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, 2010

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. 

[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).

[   ] 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:

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 February 18, 2011, there were 18,554,112 shares of common stock outstanding.

TURBOSONIC TECHNOLOGIES, INC. AND SUBSIDIARIES

FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 2010

TABLE OF CONTENTS

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, 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, 2010 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)
AND COMPREHENSIVE (LOSS)

See accompanying notes

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CONSOLIDATED CONDENSED BALANCE SHEETS

See accompanying notes

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes

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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 patented and proprietary integrated air pollution control and liquid atomization technology, including industrial gas cooling/conditioning systems, to ameliorate or abate industrial environmental problems. We rely on a combination of patents, trade- and service-marks, trade secrets and know-how to protect our proprietary technology and rights. We own 16 unique patents and patents pending in domestic and multiple international jurisdictions relating to a variety of air pollution control applications. Two other patents had expired in January 2011; however, we do not expect that their expiration will have a negative impact on our future revenue.

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 and six month periods ended December 31, 2010 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2011. 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, 2010.

In December 2010, the FASB issued ASU 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350)—Intangibles—Goodwill and Other (“ASU 2010-28”). ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, which is our interim fiscal period beginning January 1, 2012. We do not believe that the adoption of ASU 2010-28 will have a material impact on our consolidated financial statements.

In January 2010, the FASB issued ASU 2010-06 Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amends ASC Topic 820 to add new requirements for disclosures about transfers into and out of Level 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. ASU 2010-06 is effective for the first reporting period beginning after December 15, 2009, which 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 has not had a material impact on our company. We are currently assessing the impact of adoption of revised Level 3 disclosures.

In October 2009, the FASB issued ASU 2009-13, –Multiple Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (“ASU 2009-13”). ASU 2009-13 amends ASC Subtopic 605-25 - Revenue Recognition: Multiple-Element Arrangements (“ASC Subtopic 605-25”). Specifically ASU 2009-13 amends the criteria for separating consideration in multiple-deliverable arrangements and establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. The guidance eliminates the use of the residual method, requires entities to allocate revenue using the relative-selling-price method, and significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010, which is our fiscal year beginning July 1, 2010. The adoption of ASU 2009-13 effective July 1, 2010 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 have an element of performance guarantee to ensure our custom-engineered equipment provided to our clients meets the level of performance anticipated. Performance tests for projects are completed and resolved to the client’s satisfaction prior to final acceptance and closure of the contract. Expenses incurred to that time 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:

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NOTE 2: WARRANTY cont’d

NOTE 3: COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

NOTE 4: INCOME TAXES

Details of the provision for income taxes are as follows:

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NOTE 5: SHARE CAPITAL

On December 10, 2010 we consummated our registered rights offering that we had made to our existing stockholders of record as of November 8, 2010 to acquire one share of our common stock for each two shares then held by such persons at a price of $0.34 per share. Stockholders exercised subscription rights to acquire 1,601,611 shares and oversubscription rights to acquire an additional 1,814,447 shares, resulting in our sale of an aggregate of 3,416,058 newly issued shares and our receipt of gross proceeds of $1,161,460 (net proceeds of $855,427). Such proceeds were added to our working capital for marketing opportunities stemming from both recent and anticipated enactments by the U.S. Environmental Protection Agency (EPA) of more stringent emission standards and rules for certain hazardous air pollutants.

Pursuant to the terms of the 2008 Stock Plan, options to purchase 20,000 shares of common stock were granted to each of the five independent directors of our company (100,000 in total) who were elected to serve at the December 9, 2010 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 9, 2010 ($0.31 per share [Black-Scholes fair value $0.21]), vest immediately and are exercisable for 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 9, 2010 board meeting. Such options have an exercise price equal to the market value of our common stock at the close of business on December 9, 2010 ($0.31 per share [Black-Scholes fair value $0.26]), vest in five years from the date of grant to our Chief Executive Officer and to our President and three years from the date of grant to our Chief Financial Officer and expire eight years from the date of grant.

Stock-based compensation expenses of $23,347 for the three months ended December 31, 2010 and $25,827 for the six months ended December 31, 2010 [$64,339 for the three months ended December 31, 2009 and $73,963 for six months ended December 31, 2009] are included as selling, general and administrative expenses in our financial statements.

