TRBD Turbodyne Technologies Inc (CE)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the quarterly period ended JUNE 30, 2008

[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934

For the transition period __________ to __________

Commission File Number 000-21391

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

36 E. BARNETT STREET, VENTURA, CALIFORNIA 93001
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code: (805) 512-9511

Check 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes [ ] No [X]

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 Exchange Act)
[_] Yes [X] No

State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 480,212,796 shares of common stock issued and outstanding as of AUGUST 5, 2008.

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

TURBODYNE TECHNOLOGIES, INC.
INDEX TO FORM 10-Q

 JUNE 30, 2008

 PAGE
 NUMBER
 ------

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:

 Consolidated Balance Sheets as of June 30, 2008 and
 December 31, 2007 4

 Consolidated Statements of Operations for the three and six
 month periods ended June 30, 2008 and June 30, 2007 5

 Consolidated Statements of Cash Flows for the six month
 periods ended June 30, 2008 and June 30, 2007 6

 Notes to the Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis or Plan of Operations 21

Item 3. Quantitative and Qualitative Disclosures About Market Risk 31

Item 4. Controls and Procedures 32

PART II - OTHER INFORMATION

Item 1. Legal Proceedings 33

Item 1A. Risk Factors NA

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33

Item 3. Defaults Upon Senior Securities NA

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

Item 5. Other Information NA

Item 6. Exhibits 33

SIGNATURES 34

PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED
JUNE 30, 2008 AND 2007
(UNAUDITED - EXPRESSED IN US DOLLARS)

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN US DOLLARS)

 JUNE 30 DECEMBER 31
 2008 2007
--------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
CURRENT
 Cash $ 104,331 $ 2,786
 Prepaid expenses and other current assets 672 672
 ------------------------------


 TOTAL CURRENT ASSETS 105,003 3,458
PROPERTY AND EQUIPMENT, net 7,733 9,513
 ------------------------------
TOTAL ASSETS $ 112,736 $ 12,971
==================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
CURRENT
 Accounts payable $ 2,222,052 $ 2,132,439
 Accrued liabilities 335,092 292,000
 Provision for lawsuit settlements (Note 5) 5,169,643 4,994,173
 Loans payable (Note 4) 1,100,274 1,200,973
 ------------------------------
 TOTAL CURRENT LIABILITIES 8,827,061 8,619,585
DEFERRED LICENSING FEE 285,942 297,054
 ------------------------------
 TOTAL LIABILITIES 9,113,003 8,916,639
 ------------------------------
STOCKHOLDERS' DEFICIT
 Share Capital (Note 3)
 Authorized
 1,000,000 preferred shares, par value $0.001
 1,000,000,000 common shares, par value $0.001
 Issued
 12,675 preferred shares in 2008 and 2007 12 12
 469,573,046 common shares in 2008 (380,459,434 in 2007) 469,573 380,460
 Treasury stock, at cost (5,278,580 shares) (1,963,612) (1,963,612)
 Additional paid-in capital 127,000,280 124,831,388
 Other comprehensive income -
 Foreign exchange translation gain 35,119 35,119
 Accumulated deficit (134,541,639) (132,187,035)
 ------------------------------
 TOTAL STOCKHOLDERS' DEFICIT (9,000,267) (8,903,668)
 ------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 112,736 $ 12,971
==================================================================================================

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

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - Expressed in US Dollars)

 THREE-MONTH SIX-MONTH
 PERIODS ENDED PERIODS ENDED
 JUNE 30 JUNE 30
 2008 2007 2008 2007
--------------------------------------------------------------------------------------------------------------
REVENUE (Restated) (Restated)
 Licensing fees
 $ 5,556 $ 5,556 $ 11,112 $ 11,112
 ----------------------------------------------------------------
 TOTAL REVENUE 5,556 5,556 11,112 11,112
 ----------------------------------------------------------------
EXPENSES
 General and administrative 174,508 249,159 430,356 484,199
 Research and development 92,362 144,735 202,920 225,676
 Litigation expense 98,330 79,765 180,395 159,524
 Depreciation and amortization 890 -- 1,780 537
 ----------------------------------------------------------------
 TOTAL EXPENSES 366,090 473,659 815,451 869,936
 ----------------------------------------------------------------
LOSS FROM OPERATIONS (360,534) (468,103) (804,339) (858,824)
OTHER INCOME (EXPENSES)
 Interest expense (35,602) (12,323) (57,632) (21,313)
 Amortization of discount on
 convertible notes (94,382) (189,574) (334,576) (345,476)
 Debt conversion expense (729,600) (256,000) (1,156,457) (678,400)
 Gain on extinguishment of debt -- 109,721 -- 231,771
 ----------------------------------------------------------------
LOSS BEFORE TAXES (1,220,118) (816,279) (2,353,004) (1,672,242)
INCOME TAX EXPENSE -- -- (1,600) --
 ----------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (1,220,118) $ (816,279) $ (2,354,604) $ (1,672,242)
 ================================================================
Loss per common share
BASIC AND DILUTED $ (0.00) $ (0.00) $ (0.01) $ (0.00)
==============================================================================================================
WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 439,581,259 360,833,061 417,896,030 355,084,533
==============================================================================================================

