27th Mar 2007 07:08
Turbo Power Systems Inc27 March 2007 27th March 2007 TURBO POWER SYSTEMS INC. ANNOUNCES ITS RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED 31 DECEMBER 2006 Highlights • Production and development income increased by 113 percent to £6.3 million • Loss before tax reduced by 2 percent to £6.3 million • Orders announced since January 2006 totalling US$58 million including: o Motor drive to be used in the new Boeing 787 dreamliner o Auxiliary power supplies to be used in rail cars for the Beijing Airport Link o Traction electronics for use in Union Pacific locomotives o Auxiliary power for subway cars for the Chicago Transit Authority o Auxiliary power systems for use in subway cars by the Toronto Transit Commission • Placing of £6.0 million • Convertible debt reduced by 84 percent to £1.8 million • Move to trading on AIM Commenting on the results, Michael Hunt, Chief Executive said, "During 2006 we made strong progress both in continuing to build our order bookand increasing our revenues. The orders won provide a platform for our futuregrowth and a number of new programmes will move into production in 2007. Thesuccessful fundraising and debt restructuring that we completed in December wasan endorsement of our recent progress and has strengthened our balance sheet significantly." For further information, please contact: Turbo Power Systems Tel: +44 (0)20 8564 4460Michael Hunt, Chief Executive OfficerStephen Sadler, Chief Financial Officer Company Website: www.turbopowersystems.com Gavin Anderson (PR) Tel: +44 (0)20 7554 1400Ken CroninMichael Turner KBC Peel Hunt Tel: +44 (0) 20 7418 8900Oliver Scott NOTES TO EDITORS About Turbo Power Systems Turbo Power Systems Inc. designs and manufactures innovative power solutionswhich provide local, high quality, controllable electrical power. The Group'sproducts are sold into a number of markets but are all based on its coretechnologies of power electronics and high speed electrical machines. 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-lookingstatements include statements concerning plans, objectives, goals, strategies,future events, or performance, and underlying assumptions and other statementsthat are other than statement of historical fact. These statements are subjectto uncertainties and risks including, but not limited to, the ability to meetongoing capital needs, product and service demand and acceptance, changes intechnology, economic conditions, the impact of competition, the need to protectproprietary rights to technology, government regulation, and other risks definedin this document and in statements filed from time to time with the applicablesecurities regulatory authorities. In January 2005, the CICA released new Handbook Section 3855, FinancialInstruments - Recognition and Measurement, effective for annual and interimperiods beginning on or after October 1, 2006. This new section prescribes whena financial instrument is to be recognized on the balance sheet and at whatamount, sometimes using fair value and at other times using cost-based measures.It also specifies how financial instrument gains and losses are to be presentedand defines financial instruments to include accounts receivable and payable,loans, investments in debt and equity securities, and derivative contracts. Management is currently reviewing the effects of this section on its financialstatements. In January 2005, the CICA released new Handbook Section 1530, ComprehensiveIncome, and Section 3251, Equity, effective for annual and interim periodsbeginning on or after October 1, 2006. Section 1530 establishes standards forreporting comprehensive income. The section does not address issues ofrecognition or measurement for comprehensive income and its components. Section3251 establishes standards for the presentation of equity and changes in equityduring the reporting period. The requirements in this section are in addition toSection 1530. Management is currently reviewing the effects of this section on its financialstatements. OPERATIONAL REVIEW Chairman's statement I am pleased to report that in 2006 Turbo Power Systems (TPS) continued todemonstrate good growth in orders and turnover in our core areas of powerelectronics and high speed electrical machines. Combined production revenue anddevelopment income grew 113% to £6.3 million for 2006, and the Company has wonorders valued at US$58 million in the period since January 2006. In power electronics our activities in the rail sector continued to expand.Important strategic agreements and orders are now in place with the NationalRail Equipment Company in the USA, and Bombardier Transportation in both Canadaand Germany. Revenue from rail contracts more than doubled in 2006 and we weredelighted to announce in January 2007 a US$14 million contract through Bombardierfor the Chicago Transit Authority. This was followed in March 2007, by an US$8million contract win through Bombardier for the Toronto Transport Commission.Successful delivery of these multi year contracts will create a solid base forfuture revenue growth. One of the most significant developments of 2006 was the emergence of TPS as afully qualified supplier of equipment in the aerospace sector. The HamiltonSundstrand contract announced in July and valued at some US$25 million for motordrive hardware on the Boeing 787 followed the Eaton Aerospace contract announcedin 2005 for another electronics drive unit on the same aircraft. The aircraftindustry has recently seen a significant increase in new build programmes. Weare demonstrating that we can meet the standards required to participate inthese programmes and are confident that we can extend our future aerospaceinvolvement into other international aircraft programmes. In electrical machines the Company continues to make progress on our industrialmotor and drive programmes. Electrical testing on the down-hole pump motor forthe Artificial Lift Company is proceeding and testing of prototypes for ourindustrial motor and drive customer is underway ahead of field trials plannedfor the summer of 2007. With respect to distributed generation the Company continued its policy during2006 of limiting its own funded development to involvement in small scale pilotprojects. It is hoped that in 2007 a number of commercial programmes in therenewable and energy efficiency sectors will produce specific productdevelopments. In terms of costs 2006 was a transition year where we saw our move intocommercial development and production programmes reduce our level of R&D cashreceipts and increase stock levels. The Group's loss before interest, tax,depreciation, amortisation and stock compensation reduced by 16% to £4.3million. The increase in the number of production programmes in 2006 highlighted thespace constraints at our Gateshead site. The Company has reached agreement tolease new larger facilities close to the existing site and the move will takeplace in the second quarter of 2007. In December, the Company confirmed the successful completion of a placing toraise £6.0 million, and move to trading on the AIM market. We also announced theredemption of a significant proportion of the 2003 and 2005 loan notes, aprocess that concluded on the 6th January 2007 whereby a total of £9.4 millionwere redeemed in exchange for either common shares or A-shares. This hassignificantly reduced our overall debt and associated interest costs. The additional finance will provide working