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 December 31, 2009

Commission File Number: 0-21832

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

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.

þ Yes o 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).

o Yes o 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.:

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

o Yes  þ No

As of February 10, 2010, there were 15,138,054 shares of common stock outstanding.

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, the concentration of our revenues among a small group of customers, 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 those expressed therein. 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, 2009 and other reports or documents that we have filed from time to time with the SEC.

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PART I: FINANCIAL INFORMATION

ITEM 1

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

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1: GENERAL

TurboSonic Technologies, Inc., directly and through subsidiaries (collectively “TurboSonic”), designs and markets integrated air pollution control, evaporative gas cooling/conditioning systems and liquid atomization technology to ameliorate or abate industrial environmental problems.

The unaudited 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 annual financial statements. The unaudited consolidated condensed financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the three-month and six-month periods ended December 31, 2009 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2010. These 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, 2009.

In accordance with Financial Accounting Standards Board (“FASB”) Codification topic, Subsequent Events, for the six months ended December 31, 2009, we evaluated, for potential recognition and disclosure, events that occurred prior to the filing of our Quarterly Report on Form 10-Q for the six months ended December 31, 2009 on February 12, 2010. No additional disclosure is required as a result.

FASB’s Statement No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, is a replacement of FASB Statement No. 162 (the Codification). The Codification has become the single source of authoritative non-government U.S. generally accepted accounting principles (GAAP), superseding various existing authoritative accounting pronouncements. The Codification eliminates the GAAP hierarchy contained in Statement No. 162 and establishes one level of authoritative GAAP. All other U.S. GAAP literature is considered non-authoritative. There was no change to our consolidated financial statements due to the implementation of the Codification other than changes in reference to various authoritative accounting pronouncements in our Notes to consolidated financial statements.

NOTE 2: WARRANTY

In accordance with the Guarantee topic of the FASB Codification, we are required to make the following disclosure regarding performance guarantees and product warranties.

As part of the normal sale of OEM systems, we have provided our customers with performance guarantees and product warranties. Most of our OEM system sales have an element of performance guarantee to ensure our custom-engineered equipment provided to our clients meets the level of performance anticipated. Performance issues raised by clients on projects are made and dealt with prior to final acceptance. Expenses incurred to that time are treated as project costs. We do not expect that any expenses incurred in resolving any of our current performance guarantees will have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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. The majority of issues raised on projects are made and dealt with prior to final acceptance. Expenses incurred to that time are treated as project costs. We carry a reserve based upon historical warranty claims experience. Additionally, warranty accruals are established on the basis of anticipated future expenditures as specific warranty obligations are identified and expensed directly to cost of sales. The following summarizes the accrual of product warranties that is recorded as part of other accrued charges in the accompanying consolidated condensed balance sheets:

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NOTE 4: INCOME TAXES

We believe our income tax provision at December 31, 2009 reflects a full accounting of our tax filings. We are not currently under Internal Revenue Service, state, local or foreign jurisdiction tax examinations. We recognize interest and penalties, as estimated or incurred, as selling, general and administrative expense. Our company is subject to ongoing review by tax authorities in the jurisdictions in which it operates. We regularly assess the status of any examinations and the potential for adverse outcomes to determine the adequacy of the provision for income taxes. Specifically, the Canada Revenue Agency (“CRA”) is currently conducting their initial review on the Scientific Research and Experimental Investment Tax Credit (“ITC”) elements of our company’s fiscal 2008 Canadian corporate tax filings. At this time, we cannot reasonably anticipate when the CRA will complete the remaining elements of its fiscal 2008 initial review; as such we have maintained a valuation allowance for deferred tax assets of $33,214 (25% of claim), related to Scientific Research and Experimental ITCs.

Details of the provision for income taxes are as follows:

NOTE 5: SHARE CAPITAL

No options to purchase shares of common stock were exercised in the second quarter of fiscal 2010, although options to purchase 8,000 shares of our common stock were exercised in the first quarter of fiscal 2010.

