1st Quarter Results

Turbo Power Systems Inc. ("TPS" or the "Company")

Announces Results for the Quarter

Ended 31 March 2015

TPS reports a Pre-Tax profit for two successive quarters

Financial highlights:

· Pre-Tax profit of £0.03 million (Q1 2014: Loss £1.44 million).

· Revenue increased 24% to £4.08 million (Q1 2014: £3.30 million).

· Gross profit increased to £1.68 million (Q1 2014: £0.48 million), with an increased gross margin of 41% (Q1 2014: 15%).

· Total expenses for the period were down 18% to £1.48 million (Q1 2014: £1.81 million).

· Operating profit was £0.20 million (Q1 2014: loss £1.26 million)

· Cash outflow from operating activities of £1.44 million (Q1 2014: £1.52 million)

Operational highlights

· Increase in the development revenue from new projects signed in 2014 including UK Power Networks.

· Production of the Bombardier Toronto Rocket units resumed and continued delivery of units to Bombardier and Eaton.

· Increased development revenue, and the impact of the Company's focus on profitable contracts, has increased the gross margin to 41% in the quarter.

· Overhead expenses reduced since June 2012 peak, with overall expenses at 31 March 2015 of £1.48 million compared to £1.81 million at 31 March 2014.

Strategic review

· Strategic review of the Company's business, announced February 2015, ongoing.

· Further announcements will be made in due course, as appropriate.

Funding

The Company remains critically dependent on the existing loan and continuing financial support by TPS's ultimate parent company, Vale Soluções em Energia S.A. ("VSE"), the Brazilian energy solutions company, which owns 89.4% of the issued share capital of the Company through its wholly owned subsidiary Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"). VSE is dependent on its major shareholders Vale S.A. ("Vale"), Brazil's largest mining company, and Banco Nacional de Desenvolvimento Econômico e Social ("BNDES"), Brazil's National Development Bank. As at 31 March the loan outstanding from TAO UK amounted to £11.93 million (being principal of £10.48 million and accrued interest of £1.45 million), which is repayable on 1 April 2017, following a one year extension to the repayment date as announced on 16 March 2015.

Carlos Neves, Chief Executive Officer, said:

"We are pleased to announce that TPS has made a pre-tax profit for the second consecutive quarter with revenue increasing by 19% over last quarter and 24% over the corresponding quarter in 2014 while maintaining a 41% gross margin.

The sustained recovery in the business is the result of initiatives implemented since 2012 and the culture of continuous improvement embraced by all employees at TPS. We are all proud of what has been achieved, whilst conscious of the focus we have to maintain on our strategic objectives.

The current order book and the short term opportunities reaffirm the Board's confidence in our performance for the rest of the financial year."

For further information, please contact:

Notes to Editors

About Turbo Power Systems

Company Website: www.turbopowersystems.com 

Company Twitter: https://twitter.com/turbopowersys

Turbo Power Systems Inc (AIM:TPS.L) is a leading UK based designer and manufacturer of innovative power solutions. TPS's products are all based on its core technologies of high speed motors and generators and power electronics which are sold into a number of market sectors including transport, industrial, energy and defence sectors. The Company's products provide high performance while improving efficiency and reducing process energy consumption compared to existing technologies.

Turbo Power System's existing customers include blue chip companies such as Bombardier Transportation, Daikin Applied and Eaton Aerospace. The Company also has commercial contracts with its ultimate parent company, Vale Soluções em Energia S.A. ("VSE"), the Brazilian energy solutions company, which through Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is a VSE wholly owned subsidiary and TPS's parent undertaking, owns 89.4% of the issued share capital of the Company.

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 on-going 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.

Notice of no auditor review of interim financial statements

Under Canadian National Instrument 51-102, Part 4, subsection 4.3(3(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying un-audited interim financial statements of the Company have been prepared by and are the responsibility of the Company's management.

The Company's independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity's auditor.

This review has been prepared as at 5 May 2015.

OPERATIONAL REVIEW

Business of the Company

Turbo Power Systems is a technology-led Company that designs and manufactures high-speed electric motors, generators and power electronics systems providing bespoke solutions to transport, industrial, energy and defence markets.