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

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - EXPRESSED IN US DOLLARS)

FOR THE SIX-MONTH PERIODS ENDED JUNE 30 2008 2007
---------------------------------------------------------------------------------------------
 (Restated)
---------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
 Net loss for the period $(2,354,604) $(1,672,242)
 Adjustments to reconcile net loss to net
 cash provided by (used in) operating activities:
 Amortization of deferred licensing fees (11,112) (11,112)
 Depreciation and amortization 1,780 537
 Gain on extinguishment of debt -- (231,771)
 Amortization of discount on convertible debt (Note 4) 334,576 345,476
 Stock for services 189,444 --
 Debt conversion expense (Note 4) 1,156,457 678,400
 Warrant compensation (Note 3) 95,584 199,203
 (Increase) decrease in operating assets
 Prepaid expenses and other current assets -- --
 Increase (decrease) in operating liabilities
 Accounts payable 89,613 90,649
 Accrued liabilities and provision for lawsuit settlements 276,307 138,880
 ----------- -----------
 Net cash used in operating activities (221,955) (461,980)
 ----------- -----------
FINANCING ACTIVITIES
 Convertible Notes Payable 323,500 425,000
 Notes Payable -- 31,000
 ----------- -----------
 Net cash provided by financing activities 323,500 456,000
 ----------- -----------
NET INCREASE (DECREASE) IN CASH 101,545 (5,980)
CASH, beginning of period 2,786 14,745
 ----------- -----------
CASH, end of period $ 104,331 $ 8,765
=============================================================================================
SUPPLEMENTARY DISCLOSURE OF NON-CASH INFORMATION
BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE DEBT $ 122,250 $ 318,941
VALUE OF WARRANTS ISSUED WITH CONVERTIBLE DEBT 72,250 106,059
CONVERSION OF INTEREST AND NOTES PAYABLE TO COMMON STOCK 622,020 100,000
=============================================================================================

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

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Expressed in US Dollars)

JUNE 30, 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.

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.

BASIS OF PRESENTATION

The interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and with the instruction to Form 10 and Rule 8-03 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These financial statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the audited financial statements of the Company for the years ended December 31, 2007 and 2006 included in the Company's 10-KSB Annual Report. The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim periods are not indicative of annual results.

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 $134,541,639 and a total capital deficit of $9,000,267 at June 30, 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 lawsuits brought against it by other parties. These matters raise substantial doubt about the Company's ability to continue as a going concern.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 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 & Peripherals - 3 years Machinery and equipment - 7 to 15 years Furniture and fixtures - 5 to 10 years

LICENSES

Licenses are recorded at cost and are amortized over the estimated useful life of 18 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 quarter ended June 30, 2008 $5,556 ($5,556 in 2007) of licensing fees was recognized as income.

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 period. Diluted earnings per share reflects the potential dilution of securities that could share in earnings of an entity. In a loss period, dilutive common equivalent shares are excluded from the loss per share calculation as the effect would be anti-dilutive.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

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

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.

USE OF ESTIMATES

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

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)".

RESEARCH AND DEVELOPMENT

Research and development costs related to present and future products have been charged to operations in the period incurred.

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.