Options to purchase 20,000 shares of common stock were granted pursuant to the terms of the 2008 Stock Plan to each of the five independent directors of our company (100,000 in total) who were elected to serve at the December 10, 2009 annual meeting of stockholders. Such options have an exercise price equal to the market value of our common stock at the close of business on December 10, 2009 ($0.79 per share [Black-Scholes fair value $0.5416]), vest immediately and are exercisable for eight years from the date of grant. The stock-based compensation expense of $54,155 for the options granted to our independent directors was recognized in the second quarter of fiscal 2010. Options to purchase 25,000 shares of common stock were granted pursuant to the terms of the 2008 Stock Plan to each of our Chief Executive Officer and President and 15,000 to our Chief Financial Officer (65,000 in total) at the December 10, 2009 board meeting. Such options have an exercise price equal to the market value of our common stock at the close of business on December 10, 2009 ($0.79 per share [Black-Scholes fair value $0.6614]), vest at five years from the date of grant to our CEO and President and three years from the date of grant to our CFO and are exercisable for eight years from the date of grant. The stock-based compensation expense for the options granted to our executive officers will be recognized over the vesting periods. Stock-based compensation expense of $560 for the options granted to our executive officers was recognized in the second quarter of fiscal 2010. Stock-based compensation expenses are included as selling, general and administrative expenses in our financial statements.

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Options to purchase 20,000 shares of common stock were granted under the 2008 Stock Plan to each of the seven directors of our company (140,000 in total) who were elected to serve at the December 11, 2008 annual meeting. The options awarded to our directors have an exercise price of $0.30 per share [Black-Scholes fair value $0.223], which was the market value of our common stock at the close of business on December 11, 2008, vested immediately and are exercisable for eight years from the date of grant. The stock-based compensation expense for the options granted to our directors was recognized in the second quarter of fiscal 2009 [$31,166].

Additional stock-based compensation expense was recorded in Selling, General and Administrative expense in the six months ended December 31, 2009 totaling $19,248 ($19,248 for the six months ended December 31, 2008). The following table summarizes activity of stock options granted under our 2000, 2003 and 2008 Stock Plans for the six months ended December 31, 2009 and 2008:

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 December 31, 2009 of $0.86 and the excess over the exercise price for in-the-money options that would have been received by optionees if all options had been exercised on December 31, 2009.

NOTE 6: EARNINGS PER SHARE

Basic earnings per share is calculated based on the weighted average shares of common stock outstanding during the period. Diluted earnings per share is calculated based on the weighted average shares of common stock outstanding, plus the dilutive effect of stock options and warrants outstanding, calculated using the treasury stock method.

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NOTE 8: CONTINGENT LIABILITIES

On October 6, 2005 a statement of claim was filed against our company in the Ontario Superior Court of Justice (Canada) by Abuma Manufacturing Limited, one of our vendors, in which they claimed additional charges for work performed and refute our claim for back charges on a specific project. The claim is for CAD $95,647 in respect of unpaid accounts, CAD $50,000 for aggravated, punitive and/or exemplary damages, interest on the past due accounts and costs of the action. It is our position that the claims are without merit and we have filed a statement of defense and counter-claim. Each company has filed an affidavit of documents and discovery of TurboSonic has been conducted.

On November 10, 2009 a statement of claim was served against our company and one of our customers in the United States District Court, Western District of Pennsylvania by a competitor, in which it was claimed that a contract awarded to our company in June 2009 had infringed on one of their patents. The claim requests permanent enjoinment from further direct infringement, damages including prejudgment and post-judgement interest, an award of attorney’s fees and other costs and further relief as the Court may deem just and proper. It is our position that the claims are without merit and we will be filing a statement of defense and counter-claim.

NOTE 9: CREDIT FACILITY

We have a credit facility with a major Canadian bank for a total of CAD $6.55 million, including a demand loan for computer equipment of CAD $250,000. This facility will be reviewed for renewal early in calendar 2010. This facility includes a demand operating line of CAD $1.5 million secured by our receivables, a demand credit for standby letters of credit for USD $4.25 million secured by a general security agreement and guarantees provided by Export Development Canada on a fee-for-service basis, plus a demand credit for foreign exchange contracts for CAD $750,000. At December 31, 2009 we had standby letters of credit for approximately $1.9 million ($2.4 million at June 30, 2009) in place with various customers in order to receive cash proceeds ahead of customer-specified milestones, as well as an outstanding loan balance of $190,121. There were no drawdowns against the operating or foreign exchange credit lines at December 31, 2009 (nil at June 30, 2009).

