<PAGE>

                     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,  2002

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

For  the  transition  period  from  _____  to  _____

COMMISSION  FILE  NUMBER ______________


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

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


6155 CARPINTERIA AVENUE, CARPINTERIA, CALIFORNIA     93013
------------------------------------------------     -----------
(Address of principal executive offices)             (Zip Code)


(805) 684-4551
---------------------------
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.  [    ]

State  issuer's  revenues  for  its  most  recent  fiscal  year  $NIL
                                                                 ----

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.)  $9,744,500,  AS  OF  APRIL  11,  2003
-----                            -------------------------------------

State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest practicable date.   121,827,880 SHARES OF COMMON STOCK
                                              ----------------------------------
AS  OF  MARCH  19,  2003
------------------------

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.                                        3

Item 2.     Description  Of  Property.                                       21

Item 3.     Legal  Proceedings.                                              21

Item 4.     Submission  Of  Matters  To  A  Vote  Of Security Holders.       25


PART II

Item 5.     Market  For Common Equity And Related Stockholder Matters.       26

Item 6.     Management's Discussion And Analysis Or Plan Of Operation.       30

Item 7.     Financial  Statements.                                           36

Item 8.     Changes  In  And  Disagreements  With Accountants On
            Accounting And Financial  Disclosure.                            36


PART III

Item 9.     Directors,  Executive  Officers,  Promoters  And Control
            Persons; Compliance With Section 16(A) Of The Exchange Act       37

Item 10.    Executive  Compensation.                                         40

Item 11.    Security  Ownership  Of Certain Beneficial Owners
            And Management.                                                  43

Item 12.    Certain  Relationships  And  Related  Transactions.              46

Item 13.    Exhibits  And  Reports  On  Form  8-K.                           48

Item 14.    Controls  And  Procedures.                                       50




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                                     PART I

ITEM 1.     DESCRIPTION OF BUSINESS.

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.

GENERAL

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

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

We are presently finalizing the development of additional products incorporating
new  technology,  including a product known as the TurboAir.  These new products
are  in  various stages of design and development.  Our ability to commercialize
these  new products is conditional upon us entering into arrangements with OEM's
that  provide  for the final development and manufacturing of these products. We
are also continuing the development of new products that focus on increasing the
operating  efficiency  of  internal  combustion  engines  using  electronically
assisted  compressor  devices, however none of our new products have reached the
stage  where  we  are  seeking  development  agreements  with original equipment
manufacturers  in  order  to  pursue  commercialization.

CORPORATE ORGANIZATION

We  were  incorporated  under  the  laws of British Columbia, Canada in 1983. We
reincorporated  under  the  laws  of  the  State  of Delaware in July 1998.   We
reincorporated  under  the  laws  of  the  State  of  Nevada in August 2002.  We
currently  exist  as  a  Nevada  corporation.

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

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


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We acquired our original technology from Edward M. Halimi, a former director and
our  former  chairman  of the board, former president and former chief executive
officer, in July 1993 for consideration of 4,150,000 shares of our common stock.
These shares have been exchanged for shares of our Series X Preferred Stock.
See Item  12  -  Certain  Relationships  and  Related  Transactions.

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

DEVELOPMENT  OF  OUR  BUSINESS  DURING  2001  AND  2002

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

1.     We  have  focused  our business strategy on becoming a leading design and
engineering  company  engaged  in the development of charging technology for the
automotive  industry.  Our  current  business strategy contemplates that we will
license  our  technology  to leading automotive Original Equipment Manufacturers
("OEM's").  We  anticipate  that  we  will  not  engage  in  further attempts to
manufacture  equipment  incorporating our technology for sale to OEM's or to the
automotive  product  after-market  due  to  the  high  costs  of  undertaking
manufacturing  for  the  automotive  industry  and  the  difficulty of competing
against  OEM's  with  manufactured products. We continued this business strategy
through  2002  and  it  remains  our  current  business  strategy.

2.     During  2001,  we re-focused our efforts on the research and developments
of products using our technology, including the development of prototypes of new
products  for  demonstration  and  evaluation  purposes.  Our  newly  developed
products  include  our  new  TurboAir  product.  We acquired significant license
rights  to this technology on October 15, 2001.  We have developed prototypes of
our  new TurboAir product for evaluation and demonstration purposes.  We entered
into  agreements  with  two OEM's for the testing and evaluation of our TurboAir
products  during  2002.  We  are  currently  in the process of manufacturing the
required  prototype  TurboAir  products  for  testing and evaluation under these
agreements.

3.     We  have  continued  to  reduce  our  overhead  and  administration costs
throughout  both  2001 and 2002. These reductions to overhead and administration
costs  have  been necessitated by our inability to earn significant revenues and
to  raise  required  capital.  These  reduced costs are also consistent with our
transition  to  a  technology  company  engaged  principally  in  design  and
engineering.

4.     Honeywell  commenced  arbitration  proceedings  against  us  in June 2001
seeking  termination  of  our  license agreement and joint development agreement
with  Honeywell.  These  arbitration proceedings commenced in September 2002 and
are continuing.  We commenced federal anti-trust litigation against Honeywell in
August  2001  claiming  damages  against  Honeywell  arising  from  our  license
agreement  and  joint  development  agreement  for  the Turbopac and Dynacharger
technology  with  Honeywell.  We subsequently determined in the third quarter of
2002  to  withdraw  this  lawsuit  pending  the  outcome  of  the  arbitration
proceedings.  As a consequence of the status of our relationship with Honeywell,
no  sales  of products incorporating the Turbopac and Dynacharger technology are
currently  being  achieved.

5.     Under  the  terms of our license agreement with Honeywell, as amended, we
re-acquired  non-exclusive  rights  to  the Turbopac and Dynacharger products in
January  2002  due  to  the  failure  of  Honeywell  to reach certain production
milestones  under our agreements with Honeywell.  Under the terms of our license
agreement  with  Honeywell, as amended, we further acquired an exclusive license
to  pursue  sales  of  Turbopac  products as of January 1, 2003.  The rights are
granted  as  a  consequence  of  Honeywell  not  obtaining production and supply
commitments  of  the  Turbopac  products.

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


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Our current board of directors, namely Manfred Hanno Janssen, Eugene O'Hagan and
Andrew  Martyn-Smith  were  appointed at our annual general meeting held in July
2002.

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

8.     We  have  started  the  development  of  new  products  incorporating our
proprietary  technology.  These  new  products  incorporate  our  proprietary
electronically assisted compressor technology and are targeted at increasing the
operating  efficiency  of  internal combustion engines.  All new products are in
the  development stage.  We have made various prototypes of new products for our
own  internal  testing  and evaluation purposes.  These developments are ongoing
but  are  not yet at the stage where we have attempted to enter into development
agreements  with  original  equipment  manufacturers  to  start  the  process of
commercialization.

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

HONEYWELL AGREEMENTS

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

ORIGINAL AGREEMENTS

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

ASSIGNMENT AGREEMENT

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


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AMENDED LICENSE AGREEMENT

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

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

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

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

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

AMENDED JOINT DEVELOPMENT AGREEMENT

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

STATUS  OF  THE  JOINT  DEVELOPMENT  AGREEMENT  AND  THE  LICENSE  AGREEMENT

In  March  2001,  we received a letter from Honeywell in which Honeywell alleged
that  we  have been chronically delinquent in meeting schedule commitments under
the  joint  development  agreement.


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Honeywell  stated  its  belief  that  we would be unable to meet our contractual
requirements  and  that  such  defaults  appear to be of a nature that cannot be
cured.  Honeywell requested that we provide them with adequate assurances of our
ability  to  cure  past  defaults  and  meet  our  ongoing obligations under the
agreement  no  later  than  March  23, 2001 or they would consider the agreement
terminated. We responded to Honeywell on March 19, 2001, stating that we believe
we  have  met  all  of  our  obligations under the agreement and have not caused
serious  delays in customer commitments or design and testing programs. On March
23,  2001,  we  received  another  letter  from  Honeywell  asking us to provide
Honeywell with specific assurances regarding our current and future funding, our
solvency, our ability to meet the capacity requirements for producing components
that  meet  automotive  industry standards and our current and future management
and  technical  team.  Honeywell  sent  us  another  letter dated April 4, 2001,
listing  several  alleged  delinquencies  in meeting our contractual obligations
under  the agreement and requesting that we cure the alleged deficiencies within
60  days.  Honeywell  has stated that it will consider our failure to adequately
address  its  concerns  to  be  a repudiation of the agreement by us and it will
consider  its obligations under the agreement canceled. Honeywell claims that it
will  then  proceed with alternative means to developing the products. We do not
agree with Honeywell's position regarding delinquencies and intend to vigorously
defend  our  position  if  necessary  to  enforce  the  contract.

On  July  2,  2001,  Honeywell  initiated  arbitration  proceedings  requesting
termination  of  the joint development agreement.  These arbitration proceedings
commenced  in September 2002 and are continuing.  We commenced legal proceedings
in  federal  district  court  against  Honeywell in August 2001 claiming damages
under the Sherman Act and seeking an order of the court enjoining Honeywell from
prosecuting  the arbitration proceedings.  We determined in the third quarter of
2002  to withdraw these legal proceedings pending the outcome of the arbitration
proceedings.

We served notice on Honeywell in January 2002 of our position that Honeywell had
failed  to  achieve the production commitments required by the license agreement
and  that under the license agreement we are entitled to a non-exclusive license
for  Turbodyne  improvements  and  a  non-exclusive  license,  with  right  to
sub-license, for the Turbopac and Dynacharger patent portfolio assigned by us to
Honeywell  in  December  1999.   We  also  maintain that Honeywell has failed to
obtain  the  supply  commitments required under the amended license agreement by
January  1, 2003.  As a consequence, we maintain we are entitled to an exclusive
license  to  pursue  sales  of Turbopac products and our royalty for Dynacharger
products  has increased to 4.7%.   We will maintain in the Honeywell arbitration
proceedings  that  we  are  entitled  to  these rights under the amended license
agreements,  irrespective  of  whether  Honeywell  is successful in obtaining an
order  under  the  arbitration proceedings that the amended license agreement is
terminated.  However,  there  is  a  risk  that  we  will  not  be successful in
maintaining  this  position  in  the  arbitration  proceedings.

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

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

INDUSTRY  BACKGROUND

MARKET  DEMAND  FOR  CHARGING  TECHNOLOGY  FOR  INTERNAL  COMBUSTION  ENGINES

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

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

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


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

-    The  automobile  industry  is  pursuing  downsizing  of gasoline engines to
     improve  engine efficiency and fuel economy and although the drop in engine
     torque  and  power  associated  with  smaller  engines  can be prevented by
     charging the downsized engine, it must be accomplished without turbo lag to
     be  successful;  and

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

TURBOCHARGING TECHNOLOGY

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

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

MARKET  OPPORTUNITY

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


THE  TURBODYNE  TECHNOLOGY

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

the  combustion  process.  However,  ambient  air  pressure  is  not a perfectly
efficient  force for this process.  In particular, ambient air pressure fails to
supply air in sufficient quantities when an engine is accelerating, particularly
at  low  engine  speeds.  We  have  developed  our  technology  to address these
inefficiencies  of  conventional  internal  combustion  engine  technology.

TURBOPAC  PRODUCT

We  have  developed the Turbopac product to increase the operational performance
and  efficiencies  of  non-turbocharged engines.  The Turbopac product is an air
blower  apparatus  that consists of a fan driven by a proprietary electric motor
and  managed  by  an  electronic management system.  The Turbopac incorporates a
high  speed,  high  power,  and electronically commutated electric motor that we
developed.  This  electric  motor  is  controlled by a rapid, high-powered DC/AC
electronic  controller  capable  of


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sustaining motor speeds in excess of 200,000 rpm. This electric motor is mounted
coaxially  with  a compressor in order to deliver compressed air into the engine
when  required.

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

DYNACHARGER  PRODUCT

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

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

TURBOAIR  PRODUCTS

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

INTELLECTUAL  PROPERTY

TURBOPAC  AND  DYNACHARGER  TECHNOLOGY

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


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TURBOAIR  TECHNOLOGY

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

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

NEW  PRODUCTS

We  are  continuing the development of new products that focus on increasing the
operating  efficiency  of  internal  combustion  engines  using  electronically
assisted  compressor  devices.  We  have made two patent applications during the
past  year  in connection with these new products.   We continue development and
testing  work  on these new products.  None of our new products have reached the
stage  where  we  are  seeking  development  agreements  with original equipment
manufacturers  in order to pursue commercialization.  There is no assurance that
we  will  be granted any patents.  Furthermore, the grant of any patent does not
necessarily  mean  that  we  will  pursue  commercialization  of  the  product.

PROPRIETARY  INFORMATION  AGREEMENTS

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

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

TURBOPAC  PRODUCT

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

We  have  acquired  exclusive  rights to proceed with sales of Turbopac products
under  our  amended  license  agreement  with  Honeywell.  As  discussed  above,
Honeywell  is  seeking  termination  of  this  amended  license agreement in the
arbitration  proceedings  it  has  initiated  against  us.  We  are  currently
evaluating  whether  to  proceed  with  further  attempts  to  commercialize the
Turbopac  products.   This  determination  will  be  based  on our assessment of
demand  for  the  Turbopac product and our ability to finance commercialization.
We  anticipate that any commercialization would be through a license arrangement
with an OEM.  There is no assurance that we will be able to enter into a license
agreement  with  an OEM or to achieve commercialization of the Turbopac product.


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

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

DYNACHARGER  PRODUCTS

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

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

TURBOAIR  PRODUCTS

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

BUSINESS  STRATEGY

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


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TURBOPAC  PRODUCTS

We  are in the process of determining whether to initiate discussions with OEM's
in  view  of  the fact that we recently acquired the exclusive right to sell the
Turbopac  product  under  our  amended  license agreement with Honeywell.  If we
determine  to  pursue  commercial  sales of the Turbopac products, we anticipate
that  we  would  pursue  license  arrangements  with  OEM's  who would undertake
manufacturing  and sales of Turbopac products in consideration of the payment of
royalties  or  similar  license  fees  to  us.

We  are  also  evaluating  marketing  the Turbopac products to the after-market.
Potential customers include the owners of trucking, bus and waste hauling fleets
that  are equipped with Detroit Diesel engines due to the fact that our Turbopac
2500  model  has  been certified by the EPA for the Detroit Diesel Corporation's
emission  reduction  kit.  Entry into this after-market would require additional
financing to fund production and marketing of Turbopac products for this market.
There  is  no  assurance  that  we  will  be  able achieve sales of our Turbopac
products  to  the  after-market  in  2003.

DYNACHARGER  PRODUCTS

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

Prior  to  entering  into  our  agreements  with  Honeywell,  we were engaged in
discussions  with various large automotive OEM's for the manufacture of products
incorporating  our  Dynacharger technology.  We have again initiated discussions
with  OEM's commencing in 2002 now that we have acquired a non-exclusive license
for  the  Dynacharger  products  under  our  license  agreement  with Honeywell.

In  September 2002, our subsidiary, Turbodyne Systems Inc. ("TSI"), entered into
a  licensing  and  joint  development  agreement  with Ishikawajima-Harima Heavy
Industries  Co.,  Ltd.  "IHI".  The  licensing  and  joint development agreement
provides for the grant by TSI to IHI of a ten-year non-exclusive license for our
motor  assisted  Dynacharger turbocharger technology for the territories of Asia
and  Europe.  IHI  was  required to pay to TSI  8,000,000 Japanese Yen (equal to
approximately  $66,300  US  as  of September 11, 2002) as an initial license fee
upon  execution  of  the  agreement.  IHI  is  also  required  to  pay to TSI an
additional  license  fee  of  20,000,000  Japanese  Yen  (equal to approximately
$165,900  US as of September 11, 2002) upon a decision by IHI to enter into mass
production and delivery to IHI by TSI of complete design, engineering, drawings,
specifications  and parts lists.  In addition to the additional license fee, IHI
will  pay  to  TSI  a  royalty  based  on  the  number of units sold by IHI that
incorporate the licensed technology.  The royalty will equal 3% of the amount of
the  sales  price  of  motor  assisted  turbochargers  sold that incorporate our
technology  less  the  price of a conventional turbocharger product for sales of
the first 200,000 units.  For sales in excess of 200,000 units, the royalty will
be  reduced  to  1%  of  the  price  differential.

TSI  has  also  agreed to manufacture and deliver to IHI four engineering sample
units  that  will  be  designed  to  meet the specific requirements of IHI.  The
purpose  of  these  engineering  sample units will be for testing and evaluation
purposes  by  IHI.  IHI  will  pay  to TSI the amount of  2,000,000 Japanese Yen
(equal  to  approximately $16,600 US as of September 11, 2002) upon execution of
the  agreement.  TSI  will  complete  the  fabrication of the electric motor and
electronic  components  for  the  test  units.  IHI will supply the conventional
turbocharger  components  to TSI for final assembly and testing by TSI. TSI will
deliver  the  four samples to IHI for evaluation.  Additional test units will be
provided  at  a price of  500,000 Japanese Yen (equal to approximately $4,150 US
as  of  September  11,  2002).  To  date, we have commenced manufacturing of the
prototype  units  to  be  delivered  to  IHI,  however we are currently awaiting
delivery  of the conventional turbocharger components to be delivered by IHI for
completion  of  the  final  assembly  and  testing.


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We plan to continue to pursue development agreements for the Dynacharger product
whereby we would license our technology to a turbocharger manufacturer who would
incorporate  the  Dynacharger  into  their  turbocharger  products.

TURBOAIR  PRODUCTS

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

We  have  entered  into a testing and evaluation agreement with a major European
vehicle  manufacturer.  Under  the  terms  of  this agreement, we have agreed to
deliver  prototype  TurboAir  units  for  testing  and evaluation purposes.  The
objective  of  this  agreement  is  to  enter  into a further agreement with the
manufacturer  for commercial manufacture of the TurboAir products by the vehicle
manufacture.  There is no assurance that this preliminary testing and evaluation
agreement  will  lead to any further agreement for the commercial manufacture of
the  TurboAir  product.

We  also  plan  to pursue certification of the TurboAir products with the United
States  Environmental  Protection  Agency  and  the  California  Environmental
Protection  Agency.  Certification  would  be  pursued  with respect to specific
engine  classes.  Once  certification  for  a specific engine class is obtained,
vehicles incorporating the TurboAir product for the specified engine class would
be  exempt  from  further  EPA  emission  requirements. This certification takes
approximately  $45,000 and six months for each class of engine certified.  There
is  no  assurance  certification  will  be  achieved  once  pursued.

