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UNITED STATESSECURITIES AND EXCHANGECOMMISSIONWASHINGTON,DC 20549

FORM10-K

ANNUALREPORTPURSUANT TOSECTION13OR15(D)OF
THESECURITIESEXCHANGEACT OF1934

For the fiscal year ended June 30, 2011

Commission file number 0-21832

TURBOSONIC TECHNOLOGIES,INC.(Exact Name of Registrant as Specified in its
Charter)

|Delaware                 | 13-1949528                              
|------------------------ | ----------------------------------------
|(State of Incorporation) | (I.R.S. Employer
    Identification No.)

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

(519) 885-5513(Registrants telephone number)

Securities registered pursuant to Section 12(b) of the Exchange
Act: None

Securities registered pursuant to Section 12(g) of the Exchange
Act: Common Stock(Title of Class)

Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [    ]  No [ X ]

Indicate by check mark if the Registrant is not required to
file reports pursuant to Section 13 or 15 (d) of the Exchange Act.

Yes [    ]  No [ X ]

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [ X ]  No [    ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).

Yes [    ]   No [    ]

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.:

Large accelerated filer [   
]               
Accelerated filer [   
]                
Non-accelerated filer [   
]                
Smaller reporting company [ X ]

Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes [    ]  No [ X ]

Aggregate market value of the Registrants common stock held by
non-affiliates of the Registrant as of December 31, 2010: $3,802,516

The number of outstanding shares of the Registrant's common
stock as of September 21, 2011: 18,554,112

DOCUMENTS INCORPORATED BYREFERENCENone

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|TURBOSONIC TECHNOLOGIES,
      INC.
|-----------------------------------
|2011 FORM 10-K                     
|TABLE OF CONTENTS                  
|                                   
|PART I                             
|Item 1.                            
|Item 1A.                           
|Item 1B.                           
|Item 2.                            
|Item 3.                            
|Item 4.                            
|PART II                            
|Item 5.                            
|Item 6.                            
|Item 7.                            
|Item 7A.                           
|Item 8.                            
|Item 9                             
|Item 9A.                           
|Item 9B.                           
|PART III                           
|Item 10.                           
|Item 11.                           
|Item 12.                           
|Item 13.                           
|Item 14.                           
|**PART IV**                        
|Item 15.                           

All dollar amounts set forth in this report are in United
States dollars except where otherwise indicated.

Forward-Looking Statements

Forward-looking statements in this report, including without
limitation, statements relating to our 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
historical results or those we anticipate. We refer to Item 1A: Risk Factors
as well as other factors discussed in this annual report. Our statements are
based upon information known to us as of the date of this annual report, and we
assume no obligation to update or alter our forward-looking statements within
this annual report, whether as a result of new information, future events or
otherwise, except when required by applicable federal securities laws.

 2 

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PARTIITEM1:BUSINESS

|a) | Business Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | TurboSonic Technologies, Inc. (OTCBB:TSTA) designs and
      supplies air pollution control technologies to industrial customers
      worldwide. In 1997, Sonic Environmental Systems, Inc., a US public
      company, consolidated with Turbotak Technologies, Inc, a privately-held
      Canadian company to form TurboSonic Technologies Inc. The founding
      companies were incorporated in the State of Delaware in April 1961 and in
      the Province of Ontario Canada in 1976.                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Our executive offices are located at 550 Parkside Drive,
      Suite A-14, Waterloo, Ontario, Canada N2L 5V4; our telephone number is
      (519) 885-5513. Our website is located at www.turbosonic.com. The
      information on our website is not part of this annual report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|b) | Our Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Introduction                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Our proprietary technology is designed to address a wide
      variety of air pollution control problems for industries including wood
      products, metallurgical (non-ferrous and iron and steel), cement and
      mineral processing, ethanol and biofuel production, industrial/medical and
      municipal solid waste (MSW) incineration, petrochemical, pulp and paper,
      glass and power generation. We are actively pursuing opportunities related
      to the production of alternative fuels as cellulosic ethanol, pelletizing,
      biodiesel and other biofuels processes are developed. We believe our
      products and systems, which are designed to meet the strictest emission
      regulations for gaseous and particulate emissions, afford economic and
      technical advantages over competitive air pollution equipment.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The following table reflects the approximate percentages
      of our revenue derived from our principal customer categories during the
      fiscal years indicated:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                   | Year Ended June 30,
|---------------------------------- | -------------------
|Customer Revenue by
      Industry | 2011               
|Cement and Mineral Processing      | 17%                
|Ethanol and Biofuel Production     | 4%                 
|Glass                              | 2%                 
|Metallurgical Processing           | 16%                
|Petrochemical                      | 19%                
|Power Generation                   | 10%                
|Pulp and Paper                     | 1%                 
|Waste Incineration, including MSW  | 4%                 
|Wood Products                      | 21%                
|Other                              | 6%                 
|                                   | 100%               

U.S. and Canadian customers collectively accounted for
approximately 49% and 70% of our sales during the fiscal years ended June 30,
2011 and 2010, respectively, with the complete distribution of revenue by
geographic area shown below. Revenue derived from export sales is transacted in
U.S. Dollars and Euro.

|                                          | Year Ended June 30,
|----------------------------------------- | -------------------
|Customer Revenue by
      Geographic Area | 2011               
|United States                             | 47%                
|Canada                                    | 2%                 
|Brazil                                    | 19%                
|Other South and Central America           | 4%                 
|Greece                                    | 11%                
|Italy                                     | 11%                
|Other Europe                              | 5%                 
|Asia                                      | --%                
|Other                                     | 1%                 
|                                          | 100%               

 3 

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Scope of Contracts

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

We perform all process engineering, including but not limited
to, the determination of the size, geometry and structural characteristics of
the particular system needed for gaseous, mist or particulate removal, and
perform the detailed design of, and develop specifications for, all applicable
structural, electrical, mechanical and chemical components of such system. We
have sales, project management and field service personnel in remote offices to
support local markets. We, historically, have not manufactured or fabricated our
own products or systems. Rather, we subcontract the manufacturing of our
components and use third party fabricators to complete our custom designed
systems, which are then installed in the field by local contractors. Our project
managers and quality assurance personnel supervise, and manage all technical,
physical and commercial aspects of our contracts to ensure we meet our
contractual obligations and customers performance criteria.

Products and Systems

We offer a range of products and systems, incorporating diverse
technologies, to address the industrial processing, air pollution control and
other environmental management needs of our customers. Besides the design and
supply of stand-alone systems, we often integrate our products and systems into
equipment provided by others. These alliances facilitate our ability to provide
custom-engineered solutions to meet or exceed environmental standards.

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

|                                                                  | Year Ended June 30,
|----------------------------------------------------------------- | -------------------
|Customer Revenue by Primary
      Products and Systems            | 2011               
|Catalytic Gas Treatment Systems                                   | 6%                 
|SoniCool Evaporative Gas Cooling and Conditioning
      Systems* | 14%                
|SonicKleen Wet Electrostatic
      Precipitation Systems (WESP)* | 16%                
|TurboNoxSystems*                                                  | 16%                
|TurboSorb Semi-dry Scrubber Systems*                              | 12%                
|Wet Scrubbers and Gas Absorbers*                                  | 31%                
|Atomizing Nozzles, Service and Spare Parts                        | 5%                 
|                                                                  | 100%               

(*) Includes Air Pollution Control system upgrades and spare
parts.

Our principal products and systems are described below:

******            ***Catalytic
Gas Treatment (CGT) Systems***

Catalytic Gas Treatment (CGT) technology controls emissions of
regulated Volatile Organic Compounds (VOCs) such as formaldehyde and methanol
from process gas streams. CGT has been demonstrated to reduce regulated
emissions of aldehydes and alcohols by over 95%. Treating a wide range of
alcohols and aldehydes, CGT utilizes an environmentally friendly catalytic
process to destroy VOCs without the production of harmful, combustion-related
green house gases and nitrogen oxides (NOx). Traditional thermal destruction
technologies for VOC control consume expensive natural gas and generate
CO2. CGT technology avoids CO2 creation, which is a much
more desirable, cost-effective solution than thermal oxidation and avoids the need for carbon capture and
sequestration. TurboSonic holds the exclusive worldwide marketing rights for the
patented CGT technology. This agreement expires in 2016, but automatically
continues provided that we meet certain criteria, as provided for in the
agreement. TurboSonics proprietary clean air technology will be integrated with
the CGT technology for use by building products and other industries requiring
VOC control.

******            ***SoniCool
Evaporative Gas Cooling and Conditioning Systems***

SoniCool Evaporative Gas Cooling and Conditioning Systems
accurately control temperature and humidity of high-temperature gas streams,
such as those emanating from cement kilns, non-ferrous smelters and steel mill
Electric Arc Furnaces (EAF) or Basic Oxygen Furnaces (BOF), resulting in gas
temperatures that do not damage equipment and ductwork; smaller gas volumes; and
improved efficiency of downstream air pollution control equipment.We are an
internationally known leader in gas cooling and conditioning with hundreds of
installations throughout the world.

 4 

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***SonicKleen
Wet Electrostatic Precipitation Systems (WESP)***

The SonicKleen WESP removes sub-micron particulate, heavy
metals, dioxins and furans, mists, and fumes from process gas streams. More
efficient than scrubbers, this system is often specified for power boilers,
waste incineration, acid plant gas treatment, biofuel production, power
generation, thermal oxidizer pre-cleaning, and other industrial process gas
streams. It has proven to be reliable and has exceeded regulatory targets for
performance while retaining operating and maintenance costs to a minimum.

***TurboNox
Systems***

TurboSonic NOx control systems feature
proprietary Turbotak air-atomized nozzle technology for controlled drop size and spray coverage, which provides superior performance in reaction and
removal efficiencies. We offer a complete mechanical equipment scope of supply
for Selective Non-catalytic Reduction (SNCR) as well as ammonia feed and
injection equipment for Selective Catalytic Reduction (SCR) Systems.

***TurboSorb
Semi-Dry Scrubber***

The TurboSorb Semi-Dry Scrubber treats industrial process gas
streams, removing acid gases such as SO2 (sulfur dioxide) and HCI (hydrochloric acid). By spraying an alkali reagent, the TurboSorb
system can achieve higher removal efficiencies of SO2 and HCl
than traditional dry scrubbers. Unlike wet systems, all water is evaporated
resulting in no liquid waste stream being generated.

We have a substantial installed base of hundreds of scrubbers
and gas absorbers worldwide. Using patented processes and components we can meet
the most rigorous current regulations for limiting gaseous and particulate
emissions.

***Wet
Scrubbers and Gas Absorbers***

The Turbotak Scrubber treats industrial process gas streams,
removing sub-micron and larger particulate, acid gases, odors, fumes and vapors.
Designed with our proprietary atomizing nozzles, the scrubber is able to more
effectively remove multiple contaminants than competing technologies and
operates with low maintenance costs.

The TurboVenturi Scrubber treats industrial process exhaust gas
streams primarily for removal of particulate. The system operates by forcing the
gas stream across a pressure drop in order to generate a fine stream of liquid
droplets for very high efficiency particulate removal. This single purpose
design is a low capital cost solution for specific applications.

Gas absorbers treat industrial process gas streams primarily
for removal of contaminant gases, including acid gases (SO2, HCl, etc.), where high removal efficiencies are required. Designs include
packed-, spray- and tray-type towers and are selected based upon
application-specific conditions.

***Air
Pollution Control System Upgrades***

We are able to retrofit existing air pollution control
equipment, using our atomizing nozzles, venturi scrubber and wet electrostatic
precipitator technologies and years of experience in the air pollution control
industry, to consistently improve performance. An equipment upgrade is
significantly less expensive than purchasing new equipment. Our engineers will
assess an existing system and propose an upgrade solution where practical.

***Atomizing
Nozzles and Spare Parts***

Our Turbotak atomizing nozzles, which are used in a wide
variety of industrial applications, atomize liquids to extremely small droplets.
The nozzles feature a two-phase design for superior control over droplet size
and distribution pattern. The nozzles range from single-orifice to multi-orifice
designs which 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. Other nozzle designs we offer
generate very low flow rates that make them ideal for applications such as dust
suppression and humidification.

Our nozzles are sold as parts to other suppliers in the
industry. We incorporate these nozzles into our air pollution control systems to
meet superior performance criteria.

Given the extreme conditions under which industrial process and
air pollution control systems operate, there is an ongoing requirement for
maintenance and replacement parts. We offer specialized field service,
replacement parts and retrofit components.

 5 

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Contractual Liabilities

Our standard contractual terms with respect to the sale of our
products and systems disclaim any liability for consequential or indirect losses
or damages stemming from any failure of our products or systems or any of their
components. We customarily seek contractual indemnification from our
subcontractors for any loss, damage or claim arising from the subcontractors
failure of performance, negligence or malfeasance. It is possible, however, that
a customers inability to comply with applicable pollution control laws or
regulations stemming from the failure or non-performance of our products or
systems may result in an attempt to subject us 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

Our marketing efforts are technical in nature and currently
involve our senior management and technical professionals, who may be supported
by independent sales representatives. A significant portion of our sales are
made through the recommendation of engineering firms who are often engaged in
complete plant installations or upgrades. Our independent sales representatives
assist us in identifying opportunities and serve as liaison between us and our
customers during the sales process. We select sales representatives based upon
industry reputation, prior sales performance, product knowledge and territorial
coverage, among other criteria. Our contractual arrangements with 17 current
independent sales representatives are territory and product specific, and the
continuity of such arrangements is subject to performance criteria. None of
these representatives have authority to execute contracts on our behalf.

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

We seek to obtain repeat business from our customers, although
we do not depend upon any single customer to maintain our level of activity from
year to year; however, one or more different customers may be expected to
account for greater than 10% of our net revenues in any consecutive twelve month
period.

|                                   | Year Ended June 30,
|---------------------------------- | -------------------
|Significant Customer
      Revenue | 2011               
|Top 3 customers for the year       | 30%                

Backlog

Backlog represents unfilled customer orders for our products
and services. Additions to backlog are recorded with a signed sales contract. As
work proceeds on the contract, the applicable percentage of completion is
converted from backlog to revenue recognition. The backlog balance represents
committed work yet to be completed.

Our business is driven by environmental regulations,
operational improvements, product life cycles, new plant developments,
competitive pressures, and other economic and non-regulatory factors affecting
our capital goods markets. Our backlog and revenues can fluctuate significantly
in response to these factors.

|                    | Year Ended June
      30,
|------------------- | -------------------------
|Backlog             | 2011                     
|Backlog, balance at | $12,000,000              

Product Research & Development

We have an ongoing program for the research, development and
commercialization, as well as licensing of new industrial processing and air
pollution control products, systems and technologies, and the enhancement of
existing products and systems. We believe that these investments will contribute
significantly to our future growth.

|                                          | Year Ended June 30,
|----------------------------------------- | -------------------
|Product Research &
      Development      | 2011               
|Expenditures for research and development | $182,007           

 6 

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Proprietary Protection

We rely on a combination of patents, trade- and service-marks,
trade secrets and know-how to protect our proprietary technology and rights. We
own 21 unique patents and patents pending in domestic and multiple international
jurisdictions relating to a variety of air pollution control applications. Five
of these patents will expire in fiscal 2012; however, we do not expect that
their expiration will have a negative impact on our future revenue. One patent
each is scheduled to expire in fiscal 2013, 2017 and 2018.

We have registered trademarks in the United States and certain
foreign countries for identifying names (renewal dates shown in brackets) that
we use with our products and systems including SoniCore® (2013) and TurboSOx®
(2015).

Suppliers and Subcontractors

We have historically relied on third parties to manufacture and
fabricate our products and to supply parts and components for our systems in
accordance with our specifications and we supervise subcontractors for equipment
installation when included in our scope of work. Throughout our markets, we have
many vendors from which to choose, both pre-qualified or those with whom we have
direct experience. Given the number of manufacturers, fabricators and
subcontractors which we utilize and the availability of alternative sources, we
do not believe that the loss of our relationship with any one firm would have a
material adverse effect on our business.

Government Regulation

Stringent environmental laws have been enacted and are pending
in the United States and other nations in response to public concern about the
environment. The need to comply with these laws creates demand for our products.
In the United States, the Clean Air Act, federal, state and local regulations
which implement it and the level of enforcement of these laws and regulations
largely determine the level of expenditures that customers will make to limit
emissions from their facilities regulated by these rules.

The market for our air pollution control products and systems
is directly dependent upon the existence and enforcement of laws and regulations
that limit the release of pollutants into the atmosphere and impose substantial
penalties for non-compliance. Governments can change, modify or amend
environmental regulations at any time, which could have positive or negative
effects upon our future revenues and prospects of profitability depending on the
nature of the regulatory action. The U.S. Environmental Protection Agency
(EPA) is currently seeking to tighten certain emission standards, thereby
forcing a number of industries to adopt technologies, such as WESPs, in order to
comply with those standards. These technologies may be more effective in meeting
the new standards than more traditional technologies, such as scrubbers. Court
challenges and EPAs own delays to the implementation of certain of the National
Emission Standards for Hazardous Air Pollutants (NESHAP) in the U.S. market
have delayed order placement by companies intending to be compliant. The
standards set by the EPA under NESHAP for particular source categories (such as
(i) plywood and composite wood and (ii) boilers and process heaters) are known
as Maximum Achievable Control Technology (MACT) standards. New SO2 emission rules went into effect on August 23, 2010. Proposed
NESHAP emission rules for cement production facilities went into effect on
November 8, 2010. New MACT rules for industrial boilers (Industrial Boiler MACT)
and for electrical generating units (Utility MACT) in the US will be issued in
the near future.

On August 8, 2011, EPA issued its final Cross-State Air
Pollution Rule (CSAPR) which will impose further limits on NOx and
SO2 from fossil-fuel fired utilities in 27 specified eastern,
mid-western and southern states. These standards, which are to go into
effect in two phases, in 2012 and 2014, replace the current Clean Air Interstate
Rule (CAIR) and will tighten those standards and impose shorter timelines for
compliance, requiring plants in affected states to install or upgrade their
pollution control equipment. On September 2, 2011, the White House ordered EPA
to withdraw its proposed tightening of National Ambient Air Quality Standards
(NAAQS) for ground-level ozone. The new standards EPA planned to propose would
have significantly impacted many regions of the country, requiring additional
controls on emissions zone precursor VOCs and NOx. EPA will
continue its statutory-mandated review of its existing ozone standard, which is still subject to ongoing litigation, by 2013. EPA also continues
to work on further strengthening NAAQS for particulate matter, which the agency
had previously said would be proposed in mid-2011.

Many of the standards discussed above are subject to ongoing
litigation and congressional scrutiny, and bills are being considered to delay
implementation of certain of the standards. Therefore, the timing of issuance
and implementation of final rules in these areas is somewhat uncertain.

EPA announced on September 15, 2011 that it would further delay
the release of proposed new source performance standards (NSPS) for greenhouse
gas (GHG) emissions from the electricity generation sector beyond the
September 30 deadline it had previously announced. EPA had agreed in a
settlement with environmental groups to propose these regulations originally in
July and to issue final regulations by May 26, 2012. EPA has stated it will keep
to the final rule deadline, and is also obligated to issue NSPS rules for GHG
emissions from the refinery sector by November 2012. It is unclear what kinds of controls these standards might require or
whether EPA will further postpone GHG rulemaking. Any standards are likely to be
challenged in court and in the legislative arena. EPA already imposed GHG
controls on construction and modification of large GHG-emitting sources (major
sources) under its New Source Review program in January and July 2011, with a
focus on more efficient combustion and lower carbon fuels.

 7 

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The European Union (EU) is enforcing emission regulations
based on the latest standards developed according to individual industries,
requiring industrial emitters to operate according to best known practices,
which may include installing and operating emission control equipment.
Similarly, other countries are implementing, tightening and enforcing industrial
emission regulations requiring industrial entities to install and operate
emission control equipment.

