UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

________________

FORM 10-Q ________________

________________

Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended ~~March~~September 3130, 2012

Commission File Number: 0-21832

TurboSonic Technologies, Inc.
(Exact name of Registrant as specified in its charter)

Delaware	13-1949528
(State of incorporation)	(I.R.S. Employer
	Identification Number)

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

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

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [_] No

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

[X] Yes [_] No

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

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

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

[_] Yes [X] No

As of ~~May~~November 1112, 2012, there were 18,554,112 shares of common stock outstanding.

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES FORM 10-Q FOR THE PERIOD ENDED ~~MARCH~~SEPTEMBER 3130, 2012 TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements	3
Consolidated Condensed Statements of (Loss) and Comprehensive (Loss) (unaudited) for the Three and Nine Month Periods Ended March 31, 2012 and 2011
Consolidated Condensed Statements of (Loss) and Comprehensive Income (Loss) (unaudited) for the Three Month Periods Ended September 30, 2012 and 2011	4
Consolidated Condensed Balance Sheets (unaudited) at March 31, 2012 and June 30, 2011	4
Consolidated Condensed Balance Sheets (unaudited) at September 30, 2012 and June 30, 2012	5
Consolidated Condensed Statements of Cash Flows (unaudited) for the Nine Month Periods Ended March 31, 2012 and 2011	5
Consolidated Condensed Statements of Cash Flows (unaudited) for the Three Month Periods Ended September 30, 2012 and 2011	6
Notes to Consolidated Condensed Financial Statements (unaudited)	67
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1113
Item 3. Quantitative and Qualitative Disclosures about Market Risk	1718
Item 4. Controls and Procedures	1718
PART II
PART II OTHER INFORMATION
OTHER INFORMATION
Item 1. Legal Proceedings	19
Item 1. Legal Proceedings	18
Item 1A. Risk Factors	19
Item 1A. Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults upon Senior Securities	19
Item 3. Defaults upon Senior Securities	18
Item 4. Mine Safety Disclosures	19
Item 4. Mine Safety Disclosures	18
Item 5. Other Information	19
Item 5. Other Information	18
Item 6. Exhibits	19
Item 6. Exhibits	18

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

Forward-Looking Statements

Forward-looking statements in this report, including without limitation, statements relating to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties, such as: our dependence on environmental regulation to drive sales; the concentration of our revenues among a small group of customers who may vary from year to year; our ability to secure additional financing; and economic downturns and other factors that may negatively affect our customers’ demands for our products. These risks and uncertainties could cause actual results to differ materially from historical results or those we anticipate. In evaluating these statements, you should specifically consider the risks discussed in this report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2011 and other reports or documents that we have filed from time to time with the SEC. Our statements are based upon information known to us as of the date this report is filed with the SEC, and we assume no obligation to update or alter our forward-looking statements within this report, whether as a result of new information, future events or otherwise, except when required by applicable federal securities laws.

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TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES (unaudited) Form 10-Q

~~PART~~CAUTIONARY I:STATEMENT ~~FINANCIAL INFORMATION~~REGARDING ~~ITEM~~FORWARD-LOOKING 1INFORMATION

~~CONSOLIDATED~~This ~~CONDENSED~~quarterly ~~STATEMENTS~~report OFon ~~(LOSS)~~Form ~~AND~~10-Q ~~COMPREHENSIVE~~contains ~~(LOSS)~~certain forward-looking ~~(UNAUDITED)~~statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of our company, as well as our proposed merger with a wholly-owned subsidiary of MEGTEC Systems, Inc. These forward-looking statements include, without limitation, statements preceded by, followed by or that include the words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will,” or the negative of those and other comparable words. We believe it is important to communicate management’s expectations to TurboSonic’s stockholders. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the year ended June 30, 2012, as well as any other cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause TurboSonic’s actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form 10-Q could have a material adverse effect on TurboSonic’s business, operating results and financial condition. Such risks and uncertainties include, among others, the following:

	For the Three		For the Three		For the Nine		For the Nine
	Months Ended		Months Ended		Months Ended		Months Ended
	March 31, 2012		March 31, 2011		March 31, 2012		March 31, 2011
	$		$		$		$
CONTRACT REVENUE AND SALES
OEM systems revenue	2,018,728		3,199,741		8,771,738		5,721,206
Aftermarket revenue	1,109,110		832,206		2,606,744		2,575,510
	3,127,838		4,031,947		11,378,482		8,296,716
CONTRACT COSTS AND COST OF SALES
OEM systems contract costs and costs of sales	1,551,568		2,398,853		7,422,831		4,738,965
Aftermarket contract costs and costs of sales	701,815		485,064		1,593,338		1,642,452
	2,253,383		2,883,917		9,016,169		6,381,417
Gross profit	874,455		1,148,030		2,362,313		1,915,299
EXPENSES
Selling, general and administrative	1,205,413		1,164,587		3,697,024		3,613,041
Research and development	6,596		36,119		60,628		62,481
Depreciation and amortization	16,782		43,995		50,418		126,311
	1,228,791		1,244,701		3,808,070		3,801,833
(Loss) from operations	(354,336	)	(96,671	)	(1,445,757	)	(1,886,534	)
Interest (expense)	(545	)	(1,656	)	(4,374	)	(2,367	)
(Loss) before income taxes	(354,881	)	(98,327	)	(1,450,131	)	(1,888,901	)
(Recovery of) provision for income taxes [Note 4]	(28,179	)	(63,228	)	764,533		(475,651	)
Net (loss)	(326,702	)	(35,099	)	(2,214,664	)	(1,413,250	)
Other comprehensive income (loss):
Foreign currency translation adjustment	50,059		36,868		(81,636	)	240,304
Comprehensive (loss) income	(276,643	)	1,769		(2,296,300	)	(1,172,946	)
Weighted average number of shares	18,554,112		18,554,112		18,554,112		16,533,873
Diluted weighted average number of shares [Note 6]	18,554,112		18,554,112		18,554,112		16,533,873
Basic (loss) per share [Note 6]	(0.02	)	(0.00	)	(0.12	)	(0.09	)
Diluted (loss) per share [Note 6]	(0.02	)	(0.00	)	(0.12	)	(0.09	)

Our operating results for fiscal 2012 were significantly and negatively impacted by our clients’ curtailment of capital expenditures and delays in the enactment of new environmental standards for emissions of hazardous pollutants;
Our financial statements contain a going concern paragraph;
If the merger agreement with MEGTEC is terminated or is not approved at the special meeting of stockholders and if we are unable to find any other source of financing, we would only have sufficient capital resources to support our operations for a short period of time;
We are dependent on environmental regulation to drive our orders;
Our revenue is concentrated among a few customers who vary from year to year;
Our proprietary technology and rights have limited protection;
Our foreign sales are subject to certain inherent risks;
Permitting delays may cause extended delay or cancellation of one or more of our large projects;
Since we do not manufacture or fabricate our own products or systems, we are dependent on the services of third party manufacturers and fabricators;
The markets for environmental control products are very competitive;
Our fixed price contracts expose us to losses in the event of cost overruns;
Adverse economic conditions may cause customers to delay or terminate our fixed price contracts;
The market price of our common stock could be subject to wide fluctuations in response to numerous factors, some of which are beyond our control; and
Other risks and uncertainties discussed in our Annual Report for the year ended June 30, 2012 and other reports or documents that we file from time to time with the SEC.

We disclaim any obligation to update or revise the forward-looking statements contained in this Form 10-Q, except as otherwise required by applicable federal securities laws.

-3-

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

(unaudited)

Form 10-Q

PART I: FINANCIAL INFORMATION

ITEM 1

CONSOLIDATED CONDENSED STATEMENTS OF (LOSS)

AND COMPREHENSIVE INCOME (LOSS)

	For the Three		For the Three
	Months Ended		Months Ended
	September 30,		September 30,
	2012		2011
	$		$
CONTRACT REVENUE AND SALES
OEM systems revenue	3,332,709		5,192,561
Aftermarket revenue	1,024,477		717,558
	4,357,186		5,910,119


CONTRACT COSTS AND COST OF SALES
OEM systems contract costs and costs of sales	2,567,167		4,612,866
Aftermarket contract costs and costs of sales	568,193		421,793
	3,135,360		5,034,659
Gross profit	1,221,826		875,460

EXPENSES
Selling, general and administrative	1,328,812		1,213,332
Research and development	3,744		25,687
Depreciation and amortization	5,670		17,185
	1,338,226		1,256,204


(Loss) from operations	(116,400	)	(380,744	)
Interest (expense) income	(45	)	507
(Loss) before income taxes	(116,445	)	(380,237	)
Provision for income taxes [Note 4]	20		56,357
Net (loss)	(116,465	)	(436,594	)


Other comprehensive income (loss)
Foreign currency translation adjustment	129,592		(239,879	)
Comprehensive income (loss)	13,127		(676,473	)


Weighted average number of shares	18,554,112		18,554,112
Diluted weighted average number of shares [Note 6]	18,554,112		18,554,112

Basic (loss) per share [Note 6]	(0.01	)	(0.02	)
Diluted (loss) per share [Note 6]	(0.01	)	(0.02	)

See accompanying notes

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES Form 10-Q

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

		March 31, 2012		June 30, 2011
		$		$
ASSETS
Current assets:
Cash and cash equivalents		1,331,230		1,674,204
Accounts receivable, net of allowance for doubtful accounts of nil and $1,708		2,617,699		2,755,570
Retentions receivable		941,379		244,974
Deferred contract costs and unbilled revenue [Note 3]		209,651		1,492,747
Inventories		133,176		96,625
Income taxes receivable		12,542		24,538
Other current assets		4,800		87,575
Total current assets		5,250,477		6,376,233
Property and equipment, less accumulated depreciation and amortization		68,320		123,262
Goodwill		398,897		398,897
Deferred income taxes [Note 4]		309,255		1,070,592
Other assets		13,811		13,915
		790,283		1,606,666
Total assets		6,040,760		7,982,899
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		1,044,095		1,249,391
Accrued compensation		605,334		444,374
Accrued charges		365,628		295,199
Accrued warranty provision [Note 2]		57,992		60,000
Unearned revenue and contract advances [Note 3]		1,449,124		1,152,869
Total current liabilities		3,522,173		3,201,833
Commitments and contingencies [Note 8]
Stockholders’ equity
Authorized share capital
30,000,000	common shares, par value $0.10 per share
1,500	preferred shares, no par value
Issued share capital
18,435,773	common shares [18,435,773 at June 30, 2011]	2,900,434		2,900,434
118,339	common shares reserved for the conversion of the subsidiary’s Class B exchangeable shares [118,339 at June 30, 2011]
Additional paid – in capital [Note 5]		4,241,779		4,207,958
		7,142,213		7,108,392
Accumulated other comprehensive income		914,371		996,007
Accumulated deficit		(5,537,997	)	(3,323,333	)
Total stockholders’ equity		2,518,587		4,781,066
Total liabilities and stockholders’ equity		6,040,760		7,982,899
See accompanying notes

–4–

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES (unaudited) Form 10-Q

CONSOLIDATED CONDENSED BALANCE ~~STATEMENTS~~SHEETS ~~OF CASH FLOWS (UNAUDITED)~~

	For the Nine		For the Nine
	September 30, 2012		June 30, 2012
	Months Ended		Months Ended
	March 31, 2012		March 31, 2011
	$		$
CASH FLOWS FROM OPERATING ACTIVITIES
ASSETS
Net (loss)	(2,214,664	)	(1,413,250	)
Current assets:
Add charges to operations not requiring a current cash payment:
Cash and cash equivalents	1,184,348		1,066,719
Stock-based compensation	33,822		29,329
Restricted cash [Note 8]	154,351		--
Depreciation and amortization	50,418		126,311
Accounts receivable, net of allowance for doubtful accounts of nil and nil	2,329,872		4,086,913
Deferred income tax [Note 4]	751,012		(476,271	)
Retentions receivable	139,139		437,097
Changes in non-cash assets and liabilities related to operations:
Deferred contract costs and unbilled revenue [Note 3]	1,268,880		820,024
Decrease in accounts receivable	29,931		528,813
Inventories	143,781		128,211
(Increase) decrease in retentions receivable	(712,731	)	342,341
Income taxes receivable	41,590		40,252
(Increase) in inventories	(39,618	)	(30,839	)
Other current assets	12,620		22,136
Decrease (increase) in deferred contract costs and unbilled revenue	1,211,213		(881,766	)
Total current assets	5,274,581		6,601,352
Decrease in income taxes receivable	9,953		116,414
Property and equipment, less accumulated depreciation and amortization	46,229		50,263
Decrease (increase) in other current assets	80,843		(16,183	)
Other assets	10,949		10,947
(Decrease) increase in accounts payable	(155,261	)	513,905
	57,178		61,210
Increase in accrued compensation	188,550		135,038
Total assets	5,331,759		6,662,562
(Decrease) in accrued warranty provision	(940	)	--
LIABILITIES AND STOCKHOLDERS’ EQUITY
Increase (decrease) in accrued charges	76,212		(39,813	)
Current liabilities:
Increase in unearned revenue and contract advances	317,450		484,769
Accounts payable	1,132,604		1,761,105
Cash (applied to) operating activities	(373,810	)	(581,202	)
Accrued compensation	517,353		467,227
CASH FLOWS FROM INVESTING ACTIVITIES
Accrued charges	497,912		337,891
Purchase of property and equipment	--		(34,135	)
Accrued warranty provision [Note 2]	62,593		63,017
Cash (applied to) investing activities	--		(34,135	)
Unearned revenue and contract advances [Note 3]	1,154,240		2,083,925
CASH FLOWS FROM FINANCING ACTIVITIES
Total current liabilities	3,364,702		4,713,165
Repayment of obligations under long-term debt and capital lease obligations	--		(61,766	)
Net proceeds from issuance of common shares under 2010 rights offering [Note 5]	--		853,086
Cash provided by financing activities	--		791,320
Effect of exchange rate changes on cash and cash equivalents	30,836		141,787
Cash (applied) provided during the period	(342,974	)	317,770
Cash and cash equivalents – beginning of period	1,674,204		2,036,529
Cash and cash equivalents – end of period	1,331,230		2,354,299
Supplemental cash flow information:
Interest paid	(4,907	)	(5,395	)
Interest received	533		3,028
Income taxes paid	3,140		620