capital in support of our increasingproduction volumes and will also fund the expansion into the largermanufacturing facility in the North East of England. The Group finished 2006 with cash of £8.2 million of which £1.5 million wasreserved to cover performance bonds. We are encouraged that we have started 2007 with the announcement of twosignificant orders that will allow us to continue to build our revenue base. Ourgrowing reputation in our target sectors means that our pipeline of bids isgrowing and we are confident of continued order success. The progress the Company has made in the last 15 months is down to the hard workof our management team and staff, and I would like to take this opportunity tothank them all. Business of the Company Turbo Power Systems designs and manufactures innovative power solutions whichprovide local, high quality, controllable electrical and motive power. TheGroup's products can be tailored for use in a wide range of industries andapplications, but are all based on its core technologies of high speedelectrical machines and power electronics. The Group's site at Heathrow is the Head Office for UK operations and the designand manufacturing centre for Electrical Machines. The Group's site at Gatesheadis the design and manufacturing centre for high performance power electronics. Strategy The Company's strategy is to build a high performance electric machines andpower electronics business which can demonstrate strong and sustainable growthin 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 strongpartners in each of our target market sectors where our technology typicallyforms part of a larger product supplied to the end customer. We will combine the skills of our two sites to match the requirements of ourcustomers. Review of operations 1) Direct Drive Industrial High Speed Motors and Drives The Company designs and manufactures combined systems in the size range of 15kWto 1.5MW, which typically run at speeds in excess of 15,000 rpm. Markets and Market Drivers The key markets for the Company's direct drive systems are: • HVAC and Refrigeration • Air Compressors • Natural Gas Compressors • Laser Blowers In all of the above applications, the TPS direct drive motor and electronicssystems can contribute to reducing the end-users power costs significantly, byeliminating the need for mechanical gearboxes and by running much moreefficiently across a wider range of operating conditions and load points.Typically systems which use gears are designed to work best at an optimumoperating point and when the system needs to be "turned down" they become muchless efficient. The TPS direct drive products use a magnetic bearing technology which allows thecentral rotor section of the motor to "float" when rotating at high speed. These"frictionless" magnetic bearings do not wear like conventional contact bearingsor require any additional lubrication, and as a result need less maintenance andhave higher reliability. In addition since the bearings do not requirelubrication there is no possibility of contaminating the compressed liquids orgases. The TPS high speed systems are also much smaller and lighter than conventionaltechnology simplifying equipment design and ease of installation. The Company isseeing growing interest in its technology as environmental regulations andrising fuel costs drive the requirement for more efficient systems. Customers and Contracts SKF TPS has designed a range of integrated motor and drive systems for SKF between15kW and 35kW, which are built into a compressor. Production orders were received at the end of 2005 which were intended to rampup slowly through 2006 and 2007. TPS delivered initial units during 2006 and theprogramme has now entered a field testing phase to gather more long termreliability data. This phase is expected to complete in mid 2007, at which pointproduction volumes will commence. Industrial Motor and Drive Agreement In 2005 the Company announced that it had signed an agreement with aninternational capital equipment manufacturer to design and manufacture threesizes of motors and drives between 250kW and 465kW. Testing of the prototypesystems is currently underway and although later than planned, is making goodprogress. Orders for the beta test units have now been received and field trialsare intended to be carried out in the summer of 2007. 2) Specialist Motors and Drives In the process of developing its high speed electrical machines, TPS hasaccumulated key skills in designing hardware which uses complex high performancecomposite materials, operates in aggressive and high temperature environments,and is required to meet challenging electrical specifications. These core skillsare now also being deployed across a broader range of custom motor and driveapplications, some operating at lower speeds, where "standard" products from theestablished volume manufacturers cannot achieve the customer's performancerequirements. Markets and market drivers The key markets for the Company's specialist motors and drives are: • Aerospace • Oil and Gas • Hybrid Vehicles In the aerospace sector the advent of "More Electric Aircraft" programmes suchas the new Boeing 787 Dreamliner, where manufacturers are planning to replacehydraulic and pneumatic systems with smart lightweight electronic systems, hascreated the opportunity for TPS to offer innovative compact motors andelectronics, which can contribute to the overall weight and fuel reductiontargets. The TPS involvement in the oil and gas sector is focused on the artificial liftmarket where pumps or compressors are needed to bring oil and gas reserves tothe surface. Any improvement in the performance and ease of deployment of thelift technology can bring additional older wells back into revenue and canminimise production down time. The TPS collaboration with the Artificial LiftCompany is specifically designed to meet this critical oil industry requirement. Hybrid electric vehicles currently only represent a very small percentage of thetotal global car market. However sales are expected to increase significantly inresponse to both environmental lobbying and government intervention for lowcarbon emission technology. In particular commercial vehicles with deliveryroutes which combine motorway travel with urban deliveries are seen as beingideal candidates for hybrid technology. Customers and Contracts Eaton Aerospace The contract from Eaton for high performance drives for the fuel transfer andjettison pumps on the Boeing 787 airliner is proceeding to plan, with flighthardware now being built in support of the aircraft trials scheduled to commencein 2007. Initial production will begin in late 2007. Hamilton Sundstrand Following the extensive capability and performance reviews by Boeing on theEaton programme, the Company was awarded another motor drive electronicsprogramme for the 787 aircraft in July 2006, this time from Hamilton Sundstrand.The equipment which drives a ram fan is an essential part of the aircraftelectronics cooling system. The production contract (based on sales projectionsfor the whole aircraft fleet) is estimated at US$25M with after market sales atsome $10M. Design and build of prototypes is underway and initial productionagain is scheduled for late 2007. Artificial Lift Company (Oil and Gas) The development contract placed for a small diameter modular down-hole pumpmotor for the oil and gas sector has, as expected, proved to be very technicallychallenging. However TPS has successfully produced operational prototypes whichare now undergoing extensive testing in advance of their deployment first in atest well in the UK, and subsequently in an operational well in North America.The well testing will take place during 2007 and commercial interest from themajor oil companies remains very strong. On completion of the field testing TPSexpects to commence manufacture of the initial production units in 2008. Lotus Engineering Testing of the hybrid vehicle motor drive is currently underway, with vehicletrials expected to transfer from the UK to S E Asia early in 2007. No firm timetable is available yet as to when the sponsoring car company willdecide whether the programme will move on to the pre-production stage. 