<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                      FORM 20-F

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934

                     For the fiscal year ended December 31, 1997

                           Commission file number:  0-21391

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

                                     INAPPLICABLE
                   (Translation of Registrant's name into English)

                             CANADA FEDERAL JURISDICTION
                   (Jurisdiction of incorporation or organization)

                         SUITE 510, 1090 WEST PENDER STREET 
                     VANCOUVER, BRITISH COLUMBIA, CANADA V6E 2N7
                       (Address of principal executive offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.
                                         NONE

 Securities registered or to be registered pursuant to Section 12(g) of the Act.
                           COMMON SHARES WITHOUT PAR VALUE

 Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
                                         NONE
                                           
Indicate the number of outstanding shares of each of the registrant's classes of
capital or common stock as of the close of the period covered by the annual
report:  Common shares without par value: 29,961,612  as at December 31, 1997.

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

Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17   X     Item 18      
        -----           -----

Except as otherwise noted, all dollar amounts are presented in United States
dollars.

Exchange Rates: At June 1, 1998, the exchange rate of Canadian dollars into
United States dollars was $1.4568 Canadian to $1.00 United States.


<PAGE>

                                  TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                 PAGE
<S>       <C>                                                                    <C>
ITEM 1.   DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . .1

ITEM 2.   PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ITEM 3.   LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ITEM 4.   CONTROL OF COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

ITEM 5.   NATURE OF TRADING MARKET . . . . . . . . . . . . . . . . . . . . . . . . 14

ITEM 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS . . . 16

ITEM 7.   TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

ITEM 8.   SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . 18

ITEM 9.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . 27

ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . . . 29

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES . . . . . 30

ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS . . . . . . . . . . . . . 30

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED . . . . . . . . . . . . . . . 31

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES. . . . . . . . . . . . . . . . . . . . . 31

ITEM 16.  CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
          AND USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ITEM 17.  FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ITEM 18.  FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 32

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS. . . . . . . . . . . . . . . . . . . . 32
</TABLE>



<PAGE>

                                        PART I


ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

     Turbodyne Technologies Inc. (the "Company" or "Turbodyne"), a Canadian
federal corporation, engineers, develops, manufactures and markets proprietary
products designed to enhance performance and reduce emissions of internal
combustion engines (the "Engine Enhancement Business") and manufactures aluminum
cast automotive products, including engine components and speciality wheels (the
"Automotive Components Business").  The Company has developed a patented
technology (the "Turbodyne 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 the Turbodyne
Technology into its two primary products:  the Turbopac-TM- and the
Dynacharger-TM- (collectively, the "Turbodyne Products").

     In addition to enhancing engine performance of internal combustion engines,
the Turbodyne Technology has proved to reduce the production, and the emission,
of harmful pollutants.  On April 7, 1998, the United States Environmental
Protection Agency certified the Detroit Diesel Corporation emission upgrade kit,
which incorporates the Turbodyne Technology through the use of a Turbopac-TM-,
as an acceptable solution to reduce emissions of diesel buses under the EPA's
Urban Bus Retrofit/Rebuild Program.  The Company and Detroit Diesel Corporation,
a major global diesel engine producer with a world wide marketing and
distribution network, have entered into the Company's first commercial contract,
and the Company received its first purchase order, for the production of the
Turbopac product.

     The Company also is an established manufacturer of precision aluminum cast
and machined products primarily for the automotive industry.  Through a wholly
owned subsidiary, the Company manufactures several critical engine components
and assemblies including intake manifolds, oil pans, rocket arm covers,
turbocharger and compressor housings for OEMs in the automotive industry and
aluminum wheels for the automotive aftermarket.  The Company also manufactures
all of the engineered aluminum components for the Turbodyne Products.  

CORPORATE STRUCTURE

     The Company was incorporated under the COMPANY ACT (British Columbia) on
May 18, 1983, under the name "Dundee Resources Corp." by registration of its
Memorandum and Articles.  The name of the Company was changed from "Dundee
Resources Corp." to "Clear View Ventures Inc." on January 20, 1993 and from
"Clear View Ventures Inc." to "Turbodyne Technologies Inc." on April 28, 1994. 
Effective December 3, 1996, the Company continued from British Columbia to the
Canadian federal jurisdiction under the CANADA BUSINESS CORPORATIONS ACT by the
filing of Articles of Continuation. 

     The address of the principal corporate office of the Company in the United
States is 21700 Oxnard Street, Suite 1550, Woodland Hills, California, 91367. 
The address of the principal corporate office of the Company in Canada is Suite
510, 1090 West Pender Street, Vancouver, British Columbia, V6E 2N7.  The address
of the registered and records office of the Company is Suite 1880, 1055 West
Georgia Street, Vancouver, British Columbia Canada V6E 3P3.

     The Company conducts the Engine Enhancement Business through its wholly
owned subsidiary Turbodyne Systems, Inc., a Nevada corporation ("Turbodyne
Systems") and conducts the Automotive Components Business through its wholly
owned subsidiary Pacific Baja Light Metals Corp. ("Pacific Baja"), a Wyoming
corporation, and through the subsidiaries of Pacific Baja.


                                       1
<PAGE>


DOMESTICATION

     The Board of Directors of the Company has authorized the domestication 
of the Company into the State of Delaware.  Following the domestication, the 
Company will exist as a Delaware corporation and be subject to the rules and 
regulations of that State.  Additionally, the Company will no longer qualify 
as a "foreign private issuer" under the Securities Act of 1933, as amended 
(the "Securities Act") and under the Securities Exchange Act of 1934, as 
amended (the "Exchange Act") and accordingly will file reports, proxy 
statements and other materials with the Securities and Exchange Commission 
under its rules and regulations applicable to domestic issuers.  

     Following the domestication of the Company into Delaware, the Company will
continue to be deemed to be a reporting issuer under the securities legislation
applicable in each of the Canadian Provinces of British Columbia, Manitoba and
Ontario.  The Company's status as a reporting issuer in each of these provinces
is not affected by the domestication of the Company to the State of Delaware. 
The Company will be required to continue to comply with the obligations imposed
by this securities legislation as a reporting issuer in each province.  These
obligations include the requirement to make filings of the Company's financial
statements, proxy circulars, shareholder information, material change reports
and United States Securities and Exchange Commission filings with the securities
commissions of the Provinces of British Columbia, Manitoba and Ontario, all in
accordance with the requirements of the applicable securities legislation.

ENGINE ENHANCEMENT BUSINESS

     Turbodyne Systems develops products to enhance performance and reduce
emissions of internal combustion engines.  The Turbodyne Technology is designed
to optimize air flow to internal combustion engines resulting in efficient fuel
combustion in both diesel and gasoline engines.
 
     Turbodyne Systems was acquired by the Company pursuant to an agreement
between the Company and Edward M. Halimi, the Chairman of the Board of
Directors, dated July 15, 1993, as amended. The Company issued 1,000,000 shares
of Common Stock to Mr. Halimi in consideration for all of the issued and
outstanding shares of Turbodyne Systems. The initial form of the Turbodyne
Technology was developed by Mr. Halimi prior to the acquisition of Turbodyne
Systems by the Company.

THE TURBODYNE TECHNOLOGY

     The Turbodyne Technology is an advanced airflow management technology
developed to improve the performance of internal combustion engines by
increasing airflow to the cylinders.  Optimized airflow, combined with efficient
fuel flow, results in more efficient combustion in the cylinders which, in turn,
results in increased engine power, faster acceleration and reduced harmful
engine emissions.  

     In order for efficient combustion to take place in an internal combustion
engine, both air and fuel must be present within each individual cylinder at
precisely the correct ratio for the specific condition of load and speed.  While
engineers attempt to design engines to ensure optimal combustion, variations in
the air to fuel ratio persist resulting in intervals of inefficient combustion
especially during rapid acceleration or deceleration and on cold start up. 
These variations result in inconsistent engine power, fuel wastage and
emissions.  

     The two principal products in the marketplace designed to solve this
problem are superchargers and turbochargers.  A supercharger is essentially an
air compressor, which is mechanically driven by the engine and supplies
increased airflow to the engine.  Although superchargers solve most of the air
to fuel ratio problems they are incapable of providing optimum airflow for the
wide range of engine speeds and loads within which engines must operate. 
Moreover, superchargers are expensive, deplete engine power and increase fuel
consumption.  Turbochargers perform a similar function as superchargers by
delivering increased airflow to the cylinders.  Unlike 


                                       2

<PAGE>

superchargers, however, turbochargers are driven through the flow of exhaust 
gases exiting the engine cylinders.  Although turbochargers solve many of the 
efficiency and fuel consumption problems associated with superchargers they 
do not work efficiently except at relatively high engine speeds and loads.  
This results in the phenomenon known as turbo lag.  Turbo lag occurs during 
the period from initial acceleration to the time when the turbine blades 
rotate at relatively high speeds (30,000 + RPM).  The inefficient operation 
of the engine during the turbo lag period presents safety problems due to 
lurches in the acceleration phase of the driving cycle, increases fuel 
consumption and maintenance problems and causes an increase in emissions due 
to the incorrect air to fuel ratio. Although turbochargers provide adequate 
airflow during peak operating periods, they actually exacerbate the problems 
during the turbo lag period.

     The Turbodyne Technology incorporates a three phase alternating current
permanent magnetic brushless electric motor and an electronic power converter
that changes the automotive D.C. power into three phase alternating power.  The
Turbodyne Technology also includes a microprocessor controller managed feedback
circuit to control the speed and power that the motor provides to the given
compressor based upon the algorithm provided by the engine manufacturer and the
sensors incorporated into the engine system.

     The Turbodyne Technology can be applied as a stand alone electronic
supercharger (the Turbopac-TM-) or integrated into an existing turbocharger
design (the Dynacharger-TM-) as a performance enhancement module.

PRODUCTS

     TURBOPAC-TM-

     The Turbopac-TM- product employs a high speed, electronically controlled
permanent, magnetic, brushless electric motor which runs continuously once the
engine has started, providing increased airflow to optimize the air to fuel
ratio.  The Turbopac-TM- essentially serves as an electronic supercharger.  The
Company believes that one of the most significant aspects of the Turbopac-TM- is
that it allows the Company to target much larger international markets because
of its application to both turbocharged and non-turbocharged engines, compared
to the Dynacharger which is applicable solely to turbocharged engines.

     The four separate Turbopac-TM- models under various stages of design and
production and which may be installed on either turbocharged or non-turbocharged
engines are as follows:

     (1)  the Turbopac-TM- 1200 model for non-turbocharged two stroke or four
          stroke gasoline engines installed in motorcycles, water-ski jets and
          snowmobiles;

     (2)  the Turbopac-TM- 1500 model for cars, performance vehicles and light
          trucks with turbocharged or non-turbocharged gasoline or diesel
          engines and with displacements up to 3.5 liters;

     (3)  the Turbopac-TM- 2200 model for cars, performance vehicles and light
          trucks with either turbocharged or non-turbocharged gasoline or diesel
          engines with displacements greater than 3.5 liters; and

     (4)  the Turbopac-TM- 2500 model for heavy duty trucks and buses for either
          turbocharged or non-turbocharged diesel engines.

     DYNACHARGER-TM-

     The Dynacharger-TM- is Turbodyne Systems's newest product.  It essentially
is the Turbopac-TM- motor module incorporated into a turbocharger.  The
Dynacharger-TM- was developed primarily as a result of feedback from evaluations
conducted by potential customers who indicated that they would prefer to see the
Turbodyne Technology built into a turbocharger rather than provided by an
additional external component.  The Dynacharger-TM- can be interchangeable 


                                       3
<PAGE>

with an original equipment turbocharger, thus making it appropriate for sale 
to both the OEM market and the aftermarket.  Turbochargers incorporating the 
Dynacharger-TM- products can be installed on both turbocharged and 
non-turbocharged diesel and gasoline engines.

     Turbodyne Systems also has commenced design of a variation to the
Dynacharger-TM- described as a Motor-Assisted Variable Geometry Turbocharging
System ("Motorassist").  The Motorassist is a Dynacharger-TM- with a valve
system to concentrate exhaust gases resulting in faster turbine acceleration. 
The Company anticipates that design of the Motorassist will be complete and
development for testing purposes will commence in the fourth fiscal quarter of
1998.

STATUS OF PRODUCT DEVELOPMENT  

     The Company has commenced commercial production of the Turbopac-TM- 1500
model at its facility in Carpinteria, California.  The Company completed final
design of the Turbopac-TM- 2500 model and following execution of its sales and
marketing agreement with Detroit Diesel Corporation ("Detroit Diesel"), see "--
Marketing Efforts and Joint Venture Relationships" below, commenced commercial
production at its facility in Carpinteria, California.  Pacific Baja produces
housings for Turbodyne Systems' prototype products which are then assembled at
the Carpinteria facility.  Pacific Baja has commenced commercial production of
the housings for each of the Turbopac-TM- 1500 and 2500 models.

     The Company has completed final design and commenced limited commercial
production of each of the Turbopac-TM- 1200 and 2200 models for testing
purposes.  

     Turbodyne Systems expects to complete specification and design for the
Dynacharger-TM- product by the end of the third fiscal quarter of 1998. 
Production of the Dynacharger-TM- is contingent on the formation of strategic
relationships with manufacturers of turbochargers.  The Company is pursuing the
development of these relationships and does not expect to commence production of
the Dynacharger-TM- until these relationships are in place.  No assurance can be
given that these relationships will be formed, that the Dynacharger-TM- will be
produced and if produced that it will be commercially successful.  See "Item 9. 
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Cautionary Statements -- Product Development."

     Turbodyne Systems' limited production to date has served to meet the
requirements of Detroit Diesel, limited aftermarket European passenger car
market as well as other potential customers and testing agencies retained by the
Company undertaking evaluations of the Turbodyne Products.  These evaluations
primarily are for the purpose of allowing potential customers to determine the
suitability and performance of the products for their applications with the goal
of obtaining purchase orders.  To date, Turbodyne Systems has had no significant
sales of its products. 

     At December 31, 1997, Turbodyne Systems had spent approximately $13,134,000
developing the Turbodyne System, and the Turbopac-TM- and Dynacharger-TM-
products.  Management anticipates that it will continue to expend significant
amounts in connection with research and development efforts in order to bring
all Turbopac-TM- models and the Dynacharger-TM- product into full scale
commercial production.  See "Item 9.  Management's Discussion and Analysis of
Results of Operations and Financial Condition -- Cautionary Statements --
Product Development."

MARKETING EFFORTS AND JOINT VENTURE RELATIONSHIPS

     TURBOPAC-TM- PRODUCTS

     The Company markets the Turbopac-TM- products in both the OEM sector and
the aftermarket installation sector.  In the fourth fiscal quarter of 1997,
pursuant to an arrangement with Detroit Diesel Corporation and in accordance
with the United States Environmental Protection Agency Urban Bus Program (the
"U.S. EPA Urban Bus Program"), the Company's Turbopac-TM- 2500 models were
installed on city buses in Toledo, Ohio, Riverside, 


                                       4

<PAGE>

California and Milwaukee, Wisconsin. Following the successful installation of 
these Turbopac-TM- products, Milwaukee Transit requested and received from 
the United States Environmental Protection Agency (the "EPA") approval to 
equip ten 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 approval by the EPA, in April 1998, the Company entered 
into a five year sales and marketing agreement with Detroit Diesel pursuant 
to which Detroit Diesel will exclusively market the Turbopac-TM- product as 
part of its mechanical engine rebuild kit for the EPA Urban Bus Program. In 
June 1998, pursuant to the terms of the Agreement, the Company delivered the 
initial stocking order consisting of 100 Turbopacs-TM- to Detroit Diesel. The 
Company has established a goal to have the Turbopac-TM-product installed on 
approximately 2600 buses by the end of fiscal 1998.  

     The Company has entered into an agreement in principle with Kuhnle, Kopp 
and Kausche AG ("3K"), dated April 11, 1997, for the design, development and 
manufacture of a prototype line of turbochargers incorporating the Turbodyne 
Technology and manufactured by 3K.  It is anticipated that the prototype 
turbochargers will be developed for 3K's major customers in the European 
automotive market.  3K is the largest manufacturer of turbochargers in 
Germany. 

     The agreement in principle contemplates the formation of a joint venture
pursuant to which the Company will grant to the joint venture an exclusive
license of the Turbodyne Technology for the design, manufacture and sale of
motor-driven turbochargers in Europe for auto and truck manufacturers and such
other territories as the parties may agree.  3K will have overall responsibility
for marketing and sales of the joint venture products through 3K's established
distributor and dealer network.  The Company will not receive any royalty from
its license to the joint venture and will participate in joint venture profits
to be shared pursuant to a formula based on cost contributions.  The agreement
in principle also provides 3K with the option to continue to use any technology
licensed to the joint venture for a period of three years after termination of
the joint venture relationship, in consideration for the payment of a royalty in
an amount to be agreed upon by the parties.

     There is no assurance that the agreement in principal between the Company
and 3K will result in the execution of a joint venture agreement between the
Company and 3K.  In addition, there is no assurance that a joint venture between
the Company and 3K would achieve sales of the turbocharger incorporating the
Turbodyne Technology or that the Company would ever realize any profits from the
joint venture.

     The Company currently is involved in several additional testing programs
which the Company hopes will result in additional strategic relationships.  In
the first quarter of fiscal 1998, Turbopacs-TM- were installed on six transit
buses in Sao Paulo and Curtiba, Brazil and to date, have exceeded all of the air
quality and fuel economy objectives pursuant to that program by as much as 100%.
The Company also entered into an agreement with Ralphs Grocery Company pursuant
to which Turbopac low-emission systems have been installed on representative
engines of Ralphs Grocery Company's truck fleet.

     The Company also provides each Turbopac-TM- product to OEMs, including
Navistar, AlliedSignal, Volkswagen and MAN, for testing to demonstrate the
superior performance and marketability of the Turbopac-TM- products to these
manufacturers.  These evaluation programs typically are long-term and,
accordingly, the Company does not anticipate additional contracts with OEMs for
its Turbopac-TM- products in the near term.  The Company hopes to enter into
joint venture manufacturing agreements similar to that with Detroit Diesel with
other OEMs who agree to purchase the Turbopac-TM- products. 

     DYNACHARGER-TM- PRODUCT

     The Company intends to pursue evaluation programs with OEMs upon final
design of the Dynacharger-TM- product.  As with the Turbopac-TM- products, the
Company intends to secure OEM supply contracts pursuant to which the
Dynacharger-TM- products will be incorporated directly into OEM products as
performance enhancement modules.  


                                       5

<PAGE>

See "Item 9.  Management's Discussion and Analysis of Results of Operations 
and Financial Condition -- Cautionary Statements -- Product Development."

GEOGRAPHICAL MARKET

     Initially, the Company is targeting the aftermarkets in North America,
South America and Europe, as well as, OEMs in the United States and Europe
involved in automobile and truck and related parts manufacture.  The ultimate
consumers of these products may be located worldwide. 

COMPETITION

     While the Company believes there are no products directly competitive to
the Turbodyne Products, competition to the Turbodyne Technology exists from
competing technologies marketed by companies who may have more resources and who
may be better financed than the Company.  In addition, there is no assurance
that new competitors will not attempt to enter the industry.  

     Competition for the Turbopac-TM- products is expected from improvements and
refinement to conventional internal combustion engines which may result in
increased fuel efficiency and decreased emissions.  The cost of incorporating
these improvements and refinements into existing internal combustion engines may
be less than the cost of installing a Turbopac-TM- product.  In addition, OEMs
and consumers may more readily accept improvements and modifications to existing
technology than a new technology.

     Competition for the Dynacharger-TM- products is expected from improvements
and refinements to existing turbocharger technology which may be less expensive
than turbochargers incorporating the Dynacharger-TM- products.  In addition,
OEMs and consumers may be more willing to accept improvements and refinements to
existing turbocharger technology than turbochargers installed with the
Dynacharger-TM- product.

     Both the Turbopac-TM- and Dynacharger-TM- products may realize competition
from existing products manufactured by OEMs who do not incorporate Turbodyne
Products into their final products.  A relatively small number of OEMs have a
significant share of the automotive market and accordingly an OEM's
determination not to incorporate the Turbodyne Products into its product lines
could pose a significant barrier to entry to the Company.  See "Item 9. 
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Cautionary Statements -- Competition."

