board did not specify the terms of the appointment
of the new directors, all of our new directors hold office until the next annual
meeting  of  our  stockholders.

COMPENSATION  OF  DIRECTORS

Our directors are reimbursed for reasonable out-of-pocket expenses in connection
with  attendance  at  board  of  director  and  committee  meetings,  and  are
periodically  granted  options  to  purchase  shares  of our common stock at the
discretion  of  our  board  of  directors  or  our  stock option committee, when
constituted.  Directors  are  not  otherwise provided any remuneration for their
services  as  our  directors.

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, 2001
all  such  filing  requirements  applicable  to  our officers and directors were
complied  with  exception that reports were filed late by the following persons:

--------------------------------------------------------------------------------
                                  Number     Transactions    Known  Failures
                                  Of Late    Not Timely      To File a Required
Name  and  Principal  Position    Reports    Reported        Form
--------------------------------------------------------------------------------
Daniel  Black                     0          1               2
President and Chief
Executive Officer

Charles  Caverno                  0          1               2
Secretary and Chief
Financial  Officer

Manfred  Hanno
Janssen,  Director                0          0               1

Eugene  O'Hagan,  Director        0          0               1

Andrew  Martyn-Smith,  Director   0          0               1

Lars  Neujeffski,  Director       0          1               2

Dieter  Neujeffski,  Director     0          0               1
--------------------------------------------------------------------------------

                                  Page 42 of 52
<PAGE>

ITEM  11.     EXECUTIVE  COMPENSATION.

The  following  table  sets  forth  certain  compensation  information as to the
following  individuals  (our  "named  executive  officers"):

(i)     Mr.  Daniel  Black,  our  chief  executive  officer;
(ii)    Mr.  Charles  Caverno,  our  most highly compensated executive officer,
        other  than  our  chief  executive  officer;
(iii)   two  of  our  former  executive  officers  who were not serving as our
        executive  officers  as  of  our  most  recently  completed  fiscal
        year  end.

We  have  also  included  compensation  information for Mr. Gerhard Delf and Mr.
Joseph  Castano.  Mr. Delf served as our chief executive officer during our most
recently completed fiscal year but resigned prior to our most recently completed
fiscal  year  end.  Mr. Castano served as our chief financial officer during our
most  recently  completed  fiscal  year  but resigned prior to our most recently
completed  fiscal  year  end.

No  other  compensation  was paid to our named executive officers other than the
compensation  set  forth  below.



--------------------------------------------------------------------------------
                           SUMMARY  COMPENSATION  TABLE
--------------------------------------------------------------------------------
                         ANNUAL COMPENSATION          LONG TERM COMPENSATION
                    ---------------------------  -------------------------------
                                                     AWARDS           PAYOUTS
                                                 ---------------  --------------
                                                                            All
                                          Other                            Other
                                          Annual                            Com-
                                          Com-  Restricted                  pen-
                                          pen-    Stock   Options LTIP      sa-
Name      Title      Year  Salary  Bonus  sation  Awarded SARs(#) payouts($)tion
----      -----      ----  ------  ------ ------- ------- ------- --------- ----
Daniel    President  2001  $ 82,000     0     0     0      110,000    0       0
Black(1)  and        2000  $ 82,000     0     0     0            0    0       0
          Chief      1999  $ 68,000     0     0     0            0    0       0
          Executive
          Officer

Charles  Secretary   2001  $109,000     0     0     0     110,000     0       0
Caverno  and         2000  $ 95,000     0     0     0           0     0       0
(2)      Chief       1999  $ 95,000     0     0     0           0     0       0
         Financial
         Officer

Gerhard  Former      2001  $ 94,375     0     0     0           0     0       0
Delf (3) President   2000  $188,750 $26,000   0     0     350,000     0 $42,440
         and Chief   1999  $180,000 $15,000   0     0           0     0       0
         Executive
         Officer

Joseph   Former      2001  $ 75,000     0     0     0   1,500,000     0       0
Castano  Chief       2000  $150,000     0     0     0           0     0       0
         Financial  1999   $150,000     0     0     0           0     0       0
         Officer
--------------------------------------------------------------------------------
Notes  to  Summary  Compensation  Table:

(1)     Mr.  Black was appointed as our president and chief executive officer on
        August  15,  2001.
(2)     Mr.  Caverno  was appointed as our secretary and chief financial officer
        on  August  15,  2001.
(3)     Mr.  Delf  resigned as our president and chief executive officer on July
        3,  2001.
(4)     Mr.  Castano  resigned  as  our chief financial officer on July 3, 2001.

                                  Page 43 of 52
<PAGE>

STOCK  OPTION  GRANTS

The following table sets forth information with respect to stock options granted
to  each  of  the  Company's  named executive officers during the Company's most
recent  fiscal  year  ended  December  31,  2001:


<TABLE>
<CAPTION>

                        OPTION/SAR  GRANTS  IN  LAST  FISCAL  YEAR
                        ------------------------------------------
                                      (INDIVIDUAL GRANTS)

                                                                                 Potential
                                                                                 Realizable
                                                                                 Value At
                                                                                 Assumed
                     Number of                                                   Annual
                     Securities   % of Total                                     Rates of
                     Under-       Options     Exercise                           Stock Price
                     lying        Granted      Price                             Appreciation
                     Options      to          (per         Expiration            for Option
Name                 Granted      Employees   Share)       Date                  Term
                                                                         0% ($)    5% ($)    10% ($)
----------------------------------------------------------------------------------------------------
<S>                <C>           <C>          <C>        <C>             <C>       <C>       <C>
Daniel Black
President and
Chief Executive
Officer            50,000          0.9%       $  0.30     Aug. 2, 2003   $  3,500  $  5,396  $ 7,385
                   60,000          1.1%       $  0.35    Nov. 30, 2004        N/A       NIL      NIL

Charles Caverno    50,000          0.9%       $  0.30     Aug. 2, 2003   $  3,500  $  5,396  $ 7,385
Secretary and      60,000          1.1%       $  0.35    Nov. 30, 2004        N/A       NIL      NIL
Chief Financial
Officer

Gerhard Delf          NIL          N/A            N/A              N/A        N/A       N/A      N/A
Former President
and Chief
Executive
Officer

Joseph Castano  1,500,000         27.8%       $  0.09    July 16, 2005   $360,000  $496,759 $662,202
Former Chief
Financial Officer
</TABLE>

Notes:

(1)     The options granted to Mr. Delf were terminated in 2001 as a consequence
of  Mr.  Delf  ceasing  to  act  as  one  of  our  executive  officers.


                                  Page 44 of 52
<PAGE>

EXERCISES  OF  STOCK  OPTIONS  AND  YEAR-END  OPTION  VALUES

The  following is a summary of the share purchase options exercised by our chief
executive  officer  and  our  named executive officers during the financial year
ended  December  31,  2001:


--------------------------------------------------------------------------------
                 AGGREGATED OPTION/SAR EXERCISES DURING THE LAST
           FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR VALUES
           -----------------------------------------------------------
                                                                    Value of
                                                                  Unexercised
                                                Unexercised       In-The-Money
                                                 Options at       Options/SARs
                  Common                         Financial        at Financial
                  Shares                        Year-End (#)      Year-End ($)
                Acquired on        Value        exercisable /     exercisable /
Name (#)         Exercise ($)    Realized ($)   unexercisable     unexercisable
--------------- -------------   -------------   --------------    --------------
Daniel  Black            NIL              NIL     110,000/NIL       NIL/N/A
President and
Chief
Executive
Officer

Charles  Caverno         NIL              NIL     110,000/NIL       NIL/N/A
Secretary
and  Chief
Financial
Officer

Gerhard  Delf            NIL              NIL         NIL/NIL       N/A/N/A
Former  President
and  Chief
Executive  Officer

Joseph  Castano    1,500,000         $135,000        NIL/NIL        N/A/N/A
Former  Chief
Financial  Officer

                                  Page 45 of 52
<PAGE>

COMPENSATION  ARRANGEMENTS

Management  Agreements

We  pay Mr. Daniel Black, our president and chief executive officer, a salary of
$82,000  per annum.  We are not party to any written compensation agreement with
Mr.  Black.

We  pay Mr. Charles Caverno, our secretary and chief financial officer, a salary
of  $95,000  per  annum.  We are not party to any written compensation agreement
with  Mr.  Caverno.

Compensation  Plans

2000  Stock  Option  Plan
On  October  1,  1999,  the  2000  Stock Option Plan was adopted by the board of
directors  and was subsequently approved by the stockholders. The purpose of the
plan  is  to advance our interests and that of our stockholders by strengthening
our  ability  to  obtain  and  retain  the  services  of employees, consultants,
officers  and  directors that will contribute to our long-term success. The plan
is  administered  by  the  stock  option  committee.  The  plan provides for the
granting  of  restricted  stock,  stock  options,  reload  stock  options, stock
purchase  warrants  and  other rights to acquire stock or securities convertible
into or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents,  performance  units  or  performance  shares. The maximum number of
shares  of  common stock authorized for issuance under the plan is 4,800,000. As
of  December  31,  2001 and 2000, the number of un-optioned shares available for
granting  of  options  under the plan was 3,142,604 and 2,953,500, respectfully.



                                  Page 46 of 52
<PAGE>

ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  following  table  sets  forth  certain information concerning the number of
shares  of  our common stock owned beneficially as of April 8, 2002 by: (i) each
person  (including  any group) known to us to own more than five percent (5%) of
any  class  of our voting securities, (ii) each of our directors and 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.


                                                                     Percentage
                     Name and address          Number  of Shares     of Common
Title  of  class     of  beneficial  owner     of Common Stock       Stock(1)
--------------------------------------------------------------------------------
Common Stock         Daniel  Black             149,000 Shares  (2)     0.2%
                     President and
                     Chief Executive
                     Officer
Common Stock         Charles Caverno           116,700 Shares  (3)     0.1%
                     Secretary and Chief
                     Financial Officer

Common Stock         Manfred Hanno Janssen      216,240 shares (4)     0.2%
                     Director

Common Stock         Eugene O'Hagan                    175,000 (5)     0.2%
                     Director

Common Stock         Andrew Martyn-Smith               175,000 (6)     0.2%
                     Director

Common Stock         Lars Neujeffski          7,242,358 shares (7)     8.4%
                     Director

Common Stock         Dieter Neujeffski        7,242,358 shares (7)     8.4%
                     Director

Common Stock         All Officers and                    8,074,298     9.3%
                     Directors as a Group
                     (7 persons)



(1)     Under  Rule  13d-3, a beneficial owner of a security includes any person
who,  directly  or indirectly, through any contract, arrangement, understanding,
relationship,  or  otherwise has or shares: (i) voting power, which includes the
power  to  vote,  or  to direct the voting of shares; and (ii) investment power,
which  includes  the  power  to  dispose  or  direct  the disposition of shares.
Certain  shares  may  be deemed to be beneficially owned by more than one person
(if, for example, persons share the power to vote or the power to dispose of the
shares).  In addition, shares are deemed to be beneficially owned by a person if
the person has the right to acquire the shares (for example, upon exercise of an
option)  within 60 days of the date as of which the information is provided.  In
computing  the  percentage  ownership  of  any  person,  the  amount  of  shares
outstanding is deemed to include the amount of shares beneficially owned by such
person

                                  Page 47 of 52
<PAGE>

(and  only  such person) by reason of these acquisition rights. As a result, the
percentage  of  outstanding shares of any person as shown in this table does not
necessarily  reflect  the person's actual ownership or voting power with respect
to  the  number of shares of common stock actually outstanding on April 8, 2002.
As of April 8, 2002, there were 86,423,544 shares of our common stock issued and
outstanding.

