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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               -------------------

                                  FORM 10-KSB/A

(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                     For the fiscal year ended June 30, 2000

                                       OR

[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934


                         Commission file number 0-21832

                          TURBOSONIC TECHNOLOGIES, INC.
                 (Name of Small Business Issuer in its Charter)

          Delaware                                         13-1949528
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

     550 Parkside Drive,
    Suite A-14, Waterloo,
       Ontario, Canada                                      N2L 5V4
(Address of principal executive offices)                  (Zip Code)

                                (519) 885-5513
                (Issuer's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

         Title of Each Class                         Name of Each Exchange
         -------------------                         on Which Registered
                                                     -------------------

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                                  Common Stock
                                (Title of Class)

     Check whether the Issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such  shorter  period  that the Issuer was  required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes [X ] No [ ]

     Check if there is no disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-B as contained in this form,  and will not be contained,  to the
best of the Issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

     Issuer's revenues for its most recent fiscal year: $6,181,562

     Aggregate market value of the Issuer's common stock held by  non-affiliates
of the Issuer as of September 19, 2000: $5,860,500

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                         DURING THE PRECEDING FIVE YEARS

     Check whether the Issuer has filed all documents and reports required to be
filed  by  Section  12,  13 or 15 (d) of the  Securities  Exchange  Act of  1934
subsequent to the  distribution of securities under a plan confirmed by a court.
Yes [X] No [ ]

     The number of shares outstanding of the Issuer's common stock is 10,000,000

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

                      DOCUMENTS INCORPORATED BY REFERENCE

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<PAGE>

Item 1. Description of Business

     (a) General Development of Business

     TurboSonic  Technologies,  Inc.,  formerly  known  as  Sonic  Environmental
Systems, Inc. (the "Company"),  directly and through  subsidiaries,  designs and
markets  integrated  pollution  control and industrial gas  cooling/conditioning
systems including liquid atomization  technology and dust suppression systems to
ameliorate or abate industrial environmental problems

     The Company was  incorporated  in the State of Delaware in April 1961.  The
executive offices of the Company are located at 550 Parkside Drive,  Suite A-14,
Waterloo, Ontario, Canada N2L 5V4; its telephone number is (519) 885-5513.

     Unless the context  indicates to the  contrary,  references  to the Company
herein include both the Company and its majority and wholly-owned subsidiaries.

     (b) Financial Information About Industry Segments

     Reference  is made to Note 18 of the  Notes to the  Consolidated  Financial
Statements, which information is incorporated herein by reference.

     (c) Narrative Description of Business

Introduction

     The Company's proprietary  technology is designed to control a wide variety
of air pollution control problems for industries  including pulp and paper, wood
products, mining, non-ferrous metallurgical,  iron and steel, chemical, food and
beverage,   waste   processing,   hazardous  and  municipal  solid  waste  (MSW)
incineration, power generation, automotive, and cement. The Company believes its
products,  which are designed to meet the  strictest  emission  regulations  for
gaseous and particulate emissions, afford economic and technical advantages over
conventional air pollution equipment.

     Certain of the Company's products and systems employ proprietary nozzles to
atomize  liquids  passing  through the  nozzles,  resulting  in the liquid being
converted into fine droplets.  Controlling the liquid and gas pressures  applied
to the nozzle can modulate  droplet sizes and liquid flow rates. The Company has
sold the atomizing nozzles for many years.


                                       2
<PAGE>

     The following table reflects the  approximate  percentages of the Company's
revenue derived from its principal  customer  categories during the fiscal years
indicated:

                                                          Year Ended
                                                           June 30,
                                                       ----------------
                                                       2000        1999
                                                       ----        ----

Hazardous waste incineration ...............             3%          3%
Solid waste incineration ...................             5%          5%
Chemical and mining processing .............            53%         43%
Metallurgical processing ...................            13%         10%
Dust suppression ...........................             1%          6%
Pulp and paper .............................            21%         21%
Other ......................................             4%         12%
                                                       ---         ---
                                                       100%        100%
                                                       ===         ===

     The Company is contractually responsible to its customers for all phases of
the design, fabrication and, if included in the scope of the Company's contract,
field  installation  of its  products  and  systems.  The  Company's  successful
completion  of  its  contractual   obligation  is  generally   determined  by  a
performance   test  that  is   conducted   either  by  its   customer  or  by  a
customer-selected independent testing agency.

     The Company performs all process engineering, including but not limited to,
the determination of the size,  geometry and structural  characteristics  of the
particular system needed for gaseous, non-condensate or particulate removal, and
performs  the  detailed  design  of,  and  develops   specifications   for,  all
structural,  electrical,  mechanical and chemical components of such system. The
Company,  historically,  has not  manufactured or fabricated its own products or
systems.  Rather, it purchases alloy steel components and various electrical and
other  parts  consisting  of both  off-the-shelf  items and  items,  such as its
atomizing  nozzles,  which are made to its  design and  specifications  by third
party  manufacturers  and  fabricators,   enters  into  subcontracts  for  field
construction,  which it  supervises,  and manages all  technical,  physical  and
commercial aspects of the performance of its contracts.

Products and Systems

     The Company offers a range of products and systems,  incorporating  diverse
technologies,  to address the industrial  processing,  air pollution control and
other  environmental  management needs of its customers.  Many of such customers
have  historically  purchased  individual  products or systems  from the Company
that,  in many  instances,  operate in  conjunction  with  products  and systems
supplied by others.  In the last several  years,  the Company has emphasized the
marketing of custom  engineered air pollution  control  systems that may provide
combinations  of its own  products  and systems as an  integrated  environmental
management solution.


                                       3
<PAGE>

     The following table reflects the  approximate  percentages of the Company's
revenue derived from its principal  products and systems during the fiscal years
indicated below:

                                                                  Year Ended
                                                                   June 30,
                                                               ----------------
                                                               2000        1999
                                                               ----        ----

Evaporative gas cooling and conditioning systems .........      35%         39%
Wet Electrostatic Precipitation Systems (WESP) ...........      25%         --%
Wet scrubber systems .....................................      22%         35%
SO2 recovery system ......................................      --%          3%
Dust control and suppression systems .....................       1%          8%
Other nozzle systems .....................................      17%         15%
                                                               ---         ---
                                                               100%        100%
                                                               ===         ===

     TurboSonic's  products are operating in many industries  including pulp and
paper,  wood  products,  mining,  non-ferrous  metallurgical,  iron  and  steel,
chemical,  food and beverage,  waste  processing,  hazardous and municipal solid
waste (MSW) incineration, power generation, automotive, and cement.

The principal products and systems offered by the Company are described below:

     SoniCool(R) Evaporative Gas Cooling and Conditioning Systems

     Through the use of the Company's atomizing nozzles, SoniCool(R) Evaporative
Gas Cooling and Conditioning Systems accurately control temperature and humidity
of high-temperature  gas streams,  such as those emanating from cement kilns and
steel or non-ferrous Electric Arc Furnaces (EAF) or Basic Oxygen Furnaces (BOF).
The  result is gas  temperatures  that do not  damage  equipment  and  ductwork,
smaller gas volumes, and improved efficiency of downstream air pollution control
equipment.

     The  Company  is  an  internationally  known  leader  in  gas  cooling  and
conditioning with over 450 installations throughout the world.

     SonicKleen(TM) Wet Electrostatic Precipitation Systems (WESP)

     The  SonicKleen(TM)  WESP removes  sub-micron  particulate,  heavy  metals,
dioxins  and  furans,  mists,  and  fumes  from  process  gas  streams.  Removal
efficiencies  can be achieved at much lower operating costs than with scrubbers.
While there are many variations of  electrostatic  precipitators  on the market,
the  SonicKleen(TM)  design is  recognized  as a proven  approach that meets and
exceeds  government  removal  targets while keeping costs and  maintenance  to a
minimum.

     Currently,  the U.S. EPA is tightening  emission  standards thereby forcing
industry  to adopt  technologies,  such as  WESPs,  in  order to meet  emissions
targets that more traditional technologies,  such as scrubbers, will not be able
to meet  effectively.  The Company's  WESP is capable of achieving  these higher
standards and  efficiently  capturing  sub-micron  particulates  with much lower
operating costs.


                                       4
<PAGE>

     Ten SonicKleen(TM)  WESP systems have been sold for use in incinerators,  a
ceramic  refractory,  a hospital  medical waste  facility,  and a large pulp and
paper manufacturing  facility.  The Company's WESP technology can be used in the
forest  products,  waste  incineration,  metal and chemical  processing,  food &
beverage, and power generation industries.

     TurboSOx SO2 Recovery Systems

     Developed in conjunction  with The Dow Chemical  Company,  the TurboSOx SO2
Recovery  System is a new process that  recovers  pure Sulfur  Dioxide  (SO2) (a
major  contributor to "acid rain") as a usable  by-product,  thereby providing a
return on  investment  from its reuse or sale.  The  patented  process  uses the
TurboSOx Amine, a proprietary solvent developed and exclusively  supplied to the
Company by The Dow  Chemical  Company.  TurboSOx  provides a 25% saving over the
capital  costs  of  traditional  mineral-based  Flue Gas  Desulfurization  (FGD)
systems. SO2 removal efficiencies of greater than 99% have been achieved thereby
meeting regulatory requirements.

     Any company  with a gaseous  source of SO2 is a potential  customer for the
TurboSOx technology. The Company is currently working with several companies who
have  expressed an interest in the TurboSox  SO2  Recovery  System,  although no
sales of such systems have been made as of September 1, 2000.

     SonicBURN Waste Fuel Combustion

     SonicBURN  systems are used to introduce any fuel into combustion  chambers
for  better  combustion,  resulting  in higher  production  efficiencies.  Using
Turbotak  Atomizing  Nozzles made from stainless  hardened steels,  ceramic,  or
other  durable  materials  and a process  developed  by the  Company,  SonicBURN
atomizes viscous, dirty, or multiple fuels into fine droplets. The durability of
the nozzles allows longer production runs, less  maintenance,  and reduced costs
compared to other designs.

     Turbotak Wet and TurboSorb Semi-Dry Scrubbers

     The Turbotak Wet Scrubber treats industrial  process gas streams,  removing
sub-micron  and larger  particulate,  acid gases,  odors,  fumes and vapors.  By
employing the Company's  proprietary  atomizing nozzles, the scrubber is able to
remove  more  contaminants  in a smaller  vessel,  resulting  in lower  capital,
maintenance and operating costs.

     The TurboSorb  Semi-Dry  Scrubber  treats  industrial  process gas streams,
removing  acid gases  such as SO2,  SO3,  HCI,  HF, and  ammonia  compounds.  By
spraying  alkalis  such as  calcium,  potassium  and  sodium-based  slurries  or
solutions,  the TurboSorb can achieve higher removal efficiencies of SO2 and HCI
than  traditional  "dry"  scrubbers.  Unlike "wet"  systems,  with the TurboSorb
semi-dry  scrubber  all water is  evaporated  so there is no liquid waste stream
generated.

     The Company has installed over 150 of its scrubbers to solve a wide variety
of air pollution  control  problems.  Its  equipment,  designed to meet the most
stringent regulations limiting gaseous and particulate emissions,  has also been
retrofitted into competing technologies to improve their performance.


                                       5
<PAGE>

     SoniChem NCG Chemical Oxidizers

     The Company's  SoniChem  Chemical Oxidizer system for  Non-Condensable  Gas
(NCG) treatment  chemically  destroys odorous compounds  including  sulfides and
mercaptan  emissions from pulping  operations.  A new alternative to traditional
thermal oxidation,  SoniChem requires less than 50% of the capital and operating
costs of  thermal  oxidation,  requires  no fuel,  has no  internal  packing  to
maintain,  operates  only when  needed  and  requires  no  additional  treatment
equipment

     The Company has supplied  equipment for NCG gas treatment  associated  with
the traditional method of thermal oxidation.  One of the SoniChem  installations
has been in operation for over one year at a pulp mill. The successful operating
data from this  installation will allow the Company to market this technology to
the pulp and paper industry.