IMPACT OF GOVERNMENT REGULATION

     As pollution standards increase, the automotive market is expected to
increase its demand for technical improvements to existing internal combustion
engine technology in order to meet these standards.  Accordingly, an imposition
of increased pollution standards by government regulatory agencies is expected
to cause an increase in demand for the Turbodyne Products, assuming these
products have been commercially developed and accepted.

     In the United States, emissions standards for diesel engines are imposed 
by the US Environmental Protection Agency (the "EPA") and by other regulatory
agencies such as the California Air Resources Board ("CARB").  In April 1998,
the Company received certification by the EPA for the Detroit Diesel emission
reduction kit, which includes the Turbopac-TM- 2500 model, under the Urban Bus
Retrofit/Rebuild Program.  There can be no assurance that the government will
not increase emission standards to a level that the Turbodyne Products currently
do not satisfy, in which event, the Company may be required to expend
significant amounts to develop and incorporate the technology necessary to meet
these standards.  Any such expenditure and any delays in product development or
sales as a result of more stringent emission standards could have a material
adverse effect on the results of operations of the Company.  See "Item 9. 
Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Cautionary Statements -- Product Development."


                                       6

<PAGE>

PROPRIETARY PROTECTION OF PRODUCTS

     A U.S. patent application was made by Edward M. Halimi, as inventor, in 
1993 for Turbodyne Systems' original Turbodyne Systems product. Mr. Halimi 
assigned the patent application to Turbodyne Systems pursuant to an asset 
purchase agreement between Mr. Halimi and Turbodyne Systems dated August 18, 
1993. Turbodyne Systems has been advised by the U.S. Patent Office that all 
claims in respect of this patent application have been approved. Turbodyne 
Systems has submitted final drawings to the Patent Office and has paid the 
patent issuance fee required for the issue of the formal patent. The issue 
of the formal patent is subject only to the acceptance by the Patent Office 
of the final drawings. No royalty is payable in respect of this patent. The 
patent will expire 17 years from the date of formal issuance.

     Two U.S. patent applications were submitted by Edward M. Halimi, William 
Woollenweber and Ralph Maloof, as co-inventors, in 1995 in respect of 
Turbodyne Systems' proprietary Dynacharger-TM- products. The U.S. Patent 
Office has approved all claims with respect to the earlier of the patent 
applications and has issued a formal patent in the name of the inventors 
which expires on July 28, 2015. With respect to the second patent 
application, the U.S. Patent Office has approved 40 out of 42 claims and has 
issued a formal patent in the name of the inventors which expires on 
September 18, 2015. The inventors have executed formal patent assignment 
documents in favor of Turbodyne Systems for each of the issued patents.  
Turbodyne Systems has agreed to pay a royalty to each of the inventors equal 
to 1% of the gross revenues directly attributable to the Dynacharger-TM- 
products, for a total royalty  obligation equal to 3% of gross revenues.

     Two U.S. patent applications were submitted in late 1995 by Edward M. 
Halimi, William Woollenweber and Ralph Maloof, as inventors, in respect of 
the Turbopac-TM- products and were re-filed with additional disclosed 
embodiments in late 1996 in conjunction with international patent 
applications filed pursuant to the Patent Cooperation Treaty (the "PCT").  
Examination of the international patent applications has been requested by 
Turbodyne Systems. The inventors have executed formal patent assignments in 
favor of Turbodyne Systems in respect of these patent applications which have 
been submitted to the U.S. Patent Office for registration. Turbodyne Systems 
has agreed to pay a royalty to each of the inventors equal to 1.5% of gross 
revenues directly attributable to the Turbopac-TM- products, for a total 
royalty obligation equal to 4.5% of gross revenues.

     Turbodyne Systems has made additional patent applications with respect 
to its technology and for recognition of each of the patent applications for 
the Turbopac-TM- and Dynacharger-TM- products with each country that is a 
party to the PCT in order to secure international patent protection of the 
Turbodyne Technology.

     Turbodyne Systems' policy is to diligently defend any infringement of 
its patents. To date, Turbodyne Systems has not encountered any challenges 
and is not aware of any potential challenges to its patents.  Turbodyne 
Systems has not established a fund for defense of its patents but may do so 
if significant sales of its products are achieved. See "Item 9.  
Management's Discussion and Analysis of Results of Operations and Financial 
Condition -- Cautionary Statements -- Proprietary Protection."

     Turbodyne Systems also requires all employees, consultants and persons 
or companies involved in the testing of Turbodyne Systems' products to 
execute confidentiality agreements and to agree to keep confidential all 
proprietary information with respect to Turbodyne Systems' products.

DEVELOPMENT COSTS TO DATE

     Since the acquisition of the Turbodyne Technology, Turbodyne Systems 
primarily has engaged in the research and development of products that 
incorporate the Turbodyne Technology.  The Company concentrates the business 
of Turbodyne Systems exclusively on research and development of products 
incorporating the Turbodyne Technology.  Turbodyne Systems intends to engage 
in research and development of additional products incorporating the 
Turbodyne 


                                       7

<PAGE>

Technology.  The research and development costs incurred during the 
fiscal years ended December 31, 1997, 1996 and 1995 were $6,609,000, 
$3,622,000 and $1,421,000, respectively.

AUTOMOTIVE COMPONENTS BUSINESS

     Pacific Baja is an established manufacturer of aluminum cast products 
primarily for the automotive industry. Pacific Baja manufactures 
turbocharger and compressor housings for OEMs in the automotive industry and 
aluminum wheels for the automotive aftermarket. Pacific Baja also 
manufactures, on a contract basis, the housings for the Turbodyne products 
manufactured by Turbodyne Systems.

     The Company acquired Pacific Baja effective July 2, 1996 pursuant to an 
acquisition agreement between the Company, Pacific Baja Holding, Inc. 
("Pacific Baja Holding") and the principal shareholders of Pacific Baja 
Holding (the "Acquisition Agreement"). The Company acquired all of the 
issued and outstanding shares of Pacific Baja Holding for total consideration 
consisting of a cash payment of $12,000,670 and the issuance of 3,076,923 
shares of common stock of the Company.  

     The principal purpose of the Pacific Baja acquisition was to form an 
alliance with a manufacturer with a proven track record of volume 
manufacturing of quality auto parts, particularly in the turbocharger field.  
The Turbodyne Products are comprised of precision automotive parts, 
including cast aluminum components manufactured by Pacific Baja. Through the 
acquisition of Pacific Baja, the Company acquired a proven manufacturer for 
the Turbodyne Products. In addition, the acquisition brought to the Company 
personnel experienced in manufacturing and who have contacts with 
turbocharger manufacturers and potential customers for the Turbodyne Products.

PRODUCTS

     Pacific Baja manufactures and markets permanent mold and sand aluminum 
castings, both machined and raw, for the automotive aftermarket as well as 
automotive and industrial OEMs. Pacific Baja has three operating units: 
Optima Wheel, Baja Pacific and Baja Oriente.

     CUSTOM WHEELS

     Pacific Baja, through its Optima Wheel operating unit, manufactures and 
markets styled aluminum road wheels for the automotive aftermarket. Products 
consist of one-piece aluminum wheels for passenger cars, light trucks, and 
motorcycles, as well as two-piece (steel outer, aluminum center) wheels for 
the passenger car replacement wheel market. Sixty percent of Pacific Baja's 
custom wheel sales are private label brands produced for other wheel 
manufacturers and distributors with the remaining forty percent marketed 
under the 'Optima Wheels' brand name to approximately 25 wholesale 
distributors located throughout the United States. As Optima Wheel is not a 
dominant aftermarket supplier of aluminum custom wheels and does not expend 
significant efforts in connection with marketing and sales of its custom 
wheels, there is a risk that revenues from these products will decline as 
existing and new companies obtain additional market share. Management 
intends to minimize the risk of revenue loss to the Company by focusing its 
efforts to increase revenues in the non-wheel, industrial products areas.

     NON-WHEEL ALUMINUM COMPONENTS

     Pacific Baja, through its Baja Pacific operating unit, manufactures 
short-run sand and permanent mold aluminum castings for automotive, 
aerospace, and other industrial applications. Products manufactured include 
turbine fan blades for maritime vessels, rotors for fan blades, and short 
production runs for existing customers.  

     Pacific Baja, through Baja Oriente's facility located in Ensenada, Baja 
California, Mexico, casts and machines permanent mold aluminum parts. Baja 
Oriente is incorporated under Mexican law and is 100% beneficially owned by 
Pacific Baja. Ownership of Baja Oriente by its U.S. parent is permitted under 
an exemption to Mexican


                                       8

<PAGE>

foreign investment law for "maquiladora" ventures. Baja Oriente operates as 
a maquiladora pursuant to a maquiladora license granted by the Mexican 
Ministry of Commerce. As a maquiladora, Baja Oriente is able to import raw 
material from the U.S. and export final products to Pacific Baja in the U.S. 
without being subject to import and export duties levied under Mexican 
Federal Customs law. Baja Oriente purchases raw materials and receives 
payment for its products in U.S. currency and accordingly is protected 
against fluctuations in the exchange rate of the Mexican peso in respect of 
its purchases of raw materials.  

NEW PRODUCT DEVELOPMENT

     Pacific Baja develops new products in order to respond to customer 
requests and to diversify its product lines. Pacific Baja's engineering team 
has on-site design and development capabilities that enable it to design 
products utilizing computer aided design and computer aided manufacturing 
(CAD/CAM) drawings. Pacific Baja's new product development activities among 
its various product lines are as follows:

     CUSTOM WHEELS

     Pacific Baja does not design new and unproven custom aluminum road 
wheels. Pacific Baja solicits market information from its customers and 
attends auto shows to determine which styles are popular, and uses its 
CAD/CAM system to make new molds and manufacture those wheels. Pacific Baja 
typically manufactures approximately ten new wheel products annually.  
However based on many factors, including but not limited to, technological 
developments and customer demands, Pacific Baja may change the number of new 
wheels produced annually.

     NON-WHEEL ALUMINUM COMPONENTS

     Pacific Baja has implemented a strategy to develop relationships with 
OEMs in addition to AlliedSignal and Navistar (see "-- Material Supply 
Agreements" immediately below) in the automotive industry to provide new 
non-wheel aluminum components as a means to expand its product line. New 
products developed by Pacific Baja start as short-run prototypes at the La 
Mirada facility. Once these products are accepted by the OEM, production 
begins at the higher volume foundry in Ensenada, Mexico.

     There can be no assurance that Pacific Baja will be successful in 
establishing relationships with additional OEMs or if established that 
Pacific Baja will develop new products or that any new products developed 
will be commercially accepted or profitable to Pacific Baja. See "Item 9.  
Management's Discussion and Analysis of Results of Operations and Financial 
Condition --Cautionary Statements -- Technological Change" and "Item 9.  
Management's Discussion and Analysis of Results of Operations and Financial 
Condition --Cautionary Statements -- Customer Preferences."

MATERIAL SUPPLY AGREEMENTS

     Baja Oriente casts and machines permanent mold aluminum parts for the 
Garrett division of AlliedSignal Automotive, Inc. ("AlliedSignal"), which 
manufactures turbo-charging systems for Class 8 trucks. Pursuant to its 
agreement with AlliedSignal, Pacific Baja is the sole source to AlliedSignal 
for air-to-air heat exchange manifolds and is one of two aluminum foundries 
manufacturing compressor housings, pedestals, and other aluminum components 
for AlliedSignal. Pacific Baja manufactures a ready-to-assemble product for 
AlliedSignal that is shipped directly to its plant in Mexicali, Mexico. The 
supply agreement between AlliedSignal and Pacific Baja commenced on January 
1, 1994 for an initial three year term. Pursuant to a letter agreement, 
Pacific Baja and AlliedSignal extended the supply agreement for an additional 
three year term commencing on January 1, 1997 and expiring on December 31, 
1999. 

     Effective September 1, 1997, the Company entered into a Supply Agreement 
with Navistar International Transportation Corp. ("Navistar") for an initial 
five year term. Pursuant to the terms of the Supply Agreement,


                                       9

<PAGE>

Navistar is obligated to purchase from the Company all of its original 
equipment and service requirements for engine aluminum castings as they exist 
on the effective date of the contract. The anticipated volume of products to 
be purchased from the Company were based on Navistar's review of its past 
usage and projected market forecasts and Navistar is not required to purchase 
any minimum quantity under the contract. Navistar will negotiate with the 
Company in good faith with regard to placing new production business with the 
Company although there is no obligation to do so. During the term of the 
contract, the Company may not manufacture or sell the products covered by the 
contract to any other party absent the written consent of Navistar.  
Management anticipates that the Navistar contract will result in significant 
revenues and profitability to the Company through fiscal 2002.

MANUFACTURING

     Pacific Baja manufactures products such as manifolds, compressor 
housings, and pedestals at its Ensenada foundry, performs its short-run 
foundry and prototype production in La Mirada, and manufactures aluminum cast 
custom wheels at both locations. The La Mirada and Ensenada foundries 
perform manufacturing activities ranging from casting to heat treating, 
powder painting (Ensenada only), finished machining, and packaging.

     ENSENADA FOUNDRY

     Pacific Baja operates an aluminum permanent mold foundry at Ensenada, 
Baja California, Mexico, which occupies approximately 120,000 square feet.  
The Ensenada facility serves as Pacific Baja's primary long run, high volume 
casting operation, where custom wheels are cast, heat treated, painted, 
machined to a semi-finished state, and shipped to Pacific Baja's La Mirada 
facility. The Ensenada facility also houses Pacific Baja's Baja Pacific 
operating unit, which manufactures aluminum components under contract for 
AlliedSignal and Navistar and casts, machines, and ships manifolds directly 
to AlliedSignal's assembly plant in Mexicali, Mexico and casts, machines and 
ships compressor housings and pedestals and other components to their 
Torrance, California facility. As of December 31, 1997, Pacific Baja 
employed approximately 486 persons at its Ensenada foundry with two 
production shifts and one maintenance shift operating five and one half days 
a week.

     In December 1997, Pacific Baja purchased manufacturing facilities 
located in Ensenada, Mexico from Louisiana-Pacific Corporation. These 
facilities consist of two buildings comprising approximately 130,000 total 
square feet and will be used to expand Pacific Baja's manufacturing 
capabilities in Mexico. Pacific Baja commenced operations at these new 
facilities in February 1998 and currently employs approximately 75 persons at 
these facilities. All of the Company's Mexican facilities are certified to 
the QS 9000 quality standard, the most stringent quality standard in the 
United States automotive industry. The Company believes that the Ensenada 
Foundry together with the additional manufacturing facilities purchased from 
Louisiana-Pacific Corporation will provide adequate space for the Company's 
manufacturing needs through fiscal 1999.

     LA MIRADA FOUNDRY

     Pacific Baja operates a sand and permanent mold 95,000 square foot 
foundry facility at La Mirada, California. In addition, Pacific Baja's 
corporate offices and distributing facility are located in the La Mirada 
building. The La Mirada facility receives semi-finished custom wheels, 
shipped from the Ensenada foundry, which are finished, packaged, and prepared 
for shipment to Pacific Baja private label customers and Optima Wheel 
distributors. The La Mirada facility also facilitates short-run and 
prototype aluminum casting production for customers and serves as Pacific 
Baja's 'feeder' operation for longer run production in Ensenada, Mexico. As 
of December 31, 1997, Pacific Baja employed approximately 190 persons at its 
La Mirada facility working two shifts, five days a week. The Company 
anticipates that the majority of the manufacturing activities currently 
performed at the La Mirada facility will be transferred to the Ensenada 
facility during fiscal 1998, which the Company anticipates will result in 
substantial savings.  


                                       10

<PAGE>


     Pacific Baja outsources the chrome plating and polishing of its custom 
wheels due to the presence of hazardous materials associated with this 
process and the resulting risk of environmental liabilities.

SUPPLIERS

     The raw materials used in Pacific Baja's production of cast aluminum 
custom wheels for the automotive aftermarket and cast aluminum parts for 
automotive and industrial OEMs consist primarily of aluminum and sand.  
Aluminum ingots are purchased from aluminum suppliers such as TST Inc., Vista 
Corporation and Noranda Corp. and are melted, poured into sand and/or 
permanent mold castings, heat treated, machined, and finished into the final 
product. Aluminum purchases are based predominantly on price and typically 
net 60 day terms. Pacific Baja does not expect any disruption in its ability 
to obtain aluminum in the foreseeable future. See "Item 9. Management's 
Discussion and Analysis of Results of Operations and Financial Condition -- 
Cautionary Statements  -- Raw Materials."

     Sand is used in manufacturing the cores that are placed within permanent 
molds prior to pouring aluminum and is used in sand aluminum castings 
produced by Pacific Baja. Pacific Baja purchases approximately 90% of its 
sand from one supplier.  However, in the event this supplier is unable to 
meet the needs of Pacific Baja, the Company does not anticipate any 
significant additional cost or time delays to procure sand from another party.

     Pacific Baja's facility in Ensenada, Mexico is supplied with raw 
materials which are purchased in, and delivered from, the United States.  
This arrangement is intended to help insulate Pacific Baja from adverse 
foreign exchange fluctuations.

COMPETITION

     Pacific Baja faces significant competition in both the cast aluminum 
wheels automotive aftermarket industry and cast aluminum product industry.  
The barriers to entry to the aluminum foundry business are not prohibitive as 
capital costs are less than those associated with steel mills in large part 
because foundry operations incorporate minimal high technology. The 
competition in each industry segment is summarized as follows:

     CAST ALUMINUM WHEELS FOR AUTOMOTIVE AFTERMARKET

     Pacific Baja faces competition in the United States from approximately 
85 wheel companies of which approximately one-third have manufacturing 
capability. Pacific Baja limits its sales of aftermarket wheels primarily to 
the North American automotive market. To the Company's knowledge, there is 
no one company with over 20% share in this market.

     CAST ALUMINUM PRODUCTS FOR OEMS

     The sales of the cast aluminum products to OEMs by Pacific Baja 
currently is limited to OEMs operating within the United States. Pacific 
Baja faces competition in the cast aluminum product manufacturing industry 
from a large number of competitors which have greater revenues and financial 
resources than Pacific Baja. Barriers to entry for the cast aluminum product 
industry for automotive and industrial OEMs are significantly higher than the 
barriers to entry for cast aluminum wheels as OEMs impose high standards of 
quality control. The Mexican manufacturing facility of Pacific Baja operated 
by Baja Oriente provides Pacific Baja with a cost advantage over competitors 
with operations in the United States.

ITEM 2.   PROPERTIES

     The principal United States corporate office of the Company is located in
leased premises at 21700 Oxnard Street, Suite 1550, Woodland Hills, California
91367. The office is approximately 5,400 square feet. The term


                                       11

<PAGE>

of the lease expires on August 31, 2002. The Company's monthly rent for the 
first two and one half years of the lease term is approximately $10,000 and 
increases to approximately $11,000 for the duration of the lease term.

     The principal Canadian corporate office of the Company is located in 
leased premises at Suite 510, 1090 West Pender Street, Vancouver, British 
Columbia. The office is approximately 2,000 square feet and is leased for a 
three-year term commencing June 1, 1997. The Company's annual rent is Cdn. 
$30,212. See "Item 13. Interest of Management in Certain Transactions." The 
Company intends to sublease this office following its domestication into 
Delaware. See "Item 1. Domestication."

     Turbodyne Systems' production and assembly facilities are located in 
leased premises at 6155 Carpinteria Avenue, Carpinteria California, USA  
93013. The facilities are approximately 28,000 square feet on 3.17 acres of 
land and are subleased on a month to month basis from American Appliance 
Inc., a private company controlled by Mr. Halimi. The term of the lease 
between American Appliance Inc. and its landlord expires on January 30, 2005. 
The Company's monthly rent is $16,850 plus operating costs, including taxes, 
insurance and utilities. See "Item 13. Interest of Management in Certain 
Transactions."

     Pacific Baja's California manufacturing facility is located in leased 
premises at 15300 Valley View Avenue, La Mirada, California 90638. The 
facility is approximately 95,000 square feet. The facility is leased from 
New England Mutual Life Insurance Company for a 75 month term expiring March 
31, 2001. The rent payable by Pacific Baja is approximately $24,000 per 
month, inclusive of taxes and operating expenses.

     One of Pacific Baja's Mexican manufacturing facilities is located in 
leased premises at #700 Miramar Y Calle, 18 Ensenada, Baja California, 
Mexico. The facility is approximately 120,000 square feet and is leased from 
Baja Pacific Properties, an affiliate of the Company, for a ten year term 
expiring September 5, 2005. The monthly rent is $15,000, inclusive of taxes 
and operating expenses, and increases 5% per annum during each subsequent 
year of the lease. See "Item 13. Interest of Management in Certain 
Transactions."

