1st Quarter Results

14 MAY 2012

TURBO POWER SYSTEMS INC. (TPS) ANNOUNCES RESULTS FOR

THE FIRST QUARTER ENDED 31 MARCH 2012

Key Features

·; Revenue increased 118% for the quarter to £4.53 million (2011: £2.08 million)

·; Production revenues, included in the above, in the quarter increased by 129% to £4.13 million (2011: £1.80 million)

·; Continued investment in further improving development and operational capabilities.

·; Research and product development costs remained level at`£0.95 million (2011: £0.95 million),

·; Headcount increased 67% since 31 March 2011 to 221 at 31 March 2012

·; EBITDA loss for the quarter of £1.74 million (2011: £1.37 million)

·; Net loss in the quarter of £2.06 million (2011: £1.62 million)

·; Operating cash outflow in the quarter of £2.90 million (2011: £1.77 million)

·; Loan from TAO UK increased to £10.97 million at 31 March 2012 (2011: £3.1 million).

Peter Brown, Chief Executive Officer, said:

"Financial performance in the quarter was a loss of £2.06 million, compared with first quarter 2011 loss of £1.62 million and fourth quarter 2011 loss of £2.18 million.

We remain a technology-led company, and have continued to strengthen the technical team to ensure we support relationships with science-based corporations who have demanding applications for our technologies.

Whilst Order Intake has been slow in the first quarter of 2012, we have seen an increasing number of system based enquiries. Order intake in the quarter was £0.1 million, with significant wins expected in the rest of the year. Of particular note is our performance in the rail sector, with significant programmes being bid in Asia and North America.

We continue to develop our relationship with TPS's majority owner TAO UK and its parent VSE, which is headquartered in Brazil where we see significant prospects for growth.

Further to the Company's announcement of the same date, a circular to shareholders was posted on 2 May 2012 giving details of certain resolutions proposed to address the Company's financial positions and certain matters raised by the Toronto Stock Exchange, amongst others. The Board strongly encourages shareholders to read the circular and recommend that shareholders vote in favour of the proposals."

For further information, please contact:

Notes to Editors

About Turbo Power Systems

Company Website: www.turbopowersystems.com

Turbo Power Systems Inc (TSX:TPS.TO 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 power electronics and high speed motors and generators and are sold into a number of market sectors including aerospace, rail, and various industrial sectors. The Company's products provide improved efficiency and reduced energy consumption compared to existing technologies.

Turbo Power System's existing third party customers include blue chip companies such as Bombardier Transportation, McQuay International 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, and with Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is a VSE wholly owned subsidiary and TPS's parent undertaking, owning 75.4% 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 ongoing capital needs, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition, the need to protect proprietary rights to technology, government regulation, and other risks defined in this document and in statements filed from time to time with the applicable securities regulatory authorities.

Definition of non-GAAP financial measures

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

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.

OPERATIONAL REVIEW

This review has been prepared as at 12 May 2012.

Business of the Company

Turbo Power Systems designs and manufactures high performance electric motors, generators, and power electronics systems and provides custom solutions to energy conversion, industrial, transport and military markets.

TPS is a technology-led organisation and provides solutions to difficult and challenging requirements. The Company's track record in engineering innovation, which has been built and tested over a number of years, allows us to meet challenging design and manufacturing briefs with specific requirements relating to environmental performance and performance to volume demands.

TPS has a proven track record in the development and deployment of equipment in the rail and industrial sectors. The long term relationships with customers in these markets have been built based on delivering technology-rich competitive products with proven reliability.

Based on an established electrical machines and power electronics expertise developed over the last 30 years, the Company plans to build upon its existing portfolio of products and expand in growing markets and regions.

Strategic Direction

We are intent on remaining a technology-led company.

We have further strengthened the technical team with a number of key appointments to ensure we support and grow relationships with science based corporations who have demanding applications for our technologies and knowhow. At 31 March 2012 the business employed 221 people (including temporary staff), an increase of 89 compared to 31 March 2011.

As such, the business continues to pursue applications for its technologies and to leverage its relationship with TAO UK, the Company's 75.4% majority shareholder, and its parent VSE, which is headquartered in Brazil. We have seen an increasing number of systems based enquiries, both from Brazil and elsewhere, and we have a firm belief that the marketplace has now recognised the value of our technology. As a consequence we anticipate significant new orders throughout 2012.