NOTE 10: FAIR VALUE MEASUREMENT

We adopted the provisions of FASB Codification topic, Fair Value Measurements and Disclosures, on July 1, 2008. This Codification topic establishes a framework for measuring fair value and expands financial statement disclosures about fair value measurements. This Codification topic does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This Codification topic requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Items Measured at Fair Value on a Recurring Basis

The following table shows the fair value of our financial assets and financial liabilities that are required to be measured at fair value as of December 31, 2009.

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

Cash equivalents – Cash equivalents are investments in money market accounts and utilize level 1 inputs to determine fair value. Non-current cash equivalents are included in Other Assets on the face of the balance sheet.

Items Disclosed at Fair Value

Long-Term Debt – Our long-term debt obligations bear interest at annual rate interest rates ranging from a fixed rate of 1.9% to Canadian bank prime plus 1.25% . Total long-term debt outstanding as at December 31, 2009 amounted to $190,121. The fair value of our long-term debt obligations are not materially different than their respective carrying values due to their relative short-term maturities and the borrowing rates available as of December 31, 2009 for debt obligations with similar terms and conditions.

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

We design and market integrated air pollution control, evaporative gas cooling/conditioning systems and liquid atomization technology to ameliorate or abate industrial environmental problems. Our long-term prospects are built on product and market development, marketing agreements and geographic coverage to address regulatory progress as well as non-regulatory process improvement-driven projects, growth in energy generation and rising market projections. We believe that the trend toward a cleaner environment will continue through a confluence of regulations and public pressure, increasing the demand for our products and supporting our plans for growth.

Q2 Operating Results

After completing a record year in fiscal 2009, we are experiencing the effects of the economic downturn. Second quarter revenue decreased by 36% from $5,474,059 in the three months ended December 31, 2008 to $3,504,842 for the comparable period ending December 31, 2009. Over that same period, gross profit for the second quarter decreased $750,655 from $1,643,306 to $892,651, while net income decreased $600,510 from $302,552 to a loss of $297,958. Our backlog of orders at December 31, 2009 was approximately $2,300,000 compared to $13,800,000 at December 31, 2008.

As previously reported, we continue to face market uncertainties and requirements for cost containment as the timing of new opportunities are impacted by the slow economic recovery. The recession has affected our primary business sectors, causing capital expenditures to be deferred, including a significant delay in new “greenfield” plant construction. This has also resulted in the closure of facilities such as wood products plants, which impacts aftermarket service and replacement parts orders. We continue to curtail expenditures and focus our sales force on core business opportunities.

We are encouraged by the increased activity since the end of calendar 2009 in domestic and international markets and believe that our current sales prospects are better than they were during the past 8 months. We expect that favorable market receptivity to our new Catalytic Gas Treatment ("CGT') product launch, combined with our business sectors' regulatory compliance needs, will support a period of strong demand for our products and services.

Our New Technology

We hold the exclusive worldwide marketing rights to CGT, a technology that reduces hazardous air pollutants such as formaldehyde and can result in a reduction in greenhouse gas emissions. This technology offers a return on investment based on the elimination of fuel combustion in traditional non-renewable fuel-based thermal treatment technologies, and does not necessarily depend on new regulations to drive demand. The first U.S. installation is expected to start up during our third quarter of the current fiscal year. Several European and North American customers are currently evaluating the CGT technology for use in their facilities.

Environmental Regulation

Government initiatives taken to enforce new regulations to mitigate effects of air pollution are the primary driver for the air pollution control technology market. Sources of air pollution in our markets include a broad range of facilities in Cement, Chemical and Mineral Processing, Ethanol and Biofuels production, Metallurgical, Petrochemicals, Power Generation, Pulp and Paper, Waste Incineration, and Wood Products industries, among others. They emit regulated pollutants including sulfur dioxide, nitrogen oxides, particulate matter, including heavy metals, and volatile organic compounds (“VOCs”).

A significant part of our business relies on environmental regulations. We are in a gap between the setting of policy and implementation of regulations with a new SO2 regulation coming into effect in the US on June 2, 2010, and the new US Boiler MACT (“maximum achievable control technologies”) regulations for industrial boiler emissions expected at the end of this calendar year. We have a significant amount of installed references across industries that we expect to be impacted by these new regulations and therefore expect these new regulations to bring increased activity for us.

Our Business

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

Sales opportunities are sourced directly with the end user by our independent sales representatives or by our internal sales team and through the recommendation of engineering firms. We have sales, project management and field service personnel in remote offices to support local markets.

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

We provide all process engineering and the detailed design and specifications for all applicable structural, electrical, mechanical and chemical components of such system. We subcontract the manufacturing of designs. When customer contracts include installation we subcontract the service. Our project managers and quality assurance personnel supervise, and manage all aspects of our contracts to ensure we meet the performance criteria, as agreed with our customers.

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We conduct business in Canadian, US and European currency to accommodate customers and mitigate our exchange risk through matching the sales currency with the supplier currency where practical. We participated in foreign exchange hedging activities during the fiscal year ended June 30, 2009. There were no outstanding forward contract commitments at December 31, 2009. We do not consider our company significantly exposed to exchange fluctuations.

Three Months ended December 31, 2009 Compared with Three Months ended December 31, 2008

3 MONTH COMPARATIVE INCOME STATEMENTS AT DECEMBER 31, 2009 AND 2008

OEM systems revenue decreased 40% for the three month period ended December 31, 2009 over the comparable period in fiscal 2009, due primarily to the sale of Wet Electrostatic Precipitators (WESPs) systems and retrofits to the wood products industry (32% of decrease), and evaporative gas cooling systems to the cement industry (155% of decrease) for the three month period ended December 31, 2008 not being repeated over the same period in fiscal 2010. These reductions were partially offset by the sale of a CGT system to the wood products industry (38% of decrease) and semi-dry scrubbing systems to the cement industry (44% of decrease).

The cost of sales for OEM systems decreased 34% for the three month period ended December 31, 2009 over the same period in the prior year, which reflects the decreased revenue volume together with higher contract costs when compared to the prior year. The higher contract costs are the result of contracts including significant outsourced turnkey construction components at low margins in two of our large contracts.

As a result, gross profit on OEM systems in the second quarter of fiscal 2010 was 16% and in the same period in fiscal 2009 was 23%. Relative to total revenue for our company, OEM Systems contributed gross profit of $367,012 (10%) in the second quarter of fiscal 2010 and $895,939 (16%) for the same period in fiscal 2009.

Aftermarket revenues decreased 27% for the three month period ended December 31, 2009 over the same period in the prior fiscal year due mostly to decreased evaporative cooling (25% of decrease) and semi-dry scrubber (45% of decrease) component shipments, together with reduced levels of WESP spare parts shipments (25% of decrease). We have experienced a decreased volume of spare parts as our customers have curtailed production.

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The cost of sales for Aftermarket products decreased 25% for the three month period ended December 31, 2009 over the same period in fiscal 2009, which reflects the lower revenue volume together with a lower gross profit return of 45% in fiscal 2010 compared to 47% in fiscal 2009. The gross profit attributable to Aftermarket increased from 14% on total revenue for the three month period ended December 31, 2008 to 15% in the same period in fiscal 2010. This percentage change was the result of the decrease in OEM volume and gross profit in the current quarter.

The gross profit contribution from OEM systems in fiscal 2010 decreased 59% over fiscal 2009, and Aftermarket gross profit contributions in fiscal 2010 decreased 30% over fiscal 2009. This was due to the change in mix of revenues between the reporting segments and the decreased OEM revenues as a percentage of total revenue.

Selling, general and administrative expenses increased $147,420 (13%) for the three-month period ended December 31, 2009 over the prior fiscal year. This increase is due to increased patent fees (20% of increase), increased stock-based compensation expense (16% of increase) and increased sales personnel salaries and benefits (65% of increase). As a percentage of total revenue, selling, general and administrative expenses were 38% for the three month period ended December 31, 2009 compared to 21% in the comparable period in fiscal 2009. Research and development costs increased $25,418 (159%) for the three month period ended December 31, 2009 compared the same period one year ago. The increase is the result of the increased activity levels on projects commenced in the prior fiscal year. Depreciation of $49,911 was recorded in the current quarter compared to $31,218 for the same period one year earlier.

The decrease of $3,384 in interest earned is due to the lower cash balances and reduced interest rates experienced in fiscal 2010 versus those of fiscal 2009.

Income before taxes decreased by $945,570 for the three-month period ended December 31, 2009 over the comparable period in the same period in the prior year. This decrease reflects lower gross profit achieved in the second quarter of fiscal 2010 together with increased expenses compared to those recorded in the second quarter of fiscal 2009.

