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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,DC 20549

FORM10-K

ANNUALREPORTPURSUANT TOSECTION13OR15(D)OF
THESECURITIESEXCHANGEACT OF1934

For the fiscal year ended June 30, 2010

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 (§232.405 of this chapter) 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, 2009: $9,793,661

The number of outstanding shares of the Registrant's common
stock as of September 24, 2010: 15,138,054

DOCUMENTS INCORPORATED BYREFERENCENone

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TURBOSONIC TECHNOLOGIES, INC. 2010 FORM
10-KTABLE OF CONTENTS

|         |                                                                                                                    | Page
|-------- | ------------------------------------------------------------------------------------------------------------------ | ----
|PART I   |                                                                                                                    |     
|Item 1.  | Business                                                                                                           | 3   
|Item 1A. | Risk Factors                                                                                                       | 8   
|Item 1B. | Unresolved Staff Comments                                                                                          | 9   
|Item 2.  | Properties                                                                                                         | 9   
|Item 3.  | Legal Proceedings                                                                                                  | 9   
|Item 4.  | Reserved                                                                                                           | 9   
|         |                                                                                                                    |     
|PART II  |                                                                                                                    |     
|Item 5.  | Market for Registrants Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity Securities | 10  
|Item 6.  | Selected Financial Data                                                                                            | 10  
|Item 7.  | Managements Discussion and Analysis of
      Financial Condition and Results of Operations                        | 11  
|Item 7A. | Quantitative and
      Qualitative Disclosures About Market Risk                                                   | 16  
|Item 8.  | Financial Statements and Supplementary
      Data                                                                  | 16  
|Item 9   | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure                         | 16  
|Item 9A. | Controls and Procedures                                                                                            | 17  
|Item 9B. | Other Information                                                                                                  | 17  
|         |                                                                                                                    |     
|PART III |                                                                                                                    |     
|Item 10. | Directors, Executive Officers and
      Corporate Governance                                                       | 18  
|Item 11. | Executive Compensation                                                                                             | 21  
|Item 12. | Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder                       | 23  
|         | Matters                                                                                                            |     
|Item 13. | Certain Relationships and Related
      Transactions, and Director Independence                                    | 24  
|Item 14. | Principal Accounting
      Fees and Services                                                                       | 24  
|         |                                                                                                                    |     
|PART IV  |                                                                                                                    |     
|Item 15. | Exhibits, Financial Statement Schedules                                                                            | 25  

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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PARTI

ITEM1:BUSINESS

|a) | Business Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | TurboSonic Technologies, Inc. (OTCBB:TSTA) designs and
      supplies air pollution control technologies to industrial customers
      worldwide. Under a reorganization plan approved by a bankruptcy court 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 pulp
      and paper, 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, textiles 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 | 
| | --------------------------------- |  | ---------- | 
| | Customer Revenue by Industry      |  | June 30,   | 
| |                                   |  | 2010       | 
| | Waste Incineration, including MSW |  | 4%         | 
| | Cement and Mineral Processing     |  | 24%        | 
| | Metallurgical Processing          |  | 7%         | 
| | Pulp and Paper                    |  | 2%         | 
| | Wood Products                     |  | 31%        | 
| | Ethanol and Biofuel Production    |  | 3%         | 
| | Power Generation                  |  | 8%         | 
| | Petrochemical                     |  | 16%        | 
| | Other                             |  | 5%         | 
| |                                   |  | 100%       | 

U.S. and Canadian customers
collectively accounted for approximately 70% and 74% of our sales during the
fiscal years ended June 30, 2010 and 2009, respectively. Revenue derived from
export sales is transacted in U.S. Dollars and Euro.

| |                                           |  | Year Ended | 
| | ----------------------------------------- |  | ---------- | 
| | Customer Revenue by Geographic
      Area |  | June 30,   | 
| |                                           |  | 2010       | 
| | United States                             |  | 66%        | 
| | Canada                                    |  | 4%         | 
| | South and Central America                 |  | 7%         | 
| | Spain                                     |  | 4%         | 
| | Other Europe                              |  | 16%        | 
| | Asia                                      |  | 2%         | 
| | Other                                     |  | 1%         | 
| |                                           |  | 100%       | 

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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 to be incorporated by third
party fabricators into our custom designed systems whereon they 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 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 | 
| | ------------------------------------------------------------------ |  | ---------- | 
| | Customer Revenue by Primary Products and
      Systems             |  | June 30,   | 
| |                                                                    |  | 2010       | 
| | Catalytic Gas Treatment Systems                                    |  | 27%        | 
| | SoniCool Evaporative Gas Cooling and Conditioning
      Systems * |  | 12%        | 
| | SonicKleen Wet Electrostatic
      Precipitation Systems (WESP)*  |  | 18%        | 
| | TurboSorb Semi-dry Scrubber Systems*                               |  | 22%        | 
| | Wet Scrubbers and Gas Absorbers *                                  |  | 15%        | 
| | Atomizing Nozzles, Service and Spare Parts                         |  | 6%         | 
| |                                                                    |  | 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. 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). The result is 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.

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.

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.

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.

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.

 5 

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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 18 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 | 
| | ---------------------------- |  | ---------- | 
| | Significant Customer Revenue |  | June 30,   | 
| |                              |  | 2010       | 
| | Top 3 customers for the year |  | 53%        | 

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,   | 
| |                     |   | 2010       | 
| | Backlog, balance at | $ | 3,000,000  | 

Product Research & Development

We have an ongoing program for the
research, development and commercialization 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,   | 
| |                                                                                                        |   | 2010       | 
| | Expenditures for research and
      development, net of customer and government support, if applicable | $ | 332,193    | 

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 18 unique patents and patents pending in domestic
and multiple international jurisdictions relating to a variety of air pollution
control applications. Two of these patents will expire in fiscal 2011; however,
we do not expect that their expiration will have a negative impact on our future
revenue.

We have registered trademarks in the
United States and certain foreign countries for identifying names which we use
with our products and systems including SoniCore®, Dry Fog® and TurboSOx®.

 6 

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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 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. The United States Clean Air Act, federal, state and local regulations
which implement it and the enforcement of these laws and regulations largely
determine the level of expenditures that customers will make to limit emissions
from their facilities.

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 environmental regulations at any time, which could have positive or
negative effects upon our future revenues and prospects of profitability.

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 meet emissions targets that more traditional technologies, such as
scrubbers, will not be able to meet effectively. Court challenges 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. New Boiler MACT rules in the US market for
industrial steam and power generation are expected to be promulgated by the end
of 2010 and proposed emission rules for cement production facilities are
anticipated to go into effect on November 8, 2010.

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, 2010, we
employed 45 full time persons, including 15 engineers, 14 salespersons, and 17
technical support persons. 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 forward contract commitments at June 30,
2010.

 7 

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ITEM 1A: RISK FACTORS

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
2010 were significantly and negatively impacted by the economic downturn.Our operating revenues for our fiscal year ended June 30, 2010 were
approximately $13,886,000, representing a decrease of 45.3% when compared to our
operating revenues of approximately $25,405,000 for our prior fiscal
year, as our clients curtailed capital expenditures and deferred
order placements as they sought to cope with the effects of the economic
downturn upon their businesses. We incurred a fiscal 2010 operating loss of
approximately $1,884,000 and a net loss of approximately $975,000, as contrasted
with an operating profit of $2,165,000 and a net profit of approximately
$1,556,000, in fiscal 2009. Our backlog at June 30, 2010 was approximately
$3,000,000 as compared to a backlog of approximately $10,200,000 at the end of
fiscal 2009. Exacerbating our fiscal 2010 operating results were U.S.
legislative delays in the enactment of new and stringent definitions of certain
environmental standards for hazardous pollutants which caused many of our
historical and prospective clients across market sectors to delay their 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
profitability.

We are dependent on environmental
regulation to drive our orders.The 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 repeal in whole or in
part may have the opposite effect.

Our revenue is concentrated among a
few customers who vary from year to year. Sales to our top three customers
accounted for 53% of our net revenues in the fiscal year ended June 30, 2010 and
51% in 2009. One was a repeat customer accounting for 15% in 2010 (12% in 2009).
The bulk of our revenue is large dollar capital contracts 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 30% and 26%, respectively, of our
revenues during our fiscal years ended June 30, 2010 and 2009 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.

 8 

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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, 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 24, 2010, TurboSonic
occupied the following facilities:

|Location                     | Use                                                                     | Sq. Ft. | Annual Rent | Lease Expires
|---------------------------- | ----------------------------------------------------------------------- | ------- | ----------- | -------------
|Waterloo, Ontario, Canada    | Executive,
      administration, sales, engineering, project management | 12,400  | $105,000    | July 2013    
|Raleigh, North Carolina, USA | Project management                                                      | 1,000   | $11,400     | November 2010
|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, 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.
Each company has filed an affidavit of documents and discovery of both has been
conducted. It is still our contention that the claims are without merit.

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, has been settled. As a
consequence of this settlement, TurboSonic is licensed 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
us.

ITEM4:RESERVED

 9 

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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, 2010  |   |                  | 
|First Quarter                    | $ | 1.370            | 
|Second Quarter                   | $ | 1.320            | 
|Third Quarter                    | $ | 0.860            | 
|Fourth Quarter                   | $ | 0.600            | 
|                                 |   |                  | 
|Fiscal Year Ended June 30, 2009: |   |                  | 
|First Quarter                    | $ | 0.790            | 
|Second Quarter                   | $ | 0.790            | 
|Third Quarter                    | $ | 0.440            | 
|Fourth Quarter                   | $ | 1.360            | 

(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, 2010, there were 310 holders of record and
approximately 1,500 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, 2006 through 2010 and balance sheet data as
of June 30, 2006 through 2010. This selected financial data (except for working
capital, percentages and ratios) is derived from our
audited Consolidated Financial Statements, for the years 2006 to 2010.

|                                                                   |   | Fiscal 2010 |   |   | Fiscal 2009 |  |   | Fiscal 2008 |   |   | Fiscal 2007 |  |   | Fiscal 2006 | 
|------------------------------------------------------------------ | - | ----------- | - | - | ----------- |  | - | ----------- | - | - | ----------- |  | - | ----------- | 
|                                                                   |   | **$**       |   |   | **$**       |  |   | **$**       |   |   | **$**       |  |   | **$**       | 
|Revenue                                                            | $ | 13,886,053  |   | $ | 25,405,475  |  | $ | 14,268,284  |   | $ | 22,893,353  |  | $ | 16,047,140  | 
|Net (Loss) Income                                                  |   | ($975,153   | ) | $ | 1,555,905   |  |   | ($662,994   | ) | $ | 1,281,462   |  | $ | 815,850     | 
|% Return on sales                                                  |   | (7.0%       | ) |   | 6.1%        |  |   | (4.6%       | ) |   | 5.6%        |  |   | 5.1%        | 
|Total assets                                                       | $ | 7,436,267   |   | $ | 13,480,335  |  | $ | 8,597,847   |   | $ | 7,092,800   |  | $ | 8,507,025   | 
|Long-term debt                                                     | $ | 143,519     |   | $ | 212,254     |  | $ | 20,908      |   | $ | 29,786      |  |   | --          | 
|Working capital                                                    | $ | 3,646,322   |   | $ | 4,922,251   |  | $ | 2,861,501   |   | $ | 3,455,180   |  | $ | 2,276,455   | 
|Current Ratio                                                      |   | 2.72:1      |   |   | 1.66:1      |  |   | 1.72:1      |   |   | 2.51:1      |  |   | 1.42:1      | 
|Stockholders Equity                                                | $ | 5,245,396   |   | $ | 5,860,806   |  | $ | 4,350,080   |   | $ | 4,788,778   |  | $ | 3,066,740   | 
|% Return on
      stockholders equity                              |   | (18.6%      | ) |   | 26.5%       |  |   | (15.2%      | ) |   | 26.8%       |  |   | 26.6%       | 
|Basic weighted average number of shares                            |   | 15,137,528  |   |   | 15,130,054  |  |   | 15,130,054  |   |   | 14,933,087  |  |   | 13,505,474  | 
|Diluted weighted
      average number of shares                    |   | 15,137,528  |   |   | 15,168,536  |  |   | 15,130,054  |   |   | 15,055,748  |  |   | 14,039,339  | 
|Diluted earnings (loss) on weighted
      average number of shares |   | ($0.06      | ) | $ | 0.10        |  |   | ($0.04      | ) | $ | 0.09        |  | $ | 0.06        | 

 10 

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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, 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, 2010
and there were no outstanding forward contract commitments at June 30, 2010.

