SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                               -------------------

                                   FORM 10-KSB

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

                     For the fiscal year ended June 30, 2000

                                       OR

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


                         Commission file number 0-21832

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

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

         550 PARKSIDE DRIVE,
        SUITE A-14, WATERLOO,
           ONTARIO, CANADA                         N2L 5V4
   (Address of principal executive offices)      (Zip Code)

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

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

                TITLE OF EACH CLASS           Name of Each Exchange
                                              on Which Registered

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

                                  COMMON STOCK
                                (Title of Class)

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

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

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

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

                   ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                         DURING THE PRECEDING FIVE YEARS

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

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

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
                      DOCUMENTS INCORPORATED BY REFERENCE




<PAGE>



Item 1.    Description of Business

     (a) General Development of Business

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

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

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

     (b) Financial Information About Industry Segments

     Reference is made to Note 17 of the Notes to the Consolidated Financial
Statements, which information is incorporated herein by reference.

     (c) Narrative Description of Business

INTRODUCTION

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

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


                                       2
<PAGE>



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

                                                         Year Ended
                                                         ----------
                                                          June 30,
                                                          --------
                                                     2000           1999
                                                     ----           ----
Hazardous waste incineration  --------------------     3%             3%
Solid waste incineration  ------------------------     5              5
Chemical and mining processing  ------------------    53             43
Metallurgical processing  ------------------------    13             10
Dust suppression  --------------------------------     1              6
Pulp and paper  ----------------------------------    21             21
Other  -------------------------------------------     4             12
                                                     ----          ----
                                                     100%           100%
                                                     ====          ====

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

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

PRODUCTS AND SYSTEMS

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


                                       3
<PAGE>




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

                                                                     Year Ended
                                                                     ----------
                                                                       June 30,
                                                                       --------

                                                                   2000      1999
                                                                   ----      ----
<S>                                                                 <C>      <C>
Evaporative gas cooling and conditioning systems ---------          35%       39%
Wet Electrostatic Precipitation Systems (WESP) -----------          25         -
Wet scrubber systems  ------------------------------------          22        35
SO2 recovery system --------------------------------------           -         3
Dust control and suppression systems  --------------------           1         8
Other nozzle systems  ------------------------------------          17        15
                                                                   ----      ----
                                                                   100%      100%
                                                                   ====      ====
</TABLE>


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

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

     SONICOOL(R) EVAPORATIVE GAS COOLING AND CONDITIONING SYSTEMS

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

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

     SONICKLEEN(TM) WET ELECTROSTATIC PRECIPITATION SYSTEMS (WESP)

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

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


                                       4
<PAGE>

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

     TURBOSOX SO2 RECOVERY SYSTEMS

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

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

     SONICBURN WASTE FUEL COMBUSTION

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

     TURBOTAK WET AND TURBOSORB SEMI-DRY SCRUBBERS

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

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

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

                                       5
<PAGE>

     SONICHEM NCG CHEMICAL OXIDIZERS

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

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

     DRY FOG(R) DUST CONTROL AND SUPPRESSION SYSTEMS

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

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

     AIR POLLUTION CONTROL SYSTEM UPGRADES

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

     ATOMIZING NOZZLES AND SPARE PARTS

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

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

     The Company also provides replacement and spare parts for both its
industrial gas processing and air pollution control systems. The Company
believes that in view of the extreme conditions

                                       6
<PAGE>

under which industrial process and air pollution control systems operate that
there is an ongoing requirement for spare parts that should create additional
demand for the Company's products.

CONTRACTUAL LIABILITIES

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

MARKETING AND SALES

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

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

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

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

     Two customers, Emtrol LLC (for equipment ultimately sold to Eastman Kodak)
and Thermal Ceramics, accounted for 11% and 15% respectively, of the Company's
net revenues during the fiscal year ended June 30, 2000. During the fiscal year
ended June 30, 1999, one customer, E.I.DuPont de Nemours, accounted for 12% of
the Company's net revenues.


