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

                                    FORM 10-K

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

         For the fiscal year ended DECEMBER 31, 2008

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

         For the transition period from _____ to _____

COMMISSION FILE NUMBER:     000-21391

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

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

        6 EAST BARNETT STREET
        VENTURA, CALIFORNIA                                  93001
        -------------------                                  -----
(Address of principal executive offices)                   (Zip Code)


    (805) 512-9511
    --------------
Issuer's telephone number


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

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

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

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

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

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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 [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

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

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


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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter.: $17,843,776 as of June 30, 2008

As of April 13, 2009, 549,513,491 shares of Turbodyne Technologies, Inc. common
stock were outstanding.

                    DOCUMENTS INCORPORATED BY REFERENCE: None


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                                           TURBODYNE TECHNOLOGIES, INC.
                                                     FORM 10-K

                                                       INDEX

                                                                            PAGE
PART I

Item 1.    Description of Business............................................ 5

Item 1A.   Risk Factors.......................................................11

Item 1B.    Unresolved Staff Comments.........................................16

Item 2.    Description of Property. ..........................................17

Item 3.    Legal Proceedings. ................................................17

Item 4.    Submission of Matters to a Vote of Security Holders. ..............19

PART II

Item 5.    Market for Common Equity, Related Stockholder Matters and
             Issuer Purchases of Equity Securities. ..........................20

Item 6.    Selected Financial Data............................................22

Item 7.  Management's Discussion and Analysis of Financial Condition and
           Results of Operations. ............................................23

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

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

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

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

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

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PART III

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

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

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

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

Item 14.  Principal Accountant Fees and Services..............................41

PART IV

Item 15.  Exhibits and Financial Statement Schedules..........................42

I

Signatures ...................................................................45










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PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

FORWARD LOOKING STATEMENTS

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


CORPORATE ORGANIZATION

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

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


CORPORATE DEVELOPMENTS

On September 9, 2005 a majority owned subsidiary of Aspatuck Holdings Ltd.
("Aspatuck") was merged into our newly formed wholly owned subsidiary pursuant
to an AGREEMENT AND PLAN OF MERGER (the "Agreement"). Prior to the merger, this
subsidiary of Aspatuck entered into a consulting agreement ("CONSULTING
AGREEMENT") with Stamford Research LLC, which is obligated to provide the
services of Albert Case to the Company. Upon completion of the merger,
139,192,222 shares of the Company's Common Stock were issuable to holders of the
subsidiary of Aspatuck and 1,300,000 such shares became issuable to Stamford
Research LLC, under the Consulting Agreement. At this time Mr. Albert Case
became President and Chief Executive Officer and Mr. Jason Meyers, principal
shareholder of Aspatuck, became Chairman of the Board of Directors. Additional
shares are issuable to the former shareholders of the Aspatuck subsidiary when
the Company issues any securities related directly or indirectly to pre-merger
events. In 2008 Albert Case resigned from the Board of Directors and as an
officer of the Company.

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

During 2008 management obtained less funding than it obtained from financing in
prior years and less than it anticipated. As a result it was not able to achieve
its goals in the timetable it set. All previous funding has been used and future
funding will be used for continued:

     o    Assessment of our technology including patents and other rights
     o    Development of our Turbopac(TM) product line
     o    Review and negotiate to settle outstanding litigation and liabilities
     o    Formulating business and marketing plans

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

GENERAL

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

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



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We believe we have made engineering improvements and developed possible
additional products, particularly in 2008, (see "2008 Developments" below). We,
nevertheless still must subject our products to additional testing and
development before we have a commercially feasible products. We will need
additional funding before we are able to finalize this process. There is no
assurance that the testing will result in a product that can be commercially
exploited.

INDUSTRY BACKGROUND

MARKET DEMAND FOR CHARGING TECHNOLOGY FOR INTERNAL COMBUSTION ENGINES
Turbodyne's management believes that the market demands for improved internal
combustion engine performance will continue. While many factors contribute to
demands for improved engine performance, we believe the key factors are:

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

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

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

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

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

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

                                      -7-
<PAGE>


MARKET OPPORTUNITY

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

TURBODYNE PROPRIETARY TECHNOLOGY

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

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

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

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

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

                                      -8-
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BUSINESS STRATEGY

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

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




INTELLECTUAL PROPERTY

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

Subsequent to December 31, 2007 a provisional application was converted into a
non-provisional patent application in the United States Patent and Trademark
Office. The applicants were consultants of the Company. The technology covered
by the application was for a TurboPac related technology referred to as
'TurboFlow'. The patent disclosure includes application of the technology to
vehicle types commonly referred to as 'hybrids' or 'low emission vehicles'. The
disclosed technology applies advanced controls, energy management, and a
TurboPac related technology to avoid problems encountered when using traditional
turbo- or super- charging air injection units with a small engine in those types
of vehicles. See "2008 Developments". The aforesaid patent application was
assigned to the Company pursuant to a patent assignment agreement between the
Company and the consultants. The agreement required the payment of unpaid fees
owed to the consultants by the Company. The outstanding fees owed to the
consultants pursuant to the agreement were paid.

                                      -9-
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PROPRIETARY INFORMATION AGREEMENTS

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


RESEARCH AND DEVELOPMENT

The research and development costs decreased to $337,893 in 2008 ($524,905 in
2007) due to decreased spending for limited development operations due to lack
of funding This reduction also reflects the decrease in non cash warrant expense
amount of $34,045 compared to $141,271 in 2007 as a result of the termination of
certain consulting agreements . (Financial Statement Note 6). Our research and
development costs are charged to operations in the period incurred and relate to
product development with 2008 costs related to the development of our TurboPac.


GOVERNMENT REGULATION

In the United States, emissions standards for diesel and gasoline engines are
imposed by the Environmental Protection Agency ("EPA") and other regulatory
agencies, including the California Air Resources Board. In Europe, the Euro 5
and 6 emissions standards will come into effect between 2009 and 2014. The
presence of these government regulations has the potential to create demand for
our products as our products are designed to increase engine performance with
resulting reductions in emissions.

We must continue to design and develop products that help mitigate failures to
meet worldwide vehicle emissions standards that are imposed by regulatory
agencies. Testing to ensure our products help meet these government regulations
will be an integral component of our research and development expense on new
products.



EMPLOYEES

As of December 31, 2008 we had no full-time employees but we have retained
several consultants, devoting significant time to the Company's affairs. There
is no assurance that we will be able to retain it's consultants since funds are
not available to pay current or past due consulting fees.



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ITEM 1A.  RISK FACTORS

We face the following material risks in executing our business plan and
achieving revenues. We also face the risks identified elsewhere in this Annual
Report on Form 10-K, including those risks identified under "Item 3 - Legal
Proceedings" and "Item 7 - Management Discussion and Analysis of Financial
Condition and Results of Operations". If any of these risks occur, our business
and our operating results and financial condition could be seriously harmed and
we may not be able to commence business operations as a going concern.

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

We reported net loss of $2,631,319 for the fiscal year ended December 2008. We
have derived negligible revenue from operations and have substantial unpaid
liabilities. We have an accumulated deficit of $134,818,354 at December 31,
2008. Since our inception we have disposed of our most significant subsidiary
through bankruptcy, have been subject to lawsuits, used most of our available
cash to conduct our operating activities and are required to seek additional
equity or debt financing in order to continue operations. These matters raise
substantial doubt about our ability to continue as a going concern.

Our auditors have made reference to the substantial doubt about our ability to
continue as a going concern in their audit report on our audited financial
statements for the year ended December 31, 2008.

FINANCIAL HISTORY PROBLEMS

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

COMPANY REQUIRES ADDITIONAL FUNDING

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

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

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

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POSSIBLE CHANGES IN AUTOMOBILES MAY MAKE OUR PRODUCT OBSOLETE

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

DEPENDENCE ON KEY EXECUTIVES

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

WE HAVE NO SALES AND MARKETING EXPERIENCE.

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

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

All our development work as well as other services is performed pursuant to
consulting arrangements. There is no assurance that we will be able to obtain
and retain these consultants necessary to implementing our business strategy
successfully. This is particularly so when funds are not available to pay
amounts past due under these arrangements. If we do not retain or replace
qualified consultants, our ability to further develop our technology will be
impaired with the result that our business will be adversely affected. In
addition, our historical problems and financial position may make it more
difficult to attract personnel.


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

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


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

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


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

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

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


WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE TO ACHIEVE SUCCESS

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

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

                                      -13-
<PAGE>




INTENSE COMPETITION

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

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


VOIDABLE REINCORPORATION

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


INCREASED COMPLIANCE AS A PUBLIC COMPANY MAY BE A BURDEN

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


POTENTIAL PRODUCT LIABILITY

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


SUBSTANTIAL DILUTION- FUTURE ISSUANCE OF SHARES

The Company most likely will issue a significant number of additional shares in
the future in connection with additional financing and for other purposes. A
holder of the Company's common stock may face substantial dilution resulting
from future issuances of its securities.

                                      -14-
<PAGE>



CONTROL

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


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

We have approximately 33,350,015 consultant warrants which may vest over the
next two or more years upon the continuation of service of the holders and/or
the happening of a specific event. Effective January 1, 2005 the Company adopted
SFAS 123(R) pursuant to which the warrants will be valued and expensed as
vested.


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

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


RISKS RELATING TO OUR MARKET

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

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

                                      -15-
<PAGE>



OUR STOCK PRICE IS EXTREMELY VOLATILE

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


ABSENCE OF DIVIDENDS

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



ITEM 1B.  UNRESOLVED STAFF COMMENTS

NONE.



                                      -16-
<PAGE>



ITEM 2.  DESCRIPTION OF PROPERTY.

In March 2007, the Company rented a small corporate office in Ventura,
California. In June 2008, the Company rented a small industrial testing facility
in Simi Valley, California.