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, income taxes, and goodwill impairment testing. 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.

 11 

---

At June 30, 2010, the net position of contracts in process is
an investment of $133,885 compared to June 30, 2009 with an advance payment of
$1,299,408. 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, 2010 on all open fixed-price contracts would impact our pre-tax income from
product sales and services by $25,000.

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:

- 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, 2010 for the
Aftermarket business segment, as required by ASC Topic 350, Intangibles 
Goodwill and Other. This test and an additional test at June 30, 2010 were
based on a five-year discounted (12%) Cash Flow calculated using the pre-tax net
income projection from our 2011 business plan. With the fair value exceeding
book value by $763,131 in the June 2010 test, the conclusion reached was that
there was no impairment of goodwill value for the year ended June 30, 2010.

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. We have not made any material changes in the
methodologies used to determine our tax valuation allowances during the past
three fiscal years.

Our Consolidated Balance Sheet as of June 30, 2010 includes a
non-current deferred tax asset of $1,021,343. This compares with a non-current
deferred tax asset of $307,424 as of June 30, 2009. For all jurisdictions for
which we have net deferred tax assets, we expect that our existing levels of
pre-tax earnings 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.

Results of Operations

After completing a record year in fiscal 2009, we have been
experiencing the effects of the economic downturn in fiscal 2010. We are
disappointed by our performance over the past fiscal year, which is attributable
in substantial part to capital expenditure deferrals by customers throughout our
primary business sectors. In the first quarter of fiscal 2010 we anticipated
that we would experience lower performance levels during the year. While we
continue to face market uncertainties due to a slow economic recovery, we are
encouraged by a recent increase in activities in domestic and international
markets marked by significant orders since the beginning of the current fiscal
year from key industries.

FY2010 Operating Results

Revenues representing all industries, products and markets declined from
$25,405,475 in 2009 to $13,886,053 in 2010 as a result of our major customers
deferring capital expenditures following the economic downturn that began in
2009. An increase in customer activity during our fourth quarter ended June 30,
2010 contributed to our order backlog reaching $3.0 million as of June 30, 2010,
which compares to an order backlog of $10.2 million as of June 30, 2009.
Subsequent to June 30 2010 and prior to the filing of this Form 10-K, we
received approximately $2 million in new orders. We also received an award of a
contract and purchase order from a customer for $3.6 million for a SonicKleen
wet electrostatic precipitator (WESP). This project award is subject to
receiving a written notice to proceed from the customer, which, based on
discussions with our customer, we anticipate receiving by the end of December
2010. We continue to see increased activity in inquiries and interest in our
range of products.

 12 

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During the year we instituted temporary salary reductions,
ranging from 20% to 50%, a  staff reduction for a limited number of
employees, froze capital spending and curtailed discretionary spending to
minimize our losses. We endeavored to retain and build our performance
capability, add to our intellectual properties and prepare for market
opportunities resulting from recently passed and pending regulations in the
United States. We are in constant contact with our customers in our efforts to
increase our order backlog.

This past year has had a significant impact on our cash
reserves. We will explore opportunities to assure sufficient resources to take
advantage of the regulatory environment that is expected to lead to our market
opportunities.

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

We believe that we are moving closer to a very significant
opportunity with the US Environmental Protection Agencys newest regulations.
These regulations include the proposed Boiler MACT (Maximum Achievable Control
Technology) for industrial boiler emissions expected to be law by December
2010, SO2 emission reduction regulations, which went into effect on
August 23, 2010, for coal-fired power plants, pulp and
paper mills, metallurgical smelters and cement kilns. In addition, the EPA is
finalizing amendments designed to reduce hazardous air pollutants from the
Portland cement manufacturing industry; the final rule is anticipated to go into effect on
November 8, 2010. These policies will affect industries in which TurboSonic has
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

As announced previously, Catalytic Gas Treatment (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 volatile organic compounds (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 and we believe projects may qualify
for carbon credits under proposed cap-and-trade legislation. Initial performance
testing of the first US-based installation of CGT technology, at a wood products
producer, has confirmed VOC removal performance in excess of 95%. There is
considerable interest in the CGT technology by industry, the EPA, together with
state and provincial agencies, and discussions are underway 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 previously announced that a patent infringement case brought
by a competitor, related to our TurboSorb Spray-Dry Absorption (SDA) technology
has been settled. As a consequence of this settlement, TurboSonic is licensed 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 us. We are pleased to put this controversy behind us and
continue to offer our proprietary SDA technology to customers in markets
targeted by new US EPA regulations for SO2 emissions from industrial sources.

SDA technology uses hydrated lime slurry for high efficiency
removal of acid gases including sulfur dioxide (SO2), hydrogen chloride (HCl),
and mercury in industries worldwide including Cement, Industrial Power
Generation and Waste-to-Energy. This technology is noteworthy in that all
sprayed liquid is evaporated, resulting in no wastewater by product to be
treated or discharged.

 13 

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12 MONTH COMPARATIVE INCOME STATEMENTS AT JUNE 30, 2010
AND 2009

|                                               |  | Fiscal 2010 |   |  | % to    |   |  | Fiscal 2009 |   |  | % to    |  |  | Increase (Decrease) |  
|---------------------------------------------- |  | ----------- | - |  | ------- | - |  | ----------- | - |  | ------- |  |  | ------------------- | -
|                                               |  |             |   |  | Total   |   |  |             |   |  | Total   |  |  |                     |  
|                                               |  | **$**       |   |  | Revenue |   |  | **$**       |   |  | Revenue |  |  | **$**               |  
|Contract revenue & sales                       |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|OEM Systems                                    |  | 10,798,683  |   |  | 78%     |   |  | 21,148,204  |   |  | 83%     |  |  | (10,349,521         | )
|Aftermarket parts & retrofits                  |  | 3,087,370   |   |  | 22%     |   |  | 4,257,271   |   |  | 17%     |  |  | (1,169,901          | )
|                                               |  | 13,886,053  |   |  | 100%    |   |  | 25,405,475  |   |  | 100%    |  |  | (11,519,422         | )
|Contract costs & cost of sales                 |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|OEM Systems                                    |  | 8,292,748   |   |  | 60%     |   |  | 15,681,617  |   |  | 62%     |  |  | (7,388,869          | )
|Aftermarket parts & retrofits                  |  | 1,842,631   |   |  | 13%     |   |  | 2,527,524   |   |  | 10%     |  |  | (684,893            | )
|                                               |  | 10,135,379  |   |  | 73%     |   |  | 18,209,141  |   |  | 72%     |  |  | (8,073,762          | )
|Gross profit                                   |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|OEM Systems                                    |  | 2,505,935   |   |  | 18%     |   |  | 5,466,587   |   |  | 21%     |  |  | (2,960,652          | )
|Aftermarket parts & retrofits                  |  | 1,244,739   |   |  | 9%      |   |  | 1,729,747   |   |  | 7%      |  |  | (485,008            | )
|                                               |  | 3,750,674   |   |  | 27%     |   |  | 7,196,334   |   |  | 28%     |  |  | (3,445,660          | )
|Expenses                                       |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Selling, general & administrative              |  | 5,106,408   |   |  | 38%     |   |  | 4,746,450   |   |  | 19%     |  |  | 359,958             |  
|Research & development costs                   |  | 332,193     |   |  | 1%      |   |  | 122,168     |   |  | 0%      |  |  | 210,025             |  
|Depreciation & amortization                    |  | 196,457     |   |  | 2%      |   |  | 163,065     |   |  | 1%      |  |  | 33,392              |  
|                                               |  | 5,635,058   |   |  | 41%     |   |  | 5,031,683   |   |  | 20%     |  |  | 603,375             |  
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|(Loss) income from operations                  |  | (1,884,384  | ) |  | (14%    | ) |  | 2,164,651   |   |  | 8%      |  |  | (4,049,035          | )
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Other expense (income)                         |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Interest, net                                  |  | 1,251       |   |  | 0%      |   |  | (20,492     | ) |  | 0%      |  |  | (21,743             | )
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|(Loss) income before taxes                     |  | (1,885,635  | ) |  | (14%    | ) |  | 2,185,143   |   |  | 8%      |  |  | (4,070,778          | )
|(Recovery of) provision for income
      taxes |  | (910,482    | ) |  | (7%     | ) |  | 629,238     |   |  | 2%      |  |  | (1,539,720          | )
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Net (loss) income                              |  | (975,153    | ) |  | (7%     | ) |  | 1,555,905   |   |  | 6%      |  |  | (2,531,058          | )
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Foreign currency translation
      adjustment  |  | 274,374     |   |  | 2%      |   |  | (114,841    | ) |  | 0%      |  |  | 389,215             |  
|                                               |  |             |   |  |         |   |  |             |   |  |         |  |  |                     |  
|Comprehensive (loss) income                    |  | (700,779    | ) |  | (5%     | ) |  | 1,441,064   |   |  | 6%      |  |  | (2,141,843          | )

Due to decreased orders resulting from the economic decline
in fiscal 2010, our OEM systems revenue decreased 49% for the twelve month
period ended June 30, 2010 over the same period in fiscal 2009, due primarily to
reduced sales of Wet Electrostatic Precipitators (WESPs) systems and retrofits
to the wood products industry (113% of decrease year-over-year) and the reduced
sales of evaporative gas cooling systems to the cement industry (45% of
decrease), partially offset by the sale of a CGT system to the wood products
industry (an offset of 38%) and a semi-dry scrubbing system to the cement
industry (an offset of 20%).

The cost of sales for OEM systems decreased 47% for the twelve
month period ended June 30, 2010 over the same period in the prior year, which
reflects the decreased revenue volume.

As a result, gross profit on OEM systems in fiscal 2010 was 23%
and in the same period in fiscal 2009 was 26%. Relative to total revenue for our
company, OEM Systems contributed gross profit of $2,505,935 (18% of total
revenue) in fiscal 2010 and $5,466,587 (21% of total revenue) for fiscal 2009.
The lower gross profit percentages are primarily the result of two large
contracts strategically taken at lower margins in the fiscal 2010 period to
establish new markets.

Due to decreased orders resulting from the economic decline
in fiscal 2010, our Aftermarket revenues decreased 27% for the twelve month
period ended June 30, 2010 over the same period in the prior fiscal year due
mostly to decreased semi-dry scrubbing (27% of decrease year-over-year),
evaporative gas cooling (32% of decrease) and wet scrubber components (5% of
decrease) and spare parts shipments in general (26% of decrease). We have
experienced a decreased volume of component and spare parts sales as our
customers have curtailed production in fiscal 2010.

The cost of sales for Aftermarket products decreased 27% for
the twelve month period ended June 30, 2010 over the same period in fiscal 2009,
due to lower sales volume and lower prices attained in fiscal 2010 compared in
fiscal 2009. The gross profit attributable to Aftermarket products was 9% of
total revenue for 2010 and 7% of total revenue for 2009.

 14 

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Gross profit on aftermarket revenues in fiscal 2010 was 40% and
in the same period in fiscal 2009 was 41%. The gross profit contribution from
OEM systems in fiscal 2010 decreased 55% over fiscal 2009, and Aftermarket gross
profit contributions in fiscal 2010 decreased 28% over fiscal 2009. This was due
to lower sales volumes and lower gross margins in both segments for 2010
compared to 2009.

