U.S. SECURITIES AND EXCHANGE ~~COMMISSIONWashington, D.C. 20549~~COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange ~~ActOf~~Act Of 1934

For the fiscal year ended DECEMBER 31, ~~2010~~2011

¨ Transition Report Under Section 13 Or 15(d) Of the Securities Exchange ~~ActOf~~Act Of 1934

For the transition period from ~~_________~~ to______________ ~~_________~~to ______________

COMMISSION FILE NUMBER: 000-21391

TURBODYNE TECHNOLOGIES, INC.

(Name of small business issuer in its charter)

NEVADA		95-4699061
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
250 West 57th Street, Suite 2328 NEW YORK, NY		10107
(Address of principal executive offices)		(Zip Code)

250 West 57^th Street, Suite 2328
NEW YORK, NY		10107
(Address of principal executive offices)		(Zip Code)

646-308-1503

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.

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

Indicate by check mark 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	¨	Smaller reporting company	x
(Do not check if a smaller reporting company)

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 March 29, ~~2011~~2012: $1246,~~184,805~~523.

As of March 29, ~~2011~~2012, ~~661~~1,~~973~~000,~~358~~000,000 shares of Turbodyne Technologies, Inc. common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None

TURBODYNE TECHNOLOGIES, INC.

FORM 10-K

INDEX

PART I		3	3
ITEM 1.	DESCRIPTION OF BUSINESS.		3
ITEM 1A.	RISK FACTORS		67
ITEM 1B.	UNRESOLVED STAFF COMMENTS		1011
ITEM 2.	DESCRIPTION OF PROPERTY.		1011
ITEM 3.	LEGAL PROCEEDINGS.		1011
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.		1012
PART II			1113
ITEM 5.	MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		1113
ITEM 6.	SELECTED FINANCIAL DATA		1215
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.		1215
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		1819
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		1820
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.		1820
ITEM 9A.	CONTROLS AND PROCEDURES.		1920
ITEM 9B.	OTHER INFORMATION		1920
PART III			2021
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		2021
ITEM 11.	EXECUTIVE COMPENSATION.		2122
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.		23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.		2324
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES.		2425
PART IV			2526
ITEM 15.	EXHIBITS AND REPORTS ON FORM 8-K.		2526
SIGNATURES			2627

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.

WeThese forward-looking statements are ~~filing~~not ~~this~~guarantees ~~annual~~of ~~report~~future ~~for~~performance ~~2010~~and involve risks and uncertainties. Actual results may differ materially from those projected in this Annual Report on Form 10-K ~~late~~. ~~Information~~We ~~contained~~undertake ~~herein~~no isobligation asto ofpublicly revise these forward-looking statements to reflect events or circumstances that arise after the ~~end~~date of ~~2010~~this ~~and~~filing. inYou ~~some~~should ~~instances,~~carefully asreview ofthe ~~April~~cautionary orstatements ~~May~~and ~~2011.~~risk Infactors ~~limited~~contained ~~circumstances~~in ~~information~~this isand ~~supplied~~other asdocuments ofthat ~~the~~we ~~latest~~file ~~practicable~~from ~~date~~time ~~for~~to ~~certain~~time ~~specified~~with ~~items~~the Securities and Exchange Commission.

We are filing this annual report for 2011 on Form 10-K late. Information contained herein is as of the end of 2011 and in some instances, as of April or May 2012. In limited circumstances information is supplied as of the latest practicable date for certain specified items

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

The Company has no revenue producing operations and because of the lack of any substantial capital was compelled to drastically curtail its development activity in 2010 and during 2011. Because it could not pay professionals it is in arrears in its filing obligations under the Securities Exchange Act of 1934 and became ineligible to have its securities traded on the Bulletin Board. The Company raised approximately $420,000 in funding during the years 2012, 2013 and 2014 and is in the process of finalizing and filing audited statements and delinquent SEC reports , including this report. The Company has negotiated various business transactions which it could not finalize because of lack of sufficient capital. There is no assurance we will be able to obtain sufficient financing to implement full scale operations or to continue meaningful development.

Since 2010, the Company has:

· converted debt of certain affiliates into equity and issued convertible notes to satisfy $896,246 owed to two affiliates. · secured majority shareholder approval for a reverse stock split of one for twenty without decreasing its authorized shares and a name change which the Company expects will take effect after formalizing stockholder approval which requires filing its delinquent SEC reports containing required financial statements. · sold a total of $420,000 of convertible notes. · issued additional shares in connection with the conversion of convertible notes to the extent that its entire authorized number of shares are issued and outstanding. Substantial additional shares are issuable upon presently outstanding convertible securities which the Company is unable to issue because there are no additional authorized shares available.

CORPORATE DEVELOPMENTS

The Company has no revenue producing operations and because of the lack of any substantial capital was compelled to drastically curtail its development activity in 2010 and during 2011. Because it could not pay professionals it is in arrears in its filing obligations under the Securities Exchange Act of 1934 and became ineligible to have its securities traded on the Bulletin Board. The Company raised approximately $420,000 in funding during the years 2011 through 2014 and is in the process of finalizing and filing audited statements and delinquent SEC reports, including this report. The Company has negotiated various business transactions which it could not finalize because of lack of sufficient capital. There is no assurance we will be able to obtain sufficient financing to implement full scale operations or to continue meaningful development.

Since December 2011, the Company has:

·	secured majority shareholder approval for a reverse stock split of one for twenty without decreasing its authorized shares and a name change which the Company expects will take effect after formalizing stockholder approval which requires filing its delinquent SEC reports containing required financial statements.

·	sold a total of $340,000 of convertible notes.

·	issued additional shares in connection with the conversion of convertible notes to the extent that its entire authorized number of shares are issued and outstanding. Substantial additional shares are issuable upon presently outstanding convertible securities which the Company is unable to issue because there are no additional authorized shares available.

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 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.

INDUSTRY BACKGROUND

MARKET DEMAND FOR CHARGING TECHNOLOGY FOR INTERNAL COMBUSTION ENGINES

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

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

MARKET OPPORTUNITY

~~Our~~According to a study of the turbocharger market ~~opportunity~~by isMarkets and Markets that was published subsequent to ~~take~~the ~~advantage~~period ofcovered ~~these~~in this report, the global automotive turbocharger market ~~conditions~~volume ~~and~~is ~~become~~expected ato ~~design~~grow ~~and~~from ~~engineering~~24 ~~company~~million ~~that~~units ~~undertakes~~in ~~the~~2013 ~~development~~representing ofapproximately ~~the~~$7.7 ~~core~~billion ~~technology~~in ~~for~~wholesale ~~the~~to ~~automotive~~39.45 ~~industry~~million ~~that~~units ~~will~~representing ~~eliminate~~approximately ~~turbolag~~$12.63 billion in ~~turbocharged~~wholesale ~~engines,~~by ~~increase~~2017. ~~power~~This ~~and~~represents ~~performance,~~a ~~reduce~~60.8% ~~the~~increase ~~pollution~~in of4 ~~non-turbocharged~~years. ~~engines~~In the year 2012, ~~and~~Europe ~~facilitate~~accounted ~~the~~for ~~successful~~nearly ~~downsizing~~half of ~~internal~~automotive ~~combustion~~turbocharger ~~engines~~market ~~and~~volume ~~the~~followed ~~use~~by ofAsia-Pacific ~~hybrid~~and ~~engines~~North America.

4The expected growth in sales of air charging technology products is driven by a wave of engine downsizing designed to achieve fuel economy, power output and reduced emissions. The Company believes that if it executes its strategy, a significant portion of all air charging units sold globally by the year 2017, could be equipped with digitally controlled, electrically powered components. There can be no assurance that similar products that compete with ours will not emerge. See “Risk Factors”.

These market conditions represent a significant opportunity to design and engineer 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.

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

WeThe ~~now~~Company ~~have~~currently ~~more~~has ~~than~~9 ~~two dozen~~ patents ~~and~~covering ~~applications including ongoing work in~~ the ~~current~~TurboPacTM ~~fiscal~~product ~~period. The most significant patent~~ and ~~applications~~an ~~are~~additional ~~for~~16 ~~the use of large scale motor for compressed air systems for internal combustion engines and several~~ patents ~~relating~~covering tothe ~~high~~DynaChargerTM ~~speed motors in a heat sensitive environment~~product. WeOur ~~also received a license from Honeywell for certain Dynacharger~~ patents ~~involving~~are ~~technology~~issued ~~overlapping~~in ~~both~~ the ~~Dynacharger~~United ~~and~~States, ~~the~~Europe, ~~Turbopac(TM).~~Asia Weand ~~also~~South ~~own~~America ~~the~~and ~~trademark~~additional ~~for~~patents ~~Turbopac.~~filed ~~The~~in ~~Company~~2008 ~~has~~that ~~agreed~~cover ~~to pay a royalty equal to 2% of~~ the ~~gross~~TurboFlowTM ~~sales~~digital ofcontroller ~~products~~are ~~manufactured~~pending ~~and~~in ~~sold~~these ~~that incorporate certain licensed technology which is not being used~~countries.

Certain patents that cover the DynaChargerTM were the subject of a licensing agreement with Honeywell International Inc. which was terminated pursuant to a settlement agreement entered into on January 23, 2004. We retained certain rights to the patents that cover the DynaChargerTM pursuant to the settlement agreement which are confined to an inactive license agreement with a third party.

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 Company did not incur any research and development costs in ~~2010~~2011 ~~or 2009~~ due to ~~decreased~~a ~~spending for limited development operations due to~~ lack of sufficient funding. Our research and development costs ~~are~~will be charged to operations in the period incurred and will relate to the development of our ~~TurboPacTM~~products.

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, ~~2010~~2011, 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 our consultants since funds are not available to pay current or past due consulting fees.

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 $~~902~~901,~~453~~030 for the fiscal year ended December ~~2010~~2011. We have derived negligible revenue from operations and have substantial unpaid liabilities. We have an accumulated deficit of $~~135~~136,~~180~~081,~~671~~701 at December 31, ~~2010~~2011. 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, ~~2010~~2011.

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

While we obtained limited funding in 2011, this was insufficient to resume normal operations. If we do not obtain ~~sufficient~~substantial ~~funds~~additional ~~from~~funding ~~a private financing~~ we ~~may~~will not be able to continue in business. We may not be able to obtain any such additional financing on favorable or 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.

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 Jason Meyers and Debi Kokinos. The Company is a party to a consulting agreement with a firm that is obligated to provide the services of Mr. Meyers and is also a party to a consulting agreement with Debi Kokinos. 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. Due to a lack of sufficient funding we are only able to retain two consultants. There is no assurance that we will be able to obtain and retain these and additional consultants necessary to ~~implementing~~implement 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.

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. Certain patents and patent applications of the Company have been irretrievably abandoned due to a lack of funding sufficient to pay patent filing and maintenance fees.

We may incur substantial costs seeking to enforce our patent rights against infringement or unauthorized use. We are already aware of one or more potential 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. The Company is aware of potentially competitive products that can damage our ability to grow.

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

INTENSE COMPETITION

The business environment in which we operate is highly competitive. Most of our competitors and potential competitors may have greater financial, marketing, technological and other resources. We believe that no products technologically similar to ~~TurbopacTM~~ours have been sold. ~~Nevertheless~~We 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.

The Financial Industry Regulatory Authority “FINRA” has assumed a larger role in governing the disclosure of and trading in shares of smaller public companies. Conflicts may exist between FINRA’s rules and state and federal securities laws which poses a significant risk in the completion of processing corporate actions approved by shareholders and directors which could jeopardize the Company’s ability to complete its reverse stock split and name change. Compliance with state and federal laws will be required to complete a reverse split and a name change. Such corporate actions will require FINRA approval as well. If FINRA does not process our shareholder approved corporate actions and we are unable to complete our reverse split and name change as a result, we will not be able to fully comply with federal and state securities laws. Furthermore, we will not be able to raise additional capital and will be forced to discontinue operations and you will likely lose your entire investment.

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, the conversion of the principal and interest of presently outstanding convertible notes, the exercise of outstanding warrants and for other purposes. As of December 31, 2011, a total of approximately 980,177,166 additional shares are issuable by the Company upon the conversion of convertible notes, excluding interest, and the exercise of options and warrants. A holder of the Company's common stock ~~may~~will face substantial dilution resulting from future issuances of its securities.

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

As of December 31, ~~2010~~2011, the Company has approximately 5385,~~007,409~~189 unvested options outstanding which may vest over the following ~~two~~year ~~or more years~~ upon the continuation of service of the holders and/or the happening of a specific event. The Company will have to expense the fair value of the options as they vest. Furthermore, as a result of the existence of presently outstanding convertible securities that cannot be converted due to insufficient authorized shares, the Company will be required to record derivative liabilities.

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 Pink Markets 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~~trade ~~the~~our stock ~~into~~in athe 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 and/or accept custody of our shares. 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 to appoint a custodian to hold the shares and chose a broker to process transactions in our common stock.

OUR STOCK PRICE IS EXTREMELY VOLATILE

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

ABSENCE OF DIVIDENDS

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

NONE.

ITEM 2. DESCRIPTION OF PROPERTY.

In ~~2009~~2011 ~~and 2010~~ an affiliate of the Company provided office space to the Company in New York, New York on a month to month basis.

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.

We are a party to the following settlement agreements which were entered as judgments.

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.

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.

The settlement provided for the immediate entry of judgment against us 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. 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. 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 December 31, ~~2010~~2011, the Company has included $45,~~670~~138,~~997~~097 ($4,~~426~~670,~~360~~997 in ~~2009~~2010) 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; an additional $83,000 has also been included in the provision for lawsuit settlements.

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

Due to the limited activity of the Company in ~~2009~~2011 ~~and 2010~~ an annual meeting was not held, therefore, no matters were presented to the security holders.

1012

PART II

The Company's common shares are now listed under the symbol "TRBD" on the OTC ~~Markets~~ Pink Markets.

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~~OTC ~~electronic bulletin board~~Markets. 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:

	2010				2009
	2011				2010
	High		Low		High		Low
First Quarter	$	0.~~0140~~003	$	0.~~0075~~0019	$	0.~~038~~0140	$	0.~~018~~0075
Second Quarter	$	0.~~0130~~002	$	0.~~0050~~0005	$	0.~~052~~0130	$	0.~~016~~0050
Third Quarter	$	0.010017	$	0.~~0060~~0006	$	0.~~038~~01	$	0.~~011~~0060
Fourth Quarter	$	0.010017	$	0.~~0018~~0003	$	0.~~015~~01	$	0.~~002~~0018

The source of the high and low price is OTC Markets~~, eSignal Charts and BigCharts~~.~~com.~~

REGISTERED HOLDERS OF OUR COMMON STOCK

As of December 31, ~~2010~~2011, there were approximately ~~466~~467 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.

1113

RECENT SALES OF UNREGISTERED SECURITIES

The following issuances of securities occurred ~~2010~~2011 and were not otherwise reported in our current or quarterly reports.

InBetween ~~2010~~August and October of 2011 we received total proceeds of $2580,000 in connection with the sale of 12% two year convertible notes and warrants toexercisable ~~purchase~~into ~~500~~1,200,000 shares of common stock at an average exercise price of $.01002. ~~per~~The ~~share~~sale of the notes and warrants were exempt from registration requirements of the Securities Act of 1933 (the “Securities Act”) pursuant to Section 4(2) thereof. The notes are convertible into shares of common stock at $.01001 per share. The terms of the notes were subsequently amended and the ~~warrants~~notes were ~~issued~~converted ~~pursuant~~into toa ~~Section~~total ~~4(2)~~ of ~~the~~160,420,000 ~~Securities~~shares ~~Act~~ of ~~1933~~common ~~and~~stock. ~~are~~The shares issued were exempt from ~~the~~ registration requirements ~~under~~of ~~that~~the ~~act~~Securities Act pursuant to Section 3a(9) of the Securities Act.

In ~~February~~September, ~~2010,~~2011 the Company issued 6,~~000~~105,000 ~~common~~ shares inof ~~consideration~~common ~~for~~stock ~~services~~ in connection with anthe ~~investor~~conversion ~~relations~~of ~~agreement~~the ~~with~~principal aand ~~fair~~interest ~~value~~ of a 12% $5450,000, ~~based~~convertible onnote. ~~the~~The ~~grant~~shares ~~date~~issued ~~market~~were ~~price~~exempt offrom ~~$0.009~~registration ~~per~~requirements ~~share.~~of ~~The~~the ~~shares~~Securities ~~were~~Act ~~issued~~ pursuant to Section 43a(29) of the Securities Act. The Company issued an additional 1,000,000 shares in connection with the exercise of ~~1933~~1,000,000 warrants at $.02 per share and ~~are~~were exempt from ~~the~~ registration requirements ~~under~~of ~~that~~the ~~act~~Securities Act pursuant to Section 4(2) thereof.