     Dry Fog(R) Dust Control and Suppression Systems

     The  Company  is a  leader  in  dust  control  with  its  Dry  Fog(R)  dust
suppression  systems which control  virtually all types of respirable and larger
airborne  dust and mists.  Operating  costs for the Dry Fog(R) dust  control and
suppression   systems,   which  use  the  Company's   atomizing   nozzles,   are
significantly lower than for ventilation type control systems,  which consume as
much as 20 times the energy.  A Dry Fog(R) system can be installed for as little
as 40% of the cost of a conventional bag filter type system.

     The Company is an  internationally  known  leader in dust control with over
400 systems throughout the world. Dry Fog(R) systems are used in industries such
as cement, limestone, aggregates, metallurgical, mining, and materials handling.

     Air Pollution Control System Upgrades

     Using the  Company's  atomizing  nozzles and years of experience in the air
pollution  control  industry,  the  Company  is able to  retrofit  existing  air
pollution control equipment to consistently  improve  performance.  An equipment
upgrade is  significantly  less  expensive than  purchasing new equipment,  with
lower  maintenance  requirements.  The  Company  has  upgraded  hundreds  of air
pollution control systems.

     Atomizing Nozzles and Spare Parts

     Used in a wide variety of industrial  applications,  the Company's Turbotak
atomizing  nozzles  atomize  liquids to extremely  small  droplets.  The nozzles
feature  a  two-phase   design  for  superior  control  over  droplet  size  and
distribution.  The combination of the small droplets,  the distribution  pattern
and rugged  construction  provide unique results that other nozzles do not have.
Designs  range  from  small,  single-orifice  nozzles  to  large,  multi-orifice
nozzles.  This makes them ideal for evaporative gas cooling,  spray drying,  wet
and  semi-dry  scrubbing,  performance  enhancement  of  air  pollution  control
systems,  as well as combustion  and  incineration.  The  Company's  SoniCore(R)
nozzle design has different  aspects to the droplet size, spray pattern and very
low flow rates that make it a good fit for applications such as dust suppression
and humidification.

     With over 1,500 nozzles sold, the patented  Turbotak  Atomizing nozzles are
at the heart of most of the  Company's  air  pollution  control  systems and are
recognized by industry as  excellently  designed.  The  SoniCore(R)  nozzles are
installed in hundreds of plants worldwide.


                                       6
<PAGE>

     The  Company  also  provides  replacement  and  spare  parts  for  both its
industrial  gas  processing  and air  pollution  control  systems.  The  Company
believes that in view of the extreme  conditions under which industrial  process
and air pollution  control systems operate that there is an ongoing  requirement
for spare parts that should create additional demand for the Company's products.

Contractual Liabilities

     The Company's  standard  contractual  terms with respect to the sale of its
products and systems disclaim any liability for consequential or indirect losses
or damages stemming from any failure of the Company's products or systems or any
component  thereof.  The Company  customarily seeks contractual  indemnification
from  its  subcontractors  for any  loss,  damage  or  claim  arising  from  the
subcontractor's failure of performance, negligence or malfeasance. It is likely,
however, that a customer's inability to comply with applicable pollution control
laws  or  regulations  stemming  from  the  failure  or  non-performance  of the
Company's products or systems may subject the Company to liability for any fines
imposed upon such customer by governmental regulatory authorities or for damages
asserted to have been incurred by any third party adversely affected thereby.

Marketing and Sales

     The  Company's  marketing  efforts are  technical  in nature and  currently
involve  its  senior  management  and  technical  professionals,   supported  by
independent sales representatives.  The Company's contractual  arrangements with
its 18 current independent sales representatives accord each a defined territory
within which to sell some or all of the Company's products and systems,  provide
for the payment of agreed-upon  sales  commissions and are terminable at will by
either the Company or the  representative  upon  relatively  short prior notice.
None  of  such  representatives  have  authority  to  execute  contracts  on the
Company's behalf. A significant  portion of the Company's sales are made through
the  recommendation of engineering  firms,  which play a significant role in the
specification  and  implementation  of air  pollution  control  solutions and in
customers' selection of the vendors of air pollution control systems.

     The  Company's  sales  representatives  assist the Company in  consummating
sales of its products and services,  serve an ongoing liaison  function  between
the Company and its customers  during the sales  process and address  customers'
questions or concerns arising thereafter. The sales representatives are selected
by the Company based upon industry reputation, prior sales performance including
number of prospective  leads generated and sales closure rates,  and the breadth
of territorial coverage, among other criteria.

     Technical  inquiries received from potential  customers are referred to the
Company's  sales and  engineering  personnel who jointly prepare either a budget
for the customers'  future  planning or a final bid. The period between  initial
customer  contact  and  issuance of an order  varies  widely,  but is  generally
between 6 and 24 months.

     The Company seeks to obtain repeat business from its customers, although it
does not depend upon any single  customer to maintain its level of activity from
year to year;  however,  one or more  different  customers  may be  expected  to
account for greater than 10% of the  Company's  net revenues in any  consecutive
twelve month period.

     Two customers,  Emtrol LLC (for equipment ultimately sold to Eastman Kodak)
and Thermal Ceramics,  accounted for 11% and 15% respectively,  of the Company's
net revenues during the fiscal


                                       7
<PAGE>

year  ended June 30,  2000.  During the  fiscal  year ended June 30,  1999,  one
customer,  E.I.DuPont  de  Nemours,  accounted  for  12%  of the  Company's  net
revenues.

Backlog

     At September  28, 2000,  the amount of the Company's  contract  backlog was
approximately  $6,425,000,  contrasted  with  $1,769,000  at September 28, 1999.
Backlog  represents  work  for  which  the  Company  has  entered  into a signed
agreement  or has  received an order to  proceed.  Completion  of the  Company's
entire backlog is anticipated to occur prior to June 30, 2001.

Product Development

     The   Company   has  an   ongoing   program   for   the   development   and
commercialization  of  new  industrial  processing  and  air  pollution  control
products, systems and technologies, and the enhancement of existing products and
systems.

Proprietary Protection

     The  Company  owns  or has  licensed  rights  to 30  international  patents
relating to a variety of air pollution control applications.

     The Company has registered  servicemarks or trademarks in the United States
and certain foreign  countries for several  identifying names which it uses with
its products and systems including SoniCool(R), SoniCore(R),  SonicKleen(TM) and
Dry Fog(R).

     The Company  relies on a combination  of patents,  trade and service marks,
trade  secrets and know-how to protect its  proprietary  technology  and rights.
There can be no assurance that the Company's patents will not be infringed upon,
that the Company would have adequate remedies for any such infringement, or that
its trade secrets will not otherwise become known to or independently  developed
by competitors. There can also be no assurance that any patents now or hereafter
issued  to,  licensed  by or  applied  for by the  Company  will be  upheld,  if
challenged, or that the protections afforded thereby will not be circumvented by
others.  Litigation may be necessary to defend the Company's proprietary rights,
which would result in significant  cost to the Company and a diversion of effort
of its personnel.

Suppliers and Subcontractors

     Like  other  companies  in  the  industrial  processing  and  environmental
management  control  industry,  the  Company  has  historically  relied on third
parties to  manufacture  and  fabricate  its  products  and to supply  parts and
components for its systems in accordance with the Company's  specifications.  In
those  instances in which the Company's  scope of work includes  installation of
equipment,  the Company selects and supervises  subcontractors for this work. To
date,  the  Company  has  not  experienced   difficulties  either  in  obtaining
fabricated  components and other materials and parts used in any of its products
and systems or in  obtaining  qualified  subcontractors.  The  Company's  vendor
sources  for  various  components,  materials  and  parts  used in its  systems,
including  its  atomizing  nozzle,  control  switches and  electrical  and other
components,  include more


                                       8
<PAGE>

than 100  firms.  The  Company  does not  depend on any one of the  vendors to a
material extent, and in any event the Company believes that alternative  vendors
would be  available  if needed.  With  respect to  fabricators,  the Company has
satisfactory  relationships  with more  than ten  fabricators.  Similarly,  with
respect to  subcontractors  for installation  work, the Company has satisfactory
relations  with more than three  firms.  On the basis of the number of  vendors,
fabricators  and  subcontractors  which  it  utilizes  and the  availability  of
alternative  sources,  the  Company  does  not  believe  that  the  loss  of its
relationship  with any one firm  would  have a  material  adverse  effect on its
business.

Bonding and Insurance

     While  only  one of the  contracts  performed  by the  Company  to date has
required  it to  procure  bid  and  performance  bonds,  such  requirements  are
prevalent  for projects  partially  or fully  funded by federal,  state or local
governments.  A bid bond  guarantees that a bidder will execute a contract if it
is awarded the job and a performance bond guarantees completion of the contract.
The Company  does not, at the present  time,  have any ability to provide bid or
performance bonds. This could have an adverse effect on the Company's ability to
obtain certain contracts.

     The Company  currently  maintains  different types of insurance,  including
general liability and property coverage. The Company, however, does not maintain
any professional or product liability  insurance with respect to the engineering
and  products  it sells to its  customers.  A  successful  claim or claims in an
amount in excess of the  Company's  insurance  coverage or for which there is no
coverage could have a material adverse effect on the Company.

Government Regulation

     Stringent environmental laws have been enacted in the United States and, to
a lesser extent,  in Canada and certain Western  European nations in response to
public  concern  about the  environment.  The Company  believes that the need to
comply with these laws creates  demand for the  Company's  products and systems.
The Federal Clean Air Act, Federal,  state and local regulations which implement
it and the enforcement of these laws and regulations largely determine the level
of  expenditures  that  customers  will  make  to  limit  emissions  from  their
facilities.

     Legislative  proposals  introduced in the U.S.  Congress seek  abolition of
certain  environmental  laws and regulations,  reduced levels of enforcement for
others and cost  justification  and extended  hearings prior to the enactment of
any future such laws and regulations.  The enactment into law of any one or more
of such  proposals,  the likelihood of which cannot be predicted,  could have an
adverse effect on the Company's ability to sell its products and systems.

     The materials  handling aspect of the Company's  business is also dependent
in part upon the regulation  under the Federal  Occupation and Safety Health Act
of dust concentration to which workers may be exposed in the workplace.

Competition

     The Company faces substantial  competition in each of its principal markets
from numerous competitors. Most of the Company's competitors are larger and have
greater financial resources than the Company.  The Company competes primarily on
the  basis of  price as well as its  engineering  and


                                       9
<PAGE>

technological  expertise,  know-how  and  quality of its  products,  systems and
service.  Additionally,  the Company believes that the successful performance of
its  installed  products  and  systems  is a key  factor  in  dealing  with  its
customers,  which typically prefer to make significant  purchases from a company
with a solid performance history.

     Virtually all contracts for the Company's products and systems are obtained
through  competitive  bidding.  Although price is an important factor and may in
some  cases  be the  governing  factor,  it is  not  always  determinative,  and
contracts are often awarded on the basis of the  efficiency  or  reliability  of
products and the engineering and technical expertise of the bidder.

Employees

     As of June 30,  2000,  the  Company  employed  29 full time and 1 part time
persons, of whom 2 were executive officers, 8 were engineers, 4 were in sales, 1
in production,  10 in technical support and 5 in administrative support. None of
the Company's  employees are represented by a labor union.  The Company believes
that its relationship with its employees is satisfactory.


     (d) Financial  Information about Foreign and Domestic Operations and Export
Sales

     U.S. and Canadian  customers  collectively  accounted for approximately 96%
and 83% of the  Company's  sales  during the years ended June 30, 2000 and 1999,
respectively.  All revenue  derived  from  export  sales is  transacted  in U.S.
dollars.

