|                                                                                  
|----------------------------------------------------------------------------------
|United States 
    Securities and Exchange CommissionWashington, DC 20549         
|                                                                                  
|Form 10-K                                                                         
|                                                                                  
|ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|For the fiscal year ended June 30, 2009                                           
|                                                                                  
|Commission file number 0-21832                                                    
|                                                                                  
|TurboSonic Technologies, Inc.                                                     
|(Exact Name of Small Business Issuer as Specified in its
    Charter)             
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|550 Parkside Drive, Suite A-14,                                                   
|Waterloo, Ontario, Canada                                                         
|N2L 5V4                                                                           
|(Address of principal executive offices)                                          
|                                                                                  
|(519) 885-5513                                                                    
|(Issuer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 oNo 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 o 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 xNo
o

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 oNo o

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. o

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  oAccelerated filer 
oNon-accelerated filer 
oSmaller 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
oNo x

Aggregate market value of the Registrants common stock held by
non-affiliates of the Registrant as of December 31, 2008: $5,772,913

The number of outstanding shares of the Registrant's common
stock as of September 17, 2009: 15,130,054

DOCUMENTS INCORPORATED BYREFERENCE

None

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TURBOSONIC TECHNOLOGIES, INC.2009 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.  | Submission of Matters to a Vote of Security
      Holders                                                          | 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                                                                                            | 16  
|Item 9B. | Other Information                                                                                                  | 17  
|PART III |                                                                                                                    |     
|Item 10. | Directors, Executive Officers
      and Corporate Governance                                                       | 18  
|Item 11. | Executive Compensation                                                                                             | 20  
|Item 12. | Security Ownership of Certain
      Beneficial Owners and Management and Related Stockholder Matters               | 22  
|Item 13. | Certain Relationships and Related Transactions,
      and Director Independence                                    | 23  
|Item 14. | Principal Accounting Fees and
      Services                                                                       | 23  
|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,  
|                                  | 2009      
|Waste Incineration, including MSW | 5%        
|Cement and Mineral Processing     | 23%       
|Metallurgical Processing          | 3%        
|Pulp and Paper                    | 2%        
|Wood Products                     | 12%       
|Ethanol and Biofuel Production    | 21%       
|Power Generation                  | 7%        
|Textiles                          | 1%        
|Petrochemical                     | 21%       
|Other                             | 5%        
|                                  | 100%      

U.S. and Canadian customers collectively accounted for
approximately 74% and 88% of our sales during the fiscal years ended June 30,
2009 and 2008, respectively. Revenue derived from export sales is transacted in
U.S. Dollars and Euro.

|                                          | Year Ended
|----------------------------------------- | ----------
|Customer Revenue by Geographic
      Area | June 30,  
|                                          | 2009      
|United States                             | 70%       
|Canada                                    | 4%        
|South and Central America                 | 1%        
|Spain                                     | 17%       
|Other Europe                              | 7%        
|Asia                                      | --%       
|Other                                     | 1%        
|                                          | 100%      

 3 

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Scope of Contracts

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

We perform all process engineering, including but not limited
to, the determination of the size, geometry and structural characteristics of
the particular system needed for gaseous, mist or particulate removal, and
perform the detailed design of, and develop specifications for, all applicable
structural, electrical, mechanical and chemical components of such system. We
have sales, project management and field service personnel in remote offices to
support local markets. We, historically, have not manufactured or fabricated our
own products or systems. Rather, we subcontract the manufacturing of our
components 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,  
|                                                                          | 2009      
|SoniCool Evaporative Gas Cooling and
      Conditioning Systems *        | 26%       
|SonicKleen Wet Electrostatic Precipitation Systems (WESP)*               | 56%       
|Wet Scrubbers and Gas Absorbers *                                         | 9%        
|TurboSorb Semi-dry Scrubber Systems*                                      | 5%        
|Other Atomizing Nozzles, Service and Spare
      Parts                    | 4%        
|                                                                          | 100%      
|(*)
      Includes Air Pollution Control system upgrades and spare parts. |           

Our principal products and systems are described below:

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.

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, ethanol and 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.

 4 

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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 SO2and 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.

New Products

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 CO2creation, 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.

 5 

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Contractual Liabilities

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

Marketing and Sales

Our marketing efforts are technical in nature and currently
involve our senior management and technical professionals, who may be supported
by independent sales representatives. A significant portion of our sales are
made through the recommendation of engineering firms who are often engaged in
complete plant installations or upgrades. Our independent sales representatives
assist us in identifying opportunities and serve as liaison between us and our
customers during the sales process. We select sales representatives based upon
industry reputation, prior sales performance, product knowledge and territorial
coverage, among other criteria. Our contractual arrangements with 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,  
|                                   | 2009      
|Top 3 customers for the year       | 51%       

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,   
|                    | 2009       
|Backlog, balance at | $10,200,000

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,  
|                                                                                                       | 2009      
|Expenditures for research and development,
      net of customer and government support, if applicable | $122,268  

 6 

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Proprietary Protection

We rely on a combination of patents, trade- and service-marks,
trade secrets and know-how to protect our proprietary technology and rights. We
own 35 international patents and patents pending relating to a variety of air
pollution control applications.

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

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
United States 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 Boiler MACT rules in the US market for industrial steam and power generation
are expected to be promulgated after a review period starting in October
2009.

The EU is enforcing emission regulations based on the latest
standards developed according to individual industries, requiring industrial
emitters to install and operate emission control equipment. Similarly, other
international jurisdictions are implementing, tightening and enforcing regional
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
predominate 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, 2009, we employed 47 full time persons
and 2 part-time persons, including 7 engineers, 11 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 an office in Milan Italy to manage our business
relative to sales opportunities in Europe and other international locations.

 7 

---

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. We
participated in foreign exchange hedging activities during the fiscal year ended
June 30, 2009. There were no outstanding forward contract commitments at June
30, 2009.

ITEM1A:RISKFACTORS

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

We are dependent on environmental regulation. 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 51% of our
net revenues in the fiscal year ended June 30, 2009 and 35% in 2008. One was a
repeat customer accounting for 9% in 2008. 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 26% and 12%, respectively, of our revenues during the fiscal
years ended June 30, 2009 and 2008 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 projects, 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.

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.

 8 

---

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 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.

ITEM1B:UNRESOLVEDSTAFFCOMMENTS

NONE.

ITEM2:PROPERTIES

TurboSonic occupies the following facilities:

Location
    Use
    Sq. Ft.
    Annual Rent
    Lease ExpiresWaterloo, Ontario, Canada
    Executive, administration,
      sales, engineering, project management
    12,400
    $91,100
    July 2013Parsippany, New Jersey, USA
    Sales & engineering
    640
    $14,200
    August 2010Raleigh, North Carolina, USA
    Project management
    1,000
    $10,800
    November 2009Milan, Italy
    Sales
      & project management
    975
    $18,000
    January 2013


ITEM3:LEGALPROCEEDINGS

Please refer to Note 11(b) to our Consolidated Financial
Statements.

ITEM4:SUBMISSIONOFMATTERSTOAVOTEOFSECURITYHOLDERS

No matters were submitted for a vote to our security holders
during the fourth quarter of our fiscal year ended June 30, 2009.

 9 

---

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, 2009  |                 
|First Quarter                    | $0.790          
|Second Quarter                   | $0.790          
|Third Quarter                    | $0.440          
|Fourth Quarter                   | $1.360          
|Fiscal Year Ended June 30, 2008: |                 
|First Quarter                    | $1.360          
|Second Quarter                   | $1.370          
|Third Quarter                    | $0.830          
|Fourth Quarter                   | $0.660          

(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, 2009, there were 350 holders of record and
approximately 1,200 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 financial data for the
last three fiscal years. This selected financial data is derived from our
Consolidated Financial Statements, as filed on this Form 10-K for 2009 and 2008,
and from the prior year Form 10-KSB for year 2007.

|                                                                   |   | Fiscal 2009 |  |   | Fiscal 2008 |   |   | Fiscal 2007 | 
|------------------------------------------------------------------ | - | ----------- |  | - | ----------- | - | - | ----------- | 
|                                                                   |   | **$**       |  |   | **$**       |   |   | **$**       | 
|Revenue                                                            | $ | 25,405,475  |  | $ | 14,268,284  |   | $ | 22,893,353  | 
|Net Income (Loss)                                                  | $ | 1,555,905   |  | $ | (662,994    | ) | $ | 1,281,462   | 
|% Return on sales                                                  |   | 6.1%        |  |   | (4.6%       | ) |   | 5.6%        | 
|W orking capital                                                   | $ | 4,922,251   |  | $ | 2,861,501   |   | $ | 3,455,180   | 
|Current Ratio                                                      |   | 1.66:1      |  |   | 1.72:1      |   |   | 2.51:1      | 
|Shareholders Equity                                                | $ | 5,860,806   |  | $ | 4,350,080   |   | $ | 4,788,778   | 
|% Return on shareholders equity                                    |   | 26.5%       |  |   | (15.2%      | ) |   | 26.8%       | 
|Basic weighted average number of shares                            |   | 15,130,054  |  |   | 15,130,054  |   |   | 14,933,087  | 
|Diluted weighted average number of shares                          |   | 15,168,536  |  |   | 15,130,054  |   |   | 15,055,748  | 
|Diluted earnings (loss) on weighted average number of
      shares | $ | 0.10        |  | $ | (0.04       | ) | $ | 0.09        | 

 10 

---

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 the manufacturing of designs.
When customer contracts include installation we subcontract the service. 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 hedging activities during the fiscal year ended June 30, 2009. There
were no outstanding forward contract commitments at June 30, 2009. We do not
consider the company significantly exposed to exchange fluctuations.

Critical Accounting Policies and Estimates

Discussion of our financial condition and results of operation
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), consistently applied. 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.
We continually evaluate our estimates, including those related to equipment
supply contracts, intangible assets, bad debts, inventories, warranty
obligations, income taxes, contingencies and litigation. 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, 2009, the net position of contracts in process is
advance payments of $1,299,408 compared to 2008 with an advance payment of
$1,278,470. 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, 2009 on all open fixed-price contracts would impact our pre-tax income from
product sales and services by $300,000.

Goodwill

Goodwill 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 long-lived
intangible 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, 2009 for the
Aftermarket business segment, as required by SFAS No. 142. It was concluded that
there was no impairment of goodwill value for the year ended June 30, 2009.

Income Taxes and Tax Valuation
Allowances

We adopted the provisions of FIN 48,Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
(FIN 48), on July 1, 2007. The cumulative effect of adopting FIN 48 did not
have a material impact on our financial position or the results of operations.

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 two
fiscal years.

Our Consolidated Balance Sheet as of June 30, 2009 includes a
non-current deferred tax asset of $307,424. This compares with a non-current
deferred tax asset of $774,959 as of June 30, 2008. 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 Operation

TurboSonic has just completed a record year of revenue and net
income, and despite the economic downturn, our plan calls for continued
aggressive growth. TurboSonics management has focused on executing an organic
growth plan of technology development and market expansion while maintaining
minimal corporate debt. Our sales accomplishments in fiscal 2009 include:

- a contract for the first wet electrostatic precipitator (WESP) to be
  used in conjunction with a carbon capture and sequestration project on a
  coal-fired power generation plant;
- multiple contracts for air pollution control systems for oil refineries;
- the first US contract for CGT, non-combustion-based technology for
  treatment of volatile organic compounds (e.g. formaldehyde);
- a contract for a large acid gas emissions (e.g. SO2and HCl)
  control system for a cement plant; and
- several contracts for post-combustion control of nitrogen oxides
  (DeNOx).

These opportunities were the result of a planned effort to
diversify our geographic and industrial markets and the product offerings to
serve them. We recently completed ISO 9001 registration, signifying the
companys commitment to product excellence and customer satisfaction while qualifying the
company for larger, international projects. TurboSonics operations leverage our
international team of experts, working in multiple currencies, in established
markets with proven products that are supported by 35 patents and patents
pending.