                                       7

<PAGE>

BACKLOG

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

PRODUCT DEVELOPMENT

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

PROPRIETARY PROTECTION

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

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

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

SUPPLIERS AND SUBCONTRACTORS

     Like other companies in the industrial processing and environmental
management control industry, the Company has historically relied on third
parties to manufacture and fabricate its products and to supply parts and
components for its systems in accordance with the Company's specifications. In
those instances in which the Company's scope of work includes installation of
equipment, the Company selects and supervises subcontractors for this work. To
date, the Company has not experienced difficulties either in obtaining
fabricated components and other materials and parts used in any of its products
and systems or in obtaining qualified subcontractors. The Company's vendor
sources for various components, materials and parts used in its systems,
including its atomizing nozzle, control switches and electrical and other
components, include more than 100 firms. The Company does not depend on any one
of the vendors to a material extent, and in

                                       8
<PAGE>


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

BONDING AND INSURANCE

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

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

GOVERNMENT REGULATION

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

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

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

COMPETITION

     The Company faces substantial competition in each of its principal markets
from numerous competitors. Most of the Company's competitors are larger and have
greater financial resources than

                                       9
<PAGE>

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

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

EMPLOYEES

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

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

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

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

                                                         Year Ended
                                                         ----------
                                                          June 30,
                                                          --------
                                                    2000             1999
                                                   ------           ------
United States  ------------------------------        83%              61%
Canada  -------------------------------------        13               22
South and Central America  ------------------         2               10
Far East  -----------------------------------         1                5
Other  --------------------------------------         1                2
                                                   ------           ------
                                                    100%             100%
                                                   ======           ======

FORWARD-LOOKING STATEMENTS

     Forward-looking statements in this Report, including without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
Readers are cautioned that such forward-looking statements involve risks and
uncertainties that could

                                       10
<PAGE>

cause actual results to differ materially from those expressed therein. Such
risks and uncertainties include, among others, the following:

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

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

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

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

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

                                       11

<PAGE>

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

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

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

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

ITEM 2.   DESCRIPTION OF PROPERTY

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

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

                                       12
<PAGE>


ITEM 3.     LEGAL PROCEEDINGS

                  None.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

                                                Common Stock (1)
                                                ----------------
                                               High          Low
                                               ----          ---
Fiscal Year Ended June 30, 1999:
     First Quarter  -----------------------   $0.687        $0.375
     Second Quarter  ----------------------   $0.562        $0.04
     Third Quarter  -----------------------   $0.593        $0.20
     Fourth Quarter  ----------------------   $0.562        $0.25

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

-----------------

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

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

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

                                       13
<PAGE>



ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

     TWELVE MONTHS ENDED JUNE 30, 2000 COMPARED WITH TWELVE MONTHS ENDED JUNE
30, 1999

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

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

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

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

Total expenses including selling, general and administrative expenses, increased
by $292,412 to $1,698,074 as contrasted with $1,405,662 for the same period in
1999. A portion of these incremental costs relate to increased marketing
activities in general with specific emphasis on the WESP product line. These
increased costs are also the result of additional sales and engineering
personnel who were hired to meet the growing demand for the Company's products.
Expressed as a percentage of total revenue, the selling, general and
administrative expenses were 28% for the current twelve month period ended June
30, 2000 and 36% for the preceding fiscal period.

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


                                     14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET RISK

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


                                       15
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

         Reference is made to pages F-1 through F-25 comprising a portion of
         this Annual Report on Form 10-KSB.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

                  None.



                                       16
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

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

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

Dr. Donald R. Spink, Sr          77           Director

Edward F. Spink                  46           Chairman of the Board and CEO

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

Richard H. Hurd                  63           Director and Assistant Secretary


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

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

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

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

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

     The Audit Committee of the Board is charged with the review of the
activities of the Company's independent auditors including, but not limited to,
fees, services and audit scope. The Audit Committee is comprised of Messrs.
Forde and Hurd. The Compensation Committee of the Board is responsible for
oversight and administration of executive compensation. The Compensation
Committee is comprised of Messrs. Donald Spink and Forde. The Board of Directors
held one meeting during the fiscal year ended June 30, 2000.

     The Company has no standing nominating committee of its Board of Directors,
nor any committees performing similar functions. The Board of Directors as a
whole searches for potential

                                       17
<PAGE>

nominees for Board positions and periodically reviews the compensation of the
Company's officers and employees and makes appropriate adjustments.