Stockholders’ equity
Authorized share capital
30,000,000 common shares, par value $0.10 per share
1,500 preferred shares, no par value
Issued share capital
18,554,112 common shares [18,460,096 at June 30, 2012]	2,900,434	2,900,434
-- common shares reserved for the conversion of the subsidiary’s
Class B exchangeable shares [94,016 at June 30, 2012]

Additional paid – in capital [Note 5]	4,250,845		4,246,312
	7,151,279		7,146,746
Accumulated other comprehensive income	1,017,906		888,314
Accumulated deficit	(6,202,128	)	(6,085,663	)

Total stockholders’ equity	1,967,057		1,949,397

Total liabilities and stockholders’ equity	5,331,759		6,662,562

See accompanying notes

-5-

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES (unaudited) Form 10-Q

~~NOTES TO~~ CONSOLIDATED CONDENSED ~~FINANCIAL~~ STATEMENTS ~~(UNAUDITED)~~ OF CASH FLOWS

NOTE 1: GENERAL

	For the Three		For the Three
	Months Ended		Months Ended
	September 30, 2012		September 30, 2011
	$		$

CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	(116,465	)	(436,594	)
Add charges to operations not requiring a current cash payment:
Stock-based compensation	4,533		3,502
Depreciation and amortization	5,670		17,185
Deferred income tax	--		46,373
Changes in non-cash assets and liabilities related to operations:
Decrease (increase) in accounts receivable	1,813,111		(2,251,014	)
Decrease in retentions receivable	297,790		170,969
(Increase) in inventories	(10,936	)	(18,395	)
(Increase) in deferred contract costs and unbilled revenue	(440,072	)	(751,648	)
Decrease in income taxes receivable	8,660		10,017
Decrease in other current assets	9,918		29,376
(Decrease) increase in accounts payable	(649,138	)	2,601,629
Increase in accrued compensation	41,622		143,299
(Decrease) increase in accrued warranty charges	(1,404	)	1,510
Increase in accrued charges	150,445		5,833
(Decrease) in unearned revenue and contract advances	(959,167	)	(236,466	)

Cash provided by (applied to) operating activities	154,567		(664,424	)


CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in restricted cash	(154,351	)	--
Cash (applied to) investing activities	(154,351	)	--


Effect of exchange rate changes on cash and cash equivalents	117,413		(35,047	)


Cash provided (applied) during the period	117,629		(699,471	)
Cash and cash equivalents – beginning of period	1,066,719		1,674,204
Cash and cash equivalents – end of period	1,184,348		974,733

Supplemental cash flow information:
Interest paid	(87	)	(22	)
Interest received	42		529
Income taxes paid	20		3,000

See accompanying notes

–6–

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

(unaudited)

Form 10-Q

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1: GENERAL AND GOING CONCERN UNCERTAINTY

TurboSonic Technologies, Inc., directly and through subsidiaries, designs and markets integrated air pollution control and liquid atomization technology, including industrial gas cooling/conditioning systems, to ameliorate or abate industrial environmental problems. We currently have two reportable business segments – OEM systems and Aftermarket.

The unaudited interim consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the information and footnotes required in the audited consolidated financial statements. The unaudited interim consolidated condensed financial statements reflect all adjustments which are, in the opinion of management, necessary to report a fair statement of the results for the interim periods presented. Operating results for the three ~~and nine~~ month ~~periods~~period ended ~~March~~September 3130, 2012 are not necessarily indicative of the results that may be expected for the full year ending June 30, ~~2012~~2013. These unaudited interim consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended June 30, ~~2011~~2012.

These unaudited interim consolidated condensed financial statements have been prepared on a going concern basis, which presumes that assets will be realized and liabilities discharged in the normal course of business over the foreseeable future. We have incurred significant losses during the ~~current~~three fiscal ~~period~~years ~~and~~ended ~~previous~~June ~~two~~30, ~~fiscal years~~2012, which losses have reduced our ~~cash~~ cash and stockholders’' equity. These conditions raise substantial doubt about ~~our~~ our ability to continue as a going concern. Our ability to continue as a going concern is dependent on achieving a profitable level of operations, and our ability to secure additional sources of financing. We are actively pursuing additional financing and subsequent to quarter end, ~~although~~we entered into a series of related transactions designed to address these concerns (Note 11). However, there can be no certainty with respect to the timing ~~and~~or receipt of ~~such~~any additional financing or the success of the proposed transactions described in Note 11.

These unaudited interim consolidated condensed financial statements do not include any of the adjustments to the amounts or classification of assets and liabilities that may be required should we be unable to continue as a going concern.

Future Accounting Changes:

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08 (“ASU 2011-08”), Testing Goodwill for Impairment. ASU 2011-08 provides an entity the option to first assess qualitative factors in determining whether the existence of certain events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the performance of the two-step impairment test is unnecessary. If, however, an entity determines that is it more likely than not that the fair value is less than the carrying amount, the first step of the impairment test (calculation of the reporting unit’s fair value) is required. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal periods beginning after December 15, 2011. Early adoption is permitted, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. We perform our annual goodwill impairment test as of April 1 and will early adopt the provisions of ASU 2011-08 as of that date. The adoption of this amendment is not expected to have a material impact on our results of operations.

Changes in Accounting Policies:

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity and requires the presentation of the statement of income and other comprehensive income consecutively. ASU 2011-05 is effective for interim and annual periods beginning after December 15, 2011 and early adoption is permitted. In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income” (“ASU 2011-12”). ASU 2011-12 defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. The effective dates of ASU 2011-12 are consistent with the effective dates of ASU 2011-05, which is effective for fiscal years and interim periods beginning after December 15, 2011 and early adoption is permitted. We adopted standards ASU 2011-05 and ASU 2011-12 on July 1, 2011 and they have not had a material impact on our results of operations or disclosures.

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs” (“ASU 2011-04”). ASU 2011-04 amends the wording used to describe many of the requirements in US GAAP for measuring fair value and for disclosing information about fair value measures. ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011, which is our interim period beginning January 1, 2012. We adopted this standard on January 1, 2012 and it has not had a material impact on our results of operations or disclosures.

In January 2010, the FASB issued ASU 2010-06 Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC Topic 820 to add new requirements for disclosures about transfers into and out of Level 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The ASU also

–6–

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES Form 10-Q

NOTE 1: GENERAL CONT’D

clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009, which was our reporting period ended March 31, 2010, except for the requirement to provide the Level 3 activity of purchases, sales issuances, and settlements on a gross basis, which is effective for fiscal years beginning after December 15, 2010, which is our fiscal year beginning July 1, 2011. The adoption of ASU 2010-06 and the revised Level 3 disclosures has not had a material impact on our company.

NOTE 2: WARRANTY

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

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

	For the Nine
	For the Three
	Months Ended
	March 31, 2012
	September 30, 2012
	$
Opening balance	6063,~~000~~017
Payments made during the period	(514,~~922~~404	)
Warranty provision made during the period	503,~~961~~000
Foreign exchange adjustments	~~(1,047~~980	)
Closing balance	5762,~~992~~593

-7-

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

(unaudited)

Form 10-Q

NOTE 3: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

	March 31, 2012		June 30, 2011
	September 30, 2012		June 30, 2012
	$		$
Costs incurred on uncompleted contracts	2017,~~651~~191,~~424~~031		23,~~205~~440,~~796~~462
Estimated earnings	65,~~939~~606,~~125~~621		87,~~961~~844,~~009~~505
	27,590,549		32,166,805
	22,797,652		31,284,967
Less: Billings to date	(28,830,022	)	(31,826,927	)
Less: billings to date	(22,683,012	)	(32,548,868	)
	(1,239,473	)	339,878
	114,640		(1,263,901	)

~~Included~~The above is included in the accompanying consolidated condensed balance sheets under the following captions:

Deferred contract costs and unbilled revenue	209,651		1,492,747
Deferred contract costs and unbilled revenues	1,268,880		820,024
Unearned revenue and contract advances	(1,~~449~~154,~~124~~240	)	(12,~~152~~083,~~869~~925	)
	(1,239,473	)	339,878
	114,640		(1,263,901	)

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES Form 10-Q

NOTE 4: INCOME TAXES

Details of the provision for ~~(recovery of)~~ income taxes are as follows:

	For the Three		For the Three		~~For the Nine~~		~~For the Nine~~
	Months Ended		Months Ended		~~Months Ended~~		~~Months Ended~~
	March 31, 2012		March 31, 2011		March 31, 2012		March 31, 2011
	September 30, 2012		September 30, 2011
	$		$		$		$
Current:	$		$
Current:
- U.S.	--		--
- U.S.	140		120		3,140		620
- International subsidiaries	20		9,984
- International subsidiaries	397		--		10,381		--
Total current taxes	20		9,984
Total current taxes	537		120		13,521		620
Deferred:
Deferred:
- U.S	(24,791	)	(205,863	)
- U.S	(92,045	)	142,280		(500,146	)	(273,507	)
- U.S valuation allowance	24,791		205,863
- U.S valuation allowance	92,045		--		1,250,146		--
- International subsidiaries	(9,715	)	46,373
- International subsidiaries	(28,716	)	(205,628	)	1,012		(202,764	)
- International subsidiaries valuation allowance	9,715		--
Total deferred taxes	~~(28,716~~--	)	~~(63~~46,~~348~~373	)	~~751,012~~		~~(476,271~~	)
Income tax (recovery) provision	(28,179	)	(63,228	)	764,533		(475,651	)
Income tax provision	20		56,357

The cumulative tax loss carryforward for the U.S. is $1,972,980 at March 31, 2012. After two consecutive years of substantial losses and continuing uncertainty surrounding the U.S. and global economies, we reassessed the valuation of deferred tax assets during the fourth quarter of fiscal 2011 and recorded a valuation reserve totaling $722,834. Due to our recent history of losses in the U.S., lower than expected order activity year to date, and continuing uncertainty surrounding the U.S. & global economies, an additional valuation allowance was recognized during the quarter ended December 31, 2011 for $1,158,101 bringing the net deferred tax asset to zero. An additional valuation allowance of $92,045 was recorded during the quarter ended March 31, 2012 to offset the losses recognized for the quarter ended March 31, 2012.

Details of the deferred tax asset are as follows:

	For the Nine Months Ended March 31, 2012
		U.S. Valuation
	U.S.	Allowance		International		Total
	$	$		$		$
Opening balance, July 1, 2011	1,472,834	(722,834	)	320,592		1,070,592
Deferred tax asset increase	500,146	--		1,012		501,158
Increase in U.S. valuation allowance	--	(1,250,146	)	--		(1,250,146	)
Foreign exchange adjustments	--	--		(12,349	)	(12,349	)
Closing balance, March 31, 2012	1,972,980	(1,972,980	)	309,255		309,255

This adjustment, by means of an increase to our valuation allowance, does not reduce the total U.S. tax loss carryforward of $1,972,980 available to offset future taxes.

NOTE 5: SHARE CAPITAL

OnStock-based ~~December~~compensation ~~10,~~expenses ~~2010 we completed a registered rights offering, which offered stockholders~~ of ~~record as of November 8~~$4,533 ~~2010~~for the ~~right to acquire~~three ~~one~~months ~~share~~ended ofSeptember ~~our~~30, ~~common~~2012 ~~stock~~[$3,502 for ~~each~~the ~~two~~three ~~shares~~months ~~then~~ended ~~held~~September ~~by such persons at a~~30, ~~price~~2011] ofare ~~$0.34~~included ~~per~~as ~~share. Stockholders exercised subscription rights to acquire 1~~selling,~~601,611~~ ~~shares~~general and ~~oversubscription~~administrative ~~rights~~expenses ~~to acquire an additional 1,814,447 shares, resulting~~ in our ~~sale of an aggregate of 3,416,058 shares of common~~ ~~stock~~consolidated ~~and~~condensed ~~our~~statements ~~receipt~~ of ~~gross proceeds of $1,161,460~~ (~~final net proceeds of $853,086, due to issuance costs~~loss). Such proceeds were added to our working capital for marketing opportunities stemming from both recent and anticipated enactments by the U.S. EPA (EPA) of more stringent emission standards and rules for certain hazardous air pollutants.