InBetween ~~April,~~September ~~2010~~and aNovember ~~total~~ of ~~$320~~2011,~~000~~ ofthe ~~convertible~~Company ~~notes~~issued ~~and 2~~171,~~000~~471,~~000~~131 ~~warrants~~shares ~~were~~of ~~amended~~common ~~and~~stock ~~subsequently~~in ~~converted~~connection ~~into~~with athe ~~total~~amendment ofand ~~76,393,200~~conversion ~~shares~~ of ~~common~~$75,000 ~~stock~~in ~~including~~convertible ~~shares~~notes ~~issuable~~held ~~upon~~by ~~payment~~two ~~of interest on the notes~~individuals. The shares issued ~~upon~~were ~~conversion~~exempt ~~were~~from ~~issued~~registration requirements of the Securities Act pursuant to Section 33a(a)9) of the Securities Act. ofAn ~~1933~~additional ~~and~~500,000 ~~are~~shares ~~exempt~~were ~~from~~issued ~~the~~in ~~registration~~connection ~~requirements~~with ~~under~~exercise ~~that~~of ~~act.~~500,000 ~~The~~warrants ~~shares~~at ~~issued~~an ~~upon~~ exercise price of ~~the~~$.005 ~~warrants~~per ~~were~~share ~~issued~~and ~~pursuant~~were toexempt ~~Section~~from ~~4(2)~~registration requirements of the Securities Act ofpursuant ~~1933~~Section ~~and~~4(2) ~~are~~thereof. ~~exempt~~See ~~from~~“Item ~~the~~13 ~~registration~~- ~~requirements~~Certain ~~under~~Transactions ~~that~~and ~~act~~Related Parties”.

~~EQUITY~~On ~~COMPENSATION~~December ~~PLAN~~31, ~~INFORMATION~~2011, the Company issued a convertible note to Aspatuck Holdings Ltd. having a face value of $652,267 in satisfaction of consulting fees owed to it. The note bears interest at 5% per annum and is due on December 31, 2014. The principal and interest of the note are convertible into common shares of the Company at $0.001. The issuance of the Note is exempt from registration requirements of the Securities Act pursuant Section 4(2) thereof. See “Item 13 - Certain Transactions and Related Parties”.

~~The~~On ~~following~~December ~~summary~~31, ~~information~~2011, isthe ~~presented~~Company ~~for~~issued ~~our~~a ~~Plans.~~convertible ~~For~~note to Debi Kokinos, the Company’s chief financial officer, having a ~~more~~face ~~detailed~~value ~~discussion~~of $244,160 ~~please~~in ~~refer~~satisfaction of consulting fees owed to her. The note bears interest at 5% per annum and is due on December 31, 2014. The principal and interest of the note is convertible into common shares of the Company at $0.001. The issuance of the Note 6is exempt from registration requirements of ~~our~~the ~~financial~~Securities ~~statements~~Act ~~included~~pursuant inSection ~~this~~4(2) ~~annual~~thereof. ~~report~~See “Item 13 - Certain Transactions and Related Parties”.

	Number ofSecurities to beIssued UponExercise ofOutstandingOptions	Weighted-AverageExercise Price ofOutstandingOptions	Number ofSecurities Remaining Availablefor Future Issuance UnderEquity Compensation Plans(Excluding SecuritiesReflected in Column(a))
Plan Category	(a)	(b)	(c)
Equity Compensation Plans Approved by Security Holders	400,000 Shares ofCommon Stock	$0.10 per Share ofCommon Stock	8,901,259Shares
Agreements Not Approved By Security Holders	36,488,886* Shares ofCommon Stock	$0.013 per share ofCommon Stock	N/A

EQUITY COMPENSATION PLAN INFORMATION

*The ~~Represents~~following ~~shares~~summary ~~subject~~information tois ~~options~~presented ~~and~~for ~~warrants~~our ~~included~~Plans. inFor ~~consultant~~a ~~contracts,~~more 5detailed discussion,~~007,409~~ ~~options~~please ~~have~~refer ~~not~~to ~~yet~~Note ~~vested~~6 as of ~~December~~our ~~31,~~financial ~~2010~~statements included in this annual report.

	Number of Securities to be Issued Upon Exercise of Outstanding Options	Weighted-Average Exercise Price of Outstanding Options	Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Plan Category	(a)	(b)	(c)
Equity Compensation Plans Approved by Security Holders	400,000 Shares of Common Stock	$0.10 per Share of Common Stock	8,901,259 Shares
Agreements Not Approved By Security Holders	36,088,886* Shares of Common Stock	$0.013 per share of Common Stock	N/A

___________________

*Represents shares subject to options and warrants included in consultant contracts, 385,189 options have not yet vested as of December 31, 2011.

ITEM 6. SELECTED FINANCIAL DATA

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

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, ~~2010~~2011 and results of operations for each of the two years ended December 31, ~~2010~~2011 and ~~2009~~2010 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, ~~2010~~2011 COMPARED TO YEAR ENDED DECEMBER 31, ~~2009~~2010

	Year Ended December 31,
	2010			2009			Percentage Increase (Decrease)
	2011			2010				Percentage Increase (Decrease)
Total expenses	$	~~819~~86,~~149~~278		$	~~959~~19,~~302~~149			(~~15%~~4	%)
Loss from operations	$	(~~819~~786,~~149~~278	)	$	(~~959~~819,~~302~~149	)		(~~15%~~4	%)
Net Other Income (Expenses)	$	(83114,~~304~~752	)	$	1(83,~~499,442~~304	)		(~~106%~~38	%)
Income Tax Expense	$	–-		$	–-			Nil
Net income (loss)	$	(902,453	)	$	540,140			(267%	)
Net loss	$	(901,030	)	$	(902,453	)		(0	%)
Net income (loss) per share	$	(0.00	)	$	0.00			Nil
Net loss per share	$	(0.00	)	$	(0.00	)		Nil

NET REVENUE

We had no revenue in ~~2010~~2011. 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 our products until we complete the development of our production models and enter into commercial arrangements.

OPERATING EXPENSES

Operating expenses decreased from the comparable period in ~~2009~~2010. The primary components of our operating expenses are outlined in the table below:

	Year Ended December 31,	~~Year Ended December 31,~~
		2010				2009			Percentage Increase(Decrease)
	2011			2010			Percentage Increase (Decrease)
Selling general and administrative expenses	$	$314,758	~~390,093~~	$	390,093	$	~~568,849~~(19	%)		~~(31%~~	)
Litigation Expense	$	$467,100	~~424,636~~	$	424,636	$	~~386,032~~10	%		~~(10%~~	)
Depreciation and amortization	$	$4,420	~~4,420~~	$	4,420	$	~~4,421~~Nil			~~Nil~~

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative costs included management compensation and overhead and decreased mostly due to a decline in consulting fees from $~~352~~294,~~611~~465 in ~~2009~~2010 compared to $~~294~~229,~~465~~876 in ~~2010~~2011 ~~and~~as a ~~decrease~~result inof ~~patent maintenance fees from $95,782 in 2009 to $4,046 in 2010 due to~~ a decrease in ~~legal~~stock ~~costs~~based ~~associated~~compensation ~~with~~attributable to the ~~maintenance~~expiration ~~and prosecution costs~~ of ~~our~~a ~~patents~~consulting agreement.

RESEARCH AND DEVELOPMENT

The Company did not incur any research and development costs in 2010 or ~~2009~~2011 due to lack of funding. We may incur research and development costs in the future which will be charged to operations in the period incurred and will relate to the development of our products.

LITIGATION EXPENSE

~~The~~Litigation ~~most~~expenses ~~significant~~in ~~component~~2011 ofwere ~~our~~$467,100 ~~litigation~~compared ~~expense was the accrued interest relating~~ to ~~TST~~$424,636 ~~Inc.~~in ~~settlement.~~2010 ~~The~~which ~~increase~~represented ina ~~litigation~~10% ~~expenses~~increase inover 2010 ~~from~~which ~~2009~~ was aattributable ~~result~~to $42,464 of accrued interest in connection with the TST, Inc. settlement.

13STOCK BASED COMPENSATION EXPENSE

~~COMPENSATION~~The ~~EXPENSE~~Company recorded stock based compensation for consultants of $96,944 in 2010 consisting of $32,356 attributable to the vesting of previously granted options and 64,588 attributable to the issuance of shares for services. In 2011 we recorded stock based compensation for consultants of $ 32,356 solely attributable to the vesting of previously granted options. The foregoing represented a decline of $64,588 or approximately 67% from prior years stock based compensation. The decline was solely attributable to the expiration of a consulting agreement providing for and the issuance of shares for services.

The Company recorded stock based compensation for consultants of $96,944 in 2010 compared to $46,191 in 2009. This represented an increase in compensation expense of $50,753 or approximately 110%. This increase was the result of issuing 6,000,000 shares for services in 2010 compared to 2,666,667 shares in 2009.

On January 31, 2009, the Company granted 10,666,666 options to the President of the Company and 3,200,000 options to the Company’s Chief Financial Officer. The options are exercisable at $0.0117 per share for 7 years and vest 1/36 per month for 36 months. During 2009, options to purchase 13,866,666 shares of our common stock were included as additional compensation in the contracts of various consultants that we deemed essential to our operations. The Company recognized stock-based compensation of $32,356 during 2010 and $30,911 during 2009 related to options granted to consultants. From time to time we may grant a significant number of options or warrants to purchase common stock to non-employees.

During 2009 we issued 1,666,667 shares of stock to John Adams as part of the "service based" portion of his contract. During 2010 we accrued 1,333,333 shares of stock as issuable to John Adams as part of the "service based" portion of his contract. As a result we recognized $10,588 of non-employee compensation expense during the year ended December 31, 2010 compared to $10,800 in 2009.

OTHER INCOME (EXPENSE)

	Year Ended December 31,
	2010			2009			PercentageIncrease (Decrease)
	2011			2010			Percentage Increase (Decrease)
Licensing fees	$	22,224		$	22,224			Nil
Interest expense	$	(~~146~~31,~~902~~324	)	$	(88146,~~668~~902	)		~~66%~~79	%
Loss on extinguishment of debt	$	-		$	(6,250	)		(100%	)
Inducement expense	$	(211,456	)	$	-			100	%
Gains on settlement of debt and debt relief	$	41,374		$	1,572,136			(97%	)
Gain on change in fair value of derivative	$	42,362		$	-			100	%
Gain on settlement of derivatives	$	1,160		$	-			100	%
Gains on settlement of debt and debt relief	$	62,282		$	41,374			50	%

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, ~~2010~~2011 and ~~2009~~2010, $22,224 of licensing fees was recognized as other income.

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, the collection of which was time barred based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions. ~~as a debt relief of accounts payable.~~

During ~~2010~~2011 the Company had total net other expenses of $83114,~~304~~752 compared to ~~total net other income of~~ $183,~~499,442~~304 in ~~2009~~2010. As indicated above, the ~~reduction~~increase resulted from a ~~decrease~~loss on the inducement of conversions of convertible debt in 2011. This was offset by gain on the change in and settlement of derivative liabilities. The Company had no derivatives liabilities in 2010. The increased loss was also offset by an increase in the amount accounts payable for liabilities, the collection of which was time barred based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions... This was slightly offset by an increase in interest expense as a result of the issuance of additional debt in 2010.

~~NET INCOME / LOSS~~16

~~Our~~NET net loss for the year ended December 31, 2010 was $902,453 compared to net income of $540,140 for the year ended December 31, 2009. This decrease was mostly due to a reduction in the debt relief from the decrease in the accounts payable for liabilities, the collection of which was time barred by the applicable statute of limitations.. There was also a decrease in consulting fees and patent maintenance fees which was partially offset by an increase in litigation expenses.LOSS

Our net loss for the year ended December 31, 2011 was $901,030 compared to net income of $902,453 for the year ended December 31, 2010. This decrease was mostly due to a decrease in consulting fees which was partially offset by an increase in litigation expenses.

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.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital deficit as of December 31, ~~2010~~2011 was $2,~~350~~421,678 ~~239~~ compared to $2,~~381~~350,~~529~~ 239 as of December 31, ~~2009~~2010 and raises substantial doubt about our ability to continue as a going concern.

The Company ~~plans~~received proceeds of a total of $80,000 from the sale of convertible debt in 2011 which was not sufficient to resume previously curtailed operations. The Company will seek to raise equity and/or convertible debt in order to finance its operations and pay its obligations. There can be no assurance that we will be able to raise additional capital at all. If the Company fails to raise sufficient capital to finance its operations, it may be required to discontinue operations.

CASH AND WORKING CAPITAL

December 31, 2010

December 31, 2009

PercentageIncrease (Decrease)

December 31,2011

December 31,2010

Percentage Increase(Decrease)

Current Assets

~~244~~20,612

~~3,037~~244

~~(92%~~83

Current Liabilities

(2,~~350~~442,~~483~~290

)

(2,~~384~~350,~~566~~483

)

~~(1%~~4

Working Capital Deficit

(2,~~350~~421,~~239~~678

)

(2,~~381~~350,~~529~~239

)

~~(1%~~3

Our working capital deficit at December 31, ~~2010~~2011 was comparable to our working capital deficit at December 31, ~~2009~~2010

LIABILITIES

		December 31, 2010			December 31, 2009				PercentageIncrease (Decrease)
	December 31, 2011			December 31, 2010			Percentage Increase (Decrease)
Accounts payable		$	~~784~~776,~~795~~229	$	$784,795	~~802,845~~	(1	)%		2	%
Accounts payable related party		$	~~707,307~~–	$	$707,307	~~509,577~~	(100	%)		~~(39~~	%)
Accrued liabilities		$	~~609~~620,~~657~~338	$	$609,657	~~627,887~~	2	%		(3	%)
Short-term debt		$	~~131~~65,~~250~~000	$	$131,250	~~328,583~~	(50	)%		60	%
Short-term debt related party		$	95664,~~250~~161	$	$95,250	~~93,450~~	597	%		2	%
Current portion of deferred licensing fee		$	22,224		$	22,224				0	%
Derivative liability		$	294,338	$	–		100	%
Long-term portion of deferred licensing fee		$	208,158		$	230,382				10	%
Current portion of deferred licensing fee		$	22,224	$	22,224		Nil
Reserve for lawsuits		$	5,299,336		$	4,874,700				9	%
Long-term portion of deferred licensing fee		$	185,934	$	208,158		(11	)%
Reserve for lawsuits		$	5,740,596	$	5,299,336		8	%

The increase in provision for lawsuits is due to accrued interest on outstanding judgments. Accounts payable decreased due to the write off of accounts payable for liabilities, the collection of which was time barred by the applicable statute of limitations. s. Short-term loans decreased as a result of discounts recognized on new loans relating to ~~beneficial~~ conversion features.

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.

CASH FLOWS

	Year Ended December 31,
	2010			2009
	2011			2010
Net cash used in operating activities	$	(4750,~~793~~294	)	$	(~~285~~47,~~927~~793	)
Net cash provided by investing activities	$	–		$	–
Net cash provided by financing activities	$	4570,~~000~~662		$	~~288~~45,~~900~~000

CASH USED IN OPERATING ACTIVITIES

~~The~~Cash ~~decrease in cash~~ used in operating activities was ~~due~~comparable toduring athe ~~lack~~years ofended ~~funds~~December in31, ~~2010~~2011 and ~~a decrease in operations because of this lack of funds~~2010.

FINANCING REQUIREMENTS

We will require substantial additional financing if we are to continue as a going concern and to finance our business operations. While we have obtained some financing in ~~2010~~2011 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.

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 $~~135~~136,~~180~~081,~~671~~701 at December 31, ~~2010~~2011, 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.

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.

STOCK BASED COMPENSATION

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

REVENUE RECOGNITION

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.

Licensing fees are 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, ~~2010~~2011, the Company recognized $22,224 (~~2009~~2010 - $22,224) of licensing fees as other 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. AsWhen 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

~~Adopted~~The ~~during~~following ~~the~~were ~~year~~adopted ~~ended~~subsequent ~~December~~to ~~31,~~2011 ~~2010~~or will be applied in the future:

OnIn ~~March~~February 12013, ~~2010,~~ASC ~~the~~guidance ~~Company~~was ~~adopted~~issued ~~ASU~~related ~~2010-06,~~to ~~Improving~~items ~~Disclosure~~reclassified ~~about~~from ~~Fair~~Accumulated ~~Value~~Other ~~Measurements~~Comprehensive Income. ~~ASU~~The ~~2010-~~new ~~06,~~standard ~~issued~~requires ~~January~~either ~~2010,~~in ~~requires~~a ~~additional~~single ~~disclosures~~note ~~regarding~~or ~~fair~~parenthetically ~~value~~on ~~measurements,~~the ~~amends~~face ~~disclosures~~of ~~about~~the ~~post-~~financial ~~retirement~~statements: ~~benefit~~(i) ~~plan~~the ~~assets,~~effect ~~and~~of ~~provides~~significant ~~clarification~~amounts ~~regarding~~reclassified ~~the~~from ~~level~~each component of ~~disaggregation~~accumulated ofother ~~fair~~comprehensive ~~value~~income ~~disclosures~~based on its source and (ii) the income statement line items affected by ~~investment~~the ~~class~~reclassification. The ~~ASU~~update is effective for ~~interim~~the ~~and~~Company’s ~~annual~~fiscal ~~reporting~~year ~~periods~~ beginning ~~after~~January ~~December 15~~1, ~~2009~~2013, ~~except~~with ~~for~~early ~~certain~~adoption ~~Level~~permitted. 3The ~~activity~~Company ~~disclosure~~does ~~requirements~~not ~~that~~expect ~~are~~the ~~effective~~guidance ~~for~~to ~~reporting~~have ~~periods~~a ~~beginning~~significant ~~after~~impact ~~December~~on 15the consolidated financial position, ~~2010~~results of operations or cash flows.

