Turbo Power Systems Inc.
TSX : TPS
AIM : TPS

Turbo Power Systems Inc.

August 15, 2007 02:00 ET

Turbo Power Systems Inc. Announces Its Results for the Half Year and Second Quarter Ended 30 June 2007

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2007) - Turbo Power Systems Inc. (TSX:TPS) (AIM:TPS):

Highlights

- Production and development income increased by 93 percent to Pounds Sterling 4.7 million (2006: Pounds Sterling 2.4 million)

- Loss before tax reduced by 9 percent to Pounds Sterling 3.3 million (2006: Pounds Sterling 3.6 million) after taking into account:

-- Increase in production costs of 104% (or Pounds Sterling 1.7 million) in line with production revenue increase

-- Increase in product development costs of 28% (or Pounds Sterling 0.5m)

-- Factory move costs of Pounds Sterling 0.2 million in Q2

- Orders announced in the half totalling US$ 24 million including:

-- NREC - US$2 million

-- Bombardier Chicago - US$14 million

-- Bombardier Toronto - US$8 million

- Further NREC order announced today - US$3 million

- New factory move successfully completed in June

- Equity fundraising for Pounds Sterling 4.0 million completed in June

Commenting on the results, Michael Hunt, Chief Executive said,

"The first half of 2007 has seen further strong production growth and our successful Gateshead factory relocation will provide increased capacity and drive production efficiency. We have seen a significant increase in the order book including our acceptance on two further prestigious Bombardier programmes and further NREC business announced today. The Pounds Sterling 4 million raised in June has allowed us to invest further in our development platform and makes us fully funded on current forecasts."

NOTES TO EDITORS

About Turbo Power Systems

Turbo Power Systems Inc. designs and manufactures innovative power solutions which provide local, high quality, controllable electrical power. The Group's products are sold into a number of markets but are all based on its core technologies of power electronics and high speed electrical machines. The Company's products all have in common the aim to provide improved efficiency and reduced energy consumption compared to existing technology.

The Group operates across the following market sectors:

- Direct Drive High-Speed Electrical Machines and Electronics

- Specialist Drives and Motor applications (Aerospace, Oil and Gas)

- High Voltage Power Supplies, Auxiliary Power Systems, Grid-Connected Inverters for Energy Recovery Systems and Renewable Technologies

Forward looking statements

This news 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.

OPERATIONAL REVIEW

Business of the Company

Turbo Power Systems designs and manufactures innovative power solutions which provide local, high quality, controllable electrical and motive power. The Group's products can be tailored for use in a wide range of industries and applications, but are all based on its core technologies of high speed electrical machines and power electronics.

The Group's site at Heathrow is the Head Office for UK operations and the design and manufacturing centre for Electrical Machines. The Group's site at Gateshead is the design and manufacturing centre for Power Electronics.

Strategy

The Company's strategy is to build a high performance electric machines and power electronics business which can demonstrate strong and sustainable growth in all of its technology areas and is not dependent on any single market sector, product or operating unit.

Our sales strategy is to focus on developing long term relationships with strong partners in each of our target market sectors where our technology typically forms part of a larger product supplied to the end customer.

We will combine the skills of our two sites to match the requirements of our customers.

Review of operations

During the second quarter, the move to the new factory in Gateshead was completed with minimum disruption to planned production levels. The layout in the new facility, which provides the additional manufacturing and engineering capacity required for the significant planned growth in future production volumes, incorporates dedicated aerospace manufacturing and test areas, and has been designed for optimum efficiency. The improved efficiency of the new manufacturing cell structure, which combines both build and test, is expected to have an impact in the second half of the year.

The initial feedback from staff and customers to the new site has been extremely encouraging, and we are confident that this first class facility will make a strong impression with customers looking to place future orders.

Production revenue has continued to grow through the first half and P&L and cash flow results were encouraging in the first quarter. The second quarter has been impacted by exceptional costs associated with the Gateshead factory relocation and development costs associated with the new rail programmes. In addition a proportion of the development income scheduled for the first half has actually been invoiced in July which has adversely impacted second quarter P&L but has led to a strong start to the third quarter.

The Company is currently engaged in more major development programmes simultaneously than ever before, with activity at a high level on the Hamilton Sundstrand and Eaton aerospace programmes, Chicago and Toronto rail programmes and the Industrial Compression and ALC industrial motor projects. As a consequence, development cost and recruitment of engineering staff has increased.

In addition, in order to maintain our competitive position in the future, we are making an investment in 2007 to improve our rail development technology by introducing the latest generation micro-processors and developing matching software, written to the latest IEEE quality standards. This new design platform will be integral to all our future rail products and will increase performance in terms of functionality, flexibility and speed of operation.

During 2008, the development activity on these programmes will be replaced by the start of their production phases, continuing the growth in manufacturing revenues, and releasing development engineering resource to be allocated to further new contracts.

While development activities have been key to the results for the first half, underlying production contracts have continued to grow steadily with increasing monthly volumes being seen from key customers such as National Railway Equipment Company in the USA. A number of the new development contracts will begin production deliveries in the second half of this year.

We have announced today further production orders with the National Railway Equipment Company worth $3 million, the bulk of which will be delivered in 2007.

With the factory move in Gateshead now complete, new manufacturing processes bedded in and a number of development milestones due to be met in the third quarter, we expect to see stronger second half performance and continued progress towards profitability.

Customers and Contracts Update

TPS designs and manufactures motor/generator and power electronics technology across a range of sectors and applications but the Company's products all have in common the aim to provide improved efficiency and reduced energy consumption compared to existing technology.

1) Direct Drive Industrial High Speed Motors and Drives

The TPS direct drive technology is designed to provide significant performance improvements and operating cost reductions for a wide range of industrial compression and turbo-machinery applications. By eliminating the need for mechanical gearboxes and conventional low speed motors and by operating more efficiently across a wider range of load points, the customer's energy requirements and costs can be reduced.

SKF

Following the successful completion of end-customer field trials, production orders have now been released for the complete compressor product including the TPS motor and variable frequency drive and the SKF magnetic bearing system. Production deliveries of the drive and motor systems will begin in August at a rate of 20 systems per month.