Selling, general and administrative expenses increased $359,958
(7%) in fiscal 2010. This increase is represented by changes in the following:
legal fees $412,000 (+119% of increased expenses year-over-year), patent fees
$62,000 (+18%), outside services $72,000 (+21%), salaries and benefits $112,000
(+32%) together with the foreign exchange impact of Canadian- and
Euro-denominated expenses relative to the prior fiscal year $208,000 (+60%),
partially offset by a reduced bad debt expense $312,000 (-90%) and executive
bonuses not repeated in fiscal 2010 $209,000 (-61%). The increased legal expense
experienced in fiscal 2010 was the result of our defense against a patent
infringement claim by one of our competitors  see note 10b to our Consolidated
Financial Statements. The reduced bad debt expense is the result of decreased
expense year-over-year combined with the recovery of doubtful accounts in fiscal
2010  see note 4 to our Consolidated Financial Statements As a percentage of
total revenue, selling, general and administrative expenses were 37% in fiscal
2010 and 19% in fiscal 2009.

The increase of $210,025 in research and development costs is
primarily due to the increased effort to substantially complete certain WESP
technology upgrades in the current year in anticipation of new regulatory
announcements.

The decrease of $21,743 in interest earned is due to the lower
interest rates and cash positions experienced in fiscal 2010 versus those of
fiscal 2009.

Income before taxes decreased by $4,070,778 year over year to a
net loss of $1,885,635 in fiscal 2010 compared to income before taxes of
$2,185,143 in fiscal 2009. This full year result reflects the lower revenue
combined with decreased OEM margin experienced in fiscal 2010.

Recovery of income tax for fiscal 2010 was $910,482 compared to
an income tax provision of $629,238 in fiscal 2009. 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. The fiscal 2009 tax provision
relates to recognition of a decrease of the Canadian deferred tax asset of
$289,317, an increase in the US deferred tax asset of $109,292, and current
Canadian tax expense of $202,563, US tax expense of $18,594 and Italian tax of
$9,472, as discussed in note 13 to the Consolidated Financial Statements. Our
effective tax rate for fiscal 2010 was (48%) versus the 29% recorded in fiscal
2009. Our
effective tax rate for fiscal 2010 was (48%) versus the 29% recorded in fiscal
2009.   The recovery in fiscal 2010 is primarily related to our Scientific
Research and Experimental Development Investment Tax Credit (ITC) claims as
part of our companys fiscal 2009 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. The statement of
comprehensive income reflects change in the carrying value of these accounts 
an increase of $274,374 in fiscal 2010 and a decrease of $114,841 during fiscal
2009 - while the Stockholders equity carries the cumulative value of currency
exchange for balance sheet accounts.

LIQUIDITY AND CAPITAL RESOURCES

|                                              |  | For the year ended June
      30, |  
|--------------------------------------------- |  | --------------------------------- | -
|Cash Summary                                  |  | 2010                              |  
|Cash (used in) provided by:                   |  | **$**                             |  
|Operations                                    |  | (3,791,040                        | )
|Purchase of equipment                         |  | (46,041                           | )
|Proceeds from common shares issued            |  | 6,000                             |  
|Repayment of obligations under long-term debt |  | (78,789                           | )
|Foreign currency translation of cash          |  | 325,233                           |  
|Net cash provided during the period           |  | (3,584,637                        | )
|Cash beginning of period                      |  | 5,621,166                         |  
|Cash end of period                            |  | 2,036,529                         |  
|                                              |  |                                   |  
|Working Capital Summary                       |  | 2010                              |  
|Current assets                                |  | 5,771,957                         |  
|Current liabilities                           |  | 2,125,635                         |  
|Net working capital                           |  | 3,646,322                         |  
|Current ratio                                 |  | 2.72                              |  

 15 

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|Summary of Contracts in Progress                  |  | 2010      |   |  | 2009       |  
|------------------------------------------------- |  | --------- | - |  | ---------- | -
|Contract value completed and to be
      invoiced |  | 486,512   |   |  | 1,027,858  |  
|Contract advances invoiced                        |  | (352,627  | ) |  | (2,327,266 | )
|Net contracts in progress                         |  | 133,885   |   |  | (1,299,408 | )
|                                                  |  |           |   |  |            |  
|Contract Backlog                                  |  | 2010      |   |  | 2009       |  
|Contract value to be recognized as revenue        |  | 3,000,000 |   |  | 10,200,000 |  

In fiscal 2010, operations applied $3,791,040 in cash compared
to fiscal 2009 when operations provided $2,901,125 in cash. 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 provision of cash in 2009
was the result of increased accounts payable and accrued charges, combined with
the net income achieved for the year. The working capital position decreased in
2010 to $3,646,322 from $4,922,251 and the current ratio increased from 1.66:1
to 2.72:1.

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, 2010, the net position of contracts in process is an investment of $133,885
compared to June 30, 2009 with advance payments of $1,299,408.

During 2010, we renewed a credit facility with a major Canadian
bank for a total of USD $6.4 million, together with a demand loan for computer
equipment. This facility includes a demand operating line of CAD $1.5 million
secured by our receivables, a demand credit for standby letters of credit for
USD $4.25 million secured by a general security agreement and guarantees were
provided by Export Development Canada on a fee-for-service basis, plus a demand
credit for foreign exchange contracts for USD $750,000. Based upon our June 30,
2010 accounts receivable balance, the available demand operating line was $1,278,000. At
June 30, 2010 we had standby letters of credit outstanding for approximately
$2,007,021 in place with various customers in order to receive cash proceeds
ahead of customer-specified milestones, together with our demand loan balance of
$143,519. Financial covenants include that the Total Liabilities to Tangible Net
Worth Ratio does not exceed 2.0:1 at any time and that the Current Ratio is not
less than 1.20:1 at any time. As at June 30, 2010 our Total Liabilities to
Tangible Net Worth Ratio was 0.42:1 and our Current Ratio was 2.72:1 and,
therefore, we were in compliance with these financial covenants. There were no drawdowns against the operating or foreign exchange credit lines at June 30,
2010. There were no off-balance sheet financing arrangements other than the
lines of credit and letters of credit..

Our backlog as at June 30, 2010 was approximately $3,000,000,
which we expect to record 100% as revenue in fiscal 2011, compared to the June
30, 2009 backlog of $10,200,000. There is no assurance that backlog will be
replicated, increased or transferred into higher revenues for the future.

Based on our cash position at June 30, 2010,borrowings
available pursuant to the operating line of credit, our recent increase in
bookings and anticipated sales orders through fiscal 2011, we believe that we
will have sufficient capital resources to support operations through June 30,
2011.

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 entered into forward or
future foreign exchange contracts, but there were no outstanding forward foreign
exchange contracts at June 30, 2010. 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, 2010, we were not using any bank borrowing
facility, other than outstanding standby letters of credit totaling $2,007,022
and a demand loan with an outstanding balance of $143,519 at June 30, 2010, 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.

 16 

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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, 2010. 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, 2010.

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, 2010 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, 2010. 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, 2010, 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 27, 2010, we issued a press release announcing our
financial results for the year ended June 30, 2010. A copy of the press release
is being furnished as Exhibit 99.1 to this report and incorporated herein by
reference.

 17 

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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                    | 68  | Chairman
      of the Board                        
|Edward F. Spink                | 56  | Chief Executive Officer
      and Director         
|Egbert Q. van
      Everdingen | 49  | President,
      Secretary-Treasurer and Director  
|Carl A. Young                  | 68  | Chief Financial Officer                            
|Richard H. Hurd                | 73  | Director                                           
|Glen O. Wright                 | 61  | Director                                           
|Raymond L. Alarie              | 58  | Director                                           
|F. Eugene Deszca               | 62  | Director                                           
|Robert A. Allan                | 68  | Vice
      President Engineering                   
|David J. Hobson                | 62  | Vice President Finance
      & Administration      
|Richard C. Gimpel              | 62  | Vice
      President Marketing & Sales             
|Luca Finzi                     | 56  | 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 Disclosure Committee). He is the Advisory Committee Chairman for the
Small Investor Protection Association in Canada, a member of the board of the
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 Spink, Chief Executive Officer and director, has
completed 24 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 18 years, his 24 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 has been the owner and president of 602536 Ontario Ltd., a
management services company, since 1984. From 1989 to 1998, he was president and
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 contracted out fabrication of
industrial and shipyard cranes to international markets. Since 1999 through his
management services company, Mr. Young has provided interim CFO, Director of
Finance, VP of Finance and other business consulting services to a number of
clients.

 18 

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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 Chair
(2010) 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.

 19 

---

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 of Milan.

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, 2010 such reporting persons complied
with the filing requirements of said 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, as further
required by the Nasdaq rules, 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.

 20 

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ITEM11:EXECUTIVECOMPENSATION

Summary Compensation

Set forth below is the aggregate compensation for services
rendered in all capacities to us during our fiscal year ended June 30, 2010 by
our chief executive officer and by executive officers earning annual
compensation exceeding $100,000 during our fiscal year ended June 30, 2010
(collectively the Named Officers).

SUMMARY COMPENSATION TABLE (1)

|                                |  |         |  |   |         |  |   |            |  | Non-equity       |              |  |       |        |     |  
|------------------------------- |  | ------- |  | - | ------- |  | - | ---------- |  | ---------------- | ------------ |  | ----- | ------ | --- | -
|Name and                        |  | Year    |  |   | Salary  |  |   | Option     |  | Incentive        | All Other    |  |       |       
|Principal Position              |  | Ended   |  |   |         |  |   | Awards (2) |  | Plan             | Compensation |  | Total |       
|                                |  | June 30 |  |   |         |  |   |            |  | Compensation (3) |              |  |       |        |     |  
|                                |  |         |  |   |         |  |   |            |  |                  |              |  |       |        |     |  
|Edward F. Spink                 |  | 2010    |  | $ | 191,576 |  | $ | 1,840      |  |                  | --           |  |       | --     |     | $
|Chief Executive Officer         |  | 2009    |  | $ | 193,121 |  | $ | 4,452      |  | $                | 96,561       |  | $     | 1,287  | (4) | $
|                                |  | 2008    |  | $ | 224,284 |  | $ | 13,699     |  |                  | --           |  | $     | 1,477  | (4) | $
|                                |  |         |  |   |         |  |   |            |  |                  |              |  |       |        |     |  
|Egbert Q. van
      Everdingen, |  | 2010    |  | $ | 171,664 |  | $ | 1,840      |  |                  | --           |  |       | --     |     | $
|President, Secretary-Treasurer  |  | 2009    |  | $ | 171,664 |  | $ | 4,452      |  | $                | 85,832       |  | $     | 1,287  | (4) | $
|                                |  | 2008    |  | $ | 202,265 |  | $ | 13,699     |  |                  | --           |  | $     | 1,969  | (4) | $
|                                |  |         |  |   |         |  |   |            |  |                  |              |  |       |        |     |  
|Carl A. Young                   |  | 2010    |  | $ | 140,958 |  | $ | 1,840      |  |                  | --           |  |       | --     |     | $
|Chief Financial Officer         |  | 2009    |  | $ | 96,973  |  |   | --         |  | $                | 42,916       |  |       | --     |     | $
|                                |  | 2008    |  | $ | 111,785 |  |   | --         |  |                  | --           |  |       | --     |     | $
|                                |  |         |  |   |         |  |   |            |  |                  |              |  |       |        |     |  
|Richard C. Gimpel,              |  | 2010    |  | $ | 104,584 |  |   | --         |  |                  | --           |  | $     | 13,432 | (5) | $
|VP  Marketing &
      Sales    |  | 2009    |  | $ | 123,600 |  |   | --         |  | $                | 18,540       |  | $     | 12,963 | (5) | $
|                                |  | 2008    |  | $ | 112,924 |  | $ | 2,749      |  | $                | 4,035        |  | $     | 16,991 | (5) | $
|                                |  |         |  |   |         |  |   |            |  |                  |              |  |       |        |     |  
|Robert A. Allan                 |  | 2010    |  | $ | 105,075 |  |   | --         |  |                  | --           |  |       | --     |     | $
|VP - Engineering                |  | 2009    |  | $ | 98,692  |  |   | --         |  | $                | 15,321       |  |       | --     |     | $

|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 dollar amount recognized
      for financial statement reporting purposes with respect to the 2010 fiscal
      year for the fair value of option awards granted in fiscal 2008, 2009 and
      2010, in accordance with ASC Topic 718, Compensation  Stock
      Compensation (ASC Topic 718). 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
      the Form 10-K for the year ended June 30, 2010. 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 named executive
      officers.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3) | Amounts in this column represent discretionary bonuses
      approved by our Board of Directors in fiscal 2009 and 2008 for the named
      executive officers. There were no discretionary bonuses approved by our
      Board of Directors in fiscal 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|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 option awards of 20,000 options as a director made on December 11, 2007 at
an exercise price of $0.84, an award of 20,000 options as a director made on
December 11, 2008 at an exercise price of $0.30 and an award of 25,000 options
as an employee made on December 11, 2009 at an exercise price of $0.79.