(2)     Consists  of  1,000 shares held by Mr. Black and 148,000 shares that are
immediately  acquirable  upon  the  exercise  of stock options held by Mr. Black
within  60  days  of  April  8,  2002.

(3)     Consists  of  116,700  shares  that  are immediately acquirable upon the
exercise  of  stock options held by Mr. Caverno within 60 days of April 8, 2002.

(4)     Consists  of  20,620 shares held by Mr. Janssen, 175,000 shares that are
immediately  acquirable  upon  the exercise of stock options held by Mr. Janssen
within  60  days  of  April  8,  2002  and  20,620  shares  that are immediately
acquirable  upon  the  exercise  of  share purchase warrants held by Mr. Janssen
within  60  days  of  April  8,  2002.

(5)     Consists  of  175,000  shares  that  are immediately acquirable upon the
exercise  of  stock options held by Mr. O'Hagan within 60 days of April 8, 2002.

(6)     Consists  of  175,000  shares  that  are immediately acquirable upon the
exercise  of  stock options held by Mr. Mr. Martyn-Smith within 60 days of April
8,  2002.

(7)     Consists  of  3,500,000  shares  in  the  name  of  Neujeffski  GMBH and
3,742,358  shares  in  the  name  of  Dieter  Neujeffski.
================================================================================

Except  as  otherwise noted, it is believed by the Company that all persons have
full voting and investment power with respect to the shares indicated. Under the
rules  of the Securities and Exchange Commission, a person (or group of persons)
is  deemed  to  be  a "beneficial owner" of a security if he or she, directly or
indirectly,  has  or  shares  the  power to vote or to direct the voting of such
security,  or  the  power  to  dispose  of  or to direct the disposition of such
security.  Accordingly,  more  than  one person may be deemed to be a beneficial
owner  of the same security. A person is also deemed to be a beneficial owner of
any security, which that person has the right to acquire within 60 days, such as
options  or  warrants  to  purchase  the  Common  Stock  of  the  Company.

CHANGE  IN  CONTROL

We  are not aware of any arrangement that might result in a change in control in
the  future.

                                  Page 48 of 52
<PAGE>

ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

Except  as  described  below,  none  of  the following persons has any direct or
indirect  material  interest  in any transaction to which we were or are a party
during  the  past two years, or in any proposed transaction to which the Company
proposes  to  be  a  party:

(A)     any  director  or  officer;

(B)     any  proposed  nominee  for  election  as  a  director;


(C)     any  person  who  beneficially  owns,  directly  or  indirectly,  shares
carrying  more  than  5%  of  the voting rights attached to our common stock; or

(D)     any  relative or spouse of any of the foregoing persons, or any relative
of  such  spouse,  who has the same house as such person or who is a director or
officer  of  any  parent  or  subsidiary.

In  February  1999,  we signed three promissory notes totaling $1,300,000 with a
relative  of  Mr.  Edward  Halimi,  one  of  our  former directors and executive
officers (and a company in which Mr. Halimi had signatory power).  This loan was
personally  guaranteed by Mr. Halimi.  All notes boar interest at 12% per annum,
compounded  monthly.  Only $1,250,000 of the $1,300,000 notes were drawn down in
1999.  The  notes  had  maturity dates occurring in 1999 and therefore the notes
were  considered  due  on  demand.  No interest was paid on these loans in 1999.
Interest  expense  of  $132,094  was  accrued  in  1999.  In  2000  the note was
converted  to 1,570,000 shares of stock which included satisfying the $1,250,000
principal  on the note, $211,465 of accrued interest, and an additional interest
amount  of  $108,535.

We  subleased  our Carpinteria facility on a month-to-month basis from a private
company  controlled  by  Mr.  Halimi,  one  of our former directors and a former
chairman  of  the  board,  president  and chief executive officer until June 30,
2001.  This  arrangement  with  Mr. Halimi's private company was terminated when
Turbodyne  Systems  entered  into  a new sub-lease for these premises on July 1,
2001.  The  monthly rental paid prior to July 1, 2001 was $28,840 plus operating
costs,  including taxes, insurance and utilities.  We agreed to the payment of a
total  of  $118,761  on execution of the sub-lease to the landlord on account of
late  rent  from  March  31,  2001  to June 30, 2001, late rent fees, a late tax
payment  fee,  attorneys  fees  and  an  annual  insurance payment.   Mr. Halimi
remains  a  guarantor  of  our  new  lease  for  these  premises.

We  issued  3,500,000  shares of our common stock to Lars Neujeffski, one of our
directors,  for  which  proper consideration was not received.  We have demanded
that these shares be returned for cancellation.  To date, Mr. Neujeffski has not
agreed  to the return of these shares for cancellation.  We intend to vigorously
pursue the return of these shares.  An amount of $1,470,000 has been recorded as
a  selling,  general  and administration expense on our financial statements for
the  year  ended  December  31,  2001  in  respect  of  this  share  issuance.

We  issued  3,142,048  shares to Mr. Dieter Neujeffski, one of our directors, at
various  prices  ranging  from  $0.14 per share to $0.284 per share on a private
placement  basis for total proceeds of $509,739.  The prices of the stock issued
were based on the market price of our common stock at the date of issuance, with
a  discount  to  market  to  reflect the fact that the securities were issued as
restricted  shares.  All  shares  were issued during the period from October 16,
2000  to June 28, 2001.  Mr. Neujeffski was appointed as one of our directors on
July  3,  2001.


                                  Page 49 of 52
<PAGE>

ITEM  14.     EXHIBITS,  FINANCIAL  STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)     Financial  Statements

Included  with  this Form 10-K are our audited financial statements for the year
ended  December  31,  2001,  including  the  following:

1.     Auditors'  Report  of  BDO  Dunwoody;

2.     Auditors'  Report  of  McGowan  Gunterman;

3.     Audited  Consolidated Financial Statements for the Periods ended December
31,  2001  and  December  31,  2000,  including:

a.     Consolidated  Balance  Sheets  as  at  December 31, 2001 and December 31,
2000.

b.     Consolidated  Statements  of  Operations for the years ended December 31,
2001,  2000  and  1999.

c.     Consolidated  Statements of Changes in Shareholders' Equity (Deficit) for
the  years  ended  December  31,  2001,  2000  and  1999.

d.     Consolidated  Statements  of  Cash Flows for the years ended December 31,
2001,  2000  and  1999.

e.     Summary  of  Significant  Accounting  Policies

f.     Notes  to  Consolidated  Financial  Statements

(b)     Current  Reports  on  Form  8-K

The Registrant filed a Form 8-K Current Report on March 13, 2002 to disclose the
engagement  of  BDO  Dunwoody  LLP  as  independent  auditor.

                                  Page 50 of 52
<PAGE>

(c)     Exhibits


                    Exhibit Number     Description of Exhibit
                    --------------     ----------------------

3.1     Certificate of Incorporation of Registrant. (1)
3.2     Bylaws of the Registrant. (1)
10.1    Joint Development Agreement dated January 28, 1999 between Honeywell
10.2    International, Inc. and the Registrant. (2)
        License Agreement dated January 28, 1999 between Honeywell
        International, Inc. and the Registrant. (2)

10.3    Amendment to License Agreement dated December 15, 1999. (2)

10.4    Amendment to Joint Development Agreement dated December 15, 1999. (2)

10.5    Intellectual Property and Product Rights Agreement dated December 15,
        1999 between Honeywell International, Inc. and the Registrant. (2)

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

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

23.1    Consent of BDO Dunwoody LLP (3)

23.2    Consent of McGowan Guntermann (3)

--------------------------------------------------------------------------------
(1)     Previously  filed  with  the  Securities  and  Exchange Commission as an
exhibit  to  the  Registrant's  10-Q  for the fiscal quarter ended June 30, 1998

(2)     Previously  filed  with  the  Securities  and  Exchange Commission as an
exhibit  to  the  Registrant's  10-K for the fiscal year ended December 31, 1999

(3)     Filed as an exhibit to this Form 10-K for the fiscal year ended December
31,  2001
--------------------------------------------------------------------------------

                                  Page 51 of 52

<PAGE>



          Turbodyne  Technologies,  Inc  and  Subsidiaries
          Consolidated  Financial  Statements
          For  the  years  ended  December  31,  2001  and  2000



<PAGE>


          Turbodyne  Technologies,  Inc  and  Subsidiaries
          Consolidated  Financial  Statements
          For  the  years  ended  December  31,  2001  and  2000



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


Independent  Auditors'  Report

Prior  Auditors'  Report

Consolidated  Financial  Statements

     Balance  Sheets

     Statements  of  Operations

     Statements  of  Shareholders'  Equity  (Deficiency)

     Statements  of  Cash  Flows

     Summary  of  Significant  Accounting  Policies

     Notes  to  the  Financial  Statements



<PAGE>


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

                                                    Independent Auditors' Report

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


The  Board  of  Directors  and  Stockholders  of
Turbodyne  Technologies  Inc.


We  have  audited the Consolidated Balance Sheet of Turbodyne Technologies, Inc.
and subsidiaries as at December 31, 2001 and the related Consolidated Statements
of  Operations,  Shareholders'  Equity  (Deficiency) and Cash Flows for the year
then  ended.  These  consolidated financial statements are the responsibility of
the  Company's management.  Our responsibility is to express an opinion on these
consolidated  financial  statements  based  on  our  audit.

We  conducted our audit in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the consolidated financial statements are
free  of  material  misstatement.  An audit includes examining, on a test basis,
evidence  supporting the amounts and disclosures in the financial statements. An
audit  also  includes  assessing  the accounting principles used and significant
estimates  made  by  management,  as  well  as  evaluating the overall financial
statement  presentation.  We  believe that our audit provides 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 at December 31, 2001 and the results of its
operations  and  its  cash  flows  for  the  year  then ended in conformity with
accounting  principles  generally  accepted  in  the  United  States.