Subsequent to the year ended December 31, 2010

The following were adopted subsequent to 2010 or will be applied in the future:

In February, 2013, ASC guidance was issued related to items reclassified from Accumulated Other Comprehensive Income. The new standard requires either in a single note or parenthetically on the face of the financial statements: (i) the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and (ii) the income statement line items affected by the reclassification. The update is effective for the Company’s fiscal year beginning January 1, 2013, with early adoption permitted. The Company does not expect the guidance to have a significant impact on the consolidated financial position, results of operations or cash flows.

In November 2011, ASC guidance was issued related to disclosures about offsetting assets and liabilities. The new standard requires disclosures to allow investors to better compare financial statements prepared under U.S GAAP with financial statements prepared under IFRS. The update is effected for the Company’s fiscal year beginning January 1, 2013, and interim periods within those annual periods. Retrospective application is required.

In January 2013, ASC guidance was issued to clarify that the disclosure requirements are limited to derivatives, repurchase agreements, and securities lending transactions to the extent that they are (i) offset in the financial statements or (ii) subject to an enforceable master netting arrangement or similar agreement. The Company does not expect the updated guidance to have an impact on the consolidated financial position, results of operations or cash flows.In July 2013, ASC guidance was issued related to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. The updated guidance requires an entity to net its unrecognized tax benefits against the deferred tax assets for all same jurisdiction net operating loss carryforward, a similar tax loss, or tax credit carryforwards. A gross presentation will be required only if such carryforwards are not available or would not be used by the entity to settle any additional income taxes resulting from disallowance of the uncertain tax position. The update is effective prospectively for the Company’s fiscal year beginning January 1, 2014.

In March 2013, ASC guidance was issued related to Foreign Currency Matters to clarify the treatment of cumulative translation adjustments when a parent sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business within a foreign entity. The updated guidance also resolves the diversity in practice for the treatment of business combinations achieved in stages in a foreign entity. The update is effective prospectively for the Company’s fiscal year beginning January 1, 2014. The Company does not expect the updated guidance to have an impact on the consolidated financial position, results of operations or cash flows.

In April 2014, FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity, which changes the criteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations such as a major line of business, major geographic area or a major equity method investment, should be presented as discontinued operations. In addition the new guidance will require expanded disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. The guidance will be effective for all disposals of components (or classifications as held for sale) that occur within annual periods beginning on or after December 15, 2014 and is not expected to have a material impact on the Company's financial statements.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Since the Company is a ~~small~~smaller 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, ~~2010~~2011 and ~~2009~~2010, which consists of the following:

1. Report of Independent Registered Public Accounting Firm

2. Consolidated Balance Sheets as at December 31, ~~2010~~2011 and December 31, ~~2009 (Restated)~~2010.

3. Consolidated Statements of Operations for the years ended December 31, ~~2010~~2011 and December 31, ~~2009 (Restated)~~2010.

4. Consolidated Statements of Stockholders' Deficit for the years ended December 31, ~~2010~~2011 and December 31, ~~2009 (Restated)~~2010.

5. Consolidated Statements of Cash Flows for the years ended December 31, ~~2010~~2011 and December 31, ~~2009 (Restated)~~2010.

6. Notes to the Consolidated Financial Statements.

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

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 not 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, ~~2010~~2011. In making its assessment of internal control over financial reporting, management used the criteria described in Internal Control -- Integrated Framework (1992) 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. 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.

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 year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

NONE

1920

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 December 31, 2014 are as follows:

NAME	AGE	~~TITLE~~
Jason Meyers	47	Director, Chairman & Chief Executive Officer
Debi Kokinos	6162	Chief Financial Officer and Secretary

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

JASON MEYERS has been our Chairman of the Board of Directors since September 1, 2005 and 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 20 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.

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, ~~2010~~2011 required persons did not file reports.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth certain compensation information for each of our executive officers for the year ended December 31, ~~2010~~2011 and ~~2009~~2010:

Name and Principal Position	Year	Salary		Option/Warrant Awards			All other Compensation		Total
John Adams	2010	$	--	$	10,588 (1	)	$	--	$	10,588
Jason Meyers (1)	2011	$	120,000	$	24,889	(1)	$	--	$	144,889
President (Co-Chief Executive Officer)(1)	2009	$	--	$	10,800 (1	)	$	--	$	10,800
(Chairman and Chief Executive Officer)	2010	$	120,000	$	24,889	(1)	$	--	$	144,889
Jason Meyers	2010	$	120,000	$	24,889 (2	)	$	--	$	144,889
Debi Kokinos, (1)	2011	$	77,520	$	7,467	(1)	$	--	$	84,987
(Co-Chief Executive Officer)	2009	$	120,000	$	17,658 (2	)	$	--	$	137,658
Chief Financial Officer	2010	$	77,520	$	7,467	(1)	$	--	$	84,987
Debi Kokinos,	2010	$	77,520	$	7,467 (2	)	$	--	$	84,987
Chief Financial Officer	2009	$	77,520	$	5,297 (2	)	$	--	$	82,817

(1) AsRepresents, ~~compensation~~in toeach ~~Mr. Adams~~case, ~~the~~amounts ~~Company~~recognized ~~will~~on ~~issue~~vesting ~~12,000,000 shares~~ of ~~the~~warrants ~~Company's~~previously ~~common~~granted ~~stock~~for ~~(the~~financial ~~"Shares").~~reporting ~~The~~purposes ~~Shares will be restricted from transfer~~ in ~~accordance with~~ the ~~securities~~applicable ~~laws~~fiscal ~~and~~year. ~~the~~A ~~right~~description toof ~~receive~~the ~~such~~valuation ~~shares~~method ~~will~~is beset ~~subject~~forth toin ~~forfeiture~~the byFinancial MrStatements. ~~Adams~~Warrants ~~and will vest in accordance~~ to apurchase ~~vesting schedule. Of such shares 4~~3,~~000~~555,~~000~~552 shares ~~shall~~vested bein ~~"service~~both ~~based"~~2011 and ~~111,111.11~~2010 ~~Shares~~with ~~will~~respect ~~vest~~to ~~for~~Mr. ~~each month of service~~Meyers. ~~For~~In ~~each of~~ the ~~years~~case ~~ended~~of ~~December~~Ms. ~~31,~~Kokinos ~~2010~~warrants ~~and~~to ~~2009,~~purchase 1,~~333~~066,~~333~~667 shares vested ~~and~~in ~~were~~both ~~accrued~~2011 ~~by the Company~~ and ~~1,333,333 shares vested and were issued to Mr~~2010. ~~Adams.~~

(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 the Financial Statements. Warrants to purchase 3,555,552 shares vested in both 2010 and 2009 with respect to Mr. Meyers. In the case of Ms. Kokinos warrants to purchase 1,066,667 shares vested in both 2010 and 2009.

COMPENSATION ARRANGEMENTS

~~The~~On ~~Company~~April ~~has entered into a Consulting Agreement with Mr. Adams effective January~~ 1, ~~2008~~2009 ~~pursuant~~we toextended ~~which~~for hean isadditional ~~engaged~~three asyear ~~the Chief Executive Officer for~~ term ~~ending December 1~~, ~~2010.~~a Asconsulting ~~compensation~~agreement tooriginally ~~Mr.~~entered ~~Adams,~~into ~~the~~in ~~Company~~2006 ~~was to issue 12,000,000 shares of the Company's common stock~~ (~~the~~"Consulting Agreement"~~Shares"~~). ~~The Shares will be restricted from transfer in accordance~~ with ~~the~~Aspatuck ~~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~~Holdings,~~000,000~~ ~~shares shall be "service based" and 111,111~~Ltd.11 ~~shares~~Aspatuck ~~will~~is ~~vest~~obligated ~~for~~to ~~each~~provide ~~month~~the ofservices ~~service. As~~ of ~~December~~Jason ~~31,~~Meyers ~~2010~~to ~~2,666,667 of these shares have been issued and an additional 1,333,333 shares vested and were accrued by~~ the Company. 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 dateMr. ~~The~~Meyers ~~final~~has ~~4,000,000~~served ~~Shares~~in ~~shall~~various becapacities ~~"EBITDA~~since ~~based"~~2005 and ~~the~~is ~~repurchase~~currently ~~agreement~~our ~~will~~as ~~terminate~~our ~~upon~~Chief ~~filing~~Executive ~~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~~Officer. ~~The unvested Shares shall be subject to forfeiture by Mr. Adams in accordance with an agreement to be entered into.~~

21As compensation for Consultant's services, the Company is obligated to pay Consultant a cash fee of not less than $120,000 per annum. As additional consideration under the initial agreement, the Company issued to Jason Meyers seven year Warrants expiring in 2013 to purchase 32,000,000 of shares of the common stock of the Company (the "Warrants") at an exercise price of $0.0117 per share. An additional 32, 000,000 Warrants expiring in 2016 containing the same terms were issued upon extension.

OnOf ~~April~~the 1aforesaid Warrants, ~~2009~~21,333,322 weWarrants ~~entered~~are ~~into~~"service abased" ~~consulting~~and ~~agreement~~1/36th ~~("Consulting~~of ~~Agreement")~~such ~~with~~Warrants ~~Aspatuck~~vest ~~Holdings,~~at ~~Ltd.,~~the ~~which~~end isof ~~obligated~~each tomonth ~~provide~~that ~~the~~Mr. Meyers has provided services. ofOf ~~Jason~~these, ~~Meyers~~Warrants to ~~the~~purchase ~~Company.~~21,037,019 ~~Jason~~shares ~~Meyers~~have isvested ~~our~~with ~~Co-Chief~~the ~~Executive~~balance ~~Officer~~of ~~since~~296,303 ~~March~~vesting ~~27,~~in ~~2008~~2012.

The ~~Agreement~~balance isof ~~for~~42,666,668 aWarrants ~~three~~are ~~year~~performance ~~term~~based. ~~The~~Of ~~Company~~these, ~~may~~Warrants ~~terminate~~to ~~the~~purchase ~~Agreement~~21,333,334 ~~and~~Shares ~~convert~~are ~~the~~"revenue ~~Agreement~~based" toand anshall ~~employment~~vest ~~agreement~~in ~~with~~their ~~Mr.~~entirety ~~Meyers.~~upon ~~As compensation for Consultant's services,~~ the ~~Company~~filing isof ~~obligated~~reviewed toor ~~pay~~audited ~~Consultant~~statements areflecting ~~cash~~the ~~fee~~recognition of ~~not~~revenue ~~less~~reflecting ~~than~~the ~~$120,000~~first ~~per~~sale ~~annum.~~of Asa ~~additional~~production ~~consideration~~model ~~Consultant~~of ~~received~~the ~~seven~~Company ~~year~~product. Warrants ~~(the "Warrants")~~ to purchase 3221,~~000~~333,~~000~~334 ofShares ~~shares~~are of"earnings ~~the~~based" ~~common~~and ~~stock~~vest ofin ~~the~~their ~~Company~~entirety (upon the ~~"Shares")~~filing atof anreviewed ~~exercise~~or ~~price~~audited ofstatement ~~$0.0117~~reflecting ~~per~~EBITA ~~share.~~or ~~Such~~earnings ~~warrants~~before ~~shall~~taxes, ~~"vest"~~interest ~~and~~or ~~may~~amortization, beof ~~exercised as follows:~~$1,000,000.

oOf ~~Warrants~~the toaforesaid ~~purchase 10~~Warrants,~~666,667~~ ~~Shares~~only ~~are~~the "service based" ~~and~~warrants ~~1/36th~~are ofreflected ~~such~~in ~~Shares shall vest at~~ the ~~end~~Company’s offinancial ~~each~~statements ~~month~~as ~~that~~it ~~Mr.~~is ~~Meyers~~unlikely ~~has~~at ~~provided~~this ~~services~~stage ~~pursuant~~that to the ~~consulting~~other ~~agreement~~Warrants orwill ~~any converted employment agreement~~vest.

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.22

oOn ~~Warrants~~April to1, ~~purchase~~2009 10we extended for an additional three year term,~~666,667~~ ~~Shares~~a ~~are~~consulting ~~"earnings~~agreement ~~based"~~originally ~~and~~entered ~~vest~~into in ~~their~~2006 ~~entirety~~with ~~upon~~Debi ~~filing~~Kokinos. ofThe aAgreement, ~~report~~as ~~with~~extended ~~the~~was ~~Securities~~substantially &identical ~~Exchange~~to ~~Commission~~Aspatuck’s ~~containing~~agreement, ~~reviewed~~providing orfor ~~audited~~her ~~statements~~services ~~reflecting~~as ~~EBITA~~Chief orFinancial ~~earnings~~Officer. ~~before~~Ms. ~~taxes,~~Kokinos ~~interest~~is orto ~~amortization,~~receive annual compensation of approximately $177,520 and the grant of Warrants to purchase 9,600,000 shares of common stock. An additional 9,600,000 ~~and~~Warrants ~~provided~~were ~~further~~granted ~~such~~upon ~~sale~~extension. ~~occurs~~The ~~during~~Warrants are divided equally into the ~~period~~same ~~that~~three Mrcategories and vesting schedule as the Warrants for Aspatuck Holdings. ~~Meyers~~Of ~~has~~the ~~provided~~aforesaid ~~services~~warrants ~~pursuant~~only tothe service based Warrants are reflected in the ~~consulting~~Company’s ~~agreement~~financial orstatements ~~any~~as ~~converted~~it ~~employment~~is ~~agreement~~unlikely at this stage that the other Warrants will vest.

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 warrants to purchase 9,600,000 shares of common stock. The warrants are divided equally into the same three categories and vesting schedule as the warrants for Aspatuck Holdings.

OPTION INFORMATION

Set forth below is information concerning unexercised options and warrants; ~~stock~~warrants that ~~has~~have not vested; and equity incentive plan awards for each named executive as of December 31, 2011:

Name and Principal Position	Number of Securities Underlying Unexercised Options Exercisable		Number of Securities Underlying Unexercised Options Not Exercisable		Options Exercise Price		Expiration Date
Jason Meyers		10,666,656		-	$	0.0117	April 28, 2013
Chairman & Chief Executive Officer		610,~~814~~370,~~811~~363		3296,~~851,855~~303	$	0.0117	January 31, 2016
Debi Kokinos		3,200,000		-	$	0.0117	April 28, 2013
Debi Kokinos,		3,200,000		-	$	0.0117	April 28, 2013
Chief Financial Officer		23,~~044~~111,~~446~~114		188,~~155,554~~886	$	0.0117	January 31, 2016

COMPENSATION OF DIRECTORS

As of December 31, ~~2010~~2011, our directors were reimbursed for reasonable out-of-pocket expenses in connection with attendance at board of director and committee meetings.

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 the Company's common stock owned beneficially as of December 31, ~~2014~~2011 by: (i) each of our then directors; (ii) each of our named executive officers, ~~and~~(iii) officers and directors as a group and (iv) 5% or more holders of our common stock. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percentage of Common Stock
Jason Meyers(1)(2)		80,571,453		16.60	%
Aspatuck Holdings Ltd.(1)		66,349,245		(1	)
John Adams(3)		3,922,222		0.37	%
Debi Kokinos(4)		5,344,466		0.75	%
All officers and directors as a group (3 persons)		102,508,192		18.53	%

The address of all holders is c/o the Company at 250 West 57th Street, Suite 2328, New York, NY 10107.

~~(1)~~The ~~Includes~~Company ~~66,349,245~~does not have sufficient authorized shares ~~owned~~to ofissue ~~record~~additional byshares ~~Aspatuck~~of ~~Holdings~~Common ~~Ltd~~Stock. ofTherefore the table does not reflect shares which ~~Jason~~may ~~Meyers~~be isacquired within sixty days of the ~~controlling~~date ~~party.~~of -the ~~Certain~~table ~~Relationships~~pursuant to Notes , debentures , warrants and ~~Related~~options ~~Transactions~~. These shares would otherwise be included. These shares are described in the footnotes.

(2) Of the above number of shares 29,037,043 shares are subject to warrants owned by Mr. Meyers and presently exercisable within sixty days after March 31, 2010. An additional 29,333,336 shares are subject to warrants not presently exercisable or exercisable within sixty days of December 31, 2010.