3) Rail and Industrial Power Electronics TPS designs and manufactures rugged power electronics products for both rail andindustrial applications, all of which require high reliability and availabilityin operation. Markets and Market Drivers The key markets for the Company's specialist motors and drives are: • Rail and Industrial Electronics o Auxiliary Power Systems o Chargers and A/C Power o Traction Drives • Industrial HV Power Supplies The rail market is characterised by strong growth for new rolling stock indeveloping economies and steady replacement demand for older rail cars in theUSA and Europe. For TPS the increasing need for these new rail and subway cars to includetechnology designed to increase passenger comfort such as air-conditioning,entertainment and information systems and improved on-board catering facilities,increases the demand for our auxiliary power hardware which connects these newsystems to the trains electrical network, converting 'dirty' power from thetracks to conditioned power for on board applications. Customers and Contracts Bombardier Transportation - Germany TPS was selected in 2006 by Bombardier Berlin to supply a range of standardbattery chargers for passenger trains in European and International markets. Theagreement is for an initial period of three years and Bombardier's intention isto maximise the economies of scale by proposing these standard products in asmany of their proposals as possible. Bombardier Transportation-Canada Beijing In May 2006 TPS received a contract to design and manufacture 40 auxiliary powersupplies for automatic rail cars to be used on the Beijing Airport link as partof an expansion programme linked to the Beijing Olympics. The contract is valuedat US$1.5M and production deliveries will be made during 2007. Chicago Transit Authority In January 2007 TPS announced that it had received its largest rail order everfor the supply of auxiliary power units to be installed on 406 subway cars beingbuilt by Bombardier for the Chicago Transit Authority. The base contract isvalued at some US$14M including production, spares and engineering services, with possible options for additional cars which could increase the value to morethan US$20M. Design is currently underway with prototypes scheduled for 2008 andfull production to commence in 2009. Toronto In March 2007 the Company was able to announce the award of another major railprogramme in North America, this time for a distributed power electronics systemto be installed in subway cars being built by Bombardier for the Toronto TransitCommission. TPS will supply two units which will be installed in 234 subwaycars. Design has commenced and prototypes are expected to be supplied early in2008 with production to commence by the end of 2008.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. Bombardier Transportation - UK Production of the air-conditioning power supply for London Underground proceededsmoothly throughout 2006, and is continuing in 2007. National Rail Equipment Co. A number of orders for traction electronics for this US manufacturer oflocomotives were received during 2006 and into 2007 as a result of NREC'ssuccess in marketing their innovative low emissions shunting locomotive whichalso reduces fuel consumption by in excess of 20%. The largest individual order was placed by Union Pacific for 60 locomotives. Asour first traction electronics product this programme represents a significantdevelopment in our rail product range. Toronto Transit Commission H6 Subway Programme Production of the auxiliary power converters for installation by Toronto Transitas part of a subway car upgrade programme proceeded smoothly through 2006 andcontinues into 2007. CLRV Following their internal budget review in March 2007, the Toronto TransitCommission has decided not to proceed with the manufacturing phase of the CLRVtram refurbishment programme and to reallocate the funds to the purchase of aquantity of new tram vehicles instead. Our production programme for 100 vehiclesets of power electronic units, valued at £1.75M, was scheduled to begin in 2008and then continue until 2012. Discussions on the cancellation costs will takeplace during April; however TTC will immediately return the contract performancebond releasing around £515,000 of restricted cash. The Toronto TransitCommission have also indicated that there will be an opportunity for TPS to beconsidered for the auxiliary power systems for the new vehicle programme. PRC Monthly demand for the high voltage pulsed power supplies supplied to PRCCorporation in the USA continued to increase during 2006 and is expected tostrengthen further during 2007. The TPS equipment is now a standard item for allthe PRC laser systems. 4) Direct Drive Generators and Inverters TPS produces a range of high speed direct drive generators in the size range of400kW to 1.2MW, designed to operate with a broad range of prime movers includinggas and steam turbines, and heat and energy recovery systems. The associatedpower electronic inverters connect the generators to the central utility gridand can also be used in conjunction with solar panels, fuel cells and windturbines, meeting all the required interconnection standards. Markets and Market Drivers The key markets for the Company's generators and inverters are: Markets • Distributed Generation and Renewables • Grid Connected Electronics • Gas Turbine and Bio-fuel Generators Market Drivers • Increasing momentum for "Green Power" and more efficient energy technology • National Targets for > 10% of electrical demand to be met from Renewable sources • Embedded Renewable Power sources need electronics to connect to the grid. • Solar, Wind, Low Head Hydro, Fuel Cells Customers and Contracts Discussions continued through 2006 with potential turbine partners for projectsincluding: • 100 kW Generator and Inverter • 600 kW Generator and Inverter. • 5000 kW Generator and Inverter Compact Power, with whom TPS has a product development agreement for the supplyof a generator and inverter for use with the 600kW gas turbine designed intotheir Biomass Generation project, are well advanced in planning their pilotinstallation which is scheduled to commence in March 2007. Renewable and Energy Saving Projects TPS is continuing its strategy of participating in early "technologydemonstrators" across a range of energy efficient and renewable projects, where3rd party funding is available and existing TPS hardware can be adapted for useat the feasibility stage. This is particularly directed towards expanding the potential for our gridconnected inverter technology. Consequently at present we have preliminary participation in the followingareas: • A