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

                                   FORM 10-KSB

(Mark One)

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

      For the fiscal year ended DECEMBER 31, 2007

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

      For the transition period from _____ to _____

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

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

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

         36 EAST BARNETT STREET
           VENTURA, CALIFORNIA                             193001
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(Address of principal executive offices)                 (Zip Code)

                                 (805) 512-9511
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                            Issuer's telephone number

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

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

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

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


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<PAGE>

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.) $12,627,828.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 446,582,628 SHARES OF COMMON STOCK AS
OF APRIL 29, 2008

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


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                          TURBODYNE TECHNOLOGIES, INC.
                                   FORM 10-KSB

                                      INDEX

                                                                            PAGE
PART I

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

Item 2.   Description of Property. ...........................................16

Item 3.   Legal Proceedings. .................................................16

Item 4.   Submission of Matters to a Vote of Security Holders. ...............18

PART II

Item 5.   Market for Common Equity and Related Stockholder Matters. ..........19

Item 6.   Management's Discussion and Analysis or Plan of Operation. .........21

Item 7.   Financial Statements. ..............................................28

Item 8.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure. ..........................................29

Item 8A.  Controls and Procedures. ...........................................30

PART III

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act...................32

Item 10.  Executive Compensation..............................................34

Item 11.  Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters..........................37

Item 12.  Certain Relationships and Related Transactions......................38

Item 13.  Exhibits and Reports on Form 8-K....................................39

Item 14.  Principal Accountant Fees and Services..............................40

Signatures ...................................................................41


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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

FORWARD LOOKING STATEMENTS

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

CORPORATE ORGANIZATION

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

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

CORPORATE DEVELOPMENTS

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


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<PAGE>

During 2007 management has obtained some additional financing and continued:

      o     Assessment of our technology including patents and other rights

      o     Development of our Turbopac(TM) product line

      o     Review and negotiate to settle outstanding litigation and
            liabilities

      o     Formulating business and marketing plans

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

GENERAL

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

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

We believe we have made engineering improvements and developed possible
additional products, particularly in 2007, (see "2007 Developments" below). We,
nevertheless still must subject our products to additional testing and
development before we have a commercially feasible products. We will need
additional funding before we are able to finalize this process. There is no
assurance that the testing will result in a product that can be commercially
exploited.


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<PAGE>

INDUSTRY BACKGROUND

MARKET DEMAND FOR CHARGING TECHNOLOGY FOR INTERNAL COMBUSTION ENGINES

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

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

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

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

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

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

o     New more stringent emissions standards requiring reduced levels of
      emissions during periods of engine acceleration are being introduced
      throughout the world. (Such as "EPA Tier 2" and Euro 5&6 for 2009 and
      later.) Our technology helps engine manufacturers comply with the new
      requirements without having to make their engines less responsive


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<PAGE>

MARKET OPPORTUNITY

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

TURBODYNE PROPRIETARY TECHNOLOGY

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

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

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

2007 DEVELOPMENTS

During 2007 the Company announced the development of a new TurboFlow(TM) product
design family. A key element of the improved design includes a controlled speed
electric motor and compressor with a motor controller that can respond to data
from a vehicle's onboard control systems or act on its own.

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


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<PAGE>

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

The Company believes that the TurboFlow may have additional application as
products to provide:

o     Improved marine diesel engine performance in hot and humid weather with
      forced-air cabin and bilge heating in cold weather

o     For the inflation of Rigid Inflatable Boat.

The key differences between the new TurboFlow and the existing TurboPac(TM)
design are:

      o     Reduced footprint and weight for the entire assembly

      o     Secondary "surge" power

      o     "Smart" controlled compressor output

      o     Smaller, more efficient motor controller

      o     Reduced manufacturing time and cost from using "off the shelf"
            components

BUSINESS STRATEGY

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

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


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<PAGE>

INTELLECTUAL PROPERTY

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

Subsequent to December 31, 2007 a provisional application was converted into a
non-provisional patent application in the United States Patent and Trademark
Office. The applicants were consultants of the Company. The technology covered
by the application was for a TurboPac related technology referred to as
'TurboFlow'. The patent disclosure includes application of the technology to
vehicle types commonly referred to as 'hybrids' or 'low emission vehicles'. The
disclosed technology applies advanced controls, energy management, and a
TurboPac related technology to avoid problems encountered when using traditional
turbo- or super- charging air injection units with a small engine in those types
of vehicles. See "2007 Developments". The aforesaid patent application was
assigned to the Company pursuant to a patent assignment agreement between the
Company and the consultants. The agreement required the payment of unpaid fees
owed to the consultants by the Company. The outstanding fees owed to the
consultants pursuant to the agreement were paid and the agreement terminated.

PROPRIETARY INFORMATION AGREEMENTS

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

RESEARCH AND DEVELOPMENT

The research and development costs increased to $524,905 in 2007 ($252,478 in
2006) due to increased limited development operations. For 2007 compensation
includes the non cash warrant expense amount of $141,271 ($35,226 in 2006).
(Financial Statement Note 7) Our research and development costs related to
present and future products are charged to operations in the period incurred.
Our research and development activities during 2007 are associated with the
development of our TurboPac-related technology "TurboFlow".


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<PAGE>

GOVERNMENT REGULATION

In the United States, emissions standards for diesel and gasoline engines are
imposed by the Environmental Protection Agency ("EPA") and other regulatory
agencies, including the California Air Resources Board. In Europe, the Euro 5
and 6 emissions standards will come into effect between 2009 and 2014. The
presence of these government regulations has the potential to create demand for
our products as our products are designed to increase engine performance with
resulting reductions in emissions.
We must continue to design and develop products that help mitigate failures to
meet worldwide vehicle emissions standards that are imposed by regulatory
agencies. Testing to ensure our products help meet these government regulations
will be an integral component of our research and development expense on new
products.

EMPLOYEES
As of December 31, 2007 we had no full-time employees but we have retained
several consultants, devoting significant time to the Company's affairs. There
is no assurance that we will be able to retain it's consultants since funds are
not available to pay current or past due consulting fees.

RISK FACTORS

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

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

We reported net loss of $3,121,594 for the fiscal year ended December 2007. We
have derived negligible revenue from operations and have substantial unpaid
liabilities. We have an accumulated deficit of $132,187,035 at December 31,
2007. Since our inception we have disposed of our most significant subsidiary
through bankruptcy, have been subject to lawsuits, used most of our available
cash to conduct our operating activities and are required to seek additional
equity or debt financing in order to continue operations. These matters raise
substantial doubt about our ability to continue as a going concern.

Our auditors have made reference to the substantial doubt about our ability to
continue as a going concern in their audit report on our audited financial
statements for the year ended December 31, 2007.


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<PAGE>

FINANCIAL HISTORY PROBLEMS

We anticipate difficulties arising from our adverse financial history. These
include substantial payables that must be paid or settled, damaged relationships
and adverse publicity, and interrupted contracts. These factors may impact our
ability to raise needed funds for development of our products. There is no
assurance that we can overcome these difficulties.

COMPANY REQUIRES ADDITIONAL FUNDING

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

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

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

DEPENDENCE ON KEY EXECUTIVES

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

WE HAVE NO SALES AND MARKETING EXPERIENCE.

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


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<PAGE>

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

All our development work as well as other services is performed pursuant to
consulting arrangements. There is no assurance that we will be able to obtain
and retain these consultants necessary to implementing our business strategy
successfully. This is particularly so when funds are not available to pay
amounts past due under these arrangements. Mr. Albert Case has recently resigned
as a full time consultant but has verbally indicated that he would continue to
provide consulting services as needed on a part time basis under a new
arrangement to be negotiated. If we do not retain or replace qualified
consultants, our ability to further develop our technology will be impaired with
the result that our business will be adversely affected. In addition, our
historical problems and financial position may make it more difficult to attract
personnel.

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

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

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

We may enter into licensing or other arrangements with third parties. Developing
relationships with any third party involves lengthy periods of product
development and performance evaluation by the third party. During this period,
we may provide certain products or services free of charge or at a reduced rate.
We also devote a significant amount of time and attention to pursuing these
programs in an effort to obtain arrangements to exploit commercialization for
products utilizing or incorporating our technology. Third Parties that we
conduct joint development work or other proposed arrangements with will be under
no obligation to enter into an arrangement and after evaluation may determine
not to proceed with an arrangement Accordingly, we may devote substantial time
and resources to developing relationships and programs that do not result in
commercialization of products incorporating our technology.

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

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


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<PAGE>

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

WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO ACHIEVE SUCCESS

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

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

INTENSE COMPETITION

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

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

VOIDABLE REINCORPORATION

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


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<PAGE>

INCREASED COMPLIANCE COSTS AS A PUBLIC COMPANY MAY BE A BURDEN

Pending actions by the Public Company Accounting Oversight Board and the
Securities and Exchange Commission may substantially increase compliance costs
under the Sarbanes-OxleyAct in the short term. If the Company fails to act
because of a lack of funds then the ability of the Company to operate as a
public traded firm could be materially impaired.

POTENTIAL PRODUCT LIABILITY

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

SUBSTANTIAL DILUTION- FUTURE ISSUANCE OF SHARES

The Company most likely will issue a significant number of additional shares in
the future in connection with additional financing and for other purposes. A
holder of the Company's common stock may face substantial dilution resulting
from future issuances of its securities. Subsequent to December 31, 2007 the
holders of a total of $1,251,000 principal amount of convertible notes of the
Company have converted or have indicated that they will convert the principal
and interest of such notes into 150,576,948 common shares. This includes the
conversion of a $100,000 note from February 2008.

CONTROL

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

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

We have approximately 61,000,000 warrants which may vest over the next two or
more years upon the continuation of service of the holders and/or the happening
of a specific event. Effective January 1, 2005 the Company adopted SFAS 123(R)
pursuant to which the warrants will be valued and expensed as vested.

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

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


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<PAGE>

RISKS RELATING TO OUR MARKET

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

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

OUR STOCK PRICE IS EXTREMELY VOLATILE

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

ABSENCE OF DIVIDENDS

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


                                       15
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTY.

In March 2007, the Company rented a small corporate office in Ventura,
California

ITEM 3. LEGAL PROCEEDINGS.