Operationally our emphasis is on developing integrated systems. We also recognise that our customer base is increasingly keen to secure regional manufacture capability outside the UK. We are taking steps to ensure that TPS is commercially and operationally capable of responding to this global trend.

Following a detailed market and capability review, a revised business strategy was established and areas of real growth identified. The management team believes that TPS' success will hinge on a balanced business strategy based on three key elements:

·; Growing the existing markets of rail and industrial systems through improved product designs, reduced cost and increased margin and scope of supply;

·; Expansion of engineered solutions offerings in energy, marine, oil & gas sectors where TPS is the supplier of choice owing to its responsiveness and technology capabilities;

·; Development of complete products based on VSE/TPS synergies allowing us to access multiple customers and to transition to a 'value based pricing' model.

Based on our established electrical machines and power electronics expertise developed over the last 30 years, the Company plans to build upon its existing portfolio of products and expand in growing markets and region, as follows:

·; Rail

TPS' addressable market for power electronics products is significant. Customers' key buying criteria are conformance to specifications, lower size and weight and also lower price. In order to remain competitive and eliminate some of the barriers to growth, the Company will pursue technologies that will not only increase the power density of its products, but also increase their efficiency and reduce their cost by increasing material utilisation. The Company will focus on platform products to optimise cost, quality and delivery performance. In addition, TPS will focus on establishing a profitable and long term future, through strategic partnerships in countries with high growth potential, especially Brazil, India and North America.

·; High-Speed Motors Offerings

The Company offers electric motors and associated high speed drives to the global chiller compressor market in which we can potentially participate in over 40% of the total market. Over the years, TPS has forged a strong relationship with one of the major heating, ventilation and air conditioning ("HVAC") global suppliers. Building on that relationship, the Company plans an expansion of its technology to the greater power required by the growing market of industrial HVAC and gas compression. TPS will pursue strategies to increase its scope of supply, as well as forge strategic partnerships with key component manufacturers to secure its supply going forward.

·; Specialist Applications Sector

TPS' current portfolio of products is specific to specialised markets. These include laser power supplies and blowers and Megawatt class power generators for the military.

These markets have been, and are expected to remain, steady in the future. In 2012 the Company anticipates a continuation of current order levels. Furthermore, based on the success of the TPS Megawatt class generator, it is anticipated further units will be required.

·; Maintenance Repair and Overhaul ("MRO")

MRO for both our products and those of our competitors is a growth area for the Company.

One particular market with substantial global growth is the rail sector, both designing obsolescence out and replacing rotary power supplies with static converters.

The MRO function is critical to our core business as TPS will be judged on its ability to support its products over the life cycle.

In 2012 TPS plans to implement a detailed MRO business strategy and form a support organisation to deliver it. In all current and future bids, the company intends to introduce a service element to extend TPS's value proposition.

·; Future Markets

The new growth engines for the Company's product portfolio will be driven by the desire for TPS to become a systems and solution provider, rather than a component supplier. Achieving this will move the Company up the value chain.

The Company has proven that it has the expertise to develop Megawatt class turbine driven permanent magnet generator systems through the development of its 1.2 MW system. Now the know-how and expertise will be applied to 5 and 10 MW systems. With their small foot print and light weight, the Company's offering has the required attributes for applications in distributed generation and off shore platforms which are in high demand. The expansion to these higher power levels will be used as a platform to develop medium voltage technology and as well as the approach of standardised building blocks for the energy sector. This would lead to a reduction in cycle time and lower cost of development for future products.

Our intention is that TPS' offerings will consist of a compact permanent magnet generator, associated power converter and conditioning equipment. The generator will be coupled to the gas turbine using a flexible coupling. The power converter provided by TPS will be integrated with the gas turbine control system.

The Company's high speed electrical machines can be integrated with turbo machinery provided by VSE to develop integrated generator systems for energy recovery systems. These types of systems can be used to extract energy from the exhaust of diesel engines used in power generation and marine propulsion systems. This is a growing market that would allow energy systems to improve in efficiency. Systems from 300 KW to 1 MW are anticipated and these will use building blocks already in production or under development for other markets to reduce the non-recurring cost. The business will be based on a combination of hardware sales or revenue sharing models.

There are great opportunities for TPS and VSE to enter into the fast growing field of subsea equipment. The need for subsea power distribution and processing equipment is driven by the challenges posed by the depths and distances involved in the new off shore finds around the globe, particularly in Brazil.