ITEM 3.  LEGAL PROCEEDINGS.

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

PACIFIC BAJA LIQUIDATING TRUST


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



TST, INC.

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

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

                                      -17-
<PAGE>



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

TST and Pacific Baja settled the preference payment issue resulting in TST
paying $20,000 to Pacific Baja and TST relinquished the right to receive
$63,000, therefore the $2,130,000, that the Company had included in provision
for lawsuit settlements, has been reduced to $83,000. For the year ended
December 31, 2005 the $2,047,000 difference was recorded as a lawsuit settlement
in other income. At December 31, 2008, the Company has included the following
amounts in provision for lawsuit settlements.


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

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

                                                   2008                 2007
                                               -----------          -----------
Settlement amount                              $ 2,068,079          $ 2,068,079
Interest                                       $ 1,815,594          $ 1,464,653
Preference payment                             $    83,000          $    83,000
Proceeds of stock sale                         ($   23,345)         ($   23,345)
                                               -----------          -----------
Total                                          $ 3,943,328          $ 3,592,387
                                               ===========          ===========


KRAMER ACTION

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

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

The Plaintiff's attorney, Claus Schmidt, also filed similar suits on behalf of
Frank Walter and Herbert Taeuber. The German courts are indicating that all
three suits need to be filed in the United States not Germany. Presently the
suits have not been filed in the United States. We vigorously dispute this claim
and have retained German counsel to defend it and seek its dismissal. At
December 31, 2008, the Company has included $405,785 in regard to this matter in
the provision for lawsuit settlements.

                                      -18-
<PAGE>



CRESCENT FUND, LLC

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




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

Due to the limited activity of the Company in 2008 an annual meeting was not
held, therefore, no matters were presented to the security holders.










                                      -19-
<PAGE>


PART II

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

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

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

                                       2008                    2007
                            --------------------------------------------------
                                HIGH          LOW        HIGH        LOW
                            --------------------------------------------------
First Quarter               $    0.038   $    0.018   $   0.066    $  0.02
Second Quarter              $    0.052   $    0.016   $   0.065    $  0.03
Third Quarter               $    0.038   $    0.011   $   0.05     $  0.031
Fourth Quarter              $    0.015   $    0.002   $   0.056    $  0.029

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

REGISTERED HOLDERS OF OUR COMMON STOCK

As of April 13, 2009, there were approximately 456 registered holders of record
of our common stock.


DIVIDENDS

We have never declared or paid any cash dividends on our capital stock and do
not anticipate paying cash dividends on our common stock in the foreseeable
future. We currently intend to retain any future earnings to finance our
operations and fund research and development. Any payment of future dividends
will be at the discretion of our board of directors and will depend upon, among
other things, our earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions in respect to the payment of dividends
and other factors that our board of directors deems relevant.


                                      -20-
<PAGE>


RECENT SALES OF UNREGISTERED SECURITIES

The following issuances of securities occurred during 2008 and were not
otherwise reported in our current or quarterly reports.

On January 18, 2008, we issued 6,000,000 restricted shares of our common stock
at a price of $0.03 per share to Woodcock Washburn, LLP to pay the balance due
for patent legal services. The shares were issued pursuant to Section 4(2) of
the Securities Act of 1933 and are exempt from the registration requirements
under that act.

On July 21, 2008 we issued 13,939,740 shares of the Company's common stock to
comply with the anti-dilution clause of the Agreement and Plan of Merger (the
"Agreement") dated September 1, 2005. The shares were issued pursuant to Section
4(2) of the Securities Act of 1933 and are exempt from the registration
requirements under that act.


On October 17, 2008, we issued 6,000,000 restricted shares of our common stock
at a price of $0.019 per share to Sven Liebetanz for investor relations services
in Germany related to a one year contract. The shares were issued pursuant to
Section 4(2) of the Securities Act of 1933 and are exempt from the registration
requirements under that act.

On October 17, 2008 we issued 1,000,000 restricted shares of our common stock to
John Adams for the January to September 2008 service based stock according to
the Consulting Agreement effective January 1, 2008. The shares were issued
pursuant to Section 4(2) of the Securities Act of 1933 and are exempt from the
registration requirements under that act.









                                      -21-
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION


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

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

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

Plan Category                         (a)                         (b)                        (c)

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

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

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

Equity Compensation Plans Not   84,275,564 Shares         $0.02 per Share                2,176,000 Shares
Approved By Security Holders    of Common Stock *         of Common Stock

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


* Represents shares subject to (i) 56,155,564 warrants that are included in
consultant contracts, 6,633,329 of these vested in 2008 and 16,172,220 vested in
2006 and 2007.


ITEM 6. SELECTED FINANCIAL DATA

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


                                      -22-
<PAGE>


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

OVERVIEW

The following discussion and analysis of our financial condition as of December
31, 2008 and results of operations for each of the two years ended December 31,
2008 and 2007 should be read in conjunction with the consolidated financial
statements and related notes included in this annual report. This section adds
additional analysis of our operations and current financial condition and also
contains forward-looking statements and should be read in conjunction with the
factors set forth above under the heading "Forward-Looking Statements" under
Item I - Business.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007

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

                                             Year Ended December 31
                                    --------------------------------------------
                                                                     Percentage
                                                                      Increase
                                         2008          2007          (Decrease)
                                     -----------    -----------      -----------
Total Revenue                        $    22,224    $    22,224           Nil
Operating Expenses                   ($1,574,037)   ($1,791,987)        (12%)
Net Loss From Operations             ($1,551,813)   ($1,769,763)        (12%)
Net Other Income (Expenses)          ($1,077,906)   ($1,349,431)        (20%)
Net Loss                             ($2,631,319)   ($3,121,594)        (16%)


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

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

                                                                     Percentage
                                         2008          2007           Increase
                                     -----------    -----------      -----------

License Fee                          $    22,224    $    22,224            Nil

We had no revenue in 2008 other than recognition of amortized license fees.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for each of the years ended December
31, 2008 and 2007, $22,224 of licensing fees was recognized as income. Our
continued net losses from operations reflect our continued operating expenses
and our inability to generate revenues. We believe that we will not be able to
generate any significant revenues from TurboPac(TM)/TurboFlow(TM) until we
complete our production models and enter into commercial arrangements.

                                      -23-
<PAGE>


COSTS OF SALES

We had no sales in 2008 and 2007; therefore we did not have any costs of sales
during any portion of these years.

OPERATING EXPENSES

Operating expenses decreased from the comparable period in 2007. The primary
components of our operating expenses are outlined in the table below:


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

                                             Year Ended December 31
                                    --------------------------------------------
                                                                     Percentage
                                                                      Increase
                                         2008          2007          (Decrease)
                                     -----------    -----------      -----------
Selling, General and
Administrative Expenses                $873,988      $940,427           (7.1%)
Research and Development Expenses      $337,893      $524,905          (35.6%)
Litigation Expenses                    $356,147      $323,743          (10.0%)

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative costs included management compensation and overhead
and decreased mostly due to a decline in non cash warrant expense amount of
$120,687 compared to $289,113 in 2007 as a result of the termination of
certain consulting agreements and the decrease in the per share price of the
Company's common stock. (Financial Statement Note 6)

RESEARCH AND DEVELOPMENT

The decrease in research and development costs in 2008 is due to decreased
spending for limited development operations due to a lack of funding and the
decrease in the non cash warrant expense amount of $34,045 compared to $141,271
in 2007 as a result of the termination of certain consulting agreements and the
decrease in the per share price of the Company's common stock. (Financial
Statement Note 6) Our research and development costs related to present and
future products are charged to operations in the period incurred. Our research
and development activities during 2008 are associated with the development of
our TurboPac.

LITIGATION EXPENSE

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


                                      -24-
<PAGE>


COMPENSATION EXPENSE

As a result in of the termination of certain consulting agreements and the
decrease in the per share price of the Company's common stock our stock based
compensation for consultants decreased to $154,732 from $430,384 for 2007,
representing a decrease of $275,652 or approximately 64%.

During 2007 and 2008, warrants to purchase 78,200,000 shares of our common stock
were included as additional compensation in the contracts of various consultants
that we deemed essential to our operations. The termination of various
consultant contracts resulted in the cancellation of 22,044,436 warrants. Of
remaining warrants, 6,633,329 were vested and reflected as an expense in 2008
compared to warrants to purchase 16,172,220 shares vested in 2006 and 2007. As a
result, we recognized $126,621 of non-employee compensation expense during the
year ended December 31, 2008 compared to $430,384 during the year ended December
31, 2007. From time to time we may grant a significant number of options or
warrants to purchase common stock to non-employees.

During 2008 we issued 1,000,000 shares of stock to John Adams as part of the
"service based" portion of his contract. As a result we recognized $28,111 of
non-employee compensation expense during the year ended December 31, 2008.

OTHER INCOME (EXPENSE)


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

                                             Year Ended December 31
                                    --------------------------------------------
                                                                     Percentage
                                                                      Increase
                                         2008          2007          (Decrease)
                                     -----------    -----------      -----------
Debt Relief                          $   691,957    $   561,005        23.3%
                                     -----------    -----------        ----
Other Expenses
Interest Expense                     ($   74,478)   ($   57,265)       30.0%
Amortization of Discount
  on Convertible Notes               ($  447,728)   ($  864,485)      (48.2%)
Inducement Expense                   ($1,247,657)   ($  988,686)       26.2%
                                     -----------    -----------        ----
Total Other Expenses                 ($1,769,863)   ($1,910,436)       (7.4%)
                                     -----------    -----------        ----
Net Other Income and Expenses        ($1,077,906)   ($1,349,431)      (20.1%)
                                     ===========    ===========        ====

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

The Company had total other expenses for 2008 of $1,769,863 compared to
$1,910,436 in 2007. As indicated above, the reduction resulted from a reduction
in the amortization of discounts on convertible notes and value of detachable
warrants and related debt conversion expenses (Financial Statement Note 3).


