Turbo Power Systems Inc.
TSX : TPS
AIM : TPS

Turbo Power Systems Inc.

March 30, 2010 02:00 ET

Turbo Power Systems Inc. (TPS) Announces Results for the Year and Quarter Ended 31 December 2009

LONDON, UNITED KINGDOM--(Marketwire - March 30, 2010) - Turbo Power Systems Inc. (TSX:TPS) (AIM:TPS)

Highlights

- Production and development income increased by 35% for the year at Pounds Sterling 10.5 million (2008: Pounds Sterling 7.78 million)

- Production revenues in Q4 increased by 71% to Pounds Sterling 3.2 million (2008: Pounds Sterling 1.9 million)

- EBITDA profit for 2009 of Pounds Sterling 0.2 million (2008: loss of Pounds Sterling 6.9 million)

- Net profit in Q4 of Pounds Sterling 0.2 million (2008: net loss Pounds Sterling 3.2 million)

- Cash inflow in Q4 of Pounds Sterling 0.1 million (2008: outflow of Pounds Sterling 0.2 million)

- Cash outflow for the year reduced by 87% to Pounds Sterling 0.4 million (2008: Pounds Sterling 3.2m).

Graham Thornton, Chairman, said:

"The latest financial year has seen significant progress towards making Turbo Power Systems a profitable business capable of sustaining organic growth. New orders were won in the transport and industrial markets, with customer-funded development of both electrical machines and power electronics systems. Both markets proved to be resilient in the face of a general economic downturn, and our sales grew year on year by 35% in 2009. The outlook for 2010 is positive with the prospect of further orders from McQuay and Bombardier.

The growth in our order book is clear evidence that the Company's products and technology continue to be attractive to our existing customer base, and we are seeing an increased level of interest from new customers and market segments. However, the Company's financial structure remains a matter of concern to the Board as we seek to turn a growing order book into sales. Consequently a major focus for the Company in 2010 will be to strengthen the Company's balance sheet to underpin our growth plans.

The management team has made major strides forward in controlling costs and improving operational performance. This has positioned the Company for profitable growth."

NOTES TO EDITORS

About Turbo Power Systems

Turbo Power Systems Inc (TSX:TPS) (AIM:TPS) is a leading UK based designer and manufacturer of innovative power solutions. The Company's products are all based on its core technologies of power electronics and high speed motors and generators and are sold into a number of market sectors including aerospace, rail, and various industrial sectors. The Company's products provide improved efficiency and reduced energy consumption compared to existing technologies.

Turbo Power System's existing customers include blue chip companies such as Bombardier Transportation, McQuay International and Eaton Aerospace.

Forward looking statements

This press release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, and underlying assumptions and other statements that are other than statement of historical fact. These statements are subject to uncertainties and risks including, but not limited to, the ability to meet ongoing capital needs, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition, the need to protect proprietary rights to technology, government regulation, and other risks defined in this document and in statements filed from time to time with the applicable securities regulatory authorities.

Definition of non-GAAP financial measures

EBITDA is calculated as the net loss for the period less financial interest income and charges, foreign exchange gains and losses, tax charges and receipts, depreciation, amortization, and stock compensation charges. The Company believes that EBITDA is useful supplemental information as it provides an indication of the operational results generated by its business activities prior to taking into account how those activities are financed and taxed and also prior to taking into consideration asset amortization. EBITDA is not a recognised measure under GAAP and, accordingly, should not be construed as an alternative to operating income or net loss determined in accordance with GAAP as an indicator of financial performance or of liquidity and cash flows. EBITDA does not take into account the impact of working capital changes, capital expenditures and other sources and uses of cash which are disclosed in the consolidated statement of cash flows. The Company's method of calculating EBITDA may differ from other issuers and may not be comparable to similar measures provided by other companies.

OPERATIONAL REVIEW

This review has been prepared as at 25 March 2010.

Business of the Company

Turbo Power Systems designs and manufactures:

- high-speed permanent magnet based motors and generators for industrial, transport, power generation and military applications, where technical performance, energy efficiency and power density requirements cannot be met by conventional technology.

- power electronics products, including variable frequency drives and inverters, which combine with the Company's electrical machines to create an integrated solution, and a range of rugged power conversion products for rail and industrial applications.