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 suffered net losses in
each  of  the  last  three  years  resulting  in  an  accumulated  deficit  of
$(114,589,361)  at  December  31,  2001  and a total shareholders' deficiency of
$8,077,745  at  December  31, 2001, has used cash in its operating activities in
each of the last three years and is subject to numerous lawsuits brought against
it  by certain of its stockholders and other parties, and based on the Company's
projected  cash  flows  for  the  ensuring  year,  it  will  be required to seek
additional equity or debt financing in order to continue its present operations.
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/  BDO  Dunwoody  LLP

Chartered  Accountants

Vancouver,  British  Columbia
March  30,  2002


<PAGE>


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

                                              Prior Independent Auditors' Report

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


The  Board  of  Directors  and  Shareholders
Turbodyne  Technologies  Inc.


We  have  audited  the  accompanying  Consolidated  Balance  Sheet  of Turbodyne
Technologies,  Inc.  and  subsidiaries  as  of December 31, 2000 and the related
Consolidated  Statements  of  Operations,  Shareholders' Equity (Deficiency) and
Cash  Flows  for the years ended December 31, 2000 and 1999.  These consolidated
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 auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain  reasonable  assurance  whether the consolidated
financial  statements  are  free  of  material  misstatement.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An  audit  also  includes  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 at December 31, 2000, and the results of
its operations and its cash flows for the years ended December 31, 2000 and 1999
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 suffered net losses in
each  of the last five years resulting in an accumulated deficit of $107,224,141
and  a  total  shareholders'  deficiency  of $7,760,382 at December 31, 2000, is
subject to numerous lawsuits, including those brought against it by shareholders
and,  based  on  projected  cash  flows  for  the ensuing year, the Company will
require  additional  equity  or  debt financing in order to continue its present
operations.  These  matters  raise substantial doubt about the Company's ability
to  continue  as a going concern.  Management's plans in regard to these matters
are  also  discussed  in  Note  1 to the consolidated financial statements.  The
consolidated  financial  statements  do  not  include any adjustments that might
result  from  the  outcome  of  these  uncertainties.


/s/  McGowan  Guntermann

Santa  Barbara,  California
April  6,  2001

<PAGE>


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                               Turbodyne  Technologies,  Inc.  and  Subsidiaries
                                                     Consolidated Balance Sheets

December 31                                                 2001          2000
--------------------------------------------------------------------------------
<S>                                              <C>             <C>
Assets

Current
  Cash                                           $      20,257   $           -
  Trade accounts receivable                                  -         334,209
  Inventories (Note 2)                                       -         363,780
  Prepaid expenses and other current assets                  -          13,279
                                                 --------------  --------------
    Total current assets                                 20,257        711,268

Property and equipment, at cost, net (Note 3)           210,550        353,084
Licenses (Note 8)                                     1,040,000              -
Other assets                                                  -         37,793
                                                 --------------  --------------
Total Assets                                     $    1,270,807  $   1,102,145
-------------------------------------------------------------------------------

Liabilities and Shareholders' Equity (Deficit)

Liabilities

Current
  Current maturities of long-term debt
   (Note 4)                                      $       73,071  $     145,293
  Accounts payable and cash overdraft                 2,751,769      2,716,055
  Accrued liabilities                                   354,474        265,626
  Reserve for lawsuit settlements
    (Notes 6 and 12)                                  6,169,238      5,711,500
                                                 --------------  --------------
    Total current liabilities                         9,348,552      8,838,474

Long-term debt, less current maturities
  (Note 4)                                                    -         24,053
                                                 --------------  --------------
    Total liabilities                                 9,348,552      8,862,527
                                                 --------------  --------------
Shareholders' Equity (Deficiency)
  Share Capital
    Authorized
      1,000,000 preferred stock, par value $0.001
      99,000,000 common stock, par value $0.001
    Issued
      84,036,915 common shares in 2001
        (2000 - 58,151,821)                              84,037         58,152
  Treasury stock, at cost (378,580 shares)           (1,755,534)    (1,755,534)
  Additional paid-in capital                        108,147,994    101,126,022
  Other comprehensive income -
    Foreign exchange translation gain                    35,119         35,119
  Accumulated deficit                              (114,589,361)  (107,224,141)
                                                 --------------  --------------
  Total shareholders' equity (deficiency)            (8,077,745)    (7,760,382)

Commitments and contingencies (Notes 6 and 12)                -              -
                                                 --------------  --------------
Total Liabilities and Shareholders'
  Equity (Deficiency)                            $    1,270,807  $   1,102,145
-------------------------------------------------------------------------------
</TABLE>



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


<PAGE>


<TABLE>
<CAPTION>

                               Turbodyne  Technologies,  Inc.  and  Subsidiaries
                                           Consolidated Statements of Operations

For the years ended December 31              2001           2000           1999
--------------------------------------------------------------------------------
<S>                                  <C>            <C>            <C>
Net sales                            $      9,470   $    539,833   $ 50,218,161

Cost of sales, including inventory
  write-downs                             363,780      1,217,592     46,430,198
                                     -------------------------------------------
  Gross profit (loss)                    (354,310)      (677,759)     3,787,963
                                     -------------------------------------------
Expenses
  Selling, general and administrative
    (Including stock based compensa-
    tion of $223,419; 2000 - 70,246;
    1999 - 208,662) (Notes 8 and 9))    2,226,966      4,458,545     12,379,186
  Research and developments costs
    (Including stock based compensa-
    tion of $893,678; 2000 - 280,984;
    1999 - 834,648) (Note 8))           3,740,058      3,697,763      8,419,975
  Litigation expense (Notes 6, 8
    and 11)                               885,058      6,022,554      6,051,531
  Repricing of options                          -        813,977              -
  Write-down of impaired assets                 -        790,397              -
  Depreciation and amortization           150,745        376,551      3,692,104
  Relocation costs                              -          3,945         96,328
                                     -------------------------------------------
    Total operating expense             7,002,827     16,163,732     30,639,124
                                     -------------------------------------------
Loss from operations                   (7,357,137)   (16,841,491)   (26,851,161)

Other income (expense)
  Interest expense, net                   (21,778)       (50,528)    (1,538,529)
  Gain on sale of patents (Note 11)             -              -      5,996,789
  Gain (loss) on disposal of assets
    (Note 12)                              17,695        (70,226)   (14,298,395)
  Other, net                                    -              -              -
                                     -------------------------------------------
Loss before income taxes               (7,361,220)   (16,962,245)   (36,691,296)

Income tax benefit (expense) (Note 5)      (4,000)        (4,000)       702,400
                                     -------------------------------------------
Net loss for the year                $ (7,365,220)  $(16,966,245)  $(35,988,896)
--------------------------------------------------------------------------------

Loss per common share
  Basic and diluted                  $      (0.11)  $      (0.35)  $      (0.88)
--------------------------------------------------------------------------------

Weighted average shares used for
  basic and diluted loss per share     69,351,716     49,164,622     40,952,987
--------------------------------------------------------------------------------
</TABLE>





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



<PAGE>

<TABLE>
<CAPTION>
                               Turbodyne  Technologies,  Inc.  and  Subsidiaries
                    Consolidated Statements of Shareholders' Equity (Deficiency)

                                                                                  Other                       Net
                        Common Stock        Treasury Stock      Additional    Comprehensive              Shareholders'

                  -------------------------------------------      Paid-in        Income     Accumulated       Equity
                     Shares     Amount    Shares     Amount        Capital        (Loss)       Deficit    (Deficiency)
                  ----------------------------------------------------------------------------------------------------

<S>               <C>         <C>       <C>      <C>           <C>          <C>          <C>            <C>
Balance at
 December 31,
 1998              41,313,816 $42,000   330,080  $(1,500,000)  $ 81,770,000  $ (94,000)  $ (54,269,000)  $ 25,949,000

Exercise of stock
 options              160,000       -         -            -        429,100          -               -        429,100

Exercise of stock
 options for ser-
 vices rendered       100,000       -         -            -        190,847          -               -        190,847

Private placement
 of common stock    9,029,138   9,045         -            -     10,123,897          -               -     10,132,942

Conversion of
 subordinated
 convertible
 debentures, Net
 of expenses          441,862       -         -            -        500,000          -               -        500,000

Purchase of
 treasury stock             -       -    48,500     (255,534)             -          -               -       (255,534)

Translation
 adjustment                 -       -         -            -              -    114,258               -        114,258

Issuance of stock
 options to non-
 employees for
 Services                   -       -         -            -      1,043,310           -              -      1,043,310

Net loss for the
 year                       -       -         -            -              -           -    (35,988,896)   (35,988,896)
                  ----------------------------------------------------------------------------------------------------

Balance, December
 31, 1999          51,044,816  51,045   378,580   (1,755,534)    94,057,154      20,258    (90,257,896)     2,115,027


Exercise of
 warrants             176,020     176         -            -         51,486           -              -         51,662

Exercise of stock
 options            1,943,923   1,944         -            -      3,091,428           -              -      3,093,372

Private placement
 of common stock    3,521,927   3,522         -            -      1,190,747           -              -      1,194,269

Shares returned      (104,865)   (105)        -            -              -           -              -           (105)

Loss on repricing
 of options                 -       -         -            -        813,977           -              -        813,977

Conversion of debt
 to stock (Note 4)  1,570,000   1,570         -            -      1,570,000           -              -      1,571,570

Translation
 adjustment                 -       -         -            -              -      14,861              -         14,861

Issuance of stock
 options for non-
 employees for
 services                   -       -         -            -        351,230           -              -        351,230

Net loss for the
 year                       -       -         -            -              -           -    (16,966,245)   (16,966,245)
                  ----------------------------------------------------------------------------------------------------

Balance, December
 31, 2000          58,151,821  58,152   378,580   (1,755,534)   101,126,022      35,119   (107,224,141)    (7,760,382)

Exercise of stock
 options            3,874,566   3,875         -            -        461,463           -              -        465,338

Private placement
 of common stock   11,930,528  11,930         -            -      1,897,692           -              -      1,909,622

Issuance of stock
 for services
 (Note 8)           3,780,000   3,780         -            -        790,020           -              -        793,800

Issuance of stock
 recorded as
 compensation
 (Note 8)           3,500,000   3,500                             1,466,500           -              -      1,470,000

Issuance of stock
 and warrants
 for licenses
 (Note 8)           2,000,000   2,000         -            -      1,038,000           -              -      1,040,000

Issuance of stock
 and warrants
 for settlement
 of a guarantee
 (Note 8)             800,000     800         -            -        251,200           -              -        252,000