Its track record in engineering innovation, which has been built and tested over a number of years, allows the Company to meet challenging designs and manufacturing briefs with specific requirements relating to high efficiency, space and environmental constraints to perform volume production demands across the world.

TPS has a proven and worldwide track record developed over the last 30 years delivering equipment in many sectors, but especially in rail and industrial. Long term relationships with global blue chip companies in these markets have been built based on TPS's expertise in high-speed electrical machines and power electronics enabling the Company to design and manufacture competitive quality products with proven reliability.

Way Forward

As a technology-led business, the Company understands the challenges of the market regarding quality, costs and timing. Since 2013 TPS has concentrated on three important pillars that have driven the successful strategy of the drive to profitability:

· Improve the quality of the portfolio;

· Superior execution within design development, manufacturing operations and support activities; and

· Consistent delivery of internal improvements.

These will continue to underpin the Company's strategy as the Company drives forward in its chosen markets.

Market Overview

Transport:

Rail is a growing sector with huge investment globally and it is a critical development infrastructure in many developing countries. As an established supplier for auxiliary power units and battery charges TPS can use its systems expertise to expand into traction systems and electric distribution systems. The Company continues to implement its strategy for expanding its Maintenance, Repair and Overhaul (MRO) services, especially in the UK, where it is working closely with both train operators and train service companies. In the UK the train purchasing and refurbishment timetable is governed by the franchise renewal schedule.

Industrial:

The HVAC Systems market has been a major market for the Company where TPS has a long standing relationship with Daikin, a major OEM in this market. The Company continues to work closely with Daikin on the design and production of its next generation product lines. The Company continues to work with it customers of high speed direct connected motors and variable frequency drives for air/gas compression and blowers market.

Energy:

The energy recovery sector in which TPS is focusing is growing, driven by continued increasing energy demand and cost. There are limited suppliers in 400 kW to 1 MW class systems where TPS has know-how, experience and can interchange technologies and solutions in this market. TPS has the pedigree and experience with grid linked inverters, which the Company believes is growing sector. The Company will focus on specialised niche applications (i.e. inverters for smart grid), where added value can be demonstrated, and the low carbon renewable energy market, such as wind turbines.

Defence:

A growing market identified by the Company is the electrification of naval vessels. TPS's technologies are suitable for energy recovery and efficiency, permanent magnet motors for traction systems and emission mitigation in marine systems which is being driven by recent marine regulations. Current projects underway should provide the necessary track record for potential expansion within this market.

Current Operations

Revenue in the quarter was up on first quarter last year and also the last quarter of 2014. The increase in the Engineering design revenue was due to the new projects signed in 2014, including with UK Power Networks.

The Company resumed production of the Bombardier Toronto Rocket units in the quarter and continued to delivery units to Bombardier for Chicago Transit Authority. Deliveries to Eaton of the Jettison Fuel Pump continued in line with their requirements.

The increase in the development revenue, together with the impact of the Company's focus on profitable contracts, has increased the gross margin to 41% in the quarter.

The overhead base has been reducing since its peak level in June 2012, with overall expenses at 31 March 2015 of £1.48 million compared to £1.81 million at 31 March 2014.

Headcount at 31 March 2015 was 126, up one from December 2014 (125).

Strategic Review

On 20 February 2015 shareholders were informed that the Board is conducting a strategic review of the Company's business and as part of this review is looking at a potential sale of the Company. The Board has appointed Lincoln International LLP to assist in this process.

The Board notes that the Company is a Canadian Business Corporation, registered in Yukon, Canada and is not subject to the provisions of the UK City Code on Takeovers and Mergers.

There can be no certainty that any potential transaction will proceed, or as to the terms of any such transaction. The Company may discontinue the strategic review process at any time.

Further announcements will be made in due course, as appropriate.

Support from TAO UK

On 16 March 2015 the Company extended the repayment date on its loan from its parent company, TAO UK, to 1 April 2017.

As at 31 March 2015 the current loan amount is £10.48 million plus accrued unpaid interest of £1.45 million. .

Summary

In summary, the Company continued to implement the strategy of bidding for profitable production and development contracts. These results for the first quarter 2015 show the second consecutive quarter of profitability for the Company.