2009 Summary

Strategic Direction

TPS's primary focus is on the following markets:

- Transport

-- Power Electronics for the Rail Industry

- Energy

-- Grid Link Inverters

-- Motors & Generators

- Industrial Equipment

-- Motors & Generators

-- Power Supplies

- Defence

-- Power Electronics

-- Motors & Generators

Whilst the business will continue to service existing programmes in other areas (e.g. aerospace and automotive) it will behave in a reactive manner to these markets and only engage in new programmes that meet the requirements of the business in terms of risk, cash flow and profitability.

The vision for the business can be summarised as follows:

"To be a world class provider of specialist Power Electronics and Electrical Machines maximising stakeholder benefit"

The business aims to achieve this through:

- Market leading technologies and programme delivery

- Long term partnerships with our customers

- Strong year on year organic growth

- A culture of continuous improvement of individual and business performance and capability

In terms of the development of the business this means we intend to:

- Develop technological advantage and customer partnerships in the following business sectors:

-- Transport

-- Energy

-- Industrial

-- Defence

- Be a preferred supplier to a limited number of key blue chip customers

- Balance business activities across development, production and after sales

Current Operating Climate

The spread of markets in which we operate has provided a degree of resilience to the global downturn during 2009; indeed we have managed to grow the business despite the poor economic climate. We see this spread being of further benefit as and when the global economic climate improves.

The industrial sector is recovering well with confirmation of increased production requirements for the remainder of this year and into next year for our laser power suppliers and motors/drives for other industrial applications.

Governments are continuing to invest in infrastructure projects and, indeed, see transport initiatives such as new rail programmes as a way of helping to sustain their industries whilst providing necessary public transportation and having a positive effect on the environment.

Defence spend in both the US and UK is relatively static but have specialist pockets of growth potential in areas where TPS technology can be applied. We will continue to investigate this market further and hope to see increased activity during the coming years.

As a result of the many 'green initiatives' the energy sector is still seeing significant growth and we have been positioning ourselves in several areas in order to gain a share of this growth. We see this sector as offering substantial growth potential.

Many of our current contracts are U.S. Dollar based. We are therefore currently benefiting from the stronger US Dollar to weaker Sterling exchange rate. It has been 16% higher on average during 2009 at 1.565 USD:GBP as compared to a 2008 average of 1.855 USD:GBP. Exposure to exchange rate fluctuations is something that the business is very conscious of and management take measures in our contracting, purchasing and financial arrangements to seek to mitigate against exchange rate risk. At 31 December 2009 and at 31 December 2008 the Company did not have any exchange rate contracts.

Current Programmes

The Company operates with two reportable segments. The Power Electronics Division is involved in the development and manufacture of electrical power supply and control systems, encompassing rail and aerospace transport activities, power conditioning within the renewable energy area and industrial power supplies. The Electrical Machines Division is involved in the development and commercialisation of high speed electrical machines which are currently marketed within the renewable energy, industrial and defence markets.

- Transport

-- Rail

Deliveries continue on the major programmes (Bombardier Chicago Transit Authority and Bombardier Toronto). Deliveries commenced on the Bombardier KL Programme during the latter part of 2009, and completed in early in 2010. Deliveries on our smaller rail programmes continue to be made to customer call off requirements.

-- Aerospace

The Jettison Fuel Pump motor drives for Eaton Aerospace continue to be delivered in line with the customer's call-off rate.

- Energy

-- Renewable Energy

There has been continued European funded R&D work in this area relating to Grid Linked Inverters and we anticipate further R&D grant funded work being secured related to charging systems for Electric Vehicles. Along with European partners we have progressed development work on a 6kW combined heat and power generator for use in the domestic gas boiler market. These programmes and capabilities, combined with our compact and power-dense high speed generator units, are being used as the basis for our business development activities for our future in the energy sector.

- Industrial

-- Laser Power Supplies

Our customer has now confirmed an increased demand for their product and our power supply units are now being produced again. The customer has also indicated that they expect to see a return to previous levels of demand during 2010.

-- Industrial Motors and Drives

Materials to support deliveries to our Industrial Motors and Drives OEM (McQuay International) have been procured with the current 150 units order being scheduled for delivery during the six months to March 2010. These units are for use in McQuay International's recently launched Magnitude WME chiller.

Work has also commenced on the next motor development under the exclusive development agreement finalised with McQuay in Q3 2009.

We have also re-started the production of the SKF Laser Blower products with indications that there will be continuing demand for these units during 2010.