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

PACIFIC BAJA LIQUIDATING TRUST

In September 1999, Pacific Baja Light Metals Corporation, our former, wholly
owned subsidiary, filed a Chapter 11 petition in bankruptcy in the United States
Bankruptcy Court, Central District of California (Case No. RS99-26477MG) in
Riverside, California. ("Bankruptcy Proceeding") In September 2001, the Pacific
Baja Liquidating Trust (the "Trust") commenced action against us in the
aforesaid Bankruptcy Court. The Trust was established under the Pacific Baja
bankruptcy proceedings for the benefit of the unsecured creditors of Pacific
Baja. The Trust was seeking, among other matters the re-characterization of
Company advances to Pacific Baja as equity and the subordination of unsecured
claims against Pacific Baja; the re-conveyance of an aggregate of up to
approximately $7,190,000 transferred by Pacific Baja to the Company on the basis
of an allegation of fraudulent transfer; an order that the Company is liable for
all of the previous debts of Pacific Baja totaling approximately $7,000,000; and
damages and punitive damages against the Company and certain former officers and
directors and the former officers and directors of Pacific Baja in the amount of
up to approximately $12,000,000 based on various allegations of fraud,
misrepresentation, breach of contract, alter ego and negligence.The Company
settled the bankruptcy proceedings for $500,000 to be issued in common stock or
cash or a combination of both. Additionally the Company assigned to the
Bankruptcy Trust the rights to $9,500,000 claims under any applicable directors
and officers' liability insurance policies. The Bankruptcy Trust also agreed to
a covenant not to execute against the Company regardless of the outcome of the
insurance claims. The Company has completed the assignment of its insurance
claims, but has not completed the cash/stock payment that was to be paid to the
Trust by December 9, 2005. We are negotiating with the Trustee regarding this
default

TST, INC.

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

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


                                       16
<PAGE>

The settlement provided for the immediate entry of judgment against us in the
amount of $2,068,079 plus interest from the date of entry at the rate of 10% per
annum. The amount of this judgment would immediately increase by any amount that
TST is compelled by judgment or court order or settlement to return as a
preferential transfer in connection with the bankruptcy proceedings of Pacific
Baja. Any proceeds received by TST or Mr. Stein from the sale of the issued
shares to be automatically applied as a credit against that amount of the
judgment against us in favor of TST.

TST and Pacific Baja settled the preference payment issue resulting in TST
paying $20,000 to Pacific Baja and TST relinquished the right to receive
$63,000, therefore the $2,130,000, that the Company had included in provision
for lawsuit settlements, has been reduced to $83,000. For the year ended
December 31, 2005 the $2,047,000 difference was recorded as a lawsuit settlement
in other income. At December 31, 2007, the Company has included the following
amounts in provision for lawsuit settlements.

                                                     Year Ended December 31
                                                  ----------------------------
                                                       2007            2006
                                                  ----------------------------
Settlement amount                                  $2,068,079       $2,068,079
Interest                                           $1,464,653       $1,145,618
Preference payment                                    $83,000          $83,000
Proceeds of stock sale                               ($23,345)        ($23,345)
                                                  ----------------------------
Total                                              $3,592,387       $3,273,352
                                                  ============================

KRAMER ACTION

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

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

The Plaintiff's attorney, Claus Schmidt, also filed similar suits on behalf of
Frank Walter and Herbert Taeuber. The German courts are indicating that all
three suits need to be filed in the United States not Germany. Presently the
suits have not been filed in the United States. We vigorously dispute this claim
and have retained German counsel to defend it and seek its dismissal. At
December 31, 2007, the Company has included $405,785 in regard to this matter in
the provision for lawsuit settlements.


                                       17
<PAGE>

CRESCENT FUND, LLC

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

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

Due to the limited activity of the Company in 2007 an annual meeting was not
held, therefore, no matters were presented to the security holders.


                                       18
<PAGE>

PART II

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

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

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

                           2007                    2006
                    ------------------------------------------
                     HIGH        LOW         HIGH        LOW
                    ------------------------------------------
First Quarter       $0.066      $ 0.02      $0.018      $ 0.01
Second Quarter      $0.065      $ 0.03      $0.015      $0.006
Third Quarter       $ 0.05      $0.031      $ 0.07      $0.014
Fourth Quarter      $0.056      $0.029      $0.043      $0.016

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

REGISTERED HOLDERS OF OUR COMMON STOCK

As April 30, 2008, there were approximately 458 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

The following issuances of securities occurred during 2007 and were not
otherwise reported in our current or quarterly reports.


                                       19
<PAGE>

In the last quarter of 2007, we sold 1 unit of our securities in a private
placement. Each unit consisted of $100,000, an 18% convertible note and warrants
to purchase 2,000,000 of our shares at $0.025. The note is convertible at any
time prior to payment. The conversion price was two cents ($0.02). The
securities were issued pursuant to Section 4(2) of the Securities Act of 1933
and are exempt from the registration requirements under that act. In addition
during such quarter $60,000 of principal of the aforesaid notes were converted
into 12,000,000 shares of our common stock. These latter shares were issued
pursuant to Section 3a(9) of the Securities Act of 1933 and are exempt from the
registration requirements under that act.

EQUITY COMPENSATION PLAN INFORMATION

The following summary information is presented for our Plans. For a more
detailed discussion, please refer to Note 7 of our financial statements included
in this annual report.

<TABLE>
<CAPTION>
                                                                                        Number of Securities
                                                                                       Remaining Available for
                                                                                        Future Issuance Under
                             Number of Securities to    Weighted-Average Exercise     Equity Compensation Plans
                             be Issued Upon Exercise      Price of Outstanding          (Excluding Securities
                             of Outstanding Options              Options              Reflected in column (a))
Plan Category                        (a)                            (b)                          (c)
---------------------------------------------------------------------------------------------------------------
<S>                            <C>                         <C>                            <C>
Equity Compensation Plans      3,564,666 Shares of         $0.09 per Share of              2,122,200 Shares
Approved By Security              Common Stock                Common Stock
Holders

Equity Compensation Plans      89,184,000 Shares of        $0.02 per Share of             27,197,759 Shares
Not Approved By Security         Common Stock *               Common Stock
Holders
</TABLE>

* Represents shares subject to (i) 10,984,000 options under plans prior to 2007
and (ii) includes 78,200,000 warrants that are included in consultant contracts,
only 9,677,776 of these vested in 2007 and 6,494,444 vested in 2006.


                                       20
<PAGE>

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

OVERVIEW

The following discussion and analysis of our financial condition as of December
31, 2007 and results of operations for each of the two years ended December 31,
2007 and 2006 should be read in conjunction with the consolidated financial
statements and related notes included in this annual report. This section adds
additional analysis of our operations and current financial condition and also
contains forward-looking statements and should be read in conjunction with the
factors set forth above under the heading "Forward-Looking Statements" under
Item I - Business.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006

                                              Year Ended December 31
                               -------------------------------------------------
                                                                      Percentage
                                   2007               2006             Increase
                                                                      (Decrease)
                               -------------------------------------------------
Total Revenue                     $22,224           $22,224              Nil
Operating Expenses             ($1,791,987)       ($1,337,597)           34%
Net Loss From Operations       ($1,769,763)       ($1,315,373)           35%
Net Other Income (Expenses)    ($1,349,431)        ($401,913)           236%
Net Loss                       ($3,121,594)       ($1,719,686)           82%

NET REVENUE

                                              Year Ended December 31
                               -------------------------------------------------
                                                                      Percentage
                                   2007              2006              Increase
                               -------------------------------------------------
License Fee                      $22,224            $22,224              Nil

We had no revenue in 2007 other than recognition of amortized license fees.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for each of the years ended December
31, 2007 and 2006, $22,224 of licensing fees was recognized as income. Our
continued net losses from operations reflect our continued operating expenses
and our inability to generate revenues. We believe that we will not be able to
generate any significant revenues from TurboPac(TM)/TurboFlow(TM) until we
complete our production models and enter into commercial arrangements.


                                       21
<PAGE>

COSTS OF SALES

We had no sales in 2007 and 2006; therefore we did not have any costs of sales
during any portion of these years.

OPERATING EXPENSES

Operating expenses increased from the comparable period in 2006. The primary
components of our operating expenses are outlined in the table below:

                                                       Year Ended December 31
                                               ---------------------------------
                                                                      Percentage
                                                 2007        2006      Increase
                                                                      (Decrease)
                                               ---------------------------------
Selling, General and Administrative Expenses   $940,427    $828,166      13.6%
Research and Development Expenses              $524,905    $252,478     107.9%
Litigation Expenses                            $323,743    $255,181      26.9%

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative costs included management compensation and overhead
and increased mostly due to non cash warrant expense amount of $289,113
($137,137 in 2006). (Financial Statement Note 7)

RESEARCH AND DEVELOPMENT

The increase in research and development costs in 2007 is due to increased
spending for limited development operations and the increase in the non cash
warrant expense amount of $141,271 ($35,226 in 2006). (Financial Statement Note
7) Our research and development costs related to present and future products are
charged to operations in the period incurred. Our research and development
activities during 2007 are associated with the development of our
TurboPac-related technology "TurboFlow".

LITIGATION EXPENSE

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

COMPENSATION EXPENSE

For 2007, our stock based compensation for consultants increased to $430,384
from $172,363 for 2006, representing an increase of $258,021 or approximately
150%. During 2006 and 2007, warrants to purchase 78,200,000 shares of our common
stock were included as additional compensation in the contracts of various
consultants that we deemed essential to our operations. Of these warrants,
9,677,776 were vested and reflected as an expense in 2007 compared to warrants
to purchase 6,494,444 shares vested in 2006. As a result, we recognized $430,384
of non-employee compensation expense during the year ended December 31, 2007
compared to $172,363 during the year ended December 31, 2006. From time to time
we may grant a significant number of options or warrants to purchase common
stock to non-employees.


                                       22
<PAGE>

OTHER INCOME (EXPENSE)

<TABLE>
<CAPTION>
                                                          Year Ended December 31
                                                -----------------------------------------
                                                                               Percentage
                                                    2007           2006         Increase
                                                                               (Decrease)
                                                -----------------------------------------
<S>                                             <C>             <C>               <C>
Debt Relief                                      $  561,005      $537,734           4%
                                                -----------------------------------------
Other Expenses
Interest Expense                                   ($57,265)     ($26,122)        119%
Amortization of Discount on Convertible Notes     ($864,485)    ($568,168)         52%
Inducement Expense                                ($988,686)    ($345,357)        186%
                                                -----------------------------------------
Total Other Expenses                            ($1,910,436)    ($939,647)        103%
                                                -----------------------------------------
Net Other Income and Expenses                   ($1,349,431)    ($401,913)        236%
                                                =========================================
</TABLE>

The Company continues to negotiate with our creditors and trade debt holders on
settlement of accounts payable from periods prior to the current management
assuming operation of the Company. When achieved, this is represented as a debt
relief of accounts payable.

The Company had other expenses for 2007 of $1,910,436 compared to $939,647 in
2006. As indicated above, these expenses consisted of amortization of discounts
on convertible notes and value of detachable warrants and for related debt
conversion expenses (Financial Statement Note 4).

NET INCOME / LOSS

Our net loss for the year ended December 31, 2007 increased to $3,121,594 from
net loss of $1,719,686 for the year ended December 31, 2006, representing an
increase of 82%.

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


                                       23
<PAGE>

FINANCIAL CONDITION

CASH AND WORKING CAPITAL


                                                                      Percentage
                                                                       Increase/
                         At December 31, 2007   At December 31, 2006  (Decrease)
                         -------------------------------------------------------
Current Assets                         $3,458                $15,417     (78%)
Current Liabilities               ($8,619,585)           ($7,806,819)     10%
                         -------------------------------------------------------
Working Capital Deficit           ($8,616,127)           ($7,791,402)     11%
                         =======================================================

The increase to our working capital deficit was primarily attributable to a
decrease in cash and an increase in convertible notes and provision for lawsuit
settlements as discussed below.