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

The following table summarizes activity of stock options granted under our 2000, 2003 and 2008 Stock Plans for the six months ended December 31, 2010:

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, 2010 of $0.27 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, 2010.

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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 and six month periods ended December 31, 2010 and 2009, we incurred net losses; therefore, the diluted loss per common share excludes the effects of all options outstanding, since their inclusion would be anti-dilutive.

NOTE 7: SEGMENT INFORMATION

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

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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 refuted our claim for back charges on a specific project. The claim is for CAD $95,647 in respect of unpaid accounts, CAD $50,000 for aggravated, punitive and/or exemplary damages, interest on the past due accounts and costs of the action. It is our position that the claims are without merit and we have filed a statement of defense and counter-claim. Each company has filed an affidavit of documents and discovery of both has been conducted. Legal counsel for Abuma have filed their Trial Record (February 2011) indicating their readiness to proceed to trial. It is still our contention that the claims are without merit. As such, there is no accrual for an adverse outcome.

NOTE 9: CREDIT FACILITY

During fiscal 2010, we renewed a credit facility with a major Canadian bank for a total of USD $6.4 million, together with a demand loan for computer equipment. This facility includes a demand operating line of CAD $1.5 million secured by our receivables, a demand credit for standby letters of credit for USD $4.25 million secured by a general security interest in and lien upon our assets (including our patents) and guarantees provided by Export Development Canada on a fee-for-service basis, plus a demand credit for foreign exchange contracts for USD $750,000. At December 31, 2010 we had standby letters of credit for approximately $1.5 million ($2.0 million at June 30, 2010) in place with various customers in order to receive cash proceeds ahead of customer-specified milestones. Our term bank loan outstanding was $111,723 and there were no drawdowns against the operating or foreign exchange credit lines at December 31, 2010 (nil at June 30, 2010).

NOTE 10: FAIR VALUE MEASUREMENT

Fair value disclosure and interest rate risk

We did not have any financial instruments carried at fair value for which the fair value hierarchy disclosure is required. Long-Term Debt – Our long-term debt obligations bear interest at an annual interest rate of Canadian bank prime plus 1.25%. Total long-term debt outstanding as at December 31, 2010 amounted to $111,723 ($143,519 at June 30, 2010). 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, 2010 and June 30, 2010 for debt obligations with similar terms and conditions are consistent with the interest rates charged on the long-term debt. Note that interest rate fluctuations may impact the total owing on long-term debt.

Credit risk

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

Our cash balances are maintained in one United States chartered bank, which is an AA rated financial institution, in two Canadian chartered banks, which are AA rated financial institutions and in one Italian chartered bank, which is an AA rated financial institution.

Currency Risk

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

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

Our Business

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

Sales are frequently attained through the recommendation of engineering firms who are often engaged in complete plant installations or upgrades. Other sales opportunities are sourced directly with the end user by our independent sales representatives or by our internal sales team.

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 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 to ensure we meet the performance criteria, as agreed with our customers.

We conduct business in Canadian, US and European currency to accommodate customers and mitigate our exchange risk through matching the sales currency with the supplier currency where practical. Environmental awareness, government regulations and our sales efforts drive the demand for our technologies. Geographic diversification and industry diversification contribute to market scope and strategies for growth. We are committed to developing innovative product offerings and forming technology partnerships, in response to new and existing regulations to better address demands for a greener industry and a reduction in consumption of non-renewable resources.

In the midst of the accelerated worldwide push for a cleaner world, we have two objectives: to increase shareholder value and deliver clean-air solutions to our customers We believe that the trend toward a cleaner environment will continue through a confluence of government regulations and public pressure, increasing the demand for our products and supporting our plans for growth.

Q2 Operating Results

Our low backlog of orders at the end of our 2010 fiscal year carried into our current fiscal year, and when coupled with low bookings in the first quarter of our current fiscal year, has resulted in disappointing operating results. Revenues decreased by 51% to $1.7 million in the three months ended December 31, 2010 over the same period ending December 31, 2009. In these comparable periods, gross profit decreased 74% to $230,666 and before-tax income decreased 115% to a loss of $1,118,880. Our backlog of orders at December 31, 2010 was approximately $8.4 million compared to $2.3 million at December 31, 2009. The increased activity in inquiries and interest in our range of products that we disclosed in our quarterly report on Form 10-Q for the three month fiscal period ended September 30, 2010 has yielded orders totaling $8.1 million in the six month period ended December 31, 2010. These orders, generally, are unrelated to both recently enacted and anticipated US EPA regulations, which are expected to influence new projects going forward.