demonstration Low-Head Hydro energy recovery scheme in the UK Midlands. TPS is providing generator and inverter hardware. • An EU funded programme for an externally fired micro-turbine ( < 10kW) system for domestic CHP. TPS will provide a high-speed generator and inverter. • An EU funded programme examining inter-connection issues with the grid, in anticipation of an increasing proportion of the overall electrical demand being met from embedded renewable generation sources. TPS will be providing an inverter for this programme. • A DTI funded programme investigating the potential for a grid connected battery storage scheme to offset peak and off peak demand, utilizing an innovative 3rd party patented battery design. TPS will be providing an inverter. FINANCIAL PERFORMANCE REVIEW OF YEAR TO 31 DECEMBER 2006 The financial year to 31 December 2006 saw a transformation in the company'sfinancial position as increased turnover, an equity fundraising, and theredeeming of the great majority of the company's convertible debt combined tostrengthen our balance sheet position and reduce our underlying cash burn rate. The company continued its success in winning significant orders with OEMpartners. Wins such as the Hamilton Sundstrand contract for Boeing in July 2006and Bombardier contracts for the Chicago Transit Authority and Toronto TransitCommission, both announced in early 2007, mean that TPS has won total ordersvalued at US$58 million in the period since January 2006. Production revenue increased 108% to £5.5 million as some of our new rail powerelectronics programmes moved into production. We expect rail power electronicsto again be the largest component of our revenues in 2007 but as aerospace andmotor programmes move into production in the second half of this year revenuewill become more balanced across our target sectors. Development income increased 65% to £0.8 million in 2006 driven by initialdevelopment receipts on our two Boeing Dreamliner programmes. Staff numbers grew strongly in the production and development engineering areasduring the year as resource was increased to staff new programmes. However,administration staff remained unchanged and total staff numbered 148 at the yearend (2005: 101). In terms of cost 2006 was a transitional year. Production and development costsincreased to match growing programme commitments while administration costsbefore stock compensation were held at a similar level to 2005. The level ofcost offset available from R&D tax credits reduced significantly to £0.4 million(2005: £0.7 million) as our development programmes moved into commercialagreements. The Group's loss before interest, tax, depreciation, amortisation and stockcompensation reduced by 16% to £4.3 million. Cash outflow before movements in working capital and interest reduced by 7% to£3.9 million. However, increases in net interest paid (2006: £0.3 million, 2005:£0.1 million) as well as stock and debtor increases associated with the stronggrowth in production mean that cash outflow from operating activities before taxincreased by 11% to £5.1 million. In December 2006 the company completed a £5.5 million net equity fundraising. Atthe same time it redeemed £4.86 million of convertible notes. A further £4.50million of notes were redeemed in early January 2007. This overall reduction indebt of £9.36 million, combined with the funds raised has significantlystrengthened the Company's balance sheet. The reduction in debt has also reducedthe associated annual interest cost from £0.6 million to £0.1 million. The Company finished the year with an unrestricted cash balance of £6.7 millionand held further cash of £1.5 million associated with performance bonds. Further detail of the Company's financial performance is shown below: Revenue Revenue in the year ended 31 December 2006 was £5.48 million compared with £2.64million in 2005 and comprised 2006 2005 £'000 £'000 Power electronics 5,257 2,482Electrical machines 225 154 --------------- 5,482 2,636 =============== The Power Electronics division has seen strong turnover growth, both as a resultof increased volumes on established programmes and the start of production runson new contracts. Output volumes have grown significantly on the existingproduction contracts for Toronto Transit Commission H6, PRC laser powersupplies, Bombardier London Underground and Lotus. In addition the contract withTrans Elektro for air conditioning power supplies, which entered production inthe first quarter, made a significant contribution to revenue for the year.Production on the NREC programme began in the third quarter and continuedthrough the fourth quarter. Spares and service revenues were £0.98m for the year (2005:£0.52m). In the Electrical Machines division revenue increased over 2005 as the SKFcontract moved into production and initial revenues were received from ALC.Increased volumes were shipped on the SKF programme in the third quarter butvolumes reduced in the fourth quarter while the end customer conducted fieldsurveys. Development income Development income in the year was £0.79 million compared with £0.48 million in2005 and included receipts from Eaton Aerospace and Hamilton Sundstrand on theBoeing 787 Dreamliner programmes. 2006 2005 £'000 £'000 Development income 794 481 =============== Production costs The cost of product revenues in the year amounted to £4.23 million (2005 : £2.08million). 2006 2005 £'000 £'000 Power electronics 3,423 1,791Electrical machines 804 290 ---------------- 4,227 2,081 ================ Production costs include certain fixed facilities costs attributable to themanufacturing operation. Included in production costs for the year are stock compensation charges onoptions awarded of £51,000 (2005: nil). Research and product development Research and product development expenditure in the year was £3.32 millioncompared with £2.50 million in 2005, and comprised 2006 2005 £'000 £'000 Research and product development expenditure 3,734 3,232Accrued R&D tax credits (410) (736) ------------------Total expenditure 3,324 2,496 ================== Product development costs increased in 2006 as work commenced on both the Eatoncontract and the Hamilton Sundstrand contract for the Boeing 787 Dreamliner aswell as the NREC rail programme. Included in research and product development expenditure for the year are stockcompensation charges on options awarded of £255,000 (2005: nil). The level of R&D tax credits accrued in the year reduced as more of the Group'sdevelopment resource moved on to commercial programmes. General and administrative General and administrative costs of £3.12 million (2005: £2.90 million) consistmainly of staff costs and facilities costs. Also included are costs of £50,000associated with the Company's AIM admission and stock compensation charges onoptions awarded of £206,000 (2005: £133,000), and increased costs for additionalsales and marketing personnel and promotional activities. Amortisation Amortisation was £1.09 million compared with £1.51 million in 2005. Thereduction reflects a number of assets becoming fully written down during theyear. Interest income Interest income for the twelve months was £0.23 million compared with£0.33 million in 2005 reflecting a lower average cash balance held in the year. Interest expense and finance charges Interest expense and finance charges arise from the issue of convertible bondsin July 2003 and March 2005 and comprised 2006 2005 £'000 £'000 Finance