The recognized stock-based compensation expense listed as
Option Awards for Mr. Van Everdingen in the above Summary Compensation table was
derived from option awards of 20,000 options as a director made on December 11,
2007 at an exercise price of $0.84, an award of 20,000 options as a director
made on December 11, 2008 at an exercise price of $0.30 and an award of 25,000
options as an employee made on December 11, 2009 at an exercise price of $0.79.

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.

 21 

---

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 therein as having been granted 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.

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

|OUTSTANDING EQUITY AWARDS AT JUNE
      30, 2010 | 
|------------------------------------------------ | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|Edward F. Spink                                  | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|Egbert Q. van Everdingen                         | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|                                                 | 
|Carl A. Young                                    | 
|                                                 | 
|Richard C. Gimpel                                | 
|                                                 | 
|                                                 | 
|Robert A. Allan                                  | 

|1) | Options vest on December 11, 2014.
|-- | ----------------------------------
|   |                                   
|2) | Options vest on December 11, 2012.

|COMPENSATION OF DIRECTORS | 
|------------------------- | 
|                          | 
|                          | 
|                          | 
|Richard R. Hurd           | 
|Ken Kivenko               | 
|Glen O. Wright            | 
|Raymond L. Alarie         | 
|F. Eugene Deszca          | 

|1) | This column represents the dollar amount recognized
      for financial statement reporting purposes with respect to the 2010 fiscal
      year for the fair value of option awards granted in fiscal 2010, 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 the Form 10-K for the year ended June 30,
      2010. See the Grants of Plan-Based Awards Table below for information on
      stock awards made in 2010. 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.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

 22 

---



During the first half of fiscal 2009, all of our directors were
each paid $500 (CAD for all board members, except Mr. Hurd who is in US Dollars)
for each board meeting attended and our non-executive directors were paid $2,500
per quarter and $250 for each committee meeting attended. Commencing with the
third quarter of fiscal 2009, our non-executive directors were 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 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, 2010, there was a grant of
20,000 options to each non-executive director, which vested immediately, had an
exercise price of $0.79 and an expiry date of December 11, 2017.

ITEM12:SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS

The following table sets forth, as of September 17, 2010 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.

|Name and Address of Beneficial
      Owner or Identity or          |  | Number of Shares       |         |  | Approximate Percentage | 
|------------------------------------------------------------------ |  | ---------------------- | ------- |  | ---------------------- | 
|Group*                                                             |  | Beneficially Owned (1) |         |  | of Class               | 
|Dr. Donald R. Spink,
      Sr.                                     |  | 1,273,070              | (3)     |  | 8.0%                   | 
|Edward F. Spink                                                    |  | 1,220,379              | (2) (5) |  | 7.6%                   | 
|Egbert Q. van
      Everdingen                                     |  | 401,121                | (2) (6) |  | 2.5%                   | 
|Richard H. Hurd                                                    |  | 156,373                | (4)     |  | **                     | 
|Glen O. Wright                                                     |  | 134,000                | (4)     |  | **                     | 
|Ken Kivenko                                                        |  | 95,000                 | (7)     |  | **                     | 
|Raymond L. Alarie                                                  |  | 240,000                | (10)    |  | 1.5%                   | 
|F. Eugene Deszca                                                   |  | 140,000                | (10)    |  | **                     | 
|Carl A. Young                                                      |  | 7,000                  |         |  | **                     | 
|Richard C. Gimpel                                                  |  | 48,125                 | (8)     |  | **                     | 
|Robert A. Allan                                                    |  | 139,750                | (11)    |  | **                     | 
|Heartland Advisors, Inc. (12)                                      |  | 1,000,987              |         |  | 6.3%                   | 
|Bard Associates, Inc.
      (13)                                   |  | 1,513,900              |         |  | 9.5%                   | 
|Sprott Asset Management Inc. (14)                                  |  | 1,017,600              |         |  | 6.4%                   | 
|All Executive Officers and
      Directors as a group (11 persons) |  | 2,639,709              | (9)     |  | 16.5%                  | 

|(*)  | 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)  | Unless otherwise indicated, all persons named below have
      sole voting and investment power over listed shares.                                                                                                                                                                                                                                    
|(2)  | Includes shares of TurboSonic Canada Inc., a wholly owned
      subsidiary of our company, which by their terms are convertible at any
      time into a like number of shares of Common Stock of our
      company (TurboSonic Canada Shares).                                                                                                      
|(3)  | Includes 764,609 TurboSonic Canada Shares owned by
      Canadian numbered corporation, over which shares Dr. Spink exercises
      voting control.                                                                                                                                                                                                    
|(4)  | Includes 100,000 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                
|(5)  | Includes 110,000 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                
|(6)  | Includes 90,000 shares issuable upon exercise of vested
      options                                                                                                                                                                                                                                                                                  
|(7)  | Includes 80,000 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                 
|(8)  | Includes 17,500 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                 
|(9)  | Includes 615,000 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                
|(10) | Includes 40,000 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                 
|(11) | Includes 12,500 shares issuable upon exercise of vested
      options.                                                                                                                                                                                                                                                                                 
|(12) | Pursuant to a Schedule 13G filed on February 19, 2010,
      Heartland Advisors, Inc., an investment adviser, and William J. Nasgovitz
      have shared power to direct the disposition of, and the shared power to
      direct the vote of, 1,000,987 shares. The address of the beneficial owner
      is 789 North Water St., Milwaukee, WI 53202.
|(13) | Pursuant to a Schedule 13G filed on February 12, 2010,
      Bard Associates, Inc. , an investment adviser, has the sole power to
      direct the disposition of 1,513,900 shares and the sole power to direct
      the vote of 103,750 shares. The address of the beneficial owner is 135
      South LaSalle St., Suite 2320, Chicago, IL 60603.   
|(14) | Pursuant to a Schedule 13G filed on January 26, 2010,
      Sprott Asset Management Inc. has the shared power to direct the
      disposition of, and the shared power to direct the vote of, 1,017,600
      shares. The address of the beneficial owner is Suite 2700, South Tower,
      Royal Bank Plaza, Toronto, ON M5J 2J1, Canada.             

 23 

---

Securities Authorized for Issuance Under Equity Compensation
Plans:

The following table provides information as of June 30, 2010
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                                                 |  | 340,000                 |  |  | $ 0.6029             |  |  | 460,000              | 
|- 2003 Stock Plan                                                 |  | 367,500                 |  |  | $ 1.0016             |  |  | 132,500              | 
|Equity compensation plans not approved
      by security holders: |  |                         |  |  |                      |  |  |                      | 
|- 2000 Stock Plan                                                 |  | 132,500                 |  |  | $0.7500              |  |  | --                   | 
|                                                                  |  |                         |  |  |                      |  |  |                      | 
|                                                                  |  | 840,000                 |  |  | $0.8006              |  |  | 592,500              | 

We instituted the 2000 Stock Plan [the 2000 Plan] with the
express purpose of encouraging key employees, as well as other individuals who
render services to us, by affording such persons with opportunities to
participate in equity ownership of our company. The 2000 Plan provides for the
grant of non-qualified options, stock awards and stock purchase rights.
Collectively, these are referred to as stock rights.

The 2000 Plan, adopted by us on February 9, 2000, was not
approved by a vote of stockholders. It is administered by the Board of
Directors, which determines to whom such stock rights may be granted, at which
times the stock rights shall be granted and the time or times when each option
shall become exercisable and the duration of the exercise period. The exercise
price per each non-qualified option granted under the 2000 Plan shall be not
less than the fair market value per share of common stock on the date of such
grant. The stock, subject to stock rights, shall be authorized but unissued
shares of our common stock or shares of common stock reacquired by us in any
manner. The aggregate number of shares that may be issued, pursuant to the 2000
Plan, is 937,500, of which 132,500 have been granted and remain outstanding,
747,813 have been granted and exercised and 57,187 were not granted. As the 2000
Plan  expired February 2010, no further shares may be issued.

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:

|Fees
      billed by Deloitte & Touche LLP: |   | 2010    |  |   | 2009    | 
|------------------------------------------- | - | ------- |  | - | ------- | 
|                                            |   |         |  |   |         | 
|Audit fees                                  | $ | 76,568  |  | $ | 80,569  | 
|Audit-related fees                          | $ | 18,599  |  | $ | 22,628  | 
|Tax fees                                    | $ | 10,792  |  | $ | 19,071  | 
|Other                                       | $ | 40,059  |  | $ | --      | 
|                                            | $ | 146,018 |  | $ | 122,268 | 

Audit fees services include fees associated with the annual
audit, assistance with and review of documents filed with the Securities and
Exchange Commission. Audit-related fees principally consist of quarterly
reviews. Tax fees include tax compliance and tax consultations. In fiscal 2010,
other fees consist 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.