     The following table reflects the  approximate  percentages of the Company's
revenue derived from United States, Canadian and foreign sales during the fiscal
years indicated below:

                                                   Year Ended
                                                    June 30,
                                               ------------------
                                               2000          1999
                                               ----          ----

United States ........................          83%           61%
Canada ...............................          13            22
South and Central America ............           2            10
Far East .............................           1             5
Other ................................           1             2
                                               ---           ---
                                               100%          100%
                                               ===           ===

Forward-Looking Statements

     Forward-looking  statements in this Report,  including without  limitation,
statements   relating   to  the   Company's   plans,   strategies,   objectives,
expectations,  intentions  and adequacy of  resources,  are made pursuant to the
safe-harbor  provisions of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned  that such  forward-looking  statements  involve risks and
uncertainties  that could cause actual results to differ  materially  from those
expressed  therein.  Such risks and  uncertainties  include,  among others,  the
following:


                                       10
<PAGE>

          o Dependence on Environmental Regulation. The market for the Company's
     air pollution  control products and systems is directly  dependent upon the
     existence and enforcement of laws and  regulations  which limit or prohibit
     the  release of  pollutants  into the  atmosphere  and  impose  substantial
     penalties  for  non-compliance.  Legislative  proposals  introduced  in the
     current session of the U.S. Congress seek abolition or reduced  enforcement
     of many  previously  enacted  environmental  laws and regulations and would
     impose   substantial   impediments   to  the  adoption  of  any  additional
     environmental regulatory programs. The enactment of any such proposals into
     law or any reduction in the  stringency of  environmental  law  enforcement
     from present levels could have an adverse  effect on the Company's  ability
     to sell its products and systems and may have a materially  adverse  effect
     upon its future revenues and prospects of profitability.

          o Limited  Protection of Patents and Proprietary  Rights.  The Company
     relies on a combination of patents,  trade and service marks, trade secrets
     and know-how to protect its proprietary technology and rights. There can be
     no assurance that the Company's  patents will not be infringed  upon,  that
     the Company would have adequate remedies for any such infringement, or that
     its trade  secrets  will not  otherwise  become  known to or  independently
     developed by  competitors.  There can also be no assurance that any patents
     now or hereafter  issued to, licensed by or applied for by the Company will
     be upheld, if challenged, or that the protections afforded thereby will not
     be  circumvented  by  others.  Litigation  may be  necessary  to defend the
     company's proprietary rights, which would result in significant cost to the
     Company and a diversion of effort of its personnel.

          o Export Sales.  Approximately  4% and 17% of the  Company's  revenues
     during the fiscal  years ended June 30, 2000 and 1999,  respectively,  were
     derived  from sales  made  outside of the  United  States and  Canada.  The
     Company's  profitability and financial condition are materially  dependent,
     therefore,  on the success of its foreign sales efforts.  Foreign sales are
     subject  to  certain  inherent  risks,   including  unexpected  changes  in
     regulatory and other legal requirements,  tariffs and other trade barriers,
     great  difficulty  in  collection of accounts  receivable  and  potentially
     adverse tax consequences. There can be no assurance that these factors will
     not have any adverse  impact on the  Company's  future  foreign  sales and,
     consequently, on the Company's operating results.

          o Bonding  Requirements.  While only one of the contracts performed by
     the Company to date has required it to procure bid and  performance  bonds,
     such  requirements are prevalent for projects  partially or fully funded by
     federal,  state or local  governments.  A bid bond guarantees that a bidder
     will  execute a contract  if it is awarded the job and a  performance  bond
     will  guarantee  completion  of the contract.  The  Company's  inability to
     obtain  bonding  could  have an  adverse  effect  on the  Company's  future
     revenues.

          o Permitting  Delays. All of the Company's domestic projects generally
     require permits to be issued by one or more governmental  agencies prior to
     the  commencement  of both  construction  and  operation.  Issuance of such
     permits are often delayed by political and other considerations. Permitting
     delays  could case  extended  delay or  cancellation  of one or more of the
     Company's large projects, which would adversely impact the Company's future
     revenues.

          o Dependence on  Manufacturers,  Fabricators and  Subcontractors.  The
     Company  in most  instances  does  not  manufacture  or  fabricate  its own
     products  or  systems,  relying  instead


                                       11
<PAGE>

     upon the services of third party manufacturers and fabricators. The Company
     also does not engage in the field construction of its systems but relies on
     field  construction  subcontractors  operating under the supervision of the
     Company's  own  employees.  The  unavailability  of the  services  of, or a
     substantial   increase  in  pricing  by  a  significant  number  of,  these
     manufacturers,  fabricators or  subcontractors  could adversely  affect the
     Company. Given the number of manufacturers,  fabricators and subcontractors
     which it utilizes and the availability of alternative  sources, the Company
     does not believe that the loss of its relationship  with any one firm would
     have a material adverse effect on its business.

          o Competition.  Most of the Company's  competitors are larger and have
     greater  financial and other  resources  than the Company.  The markets for
     environmental  control  products  and  systems  are both  characterized  by
     substantial  competition  based primarily on engineering and  technological
     expertise and quality of service.  Because  virtually all contracts for the
     Company's  products and systems are obtained through  competitive  bidding,
     price is also a competitive  factor and may be the most significant  factor
     in certain instances. Although the Company believes that it competes on the
     basis of its technical  expertise and reputation for service,  there can be
     no assurance that the Company will maintain its competitive position in its
     principal markets.

          o Fixed  Price  Contracts.  The  Company's  receipt  of a fixed  price
     contract as a consequence  of being the lowest  competitive  bidder carries
     the inherent risk that the Company's  actual  performance  costs may exceed
     the estimates upon which its bid for such contract was based. To the extent
     that  contract  performance  costs exceed  projected  costs,  the Company's
     profitability could be materially adversely affected.

          o Potential  Liability.  The Company may become  subject to  liability
     claims in connection with the use of its products and systems.  The Company
     does not  carry  any  product  liability  insurance  nor does it carry  any
     professional  liability insurance with respect to the engineering and other
     professional  services it renders its  customers.  Any future  inability to
     obtain  insurance of the type and in the amounts  required could impair the
     Company's  ability  to  obtain  some  contracts,   which  are,  in  certain
     instances,   conditioned  upon  the  availability  of  adequate   insurance
     coverage.

Item 2. Description of Property

     The  Company  leases  approximately  9,700  square  feet of  executive  and
administrative offices and shop space in Waterloo,  Ontario, Canada at an annual
rent of approximately $48,000. Insurance and utilities are paid separately. This
lease expires on June 30, 2002 and, at the Company's option,  may be renewed for
an additional two year term on substantially identical terms.

     The Company also leases  approximately 5,040 square feet of office and shop
space in East Hanover, New Jersey at an annual rental of approximately  $50,000.
In addition, the Company must pay annual cost of living increases (not to exceed
4% per year) based upon changes in the Consumer  Price Index,  taxes,  insurance
and utilities.  This lease will expire on August 30, 2002 and may be renewed for
an  additional  five year term on  substantially  identical  terms.  The Company
sub-leases  approximately  20% of this  space to a  company  owned by one of its
directors on a month to month basis for $1,000 per month.

Item 3. Legal Proceedings


                                       12
<PAGE>

         None.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters  were  submitted  for a vote to  Registrant's  security  holders
during the fourth quarter of Registrant's fiscal year ended June 30, 2000.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

     (a)  The Company's  Common Stock is quoted on the OTC Bulletin  Board under
          the symbol "TSTA". The following table sets forth the range of the bid
          quotations for the Company's  Common Stock for the periods  shown,  as
          furnished by NASDAQ.

                                                     Common Stock (1)
                                                   -------------------
                                                     High         Low
                                                     ----         ---

Fiscal Year Ended June 30, 1999:
     First Quarter ............................    $ 0.687     $ 0.375
     Second Quarter ...........................    $ 0.562     $ 0.04
     Third Quarter ............................    $ 0.593     $ 0.20
     Fourth Quarter ...........................    $ 0.562     $ 0.25

Fiscal Year Ended June 30, 2000:
     First Quarter ............................    $ 0.531     $ 0.312
     Second Quarter ...........................    $ 0.49      $ 0.25
     Third Quarter ............................    $ 2.125     $ 0.26
     Fourth Quarter ...........................    $ 1.25      $ 0.531

-------------
(1)  The above  quotations  represent  prices between dealers and do not include
     retail mark up, markdown or commissions.  They do not necessarily represent
     actual transactions.

     (b) As of June 30,  2000,  there  were 579  holders  of  record  and  1,600
beneficial  holders of the  Common  Stock.  This  number of  beneficial  holders
represents the number of actual holders of the Company's Common Stock, including
an estimate of the  beneficial  owners of shares held in  "nominee"  or "street"
name. The Company does not know the actual number of beneficial owners.

     (c) The  Company  does not  anticipate  paying  any cash  dividends  in the
foreseeable  future,  as it is the  current  policy  of the  Company's  Board of
Directors to retain any earnings to finance the Company's future  operations and
expand its business.


                                       13
<PAGE>

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Results of Operations

     Twelve  Months Ended June 30, 2000  Compared  with Twelve Months Ended June
30, 1999

Nozzle  systems  revenue in fiscal 2000  increased  $877,068 (37%) to $3,263,513
from  $2,386,445  in fiscal 1999.  This increase is the result of the receipt of
several large gas cooling  orders  during 2000 and an increased  volume of spare
parts orders.

Fiscal 2000 Scrubber  system revenue  increased  $1,447,652  (98%) to $2,918,049
from $1,470,397 in fiscal 1999. With similar volumes  recorded for scrubbers and
upgrades  in fiscal  2000 and fiscal  1999,  revenues  from 5 wet  electrostatic
precipitators  (WESP) have doubled the sales volume for this business segment in
fiscal 2000.  These WESP sales are the Company's first since its  reorganization
in 1997.  However,  based upon the very high level of proposal requests for this
product,   the  Company   anticipates   that  sales  of  WESPs  will  contribute
significantly to future revenues.

Costs for the Nozzle system equipment for the twelve-month period ended June 30,
2000  increased  by  $695,611  (50%)  to  $2,095,455  from  $1,399,844  for  the
corresponding  1999  period.  This  increase  is  primarily  the  result  of the
increased  sales  discussed  above.  Expressed as a percentage  of Nozzle system
revenue, cost of Nozzle equipment in the current fiscal year was 64% and 59% for
the same period in 1999.  This  increase was due to a product mix shift with the
inclusion  of larger jobs that  included  low margin  components  in the current
fiscal year.

Fiscal 2000 costs for the Scrubber systems equipment increased $1,339,003 (140%)
to $2,294,794  from  $955,791 in the same period in 1999.  This is primarily the
result of the new WESP sales noted  above.  As a percentage  of Scrubber  system
revenue,  Scrubber  system costs rose to 79% from 65% the previous  fiscal year.
This  increase in the  percentage  of revenue is the direct result of the design
and  engineering  costs incurred to return the Company's WESP  technology to its
state-of-the-art  status  in  order to meet the  ever-increasing  demand  of our
customers  for  air  pollution  control  efficiencies.   The  Company  does  not
anticipate   that  these  costs  will  be   incurred  on  future  WESP   orders.
Consequently,  the  cost of  producing  WESPs as a  percentage  of  revenues  is
expected to improve in the future.

Total expenses including selling, general and administrative expenses, increased
by $336,473 to $1,742,135 as contrasted  with  $1,405,662 for the same period in
1999.  A  portion  of these  incremental  costs  relate to  increased  marketing
activities  in general with specific  emphasis on the WESP product  line.  These
increased  costs  are  also the  result  of  additional  sales  and  engineering
personnel who were hired to meet the growing demand for the Company's  products.
Also included are stock-based  compensation  expenses  ($44,061) relating to the
2000 Stock Option Plan [see note 12] of the Financial Statements. Expressed as a
percentage of total revenue,  the total expenses were 28% for the current twelve
month period ended June 30, 2000 and 36% for the preceding fiscal period.

