9th Aug 2006 07:00
Turbo Power Systems Inc09 August 2006 Wednesday 9th August 2006 TURBO POWER SYSTEMS INC. ANNOUNCES ITS RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2006 Highlights •Revenue and development income up 93% to £2.5m (2005: £1.3m) •Operating loss before stock compensation charges (£0.2m)(2005: £0.04) reduced by 9% to £2.9m (2005: £3.2m) •Operating cash outflow reduced by 22% to £2.2m (2005: £2.8m) •Second Boeing 787 Dreamliner contract announced for $26m •Further rail orders of £7m announced in the first half Commenting on the results, Michael Hunt, Chief Executive said, "The Company continues to make good progress, and our second Boeing contract through Hamilton Sundstrand consolidates our move into the important aerospace market. We continue to win significant contracts in our established market sectors. An increasing number of these contracts are moving into production phases and a number of existing customers have increased their production requirements. As a result, we expect to see the rate of output and revenue growduring the second half of the year." For further information, please contact: Turbo Power Systems Tel: +44 (0)20 8564 4460Michael Hunt, Chief Executive Officer Stephen Sadler, Chief Financial OfficeCompany Website: www.turbopowersystems.com Gavin Anderson (PR)Ken Cronin Tel: +44 (0)20 7554 1400 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 Turbo Power Systems Inc. was previously known as Turbo Genset Inc. 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. OPERATIONAL REVIEW During the second quarter of 2006, the Company saw continued revenue growth fromexisting contracts. In addition we secured major new funded development andmanufacturing contracts which help to underpin our future growth. Given the more advanced stage of our Power Electronics contracts the majority ofthe 2006 revenues are derived from Gateshead operations but the key motor/drivedevelopment programmes at Heathrow are proceeding well with customerpre-production trials scheduled for this year. The agreement with Hamilton Sundstrand to design and manufacture a motorcontroller for another Boeing 787 application is an important milestone for theCompany. With the advent of the "all-electric aircraft" , we have identified thesector as having significant potential for our lightweight and efficient motorsand generators as well as our power electronics. Additional sales and marketing personnel were recruited during the period inorder to capitalize on a growing interest in our products. In July, following approval from shareholders, the Company formally changed it'sname from Turbo Genset Inc. to Turbo Power Systems Inc. to more accuratelyreflect the future direction of the company with its wider range of products andapplications, and in particular to recognise the increasing collaborationbetween the power electronics team at Gateshead and the electrical machines teamat Heathrow. Direct Drive High-Speed Motors and Drives Industrial Motor and Drive Design and Supply The initial prototype 500 kW motor and drive system is currently in manufactureat Heathrow and Gateshead, and integrated system testing will commence in Q32006. Production build at Heathrow for the motor and at Gateshead for the electronicdrive will follow extensive customer field testing scheduled for the first halfof 2007.The product is planned to be formally launched at a major Internationaltrade show in 2007. SKF Production of motors and drives for SKF commenced in the first half of the yearagainst the long-term contract for 15, 25 and 35kW systems used in a gascompressor application. Volumes will build up throughout 2006 and beyond. Specialist Drives and Motor applications (Aerospace, Oil and Gas) Hamilton Sundstrand Having made the breakthrough into the demanding Aerospace sector, the Companywas particularly pleased to be able to announce that it had extended its workcontent on the Boeing 787 with the contract between the Company and HamiltonSundstrand for the design and supply of a further motor drive design, this timefor a unit controlling a Ram Fan used in the electronics cooling circuit. Basedon sensitized estimates of the projected aircraft original equipment and aftermarket sales, the overall long-term contract value is expected to exceed $26million. Additional engineering and programme management resources are being recruitedspecifically to support the development of this funded contract. As with theEaton contract below, production quantities will ship following the Boeingaircraft flight trials. Eaton Aerospace The programme for the development of the high performance electronic driveswhich provide motor control for the Eaton fuel transfer and jettison pumps onthe new Boeing 787 commercial airliner, is proceeding well. The unit has nowsuccessfully passed through the Critical Design Review stage and hardwarerequired for the various qualification tests is in manufacture. ALC - Oil and Gas The prototype motor is currently in manufacture at Heathrow and laboratorytesting will commence soon. Following initial factory based tests the unit willcommence field trials in the UK, and then move to an extended endurance test inAlaska in 2007. Although this is a very technically challenging design, commercial interest fromthe sponsoring oil company remains very high, with current oil prices favouringan easily deployable technology which has the potential to make a significantimprovement in the barrels per day output of existing wells. Lotus Engineering The first prototype passenger car hybrid drive and motor system has been shippedto Lotus for integration into the initial development vehicle. A further twosystems will follow in August, after which the energy efficient cars will bedelivered to the sponsoring car manufacturer for extensive testing prior to anydecision regarding the production release. High Voltage Power Supplies, Auxiliary Power Systems, Grid-Connected Invertersfor Energy Recovery Systems and Renewable Technologies New Rail Contracts During Q2 2006, the Company received orders with a combined value of £1.3million from Bombardier Transportation (UK), the National Rail Equipment Company(USA) and Trans-Elektro (Netherlands). The contract from Bombardier was a new requirement to provide 30 Catering CarConverters and 405 PT3000 'At Seat' Power Supplies for installation as part of arail car refurbishment programme being undertaken by Bombardier Transportation(UK) on behalf of First Great Western. The "At Seat" system provides a qualitypower source in the carriages for passengers to power up laptops and mobilephones. The orders from Trans-Elektro and NREC were for additional quantities on top ofpreviously announced contracts. Turbo Power Systems Inc. announced in February2006 that they had been commissioned to supply traction motor controllers andlow voltage power supply units to NREC for a new, low emission locomotive and inOctober 2005 that the Company would provide Trans Elektro with 6kVA powerconverters for use in air conditioning systems. Initial deliveries for all items are planned to commence in Q3 2006 and thefinal units are expected to be delivered by the end of Q2 2007. Existing long-term Contracts Toronto Transit Commission - H6 subway car Auxiliary Power Unit (APU) The customer has requested an increase in the monthly production rate toward theend of Q3 2006 and production is proceeding well with deliveries scheduled until2008. Bombardier - Beijing Design is well underway for the 40 auxiliary power units scheduled to bedelivered as part of the extension to the Beijing light rapid transit system insupport of the Olympics. Initial units will be available for Bombardier by theend of 2006. Trans Elektro Production deliveries of the air-conditioning system power supplies areproceeding to plan, with additional units now ordered by Nedtrain through TransElektro (Holland). Deliveries will now extend into the early part of 2007. NREC The Company has been very active in preparing for the commencement of productionmanufacture on this contract, which runs from Q3 2006 onwards at a significantlyhigher volume rate than our other rail projects, given that each system consistsof nine large electronic units. The recent amendment adding further units is very encouraging, and NREC remainvery active promoting and demonstrating the emissions friendly prototypeswitcher to a wide range of potential rail freight companies and largeindustrial freight users in North America London Underground Production continues to run smoothly for the air-conditioning power suppliesused in the District Line project. Other Products/Activities PRC Production rates for the power supply for PRC lasers have been increased inresponse to additional demand from the customer. After Market Spares and After Market revenues have grown strongly in the first half and areexpected to continue to do so as the volume of products in service increases. Direct Drive High-Speed Generators and Inverters for the Distributed Generationand Renewable Energy markets Distributed Generation (the use of small-scale power generation close to theload being served) and Renewable Energy Technologies remain important marketsfor Turbo Power Systems. High speed generators and inverters in sizes up to 5MWprovide system integrators with benefits in terms of efficiency, size andweight, life-cycle cost and ease of grid connection. Turbo Power Systems now concentrates on the design, manufacture and supply ofthe generator and inverter sub-systems to the generating system providers, andis currently in discussion with turbine manufacturers on potential programmesfor: €100 kW Generator and Inverter €600 kW Generator and Inverter €5000 kW Generator and Inverter Renewable and Energy Saving Projects The TPS strategy in this area is to participate 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 particular directed towards expanding thepotential for our grid connected inverter technology. Consequently at present we have preliminary participation in the followingareas: •A demonstration Low-Head Hydro energy recovery scheme in the Midlands. TPS is providing generator and inverter hardware. •An EU funded programme for a externally fired micro-turbine (< 10kW) system for domestic CHP. TPS will provide a high-speed generator and inverter. •An EU funded programme to assess grid inter-connection issues, in anticipation of an increasing proportion of European 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. RESULTS OF OPERATIONS REVIEW OF FIRST HALF YEAR 2006 Revenue Revenue in the half year ended 30 June 2006 was £2.16 million compared with£0.95 million in 2005 and comprised; 2006 2005 £'000 £'000 Power electronics 2,079 917High speed machines 82 36 -------- ------- 2,161 953 ======== ======= 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, London Underground and Lotus. In addition the contract with TransElektro for air conditioning power supplies, which entered production in Q1, hasmade a significant contribution to revenue for the half year. Spares and service revenues are in excess of £0.54m for the half year (2005:£0.25m). In the Electrical Machines division revenue has increased over the prior periodas the SKF contract has moved into production and revenue has been received fromALC. Development income Development income in the half year was £0.29 million compared with £0.32million in 2005 and included receipts from Eaton Aerospace on the Boeing 787Dreamliner programme. 2006 2005 £'000 £'000 Development income 292 315 ======= ======== Production costs The cost of product revenues in the half year amounted to £1.67 million (2005 :£0.88 million), resulting in a gross profit on sales of £0.49 million (2005 :profit of £0.07 million) as follows; 2006 2005 £'000 £'000 Power electronics 735 307High speed machines (245) (237) ------- -------- 490 70 ======= ======== Certain fixed facilities costs attributable to the manufacturing operation meanthat the high speed machines division recorded an overall loss on product sales. Overall, gross margin has improved significantly due to the increasedcontribution from the power electronics division. Research and product development Research and product development expenditure in the half year was £1.69 millioncompared with £1.44 million in 2005, and comprised; 2006 2005 £'000 £'000 Research and product development expenditure 1,733 1,475Accrued R&D tax credits (40) (35) -------- --------Total expenditure 1,693 1,440 ======== ======== Product development costs have increased in 2006 as work has started on theEaton contract for the Boeing 787 Dreamliner. Included in research and product development costs for the half year are stockcompensation charges on options awarded to development staff of £122,000(2005: nil). General and administrative General and administrative costs of £1.57 million (2005: £1.49 million) consistmainly of staff costs, facilities costs and the costs associated with theCompany's public listings. Included in general and administrative costs for thehalf year are stock compensation charges on options awarded to administrativestaff of £96,000 (2005: £41,000), and increased costs for additional sales andmarketing personnel and activities. Amortisation Amortisation was £0.66 million compared with £0.69 million in 2005. Interest income Interest income in the half year was £0.14 million compared with £0.13 millionin 2005. Interest expense and finance charges Interest expense and finance charges arise from the issue of convertible bondsin July 2003 and March 2005 and comprise; 2006 2005 £'000 £'000 Interest payable 288 227Amortisation of deferred finance charges 81 87Debt accretion 194 166 ------- -------- 563 480 ======= ======== The cost in 2006 has increased due to the inclusion of a complete half yearcharge on the convertible bonds issued in March 2005. 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 half year this charge amounted to £0.19 million (2005:£0.17 million). CASH FLOWS FOR THE HALF YEAR Cash outflow from operating activities Cash outflow from operating activities for the half year was £2.20 million,compared with £2.82 million in 2005. In the first half of 2005 the Companyrecorded an operating loss of £3.24 million and had a decrease in workingcapital of £0.13 million. The first half 2006 operating loss was £3.14 millionand working capital increased by £0.06 million during the period. Stocks, work in progress and creditors increased by £0.18 million during thehalf year reflecting the increase in manufacturing volume. Restructuring payments of £0.25 million paid during the first half of 2005relate to redundancy and property disposal payments charged to the profit andloss account in prior periods. Interest paid of £0.30 million during the half year represents payments made onthe convertible bonds issued in 2003 and 2005 (2005: £0.09 million payment on2003 bonds) Capital investment activities Cash outflows from capital investments in the half year were £0.05 millioncompared with £0.02 million in 2005, reflecting continued control overexpenditure on tangible fixed assets. Cash flow from financing activities No cash movements resulting from financing activities occurred in the half year. Cash inflow from financing in 2005 of £7.72 million during the half year relatesto net funds 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 first half year Overall the cash outflow during the half year was £2.41 million. This compareswith a cash outflow of £2.83 million in 2005, before proceeds of the debt issueof £7.72 million. REVIEW OF SECOND QUARTER 2006 Revenue Revenue in the quarter ended 30 June 2006 was £1.19 million compared with £0.59million in 2005 and comprised; 2006 2005 £'000 £'000 Power electronics 1,130 557High speed machines 62 36 ------ ------ 1,192 593 ======= ====== Revenues from the Power electronics division increased as a result of revenuesfrom contracts with Toronto Transit Commission, Lotus, Trans Elektro, which hadnot commenced in 2005, and a significant increase in spares business in linewith the increasing sales volumes. Development income Development income in the quarter was lower in 2006 at £0.19 million comparedwith £0.26 million in 2005 and included receipts from Eaton Aerospace on theBoeing Dreamliner programme. 2006 2005 £'000 £'000 Development income 193 256 ======== ======= Production costs The cost of product revenues in the quarter amounted to £0.94 million (2005 :£0.51 million), resulting in a gross profit on sales of £0.26 million (2005 :profit of £0.08 million) as follows; 2006 2005 £'000 £'000 Power electronics 369 197High speed machines (114) (115) -------- -------- 255 82 ======== ======== Overall, gross margin has improved significantly due to the increasedcontribution from the power electronics division. Research and product development Research and product development expenditure in the quarter was £0.87 millioncompared with £0.60 million in 2005, and comprised; 2006 2005 £'000 £'000 Research and product development expenditure 892 611Accrued R&D tax credits (25) (15) ------- --------Total expenditure 867 596 ======= ======== Included in research and product development costs for the quarter are stockcompensation charges on options awarded of £67,000 (2005: nil). General and administrative General and administrative costs in the quarter of £0.82 million (2005: £0.82million) 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: £39,000) and costs for additional sales, marketing andmanagement personnel and activities. Amortisation Amortisation was £0.27 million compared with £0.35 million in 2005. Interest income Interest income in the quarter was £0.07 million compared with £0.09 million in2005. Interest expense and finance charges Interest expense and finance charges arise from the issue of convertible bondsin July 2003 and March 2005 and comprise; 2006 2005 £'000 £'000 Interest payable 154 153Amortisation of deferred finance charges 41 52Debt accretion 97 102 ------- ------ 292 307 ======= ====== 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). CASH FLOWS FOR THE SECOND QUARTER Cash outflow from operating activities Cash outflow from operating activities for the second quarter was £1.25 million,compared with £1.39 million in 2005. In the second quarter of 2005 the Companyrecorded an operating loss of £1.44 million and had a decrease in workingcapital of £0.39 million. The second quarter 2006 operating loss was £1.51million and working capital decreased by £0.17 million during the period. Interest paid of £0.04 million (2005: £0.02 million) during the quarterrepresents payments made on the convertible bonds issued in 2003 and 2005. Capital investment activities Cash outflows from capital investments in the quarter were £0.03 millioncompared with £0.01 million in 2005, reflecting continued control overexpenditure on tangible fixed assets. Overall Cash outflow for the period Overall the cash outflow during the quarter was £1.25 million. This compareswith an overall cash outflow of £1.35 million for the second quarter of 2005. BALANCE SHEET AS AT 30 JUNE 2006 The Company ended the period with a cash balance of £4.12 million compared with£6.53 million at 31 December 2005. Substantially all of the Company's cashbalances 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 have decreased from £4.54 million at 31 December 2005 to£3.86 million at 30 June 2006, after depreciation charges of £0.66 million anddeferred financing charges of £0.08 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 increased to £10.35 million at 30 June 2006 comparedto £10.21 million at 31 December 2005, reflecting the accretion of debtattributable to the convertible bond issue partially offset by a reduction indebt following the conversion of £65,000 of convertible bonds into 541,665shares during the first half year. Net working capital at 30 June 2006, excluding cash balances, was (£0.23)million, compared with (£0.30) million as at 31 December 2005. On 9 June 2006 the Company issued 442,668 common shares to Directors and seniorexecutives, following approval at the Company's Annual General Meeting on 8 June2006. M Hunt and S Sadler each received 110,667 common shares. As at 1 August 2006, the Company had 191,494,592 common shares issued andoutstanding. As at that date there were 33,993,783 outstanding share options and10,500,000 outstanding warrants. CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND DEFICITUNAUDITED Notes Six months ended 30 June 2006 2005 £'000 £'000 Revenue 4 2,161 953Development income 4 292 315 -------- -------- 2,453 1,268 Expenses Production costs 1,672 883 Research and product development 5 1,693 1,440 General and administrative 1,570 1,488 Amortisation 662 694 -------- -------- 5,597 4,505 -------- -------- Operating loss (3,144) (3,237) Other income and expenses Interest income 147 130 Interest expense and finance charges 6 (563) (480) Foreign exchange losses (11) (16) -------- -------- (427) (366) -------- -------- Loss before taxation (3,571) (3,603)Taxation - (17) -------- -------- Loss for the period (3,571) (3,620) Deficit, beginning of period (44,718) (38,265) -------- --------Deficit, end of period (48,289) (41,885) ======= =======Loss per share (1.9) p (2.0) p CONSOLIDATED STATEMENTS OF INCOME (LOSS)UNAUDITED Notes Three months ended 30 June 2006 2005 £'000 £'000 Revenue 4 1,192 593Development income 4 193 256 -------- -------- 1,385 849 Expenses Production costs 938 511 Research and product development 5 867 596 General and administrative 818 822 Amortisation 271 357 -------- -------- 2,894 2,286 -------- -------- Operating loss (1,509) (1,437) Other income and expenses Interest income 68 89 Interest expense and finance charges 6 (292) (307) Foreign exchange losses 21 (9) ------- -------- (203) (227) ------- -------- Loss before taxation (1,712) (1,664)Taxation - (17) ------- -------- Loss for the period (1,712) (1,681) Loss per share (0.9) p (0.9) p CONSOLIDATED BALANCE SHEETSUNAUDITED Notes As at 30 As at 31 June December 2006 2005 £'000 £'000Assets Current assets Cash and cash equivalents 4,118 6,525 Debtors 10 1,475 1,346 Stock and work in progress 955 541 -------- -------- 6,548 8,412 -------- -------- Restricted cash 8 1,496 1,496 -------- -------- Long-term assetsInvestments 9 58 59Intangible assets 9 1,184 1,471Tangible assets 9 2,613 3,007 -------- -------- 3,855 4,537 -------- -------- 11,899 14,445 ======= ======= Liabilities and shareholders' equity Creditors: amounts fallingdue within one year 11 2,656 2,183 -------- -------- Creditors: amounts fallingdue after more than one year 12 10,352 10,211 -------- -------- Capital and reserves Share capital and other equity 2,13 47,247 46,897 instruments Currency exchange adjustments 2 (67) (128) Loss deficit 2 (48,289) (44,718) ---------- ----------Shareholders' funds (1,109) 2,051 --------- --------- 11,899 14,445 ======= ======== CONSOLIDATED CASH FLOW STATEMENTSUNAUDITED Six months ended 30 June Notes 2006 2005 £'000 £'000 Cash outflow from operating activities 3 (2,203) (2,824) Interest received 147 122Interest paid (303) (88) --------- ---------Net cash outflow from operating activities (2,359) (2,790) Capital investment activities Purchase of long-term assets (48) (25) --------- ---------Cash outflow from capital investmentactivities (48) (25) --------- ---------Net cash outflow before financing (2,407) (2,815)activities Tax - (17) Financing activitiesProceeds from debt issue - 7,707Movements in restricted cash - 10 --------- ---------Cash inflow from financing activities - 7,717 --------- ---------Increase/(decrease) in (2,407) 4,885cash in the period ======== ======== Cash and cash equivalents:Beginning of period 6,525 2,067 ---------- ----------End of period 4,118 6,952 ======== ======== TURBO POWER SYSTEMS INC.CONSOLIDATED CASH FLOW STATEMENTSUNAUDITED Three months ended 30 June Notes 2006 2005 £'000 £'000 Cash outflow from operating activities 3 (1,253) (1,389) Interest received 68 87Interest paid (40) (18) --------- ---------Net cash outflow from operating (1,225) (1,320)activities Capital investment activitiesPurchase of long-term assets (29) (13) --------- ---------Cash outflow from capital investment (29) (13)activities ---------- --------- Net cash outflow beforefinancing activities (1,254) (1,333) Tax - (17) Financing activitiesProceeds from debt issue - (8)Movements in restricted cash - 10 --------- ---------Cash inflow from financing activities - 2 --------- ---------Increase/(decrease) in (1,254) (1,348)cash in the period ======== ========Cash and cash equivalents:Beginning of period 5,372 8,300 ---------- ----------End of period 4,118 6,952 ====== ====== SIX MONTHS ENDED 30 JUNE 2006NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED 1 Basis of preparation The unaudited financial statements of the Company have been prepared by management in accordance with International Accounting Standards and generally accepted accounting principles in Canada for interim financial statements. These unaudited financial statements do not include all the note disclosures required for annual financial statements and therefore they should be read in conjunction with the Company's audited consolidated financial statements for the year ended 31 December 2005. The significant accounting policies are consistentwith prior years. Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for 2006. 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 denoted. 2 Movements in shareholders' funds Share Other Exchange Profit and Total capital equity adjustments loss £'000 £'000 £'000 £'000 £'000 Balance at 1 January 2005 42,932 1,027 (78) (38,265) 5,616 Loss for the period (6,453) (6,453) Exchange (loss) (50) (50) Stock compensation 133 133 Equity component of financial instrument 1,331 1,331 Conversion to shares 1,786 (298) 1,488 Equity adjustment 35 (49) (14) --------- --------- --------- --------- --------- Balance at 31 December 2005 44,753 2,144 (128) (44,718) 2,051 Loss for the period (3,571) (3,571) Exchange gain 61 61 Stock compensation 235 235 Conversion to shares 65 (11) 54 Issue of shares 61 61 --------- --------- --------- --------- --------- Balance at 30 June 2006 44,879 2,368 (67) (48,289) (1,109) ========= ========= ========== ========== ========== 3 Reconciliation of operating loss to cash outflow from operating activities Six months ended Three months ended 30 June 30 June 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Operating loss for the period (3,144) (3,237) (1,509) (1,437) Movements in working capital balances Decrease / (increase) in debtors (129) (172) 54 (380) Decrease / (increase) in stocks (414) (48) (251) (54) and work in progress (Decrease) / increase in creditors 598 95 23 48 Restructuring payments - (248) - (23) Amortisation 662 694 271 356 Provision for impairment - 90 - 90 Stock compensation expense 235 41 138 39 Foreign exchange (losses)/gains (11) (39) 21 (28) --------- --------- --------- --------- Cash outflow from operating activities (2,203) (2,824) (1,253) (1,389) ========== ========== ========== ========== 4 Segmental analysis The Group's three reportable segments are the power electronics segment, which is involved in the development and manufacture of electrical power supply and control systems, the high speed machines segment, which is involved in the development and commercialisation of generators and motors, and the corporate segment which is responsible for the financing of the group and other related corporate activities. The power electronics and high speed machines segments operate in the United Kingdom. The corporate segment operates in Canada and the United Kingdom. All amounts in £'000 Power electronics High speed Corporate Total machines 2006 2005 2006 2005 2006 2005 2006 2005Six months ended 30 JuneRevenue 2,079 917 82 36 - - 2,161 953Development income 292 315 - - - - 292 315Net interest income/ - - (506) (447) 90 97 (416) (350)(expense) Amortisation 70 96 592 598 - - 662 694Loss for the period (458) (461) (2,576) (2,547) (537) (612) (3,571) (3,620)Capital expenditure 39 14 24 11 - - 63 25 Three months ended 30 JuneRevenue 1,130 557 62 36 - - 1,192 593Development income 193 256 - - - - 193 256Net interest income/(expense) - - (263) (280) 39 62 (224) (218)Amortisation 45 65 226 292 - - 271 357Loss for the period (142) (64) (1,238) (1,300) (332) (317) (1,712) (1,681)Capital expenditure 21 4 23 9 - - 44 13 4 Segmental analysis (continued) All amounts in £'000 Power High speed Corporate Total electronics machines As at Jun Dec Jun Dec Jun Dec Jun Dec 2006 2005 2006 2005 2006 2005 2006 2005 Total Assets 4,627 4,468 2,815 5,604 4,457 4,373 11,899 14,445Total Liabilities 1,404 787 11,281 11,494 323 113 13,008 12,394 5 Research and product development Research and product development expenditure incurred during the period comprised: Six months ended Three months ended 30 June 30 June 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Research and product 1,733 1,475 892 611 development cost Accrued tax credits (40) (35) (25) (15) -------- -------- -------- -------- Total expenditure 1,693 1,440 867 596 ======== ======== ======== ======== Deferred research and product development expenditure, net of accrued tax credits, amortisation and provisions for impairment, at 30 June 2006 amounted to £nil (31 December 2005 - £198,000). Deferred research and product development expenditure comprised materials, labour and allocated overheads. Total accrued tax credits receivable at 30 June 2006, including those credited against deferred research and product development expenditure, amounted to £109,000 (31 December 2005- £190,000). 6 Interest expense and finance charges Six months ended Three months ended 30 June 30 June 2006 2005 2006 2005 £'000 £'000 £'000 £'000 Interest payable 288 227 154 153 Amortisation of deferred 81 87 41 52 finance charges Debt accretion 194 166 97 102 --------- --------- --------- --------- 563 480 292 307 ========= ========= ========= ========= 7 Loss per share Loss per common share has been calculated using the weighted average number of shares in issue during the relevant financial periods. The treasury stock method was used in determining the weighted average number of shares outstanding for each period. The weighted average number of shares outstanding in the period was 191,165,301 (2005 - 184,009,119). No diluted earnings per share have been reported as the Company has losses in both years and the effect would be anti-dilutive. The loss for the six months ended 30 June 2006 was £3,571,000 (2005 - £3,620,000). 8 Restricted cash The Company has committed cash bonds in support of contracts placed by certain of its customers. The associated contracts require the bonds to remain in place until up to two years after all equipment is delivered. According to the current contract schedules that would result in cash being under the performance bond restrictions until 2012. At 30 June 2006 cash subject to restrictions totalled £1,496,000 (December 2005 - 1,496,000). 9 Long - term assets Cost Impairment Amortisation Net book value £'000 £'000 £'000 £'000 At 30 June 2006: Investments 103 45 - 58 Intangible assets 5,531 1,706 2,641 1,184 Tangible assets 8,191 - 5,578 2,613 -------- -------- -------- -------- Total long term assets 13,825 1,751 8,219 3,855 ======== ======== ======== ======== At 31 December 2005: Investments 104 45 - 59 Intangible assets 5,527 1,706 2,350 1,471 Tangible assets 8,133 - 5,126 3,007 -------- -------- -------- -------- Total long term assets 13,764 1,751 7,476 4,537 ======== ======== ======== ======== 10 Debtors Jun 2006 Dec 2005 £'000 £'000 Trade debtors 790 631Prepayments 504 507Other debtors 6 18Tax recoverable 175 190 --------- ------- 1,475 1,346 ========= ======= 11 Creditors: amounts falling due within one year Jun 2006 Dec 2005 £'000 £'000 Trade creditors 983 547Other creditors 181 234Tax and social security creditor 117 126Accruals and deferred income 1,320 1,221Provision for restructuring 55 55 ------- ------- 2,656 2,183 ======= ======= 12 Creditors: due after more than one year Convertible bond Jun 2006 Dec 2005 £'000 £'000 At 1 January 2006 9,913 4,364 Issued during the period - 8,000 Conversion of Convertible Notes during the (54) (1,331) period (note 2) Less equity component - (1,488) ------- ------- 9,859 9,545 Add: accretion of debt component during the 194 368 period (note 6) -------- ------- At 30 June 2006 10,053 9,913 ======== ======= Provisions for warranty claims 299 298 ------- ------- 10,352 10,211 ======= ======= 13 Share capital - issued common shares Number of shares At 1 January 2006 190,510,259 Conversion of convertible notes 541,665 Issue of common shares 442,668 --------------- At 30 June 2006 191,494,592 =============== No options were exercised during the six months ended 30 June 2006. 14 Financing On 11 March 2005 the Company completed an £8,000,000 (gross) financing agreement with institutional investors. The financing comprised unsecured Convertible Notes and Warrants. The Convertible Notes have a term of five years plus one day and bear interest at a rate of 6.5% per annum. They are convertible into an aggregate of 66,666,667 Common Shares in Turbo Genset Inc. at a conversion price of £0.12 per share. The Warrants have a term of five years and are convertible into an aggregate of 7,000,000 Common Shares in Turbo Genset Inc. at an exercise price of £0.15 per share. 15 Stock options, warrants and compensation expense The number of options and warrants outstanding as at 30 June 2006, and the movement during the six months then ended, are as follows: Options Warrants Number Number Outstanding at 1 January 2006 34,995,134 10,500,000 Cancelled (7,063,351) - Issued 6,062,000 - ------------- ------------ Outstanding at 30 June 2006 33,993,783 10,500,000 ============= ============ The stock based compensation expense for the six month period ended 30 June 2006, included in Production costs was £16,500 (2005: £nil), in Research and product development was £122,000 (2005:£nil), and in General and administrativecosts was £96,000 (2005: £41,000). 16 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 £'000 £'000 share UK pence September 2004 389 (2,609) (1.5)December 2004 507 (2,280) (1.3)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) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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