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

Management
Jason Meyers ⁽¹⁾⁽²⁾		66,349,245		6.63	%
Debi Kokinos ⁽³⁾		-		-

All officers and directors as a group (2 persons) (1) (2) (3)		66,349,245		6.63	%

5% or more stockholders
Robert Roche ⁽⁴⁾		111,904,471		11.19	%
Salvatore Rutigliano		102,249,987		10.24	%
D. Herman Mobley		86,657,183		8.67	%
Aspatuck Holdings Ltd. ⁽¹⁾⁽²⁾		66,349,245		6.63	%
Glenn Nugent		59,566,660		5.96	%
Richard Milazzo ⁽⁵⁾		55,357,500		5.54	%

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

(41) ~~The~~Includes ~~above~~66,349,245 ~~ownership~~shares ~~consists~~owned of ~~shares~~record ~~that~~by ~~are~~Aspatuck ~~subject~~Holdings toLtd. ~~options~~of orwhich ~~stock~~Jason ~~warrants presently exercisable within sixty days after March 31~~Meyers, ~~2010.~~our AnChief ~~additional~~Executive ~~8,533,333~~Officer ~~shares~~is ~~are~~the ~~subject~~controlling ~~to warrants not presently exercisable or exercisable within sixty days of December 31, 2010~~party.

(2) Does not include a total of 684,013,622 additional shares which may be acquired by Mr. Meyers and his affiliates consisting of; (i) 652,266,870 shares issuable upon conversion of the principal of a 5% convertible note held by Aspatuck Holdings Ltd. (not counting additional shares issuable upon conversion of interest), (ii) 4,332,400 shares issuable, upon conversion of the principal of 5% convertible notes(not counting additional shares issuable upon conversion of interest) held by Aspatuck Holdings Ltd, (iii) 5,000,000 shares issuable upon conversion of the principal of a 5% convertible note (not counting additional shares issuable upon conversion of interest) held by ICMC Holdings LLC, an affiliate of Mr. Meyers., and (iv) 21,333,322 shares issuable upon exercise of warrants held by Mr. Meyers; of which 296,303 warrants are not exercisable within 60 days of December 31, 2011 and 21,037,019 are exercisable within 60 days of December 31, 2011. See Item 11 – Compensation Arrangements and Item 13. – Certain Relationships and Related Transactions

(3) Does not include (i) 244,160,000 shares issuable upon conversion of the principal of a 5% convertible note (not counting additional shares issuable upon conversion of interest) and (ii) 6,400,000 shares issuable upon exercise of warrants held by Ms. Kokinos. See Item 11 – Compensation Arrangements and Item 13. – Certain Relationships and Related Transactions.

(5) Does not include 550,000 shares issuable upon exercise of warrants at $.002 per share which are exercisable within 60 days of December 31, 2011.

The following transactions relate to the period ending December 31, ~~2010~~2011

~~The~~Aspatuck ~~Company~~Holdings ~~entered~~Ltd. ~~into~~and aanother ~~Consulting~~entity ~~Agreement~~affiliated with ~~Mr.~~Jason ~~John~~Meyers ~~Adams~~have ~~effective~~extended ~~January~~loans ~~1, 2008 pursuant~~ to ~~which~~the heCompany isof ~~engaged~~an asaggregate ~~the~~of ~~Chief~~$46,000 ~~Executive~~to ~~Officer~~date ~~for~~at ~~term~~a ~~ending~~rate ~~December~~of 1,interest ~~2010.~~of ~~As compensation for Mr~~5%. ~~Adams,~~The ~~the~~loans ~~Company~~are ~~will~~convertible ~~issue~~into ~~12,000,000~~ shares of ~~the Company's~~ common stock (of the ~~"Shares").~~Company ~~The~~at ~~Shares will be subject to forfeiture by Mr~~$.005 ~~Adams~~per ~~and will vest in accordance with a vesting schedule~~share. OfDuring ~~such shares 4~~2011,~~000,000~~ ~~Shares~~the ~~shall~~Company berepaid ~~"service based" and 111~~$9,~~111.11~~338 ~~Shares will vest for each month~~ of ~~service. Another 4,000,000 Shares shall be "revenue based" and~~ the ~~final~~balance ~~4,000,000~~on ~~Shares shall be "EBITDA based" and~~ the ~~repurchase~~loans. ~~agreement~~As ~~will terminate upon filing~~ of ~~reports~~December ~~with~~31, ~~the~~2011 ~~Securities~~a &total ~~Exchange~~of ~~Commission~~$36,662 ~~containing~~plus ~~reviewed~~total oraccrued ~~audited~~interest ~~statements~~of ~~reflecting total EBITDA~~$4,156 orwas ~~earnings~~owed ~~before interest~~($46,000 ~~taxes,~~plus ~~depreciation~~accrued orinterest ~~amortization,~~ of $19,~~000,000.The~~504 ~~unvested~~at ~~Shares~~December ~~shall~~31, ~~be subject to forfeiture by Mr~~2010). ~~Adams~~See inNote ~~accordance with an agreement to be entered into~~3.

~~Aspatuck~~As ~~Holdings Ltd. and another entity affiliated with Jason Meyers have advanced an aggregate~~ of $December 4631,~~000~~ to2011 the Company ~~plus~~also ~~related~~owed ~~interest~~Aspatuck ~~expense~~Holdings ofLtd ~~$7,204~~consulting ~~for~~fees ~~2009~~of ~~and~~ $9652,~~504 for 2010~~267. ~~The~~On ~~advances~~December ~~are~~31, ~~repayable~~2011, onthe ~~demand~~Company ~~and~~issued ~~bear~~a ~~interest~~convertible atnote 5to %Aspatuck ~~per~~Holdings ~~annum.~~having ~~See~~a ~~Note 4~~face ~~Loan~~value ~~Payable. As~~ of ~~December 31~~$652,267 ~~2009~~in ~~and~~satisfaction ~~2010~~of ~~the~~consulting ~~Company~~fees ~~also~~owed ~~owes~~to it. Aspatuck Holdings ~~Ltd~~is ~~consulting~~obligated ~~fees~~to ofprovide ~~$417,227 and $537,437, respectively, for~~ the services of Jason Meyers. ~~The~~to ~~Company has included these consulting fees in accounts payable in~~ the ~~balance sheet~~Company. The ~~Company~~note ~~has~~bears ~~included~~interest ~~$120,000~~at of5% ~~consulting~~per ~~compensation~~annum ~~in the general~~ and ~~administrative~~is ~~expense~~due ~~for~~on ~~the years ended~~ December 31, ~~2009 and 2010~~2014. The ~~company~~principal ~~also~~and ~~included~~interest ~~$17,658~~are ofconvertible ~~non~~into ~~cash~~shares ~~warrant~~of ~~expense for~~ the ~~year~~company’s ~~ended~~common ~~December~~stock ~~31,~~at ~~2009 and~~ $~~24,889~~.001. ~~for~~See ~~2010~~Note 3(d).

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, 2010. The Company has recorded accrued interest expense of $8,606 at December 31, 2010 and $6,856 at December 31, 2009. The Company recorded $10,588 and $10,800 general and administrative expense for the stock compensation to be issued to John Adams for the year ended December 31, 2010 and 2009, respectively.24

23John Adams, our former 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, 2011. The Company has recorded accrued interest expense of $10,356 at December 31, 2011 (2010 - $8,606). See Notes 2(a) and (c).

AsOn of December 31, ~~2010~~2011, ~~and 2009~~ the Company ~~owes~~issued ~~Debi~~a ~~Kokinos,~~convertible ~~CFO~~note ~~consulting~~to ~~fees~~Ms. ofKokinos ~~$169,870~~having ~~and~~a ~~$92,350,~~face ~~respectively.~~value ~~The~~of ~~Company~~$244,160 ~~has~~in ~~included~~satisfaction ~~these~~of consulting fees inowed ~~accounts~~to ~~payable~~her ~~related~~as ~~party~~of insuch ~~the balance sheet~~date. The ~~Company~~note ~~has~~bears ~~included~~interest ~~$77,520~~at of5% ~~consulting~~per ~~compensation~~annum ~~in the general~~ and ~~administrative~~is ~~expense~~due ~~for~~on ~~the years ended~~ December 31, ~~2010 and 2009~~2014. The ~~Company~~principal ~~also included $7,467~~ and ~~$5,297~~interest ofare ~~noncash~~convertible ~~stock-based~~into ~~compensation~~shares ~~for~~of the ~~year~~company’s ~~ended~~common ~~December~~stock ~~31,~~at ~~2010~~$.001. ~~and~~See ~~2009,~~Note ~~respectively~~3(e).

On November 10, 2011, the Company amended a convertible note held by Mr. Robert Roche having a face amount of $50,000 and warrants to purchase 1,000,000 shares of common stock at $.01. Pursuant to the amendment, the conversion price of the note was reduced from $0.01 to $0.0005 and the exercise price of the warrants was reduced from $0.01 to $0.005. A total of 130,433,333 shares were issuable by the Company to Mr. Roche as a result of the amendment, conversion and warrant exercise. The Company issued 111,904,471 common shares in connection with the amendment and conversion of the note and interest related to the note. As a result, the Company had issued the maximum number of authorized common shares. As of December 31, 2011, an additional 18,528,862 shares of common stock including 1,000,000 shares issuable in connection with the warrant exercise was owed to Mr. Roche. See Note 3(c)

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

Set forth below are the aggregate fees billed by the then acting accountants during fiscal years ended December 31, ~~2010~~2011 and ~~2009for~~2010 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our Quarterly Reports or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods. The table includes fees billed in subsequent periods for audits and reports arising in such fiscal years to be completed and filed.

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 December 31,
	2010		2009
	2011		2010
Audit Related Fees	$	2515,000	$	5725,~~225~~000
Tax Fees		–		–
All Other Fees		–		–
Total	$	2515,000	$	5725,~~225~~000

2425

PART IV

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

EXHIBITS

EXHIBIT NUMBER		DESCRIPTION OF EXHIBIT
EXHIBIT
3.1		Restated Articles of Incorporation of Registrant.(1)
NUMBER		DESCRIPTION OF EXHIBIT
3.2		Amended Bylaws of the Registrant.(1)
3.1		Restated Articles of Incorporation of Registrant. (1)
3.3		Certificate of Amendment to Articles of Incorporation, as filed by the Registrant with the Nevada Secretary of State.(7)
3.2		Amended Bylaws of the Registrant. (1)
4.1		Certificate of Merger, as filed by the Registrant with the Delaware Secretary of State.(1) 4.2 Certificate of Merger, as filed by the Registrant with the Nevada Secretary of State.(2) 4.3 Certificate of Designation creating Series X Preferred Stock, as filed by the Registrant with the Nevada Secretary of State.(4)
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)
10.6		Settlement Agreement dated effective January 24, 2004 among the Registrant, Turbodyne Systems, Inc. and Honeywell International Inc. (5)
10.10		2004 Stock Incentive Plan. (6)
10.15		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. (11)
14.1		Code of Ethics. (5)
10.17		Consulting Agreement dated April 1, 2006 between the Registrant and Aspatuck Holdings Ltd. (11)
21.1		List of Subsidiaries. (5)
10.18		Convertible Note dated December 31, 2011 between the Registrant and Aspatuck Holdings Ltd. (11)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
10.19		Consulting Agreement dated March 1, 2006 between the Registrant and Debi Kokinos. (11)
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
10.20		Convertible Note dated December 31, 2011 between the Registrant and Debi Kokinos. (11)
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.

________________

(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.

(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.

(11) Filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

a) CURRENT REPORTS ON FORM 8-K.

During the period ended December 31, ~~2010~~2011 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

2526

SIGNATURES

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

	Turbodyne Technologies, Inc.
Dated: January 2, 2015	By:	/s/ JASON MEYERS
Dated: January 15, 2015	By:	/s/ Jason Meyers
		Jason Meyers
		Co-Chief Executive Officer
		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, Director	January 215, 2015
Jason Meyers	~~Director~~
/s/ Debi Kokinos	Chief Financial Officer and Chief Accounting Officer	January 215, 2015
Debi Kokinos	~~and Chief Accounting Officer~~

2627

TURBODYNE TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, ~~2010~~2011 AND ~~2009~~2010

	Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2	~~F-2~~
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as at December 31, 2010 and December 31, 2009 (Restated)		F-3
Consolidated Balance Sheets as at December 31, 2011 and December 31, 2010	F-3
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009 (Restated)		F-4
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010	F-4
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2010 and 2009 (Restated)		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009 (Restated)		F-6
Consolidated Statements of Stockholders' Deficit for the years ended December 31, 2011 and 2010	F-6
Notes to the Consolidated Financial Statements	F-7	~~F-7~~

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders of

Turbodyne Technologies, Inc.

New York, NY

We have audited the accompanying consolidated balance sheets of Turbodyne Technologies, Inc. and its subsidiaries (collectively the "Company") as of December 31, ~~2010~~2011 and ~~2009~~2010 and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 ~~audits~~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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the ~~consolidated~~ financial position of Turbodyne Technologies, Inc. and ~~its~~their subsidiaries as of December 31, ~~2010~~2011 and ~~2009~~2010, and the results of their operations and their cash flows for each of 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 that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has a working capital deficit at December 31, ~~2010~~2011, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP

www.malone-bailey.com

Houston, Texas

January 215, 2015

F-2

Turbodyne Technologies, Inc.

Consolidated Balance Sheets

	December 31,2010			December 31,2009
	December 31,2011			December 31,2010
				(Restated)
ASSETS
Current
Cash and cash equivalents	$	~~244~~20,612		$	~~3,037~~244
Total current assets		~~244~~20,612			~~3,037~~244
Property and equipment, net of accumulated depreciation of $63,418 and $58,998		8,988			13,408
Property and equipment, net of accumulated depreciation of $67,838 and $63,418		4,568			8,988
Total assets	$	925,~~232~~180		$	169,~~445~~232
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current
Accounts payable	$	~~784~~776,~~795~~229		$	~~802~~784,~~845~~795
Accounts payable related party		~~707,307~~–			~~509~~707,~~577~~307
Accrued liabilities		~~609~~620,~~657~~338			~~627~~609,~~887~~657
Short-term convertible debt		131,250			328,583
Short-term convertible debt, net of unamortized discount of $0 and $8,750		65,000			131,250
Short-term convertible debt related party		95,250			93,450
Short-term convertible debt related party, net of unamortized discount of $268,928 and $750		664,161			95,250
Derivative liability		294,338			–
Current portion of deferred licensing fee		22,224			22,224
Total current liabilities		2,~~350~~442,~~483~~290			2,~~384~~350,~~566~~483
Deferred licensing fee		~~208~~185,~~158~~934			~~230~~208,~~382~~158
Reserve for lawsuits		5,~~299~~740,~~336~~596			45,~~874~~299,~~700~~336
Total liabilities		78,~~857~~368,~~977~~820			7,~~489~~857,~~648~~977
Contingencies and commitments
Stockholders’ Deficit
Preferred Stock, $0.001 par value, 1,000,000 shares authorized, 12,675 shares issued and outstanding December 31, 2010 and 2009		12			12
Preferred Stock, $0.001 par value, 1,000,000 shares authorized, 12,675 shares issued and outstanding December 31, 2011 and 2010		12			12
Common Stock, $0.001 par value, 1,000,000,000 shares authorized, 661,973,358 (December 31, 2009 – 577,580,158) shares issued and outstanding		661,974			577,580
Common Stock, $0.001 par value, 1,000,000,000 shares authorized, 1,000,000,000 (December 31, 2010 – 661,973,358) shares issued and outstanding		1,000,000			661,974
Additional paid-in capital		128,~~598~~666,~~433~~542			128,~~155~~598,~~916~~433
Other comprehensive income – foreign exchange translation gain		35,119			35,119
Treasury stock, at cost – 5,278,580 common shares		(1,963,612	)		(1,963,612	)
Accumulated deficit		(~~135~~136,~~180~~081,~~671~~701	)		(~~134~~135,~~278~~180,~~218~~671	)
Total stockholders’ deficit		(78,~~848~~343,~~745~~640	)		(7,~~473~~848,~~203~~745	)
Total liabilities and stockholders’ deficit	$	925,~~232~~180		$	169,~~445~~232

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

F-3

Turbodyne Technologies, Inc.