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

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

ITEM 10.     EXECUTIVE COMPENSATION

SUMMARY COMPENSATION

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


<TABLE>
<CAPTION>
                                                                            Long Term
                                                                            ---------
 Awards                        Annual Compensation                      Compensation Awards
 ------                        -------------------                      -------------------

<S>                <C>            <C>           <C>               <C>           <C>
Name and           Year                                           Restricted    Number of
Principal          Ended           Fiscal                         Stock         Options and
Position           June 30,        Salary        Commissions      Awards        Warrants
--------           -------         -------       ------------     ----------    -----------
Edward F. Spink    2000           $67,797       $11,156 (2)            -         50,000
CEO                1999           $66,243(1)    $ 3,505 (1)            -              -
                   1998           $30,754       $52,231                -              -
</TABLE>

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

                                       18

<PAGE>



OPTION GRANTS IN FISCAL 2000
<TABLE>
<CAPTION>

                 Number of Shares     % of Total
                    Underlying      Options Granted      Exercise          Expiry
Name             Options Granted      to Employees        Price             Date
-----            ----------------   ---------------      -------           -------

<S>                     <C>               <C>               <C>                <C>
Edward F. Spink        50,000             10%              0.40        October 15, 2006
</TABLE>

AGGREGATE OPTION AND WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES

<TABLE>
<CAPTION>

                                                             Number of Securities
                Number of Shares                            Underlying Unexercised              Value of Unexercised
              Acquired On Exercise         Value            Options or Warrants At              In-the-moneyoptions
                                         Received               Fiscal Year End                  At Fiscal Year End
              ----------------------    ------------    -------------------------------    -------------------------------
                                                         Exercisable      Unexercisable       Exercisable    Unexercisable
                                                         -----------      -------------       -----------    -------------

<S>                        <C>           <C>                <C>           <C>                  <C>            <C>
Edward F. Spink            0             $0.00              0             50,000               $0.00          $14,350

</TABLE>

EMPLOYMENT AGREEMENTS

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

                                       19
<PAGE>





ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

                                   AMOUNT AND
NAME OF                            NATURE OF                APPROXIMATE
BENEFICIAL OWNER OR                BENEFICIAL               PERCENTAGE
IDENTITY OF GROUP                  OWNERSHIP(1)             OF CLASS
-------------------                ------------             ------------
Dr. Donald R. Spink, Sr. *         3,414,432(2)(5)           32.5%

Edward F. Spink *                    465,338                  4.4%

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

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

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

All executive officers             4,912,866(2)-(5)          46.7%
    and directors as a
    group (4 persons)
---------

*     550 Parkside Drive, Suite A-14, Waterloo, Ontario N2L 5V4, Canada.
**    11 Melanie Lane, Unit 22A, East Hanover, NJ 07936
(1)   Includes shares of Sonic Canada Inc., a wholly owned subsidiary of the
      Company, which by their terms are convertible at any time into a like
      number of shares of Common Stock of the Company ("Sonic Canada Shares").
(2)   Includes 2,986,687 Sonic Canada Shares owned by Canadian numbered
      corporation, over which shares Dr. Spink exercises voting control.
(3)   Includes 507,642 Sonic Canada Shares owned by the Patrick and Joan Forde
      Family Trust.
(4)   Includes 1,195 shares owned by Mr. Hurd's spouse, as to which Mr. Hurd
      disclaims any beneficial ownership; also includes 100,000 shares issuable
      upon exercise of an option expiring in August 2000 at an exercise price of
      $1.00 per share, which option was granted pursuant to the Plan. The Board
      of Directors extended the expiration date for six months to February 27,
      2001.

(5)   Includes detachable warrants for each of Dr. Donald Spink and Mr. Patrick
      Forde to purchase 100,000 common shares at an initial exercise price of
      $0.50 through October 31, 2000, increasing to $0.75 thereafter through
      October 31, 2002 and to $1.00 thereafter through October 31, 2003,
      respectively (see Note 8 to the Consolidated Financial Statements).

                                       20
<PAGE>


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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


                                       21
<PAGE>



                                     PART IV

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K

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

       (i)  Exhibits
            21 - Subsidiaries

            27 - Financial Data Schedule

(b)         Reports on Form 8K
            None.


































                                       22

<PAGE>
                                   SIGNATURES


     IN ACCORDANCE WITH SECTION 13 OR 15(d) OF THE EXCHANGE ACT, THE REGISTRANT
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.

                                            TURBOSONIC TECHNOLOGIES, INC.


                                            By:  /s/  Patrick J. Forde
                                                ---------------------
                                                PATRICK J. FORDE,
                                                   PRESIDENT

DATE:    SEPTEMBER  28, 2000

     IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON
THE DATES INDICATED.

