Full Year & Q4 Results

31 MARCH 2011

TURBO POWER SYSTEMS INC. ("TPS" or "THE COMPANY") ANNOUNCES RESULTS FOR

THE YEAR AND QUARTER ENDED 31 DECEMBER 2010

Summary

·; Production and development income decreased by 19% for the year at £8.5 million (2009: £10.5 million)

·; EBITDA loss for the quarter of £3.53 million (2009: £0.11 million profit), and for the year of £4.11 million loss (2009: £0.24 million profit). Performance in the second half of the year was impacted by the costs of settling the 2008 loan note liabilities, and increased expenditure on development activity whilst customer progress and contract initiation milestones were not achieved during the year.

·; Net debt at 31 December 2010 of £1.12 million (31 December 2009: net debt £3.00 million)

·; £1.90 million loan from TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), which holds 75.4% of the issued share capital of the Company and is a wholly owned UK subsidiary of Vale Soluções em Energia S.A. ("VSE"). The loan is secured by a first charge over the assets and undertakings of Turbo Power Systems Limited ("TPSL").

·; Subsequent to the year end, on 25 February 2011 a further £0.80 million loan, and on 28 March 2011 £0.40 million loan advanced from TAO UK under the same conditions as the initial £1.90 million loan

James Pessoa, Chairman, said:

"The latest financial year has been one of very considerable change for Turbo Power Systems.

In June 2010 the Company successfully completed a private placement at a subscription price of ₤0.006 per Share (Cdn.$0.009 per Share) for aggregate gross proceeds of ₤6.5 million whereby TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), became the holder of 55.2% of the issued and outstanding common shares in the Company on a fully diluted basis. In October 2010 TAO UK lent the Company £1.9 million and, subsequent to the year end, a further £1.2 million during February and March 2011 under the same terms.

New orders were won, with customer-funded development of both electrical machines and power electronics systems. Whilst turnover declined by 19% to £8.5 million, orders were up 10% to £8.4 million.

Overall financial performance worsened considerably, with loss before taxation for the year of £7.1 million, compared to a loss of £0.7 million (including an exceptional gain of £0.5 million) for 2009. The 2010 results include a fourth quarter loss of £3.0 million mainly due to delays to anticipated orders, now expected to commence during 2011.

Net debt at 31 December 2010 was £1.1 million (2009: £3.0 million).

The financial statements have been prepared on a going concern basis, and disclose in Note 1 to the consolidated financial statements the conditions and events that cast substantial doubt on the Company's ability to continue as a going concern. As a result of changes to the Canadian auditing standards, this year the auditor's report contains an emphasis of matter paragraph referencing this uncertainty relating to the going concern.

Looking ahead, TPS will remain a technology led company. In recent months the Board has further strengthened the technical team with a number of key appointments to ensure we support relationships with science based corporations who have demanding applications for our technologies.

As such, the business continues to pursue applications for its leading technologies and to leverage its relationship with TAO UK and its parent VSE, which is headquartered in Brazil. Encouragingly, we are already seeing an increasing number of system based enquiries. We have a firm belief that the technology hungry market places are now ready for our products and services.

Accordingly, the rapidly developing market place for advanced technologies in Brazil offers many exciting opportunities and in the coming year we expect to see tangible results from the Agency Agreement signed with VSE, which was announced in December 2010. Equally there are active opportunities on almost every continent and we are beginning to see clear signs that confidence is returning to our market places.

Operationally, our emphasis upon developing Integrated Systems demands that our two sites at Gateshead and Heathrow will work more closely together, functioning as one engineering team. We also recognize that our customer base is increasingly keen to secure regional manufacture capability outside the UK. We are taking steps to seek to ensure that TPS is commercially and operationally capable of responding positively.

As announced in February 2011, Peter Brown will be appointed as Chief Executive Officer of the Company. He will take up the position in May 2011, succeeding Jim Vickerman who has held the Chief Executive position since October 2010 on an interim basis. Jim will revert to his prior role as a Non Executive Director.