The Board will continue to focus as follows:

· Improve the quality of the portfolio;

· Superior execution within design development, manufacturing operations and support activities; and

· Consistent delivery of internal improvements.

During the year the Company will continue to actively pursue exciting new projects with new customers to increase the diversity of both its customer base and its technology portfolio, with the right level of profitability. This drive, which coupled with a continued focus on operational efficiencies throughout the business, is a key part of the plan to build on this improved performance and achieve annual profitability.

The Board look forward to 2015's performance with measured confidence.

Going Concern

These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards (IFRS) applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The Company is critically dependent upon i) customers paying to contractual terms and; ii) the continued financial support of its intermediate parent undertaking TAO UK, who in turn is dependent on their parent undertaking VSE (which in turn is dependent on its major shareholders Vale and BNDES) for such continued financial support in order to meet budgeted and forecasted working capital requirements and support the Company's growth plans. If not secured, this may result in the curtailment of the Company's activities.

As at 31 March 2015 the Company had net operating outflows, with a net debt of £16.39 million, being £16.72 million of debt less £0.33 million of cash. The Company has a cumulative deficit of £98.55 million as at 31 March 2015 and was profit making for the quarter then ended.

If the Company is unable to generate positive cash flows from operations, ensure the continued financial support from TAO UK and ultimately VSE, or secure additional debt or equity financing these conditions and events indicate the existence of material uncertainty which may cast significant doubt regarding the going concern assumption and, accordingly, the use of accounting principles applicable to a going concern.

These condensed consolidated interim financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications which would be necessary if the going concern assumption were not appropriate. This could be material.

However the Directors believe that they will succeed in delivering the Company's projected financial performance and that financial support from TAO UK and, ultimately, VSE, which is dependent its major shareholders, Vale, Brazil's largest mining company, and BNDES, Brazil's national development bank, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided throughout 2014 and that the majority of the Board are VSE representatives, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation.

Summary of Quarterly Results

The following table shows selected quarterly consolidated financial information of the Company for the last eight quarters:

Revenues increased in March 2015 as development revenue increased as revenue is recognised on development contracts commenced in 2014.

Research and development expenditure is remaining at a static level following the board approved strategy to drive the company's technology forward.

General and Administration expenses have increased in the March 2015 quarter over December 2014 which included a one-off benefit associated with the review of the asset retirement provision of £0.26 million.

Copies of Quarterly and Annual Results

The Company's full Financial Results and Managements' Discussion and Analysis for 2014, together with the First quarter 2015 Financial Results and Managements' Discussion and Analysis are available on www.sedar.com. Full 2014 financial statements will be mailed to shareholders during May 2015.

Copies of the quarterly and annual results are available from the Company's office at 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead, NE11 0QD, United Kingdom or available to view from the Company's website at www.turbopowersystems.com

Review of the quarter ended 31 March 2015

Revenue

Revenue in the quarter ended 31 March 2015 was up 24% at £4.08 million (Q1 2014: £3.30 million.)

Production revenue remained constant for the quarter at £3.16 million (Q1 2014: £3.16 million) while development revenue increased by 565% to £0.93 million (Q1 2014: £0.14 million) as revenue is recognised on development contracts commenced in 2014.

Cost of Sales

The cost of sales was £2.40 million (Q1 2014: £2.82 million), net of release of a provision for a loss making contract.

Gross Profit

Gross profit increased by 251% to £1.68 million (Q1 2014: £0.48 million), with gross margin increasing to 41% (Q1 2014: 15%) reflecting the Company's commitment to increase the profitability of both its current and new contracts.

Research and product development

Research and product development costs in the quarter increased by 8% to £0.54 million (Q1 2014: £0.50 million), in line with the Board's plans for the Company to become more focused.

General and administrative costs

General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company's public listings, were down by 19% compared to 2014 to £0.87 million (Q1 2014: £1.07 million), an improvement of £0.20 million. The Company has continued to control its costs without prejudicing the business operational strengths, with a reduction in headcount of 6% compared with 31 March 2015 (31 March 2015: 126, 31 March 2014: 134) and the consolidation of its operations to the Gateshead site.

Operating profit

Operating profit before other operating income was £0.20 million (Q1 2014: loss £1.33 million).