Recovery of income taxes for the second quarter of fiscal 2010 was $222,408 compared to a provision for income taxes of $122,652 for the comparable period in fiscal 2009 as the result of the decreased revenue and gross profit, increased expenses and the recognition of a Canadian ITC relative to our 2008 corporate tax filing [see note 4 to the Consolidated Condensed Financial Statements].

The foreign currency translation adjustment reflects the exchange values for Canadian dollar and Euro accounts on the balance sheet converted to US dollars. The statement of comprehensive income reflects an increase in the carrying value of these accounts of $41,906 during the second quarter of fiscal 2010 while the shareholders’ equity carries the cumulative value of currency exchange for balance sheet accounts.

Six Months ended December 31, 2009 Compared with Six Months ended December 31, 2008

6 MONTH COMPARATIVE INCOME STATEMENTS AT DECEMBER 31, 2009 AND 2008

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OEM systems revenue increased 15% for the six month period ended December 31, 2009 over the same period in fiscal 2009, due primarily to the sale of a CGT system to the wood products industry (214% of increase), DeNox systems (10% of increase) and a semi-dry scrubbing system to the cement industry (111% of increase) partially offset by the sale of Wet Electrostatic Precipitators (WESPs) retrofits to the wood products industry (62% of increase) and evaporative gas cooling systems to the cement industry (172% of increase) for the six month period ended December 31, 2008 not being repeated over the same period in fiscal 2010.

The cost of sales for OEM systems increased 25% for the six month period ended December 31, 2009 over the same period in the prior year, which reflects the increased revenue volume together with higher contract costs when compared to the prior year. The higher contract costs are the result of contracts including significant outsourced turnkey construction components at low margins in two of our large contracts.

As a result, gross profit on OEM systems in the first half of fiscal 2010 was 15% and in the same period in fiscal 2009 was 22%. Relative to total revenue for our company, OEM Systems contributed gross profit of $1,383,764 (12%) in the first half of fiscal 2010 and $1,779,129 (17%) for the same period in fiscal 2009.

Aftermarket revenues decreased 28% for the six month period ended December 31, 2009 over the same period in the prior fiscal year due mostly to decreased wet scrubber components (58% of decrease) and evaporative gas cooling (22% of decrease) and WESP (14% of decrease) spare parts shipments, together with reduced levels of field service (10% of decrease). We have experienced a decreased volume of spare parts sales as our customers have curtailed production.

The cost of sales for Aftermarket products decreased 20% for the six month period ended December 31, 2009 over the same period in fiscal 2009, which reflects a lower gross profit return of 39% in fiscal 2010 compared to 46% in fiscal 2009. This change was due to lower gross profit percentages on spare parts, as the result of the curtailed customer production. The gross profit attributable to Aftermarket decreased from 10% on total revenue for the six month period ended December 31, 2008 to 6% in the same period in fiscal 2010. This percentage change was the result of the decreased OEM gross profit and the reduced Aftermarket revenue and gross profit in the current quarter.

The gross profit contribution from OEM systems in fiscal 2010 decreased 22% over fiscal 2009, and Aftermarket gross profit contributions in fiscal 2010 decreased 39% over fiscal 2009. This was due to the change in mix of revenues between the reporting segments and the decreased aftermarket revenues as a percentage of total revenue.

Selling, general and administrative expenses increased $58,761 (3%) for the six-month period ended December 31, 2009 over the prior fiscal year. This increase is due to increased sales personnel salaries and benefits (172% of increase), patent fees (60% of increase), legal fees (25% of increase) and stock-based compensation expense (40% of increase) less the reversal of a bad debt collected in the current year (200% of increase). As a percentage of total revenue, selling, general and administrative expenses were 21% for the six month period ended December 31, 2009 compared to 22% in the comparable period in fiscal 2009. Research and development costs increased $71,202 (166%) for the six month period ended December 31, 2009 compared the same period one year ago. The increase is the result of the increased activity levels on projects commenced in the prior fiscal year. Depreciation of $96,452 was recorded in the current half year compared to $73,067 for the same period one year earlier. The decrease of $7,924 in interest earned is due to the lower cash balances and reduced interest rates experienced in fiscal 2010 versus those of fiscal 2009.

Income before taxes decreased by $985,730 for the six-month period ended December 31, 2009 over the comparable period in the same period in the prior year. This decrease reflects lower gross profit achieved and increased expenses in the first half of fiscal 2010 compared to those recorded in the first half of fiscal 2009.