                                      -25-
<PAGE>


NET INCOME / LOSS

Our net loss for the year ended December 31, 2008 decreased to $2,631,319 from
net loss of $3,121,594 for the year ended December 31, 2007, representing a
decrease of 15.7%.

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


FINANCIAL CONDITION

CASH AND WORKING CAPITAL

                                   ---------------------------------------------
                                      At                At            Percentage
                                   December 31,     December 31,      Increase/
                                       2008            2007           (Decrease)
                                   ---------------------------- ----------------
Current Assets                     $        68       $     3,458        (98%)
Current Liabilities                ($8,043,097)      ($8,619,585)        (6.7%)
Working Capital Deficit            ($8,043,029)      ($8,616,127)        (6.7%)

The decrease to our working capital deficit was primarily attributable to the
decrease in short-term loans due conversion into common stock and an increase in
provision for lawsuit settlements as discussed below.


LIABILITIES


                                   ---------------------------------------------
                                      At                At          Percentage
                                   December 31,     December 31,    Increase/
                                       2008            2007         (Decrease)
                                   ---------------------------- ----------------
Provisions for Lawsuit
Settlements                        $5,345,113      $4,994,173         7%
Accounts Payable                   $1,869,757      $2,132,439       (12.3%)
Accrued Liabilities                $  320,000      $  292,000         9.6%
Short-Term Loans                   $  508,227      $1,200,973       (57.7%)

The increase in provision for lawsuits is due to accrued interest on outstanding
judgments. Accounts payable decreased due to expiration of the statute of
limitation for certain payables and the write off of these payables in the
amount of $691,957. Without this write off, accounts payable would have
increased due to a lack of funds to pay creditors. Short-term loans decreased
due to conversions to equity of principal amounts totaling $1,166,000 in 2008
compared to $160,000 in 2007. Short-term loans are net of unamortized debt
discounts from beneficial conversion feature of $0 in 2008 and $199,726 in 2007
and from warrant allocation of $0 in 2008 and $53,501 in 2007 (Financial
Statement Note 3).

                                      -26-
<PAGE>


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

In 2003, the Company entered into three private placement agreements for the
issuance of 2,433,810 shares for gross proceeds of $138,600, which was recorded
as loans payable. As of December 31, 2008 the shares have not been issued.

CASH FLOWS
                                                     --------------------------
                                                           At December 31,
                                                     --------------------------
                                                       2008             2007
                                                     ---------        ---------
Net Cash provided by (used in)
  Operating Activities                               ($255,093)       ($755,371)
Net Cash provided by (used in)
  Investing Activities                               ($ 14,325)       ($ 11,888)
Net Cash provided by (used in)
  Financing Activities                               $ 266,700        $ 755,300
                                                     ---------        ---------
Net (Decrease) in Cash During Period                 ($  2,718)       ($ 11,959)
                                                     =========        =========


CASH USED IN OPERATING ACTIVITIES

The decrease in cash used in operating activities was due to a lack of funds in
2008.


FINANCING REQUIREMENTS

We will require additional financing if we are to continue as a going concern
and to finance our business operations. While we have obtained some financing in
2008 we need substantially more capital to complete development and continue our
business. There is no assurance that we will be able to raise the required
additional capital. In the event that we are unable to raise additional
financing on acceptable terms, then we may have to cease operating and seek
relief under appropriate statutes. Accordingly, there is substantial doubt about
our ability to continue as a going concern.


CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. As
such, some accounting policies have a significant impact on the amount reported
in these financial statements. A summary of those significant accounting
policies can be found in the Summary of Significant Accounting Policies in our
consolidated financial statements included in Item 8 of this Form 10-K. Note
that our preparation of this Annual Report on Form 10-K requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenue and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates. We have identified certain accounting policies,
described below, that are the most important to the portrayal of our current
financial condition and results of operations.

                                      -27-
<PAGE>


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

Our audited consolidated financial statements included with this Annual Report
on Form 10-K have been prepared assuming that we will continue as a going
concern. We have suffered net losses in recent periods resulting in an
accumulated deficit of $134,818,354 at December 31, 2008, have used cash in our
operating activities in recent periods, have disposed of our most significant
subsidiary through bankruptcy, are subject to lawsuits brought against us by
shareholders and other parties, and based on our projected cash flows for the
ensuing year, we must seek additional equity or debt financing in order to
continue our present operations. These matters raise substantial doubt about our
ability to continue as a going concern.


STOCK BASED COMPENSATION

The Company accounts for stock-based compensation under the fair value method in
accordance with Statement of Financial Accounting Standards No.123 (revised
2004), "Share Based Payment" "SFAS 123(R)". SFAS No. 123R requires the Company
to establish assumptions and estimates of the weighted-average fair value of
stock options granted, as well as using a valuation model to calculate the fair
value of stock-based awards. The Company uses the Black-Scholes option-pricing
model to determine the fair-value of stock-based awards. All options are
amortized over the requisite service periods of the awards, which are generally
the vesting periods.


REVENUE RECOGNITION

Prior to the suspension of our operations in 2003, we recognized revenue upon
shipment of product. Since the re-commencement of operations, we recognize
license and royalty fees over the term of the license or royalty agreement.
During the year ended December 31, 2003, $400,000 in license fees were deferred
and amortized over 18 years. As a result, for the year ended December 31, 2008,
$22,224 ($22,224 in 2007) of licensing fees was recognized as income.


RESEARCH AND DEVELOPMENT

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

                                      -28-
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS


In September 2006, the FASB issued Statement No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS No. 157 provides accounting guidance on the definition of
fair value, establishes a framework for measuring fair value and requires
expanded disclosures about fair value measurements. SFAS 157 is effective for
the Company starting January 1, 2008 and did not have an impact on the Company
as the Company does not have financial instruments subject to the expanded
disclosure requirements of SFAS 157. In February 2008, the FASB issued FASB
Staff Position FAS 157-2, "Effective Date of FASB Statement No. 157", which
provides a one year delay of the effective date of SFAS 157 as it relates to
nonfinancial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The provisions of SFAS 157 relating to nonfinancial assets and
liabilities will be effective as of the beginning of the Company's 2009 fiscal
year.

In December 2007, the FASB issued Statement No. 141R, "Business Combinations"
("SFAS 141R"). SFAS 141R revises the principles and requirements for how the
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non controlling interest in the
acquiree, and the goodwill acquired in a business combination or gain from a
bargain purchase. SFAS 141R also revises the principles and requirements for how
the acquirer determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. This pronouncement will be effective for the Company on
January 1, 2009. The Company is currently evaluating the impact, if any, that
SFAS 141R will have on its financial position or results of operations.

In December 2007, the FASB issued Statement No. 160, "Non controlling Interest
in Consolidated Financial Statements -- an amendment of ARB No. 51" ("SFAS
160"). SFAS 160 amends ARB No. 51 to establish accounting and reporting
standards for the non controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. This pronouncement will be effective for the
Company on January 1, 2009. The Company is currently evaluating the impact, if
any, that SFAS 160 will have on its financial position or results of operations.


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

In May 2008, the FASB issued Statement No. 162, "The Hierarchy of Generally
Accepted Accounting Principles ("SFAS 162"). SFAS 162 identifies a consistent
framework, or hierarchy, for selecting accounting principles to be used in
preparing financial statements that are presented in conformity with U.S.
generally accepted accounting principles for nongovernmental entities (the
"Hierarchy"). The Hierarchy within SFAS 162 is consistent with that previously
defined in the AICPA Statement on Auditing Standards No. 69, "The Meaning of

                                      -29-
<PAGE>

Present Fairly in Conformity With Generally Accepted Accounting Principles"
("SAS 69"). SFAS 162 is effective 60 days following the United States Securities
and Exchange Commission's (the "SEC") approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles". The adoption of SFAS
162 will not have a material effect on the Consolidated Financial Statements
because the Company has utilized the guidance within SAS 69.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


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




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Included at the end of this Annual Report on Form 10-K, starting at page F-1,
are our audited financial statements for the years ended December 31, 2008 and
2007, which consists of the following:

1.   Report of Independent Registered Public Accounting Firm

2.   Consolidated Balance Sheets as at December 31, 2008 and December 31, 2007.

3.   Consolidated Statements of Operations for the years ended December 31, 2008
     and December 31, 2007.

4.   Consolidated Statements of Stockholders' Deficit for the years ended
     December 31, 2008 and December 31, 2007.

5.   Consolidated Statements of Cash Flows for the years ended December 31, 2008
     and December 31, 2007.

6.   Notes to the Consolidated Financial Statements.

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


                                      -30-
<PAGE>


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


None.


ITEM 9A.          CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). As required by Rule 13a-15 under the Exchange Act the Company's Chief
Executive Officer and its Chief Financial Officer assessed the effectiveness of
our internal control over financial reporting as of December 31, 2008. In making
its assessment of internal control over financial reporting, management used the
criteria described in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

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

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

                                      -31-
<PAGE>


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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


ITEM 9B. OTHER INFORMATION

NONE














                                      -32-
<PAGE>



PART III

ITEM 10.          DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE


DIRECTORS AND EXECUTIVE OFFICERS

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

--------------------- ----------------------------------------------------------
 NAME                  AGE
--------------------- ----------------------------------------------------------
 Jason Meyers          42     Director and Chairman/ Co-Chief Executive Officer
--------------------- ------ ---------------------------------------------------
 John Adams            68     President and Co-Chief Executive Officer
--------------------- ------ ---------------------------------------------------
 Debi Kokinos          56     Chief Financial Officer and Secretary
--------------------- ------ ---------------------------------------------------

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

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

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

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


AUDIT COMMITTEE FINANCIAL EXPERT

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

                                      -33-
<PAGE>


COMMITTEES

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


CODE OF ETHICS

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


COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than ten percent of our equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based on our review of the copies of such forms
received by us, we believe that during the fiscal year ended December 31, 2008
management did not file reports but these reports are being prepared and will be
filed shortly.