LEGAL FEES

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

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

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

COMPREHENSIVE INCOME

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards to measure all changes in equity that result from transactions and other economic events other than transactions with owners. Comprehensive income is the total of net earnings (loss) and all other non-owner changes in equity. Except for net earnings (loss) and foreign currency translation adjustments, the Company does not have any transactions and other economic events that qualify as comprehensive income as defined under SFAS No. 130. As foreign currency translation adjustments were immaterial to the Company's consolidated financial statements, net earnings (loss) approximated comprehensive income for the quarter ended June 30, 2008 and 2007.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). This statement requires the full recognition, as an asset or liability, of the overfunded or underfunded status of a company-sponsored postretirement benefit plan. Adoption of this statement is required effective for the Company's fiscal year ending December 31, 2007. The adoption of SFAS 158 has not had a material effect on the Company as it has no defined benefit plans.

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.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

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

NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

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.

Also 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 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.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

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

NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

In May 2008, the FASB issued Statement No. 163, "Accounting for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60 ("SFAS No. 163"). SFAS 163 requires recognition of an insurance claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Early application is not permitted. The Company's adoption of SFAS 163 will not have a material effect on the Consolidated Financial Statements.

2 RESTATEMENT OF 2007 FINANCIAL STATEMENTS

The Company is restating its previously issued June 30, 2007 consolidated financial statements for the following reasons: unrecorded beneficial conversion feature of convertible debt and related amortization, unrecorded value of detachable warrants issued with the convertible debt and related amortization, unrecorded inducement expense as a result of Company's modification of conversion terms and terms for the exercise of warrants to induce conversion of debt and warrants exercise.

 Previously Increase
 Reported (Decrease)
 (Original) Restated
TOTAL ASSETS $ 9,437 $ -- $ 9,437

Loans payable 690,548 (7,689) 682,859
Total Current Liabilities 8,088,741 (7,689) 8,081,052
TOTAL LIABILITIES 8,396,907 (7,689) 8,389,218

Additional paid in capital 123,258,888 662,178 123,921,066
Accumulated deficit (130,083,194) (654,489) (130,737,683)
TOTAL CAPITAL DEFICIT (8,387,470) 7,689 (8,379,781)

STATEMENT OF OPERATIONS
Amortization of convertible notes
 discount relating to -
 Beneficial conversion feature* (101,341) (215,166) (316,507)
 Warrants (85,773) 56,804 (28,969)
 Debt conversion expense (422,400) (256,000) (678,400)
NET LOSS $ (1,257,880) $ (414,362) $ (1,672,242)

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

3. SHARE CAPITAL

Transactions not disclosed elsewhere in these consolidated interim financial statements are as follows:

a) Authorized Capital

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.

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. As of June 30, 2008, 12,675 of Series X preferred shares convertible into 1,267,500 common shares are outstanding.

In addition to outstanding shares of common stock, options and warrants described in these notes; additional shares are issuable in connection with the change of control transaction in September 2005 in the event the Company issues any securities directly or indirectly related to pre-merger events.

b) During the six months ended June 30, 2008 the Company issued 89,113,612 shares of common stock, 83,113,612 for conversion of notes and interest payable and 6,000,000 for payment of services. During the six months ended June 30, 2007, the Company issued 20,000,000 shares of common stock for conversion of notes payable.

c) Stock Options

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 behaviours. 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.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

3. SHARE CAPITAL - CONTINUED

Grant 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. Of these warrants, 22,044,436 were cancelled due to termination of the consulting contracts and 3,894,443 were vested and reflected as an expense for the six months ended June 30, 2008. The total number of warrants vested from the grant date through June 30, 2008 is 20,066,663, leaving 36,088,901 not vested.

During the six months ended June 30, 2008 the Company recorded $95,584 ($199,203 in 2007) of compensation expense relating to stock warrants issued to non-employees for services rendered during the period.

The estimated fair value of warrants vested to non-employees during the six months ended June 30, 2008 ranged from $0.017 to $0.0352. Assumptions used to value the warrants: expected dividend yield Nil%; expected volatility of 101.36% and 157.41%; risk-free interest ranged from 2.88% to 3.68% and an expected life of 7 years.

d) Stock Purchase Warrants

At June 30, 2008 the Company had 41,186,663 share purchase warrants outstanding and exercisable. 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 $0.017 per share and expiration dates between 2011 and 2015. Details of share purchase warrants for the quarter ended June 30, 2008 are as follows:

 2008

 INVESTORS EMPLOYEES & CONSULTANTS TOTAL
 ----------------------------------------------------------------------------
 WEIGHTED WEIGHTED WEIGHTED
 AVERAGE AVERAGE AVERAGE
 EXERCISE EXERCISE EXERCISE
 WARRANTS PRICE WARRANTS PRICE WARRANTS PRICE
 ----------------------------------------------------------------------------
Outstanding at beginning of
period 15,120,000 0.02 16,172,220 $ 0.01 31,292,220 $ 0.02
Granted 6,000,000 0.02 3,894,443 $ 0.01 9,894,443 $ 0.02
 ---------- ---------- ----------
Warrants outstanding and
exercisable at end of
period 21,120,000 0.02 20,066,663 $ 0.01 41,186,663 $ 0.02
 ========== ========== ==========
Weighted average fair value
of warrants granted during
the period 0.02 $ 0.01 $ 0.01
 ============================================================================

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

3. SHARE CAPITAL - CONTINUED

At June 30, 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 19,233,335 5.92 $0.01
 $0.025 - 0.04 21,953,328 4.21 0.02
 -------------------------------------
 41,186,663 5.00 $0.02
 =====================================

4. LOANS PAYABLE

 June 30, December 31,
 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 49,754 46,000

Note payable, 18% per annum 60,937 33,300

Convertible notes payable net of unamortized discount of $68,756
and $199,726 and warrant valuation of $44,398 and $53,501 in 2008
and 2007, respectively** 850,983 983,073
 -------------------------
Total Loans Payable $1,100,274 $1,200,973
 =========================

** During the quarter ended June 30, 2008, the Company issued $200,000 convertible notes. The note bears interest at 18% and matures within six months from date of issuance. The Note is convertible, at the option of the holder, to shares of the Company's common stock.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

4. LOANS PAYABLE - CONTINUED

As of June 30, 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
 --------------------------------------------------------------------------------------------------
Proceeds from issuances of
convertible debt $ 615,000 $ 95,000 $ 441,000 $ 200,000 $ 100,000 $ 200,000 $ 1,651,000
Less: Debt conversions (500,000) (10,000) (260,000) -- -- -- (770,000)
 --------------------------------------------------------------------------------------------------
 115,000 85,000 181,000 200,000 100,000 200,000 881,000
 --------------------------------------------------------------------------------------------------
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) (118,341) (51,035) (17,550) (10,446) (293,557)
 Accumulated amortization of
 beneficial conversion feature (521,541) (86,959) (322,122) (148,965) (39,308) (14,794) (1,133,689)
 --------------------------------------------------------------------------------------------------
 215 -- 537 -- 21,538 90,864 113,154
 --------------------------------------------------------------------------------------------------
 Accrued Interest 23,788 6,187 15,362 27,300 6,600 3,900 83,137
 --------------------------------------------------------------------------------------------------
Net Convertible Debt $ 138,573 $ 91,187 $ 195,825 $ 227,300 $ 85,062 $ 113,036 $ 850,983
 ==================================================================================================
 Lower
 of 70%
 of market
Original conversion price or $0.025 $ 0.005 $ 0.020 $ 0.020 $ 0.020 $ 0.020 --
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 $ 50,884 $ 48,863 $ 398,872 $ 140,612 $ 41,498 $ 67,630
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
 146%- 153%- 112%- 112%-
 Volatility rate 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%

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

4. LOANS PAYABLE - CONTINUED

For the years ended December 31, 2007 and 2006, the Company issued $691,000 and $660,000, respectively, of convertible notes. For the six months ended June 30, 2008 the Company issued $300,000 of convertible notes. All of the convertible notes were issued with detachable warrants to purchase 13,820,000, 13,200,000 and 6,000,000 shares of the Company's common stock, respectively, at $0.0250 per share. For the six months ended June 30, 2008 the Company allocated the $300,000 according to the value of the convertible notes and the warrants based on their relative fair values. Fair value of the warrants was determined using the Black-Scholes valuation model. It was also determined that the convertible notes contained a beneficial conversion feature since the fair market value of the common stock issuable upon the conversion of the notes exceeded the value allocated to the notes.

The value of the beneficial conversion feature and the value of the warrants have been recorded as a discount to convertible notes and are being amortized over the term of the notes using the straight-line method. For the years ended December 31, 2007 and 2006, amortization of the discount was $864,485 and $568,168, respectively. For the six months ended June 30, 2008 the amortization of the discount was $334,576.