Consolidated Statements of Operations

	Year Ended December 31,2010			Year Ended December 31,2009
	Year Ended December 31,2011			Year Ended December 31,2010
				(Restated)
Expenses
Selling, general and administrative expenses	$	~~390~~314,~~093~~758		$	~~568~~390,~~849~~093
Litigation expense		~~424~~467,~~636~~100			~~386~~424,~~032~~636
Depreciation and amortization		4,420			4,~~421~~420
Total Expenses		~~819~~786,~~149~~278			~~959~~819,~~302~~149
Loss from operations		(~~819~~786,~~149~~278	)		(~~959~~819,~~302~~149	)
Other income (expenses)
Licensing fees		22,224			22,224
Interest expense		(~~146~~31,~~902~~324	)		(88146,~~668~~902	)
Loss on extinguishment of debt		–			(6,250	)
Inducement expense		(211,456	)		–
Gains on settlement of debt and debt relief		41,374			1,572,136
Gain on change in fair value of derivative		42,362			–
Net (loss) income	$	(902,453	)	$	540,140
Gain on settlement of derivatives		1,160			–
(Loss) earnings per share – basic and diluted	$	(0.00	)	$	0.00
Gains on settlement of debt and debt relief		62,282			41,374
Basic weighted average common shares outstanding		632,920,000			550,961,000
Net loss	$	(901,030	)	$	(902,453	)
Diluted weighted average common shares outstanding		632,920,000			624,395,000
Loss per share – basic and diluted	$	(0.00	)	$	(0.00	)
Basic weighted average common shares outstanding		730,674,000			632,920,000
Diluted weighted average common shares outstanding		730,674,000			632,920,000

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

F-4

Turbodyne Technologies, Inc.

Consolidated Statements of ~~Stockholders’~~Cash ~~Deficit~~Flows

For the Years Ended December 31, 2010 and 2009 (Restated)

	Year Ended December 31, 2011			Year Ended December 31, 2010
Operating Activities
Net loss	$	(901,030	)	$	(902,453	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,420			4,420
Amortization of convertible note discounts and warrants		13,760			113,467
Gain on settlement of liabilities		(62,282	)		(41,374	)
Gain on change in fair value of derivative		(42,362	)		–
Gain on settlement of derivatives		(1,160	)		–
Inducement expense		211,456			–
Stock-based compensation		32,356			86,356
Share issuance obligation with related party		–			10,588

Changes in operating assets and liabilities:
Accounts payable		18,852			15,249
Accounts payable – related parties		189,120			197,730
Deferred income		(22,224	)		(22,224	)
Reserve for lawsuits		467,100			424,636
Accrued expenses		41,700			65,812
Net Cash Used in Operating Activities		(50,294	)		(47,793	)

Financing Activities
Repayment of convertible debt related party		(9,338	)		–
Proceeds from exercise of warrants		–			20,000
Proceeds from issuance of convertible debt		80,000			25,000

Net Cash Provided by Financing Activities		70,662			45,000
Net Change in Cash		20,368			(2,793	)
Cash and cash equivalents – beginning of period		244			3,037
Cash and cash equivalents – end of period	$	20,612		$	244

Supplemental Disclosures:
Interest paid	$	7,648		$	–
Income taxes paid	$	–		$	–

Non-Cash Transactions:
Debt discounts due to derivative liabilities	$	268,928		$	–
Accounts payable with related parties - settled by issuance of convertible debt	$	896,427		$	–
Beneficial conversion feature of convertible debt	$	4,260		$	10,000
Beneficial conversion feature from debt modification	$	–		$	4,000
Derivative reclassification	$	68,932		$	–
Conversion of convertible debt and accrued interest	$	226,995		$	395,967

	Preferred Stock				Common Stock				Treasury Stock					Additional					Other
			Par				Par				Par			Paid-in					Comprehensive
	Shares		Value		Shares		Value		Shares		Value			Capital		Deficit			Income		Totals
Balance – December 31, 2008		12,675	$	12		549,513,491	$	549,514		5,278,580	$	(1,963,612	)	$	127,897,291	$	(134,818,358	)	$	35,119	$	(8,300,034	)
Issuance of stock for private placements		–		–		25,400,000		25,400		–		–			63,500		–			–		88,900
Issuance of stock for services		–		–		2,666,667		2,666		–		–			12,334		–			–		15,000
Issuance of warrants to consultants		–		–		–		–		–		–			280		–			–		280
Debt discount from beneficial conversion feature with issuance of warrants		–		–		–		–		–		–			20,600		–			–		20,600
Debt discount from beneficial conversion feature with debt modification		–		–		–		–		–		–			131,000		–			–		131,000
Stock-based compensation		–		–		–		–		–		–			30,911		–			–		30,911
Net income for the year		–		–		–		–		–		–			–		540,140			–		540,140
Balance – December 31, 2009 (Restated)		12,675	$	12		577,580,158	$	577,580		5,278,580	$	(1,963,612	)	$	128,155,916	$	(134,278,218	)	$	35,119	$	(7,473,203	)
Issuance of stock upon the exercise of warrants		–		–		2,000,000		2,000		–		–			18,000		–			–		20,000
Issuance of stock for services		–		–		6,000,000		6,000		–		–			48,000		–			–		54,000
												–					–
Conversion of note payable		–		–		76,393,200		76,394		–		–			319,573		–			–		395,967
Debt discount from beneficial conversion feature with issuance of warrants		–		–		–		–		–		–			10,000		–			–		10,000
Debt discount from beneficial conversion feature with debt modification		–		–		–		–		–		–			4,000		–			–		4,000
Stock-based compensation		–		–		–		–		–		–			32,356		–			–		32,356
Share issuance obligation		–		–		–		–		–		–			10,588		–			–		10,588
		–
Net loss for the year				–		–		–		–		–			–		(902,453	)				(902,453	)
Balance – December 31, 2010		12,675	$	12		661,973,358	$	661,974		5,278,580	$	(1,963,612	)	$	128,598,433	$	(135,180,671	)	$	35,119	$	(7,848,745	)

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

F-5

Turbodyne Technologies, Inc.

Consolidated Statements of ~~Cash~~Stockholders’ ~~Flows~~Deficit

	Year Ended December 31,2010			Year Ended December 31,2009
				(Restated)
Operating Activities
Net (loss) income	$	(902,453	)	$	540,140
Adjustment to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization		4,420			4,421
Amortization of convertible note discounts and warrants		113,467			36,383
Gain on settlement of liabilities		(41,374	)		(1,565,886	)
Stock-based compensation		86,356			46,191
Share issuance obligation with related party		10,588			–
Changes in operating assets and liabilities:
Accounts payable		15,249			95,907
Accounts payable – related parties		197,730			122,920
Deferred income		(22,224	)		(22,224	)
Reserve for lawsuits		424,636			386,032
Accrued expenses		65,812			70,189
Net Cash Used in Operating Activities		(47,793	)		(285,927	)
Financing Activities
Proceeds from exercise of warrants		20,000			–
Proceeds from issuance of notes payable		25,000			150,000
Proceeds from related party debt		–			50,000
Proceeds from issuance of common stock		–			88,900
Net Cash Provided by Financing Activities		45,000			288,900
Net Change in Cash		(2,793	)		2,973
Cash and cash equivalents – beginning of period		3,037			64
Cash and cash equivalents – end of period	$	244		$	3,037
Supplemental Disclosures:
Interest paid	$	–		$	–
Income taxes paid	$	–		$	–
Non-Cash Transactions:
Beneficial conversion feature of convertible debt	$	10,000		$	20,600
Beneficial conversion feature from debt modification	$	4,000		$	131,000
Conversion of convertible debt	$	395,967		$	–

For the Years Ended December 31, 2011 and 2010

	Preferred Stock				Common Stock				Treasury Stock					Additional						Other
			Par				Par				Par			Paid-in						Comprehensive
	Shares		Value		Shares		Value		Shares		Value			Capital			Deficit			Income		Totals

Balance – December 31, 2009		12,675	$	12		577,580,158	$	577,580		5,278,580	$	(1,963,612	)	$	128,155,916		$	(134,278,218	)	$	35,119	$	(7,473,203	)

Issuance of stock upon the exercise of warrants		–		–		2,000,000		2,000		–		–			18,000			–			–		20,000

Issuance of stock for services		–		–		6,000,000		6,000		–		–			48,000			–			–		54,000
												–						–
Conversion of note payable		–		–		76,393,200		76,394		–		–			319,573			–			–		395,967

Debt discount from beneficial conversion feature with issuance of warrants		–		–		–		–		–		–			10,000			–			–		10,000

Debt discount from beneficial conversion feature with debt modification		–		–		–		–		–		–			4,000			–			–		4,000

Stock-based compensation		–		–		–		–		–		–			32,356			–			–		32,356

Share issuance obligation		–		–		–		–		–		–			10,588			–			–		10,588
		–
Net loss for the year				–		–		–		–		–			–			(902,453	)				(902,453	)

Balance – December 31, 2010		12,675	$	12		661,973,358	$	661,974		5,278,580	$	(1,963,612	)	$	128,598,433		$	(135,180,671	)	$	35,119	$	(7,848,745	)

Conversion of convertible debt and interest		–		–		338,026,642		338,026		–		–			(111,031	)		–			–		226,995

Debt discount from beneficial conversion feature with issuance of warrants		–		–		–		–		–		–			4,260			–			–		4,260

Inducement of debt conversion		–		–		–		–		–		–			211,456			–			–		211,456

Stock-based compensation		–		–		–		–		–		–			32,356			–			–		32,356

Reclassification of derivative from additional paid in capital		–		–		–		–		–		–			(68,932	)		–			–		(68,932	)

Net loss for the year		–		–		–		–		–		–			–			(901,030	)		–		(901,030	)

Balance – December 31, 2011		12,675	$	12		1,000,000,000	$	1,000,000		5,278,580	$	(1,963,612	)	$	128,666,542		$	(136,081,701	)	$	35,119	$	(8,343,640	)

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

F-6

Turbodyne Technologies, Inc.

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

a) Nature of Business Turbodyne Technologies, Inc., a Nevada corporation, and its subsidiaries (collectively, the "Company") engineer, develop and market products designed to enhance performance and reduce emissions of internal combustion engines. b) 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, is subject to lawsuit settlements and has a working capital deficit of $2,350,239 at December 31, 2010. 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 and protection under appropriate legal 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. c) 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. d) Use of Estimates The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. e) Cash and Cash Equivalents The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. f) Basic and Diluted Net Income (Loss) Per Share 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.

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

b) 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, is subject to lawsuit settlements and has a working capital deficit of $2,421,678 at December 31, 2011. 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 and protection under appropriate legal 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.

c) 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.

d) Use of Estimates

The preparation of consolidated financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to useful life and recoverability of long-lived assets, stock-based compensation expense, deferred income tax asset valuations and loss contingencies. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

e) Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

f) Basic and Diluted Net Income (Loss) Per Share

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.

F-7

A reconciliation of the components of basic and diluted net income (loss) per common share is presented in the tables below:

	For the Year Ended December 31,
	2010								2009
	2011								2010
	Income (Loss)			Weighted Average Common Shares Outstanding		Per Share			Income (Loss)			Weighted Average Common Shares Outstanding		Per Share
	Income(Loss)			Weighted Average Common Shares Outstanding		PerShare			Income(Loss)			Weighted Average Common Shares Outstanding		PerShare
Basic:
Income (loss) attributable to common stock	$	(~~902~~901,~~453~~030	)		~~632~~730,~~920~~674,000	$	(0.00	)	$	~~540~~(902,~~140~~453	)		~~550~~632,~~961~~920,000	$	(0.00	)
Effective of Dilutive Securities:
Preferred shares, stock options, warrants and convertible notes		–			–		–		$	~~11,014~~–			~~73,434,000~~–	$	~~0.00~~–
Diluted:
Income (loss) attributable to common stock, including assumed conversions	$	(~~902~~901,~~453~~030	)		~~632~~730,~~920~~674,000	$	(0.00	)	$	~~551~~(902,~~154~~453	)		~~624~~632,~~395~~920,000	$	(0.00	)

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

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

During the year ended December 31, ~~2010~~2011, the Company recorded depreciation expense of $4,420 (~~2009~~2010 - $4,~~421~~420). ~~Property and equipment, at cost, is summarized as follows:~~

	December 31,2010			December 31,2009
Machinery and equipment	$	72,406		$	72,406
Less accumulated depreciation		(63,418	)		(58,998	)
Net capitalized costs	$	8,988		$	13,408

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

	h)	Long-lived Assets
		December 31,2011			December 31,2010
		The Company periodically and at least, annually, 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 2010 and 2009.
Machinery and equipment		$	72,406		$	72,406
	i)	Income Taxes
Less accumulated depreciation			(67,838	)		(63,418	)
		Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
Net capitalized costs		$	4,568		$	8,988

F-8

jh) ~~Financial Instruments Accounting standards regarding fair value of financial instruments define fair value, establish a three~~Long-~~level~~lived hierarchy which prioritizes and defines the types of inputs used to measure fair value, and establish disclosure requirements for assets and liabilities presented at fair value on the consolidated balance sheets. Fair value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor, not at the amount that would be paid to settle the liability with the creditor. The three-level hierarchy is as follows:Assets

		·	Level 1 inputs consist of unadjusted quoted prices for identical instruments in active markets.
		·	Level 2 inputs consist of quoted prices for similar instruments.
		·	Level 3 valuations are derived from inputs which are significant and unobservable and have the lowest priority.

The Company periodically and at least, annually, 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 2011 and 2010.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3. All financial liabilities that are measured at fair value have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The Company believes that the carrying value of its cash, accounts payable and accrued liabilities, amounts due to related parties and notes and loans payable as of December 31, 2010 and December 31, 2009 approximate their fair values because of the short-term nature of those instruments. As of December 31, 2010 and December 31, 2009, the Company had no financial instruments measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis. ki) ~~Legal~~Income Fees The Company records interest, legal and settlement costs as litigation expense. The Company expenses legal fees in connection with litigation as incurred. During the year ended December 31, 2010, the Company recorded $424,636 (2009 - $386,032) of interest expense relating to settlements as litigation expenses. l) 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. The Company did not record any research or development costs during the years ended December 31, 2010 and 2009. m) Stock-based Compensation The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

j) Financial Instruments

ASC 825 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability. Fair value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor, not at the amount that would be paid to settle the liability with the creditor.

Fair Value Hierarchy

ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 establishes three levels of inputs that may be used to measure fair value.

Level 1

Level 1 applies to assets and liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.

Level 2

Level 2 applies to assets and liabilities for which there are other than Level 1 observable inputs such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance:

Determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and Determining whether a market is considered active requires management judgment.

Level 3

Level 3 applies to assets and liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

F-9

n)An ~~Recent~~asset’s ~~Accounting~~or ~~Pronouncements~~liability’s Onlevel ~~March~~within ~~1, 2010,~~ the ~~Company adopted ASU 2010-06, Improving Disclosure about Fair Value Measurements. ASU 2010- 06, issued January 2010, requires additional disclosures regarding~~ fair value ~~measurements,~~hierarchy ~~amends~~is ~~disclosures~~based ~~about~~on ~~post-~~the ~~retirement~~lowest ~~benefit~~level ~~plan~~of ~~assets,~~any ~~and~~input ~~provides~~that ~~clarification~~is ~~regarding~~significant to the ~~level of disaggregation of~~ fair value ~~disclosures by investment class~~measurement. ~~The~~At ~~ASU~~each ~~is effective for interim and annual~~ reporting ~~periods beginning after December 15~~period, ~~2009,~~we ~~except~~perform ~~for~~a ~~certain~~detailed ~~Level~~analysis 3of ~~activity~~our ~~disclosure~~assets ~~requirements~~and liabilities that are ~~effective~~measured ~~for~~at ~~reporting~~fair ~~periods beginning after December 15, 2010~~value. ~~The~~All ~~Company~~assets ~~has implemented all new accounting pronouncements that are in effect~~ and ~~that~~liabilities ~~may~~for ~~impact~~which ~~its~~the ~~financial~~fair ~~statements~~value ~~and~~measurement ~~does~~is ~~not~~based ~~believe that there are any other new accounting pronouncements that have been issued that might have a material impact~~ on ~~its~~significant ~~financial~~unobservable ~~position~~inputs or ~~results~~instruments ofwhich ~~operations.~~trade o)infrequently ~~Reclassifications~~and ~~Certain~~therefore ~~reclassifications~~ have ~~been~~little ~~made~~or tono ~~the~~price ~~prior~~transparency ~~period’s~~are ~~consolidated~~classified ~~financial statements to conform to the current year’s presentation. p) Restatement The consolidated financial statements have been restated,~~ as ~~more~~Level ~~fully discussed in Note 2~~3.

2.	December 31, 2009 Restatement
	The Company identified various errors relating to the accounting for accounts payable, accrued liabilities, loans payable and reserves for lawsuit settlements during the year ended December 31, 2009. The effect of the errors for the year ended December 31, 2009 is to revise the net loss of $865,379 by $1,405,519 to a net income of $540,140. The Company determined that the misstated amount of $1,405,519 is material to the December 31, 2009 financial statements. As a result, the Company amended and restated the financial statements for the year ended December 31, 2009.
	The Company has also revised the number of stock options outstanding at December 31, 2008 to reflect the expiration of 16,899,000 stock options prior to December 31, 2008 that were previously disclosed as outstanding. These options were fully vested at the time of expiry and all related compensation expense was correctly recorded prior to expiry. As a result, the expiration of the stock options did not affect net loss or net loss per share in any previous fiscal year. The only revision required is disclosure of the number of stock options outstanding.
	The following tables reflect the impact of the restatement to the consolidated balance sheet and the consolidated statement of operations. The restatement did not result in any changes to the amounts previously reported for net cash flows from operating activities, investing activities or financing activities.