Markets

We have continued to work on long term strategies to enhance our technologies, establish marketing agreements for complimentary products and develop international growth markets. These efforts have resulted in an increase in orders from international markets and we anticipate that this trend will continue for the proximate future.

We believe that economic recovery and new regulations will increase demand for our products in our established markets. A significant part of our business has relied historically on environmental regulation to drive demand for our products and systems. To compliment 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 very competitive advantage to former equipment solutions supplied by others. These new technologies in prototype stages have already contributed over $4 million to our revenues in the past 19 months and they are expected to become mainstream products for our company in fiscal 2012.

Environmental Regulation

Government initiatives taken to mitigate effects of air pollution are the primary driver for the air pollution control technology market.

The EPA’s newest regulations are expected to increase the demand for our products. Regulations for reduction of sulfur dioxide emissions, which went into effect on August 23, 2010 for coal-fired power plants, pulp and paper mills, metallurgical smelters and cement kilns, and Portland Cement MACT, designed to reduce hazardous air pollutants from the cement industry, went into effect on November 8, 2010. Boiler MACT (Maximum Achievable Control Technology) regulations for industrial boiler emissions control are expected to be published in the public registry on February 23, 2011 and would become law 60 days thereafter. We believe that these recently enacted and anticipated regulations will affect industries in which TurboSonic has years of experience, a large client base, and proven technologies for compliance.

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New Technology

Our first US installation of Catalytic Gas Treatment (CGT™), a new patented technology to which TurboSonic has exclusive worldwide marketing rights, has been successfully demonstrated to exceed performance requirements and guarantees. There is now considerable interest in CGT technology by industry in Europe and North America due to the many benefits of the technology. It operates with a catalyst and replaces traditional equipment operated by natural gas fuel to provide significant consumption savings. Regulators support CGT technology to eliminate use of non-renewable fuels for destruction of volatile organic compounds, which produce large volumes of combustion related greenhouse gas emissions.

Three Months ended December 31, 2010 Compared with Three Months ended December 31, 2009

3 MONTH COMPARATIVE INCOME STATEMENTS AT DECEMBER 31, 2010 AND 2009

OEM systems revenue decreased 64% for the three-month period ended December 31, 2010 over the comparable period ended December 31, 2009. This was primarily due to the low level of orders in the fiscal 2011 opening backlog. New orders in our second fiscal quarter will contribute to revenues over the next several quarters.

OEM orders booked were $0.8 million in Q1 and $7.3 million in Q2 for a total of $8.1 million for the six months ended December 31, 2010. Revenues are generally recognized on the percentage of completion method for OEM products, with completion ranging over a production period of 6 to 12 months depending on the scope and terms of the contract. Of the $8.1 million in orders, under $100,000 had been recognized as revenue by December 31, 2010, as the contracts were just underway. The balance of OEM revenue for the period was recognized from the opening order backlog for the fiscal year.

The cost of sales for OEM systems decreased 57% for the three month period ended December 31, 2010 over the comparable period in the prior year, which reflects the decreased revenue volume in the second quarter of fiscal 2011.

As a result, gross profit on OEM systems in the second quarter of fiscal 2011 was 0% and in the same comparable period in fiscal 2009 was 10%. OEM systems contributed a negative gross profit of $7,000 in the second quarter of fiscal 2011 and a positive gross margin of $367,012 (10% of total revenue) for the same period in fiscal 2010. This low margin for the second quarter of fiscal 2011 was an isolated cost overrun on a contract.

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Aftermarket revenues decreased 25% for the three-month period ended December 31, 2010 over the same period in the prior fiscal year. This also reflected a decline in orders. Aftermarket orders (spare parts, components, service) are recognized as revenue in the month of completion, usually the first or second month from order. Revenues for aftermarket products were $0.8 million for the second quarter of fiscal 2011.