 12 

---

Government initiatives taken to enforce new regulations to
mitigate effects of air pollution are the primary driver for the air pollution
control technology market. Sources of air pollution in our markets include a
broad range of facilities in Cement, Chemical and Mineral Processing, Ethanol
and Biofuel production,
Metallurgical, Petrochemicals, Power Generation, Pulp and Paper, Waste
Incineration, and Wood Products industries, among others. They emit regulated
pollutants including sulfur dioxide, nitrogen oxides, particulate matter,
including carbon and heavy metals, and volatile organic compounds (VOCs).
CO2is emitted in the process of fuel combustion, including oil-,
gas-, coal- and biofuels-fired power generation. CO2is regulated in
many industrialized nations and increasingly is being regulated in North America
through regulations adopted by California and the Regional Greenhouse Gas
Initiative, and other developing polices at the state and federal levels in the
United States and Canada.

Climate change and efforts to mitigate existing and future
emissions of global warming pollutants is attracting, and we believe will
continue to attract, regulatory attention. The United States EPA has issued a
proposed finding that greenhouse gases contribute to air pollution that may
endanger public health or welfare, and has proposed to require reporting of
CO2emissions. Efforts to mitigate CO2emissions in the United States
and other concerned markets include cap and trade programs to provide financial
incentives to encourage industry to invest in control solutions. An alternative
approach, imposing a tax on carbon emissions, could also increase demand for our
technologies and services.

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. The momentum
of environmental awareness and our efforts have driven the demand for our
technologies. International expansion plays a key role in our long-term business
plan, as we collaborate with firms internationally to enable us to better
service our markets. As we continue to focus on the challenge of maintaining the
momentum of a record year, we have increased staffing at all international
locations. We are committed to developing innovative product offerings in
partnership with industry, in response to new and existing regulations to better
address demands for a cleaner environment, a greener industry, and a reduction
in consumption of non-renewable resources.

We have already introduced one technology that can be used to
reduce greenhouse gas emissions  Catalytic Gas Treatment. Catalytic Gas
Treatment (CGT), for which TurboSonic holds the exclusive worldwide marketing
rights, has been demonstrated to reduce regulated emissions of aldehydes and
alcohols by over 95%. TurboSonic was recently awarded a $4 million order for the
first CGT installation at a US manufactured wood products producer. We believe
that the patented CGT technology offers the opportunity of replacing
the use of thermal oxidation for volatile organic compound (VOC) emissions control. In such
cases, CGT eliminates the need for combustion of costly natural gas and avoids the associated
CO2and NOx emissions. We believe that Return on Investment (ROI) will drive the purchase
decision for CGT technology, and that CGT will displace a significant number of
thermal oxidizer and other VOC control products in industries, including
manufactured wood products, food processing and ethanol production. The
worldwide market for thermal oxidizers represents 40% of the total market for
VOC abatement equipment, which is estimated in 2008 to be $4.25 billion
annually.

Reductions in these CO2emissions may mean
eligibility for obtaining carbon credits through proposed cap and trade
programs. Based on current proposals we believe that TurboSonic can benefit from
carbon credits, either through direct incentives or through ROI supporting the
investment in our technology. In one example, a large wood products plant can
reduce CO2emissions by 34,000 tons per year; proposals value carbon
credits at $10-$30 per ton of CO2.

Additionally, our SonicKleenTMWESP technology has
been installed to improve performance of CO2absorption technology
used to isolate carbon dioxide from coal-fired power plants for sequestration.
The international market for WESPs was forecast to grow from US$600 million in
2007 to more than US$750 million by 2012. These forecasts include WESPs supplied
to coal-fired power plants.

In the midst of the accelerated worldwide push for a cleaner
world, we have two objectives: to increase shareholder value, and to provide the
solutions to enable a reversal to environmental neglect, most visible through
the threat of global warming and climate change. We believe that the trend will
continue toward a cleaner environment through a confluence of regulations and
public pressure, increasing the demand for our products and supporting our plans
for growth.

 13 

---

12 MONTH COMPARATIVE INCOME STATEMENTS AT JUNE 30, 2009
AND 2008

Fiscal 2009
    
    
    % to
    
    
    Fiscal 2008
    
    
    % to
    
    
    Increase (Decrease)Total
    
    
    
    
    
    Total**$**
    
    
    Revenue
    
    
    **$**
    
    
    Revenue
    
    
    **$**
    
    
    %Contract revenue & salesOEM Systems
    
    21,148,204
    
    
    83%
    
    
    10,448,994
    
    
    73%
    
    
    10,699,210
    
    
    102%Aftermarket parts & retrofits
    
    4,257,271
    
    
    17%
    
    
    3,819,290
    
    
    27%
    
    
    437,981
    
    
    11%25,405,475
    
    
    100%
    
    
    14,268,284
    
    
    100%
    
    
    11,137,191
    
    
    78%Contract costs & cost of salesOEM Systems
    
    15,681,617
    
    
    62%
    
    
    8,516,319
    
    
    60%
    
    
    7,165,298
    
    
    84%Aftermarket parts & retrofits
    
    2,527,524
    
    
    10%
    
    
    2,187,158
    
    
    15%
    
    
    340,366
    
    
    16%18,209,141
    
    
    72%
    
    
    10,703,477
    
    
    75%
    
    
    7,505,664
    
    
    70%Gross profitOEM Systems
    
    5,466,587
    
    
    21%
    
    
    1,932,675
    
    
    14%
    
    
    3,533,912
    
    
    183%Aftermarket parts & retrofits
    
    1,729,747
    
    
    7%
    
    
    1,632,132
    
    
    11%
    
    
    97,615
    
    
    6%7,196,334
    
    
    28%
    
    
    3,564,807
    
    
    25%
    
    
    3,631,527
    
    
    102%ExpensesSelling, general &
      administrative
    
    4,746,450
    
    
    19%
    
    
    4,262,917
    
    
    30%
    
    
    483,533
    
    
    11%Research & development costs
    
    122,168
    
    
    0%
    
    
    149,637
    
    
    1%
    
    
    (27,469
    )
    
    (18%
    )Depreciation &
      amortization
    
    163,065
    
    
    1%
    
    
    185,927
    
    
    1%
    
    
    (22,862
    )
    
    (12%
    )5,031,683
    
    
    20%
    
    
    4,598,481
    
    
    32%
    
    
    433,202
    
    
    9%Income (loss) from operations
    
    2,164,651
    
    
    8%
    
    
    (1,033,674
    )
    
    (7%
    )
    
    3,198,325
    
    
    NMOther (income) expenseInterest, net
    
    (20,492
    )
    
    0%
    
    
    (55,706
    )
    
    0%
    
    
    35,214
    
    
    (63%
    )Income (loss) before taxes (EBT)
    
    2,185,143
    
    
    8%
    
    
    (977,968
    )
    
    (7%
    )
    
    3,163,111
    
    
    NMProvision for (recovery of)
      income taxes
    
    629,238
    
    
    2%
    
    
    (314,974
    )
    
    (2%
    )
    
    944,212
    
    
    NMNet income (loss)
    
    1,555,905
    
    
    6%
    
    
    (662,994
    )
    
    (5%
    )
    
    2,218,899
    
    
    NMForeign currency translation
      adjustment
    
    (114,841
    )
    
    0%
    
    
    102,599
    
    
    1%
    
    
    (217,440
    )
    
    (212%
    )Comprehensive Income (loss)
    
    1,441,064
    
    
    6%
    
    
    (560,395
    )
    
    (4%
    )
    
    2,001,459
    
    
    NM


OEM systems revenue increased 102% over the prior year due
primarily to increased product sales for Wet Electrostatic Precipitators (WESP)
(65% of increase) and evaporative cooling towers (35% of increase). The
increased WESP revenue is the result of orders from the ethanol and biofuel industry (60% of
increase) and the petrochemical industry (40% of increase). The increased
evaporative cooling orders are from the cement industry. We anticipate continued
OEM system sales into these industries and we expect OEM systems sales to the
wood industry remaining static based on the current market prices for their
products.

The Cost of Sales for OEM systems increased 84% over the prior
year, which reflects the increased volume and a higher gross margin achievement
by 8% compared to fiscal 2008.

Gross margin on OEM systems in fiscal 2009 was 26% and in
fiscal 2008 was 18%, based on specific contract experience relative to the
competitive nature of the bidding process for each contract.

Aftermarket revenues increased 11% over the prior year due
mostly to increased semi-dry scrubber component orders and shipments in fiscal
2009 to the power generation industry, as the result of timing of orders
received. We expect that the increase in semi-dry scrubber component orders to
continue.

The Cost of Sales for Aftermarket products increased 16% over
the prior year, which reflects the increased volume and a lower gross margin
achievement by 2% compared to fiscal 2008.

Gross margin on Aftermarket revenue in fiscal 2009 was 41% and
in fiscal 2008 was 43%, based on a different product line mix experienced from
one year to the next.

 14 

---

The gross margin contribution from OEM systems in fiscal 2009
increased 183% over fiscal 2008, and Aftermarket gross margin contributions in
fiscal 2009 increased 6% over fiscal 2008. This is due to the change in mix of
revenues and cost of sales between the reporting segments.

Selling, general and administrative expenses increased $483,533
(11%) in fiscal 2009. This increase is represented by changes in the following:
bad debt expense $67,700 (+14%), legal fees $48,400 (+10%), executive bonuses
$180,400 (+37%) and European office expenses $437,000 (+90%), partially offset
by the favorable foreign exchange impact of Canadian-denominated expenses
relative to the prior fiscal year $250,000 (-52%). The increased European office
expenses are attributable to the hiring of additional staff for augmented sales
efforts and customer support in Europe. As a percentage of total revenue,
selling, general and administrative expenses were 19% in fiscal 2009 and 30% in
fiscal 2008.

The decrease of $27,469 in research and development costs is
primarily due to the substantial completion of the WESP technology upgrades in
the current year.

The decrease of $35,214 in interest earned is due to the lower
interest rates experienced in fiscal 2009 versus those of fiscal 2008.

Income before taxes increased by $3,163,111 year over year from
$2,185,143 in fiscal 2009 compared to a loss before taxes of $977,968 in fiscal
2008. This full year result reflects the higher revenue combined with increased
OEM margin experienced in fiscal 2009.

Provision for income tax for fiscal 2009 was $629,238 compared
to an income tax recovery of $314,974 in fiscal 2008. The fiscal 2009 provision
for tax includes decreases in deferred tax assets in the US of $109,292 and in
Canada of $289,317, together with provisions for Canadian tax of $202,563, US
tax of $18,594 and Italian tax of $9,472. The fiscal 2008 tax recovery relates
to recognition of an increase of the Canadian deferred tax asset of $361,763, a
decrease in the US deferred tax asset of $46,571, and current US tax expense of
$218, as discussed in note 13 to the Consolidated Financial Statements.

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  a
reduction of $114,841 in fiscal 2009 and an increase of $102,599 during fiscal
2008 - 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                                |  | 2009                              |  
|Cash (used in) provided by:                 |  | **$**                             |  
|Operations                                  |  | 2,901,125                         |  
|Purchase of equipment                       |  | (248,373                          | )
|Disposition proceeds  fixed assets         |  | --                                |  
|Repayment of capital leases                 |  | (9,056                            | )
|Foreign currency translation of cash        |  | (212,711                          | )
|Net cash provided during the period         |  | 2,430,985                         |  
|Cash beginning of period                    |  | 3,190,181                         |  
|Cash end of period                          |  | 5,621,166                         |  
|Working Capital Summary                     |  | 2009                              |  
|Current assets                              |  | 12,410,280                        |  
|Current liabilities                         |  | 7,488,029                         |  
|Net working capital                         |  | 4,922,251                         |  
|Current ratio                               |  | 1.66                              |  
|Summary of Contracts in Progress            |  | 2009                              |  
|Contract value completed and to be invoiced |  | 1,027,858                         |  
|Contract advances invoiced                  |  | (2,327,266                        | )
|Net contracts in progress                   |  | (1,299,408                        | )
|Contract Backlog                            |  | 2009                              |  
|
|Contract value to be recognized as revenue  |  | 10,200,000                        |  

 15 

---

In fiscal 2009, operations provided $2,901,125 in cash compared
to fiscal 2008 when operations provided $696,289 in cash. Cash provision in 2009
was the result of increased accounts payable and accrued charges, combined with
the net income achieved for the year. The provision of cash in 2008 was
primarily from contracts that had been paid in advance. The working capital
position increased in 2009 to $4,922,251 from $2,861,501 and the current ratio
decreased from 1.72:1to 1.66:1.