Current Operating Climate

The transport market continues to show resilience, while the industrial sector has been largely stable. This has made it possible for TPS to deliver a strong manufacturing output during 2011. Further growth is anticipated during 2012, supported by the strong order book and the completion of certain delayed development programmes.

As stated last year, governments are continuing to invest in infrastructure projects and, indeed, view transport initiatives such as new rail programmes as a way of helping to sustain their industries whilst providing necessary public transportation and having a positive impact on the environment.

In the defence arena, the Company has continued to identify specialist pockets of growth potential in areas where TPS' technology can be applied. We have initiated contact with potential future partners and will continue to investigate this market further and hope to see increased activity during the coming years.

Marine and oil & gas sector development has seen the number of opportunities to utilise TPS products and technologies in 'new' markets increase markedly. A significant amount of market analysis and concept work started during 2011 and will continue in 2012. The market potential is significant and the links with VSE shareholder have provided the business with important leverage in Brazil.

The requirements for high system efficiencies and sustainability are becoming important factors by which products and services are selected. TPS's technologies and know-how have allowed it to offer competitive solutions in the road to sustainability. These technologies are applicable to the renewable energy sector and to waste energy recovery applications. The technology is intended to enhance system efficiencies and thus contribute to the sustainability goals. The market potential for TPS technologies in this sector is significant and further development in these markets is anticipated this year.

As expected, financial constraints have continued for the first quarter of 2012, with further support for working capital secured in the first quarter. Prospects for long term significant growth in the latter part of 2012 and beyond remain positive.

The current order book is strong. Execution of those orders and completion of development programmes in a consistent and timely manner will be the key in delivering management's plans for the improved results during 2012.

Financial Performance

Financial performance

Total revenues in the quarter ended 31 March 2012 of £4.53 million were 118% higher than 2011 (2011: £2.08 million), primarily due to increased production volumes, particularly those associated with major programmes with Bombardier.

The Board continued to implement its strategy of seeking to further improve the Company's development and operational capabilities.

Research and product development costs remained level at £0.95 million (2011: £0.95 million).

General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company's public listings, were up by 15% from 2011: £1.17 million to 2012: £1.34 million. The major element in the increase of £0.17 million was higher staff costs as a result of increased headcount.

The Company recorded a loss before interest, tax, depreciation, amortization, foreign exchange gains and losses and stock compensation for the quarter of £1.74 million (2011: £1.37 million) primarily as a result of reduced operating margin on production contracts and increased costs.

The Company also recorded an operating cash outflow before working capital movements of £1.75 million for the quarter (2011: £1.42 million). After adjusting for changes in working capital items and purchases of property, plant and equipment suffered an overall cash outflow of £3.21 million (2011: £1.80 million).

Net cash inflow from financing during 2012 of £2.82 million (2011: £1.20 million), resulted in an overall net cash outflow for the quarter of £0.39 million (2011: £0.60 million).

The Company finished the quarter with an unrestricted cash balance of £0.26 million and held further cash of £0.34 million associated with rent deposit and utility bonds.

During the period ended 31 March 2012 the Company undertook two significant transactions with related parties. In January 2012 the Company negotiated a further loan facility from its majority investor TAO UK, which provided £1.02 million to support working capital requirements, bearing interest at 6% and being repayable on 30 days' notice. In March 2012 the Company increased this loan by a further £1.8 million, this tranche being repayable on 1 April 2014.

Going Concern

These interim condensed consolidated 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 2012 the Company had net operating cash outflows. The cash position at the beginning of the year and all the necessary investments to support the growth plan will require additional funding which, if not raised, may result in the curtailment of activities.

The Company has a cumulative deficit of £88.32 million as at 31 March 2012.

At 31 March 2012 the Company had an unrestricted cash balance of £0.26 million and held further cash of £0.34 million associated with rent deposit. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the going concern assumption and, accordingly, the use of accounting principles applicable to a going concern. These interim consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, which would be necessary if the going concern assumption were not appropriate.

On 30 January 2012 the Company announced that it had extended the loan financing agreement with TAO UK, its parent undertaking, to provide the Company with access to a further £1.02 million of debt financing to support working capital requirements, under the same terms and conditions as the previous loans. On 26 March 2012 the Company announced that it had extended the loan by a further £1.80 million to support working capital requirements, but that this portion of the loan will be repayable on 1 April 2014.

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

Summary of Quarterly Results

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

Production revenues increased during 2011 as the major programmes with Bombardier started production.