Competition

We face substantial competition in each of our principal
markets and throughout our product line from numerous competitors. Price is the
predominant competitive factor but we promote our engineering and technological
expertise, quality of our products, systems and service, our reputation for
performance, and our ability to negotiate responsible contracts. We believe
customers award us contracts on varying combinations of these factors.

Employees

Our employees are generally long serving, technically qualified
and performance driven. As of June 30, 2011, we employed 47 full time persons ,
including 15 engineers, 14 salespersons, and 17 technical support persons. None
were employed part-time. None of our employees are represented by a labor union.
We believe that our relationship with our employees is satisfactory.

Financial Information about Foreign and Domestic Operations
and Export Sales

A table of Customer Revenues by Geographic Area is set forth
above under Our Business  Introduction.

We have a sales and project management office in Milan, Italy
to manage our business in Europe and other international locations.

Foreign transactions are conducted in Canadian dollars, US
dollars or Euro to accommodate customers and all reporting is prepared in US
dollars. As a result, fluctuations in currency exchange rates may affect
operating results. To mitigate currency exposure we attempt to contract
outsourcing, where practical, in the same currency as the sales contract. There
were no outstanding foreign exchange forward contract commitments at June 30,
2011.

ITEM1A:RISKFACTORS

Forward-looking statements in this report, including without
limitation, statements relating to our 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
historical results or those we anticipate. Such risks and uncertainties include,
among others, the following:

Our operating results for fiscal 2011 were significantly and
negatively impacted by the economic downturnOur operating revenues were
approximately $13,739,000 for the fiscal year ended June 30, 2011, representing
a decrease of 1.1% when compared to our operating revenues of approximately
$13,886,000 for the comparable twelve month period of the prior fiscal year (and
a decrease of 45.9% when compared to our operating revenues of approximately
$25,405,000 for our 2009 fiscal year). These reductions in operating revenues
reflect our clients curtailment in capital expenditures and deferral in order
placements as they sought to cope with the effects of the economic downturn upon
their businesses.In fiscal 2011,we incurred a loss from
operations of approximately $1,645,000 and a net loss of approximately
$1,594,000, as contrasted with a loss from operations of approximately
$1,884,000 and a net loss of approximately $975,000 in fiscal 2010 and income
from operations of $2,165,000 and net income of approximately $1,556,000 in
fiscal 2009. Our net loss for the 2011 fiscal year reflects the effect of a
non-cash accounting adjustment of $722,824 which is attributable to a reduction
in the valuation of our deferred tax assets due to our incurrence of two
consecutive years of loss. This adjustment, by means of the establishment of a
reserve, does not reduce the total deferred tax assets available to offset
future taxes. Our backlog at June 30, 2011 was a record high of approximately
$12,000,000 as compared to a backlog of approximately $3,000,000 and $10,200,000
at June 30, 2010 and 2009, respectively. Exacerbating our fiscal 2011 and 2010
operating results were U.S. legislative delays in the enactment of new
environmental standards for emissions of hazardous pollutants, which caused many
of our historical and prospective clients across market sectors to delay their
plans for orders in anticipation of extended mandatory compliance dates. We are
unable to give you any assurance as to the timing, strength and duration of any
economic recovery nor can we give you any assurance as to when we may return to
continued profitability.

 8 

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We are dependent on environmental regulation to drive our ordersThe market for our air pollution control products and systems is directly dependent upon the existence and enforcement of laws and regulations which limit the release of
pollutants into the atmosphere and impose substantial penalties for non-compliance. Stringent enforcement of these laws and regulations may increase the attractiveness of, and demand for our products and services, whereas lax enforcement and/or less
strict regulation or repeal in whole or in part may have the opposite effect. Recent regulations include:

- Industrial Boiler MACT regulations for industrial boiler emissions control that had been scheduled to become effective on May 20, 2011, but were delayed until the earlier of the settlement of court challenges or the completion of EPAs
reconsideration of the standards; EPA has recently stated it will complete reconsideration by October 2011 and issue final standards by April 2012.;
- Utility Boiler MACT regulations for electric generating units, which EPA states will be issued November 16, 2011;
- SO2emission reduction regulations, which went into effect on August 23, 2010, for coal-fired power plants, pulp and paper mills, metallurgical smelters and cement kilns;
- Portland cement NESHAP standards for the reduction of hazardous air pollutants from the Portland cement manufacturing industry which went into effect on November 8, 2010; and
- Downwind emissions of NOx
and SO2from fossil-fired utilities in 27 states will be subject to stricter controls pursuant to the CSAPR, beginning in 2012 and in a second phase in 2014. The new rule replaces the existing CAIR
program and strengthens existing standards, requiring compliance over a more immediate timeframe.

All these rules have been challenged in court.  With regards to the Portland cement regulations, the reviewing court recently refused to stay these regulations pending judicial review. On May 17, 2011, the EPA agreed to reconsider certain
requirements of the rules, but refused to reconsider other issues. On May 18, 2011, the EPA stated it would agree to reconsider certain aspects of the Industrial Boiler MACT regulations and has effectively stayed them but has now proposed a new
timeline discussed above. That schedule, too, has been challenged in court. It is possible that further actions by the EPA, legal challenges or legislative developments could further delay or modify any of these or other regulations.

Our revenue is concentrated among a few customers who vary from year to year. Sales to our top three customers accounted for 30% (11%, 11%, 8%) of our net revenues in the fiscal year ended June 30, 2011 and 53% (29%, 15%, 9%) in the fiscal
year ended June 30, 2010. One was a repeat customer accounting for 11% in fiscal 2011 (9% in fiscal 2010). The bulk of our revenue is large dollar capital contracts over multiple months where the customer base may change widely on a year-to-year
basis. Our inability to replace these customers on an annual basis could materially and adversely affect future revenue and profitability.

Our proprietary technology and rights have limited protection. We rely on a combination of patents, trade and service marks, trade secrets and know-how to protect our proprietary technology and rights. There can be no assurance that our
patents will not be infringed upon, that we would have adequate remedies for any such infringement, or that our 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 us will be upheld, if challenged, or that the protections afforded thereby will not be circumvented by others. Litigation may be necessary to defend our proprietary rights, which
would result in significant cost to us and a diversion of effort of our personnel.

Our foreign sales are subject to certain inherent risks. Approximately 51% and 30%, respectively, of our revenues during our fiscal years ended June 30, 2011 and 2010 were derived from sales made outside of North America. Foreign sales are
subject to certain inherent risks, including unexpected changes in political, regulatory and other legal requirements, tariffs and other trade barriers, regional economic conditions and business practices, greater difficulty in collection of
accounts receivable, foreign exchange fluctuations and potentially adverse tax consequences. There can be no assurance that these factors will not have an adverse impact on our future foreign sales and, consequently, on our operating results.

Permitting delays may cause extended delay or cancellation of one or more of our large projects. Some of our projects require permits to be issued by one or more governmental agencies prior to the commencement of both construction and
operation. Issuance of such permits could be delayed by political and other considerations. Permitting delays could cause extended delay or cancellation of one or more of our large project opportunities, which would adversely impact our future
revenues.

Since we do not manufacture or fabricate our own products or systems, we are dependent on the services of third party manufacturers and fabricators. We do not manufacture or fabricate our own products or systems, relying instead upon the
services of third party manufacturers and fabricators. We also do not engage in the field construction of our systems but rely on field construction subcontractors operating under the supervision of our 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 us.

 9 

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The markets for environmental control products are very
competitive. The markets for environmental control products are
characterized by substantial competition based primarily on engineering and
technological expertise and quality of service. Because virtually all contracts
for our 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 we believe that we compete on the basis of our technical
expertise and reputation for service, there can be no assurance that we will
maintain our competitive position in our principal markets.

Our fixed price contracts expose us to losses in the event
of cost overruns.Our receipt of a fixed price contract as a consequence of
being the lowest competitive bidder carries the inherent risk that our actual
performance costs may exceed the estimates upon which our bid for such contract
was based. To the extent that contract performance costs exceed projected costs,
our profitability could be materially adversely affected. Escalation clauses
regarding labor or material changes, including commodity price changes, are not
normally accepted by our clients. Rather we may elect to place orders as soon
after receipt of a firm customer order as possible to manage our labor/material
price escalation exposure.

Adverse economic conditions may cause customers to delay or
terminate our fixed price contracts.Due to a number of factors including
adverse market conditions, fixed price contracts may be delayed or terminated by
customers. Although we are typically protected by contractual terms that will
address the cost implications of these events, any such delays may have a
material impact on our contract revenue and therefore our profitability in a
given fiscal period.

The market price of our common stock could be subject to
wide fluctuations in response to numerous factors, some of which are beyond our
control.These factors include, among other things, actual or anticipated
variations in our costs of doing business, operating results and cash flow,
backlog, the nature and content of our earnings releases and our competitors
earnings releases, customers, competitors or markets, changes in business
conditions in our markets and the general state of the securities markets and
the market for similar stocks, changes in capital markets that affect the
perceived availability of capital to companies in our industries, governmental
legislation or regulation the environment, as well as general economic and
market conditions, such as continued downturns in our economy and recessions.

ITEM1B:UNRESOLVEDSTAFFCOMMENTS

None.

ITEM2:PROPERTIES

As of September 21, 2011, TurboSonic occupied the following
facilities:

|Location                     |  | Use                                                                     |  |  | Sq. Ft. |  |   | Annual Rent |  |  | Lease Expires | 
|---------------------------- |  | ----------------------------------------------------------------------- |  |  | ------- |  | - | ----------- |  |  | ------------- | 
|Waterloo, Ontario, Canada    |  | Executive, administration,
      sales, engineering, project management |  |  | 12,400  |  | $ | 118,250     |  |  | July 2013     | 
|Raleigh, North Carolina, USA |  | Project management                                                      |  |  | 1,000   |  | $ | 11,400      |  |  | November 2013 | 
|Milan, Italy                 |  | Sales & project
      management                                        |  |  | 975     |  | $ | 14,800      |  |  | July 2016     | 

ITEM3:LEGALPROCEEDINGS

On October 6, 2005 a statement of claim was filed against our
company in the Ontario Superior Court of Justice (Canada) by Abuma Manufacturing
Limited (Abuma), one of our vendors, in which it claimed additional charges
for work performed and refuted our claim for back charges on a specific project.
Its claims are for CAD $95,647 in respect of unpaid accounts, CAD $50,000 for
aggravated, punitive and/or exemplary damages, interest on the past due accounts
and costs of the action. It is our position that the claims are without merit
and we have filed a statement of defense and counter-claim. Each company has
filed an affidavit of documents and discovery of both has been conducted. Legal
counsel for Abuma has filed its Trial Record (February 2011) indicating its
readiness to proceed to trial and a pre-trial conference is set for late October
2011 and a trial date has been established for mid-April 2012. It is still our
contention that the claims are without merit. As such, there is no accrual for
an adverse outcome.

On November 10, 2009 a statement of claim was served against
our company and one of our customers in the United States District Court,
Western District of Pennsylvania by a competitor, in which it was claimed that a
contract awarded to our company in June 2009 had infringed on one of their
patents. This patent infringement case, related to our TurboSorb Spray-Dry
Absorption (SDA) technology, was settled in fiscal 2011 at no material cost to
us. As a result of this settlement, our competitor granted TurboSonic a patent
license to pursue
SDA opportunities in the US and Canada. We continue to freely pursue
opportunities in other markets on a world-wide basis.

In the normal course of operations, we are party to a number of
lawsuits, claims and contingencies. Accruals are made in instances where it is
probable that liabilities have been incurred and where such liabilities can be
reasonably estimated. Although it is possible that liabilities may be incurred
in instances for which no accruals have been made, we do not believe that the
ultimate outcome of these matters will have a material impact on our
consolidated financial position.

ITEM4:RESERVED

 10 

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PARTII

ITEM5:MARKETFORCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOFEQUITYSECURITIES

Our 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 our Common Stock for the periods shown, as furnished by The Nasdaq Stock
Market.

|                                | Common Stock (1)
|------------------------------- | ----------------
|                                | High            
|Fiscal Year Ended June 30, 2011 |                 
|First Quarter                   | $0.440          
|Second Quarter                  | $0.440          
|Third Quarter                   | $0.520          
|Fourth Quarter                  | $0.480          
|                                |                 
|Fiscal Year Ended June 30, 2010 |                 
|First Quarter                   | $1.370          
|Second Quarter                  | $1.300          
|Third Quarter                   | $0.850          
|Fourth Quarter                  | $0.600          

|(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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of June 30, 2011, there were 293 holders of record and
approximately 1,375 beneficial holders of the Common Stock. This number of
beneficial holders represents the number of actual holders of our Common Stock,
including an estimate of the beneficial owners of shares held in nominee or
street name.

We do not anticipate paying any cash dividends in the
foreseeable future, as it is the current policy of our Board of Directors to
retain any earnings to finance our future operations and expand our business.

ITEM6:SELECTEDFINANCIALDATA

The following table sets forth selected historical financial
data for fiscal years ended June 30, 2007 through 2011 and balance sheet data as
of June 30, 2007 through 2011. This selected financial data (except for working
capital, percentages and ratios) is derived from our audited Consolidated
Financial Statements, for the years 2007 to 2011.

|Selected Financial Data                       |  | Fiscal 2011 |   |  | Fiscal 2010 |   |  | Fiscal 2009 |  |  | Fiscal 2008 |   |  | Fiscal 2007 | 
|--------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- |  |  | ----------- | - |  | ----------- | 
|                                              |  | **$**       |   |  | **$**       |   |  | **$**       |  |  | **$**       |   |  | **$**       | 
|Revenue                                       |  | 13,739,297  |   |  | 13,886,053  |   |  | 25,405,475  |  |  | 14,268,284  |   |  | 22,893,353  | 
|Net (Loss)
      Income                       |  | (1,594,144  | ) |  | (975,153    | ) |  | 1,555,905   |  |  | (662,994    | ) |  | 1,281,462   | 
|% Return on sales                             |  | (11.6%      | ) |  | (7.0%       | ) |  | 6.1%        |  |  | (4.6%       | ) |  | 5.6%        | 
|Total
      assets                            |  | 7,982,899   |   |  | 7,436,267   |   |  | 13,480,335  |  |  | 8,597,847   |   |  | 7,092,800   | 
|Long-term debt                                |  | --          |   |  | 143,519     |   |  | 212,254     |  |  | 20,908      |   |  | 29,786      | 
|Working
      capital                         |  | 3,174,400   |   |  | 3,646,322   |   |  | 4,922,251   |  |  | 2,861,501   |   |  | 3,455,180   | 
|Current Ratio                                 |  | 1.99:1      |   |  | 2.72:1      |   |  | 1.66:1      |  |  | 1.72:1      |   |  | 2.51:1      | 
|Stockholders Equity                          |  | 4,781,066   |   |  | 5,245,396   |   |  | 5,860,806   |  |  | 4,350,080   |   |  | 4,788,778   | 
|% Return on stockholders
      equity        |  | (33.3%      | ) |  | (18.6%      | ) |  | 26.5%       |  |  | (15.2%      | ) |  | 26.8%       | 
|Basic
      weighted average number of shares |  | 17,037,418  |   |  | 15,137,528  |   |  | 15,130,054  |  |  | 15,130,054  |   |  | 14,933,087  | 
|Diluted weighted average number of shares     |  | 17,037,418  |   |  | 15,137,528  |   |  | 15,168,536  |  |  | 15,130,054  |   |  | 15,055,748  | 
|Diluted earnings
      (loss) per share       |  | (0.09       | ) |  | (0.06       | ) |  | 0.10        |  |  | (0.04       | ) |  | 0.09        | 

 11 

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ITEM7:MANAGEMENTSDISCUSSIONANDANALYSISOFFINANCIALCONDITIONANDRESULTSOFOPERATIONS

The following discussion should be read in conjunction with our Consolidated Financial Statements and related notes. The purpose of the discussion and analysis is to enhance the understanding and evaluation of our results of operations,
financial position, liquidity and capital resources, and other key financial information.

Overview

TurboSonic Technologies, Inc. designs and supplies air pollution control technologies to industrial customers worldwide. We believe our products and systems, which are designed to meet the strictest emission regulations for gaseous and particulate
emissions, afford economic and technical advantages over competitive air pollution equipment. We currently have two reportable business segments  OEM systems and Aftermarket.

Sales are frequently attained through the recommendation of engineering firms who are often engaged in complete plant installations or upgrades. Other sales opportunities are sourced directly with the end user by our independent sales
representatives or by our internal sales team. We have sales, project management and field service personnel in remote offices to support local markets.

Our leading edge technology and strong project management performance contribute significantly to our strategy of building long-term loyalty and growth through customer satisfaction. This allows us to serve the demanding requirements of
multinational firms that we believe can provide a series of opportunities over many years.

We perform all process engineering and the detailed design and specifications for all applicable structural, electrical, mechanical and chemical components of such system. We subcontract all fabrication and installation of systems when contracted.
Our project managers and quality assurance personnel supervise and manage all aspects of our contracts to ensure we meet the performance criteria, as agreed with our customers.

We conduct business in Canadian, US and European currency to accommodate customers and mitigate our exchange risk through matching the sales currency with the supplier currency where practical. We participated in foreign exchange spot trading
activities only during the fiscal year ended June 30, 2011.

Critical Accounting Policies

Discussion of our financial condition and results of operations is an analysis of our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America
(GAAP). The preparation of these Consolidated Financial Statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related contingent assets and
liabilities. Estimates have been employed in the areas of revenue recognition, allowance for doubtful accounts, deferred taxes, investment tax credits, uncertain tax positions, stock-based compensation expense, contingencies, goodwill impairment
testing, inventory obsolescence, warranty provision and long-lived assets and liabilities. We base our estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may
differ from these estimates.

We believe the following critical accounting policies affect the more significant judgements and estimates used in the preparation of our Consolidated Financial Statements:

Revenue Recognition

We derive revenue from long-term contracts which require performance [i.e., design, fabricate, install, commission and test] over a time span which may extend beyond one or more accounting periods. For long-term contracts, we employ the percentage
of completion method for all of such projects being undertaken except in instances of significant uncertainty, such as in the use of new technology, in which we employ the completed contract method. Aftermarket revenue recorded is based on
persuasive evidence of an existing arrangement, price is fixed and determinable, products are shipped, services are performed or billings are rendered, which approximates actual performance, and collection is reasonably assured.

The percentage-of-completion is determined by best available engineering estimates by our project managers. Engineering progress is measured in time relative to the overall project design time, valued at standard rates. Fabrication progress is
determined by the degree of completeness in value relative to the project plan. When included in the scope of the work, installation progress is based upon work completed relative to the installation scope. Monthly revenue recognition reflects the
summary degree of completeness based upon review of the above elements and further validated by review and consensus by the project manager, quality inspectors, and the construction advisor, if applicable. When the current estimated costs to
complete indicate a loss, such losses are recognized immediately for accounting purposes.

 12 

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At June 30, 2011, the net position of contracts in process is an investment of $339,878 compared to June 30, 2010 with an investment of $133,885. These amounts include gross costs and accrued income, which is netted against billings and
progress payments. If the conditions of work to be performed change, or the estimated costs are not accurately projected, the gross profit from construction-type contracts may vary significantly in future periods. For example, a one percent variance
in our estimate of costs as of June 30, 2011 on all open fixed-price contracts would impact our pre-tax income from product sales and services by $230,000.

Goodwill

Goodwill, which resides entirely in our Aftermarket business segment, represents the excess of purchase price over fair value at the time of the combination of Turbotak Technologies Inc. and Sonic Environmental Systems, Inc. into TurboSonic
Technologies, Inc. in 1997.

We assess the impairment of goodwill annually or whenever business circumstances indicate that the carrying value of the goodwill asset on our balance sheet may not be recoverable, in whole or part. Our impairment review considers, among other
things:

- significant underperformance relative to expected historical or projected future operating results;
- significant changes in the manner of our use of the acquired assets or the strategy for our overall business;
- significant negative industry or economic trends; and
- significant decline in our stock price for a sustained period, and our market capitalization relative to net book value.