<TABLE>
<CAPTION>

         Signatures                              Capacity                             Date
         ----------                              --------                             ----


<S>                                      <C>                                     <C>
     /S/   Edward F. Spink             Chairman of the Board of                 September 28, 2000
---------------------------------      Directors (Principal
         EDWARD F. SPINK               Executive Officer)



     /S/   Patrick J. Forde            President, Secretary, Treasurer          September 28, 2000
---------------------------------           and Director (Principal
         PATRICK J. FORDE                   Financial and Accounting Officer)


     /S/   Richard H. Hurd             Director                                 September 28, 2000
---------------------------------
         RICHARD H. HURD

     /S/   Donald R. Spink, Sr.        Director                                 September 28, 2000
---------------------------------
         DR. DONALD R. SPINK, SR.

</TABLE>


                                       23
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

To the Directors and Shareholders of
TURBOSONIC TECHNOLOGIES, INC.

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

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

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

                                                          /s/Ernst & Young LLP
                                                             Ernst & Young LLP

Kitchener, Canada,
August 31, 2000.                                         Chartered Accountants


                                                                             F-1
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
[Incorporated under the laws of Delaware, United States of America]

<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEETS

As at June 30                                                  [expressed in United States dollars]


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

ASSETS

CURRENT

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

SEE ACCOMPANYING NOTES
</TABLE>

                                                                             F-2
<PAGE>

<TABLE>
<CAPTION>

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

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT

<S>                                                                  <C>                <C>
Accounts payable                                                       507,290            265,612
Accrued charges                                                        253,648            279,210
Obligations under capital leases, current portion [NOTE 9]              21,778                 --
Unearned revenue and contract advances                                 797,549            143,529
--------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES                                            1,580,265            688,351
--------------------------------------------------------------------------------------------------
Accrued charges                                                         75,140            113,206
Loans from shareholders [NOTE 8]                                       268,103            266,964
Obligations under capital leases, long-term portion [NOTE 9]            60,332                 --
--------------------------------------------------------------------------------------------------
                                                                     1,983,840          1,068,521
--------------------------------------------------------------------------------------------------
Commitments and contingencies [NOTE 10]
SHAREHOLDERS' EQUITY
Share capital [NOTE 11]

   Authorized
    21,800,000  common shares, par value $0.10 per share
     8,200,000  Class B exchangeable shares, par value
                   $0.10 per share
   Issued
     3,767,436  common shares [1999 - 1,800,000]
     6,232,564  Class B exchangeable shares [1999 - 8,200,000]       2,299,096          2,299,096
Additional paid-in capital                                           1,448,038          1,448,038
--------------------------------------------------------------------------------------------------
                                                                     3,747,134          3,747,134
Accumulated other comprehensive income                                 (50,293)           (20,936)
(Deficit)                                                           (2,280,905)        (2,311,845)
--------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY                                           1,415,936          1,414,353
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           3,399,776          2,482,874
--------------------------------------------------------------------------------------------------
</TABLE>


                                                                             F-3
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Year ended June 30                                           [expressed in United States dollars]


                                                                          2000               1999
                                                                            $                  $
--------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>
CONTRACT REVENUE AND SALES                                           6,181,562          3,856,842
Contract costs and cost of sales                                     4,390,249          2,355,635
--------------------------------------------------------------------------------------------------
GROSS MARGIN                                                         1,791,313          1,501,207
--------------------------------------------------------------------------------------------------
EXPENSES

Selling, general and administrative                                  1,660,763          1,420,659
Research and development [NOTE 12]                                      37,311            (14,997)
--------------------------------------------------------------------------------------------------
                                                                     1,698,074          1,405,662
--------------------------------------------------------------------------------------------------
Income from operations                                                  93,239             95,545
Interest (expense)                                                     (37,471)           (14,683)
--------------------------------------------------------------------------------------------------
Income before provision for income taxes                                55,768             80,862
Provision for income taxes [NOTE 13]                                    24,828             24,909
--------------------------------------------------------------------------------------------------
Income before extraordinary item                                        30,940             55,953
Extinguishment of debt [NOTE 14]                                            --            113,358
--------------------------------------------------------------------------------------------------
NET INCOME                                                              30,940            169,311
Other comprehensive (loss):
   Foreign currency translation adjustment                             (29,357)            (2,522)
--------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME                                                     1,583            166,789
--------------------------------------------------------------------------------------------------

BASIC EARNINGS PER SHARE [NOTE 15]
Income before extraordinary item                                         $0.00              $0.01
Extraordinary item                                                        0.00               0.01
--------------------------------------------------------------------------------------------------
                                                                         $0.00              $0.02
--------------------------------------------------------------------------------------------------