     The Company's other Mexican manufacturing facility is located at KM 
100.5 Carretera Tinana - Ensenada, El Sauzel De Rodriguez, 22760 Ensenada, 
B.C., Mexico and consists of two buildings comprising approximately 130,000 
total square feet. The Company purchased these facilities in December 1997.
     
ITEM 3.   LEGAL PROCEEDINGS

     The Company is a party to an action commenced in the Supreme Court of 
British Columbia on October 2, 1996 by Brad Holt seeking specific performance 
and/or damages for breach of an alleged agreement by the Company to grant to 
Mr. Holt options to purchase an aggregate of 650,000 shares of Common Stock 
of the Company at prices varying from Cdn. $3.50 per share to Cdn. $7.50 per 
share. The Company has filed a defense denying the existence of the agreement 
and, in the alternative, alleging that the agreement was replaced by a 
subsequent agreement granting Mr. Holt options to purchase 100,000 shares of 
the Common Stock of the Company at a price of Cdn. $2.00 per share. 

     In January 1998, the Company filed an action against a former executive 
for, among other things, fraud, rescission and restitution, breach of 
contract and defamation. The defendant has not yet responded to the 
complaint but has made an administrative complaint to the Equal Employment 
Opportunity Commission alleging gender discrimination. The Company has 
responded to the EEOC inquiry and had denied each and all of the allegations. 
The former executive has obtained a right-to-sue letter under the California 
Fair Employment and Housing Act, but to date, the Company has not been served 
with a complaint. 

     The Company is a party to an action filed in December 1997 in the Santa 
Barbara Superior Court by Leigh Walker-Pena against Vincent Scalice and the 
Company. The complaint alleges, as against the Company, that officers and 
directors of the Company told plaintiffs that the Company's stock was going 
to be listed on Nasdaq, that the price 


                                       12

<PAGE>

of the stock would increase substantially and that these statements were 
false and misleading and constituted intentional or negligent 
misrepresentations. The Company answered the complaint, has denied all of 
the claims and has asserted affirmative defenses. 

     Arbitration proceedings have been commenced by two of the former 
shareholders of Pacific Baja Holdings as a consequence of the failure of the 
Company to qualify the resale in British Columbia of 25% of the common shares 
issued to the former shareholders of Pacific Baja Holdings in connection with 
the acquisition of Pacific Baja by the Company. The Company has reached an 
agreement in principle with the former shareholders of Pacific Baja to 
compensate them for the failure to file a prospectus in British Columbia to 
qualify the resale of these common shares.  The two former shareholders of 
Pacific Baja have withdrawn the arbitration proceedings.

     Other than the claims of the former shareholders of Pacific Baja 
Holders, the Company believes that each of the claims against the Company 
noted above are without merit and intends vigorously to defend against them.  
With the exception of the actions identified above, the Company and its 
subsidiaries are not a party with respect to any material legal proceedings.

                                       PART II

ITEM 4.   CONTROL OF COMPANY 

     The following table sets forth, as of March 31, 1998, certain 
information regarding the beneficial ownership of the Common Stock by owners 
of 10% or more of the Common Stock and by all directors and officers as a 
group. 


<TABLE>
<CAPTION>

 TITLE OF CLASS   IDENTITY OF PERSON OF       AMOUNT OWNED    PERCENT OF CLASS
                  GROUP                                       (1)
 <S>              <C>                         <C>             <C>
 Common Stock     Edward M. Halimi            3,650,000(2)    10.06%
                  Chairman of the Board

 Common Stock     Directors and Officers as   7,013,357(3)    19.33%
                  a Group (10  persons)

</TABLE>

(1)  Based upon 36,275,579 common shares issued and outstanding at March 31,
     1998. Beneficial ownership is determined in accordance with the rules of
     the Securities and Exchange Commission that deem shares to be beneficially
     owned by any person who has or shares voting or investment power with
     respect to such shares. Unless otherwise indicated, the persons named in
     this table have sole voting and sole investment power with respect to all
     shares shown as beneficially owned, subject to community property laws
     where applicable. In computing the number of shares beneficially owned by
     a person and the percentage ownership of that person, shares of Common
     stock subject to options or warrants held by that person that are currently
     exercisable or exercisable within 60 days of March 31, 1998 are deemed
     outstanding. Such shares, however, are not deemed outstanding for the
     purposes of computing the percentage ownerships of each other person.

(2)  Consists of 3,250,000 escrow shares held in the name of March Technologies
     Inc., a private company controlled by Mr. Halimi and 400,000 shares of
     Common Stock reserved for issuance upon exercise of stock options which are
     or will become exercisable on or before May 30, 1998.

(3)  Includes 2,146,000 shares of Common Stock reserved for issuance upon
     exercise of stock options which are or will become exercisable on or before
     May 30, 1998.



                                       13
<PAGE>

     To the Company's knowledge, and except as disclosed herein, the Company 
is not directly or indirectly owned or controlled by any other entity or by 
any foreign government. There are no arrangements known to the Company the 
operation of which may result in a future change of control of the Company.

ITEM 5.   NATURE OF TRADING MARKET

     The common shares of the Company were listed on the Vancouver Stock 
Exchange in British Columbia, Canada from March 8, 1994 to July 19, 1997 and 
since March 26, 1997 have been listed for quotation on the Nasdaq SmallCap 
Market. Since July 30, 1997, the common shares also have been listed for 
quotation of the Easdaq Market. 

VANCOUVER STOCK EXCHANGE

     The following table sets forth the reported high and low prices for the 
common shares as quoted over the Vancouver Stock Exchange on a quarterly 
basis for the most recent two fiscal periods.

<TABLE>
<CAPTION>

             YEAR AND MONTH                     HIGH*                LOW*
--------------------------------             -----------           --------
<S>                                          <C>                   <C>
 July 1, 1997 to July 19, 1997                 $ 6.05               $ 5.41

 April 1, 1997 to June 30, 1997                 11.65                 5.00

 January 1, 1997 to March 31, 1997              12.50                 9.20

 October 1, 1996 to December 31, 1996           12.35                 9.70

 July 1, 1996 to September 30, 1996             12.80                 9.00

 April 1, 1996 to June  30, 1996                15.00                 8.50

 January 1, 1996 to March 31, 1996              12.88                 4.90

</TABLE>
----------------------
*    As quoted by the Vancouver Stock Exchange.  Expressed in Canadian dollars.

NASDAQ SMALLCAP MARKET

     The following table sets forth the reported high and low prices for the 
common shares as quoted on the Nasdaq SmallCap Market on a quarterly basis 
since March 26, 1997, the date the common shares of the Company were listed 
on the Nasdaq SmallCap Market.


<TABLE>
<CAPTION>

 YEAR AND MONTH                                       HIGH*            LOW*
-------------------------------------------        ------------      ---------
<S>                                                <C>               <C>
 April 1, 1998 to June 30, 1998                      $ 10.81          $ 3.75

 January 1, 1998 to March 31, 1998                      4.47            2.03

 October 1, 1997 to December 31, 1997                   5.50            2.72

 July 1, 1997 to September 30, 1997                     6.37            3.56

 April 1, 1997 to June 30, 1997                         8.38            3.50

 March 27, 1997 to March 31, 1997                       9.38            8.00

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


                                       14


<PAGE>


*    As quoted by the Nasdaq SmallCap Market.


                                        15
<PAGE>

ITEM 6.   EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS

     Except as discussed under "Item 7.  Taxation" below, the Company is not 
aware of any Canadian federal or provincial laws, decrees, or regulations 
that restrict the export or import of capital, including foreign exchange 
controls, or that affect the remittance of dividends, interest or other 
payments to non-Canadian holders of the common shares.  The Company is not 
aware of any limitations on the right of non-Canadian owners to hold or vote 
the common shares imposed by Canadian federal or provincial law or by the 
Articles of Continuation or the By-laws of the Company.

     The INVESTMENT CANADA ACT (the "Act") is applicable to acquisitions of a 
Canadian business by a non-Canadian person or entity.  The Act provides, 
among other things, for a review of an investment in the event of acquisition 
of control in certain Canadian businesses in the following circumstances:

(a)  if the investor is a non-Canadian and is not a member of a World Trade
     Organization ("WTO") country, any direct acquisition having an asset value
     exceeding $5,000,000 and any indirect acquisition having an asset value
     exceeding $50,000,000;

(b)  if the investor is a non-Canadian and is a WTO member, any direct
     acquisition having an asset value exceeding $168,000,000, unless the
     business is involved in uranium production, financial services,
     transportation services or a cultural business.  An indirect acquisition of
     control by an investor who is a WTO investor is not reviewable unless the
     value of the assets of the business located in Canada represents more than
     50% of the asset value of the transaction, or the business is involved in
     uranium production, financial services, transportation services or a
     cultural business.

     The Act provides that a non-Canadian investor can hold up to 1/3 of the 
issued and outstanding capital of a Canadian corporation without being deemed 
a "control person", and that a non-Canadian investor holding greater than 1/3 
but less than 1/2 of the issued and outstanding capital of a Canadian 
corporation is deemed to be a control person subject to a rebuttable 
presumption to the contrary (i.e. providing evidence of another control or 
control group holding a greater number of shares). 

     The Act provides for notification under the Act where a non-Canadian 
investor acquires control, directly or indirectly, of a Canadian business 
with assets under the thresholds for reviewable transaction.  The 
notification process consists of filing a notification form within 30 days 
following the implementation of an investment.

ITEM 7.   TAXATION

     CANADIAN FEDERAL INCOME TAXATION

     The following discussion is a summary of the principal Canadian federal 
income tax considerations generally applicable to purchasers of the Company's 
common shares ("Common Stock") who, for purposes of the Income Tax Act 
(Canada) and Income Tax Regulations  (the "Canadian Act"), deal at arm's 
length with the Company, hold shares of Common Stock as capital property, are 
not residents of Canada at any time when holding Common Stock and do not use 
or hold and are not deemed to use or hold Common Stock in the course of 
carrying on business in Canada and, in the case of insurers who carry on an 
insurance business in Canada and elsewhere, do not hold Common Stock that is 
effectively connected with an insurance business carried on in Canada.  Such 
a purchaser is referred to in this discussion as a "shareholder."

     This summary is based on the current provision of the Canadian Act, the 
regulations thereunder and the Canada-United States Income Tax Convention 
(1980) (the "Treaty") as amended.  This summary takes into account specific 
proposals to amend the Canadian Act and the regulations thereunder publicly 
announced by the Minister of


                                       16

<PAGE>

Finance prior to the date hereof and the Company's understanding of the 
current published administrative and assessing practices of Revenue Canada, 
Taxation.  This summary does not take into account Canadian provincial income 
tax laws or the income tax laws of any country other than Canada.

     A shareholder of the Company will generally not be subject to tax 
pursuant to the Canadian Act on a capital gain realized on a disposition of 
Common Stock unless the Common Stock is "taxable Canadian property" to the 
shareholder for purposes of the Canadian Act and the shareholder is not 
eligible for relief pursuant to an applicable bilateral tax treaty.  Under 
proposals to amend the Canadian Act, the Common Stock will not be taxable 
Canadian property to a shareholder provided that the Company is listed on a 
prescribed Canadian or foreign stock exchange within the meaning of the 
Canadian Act and provided that such shareholder, or persons with whom such 
shareholder did not deal at arm's length (within the meaning of the Canadian 
Act), or any combination thereof, did not own 25% or more of the issued 
shares of any class or series of the Company at any time within five years 
immediately preceding the date of disposition.  In addition, the Treaty will 
generally exempt a shareholder who is a resident of the United States for 
purposes of the Treaty from tax in respect of a disposition of Common Stock 
provided that the value of the shares of the Company is not derived 
principally from direct or indirect real property interests (including 
resource property) situated in Canada.

     Under the Canadian Act, a disposition of shares that constitute taxable 
Canadian property will give rise to a capital gain (or a capital loss) equal 
to the amount by which the proceeds of disposition of such shares, net of any 
cost of disposition, exceeds (or is less than) the adjusted cost base of such 
shares to the shareholder.  Generally, three quarters of any capital gain 
realized by the shareholder on a disposition or deemed disposition of such 
shares is included in computing his Canadian income for that year as a 
taxable capital gain.  Three quarters of any capital loss realized by a 
shareholder on a disposition or deemed disposition of such a share in a 
taxable year may generally be deducted from his Canadian taxable capital 
gains for that year.

     Under the Canadian Act, the disposition of a share by a shareholder may 
occur or be deemed to occur in a number of circumstances including on sale or 
gift of such share or upon the death of the shareholder.

     The initial adjusted cost base of a share to a shareholder will be the 
cost to him of that share.  Under the Canadian Act, certain addition or 
reduction adjustments may be required to be made to the cost base of a share. 
The adjusted cost base of each common share of a corporation owned by a 
shareholder at any particular time will be the average adjusted cost base to 
him of all shares of the same class of that corporation owned by him at that 
time.

     Any dividend, including stock dividends, paid or credited, or deemed to 
be paid or credited, by the Company to or for the benefit of a shareholder 
will be subject to Canadian withholding tax at the rate of 25% on the gross 
amount of the dividend, subject to the provisions of any applicable income 
tax convention. Pursuant to the Treaty, the rate of withholding tax generally 
will be reduced to 15% in respect of dividends paid to a shareholder who is a 
resident of the United States for purposes of the Treaty and are further 
reduced to 5% if the beneficial owner of the shares is a corporation that is 
a resident of the United States for purposes of the Treaty owning at least 
10% of the voting shares of the Company.

     UNITED STATES TAXATION

     For federal income tax purposes, an individual who is a citizen or 
resident of the United States or a domestic corporation ("U.S. Taxpayer") 
will recognize a gain or loss on the sale of the Company's Common Stock equal 
to the difference between the proceeds from such sale and the adjusted cost 
basis in the Common Stock.  The gain or loss will be a capital gain or 
capital loss if the Company's Common Stock is a capital asset in the hands of 
the U.S. Taxpayer.

     For federal income tax purposes, a U.S. Taxpayer will be required to 
include in gross income dividends received on the Company's Common Stock.  A 
U.S. Taxpayer who pays Canadian tax on a dividend on the Common


                                      17

<PAGE>

Stock will be entitled, subject to certain limitations, to a credit (or 
alternatively, a deduction) against federal income tax liability.  A domestic 
corporation that owns at least 10% of the voting stock of the Company should 
consult its tax advisor as to applicability of the dividends received 
deduction or deemed paid foreign tax credit with respect to dividends paid on 
the Company's Common Stock.

ITEM 8.   SELECTED FINANCIAL DATA

     The statement of operations data for the Company for the years ended 
December 31, 1997, 1996 and 1995 and the balance sheet data for the Company 
at December 31, 1997 and 1996 are derived from, and should be read in 
conjunction with, the audited Financial Statements and Notes thereto included 
elsewhere in this Report.  The statement of operations data for the Company 
for the years ended December 31, 1994 and 1993 and the balance sheet data for 
the Company at December 31, 1995, 1994 and 1993 are derived from the audited 
financial statements not included in this Report. The data set forth below 
are qualified in their entirety by, and should be read in conjunction with 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" and the Financial Statements and Notes thereto included elsewhere 
in this Report. 

     Financial data are given for the period commencing April 30, 1993, the 
effective date of the transfer of the assets comprising the Turbodyne 
Technology to Turbodyne Systems from Edward M. Halimi.  The Company's 
financial statements for the fiscal year ended December 31, 1997 have been 
prepared according to United States Generally Accepted Accounting Principles 
("US GAAP").   The Company's financial statements for the fiscal year ended 
December 31, 1996 and the Company's statement of operations data for the 
fiscal year ended December 31, 1995 included herein previously were prepared 
in accordance with Canadian Generally Accepted Accounting Principles ("CDN 
GAAP") and have been restated to conform with US GAAP and are stated in 
United States dollars.  The Company's balance sheet data for the fiscal year 
ended December 31, 1995 and the Company's financial statements for the 
fiscal year ended December 31, 1994 and the period from April 30, 1993 to 
December 31, 1993 included herein have been prepared in accordance with CDN 
GAAP, have been reconciled in accordance with US GAAP and are stated in 
Canadian dollars.  The financial condition and operating results for the 
Company described for the period  from January 1, 1996 to December 31, 1996 
includes the financial condition and operating results of Pacific Baja from 
July 2, 1996 to December 31, 1996.

(In Thousands, Except Share Data)


<TABLE>
<CAPTION>

                                             FOR THE FISCAL YEARS ENDED
                       ---------------------------------------------------------
                            1997        1996         1995       1994        1993
                            ----        ----         ----       ----        ----
<S>                    <C>            <C>         <C>           <C>         <C>
 OPERATING DATA:
 Sales                    $39,165     $13,944         Nil         Nil         Nil
 Gross Profit               6,839       1,843         Nil         Nil         Nil
 Net Loss                ($13,185)    ($5,563)    ($2,603)      ($936)      ($112)


 BALANCE SHEET DATA:
 Working Capital
 (Deficit)                 $8,530      $7,026         $83       ($426)     ($336)
 Total Assets              49,726      39,441       5,202       1,899      1,371
 Long Term Liabilities     10,022       5,265         483         Nil        Nil
 
 Total Liabilities         18,883      11,727         966         458        336
 Shareholders Equity       30,843      27,714       4,236       1,441      1,035
 Number of Shares
 Outstanding           29,961,612  23,580,098  16,542,121  10,663,052  1,078,052

</TABLE>


                                          18

<PAGE>

EXCHANGE RATES OF THE CANADIAN DOLLAR

     The following table sets forth, for the periods and dates indicated, 
certain information concerning exchange rates of Canadian dollars to one U.S. 
Dollar.  All the figures shown represent noon buying rates for cable 
transfers in New York City, certified for customs purposes by the Federal 
Reserve Bank of New York.  The source of this data is the Federal Reserve 
Bulletin and Digest.

<TABLE>
<CAPTION>

          Period       Period End      Average         High           Low
          ------       ----------      -------         ----           ---
      <S>              <C>             <C>            <C>            <C>
      December 1993      1.3255         1.2902        1.3443         1.2428
      December 1994      1.4030         1.3659        1.4078         1.3103
      December 1995      1.3655         1.3725        1.4238         1.3285
      December 1996      1.3697         1.3632        1.3822         1.3310
      December 1997      1.4288         1.3849        1.4398         1.3357

</TABLE>


DIVIDENDS ON COMMON STOCK

     To date, the Company has not paid any dividends on the Common Stock.  
The Company's policy at the present time is to retain earnings for corporate 
purposes.  The payment of dividends in the future will depend on the earnings 
and financial condition of the Company and such other factors as the Board of 
Directors of the Company may consider appropriate.  Since the Company is 
currently in an expansion stage, it is unlikely that earnings will be 
available for the payment of dividends in the foreseeable future.

ITEM 9.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
          OF OPERATIONS

RESULTS OF OPERATIONS

     From the date of the acquisition of the Turbodyne Technology in April 
1993 to the completion of the acquisition of Pacific Baja, the Company was 
engaged, through Turbodyne Systems, principally in researching and developing 
products incorporating the Turbodyne Technology to enhance engine performance 
and reduce emissions of internal combustion engines.  During this period, the 
Company commenced development of the Turbodyne System, the Turbopac-TM- 
product and the Dynacharger-TM- product.  In addition, the Company's research 
and development activities resulted in the filing of the patent applications 
in respect of the Turbodyne System and the Turbopac-TM- and Dynacharger-TM- 
products.  See "Item 1.  Business of the Company -- Engine Enhancement 
Business -- Proprietary Protection of Products."  Turbodyne Systems undertook 
low volume production of its products, for the purpose of testing and 
evaluation with OEMs and major retrofit customers.  The Company did not 
record any revenues during this period and at December 31, 1997 had expended 
$13,134,000 as research and development costs for the Turbodyne Products.  
The development of the Turbodyne Products was financed during this period 
primarily from private placement equity financings. The Company's financial 
results for the period from July 2, 1996 to December 31, 1996 and thereafter 
include the financial results of Pacific Baja.