 24 

---

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 *         | 2000 Stock Plan (5)                                                                                                                                                                                                                                                         
|10.2 *         | 2003 Stock Plan (6)                                                                                                                                                                                                                                                         
|10.3 *         | 2008 Stock Plan (7)                                                                                                                                                                                                                                                         
|10.4           | Letter Agreement dated February 24, 2010 by and
      between TurboSonic Inc. and Canadian Imperial Bank of Commerce                                                                                                                                                        
|10.5           | Security Agreement dated April
      21, 2008 by and between TurboSonic Inc. and Canadian Imperial Bank of
      Commerce (8)                                                                                                                                               
|10.6           | Security Agreement dated April 21, 2008 by and
      between TurboSonic Technologies and Canadian Imperial Bank of Commerce (8)                                                                                                                                             
|10.7           | Guaranty dated as of April 21,
      2008 by and between TurboSonic Technologies and Canadian Imperial Bank of
      Commerce (8)                                                                                                                                           
|14.1           | Code of Ethics (9)                                                                                                                                                                                                                                                          
|21.1           | Subsidiaries of
      TurboSonic Technologies                                                                                                                                                                                                                               
|23.1           | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                            
|31.1           | Rule 13a-14(a)/15d-14(a)
      Certifications                                                                                                                                                                                                                               
|32.1           | Section 1350 Certifications                                                                                                                                                                                                                                                 
|99.1           | Full Year Operating
      Results Press Release issued September 27, 2010                                                                                                                                                                                                   

|* Compensatory Plan
|-------------------
|(1)                
|(2)                
|(3)                
|(4)                
|(5)                
|(6)                
|(7)                
|(8)                
|(9)                

 25 

---

| |                                                       
| | ------------------------------------------------------
| | TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES        
| | Incorporated 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 consolidated balance sheets of TurboSonic
Technologies, Inc. and its subsidiaries (the Company) as of June 30, 2010 and
2009, and the related consolidated statements of (loss) income and comprehensive
(loss) income, stockholders equity, and cash flows for the years then ended.
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 audit 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. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of TurboSonic
Technologies, Inc. and its subsidiaries as of June 30, 2010 and 2009, and the
results of their operations and their cash flows for the years ended June 30,
2010 and June 30, 2009, 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 27, 2010

F-1

---

| |                                                       
| | ------------------------------------------------------
| | TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES        
| | Incorporated Under the Laws of Delaware,
United States

CONSOLIDATED BALANCE SHEETS

|As at June 30                                                                  |  |                                                                                                                      | [expressed in United States dollars] |  
|------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -
|                                                                               |  |                                                                                                                      |                                      |  
|                                                                               |  |                                                                                                                      | 2010                                 |  
|                                                                               |  |                                                                                                                      | $                                    |  
|                                                                               |  |                                                                                                                      |                                      |  
|ASSETS                                                                         |  |                                                                                                                      |                                      |  
|Current                                                                        |  |                                                                                                                      |                                      |  
|Cash and cash equivalents                                                      |  |                                                                                                                      | 2,036,529                            |  
|Accounts receivable, net[note 4]                                               |  |                                                                                                                      | 2,251,476                            |  
|Retentions receivable                                                          |  |                                                                                                                      | 709,554                              |  
|Inventories [note 5]                                                           |  |                                                                                                                      | 96,410                               |  
|Deferred contract costs and
      unbilled revenue [note 6]                    |  |                                                                                                                      | 486,512                              |  
|Income taxes recoverable                                                       |  |                                                                                                                      | 111,481                              |  
|Other current assets                                                           |  |                                                                                                                      | 79,995                               |  
|Total
      current assets                                                     |  |                                                                                                                      | 5,771,957                            |  
|Property and equipment,less accumulated depreciation and amortization [note 7] |  |                                                                                                                      | 230,155                              |  
|Goodwill [note 2]                                                              |  |                                                                                                                      | 398,897                              |  
|Deferred income taxes [note
      13]                                          |  |                                                                                                                      | 1,021,343                            |  
|Other
      assets                                                             |  |                                                                                                                      | 13,915                               |  
|                                                                               |  |                                                                                                                      | 1,664,310                            |  
|Total
      assets                                                             |  |                                                                                                                      | 7,436,267                            |  
|                                                                               |  |                                                                                                                      |                                      |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                           |  |                                                                                                                      |                                      |  
|Current                                                                        |  |                                                                                                                      |                                      |  
|Accounts payable                                                               |  |                                                                                                                      | 814,567                              |  
|Accrued compensation charges                                                   |  |                                                                                                                      | 260,042                              |  
|Accrued warranty provision [note 8 and note 18]                                |  |                                                                                                                      | 94,214                               |  
|Accrued other charges [note
      17 and note 18]                              |  |                                                                                                                      | 525,902                              |  
|Long-term debt, current portion [note 9]                                       |  |                                                                                                                      | 78,283                               |  
|Income taxes payable                                                           |  |                                                                                                                      | --                                   |  
|Unearned
      revenue and contract advances [note 6]                          |  |                                                                                                                      | 352,627                              |  
|Total current liabilities                                                      |  |                                                                                                                      | 2,125,635                            |  
|Long
      term debt [note 9]                                                  |  |                                                                                                                      | 65,236                               |  
|                                                                               |  |                                                                                                                      | 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                                                                         |  |                                                                                                                      |                                      |  
|14,982,542                                                                     |  | common shares [2009 
      14,723,081]                                                                              |                                      |  
|155,512                                                                        |  | common shares reserved for the conversion of
      the subsidiarys Class B exchangeable shares [2009 
    406,973] |                                      |  
|Additional paid-in capital                                                     |  |                                                                                                                      | 3,663,669                            |  
|                                                                               |  |                                                                                                                      | 6,222,475                            |  
|Accumulated other comprehensive
      income                                   |  |                                                                                                                      | 752,110                              |  
|Accumulated deficit                                                            |  |                                                                                                                      | (1,729,189                           | )
|Total stockholders equity                                                     |  |                                                                                                                      | 5,245,396                            |  
|Total
      liabilities and stockholders equity                               |  |                                                                                                                      | 7,436,267                            |  

See accompanying notes

F-2

---

| |                                                       
| | ------------------------------------------------------
| | TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES        
| | Incorporated Under the Laws of Delaware,
United States

CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND
COMPREHENSIVE (LOSS) INCOME

|Years ended June 30                                 |  | [expressed in United States dollars] |  
|--------------------------------------------------- |  | ------------------------------------ | -
|                                                    |  |                                      |  
|                                                    |  |                                      |  
|                                                    |  | 2010                                 |  
|                                                    |  | $                                    |  
|                                                    |  |                                      |  
|CONTRACT REVENUE AND SALES                          |  |                                      |  
|OEM systems revenue                                 |  | 10,798,683                           |  
|Aftermarket
      revenue                           |  | 3,087,370                            |  
|                                                    |  | 13,886,053                           |  
|                                                    |  |                                      |  
|CONTRACT COSTS AND COST OF SALES                    |  |                                      |  
|OEM systems contract costs and costs of sales       |  | 8,292,748                            |  
|Aftermarket contract costs and cost of sales        |  | 1,842,631                            |  
|                                                    |  | 10,135,379                           |  
|Gross margin                                        |  | 3,750,674                            |  
|                                                    |  |                                      |  
|EXPENSES                                            |  |                                      |  
|Selling, general and administrative                 |  | 5,106,408                            |  
|Research and development expense                    |  | 332,193                              |  
|Depreciation and
      amortization                 |  | 196,457                              |  
|                                                    |  | 5,635,058                            |  
|                                                    |  |                                      |  
|(Loss) income from operations                       |  | (1,884,384                           | )
|Interest income                                     |  | 7,561                                |  
|Interest expense                                    |  | (8,812                               | )
|(Loss) income before provision for income taxes     |  | (1,885,635                           | )
|(Recovery of) provision for income taxes [note 13]  |  | (910,482                             | )
|Net (loss)
      income                             |  | (975,153                             | )
|Other comprehensive income (loss):                  |  |                                      |  
|Foreign currency translation
      adjustment       |  | 274,374                              |  
|Comprehensive (loss) income                         |  | (700,779                             | )
|                                                    |  |                                      |  
|Basic (loss) earnings per share[note 14]            |  | $(0.06                               | )
|Diluted (loss)
      earnings per share[note 14]    |  | $(0.06                               | )
|                                                    |  |                                      |  
|Basic weighted average number of shares [note 14]   |  | 15,137,528                           |  
|Diluted weighted average number of shares [note 14] |  | 15,137,528                           |  

See accompanying notes

F-3

---



| |                                                       
| | ------------------------------------------------------
| | TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES        
| | Incorporated 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 (loss) |   |  | equity    |  
|                                         |  | #             |  |  | $          |  |  | $           |   |  | $             |   |  | $             |   |  | $         |  
|                                         |  |               |  |  |            |  |  |             |   |  |               |   |  |               |   |  |           |  
|Balance  June 30, 2008                  |  | 15,130,054    |  |  | 2,549,446  |  |  | 3,517,998   |   |  | (2,309,941    | ) |  | 592,577       |   |  | 4,350,080 |  
|Net income                               |  |              |  |  |           |  |  |            |   |  | 1,555,905     |   |  |              |   |  | 1,555,905 |  
|Stock-based compensation
      [note 12] |  |              |  |  |           |  |  | 69,662      |   |  |              |   |  |              |   |  | 69,662    |  
|Translation adjustment                   |  |              |  |  |           |  |  |            |   |  |              |   |  | (114,841      | ) |  | (114,841  | )
|                                         |  |               |  |  |            |  |  |             |   |  |               |   |  |               |   |  |           |  
|Balance  June 30, 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                       |  | 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 |  

See accompanying notes

F-4

---



| |                                                       
| | ------------------------------------------------------
| | TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES        
| | Incorporated Under the Laws of Delaware,
United States

CONSOLIDATED STATEMENTS OF CASH FLOWS

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



|                                                                                  |  | 2010       |   |  | 2009      |  
|--------------------------------------------------------------------------------- |  | ---------- | - |  | --------- | -
|                                                                                  |  | $          |   |  | $         |  
|                                                                                  |  |            |   |  |           |  
|OPERATING ACTIVITIES                                                              |  |            |   |  |           |  
|Net (loss) income                                                                 |  | (975,153   | ) |  | 1,555,905 |  
|Add charges to operations not requiring a current cash
      payment:             |  |            |   |  |           |  
|Stock-based
      compensation expense [note 12]                                  |  | 79,364     |   |  | 69,662    |  
|Depreciation and amortization [note
      7]                                      |  | 196,457    |   |  | 163,065   |  
|Deferred
      income taxes                                                       |  | (708,121   | ) |  | 467,535   |  
|                                                                                  |  |            |   |  |           |  
|Net change in non-cash assets and liabilities related to
    operations [note 15] |  | (2,383,587 | ) |  | 644,958   |  
|Cash (used in)
      provided by operating activities                             |  | (3,791,040 | ) |  | 2,901,125 |  
|                                                                                  |  |            |   |  |           |  
|INVESTING ACTIVITIES                                                              |  |            |   |  |           |  
|Purchase of property and equipment                                                |  | (46,041    | ) |  | (248,373  | )
|Cash (used in)
      investing activities                                         |  | (46,041    | ) |  | (248,373  | )
|                                                                                  |  |            |   |  |           |  
|FINANCING ACTIVITIES                                                              |  |            |   |  |           |  
|(Repayment) of obligations under long-term
      debt and capital leases          |  | (78,789    | ) |  | (9,056    | )
|Proceeds from
      issuance of common shares                                     |  | 6,000      |   |  |          |  
|Cash (used in) financing activities                                               |  | (72,789    | ) |  | (9,056    | )
|                                                                                  |  |            |   |  |           |  
|Effect of exchange rate changes on cash and cash
      equivalents                |  | 325,233    |   |  | (212,711  | )
|                                                                                  |  |            |   |  |           |  
|Net cash (used in) provided during year                                           |  | (3,584,637 | ) |  | 2,430,985 |  
|Cash and cash
      equivalents, beginning of year                                |  | 5,621,166  |   |  | 3,190,181 |  
|Cash and cash equivalents, end of year                                            |  | 2,036,529  |   |  | 5,621,166 |  
|                                                                                  |  |            |   |  |           |  
|Supplemental cash flow information:                                               |  |            |   |  |           |  
|Interest paid                                                                     |  | (8,812     | ) |  | (2,077    | )
|Interest received                                                                 |  | 6,963      |   |  | 22,519    |  
|Income taxes paid                                                                 |  | (350,626   | ) |  | (28,433   | )
|                                                                                  |  |            |   |  |           |  
|See accompanying notes                                                            |  |            |   |  |           |  

F-5

---





|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

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

Under Accounting Standards Codification (ASC) Topic 350,
Intangibles  Goodwill and Other (ASC Topic 350), goodwill is not being
amortized but is subject to an annual impairment review [or more frequently if
conditions dictate]. 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, 2010 and additionally at June 30, 2010, 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
segment 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 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 for accounting purposes. Contract
revenues recorded under the percentage-of-completion method in excess of amounts
billed are classified as deferred contract costs and unbilled revenue. Amounts
billed in excess of revenue earned and work-in-process balances are classified
as unearned revenue and contract advances.

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.

F-6

---





|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

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 2009 or 2010.

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

We account for income taxes in accordance with the provisions
of ASC Topic 740, Income Taxes (ASC Topic 740). 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 financial
statements uncertain tax positions that we have taken or expect to take on a tax
return. Claims under the Canadian Scientific Research & Development
program for fiscal years 2009 and 2010 have yet to be submitted but a valuation
estimate has been prepared [see note 13].