DILUTED EARNINGS PER SHARE [NOTE 15]
Income before extraordinary item                                         $0.00              $0.01
Extraordinary item                                                        0.00               0.01
--------------------------------------------------------------------------------------------------
                                                                         $0.00              $0.02
--------------------------------------------------------------------------------------------------

Basic weighted average shares [NOTE 15]                             10,000,000         10,000,000
--------------------------------------------------------------------------------------------------
Diluted weighted average shares [NOTE 15]                           10,500,000         10,600,000
--------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES


                                      F-4
<PAGE>

TURBOSONIC TECHNOLOGIES INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Year ended June 30                                                                             [expressed in United States dollars]

                                                                                                          ACCUMULATED
                                               EXCHANGEABLE &            ADDITIONAL                         OTHER
                                                COMMON STOCK               PAID-IN       ACCUMULATED     COMPREHENSIVE      TOTAL
                                        SHARES              AMOUNT         CAPITAL         DEFICIT          INCOME         EQUITY
                                           #                   $              $               $                $              $
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                  <C>             <C>            <C>              <C>          <C>
BALANCE - JUNE 30, 1998               10,000,000           2,299,096       1,439,586      (2,481,156)      (18,384)     1,239,142
Detachable warrants [NOTE 8]                  --                  --           8,452              --            --          8,452
Net income                                    --                  --              --         169,311            --        169,311
Translation adjustment                        --                  --              --              --        (2,552)        (2,552)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 1999               10,000,000           2,299,096       1,448,038      (2,311,845)      (20,936)     1,414,353
Net income                                    --                  --              --          30,940            --         30,940
Translation adjustment                        --                  --              --              --       (29,357)       (29,357)
------------------------------------------------------------------------------------------------------------------------------------
BALANCE - JUNE 30, 2000               10,000,000           2,299,096       1,448,038      (2,280,905)      (50,293)     1,415,936
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES


                                                                             F-5
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30                                           [expressed in United States dollars]

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

OPERATING ACTIVITIES

<S>                                                                   <C>                <C>
Net income                                                              30,940            169,311
Add charge to operations not requiring a
   current cash payment:
    Depreciation and amortization                                      195,616            193,186
----------------------------------------------------------------------------------------------------
                                                                       226,556            362,497
Adjustment to goodwill                                                      --             31,314
Changes in non-cash working capital balances related
   to operations [NOTE 16]                                            (129,743)          (418,038)
----------------------------------------------------------------------------------------------------
CASH PROVIDED BY (APPLIED TO) OPERATING ACTIVITIES                      96,813            (24,227)
----------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital assets                                              (4,417)           (12,502)
----------------------------------------------------------------------------------------------------
CASH (APPLIED TO) INVESTING ACTIVITIES                                  (4,417)           (12,502)
----------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of capital leases                                            (12,996)                --
Shareholder loans                                                           --            273,411
----------------------------------------------------------------------------------------------------
CASH (APPLIED TO) PROVIDED BY FINANCING ACTIVITIES                     (12,996)           273,411
----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                 17,440              4,985
----------------------------------------------------------------------------------------------------

NET CASH PROVIDED DURING YEAR                                           96,840            241,667
Cash, beginning of year                                                310,944             69,277
----------------------------------------------------------------------------------------------------
CASH, END OF YEAR                                                      407,784            310,944
----------------------------------------------------------------------------------------------------

CASH PAID FOR:
Interest                                                                42,277             31,217
Income taxes                                                            41,261                583
----------------------------------------------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES


                                                                             F-6
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


1.  ORGANIZATION AND BUSINESS DESCRIPTION

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

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

PRINCIPLES OF CONSOLIDATION

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

INVENTORIES

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

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

GOODWILL

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


                                                                             F-7
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D

CAPITAL ASSETS

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

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


ACCOUNTING FOR REVENUES AND LONG-TERM CONTRACTS

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

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

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

CASH AND CASH EQUIVALENTS

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

SEGMENTED INFORMATION

Under the requirements of Statement No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, of the Financial Accounting Standards Board,
financial information about operating segments is reported on the basis that is
used internally by the Company for evaluating operating segments and resource
allocation decisions.