     YEAR ENDED DECEMBER 31, 1997 AND 1996

     Net sales for the fiscal year ended December 31, 1997 (the "1997 Fiscal 
Year") increased to $39,165,000 from $13,944,000 for the fiscal year ended 
December 31, 1996 (the "1996 Fiscal Year"), an increase of $25,221,000, or 
181%. The sales in both years were attributable entirely to the Automotive 
Components Business.  The increase is largely attributable to the inclusion 
of the financial results of Pacific Baja for the entire 1997 Fiscal Year as 
compared to the 1996 Fiscal Year in which the financial results of Pacific 
Baja were included commencing July 2, 1996, the effective date of the 
acquisition of Pacific Baja.   For the 1997 Fiscal Year and the 1996 Fiscal 
Year,


                                      19

<PAGE>

respectively, of the total sales attributable to the Automotive 
Components Business, sales of aftermarket wheel products accounted for sales 
of $20,691,000 and  $8,560,000, respectively, and sales of cast aluminum 
products, including compressor housings and manifolds, accounted for sales of 
$18,474,000 and $5,384,000, respectively. The net sales for the 1997 Fiscal 
Year also include sales of $2,258,000 related to the Navistar machining 
business conducted pursuant to the Navistar contract. See "Item 1. 
Description of Business -- Automotive Components Business --Material Supply 
Agreements."

     Pacific Baja's profitability is affected by seasonal factors as sales of 
aftermarket wheel products typically peak in the spring of each year while 
operating costs continue throughout the year and by increasing aluminum costs 
as the prices of its cast aluminum products are fixed under contract in 
advance of production.  See "Item 9.  Management's Discussion and Analysis of 
Results of Operations and Financial Condition -- Cautionary Statements -- 
Potential Fluctuations in Quarterly Results and Seasonality" and 
"Management's Discussion and Analysis of Results of Operations and Financial 
Condition -- Cautionary Statements -- Raw Materials."

     Cost of goods sold consists primarily of material and labor costs 
attributable to the Automotive Components Business.  Costs of goods sold for 
the 1997 Fiscal Year increased to $32,326,000 from $12,101,000 for the 1996 
Fiscal Year, an increase of $20,225,000, or 167%.  The cost of goods sold in 
each of these years was attributable solely to the Automotive Components 
Business.  The increase primarily is due to the inclusion of the financial 
results of Pacific Baja for the entire 1997 Fiscal Year as compared to the 
1996 Fiscal Year in which the financial results of Pacific Baja were included 
commencing July 2, 1996, the effective date of the acquisition of Pacific 
Baja.  Of the total cost of goods sold attributable to the Automotive 
Components Business, cost of goods sold related to the aftermarket wheel 
products accounted for $16,701,000 and cost of goods sold related to the cast 
aluminum products, including compressor housings and manifolds, accounted for 
$15,074,000.

     Cost of goods sold as a percentage of net sales was 83% and 87% for the 
1997 Fiscal Year and the 1996 Fiscal Year, respectively.

     Gross profit for the 1997 Fiscal Year increased to $6,839,000 from 
$1,843,000 for the 1996 Fiscal Year, an increase of $4,996,000, or 271%.  
Gross profit for these years also was attributable solely to the Automotive 
Components Business.  Of the gross profit attributable to the Automotive 
Components Business, sales of aftermarket wheel products accounted for gross 
profits of $3,990,000 and sales of cast aluminum products, including 
compressor housings and manifolds, accounted for a gross profit of $3,400,000.

     Research and development costs increased to $6,609,000 in the 1997 
Fiscal Year from $3,622,000 in the 1996 Fiscal Year, an increase of 
$2,987,000, or 83%. This increase was primarily attributable to finalizing 
the  Turbopac-TM- 1500 and 2500 models, final testing of the Turbopac-TM- 
2500 model, on-going development of the Dynacharger-TM- product and preparing 
for full scale commercial production of the Turbopac-TM- 1500 model.  
Research and development costs also included the operation of the Company's 
quality control laboratory at Turbodyne Systems.  Based on the Company's 
historical expenditures related to research and development and its current 
development goals, the Company anticipates for the foreseeable future, 
research and development expenses will continue to be significant.

     Selling, general and administrative expenses increased to $12,373,000 
for the 1997 Fiscal Year from $4,159,000 in the 1996 Fiscal Year, an increase 
of $8,214,000, or 197%.  The increase in operating expenses was largely due 
to the addition of the operating expenses associated with the Automotive 
Components Business as well as additional expenses relating to increased 
product development efforts, including expenses associated with overseas 
travel in conjunction with the Company's pursuit of strategic relationships 
and the designation of its Common Stock on the Easdaq Market.  See "Item 1. 
Description of Business -- Engine Enhancement Business -- Marketing Efforts 
and Joint Venture Relationships."  Also, the Company incurred additional 
expenses associated with start-up costs related to the Navistar machining 
work, increased training for the new labor force hired and more than expected 
scrapping and recasting of new product lines to obtain the necessary quality 
levels.


                                      20

<PAGE>

     Other income and expense consists primarily of interest expense on bank 
operating lines of credit and equipment finance contracts.

     The Company recorded a net loss of $13,185,000 in the 1997 Fiscal Year 
and a net loss of $5,563,000 in the 1996 Fiscal Year for the reasons set 
forth above.

     YEAR ENDED DECEMBER 31, 1996 AND 1995

     Net sales for the 1996 Fiscal Year increased to $13,944,000 from nil in 
all prior years.  These sales are attributable solely to the sales recorded 
by Pacific Baja for the period from July 2, 1996 to December 31, 1996.  Cost 
of goods sold increased to $12,101,000 from nil in all prior years and also 
was solely attributable to the cost of goods sold reported by Pacific Baja 
for the period from July 2, 1996 to December 31, 1996.  The Company recorded 
a gross profit of $1,843,000 which also was attributable solely to the 
Automotive Components Business.  Of the total sales attributable to the 
Automotive Components Business sales of aftermarket wheel products accounted 
for sales of $7,188,000 and sales of cast aluminum products, including 
compressor housings and manifolds, accounted for sales of $6,756,000.  Of the 
gross profit attributable to the Automotive Components Business, sales of 
aftermarket wheel products accounted for gross profits of $960,000 and sales 
of cast aluminum products, including compressor housings and manifolds, 
accounted for a gross profit of $883,000.   Increased labor costs resulted 
from Pacific Baja's increased production of cast aluminum products in order 
to meet deliveries required under contracts.  Revenues from this production 
are not realized until such time as the product is delivered under the 
contract.

     Research and development costs increased to $3,622,000 in fiscal 1996 
from $1,421,000 in fiscal 1995, an increase of $2,201,000, or 155%.  This 
increase was attributable solely to product development costs incurred by 
Turbodyne Systems and primarily to the finalization of development of the 
Turbopac-TM- 1500 model and preparing for its full scale commercial production 
and ongoing development of the Turbopac-TM- 2500 model and the 
Dynacharger-TM- product. Product development costs included establishing a 
quality control laboratory at Turbodyne Systems, designing an electronic 
controller unit for the Turbopac-TM- products and continuing development and 
evaluation of the Turbopac-TM- and Dynacharger-TM- products.  Project staff 
salaries increased as a result of the establishment of an electronic 
engineering department for Turbodyne Systems and the continued hiring of 
technical staff for development of the Turbopac-TM- and Dynacharger-TM- 
products.

     Selling, general and administrative expenses for fiscal 1996 increased 
to $4,159,000 from $1,182,000 in fiscal 1995, an increase of $2,977,000 or 
252%.  This increase is primarily attributable to the consolidation of 
operating expenses, including salaries, for Pacific Baja for the period from 
July 2, 1996 to December 31, 1996.   In addition, in 1996, Turbodyne Systems 
increased salaries payable to several of its vice-presidents.

     Liquidity of the Company during the year was enhanced by the completion 
of the Series A Special Warrant Offering and the Series C Special Warrant 
Offering. See "Item 12.  Options to Purchase Securities from Registrant or 
Subsidiaries." The Company received cash proceeds from the Series A Special 
Warrant Offering of $13,080,000, which was used primarily for the acquisition 
of Pacific Baja and payment of expenses associated with that offering.  The 
Company received cash proceeds of $2,927,000 after completion of the Series C 
Special Warrant Offering on December 6, 1996 which was used primarily to pay 
operating expenses and product development costs and for working capital. 

     YEAR ENDED DECEMBER 31, 1995 AND 1994

     During fiscal 1995 and 1994, the Company's sole business was the Engine 
Enhancement Business as carried on by Turbodyne Systems.  Turbodyne Systems 
did not record any sales during these periods. The business activities 
consisted of research and development of the Turbodyne System and the 
Turbopac-TM- and Dynacharger-TM- products.  Product development costs 
increased to Cdn. $2,066,000 in fiscal 1995 from Cdn. $493,000 in fiscal 
1994, an


                                      21

<PAGE>

increase of Cdn. $1,573,000.  Cumulative product development costs 
prior to December 31, 1994 totaled Cdn. $1,754,000.  Operating expenses 
increased to Cdn. $1,527,000 in fiscal 1995 from Cdn. $936,000 in fiscal 
1994, an increase of Cdn. $591,000 as the Company increased its product 
development activities.  Operating expenses included travel and business 
development expenses of Cdn. $336,000 for fiscal 1995 compared to Cdn. 
$245,000 for fiscal 1994, an increase of Cdn. $91,000. The travel and 
business development expenses were incurred in connection with establishing 
relationships and joint evaluation testing programs with potential OEM 
manufacturers and establishing contacts with suppliers and manufacturers for 
the Turbodyne Products.

     The Company's business activities during 1995 and 1994 were financed 
primarily from private placement financings of Common Stock.

LIQUIDITY AND CAPITAL RESOURCES

     CASH AND WORKING CAPITAL

     At December 31, 1997, the Company had cash in the amount of $949,000 and 
working capital equal to  $8,530,000.

     SERIES A PREFERRED STOCK FINANCING

     In September 1997, the Company completed the sale of an aggregate of 
10,000 shares of Series A Preferred Stock pursuant to certain Convertible 
Series A Preferred Stock Purchase Agreements dated September 8, 1997 and 
September 19, 1997 between the Company and various purchasers.  This 
transaction resulted in gross proceeds of $10,000,000 and net proceeds of 
$9,604,000 to the Company.

     DEBENTURE FINANCINGS

     In February 1998, the Company completed the sale of  $1,500,000 
aggregate principal amount of 3% Subordinated Convertible Debentures (the "3% 
Debentures"), which are convertible into shares of the Company's common 
stock. The sale of the 3% Debentures resulted in net proceeds to the Company 
of $1,425,000.    In March 1998, the Company completed the sale of $1,500,000 
aggregate principle amount of 8% Subordinated Convertible Debentures (the "8% 
Debentures"), which are convertible into shares of the Company's common 
stock. The sale of the 8% Debentures resulted in net proceeds to the Company 
of $1,415,000.

     PACIFIC BAJA LINE OF CREDIT

     Pacific Baja has an operating line of credit facility with Wells Fargo 
Bank in the maximum amount of $10,000,000.  The outstanding balance of the 
operating credit line of Pacific Baja as at December 31, 1997 was $8,144,000. 
The Company is a guarantor of this line of credit.

     CAPITAL REQUIREMENTS

     The Company has experienced losses from operations resulting in an 
accumulated deficit at December 31, 1997. The Company also used $13,793,000 
to fund operating activities during 1997. The Company has generated 
approximately $20.2 million from various financings and the exercise of stock 
options and warrants through June 30, 1998. 

     The operating expenses of the Company are expected to increase as the 
Company finalizes its preparations for commercial production of the Turbodyne 
Products.  The Company believes that its working capital will be sufficient 
to fund its operating plan through fiscal 1998, exclusive of any funds which 
may be available from the Automotive Components Business.  The Company 
intends to apply the cash flow from the Automotive Components Business to the 
operation and expansion of that business. 

     The Company is using its best efforts to enter into contracts with OEMs 
and major retrofitters for the incorporation of its Turbodyne Products.  The 
liquidity of the Company will be affected if the Company is unable to 
finalize agreements with OEMs and major retrofitters for the incorporation of 
its Turbodyne Products in new diesel


                                     22

<PAGE>

engines and after-market diesel engine products or sell the Turbodyne 
Products directly to aftermarket customers at commercially viable rates.

     INFLATION 

     There were no significant inflationary trends that impacted the Company in
1997.

NEW ACCOUNTING PRONOUNCEMENTS

     In June 1997, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Standards No. 130, Reporting Comprehensive Income 
("SFAS 130"). SFAS 130 establishes standards for reporting and display of 
comprehensive income and its components (revenues, expenses, gains and 
losses) in a full set of general-purpose financial statements. This Statement 
requires that all items that are required to be recognized under accounting 
standards as components of comprehensive income be reported in a financial 
statement that is displayed with the same prominence as other financial 
statements. Comprehensive income includes distributions to stockholders. The 
Company believes that the adoption of SFAS 130 will not have a significant 
impact on its financial statements and disclosures.

     In June 1997, the FASB issued Statement of Financial Standards 131 ("SFAS 
131"). SFAS 131, effective for fiscal years beginning after December 15, 
1997, establishes standards for the way that public business enterprises 
report information about operating segments in annual financial statements 
and requires that those enterprises report selected information about 
operating segments in interim financial reports issued to stockholders. It 
also establishes standards for related disclosures about products and 
services, geographic areas, and major customers. Early application is 
permitted, but is not required, and comprehensive information for interim 
periods in the initial year of application must be reported in statements for 
interim periods in the second year of application. The Company believes that 
the adoption of SFAS 131 will not have a significant impact on its financial 
statements and disclosures.

CAUTIONARY STATEMENTS

     This Report contains statements that constitute "forward looking 
statements" within the meaning of Section 21E of the Exchange Act and Section 
27A of the Securities Act.  The words "expect", "estimate", "anticipate", 
"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 filing and include statements regarding the intent, 
belief or current expectations of the Company, or its directors or officers 
with respect to, among other things (a) trends affecting the financial 
condition or results of operations of the Company, and (b) the business and 
growth strategies of the Company.  Readers are cautioned that any such 
forward looking statements are not guarantees of future performance and 
involve risks and uncertainties, and that actual results may differ 
materially from those projected in this Report, for the reasons, among 
others, set forth below.

NO HISTORY OF PRODUCT SALES; PRIOR LOSSES.

     None of the Turbodyne Products are commercially produced except for the 
Turbopac-TM- 1500 product and limited commercial production of the 
Turbopac-TM- 2500 product.  The other models of the Turbopac-TM- product and 
all models of the Dynacharger-TM- product remain in various stages of 
development.  There can be no assurance that the other Turbopac-TM- models 
and Dynacharger-TM- products will be developed timely or that they will be 
commercially accepted. The failure of the Turbopac-TM- and Dynacharger-TM- 
products to achieve commercial success would have a material adverse effect 
on the business, operating results and financial condition of the Company.

     The Company reported net losses of $2,603,000, $5,563,000 and 
$13,185,000 for the fiscal years ended December 31, 1995, 1996 and 1997, 
respectively.  At December 31, 1997, the Company had an accumulated deficit 
of $24,073,000.  There is no assurance that the Company will report net 
income in any future year or period. See "Item 9.  Management's Discussion 
and Analysis of Results of Operations and Financial Condition."

PRODUCT DEVELOPMENT  

     The Company expects to complete final design of the Dynacharger-TM- 
product by the end of the second fiscal quarter of 1998 and has commenced 
only limited commercial production of certain of the Turbopac-TM- models.  
Historically, the Company has encountered unexpected delays in development 
due to undetected design defects or changes to specifications and may 
continue to experience such delays.  These delays could increase the cost of 
development of these products and affect the timing of commercial production 
and shipment.  The Company's revenue in fiscal 1998 will depend to a 
significant degree on sales of the Company's Turbopac-TM- product, which was 
commercially introduced in the third quarter of 1997.  If the Company 
encounters problems in the application of the Turbopac-TM- product or any 
other new products, its business and prospects could be materially and 
adversely affected.  Moreover, the Company does not expect to commence 
production of the Dynacharger-TM- product until it has entered into joint 
venture relationships with reliable manufacturers of turbochargers.  The 
inability or failure to form these relationships timely, or at all, will 
negatively affect potential sales of the Dynacharger-TM- product and could 
have a material adverse effect on the business of the Company.  

     Substantial start-up costs associated with the introduction of new 
products could cause the Company to incur operating losses or experience a 
reduced level of profitability in periods following their introduction.  
There can be no assurance that any new product will receive market acceptance 
or that the product can be sold at a profit. 


                                     23

<PAGE>


Additionally, both the Dynacharger-TM- and the Turbopac-TM- have undergone 
only limited testing; consequently, once commercially introduced, each  
product could require additional refinement. Moreover, in the event 
government standards regarding emissions are increased, the Company may need 
to modify its design and improve the Turbodyne Technology to meet these new 
standards, which may require significant expenditures and delay production of 
the Turbodyne Products.  Any delay in commercial production or additional 
refinement to these products could result in a material adverse affect on the 
business, operating results and financial condition of the Company.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY

     The Company has experienced, and in the future may experience, 
significant fluctuations in quarterly operating results that have been and 
may be caused by many factors including: introduction or enhancement of 
products by the Company and its competitors, customer demand for the 
Company's products, development and marketing expenses relating to the 
introduction of new products or enhancements of existing products, timing of 
certification of certain products by the U.S. Environmental Protection Agency 
and other environmental regulatory organizations, results from third parties 
participating in pilot programs involving the Company's products, changes or 
anticipated changes in pricing by the Company or its competitors, the mix of 
products sold and the gross margins attributable to such products, industry 
and technology developments, product delays or other product quality 
problems, currency fluctuations, the timing of orders from customers, order 
cancellations, delays in shipment and other developments and decisions 
including the timing and extent of development expenditures, other 
unanticipated operating expenses and general economic conditions.  Moreover, 
sales of aftermarket wheel products typically peak in the spring of each 
year.  The Company expects that its operating results will continue to 
fluctuate significantly in the future as a result of these and other factors. 
A substantial portion of the Company's costs and expenses is related to 
costs of engineering services and other personnel costs, product development, 
facilities and marketing programs.  The level of spending for these costs and 
expenses cannot be adjusted quickly and is based, in significant part, on the 
Company's expectations of future revenues.  If revenues are below 
expectations, the Company's quarterly and annual operating results will be 
adversely effected, which could have a material adverse effect the Company's 
results of operations.

COMPETITION

     The business environment in which the Company operates is highly 
competitive and subject to rapid technological change.  Certain of the 
Company's existing and potential competitors have greater financial, 
marketing, technological and other resources than the Company.  The Company 
believes that no products technologically similar to the Company's 
Turbopac-TM- and Dynacharger-TM- products have been sold.  However, Turbodyne 
may face future competition from the development of related technologies that 
improve the performance of internal combustion engines and/or reduce 
emissions that are not encompassed by the patents held by the Company, the 
issuance of patents to other companies which may inhibit the Company's 
ability to develop certain products encompassed by such patents and 
improvement to existing technologies.  If such techniques are developed and 
are commercially successful, they may reduce available market share to the 
Company or make the Turbodyne Products less attractive or obsolete, each of 
which will have a material adverse effect on the business of the Company.  In 
addition, a relatively small number of OEMs hold a significant share of the 
automotive market and the determination of an OEM not to incorporate the 
Turbopac-TM- products into its product line may cause the Company to expend 
additional amounts to gain market share and/or significantly reduce the 
available market share to the Company.

     The Company has determined to follow a strategy of aggressive product 
development and enhancement and patent support to protect a competitive 
position to the extent practicable.  However, there can be no assurance that 
the market will determine that the Turbodyne Products are superior to 
existing or subsequently developed competitive products, that the Company 
will obtain significant market share or that the Company will be able to 
adapt to evolving markets and technologies, develop new products or achieve 
or maintain technological advantages.


                                      24
<PAGE>
PROPRIETARY PROTECTION

     The Company has filed patent applications in the United States and in 
certain foreign jurisdictions relating to the Turbodyne Systems, the 
Turbopac-TM- product and the Dynacharger-TM- product.  Certain patents have 
been issued in respect to the Dynacharger-TM- product and all other 
applications are in various stages of review at the U.S. or foreign patent 
office. Application for a patent offers no assurance that a patent will be 
issued or issued without material modification.  Moreover, there can be no 
assurance 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 the Company will be able to achieve or maintain a 
technological advantage.  The Company could incur substantial costs in 
seeking enforcement of its patent rights against infringement or the 
unauthorized use of its proprietary technology by others or in defending 
itself against similar claims of others.  Insofar as the Company relies on 
trade secrets and proprietary know-how to achieve and maintain a competitive 
position, there can be no assurance that others may not independently develop 
similar or superior technologies or gain access to the Company's trade 
secrets or know-how.