We  are  also  evaluating  limited  production  of  the TurboAir product for the
vehicle  after-market.  Sales to the vehicle after-market would involve sales of
our  TurboAir  product  to  consumers who would then have the units installed on
their  vehicle.  We  believe  that  we  could  manufacture  a  limited number of
TurboAir products from our current facilities with the addition of approximately
five  to  ten  employees.  We  would  require  additional  financing to commence
production  for  the  after-market due to the cost of inventory acquisition, the
costs  of  new  molds,  employee costs and marketing costs.  In order to achieve
this  financing, we have entered into preliminary discussions with several banks
that  may  finance  initial production if we are able to achieve purchase orders
for  our  TurboAir  products.  There  is at present no assurance that we will be
able to secure purchase orders for our TurboAir products for the after-market or
that  we  will  obtain  production  financing  if  purchase orders are obtained.

NEW  PRODUCTS

We  are  continuing  to  develop  new  products  that  are  focused  on  using
electronically  assisted  compressors  to  increase  the operating efficiency of
internal  combustion engines.  We have developed prototypes and have carried out
our  internal  development  work  on  these  products.  We  have also undertaken
preliminary  performance  evaluation and reliability tests.  As discussed above,
we  have submitted two patent applications for technology that we have developed
and  that  is incorporated into our new products.  These new products are in the
preliminary  stages  of  development and are not yet at the stage where we would
seek  commercialization  by  ourselves  or  through  development agreements with
original  equipment  manufacturers.



ADDITIONAL  ELEMENTS  OF  OUR  BUSINESS  STRATEGY

Additional  key  elements  of  our  strategy  include:

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

-    Continuing  our  engineering  efforts  to  further  advance our technology;


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-   Establishing  additional  strategic  relationships  with  OEMs.


COMPETITION

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


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

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

RESEARCH  AND  DEVELOPMENT

We  incurred  research  and development costs in the amount of $4,947,824 during
our  fiscal  year ended December 31, 2002.  We incurred research and development
costs  in  the  amount  of  $3,740,058 during our fiscal year ended December 31,
2001.  These  expenditures included amounts on research and development with the

objective  of  bringing  the  Dynacharger(TM)  and  Turbopac(TM) into full-scale
commercial  production and amounts on account of our research and development of
our  new  TurboAir product.   Approximately 75% of research expenses during 2002
were  attributable  to the TurboAir product, with the balance being attributable
to  the  research  and  development  of  new  products.

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

GOVERNMENT  REGULATION

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

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


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delays  in  product development as a result of more stringent emission standards
would  have  a  material  adverse  affect  on  our  results  of  operations.

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

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

We  are  considering  pursuing  certification  of the TurboAir products with the
United  States  Environmental Protection Agency and the California Environmental
Protection  Agency,  commencing  in  late  2003 or 2004.  Certification would be
pursued  with  respect  to  specific  engine  classes.  Once certification for a
specific  engine  class is obtained, vehicles incorporating the TurboAir product
for  the  specified  engine  class  would  be  exempt  from further EPA emission
requirements.  This certification takes approximately $45,000 and six months for
each  class  of  engine  certified.  There is no assurance certification will be
achieved  once  pursued.

SEGMENT  REPORTING

We are currently only engaged in one business segment, being the development and
sale  of  products  incorporating  our  Turbodyne  and TurboAir technology.  Our
business operations are primarily conducted within the United States at present.
Accordingly,  we  do not report our financial information on separate geographic
segments.

BANKRUPTCY  OF  PACIFIC  BAJA  LIGHT  METALS  CORPORATION

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

There  were  no  remaining assets and liabilities of Pacific Baja as of December
31,  1999.  Capital  leases  with  obligations totaling approximately $4 million
that  we  had  guaranteed  were  assumed  by  the buyer after December 31, 1999.
However,  we  had  guaranteed purchase commitments of Pacific Baja to TST, Inc.,
one  of  Pacific  Baja's  aluminum suppliers, totaling approximately $1,800,000.
These  purchase  commitments  were  not assumed in the bankruptcy sale.  We have
entered  into  a settlement agreement with TST, Inc. whereby we have agreed to a
stipulated  judgment  against  us in respect of our obligation to TST, Inc. as a
guarantor.   See  Item  3.  Legal  Proceedings  -  Litigation Relating to Former
Subsidiary.  We reached an agreement for the settlement of amounts owed by us in
respect  of  a  guarantee  of  the lease obligations of Pacific Baja for certain
premises  in  the  first quarter of 2001.  Under the terms of the settlement, we
paid an amount of $38,000 and agreed to pay a further amount of $38,000 by March
2,  2001,  which  amount  we  have not yet paid.  In addition, we issued 800,000
shares  of  our  common stock and agreed to the grant of warrants to purchase an
additional  200,000 shares of our common stock at a price of $0.25 per share for
a  three  year  term.

There  were  approximately $7,000,000 of unsecured creditor claims that remained
unpaid after completion of the sale of the assets of Pacific Baja.  These claims
remain  unsatisfied  to date.  The Bankruptcy Court


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established  the  Pacific  Baja  Liquidating  Trust  to assert any claims of the
unsecured  creditors.  The  Pacific  Baja  Liquidating  Trust  commenced  legal
proceedings  against  us  and  the  former  directors  and  officers  of each of
Turbodyne  Systems  and Pacific Baja. See Item 3. Legal Proceedings - Litigation
Relating  to  Former  Subsidiary.

EMPLOYEES

As  of  April  9,  2003,  we  had  approximately  seventeen  full-time  employee
equivalent  consultants  and  employees,  comprised  of  the  following:

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

In  addition,  we  had  approximately  one  part-time employee and one part-time
consultant.

RISK  FACTORS

We  face  risks  in  executing  our  business  plan and achieving revenues.  The
following  risks  are  material  risks  that  we  face.  We  also face the risks

identified elsewhere in this Annual Report on Form 10-KSB, including those risks
identified  under  Item  1 - Description of Business, Item 3 - Legal Proceedings
and  Item  6 - Management Discussion and Analysis or Plan of Operations.  If any
of  these  risks  occur,  our  business  and our operating results and financial

condition  could be seriously harmed and we may not be able to continue business
operations  as  a  going  concern.

RISKS  RELATING  TO  OUR  FINANCIAL  CONDITION

THERE  IS  A  SUBSTANTIAL RISK THAT WE WILL NOT BE ABLE TO CONTINUE OUR BUSINESS
OPERATIONS  DUE  TO  OUR  FINANCIAL  CONDITION.

We  had a working capital deficit of $11,903,462 as at December 31, 2002.  As we
are  not  earning revenues, we require substantial amounts of additional capital
in  order  to  continue  business  operations.  We  are seeking additional funds
through  private  placement  offerings  of  our common stock and we are pursuing
development  of  our  technology through joint development agreements. We do not
have  any  arrangements  in  place  for  any  financing.  In addition, if we are
successful  in  achieving  financing,  we anticipate that any financing would be
achieved by sales of additional shares of our common stock.  Sales of additional
shares  of  our  common stock will result in significant dilution to our current
stockholders.   If  we  do not achieve additional financing, we may be forced to
cease  business  operations.

THERE IS SUBSTANTIAL DOUBT AS TO OUR ABILITY TO RAISE ADDITIONAL CAPITAL THROUGH
SALES  OF  OUR  COMMON  STOCK.

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

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


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

We  reported  net  losses  of $9,002,745 and $7,365,220 for the two fiscal years
ended  December  2002  and  2001  respectively. We suffered net losses in recent
years  resulting in an accumulated deficit of $123,592,106 at December 31, 2002,
have used cash in its operating activities in recent years, have disposed of our
most  significant  subsidiary  through  bankruptcy, are subject to lawsuits, and
based  on  our  projected cash flows for the ensuing year we will be required to
seek  additional  equity  or  debt  financing  in  order to continue our present
operations,  irrespective  of the amounts to be paid, if any, in connection with
the  aforementioned  lawsuits.  These  matters raise substantial doubt about our
ability  to  continue  as  a  going  concern.

Our  auditors  have made reference to the substantial doubt about our ability to
continue  as  a  going  concern  in  their audit report on our audited financial
statements  for  the  year  ended  December  31,  2002.

SUBSTANTIALLY  ALL  OF  OUR  HISTORICAL REVENUES WERE DERIVED FROM PACIFIC BAJA,
SUBSTANTIALLY  ALL OF THE ASSETS OF WHICH WERE SOLD IN BANKRUPTCY PROCEEDINGS IN
1999.

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

WE  HAVE  NO  HISTORY  OF  PRODUCT  SALES.

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

RISKS  RELATING  TO  THE  STATUS  OF  OUR  AGREEMENTS  WITH  HONEYWELL

THE  TERMINATION  OF OUR JOINT DEVELOPMENT AND LICENSE AGREEMENTS WITH HONEYWELL
WOULD  HAVE  A  MATERIAL  ADVERSE  EFFECT  ON  OUR  BUSINESS.

Honeywell  has  initiated  arbitration  proceedings  against us to terminate our
license  agreement and joint development agreement with Honeywell as a result of
our  alleged inability to meet our commitments under the agreements.  We contest
Honeywell's  attempts  to terminate the agreements and disagree with Honeywell's
assertions  regarding alleged delinquencies. We are defending Honeywell's claims
in  the arbitration proceedings and have made a counter-claim against Honeywell.
There is no assurance that we will be successful in the arbitration proceedings.
If  Honeywell  is  successful  in  the  arbitration proceedings, then our rights
granted  under  the amended license agreement as a result of Honeywell's failure
to  achieve  production and supply commitments may be defeated, although we will
maintain  that  these rights will survive any termination of the amended license
agreement.

THERE  IS  NO  ASSURANCE  THAT  OUR CLAIMS AGAINST HONEYWELL WILL BE SUCCESSFUL.

We  commenced  federal  anti-trust  legal  proceedings against Honeywell seeking
substantial  damages  as  a  result  of  Honeywell's  conduct  under our license
agreement  and  joint  development  agreement with Honeywell.  We withdrew these
proceedings in 2002 pending completion of the arbitration proceedings.  There is
no  assurance  that we will be successful in prosecuting these legal proceedings
against  Honeywell  if we determine at a later date to proceed with this action.
There  is  also  no  assurance  that  if an award of damages is obtained against
Honeywell,  that  any  award  of damages would be in the range of the damages we
would  be  seeking  in  these  legal  proceedings.


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WE MAY NOT BE ABLE TO CONTINUE IN BUSINESS EVEN IF WE RETAIN OUR AGREEMENTS WITH
HONEYWELL.

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

RISKS  RELATING  TO  ADDITIONAL  LEGAL  PROCEEDINGS

WE  HAVE  BEEN  NAMED  AS  A  DEFENDANT  IN  LEGAL  PROCEEDINGS ARISING FROM THE
BANKRUPTCY  OF  PACIFIC  BAJA.

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

WE  ARE  THE  SUBJECT OF ADDITIONAL LEGAL CLAIMS THAT COULD ADVERSELY IMPACT OUR
ABILITY  TO  CONTINUE  OPERATIONS.

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

RISKS  RELATED  TO  OUR  BUSINESS  STRATEGY

OUR  BUSINESS MAY BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO ACHIEVE MANAGEMENT
STABILITY.

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

OUR  BUSINESS  WILL  NOT  SUCCEED IF WE CANNOT CONVINCE OEM'S TO INCORPORATE OUR
TECHNOLOGY  INTO  THEIR  PRODUCT  LINES.

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


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

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

OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED IF WE ENCOUNTER PROBLEMS AND
DELAYS  IN  COMPLETING  THE DEVELOPMENT OF PRODUCTS INCORPORATING OUR TECHNOLOGY
FOR  COMMERCIALIZATION.

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

FUTURE  REVENUES  DEPEND  ON  OUR  ABILITY  TO  GET  PATENT  PROTECTION  FOR OUR
TECHNOLOGY.

Protection of trade secrets and proprietary know how is critical to our success.
If  our  competitors  independently  develop similar or superior technologies or
gain  access to our trade secrets, our business will be materially and adversely
affected. While we have assigned our patent and trademark rights relating to the
Turbopac(TM)  and  the  Dynacharger(TM)  to  Honeywell,  we have also obtained
license  rights  for  these  patents  under  our  license  agreement with
Honeywell.  Accordingly,  we  depend  on  continued  patent protection for these
products.  We are also pursuing patent protection of new technology that we have
developed  and incorporated into our TurboAir product.  Patent applications have
been  filed  in  the United States and certain foreign jurisdictions relating to
these  products. The patents may not be issued, however, or, if issued, they may
be  modified.  If we are unable to obtain and maintain patent protection for our
technology,  we  may  not be able to gain a competitive advantage or protect our
technology  and  our  business  will  be  adversely  affected.

Application  for  a  patent  offers no assurance that a patent will be issued or
issued  without  material  modification.  Moreover,  we  cannot  assure you that
patents  will  be  issued,  or  that  issued patents will not be circumvented or
invalidated,  that  proprietary information can be maintained as such or that we
will  be  able  to  achieve or maintain a technological advantage.  We may incur
substantial  costs  seeking to enforce our patent rights against infringement or
the  unauthorized  use  of  our proprietary technology by others or in defending
ourselves  against  similar claims of others.  Our trade secrets and proprietary
know-how are critical for us to achieve and maintain a competitive position.  We
cannot  assure you that others may not independently develop similar or superior
technologies  or  gain  access  to  our  trade  secrets  or  know-how.

IF  NEW,  COMMERCIALLY  SUCCESSFUL  TECHNIQUES  SIMILAR  TO  OUR  PRODUCTS  ARE
DEVELOPED,  OUR  POTENTIAL  MARKET  SHARE  WILL  BE  REDUCED.

The  business environment in which we operate is highly competitive. Although we
know of no products that are technologically similar to ours, future competitors
may  develop  related  technologies  that  improve  the  performance of internal
combustion  engines  or  products  that  are  not encompassed by our patents. In
addition,  competitors may be issued patents that inhibit our ability to develop
certain  products.  There  may


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also  be improvements to current technologies that compete with ours. Successful
development  of new techniques may reduce our potential market share or make our
products  less  attractive or obsolete, each of which would adversely affect our
business.  In  addition,  a  relatively small number of OEM's hold a significant
share  of  the automotive market. If any of the OEM's decides not to incorporate
our  products  into  their  product  lines,  our potential market share might be
significantly  reduced.  Our  products  may  not  be  superior  to  existing  or
subsequently  developed  competitive  products  and we may not be able to obtain
significant  market  share  or  be  able  to  adapt  to  evolving  markets  or
technologies.

WE  MUST  KEEP  PACE  WITH  TECHNOLOGICAL  CHANGE  TO  ACHIEVE  SUCCESS.

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

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

INTENSE  COMPETITION.

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

If new techniques are developed and are commercially successful, they may reduce
our  potential  market  share or make products incorporating our technology less
attractive  or  obsolete,  each of which will adversely affect our business.  In
addition,  a  relatively  small  number of OEM's hold a significant share of the
automotive  market  and  the  determination  of  an  OEM  not to incorporate the
TurbopacTM  products  into  its  product  line may force us to expend additional
amounts  to  gain  market share and/or significantly reduce our potential market
share.

RISKS  RELATING  TO  OUR  MARKET

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

Our  common  stock  is  traded on the OTC Bulletin Board and constitutes a penny
stock  under the Securities and Exchange Act.  Our shares 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


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<PAGE>

of  broker-dealers  to  sell our common stock and also may affect the ability of
holders  of  our  common  stock  to  resell  their  shares  of  common  stock.

OUR  STOCK  PRICE  IS  EXTREMELY  VOLATILE.

The  price  of  our common stock has been and may continue to be subject to wide
fluctuations  in response to a number of events and factors, such as 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 no cash dividends are
expected  to  be paid on our common stock in the foreseeable future.  Any future
determination to declare or pay dividends will be at the discretion of the board
of  directors  and  will  be  dependent  on our results of operations, financial
condition,  contractual and legal restrictions and other factors deemed relevant
by  the  board  of  directors.

ITEM 2.     DESCRIPTION  OF  PROPERTY.

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

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

ITEM 3.     LEGAL  PROCEEDINGS.

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.

HONEYWELL  INTERNATIONAL,  INC.

Honeywell  initiated  arbitration  proceedings  with  the  American  Arbitration
Association  in  June  2001  under  our  license agreement and joint development
agreement  with Honeywell.  Honeywell is seeking unspecified damages, attorney's
fees  and  costs,  and  termination  of  the  license  agreement  and  the joint
development agreement based on their allegations that we breached the agreements
and  are  unwilling  and  unable  to  perform  our  future obligations under the
agreements.  We  maintain that we have not breached either of the agreements and
that  Honeywell is not entitled to damages, costs, or termination of the license
agreement  and  the  joint development agreement.  We have filed a counter-claim
alleging  that  Honeywell  is  guilty  of  breach of contract and fraud.  We are
seeking  unspecified  damages,  and  attorney's  fees  and  costs.

The  arbitration  commenced in September 2002 before a three-member panel of the
American Arbitration Association.  At our request, the case has been bi-furcated
in  order  to  try the liability phase first, with damages to be determined once
liability  has  been  assessed, depending on the outcome of the liability phase.
The  arbitration  proceeded  for  approximately  twenty  days  in  September and
December  of  2002.  The  arbitration  resumed  in  March 2003.   Honeywell is
still presenting its case.  We will present our case once Honeywell
has  concluded  its  case.


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We  commenced  an  action against Honeywell in the United States District Court,
Central District of California in August 2001 in which we claimed damages caused
by  alleged  breaches  of  the  Sherman  Act by Honeywell.  We also claimed that
Honeywell  wrongfully  interfered  with our attempts to enter into manufacturing
arrangements  for  components  of the Turbopac and Dynacharger products and that
these  actions  constituted  the  unlawful  restraint  of  trade, an instance of
monopolization or attempted monopolization and unfair competition and constitute
racketeering  activity.  We  determined in the third quarter of 2002 to withdraw
our  law  suit  against  Honeywell  pending  the  outcome  of  the  arbitration
proceedings  with  Honeywell  on  the advice of legal counsel.  We will evaluate
reinstating  these  proceedings  in  the event that we are not successful in the
arbitration  proceedings.

LITIGATION  RELATING  TO  FORMER  SUBSIDIARY

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

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

The  Pacific  Baja  Liquidating  Trust  is  seeking:

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

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

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

4.   damages  and punitive damages against us and certain of our former officers
     and  directors  and  the  former  officers and directors of Pacific Baja in
     excess  of  $12,000,000  based  on  various  allegations  of  fraud,
     misrepresentation,  breach  of  contract,  alter  ego  and  negligence.

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

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

B)     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. However, if it is determined that TST received payment in


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preference  to other creditors before Pacific Baja filed its Chapter 11 petition
in  bankruptcy,  TST  will  likely  increase  its  claim  by  $2,130,000.

We  agreed  on  the terms of settlement with TST on October 4, 2001.  Under the
terms of the settlement  agreement,  we  have  agreed  to:

     (i)  issue  1,000,000  shares  of our common stock to Mr. Andrew Stein, the
          president  of  TST, and we would agree to register the resale of these
          shares  by  Mr.  Stein  by  filing  a  registration statement with the
          Securities  and Exchange Commission. This stock has not been issued to
          date;

     ii)  issue 2,000,000 shares of our common stock to TST. This stock has not
          been  issued  to  date;

   (iii)  the  stipulation for the entry of judgment that will provide for the
          immediate  entry  of  judgment  against us in the amount of $2,068,078
          plus interest form 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;

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

We  have included an amount of $4,560,000 in our reserve for lawsuit settlements
and  accrued  liabilities  on  our consolidated balance sheet as at December 31,
2002  in  regard  to  this  settlement  with  TST.

C)     HEARTLAND  FINANCIAL  CORPORATION

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

Heartland  obtained  an  arbitration  award  against  us  in  the  amount  of
approximately  $535,490.  This  arbitration  award  was  entered  as  a judgment
against  us in the Superior Court of the State of California, City and County of
San  Francisco  in June 2001.  We have entered into a forbearance agreement with
Heartland  whereby  we  agreed  to  pay  $250,000  out  of the proceeds of other
litigation,  which  amount  has been paid, and agreed to assign to Heartland the
proceeds of any arbitration award that is granted in our favour in the Honeywell
arbitration  proceedings,  to  the  extent  required  to satisfy the outstanding
balance  due  on  Heartland's  judgment.  In  exchange,  Heartland has agreed to
forbear  on  any  efforts  to  collect  on  their  judgment  until the Honeywell
arbitration  has  been  finalized.  We  also agreed to take no further action to
attack  or  prevent  enforcement  of  Heartland's  judgment.

CLASS  ACTION  LAW  SUITS

In  January  through  March  of 1999, six purported class action complaints were
filed  against us and certain of our officers and directors in the United States
District  Court  on behalf of individuals claiming that they purchased shares of
our common stock during  the  period  from March 1, 1997 through January
22, 1999.

The plaintiffs alleged that we made misstatements that caused the price of our
common stock to be artificially inflated during the class period.   These
actions  were  tendered  to  our  insurance  carriers  who  appointed counsel to
represent  us.

We  have  reached  a  settlement  agreement  that  has  resulted  in  the  final
disposition  of  these  legal  proceedings.  This  settlement agreement has been
approved  by  the insurance companies involved.  We


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<PAGE>


have signed a stipulation of settlement  with  the legal counsel for the
plaintiffs that sets forth the terms and  conditions  of  this  settlement.
The United States District Court for the Central  District  of  California has
given its final approval to the settlement agreement,  the  judgment of the
court has been entered and the statutory 30 day period  for  appealing  from
the judgment has expired without any appeal having been filed.   Accordingly,
the settlement agreement has now been finalized.  The agreed  terms  of
settlement provide for a stipulated judgment against us in the
amount  of  $7.9  million.  This  judgment  will be satisfied solely through our
director's  and  officer's liability insurance policies.  Our primary and excess
insurers  will  pay  approximately $2.9 million of this amount as a condition of
settlement.  The  balance of $5.0 million will be satisfied from the proceeds of
the  second layer of an excess policy issued by Reliance Insurance Company to be
assigned  to  the  plaintiffs.  The  plaintiff's  case  against  us  and  our
co-defendants  has  been  dismissed.  We  do  not  have any liability beyond the
proceeds from the insurance policies and accordingly we are not required to fund
any  portion  of  the judgment.  The settlement is binding on all class members,
with  the exception of two shareholders representing 14,100 shares who requested
to  be  excluded.

SHEPPARD,  MULLIN,  RICHTER  &  HAMPTON  ("SHEPPARD  MULLIN")

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

Sheppard,  Mullin filed a defence in this legal proceeding denying any liability
to  us.  This  action  was  set  for  trial  in December 2002.   We were able to
resolve  our  legal  proceedings  against  Sheppard,  Mullin,  to  the  mutual
satisfaction  of ourselves and Sheppard Mullin.   A dismissal with prejudice was
filed  in  the  Santa  Barbara  Superior Court in February 2003 pursuant to this
resolution.

LEON  NOWEK

Mr.  Leon  Nowek, one of our former directors and former officer, had threatened
to  take  action  against  us  for an alleged breach of his employment agreement
dated  August  1,  1997,  as  amended  July  27,  1998.  Mr. Nowek claimed to be
entitled  to  payment  of $1,620,000 in respect of alleged breaches by us of the


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<PAGE>

employment  agreement.  An additional amount of $32,511 was claimed by Mr. Nowek
for  reimbursement  of  legal costs incurred by Mr. Nowek in connection with the
SEC investigation and class action lawsuit in which Mr. Nowek was named a party.
We  claimed  against Mr. Nowek in the amount of $225,000 in respect of a housing
loan  that  we  advanced  to  Mr.  Nowek  and  that  had  not  been  repaid.

We concluded a settlement agreement with Mr. Nowek dated effective as of January
29,  2003.  Under  the  terms  of this settlement agreement, Mr. Nowek agreed to
release  us  from  any  liability under the employment agreement and the claimed
reimbursable  exepsnes.  In  exchange  for  this release, we issued to Mr. Nowek
35,675  shares  of  our Series X Preferred Stock at a deemed price of $20.00 per
share  and  released  Mr.  Nowek  from his $225,000 obligation under the housing
loan,  for aggregate consideration of $938,500. Each share of Series X Preferred
Stock is identical to our common stock except that the shares are non-voting and
are  convertible  at  the  option  of  the holder into one hundred shares of our
common  stock.  We  also agreed with Mr. Nowek to the exchange of 900,000 shares
held  by a private company controlled by Mr. Nowek into 9,000 shares of Series X
Preferred  Stock.  The  rationale  for  incorporating  this  exchange  into  the
settlement was to enable us to provide evidence to the BBX Exchange that none of
our  officers  and directors at the time of our NASDAQ delisting has any current
involvement  in  our  business and affairs. Mr. Nowek has agreed not to exercise
his  conversion  rights  to  the  extent that as a result of such conversion Mr.
Nowek  would  own  more  than  0.5%  of  our  outstanding  common  stock.

OTHER  LEGAL  PROCEEDINGS

We  filed  an action in Superior Court of the State of California for the County
of  Santa  Barbara  (Case  No. 01046250) in March 2001 against Wendell Anderson,
Gerhard  Delf,  Sadayappa  K.  Durairaj, Naresh C. Saxena, Mugerdish Balabanian,
Kenneth Fitzpatrick, Alain G. Chardon, Joseph D. Castano and Marsha Chandler. We
determined to abandon this law suit against all defendants, other than Mr. Delf.
Mr.  Delf is one of our former directors and our former chief executive officer.
We  are  seeking  damages  for  alleged  breach of fiduciary duty by Mr. Delf in
connection  with  his handling of our dealings with Sheppard, Mullin, our former
securities  legal  counsel,  that  gave rise to our litigation against Sheppard,
Mullin  and  our  acquisition  of  Pacific  Baja.  Mr.  Delf  has  filed  a
cross-complaint  against  us  for  indemnity  and for compensation alleged to be
payable  by  us  to  Mr. Delf relating to his former position as chief executive
officer.

In  December  2000,  Alain  F. Lombard, one of our former consultants, served us
with  a  demand  for  arbitration.  Mr. Lombard alleged breach of contract.   We
agreed  to  a stipulated judgment against us in the amount of $180,535 in August
2001.  Repayment of this judgment is stipulated at $15,000 per month, commencing
October  2001.  We  completed  the first payment of this stipulated judgment but
did  not complete any further payments.  Mr. Lombard has the right to accelerate
the  unpaid portion of the judgment and enter judgment for the full amount if we
default on our payments to Mr. Lombard.  Mr. Lombard has again commenced working
for  us  as a consultant and has orally agreed not to enforce the judgment until
such  time  as  the  Company  has  sufficient  funds  to  pay  the  judgment.

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


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

No  matters  were submitted to our security holders for a vote during the fourth
quarter  of  our  fiscal  year  ending  December  31,  2002.


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<PAGE>

                                     PART II

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

Turbodyne's  common shares are quoted on the OTC Bulletin Board under the symbol
TRBD  and on the Berlin Stock Exchange under the symbol TUD.  Turbodynes' common
stock  was  traded on the Pink Sheets under the symbol "TRBD" from April 2, 1999
to  May  3,  2002  when  trading  commenced  on  the  OTC  Bulletin  Board.

The  following  table indicates the high and low bid prices of the common shares
during  the  periods  indicated:


                         2001                    2002
                       --------------------------------------------
                         HIGH        LOW         HIGH        LOW

First Quarter          $ 0.46      $ 0.10      $ 0.49      $ 0.22
Second Quarter           0.36        0.105       0.28        0.155
Third Quarter            0.66        0.16        0.33        0.095
Fourth Quarter           0.48        0.175       0.197       0.105

For  the  first  quarter  of  2003,  the high bid price for our common stock was
$0.195  per  share and the low bid price was $0.08 per share.  The source of the
high  and low bid price information since May 3, 2002 is the OTC Bulletin Board.
The  market  quotations  provided  reflect  inter-dealer  prices, without retail
mark-up,  markdown  or  commission  and  may  not represent actual transactions.


REGISTERED  HOLDERS  OF  OUR  COMMON  STOCK

As  of  March 19, 2003, there were approximately 430 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

Turbodyne  completed  the  following  sales  of  securities without registration
pursuant to the Securities Act of 1933 during the fiscal year ended December 31,
2002  that  have  not  been  reported  on its previous Quarterly Reports on Form
10-QSB  during  the  year:

1.     On  September 27, 2002 we completed a private placement with one non-U.S.
investor  of  83,333  units  at  a price of $0.12 per unit for total proceeds of
$10,000.  Each  unit  consists of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.32 for a three year term from the
date  of  closing.  A  total of 83,333 shares and 83,333 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
the  purchaser  is  a non-U.S. person, as defined under Regulation S of the Act.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.


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2.     On  October  15,  2002 we completed a private placement with one non-U.S.
investor  of  20,000  units  at  a price of $0.10 per unit for total proceeds of
$2,000.  Each  unit  consists  of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.20 for a three year term from the
date  of  closing.  A  total of 20,000 shares and 20,000 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.

The  sales  were completed pursuant to Regulation S of the Act on the basis that
the  purchaser  is  a non-U.S. person, as defined under Regulation S of the Act.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

3.     On  October 17, 2002, we completed the sale of 70,000 units at a price of
$0.10 per unit for proceeds of $7,000 to two investors.  Each unit was comprised
of  one  share  of  our  common stock and one share purchase warrant. Each share
purchase  warrant  entitles the holder to purchase one share of our common stock
at  a  price  of $0.20 per share for the three year period following closing.  A
total  of  70,000  shares  and  70,000  share purchase warrants were issued. The
purchasers  consisted  of  two "accredited investors", as defined by Rule 501 of
Regulation D of the Act. No commissions or fees were paid in connection with the
offering.  The  sale  was  completed pursuant to Rule 506 of Regulation D of the
Act.  All  securities  issued were endorsed with a restrictive legend confirming
that  the  securities  cannot be resold without registration under the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

4.     On October 24, 2002, we completed the sale of 1,883,333 shares at a price
of  $0.06  per  share for proceeds of $113,000 to two investors.  The purchasers
consisted  of two "accredited investors", as defined by Rule 501 of Regulation D
of  the  Act.  No commissions or fees were paid in connection with the offering.
The  sale  was  completed  pursuant to Rule 506 of Regulation D of the Act.  All
securities  issued  were  endorsed with a restrictive legend confirming that the
securities  cannot be resold without registration under the Act or an applicable
exemption  from  the  registration  requirements  of  the  Act.

5.     On  November  4,  2002 we completed a private placement with one non-U.S.
investor  of 400,000 shares at a price of $0.06 per share and 50,000 shares at a
price  of $0.055 per share for total proceeds of $26,750. No commissions or fees
were  paid in connection with the offering. The sales were completed pursuant to
Regulation S of the Act on the basis that the purchaser is a non-U.S. person, as
defined under Regulation S of the Act.  All securities issued were endorsed with
a  restrictive  legend  confirming  that the securities cannot be resold without
registration  under  the  Act  or  an applicable exemption from the registration
requirements  of  the  Act.

6.     On  November  4,  2002 we completed a private placement with one non-U.S.
investor  of  312,500  units  at a price of $0.08 per unit for total proceeds of
$25,000.  Each  unit  consists of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.22 for a three year term from the
date  of  closing. A total of 312,500 shares and 312,500 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
the  purchaser  is  a non-U.S. person, as defined under Regulation S of the Act.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

7.     On  November  11, 2002 we completed a private placement with two non-U.S.
investors  of  250,000  units at a price of $0.08 per unit for total proceeds of

$10,000.  Each  unit  consists of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.22 for a three year term from the
date  of  closing. A total of 250,000 shares and 250,000 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
each  of  the  purchasers is a non-U.S. person, as defined under Regulation S of
the  Act.  All  securities  issued  were  endorsed  with  a


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<PAGE>

restrictive  legend  confirming  that  the  securities  cannot be resold without
registration  under  the  Act  or  an applicable exemption from the registration
requirements  of  the  Act.

8.     On  November  12,  2002,  we  completed the sale of 1,000,000 shares at a
price of $0.05 per unit for proceeds of $50,000 to one investor.  No commissions
or  fees  were  paid  in  connection  with  the offering. The sale was completed
pursuant  to  Section  4(2)  of  the  Act  on  the basis that the purchaser is a
sophisticated  purchaser.  The  purchaser  was one of our existing shareholders.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

9.     On  November  14, 2002 we completed a private placement with two non-U.S.
investors  of  150,000  units at a price of $0.10 per unit for total proceeds of
$15,000.  Each  unit  consists of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.26 for a three year term from the
date  of  closing. A total of 150,000 shares and 150,000 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
each  of  the  purchasers is a non-U.S. person, as defined under Regulation S of
the  Act.  All  securities  issued  were  endorsed  with  a  restrictive  legend
confirming  that  the securities cannot be resold without registration under the
Act  or  an  applicable exemption from the registration requirements of the Act.

10.     On  November 15, 2002 we completed a private placement with one non-U.S.
investor  of  90,909  units  at  a price of $0.11 per unit for total proceeds of
$10,000.  Each  unit  consists of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.30 for a three year term from the
date  of  closing.  A  total of 90,909 shares and 90,909 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
the  purchaser  is  a non-U.S. person, as defined under Regulation S of the Act.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

11.     On  November 19, 2002 we completed a private placement with one non-U.S.
investor  of  90,000  units  at  a price of $0.12 per unit for total proceeds of
$9,800.  Each  unit  consists  of one common share and one common share purchase
warrant.  Each  common  share  purchase  warrant  entitles the warrant holder to
purchase  one  common  share  at a price of $0.34 for a three year term from the
date  of  closing.  A  total of 90,000 shares and 90,000 share purchase warrants
were  issued.  No commissions or fees were paid in connection with the offering.
The  sales  were completed pursuant to Regulation S of the Act on the basis that
the  purchaser  is  a non-U.S. person, as defined under Regulation S of the Act.
All  securities  issued  were endorsed with a restrictive legend confirming that
the  securities  cannot  be  resold  without  registration  under  the Act or an
applicable  exemption  from  the  registration  requirements  of  the  Act.

12.     On  November 22, 2002 we completed a private placement with one non-U.S.
investor  of  480,000 shares at a price of $0.05 per share for total proceeds of
$24,000.  No  commissions or fees were paid in connection with the offering. The
sales  were  completed pursuant to Regulation S of the Act on the basis that the
purchaser  is  a  non-U.S. person, as defined under Regulation S of the Act. All
securities  issued  were  endorsed with a restrictive legend confirming that the
securities  cannot be resold without registration under the Act or an applicable
exemption  from  the  registration  requirements  of  the  Act.

13.     On  November  22, 2002, we completed the sale of 25,000 units at a price
of  $0.10  per  unit  for  proceeds  of  $2,500  to one investor.  Each unit was
comprised  of one share of our common stock and one share purchase warrant. Each
share  purchase  warrant entitles the holder to purchase one share of our common
stock at a price of $0.20 per share for the three year period following closing.
A  total  of  25,000  shares and 25,000 share purchase warrants were issued. The


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purchaser is an "accredited investor", as defined by Rule 501 of Regulation D of
the  Act.  No commissions or fees were paid in connection with the offering. The
sale  was  completed  pursuant  to  Rule  506  of  Regulation D of the Act.  All
securities  issued  were  endorsed with a restrictive legend confirming that the
securities  cannot be resold without registration under the Act or an applicable
exemption  from  the  registration  requirements  of  the  Act.

14.     On  December  2, 2002 we completed a private placement with one non-U.S.
investor  of  480,000 shares at a price of $0.05 per share for total proceeds of
$24,000.  No  commissions or fees were paid in connection with the offering. The
sales  were  completed pursuant to Regulation S of the Act on the basis that the
purchaser  is  a  non-U.S. person, as defined under Regulation S of the Act. All
securities  issued  were  endorsed with a restrictive legend confirming that the
securities  cannot be resold without registration under the Act or an applicable
exemption  from  the  registration  requirements  of  the  Act.

15.     On December 6, 2002, we completed the sale of 1,000,000 share at a price
of  $0.06  per share for proceeds of $60,000 to one investor.  No commissions or
fees  were paid in connection with the offering. The sale was completed pursuant
to  Section  4(2)  of the Act on the basis that the purchaser is a sophisticated
purchaser.  The  purchaser  is an accredited investor and is one of our existing
shareholders.  All  securities  issued  were  endorsed with a restrictive legend
confirming  that  the securities cannot be resold without registration under the
Act  or  an  applicable exemption from the registration requirements of the Act.

16.     On  December  12,  2002,  we completed the sale of 1,000,000 shares at a
price  of  $0.05  per  share  for  proceeds  of  $50,000  to  one  investor.  No
commissions  or  fees  were  paid  in connection with the offering. The sale was
completed pursuant to Section 4(2) of the Act on the basis that the purchaser is
a  sophisticated  purchaser.  The purchaser is an accredited investor and is one
of  our  existing  shareholders.  All  securities  issued  were  endorsed with a
restrictive  legend  confirming  that  the  securities  cannot be resold without
registration  under  the  Act  or  an applicable exemption from the registration
requirements  of  the  Act.

17.     On  December 27, 2002 we completed a private placement with one non-U.S.
investor  of  306,000 shares at a price of $0.05 per share for total proceeds of
$15,300.  No  commissions or fees were paid in connection with the offering. The
sales  were  completed pursuant to Regulation S of the Act on the basis that the
purchaser  is  a  non-U.S. person, as defined under Regulation S of the Act. All
securities  issued  were  endorsed with a restrictive legend confirming that the
securities  cannot be resold without registration under the Act or an applicable
exemption  from  the  registration  requirements  of  the  Act.





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<PAGE>

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

OVERVIEW

We  are  currently  in  a transition phase of our business to an engineering and
design business from a business model that originally included manufacturing and
marketing  of products incorporating our technology.   We are presently pursuing
development  agreements  with  original  equipment  manufacturers  for  the
commercialization  of  our  products.   None of our products are currently being
sold  commercially.  Accordingly,  we did not earn any revenues during 2002. Our
operating  results  for  the years ended December 31, 2002 and 2001 also reflect
the  fact  that  Honeywell  is  not proceeding with the commercialization of the
Turbopac  and  Dynacharger  products  and  we are not earning revenues under our
license  agreement  with  Honeywell.

RESULTS  OF  OPERATIONS

YEAR  ENDED  DECEMBER  31,  2002  COMPARED  TO  YEAR  ENDED  DECEMBER  31,  2001

NET  SALES

We  did  not achieve any sales during the year ended December 31, 2002.  Our net
sales  were  $9,470 for the year ended December 31, 2001.  Sales during the year
ended December 31, 2001 consisted entirely of refurbishment of Turbopac products
sold  under our contract with Detroit Diesel Corporation.  Our current inability
to  earn  revenues reflects the fact that (i) our new TurboAir product and other
new  products  remain in the development stage; and (ii) we are not able to earn
any  revenues  pursuant  to our license agreement with Honeywell as Honeywell is
not  completing  any  sales of the Turbopac or Dynacharger products.  There have

been  no  sales of the Turbopac(TM) product by Honeywell since June 2000 and our
Dynacharger  product  remains  in  development.

We  anticipate  that we will earn revenues during fiscal 2003 in connection with
sales  of  prototypes that are designed and manufactured pursuant to development
agreements that we have entered into.  These revenues will not be significant in
relation to our overall operating costs.  We anticipate that we will not be able
to  generate  any significant revenues from sales of the Turbopac or Dynacharger
products  until  we  are  successful  in  entering  into  a  new  license  and
manufacturing arrangement with a new automotive OEM.  We anticipate that we will
not  be  able  to  generate  sales of our TurboAir products until we are able to
enter  into  an  agreement  with an automotive OEM for the final development and
manufacture  of  this  product.

COSTS  OF  SALES

We  did  not  have any costs of sales during the year ended December 31, 2002 in
view  of  the fact that we had no sales. Cost of goods sold, including inventory
write-downs,  were $363,780 for the year ended December 31, 2001.  Cost of goods
sold  in  2001  consisted  exclusively  of inventory write-downs associated with
Turbopac  products.  We  determined to write down our entire remaining inventory
in 2001.  We did not incur any costs of goods sold for 2001 other than inventory
write-downs due to the fact that we did not engage in any manufacturing activity
during  that  year.

We  did  not engage in any manufacturing activity during the year ended December
31, 2002 and we anticipate that we will not undertake any manufacturing activity
during  2003,  other  than  manufacturing  of  prototypes  for  evaluation  and
demonstration  purposes.  Our  policy  regarding  revenue  recognition  is  to
recognize  revenue  upon  shipment of our products.  As no products were shipped
during  2002,  no  revenues  were  recognized.


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<PAGE>

GROSS  PROFIT

Gross  profit  was  nil  for the year ended December 31, 2002, compared to gross
loss  of  $354,310 for the year ended December 31, 2001.    Our gross profit for
2002 reflects our lack of revenues and the fact that we were not engaged
in  any  manufacturing activities during this period.  Our gross profit for 2001
reflected  our  minimal  revenues, our cessation of manufacturing activities and
our  inventory  write-downs.

SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

Selling,  general  and  administrative  expenses for the year ended December 31,
2002  decreased  to  $1,236,957  from $2,226,966 for the year ended December 31,
2001,  representing  a  decrease  of  $990,009  or  44.5%.   The decrease in our
selling,  general  and  administrative  expenses  was  attributable  to  our
determination  in 2001 to scale back our business operations to reflect our lack
of  financing and reduced marketing requirements as a result of the fact that we
were  no  longer  directly  marketing  the  Turbopac  and  Dynacharger products.
General  and  administrative  costs  included  expenses  associated  with  our
Carpinteria,  California  office,  our European office, management compensation,
administrative  staff and overhead.  Selling expenses were minimal as we did not
undertake  any  marketing  efforts  with respect to the Turbopac and Dynacharger
products  in 2002 or 2001 as these products were governed by our agreements with
Honeywell.  Our  European  office  was  closed  in  the  second quarter of 2002.

RESEARCH  AND  DEVELOPMENT

Research and development costs for the year ended December 31, 2002 increased to
$4,947,824 from $3,740,058 for the year ended December 31, 2001, representing an
increase  of  $1,207,766  or  approximately 32.2%.  Our research and development
activities  during  the  year  ended December 31, 2002 did not include any joint
research  and  development  with Honeywell and involved primarily developing and
testing  prototypes of our TurboAir products.  Approximately 25% of our research
and  development  expenses  for  2002  were  attributable  to  our  research and
development  of  new  products  which  have yet to reach the stage where we have
determined  to  pursue  development  agreements  with  original  equipment
manufacturers.  Our research and development costs related to present and future
products  are  charged  to  operations  in  the  year  incurred.   Research  and
development  costs  for  the  year  ended  December  31,  2001  included  our
participation  in  our  joint development agreement with Honeywell for the first
six  months  of  2001.  This  joint  research and development with Honeywell was
terminated  on  June  28,  2001.   Current  research  and  development costs are
associated  with  our  development  of  our  TurboAir products and new products.

COMPENSATION  EXPENSE

We  increased  our  reliance  on  stock  based compensation in order to fund our
operations  during  2002  due  to  our  limited ability to raise funds for these
activities  through sales of our equity securities or from revenues generated by
operations.   Stock  based  compensation was used primarily to fund our research
and  development  activities.  Stock based compensation included in research and
development  expenses  was  $2,029,160  for  the  year  ended December 31, 2002,
equaling  41.0% of total research and development expenses, compared to
 $1,528,718 for  the  year  ended  December  31,  2001, equaling 40.9% of total
 research and development  expenses.  We anticipate that we will continue to
fund our research and  development expenses using stock based compensation
payable to our research and development employees and consultants during 2003.
Stock based compensation included  in  selling,  general and administrative
expenses was $507,292 for the year  ended  December  31,  2002,  equaling 41.0%
of  selling,  general  and administrative  expenses,  compared  to $1,852,179
 for  the year ended December 31, 2002,  equaling  83.2%  of  total  selling,
general  and administrative expenses.

During 2002, we granted options to purchase 5,857,143 shares of our common stock
to various consultants associated with marketing, legal and related matters that
we deemed essential to our operations, compared to options to purchase 5,389,566
shares  granted  in  2001. As a result, we recognized $1,470,930 of non-employee
compensation  expense  during  the  year  ended  December  31,  2002 compared to
$1,117,097  during  the  year ended December 31, 2001.  From time to time we may
grant a significant number of options to purchase common stock to non-employees.


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<PAGE>

We recognize compensation expense in accordance with Accounting Principles Board
Opinion No. 25.   Generally, under APB No. 25 compensation expense is recognized
for  the  difference  between  the  market price of the underlying stock and the
exercise  price  of  the  stock options.  This method of accounting is different
from  the  fair  value  method of accounting that is prescribed by SFAS No. 123.
Had  we  adopted  the  fair  value  method  of accounting, our total stock-based
compensation  expense would have increased to $1,777,830 from $1,470,930 and our
loss would have increased from $9,002,745, or $0.09 per share, to $9,309,645, or
$0.10  per  share.  This pro forma information is disclosed in further detail in
Note  8 to our financial statements and in the Summary of Significant Accounting
Policies  included  in  our  financial statements under the heading "Stock-Based
Compensation".

LITIGATION  EXPENSE

We  incurred  expenses related to litigation in the amount of $2,576,217 for the
year  ended  December  31, 2002 compared to $885,058 for the year ended December
31,  2001,  representing  an  increase  of  $1,691,159  or  191%. Our litigation
expenses  are attributable to our involvement in the legal proceedings described
in  Item 3 of Part I of this Annual Report on Form 10- KSB. The most significant
component  of our litigation expense during 2002 was legal expenses attributable
to  our litigation with Honeywell. Litigation expenses increased overall in 2002
due  to  an  increase  in  activity  in  our legal proceedings, specifically the
commencement  of  the  Honeywell arbitration proceedings. Litigation expenses in
2003  are  anticipated  to  consist  primarily of legal expenses relating to the
pending  arbitration  proceedings  in the Honeywell dispute. We believe that our
resolution  of  the Sheppard Mullin law suit, the class action law suits and the
Nowek claim and our forbearance agreement with Heartland Financial, as described
in  Item  3  of  Part I of this Annual Report on Form 10-KSB, will contribute to
lower  litigation  expenses  in  2003  compared  to  2002  and  2001.

NET  LOSS

Our net loss for the year ended December 31, 2002 increased to $9,002,745 from a
net  loss  of  $7,365,220  for the year ended December 31, 2001, representing an
increase  of  $1,637,525  or  22.2%.  The  increase  to  our net loss was
primarily reflective  of  the increase to our total operating expenses in 2002
compared to 2001,  as  discussed  above.

LIQUIDITY  AND  CAPITAL  RESOURCES

CASH  AND  WORKING  CAPITAL

We  had  cash of $137,517 as at December 31, 2002, compared with cash of $20,257
as  at  December 31, 2001.  Our working capital deficit increased to $12,904,380
as  at December 31, 2002, compared to a working capital deficit of $9,328,295 as
at  December  31,  2001.

LIABILITIES

The  largest  component  of our working capital deficit is a reserve for lawsuit
settlements  in  the  amount  of $4,309,909 as at December 31, 2002, compared to
$6,169,238  as  at  December  31,  2001.

Our  accounts  payable and accrued liabilities both increased during 2002 due to
our  inability  to generate revenues and our limited ability to raise capital to
fund  our  operations.   Accounts payable increased to $3,442,541 as at December
31, 2002 from $2,751,769 as at December 31, 2001.  Accrued liabilities increased
to $5,061,515 as at December 31, 2002 from $354,474 as at December 31, 2001.  We
have  continued during 2002 and are continuing during 2003 to negotiate with our
creditors  for  the  payment  of  our  accounts payable and accrued liabilities.
Payment  of  these  liabilities is contingent on new funding being received that
would  enable  us to make payment to the creditors.  Our ability to continue our
operations  is  also  conditional  upon  the  forbearance  of  our  creditors.

We  arranged  for  short  term  loans from shareholders and other parties in the
amount  of  $169,055  during  the year ended December 31, 2002.  These loans are
unsecured,  non-interest  bearing  advances that we


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<PAGE>

anticipate  will be converted into shares of our common stock and share purchase
warrants.  These  loans  have  not  been  converted  to  date.

CASH  USED  IN  OPERATING  ACTIVITIES

Cash  used  in  operating  activities  for  the year ended December 31, 2002 was
$3,051,691,  compared  to  $2,202,546  for  the  year  ended  December 31, 2001,
representing  an  increase  of  $849,145 or 38.6%.  The increase in cash used in
operating  activities  necessitated that we increase our financing activities in
order  to  fund  our  operations.

CASH  PROVIDED  BY  FINANCING  ACTIVITIES

We  financed  our  business  operations  during  2002  primarily through private
placement  sales  of  our  common  stock, exercises of stock options, short term
loans, conversion of accrued liabilities into stock and through increases in our
accrued  liabilities  and  accounts  payable.   Cash  provided  by  financing
activities  for  the  year  ended  December 31, 2002 was $3,185,176, compared to
$2,213,319  for  the  year  ended  December  31,  2001.

Financing  activities  included  the issuance of common stock and share purchase
warrants for aggregate proceeds of $2,594,151 during the year ended December 31,
2002,  compared  to  $1,909,622 for the year ended December 31, 2001.  We raised
$2,594,151  in 2002 in private placement transactions that included the issue of
an  aggregate  of  21,832,459  shares  of  our common stock and associated share
purchase  warrants, representing an average price of $0.119 per share. We raised
$1,909,622  in 2001 in private placement transactions that included the issue of
an  aggregate  of  11,930,528  shares  of  our common stock and associated share
purchase  warrants, representing an average price of $0.160 per share. The price
at  which  we completed private placements during 2002 declined from 2001 due to
the  overall  decline  in  the  market  price  of  our  common  stock.

We  received  loans  of $169,055 during the year ended December 31, 2002, all of
which  were  outstanding  as  of December 31, 2002.  These amounts were received
from  shareholders and other parties and we anticipate these liabilities will be
converted  into  common  stock  and  share  purchase  warrants.

We raised $555,714 during the year ended December 31, 2002 by the issuance of an
aggregate  of  5,377,143  shares  pursuant  to  exercise of stock options by our
employees  and  consultants.  We  raised $465,338 during the year ended December
31,  2001  by  the  issuance  of  an  aggregate  of 3,874,566 shares pursuant to
exercise  of  stock options by our employees and consultants.  All shares issued
pursuant  to stock option exercises in 2002 and 2001 were registered on Form S-8
registration  statements  that  we  filed  with  the  Securities  and  Exchange
Commission.

FINANCING  REQUIREMENTS

We  are  continuing  with a restructuring program that began in 1999 in order to
reduce  our  working  capital  requirements.  This  restructuring  program  has
included  the  reduction  of  debts,  settlement  of  lawsuits, closing offices,
efforts  to  sublet  unused space at our headquarters, staff reduction and staff
attrition,  disposal  of  unnecessary  assets  and  overall attempts at reducing
operating  costs.  In  addition  we  focused  our  resources  on  research  and
development  of  our  products  incorporating our proprietary technology, rather
than  manufacture  of  our  developed  products.

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

We  will  require  additional financing if we are to continue as a going concern
and  to  finance  our  business  operations.  We  anticipate that any additional
financing  would  be  through  the  sales  of  our  common or preferred stock or
placement  of  convertible  debt. We are presently in the process of negotiating
private


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<PAGE>

placements of our securities to raise working capital to finance our operations.
However,  we  do  not  have any arrangements in place for the sale of any of our
securities  and  there  is  no  assurance  that  we  will  be  able to raise the
additional  capital that we require to continue operations. In the event that we
are  unable  to raise additional financing on acceptable terms, then we may have
to  scale  back our plan of operations and operating expenditures. We anticipate
that  we  will  continue  to incur losses until such time as the revenues we are
able  to  generate from licensing of our products exceed our increased operating
expenses. We base this expectation in part on the expectation that we will incur
increased  operating  expenses  in  completing our stated plan of operations and
there is no assurance that we will generate revenues that exceed these expenses.

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 believe our most critical accounting policies
include stock-based compensation, revenue recognition and legal contingencies as
explained  below:

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 $123,592,106 at December 31, 2002, have used cash in our
operating  activities  in  recent periods, have disposed of our most significant
subsidiary  through  bankruptcy,  are  subject to lawsuits brought against us by
shareholders  and  other  parties, and based on our projected cash flows for the
ensuing year, we will be required to seek additional equity or debt financing in
order  to  continue  our  present  operations, irrespective of the amounts to be
paid,  if  any,  in  connection with the aforementioned lawsuits.  These matters
raise  substantial  doubt  about  our  ability  to  continue as a going concern.

STOCK  BASED  COMPENSATION

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

REVENUE  RECOGNITION


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<PAGE>

Our  revenues in 2001 related to refurbishment of previously sold product to one
customer  and  is  recognized  upon completion of service.  We recognize revenue
upon  shipment  of  product.  We  had  sales  of DynachargerTM prototypes to one
significant  customer  constituting  approximately  100%  of  net sales in 2000,
although  there have been no new orders for TurbopacTM products since June 2000.

LEGAL  CONTINGENCIES

We  are currently involved in legal proceedings regarding shareholder litigation
and  other  general  legal  proceedings.  As  discussed in Notes 7 and 12 of our
consolidated  financial  statements,  where appropriate, we have accrued amounts
which  we  believe  we will be required to pay to settle litigation.  We believe
that  the  other  lawsuits will be settled in our favor or are without merit and
intend  to  defend  against them vigorously. We do not believe these proceedings
will  have  a material adverse effect in our consolidated financial position. It
is  possible,  however,  that  future  results  of operations for any particular
quarterly  or  annual  period  could  be  materially  affected by changes in our
assumptions,  or  the  effectiveness  of  our  strategies,  related  to  these
proceedings.

NEW  ACCOUNTING  PRONOUNCEMENTS


In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145,  "Rescission  of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13
and  Technical  Corrections  ("SFAS  No. 145"). Among other things, SFAS No. 145
requires  any  gain  or  loss  on early extinguishment of debt to be included in
income  from  continuing  operations  instead  of  being  classified  as  an
extraordinary  item.  SFAS No. 145 is effective for fiscal years beginning after
May  15,  2002.

SFAS  No.  146,  "Accounting  for  Costs  Associated  with  Exit  or  Disposal
Activities", provides guidance on the recognition and measurement of liabilities
for  costs  associated with exit or disposal activities.  The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December  31,  2002.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements  for  Guarantees,  Including Indirect Guarantees of Indebtedness of
Others",  which  addresses  the  accounting  for  and  disclosure of guarantees.
Interpretation  45  requires  a  guarantor to recognize a liability for the fair
value of a guarantee at inception.  The recognition of the liability is required
even  if  it is not probable that payments will be required under the guarantee.
The  disclosure  requirements  are  effective  for  interim and annual financial
statements  ending  after  December  15,  2002.  The  initial  recognition  and
measurement  provisions  are  effective  for  all guarantees within the scope of
Interpretation  45  issued  or  modified  after  December  31,  2002.