An annual test was completed at April 1, 2011 for the Aftermarket reporting unit. This test and an additional test at June 30, 2011 were based on a five-year discounted (12%) Cash Flow calculated using the pre-tax net income projection from our 2012
business plan. With the fair value exceeding book value by $401,713 in the June 2011 test, the conclusion reached was that there was no impairment of goodwill value for the year ended June 30, 2011.

Income Taxes and Tax Valuation Allowances

We record the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in our Consolidated Balance Sheet, as well as operating loss and tax credit carryforwards. Future realization of
deferred tax assets ultimately depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward periods available under the tax law. We regularly
review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. After two consecutive years of
substantial losses and continuing uncertainty surrounding the U.S. and global economics, the guidance under ASC Topic 740 considers this to be objective verifiable evidence that the deferred tax assets may not be recoverable through the criteria of
a more likely than not (MLTN). We reassessed the valuation of deferred tax assets during the fourth quarter of fiscal 2011 and recorded a valuation reserve totaling $722,834.

The reserve considered the jurisdictions where we are subject to income tax: US
federal, State of North Carolina (NC), Canadian federal and provincial and
Italian federal and regional. We considered our average tax positioned over the
preceding five years in each jurisdiction, combined this with our future
projections of taxable income in the respective jurisdictions and computed a balance that
we expect to realize in the five year period following fiscal 2011. That analysis determined that:
the US federal deferred tax asset to be realized should be capped at a deferred tax amount of
$750,000, NC loss carryforward would expire in 2012 under the likelihood that no income is attributable in the state and the Canadian and Italian deferred tax amounts are MLTN recoverable. In summary, a valuation reserve in fiscal 2011 was
recorded for US federal tax of $615,834 and for NC tax of $107,000.

Our Consolidated Balance Sheet as of June 30, 2011 includes a non-current deferred tax asset of $1,070,592, after recording the valuation reserve of $722,834. This compares with a non-current deferred tax asset of $1,021,343 as of June
30, 2010. For all other jurisdictions for which we have net deferred tax assets, we expect that our future levels of pre-tax income are sufficient to generate the amount of future taxable income needed to realize these tax assets. Although we make
every reasonable effort to ensure the accuracy of our deferred tax assets, if we continue to operate at a loss in certain jurisdictions or are unable to generate sufficient future taxable income, or if there is a material change in the actual
effective tax rates or time period within which the underlying temporary differences become taxable or deductible, or if the potential impact of tax planning strategies changes, we could be required to increase the valuation allowance against all or
a significant portion of our deferred tax assets resulting in a substantial increase in our effective tax rate and a material adverse impact on our operating results.  As we realize future taxable income, we will record the applicable tax first
against the valuation reserve before drawing on the gross deferred tax asset balance.

 13 

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Results of Operations

Since completing a record year in fiscal 2009, we have been
experiencing the effects of the economic downturn in fiscal 2011 and 2010. This
downturn in our performance was attributable in substantial part to capital
expenditure deferrals by customers throughout our primary business sectors.
While we continue to face market uncertainties due to a slow economic recovery,
we are encouraged by $22.7 million in new orders received in fiscal 2011 ($6.7
million in fiscal 2010) from key industries as represented in our growth in
backlog orders from $3 million as of June 30, 2010 to a record high of $12
million as of June 30, 2011.

With revenue and gross profit in fiscal 2011 and fiscal 2010
almost identical, our reductions in selling, general and administrative expenses
resulted in a reduced pre-tax loss of $1,647,484 for the fiscal year 2011
compared to a pre-tax loss of $1,885,635 for the fiscal year 2010.

Operations used $1,085,451 in cash reserves, ($3,791,040 in
2010) which we partially offset in fiscal 2011 through a common share rights
issuance to existing shareholders for net proceeds of $853,086. The cash
position at June 30, 2011 was $1,674,204 compared to $2,036,529 at June 30,
2010.

Markets

International expansion plays a key role in our long-term
business plan. We continue to develop customers beyond our North American and
European base and collaborate with other technology firms to offer unique
solutions to pollution problems experienced around the globe. Some of these
initiatives have focused on the non-regulatory market to offer our customers an
economic payback to justify purchase decisions. We try to diversify in
geography, industries, products and solutions to accommodate changes in
politics, economics and technology.

Environmental Regulation

SO2 emission reduction regulations went into
effect on August 23, 2010, for coal-fired power plants, pulp and paper
mills,metallurgical smelters and cement kilns. In addition, a final rule
went into effect on November 8, 2010, designed to reduce hazardous air
pollutants from the Portland cement manufacturing industry. The proposed
Industrial Boiler MACT for industrial boiler emissions, expected to be law by
December 2010, has been delayed until the earlier of the settlement of court
challenges and the completion of EPAs reconsideration of the ruling. EPA
currently estimates a final rule by April 2012. EPA is also set to finalize its
Utility MACT for electric generating units by November 2011, and has recently
issued a final CSAPR, further limiting emissions of NOx and SO2 from power
plants in certain designated states. We believe that these rules, if and when
enacted, will afford us significant sales opportunities as they will impact
industries in which we have years of experience, a large client base, and proven
technologies for compliance.

According to The McIlvaine Company, a recognized independent
market consulting firm with expertise in the air pollution control industry, the
world market for air pollution control systems, products and services is
forecast to grow from $65 billion in 2004 to $250 billion by 2015. Although we
serve a very small part of this massive market the scale of opportunity is
relevant to us.

Our New Technology

CGT, a new patented technology to which TurboSonic has
exclusive worldwide marketing rights, is a significant development in the
control of volatile organic compounds (VOCs). CGT destroys VOCs such as
formaldehyde from industrial air emissions, eliminating dependence on natural
gas combustion in thermal oxidizers, the traditional approach to VOC
control.

CGT avoids CO2 and NOx generated by the
combustion of natural gas. The CGT technology offers an opportunity for a return on investment from the savings to the user of natural gas. CGT sales
represented approximately $3 million of our closing backlog of $12 million at
June 30, 2011. There is considerable interest in the CGT technology by potential
clients, the EPA, and state and provincial agencies. We are conducting
discussions with numerous customers regarding sales of these systems. According
to The McIlvaine Company, the worldwide market for thermal oxidizers represents
40% of the total market for VOC abatement equipment, which was estimated in 2008
to be $4.25 billion annually. We believe that CGT technology will apply to a
sizeable portion of this market.

Intellectual Property

We have an ongoing program for the research, development and
commercialization, as well as licensing of new industrial processing and air
pollution control products, systems and technologies, and the enhancement of
existing products and systems. We believe that these investments will contribute
significantly to our future growth.

The addition of CGT technology provides an economic rather than
solely regulatory-driven demand for our technologies. CGT technologies displace
thermal oxidation and the corresponding use of natural gas for the destruction
of VOCs, thereby providing a return on investment for our clients.

A patent infringement case, related to our TurboSorb Spray-Dry
Absorption (SDA) technology, was settled in fiscal 2011 at no material cost to
us. As a result of this settlement, our competitor granted TurboSonic a patent
license to pursue
SDA opportunities in the US and Canada. We continue to freely pursue
opportunities in other markets on a world-wide basis.

 14 

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Income Statement Analysis:

12 MONTH COMPARATIVE INCOME STATEMENTS AT JUNE 30, 2011
AND 2010

|                                              |  | Fiscal 2011 |   |  | % to    |   |  | Fiscal 2010 |   |  | % to    |   |  | Increase (Decrease) |  
|--------------------------------------------- |  | ----------- | - |  | ------- | - |  | ----------- | - |  | ------- | - |  | ------------------- | -
|                                              |  |             |   |  | Total   |   |  |             |   |  | Total   |   |  |                     |  
|                                              |  | **$**       |   |  | Revenue |   |  | **$**       |   |  | Revenue |   |  | **$**               |  
|Contract revenue & sales                      |  |             |   |  |         |   |  |             |   |  |         |   |  |                     |  
|OEM systems                                   |  | 10,154,521  |   |  | 74%     |   |  | 10,798,683  |   |  | 78%     |   |  | (644,162            | )
|Aftermarket parts &
      retrofits           |  | 3,584,776   |   |  | 26%     |   |  | 3,087,370   |   |  | 22%     |   |  | 497,406             |  
|                                              |  | 13,739,297  |   |  | 100%    |   |  | 13,886,053  |   |  | 100%    |   |  | (146,756            | )
|Contract costs & cost of sales                |  |             |   |  |         |   |  |             |   |  |         |   |  |                     |  
|OEM systems                                   |  | 7,845,111   |   |  | 57%     |   |  | 8,292,748   |   |  | 60%     |   |  | (447,637            | )
|Aftermarket parts &
      retrofits           |  | 2,154,248   |   |  | 16%     |   |  | 1,842,631   |   |  | 13%     |   |  | 311,617             |  
|                                              |  | 9,999,359   |   |  | 73%     |   |  | 10,135,379  |   |  | 73%     |   |  | (136,020            | )
|Gross profit                                  |  |             |   |  |         |   |  |             |   |  |         |   |  |                     |  
|OEM systems                                   |  | 2,309,410   |   |  | 17%     |   |  | 2,505,935   |   |  | 18%     |   |  | (196,525            | )
|Aftermarket parts &
      retrofits           |  | 1,430,528   |   |  | 10%     |   |  | 1,244,739   |   |  | 9%      |   |  | 185,789             |  
|                                              |  | 3,739,938   |   |  | 27%     |   |  | 3,750,674   |   |  | 27%     |   |  | (10,736             | )
|Expenses                                      |  |             |   |  |         |   |  |             |   |  |         |   |  |                     |  
|Selling, general
      & administrative       |  | 5,032,042   |   |  | 37%     |   |  | 5,106,408   |   |  | 38%     |   |  | (74,366             | )
|Research & development costs                  |  | 182,007     |   |  | 1%      |   |  | 332,193     |   |  | 2%      |   |  | (150,186            | )
|Depreciation & amortization                   |  | 170,786     |   |  | 1%      |   |  | 196,457     |   |  | 1%      |   |  | (25,671             | )
|                                              |  | 5,384,835   |   |  | 39%     |   |  | 5,635,058   |   |  | 41%     |   |  | (250,223            | )
|(Loss) from
      operations                  |  | (1,644,897  | ) |  | (12%    | ) |  | (1,884,384  | ) |  | (14%    | ) |  | 239,487             |  
|Other expense                                 |  |             |   |  |         |   |  |             |   |  |         |   |  |                     |  
|Interest, net                                 |  | 2,587       |   |  | 0%      |   |  | 1,251       |   |  | 0%      |   |  | (1,336              | )
|(Loss) before taxes                           |  | (1,647,484  | ) |  | (12%    | ) |  | (1,885,635  | ) |  | (14%    | ) |  | 238,151             |  
|(Recovery
      of) income taxes              |  | (53,340     | ) |  | (0%     | ) |  | (910,482    | ) |  | (7%     | ) |  | (857,142            | )
|Net (loss)                                    |  | (1,594,144  | ) |  | (12%    | ) |  | (975,153    | ) |  | (7%     | ) |  | (618,991            | )
|Foreign
      currency translation adjustment |  | 243,897     |   |  | 2%      |   |  | 274,374     |   |  | 2%      |   |  | (30,477             | )
|Comprehensive (loss)                          |  | (1,350,247  | ) |  | (10%    | ) |  | (700,779    | ) |  | (5%     | ) |  | (649,468            | )

OEM order backlog at the beginning of fiscal 2011 was $2.4
million ($9.7 million at the beginning of fiscal 2010) and orders during fiscal
2011were $19.0 million ($3.5 million during fiscal 2010). OEM systems revenue
was $10.2 million in fiscal 2011 ($10.8 million in fiscal 2010) contributing to
$11.7 million in backlog for the beginning of fiscal 2012 ($2.4 million for the
beginning of fiscal 2011). Annual revenue decreased 6% year over year whereas
the backlog of orders increased 400% for the reasons discussed above under
Results of Operations.

The cost of sales for OEM systems decreased 5% for the twelve
month period ended June 30, 2011 which reflects the decrease in revenue (6%)
over the same period in the prior year. As a result, gross profit on OEM systems
was 23% for both fiscal years and gross profit as a percentage of revenue was
17% for fiscal 2011 and 18% for fiscal 2010, which difference is due to a sales
mix between OEM and Aftermarket reporting units.

Our Aftermarket revenue increased 16% for the twelve month
period ended June 30, 2011 over the same period in the prior fiscal year due
mostly to an increase in semi-dry scrubbing orders (14%) , an increase in
evaporative gas cooling orders (50%) and an increase in field service orders
(30%).

The cost of sales for Aftermarket products increased 17% for
the twelve month period ended June 30, 2011which reflects the change in
Aftermarket revenue over the same period in fiscal 2010. The gross profit
attributable to Aftermarket products was 10% of total revenue for fiscal 2011
(9% in fiscal 2010). Gross profit on Aftermarket segment revenue in fiscal 2011
was 40%, unchanged from fiscal 2010.

The gross profit from OEM systems in fiscal 2011 decreased 8%
over fiscal 2010, and Aftermarket gross profit in fiscal 2011 increased 15% over
fiscal 2010. This was due to lower sales volumes in the OEM segment for 2011
compared to 2010 and higher sales volumes in Aftermarket products in 2011 over
2010.

Selling, general and administrative expenses decreased $74,366
(1%) in fiscal 2011. This decrease is represented by changes in the following: a
decrease in legal fees by $297,000 and a decrease in patent fees by $48,000,
partially offset by increased salaries and benefits of $275,000. Legal fees had
been high in 2010 due to our defense and settlement against a patent
infringement claim by one of our competitors. The increased salaries and
benefits in 2011 represented a return to full salary for staff after 4 months of
a salary reduction plan in 2010, and the 2011 addition of a salesperson in our
Italian operation. As a percentage of total revenue, selling, general and
administrative expenses were 37% in fiscal 2011 and 38% in fiscal 2010.

 15 

---

The decrease of $150,186 in research and development costs is
primarily due to the completion of WESP technology upgrades in 2010. This
special initiative enhanced our product offering to address anticipated new
regulatory announcements for boiler emission controls by the EPA.

The decrease of $1,336 in interest expense is due to the low
interest rates and early payment of our bank debt in 2011.

Loss before taxes decreased by $238,151 year over year to a net
loss of $1,647,484 in fiscal 2011 compared to a loss before taxes of $1,885,635
in fiscal 2010. This full year result reflects the decreased operating expenses
experienced in fiscal 2011. We had a net loss of $1,594,144 in fiscal 2011
compared to a net loss of $975,153 in fiscal 2010. Our net loss for the 2011
fiscal year reflects the effect of a non-cash accounting adjustment of $722,834
which is attributable to a reduction in the valuation of our deferred tax assets
due to our incurrence of two consecutive years of losses. This adjustment, by
means of the establishment of a reserve, does not reduce the actual total
deferred tax assets available to offset future taxes.

Recovery of income tax for fiscal 2011 was $53,340 compared to
recovery of income tax of $910,482 in fiscal 2010. The fiscal 2011 recovery of
tax includes decreases in deferred tax assets in the US of $200,493 and an
increase in Canada of $240,753, together with recovery of Italian tax of $14,387
and provision for US tax of $1,307. The fiscal 2010 recovery of tax includes
increases in deferred tax assets in the US of $673,229 and in Canada of $34,892,
together with recovery of Canadian tax of $18,320, provisions for US tax of
$17,740 and Italian tax of $44,890, as discussed in note 13 to the Consolidated
Financial Statements. The US deferred tax assets includes a valuation allowance
of $722,834, after an analysis identified that a portion of the deferred tax
assets may not be recoverable through the criteria of more likely than not.
Our effective tax rate for fiscal 2011 was (3%) versus the (48%) recorded in
fiscal 2010. The recovery in fiscal 2011 is primarily related to our Scientific
Research and Experimental Development Investment Tax Credit (ITC) claims as
part of our companys fiscal 2011 and 2010 Canadian corporate tax filings.

The other comprehensive income shown as foreign currency
translation adjustment reflects the exchange values for Canadian dollar and Euro
accounts on the balance sheet converted to US dollars for financial reporting.
The statement of comprehensive income reflects annual change in the carrying
value of these accounts  an increase of $243,897 in fiscal 2011 and a increase
of $274,374 during fiscal 2010 - while the Stockholders equity carries the
cumulative value of currency exchange for balance sheet accounts.

|Liquidity and Capital Resources
      Analysis:  |  |                                   |   |  |            |  
|------------------------------------------------ |  | --------------------------------- | - |  | ---------- | -
|LIQUIDITY AND CAPITAL
      RESOURCES           
|                                                 |  | For the year ended June
      30, |  
|                                                 |  | 2011                              |   |  | 2010       |  
|Cash
      Summary                               |  | **$**                             |   |  | **$**      |  
|Cash (used in) provided by:                      |  |                                   |   |  |            |  
|Operations                                       |  | (1,085,451                        | ) |  | (3,791,040 | )
|Purchase of equipment                            |  | (44,534                           | ) |  | (46,041    | )
|Proceeds from common shares issued               |  | 853,086                           |   |  | 6,000      |  
|Repayment of obligations under long-term debt    |  | (152,953                          | ) |  | (78,789    | )
|Foreign currency translation of
      cash       |  | 67,527                            |   |  | 325,233    |  
|Net cash provided during the period              |  | (362,325                          | ) |  | (3,584,637 | )
|Cash
      beginning of period                   |  | 2,036,529                         |   |  | 5,621,166  |  
|Cash end of period                               |  | 1,674,204                         |   |  | 2,036,529  |  
|                                                 |  |                                   |   |  |            |  
|Working Capital Summary                          |  | 2011                              |   |  | 2010       |  
|                                                 |  | **$**                             |   |  | **$**      |  
|Current assets                                   |  | 6,376,233                         |   |  | 5,672,158  |  
|Current
      liabilities                        |  | 3,201,833                         |   |  | 2,025,836  |  
|Net
      working capital                        |  | 3,174,400                         |   |  | 3,646,322  |  
|Current ratio                                    |  | 1.99:1                            |   |  | 2.80:1     |  
|                                                 |  |                                   |   |  |            |  
|Summary of Contracts in
      Progress           |  | 2011                              |   |  | 2010       |  
|                                                 |  | **$**                             |   |  | **$**      |  
|Contract value completed and to be invoiced      |  | 1,492,747                         |   |  | 486,512    |  
|Contract advances invoiced                       |  | (1,152,869                        | ) |  | (352,627   | )
|Net contracts in progress                        |  | 339,878                           |   |  | 133,885    |  
|                                                 |  |                                   |   |  |            |  
|Contract Backlog                                 |  | 2011                              |   |  | 2010       |  
|                                                 |  | **$**                             |   |  | **$**      |  
|Contract
      value to be recognized as revenue |  | 12,000,000                        |   |  | 3,000,000  |  

 16 

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Cash of $1,085,451 applied to operations in 2011 was primarily due to the net loss for the year, while net proceeds ($853,086) from the sale of shares (see below) recovered most of the cash loss. In 2010, cash of $3,791,040 applied to
operations accounted for the significant decline in working capital from 2009 without an offset of capital proceeds. Cash applied in 2010 was the result of decreased accounts payable, accrued charges and unearned revenue and contract advances
partially offset by decreased accounts receivable, combined with the net loss recorded for the year. The net cash position $1,674,204 at June 30, 2011 is a decrease of $362,325 from the prior year.

On December 10, 2010 we completed a registered rights offering, which offered stockholders of record as of November 8, 2010 the right to acquire one share of our common stock for each two shares then held by such persons at a price of $0.34 per
share. Stockholders exercised subscription rights to acquire 1,601,611 shares and oversubscription rights to acquire an additional 1,814,447 shares, resulting in our sale of an aggregate of 3,416,058 shares of common stock and our receipt of gross
proceeds of $1,161,460 (net proceeds of $853,086).  Such proceeds were added to our working capital for marketing opportunities stemming from both recent and anticipated enactments by the EPA of more stringent emission standards and rules
for certain hazardous air pollutants and new products including CGT.