In September 2006, the Company offered to decrease the note conversion price to $0.005 per share if the note holders exercised their warrants at the reduced exercise price of $0.01 by September 30, 2006. In consideration for the reduction of conversion price, the maturity of the notes extended for another year. As a result of the inducement to exercise the warrants and to convert the notes, the Company recognized an expense of $988,686 and $345,357 for the years ended December 31, 2007 and 2006, respectively, with a corresponding increase in additional paid in capital. For the six months ending June 30, 2008 the Company recognized an expense of $1,156,457.

Prior to the six months ended June 30, 2008, 11,900,000 of the warrants have been exercised.

The modification of conversion terms was substantial such that it was considered an extinguishment of debt. Accordingly, the unamortized discount from the original issuance of the convertible notes was written off and included in total amortization for 2006. At date of original issuance, the debt discount resulting from beneficial conversion feature amounting to $339,980 has been completely replaced with the new beneficial conversion feature arising from the modification of conversion terms.

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

The notes, issued prior to September 1, 2007, bear interest at 5% and mature within one year from date of issuance. The notes, issued after September 1, 2007, bear interest at 18% and mature within six months from date of issuance. The warrants are to purchase the Company's common stock at $0.02 per share expiring in five years.

For the year ended December 31, 2007, the Company recognized $864,485 in interest expense related to the amortization of the value of the detachable warrants and beneficial conversion feature recorded on these convertible notes. As of June 30, 2008, the remaining balance of the beneficial conversion feature was $68,756 and detachable warrants were $44,398.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2006

5 COMMITMENTS AND CONTINGENCIES

The Company is party to various legal claims and lawsuits that have arisen in the normal course of business. There have been no material changes in the status of these matters since the issuance of the most recent audited annual financial statements.

LITIGATION

a) TST, Inc.

In March 2000, TST, Inc. ("TST"), a vendor to a subsidiary of Pacific Baja (Note 5(b)) 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 agreed to the immediate entry of judgment against the Company in the amount of $2,068,078 plus interest from the date of entry at the rate of 10% per annum. The amount of this 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; and TST cannot execute on its judgment until Turbodyne either: (a) files a voluntary bankruptcy case; (b) is the subject of an involuntary case; or (c) effects an assignment for the benefit of creditors.

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 have reduced the provision for lawsuit settlement by $23,345.

At June 30, 2008, the Company has included $3,767,858 ($3,592,387 in 2007) in regard to this matter in provision for lawsuit settlements. It was determined that TST received payment in preference to other creditors before Pacific Baja filed its Chapter 11 petition in bankruptcy. 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 $83,000 has also been included in the provision for lawsuit settlements.

 June 30, 2008 December 31, 2007
 ---------------------------------
Settlement amount $ 2,068,079 $ 2,068,079
Interest 1,640,124 1,464,653
Preference payment 83,000 83,000
Proceeds of stock sale (23,345) (23,345)
 ---------------------------------
Total $ 3,767,858 $ 3,592,387
 =================================

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2007

5. COMMITMENTS AND CONTINGENCIES - LITIGATION CONTINUED

b) 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 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 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.

c) Former Director

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 June 30, 2008, the Company has included $405,785 in regard to this matter in the provision for lawsuit settlements.

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED - EXPRESSED IN US DOLLARS)

JUNE 30, 2008 AND 2006

5. COMMITMENTS AND CONTINGENCIES - CONTINUED

d) 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.

e) Other

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

6. SUBSEQUENT EVENTS

Subsequent to June 30, 2008 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.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

FORWARD LOOKING STATEMENTS

The information in this discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties, including statements regarding the Company's capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential" or "continue", the negative of such terms or other comparable terminology. Actual events or results may differ materially. In evaluating these statements, you should consider various factors, including the risks outlined in the Risk Factors section below, and, from time to time, in other reports the Company files with the SEC. These factors may cause the Company's actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update these statements, or disclose any difference between its actual results and those reflected in these statements. The information constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

As used in this Quarterly Report on Form 10-Q, the terms "we", "us", "our", "Turbodyne" and "our company" mean Turbodyne Technologies, Inc., unless otherwise indicated. All dollar amounts in this Quarterly Report on Form 10-Q are in U.S. dollars unless otherwise stated.

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.

Since it took office in September 2005, management has obtained some additional financing and has conducted limited business activity including:

o Updating our financial statements and required SEC filings
o Assessment of our technology including patents and other rights
o Limited development of our Turbopac(TM) and related product line
o Filing for protection of new intellectual properties related to our products
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.