Industrial Motor and Drive Agreement

Initial testing of the new TPS high speed motor and electronics integrated with the customer's compressor application has commenced in the USA, and preliminary data confirms that the unit is meeting planned performance and efficiency targets. Beta units are scheduled to be installed at friendly customer sites in October, with the product launch scheduled for January 2008, and initial production systems being scheduled for Q4 2007.

2) Specialist Motors and Drives

In addition to the long-term design investment that the Company has made in the high speed electrical machine technology, the Company has accumulated considerable expertise in motor and controller designs for aggressive and high performance environments This expertise is now providing the basis for a new range of products targeted at both the aerospace sector and the oil and gas markets.

Eaton Aerospace

Initial Jettison Fuel Pump motor drives have been supplied to Eaton Aerospace in support of the Boeing System Integration Testing Laboratories. Formal qualification testing in the UK is now nearing completion and TPS is currently carrying out some additional safety of flight testing in support of the Boeing ground power and initial aircraft flight programme dates. The programme is proceeding well and hardware manufacture in support of the initial 787 aircraft is still scheduled to begin later this year.

Hamilton Sundstrand

The HS 787 Ram Fan motor drive programme, which was placed with TPS late on in the 787 programme, is running behind the original development schedule. Initial hardware is currently completing development and undergoing preliminary safety of flight testing in support of the Boeing programme, with a target date for initial hardware deliveries of August 2007. TPS is working closely with Hamilton Sundstrand to complete the remaining development tasks and we are optimistic that the schedule for initial production deliveries in 2007 will still be maintained.

Artificial Lift Company (Oil and Gas)

Testing of the prototype down hole pump and motor system is being carried out in a test well at Great Yarmouth and will continue throughout August to prove out the electrical and mechanical performance of the complete system.

On successful completion of the UK trials, six motor modules will be provided by TPS in support of the operational oil field testing in North America in the spring of next year, when the systems will be then undergo endurance testing under extremes of temperature and pressure.

If this testing is successful then initial production quantities are expected to commence in June 2008 and volumes will ramp up during the second half of 2008 and into 2009.

3) Rail and Industrial Power Electronics

TPS designs and manufactures rugged power electronics products for both rail and industrial applications, all of which require high reliability and availability in operation.

Bombardier Transportation-Canada

Beijing

Production is ongoing on the Beijing programme, and TPS has delivered the initial 3 rail car sets of equipment. Commissioning of the complete cars is currently underway in China, and TPS has engineers on-site supporting Bombardier. Production will continue at a rate of 4 auxiliary power units per month until early 2008. The Company is supplying 40 car sets with a contract value of US$1.5M.

Chicago Transit Authority

Prototype development is underway on the CTA project, with customer design reviews having been successfully completed in July. The scheduled date for completion of the prototype qualification testing is December 2007, with initial production quantities in support of the customer testing programme planned for early 2008.

The base contract is valued at some US$14M including production, spares and engineering services, with possible options for additional cars which could increase the value to more than US$20M. The development project is currently underway with the units scheduled for initial customer prototype vehicles planned for delivery in January 2008.

Toronto

Although placed some months later than CTA, the Toronto S1 programme has an aggressive schedule and also has a target prototype qualification testing date of the end of 2007. The initial production schedule for 2008 is 15 car sets, with the rate ramping up into 2009. The contract for the initial quantity of 234 cars is expected to exceed US$8M, with the potential for further option quantities to extend that to some US$14M.

National Rail Equipment Co.

NREC continues to expand its market share for environmentally compliant shunting locomotives, and as a result has placed further purchase orders with TPS. Today's announcement of a further production order adds $3M to our order book with the bulk of these units scheduled to be delivered between now and December 2007.

NREC will remain the major customer for rail and traction equipment until the Bombardier CTA and Toronto contracts enter production in the latter half of 2008, and the NREC production cell in the new facility has been planned to provide for significant increases in monthly capacity. NREC marketing activities have extended to cover Europe and Australasia as well as North America, and prospects for future growth look promising.

Toronto Transit Commission - H6 Subway Programme

Production is proceeding smoothly, with contract completion scheduled for early mid-2008.

PRC

Production demand from the customer for the pulsed laser power supply continues to be maintained at good monthly quantity levels, with a high level of customer satisfaction in the equipment performance. TPS is currently evaluating a "high power" design which would complement the existing product.

FINANCIAL PERFORMANCE

REVIEW OF HALF YEAR TO 30 JUNE 2007

Overview

The first half of 2007 saw the company continue to demonstrate strong growth in production turnover as more programmes moved into the production phase. First quarter development income was also strong and EBITDA and cash flow performance in that quarter were encouraging. Second quarter EBITDA was impacted by an absence of development income from programme milestone payments, combined with the costs of the Gateshead factory relocation and development expenditure on the new rail programmes and new development platform. With the factory move now complete and a number of development milestones met in the third quarter the company expects to see improved performance in the second half of the year.

Production turnover has been increasing smoothly through 2006 and 2007 and in the first quarter we recorded turnover in excess of Pounds Sterling 2.0 million for the first time. This was followed by second quarter production turnover of Pounds Sterling 2.3 million. As in previous quarters the great majority of this revenue was from power electronics at the Gateshead site but production quantities of SKF motors at Heathrow commenced shipping in March and are scheduled to increase in the second half of 2007. Our contract with NREC for rail traction electronics has made an increasing contribution to revenues as the customer has experienced good sales success and this programme was our largest contributor to turnover in the first half.

Of the Pounds Sterling 0.37 million of development income recorded for the half year Pounds Sterling 0.34 million was in the first quarter and comprised receipts from Bombardier on the Toronto, Chicago and Beijing programmes as well as receipts from Hamilton Sundstrand on the 787 programme. No further contract milestones on our major development programmes fell in the second quarter and as a result only Pounds Sterling 0.03 million was billed. However, milestones on the Eaton, Toronto and Beijing programmes were met in July and development income billed in the third quarter already totals Pounds Sterling 0.28 million.

Development costs of Pounds Sterling 2.2 million throughout the half year comprise continued work on our aerospace and major rail development programmes as well as costs associated with a new development platform to be used for future rail and aerospace business.

Administrative expenses for the half year were Pounds Sterling 1.9 million. Included in this figure in the second quarter are expenses related to the relocation of our Gateshead factory totaling Pounds Sterling 0.2 million. The relocation is now complete and as well as resolving medium term capacity constraints we expect the new production layout to have a direct effect on production efficiency.