- Defence

-- 1MW High-Speed Generator

Having successfully delivered our high-speed generator, under the contract awarded during 2008 by SAIC (a major US defence contractor), the complete system is currently undergoing system trials and we are supporting this phase of the programme. On the basis that their trials are successful we have indications that additional units are likely to be required during 2010.

Financial Performance

Total revenues in the year of Pounds Sterling 10.50 million were 35% greater than in 2008 (2008: Pounds Sterling 7.78 million), primarily due to increased production volumes during Quarter 4 and sales of development rights to McQuay during the year. R&D tax credits received during the year totalled Pounds Sterling 0.57 million and further reduced our development outlay.

Research and product development costs and administrative costs have both decreased further over the year following our operational cost review programme undertaken in mid 2007.

The Company recorded a profit before interest, tax, depreciation, amortization, foreign exchange gains and losses and stock compensation for the year of Pounds Sterling 0.24 million (2008: loss of Pounds Sterling 8.36 million) as a result of increased revenues and controlled operational costs.

The Company also recorded an operating cash inflow before working capital movements of Pounds Sterling 0.13 million for the year (2008: outflow of Pounds Sterling 7.42 million), but after adjusting for changes in working capital items and purchases of property, plant and equipment suffered an overall cash outflow of Pounds Sterling 0.41 million (2008: outflow of Pounds Sterling 3.18 million).

The Company finished the year with an unrestricted cash balance of Pounds Sterling 0.65 million and held further cash of Pounds Sterling 0.81 million associated with performance bonds.

On 23 December 2009 the Company reached agreement with the holders of its 2005 Series Loan Notes, whereby the conversion rate exercisable by the Note Holder was adjusted from Pounds Sterling 0.12 to Pounds Sterling 0.0215, and the Company gained the option to settle the outstanding Loan Notes before 31 January 2010 at a reduced rate of 20% of the outstanding amount.

During the period 23 December 2009 to 31 December 2009 25% of the 2005 Loan Note Holders elected to convert their Notes into equity and 21,162,790 Common Stock Shares were issued in exchange for Loan Notes with a face value of Pounds Sterling 0.46 million.

During the period 1 January 2010 to 29 January 2010 a further 16% of the 2005 Loan Note Holders elected to convert their Notes into equity and 13,023,256 Common Stock Shares were issued in exchange for Loan Notes with a face value of Pounds Sterling 0.28 million.

On 29 January 2010 the Company exercised its option to redeem the outstanding 2005 Loan Notes early at a 20% rate, and all outstanding Loan Notes, with a face value of Pounds Sterling 1.05 million were extinguished by way of a payment of Pounds Sterling 0.21 million.

During the year ended 31 December 2009 the Company had no transactions with related parties and there are no further proposed transactions to disclose.

Going Concern

The Critical Accounting Estimates included within these statements are assessed on an unchanged basis from the prior year and as disclosed in the Company's Financial Statements for the year ended 31 December 2009.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a 'going concern', which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 December 2009 the Company had net cash outflows from operations therefore may require additional funding which, if not raised, may result in the curtailment of activities. The Company has incurred cumulative losses (including a loss of Pounds Sterling 0.74 million in 2009) and has a cumulative deficit of Pounds Sterling 72.97 million as at 31 December 2009.

At 31 December 2009 the Company had an unrestricted cash balance of Pounds Sterling 0.65 million and held further cash of Pounds Sterling 0.81 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, that would be necessary if the "going concern" assumption were not appropriate.

Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itself as to the viability of operations. These ongoing reviews include consideration of current order book and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these evaluations management consider that the Company is able to continue as a going concern.

Summary of Quarterly Results

The following table sets forth selected quarterly consolidated financial information of the Company for the last eight quarters;



All
amounts Profit/ Net Net cash
in Pounds Research Net (loss) cash flow from
Sterling and product General and profit/ per flow from capital
'000 Revenue development administrative (loss) share operating investment

March
2008 1,962 1,591 1,059 (2,287) (0.7) (1,844) (96)
June
2008 1,711 1,470 1,049 (2,276) (0.7) (2,479) (57)
September
2008 1,246 1,363 1,025 (1,849) (0.6) (1,527) (10)
December
2008 1,862 841 816 (3,151) (1.0) 167 (8)

March
2009 1,383 881 916 (368) (0.1) (458) (23)
June
2009 1,235 199 812 (234) (0.1) (151) (13)
September
2009 1,453 579 654 (344) (0.1) (165) (26)
December
2009 3,193 743 845 211 0.1 (93) (10)


Production revenues decreased during the first nine months of 2009 reflecting the completion of the initial volumes on the McQuay Industrial Motor and Drive contract at the end of 2008, and the depressed industrial product market.