                                      -34-
<PAGE>


ITEM 11.          EXECUTIVE COMPENSATION.


The following table sets forth certain compensation information for each of our
executive officers for the year ended December 31, 2008 and 2007:

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

-----------------------------------------------------------------------------------------------------
Name and Principal                                Option/Warrant       All Other
position                    Year      Salary          Awards          Compensation        Total
-----------------------------------------------------------------------------------------------------
John Adams                  2008       $-0-         $28,111 (1)           -0-           $ 28,111
President (Chief
Executive Officer)          2007       $-0-                               -0-             $ -0-
(1)
-----------------------------------------------------------------------------------------------------
Jason Meyers                2008     $120,000       $64,999 (2)           -0-           $184,999

                            2007     $120,000      $154,388 (2)           -0-           $274,388
-----------------------------------------------------------------------------------------------------
Albert F. Case, Jr.         2008     $28,000          $16,156             -0-            $44,156
(CEO in 2007)
                            2007     $96,000          $92,633             -0-           $188,633

-----------------------------------------------------------------------------------------------------
Debi Kokinos,               2008     $77,520        $19,500 (2)           -0-            $97,020
Chief Financial Officer
                            2007     $77,520        $46,316 (2)           -0-           $123,836

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


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

(2)  Represents, in each case, amounts recognized on vesting of warrants
     previously granted for financial reporting purposes in the applicable
     fiscal year. A description of the valuation method is set forth in Note 1
     and 6 to the Financial Statements. Warrants to purchase 3,555,552 shares
     vested in both 2008 and 2007 with respect to Mr. Meyers. In the case of Ms.
     Kokinos warrants to purchase 1,066,668 shares vested in both 2008 and 2007.

COMPENSATION ARRANGEMENTS

The Company has entered into a Consulting Agreement with Mr. Adams effective
January 1, 2008 pursuant to which he is engaged as the Chief Executive Officer
for term ending December 1, 2010. Mr. Adams is required to devote such time as
is necessary to his position but it is not contemplated the engagement will be
fulltime. As compensation to Mr. Adams, the Company issue 12,000,000 shares of
the Company's common stock (the "Shares"). The Shares will be restricted from
transfer in accordance with the securities laws and the right to receive such
shares will be subject to forfeiture by Mr. Adams and will vest in accordance
with a vesting schedule. Of such shares 4,000,000 shares shall be "service

                                      -35-
<PAGE>

based" and 111,111.11 Shares will vest for each month of service. Another
4,000,000 Shares shall be "revenue based" and will vest upon filing of a report
with the Securities & Exchange Commission containing reviewed or audited
statements the recognition of revenue for reflecting the first sale of a
production model of a Company product after the date. The final 4,000,000 Shares
shall be "EBITDA based" and the repurchase agreement will terminate upon filing
of reports with the Securities & Exchange Commission containing reviewed or
audited statements reflecting total EBITDA, or earnings before taxes, interest
or amortization, of $1,000,000. The unvested Shares shall be subject to
forfeiture by Mr. Adams in accordance with an agreement to be entered into.

On April 1, 2006 we entered into a consulting agreement ("Consulting Agreement")
with Aspatuck Holdings, Ltd., which is obligated to provide the services of
Jason Meyers to the Company. Jason Meyers is our co-Chief Executive Officer
since March 27, 2008.

The Agreement is for a three year term. The Company may terminate the Agreement
and convert the Agreement to an employment agreement with Mr. Meyers. As
compensation for Consultant's services, the Company is obligated to pay
Consultant a cash fee of not less than $126,000 per annum. As additional
consideration Consultant received seven year Warrants (the "Warrants") to
purchase 32,000,000 of shares of the common stock of the Company (the "Shares")
at an exercise price of $0.0117 per share. Such warrants shall "vest" and may be
exercised as follows:

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

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

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

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


                                      -36-
<PAGE>


OPTION INFORMATION

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

<TABLE>
<CAPTION>

                                       Number of
                      Number of       Securities
                      Securities      Underlying
                      Underlying     Unexercised
                     Unexercised       Options
                       Options           Not           Options           Options
 Name                Exercisable     Exercisable     Exercise Price    Expiration Date
--------------------------------------------------------------------------------------
<S>                    <C>            <C>                <C>                <C>
Jason Meyers           9,777,768      22,222,232         $0.0117        Dec 31, 2015
--------------------------------------------------------------------------------------
Debi Kokinos           2,933,337       6,399,999         $0.0117        Dec 31, 2015
--------------------------------------------------------------------------------------
Debi Kokinos             400,000             --           $0.100        Mar 31, 2014
--------------------------------------------------------------------------------------
Debi Kokinos             500,000             --           $0.020        Jan 27, 2010
--------------------------------------------------------------------------------------
Albert F. Case         4,444,450             --          $0.0117      April 30, 2015
 (CEO 2007)
--------------------------------------------------------------------------------------
</TABLE>


COMPENSATION OF DIRECTORS

As of December 31, 2008, our directors were reimbursed for reasonable
out-of-pocket expenses in connection with attendance at board of director and
committee meetings.



                                      -37-
<PAGE>

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
            RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of March 31 2009 by: (i) each
of our then directors; (ii) each of our named executive officers, and (iii)
officers and directors as a group. Unless otherwise indicated, the shareholders
listed possess sole voting and investment power with respect to the shares
shown.

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


Name and Address                   Amount and Nature of         Percentage of
of Beneficial Owner                Beneficial Ownership          Common Stock
----------------------------- ----------------------------- --------------------

Jason Meyers  (1) (2)                   91,230,405                    16.60%
----------------------------- ----------------------------- --------------------

Aspatuck Holdings Ltd.(1)               76,463,745                      (1)
----------------------------- ----------------------------- --------------------

John Adams (3)                           2,733,333                     0.37%
----------------------------- ----------------------------- --------------------

Debi Kokinos  (4)                        4,100,004                     0.75%
----------------------------- ----------------------------- --------------------

Albert F. Case (5)                       4,444,450                     0.81%
----------------------------- ----------------------------- --------------------

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

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

     (1)  Includes 76,463,745 shares owned of record by Aspatuck Holdings Ltd.
          of which Jason Meyers is the controlling party. The above does not
          include substantial additional shares Aspatuck Holdings Ltd. may
          acquire under the Agreement and Plan of Merger described under Item 12
          - Certain Relationships and Related Transactions.

     (2)  Of the above number of shares 10,666,657 shares are subject to
          warrants owned by Mr. Meyers and presently exercisable within sixty
          days after March 31, 2009. An additional 21,333,343 shares are subject
          to warrants not presently exercisable or exercisable within sixty days
          of March 31, 2009.

     (3)  Excludes 9,966,667 shares subject to forfeiture pursuant to agreements
          between Mr. Adams and the Company, and includes 700,000 shares subject
          to warrants presently exercisable.

     (4)  The above ownership consists of shares that are subject to options or
          stock warrants presently exercisable within after March 31, 2009. An
          additional 7,288,886 shares are subject to warrants not presently
          exercisable or exercisable within sixty days of March 31, 2009.

     (5)  The above ownership consists of shares that are subject to options or
          stock warrants presently exercisable within after March 31, 2009.

                                      -38-
<PAGE>


ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

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

The merger was completed as of September 9, 2005. Upon completion of the merger,
the shareholders of Survivor were entitled under the Agreement to receive
("Merger Consideration") 40% of the Company's outstanding shares including the
number of shares of Common Stock issuable on the exercise, conversion or
exchange of securities, options, rights or other agreements ("Derivatives")
providing for the issuance of Common Stock. Upon the merger the shareholders of
Nevada were entitled to 139,192,222 of a total actual outstanding of 315,560,144
shares of the Company's Common Stock. There was no cash exchanged. These shares
then accounted for 44% of the presently outstanding shares. AHL is the
beneficial owner of 107,178,550 shares or approximately 34% of the outstanding
shares of the Company's Common Stock. As a controlling owner of AHL, Meyers is
the indirect beneficial owner of these shares. The number of Fully Diluted
Shares Outstanding and, consequently the Merger Consideration include shares of
Common Stock issued, or subject to Derivatives issued, after the merger,
relating, in any manner, to events or transactions prior to the merger including
securities of the Company issued to obtain funds to satisfy any Pre-merger
obligations. A significant portion of the proceeds of the Company's prior
private placements were used to settle obligations of the Company arising prior
to the aforesaid merger. As a result of the antidilution provision, the Company
issued 13,939,740 shares of the Company's common stock to AHL in July 2008. The
number of shares was based on calculations presented to the board demonstrating
the relation of the equity issuances in such prior placements and the
satisfaction of pre merger obligations. As a controlling owner of AHL, Meyers is
the indirect beneficial owner of these shares subject to minority interests of
the survivor. Based on this formula substantial additional shares will be issued
as Merger Consideration.

The Company was the beneficiary of the Consulting Agreement dated as of
September 1, 2005, between Nevada and Stamford Research LLC, to provide the
services of Albert Case who was Company's chief executive officer and is now the
chief operations officer. As compensation for Consultant's services hereunder,
the Company is to pay Consultant a total of $33,000 payable; $20,000 cash and
$13,000 which was paid by the issuance of 1,300,000 shares of the Company's
Common Stock based upon market at the time of the merger. The agreement was for
a term of 90 days after the merger. In 2008 Albert Case resigned from the Board
of Directors and as an officer of the Company.