Issuance of stock
 options for
 non-employees
 for services               -       -         -            -      1,117,097           -              -      1,117,097

Net loss for the
 year                       -       -         -            -              -           -     (7,365,220)    (7,365,220)
                  ----------------------------------------------------------------------------------------------------

Balance, December
 31, 2001          84,036,915 $84,037   378,580  $(1,755,534)  $108,147,994  $   35,119  $(114,589,361)  $ (8,077,745)
                  ----------------------------------------------------------------------------------------------------

</TABLE>


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


<PAGE>

<TABLE>
<CAPTION>

                               Turbodyne  Technologies,  Inc.  and  Subsidiaries
                                           Consolidated Statements of Cash Flows

For the years ended December 31               2001           2000           1999
--------------------------------------------------------------------------------
<S>                                   <C>           <C>            <C>
Cash provided by (used in)

Operating activities
  Net loss for the year               $(7,365,220)  $(16,966,245)  $(35,988,896)
  Adjustments to reconcile net
   loss to net cash used in
   operating activities:
    Depreciation and amortization         150,745        376,551      3,692,104
    Writedown of inventory and
     impaired assets                       63,780        790,397              -
    (Gain) loss on sale of patents
     and assets (Note 11)                 (17,695)        70,226        809,486
    Loss on disposal of assets
     related to net book value of
     fixed assets, goodwill and debt
     (Note 12)                                  -              -     16,764,619
    Additional interest on note
     conversion                                 -        108,535              -
    Loss on repricing of options                -        813,977              -
    Stock option compensation           1,117,097        351,230      1,234,157
    Stock issued for services             793,800              -              -
    Issuance of stock recorded as
     compensation                       1,470,000              -              -
    Stock and warrants issued on
     settlement of a guarantee            252,000              -              -
  (Increase) decrease in operating
   assets
    Trade accounts receivable             334,209      2,343,111      7,945,680
    Employee advances receivable                -        694,097       (281,347)
    Inventories                                 -      1,160,481      4,982,739
    Prepaid expenses and other current
     assets                                13,279         13,690      1,376,281
    Other assets                           37,793          9,187      1,188,020
  Increase (decrease) in operating
   liabilities
    Accounts payable and cash overdraft   101,080        195,584     (6,460,891)
    Accrued liabilities and reserve for
     lawsuit settlements                  546,586      5,332,602     (4,271,012)
    Income taxes payable                        -              -       (700,000)
                                      ------------  -------------  -------------
                                       (2,202,546)    (4,706,577)    (9,709,060)
                                      ------------  -------------  -------------

Investing activities
  Purchase of property and equipment       (8,211)       (22,977)    (1,570,823)
  Proceeds from sale of property,
   plant and equipment                     17,695        105,000              -
                                      ------------  -------------  -------------
                                            9,484         82,023     (1,570,823)
                                      ------------  -------------  -------------

Financing activities
  Net proceeds from short-term
   borrowings                                    -        80,878      1,750,000
  Repayments under capital lease
   obligations                             (51,275)            -     (1,045,976)
  Repayment of bank overdraft              (65,366)            -              -
  Repayments under long-term
   borrowings                              (45,000)            -     (1,572,882)
  Proceeds from convertible
   subordinated
    Debentures                                   -             -        500,000
  Issuance of common stock               1,909,622     1,190,747     10,132,942
  Proceeds from exercise of stock
   options and warrants                    465,338     3,246,741        429,100
  Repurchase of treasury stock                   -             -       (255,534)
  Increase in cash overdraft                     -        65,366              -
                                      ------------  -------------  -------------
                                         2,213,319     4,583,732      9,937,650
                                      ------------  -------------  -------------
Effect of exchange rate changes
 on cash                                         -        11,797        114,258
                                      ------------  -------------  -------------
Net increase (decrease) in cash             20,257       (29,025)    (1,227,975)
Cash, beginning of year                          -        29,025      1,257,000
                                      ------------  -------------  -------------
Cash, end of year                     $     20,257  $          -   $     29,025
--------------------------------------------------------------------------------

Supplementary disclosure of cash
 flow information
  Cash paid during the year
    Interest                          $          -  $        838   $  1,136,433
    Income taxes                      $      4,000  $      4,000   $      4,000
Supplementary disclosure of non-cash
 investing and financing activities:
  Stock option compensation
  (Notes 7 and 8)                     $  1,117,097  $    351,230   $  1,234,157
  Stock issued for services
  (Note 8)                            $    793,800  $          -   $          -
  Issuance of stock recorded as
   compensation (Note 8)              $  1,470,000  $          -   $          -
  Stock and warrants issued for
   licenses (Note 8)                  $  1,040,000  $          -   $          -
  Stock and warrants issued on
   settlement of a guarantee
   (Note 8)                           $    252,000  $          -   $          -
  Conversion of debt to equity
   (Note 4)                           $          -  $          -   $          -
    Stock issued for debt             $          -  $  1,250,000   $          -
    Stock issued for accrued and
     other interest                   $          -  $    320,000   $          -
  Issuance of notes for financing
   of capital leases                  $          -  $          -   $    644,943
  Settlement of claim through sale
   of patents (Note 11)               $          -  $          -   $  6,650,000
--------------------------------------------------------------------------------
</TABLE>




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


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2001  and  2000
--------------------------------------------------------------------------------

Nature  of  Business     Turbodyne  Technologies,  Inc.  and  subsidiaries  (the
                         Company),  a  Delaware corporation, engineers, develops
                         and  markets  products  designed to enhance performance
                         and  reduce  emissions  of internal combustion engines.
                         The  Company  has  developed  a  patented  technology
                         designed  to  optimize  air flow to internal combustion
                         engines  resulting in efficient fuel combustion in both
                         diesel  and  gasoline  engines.  The  Company  has
                         incorporated this technology into two primary products:
                         the  Turbopac  and the Dynacharger, collectively called
                         the  Turbodyne  Products.

                         Through  a  wholly  owned  subsidiary,  the  Company
                         previously  manufactured  aluminum  cast  automotive
                         products,  including  engine  and  vehicle  components,
                         chassis  and  specialty  wheels.  This  subsidiary also
                         manufactured  all of the engineered aluminum components
                         for  the  Turbodyne  Products.  This  wholly  owned
                         subsidiary was sold by order of the Bankruptcy Court on
                         December  23,  1999  (Note  12).  The  Company  has not
                         generated significant revenues from its operations that
                         develop  engine  enhancement  products.  See  Note  10
                         regarding  operating  segments.

                         The  Company  was  delisted  from  the  Nasdaq SmallCap
                         Market  and  delisted  from  trading  on  NASDAQ Europe
                         during  2001.

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 U.K.
                         Ltd.  (which  was  liquidated  during  1999), Turbodyne
                         Germany  Ltd.  and  Pacific  Baja  Light  Metals  Corp.
                         ("Pacific  Baja")  (Note 12). All material intercompany
                         accounts  and  transactions  have  been  eliminated  on
                         consolidation.

Inventories              Inventories  are  valued  at  the  lower  of  cost  or
                         market.

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

                         Machinery and equipment   -  7 to 15 years
                         Transportation equipment  -  5 years
                         Furniture and fixtures    -  5 to 10 years
                         Leasehold improvements    -  length of lease, not to
                                                      exceed economic life

Licenses                 Licenses obtained in December 2001 are recorded at cost
                         and will be amortized over their estimated useful life,
                         which  has  not  yet  been  determined.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies

December  31,  2001  and  2000
--------------------------------------------------------------------------------
Long-Lived  Assets       It is the Company's policy to report long-lived assets
                         at  amortized cost. As part of an ongoing review of the
                         valuation  and  amortization  of  long-lived  assets,
                         management  assesses  the carrying value of such assets
                         to  determine  if  facts and circumstances suggest that
                         they  may  have  been  impaired.  The  Company annually
                         assesses  the  recoverability  of  long-lived assets in
                         accordance  with  Statement  of  Financial  Accounting
                         Standards  (SFAS)  No.  121.

                         The  Company  recorded  a  charge  of  $790,397 for the
                         write-down of certain long-lived assets during December
                         31,  2000.  After careful assessment of various factors
                         relevant  to these assets, management determined it was
                         appropriate  to  write  down  the value of these assets
                         and,  accordingly,  such  assets  were  written down to
                         estimated  fair  value  based  on  estimated discounted
                         future  cash  flows  in  accordance  with SFAS No. 121.

Goodwill                 Goodwill  was  associated with the purchase of Pacific
                         Baja  on  July  2,  1996  by  the Company and was being
                         amortized  on  a  straight-line basis over 20 years. On
                         December 23, 1999, the assets of Pacific Baja were sold
                         through bankruptcy (Note 12), and the net book value of
                         the  goodwill  of  $12,242,000  was  charged to loss on
                         disposal  of  assets.

Recognition of Revenue
and Significant Customers
and Concentration of
Credit Risk              Revenues in 2001 related to refurbishment of previously
                         sold  product  to  one  customer and is recognized upon
                         completion  of  service. The Company recognizes revenue
                         upon  shipment  of  product.  The  Company had sales of
                         DynachargerTM  prototypes  to  one significant customer
                         constituting  approximately  100% of net sales in 2000,
                         although  there  have been no new orders for TurbopacTM
                         products  since  June  2000.

                         The  Company  had  sales  to  two significant customers
                         constituting  approximately  39% and 27%, respectively,
                         of  net  sales in 1999; however these customers related
                         to  Pacific  Baja,  which  was  disposed  of  through
                         bankruptcy  on  December  23,  1999.  Of  the remaining
                         operations,  the  Company  had  two  customers  that
                         represented  essentially  all  sales.

                         Ninety-six  percent  of accounts receivable at December
                         31,  2000  is from reimbursement of costs for the Joint
                         Venture  (Note  13).

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies

December  31,  2001  and  2000
--------------------------------------------------------------------------------
Earnings (Loss) Per
Share                    The Company accounts for earnings per share under the
                         provisions  of SFAS No. 128, "Earnings per Share." SFAS
                         128  specifies  the  computation,  presentation  and
                         disclosure  requirements  for earnings (loss) per share
                         (EPS).

                         For  the  years ended December 31, 2001, 2000 and 1999,
                         options and warrants to purchase 19,797,413, 12,590,218
                         and  7,182,174  common  stock,  respectively, at prices
                         ranging from $0.19 to $8.50 were outstanding during the
                         years  but  were  not  included  in  the computation of
                         diluted  EPS  because  the  options  would  have  an
                         antidilutive  effect  on  net  loss per share. No other
                         adjustments  were  made  for  purposes  of  per  share
                         calculations.