Research and development expenditure has remained at a decreased level compared with previous years reflecting the reduction in development activities on the Bombardier Chicago and Toronto rail programmes, together with the reduced development requirement as a result of the transition agreement on the Hamilton Sundstrand contract for the Boeing 787. Increased R&D tax credits recognized during the second quarter of 2009 further reduced the net Research and product development spend as analysed below.



Research and
All amounts in Pounds Sterling '000 Product Development
Gross Tax Credits Net

March 2008 1,591 - 1,591
June 2008 1,514 (44) 1,470
September 2008 1,413 (50) 1,363
December 2008 1,248 (407) 841

March 2009 881 - 881
June 2009 761 (562) 199
September 2009 829 (250) 579
December 2009 743 - 743


Reconciliation of net loss to EBITDA result


Quarter ended Year ended
31 December 31 December
2009 2008 2009 2008
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000

Net profit/(loss) 211 (3,151) (735) (9,563)

Add back:
Interest income - (12) (3) (95)
Interest expense 207 195 772 457
Finance (gain)/charge (495) 124 (466) 236
Foreign exchange loss/(gain) 78 (115) (76) (176)
Amortisation 119 166 618 662
Impairment charges - 1,472 - 1,472
Stock Compensation (14) 17 128 123
---------- --------- --------- ---------
EBITDA profit/(loss) 106 (1,304) 238 (6,884)
---------- --------- --------- ---------


Copies of Quarterly and Annual Results

The Company's full Financial Results and Managements' Discussion and Analysis are available on www.sedar.com and full financial statements will be mailed to shareholders during May 2010.

Copies of the quarterly and annual results are available from the Company's office at Unit 3 Summit Centre, Hatch Lane, West Drayton, Middlesex, UB7 0LJ, United Kingdom or available to view from the Company's website at www.turbopowersystems.com



TURBO POWER SYSTEMS INC.

CONSOLIDATED STATEMENTS OF PROFIT/(LOSS) AND COMPREHENSIVE PROFIT/(LOSS)

Notes Quarter ended 31 December Year ended 31 December
2009 2008 2009 2008
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000

Revenue 3,4 3,193 1,862 7,264 6,781
Development income 3,4 624 71 3,236 1,003
---------- ---------- ----------- ------------
3,817 1,933 10,500 7,784

Expenses
Production costs (2,109) (1,596) (4,761) (5,577)
Research and product
development (743) (841) (2,402) (5,265)
General and
administrative (845) (817) (3,227) (3,949)
Amortisation (119) (166) (618) (662)
Goodwill impairment - (820) - (820)
Inventory impairment - (652) - (652)
---------- ---------- ----------- ------------
(3,816) (4,892) (11,008) (16,925)

Profit/(loss) before
interest,
restructuring,
finance charges
and foreign exchange 1 (2,959) (508) (9,141)

Restructuring charges - (101) - (101)
Debt extinguishment
gain/(expense) 504 (115) 504 (115)
Interest income - 12 3 95
Interest expense (207) (195) (772) (457)
Finance income/(charge) (9) 92 (38) (20)
Foreign exchange
(loss)/gain (78) 115 76 176
---------- ---------- ----------- ------------
210 (192) (227) (422)
---------- ---------- ----------- ------------
Net profit/(loss) and
Comprehensive
profit/(loss) 211 (3,151) (735) (9,563)
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------


Loss per share
- basic 5 0.1p (1.0)p (0.2)p (3.0)p
Loss per share
- diluted 5 0.0p (1.0)p (0.2)p (3.0)p

Weighted average number
of shares outstanding 322,075,673 318,571,062 319,782,730 318,571,062


The results for the years ended 31 December 2009 and 31 December 2008
related to continuing activities

The accompanying notes are an integral part of these financial statements

TURBO POWER SYSTEMS INC.