Our working capital decreased $471,922 in 2011 to $3,174,400, and the current ratio decreased to 1.99:1 from 2.80:1. This position continues to enable us to support a growth in sales anticipated from our increased backlog, increased
regulations and introduction of new CGT technology.

Our contract payment terms provide for funding the progression of work to the point of delivery. A final holdback amount is often dependent on commissioning, specified performance criteria or a fixed time of operations. At any point in time, the
contracts in process with costs that exceed invoicing may exceed the contracts that have been invoiced in advance of performance. At June 30, 2011, the net position of contracts in process is an investment of $339,878 compared to June 30, 2010
with an investment of $133,885. This investment is realized when full payment terms are achieved for issuance of invoicing to the client.

In March 2011, our ability to request standby letters of credit under our credit facility with a Canadian bank was reduced by that bank to USD $3.0 million (from USD $4.25 million). The standby letters of credit are secured by a general
security interest in, and lien upon, our assets and guarantees provided by Export Development Canada on a fee-for-service basis.

The Canadian bank also withdrew as of April 30, 2011 (i) our demand operating line of CAD $1.5 million, (ii) our demand credit for foreign exchange contracts of USD $750,000 and (iii) our demand term bank loan for computer equipment. There
were no drawdowns against the operating or foreign exchange credit lines and we repaid the demand term bank loan on April 29, 2011.

In May 2011, we reached an agreement with a second Canadian bank, with operating affiliates in the US and other countries, which provides for a credit facility for standby letters of credit for CAD $4.25 million that is secured by a general
security interest in, and lien upon, our assets and guarantees provided by Export Development Canada on a fee-for-service basis. This credit facility became operational in August 2011, at which time our prior credit facilities, discussed above, were
terminated by mutual consent.

At June 30, 2011, we had standby letters of credit for approximately USD $1.4
million (USD $2.0 million at June 30, 2010) in place with various customers in
order to receive cash proceeds ahead of delivery and end-of-warranty milestones.
Export Development Canada have provided guarantees to the Canadian Bank for
prior issued letters of credit and guarantees for subsequent letters of credit
to be issued through a second Canadian bank to a total credit line of CAD $4.25
million.

Financial covenants under the agreement with the second Canadian bank are: (a)
Total Liabilities to Tangible Net Worth Ratio does not exceed 2.0:1 at any time
and (b) Current Ratio is not less than 1.20:1 at any time. We were in compliance
with these terms at June 30, 2011: (a) Total Liabilities to Tangible Net Worth
Ratio was 0.42:1 and (b) Current Ratio was 1.99:1, and we are not aware of any
issues that could result in our non-compliance in the proximate future.

On September 19, 2011, we entered into an Investment Agreement with Dutchess Opportunity Fund, II, LP for the sale, from time to time, at our discretion, of up to $3.0 million of our common stock during a three-year period at a price equal to
95% of the recent average market price at the time of sale.  The extent to which we will need to access any portion or all of the proceeds available under the Investment Agreement will depend in substantial part upon the availability and adequacy of
our cash flows from operations so as to enable us to address timing differences that may arise in our need to pay vendors and suppliers in advance of our receipt of contractual progress payments from our customers.  A registration statement that
registers such common stock must be declared effective by the SEC prior to our sale to Dutchess of any common stock under the Investment Agreement.

As was the case with our previous bank operating line of credit that was never utilized, the Dutchess Investment Agreement for an equity line of credit has been established to provide back-up capabilities should the timing of our contractual
progress payments prove temporarily insufficient to pay our vendors and suppliers.

Our backlog as at June 30, 2011 was approximately $12,000,000, which we expect to record 90% as revenue in fiscal 2012, compared to the June 30, 2010 backlog of $3,000,000. There is no assurance that backlog will be replicated, increased or
transferred into higher revenues for the future.

 17 

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Based on our cash position and working capital at June 30, 2011; our credit agreements with the second Canadian bank and Export Development Canada; subject to the effectiveness of the registration statement described above, our access to an equity
line of credit with Dutchess; our recent increase in bookings; and anticipated sales orders through fiscal 2012, we believe that we will have sufficient capital resources to support operations through June 30, 2012.

ITEM7A:QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK

Foreign transactions are conducted in Canadian dollars, US dollars or Euro to accommodate customers and all reporting is prepared in US dollars. A major portion of our selling, administrative and engineering expenses is denominated in Canadian
dollars. As a result, fluctuations in currency exchange rates may affect operating results. We have not entered into forward or future foreign exchange contracts in fiscal 2011, and there were no outstanding forward foreign exchange contracts at
June 30, 2011. To further mitigate currency exposure we attempt to contract outsourcing, where practical, in the same currency as the sales contract or with fabricators where the all-in costs, including currency, are most favorable. At June 30,
2011, we were not using any bank borrowing facility, other than outstanding standby letters of credit totaling $1,441,757, that could subject us to the risk of interest rate fluctuations.

ITEM8:FINANCIALSTATEMENTS ANDSUPPLEMENTARYDATA

Reference is made to pages F-1 through F-18 comprising a portion of this Annual Report on Form 10-K.

ITEM9:CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE

Not applicable.

ITEM9A:CONTROLSANDPROCEDURES

Our management has carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of June 30, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2011.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2011 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by,
or under the supervision of our principal executive and principal financial officers and effected by our board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2011. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management determined that, as of June 30, 2011,
our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm
pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

ITEM9B:OTHERINFORMATION

On September 22, 2011, we issued a press release announcing our financial results for the year ended June 30, 2011. A copy of the press release is being furnished as Exhibit 99.1 to this report and incorporated herein by reference.

 18 

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PARTIII

ITEM10:DIRECTORS,EXECUTIVEOFFICERS ANDCORPORATEGOVERNANCE

Our executive officers, directors and key persons are as
follows:

|Name                     | Age | Positions and Offices                              
|------------------------ | --- | ---------------------------------------------------
|Ken Kivenko              | 69  | Chairman of the Board                              
|Edward F. Spink          | 57  | Chief Executive Officer and Director               
|Egbert Q. van Everdingen | 50  | President,
      Secretary-Treasurer and Director  
|Carl A. Young            | 69  | Chief Financial Officer                            
|Richard H. Hurd          | 74  | Director                                           
|Glen O. Wright           | 62  | Director                                           
|Raymond L. Alarie        | 59  | Director                                           
|F. Eugene Deszca         | 63  | Director                                           
|Robert A. Allan          | 69  | Vice President
      Engineering                   
|David J. Hobson          | 63  | Vice President Finance &
      Administration      
|Richard C. Gimpel        | 63  | Vice President Marketing
      & Sales             
|Luca Finzi               | 57  | General Manager  Italian Branch (key
      person)

Ken Kivenko, P.Eng.,has been a director of our company
sinceFebruary 2007. Mr. Kivenko, a member of the Professional Engineers
of Ontario, is the founder and President of Kenmar Consulting. Kenmar acts as a
private consultant in the areas of strategic planning, Total Quality, financing
and governance, and was established in January 2001. Prior thereto, he was
President and CEO of NBS Technologies, a supplier of credit and ID cards and
card personalization equipment, from June 1995 to December 2000. He currently
serves on the board of TSX-listed RDM Corporation (HR/Compensation committee and
Chair of Governance Committee). He is the Advisory Committee Chairman for the
Small Investor Protection Association in Canada, a member of the board of the
Excellence Canada (formerly National Quality Institute) and is a former member
of the Ontario Securities Commission Continuous Disclosure Advisory Committee.
We believe that Mr. Kivenkos extensive engineering background, his many years
as senior executive with a number of diversified companies, his role with the
National Quality Institute, over ten years of public board experience and his
background for good corporate disclosure and governance qualify him to serve as
a director of our company.

Edward F. Spink, Chief Executive Officer and director,
has completed 25 years as a Senior Executive with us and has participated in the
development of our company and our technology. He served as Chairman of the
Board of Directors from June 1999 to December 2007, at which time he nominated
an outside director as chairman to improve our corporate governance practises.
He has been instrumental in the expansion of product lines and the development
of our intellectual property base and has authored, participated and directed
numerous patents. Mr. Spink has served as a director with The Bank of Akron in
New York state since 2005. We believe that Mr. Spinks unique position in
working alongside our founder for 19 years, his 25 years as a senior executive
with TurboSonic and the role that he has played in the development of our
technology qualify him to serve as a director of our company.

Egbert Q. van Everdingen has served as our President,
Secretary-Treasurer and as a director, since June 2006. From August 2003 until
June 2006, he was Executive Vice President, with responsibility for all sales,
marketing, design and project engineering. Prior thereto and from August 1997,
Mr. van Everdingen served as our Vice President Marketing & Sales, Air
Pollution Control Systems. Prior thereto and from 1986, he served as project
manager and in various product development, sales and marketing positions with
Turbotak. We believe that Mr. van Everdingens knowledge and understanding of
the industry and over 20 years experience regarding business operations and
strategic planning qualify him to serve as a director of our company.

Carl A. Young, CA., has served as our Chief
Financial officer on a part-time basis since October 2006. A Chartered
Accountant, he had served as an officer and director of several private
industrial corporations through 1989, then becoming owner of Mentor Dynamics
Inc., which designed, manufactured and installed custom material handling
equipment and industrial overhead cranes, and Provincial International Cranes
Inc., which designed and sub-contracted fabrication of industrial and shipyard
cranes to international markets. After selling these businesses in 1999, Mr.
Young has provided interim management services as a senior financial officer and
director, and other business consulting services to a number of clients in
industry, commerce and services.

 19 

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Richard H. Hurd served as President from August 1993 to August 1997 and Treasurer from April 1994 to August 1997 of Sonic Environmental Systems, Inc., the predecessor to our company. He has been a director since February 1993 and currently
serves as our audit committee chairperson. Mr. Hurd has been President and sole owner of RHB Capital Company Inc., a financial consulting company since 1987. He is presently Chief of Staff to the Director of the New Jersey Division of Medical
Assistance and Health Services and was a Special Assistant to the Treasurer of the State of New Jersey. We believe that Mr. Hurds extensive finance and accounting background, his close involvement with Sonic Environmental Systems, Inc. and
TurboSonic over the past seventeen years, and his experience in investing and managing small and medium-sized businesses qualify him to serve as a director of our company.

Glen O. Wright has been a director of our company since December 2005. Mr. Wright founded Wright, Mogg and Associates Ltd., a pension and benefits consulting firm and served as its Chief Executive Officer from 1980 to 1986, and its
Chairperson and Chief Executive Officer until 1996. It was sold in 2000 to Cowan Insurance Group and he continued as Chairman of the Cowan Insurance Group until October 2002. He served as the Chairman of the Workplace Safety and Insurance Board in
Ontario from June 1996 to February 2004 and served as Chairman of Hydro One, the agency responsible for electric transmission in Ontario from June 2002 to May 2003. Since February 2004, he has been working on a number of consulting projects through
GPark Consulting Ltd., of which he is President. He is currently a director of PrinterOn Corporation, Waterloo North Hydro and LeanCor Logistics LLC, and was formerly a director for the Institute for Work and Health, Gore Mutual Insurance and the
Canadian Broadcasting Corporation, a member of the Wilfrid Laurier University Foundation, the 2010 Chair of the Joint Public Advisory Committee of the Commission for Environmental Cooperation and a member of the Council for Canadian Unity. We
believe that Mr. Wrights executive business experience, including founding a pension consulting firm, serving in senior executive roles for twenty years, and Chairman positions with major provincial organizations, qualify him to serve as a
director of our company.

Raymond L. Alarie, P.Eng., ICD.D,has been a director of our company since December 2008. Mr. Alarie, a member of the Professional Engineers of Ontario, was the founder and CEO of Paragon Engineering Ltd., an infrastructure consulting
engineering company from 1979 to 1997 until its acquisition by Stantec Inc. He served as Executive Vice President for Stantec Inc. from 2003 until he retired in 2006, with responsibility for several professional disciplines and regional operations
in Canada and in the USA totaling some 2,500 staff. Stantecprovides professional design and consulting services in planning, engineering, architecture, surveying, and project management. Prior thereto and concurrent with the most recent
position, he was a member of Stantecs Executive Leadership Team from 1997 to 2006 and contributed to Stantecs growth from 1,500 to over 5,500 employees. Since his retirement from Stantec in January 2006, he has continued to provide
occasional services to that firm as a senior consultant. In 2005, he received his corporate director designation through the Institute of Corporate Directors of Canada. We believe that Mr. Alaries founding role and senior executive positions
in a large engineering consulting firm, his position as senior executive in a large public firm, and his experience and training as a director qualify him to serve as a director of our company.

Dr. F. Eugene Deszca, Ph.D., has been a director of our company since December 2008. Dr. Deszca has been a Professor since 1982 at Wilfrid Laurier University in the School of Business and Economics, where he is currently the Associate MBA
Director. He has taught at Queens University, York University, the University of Western Ontarios Graduate Program in Engineering Management, and at St. Francis Xavier University, and is a member of the board of directors of the Society
of Management Accountants of Canada. As an educator and consultant, he has focused on the development of organizations and the people who work there, change management and the enactment of strategy. His consulting work is conducted through Gene
Deszca and Associates, of which he is President. We believe that Mr. Deszcas experience ranging from university faculty, research and consulting work with organizations and senior management groups on matters related to strategy,
organizational change, implementation and conflict management qualify him to serve as a director of our company.

Robert A. Allan, P.Eng., has served as our Vice President Engineering since August 27, 1997, and joined Turbotak as Manager of Engineering in 1990. Prior thereto and from 1979, he was a Manager of Engineering with Joy Technologies
Canada, an air pollution control company. Prior to 1979 and from 1972, he was a technical advisor with Flakt Canada, specifically on pollution control processes. He also held various senior project management and engineering positions in Quebec and
Sweden with AB Svenska Flaktfabriken. He is a professional engineer and holds a Master's degree in Mechanical Engineering from the University of Waterloo.

David J. Hobson has served as our Vice President Finance and Administration since August 27, 1997. Prior thereto and from 1996, he held the position of Controller with Turbotak. Mr. Hobson has over thirty years of finance and accounting,
human resources management and project management experience in the capital equipment sector, most of it gained in the air pollution control field with a division of Joy Technologies Canada.

Richard C. Gimpel was appointed our Vice President, Marketing and Sales in May 2006. Prior thereto and from 1999, he held the position of Sales Director for air pollution control systems in the US. Prior to joining us, he had held a number of
senior management positions including Director  Industrial Sales with Crowder Construction. He holds degrees in Industrial Engineering and Criminal Justice.

 20 

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Luca Finzihas served as General Manager Europe since February 2006. From 1996 to 2005 he was a General Manager with Hamon Research Cottrell, part of the Belgian-based Hamon Group, including three years as President of Hamon Research Cottrell
USA, based in New Jersey. Prior thereto, from 1985 to 1996, he was a manager with Cifa Progetti, an Italian company focused on environmental systems and bulk solids handling. He holds a Master's degree in Mechanical Engineering from the Politecnico
di Milano.

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.

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who own beneficially more than 10% of our common stock to file reports of ownership and changes in ownership of such common stock with the
SEC, and to file copies of such reports with us. Based solely upon a review of the copies of such reports filed with us, we believe that during the year ended June 30, 2011 such reporting persons complied with the filing requirements of Section
16(a).

Our Board of Directors has determined that each of our non-employee directors (Messrs. Kivenko, Hurd, Wright, Alarie and Deszca), who collectively constitute a majority of our Board, meets the general independence criteria set forth in the Nasdaq
Marketplace rules. In addition, our Board has made a subjective determination as to each of the foregoing individuals that no relationships exist that, in the opinion of our Board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director.

Our audit committee consists of three directors, Richard H. Hurd as chairperson, Raymond L. Alarie and Ken Kivenko. The Board of Directors has determined that Messrs. Hurd, Alarie and Kivenko meet the Nasdaq Marketplace Rule definition of
"independent" for audit committee purposes. The Board of Directors has also determined that Richard Hurd meets the SEC definition of an "audit committee financial expert."

Our audit committee has adopted a Code of Ethics applicable to all of our employees, including our Chief Executive Officer, Chief Financial Officer, and Vice President Finance, as well as the members of our board of directors. The Code of Ethics was
filed as Exhibit 14 to the Form 10-KSB for the year ended June 30, 2004, and is also posted on the Investor Relations page of our website at www.turbosonic.com.

Our compensation committee consists of three directors, Glen O. Wright as chairperson, F. Eugene Deszca and Raymond L. Alarie. The Board of Directors has determined that each member of the Compensation Committee meets the Nasdaq general definition
of independence for members of the board of directors.

 21 

---

ITEM11:EXECUTIVECOMPENSATION

Summary Compensation

Set forth below is the aggregate compensation for services
rendered in all capacities to us during the three fiscal years ended June 30, 2011 by
our chief executive officer and by our four other most highly compensated
executive officers during fiscal 2011 (collectively the Named Officers).

|                               |  | **SUMMARY
      COMPENSATION TABLE (1)** | 
|------------------------------ |  | ---------------------------------------- | 
|Name and                       |  | Year                                     | 
|Principal Position             |  | Ended                                    | 
|                               |  | June 30                                  | 
|                               |  |                                          | 
|Edward F. Spink                |  | 2011                                     | 
|Chief Executive Officer        |  | 2010                                     | 
|                               |  | 2009                                     | 
|                               |  |                                          | 
|Egbert Q. van Everdingen,      |  | 2011                                     | 
|President, Secretary-Treasurer |  | 2010                                     | 
|                               |  | 2009                                     | 
|                               |  |                                          | 
|Carl A. Young                  |  | 2011                                     | 
|Chief Financial Officer        |  | 2010                                     | 
|                               |  | 2009                                     | 
|                               |  |                                          | 
|Richard C. Gimpel,             |  | 2011                                     | 
|VP  Marketing & Sales         |  | 2010                                     | 
|                               |  | 2009                                     | 
|                               |  |                                          | 
|Robert A. Allan                |  | 2011                                     | 
|VP  Engineering               |  | 2010                                     | 
|                               |  | 2009                                     | 

|1) | No bonus awards were made except for bonus awards
      under Non-Equity Incentive Plan Compensation. We have no pension or
      deferred compensation plans to which we contribute.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|2) | This column represents the aggregate grant date fair
      value of option awards granted in fiscal 2009, 2010 and 2011, in
      accordance with ASC Topic 718, Compensation  Stock Compensation.
      Pursuant to SEC rules, the amounts shown exclude the impact of estimated
      forfeitures related to service-based vesting conditions. The fair value of
      the option award was calculated using the closing price of our common
      stock on the date of grant. For additional information, refer to note 12
      of our financial statements in this Form 10-K. Amounts in this column
      reflect our accounting expense for these awards and may not correspond to
      the actual value that will be recognized by the named executive
      officers.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3) | Amounts in this column represent discretionary bonuses
      approved by our Board of Directors in fiscal 2009 for the named executive
      officers. There were no discretionary bonuses approved by our Board of
      Directors in fiscal 2010 or 2011.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4) | This represents directors fees received during the
      corresponding fiscal year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|5) | This represents commission paid on orders received
      prior to fiscal 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

The recognized stock-based compensation expense listed as
Option Awards for Mr. Spink in the above Summary Compensation Table was derived
from an award of 20,000 options as a director made on December 11, 2008 at an
exercise price of $0.30, an award of 25,000 options as an employee made on
December 11, 2009 at an exercise price of $0.79 and an award of 25,000 options
as an employee made on December 9, 2010 at an exercise price of $0.31.