Research and development expenditure has begun to increase compared with previous years, reflecting the commencement of development activities related to opportunities presented by the investment from TAO UK, which became TPS's parent undertaking in June 2010, and the commercial development contract with VSE, which is TAO UK's parent.

Reconciliation of net loss to EBITDA result

Copies of Quarterly and Annual Results

The Company's full Financial Results and Managements' Discussion and Analysis for 2011, together with the First Quarter 2012 Financial Results and Managements' Discussion and Analysis are available on www.sedar.com and full 2011 financial statements have been mailed to shareholders during May 2012.

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

Review of the quarter ended 31 March 2012

Revenue

Revenue in the quarter ended 31 March 2012 was £4.53 million (2011: £2.08 million.)

Production revenue increased by 130%, in line with increased unit deliveries for major programmes with Bombardier. Development income has increased as work commences on the new contract signed in the second half of 2011.

Loss making production contracts in 2012 contributed to the increase in revenue, compared to minimal impact in 2011, but did not contribute to gross profit in the quarter.

Cost of Sales

The cost of sales in the quarter amounted to £3.95 million (2011: £1.40 million) net of release of provisions for loss making contracts. Production costs include certain facilities costs attributable to the manufacturing operation.

Research and product development

Research and product development expenditure in the quarter was £0.95 million (2011:£0.95 million).

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 up by 15% from £1.17 million in 2011 to £1.34 million in 2012. The major element of the increase of £0.17 million was higher staff costs, as a result of increased headcount.

Finance expense

Finance expense arises from the loans from TAO UK.

Cash flows for the quarter ended 31 March 2012

Cash outflow from operating activities

Operating cash outflow before movements in working capital was £1.75 million for the quarter (2011: £1.42 million)

Movements in working capital produced a net cash outflow of £1.16 million during the quarter (2011: £0.35 million).

Investing activities

Cash outflows from capital investments in the quarter were £0.31 million compared with £0.03 million in 2011.

Financing activities

Cash inflows in the quarter of £2.82 million relate to the increase in the loan from TAO UK (2011 £1.20 million).

Overall cash outflow for the period

Overall the cash outflow during the quarter was £0.39 million (2011: £0.60 million).

Balance sheet as at 31 March 2012

The Company ended the period with an unrestricted cash balance of £0.26 million compared with £0.65 million at 31 December 2011. Substantially all of the Company's cash balances are denominated in Sterling.

In addition, the Company had restricted cash amounts of £0.34 million (31 December 2011: £0.34 million), principally relating to a rent deposit on the Heathrow facility.

Non-current assets (excluding restricted cash) have increased from £1.13 million at 31 December 2011 to £1.30 million at 31 March 2012, after depreciation and amortisation charges of £0.14 million.

Loans and borrowings (including accrued interest) increased from December 2011: £8.50 million to 31 March 2012: £11.46 million. The amount of the loan shown as a current liability, repayable on 30 days' notice,is £9.17 million, and as a long term liability, £1.80 million repayable on 1 April 2014. Interest is recorded within current liabilities.

Net current liabilities at 31 March 2012, excluding restricted cash balances included under current assets, were £8.17 million, compared with £6.75 million as at 31 December 2011.

As at 31 March 2012, the Company had 1,437,754,811 common shares issued and outstanding and 448,333,334 A ordinary shares issued and outstanding. As at that date there were 31,377,273 outstanding share options.

Contractual Obligations

Shareholders' equity

The movement in shareholders' equity comprised:

As at 12 May 2012, the Company had 1,437,754,811 common shares issued and outstanding and 448,333,334 A ordinary shares issued and outstanding. As at that date there were 31,377,273 outstanding share options.

Liquidity

Cash, cash equivalents and short-term investments at 31 March 2012 were £0.26 million, compared with £0.65 million at 31 December 2011.

Restricted cash at 31 March 2012 was £0.34 million, compared with £0.34 million at 31 December 2011.

The Company reported a loss in the quarter of £2.06 million and has a cumulative deficit of £88.32 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 2011.

Currency risk management

Principally all of the Company's expenditure is 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 2012 the Sterling equivalent of Canadian Dollar denominated net liabilities amounted to £55,000 (31 December 2011: net liabilities £30,000).

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.

The Company invests surplus cash funds in short term money market deposits with financial institutions and cash funds which have at least a short term credit rating of F1.

Financial instruments

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

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.

Financial Risk Management and Capital Structure

The Company's risk management programme remains as detailed in the Annual Report and Accounts 31 December 2011. There have been no significant changes since 31 December 2011.