CONSOLIDATED BALANCE SHEETS

As at 31 December As at 31 December
2009 2008
Pounds Pounds
Notes Sterling '000 Sterling '000
Current assets

Cash and cash equivalents 649 1,054
Restricted cash 645 552
Trade and other receivables 1,657 1,255
Stock and work in progress 1,943 1,685
Investments - -
Prepayments 435 372
R&D tax credits receivable 350 144
-------- --------
5,679 5,062
-------- --------
Long-term assets
Restricted cash 169 796
Intangible assets - 13
Property, plant and equipment 1,066 1,624
-------- --------
6,914 7,495
-------- --------
-------- --------
Liabilities and shareholders'
deficit
Creditors: amounts falling due
within one year
Trade and other payables 2,887 3,406
Convertible notes 261 -
Deferred income 621 166
-------- --------
3,769 3,572
-------- --------
Creditors: amounts falling due
after more than one year
Warranty provision 100 184
Convertible notes 3,386 4,512
-------- --------
3,486 4,696
-------- --------
Non controlling interest
A Ordinary share capital 7 13,310 13,310

Capital and reserves
Common share capital 6 56,225 55,804
Contributed surplus 3,095 2,349
Deficit (72,971) (72,236)
---------- ----------
Shareholders' deficit (13,651) (14,083)
--------- ---------
6,914 7,495
-------- --------
-------- --------


The accompanying notes are an integral part of these financial statements


TURBO POWER SYSTEMS INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT

Common
Share Contributed Total
capital surplus Deficit Deficit
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000

Balance at 1 January 2008 55,804 1,964 (62,673) (4,905)
Net loss (9,563) (9,563)
Stock compensation 123 123
Equity portion on issue of
convertible notes 262 262
--------- --------- --------- ---------
Balance at 31 December 2008 55,804 2,349 (72,236) (14,083)
Net loss (735) (735)
Stock compensation 128 128
Equity portion on revaluation
of convertible notes 927 927
Share conversion 398 (309) 89
Issue of shares 23 23
--------- --------- --------- --------
Balance at 31 December 2009 56,225 3,095 (72,971) (13,651)
--------- --------- --------- --------
--------- --------- --------- --------

The accompanying notes are an integral part of these financial statements


TURBO POWER SYSTEMS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Quarter ended Year ended
31 December 31 December
2009 2008 2009 2008
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000
Operating activities
Net profit/(loss) 211 (3,151) (735) (9,563)
Items not involving cash
Amortisation 119 166 618 662
Capital grant released 25 25 25 25
Accretion of debt 25 92 119 137
Deferred finance charges 114 - 114 -
Adjustment to fair value of investment - 12 - 25
Goodwill impairment - 820 - 820
Stock compensation charges (14) 17 128 123
Movement in loan interest accrual 86 76 437 202
Movement in warranty provision (84) 33 (84) 33
Debt extinguishment gain (504) - (504) -
Equity adjustment on loan note
conversion 8 115 8 115
--------- --------- --------- ---------
Cash in/(out)flow before movements
in working capital (14) (1,795) 126 (7,421)

Changes in working capital items
Accounts receivable, prepayments
and R&D tax credits (636) 1,012 (671) 1,730
Stock and work in progress 66 1,123 (258) 691
Accounts payable and deferred income (491) (173) (64) (683)
--------- --------- --------- ----------
Net cash (out)/inflow from operating
activities (93) 167 (867) (5,683)
--------- --------- --------- ----------

Investing activities
Purchase of property, plant and
equipment (10) (8) (72) (171)
Movement in restricted funds 221 (57) 534 14
--------- --------- --------- ----------
Cash in/(out)flow from investing
activities 211 (65) 462 (157)
--------- --------- --------- ---------

Financing activities
Net proceeds from financing - (313) - 2,659
--------- --------- --------- ----------
Cash in/(out)flow from financing
activities - (313) - 2,659
--------- --------- --------- ----------
Increase/(decrease) in cash in the 118 (211) (405) (3,181)
period --------- --------- --------- ----------
--------- --------- --------- ----------

Cash and cash equivalents:
Beginning of period 531 1,265 1,054 4,235
--------- --------- --------- ----------
End of period 649 1,054 649 1,054
--------- --------- --------- ----------
--------- --------- --------- ----------
Supplemental cash flow information
Cash paid for interest - - - (47)
Cash received as interest - 12 3 95

The accompanying notes are an integral part of these financial statements

Year ended 31 December 2009
Notes to the Consolidated Financial Statements


1. Basis of preparation and going concern

The consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been properly prepared using careful judgement with reasonable limits of materiality and within the framework of the significant accounting policies summarised in the Company's financial statements for the year ended 31 December 2008, and the subsequent changes in accounting policies as detailed in Note 2 below.