Other operating income

There was no other operating income arising from the Regional Growth Fund in the quarter whilst the Company undergoes a review of the project and its key milestones (Q1 2014: £0.07 million).

Finance expense

Finance expense of £0.17 million (Q1 2014: £0.19 million) arose from the interest on the loans from TAO UK (2015: £0.17 million, 2014: £ 0.15 million) and the effects of foreign exchange movements (2015: £nil, 2014: £ 0.04 million).

Net profit

The Company recorded a net profit of £0.03 million (2014: loss £1.44 million).

Cash flows for the quarter ended 31 March 2015

Operating cash flows

The Company recorded an operating cash inflow before working capital movements of £0.27 million for the quarter (Q1 2014: outflow £1.24 million).

After adjusting for changes in working capital items the Company suffered an overall cash outflow from operations of £1.44 million (Q1 2014: £1.52 million).

Investing activities

Cash outflows from capital investments in the quarter were £0.05 million (Q1 2014: £0.04 million).

Financing activities

There were no financing activities in the quarter ended 31 March 2015 (Q1 2014: £nil).

Overall cash outflow for the period

Overall the cash outflow during the quarter was £1.50 million (Q1 2014: Outflow £1.56 million).

Balance sheet as at 31 March 2015

The Company ended the period with an unrestricted cash balance of £0.33 million compared with £1.83 million at 31 December 2014. Substantially all of the Company's cash balances are denominated in Sterling.

In addition, the Company had restricted cash amounts of £0.07 million (31 December 2014: £0.07 million), relating to utilities deposits and a performance bond.

Non-current assets have decreased from £0.78 million at 31 December 2014 to £0.76 million at 31 March 2015, after depreciation and amortisation charges of £0.08 million.

Loans and borrowings have increased by interest of £0.17 million to £11.93 million. The loan and interest are shown as a non-current liability repayable on 1 April 2017. The Company is continuing its discussions with TAO UK about the alternatives available to the Company when the loans of £11.93 million become repayable on 1 April 2017.

Net current assets at 31 March 2015, excluding restricted cash balances included under current assets, were £3.49 million (31 December 2014: £3.28 million).

As at 31 March 2015, the Company had 3,336,865,922 common shares issued and outstanding and 892,777,778 A ordinary shares issued and outstanding. As at that date there were 15,080,909 outstanding share options.

Contractual Obligations

Shareholders' equity

The movement in shareholders' deficit comprised:

As at 5 May 2015, the Company had 3,336,865,922 common shares issued and outstanding and 892,777,778 A ordinary shares issued and outstanding. As at that date there were 15,080,909 outstanding share options.

Liquidity

Cash and cash equivalents at 31 March 2015 were £0.33 million (31 December 2014: £1.83 million).

Restricted cash at 31 March 2015 was £0.07 million (31 December 2014: £0.07 million).

The Company reported a profit in the quarter of £0.03 million and has a cumulative deficit of £98.55 million. The Company's ability to continue as a going concern depends on its ability to generate positive cash flows from operations or secure additional debt or equity financing.

The Company has not changed its approach to Currency risk and Interest rate risk management from that of the prior year and as disclosed in the annual statements at 31 December 2014.

Currency risk management

The Company's expenditure is principally denominated in Sterling, which is funded from Sterling cash balances. Exchange differences, which arise on consolidation of the Company's Canadian operations, are included in exchange adjustments within the income statement. At 31 March 2015 the Sterling equivalent of Canadian Dollar denominated net liabilities amounted to £5,500 (31 December 2014: net liabilities £3,250).

The Company receives a significant proportion of its revenue in US Dollars (including from contracts with Canadian customers). As such the Company routinely maintains a significant receivables balance in US Dollars, which are revalued at each period end. At 31 March 2015 the Sterling equivalent of the US Dollar denominated assets amounted to £2.49 million (31 December 2014: £1.93 million).

To manage its foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the Company uses forward foreign exchange contracts. Further information is provided in Note 7 Derivative Financial Instruments.

Interest rate risk management

The analysis of the Company's financial assets and borrowings analysed between floating and fixed interest rates is shown below

The fixed rate borrowings are at 6.0% per annum.