~~Pursuant~~A tosummary ~~the terms~~ of the ~~2008~~status ~~Stock Plan, options to purchase 20,000 shares~~ of ~~common~~ stock ~~were~~options ~~granted~~under ~~to each of the five independent directors of~~ our ~~company~~2003 ~~(100,000 in total) who were elected to~~and ~~serve~~2008 atStock ~~the~~Plans ~~December~~as ~~8, 2011 annual meeting of stockholders. Such options have an exercise price equal to the market value of our common stock~~ at ~~the~~ ~~close~~June ~~of business on December 8~~30, ~~2011~~2012 ~~($0.27~~and ~~per~~September ~~share [Black-Scholes fair value $0.22])~~30, ~~vest~~2012 ~~immediately~~is ~~and~~as ~~expire~~follows: ~~eight years from the date of grant.~~

Pursuant to the terms of the 2003 Stock Plan, options to purchase 25,000 shares of common stock were granted to each of our Chief Executive Officer, President and Chief Financial Officer (75,000 in total) at the December 8, 2011 board meeting. Such options have an exercise price equal to the market value of our common stock at the close of business on December 8, 2011 ($0.27 per share [Black-Scholes fair value $0.23]), vest in five years from the date of grant with respect to our Chief Executive Officer and to our President and three years from the date of grant with respect to our Chief Financial Officer and expire eight years from the date of grant.

			Weighted		Weighted	Remaining		Aggregate
			Average		Average Grant	Contractual		Intrinsic
	Shares		Exercise Price		Date Fair Value	Life (In Years)		Value
Stock options outstanding at June 30, 2012	755,000	$	0.4740	$	0.3417	5.4	$	0
Stock options outstanding at September 30, 2012	755,000	$	0.4740	$	0.3417	5.1	$	0

Stock options exerciseable at June 30, 2012	540,000	$	0.4870	$	0.3330	5.1	$	0
Stock options exerciseable at September 30, 2012	540,000	$	0.4870	$	0.3330	4.8	$	0

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value or the aggregate difference between the closing price of our common stock on September 30, 2012 of $0.12 and the exercise price for in-the-money options that would have been received by option holders if all options had been exercised on September 30, 2012.

–8–

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES (unaudited) Form 10-Q

NOTE 5: SHARE CAPITAL CONT’D

~~Stock-based~~On ~~compensation~~October ~~expenses~~10, ~~of $4~~2012,~~533~~ ~~for~~we ~~the~~entered ~~three months~~into ~~ended~~an ~~March~~Agreement ~~31, 2012~~ and ~~$33,822~~Plan ~~for~~of Merger ~~the~~(which ~~nine~~we ~~months~~refer ~~ended~~to ~~March~~as ~~31, 2012 [$3,502 for~~ the ~~three~~“merger ~~months~~agreement”) ~~ended~~with ~~March~~MEGTEC 31Systems, ~~2011~~ Inc. and ~~$29,329~~MTS ~~for the nine months ended March 31~~WSP, ~~2011] are included as selling~~Inc., ~~general~~an ~~and~~entity ~~administrative expenses~~wholly-owned inby ~~our~~MEGTEC ~~financial~~[note ~~statements~~11].

AThe ~~summary~~merger agreement provides that all outstanding stock options previously granted under our 2003 Stock Plan and 2008 Stock Plan, whether or not then exercisable or vested, immediately became vested and exercisable. As all of the ~~significant~~stock ~~assumptions~~options ~~used~~have inhad ~~calculating~~their vesting accelerated, ~~the~~this ~~fair~~constitutes ~~value~~a modification of ~~our~~the outstanding stock ~~option~~options. ~~grants~~The expense impact of this change will be recognized when it is asprobable ~~follows:~~that the merger will be consummated.

		Fiscal 2012 Grants				Fiscal 2011 Grants
		Independent		Executive		Independent		Executive
		Directors		Officers		Directors		Officers
		Dec 8, 2011		Dec 8, 2011		Dec 9, 2010		Dec 9, 2010
Expected dividends		0.00%		0.00%		0.00%		0.00%
Expected volatility		132.40%		115.79%		94.63%		111.04%
Risk-free interest rate		0.39%		0.91%		1.35%		1.35%
Expected term (years)		4.00		6.00		4.00		6.00
Forfeiture rate		0.00%		0.00%		0.00%		0.00%
Stock price on date of grant	$	0.27	$	0.27	$	0.31	$	0.31
Number of stock options granted		100,000		75,000		100,000		75,000
Fair value per option on date of grant	$	0.22	$	0.23	$	0.21	$	0.26

NOTE 6: (LOSS) PER SHARE

The following table summarizes activity of stock options granted under our 2003 and 2008 Stock Plans for the nine months ended March 31, 2012:

				Weighted		Weighted	Remaining		Aggregate
	Stock			Average		Average Grant	Contractual		Intrinsic
	Options			Exercise Price		Date Fair Value	Life (In Years)		Value
Stock options outstanding at June 30, 2011	835,000		$	0.7139	$	0.4792	4.5	$	29,750
Stock options expired	(255,000	)	$	1.1196	$	0.7114
Stock options granted	175,000		$	0.2700	$	0.2243
Stock options exercised	0		$	0.0000	$	0.0000
Stock options outstanding at March 31, 2012	755,000		$	0.4740	$	0.3417	5.9	$	8,400
Stock options exerciseable at March 31, 2012	540,000		$	0.4870	$	0.3330	5.6	$	5,400

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value or the aggregate difference between the closing price of our common stock on March 31, 2012 of $0.31 and the exercise price for in-the-money options that would have been received by option holders if all options had been exercised on March 31, 2012.

NOTE 6: EARNINGS PER SHARE

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

		For the Three			For the Three			~~For the Nine~~			~~For the Nine~~
		Months Ended			Months Ended			~~Months Ended~~			~~Months Ended~~
		March 31, 2012			March 31, 2011			March 31, 2012			March 31, 2011
		September 30, 2012			September 30, 2011
Numerator
		$			$
Net (loss)	$	(326,702	)	$	(35,099	)	$	(2,214,664	)	$	(1,413,250	)
Numerator
Denominator
Net (loss)		(116,465	)		(436,594	)
Denominator for earnings per share - weighted average shares outstanding		18,554,112			18,554,112			18,554,112			16,533,873
Denominator
Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions		18,554,112			18,554,112			18,554,112			16,533,873
Denominator for earnings per share -
Basic (loss) per share	$	(0.02	)	$	(0.00	)	$	(0.12	)	$	(0.09	)
weighted average shares outstanding		18,554,112			18,554,112
Diluted (loss) per share	$	(0.02	)	$	(0.00	)	$	(0.12	)	$	(0.09	)
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions		18,554,112			18,554,112
Basic (loss) per share		($0.01	)		($0.02	)
Diluted (loss) per share		($0.01	)		($0.02	)

For the three ~~and nine~~ month periods ended ~~March~~September 3130, 2012 and 2011, we incurred net losses; therefore, the diluted loss per common share ~~excludes~~ excludes the effects of all options outstanding, since their inclusion would be anti-dilutive.

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES Form 10-Q

NOTE 7: SEGMENT INFORMATION

	March 31, 2012	June 30, 2011
	September 30, 2012	June 30, 2012
	$	$
- OEM systems	3,574,323	5,000,234
Assets:
- Aftermarket	1,135,207	1,308,461
- OEM systems	3,363,178	4,627,681
- Other1	1,331,230	1,674,204
- Aftermarket	629,882	968,162
Total	6,040,760	7,982,899
- Other1	1,338,699	1,066,719
Total	5,331,759	6,662,562

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

For the Three

~~For the Nine~~

Months Ended

~~Months Ended~~

March 31, 2012

March 31, 2011

March 31, 2012

March 31, 2011

September 30, 2012

September 30, 2011

(Loss) earnings before income taxes:

(Loss) income before income taxes:

- OEM systems

(~~560~~341,~~801~~235

)

(~~249~~471,~~166~~664

)

~~(1,837,075~~

)

~~(2,206,248~~

)

- Aftermarket

~~205~~224,~~920~~790

~~150~~91,~~839~~427

~~386,944~~

~~317,347~~

Total

(~~354~~116,~~881~~445

)

(98380,~~327~~237

)

~~(1,450,131~~

)

~~(1,888,901~~

)

-9-

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

(unaudited)

Form 10-Q

NOTE 8: CONTINGENT LIABILITIES

General

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

On October 6, 2005, a statement of claim was filed against our company in the Ontario Superior Court of Justice (Canada) by Abuma Manufacturing Limited, one of our vendors, in which it claimed additional charges for work performed and refuted our claim for back charges on a specific project. ~~Its~~The ~~claims~~claim ~~were~~was for CAD $95,647 in respect of unpaid accounts, CAD $50,000 for aggravated, punitive and/or exemplary damages, interest on the past due accounts and costs of the action. The claim was settled during pre-trial conference in late October 2011. The settlement was not material to our company.

~~NOTE~~On 9:November ~~CREDIT~~10, 2009 an action was commenced against our ~~FACILITY~~company and one of our customers in the United States District Court, Western District of Pennsylvania by a competitor, in which it was claimed that a contract awarded to our company in June 2009 had infringed on one of its patents. This patent infringement case, related to our TurboSorb Spray-Dry Absorption (SDA) technology, was settled in fiscal 2012. As a consequence of this settlement, TurboSonic was granted a patent license to pursue SDA opportunities in the U.S. and Canada and continues to freely pursue opportunities in all international markets. The settlement did not have a material effect on our company.

InLetters ~~May 2011, we entered into an agreement with HSBC Bank Canada, which agreement provides for a credit facility for standby letters~~ of ~~credit~~ ~~for~~Guarantee ~~CAD $4.25 million that is secured by a general security interest in,~~ and ~~lien~~Bonding upon, our assets and guarantees provided by Export Development Canada (“EDC”) on a fee-for-service basis. Currently the guarantees provided by EDC are being approved on a case-by-case basis. This credit facility became operational in August 2011, at which time our prior credit facilities were terminated by mutual consent.

AtIn ~~March~~order ~~31,~~to ~~2012~~favorably affect our cash position, weit ~~had~~is our practice to issue standby letters of credit to foreign customers in return for ~~approximately~~the ~~$0.8~~early ~~million~~release ~~($1.4~~of ~~million~~advance atpayments ~~June~~prior ~~30,~~to ~~2011)~~shipment inand ~~place~~holdbacks ~~with~~which ~~various~~span ~~customers~~the inwarranty ~~order~~period toof ~~receive~~the ~~cash~~projects. ~~proceeds~~Collateral ~~ahead~~for ofthese ~~delivery~~standby orletters ~~end-~~of~~-warranty~~ ~~milestones.~~credit ~~EDC~~is ~~has~~ provided ~~guarantees~~by ~~for~~Export ~~these~~Development ~~letters~~Canada of(“EDC”) ~~credit~~on toa ~~HSBC~~paid-fee ~~Bank~~basis. We ~~Canada~~have ~~and~~also ~~another~~purchased ~~Canadian~~insurance ~~bank~~against ~~with~~wrongful ~~whom~~call weof ~~had~~these anstandby ~~agreement~~letters of guarantee for ~~previously issued~~up ~~letters~~to 95% of ~~credit~~their face value.

OnIn ~~October~~March ~~28,~~ 2011, weour ~~entered~~ability ~~into~~to anrequest ~~Investment~~standby ~~Agreement with~~letters ~~Dutchess~~of ~~Opportunity~~credit under ~~Fund,~~our ~~II,~~credit LPfacility ~~for~~with the ~~sale,~~Canadian ~~from~~Imperial ~~time~~Bank toof ~~time,~~Commerce ~~at our~~(“CIBC”) ~~discretion,~~was ofreduced upby that bank to $3.0 million of(from ~~our~~$4.25 ~~common~~million). ~~stock~~The ~~during a three-year period~~standby atletters aof ~~price~~credit ~~equal~~are tosecured ~~95%~~by ofa ~~the~~general ~~recent~~security ~~average~~interest ~~market~~in, ~~price~~and atlien ~~the time of sale~~upon, ~~provided~~our ~~that~~assets inand noguarantees ~~event~~provided ~~shall~~by ~~such~~EDC ~~price~~on bea ~~lower~~fee-for-service ~~than $0~~basis.33 ~~per~~In ~~share. At~~July ~~March 31~~2011, ~~2012,~~the ~~our~~value ~~shares~~of ~~were~~the ~~trading~~credit atfacility ~~$0.31 per share and accordingly, this financing~~ was ~~not~~reduced ~~accessible. The extent~~ to ~~which~~reflect weonly ~~will need to access any~~the ~~portion~~outstanding orstandby ~~all~~letters of ~~the~~credit ~~proceeds available under the Investment Agreement will depend in substantial part upon the availability~~ and ~~adequacy~~was ofto ~~our~~automatically ~~cash~~reduce ~~flows from operations so~~ as ~~to enable us to address timing differences that may arise~~standby ~~from~~letters ~~time~~of tocredit ~~time~~expired. inAt ~~our~~September ~~need~~30, to2012, ~~pay~~outstanding ~~vendors~~standby ~~and~~letters ~~suppliers in advance~~ of ~~our~~ ~~receipt~~credit oftotaling ~~contractual progress payments from our customers. As a registration statement registering such common stock was declared effective by the SEC~~$12,518 ~~we are now able~~($96,777 at ~~our~~June ~~discretion~~30, to2012) ~~sell~~remained ~~common~~issued ~~stock~~under ~~to Dutchess pursuant to~~this ~~the~~letter ~~terms and conditions~~ of ~~the~~credit ~~Investment Agreement. As of March 31~~facility, ~~2012,~~with ~~no common~~100% ~~stock~~guaranteed ~~had~~by ~~been sold to Dutchess under this arrangement~~EDC.