The Company's interim financial statements do not conform in all respects to the requirements of Canadian GAAP for annual financial statements. The Company's interim statements should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2009.

The Company's functional and reporting currency is Pound Sterling.

Going concern

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a 'going concern', which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 December 2009 the Company had net cash outflows from operations therefore may require additional funding which, if not raised, may result in the curtailment of activities. The Company has incurred cumulative losses (including a loss of Pounds Sterling 0.74 million in 2009) and has a cumulative deficit of Pounds Sterling 72.97 million as at 31 December 2009.

At 31 December 2009 the Company had an unrestricted cash balance of Pounds Sterling 0.65 million and held further cash of Pounds Sterling 0.81 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, that would be necessary if the "going concern" assumption were not appropriate

Management regularly reviews and considers the current and forecast activities of the Company in order to satisfy itself as to the viability of operations. These ongoing reviews include consideration of current order book and future business opportunities, current development and production activities, customer and supplier exposure and forecast cash requirements and balances. Based on these evaluations management consider that the Company is able to continue as a going concern.

2. Changes in accounting policies and recent accounting pronouncements

Section 3064 Goodwill and Intangible Assets

In February 2008 the CICA issued Handbook Section 3064 Goodwill and Intangible Assets, effective for interim and annual financial statements relating to fiscal years beginning on or after 1 October 2008. Section 3064, which replaces Section 3062 Goodwill and Other Intangible Assets, and Section 3450 Research and Development Costs, establishes standards for the recognition, measurement and disclosure of goodwill and intangible assets. This new standard was effective for the Company's fiscal year commencing 1 January 2009. The adoption of this standard has not affected the Company's consolidated financial statements.

Section 1000 Financial Statement Concepts

On 1 January 2009, the Company adopted the new recommendations of CICA Handbook Section 1000, Financial Statement Concepts, to clarify the criteria for recognition of an asset and the timing of expense recognition. The new requirements are effective for annual financial statements relating to fiscal years beginning on or after 1 October 2008. The adoption of this standard has not affected the Company's consolidated financial statements.

Credit Risk and the Fair Value of Financial Assets and Liabilities

On 20 January 2009 the CICA's Emerging Issue Committee ("EIC") issued abstract EIC-173, Credit and the Fair Value of Financial Assets and Liabilities, which requires entities to take both counterparty credit risk and their own credit risk into account when measuring the fair value of financial assets and liabilities, including derivatives. EIC-173 was to be applied retrospectively without restatement of prior periods in all financial assets and liabilities measured at fair value in interim and annual financial statements ending on or after the date of issuance of this abstract. The adoption of this standard has not affected the Company's consolidated financial statements.

Recent accounting pronouncements

New or updated CICA Handbook sections that have been issued but are not yet effective, and have a potential implication for the Company, are as follows:

Section 1582 Business combinations

This section replaces Section 1581 Business Combinations and applies prospectively to business combinations for which the acquisition date is on or after the first annual reporting period of the Company beginning on or after 1 January 2011. Section 1582 is not expected to have a significant impact on the Company's consolidated financial statements.

Section 1601 Consolidated Financial Statements

In January 2009, the CICA issued Handbook Section 1601, Consolidated Financial Statements, which replaces Handbook Section 1600, Consolidated Financial Statements carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests. The section establishes the standards for preparing consolidated financial statements and is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1602, Non-controlling Interests. Section 1601 is not expected to have a significant impact on the Company's consolidated financial statements.

Section 1602 Non-controlling Interests

In January 2009, the CICA issued new Handbook Section 1602, Non-controlling Interests, which establishes standards for the accounting of non-controlling interests of a subsidiary in the preparation of consolidated financial statements subsequent to a business combination. This standard is effective for fiscal years beginning on or after 1 January 2011. The Company may elect to early adopt this section and if so, will be required to early adopt Section 1582, Business Combinations and Section 1601, Consolidated Financial Statements. Section 1602 is not expected to have a significant impact on the Company's consolidated financial statements.

Harmonizing of Canadian and International Financial Reporting Standards (IFRS)

In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan which will abandon Canadian GAAP and affect a complete convergence to the International Financial Reporting Standards. These new standards will be effective for the Company's interim financial statements commencing 1 January 2011. The Company is closely monitoring changes arising from this convergence and has identified that the majority of the Company's accounting policies are substantially compliant, and is currently establishing the changes required to the remaining accounting policies and determining the required adjustments to its financial statements (including additional disclosures) with its external financial advisors.