LIABILITIES

                                                                      Percentage
                                                                       Increase/
                         At December 31, 2007   At December 31, 2006  (Decrease)
                         -------------------------------------------------------
Provisions for Lawsuit
Settlements                        $4,994,173             $4,675,137       7%
Accounts Payable                   $2,132,439             $2,302,417      (7%)
Accrued Liabilities                  $292,000               $444,193     (34%)
Short-Term Loans                   $1,200,973               $385,072     212%

The increase in provision for lawsuits is due to accrued interest on outstanding
judgments. Accounts payable decreased due to a settlement of debt and payments
of debt. Without this settlement of $561,005, accounts payable would have
increased due to a lack of funds to pay creditors. Short-term loans increased in
connection with our note financing to generate cash. Short-term loans are net of
discounts of $199,726 ($422,687 in 2006) and warrant allocation of $53,501
($4,026 in 2006) which nevertheless represents actual cash obligations
(Financial Statement Note 4).

We continue to negotiate with our creditors for the payment of our accounts
payable and accrued liabilities. Payment of these liabilities is contingent on
new funding being received that would enable us to make payments to the
creditors. Our ability to continue our operations may also be conditional upon
the forbearance of our creditors.

Included in short-term loans at December 31, 2007 are unsecured, non-interest
bearing advances of $138,600 that we anticipate will be converted into shares of
our common stock.

Subsequent to December 31, 2007 the holders of a total of $1,251,000 principal
amount of convertible notes of the Company have converted or have indicated that
they will convert the principal and interest of such notes into 150,576,548
common shares. This includes the conversion of a $100,000 note from February
2008.


                                       24
<PAGE>

CASH FLOWS

                                                           At December 31,
                                                      -----------------------
                                                           2007         2006
                                                           ----         ----
Net Cash provided by (used in) Operating Activities   ($755,371)   ($564,793)
Net Cash provided by Investing Activities              ($11,888)          --
Net Cash provided by (used in) Financing Activities    $755,300     $479,000
                                                      -----------------------
Net Increase (Decrease) in Cash During Period          ($11,959)    ($85,793)
                                                      =======================

CASH USED IN OPERATING ACTIVITIES

The increase in cash used in operating activities was due to the fact that a
greater amount of funds were obtained in private financing 2007 compared to 2006
and was utilized substantially for development in 2007 than in 2006.

FINANCING REQUIREMENTS

We will require additional financing if we are to continue as a going concern
and to finance our business operations. While we have obtained some financing in
2007 we need substantially more capital to complete development and continue our
business. There is no assurance that we will be able to raise the required
additional capital. In the event that we are unable to raise additional
financing on acceptable terms, then we may have to cease operating and seek
relief under appropriate statutes. Accordingly, there is substantial doubt about
our ability to continue as a going concern.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. As
such, some accounting policies have a significant impact on the amount reported
in these financial statements. A summary of those significant accounting
policies can be found in the Summary of Significant Accounting Policies in our
consolidated financial statements included in Item 7 of this Form 10-KSB. Note
that our preparation of this Annual Report on Form 10-KSB requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates. We have identified certain accounting policies,
described below, that are the most important to the portrayal of our current
financial condition and results of operations.


                                       25
<PAGE>

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

Our audited consolidated financial statements included with this Annual Report
on Form 10-KSB have been prepared assuming that we will continue as a going
concern. We have suffered net losses in recent periods resulting in an
accumulated deficit of $132,187,035 at December 31, 2007, have used cash in our
operating activities in recent periods, have disposed of our most significant
subsidiary through bankruptcy, are subject to lawsuits brought against us by
shareholders and other parties, and based on our projected cash flows for the
ensuing year, we must seek additional equity or debt financing in order to
continue our present operations. These matters raise substantial doubt about our
ability to continue as a going concern.

STOCK BASED COMPENSATION

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

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

REVENUE RECOGNITION

Prior to the suspension of our operations in 2003, we recognized revenue upon
shipment of product. Since the re-commencement of operations, we recognize
license and royalty fees over the term of the license or royalty agreement.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for the year ended December 31, 2007,
$22,224 ($22,224 in 2006) of licensing fees was recognized as income.

RESEARCH AND DEVELOPMENT

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


                                       26
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the United States Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB 108"). This SAB provides guidance on the consideration of the
effects of prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an approach
that requires quantification of financial statement errors based on the effects
on each of the company's balance sheets, statements of operations and related
financial statement disclosures. The SAB permits existing public companies to
record the cumulative effect of initially applying this approach in the first
year ending after November 15, 2006 by recording the necessary correcting
adjustments to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening balance of
retained earnings. Additionally, the use of the cumulative effect transition
method requires detailed disclosure of the nature and amount of each individual
error being corrected through the cumulative adjustment and how and when it
arose. The Company adopted the guidance in SAB 108 and it has not had a
significant impact on the Company's financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS, which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. This
statement is effective for us beginning January 1, 2008. We are currently
assessing the potential impact that adoption of SFAS No. 157 will have on our
consolidated financial statements.

In September 2006, the FASB issued Statement No. 158, "Employer's Accounting for
Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB
Statements No. 87, 88, 106, and 132(R) ("FASB 158"). FASB 158 requires the full
recognition, as an asset or liability, of the overfunded or underfunded status
of a company-sponsored postretirement benefit plan. Adoption of FASB 158 is
required effective for the Company's fiscal year ending December 31, 2007. We
assessed the potential impact that adoption of FASB 158 would have on our
consolidated financial statements and have concluded that there is no material
impact as of December 31, 2007.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). Under the provisions of
SFAS 159, companies may choose to account for eligible financial instruments,
warranties and insurance contracts at fair value on a contract-by-contract
basis. Changes in fair value will be recognized in earnings each reporting
period. SFAS 159 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is required to and plans to adopt the provisions of SFAS 159
beginning in the first quarter of 2008. The Company is currently assessing the
impact of the adoption of SFAS 159 and its impact, if any, on its consolidated
financial statements.

In December 2007, the FASB issued Statement No. 141 (revised 2007), "BUSINESS
COMBINATIONS." The new standard requires the acquiring entity in a business
combination to recognize all (and only) the assets acquired and liabilities
assumed in the transaction; establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed; and
requires the acquirer to disclose to investors and other users all of the
information they need to evaluate and understand the nature and financial effect
of the business combination. We will adopt this new standard for fiscal years
beginning January 1, 2009.


                                       27
<PAGE>

In December, 2007, the FASB issued Statement No. 160, "NONCONTROLLING INTERESTS
IN CONSOLIDATED FINANCIAL STATEMENTS--AN AMENDMENT OF ARB NO. 51." This
statement establishes accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. This
statement is effective prospectively, except for certain retrospective
disclosure requirements, for fiscal years beginning after December 15, 2008. We
are currently analyzing the effects of the new standard and its potential
impact, if any, on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires
companies with derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We will review the effect of
the adoption of this statement.


                                       28
<PAGE>

ITEM 7. FINANCIAL STATEMENTS.

Included at the end of this Annual Report on Form 10-KSB, starting at page F-1,
are our audited financial statements for the years ended December 31, 2007 and
2006, which consists of the following:

1.    Report of Independent Registered Public Accounting Firm

2.    Consolidated Balance Sheets as at December 31, 2007 and December 31, 2006.

3.    Consolidated Statements of Operations for the years ended December 31,
      2007 and December 31, 2006.

4.    Consolidated Statements of Capital Deficit for the years ended December
      31, 2007 and December 31, 2006.

5.    Consolidated Statements of Cash Flows for the years ended December 31,
      2007 and December 31, 2006.

6.    Notes to the Consolidated Financial Statements.


                                       29
<PAGE>

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

There were no changes in 2007.

ITEM 8A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). As required by Rule 13a-15 under the Exchange Act the Company's Chief
Executive Officer and its Chief Financial Officer assessed the effectiveness of
our internal control over financial reporting as of December 31, 2007. In making
its assessment of internal control over financial reporting, management used the
criteria described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

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

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


                                       30
<PAGE>

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


                                       31
<PAGE>

PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

Our executive officers and directors and their respective ages as of May 1, 2008
are as follows:

NAME                AGE
----                ---
Jason Meyers        41         Director and Chairman/ Co-Chief Executive Officer

John Adams          67         President and Co-Chief Executive Officer

Debi Kokinos        55         Chief Financial Officer and Secretary

Mr. Anthony Barclae was a director of the Company at December 31, 2007 but
resigned in March 2008 because of health reasons.

As of April 23 2008 Mr. Albert Case resigned as a director of the Company and as
the Company's Chief Operating Officer for personal reasons.

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

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

JASON MEYERS has been our Chairman of the Board of Directors since September 1,
2005 and Co-Chief Executive Officer, with primary responsibilities for
compliance matters since March 2008. Mr. Meyers is an investment banker, based
in New York City. Mr. Meyers has extensive experience in re-capitalizing,
funding and revitalizing distressed businesses and recruiting management teams.
Mr. Meyers has over 17 years of investment and merchant banking experience and
has led or participated in the origination and syndication of dozens of private
placements and initial public offerings in a broad range of industries including
entertainment, technology, healthcare, and financial services.

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


                                       32
<PAGE>

AUDIT COMMITTEE FINANCIAL EXPERT

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

COMMITTEES

The Company's Board of Directors has no nominating or other separate committees.

CODE OF ETHICS

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

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, 2007
new management did not file reports but these reports are being prepared and
will be filed shortly.


                                       33
<PAGE>

ITEM 10.    EXECUTIVE COMPENSATION.

The following table sets forth certain compensation information for each of our
executive officers for the year ended December 31, 2007 and 2006:

<TABLE>
<CAPTION>
                                                    Option/Warrant     All Other
Name and Principal position      Year     Salary      Awards (2)     Compensation     Total
--------------------------------------------------------------------------------------------
<S>                              <C>     <C>           <C>                <C>       <C>
Albert F. Case, Jr.,             2007     $96,000       $92,633           -0-       $188,633
President (Chief
Executive Officer) (1)           2006     $96,000       $42,722           -0-       $138,772
--------------------------------------------------------------------------------------------
Jason Meyers                     2007    $120,000      $154,388           -0-       $274,388

                                 2006    $120,000       $71,284           -0-       $191,284
--------------------------------------------------------------------------------------------
Debi Kokinos,                    2007     $77,520       $46,316           -0-       $123,836
Chief Financial
Officer                          2006     $77,520       $21,385           -0-        $98,905
--------------------------------------------------------------------------------------------
</TABLE>

(1)   Resigned as chief executive officer as of January 1, 2008 and as a
      director and chief operations officer in April 2008.