The loss before interest, tax, depreciation, amortisation and stock compensation for the half year was (Pounds Sterling 2.4) million. Second quarter EBITDA of (Pounds Sterling 1.5) million reflects the lack of development income and the factory move costs.

Cash outflows before movements in working capital of Pounds Sterling 2.6 million for the half year included interest payments in January of Pounds Sterling 331,000 to convertible note holders relating to the period 1 July 2006 to 31 December 2006. The following convertible note interest payment, paid in July 2007, was significantly less at Pounds Sterling 56,000 following the redemption of Pounds Sterling 9.36 million of the convertible notes in late December 2006 and early January 2007. Also included in cash outflows before movements in working capital are Gateshead relocation costs not capitalized of Pounds Sterling 0.2 million.

Continuing production growth and the purchase of long lead time items led to significant stock increases in the half year of Pounds Sterling 945,000.

Tax credits received in the first half of Pounds Sterling 312,000 comprise research and development tax credit claims for the year to 31 December 2006.

Long term assets purchased of Pounds Sterling 0.5 million principally represent the investment in fixed assets at the company's new production facilities in Gateshead. The completion of the move should allow TPS to claim in the region of Pounds Sterling 250,000 of grant funding from the development agency, One North East in the second half of 2007.

Movements in restricted funds of Pounds Sterling 335,000 represent net movements in performance bond cash during the half year as certain performance bonds reached maturity including the release of performance bond cash on the cancelled CLRV programme.

Net receipts from an institutional equity placing during the second quarter contributed Pounds Sterling 3.9 million.

The overall increase in cash during the half year was Pounds Sterling 1.0 million leaving the Company with an unrestricted cash balance of Pounds Sterling 7.7 million and further restricted cash of Pounds Sterling 1.1 million at 30 June 2007.

Revenue

Production revenue in the six months ended 30 June 2007 was Pounds Sterling 4.38 million compared with Pounds Sterling 2.16 million in 2006 and comprised



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Power electronics 4,239 2,079
Electrical machines 136 82
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4,375 2,161
------- -------
------- -------


The Power Electronics division has again seen strong turnover growth, both as a result of increased volumes on established programmes and the start of production runs on new contracts. Output volumes have grown significantly on the majority of production contracts and in particular, National Railway Equipment Co which is the highest contributor to revenues for the half year.

Spares and service revenues were Pounds Sterling 0.2m for the half year (2006: Pounds Sterling 0.5m).

In the Electrical Machines division revenue for the quarter related principally to the SKF contract and initial units on the Industrial motor and drive programme.

Development income

Development income in the six months was Pounds Sterling 0.37 million compared with Pounds Sterling 0.29 million in 2006 and included receipts from Hamilton Sundstrand on the Boeing 787 Dreamliner programme, and initial incomes from Bombardier on both the Chicago Transit and Toronto Transit programmes.



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Development income 370 292
------- -------
------- -------


Production costs

The cost of product revenues in the six months amounted to Pounds Sterling 3.41 million (2006: Pounds Sterling 1.67 million) and reflects the growth in production revenue.



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Power electronics 2,881 1,346
Electrical machines 527 326
------- -------
3,408 1,672
------- -------
------- -------


Production costs include certain fixed facilities costs attributable to the manufacturing operation.

Included in production costs for the six months are stock compensation charges on options awarded of Pounds Sterling 52,000 (2006: Pounds Sterling 17,000).

Research and product development

Research and product development expenditure in the six months was Pounds Sterling 2.17 million compared with Pounds Sterling 1.69 million in 2006, and comprised



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Research and product
development expenditure 2,166 1,733
Accrued R&D tax credits - (40)
------- -------
Total expenditure 2,166 1,733
------- -------
------- -------


Product development costs increased in the six months as development work commenced on both the Eaton contract and the Hamilton Sundstrand contract for the Boeing 787 Dreamliner and the Bombardier Chicago and Toronto Rail programmes.

Included in research and product development expenditure for the six months are stock compensation charges on options awarded of Pounds Sterling 193,000 (2006: Pounds Sterling 122,000).

No R&D tax credits were accrued in the six months as the majority of the Group's development resource moved on to commercial programmes.

General and administrative

General and administrative costs of Pounds Sterling 1.94 million (2006: Pounds Sterling 1.57 million) consist mainly of staff costs and facilities costs. Included in this category are Gateshead move costs of Pounds Sterling 0.20 million which have not been capitalized. Also included are stock compensation charges on options awarded of Pounds Sterling 127,000 (2006: Pounds Sterling 96,000).

Amortisation

Amortisation was Pounds Sterling 0.44 million compared with Pounds Sterling 0.66 million in 2006. The reduction reflects a number of assets becoming fully written down.

Interest income

Interest income for the six months was Pounds Sterling 0.16 million compared with Pounds Sterling 0.15 million in 2006.

Interest expense and finance charges

Interest expense and finance charges arise from the issue of convertible bonds in July 2003 and March 2005, and the redemption of bonds and issue of shares in January 2007, and comprised



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Finance charges 115 -
Interest payable 58 288
Amortisation of deferred
finance charges - 81
Debt accretion 52 194
------- -------
225 563
------- -------
------- -------


Finance charges for the six months were Pounds Sterling 115,000 (2006: Pounds Sterling nil) and were made up as below:

- During 2006 the company purchased U.S. dollar denominated currency contracts covering expected dollar income from programmes scheduled for 2006 and 2007. The value of the option as at 30 June 2007 was Pounds Sterling 28,000, resulting in a net decrease and cost during the six months of Pounds Sterling 16,000 (2006: Pounds Sterling nil).

- During the six months the company redeemed 4,500,000 loan notes, resulting in a net charge of Pounds Sterling 82,000 (2006: Pounds Sterling nil).

- Charges related to the restricted cash movements and performance bonds totaled Pounds Sterling 17,000 (2006: Pounds Sterling nil).

Convertible bonds are considered to be compound financial instruments, and the liability component and the equity component must be presented separately, as determined at initial recognition. The Company has valued the equity component of these bonds using the residual value of equity component method, whereby the liability component is valued first using current market rate for comparable instruments, at the time of issuance. The difference between the proceeds of the bonds issued and the fair value of the liability is assigned to the equity component. The equity element of the March 2005 bond issue was estimated at Pounds Sterling 1.11 million. The equity element of the 2003 bond issue was estimated at Pounds Sterling 0.91 million. The carrying value of the debt element is increased over the term of the debt and this accretion expense is charged to the profit and loss account. During the six months this charge amounted to Pounds Sterling 52,000 (2006: Pounds Sterling 194,000).