Interest expense increased $22,788 (155%) to $37,471 for the twelve months ended
June 30, 2000 as compared to $14,683 in the 1999 fiscal period. This increase in
interest  expense is the result of a full year's interest expense on shareholder
loans in fiscal  2000,  as these  loans were only  outstanding  for a portion of
fiscal 1999.


                                       14
<PAGE>

Liquidity and Capital Resources

The Company had positive cash flow from operating  activities of $96,813 for the
twelve month period  ended June 30, 2000,  as compared to negative  cash flow of
$24,227  for the same  period in fiscal  1999,  an  improvement  in cash flow of
$121,040.

On an overall basis,  the Company had a positive cash flow of $96,840 for fiscal
2000 as  compared to  positive  cash flow of $241,667  during the same period in
1999.  This decrease in overall cash flow is primarily the result of shareholder
financing in fiscal 1999 that was not repeated in fiscal 2000.

At June 30,  2000,  the  Company  had  positive  working  capital of $631,559 as
compared  to  positive  working  capital of  $482,215  as at June 30,  1999,  an
increase of $149,344.  The Company's  current ratio  (current  assets divided by
current  liabilities)  was 1.40 and  1.70 at June  30,  2000 and June 30,  1999,
respectively.

The Company's  contracts  typically provide for progress payments based upon the
achievement  of  performance  milestones  or the passage of time.  The Company's
contracts  often provide for the Company's  customers to retain a portion of the
contract  price  until  the  achievement  of  performance  guarantees  has  been
demonstrated.  The Company  attempts to have its  progress  billings  exceed its
costs and estimated earnings on uncompleted contracts;  however, it is possible,
at any point in time,  that costs and  estimated  earnings  can exceed  progress
billings on uncompleted  contracts,  which would negatively impact cash flow and
working  capital.  At June 30,  2000 and June 30,  1999,  "Unearned  revenue and
contract advances" exceeded "Deferred cost and unbilled revenue" by $150,335 and
$37,254, respectively, thereby negatively affecting working capital.

As a consequence of a working capital deficiency incurred in fiscal 1998, Donald
R. Spink,  Sr. and  Patrick J. Forde,  directors  and  officers of the  Company,
together  with two  shareholders  of the Company,  lent an aggregate of Canadian
$400,000  (representing  $261,510 at the exchange rate at the date of each loan)
to the Company in fiscal 1999.

The Company's backlog as at September 28, 2000 was approximately $6,400,000, all
of which should be shipped during the 2001 fiscal year. The significant increase
in the  backlog as  compared  to last  year's  backlog was due to the receipt in
September 2000 of a large order for a WESP. The Company  believes that projected
cash generated  from  operations  and the proceeds from the  shareholder  loans,
mentioned  above,  will be  sufficient to meet its cash needs through the end of
the fiscal year ended June 30, 2001.

Quantitative and Qualitative Information About Market Risk

     The Company does not engage in trading  market risk  sensitive  instruments
and does not purchase  hedging  instruments or "other than trading"  instruments
that are likely to expose the Company to market  risk,  whether  interest  rate,
foreign currency exchange, commodity price or equity price risk. The Company has
not entered into forward or future contracts,  purchased options or entered into
swaps.  The Company has no bank borrowing  facility that could subject it to the
risk of interest rate fluctuations.


                                       15
<PAGE>

Item 7.  Financial Statements

     Reference  is made to pages F-1 through  F-27  comprising a portion of this
Annual Report on Form 10-KSB.

Item 8. Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
        Financial Disclosure

     None.


                                       16
<PAGE>


                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

         The Company's executive officers and directors are as follows:

         Name                    Age          Positions and Offices
         ----                    ---          -----------------------

Dr. Donald R. Spink, Sr.         77           Director

Edward F. Spink                  46           Chairman of the Board and CEO

Patrick J. Forde                 67           President, Secretary/Treasurer
                                                and Director

Richard H. Hurd                  63           Director and Assistant Secretary

     EDWARD  F.  SPINK  has  served  as  President  of  the  Company  since  the
Consolidation  Date (August 27, 1997) until June 15, 1999. On June 15, 1999, the
Board of  Directors  elected  him  Chairman  of the Board  and  Chief  Executive
Officer.  Prior  thereto  and from 1995,  he was  President  and a  director  of
Turbotak.  Mr. Spink was Vice  President - Operations  of Turbotak  from 1989 to
1995.

     PATRICK  J. FORDE has been  Secretary/Treasurer  of the  Company  since the
Consolidation  Date.  He was elected  President of the Company on June 15, 1999.
Prior thereto and from 1986 he was a director of Turbotak.  Mr. Forde has served
as Vice President - Corporate  Planning for Turbotak since 1996. He was Chairman
and Chief Executive Officer of Borg Textile Corporation from 1982 to 1995. He is
president  and owner of  Glencree  Investments,  Inc.,  chairman of the board of
Waterloo  Scientific,  Inc.  and  serves on the board of several  other  private
companies.

     RICHARD H. HURD  served as  President  of the  Company  from August 1993 to
August 1997 and  Treasurer of the Company from April 1994 to August 1997. He has
been a director of the Company since  February 1993. Mr. Hurd has been President
and sole owner of RHB Capital Company Inc., a financial consulting company since
1987. He is also Co-Managing  Director of Genuine Article Publishing Group, LLC,
a publisher of children's books.

     DR.  DONALD R. SPINK,  SR. had served as Chairman of the Company  since the
Consolidation  Date until June 15, 1999. He remains as a director and has agreed
to provide the Company with technical advice. Prior thereto and from 1976 he was
Chairman of Turbotak.

     All directors hold office until the next annual meeting of stockholders and
the election  and  qualification  of their  successors.  Executive  officers are
elected  annually  by the  Board of  Directors  to hold  office  until the first
meeting of the Board  following the next annual meeting of stockholders or until
their successors are chosen and qualified.

     The  Audit  Committee  of the  Board  is  charged  with the  review  of the
activities of the Company's independent auditors including,  but not limited to,
fees,  services  and audit  scope.  The


                                       17
<PAGE>

Audit  Committee  is  comprised  of  Messrs.  Forde and Hurd.  The  Compensation
Committee  of the Board is  responsible  for  oversight  and  administration  of
executive  compensation.  The  Compensation  Committee  is  comprised of Messrs.
Donald  Spink and Forde.  The Board of  Directors  held one  meeting  during the
fiscal year ended June 30, 2000.

     The Company has no standing nominating committee of its Board of Directors,
nor any committees  performing  similar  functions.  The Board of Directors as a
whole  searches for  potential  nominees for Board  positions  and  periodically
reviews the  compensation  of the  Company's  officers and  employees  and makes
appropriate adjustments.

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers  and  directors,  and  persons  who own more than 10% of the  Company's
Common  Stock,  to file reports of ownership  and changes in ownership  with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
10%  stockholders are required by the SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.

     Based  solely on its review of the copies of such forms  received by it, or
written  representations  from certain reporting persons that no such forms were
required for those  persons,  the Company  believes  that during the fiscal year
ended  June 30,  2000,  all  filing  requirements  applicable  to its  officers,
directors and greater than 10% beneficial owners were complied with.

Item 10. Executive Compensation

Summary Compensation

     Set forth below is the aggregate  compensation for services rendered in all
capacities to the Company during its fiscal years ended June 30, 2000,  1999 and
1998 to its chief  executive  officer.  No other officer  received  compensation
exceeding  $100,000  during its fiscal  year  ended  June 30,  2000 (the  "Named
Officer"):

<TABLE>
<CAPTION>
                                                                                      LONG TERM
                                   ANNUAL COMPENSATION                               COMPENSATION
                                   -------------------                               ------------
AWARDS
------

NAME AND                    YEAR                                          RESTRICTED     NUMBER OF
PRINCIPAL                   ENDED         FISCAL                            STOCK       OPTIONS AND
POSITION                   JUNE 30,       SALARY         COMMISSIONS        AWARDS        WARRANTS
--------                   -------        ------         -----------      ----------      --------
<S>                         <C>           <C>              <C>                <C>          <C>
Edward F. Spink             2000          $67,797          $11,156 (2)        --           50,000
 CEO                        1999          $66,243(1)       $ 3,505 (1)        --               --
                            1998          $30,754          $52,231            --               --
</TABLE>

----------
(1)  Commissions  represent a fixed  percentage of sales recorded in each fiscal
year.  Effective  July 1, 1998,  Edward F. Spink's  compensation  was revised to
include  a  base  salary  of  $100,000  Canadian  (US$68,000  at  $1.47)  plus a
discretionary bonus to be determined at the end of each fiscal year by the Board
of Directors. (2) Effective July 1, 1999 Mr. Spink's compensation was revised to
include  a  sales   commission   on  Scrubber   System  sales  rather  than  the
discretionary bonus.


                                       18
<PAGE>

Option Grants in Fiscal 2000

<TABLE>
<CAPTION>
                            Number of Shares             % of Total
                               Underlying              Options Granted          Exercise             Expiry
                             Options Granted            to Employees              Price               Date
                            ----------------           ---------------          --------           -----------
<S>                              <C>                        <C>                   <C>              <C>
Edward F. Spink                  50,000                     10%                   0.40             October 15, 2000
</TABLE>

Aggregate  Option and Warrant  Exercises in Last Fiscal Year and Fiscal Year End
Option Values

<TABLE>
<CAPTION>
                                                              Number of Securities
                  Number of Shares                            Underlying Unexercised              Value of Unexercised
                    Acquired on              Value            Options or Warrants at              In-The-MoneyOptions
                      Exercise              Received              Fiscal Year End                  at Fiscal Year End
                --------------------      ------------       ------------------------           ------------------------
                                                          Exercisable      Unexercisable      Exercisable    Unexercisable
                                                          -----------      -------------      -----------    -------------
<S>                       <C>                 <C>              <C>             <C>               <C>            <C>
Edward F. Spink           0                   $0.00            0               50,000            $0.00          $14,350
</TABLE>

Employment Agreements

     None of the Company's current  executive  officers are employed pursuant to
an employment agreement with the Company.


                                       19
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets  forth,  as of June 30,  2000 the shares of the
Company's Common Stock  beneficially  owned by each person who, to the knowledge
of the Company,  is the holder of 5% or more of the Common Stock of the Company,
by  each  director  of the  Company,  by  the  Named  Officer  and by all of the
executive officers and directors of the Company as a group.

                                        Amount and
Name of                                  Nature of                Approximate
Beneficial Owner or                     Beneficial                Percentage
Identity of Group                       Ownership(1)               of Class
-------------------                     ------------               --------

Dr. Donald R. Spink, Sr. *             3,414,432(2)(5)               32.5%

Edward F. Spink *                        465,338                      4.4%

Patrick J. Forde  *                      819,158(3)(5)                7.8%

Richard H. Hurd**                        213,938(4)                   2.0%

Canadian Venture Founders              1,334,979                     12.7%
    293 Church Street
    Oakville, Ontario L6J 1N9
    Canada

All executive officers                 4,912,866(2)-(5)              46.7%
    and directors as a
    group (4 persons)
-------------
* 550 Parkside Drive, Suite A-14, Waterloo, Ontario N2L 5V4, Canada.

** 11 Melanie Lane, Unit 22A, East Hanover, NJ 07936

(1)  Includes  shares of Sonic Canada Inc.,  a wholly  owned  subsidiary  of the
     Company,  which by their  terms  are  convertible  at any time  into a like
     number of shares of Common Stock of the Company ("Sonic Canada Shares").

(2)  Includes   2,986,687  Sonic  Canada  Shares  owned  by  Canadian   numbered
     corporation, over which shares Dr. Spink exercises voting control.