Peter has 21 years of experience in the engineering and manufacturing industry with Vickers plc and latterly with Rolls Royce plc, where he is currently responsible for a global portfolio of products and services for the oil, gas and power generation markets. A Chartered Management Accountant, Peter has successfully managed significant growth in the business segments over which he had responsibility during his time at Vickers plc and Rolls Royce plc.

Under Peter's leadership of the Executive Team, the Board's challenge for 2011 is to achieve significant progress towards making Turbo Power Systems a profitable business, one capable of sustaining organic growth."

For further information, please contact:

Turbo Power Systems Tel: +44 (0)20 8564 4460

Jim Vickerman, Chief Executive Officer

Company Website: www.turbopowersystems.com

Kreab Gavin Anderson (financial public relations) Tel: +44 (0)20 074 1800

Ken Cronin

Michael Turner

finnCap (NOMAD, broker and financial advisor) Tel: +44 (0)20 7600 1658

Marc Young

Henrik Persson

NOTES TO EDITORS

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

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

Forward looking statements

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

Definition of non-GAAP financial measures

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

OPERATIONAL REVIEW

This review has been prepared as at 30 March 2011.

Business of the Company

Turbo Power Systems designs and manufactures:

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

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

2010 Summary

Strategic Direction

We are intent on remaining a technology led company, and have further strengthened the technical team with a number of key appointments to ensure we support relationships with science based corporations who have demanding applications for our technologies.

As such, the business continues to pursue applications for its leading technologies and to leverage its relationship with TAO UK and its parent VSE, which is headquartered in Brazil. Encouragingly we are already seeing an increasing number of system based enquiries, and we have a firm belief that the marketplace has now recognized the value of our technology and we anticipate new orders resulting from this.

Accordingly, the rapidly developing market place for advanced technologies in Brazil offers many exciting opportunities and in the coming year we expect to see tangible results from the Agency Agreement signed with VSE, which was announced in December 2010. Equally there are active opportunities on almost every continent and we are beginning to see clear signs that confidence is returning to our market places.

Operationally our emphasis upon developing Integrated Systems demands that our two sites at Gateshead and Heathrow will work more closely together, functioning as one engineering team. We also recognize that our customer base is increasingly keen to secure regional manufacture capability outside the UK. We are taking steps to seek to ensure that TPS is commercially and operationally capable of responding positively.

Current Operating Climate

The resilience of the transport market and the recovery in the industrial sector have significantly assisted TPS maintain a strong manufacturing output during 2010, and we anticipate this will be further supported during 2011 by the increased order book and the completion of delayed development programmes.

The industrial sector has recovered well with increased production volumes achieved in 2010 and good prospects for the remainder of this year for our laser power suppliers and motors/drives for other industrial applications.

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

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

Current Programmes

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

·; Transport

o Rail

The programme to develop the Auxiliary Power solution for Bombardier Systems new Innovia ART Vehicle platform continues to make progress, whilst the business is also engaged in the overhaul and support of the CL165 vehicle Auxiliary Power solution for Chiltern Rail. The rate of delivery continues to grow on the major programmes (Bombardier Chicago Transit Authority and Bombardier Toronto). Deliveries on our smaller rail programmes continue to be made to customer call off requirements.

o Aerospace

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

·; Energy

The development of the 1.2MW High Speed Generator & associated Power Electronics package for TAO UK has made some progress, the full specification of the equipment is now fully defined and good steady progress is anticipated for the rest of 2011.

·; Industrial

o Laser Power Supplies

As expected, increased demand from our customer materialized during 2010 and has now surpassed production rates in previous years. The product range has also been streamlined and improved to support the needs of our customers business.

o Industrial Motors and Drives

The delivery of 150 systems to our Industrial Motors and Drives OEM (McQuay International) is now approaching completion. These units are for use in McQuay International's recently launched Magnitude WME chiller.

Following the re-start of the manufacturing of the S2M Laser Blower products there has been a continuing demand for this product throughout the year, with indication that there will be continuing demand for these units during 2011.

·; Defence

o 1MW High-Speed Generator

System trials of our high-speed machine are near completion and the company expects that the overall system will be subject to rigorous field trails during 2011. On the basis of the success of the trials we have indications that additional units and or further products are likely to be required.

Financial Performance

During the period 1 January 2010 to 29 January 2010 several of the 2005 Loan Note Holders elected to convert their Notes into equity and 13,023,256 Common shares were issued in exchange for Loan Notes with a face value of £0.28 million. On 29 January 2010 the Company exercised its option to redeem the outstanding 2005 Loan Notes early at a 20% rate, and all outstanding Loan Notes, with a face value of £1.05 million were extinguished by way of a payment of £0.21 million.

In June 2010 the Company completed a financing investment with TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), the wholly owned UK Subsidiary of the Brazilian energy group VSE Vale Soluções em Energia S.A. ("VSE"), in which TAO UK obtained a 76% holding in the Company, (52% on a fully diluted basis), in exchange for a cash injection of £6.5 million. The financing proceeds were utilized to settle the outstanding 2008 Convertible loan note principal, accrued interest and related risk premium payable upon the change of control, by way of a cash payment of £4 million, and the issue of £2 million in A-Ordinary shares in the Company's subsidiary, Turbo Power Systems Limited.

Total revenues in the year of £8.53 million were 19% lower than in 2009 (2009: £10.50 million), primarily due to decreased development income and the prior year sale of development rights to McQuay. No R&D tax credits were received during the year and the majority investment in the Company by TAO UK in June 2010 has removed the Company's future eligibility for SME tax credit refunds.

Research and product development costs and administrative costs both increased during the second half of the year following the investment in the business as the Company began to address recruitment and infrastructure requirements to meet expected demand from its new parent organization.

The Company recorded a loss before exceptional items, interest, tax, depreciation, amortization, foreign exchange gains and losses and stock compensation for the year of £4.11 million (2009: gain of £0.24 million) as a result of lower development income and increased operational costs in the second half of the year.

The Company recorded an operating cash outflow before working capital movements of £3.41 million for the year (2009: inflow of £0.13 million), and after adjusting for changes in working capital items and purchases of property, plant and equipment suffered an overall cash outflow before financing of £3.01 million (2009: outflow of £0.41 million).

Net cash inflow from financing during 2010 of £3.16 million (2009: £nil), resulted in an overall net cash inflow for the year of £0.15 million (2009: outflow of £0.41 million).

The Company finished the year with an unrestricted cash balance of £0.80 million and held further cash of £0.77 million associated with performance bonds.

During the year ended 31 December 2010 the Company undertook two significant transactions with related parties. In October 2010 the Company negotiated a loan facility from its majority investor TAO UK, which provided £1.9 million to support working capital requirements, bearing interest at 6% and being repayable upon request after 1 January 2012. In November 2010 the Company raised invoices for £0.67 million to VSE, the parent organization of TAO UK, for initial development activities under an arms-length commercial contract.

During Quarter 4 2010 the Company recognized that the disclosure of the change of control risk premium payments, associated financing charges and termination payments that were previously disclosed as exceptional costs in the Quarter 2 and Quarter 3 interim results have been reclassified to finance charges, interest expense and general and administrative costs. Accordingly a charge of £2.1 million has been reclassified as finance charges, £0.18 million as interest expense and £0.27 million as general and administrative costs during Quarter 4.

Subsequent to the year end, during February 2011, the Company extended the loan facility with TAO UK to provide an additional £0.8 million of working capital under the same terms as the existing £1.9 million loan, which was further extended by £0.4 million in March 2011, also under the same terms.

Going Concern

The Critical Accounting Estimates included within these statements are assessed on an unchanged basis from the prior year and as disclosed in the Company's Financial Statements for the year ended 31 December 2010.

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles ("Canadian GAAP") applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 December 2010 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 £80.08 million as at 31 December 2010.

At 31 December 2010 the Company had an unrestricted cash balance of £0.80 million and held further cash of £0.77 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, which would be necessary if the "going concern" assumption were not appropriate.

On 25 February 2011 the Company announced that it had extended the loan financing agreement with its principal shareholder, TAO UK, to provide the Company with access to a further £0.8 million of debt financing to support working capital requirements. On 28 March 2011 the Company announced that it had increased this facility with an additional £0.4 million.

The Directors regularly reviews and considers 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 decreased through 2010 as 2009 production programmes finished. The weak 2009 economy resulted in lower than normal order activity resulting in a declining customer production requirement through the following year.

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 and the commercial development contract with VSE.

The controlling investment made by TAO UK in June 2010 has meant that the Company no longer qualifies for cash refunds under the UK SME R&D tax credit regime, which would previously have been used to reduce the Company's total research and development expenditure. In 2009 £812,000 of tax credits were offset against such expenditure.

Reconciliation of net loss to EBITDA result

Copies of Quarterly and Annual Results

The Company's full Financial Results and Managements' Discussion and Analysis are available on www.sedar.com and full financial statements will be mailed to shareholders during May 2011.

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

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

1. Basis of preparation and going concern

The consolidated financial statements have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality and within the framework of the significant accounting policies summarized in the Company's financial statements for the year ended 31 December 2010, and the subsequent changes in accounting policies as detailed in Note 2 below. 

The Company's interim financial statements do not conform in all respects to the requirements of Canadian GAAP for annual financial statements. The Company's interim statements should be read in conjunction with the consolidated financial statements of the Company for the year ended 31 December 2010.

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

Ultimate parent organization

As at 31 December 2010 the Company's parent undertaking was TAO Sustainable Power Solutions (UK) Limited ("TAO UK"), a company registered in England, UK.

As at 31 December 2010 the Company's ultimate parent company was VSE Vale Soluções em Energia S.A. ("VSE"), a company registered in Brazil.

The smallest and the largest group within which the results of the Company are included is that headed by VSE.

Going concern

These consolidated financial statements have been prepared on the basis of Canadian generally accepted accounting principles applicable to a "going concern", which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 31 December 2010 the Company had net operating cash outflows. Therefore the Company expects to require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £80.08 million as at 31 December 2010.

At 31 December 2010 the Company had an unrestricted cash balance of £0.80 million and held further cash of £0.77 million associated with performance bonds. If the Company is unable to generate positive cash flow from operations or secure additional debt or equity financing these conditions and events would cast substantial doubt regarding the "going concern" assumption and, accordingly, the use of accounting principles applicable to a going concern. These consolidated financial statements do not reflect adjustments to the carrying values of the assets and liabilities, the reported expenses and the balance sheet classifications, which could be material, which would be necessary if the "going concern" assumption were not appropriate. 

Subsequent to the year end, on 25 February 2011 the Company announced that it had extended on the same terms the loan financing agreement with its principal shareholder, TAO UK, to provide the Company with access to a further £0.8 million of debt financing to support working capital requirements. On 28 March 2011 the Company announced that it had increased this facility by an additional £0.4 million.

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, forecasting cash requirements and balances. Based on these evaluations the Directors consider that the Company is able to continue as a going concern.

2. Changes in accounting policies and recent accounting pronouncements

Section 3064 Goodwill and Intangible Assets

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

Section 1000 Financial Statement Concepts

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

Credit Risk and the Fair Value of Financial Assets and Liabilities

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

Recent accounting pronouncements

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

Harmonizing of Canadian and International Financial Reporting Standards (IFRS)

In February 2008, the Accounting Standards Board of the CICA confirmed its strategic plan which will abandon Canadian GAAP and affect a complete convergence to the International Financial Reporting Standards. These new standards will be effective for the Company's interim financial statements commencing 1 January 2011.

3. Segmental analysis

The Company's two reportable segments, based on the nature of product designed and manufactured and the location of each activity, 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 Company and other related management activities are allocated between the two reportable segments.

The power electronics and electrical machines systems segments both operate in the United Kingdom. All of the Company's assets are located in the United Kingdom.

4. Significant customers

In the year ended 31 December 2010, 51% of the Company's sales were derived from three customers (31 December 2009: 64% from two customers), each of whom represented 10% or more of the Company's sales.

In the quarter ended 31 December 2010, 78% of the Company's sales were derived from four customers (31 December 2009: 86% from two customers).