Financial instruments

The Company's financial assets and liabilities consist primarily of the cash and cash equivalents, restricted cash, trade receivables, trade payables and loans.

The amounts at which the assets and liabilities above are recorded are considered to approximate to fair value.

Fair value estimation

The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Techniques, such as estimated discounted cash flows, are used to determine fair value for the financial instruments. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date.

The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to the short-term nature of trade receivables and payables. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments.

Derivative financial instruments

The Company uses foreign exchange forwards to help manage its foreign exchange risk. The Company classifies these derivatives as financial assets at fair value through profit and loss. Derivatives are classified as current assets.

Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership.

Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the income statement within 'Other gains - net' in the period in which they arise.

Financial Risk Management and Capital Structure

The Company's risk management programme remains as detailed on page 51 in the Annual Report and Financial Statements 31 December 2014. There have been no significant changes since 31 December 2014.

Further information is provided in Management's Discussion and Analysis and the notes to these Condensed Consolidated Interim Financial Statements.

Related Party Transactions

On 16 March 2015 the Company announced that it had agreed a one year extension in the term of its existing loan financing agreement which will now be repayable on 1 April 2017.

Critical accounting policies and estimates

These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards 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 March 2015 the Company had net operating cash outflows. Therefore the Company may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £98.55 million as at 31 March 2015.

Further information on Going Concern is provided in Note 2.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately differ from those estimates.

Estimates and underlying assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial year are disclosed on page 42 in the Annual Report and Financial Statements for 31 December 2014.

Principal Risks and Uncertainties

Internal Control

The Board of Directors has overall responsibility for the accounting policies and ensuring that the Company maintains an adequate system of internal financial control to provide them with reasonable assurance that assets are safeguarded and of the reliability of financial information used for the business and for publication. More detail on the Company's internal control can be found on page 27 of the Annual Report and Financial Statements for the year ended 31 December 2014.

Turbo Power Systems Inc.

Condensed consolidated interim income statement

Unaudited

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The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc.

Condensed consolidated interim statement of financial position

Unaudited

________________________________________________________________________________

Approved by the Board:

F Senhora, Chairman

5 May 2015

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc.

Condensed consolidated interim statement of changes in equity

Unaudited

________________________________________________________________________________

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc.

Condensed consolidated interim statement of cash flows

Unaudited

________________________________________________________________________________

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc.

Notes to the condensed consolidated interim financial statements

Unaudited

________________________________________________________________________________

1 Reporting entity

Turbo Power Systems Inc. ("The Company") is subsisting pursuant to the Business Corporations Act (Yukon Territory). The Company's registered office is Suite 200-204 Lambert Street, Whitehorse, Yukon Y1A 3T2, Canada.

The Company conducts operations through its wholly owned subsidiary company, Turbo Power Systems Limited ("TPSL"), whose main trading address is 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead NE11 0QD, United Kingdom.

The Company's parent undertaking is TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), a company registered in England and Wales, UK. The Company's ultimate parent company is Vale Soluções em Energia S.A. ("VSE"), a company registered in Brazil.

These condensed consolidated interim financial statements of the Company as at and for the quarter ended 31 March 2014 comprises of the Company and its subsidiaries. The Company's subsidiaries comprise:

2 Going concern

These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards (IFRS) applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations.

The Company is critically dependent upon i) customers paying to contractual terms and ii) the continued financial support of its intermediate parent undertaking TAO UK, who in turn is dependent on their parent undertaking VSE (which in turn is dependent on its major shareholders Vale and BNDES) for such continued financial support in order to meet budgeted and forecasted working capital requirements and support the Company's growth plans. If not secured, this may result in the curtailment of the Company's activities.

As at 31 March 2015 the Company had net operating outflows, with a net debt of £16.39 million, being £16.72 million of debt less £0.33 million of cash. The Company has a cumulative deficit of £98.55 million as at 31 March 2015 and was profit making for the quarter then ended.

If the Company is unable to generate positive cash flows from operations, ensure the continued financial support from TAO UK and ultimately VSE, or secure additional debt or equity financing these conditions and events indicate the existence of material uncertainty which may cast significant doubt regarding the going concern assumption and, accordingly, the use of accounting principles applicable to a going concern.