(3)  Includes  507,642  Sonic Canada  Shares owned by the Patrick and Joan Forde
     Family Trust.

(4)  Includes  1,195 shares  owned by Mr.  Hurd's  spouse,  as to which Mr. Hurd
     disclaims any beneficial  ownership;  also includes 100,000 shares issuable
     upon exercise of an option  expiring in August 2000 at an exercise price of
     $1.00 per share,  which option was granted  pursuant to the Plan. The Board
     of Directors  extended the  expiration  date for six months to February 27,
     2001.

(5)  Includes  detachable  warrants for each of Dr. Donald Spink and Mr. Patrick
     Forde to purchase  100,000  common shares at an initial  exercise  price of
     $0.50  through  October 31, 2000,  increasing to $0.75  thereafter  through
     October  31,  2002  and to  $1.00  thereafter  through  October  31,  2003,
     respectively (see Note 9 to the Consolidated Financial Statements).

Item 12.     Certain Relationships and Related Transactions


                                       20
<PAGE>

     Edward F. Spink is Dr. Donald R. Spink,  Sr.'s son. On October 21, 1998 and
January 4, 1999, Mr. Donald Spink and Mr. Patrick Forde,  respectively,  lent an
aggregate of $130,190 to the Company.  These loans are  repayable two years from
the date of the loans, bear interest at 10% per annum and are  collateralized by
a lien upon and security  interest in substantially all of the Company's assets.
As an inducement to advance these sums to the Company, Mr. Donald Spink, and Mr.
Patrick Forde were granted  warrants to purchase an aggregate of 200,000  common
shares of the Company at an initial  exercise price of $0.50 through October 31,
2000,  increasing  to $0.75  thereafter  through  October  31, 2002 and to $1.00
thereafter through October 31, 2003,  respectively.  The warrants, whose initial
exercise price was greater than the market price of the Company's  common shares
on the date such  warrants  were  granted,  expire on the earlier of October 31,
2003 or 30 days  after the  Company's  shares  have  closed at a price per share
above $1.50 for 10 consecutive  trading days on the OTC Bulletin  Board. On July
10, 2000, the loan and warrant  agreements between the Company and Dr. Spink and
Mr. Forde were amended to extend the  repayment of the loans to three years from
the date of the loans.  The warrants  originally  issued to them were amended by
extending  the  various  exercise  dates by one year and the "...10  consecutive
trading days ..." to 30 days. As an inducement to agree to such amendments,  the
Company  issued  additional  warrants to purchase an aggregate of 200,000 common
shares of the Company at an exercise price of $0.5625 per share,  being equal to
[in excess of] the then market price of the Company's  Common Stock to Dr. Spink
and Mr.  Forde.  These  warrants,  which  have  the same  terms as the  original
warrants, are exercisable between October 21, 2000 and October 20, 2003.


                                       21
<PAGE>

                                     PART IV


Item 13. Exhibits and Reports on Form 8-K


(a) Exhibits, List and Reports on Form 8-K:

     (i) Exhibits
         21 - Subsidiaries
         27 - Financial Data Schedule

(b) Reports on Form 8K

         None.


                                       22
<PAGE>

                                   SIGNATURES

     In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
has caused  this report or  amendment  thereto to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                            TURBOSONIC TECHNOLOGIES, INC.


                                            By: /s/ Patrick J. Forde
                                               -------------------------
                                                  Patrick J. Forde,
                                                      President

Date: February 28, 2001



                                       23
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Directors and Shareholders of
TurboSonic Technologies, Inc.

We have  audited the  accompanying  consolidated  balance  sheets of  TurboSonic
Technologies, Inc. and subsidiaries as of June 30, 2000 and 1999 and the related
consolidated statements of income and comprehensive income, shareholders' equity
and cash flows for the years then ended. These consolidated financial statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  TurboSonic
Technologies,  Inc.  and  subsidiaries  as of June  30,  2000  and  1999 and the
consolidated  results  of its  operations  and its cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States.

As discussed in note 20, the Company has revised its financial  statements as of
and for the year ended  June 30,  2000 for its  accounting  for  variable  stock
options.


                                                    /s/ Ernst & Young LLP

                                                        Ernst & Young LLP

Kitchener, Canada,
August 31, 2000 [except for note 20,                 Chartered Accountants
which is as of February 16, 2001].


                                      F-1
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries
[Incorporated under the laws of Delaware, United States of America]

                           CONSOLIDATED BALANCE SHEETS

As at June 30                               [expressed in United States dollars]

                                                               2000         1999
                                                                 $            $
--------------------------------------------------------------------------------
                                                          [restated
                                                           note 20]

ASSETS
Current
Cash                                                       407,784       310,944
Accounts receivable [note 4]                               972,911       475,804
Investment tax credits receivable                               --        57,497
Income taxes receivable                                     25,239        18,682
Inventories [note 5]                                       105,729       126,764
Deferred contract costs and unbilled revenue [note 6]      647,214       106,275
Other current assets                                        52,947        74,600
--------------------------------------------------------------------------------
Total current assets                                     2,211,824     1,170,566
--------------------------------------------------------------------------------
Capital assets [note 7]                                    142,595        89,519
Goodwill, less accumulated amortization [note 8]         1,024,577     1,202,374
Other assets                                                20,780        20,415
--------------------------------------------------------------------------------
                                                         1,187,952     1,312,308
--------------------------------------------------------------------------------
Total assets                                             3,399,776     2,482,874
--------------------------------------------------------------------------------

See accompanying notes


                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------
                                                                     [restated
                                                                       note 20]
<S>                                                                    <C>                <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable                                                       507,290            265,612
Accrued charges                                                        253,648            279,210
Obligations under capital leases, current portion [note 10]             21,778                 --
Unearned revenue and contract advances [note 6]                        797,549            143,529
-------------------------------------------------------------------------------------------------
Total current liabilities                                            1,580,265            688,351
-------------------------------------------------------------------------------------------------
Accrued charges                                                         75,140            113,206
Loans from shareholders [note 9]                                       268,103            266,964
Obligations under capital leases, long-term portion [note 10]           60,332                 --
-------------------------------------------------------------------------------------------------
                                                                     1,983,840          1,068,521
-------------------------------------------------------------------------------------------------
Commitments and contingencies [note 11]
Shareholders' equity
Share capital [note 12]
   Authorized
    21,800,000  common  shares,  par value  $0.10 per  share
     8,200,000  Class B exchangeable shares, par value [note 12]
                 $0.10 per share
   Issued
     3,767,436  common shares [1999 - 1,800,000]
     6,232,564  Class B exchangeable shares [1999 - 8,200,000]       2,299,096          2,299,096
Additional paid-in capital [note 12]                                 1,492,099          1,448,038
-------------------------------------------------------------------------------------------------
                                                                     3,791,195          3,747,134
Accumulated other comprehensive income                                 (50,293)           (20,936)
(Deficit)                                                           (2,324,966)        (2,311,845)
-------------------------------------------------------------------------------------------------
Total shareholders' equity                                           1,415,936          1,414,353
-------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                           3,399,776          2,482,874
=================================================================================================
</TABLE>


                                      F-3
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Year ended June 30                          [expressed in United States dollars]


<TABLE>
<CAPTION>
                                                                         2000               1999
                                                                           $                  $
-------------------------------------------------------------------------------------------------
                                                                     [restated
                                                                       note 20]
<S>                                                                  <C>                <C>
CONTRACT REVENUE AND SALES                                           6,181,562          3,856,842
Contract costs and cost of sales                                     4,390,249          2,355,635
-------------------------------------------------------------------------------------------------
Gross margin                                                         1,791,313          1,501,207
-------------------------------------------------------------------------------------------------

EXPENSES
Selling, general and administrative                                  1,660,763          1,420,659
Research and development [note 13]                                      37,311            (14,997)
Stock-based compensation expense [note 12]                              44,061                 --
-------------------------------------------------------------------------------------------------
                                                                     1,742,135          1,405,662
-------------------------------------------------------------------------------------------------
Income from operations                                                  49,178             95,545
Interest (expense)                                                     (37,471)           (14,683)
-------------------------------------------------------------------------------------------------
Income before provision for income taxes                                11,707             80,862
Provision for income taxes [note 14]                                    24,828             24,909
-------------------------------------------------------------------------------------------------
(Loss) income before extraordinary item                                (13,121)            55,953
Extinguishment of debt [note 15]                                            --            113,358
-------------------------------------------------------------------------------------------------
Net (loss) income                                                      (13,121)           169,311
Other comprehensive (loss):
   Foreign currency translation adjustment                             (29,357)            (2,522)
-------------------------------------------------------------------------------------------------
Comprehensive (loss) income                                            (42,478)           166,789
=================================================================================================

Basic earnings per share [note 16]
Income before extraordinary item                                         $0.00              $0.01
Extraordinary item                                                        0.00               0.01
-------------------------------------------------------------------------------------------------
                                                                         $0.00              $0.02
=================================================================================================

Diluted earnings per share [note 16]
Income before extraordinary item                                         $0.00              $0.01
Extraordinary item                                                        0.00               0.01
-------------------------------------------------------------------------------------------------
                                                                         $0.00              $0.02
=================================================================================================

Basic weighted average shares [note 16]                             10,000,000         10,000,000
=================================================================================================
Diluted weighted average shares [note 16]                           10,500,000         10,600,000
=================================================================================================
</TABLE>

See accompanying notes


                                      F-4
<PAGE>

TurboSonic Technologies Inc. and Subsidiaries


                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Year ended June 30                          [expressed in United States dollars]

<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                           Exchangeable &           Additional                       other
                                            common stock             paid-in      Accumulated    comprehensive      Total
                                        Shares        Amount         capital        deficit         income         equity
                                           #             $              $              $               $              $
--------------------------------------------------------------------------------------------------------------------------
                                                                    [restated     [restated                     [restated
                                                                      note 20]      note 20]                      note 20]
<S>                                   <C>            <C>             <C>           <C>             <C>          <C>
Balance - June 30, 1998               10,000,000     2,299,096       1,439,586     (2,481,156)     (18,384)     1,239,142
Detachable warrants [note 9]                  --            --           8,452             --           --          8,452
Net income                                    --            --              --        169,311           --        169,311
Translation adjustment                        --            --              --             --       (2,552)        (2,552)
--------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 1999               10,000,000     2,299,096       1,448,038     (2,311,845)     (20,936)     1,414,353
Net (loss)                                    --            --              --        (13,121)          --        (13,121)
Stock-based compensation [note 12]            --            --          44,061             --           --         44,061
Translation adjustment                        --            --              --             --      (29,357)       (29,357)
--------------------------------------------------------------------------------------------------------------------------
Balance - June 30, 2000               10,000,000     2,299,096       1,492,099     (2,324,966)     (50,293)     1,415,936
==========================================================================================================================
</TABLE>

See accompanying notes


                                      F-5
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                      CONSOLIDATED STATEMENTS OF CASH FLOWS


Year ended June 30                          [expressed in United States dollars]


                                                            2000          1999
                                                              $             $
--------------------------------------------------------------------------------
                                                        [restated
                                                         note 20]

OPERATING ACTIVITIES
Net (loss) income                                         (13,121)      169,311
Add charge to operations not requiring a
   current cash payment:
    Stock-based compensation expense [note 12]             44,061            --
    Depreciation and amortization                         195,616       193,186
--------------------------------------------------------------------------------
                                                          226,556       362,497
Adjustment to goodwill                                         --        31,314
Changes in non-cash working capital balances related
   to operations [note 17]                               (129,743)     (418,038)
--------------------------------------------------------------------------------
Cash provided by (applied to) operating activities         96,813       (24,227)
--------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital assets                                 (4,417)      (12,502)
--------------------------------------------------------------------------------
Cash (applied to) investing activities                     (4,417)      (12,502)
--------------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of capital leases                               (12,996)           --
Shareholder loans                                              --       273,411
--------------------------------------------------------------------------------
Cash (applied to) provided by financing activities        (12,996)      273,411
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash                    17,440         4,985
--------------------------------------------------------------------------------

--------------------------------------------------------------------------------
Net cash provided during year                              96,840       241,667
Cash, beginning of year                                   310,944        69,277
--------------------------------------------------------------------------------
Cash, end of year                                         407,784       310,944
================================================================================

Cash paid for:
Interest                                                   42,277        31,217
Income taxes                                               41,261           583
================================================================================

See accompanying notes


                                      F-6
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


1. ORGANIZATION AND BUSINESS DESCRIPTION

TurboSonic Technologies, Inc. and its subsidiaries [collectively the "Company"],
designs  and  markets   integrated   pollution   control  and   industrial   gas
cooling/conditioning  systems including liquid  atomization  technology and dust
suppression systems to ameliorate or abate industrial environmental problems.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The  consolidated  financial  statements  have been prepared in accordance  with
accounting principles generally accepted in the United States and are within the
framework of the significant accounting policies summarized below:

Principles of consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  majority-owned   subsidiaries.   All  material  intercompany  accounts  and
transactions have been eliminated in consolidation.