Advertising costs

All costs associated with advertising and promoting products
are expensed as incurred. Advertising and promotion expense was $101,464 in 2010
[$87,425 in 2009].

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, 2010 and 2009 have been reduced for estimated forfeitures. Forfeitures were
estimated based on historical experience. See Note 12 for more information
regarding the assumptions used in estimating the fair value of stock options.

F-7

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

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.

(Loss) Earnings per share

Basic (loss) earnings 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 per
share, the TurboSonic Canada Inc. Class B exchangeable shares, disclosed in note
12, are considered outstanding common stock of TurboSonic Technologies,
Inc. Diluted (loss) earnings 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
(loss) income. 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 (loss) income 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 (loss) income

We report comprehensive (loss) income, in addition to net
(loss) income from operations, as required by ASC Topic 220, Comprehensive
Income (ASC Topic 220). Comprehensive (loss) income 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 (loss) income 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 (loss) income
are disclosed in the Consolidated Statements of Stockholders Equity and
Comprehensive (Loss) Income. All reported comprehensive (loss) income is the
result of the foreign exchange changes to our balance sheet year-to-year.

Impact of recently issued accounting standards

Useful Life of an Intangible Asset

In April 2008, the FASB issued ASC Subtopic 350-30 which amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of the recognized intangible
asset. The intent of the guidance is to improve the consistency between the
useful life of a recognized intangible asset under ASC Subtopic 350-30 and the
period of expected cash flows used to measure the fair value of the asset under
ASC 805. For a recognized intangible asset, an entity will be required to
disclose information that enables users of the financial statements to assess
the extent to which expected future cash flows associated with the asset are
affected by the entitys intent and/or ability to renew or extend the
arrangement. ASC Subtopic 350-30 is effective for fiscal years beginning after
December 15, 2008, which is our fiscal year ended June 30, 2010. We adopted ASC
Subtopic 350-30 on July 1, 2009. The adoption of ASC Subtopic 350-30 has not had
a material impact on our results of operations or financial condition to date.

Fair Value Measurements

In September 2006, the FASB issued ASC Topic 820  Fair Value
Measurements and Disclosures, (ASC Topic 820), effective for fiscal years
beginning after November 15, 2007, which was our fiscal year ended June 30,
2009. ASC Topic 820 defines fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurements. On
February 12, 2008, the FASB delayed the effective date of ASC Topic 820 for all
nonrecurring fair value measurements of nonfinancial assets and nonfinancial
liabilities until fiscal years beginning after November 15, 2008, which is our fiscal year ended June 30,
2010. We adopted the non-deferred portion of ASC Topic 820 on July 1, 2008 and
the deferred portion on July 1, 2009. The adoption of ASC Topic 820 has not had
a material impact on our results of operations or financial condition to date.

F-8

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

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. We are
currently assessing the impact of adoption of ASU 2009-13.

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, 2010 amounted to $143,519 (bank loan)
(2009 - $212,254). 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, 2010 and
June 30, 2009 for debt obligations with similar terms and conditions. Note that
interest rate fluctuations may impact the total owing on long-term debt.

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, 2010, we had three customers that comprised 61%
of the total trade receivable balance and had one repeat and two different
customers that comprised 53% of the total trade receivable balance at June 30,
2009.

Our cash balances are maintained in one United States chartered
bank, which is an AA rated financial institution, in two Canadian chartered
banks, which are AA rated financial institutions and in one Italian chartered
bank, which is an AA 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 its 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          |  |           |   |  |           |  
|------------------------------- |  | --------- | - |  | --------- | -
|                                |  | 2010      |   |  | 2009      |  
|                                |  | **$**     |   |  | **$**     |  
|                                |  |           |   |  |           |  
|Trade accounts receivable       |  | 1,926,671 |   |  | 4,787,981 |  
|Value-added taxes receivable    |  | 365,837   |   |  | 468,495   |  
|Allowance for doubtful accounts |  | (41,032   | ) |  | (218,025  | )
|                                |  | 2,251,476 |   |  | 5,038,451 |  

F-9

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

4. ACCOUNTS RECEIVABLE contd

Bad debt expense was $19,405 in 2010 and $193,744 in 2009.
Recovery of doubtful accounts was recorded for fiscal 2010 of $125,474 and
$1,434 for fiscal 2009.

5. INVENTORIES

|                               |  | 2010    |   |  | 2009    |  
|------------------------------ |  | ------- | - |  | ------- | -
|                               |  | **$**   |   |  | **$**   |  
|                               |  |         |   |  |         |  
|Finished goods                 |  | 131,278 |   |  | 138,855 |  
|Reserve for
      obsolescence |  | (34,868 | ) |  | (19,548 | )
|                               |  | 96,410  |   |  | 119,307 |  

6. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

|                                        |  | 2010        |   |  | 2009        |  
|--------------------------------------- |  | ----------- | - |  | ----------- | -
|                                        |  | **$**       |   |  | **$**       |  
|                                        |  |             |   |  |             |  
|Costs incurred on uncompleted contracts |  | 27,629,728  |   |  | 23,174,794  |  
|Estimated earnings                      |  | 7,254,724   |   |  | 6,691,283   |  
|                                        |  | 34,884,452  |   |  | 29,866,077  |  
|Less: billings to
      date            |  | (34,750,567 | ) |  | (31,165,485 | )
|                                        |  | 133,885     |   |  | (1,299,408  | )

Included in the accompanying balance sheets under the following
captions:

|                                                   |  | 2010     |   |  | 2009       |  
|-------------------------------------------------- |  | -------- | - |  | ---------- | -
|                                                   |  | **$**    |   |  | **$**      |  
|                                                   |  |          |   |  |            |  
|Deferred contract costs and unbilled
      revenue |  | 486,512  |   |  | 1,027,858  |  
|Unearned revenue
      and contract advances       |  | (352,627 | ) |  | (2,327,266 | )
|                                                   |  | 133,885  |   |  | (1,299,408 | )

7. PROPERTY AND EQUIPMENT

|                       |  |           |  |  | Accumulated    |  |  |          | 
|---------------------- |  | --------- |  |  | -------------- |  |  | -------- | 
|                       |  |           |  |  | Depreciation   |  |  | Net Book | 
|                       |  | Cost      |  |  | & Amortization |  |  | Value    | 
|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  | 

|                       |  |           |  |  |                |  |  |          | 
|---------------------- |  | --------- |  |  | -------------- |  |  | -------- | 
|                       |  |           |  |  | Accumulated    |  |  | Net Book | 
|                       |  | Cost      |  |  | Depreciation   |  |  | Value    | 
|                       |  |           |  |  | & Amortization |  |  |          | 
|2009                   |  | **$**     |  |  | **$**          |  |  | **$**    | 
|                       |  |           |  |  |                |  |  |          | 
|Office equipment       |  | 1,141,683 |  |  | 919,277        |  |  | 222,406  | 
|Other equipment        |  | 649,071   |  |  | 521,269        |  |  | 127,802  | 
|Leasehold improvements |  | 60,355    |  |  | 60,355         |  |  | --       | 
|                       |  | 1,851,109 |  |  | 1,500,901      |  |  | 350,208  | 

Total depreciation and amortization incurred during fiscal 2010
was $196,457 [2009 - $163,065].

8. WARRANTY

In accordance with the Guarantee topic of ASC Topic 460,
Guarantees (ASC Topic 460), we are required to make the following disclosure
regarding performance guarantees and product warranties.

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.

F-10

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

8. WARRANTY contd

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 part of other accrued
charges in the accompanying consolidated condensed balance sheets:

|                                   |  | 2010    |   |  | 2009    |  
|---------------------------------- |  | ------- | - |  | ------- | -
|                                   |  | **$**   |   |  | **$**   |  
|                                   |  |         |   |  |         |  
|Balance, beginning of year         |  | 86,242  |   |  | 98,362  |  
|Payments made                      |  | (14,910 | ) |  | (11,428 | )
|Provisions made                    |  | 14,910  |   |  | 11,428  |  
|Foreign exchange
      adjustments |  | 7,972   |   |  | (12,120 | )
|Balance, end of year               |  | 94,214  |   |  | 86,242  |  

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, 2010) plus 1.25% and
is secured under a General Security Agreement with our Canadian bank. The assets
are recorded on our Balance Sheet as Plant and Equipment.

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

|                                        |  | 2010    |  |  | 2009    | 
|--------------------------------------- |  | ------- |  |  | ------- | 
|                                        |  | **$**   |  |  | **$**   | 
|                                        |  |         |  |  |         | 
|Total minimum loan payments             |  | 146,613 |  |  | 222,648 | 
|Less amount
      representing interest |  | 3,094   |  |  | 10,394  | 
|                                        |  | 143,519 |  |  | 212,254 | 
|Less current
      portion              |  | 78,283  |  |  | 80,754  | 
|Long-term portion                       |  | 65,236  |  |  | 131,500 | 

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

| |      |  | **$**   | 
| | ---- |  | ------- | 
| |      |  |         | 
| | 2011 |  | 80,704  | 
| | 2012 |  | 65,909  | 
| |      |  | 146,613 | 

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, 2010 are as follows:

| |      |  | **$**   | 
| | ---- |  | ------- | 
| |      |  |         | 
| | 2011 |  | 95,429  | 
| | 2012 |  | 90,179  | 
| | 2013 |  | 81,375  | 
| | 2014 |  | 14,166  | 
| |      |  | 281,149 | 

Rental expense for office equipment and
premises was $151,189 in 2010 [$132,941in 2009].

[b]

Contingencies General

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, 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,

F-11

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

10. COMMITMENTS AND CONTINGENCIES contd

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. 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, has been settled. As a consequence of this
settlement, TurboSonic is licensed 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, 2010, together with the reason for issuance and the expiry
dates:

| | Expiry
      Dates |  | Reason          |  |  |         |     |  | US$       | 
| | ------------------ |  | --------------- |  |  | ------- | --- |  | --------- | 
| |                    |  |                 |  |  |         |     |  |           | 
| | October 15, 2010   |  | Advance payment |  |  | 173,000 | EUR |  | 211,198   | 
| | October 28, 2010   |  | Holdback        |  |  | 721,250 | US$ |  | 721,250   | 
| | January 23, 2011   |  | Holdback        |  |  | 158,000 | EUR |  | 192,886   | 
| | February 25, 2011  |  | Holdback        |  |  | 25,035  | US$ |  | 25,035    | 
| | March 31, 2011     |  | Holdback        |  |  | 306,924 | US$ |  | 306,924   | 
| | May 17, 2011       |  | Holdback        |  |  | 17,400  | US$ |  | 21,242    | 
| | July 31, 2011      |  | Holdback        |  |  | 180,000 | EUR |  | 219,744   | 
| | September 17, 2011 |  | Performance     |  |  | 173,000 | EUR |  | 211,198   | 
| | October 31, 2011   |  | Holdback        |  |  | 15,750  | US$ |  | 15,750    | 
| | September 28, 2012 |  | Holdback        |  |  | 67,000  | EUR |  | 81,794    | 
| |                    |  |                 |  |  |         |     |  | 2,007,021 | 

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. CREDIT FACILITY

During 2010, we renewed a credit facility
with a major Canadian bank for a total of USD $6.4 million, together with a
demand loan for computer equipment. This facility includes a demand operating
line of CAD $1.5 million secured by our receivables, a demand credit for standby
letters of credit for USD $4.25 million secured by a general security agreement
and guarantees provided by Export Development Canada on a fee-for-service basis,
plus a demand credit for foreign exchange contracts for USD $750,000. At June
30, 2010 we had standby letters of credit for approximately $2,007,021
($2,359,624 in 2009) in place with various customers in order to receive cash
proceeds ahead of customer-specified milestones (see note 10 (b)). There were no
drawdowns against the operating or foreign exchange credit lines at June 30,
2010 (nil at June 30, 2009).