charges - 99Interest payable 570 520Amortisation of deferred finance charges 92 137Debt accretion 387 368 ---------------- 1,049 1,124 ================ On 28th December £4,860,000 of loan notes were redeemed as part of thefundraising and loan note redemption. Interest on the redeemed loan notes hasbeen accrued from 1st July to 28th December and was paid over in January 2007. Convertible bonds are considered to be compound financial instruments, and theliability component and the equity component must be presented separately, asdetermined at initial recognition. The Company has valued the equity componentof these bonds using the residual value of equity component method, whereby theliability component is valued first using current market rate for comparableinstruments, at the time of issuance. The difference between the proceeds of thebonds issued and the fair value of the liability is assigned to the equitycomponent. The equity element of the March 2005 bond issue was estimated at£1.11 million. The equity element of the 2003 bond issue was estimated at£0.91 million. The carrying value of the debt element is increased over the termof the debt and this accretion expense is charged to the profit and lossaccount. During the twelve months this charge amounted to £0.39 million (2005:£0.37 million). Finance charges for 2006 were £nil (2005: £99,000) and were made up as below: During the third quarter the company purchased U.S. dollar denominated currencycontracts covering expected dollar income from programmes scheduled for 2006 and2007. The premium cost for these options was £81,000 and has been charged toprofit and loss in the year. This charge is offset by currency option receiptsand the value of the option as at 31 December 2006, resulting in a net cost forthe year of £19,000 (2005: £nil). During the fourth quarter the company redeemed 4,860,000 loan notes, resultingin a net charge of £190,000. The transfer to the AIM market resulted in the release of the provision forfinancial costs on share issuance of £230,000. During the year the Company recorded an impairment of £21,000 (2005: £45,000)against the investment in Altek Power Corporation. CASH FLOWS FOR THE TWELVE MONTHS Cash outflow from operating activities Operating cash outflow before movements in working capital was £4.17 million forthe period (2005: £4.28 million). Movements in stocks, work in progress and debtors and creditors produced a netcash outflow of £0.97 million during the period (2005: £0.35 million) reflectingthe increased turnover and manufacturing volume. Tax credits During the year the company received research and development tax credits of£0.10 million (2005: £1.00 million). The 2005 receipts included amounts relatedto the 2004 and 2003 tax years and the reduced 2006 amount reflects thereduction in non customer funded research and development as programmes movedinto their commercial phase. Investing activities Purchases of long term tangible assets amounted to £0.22 million (2005: £0.02million) and relate to production equipment. Cash outflows related to financial instruments of £0.06 million (2005: nil) arethe net premium costs of currency contracts. Cash flow from financing activities Cash inflow from financing in 2006 of £5.45 million during the twelve monthsrelates to net funds received from the issue of shares in December 2006, whenthe Company completed a £6,000,000 (gross) financing agreement withinstitutional investors. The financing comprised placing of Common Shares and A-Ordinary shares in Turbo Power Systems Limited. Cash inflow from financing in 2005 of £8.09 million during the year relates tothe release of restricted cash funds of £0.38 million and £7.71 million netfunds received from the issue of convertible notes in March 2005 when theCompany completed an £8,000,000 (gross) financing agreement with institutionalinvestors. The financing comprised unsecured Convertible Notes and Warrants. TheConvertible Notes have a term of five years plus one day and bear interest at arate of 6.5% per annum. They are convertible into an aggregate of 66,666,667Common Shares in Turbo Power Systems Inc. at a conversion price of £0.12 pershare. The Warrants have a term of five years and are convertible into anaggregate of 7,000,000 Common Shares in Turbo Power Systems Inc. at an exerciseprice of £0.15 per share. Overall cash outflow for the twelve months Overall the cash inflow for the period was £0.14 million. This compares with acash inflow of £4.46 million in 2005. REVIEW OF THREE MONTHS ENDED 31 DECEMBER 2006 Revenue Revenue in the three months ended 31 December 2006 was £1.85 million comparedwith £0.87 million in 2005 and comprised 2006 2005 £'000 £'000 Power electronics 1,798 815Electrical machines 53 59 ---------------- 1,851 874 ================ Revenues from the Power electronics division increased as a result of productionrevenues from contracts with Toronto Transit Commission, Bombardier, NREC andTrans Elektro (which had not commenced in 2005), and an increase in sparesbusiness in line with the increasing sales volumes. Revenue in the Electrical machines division relates primarily to the SKFcontract. Development income Development income in the three months was higher in 2006 at £0.22 millioncompared with £0.10 million in 2005 and included receipts from Eaton Aerospaceand Hamilton Sundstrand on the Boeing 787 Dreamliner programme. 2006 2005 £'000 £'000 Development income 217 95 ============== Production costs The cost of product revenues in the three months amounted to £1.43 million (2005: £0.53 million). 2006 2005 £'000 £'000 Power electronics 1,174 390Electrical machines 251 144 ---------------- 1,425 534 ================ Production costs include certain facilities costs attributable to themanufacturing operation. Included in production costs for the three months are stock compensation chargeson options awarded of £16,500 (2005: nil). Research and product development Research and product development expenditure in the three months was£0.71 million compared with £0.15 million in 2005, and comprised 2006 2005 £'000 £'000 Research and product development expenditure 1,074 887Accrued R&D tax credits (360) (736) -----------------Total expenditure 714 151 ================= Included in research and product development costs for the three months arestock compensation charges on options awarded of £67,000 (2005: nil). General and administrative General and administrative costs in the three months of £0.74 million (2005:£0.79 million) consist mainly of staff costs, facilities costs and the costsassociated with the Company's public listings. Included in general andadministrative costs for the quarter are stock compensation charges on optionsawarded of £55,000 (2005: £90,000), costs for the transfer of the Company'slisting to the AIM market of £50,000 (2005; £nil) and costs for additionalsales, marketing and management personnel and activities. Amortisation Amortisation was £0.19 million compared with £0.58 million in 2005. Interest income Interest income in the three months was £0.02 million compared with£0.10 million in 2005. Interest expense and finance charges Interest expense and finance charges arise from the issue of convertible bondsin July 2003 and March 2005 and comprised 2006 2005 £'000 £'000 Finance charges (66) 99Interest payable 150 140Amortisation of deferred finance charges (29) (3)Debt accretion 96 101 ---------------- 151 337 Convertible bonds are considered to be