Inventories

Raw materials are valued at the lower of cost, on a first-in,  first-out  basis,
and replacement cost.

Finished goods are valued at the lower of cost, on a first-in,  first-out basis,
and net realizable  value. Net realizable value is defined as selling price less
estimated selling costs.

Goodwill

Goodwill,  which arose on the reverse  acquisition  of TurboSonic  Technologies,
Inc,. is being amortized to expense on a straight-line  basis over 10 years. The
Company  assesses  the  recoverability  of goodwill by  determining  whether the
amortization  of  goodwill  over its  remaining  life can be  recovered  through
projected, undiscounted, future cash flows from the related operations. Goodwill
is written down to the extent that projected  undiscounted  future cash flows do
not allow for the recovery of goodwill over its remaining life.


                                      F-7
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd

Capital assets

Capital assets and leasehold improvements are recorded at cost.  Depreciation is
calculated on the  straight-line  method over the estimated  useful lives of the
assets as follows:

Office equipment                                                       5 years
Other equipment                                                   5 - 10 years
Leasehold improvements                                lease term (5 - 6 years)

Revenues and long-term contracts

The Company derives revenue from long-term  contracts which require  performance
[i.e. design,  construction and performance  testing] over a time span which may
extend one or more accounting periods.  Generally, the  percentage-of-completion
method is used to account  for  long-term  contracts.  For  contracts  involving
significant  uncertainty,  such  as the  use of new  technology,  the  completed
contract  method is used.  Other revenues are recorded when products are shipped
to the customer or services are performed.

The   percentage-of-completion  is  determined  by  best  available  engineering
estimates.  When the current  estimated costs to complete  indicate a loss, such
losses are recognized immediately for accounting purposes.

Contract revenues recorded under the  percentage-of-completion  method in excess
of  amounts  billed are  classified  as  deferred  contract  costs and  unbilled
revenue. Amounts billed in excess of revenue earned and work-in-process balances
are classified as unearned revenue and contract advances.

Cash and cash equivalents

The Company  considers  all highly  liquid  temporary  cash  investments  with a
maturity of three months or less when purchased, to be cash equivalents.

Segmented information

Under the  requirements of Statement No. 131,  Disclosures  about Segments of an
Enterprise and Related Information, of the Financial Accounting Standards Board,
financial  information about operating segments is reported on the basis that is
used  internally by the Company for evaluating  operating  segments and resource
allocation decisions.


                                      F-8
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd

Government grants

Government grants are recorded when qualifying  expenditures are incurred or the
specific terms of grant  contracts are fulfilled.  Grants received in advance of
the  incurrence  of  qualifying  expenditures  are  recorded as  deferred  grant
revenue.  Grants  received  to finance  specific  expenses  are  included in the
statement of income as a reduction of these expenses. Grants received to finance
capital  expenditures  are  applied  to reduce the cost of the  related  capital
assets.

Investment tax credits

Investment  tax credits are accrued when  qualifying  expenditures  are made and
there is reasonable assurance that the credits will be realized.  Investment tax
credits earned with respect to current  expenditures for qualified  research and
development  activities  are  included  in  the  statement  of  operations  as a
reduction of expenses.  Tax credits earned with respect to capital  expenditures
are applied to reduce the cost of the related capital assets.

Research and development expenditures

Research and development costs [other than capital expenditures] are expensed as
incurred.  Expenditures  are reduced by any related  investment  tax credits and
government grants.

Income taxes

The Company  accounts  for income taxes in  accordance  with the  provisions  of
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
["SFAS  109"].  SFAS  109  requires  recognition  of  deferred  tax  assets  and
liabilities  for the expected  future tax  consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and  liabilities are determined  based on the difference  between the
financial  statement and tax bases of assets and  liabilities  using enacted tax
rates in effect for the year in which the differences are expected to reverse. A
valuation  allowance against the deferred tax assets is provided when it is more
likely  than not that a  portion  or all of a  deferred  tax  asset  will not be
realized.

Advertising costs

All costs  associated with  advertising  and promoting  products are expensed as
incurred.  Advertising  and  promotion  expense was $21,796 in 2000  [$10,763 in
1999].


                                      F-9
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd

Stock-based compensation

Financial  Accounting Standards Board ["FASB"] Statement of Financial Accounting
Standards  No.  123,  Accounting  for  Stock-Based  Compensation,   provides  an
alternative to APB Opinion No. 25, Accounting for Stock Issued to Employees,  in
accounting  for  stock-based  compensation  issued to  employees.  The Statement
allows for a fair value based method of  accounting  for employee  stock options
and similar equity instruments.  However, for companies that continue to account
for stock-based  compensation  arrangements  under Opinion No. 25, Statement No.
123 requires  disclosure  of the pro forma effect on net income and earnings per
share of its fair value based accounting for those arrangements. The Company has
determined  the fair value of the  options  and  warrants at their date of grant
using a Black-Scholes option pricing model.

Earnings per share

Basic earnings per share is computed by dividing net income  available to common
shareholders by the weighted average number of common shares  outstanding during
the period.  In computing the earnings per share, the TurboSonic  Canada Class B
exchangeable  shares are  considered  outstanding  common shares of  TurboSonic.
Diluted  earnings  per share  reflects  the per share  amount  that  would  have
resulted if dilutive  potential common stock had been converted to common stock,
as prescribed by SFAS 128.

Foreign currency translation

The  Company  maintains  its  accounts in  Canadian  dollars for  Canadian-based
subsidiaries,  their functional  currency,  and in United States dollars for the
legal parent company. The consolidated financial statements have been translated
into United States  dollars in accordance  with FASB  Statement No. 52,  Foreign
Currency Translation.  All balance sheet accounts have been translated using the
exchange  rates in effect at the balance sheet date.  Income  statement  amounts
have been translated using the average exchange rate for the year. The gains and
losses  resulting from the changes in exchange rates from year to year have been
reported separately as a component of comprehensive income.


                                      F-10
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont'd

Use of estimates

In  preparing  these  consolidated   financial  statements  in  accordance  with
accounting  principles  generally  accepted in the United States,  management is
required to make estimates and assumptions  that affect the amounts  reported in
the  consolidated  financial  statements  and  accompanying  notes.  Significant
estimates include allowance for doubtful  accounts,  inventory  obsolescence and
profitability  on long-term  contracts.  Actual  results could differ from those
estimates.

Impact of recently issued accounting standards

In June 1998,  the FASB released  Statement No. 133,  Accounting  for Derivative
Instruments  and  Hedging  Activities,  which  is  effective  for  fiscal  years
beginning after June 15, 2000. The Company has determined that there would be no
effect of adopting this pronouncement.

In March 2000, the FASB released  Interpretation  No. 44, Accounting for Certain
Transactions  Involving Stock Compensation,  which is effective for fiscal years
beginning  July 1, 2000.  The Company has not  determined the effect of adopting
this pronouncement.

In December 1999, the SEC released Staff  Accounting  Bulletin No. 101,  Revenue
Recognition in Financial Statements, which is effective for the Company's fourth
quarter of fiscal 2001.  The Company has not  determined  the effect of adopting
this pronouncement.

3. FINANCIAL INSTRUMENTS

Fair value of financial instruments

The  carrying  amounts  reported  in  the  balance  sheet  for  cash,   accounts
receivable, investment tax credits receivable, accounts payable, accrued charges
and  obligations  under  capital  leases  approximate  fair  value  based on the
short-term  maturity of these  instruments.  The  carrying  amounts of long-term
liabilities  approximates  fair value based on an estimate of  discounted  value
using current market rates.


                                      F-11
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

3. FINANCIAL INSTRUMENTS cont'd

Concentration of risk

Financial  instruments,  that  potentially  subject the Company to credit  risk,
consist principally of trade accounts receivable. Sales are made to end users of
all sizes located primarily in North America.  The Company provides an allowance
for doubtful  accounts equal to the estimated  losses expected to be incurred in
the collection of accounts receivable.

As at June 30, 2000,  the Company had two  customers  that  comprised 42% of the
total trade receivable balance and had three customers that comprised 30% of the
total trade receivable balance in fiscal 1999.

As at June 30, 2000,  the Company had three  customers that comprised 76% of the
deferred  revenue  balance and had two  customers  that  comprised 81% in fiscal
1999.

Trade accounts  receivable  and trade  accounts  payable are received or paid in
either United States or Canadian dollars. Accordingly, the Company is at risk of
a loss for decreases in the value of the Canadian  dollar relative to the United
States dollar for trade  accounts  receivable  and increases in the value of the
Canadian dollar relative to the United States dollar for trade accounts payable.
The Company does not use financial  instruments to mitigate the foreign exchange
risk.

The Company's cash balances are  maintained in one United States  chartered bank
which is an AA rated financial institution.  The Company's cash balances for the
Canadian-based  subsidiaries are maintained in one Canadian chartered bank which
is an AA rated financial institution.

4. ACCOUNTS RECEIVABLE

                                                         2000              1999
                                                           $                 $
--------------------------------------------------------------------------------
Trade accounts receivable                             981,799           480,272
Other receivables                                      53,016            62,296
Allowance for doubtful accounts                       (61,904)          (66,764)
--------------------------------------------------------------------------------
                                                      972,911           475,804
================================================================================


Bad debt expense was $4,818 in 2000 and $5,870 in 1999.


                                      F-12
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

5. INVENTORIES

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                      <C>                <C>
Raw materials                                                            5,657              9,973
Finished goods                                                         314,971            331,267
Reserve for obsolescence                                              (214,899)          (214,476)
-------------------------------------------------------------------------------------------------
                                                                       105,729            126,764
=================================================================================================
</TABLE>

6. COST AND ESTIMATED EARNINGS ON UNCOMPLETED
   CONTRACTS

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>
Costs incurred on uncompleted contracts                              3,087,601          1,339,702
Estimated earnings                                                   1,070,693            518,467
-------------------------------------------------------------------------------------------------
                                                                     4,158,294          1,858,169
Less billings to date                                               (4,308,629)        (1,895,423)
-------------------------------------------------------------------------------------------------
                                                                      (150,335)           (37,254)
=================================================================================================
</TABLE>

Included in the accompanying balance sheets under the following captions:

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
Costs and estimated earnings in excess of billings on
   uncompleted contracts                                               647,214            106,275
Billings in excess of costs and estimated earnings on
   uncompleted contracts                                              (797,549)          (143,529)
-------------------------------------------------------------------------------------------------
                                                                      (150,335)           (37,254)
=================================================================================================
</TABLE>


                                      F-13
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

7. CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                                        Accumulated      Net Book
                                                           Cost        Depreciation        Value
2000                                                         $               $               $
-------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>             <C>
Office equipment                                          455,573          379,713         75,860
Other equipment                                           369,041          313,924         55,117
Leasehold improvements                                     23,678           12,060         11,618
-------------------------------------------------------------------------------------------------
                                                          848,292          705,697        142,595
=================================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                        Accumulated      Net Book
                                                           Cost        Depreciation        Value
1999                                                         $               $               $
-------------------------------------------------------------------------------------------------
<S>                                                       <C>              <C>             <C>
Office equipment                                          404,815          361,590         43,225
Other equipment                                           337,080          306,595         30,485
Leasehold improvements                                     23,936            8,127         15,809
-------------------------------------------------------------------------------------------------
                                                          765,831          676,312         89,519
=================================================================================================

</TABLE>

Total depreciation  incurred by the Company during fiscal 2000 was $45,952 [1999
- $33,281].