12. STOCKHOLDERS EQUITY

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 2010,
251,461 Class B exchangeable shares [433,131 in 2009] were exchanged for our
common stock, leaving 155,512 Class B exchangeable shares outstanding as of June
30, 2010 [406,973 at June 30, 2009].

F-12

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

12. STOCKHOLDERS EQUITY contd

At the end of fiscal
2010, a total of 14,982,542 of our common stock and 155,512 Class B exchangeable
shares of the subsidiary were outstanding.

Stock-based compensation

We instituted the 2000 Stock Plan [the 2000 Plan] with the
express purpose of encouraging our key employees, as well as other individuals
who render services to us, by providing opportunities to participate in the
ownership of our company. The plan provides for the grant of non-qualified
options, stock awards and stock purchase rights. Collectively, these are
referred to as stock rights. The 2000 Plan was not submitted to Stockholders for
approval. The 2000 Plan expired February 2010 and no further options may be
issued under that Plan.

A stock plan [the 2003 Plan] was approved by our stockholders
at our annual meeting held December 10, 2002. The 2003 Plan has terms similar to
the 2000 Plan.

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 2000 and 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 [or committee] shall
determine to whom such stock rights may be granted, determine at which times the
stock rights shall be granted and determine the time or times when each option
shall become exercisable and the duration of the exercise period. The exercise
price per each 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 937,500 [after the July 2005 5-for-4 stock
split] under the 2000 Plan, 625,000 under the 2003 Plan and 800,000 under the
2008 Plan, subject to certain adjustments.

Stock-based compensation expenses of $79,369 for the twelve
months ended June 30, 2010 ($69,662 for the twelve months ended June 30, 2009)
are included as selling, general and administrative expenses in our financial
statements.

A summary of the significant assumptions used in calculating
the fair value, using the Black-Scholes method, of our fiscal 2010 and 2009
stock option grants is as follows:

|                                             |   | FY 2009 and 2010 Grants | 
|-------------------------------------------- | - | ----------------------- | 
|                                             |   | All                     | 
|                                             |   | Directors               | 
|                                             |   | December 11, 2008       | 
|Expected dividends                           |   | 0.00%                   | 
|Expected volatility                          |   | 101.00%                 | 
|Risk-free interest rate .                    |   | 1.51%                   | 
|Expected term (years)                        |   | 4.80                    | 
|Forfeiture rate                              |   | 0.00%                   | 
|Stock price on
      date of grant           | $ | 0.30                    | 
|Number of stock options granted              |   | 140,000                 | 
|Fair value per
      option on date of grant | $ | 0.22                    | 

Estimated volatility is based on the historical volatility of
our common stock. Vesting of the options granted to Directors was immediate.
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 2000, 2003
and 2008 Plans as at June 30, 2009 and changes during fiscal 2010, is as
follows:

F-13

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

12. STOCKHOLDERS EQUITY contd

|                                                  |  |         |   |   |          |  |   | Weighted   |  |  | Average     |  |   |           | 
|------------------------------------------------- |  | ------- | - | - | -------- |  | - | ---------- |  |  | ----------- |  | - | --------- | 
|                                                  |  |         |   |   | Weighted |  |   | Average    |  |  | Remaining   |  |   |           | 
|                                                  |  |         |   |   | Average  |  |   | Grant      |  |  | Contractual |  |   | Aggregate | 
|                                                  |  |         |   |   | Exercise |  |   | Date       |  |  | Life        |  |   | Intrinsic | 
|                                                  |  | Shares  |   |   | Price    |  |   | Fair Value |  |  | (In Years)  |  |   | Value     | 
|Stock options outstanding at June 30, 2009        |  | 698,000 |   | $ | 0.8114   |  | $ | 0.5043     |  |  | 3.7         |  | $ | 301,345   | 
|Stock
      options exerciseable at June 30, 2009 |  | 535,500 |   | $ | 0.7239   |  | $ | 0.4267     |  |  | 4.1         |  | $ | 278,595   | 
|Stock options forfeited                           |  | (15,000 | ) | $ | 0.9250   |  | $ | 0.5900     |  |  |             |  |   |           | 
|Stock options expired                             |  | 0       |   | $ | 0.0000   |  | $ | 0.0000     |  |  |             |  |   |           | 
|Stock options granted                             |  | 165,000 |   | $ | 0.7900   |  | $ | 0.5873     |  |  |             |  |   |           | 
|Stock
      options exercised                     |  | (8,000  | ) | $ | 0.7500   |  | $ | 0.4200     |  |  |             |  |   |           | 
|Stock options outstanding at June 30, 2010        |  | 840,000 |   | $ | 0.8006   |  | $ | 0.5148     |  |  | 3.7         |  | $ | 14,000    | 
|                                                  |  |         |   |   |          |  |   |            |  |  |             |  |   |           | 
|2007 Stock options vested in
      fiscal 2010    |  | 142,500 |   | $ | 1.1000   |  | $ | 0.7600     |  |  |             |  |   |           | 
|2010
      Stock options vested in fiscal 2010    |  | 100,000 |   | $ | 0.7900   |  | $ | 0.5400     |  |  |             |  |   |           | 
|Stock options exerciseable at June 30, 2010       |  | 775,000 |   | $ | 0.8015   |  | $ | 0.5026     |  |  | 3.4         |  | $ | 14,000    | 

As of June 30, 2010, there was $37,472 of total unrecognized
compensation expense related to nonvested stock options granted under our 2003
Plan in fiscal 2010. This cost is expected to be recognized over a straight-line
period of 54 months, commencing July 2010. The total fair value of stock options
that vested during fiscal 2010 and 2009 was $162,455 and $31,166, respectively.

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, 2010 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, 2010.

13. INCOME TAXES

We believe our income tax provision at June 30, 2010 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 and penalties, as estimated or incurred, as selling, general and
administrative expense. We are subject to ongoing review by tax authorities in
the jurisdictions in which it operates. 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 2009 and
2010 Canadian corporate tax filings are not yet complete nor filed. As a result,
our ITC tax advisors have estimated the size of the claims at $263,949 and we
have recorded a valuation allowance for deferred tax assets of $65,987 (25% of
claim), related to Scientific Research and Experimental ITCs.

Details of the provision for income taxes are as follows:

|                              |  | 2010     |   |  | 2009    | 
|----------------------------- |  | -------- | - |  | ------- | 
|                              |  | **$**    |   |  | **$**   | 
|                              |  |          |   |  |         | 
|Current:         -
      U.S. |  | 1,967    |   |  | 18,594  | 
|- Canadian                    |  | (264,991 | ) |  | 202,563 | 
|-Italian                      |  | 44,890   |   |  | 9,472   | 
|Total current
      taxes     |  | (218,134 | ) |  | 230,629 | 
|Deferred:       - U.S.        |  | (657,456 | ) |  | 109,292 | 
|-
      Canadian              |  | (34,892  | ) |  | 289,317 | 
|Total deferred taxes          |  | (692,348 | ) |  | 398,609 | 
|Income tax
      provision    |  | (910,482 | ) |  | 629,238 | 

F-14

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

13. INCOME TAXES continued

Components of the tax provision are as follows:

|                                                                                     |  | 2010     |   |  | 2009     |  
|------------------------------------------------------------------------------------ |  | -------- | - |  | -------- | -
|                                                                                     |  | $        |   |  | $        |  
|                                                                                     |  |          |   |  |          |  
|Provision for income tax based on basic
      U.S. tax rates                         |  | (580,485 | ) |  | 123,921  |  
|Provision for income tax based on basic U.S. state tax
      rates                   |  | (83,048  | ) |  | 11,625   |  
|Provision for income taxes based on basic
      Canadian federal income tax rates    |  | (20,977  | ) |  | 372,239  |  
|Provision for income taxes based on basic Canadian
      provincial income tax rates |  | (15,874  | ) |  | 270,719  |  
|Provision for income taxes based on basic
      Italian federal income tax rates     |  | 48,448   |   |  | 9,472    |  
|Non-deductible permanent differences                                                 |  | (32,305  | ) |  | (28,179  | )
|Investment tax credits recognized                                                    |  | (215,486 | ) |  | (139,686 | )
|Provincial transitional tax debit recognized                                         |  | 7,376    |   |  | 6,695    |  
|Other                                                                                |  | (18,131  | ) |  | 2,432    |  
|                                                                                     |  | (910,482 | ) |  | 629,238  |  

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:

|                                                       |  | 2010       |   |  | 2009      | 
|------------------------------------------------------ |  | ---------- | - |  | --------- | 
|                                                       |  | %          |   |  | %         | 
|                                                       |  |            |   |  |           | 
|U.S.                                                   |  | 34.0       |   |  | 34.0      | 
|U.S state                                              |  | 6.3        |   |  | 3.8       | 
|Canadian federal                                       |  | 18.5       |   |  | 19.3      | 
|Canadian provincial                                    |  | 14.0       |   |  | 14.0      | 
|Italian federal                                        |  | 27.5       |   |  | 41.4      | 
|                                                       |  |            |   |  |           | 
|(Loss) income before provision for income
      taxes: |  |            |   |  |           | 
|                                                       |  | 2010       |   |  | 2009      | 
|                                                       |  | **$**      |   |  | **$**     | 
|                                                       |  |            |   |  |           | 
|U.S.                                                   |  | (1,707,309 | ) |  | 358,176   | 
|Canadian                                               |  | (178,326   | ) |  | 1,826,967 | 
|(Loss) income before provision for income taxes        |  | (1,885,635 | ) |  | 2,185,143 | 

|                                            |  |         |  |  |        | 
|------------------------------------------- |  | ------- |  |  | ------ | 
|Income taxes paid are as follows:           |  |         |  |  |        | 
|                                            |  | 2010    |  |  | 2009   | 
|                                            |  | **$**   |  |  | **$**  | 
|                                            |  |         |  |  |        | 
|Italian federal                             |  | 72,521  |  |  | 8,246  | 
|U.S. federal                                |  | 2,000   |  |  |       | 
|U.S. state                                  |  | 13,970  |  |  | 20,187 | 
|Canadian federal                            |  | 134,030 |  |  |       | 
|Canadian provincial                         |  | 128,105 |  |  |       | 
|                                            |  | 350,626 |  |  | 28,433 | 
|Income tax refunds received are as follows: |  |         |  |  |        | 
|                                            |  | 2010    |  |  | 2009   | 
|                                            |  | **$**   |  |  | **$**  | 
|                                            |  |         |  |  |        | 
|Canadian federal                            |  | 85,636  |  |  |       | 
|Canadian provincial                         |  | 47,576  |  |  | 49,326 | 
|U.S. state                                  |  |        |  |  | 10,048 | 
|                                            |  | 133,212 |  |  | 59,374 | 

F-15

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

13. INCOME TAXES continued

We have unutilized operating losses in the United States of
approximately $2,540,000 available for carry forward to reduce income taxes
otherwise payable in future years. This amount includes purchased loss carry
forwards of approximately $166,000, which, if not utilized, will expire in 2012.
A total of $942,000 relating to prior year purchased operating losses was
available to apply against current year income.

In Canada, we have unutilized operating taxable losses of
approximately $60,739.