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

Related Party Transactions

During the period ended 31 March 2012 the Company undertook two significant transactions with related parties. On 30 January 2012 the Company announced that it had extended the loan financing agreement with TAO UK, its parent undertaking, to provide the Company with access to a further £1.02 million of debt financing to support working capital requirements, under the same terms and conditions as the previous loans. On 26 March 2012 the Company announced that it had extended the loan by a further £1.80 million to support working capital requirements, but that this portion of the loan will be repayable on 1 April 2014.

Critical accounting policies and estimates

These interim condensed consolidated 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 2012 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 £88.32 million as at 31 March 2012.

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.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed in the Annual Report and Accounts for 31 December 2011.

Risks and uncertainties

The development and commercialisation plans for the Group's products presented in this Management's Discussion & Analysis are forward-looking statements and as such are subject to a number of risks and uncertainties including those detailed below.

The business entails risks and uncertainties that affect the outlook and eventual results of the business and commercialisation plans. The primary risks relate to meeting the product development and commercialisation milestones, which require that the products exhibit the functionality, cost, durability, and performance required in a commercial product.

There is a risk that the markets for certain of our products may never develop, or that market acceptance might take longer to develop than anticipated. Our business planning process recognises and, to the extent possible, attempts to manage these risks by pursuing diverse markets for each of our products. Within these markets our commercialisation plan is focused on products that we believe have a competitive advantage.

We develop both subsystems and complete systems across our high speed motors and generators and power electronics product ranges and these development programmes are subject to risk. These risks include problems or delays due to technical difficulties and inability to meet design performance goals, including power output, life and reliability. We mitigate these risks to the extent possible through detailed project management, formal design reviews, reviews by external experts, contingency plans which anticipate likely problems, safety reviews, training and testing programs related to the operation and maintenance of the products.

We seek to maintain our technology lead through our strong intellectual property position, which will act as a barrier against competitors, and by continuing to invest in technology development. However, there can be no assurance that our present or future issued patents will protect our technology lead. We also rely upon know-how and trade secrets to maintain our technology lead. However, there is no assurance that this information can be completely protected.

Another market driver for products is the development of government policy related to the environment. Unfavourable decisions related to environmental policies (such as noise and exhaust emission levels) could result in delays in the introduction of our distributed power generation products. We mitigate, to the extent possible, the effects of changes in government regulations by developing products for diverse geographic locations.

We cannot predict with certainty our future revenues or results from our operations. If we experience significant cost overruns on any of our programs and we cannot obtain additional funds to cover such overruns or additional cash requirements, certain research and development activities may be delayed, resulting in changes or delays to our commercialisation plans. We may be required to raise additional capital through the issuance of equity or debt. We seek to mitigate this risk by securing funding commitments from a variety of sources and through adjustments to our development plans, by maintaining a substantial cash reserve, by being financially conservative in our expenditures and by maintaining good communications with investors and investment bankers to assist us should we need to access the public or private capital markets.

We are also subject to normal operating risks such as credit risks and foreign currency risks. Foreign currency sales and purchases are made in Sterling, Euros, Canadian and US Dollars. Over time, currency balances are matched, to the extent possible, to planned currency purchases.

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. There are inherent limitations in any system of internal financial control and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance with respect to the preparation of financial information and the safeguarding of assets.

Management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, is also responsible for establishing and maintaining adequate internal controls over financial reporting within the Company. Management have designed and evaluated the effectiveness of the Company's Internal Controls over Financial Reporting to provide reasonable assurance that the financial reporting is reliable and that the consolidated financial statements are prepared in accordance with International Financial Reporting Standards. Based on the latest evaluation, management has concluded that the following potential weaknesses existed as at 31 March 2012, but that they are sufficiently mitigated through appropriately designed controls. Management has determined that these controls are effective and provide reasonable assurance that the financial reporting is reliable and in accordance with IFRS.

Limited resources

Given the Company's size, it has limited resources within the Finance department. This impacts on its ability to provide comprehensive knowledge in certain areas of financial accounting, as detailed below. The Company is highly reliant on the knowledge of a limited number of employees and on the performance of mitigating procedures during its financial close and consolidation process to ensure that the consolidated financial statements are presented fairly and in all material respects.

Income taxes

Income tax law is a highly technical area that requires an in-depth understanding of national, international, federal and provincial tax laws and the Company's Finance staff has only a fair and reasonable knowledge of the rules related to income tax accounting and reporting. Although this represents a weakness in the Company's control environment, the Company retains and will continue to retain the services of external experts to provide advice and guidance on income tax accounting and disclosures. The Company does not consider that this weakness in control environment has resulted in any material misstatements of the financial statements.