(2)   Represents, in each case, amounts recognized on vesting of warrants
      previously granted for financial reporting purposes in the applicable
      fiscal year. A description of the valuation method is set forth in Note1
      and 7 to the Financial Statements. In the case of Mr. Case warrants to
      purchase 1,600,002 shares and 2,133,336 shares vested in 2006 and 2007
      respectively. Warrants to purchase 2,666,664 shares and 3,555,552 shares
      respectively vested in 2006 and 2007 with respect to Mr. Meyers. In the
      case of Ms. Kokinos warrants to purchase 800,001, shares and 1,066,668
      shares vested in 2006 and 2007 respectively.

COMPENSATION ARRANGEMENTS

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


                                       34
<PAGE>

On April 1, 2006 we entered into a consulting agreement ("Consulting Agreement")
with Stamford Research, LLC, which is obligated to provide the services of
Albert Case to the Company. Albert F. Case, Jr. was our Chief Executive Officer
from October 2005 until January 2008 when he assumed the position of Chief
Operations Officer. As of April 23 2008 Mr. Albert Case resigned as a director
of the Company and as the Company's Chief Operating Officer for personal
reasons. He indicated that he would continue to provide consulting services as
needed on a part time basis under a new arrangement to be negotiated. Therefore
the description below of his engagement will be modified substantially

The Agreement is for a three year term. The Company may terminate the Agreement
and convert the Agreement to an employment agreement with Mr. Case. As
compensation for Consultant's services, the Company is obligated to pay
Consultant a cash fee of not less than $96,000 per annum. As additional
consideration Consultant received seven year Warrants (the "Warrants") to
purchase 19,200,000 of shares of the common stock of the Company (the "Shares")
at an exercise price of $0.0117 per share. Such warrants shall "vest" and may be
exercised as follows:

      o     Warrants to purchase 6,400,000 Shares are "service based" and 1/36th
            of such Shares shall vest at the end of each month that Mr. Case has
            provided services pursuant to the consulting agreement or any
            converted employment agreement.

      o     Warrants to purchase 6,400,000 Shares are "revenue based" and shall
            vest in their entirety upon filing of a report with the Securities &
            Exchange Commission containing reviewed or audited statements
            reflecting the recognition of revenue for the first sale of a
            production model of a Company product after provided payment is made
            therefore and the product is not returned and provided further such
            sale occurs during the period that Case has provided services
            pursuant to the consulting agreement or any converted employment
            agreement.

      o     Warrants to purchase 6,400,000 Shares are "earnings based" and vest
            in their entirety upon filing of a report with the Securities &
            Exchange Commission containing reviewed or audited statements
            reflecting EBITA or earnings before taxes, interest or amortization,
            of $1,000,000 and provided further such sale occurs during the
            period that Case has provided services pursuant to the consulting
            agreement or any converted employment agreement.

Jason Meyers and Debi Kokinos, or entities controlled by them, entered into
substantially identical agreements, providing for their services as Chairman of
the Board and Chief Financial Officer respectively. The agreement for Mr. Meyers
calls for annual compensation of $120,000 and the grant of 32,000,000 warrants.
Ms. Kokinos is to receive annual compensation of approximately $77,520 and the
grant of 9,600,000. Their warrants are divided equally into the same three
categories and vesting schedule as the warrants for Stamford Research.


                                       35
<PAGE>

OPTION INFORMATION

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

<TABLE>
<CAPTION>
                           Number of        Number of
                           Securities       Securities
                           Underlying       Underlying
                          Unexercised      Unexercised
                            Options          Options        Options Exercise       Options
Name                      Exercisable    Not Exercisable         Price         Expiration Date
----------------------------------------------------------------------------------------------
<S>                        <C>              <C>                 <C>              <C>
Albert F. Case, Jr. (1)    3,733,335        15,266,665          $0.0117          Mar 31, 2013
Jason Meyers               6,222,216        25,777,780          $0.0117          Mar 31, 2013
Debi Kokinos               1,866,669         7,733,331          $0.0117          Mar 31, 2013
                             400,000                             $0.100          Mar 31, 2014
                             500,000                             $0.020          Jan 27, 2010
</TABLE>

(1) In view of Mr. Cases' resignation most of these warrants most likely will
terminate.

COMPENSATION OF DIRECTORS

As of December 31, 2007, our directors were reimbursed for reasonable
out-of-pocket expenses in connection with attendance at board of director and
committee meetings.


                                       36
<PAGE>

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

The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of March 31 2008 by: (i) each
of our then directors; (ii) each of our named executive officers, and (iii)
officers and directors as a group. Unless otherwise indicated, the shareholders
listed possess sole voting and investment power with respect to the shares
shown.

 Name and Addressof Beneficial      Amount and Nature of    Percentage of Common
             Owner                  Beneficial Ownership           Stock
--------------------------------------------------------------------------------
Jason Meyers (1) (2)                     77,617,222                14.14%

Aspatuck Holdings Ltd.(1)                69,345,623                12.63%

John Adams (3)                           20,428,474                 3.72%

Albert F. Case, Jr. (4)                   5,109,919                 0.93%

Debi Kokinos (5)                          3,211,114                 0.58%

Salvatore Rutigliano                     31,564,584                 5.75%

Michael Ruffer                           30,207,084                 5.50%

All Officers and Directors as            85,370,352                43.25%
a Group (3 persons)

(1)   Includes 69,345,623 shares owned of record by Aspatuck Holdings Ltd. of
      which Jason Meyers is the controlling party. The above does not include
      substantial additional shares Aspatuck Holdings Ltd. may acquire under the
      Agreement and Plan of Merger described under Item 12 - Certain
      Relationships and Related Transactions.

(2)   Of the above number of shares 7,703,696 shares are subject to warrants
      owned by Mr. Meyers and presently exercisable within sixty days after
      March 31, 2008. An additional 24,296,304 shares are subject to warrants
      not presently exercisable or exercisable within sixty days of March 31,
      2008

(3)   Includes 11,333,333 shares subject to forfeiture and repurchase pursuant
      to agreements between Mr. Adams and the Company, as well as 700,000 shares
      subject to warrants presently exercisable.

(4)   Represents securities owned by Stamford Research LLC of which Albert F.
      Case, Jr is the controlling party and beneficial owner. Of the above
      number of shares 5,109,919 shares are subject to warrants presently
      exercisable or within sixty days of March 31, 2008. An additional
      14,090,081 shares are subject to warrants not presently exercisable or
      exercisable within sixty days after March 31, 2008. In view of Mr Case's
      resignation most of these warrants will most likely terminate.

(5)   The above ownership consists of shares that are subject to options or
      stock warrants presently exercisable within after March 31, 2008. An
      additional 7,288,886 shares are subject to warrants not presently
      exercisable or exercisable within sixty days of March 31, 2008.


                                       37
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

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

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

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

Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers have
advanced an aggregate of $ 46,000 to the Company. The advances are repayable on
demand and bear interest at 5 % per annum. As of December 31, 2007 the Company
also owes consulting fees of $225,996 for the services of Jason Meyers.

As of December 31, 2007 the Company also owes Stamford Research, LLC consulting
fees of $80,500 for the services of Albert Case.


                                       38
<PAGE>

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

EXHIBITS

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

3.2         Amended Bylaws of the Registrant.(1)

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

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

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

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

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

4.5         Agreement and Plan of Merger (9)

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

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

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

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

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

10.10       2004 Stock Incentive Plan. (6)

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

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

10.14       2005 Stock Incentive Plan

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

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

14.1        Code of Ethics. (5)

21.1        List of Subsidiaries. (5)

23.2        Consent of Vasquez & Company, LLP

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

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

----------
(1)   Filed as an exhibit to our Current Report on Form 8-K filed with the SEC
      on September 18, 2002.
(2)   Filed with as an exhibit to our Form 10-K for the fiscal year ended
      December 31, 1999.
(3)   Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2001.
(4)   Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2002.
(5)   Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2003
(6)   Filed as an exhibit to our Quarterly Report on Form 10-QSB for the fiscal
      quarter ended March 31, 2004.
(7)   Filed as an exhibit to our Current Report on Form 8-K filed with the SEC
      on July 9, 2004.
(8)   Filed as an exhibit to our Quarterly Report on Form 10-QSB for the fiscal
      quarter ended September 30,2004
(9)   Filed as an exhibit to our Current Report on Form 8-K filed with the SEC
      October 2005
(10)  Filed as an exhibit to our Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2006


                                       39
<PAGE>

(A) CURRENT REPORTS ON FORM 8-K.

During the quarterly period ended December 31, 2007 we filed the following Form
8-K:

DATE OF FORM 8-K   DATE OF FILING WITH THE SEC     DESCRIPTION OF THE FORM 8-K
----------------   ---------------------------     ---------------------------
December 14, 2007      December 21, 2007       Change in Chief Executive Officer

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

The aggregate fees billed for the two most recently completed fiscal years ended
December 31, 2007 and 2006 for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included our Quarterly Reports on Form 10-QSB and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for these fiscal periods.

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

                                     YEAR ENDED           YEAR ENDED
                                 DECEMBER 31, 2007    DECEMBER 31, 2006
         --------------------------------------------------------------
         Audit Related Fees           $77,165              $108,000
         Tax Fees                        --                $ 21,000
         All Other Fees                  --                    --
         Total                        $77,165              $129,000


                                       40
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this amendment no. 2 to this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                          Turbodyne Technologies, Inc.

Dated: May 13, 2008                       By: /s/ Jason Meyers
                                              --------------------------
                                              Jason Meyers
                                              Co-Chief Executive Officer

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

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

/s/ Jason Meyers                Co-Chief Executive Officer,        May 13, 2008
-----------------------         Director
Jason Meyers

/s/ Debi Kokinos                Chief Financial Officer            May 13, 2008
-----------------------         and Chief Accounting Officer
Debi Kokinos

/s/ John Adams                  Director                           May 13, 2008
-----------------------
John Adams


                                       41
<PAGE>

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006


                                      F-1
<PAGE>

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

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

CONSOLIDATED FINANCIAL STATEMENTS

      Balance Sheets                                                         F-4

      Statements of Operations                                               F-5

      Statements of Stockholders' Deficit                                    F-6

      Statements of Cash Flows                                               F-7

      Notes to the Financial Statements                                      F-8


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Turbodyne
Technologies, Inc. and subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the two-year period ended December 31, 2007.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Turbodyne
Technologies, Inc. and subsidiaries as of December 31, 2007 and 2006, and the
results of its operations and its cash flows for each of the years in the
two-year period ended December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 2, the accompanying consolidated financial statements as of
December 31, 2006 and for the year ended have been restated.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As more fully discussed in Note 1
to the consolidated financial statements, the Company has incurred significant
losses in recent years, has an accumulated deficit of $132,187,035 and a total
stockholders' deficit of $8,903,668 at December 31, 2007. It has used all of its
available cash in its operating activities in recent years, has a significant
working capital deficiency and is subject to lawsuit settlements. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in these regards are also discussed in Note 1 to the
consolidated financial statements. The aforementioned consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