CASH FLOWS FOR THE SIX MONTHS

Cash outflow from operating activities

Operating cash outflow before movements in working capital was Pounds Sterling 2.56 million for the period (2006: Pounds Sterling 1.97 million). Included in this amount are interest payments to convertible note holders of Pounds Sterling 0.33 million for the period 1 July 2006 to 31 December 2006 and Gateshead move costs of Pounds Sterling 161,000.

Movements in stocks, work in progress and debtors and creditors produced a net cash outflow of Pounds Sterling 0.42 million during the period (2006: outflow of Pounds Sterling 0.39 million).

Tax credits

During the six months the company received research and development tax credit receipts of Pounds Sterling 0.31 million (2006: Pounds Sterling nil).

Investing activities

Purchases of long term tangible assets amounted to Pounds Sterling 0.47 million (2006: Pounds Sterling 0.05 million) and principally relate to the new Power Electronics facility in Gateshead.

Cash inflows related to movements in restricted funds of Pounds Sterling 0.36 million (2006: Pounds Sterling nil) are the net result of the cancellation of performance bonds previously provided of Pounds Sterling 250,000 and Pounds Sterling 515,000, and the creation of new bonds totaling Pounds Sterling 410,000.

Cash flow from financing activities

Cash inflow from financing in the six months of Pounds Sterling 3.81 million relates to net receipts of Pounds Sterling 3.88 million from an institutional placing of Pounds Sterling 4,000,000 (gross) completed in June 2007, and the payment of final expenses of Pounds Sterling 7,000 in relation to the fundraising in December 2006, when the Company completed a Pounds Sterling 6,000,000 (gross) financing agreement with institutional investors.

Overall cash flow for the six months

Overall the cash inflow for the period was Pounds Sterling 1.02 million. This compares with a cash outflow of Pounds Sterling 2.41 million in 2006.

BALANCE SHEET AS AT 30 JUNE 2007

The Company ended the period with an unrestricted cash balance of Pounds Sterling 7.69 million compared with Pounds Sterling 6.67 million at 31 December 2006. Substantially all of the Company's cash balances are denominated in Sterling.

In addition the Company had restricted cash amounts of Pounds Sterling 1.14 million relating to performance bonds entered into as part of contracts with the Toronto Transit Commission and Bombardier Transportation (2006: Pounds Sterling 1.50 million).

Long term assets excluding restricted cash have decreased from Pounds Sterling 3.69 million at 31 December 2006 to Pounds Sterling 3.41 million at 30 June 2007, after depreciation charges of Pounds Sterling 0.44 million and additions in plant and equipment of Pounds Sterling 0.31.

Long term liabilities have decreased to Pounds Sterling 1.87 million at 30 June 2007 compared to Pounds Sterling 6.13 million at 31 December 2006, reflecting the reduction in Loan Notes following the redemption of Pounds Sterling 4,500,000 notes in January 2007.

Net working capital at 30 June 2007, excluding cash balances, was Pounds Sterling 1.38 million, compared with Pounds Sterling 0.85 million as at 31 December 2006.

As at 30 June 2007, the Company had 318,571,062 common shares issued and 115,000,000 A shares. As at that date there were 32,237,681 outstanding share options and 10,500,000 outstanding warrants.

REVIEW OF SECOND QUARTER TO 30 JUNE 2007

Revenue

Production revenue in the quarter ended 30 June 2007 was Pounds Sterling 2.34 million compared with Pounds Sterling 1.19 million in 2006 and comprised.



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Power electronics 2,222 1,130
Electrical machines 120 62

------- -------
2,342 1,192
------- -------
------- -------


The Power Electronics division has again demonstrated strong turnover growth, both as a result of increased volumes on established programmes and the start of production runs on new contracts.

Spares and service revenues were Pounds Sterling 0.1m for the quarter (2006: Pounds Sterling 0.2m).

In the Electrical Machines division revenue for the quarter related principally to the SKF contract.

Development income

Development income in the quarter was Pounds Sterling 0.03 million compared with Pounds Sterling 0.19 million in 2006.



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Development income 29 193
------- -------
------- -------


Production costs

The cost of product revenues in the quarter amounted to Pounds Sterling 1.79 million (2006: Pounds Sterling 0.94 million) and reflects the growth in production revenue.



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Power electronics 1,469 763
Electrical machines 323 175
------- -------
1,792 938
------- -------
------- -------


Production costs include certain fixed facilities costs attributable to the manufacturing operation.

Included in production costs for the quarter are stock compensation charges on options awarded of Pounds Sterling 26,000 (2006: Pounds Sterling 17,000).

Research and product development

Research and product development expenditure in the quarter was Pounds Sterling 1.15 million compared with Pounds Sterling 0.87 million in 2006, and comprised



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Research and product
development expenditure 1,151 892
Accrued R&D tax credits - (25)

------- -------
Total expenditure 1,151 867
------- -------
------- -------


Product development costs increased in the quarter as development work commenced on the Bombardier Chicago and Toronto programmes.

Included in research and product development expenditure for the quarter are stock compensation charges on options awarded of Pounds Sterling 89,000 (2005: Pounds Sterling 66,000).

No R&D tax credits were accrued in the quarter as the majority of the Group's development resource moved on to commercial programmes.

General and administrative

General and administrative costs of Pounds Sterling 1.10 million (2006: Pounds Sterling 0.82 million) consist mainly of staff costs and facilities costs. Included in this category are Gateshead move costs of Pounds Sterling 0.20 million which have not been capitalized. Also included are stock compensation charges on options awarded of Pounds Sterling 44,000 (2006: Pounds Sterling 55,000).

Amortisation

Amortisation was Pounds Sterling 0.22 million compared with Pounds Sterling 0.27 million in 2006. The reduction reflects a number of assets becoming fully written down.

Interest income

Interest income for the three months was Pounds Sterling 0.08 million compared with Pounds Sterling 0.07 million in 2006.