5. Profit/(loss) per share

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

As the Company experienced a loss in both full years and the quarter ended 31 December 2010 all potential common shares outstanding from dilutive securities are considered anti-dilutive and are excluded from the calculation of loss per share.

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

6. Share capital - issued shares

Authorized

At 31 December 2010 and 31 December 2009, the authorized share capital of the Company comprised an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, without nominal or par value.

The Company has issued the following common shares:

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

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

On 28 January 2010 the Company issued a further 9,069,769 common shares, and on 8 February 2010 a final 3,953,488 common shares as a result of additional conversions of £280,000 of 2005 Convertible Loan Notes, at a conversion price of 2.15p per share.

On 16 June 2010 the Company issued 1,083,333,333 common shares to TAO UK as a result of the financing and investment in the Company, at a price of 0.6p per share.

Potential issue of common shares

The Company has issued share options under the 2002 Stock Option Plan, convertible loan notes and warrants under the financing agreements with institutional investors and A Ordinary Shares in Turbo Power Systems Limited that are convertible into common shares of the Company.

No options or warrants were exercised during the year ended 31 December 2010 or 31 December 2009.

7. A Ordinary share capital of TPSL

Number £'000

At 1 January 2009 and 31 December 2009 115,000,000 13,310

Issued in 2010 333,333,334 2,000

__________ ______

At 31 December 2010 448,333,334 15,310

__________ ______

On 16 June 2010 the Company, as part of the investment and fundraising it had completed, issued 333,333,334 A-Ordinary shares at 0.6p each in settlement of the 2008 loan note principal, accrued interest and agreed risk premium due to one of the institutional investors.

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

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

8. Exceptional items

On 23 December 2009 the Company reached an agreement with the remaining holders of the 2005 Convertible loan notes to modify the conversion rate from £0.12 per share to £0.0215 per share, and to allow redemption by the Company at a reduced rate of 20% of the principal value in full and final settlement. This amendment was treated as a debt extinguishment and an exceptional gain of £504,000 was recorded.

9. Related party transactions

On 16 June 2010 the Company completed a fundraising and investment transaction that resulted in TAO UK, the wholly owned UK subsidiary of the Brazilian energy solutions company VSE, investing £6.5million in exchange for 1,083,333,334 Common Shares in the Company, giving TAO UK a 76% controlling stake in the Company on an undiluted basis. The transaction was recorded at exchange amount.

On 25 October 2010 the Company completed a loan funding facility from its majority investor, TAO UK, that made available up to £1.9million 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 request after 1 January 2012. As at 31 December 2010 the Company had drawn down the entire £1.9million. Subsequent to the year end, on 25 February 2011 the Company agreed to extend the terms of this loan and advance an additional £800,000 under the same conditions, and a further £400,000 on 29 March 2011.

On 16 June 2010, following the fundraising and investment from TAO UK, the Company settled it's liabilities in relation to the outstanding 2008 convertible loan notes, accrued interest and agreed risk premium. The holder of the A-Shares was one of the institutional investors who received a settlement valued at £2million, which was settled by the issuance of 333,333,334 additional A-Shares. The transaction was recorded at exchange amount.

During the second half of the year the Company has transacted business with both TAO UK, totaling £17,000, and with VSE, totaling £674,000. All transactions were conducted within the normal course of business for supply of engineering design services and were transacted at arms-length.

10. Ultimate parent organization

As at 31 December 2010 the Company's parent undertaking was TAO Sustainable Power Solutions (UK) Limited, a company registered in England, UK.

As at 31 December 2010 the Company's ultimate parent company was VSE Vale Soluções em Energia S.A., a company registered in Brazil.

The smallest group within which the results of Turbo Power Systems Inc. are included is that headed by TAO Sustainable Power Solutions (UK) Limited, and the largest group is that headed by VSE Vale Soluções em Energia S.A.

11. Subsequent events

On 25 February 2011 the Company obtained an extension to the terms of its loan with TAO UK, and was advanced a further £800,000 under the same conditions as the existing £1.9 million loan secured in October 2010.

On 29 March 2011 the Company obtained a further extension to the terms of its loan with TAO UK, and was advanced an additional £400,000 under the same conditions as the existing loan.