The recognized stock-based compensation expense listed as
Option Awards for Mr. Van Everdingen in the above Summary Compensation Table was
derived from an award of 20,000 options as a director made on December 11, 2008
at an exercise price of $0.30, an award of 25,000 options as an employee made on
December 11, 2009 at an exercise price of $0.79and an award of 25,000
options as an employee made on December 9, 2010 at an exercise price of $0.31.

The recognized stock-based compensation expense listed as
Option Awards for Mr. Young in the above Summary Compensation Table was derived
from an award of 15,000 options as an employee made on December 11, 2009 at an
exercise price of $0.79 and an award of 25,000 options as an employee made on
December 9, 2010 at an exercise price of $0.31.

 22 

---

The options reflected in the above Summary Compensation Table
as having been granted to Messrs. Spink and van Everdingen, in their respective
capacities as members of our Board were immediately exercisable upon their grant
date. The options reflected in the table as having been granted December 11,
2009 to Messrs. Spink, van Everdingen and Young, in their respective capacities
as employees will not become exercisable prior to December 11, 2012 for Mr.
Young and prior to December 11, 2014 for Messrs. Spink and van Everdingen. The
options reflected in the table as having been granted December 9, 2010 to
Messrs. Spink, van Everdingen and Young, in their respective capacities as
employees will not become exercisable prior to December 9, 2013 for Mr. Young
and prior to December 9, 2015 for Messrs. Spink and van Everdingen.

None of our executive officers are employed pursuant to an
employment agreement.

**OUTSTANDING EQUITY AWARDS AT JUNE 30, 2011**

|                         | Number of Shares    | Number of Shares    |          |            
|------------------------ | ------------------- | ------------------- | -------- | -----------
|                         | Underlying          | Underlying          | Exercise | Expiration 
|                         | Unexercised Options | Unexercised Options | Price    | Date       
|                         | Exercisable         | Unexercisable       |          |            
|Edward F. Spink          | 35,000              |                    | $1.10    | 1/05/2012  
|                         | 20,000              |                    | $0.84    | 12/11/2015 
|                         | 20,000              |                    | $0.30    | 12/11/2016 
|                         |                    | 25,000 (1)          | $0.79    | 12/11/2017 
|                         |                    | 25,000 (3)          | $0.31    | 12/11/2018 
|                         |                     |                     |          |            
|Egbert Q. van Everdingen | 35,000              |                    | $1.10    | 1/05/2012  
|                         | 20,000              |                    | $0.84    | 12/11/2015 
|                         | 20,000              |                    | $0.30    | 12/11/2016 
|                         |                    | 25,000 (1)          | $0.79    | 12/11/2017 
|                         |                    | 25,000 (3)          | $0.31    | 12/11/20187
|                         |                     |                     |          |            
|Carl A. Young            |                    | 15,000 (2)          | $0.79    | 12/11/2017 
|                         |                    | 25,000 (4)          | $0.31    | 12/11/2018 
|                         |                     |                     |          |            
|Richard C. Gimpel        | 12,500              |                    | $1.10    | 1/05/2012  
|                         |                     |                     |          |            
|Robert A. Allan          | 12,500              |                    | $1.10    | 1/05/2012  



|*1) Options vest on December
    11, 2014.* | *2) Options vest on December
    11, 2012.*
|------------------------------------------- | -------------------------------------------
|*3) Options vest on December
    9, 2015.*  | *4) Options vest on December
    9, 2013.* 

**



**COMPENSATION OF DIRECTORS**

|                  | Fees Earned or Paid in |                   |       
|----------------- | ---------------------- | ----------------- | ------
|                  | Cash                   | Option Awards (1) | Total 
|                  | $                      | $                 | $     
|Richard R. Hurd   | 23,750                 | 4,125             | 27,875
|Ken Kivenko       | 21,711                 | 4,125             | 25,836
|Glen O. Wright    | 24,206                 | 4,125             | 28,331
|Raymond L. Alarie | 23,707                 | 4,125             | 27,832
|F. Eugene Deszca  | 13,975                 | 4,125             | 18,100

|1) | This column representsthe aggregate grant date
      fair value of option awards granted in fiscal 2011, in accordance withASC Topic 718, Compensation  Stock Compensation. Pursuant to SEC
      rules, the amounts shown exclude the impact of estimated forfeitures
      related to service-based vesting conditions. The fair value of the option
      award was calculated using the closing price of our common stock on the
      date of grant. For additional information, refer to note 12 of our
      financial statements in this Form 10-K Amounts in this column reflect our
      accounting expense for these awards and do not correspond to the actual
      value that will be recognized by the
directors.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

 23 

---

Our non-executive directors are paid $3,000 per quarter and
$500 for each regularly scheduled board meeting or committee meeting attended in
person and $250 for each meeting attended by phone. In addition to the
above-noted fees, the board and the audit committee chairperson each receive
$3,000 per quarter and the compensation committee chairperson receives $750 per
quarter. All of our non-executive directors are periodically granted stock
options, typically on a yearly basis. Non-executive directors receive
reimbursement of out-of-pocket expenses incurred for each board meeting or
committee meeting attended. During the fiscal year ended June 30, 2011, there
was a grant of 20,000 options to each non-executive director, which vested
immediately, had an exercise price of $0.31 and an expiration date of December
9, 2018.

ITEM12:SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS

The following table sets forth, as of September 21, 2011 the
shares of our common stock beneficially owned by each person who, to our
knowledge, is the holder of 5% or more of our common stock, by each of our
directors, by the Named Officers and by all of our executive officers and
directors as a group.

|                                                                   |  | Number of Shares       |     |  | Approximate Percentage of | 
|------------------------------------------------------------------ |  | ---------------------- | --- |  | ------------------------- | 
|Name and
      Address of Beneficial Owner or Identity or Group*   |  | Beneficially Owned (1) |     |  | Class                     | 
|Dr. Donald R. Spink, Sr.                                           |  | 1,223,599              | (2) |  | 6.6%                      | 
|Edward F. Spink                                                    |  | 1,332,437              | (3) |  | 7.2%                      | 
|Egbert Q. van Everdingen                                           |  | 400,827                | (3) |  | 2.2%                      | 
|Richard H. Hurd                                                    |  | 176,137                | (4) |  | **                        | 
|Glen O. Wright                                                     |  | 151,000                | (4) |  | **                        | 
|Ken Kivenko                                                        |  | 122,500                | (4) |  | **                        | 
|Raymond L. Alarie                                                  |  | 410,000                | (5) |  | 2.2%                      | 
|F. Eugene Deszca                                                   |  | 210,000                | (5) |  | 1.1%                      | 
|Carl A. Young                                                      |  | 154,058                |     |  | **                        | 
|Richard C. Gimpel                                                  |  | 62,500                 | (6) |  | **                        | 
|Robert A. Allan                                                    |  | 167,500                | (6) |  | **                        | 
|Bard Associates, Inc. (7)                                          |  | 3,745,350              |     |  | 20.2%                     | 
|Perritt Funds, Inc. (8)                                            |  | 1,055,000              |     |  | 5.7%                      | 
|All Executive Officers and Directors as a group (11
      persons) |  | 3,247,120              | (9) |  | 16.9%                     | 

|(*)  | Unless otherwise indicated, address of each person is c/o
      TurboSonic Technologies, Inc. 550 Parkside Drive, Suite A-14, Waterloo,
      Ontario, N2L 5V4, Canada.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                        
|(**) | Less than 1%.                                                                                                                                                          
|     |                                                                                                                                                                        
|     | (1)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (2)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (3)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (4)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (5)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (6)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (7)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (8)                                                                                                                                                                    
|     |                                                                                                                                                                        
|     | (9)                                                                                                                                                                    

 24 

---

Securities Authorized for Issuance Under Equity Compensation
Plans:

The following table provides information as of June 30, 2011
about our equity compensation plans:

|                                                              |  | Number of Securities to |  |   | Weighted Average    |  |  |                      | 
|------------------------------------------------------------- |  | ----------------------- |  | - | -------------------- |  |  | -------------------- | 
|                                                              |  | be Issued upon Exercise |  |   | Exercise Price of    |  |  | Number of Securities | 
|                                                              |  | of Outstanding Options, |  |   | Outstanding Options, |  |  | Remaining Available  | 
|Plan
      Category                                           |  | Warrants and Rights     |  |   | Warrants and Rights  |  |  | for Future Issuance  | 
|Equity compensation plans approved
      by security holders: |  |                         |  |   |                      |  |  |                      | 
|- 2008 Stock Plan                                             |  | 440,000                 |  | $ | 0.5364               |  |  | 360,000              | 
|- 2003 Stock Plan                                             |  | 395,000                 |  | $ | 0.9116               |  |  | 117,500              | 
|Total                                                         |  | 835,000                 |  | $ | 0.7139               |  |  | 477,500              | 

ITEM13:CERTAINRELATIONSHIPSANDRELATEDTRANSACTIONS,ANDDIRECTOR
INDEPENDENCE

Our Board of Directors has determined that Ken Kivenko, Richard
H. Hurd, Glen O. Wright, Raymond L. Alarie and F. Eugene Deszca, who
collectively constitute a majority of the members of our board of directors,
each meets the general independence criteria set forth in the Nasdaq Marketplace
Rules.

There has not been any reportable transaction since July 1,
2008, and there are no currently proposed transactions, between us and any
related person as defined in the rules of the SEC.

ITEM14:PRINCIPALACCOUNTANTFEESANDSERVICES

Fees for professional services provided by our principal
independent auditors in each of the last two fiscal years, in each of the
following categories are as follows:

|                                            |  | 2011    |  |  | 2010    | 
|------------------------------------------- |  | ------- |  |  | ------- | 
|Fees
      billed by Deloitte & Touche LLP: |  | **$**   |  |  | **$**   | 
|Audit fees                                  |  | 161,731 |  |  | 95,167  | 
|Audit-related fees                          |  |        |  |  |        | 
|Tax fees                                    |  | 29,674  |  |  | 10,792  | 
|Other                                       |  |        |  |  | 40,059  | 
|                                            |  | 191,405 |  |  | 146,018 | 

Audit fees services include fees associated with the annual
audit, quarterly reviews, assistance with and review of documents filed with the
Securities and Exchange Commission, including registration statements in fiscal
2011. Audit-related fees principally would consist of accounting consultations
and internal control reviews outside the scope of the audit. Tax fees include
tax compliance and tax consultations. In fiscal 2010, other fees consisted of
capital markets analysis.

The audit committee has adopted a policy that requires advance
approval of all audit, audit-related, tax and other services performed by the
independent auditor. The policy provides for pre-approval by the audit committee
of specifically defined audit and non-audit services. Unless the specific
service has been previously pre-approved with respect to that year, the audit
committee must approve the permitted service before the independent auditor is
engaged to perform it.

 25 

---

PARTIV

ITEM15:EXHIBITS ANDFINANCIALSTATEMENTSCHEDULES

The following exhibits, which are numbered in accordance with
Item 601 of Regulation S-K, are filed herewith or, as noted, incorporated by
reference herein:



|**Exhibit Number** | Exhibit**Description**                                                                                                                                                                                                                                                      
|------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1                | Certificate of Incorporation of TurboSonic Technologies
      (1)                                                                                                                                                                                                           
|3.2                | Certificate of Amendment of Certificate of Incorporation
      of TurboSonic Technologies (2)                                                                                                                                                                               
|3.3                | Certificate of Correction of Certificate of Amendment of
      TurboSonic Technologies (3)                                                                                                                                                                                  
|3.4                | Certificate of Designation, Number, Powers, Preferences
      and Relative, Participating, Optional, and other Special Rights and the
      Qualifications, Limitations, Restrictions, and other distinguishing
      characteristics of Special Voting Preferred Stock (2).
|3.5                | Amended and Restated By-laws of TurboSonic Technologies
      (4)                                                                                                                                                                                                           
|4.1                | Form of certificate evidencing share of common stock
      (2)                                                                                                                                                                                                              
|10.1               | * 2003 Stock Plan (5)                                                                                                                                                                                                                                                       
|10.2               | * 2008 Stock Plan (6)                                                                                                                                                                                                                                                       
|10.3               | Facility Agreement dated May
      12, 2011 by and between TurboSonic Inc. and HSBC Bank Canada                                                                                                                                                                             
|10.4               | General Security Agreement dated June 20, 2011 by and
      between TurboSonic Inc. and HSBC Bank Canada                                                                                                                                                                    

|10.5 | General Security Agreement dated June 20, 2011 by and
      between TurboSonic Canada Inc. and HSBC Bank Canada                                                                            
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.6 | Guarantee dated as of June 20, 2011 by and between
      TurboSonic Canada Inc. and HSBC Bank Canada                                                                                       
|10.7 | Investment Agreement, dated as of September 19, 2011, by
      and between TurboSonic Technologies and Dutchess Opportunity Fund, II, LP,
      a Delaware Limited Partnership (7)         
|10.8 | Registration Rights Agreement, dated as of September 19,
      2011, by and between TurboSonic Technologies and Dutchess Opportunity
      Fund, II, LP, a Delaware Limited Partnership (7)
|14.1 | Code of Ethics (8)                                                                                                                                                                         
|21.1 | Subsidiaries of TurboSonic Technologies                                                                                                                                                    
|23.1 | Consent of Deloitte & Touche LLP                                                                                                                                                           
|31.1 | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                    
|31.2 | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                    
|32.1 | Section 1350 Certifications                                                                                                                                                                
|99.1 | Full Year Operating Results Press Release issued
      September 22, 2011                                                                                                                  

* Compensatory Plan

|(1) | Filed on April 9, 1993 as an exhibit to our
      Registration Statement on Form S-1 (File Number 33-60856) and incorporated
      herein by reference.                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                        
|(2) | Filed on November 18, 1997 as an exhibit to our Annual
      Report on Form 10-KSB for the fiscal year ended April 30, 1996 and
      incorporated herein by reference.
|    |                                                                                                                                                                        
|(3) | Filed on September 30, 2002 as an exhibit to our
      Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 and
      incorporated herein by reference.
|    |                                                                                                                                                                        
|(4) | Filed on August 26, 2010 as an exhibit to our Current
      Report on Form 8-K dated August 23, 2010 and incorporated by
      reference.                              
|    |                                                                                                                                                                        
|(5) | Filed on November 12, 2002 as an exhibit to our proxy
      statement for the 2002 annual meeting, and incorporated herein by
      reference.                         
|    |                                                                                                                                                                        
|(6) | Filed on November 6, 2007 as an exhibit to our proxy
      statement for the 2007 annual meeting, and incorporated herein by
      reference.                          
|    |                                                                                                                                                                        
|(7) | Filed on September 22, 2011 as an exhibit to our
      Current Report on Form 8-K dated September 19, 2011 and incorporated
      herein by reference.                 
|    |                                                                                                                                                                        
|(8) | Filed on September 28, 2004 as an exhibit to our
      Annual Report on Form 10-KSB for the year ended June 30, 2004 and
      incorporated herein by reference.       

 26 

---

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIESIncorporated Under the Laws of Delaware, United States


REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Stockholders of
TurboSonic Technologies, Inc.

We have audited the accompanying consolidated balance sheets of TurboSonic Technologies, Inc. and its subsidiaries (the Company) as of June 30, 2011 and 2010, and the related consolidated statements of (loss) and comprehensive (loss),
stockholders equity, and cash flows for each of the two years in the period ended June 30, 2011. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated financial statements present fairly, in all material respects, the financial position of TurboSonic Technologies, Inc. and its subsidiaries as of June 30, 2011 and 2010, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 2011, in conformity with accounting principles generally accepted in the United States of America.



/s/ Deloitte & Touche LLP  
Independent Registered Chartered Accountants
Licensed Public Accountants 
Kitchener, Canada 
September 23, 2011

F-1

---

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIESIncorporated Under the Laws of Delaware, United States


CONSOLIDATED BALANCE SHEETS

|As at June 30 | [expressed in United States dollars]
|------------- | ------------------------------------

|                                                                                                                        |  | 2011          |   |  | 2010       |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | - |  | ---------- | -
|                                                                                                                        |  | **$**         |   |  | **$**      |  
|ASSETS                                                                                                                  |  |               |   |  |            |  
|Current                                                                                                                 |  |               |   |  |            |  
|Cash and cash equivalents                                                                                               |  | 1,674,204     |   |  | 2,036,529  |  
|Accounts receivable, net [note 4]                                                                                       |  | 2,755,570     |   |  | 2,251,476  |  
|Retentions receivable                                                                                                   |  | 244,974       |   |  | 709,554    |  
|Inventories [note 5]                                                                                                    |  | 96,625        |   |  | 96,410     |  
|Deferred contract costs and unbilled
      revenue [note 6]                                                             |  | 1,492,747     |   |  | 486,512    |  
|Income taxes recoverable                                                                                                |  | 24,538        |   |  | 111,481    |  
|Other current assets                                                                                                    |  | 87,575        |   |  | 79,995     |  
|Total
      current assets                                                                                              |  | 6,376,233     |   |  | 5,771,957  |  
|Property and equipment,less
      accumulated depreciation                                                              |  |               |   |  |            |  
|and amortization [note 7]                                                                                               |  | 123,262       |   |  | 230,155    |  
|Goodwill                                                                                                                |  | 398,897       |   |  | 398,897    |  
|Deferred income taxes [note 13]                                                                                         |  | 1,070,592     |   |  | 1,021,343  |  
|Other assets                                                                                                            |  | 13,915        |   |  | 13,915     |  
|                                                                                                                        |  | 1,606,666     |   |  | 1,664,310  |  
|Total assets                                                                                                            |  | 7,982,899     |   |  | 7,436,267  |  
|                                                                                                                        |  |               |   |  |            |  
|LIABILITIES AND STOCKHOLDERS
      EQUITY                                                                              |  |               |   |  |            |  
|Current                                                                                                                 |  |               |   |  |            |  
|Accounts payable                                                                                                        |  | 1,249,391     |   |  | 814,567    |  
|Accrued compensation charges                                                                                            |  | 444,374       |   |  | 260,042    |  
|Accrued warranty provision [note 8]                                                                                     |  | 60,000        |   |  | 94,214     |  
|Accrued other charges [note
      17]                                                                                   |  | 295,199       |   |  | 525,902    |  
|Long-term debt, current portion [note 9]                                                                                |  |              |   |  | 78,283     |  
|Unearned revenue and contract advances [note 6]                                                                         |  | 1,152,869     |   |  | 352,627    |  
|Total
      current liabilities                                                                                         |  | 3,201,833     |   |  | 2,125,635  |  
|Long term debt [note 9]                                                                                                 |  |              |   |  | 65,236     |  
|                                                                                                                        |  | 3,201,833     |   |  | 2,190,871  |  
|Commitments and contingencies
      [note 10]                                                                           |  |               |   |  |            |  
|Stockholders equity[note 12]                                                                                           |  |               |   |  |            |  
|Share capital                                                                                                           |  |               |   |  |            |  
|Authorized                                                                                                              |  |               |   |  |            |  
|30,000,000 common shares, par value $0.10 per share                                                                     |  |               |   |  |            |  
|1,500 preferred shares, no par value                                                                                    |  |               |   |  |            |  
|Issued                                                                                                                  |  |               |   |  |            |  
|18,435,773
      common shares [2010  14,982,542]                                                                      |  |               |   |  |            |  
|118,339 common shares reserved for the conversion of the subsidiarys
      Class B exchangeable shares[2010  155,512] |  | **2,900,434** |   |  | 2,558,806  |  
|Additional
      paid-in capital                                                                                        |  | 4,207,958     |   |  | 3,663,669  |  
|                                                                                                                        |  | 7,108,392     |   |  | 6,222,475  |  
|Accumulated other comprehensive income                                                                                  |  | 996,007       |   |  | 752,110    |  
|Accumulated deficit                                                                                                     |  | (3,323,333    | ) |  | (1,729,189 | )
|Total
      stockholders equity                                                                                        |  | 4,781,066     |   |  | 5,245,396  |  
|Total liabilities and stockholders equity                                                                              |  | 7,982,899     |   |  | 7,436,267  |  