In February 2007 the Company filed a provisional application in the United States Patent and Trademark Office for a TurboPac related technology. Referred to as the '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.

Turbodyne's longer term goal is to be able to work with the vehicle manufacturers to improve new cars' miles per gallon or liters per 100 kilometers. By combining our products with exhaust turbochargers, smaller engines can be used to reduce vehicle weight while maintaining initial acceleration. Also identified were the product requirements we needed to be successful in the vehicle marketplace. These were:

1. Reduce the unit cost,
2. Simplify the manufacturing process,
3. Increase unit reliability, and
4. Reduce electrical power consumption.

In addition, we have substantially reduced the weight of our products and made the control systems smaller and more useful, something that is extremely important for the small engine segment and the retrofit market.

We believe that these developments provide the Company with potential for substantial growth but this will require investment. We have the following major goals, given appropriate funding:-

o To have products in the market place by the fourth quarter or before. We are working on three market areas.

o To get operating income close to, or at breakeven by the first quarter of 2009 or before and positive for all of 2009.

There is no assurance that we will obtain sufficient funding or otherwise be able to achieve our goals.

During the quarter ended June 30, 2008 the Company received an order from American Transportation Systems of Los Angeles, Ca. for the installation and testing of its patented TurboPac. The Company will perform a pilot phase to prove diesel fuel savings and emissions reduction. If the initial pilot phase shows certain improvements in emissions and fuel consumption American Transportation Systems will then purchase a series of TurboPacs that will lead to a retrofit of a select number of vehicles in their fleet of coach transportation and school buses.

RESULTS OF OPERATIONS

 --------------------------------------------- ---------------------------------------------
 Three Months Ended June 30 Six Months Ended June 30
 --------------------------------------------- ---------------------------------------------
 Percentage Percentage
 2008 2007 Increase 2008 2007 Increase
 (Decrease) (Decrease)
 ------------ ------------- ------------ ------------ ------------- -----------
Total Revenue $5,556 $5,556 Nil $11,112 $11,112 Nil

Operating Expenses ($366,090) ($473,659) (23%) ($815,451) ($869,936) (6%)
 ----------- ------------ ------------ -------------

Net Loss from
Operations ($360,534) ($468,103) (23%) ($804,339) ($858,824) (6%)

Other Income
(Expenses) ($859,584) ($348,176) 147% ($1,550,265) ($813,418) 91%
 ----------- ------------ ------------ -------------
Net (Loss) ($1,220,118) ($816,279) 49% ($2,354,604) ($1,672,242) 41%
 ============ ============= ============ =============

NET REVENUE

 --------------------------------------------- ---------------------------------------------
 Three Months Ended June 30 Six Months Ended June 30
 --------------------------------------------- ---------------------------------------------
 Percentage Percentage
 2008 2007 Increase 2008 2007 Increase
 ------------ ------------- ------------ ------------ ------------- -----------
License Fee $5,556 $5,556 Nil $11,112 $11,112 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 the three and six month periods ended June 30, 2008 and 2007, $5,556 and $11,112 of licensing fees was recognized as income, respectively. 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. See discussion above.

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

 ----------------------------------- -----------------------------------
 Three Months Ended June 30 Six Months Ended June 30
 ----------------------------------- -----------------------------------
 Percentage Percentage
 Increase Increase
 2008 2007 (Decrease) 2008 2007 (Decrease)
 ----------------------------------- -----------------------------------
General and Administrative
Expenses $174,508 $249,159 (30%) $430,356 $484,199 (11%)

Research and Development
Expenses $92,362 $144,735 (36%) $202,920 $225,676 (10%)

Litigation Expenses $98,330 $79,765 23% $180, 395 $159,524 13%

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative costs included management compensation and overhead and for the three and six months ended June 30, 2008 included non cash stock compensation expense of $9,444 and $18,111 (Nil in 2007) and non cash warrant expense amount of $31,206 and $66,387 ($71,387 and $159,244 in 2007). (Financial Statement Note 3) The decrease in costs in 2008 is due to decreased spending for consulting fees and a corresponding decrease in the non cash warrant expense

RESEARCH AND DEVELOPMENT

The decrease in research and development costs in 2008 is due to decreased spending for consulting fees and a corresponding decrease in the non cash warrant expense amount to $29,197. For the six months ended June 30, 2007 the non cash warrant expense was $39,959. Our research and development costs related to present and future products are charged to operations in the period incurred. Our research and development activities during 2007 are associated with the development of our TurboPac-related technology "TurboFlow".