Interest expense and finance charges

Interest expense and finance charges arise from the issue of convertible bonds in July 2003 and March 2005, and the redemption of bonds and issue of shares in January 2007, and comprised



2007 2006
Pounds Sterling '000 Pounds Sterling '000

Finance charges 12 -
Interest payable 29 154
Amortisation of deferred
finance charges - 41
Debt accretion 30 97
------- -------
71 292
------- -------
------- -------


CASH FLOWS FOR THE THREE MONTHS

Cash outflow from operating activities

Operating cash outflow before movements in working capital was Pounds Sterling 1.49 million for the period (2006: Pounds Sterling 0.74 million).

Movements in stocks, work in progress and debtors and creditors produced a net cash outflow of Pounds Sterling 0.15 million during the period (2006: outflow of Pounds Sterling 0.49 million).

Investing activities

Purchases of long term tangible assets amounted to Pounds Sterling 0.30 million (2006: Pounds Sterling 0.03 million) and principally relate to the new Power Electronics facility in Gateshead.

Cash flow from financing activities

Cash inflow from financing in the three months relates to net receipts of Pounds Sterling 3.88 million from an institutional placing of Pounds Sterling 4,000,000 (gross) completed in June 2007.

Overall cash flow for the three months

Overall the cash inflow for the period was Pounds Sterling 1.95 million. This compares with a cash outflow of Pounds Sterling 1.25 million in 2006.



TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF NET LOSS, COMPREHENSIVE LOSS AND LOSS DEFICIT
UNAUDITED

Notes Six months ended 30 June
2007 2006
Pounds Pounds
Sterling '000 Sterling '000
(unuadited) (unaudited)

Statement of Net Loss

Revenue 2,3 4,375 2,161
Development income 2 370 292
-----------------------------
4,745 2,453

Expenses
Production costs 3,408 1,672
Research and product development 4 2,166 1,693
General and administrative 1,943 1,570
Amortisation 442 662
-----------------------------
7,959 5,597

Loss before interest and finance
charges (3,214) (3,144)

Interest income 163 147
Interest expense and finance charges 5 (225) (563)
Foreign exchange gains/(losses) 13 (11)
-----------------------------
(49) (427)
-----------------------------
Net loss for the period (3,263) (3,571)
-----------------------------
-----------------------------

Statement of Comprehensive Loss

Net loss (3,263) (3,571)
Exchange adjustment on consolidation 92 61
-----------------------------
Comprehensive loss for the period (3,171) (3,510)
-----------------------------
-----------------------------

Statement of Loss Deficit

Loss deficit, beginning of period (53,636) (44,718)
Net loss for the period (3,263) (3,571)
Adjustment on adoption of CICA3855 1 (140) -
Equity adjustment on issue of shares 11 (2,512) -
-----------------------------
Loss deficit, end of period (59,551) (48,289)
-----------------------------
-----------------------------

Loss per share - basic 7 (1.2) p (1.9) p
Loss per share - diluted 7 (1.2) p (1.9) p


TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF NET LOSS
UNAUDITED

Notes Three months ended 30 June
2007 2006
Pounds Pounds
Sterling '000 Sterling '000
(unaudited) (unaudited)

Statement of Net Loss

Revenue 2,3 2,342 1,192
Development income 2 29 193
-----------------------------
2,371 1,385

Expenses
Production costs 1,792 938
Research and product development 4 1,151 867
General and administrative 1,102 818
Amortisation 219 271
-----------------------------
4,264 2,894
Loss before interest and finance (1,893) (1,509)
charges

Interest income 75 68
Interest expense and finance charges 5 (71) (292)
Foreign exchange gains 13 21
-----------------------------
17 (203)
-----------------------------
Net loss for the period (1,876) (1,712)
-----------------------------
-----------------------------

Statement of Comprehensive Loss

Net loss (1,876) (1,712)
Exchange adjustment on consolidation 108 (28)
-----------------------------
Comprehensive loss for the period (1,768) (1,740)
-----------------------------
-----------------------------

Loss per share - basic 7 (0.7) p (0.9) p
Loss per share - diluted 7 (0.7) p (0.9) p


TURBO POWER SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
Notes As at 30 As at 31
June December
2007 2006
Pounds Pounds
Sterling '000 Sterling '000
(unaudited) (unaudited)

Current assets
Cash and cash equivalents 7,690 6,669
Restricted cash 8 - 765
Trade and other receivables 1,857 1,544
Stock and work in progress 2,175 1,230
Prepayments 388 419
Tax recoverable 520 718
-----------------------------
12,630 11,345
-----------------------------
Long-term assets
Restricted cash 8 1,141 731
Prepayments 254 254
Investments 9 34 31
Intangible assets 9 63 77
Goodwill 9 820 820
Deferred finance charges 9 - 145
Tangible assets 9 2,242 2,361
-----------------------------
4,554 4,419
-----------------------------
17,184 15,764
-----------------------------
-----------------------------

Liabilities and shareholders' equity
Creditors: amounts falling due within
one year
Trade and other payables 3,175 3,109
Deferred income 641 206
-----------------------------
3,816 3,315
-----------------------------

Creditors: amounts falling due after
more than one year
Warranty provision 303 303
Convertible notes 1,570 5,827
-----------------------------
1,873 6,130
-----------------------------
Capital and reserves
Share capital and other equity
instruments 10 71,022 60,023
Accumulated other comprehensive
income 24 (68)
Loss deficit (59,551) (53,636)
-----------------------------
Shareholders' funds 11,495 6,319
-----------------------------
17,184 15,764
-----------------------------
-----------------------------


TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
UNAUDITED

Common A Accumulated
Share Ordinary Other other Loss Total
capital capital equity income deficit Equity
Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling
'000 '000 '000 '000 '000 '000
Balance at 1
January 2006 44,753 - 2,144 (128) (44,718) 2,051
Loss for the
period (6,318) (6,318)
Exchange gain 60 60
Stock
compensation 511 511
Conversion to
shares 3,383 4,320 (674) (2,600) 4,429
Issue of shares 4,059 2,000 6,059
Expiry of
warrants 117 117
Fundraising
costs (393) (197) (590)
------------------------------------------------------------