Fair Value of Financial
Instruments              The fair values of the Company's cash, trade  accounts
                         receivable,  accounts  payable  and  cash  overdraft,
                         accrued  liabilities  and  long-term  debt  approximate
                         their  carrying  values because of the short maturities
                         of  these  instruments.

Stock-Based
Compensation             The Company has adopted SFAS No. 123, "Accounting for
                         Stock-Based  Compensation"  and has elected to continue
                         to  measure  compensation  cost  for  employees  under
                         Accounting  Principles  Board  No.  25,  including
                         interpretations  provided  in  Interpretation  No.  44.
                         Generally,  compensation  expense is recognized for the
                         difference  between  the market price of the underlying
                         common  stock  and  the  exercise  price  of  the stock
                         options.  Effective  from the date of the modification,
                         the  Company  regularly remeasures compensation expense
                         for  the  options  where  there  has been a substantive
                         change  or  modification  to  such  options.

                         SFAS  No. 123 requires the Company to provide pro-forma
                         information  regarding  net  income  as if compensation
                         cost  for  the  Company's  stock  option  plan had been
                         determined  in  accordance  with  the  fair value based
                         method  prescribed  in  SFAS  No.  123.

                         The  value of stock options granted to non-employees is
                         recognized  in  these  financial  statements  as
                         compensation  expense  under  SFAS  No.  123  using the
                         Black-Scholes  option  pricing  method.

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

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

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies

December  31,  2001  and  2000
--------------------------------------------------------------------------------
Foreign Currency
Translation              Assets  and  liabilities  of  the  Company denominated
                         in  foreign  currencies  have  been  translated  at the
                         exchange  rate  in  effect  at  the year end date while
                         expenses  are  translated  at the average exchange rate
                         for  the  period.  Gains  or  losses on translation are
                         deferred  as  a  separate  component  of  shareholders'
                         deficit.

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

Comprehensive  Income    The  Company  has  adopted  SFAS  No.  130, "Reporting
                         Comprehensive  Income".  SFAS  No.  130  establishes
                         standards  to measure all changes in equity that result
                         from  transactions and other economic events other than
                         transactions  with  owners. Comprehensive income is the
                         total  of  net  earnings (loss) and all other non-owner
                         changes  in  equity. Except for net earnings (loss) and
                         foreign  currency  translation adjustments, the Company
                         does  not  have  any  transactions  and  other economic
                         events  that qualify as comprehensive income as defined
                         under  SFAS  No.  130.  As foreign currency translation
                         adjustments  were  immaterial  to  the  Company's
                         consolidated  financial statements, net earnings (loss)
                         approximated comprehensive income for each of the years
                         in  the  three-year  period  ended  December  31, 2001.

Business  Segment
Reporting                The  Company follows SFAS No. 131, "Disclosures About
                         Segments  of  an  Enterprise  and Related Information".
                         SFAS  No.  131  establishes  standards  for  reporting
                         information  about  business  segments  and  related
                         disclosures  about  products  and  services, geographic
                         areas  and  major customers, if applicable. Significant
                         reportable  business  segments  of  the  Company  are
                         aftermarket  automotive  wheels,  automotive  engine
                         components  and Turbodyne products. Information related
                         to  these  segments  is  summarized  in  Note  10.

Cash and Equivalents     The  Company  considers  all  highly liquid financial
                         instruments  with a maturity of three months or less to
                         be  cash  equivalents.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies

December  31,  2001  and  2000
--------------------------------------------------------------------------------
Legal Fees               The Company expenses legal fees in connection with
                         litigation  as  incurred.

New Accounting
Pronouncements           In  June  1998,  The  Financial  Accounting Standards
                         Board  issued  SFAS No. 133, "Accounting for Derivative
                         Instruments  and  Hedging  activities".  SFAS  No.  133
                         requires  companies  to  recognize  all  derivative
                         contracts  as  either  assets  or  liabilities  on  the
                         balance  sheet  and  to  measure them at fair value. If
                         certain  conditions  are  met,  a  derivative  may  be
                         specifically  designated  as  a hedge, the objective of
                         which  is  to  match  the  timing  of  gain  or  loss
                         recognition  on  the  hedging  derivative  with  the
                         recognition of (i) the changes in the fair value of the
                         hedged assets or liability that are attributable to the
                         hedged  risk  or  (ii) the earning effect of the hedged
                         forecasted transaction. For a derivative not designated
                         as a hedging instrument, the gain or loss is recognized
                         in  income  in  the  period  of change. SFAS No. 133 is
                         effective  for  all  fiscal  quarters  of  fiscal years
                         beginning  after  June  15,  2000.

                         Historically,  the  Company  has  not  entered  into
                         derivatives contracts either to hedge existing risks or
                         for  speculative purposes. Accordingly, the adoption of
                         the  new  standards  did  not  affect  the  Company's
                         financial  statements.

                         In  June 2001, the Financial Accounting Standards Board
                         finalized  SFAS  No.  141, "Business Combinations", and
                         SFAS  No.  142, "Goodwill and Other Intangible Assets".
                         SFAS  141  requires  the  use of the purchase method of
                         accounting  and  prohibits  the  use  of  the
                         pooling-of-interests  method of accounting for business
                         combinations  initiated  after  June 30, 2001. SFAS 141
                         also  requires  that  the  Company  recognize  acquired
                         intangible  assets  apart from goodwill if the acquired
                         intangible  assets  meet  certain  criteria.  SFAS  141
                         applies  to  all  business combinations initiated after
                         June  30,  2001  and for purchase business combinations
                         completed  on  or after July 1, 2001. It also requires,
                         upon  adoption of SFAS 142, that the Company reclassify
                         the  carrying amounts of intangible assets and goodwill
                         based  on  the  criteria  in  SFAS  141.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies

December  31,  2001  and  2000
--------------------------------------------------------------------------------
New Accounting
Pronouncements  -
Continued                SFAS 142 requires, among other things,  that  companies
                         no  longer amortize goodwill, but instead test goodwill
                         for impairment at least annually. In addition, SFAS 142
                         requires  that the Company identify reporting units for
                         the  purposes of assessing potential future impairments
                         of  goodwill,  reassess  the  useful  lives  of  other
                         existing  recognized  intangible  assets,  and  cease
                         amortization  of  intangible  assets with an indefinite
                         useful  life.  An  intangible  asset with an indefinite
                         useful  life  should  be  tested  for  impairment  in
                         accordance  with  the guidance in SFAS 142. SFAS 142 is
                         required  to be applied in fiscal years beginning after
                         December  15, 2001 to all goodwill and other intangible
                         assets  recognized  at  that  date,  regardless of when
                         those  assets  were  initially  recognized.  SFAS  142
                         requires  the  Company  to  complete  a  transitional
                         goodwill  impairment  test  six months from the date of
                         adoption.  The Company is also required to reassess the
                         useful  lives  of  other  intangible  assets within the
                         first  interim  quarter  after  adoption  of  SFAS 142.

                         The  Company's  previous  business  combinations  were
                         accounted  for  using the purchase method. The adoption
                         of  SFAS  141  and  SFAS  142 is not expected to have a
                         material  effect on the Company's financial statements.

                         In  October  2001,  the  Financial Accounting Standards
                         Board  issued  SFAS  No.  144,  "Accounting  for  the
                         Impairment  or Disposal of Long-Lived Assets". SFAS No.
                         144  requires  that those long-lived assets be measured
                         at the lower of carrying amount or fair value less cost
                         to  sell,  whether reported in continuing operations or
                         in  discontinued  operations.  Therefore,  discontinued
                         operations will no longer be measured at net realizable
                         value or include amounts for operating losses that have
                         not  yet  occurred.  SFAS  No.  144  is  effective  for
                         financial  statements issued for fiscal years beginning
                         after  December  15,  2001  and,  generally,  is  to be
                         applied  prospectively.  The implementation of this new
                         standard  is  not expected to have a material effect on
                         the  Company's  financial  statements.

Reclassification         Certain 2000 amounts have been reclassified to conform
                         with  the  current  year's  presentation.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------
1.     Ability  to  Continue  as  a  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
losses  in  recent  years resulting in an accumulated deficit of $114,589,361 at
December  31,  2001,  has used cash in its operating activities in recent years,
has  disposed  of its most significant subsidiary through bankruptcy, is subject
to  lawsuits  brought against it by shareholders and other parties, and based on
the  Company's  projected cash flows for the ensuing year it will be required to
seek  additional  equity  or  debt  financing  in  order to continue its present
operations,  irrespective  of the amounts to be paid, if any, in connection with
the  aforementioned  lawsuits.  These  matters raise substantial doubt about the
Company's  ability  to  continue  as  a  going  concern.

The Company's operations have been financed principally through a combination of
private  and  public  sales  of equity and debt securities. Although the Company
continues  to  raise  operating  funds  with  a  combination  of debt and equity
instruments  there  is no guarantee that the company will be able to continue to
finance  operations by this method. The Company is also limited in raising funds
through  the  sale  of equity because of the limited remaining authorized shares
available  for  sale.

The  Company  continues  to  examine  it's  operation  and processes for further
methods  of  cutting  costs  and  gaining  efficiencies.  However,  there  is no
assurance  that  the  cost  reductions  will be realized in the full amount. The
Company  is  examining  alternatives  for  financing  and fulfilling its working
capital needs based on its working capital projections. If the Company is unable
to  satisfactorily  settle litigation, including its dispute with Honeywell, the
present  holder of the Company's core technology (Note 13) and raise substantial
monies  to  meet  its  working capital needs, it may have to cease operating and
seek  relief  under  appropriate  statutes.

2.     Inventories

Inventories  are  comprised of the following at December 31, 2001 and 2000:

                                        2001                2000
                             -----------------------------------

Raw materials                $     1,085,911     $     1,085,911
Reserve for obsolescence          (1,085,911)           (722,131)
                             -----------------------------------
                             $             -     $       363,780

During  2001,  after  assessment  of  various  factors  relevant  to  inventory,
management  determined  it was appropriate to write down the remaining inventory
to  $Nil.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

3.     Property  and  Equipment

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

                                                      2001        2000
                                                   ----------  ----------
Machinery and equipment                            $2,060,789  $2,052,578
  Transportation equipment                            126,991     168,008
  Furniture and fixtures                              165,723     165,723
  Leasehold improvements                              116,304     116,304
                                                   ----------  ----------
                                                    2,469,807   2,502,613
  Less accumulated depreciation,
   amortization and reserve for
   impairment of assets                             2,259,257   2,149,529
                                                   ----------  ----------
  Net property and equipment                       $  210,550  $  353,084
                                                   ----------  ----------



4.     Long-term  Debt

     Long-term  debt  at  December  31, 2001 and 2000 consists of the following:

                                                  2001      2000
                                                 -------  --------
Notes payable to officers (Note 9)               $15,500  $ 60,500
  Other                                           57,571   108,846
                                                 -------  --------

  Total long-term debt                            73,071   169,346
  Less current maturities                         73,071   145,293
                                                 -------  --------
  Long-term debt, excluding current maturities   $     -  $ 24,053
                                                 -------  --------

The  Company's  wholly  owned  subsidiary, Pacific Baja, had a revolving line of
credit  with  a  bank permitting borrowings up to $10 million, collateralized by
all  receivables  and  inventory.  The borrowings bore interest at the Company's
option at LIBOR plus 2% or at prime. The line of credit agreement was amended on
January  19,  1999  whereby  the  revolving  line  of  credit  was  increased to
$11,500,000. The line of credit expired June 1, 2000. The outstanding balance at
December  23,  1999 of approximately $8.5 million was settled through bankruptcy
at  a  $900,000  discount.