These condensed consolidated interim financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications which would be necessary if the going concern assumption were not appropriate. This could be material.

However the Directors believe that they will succeed in delivering the Company's projected financial performance and that financial support from TAO UK and, ultimately, VSE, which is dependent its major shareholders, Vale, Brazil's largest mining company, and BNDES, Brazil's national development bank, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided throughout 2014 and that the majority of the Board are VSE representatives, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation.

3 Basis of preparation

These condensed consolidated interim financial statements have been prepared in accordance with IAS34 Interim Financial Reporting.

The Company's condensed consolidated interim financial statements were prepared in accordance with the accounting policies set out in Note 3 to the consolidated financial statements for the year ended 31 December 2014, and using the same methods of computation.

The condensed consolidated interim financial statements were authorised for issuance by the Board of Directors on 5 May 2015.

The condensed consolidated interim financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

The condensed consolidated interim financial statements are presented in £ sterling, rounded to the nearest £1,000, which is the Company's functional and presentation currency.

4 Critical accounting judgements and key sources of estimation uncertainty

These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards 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 March 2015 the Company had net operating cash inflows. Therefore the Company may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £98.55 million as at 31 March 2014

Further information on Going Concern is provided in Note 2.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

Estimates and underlying assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected.

5 Segmental analysis

The Company reports by its distinct segments of production and development, both segments 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.

Geographic Segmental Information

All property, plant and equipment were located within the United Kingdom during both periods ended 31 March 2015 and 31 March 2014.

6 Profit/(loss) per share

Profit/(loss) per common share has been calculated using the weighted average number of shares in issue during the relevant financial periods.

As the Company experienced a loss in 2014 all potential common shares outstanding from dilutive securities are considered anti-dilutive and are excluded from the calculation of diluted loss per share.

Details of dilutive potential securities outstanding included in EPS calculations at 31 March 2015 are as follows:

7 Derivative financial instrument

The notional principal amounts of the outstanding forward foreign exchange contracts at 31 March 2015 were £0.31 million (2014: £0.15 million).

8 Loans and borrowings

On 22 October 2010 the Company agreed to a loan facility with TAO UK, which bears interest at 6% per annum and is repayable upon demand commencing 2 January 2012. During 2012 the repayment term was renegotiated and the loan became due upon demand commencing 1 April 2014. In March 2014 the repayment date was further extended to 1 April 2016. The repayment date was extended by one year on 16 March 2015 to 1 April 2017. The loan is secured by a fixed and floating charge over the assets of the Company's subsidiary TPSL.

The Company has drawn down on all its borrowing facilities as at 31 March 2015 (2014: all loans drawn down in full). Unpaid accrued interest of £1.45 million (2014: £1.28 million) is recorded in the loan amount.

9 Share capital and options

Share capital and other reserves

Share Capital

The Company is authorised to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, without nominal or par value. All common shares rank equally with regard to the Company's residual assets.

The holders of common shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.

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

As the A Ordinary Shares are non-participating interests in TPSL and are non-voting, no current year or cumulative net losses have been allocated to the A Ordinary Shares.

Other reserves

At 31 March 2015, other reserves comprise of the stock compensation reserve of £1,823,000 (31 December 2014: £1,823,000).

The Company has issued share options under the 2002 Stock Option Plan and A Ordinary Shares that are convertible into common shares of the Company.

10 Related party transactions

Transactions with the parent and ultimate parent company

During the periods ended 31 March 2014 and 31 March 2015 the Company undertook no significant transactions with related parties.

Accrued interest of £1.45 million is recorded within trade and other payables (31 December 2014: £1.28 million)

Save for the loans and borrowings (see Note 8 above) and accrued interest, there were no amounts outstanding at 31 December 2014 and 31 March 2015 between the Company and TAO UK, and the Company and VSE.

Transactions are conducted within the normal course of business for supply of engineering design services and are transacted at exchange amount, which is the amount agreed for the transaction.

Key Management personnel compensation

In addition to their salaries, the Company provides non-cash benefits to executive management and contributes to a defined contribution pension plan. Some executive officers participate in the share option programme.

Key management personnel compensation comprises the following: