TIDMTPS
RNS Number : 5014P
Turbo Power Systems Inc
26 March 2009
24 MARCH 2009
TURBO POWER SYSTEMS INC. (TPS) ANNOUNCES RESULTS FOR
THE YEAR AND QUARTER ENDED 31 DECEMBER 2008
Highlights
* Production and development income for the year of GBP7.8 million (2007: GBP11.0
million)
* Production revenues in Q4 increased by 49% to GBP1.9 million over Q3(GBP1.2
million)
* Operating loss before financial and impairment charges reduced to GBP1.5 million
in the quarter (2007: GBP1.7 million loss)
* Continued development spend reduction in Q4 as programmes transition into
production.
* Operating Cash outflow before tax receipts reduced by 78% to GBP0.3 million Q4
(Q3 GBP1.53m).
Paul Summers, CEO, said:
"During 2008 Turbo Power Systems has undertaken some significant steps in
strengthening the position of the business.
The transitioning of programmes from development to production in the fourth
quarter has reduced the spend on R&D and now provides the business with a solid
base for 2009 and beyond.
Business processes have been strengthened in order to be able to better plan and
develop the business. Overheads have been reduced during the second half of the
year and are anticipated to reduce further in 2009.
The 2008 Q4 profit results have been adversely affected by stock and goodwill
write-offs, however, there has been an improvement in the underlying performance
of the business during the quarter, with further improvement anticipated
throughout 2009.
Our markets are bearing up well in the current climate and are still providing
the business with growth opportunities."
For further information, please contact:
+------------------------------------+---------------------------------------+
| Turbo Power Systems | Tel: +44 (0)20 8564 4460 |
+------------------------------------+---------------------------------------+
| Alan Baird, Marketing | |
| Communications | |
| | |
+------------------------------------+---------------------------------------+
| | |
+------------------------------------+---------------------------------------+
| Company Website: | www.turbopowersystems.com |
+------------------------------------+---------------------------------------+
| | |
+------------------------------------+---------------------------------------+
| Kreab Gavin Anderson (PR) | Tel: +44 (0)20 7554 1400 |
+------------------------------------+---------------------------------------+
| Ken Cronin | |
+------------------------------------+---------------------------------------+
| Michael Turner | |
+------------------------------------+---------------------------------------+
| | |
+------------------------------------+---------------------------------------+
| KBC Peel Hunt Ltd | Tel: +44 (0)20 7418 8900 |
+------------------------------------+---------------------------------------+
| Oliver Scott | |
+------------------------------------+---------------------------------------+
| Nicolas Marren | |
+------------------------------------+---------------------------------------+
NOTES TO EDITORS
About Turbo Power Systems
Turbo Power Systems Inc (TSX:TPS.TU AIM:TPS.L). is a leading UK based designer
and manufacturer of innovative power solutions. The Group'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 blue chip companies such as
Bombardier Transportation 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, amortisation, 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 amortisation. EBITDA is not a recognised measure
under GAAP and, accordingly, should not be construed as an alternative to
operating income or net loss determined in accordance with GAAP as an indicator
of financial performance or of liquidity and cash flows. EBITDA does not take
into account the impact of working capital changes, capital expenditures and
other sources and uses of cash which are disclosed in the consolidated
statement of cash flows. The Company's method of calculating EBITDA may differ
from other issuers and may not be comparable to similar measures provided by
other companies.
CHAIRMAN'S STATEMENT
The year 2008 has seen significant changes in the management and financial
performance of the business. In the middle of the year the Board brought in a
new CEO and appointed a new Finance Director, with the remit to conduct a
broad-ranging review of business strategy and to set the business on a path of
profitable, sustainable growth towards profitability. The Company now has a
realistic 5-year Strategic Plan that focuses on markets we anticipate will
provide top-line growth, and that will change the mix of the business to improve
the balance between new product development, production and after market.
Progress towards the Plan objectives has been made in 2008, especially in the
second half of the year. Spending on new product development has been brought
under control and the agreed transfer of one of our aerospace programmes to our
customer significantly reduced our exposure in 2008 and beyond. We retain the
ability to operate in the aerospace market, but in our strategic review have
concluded that other markets will take higher priority.
The Company arranged GBP3 million of Loan Note financing during the year that
provided the working capital necessary to fund the build up of new production
lines for the energy and rail transport markets. Careful cash management and
alignment of our cost base with realistic sales forecasts meant that the Company
ended the year with significantly reduced overall cash outflows, and was able to
produce a modest cash generative operating cash flow during the last quarter.
The management of cash remains a top priority for the Board and the management
team going forward.
The year 2008 was also significant in that the Company secured its first defence
order for a high-performance electrical generator system from a prestigious USA
prime contractor. Our capabilities in power electronics and advanced electrical
machines design have also attracted the interest of several major UK defence
contractors, demonstrating again the significant technical capability the
Company brings to these highly demanding markets.
In the rail transport and energy markets the delivery of production units
started in 2008 and will continue in 2009 and beyond, steadily building an
installed base of product that will provide long-term aftermarket business.
In summary, 2008 has been a year of turn around in the financial performance and
management of the business. The operating result reflects a year of exceptional
investment but one where costs have been brought rapidly under control during
the latter part of the year. The Company now has a set of clear financial goals
over the next 5 years, and a clear strategy to achieve them. Our key customers
continue to place orders with us, and the Company is making inroads into the
defence market where we have demonstrated excellent technical capability. I
expect the Company to continue to build on the successes of the past year, and
to continue to develop its order book.
OPERATIONAL REVIEW
This review has been prepared as at 25 March 2009.
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.
* designs and manufactures power electronics products which include variable
frequency drives and inverters, which combine with our electrical machines to
create an integrated solution, and a range of rugged power conversion products
for rail and industrial applications.
2008 Summary
Strategic Direction
During the latter part of 2008 the management team and main Board undertook a
comprehensive review of the strategic direction of the business.
As part of this review we looked at our products and markets to determine where
to focus our resources. The activities of the business over previous years in
positioning itself in a wide range of markets and sectors gave the management
team the opportunity to be selective in determining where to place the emphasis
going forward.
For each of the markets/sectors the assessment took into account :
* current strengths of TPS,
* size of the market/sector TPS could address,
* levels of investment required to capture and execute orders
* probability of turning the identified opportunities into orders.
From this assessment it was determined that we should place our primary focus on
the following markets :
* Transport
- Power Electronics For The Rail Industry
* Energy
- Grid Link Inverters
- Motors & Generators
* Industrial Equipment
- Motors & Generators
- Power Supplies
* Defence
- Power Electronics
- Motors & Generators
Whilst the business will continue to service existing programmes in other areas
(eg. aerospace and automotive) it will behave in a reactive manner to these
markets and only engage in new programmes that meet the requirements of the
business in terms of risk, cash flow and profitability.
From this strategic review the vision for the business can be summarised as
follows :
"Be a world class provider of specialist Power Electronics and Electrical
Machines maximising stakeholder benefit"
The business will achieve this through:
* Market leading technologies and programme delivery
* Long term partnerships with our customers
* Strong year on year organic growth
* A culture of continuous improvement of individual and business performance and
capability
* Accelerating business growth by acquisitions
In terms of the development of the business this means we intend to :
* Structure the business to achieve the projected turnover without outside
investment or acquisitions
* Develop technological advantage and customer partnerships in the following
business sectors :
- Transport
- Energy
- Industrial
- Defence
* Be a preferred supplier for five key customers
* Balance business activities across development, production and after sales
Current Operating Climate
The current economic climate is clearly a concern for many businesses, including
TPS. However, so far, the majority of our customers and markets are proving to
be resilient to the current economic turmoil. Additionally the spread of markets
provides some degree of resilience to downturns in any one sector.
Governments are continuing to grow their infrastructure 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.
The defence spend in both the US & UK appears relatively stable and the future
opportunities for TPS technology appear favourable. We will be investigating
this market more over the course of this year and hope to see increased activity
during the coming years.
As a result of the many Green Initiatives the energy as a sector is still seeing
significant growth and we will be looking to strengthen our position during the
course of this year.
The industrial sector is the most vulnerable to the downturn but so far our
customers are reporting minimal impact and are indicating continued activity
throughout 2009. However, we are continuing to monitor the current environment
so that we can adjust activities quickly if needed.
The weak pound is making TPS more competitive in its North American market and
many of our current contracts are U.S. Dollar based. We are therefore benefiting
from the recent exchange rate movements. The exposure to exchange rate
fluctuations is something that the business is very conscious of and management
take measures in our contracting, purchasing and financial arrangements to
mitigate against exchange rate risk.
Current Programmes
* Transport
Rail
The major programmes (Chicago Transit Authority and Toronto) being undertaken
during 2008 were predominantly for Bombardier of Montreal. These have been
slower to complete development than was envisaged but are now in their
production phases and will continue production over the next three years.
Other rail programmes have included converters and power supplies for both the
European and North American markets.
Aerospace
The Jettison Fuel Pump motor drives for Eaton Aerospace concluded
their qualification during the year and production units are now being
delivered. Whilst these are at lower levels than originally planned, the
quantities are envisaged to increase in the later part of 2009 and into 2010.
During the second half of 2008 the business determined that it was not in its
best interests to continue with the RAM Fan motor drive contract with Hamilton
Sundstrand and is in the process of completing the transition of this contract
back to Hamilton Sundstrand.
* Energy
Oil
Contracted work in the energy sector has centred around the Artificial Lift
Company (ALC) down hole pumps. The units have been delivered and we are awaiting
the outcome of the field trials being undertaken by ALC in Q1 2009.
Solar Energy
There has been continued European funded R&D work in this area relating to Grid
linked inverters. The output of which is being used as the basis for our
business development activities for the future in the energy sector.
* Industrial
Laser Power Supplies
We have continued to deliver the product to our customer (PRC) and were
successful within in the first few weeks of 2009 of being awarded a contract for
the development and delivery of the next generation of the product.
Industrial Motors and Drives
The delivery of the initial 75 Industrial Motors and Drives for our major
international Capital Equipment Manufacturer have progressed well (as evidenced
by their decision in early 2009 to purchase the designs for the products being
delivered). Under the Design and Manufacturing Rights Agreement concluded in
early 2009 TPS will be manufacturing these products for a further 5 years with
an anticipated delivery of 500 units.
TPS also completed the delivery of several proto-type and development units to
other major industrial equipment providers such as a North American industrial
and process gas company, a Far Eastern steel manufacturer and a European
industrial research company. These customers are now evaluating the products
(and their own systems) with a view to developing their overall systems into a
commercial offering.
* Defence
The contract awarded during 2008 for a 1MW high-speed generator by a US defence
contractor has now progressed into manufacture. The full system is scheduled to
be trialled during the spring of 2009. Dependant on a successful outcome of
these trials further orders are anticipated in the second half of 2009.
TPS also conducted a small amount of funded R&D looking at the use of its rotor
technology in submarine propulsion. Further discussions are underway on other
defence applications for TPS technology.
Financial Performance
Total revenues in the year of GBP7.78 million were 28% lower than in 2007 (2007:
GBP11.00 million), primarily due to a reduction in production volume on existing
rail programmes of GBP4.30 million as several contracts completed. During the
first half of the year our existing major rail production programmes reached
completion, but delays in final qualification on our current rail development
programmes resulted in a low production volume, particularly in the second and
third quarters. Development costs fell in Q3 and throughout Q4 as our major
development programmes are now in final customer qualification stages, and our
expenditure has reduced accordingly. R&D tax credits received during the year
totaled GBP0.57 million and further reduced our development outlay.
Administrative costs have decreased over the year as the impact of our cost
review programme took effect which offset the increased operating charges
related to the new Gateshead facility that became operational during the second
quarter of 2007.
The group's loss before interest, tax, depreciation, amortisation and stock
compensation for the year increased to GBP8.4 million (2007: GBP4.9 million) as
a result of reduced production volumes and one off impairment charges recorded
in Quarter 4 to remove obsolete stock holdings and reduce the carried goodwill
valuation which had arisen on the purchase of Intelligent Power Systems in 2002.
Operating cash outflows before tax increased to GBP6.2 million (2007: GBP6.0
million), but have fallen during Quarter 3 and Quarter 4 following the reduction
in development and overhead spend. Operating cash outflow before tax in Quarter
4 was GBP0.38million, a decrease of 75% from Q3 and earlier levels. After tax
credit receipts, the Company experienced a net operational cash inflow of
GBP0.15 million in the fourth quarter.
The Company finished the year with an unrestricted cash balance of GBP1.05
million and held further cash of GBP1.35 million associated with performance
bonds.
On 19 June 2008 the Company completed a potential GBP3,000,000 gross financing
agreement with institutional investors. The financing comprised secured
Convertible Notes and Warrants. The Convertible Notes bear interest at 15% per
annum and are convertible into an aggregate of 75,000,000 of either Common
Shares in Turbo Power Systems Inc. or A-Ordinary shares in Turbo Power Systems
Limited at an exercise price of GBP0.04 per share. The Convertible Notes are
issuable upon drawdown of the loan, of which GBP1,500,000 were issued on 19 June
2008. The loan is repayable over three years by way of regular quarterly
repayments, commencing March 2009. The Warrants have a term of ten years and are
convertible into an aggregate of 12,857,142 of either Common Shares in Turbo
Power Systems Inc. or A-Ordinary shares in Turbo Power Systems Limited at an
exercise price of GBP0.035 per share.
On 15 August 2008 the Company amended the terms of the loan agreement in order
to facilitate a further drawdown of GBP1.5 million. The new terms provide that
if at any time, including once the Loan Note has been fully repaid, there is a
change in control of TPS, or its subsidiaries or substantially all of its
assets, the Loan Note Holders will be entitled to receive a risk premium,
calculated according to the enterprise value ascribed to the Company under the
transaction before deducting any balance of the Loan Notes and/or interest
outstanding. This risk premium will be equal to an initial payment of GBP1.5m
plus 75% of the next GBP6m of enterprise value and 50% of the remainder.
The holder of the A-Ordinary shares subscribed for GBP1,000,000 of this
agreement, and is considered by the company to be a related party. The
transaction was recorded at exchange amount.
Other than the debt financing detailed above, further details of which are
provided in the notes to the financial statements, the Company has had no
transactions with related parties and there are no further proposed transactions
to disclose.
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 2008.
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 2008 the
Company had net cash outflows from operations therefore may require additional
funding which, if not raised, may result in the curtailment of activities. The
Company has incurred cumulative losses including a loss of GBP9.56 million in
2008 and has a cumulative deficit of GBP72.24 million as at 31 December 2008.
The Company's ability to continue as a going concern depends on its ability to
generate positive cash flow from operations or secure additional debt or equity
financing.
Management regularly reviews and considers the current and forecast activities
of the Company in order to satisfy itself 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 management consider that the Company is able to continue as a
going concern.
There can be no assurances that the Company's activities will be successful or
sufficient and as a result there is 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 that would be necessary if the "going concern" assumption were not
appropriate. If the "going concern" assumption were not appropriate for these
consolidated financial statements, then adjustments to the carrying values of
the assets and liabilities, the reported expenses and the balance sheet
classifications, which could be material, would be necessary.
Summary of quarterly results
The following table sets forth selected quarterly consolidated financial
information of the Company for the last eight quarters;
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| All amounts in | Revenue | Research | General | Net | Loss | Net cash | Net cash |
| GBP'000 | | and | and | loss | per | flow | flow from |
| | | product | administrative | | share | from | capital |
| | | development | | | | operating | investment |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| | | | | | | | |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| March 2007 | 2,033 | 1,015 | 841 | (1,403) | (0.5) | (805) | (117) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| June 2007 | 2,342 | 1,151 | 1,102 | (1,768) | (0.6) | (1,632) | (298) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| September 2007 | 2,700 | 1,736 | 1,083 | (1,666) | (0.5) | (2,024) | (123) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| December 2007 | 2,750 | 1,580 | 831 | (1,578) | (0.5) | (1,379) | (37) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| | | | | | | | |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| March 2008 | 1,962 | 1,591 | 1,059 | (2,287) | (0.7) | (1,844) | (96) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| June 2008 | 1,711 | 1,470 | 1,049 | (2,276) | (0.7) | (2,479) | (57) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| September 2008 | 1,246 | 1,363 | 1,025 | (1,849) | (0.6) | (1,527) | (10) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
| December 2008 | 1,862 | 841 | 816 | (3,151) | (1.0) | 195 | (8) |
+------------------+---------+-------------+----------------+---------+---------+-----------+------------+
Quarterly revenue decreased during 2008 reflecting the completion of several
rail contracts and the reduction in demand from National Rail Equipment Company
(NREC), but increased in the fourth quarter as volumes increased on the
Industrial Motor and Drive contract. Research and development expenditure has
decreased during the year reflecting the reduction in required development
activities on the new Bombardier Chicago and Toronto rail programmes, together
with the reduced development requirement as a result of the transition agreement
on the Hamilton Sundstrand contract for the Boeing 787. General and
administrative costs have decreased during the year as a result of cost
reduction initiatives, following an increase in quarterly costs during 2007 when
the Gateshead facility relocated to larger premises.
The net loss recorded for Quarter 4 was adversely impacted by the charges
incurred for restructuring charges and reducing the carrying value of goodwill
and obsolete stock at the year end. Underlying net loss for Quarter 4 excluding
these charges would have been GBP(1,463), an improvement of 21% on the previous
quarter
Diluted earnings per share figures have not been provided as the loss in each
period would be anti-dilutive.
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 are expected to be
mailed to shareholders during May 2009.
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
+-----------------------------+------+------------+------------+------------+------------+
| TURBO POWER SYSTEMS INC. | | | | | |
+-----------------------------+------+------------+------------+------------+------------+
| CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS | |
+---------------------------------------------------------------------------+------------+
| | |
+-----------------------------+------+------------+------------+------------+------------+
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-+---------------+----------+
| | Notes | Quarter ended 31 December | Year ended |
| | | | 31 December |
+-------------------------------+-------+-------------------------------------+------------------------------------------+
| | | 2008 | | 2007 | | 2008 | 2007 |
+-------------------------------+-------+-----------------------+--+----------+--+------------+--------------------------+
| | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
| | | | | | | | | |
+-------------------------------+-------+-----------------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | |
+-------------------------------+-------+-----------------------+--+----------+--+----------+-----------------+----------+
| Revenue | 3,4 | | 1,862 | | 2,750 | | 6,781 | | 9,825 |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Development income | 3,4 | | 71 | | 159 | | 1,003 | | 1,176 |
| | | | -------- | | -------- | | -------- | | -------- |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | 1,933 | | 2,909 | | 7,784 | | 11,001 |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Expenses | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Production | | | 1,596 | | 1,959 | | 5,577 | | 7,279 |
| costs | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Research and | | | 841 | | 1,580 | | 5,265 | | 5,482 |
| product | | | | | | | | | |
| development | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| General and | | | 817 | | 831 | | 3,949 | | 3,857 |
| administrative | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Amortisation | | | 166 | | 198 | | 662 | | 858 |
| Goodwill | | | 820 | | - | | 820 | | - |
| impairment | | | 652 | | - | | 652 | | - |
| Inventory | | | -------- | | -------- | | -------- | | -------- |
| impairment | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | 4,892 | | 4,568 | | 16,925 | | 17,476 |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Loss before interest, | | | (2,959) | | (1,659) | | (9,141) | | (6,475) |
| restructuring, finance | | | | | | | | | |
| charges and foreign | | | | | | | | | |
| exchange | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Restructuring | | | (101) | | - | | (101) | | - |
| charges | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Debt | | | (115) | | - | | (115) | | - |
| extinguishment | | | | | | | | | |
| expense | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Interest | | | 12 | | 98 | | 95 | | 367 |
| income | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Interest | | | (195) | | (99) | | (457) | | (248) |
| expense | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Finance | | | 92 | | 52 | | (20) | | (66) |
| income/(charge) | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Foreign | | | 115 | | 30 | | 176 | | 7 |
| exchange gain | | | -------- | | -------- | | -------- | | -------- |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | (192) | | 81 | | (422) | | 60 |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | -------- | | -------- | | -------- | | -------- |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Net loss and Comprehensive | | | (3,151) | | (1,578) | | (9,563) | | (6,415) |
| loss | | | ===== | | ===== | | ===== | | ===== |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Loss per share - basic | 5 | | (1.0) p | | (0.5)p | | (3.0) | | (2.1) |
| | | | | | | | p | | p |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Loss per share - diluted | 5 | | (1.0) p | | (0.5)p | | (3.0) | | (2.1) |
| | | | | | | | p | | p |
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-----------------+----------+
| Weighted average number of | | | 318,571,062 | 318,571,062 | 318,571,062 | 310,387,089 |
| shares outstanding | | | | | | |
+-------------------------------+-------+---------+-------------+-------------+-------------+----------------------------+
| | | | | | | | | | |
+-------------------------------+-------+---------+-------------+--+----------+--+----------+-+---------------+----------+
+------------------------------+-------+------------+-----+------+-----+----+------------+
| TURBO POWER SYSTEMS INC. | | | | | |
+------------------------------+-------+------------+------------+----------+------------+
| CONSOLIDATED BALANCE SHEETS | | | | |
+--------------------------------------+------------+------------+----------+------------+
| | | | | |
+--------------------------------------+------------+------------+----------+------------+
| | | | |
+------------------------------+-------+-------------------------------+-----------------+
| |Notes | As at 31 December | As at 31 |
| | | | December |
+------------------------------+-------+-------------------------------+-----------------+
| | | 2008 | 2007 |
+------------------------------+-------+-------------------------------+-----------------+
| | | | GBP'000 | | GBP'000 |
+------------------------------+-------+------------------+------------+----+------------+
| | | | | | (restated |
| | | | | | Note 7) |
+------------------------------+-------+------------------+------------+----+------------+
| Current assets | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Cash and cash equivalents | | | 1,054 | | 4,235 |
+------------------------------+-------+------------------+------------+----+------------+
| Restricted cash | | | 552 | | - |
+------------------------------+-------+------------------+------------+----+------------+
| Trade and other | | | 1,255 | | 2,871 |
| receivables | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Stock and work in progress | | | 1,685 | | 2,376 |
+------------------------------+-------+------------------+------------+----+------------+
| Investments | | | - | | 25 |
+------------------------------+-------+------------------+------------+----+------------+
| Prepayments | | | 372 | | 422 |
+------------------------------+-------+------------------+------------+----+------------+
| R&D tax credits receivable | | | 144 | | 208 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| | | | 5,062 | | 10,137 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| Long-term assets | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Restricted cash | | | 796 | | 1,362 |
+------------------------------+-------+------------------+------------+----+------------+
| Intangible assets | | | 13 | | 47 |
+------------------------------+-------+------------------+------------+----+------------+
| Goodwill | | | - | | 820 |
+------------------------------+-------+------------------+------------+----+------------+
| Property, plant and | | | 1,624 | | 2,106 |
| equipment | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| | | | 7,495 | | 14,472 |
| | | | ===== | | ===== |
+------------------------------+-------+------------------+------------+----+------------+
| Liabilities and | | | | | |
| shareholders' equity | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Creditors: amounts falling | | | | | |
| due within | | | | | |
| one year | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Trade and other payables | | | 3,406 | | 3,700 |
+------------------------------+-------+------------------+------------+----+------------+
| Deferred income | | | 166 | | 555 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| | | | 3,572 | | 4,255 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| Creditors: amounts falling | | | | | |
| due after | | | | | |
| more than one year | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Warranty provision | | | 184 | | 151 |
+------------------------------+-------+------------------+------------+----+------------+
| Convertible notes | | | 4,512 | | 1,661 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| | | | 4,696 | | 1,812 |
| | | | -------- | | -------- |
+------------------------------+-------+------------------+------------+----+------------+
| Non controlling interest | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Class A Ordinary share | 7 | | 13,310 | | 13,310 |
| capital | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Capital and reserves | | | | | |
+------------------------------+-------+------------------+------------+----+------------+
| Common share capital | 6 | | 55,804 | | 55,804 |
+------------------------------+-------+------------------+------------+----+------------+
| Contributed surplus | | | 2,349 | | 1,964 |
+------------------------------+-------+------------------+------------+----+------------+
| Deficit | | | (72,236) | | (62,673) |
| | | | ---------- | | ---------- |
+------------------------------+-------+------------------+------------+----+------------+
| Shareholders' funds | | | (14,083) | | (4,905) |
| | | | --------- | | --------- |
+------------------------------+-------+------------------+------------+----+------------+
| | | | 7,495 | | 14,472 |
| | | | ====== | | ====== |
+------------------------------+-------+------------+-----+------+-----+----+------------+
+------------------------------+------+------------+------------+------------+------------+
| TURBO POWER SYSTEMS INC. | | |
+---------------------------------------------------------------+------------+------------+
| CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND DEFICIT | | |
+---------------------------------------------------------------+------------+------------+
| | | | | | |
+------------------------------+------+------------+------------+------------+------------+
| | | | | | |
+------------------------------+------+------------+------------+------------+------------+
+--+-------------------------+----+----+----------+------+----+--------+----+-----------+-----------+
| | | | | |
+--+------------------------------+----------------------+-------------+----------------------------+
| | | | | Common |Contributed | Deficit | Total |
| | | | | Share | surplus | | Equity |
| | | | | capital | | | |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | | | | | | | (Restated |
| | | | | | | | Note 7) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | | | | | | | |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Balance at 1 January | | | 51,919 | 1,981 | (53,704) | 196 |
| | 2007 | | | | | | |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Net loss | | | | | (6,415) | (6,415) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Stock compensation | | | | 699 | | 699 |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Conversion to shares | | | | (716) | (2,414) | (3,130) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Issue of shares | | | 4,017 | | | 4,017 |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Share issue costs | | | (132) | | | (132) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Transitional adjustment | | | | | (140) | (140) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | | | | --------- | --------- | --------- | --------- |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Balance at 31 December | | | 55,804 | 1,964 | (62,673) | (4,905) |
| | 2007 | | | | | | |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Net loss | | | | | (9,563) | (9,563) |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Stock compensation | | | | 123 | | 123 |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Equity portion on issue | | | | 262 | | 262 |
| | of convertible notes | | | | | | |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | | | | --------- | --------- | --------- | --------- |
+--+-------------------------+---------+----------+-----------+-------------+-----------+-----------+
| | Balance at 31 December | | | 55,804 | 2,349 | (72,236) | (14,083) |
| | 2008 | | | ===== | ===== | ====== | ===== |
+--+-------------------------+----+----+----------+------+----+--------+----+-----------+-----------+
+------------------------------+------+--------------------+----+----+----+------------+
| TURBO POWER SYSTEMS INC. | | | | | |
+------------------------------+------+--------------------+---------+----+------------+
| CONSOLIDATED STATEMENTS OF CASH FLOWS | | |
+---------------------------------------------------------------+---------+------------+
| | | |
+------------------------------+------+--------------------+----+----+----+------------+
+------------------------------+------+------+------------+--+------------+---+---+------------+---+---+------------+
| | | Quarter ended 31 December | Year ended 31 |
| | | | December |
+------------------------------+------+---------------------------------------+-------------------------------------+
| | | | 2008 | | 2007 | | 2008 | 2007 |
+------------------------------+------+------+------------+--+------------+-------+----------------+----------------+
| | | | GBP'000 | | GBP'000 | | GBP'000 | | GBP'000 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Net loss from operations | | | (3,151) | | (1,578) | | (9,563) | | (6,415) |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Amortisation | | | 166 | | 53 | | 662 | | 858 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Accretion of debt | | | 92 | | (2) | | 137 | | 60 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Adjustment to fair value of | | | 12 | | 6 | | 25 | | 6 |
| investment | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Goodwill impairment | | | 820 | | - | | 820 | | - |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Equity adjustment on | | | (352) | | - | | (352) | | - |
| fundraising | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Stock compensation charges | | | 17 | | 159 | | 123 | | 699 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Foreign currency instrument | | | - | | 28 | | - | | 35 |
| loss | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Unrealised foreign exchange | | | (175) | | (23) | | (114) | | (7) |
| (gain)/loss | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Movement in net interest | | | 150 | | (100) | | 276 | | (440) |
| accrual | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Debt extinguishment expense | | | 115 | | - | | 115 | | - |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash outflow before | | | (1,954) | | (1,457) | | (7,519) | | (5,204) |
| movements in | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| working capital | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Decrease/(increase) in | | | 1,012 | | (384) | | 1,730 | | (820) |
| debtors | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Decrease/(increase) in stock | | | 1,123 | | (128) | | 691 | | (1,146) |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Increase/(decrease) in | | | (512) | | 977 | | (1,122) | | 1,018 |
| creditors | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Net cash outflow from | | | (331) | | (992) | | (6,220) | | (6,152) |
| operating activities before | | | --------- | | --------- | | --------- | | --------- |
| tax | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Tax credits | | | 526 | | - | | 565 | | 312 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Net cash outflow from | | | 195 | | (992) | | (5,655) | | (5,840) |
| operating activities after | | | | | | | | | |
| tax | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Investing activities | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Purchase of property, plant and | | (8) | | (131) | | (171) | | (569) |
| equipment | | | | | | | | |
+-------------------------------------+------+------------+--+------------+-------+------------+-------+------------+
| Purchase of intangible | | | - | | (6) | | - | | (6) |
| assets | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Grant income | | | - | | (150) | | - | | 100 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Movement in restricted funds | | | (57) | | (13) | | (14) | | 134 |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Financial instruments - net | | | - | | (52) | | - | | (52) |
| option costs | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash outflow from investing | | | (65) | | (352) | | (185) | | (393) |
| activities | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Financing activities | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Net proceeds from | | | (341) | | - | | 2,659 | | 3,799 |
| financing | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash inflow/(outflow) from | | | (341) | | - | | 2,659 | | 3,799 |
| financing activities | | | --------- | | --------- | | --------- | | --------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Increase/(decrease) in cash | | | (211) | | (1,344) | | (3,181) | | (2,434) |
| in the period | | | ====== | | ====== | | ====== | | ====== |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash and cash equivalents: | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Beginning of period | | | 1,265 | | 5,579 | | 4,235 | | 6,669 |
| | | | ---------- | | ---------- | | ---------- | | ---------- |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| End of period | | | 1,054 | | 4,235 | | 1,054 | | 4,235 |
| | | | ====== | | ====== | | ====== | | ====== |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Supplemental cash flow | | | | | | | | | |
| information | | | | | | | | | |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash paid for interest | | | - | | - | | (47) | | (340) |
+------------------------------+------+------+------------+--+------------+-------+------------+-------+------------+
| Cash received as interest | | | 12 | | 113 | | 95 | | 382 |
+------------------------------+------+------+------------+--+------------+---+---+------------+---+---+------------+
1. Basis of preparation and going concern
The consolidated financial statements of the Company 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 judgement with
reasonable limits of materiality and within the framework of the significant
accounting policies summarised in the Company's financial statements for the
year ended 31 December 2008, and the subsequent changes in accounting policies
as detailed below. Certain comparative amounts have been reclassified to conform
to the financial statement presentation adopted for 2008.
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 2008.
Derivative financial instruments are used by the Company to manage a portion of
its exposure to foreign exchange rate fluctuations. The Company does not utilise
derivative 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.
The Company's functional and reporting currency is Pound Sterling.
Going concern
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 2008 the
Company had net cash outflows from operations therefore may require additional
funding which, if not raised, may result in the curtailment of activities. The
Company has incurred cumulative losses including a loss of GBP9.54 million in
2008 and has a cumulative deficit of GBP72.24 million as at 31 December 2008.
The Company's ability to continue as a going concern depends on its ability to
generate positive cash flow from operations or secure additional debt or equity
financing.
Management regularly reviews and considers the current and forecast activities
of the Company in order to satisfy itself 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 management consider that the Company is able to continue as a
going concern.
There can be no assurances that the Company's activities will be successful or
sufficient and as a result there is 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 that would be necessary if the "going concern" assumption were not
appropriate. If the "going concern" assumption were not appropriate for these
consolidated financial statements, then adjustments to the carrying values of
the assets and liabilities, the reported expenses and the balance sheet
classifications, which could be material, would be necessary.
2. Changes in accounting policies and recent accounting pronouncements
Changes in accounting policies
General standards of financial statement presentation - section 1400
This section was amended and now requires companies to assess and disclose an
entity's ability to continue as a going concern.
Capital disclosures - section 1535
This new handbook section establishes disclosure requirements about an entity's
capital and how it is managed. It requires the disclosure of information about
an entity's objectives, policies and processes for managing capital.
Financial instruments - disclosures - section 3862 and financial instruments -
presentation section 3863 which replaces section 3861 financial instruments -
disclosure and presentation
Section 3862 requires entities to provide disclosures in their financial
statements that enable users to evaluate the significance of financial
instruments on the entity's financial position and its performance and the
nature and extent of risks arising from financial instruments to which the
entity is exposed during the period and at the balance sheet date, and how the
entity manages those risks. Section 3863 establishes standards for presentation
of financial instruments and non-financial derivatives. It deals with the
classification of financial instruments, from the perspective of the issuer,
between liabilities and equities, the classification of related interest,
dividends, losses and gains, and circumstances in which financial assets and
financial liabilities are offset. These new sections place increased emphasis on
disclosure about the nature and extent of risks arising from financial
instruments and how the entity manages those risks. The adoption of these
standards has resulted in increased note disclosures in the Company's
consolidated financial statements.
Inventories - section 3031
These standards requires inventory to be measured at the lower of cost or net
realisable value and provides guidance on the methodology used to assign costs
to inventory, it disallows the use of the last-in first-out inventory costing
methodology and requires that, when circumstances which previously caused
inventories to be written down below cost no longer exist, the amount of the
write down is to be reversed. The adoption of this standard has not affected the
Company's existing policies.
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:
Section 1582 Business combinations
This section replaces Section 1581 Business Combinations and applies
prospectively to business combinations for which the acquisition date is on or
after the first annual reporting period of the Company beginning on or after 1
January 2011. Section 1582 is not expected to have a significant impact on the
financial statements.
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 is effective for
the Company's fiscal year commencing 1 January 2009. The Company is currently
assessing the impact of the new standard.
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. The Company is closely monitoring changes arising
from this convergence.
3. Segmental analysis
The Company'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 commercialisation 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. Except for the Investments held by the Company which are
located in Canada, all of the Company's assets are located in the United
Kingdom.
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | Power | Electrical | Total |
| | electronics | machines | |
+----------------------------+---------------------+---------------------+-----------------------+
| | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Year ended 31 December | | |
+--------------------------------------------------+---------------------+-----------------------+
| Revenue | 6,112 | 9,581 | 669 | 244 | 6,781 | 9,825 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Development income | 375 | 1,176 | 628 | - | 1,003 | 1,176 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Amortisation | (174) | (143) | (478) | (715) | (662) | (858) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Interest income | 47 | 183 | 48 | 184 | 95 | 367 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Interest expense | (228) | (99) | (229) | (149) | (457) | (248) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Loss for the period | (5,945) | (2,352) | (3,618) | (4,063) | (9,563) | (6,415) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Capital expenditure | 134 | 525 | 37 | 50 | 171 | 575 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Quarter ended 31 December | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Revenue | 1,689 | 2,726 | 173 | 24 | 1,862 | 2,750 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Development income | 71 | 159 | - | - | 71 | 159 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Amortisation | (32) | (39) | (124) | (159) | (166) | (198) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Interest income | 5 | 49 | 7 | 49 | 12 | 98 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Interest expense | (97) | (25) | (98) | (74) | (195) | (99) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Loss for the period | (1,872) | (1,162) | (1,279) | (416) | (3,151) | (1,578) |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Capital expenditure | (4) | 115 | 12 | 22 | 8 | 137 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | Power | Electrical | Total |
| | electronics | machines | |
+----------------------------+---------------------+---------------------+-----------------------+
| | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| As at 31 December | | | | | | |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Total assets | 4,624 | 6,800 | 2,871 | 7,672 | 7,495 | 14,472 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Capital assets | 532 | 597 | 1,105 | 2,376 | 1,637 | 2,973 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
| Total liabilities | 4,596 | 3,523 | 3,672 | 2,544 | 8,268 | 6,067 |
+----------------------------+-----------+---------+-----------+---------+-----------+-----------+
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| Total income | | Quarter ended | Year ended |
| | | 31 December | 31 December |
| | | | |
+----------------------------+-------------------+---------------------+-----------------------+
| | | | 2008 | 2007 | 2008 | 2007 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| | | | GBP'000 | GBP'000 | GBP'000 | GBP'000 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| | | | | | | |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| UK | | | (127) | 441 | 750 | 1,980 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| USA | | | 1,629 | 1,709 | 5,243 | 6,314 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| Canada | | | 307 | 911 | 1,496 | 2,465 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| Rest of World | | | 124 | (152) | 295 | 242 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| | | | _____ | _____ | _____ | ______ |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
| | | | 1,933 | 2,909 | 7,784 | 11,001 |
+----------------------------+---------+---------+-----------+---------+-----------+-----------+
4. Significant customers
In the year ended 31 December 2008, 48% of the Company's sales were derived from
three customers (31 December 2007: 67% from three customers). In the quarter
ended 31 December 2008, 43% of the Company's sales were derived from two
customers (31 December 2007: 65% from two customers).
5. 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.
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| | | Quarter ended | Year ended |
| | | 31 December | 31 December |
| | | | |
+----------------------------+----------------+-------------------------------+---------------------------------+
| | | | 2008 | 2007 | 2008 | 2007 |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| | | | | | | |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| Numerator for basic EPS calculation: | | | | | |
+--------------------------------------+------+----------------+--------------+----------------+----------------+
| Net loss | | | GBP3,151,000 | GBP1,578,000 | GBP9,563,000 | GBP6,415,000 |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| | | | | | | |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| Denominator | | | | | | |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
| For basic net loss - weighted | | 318,571,062 | 318,571,062 | 318,571,062 | 310,387,089 |
| average shares | | | | | |
| outstanding | | | | | |
+----------------------------+---------+------+----------------+--------------+----------------+----------------+
As the Company experienced a loss in both years all potential common shares
outstanding from dilutive securities are considered anti-dilutive and are
excluded from the calculation of loss per share.
Details of anti-dilutive potential securities outstanding not included in EPS
calculations at December 31 are as follows:
+----------------------------+---------+---------+---------+----+---------------+---------------+
| | | | Year ended |
| | | | 31 December |
| | | | |
+----------------------------+-------------------+--------------+-------------------------------+
| | | | | | 2008 | 2007 |
+----------------------------+---------+---------+---------+----+---------------+---------------+
| Common shares potentially | | | | | | |
| issuable | | | | | | |
+----------------------------+---------+---------+---------+----+---------------+---------------+
| -persuant to warrants | | | | | 23,357,142 | 10,500,000 |
+----------------------------+---------+---------+---------+----+---------------+---------------+
| -under stock options | | | | 17,651,700 | 30,847,250 |
+--------------------------------------+---------+---------+----+---------------+---------------+
| -persuant to loan note | | | | | 89,908,333 | 14,908,333 |
| conversions | | | | | | |
+----------------------------+---------+---------+---------+----+---------------+---------------+
| -persuant to A Ordinary stock | | | | 115,000,000 | 115,000,000 |
| conversion | | | | | |
+--------------------------------------+---------+---------+----+---------------+---------------+
| | | | | | __________ | __________ |
+----------------------------+---------+---------+---------+----+---------------+---------------+
| | | | | | 245,917,175 | 171,255,583 |
+----------------------------+---------+---------+---------+----+---------------+---------------+
6. Share capital - issued shares
+--------------------------------------------------+-----------------+--------+----------+
| | | Common | |
+--------------------------------------------------+-----------------+--------+----------+
| | Number | | GBP'000 |
+--------------------------------------------------+-----------------+--------+----------+
| At 1 January 2007 | 273,944,592 | | 51,919 |
+--------------------------------------------------+-----------------+--------+----------+
| Share based compensation | 176,470 | | 17 |
+--------------------------------------------------+-----------------+--------+----------+
| Shares issued, net of share | 44,450,000 | | 3,868 |
| issue costs | | | |
+--------------------------------------------------+-----------------+--------+----------+
| | --------------- | | -------- |
+--------------------------------------------------+-----------------+--------+----------+
| At 31 December 2007 | 318,571,062 | | 55,804 |
+--------------------------------------------------+-----------------+--------+----------+
| | --------------- | | -------- |
+--------------------------------------------------+-----------------+--------+----------+
| At 31 December 2008 | 318,571,062 | | 55,804 |
+--------------------------------------------------+-----------------+--------+----------+
| | --------------- | | -------- |
+--------------------------------------------------+-----------------+--------+----------+
No options or warrants were exercised during the year ended 31 December 2008 or
31 December 2007.
7. A Ordinary equity
+-----------------------------------------------+-----------------+----------+--------------+
| | | A | |
| | | Ordinary | |
+-----------------------------------------------+-----------------+----------+--------------+
| | Number | | GBP,000 |
| | | | |
+-----------------------------------------------+-----------------+----------+--------------+
| At 1 January 2007 | 56,250,000 | | 6,123 |
+-----------------------------------------------+-----------------+----------+--------------+
| Redemption of convertible notes | 58,750,000 | | 7,187 |
+-----------------------------------------------+-----------------+----------+--------------+
| | --------------- | | -------- |
+-----------------------------------------------+-----------------+----------+--------------+
| At 31 December 2007 | 115,000,000 | | 13,310 |
+-----------------------------------------------+-----------------+----------+--------------+
| | --------------- | | -------- |
+-----------------------------------------------+-----------------+----------+--------------+
| At 31 December 2008 | 115,000,000 | | 13,310 |
+-----------------------------------------------+-----------------+----------+--------------+
| | --------------- | | -------- |
+-----------------------------------------------+-----------------+----------+--------------+
On 28 December 2006 the Group issued 56,250,000 A Ordinary shares of GBP0.08 in
Turbo Power Systems Limited, as part of an institutional placing.
On 6 January 2007 the Group issued a further 58,750,000 A Ordinary shares of
GBP0.08 in Turbo Power Systems Limited in connection with the conversion of
convertible notes.
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 GBP500,000 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.
During the preparation of the consolidated financial statements for the year
ended 31 December 2008, the Company determined that the Ordinary Shares,
previously presented as a separate component of equity in the Company's balance
sheet, should be recognized as non-controlling interests. The reclassification
resulted in a decrease in Class A Ordinary share capital presented as part of
capital and reserves, an increase in the total shareholders' (deficit) and an
increase in non-controlling interests of GBP13,310,000 as at December 31, 2007.
The Company has accounted for the change in accounting policy on a retroactive
basis. 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. Subsequent event
On 19 June 2008 the Company completed a GBP3,000,000 (gross) financing agreement
with institutional investors which was amended on 15 August 2008. A key original
term of the loan notes, which was amended on 15 August 2008 was that if at any
point during the time at which the loan notes are in issue the unrestricted cash
balance of the Company falls below GBP750,000, the loan notes are repayable on
demand at the request of the majority of the loan note holders.
On 24 March 2009 the Company agreed with the loan holders that for a three month
period, commencing 25 March 2009, the loan note holders will not demand that the
loan notes are repayable unless the restricted cash balance falls below
GBP300,000.
9. Selected quarterly information
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| All amounts in | Revenue | Research | General | Net | Earnings | Net cash | Net cash |
| GBP'000 | | and | and | loss | per | flow | flow from |
| | | product | administrative | | share | from | capital |
| | | development | | | | operating | investment |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| | | | | | | | |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| March 2007 | 2,033 | 1,015 | 841 | (1,403) | (0.5) | (805) | (117) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| June 2007 | 2,342 | 1,151 | 1,102 | (1,768) | (0.6) | (1,632) | (298) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| September 2007 | 2,700 | 1,736 | 1,083 | (1,666) | (0.5) | (2,024) | (123) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| December 2007 | 2,750 | 1,580 | 831 | (1,578) | (0.5) | (1,379) | (37) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| | | | | | | | |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| March 2008 | 1,962 | 1,591 | 1,059 | (2,287) | (0.7) | (1,844) | (96) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| June 2008 | 1,711 | 1,470 | 1,049 | (2,276) | (0.7) | (2,479) | (57) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| September 2008 | 1,246 | 1,363 | 1,025 | (1,849) | (0.6) | (1,527) | (10) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
| December 2008 | 1,862 | 841 | 816 | (3,151) | (1.0) | 195 | (8) |
+------------------+---------+-------------+----------------+---------+----------+-----------+------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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