Complex and non-routine transactions

At times the Company records complex and non-routine transactions which are extremely technical in nature and require an in-depth understanding of IFRS. The Company's Finance staff has a fair and reasonable knowledge of the rules related to IFRS. There is potential that these transactions could be recorded incorrectly resulting in potential material misstatement of the financial statements of the Company. Where the Company identifies a transaction as potentially complex or non-routine it will utilize the services of external experts to provide guidance and advice.

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

Approved by the Board:

J J M Pessoa, Chairman

12 May 2012

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

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

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

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") and the main trading address is Unit 3, Heathrow Summit Centre, Skyport Drive, Hatch Lane, West Drayton, Middlesex UB7 0LJ, 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.

The Company's subsidiaries comprise:

TPSL has initiated commercialisation of its technology in relation to high speed permanent-magnet machine systems for power generation and industrial motor applications at its London location, whilst its operation based in North East England is an established provider of advanced power electronics.

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 realize its assets and discharge its liabilities in the normal course of operations.

As at 31 March 2012 the Company had net operating cash outflows. The cash position at the beginning of the year and all the necessary investments to support the growth plan will require additional funding which, if not raised, may result in the curtailment of activities.

The Company has a cumulative deficit of £88.32 million as at 31 March 2012.

At 31 March 2012 the Company had an unrestricted cash balance of £0.26 million and held further cash of £0.34 million associated with rent deposit. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the going concern assumption and, accordingly, the use of accounting principles applicable to a going concern. These interim condensed consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, which would be necessary if the going concern assumption were not appropriate.

On 30 January 2012 the Company announced that it had extended the loan financing agreement with TAO UK, its parent undertaking, to provide the Company with access to a further £1.02 million of debt financing to support working capital requirements, under the same terms and conditions as the previous loans. On 26 March 2012 the Company announced that it had extended the loan by a further £1.80 million to support working capital requirements, but that this portion of the loan will be repayable on 1 April 2014.

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

3 Basis of preparation

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

The Company's interim condensed consolidated 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 2011, and using the same methods of computation.

The interim condensed consolidated financial statements were authorised for issuance by the Board of Directors on 12 May, 2012.

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

The interim condensed consolidated 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 interim condensed consolidated 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 2012 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 £88.32 million as at 31 March 2012.

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.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

5 Segmental analysis

The Company has historically operated from two facilities in the UK and run each location as a separate unit. During 2011 the Company underwent management and operational changes to bring the reporting segments in line with the strategy of designing and manufacturing integrated systems. The Company's two reportable segments have therefore changed from 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. The Company now operates a more integrated operation structured along the lines of product research and development, and production. The Board and management review the results of the Company on this basis. As such the segmental report for 2012 has been presented on that basis, with the comparatives for 2011 presented on the same basis.

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

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 was located within the United Kingdom during both periods ended 31 March 2012 and 31 March 2011.

6 Loss per share

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 both years 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 anti-dilutive potential securities outstanding not included in EPS calculations at 31 March are as follows:

7 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 2012, other reserves comprise of the stock compensation reserve of £1,797,000 (31 December 2011: £1,756,000).

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.

8 Related party transactions

Transactions with the parent and ultimate parent company

On 22 October 2010 the Company completed a loan funding facility from its majority investor, TAO UK, that made available up to £1.9 million (amended as below) to support the working capital requirements of the Company as it develops. The loan carries a 6% interest rate and is secured by a fixed and floating charge over the assets of the Company, and is repayable on 30 days' notice ( except the 26 March 2012 amendment which is repayable on 1 April 2014 ) . A summary of the drawdowns is :

Accrued interest is recorded within trade and other payables (31 December 2011: £353,000)

During the quarter ended 31 March 2012 the Company transacted business with TAO UK, totalling £nil (2011: £44,000), and with VSE, totalling £96,310 (2011: £ nil). Amounts outstanding as at 31 March 2012 are: the Company owes TAO UK £nil (31 December 2011: £63,000); VSE owe £22,720 (31 December 2011: £nil) to the Company.

All transactions were conducted within the normal course of business for supply of engineering design services and were 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:

Bonus and other payments in 2011 include payments made in relation to the change of control in June 2010, arising from the TAO UK investment in the Company, and termination payments.