All financial liabilities that are measured at fair value have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, accounts payable and accrued liabilities, amounts due to related parties and notes and loans payable. The fair value of the Company’s convertible note payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.

	December 31, 2009
Consolidated Balance Sheet	As Previously Reported			Adjustment			As Restated
Liabilities
Accounts payable	$	2,002,746		$	(1,199,901	)	$	802,845
Accounts payable related parties		–			509,577			509,577
Accrued liabilities		300,000			327,887			627,887
Current portion of deferred licensing fee		–			22,224			22,224
Short-term loans payable		550,777			(222,194	)		328,583
Short-term loans payable – related parties					93,450			93,450
Deferred license fee		252,606			(22.224	)		230,382
Provision for lawsuit settlement		5,731,145			(856,445	)		4,874,700
Convertible loans payable		184,237			(184,237	)		–
Total liabilities		9,021,511			(1,531,863	)		7,489,648
Stockholders’ Deficit
Additional Paid-in Capital		128,029,567			126,349			128,155,916
Accumulated deficit		(135,683,733	)		1,405,515			(134,278,218	)
Total Stockholder’s Deficit		(9,005,066	)		1,531,863			(7,473,203	)

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2011:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liabilities	$	275,629	$	–	$	–	$	275,629
Warrant derivative liabilities		9,985		–		–		9,985
Option derivative liabilities		8,324		–		–		8,324
Shares issuable		400		–		–		400
Exercisable, December 31, 2011	$	294,338	$	–	$	–	$	294,338

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. See Note 5 for additional information.

k) Legal Fees

The Company records interest, legal and settlement costs as litigation expense. The Company expenses legal fees in connection with litigation as incurred. During the year ended December 31, 2011, the Company recorded $467,100 (2010 - $424,636) of interest expense relating to settlements as litigation expenses.

l) 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. The Company did not record any research or development costs during the years ended December 31, 2011 and 2010.

F-10

	For the Year Ended December 31, 2009
Consolidated Statement of Operations	As Previously Reported			Adjustment			As Restated
Selling, general and administrative expense	$	546,244		$	22,605		$	568,849
Loss from operations		(936,697	)		(22,605	)		(959,302	)
Interest expense		(54,009	)		(34,659	)		(88,668	)
Amortization of convertible note discount and warrants		(8,150	)		8,150			–
Loss on extinguishment of debt		–			(6,250	)		(6,250	)
Gains on settlement of debt and debt relief		112,853			1,459,283			1,572,136
Income tax expense		(1,600	)		1,600			–
Net (Loss) Income		(865,379	)		1,405,519			540,140

m) Derivative Liabilities

3.The ~~Short~~Company ~~Term~~accounts ~~Convertible~~for ~~Notes~~derivative ~~Payable~~instruments in accordance with ASC Topic 815, Derivatives and Hedging and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.

	(a)	On November 23, 2005, the Company issued a $25,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on November 23, 2006, and convertible into the Company’s common shares at $0.005 per share. The convertible note was issued with detachable warrants to purchase 500,000 shares of the Company’s common stock at $0.01 per share for five years.
		In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010 and 2009, the debt discount from the warrants and the beneficial conversion feature has been fully amortized and the note is in default.
	(b)	On March 9, 2006, the Company issued a $20,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on March 9, 2007, and convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share. The convertible note was issued with detachable warrants to purchase 400,000 shares of the Company’s common stock at $0.025 per share for five years.
		In connection with the issuance of the convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the minimum conversion price provides a determinate number of shares issuable upon conversion and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature had been fully amortized. On April 23, 2010, the Company issued 400,000 shares upon the conversion of the note and $4,075 of interest.

The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads, relying first on observable data from active markets. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. As at December 31, 2011 and 2010, the company had a $294,338 and $Nil derivative liability, respectively.

n) Stock-based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Based Compensation and ASC 505, Equity Based Payments to Non-Employees, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

o) Recent Accounting Pronouncements

p) Reclassifications

Certain reclassifications have been made to the prior period’s consolidated financial statements to conform to the current year’s presentation.

2. Short Term Convertible Notes Payable

(a) On November 23, 2005, the Company issued a $25,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on November 23, 2006, and convertible into the Company’s common shares at $0.005 per share. The convertible note was issued with detachable warrants to purchase 500,000 shares of the Company’s common stock at $0.01 per share for five years.

In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.

F-11

(c) On July 19, 2006, the Company issued a $10,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on July 19, 2007, and convertible into the Company’s common shares at $0.005 per share. The convertible note was issued with detachable warrants to purchase 200,000 shares of the Company’s common stock at $0.01 per share for five years. In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents. 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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, ~~2010~~2011 and 2009, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default. (d) On May 26, 2006, the Company issued a $30,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on October 31, 2007, and convertible into the Company’s common shares at $0.005 per share. The convertible note was issued with detachable warrants to purchase 600,000 shares of the Company’s common stock at $0.01 per share for five years. In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, “Embedded Derivatives”, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents. 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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010 ~~and 2009~~, ~~debt discount from~~ the warrants and the beneficial conversion feature have been fully amortized and the note is in default. (e) On May 21, 2008, the Company issued a $200,000 convertible note. The note bears interest at the rate of 18% per annum, is due and payable on May 21, 2009, and convertible into the Company’s common shares at $0.02 per share. The convertible note was issued with detachable warrants to purchase 4,000,000 shares of the Company’s common stock at $0.02 per share for five years. In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents. 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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature ~~have~~has been fully amortized and the note is in default.

During the year ended December 31, 2011, the Company no longer had enough available common stock to issue in satisfaction of all common stock equivalents. As a result, the Company reclassified the fair value of the conversion option as a derivative liability in accordance with ASC 815-15, Embedded Derivatives.

(b) On March 9, 2006, the Company issued a $20,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on March 9, 2007, and convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share. The convertible note was issued with detachable warrants to purchase 400,000 shares of the Company’s common stock at $0.025 per share for five years.

In connection with the issuance of the convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the minimum conversion price provides a determinate number of shares issuable upon conversion and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature had been fully amortized. On April 23, 2010, the Company issued 400,000 shares upon the conversion of the note and $4,075 of interest.

F-12

		During 2010, the note was modified to reduce the conversion price from $0.02 per share to $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modification was substantial and thus resulted in an extinguishment of the existing loan. Consequently, the old debt, along with any unamortized discount, is removed and the new debt is recorded at its fair value.
		The Company evaluated the conversion option in the amended note for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		Additionally it was determined that the amended note 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, $4,000, was expensed immediately because the maturity date of the loan had passed.
		On April 23, 2010, the Company issued 53,600,000 shares upon the conversion of $200,000 of principal and $68,000 of interest.
	(f)	On April 7, 2009, the Company issued a $100,000 convertible note. The note bears interest at the rate of 12% per annum, is due and payable on April 7, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 2,000,000 shares of the Company’s common stock at $0.01 per share for five years.
		In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method.
		During 2009, the note was modified to reduce the conversion price from $0.01 per share to $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modification was substantial and thus resulted in an extinguishment of the existing loan. Consequently, the old debt, along with any unamortized discount, is removed and the new debt is recorded at its fair value. Unamortized discount of $6,250 was recognized as a loss on extinguishment.
		The Company evaluated the conversion option in the amended note for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		Additionally it was determined that the amended note 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, $100,000, was recorded as a discount to convertible notes and was amortized over the term of the note using the straight-line method.
		On April 6, 2010, the Company issued 22,393,200 shares upon the conversion of the $100,000 note and accrued interest of $11,966. The then-unamortized discount of $80,000 was written off on the conversion date.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2011 and 2010, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.

(d) On May 26, 2006, the Company issued a $30,000 convertible note. The note bears interest at the rate of 5% per annum, is due and payable on October 31, 2007, and convertible into the Company’s common shares at $0.005 per share. The convertible note was issued with detachable warrants to purchase 600,000 shares of the Company’s common stock at $0.01 per share for five years.

In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, “Embedded Derivatives”, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2011 and 2010, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.

(e) On May 21, 2008, the Company issued a $200,000 convertible note. The note bears interest at the rate of 18% per annum, is due and payable on May 21, 2009, and convertible into the Company’s common shares at $0.02 per share. The convertible note was issued with detachable warrants to purchase 4,000,000 shares of the Company’s common stock at $0.02 per share for five years.

F-13

	(g)	On November 6, 2009, the Company issued a $50,000 convertible note. The note bears interest at the rate of 12% per annum, is due and payable on November 6, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 1,000,000 shares of the Company’s common stock at $0.01 per share for five years.
		In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010, the remaining debt discount from the warrants and the beneficial conversion feature is $2,917 (2009 - $6,417) and the note is in default.
	(h)	On March 3, 2010, the Company issued a $25,000 convertible note. The note bears interest at the rate of 12% per annum, is due and payable on March 3, 2012, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 500,000 shares of the Company’s common stock at $0.005 per share for five years.
		In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010, the remaining debt discount from the warrants and the beneficial conversion feature is $5,833 and the note is in default.
		Subsequent to December 31, 2010, the Company entered into an amendment which reduced the conversion price of the note to $0.0005 and the exercise price of the warrants to $0.005. On October 7, 2011, the Company issued 59,566,660 common shares upon the conversion of $25,000 of the note and $4,783 of interest at $0.005 per share. Refer to Note 12(d).

4In recording the transaction, the Company allocated the value of the proceeds to the convertible notes and the warrants based on their relative fair values. ~~Short~~Fair ~~Term~~value ~~Convertible~~of ~~Notes~~the –warrants ~~Related~~was ~~Party~~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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.

	(a)	On June 15, 2006, the Company issued a $15,000 convertible note to ICMC Holdings LLC, a company controlled by Jason Meyers. The note bears interest at the rate of 5% per annum, is due and payable on June 15, 2007, and convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share.
		In connection with the issuance of the convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the minimum conversion price provides a determinate number of shares issuable upon conversion and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		In recording the transaction, the Company 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 was recorded as a discount to convertible notes and was amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.

During 2010, the note was modified to reduce the conversion price from $0.02 per share to $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modification was substantial and thus resulted in an extinguishment of the existing loan. Consequently, the old debt, along with any unamortized discount, is removed and the new debt is recorded at its fair value.

The Company evaluated the conversion option in the amended note for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.

Additionally it was determined that the amended note 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, $4,000, was expensed immediately because the maturity date of the loan had passed.

On April 23, 2010, the Company issued 53,600,000 shares upon the conversion of $200,000 of principal and $68,000 of interest.

(f) On April 7, 2009, the Company issued a $100,000 convertible note. The note bears interest at the rate of 12% per annum, is due and payable on April 7, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 2,000,000 shares of the Company’s common stock at $0.01 per share for five years.

F-14

	(b)	On January 17, 2007 and February 1, 2007, the Company issued convertible notes of $15,000 and $16,000, respectively to Aspatuck Holdings Ltd. The notes bear interest at a rate of 5% per annum, are due and payable one year following issuance, and convertible into the Company’s common shares at convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share. The convertible notes were issued with detachable warrants to purchase 620,000 shares of the Company’s common stock at $0.025 per share for five years.
		In connection with the issuance of the convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the minimum conversion price provides a determinate number of shares issuable upon conversion and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.
		In December 2009, the notes were modified to reduce the conversion price from the provision discussed above to a set amount of $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modifications were substantial and thus resulted in an extinguishment of the existing loans. Consequently, the old debt, along with any unamortized discount, is derecognized and the new debt is recorded at its fair value.
		The Company evaluated the conversion option in the amended note for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		Additionally it was determined that the amended notes contained beneficial conversion features 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 features, $31,000, was expensed immediately because the maturity date of the loan had passed.
	(c)	On June 1, 2009, the Company issued a $50,000 convertible note to a related party. The note bears interest at the rate of 12% per annum, is due and payable on June 1, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 1,000,000 shares of the Company’s common stock at $0.01 per share for five years. Subsequent to December 31, 2010, the Company entered into an amendment which reduced the conversion price of the note to $0.0005 per share and the exercise price of the warrants to $0.005 per share. Refer to Note 12(g).
		In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature did not qualify as derivatives. The conversion feature did not qualify as a derivative because the note is convertible into a fixed number of shares and the Company had enough available common stock to issue in satisfaction of all common stock equivalents.
		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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010, the remaining debt discount from the warrants and the beneficial conversion feature is $750 (2009 - $2,550) and the note is in default.

During 2009, the note was modified to reduce the conversion price from $0.01 per share to $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modification was substantial and thus resulted in an extinguishment of the existing loan. Consequently, the old debt, along with any unamortized discount, is removed and the new debt is recorded at its fair value. Unamortized discount of $6,250 was recognized as a loss on extinguishment.

Additionally it was determined that the amended note 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, $100,000, was recorded as a discount to convertible notes and was amortized over the term of the note using the straight-line method.

On April 6, 2010, the Company issued 22,393,200 shares upon the conversion of the $100,000 note and accrued interest of $11,966. The then-unamortized discount of $80,000 was written off on the conversion date.

(g) On November 6, 2009, the Company issued a $50,000 convertible note. The note bears interest at the rate of 12% per annum, is due and payable on November 6, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 1,000,000 shares of the Company’s common stock at $0.01 per share for five years.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2011, the remaining debt discount from the warrants and the beneficial conversion feature is $Nil (2010 -$2,917) and the note is in default.

On September 9, 2011, the Company issued 6,105,000 shares upon the conversion of $50,000 of principal and $11,050 of interest.

F-15

5(h) On March 3, 2010, the Company issued a $25,000 convertible note. ~~Share~~The ~~Capital~~note bears interest at the rate of 12% per annum, is due and payable on March 3, 2012, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 500,000 shares of the Company’s common stock at $0.01 per share for five years.

	Authorized Capital
	a)	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.
	Preferred Shares
	a)	The Company has 1,000,000 preferred shares authorized with a par value of $0.001.
	b)	In 2003, 150,000 of the 1,000,000 preferred shares were designated as Series X preferred shares. The Series X preferred shares have a par value of $0.001 per share, do not have voting rights, and holders are entitled to receive dividends pro-rata with the issued and outstanding shares of the Company’s common stock on an if converted basis when and if dividends are declared on the outstanding shares of the Company’s common stock. The Series X preferred shares are each convertible into 100 common shares at the discretion of the holder. As of December 31, 2010, 12,675 of Series X preferred shares convertible into 1,267,500 common shares are outstanding.
	Common Shares
	a)	During 2002, in addition to 378,580 common 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 common shares for $152,078. The Company paid $152,078 in connection with the acquisition of the 3,500,000 common shares and has recorded amounts paid as a charge to Treasury shares. The related common shares have not yet been received or cancelled.
	b)	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.
	c)	On April 6, 2010, the Company issued 2,000,000 common shares upon the exercise of warrants for cash proceeds of $20,000.
	d)	During April 2010, the Company issued 76,393,200 common shares upon the conversion of notes payable of $395,967.
	e)	On February 8, 2010, the Company issued 6,000,000 common shares to a consultant in consideration for services with a fair value of $54,000, based on the grant date market price of $0.009 per share.
	f)	At December 31, 2010, the Company owed 1,333,333 common shares to the co-CEO of the Company in consideration for services with a fair value of $10,588 based on vesting date market prices from $0.0019 to $0.013 per share.
	g)	During the year ended December 31, 2009, the Company issued 1,666,667 common shares to the co-CEO of the Company in consideration for services with a fair value of $10,800, at a range of grant date market prices from $0.0035 to $0.014 per share.
	h)	On June 25, 2009, the Company issued 1,000,000 common shares to a consultant in consideration for services with a fair value of $4,200, at a grant date market price of $0.0042 per share.
	i)	During October 2009, the Company issued 25,400,000 common shares of the Company for cash proceeds of $88,900.
	j)	During the year ended December 31, 2010, the Company recorded stock-based compensation of $86,356 consisting of shares issued with a fair value of $54,000 as described in Note 6(e) and $32,356 of stock-based compensation related to the vesting of stock options as described in Note 6.
	k)	During the year ended December 31, 2009, the Company recorded stock-based compensation of $46,191 consisting of shares issued with a fair value of $15,000 as described in Note 6(g) and Note 6(h), $30,911 of stock-based compensation related to the vesting of stock options as described in Note 6 and $280 of stock-based compensation related to the vesting of warrants as described in Note 7.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010, the remaining debt discount from the warrants and the beneficial conversion feature was $5,833 and the note was in default.

During the year ended December 31, 2011, the Company entered into an amendment which reduced the conversion price of the note to $0.0005 and the exercise price of the warrants to $0.005. On October 7, 2011, the Company issued 59,566,660 common shares upon the conversion of $25,000 of the note and $4,783 of interest at $0.0005 per share. The then-unamortized discount was written off on the conversion date.

The conversion qualified for accounting as an induced conversion under ASC 470-20. The Company recognized an inducement expense equal to the fair value of common shares issued in excess of the fair value of securities issuable pursuant to the original conversion terms of $50,930.