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, 2009, the net position of contracts in process is advance payments of
$1,299,408 compared to June 30, 2008 with advance payments of $1,278,470.

During 2009, we renewed a credit facility with a major Canadian
bank for a total of CAD $4.25 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
CAD $2.0 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 CAD $750,000. The demand credit for
standby letters of credit was subsequently increased in June 2009 to
US$4,250,000. At June 30, 2009 we had standby letters of credit for
approximately $2,359,624 in place with various customers in order to receive
cash proceeds ahead of customer-specified milestones. There were no drawdowns
against the operating or foreign exchange credit lines at June 30, 2009.

Our backlog as at June 30, 2009 was approximately $10,200,000,
which we expect to record 100% as revenue in fiscal 2010, compared to the June
30, 2008 backlog of $5,700,000. There is no assurance that backlog will be
replicated, increased or transferred into higher revenues for the future.

In summary, we have sufficient capital resources to support
anticipated operations through fiscal 2010. At June 20, 2009, we had outstanding standby
letters of credit (L/C) within our credit facility totaling $2,359,624 at June
30, 2009 and an outstanding loan balance of CAD $236,110. These standby L/Cs
have been exchanged with our clients for early release of funds under advance
payment or holdback terms of payment, as provided under the terms of the
applicable purchase order/contract.

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, 2009. 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, 2009, we were not using any bank borrowing
facility, other than outstanding standby letters of credit totaling $2,359,624
and a demand loan with an outstanding balance of CAD $236,110 at June 30, 2009,
that could subject us to the risk of interest rate fluctuations.

ITEM8:FINANCIALSTATEMENTS ANDSUPPLEMENTARYDATA

Reference is made to pages F-1 through F-19 comprising a
portion of this Annual Report on Form 10-K.

ITEM9:CHANGESINANDDISAGREEMENTSWITHACCOUNTANTSONACCOUNTINGANDFINANCIALDISCLOSURE

Not applicable.

ITEM9A:CONTROLSANDPROCEDURES

Our management has carried out an evaluation, with the
participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934) as of June 30, 2009. 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, 2009.

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, 2009 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.

 16 

---

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, 2009. 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, 2009, 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 temporary rules of the Securities and
Exchange Commission that permit us to provide only management's report in this
annual report.

ITEM9B:OTHERINFORMATION

On September 24, 2009, we issued a press release announcing our
financial results for the year ended June 30, 2009. A copy of the press release
is being furnished as Exhibit 99.1 to this report and incorporated herein by
reference.

 17 

---

PARTIII

ITEM10:DIRECTORS,EXECUTIVEOFFICERS ANDCORPORATEGOVERNANCE

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

|Name                     | Age | Positions and Offices                            
|------------------------ | --- | -------------------------------------------------
|                         |     |                                                  
|Ken Kivenko              | 67  | Chairman of the Board                            
|Edward F. Spink          | 55  | Chief Executive Officer and Director             
|Egbert Q. van Everdingen | 48  | President, Secretary-Treasurer
      and Director
|Carl A. Young            | 67  | Chief Financial Officer                          
|Richard H. Hurd          | 72  | Director                                         
|Glen O. Wright           | 60  | Director                                         
|Raymond L. Alarie        | 57  | Director                                         
|F. Eugene Deszca         | 61  | Director                                         
|Robert A. Allan          | 67  | Vice President Engineering                       
|David J. Hobson          | 61  | Vice President Finance & Administration          
|Richard C. Gimpel        | 61  | Vice President Marketing &
      Sales           
|Luca Finzi               | 55  | General Manager  Italian Branch                 

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 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.

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. 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.

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.

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.

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 also acts as a Special Assistant to the
Treasurer of the State of New Jersey.

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 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 and a member of the Council
for Canadian Unity.

 18 

---

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 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.

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.

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.

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, 2009 such reporting persons complied
with the filing requirements of said Section 16(a), except that Dr. Donald R.
Spink, Sr., while a director of our company, did not file on a timely basis one
Form 4 reflecting three donation transactions. The delinquent Form 4 was
subsequently filed with the SEC.

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.

 19 

---

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.

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, 2009 by
our chief executive officer and by executive officers earning annual
compensation exceeding $100,000 during our fiscal year ended June 30, 2009
(collectively the Named Officers).

SUMMARY COMPENSATION TABLE (1)

Name and
    
    Year
    
    
    Salary
    
    
    Option
    
    
    Non-equity
    
    
    All OtherPrincipal Position
    
    Ended
    
    
    
    
    
    Awards (2)
    
    
    Incentive Plan
    
    
    Compensation
    
    
    TotalJune 30
    
    
    
    
    
    
    
    
    **Compensation (3)**Edward F. Spink Chief Executive Officer
    
    2009 2008
    
    $$
    193,121 224,284
    
    $$
    4,452 13,699
    
    $
    96,561 --
    
    $$
    1,287(4) 1,477(4)
    
    $$
    295,421 239,460Egbert Q. van Everdingen, President, Secretary-Treasurer
    
    2009 2008
    
    $$
    171,664 202,265
    
    $$
    4,452 13,699
    
    $
    85,832 --
    
    $$
    1,287(4) 1,969(4)
    
    $$
    263,235 217,933Carl A. Young Chief Financial Officer
    
    2009 2008
    
    $$
    96,973 111,785
    
    
    -- --
    
    $
    42,916 --
    
    
    -- --
    
    $$
    139,889 111,785Richard C. Gimpel, VP  Marketing & Sales
    
    2009 2008
    
    $$
    123,600 112,924
    
    $
    -- 2,749
    
    $$
    27,540 4,035
    
    $$
    12,963(5) 16,991(5)
    
    $$
    164,103 136,699Robert A. Allan VP - Engineering
    
    2009
    
    $
    98,692
    
    
    --
    
    $
    15,321
    
    
    --
    
    $
    114,013


|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 2009 fiscal
      year for the fair value of option awards granted in fiscal 2008 and 2009,
      in accordance with SFAS 123R. 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, 2009. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|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 made on January 5, 2007 at an exercise price of $1.10 per
share, receiving 15,000 options as our Chief Executive Officer and 20,000
options as director and Chairman of the Board, together with an award of 20,000
options as a director made on December 11, 2007 at an exercise price of $0.84
and an award of 20,000 options as a director made on December 11, 2008 at an
exercise price of $0.30.

 20 

---

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 made on January 5, 2007 at an exercise price of $1.10
per share, receiving 15,000 options as our President and Secretary-Treasurer and
20,000 options as a director, together with an award of 20,000 options as a
director made on December 11, 2007 at an exercise price of $0.84 and an award of
20,000 options as a director made on December 11, 2008 at an exercise price of
$0.30.

The recognized stock-based compensation expense listed as
Option Awards for Mr. Gimpel in the above Summary Compensation Expense table was
derived from an option award made on January 5, 2007 at an exercise price of
$1.10 per share.

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 Gimpel, in their respective capacities as employees will not
become exercisable prior to January 5, 2010.

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

OUTSTANDING EQUITY AWARDS AT JUNE 30, 2009

|                         |  | Number of Shares    |  |  | Number of Shares      |  |   |          |  |  |            | 
|------------------------ |  | ------------------- |  |  | --------------------- |  | - | -------- |  |  | ---------- | 
|                         |  | Underlying          |  |  | Underlying            |  |   | Exercise |  |  | Expiration | 
|                         |  | Unexercised Options |  |  | Unexercised Options   |  |   | Price    |  |  | Date       | 
|                         |  | Exercisable         |  |  | **Unexercisable (1)** |  |   |          |  |  |            | 
|                         |  |                     |  |  |                       |  |   |          |  |  |            | 
|Edward F. Spink          |  | 35,000              |  |  | --                    |  | $ | 0.75     |  |  | 10/31/2010 | 
|                         |  | 20,000              |  |  | 15,000                |  | $ | 1.10     |  |  | 1/05/2012  | 
|                         |  | 20,000              |  |  | --                    |  | $ | 0.84     |  |  | 12/11/2015 | 
|                         |  | 20,000              |  |  | --                    |  | $ | 0.30     |  |  | 12/11/2016 | 
|                         |  |                     |  |  |                       |  |   |          |  |  |            | 
|Carl A. Young            |  | --                  |  |  | --                    |  |   | --       |  |  | --         | 
|                         |  |                     |  |  |                       |  |   |          |  |  |            | 
|Egbert Q. van Everdingen |  | 15,000              |  |  | --                    |  | $ | 0.75     |  |  | 10/31/2010 | 
|                         |  | 20,000              |  |  | 15,000                |  | $ | 1.10     |  |  | 1/05/2012  | 
|                         |  | 20,000              |  |  | --                    |  | $ | 0.84     |  |  | 12/11/2015 | 
|                         |  | 20,000              |  |  | --                    |  | $ | 0.30     |  |  | 12/11/2016 | 
|                         |  |                     |  |  |                       |  |   |          |  |  |            | 
|Richard C. Gimpel        |  | 5,000               |  |  |                       |  | $ | 0.75     |  |  | 10/31/2010 | 
|                         |  | --                  |  |  | 12,500                |  | $ | 1.10     |  |  | 1/05/2012  | 
|                         |  |                     |  |  |                       |  |   |          |  |  |            | 
|Robert A. Allan          |  | --                  |  |  | 12,500                |  | $ | 1.10     |  |  | 1/05/2012  | 

(1) Options vest on January 5, 2010.

COMPENSATION OF DIRECTORS

|                             |   | Fees Earned or |  |   |                      |  |   |                        |  |   |        | 
|---------------------------- | - | -------------- |  | - | -------------------- |  | - | ---------------------- |  | - | ------ | 
|                             |   | Paid in Cash   |  |   | **Option Awards(2)** |  |   | All Other Compensation |  |   | Total  | 
|                             |   |                |  |   |                      |  |   |                        |  |   |        | 
|Donald R. Spink
    **(1)**  | $ | 5,150          |  | $ | --                   |  | $ | --                     |  | $ | 5,150  | 
|Julien J. Hradecky **(1)**   | $ | 4,721          |  | $ | --                   |  | $ | --                     |  | $ | 4,721  | 
|Richard R. Hurd              | $ | 21,750         |  | $ | 4,452                |  | $ | --                     |  | $ | 26,202 | 
|Ken Kivenko                  | $ | 17,166         |  | $ | 4,452                |  | $ | --                     |  | $ | 21,618 | 
|Andrew T. Meikle
    **(1)** | $ | 5,150          |  | $ | --                   |  | $ | --                     |  | $ | 5,150  | 
|Glen O. Wright               | $ | 13,304         |  | $ | 4,452                |  | $ | --                     |  | $ | 17,756 | 
|Raymond L. Alarie            | $ | 7,510          |  | $ | 4,452                |  | $ | --                     |  | $ | 11,962 | 
|F. Eugene Deszca             | $ | 6,867          |  | $ | 4,452                |  | $ | --                     |  | $ | 11,319 | 

| | (1) | Messrs. Donald Spink, Meikle and Hradecky did not stand for election as
      a director at the December 11, 2008 annual meeting of shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (2) | This column represents the dollar amount recognized
      for financial statement reporting purposes with respect to the 2008 fiscal
      year for the fair value of option awards granted in fiscal 2008, in
      accordance with SFAS 123R. 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, 2009. See the Grants of
      Plan-Based Awards Table below for information on stock awards made in
      2009. 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.