Recovery of income taxes for the first six months of fiscal 2010 was $215,516 compared to a provision for income taxes of $157,367 for the comparable period in fiscal 2009 as the result of the decreased aftermarket revenue and gross profit and the recognition of a Canadian ITC relative to our 2008 corporate tax filing [see note 4 to the Consolidated Condensed Financial Statements].

The foreign currency translation adjustment reflects the exchange values for Canadian dollar and Euro accounts on the balance sheet converted to US dollars. The statement of comprehensive income reflects an increase in the carrying value of these accounts of $271,056 during the first quarter of fiscal 2010 while the shareholders’ equity carries the cumulative value of currency exchange for balance sheet accounts.

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During the six-month period ended December 31, 2009, cash was applied to operations for $3,772,052 as compared to the same fiscal period in 2009 when cash was applied to operations for $66,458. The application of cash to operations in fiscal 2010 is due to timing of contract completion and payment terms.

The working capital position increased to $4.8 million at December 31, 2009 from $3.3 million at December 31, 2008 as contract volumes increased. The current ratio increased to 2.13:1 as at December 31, 2009 from 1.67:1 at December 31, 2008. Our contract payment terms provide for funding the progression of work to the point of delivery. A final holdback amount is often dependent on commissioning, specified performance criteria or a fixed time of operations. At any point in time, the contracts in process with costs that exceed invoicing may be greater than the contracts that have been invoiced in advance of performance. At December 31, 2009, the net position of contracts in progress is an investment of $519,680 compared to December 31, 2008 with advance payments of $2,454,107.

We have a credit facility with a major Canadian bank for a total of CAD $4.5 million, including a demand loan for computer equipment of CAD $ 250,000. This facility will be reviewed for renewal early in calendar 2010. This facility includes a demand operating line of CAD $1.5 million secured by our receivables, a demand credit for standby letters of credit for CAD $2.0 million secured by a general security agreement and guarantees provided by Export Development Canada, on a fee-for-service basis, plus a demand credit for foreign exchange contracts for CAD $750,000. The demand credit for standby letters of credit was subsequently increased in June 2009 to US $4.25 million, bringing the total credit facility value at December 31, 2009 to US $6.55 million. At December 31, 2009 we had standby letters of credit for approximately $1.9 million ($2.4 million at June 30, 2009) in place with various customers in order to receive cash proceeds ahead of customer-specified milestones, as well as an outstanding loan balance of $190,121. There were no drawdowns against the operating or foreign exchange credit lines at December 31, 2009 (nil at June 30, 2009).

Our backlog as at December 31, 2009 was approximately $2,300,000, compared to the December 31, 2008 backlog of $13,800,000, with approximately 100% expected to convert to revenue by June 30, 2010. There are no assurances that backlog will be replicated, increased or converted at current value into revenues in the future.

In summary, we believe that we have sufficient capital resources to support anticipated operations through fiscal 2010.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Foreign transactions are conducted in Canadian dollars, US dollars or Euro to accommodate customers and all reporting is prepared in US dollars. As a result, fluctuations in currency exchange rates may affect operating results. To mitigate currency exposure, we attempt to contract outsourcing, where practical, in the same currency as the sales contract 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.

We had entered into contracts to hedge certain third-party transactions denominated in foreign currencies forecasted to occur in fiscal 2009. These contracts expired at June 30, 2009.

At December 31, 2009, we had outstanding standby letters of credit totaling $1.9 million and an outstanding loan balance of $190,121, that could subject us to the risk of interest rate fluctuations.

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 December 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2009.

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 December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

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, 2009.

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

Not applicable

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

The Annual Meeting of Stockholders was held December 10, 2009.

The voting results of the meeting were as follows:

* - At the meeting of the board of directors following the Annual Meeting of Stockholders, Ken Kivenko was appointed Chairman of the Board of Directors, Richard Hurd was appointed Chairman of the Audit & Governance Committee and Glen Wright was appointed Chairman of the Human Resources and Compensation Committee.

ITEM 5: OTHER INFORMATION

On February 12, 2010, we issued a press release announcing our financial results for the quarter and six months ended December 31, 2009. A copy of the press release is being furnished as Exhibit 99.1 to this report and incorporated herein by reference.

ITEM 6: EXHIBITS

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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: February 12, 2010

TURBOSONIC TECHNOLOGIES, INC.

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

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