/s/ Vasquez & Company

Los Angeles, California
April 22, 2008


                                      F-3
<PAGE>

                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31                                                                  2007             2006
                                                                                      (As restated)
                                                                                       (See Note 2)
--------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>
ASSETS

CURRENT
     Cash                                                           $       2,786    $      14,745
     Other current assets                                                     672              672
                                                                    -------------    -------------
          TOTAL CURRENT ASSETS                                              3,458           15,417

PROPERTY AND EQUIPMENT, NET (NOTE 3)                                        9,513              537
                                                                    -------------    -------------
TOTAL ASSETS                                                        $      12,971    $      15,954
==================================================================================================
LIABILITIES AND CAPITAL DEFICIT

LIABILITIES

CURRENT
     Accounts payable                                               $   2,132,439    $   2,302,417
     Accrued liabilities                                                  292,000          444,193
     Provision for lawsuit settlements (Notes  6, 9 and 11)             4,994,173        4,675,137
     Loans payable (Notes 4, 8(g))                                      1,200,973          385,072
                                                                    -------------    -------------
          TOTAL CURRENT LIABILITIES                                     8,619,585        7,806,819

DEFERRED LICENSING FEE                                                    297,054          319,278
                                                                    -------------    -------------
          TOTAL LIABILITIES                                             8,916,639        8,126,097
                                                                    -------------    -------------
STOCKHOLDERS' DEFICIT
     Share Capital (Note 8)
         Authorized
                1,000,000 preferred shares, par value $0.001
                1,000,000,000 common shares, par value $0.001
         Issued
              Preferred shares - 12,675 in 2007 and 2006                       12               12
              Common shares - 380,459,434 in 2007 and 345,316,577
                    In 2006                                               380,460          345,317
     Treasury stock, at cost - 5,278,580 common shares                 (1,963,612)      (1,963,612)
     Additional paid-in capital                                       124,831,388      122,538,462
     Other comprehensive income -
         Foreign exchange translation gain                                 35,119           35,119
     Accumulated deficit                                             (132,187,035)    (129,065,441)
                                                                    -------------    -------------
          TOTAL STOCKHOLDERS' DEFICIT                                  (8,903,668)      (8,110,143)
                                                                    -------------    -------------
TOTAL LIABILITIES AND CAPITAL DEFICIT                               $      12,971    $      15,954
==================================================================================================
</TABLE>

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


                                      F-4
<PAGE>

                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31                                             2007             2006
                                                                                     (As restated)
                                                                                      (See Note 2)
-------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>
LICENSING FEES                                                     $      22,224    $      22,224
                                                                   -------------    -------------
EXPENSES
     Selling, general and administrative (Notes 7, 8 and 9)              940,427          828,166
     Research and developments costs (Notes 7 and 8)                     524,905          252,478
     Litigation expense (Notes 7, 11, 12, 13 and 14)                     323,743          255,181
     Depreciation and amortization                                         2,912            1,772
                                                                   -------------    -------------
         TOTAL EXPENSES                                                1,791,987        1,337,597
                                                                   -------------    -------------
LOSS FROM OPERATIONS                                                  (1,769,763)      (1,315,373)

OTHER INCOME (EXPENSE)
     Interest expense                                                    (57,265)         (26,122)
     Amortization of convertible note discounts and warrants            (864,485)        (568,168)
     Inducement expense for the exercise of warrants                                     (178,500)
     Inducement expense for the conversion of notes payable             (988,686)        (166,857)
     Debt relief                                                         561,005          537,734
                                                                   -------------    -------------
LOSS BEFORE INCOME TAXES                                              (3,119,194)      (1,717,286)
-------------------------------------------------------------------------------------------------
INCOME TAX EXPENSES                                                        2,400            2,400
-------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD                                   $  (3,121,594)   $  (1,719,686)
=================================================================================================
INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED                   $       (0.01)   $        0.00
=================================================================================================
WEIGHTED AVERAGE SHARES USED FOR BASIC AND DILUTED INCOME (LOSS)
PER SHARE                                                            356,903,750      325,726,440
=================================================================================================
</TABLE>

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


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                       Preferred Stock         Common Stock              Treasury Stock
                                                       ---------------    ----------------------    -----------------------
                                                       Shares   Amount         Shares     Amount       Shares        Amount
---------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>      <C>       <C>           <C>         <C>         <C>
Balance, January 1, 2006                               12,675   $   12    320,416,577   $320,417    3,878,580   $(1,907,612)
Exercise of warrants                                       --       --     11,900,000     11,900           --            --
Issuance of stock for services                             --       --      5,000,000      5,000           --            --
Conversion of note payable                                 --       --      8,000,000      8,000           --            --
Shares returned from lawsuit settlement                    --       --             --         --    1,400,000       (56,000)
Issuance of warrants to consultants                        --       --             --         --           --            --
Issuance of warrants with convertible notes (Note 2)       --       --             --         --           --            --
Beneficial conversion features of notes (Note 2)           --       --             --         --           --            --
Inducement to convert notes payable (Note 2)               --       --             --         --           --            --
Inducement to exercise warrants (Note 2)                   --       --             --         --           --            --
Net income for the period                                  --       --             --         --           --            --
                                                       --------------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 (AS RESTATED)               12,675   $   12    345,316,577   $345,317    5,278,580   $(1,963,612)
Issuance of stock for services                             --       --      3,000,000      3,000           --            --
Conversion of note payable                                 --       --     32,142,857     32,143           --            --
Issuance of warrants to consultants                        --       --             --         --           --            --
Issuance of warrants with convertible notes (Note 2)       --       --             --         --           --            --
Beneficial conversion features of notes (Note 2)           --       --             --         --           --            --
Inducement to convert notes payable                        --       --             --         --           --            --
Net loss for the period                                    --       --             --         --           --            --
                                                       --------------------------------------------------------------------
Balance, December 31, 2007                             12,675   $   12    380,459,434   $380,460    5,278,580   $(1,963,612)
                                                       ====================================================================

<CAPTION>
                                                         Additional           Other
                                                            Paid-in   Comprehensive      Accumulated    Stockholders'
                                                            Capital          Income          Deficit         Deficit
                                                       -------------------------------------------------------------
<S>                                                    <C>                  <C>        <C>               <C>
Balance, January 1, 2006                               $120,841,762         $35,119    $(127,345,755)    $(8,056,057)
Exercise of warrants                                        107,100              --               --         119,000
Issuance of stock for services                               45,000              --               --          50,000
Conversion of note payable                                   32,000              --               --          40,000
Shares returned from lawsuit settlement                          --              --               --         (56,000)
Issuance of warrants to consultants                         172,363              --               --         172,363
Issuance of warrants with convertible notes (Note 2)         91,886              --               --          91,886
Beneficial conversion features of notes (Note 2)            902,994              --               --         902,994
Inducement to convert notes payable (Note 2)                166,857              --               --         166,857
Inducement to exercise warrants (Note 2)                    178,500              --               --         178,500
Net income for the period                                        --              --       (1,719,686)     (1,719,686)
                                                       -------------------------------------------------------------
BALANCE, DECEMBER 31, 2006 (AS RESTATED)               $122,538,462         $35,119    $(129,065,441)    $(8,110,143)
Issuance of stock for services                               45,000              --               --          48,000
Conversion of note payable                                  137,857              --               --         170,000
Issuance of warrants to consultants                         430,384              --               --         430,384
Issuance of warrants with convertible notes (Note 2)        173,819              --               --         173,819
Beneficial conversion features of notes (Note 2)            517,180              --               --         517,180
Inducement to convert notes payable                         988,686              --               --         988,686
Net loss for the period                                          --              --       (3,121,594)     (3,121,594)
                                                       -------------------------------------------------------------
Balance, December 31, 2007                             $124,831,388         $35,119    $(132,187,035)    $(8,903,668)
                                                       =============================================================
</TABLE>

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


                                      F-6
<PAGE>

                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31                                                   2007           2006
                                                                                          As Restated
-----------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>
OPERATING ACTIVITIES
     Net income                                                            $(3,121,594)   $(1,719,686)
     Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
        Amortization of deferred licensing fees                                (22,224)       (22,224)
        Depreciation and amortization                                            2,912          1,772
        Amortization of convertible note discounts and warrants (Note 2)       864,485        568,168
        Debt conversion expense (Note 2)                                       988,686        345,357
        Gain on settlement of debt                                            (561,005)      (537,734)
        Stock issued for services (Note 9 (c))                                  48,000         50,000
        Warrant compensation                                                   430,384        172,363
        Stock received against litigation expense                                   --        (56,000)
     Increase (decrease) in operating liabilities
         Accounts payable                                                      448,142        348,892
         Accrued liabilities and provision for lawsuit settlements             166,843        284,299
                                                                           -----------    -----------
            Net cash provided by (used in) operating activities               (755,371)      (564,793)
                                                                           -----------    -----------
INVESTING ACTIVITIES
     Purchase of capital asset                                                 (11,888)            --
                                                                           -----------    -----------
                  Net cash provided by (used in) investing activities          (11,888)            --
                                                                           -----------    -----------
FINANCING ACTIVITIES
     Proceeds from loans payable                                               755,300        360,000
     Proceeds from exercise of stock options and warrants                           --        119,000
                                                                           -----------    -----------
            Net cash provided by (used in) financing activities                755,300        479,000
                                                                           -----------    -----------
NET INCREASE (DECREASE) IN CASH                                                (11,959)       (85,793)

CASH, beginning of year                                                         14,745        100,538
                                                                           -----------    -----------
CASH, end of year                                                          $     2,786    $    14,745
=====================================================================================================
SUPPLEMENTARY DISCLOSURE OF NON-CASH FLOW INFORMATION

     Beneficial conversion feature of convertible debt                     $   517,180    $   902,994

     Value of warrants issued with convertible debt                            173,819         91,886

     Conversion of notes payable to common stock                               170,000             --
=====================================================================================================
</TABLE>

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


                                      F-7
<PAGE>

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

DECEMBER 31, 2007 AND 2006

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      NATURE OF BUSINESS

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

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


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

      GOING CONCERN

      The accompanying consolidated financial statements have been prepared
      assuming that the Company will continue as a going concern. The Company
      has suffered net operating losses in recent periods, has an accumulated
      deficit of $132,187,035 and a total stockholders' deficit of $8,903,668 at
      December 31, 2007. It has used most of its available cash in its operating
      activities in recent years, has a significant working capital deficiency
      and is subject to lawsuit settlements. These matters raise substantial
      doubt about the Company's ability to continue as a going concern.


                                      F-8
<PAGE>

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

DECEMBER 31, 2007 AND 2006

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

      PRINCIPLES OF CONSOLIDATION

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

      DEPRECIATION AND AMORTIZATION

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

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

      VALUATION OF LONG-LIVED ASSETS

      The Company periodically reviews the carrying value of long-lived assets
      for indications of impairment in value and recognizes impairment of
      long-lived assets in the event the net book value of such assets exceeds
      the estimated undiscounted future cash flows attributable to such assets.
      Long-lived assets to be disposed of by sale are to be measured at the
      lower of carrying amount or fair value less cost of sale whether reported
      in continuing operations or in discontinued operations. No impairment was
      required to be recognized during 2007 and 2006.