LITIGATION EXPENSE

The most significant component of our litigation expense was the accrued interest relating to TST, Inc. settlement as well as additional legal fees to defend a new action discussed in Financial Statement Note 5.

COMPENSATION EXPENSE

During 2006 and 2007, warrants to purchase 78,200,000 shares of our common stock were included as additional compensation in the contracts of various consultants that we deemed essential to our operations. The warrants are not expensed until vested. The expense is allocated to selling general and administrative or research and development as appropriate.

Of these warrants, 22,044,436 were cancelled due to termination of the consulting contracts and 3,894,443 were vested and reflected as an expense for the six months ended June 30, 2008. As of December 31, 2007 9,677,776 warrants were vested and reflected as an expense and 6,494,444 shares vested in 2006. Therefore the total vested and expensed as of June 30, 2008 was 20,066,663 warrants. As a result, we recognized $60,403 of non-employee compensation expense during the quarter ended June 30, 2008 compared to $111,796 during the quarter ended June 30, 2007. From time to time we may grant a significant number of options or warrants to purchase common stock to non-employees.

In January 2008 the Company entered a consulting agreement to issue 12,000,000 shares of the Company's common stock as compensation. The shares vest in accordance with a vesting schedule. Of these shares 666,666 have vested as of June 30, 2008. As a result we recognized non cash stock compensation expense of $9,444 and $18,111 (Nil in 2007) for the three and six months ended June 30, 2008.

OTHER INCOME (EXPENSE)

 Three Months Ended June 30 Six Months Ended June 30
 ------------------------------------ ---------------------------------------
 Percentage Percentage
 Increase Increase
 2008 2007 (Decrease) 2008 2007 (Decrease)
 ------------------------------------ ---------------------------------------
Gain on Extinguishment
of debt -- $109,721 (100%) -- $231,771 (100%)
 ---------------------- -------------------------
OTHER EXPENSES
Interest Expense ($35,602) ($12,323) 189% ($57,632) ($21,313) 170%
Amortization of Discount
on Convertible Notes ($94,382) ($189,574) (50%) ($334,576) ($345,476) (3%)
Inducement Expense ($729,600) (256,000) 185% ($1,156,457) ($678,400) 70%
Income Tax Expense -- -- -- ($1,600) -- 100%
 ---------------------------------------------------------------------------------
Total Other Expenses ($859,584) ($457,897) 88% ($1,550,265) ($1,045,189) 48%
 ---------------------------------------------------------------------------------
Other Income and Expenses ($859,584) ($348,176) 147% ($1,550,265) ($813,418) 91%
 =================================================================================

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

The Company had other expenses for the quarter ended June 30, 2008 of $859,584 compared to $457,897 in 2007. As indicated above, these expenses consisted mainly of amortization of discounts on convertible notes and value of detachable warrants and for related debt conversion expenses (Financial Statement Note 7).

NET INCOME / LOSS

Our net loss for the quarter ended June 30 2008 increased to $1,220,118 from net loss of $816,279 for the quarter ended June 30, 2007, representing an increase of 49%. The increase is directly related to the increase in expenses from the amortization of discounts on convertible notes and value of detachable warrants and for related debt conversion expenses since the operating loss decreased by $107,569 or 23%.

We believe, however that recent technical developments provide the Company with potential for substantial growth but this will require investment. We have the following major goals, given appropriate funding:

o To have products in the market place by the fourth quarter of 2008 or before. We are working on three market areas.

o To get operating income close to, or at breakeven by the first quarter of 2009 or before and positive for all of 2009.

If we do not achieve our goals 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

 -----------------------------------------------
 June 30, 2008 December 31, 2007 Percentage
 Increase
 -----------------------------------------------
Current Assets $105,003 $3,458 2,936%
Current Liabilities ($8,827,061) ($8,619,585) 2%
 -----------------------------------------------
Working Capital Deficit ($8,722,058) ($8,616,127) 1%
 ===============================================

The increase to our working capital deficit was primarily attributable to an increase in accounts payable, convertible notes and provision for lawsuit settlements as discussed below.