In May 2011, we reached an agreement with HSBC Bank Canada, with operating affiliates in the U.S. and other countries, which provides for a credit facility for standby letters of credit that is secured by a general security interest in, and lien upon, our assets and guarantees provided by EDC on a fee-for-service basis. This credit facility became operational in August 2011, at which time future use of our prior CIBC credit facilities, discussed above, was terminated.

Under this letter of credit facility, our financial covenant was that 1) the Current Ratio (as defined) shall exceed 1.20 to 1 at all times, and 2) the Debt to Tangible Net Worth ratio (as defined) shall not exceed 2.00 to 1 at all times. At June 30, 2011 and all months in fiscal 2012, our Current Ratio exceeded the covenant of 1.20 to 1. At June 30, 2011, our Debt to Tangible Net Worth ratio did not exceed the covenant of 2.00 to 1. In September 2011 and for the months December 2011 to April 2012, our Debt to Tangible Net Worth ratio exceeded the covenant of 2.00 to 1. These financial covenants were removed from the renewed credit facility signed in June 2012 discussed below.

In June 2012, we renewed our credit facility with HSBC Bank Canada, which provides for a credit facility for standby letters of credit that is secured by a general security interest in, and lien upon, our assets and 100% guarantees provided by EDC on a fee-for-service basis for standby letters of credit issued to May 31, 2012 and, for standby letters of credit issued after that date, which are 50% guaranteed by EDC plus 50% cash secured by our company in the form of a term deposit or Guaranteed Investment Certificate (GIC) pledged to the bank.

The financial covenant in this credit facility provides that the borrower shall be in default of its obligations to the bank thereunder should there be any material adverse change in the operations, ownership, or financial condition of the borrower, as reasonably determined by the bank. As of September 30, 2012, we were in compliance with the afore-mentioned covenant with HSBC Bank Canada.

Note that the issuance of standby letters of credit under this HSBC line of credit is subject to obtaining EDC guarantees and our ability to provide additional supporting collateral up to the value of such standby letters of credit. Our current agreement with EDC, which comes up for renewal in late November 2012, currently provides for $225,000 of guarantees at 50% of the standby letter of credit face value, of which a portion has already been committed for issued letters of credit.

–10–

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES (unaudited) Form 10-Q

NOTE 8: CONTINGENT LIABILITIES CONT’D

At September 30, 2012, we had standby letters of credit for approximately $650,000 ($600,000 at June 30, 2012) in place with various customers in order to receive cash proceeds ahead of delivery or end-of-warranty milestones. EDC has provided 100% guarantees to HSBC and CIBC for letters of credit issued prior to May 31, 2012 and 50% guarantees for letters of credit issued on or after June 1, 2012 through our HSBC facility. We have posted $154,351 in restricted cash reserves at September 30, 2012 ($ nil at June 30, 2012) representing our portion of the guarantee for the outstanding letters of credit at those dates.

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

NOTE 9: CREDIT FACILITY

On September 19, 2011, we entered into an Investment Agreement with Dutchess Opportunity Fund, II, LP for the sale, from time to time, at our discretion, of up to $3.0 million of our common stock during a three-year period at a price equal to 95% of the recent average market price at the time of sale. The Investment Agreement provides for a floor price of $0.33 per share that applies to any transactions under the agreement. A registration statement that registers such common stock was declared effective by the SEC in November 2011.

No draw was made to September 30, 2012 against this equity line of credit. As the market price at September 30, 3012 was $0.12, there was no possibility of a draw at that time.

NOTE 10: FAIR VALUE MEASUREMENT

Fair value disclosure

We did not have any financial instruments carried at fair value for which the fair value hierarchy disclosure is required.

Credit risk

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

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

Currency Risk

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

-11-

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

(unaudited)

Form 10-Q

NOTE 11: SUBSEQUENT EVENT

On October 10, 2012, we entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) with MEGTEC Systems, Inc. and MTS WSP, Inc., an entity wholly-owned by MEGTEC. Pursuant to the merger agreement, MTS WSP would be merged with and into TurboSonic and we would continue as the surviving corporation. If the merger agreement is adopted by our stockholders and the merger is consummated, all of our outstanding shares of common stock (other than shares owned by stockholders perfecting dissenters’ rights under Delaware law) will be cancelled and converted automatically into the right to receive a cash payment equal to $0.21 per share.

Consummation of the merger is subject to certain conditions, including, among others, approval of the merger agreement by the holders of a majority of the outstanding shares of our common stock and the total number of dissenting shares shall not exceed 10% of the outstanding shares of our common stock. Our founder, executive officers and directors, who collectively own of record approximately 20.6% of the aggregate voting power entitled to vote on the merger agreement, have agreed with MEGTEC to vote their respective shares in favor of the adoption of the merger agreement.

Subject to the terms of the merger agreement, under certain circumstances, a break-up fee of $200,000 may be payable to MEGTEC in connection with the termination of the merger agreement. In addition, we have agreed to reimburse MEGTEC and MTS WSP for their expenses (but not in excess of $400,000) if the merger agreement is terminated by us because we pursue an alternative acquisition and under certain other circumstances, as described in Section 7.2(b) of the merger agreement.

The merger agreement may be terminated by either MEGTEC or us if the merger has not been consummated by April 10, 2013; provided that the right to terminate shall not be available to any party whose failure to perform its obligations under the merger agreement has been the cause of the failure of the merger to be consummated.

In connection with the merger agreement, we also entered into a secured promissory note and related security agreements with MEGTEC. Under the terms of the secured promissory note, MEGTEC agreed to make available to us a credit facility of up to $1,000,000, which we may draw down at one time prior to the maturity date of the note and which we may use for working capital or general corporate purposes. The note bears interest at 10% per annum commencing on the date of the drawdown and matures on the first anniversary of the drawdown. Under certain circumstances described in the secured promissory note, including if we undergo an alternative transaction with another party, the maturity date of the note may be accelerated. In that event, the outstanding principal amount of the note and accrued and unpaid interest would be applied, under certain circumstances, to payment of the initial license fee under an intellectual property license agreement entered into with MEGTEC at the same time as the secured promissory note, which is described in further detail below. The credit facility is collateralized by a second lien security agreement covering substantially all of our assets in the United States, separate United States trademark and patent security agreements and a general security agreement covering substantially all of our assets in Canada. The liens created by these security agreements are subordinate to the liens against our assets in favor of HSBC Bank Canada, our existing lender.

We also entered into an intellectual property license agreement with MEGTEC under which, subject to the terms and conditions of that agreement, MEGTEC is granted upon the occurrence of certain triggering events specified in the agreement, including termination of the merger agreement or if we undergo an alternative transaction with another party, a perpetual license in India, China and the United States (which is exclusive in India and China and non-exclusive in the United States) to use substantially all of our patents, trademarks, copyrighted materials and other intellectual property relating to air pollution control and liquid atomization technologies in industrial commercial and institutional applications, but specifically excluding any fossil fuel fired combustion units of more than 25 megawatts that serve a generator that produces electricity for sale. The license agreement provides for an initial license fee of $1,000,000, which may be paid by applying the unpaid principal amount and accrued and unpaid interest under the secured promissory note with MEGTEC. Under certain circumstances described in the license agreement, we have the right for 30 days after the occurrence of certain triggering events to buy back the license for $1,000,000 plus the amount of interest that would have accrued under the secured promissory note from the date of payment of the initial license fee to the date we exercise our buy-back right. The license agreement also requires MEGTEC to pay annual royalties of 3% of net sales, as defined in the license agreement, for the first five years of the license, after which the royalty is to be renegotiated in good faith. Beginning in the third year, if MEGTEC fails to pay at least $250,000 in royalties the license in India and China converts to a non-exclusive license.

–12–

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Our Business

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

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

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

We perform all process engineering and provide the detailed design and specifications for all applicable structural, electrical, mechanical and chemical components of our systems. We subcontract the manufacturing of equipment and when customer contracts include installation, we subcontract the service. Our project managers and quality assurance personnel supervise and manage all aspects of our contracts in order for us to meet the performance criteria as agreed with our customers.

We conduct business in Canadian dollars, USU.S. dollars and ~~European currencies to~~Euro to accommodate customers and mitigate our exchange risk through matching the ~~sales~~ sales currency with the supplier currency where practical. ~~Environmental~~We ~~awareness,~~participated in ~~government~~foreign ~~regulations~~exchange ~~and~~spot ~~our~~trading ~~sales~~activities ~~efforts~~during ~~drive~~ the ~~demand~~three ~~for~~months ~~our technologies.~~ended ~~Geographic diversification and industry diversification contribute~~September to30, ~~market~~2012 ~~scope~~ and ~~strategies~~the ~~for~~fiscal ~~growth.~~years Weended ~~are~~June ~~committed to developing innovative product offerings and forming technology partnerships~~30, in2012 ~~response to new~~ and ~~existing regulations to better address demands for a greener industry and a reduction in consumption of non-renewable resources~~2011.

~~Our~~Environmental ~~mission~~awareness, isgovernment ~~two-fold:~~regulations toand ~~increase~~our ~~shareholder~~sales efforts ~~value~~drive ~~and~~the ~~to achieve~~demand ~~customer~~for ~~satisfaction~~our ~~through~~technologies. ~~delivery~~Geographic ofdiversification ~~high~~and industry ~~quality~~diversification ~~clean-air solutions~~contribute to ~~our~~market ~~customers.~~scope and strategies for growth. We ~~believe~~are ~~that~~committed ~~the~~to ~~trend~~developing ~~toward~~innovative aproduct ~~cleaner~~offerings and forming ~~environment~~technology ~~will~~partnerships, ~~continue~~in ~~through~~response ato ~~confluence~~new ofand ~~government~~existing regulations ~~and~~to better ~~public~~address ~~pressure,~~demands ~~driving~~for ~~the~~a ~~demand~~greener ~~for~~industry ~~our~~and ~~products~~a ~~and~~reduction ~~enabling~~in ~~growth~~consumption of non-renewable resources.

WeOur ~~believe~~mission ~~that~~is ~~economic~~two-fold: ~~recovery~~to ~~will~~ increase ~~demand~~stockholder ~~for~~value ~~our~~and to ~~products~~achieve incustomer ~~our~~satisfaction ~~established~~through ~~markets.~~delivery ~~A significant part~~ of ~~our~~high ~~business~~quality ~~has~~clean-air ~~relied~~solutions ~~historically on environmental regulation~~ to ~~drive demand for~~ our ~~products and systems~~customers. ToWe ~~complement~~believe ~~this,~~that ~~and~~the totrend ~~potentially~~toward ~~reduce~~a ~~our exposure to~~cleaner ~~cyclical~~environment ~~changes~~will incontinue ~~regulatory~~through ~~enactments~~a ~~and~~confluence ~~enforcement,~~of wegovernment ~~have~~regulations ~~focused on~~and ~~several~~public ~~new~~pressure, ~~developments~~driving ~~that~~the ~~offer~~demand for our ~~customers pollution control~~ products ~~with~~ ~~an economic payback~~ and aenabling ~~competitive~~growth. ~~advantage to traditional equipment~~See ~~solutions.~~Environmental ~~The~~Regulation ~~Catalytic~~below ~~Gas~~for ~~Treatment~~a ~~(CGT)~~discussion ™of ~~technology~~delays ~~is expected to contribute to revenue growth commencing~~ in the ~~current fiscal year and~~implementation ~~significantly~~of inseveral ~~fiscal~~of ~~2013~~these ~~and the foreseeable future~~regulations.

Q3A ~~Operating~~significant ~~Results~~part of our business has relied historically on environmental regulation to drive demand for our products and systems. To complement this, and to potentially reduce our exposure to cyclical changes in regulatory enactments and enforcement, we have focused on several new developments that offer our customers pollution control products with an economic payback and a competitive advantage to traditional equipment solutions. Our new carbon composite material, SonicCharge™ CCM, and the Catalytic Gas Treatment (CGT) ™ technology are expected to contribute to revenue growth in fiscal 2013 and the foreseeable future.

~~Revenue~~Recent ~~decreased~~Developments by 22% to $3.1 million in the three months ended March 31, 2012 over the same period ended March 31, 2011. A loss before income taxes of $354,881 was recorded for the three months ended March 31, 2012 compared to a loss before income taxes of $98,327 in the same period ended March 31, 2011. Our third quarter of fiscal year 2012 began with a backlog of $11.4 million ($8.2 million in 2011), with $2.2 million in order bookings in the third quarter of fiscal 2012 ($4.7 million in the third quarter of fiscal 2011). Our backlog of orders at March 31, 2012 was $10.4 million ($8.9 million at March 31, 2011).