Balance at 31
December 2006 51,919 6,123 1,981 (68) (53,636) 6,319
Loss for the
period (3,263) (3,263)
Exchange gain 92 92
Stock
compensation 372 372
Conversion to
shares 7,379 (638) (2,512) 4,229
Issue of shares 4,017 4,017
Fundraising
costs (131) (131)
Charge arising
on adoption of (140) (140)
CICA Section
3855 --
Financial
Instruments --
Recognition and
Measurement
------------------------------------------------------------
Balance at 30
June 2007 55,805 13,502 1,715 24 (59,551) 11,495
------------------------------------------------------------
------------------------------------------------------------


TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED

Six months ended 30 June
Notes 2007 2006
Pounds Pounds
Sterling '000 Sterling '000
(unaudited) (unaudited)

Net loss from operations (3,263) (3,571)
Amortisation 587 743
Accretion of debt 36 194
Stock compensation charges 372 235
Foreign currency instrument loss 16 -
Movement in net interest accrual (307) -
-----------------------------
Cash outflow before movements in
working capital (2,559) (2,399)
Decrease/(increase) in debtors (84) (129)
Decrease/(increase) in stock (945) (414)
Increase/(decrease) in creditors 610 583
-----------------------------
Net cash outflow from operating
activities before tax (2,978) (2,359)
-----------------------------
Tax credits 312 -
-----------------------------
Net cash outflow from operating
activities after tax (2,666) (2,359)
-----------------------------
Investing activities
Purchase of long-term assets (473) (48)
Movement in restricted funds 355 -
-----------------------------
Cash outflow from investing activities (118) (48)
-----------------------------
Financing activities
Equity placing 11 4,001 -
Net expense from equity placing 11 (196) -
-----------------------------
Cash inflow from financing activities 3,805 -
-----------------------------
Increase/(decrease) in cash in the
period 1,021 (2,407)
-----------------------------
-----------------------------
Cash and cash equivalents:
Beginning of period 6,669 6,525
-----------------------------
End of period 7,690 4,118
-----------------------------
-----------------------------


TURBO POWER SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED

Three months ended 30 June
Notes 2007 2006
Pounds Pounds
Sterling '000 Sterling '000
(unaudited) (unaudited)

Net loss from operations (1,876) (1,712)
Amortisation 340 352
Accretion of debt 21 97
Stock compensation charges 159 138
Foreign currency instrument
loss/(gain) (5) -
Movement in net interest accrual (126) (40)
-----------------------------
Cash outflow before movements in
working capital (1,487) (1,165)
Decrease/(increase) in debtors (129) 54
Decrease/(increase) in stock (483) (251)
Increase/(decrease) in creditors 467 137
-----------------------------
Net cash outflow from operating
activities before tax (1,632) (1,225)
-----------------------------
Tax credits - -
-----------------------------
Net cash outflow from operating
activities after tax (1,632) (1,225)
-----------------------------
Investing activities
Purchase of long-term assets (298) (29)
Movement in restricted funds - -
-----------------------------
Cash outflow from investing
activities (298) (29)
-----------------------------
Financing activities
Equity placing 11 4,001 -
Net expense from equity placing 11 (125) -
-----------------------------
Cash inflow from financing
activities 3,876 -
-----------------------------
Increase/(decrease) in cash in the
period 1,946 (1,254)
-----------------------------
-----------------------------
Cash and cash equivalents:
Beginning of period 5,744 5,372
-----------------------------
End of period 7,690 4,118
-----------------------------
-----------------------------


TURBO POWER SYSTEMS INC.

SIX MONTHS ENDED 30 JUNE 2007

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED

1 Basis of preparation

The consolidated financial statements of the Company have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles (Canadian GAAP). The Company provides a reconciliation from Canadian GAAP to International Financial Reporting Standards in Note 21 of the Consolidated Financial Statements for the year ended 31 December 2006. 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 Company's accounting policies. The consolidated financial statements include the accounts of Turbo Power Systems Inc. ("the Company"), and the accounts of its wholly owned subsidiary company Turbo Power Systems Limited (collectively "the Group"). The significant accounting policies are consistent with prior years. Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for 2006.

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 2006. These interim financial statements are prepared in accordance with the requirements of Canadian GAAP for interim financial statements as recommended by CICA Handbook section 1751 "Interim Financial Statements". These consolidated financial statements follow the same accounting policies and methods of application as for the Company's 31 December 2006 financial statements, except as described below:

Going concern

These consolidated financial statements have been prepared on a going concern basis, which presumes that the Company will be able to realise its assets and discharge its liabilities in the normal course of operations for the foreseeable future. The Company has incurred cumulative losses including a loss of Pounds Sterling 3.26 million for the six month period ended June 30, 2007 and has a cumulative deficit of Pounds Sterling 59.55 million as at 30 June 2007. The Company's ability to continue as a going concern depends on its ability to generate positive cash flow from operations or secure additional debt or equity financing.

On January 1 the Company adopted new CICA accounting standards comprising CICA Handbook Section 3855 "Financial Instruments - Recognition and Measurement", Section 1530 "Comprehensive Income", and Section 3251, "Equity". As a result of adopting these requirements, a new statement has been added to report movements in Comprehensive Loss, after Net Loss, and consists of the gains and losses from the translation of the Company's self-sustaining foreign operations. Accumulated other income is presented as a separate section within the Statement of Changes in Equity. In determining the fair value of financial instruments, as required by Section 3855, the carrying value of the Convertible debt was decreased by Pounds Sterling 140,000, and the net value of the Deferred Finance Charges was offset against the Convertible debt balance, resulting in the elimination of the deferred finance charge asset, and a reduction in the Convertible debt balance of Pounds Sterling 145,000.

Derivative financial instruments are used by the Company to manage a portion of its exposure to foreign exchange rate fluctuations. The Company does not utilise derivative financial instruments for trading or speculative purposes. The Company enters into foreign currency options denominated in U.S. Dollars, to manage foreign exchange rate fluctuation exposure on receipts from customers billed in U.S. Dollars. These derivative contracts, not accounted for as hedges, are marked to market, and any changes in the market value are recorded in income or expense when the changes occur. The fair value of these instruments is recorded as accounts receivable or payable.

Most of the Company's operations are conducted by its United Kingdom subsidiaries in Sterling. All numbers reported in these financial statements are stated in Sterling unless otherwise noted.

2 Segmental analysis

The Group'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 group and other related management activities are allocated between the two reportable segments.