      RECOGNITION OF REVENUE

      License fee revenue is recognized over the term of the license agreement.
      During the year ended December 31, 2003, $400,000 in license fees were
      deferred and are being amortized over 18 years. As a result, for the year
      ended December 31, 2007 $22,224 ($22,224 in 2006) of licensing fees was
      recognized as income.

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


                                      F-9
<PAGE>

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

DECEMBER 31, 2007 AND 2006

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

      EARNINGS (LOSS) PER SHARE

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

      For the year ended December 31, 2007, 12,675 preferred shares convertible
      into 1,267,500 shares of common stock, options and warrants to purchase
      18,022,000 and 31,292,220 shares of common stock, convertible notes to
      purchase 144,108,252 shares of common stock were outstanding during the
      year. The weighted average cumulative equivalent shares of 356,903,750
      were included in the denominator for 2007 computation of diluted earnings
      (loss) per share. No other adjustments were made for purposes of per share
      calculations.

      For the year ended December 31, 2006, 12,675 preferred shares convertible
      into 1,267,500 shares of common stock, options and warrants to purchase
      18,022,000 and 9,894,444 shares of common stock, convertible notes to
      purchase 126,296,339 shares of common stock were outstanding during the
      year. The weighted average cumulative equivalent shares of 325,726,440
      were included in the denominator for 2006 computation of diluted earnings
      (loss) per share. No other adjustments were made for purposes of per share
      calculations.

      FAIR VALUE OF FINANCIAL INSTRUMENTS

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

      STOCK-BASED COMPENSATION

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

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


                                      F-10
<PAGE>

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

DECEMBER 31, 2007 AND 2006

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

      RESEARCH AND DEVELOPMENT

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

      USE OF ESTIMATES

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

      INCOME TAXES

      The Company accounts for income taxes under the asset and liability method
      of accounting for income taxes, which recognizes deferred tax assets and
      liabilities for the estimated future tax consequences attributable to
      differences between the financial statement carrying amounts of existing
      assets and liabilities and their respective tax bases. Deferred tax assets
      and liabilities are measured using enacted tax rates in effect for the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in
      tax rates is recognized in income in the period that includes the
      enactment date. The components of the deferred tax assets and liabilities
      are classified as current and non-current based on their characteristics.
      The components of the deferred tax assets and liabilities are classified
      as current and non-current based on their characteristics. A valuation
      allowance is provided for certain deferred tax assets if it is more likely
      than not that the Company will not realize tax assets through future
      operations.

      COMPREHENSIVE INCOME

      The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
      SFAS No. 130 establishes standards to measure all changes in equity that
      result from transactions and other economic events other than transactions
      with owners. Comprehensive income is the total of net earnings (loss) and
      all other non-owner changes in equity. Except for net earnings (loss) and
      foreign currency translation adjustments, the Company does not have any
      transactions and other economic events that qualify as comprehensive
      income as defined under SFAS No. 130. As foreign currency translation
      adjustments were immaterial to the Company's consolidated financial
      statements, net earnings (loss) approximated comprehensive income for the
      quarter ended December 31, 2007 and 2006.


                                      F-11
<PAGE>

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

DECEMBER 31, 2007 AND 2006

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

      LEGAL FEES

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

      NEW ACCOUNTING PRONOUNCEMENTS

      In September 2006, the United States Securities and Exchange Commission
      (SEC) issued Staff Accounting Bulletin No. 108, "Considering the Effects
      of Prior Year Misstatements when Quantifying Misstatements in Current Year
      Financial Statements" ("SAB 108"). This SAB provides guidance on the
      consideration of the effects of prior year misstatements in quantifying
      current year misstatements for the purpose of a materiality assessment.
      SAB 108 establishes an approach that requires quantification of financial
      statement errors based on the effects on each of the company's balance
      sheets, statements of operations and related financial statement
      disclosures. The SAB permits existing public companies to record the
      cumulative effect of initially applying this approach in the first year
      ending after November 15, 2006 by recording the necessary correcting
      adjustments to the carrying values of assets and liabilities as of the
      beginning of that year with the offsetting adjustment recorded to the
      opening balance of retained earnings. Additionally, the use of the
      cumulative effect transition method requires detailed disclosure of the
      nature and amount of each individual error being corrected through the
      cumulative adjustment and how and when it arose. The Company adopted the
      guidance in SAB 108 and it has not had a significant impact on the
      Company's financial position or results of operations.


                                      F-12
<PAGE>

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

DECEMBER 31, 2007 AND 2006

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

      NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

      In September 2006, the FASB issued SFAS No. 157, FAIR VALUE MEASUREMENTS,
      which defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, and expands disclosures about
      fair value measurements. SFAS No. 157 does not require any new fair value
      measurements, but provides guidance on how to measure fair value by
      providing a fair value hierarchy used to classify the source of the
      information. This statement is effective for us beginning January 1, 2008.
      We are currently assessing the potential impact that adoption of SFAS No.
      157 will have on our consolidated financial statements.

      In September 2006, the FASB issued Statement No. 158, "Employer's
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      amendment of FASB Statements No. 87, 88, 106, and 132(R) ("FASB 158").
      FASB 158 requires the full recognition, as an asset or liability, of the
      overfunded or underfunded status of a company-sponsored postretirement
      benefit plan. Adoption of FASB 158 is required effective for the Company's
      fiscal year ending December 31, 2007. We assessed the potential impact
      that adoption of FASB 158 would have on our consolidated financial
      statements and have concluded that there is no material impact as of
      December 31, 2007.

      In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities" (SFAS 159). Under the
      provisions of SFAS 159, companies may choose to account for eligible
      financial instruments, warranties and insurance contracts at fair value on
      a contract-by-contract basis. Changes in fair value will be recognized in
      earnings each reporting period. SFAS 159 is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The Company is required to and
      plans to adopt the provisions of SFAS 159 beginning in the first quarter
      of 2008. The Company is currently assessing the impact of the adoption of
      SFAS 159 and its impact, if any, on its consolidated financial statements.

      In December 2007, the FASB issued Statement No. 141 (revised 2007),
      "BUSINESS COMBINATIONS." The new standard requires the acquiring entity in
      a business combination to recognize all (and only) the assets acquired and
      liabilities assumed in the transaction; establishes the acquisition-date
      fair value as the measurement objective for all assets acquired and
      liabilities assumed; and requires the acquirer to disclose to investors
      and other users all of the information they need to evaluate and
      understand the nature and financial effect of the business combination. We
      will adopt this new standard for fiscal years beginning January 1, 2009.

      In December, 2007, the FASB issued Statement No. 160, "NONCONTROLLING
      INTERESTS IN CONSOLIDATED FINANCIAL STATEMENTS--AN AMENDMENT OF ARB No.
      51." This statement establishes accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. This statement is effective prospectively, except for certain
      retrospective disclosure requirements, for fiscal years beginning after
      December 15, 2008. We are currently analyzing the effects of the new
      standard and its potential impact, if any, on our consolidated financial
      statements.

      In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
      Instruments and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires
      companies with derivative instruments to disclose information that should
      enable financial-statement users to understand how and why a company uses
      derivative instruments, how derivative instruments and related hedged
      items are accounted for under FASB Statement No. 133 "Accounting for
      Derivative Instruments and Hedging Activities" and how derivative
      instruments and related hedged items affect a company's financial
      position, financial performance and cash flows. SFAS 161 is effective for
      financial statements issued for fiscal years and interim periods beginning
      after November 15, 2008. We will review the effect of the adoption of this
      statement.


                                      F-13
<PAGE>

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

DECEMBER 31, 2007 AND 2006

2     RESTATEMENT OF 2006 FINANCIAL STATEMENTS

      The Company is restating its previously issued 2006 consolidated financial
      statements for the following reasons: unrecorded beneficial conversion
      feature of convertible debt and related amortization, unrecorded value of
      detachable warrants issued with the convertible debt and related
      amortization, unrecorded inducement expense as a result of Company's
      modification of conversion terms and terms for the exercise of warrants to
      induce conversion of debt and warrants exercise.

      The effect on the Company's previously issued 2006 financial statements is
      summarized as follows:

<TABLE>
<CAPTION>
                                                                   Previously
                                                                    Reported
                                    (Original and                   Restated                       Restated
                                       Amendment      Increase     (Amendment       Increase      (Amendment
                                        No. 1)       (Decrease)       No. 2)       (Decrease)       No. 3)
                                    -------------------------------------------------------------------------
<S>                                 <C>              <C>          <C>              <C>          <C>
TOTAL ASSETS                        $      15,954    $      --    $      15,954    $      --    $      15,954

Loans payable                             811,784     (260,663)         551,121     (166,049)         385,072
Total Current Liabilities               8,233,531     (260,663)       7,972,868     (166,049)       7,806,819
TOTAL LIABILITIES                       8,552,809     (260,663)       8,292,146     (166,049)       8,126,097

Additional paid in capital            121,198,225      934,061      122,132,286      406,176      122,538,462
Accumulated deficit                  (128,151,916)    (673,398)    (128,825,314)    (240,127)    (129,065,441)
TOTAL CAPITAL DEFICIT                  (8,536,855)     260,663       (8,276,192)     166,049       (8,110,143)
STATEMENT OF OPERATIONS
Amortization of convertible notes
 discount relating to -
 Beneficial conversion feature*                --      328,041          328,041      152,267          480,308
 Warrants                                      --           --               --       87,860           87,860
Inducement expense for the
 exercise of warrants                          --      178,500          178,500           --          178,500
Inducement expense for the
 conversion of debt                            --      166,857          166,857           --          166,857
NET LOSS                            $    (806,161)   $(673,398)   $  (1,479,559)   $(240,127)   $  (1,719,686)
</TABLE>

      *     The Company did not initially recognize the material modification of
            conversion terms as an extinguishment of debt, resulting in failure
            to write off unamortized portion of debt discount relating to this
            extinguished debt.