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

                                      -39-
<PAGE>


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

Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers have
advanced an aggregate of $ 46,000 to the Company plus related interest expense
of $4,904 for 2008 and $2,604 for 2007. The advances are repayable on demand and
bear interest at 5 % per annum. See Note 3 Loan Payable. As of December 31, 2008
and 2007 the Company also owes Aspatuck Holdings Ltd consulting fees of $344,827
and $225,996, respectively, for the services of Jason Meyers. The Company has
included these consulting fees in accounts payable in the balance sheet. The
Company has included $120,000 of consulting compensation in the general and
administrative expense for the years ended December 31, 2008 and 2007. The
company also included $64,999 of non cash warrant expense for the year ended
December 31, 2008 and $154,388 for 2007.

John Adams, co-CEO has advanced an aggregate of $35,000 in convertible notes as
a private investor. The notes were due in November 2006 and July 2007 but remain
unpaid as of December 31, 2008 and 2007, with total outstanding balance of
$40,106 and $38,356, respectively, which includes accrued interest of $5,106 and
$3,356, respectively. The Company recorded $28,111 general and administrative
expense for the stock compensation issued to John Adams in 2008.

As of December 31, 2008 the Company owes Debi Kokinos, CFO consulting fees of
$41,830. The Company has included these consulting fees in accounts payable in
the balance sheet. The Company has included $77,520 of consulting compensation
in the general and administrative expense for the years ended December 31, 2008
and 2007. The company also included $19,500 of non cash warrant expense for the
year ended December 31, 2008 and $46,316 for 2007.


                                      -40-
<PAGE>


ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.


AUDIT FEES

The aggregate fees billed for the two most recently completed fiscal years ended
December 31, 2008 and 2007 for professional services rendered by the principal
accountant for the audit of our annual financial statements and review of the
financial statements included our Quarterly Reports on Form 10-Q and services
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for these fiscal periods.

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

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

                                       YEAR ENDED                YEAR ENDED
                                   DECEMBER 31, 2008          DECEMBER 31, 2007

----------------------------- ---------------------------- ---------------------
         Audit Related Fees             $121,686                   $77,165
----------------------------- ---------------------------- ---------------------
         Tax Fees                          -                          -
----------------------------- ---------------------------- ---------------------
         All Other Fees                    -                          -
----------------------------- ---------------------------- ---------------------
         Total                         $121,686                   $77,165
----------------------------- ---------------------------- ---------------------




                                      -41-
<PAGE>


PART IV

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

EXHIBITS

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

   3.2    Amended Bylaws of the Registrant.(1)

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

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

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

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

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

   4.5    Agreement and Plan of Merger (9)

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

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

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

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

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

                                      -42-
<PAGE>


   10.10  2004 Stock Incentive Plan. (6)

   10.11  Consulting Agreement dated October 4, 2004 between the Registrant and
          Marsha Chandler. (8)

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

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

   10.14  2005 Stock Incentive Plan

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

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

   14.1   Code of Ethics. (5)

   21.1   List of Subsidiaries. (5)

   23.2   Consent of Vasquez & Company, LLP

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

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

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


                                      -43-
<PAGE>


 a) CURRENT REPORTS ON FORM 8-K.


During the quarterly period ended December 31, 2008 we did not file any
Form 8-K:

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

      Nil















                                      -44-
<PAGE>

                                   SIGNATURES

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

                                             Turbodyne Technologies, Inc.

Dated:   April 15, 2009                       By: /s/ Jason Meyers
                                              --------------------------
                                              Jason Meyers
                                              Co-Chief Executive Officer



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

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

/s/ Jason Meyers             Co-Chief Executive Officer,         April 15, 2009
________________________     Director
Jason Meyers

/s/ Debi Kokinos             Chief Financial Officer             April 15, 2009
_________________________    and Chief Accounting Officer
Debi Kokinos



                                      -45-
<PAGE>





                             TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                             CONSOLIDATED FINANCIAL STATEMENTS
                             FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007















                                      F-1
<PAGE>



                             TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                             CONSOLIDATED FINANCIAL STATEMENTS
                             FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

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

  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                   F-3

  CONSOLIDATED FINANCIAL STATEMENTS

       Balance Sheets                                                       F-4

       Statements of Operations                                             F-5

       Statements of Stockholders' Deficit                                  F-6

       Statements of Cash Flows                                             F-7

       Notes to the Financial Statements                                    F-8












                                      F-2
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheets of Turbodyne
Technologies, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Turbodyne
Technologies, Inc. and subsidiaries as of December 31, 2008 and 2007, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As more fully discussed in Note 1
to the consolidated financial statements, the Company has incurred significant
losses in recent years, has an accumulated deficit of $134,818,354 and a total
stockholders' deficit of $8,300,030 at December 31, 2008. It has used all of its
available cash in its operating activities in recent years, has a significant
working capital deficiency and is subject to lawsuit settlements. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in these regards are also discussed in Note 1 to the
consolidated financial statements. The aforementioned consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

/s/ Vasquez & Company
---------------------
Los Angeles, California
April 14, 2009




                                      F-3
<PAGE>

<TABLE>
<CAPTION>

================================================================================

                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                                     CONSOLIDATED BALANCE SHEETS

--------------------------------------------------------------------------------------------------
DECEMBER 31                                                             2008             2007
                                                                                     (As restated)
                                                                                      (See Note 2)
--------------------------------------------------------------------------------------------------

ASSETS

CURRENT
<S>                                                                 <C>              <C>
     Cash                                                           $          68    $       2,786
     Other current assets                                                    --                672
                                                                    -------------    -------------

          TOTAL CURRENT ASSETS                                                 68            3,458

PROPERTY AND EQUIPMENT, NET (NOTE 2)                                       17,829            9,513
                                                                    -------------    -------------

TOTAL ASSETS                                                        $      17,897    $      12,971
==================================================================================================

LIABILITIES AND CAPITAL DEFICIT

LIABILITIES

CURRENT
     Accounts payable                                               $   1,869,757    $   2,132,439
     Accrued liabilities                                                  320,000          292,000
     Provision for lawsuit settlements (Notes  5, 8 and 10)             5,345,113        4,994,173
     Loans payable (Notes 3)                                              508,227        1,200,973
                                                                    -------------    -------------

          TOTAL CURRENT LIABILITIES                                     8,043,097        8,619,585

DEFERRED LICENSING FEE                                                    274,830          297,054
                                                                    -------------    -------------

          TOTAL LIABILITIES                                             8,317,927        8,916,639
                                                                    -------------    -------------

STOCKHOLDERS' DEFICIT
     Share Capital (Note 7)
         Authorized
                1,000,000 preferred shares, par value $0.001
                1,000,000,000 common shares, par value $0.001
         Issued
              Preferred shares - 12,675 in 2008 and 2007                       12               12
              Common shares - 549,513,491 in 2008 and 380,459,434
                    In 2007                                               549,514          380,460
     Treasury stock, at cost - 5,278,580 common shares                 (1,963,612)      (1,963,612)

     Additional paid-in capital                                       127,897,291      124,831,388
     Other comprehensive income -
         Foreign exchange translation gain                                 35,119           35,119
     Accumulated deficit                                             (134,818,354)    (132,187,035)
                                                                    -------------    -------------

          TOTAL STOCKHOLDERS' DEFICIT                                  (8,300,030)      (8,903,668)
                                                                    -------------    -------------

TOTAL LIABILITIES AND CAPITAL DEFICIT                               $      17,897    $      12,971
==================================================================================================



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


                                      F-4
<PAGE>

<TABLE>
<CAPTION>


================================================================================

                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31                                                          2008                2007
-------------------------------------------------------------------------------------------------------------------

                                                                             --------------------------------------
<S>                                                                          <C>                  <C>
LICENSING FEES                                                               $          22,224    $          22,224
                                                                             -----------------    -----------------

EXPENSES
     Selling, general and administrative (Notes 6, 7 and 8)                            873,988              940,427
     Research and developments costs (Notes 6 and 7)                                   337,893              524,905
     Litigation expense (Notes 5)                                                      356,147              323,743
     Depreciation and amortization                                                       6,009                2,912
                                                                             -----------------    -----------------

         TOTAL EXPENSES                                                              1,574,037            1,791,987
                                                                             -----------------    -----------------

LOSS FROM OPERATIONS                                                                (1,551,813)          (1,769,763)

OTHER INCOME (EXPENSE)
     Interest expense                                                                  (74,478)             (57,265)
     Amortization of convertible note discounts and warrants                          (447,728)            (864,485)
     Inducement expense for the conversion of notes payable                         (1,247,657)            (988,686)
     Debt relief                                                                       691,957              561,005
                                                                             -----------------    -----------------

LOSS BEFORE INCOME TAXES                                                            (2,629,719)          (3,119,194)
-------------------------------------------------------------------------------------------------------------------

INCOME TAX EXPENSES                                                                      1,600                2,400
-------------------------------------------------------------------------------------------------------------------

NET INCOME (LOSS) FOR THE PERIOD                                             $      (2,631,319)   $      (3,121,594)
===================================================================================================================

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

WEIGHTED AVERAGE SHARES USED FOR BASIC AND DILUTED INCOME (LOSS) PER SHARE         469,450,890          356,903,750
===================================================================================================================




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

</TABLE>


                                      F-5
<PAGE>

<TABLE>
<CAPTION>

================================================================================

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


                                  Preferred Stock                Common Stock                  Treasury Stock
                              ------------------------    ----------------------------    ----------------------------
                               Shares        Amount          Shares         Amount          Shares         Amount
----------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>                <C>          <C>                   <C>         <C>
Balance,
  January 1, 2007              12,675   $          12     345,316,577   $     345,317       5,278,580   $  (1,963,612)

Exercise of warrants             --              --         3,000,000           3,000            --              --

Issuance of stock
  for services                   --              --              --              --              --              --

Conversion of note
  payable                        --              --        32,142,857          32,143            --              --