The cost of sales for Aftermarket products decreased 1% for the three-month period ended December 31, 2010 over the same period in fiscal 2010. Gross profit on aftermarket products decreased 55% for the three-month period ended December 31, 2010. Of this gross profit reduction, 28% was attributable to reduced revenue in fiscal 2011, 6% to a large service project at reduced margin, and 66% to favorable variances in fiscal 2010 not repeated in the current fiscal period.

Selling, general and administrative expenses decreased $30,589 (2%) for the three-month period ended December 31, 2010 over the same period in the prior year. As a percentage of total revenue, selling, general and administrative expenses were 76% of total revenue for the three-month period ended December 31, 2010 compared to 38% of total revenue in the comparable period in fiscal 2010. Research and development costs decreased $26,153 (63%) for the three-month period ended December 31, 2010 compared to the same period one year ago, due to decreased project activity. Depreciation of $42,342 was recorded in the current quarter compared to $49,911 for the same period one year earlier.

Loss before taxes of $1,118,880 for the three-month period ended December 31 2010 exceeded the loss of $520,366 in the comparable period in the prior year. The loss reflects lower sales volume and lower gross profit achieved in the second quarter of fiscal 2011 compared to those recorded in the second quarter of fiscal 2010.

Recovery of income taxes for the second quarter of fiscal 2011 was $179,569 compared to recovery of income taxes of $222,408 for the comparable period in fiscal 2010 as the result of the losses from operations in both comparable periods.

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 an increase in the carrying value of these accounts of $120,530 during the second quarter of fiscal 2011 while the stockholders’ equity carries the cumulative value of currency exchange for balance sheet accounts.

Six Months ended December 31, 2010 Compared with Six Months ended December 31, 2009

6 MONTH COMPARATIVE INCOME STATEMENTS AT DECEMBER 31, 2010 AND 2009

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OEM systems revenue decreased 73% for the six month period ended December 31, 2010 over the same comparable period in fiscal 2009. This was primarily due to the low level of orders in the fiscal 2011 opening backlog. The cost of sales for OEM systems decreased 70% for the six month period ended December 31, 2010 over the same comparable period in the prior year, which reflects the decreased revenue volume in the first six months of fiscal 2011.

As discussed in the three month comparison, OEM orders booked were $0.8 million in Q1 and $7.3 million in Q2 for a total of $8.1 million for the six months ended December 31, 2010. Of the $8.1 million in orders, under $100,000 had been recognized as revenue by December 31, 2010, as the contracts were just underway. The balance of OEM revenue for the period was recognized from the opening order backlog for the fiscal year.

The cost of sales for OEM systems decreased 70% for the six month period ended December 31, 2010 over the same period in the prior year, which reflects the decreased revenue volume in the first six months of fiscal 2011.

As a result, gross profit on OEM systems in the first half of fiscal 2011 was 7.7% and in the same comparable period in fiscal 2010 was 14.9%. Relative to total revenue for our company, OEM Systems contributed gross profit of $194,455 (4.6%) in the first half of fiscal 2011 and $1,383,764 (12.6%) for the same comparable period in fiscal 2010. These results are due to a few small OEM contracts in process from the fiscal 2011 opening backlog and are not indicative of usual performance with more normal order levels.

Aftermarket revenues were relatively unchanged for the six month period ended December 31, 2010 over the same period in the prior fiscal year. Revenues for aftermarket products were $1.7 million for both fiscal periods.

The cost of sales for Aftermarket products increased 10% for the six month period ended December 31, 2010 over the same period in fiscal 2010, which reflects a lower gross profit return of 33% in fiscal 2011 compared to 39% in fiscal 2010. This change was due to lower gross profit percentages on spare parts, as the result of favorable variances in fiscal 2010 not repeated in the current fiscal period. The gross profit attributable to Aftermarket increased to 13% of total revenue for the six month period ended December 31, 2010 from 6% in the same period in fiscal 2010. This percentage change was the result of the decreased total revenue and gross profit in the six-month period ended December 31, 2010.