~~Future~~On ~~realization~~October of10, ~~deferred~~2012, ~~tax~~we ~~assets~~entered ~~ultimately~~into ~~depends~~an ~~on the~~Agreement ~~existence~~and ofPlan ~~sufficient taxable income~~ of Merger ~~the appropriate character~~ (~~for example,~~which ~~ordinary~~we ~~income~~refer orto ~~capital~~as ~~gain) within~~ the ~~carryback~~“merger oragreement”) ~~carryforward periods~~with ~~available~~MEGTEC ~~under~~Systems, ~~the tax law~~Inc. ~~After two consecutive years of substantial~~ ~~losses~~ and ~~continuing~~MTS ~~uncertainty~~WSP, ~~surrounding the U~~Inc.~~S. and global economies~~, ~~we reassessed~~an ~~the~~entity ~~valuation~~wholly-owned ofby ~~deferred~~MEGTEC. ~~tax~~Pursuant ~~assets~~to ~~during~~ the ~~fourth quarter of~~merger ~~fiscal~~agreement, ~~2011~~MTS ~~and~~WSP ~~recorded~~would abe ~~valuation~~merged ~~reserve~~with ~~totaling~~and ~~$722,834,~~into TurboSonic and ~~capped~~we ~~the~~would ~~deferred~~continue ~~tax~~as ~~amount for~~ the USsurviving ~~at $750,000~~corporation. ~~Due~~If ~~to our recent history of losses in~~ the ~~US,~~merger ~~lower~~agreement ~~than~~is ~~expected~~adopted ~~order~~by ~~activity~~our stockholders ~~year to date,~~ and ~~continuing uncertainty surrounding~~ the USmerger &is ~~global economies~~consummated, aall ~~valuation~~of ~~allowance~~our ~~was recognized~~outstanding ~~during~~shares ~~the quarter ended December 31, 2011 for the remaining~~of ~~$1,158,101~~common ofstock ~~deferred~~(other ~~tax~~than ~~assets.~~shares Anowned ~~additional~~by USstockholders ~~tax~~perfecting ~~recovery and offsetting~~dissenters’ ~~valuation~~rights ~~allowance~~under ofDelaware ~~$92,045~~law) ~~was~~will ~~established~~be ~~for~~cancelled ~~the~~and ~~quarter~~converted ~~ended~~automatically ~~March 31,~~into ~~2012.~~the ~~The~~right ~~cumulative~~to ~~tax~~receive ~~loss~~a ~~carryforward~~cash ~~for~~payment ~~the~~equal USto is $~~1,972,980~~0.21 atper ~~March 31, 2012, of which none is recognized as a deferred tax asset~~share.

~~International~~Consummation ~~deferred~~of ~~tax~~the ~~amounts~~merger ~~($309,255~~is atsubject ~~March~~to 31certain conditions, including, ~~2012)~~among others, approval of the merger agreement by the holders of a ~~are~~majority ~~more~~of ~~likely~~the ~~than~~outstanding shares of our common stock and the total number of dissenting shares shall not ~~recoverable~~exceed 10% of the outstanding shares of our common stock. Our founder, executive officers and nodirectors, ~~valuation~~who ~~adjustment~~collectively ~~has~~own ~~been~~of ~~recorded~~record approximately 20.6% of the aggregate voting power entitled to vote on the merger agreement, have agreed with MEGTEC to vote their respective shares in favor of the adoption of the merger agreement.

~~The~~Subject ~~consolidated~~to ~~operating~~the ~~result~~terms ~~for~~of the ~~nine~~merger ~~months~~agreement, ~~ended March~~under 31certain circumstances, ~~2012 is~~ a ~~tax~~break-up ~~provision~~fee of $~~764~~200,~~533~~000 ~~compared~~may be payable to aMEGTEC ~~recovery~~in connection with the termination of ~~taxes~~the merger agreement. In addition, we have agreed to reimburse MEGTEC and Merger Sub for ~~the~~their ~~comparable~~expenses ~~period~~(but not in ~~fiscal~~excess ~~2011~~ of $~~475~~400,~~651~~000) ~~(see~~if ~~note~~the 4merger toagreement ~~the~~is terminated by us because we pursue an ~~Unaudited~~alternative ~~Interim~~acquisition ~~Consolidated~~and ~~Condensed~~under ~~Financial~~certain ~~Statements)~~other circumstances.

~~–12–~~-13-

~~Markets~~In connection with the merger agreement, we also entered into a secured promissory note and related security agreements with MEGTEC. Under the terms of the secured promissory note, MEGTEC agreed to make available to us a credit facility of up to $1,000,000, which we may draw down at one time prior to the maturity date of the note and which we may use for working capital or general corporate purposes. The note bears interest at 10% per annum commencing on the date of the drawdown and matures on the first anniversary of the drawdown. Under certain circumstances described in the secured promissory note, including if we undergo an alternative transaction with another party, the maturity date of the note may be accelerated. In that event, the outstanding principal amount of the note and accrued and unpaid interest would be applied, under certain circumstances, to payment of the initial license fee under an intellectual property license agreement entered into with MEGTEC at the same time as the secured promissory note. The credit facility is collateralized by a second lien security agreement covering substantially all of our assets in the United States, separate United States trademark and patent security agreements and a general security agreement covering substantially all of our assets in Canada. The liens created by these security agreements are subordinate to the liens against our assets in favor of HSBC Bank Canada, our existing lender.

~~Orders~~Q1 ofOperating ~~$2.2~~Results million in the third quarter of fiscal 2012 and a total of $9.7 million for the first three quarters of fiscal 2012 have contributed to our backlog of $10.4 million at March 31, 2012, despite continuing economic challenges. With our focus on cost control, new product introductions and target markets, we expect a stronger fourth quarter in both orders and revenue recognition, contributing to improved operating results.

We continue to face market uncertainties due to a slow economic recovery and delays in the passage and implementation of regulations in the United States. As a result of these uncertainties, we have incurred significant losses during the three months ended September 30, 2012 and the three fiscal years ended June 30, 2012, which losses have reduced our cash and stockholders' equity. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on achieving a profitable level of operations, and our ability to either successfully complete the merger discussed elsewhere in this Form 10-Q or secure other sources of financing. There can be no assurance that we will be able to complete the merger or raise sufficient additional capital to continue our operations.

Revenue decreased by 26% to $4.4 million in the three months ended September 30, 2012 over the same period ending September 30, 2011. A loss before income taxes of $116,445 was recorded for the quarter compared to a loss before taxes of $380,237 in the same period ending September 30, 2011. Our 2013 fiscal year began with a backlog of $7.0 million ($8.2 million in 2012, after adjustment for a $3.8 million order cancellation), with $3.3 million in order bookings in the first quarter of fiscal 2013 compared to $2.0 million in the first quarter of fiscal 2012. Our backlog of orders at September 30, 2012 was $6.0 million ($4.4 million, adjusted, at September 30, 2011).

Provision for income taxes for the first quarter of fiscal 2013 was $20 for international subsidiaries (nil for the US company) compared to provision for income taxes of $56,357 for the comparable period in fiscal 2012 (combined international subsidiaries and the US company). The nil tax provision for US company operations in the first quarter of fiscal 2013 was the result of a recovery of income taxes of $24,791 offset by a deferred tax valuation allowance of $24,791 for the quarter.

Environmental Regulation

~~Government~~The ~~initiatives~~market ~~taken~~for toour ~~mitigate~~air ~~effects~~pollution ofcontrol ~~air pollution~~products ~~are~~and ~~the~~systems is ~~primary~~directly ~~driver~~dependent ~~for~~upon the ~~traditional~~existence ~~air~~and ~~pollution~~effective ~~control technology~~enforcement ~~market.~~of ~~Several~~laws ~~new~~and regulations ~~rules~~ that ~~are~~limit ~~expected~~the torelease beof ~~issued~~pollutants byinto the Uatmosphere and impose substantial penalties for non-compliance.S. Governments can change, modify or ~~Environmental~~amend ~~Protection~~environmental ~~Agency~~regulations ~~(EPA)~~at any time through an administrative process, which could have ~~significant~~positive ~~impact~~or onnegative ~~emissions from~~effects ~~the~~upon ~~power~~our future revenues and prospects ~~manufacturing~~of ~~sectors,~~profitability ~~among~~depending ~~others~~on the nature of the regulatory action.

~~Mercury~~Many ~~and~~of ~~Air~~the ~~Toxics~~recent ~~Standards~~emission ~~(MATS,~~standards ~~also~~set ~~known~~by asthe ~~Utility~~U.S. ~~MACT),~~Environmental isProtection ~~expected~~Agency toare ~~impose~~subject ~~further~~to ~~control~~ongoing ~~requirements~~litigation onand congressional ~~mercury~~scrutiny, ~~metallic toxins, acid gases~~ and ~~particulate~~bills ~~matter~~are ~~from~~being ~~coal~~considered ~~and~~to ~~oil-fired~~delay ~~power plants.~~implementation ~~MATS~~of ~~would~~certain ~~allow~~of ~~facilities~~the ~~three~~standards. ~~years~~Therefore, tothe ~~come~~timing ~~into~~of ~~compliance.~~issuance If and ~~when~~ ~~fully~~implementation ~~implemented,~~of ~~these~~final ~~MATS~~ rules ~~are~~in ~~expected~~these toareas ~~impact~~is ~~the~~somewhat ~~need for further air control technologies from the power sector~~uncertain.

InMarkets addition, EPA is working on other rules that could impact emissions from power plants and manufacturing for toxic emissions from industrial, commercial and institutional boilers. Boiler MACT rules are currently due to become law May 2012. EPA also announced it would propose new fine particulate matter standards in 2013.

~~While~~International weexpansion ~~believe~~plays ~~that~~a ~~these~~key ~~and~~role ~~other~~in ~~recently~~our ~~issued~~long-term business plan. We continue to develop customers beyond our North American and ~~anticipated~~European ~~regulations~~base ~~will~~and ~~affect~~collaborate ~~industries~~with inother ~~our~~technology ~~markets,~~firms itto isoffer ~~possible~~unique ~~that~~solutions ~~further~~to ~~actions~~pollution byproblems ~~the~~experienced ~~EPA,~~around ~~legal~~the ~~challenges~~globe. orSome ~~legislative~~of ~~developments~~these ~~could~~initiatives ~~potentially~~have ~~modify~~focused on the ~~stringency~~non-regulatory ofmarket ~~their~~to ~~provisions~~offer orour ~~delay~~customers ~~their~~an ~~effective~~economic ~~dates~~payback to justify purchase decisions. ItWe istry ~~because~~to ofdiversify ~~these~~in geography, ~~potential~~industries, ~~delays~~products ~~that~~and wesolutions ~~are~~to ~~continuing~~accommodate changes in topolitics, ~~pursue~~economics and technology. However, the ~~development~~global economic downturn has resulted in a reduced level of ~~current~~projects ~~and~~outside ~~new~~of ~~technologies~~North America, ~~which~~as doevidenced by ~~not~~the ~~depend~~2012 geographic revenue distribution. Customers outside of North America oncollectively ~~new~~accounted ~~regulation~~for approximately 15% and ~~can~~51% ~~augment~~of our ~~suite~~revenue ofduring ~~environmental~~the fiscal ~~technologies~~years ended June 30, 2012 and 2011. We believe that this reduced level of projects outside of North America may be short-lived, as evidenced by recent bookings, although increases in North American bookings may temper such increased percentages.

New Technology

~~During~~CGT™, ~~the~~a ~~second~~new ~~quarter~~patented oftechnology ~~fiscal~~to ~~2012,~~which weTurboSonic ~~commenced our~~has ~~first~~exclusive ~~contract~~worldwide ~~incorporating~~marketing ~~our~~rights, ~~patent-pending~~is ~~SonicCharge™~~a ~~Conductive Composite~~significant ~~Material~~development ~~(CCM)~~in ~~for~~the control ~~Wet~~of ~~electrostatic~~volatile ~~Precipitators~~organic compounds (~~“WESP”~~VOCs). ~~SonicCharge~~ CGT™ ~~CCM~~destroys ~~can~~VOCs ~~displace~~such ~~high~~as formaldehyde ~~cost~~from ~~alloy~~industrial ~~construction~~air emissions, ~~providing~~eliminating adependence on natural ~~significant~~gas ~~benefit~~combustion ~~over~~in ~~conventional~~thermal ~~alloys~~oxidizers, the traditional approach to VOC control. CGT™ ~~Its~~avoids ~~electrical~~CO2 ~~properties~~and ~~are~~NOx generated by the combustion of ~~proven~~natural togas. beThe ataddition ~~least~~of ~~equal~~CGT™ totechnology ~~stainless~~provides ~~steels~~an ~~while~~economic ~~offering~~rather ~~superior~~than solely ~~spark~~regulatory-driven demand for our technologies. CGT™ technologies displace ~~erosion~~thermal ~~resistance~~oxidation and ~~corrosion~~the ~~resistance~~corresponding use of natural gas for the destruction of VOCs, ~~which~~thereby ~~can~~providing ~~make~~a itreturn ~~ideal~~on investment for ~~use~~our inclients. Our latest CGT™ was determined through independent ~~coal-fired~~testing ~~utility~~to ~~and~~exceed ~~metallurgical~~requirements ~~acid~~for ~~plant~~US ~~WESP~~EPA ~~applications~~regulations relating to composite wood panel production.

With the third Catalytic Gas Treatment (“CGT™”) installation in the U.S. having been successfully completed, a new alternative to thermal oxidation is now available to our client base. CGT™ technology controls emissions of regulated volatile organic compounds such as formaldehyde and methanol from process gas streams and has been demonstrated to reduce regulated emissions of aldehydes and alcohols by over 95%. Plans are currently in progress to expand the CGT product beyond the wood products industry.