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

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

Beneficial conversion
  features of notes              --              --              --              --              --              --
  (Note 3)

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

Net income for
  the period                     --              --              --              --              --              --
                             ----------------------------------------------------------------------------------------
BALANCE,
  DECEMBER 31, 2007            12,675   $          12     380,459,434   $     380,460       5,278,580   $  (1,963,612)

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

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

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

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

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

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

Inducement to convert
  notes payable                  --              --              --              --              --              --

Net loss for
  the period                     --              --              --              --              --              --
                             ----------------------------------------------------------------------------------------
Balance,
  December 31, 2008            12,675   $          12     549,513,491   $     549,514       5,278,580   $  (1,963,612)
                             ========================================================================================



                          Additional         Other
                           Paid-in       Comprehensive    Accumulated     Stockholders'
                           Capital           Income         Deficit          Deficit
---------------------------------------------------------------------------------------
Balance,
  January 1, 2007       $ 122,538,462    $      35,119   $(129,065,441)   $  (8,110,143)

Exercise of warrants           45,000             --              --             48,000

Issuance of stock
  for services

Conversion of note
  payable                     137,857             --              --            170,000

Issuance of warrants
  to consultants              430,384             --              --            430,384

Issuance of warrants
  with convertible            173,819             --              --            173,819
  notes (Note 3)

Beneficial conversion
  features of notes           517,180             --              --            517,180
  (Note 3)

Inducement to convert
  notes payable
  (Note 3)                    988,686             --              --            988,686

Net income for
  the period                     --               --        (3,121,594)      (3,121,594)
                        ---------------------------------------------------------------
BALANCE,
  DECEMBER 31, 2007     $ 124,831,388    $      35,119   $(132,187,035)   $  (8,903,668)

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

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

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

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

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

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

Inducement to convert
  notes payable             1,247,657             --              --          1,247,657

Net loss for
  the period                     --               --        (2,631,319)      (2,631,319)
                        ---------------------------------------------------------------
Balance,
  December 31, 2008     $ 127,897,291    $      35,119   $(134,818,354)   $  (8,300,030)
                        ===============================================================






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


                                      F-6
<PAGE>

<TABLE>
<CAPTION>

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

FOR THE YEARS ENDED DECEMBER 31                                                2008           2007
-----------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES
<S>                                                                        <C>            <C>
     Net loss                                                              $(2,631,319)   $(3,121,594)
     Adjustments to reconcile net income to net
     cash provided by (used in) operating activities:
        Amortization of deferred licensing fees                                (22,224)       (22,224)
        Depreciation and amortization                                            6,009          2,912
        Amortization of convertible note discounts and warrants (Note 3)       447,728        864,485
        Debt conversion expense (Note 3)                                     1,247,657        988,686
        Gain on settlement of debt                                            (691,957)      (561,005)
        Stock issued for services (Note 7 (e))                                 142,112         48,000
        Warrant compensation                                                   126,621        430,384
        Prepaid & other                                                            672           --
     Increase (decrease) in operating liabilities
         Accounts payable                                                      609,275        448,142
         Accrued liabilities and provision for lawsuit settlements             510,333        166,843
                                                                           -----------    -----------
            Net cash provided by (used in) operating activities               (255,093)      (755,371)
                                                                           -----------    -----------
INVESTING ACTIVITIES
     Purchase of capital asset                                                 (14,325)       (11,888)

                                                                           -----------    -----------
                  Net cash provided by (used in) investing activities          (14,325)       (11,888)
                                                                           -----------    -----------
FINANCING ACTIVITIES
     Convertible Notes Payable                                                 300,000        755,300
     Notes Payable                                                              23,500           --
     Notes Payable payments                                                    (56,800)
                                                                           -----------    -----------
            Net cash provided by (used in) financing activities                266,700        755,300
                                                                           -----------    -----------

NET INCREASE (DECREASE) IN CASH                                                 (2,718)       (11,959)

CASH, beginning of year                                                          2,786         14,745
                                                                           -----------    -----------

CASH, end of year                                                          $        68    $     2,786
=====================================================================================================

SUPPLEMENTARY DISCLOSURE OF NON-CASH FLOW INFORMATION

     Beneficial conversion feature of convertible debt                     $   122,250    $   517,180

     Value of warrants issued with convertible debt                        $    72,250    $   173,819

     Conversion of convertible debt and interest to common stock           $ 1,281,791    $   170,000

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

     Conversion of accounts payable to common stock                        $   180,000    $      --
=====================================================================================================


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


                                      F-7
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


1.     NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       NATURE OF BUSINESS

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

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

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

       GOING CONCERN

       The accompanying consolidated financial statements have been prepared
       assuming that the Company will continue as a going concern. The Company
       has suffered net operating losses in recent periods, has an accumulated
       deficit of $134,818,354 and a total stockholders' deficit of $8,300,030
       at December 31, 2008. It has used most of its available cash in its
       operating activities in recent years, has a significant working capital
       deficiency and is subject to lawsuit settlements. These matters raise
       substantial doubt about the Company's ability to continue as a going
       concern.

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


                                      F-8
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

       PRINCIPLES OF CONSOLIDATION

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

       DEPRECIATION AND AMORTIZATION

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

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

       VALUATION OF LONG-LIVED ASSETS

       The Company periodically reviews the carrying value of long-lived assets
       for indications of impairment in value and recognizes impairment of
       long-lived assets in the event the net book value of such assets exceeds
       the estimated undiscounted future cash flows attributable to such assets.
       Long-lived assets to be disposed of by sale are to be measured at the
       lower of carrying amount or fair value less cost of sale whether reported
       in continuing operations or in discontinued operations. No impairment was
       required to be recognized during 2008 and 2007.

       RECOGNITION OF REVENUE

       License fee revenue is recognized over the term of the license agreement.
       During the year ended December 31, 2003, $400,000 in license fees were
       deferred and are being amortized over 18 years. As a result, for the year
       ended December 31, 2008 $22,224 ($22,224 in 2007) of licensing fees was
       recognized as income.


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


                                      F-9
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

       EARNINGS (LOSS) PER SHARE

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

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

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

       FAIR VALUE OF FINANCIAL INSTRUMENTS

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

       STOCK-BASED COMPENSATION

       The Company accounts for stock-based compensation under the fair value
       method in accordance with Statement of Financial Accounting Standards
       No.123 (revised 2004), "Share Based Payment" "SFAS 123(R)". SFAS No. 123R
       requires the Company to establish assumptions and estimates of the
       weighted-average fair value of stock options granted, as well as using a
       valuation model to calculate the fair value of stock-based awards. The
       Company uses the Black-Scholes option-pricing model to determine the
       fair-value of stock-based awards. All options are amortized over the
       requisite service periods of the awards, which are generally the vesting
       periods.

                                      F-10
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------

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

       RESEARCH AND DEVELOPMENT

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

       USE OF ESTIMATES

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

       INCOME TAXES

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

       COMPREHENSIVE INCOME

       The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
       SFAS No. 130 establishes standards to measure all changes in equity that
       result from transactions and other economic events other than
       transactions with owners. Comprehensive income is the total of net
       earnings (loss) and all other non-owner changes in equity. Except for net
       earnings (loss) and foreign currency translation adjustments, the Company
       does not have any transactions and other economic events that qualify as
       comprehensive income as defined under SFAS No. 130. As foreign currency
       translation adjustments were immaterial to the Company's consolidated
       financial statements, net loss approximated comprehensive loss for the
       year ended December 31, 2008 and 2007.


                                      F-11
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

       LEGAL FEES

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

       NEW ACCOUNTING PRONOUNCEMENTS

       In September 2006, the FASB issued Statement No. 157, "Fair Value
       Measurements" ("SFAS 157"). SFAS No. 157 provides accounting guidance on
       the definition of fair value establishes a framework for measuring fair
       value and requires expanded disclosures about fair value measurements.
       SFAS 157 is effective for the Company starting January 1, 2008 and did
       not have an impact on the Company as the Company does not have financial
       instruments subject to the expanded disclosure requirements of SFAS 157.
       In February 2008, the FASB issued FASB Staff Position FAS 157-2,
       "Effective Date of FASB Statement No. 157", which provides a one year
       delay of the effective date of SFAS 157 as it relates to nonfinancial
       assets and liabilities, except those that are recognized or disclosed at
       fair value in the financial statements on a recurring basis (at least
       annually). The provisions of SFAS 157 relating to nonfinancial assets and
       liabilities will be effective as of the beginning of the Company's 2009
       fiscal year.

       Effective January 1, 2008, the Company adopted Statement No. 159, "The
       Fair Value Option for Financial Assets and Financial Liabilities -
       Including an Amendment of FASB Statement No. 115 ("SFAS 159")." SFAS 159
       permits entities to choose to measure many financial instruments and
       certain other items at fair value, and establishes presentation and
       disclosure requirements designed to facilitate comparisons between
       entities that choose different measurement attributes for similar types
       of assets and liabilities. The adoption of SFAS 159 had no impact on the
       Company's financial statements as the Company did not elect the fair
       value option.


       In December 2007, the FASB issued Statement No. 141R, "Business
       Combinations" ("SFAS 141R"). SFAS 141R revises the principles and
       requirements for how the acquirer recognizes and measures in its
       financial statements the identifiable assets acquired, the liabilities
       assumed, any non controlling interest in the acquiree, and the goodwill
       acquired in a business combination or gain from a bargain purchase. SFAS
       141R also revises the principles and requirements for how the acquirer
       determines what information to disclose to enable users of the financial
       statements to evaluate the nature and financial effects of the business
       combination. This pronouncement will be effective for the Company on
       January 1, 2009. The Company is currently evaluating the impact, if any,
       that SFAS 141R will have on its financial position or results of
       operations.