                                                                             F-8
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D

GOVERNMENT GRANTS

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

INVESTMENT TAX CREDITS

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

RESEARCH AND DEVELOPMENT EXPENDITURES

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

INCOME TAXES

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

ADVERTISING COSTS

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


                                                                             F-9
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D

STOCK-BASED COMPENSATION

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

EARNINGS PER SHARE

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

FOREIGN CURRENCY TRANSLATION

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


                                                                            F-10
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONT'D

USE OF ESTIMATES

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

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the FASB released Statement No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, which is effective for fiscal years
beginning after June 15, 2000. The Company has determined that there would be no
effect of adopting this pronouncement.

In March 2000, the FASB released Interpretation No. 44, ACCOUNTING FOR CERTAIN
TRANSACTIONS INVOLVING STOCK COMPENSATION, which is effective for fiscal years
beginning July 1, 2000. The Company has not determined the effect of adopting
this pronouncement.

In December 1999, the SEC released Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS, which is effective for the Company's fourth
quarter of fiscal 2001. The Company has not determined the effect of adopting
this pronouncement.

3. FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

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


                                                                            F-11
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

3.  FINANCIAL INSTRUMENTS CONT'D

CONCENTRATION OF RISK

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

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

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

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

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

4.  ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>

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


<S>                                       <C>                <C>
Trade accounts receivable                 981,799            480,272
Other receivables                          53,016             62,296
Allowance for doubtful accounts           (61,904)           (66,764)
--------------------------------------------------------------------------------
                                          972,911            475,804
--------------------------------------------------------------------------------
</TABLE>


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


                                                                            F-12
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


5. INVENTORIES

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
-------------------------------------------------------------------------------------------------------------------


Raw materials                                                            5,657              9,973
Finished goods                                                         314,971            331,267
Reserve for obsolescence                                              (214,899)          (214,476)
-------------------------------------------------------------------------------------------------------------------
                                                                       105,729            126,764
-------------------------------------------------------------------------------------------------------------------

6. CAPITAL ASSETS

                                                                        ACCUMULATED      NET BOOK
                                                           COST        DEPRECIATION        VALUE

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

<S>                                                       <C>          <C>               <C>
Office equipment                                          455,573          379,713         75,860
Other equipment                                           369,041          313,924         55,117
Leasehold improvements                                     23,678           12,060         11,618
-------------------------------------------------------------------------------------------------------------------
                                                          848,292          705,697        142,595
-------------------------------------------------------------------------------------------------------------------

                                                                        ACCUMULATED      NET BOOK
                                                           COST        DEPRECIATION        VALUE

1999                                                         $               $               $
-------------------------------------------------------------------------------------------------------------------

Office equipment                                          404,815          361,590         43,225
Other equipment                                           337,080          306,595         30,485
Leasehold improvements                                     23,936            8,127         15,809
-------------------------------------------------------------------------------------------------------------------
                                                          765,831          676,312         89,519
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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


                                                                            F-13
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


7.  GOODWILL

<TABLE>
<CAPTION>
                                                                        ACCUMULATED     NET BOOK
                                                           COST        AMORTIZATION        VALUE

2000                                                         $               $               $
--------------------------------------------------------------------------------------------------
<S>                                                   <C>              <C>              <C>

                                                      1,557,191          532,614        1,024,577

                                                                        ACCUMULATED     NET BOOK
                                                           COST        AMORTIZATION        VALUE

1999                                                         $               $               $
--------------------------------------------------------------------------------------------------

                                                      1,558,579        356,205          1,202,374
</TABLE>

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

8.  LOANS FROM SHAREHOLDERS

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


                                                                            F-14
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

8.  LOANS FROM SHAREHOLDERS CONT'D

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

9. OBLIGATIONS UNDER CAPITAL LEASES

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

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

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

</TABLE>


                                                                            F-15
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

10.  COMMITMENTS AND CONTINGENCIES

[A]  OPERATING LEASES

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

                                                                      $
--------------------------------------------------------------------------------
<S>                                                              <C>

2001                                                              94,934
2002                                                              75,024
2003                                                              12,596
2004                                                                 304
2005                                                                 304
--------------------------------------------------------------------------------
                                                                 183,162
--------------------------------------------------------------------------------
</TABLE>


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

[B]  CONTINGENT LIABILITIES

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


                                                                            F-16
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

11.  SHAREHOLDERS' EQUITY

COMMON AND CLASS B EXCHANGEABLE SHARES

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

STOCK-BASED COMPENSATION

The Company accounts for the warrant and option grants in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUES TO EMPLOYEES, and where the exercise
price approximates the share value on the date of the grant, recognizes no
compensation expense. No compensation expense has been recognized for options
granted to date.