PRICING STRATEGY

     The Company has developed a pricing strategy and price lists for its 
Turbodyne Products in relation to retail selling prices of indirectly 
competitive products and on estimated costs of producing the Turbodyne 
Products. Market acceptance of the Turbodyne Products will be heavily 
dependent on the pricing policy established by the Company and the 
cost-benefit to the user of the Turbodyne Products.  There is no assurance 
that established pricing levels will be accepted by the marketplace or that 
the cost benefit to manufacturers will be sufficient to encourage mass 
purchase of the Turbodyne Products.  If the Company's current price lists are 
not accepted by the market, the Company may have to decrease its prices which 
will result in lower margins and could have a material adverse effect on the 
results of operations of the Company.

DEPENDENCE ON KEY PERSONNEL

     The Company's success depends on the skills and efforts of its 
management team and engineering staff, including its Chairman of the Board of 
Directors and developer of the Turbodyne Technology, Mr. Edward M. Halimi and 
its recently appointed President and Chief Executive Officer, Mr. Walter 
Ware. The Company has entered into an employment agreement with  Mr. Halimi 
and has agreed to the terms of an agreement with Mr. Ware each with terms 
expiring in 2008.  The Company does not maintain any insurance on the lives 
of its senior management or scientific staff.  As the Company continues to 
grow, it will continue to hire, appoint or otherwise change senior management 
and members of its engineering staff.  There can be no assurance that the 
Company will be able to retain its executive officers and key personnel or 
attract additional qualified members to management in the future.  The loss 
of services of Mr. Halimi, Mr. Ware or of any key employee could have a 
material adverse effect upon the Company's business.  See "Item 10.  
Directors and Officers of the Registrant" and "Item 11. Compensation of 
Directors and Officers."

TECHNOLOGICAL CHANGE

     The industries in which the Company competes have been characterized by 
rapid and significant technological change.  Accordingly, the Company's 
ability to compete in its markets may depend in large part not only on the 
success of the initial introduction of the Turbopac-TM- product and the 
Dynacharger-TM- product, but also on the success in enhancing these products 
and developing new products.  Moreover, changes in manufacturing technology 
could require Pacific Baja to make significant expenditures on new plant and 
equipment in order to remain competitive, all of which could adversely affect 
Pacific Baja's operating costs and results of operations.  There can be no 
assurance that the Company will succeed in enhancing existing products or 
developing new products or that any of its products will not be rendered 
obsolete or uneconomical by technological advances made by others. The 
Company's future sales 


                                      25

<PAGE>


and profitability will depend on its ability to continue to develop and 
market new and improved products that can achieve significant market 
acceptance. 

DEPENDENCE ON LIMITED NUMBER OF CUSTOMERS

     Revenues of Pacific Baja accounted for 100% of the revenues of the 
Company in each of fiscal 1996 and 1997.  The majority of Pacific Baja's 
sales are to approximately five customers.  These five purchasers accounted 
for approximately 80% of net sales in fiscal 1996 and 1997.  The loss of any 
major customer, a significant decrease in product shipment to, an inability 
to collect amounts owing from, a deterioration of the relationship with or 
any change in the financial condition of any of these customers could have a 
material adverse effect on the business and operating results of the Company.

CUSTOMER PREFERENCES

     Certain of the products of Pacific Baja are subject to short term 
changes in consumer preferences and demands.  If consumer preferences change, 
existing products or products under development may become unmarketable which 
could adversely effect the sales and results of operations of Pacific Baja.

INTERNATIONAL RISKS

     A significant amount of the Pacific Baja production takes place at the 
Ensenada, Mexico facility and is imported into the United States under 
favorable trade agreements existing between the governments of the United 
States and Mexico.  Changes in the provisions of these trade arrangements and 
in North American trade agreements generally could adversely affect the 
production costs and profitability of Pacific Baja.  In addition, changes in 
the foreign exchange rates for the Mexican Peso and the US Dollar or changes 
in economic and political conditions, import and export controls, tariffs, 
and other regulatory requirements could adversely affect certain operating 
costs and the results of operations of the Company.

RAW MATERIALS

     Although there are many potential suppliers of aluminum, Pacific Baja 
currently relies on a single source of supply for approximately 70% of its 
aluminum.  Accordingly, Pacific Baja is vulnerable to the possible business 
interruption of a supplier, and Pacific Baja could experience temporary 
delays or interruptions while an alternative supplier is procured.  Such 
delays, if encountered for an extended period by Pacific Baja, could have a 
material adverse effect on the Company's business and results of operations. 
Additionally, Pacific Baja purchases the raw aluminum material for its 
products at market prices.  Changes in demand and price of aluminum could 
reduce its margins on its cast aluminum products as the cost of these 
products is fixed under contract in advance of production and could affect 
Pacific Baja's ability to deliver products pursuant to its contractual 
commitments.  If the margins on its cast aluminum products decrease or it is 
unable to complete its contractual obligations, the Company's results of 
operations could be materially adversely effected.


                                      26

<PAGE>


ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT 

     The following table sets forth as of July 1, 1998 all directors and 
executive officers of the Company, with each position and office held by them 
in the Company, and the period of service as such:


<TABLE>
<CAPTION>

 NAME AND POSITION                    AGE            COMMENCEMENT OF SERVICES
 -----------------                    ---            ------------------------
 <S>                                  <C>            <C>
 Wendell R. Anderson                  65             November 20, 1995
 Consultant and Director

 Dr. Sadayappa Durairaj               54             September 16, 1996
 Director

 Daniel Geronazzo                     67             January 24, 1995
 Director

 Edward Halimi                        53             October 18, 1998
 Chairman of the Board

 Khal Kader                           25             July 6, 1998
 Chief Financial Officer

 Leon E. Nowek                        41             October 18, 1993
 Vice Chairman, Director and 
 Secretary

 Robert F. Taylor                     58             July 12, 1996
 Director

 Walter F. Ware                       55             October 1, 1997
 Chief Executive Officer, 
 President and Director

</TABLE>


     Mr. Anderson is a director of the Company.   Mr. Anderson is an attorney 
with the firm of Larkin, Hoffman, Daly and Lindgren Ltd. of Bloomington, 
Minnesota and has been practicing law since 1963.  Mr. Anderson has held 
several positions of public office.  From 1959 to 1963 Mr. Anderson was a 
state representative from Minnesota and served as state senator from 1963 to 
1971.  In 1971 Mr. Anderson was elected as Governor of the State of 
Minnesota.  At that time, he was the nation's youngest governor.  In 1977 Mr. 
Anderson became a United States Senator from the State of Minnesota.  He held 
office for a period of two years.  During his term, he served on such 
committees as the environment and public works committee, the budget 
committee, the natural resources committee and armed services committee.  Mr. 
Anderson currently serves as a director of numerous corporations and 
foundations including National City Bank Corporation and the University of 
Minnesota Board of Trustees.

     Sadayappa Durairaj is a director of the Company.  Mr. Durairaj is a 
cardiologist and businessman based in California.  He obtained his Medical 
degree from Madural Medical College in India in 1966 and has been certified 
by both the American Board of Internal Medicine and the Canadian Board of 
Internal Medicine and Cardiology.  Currently he is the President and Chief 
Executive Officer of the Pacifica Hospital and Sierra Medical Clinic.  Dr. 
Durairaj also serves as associate Clinical Professor of Medicine at USC Los 
Angeles.  Dr. Durairaj was Chairman and founder of Pacific Baja Holdings 
which was acquired by the Company effective July 2, 1996.  Dr. Durairaj is 
also Chairman of Brentwood Bank (California) and VSK Ferro Alloys (India).


                                     27

<PAGE>

     Daniel Geronazzo is a director of the Company. Mr. Geronazzo was an 
attorney in private practice located in the Province of British Columbia for 
the past 35 years.

     Edward Halimi currently is Chairman of the Board of Directors.  From 
October 18, 1993 to March 11, 1998, he served as President and Chief 
Executive Officer of the Company.  Mr. Halimi developed the Turbodyne 
Technology and the Turbodyne System.  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, 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 serves 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. 

     Khal Kader was appointed Controller of the Company in July 1998 and 
became Chief Financial Officer of the Company later that month. Prior to 
joining the Company, since 1994, Mr. Kader practiced as a certified public 
accountant with KPMG Peat Marwick LLP in Los Angeles, California. Mr. Kader 
is a member of the Institute of Certified Public Accountants.

     Leon E. Nowek is Vice Chairman, Secretary and a director of the Company 
and is responsible for business development activities as well as regulatory 
affairs.  Mr. Nowek was appointed as a director of the Company in October, 
1993, as Vice Chairman in February, 1998 and as Secretary in July 1998.  
Prior thereto, since June 1995, Mr. Nowek served as the Company's Chief 
Financial Officer. 

     Robert F. Taylor was appointed a director of the Company as of July 12, 
1996 and served as Chief Operating Officer of the Company from January 1, 
1997 to June 30, 1997.  Mr. Taylor is a chartered accountant and is a member 
of the Institute of Chartered Accountants of Alberta, Canada.  Mr. Taylor was 
appointed a director and president of Shell Canada Products ("Shell") in 1993 
and has served in various capacities with Shell since 1967 in Calgary, 
Toronto and London, England.  Mr. Taylor retired from Shell in 1996.

     Walter  F. Ware was appointed Chief Executive Officer and President of 
the Company effective March 11, 1998.  Prior thereto, since October 1997, Mr. 
Ware served as the Company's Chief Operating Officer.  Mr. Ware has served as 
a director of the Company since December 1, 1997.  From October 1995 to 
September 1997, Mr. Ware served as Senior Vice President and Corporate 
Officer of Detroit Diesel Corporation and as a director of several of its 
subsidiary corporations. Prior thereto, Mr. Ware served in several senior 
management positions with the Garrett Automotive Group division of Allied 
Signal Corporation including Group Vice President, North American Automotive 
Operations, Managing Director Garrett Automotive - Europe, and Chief 
Technical Officer.

     Directors may be appointed at any time and are then re-elected annually 
by the stockholders of the Company.  Officers are elected annually by the 
Board of Directors and serve at the discretion of the Board.


                                   28

<PAGE>

ITEM 11.  COMPENSATION OF DIRECTORS AND OFFICERS

     GENERAL

     The Company does not compensate directors for acting solely as 
directors. Except for reimbursement of reasonable out-of-pocket expenses in 
connection with attendance at Board of Director and Committee meetings, and 
as otherwise described below, the Company does not have any arrangements 
pursuant to which directors are remunerated by the Company or its 
subsidiaries for their services in their capacities as directors, other than 
options to purchase shares of Common Stock of the Company which are granted 
to the Company's directors from time to time.  

     DIRECTORS AND OFFICERS OF THE COMPANY

     For the fiscal year ended December 31, 1997, the Company paid an 
aggregate of $794,000 in compensation to all directors and officers as a 
group and has not accrued any amounts in connection with pension, retirement 
or other similar benefits for its directors and officers.

     Edward M. Halimi and Mr. Nowek each is a party to an employment 
agreement dated August 1, 1997, as amended on January 27, 1998, 
(respectively, the "Halimi Agreement" and the "Nowek Agreement" and together 
the "Employment Agreements") between each officer, the Company and Turbodyne 
Systems.  Mr. Halimi initially was employed as President and Chief Executive 
Officer of the Company and Turbodyne Systems.  Effective March 11, 1998, Mr. 
Halimi, the Company and Turbodyne Systems agreed, pursuant to the terms of 
the Halimi Agreement, to change Mr. Halimi's position to Chairman of the 
Board and to modify his duties and responsibilities accordingly.  Mr. Nowek 
initially was employed as Chief Financial Officer of the Company and 
Turbodyne Systems.  Effective February, 1998, Mr. Nowek, the Company and 
Turbodyne Systems agreed, pursuant to the terms of the Nowek Agreement, to 
change Mr. Nowek's position to Vice Chairman of the Company and Turbodyne 
Systems. Pursuant to the terms of the Employment Agreements, Mr. Halimi and 
Mr. Nowek are paid an annual salary of $180,000 and $162,500, respectively, 
and are entitled to an annual cash bonus of up to 150% of their respective 
base salaries based on the consolidated net operating income (before taxes) 
of the Company, Turbodyne Systems or Pacific Baja, whichever is greater.  
Each Employment Agreement also provides that in each year of the term of the 
Employment Agreement, the Company shall grant to the officer options to 
purchase 200,000 shares of common stock of the Company in accordance with the 
Company's stock option plan then in effect.  Each officer and the members of 
their respective families are entitled to participate in any life and 
disability insurance, pension, dental, medical, pharmaceutical, 
hospitalization, health insurance and any other employee benefit programs as 
may be provided from time to time by the Company.  Each Employment Agreement 
is for a ten year term and will renew for successive one year periods unless 
one party to the Employment Agreement provides written notice of its election 
not to renew at least 30 days prior to the expiration of the initial term or 
any successive one year terms. Each officer may terminate the Employment 
Agreement at any time upon three months prior written notice of his intention 
to so terminate.  In the event that either officer is terminated by the 
Company without "cause," as defined in the Employment Agreement, he is 
entitled to receive the compensation that otherwise would have been payable 
to him from the date of termination to the expiration date of the then 
current term.

     The Board of Directors has resolved to enter into a five year employment 
agreement with Mr. Walter Ware, pursuant to which Mr. Ware will be entitled 
to receive an annual base salary equal to $180,000 plus an annual cash bonus 
based on the net operating profit of the Company and its subsidiaries.  The 
maximum bonus will be 150% of base salary.  Mr. Ware will be entitled to 
participate in share option plans, share purchase plans, bonus plans and 
other financial assistance plans at the discretion of the Board of Directors 
of the Company.


                                     29

<PAGE>


ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     OPTIONS TO PURCHASE COMMON SHARES

     At June 24, 1998 the Company had outstanding options to purchase common 
shares as follows:


<TABLE>
<CAPTION>


         Number of Shares           Exercise Price           Expiration Date
         ----------------           --------------           ---------------
         
         <S>                        <C>                     <C>
             100,000                   $4.75 Cdn               August 17, 1999
              78,000                   $4.66 Cdn             December 27, 1998
             171,000                   $3.50 US              February 27, 1999
              47,000                   $9.00 Cdn            September 12, 1998
              10,000                   $3.50 US              September 3, 1998
             430,000                   $3.50 US                January 6, 2002
             800,000                   $2.35 US                 March 11, 2003
             287,000                   $5.00 US                October 8, 2002
             701,768                   $3.50 US                October 8, 2002
              50,000                   $4.50 US                  March 3, 2002
             610,008                   $3.50 US                  March 3, 2002
           1,063,090                   $3.50 US                 March 24, 2003
           1,102,500                   $8.50 US                 April 30, 2003

</TABLE>


     The officers and directors of the Company as a group hold an aggregate of
2,146,000 options to purchase common shares.

WARRANTS TO PURCHASE COMMON STOCK

     At June 24, 1998, the Company has outstanding warrants to purchase shares
of the common stock of the Company as set forth below:


<TABLE>
<CAPTION>

          Number of Shares       Exercise Price        Expiration Date
          ----------------       --------------        ---------------
        Underlying Warrants 
        -------------------
        <S>                      <C>                 <C>
            30,769                   $4.50           December 1, 1998
            60,000                   $4.00           March 25, 2003
            526,666                  $5.00           September 19, 2000
            31,000                   $4.50           June 30, 1998
           100,000                   $3.50           March 19, 2003
</TABLE>



ITEM 13.  INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS

     Turbodyne Systems subleases its Carpinteria facility from American 
Appliance, Inc., a private company controlled by Mr. Halimi, Chairman of the 
Board of Directors of the Company.  The lease is on a month to month basis 
and the monthly rent is equal to  $16,850.  See "Item 2.  Properties."

     In March 1998, the Company completed a $1.0 million secured bridge loan 
with Quest Ventures Ltd (the "Quest Loan").  In connection with the 
financing, the Company issued 37,500 shares of common stock, valued at $2.50 
per share, to Leon Nowek, the Vice Chairman and a director of the Company, in 
exchange for his agreement to personally guarantee the Quest Loan.


                                     30

<PAGE>

     Pacific Baja leases one of its facilities in Ensenada from Baja Pacific 
Properties, a company in which Dr. Sadayappa Durairaj, a director of the 
Company, owns approximately 19% of the outstanding shares.  The lease is for 
a ten year term, expiring in September 2005 and the monthly rent is equal to 
$15,000.  See "Item 2.  Properties." 

     Pursuant to the terms of the Employment Agreement between the Company 
and Leon Nowek, the Company loaned $225,000 to Mr. Nowek in connection with 
the purchase of his home.  The loan bears no interest and is repayable on the 
earlier to occur of the sale of Mr. Nowek's home and the termination of Mr. 
Nowek's employment agreement.  At June 15, 1998, there was $225,000 
outstanding under this loan.  

     Pursuant to the terms of the Employment Agreement between the Company 
and Leon Nowek, the Company paid approximately $40,000 to Mr. Nowek as 
reimbursement of relocation expenses incurred by him in connection with his 
move to Los Angeles.

     The Company loaned $234,850 to Mr. Ware in connection with the purchase 
of his home.  The loan bears no interest and is repayable on the earlier to 
occur of the sale of Mr. Ware's home and the termination of Mr. Ware's 
employment with the Company.  At June 15, 1998, there was $100,000 
outstanding under this loan.

     The Company has agreed to reimburse Mr. Ware for relocation expenses 
incurred by him in connection with his move to Santa Barbara, California.

     The Company pays to Wendell Anderson, a director of the Company, a 
consultant fee of $3,500 per month in connection with services provided by 
Mr. Anderson as a director of the Company and for additional project 
development services.

     The Company is paying to Mr. Eugene Hodgson, a former director of and 
consultant to, the Company, an aggregate of $25,000 over a six month period 
ending on September 30, 1998 in connection with Mr. Hodgson's former services 
as a consultant to the Company.

     The Company has advanced an aggregate of  $243,000 to Edward M. Halimi 
($134,000), Chairman of the Board, Leon Nowek ($96,500), Vice Chairman of the 
Board and Walter Ware ($12,500), Chief Executive Officer.  These advances are 
against salaries and bonuses, bear no interest and are payable on demand by 
the Company.  

     The Company has paid an aggregate of $178,400 to Robert Taylor, Eugene 
Hodgson, Wendell Anderson and Daniel Geronazzo, each a current or former 
director of the Company, in connection with consulting services rendered by 
each of them to the Company.

     See "Item 11.  Compensation of Directors and Officers" for a description 
of employment agreements between the Company and certain of its officers.

                                       PART II

ITEM 14.  DESCRIPTION OF SECURITIES TO BE REGISTERED.

     The information called for by Item 14 is not applicable to the Company.

                                       PART III

ITEM 15.  DEFAULTS UPON SENIOR SECURITIES

     The information called for by this Item 15 is not applicable to the 
Company.


                                      31
<PAGE>

ITEM 16.  CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
          AND USE OF PROCEEDS

     The information called for by this Item 16 is not applicable to the
Company.  

                                       PART IV

ITEM 17.  FINANCIAL STATEMENTS

     See "Item 19.  Financial Statements and Exhibits" for a list of the
Financial Statements of the Company included with this Report.

ITEM 18.  FINANCIAL STATEMENTS

     The information called for by this Item is not applicable to the Company.  

ITEM 19.  FINANCIAL STATEMENTS AND EXHIBITS

(a)       INDEX TO FINANCIAL STATEMENTS

     (i)  Audited Financial Statements of the Company:

          -    Independent Auditors' Report
          -    Auditor's Report
          -    Consolidated Balance Sheets at December 31, 1997 and 1996
          -    Consolidated Statements of Operations for the fiscal years ended
               December 31, 1997, 1996 and 1995
          -    Consolidated Statements of Stockholders Equity for the fiscal
               years ended December 31, 1997, 1996 and 1995
          -    Consolidated Statements of Cash Flows for the fiscal years ended
               December 31, 1997, 1996 and 1995
          -    Notes to Consolidated Financial Statements


(b)       EXHIBITS

1(a)     Certificate of Incorporation of Dundee Resources Corp. dated May 18,
         1983.  Incorporated herein by reference to Exhibit 1(a) to the
         Company's Registration Statement on Form 20-F filed on September 18,
         1996.