       In December 2007, the FASB issued Statement No. 160, "Non controlling
       Interest in Consolidated Financial Statements -- an amendment of ARB No.
       51" ("SFAS 160"). SFAS 160 amends ARB No. 51 to establish accounting and
       reporting standards for the non controlling interest in a subsidiary and
       for the deconsolidation of a subsidiary. This pronouncement will be
       effective for the Company on January 1, 2009. The Company is currently
       evaluating the impact, if any, that SFAS 160 will have on its financial
       position or results of operations.


                                      F-12
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

       NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

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

       In May 2008, the FASB issued Statement No. 162, "The Hierarchy of
       Generally Accepted Accounting Principles ("SFAS 162"). SFAS 162
       identifies a consistent framework, or hierarchy, for selecting accounting
       principles to be used in preparing financial statements that are
       presented in conformity with U.S. generally accepted accounting
       principles for nongovernmental entities (the "Hierarchy"). The Hierarchy
       within SFAS 162 is consistent with that previously defined in the AICPA
       Statement on Auditing Standards No. 69, "The Meaning of Present Fairly in
       Conformity With Generally Accepted Accounting Principles" ("SAS 69").
       SFAS 162 is effective 60 days following the United States Securities and
       Exchange Commission's (the "SEC") approval of the Public Company
       Accounting Oversight Board amendments to AU Section 411, "The Meaning of
       Present Fairly in Conformity With Generally Accepted Accounting
       Principles". The adoption of SFAS 162 will not have a material effect on
       the Consolidated Financial Statements because the Company has utilized
       the guidance within SAS 69.



                                      F-13
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------

2.     PROPERTY AND EQUIPMENT

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

                                                        2008              2007
                                                      --------         --------

        Machinery and equipment                       $ 72,406         $ 58,081
        Less: accumulated depreciation                 (54,577)         (48,568)
                                                      --------         --------

        Net property and equipment                    $ 17,829         $  9,513
                                                      ========         ========


3.     LOANS PAYABLE
                                                             2008         2007
                                                          ----------   ---------

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

Note payable, 5% per annum                                   50,905       46,000

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

Convertible notes payable net of
unamortized discount of $199,726
and warrant valuation of $53,501 in 2007                    318,722      983,073
                                                         ----------   ----------

Total Loans Payable                                      $  508,227   $1,200,973
                                                         ==========   ==========


                                      F-14
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

3.      LOANS PAYABLE -  CONTINUED

        As of December 31, 2008, convertible notes consist of:

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

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

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

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

Discount on convertible debt

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

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

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

  Accrued Interest                     11,822          --            --            --           --          21,900        33,722
                                  -----------   -----------   -----------   -----------  -----------   -----------   -----------



Net Convertible Debt              $    96,822   $      --     $      --     $      --    $      --     $   221,900   $   318,722
                                  ===========   ===========   ===========   ===========  ===========   ===========   ===========


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

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

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

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

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

Warrants exercised                (11,900,000)         --          --             --          --             --      (11,900,000)
                                  -----------   -----------   -----------   -----------  -----------   -----------   -----------

Warrants remaining                    400,000     1,900,000     8,820,000     6,000,000    2,000,000     4,000,000    21,120,000
                                  -----------   -----------   -----------   -----------  -----------   -----------   -----------


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

Assumptions for Black-Scholes
valuation of warrants

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

     Modified exercise price          $ 0.010        N/A          N/A            N/A          N/A            N/A

     Term                           5 years       5 years       5 years       5 years       5 years      5 years
                                                   153% -        112% -        112% -

     Volatility rate              146% - 151%      155%          155%          155%          109%          107%
                                    4.61% -       4.45% -       4.46% -       2.93% -

     Risk free interest rate         5.02%         4.69%        5.01%         5.01%          2.93%         1.90%
</TABLE>


                                      F-15
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

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

       The value of the beneficial conversion feature and the value of the
       warrants have been recorded as a discount to convertible notes and are
       being amortized over the term of the notes using the straight-line
       method. For the years ended December 31, 2008 and 2007, amortization of
       the discount was $447,728 and $864,485, respectively. As of December 31,
       2008 and 2007, the remaining balance of the beneficial conversion feature
       was $-0- and $199,726, and detachable warrants was $-0- and $53,501,
       respectively.

       In September 2006, the Company offered to decrease the note conversion
       price to $0.005 per share if the note holders exercised their warrants at
       the reduced exercise price of $0.010 by September 30, 2006. 11,900,000 of
       the warrants were exercised. In consideration for the reduction of
       conversion price, the maturity of the notes extended for another year.

       The modification of conversion terms was substantial such that it was
       considered an extinguishment of debt. Accordingly, the unamortized
       discount on convertible notes was written off and included in total
       amortization for 2006. Conversion of notes in 2008 and 2007 also resulted
       in the write off of the corresponding unamortized discount.

       In addition, as a result of the inducement to exercise the warrants and
       to convert the notes, the Company recognized an expense of $1,247,657 and
       $988,686 for the years ended December 31, 2008 and 2007, respectively,
       with a corresponding increase in additional paid in capital.

       In February 2007, the Company changed the per share conversion price from
       $0.005 to $0.020 for new lenders.

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

--------------------------------------------------------------------------------
                                      F-16
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------

  4.     INCOME TAXES

       Income tax expense is comprised of the following for the years ended
       December 31, 2008 and 2007:

                                                2008               2007
                                            -----------           ------
       Current
          State                             $     1,600           $2,400
                                            -----------           ------

       Total income tax expense for the years ended December 31, 2008 and 2007
       differed from the amounts computed by applying the statutory Federal
       income tax rate to earnings before income taxes as a result of the
       following:

                                                       2008             2007
                                                   -----------      -----------

       Computed "expected" income tax benefit      $      --        $      --
       Non-deductible stock option compensation        126,621          430,384
       Non-deductible expenses                       1,695,385        1,903,727
       Non-deductible stock for services               142,111           48,000
       Change in valuation allowance                (1,964,117)      (2,382,111)
                                                   -----------      -----------

                                                   $      --        $      --
                                                   ===========      ===========

       The tax effects of temporary differences that give rise to the deferred
       tax assets and liabilities at December 31, 2008 and 2007 are as follows:

                                                       2008             2007
                                                   ------------    ------------
Deferred tax assets
   Accrued liabilities                             $    128,000    $    139,646
   Reserve for lawsuit settlements                    2,138,045       1,997,669
   Fixed Assets                                           7,132           3,805
   Alternative minimum tax credit                        55,000          55,000
   Net operating loss carryover                      27,331,289      27,159,140
                                                   ------------    ------------

      Gross deferred tax assets                      29,659,466      29,355,260
Less valuation allowance                            (29,659,466)    (29,355,260)
                                                   ------------    ------------

Deferred tax assets, net of valuation allowance    $       --      $       --
                                                   ============    ============

       In assessing the realizability of deferred tax assets, management
       considers whether it is more likely than not that some portion or all of
       the deferred tax assets will not be realized. The ultimate realization of
       deferred tax assets is dependent upon the generation of future taxable
       income during the periods in which those temporary differences become
       deductible. Management considers the scheduled reversal of deferred tax
       assets, projected future taxable income and tax planning strategies in
       making this assessment. Management believes it is not likely that the
       Company will realize the benefits of these deductible differences at
       December 31, 2008 or 2007. Accordingly, a valuation allowance has been
       provided for the total net deferred tax assets.

       At December 31, 2008, the Company had net operating loss carryforwards of
       approximately $79,500,000 for US income tax purposes, which if not used,
       will expire between the years 2009 and 2028. Due to change of ownership
       as defined in the Internal Revenue Code, restriction applies to the
       amount of net operating loss carryforward, which the Company can utilize
       to offset income for tax purposes in a year in the future.

                                      F-17
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


5.     COMMITMENTS AND CONTINGENCIES

       a) Litigation

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

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

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

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

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

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


                                      F-18
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------

5.     COMMITMENTS AND CONTINGENCIES - CONTINUED

       b)   Litigation - Continued

       At December 31, 2008, the Company has included $3,943,328 ($3,592,387 in
       2007) in regard to this matter in provision for lawsuit settlements. If
       it was determined that TST received payment in preference to other
       creditors before Pacific Baja filed its Chapter 11 petition in
       bankruptcy, TST would likely increase its claim by $2,130,000. TST and
       Pacific Baja settled the preference payment issue with TST paying $20,000
       to Pacific Baja and TST relinquishing the right to receive $63,000,
       therefore the $2,130,000, that the Company had included in provision for
       lawsuit settlements, has been reduced to $83,000. For the year ended
       December 31, 2005 the $2,047,000 difference was recorded as a lawsuit
       settlement in other income.



                                                   Year Ended December 31
                                              ---------------------------------
                                                     2008               2007
                                              ---------------------------------
Settlement amount                              $ 2,068,079          $ 2,068,079

Interest                                       $ 1,815,594          $ 1,464,653

Preference payment                             $    83,000          $    83,000

Proceeds of stock sale                         ($   23,345)         ($   23,345)
                                            -----------------------------------

Total                                          $ 3,943,328          $ 3,592,387
                                            ===================================

       c) Other

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

       d) Royalties

       The Company has agreed to pay a royalty equal to 2% of gross sales of
       products manufactured and sold that incorporate certain licensed
       technology which is not being used. No royalty payments were made in 2008
       and 2007.
--------------------------------------------------------------------------------

                                      F-19
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


6.     STOCK OPTIONS

       2003 Stock Incentive Plan

       On August 12, 2003, the Company established the 2003 Stock Incentive Plan
       (the "2003 Plan"). Under the 2003 Plan, the Company may grant common
       stock or incentive stock options to its directors, officers, employees
       and consultants for up to 15,000,000 shares. The maximum term of the 2003
       Plan is ten years. The Board of Directors will determine the terms and
       matters relating to any awards under the 2003 Plan including the type of
       awards, the exercise price of the options and the number of common shares
       granted. The value of the shares of common stock used in determining the
       awards shall not be less than 85% of the fair market value of the common
       shares of the Company on the date of grant. As of December 31, 2008 and
       2007, the number of unoptioned shares available for granting of options
       under the plan was 7,197,759.