Selling, general and administrative expenses increased $101,632 (4%) for the six-month period ended December 31, 2010 over the prior fiscal year. This increase was primarily due to increased professional fees for financing studies conducted in the period. As a percentage of total revenue, selling, general and administrative expenses were 57% for the six-month period ended December 31, 2010 compared to 21% in the comparable period in fiscal 2010. Research and development costs decreased $87,857 (77%) for the six month period ended December 31, 2010 compared the same period one year ago. The decrease is the result of lower project expenses commenced in the current fiscal year. Depreciation of $82,316 was recorded in the current half year compared to $96,452 for the same period one year earlier.

Loss before taxes of $1,790,574 for the six-month period ended December 31, 2010 compares to a loss of $496,247 for the comparable period in the prior year. This increase in loss of $1,294,327 reflects lower revenue values and lower gross profit achieved in the first half of fiscal 2011 compared to those recorded in the first half of fiscal 2010.

Recovery of income taxes for the first six months of fiscal 2011 was $412,423 compared to a recovery of income taxes of $215,516 for the comparable period in fiscal 2010 as the result of the decreased OEM revenue and gross profit.

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 loss reflects a decrease in the carrying value of these accounts of $203,436 during the first six months of fiscal 2011 while the stockholders’ equity carries the cumulative value of currency exchange for balance sheet accounts.

Liquidity and Capital Resources

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During the six-month period ended December 31, 2010, cash of $910,608 was applied to operations while during the six months in fiscal 2010, cash of $3,767,912 was applied to operations. The net change in cash flows applied to operations was due primarily to improved positions in accounts payable and unearned revenue and contract advances in the current fiscal period.

On December 10, 2010 we consummated our registered rights offering that we had made to our existing stockholders of record as of November 8, 2010 to acquire one share of our common stock for each two shares then held by such persons at a price of $0.34 per share. Stockholders exercised subscription rights to acquire 1,601,611 shares and oversubscription rights to acquire an additional 1,814,447 shares, resulting in our sale of an aggregate of 3,416,058 newly issued shares and our receipt of gross proceeds of $1,161,460 (net proceeds of $855,427). Such proceeds were added to our working capital for marketing opportunities stemming from both recent and anticipated enactments by the U.S. Environmental Protection Agency (EPA) of more stringent emission standards and rules for certain hazardous air pollutants.

Our working capital position decreased to $2.9 million at December 31, 2010 from $4.8 million at December 31, 2009, after accounting for the $0.9 million in net proceeds of the fiscal 2011 rights offering. The current ratio increased from 2.13:1 as at December 31, 2009 to 2.37:1 at December 31, 2010.

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, 2010 and December 31, 2009, the net position of contracts in progress is an investment of $294,377 and $519,680 respectively.

During fiscal 2010, we renewed a credit facility with a major Canadian bank for a total of USD $6.4 million, together with a demand loan for computer equipment. This facility includes a demand operating line of CAD $1.5 million secured by our receivables, a demand credit for standby letters of credit for USD $4.25 million secured by a general security interest in and lien upon our assets (including our patents) and guarantees provided by Export Development Canada on a fee-for-service basis, plus a demand credit for foreign exchange contracts for USD $750,000. At December 31, 2010 we had standby letters of credit for approximately $1.5 million ($2.0 million at June 30, 2010) outstanding with various customers in order to receive cash proceeds ahead of customer-specified milestones. Our term bank loan outstanding was $111,723 and there were no drawdowns against the operating line of credit or outstanding foreign exchange contracts at December 31, 2010 (nil at June 30, 2010).

Our backlog as at December 31, 2010 was approximately $8.4 million, compared to the December 31, 2009 backlog of $2.3 million, with approximately 65% expected to convert to revenue by June 30, 2011. We can offer no assurances that backlog will be replicated, increased or converted at current value into revenues in the future.

Based on our cash position at December 31, 2010, borrowings available pursuant to the operating line of credit, our recent increase in bookings and backlog, and anticipated sales orders through fiscal 2011, we believe that we will have sufficient capital resources to support operations through December 31, 2011.

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.

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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, 2010. 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, 2010.

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, 2010 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, 2010.

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

Not applicable

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. RESERVED

ITEM 5: OTHER INFORMATION

On February 15, 2011, we issued a press release announcing our financial results for the three and six months ended December 31, 2010. A copy of the press release is being furnished as Exhibit 99.1 to this report and incorporated herein by reference.

ITEM 6: EXHIBITS

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 22, 2011

TURBOSONIC TECHNOLOGIES, INC.

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

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