Three Months ended March 31, 2012 Compared with Three Months ended March 31, 2011

3 MONTH COMPARATIVE INCOME STATEMENTS AT MARCH 31, 2012 AND 2011

	Fiscal 2012		% to		Fiscal 2011		% to		Increase (Decrease)
			Total				Total
	$		Revenue		$		Revenue		$		%
Contract revenue & sales
OEM Systems	2,018,728		65%		3,199,741		79%		(1,181,013	)	(37%	)
Aftermarket parts & retrofits	1,109,110		35%		832,206		21%		276,904		33%
	3,127,838		100%		4,031,947		100%		(904,109	)	(22%	)
Contract costs & cost of sales
OEM Systems	1,551,568		50%		2,398,853		59%		(847,285	)	(35%	)
Aftermarket parts & retrofits	701,815		22%		485,064		12%		216,751		45%
	2,253,383		72%		2,883,917		71%		(630,534	)	(22%	)
Gross profit
OEM Systems	467,160		15%		800,888		20%		(333,728	)	(42%	)
Aftermarket parts & retrofits	407,295		13%		347,142		9%		60,153		17%
	874,455		28%		1,148,030		29%		(273,575	)	(24%	)
Gross profit %
OEM Systems	23%				25%
Aftermarket parts & retrofits	37%				42%
Expenses
Selling, general & administrative	1,205,413		39%		1,164,587		29%		40,826		4%
Research & development costs	6,596		0%		36,119		1%		(29,523	)	(82%	)
Depreciation	16,782		0%		43,995		1%		(27,213	)	(62%	)
	1,228,791		39%		1,244,701		31%		(15,910	)	(1%	)
(Loss) from operations	(354,336	)	(11%	)	(96,671	)	(2%	)	(257,665	)	267%
Other (expense)
Interest, net	(545	)	0%		(1,656	)	0%		1,111		(67%	)
(Loss) before income taxes	(354,881	)	(11%	)	(98,327	)	(2%	)	(256,554	)	261%
(Recovery of) income taxes	(28,179	)	(1%	)	(63,228	)	(1%	)	35,049		(55%	)
Net (loss)	(326,702	)	(10%	)	(35,099	)	(1%	)	(291,603	)	831%
Foreign currency translation adjustment	50,059		1%		36,868		1%		13,191		36%
Comprehensive (loss) income	(276,643	)	(9%	)	1,769		(0%	)	(278,412	)	(15,738%	)

The opening backlog of OEM orders for the third quarter of fiscal year 2012 was $11.0 million ($7.8 million for the third quarter of fiscal year 2011) and OEM orders received in the third quarter were $0.8 million ($3.9 million in the same period in the prior year). Revenue recognition for these orders is determined on the percentage of completion method, with completion typically ranging over a production period of 6 to 12 months depending on the scope and terms of the individual contracts.

OEM systems revenue for the three month period ended March 31, 2012 decreased 37% over the comparable period ended March 31, 2011 as the result of wet scrubber and DeNOx system projects not repeated from the same period in fiscal 2011. The balance of OEM backlog at March 31, 2012 was $9.6 million ($8.5 million at March 31, 2011), which will contribute to revenues over the next several quarters.

The cost of sales for OEM systems decreased 35% for the three month period ended March 31, 2012 over the comparable period in the prior year, which reflects the decreased revenue volume in the third quarter of fiscal 2012.

As a result, gross profit on OEM systems in the third quarter of fiscal 2012 was 23% and in the same comparable period in fiscal 2011 was 25%. OEM systems contributed a gross profit of $467,160 (15% of total revenue) in the third quarter of fiscal 2012 compared to a gross profit of $800,888 (20% of total revenue) for the same period in fiscal 2011.

The opening backlog of Aftermarket orders for the third quarter of fiscal 2012 was $0.4 million ($0.4 million for fiscal 2011) and Aftermarket orders received in the quarter were $1.4 million ($0.8 million in the same period in the prior year). Revenue recognition for these orders is determined on a billing basis, which approximates actual performance and usually occurs in the first or second month following the order.

Aftermarket revenues increased 33% for the three-month period ended March 31, 2012 over the same period in the prior fiscal year primarily because of increased evaporative cooling and semi-dry scrubber parts orders in the current quarter over the same period in fiscal 2011. The balance of Aftermarket backlog at March 31, 2012 is $0.8 million ($0.4 million at March 31, 2011) which will contribute to revenues in the next three months.

The cost of sales for Aftermarket products increased 45% for the three-month period ended March 31, 2012 over the same period in fiscal 2011. Gross profit on Aftermarket products increased 17% between the comparable periods in fiscal 2012 and 2011, which reflects a higher revenue volume and lower gross profit (37%) earned in the quarter ended March 31, 2012 over

–14–

~~gross~~During ~~profit~~recent ~~(42%)~~years, ~~earned~~the incost ~~the~~of ~~quarter~~metals ~~ended~~and ~~March~~alloys 31has risen to historic high levels, ~~2011.~~resulting in increasingly expensive equipment costs to ~~The~~achieve ~~decreased~~environmental ~~gross~~control. ~~profit~~SonicCharge™ CCM is a proprietary material developed by TurboSonic to replace the ~~result~~use of ~~increased~~expensive ~~costs~~alloys onin ~~certain~~corrosive ~~spare~~gas ~~parts~~streams, ~~items~~including those present in acid plants and coal-fired power boilers. Our first commercial installation of a Wet Electrostatic Precipitor (WESP) using our patent-pending SonicCharge Conductive Composite Material began operations during the ~~current~~quarter ~~fiscal~~ended September ~~year~~30, 2012.

~~Selling,~~Three ~~general~~Months ~~and administrative expenses increased $40,826 (4%) for the three-month period~~ ended ~~March~~September 3130, 2012 ~~over~~Compared ~~the~~with ~~same period in the~~Three ~~prior~~Months year. This increase was the result of the addition of a new employee ($16,000), increased travel expenses ($12,000) and additional patent fees ($13,000) in fiscal 2012. As a percentage of total revenue, selling, general and administrative expenses were 39% for the three-month period ended ~~March~~September 3130, ~~2012 compared to 29% of total revenue in the comparable period in fiscal~~ 2011~~. Research~~ and development costs decreased $29,523 (82%) for the three-month period ended March 31, 2012 compared to the same period in fiscal 2011, due to completion of activity on certain projects. Depreciation of $16,782 was recorded in the three months ended March 31, 2012 compared to $43,995 for the same period in the prior year . This decrease is the result of the full depreciation of certain office-related equipment in fiscal 2011; thereby reducing depreciation expense in the current fiscal quarter.

~~Loss~~3 ~~before~~MONTH ~~income~~COMPARATIVE ~~taxes~~INCOME ofSTATEMENTS ~~$354,881~~AT ~~for~~SEPTEMBER ~~the three-month period ended March 31~~30, 2012 ~~was higher than the loss of $98,327 in the comparable~~ ~~period~~AND ~~in the prior fiscal year. The increased loss reflects lower revenue and gross profit in OEM systems for the third quarter of fiscal 2012 compared to those recorded in the third quarter of fiscal~~ 2011.

Operating results for the third quarter of fiscal 2012 include a net recovery of income taxes of $28,319 for international subsidiaries and a net provision for income taxes of $140 for the U.S. company compared to a net recovery of income taxes of $63,228 for the comparable period in fiscal 2011(combined international subsidiaries and the US company). This includes a tax provision for U.S. company operations in fiscal 2012 consisting of a recovery of income taxes of $92,045 offset by a deferred tax valuation allowance of $92,045 for the quarter. Our decision to record this deferred tax valuation allowance was based on two years of continued losses and a third year of projected losses to fully offset the U.S. deferred tax asset. This follows our decision in December 2011 to fully offset U.S. tax losses with a valuation allowance, until such point that we return to profitability in the U.S. company.

	Fiscal 2013		% to		Fiscal 2012		% to		Increase (Decrease)
			Total				Total
	$		Revenue		$		Revenue		$		%
Contract revenue & sales
OEM Systems	3,332,709		76%		5,192,561		88%		(1,859,852	)	(36%	)
Aftermarket parts & retrofits	1,024,477		24%		717,558		12%		306,919		43%
	4,357,186		100%		5,910,119		100%		(1,552,933	)	(26%	)
Contract costs & cost of sales
OEM Systems	2,567,167		59%		4,612,866		78%		(2,045,699	)	(44%	)
Aftermarket parts & retrofits	568,193		13%		421,793		7%		146,400		35%
	3,135,360		72%		5,034,659		85%		(1,899,299	)	(38%	)
Gross profit
OEM Systems	765,542		18%		579,695		10%		185,847		32%
Aftermarket parts & retrofits	456,284		10%		295,765		5%		160,519		54%
	1,221,826		28%		875,460		15%		346,366		40%
Gross profit percentage
OEM Systems	23%				11%
Aftermarket parts & retrofits	45%				41%
Expenses
Selling, general & administrative	1,328,812		31%		1,213,332		20%		115,480		10%
Research & development costs	3,744		0%		25,687		1%		(21,943	)	(85%	)
Depreciation & amortization	5,670		0%		17,185		0%		(11,515	)	(67%	)
	1,338,226		31%		1,256,204		21%		82,022		7%
(Loss) from operations	(116,400	)	(3%	)	(380,744	)	(6%	)	264,344		(69%	)
Other (expense) income
Interest, net	(45	)	0%		507		0%		(552	)	(109%	)

(Loss) before taxes	(116,445	)	(3%	)	(380,237	)	(6%	)	263,792		(69%	)
Provision for income taxes	20		(0%	)	56,357		(1%	)	(56,337	)	(100%	)
Net (loss)	(116,465	)	(3%	)	(436,594	)	(7%	)	320,129		(73%	)
Foreign currency translation adjustment	129,592		3%		(239,879	)	(4%	)	369,471		(154%	)
Comprehensive income (loss)	13,127		0%		(676,473	)	(11%	)	689,600		(102%	)

~~The~~OEM ~~foreign~~order ~~currency~~backlog ~~translation~~at ~~adjustment~~July ~~reflects~~1, ~~the exchange~~2012 ~~values~~was ~~for~~$6.0 ~~our~~million ~~Canadian~~($8.0 million ~~dollar~~at July 1, 2011) and ~~Euro~~orders ~~accounts~~received ~~converted~~in tothe USquarter ended September 30, ~~dollars.~~2012 ~~The~~were ~~statement~~$2.4 ofmillion ~~comprehensive~~($1.1 ~~income~~million ~~reflects~~in anthe ~~increase~~same period in the prior year). ~~carrying~~Revenue ~~value~~recognition offor these ~~accounts~~orders is determined on the percentage of completion ~~$50~~method,~~059~~ ~~during~~with completion typically ranging over a production period of 6 to 12 months depending on the ~~third~~scope ~~quarter~~and terms of ~~fiscal 2012.~~the individual contracts.

~~Nine~~OEM ~~Months~~systems revenue for the quarter ended ~~March~~September 3130, 2012 decreased ~~Compared~~36% ~~with~~over ~~Nine~~the ~~Months~~ comparable period ended ~~March~~September 3130, 2011 reflecting the impact of two large low-margin turnkey projects in fiscal 2012 not replicated in fiscal 2013. The balance of OEM backlog at September 30, 2012 was $5.2 million ($4.0 million at September 30, 2011), which backlog is expected to contribute to revenues over the next several quarters.

9The ~~MONTH~~cost ~~COMPARATIVE~~of ~~INCOME~~sales ~~STATEMENTS~~for ATOEM ~~MARCH~~systems 31decreased 44% for the three month period ended September 30, 2012 ~~AND~~over the comparable period in the prior ~~2011~~year, which reflects the decreased revenue volume in the first quarter of fiscal 2013 partially offset by the improved gross profit realized, with the low-margin sub-contracted installation work of fiscal 2012 not repeated in fiscal 2013.

	Fiscal 2012		% to		Fiscal 2011		% to		Increase (Decrease)
			Total				Total
	$		Revenue		$		Revenue		$		%
Contract revenue & sales
OEM Systems	8,771,738		77%		5,721,206		69%		3,050,532		53%
Aftermarket parts & retrofits	2,606,744		23%		2,575,510		31%		31,234		1%
	11,378,482		100%		8,296,716		100%		3,081,766		37%
Contract costs & cost of sales
OEM Systems	7,422,831		65%		4,738,965		57%		2,683,866		57%
Aftermarket parts & retrofits	1,593,338		14%		1,642,452		20%		(49,114	)	(3%	)
	9,016,169		79%		6,381,417		77%		2,634,752		41%
Gross profit
OEM Systems	1,348,907		12%		982,241		12%		366,666		37%
Aftermarket parts & retrofits	1,013,406		9%		933,058		11%		80,348		9%
	2,362,313		21%		1,915,299		23%		447,014		23%
Gross profit %
OEM Systems	15%				17%
Aftermarket parts & retrofits	39%				36%
Expenses
Selling, general & administrative	3,697,024		32%		3,613,041		43%		83,983		2%
Research & development costs	60,628		1%		62,481		1%		(1,853	)	(3%	)
Depreciation	50,418		0%		126,311		2%		(75,893	)	(60%	)
	3,808,070		33%		3,801,833		46%		6,237		--%
(Loss) from operations	(1,445,757	)	(13%	)	(1,886,534	)	(23%	)	440,777		(23%	)
Other (expense)
Interest, net	(4,374	)	0%		(2,367	)	0%		(2,007	)	84%
(Loss) before income taxes	(1,450,131	)	(13%	)	(1,888,901	)	(23%	)	438,770		(23%	)
Provision for (recovery of) income taxes	764,533		6%		(475,651	)	(6%	)	1,240,184		(261%	)
Net (loss)	(2,214,664	)	(19%	)	(1,413,250	)	(17%	)	(801,414	)	57%
Foreign currency translation adjustment	(81,636	)	(1%	)	240,304		3%		(321,940	)	(134%	)
Comprehensive (loss)	(2,296,300	)	(20%	)	(1,172,946	)	(14%	)	(1,123,354	)	96%

As a result, gross profit on OEM systems in the first quarter of fiscal 2013 was 23% and in the same comparable period in fiscal 2012, gross profit was 11%. OEM systems contributed a gross profit of $765,542 (18% of total revenue) in the first quarter of fiscal 2013 compared to a gross profit of $579,695 (10% of total revenue) for the same period in fiscal 2012.