       2004 Nevada Stock Incentive Plan

       On March 31, 2004, the Company established the 2004 Nevada Stock
       Incentive Plan (the "2004 Plan"). Under the 2004 Plan, the Company may
       grant common stock or incentive stock options to its directors, officers,
       employees and consultants for up to 15,000,000 shares. The maximum term
       of the 2004 Plan is ten years. The Board of Directors will determine the
       terms and matters relating to any awards under the 2004 Plan including
       the type of awards, the exercise price of the options and the number of
       common shares granted. The value of the shares of common stock used in
       determining the awards shall not be less than 85% of the fair market
       value of the common shares of the Company on the date of grant. As of
       December 31, 2008 and 2007, the number of unoptioned shares available for
       granting of options under the plan was 1,703,500.

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

       Valuation-general Black-Scholes

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

                                      F-20
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


6.     STOCK OPTIONS - CONTINUED

       The following summarizes information relating to stock options issued
       prior to 2008:

<TABLE>
<CAPTION>
                                                                      2007 AND 2008

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

                                                     WEIGHTED                  WEIGHTED                    WEIGHTED
                                                      AVERAGE                   AVERAGE                     AVERAGE
                                                     EXERCISE                  EXERCISE                    EXERCISE
                                          OPTIONS      PRICE       OPTIONS        PRICE       OPTIONS         PRICE
                                      ------------ ----------- ------------ ------------ ------------ --------------

<S>                                     <C>        <C>          <C>         <C>           <C>          <C>
         Outstanding at beginning       2,125,000  $     0.08   15,674,000  $      0.06   17,799,000   $       0.06
         and end  of year
</TABLE>



       At December 31, 2008, the following is a summary of stock options
       outstanding:

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

             $0.02       7,000,000            1.07              $0.02
     $0.04 - $0.07       1,450,000            3.09               0.04
     $0.09 - $0.10       9,349,000            4.98               0.10
                       -----------------------------------------------

                        17,799,000            3.29              $0.06
                       ===============================================


       Issuance of Stock Options to Non-employees for Services

       During 2006 and 2007, we granted warrants to purchase 78,200,000 shares
       of our common stock to various consultants that we deemed essential to
       our operations. Details of the consultant warrants for the year ended
       December 31, 2008 are as follows:

                      Total consultant warrants granted           78,200,000
                      Vested prior to January 1, 2008            (16,172,220)
                      Vested January through December 2008        (6,633,329)
                      Cancelled January through December 2008    (22,044,436)
                                                                --------------
                      Warrants not vested                         33,350,015
                                                                ==============

       During 2008 the Company using the Black-Scholes model recorded $126,621
       ($430,384 in 2007) of compensation expense, relating to the vesting of
       stock warrants previously issued to non-employees for services. The non
       cash warrant expense is allocated with $92,576 ($289,113 in 2007) to
       general and administrative expenses and $34,045 ($141,271 in 2007) to
       research and development.

                                      F-21
<PAGE>
================================================================================
                                   TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
                                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


6.     STOCK OPTIONS - CONTINUED

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

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

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


7.     STOCKHOLDERS' EQUITY

       a) Authorized Capital

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

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

       b) Merger

       New management took control pursuant to a merger completed as of
       September 9, 2005 pursuant to which a majority owned subsidiary of
       Aspatuck Holdings Ltd. ("Aspatuck") was merged into our newly formed
       wholly owned subsidiary. Prior to the merger, this subsidiary of Aspatuck
       entered into a consulting agreement ("Consulting Agreement") with
       Stamford Research, LLC that is obligated to provide the services of Mr.
       Albert Case to the Company. Upon completion of the merger, 139,192,222
       shares of the Company's Common Stock were issuable to holders of the
       subsidiary of Aspatuck and 1,300,000 such shares became issuable to
       Stamford Research LLC, under the Consulting Agreement. At this time Mr.
       Albert Case became president and chief executive officer and Mr. Jason
       Meyers, principal shareholder of Aspatuck, became Chairman of the Board
       of Directors. Additional shares are issuable to the former shareholders
       of the Aspatuck subsidiary in the event the Company issues any securities
       related directly or indirectly to pre-merger events. The Company issued
       13,939,740 shares of the Company's common stock to comply with the
       anti-dilution clause of the Agreement and Plan of Merger

       c) During 2008, the Company issued 13,000,000 (3,000,000 in 2007) shares
       to consultants in consideration for services, at a range of ascribed
       values from $0.019 to $0.03 ($0.016 in 2007) per share (based on the
       trading price of the Company's common stock on the agreement date).


                                      F-22
<PAGE>

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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


7.     STOCKHOLDERS' EQUITY - CONTINUED

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

       e) During 2008, the Company issued 169,054,057 shares of common stock.
       The 169,054,057 included, 142,114,317 were issued for conversion of notes
       payable, 6,000,000 for conversion of accounts payable, 7,000,000 shares
       were issued for services with an ascribed value of $114,000 (based on the
       trading price of the Company's common stock on the dates service
       agreements were entered into) and 13,939,740 shares of the Company's
       common stock to comply with the anti-dilution clause of the Agreement and
       Plan of Merger

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

       f) During 2003, the Company entered into three private placement
       agreements for the issuance of 2,433,810 shares for gross proceeds of
       $138,600, which was recorded as loans payable. As of December 31, 2008
       the shares have not been issued.

       g) Stock Purchase Warrants

       At December 31, 2008 and 2007, the Company had 43,925,549 and 31,292,220
       stock purchase warrants outstanding and exercisable, respectively. These
       warrants were issued in connection with private placements, non-employee
       compensation and other means of financing. The holders of these warrants
       are entitled to receive one share of common stock of the Company for one
       warrant exercised. The warrants have exercise prices ranging from $0.0117
       to $0.04 per share with a weighted average exercise price of $0.02 per
       share and expiration dates between 2011 and 2015.

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

                                      F-23
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


  7.      STOCKHOLDERS' EQUITY - CONTINUED

         h)     Stock Purchase Warrants - continued


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

<TABLE>
<CAPTION>
                                                     2008

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

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

<S>                           <C>           <C>         <C>           <C>         <C>            <C>
 Outstanding at beginning     15,120,000    $   0.02    16,172,220    $    0.01   31,292,220     $     0.02
 of year
 Granted                       6,000,000    $   0.02     6,633,329    $    0.01   12,633,329     $     0.02
 Expired                                    $                         $                          $
                             ------------             -------------              ------------
 Warrants outstanding and
 exercisable at end of        21,120,000    $   0.02    22,805,549    $    0.01   43,925,549     $     0.02
 year
                             ============             =============              ============
 Weighted average fair
 value of
 warrants granted during                    $   0.02                  $    0.02                  $     0.02
 the year
                             ==============================================================================
</TABLE>



       At December 31, 2008, the following is a summary of share purchase
       warrants outstanding and exercisable:

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

     $0.01                21,972,221                     5.59             $0.01
  0.025 -0.04             21,953,328                     3.70             $0.02
                    ----------------- ------------------------ -----------------

                          43,925,549                     4.65             $0.02
                    ----------------- ------------------------ -----------------


                                      F-24
<PAGE>



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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


8.      PACIFIC BAJA BANKRUPTCY

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

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

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

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

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

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

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

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

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

                                      F-25
<PAGE>



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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


9.     FORMER DIRECTORS

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

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


       The Plaintiff's attorney, Claus Schmidt, also filed similar suits on
       behalf of Frank Walter and Herbert Taeuber. The German courts are
       indicating that all three suits need to be filed in the United States not
       Germany. Presently the suits have not been filed in the United States. We
       vigorously dispute this claim and have retained German counsel to defend
       it and seek its dismissal. At December 31, 2008 and 2007, the Company has
       included $405,785 in regard to this matter in the provision for lawsuit
       settlements.

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

10.     CRESCENT FUND, LLC


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


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

                                      F-26
<PAGE>




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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

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

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


                                      F-27
<PAGE>


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

DECEMBER 31, 2008 AND 2007
--------------------------------------------------------------------------------


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

       Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers
       have advanced an aggregate of $ 46,000 to the Company plus related
       interest expense of $4,904 for 2008 and $2,604 for 2007. The advances are
       repayable on demand and bear interest at 5 % per annum. See Note 3 Loan
       Payable. As of December 31, 2008 and 2007 the Company also owes Aspatuck
       Holdings Ltd consulting fees of $344,827 and $225,996, respectively, for
       the services of Jason Meyers. The Company has included these consulting
       fees in accounts payable in the balance sheet. The Company has included
       $120,000 of consulting compensation in the general and administrative
       expense for the years ended December 31, 2008 and 2007. The company also
       included $64,999 of non cash warrant expense for the year ended December
       31, 2008 and $154,388 for 2007.

       John Adams, co-CEO has advanced an aggregate of $35,000 in convertible
       notes as a private investor. The notes were due in November 2006 and July
       2007 but remain unpaid as of December 31, 2008 and 2007, with total
       outstanding balance of $40,106 and $38,356, respectively, which includes
       accrued interest of $5,106 and $3,356, respectively. The Company recorded
       $28,111 general and administrative expense for the stock compensation
       issued to John Adams in 2008.

       As of December 31, 2008 the Company owes Debi Kokinos, CFO consulting
       fees of $41,830. The Company has included these consulting fees in
       accounts payable in the balance sheet. The Company has included $77,520
       of consulting compensation in the general and administrative expense for
       the years ended December 31, 2008 and 2007. The company also included
       $19,500




                                      F-28