The total  depreciation  for assets under capital  leases during fiscal 2000 was
$8,140 [1999 - nil].

The  purchase  of certain  capital  assets was  accomplished  through the use of
capital  leases.  Capital  assets under capital leases at June 30, 2000 totalled
$95,106 [1999 - nil].


                                      F-14
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

8. GOODWILL

                                               Accumulated        Net Book
                                   Cost        Amortization         Value
2000                                 $               $               $
---------------------------------------------------------------------------
                                1,557,191        532,614          1,024,577


                                   Cost        Amortization         Value
1999                                 $               $               $
---------------------------------------------------------------------------
                                1,558,579        356,205          1,202,374

Amortization  charged to income in fiscal 2000 was $176,409  [$162,255 in 1999].
In  1999,  $31,314  in  tax  benefits  arising  from  the  recognition  of  loss
carryforwards were used to reduce the carrying amount of goodwill.

9. LOANS FROM SHAREHOLDERS

An officer and director of the Company, together with another shareholder of the
Company,  lent  an  aggregate  of Cdn  $200,000  [representing  $129,400  at the
exchange  rate of $0.647 at such  date] to the  Company  on  October  21,  1998.
Another  officer and  director  and another  shareholder  each lent Cdn $100,000
[representing  $65,490 and $66,620 at the exchange  rates of $0.6549 and $0.6662
at the date of their  respective  loans] to the  Company  on January 4, 1999 and
April 9, 1999, respectively. All of these loans are repayable two years from the
date of the loan,  bear  interest at 10% per annum and are  collateralized  by a
lien upon and security interest in substantially all of the Company's assets. As
an  inducement  to advance  these sums to the Company,  the lenders were granted
detachable  warrants to purchase an  aggregate of 400,000  common  shares of the
Company  at an  initial  exercise  price  of $0.50  through  October  31,  2000,
increasing to $0.75 thereafter  through October 31, 2002 and to $1.00 thereafter
through October 31, 2003,  respectively.  The warrants,  whose initial  exercise
price was greater than the market price of the  Company's  common  shares on the
date such warrants were granted, expire on the earlier of October 31, 2003 or 30
days after the Company's shares have closed at a price per share above $1.50 for
10 consecutive  trading days on the NASDAQ  over-the-counter  Bulletin Board. In
accordance with APB 14, a portion of the proceeds of the debt securities  issued
with detachable stock purchase warrants, which is allocated as the fair-value of
the warrants, has been accounted for as paid-in capital. The related discount on
the debt securities is being amortized over the remaining period to maturity.


                                      F-15
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

9. LOANS FROM SHAREHOLDERS cont'd

Subsequent  to  the  year-end,  on  July  10,  2000,  officers,   directors  and
shareholders agreed to extend the maturity dates of their respective loans by an
additional  year.  Accordingly,  the due dates are October 21, 2001,  January 4,
2002 and April 9, 2002. As a result of the extended  maturity  dates,  the loans
are  classified  as  non-current   liabilities  in  the  accompanying  financial
statements.  As an  inducement  to extend the maturity  dates of the loans,  the
Company has modified the exercise  price of the above  warrants as follows:  for
three years after the initial  date of the  respective  loan at a price of $0.50
per share,  for a period of two years following the initial three year period at
a price of $0.75 per share and for an  additional  period of one year at a price
of $1.00. Additionally,  a further 400,000 warrants were granted in aggregate to
the lenders, at a price of $0.5625 per share, commencing on the first day of the
extension of their loan for a period of two years.  The expiry terms and periods
of the  warrants  have been  modified  to state 90 days  after the  Company  has
notified the warrant holders in writing,  that the shares in the common stock of
the  Company  have  closed at a trading  price  above  $1.50 for 30  consecutive
trading days on the NASDAQ over-the-counter Bulletin Board.

10. OBLIGATIONS UNDER CAPITAL LEASES

The Company has entered into certain  capital  leases for computer  hardware and
software.

The following is a schedule of the future minimum lease payments.

                                                                          $
----------------------------------------------------------------------------

2001                                                                  33,788
2002                                                                  31,643
2003                                                                  23,705
2004                                                                   3,767
2005                                                                   3,453
----------------------------------------------------------------------------
Total minimum lease payments                                          96,356
Less amount representing interest                                     14,246
----------------------------------------------------------------------------
                                                                      82,110
Less current portion                                                  21,778
----------------------------------------------------------------------------
                                                                      60,332
============================================================================


                                      F-16
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

11. COMMITMENTS AND CONTINGENCIES

[a]  Operating leases

The Company has entered into operating leases for office equipment and premises.
Minimum annual  payments under these leases for years after June 30, 2000 and in
total are as follows:

                                                                $
------------------------------------------------------------------

2001                                                       121,169
2002                                                        75,024
2003                                                        12,596
2004                                                           304
2005                                                           304
------------------------------------------------------------------
                                                           209,397
==================================================================

Rental expense for office  equipment and premises was $120,117 in 2000 [$121,538
in 1999].

[b]  Contingent liabilities

The  Company's  standard  contractual  terms  with  respect  to the  sale of its
products and systems disclaim any liability for consequential or indirect losses
or damages stemming from any failure of the Company's products or systems or any
component  thereof.  The Company  customarily seeks contractual  indemnification
from  its  subcontractors  for any  loss,  damage  or  claim  arising  from  the
subcontractor's failure of performance, negligence or malfeasance. It is likely,
however, that a customer's inability to comply with applicable pollution control
laws  or  regulations  stemming  from  the  failure  or  non-performance  of the
Company's products or systems may subject the Company to liability for any fines
imposed upon such customer by governmental regulatory authorities or for damages
asserted to have been incurred by any third party  adversely  affected  thereby.
The Company is unaware of any exposure at this time.


                                      F-17
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

12. SHAREHOLDERS' EQUITY

Common and Class B exchangeable shares

The  Company  has total  authorized  share  capital  of  30,000,000  shares.  In
connection  with the  consolidation  of the Company with  Turbotak  Technologies
Inc.,  on August 27,  1997,  the  shareholders  of  Turbotak  Technologies  Inc.
exchanged  their  shares for the Class B  exchangeable  shares of a wholly owned
subsidiary of the Company.  These shares are  exchangeable,  at any time, at the
election  of the holders of such  shares,  into an  equivalent  number of common
shares of the  Company.  The Class B  exchangeable  shares  have  voting  rights
through  a  trustee.   During  the  current  fiscal  year,   1,967,436  Class  B
exchangeable  shares were  exchanged for common  shares of the Company,  leaving
3,767,436 Common shares,  and 6,232,564 Class B exchangeable  shares outstanding
as of June 30, 2000.

Stock-based compensation

The Company  accounts for option grants in  accordance  with APB Opinion No. 25,
Accounting for Stock Issues to Employees.

The Company has  instituted  the 2000 stock plan [the  "Plan"]  with the express
purpose  of  encouraging  key  employees  of  the  Company,  as  well  as  other
individuals who render services to the Company,  by providing  opportunities  to
participate in the ownership of the Company.  The Plan provides for the grant of
options as qualified "incentive stock options" ["ISO's"] under section 522[b] of
the  Internal  Revenue Code of 1986,  as amended [the "Code"] or  non-qualified:
"incentive  stock  options",   awards  of  capital  stock  in  the  Company  and
opportunities  to  make  direct  purchases  of  capital  stock  in the  Company.
Collectively, these are referred to as stock rights.

The  Plan  shall  be  administered  by the  Board of  Directors  or a  committee
established by the Board of Directors.  The Board [or committee] shall determine
to whom such stock  rights may be  granted,  determine  at which times the stock
rights shall be granted and  determine  the time or times when each option shall
become  exercisable and the duration of the exercise period.  The exercise price
per each ISO and each non-qualified stock option granted under the Plan shall be
not less than the fair  market  value  per share of common  stock on the date of
such grant.

The stock,  subject to stock rights,  shall be authorized but unissued shares of
common stock of the Company or shares of common stock  reacquired by the Company
in any manner.  The aggregate number of shares which may be issued,  pursuant to
the Plan, is 750,000, subject to certain adjustments.


                                      F-18
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

12. SHAREHOLDERS' EQUITY cont'd

On February 9, 2000,  the Company  adopted the Plan and provided that 20% of the
total  number of shares  covered  by an option  granted to  employees  under the
Option Plan would be  exercisable  each year on a  cumulative  basis over a five
year period,  provided  that the  Company's  annual  business  plan targets with
regard to revenue and net operating  income were met for each  preceding  fiscal
year. However,  the Board of Directors retained the right at its sole discretion
to allow  exercise  of all or a portion of the shares  granted if the  corporate
targets  were not met. A total of 500,000  options  were granted at that date to
all  full-time  employees at an exercise  price of $0.40.  At June 30, 2000,  no
options were exercisable under the Plan.

On  February 9, 2000,  a total of seven  Company  directors  and  advisers  were
granted  options to purchase  10,000 common shares each at an exercise  price of
$0.40.  These  options  were also tied to meeting the  Company's  business  plan
targets.

Subsequent  to June 30, 2000,  the Board of Directors  waived the business  plan
target  requirement  relative  to fiscal  2000 for the options so granted to the
employees,  directors and advisers.  These options become exercisable on October
15,   2000.   The  employee   options   expire  on  October  15,  2006  and  the
director/adviser options expire on October 15, 2005.

The Company  accounts for these variable  stock option plans in accordance  with
FIN 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award  Plans.  Stock-based  compensation  expense  totaling  $44,061 has been
recognized during fiscal 2000 for variable stock options granted to date.

Certain directors were granted options in fiscal 1998, which vested immediately,
to purchase a total of 200,000 common shares of the Company at an exercise price
of $1.00 per share.  These options were  outstanding  as at June 30, 1999,  with
options  expiring August 27, 1999. The expiry date has been extended by eighteen
months for options to purchase 100,000 common shares for one director.

Pro forma information regarding net income and earnings per share is required by
Statement  123 and has been  determined  as if the Company had accounted for its
employee, director and adviser stock options under the fair value method of that
Statement.  The fair value for these  options was estimated at the date of grant
using a  Black-Scholes  option  pricing  model with the  following  assumptions;
risk-free  interest rate of 6.0%,  dividend yield of 0.0%,  volatility factor of
the  expected  market  price  of  the  Company's  common  stock  of  1.31  and a
weighted-average expected life of the options of 5.26 years.


                                      F-19
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

12. SHAREHOLDERS' EQUITY cont'd

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options,  which have no vesting  restrictions and are fully
transferable.  In  addition,  option  value  models  require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's employee,  director and adviser stock options have characteristics
significantly  different from those of traded options and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single  measure of the fair value of its  employee,  director and adviser  stock
options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options'  vesting  period.  The  Company's  pro
forma information is as follows:

                                                                          2000
                                                                            $
------------------------------------------------------------------------------

Pro forma income                                                        11,873
Pro forma income per share:
   Basic                                                                  0.00
   Diluted                                                                0.00

Warrants

The Company has in the past  granted  detachable  warrants for a fixed number of
common shares to debt holders and options for common shares to certain directors
[see note 9].