 21 

---

During the fiscal year ended June 30, 2008 and 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, 2009, there was a grant of 20,000 options to each director, which
vested immediately, had an exercise price of $0.30 and an expiry date of
December 11, 2016.

ITEM12:SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDERMATTERS

The following table sets forth, as of September 11, 2009 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                                                    |  | 1,205,468                  | (2) (5) | 7.6% |                       
|Egbert Q. van Everdingen                                           |  | 386,120                    | (2) (6) | 2.4% |                       
|Richard H. Hurd                                                    |  | 136,673                    | (4)     |      | **                     | 
|Glen O. Wright                                                     |  | 114,400                    | (4)     |      | **                     | 
|Ken Kivenko                                                        |  | 70,000                     | (7)     |      | **                     | 
|Raymond L. Alarie                                                  |  | 220,000                    | (10)    |      | 1.4%                   | 
|F. Eugene Deszca                                                   |  | 110,000                    | (10)    |      | **                     | 
|Carl A. Young                                                      |  | 7,000                      |         |      | **                     | 
|Richard C. Gimpel                                                  |  | 35,625                     | (8)     |      | **                     | 
|Robert A. Allan                                                    |  | 127,250                    | (8)     |      | **                     | 
|Heartland Advisors, Inc. (11)                                      |  | 1,350,000                  |         |      | 8.5%                   | 
|Bard Associates, Inc. (12)                                         |  | 1,499,725                  |         |      | 9.5%                   | 
|Sprott Asset Management Inc. (13)                                  |  | 1,033,800                  |         |      | 6.5%                   | 
|All Executive Officers and Directors
      as a group (11 persons) |  | 2,457,298                  | (9)     |      | 15.5%                  | 

|(*)  | 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 80,000 shares issuable upon exercise
      of vested options.                                                                                                                                                                                                                                                                                 
|(5)  | Includes 95,000 shares issuable upon exercise
      of vested options.                                                                                                                                                                                                                                                                                 
|(6)  | Includes 75,000 shares issuable upon exercise
      of vested options                                                                                                                                                                                                                                                                                  
|(7)  | Includes 60,000 shares issuable upon exercise
      of vested options.                                                                                                                                                                                                                                                                                 
|(8)  | Includes 5,000 shares issuable upon exercise of
      vested options.                                                                                                                                                                                                                                                                                  
|(9)  | Includes 447,500 shares issuable upon exercise
      of vested options.                                                                                                                                                                                                                                                                                
|(10) | Includes 20,000 shares issuable upon exercise
      of vested options.                                                                                                                                                                                                                                                                                 
|(11) | Pursuant to a Schedule 13G filed on February
      11, 2009, 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, 1,350,000 shares. The address of the
      beneficial owner is 789 North Water St., Milwaukee, WI 53202.
|(12) | Pursuant to a Schedule 13G filed on February 5,
      2009, Bard Associates, Inc. , an investment adviser, has the sole power to
      direct the disposition of 1,499,725 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.    
|(13) | Pursuant to a Schedule 13G filed on February
      13, 2008, Sprott Asset Management Inc. has the shared power to direct the
      disposition of, and the shared power to direct the vote of, 1,033,800
      shares. The address of the beneficial owner is Suite 2700, South Tower,
      Royal Bank Plaza, Toronto, ON M5J 2J1, Canada.            

 22 

---

Securities Authorized for Issuance Under Equity Compensation
Plans:

The following table provides information as of June 30, 2009
about our equity compensation plans:

|Plan
      Category                                               |  | Number of Securities to be Issued upon Exercise
      of Outstanding Options, Warrants and Rights |  |       | Weighted Average  Exercise Price of
      Outstanding Options, Warrants and Rights |  |  | Number of Securities Remaining Available for
      Future Issuance | 
|----------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ----- | ----------------------------------------------------------------------------------- |  |  | ------------------------------------------------------------------ | 
|Equity compensation plans approved by
      security holders:     |  |                                                                                                   |  |       |                                                                                     |  |  |                                                                    | 
|- 2008 Stock Plan                                                 |  | 240,000                                                                                           |  | $     | 0.5250                                                                              |  |  | 560,000                                                            | 
|Equity compensation plans approved by
      security holders:     |  |                                                                                                   |  |       |                                                                                     |  |  |                                                                    | 
|- 2003 Stock Plan                                                 |  | 310,000                                                                                           |  | $     | 1.0625                                                                              |  |  | 182,500                                                            | 
|Equity compensation plans not approved by
      security holders: |  |                                                                                                   |  |       |                                                                                     |  |  |                                                                    | 
|- 2000 Stock Plan                                                 |  | 147,999                                                                                           |  | $     | 0.7500                                                                              |  |  | 41,688                                                             | 
|                                                                  |  | 697,999                                                                                           |  | **$** | 0.9184                                                                              |  |  | 784,688                                                            | 

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, 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 147,999 have been
granted and remain outstanding, and 747,813 have been granted and exercised.

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 transaction since July 1, 2007, and
there are no currently proposed transactions, between us and any related
person as defined in the rules of the SEC in which the amount involved exceeds
$120,000.

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: |   | 2009    |  |   | 2008    | 
|------------------------------------------- | - | ------- |  | - | ------- | 
|                                            |   |         |  |   |         | 
|Audit fees                                  | $ | 98,054  |  | $ | 96,172  | 
|Audit-related fees                          | $ | 5,143   |  | $ | 6,431   | 
|Tax fees                                    | $ | 19,071  |  | $ | --      | 
|                                            | $ | 122,268 |  | $ | 102,603 | 

|Fees billed by
      Mintz & Partners LLP: |   | 2009 |  |   | 2008   | 
|------------------------------------------ | - | ---- |  | - | ------ | 
|                                           |   |      |  |   |        | 
|Audit fees                                 | $ | --   |  | $ | 8,014  | 
|Audit-related fees                         | $ | --   |  | $ | --     | 
|Tax fees                                   | $ | --   |  | $ | 7,322  | 
|                                           | $ | --   |  | $ | 15,336 | 

 23 

---

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 audit-related
consultation. Tax fees include tax compliance and tax consultations.

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                 | By-laws, as amended, of
      TurboSonic Technologies (2)                                                                                                                                                                                                                                                
|4.1                 | Form of certificate evidencing share of common
      stock (2)                                                                                                                                                                                                                                           
|10.1 *              | 2000 Stock Plan (4)                                                                                                                                                                                                                                                                                      
|10.2 *              | 2003 Stock Plan (5)                                                                                                                                                                                                                                                                                      
|10.3 *              | 2008 Stock Plan (6)                                                                                                                                                                                                                                                                                      
|10.4                | Securities Purchase Agreement dated April 21,
      2006 among ourselves and two institutional investors, inclusive of Exhibit
      A and B thereto, being, respectively, a Registration Rights Agreement
      among ourselves and such investors and a form of Common Stock Purchase
      Warrant (7)
|10.5                | Letter Agreement dated January
      14, 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 Inc. and Canadian Imperial Bank of Commerce (8)                                                                                                                                                                                  
|10.7                | Security Agreement dated April
      21, 2008 by and between TurboSonic Technologies and Canadian Imperial Bank
      of Commerce (8)                                                                                                                                                                    
|10.8                | Guaranty dated as of April 21, 2008 by and
      between TurboSonic Technologies and Canadian Imperial Bank of Commerce (8)                                                                                                                                                                              
|14.1                | Code of Ethics (7)                                                                                                                                                                                                                                                                                       
|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 24, 2009                                                                                                                                                                                                                                
|                   
|* Compensatory Plan

|(1) | Filed on April 9, 1993, as an exhibit to our
      Registration Statement on Form S-1 (File Number 33-60856) and incorporated
      herein by reference.               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                        
|(2) | Filed on November 18, 1997 as an exhibit to our Annual
      Report on Form 10-KSB for the fiscal year ended April 30, 1996 and
      incorporated herein by reference.
|    |                                                                                                                                                                        
|(3) | Filed on September 30, 2002 as an exhibit to our
      Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 and
      incorporated herein by reference.
|    |                                                                                                                                                                        
|(4) | Filed on March 19, 2001 as an exhibit to our
      Registration Statement on Form S-8 (File Number 333-57248) and
      incorporated herein by reference.              
|    |                                                                                                                                                                        
|(5) | Filed on November 12, 2002 as an exhibit to our proxy
      statement for the 2002 annual meeting, and incorporated herein by
      reference.                         
|    |                                                                                                                                                                        
|(6) | Filed on November 6, 2007 as an exhibit to our proxy
      statement for the 2007 annual meeting, and incorporated herein by
      reference.                          
|    |                                                                                                                                                                        
|(7) | Filed on April 25, 2006 as an exhibit to our Current
      Report on Form 8-K dated April 24, 2006 and incorporated herein by
      reference.                         
|    |                                                                                                                                                                        
|(8) | Filed on July 25, 2008 as an exhibit to our Current
      Report on Form 8-K dated June 27, 2008 and incorporated herein by
      reference                            

 25 

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES                 
|------------------------------------------------------------
|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, 2009 and
2008, and the consolidated statements of income (loss) and comprehensive income
(loss), 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, 2009 and 2008, and the
results of their operations and their cash flows for the year ended June 30,
2009 and 2008, in conformity with accounting principles generally accepted in
the United States of America.

/s/ Deloitte & Touche LLP Independent Registered
Chartered Accountants Licensed Public Accountants Toronto, Canada
September 24, 2009

F-1

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES                 
|------------------------------------------------------------
|Incorporated Under the Laws of Delaware, United
      States

CONSOLIDATED BALANCE SHEETS

|As at June 30                                                                                                                                                 |  |  | [expressed in United States dollars] |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------------------------------------ | -
|                                                                                                                                                              |  |  |                                      |  
|                                                                                                                                                              |  |  |                                      |  
|                                                                                                                                                              |  |  | 2009                                 |  
|                                                                                                                                                              |  |  | **$**                                |  
|                                                                                                                                                              |  |  |                                      |  
|ASSETS                                                                                                                                                        |  |  |                                      |  
|Current                                                                                                                                                       |  |  |                                      |  
|Cash and cash equivalents                                                                                                                                     |  |  | 5,621,166                            |  
|Accounts receivable [note 4][note 17]                                                                                                                         |  |  | 5,038,451                            |  
|Retentions receivable                                                                                                                                         |  |  | 516,141                              |  
|Inventories [note 5]                                                                                                                                          |  |  | 119,307                              |  
|Deferred contract costs and unbilled
      revenue [note 6]                                                                                                   |  |  | 1,027,858                            |  
|Income taxes recoverable                                                                                                                                      |  |  | --                                   |  
|Other current assets                                                                                                                                          |  |  | 87,357                               |  
|Total current
      assets                                                                                                                                    |  |  | 12,410,280                           |  
|Property and equipment,less
      accumulated depreciation     and amortization [note
      7]                                                                |  |  | 350,208                              |  
|Goodwill [note 8]                                                                                                                                             |  |  | 398,897                              |  
|Deferred income taxes [note 13]                                                                                                                               |  |  | 307,424                              |  
|Other assets                                                                                                                                                  |  |  | 13,526                               |  
|                                                                                                                                                              |  |  | 1,070,055                            |  
|Total
      assets                                                                                                                                            |  |  | 13,480,335                           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                          |  |  |                                      |  
|Current                                                                                                                                                       |  |  |                                      |  
|Accounts payable                                                                                                                                              |  |  | 3,332,338                            |  
|Accrued compensation charges                                                                                                                                  |  |  | 901,599                              |  
|Accrued other charges [note 9][note
      17]                                                                                                                 |  |  | 578,686                              |  
|Long-term debt, current portion [note 10]                                                                                                                     |  |  | 80,754                               |  
|Income taxes payable                                                                                                                                          |  |  | 267,386                              |  
|Unearned revenue
      and contract advances [note 6]                                                                                                         |  |  | 2,327,266                            |  
|Total current liabilities                                                                                                                                     |  |  | 7,488,029                            |  
|Long term debt
      [note 10]                                                                                                                                |  |  | 131,500                              |  
|                                                                                                                                                              |  |  | 7,619,529                            |  
|Commitments and contingencies [note 11]                                                                                                                       |  |  |                                      |  
|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                                                                                                                                                        |  |  |                                      |  
|14,723,081      common shares [2008  14,289,950]                                                                                                             |  |  |                                      |  
|406,973      common shares reserved for the
      conversion of
                                          
      the subsidiarys Class B exchangeable shares |  |  |                                      |  
|[2008  840,104]                                                                                                                                              |  |  | 2,549,446                            |  
|Additional paid-in
      capital                                                                                                                              |  |  | 3,587,660                            |  
|                                                                                                                                                              |  |  | 6,137,106                            |  
|Accumulated other comprehensive income                                                                                                                        |  |  | 477,736                              |  
|Accumulated deficit                                                                                                                                           |  |  | (754,036                             | )
|Total
      Stockholders equity                                                                                                                              |  |  | 5,860,806                            |  
|Total liabilities and Stockholders equity                                                                                                                    |  |  | 13,480,335                           |  

See accompanying notes

F-2

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES                 
|------------------------------------------------------------
|Incorporated Under the Laws of Delaware, United
      States

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

|Years ended June 30                                 |   | [expressed in United States dollars] |  
|--------------------------------------------------- | - | ------------------------------------ | -
|                                                    |   |                                      |  
|                                                    |   |                                      |  
|                                                    |   | 2009                                 |  
|                                                    |   | **$**                                |  
|                                                    |   |                                      |  
|CONTRACT REVENUE AND SALES                          |   |                                      |  
|OEM systems revenue                                 |   | 21,148,204                           |  
|Aftermarket revenue                                 |   | 4,257,271                            |  
|                                                    |   | 25,405,475                           |  
|CONTRACT COSTS AND COST OF SALES                    |   |                                      |  
|OEM systems contract costs and costs of sales       |   | 15,681,617                           |  
|Aftermarket contract costs and cost of sales        |   | 2,527,524                            |  
|                                                    |   | 18,209,141                           |  
|Gross margin                                        |   | 7,196,334                            |  
|EXPENSES                                            |   |                                      |  
|Selling, general and administrative                 |   | 4,746,350                            |  
|Research and development expense                    |   | 122,268                              |  
|Depreciation and amortization                       |   | 163,065                              |  
|                                                    |   | 5,031,683                            |  
|Income (loss) from operations                       |   | 2,164,651                            |  
|Interest income                                     |   | 22,569                               |  
|Interest expense                                    |   | (2,077                               | )
|Income (loss) before provision for income taxes     |   | 2,185,143                            |  
|Provision for (recovery of) income taxes [note 13]  |   | 629,238                              |  
|Net income
      (loss)                             |   | 1,555,905                            |  
|Other comprehensive (loss) income:                  |   |                                      |  
|Foreign currency translation adjustment             |   | (114,841                             | )
|Comprehensive income (loss)                         |   | 1,441,064                            |  
|Basic earnings (loss) per share[note 14]            | $ | 0.10                                 |  
|Diluted earnings (loss) per share[note 14]          | $ | 0.10                                 |  
|Basic weighted average number of shares [note 14]   |   | 15,130,054                           |  
|Diluted weighted average number of shares [note 14] |   | 15,168,536                           |  

See accompanying notes

F-3

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES                 
|------------------------------------------------------------
|Incorporated Under the Laws of Delaware, United
      States

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years ended 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, 2007
    
    15,130,054
    
    
    2,549,446
    
    
    3,396,301
    
    
    (1,646,947
    )
    
    489,978
    
    
    4,788,778Net (loss)
    
    
    
    
    
    
    
    
    
    
    (662,994
    )
    
    
    
    
    (662,994
    )Stock-based compensation
      [note 12]
    
    
    
    
    
    
    
    121,697
    
    
    
    
    
    
    
    
    121,697Translation
      adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,599
    
    
    102,599Balance  June 30, 2008
    
    15,130,054
    
    
    2,549,446
    
    
    3,517,998
    
    
    (2,309,941
    )
    
    592,577
    
    
    4,350,080Net income
    
    
    
    
    
    
    
    
    
    
    1,555,905
    
    
    
    
    
    1,555,905Stock-based compensation
      [note 12]
    
    
    
    
    
    
    
    69,662
    
    
    
    
    
    
    
    
    69,662Translation
      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


See accompanying notes

F-4

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES                 
|------------------------------------------------------------
|Incorporated Under the Laws of Delaware, United
      States

CONSOLIDATED STATEMENTS OF CASH FLOWS

|Years ended June 30                                                   |  | [expressed in United States dollars] |  
|--------------------------------------------------------------------- |  | ------------------------------------ | -
|                                                                      |  |                                      |  
|                                                                      |  |                                      |  
|                                                                      |  | 2009                                 |  
|                                                                      |  | **$**                                |  
|                                                                      |  |                                      |  
|OPERATING ACTIVITIES                                                  |  |                                      |  
|Net income (loss)                                                     |  | 1,555,905                            |  
|Add charges to operations not requiring a
      current cash payment: |  |                                      |  
|Stock-based compensation expense
      [note 12]                      |  | 69,662                               |  
|Depreciation and
      amortization [note 7]                          |  | 163,065                              |  
|Deferred income taxes                                                 |  | 467,535                              |  
|Net change in non-cash assets and
      liabilities related           |  |                                      |  
|to
      operations [note 15]                                         |  | 644,958                              |  
|Cash provided by operating activities                                 |  | 2,901,125                            |  
|INVESTING ACTIVITIES                                                  |  |                                      |  
|Purchase of property and equipment                                    |  | (248,373                             | )
|Insurance proceeds
      - Inventory                                  |  | --                                   |  
|Cash (used in) provided by investing activities                       |  | (248,373                             | )
|FINANCING ACTIVITIES                                                  |  |                                      |  
|(Repayment) of obligations under capital leases                       |  | (9,056                               | )
|Cash (used in)
      provided by financing activities                 |  | (9,056                               | )
|Effect of
      exchange rate changes on cash and cash equivalents    |  | (212,711                             | )
|Net cash provided during year                                         |  | 2,430,985                            |  
|Cash and cash equivalents, beginning of year                          |  | 3,190,181                            |  
|Cash and cash
      equivalents, end of year                          |  | 5,621,166                            |  
|Supplemental cash flow information:                                   |  |                                      |  
|Interest paid                                                         |  | (2,077                               | )
|Interest received                                                     |  | 22,519                               |  
|Income taxes paid                                                     |  | (28,433                              | )

See accompanying notes

F-5

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

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 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 (see Exhibit 21.1) . 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 Statement of Financial Accounting Standard [SFAS]
No.142, goodwill is not being amortized but is subject to an annual impairment
review [or more frequently if conditions dictate]. Since the adoption of SFAS
No. 142 as at July 1, 2001, we have completed the transitional impairment test
as at July 1, 2001 and annual impairment tests through April 1, 2009, to
identify if there is any impairment to the goodwill using a fair value
methodology by reporting unit [note 8].

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 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. 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.

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.

F-6

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Cash and cash equivalents

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

Allowance for doubtful accounts

An allowance for doubtful accounts, if any, is established on a
case-by-case basis after careful review of the outstanding receivable amounts
and the probability of collection within a reasonable period of time. Losses due
to non-payment of accounts receivable have been negligible over the past number
of years, due in part to the high quality of the customer base.

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 and, in some instances, for even longer periods. Retentions receivable
may also be subject to restrictive conditions such as performance or fulfillment
guarantees.

Government support programs

Government support program claims are recorded when qualifying
expenditures are incurred or the specific terms of support program contracts are
fulfilled. Support program proceeds received in advance of the incurrence of
qualifying expenditures are recorded as deferred support program revenue.

Support program proceeds received to finance specific expenses
are included in the consolidated statement of income as a reduction of these
expenses. Support program proceeds received to finance capital expenditures are
applied to reduce the cost of the related capital assets.

Investment tax credits

Investment tax credits are accrued when qualifying expenditures
are made and there is reasonable assurance that the credits will be realized.
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 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 Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes [SFAS 109]. SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the 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 July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes
- an interpretation of FASB Statement No. 109, (FIN 48), FIN 48 prescribes a
comprehensive model for how a company should recognize, measure, present, and
disclose in its financial statements uncertain tax positions that it has taken
or expects to take on a tax return. Management has determined that the adoption
of FIN 48 did not have a material impact on our consolidated financial
statements. Claims under the Canadian Scientific Research & Development
program for fiscal years 2009 and 2008 have yet to be submitted and no valuation
is yet available.

Advertising costs

All costs associated with advertising and promoting products
are expensed as incurred. Advertising and promotion expense was $63,776 in 2009
[$73,478 in 2008].

F-7

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

Stock-based compensation

The Company accounts for share based payments in accordance
with SFAS No. 123R Share-Based Payment, 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.

The Company uses the Black-Scholes option pricing model to
estimate the fair value of such awards. SFAS No. 123R 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, 2009 and 2008 have been reduced for estimated forfeitures.
Forfeitures were estimated based on historical experience. See Note 12 to
Consolidated Financial Statements for more information regarding the assumptions
used in estimating the fair value of stock options.

Warranty

We carry a reserve based upon historical warranty claims
experience. Additionally, warranty accruals are established on the basis of
anticipated future expenditures as specific warranty obligations are identified,
and are expensed directly to cost of sales. Expenditures exceeding such accruals
are expensed direct to cost of sales.

Earnings per share

Basic earnings (loss) per share is computed by dividing net
earnings (loss) available to common stockholders by the weighted average number
of common shares outstanding during the year. In computing the earnings per
share, the TurboSonic Canada Inc. Class B exchangeable shares, disclosed in
note 12, are considered outstanding common shares of TurboSonic
Technologies, Inc. Diluted 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, as prescribed by SFAS 128,
Earnings Per Share.

Foreign currency translation

Our functional currency is the United States dollar. European
and Canadian-based operations maintain their accounts in their respective local
currencies. The consolidated financial statements have been translated into
United States dollars in accordance with SFAS No. 52, Foreign Currency
Translation. All balance sheet accounts have been translated using the
exchange rates in effect at the balance sheet date. Income statement amounts
have been translated using the average exchange rate for the year. The gains and
losses resulting from the changes in exchange rates from year to year have been
reported separately as a component of comprehensive income.

Use of estimates

The preparation of the consolidated financial statements, in
accordance with generally accepted accounting principles in the United States of
America, 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, contingencies, goodwill impairment testing, inventory
obsolesence and long-lived assets and liabilities. Actual results could differ
from those estimates.

Comprehensive income (loss)

We report comprehensive income (loss), in addition to net
income (loss) from operations, as required by SFAS No. 130, Reporting
Comprehensive Income. Comprehensive income (loss) is a more inclusive
financial reporting methodology that includes disclosure of certain financial
information that historically has not been recognized in the calculation of net
income (loss). Comprehensive income (loss) is defined as a change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. Components of accumulated other comprehensive income (loss)
are disclosed in the Consolidated Statements of Stockholders Equity and
Comprehensive Income (Loss).

Impact of recently issued accounting standards

FASB Accounting Standards
Codification

On June 29, 2009, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 168 (SFAS 168), The FASB Accounting
Standards CodificationTM and the Hierarchy of Generally
Accepted Accounting Principles. Statement 168 establishes the FASB
Accounting Standards CodificationTM (the Codification) to
become the source of authoritative United States of America generally accepted
accounting principles (U.S. GAAP) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants.

F-8

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

When effective, the Codification will supersede all existing
non-SEC accounting and reporting standards. All other nongrandfathered non-SEC
accounting literature not included in the Codification will become
nonauthoritative. Following SFAS 168, the FASB will not issue new standards in
the form of Statements, FSPs, or EITF Abstracts. Instead, the FASB will issue
Accounting Standards Updates, which will serve only to: (a) update the
Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the change(s) in the Codification. The
content of the Codification will carry the same level of authority when
effective. The U.S. GAAP hierarchy will be modified to include only two levels
of U.S. GAAP: authoritative and nonauthoritative. SFAS 168 and the Codification
are effective for financial statements issued for interim and annual periods
ending after September 15, 2009. SFAS 168 will be effective for the first
quarter of our fiscal 2010 and we do not expect SFAS 168 to have a material
impact on our financial statements.

Instruments Granted in
Share-Based Payment Transactions

In June 2008, The FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions
Are Participating Securities (FSP 142-3). FSP 142-3 states that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method. FSP 142-3 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years. Upon adoption, a company is required to retrospectively adjust its
earnings per share data (including any amounts related to interim periods,
summaries of earnings and selected financial data) to conform to the provisions
in this FSP. However, early application of the provisions in FSP 142-3 is
prohibited. We are evaluating the impact of FSP 142-3 on our financial
statements, but do not believe that the impact will be material.

Fair Value
Measurements

Effective July 1, 2008, we adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS 157), and this adoption did not
have a material impact on our financial statements. On October 10, 2008, the
FASB issued FASB Staff Position (FSP) SFAS 157-3, Determining the Fair Value
of a Financial Asset When the Market for That Asset Is Not Active(FSP
157-3). FSP 157-3 clarifies the application of SFAS No. 157 in a market that is
not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active. The FSP is effective upon issuance, including
prior periods for which financial statements have not been issued. Revisions
resulting from a change in the valuation technique or its application should be
accounted for as a change in accounting estimate following the guidance in SFAS
No. 154, Accounting Changes and Error Corrections(SFAS 154).
However, SFAS 154s disclosure provisions for a change in accounting estimate
are not required for revisions resulting from a change in valuation technique or
its application. The adoption of SFAS 157 and FSP 157-3 did not have a material
impact on our financial statements.

Subsequent Events

In May 2009, the FASB issued SFAS No. 165, Subsequent
Events (SFAS 165), which provides guidance on managements assessment of
subsequent events. Historically, management had relied on U.S. auditing
literature for guidance on assessing and disclosing subsequent events. SFAS 165
represents the inclusion of guidance on subsequent events in the accounting
literature and is directed specifically to management, since management is
responsible for preparing an entitys financial statements. The new standard
clarifies that management must evaluate, as of each reporting period, events or
transactions that occur after the balance sheet date through the date that the
financial statements are issued or are available to be issued. Management must
perform its assessment for both interim and annual financial reporting periods.
We adopted SFAS 165 as of June 30, 2009 and have assessed the need for
disclosure of subsequent events through September 24, 2009. Adoption of this
statement did not have a material impact on our financial statements.

3. FINANCIAL INSTRUMENTS

Fair value of financial instruments

We adopted the required provisions of SFAS No. 157, Fair Value
Measurements, on July 1, 2008. SFAS No. 157 outlines a valuation framework and
creates a fair value hierarchy in order to increase the consistency and
comparability of fair value measurements and the related disclosures.

FASB Staff Position 157-2, Effective Date of FASB Statement
No. 157, defers the effective date of SFAS No. 157 to fiscal years beginning
after November 15, 2008, and interim periods within those fiscal years for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in an entitys financial statements on a
recurring basis (at least annually). At this time, we have chosen not to apply
SFAS No. 157 early for nonrecurring measurements made for nonfinancial assets
and nonfinancial liabilities. Goodwill and certain other nonamortizing
intangible assets were tested for impairment during fourth quarter 2009. As a
result of that testing, goodwill and certain other nonamortizing intangible
assets were adjusted to their fair values; however, we have not applied the
provisions of SFAS No. 157 to these nonfinancial assets in accordance with the
delayed adoption date for FASB Staff Position 157-2.

F-9

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

3. FINANCIAL INSTRUMENTS continued

Under SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities-including an amendment of SFAS No. 115, entities are
permitted to choose to measure many financial instruments and certain other
items at fair value. We did not elect the fair value measurement option under
SFAS No. 159 for any of our financial assets or financial liabilities.

Items Measured at Fair Value on a Recurring Basis

In accordance with the fair value hierarchy described in SFAS
No. 157, the following table shows the fair value of our financial assets and
financial liabilities that are required to be measured at fair value as of June
30, 2009.

|                   |   | Balance at    |  |   |         |  |   |         |  |   |         | 
|------------------ | - | ------------- |  | - | ------- |  | - | ------- |  | - | ------- | 
|(In
      dollars) |   | June 30, 2009 |  |   | Level 1 |  |   | Level 2 |  |   | Level 3 | 
|                   |   |               |  |   |         |  |   |         |  |   |         | 
|Assets:            |   |               |  |   |         |  |   |         |  |   |         | 
|Cash equivalents   | $ | 3,223         |  | $ | 3,223   |  | $ |        |  | $ |        | 

The following section describes the valuation methodologies
used to measure fair value, key inputs, and significant assumptions:

Cash equivalents  Cash equivalents are investments in
money market accounts and utilize level 1 inputs to determine fair value.

Items Disclosed at Fair Value

Long-Term Debt  The fair value of the Companys debt
has been calculated based on the borrowing rates available as of June 30, 2009,
for debt with similar terms and maturities.

Credit risk

Trade accounts receivable potentially subjects us to credit
risk. Sales are made to 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, 2009, we had three customers that comprised 53%
of the total trade receivable balance and had three different customers that
comprised 54% of the total trade receivable balance at June 30, 2008.

Our cash balances are maintained in one United States chartered
bank, which is an AA rated financial institution. Our cash balances for the
Canadian-based subsidiaries are maintained 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 the company's earnings that arises
from fluctuations of foreign exchange rates and the degree of volatility of
these rates. The company uses forward contracts to reduce its exposure to
foreign currency risk. There are no outstanding instruments at this time.

4. ACCOUNTS RECEIVABLE

|                                |  | 2009      |   |  | 2008      |  
|------------------------------- |  | --------- | - |  | --------- | -
|                                |  | **$**     |   |  | **$**     |  
|                                |  |           |   |  |           |  
|Value-added taxes receivable    |  | 468,495   |   |  | 283,518   |  
|Trade accounts receivable       |  | 4,787,981 |   |  | 2,237,411 |  
|Allowance for doubtful accounts |  | (218,025  | ) |  | (27,432   | )
|                                |  | 5,038,451 |   |  | 2,493,497 |  

Bad debt expense was $193,744 in 2009 and $29,124 in 2008.
Recovery of doubtful accounts was recorded for fiscal 2009 of $1,434 and nil for
fiscal 2008.

5. INVENTORIES

|                               |  | 2009    |   |  | 2008    |  
|------------------------------ |  | ------- | - |  | ------- | -
|                               |  | **$**   |   |  | **$**   |  
|                               |  |         |   |  |         |  
|Finished goods                 |  | 138,855 |   |  | 138,562 |  
|Reserve for
      obsolescence |  | (19,548 | ) |  | (20,125 | )
|                               |  | 119,307 |   |  | 118,437 |  

F-10

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

6. COST AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

|                                        |  | 2009        |   |  | 2008        |  
|--------------------------------------- |  | ----------- | - |  | ----------- | -
|                                        |  | **$**       |   |  | **$**       |  
|                                        |  |             |   |  |             |  
|Costs incurred on uncompleted contracts |  | 23,174,794  |   |  | 24,828,506  |  
|Estimated earnings                      |  | 6,691,283   |   |  | 3,156,233   |  
|                                        |  | 29,866,077  |   |  | 27,984,739  |  
|Less: billings to
      date            |  | (31,165,485 | ) |  | (29,263,209 | )
|                                        |  | (1,299,408  | ) |  | (1,278,470  | )

Included in the accompanying balance sheets under the following
captions:

|                                                   |  | 2009       |   |  | 2008       |  
|-------------------------------------------------- |  | ---------- | - |  | ---------- | -
|                                                   |  | **$**      |   |  | **$**      |  
|                                                   |  |            |   |  |            |  
|Deferred contract costs and unbilled
      revenue |  | 1,027,858  |   |  | 1,011,625  |  
|Unearned revenue
      and contract advances       |  | (2,327,266 | ) |  | (2,290,095 | )
|                                                   |  | (1,299,408 | ) |  | (1,278,470 | )

7. PROPERTY AND EQUIPMENT

|                       |  |           |  |  | 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  | 

|                       |  |           |  |  | Accumulated    |  |  | Net Book | 
|---------------------- |  | --------- |  |  | -------------- |  |  | -------- | 
|                       |  | Cost      |  |  | Depreciation   |  |  | Value    | 
|                       |  |           |  |  | & Amortization |  |  |          | 
|2008                   |  | **$**     |  |  | **$**          |  |  | **$**    | 
|                       |  |           |  |  |                |  |  |          | 
|Office equipment       |  | 981,047   |  |  | 905,032        |  |  | 76,015   | 
|Other equipment        |  | 713,101   |  |  | 477,774        |  |  | 235,327  | 
|Leasehold improvements |  | 68,067    |  |  | 68,067         |  |  | --       | 
|                       |  | 1,762,215 |  |  | 1,450,873      |  |  | 311,342  | 

Total depreciation and amortization incurred during fiscal 2009
was $163,065 [2008 - $185,927].

8. GOODWILL

We completed our goodwill impairment testing as at April 1,
2009, as required by SFAS No. 142. Although we report on two business segments 
OEM systems and Aftermarket, the unamortized goodwill relates only to the
Aftermarket segment. We have concluded that there has not been impairment
associated with the Aftermarket segment to the period ended June 30, 2009.

9. WARRANTY

As part of the normal sale of OEM systems, we have provided our
customers with product warranties. The warranties generally extend for twelve
months from the date of start-up or eighteen months after shipment to the
customer. The following summarizes the accrual of product warranties that is
recorded as part of accrued charges in the accompanying consolidated balance
sheets as at June 30th:

|                                   |  | 2009    |   |  | 2008   |  
|---------------------------------- |  | ------- | - |  | ------ | -
|                                   |  | **$**   |   |  | **$**  |  
|                                   |  |         |   |  |        |  
|Balance, beginning of year         |  | 98,362  |   |  | 94,143 |  
|Payments made                      |  | (11,428 | ) |  | (2,285 | )
|Provisions made                    |  | 11,428  |   |  | 2,285  |  
|Foreign Exchange
      adjustments |  | (12,120 | ) |  | 4,219  |  
|Balance, end of year               |  | 86,242  |   |  | 98,362 |  

F-11

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

10. LONG-TERM DEBT OBLIGATIONS

In fiscal 2007, we entered into a 36-month vehicle loan, with
an annual interest rate of 1.9% . In fiscal 2009, we entered into a 36-month
computer loan with monthly repayments and an annual interest rate of the
Canadian bank prime plus 1.25% .

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

|                                        |  |         |  |  |        |  |  | 
|--------------------------------------- |  | ------- |  |  | ------ |  |  | 
|                                        |  | 2009    |  |  | 2008   |  |  | 
|                                        |  | **$**   |  |  | **$**  |  |  | 
|                                        |  |         |  |  |        |  |  | 
|Total minimum loan payments             |  | 222,648 |  |  | 21,325 |  |  | 
|Less amount
      representing interest |  | 10,394  |  |  | 417    |  |  | 
|                                        |  | 212,254 |  |  | 20,908 |  |  | 
|Less current
      portion              |  | 80,754  |  |  | 10,373 |  |  | 
|Long-term portion                       |  | 131,500 |  |  | 10,535 |  |  | 

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

|     |  |         | 
|---- |  | ------- | 
|2010 |  | 80,754  | 
|2011 |  | 71,660  | 
|2012 |  | 59,840  | 
|     |  | 212,254 | 

11. 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, 2009 are as
  follows:

| |      |  | **$**   | 
| | ---- |  | ------- | 
| |      |  |         | 
| | 2010 |  | 91,125  | 
| | 2011 |  | 76,012  | 
| | 2012 |  | 75,585  | 
| | 2013 |  | 70,665  | 
| | 2014 |  | 5,086   | 
| |      |  | 318,473 | 

|    | Rental expense for office equipment and premises was
      $132,941in 2009 [$163,044 in 2008].                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|[b] | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | **General**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | 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 component thereof. 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
      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.                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On October 6, 2005 a statement of claim was filed against
      us in the Ontario Superior Court of Justice (Canada) by Abuma
      Manufacturing Limited, one of our vendors, in which they claim 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. We received the claimant's Affidavit of
      Documents, a request for discovery and an offer to settle for CAD $79,757.
      We have responded to the request for our Affidavit of Documents and
      discovery. It is still our position that the claims are without
    merit.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Letters of Guarantee and Bonding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | In order to favourably 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.                                                                                                                                                                                                                                                                                                                                                                        

F-12

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

The following is a list of the
outstanding standby letters of credit at June 30, 2009, together with the reason
for issuance and the expiry dates:

| | Expiry
      Dates | Reason          |             | US$      
| | ------------------ | --------------- | ----------- | ---------
| |                    |                 |             |          
| | August 4, 2009     | Advance payment | 798,000 US$ | 798,000  
| | August 12, 2009    | Advance payment | 223,300 US$ | 223,300  
| | August 31, 2009    | Holdback        | 119,260 EUR | 167,536  
| | October 28, 2009   | Advance payment | 721,250 US$ | 721,250  
| | December 9, 2009   | Holdback        | 90,138 US$  | 90,138   
| | March 31, 2010     | Holdback        | 16,280 US$  | 16,280   
| | April 01, 2010     | Holdback        | 17,400 EUR  | 24,444   
| | April 30, 2010     | Holdback        | 14,926 US$  | 14,926   
| | November 9, 2010   | Holdback        | 303,750 US$ | 303,750  
| |                    |                 |             | 2,359,624

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.

12. STOCKHOLDERS EQUITY

Common shares

We have total authorized share capital of 30,000,000 shares. 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 common shares of our company. The
Class B exchangeable shares have voting rights through a trustee. During fiscal
2009, 433,131 Class B exchangeable shares [1,688,000 in 2008] were exchanged for
our common shares, leaving 406,973 Class B exchangeable shares outstanding as of
June 30, 2009 [840,104 at June 30, 2008].

At the end of fiscal 2009, a total of 14,723,081 of our common
shares and 406,973 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.

A stock plan [the 2003 Plan] was approved at a Stockholders
vote at our annual meeting held December 10, 2002. The 2003 Plan is on the same
basis as the 2000 Plan.

A stock plan [the 2008 Plan] was approved at a Stockholders
vote at our annual meeting held December 11, 2007. The 2008 Plan is essentially
on the same basis as 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 Stock
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. The aggregate number of shares that may be issued, pursuant to
the Plans, is 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.

At the December 11, 2007 board meeting, and as provided in the
2008 Stock Plan approved by Stockholders on that date, options to purchase
160,000 shares of our common stock were awarded to the current directors from
the 2008 Stock Plan. The options awarded to directors have an exercise price of
$0.84 per share [Black-Scholes fair value $0.52], which was the market value at
the close of business on December 11, 2007, vest immediately and are exercisable
for eight years from the date of grant. These calculations were based on a volatility of 71.8%,
risk-free interest rate of 4.39% and expected dividend yield of 0%. With this
grant, there remain options to purchase 640,000 shares of our common stock in
the 2008 Stock Plan. The stock-based compensation expense for the options
granted to directors was recognized in fiscal 2008 [$83,200].

F-13

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

At the December 11, 2008 board meeting, and as provided in the
2008 Stock Plan approved by Stockholders, options to purchase 140,000 shares of
our common stock were awarded to the current directors from the 2008 Stock Plan.
The options awarded to directors have an exercise price of $0.30 per share
[Black-Scholes fair value $0.22], which was the market value at the close of
business on December 11, 2008, vest immediately and are exercisable for eight
years from the date of grant. These calculations were based on a volatility of
101%, risk-free interest rate of 1.51% and expected dividend yield of 0%. With
this grant, there remain options to purchase 560,000 shares of our common stock
in the 2008 Stock Plan. The stock-based compensation expense for the options
granted to directors was recognized in fiscal 2009 [$31,166].

A summary of the significant assumptions used in calculating
the fair value of our fiscal 2009 and 2008 stock option grants is as follows:

|                                             |   | Grant Date        | 
|-------------------------------------------- | - | ----------------- | 
|                                             |   | December 11, 2007 | 
|Expected dividends                           |   | 0.00%             | 
|Expected volatility                          |   | 71.80%            | 
|Risk-free interest rate                      |   | 4.39%             | 
|Expected term (years)                        |   | 5.00              | 
|Forfeiture rate                              |   | 0.00%             | 
|Stock price on
      date of grant           | $ | 0.84              | 
|Number of stock options granted              |   | 160,000           | 
|Fair value per
      option on date of grant | $ | 0.52              | 

A summary of the status of stock options under our 2000, 2003
and 2008 Stock Plans as at June 30, 2008 and changes during fiscal 2009, is as
follows:

AverageWeighted
    
    
    Weighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Average Grant
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Date Fair Value
    
    
    Life (In Years)
    
    
    ValueStock options outstanding at
      June 30, 2008
    
    750,499
    
    $
    0.9184
    
    $
    0.5564Stock options forfeited
    
    (180,000
    )
    $
    0.8967
    
    $
    0.5200Stock options expired
    
    (12,500
    )
    $
    0.2800
    
    $
    0.2200Stock options granted
    
    140,000
    
    $
    0.3000
    
    $
    0.2200Stock options exercised
    
    0
    
    $
    0.0000
    
    $
    0.0000Stock options outstanding at June 30, 2009
    
    697,999
    
    $
    0.8114
    
    $
    0.5043
    
    
    3.7
    
    $
    301,345Stock options exerciseable at June 30, 2009
    
    535,499
    
    $
    0.7239
    
    $
    0.4267
    
    
    4.1
    
    $
    278,595


As of June 30, 2009, there was $19,688 of total unrecognized
compensation expense related to nonvested stock options granted under our 2003
Stock Plan in fiscal 2007. This cost is expected to be recognized over a
straight-line period of 7 months, ending in January 2010. The total fair value
of stock options that vested during 2009 and 2008 was $31,166 and $83,200,
respectively.

Warrants

In April 2006, we issued a total of 500,000 warrants to
purchase our common stock at a price of $1.40 to Dynamis Energy LLP and Dynamis
Energy Ltd. as part of a private placement of 1,000,000 shares. The warrants
expired April 2009 unexercised. As well, a total of 170,000 warrants to purchase
our common stock at a price of $1.15 were issued to Capstone Investments and
Bristol Capital for their role in the private placement. The warrants expired
April 2008 unexercised. Based upon the Black-Scholes calculation, a charge
against paid-in capital was recorded in fiscal 2006 for $92,004.

F-14

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

A summary of the warrant activity since June 30, 2007 is shown
below:

|                          |  | Number of shares |   |  | Weighted | 
|------------------------- |  | ---------------- | - |  | -------- | 
|                          |  | to be issued     |   |  | average  | 
|                          |  | upon exercise    |   |  | exercise | 
|                          |  | of outstanding   |   |  | price    | 
|                          |  | warrants         |   |  | **$**    | 
|Balance, June 30, 2007    |  | 670,000          |   |  | 1.3015   | 
|Granted during the year   |  | --               |   |  | 0.0000   | 
|Forfeited during the year |  | (170,000         | ) |  | 1.1500   | 
|Exercised during the year |  | --               |   |  | 0.0000   | 
|Balance, June 30, 2008    |  | 500,000          |   |  | 1.4000   | 
|Granted during the year   |  | --               |   |  | 0.0000   | 
|Forfeited during the year |  | (500,000         | ) |  | 1.4000   | 
|Exercised during the year |  | --               |   |  | 0.0000   | 
|Balance, June 30, 2009    |  | --               |   |  | 0.0000   | 

13. INCOME TAXES

Details of the provision for income taxes are as follows:

|                           |  | 2009    |  |  | 2008     |  
|-------------------------- |  | ------- |  |  | -------- | -
|                           |  | **$**   |  |  | **$**    |  
|                           |  |         |  |  |          |  
|Current: - U.S.            |  | 18,594  |  |  | 218      |  
|- Canadian                 |  | 202,563 |  |  | --       |  
|-Italian                   |  | 9,472   |  |  | --       |  
|Total current
      taxes  |  | 230,629 |  |  | 218      |  
|Deferred: - U.S.           |  | 109,292 |  |  | 46,571   |  
|-
      Canadian           |  | 289,317 |  |  | (361,763 | )
|Total deferred taxes       |  | 398,609 |  |  | (315,192 | )
|Income tax
      provision |  | 629,238 |  |  | (314,974 | )

Components of the tax provision are as follows:

|                                                                                                          |  | 2009     |   |  | 2008     |  
|--------------------------------------------------------------------------------------------------------- |  | -------- | - |  | -------- | -
|                                                                                                          |  | $        |   |  | **$**    |  
|                                                                                                          |  |          |   |  |          |  
|Provision for income tax based on basic
      U.S. tax rates                                              |  | 135,546  |   |  | 32,183   |  
|Provision for income taxes based on basic Canadian federal
      income tax rates                         |  | 351,691  |   |  | (209,922 | )
|Provision for income taxes based on basic
      Canadian provincial income tax rates                      |  | 255,775  |   |  | (141,293 | )
|Provision for income taxes based on basic Italian federal
      income tax rates                          |  | 9,472    |   |  | --       |  
|Provision for deferred income taxes based
      on basic US income tax rates                              |  | 109,292  |   |  | 46,571   |  
|Provision for deferred income taxes based on basic Canadian
      federal and provincial income tax rates |  | 289,317  |   |  | (361,763 | )
|Benefit of deductible differences and tax losses
      recognized during the year                         |  | (521,855 | ) |  | 319,250  |  
|                                                                                                          |  | 629,238  |   |  | (314,974 | )

The tax impact of the European office is included in the tax
calculations of the Canadian company as it is not a separate subsidiary.

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

|                    |  | 2009 |  |  | 2008 | 
|------------------- |  | ---- |  |  | ---- | 
|                    |  | %    |  |  | %    | 
|                    |  |      |  |  |      | 
|U.S.                |  | 34.0 |  |  | 34.0 | 
|U.S state           |  | 3.8  |  |  | 5.4  | 
|Canadian federal    |  | 19.3 |  |  | 20.8 | 
|Canadian provincial |  | 14.0 |  |  | 14.0 | 
|Italian federal     |  | 41.4 |  |  | 41.4 | 

F-15

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

Income (loss) before provision for income taxes:

|                                         |  | 2009      |  |  | 2008       |  
|---------------------------------------- |  | --------- |  |  | ---------- | -
|                                         |  | **$**     |  |  | **$**      |  
|                                         |  |           |  |  |            |  
|U.S.                                     |  | 358,176   |  |  | 81,710     |  
|Canadian                                 |  | 1,826,967 |  |  | (1,059,678 | )
|Income before provision for income taxes |  | 2,185,143 |  |  | (977,968   | )

Income taxes paid are as follows:

|                |  | 2009   |  |  | 2008   | 
|--------------- |  | ------ |  |  | ------ | 
|                |  | **$**  |  |  | **$**  | 
|                |  |        |  |  |        | 
|Italian federal |  | 8,246  |  |  |       | 
|U.S. federal    |  |       |  |  | 11,569 | 
|U.S. state      |  | 20,187 |  |  | 33,407 | 
|                |  | 28,433 |  |  | 44,976 | 

Income tax refunds received are as follows:

|                    |  | 2009   |  |  | 2008  | 
|------------------- |  | ------ |  |  | ----- | 
|                    |  | **$**  |  |  | **$** | 
|                    |  |        |  |  |       | 
|Canadian provincial |  | 49,326 |  |  | 6,043 | 
|U.S. state          |  | 10,048 |  |  |      | 
|                    |  | 59,374 |  |  | 6,043 | 

We have unutilized operating losses in the United States of
approximately $720,000 available for carry forward to reduce income taxes
otherwise payable in future years. This amount includes purchased loss carry
forwards of approximately $250,000, which, if not utilized, will expire in 2012.
A total of $1,053,000 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 $ nil.

As it is more likely than not that we will realize the benefits
of deductible temporary differences, we are required under SFAS 109 to record
deferred income tax assets. Deferred tax liabilities and assets are comprised of
the following as at June 30:

|                                            |  | 2009    |  |  | 2008    | 
|------------------------------------------- |  | ------- |  |  | ------- | 
|                                            |  | **$**   |  |  | **$**   | 
|                                            |  |         |  |  |         | 
|Accounting under tax net book value         |  | 4,763   |  |  | 8,226   | 
|Reserves not currently deductible           |  | 28,676  |  |  | 35,528  | 
|Net operating loss carryforward             |  | 273,986 |  |  | 731,205 | 
|Total deferred tax assets                   |  | 307,424 |  |  | 774,959 | 
|Valuation allowance for deferred tax assets |  |        |  |  |        | 
|Net deferred
      tax asset (liabilities)  |  | 307,424 |  |  | 774,959 | 

TurboSonic adopted the provisions of FASB Interpretation No. 48
Accounting for Uncertainty in Income Taxes  An Interpretation of FASB
Statement No. 109 (FIN 48) effective July 1, 2007. The income tax provision
at June 30, 2009 reflects a full accounting of our tax filings and no
adjustments are required upon adoption of FIN 48. The Company is 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.

F-16

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

14. EARNINGS PER SHARE

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

|                                                               |   | 2009       |  |   | 2008       |  
|-------------------------------------------------------------- | - | ---------- |  | - | ---------- | -
|                                                               |   | **$**      |  |   | **$**      |  
|Numerator                                                      |   |            |  |   |            |  
|Net income (loss)                                              |   | 1,555,905  |  |   | (662,994   | )
|Denominator                                                    |   |            |  |   |            |  
|Denominator for earnings per share -                           |   |            |  |   |            |  
|weighted
      average shares outstanding                      |   | 15,130,054 |  |   | 15,130,054 |  
|Denominator for diluted earnings per share
      -             |   |            |  |   |            |  
|adjusted
      weighted average shares and assumed conversions |   | 15,168,536 |  |   | 15,130,054 |  
|Basic (loss) earnings per share                                | $ | 0.10       |  | $ | (0.04      | )
|Diluted (loss)
      earnings per share                        | $ | 0.10       |  | $ | (0.04      | )

The dilutive loss per common share calculated for the fiscal
year ended June 30, 2008 excludes the effect of 6,360 options outstanding. These
amounts were excluded since their inclusion would be anti-dilutive.

15. SUPPLEMENTARY INFORMATION ON CASH FLOWS

|                                                                        |  | 2009       |   |  | 2008      |  
|----------------------------------------------------------------------- |  | ---------- | - |  | --------- | -
|                                                                        |  | **$**      |   |  | **$**     |  
|                                                                        |  |            |   |  |           |  
|Changes in non-cash assets and liabilities related to
      operations: |  |            |   |  |           |  
|(Increase) in accounts receivable                                       |  | (1,839,277 | ) |  | (821,657  | )
|(Increase) decrease in retentions receivable                            |  | (332,563   | ) |  | (118,115  | )
|(Increase) decrease in inventories                                      |  | (15,396    | ) |  | 15,016    |  
|Decrease in deferred contract costs and unbilled revenue                |  | 154,140    |   |  | 398,416   |  
|(Increase) in income taxes receivable                                   |  | --         |   |  | (10,110   | )
|(Increase) decrease in other current assets                             |  | (10,662    | ) |  | 44,877    |  
|Decrease in other assets                                                |  | --         |   |  | 123       |  
|Increase (decrease) in accounts payable                                 |  | 1,787,096  |   |  | (35,478   | )
|Increase in accrued compensation charges                                |  | 455,977    |   |  | (105,910  | )
|Increase in accrued other charges                                       |  | 409,175    |   |  | 451,443   |  
|(Decrease) increase in unearned revenue and
      contract advances     |  | (243,263   | ) |  | 1,575,965 |  
|Increase
      (decrease) in income taxes payable                       |  | 279,731    |   |  | (27,936   | )
|                                                                        |  | 644,958    |   |  | 1,366,634 |  

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:

|                          |  | 2009       |  |  | 2008       | 
|------------------------- |  | ---------- |  |  | ---------- | 
|                          |  | **$**      |  |  | **$**      | 
|                          |  |            |  |  |            | 
|United States             |  | 17,885,500 |  |  | 11,805,700 | 
|Canada                    |  | 1,117,800  |  |  | 726,400    | 
|Asia                      |  | 40,000     |  |  | 299,400    | 
|Spain                     |  | 4,315,000  |  |  | 4,000      | 
|Other Europe              |  | 1,757,000  |  |  | 884,800    | 
|South and Central America |  | 109,200    |  |  | 277,700    | 
|Other                     |  | 180,975    |  |  | 270,284    | 
|                          |  | 25,405,475 |  |  | 14,268,284 | 

F-17

---

|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

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.

|                              |  | 2009  |  |  | 2008  | 
|----------------------------- |  | ----- |  |  | ----- | 
|                              |  | **$** |  |  | **$** | 
|                              |  |       |  |  |       | 
|Single largest customer       |  |       |  |  |       | 
|Revenue                       |  | 22%   |  |  | 27%   | 
|Accounts receivable           |  | 31%   |  |  | 28%   | 
|Second largest
      customer |  |       |  |  |       | 
|Revenue                       |  | 17%   |  |  | 5%    | 
|Accounts receivable           |  | 16%   |  |  | 13%   | 
|Third largest customer        |  |       |  |  |       | 
|Revenue                       |  | 12%   |  |  | 3%    | 
|Accounts receivable           |  | 6%    |  |  | 13%   | 

Industry segments

|                                         |  | OEM        |   |  |             |   |  |            |  |  |            |  
|---------------------------------------- |  | ---------- | - |  | ----------- | - |  | ---------- |  |  | ---------- | -
|                                         |  | Systems    |   |  | Aftermarket |   |  | Other      |  |  | Total      |  
|2009                                     |  | **$**      |   |  | **$**       |   |  | **$**      |  |  | **$**      |  
|                                         |  |            |   |  |             |   |  |            |  |  |            |  
|Contract revenue and sales               |  |            |   |  |             |   |  |            |  |  |            |  
|OEM systems                              |  | 21,148,204 |   |  |            |   |  |           |  |  | 21,148,204 |  
|Aftermarket                              |  |           |   |  | 4,257,271   |   |  |           |  |  | 4,257,271  |  
|Total contract revenue and sales         |  | 21,148,204 |   |  | 4,257,271   |   |  |           |  |  | 25,405,475 |  
|Income from operations                   |  | 1,430,715  |   |  | 733,936     |   |  |           |  |  | 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  |   |  | 737,369     |   |  |           |  |  | 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.

|                                                      |  | OEM        |   |  |             |   |  |            |  |  |            |  
|----------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ---------- |  |  | ---------- | -
|                                                      |  | Systems    |   |  | Aftermarket |   |  | Other      |  |  | Total      |  
|2008                                                  |  | **$**      |   |  | **$**       |   |  | **$**      |  |  | **$**      |  
|Contract revenue and sales                            |  |            |   |  |             |   |  |            |  |  |            |  
|OEM systems                                           |  | 10,448,994 |   |  |            |   |  |           |  |  | 10,448,994 |  
|Aftermarket                                           |  |           |   |  | 3,819,290   |   |  |           |  |  | 3,819,290  |  
|Total contract revenue and sales                      |  | 10,448,994 |   |  | 3,819,290   |   |  |           |  |  | 14,268,284 |  
|(Loss) income from operations                         |  | (1,386,126 | ) |  | 352,452     |   |  |           |  |  | (1,033,674 | )
|Interest income                                       |  | 40,891     |   |  | 14,946      |   |  |           |  |  | 55,837     |  
|Interest expense                                      |  | (96        | ) |  | (35         | ) |  |           |  |  | (131       | )
|(Loss) income before provision for income
      taxes |  | (1,345,331 | ) |  | 367,363     |   |  |           |  |  | (977,968   | )
|(Recovery of)
      income taxes                      |  | (230,663   | ) |  | (84,311     | ) |  |           |  |  | (314,974   | )
|Net (loss) income                                     |  | (1,114,668 | ) |  | 451,674     |   |  |           |  |  | (662,994   | )
|Depreciation and amortization                         |  | 130,149    |   |  | 55,778      |   |  |           |  |  | 185,927    |  
|Capital expenditures                                  |  | 12,025     |   |  | 5,154       |   |  |           |  |  | 17,179     |  
|Segment assets                                        |  | 3,949,727  |   |  | 1,457,939   |   |  | 3,190,1811 |  |  | 8,597,847  |  
|Property and equipment                                |  | 233,506    |   |  | 77,836      |   |  |           |  |  | 311,342    |  
|Goodwill                                              |  |           |   |  | 398,897     |   |  |           |  |  | 398,897    |  

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

F-18

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|TURBOSONICTECHNOLOGIES, INC.ANDSUBSIDIARIES | Notes to Consolidated Financial
      Statements
|------------------------------------------- | ------------------------------------------------
|                                            | Year ended June 30, 2009                        

17. 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 reclassification
involves the presenting value-added taxes in accounts receivable rather than
accrued charges. The amount of value-added taxes reclassified is disclosed in
Note 4.

F-19

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SIGNATURES

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

TURBOSONICTECHNOLOGIES, INC.By: /s/ Edward F.
      SpinkEdward F. SpinkChief Executive Officer


Date: September 24, 2009

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 24, 2009
|Edward F. Spink                    |  | And Director                                                |                   
|                                   |  |                                                             |                   
|/s/ Egbert Q. van
      Everdingen |  | President, Secretary, Treasurer and Director                | September 24, 2009
|Egbert Q. van Everdingen           |  |                                                             |                   
|                                   |  |                                                             |                   
|/s/ Carl A. Young                  |  | Chief Financial Officer                                     | September 24, 2009
|Carl A. Young                      |  | (Principal Financial Officer)                               |                   
|                                   |  |                                                             |                   
|/s/ David J.
      Hobson          |  | VP Finance and Administration                               | September 24, 2009
|David J. Hobson                    |  | (Principal Accounting Officer)                              |                   
|                                   |  |                                                             |                   
|/s/ Ken Kivenko                    |  | Chairman of the Board of Directors                          | September 24, 2009
|Ken Kivenko                        |  |                                                             |                   
|                                   |  |                                                             |                   
|/s/ Richard H.
      Hurd          |  | Director                                                    | September 24, 2009
|Richard H. Hurd                    |  |                                                             |                   
|                                   |  |                                                             |                   
|/s/ Glen O. Wright                 |  | Director                                                    | September 24, 2009
|Glen O. Wright                     |  |                                                             |                   
|                                   |  |                                                             |                   
|/s/ Raymond L.
      Alarie        |  | Director                                                    | September 24, 2009
|Raymond L. Alarie                  |  |                                                             |                   
|                                   |  |                                                             |                   
|/s/ F. Eugene
      Deszca         |  | Director                                                    | September 24, 2009
|F. Eugene Deszca                   |  |                                                             |                   

---