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

The  Company will adopt these standards effective for its fiscal year commencing
January  1,  2003.  Such  adoption  is  not  expected  to  affect  the Company's
financial statements in respect of historical transactions.  Future acquisitions
are  required  to  adhere  to  these  new  standards.


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<PAGE>

ITEM 7.     FINANCIAL  STATEMENTS.


Included  with  this  Annual  Report  on  Form  10-KSB are our audited financial
statements  for  the  years  ended  December  31,  2002  and 2001, including the
following:

1.   Independent  Auditors'  Report  of  BDO  Dunwoody;

2.   Consolidated  Balance Sheets as at December 31, 2002 and December 31, 2001.

3.   Consolidated Statements of Operations for the years ended December 31, 2002
     and  2001.

4.   Consolidated Statements of Capital Deficit for the years ended December 31,
     2002  and  2001.

5.   Consolidated Statements of Cash Flows for the years ended December 31, 2002
     and  2001.

6.   Summary  of  Significant  Accounting  Policies.

7.   Notes  to  the  Consolidated  Financial  Statements


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

Disclosure regarding the Company's change of independent accountant from McGowan
Guntermann  to  BDO  Dunwoody  LLP  effective  March 6, 2002 has been previously
reported  on  the Company's Current Report on Form 8-K filed with the Securities
and  Exchange  Commission  on  March 13, 2002 and the Company's Annual Report on
Form  10-KSB  filed  with  the  SEC  on  April  29,  2002.



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<PAGE>





          Turbodyne  Technologies,  Inc  and  Subsidiaries
          Consolidated  Financial  Statements
          For  the  years  ended  December  31,  2002  and  2001







<PAGE>




          Turbodyne  Technologies,  Inc  and  Subsidiaries
          Consolidated  Financial  Statements
          For  the  years  ended  December  31,  2002  and  2001




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


Independent  Auditors'  Report

Consolidated  Financial  Statements

     Balance  Sheets

     Statements  of  Operations

     Statements  of  Capital  Deficit

     Statements  of  Cash  Flows

     Summary  of  Significant  Accounting  Policies

     Notes  to  the  Financial  Statements




<PAGE>


BDO           BDO DUNWOODY LLP                    600 Park Place
---           Chartered Accountants               666 Burrard Street
                                                  Vancouver, BC, Canada  V6C 2X8
                                                  Telephone: (604) 688-5421
                                                  Telefax: (604) 688-5132
                                                  E-mail: vancouver@bdo.ca
                                                  www.bdo.ca





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

                                                    Independent Auditors' Report

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

The  Board  of  Directors  and  Stockholders  of
Turbodyne  Technologies,  Inc.

We  have audited the Consolidated Balance Sheets of Turbodyne Technologies, Inc.
and  subsidiaries  as at December 31, 2002 and 2001 and the related Consolidated
Statements  of  Operations,  Capital  Deficit  and Cash Flows for the years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
consolidated  financial  statements  based  on  our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the consolidated financial statements are
free  of  material  misstatement.  An audit includes examining, on a test basis,
evidence  supporting the amounts and disclosures in the financial statements. An
audit  also  includes  assessing  the accounting principles used and significant
estimates  made  by  management,  as  well  as  evaluating the overall financial
statement  presentation.  We  believe that our audits provide a reasonable basis
for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  Turbodyne
Technologies,  Inc.  and  subsidiaries  at  December  31,  2002 and 2001 and the
results  of  its  operations  and  its  cash  flows  for the years then ended in
conformity  with  accounting principles generally accepted in the United States.

The  accompanying  consolidated financial statements have been prepared assuming
the Company will continue as a going concern.  As more fully discussed in Note 1
to  the  consolidated financial statements, the Company has incurred significant
losses  in  recent years, has an accumulated deficit of $123,592,106 and a total
capital  deficit  of  $11,903,462  at December 31, 2002. It has used most of its
available  cash  in  its  operating activities in recent years and is subject to
numerous  lawsuits  brought  against  it  by  other  parties,  and  based on the
Company's  projected  cash  flows  for the ensuring year, it will be required to
seek  additional  equity  or  debt  financing  in  order to continue its present
operations,  irrespective  of the amounts to be paid, if any, in connection with
the  aforementioned  lawsuits.  These  matters raise substantial doubt about the
Company's  ability  to continue as a going concern.  Management's plans in these
regards  are  also discussed in Note 1 to the consolidated financial statements.
The  aforementioned  consolidated  financial  statements  do  not  include  any
adjustments  that  might  result  from  the  outcome  of  these  uncertainties.

/s/ BDO Dunwoody LLP

Chartered Accountants

Vancouver, British Columbia
February 28, 2003



<PAGE>



                                   Turbodyne Technologies, Inc. and Subsidiaries
                                                     Consolidated Balance Sheets



December 31                                            2002            2001
-----------------------------------------------------------------------------
Assets

Current
  Cash                                         $     137,517   $      20,257
  Prepaid expenses and other
   current assets                                     14,194               -
                                               ------------------------------
  Total current assets                               151,711          20,257

Property and equipment (Note 2)                      168,918         210,550
Licenses (Note 9(e))                                 832,000       1,040,000
                                               ------------------------------
Total Assets                                   $   1,152,629   $   1,270,807
=============================================================================

Liabilities and Capital Deficit

Liabilities

Current
  Term debts (Note 3)                          $      73,071   $      73,071
  Accounts payable (Note 4)                        3,442,541       2,751,769
  Accrued liabilities                              5,061,515         354,474
  Provision for lawsuit settlements
   (Notes 7 and 11)                                4,309,909       6,169,238
  Loans payable (Note 5)                             169,055               -
                                               ------------------------------
    Total current liabilities                     13,056,091       9,348,552
                                               ------------------------------

Capital Deficit
  Share Capital
    Authorized
          1,000,000 preferred shares,
            par value $0.001
        150,000,000 (2001 - 100,000,000)
            common shares, par value $0.001
    Issued
        115,620,517 common shares in
          2001 (2001 - 84,036,915)                   115,621          84,037
  Treasury stock, at cost (378,580 shares)        (1,907,612)     (1,755,534)
  Additional paid-in capital                     113,445,516     108,147,994
  Other comprehensive income -
    Foreign exchange translation gain                 35,119          35,119
  Accumulated deficit                           (123,592,106)   (114,589,361)
                                               ------------------------------

    Total capital deficit                        (11,903,462)     (8,077,745)
                                               ------------------------------

Total Liabilities and Capital Deficit          $   1,152,629   $   1,270,807
=============================================================================


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


<PAGE>


                                   Turbodyne Technologies, Inc. and Subsidiaries
                                           Consolidated Statements of Operations


For the years ended December 31                      2002          2001
---------------------------------------------------------------------------

Net sales                                        $         -   $     9,470
Cost of sales, including inventory write-downs             -       363,780
                                                 --------------------------
  Gross profit (loss)                                      -      (354,310)
                                                 --------------------------

Expenses
  Selling, general and administrative
   (Notes 7, 8 and 9)                              1,236,957     2,226,966
  Research and developments costs
   (Notes 8 and 9)                                 4,947,824     3,740,058
  Litigation expense (Notes 7, 9 11
   and  12)                                        2,576,217       885,058
  Depreciation and amortization                      265,857       150,745
                                                 --------------------------
    Total operating expenses                       9,026,855     7,002,827
                                                 --------------------------
Loss from operations                              (9,026,855)   (7,357,137)

Other income (expense)
  Miscellaneous income                                35,355             -
  Interest expense, net                               (7,245)      (21,778)
  Gain on disposal of assets                               -        17,695
                                                 --------------------------
Loss before income taxes                          (8,998,745)   (7,361,220)

Income tax expense (Note 6)                           (4,000)       (4,000)
                                                 --------------------------
Net loss for the year                            $(9,002,745)  $(7,365,220)
===========================================================================

Loss per common share - basic and diluted        $     (0.09)  $     (0.11)
===========================================================================

Weighted average shares used for
 basic and diluted loss per share                 95,855,458    69,351,716
===========================================================================


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


<PAGE>

<TABLE>
<CAPTION>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Consolidated Statements of Capital Deficit



                                     Common Stock            Treasury Stock
                              -------------------------------------------------
                                Shares        Amount       Shares       Amount
                              ----------------------------------------------------
<S>                           <C>          <C>           <C>         <C>
Balance,
January 1, 2001                58,151,821  $    58,152     378,580   $(1,755,534)

Exercise of stock
 options (Note 8)               3,874,566        3,875           -             -

Private placements of
 common stock (Note 9)         11,930,528       11,930           -             -

Issuance of stock for
 services (Note 9)              3,780,000        3,780           -             -

Issuance of stock recorded
 as compensation (Note 9)       3,500,000        3,500

Issuance of stock and
 warrants for licenses
 (Note 9)                       2,000,000        2,000           -             -

Issuance of stock and
 warrants for settlement
 of a guarantee (Note 9)          800,000          800           -             -

Issuance of stock options
 to non-employees for
 services (Note 8)                      -            -           -             -

Net loss for the year                   -            -           -             -
                              ----------------------------------------------------

Balance, December 31, 2001     84,036,915       84,037     378,580    (1,755,534)

Exercise of stock
 options (Note 8)               5,377,143        5,377           -             -

Private placements
 of common stock               21,832,459       21,833           -             -

Issuance of stock
 for services (Note 9)          4,374,000        4,374           -             -

Issuance of stock options
 to non-employees for
 services (Note 8)                      -            -           -             -

Inception of Turbodyne
 Technologies Inc.
 (Nevada Company) on
 August 15, 2002 (Note 9)               1            1           -             -

Adjustment for reverse
 acquisition of Turbodyne
 Technologies, Inc. (Nevada
 Company) on September 12, 2002        (1)          (1)          -             -

Obligation to acquire
 Company shares (Note 9)                -            -           -      (152,078)

Liability for settlement of
 equity instruments (Note 9)            -            -           -             -

Net loss for the year                   -            -           -             -
                              ----------------------------------------------------

Balance, December 31, 2002    115,620,517  $   115,621     378,580   $(1,907,612)
==================================================================================


                                Additional       Other
                                 Paid-in     Comprehensive   Accumulated      Capital
                                 Capital        Income         Deficit        Deficit
                              ----------------------------------------------------------
<S>                           <C>           <C>             <C>            <C>
Balance,
January 1, 2001               $101,126,022  $     35,119    $(107,224,141) $ (7,760,382)

Exercise of stock
 options (Note 8)                  461,463             -                -       465,338

Private placements of
 common stock (Note 9)           1,897,692             -                -     1,909,622

Issuance of stock for
 services (Note 9)                 790,020             -                -       793,800

Issuance of stock recorded
 as compensation (Note 9)        1,466,500             -                -     1,470,000

Issuance of stock and
 warrants for licenses
 (Note 9)                        1,038,000             -                -     1,040,000

Issuance of stock and
 warrants for settlement
 of a guarantee (Note 9)           251,200             -                -       252,000

Issuance of stock options
 to non-employees for
 services (Note 8)               1,117,097             -                -     1,117,097

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

Balance, December 31, 2001     108,147,994        35,119     (114,589,361)   (8,077,745)

Exercise of stock
 options (Note 8)                  550,337             -                        555,714

Private placements
 of common stock                 2,572,318             -                      2,594,151

Issuance of stock
 for services (Note 9)           1,061,156             -                      1,065,530

Issuance of stock options
 to non-employees for
 services (Note 8)               1,470,930             -                      1,470,930

Inception of Turbodyne
 Technologies Inc.
 (Nevada Company) on
 August 15, 2002 (Note 9)                -             -                -             1

Adjustment for reverse
 acquisition of Turbodyne
 Technologies, Inc. (Nevada
 Company) on September 12, 2002          -             -                -            (1)

Obligation to acquire
 Company shares (Note 9)                 -             -                -      (152,078)

Liability for settlement of
 equity instruments (Note 9)      (357,219)            -                -      (357,219)

Net loss for the year                    -             -       (9,002,745)   (9,002,745)
                              ----------------------------------------------------------

Balance, December 31, 2002    $113,445,516  $     35,119    $(123,592,106) $(11,903,462)
========================================================================================

</TABLE>


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


<PAGE>

<TABLE>
<CAPTION>

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


For the years ended December 31                    2002          2001
-------------------------------------------------------------------------
<S>                                            <C>           <C>
Cash provided by (used in)
Operating activities
  Net loss for the year                        $(9,002,745)  $(7,365,220)
  Adjustments to reconcile net
   loss to net
  cash used in operating activities:
    Depreciation and amortization                  265,857       150,745
    Writedown of inventory assets                        -       363,780
    Gain on sale of assets                               -       (17,695)
    Stock option compensation                    1,470,930     1,117,097
    Stock issued for services                    1,065,530       793,800
    Issuance of stock recorded
     as compensation                                     -     1,470,000
    Stock and warrants issued
     on settlement of
      a guarantee                                        -       252,000
  (Increase) decrease in operating assets
    Trade accounts receivable                            -       334,209
    Prepaid expenses and other
     current assets                                (14,194)       13,279
    Other assets                                         -        37,793
  Increase in operating liabilities
    Accounts payable                               690,772       101,080
    Accrued liabilities and provision
     for lawsuit
      settlements                                2,472,159       546,586
                                               --------------------------
                                                (3,051,691)   (2,202,546)
                                               ==========================
Investing activities
  Purchase of property and equipment               (16,225)       (8,211)
  Proceeds from sale of property,
   plant and equipment                                   -        17,695
                                               --------------------------
                                                   (16,225)        9,484
                                               ==========================
Financing activities
  Net proceeds from loans payable
   and short-term
    Borrowings                                     169,055             -
  Repayment of bank overdraft                            -       (65,366)
  Repayments under term borrowings                       -       (96,275)
  Issuance of common stock                       2,594,151     1,909,622
  Proceeds from exercise of stock options          555,714       465,338
  Purchase of treasury stock                      (133,744)            -
                                               --------------------------
                                                 3,185,176     2,213,319
                                               --------------------------
Net increase in cash                               117,260        20,257
Cash, beginning of year                             20,257             -
                                               --------------------------
Cash, end of year                              $   137,517   $    20,257
                                               ------------  ------------
================================================================================
Supplementary disclosure of cash
 flow information
  Cash paid during the year
    Interest                                   $         -   $         -
    Income taxes                               $     4,000   $     4,000
Supplementary disclosure of non-cash
 investing and financing activities:
  Stock option compensation
   (Notes 8 and 9)                             $ 1,470,930   $ 1,117,097
  Stock issued for services (Note 9)           $ 1,065,530   $   793,800
  Accrued liability for repurchase of shares   $    18,334   $         -
  Liability for settlement of equity
   instruments (Note 9)                        $   357,219   $         -
  Issuance of stock recorded as
   compensation (Note 9)                       $         -   $ 1,470,000
  Stock and warrants issued for
   licenses (Note 9)                           $         -   $ 1,040,000
  Stock and warrants issued on
   settlement of a
    guarantee (Note 9)                         $         -   $   252,000
================================================================================

</TABLE>


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


<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001

Nature  of Business

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

The  Company  has  not  generated  significant revenues from its operations that
develop engine enhancement products. The Company anticipates that future revenue
from  these  operations  will  come  from  license and royalty fees, not product
sales.

Through  a wholly owned subsidiary, the Company previously manufactured aluminum
cast  automotive  products, including engine and vehicle components, chassis and
specialty  wheels.  This  subsidiary  also  manufactured  all  of the engineered
aluminum components for the Turbodyne Products. This wholly owned subsidiary was
sold  by  order  of  the  Bankruptcy  Court  on  December  23,  1999  (Note 11).

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

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

Depreciation  and  Amortization

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

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

Licenses  are recorded at cost and are being amortized at $208,000 per year over
their  estimated  useful life, which is estimated to be five years in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other  Intangible  Assets".

<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001
--------------------------------------------------------------------------------

Valuation  of Long-Lived Assets

The  Company  recognized 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. It requires that those 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.  The statement is applied prospectively. No impairment
was  required  to  be  recognized  during  2002  and  2001.

Recognition  of  Revenue, Significant Customers and Concentration of Credit Risk

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

Earnings (Loss) Per Share

Loss  per  share  is  computed  in  accordance  with SFAS No. 128, "Earnings Per
Share". Basic loss per share is calculated by dividing the net 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. Basic and diluted loss per share are the same for
the  years  presented.

For the years ended December 31, 2002 and 2001, options and warrants to purchase
36,557,751  and  19,797,413  common shares were outstanding during the years but
were  not  included in the computation of diluted earnings per share because the
options  would  have  an  antidilutive  effect  on  net loss per share. No other
adjustments  were  made  for  purposes  of per share calculations. Fair Value of
Financial  Instruments  The  fair  values  of  the  Company's  cash, term debts,
accounts  payable,  accrued  liabilities  and  loans  payable  approximate their
carrying  values  because  of  the  short-term  maturities of these instruments.

<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001
--------------------------------------------------------------------------------


Stock-Based  Compensation

The  Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
and  has  elected  to  continue to measure compensation cost for employees under
Accounting  Principles  Board  ("APB") Opinion No. 25, including interpretations
provided  in  Interpretation  ("FIN")  No.  44.  Generally,  under  APB  No.  25
compensation  expense  is recognized for the difference between the market price
of  the  underlying  common  stock  and the exercise price of the stock options.

In  accordance  with  FIN  44,  a change in status of the optionee creates a new
measurement  date and compensation costs shall be measured under the appropriate
method  of  accounting  as  if  the  outstanding award was granted on that date.
However,  no  adjustment is made to compensation expense recognized prior to the
change  in  status of the optionee when there is no modification to the terms of
the  options  or  awards.

SFAS No. 123 requires the Company to provide pro-forma information regarding net
income  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. The value of stock options granted to non-employees
is  recognized  in these financial statements as compensation expense under SFAS
No.  123  using  the  Black-Scholes  option  pricing  model.

The  Company  does  not  plan  to  adopt the fair value method of accounting for
stock-based  compensation  awarded to employees. Consequently, related pro-forma
information  as  described  in  SFAS  No.  123  has  been  disclosed  in Note 8.