(i) On August 26, 2011, the Company issued a $27,500 convertible note and 550,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on August 26, 2013 and is convertible into common shares at $0.001 per share.

During the year ended December 31, 2011, the Company entered into an amendment to reduce the conversion price of the notes to $0.0005. On October 3, 2011, the Company issued 55,357,500 common shares upon the conversion of the $27,500 convertible note and $179 of interest at $0.0005 per share. The then-unamortized discount was written off on the conversion date.

F-16

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 common 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, 2010, the number of unoptioned shares available for granting of options under the plan was 7,197,759 (2009 - 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 common 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, 2010, the number of unoptioned shares available for granting of options under the plan was 1,703,500 (2009 - 1,703,500).
	All options granted under the above plans are fully vested and exercisable immediately.
	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.
	On January 31, 2009, the Company granted 10,666,666 options to the President of the Company and 3,200,000 options to the Company’s Chief Financial Officer. The options are exercisable at $0.0117 per share for 7 years and vest 1/36 per month for 36 months and had a fair value of $0.007 per share. During the year ended December 31, 2010, the Company recorded $32,356 (2009 - $30,911) of stock-based compensation relating to the vesting of stock options.
	A summary of the Company’s stock option activity is as follows:

(j) On September 19, 2011, the Company issued a $12,500 convertible note and 250,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on September 19, 2013 and is convertible into common shares of the Company at $0.001 per share.

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2008		13,611,115		$	0.013
Granted		13,866,666			0.0117
Outstanding, December 31, 2009		28,633,332		$	0.014		4.62	$	5,431
Expired		(500,000	)		0.02
Outstanding, December 31, 2010		28,133,322		$	0.013		3.70		–
Exercisable, December 31, 2010		23,125,913		$	0.013		3.40	$	–

During the year ended December 31, 2011, the Company entered into an amendment to reduce the conversion price of the notes to $0.0005. On October 4, 2011, the Company issued 25,062,511 common shares upon the conversion of the $12,500 convertible note and $31 of interest at $0.0005 per share. The then-unamortized discount was written off on the conversion date.

(k) On October 14, 2011, the Company issued a $40,000 convertible note and 800,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on October 14, 2013 and is convertible into common shares of the Company at $0.001 per share.

During the year ended December 31, 2011, the Company entered into an amendment to reduce the conversion price of the notes to $0.0005. On October 14, 2011, the Company issued 80,000,000 common shares upon the conversion of the $40,000 at $0.0005 per share. The then-unamortized discount was written off on the conversion date.

F-17

~~Assumptions used to value the options: expected dividend yield Nil%; expected volatility between 113.23% and 176.34%; risk-free interest rate between 2.27% to~~ 3.~~39%~~ ~~and~~Short anTerm ~~expected~~Convertible ~~life~~Notes of– 7Related ~~years. A summary of the changes of the Company’s non-vested stock options is presented below:~~Party

Non-vested stock options	Number of Options			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2008		1,155,551		$	0.018
Granted		13,866,666			0.005
Vested		(5,392,588	)		0.018
Non-vested at December 31, 2009		9,629,629		$	0.005
Vested		(4,622,220	)		0.005
Non-vested at December 31, 2010		5,007,409		$	0.005

(a) On June 15, 2006, the Company issued a $15,000 convertible note to ICMC Holdings LLC, a company controlled by Jason Meyers. The note bears interest at the rate of 5% per annum, is due and payable on June 15, 2007, and convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share.

AsIn atconnection ~~December~~with ~~31,~~the ~~2010,~~issuance ~~there~~of ~~was~~the ~~$35~~convertible note,~~052~~ ofthe ~~unrecognized~~Company ~~compensation~~evaluated ~~cost~~the ~~related~~conversion tooption ~~non~~for derivative treatment under ASC 815-~~vested~~15, ~~stock~~Embedded ~~option~~Derivatives, ~~agreements~~and determined the note and conversion feature did not qualify as derivatives. ~~This~~The ~~cost~~conversion isfeature ~~expected~~did tonot bequalify ~~recognized~~as ~~over~~a derivative because the minimum conversion price provides a ~~weighted~~determinate ~~average~~number ~~period~~of shares issuable upon conversion and the Company had enough available common stock to issue in satisfaction of ~~1.00~~all ~~years~~common stock equivalents.

7In recording the transaction, the Company 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. ~~Warrants~~The Avalue ~~summary~~of the beneficial conversion feature was recorded as a discount to convertible notes and was amortized over the term of the ~~changes~~notes inusing the ~~Company’s~~straight-line ~~common~~method. ~~share~~As ~~purchase~~of December 31, 2011 and 2010, the debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is ~~presented~~in ~~below:~~default.

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2008		31,434,444		$	0.02
Issued		4,050,000		$	0.01
Outstanding, December 31, 2009		35,484,444		$	0.01		2.71	$	10,673
Issued		500,000		$	0.01
Expired		(2,000,000	)	$	0.01
Outstanding, December 31, 2010		33,984,444		$	0.01		2.30	$	–

(b) On January 17, 2007 and February 1, 2007, the Company issued convertible notes of $15,000 and $16,000, respectively to Aspatuck Holdings Ltd. The notes bear interest at a rate of 5% per annum, are due and payable one year following issuance, and convertible into the Company’s common shares at convertible into the Company’s common shares at the lower of 70% of the previous day’s market price (to a minimum of $0.003) or $0.025 per share. The convertible notes were issued with detachable warrants to purchase 620,000 shares of the Company’s common stock at $0.025 per share for five years.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2009, debt discount from the warrants and the beneficial conversion feature have been fully amortized and the note is in default.

In December 2009, the notes were modified to reduce the conversion price from the provision discussed above to a set amount of $0.005 per share. The Company analyzed the modification as prescribed by ASC 470-50 to determine whether it was substantial. Based on the analysis, the Company determined that the modifications were substantial and thus resulted in an extinguishment of the existing loans. Consequently, the old debt, along with any unamortized discount, is derecognized and the new debt is recorded at its fair value.

F-18

~~During~~The ~~the~~Company ~~year~~evaluated ~~ended~~the ~~December~~conversion ~~31,~~option ~~2010,~~in the ~~Company~~amended ~~recorded~~note ~~$Nil~~for ~~(2009~~derivative -treatment ~~$280)~~under ofASC ~~stock~~815-~~based~~15, ~~compensation~~Embedded ~~relating~~Derivatives, toand determined the ~~vesting~~note ofand ~~warrants~~conversion ~~granted~~feature did not qualify as ~~compensation~~derivatives. AsThe atconversion ~~December~~feature ~~31,~~did ~~2010,~~not qualify as a derivative because the ~~following~~note is convertible into a fixed number of shares and the Company had enough available common ~~share~~stock ~~purchase~~to ~~warrants~~issue ~~were~~in ~~outstanding:~~satisfaction of all common stock equivalents.

Number of Warrants	Exercise Price	Remaining Contractual Life (years)
833,328	$ 0.04	2.84 – 4.00
500,000	$ 0.005	4.19
2,000,000	$ 0.01	3.44 – 3.89
3,916,671	$ 0.0117	2.33 – 3.33
4,374,077	$ 0.0117	3.42 – 4.33
620,368	$ 0.0117	4.42 – 5.16
18,820,000	$ 0.02	1.16 – 2.46
2,920,000	$ 0.025	0.17 – 1.13
33,984,444

Additionally it was determined that the amended notes contained beneficial conversion features 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 features, $31,000, was expensed immediately because the maturity date of the loan had passed.

8During the year ended December 31, 2011, the Company repaid $9,338 of the notes and $7,648 of interest. ~~Commitments~~As ~~Litigation~~a result at December 31, 2011, the outstanding principal amount of the notes was reduced to $10,222 and $11,440.

	(a)	TST, Inc.
		In March 2000, TST, Inc. (“TST”), a vendor to a subsidiary of Pacific Baja 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.
		The Company 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 December 31, 2010, the Company has included $4,670,997 ($4,426,360 in 2009) 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; an additional $83,000 has also been included in the provision for lawsuit settlements.

(c) On June 1, 2009, the Company issued a $50,000 convertible note to Mr. Robert Roche. Mr. Roche became a related party upon the conversion of debt into common shares exceeding 10% of the total shares outstanding on November 10, 2011. The note bears interest at the rate of 12% per annum, is due and payable on June 1, 2011, and convertible into the Company’s common shares at $0.01 per share. The convertible note was issued with detachable warrants to purchase 1,000,000 shares of the Company’s common stock at $0.01 per share for five years.

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 were recorded as a discount to convertible notes and were amortized over the term of the notes using the straight-line method. As of December 31, 2010, the remaining debt discount from the warrants and the beneficial conversion feature is $750 and the note was in default.

On November 10, 2011, the Company amended the convertible note and warrants held by Mr. Roche. Pursuant to the amendment, the conversion price of the note was reduced from $0.01 to $0.0005 and the exercise price of the warrant was reduced from $0.01 to $0.005. A total of 130,433,333 shares were issuable by the Company to Mr. Roche as a result of the amendment, conversion and warrant exercise. On November 10, 2011, the Company issued 111,904,471 common shares upon the conversion of $50,000 of the convertible note and $5,952 of interest at $0.0005 per share (additional accrued interest of $9,025 was forgiven). As of December 31, 2011 the Company owed Mr. Roche 18,528,862 shares of common stock as the result of the amendment, conversion and warrant exercise but could not issue the additional shares as it has insufficient authorized shares. The then-unamortized discount was written off on the conversion date.

F-19

(bd) ~~Pacific~~On ~~Baja~~December ~~Bankruptcy In July 1999~~31, ~~a major creditor of the Company's wholly-owned major subsidiary~~2011, ~~Pacific~~issued ~~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,~~convertible ~~Pacific~~note ~~Baja~~to ~~and~~Aspatuck ~~its~~Holdings ~~subsidiaries~~having 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~~face ~~for~~value ~~entry~~ of ~~judgment and assignment in the Pacific Baja bankruptcy proceedings for~~ $~~500~~652,~~000~~267 ~~to be issued~~ in ~~common~~satisfaction ~~stock~~of orconsulting ~~cash~~fees orowed ~~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~~it. ~~The~~Aspatuck ~~bankruptcy~~Holdings ~~Trust~~is ~~also~~obligated ~~agreed~~ to aprovide ~~covenant not to execute against~~ the ~~Company~~services ~~regardless~~ of ~~the~~Jason ~~outcome~~Meyers ofto the ~~insurance claims~~Company. The ~~Company~~note ~~has~~bears ~~completed~~interest ~~the~~at ~~assignment~~5% ofper ~~its~~annum ~~insurance~~and ~~claims,~~is ~~but~~due ~~has~~on ~~not completed the cash/stock payment that was to be paid to the Trust by~~ December 931, ~~2005~~2014. ~~(c) In February 2007, we entered into a patent assignment agreement with four of our consultants relating to the assignment of patent rights.~~ The ~~four~~noteholder ~~consultants,~~can ~~including~~convert ~~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~~note ~~States Patent~~ and ~~Trademark~~interest ~~Office.~~into ~~Under~~common ~~the~~shares ~~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. (d) 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~~$0.001.

9In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature qualified as derivatives. ~~Related~~The ~~Party~~conversion ~~Transactions~~feature qualified as a derivative because the note is convertible the Company did not have enough available common stock to issue in satisfaction of all common stock equivalents. The Company classified the conversion feature as a derivative liability at fair value.

~~(a)~~The ~~Aspatuck~~fair ~~Holdings~~value ~~Ltd. and another entity affiliated with Jason Meyers have advanced an aggregate~~ of ~~$46,000 to~~ the ~~Company~~conversion ~~plus~~feature ~~related~~was ~~accrued~~determined ~~interest~~to ~~expense~~be of $9195,~~504~~680 atusing ~~December~~a ~~31,~~Black-Scholes ~~2010 (2009~~ option-pricing ~~$7,204)~~model. ~~Refer~~Upon ~~to Note 4. As of December 31, 2010 and December 31, 2009~~ the ~~Company~~issuance ~~also~~dates ~~owes Aspatuck Holdings Ltd consulting fees~~ of ~~$537,437 and $417,227, respectively, for~~ the ~~services of Jason Meyers. The Company has included these consulting fees in accounts payable related party in the balance sheet. The Company has included~~ $~~120~~195,~~000~~680 ofwas ~~consulting~~recorded compensation in the general and administrative expense for the years ended December 31, 2010 and 2009. The Company also included $24,889 and $17,658 of non cash warrant expense for the year ended December 31, 2010 and 2009 respectively. (b) John Adams, co-CEO has advanced an aggregate of $35,000 in convertible notes as adebt ~~private investor~~discount. ~~The~~As ~~notes were due in November 2006 and July 2007 but remain unpaid as~~ of December 31, ~~2010. The Company has recorded accrued interest expense of $8~~2011,~~606~~ ~~at December 31, 2010 (2009 - $6,856). Refer to Notes 4(a) and (c). The Company recorded $10,588 and $10,800 general and administrative expense for~~ the ~~stock~~aggregate ~~compensation~~unamortized todiscount beis issued to John Adams for the year ended December 31, 2010 and 2009, respectively. Refer to Notes 5(f) and (g). (c) As of December 31, 2010 and 2009 the Company owes Debi Kokinos, CFO consulting fees of $~~169~~195,~~870~~680 and ~~$92,350, respectively. The Company has included these consulting fees in accounts payable related party in~~ the ~~balance~~carrying ~~sheet.~~value ~~The Company has included $77,520~~ of ~~consulting compensation in~~ the ~~general~~note ~~and~~was ~~administrative expense for the years ended December 31, 2010 and 2009. The Company also included~~ $7456,~~467 and $5,297 of noncash stock-based compensation for the year ended December 31, 2010 and 2009, respectively~~587.

(e) On December 31, 2011, issued a convertible note to Debi Kokinos, the Company’s chief financial officer, having a face value of $244,160 in satisfaction of consulting fees owed to her. The loan bears interest at 5% per annum and is due on December 31, 2014. The noteholder can convert the note and interest into common shares of the Company at $0.001.

In connection with the issuance of the above convertible note, the Company evaluated the conversion option for derivative treatment under ASC 815-15, Embedded Derivatives, and determined the note and conversion feature qualified as derivatives. The conversion feature qualified as a derivative because the note is convertible the Company did not have enough available common stock to issue in satisfaction of all common stock equivalents. The Company classified the conversion feature as a derivative liability at fair value.

The fair value of the conversion feature was determined to be $73,248 using a Black-Scholes option-pricing model. Upon the issuance dates of the $73,248 was recorded as debt discount. As of December 31, 2011, the aggregate unamortized discount is $73,248 and the carrying value of the note was $170,912.

4. Derivative Liability

On November 10, 2011, upon the amendment and conversion of the convertible note payable described in Note 4(c), the Company had issued the maximum number of common shares the Company is authorized to issue. As a result the Company no longer had enough authorized and unissued common shares to satisfy the conversion of outstanding convertible notes, warrants and options. As the Company no longer had enough authorized and unissued common shares to satisfy these conversions the Company was required to reclassify all embedded conversion features and non-employee warrants and options as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of the instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

F-20

10.	Income Taxes
	Pursuant to ASC 740, the Company is required to compute tax asset benefits for non-capital losses carried forward. Potential benefit of non-capital losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the losses carried forward in future years.
	Significant components of the Company’s deferred tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities:

	2010			2009
Balance at December 31, 2010	$	–
Deferred income tax assets:
Reclassification of fair value of conversion features		17,865
Net losses carried forward	$	31,322,977		$	30,620,347
Reclassification of fair value of stock options		21,852
Deferred tax asset		10,963,042			10,717,121
Reclassification of fair value of warrants		28,148
Valuation allowance		(10,963,042	)		(10,717,121	)
Reclassification of fair value of shares issuable		1,067
Net deferred income tax asset	$	–		$	–
Fair value of conversion features issued		268,928
Change in fair value of conversion features		(11,166)
Change in fair value of warrants		(17,002)
Change in fair value of options		(13,527)
Change in fair value of shares issuable		(667)
Fair value of warrants settled		(1,160)
Balance at December 31, 2011	$	294,338

~~The net operating loss carryforwards expire from 2013 to 2030~~5. ~~Income~~Share tax periods from 2003 to 2010 are open for examination by taxing authorities. Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change, as defined, occurs. The Company may have incurred such an ownership change as a result of a merger in September 2005. If the 2005 merger is deemed to be an ownership change pursuant to Internal Revenue Section 382, use of net operating losses will be restricted. The valuation allowance reflects the Company’s estimate that the tax assets, more likely than not, will not be realized and consequently have not been recorded in these financial statements.Capital

~~11.~~Authorized ~~Debt Settlements~~Capital

(a) ~~During~~At the ~~year~~Annual ~~ended~~General ~~December~~Meeting ~~31,~~held ~~2010, the Company recorded a gain~~ on ~~settlement~~June ~~of debt and debt relief of $33~~30,~~299~~ ~~related to the write-off of accounts payable~~2004, the ~~collection~~shareholders ofapproved ~~which is time barred by applicable statute of limitations based on a review and~~ an ~~opinion~~increase of ~~counsel~~authorized ~~with~~capital ~~respect~~ to ~~each state that has jurisdiction over the transactions. (b) During the year ended December 31~~1, ~~2010~~000, ~~a note holder agreed to settle $20,~~000 ~~note payable and $4~~,~~075 of interest for the issuance of 400,~~000 common shares. The Company recorded a gain on settlement of debt and debt relief of $8,075 upon settlement. (c) During the year ended December 31, 2009, the Company recorded a gain on settlement of debt and debt relief related to the write-off of $577,091 of accounts payable and accrued liabilities, and $856,445 of provisions for lawsuit settlements. These write-offs related to liabilities, the collection of which is time barred by applicable statute of limitations based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions. (d) During 2003, the Company entered into three private placement agreements for the issuance of 2,433,810 shares for gross proceeds of $138,600. The shares have not been issued and during the year ended December 31, 2009, the Company wrote off any potential liability, as the statute of limitations for any claim expired.