                                      F-14
<PAGE>

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

DECEMBER 31, 2007 AND 2006

3     PROPERTY AND EQUIPMENT

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

                                                             2007          2006
                                                       ------------------------
Machinery and equipment                                $   58,081    $   46,193
Less: accumulated depreciation                            (48,568)      (45,656)
                                                       ------------------------
Net property and equipment                             $    9,513    $      537
                                                       ========================

4.    LOANS PAYABLE

                                                             2007          2006
                                                       ------------------------
Unsecured, non-interest bearing loan payable, due on
demand from stockholders and other parties             $  138,600    $  148,600

Note payable, 5% per annum                                 46,000        15,000

Note payable, 18% per annum                                33,300            --

Convertible notes payable net of unamortized discount
of $199,726 and $422,687 and warrant valuation of
$53,501 and $4,026 in 2007 and 2006, respectively**       983,073       221,472
                                                       ------------------------
Total Loans Payable                                    $1,200,973    $  385,072
                                                       ========================


                                      F-15
<PAGE>

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

DECEMBER 31, 2007 AND 2006

As of December 31, 2007, convertible notes consist of:

<TABLE>
<CAPTION>
                                                  Issued           Issued          Issued          Issued
                                                  through           from            from            From
                                                 September       Nov 06 to      March 07 to      Sep 07 to
                                                   2006            Feb 07          Aug 07          Dec 07           Total
                                               -----------------------------------------------------------------------------
<S>                                            <C>              <C>             <C>             <C>             <C>
Proceeds from issuances of convertible debt    $    615,000     $    95,000     $   441,000     $   200,000     $  1,351,000
Less: Debt conversions                             (200,000)             --              --              --         (200,000)
                                               -----------------------------------------------------------------------------
                                                    415,000          95,000         441,000         200,000        1,151,000
                                               -----------------------------------------------------------------------------
Discount on convertible debt
      Value allocated to warrants                    88,144           8,041         118,485          51,037          265,707
      Beneficial conversion feature                 521,756          86,959         322,515         148,963        1,080,193
                                               -----------------------------------------------------------------------------
                                                    609,900          95,000         441,000         200,000        1,345,900
      Accumulated amortization of value
         allocated to warrants                      (88,144)         (7,499)        (90,906)        (25,657)        (212,206)
      Accumulated amortization of
         beneficial conversion feature             (476,909)        (81,199)       (247,258)        (75,101)        (880,467)
                                               -----------------------------------------------------------------------------
                                                     44,847           6,302         102,836          99,242          253,227
      Accrued Interest                               54,751           6,051          18,051           6,447           85,300
                                               -----------------------------------------------------------------------------
Net Convertible Debt                           $    424,904     $    94,749     $   356,215     $   107,205     $    983,073
                                               =============================================================================

<CAPTION>
                                               Lower of 70%
                                               of market or
<S>                                            <C>              <C>             <C>             <C>             <C>
Original conversion price                      $      0.025     $     0.005     $     0.020     $     0.020               --
Modified conversion price                      $      0.005             N/A             N/A             N/A               --
Interest rate                                             5%              5%              5%             18%              --
Maturity from date of issuance                       1 year          1 year          1 year        6 months               --
Warrants issued                                  12,300,000       1,900,000       8,820,000       4,000,000       27,020,000
Warrants exercised                              (11,900,000)             --              --              --      (11,900,000)
                                               -----------------------------------------------------------------------------
Warrants remaining                                  400,000       1,900,000       8,820,000       4,000,000       15,120,000
                                               -----------------------------------------------------------------------------
Market value of warrants at date of issuance   $    150,884     $    48,863     $   398,872     $   140,612     $    739,233
Assumptions for Black-Scholes valuation of
warrants
      Original exercise price                  $      0.025     $     0.025     $     0.020     $     0.020

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


                                      F-16
<PAGE>

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

DECEMBER 31, 2007 AND 2006

      For the years ended December 31, 2007 and 2006, the Company issued
      $691,000 and $660,000, respectively, of convertible notes. All of the
      convertible notes were issued with detachable warrants to purchase
      13,820,000 and 13,200,000 shares of the Company's common stock,
      respectively, at $0.025 per share. In recording the transaction, the
      Company allocated the value of the proceeds to the convertible notes and
      the warrants based on their relative fair values. Fair value of the
      warrants was determined using the Black-Scholes valuation model. It was
      also determined that the convertible notes contained a beneficial
      conversion feature since the fair market value of the common stock
      issuable upon the conversion of the notes exceeded the value allocated to
      the notes.

      The value of the beneficial conversion feature and the value of the
      warrants have been recorded as a discount to convertible notes and are
      being amortized over the term of the notes using the straight-line method.
      For the years ended December 31, 2007 and 2006, amortization of the
      discount was $864,485 and $568,168, respectively.

      In September 2006, the Company offered to decrease the note conversion
      price to $0.005 per share if the note holders exercised their warrants at
      the reduced exercise price of $0.01 by September 30, 2006. In
      consideration for the reduction of conversion price, the maturity of the
      notes extended for another year. As a result of the inducement to exercise
      the warrants and to convert the notes, the Company recognized an expense
      of $988,686 and $345,357 for the years ended December 31, 2007 and 2006,
      respectively, with a corresponding increase in additional paid in capital.

      As of December 31, 2007, 11,900,000 of the warrants have been exercised.

      The modification of conversion terms was substantial such that it was
      considered an extinguishment of debt. Accordingly, the unamortized
      discount on convertible notes was written off and included in total
      amortization for 2006. Conversion of notes in 2007 and 2006 also resulted
      in the write off of the corresponding unamortized discount.

      In February 2007, the Company changed the per share conversion price from
      $0.005 to $0.02 for new lenders.

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

      For the year ended December 31, 2007, the Company recognized $864,485 in
      interest expense related to the amortization of the value of the
      detachable warrants and beneficial conversion feature recorded on these
      convertible notes. As of December 31, 2007, the remaining balance of the
      beneficial conversion feature was $199,726 and detachable warrants was
      $53,501.


                                      F-17
<PAGE>

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

DECEMBER 31, 2007 AND 2006

5.    INCOME TAXES

      Income tax expense is comprised of the following for the years ended
      December 31, 2007 and 2006:

                                                          2007            2006
                                                  ----------------------------
      Current
          State                                   $      2,400    $      2,400
                                                  ============================

      Total income tax expense for the years ended December 31, 2007 and 2006
      differed from the amounts computed by applying the statutory Federal
      income tax rate to earnings before income taxes as a result of the
      following:

                                                          2007            2006
                                                  ----------------------------
      Computed "expected" income tax benefit      $         --    $         --
      Non-deductible stock option compensation         430,384         172,363
      Non-deductible expenses                        1,903,727         673,398
      Non-deductible stock for services                 48,000          50,000
      Change in valuation allowance                 (2,355,111)       (895,761)
                                                  ----------------------------
                                                  $         --    $         --
                                                  ============================

      The tax effects of temporary differences that give rise to the deferred
      tax assets and liabilities at December 31, 2007 and 2006 are as follows:

                                                          2007            2006
                                                  ----------------------------
      Deferred tax assets
          Accrued liabilities                     $    139,646    $    177,677
          Reserve for lawsuit settlements            1,997,669       1,870,055
          Fixed Assets                                   3,805              --
          Alternative minimum tax credit                55,000          55,000
          Net operating loss carryover              27,159,140      26,984,770
                                                  ----------------------------
             Gross deferred tax assets              29,355,260      29,087,502
      Less valuation allowance                     (29,355,260)    (29,087,502)
                                                  ----------------------------
      Deferred tax assets, net of valuation
      allowance                                   $         --    $         --
                                                  ============================

      In assessing the realizability of deferred tax assets, management
      considers whether it is more likely than not that some portion or all of
      the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable
      income during the periods in which those temporary differences become
      deductible. Management considers the scheduled reversal of deferred tax
      assets, projected future taxable income and tax planning strategies in
      making this assessment. Management believes it is not likely that the
      Company will realize the benefits of these deductible differences at
      December 31, 2007 or 2006. Accordingly, a valuation allowance has been
      provided for the total net deferred tax assets.

      At December 31, 2007, the Company had net operating loss carryforwards of
      approximately $79,000,000 for US income tax purposes, which if not used,
      will expire between the years 2009 and 2027. Due to change of ownership as
      defined in the Internal Revenue Code, restriction applies to the amount of
      net operating loss carryforward, which the Company can utilize to offset
      income for tax purposes in a year in the future.


                                      F-18
<PAGE>

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

DECEMBER 31, 2007 AND 2006

6.    COMMITMENTS AND CONTINGENCIES

      a)    Litigation

            In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of
            Pacific Baja (Note 9) filed an action against the Company alleging
            that in order to induce TST to extend credit to a subsidiary of
            Pacific Baja, the Company executed guarantees in favor of TST. TST
            alleged that the subsidiary defaulted on the credit facility and
            that the Company is liable as guarantor. TST originally sought
            damages of approximately $1.8 million.

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

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

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

            iii)  agreed to the immediate entry of judgment against the Company
                  in the amount of $2,068,079 plus interest from the date of
                  entry at the rate of 10% per annum. The amount of this
                  judgment will immediately increase by any amount that TST is
                  compelled by judgment or court order or settlement to return
                  as a preferential transfer in connection with the bankruptcy
                  proceedings of Pacific Baja; and

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


                                      F-19
<PAGE>

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

DECEMBER 31, 2007 AND 2006

6.    COMMITMENTS AND CONTINGENCIES - CONTINUED

      b)    Litigation - Continued

            At December 31, 2007, the Company has included $3,507,387
            ($3,190,352 in 2006) in regard to this matter in provision for
            lawsuit settlements. If it was determined that TST received payment
            in preference to other creditors before Pacific Baja filed its
            Chapter 11 petition in bankruptcy, TST would likely increase its
            claim by $2,130,000. TST and Pacific Baja settled the preference
            payment issue with TST paying $20,000 to Pacific Baja and TST
            relinquishing the right to receive $63,000, therefore the
            $2,130,000, that the Company had included in provision for lawsuit
            settlements, has been reduced to $83,000. For the year ended
            December 31, 2005 the $2,047,000 difference was recorded as a
            lawsuit settlement in other income.

                                       Year Ended December 31
                                     --------------------------
                                            2007           2006
                                     --------------------------
            Settlement amount        $ 2,068,079    $ 2,068,079
            Interest                 $ 1,464,653    $ 1,145,618
            Preference payment       $    83,000    $    83,000
            Proceeds of stock sale   ($   23,345)   ($   23,345)
                                     --------------------------
            Total                    $ 3,592,387    $ 3,273,352
                                     ==========================

      c)    Other

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

      d)    Royalties

            The Company has agreed to pay a royalty equal to 2% of gross sales
            of products manufactured and sold that incorporate certain licensed
            technology which is not being used. No royalty payments were made in
            2007 and 2006.


                                      F-20
<PAGE>

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

DECEMBER 31, 2007 AND 2006

7.    STOCK OPTIONS

      2003 Stock Incentive Plan

      On August 12, 2003, the Company established the 2003 Stock Incentive Plan
      (the "2003 Plan"). Under the 2003 Plan, the Company may grant common stock
      or incentive stock options to its directors, officers, employees and
      consultants for up to 15,000,000 shares. The maximum term of the 2003 Plan
      is ten years. The Board of Directors will determine the terms and matters
      relating to any awards under the 2003 Plan including the type of awards,
      the exercise price of the options and the number of common shares granted.
      The value of the shares of common stock used in determining the awards
      shall not be less than 85% of the fair market value of the common shares
      of the Company on the date of grant. As of December 31, 2007 and 2006, the
      number of unoptioned shares available for granting of options under the
      plan was 7,197,759.