3. Segmental analysis

The Company's two reportable segments are the power electronics segment, which is involved in the development and manufacture of electrical power supply and control systems and the electrical machines segment, which is involved in the development and commercialisation of high speed electrical machines.

Corporate charges relating to the financing of the Company and other related management activities are allocated between the two reportable segments.

The power electronics and electrical machines systems segments both operate in the United Kingdom. Except for the Investments held by the Company which are located in Canada, all of the Company's assets are located in the United Kingdom.



Power Electrical
electronics machines Total
2009 2008 2009 2008 2009 2008
Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
'000 '000 '000 '000 '000 '000
Quarter ended 30
December
Revenue 1,684 1,689 1,509 173 3,193 1,862
Development income 495 71 129 - 624 71
-------------------------------------------------------
2,179 1,760 1,638 173 3,817 1,933
-------------------------------------------------------
Amortisation (27) (32) (92) (124) (119) (166)
Interest income - 5 - 7 - 12
Interest expense (104) (97) (103) (98) (207) (195)
Profit/(Loss) for
the period 1,681 (1,872) (1,470) (1,279) 211 (3,151)
-------- -------- -------- -------- --------- --------
Property, plant and
equipment 10 (4) - 12 10 8


Year ended 31 December 2009
Notes to the Consolidated Financial Statements

Power Electrical
electronics machines Total
2009 2008 2009 2008 2009 2008
Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
'000 '000 '000 '000 '000 '000
Year ended 30 December
Revenue 5,323 6,112 1,941 669 7,264 6,781
Development income 884 375 2,352 628 3,236 1,003
-------------------------------------------------------
6,207 6,487 4,293 1,297 10,500 7,784
-------------------------------------------------------

Amortisation (198) (174) (420) (488) (618) (662)
Interest income 1 47 2 48 3 95
Interest expense (386) (228) (386) (229) (772) (457)
Loss for the period (301) (5,945) (434) (3,618) (735) (9,563)
-------- -------- -------- -------- --------- --------
Property, plant and
equipment 67 134 5 37 72 171


Power Electrical
electronics machines Total

Dec Dec Dec Dec Dec Dec
2009 2008 2009 2008 2009 2008
Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
'000 '000 '000 '000 '000 '000

Total assets 3,853 4,624 3,061 2,871 6,914 7,495
Property, plant and
equipment 365 532 701 1,092 1,066 1,624
Total liabilities (4,035) (4,596) (3,220) (3,672) (7,255) (8,268)


Total revenue Quarter ended Year ended
30 December 30 December

2009 2008 2009 2008
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000

UK 316 (127) 1,602 750
USA 3,122 1,629 7,854 5,243
Canada 420 307 599 1,496
Rest of World (41) 124 445 295
---------- --------- --------- ---------
3,817 1,933 10,500 7,784


4. Significant customers

In the year ended 31 December 2009, 64% of the Company's sales were derived from two customers (31 December 2008: 48% from three customers), each of whom represented 10% or more of the Company's sales.

In the quarter ended 31 December 2009, 86% of the Company's sales were derived from two customers (31 December 2008: 43% from two customers).

5. Profit/(loss) per share

Earnings per common share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The treasury stock method was used in determining the weighted average number of shares outstanding for each period.



Quarter ended Year ended
31 December 31 December
2009 2008 2009 2008

Numerator for basic EPS
calculation:
Net profit/(loss) Pounds (Pounds (Pounds (Pounds
Sterling Sterling Sterling Sterling
211,000 3,151,000) 735,000) 9,563,000)

Denominator
For basic net earnings
- weighted average shares
outstanding 322,075,673 318,571,062 319,782,730 318,571,062
For diluted net earnings
- weighted average shares
outstanding 622,965,027 318,571,062 319,782,730 318,571,062


As the Company experienced a loss in both full years and the quarter ended 31 December 2008 all potential common shares outstanding from dilutive securities are considered anti-dilutive and are excluded from the calculation of loss per share.