compound financial instruments, and theliability component and the equity component must be presented separately, asdetermined at initial recognition. The Company has valued the equity componentof these bonds using the residual value of equity component method, whereby theliability component is valued first using current market rate for comparableinstruments, at the time of issuance. The difference between the proceeds of thebonds issued and the fair value of the liability is assigned to the equitycomponent. The equity element of the March 2005 bond issue was estimated at£1.11 million. The equity element of the 2003 bond issue was estimated at£0.91 million. The carrying value of the debt element is increased over the termof the debt and this accretion expense is charged to the profit and lossaccount. During the period this charge amounted to £0.10 million (2005:£0.10 million). During the quarter receipts on maturing options were received of £17,000 (2005:£nil). The increase in the value of the 2007 option as at 31 December 2006 hasbeen recognized during the quarter. During the fourth quarter the company redeemed 4,860,000 loan notes, resultingin a net charge of £190,000. The transfer to the AIM market resulted in the release of the provision forfinancial costs on share issuance of £230,000. During the year the Company recorded an impairment of £21,000 (2005: £52,000)against the investment in Altek Power Corporation. CASH FLOWS FOR THE THREE MONTHS ENDED 31 DECEMBER 2006 Cash outflow from operating activities Operating cash outflow before movements in working capital was £0.67 million forthe quarter (2005: £0.97 million). Movements in stocks, work in progress and debtors and creditors produced a netcash outflow of £0.48 million during the quarter (2005: inflow of £0.27 million)reflecting increased turnover and manufacturing volume. Tax credits During the quarter the company received no research and development tax credits(2005: £1.0 million). Investing activities Cash outflows from capital investments in the three months were £0.11 millioncompared with £0.02 million in 2005. This spend was primarily on plant andsoftware associated with the Hamilton Sundstrand programme. Overall cash outflow for the period Overall the cash inflow during the three months was £4.20 million. This compareswith an overall cash inflow of £0.36 million for the fourth quarter of 2005. BALANCE SHEET AS AT 31 DECEMBER 2006 The Company ended the period with an unrestricted cash balance of £6.67 millioncompared with £6.53 million at 31 December 2005. Substantially all of theCompany's cash balances are denominated in Sterling. In addition the Company had restricted cash amounts of £1.50 million relating toperformance bonds entered into as part of contracts with the Toronto TransitCommission and Eaton (2005: £1.50 million). Long term assets excluding restricted cash have decreased from £4.79 million at31 December 2005 to £3.69 million at 31 December 2006, after depreciationcharges of £1.09 million and deferred financing charges of £0.09 million. Deferred finance charges relate to the fair value of warrants issued in 2003,and expenses in connection with the March 2005 convertible bond issue. Thesecosts are amortised over the term of the convertible bonds and the warrants. Therelated amortisation charges are included in interest expense and financecharges. Long term liabilities have decreased significantly to £6.06 million at 31December 2006 compared to £10.21 million at 31 December 2005, reflecting thereduction in Loan Notes following the redemption of £4,860,000 notes in December2006. A further £4,500,000 of Loan Notes were redeemed in January 2007. Net working capital at 31 December 2006, excluding cash balances, was £0.85million, compared with (£0.30) million as at 31 December 2005. As at 31 December 2006, the Company had 273,944,592 common shares issued andoutstanding. As at that date there were 21,567,281 outstanding share options and7,000,000 outstanding warrants. SUBSEQUENT EVENT On 6 January the Company redeemed £4,500,000 Convertible Loan Notes. TURBO POWER SYSTEMS INC.CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT Notes Twelve months ended 31 December 2006 2005 £'000 £'000 Revenue 3,4 5,482 2,636Development income 3 794 481 Expenses Production costs 4,227 2,081 Research and product 5 3,324 2,496 development General and administrative 3,119 2,897 Amortisation 1,086 1,511 -------------------------------- 11,576 8,985 Loss before interest and (5,480) (5,868)finance charges Other income - (168)Interest income (226) (334)Interest expense andfinance charges 6 1,049 1,124Foreign exchange gains/ 15 (37)(losses) --------------------------------- 838 585 Loss for the year (6,318) (6,453)Deficit, beginning of (44,718) (38,265)periodEquity adjustment on (2,600)issue of shares ---------------------------------Deficit, end of year (53,636) (44,718) ================================= Loss per share - basic 8 (3.3)p (3.5)pLoss per share - diluted 8 (3.3)p (3.5)p TURBO POWER SYSTEMS INC.CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT Notes Twelve months ended 31 December 2006 2005 £'000 £'000 Revenue 3,4 1,851 874Development income 3 217 95 ExpensesProduction costs 1,425 534Research and product 5 714 151developmentGeneral and 735 792administrativeAmortisation 194 584 ------------------------------- 3,068 2,061Loss before interest andfinance charges (1,000) (1,092) Interest income (20) (95)Interest expense and 6 151 337finance charges Taxation - (18)Foreign exchange gains (7) (67) ------------------------------- 124 157 Loss for the period (1,124) (1,249) Loss per share - basic 8 (0.6)p (0.6)pLoss per share - diluted 8 (0.6)p (0.6)p TURBO POWER SYSTEMS INC.CONSOLIDATED BALANCE SHEETS Notes As at 31 December As at 31 December 2006 2005 £'000 £'000Current assetsCash and cash 6,669 6,525equivalentsRestricted cash 9 765 -Trade and other 1,544 649receivablesStock and work in 1,230 541progressPrepayments 419 253Tax recoverable 718 190 -------------------------------- 11,345 8,158 -------------------------------- Long-term assetsRestricted cash 9 731 1,496Prepayments 254 254Investments 10 31 59Intangible assets 10 77 296Goodwill 10 820 820Deferred finance charges 10 145 355Tangible assets 10 2,361 3,007 -------------------------------- 4,419 6,287 -------------------------------- 15,764 14,445 ================================= Liabilities and shareholders' equityCreditors: amounts falling due withinone year Trade and other payables 3,109 1,968Deferred income 206 215 --------------------------------- 3,315 2,183 --------------------------------- Creditors: amounts falling due aftermore than one year Warranty provision 303 298Convertible notes 5,827 9,913 --------------------------------- 6,130 10,211 --------------------------------- Capital and reserves Share capital and other 2,11 60,023 46,897equity instrumentsCurrency exchange 2 (68) (128)adjustmentsLoss deficit 2 (53,636) (44,718) ----------------------------------Shareholders' funds 6,319 2,051 ---------------------------------- 15,764 14,445 ================================== TURBO POWER SYSTEMS INC.CONSOLIDATED STATEMENT OF CASH FLOWS Twelve months ended 31 December Notes 2006 2005 £'000 £'000 Net loss from operations (6,318) (6,453)Amortisation 1,178 1,648Accretion of debt 387 368Provision for impairment 28 90on investmentLoss on sale of assets - 99Stock compensation 511 133chargesDeferred finance (46) -movementRestructuring