-15-

~~The~~Aftermarket ~~opening~~order backlog ofat ~~OEM~~July ~~orders~~1, ~~for fiscal year~~ 2012 was $111.70 million ($20.43 million ~~for~~at ~~fiscal~~July ~~year~~1, 2011) and ~~OEM~~ orders received in the ~~first~~ ~~nine~~quarter ~~months~~ended September of30, ~~fiscal~~ 2012 were $60.78 million ($110.9 million in the same period in the prior year). Revenue recognition for these orders is determined on ~~the~~ ~~percentage~~a ~~of completion method~~billing basis, ~~with~~which ~~completion~~approximates ~~typically~~actual ~~ranging~~performance ~~over~~and ~~a production~~usually ~~period~~occurs ofin ~~6 to 12 months depending on~~ the ~~scope~~first ~~and~~or second ~~terms~~month offollowing the ~~individual~~ ~~contracts~~order.

~~OEM~~Aftermarket ~~systems~~ revenue increased 43% for the ~~nine~~ three-month period ended ~~March~~September 3130, 2012 ~~increased 53%~~ over the ~~comparable~~same period ~~ended~~in ~~March~~the ~~31,~~prior ~~2011~~fiscal ~~primarily~~year asprimarily ~~the~~due ~~result~~to ofincreased ~~progress~~evaporative ongas ~~two~~cooling ~~large turnkey projects~~ and awet ~~number~~electrostatic ~~of smaller~~precipitator ~~supply-only~~spare ~~projects~~parts orders. The balance of ~~OEM~~Aftermarket backlog at ~~March~~September 3130, 2012 was $90.6 8 million ($80.5 million at ~~March~~September 3130, 2011), which ~~will~~backlog is expected to contribute to revenues ~~over~~ during the next ~~several~~three ~~quarters~~months.

The cost of sales for ~~OEM~~Aftermarket ~~systems~~products increased 5735% for the ~~nine~~ three-month period ended ~~March~~September 3130, 2012 over the ~~comparable~~same period in fiscal 2012. On a dollar basis, gross profit on Aftermarket products increased 54% as compared to the same period in the prior fiscal year, reflecting a higher gross ~~which~~profit ~~reflects~~percentage ~~the~~(45% ~~increased~~to Aftermarket revenue) ~~volume~~ in the ~~first~~quarter ~~nine~~ended ~~months~~September 30, of2012 ~~fiscal~~compared to gross profit (41% to Aftermarket revenue) in the quarter ~~2012~~ended September 30, 2011.

~~As a result~~Selling, ~~gross~~general ~~profit~~and onadministrative ~~OEM~~expenses ~~systems~~increased in$115,480 (10%) for the ~~first~~three-month ~~nine months~~period ofended ~~fiscal~~September 30, 2012 ~~was~~over ~~15%~~the ~~and~~same period in the ~~comparable~~prior ~~period~~year. inThis ~~fiscal~~increase ~~2011~~ was principally the result of professional fees ~~17%.~~associated ~~OEM~~with ~~systems~~the ~~contributed~~proposed asale ~~gross~~or ~~profit~~other financing transaction of our company ($1147,~~348~~000),~~907~~ partially offset by reduced salaries and benefits (~~12%~~$30,000) due to layoffs. As a percentage of total revenue), selling, general and administrative inexpenses were 31% for the ~~first~~three-month ~~nine~~period ~~months~~ended September 30, 2012 compared to 20% of total revenue in the comparable period in fiscal 2012. Research and development costs decreased $21,943 (85%) for the three-month period ended September 30, 2012 compared to athe ~~gross~~same ~~profit~~period in fiscal 2012, primarily due to decreased project activity. Depreciation and amortization of $~~982~~5,~~241~~670 was recorded ~~(12%~~for ofthe ~~total~~quarter ~~revenue)~~ended September 30, 2012 compared to $17,185 for the same period in ~~fiscal~~the ~~2011~~prior year.

~~The~~Loss ~~opening~~before ~~backlog~~income taxes of ~~Aftermarket~~$116,445 ~~orders~~ for the ~~first~~three-month ~~nine~~period ~~months~~ended ofSeptember ~~fiscal~~30, 2012 was ~~$0.3~~significantly ~~million~~lower ~~($0.6~~than ~~million~~the ~~for~~loss ~~fiscal~~of ~~2011)~~$380,327 ~~and~~in ~~Aftermarket~~the ~~orders~~comparable ~~received~~period in ~~the~~fiscal ~~first~~2012. ~~nine~~The ~~months~~reduced ~~were~~loss ~~$3.1~~reflects ~~million~~a ~~($2.4~~higher gross ~~million~~profit inpercentage ~~the~~to ~~same~~revenue ~~period~~for inAftermarket ~~the~~projects ~~prior~~and ~~year).~~a ~~Revenue~~higher ~~recognition~~gross ~~for these~~profit ~~orders~~percentage isto ~~determined~~revenue onfor aOEM ~~billing~~systems ~~basis,~~for ~~which~~the ~~approximates~~first ~~actual~~quarter ~~performance~~of fiscal 2013 ~~and~~compared ~~usually~~to ~~occurs~~those recorded in the first orquarter ~~second~~of ~~month~~fiscal ~~following the order~~2012.

~~Aftermarket~~Provision ~~revenues~~for ~~increased~~income 1%taxes for the ~~nine~~first ~~month~~quarter ~~period ended~~of ~~March~~fiscal ~~31,~~2013 was ~~2012~~nil ~~over~~for ~~the~~our ~~same~~international ~~period~~subsidiaries in($20 ~~the~~for ~~prior~~our ~~fiscal~~US ~~year~~company) ~~primarily~~compared to ~~because~~provision of ~~increased~~income ~~evaporative~~taxes ~~gas~~of ~~cooling~~$56,357 ~~and~~for ~~semi-dry~~the ~~scrubber~~comparable ~~parts~~period ~~orders~~ in fiscal 2012~~. The balance of Aftermarket backlog at March 31, 2012 is $0.8~~ ~~million~~ (~~$0.4~~combined ~~million~~for atour ~~March~~international ~~31,~~subsidiaries ~~2011)~~and ~~which~~US ~~will contribute to revenues in the next three months~~company).

The ~~cost~~foreign ofcurrency ~~sales~~translation ~~for~~adjustment ~~Aftermarket~~reflects ~~products decreased 3% for~~ the ~~nine~~exchange ~~month~~values ~~period~~for ~~ended~~our ~~March~~Canadian ~~31,~~dollar ~~2012~~and ~~over~~Euro ~~the~~accounts ~~same~~converted ~~period~~to ~~in fiscal 2011.~~US ~~Gross~~dollars. ~~profit~~The onstatement ~~Aftermarket~~of ~~products~~comprehensive ~~increased~~income ~~9% between the comparable periods in fiscal 2012 and 2011, which~~ reflects aan ~~higher~~increase ~~revenue volume and higher gross profit (39%) earned~~ in the ~~nine month period ended March 31, 2012 over gross~~ ~~profit~~carrying ~~(36%)~~value ~~earned~~of inthese ~~the~~accounts ~~nine~~of ~~months ended March 31~~$129,592 ~~2011.~~during ~~The increased gross profit is~~ the ~~result~~first quarter of ~~increased prices and decreased costs on certain spare~~fiscal ~~parts items~~2013.

Selling, general and administrative expenses increased $83,983 (2%) for the nine month period ended March 31, 2012 over the same period in the prior year. This increase was the result of the addition of a new employee ($44,000), professional expenses relating to the S-1 filing for the Dutchess Investment Agreement ($22,000) and additional patent fees ($28,000), partially offset by reduced directors fees ($10,000), in fiscal 2012,. As a percentage of total revenue, selling, general and administrative expenses were 32% for the nine month period ended March 31, 2012 compared to 43% of total revenue in the comparable period in fiscal 2011. Research and development costs decreased $1,853 (3%) for the nine month period ended March 31, 2012 compared to the same period in fiscal 2011, due to completion of activity on certain projects. Depreciation of $50,418 was recorded for the nine month period ended March 31, 2012 compared to $126,311 for the same period in the prior year. This decrease is the result of the full depreciation of certain office-related equipment in fiscal 2011; thereby reducing depreciation expense in the current fiscal year.

Loss before income taxes of $1,450,131 for the nine month period ended March 31, 2012 was significantly lower than the loss of $1,888,901 in the comparable period in the prior fiscal year. The reduced loss reflects higher revenue and gross profit in OEM systems for the first nine months of fiscal 2012 compared to those recorded in the first nine months of fiscal 2011. Operating results for the first nine months of fiscal 2012 include a provision for income taxes for $11,393 for international subsidiaries and a net provision of $753,140 for the US company compared to a net recovery of income taxes of $475,651 for the comparable period in fiscal 2011(combined international subsidiaries and the US company). This results from a $750,000 tax provision for US company operations in fiscal 2012 consisting of a recovery of income taxes of $500,146 offset by a deferred tax valuation allowance of $1,250,146 for the current nine month period. Our decision to record this deferred tax valuation allowance to fully offset the US deferred tax asset was based on two years of continued losses and a third year of projected losses.

The foreign currency translation adjustment reflects the exchange values for our Canadian dollar and Euro accounts converted to US dollars. The statement of comprehensive income reflects a decrease in the carrying value of these accounts of $81,636 during the first nine months of fiscal 2012.

–16–

Liquidity and Capital Resources

	For the Nine Months Ended		For the Nine Months Ended
Cash Summary	September 30, 2012		September 30, 2011
Cash Summary	March 31, 2012		March 31, 2011
Cash provided by (applied to):	$		$
Operations	~~(373~~154,~~810~~567	)	(~~581~~664,~~202~~424	)
Purchase of equipment	--		~~(34,135~~--	)
Repayment of capital leases and long-term debt	--		(61,766	)
(Increase) in restricted cash	(154,351	)	--
Effect of exchange rate changes on cash and cash equivalents	30117,~~836~~413		~~141~~(35,~~787~~047	)
Net proceeds from issue of shares	--		~~853,086~~--
Net cash (applied) provided during the period	(342,974	)	317,770
Net cash provided (applied) during the period	117,629		(699,471	)
Cash and cash equivalents - beginning of period	1,~~674~~066,~~204~~719		21,~~036~~674,~~529~~204
Cash and cash equivalents - end of period	1,~~331~~184,~~230~~348		2974,~~354,299~~733

Working Capital Summary	AtSeptember ~~March 31~~30, 2012	AtSeptember ~~March 31~~30, 2011
Current assets	5,~~250~~274,~~477~~581	68,~~334~~126,~~165~~771
Current liabilities	3,~~522~~364,~~173~~702	35,~~462~~529,~~252~~595
Net working capital	1,~~728~~909,~~304~~879	2,~~871~~597,~~913~~176
Current ratio	1.4957	1.8347

Summary of Contracts in Progress	At March 31, 2012		At March 31, 2011
Contract value completed and to be invoiced	209,651		1,423,824
Contract advances invoiced	(1,449,124	)	(888,392	)
Net contracts in progress	(1,239,473	)	535,432

–16–

Contract Backlog	At March 31, 2012		At March 31, 2011
Summary of Contracts in Progress	September 30, 2012		September 30, 2011
Contract value yet to be recognized as revenue	10,400,000		8,900,000
Contract value completed and to be invoiced	1,268,880		2,111,316
Contract advances invoiced	(1,154,240	)	(888,450	)
Net contracts in progress	114,640		1,222,866
Contract Backlog
Contract value yet to be recognized as revenue	6,000,000		4,500,0001

~~During~~1 ~~the~~adjusted ~~nine~~backlog ~~month period ended March 31, 2012, cash of~~after ~~$373,810~~taking ~~was~~into ~~applied~~account toa ~~operations while, during the same nine months in fiscal 2011, cash of~~ $~~581,202 was applied to operations~~3.7 ~~The~~million ~~net~~order ~~change~~cancellation in ~~cash~~later ~~flows applied to operations was due primarily to the decreased deferred contract costs and unbilled revenue partially offset by increased retentions receivable in the current~~ fiscal ~~period~~2012.

~~Our~~During ~~working~~the ~~capital~~three-month ~~position~~period ~~decreased~~ended toSeptember ~~$1.7~~30, ~~million~~2012, atcash ~~March~~of 31$154,567 ~~2012~~was provided from ~~$2.9~~operations ~~million~~while atduring ~~March~~the 31same three months in fiscal 2012, ~~2011~~cash of $664,424 ~~with~~was ~~the~~applied ~~current~~to ~~ratio~~operations. ~~decreasing~~The net change in cash ~~from~~flows ~~1.83:1~~applied asto atoperations ~~March~~was ~~31,~~due ~~2011~~primarily to ~~1.49:1~~the atincreased ~~March~~positions 31in accounts and retentions receivable and accrued charges in the three months ended September 30, 2012.