Details of anti-dilutive potential securities outstanding not included in EPS calculations at December 31 are as follows:



2009 2008
Common shares potentially issuable:
- pursuant to warrants (note 24) 23,357,142 23,357,142
- under stock options (note 24) 25,485,700 17,651,700
- pursuant to loan note conversions (note 19) 137,046,512 89,908,333
- pursuant to A Ordinary stock conversion
(note 25) 115,000,000 115,000,000
-------------- -------------
300,889,354 245,917,175
-------------- -------------


6. Share capital - issued shares

Authorised

At 31 December 2009 and 31 December 2008, the authorised share capital of the Company comprised an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, without nominal or par value.



Issued
Common
Pounds
Number Sterling '000
At 1 January 2008 318,571,062 55,804
------------ --------------
At 31 December 2008 318,571,062 55,804
------------ --------------

Shares issued 22,827,160 421
------------ --------------
At 31 December 2009 341,398,222 56,225
------------ --------------


Common Shares

On 14 July 2009 the Company issued 1,664,368 common shares to holders of its 2005 series Convertible Loan Notes, in consideration for the interest due on those loan notes for the period 1 January 2009 to 30 June 2009, at a price of 1.4p per share.

On 24 December 2009 the Company issued 21,162,792 common shares as a result of the conversion of Pounds Sterling 455,000 of 2005 Convertible Loan Notes, at a conversion price of 2.15p per share.

After the balance sheet date, on 28 January 2009 the Company issued a further 9,069,769 common shares, and on 8 February 2009 a final 3,953,488 common shares as a result of additional conversions of Pounds Sterling 280,000 of 2005 Convertible Loan Notes, at a conversion price of 2.15p per share.

No options or warrants were exercised during the year ended 31 December 2009 or 31 December 2008.



7. A Ordinary equity

Pounds
Number Sterling '000
At 1 January 2008 115,000,000 13,310
------------- --------------
At 31 December 2008 and 31 December 2009 115,000,000 13,310
------------- --------------


Holders of A Ordinary Shares of Turbo Power Systems Limited carry no voting rights, cannot attend any shareholder meetings and, in the event of winding-up of the Limited Company are entitled to a maximum distribution of Pounds Sterling 500,000 in aggregate, to rank before the Common Shares. The A Ordinary shares are convertible into an equal number of Common Shares of Turbo Power Systems Inc. on request by the holder, having given 61 days notice. Under certain take over or change in control events, the Ordinary Shares are exchangeable under "super exchange" rights, converting for 3 common shares of Turbo Power Systems Inc. for every Ordinary Share held.

As the A Ordinary Shares are non-participating interests in Turbo Power Systems Limited and are non-voting, no current year or cumulative net losses has been allocated to the A Ordinary Shares.

8. Subsequent event

On 28 January 2010 a further 9,069,769 Common Stock shares were issued as a result of the conversion of Pounds Sterling 195,000 of 2005 loan note principal, and on 8 February 2010 3,953,488 Common Stock shares were issued as a result of the conversion of Pounds Sterling 85,000 of 2005 loan note principal.

On 29 January 2010 the Company elected to repay the remaining 2005 loan note holders at the agreed redemption rate of 20%, resulting in a payment of Pounds Sterling 210,800 in full and final settlement of the outstanding principal value of Pounds Sterling 1,054,000.

On 29 March 2010 the 2008 loan note holders agreed to extend their waiver that removed the requirement for the Company to maintain unrestricted cash balances above Pounds Sterling 750,000 until 1 May 2010. Although the Company anticipates that it will be able to meet the requirement to maintain an unrestricted cash balance subsequent to 1 May 2010, if the Company is not able to do so the Company would be in default of its agreement with the 2008 loan note holders at that time. In the event that the Company is then unable to amend the required financial covenants or obtain alternative financing the Company may be unable to access credit and its debt obligation could become accelerated. These events would likely have a material adverse effect on the Company.

Contact Information

  • Turbo Power Systems
    Richard Bayliss
    Finance Director
    +44 (0)20 8564 4460
    or
    Turbo Power Systems
    Alan Baird
    Marketing Communications
    +44 (0)20 8564 4460
    www.turbopowersystems.com
    or
    Kreab Gavin Anderson (financial public relations)
    Ken Cronin
    +44 (0)20 7074 1800
    or
    Kreab Gavin Anderson (financial public relations)
    Michael Turner
    +44 (0)20 7074 1800
    or
    finnCap (NOMAD, broker and financial advisor)
    Marc Young
    +44 (0)20 7600 1658
    or
    finnCap (NOMAD, broker and financial advisor)
    Henrik Persson
    +44 (0)20 7600 1658