payments - (203)Foreign currency 19 -instrument lossUnrealised foreignexchange 15 (37)differencesMovement in net interest 53 80accrual ----------------------------- Cash outflow before (4,173) (4,275)movements inworking capitalDecrease/(increase)in (1,589) (637)debtorsDecrease/(increase)in (689) (59)stockIncrease/(decrease in 1,309 346creditors ------------------------------- Net cash outflow from operatingactivities before tax (5,142) (4,625) -------------------------------- Tax credits 121 1,002 ------------------------------- Net cash outflow from operation (5,021) (3,623)activities after tax ------------------------------ Investing activitiesPurchase of long-term (223) (55)assetsProceeds from sale of - 49investmentFinancial instruments (63) - ----------------------------- Cash outflow from (286) (6)investing activities ------------------------------ Financing activitiesNet proceeds from debt 12 - 7,707issueNet proceeds from equity 12 5,451 -placingMovements in restricted - 380cash ----------------------------- Cash inflow from 5,451 8,087financing activities ------------------------------- Increase/(decrease) in cash in 144 4,458the period =============================== Cash and cashequivalents:Beginning of period 6,525 2,067 ------------------------------End of period 6,669 6,525 =============================== TURBO POWER SYSTEMS INC.CONSOLIDATED STATEMENT OF CASH FLOWS Three months ended 31 December Notes 2006 2005 £'000 £'000 Net loss from operations (1,124) (1,249)Amortisation 165 (50)Accretion of debt 96 101Provision for impairment - -on investment(Gain)/Loss on sale of (12) 99assetsStock compensation 138 90chargesDeferred finance (46) -movementRestructuring payments - 46Foreign currency 39 -instrument lossUnrealised foreign (7) (67)exchange differencesMovement in net interest 82 62accrual ----------------------------- Cash outflow before (669) (968)movements inworking capitalDecrease/(increase)in (711) (179)debtorsDecrease/(increase)in (165) (14)stockIncrease/(decrease)in 392 465creditors ------------------------------- Net cash outflow from operating (1,153) (696)activities before tax ------------------------------- Tax credits - 1,020 ------------------------------- Net cash outflow from operating (1,153) 324activities after tax ------------------------------ Investing activitiesPurchase of long-term (106) (16)assetsProceeds from sale of - 49investmentFinancial instruments 18 - -----------------------------Cash outflow from (88) 33investing activities ------------------------------- Financing activitiesNet proceeds from equity 12 5,451 -placing -------------------------------Cash inflow from 5,451 -financing activities ------------------------------ Increase/(decrease) in 4,210 357cash in the period ============================= Cash and cashequivalents:Beginning of period 2,459 6,168 ------------------------------End of period 6,669 6,525 =============================== TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECEMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation The consolidated financial statements of the Company have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The policies adopted by the Company comply in all material aspects with International Financial Reporting Standards.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. Theconsolidated 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 TurboPower 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. Derivative financial instruments are used by the Company to manage a portion of its exposure to foreign exchange rate fluctuations. The Company does not utilisederivative 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 Movements in shareholders' funds Common Share A Ordinary Other equity Exchange Profit and Total capital capital adjustments loss £'000 £'000 £'000 £'000 £'000 £'000 Balance at 1 42,932 - 1,027 (78) (38,265) 5,616 January 2005 Loss for the (6,453) (6,453) period Exchange (loss) (50) (50) Stock compensation 133 133 Equity component 1,331 1,331 of financial instrument Conversion to 1,786 (298) 1,488 shares Equity adjustment 35 (49) (14) --------------------------------------------------------------------- Balance at 31 44,753 - 2,144 (128) (44,718) 2,051 December 2005 Loss for the (6,318) (6,318) period Exchange gain 60 60 Stock 511 511 compensation Conversion to 3,383 4,320 (674) (2,600) 4,429 shares Issue of shares 4,059 2,000 6,059 Expiry of 117 117 warrants Fundraising costs (393) (197) (590) ---------------------------------------------------------------------- Balance at 31 51,919 6,123 1,981 (68) (53,636) 6,319 ===================================================================== December 2006 TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECEMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3 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 commercialization 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 Power electronics Electrical Total£'000 machines 2006 2005 2006 2005 2006 2005Twelve months ended 31DecemberRevenue 5,257 2,482 225 154 5,482 2,636Development income 794 439 - 42 794 481Interest income 142 171 84 163 226 334Interest expense (658) (576) (390) (548) (1,048) (1,124)Amortisation 133 181 953 1,330 1,086 1,511Net loss (1,902) (2,156) (4,416) (4,297) (6,318) (6,453)Capital expenditure 190 16 33 39 223 55 Three months ended 31 DecemberRevenue 1,798 815 53 59 1,851 874Development income 217 95 - - 217 95Interest income 12 50 8 45 20 95Interest expense (93) (177) 58 160 (151) (337)Amortisation 29 22 165 523 194 545Net loss (351) (421) (819) (828) (1,170) (1,249)Capital expenditure 103 - 3 16 106 16 As at Dec Dec Dec Dec Dec Dec 2006 2005 2006 2005 2006 2005Total assets 3,868 4,468 11,896 9,977 15,764 14,445Total liabilities 2,159 843 7,286 11,551 9,445 12,394 TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECEMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 4 Significant Customers During the twelve month period ended 31 December 2006, 41% of the Company's revenue was from three customers ( 2005: 65% from four customers). 5 Research and product development Research and product development expenditure incurred during the period comprised: Twelve months ended Three months ended 31 December 31 December 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Research and product 3,734 3,232 1,074 887 development cost Accrued tax credits (410) (736) (360) (736) --------------------------------------------------- Total expenditure 3,324 2,496 714 151 =================================================== Deferred research and product development expenditure, net of accrued taxcredits, amortisation and provisions for impairment, at 31 December 2006amounted to £nil (31 December 2005 - £198,000). Deferred research and productdevelopment expenditure comprised materials, labour and allocated overheads.Total accrued tax credits receivable at 31 December 2006, including thosecredited against deferred research and product development expenditure,amounted to £490,000 (31 December 2005- £190,000). 