The power electronics and electrical machines segments both operate in the United Kingdom.



All amounts in Pounds Power Electrical
Sterling 000 electronics machines Total
2007 2006 2007 2006 2007 2006
Six months ended 30 June
Revenue 4,239 2,079 136 82 4,375 2,161
Development income 370 292 - - 370 292
Interest income 81 45 82 45 163 90
Interest expense (113) (253) (112) (253) (225) (506)
Amortisation (70) (70) (372) (592) (442) (662)
Net loss (877) (979) (2,386) (2,592) (3,263) (3,571)
Capital expenditure 294 39 19 24 313 63

Three months ended 30 June
Revenue 2,222 1,130 120 62 2,342 1,192
Development income 29 193 - - 29 193
Interest income 37 19 38 20 75 39
Interest expense (35) (131) (36) (132) (71) (263)
Amortisation (35) (45) (184) (226) (219) (271)
Net loss (779) (439) (1,097) (1,273) (1,876) (1,712)
Capital expenditure 210 21 10 23 220 44


As at Jun Dec Jun Dec Jun Dec
2007 2006 2007 2006 2007 2006
Total assets 5,012 3,868 12,172 11,896 17,184 15,764
Total liabilities 2,953 2,159 2,736 7,286 5,689 9,445


3 Significant Customers

During the six month period ended 30 June 2007, 54% of the Company's revenue was from two customers (2006: 39% from three customers). During the three months to 30 June 2007, 45% of the Company's revenue was from one customer (2006: 65% from four customers).

4 Research and product development

Research and product development expenditure incurred during the period comprised:



Six months ended Three months ended
30 June 30 June

2007 2006 2007 2006
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
000 000 000 000

Research and product development cost 2,166 1,733 1,151 892
Accrued tax credits - (40) - (25)
-------- -------- -------- --------
Total expenditure 2,166 1,693 1,151 867
-------- -------- -------- --------
-------- -------- -------- --------

Total accrued tax credits receivable at 30 June 2007 amounted to Pounds
Sterling 181,000 (31 December 2006: Pounds Sterling 490,000).


5 Interest expense and finance charges

Six months ended Three months ended
30 June 30 June

2007 2006 2007 2006
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
000 000 000 000
Finance charges 115 - 12 -
Interest payable 58 288 29 154
Amortisation of deferred finance
charges - 81 - 41
Debt accretion 52 194 30 97
-------- -------- --------- ---------
225 563 71 292
-------- -------- --------- ---------
-------- -------- --------- ---------


6 Financial Instruments

Certain of the Company's business transactions occur in currencies other than Sterling. The Company had a foreign exchange average rate option contract in place during the six months ended 31 June 2007 (2006: nil) to reduce exposure to fluctuations in foreign exchange rates on remittances from customers denominated in U.S. Dollars.

The Company holds an average rate option over $5.898million U.S. Dollars at a strike rate of 2.00 U.S. Dollars which expires on 27 December 2007.

During the period a loss of Pounds Sterling 16,000 was realised on this option (2006: Pounds Sterling nil).

As at 30 June 2007 the unrealised gain from the contract included within prepayments was Pounds Sterling 28,000 (2006: Pounds Sterling nil).

7 Loss per share

Loss 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.

The weighted average number of shares outstanding in the six months was 279,630,958 (2006: 191,165,301). No fully diluted earnings per share have been reported as the Company has made losses in both years and the effect would be anti-dilutive. The loss for the six months ended 30 June 2007 was Pounds Sterling 3,263,000 (2006: Pounds Sterling 3,571,000).

The weighted average number of shares outstanding in the three months ended 30 June 2007 was 285,254,837 (2006: 191,051,924). The loss for the three months ended 30 June 2007 was Pounds Sterling 1,876,000 (2006: Pounds Sterling 1,712,000)

Anti-dilutive potential securities outstanding not included in the loss per common share calculation at 30 June 2007 total 172,646,014 (2006: 120,735,449)

8 Restricted cash

In 2004 the Company committed cash bonds in support of contracts placed by the Toronto Transit Commission for the CLRV and H6 programmes. The associated contracts required the bonds to remain in place until two years after all equipment is delivered. According to the current contract schedule that would result in the cash related to the H6 programme being under the performance bond restriction until 2010. In March 2007 the CLRV contract was cancelled and the cash bond of Pounds Sterling 515,000 in respect of this programme was cancelled and the cash became unrestricted. In September 2005 the Company committed cash bonds of Pounds Sterling 250,000 in support of a development contract. The contract required the bonds to remain in place until completion of certain contract milestones. These milestones were completed in January 2007 when the bond was cancelled and the cash became unrestricted. During March 2007 the Company committed cash bonds totalling Pounds Sterling 410,000 in support of contracts placed by Bombardier Transportation for the CTA and TTC programmes. The associated contracts require the bonds to remain in place until after development and the prototype equipment is delivered. At 30 June 2007 cash subject to restrictions totalled Pounds Sterling 1,141,000 (December 2006: Pounds Sterling 1,496,000) and is secured over an equivalent cash balance.

9 Long - term assets



Cost Impairment Amortisation Net book
value
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
000 000 000 000
At 30 June 2007:
Investments 107 73 - 34
Intangible assets 4,079 1,663 2,353 63
Goodwill 863 43 - 820
Tangible assets 8,653 - 6,411 2,242
---------- ---------- ------------ --------
Total long term assets 13,702 1,779 8,764 3,159
---------- ---------- ------------ --------
---------- ---------- ------------ --------

At 31 December 2006:
Investments 104 73 - 31
Intangible assets 4,074 1,663 2,334 77
Goodwill 863 43 - 820
Deferred finance 474 - 329 145
Tangible assets 8,350 - 5,989 2,361
---------- ---------- ------------ --------
Total long term assets 13,865 1,779 8,652 3,434
---------- ---------- ------------ --------
---------- ---------- ------------ --------


10 Share capital - issued shares

Common A Ordinary
Pounds Pounds
Sterling Sterling
Number 000 Number 000

At 1 January 2006 190,510,259 44,753 - -
Conversion of convertible notes 541,665 65 - -
Redemption of convertible notes 32,450,000 3,435 31,250,000 4,320
Issue of common shares, net of
share issue costs 50,442,668 3,666 25,000,000 1,803
------------ ---------- ----------- ---------
At 31 December 2006 273,944,592 51,919 56,250,000 6,123
------------ ---------- ----------- ---------
------------ ---------- ----------- ---------

Redemption of convertible notes - - 58,750,000 7,379
Issue of common shares, net of
share issue costs 44,626,470 3,886 - -
------------ ---------- ----------- ---------
At 30 June 2007 318,571,062 55,805 115,000,000 13,502
------------ ---------- ----------- ---------
------------ ---------- ----------- ---------


No options or warrants were exercised during the six months ended 30 June 2007.