                                              Years  Ended
                                              December  31
                                          2002              2001
                                         --------------------------
       Net loss, as reported             $ (9,002,745) $(7,365,220)
       Deduct:  Stock-based  compensation
       expense  determined  under  fair-value
       based  method  for  all  awards  not
       included  in  net  loss              (306,900)            -
                                         --------------------------
       Pro-forma  net  loss              $(9,309,645)  $(7,365,220)
                                         ==========================
       Loss  per  share:
       Basic  and  diluted - as reported $     (0.09)  $     (0.11)
                                         ==========================
       Basic and diluted - pro-forma     $     (0.10)  $     (0.11)
                                        ===========================
Research and Development

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

<PAGE>


                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001
--------------------------------------------------------------------------------

Use  of Estimates

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

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

Income  Taxes

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

Comprehensive  Income

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
130  establishes  standards  to  measure  all changes in equity that result from
transactions  and  other  economic  events  other than transactions with owners.
Comprehensive income is the total of net earnings (loss) and all other non-owner
changes  in  equity.  Except  for  net  earnings  (loss)  and  foreign  currency
translation  adjustments,  the  Company does not have any transactions and other
economic  events  that qualify as comprehensive income as defined under SFAS No.
130.  As  foreign  currency  translation  adjustments  were  immaterial  to  the
Company's  consolidated  financial  statements, net earnings (loss) approximated
comprehensive  income  for  the  years  ended  December  31,  2002  and  2001.

<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001
--------------------------------------------------------------------------------


Cash  and  Equivalents

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

Legal  Fees

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


New  Accounting  Pronouncements

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145,  "Rescission  of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13
and  Technical  Corrections  ("SFAS  No. 145"). Among other things, SFAS No. 145
requires  any  gain  or  loss  on early extinguishment of debt to be included in
income  from  continuing  operations  instead  of  being  classified  as  an
extraordinary  item.  SFAS No. 145 is effective for fiscal years beginning after
May  15,  2002.

SFAS  No.  146,  "Accounting  for  Costs  Associated  with  Exit  or  Disposal
Activities", provides guidance on the recognition and measurement of liabilities
for  costs  associated  with exit or disposal activities. The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December  31,  2002.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements  for  Guarantees,  Including Indirect Guarantees of Indebtedness of
Others",  which  addresses  the  accounting  for  and  disclosure of guarantees.
Interpretation  45  requires  a  guarantor to recognize a liability for the fair
value  of a guarantee at inception. The recognition of the liability is required
even  if  it is not probable that payments will be required under the guarantee.
The  disclosure  requirements  are  effective  for  interim and annual financial
statements  ending  after  December  15,  2002.  The  initial  recognition  and
measurement  provisions  are  effective  for  all guarantees within the scope of
Interpretation  45  issued  or  modified  after  December  31,  2002.

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

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

<PAGE>


                                   Turbodyne Technologies, Inc. and Subsidiaries
                                      Summary of Significant Accounting Policies
December  31,  2002  and  2001
--------------------------------------------------------------------------------


Reclassification

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

<PAGE>


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

December  31,  2002  and  2001
--------------------------------------------------------------------------------

1.     Ability  to  Continue  as  a  Going  Concern

The  accompanying  consolidated financial statements have been prepared assuming
that  the  Company  will  continue  as a going concern. The Company has incurred
significant  losses  in recent years, has an accumulated deficit of $123,592,106
and  a  total  capital  deficit of $11,903,462 at December 31, 2002. It has used
most  of  its  available cash in its operating activities in recent years and is
subject  to  lawsuits  brought  against  it  by  other parties, and based on the
Company's  projected cash flows for the ensuing year it will be required to seek
additional equity or debt financing in order to continue its present operations,
irrespective  of  the  amounts  to  be  paid,  if  any,  in  connection with the
aforementioned  lawsuits.  These  matters  raise  substantial  doubt  about  the
Company's  ability  to  continue  as  a  going  concern.

The Company's operations have been financed principally through a combination of
private  and  public  sales  of equity and debt securities. Although the Company
continues  to  raise  operating  funds  with  a  combination  of debt and equity
instruments  there  is no guarantee that the Company will be able to continue to
finance  operations  by  this  method.

The  Company  continues  to  examine  its  operations  and processes for further
methods  of  cutting  costs  and  gaining  efficiencies.  However,  there  is no
assurance  that  the  cost  reductions  will be realized in the full amount. The
Company  is  examining  alternatives  for  financing  and fulfilling its working
capital needs based on its working capital projections. If the Company is unable
to  satisfactorily  settle litigation, including its dispute with Honeywell, the
present  holder of the Company's core technology (Note 12) and raise substantial
monies  or  generate  revenue  to meet its working capital needs, it may have to
cease operating and seek relief under appropriate statutes. If the going concern
assumption was not appropriate for these consolidated financial statements, then
adjustments  would be necessary to the carrying value of assets and liabilities,
the  reported  net  loss  and  the  balance  sheet  classifications  used.
--------------------------------------------------------------------------------

2.     Property  and  Equipment

<TABLE>
<CAPTION>

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

                                                       2002        2001
                                                    ----------------------
<S>                                                 <C>         <C>
Machinery and equipment                             $2,068,014  $2,060,789
  Transportation equipment                             135,991     126,991
  Furniture and fixtures                               165,723     165,723
  Leasehold improvements                               116,304     116,304
                                                    ----------  ----------
                                                     2,486,032   2,469,807
  Less: accumulated depreciation, amortization and
   provision for impairment of assets                2,317,114   2,259,257
                                                    ----------  ----------


Net property and equipment                        $  168,918  $  210,550
                                                    ======================


</TABLE>




<PAGE>


                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------


3.     Term  Debts

Term  debts  at  December  31,  2002  and  2001  consist  of  the  following:

                                                2002          2001
                                          -----------------------------
            Notes payable to officers     $     15,500     $     15,500
            Other                               57,571           57,571
                                          -----------------------------


            Total term debts              $     73,071     $     73,071
                                          =============================


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

Notes payable to officers are unsecured, due on demand and non-interest bearing.
--------------------------------------------------------------------------------

4.     Accounts  Payable

Included  in  accounts  payable is $361,485 in amounts collateralized by certain
assets,  including  the  proceeds in litigation settlements (Notes 7 and 12) and
bearing  interest at 7% per annum. Interest charges are due annually on December
10  and  the  principal  is  due  no  later  than  December  10,  2005.
--------------------------------------------------------------------------------

5.     Loans  Payable

During  the year ended December 31, 2002, the Company received from shareholders
and  other  parties  $169,055  in  unsecured,  non-interest  bearing  advances.
Management  expects  that the amounts owing will be settled through the issuance
of  common  stock  and  share  purchase  warrants.

6.     Income  Taxes

Income  tax  expense  is comprised of the following for the years ended December
31,  2002  and  2001:
                     2002             2001
                  ---------------------------


Current
     State        $     4,000     $     4,000
                  ===========================



<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------


6.     Income  Taxes  -  Continued

Total income tax expense for the years ended December 31, 2002 and 2001 differed
from  the  amounts  computed  by  applying  the  statutory  Federal  income  tax
rate  to  earnings  before  income  taxes  as  a  result  of  the  following:

<TABLE>
<CAPTION>



                                                         2002            2001
                                                   ---------------------------


<S>                                                <C>            <C>
  Computed "expected" income tax benefit           $ (3,601,097)$  (2,946,088)
  Non-deductible stock option compensation              588,372             -
  Non-deductible expenses                               185,507       455,351
  Effect of elimination of dissolved
  subsidiary's loss
  carryforward                                        6,225,437             -
  Change in valuation allowance                      (3,394,219)    2,494,737
                                                   ---------------------------



                                                    $     4,000   $     4,000
                                                   ===========================

  The tax effects of temporary differences that
   give rise to the deferred tax assets and
  liabilities at December 31, 2002 and 2001
   are as follows:
                                            2002            2001
                                     ------------------------------
Deferred tax assets
Accrued liabilities                  $  2,024,605    $     141,789
Reserve for lawsuit settlements         1,723,964        2,467,695
Fixed assets                              254,138          766,351
Alternative minimum tax credit             55,000           55,000
Net operating loss carryover           27,304,754       31,325,845
Gross deferred tax assets              31,362,461       34,756,680
                                     ------------------------------
Less valuation allowance              (31,362,461)     (34,756,680)
Deferred tax assets,
 net of valuation allowance           $         -    $           -
                                     ==============================


</TABLE>

In  assessing  the  realizability  of  deferred tax assets, management considers
whether  it is more likely than not that some portion or all of the deferred tax
assets  will not be realized. The ultimate realization of deferred tax assets is
dependent  upon  the  generation  of future taxable income during the periods in
which  those  temporary  differences become deductible. Management considers the
scheduled  reversal  of deferred tax assets, projected future taxable income and
tax planning strategies in making this assessment. Management believes it is not
likely  that  the  Company  will  realize  the  benefits  of  these  deductible
differences at December 31, 2002 or 2001. Accordingly, a valuation allowance has
been  provided  for  the  total  net  deferred  tax  assets.


<PAGE>
                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

6.     Income  Taxes  -  Continued

At  December  31,  2002,  the  Company  had  net operating loss carryforwards of
approximately $68,000,000 (2001 - $87,000,000) for US income tax purposes, which
if  not  used,  will  expire  between  the years 2010 and 2024. 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.
--------------------------------------------------------------------------------

7.     Commitments  and  Contingencies

a)     Leases

The  Company  leases  certain  factory and office premises in California under a
noncancelable operating lease expiring January 2005. Rental expense for 2002 and
2001  was  approximately  $370,000  and  $824,000,  respectively.

The  Company,  prior  to  July  1, 2001, subleased its Carpinteria facility from
American  Appliance,  Inc., a private company controlled by a former director of
the  Company.  Rental  expense  for  this  facility  in  2001  was approximately
$489,000.  The  Company  leased the Pacific Baja facility in Mexico from certain
stockholders  of  the  Company.  In 2001 rental expense includes $335,000, which
arose  due  to  guarantees  provided  by  the Company (2002 - $Nil). See Note 11
regarding  the  sale  of  Pacific  Baja  assets.


Minimum  future rental commitments under the operating leases as of December 31,
2002  are:

     Year  ending  December  31
     2003                                    $     346,080
     2004                                          346,080
     2005                                           28,840
                                             --------------


     Total future minimum lease payments     $     721,000
                                             ==============


b)     Litigation

TST

In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of Pacific Baja (Note
11)  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.


<PAGE>



                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

7.     Commitments  and  Contingencies  -  Continued

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

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

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

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

     iv)  any  proceeds  received  by  TST or its president from the sale of the
          issued  shares  will  be automatically applied as a credit against the
          amount  of  the  judgement  against  the  Company  in  favour  of TST.

At December 31, 2002, the Company has included $4,560,000 (2001 - $4,196,000) in
regard  to  this  matter  in  provision  for  lawsuit  settlements  and  accrued
liabilities. The Company has recorded the accrued liability related to the share
issuances  discussed  above  based on the market value of the shares at the date
the  settlement  and  release agreement was signed. If it is determined that TST
received  payment in preference to other creditors before Pacific Baja filed its
Chapter  11  petition  in  bankruptcy,  TST  will  likely  increase its claim by
$2,130,000,  which  is  included  in  the  provision  for  lawsuit  settlements.

c)     SEC  Investigation

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

d)     Class  Action  Lawsuits

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

The  Company  reached  a  settlement  agreement  that  resulted  in  the  final
disposition  of these legal proceedings. The agreed terms of settlement provided
for  a  stipulated  judgement  against the Company in the amount of $7.9 million
which  was  satisfied  through  the Company's directors' and officers' liability
insurance  policies.  The  plaintiff's  case  against  the  Company  and  the
co-defendants has been dismissed with prejudice and the plaintiffs will not have
any  right  to  pursue  execution  against  the  Company  or  its  assets.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

7.     Commitments  and  Contingencies  -  Continued

e)     Other


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

f)     Settlement

Subsequent  to December 31, 2002, the Company entered a settlement agreement and
release in connection with legal proceedings it had initiated against its former
legal  counsel.

g)     Royalties

The  Company  has  agreed  to  pay  a  royalty equal to 2% of the gross sales of
products manufactured and sold that incorporate the licensed technology referred
to  in  Note  9.
--------------------------------------------------------------------------------

8.     Stock  Options

On  October  1,  1999 the Company established the 2000 Stock Incentive Plan (the
"2000  Plan").  Under  the  2000  Plan,  the  Company  may  grant options to its
directors,  officers,  employees  and  consultants for up to 4,800,000 shares of
common stock. The exercise price of each option shall be determined by the Board
of Directors but in no instance be less than the fair market value of the shares
of  the  Company  determined as of the closing price of the common shares of the
Company  on the day preceding the date of the grant. The options maximum term is
ten  years.  As  of  December 31, 2002 and 2001, the number of unoptioned shares
available  for  granting  of  options  under  the  plan  were Nil and 3,142,604,
respectfully.

On  June  3, 2002, the Company established the 2002 stock option plan (the "2002
Plan").  Under  the  2002  Plan, the Company may grant options to its directors,
officers,  employees and consultants for up to 6,000,000 shares of common stock.
The  option's  maximum  term is ten years. The Board of Directors will determine
the  terms of any options or other rights granted under the 2002 Plan, including
the  grant  date  of  any  option, the exercise price and the term, which in any
event  shall  not  exceed ten years. The maximum number of options to be granted
under  the  2002 Plan to any participant is 180,000 per year. As of December 31,
2002,  the  number  of unoptioned shares available for granting of options under
the  plan  was  2,155,461.

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



On  December  6,  2002,  the Company established the 2002 Nevada stock incentive
plan (the "2002 Nevada Plan"). Under the 2002 Nevada Plan, the Company may grant
common  stock  to  its  directors, officers, employees and consultants for up to
7,500,000  shares.  The  maximum  term of the 2002 Nevada Plan is ten years. The
Board  of  Directors will determine the terms and matters relating to any awards
under the 2002 Nevada Plan including the type of awards and the number of common
shares  granted. The value of the shares of common stock used in determining the
awards  shall not be less than 85% of the fair market value of the common shares
of  the  Company  on  the  date  of the grant. As of December 31, 2002, no stock
awards  have  been  granted  under  the  2002  Nevada  Plan.


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------


8.     Stock  Options  -  Continued

The  following  summarizes information relating to stock options during 2002 and
2001:
<TABLE>
<CAPTION>

                                                       2002
                 Non-employees              Employees            Total
             ---------------------------------------------------------------------


                           Weighted                 Weighted             Weighted
                           Average                  Average              Average
                           Exercise                 Exercise             Exercise
              Shares       Price      Shares        Price     Shares     Price
             ---------------------------------------------------------------------

--
<S>           <C>          <C>        <C>          <C>        <C>          <C>
Outstanding at
beginning of year  1,913,415   $    1.46           -   $     -   1,913,415   $ 1.46
Granted            5,857,143   $    0.10   1,130,000   $  0.34   6,987,143   $ 0.14
Exercised         (5,377,143)  $    0.10           -   $     -  (5,377,143)  $ 0.10
Expired             (100,000)  $    5.25           -   $     -    (100,000)  $ 5.25
             ------------------           -------------         -----------
                   2,293,415   $    1.01   1,130,000   $  0.34   3,423,415   $ 0.79
Change of
status of
optionee          (1,161,700)  $    0.75   1,161,700   $  0.75           -   $    -
             ------------------           -------------         ------------



Outstanding at
end of year        1,131,715   $    1.28   2,291,700   $  0.55   3,423,415   $ 0.79
Options exercisable
at end of year     1,131,715   $    1.28   2,291,700   $  0.55   3,423,415   $ 0.79
             ========================================================================
Weighted average
fair value of
options granted
during the year            -   $    0.25           -   $  0.27           -   $ 0.25
2001         =======================================================================


                                                       2001
                 Non-employees              Employees            Total
             ---------------------------------------------------------------------


                           Weighted                 Weighted             Weighted
                           Average                  Average              Average
                           Exercise                 Exercise             Exercise
              Shares       Price      Shares        Price     Shares     Price
             ---------------------------------------------------------------------

--
Outstanding at
beginning
of year       678,668   $    3.39   5,013,050   $  3.69   5,691,718   $ 3.66

Granted     5,389,566   $    0.16           -   $     -   5,389,566   $ 0.16
Exercised  (3,874,566)  $    0.12           -   $     -  (3,874,566)  $ 0.12
Forfeited    (280,253)  $    4.65  (5,013,050)  $  3.69  (5,293,303)  $ 3.74
             ------------------   -------------           -----------

Outstanding
at end
of year     1,913,415   $    1.46           -   $     -   1,913,415   $ 1.46

Options
exercisable
at end
of year     1,913,415   $    1.46           -   $     -   1,913,415   $ 1.46
            =================================================================
Weighted
average
fair
value of
options
granted
during
the year            -   $    0.21           -   $     -           -   $ 0.21
            =================================================================

</TABLE>


     At  December  31,  2002,  the  following  is  a  summary  of  stock options
outstanding:

                                                                       Weighted-
                                                                         Average
                                                                       Remaining
                                                                     Contractual
                                 Exercise Price          Number     Life (Years)
--------------------------------------------------------------------------------
                                                     0.10          450,000     5
                                              0.16 - 0.25          730,000     3
                                                     0.30          750,000     1
                                                   0.35          1,195,000     2
                                              1.87 - 8.50          298,415     1
                                                                ----------------

                                                                 3,423,415     2
                                                                ================


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

8.     Stock  Options  -  Continued

     Issuance  of  Stock  Options  to  Non-employees  for  Services

The  Company  has  recorded $1,470,930 and $1,117,097 of compensation expense in
2002  and  2001, respectively, relating to stock options issued to non-employees
for  services  rendered  during  those  years.

The  per  share weighted average fair value of stock options granted during 2002
and  2001  was  $0.25  and  $0.21,  respectively, on the date of grant using the
Black-Scholes  option-pricing  model  with  the  following  weighted  average
assumptions:  2002  and  2001 expected dividend yield 0%; expected volatility of
188%  in  2002  (2001  - 100%) 2002 risk-free interest rate of between 2.36% and
4.18% (2001 - between 5% and 7.2%) and expected life equal to 1 to 3 years (2001
-  1  to  4  years).