As it is more likely than not that we will realize the benefits
of deductible temporary differences, 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:

|                                                                            |  | 2010      |   |  | 2009    | 
|--------------------------------------------------------------------------- |  | --------- | - |  | ------- | 
|                                                                            |  | **$**     |   |  | **$**   | 
|                                                                            |  |           |   |  |         | 
|Difference between tax and accounting basis
      of property and equipment |  | 8,914     |   |  | 4,763   | 
|Reserves not currently deductible                                           |  | 27,558    |   |  | 28,676  | 
|Net operating loss carryforward                                             |  | 966,528   |   |  | 273,985 | 
|Investment tax credits, not currently deductible                            |  | 106,261   |   |  |        | 
|Provincial transitional tax debit                                           |  | (21,931   | ) |  |        | 
|Total deferred tax assets                                                   |  | 1,087,330 |   |  | 307,424 | 
|Valuation allowance for deferred tax assets                                 |  | (65,987   | ) |  |        | 
|Net deferred
      tax asset (liabilities)                                  |  | 1,021,343 |   |  | 307,424 | 

The income tax provision at June 30, 2010 reflects a full
accounting of our tax filings under ASC subtopic 740-10. We are not currently
under internal revenue service, state, local or foreign jurisdiction tax
examinations. We recognize interest and penalties, as estimated or incurred, as
selling, general and administrative expense.

14. (LOSS) EARNINGS PER SHARE

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

|                                                                                                            |  | 2010       |   |   | 2009       | 
|----------------------------------------------------------------------------------------------------------- |  | ---------- | - | - | ---------- | 
|                                                                                                            |  | **$**      |   |   | **$**      | 
|Numerator                                                                                                   |  |            |   |   |            | 
|Net (loss) income                                                                                           |  | (975,153   | ) |   | 1,555,905  | 
|Denominator                                                                                                 |  |            |   |   |            | 
|Denominator for earnings per share -
      weighted average shares outstanding                              |  | 15,137,528 |   |   | 15,130,054 | 
|Denominator for diluted earnings per share
      - adjusted weighted average shares and assumed conversions |  | 15,137,528 |   |   | 15,168,536 | 
|Basic (loss) earnings per share                                                                             |  | ($0.06     | ) | $ | 0.10       | 
|Diluted (loss)
      earnings per share                                                                     |  | ($0.06     | ) | $ | 0.10       | 

The dilutive loss per common share calculated for the fiscal
year ended June 30, 2010 excludes the effect of all options outstanding. These
amounts were excluded since their inclusion would be anti-dilutive.

|15. SUPPLEMENTARY INFORMATION ON CASH FLOWS                             |  |            |   |  |            |  
|----------------------------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                                        |  | 2010       |   |  | 2009       |  
|                                                                        |  | **$**      |   |  | **$**      |  
|                                                                        |  |            |   |  |            |  
|Changes in non-cash assets and liabilities related to
      operations: |  |            |   |  |            |  
|Decrease (increase) in accounts receivable                              |  | 2,844,963  |   |  | (1,839,277 | )
|(Increase) in retentions receivable                                     |  | (196,129   | ) |  | (332,563   | )
|Decrease (increase) in inventories                                      |  | 34,144     |   |  | (15,396    | )
|Decrease in deferred contract costs and unbilled revenue                |  | 562,539    |   |  | 154,140    |  
|(Increase) in income taxes receivable                                   |  | (405,925   | ) |  | --         |  
|Decrease (increase) in other current assets                             |  | 11,664     |   |  | (10,662    | )
|(Increase) in other assets                                              |  | (133       | ) |  | --         |  
|(Decrease) increase in accounts payable                                 |  | (2,557,080 | ) |  | 1,787,096  |  
|(Decrease) increase in accrued compensation
      charges               |  | (492,688   | ) |  | 455,977    |  
|(Decrease) increase in accrued other charges                            |  | (159,361   | ) |  | 409,175    |  
|(Decrease) in unearned revenue and contract
      advances              |  | (2,025,581 | ) |  | (243,263   | )
|Increase in income
      taxes payable                                  |  | --         |   |  | 279,731    |  
|                                                                        |  | (2,383,587 | ) |  | 644,958    |  

F-16

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

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 management 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:

|                          |  | 2010       |  |  | 2009       | 
|------------------------- |  | ---------- |  |  | ---------- | 
|                          |  | **$**      |  |  | **$**      | 
|                          |  |            |  |  |            | 
|United States             |  | 9,245,400  |  |  | 17,885,500 | 
|Canada                    |  | 503,000    |  |  | 1,117,800  | 
|Asia                      |  | 259,300    |  |  | 40,000     | 
|Spain                     |  | 607,100    |  |  | 4,315,000  | 
|Other Europe              |  | 2,115,800  |  |  | 1,757,000  | 
|South and Central America |  | 948,800    |  |  | 109,200    | 
|Other                     |  | 206,653    |  |  | 180,975    | 
|                          |  | 13,886,053 |  |  | 25,405,475 | 

The long-lived assets of the two business segments are located
in Canada and the US, except for intangible assets related to the wet
electrostatic precipitator and certain nozzle technologies. These technologies
are valued at nil, having been written-down in fiscal 2003. The following table
summarizes certain financial data for the customers whom accounted for 10.0% or
more of revenue or accounts receivable. No other customer accounted for 10.0% or
more of revenue in any of the years presented.

|                              |  | 2010  |  |  | 2009  | 
|----------------------------- |  | ----- |  |  | ----- | 
|                              |  | **$** |  |  | **$** | 
|                              |  |       |  |  |       | 
|Single largest
      customer |  |       |  |  |       | 
|Revenue                       |  | 29%   |  |  | 22%   | 
|Accounts receivable           |  | 15%   |  |  | 31%   | 
|Second largest customer       |  |       |  |  |       | 
|Revenue                       |  | 15%   |  |  | 17%   | 
|Accounts receivable           |  | 32%   |  |  | 16%   | 
|Third largest
      customer  |  |       |  |  |       | 
|Revenue                       |  | 9%    |  |  | 12%   | 
|Accounts receivable           |  | 14%   |  |  | 6%    | 

Contract revenue and sales are broken down by product line as
follows:

|                                                                 |  | 2010       |  |  | 2009       | 
|---------------------------------------------------------------- |  | ---------- |  |  | ---------- | 
|                                                                 |  | **$**      |  |  | **$**      | 
|                                                                 |  |            |  |  |            | 
|Catalytic Gas Treatment Systems                                  |  | 3,790,500  |  |  | --         | 
|SoniCoolTMEvaporative Gas Cooling and
      Conditioning Systems |  | 1,691,200  |  |  | 6,549,400  | 
|SonicKleenTMWet Electrostatic
      Precipitation Systems (WESP) |  | 2,486,500  |  |  | 14,249,800 | 
|TurboSorb Semi-dry Scrubber Systems                              |  | 2,997,500  |  |  | 1,307,500  | 
|Wet Scrubbers and Gas Absorbers                                  |  | 2,142,500  |  |  | 2,423,100  | 
|Atomizing Nozzles,
      Service and Spare Parts                 |  | 777,853    |  |  | 875,675    | 
|                                                                 |  | 13,886,053 |  |  | 25,405,475 | 

F-17

---



|TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES | Notes to Consolidated Financial
      Statements
|---------------------------------------------- | ------------------------------------------------
|                                               | Year ended June 30, 2010                        

16. SEGMENTED INFORMATION contd

Industry 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 provision for 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   |   |  | 2,036,529 | 1 |  | 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.*

|                                         |  | OEM        |   |  |             |   |  |            |  |  |            |  
|---------------------------------------- |  | ---------- | - |  | ----------- | - |  | ---------- |  |  | ---------- | -
|                                         |  | Systems    |   |  | Aftermarket |   |  | Other      |  |  | Total      |  
|2009                                     |  | **$**      |   |  | **$**       |   |  | **$**      |  |  | **$**      |  
|Contract revenue and sales               |  |            |   |  |             |   |  |            |  |  |            |  
|OEM systems                              |  | 21,148,205 |   |  |            |   |  |           |  |  | 21,148,205 |  
|Aftermarket                              |  |           |   |  | 4,257,271   |   |  |           |  |  | 4,257,271  |  
|Total contract revenue and sales         |  | 21,148,205 |   |  | 4,257,271   |   |  |           |  |  | 25,405,475 |  
|Income from operations                   |  | 1,430,715  |   |  | 733,940     |   |  |           |  |  | 2,164,651  |  
|Interest income                          |  | 18,787     |   |  | 3,782       |   |  |           |  |  | 22,569     |  
|Interest expense                         |  | (1,729     | ) |  | (348        | ) |  |           |  |  | (2,077     | )
|Income before provision for income taxes |  | 1,447,774  |   |  | 737,373     |   |  |           |  |  | 2,185,143  |  
|Provision for
      income taxes         |  | 523,795    |   |  | 105,443     |   |  |           |  |  | 629,238    |  
|Net income                               |  | 923,979    |   |  | 631,926     |   |  |           |  |  | 1,555,905  |  
|                                         |  |            |   |  |             |   |  |            |  |  |            |  
|Depreciation and amortization            |  | 130,452    |   |  | 32,613      |   |  |           |  |  | 163,065    |  
|Capital expenditures                     |  | 198,698    |   |  | 49,675      |   |  |           |  |  | 248,373    |  
|Segment assets                           |  | 6,183,723  |   |  | 1,675,446   |   |  | 5,621,1661 |  |  | 13,480,335 |  
|Property and equipment                   |  | 280,166    |   |  | 70,042      |   |  |           |  |  | 350,208    |  
|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:

|                                      |  | 2010    |  |  | 2009    | 
|------------------------------------- |  | ------- |  |  | ------- | 
|                                      |  | **$**   |  |  | **$**   | 
|                                      |  |         |  |  |         | 
|Accrued charges  payable to customer |  | 130,000 |  |  | 113,630 | 
|Accrued charges -
      other         |  | 395,902 |  |  | 378,814 | 
|                                      |  | 525,902 |  |  | 492,444 | 

18. COMPARATIVE FIGURES

The comparative consolidated financial statements have been
reclassified from statements previously presented to conform to the presentation
of the current year consolidated financial statements. This involved
reclassifying the warranty accrual of $86,242 from accrued other charges into
accrued warranty provision. The total amount of current and total liabilities
has not changed.

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.

|                         | TURBOSONIC TECHNOLOGIES, INC.
|------------------------ | -----------------------------
|                         |                              
|                         | By: /s/ Edward F. Spink      
|                         | Edward F. Spink              
|                         | Chief Executive Officer      
|                         |                              
|Date: September 27, 2010 |                              

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 27, 2010
|Edward F. Spink                    |  | And Director                                                |  |                   
|                                   |  |                                                             |  |                   
|/s/ Egbert Q. van
      Everdingen |  | President, Secretary, Treasurer and Director                |  | September 27, 2010
|Egbert Q. van Everdingen           |  |                                                             |  |                   
|                                   |  |                                                             |  |                   
|/s/ Carl A. Young                  |  | Chief Financial Officer                                     |  | September 27, 2010
|Carl A. Young                      |  | (Principal Financial Officer)                               |  |                   
|                                   |  |                                                             |  |                   
|/s David J. Hobson                 |  | VP Finance and Administration                               |  | September 27, 2010
|David J. Hobson                    |  | (Principal Accounting Officer)                              |  |                   
|                                   |  |                                                             |  |                   
|/s/ Ken Kivenko                    |  | Chairman of the Board of Directors                          |  | September 27, 2010
|Ken Kivenko                        |  |                                                             |  |                   
|                                   |  |                                                             |  |                   
|/s/ Richard H.
      Hurd          |  | Director                                                    |  | September 27, 2010
|Richard H. Hurd                    |  |                                                             |  |                   
|                                   |  |                                                             |  |                   
|/s/ Glen O. Wright                 |  | Director                                                    |  | September 27, 2010
|Glen O. Wright                     |  |                                                             |  |                   
|                                   |  |                                                             |  |                   
|/s/ Raymond L.
      Alarie        |  | Director                                                    |  | September 27, 2010
|Raymond L. Alarie                  |  |                                                             |  |                   
|                                   |  |                                                             |  |                   
|/s/ F. Eugene
      Deszca         |  | Director                                                    |  | September 27, 2010
|F. Eugene Deszca                   |  |                                                             |  |                   



---