LIABILITIES

 --------------------------------------------------------
 June 30, 2008 December 31, 2007 Percentage
 Increase/ (Decrease)
 --------------------------------------------------------
Provisions for Lawsuit Settlements $5,169,643 $4,994,173 4%
Accounts Payable $2,222,052 $2,132,439 4%
Accrued Liabilities $335,092 $292,000 15%
Short-Term Loans $1,100,274 $1,200,973 (8%)

The increase in provision for lawsuits is primarily due to accrued interest on outstanding judgments. Short-term loans decreased due to the conversion of $599,494 of notes and accrued interest to the Company's common stock. The decrease is offset by additional short term loans of $323,500 in connection with our note financing to generate cash. Short-term loans are net of discounts of $68,756 ($199,726 in 2007) and warrant allocation of $44,398 ($53,501 in 2007) which nevertheless represents actual cash obligations (Financial Statement Note 4).

Included in short-term loans at June 30, 2008 are unsecured, non-interest bearing advances of $138,600 that we anticipate will be converted into shares of our common stock.

CASH FLOWS

 ---------------------
 At June 30,
 ---------------------
 2008 2007
 ---- ----
Net Cash provided by (used in) Operating Activities ($221,955) ($461,980)
Net Cash provided by (used in) Financing Activities $323,500 $456,000
Net Increase (Decrease) in Cash During Period $101,545 ($5,980)

CASH USED IN OPERATING ACTIVITIES

The decrease in cash used in operating activities was due to the limited amount of funds available compared to 2007.

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.

We believe, however that recent technical developments provide the Company with potential for substantial growth but this will require investment. Our major goals, given appropriate funding are discussed above.

There is no assurance that we will obtain sufficient funding or otherwise be able to achieve our goals.

CRITICAL ACCOUNTING POLICIES

STOCK BASED COMPENSATION

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

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

REVENUE RECOGNITION

Prior to the suspension of our operations in 2003, we recognized revenue upon shipment of product. Since the re-commencement of operations, we recognize license and royalty fees over the term of the license or royalty agreement. During the year ended December 31, 2003, $400,000 in license fees were deferred and amortized over 18 years. As a result, for the six months ended June 30, 2008, $11,112 ($11,112 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.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement No. 158, "Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). This statement requires the full recognition, as an asset or liability, of the overfunded or underfunded status of a company-sponsored postretirement benefit plan. Adoption of this statement is required effective for the Company's fiscal year ending December 31, 2007. The adoption of SFAS 158 has not had a material effect on the Company as it has no defined benefit plans

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 and 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.

Also 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 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.

In May 2008, the FASB issued Statement No. 163, "Accounting for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60 ("SFAS No. 163"). SFAS 163 requires recognition of an insurance claim liability prior to an event of default when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. Early application is not permitted. The Company's adoption of SFAS 163 will not have a material effect on the Consolidated Financial Statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

NOT APPLICABLE.

ITEM 4. 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 June 30, 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 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.

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.

PART II - OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

A former consultant brought an action against us 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 we failed to give plaintiff an opinion to sell the 5,000,000 shares of our 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.

ITEM 2. CHANGES IN SECURITIES.

The following issuances of securities occurred during the three months ended June 30, 2008.

During the three months ended June 30, 2008 we sold 2 units of our securities in a private placement. Each unit consisted of a $100,000, 18% convertible note and warrants to purchase 2,000,000 of our shares at $0.025. The note is convertible at any time prior to payment. The conversion price was one-half penny ($.005). The securities were issued pursuant to Section 4(2) of the Securities Act of 1933 and are exempt from the registration requirements under that act. In addition during such quarter $240,000 of principal of the aforesaid notes were converted into 34,990,418 shares of our common stock. These latter shares were issued pursuant to Section 3a (9) of the Securities Act of 1933 and are exempt from the registration requirements under that act.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

EXHIBITS

EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------------------------------------------------------------------------------
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
 the Sarbanes-Oxley Act of 2002.

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

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

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

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

TURBODYNE TECHNOLOGIES, INC.

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


/s/ Jason Meyers Co-Chief Executive Officer, August 14, 2008
--------------------- Director
Jason Meyers


/s/ Debi Kokinos Chief Financial Officer August 14, 2008
--------------------- and Chief Accounting Officer
Debi Kokinos

Turbodyne Technologies (CE) (USOTC:TRBD)
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Turbodyne Technologies (CE) (USOTC:TRBD)
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부터 2월(2) 2024 으로 2월(2) 2025