1(b)     Articles of Dundee Resources Corp. Incorporated herein by reference to
         Exhibit 1(b) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(c)     Memorandum of Dundee Resources Corp.  Incorporated herein by reference
         to Exhibit 1(c) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(d)     Certificate of Name Change from Dundee Resources Corp. to Clear View
         Ventures Inc. dated January 20, 1993.  Incorporated herein by
         reference to Exhibit 1(d) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(e)     Amended Memorandum of Clear View Ventures Inc.  Incorporated herein by
         reference to Exhibit 1(e) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.


                                       32

<PAGE>

1(f)     Certificate of Name Change from Clear View Ventures Inc. to Turbodyne
         Technologies Inc. dated April 28, 1994.  Incorporated herein by
         reference to Exhibit 1(f) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(g)     Amended Memorandum of the Company.  Incorporated herein by reference
         to Exhibit 1(g) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(h)     Articles of the Company. Incorporated herein by reference to Exhibit
         1(h) to the Company's Registration Statement on Form 20-F filed on
         September 18, 1996.

1(I)     Articles of Continuation of the Company.  Incorporated herein by
         reference to Exhibit 1(I) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(j)     By-laws of the Company adopted upon Continuation.  Incorporated herein
         by reference to Exhibit 1(j) to the Company's Registration Statement
         on Form 20-F filed on September 18, 1996.

1(k)     Certificate of Continuation under the CANADA BUSINESS CORPORATIONS
         ACT.  Incorporated herein by reference to Exhibit 1(k) to the
         Company's Annual Report on Form 20-F for the fiscal year ended
         December 31, 1996, as amended.

2(a)     Specimen Common Share Certificate. Incorporated herein by reference to
         Exhibit 2(a) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

3(i)     Employment Agreement between the Company and Edward M. Halimi. 
         Incorporated herein by reference to Exhibit 3(I) to the Company's
         Registration Statement on Form 20-F filed on September 18, 1996.

3(ii)    Management Agreement between the Company and Seeds Investment
         Corporation.  Incorporated herein by reference to Exhibit 3(ii)
         to the Company's Registration Statement on Form 20-F filed on
         September 18, 1996.

3(iii)   Sub-Lease between American Appliance, Inc. and Carole D. King
         dated December 1, 1994 for Carpinteria Property. Incorporated
         herein by reference to Exhibit 3(iii) to the Company's
         Registration Statement on Form 20-F filed on September 18, 1996.

3(iv)    Distribution Agreement between Turbodyne Systems and Granatelli
         Performance, Inc.  Incorporated herein by reference to Exhibit
         3(iv) to the Company's Registration Statement on Form 20-F filed
         on September 18, 1996.

3(v)     Acquisition Agreement between the Company, Pacific Baja Light Metals
         Holding Inc., and Lennart Renberg, Michael Joyce, Sadayappa Durairaj
         Family Trust, Naresh Saxens and Mugerdish Balabanian dated March 15,
         1996.  Incorporated herein by reference to Exhibit 3(v) to the
         Company's Registration Statement on Form 20-F filed on September 18,
         1996.
  
3(vi)    Amendment Agreement between the Company, Pacific Baja Light
         Metals Holding Inc., and Lennart Renberg, Michael Joyce,
         Sadayappa Durairaj Family Trust, Naresh Saxens and Mugerdish
         Balabanian dated June 14, 1996.  Incorporated herein by reference
         to Exhibit 3(vi) to the Company's Registration Statement on Form
         20-F filed on September 18, 1996.


                                       33

<PAGE>

3(vii)   Line of Credit Agreement between Optima Wheel and Wells Fargo
         Bank dated September 1, 1995.  Incorporated herein by reference
         to Exhibit 3(vii) to the Company's Annual Report on Form 20-F for
         the fiscal year ended December 31, 1996, as amended.

3(viii)  Line of Credit Agreement between Pacific Baja Light Metals and
         Wells Fargo Bank dated September 1, 1995.  Incorporated herein by
         reference to Exhibit 3(viii) to the Company's Annual Report on
         Form 20-F for the fiscal year ended December 31, 1996, as
         amended.

3(ix)    Employment Agreement between Pacific Baja Light Metals, the
         Company and Michael Joyce dated September 5, 1996.  Incorporated
         herein by reference to Exhibit 3(ix) to the Company's Annual
         Report on Form 20-F for the fiscal year ended December 31, 1996,
         as amended.

3(x)     Consulting Agreement between Pacific Baja Light Metals, the Company
         and Lykar Specialties, Inc. dated September 5, 1996.  Incorporated
         herein by reference to Exhibit 3(x) to the Company's Annual Report on
         Form 20-F for the fiscal year ended December 31, 1996, as amended.

3(xi)    Agreement in Principle between Turbodyne Systems, Inc. and
         Kuhnle, Kopp & Kausch AG dated April 11, 1997.  Incorporated
         herein by reference to Exhibit 3(xi) to the Company's Annual
         Report on Form 20-F for the fiscal year ended December 31, 1996,
         as amended.

3(xii)   Supply Agreement between Baja Oriente and AlliedSignal dated
         September 1, 1994.  Incorporated herein by reference to Exhibit
         3(xii) to the Company's Annual Report on Form 20-F for the fiscal
         year ended December 31, 1996, as amended.

3(xiii)  Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Edward Halimi.

3(xiv)   Employment Amendment Agreement dated January 27, 1998 to
         Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Edward Halimi.

3(xv)    Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Leon Nowek.

3(xvi)   Employment Amendment Agreement dated January 27, 1998 to
         Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Leon Nowek.

23.1     Consent of KPMG Peat Marwick LLP.

23.2     Consent of Morgan & Company, Chartered Accountants.

                                       34

<PAGE>

                                      SIGNATURE



     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Company certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.




                                             TURBODYNE TECHNOLOGIES INC.
                                             (COMPANY)

                                             /s/ Leon Nowek           

                                             LEON NOWEK
                                             VICE CHAIRMAN AND DIRECTOR
                                             (AUTHORIZED SIGNATORY)


DATE:  July 14, 1998


                                       i

<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Turbodyne Technologies Inc.:


We have audited the accompanying consolidated balance sheet of Turbodyne 
Technologies Inc. and subsidiaries as of December 31, 1997 and the related 
consolidated statements of operations, stockholders' equity and cash flows 
for the year then ended. These consolidated financial statements are the 
responsibility of the Company's management. Our responsibility is to express 
an opinion on these consolidated financial statements based on our audit. The 
consolidated financial statements of Turbodyne Technologies Inc. as of and 
for the years ended December 31, 1996 and 1995, prior to any restatement, 
were audited by other auditors whose report dated February 14, 1997 expressed 
an unqualified opinion on those statements.

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

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the financial position of Turbodyne 
Technologies Inc. and subsidiaries as of December 31, 1997 and the results of 
their operations and their cash flows for the year then ended in conformity 
with generally accepted accounting principles.

As discussed in note 1 to the consolidated financial statements, due to the 
change in reporting currency, effective from January 1, 1998, the 
accompanying 1996 and 1995 consolidated financial statements have been 
restated to the new reporting currency of the United States dollar.

We also audited the adjustments that were applied to restate the 1996 and 
1995 consolidated financial statements to U.S. generally accepted accounting 
principles and the change in reporting currency. In our opinion, such 
adjustments are appropriate and have been properly applied.

Los Angeles, California
April 3, 1998, except for the last paragraph 
 of note 11 and the last paragraph of 
 note 12, which are as of April 30, 1998.


<PAGE>

                                   AUDITOR'S REPORT

To the Shareholders of
Turbodyne Technologies Inc.

We have audited the revised consolidated balance sheets of Turbodyne 
Technologies Inc. as at December 31, 1996 and 1995 and the revised 
consolidated statements of operations and deficit, stockholders' equity and 
cash flows for the years ended December 31, 1996 and 1995.  These revised 
consolidated financial statements are the responsibility of the Company's 
management.  Our responsibility is to express an opinion on these revised 
consolidated financial statements based on our audits.

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

In our opinion, these revised consolidated financial statements present 
fairly, in all material respects, the financial position of the Company as at 
December 31, 1996 and 1995 and the results of its operations and its cash 
flows for the years ended December 31, 1996 and 1995 in accordance with 
generally accepted accounting principles.  As required by the British 
Columbia Company Act, we report that, in our opinion, these principles have 
been applied on a consistent basis.

In our report dated February 14, 1997, except for the last paragraph of Note 
5(A) which is as of March 12, 1997, we reported that in our opinion the 
consolidated financial statements presented fairly, in all material respects, 
the financial position of the Company as at December 31, 1996 and 1995 and 
the results of its operations and the changes in its cash flows for the years 
then ended in accordance with generally accepted accounting principles.  
Subsequent to March 12, 1997, the Company has revised these consolidated 
financial statements as explained in Note 13.  Therefore, our report dated 
February 14, 1997, except for the last paragraph of Note 5(A) which is as of 
March 12, 1997, has been withdrawn.

Vancouver, B.C.

                                                           /s/ Morgan & Company
February 14, 1997, except for the last paragraph           Chartered Accountants
of Note 5(A) which is as of March 12, 1997,
Note 2, Note 13 and Note 14(a) which are as of 
May 14, 1997 and Notes 14(b), 14(c), 14(d)
and 14(e), which are as of June 17, 1997





<PAGE>



                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
                           December 31, 1997 and 1996



<TABLE>
<CAPTION>



                           ASSETS                                        1997                     1996
                                                                 ----------------------   ----------------------
<S>                                                              <C>                      <C>
Current assets:
    Cash                                                         $        949,000                3,143,000
    Trade accounts receivable, less allowance for doubtful
      accounts of $78,000 in 1997 and $181,000 in 1996                  9,214,000                5,959,000
    Employee advances receivable (note 10)                                568,000                   82,000
    Inventories (note 2)                                                5,469,000                3,453,000
    Prepaid expenses and other current assets                           1,191,000                  851,000
                                                                 ----------------------   ----------------------

           Total current assets                                        17,391,000               13,488,000

Property and equipment, at cost, net (note 3)                          18,122,000               11,290,000

Goodwill, net                                                          13,740,000               14,528,000

Other assets                                                              473,000                  135,000
                                                                 ----------------------   ----------------------

                                                                 $     49,726,000               39,441,000
                                                                 ----------------------   ----------------------
                                                                 ----------------------   ----------------------
</TABLE>




See accompanying notes to consolidated financial statements.


<PAGE>


                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets
                           December 31, 1997 and 1996


<TABLE>
<CAPTION>

                       LIABILITIES AND STOCKHOLDERS' EQUITY                                 1997                      1996
                                                                                     -----------------        -------------------
                                                                  
<S>                                                                                 <C>                       <C>
Current liabilities:
    Current maturities of long-term debt (note 4)                                   $    607,000                 1,346,000
    Current maturities of obligations under capital
     leases (note 6)                                                                   1,035,000                   611,000
    Accounts payable                                                                   5,283,000                 2,875,000
    Accrued liabilities                                                                1,850,000                 1,630,000
    Income taxes payable                                                                  86,000                        --
                                                                                    ------------               -----------
                                                                
                                                                                    

           Total current liabilities                                                   8,861,000                 6,462,000

Long-term debt, less current maturities (note 4)                                       8,155,000                 4,095,000
Obligations under capital leases, less current
  maturities (note 6)                                                                  1,867,000                 1,170,000
                                                                                    ------------               -----------
                                                                                      18,883,000                11,727,000
                                                                                    ------------               -----------
                                                                                    

Stockholders' equity (notes 7, 8 and 11):
    Class A preferred stock, no par value.  Authorized 
      100,000,000 shares; none issued                                                         --                        --
    Class B preferred stock, no par value.  Authorized 
      100,000,000 shares; none issued                                                         --                        --
    Preferred stock, no par value.  Authorized and
      issued 10,000 Series One Class A, 7% cumulative 
      convertible                                                                      9,604,000                        --
    Common stock, no par value.  Authorized
      100,000,000 shares; issued and outstanding
      29,961,612 shares in 1997 and 23,580,098 shares
      in 1996                                                                                 --                        --
    Additional paid-in capital                                                        45,290,000                22,599,000
    Special warrants                                                                          --                16,007,000
    Cumulative currency translation adjustment                                            22,000                  (204,000)
    Accumulated deficit                                                              (24,073,000)              (10,688,000)
                                                                                    ------------               -----------

           Total stockholders' equity                                                 30,843,000                27,714,000

Commitments and contingencies (note 6)
Subsequent events (note 11)
Liquidity (note 12)
                                                                                    ------------               -----------

                                                                                    $ 49,726,000                39,441,000
                                                                                    ------------               -----------
                                                                                    ------------               -----------


</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>



                                             TURBODYNE TECHNOLOGIES INC.
                                                   AND SUBSIDIARIES

                                       Consolidated Statements of Operations

                                   Years ended December 31, 1997, 1996 and 1995



<TABLE>
<CAPTION>


                                                                   1997                   1996                   1995
                                                            --------------------   -------------------    -------------------
<S>                                                         <C>                    <C>                    <C>
Net sales                                                   $     39,165,000             13,944,000                        --

Cost of goods sold                                                32,326,000             12,101,000                        --
                                                            --------------------   -------------------    -------------------
                                                    

           Gross profit                                            6,839,000              1,843,000                        --

Selling, research, general and administrative expenses            18,982,000              7,781,000                 2,603,000
                                                            --------------------   -------------------    -------------------
                                                            

           Loss from operations                                  (12,143,000)            (5,938,000)               (2,603,000)

Other expense (income):
    Interest expense, net                                            770,000                360,000                        --
    Other, net                                                        66,000               (315,000)                       --
                                                            --------------------   -------------------    -------------------

           Loss before income taxes                              (12,979,000)            (5,983,000)               (2,603,000)

Income tax expense (benefit) (note 5)                                206,000               (420,000)                       --
                                                            --------------------   -------------------    -------------------

           Net loss                                         $    (13,185,000)            (5,563,000)               (2,603,000)
                                                            --------------------   -------------------    -------------------
                                                            --------------------   -------------------    -------------------

Net loss per common share:
    Basic loss per share                                    $           (.58)                  (.33)                     (.46)
    Diluted loss per share                                              (.58)                  (.33)                     (.46)
                                                            --------------------   -------------------    -------------------
                                                            --------------------   -------------------    -------------------


Weighted average shares used for basic and diluted loss
    per share                                                     22,685,000             16,641,000                 5,656,000
                                                            --------------------   -------------------    -------------------
                                                            --------------------   -------------------    -------------------

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                COMMON STOCK                      PREFERRED STOCK
                                       ------------------------------    ------------------------------      ADDITIONAL
                                            SHARES          AMOUNT           SHARES           AMOUNT          PAID-IN
                                                                                                              CAPITAL
                                       -------------    -------------    -------------    -------------   --------------
<S>                                     <C>              <C>              <C>             <C>                <C>
Balance at December 31, 1994              10,663,052     $       --               --      $       --         2,387,000

Private placement of common stock,
  net of expenses                          3,367,213             --               --              --         1,968,000
Issuance of common stock for loan
  bonus                                      258,333             --               --              --            69,000
Issuance of common stock for finder's
  fees                                       116,667             --               --              --            31,000
Issuance of common stock for debt
  settlement                                 301,933             --               --              --           115,000
Exercise of warrants                         666,423             --               --              --           353,000
Exercise of stock options                  1,168,500             --               --              --           638,000
Translation adjustment                            --             --               --              --                -- 
Net loss                                          --             --               --              --                -- 
                                       -------------    -------------    -------------    -------------   --------------  


Balance at December 31, 1995              16,542,121             --               --              --         5,561,000

Private placement of common stock,
  net of expenses                            469,497             --               --              --         1,644,000
Private placement of special
  warrants, net of expenses                       --             --               --              --                -- 
Exercise of warrants                       2,840,557             --               --              --         2,528,000
Exercise of stock options                    651,000             --               --              --         1,605,000
Issuance of common stock on
  acquisition of subsidiary                3,076,923             --               --              --        11,261,000
Translation adjustment                            --             --               --              --                -- 
Net loss                                          --             --               --              --                -- 
                                       -------------    -------------    -------------    -------------   --------------  


Balance at December 31, 1996              23,580,098             --               --              --        22,599,000

Private placement of preferred stock,
  net of expenses                                 --             --           10,000       9,604,000                --
Conversion of Series A and Series C
  special warrants, net of expenses        4,625,000             --               --              --        15,659,000
Exercise of warrants                       1,002,014             --               --              --         4,089,000
Exercise of stock options                    754,500             --               --              --         2,401,000
Translation adjustment                            --             --               --              --                --
Issuance of stock options to
  nonemployees for services                       --             --               --              --           542,000
Net loss                                          --             --               --              --                --
Preferred stock dividends declared                --             --               --              --                --
                                       -------------    -------------    -------------    -------------   --------------  


Balance at December 31, 1997              29,961,612     $       --           10,000      $9,604,000        45,290,000
                                       -------------    -------------    -------------    -------------   --------------  
                                       -------------    -------------    -------------    -------------   --------------  


<CAPTION>
                                                          CUMULATIVE                      
                                                           CURRENCY                           NET
                                          SPECIAL         TRANSLATION     ACCUMULATED      STOCKHOLDERS'
                                          WARRANTS        ADJUSTMENT        DEFICIT          EQUITY         
                                       --------------   -------------    -------------    ------------- 
<S>                                     <C>              <C>              <C>              <C>
Balance at December 31, 1994                       --      (130,000)      (2,522,000)        (265,000)

Private placement of common stock,
  net of expenses                                  --            --               --        1,968,000
Issuance of common stock for loan
  bonus                                            --            --               --           69,000
Issuance of common stock for finder's
  fees                                             --            --               --           31,000
Issuance of common stock for debt
  settlement                                       --            --               --          115,000
Exercise of warrants                               --            --               --          353,000
Exercise of stock options                          --            --               --          638,000
Translation adjustment                             --       287,000               --          287,000
Net loss                                           --            --       (2,603,000)      (2,603,000)
                                          -----------      --------      -----------      -----------

Balance at December 31, 1995                       --       157,000       (5,125,000)         593,000

Private placement of common stock,
  net of expenses                                  --            --               --        1,644,000
Private placement of special
  warrants, net of expenses                16,007,000            --               --       16,007,000
Exercise of warrants                               --            --               --        2,528,000
Exercise of stock options                          --            --               --        1,605,000
Issuance of common stock on
  acquisition of subsidiary                        --            --               --       11,261,000
Translation adjustment                             --      (361,000)              --         (361,000)
Net loss                                           --            --       (5,563,000)      (5,563,000)
                                          -----------      --------      -----------      -----------

Balance at December 31, 1996               16,007,000      (204,000)     (10,688,000)      27,714,000

Private placement of preferred stock,
  net of expenses                                  --            --               --        9,604,000
Conversion of Series A and Series C
  special warrants, net of expenses       (16,007,000)           --               --         (348,000)
Exercise of warrants                               --            --               --        4,089,000
Exercise of stock options                          --            --               --        2,401,000
Translation adjustment                             --       226,000               --          226,000
Issuance of stock options to
  nonemployees for services                        --            --               --          542,000
Net loss                                           --            --      (13,185,000)     (13,185,000)
Preferred stock dividends declared                 --            --         (200,000)        (200,000)
                                          -----------      --------      -----------      -----------

Balance at December 31, 1997                       --        22,000      (24,073,000)      30,843,000
                                          -----------      --------      -----------      -----------
                                          -----------      --------      -----------      -----------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>



                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>

                                                                 1997           1996             1995
                                                            -------------   ------------    -------------
<S>                                                         <C>             <C>             <C>
Cash flows from operating activities:
    Net loss                                                $(13,185,000)      (5,563,000)     (2,603,000)
    Adjustments to reconcile net loss to net cash used
      in operating activities:
        Depreciation and amortization of property and
          equipment                                            2,695,000        5,163,000          40,000
        Loss on sale of equipment                                 76,000               --              --
        Stock compensation                                       542,000               --         215,000
        (Increase) decrease in operating assets:
          Trade accounts receivable                           (3,255,000)         806,000              --
          Employee advances receivable                          (486,000)         (82,000)        (82,000)
          Inventories                                         (2,016,000)        (868,000)             --
          Prepaid expenses and other current
            assets                                              (340,000)         541,000        (224,000)
          Other assets                                          (338,000)        (135,000)        (25,000)
        Increase (decrease) in operating liabilities:
            Trade accounts payable                             2,408,000       (1,947,000)       (104,000)
            Accrued expenses                                      20,000          605,000              --
            Income taxes payable                                  86,000               --              --
                                                            ------------      -----------      ----------

                  Net cash used in operating 
                   activities                                (13,793,000)      (1,480,000)     (2,783,000)
                                                            ------------      -----------      ----------
                                                            

Cash flows from investing activities:
    Purchase of property and equipment                        (6,910,000)      (5,983,000)       (389,000)
    Proceeds from sale of property, plant and 
      equipment                                                   42,000               --              --
    Acquisition of subsidiary, less cash acquired
      of $441,000                                                     --      (11,559,000)             --
                                                            ------------      -----------      ----------

                  Net cash used in investing 
                   activities                                 (6,868,000)     (17,542,000)       (389,000)
                                                            ------------      -----------      ----------
                                                            

</TABLE>

                                   (Continued)


<PAGE>



                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued


<TABLE>
<CAPTION>



                                                                   1997                   1996                   1995
                                                            --------------------   -------------------    -------------------
<S>                                                         <C>                    <C>                    <C>
Cash flows from financing activities:
    Net proceeds from long-term borrowings                  $      3,321,000                956,000                152,000
    Repayments under capital lease obligations                      (826,000)              (440,000)                    --
    Issuance of special warrants                                          --             16,007,000                     --
    Issuance of common stock                                              --              1,644,000              1,968,000
    Proceeds from exercise of stock options and 
      warrants                                                     6,490,000              4,133,000                991,000
    Net proceeds from preferred stock issue                        9,604,000                     --                     --
    Issuance costs paid                                             (348,000)                    --                     --
                                                            --------------------   -------------------    -------------------

                  Net cash provided by financing
                    activities                                    18,241,000             22,300,000              3,111,000
                                                            --------------------   -------------------    -------------------

Effect of exchange rate changes on cash                              226,000               (361,000)               287,000
                                                            --------------------   -------------------    -------------------

                  Net increase (decrease) in cash                 (2,194,000)             2,917,000                226,000



Cash at beginning of year                                          3,143,000                226,000                     --
                                                            --------------------   -------------------    -------------------
                                                        

Cash at end of year                                         $        949,000              3,143,000                226,000
                                                            --------------------   -------------------    -------------------
                                                            --------------------   -------------------    -------------------

Supplemental disclosure of cash flow 
  information: 
    Cash paid during the year for:
        Interest                                            $        882,000                366,000                 62,000
        Income taxes                                                 120,000                718,000                     --
                                                            -------------------    -------------------    -------------------
                                                            -------------------    -------------------    -------------------


Supplemental disclosure of noncash investing and 
  financing activities:
    Issuance of notes for financing of capital
      leases
    Issuance of common stock in connection with            $       1,947,000                835,000                     --
      acquisition of subsidiary                                           --             11,261,000                     --
    Preferred stock dividends declared                               200,000                     --                     --
                                                            -------------------    -------------------    -------------------
                                                            -------------------    -------------------    -------------------


</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>



                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                           December 31, 1997 and 1996


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     THE COMPANY

     Turbodyne Technologies Inc. and subsidiaries (the Company) was incorporated
     under the Company Act of the Province of British Columbia, Canada and was
     continued under the Canada Business Corporation Act on December 3, 1996.
     The Company manufactures aluminum cast automotive products, including
     engine components and specialty wheels, and develops products to enhance
     performance and reduce emissions of internal combustion engines.

     PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
     the Company and its wholly owned subsidiaries, Turbodyne Systems, Inc.,
     Turbodyne U.K. Ltd. and Pacific Baja Light Metals Corp. (Pacific Baja). All
     material intercompany accounts and transactions have been eliminated in
     consolidation.

     BASIS OF PRESENTING FINANCIAL STATEMENTS

     Effective July 18, 1997, the Company formally delisted its shares from
     trading on the Vancouver Stock Exchange. On March 24, 1997, the Company's
     shares became listed on the Nasdaq Small Capital Market and continues to
     trade in that market. As a result, effective January 1, 1998, the Company
     changed its reporting currency from the Canadian (Cdn$) to the U.S. dollar
     (U.S.$). Accordingly, the consolidated financial statements for 1996 and
     1995 have been restated to the new reporting currency of U.S.$.

     The accompanying consolidated financial statements are presented in
     accordance with U.S. generally accepted accounting principles.

     Additionally, a cumulative translation adjustment has been included as a
     separate component of stockholders' equity reflecting the translation of
     the Cdn$ reporting currency consolidated financial statements to the newly
     adopted and retroactively applied U.S.$ reporting currency. This cumulative
     translation adjustment will remain as a separate component of stockholders'
     equity.

     INVENTORIES

     Inventories are valued at the lower of cost or market. For the materials
     portion of inventories, the cost is determined using the last-in, first-out
     (LIFO) method. For the other components of inventories (labor and
     overhead), the cost is determined using the first-in, first-out (FIFO)
     method.



<PAGE>



                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     DEPRECIATION AND AMORTIZATION

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


<TABLE>
      
           <S>                                    <C>
           Buildings                              30 years
           Machinery and equipment                7 to 15 years
           Furniture and fixtures                 5 to 10 years
           Transportation equipment               5 years
           Leasehold improvements                 Length of lease, not to exceed economic life
</TABLE>

     LONG-LIVED ASSETS

     It is the Company's policy to report long-lived assets at amortized cost.
     As part of an ongoing review of the valuation and amortization of
     long-lived assets, management assesses the carrying value of such assets if
     facts and circumstances suggest that they may be impaired. The Company
     assesses the recoverability of long-lived assets in accordance with
     Statement of Financial Accounting Standards No. 121. As a result, the
     Company has determined that its long-lived assets are not impaired as of
     December 31, 1997, 1996 and 1995.

     GOODWILL

     Goodwill is associated with the purchase of Pacific Baja on July 2, 1996 by
     the Company and is being amortized on a straight-line basis over 20 years.
     The Company assesses the recoverability of goodwill by determining whether
     the amortization of the balance over the remaining life can be recovered
     through undiscounted future operating cash flows of the Company's
     operations. Accumulated amortization was $1,182,000 and $394,000 at
     December 31, 1997 and 1996, respectively.

     FOREIGN OPERATIONS

     Baja Oriente S.A. de C.V., a wholly owned subsidiary of Pacific Baja,
     operates in Ensenada, Mexico and its functional currency is the U.S.$. The
     loss from remeasurement of the financial statements of Baja Oriente S.A. de
     C.V. into U.S.$ for the years ended December 31, 1997 and 1996 is $125,000
     and $43,000, respectively, and is included in cost of goods sold in the
     accompanying consolidated financial statements.

     RECOGNITION OF REVENUE AND SIGNIFICANT CUSTOMERS

     The Company recognizes revenue upon shipment of product. The Company had
     sales to two significant customers constituting approximately 39% and 24%
     and 30% and 27%, respectively, of net sales in 1997 and 1996, respectively.
     Additionally, these customers comprised 31% and 23% and 43% and 19%,
     respectively, of accounts receivable at December 31, 1997 and 1996,
     respectively. The loss of either of these customers could have a material
     adverse effect on the Company.



<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


     INCOME TAXES

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

     EARNINGS PER SHARE

     In February 1997, the Financial Accounting Standard Board issued Statement
     of Financial Accounting Standards (FAS) No. 128, "Earnings per Share." FAS
     128 specifies the computation, presentation and disclosure requirements for
     earnings per share (EPS) and became effective for both interim and annual
     periods ending after December 15, 1997. All prior period EPS have been
     restated to conform with the provisions of FAS 128. The adoption of FAS 128
     did not have a material impact on the Company's loss per share
     calculations.

     For the years ended December 31, 1997, 1996 and 1995, options and warrants
     to purchase 5,103,500, 2,640,230 and 4,272,290 common stock, respectively,
     at prices ranging from $.37 to $6.48 were outstanding during the years but
     were not included in the computation of diluted EPS because the options
     would have an antidilutive effect on net loss per share. Other than
     deducting preferred stock dividends of $200,000 in 1997 to arrive at loss
     attributable to common stockholders, no other adjustments were made for
     purposes of per share calculations.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The fair values of the Company's cash, trade accounts receivable, employee
     advances receivable, accounts payable and accrued expenses approximate the
     carrying values because of the short maturities of these instruments.

     The fair values of the Company's capital lease obligations and long-term
     debt approximate their carrying values as each instrument bears interest at
     market rates.

     STOCK-BASED COMPENSATION

     The Company has adopted Statement of Financial Accounting Standards No.
     123, "Accounting for Stock-Based Compensation" (FAS 123), effective January
     1, 1996, and has elected to continue to measure compensation cost under
     APBO No. 25 and comply with the pro forma disclosure requirements of FAS
     123. The adoption of FAS 123 has had no impact on the Company's financial
     position or results of operations.

     RESEARCH AND DEVELOPMENT

     Research and development costs related to present and future products are
     charged to operations in the year incurred. Research and development costs
     aggregated $6,609,000, $3,622,000 and $1,421,000 for 1997, 1996 and 1995,
     respectively.


<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     RECLASSIFICATIONS

     Certain reclassifications have been made to the prior years' financial
     statements to conform with the 1997 presentation.

     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.

(2)  INVENTORIES

     Inventories are comprised of the following at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
                                                             1997                   1996
                                                      -------------------    -------------------
       <S>                                         <C>                       <C>
       Raw materials                               $         2,123,000              1,491,000
       Work in process                                         686,000                652,000
       Finished goods                                        2,660,000              1,310,000
                                                      -------------------    -------------------
                                                      
                                                   $         5,469,000              3,453,000
                                                      -------------------    -------------------
                                                      -------------------    -------------------
</TABLE>

     The use of the LIFO method in determining the cost of the materials portion
     of inventories had the effect of decreasing reported inventories at
     December 31, 1997 and 1996 by $136,000 and $118,000, respectively.

(3)  PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>

                                                             1997                   1996
                                                      -------------------    -------------------
       <S>                                         <C>                       <C>
       Construction in progress                    $           583,000                343,000
       Land and buildings                                    3,735,000                101,000
       Machinery and equipment                              12,226,000             10,586,000
       Transportation equipment                                593,000                564,000
       Furniture and fixtures                                  416,000                295,000
       Leasehold improvements                                3,627,000              2,430,000
       Equipment under capital leases                        3,675,000              1,797,000
                                                      -------------------    -------------------
                                                            24,855,000             16,116,000
       Less accumulated depreciation and
         amortization                                        6,733,000              4,826,000
                                                      -------------------    -------------------
                                                      
                Net property, plant and 
                 equipment                         $        18,122,000             11,290,000
                                                      -------------------    -------------------
                                                      -------------------    -------------------
                                                      
</TABLE>


<PAGE>

                           TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

     Of the property, plant and equipment listed above, the assets located at
     the production facilities in Ensenada, Mexico have a net book value of
     approximately $9,242,000 and $3,729,000 at December 31, 1997 and 1996,
     respectively.

     Accumulated depreciation on assets under capital leases amounted to
     $457,000 and $145,000 at December 31, 1997 and 1996, respectively.

(4)  LONG-TERM DEBT

     Long-term debt at December 31, 1997 and 1996 consists of the following:


<TABLE>
<CAPTION>
                                                                                           1997                   1996
                                                                                    --------------------   --------------------
       <S>                                                                       <C>                       <C>
       Revolving bank lines of credit (A)                                        $         8,144,000              4,439,000
       Notes payable to bank, principal of $15,625 plus interest payable
           monthly at prime (8.50% at December 31, 1997) plus .25% through
           October 1, 1998, with the remaining principal due 
           November 1, 1998                                                                  547,000                     --
       Notes payable to bank, with monthly installments of $35,862 plus interest                   
           payable monthly at prime plus 1%, maturing at various dates
           through June 2000                                                                      --              1,002,000
       Other                                                                                  71,000                     --
                                                                                    --------------------   --------------------

                Total long-term debt                                                       8,762,000              5,441,000

       Less current maturities                                                               607,000              1,346,000
                                                                                    --------------------   --------------------
                                                                                                          
                Long-term debt, excluding current maturities                     $         8,155,000              4,095,000
                                                                                    --------------------   --------------------
                                                                                    --------------------   --------------------

</TABLE>

       (A) The Company's wholly owned subsidiary, Pacific Baja, has a revolving
           line of credit with a bank permitting borrowings up to $10 million,
           secured by all receivables and inventory. The borrowings bear
           interest at the Company's option at LIBOR (5.84% at December 31,
           1997) plus 2% or at prime (8.50% at December 31, 1997). The line of
           credit expires June 1, 1999.

     The Company was not in compliance with the tangible net worth covenant
     related to its debt facilities at December 31, 1997, but has received the
     appropriate waiver through January 1, 1999.

     The aggregate maturities of long-term debt for years subsequent to December
     31, 1997 are as follows:

<TABLE>
    
       <S>                           <C>
       1998                          $           607,000
       1999                                    8,151,000
       2000                                        4,000
                                        -------------------

                                     $         8,762,000
                                        -------------------
                                        -------------------
</TABLE>

<PAGE>

                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued

(5)  INCOME TAXES

     Income tax expense is comprised of the following for the years ended
     December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>

                                     1997                   1996                   1995
                              -------------------    -------------------    -------------------
       <S>                 <C>                       <C>                    <C>
       Current:
           Federal         $           160,000                 63,000                     --
           State                        46,000                  8,000                     --
                              -------------------    -------------------    -------------------
                                       206,000                 71,000                     --
                              -------------------    -------------------    -------------------

       Deferred:
           Federal                          --               (483,000)                    --
           State                            --                 (8,000)                    --
                              -------------------    -------------------    -------------------
                                            --               (491,000)                    --
                              -------------------    -------------------    -------------------

                           $           206,000               (420,000)                    --
                              -------------------    -------------------    -------------------
                              -------------------    -------------------    -------------------

</TABLE>


     Total income tax expense (benefit) for the years ended December 31, 1997,
     1996 and 1995 differed from the amounts computed by applying the statutory
     Federal income tax rate of 35% to earnings before income taxes as a result
     of the following:


<TABLE>
<CAPTION>
                                                                   1997                   1996                   1995
                                                            --------------------   -------------------    -------------------
       <S>                                               <C>                       <C>                    <C>
       Computed "expected" income tax benefit            $        (4,628,000)            (2,094,000)              (911,000)
       State income taxes, net of Federal benefit                     30,000                     --                     --
       Losses with no U.S. tax benefit                             1,473,000                401,000                256,000
       Nondeductible goodwill                                        321,000                162,000                     --
       Change in valuation allowance                               2,419,000              1,412,000                902,000
       Other                                                         591,000                119,000               (247,000)
                                                            --------------------   -------------------    -------------------

                Total income tax expense
                (benefit)                                $           206,000                     --                     --
                                                            --------------------   -------------------    -------------------
                                                            --------------------   -------------------    -------------------

</TABLE>


<PAGE>

                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued

     The tax effects of temporary differences that give rise to the deferred tax
     assets and liabilities at December 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>

                                                                                           1997                   1996
                                                                                    -------------------    -------------------
       <S>                                                                       <C>                       <C>
       Deferred tax assets:
           Accrued liabilities                                                   $           215,000                185,000
           Inventory-related items                                                            53,000                 53,000
           Alternative minimum tax credit                                                     72,000                     --
           Net operating loss carryover - state                                              412,000                150,000
           Net operating loss carryover - Federal                                          5,134,000              2,947,000
                                                                                    -------------------    -------------------

                Gross deferred tax assets                                                  5,886,000              3,335,000

           Less valuation allowance                                                       (4,732,000)            (2,314,000)
                                                                                    -------------------    -------------------

                Deferred tax assets, net of valuation allowance                            1,154,000              1,021,000

       Deferred tax liabilities - basis of fixed assets                                   (1,154,000)            (1,021,000)
                                                                                    -------------------    -------------------

                Net deferred tax assets                                          $                --                     --
                                                                                    -------------------    -------------------
                                                                                    -------------------    -------------------

</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 liabilities, projected
     future taxable income and tax planning strategies in making this
     assessment. Management believes it is not likely that the Company will
     realize the benefits of these deductible differences at December 31, 1997.
     Accordingly, a valuation allowance has been provided for the total net
     deferred tax assets.


(6)  COMMITMENTS AND CONTINGENCIES

     LEASES

     The Company's subsidiaries lease certain factory and office premises in
     California and Ensenada, Mexico under noncancelable operating leases
     expiring through September 2006. The Company leases one of its facilities
     in Mexico from certain stockholders of the Company. Rental expense for
     1997, 1996 and 1995 was approximately $1,050,000, $464,000 and $204,000,
     respectively, of which $180,000, $195,000 and $0, respectively, was paid to
     the Company's stockholder.

     The Company is obligated under capital lease agreements for certain
     equipment and vehicles. The leases are due in monthly installments at
     various dates through August 2002.


<PAGE>

                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued

     Minimum future rental commitments under the operating leases and future
     minimum capital lease payments as of December 31, 1997 are:

<TABLE>
<CAPTION>
                                                                                   CAPITAL LEASES        OPERATING LEASES
                                                                                 --------------------   -------------------
       <S>                                                                    <C>                       <C>
       Year ending December 31:
           1998                                                               $         1,255,000                984,000
           1999                                                                         1,042,000              1,006,000
           2000                                                                           540,000                954,000
           2001                                                                           370,000                498,000
           2002                                                                           131,000                325,000
           Thereafter                                                                          --                960,000
                                                                                 --------------------   -------------------

                  Total future minimum lease payments                                   3,338,000    $         4,727,000
                                                                                                        -------------------
                                                                                                        -------------------
           Less amounts representing interest (at rates ranging from 8.35%
             to 16.41%)                                                                   436,000
                                                                                 --------------------

                  Present value of net minimum capital lease payments
                                                                                        2,902,000

           Less current maturities of obligations under capital leases                  1,035,000
                                                                                 --------------------

                  Obligations under capital leases, excluding current
                     maturities                                               $         1,867,000
                                                                                 --------------------
                                                                                 --------------------

</TABLE>


     The Company has entered into consulting commitments for assistance in
     management development, international marketing, licensing and financing,
     technical and educational services.

     Future commitments under these contracts as of December 31, 1997 were:

<TABLE>

               <S>                          <C>
               Year ending December 31:
                 1998                       $            74,000
                 1999                                    56,000
                 2000                                    42,000
                 2001                                    42,000
                 2002                                    42,000
                                                -------------------

                                             $          256,000
                                                -------------------
                                                -------------------

</TABLE>

     In addition to the above, the Company has other consulting agreements which
     are payable on a month-to-month basis for a total of $91,000 per month and
     continue indefinitely until either party terminates the agreement in
     writing with advance notice ranging from one to three months.


<PAGE>
                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued

     LITIGATION

     The Company is currently involved in various collection claims and legal
     actions arising in the ordinary course of business. Management does not
     believe that disposition of these matters will have a material effect on
     the Company's financial position or results of operations.