Preferred Shares

a) The Company has 1,000,000 preferred shares authorized with a par value of $0.001.

b) In 2003, 150,000 of the 1,000,000 preferred shares were designated as Series X preferred shares. The Series X preferred shares have a par value of $0.001 per share, do not have voting rights, and holders are entitled to receive dividends pro-rata with the issued and outstanding shares of the Company’s common stock on an if converted basis when and if dividends are declared on the outstanding shares of the Company’s common stock. The Series X preferred shares are each convertible into 100 common shares at the discretion of the holder. As of December 31, 2011 and 2010, 12,675 of Series X preferred shares convertible into 1,267,500 common shares are outstanding.

Common Shares

a) During 2002, in addition to 378,580 common 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 common shares for $152,078. The Company paid $152,078 in connection with the acquisition of the 3,500,000 common shares and has recorded amounts paid as a charge to Treasury shares. The related common shares have not yet been received or cancelled.

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~~12.~~b) ~~Subsequent~~In ~~Events~~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.

(ac) On August 26, 2011, the Company issued a $27,500 convertible note and 550,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on August 26, 2013 and is convertible into common shares at $0.001 per share. Subsequent to December 31, 2010, the Company entered into an amendment to reduce the conversion price of the notes to $0.0005. On October 3, 2011, the Company issued 55,357,500 common shares upon the conversion of the $27,500 convertible note plus related interest at $0.0005 per share. (b) On September 1, 2011, the Company issued 6,105,000 common shares upon the conversion of $50,000 of the convertible note described in Note 32(g) and $11,050 of interest at $0.01 per share. (c) On September 19, 2011, the Company issued a $12,500 convertible note and 250,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on September 19, 2013 and is convertible into common shares of the Company at $0.001 per share. Subsequent to December 31, 2010, the Company entered into an amendment to reduce the conversion price of the notes to $0.0005. On October 4, 2011, the Company issued 25,062,500 common shares upon the conversion of the $12,500 convertible note plus related interest at $0.0005 per share. (d) On October 7, 2011, the Company amended the convertible note described in Note 3(h) and issued 59,566,660 common shares upon the conversion of $25,000 of the note and $4,783 of interest at $0.005 per share. (e) On October 14, 2011, the Company issued a $40,000 convertible note and 800,000 warrants to purchase common shares at an exercise price of $0.002 per share. The note bears interest at 12% per annum, matures on October 14, 2013 and is convertible into common shares of the Company at $0.001 per share. On October 14, 2011, the Company issued 80,000,000 common shares upon the conversion of the $40,000 at $0.0005 per share. (f) On November 4, 2011, a warrant holder exercised 500,000 warrants at $0.005 per share. The Company did not have enough authorized and unissued common shares to satisfy the exercise. As a result the warrants no longer met equity classification and were reclassified as liabilities (g) On November 10, 2011, the Company amended the convertible note and warrants described in Note 4(c). Pursuant to the amendment, the conversion price of the note was reduced from $0.01 to $0.0005 and the exercise price of the warrant was reduced from $0.01 to $0.005. On November 10, 2011, the Company issued 111,904,471 common shares upon the conversion of $50,000 of the convertible note and $14,977 of interest at $0.005 per share. As a result, the Company had issued the maximum number of authorized common shares the Company and could not issue common shares to satisfy the conversion of various convertible notes, warrants and options. As the Company no longer had enough authorized and unissued common shares to satisfy the conversion of various convertible notes, warrants and options, some of these instruments no longer met equity classification and were reclassified as derivative liabilities. (h) On December 31, 2011, the Company issued a convertible note to Aspatuck Holdings having a face value of $652,227 in satisfaction of consulting fees owed to it. Aspatuck Holdings is obligated to provide the services of Jason Meyers to the Company. The note bears interest at 5% per annum and is due on December 31, 2014. The noteholder can convert the note and interest into common shares of the Company at $0.001.

d) On October 7, 2011, the Company issued 59,566,660 common shares upon the conversion of $25,000 of the note and $4,783 of interest at $0.005 per share. Refer to Note 2(h).

e) On October 3, 2011, the Company issued 55,357,500 common shares upon the conversion of the $27,500 convertible note and $179 of interest at $0.0005 per share. Refer to Note 2(i).

f) On October 4, 2011, the Company issued 25,062,500 common shares upon the conversion of the $12,500 convertible note and $31 of interest at $0.0005 per share. Refer to Note 2(j).

g) On October 14, 2011, the Company issued 80,000,000 common shares upon the conversion of the $40,000 at $0.0005 per share. Refer to Note 2(k).

h) On November 10, 2011, the Company issued 111,904,471 common shares upon the conversion of $50,000 of the convertible note and $5,952 of interest at $0.005 per share. Refer to Note 3(c).

i) On April 6, 2010, the Company issued 2,000,000 common shares upon the exercise of warrants for cash proceeds of $20,000.

j) During April 2010, the Company issued 76,393,200 common shares upon the conversion of notes payable of $395,967.

k) On February 8, 2010, the Company issued 6,000,000 common shares to a consultant in consideration for services with a fair value of $54,000, based on the grant date market price of $0.009 per share.

l) At December 31, 2011, the Company owed 1,333,333 common shares to the former co-CEO of the Company in consideration for services during fiscal 2010 with a fair value of $10,588 based on vesting date market prices from $0.0019 to $0.013 per share.

m) During the year ended December 31, 2011, the Company recorded stock-based compensation of $32,356 (2010 - $86,356) consisting of shares issued with a fair value of $Nil (2010 - $54,000 as described in Note 5(e)) and $32,356 (2010 - $32,356) of stock-based compensation related to the vesting of stock options as described in Note 6.

n) During the year ended December 31, 2011, the Company issued 30,511 shares to a noteholder as a result of an over accrual of interest.

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 common 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, 2011, the number of unoptioned shares available for granting of options under the plan was 7,197,759 (2010 - 7,197,759).

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~~(i)~~2004 OnNevada ~~December~~Stock ~~31,~~Incentive 2011, the Company issued a convertible note to Debi Kokinos, the Company’s chief financial officer, having a face value of $244,160 in satisfaction of consulting fees owed to her. The note bears interest at 5% per annum and is due on December 31, 2014. The noteholder can convert the note and interest into common shares of the Company at $0.001. (j) On October 17, 2012, the Company issued a $25,000 convertible note. The note bears interest at 12% per annum, matures on October 17, 2014, and is convertible into common shares of the Company at $0.004 per share. (k) On January 23, 2013, the Company issued a $15,000 convertible note. The note bears interest at 12% per annum, matures on January 23, 2015 and is convertible into common shares of the Company at $0.004 per share. (l) On April 18, 2013, the Company issued a $75,000 convertible note. The note bears interest at 12% per annum, matures on October 19, 2013, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment. (m) On August 5, 2013, the Company issued a $25,000 convertible note. The note bears interest at 12% per annum, matures on February 5, 2014, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment. (n) On October 15 2013, the Company issued a $10,000 convertible note. The note bears interest at 12% per annum, matures on April 15, 2014, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment. (o) On November 21, 2013, the Company issued a $25,000 convertible note and a $15,000 convertible note. The notes bear interest at 12% per annum, mature on November 21, 2015, and are convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment. (p) During the years ended December 31, 2013, 2012 and 2011, the Company wrote off an aggregate of $5,542,936 of liabilities and reserves written off the collection of which is time barred by applicable statute of limitations based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions. (q) During 2014, we sold $150,000 of convertible notes payable. The notes bear interest of 12%, are convertible at $0.004, and maturing with dates ranging from January 2015 to December 2015.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 common 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, 2011, the number of unoptioned shares available for granting of options under the plan was 1,703,500 (2010 - 1,703,500).

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

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.

On January 31, 2009, the Company granted 10,666,666 options to the President of the Company and 3,200,000 options to the Company’s Chief Financial Officer. The options are exercisable at $0.0117 per share for 7 years and vest 1/36 per month for 36 months and had a fair value of $0.007 per share. During the year ended December 31, 2011, the Company recorded $32,356 (2010 - $32,356) of stock-based compensation relating to the vesting of stock options.

A summary of the Company’s stock option activity is as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2009		28,633,332		$	0.014

Expired		(500,000	)		0.02

Outstanding, December 31, 2010 and 2011		28,133,332		$	0.013		2.70	$	–

Exercisable, December 31, 2011		27,748,133		$	0.013		2.68	$	–

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A summary of the changes of the Company’s non-vested stock options is presented below:

Non-vested stock options	Number of Options			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2009		9,629,629		$	0.018

Vested		(4,622,220	)		0.005

Non-vested at December 31, 2010		5,007,409		$	0.005
Vested		(4,622,220	)		0.005

Non-vested at December 31, 2011		385,189		$	0.005

As at December 31, 2011, there was $2,696 (2010 - $35,052) of unrecognized compensation cost related to non-vested stock option agreements to be recognized over .08 years.

7. Warrants

A summary of the changes in the Company’s common share purchase warrants is presented below:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2009		35,484,444		$	0.01
Issued		500,000		$	0.01
Expired		(2,000,000	)	$	0.01

Outstanding, December 31, 2010		33,984,444		$	0.01		2.30	$	–

Issued		1,600,000		$	0.002
Expired		(2,300,000	)	$	0.019

Outstanding, December 31, 2011		33,284,444		$	0.017		1.49	$	–

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As at December 31, 2011, the following common share purchase warrants were outstanding:

Number of Warrants	Exercise Price		Remaining Contractual Life (years)
3,916,671	$	0.0117		1.33 – 2.33
4,445,373	$	0.0117		2.42 – 3.42
549,072	$	0.0117		3.50 – 4.16
833,328	$	0.04		1.84 – 3.00
1,620,000	$	0.025		0.05 – 0.13
18,820,000	$	0.02		0.16 – 1.46
1,000,000	$	0.01		2.89
500,000	$	0.005		3.19
1,600,000	$	0.002		4.66 – 4.79
33,284,444

8. Commitments

Litigation

(a) TST, Inc.

In March 2000, TST, Inc. (“TST”), a vendor to a subsidiary of Pacific Baja 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.

The Company 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 December 31, 2011, the Company has included $5,138,097 ($4,670,997 in 2010) 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; an additional $83,000 has also been included in the provision for lawsuit settlements.

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(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.

(c) 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.

(d) The Company has reserved $15,000 (2010 – $45,340) in association with several other matters.

(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.

9. Related Party Transactions

(a) The Company owes Aspatuck Holdings Ltd. and another entity affiliated with Jason Meyers an aggregate of $688,929 (2010 - $46,000) plus related accrued interest expense of $4,156 at December 31, 2011 (2010 - $9,504). Refer to Note 3. As December 31, 2010 the Company also owed Aspatuck Holdings Ltd consulting fees of $537,437 included in accounts payable related party in the balance sheet, for the services of Jason Meyers. During the year ended December 31, 2011, the Company secured the amounts payable through the issuance of the convertible note described in Note 3(d). The Company has included $120,000 of consulting compensation in the general and administrative expense for the years ended December 31, 2011 and 2010. The Company also included $24,889 and $24,889 of non cash warrant expense for the year ended December 31, 2011 and 2010 respectively.

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(b) As of December 31, 2010, the Company owed Debi Kokinos, CFO, consulting fees of $169,870 which were included in accounts payable related party. During the year ended December 31, 2011, the Company secured $244,160 of amounts payable through the issuance of the convertible note described in Note 3(e). The Company has included $77,520 of consulting compensation in the general and administrative expense for the years ended December 31, 2011 and 2010. The Company also included $7,467 and $7,467 of noncash stock-based compensation for the year ended December 31, 2011 and 2010 respectively.

10. Income Taxes

Pursuant to ASC 740, the Company is required to compute tax asset benefits for non-capital losses carried forward. Potential benefit of non-capital losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the losses carried forward in future years.

Significant components of the Company’s deferred tax assets and liabilities, after applying enacted corporate income tax rates, are as follows:

	2011			2010
Deferred income tax assets:
Net losses carried forward	$	32,072,239		$	31,322,977

Deferred tax asset		11,225,284			10,963,042
Valuation allowance		(11,225,284	)		(10,963,042	)
Net deferred income tax asset	$	–		$	–

The net operating loss carryforwards expire from 2013 to 2030. Income tax periods from 2003 to 2010 are open for examination by taxing authorities. Internal Revenue Section 382 restricts the ability to use these carryforwards whenever an ownership change, as defined, occurs. The Company may have incurred such an ownership change as a result of a merger in September 2005. If the 2005 merger is deemed to be an ownership change pursuant to Internal Revenue Section 382, use of net operating losses will be restricted. The valuation allowance reflects the Company’s estimate that the tax assets, more likely than not, will not be realized and consequently have not been recorded in these financial statements.

11. Debt Settlements

(a) During the year ended December 31, 2011, the Company recorded a gain on settlement of debt and debt relief of $25,840 (2010 - $Nil) related to the write-off of provisions for lawsuit settlements. These write-offs related to liabilities, the collection of which is time barred by applicable statute of limitations based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions.

(b) During the year ended December 31, 2011, a note holder agreed to settle $50,000 note payable and $14,977 of interest for the issuance of 111,904,471 common shares. As of December 31, 2011 the Company owes the related party 18,528,862 shares of common stock as the result of the amendment and resulting conversion and warrant exercise but could not issue the shares as it has insufficient authorized shares. Prior to conversion the note holder was not a related party, but became a related party upon the conversion into common shares exceeding 10% of the total shares outstanding. The Company recorded a gain on settlement of debt and debt relief of $9,024 upon settlement.

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(c) During the year ended December 31, 2011, the Company recorded a gain on settlement of debt and debt relief of $27,418 (2010 - $33,299) related to the write-off of accounts payable, the collection of which is time barred by applicable statute of limitations based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions.

(d) During the year ended December 31, 2010, a note holder agreed to settle $20,000 note payable and $4,075 of interest for the issuance of 400,000 common shares. The Company recorded a gain on settlement of debt and debt relief of $8,075 upon settlement.

12. Subsequent Events

(a) On October 17, 2012, the Company issued a $25,000 convertible note. The note bears interest at 12% per annum, matures on October 17, 2014, and is convertible into common shares of the Company at $0.004 per share.

(b) On January 23, 2013, the Company issued a $15,000 convertible note. The note bears interest at 12% per annum, matures on January 23, 2015 and is convertible into common shares of the Company at $0.004 per share.

(c) On April 18, 2013, the Company issued a $75,000 convertible note. The note bears interest at 12% per annum, matures on October 19, 2013, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment.

(d) On August 5, 2013, the Company issued a $25,000 convertible note. The note bears interest at 12% per annum, matures on February 5, 2014, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment.

(e) On October 15 2013, the Company issued a $10,000 convertible note. The note bears interest at 12% per annum, matures on April 15, 2014, and is convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment.

(f) On October 16, 2013, the Company entered into an amendment with the note holder described in Note 3(c). Pursuant to the amendment, the noteholder agreed to waive the 17,528,862 additional shares issuable upon the conversion of the note plus the 1,000,000 shares issuable by the Company in connection with the warrant exercise and additionally return to the Company 32,471,138 of the Company’s common shares held by the note holder. The amendment becomes effective at the time that the Company amends its certificate of incorporation effecting a reverse split.

(g) On November 21, 2013, the Company issued a $25,000 convertible note and a $15,000 convertible note. The notes bear interest at 12% per annum, mature on November 21, 2015, and are convertible in minimum conversion amounts of $10,000 into common shares of the Company at $0.004 per share subject to adjustment.

(h) During the years ended December 31, 2013 and 2012, the Company wrote off an aggregate of $5,489,678 of liabilities and reserves written off the collection of which is time barred by applicable statute of limitations based on a review and an opinion of counsel with respect to each state that has jurisdiction over the transactions.

(i) During 2014, we sold $150,000 of convertible notes payable. The notes bear interest of 12%, are convertible at $0.004, and maturing with dates ranging from January 2016 to December 2016.

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