See accompanying notes

F-2

---

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIESIncorporated Under the Laws of Delaware, United States


CONSOLIDATED STATEMENTS OF (LOSS) AND COMPREHENSIVE (LOSS)

|Years ended June 30 | [expressed in United States dollars]
|------------------- | ------------------------------------

|                                                        |  |            |  
|------------------------------------------------------- |  | ---------- | -
|                                                        |  | 2011       |  
|                                                        |  | **$**      |  
|CONTRACT REVENUE AND SALES                              |  |            |  
|OEM systems revenue                                     |  | 10,154,521 |  
|Aftermarket revenue                                     |  | 3,584,776  |  
|                                                        |  | 13,739,297 |  
|CONTRACT COSTS AND COST OF
      SALES                  |  |            |  
|OEM systems contract costs and costs of sales           |  | 7,845,111  |  
|Aftermarket contract costs and cost of sales            |  | 2,154,248  |  
|                                                        |  | 9,999,359  |  
|Gross profit                                            |  | 3,739,938  |  
|EXPENSES                                                |  |            |  
|Selling, general and administrative                     |  | 5,032,042  |  
|Research and development                                |  | 182,007    |  
|Depreciation and amortization                           |  | 170,786    |  
|                                                        |  | 5,384,835  |  
|(Loss) from operations                                  |  | (1,644,897 | )
|Interest income                                         |  | 3,489      |  
|Interest expense                                        |  | (6,076     | )
|(Loss) before recovery of income taxes                  |  | (1,647,484 | )
|(Recovery of) income taxes [note 13]                    |  | (53,340    | )
|Net
      (loss)                                        |  | (1,594,144 | )
|Other comprehensive income:                             |  |            |  
|Foreign
      currency translation adjustment           |  | 243,897    |  
|Comprehensive (loss)                                    |  | (1,350,247 | )
|Basic (loss) per share[note 14]                         |  | ($0.09     | )
|Diluted (loss) per share [note 14]                      |  | ($0.09     | )
|Basic weighted average number of shares [note
      14] |  | 17,037,418 |  
|Diluted weighted average number of shares [note 14]     |  | 17,037,418 |  

See accompanying notes

F-3

---

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIESIncorporated Under the Laws of Delaware, United States


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|As at June 30 | [expressed in United States dollars]
|------------- | ------------------------------------

|                                   |  |               |  |  |            |  |  |             |   |  |               |   |  |               |  |  |            |  
|---------------------------------- |  | ------------- |  |  | ---------- |  |  | ----------- | - |  | ------------- | - |  | ------------- |  |  | ---------- | -
|                                   |  |               |  |  |            |  |  |             |   |  |               |   |  | Accumulated   |  |  |            |  
|                                   |  | Common shares |  |  | Additional |  |  |             |   |  | other         |   |  | Total         | 
|                                   |  | [Note 12]     |  |  | paid-in    |  |  | Accumulated |   |  | comprehensive |   |  | stockholders | 
|                                   |  | Shares        |  |  | Amount     |  |  | capital     |   |  | Deficit       |   |  | Income        |  |  | equity     |  
|                                   |  | #             |  |  | **$**      |  |  | **$**       |   |  | **$**         |   |  | **$**         |  |  | **$**      |  
|Balance  July 1, 2009             |  | 15,130,054    |  |  | 2,549,446  |  |  | 3,587,660   |   |  | (754,036      | ) |  | 477,736       |  |  | 5,860,806  |  
|Net (loss)                         |  |              |  |  |           |  |  |            |   |  | (975,153      | ) |  |              |  |  | (975,153   | )
|Stock-based compensation [note 12] |  |              |  |  |           |  |  | 79,369      |   |  |              |   |  |              |  |  | 79,369     |  
|Translation adjustment             |  |              |  |  |           |  |  |            |   |  |              |   |  | 274,374       |  |  | 274,374    |  
|Issuance of shares [note 12]       |  | 8,000         |  |  | 9,360      |  |  | (3,360      | ) |  |              |   |  |              |  |  | 6,000      |  
|Balance  June 30, 2010            |  | 15,138,054    |  |  | 2,558,806  |  |  | 3,663,669   |   |  | (1,729,189    | ) |  | 752,110       |  |  | 5,245,396  |  
|Net (loss)                         |  |              |  |  |           |  |  |            |   |  | (1,594,144    | ) |  |              |  |  | (1,594,144 | )
|Stock-based compensation [note 12] |  |              |  |  |           |  |  | 32,831      |   |  |              |   |  |              |  |  | 32,831     |  
|Translation adjustment             |  |              |  |  |           |  |  |            |   |  |              |   |  | 243,897       |  |  | 243,897    |  
|Issuance of
      shares[note 12]  |  | 3,416,058     |  |  | 341,628    |  |  | 511,458     |   |  |              |   |  |              |  |  | 853,086    |  
|Balance  June 30, 2011            |  | 18,554,112    |  |  | 2,900,434  |  |  | 4,207,958   |   |  | (3,323,333    | ) |  | 996,007       |  |  | 4,781,066  |  

*See accompanying notes*

F-4

---

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIESIncorporated Under the Laws of Delaware, United States


CONSOLIDATED STATEMENTS OF CASH FLOWS

|Years ended June 30 | [expressed in United States dollars]
|------------------- | ------------------------------------

|                                                                                    |  |            |   |  |            |  
|----------------------------------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                                                    |  | 2011       |   |  | 2010       |  
|                                                                                    |  | **$**      |   |  | **$**      |  
|OPERATING ACTIVITIES                                                                |  |            |   |  |            |  
|Net (loss)                                                                          |  | (1,594,144 | ) |  | (975,153   | )
|Add charges to operations not
      requiring a current cash payment:               |  |            |   |  |            |  
|Stock-based compensation expense
      [note 12]                                    |  | 32,831     |   |  | 79,364     |  
|Depreciation and
      amortization [note 7]                                        |  | 170,786    |   |  | 196,457    |  
|Deferred income taxes                                                               |  | (40,260    | ) |  | (708,121   | )
|Net change in non-cash assets and
      liabilities related to operations [note 15] |  | 345,336    |   |  | (2,383,587 | )
|Cash
      (used in) operating activities                                           |  | (1,085,451 | ) |  | (3,791,040 | )
|INVESTING ACTIVITIES                                                                |  |            |   |  |            |  
|Purchase of
      property and equipment                                            |  | (44,534    | ) |  | (46,041    | )
|Cash (used in) investing activities                                                 |  | (44,534    | ) |  | (46,041    | )
|FINANCING ACTIVITIES                                                                |  |            |   |  |            |  
|(Repayment) of obligations under
      long-term debt and capital leases            |  | (152,953   | ) |  | (78,789    | )
|Proceeds
      from issuance of common shares [note 12]                             |  | 853,086    |   |  | 6,000      |  
|Cash provided by (used in) financing activities                                     |  | 700,133    |   |  | (72,789    | )
|Effect of
      exchange rate changes on cash and cash equivalents                  |  | 67,527     |   |  | 325,233    |  
|Net cash (used) during year                                                         |  | (362,325   | ) |  | (3,584,637 | )
|Cash and
      cash equivalents, beginning of year                                  |  | 2,036,529  |   |  | 5,621,166  |  
|Cash and cash equivalents, end of year                                              |  | 1,674,204  |   |  | 2,036,529  |  
|Supplemental cash flow information:                                                 |  |            |   |  |            |  
|Interest paid                                                                       |  | (6,075     | ) |  | (8,812     | )
|Interest received                                                                   |  | 3,489      |   |  | 6,963      |  
|Income taxes paid                                                                   |  | (10,558    | ) |  | (350,626   | )

*See accompanying notes*

F-5

---

|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2011                        

1. ORGANIZATION AND BUSINESS DESCRIPTION

TurboSonic Technologies, Inc., directly and through
subsidiaries, designs and markets integrated air pollution control and liquid
atomization technology, including industrial gas cooling/conditioning 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 of
America (US GAAP) and are applied within the framework of the significant
accounting policies summarized below:

Principles of consolidation

The consolidated financial statements include the accounts of
our company and our wholly-owned subsidiaries. All intercompany accounts and
transactions have been eliminated on 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

Since the adoption of ASC Topic 350 as at July 1, 2001, we have
completed the transitional impairment test as at July 1, 2001 and annual
impairment tests through April 1, 2011 and additionally at June 30, 2011, to
identify if there is any impairment to the goodwill using a fair value
methodology by reporting unit. The goodwill relates only to the Aftermarket
reporting unit and we conclude there has not been any impairment.

Property and equipment

Property and equipment are recorded at cost. Depreciation and
amortization are calculated on the straight-line method over the estimated
useful lives of the assets as follows:

|Office equipment       | 2  5 years                                                     
|---------------------- | ----------------------------------------------------------------
|Other equipment        | 5  10 years                                                    
|Leasehold improvements | shorter of lease term [5  6 years] or
      assets useful life

Revenues and long-term contracts

We derive revenue from long-term contracts, which require
performance [i.e., design, construction and performance testing] over a time
span and which may extend one or more accounting periods. For long-term
contracts, we employ two methods of recognition  the percentage of completion
method for all of such projects being undertaken except in instances of
uncertainty, and the completed contract method for contracts with significant
uncertainty, such as the use of new technology. Aftermarket revenue recorded is
based on persuasive evidence of an existing arrangement, price is fixed or
determinable, products are shipped, services are performed or billings are
rendered, which approximates actual performance, and collection is reasonably
assured.

The percentage-of-completion is determined by best available
engineering estimates. Engineering progress is measured upon completion progress
relative to the overall project design. Material progress is determined by the
degree of completeness or progress of the components individually and as a whole
of the project. When included in the scope of the work, installation work
completeness is based upon work completed relative to the overall scope. Monthly
revenue recognition reflects the degree of completeness based upon review of
project drawings, project schedule, progress of actual fabrication and
installation, and further validated by visual observation by the project
manager, quality inspectors, and the construction advisor, if applicable.

When the current estimated costs to complete indicate a loss,
such losses are recognized immediately.

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.

Contract change orders are routinely negotiated with the
customer prior to any work proceeding on the requested scope revision. Upon
approval by both parties, contract price and costs are adjusted to reflect the
revised scope and price.

Contract claims against the customer are recorded as revenue
only upon award or settlement. The amounts recorded, if material, are disclosed
in the notes to the consolidated financial statements. Costs attributable to
claims are treated as costs of contract performance, as incurred. There were no
material contract claims filed in either fiscal 2011 or 2010.

F-6

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial Statements
|------------------------------------------- | ------------------------------------------
|                                            | Year ended June 30, 2011                  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Cash and cash equivalents

We consider all highly liquid temporary cash investments with original maturities of three months or less when purchased, to be cash equivalents.

Allowance for doubtful accounts

An allowance for doubtful accounts, if any, is established on a case-by-case basis after careful review of the outstanding receivable amounts and the probability of collection within a reasonable period of time.

Retentions Receivable

Retentions receivable represents amounts withheld from progress billings by our customers and may not be paid to us until the completion of a project. Retentions receivable may also be subject to restrictive conditions such as performance or
fulfillment guarantees.

Investment tax credits

Investment tax credits are accrued when qualifying expenditures are made and there is reasonable assurance that the credits will be realized. Refundable 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 income tax expenses. With respect to capital expenditures, these tax credits are applied to reduce the cost of the related capital assets. Non-refundable investment
tax credits are recorded as a reduction of the provision for income taxes in the year in which the related provision is recorded.

Research and development expenditures

Research and development costs [other than capital expenditures] are expensed as incurred. Income tax expense is reduced by any related investment tax credits and government support program proceeds.

Income taxes

ASC Topic 740 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated 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.

Accounting for Uncertainty in Income Taxes

In accordance with ASC Subtopic 740-10, Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109 (ASC Subtopic 740-10) we recognize, measure, present, and disclose in our consolidated
financial statements uncertain tax positions that we have taken or expect to take on a tax return that are more likely than not to be sustained under examination by the taxing authorities, based on the technical merits of the positions. Claims under
the Canadian Scientific Research & Development program for fiscal year 2011 have yet to be submitted [see note 13].

Advertising costs

All costs associated with advertising and promoting products are expensed as incurred. Advertising and promotion expense was $106,024 in 2011 [$101,464 in 2010].

Stock-based compensation

We account for share-based payments in accordance with ASC Topic 718, Compensation  Stock Compensation (ASC Topic 718), which requires compensation cost relating to share-based payment transactions be recognized in the
financial statements based on the estimated fair value of the equity or liability instrument issued.

We use the Black-Scholes option pricing model to estimate the fair value of such awards. ASC Topic 718 requires forfeitures of share-based awards to be estimated at the time of the grant and revised in subsequent periods, if actual forfeitures
differ from initial estimates. Therefore, expenses related to share-based payments and recognized in the years ended June 30, 2011 and 2010 have been reduced for estimated forfeitures. Forfeitures and expected terms were estimated based on
historical experience. See Note 12 for more information regarding the assumptions used in estimating the fair value of stock options.

Warranty

We carry a reserve based upon historical warranty claims experience. Additionally, warranty accruals are established on the basis of anticipated future expenditures as specific warranty obligations are identified, and are expensed directly to cost
of sales. Expenditures have not exceeded accruals in any year.

F-7

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial Statements
|------------------------------------------- | ------------------------------------------
|                                            | Year ended June 30, 2011                  

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Earnings (Loss) per share

Basic earnings (loss) per share is computed by dividing net earnings(loss) available to common stockholders by the weighted average number of common shares outstanding during the year. In computing the earnings (loss) per share, the TurboSonic
Canada Inc. Class B exchangeable shares, disclosed in note 12, are considered outstanding common stock of TurboSonic Technologies, Inc. Diluted earnings (loss) per share reflects the per share amount under the treasury stock method that would
have resulted if dilutive potential common stock had been converted to common stock.

Foreign currency translation

The functional currency of TurboSonic is the United States dollar. European and Canadian-based operations maintain their accounts in their respective local currencies. Transactions incurred in currencies other than the functional currency are
converted to the functional currency at the transaction date. All foreign currency transaction gains and losses are included in net income (loss). The financial statements of our foreign subsidiaries have been translated into United States dollars
in accordance with ASC Subtopic 830-30, Translation of Financial Statements (ASC Subtopic 830-30). 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 monthly average exchange rates. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately in accumulated other comprehensive income (loss) as a separate
component of stockholders equity.

Use of estimates

The preparation of the consolidated financial statements, in accordance with US GAAP, requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Estimates have been employed in the areas of revenue recognition, allowance for doubtful accounts, deferred taxes, investment tax
credits, uncertain tax positions, stock-based compensation expense, contingencies, goodwill impairment testing, inventory obsolescence, warranty provision and long-lived assets and liabilities. Actual results could differ from those estimates.

Comprehensive income (loss)

We report comprehensive income(loss), in addition to net income (loss) from operations, as required by ASC Topic 220, Comprehensive Income (ASC Topic 220). Comprehensive income (loss) is a more inclusive
financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of (loss) net income. Comprehensive income (loss) is defined as a change in equity during the
financial reporting period of a business enterprise resulting from non-owner sources. Components of accumulated other comprehensive income (loss) are disclosed in the Consolidated Statements of Stockholders Equity and Comprehensive Income
(Loss). All reported comprehensive income (loss) is the result of the foreign exchange changes to our balance sheet year-to-year.

Impact of recently issued accounting standards

In January 2010, the FASB issued ASU 2010-06 Improving Disclosures about Fair Value Measurements (ASU 2010-06). ASU 2010-06 amends ASC Topic 820 to add new requirements for disclosures about transfers into and out of Level 1 and 2 and
separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to
measure fair value. ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009, which is our reporting period ending March 31, 2010, except for the requirement to provide the Level 3 activity of purchases, sales
issuances, and settlements on a gross basis, which is effective for fiscal years beginning after December 15, 2010, which is our fiscal year beginning July 1, 2011. The adoption of ASU 2010-06 has not had a material impact on our company. We are
currently assessing the impact of adoption of revised Level 3 disclosures.

Multiple Deliverable Revenue Arrangements

In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 amends ASC Subtopic 605-25 - Revenue Recognition: Multiple-Element
Arrangements (ASC Subtopic 605-25). Specifically ASU 2009-13 amends the criteria for separating consideration in multiple-deliverable arrangements and establishes a selling price hierarchy for determining the selling price of a
deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method, and significantly expands the disclosure
requirements for multiple-deliverable revenue arrangements. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010, which is our fiscal year beginning July 1, 2010. Early adoption is permitted. There was no material impact as
the result of the adoption of ASU 2009-13 commencing with fiscal 2011.

F-8

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Common Fair Value Measurement and
Disclosure

In May 2011, the FASB issued ASU 2011-04, Amendments to
Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and
IFRSs (ASU 2011-04). ASU 2011-04 amends the wording used to describe many of
the requirements in US GAAP for measuring fair value and for disclosing
information about fair value measures. ASU 2011-04 is effective for interim and
annual periods beginning after December 15, 2011, which is our fiscal year
beginning July 1, 2012. The adoption of this amendment is not expected to have a
material impact on our results of operations or disclosures.

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU 2011-05, Presentation of
Comprehensive Income (ASU 2011-05). ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of
changes in stockholders equity and requires the presentation of the statement
of income and other comprehensive income consecutively. ASU 2011-05 is effective
for condensed and annual periods beginning after December 15, 2011, which is our
fiscal year beginning July 1, 2012. The adoption of this amendment is not
expected to have a material impact on our results of operations or disclosures.

3. FINANCIAL INSTRUMENTS

Fair value disclosure and interest rate risk

We did not have any financial instruments carried at fair value
for which the fair value hierarchy disclosure is required. Long-Term Debt
 Our long-term debt obligations bear interest at an annual interest rate of
Canadian bank prime plus 1.25% . Total long-term debt outstanding as at June 30,
2011 amounted to $ nil (bank loan) (2010 - $143,519). The fair value of our
long-term debt obligations are not materially different than their respective
carrying values due to their relative short-term maturities and the borrowing
rates available as of June 30, 2011 and June 30, 2010 for debt obligations with
similar terms and conditions.

Credit risk

Trade accounts receivable potentially subject us to credit
risk. Sales are made to accredited end users of all sizes located primarily in
North America and Europe. We provide an allowance for doubtful accounts equal to
the estimated losses expected to be incurred in the collection of accounts
receivable.

As at June 30, 2011, we had three customers that comprised 46%
of the total trade receivable balance and had three customers that comprised 61%
of the total trade receivable balance at June 30, 2010.

Our cash balances are maintained in one United States chartered
bank, which is an AA rated (deposit and senior debt) financial institution, in
two Canadian chartered banks, which are AA rated financial institutions and in
one Italian chartered bank, which is a BBB rated financial institution.

Currency Risk

Currency risk is the risk to our earnings that arises from
fluctuations of foreign exchange rates and the degree of volatility of these
rates. We may use forward contracts to reduce our exposure to foreign currency
risk. There are no outstanding instruments at this time. Our actual currency
risks relate to appreciation of the Euro and Canadian dollar opposite the US
dollar.

|4. ACCOUNTS RECEIVABLE          |  |           |   |  |           |  
|------------------------------- |  | --------- | - |  | --------- | -
|                                |  | 2011      |   |  | 2010      |  
|                                |  | **$**     |   |  | **$**     |  
|Trade accounts receivable       |  | 2,323,726 |   |  | 1,926,671 |  
|Value-added taxes receivable    |  | 433,552   |   |  | 365,837   |  
|Allowance for doubtful accounts |  | (1,708    | ) |  | (41,032   | )
|                                |  | 2,755,570 |   |  | 2,251,476 |  

Bad debt expense was $1,890 in 2011 and $19,405 in 2010.
Recovery of doubtful accounts was recorded for fiscal 2011 of $2,322 and
$125,474 for fiscal 2010.