In February 1999, the Company signed three promissory notes totalling $1,300,000
with  a  relative  of a former Director (and a company in which the Director had
signatory power). This loan was personally guaranteed by the Director. All notes
bore  interest  at  12%  per  annum,  compounded monthly. Only $1,250,000 of the
$1,300,000 notes were drawn down in 1999. The notes had maturity dates occurring
in  1999  and therefore the notes were considered due on demand. No interest was
paid  on  these loans in 1999. Interest expense of $132,094 was accrued in 1999.
In  2000  the  note  was  converted  to 1,570,000 shares of stock which included
satisfying  the  $1,250,000 principal on the note, $211,465 of accrued interest,
and  an  additional  interest  amount  of  $108,535.

The  Company  is  in  arrears  on  capital  lease  obligations included in other
long-term  debt,  accordingly,  amounts  owing  are  classified  as  current.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

5.     Income  Taxes

Income  tax  expense (benefit) is comprised of the following for the years ended
December  31,  2001,  2000  and  1999:


                         2001    2000      1999
                       --------------------------
Current
    Federal            $    -  $    -  $(612,500)
    State               4,000   4,000    (89,900)
                        ------  ------  ----------
                        4,000   4,000   (702,400)
                        ------  ------  ----------
  Deferred
    Federal                 -       -          -
    State                   -       -          -
                        ------  ------  ----------
                            -       -          -
                       $4,000  $4,000  $(702,400)
                        ------  ------  ----------


Total  income  tax expense (benefit) for the years ended December 31, 2001, 2000
and  1999  differed  from the amounts computed by applying the statutory Federal
income  tax  rate  to earnings before income taxes as a result of the following:


                                            2001          2000          1999
                                        ------------  ------------ -------------
Computed "expected" income
 tax benefit                            $(2,946,088)  $(6,911,436) $(14,664,036)
                                        ------------  ------------  ------------
Non-deductible expenses                     455,351     3,199,087        24,605
Change in valuation allowance             2,494,737     3,716,349    13,937,031
                                        ------------  ------------  ------------
                                        $     4,000   $     4,000   $  (702,400)


The  tax  effects  of  temporary  differences that give rise to the deferred tax
assets  and  liabilities  at  December  31,  2001  and  2000  are  as  follows:


                                                           2001           2000
                                                     ---------------------------
Deferred tax assets
    Accrued liabilities                              $    141,789  $    116,341
    Reserve for lawsuit settlements                     2,467,695     2,501,584
    Fixed assets                                          766,351             -
    Inventory - related items                             434,364       294,239
    Alternative minimum tax credit                         55,000        55,000
    Net operating loss carryover                       31,325,845    30,629,143
                                                     -------------  ------------

    Gross deferred tax assets                          35,191,044    33,596,307

Less valuation allowance                              (35,191,044)  (32,696,307)
                                                     -------------  ------------
  Deferred tax assets, net of valuation allowance               -       900,000

Deferred tax liabilities - basis of fixed assets                -      (900,000)
                                                     -------------  ------------
  Net deferred tax assets                            $          -   $         -


<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

5.     Income  Taxes  -  Continued

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 liabilities, 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, 2001. Accordingly, a valuation allowance has been
provided  for  the  total  net  deferred  tax  assets.

At  December  31,  2001,  the  Company  had  net operating loss carryforwards of
approximately  $87,000,000  for  US income tax purposes, which if not used, will
expire  between  the  years  2008  and  2016.

6.     Commitments  and  Contingencies

     a)     Leases

The  Company  leases  certain  factory and office premises in California under a
noncancelable  operating  lease  expiring January 2005. Rental expense for 2001,
2000  and  1999 was approximately $824,000, $815,675 and $908,000, respectively.

The  Company,  prior  to  July  1, 2001, subleased its Carpinteria facility from
American  Appliance,  Inc., a private company controlled by a former Director of
the  Company.  Rental  expense  for  this  facility  in  2001, 2000 and 1999 was
approximately  $489,000, $381,819 and $310,000, respectively. The Company leased
the Pacific Baja facility in Mexico from certain stockholders of the Company. In
2001 rental expense includes $335,000, which arose due to guarantees provided by
the  Company  (2000  - $Nil; 1999 - $167,000). See Note 12 regarding the sale of
Pacific  Baja  assets.

Minimum  future rental commitments under the operating leases as of December 31,
2001  are:

     Year ending December 31
     2002                                    $     346,080
     2003                                          346,080
     2004                                          346,080
     2005                                           28,840
                                             -------------
     Total future minimum lease payments     $   1,067,080
                                             -------------

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

6.     Commitments  and  Contingencies  -  Continued

b)     Litigation
       TST

In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of Pacific Baja (Note
12)  filed an action against the Company alleging that in order to induce TST to
extend  credit  to a subsidiary of Pacific Baja, the Company executed guarantees
in  favor  of  TST.  TST  alleged  that  the  subsidiary defaulted on the credit
facility  and  that the Company is liable as guarantor. The complaint originally
sought  damages  of  approximately $1.8 million, which was included in the legal
liability  reserve  at  December  31,  2000.  However,  if  it is determined TST
received  payment in preference to other creditors before Pacific Baja filed its
Chapter  11  petition  in  bankruptcy,  TST  will  likely  increase its claim by
$2,130,000,  which  is  included in the legal reserve in Note 12 at December 31,
2001  and  2000.


The  Company  agreed  on  the  terms  of settlement with TST on October 4, 2001.
However,  the  settlement  agreement and release have not been executed to date.
Under  the  terms  of  the  proposed  settlement,  the  Company  would:


i)   issue 1,000,000 shares of common stock to the president of TST and agree to
     register the resale of these shares by filing a registration statement with
     the  Securities  and  Exchange  Commission;

ii)  issue  2,000,000  shares  of  common  stock  to  TST;

iii) agree to the immediate entry of judgement against the Company in the amount
     of  $2,066,078  plus interest from the date of entry at the rate of 10% per
     annum.  The  amount  of  this  judgement  would immediately increase by any
     amount  that  TST is compelled by judgement 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
     judgement  against  the  Company  in  favour  of  TST.

At  December  31,  2001,  the  Company has included $2,066,078 in regard to this
matter  in  Reserve  for  Lawsuit  Settlements.

Other

The  Company  is currently involved in various collection claims and other legal
actions.  It  is  not  possible at this time to predict the outcome of the legal
actions.  See  below  and  Notes  11,  12  and  13 for additional legal matters.

c)     SEC  Investigation

The  Company  was  subject  to  SEC  investigations of its press releases issued
between  May  1997  and  September 1998 and as to whether the Company had issued
unregistered  shares  in  contravention  of  the  Securities  Act of 1933. These
investigations  were  concluded  against  the  Company  in February 2002 with no
significant  impact  on  the  Company's  financial  position.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

6.     Commitments  and  Contingencies  -  Continued

d)     Class  Action  Law  Suits

The consolidated class action complaints filed against the Company purport to be
brought  on  behalf  of  individuals  claiming that they purchased shares of the
Company's  common stock during the period from March 1, 1997 through January 22,
1999. The plaintiffs seek unspecified damages arising from alleged misstatements
concerning such matters as the technological capability and actual and potential
sales of the Company products and the demand and acceptance of Company products.
The plaintiffs allege that these misstatements caused the price of the Company's
common  stock to be artificially inflated during the class period. These actions
were  tendered  to  the  Company's  insurance  carriers.

The  Company  reached  a settlement agreement that it anticipates will result in
the  final  disposition  of  these  legal  proceedings. The Company has signed a
stipulation  of  settlement  with the legal counsel for the plaintiffs that sets
forth  the  terms  and  conditions  of  this  settlement.  This  stipulation  of
settlement has been submitted to the court for approval. The settlement will not
become  final  until such time as court approval has been obtained, the time for
appeal  has  lapsed  and  funds  are  released in accordance with the settlement
agreement.  The  agreed  terms  of settlement provide for a stipulated judgement
against  the Company in the amount of $7.9 million. The Company anticipates that
this  judgement will be satisfied through the Company's director's and officer's
liability  insurance policies, that the plaintiff's case against the Company and
the  co-defendants  will be dismissed and the plaintiffs will not have any right
to  pursue  execution against the Company or its assets upon finalization of the
settlement.

e)     Royalties

The  Company  has  agreed  to  pay  a  royalty equal to 2% of the gross sales of
products manufactured and sold that incorporate the licensed technology referred
to  in  Note  8  (c).

7.     Stock  Options

On  March  3,  1997, the Company established an incentive stock option plan (the
"1997  Plan").  Under  the  1997  Plan,  the  Company  may  grant options to its
directors,  officers  and  employees for up to 2,840,000 shares of common stock.
The  exercise  price  of  each  option  shall  be determined by the Stock Option
Committee  but  shall  in  no instance be less than the fair market value of the
shares  of  the  Company,  determined as the average closing price of the common
shares  of the Company for the ten days trading preceding the date of grant. The
option's  maximum  term is ten years. The Stock Option Committee shall determine
the  grant  date of any option. As of December 31, 1999, the options to purchase
the  maximum  number of shares of common stock allowable under the 1997 Plan had
been  granted.

Options  granted  under the 1997 Plan to participants, other than the President,
Chief  Executive  Officer,  the  Chief  Financial  Officer,  Secretary  and  any
directors  of  the  Company  or  its subsidiaries, shall be subject to a vesting
formula. The vesting formula will provide that options shall vest equally over a
three-year  period  commencing  on the date of the grant so that the options can
only  be  exercised  as to an aggregate of 33.3% in the first year, 66.6% in the
second  year  and  100%  in  the third year and each year thereafter. No options
granted  to  an  employee of the Company or an affiliate of the Company shall be
exercisable until the optionee has been employed by the Company or affiliate for
a  period  of six months. The directors have the discretion to waive the vesting
requirements  in  appropriate  circumstances.