13. RESEARCH AND DEVELOPMENT EXPENSES

                                                           2000          1999
                                                             $             $
-----------------------------------------------------------------------------

Expenses incurred                                        37,311        35,611
Government grants and investment tax credits                 --       (50,608)
-----------------------------------------------------------------------------
                                                         37,311       (14,997)
=============================================================================


                                      F-20
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


14. INCOME TAXES

Components of the current tax provision are as follows:

<TABLE>
<CAPTION>
                                                              2000                    1999
                                                         $              %          $            %
-------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>      <C>            <C>
Provision for income tax based on basic U.S.
   tax rates                                          (3,289)         (28)          --         --
Provision for income taxes based on basic
   Canadian federal income tax rates                   6,200           53       56,325         70
Provision for income taxes based on basic
   Canadian provincial income tax rates                3,421           29       31,076         38
Non-deductible goodwill amortization                   3,130           27       31,314         39
Small business deduction                              (4,917)         (42)     (46,000)       (57)
Realization of loss carryforwards from prior years    (4,704)         (40)     (41,401)       (51)
Minimum tax                                               --           --       10,000         12
Other                                                 24,987          213      (16,405)       (20)
-------------------------------------------------------------------------------------------------
                                                      24,828          212       24,909         31
=================================================================================================
</TABLE>

The above  table uses tax rates in effect in the  country  in which the  taxable
income was generated.

Income taxes paid are as follows:

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                     <C>                   <C>
Canadian Federal                                                            --                511
Canadian Provincial                                                      2,633                 72
U.S. Federal                                                            27,668                 --
U.S. State                                                              10,960                 --
-------------------------------------------------------------------------------------------------
                                                                        41,261                583
=================================================================================================
</TABLE>


                                      F-21
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


14. INCOME TAXES cont'd

Income tax refunds received are as follows:

                                                2000               1999
                                                  $                  $
-----------------------------------------------------------------------

Canadian Federal                              73,171             16,912
Canadian Provincial                           14,240                 --
-----------------------------------------------------------------------
                                              87,411             16,912
=======================================================================

The Company has unutilized  operating  losses in the United States available for
carry forward to reduce income taxes otherwise  payable in future years.  During
the current year, the Company determined that the amount of losses available for
carry forward is restricted. The restricted amount approximates $1,200,000 as of
June 30, 2000,  with these losses expiring in the years 2008 through 2013 if not
otherwise used. The deferred tax asset at June30, 1999, has been adjusted in the
table  below to reflect the  restriction.  None of these  losses  were  utilized
during the current year.

The Company's Canadian subsidiaries have unutilized operating losses at June 30,
2000, of  approximately  $590,000  available for Canadian income tax purposes to
carry forward to future years, which expire in the years 2004 through 2005.

Deferred tax  liabilities  and assets are  comprised of the following as at June
30:

<TABLE>
<CAPTION>
                                                              2000               1999
                                                                $                  $
-------------------------------------------------------------------------------------
<S>                                                       <C>                <C>
Book over tax depreciation                                   1,893            (11,911)
Net operating loss carryforward                            667,879            947,151
-------------------------------------------------------------------------------------
Total deferred tax assets                                  669,772            935,240
Valuation allowance for deferred tax assets               (669,772)          (935,240)
-------------------------------------------------------------------------------------
Net deferred tax asset (liabilities)                            --                 --
=====================================================================================
</TABLE>

15. EXTINGUISHMENT OF DEBT

In a prior  year,  the assets of a  subsidiary  company  were  liquidated  under
Chapter 7 of the Federal  Bankruptcy  laws and the proceeds were provided to the
creditors.  In 1999, the residual liabilities of $113,358,  net of taxes of nil,
were  determined not to be legally  enforceable  and were  therefore  taken into
income.


                                      F-22
<PAGE>

16. EARNING PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share.   The  effect  of  dilutive   securities   is  included   only  when  not
anti-dilutive.

<TABLE>
<CAPTION>
                                                                         2000               1999
                                                                           $                  $
-------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>
Numerator
Net (loss) income                                                      (13,121)           169,311
Denominator
Denominator for basic earnings per share -
   weighted average shares outstanding                              10,000,000         10,000,000
Effect of dilutive securities:
   Warrants                                                            400,000            400,000
   Options                                                             100,000            200,000
-------------------------------------------------------------------------------------------------
                                                                    10,500,000         10,600,000
-------------------------------------------------------------------------------------------------
Dilutive potential common shares
Denominator for diluted earnings per share -
   adjusted weighted average shares and assumed conversions         10,500,000         10,600,000
=================================================================================================

Basic earnings per share                                                 $0.00              $0.02
=================================================================================================
Diluted earnings per share                                               $0.00              $0.02
=================================================================================================
</TABLE>


                                      F-23
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


17.  SUPPLEMENTARY INFORMATION ON CASH FLOWS

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
--------------------------------------------------------------------------------------------------
<S>                                                                   <C>                  <C>
Changes in non-cash working capital balances related to operations:
(Increase) decrease in accounts receivable                            (504,588)            15,333
Decrease (increase) in investment tax credits receivable                57,165            (28,362)
(Increase) in income taxes receivable                                   (6,968)           (18,682)
Decrease in inventories                                                 20,561             10,624
(Increase) in deferred contract costs and unbilled revenue            (544,949)           (53,511)
Decrease in other current assets                                        20,983             36,686
(Increase) in other assets                                                (364)                --
Increase (decrease) in accounts payable                                245,771           (197,700)
(Decrease) in accrued charges                                          (76,785)          (162,203)
Increase (decrease) in unearned revenue and contract advances          659,431            (20,223)
-------------------------------------------------------------------------------------------------
                                                                      (129,743)          (418,038)
=================================================================================================
</TABLE>


During fiscal 2000,  the Company  acquired  capital  assets in addition to those
found on the statement of cash flows.  The  additional  assets valued at $95,106
were financed  through the use of capital leases.  As the leases were capital in
nature, the assets and related liabilities were recorded on the balance sheet.

18. SEGMENTED INFORMATION

The  Company  offers a range of  products  and  systems,  incorporating  diverse
technologies, to address the industrial process, air pollution control and other
environmental  management needs of its customers.  The business can generally be
broken into two segments;  scrubber and nozzle systems. Wet scrubber systems are
generally used to absorb gaseous  pollutants and particulate matter contained in
exhaust  gas  streams  such as  smoke  stacks,  and  incorporate  the use of the
Company's proprietary air-atomizing nozzle technology.  Nozzle systems typically
operate in conjunction with products and systems supplied by others. Examples of
nozzle systems supplied include  evaporative gas cooling and conditioning,  dust
suppression and combustion.

There are no inter-segment sales, transfers or profit or loss.

The  Company's  reportable  segments  are  business  units that offer  different
products and  services.  The  reportable  segments  are each managed  separately
because  they  develop,   manufacture  and  distribute  different  products  and
services.


                                      F-24
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]


18. SEGMENTED INFORMATION cont'd

The accounting  policies of the segments are the same as those  described in the
summary of significant accounting policies

Contract revenue and sales of  approximately  $2,421,000 of the scrubber segment
[1999 - $864,000] and $2,720,000 of the nozzle segment [1999 - $1,460,000]  were
to customers in the United States.  The remainder of the  consolidated  revenues
were  primarily  from  customers in Canada  [$824,000]  [1999 - $833,000],  with
lesser amounts from Asia [$36,000] [1999 - $106,000],  Europe  [$43,000] [1999 -
$nil] and South America  [$122,000] [1999 - $258,000].  The long-lived assets of
the nozzle  segment are located in the United  States while the remainder of the
Company's  assets,  including  those of the  scrubber  segment,  are  located in
Canada. For the year ended June 30, 2000, two customers represented 25% of total
revenues [in fiscal 1999, one customer represented 12% of total revenues].

Industry Segments

<TABLE>
<CAPTION>
                                       Scrubber         Nozzle
                                        Systems         Systems              Other        Total
2000                                       $               $                   $            $
-------------------------------------------------------------------------------------------------
<S>                                     <C>            <C>                <C>           <C>
Contract revenue and sales
Evaporative gas cooling                        --      2,175,458               --       2,175,458
Dust suppression                               --         30,351               --          30,351
Other nozzle systems                           --      1,057,704               --       1,057,704
Wet scrubber systems                    1,349,922             --               --       1,349,922
Wet electrostatic precipitation         1,568,127             --               --       1,568,127
-------------------------------------------------------------------------------------------------
Total contract revenue and sales        2,918,049      3,263,513               --       6,181,562
-------------------------------------------------------------------------------------------------
(Loss) income from operations            (292,998)       342,176               --          49,178
Interest income                             4,111          3,230               --           7,341
Interest expense                          (18,348)       (26,464)              --         (44,812)
-------------------------------------------------------------------------------------------------
(Loss)  income before provision
   for taxes                             (307,235)       318,942               --          11,707
Provision for income taxes                     --         24,828               --          24,828
-------------------------------------------------------------------------------------------------
Net (loss) income                        (307,235)       294,114               --         (13,121)
=================================================================================================

Depreciation and amortization              94,694        100,922               --         195,616
Capital expenditures                           --             --               --              --
Segment assets                          1,653,244      1,338,748          407,784       3,399,776
Capital assets                             68,946         73,649               --         142,595
</TABLE>


                                      F-25
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

18. SEGMENTED INFORMATION cont'd

<TABLE>
<CAPTION>
                                      Scrubber           Nozzle
                                       Systems           Systems                           Total
1999                                      $                 $              Other             $
-------------------------------------------------------------------------------------------------
<S>                                    <C>             <C>                <C>           <C>
Contract revenue and sales
Evaporative gas cooling                       --       1,513,039               --       1,513,039
Dust suppression                              --         310,090               --         310,090
Other nozzle systems                          --         563,316               --         563,316
Wet scrubber systems                   1,351,823              --               --       1,351,823
S02 recovery systems                     118,574              --               --         118,574
-------------------------------------------------------------------------------------------------
Total contract revenue and sales       1,470,397       2,386,445                --      3,856,842
-------------------------------------------------------------------------------------------------
(Loss) income from operations           (116,127)        211,672               --          95,545
Interest income                            9,766           9,844               --          19,610
Interest expense                          (7,970)        (26,323)              --         (34,293)
-------------------------------------------------------------------------------------------------
(Loss)  income before provision
   for taxes                            (114,331)        195,193               --          80,862
(Recovery of) provision for
   income taxes                          (16,405)         41,314               --          24,909
Extraordinary item                            --         113,358               --         113,358
-------------------------------------------------------------------------------------------------
Net income (loss)                        (97,926)        267,237               --         169,311
=================================================================================================

Depreciation and amortization             84,330         108,856               --         193,186
Capital expenditures                       5,818           6,303               --          12,121
Segment assets                         1,048,153       1,123,777          310,944       2,482,874
Capital assets                            43,580          45,939               --          89,519

</TABLE>

19. COMPARATIVE FIGURES

Certain of the prior year comparative  figures have been reclassified to conform
with the current year's presentation.


                                      F-26
<PAGE>

TurboSonic Technologies, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2000                               [expressed in United States dollars]

20. CHANGE IN ACCOUNTING FOR VARIABLE OPTION PLAN

The vesting of options under the 2000 stock plan described in note 12 is subject
to the performance of the Company. As a result,  compensation expense related to
these options is measured when  performance  conditions are met or waived by the
Board of Directors.  The Company's 2000 financial  statements have been restated
to reflect this accounting  method. The effect of this change is to increase net
loss and other  paid-in  capital by $44,061 as  compared  to amounts  originally
reported.


                                      F-27