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

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

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


                                                                            F-17
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

11.  SHAREHOLDERS' EQUITY CONT'D

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

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

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

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

Pro forma information regarding net income and earnings per share is required by
Statement No. 123 and has been determined as if the Company had accounted for
its employee, director and adviser stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions;
risk-free interest rate of 6.0%, dividend yield of 0.0%, volatility factor of
the expected market price of the Company's common stock of 1.31 and a
weighted-average expected life of the options of 5.26 years.


                                                                            F-18
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


11. SHAREHOLDERS' EQUITY CONT'D

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

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

<TABLE>
<CAPTION>

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

<S>                                                                 <C>
Pro forma income                                                  11,873
Pro forma income per share:
   Basic                                                            0.00
   Diluted                                                          0.00
</TABLE>

WARRANTS

The Company has in the past granted detachable warrants for a fixed number of
common shares to debt holders and options for common shares to certain directors
[see note 8].

12.  RESEARCH AND DEVELOPMENT EXPENSES

<TABLE>
<CAPTION>
                                                      2000           1999
                                                        $              $
------------------------------------------------------------------------------

<S>                                                 <C>            <C>
Expenses incurred                                   37,311         35,611
Government grants and investment tax credits            --        (50,608)
------------------------------------------------------------------------------
                                                    37,311        (14,997)
------------------------------------------------------------------------------
</TABLE>


                                                                            F-19
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


13.  INCOME TAXES

Components of the current tax provision are as follows:

<TABLE>
<CAPTION>
                                                              2000                    1999
                                                         $              %          $            %
---------------------------------------------------------------------------------------------------

<S>                                                  <C>              <C>      <C>            <C>
Provision for income tax based on basic U.S.
   tax rates                                          (3,289)          (1)          --         --
Provision for income taxes based on basic
   Canadian federal income tax rates                  27,815           50       56,325         29
Provision for income taxes based on basic
   Canadian provincial income tax rates               15,346           26       31,076         16
Non-deductible goodwill amortization                   3,130            6       31,314         16
Small business deduction                             (22,060)         (39)     (46,000)       (24)
Realization of loss carryforwards from prior years   (21,101)         (38)     (41,401)       (21)
Minimum tax                                               --           --       10,000          5
Other                                                 24,987           44      (16,405)        (8)
---------------------------------------------------------------------------------------------------
                                                      24,828           44       24,909         13
---------------------------------------------------------------------------------------------------
</TABLE>


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

Income taxes paid are as follows:

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
---------------------------------------------------------------------------------------------------

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


                                                                            F-20
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30                         [expressed in United States dollars]


13.  INCOME TAXES CONT'D

Income tax refunds received are as follows:

<TABLE>
<CAPTION>
                                                        2000               1999
                                                          $                  $
--------------------------------------------------------------------------------

<S>                                                   <C>                <C>
Canadian Federal                                      73,171             16,912
Canadian Provincial                                   14,240                 --
--------------------------------------------------------------------------------
                                                      87,411             16,912
--------------------------------------------------------------------------------
</TABLE>

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

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

Deferred tax liabilities and assets are comprised of the following as at June
30:
<TABLE>
<CAPTION>

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

<S>                                                   <C>              <C>
Book over tax depreciation                              1,893          (11,911)
Net operating loss carryforward                       667,879          947,151
--------------------------------------------------------------------------------
TOTAL DEFERRED TAX ASSETS                             669,772          935,240
Valuation allowance for deferred tax assets          (669,772)        (935,240)
--------------------------------------------------------------------------------
NET DEFERRED TAX ASSET (LIABILITIES)                       --               --
--------------------------------------------------------------------------------
</TABLE>


14. EXTINGUISHMENT OF DEBT

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


                                                                            F-21
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

15.  EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                          2000               1999
                                                                            $                  $
--------------------------------------------------------------------------------------------------
NUMERATOR
<S>                                                                 <C>                <C>
Net income                                                              30,940             169,311
DENOMINATOR
Denominator for basic earnings per share -
   weighted average shares outstanding                              10,000,000          10,000,000
Effect of dilutive securities:
   Warrants                                                            400,000             400,000
   Options                                                             100,000             200,000
--------------------------------------------------------------------------------------------------
                                                                    10,500,000          10,600,000
--------------------------------------------------------------------------------------------------
DILUTIVE POTENTIAL COMMON SHARES
Denominator for diluted earnings per share -
   adjusted weighted average shares and assumed conversions         10,500,000          10,600,000
--------------------------------------------------------------------------------------------------