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

7.     Stock  Options  -  Continued

On  September 4, 1998, the Board of Directors approved an incentive stock option
plan  (the  "1998  Plan"). Under the 1998 Plan, the Company may grant options to
its directors, officers, employees and consultants for up to 4,000,000 shares of
common stock. The option's maximum term is ten years. The Stock Option Committee
will  determine  the terms of any options or other rights granted under the 1998
Plan,  including  the grant date of any option, the exercise price and the term,
which  in  any event shall not exceed ten years. The maximum number of shares of
common  stock  under the 1998 Plan to any participant is 200,000 per participant
per  year.  As  of  December  31,  2001 and 2000, Nil and 285,367, respectively,
represent  the number of unoptioned shares available for the granting of options
under  the  1998  Plan.

On  October  1,  1999 the Company established the 2000 Stock Incentive Plan (the
"2000  Plan").  Under  the  2000  Plan,  the  Company  may  grant options to its
directors,  officers,  employees  and  consultants for up to 4,800,000 shares of
common stock. The exercise price of each option shall be determined by the Stock
Option  Committee  but  in no instance be less than the fair market value of the
shares  of  the  Company determined as the closing price of the common shares of
the Company on the day preceding the date of the grant. The options maximum term
is  ten years. As of December 31, 2001 and 2000, the number of unoptioned shares
available  for  granting  of options under the plan was 3,142,604 and 2,953,500,
respectfully.


The following summarizes information relating to stock options during 2001, 2000
and  1999:


<TABLE>
<CAPTION>
                                                                           2001

                                             Non-employees             Employees             Total
                                          ---------------------------------------------------------------
                                                    Weighted                Weighted             Weighted
                                                     Average                 Average              Average
                                                    Exercise                Exercise             Exercise
                                          Shares       Price       Shares      Price    Shares      Price
                                      -------------------------------------------------------------------
<S>                                       <C>       <C>          <C>         <C>     <C>          <C>

Outstanding at beginning of year          678,668   $     3.39   5,013,050   $ 3.69   5,691,718   $ 3.66
Granted                                 5,389,566         0.16           -        -   5,389,566     0.16
Exercised                              (3,874,566)        0.12           -        -  (3,874,566)    0.12
Forfeited                                (280,253)        4.65  (5,013,050)    3.69  (5,293,303)    3.74
                                      --------------            -----------          -----------
Outstanding at end of year              1,913,415         0.33           -        -   1,913,415     0.33
Options exercisable at end of year      1,913,415         0.33           -        -   1,913,415     0.33
Weighted average fair value of
 options granted during the year                -         0.21           -        -           -     0.21
                                      -------------------------------------------------------------------
</TABLE>



<TABLE>
<CAPTION>
                                                                     2000

                                         Non-employees         Employees               Total
                                      ---------------------------------------------------------------

                                               Weighted              Weighted             Weighted
                                                Average               Average              Average
                                               Exercise              Exercise             Exercise
                                       Shares     Price     Shares      Price     Shares     Price
                                      ---------------------------------------------------------------
<S>                                   <C>        <C>     <C>          <C>     <C>          <C>

Outstanding at beginning of year       705,000   $ 3.58   5,316,298   $ 4.25   6,021,298   $ 4.17
Granted                                417,400     1.52   1,576,500     1.82   1,993,900     1.76
Exercised                             (443,732)    1.71  (1,500,191)    2.30  (1,943,923)    2.03
Forfeited                                    -        -    (379,557)    4.05    (379,557)    4.06
                                      ---------          -----------          -----------

Outstanding at end of year             678,668     3.39   5,013,050     3.69   5,691,718     3.66
Options exercisable at end of year     678,668     3.39   4,533,717     3.80   5,212,385     3.75
Weighted average fair value of
  options granted during the year            -     1.43           -     0.83           -     0.96
                                      ---------------------------------------------------------------
</TABLE>


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

7.     Stock  Options  -  Continued

<TABLE>
<CAPTION>
                                                                         1999

                                              Non-employees            Employees              Total
                                      ---------------------------------------------------------------------
                                                        Weighted              Weighted             Weighted
                                                         Average               Average              Average
                                                        Exercise              Exercise             Exercise
                                           Shares          Price    Shares       Price   Shares       Price
                                      ---------------------------------------------------------------------
<S>                                   <C>           <C>          <C>         <C>      <C>         <C>

Outstanding at beginning of year          430,000   $     6.01   5,880,141   $ 4.48   6,310,141   $ 4.58
Granted                                   380,000         2.13     755,900     1.83   1,135,900     1.93
Exercised                                       -            -    (260,000)    5.01    (260,000)    5.59
Forfeited                                (105,000)        8.37  (1,059,743)    3.92  (1,164,743)    3.87
                                      ------------               ---------            ---------

Outstanding at end of year                705,000         3.58   5,316,298     4.25   6,021,298     4.17
Options exercisable at end of year        672,000         3.48   4,745,525     4.30   5,417,525     4.20
Weighted average fair value of
 options granted during the year                -         1.64           -     1.58           -     1.60
                                      ---------------------------------------------------------------------
</TABLE>


The Company applies APB Opinion 25 and related interpretations in accounting for
stock options granted to employees. Accordingly, compensation cost of $Nil (2000
-  $813,977;  1999  -  $Nil)  has  been  recognized.  Had compensation cost been
determined  based  upon  the  fair  value of the stock options at the grant date
consistent  with  the method of SFAS Statement 123, the Company's net income and
earnings  per  share  would have been reduced to the pro forma amounts indicated
below.

<TABLE>
<CAPTION>


                                        2001          2000           1999
                                    ------------------------------------------
<S>                                 <C>           <C>            <C>
Net loss
    As reported                     $(7,365,220)  $(16,966,245)  $(35,988,896)
    Pro forma                       $(7,365,220)  $(19,128,896)  $(39,563,301)
                                    ------------------------------------------

  Basic and diluted loss per share
    As reported                     $     (0.11)  $      (0.35)  $      (0.88)
    Pro -forma                      $     (0.11)  $      (0.39)  $      (0.97)

</TABLE>


The  per share weighted average fair value of stock options granted during 2001,
2000  and  1999  was  $0.21, $0.96 and $1.60, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: 2001, 2000 and 1999 expected dividend yield 0%; expected volatility
of  100%  in  2001  (2000 - 50%; 1999 - 50%); risk-free interest rate of between
5.00%  and  7.20%;  and  expected  life  equal to 80% of the full term of 2 to 5
years.

8.     Shareholders'  Equity

a)   During  2001, in connection with a private placement, 3,500,000 shares were
     issued  to  a  director  without proper consideration being received. While
     management  is  of  the opinion that these shares should have been returned
     for cancellation and is vigorously pursuing the return of these shares, the
     amounts not yet received, $1,470,000, has been recorded as selling, general
     and  administration  expense  in  these  financial  statements.

b)   During  2001,  the  Company  issued  3,780,000  common  shares,  including
     2,000,000 common shares to a former director in consideration for services,
     at  an  ascribed  value  of $0.21 per share (being the trading price of the
     Company's  common  stock  on  the  issuance  date).

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------
8.     Shareholders'  Equity  -  Continued

c)   During  December  2001,  the  Company acquired from a former consultant and
     shareholder,  license  interests  in  consideration  for  the  issuance  of
     2,000,000  common shares at an ascribed value of $0.40 per share (being the
     trading  price  of  the  Company's  common  stock on the issuance date) and
     2,000,000  warrants  exercisable  at  $0.30  for  four  years.  Using  the
     Black-Scholes  option-pricing  model  with  the  following weighted average
     assumptions:  expected  dividend  yield  0%,  expected  volatility of 100%,
     risk-free  interest rate of between 5.00% and 7.20% and expected life equal
     to  four  years,  the  warrants  were  assigned  a  value  of  $240,000.

d)   During 2001, the Company issued to a supplier in settlement of a guarantee,
     200,000 warrants exercisable at $0.25 for three years and 800,000 shares at
     an  ascribed  value  of  $0.27  per  share  (being the trading price of the
     Company's  common  stock  on  the  issuance  date). Using the Black-Scholes
     option-pricing  model  with  the  following  weighted  average assumptions:
     expected dividend yield 0%, expected volatility of 100%, risk-free interest
     rate of between 5.00% and 7.20% and expected life equal to three years, the
     warrants  were  assigned  a  value  of  $36,000.

e)   Stock  Purchase  Warrants

     At  December 31, 2001, 2000 and 1999, the Company had 17,883,998, 6,898,500
     and  1,160,876  of stock purchase warrants outstanding, respectively. These
     warrants  were issued in connection with private placements and other means
     of  financing.  The  holders  of these warrants are entitled to receive one
     share  of  common  stock  of  the  Company  for  one warrant exercised. The
     warrants  have  exercise  prices ranging from $0.22 to $4.25 and expiration
     dates  between  2002  and  2004.

f)   Shares  in  Escrow

     Of  the  Company's  issued  and  outstanding  shares, 4,150,000 are held in
     escrow to be released in accordance with a formula based on cumulative cash
     flow  of  the  Company.

g)   Share  Buy-Back  Plan

     On  September  17,  1998, the Company announced that its Board of Directors
     authorized  the  Company  to  repurchase  up  to 3,500,000 of its shares of
     common  stock.  The  actual number of shares repurchased, and the timing of
     the  purchases,  has  been based on the stock price, general conditions and
     other  factors.  The  Company has repurchased 378,580 shares for a total of
     $1,755,534  at  December  31,  2001.

h)   Issuance  of  Stock  Options  to  Non-employees  for  Services

     The  Company  has  recorded  $1,117,097,  $351,230  and  $1,043,310  of
     compensation  expense  in  2001,  2000  and 1999, respectively, relating to
     stock  options  issued  to  nonemployees for services rendered during those
     years.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

9.     Related  Party  Transactions

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

<TABLE>
<CAPTION>


                                               2001      2000      1999
                                             ----------------------------
<S>                                          <C>       <C>       <C>
Project management fees                      $      -  $      -  $180,000
Consulting fees                                     -         -   131,539
Rent (Note 6) and administrative services     489,309   357,828   284,529
                                             --------  --------  --------
                                             $489,309  $357,828  $596,068
                                             --------  --------  --------
</TABLE>

During  prior years, the Company advanced $879,020 to former directors. Although
the  Company  is  actively  pursuing  collection  of  these  loans to the former
directors  the amounts were considered doubtful as of December 31, 2001 and 2000
and  were  fully  reversed.

The Company expended funds aggregating $7,750 in 1999 to a Company controlled by
one  of  its  officers  for  research  and development activities related to the
Company's  product  development  which  is  included in research and development
costs  at  December  31,  1999.