      2004 Nevada Stock Incentive Plan

      On March 31, 2004, the Company established the 2004 Nevada Stock Incentive
      Plan (the "2004 Plan"). Under the 2004 Plan, the Company may grant common
      stock or incentive stock options to its directors, officers, employees and
      consultants for up to 15,000,000 shares. The maximum term of the 2004 Plan
      is ten years. The Board of Directors will determine the terms and matters
      relating to any awards under the 2004 Plan including the type of awards,
      the exercise price of the options and the number of common shares granted.
      The value of the shares of common stock used in determining the awards
      shall not be less than 85% of the fair market value of the common shares
      of the Company on the date of grant. As of December 31, 2007 and 2006, the
      number of unoptioned shares available for granting of options under the
      plan was 1,703,500.

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

      Valuation-general Black-Scholes

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


                                      F-21
<PAGE>

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

DECEMBER 31, 2007 AND 2006

7.    STOCK OPTIONS - CONTINUED

      The following summarizes information relating to stock options issued
      prior to 2007:

<TABLE>
<CAPTION>
                                                       2006 AND 2007
                                 NON-EMPLOYEES      EMPLOYEES & DIRECTORS          TOTAL
                             -------------------------------------------------------------------
                                         WEIGHTED                WEIGHTED               WEIGHTED
                                          AVERAGE                 AVERAGE                AVERAGE
                                         EXERCISE                EXERCISE               EXERCISE
                               OPTIONS      PRICE      OPTIONS      PRICE      OPTIONS     PRICE
                             -------------------------------------------------------------------
<S>                          <C>          <C>       <C>           <C>       <C>          <C>
Outstanding at beginning     2,125,000    $  0.08   15,897,000    $  0.06   18,022,000   $  0.06
and end of year
</TABLE>

      At December 31, 2007, the following is a summary of stock options
      outstanding:

                                            Weighted Average   Weighted
                                                   Remaining    Average
                                                 Contractual   Exercise
               Exercise Price       Number      Life (Years)      Price
               --------------------------------------------------------
                        $0.02    7,000,000              2.08      $0.01
                $0.04 - $0.07    1,450,000              4.09       0.04
                $0.09 - $0.10    9,572,000              5.86       0.10
                                ---------------------------------------

                                18,022,000              4.25      $0.06
                                =======================================

      Issuance of Stock Options to Non-employees for Services

      During 2006 and 2007, warrants to purchase 78,200,000 shares of our common
      stock were included as additional compensation in the contracts of various
      consultants that we deemed essential to our operations. Of these warrants,
      9,677,776 were vested and reflected as an expense in 2007 compared to
      warrants to purchase 6,494,444 shares vested in 2006

      During 2007 the Company using the Black-Scholes model recorded $430,384
      ($172,363 in 2006) of compensation expense, relating to the vesting of
      stock warrants previously issued to non-employees for services. The non
      cash warrant expense is allocated with $289,113 ($137,137 in 2006) to
      general and administrative expenses and $141,271 ($35,226 in 2006) to
      research and development.


                                      F-22
<PAGE>

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

DECEMBER 31, 2007 AND 2006

7.    STOCK OPTIONS - CONTINUED

      Issuance of Stock Options to Non-employees for Services - Continued

      The estimated fair value of warrants vested to non-employees during 2007
      was between $0.023 and $0.06. Assumptions used to value the warrants:
      expected dividend yield Nil%; expected volatility between 112% and 155%;
      risk-free interest rate between 4.46% and to 5.05% and an expected life of
      7 years.

      The estimated fair value of warrants vested to non-employees during 2006
      was between $0.01, and $0.04. Assumptions used to value the warrants:
      expected dividend yield Nil%; expected volatility between 141% and 163%;
      risk-free interest rate of 2.89% and 3.75% and expected life of 1 year and
      5 years.

8.    STOCKHOLDERS' EQUITY

      a)    Authorized Capital

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

            At the Annual General Meeting held on June 30, 2004, the
            shareholders approved an increase of authorized capital to
            1,000,000,000 common shares.

      b)    Merger

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

      c)    During 2007, the Company issued 3,000,000 (5,000,000 in 2006) shares
            to consultants in consideration for services, at ascribed value of
            $0.016 ($0.01 in 2006) per share (based on the trading price of the
            Company's common stock on the agreement date).


                                      F-23
<PAGE>

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

DECEMBER 31, 2007 AND 2006

8.    STOCKHOLDERS' EQUITY - CONTINUED

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

      e)    During 2007, the Company issued 35,000,000 shares of common stock.
            The 35,000,000 included, 32,000,000 were issued for conversion of
            notes payable, and 3,000,000 shares were issued for services with an
            ascribed value of $48,000 (based on the trading price of the
            Company's common stock on the dates service agreements were entered
            into).

            During 2006, the Company issued 24,900,000 shares of common stock.
            The 24,900,000 included, 8,000,000 were issued for conversion of
            notes payable, 11,900,000 shares were issued upon exercise of
            warrants with a weighted average exercise price of $0.01 and
            5,000,000 shares were issued for services with an ascribed value of
            $50,000 (based on the trading price of the Company's common stock on
            the dates service agreements were entered into).

            During 2003, the Company entered into three private placement
            agreements for the issuance of 2,433,810 shares for gross proceeds
            of f) $148,600, which was recorded as loans payable. As of December
            31, 2007 the shares have not been issued.

      g)    Stock Purchase Warrants

            At December 31, 2007 and 2006, the Company had 31,292,220 and
            9,894,444 stock purchase warrants outstanding and exercisable,
            respectively. These warrants were issued in connection with private
            placements, non-employee compensation and other means of financing.
            The holders of these warrants are entitled to receive one share of
            common stock of the Company for one warrant exercised. The warrants
            have exercise prices ranging from $0.0117 to $0.04 per share with a
            weighted average exercise price of $0.02 per share and expiration
            dates between 2011 and 2014.

            In 2006 and 2007 consulting contracts were signed with a total of
            78,200,000 warrants of which only 9,677,776 warrants were vested in
            2007 (6,494,444 in 2006). The remaining warrants may vest over the
            next two or more years upon the continuation of service of the
            holders and/or the happening of specific events.


                                      F-24
<PAGE>

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

DECEMBER 31, 2007 AND 2006

8.    STOCKHOLDERS' EQUITY - CONTINUED

      h)    Stock Purchase Warrants - continued

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

<TABLE>
<CAPTION>
                                                                     2007
                                    ---------------------------------------------------------------------
                                           INVESTORS        EMPLOYEES & CONSULTANTS         TOTAL
                                    ---------------------------------------------------------------------
                                                  WEIGHTED               WEIGHTED                WEIGHTED
                                                   AVERAGE                AVERAGE                 AVERAGE
                                                  EXERCISE               EXERCISE                EXERCISE
                                       WARRANTS      PRICE    WARRANTS      PRICE     WARRANTS      PRICE
                                    ---------------------------------------------------------------------
<S>                                 <C>           <C>       <C>          <C>       <C>           <C>
Outstanding at beginning of year      3,400,000   $   0.07   6,494,444   $   0.01    9,894,444   $   0.03
Granted                              13,820,000   $   0.02   9,677,776   $   0.01   23,497,776   $   0.02
Expired                             (2,100,000)   $   0.11           -   $   0.00  (2,100,000)   $    0.1

Warrants outstanding and
exercisable at end of  year          15,120,000   $   0.02  16,172,220   $   0.01   31,292,220   $   0.02

Weighted average fair value of
warrants granted during the year                  $   0.02               $   0.02                $   0.01
</TABLE>

            At December 31, 2007, the following is a summary of share purchase
            warrants outstanding and exercisable:

                                                 Weighted-
                                                   Average      Weighted
                                                 Remaining       Average
                                               Contractual      Exercise
            Exercise Price         Number     Life (Years)         Price
            -------------------------------------------------------------
                $0.01          15,338,892             6.20         $0.01
             0.025 -0.04       15,953,328             4.46         0.022
                            ---------------------------------------------
                               31,292,220             5.31         $0.02
                            ---------------------------------------------


                                      F-25
<PAGE>

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

DECEMBER 31, 2007 AND 2006

9.    PACIFIC BAJA BANKRUPTCY

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

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

      The Trust is seeking, among other matters:

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

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

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

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

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

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


                                      F-26
<PAGE>

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

DECEMBER 31, 2007 AND 2006

10.   FORMER DIRECTORS

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

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

      The Plaintiff's attorney, Claus Schmidt, also filed similar suits on
      behalf of Frank Walter and Herbert Taeuber. The German courts are
      indicating that all three suits need to be filed in the United States not
      Germany. Presently the suits have not been filed in the United States. We
      vigorously dispute this claim and have retained German counsel to defend
      it and seek its dismissal. At December 31, 2007 and 2006, the Company has
      included $405,785 in regard to this matter in the provision for lawsuit
      settlements.

11.   CRESCENT FUND, LLC

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


                                      F-27
<PAGE>

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

DECEMBER 31, 2007 AND 2006

12.   RELATED PARTY TRANSACTIONS

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

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

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

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

      Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers has
      advanced an aggregate of $ 46,000 to the Company. The advances are
      repayable on demand and bear interest at 5 % per annum. As of December 31,
      2007 the Company also owes Aspatuck Holdings Ltd consulting fees of
      $225,996 for the services of Jason Meyers.

      As of December 31, 2007 the Company also owes Stamford Research, LLC
      consulting fees of $80,500 for the services of Albert Case.


                                      F-28
<PAGE>

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

DECEMBER 31, 2007 AND 2006

13.   SUBSEQUENT EVENTS

      CHIEF EXECUTIVE OFFICER

      Subsequent to December 31, 2007 the Company entered into a Consulting
      Agreement with Mr. John Adams effective January 1, 2008 pursuant to which
      he is engaged as the Chief Executive Officer for term ending December 1,
      2010. As compensation to Mr. Adams, the Company will issue 12,000,000
      shares of the Company's common stock (the "Shares"). The Shares will be
      subject to repurchase by the Company and will vest in accordance to a
      vesting schedule. Of such shares 4,000,000 Shares shall be "service based"
      and 111,111.11 Shares will vest for each month of service. Another
      4,000,000 Shares shall be "revenue based" and the final 4,000,000 Shares
      shall be "EBITDA based" and the repurchase agreement will terminate upon
      filing of reports with the Securities & Exchange Commission containing
      reviewed or audited statements reflecting total EBITDA, or earnings before
      interest, taxes, depreciation or amortization, of $1,000,000.The unvested
      Shares shall be subject to repurchase by the Company in accordance with an
      agreement to be entered into.

      RESIGNATION OF BOARD MEMBER AND CHIEF OPERATING OFFICER

      Subsequent to December 31, 2008 Albert F. Case, Jr. resigned from the
      Board of Directors and as an officer of the Company. The Company is in the
      process of negotiating the payment of past due consulting fees and the
      unvested warrants

      NOTES PAYABLE CONVERTING TO COMMON STOCK

      Subsequent to December 31, 2007 the holders of a total of $1,251,000
      principal amount of convertible notes of the Company have converted or
      have indicated that they will convert the principal and interest of such
      notes into 150,576,948 common shares. This includes the conversion of a
      $100,000 note from February 2008.


                                      F-29