Issuance  of  Stock  Options  to  Employees  for  Services

The Company applies APB Opinion 25 and related interpretations in accounting for
stock options granted to employees. Accordingly, compensation cost of $Nil (2001
- $Nil) has been recognized in connection with options granted to employees. Had
compensation cost been determined based upon the fair value of the stock options
at  the  grant  date  consistent  with  the fair value method prescribed in SFAS
Statement  123,  the  Company's  net loss and earnings per share would have been
reduced  to  the  pro-forma  amounts  indicated  in  the  summary of significant
accounting  policies  in  connection  with  options  granted  to  employees.

The  per share weighted average fair value of stock options granted to employees
during 2002 and 2001 was $0.27 and $Nil, respectively, calculated on the date of
grant  using  the Black-Scholes option pricing model with the following weighted
average  assumptions:  2002  and  2001  expected  dividend  yield  0%;  expected
volatility  of  1.90%  in 2002 (2001 - 100%), risk-free interest rate of between
2.36%  and  4.18%;  and  expected  life  equal  to  36  months.
--------------------------------------------------------------------------------

9.     Shareholders'  Equity

a)     Authorized  Capital

The  Company  completed  a  merger  with  an  inactive  shell  company  and  was
reincorporated  on  September  12,  2002  as a Nevada corporation. In connection
therewith,  the  authorized number of common shares was increased to 150,000,000
and  all  outstanding  shares, options and warrants in the previous company were
converted  into  similar  instruments  of  the  Nevada  corporation.

Subsequent  to  year  end,  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  and  are convertible into 100 common shares at the discretion of the
holder.

<PAGE>


                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

9.     Shareholders'  Equity  -  Continued

As  at  December  31,  2002,  the  Company's  potentially  diluted common shares
exceeded  the  authorized  shares.  The Company has recorded $357,219 in accrued
liabilities  to  account  for  the  potential cash settlement of these financial
instruments.

b)  During  2002,  the  Company  issued  4,374,000  shares  to  consultants  in
consideration  for  services, at ascribed values ranging between $0.10 and $0.33
per  share  (based  on  the  trading  price of the Company's common stock on the
issuance  date).

c)  During  2001,  in connection with a private placement, 3,500,000 shares were
issued  to  a  director  without  proper  consideration  being  received.  While
management  was  of  the opinion that these shares should have been returned for
cancellation  in  2001  and  vigorously  pursued the return of these shares, the
amounts  receivable  at December 31, 2001, $1,470,000, were recorded as selling,
general  and  administration expense in these financial statements. During 2002,
in  addition  to  shares acquired under the Share Buy-Back Plan (Note 9(j)), the
Company  entered  an  agreement  to acquire, from the director for cancellation,
3,500,000  shares  for  $152,078  and  3,142,000 shares for $0.17 per share. The
Company  has paid $133,744 in installments in connection with the acquisition of
the  3,500,000  shares, has recorded amounts paid as a charge to Treasury shares
and  accrued the balance owing, which is in arrears. The related shares have not
yet  been received or cancelled. The remaining 3,142,000 shares will be acquired
as  the  Company's  financial  position  allows  it  to  do  so.

<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

9.     Shareholders'  Equity  -  Continued

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

e)  During  December  2001,  the  Company  acquired from a former consultant and
shareholder,  license  interests  in consideration for the issuance of 2,000,000
common  shares  at an ascribed value of $0.40 per share (being the trading price
of  the  Company's  common  stock  on  the issuance date) and 2,000,000 warrants
exercisable  at  $0.30  for  four  years. Using the Black-Scholes option-pricing
model  with  the following weighted average assumptions: expected dividend yield
0%,  expected  volatility  of 100%, risk-free interest rate of between 5.00% and
7.20%  and expected life equal to four years, the warrants were assigned a value
of $240,000. For the year ended December 31, 2002, amortization of these license
interests  in the amount of $208,000 was charged against original cost resulting
in  a  net  book  value  of  $832,000  recorded  on  the  balance  sheet.

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

g)  Subsequent  to  December  31,  2002, the Company issued a total of 9,155,745
shares  of  common  stock,  of which, 6,202,333 shares were issued in connection
with private placements for net proceeds of $354,450, 750,000 shares were issued
upon  exercise  of  options  with  an  exercise price of $0.10 and the remaining
2,203,412  shares  were  issued  under the 2002 Nevada Plan for services with an
ascribed  value  of $346,664 (based on the trading price of the Company's common
stock  on  the  dates  service  agreements  were  entered).

Subsequent  to  December  31,  2002,  the  Company  also issued 122,175 Series X
preferred  shares,  of  which  41,500 shares were exchanged for 4,150,000 shares
held  in  escrow  by  a former director and a former officer (Note 9(i)), 45,000
shares were issued to a former director in settlement of administrative expenses
and  the  remaining  35,675 shares were issued to a former officer in connection
with  the  settlement  of outstanding litigation. The transactions were recorded
based on amounts settled in agreements and resulted in 2002 charges of $180,000,
$720,000  and  $713,500  to  selling,  general  and administrative, research and
development  and  litigation  expenses,  respectively.

h)  Stock  Purchase  Warrants

At  December  31, 2002 and 2001, the Company had 33,134,336 and 17,883,998 stock
purchase  warrants  outstanding,  respectively.  These  warrants  were issued in
connection  with private placements and other means of financing. The holders of
these  warrants are entitled to receive one share of common stock of the Company
for  one warrant exercised. The warrants have exercise prices ranging from $0.20
to $4.25 per share with a weighted average exercise price of $0.48 per share and
expiration  dates  between  2003  and  2005.  Subsequent  to  December 31, 2002,
4,679,488  warrants  with  a  weighted average exercise price of $0.35 per share
expired  unexercised.

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

December  31,  2002  and  2001
--------------------------------------------------------------------------------

9.     Shareholders'  Equity  -  Continued

i)  Shares  in  Escrow

Of  the Company's issued and outstanding shares, 4,150,000 are held in escrow to
be  released  in  accordance with a formula based on cumulative cash flow of the
Company.  (See  Note  9(g)).

j)  Share  Buy-Back  Plan

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

10.     Related  Party  Transactions

The  Company  made  payments to related parties not disclosed elsewhere in these
financial  statements,  as  follows:
                                                         2002          2001
                                          ---------------------------------
                        Rent (Note 7)     $     370,000     $     824,000
                                          ---------------------------------

During  prior years, the Company advanced $879,020 to former directors. Although
the  Company  is  actively  pursuing  collection  of  these  loans to the former
directors  the amounts were considered doubtful as of December 31, 2002 and 2001
and  were  fully  reserved.

The  Company  previously  leased  the  Carpinteria facility and the Pacific Baja
facility  from  related  parties  (Note  7(a)).
--------------------------------------------------------------------------------

11.     Pacific  Baja  Bankruptcy

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

Pursuant  to  the  Bankruptcy  court  order, the assets were sold to the highest
bidder  at  an  auction  on  December 23, 1999, for approximately $14.4 million.
There  were no proceeds available for distribution to unsecured creditors, after
the  payment  of Pacific Baja's secured debt. The Company was owed approximately
$6 million. There were no remaining assets and liabilities of Pacific Baja as of
December  31,  1999.

In  connection  with  the  bankruptcy  proceedings, which are still pending, the
creditors'  committee  was  investigating  the  Company  and  some of its former
directors  and  officers  as  to whether preferential transfers were made to the
Company  and  its  affiliates  before the Chapter 11 case began (see Note 7(b)).


<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

11.     Pacific  Baja  Bankruptcy  -  Continued

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

The  Trust  is  seeking,  among  other  matters,:

     i)   the  re-characterization of Company advances to Pacific Baja as equity
          and  the  subordination  of  unsecured  claims  against  Pacific Baja;
     ii)  the  re-conveyance  of  an aggregate of up to approximately $7,190,000
          transferred  by  Pacific  Baja  to  the  Company  on  the  basis of an
          allegation  of  fraudulent  transfer;
     iii) an  order  that the Company is liable for all of the previous debts of
          Pacific  Baja  totalling  approximately  $7,000,000;  and
     iv)  Damages  and  punitive  damages against the Company and certain former
          officers  and  directors  and  the  former  officers  and directors of
          Pacific Baja in the amount of up to approximately $12,000,000 based on
          various  allegations  of fraud, misrepresentation, breach of contract,
          alter  ego  and  negligence.

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

In May 2000, Heartland Financial Corporation ("Heartland"), a firm that provided
investment  banking  services to Pacific Baja, filed a complaint for arbitration
against the Company seeking approximately $600,000 representing a success fee it
claims  it  is  entitled  to for investment banking services provided to Pacific
Baja  based  on  a  letter  agreement between Heartland, the Company and Pacific
Baja.  After  the  letter  agreement was signed, Pacific Baja filed a Chapter 11
petition  in  bankruptcy.  At  the conclusion of the bankruptcy proceedings, the
bankruptcy  court awarded Heartland a portion of its fees. Heartland then sought
the  balance  of  the fees and has obtained judgement against the Company in the
amount  of  approximately  $535,000,  which  is  included in the legal liability
reserve.  Subsequent to December 31, 2002, the Company paid $250,000 towards the
partial  settlement  of  these  claims.



<PAGE>

                                   Turbodyne Technologies, Inc. and Subsidiaries
                                  Notes to the Consolidated Financial Statements
December  31,  2002  and  2001
--------------------------------------------------------------------------------

12.     Joint  Agreement

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

The  Company  commenced  an  action  for damages against Honeywell in the United
States  District  Court, Central District of California in August 2001 alleging,
among  other  matters, that Honeywell's conduct constituted a restraint of trade
and  the delay of the commercialization of the Company's technology. The Company
was  seeking  unspecified  damages and costs. This litigation has been withdrawn
pending  the  outcome  of  the  arbitration  proceedings  discussed  below.

Prior to the Company commencing the above legal proceedings, Honeywell initiated
arbitration  proceedings  under  the joint development and licensing agreements.
Honeywell  is  seeking  unspecified  damages  and  costs  and termination of the
license agreement and the joint development agreement based on their allegations
that  the Company breached the agreements and is unwilling and unable to perform
future  obligations  under  the  agreements.

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


<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 April 9,
2003  are  as  follows:

DIRECTORS:

NAME  OF  DIRECTOR        AGE
------------------        ---
Manfred Hanno Janssen     63
Eugene O'Hagan            63
Andrew Martyn-Smith       53

OFFICERS:

NAME  OF  OFFICER         AGE    OFFICE HELD
-----------------         ---    -----------
Daniel Black              46     President and Chief Executive Officer
Charles Caverno           50     Secretary and Chief Financial Officer


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

Mr. Daniel Black has been our president and chief executive officer since August
15,  2001.  Mr.  Black  is also the president and chief executive officer of our
operating  subsidiary,  Turbodyne  Systems.  Mr.  Black was a test engineer with
Turbodyne  Systems  from  August  14,  1996 to February 15, 2000.  Mr. Black was

senior  development  engineer  with  Turbodyne Systems from February 15, 2000 to
August 15, 2001.   Mr. Black has six years of training in electrical engineering
at  the  University  of  California  at  Santa  Barbara.

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

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

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

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

SIGNIFICANT  CONSULTANTS

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

Mr.  Halimi  served  as chairman of our board of directors from our inception to
October  1999.  Mr.  Halimi  served as our president and chief executive officer
from  October  18,  1993  to  March  11,  1998.  Mr. Halimi


                                    37 of 53

<PAGE>

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

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

BOARD  COMMITTEES

We  constituted  an  audit committee made up of Mr. Janssen, Mr. O'Hagan and Mr.
Martyn-Smith  on  March  26,  2003.  Our board of directors has adopted an audit
committee  charter,  a  copy  of  which  is  attached this Annual Report on Form
10-KSB.

We  presently  do not have any committees of our board of directors constituted,
other  than  our  audit  committee.

ELECTION  OF  DIRECTORS  AND  OFFICERS

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

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

     -    Class  II directors-terms expire at the annual meeting of stockholders
          in  2005;  and

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

The  classifications of our board of directors and the expiry of their terms are
as  follows:

     Name  of  Director                Class          Expiry  of  Term
     ------------------                -----          ----------------

     MANFRED HANNO JANSSEN             Class  II      2005  AGM
     EUGENE O'HAGAN                    Class  I       2004  AGM
     ANDREW MARTYN-SMITH               Class  III     2003  AGM

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

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

COMPENSATION  OF  DIRECTORS

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


                                    38 of 53

<PAGE>



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, 2002
all  such  filing  requirements  applicable  to  our officers and directors were
complied  with  exception that reports were filed late by the following persons:



<TABLE>
<CAPTION>



--------------------------------------------------------------------------------
                                       NUMBER   TRANSACTIONS KNOWN  FAILURES
                                       OF LATE  NOT TIMELY   TO FILE A REQUIRED
NAME AND PRINCIPAL POSITION            REPORTS  REPORTED     FORM
--------------------------------------------------------------------------------
<S>                                    <C>      <C>         <C>
Daniel Black                                 1         1     1
President and Chief Executive Officer

Charles Caverno                              0         0     0
Secretary and Chief Financial Officer

Manfred Hanno Janssen, Director              1         1     1

Eugene O'Hagan, Director                     1         1     1

Andrew Martyn-Smith, Director                1         1     1
--------------------------------------------------------------------------------

</TABLE>




                                    39 of 53

<PAGE>




ITEM  10.     EXECUTIVE  COMPENSATION.

The  following  table  sets  forth  certain  compensation  information as to the
following  individuals  (our  "named  executive  officers")  for  the three most
recently  completed  fiscal  years  ended  December  31,  2002,  2001  and 2000:

     (i)  Mr.  Daniel  Black,  our  chief  executive  officer;  and
     (ii) Mr.  Charles  Caverno,  our most highly compensated executive officer.

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















<TABLE>
<CAPTION>


--------------------------------------------------------------------------------
                           SUMMARY  COMPENSATION  TABLE
--------------------------------------------------------------------------------
                         ANNUAL COMPENSATION          LONG TERM COMPENSATION
                    ---------------------------  -------------------------------
                                                     AWARDS           PAYOUTS
                                                 ---------------  --------------
                                                                            All
                                          Other                            Other
                                          Annual                            Com-
                                          Com-  Restricted                  pen-
                                          pen-    Stock   Options LTIP      sa-
Name      Title      Year  Salary  Bonus  sation  Awarded SARs(#) payouts($)tion
----      -----      ----  ------  ------ ------- ------- ------- --------- ----
<S>       <C>        <C>   <C>     <C>    <C>     <C>     <C>     <C>       <C>
Daniel    President  2002  $75,000     0     0          0  75,000        0     0
Black (1) and Chief  2001  $82,000     0     0          0 110,000        0     0
          Executive  2000  $82,000     0     0          0       0        0     0
          Officer

Charles   Secretary  2002  $ 99,000    0     0          0       0        0     0
Caverno(2)and Chief  2001  $109,000    0     0       110,000    0        0     0
          Financial  2000  $ 95,000    0     0          0       0        0     0
          Officer.

</TABLE>



Notes  to  Summary  Compensation  Table:

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




                                    40 of 53

<PAGE>


                               STOCK OPTION GRANTS

The following table sets forth information with respect to stock options granted
to  each  of  the  Company's  named executive officers during the Company's most
recent  fiscal  year  ended  December  31,  2002:

<TABLE>
<CAPTION>


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                               (INDIVIDUAL GRANTS)
              Number of
              Securities       % of Total
              Underlying       Options Granted   Exercise Price  Expiration
Name          Options Granted  To Employees      (per Share)     Date
--------------------------------------------------------------------------------
<S>            <C>             <C>               <C>             <C>
Daniel Black    75,000            6.7%            $  0.35        April 15, 2005
President
and Chief
Executive
Officer
--------------------------------------------------------------------------------
Charles
Caverno          NIL              N/A                 N/A        N/A
Secretary
and
Chief
Financial
Officer
--------------------------------------------------------------------------------
</TABLE>



              EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

The  following is a summary of the share purchase options exercised by our chief
executive  officer  and  our  named executive officers during the financial year
ended  December  31,  2002:


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
                 AGGREGATED OPTION/SAR EXERCISES DURING THE LAST
           FINANCIAL YEAR END AND FINANCIAL YEAR-END OPTION/SAR VALUES
           -----------------------------------------------------------
                                                                    Value of
                                                                  Unexercised
                                                Unexercised       In-The-Money
                                                 Options at       Options/SARs
                  Common                         Financial        at Financial
                  Shares                        Year-End (#)      Year-End ($)
                Acquired on        Value        exercisable /     exercisable /
Name (#)         Exercise ($)    Realized ($)   unexercisable     unexercisable
--------------------------------------------------------------------------------
<S>             <C>             <C>             <C>               <C>
Daniel Black          NIL              NIL         225,000/ NIL      NIL/ N/A
President and
Chief Executive
Officer
--------------------------------------------------------------------------------

Charles Caverno       NIL              NIL         116,700/ NIL      NIL/ N/A
Secretary and
Chief Financial
Officer
--------------------------------------------------------------------------------

</TABLE>



                                    41 of 53

<PAGE>

COMPENSATION  ARRANGEMENTS

MANAGEMENT  AGREEMENTS

We  pay Mr. Daniel Black, our president and chief executive officer, a salary of
$75,000  per annum.  We are not party to any written compensation agreement with
Mr.  Black.

We  pay Mr. Charles Caverno, our secretary and chief financial officer, a salary
of  $99,000  per  annum.  We are not party to any written compensation agreement
with  Mr.  Caverno.

COMPENSATION  PLANS

2000  STOCK  OPTION  PLAN

On  October  1,  1999,  our  2000  Stock Option Plan was adopted by the board of
directors  and was subsequently approved by the stockholders. The purpose of the
plan  is  to advance our interests and that of our stockholders by strengthening
our  ability  to  obtain  and  retain  the  services  of employees, consultants,
officers  and  directors that will contribute to our long-term success. The plan
is  administered  by  the  stock  option  committee.  The  plan provides for the
granting  of  restricted  stock,  stock  options,  reload  stock  options, stock
purchase  warrants  and  other rights to acquire stock or securities convertible
into or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents,  performance  units  or  performance  shares. The maximum number of
shares  of  common stock authorized for issuance under the plan is 4,800,000. As
of  December  31,  2002 and 2001, the number of un-optioned shares available for
granting  of  options  under  the  plan  was  nil  and  3,142,604, respectfully.