On 7 June 2007 the Company completed a Pounds Sterling 4,000,000 placing agreement with institutional investors for 44,450,000 Common shares of no par value in Turbo Power Systems Inc., at a price of Pounds Sterling 0.09 per placing share.

11 Financing

On 11 July 2003 the Company completed an Pounds Sterling 5,000,000 financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years and bear interest at a rate of 3.5% per annum. They are convertible into an aggregate of 25,000,000 Common Shares in Turbo Power Systems Inc. at a conversion price of Pounds Sterling 0.20 per share. The Warrants had a term of three years and were convertible into an aggregate of 3,500,000 Common Shares in Turbo Power Systems Inc. at an exercise price of Pounds Sterling 0.15 per share.

On 11 March 2005 the Company completed an Pounds Sterling 8,000,000 (gross) financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible into an aggregate of 66,666,667 Common Shares in Turbo Power Systems Inc. at a conversion price of Pounds Sterling 0.12 per share. The Warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Power Systems Inc. at an exercise price of Pounds Sterling 0.15 per share.

On 28 December 2006 the Company completed a Pounds Sterling 6,000,000 (gross) financing agreement with institutional investors. The financing comprised 50,000,000 Common Shares in the company and 25,000,000 A-Ordinary shares in Turbo Power Systems Limited. The financing included the issue of 3,500,000 Warrants, having a term of three years and being convertible into an aggregate of 3,500,000 Common Shares in Turbo Power Systems Inc. at an exercise price of Pounds Sterling 0.15 per share. These warrants were issued on 6 January 2007 (see Note 13).

On 28 December 2006, per an agreement reached with the holders of the convertible notes, the Company redeemed Pounds Sterling 2,500,000 of the 2003 Convertible Loan Notes and Pounds Sterling 2,360,000 of the 2005 Convertible Loan Notes at a redemption price of Pounds Sterling 0.08. The redemption was dependant upon the Company's shares being approved for trading on the AIM exchange which occurred on 28 December 2006.

A further Pounds Sterling 2,500,000 of the 2003 Convertible Loan Notes and Pounds Sterling 2,000,000 of the 2005 Convertible Loan Notes were redeemed in January 2007 at a redemption price of Pounds Sterling 0.08.

The Company has incorporated the guidance provided by the CICA's Emerging Issue Committee Abstract 96 "Accounting for the Early Extinguishment of Convertible Securities Through (1) Early Redemption or Repurchase and (2) Induced Early Conversion" (EIC96) in accounting for the early redemption of the convertible notes. EIC96 provides guidance on the treatment of the fair value of the conversion feature on the extinguishment of the convertible debenture. Redemption of the convertible debentures in January 2007 resulted in an increase in deficit of Pounds Sterling 82,000 and an increase in retained deficit of Pounds Sterling 2,512,000.

12 Stock options, warrants and compensation expense

The number of options and warrants outstanding as at 30 June 2007, and the movement during the six months then ended, are as follows:



Options Warrants
Number Number
Outstanding at 1 January 2007 21,567,281 7,000,000
Cancelled (1,089,600) -
Issued 11,760,000 3,500,000
------------- ------------
Outstanding at 30 June 2007 32,237,681 10,500,000
------------- ------------
------------- ------------


The stock based compensation expense for the six month period ended 30 June 2007, included in Production costs was Pounds Sterling 52,000 (2006: Pounds Sterling 17,000), in Research and product development was Pounds Sterling 193,000 (2006: Pounds Sterling 122,000), and in General and administrative costs was Pounds Sterling 127,000 (2006: Pounds Sterling 96,000).

On 6 January 2007 the Company issued 3,500,000 warrants as part of its financing agreement with institutional investors (see Note 11).

The fair value of the stock options is the estimated fair value at grant date. The fair value is calculated using the Black-Scholes option-pricing model. In calculating the fair values of the options granted during the quarter ended 31 March 2007 a dividend yield of Nil, expected volatility of 65%, a risk free interest rate of 5.0% and an expected option life of 5 years have been assumed, and for options granted during the quarter ended 30 June 2007 a dividend yield of Nil, expected volatility of 75%, a risk free interest rate of 5.0% and an expected option life of 5 years have been assumed The fair value of the stock options granted during the quarters ended 31 March 2007 and 30 June 2007 was Pounds Sterling 0.06 per share.

The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions including the expected price volatility. The Company uses expected volatility rates, which are based on historical volatility rates trended into future years. Changes in the subjective input assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options.

13 Selected quarterly information

The following table sets forth selected consolidated financial information of the Company for the eight most recent quarters.



Revenue Net loss (Loss) per
Pounds Sterling Pounds Sterling share UK
000 000 pence

September 2005 809 (1,584) (0.9)
December 2005 874 (1,249) (0.6)
March 2006 969 (1,859) (1.0)
June 2006 1,192 (1,712) (0.9)
September 2006 1,470 (1,624) (0.8)
December 2006 1,851 (1,124) (0.6)
March 2007 2,033 (1,387) (0.5)
June 2007 2,342 (1,876) (0.7)

Contact Information

  • Turbo Power Systems
    Michael Hunt
    Chief Executive Officer
    +44 (0)20 8564 4460
    or
    Turbo Power Systems
    Stephen Sadler
    Chief Financial Officer
    +44 (0)20 8564 4460
    Website: www.turbopowersystems.com
    or
    Gavin Anderson (PR)
    Ken Cronin
    +44 (0)20 7554 1400
    or
    Gavin Anderson (PR)
    Michael Turner
    +44 (0)20 7554 1400
    or
    KBC Peel Hunt
    Oliver Scott
    +44 (0)20 7418 8900
    or
    KBC Peel Hunt
    Gordon Suggett
    +44 (0)20 7418 8900