Our ~~contract~~working ~~payment~~capital ~~terms~~position ~~provide~~decreased ~~for periodic progress payments by our customers based on our attainment of agreed milestones~~ to ~~the point of delivery~~$1.9 Amillion ~~final~~at September ~~holdback amount is often dependent on commissioning~~30, ~~specified~~ ~~performance~~2012 ~~criteria~~from ~~or a fixed time of operations~~$2.6 Atmillion ~~any~~at ~~point~~September ~~in time~~30, ~~the~~2011, ~~contracts in process~~ with ~~costs that exceed invoicing may be greater than~~ the ~~contracts that have been invoiced in advance of performance. At March~~current ~~31,~~ratio ~~2012,~~increasing ~~the~~from ~~net position of contracts in progress was a liability of $~~1~~,239,473~~.47:1 Atas ~~March~~at 31September 30, 2011 ~~the~~to ~~net~~1.57:1 ~~position~~at ofSeptember ~~contracts in progress was an investment of $535~~30,~~432~~ 2012.

InOur ~~May~~contract ~~2011,~~payment weterms ~~entered~~provide ~~into~~for anfunding ~~agreement~~the ~~with~~progression of ~~HSBC~~work ~~Bank~~to the point of delivery. A final holdback amount is often dependent on ~~Canada~~commissioning, ~~which~~specified ~~agreement~~performance ~~provides~~criteria ~~for~~or a ~~credit~~fixed ~~facility~~time ~~for~~of ~~standby~~operations. ~~letters of~~At ~~credit~~any ~~for~~point ~~CAD~~in ~~$4.25~~time, ~~million~~the contracts in process with costs that isexceed ~~secured~~invoicing bymay be agreater ~~general~~than ~~security~~the ~~interest~~contracts that have been invoiced in, advance of performance. At September 30, 2012 and ~~lien~~September ~~upon~~30, ~~our~~2011, ~~assets~~the ~~and~~net ~~guarantees~~position ~~provided~~of bycontracts ~~Export~~in progress ~~Development~~is ~~Canada~~an investment of $114,640 and $1,222,866 respectively. The ~~(“EDC”)~~investment onis arealized ~~fee-~~when full payment terms are achieved for~~-service~~ ~~basis.~~issuance ~~Currently~~of invoicing to the ~~guarantees~~client. ~~provided~~The byterms ~~EDC~~of ~~are~~payment of our contracts with customers ~~being~~are ~~approved~~negotiated on athe ~~case-by-case~~ basis. ~~This~~of ~~credit~~project ~~facility~~milestones ~~became~~for ~~operational~~each contract and may indiffer ~~August~~significantly ~~2011,~~from atone ~~which~~contract ~~time~~to ~~our~~the ~~prior~~next, ~~credit~~and ~~facilities~~may ~~were~~result ~~terminated~~in byswings ~~mutual~~between ~~consent~~investment and advance payment positions for each fiscal period.

At ~~March~~September 3130, 2012, we had standby letters of credit for approximately USD $~~0.8~~650,000 ~~million~~ (USD $~~1.4~~600,000 ~~million~~ at June 30, ~~2011~~2012) in place with various customers in order to receive cash proceeds ahead of delivery or end-of-warranty milestones. ~~EDC~~Export Development Canada has provided guarantees ~~for these letters of credit~~ to both HSBC Bank Canada and another Canadian bank with whom we had aan ~~prior~~ agreement for letters of ~~previously~~credit; ~~issued~~a guarantee for future letters of credit to be issued through HSBC Bank Canada will be under review in late November.

17Our backlog as at September 30, 2012 was approximately $6.0 million, compared to the September 30, 2011 backlog of $4.5 million, with approximately 94% expected to convert to revenue by June 30, 2013. We can offer no assurances that backlog will be replicated, increased or converted at current value into revenues in the future.

OnAs ~~October~~of 28September 30, ~~2011~~2012, we ~~entered~~had ~~into~~cash anand ~~Investment~~cash ~~Agreement~~equivalents of ~~with~~approximately ~~Dutchess~~$1.3 ~~Opportunity~~million ~~Fund,~~and ~~II,~~working LPcapital ~~for the sale, from time to time, at our discretion,~~ of upapproximately to $31.09 million. ~~of our common stock during a three-year period~~In atconnection awith ~~price equal to 95% of~~ the ~~recent~~merger ~~average~~agreement ~~market~~executed ~~price~~on atOctober ~~the~~10, ~~time~~2012, ofMEGTEC ~~sale,~~has ~~provided~~made ~~that~~available into nous ~~event~~a ~~shall such price be lower than~~ $01.330 ~~per~~million ~~share.~~credit ~~The extent~~facility, to which, weif ~~will~~drawn ~~need~~down toby ~~access any portion or all of the proceeds~~us, ~~available under the Investment Agreement~~ will ~~depend~~bear ininterest ~~substantial~~at ~~part~~10% ~~upon the~~per ~~availability~~annum and ~~adequacy~~be ofdue ~~our~~and ~~cash~~payable ~~flows~~on ~~from~~the ~~operations so as to enable~~first usanniversary toof ~~address~~the ~~timing~~drawdown, ~~differences~~subject ~~that may arise from time~~ to ~~time~~acceleration inunder ~~our~~certain ~~need to~~circumstances ~~pay~~described ~~vendors and suppliers~~ in ~~advance~~the ~~of our receipt of contractual progress payments from our customers~~note. WeIf ~~refer~~the ~~you~~note tois ~~our~~not ~~Current Report on Form 8-K~~paid, ~~dated~~ ~~October~~the ~~31,~~entire ~~2011,~~outstanding ~~for further information regarding the Investment~~principal ~~Agreement.~~balance Asand aaccrued ~~registration~~and ~~statement~~unpaid ~~registering~~interest ~~such~~under ~~common~~certain ~~stock~~circumstances ~~was~~will be ~~declared~~applied ~~effective~~to by the ~~SEC,~~payment weof ~~are~~a ~~now~~license ~~able,~~fee atunder ~~our~~an ~~discretion,~~intellectual toproperty ~~sell~~license ~~common~~agreement ~~stock~~entered tointo ~~Dutchess~~by ~~pursuant~~MEGTEC ~~to the terms~~ and ~~conditions~~us ofat the ~~Investment Agreement.~~same Attime ~~March~~as ~~31,~~the ~~2012, our shares were trading at $0.31 per share and~~merger ~~thus, this financing was not accessible~~agreement.

AsBased ~~was~~on ~~the~~a ~~case~~current ~~with~~usage ~~our~~rate ~~previous bank operating line~~ of ~~credit that~~approximately ~~was~~$550,000 ~~never utilized~~per month, ~~the~~our ~~Dutchess~~current ~~Investment~~cash ~~Agreement~~position ~~for~~and anworking ~~equity~~capital, ~~line~~our of credit ~~has~~agreements ~~been~~with HSBC ~~established~~Bank toCanada ~~provide~~and ~~back-up~~Export ~~capabilities~~Development ~~should~~Canada, ~~the timing of~~ our ~~contractual~~anticipated ~~progress~~revenue ~~payments prove temporarily insufficient to enable us to~~from ~~pay~~operations ~~our vendors~~ and ~~suppliers~~the onavailability ~~agreed~~of ~~terms.~~the AsMEGTEC ofcredit ~~March 31~~facility, ~~2012,~~we nobelieve ~~common~~that: ~~stock had been sold to Dutchess under this agreement.~~

~~Our~~we ~~backlog~~will ashave atsufficient ~~March~~capital ~~31,~~resources ~~2012~~to ~~was~~support ~~approximately~~our ~~$10.4~~operations ~~million,~~ through ~~compared to~~ the ~~March~~consummation ~~31, 2011 backlog~~ of ~~$8.9~~the ~~million,~~merger ~~with approximately 39%~~ (expected to ~~convert~~close tolate ~~revenue~~in bythe ~~June~~fourth quarter ~~30,~~of calendar 2012. Weor ~~can~~early ~~offer no~~in ~~assurances~~the ~~that~~first ~~backlog~~quarter ~~will~~of becalendar ~~replicated,~~2013); ~~increased~~ or ~~converted at current~~ ~~value into revenues in the future.~~
~~Based~~if onthe ~~our~~merger ~~cash~~is ~~position~~terminated ~~and~~or ~~working~~not ~~capital~~approved at ~~March 31, 2012, our credit agreements with HSBC Bank Canada and Export Development Canada, our access to an equity line of credit with Dutchess (which was not accessible at March 31, 2012 as~~ the ~~market~~special ~~price~~meeting of ~~$0.31 was below the floor price of~~ ~~$0.33)~~ stockholders, ~~and our backlog of orders and anticipated sales orders through fiscal 2012 and 2013,~~ we ~~have substantial doubt that we~~ will have sufficient capital resources, toafter ~~support~~payment ~~operations~~of expenses ~~through~~related to the ~~next twelve months. We are actively pursuing additional financing~~merger, ~~although~~to ~~there~~support ~~can~~our beoperations nofor ~~certainty with respect~~approximately to six ~~the~~months ~~timing~~following ~~and~~such ~~receipt~~termination ofor ~~such financing~~non-approval.

As indicated above, if the merger is not consummated, we will not have sufficient capital resources to support our operations for the next twelve months. Unless we are able to find another source of financing to support our operations, it is possible that we would be required to cease operations, in which event investors could lose all of their investment in our company.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign transactions are conducted in Canadian dollars, USU.S. dollars or Euro to accommodate customers and all reporting is prepared in USU.S. dollars. A major portion of our selling, administrative and engineering expenses is denominated in Canadian dollars, As a result, fluctuations in currency exchange rates may affect operating results. We have not entered into forward or future foreign exchange contracts in fiscal 2013, and there were no outstanding forward foreign exchange contracts at September 30, 2012. To mitigate currency exposure, we attempt to contract outsourcing, where practical, in the same currency as the sales contract or with fabricators where the all-in costs, including currency, are most favorable. We do not engage in trading market risk sensitive instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk, other than as noted.

ITEM 4: CONTROLS AND PROCEDURES

Our management has carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of ~~March~~September 3130, 2012. ~~Based~~ Based upon that evaluation, our Chief Executive Officer and Chief Financial ~~Officer~~ Officer concluded that our disclosure controls and procedures were effective as of ~~March 31~~September 30, 2012.

There has not been any change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended ~~March~~September 3130, 2012 that has materially affected, or is ~~reasonably~~ reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION ~~ITEM 1: LEGAL PROCEEDINGS~~

ITEM 1: LEGAL PROCEEDINGS

Not applicable.

ITEM 1A: RISK FACTORS

There have been no material changes in the risk factors from those disclosed in Item 1A of our annual report on Form 10-K for the year ended June 30, ~~2011~~2012.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5: OTHER INFORMATION

Not applicable

ITEM 6: EXHIBITS

Exhibit 31.1	Rule 13a-14(a)/15d-14(a) Certifications
Exhibit Number	Exhibit Description
Exhibit 32.1	Section 1350 Certifications
2.1	Agreement and Plan of Merger, dated as of October 10, 2012, by and among MEGTEC Systems, Inc., MTS WSP, Inc. and TurboSonic Technologies, Inc. (1)
Exhibit 101	The following financial information from TurboSonic Technologies, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Statements of (Loss) and Comprehensive (Loss) for the three months ended March 31, 2012 and 2011, (ii) Consolidated Condensed Balance Sheets at March 31, 2012 and June 30, 2011, (iii) Consolidated Condensed Statements of Cash Flows for the three months and nine months ended March 31, 2012 and 2011, (iv) Notes to Consolidated Condensed Financial Statements
4.1	Secured Promissory Note, dated as of October 10, 2012, among TurboSonic Technologies, Inc., TurboSonic Canada Inc. and TurboSonic Inc., as borrowers, and MEGTEC Systems, Inc., as lender thereto (1)
10.1	Intellectual Property License Agreement, dated as of October 10, 2012, by and between MEGTEC Systems, Inc. and its direct, wholly-owned subsidiaries, as licensee, and TurboSonic Technologies Inc. and TurboSonic Inc. and their direct wholly-owned subsidiaries, as Licensor (1)
10.2	Second Lien Security Agreement, dated as of October 10, 2012, by and between TurboSonic Technologies, Inc., as debtor, and MEGTEC Systems, Inc., as secured party (1)
10.3	Trademark Security Agreement, dated as of October 10, 2012, by and between TurboSonic Technologies, Inc., as debtor, and MEGTEC Systems, Inc., as secured party (1)
10.4	Patent Security Agreement, dated as of October 10, 2012, by and between TurboSonic Technologies, Inc., as debtor and MEGTEC Systems, Inc., as secured party (1)
10.5	General Security Agreement, dated as of October 10, 2012, by and among TurboSonic Technologies, Inc., TurboSonic Canada, Inc. and TurboSonic Inc., as debtors, and MEGTEC Systems, Inc., as secured party (1)
31.1	Rule 13a-14(a)/15d-14(a) Certifications
31.2	Rule 13a-14(a)/15d-14(a) Certifications
32.1	Section 1350 Certifications
101	The following financial information from TurboSonic Technologies, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Condensed Statements of (Loss) and Comprehensive Income (Loss) for the three months ended September 30, 2012 and 2011, (ii) Consolidated Condensed Balance Sheets at September 30, 2012 and June 30, 2012, (iii) Consolidated Condensed Statements of Cash Flows for the three months ended September 30, 2012 and 2011, and (iv) Notes to Consolidated Condensed Financial Statements.

__________

(1)	Filed on October 15, 2012 as an exhibit to our Current Report on Form 8-K, dated October 10, 2012, and incorporated herein by reference.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: ~~May~~November 1513, 2012

TURBOSONIC TECHNOLOGIES, INC.

By: /s/ Carl A. Young
       Carl A. Young
       Chief Financial Officer

19–20–

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