2002  STOCK  OPTION  PLAN

On  June  3,  2002,  we  established our 2002 stock option plan (the "2002 Stock
Option  Plan").  Under  the  2002 Stock Option Plan, we may grant options to its
directors,  officers,  employees  and  consultants for up to 6,000,000 shares of
common  stock.  The  maximum  term  of any optin is ten years.  Our stock option
committee,  or  our  board  of  directors  if  no committee is constituted, will
determine  the terms of any options or other rights granted under the 2002 Plan,
including  the  grant date of any option, the exercise price and the term, which
in  any  event  shall not exceed ten years.  The maximum number of options to be
granted  under  the  2002  Plan  to  any participant is 180,000 per year.  As of
December  31,  2002,  the  number of unoptioned shares available for granting of
options  under  the  plan  was  2,155,461.

2002  STOCK  INCENTIVE  PLAN

On  December  6,  2002,  we established our 2002 stock incentive plan (the "2002
Stock  Incentive  Plan").  Under  the  2002  Stock  Incentive Plan, we may grant
common  stock  to  its  directors, officers, employees and consultants for up to
7,500,000  shares.  The  maximum  term  of  the 2002 Stock Incentive Plan is ten
years.  Our  board  of  directors  will  determine  the terms and matters of any
awards  under the 2002 Stock Incentive Plan including the type of awards and the
number  of  common shares granted.  The value of the shares of common stock used
in determining the awards shall not be less than 85% of the fair market value of
the  common  shares of the Company on the date of the grant.  As of December 31,
2002,  no  shares  had  been issued pursuant to grants of stock awards under the
2002  Nevada  Plan.

REPRICING  OF  OPTIONS

During  the  year  ended  December 31, 2002, our board of directors approved the
re-pricing  of  options  to  purchase  38,000 shares granted in favor of Mr. Dan
Black,  our  chief executive officer.  The option price was reduced to $0.38 per
share  in  order that the exercise price was more reflective of the then current
trading  price  of  our  common  stock  and  in  order  to  provide a continuing
performance  incentive.



                                    42 of 53

<PAGE>

ITEM  11.     SECURITY  OWNERSHIP  OF  CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  following  table  sets  forth  certain information concerning the number of
shares  of  our common stock owned beneficially as of April 9, 2003 by: (i) each
of  our directors; (ii) each of our named executive officers, and (iii) officers
and  directors as a group. No person or group is known by us to beneficially own
more  than  5%  of  our  outstanding  shares  of common stock.  Unless otherwise
indicated, the shareholders listed possess sole voting and investment power with
respect  to  the  shares  shown.


--------------------------------------------------------------------------------
                                                                     Percentage
                     Name and address          Number  of Shares     of Common
Title  of  class     of  beneficial  owner     of Common Stock       Stock (1)
--------------------------------------------------------------------------------
Directors and Officers
--------------------------------------------------------------------------------

Common Stock         Daniel  Black             226,000 Shares  (2)     0.18%
                     President and
                     Chief Executive
                     Officer

Common Stock         Charles Caverno           116,700 Shares  (3)     0.10%
                     Secretary and Chief
                     Financial Officer

Common Stock         Manfred Hanno Janssen      216,240 shares (4)     0.18
                     Director

Common Stock         Eugene O'Hagan                    175,000 (5)     0.14%
                     Director

Common Stock         Andrew Martyn-Smith               175,000 (6)     0.14%
                     Director

Common Stock         All Officers and                      908,940     0.8%
                     Directors as a Group
                     (5 persons)

--------------------------------------------------------------------------------
5% Shareholders
Common Stock         Lars Neujeffski                7,242,358 (7)     5.9%
                     Director
--------------------------------------------------------------------------------

Common Stock         Dieter Neujeffski              7,242,358 (7)     5.9%
                     Director
--------------------------------------------------------------------------------


(1)  Under Rule 13d-3, a beneficial owner of a security includes any person who,
     directly  or  indirectly, through any contract, arrangement, understanding,
     relationship,  or otherwise has or shares: (i) voting power, which includes
     the  power  to  vote,  or  to  direct  the  voting  of  shares;  and  (ii)

                                    43 of 53

<PAGE>



investment  power, which includes the power to dispose or direct the disposition
of  shares.  Certain  shares may be deemed to be beneficially owned by more than
one  person  (if,  for  example, persons share the power to vote or the power to
dispose  of the shares). In addition, shares are deemed to be beneficially owned
by a person if the person has the right to acquire the shares (for example, upon
exercise of an option) within 60 days of the date as of which the information is
provided.  In  computing  the  percentage ownership of any person, the amount of
shares  outstanding is deemed to include the amount of shares beneficially owned
by  such person (and only such person) by reason of these acquisition rights. As
a  result,  the  percentage of outstanding shares of any person as shown in this
table does not necessarily reflect the person's actual ownership or voting power
with  respect  to  the  number of shares of common stock actually outstanding on
April  9, 2003. As of April 9, 2003, there were 121,827,880 shares of our common
stock  issued  and  outstanding.

(2)  Consists  of  1,000  shares  held  by Mr. Black and 225,000 shares that are
     immediately acquirable upon the exercise of stock options held by Mr. Black
     within  60  days  of  April  9,  2003.

(3)  Consists  of  116,700  shares  that  are  immediately  acquirable  upon the
     exercise  of  stock  options held by Mr. Caverno within 60 days of April 9,
     2003.

(4)  Consists  of  20,620  shares  held  by Mr. Janssen, 175,000 shares that are
     immediately  acquirable  upon  the  exercise  of  stock options held by Mr.
     Janssen  within  60  days  of  April  9,  2003  and  20,620 shares that are
     immediately acquirable upon the exercise of share purchase warrants held by
     Mr.  Janssen  within  60  days  of  April  9,  2003.

(5)  Consists  of  175,000  shares  that  are  immediately  acquirable  upon the
     exercise  of  stock  options held by Mr. O'Hagan within 60 days of April 9,
     2003.

(6)  Consists  of  175,000  shares  that  are  immediately  acquirable  upon the
     exercise  of  stock  options held by Mr. Mr. Martyn-Smith within 60 days of
     April  9,  2003.

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




                                    44 of 53

<PAGE>

EQUITY  COMPENSATION  PLAN  INFORMATION.


We currently have two equity compensation plans under which shares of our common
stock  have  been  authorized for issuance to our officers, directors, employees
and  eligible  consultants.  These  equity  compensation  plans include our 2002
Stock  Option Plan and our 2002 Stock Incentive Plan.  Our 2002 Stock Option has
been  approved  by our stockholders.  Our 2002 Stock Incentive Plan has not been
approved  by  the  Company's  stockholders.

The  following  summary  information is presented for our 2002 Stock Option Plan
and  2002  Stock  Incentive  Plan on an aggregate basis as of December 31, 2002.


<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
                  Number  of      Weighted-Average     Number  of  Securities
                  Securities  to  Exercise Price of    Remaining Available
                  be Issued       Outstanding Options, for Future
                  Upon Exercise   of Outstanding       Issuance  Under  Equity
                  Options,        Options, Warrants    Compensation  Plans
                  Warrants  and   and                  (Excluding Securities
                  Rights          Rights               Reflected in column  (a))
--------------------------------------------------------------------------------
<S>               <C>             <C>                  <C>
                         (a)             (b)                  (c)
--------------------------------------------------------------------------------
Plan  Category      3,423,415  Shares     $0.79 per Share   2,155,461  Shares
Plans Approved      of  Common  Stock
By Security Holders
--------------------------------------------------------------------------------

Equity Compensation       NIL             Not  Applicable   7,500,000  Shares
Plans  Not
Approved  By
Security  Holders
--------------------------------------------------------------------------------

</TABLE>

2002  STOCK  INCENTIVE  PLAN

On  December  6,  2002, we established our 2002 Stock Incentive Plan.  Under the
2002  Stock  Incentive  Plan, we may grant common stock awards to our directors,
officers,  employees  and  eligible consultants for up to 7,500,000 shares.  The
maximum  term  of  the  2002  Stock  Incentive  Plan is ten years.  Our board of
directors  will  determine  the  terms  and matters of any awards under the 2002
Stock  Incentive Plan including the type of awards and the number of shares that
are  the  subject  of  each stock award grant.  Stock Awards that may be granted
include:

(a)  compensation stock awards, whereby we will issue shares to a participant as
     compensation  for  services  to  be provided by a participant pursuant to a
     written  compensation  contract;

(b)  restricted  stock  awards,  whereby  we  will  agree  to  sell  shares to a
     participant  that  are  subject  to  restrictions;

(c)  bonus  stock  awards,  whereby  we  will  issue shares in consideration for
     services  rendered  to  us  by  a  participant.

The value of the shares of common stock used in determining the awards shall not
be  less  than 85% of the fair market value of our shares of common stock on the
date  of  the grant.  The purpose of the 2002 Stock Incentive Plan is to enhance
the  long-term  stockholder  value  by  offering opportunities to our directors,
officers,  employees  and  eligible  consultants  to  acquire and maintain stock
ownership  in  order to give these persons the opportunity to participate in our
growth  and  success,  and  to  encourage  them  to  remain  in  our  service.


                                    45 of 53

<PAGE>


ITEM  12.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

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

(A)     any  of  our  directors  or  executive  officers;

(B)     any  nominee  for  election  as  one  of  our  directors;


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

(D)     any member of the immediate family (including spouse, parents, children,
siblings  and  in-laws)  of any of the foregoing persons named in paragraph (A),
(B)  or  (C)  above.

MR.  EDWARD  HALIMI

Mr. Edward Halimi is one of our founders and was one of our former directors and
a former chairman of the board, president and chief executive officer until June
30, 2001.  Mr. Halimi is currently not a member of our board of directors and is
not  one  of  our  executive  officers.

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

We  had previously been a party to an employment agreement with Mr. Halimi dated
August  1, 1997, as amended January 27, 1998, whereby Mr. Halimi was employed as
our  president and chief executive officer and the president and chief executive
officer  of  Turbodyne  Systems Inc., one of our subsidiaries.  We ceased making
payments to Mr. Halimi as required by the employment agreement in November 2000.
We  concluded  a  settlement  agreement  with  Mr.  Halimi dated effective as of
January  29,  2003.  Under  the  terms  of this settlement agreement, Mr. Halimi
agreed  to  release  us  from  any liability under the employment agreement.  In
exchange for this release, we issued to Mr. Halimi 45,000 shares of our Series X
Preferred  Stock  at  a  deemed  price  of  $20.00  per  share,  for  aggregate
consideration  of $900,000.  Each share of Series X Preferred Stock is identical
to our common stock except that the shares are non-voting and are convertible at
the  option  of the holder into one hundred shares of our common stock.  We also
agreed  with  Mr.  Halmi  to  the exchange of 3,250,000 shares held by a private
company controlled by Mr. Halimi into 32,500 shares of Series X Preferred Stock.
The  rationale for incorporating this exchange into the settlement was to enable
us  to  provide  evidence  to  the  BBX  Exchange  that none of our officers and
directors  at  the  time  of  our  NASDAQ  delisting has any current significant
involvement in our business and affairs.  In aggregate, a total of 77,500 shares
of Series X Preferred Stock were issued to the private company controlled by Mr.
Halimi.  Mr. Halimi has agreed not to exercise his conversion rights to the
extent that as a result of such conversion  Mr. Halimi would own more than 0.5%
of our outstanding common stock.


DIETER  AND  LARS  NEUJEFFSKI

Dieter  and  Lars  Neujeffski  are  former  directors  of  Turbodyne.  We issued
3,500,000  shares  of  our  common  stock  to Lars Neujeffski, one of our former
directors,  for  which  proper consideration was not received.  We have demanded
that these shares be returned for cancellation.  To date, Mr. Neujeffski has not
agreed  to the return of these shares for cancellation.  We intend to vigorously
pursue the return of these shares.  An amount of $1,470,000 has been recorded as
a  selling,  general

                                    46 of 53

<PAGE>


and administration expense on our financial statements for
the  year  ended  December  31,  2001  in  respect  of  this  share  issuance.

We  issued  3,142,048  shares to Mr. Dieter Neujeffski, one of our directors, at
various  prices  ranging  from  $0.14 per share to $0.284 per share on a private
placement  basis for total proceeds of $509,739.  The prices of the stock issued
were based on the market price of our common stock at the date of issuance, with
a  discount  to  market  to  reflect the fact that the securities were issued as
restricted  shares.  All  shares  were issued during the period from October 16,
2000  to June 28, 2001.  Mr. Neujeffski was appointed as one of our directors on
July  3,  2001  but  was  not elected as one of our directors at our last annual
general  meeting.



We  entered  into  a  settlement agreement with Dieter and Lars Neujeffski dated
July  12, 2002.  Under the terms of this agreement, we have agreed pay to Dieter
and Lars Neujeffski an amount of $152,077.50.  Mr. Lars Neujeffski has agreed to
return  the  3,500,000  shares  registered  in his name, subject to release by a
third  party  bank  to  whom  the  shares have been pledged as collateral by Mr.
Neujeffski.  We have completed all payments to Dieter and Lars Neujeffski, other
than  a  final  payment of $18,333.34, however the release of shares by the bank
has  not been restructured to date.  In addition, we have agreed to buy back the
3,142,000 shares in the name of Dieter Neujeffski at a price of $0.17 per share.
This  buy  back  arrangement  has  not  been  completed.





                                    47 of 53

<PAGE>


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

(A)     EXHIBITS

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

3.2     Amended Bylaws of the Registrant. (1)

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

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

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

10.1    Joint  Development  Agreement  dated  January  28,  1999  between
        Honeywell International,  Inc.  and  the  Registrant.  (2)

10.2    License Agreement dated January 28, 1999 between Honeywell
        International, Inc. and the Registrant. (2)

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

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

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

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

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

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


                                    48 of 53

<PAGE>


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

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

23.1     Consent of BDO Dunwoody LLP (4)

99.1     Certification  of  Chief  Executive  Officer pursuant to pursuant to 18
         U.S.C.  Section  1350,  as adopted pursuant to Section 906 of the
         Sarbanes-Oxley Act  of  2002  (4)

99.2     Certification  of  Chief  Financial  Officer pursuant to pursuant to 18
         U.S.C.  Section  1350,  as adopted pursuant to Section 906 of the
         Sarbanes-Oxley Act  of  2002  (4)

99.3     Audit  Committee  Charter

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

(1)     Filed  as  an  exhibit to the Company's Current Report on Form 8-K filed
with  the  SEC  on  September  18,  2002

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

(3)     Filed  as  an  exhibit to the Company's Annual Report on Form 10-KSB for
the  fiscal  year  ended  December  31,  2001

(4)     Filed  as  an  exhibit  to  this  Form  10-KSB for the fiscal year ended
December  31,  2002

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


(B)     CURRENT  REPORTS  ON  FORM  8-K.

The  Company  did  not  file  any  Current Reports on Form 8-K during its fourth
quarter  ended December 31, 2002.  The Company has not filed any Current Reports
on  Form  8-K  since  December  31,  2002.


                                    49 of 53

<PAGE>


ITEM  14.     CONTROLS  AND  PROCEDURES.

As  required  by  Rule  13a-15  under  the  Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to  the  filing  date of this report.  This evaluation was carried out under the
supervision  and  with  the  participation  of  our  management,  including  our
President  and  Chief  Executive Officer, Mr. Daniel Black, along with our Chief
Financial  Officer,  Mr.  Charles  Caverno.  Based  upon  that  evaluation,  our
President  and  Chief  Executive  Officer along with our Chief Financial Officer
concluded  that  our  disclosure controls and procedures are effective in timely
alerting  them  to  material  information relating to the Company required to be
included in our periodic SEC filings.  There have been no significant changes in
our  internal  controls  or  in  other  factors  that could significantly affect
internal  controls  subsequent  to  the  date  we  carried  out  our evaluation.

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




                                    50 of 53

<PAGE>




                                   SIGNATURES


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


TURBODYNE  TECHNOLOGIES,  INC.


By:  /s/ Daniel  Black
     ___________________________________
     Daniel  Black,  President  and  Chief  Executive  Officer
     Director
     Date:     April  14,  2003


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





By:  /s/ Daniel  Black
     ___________________________________
     Daniel  Black,  President  and  Chief  Executive  Officer
     (Principal  Executive  Officer)
     Date:     April  14,  2003


By:  /s/  Charles  Caverno
     ___________________________________
     Charles  Caverno,  Secretary  and  Chief  Financial  Officer
     (Principal  Financial  Officer  and  Principal  Accounting  Officer)
     Date:     April  14,  2003


By:  /s/ Manfred  Hanno  Janssen
     ___________________________________
     Manfred  Hanno  Janssen
     Director
     Date:     April  14,  2003


By:  /s/ Eugene  O'Hagan
     ___________________________________
     Eugene  O'Hagan
     Director
     Date:     April  14,  2003


By:  /s/ Andrew  Martyn-Smith

     ___________________________________
     Andrew  Martyn-Smith
     Director


     Date:     April  14,  2003

<PAGE>


                                  CERTIFICATION

I,  Daniel  Black,  Chief  Executive  Officer  of  Turbodyne Technologies, Inc.,
certify  that;

1.   I  have  reviewed  this  annual  report  on  Form  10-KSB  of  Turbodyne
     Technologies,  Inc.;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and


     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  facts  that  could  significantly  affect  internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.


Date:   April  14,  2003     /s/ Daniel  Black
                             ___________________________________
                                   (Signature)

                                   CHIEF  EXECUTIVE  OFFICER
                             ___________________________________
                                   (Title)

<PAGE>
                                  CERTIFICATION

I,  Charles  Caverno,  Chief  Financial Officer of Turbodyne Technologies, Inc.,
certify  that;

1.   I  have  reviewed  this  annual  report  on  Form  10-KSB  of  Turbodyne
     Technologies,  Inc.;

2.   Based  on  my  knowledge,  this  annual  report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included in this annual report, fairly present in all material
     respects  the  financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and  I  are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange  Act  Rules  13a-14  and  15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information  relating  to  the  registrant,  including  its
          consolidated  subsidiaries, is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is  being  prepared;

     b)   evaluated  the  effectiveness  of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

5.   The  registrant's  other certifying officers and I have disclosed, based on
     our  most  recent  evaluation,  to  the registrant's auditors and the audit
     committee  of  registrant's  board  of directors (or persons performing the
     equivalent  functions):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which  could  adversely  affect  the registrant's ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and


     b)   any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls;  and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  facts  that  could  significantly  affect  internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.



Date:   April  14,  2003      /s/ Charles  Caverno
                              ___________________________________
                                   (Signature)

                              CHIEF FINANCIAL OFFICER
                              ___________________________________
                                   (Title)