(7)  STOCK OPTIONS

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

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

     The following summarizes information relating to stock options during 1997,
     1996 and 1995:


<TABLE>
<CAPTION>
                                                                                 1997
                                      ---------------------------------------------------------------------------
                                                NONEMPLOYEES                   EMPLOYEES                       
                                      ----------------------------   --------------------------       -----------    
                                                        WEIGHTED                      WEIGHTED                         
                                                        AVERAGE                       AVERAGE                          
                                                        EXERCISE                      EXERCISE                         
          FIXED OPTIONS                  SHARES          PRICE           SHARES        PRICE            SHARES        
----------------------------           ---------       ---------      ----------      ---------       ----------      
<S>                                    <C>             <C>            <C>             <C>             <C>
Outstanding at beginning of 
  year                                    25,000         $5.25         2,275,500         $4.55         2,300,500       

Granted                                  485,000          4.70         2,594,000          4.67         3,079,000        
Exercised                                     --            --           754,500          2.06           754,500        
Forfeited                                     --            --           493,500          5.75           493,500        
                                         -------                       ---------                       ---------

Outstanding at end of year               510,000          4.73         3,621,500          4.78         4,131,500         

Options exercisable at end of
    year                                 231,950          4.75         2,984,665          4.78         3,216,615          
Weighted average fair value of
    options granted during the
    year                                      --          3.50                --          3.45                --          
                                         -------         -----         ---------         -----         ---------   
                                         -------         -----         ---------         -----         ---------      
</TABLE>


<PAGE>
                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued




<TABLE>
<CAPTION>
                                                                                1996
                                      ---------------------------------------------------------------------------
                                                NONEMPLOYEES                  EMPLOYEES                       
                                      --------------------------     ---------------------------      -----------    
                                                        WEIGHTED                      WEIGHTED                         
                                                        AVERAGE                       AVERAGE                          
                                                        EXERCISE                      EXERCISE                         
          FIXED OPTIONS                  SHARES          PRICE           SHARES        PRICE            SHARES        
--------------------------------       ---------       ---------      ----------      ---------       ----------      
<S>                                    <C>             <C>            <C>             <C>             <C>
Outstanding at beginning of 
  year                                   30,000          $1.15         1,591,500        $2.73         1,621,500     

Granted                                  25,000           5.25         1,305,000         5.76         1,330,000            
Exercised                                30,000           1.15           621,000         2.42           651,000            
Forfeited                                    --             --                --           --                --            

Outstanding at end of year               25,000           5.25         2,275,500         4.55         2,300,500            

Options exercisable at end of
    year                                 25,000           5.25         2,275,500         4.55         2,300,500            
Weighted average fair value of
    options granted during the
    year                                     --           1.67                --         3.11                --            
                                       --------          ------        ---------        -----         ---------
                                       --------          ------        ---------        -----         ---------

<CAPTION>
                                                                                 1995
                                      --------------------------------------------------------------------------
                                                NONEMPLOYEES                   EMPLOYEES               
                                      --------------------------     -------------------------       -----------    
                                                        WEIGHTED                      WEIGHTED                        
                                                        AVERAGE                       AVERAGE                         
                                                        EXERCISE                      EXERCISE                  
          FIXED OPTIONS                  SHARES          PRICE           SHARES        PRICE            SHARES        
--------------------------------       ---------       ---------      ----------      ---------       ----------      
<S>                                    <C>             <C>            <C>             <C>             <C>
Outstanding at beginning of 
  year                                        --         $  --           190,000         $ .38           190,000     

Granted                                   30,000          1.15         2,510,000          1.93         2,540,000       
Exercised                                     --            --         1,168,500           .53         1,168,000       
Forfeited                                     --            --                --            --                --       

Outstanding at end of year                30,000          1.15         1,531,500          2.73         1,561,500       

Options exercisable at end of
    year                                  30,000          1.15         1,531,500          2.73         1,561,500        
Weighted average fair value of
    options granted during the
    year                                      --           .63                --          1.18                --        
                                       ---------       -------         ---------       ---------       ---------
                                       ---------       -------         ---------       ---------       ---------

</TABLE>


<PAGE>

                 TURBODYNE TECHNOLOGIES INC.
                      AND SUBSIDIARIES

       Notes to Consolidated Financial Statements, Continued


<TABLE>
<CAPTION>


                                             OUTSTANDING STOCK OPTIONS                        EXERCISABLE STOCK OPTIONS
                              ------------------------------------------------------    ------------------------------------
                                                        WEIGHTED         WEIGHTED                                WEIGHTED
            RANGE OF              NUMBER OF             AVERAGE           AVERAGE        NUMBER OF SHARES         AVERAGE
        EXERCISE PRICES       OUTSTANDING SHARES     EXERCISE PRICE   REMAINING TERM       EXERCISABLE        EXERCISE PRICE
       -------------------    -------------------   ---------------   --------------    -------------------   --------------
       <S>                    <C>                  <C>                <C>               <C>                  <C>
         $3.00 to $3.50                335,000     $     3.30              1.43                  335,000     $     3.30
          4.50 to 5.00               3,305,000           4.70              4.07                2,390,115           4.67
          5.00 to 6.50                 491,500           6.29               .69                  491,500           6.29
                              -------------------                                       -------------------

          3.50 to 6.50               4,131,500           4.77              3.48                3,216,615           4.78
                              -------------------   ----------         ----------       -------------------      ------
                              -------------------   ----------         ----------       -------------------      ------

</TABLE>


     The per share weighted average fair value of stock options granted during
     1997, 1996 and 1995 was $3.48, $3.22 and $1.17, respectively, on the date
     of grant using the Black-Scholes option pricing model with the following
     weighted average assumptions: 1997, 1996 and 1995 expected dividend yield
     0%; expected volatility of 106%; risk-free interest rate of between 5.08%
     and 7.20% and expected life equal to 80% of the full term of 2 to 5 years.

     The Company applies APB Opinion 25 and related interpretations in
     accounting for stock options. Accordingly, no compensation cost has been
     recognized. Had compensation cost been determined based upon the fair value
     of the stock options at the grant date consistent with the method of FASB
     Statement 123, the Company's net income and earnings per share would have
     been reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>

                                                     1997                   1996                   1995
                                              -------------------    -------------------    -------------------
       <S>                                 <C>                       <C>                    <C>
       Net loss:
           As reported                     $       (13,185,000)            (5,563,000)            (2,603,000)
           Pro forma                               (20,687,000)            (9,619,000)            (5,553,000)
                                              -------------------    -------------------    -------------------
                                              -------------------    -------------------    -------------------
       Basic and diluted loss per 
         share:
             As reported                   $           (.58)                   (.33)                 (.46)
             Pro forma                                 (.91)                   (.58)                 (.98)
                                              -------------------    -------------------    -------------------
                                              -------------------    -------------------    -------------------

</TABLE>

(8)  STOCKHOLDERS' EQUITY

     SPECIAL WARRANTS

     On July 2, 1996, the Company completed a private placement of 3,750,000
     Series "A" Special Warrants at a price of $5.00 (Cdn$) per special warrant.
     Commission paid to the brokers was 10% of the gross proceeds and the
     brokers elected to receive the commission in special warrants (375,000
     Series "A" Special Warrants issued). Each Series "A" Special Warrant can be
     exercised into one unit of the common stock for no additional
     consideration. Each unit consists of one common stock and one
     nontransferable stock purchase warrant. The stock purchase warrants entitle
     the holder to purchase one common stock at $5.50 (Cdn$) per stock until
     July 2, 1997.


<PAGE>
                                       
                          TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

            Notes to Consolidated Financial Statements, Continued


     During 1997, all of the Series "A" Special Warrants were exercised for an
     aggregate of 4,125,000 shares of common stock and stock purchase warrants
     for the purchase of an additional 4,125,000 shares. Total net proceeds of
     $12,943,000, received upon the issuance of these special warrants less
     issuance costs, were transferred to paid-in capital. During 1997, 705,000
     of the Series "A" stock purchase warrants were exercised for common stock
     for total proceeds of $2,791,800. The remaining Series "A" stock purchase
     warrants expired during 1997.

     On December 6, 1996, the Company completed a brokered private placement of
     500,000 Series "C" Special Warrants at a price of $9.00 (Cdn$) per special
     warrant. Each Series "C" Special Warrant can be exercised into one unit of
     the Company for no additional consideration. Each unit consists of one
     common stock and one stock purchase warrant. Each Series "C" stock purchase
     warrant will entitle the holder to purchase one common stock at $9.50
     (Cdn$) per share for a period of one year. During 1997, a warrant amendment
     was signed to change the exercise price of the Series "C" stock purchase
     warrant from $9.50 (Cdn$) to $4.50 (U.S.$) and extend the exercise date of
     the Series "C" Special Warrants and Series "C" stock purchase warrant.

     During 1997, all of the Series "C" Special Warrants were exercised into
     common stock with stock purchase warrants for an aggregate of 500,000
     common stock and stock purchase warrants. Total net proceeds of $2,845,000,
     received upon the issuance of these special warrants, were transferred to
     paid-in capital. At December 31, 1997, 272,000 Series "C" stock purchase
     warrants were outstanding with holders resident in Ontario. All remaining
     warrants expired during 1997.

     STOCK PURCHASE WARRANTS

     At December 31, 1997, the client had 972,000 stock purchase warrants
     outstanding. 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 $4.50 to
     $5.00 and expiration dates between June 1998 and September 2000.

     PREFERRED STOCK

     On September 19, 1997, the Company completed a private placement of 10,000
     shares of Series One Convertible Class A Preference stock, no par value
     (the Class A Preferred), for net proceeds of $9,604,000. Conversion of the
     Class A Preferred stock into common stock is at the option of the holder
     for any or all the outstanding stock after January 8, 1998 or at the option
     of the Company after September 8, 2000. Each share of the Class A Preferred
     stock may be converted into common stock at a conversion price based on a
     floating price formula. In the event of any liquidation, dissolution or
     winding up of the affairs of the Company, holders of the Class A Preferred
     stock shall be paid the redemption price plus all accrued dividends to the
     date of liquidation, dissolution or winding up of affairs before any
     payment to other stockholders. These shares have no voting rights and have
     a redemption price of $1,000 per share, together with accrued and unpaid
     dividends thereon. Redemption of these stocks is at the option of the
     Company. Dividends on the Class A Preferred stock is cumulative and at the
     rate of 7% per annum payable in cash or common stock at the date of
     conversion. Total accrued dividends at December 31, 1997 amounted to
     $200,000.


<PAGE>
                                       
                          TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

            Notes to Consolidated Financial Statements, Continued


     Subsequent to December 31, 1997, all the holders of the Class A Preferred
     stock elected to exercise the conversion rights under this class of shares
     and have presented the Company with notices to convert. The $10 million
     face value amounts were converted into 4,742,522 common shares. The total
     stock issued on conversion also includes the payout of 7% cumulative
     dividends in the form of additional common stock. Dividends paid out for
     the Class A Preferred stock amounted to $356,000.


     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.


(9)  ACQUISITION

     Effective July 2, 1996, the Company acquired all the issued and outstanding
     shares of Pacific Baja for $12,000,000 in cash and 3,076,923 shares of
     common stock in the Company. The acquisition has been accounted for using
     the purchase method with the results of operations of Pacific Baja for the
     period subsequent to July 2, 1996 being included in these consolidated
     financial statements. The excess of the acquisition costs over the fair
     value of net assets acquired is included in and has been allocated to
     goodwill. Goodwill is amortized on a straight-line basis over a 20-year
     period.

     Pacific Baja is a manufacturer and distributor of aftermarket automotive
     wheels, compressor housings and manifolds to wholesale distributors and
     original equipment manufacturers in the United States and abroad.

(10) RELATED PARTY TRANSACTIONS

     The Company made payments to related parties as follows:
     <TABLE>
     <CAPTION>
                                                    1997                   1996                   1995
                                             -------------------    -------------------    -------------------
     <S>                                      <C>                    <C>                    <C>
     Project management fees                   $      324,000               59,000                 58,000
     Consulting fees                                  470,000               62,000                     --
     Management fees                                       --               22,000                 22,000
     Rent and administrative services                 360,000              127,000                 22,000
                                             -------------------    -------------------    -------------------

                                               $    1,154,000              270,000                102,000
                                             -------------------    -------------------    -------------------
                                             -------------------    -------------------    -------------------
     </TABLE>

      The following amounts are due from related parties:
      <TABLE>
      <CAPTION>
                                                                                    1997                   1996
                                                                             --------------------   -------------------
      <S>                                                                       <C>                  <C>
      Advances receivable from directors interest free 
        and payable on demand                                                   $     243,000              82,000
      Housing loans receivable from directors                                         325,000                  --
                                                                             --------------------   -------------------

                                                                                $     568,000              82,000
                                                                             --------------------   -------------------
                                                                             --------------------   -------------------
      </TABLE>


<PAGE>
                                       
                          TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

            Notes to Consolidated Financial Statements, Continued

(11) SUBSEQUENT EVENTS

     On February 5, 1998, the Company completed a financing with the sale of
     $1.5 million of 3% Subordinated Convertible Debentures due on February 4,
     2000. On March 23, 1998, the debenture holder elected to convert the
     debentures into 671,444 common stocks at a conversion price of $2.24.

     On February 27, 1998, the stockholders of the Company approved the
     continuation of Turbodyne Technologies Inc. from Canadian jurisdiction to
     domestication under State of Delaware incorporation law.

     On March 1, 1998, the Company completed a $1 million secured bridge loan
     with a venture capital firm. The loan bears interest at 1% per month
     (12.68% annualized) and is due on May 29, 1998 or earlier. In connection
     with the financing, the Company issued a bonus of 75,000 common stocks to
     the venture capital firm and 75,000 common stocks to the guarantors of this
     loan. The deemed price set on these shares is $2.50 per stock.

     On March 10, 1998, the Company granted 400,000 stock options under the
     Company's 1997 Stock Option Plan at exercise prices of $2.00 and $2.35.
     These stock options were all exercised during March 1998 for total proceeds
     of $870,000.

     On March 11, 1998, the Company granted 370,000 stock options under the
     Company's 1997 Stock Option plan to consultants at an exercise price of
     $2.35. The Company also granted 800,000 stock options to several executives
     at an exercise price of $2.35, exercisable on or before March 11, 2003. Of
     the stock options issued to the consultants, 350,000 were exercised for
     total proceeds of $823,000.

     On March 12, 1998, the Company agreed to amend the exercise price of
     3,097,000 previously granted stock options from various prices to $3.50.

     On March 24, 1998, the Company completed the sale of $1.5 million financing
     of 8% Subordinated Convertible Debentures due March 23, 2000. The
     Subordinated Convertible Debentures are convertible at the option of the
     holder into the Company's common stock. The holder may convert up to 50% of
     the face amount of the debenture at any time after May 7, 1998 and up to
     100% after June 6, 1998.

     On March 24, 1998, the Company granted 1,627,000 stock options to
     consultants and employees at an exercise price of $3.50, exercisable on or
     before March 24, 2003.

     During April 1998, a total of 1,453,250 stock options with exercise prices
     ranging from $3.36 to $6.48 were exercised for total proceeds to the
     Company of $5,929,000.


(12) LIQUIDITY

     The Company has experienced losses from operations resulting in an
     accumulated deficit as of December 31, 1997. The Company also used
     $13,793,000 to fund operating activities during 1997. Through December 31,
     1997, the Company has raised $19,415,000 through debt and equity offerings.
     In order to sustain operations and carry out management's growth plans for
     the future, the Company will require additional debt and equity financing
     in amounts sufficient to carry on operating activities through January 1,
     1999.


<PAGE>
                                       
                          TURBODYNE TECHNOLOGIES INC.
                                AND SUBSIDIARIES

            Notes to Consolidated Financial Statements, Continued


     As described in note 11, the Company has generated approximately $11.6
     million from various financing and the exercise of stock options through
     April 30, 1998. Management is currently contemplating additional financing
     from outside sources and has written offers for equity and/or debt
     financings in amounts sufficient to fund future operations. Management
     believes that their existing cash flow from financing activities and
     additional financing presently being offered to the Company will be more
     than sufficient to meet their cash flow requirements through January 1,
     1999. However, there is no assurance that the additional financing will be
     consummated.

<PAGE>

                                       EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION                                                                      PAGE
<S>  <C>                                                                         <C>

1(a)     Certificate of Incorporation of Dundee Resources Corp. dated May 18,
         1983.  Incorporated herein by reference to Exhibit 1(a) to the
         Company's Registration Statement on Form 20-F filed on September 18,
         1996.

1(b)     Articles of Dundee Resources Corp. Incorporated herein by reference to
         Exhibit 1(b) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(c)     Memorandum of Dundee Resources Corp.  Incorporated herein by reference
         to Exhibit 1(c) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(d)     Certificate of Name Change from Dundee Resources Corp. to Clear View
         Ventures Inc. dated January 20, 1993.  Incorporated herein by
         reference to Exhibit 1(d) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(e)     Amended Memorandum of Clear View Ventures Inc.  Incorporated herein by
         reference to Exhibit 1(e) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(f)     Certificate of Name Change from Clear View Ventures Inc. to Turbodyne
         Technologies Inc. dated April 28, 1994.  Incorporated herein by
         reference to Exhibit 1(f) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(g)     Amended Memorandum of the Company.  Incorporated herein by reference
         to Exhibit 1(g) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

1(h)     Articles of the Company. Incorporated herein by reference to Exhibit
         1(h) to the Company's Registration Statement on Form 20-F filed on
         September 18, 1996.

1(I)     Articles of Continuation of the Company.  Incorporated herein by
         reference to Exhibit 1(I) to the Company's Registration Statement on
         Form 20-F filed on September 18, 1996.

1(j)     By-laws of the Company adopted upon Continuation.  Incorporated herein
         by reference to Exhibit 1(j) to the Company's Registration Statement
         on Form 20-F filed on September 18, 1996.

1(k)     Certificate of Continuation under the CANADA BUSINESS CORPORATIONS
         ACT.  Incorporated herein by reference to Exhibit 1(k) to the
         Company's Annual Report on Form 20-F for the fiscal year ended
         December 31, 1996, as amended.

2(a)     Specimen Common Share Certificate. Incorporated herein by reference to
         Exhibit 2(a) to the Company's Registration Statement on Form 20-F
         filed on September 18, 1996.

3(i)     Employment Agreement between the Company and Edward M. Halimi. 
         Incorporated herein by reference to Exhibit 3(I) to the Company's
         Registration Statement on Form 20-F filed on September 18, 1996.

3(ii)    Management Agreement between the Company and Seeds Investment
         Corporation.  Incorporated herein by reference to Exhibit 3(ii)
         to the Company's Registration Statement on Form 20-F filed on
         September 18, 1996.


                                      ii

<PAGE>

3(iii)   Sub-Lease between American Appliance, Inc. and Carole D. King
         dated December 1, 1994 for Carpinteria Property. Incorporated
         herein by reference to Exhibit 3(iii) to the Company's
         Registration Statement on Form 20-F filed on September 18, 1996.

3(iv)    Distribution Agreement between Turbodyne Systems and Granatelli
         Performance, Inc.  Incorporated herein by reference to Exhibit
         3(iv) to the Company's Registration Statement on Form 20-F filed
         on September 18, 1996.

3(v)     Acquisition Agreement between the Company, Pacific Baja Light Metals
         Holding Inc., and Lennart Renberg, Michael Joyce, Sadayappa Durairaj
         Family Trust, Naresh Saxens and Mugerdish Balabanian dated March 15,
         1996.  Incorporated herein by reference to Exhibit 3(v) to the
         Company's Registration Statement on Form 20-F filed on September 18,
         1996.
  
3(vi)    Amendment Agreement between the Company, Pacific Baja Light
         Metals Holding Inc., and Lennart Renberg, Michael Joyce,
         Sadayappa Durairaj Family Trust, Naresh Saxens and Mugerdish
         Balabanian dated June 14, 1996.  Incorporated herein by reference
         to Exhibit 3(vi) to the Company's Registration Statement on Form
         20-F filed on September 18, 1996.

3(vii)   Line of Credit Agreement between Optima Wheel and Wells Fargo
         Bank dated September 1, 1995.  Incorporated herein by reference
         to Exhibit 3(vii) to the Company's Annual Report on Form 20-F for
         the fiscal year ended December 31, 1996, as amended.

3(viii)  Line of Credit Agreement between Pacific Baja Light Metals and
         Wells Fargo Bank dated September 1, 1995.  Incorporated herein by
         reference to Exhibit 3(viii) to the Company's Annual Report on
         Form 20-F for the fiscal year ended December 31, 1996, as
         amended.

3(ix)    Employment Agreement between Pacific Baja Light Metals, the
         Company and Michael Joyce dated September 5, 1996.  Incorporated
         herein by reference to Exhibit 3(ix) to the Company's Annual
         Report on Form 20-F for the fiscal year ended December 31, 1996,
         as amended.

3(x)     Consulting Agreement between Pacific Baja Light Metals, the Company
         and Lykar Specialties, Inc. dated September 5, 1996.  Incorporated
         herein by reference to Exhibit 3(x) to the Company's Annual Report on
         Form 20-F for the fiscal year ended December 31, 1996, as amended.

3(xi)    Agreement in Principle between Turbodyne Systems, Inc. and
         Kuhnle, Kopp & Kausch AG dated April 11, 1997.  Incorporated
         herein by reference to Exhibit 3(xi) to the Company's Annual
         Report on Form 20-F for the fiscal year ended December 31, 1996,
         as amended.

3(xii)   Supply Agreement between Baja Oriente and AlliedSignal dated
         September 1, 1994.  Incorporated herein by reference to Exhibit
         3(xii) to the Company's Annual Report on Form 20-F for the fiscal
         year ended December 31, 1996, as amended.

3(xiii)  Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Edward Halimi.

3(xiv)   Employment Amendment Agreement dated January 27, 1998 to
         Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Edward Halimi.

3(xv)    Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Leon Nowek.


                                       iii

<PAGE>

3(xvi)   Employment Amendment Agreement dated January 27, 1998 to
         Employment and Stock Incentive Agreement dated August 1, 1997
         between the Company and Leon Nowek.

23.1     Consent of KPMG Peat Marwick LLP.

23.2     Consent of Morgan & Company, Chartered Accountants.

</TABLE>

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