6 Interest expense and finance charges Twelve months ended Three months ended 31 December 31 December 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Finance charges - 99 (66) 99 Interest payable 570 520 150 140 Amortisation of 92 137 (29) (3) deferred finance charges Debt accretion 387 368 96 101 ---------------------------------------------- 1,049 1,124 151 337 ================================================ TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECEMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7 Financial Instruments Certain of the Company's business transactions occur in currencies otherthan Sterling. The Company has entered into foreign exchange average rateoption contracts during the twelve months ended 31 December 2006 ( 2005:nil ) to reduce exposure to fluctuations in foreign exchange rates onremittances from customers denominated in U.S. Dollars. The Company purchased an average rate option over $1.965million U.S.Dollars at a strike rate of 1.90 U.S. Dollars, which expired on 27 December2006, and an average rate option over $5.898million U.S. Dollars at astrike rate of 2.00 U.S. Dollars which expires on 27 December 2007.During the year a purchase cost of £80,000 was recognised and a gain of£17,000 was realised on these options (2005 - £nil). As at 31 December 2006 the unrealised gain from the contract was £44,000(2005 - £nil). 8 Loss per share Loss per common share has been calculated using the weighted average numberof shares in issue during the relevant financial periods. The treasurystock method was used in determining the weighted average number of sharesoutstanding for each period. The weighted average number of shares outstanding in the period was191,827,517 (2005 - 184,946,854). No fully diluted earnings per share havebeen reported as the Company has made losses in both years and the effectwould be anti-dilutive. The loss for the twelve months ended 31 December2006 was £6,318,000 (2005 - £6,453,000). Anti-dilutive potential securities outstanding not included in the loss percommon share calculation at 31 December 2006 totalled 128,892,281 (2005 -122,278,467) 9 Restricted cash In 2004 the Company committed cash bonds in support of contracts placed bythe 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 Mrach 2007 the CLRV contract was cancelled and the cash bond of £515,000 in respect of this programme is expected to be released in2007. In September 2005 the Company committed cash bonds of £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 completedin January 2007 when the bond was cancelled and the cash became unrestricted. At 31 December 2006 cash subject to restrictions totalled £1,496,000 (2005: £1,496,000) and is secured over an equivalent cash balance. TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECEMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10 Long - term assets Cost Impairment Amortisation Net book value £'000 £'000 £'000 £'000 At 31 December 2006: Investments 104 73 - 31 Intangible assets, 5,411 1,706 2,663 1,042 goodwill & deferred finance Tangible assets 8,350 - 5,989 2,361 -------------------------------------------- Total long term assets 13,865 1,779 8,652 3,434 ============================================ At 31 December 2005: Investments 104 45 - 59 Intangible assets, 5,527 1,706 2,350 1,471 goodwill & deferred finance Tangible assets 8,133 - 5,126 3,007 -------------------------------------------- Total long term assets 13,764 1,751 7,476 4,537 ============================================= Following the annual review of asset values, the Company increased the impairment provision on its investment in Altek Power Corporation by £21,000 (2005: £52,000). 11 Share capital - issued shares Common A Ordinary Number £'000 Number £'000 At 1 January 2006 190,510,259 44,753 - - Conversion of 541,665 65 - - convertible notes Redemption of 32,500,000 3,435 31,250,000 4,320 convertible notes Issue of common shares, 50,442,668 3,666 25,000,000 1,803 net of shareissue costs ----------------------------------------------------- At 31 December 2006 273,944,592 51,919 56,250,000 6,123 ======================================================= No options or warrants were exercised during the twelve months ended 31 December 2006. TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 12 Financing On 11 July 2003 the Company completed an £5,000,000 financing agreementwith institutional investors. The financing comprised unsecuredConvertible Notes and Warrants. The Convertible Notes have a term of fiveyears and bear interest at a rate of 3.5% per annum. They are convertibleinto an aggregate of 25,000,000 Common Shares in Turbo Power Systems Inc.at a conversion price of £0.20 per share. The Warrants had a term of threeyears and were convertible into an aggregate of 3,500,000 Common Shares inTurbo Power Systems Inc. at an exercise price of £0.15 per share. On 11 March 2005 the Company completed an £8,000,000 (gross) financingagreement with institutional investors. The financing comprised unsecuredConvertible Notes and Warrants. The Convertible Notes have a term of fiveyears plus one day and bear interest at a rate of 6.5% per annum. They areconvertible into an aggregate of 66,666,667 Common Shares in Turbo PowerSystems Inc. at a conversion price of £0.12 per share. The Warrants have aterm of five years and are convertible into an aggregate of 7,000,000Common Shares in Turbo Power Systems Inc. at an exercise price of £0.15per share. On 28 December 2006 the Company completed a £6,000,000 (gross) financingagreement with institutional investors. The financing comprised 50,000,000Common Shares in the company and 25,000,000 A-Ordinary shares in TurboPower Systems Limited. The financing included the issue of 3,500,000Warrants, having a term of three years and being convertible into anaggregate of 3,500,000 Common Shares in Turbo Power Systems Inc. at anexercise price of £0.15 per share. These warrants were issued on 6 January2007 (see Note 13 ). On 28 December 2006, per an agreement reached with the holders of theconvertible notes, the Company redeemed £2,500,000 of the 2003Convertible Loan Notes and £2,360,000 of the 2005 Convertible Loan Notesat a redemption price of £0.08. The redemption was dependant upon theCompany's shares being approved for trading on the AIM exchange whichoccurred on 28 December 2006. A further £2,500,000 of the 2003 Convertible Loan Notes and £2,000,000 ofthe 2005 Convertible Loan Notes were converted in January 2007. TURBO POWER SYSTEMS INC.TWELVE MONTHS ENDED 31 DECMBER 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13 Stock options, warrants and compensation expense The number of options and warrants outstanding as at 31 December 2006, and themovement during the twelve months then ended, are as follows: Options Warrants Number Number Outstanding at 1 January 2006 34,995,134 10,500,000 Lapsed (23,610) (3,500,000) Cancelled (19,466,243) - Issued 6,062,000 - ------------------------------------ Outstanding at 31 December 2006 21,567,281 7,500,000 =================================== The stock based compensation expense for the twelve month period ended 31December 2006, included in Production costs was £51,000 (2005: £nil), inResearch and product development was £255,000 (2005:£nil), and in General andadministrative costs was £206,000 (2005: £133,000).On 6 January 2007 the Company issued 3,500,000 warrants as part of itsfinancing agreement with institutional investors (see Note 12). 14 Selected quarterly information The following table sets forth selected consolidated financial informationof the Company for the eight most recent quarters. Revenue Net loss (Loss) per share UK £'000 £'000 pence March 2005 360 (1,939) (1.1)June 2005 593 (1,681) (0.9)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) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TPS.L