The  Company  previously  leased  the  Carpinteria facility and the Pacific Baja
facility  from  related  parties  (Note  6(a)).

Additionally,  officers  provided  loans  to  the  Company  on  demand and on an
unsecured  and  non-interest  bearing  basis.

10.     Segment  Reporting

The  Company's  accounting  policies of the segments below are the same as those
described  in  the  summary  of significant accounting policies, except that the
Company  does  not  allocate  income  taxes  to  segments. The Company evaluates
performance  based  on  net  revenues  and  profit  or loss from operations. The
business  segments  are  summarized  as  follows:

<TABLE>
<CAPTION>

                                        2001        2000        1999
                                     -----------------------------------
<S>                                  <C>         <C>         <C>
  Sales from external customers
    Aftermarket wheels *             $       -   $       -   $13,750,000
    Automotive engine components             -           -    34,753,000
    Turbodyne products                   9,470     539,833     1,715,161
                                     -----------------------------------
                                     $   9,470   $ 539,833   $50,218,161
                                     -----------------------------------
  Gross profit (loss)
    Aftermarket wheels *             $       -   $       -   $ 1,079,000
    Automotive engine components *           -           -     2,430,000
    Turbodyne products                (354,310)   (677,759)      278,963
                                     -----------------------------------
                                     $(354,310)  $(677,759)  $ 3,787,963
                                     -----------------------------------
</TABLE>


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

10.     Segment  Reporting  -  Continued

<TABLE>
<CAPTION>

                                       2001          2000           1999
                                   ------------  -------------  -------------
<S>                                <C>           <C>            <C>
Loss from operations
  Aftermarket wheels *             $         -   $          -   $ (3,216,000)
  Automotive engine components *             -              -     (3,378,000)
  Turbodyne products                (7,357,137)   (16,841,491)   (20,257,161)
                                   ------------  -------------  -------------
                                   $(7,357,137)  $(16,841,491)  $(28,851,161)
                                   ------------  -------------  -------------
Depreciation and amortization
  Aftermarket wheels *             $         -   $          -   $  1,207,000
  Automotive engine components *             -              -      1,323,000
  Turbodyne products                   150,745        376,551        412,104
                                   ------------  -------------  -------------
                                   $   150,745   $    376,551   $  2,942,104
                                   ------------  -------------  -------------
Net interest expense (income)
  Aftermarket wheels *             $         -   $          -   $    912,000
  Automotive engine components *             -              -        950,000
  Turbodyne products                    21,778         50,528       (323,471)
                                   ------------  -------------  -------------
                                   $    21,778   $     50,528   $  1,538,529
                                   ------------  -------------  -------------
Capital expenditures
  Aftermarket wheels *             $         -   $          -   $    332,000
  Automotive engine components *             -              -      2,126,000
  Turbodyne products                     8,211         20,692        134,268
                                   ------------  -------------  -------------
                                   $     8,211   $     20,692   $  2,592,268
                                   ------------  -------------  -------------
Total assets
  Aftermarket wheels *             $         -   $          -   $          -
  Automotive engine components *             -              -              -
  Turbodyne products                 1,270,807      1,102,145      6,763,759
                                   ------------  -------------  -------------
                                   $ 1,270,807   $  1,102,145   $  6,763,759
                                   ------------  -------------  -------------
</TABLE>


This  segment  represents  Pacific  Baja  (Note  12).

11.   Settlement of Claim - Sale of Patents

In  July  1998,  a  claim  was  filed  against the Company alleging, among other
things,  breach  of  contract,  breach  of  purchase  order,  negligent
misrepresentation  and  fraud.  On March 3, 1999 an arbitration award was issued
against the Company for a total of $6.65 million including a lien on all assets,
plus  recovery  of  plaintiff's  attorney's  fees  and  other costs. The Company
settled  the  claim  on December 20, 1999 by assignment of intellectual property
rights and rights to manufacture, market and sell products to a customer under a
new  joint  venture  with Honeywell Turbocharging Systems (Note 13), who in turn
paid  the  outstanding  claim.  The  award  of $6.65 million is included in 1999
litigation  expense, offset with $1.5 million awarded from an insurance carrier,
and  the  gain  on  assignment  of  the patents, net of book value of patents of
$809,486,  is  included  in  gain  on  sale  of  patents.


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

12.     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.

Pursuant  to  the  Bankruptcy  court  order, the assets were sold to the highest
bidder  at  an  auction  on  December 23, 1999, for approximately $14.4 million.
There  were no proceeds available for distribution to unsecured creditors, after
the  payment  of Pacific Baja's secured debt. The Company was owed approximately
$6  million.

There  were  no  remaining assets and liabilities of Pacific Baja as of December
31,  1999,  however  several  of  the capital leases of the subsidiary totalling
approximately  $4  million were guaranteed by Turbodyne Technologies Inc., which
were  substantially  assumed  by the buyer after December 31, 1999. Additionally
there were approximately $1.8 million in Pacific Baja's purchases commitments of
raw material from a supplier guaranteed by Turbodyne Technologies Inc., however,
the  supplier  now  has  a  new  purchase  agreement  with  the  new  buyer.

The  Company  recorded  a  loss  on  disposal  of  the  Pacific  Baja  assets of
$14,298,395.  Additionally  it  recorded  $237,720  of  cumulative  translation
adjustments included in selling, general and administrative expenses as a result
of  a  complete  liquidation  of  all  of  the investment in the Mexican foreign
subsidiary.

In  connection  with  the  bankruptcy  proceedings, which are still pending, the
creditors'  committee  was  investigating  the  Company  and  some of its former
directors  and  officers  as  to whether preferential transfers were made to the
Company  and  its  affiliates  before the Chapter 11 case began (see Note 6(b)).

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  totalling  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.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

12.     Pacific  Baja  Bankruptcy  -  Continued

The  Company  has  filed  a  response  denying liability. The Company intends to
vigorously  contest  and  defend  any  claim  by the Trust that would exceed its
claims as a creditor of Pacific Baja and that would be satisfied other than by a
set-off  of  its  claims against Pacific Baja. The outcome of this litigation is
not  presently  determinable and no amounts have been included in this regard in
the  reserve  for  lawsuit  settlements.

In May 2000, Heartland Financial Corporation ("Heartland"), a firm that provided
investment  banking  services to Pacific Baja, filed a complaint for arbitration
against the Company seeking approximately $600,000 representing a success fee it
claims  it  is  entitled  to for investment banking services provided to Pacific
Baja  based  on  a  letter  agreement between Heartland, the Company and Pacific
Baja.  After  the  letter  agreement was signed, Pacific Baja filed a Chapter 11
petition  in  bankruptcy.  At  the conclusion of the bankruptcy proceedings, the
bankruptcy  court awarded Heartland a portion of its fees. Heartland then sought
the  balance  of  the fees and has obtained judgement against the Company in the
amount  of  approximately  $535,000,  which  is  included in the legal liability
reserve.  The  Company has filed an appeal against the judgement. The outcome of
the  appeal  is  not  presently  determinable.

13.     Joint  Agreement

In  1999,  the  Company  entered into joint development and licensing agreements
which  were  subsequently  amended  with  the  Honeywell  Turbocharging  Systems
("Honeywell"),  a  division  of  AlliedSignal  Inc  ("Honeywell").  Under  its
agreements  with  Honeywell,  the  Company  assigned to Honeywell its patent and
trademark  portfolio  (including  both the Dynacharger(TM) and the Turbopac(TM))
for $6.8 million. This amount was used in settlement of a judgment (Note 11). In
addition,  under  these  agreements,  the  Company and Honeywell are sharing the
development  costs  of the Dynacharger(TM) and the Turbopac(TM), the Company 40%
and Honeywell 60%. The Company retains the sole worldwide rights to manufacture,
market and sell all motors, generators, electronic controls and light metals for
the  Dynacharger(TM)  and  Turbopac(TM),  and Honeywell holds the sole worldwide
rights  to  manufacture,  market  and  sell the Dynacharger(TM) and Turbopac(TM)
product  lines.  The  Company  will  receive  from  Honeywell  royalties of 3.7%
(subject to adjustment) of the net sales of the Dynacharger(TM) and Turbopac(TM)
product  lines.

The  Company  commenced  an  action  for damages against Honeywell in the United
States  District  Court, Central District of California in August 2001 alleging,
among  other  matters, that Honeywell's conduct constituted a restraint of trade
and  the  delay  of  the  commercialization  of  the  Company's  technology.

Prior to the Company commencing the above legal proceedings, Honeywell initiated
arbitration  proceedings  under  the joint development and licensing agreements.
Honeywell  is  seeking  termination  of  the  license  agreement  and  the joint
development  agreement  based on their allegations that the Company breached the
agreements  and  is unwilling and unable to perform future obligations under the
agreements.  The  Company  disputed that Honeywell is entitled to termination of
the  license agreement and the joint development agreement and filed a motion to
stay  the  arbitration.  The  arbitrator  refused to grant the Company's motion.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements

December  31,  2001  and  2000
--------------------------------------------------------------------------------

13.     Joint  Agreement  -  Continued

The  Company  is  presently seeking an order of the United States District Court
against  Honeywell  International  enjoining  Honeywell  from  pursuing  this
arbitration  proceeding.

The  outcome  of  the legal matters regarding the dispute with Honeywell are not
presently  determinable.



<PAGE>


                                   SIGNATURES


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


TURBODYNE  TECHNOLOGIES  INC.


By:  /s/ Daniel Black
     ___________________________________
     Daniel Black,  President  and  Chief  Executive  Officer
     Date:     April  26,  2002


Pursuant  to  the requirements of Section 13 or 15(d) of the Securities Exchange
Act  of  1934,  this  report  has  been signed below by the following persons on
behalf  of  the  registrant  and  in  the capacities and on the dates indicated.



By:  /s/ Daniel Black
     ___________________________________
     Daniel  Black,  President  and  Chief  Executive  Officer
     (Principal  Executive  Officer)
     Date:     April  26,  2002


By:  /s/ Charles Caverno
     ___________________________________
     Charles Caverno,  Secretary  and  Chief  Financial  Officer
     (Principal  Financial  Officer  and  Principal  Accounting  Officer)
     Date:     April  26,  2002


By:  /s/ Manfred Hanno Janssen
     ___________________________________
     Manfred Hanno Janssen
     Director
     Date:     April  26,  2002


By:  /s/ Eugene  O'Hagan
     ___________________________________


     Eugene  O'Hagan
     Director
     Date:     April  26,  2002


By:  /s/ Andrew Martyn-Smith
     ___________________________________
     Andrew Martyn-Smith
     Director
     Date:     April  26,  2002