F-9

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

5. INVENTORIES

|                               |  | 2011    |   |  | 2010    |  
|------------------------------ |  | ------- | - |  | ------- | -
|                               |  | **$**   |   |  | **$**   |  
|Finished goods                 |  | 119,617 |   |  | 131,278 |  
|Reserve for
      obsolescence |  | (22,992 | ) |  | (34,868 | )
|                               |  | 96,625  |   |  | 96,410  |  

6. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

|                                              |  | 2011        |   |  | 2010        |  
|--------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                              |  | **$**       |   |  | **$**       |  
|Costs incurred on uncompleted
      contracts |  | 23,205,796  |   |  | 27,629,728  |  
|Estimated
      earnings                      |  | 8,961,009   |   |  | 7,254,724   |  
|                                              |  | 32,166,805  |   |  | 34,884,452  |  
|Less:
      billings to date                  |  | (31,826,927 | ) |  | (34,750,567 | )
|                                              |  | 339,878     |   |  | 133,885     |  

Included in the accompanying balance sheets under the following
captions:

|                                                   |  | 2011       |   |  | 2010     |  
|-------------------------------------------------- |  | ---------- | - |  | -------- | -
|                                                   |  | **$**      |   |  | **$**    |  
|Deferred contract costs and unbilled
      revenue |  | 1,492,747  |   |  | 486,512  |  
|Unearned
      revenue and contract advances       |  | (1,152,869 | ) |  | (352,627 | )
|                                                   |  | 339,878    |   |  | 133,885  |  

7. PROPERTY AND EQUIPMENT

|                       |  |           |  |  | Accumulated    |  |  | Net Book | 
|---------------------- |  | --------- |  |  | -------------- |  |  | -------- | 
|                       |  | Cost      |  |  | Depreciation   |  |  | Value    | 
|                       |  |           |  |  | & Amortization |  |  |          | 
|2011                   |  | **$**     |  |  | **$**          |  |  | **$**    | 
|Office equipment       |  | 1,351,363 |  |  | 1,258,516      |  |  | 92,847   | 
|Other equipment        |  | 758,458   |  |  | 729,996        |  |  | 28,462   | 
|Leasehold improvements |  | 77,393    |  |  | 75,440         |  |  | 1,953    | 
|                       |  | 2,187,214 |  |  | 2,063,952      |  |  | 123,262  | 

|                       |  |           |  |  | Accumulated    |  |  | Net Book | 
|---------------------- |  | --------- |  |  | -------------- |  |  | -------- | 
|                       |  | Cost      |  |  | Depreciation   |  |  | Value    | 
|                       |  |           |  |  | & Amortization |  |  |          | 
|2010                   |  | **$**     |  |  | **$**          |  |  | **$**    | 
|Office equipment       |  | 1,229,721 |  |  | 1,063,470      |  |  | 166,251  | 
|Other equipment        |  | 687,594   |  |  | 627,181        |  |  | 60,413   | 
|Leasehold improvements |  | 70,593    |  |  | 67,102         |  |  | 3,491    | 
|                       |  | 1,987,908 |  |  | 1,757,753      |  |  | 230,155  | 

Total depreciation and amortization incurred during fiscal 2011
was $170,786 [2010 - $196,457].

8. WARRANTY

As part of the normal sale of OEM systems, we have provided our
customers with performance guarantees and product warranties. Most of our OEM
system sales have an element of performance guarantee to ensure our
custom-engineered equipment provided to our clients meets the level of
performance anticipated. Performance tests for projects are completed and
resolved to the clients satisfaction prior to final acceptance and closure of
the contract. Expenses incurred to that time are treated as project costs.

The warranties generally extend for twelve months from the date
of start-up or eighteen months after shipment to the customer. Commensurate
warranties are provided by engineered product suppliers, such as those of pumps,
fans and valves, whose products are incorporated into our systems. Warranty
accruals are established on the basis of anticipated future expenditures based
on historical warranty claims experience. As specific warranty obligations are
identified, they are charged to the accrual account. The following summarizes
the accrual of product warranties that is recorded as accrued warranty provision
in the accompanying consolidated balance sheets:

F-10

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

8. WARRANTY contd

|                                   |  | 2011    |   |  | 2010    |  
|---------------------------------- |  | ------- | - |  | ------- | -
|                                   |  | **$**   |   |  | **$**   |  
|Balance, beginning of year         |  | 94,214  |   |  | 86,242  |  
|Payments made                      |  | (30,544 | ) |  | (14,910 | )
|Provisions (recovered) made        |  | (10,782 | ) |  | 14,910  |  
|Foreign
      exchange adjustments |  | 7,112   |   |  | 7,972   |  
|Balance, end of year               |  | 60,000  |   |  | 94,214  |  

9. LONG-TERM DEBT OBLIGATIONS

In fiscal 2009, we entered into a 36-month computer loan with
monthly repayments, an annual interest rate of the Canadian bank prime (1.0% at
June 30, 2011) plus 1.25% and secured under a General Security Agreement with
our Canadian bank. The bank loan was repaid in full at the end of April 2011.
The assets are recorded on our Consolidated Balance Sheet as Property and
Equipment.

The following is a schedule of the future minimum loan
payments:

|                                        |  | 2011  |  |  | 2010    | 
|--------------------------------------- |  | ----- |  |  | ------- | 
|                                        |  | **$** |  |  | **$**   | 
|Total minimum loan payments             |  |      |  |  | 146,613 | 
|Less amount
      representing interest |  |      |  |  | 3,094   | 
|                                        |  |      |  |  | 143,519 | 
|Less
      current portion              |  |      |  |  | 78,283  | 
|Long-term portion                       |  |      |  |  | 65,236  | 

10. COMMITMENTS AND CONTINGENCIES [a]
Operating leases

We have entered into operating leases, expiring through 2014,
for office equipment and premises. Total minimum annual payments under these
leases for the years after June 30, 2011 are as follows:

|     |  | **$**   | 
|---- |  | ------- | 
|2012 |  | 110,283 | 
|2013 |  | 102,824 | 
|2014 |  | 21,283  | 
|     |  | 234,390 | 

Rental expense for office equipment and premises was $148,639
in 2011 [$151,189 in 2010].

[b] Contingencies General

In the normal course of operations, the Company is party to a
number of lawsuits, claims and contingencies. Accruals are made in instances
where it is probable that liabilities have been incurred and where such
liabilities can be reasonably estimated. Although it is possible that
liabilities may be incurred in instances for which no accruals have been made,
the Company does not believe that the ultimate outcome of these matters will
have a material impact on its consolidated financial position.

On October 6, 2005 a statement of claim was filed against our
company in the Ontario Superior Court of Justice (Canada) by Abuma Manufacturing
Limited (Abuma), one of our vendors, in which they claimed additional charges
for work performed and refute our claim for back charges on a specific project.
The claim is for CAD $95,647 in respect of unpaid accounts, CAD $50,000 for
aggravated, punitive and/or exemplary damages, interest on the past due accounts
and costs of the action. It is our position that the claims are without merit
and we have filed a statement of defense and counter-claim. Legal counsel for
Abuma has filed its Trial Record (February 2011) indicating its readiness to
proceed to trial and a pre-trial conference is set for late October 2011 and a
trial date has been established for mid-April 2012. It is still our contention
that the claims are without merit, and therefore, there is a remote possibility
of loss. As such, there is no accrual for an adverse outcome.

F-11

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

On November 10, 2009 a statement of claim was served against
our company and one of our customers in the United States District Court,
Western District of Pennsylvania by a competitor, in which it was claimed that a
contract awarded to our company in June 2009 had infringed on one of their
patents. This patent infringement case, related to our TurboSorb Spray-Dry
Absorption (SDA) technology, was settled in fiscal 2011. As a consequence of
this settlement, TurboSonic is granted a patent license to pursue SDA opportunities in the US
and Canada and continues to freely pursue opportunities in all international
markets. The settlement did not have a material effect on our Company.

Letters of Guarantee and Bonding

In order to favorably affect our cash position, it is our
practice to issue standby letters of guarantee to foreign customers in return
for the early release of advance payments prior to shipment and holdbacks which
span the warranty period of the projects. Collateral for these standby letters
of guarantee is provided by Export Development Canada on a paid-fee basis. We
have also purchased insurance against wrongful call of these standby letters of
guarantee for up to 95% of their face value.

The following is a list of the outstanding standby letters of
credit at June 30, 2011, together with the reason for issuance and the expiry
dates:

|Expiry
      Dates | Reason          |             | US$      
|------------------ | --------------- | ----------- | ---------
|July 20, 2011      | Advance payment | 151,833 USD | 151,833  
|July 31, 2011      | Holdback        | 180,000 EUR | 259,038  
|September 6, 2011  | Advance payment | 35,000 EUR  | 50,369   
|September 17, 2011 | Advance payment | 173,000 EUR | 248,964  
|October 31, 2011   | Holdback        | 15,750 USD  | 15,750   
|November 30, 2011  | Advance payment | 240,000 EUR | 345,384  
|February 25, 2012  | Holdback        | 25,035 USD  | 25,035   
|September 28, 2012 | Holdback        | 67,000 EUR  | 96,420   
|March 5, 2013      | Performance     | 173,000 EUR | 248,964  
|                   |                 |             | 1,441,757

Additionally, at the time of negotiation of certain contracts,
we are requested by our customers to provide performance and labor and material
bonds, although no performance or labor and material bonds are outstanding at
this time. Collateral for these standby letters of credit and bonds is provided
by Export Development Canada on a paid-fee basis. We have agreed to fully
indemnify Export Development Canada should there be any call on these standby
letters of credit and bonds.

11:CREDITFACILITY

In March 2011, our ability to request standby letters of credit
under our credit facility with a Canadian bank was reduced by that bank to USD
$3.0 million (from USD $4.25 million). The standby letters of credit are secured
by a general security interest in, and lien upon, our assets and guarantees
provided by Export Development Canada on a fee-for-service basis.

The Canadian bank also withdrew as of April 30, 2011 (i) our
demand operating line of CAD $1.5 million, (ii) our demand credit for foreign
exchange contracts of USD $750,000 and (iii) our demand term bank loan for
computer equipment. There were no drawdowns against the operating or foreign
exchange credit lines and we repaid the demand term bank loan on April 29, 2011.

In May 2011, we reached an agreement with a second Canadian
bank, with operating affiliates in the US and other countries, which provides
for a credit facility for standby letters of credit for CAD $4.25 million that
is secured by a general security interest in, and lien upon, our assets and
guarantees provided by Export Development Canada on a fee-for-service basis.
This credit facility became operational in August 2011, at which time our prior
credit facilities, discussed above, were terminated by mutual consent.

At June 30, 2011, we had standby letters of credit for
approximately USD $1.4 million (USD $2.0 million at June 30, 2010) in place with
various customers in order to receive cash proceeds ahead of delivery or
end-of-warranty milestones. Export Development Canada has provided guarantees to
the Canadian Bank for prior issued letters of credit and guarantees for
subsequent letters of credit to be issued through a second Canadian bank to a
total credit line of CAD $4.25 million.

Common stock

We have total authorized share capital of 30,000,000 shares of
common stock. In connection with our consolidation with Turbotak Technologies
Inc., on August 27, 1997, the stockholders of Turbotak Technologies Inc.
exchanged their shares for the Class B exchangeable shares of a wholly owned
subsidiary of our company. These shares are exchangeable, at any time, at the
election of the holders of such shares, into an equivalent number of shares of
our common stock. The Class B exchangeable shares have voting rights through a
trustee. During fiscal 2011, 37,173 Class B exchangeable shares [251,461 in
2010] were exchanged for our common stock, leaving 118,339 Class B exchangeable
shares outstanding as of June 30, 2011 [155,512 at June 30, 2010].

F-12

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

12. STOCKHOLDERS EQUITY

On December 10, 2010 we completed a registered rights offering,
which offered stockholders of record as of November 8, 2010 the right to acquire
one share of our common stock for each two shares then held by such persons at a
price of $0.34 per share. Stockholders exercised subscription rights to acquire
1,601,611 shares and oversubscription rights to acquire an additional 1,814,447
shares, resulting in our sale of an aggregate of 3,416,058 shares of common
stock and our receipt of gross proceeds of $1,161,460 (net proceeds of $853,086,
due to issuance costs). Such proceeds were added to our working capital for
marketing opportunities stemming from both recent and anticipated enactments by
the U.S. EPA (EPA) of more stringent emission standards and rules for certain
hazardous air pollutants.

Stock-based compensation

A stock plan [the 2003 Plan] was approved by our stockholders
at our annual meeting held December 10, 2002. The plan provides for the grant of
non-qualified options, stock awards and stock purchase rights. Collectively,
these are referred to as the stock rights.

A stock plan [the 2008 Plan] was approved by our stockholders
at our annual meeting held December 11, 2007. The 2008 Plan has terms similar to
the 2003 Plan [collectively the Plans] with one difference  commencing on
December 11, 2007 and thereafter on the date of each successive annual meeting
of stockholders during the term of the 2008 Plan, each person who is elected or
re-elected as a director of our company will be granted a non-qualified stock
option to purchase 20,000 shares of our common stock at a purchase price per
share of the fair market value of a share of common stock on the date of grant
of such options.

The Plans are administered by the Board of Directors or a
committee established by the Board of Directors. The Board shall determine to
whom such stock options may be granted, determine at which times the stock
options 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 stock option granted under the Plans 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
unissued shares of our common stock or shares of common stock reacquired by us
in any manner. As originally adopted, the aggregate number of shares that could
be issued pursuant to the Plans was 625,000 under the 2003 Plan and 800,000
under the 2008 Plan, subject to certain adjustments.

Stock-based compensation expenses of $32,831 for the fiscal
year ended June 30, 2011 ($79,369 for the fiscal year ended June 30, 2010) are
included as selling, general and administrative expenses in our consolidated
financial statements of (loss).

A summary of the significant assumptions used in calculating
the fair value, using the Black-Scholes method, of our fiscal 2011 and 2010
stock option grants is as follows:

|                                             |   |                  |  |   | FY 2011 and 2010 Grants |  |   |                   | 
|-------------------------------------------- | - | ---------------- |  | - | ----------------------- |  | - | ----------------- | 
|                                             |   | Independent      |  |   | Executive               |  |   | Independent       | 
|                                             |   | Directors        |  |   | Officers                |  |   | Directors         | 
|                                             |   | December 9, 2010 |  |   | December 9, 2010        |  |   | December 10, 2009 | 
|Expected dividends                           |   | 0.00%            |  |   | 0.00%                   |  |   | 0.00%             | 
|Expected volatility                          |   | 94.62%           |  |   | 94.63%                  |  |   | 98.63%            | 
|Risk-free interest rate                      |   | 1.35%            |  |   | 1.35%                   |  |   | 1.46%             | 
|Expected term (years)                        |   | 4.00             |  |   | 6.00                    |  |   | 4.00              | 
|Forfeiture rate                              |   | 0.00%            |  |   | 0.00%                   |  |   | 0.00%             | 
|Stock price
      on date of grant           | $ | 0.31             |  | $ | 0.31                    |  | $ | 0.79              | 
|Number of stock options granted              |   | 100,000          |  |   | 75,000                  |  |   | 100,000           | 
|Fair value
      per option on date of grant | $ | 0.21             |  | $ | 0.24                    |  | $ | 0.54              | 

For the grants in both fiscal years, the estimated volatility
was based on the historical volatility of our common stock, vesting of the
options granted to Directors was immediate and vesting of the options granted to
executive officers was after three years for one officer and after five years
for two officers.

A summary of the status of stock options under our 2003 and
2008 Plans as at June 30, 2010 and June 30, 2011, together with changes during
fiscal 2011, is as follows:

F-13

---

|                                               |                                                 
|---------------------------------------------- | ------------------------------------------------
|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|                                               | Year ended June 30, 2011                        

12. STOCKHOLDERS EQUITY contd

|                                                  |  |          |   |   |                |  |   |                 |  |  | Average         |  |   |           | 
|------------------------------------------------- |  | -------- | - | - | -------------- |  | - | --------------- |  |  | --------------- |  | - | --------- | 
|                                                  |  |          |   |   | Weighted       |  |   | Weighted        |  |  | Remaining       |  |   | Aggregate | 
|                                                  |  |          |   |   | Average        |  |   | Average Grant   |  |  | Contractual     |  |   | Intrinsic | 
|                                                  |  | Shares   |   |   | Exercise Price |  |   | Date Fair Value |  |  | Life (In Years) |  |   | Value     | 
|Stock options outstanding at June 30, 2010        |  | 840,000  |   | $ | 0.8006         |  | $ | 0.5148          |  |  | 3.7             |  | $ | 14,000    | 
|Stock
      options exerciseable at June 30, 2010 |  | 775,000  |   | $ | 0.8015         |  | $ | 0.5026          |  |  | 3.4             |  | $ | 14,000    | 
|Stock options forfeited                           |  | 0        |   | $ | 0.0000         |  | $ | 0.0000          |  |  |                 |  |   |           | 
|Stock options expired                             |  | (180,000 | ) | $ | 0.7500         |  | $ | 0.4200          |  |  |                 |  |   |           | 
|Stock options granted                             |  | 175,000  |   | $ | 0.3100         |  | $ | 0.2149          |  |  |                 |  |   |           | 
|Stock
      options exercised                     |  | 0        |   | $ | 0.0000         |  | $ | 0.0000          |  |  |                 |  |   |           | 
|Stock options outstanding at June 30, 2011        |  | 835,000  |   | $ | 0.7139         |  | $ | 0.4792          |  |  | 4.5             |  | $ | 29,750    | 
|2011 Stock
      options vested in fiscal 2011    |  | 100,000  |   | $ | 0.3100         |  | $ | 0.2100          |  |  |                 |  |   |           | 
|Stock options exerciseable at June 30, 2011       |  | 695,000  |   | $ | 0.7504         |  | $ | 0.4881          |  |  | 4.0             |  | $ | 23,000    | 

As of June 30, 2011, there was $14,705 of total unrecognized
compensation expense related to nonvested stock options granted under our 2003
Plan in fiscal 2011. This cost is expected to be recognized over a straight-line
period of 54 months, commencing July 2011. The total fair value of stock options
that vested during fiscal 2011 and 2010 was $20,625 and $162,455, respectively.
As of June 30, 2011, there was no unrecognized compensation expense related to
nonvested stock options granted under our 2008 Plan.

The aggregate intrinsic
value in the table above represents the total pre-tax intrinsic value or the
aggregate difference between the closing price of our common stock on June 30,
2011 of $0.40 and the excess over the exercise price for in-the-money options
that would have been received by optionees if all options had been exercised on
June 30, 2011.

13. INCOME TAXES

We believe our income tax provision at June 30, 2011 reflects a
full accounting of our tax filings. We are not currently under Internal Revenue
Service, state, local or foreign jurisdiction tax examinations. We recognize
interest, as estimated or incurred, as other interest expense and we recognize
penalties as selling, general and administrative expense. We are subject to
ongoing review by tax authorities in the jurisdictions in which we operate. We
regularly assess the status of any examinations and the potential for adverse
outcomes to determine the adequacy of the provision for income taxes. Our
Scientific Research and Experimental Investment Tax Credit (ITC) claims as
part of our companys fiscal 2011 Canadian corporate tax filings are not yet
complete nor filed. As a result, we have estimated the size of the claims at
$124,400 ($120,605 in fiscal 2010), related to Scientific Research and
Experimental ITCs and have accrued this amount in fiscal 2011. As part of our FY
2011 deferred tax analysis, we have established this fiscal year a valuation
allowance totaling $722,834.