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

                                                                            F-22
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


16.  SUPPLEMENTARY INFORMATION ON CASH FLOWS

<TABLE>
<CAPTION>
                                                                         2000               1999
                                                                           $                  $
-------------------------------------------------------------------------------------------------------------------

CHANGES IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATIONS:
<S>                                                                   <C>                <C>
(Increase) decrease in accounts receivable                            (504,588)            15,333
Decrease (increase) in investment tax credits receivable                57,165            (28,362)
(Increase) in income taxes receivable                                   (6,968)           (18,682)
Decrease in inventories                                                 20,561             10,624
(Increase) in deferred contract costs and unbilled revenue            (544,949)           (53,511)
Decrease in other current assets                                        20,983             36,686
(Increase) in other assets                                                (364)                --
Increase (decrease) in accounts payable                                245,771           (197,700)
(Decrease) in accrued charges                                          (76,785)          (162,203)
Increase (decrease) in unearned revenue and contract advances          659,431            (20,223)
-------------------------------------------------------------------------------------------------------------------
                                                                      (129,743)          (418,038)
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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

17.  SEGMENTED INFORMATION

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

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

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


                                                                            F-23
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]


17.  SEGMENTED INFORMATION CONT'D

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

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

INDUSTRY SEGMENTS

<TABLE>
<CAPTION>
                                      SCRUBBER           NOZZLE
                                       SYSTEMS           SYSTEMS            OTHER          TOTAL
2000                                      $                 $                 $              $
--------------------------------------------------------------------------------------------------

CONTRACT REVENUE AND SALES
<S>                                    <C>             <C>                <C>           <C>
Evaporative gas cooling                        --      2,175,458               --       2,175,458
Dust suppression                               --         30,351               --          30,351
Other nozzle systems                           --      1,057,704               --       1,057,704
Wet scrubber systems                    1,349,922             --               --       1,349,922
Wet electrostatic precipitation         1,568,127             --               --       1,568,127
--------------------------------------------------------------------------------------------------
TOTAL CONTRACT REVENUE AND SALES        2,918,049      3,263,513               --       6,181,562
--------------------------------------------------------------------------------------------------
(Loss) income from operations            (272,288)       365,527               --          93,239
Interest income                             4,111          3,230               --           7,341
Interest expense                          (18,348)       (26,464)              --         (44,812)
--------------------------------------------------------------------------------------------------
(Loss)  income before provision
   for taxes                             (286,525)       342,293               --          55,768
Provision for income taxes                     --         24,828               --          24,828
--------------------------------------------------------------------------------------------------
NET (LOSS) INCOME                        (286,525)       317,465               --          30,940
--------------------------------------------------------------------------------------------------

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


                                                                            F-24
<PAGE>

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2000                               [expressed in United States dollars]

17.  SEGMENTED INFORMATION CONT'D

<TABLE>
<CAPTION>
                                      SCRUBBER           NOZZLE
                                       SYSTEMS           SYSTEMS                           TOTAL
1999                                      $                 $             OTHER              $
-------------------------------------------------------------------------------------------------------------------

CONTRACT REVENUE AND SALES
<S>                                    <C>             <C>                <C>           <C>
Evaporative gas cooling                       --       1,513,039               --       1,513,039
Dust suppression                              --         310,090               --         310,090
Other nozzle systems                          --         563,316               --         563,316
Wet scrubber systems                   1,351,823              --               --       1,351,823
S02 recovery systems                     118,574              --               --         118,574
-------------------------------------------------------------------------------------------------------------------
TOTAL CONTRACT REVENUE AND SALES       1,470,397       2,386,445                --      3,856,842
-------------------------------------------------------------------------------------------------------------------
(Loss) income from operations           (116,127)        211,672               --          95,545
Interest income                            9,766           9,844               --          19,610
Interest expense                          (7,970)        (26,323)              --         (34,293)
-------------------------------------------------------------------------------------------------------------------
(Loss)  income before provision
   for taxes                            (114,331)        195,193               --          80,862
(Recovery of) provision for
   income taxes                          (16,405)         41,314               --          24,909
Extraordinary item                            --         113,358               --         113,358
-------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS)                        (97,926)        267,237               --         169,311
-------------------------------------------------------------------------------------------------------------------

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

18.  COMPARATIVE FIGURES

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


                                                                            F-25