Details of the recovery of income taxes are as follows:

|                          |  | 2011     |   |  | 2010     |  
|------------------------- |  | -------- | - |  | -------- | -
|                          |  | **$**    |   |  | **$**    |  
|Current: - U.S.           |  | 1,307    |   |  | 1,967    |  
|- Canadian                |  |         |   |  | (264,991 | )
|-Italian                  |  | (14,387  | ) |  | 44,890   |  
|Total
      current taxes |  | (13,080  | ) |  | (218,134 | )
|Deferred: - U.S.          |  | 200,493  |   |  | (657,456 | )
|- Canadian                |  | (240,753 | ) |  | (34,892  | )
|Total deferred taxes      |  | (40,260  | ) |  | (692,348 | )
|Income
      tax recovery |  | (53,340  | ) |  | (910,482 | )

F-14

---

|                                               |                                                 
|---------------------------------------------- | ------------------------------------------------
|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|                                               | Year ended June 30, 2011                        

13. INCOME TAXES continued

Components of the tax recovery are as follows:

|                                                                                     |  | 2011     |   |  | 2010     |  
|------------------------------------------------------------------------------------ |  | -------- | - |  | -------- | -
|                                                                                     |  | $        |   |  | **$**    |  
|Provision for income tax based on
      U.S. tax rates                               |  | (519,281 | ) |  | (580,485 | )
|Provision for income tax based on U.S. state tax
      rates                         |  | (21,763  | ) |  | (83,048  | )
|Provision for income taxes based on basic
      Canadian federal income tax rates    |  | (28,527  | ) |  | (20,977  | )
|Provision for income taxes based on basic Canadian
      provincial income tax rates |  | (19,845  | ) |  | (15,874  | )
|Provision for income taxes based on basic
      Italian federal income tax rates     |  |         |   |  | 48,448   |  
|Non-deductible permanent differences                                                 |  | 26,854   |   |  | (32,305  | )
|Investment tax credits recognized                                                    |  | (119,784 | ) |  | (215,486 | )
|Provincial transitional tax debit (utilized)
      recognized                        |  | (18,074  | ) |  | 7,376    |  
|Italian foreign tax credit                                                           |  | (57,552  | ) |  |         |  
|Other                                                                                |  | 18,201   |   |  | (18,131  | )
|Valuation allowance                                                                  |  | 722,834  |   |  |         |  
|                                                                                     |  | (53,340  | ) |  | (910,482 | )

Italian taxes are applicable to the European branch office and
are included in our Canadian subsidiary.

The following is a summary of the statutory income tax rates
used:

|                                                  |  | 2011       |   |   | 2010       |  
|------------------------------------------------- |  | ---------- | - | - | ---------- | -
|                                                  |  | %          |   |   | %          |  
|U.S.                                              |  | 34.0       |   |   | 34.0       |  
|U.S state                                         |  | 6.3        |   |   | 6.3        |  
|Canadian federal                                  |  | 17.3       |   |   | 18.5       |  
|Canadian provincial                               |  | 12.0       |   |   | 14.0       |  
|Italian federal                                   |  | 27.5       |   |   | 27.5       |  
|                                                  |  |            |   |   |            |  
|(Loss) before provision for income taxes:         |  |            |   |   |            |  
|                                                  |  | 2011       |   |   | 2010       |  
|                                                  |  | **$**      |   |   | **$**      |  
|U.S.                                              |  | (1,537,749 | ) |   | (1,707,309 | )
|Canadian                                          |  | (109,735   | ) |   | (178,326   | )
|(Loss) before provision for income taxes          |  | (1,647,484 | ) |   | (1,885,635 | )
|Income taxes paid are as follows:                 |  |            |   |   |            |  
|                                                  |  | 2011       |   |   | 2010       |  
|                                                  |  | **$**      |   |   | **$**      |  
|Italian federal                                   |  | 9,808      |   |   | 72,521     |  
|U.S. federal                                      |  |           |   |   | 2,000      |  
|U.S. state                                        |  | 750        |   |   | 13,970     |  
|Canadian federal                                  |  |           |   |   | 134,030    |  
|Canadian provincial                               |  |           |   |   | 128,105    |  
|                                                  |  | 10,558     |   |   | 350,626    |  
|Income tax refunds received are as
      follows: |  |            |   |   |            |  
|                                                  |  | 2011       |   |   | 2010       |  
|                                                  |  | **$**      |   | $ | **$**      |  
|Canadian federal                                  |  | 50,502     |   |   | 85,636     |  
|Canadian provincial                               |  | 67,093     |   |   | 47,576     |  
|                                                  |  | 117,595    |   |   | 133,212    |  

F-15

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

13. INCOME TAXES continued

We have unutilized operating losses in the United States of
approximately $4,024,000 available for carry forward to reduce income taxes
otherwise payable in future years from 2023 to 2033.

In Canada, we have unutilized operating taxable losses of
approximately $152,615 available for carry forward to reduce income taxes
otherwise payable in future years up to 2031.

As it is more likely than not that we will realize the benefits
of deductible temporary differences (including losses, reserves, investment tax
credits and foreign tax credits), we are required under ASC Subtopic 740-10 to
record deferred income tax assets. Deferred tax liabilities and assets are
comprised of the following as at June 30:

|                                                                            |  | 2011      |   |  | 2010      |  
|--------------------------------------------------------------------------- |  | --------- | - |  | --------- | -
|                                                                            |  | **$**     |   |  | **$**     |  
|Difference between tax and
      accounting basis of property and equipment |  | 4,553     |   |  | 8,914     |  
|Reserves not currently deductible                                           |  | 13,843    |   |  | 27,558    |  
|Net operating loss carryforward                                             |  | 1,475,897 |   |  | 966,528   |  
|Investment tax credits, not currently deductible                            |  | 212,497   |   |  | 106,261   |  
|Provincial transitional tax debit                                           |  | (13,509   | ) |  | (21,931   | )
|Foreign tax
      credits  Italy                                           |  | 100,145   |   |  |          |  
|Total deferred tax assets                                                   |  | 1,793,426 |   |  | 1,087,330 |  
|Valuation
      allowance for deferred tax assets                           |  | (722,834  | ) |  | (65,987   | )
|Net deferred tax asset                                                      |  | 1,070,592 |   |  | 1,021,343 |  

14. (LOSS) PER SHARE

The following table sets forth the computation of (loss) per
share. The effect of dilutive securities is included only when dilutive.

|                                                               |  | 2011       |   |  | 2010       |  
|-------------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                               |  | **$**      |   |  | **$**      |  
|Numerator                                                      |  |            |   |  |            |  
|Net (loss)                                                     |  | (1,594,144 | ) |  | (975,153   | )
|Denominator                                                    |  |            |   |  |            |  
|Denominator for earnings per share -                           |  |            |   |  |            |  
|weighted average shares outstanding                            |  | 17,037,418 |   |  | 15,137,528 |  
|Denominator for diluted earnings per share -                   |  |            |   |  |            |  
|adjusted weighted average shares and assumed
      conversions |  | 17,037,418 |   |  | 15,137,528 |  
|Basic
      (loss) per share                                   |  | ($0.09     | ) |  | ($0.06     | )
|Diluted (loss) per share                                       |  | ($0.09     | ) |  | ($0.06     | )

The dilutive loss per common share calculated for the fiscal
year ended June 30, 2011 excludes the effect of all options outstanding. These
amounts were excluded since their inclusion would be anti-dilutive.

|15. SUPPLEMENTARY INFORMATION ON CASH FLOWS                               |  |          |   |  |            |  
|------------------------------------------------------------------------- |  | -------- | - |  | ---------- | -
|                                                                          |  | 2011     |   |  | 2010       |  
|                                                                          |  | **$**    |   |  | **$**      |  
|Changes in non-cash assets and
      liabilities related to operations:   |  |          |   |  |            |  
|(Increase) decrease in accounts receivable                                |  | (282,654 | ) |  | 2,844,963  |  
|Decrease (increase) in retentions
      receivable                        |  | 495,500  |   |  | (196,129   | )
|Decrease in inventories                                                   |  | 9,453    |   |  | 34,144     |  
|(Increase) decrease in deferred
      contract costs and unbilled revenue |  | (911,208 | ) |  | 562,539    |  
|Decrease (increase) in income taxes receivable                            |  | 95,407   |   |  | (405,925   | )
|(Increase) decrease in other current
      assets                         |  | (3,386   | ) |  | 11,664     |  
|Decrease (increase) in other assets                                       |  | 316      |   |  | (133       | )
|Increase (decrease) increase in
      accounts payable                    |  | 341,277  |   |  | (2,557,080 | )
|Increase (decrease) increase in accrued compensation
      charges        |  | 142,937  |   |  | (492,688   | )
|(Decrease) in accrued warranty
      charges                              |  | (41,524  | ) |  |           |  
|(Decrease) increase in accrued other charges                              |  | (268,673 | ) |  | (159,361   | )
|Increase (decrease) in unearned revenue and contract
      advances       |  | 767,891  |   |  | (2,025,581 | )
|                                                                          |  | 345,336  |   |  | (2,383,587 | )

F-16

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2011                        

16. SEGMENTED INFORMATION

We offer a range of products and systems, incorporating diverse
technologies, to address the industrial process, air pollution control and other
environmental management needs of our customers. We report to stockholders on
the two business segments into which the chief operating decision maker (CEO)
classifies the business  OEM systems and Aftermarket. OEM systems generally
involve 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. The Aftermarket business segment involves upgrades to
air pollution systems supplied by ourselves and others, together with service
and spare parts for OEM systems and nozzles to be incorporated in systems to be
provided by others.

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

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

|Contract revenue and sales are broken down
      geographically as follows: |  |            |  | 
|--------------------------------------------------------------------------- |  | ---------- |  | 
|                                                                            |  | 2011       |  | 
|                                                                            |  | **$**      |  | 
|United States                                                               |  | 6,510,200  |  | 
|Canada                                                                      |  | 322,200    |  | 
|Asia                                                                        |  |           |  | 
|Greece                                                                      |  | 1,497,700  |  | 
|Italy                                                                       |  | 1,507,800  |  | 
|Other Europe                                                                |  | 755,700    |  | 
|Brazil                                                                      |  | 2,603,700  |  | 
|South and Central America                                                   |  | 472,700    |  | 
|Other                                                                       |  | 69,297     |  | 
|                                                                            |  | 13,739,297 |  | 

The long-lived assets of the two business segments are located
in Canada and the US. The following table summarizes certain financial data for
the customers whom accounted for 10.0% or more of contract revenue or accounts
receivable. No other customer accounted for 10.0% or more of revenue in any of
the years presented.

|                                                                             |  | 2011       |  |  | 2010       | 
|---------------------------------------------------------------------------- |  | ---------- |  |  | ---------- | 
|                                                                             |  | **$**      |  |  | **$**      | 
|Single largest customer                                                      |  |            |  |  |            | 
|Revenue                                                                      |  | 11%        |  |  | 29%        | 
|Accounts receivable                                                          |  | 21%        |  |  | 15%        | 
|Second
      largest customer                                                |  |            |  |  |            | 
|Revenue                                                                      |  | 11%        |  |  | 15%        | 
|Accounts receivable                                                          |  | 13%        |  |  | 32%        | 
|Third largest customer                                                       |  |            |  |  |            | 
|Revenue                                                                      |  | 8%         |  |  | 9%         | 
|Accounts receivable                                                          |  | 12%        |  |  | 14%        | 
|Contract revenue and sales are broken down
      by product line as follows: |  |            |  | 
|                                                                             |  | 2011       |  |  | 2010       | 
|                                                                             |  | **$**      |  |  | **$**      | 
|Catalytic Gas Treatment Systems                                              |  | 886,200    |  |  | 3,790,500  | 
|SoniCool Evaporative Gas Cooling and Conditioning
      Systems             |  | 1,951,000  |  |  | 1,691,200  | 
|SonicKleen Wet Electrostatic
      Precipitation Systems (WESP)             |  | 2,225,800  |  |  | 2,486,500  | 
|TurboSorb Semi-dry Scrubber Systems                                          |  | 1,621,200  |  |  | 2,997,500  | 
|Wet Scrubbers and Gas Absorbers                                              |  | 4,186,400  |  |  | 2,142,500  | 
|SCR DeNoxSystems                                                             |  | 2,246,200  |  |  |           | 
|Atomizing Nozzles, Service and Spare Parts                                   |  | 622,497    |  |  | 777,853    | 
|                                                                             |  | 13,739,297 |  |  | 13,886,053 | 

F-17

---

|                                               |                                                 
|---------------------------------------------- | ------------------------------------------------
|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|                                               | Year ended June 30, 2011                        

16. SEGMENTED INFORMATION contd

Industry segments

|                                                |  | OEM        |   |  |             |   |  |            |  |  |            |  
|----------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ---------- |  |  | ---------- | -
|                                                |  | Systems    |   |  | Aftermarket |   |  | Other      |  |  | Total      |  
|2011                                            |  | **$**      |   |  | **$**       |   |  | **$**      |  |  | **$**      |  
|Contract revenue and sales                      |  |            |   |  |             |   |  |            |  |  |            |  
|OEM systems                                     |  | 10,154,521 |   |  |            |   |  |           |  |  | 10,154,521 |  
|Aftermarket                                     |  |           |   |  | 3,584,776   |   |  |           |  |  | 3,584,776  |  
|Total
      contract revenue and sales          |  | 10,154,521 |   |  | 3,584,776   |   |  |           |  |  | 13,739,297 |  
|(Loss) income from operations                   |  | (2,204,151 | ) |  | 559,254     |   |  |           |  |  | (1,644,897 | )
|Interest income                                 |  | 2,579      |   |  | 910         |   |  |           |  |  | 3,489      |  
|Interest expense                                |  | (4,491     | ) |  | (1,585      | ) |  |           |  |  | (6,076     | )
|(Loss) income before (recovery of) income taxes |  | (2,206,063 | ) |  | 558,579     |   |  |           |  |  | (1,647,484 | )
|Recovery of income taxes                        |  | (39,423    | ) |  | (13,917     | ) |  |           |  |  | (53,340    | )
|Net
      (loss) income                         |  | (2,166,640 | ) |  | 572,496     |   |  |           |  |  | (1,594,144 | )
|                                                |  |            |   |  |             |   |  |            |  |  |            |  
|Depreciation and amortization                   |  | 136,628    |   |  | 34,158      |   |  |           |  |  | 170,786    |  
|Capital expenditures                            |  | 35,627     |   |  | 8,907       |   |  |           |  |  | 44,534     |  
|Segment assets                                  |  | 5,000,234  |   |  | 1,308,461   |   |  | 1,674,2041 |  |  | 7,982,899  |  
|Property and equipment                          |  | 98,610     |   |  | 24,652      |   |  |           |  |  | 123,262    |  
|Goodwill                                        |  |           |   |  | 398,897     |   |  |           |  |  | 398,897    |  

1 Cash and cash equivalents are not
allocated between business segments.

|                                                      |  | OEM         |   |  |             |   |  |            |  |  |            |  
|----------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ---------- |  |  | ---------- | -
|                                                      |  | Systems     |   |  | Aftermarket |   |  | Other      |  |  | Total      |  
|2010                                                  |  | **$**       |   |  | **$**       |   |  | **$**      |  |  | **$**      |  
|Contract revenue and sales                            |  |             |   |  |             |   |  |            |  |  |            |  
|OEM systems                                           |  | 10,798,683  |   |  |            |   |  |           |  |  | 10,798,683 |  
|Aftermarket                                           |  |            |   |  | 3,087,370   |   |  |           |  |  | 3,087,370  |  
|Total
      contract revenue and sales                |  | 10,798,683  |   |  | 3,087,370   |   |  |           |  |  | 13,886,053 |  
|(Loss) income from operations                         |  | (2,189,802  | ) |  | 305,418     |   |  |           |  |  | (1,884,384 | )
|Interest income                                       |  | 5,880       |   |  | 1,681       |   |  |           |  |  | 7,561      |  
|Interest expense                                      |  | (6,853      | ) |  | (1,959      | ) |  |           |  |  | (8,812     | )
|(Loss) income before (recovery of) income
      taxes |  | (2,190,775) |   |  | 305,140     |   |  |           |  |  | (1,885,635 | )
|Recovery of income taxes                              |  | (708,049    | ) |  | (202,433    | ) |  |           |  |  | (910,482   | )
|Net
      (loss) income                               |  | (1,482,726  | ) |  | 507,573     |   |  |           |  |  | (975,153   | )
|                                                      |  |             |   |  |             |   |  |            |  |  |            |  
|Depreciation and amortization                         |  | 157,166     |   |  | 39,291      |   |  |           |  |  | 196,457    |  
|Capital expenditures                                  |  | 32,229      |   |  | 13,812      |   |  |           |  |  | 46,041     |  
|Segment assets                                        |  | 4,164,909   |   |  | 1,234,829   |   |  | 2,036,5291 |  |  | 7,436,267  |  
|Property and equipment                                |  | 184,124     |   |  | 46,031      |   |  |           |  |  | 230,155    |  
|Goodwill                                              |  |            |   |  | 398,897     |   |  |           |  |  | 398,897    |  

1 Cash and cash equivalents are not
allocated between business segments.

**17. ACCRUED CHARGES - OTHER**

Accrued charges - other are as follows:

|                                            |  | 2011    |  |  | 2010    | 
|------------------------------------------- |  | ------- |  |  | ------- | 
|                                            |  | **$**   |  |  | **$**   | 
|Accrued charges  payable to
      customer |  |        |  |  | 130,000 | 
|Accrued
      charges - other               |  | 295,199 |  |  | 395,902 | 
|                                            |  | 295,199 |  |  | 525,902 | 

18. SUBSEQUENT EVENT

On September 19, 2011, we entered into an Investment Agreement
with Dutchess Opportunity Fund, II, LP for the sale, from time to time, at our
discretion, of up to $3.0 million of our common stock during a three-year period
at a price equal to 95% of the recent average market price at the time of sale.
The extent to which we will need to access any portion or all of the proceeds
available under the Investment Agreement will depend in substantial part upon
the availability and adequacy of our cash flows from operations so as to enable
us to address timing differences that may arise in our need to pay vendors and
suppliers in advance of our receipt of contractual progress payments from our
customers. A registration statement that registers such common stock must be
declared effective by the SEC prior to our sale to Dutchess of any common stock
under such agreement.

F-18

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|                            | TURBOSONICTECHNOLOGIES, INC.   
|--------------------------- | -------------------------------
|                            |                                
|                            | By: /s/   Edward F.
      Spink
|                            | Edward F. Spink                
|                            | Chief Executive Officer        
|Date:    September 23, 2011 |                                

Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

|Signatures                         | Capacity                                                    | Date              
|---------------------------------- | ----------------------------------------------------------- | ------------------
|                                   |                                                             |                   
|/s/ Edward
      F. Spink          | Chief Executive Officer (Principal
      Executive Officer) | September 23, 2011
|Edward F. Spink                    | And Director                                                |                   
|                                   |                                                             |                   
|/s/ Egbert
      Q. van Everdingen | President, Secretary, Treasurer and
      Director          | September 23, 2011
|Egbert Q. van Everdingen           |                                                             |                   
|                                   |                                                             |                   
|/s/ Carl A.
      Young            | Chief Financial Officer                                     | September 23, 2011
|Carl A. Young                      | (Principal Financial Officer)                               |                   
|                                   |                                                             |                   
|/s David J.
      Hobson           | VP Finance and Administration                               | September 23, 2011
|David J. Hobson                    | (Principal Accounting Officer)                              |                   
|                                   |                                                             |                   
|/s/ Ken
      Kivenko              | Chairman of the Board of Directors                          | September 23, 2011
|Ken Kivenko                        |                                                             |                   
|                                   |                                                             |                   
|/s/ Richard
      H. Hurd          | Director                                                    | September 23, 2011
|Richard H. Hurd                    |                                                             |                   
|                                   |                                                             |                   
|/s/ Glen O.
      Wright           | Director                                                    | September 23, 2011
|Glen O. Wright                     |                                                             |                   
|                                   |                                                             |                   
|/s/ Raymond
      L. Alarie        | Director                                                    | September 23, 2011
|Raymond L. Alarie                  |                                                             |                   
|                                   |                                                             |                   
|/s/ F.
      Eugene Deszca         | Director                                                    | September 23, 2011
|F. Eugene Deszca                   |                                                             |                   

---