TURBO POWER SYSTEMS Press Release 28 July 2017

Turbo Power Systems Inc. (“TPS” or the “Company”)

Announces Results for the Quarter and Six Months Ended 30 June 2017

Financial highlights: Q2 2017 vs. Q2 2016

• Revenue decreased 31% to £2.59 million (Q2 2016: £3.73 million). • Gross profit decreased 20% to £1.32 million (Q2 2016: £1.65 million), with a margin of 47% (Q2 2016: 44%). • Net loss of £0.31 million (Q2 2016: Profit £0.16 million).

Financial highlights: H1 2017 vs. H1 2016

• Revenue decreased 18% to £5.80 million (H1 2016: £7.08 million). • Gross profit decreased 8% to £2.71 million (H1 2016: £2.95 million), with a margin of 51% (H1 2016: 42%). • Net loss of £0.65 million (H1 2016: Profit £0.02 million). • Cash outflow from operating activities of £nil (H1 2016: £0.61 million).

Operational highlights: • Order intake in the quarter was £1.59 million (Q2 2016: £6.77 million). The total order intake for the six

months was £3.90 million (H1 2016 £8.75 million). • The static converter for the UK Mark 3 rolling stock was highly commended in the environment category

of the Railway Industry Innovation Awards 2017

Cancellation of Admission to AIM and proposed share consolidation: • Following shareholder approval at the Annual General Meeting (AGM) on 25 May 2017, the Company’s

Admission to AIM was cancelled on 2 June 2017 • Facility for shareholders to trade shares made available on www.BRITDAQ.com • The directors expect the proposed share consolidation, which was approved by shareholders at the AGM,

to be completed in the quarter ending 30 September 2017

Funding

On 15 March 2017, pursuant to the terms of the existing agreement announced on 29 March 2016, the Company exercised its option to extend the repayment date of the £314,000 loan from 1 April 2017 to 1 April 2018. All other conditions remain the same. At 30 June 2017 the loan amount including accrued interest is £0.34 million (2016: £0.33 million). Carlos Neves, Chief Executive Officer, said: “During the first full quarter results since the change of majority ownership of the Company on 30 March 2017 the Company has signed two letters of intent for contracts representing more than £8.00 million. These should lead to sales order intake in Q3 2017 with deliveries commencing in Q4 2017. While the delay in signing new contracts, together with customer driven delays and rescheduling of production contracts into the second half of 2017, has resulted in lower revenues in the quarter compared to the same quarter last year, I am encouraged that there is a higher number of opportunities generated and more relevant in strategic importance than last year. This gives me confidence that our strategy is proving to be right. I am also very pleased that TPS’ products continue to receive positive acknowledgement as demonstrated by the Highly Commended Certificate in the Environmental Category during the Rail Industry Award 2017. I thank the TPS team for continuing to work hard towards our Mission of “Delivering excellence and continuously exceed Customers’ expectations by adding value in everything we do”.”

For further information, please contact:

Turbo Power Systems Tel: +44 (0)191 482 9200

Carlos Neves, Chief Executive Officer Charles Rendell, Chief Financial Officer

Notes to Editors About Turbo Power Systems Company Website: www.turbopowersystems.com Company Twitter: https://twitter.com/turbopowersys Turbo Power Systems Inc is a leading UK based designer and manufacturer of innovative power solutions. TPS’s products are all based on its core technologies of high speed motors and generators and power electronics which are sold into a number of market sectors including transport, industrial, energy and defence sectors. The Company’s products provide high performance while improving efficiency and reducing process energy consumption compared to existing technologies. Turbo Power System’s existing customers include blue chip companies such as Bombardier Transportation, Daikin, UK Power Networks, Wabtec and Eaton Aerospace. The Company’s parent undertaking is TAO Sustainable Power Solutions (UK) Limited (“TAO UK”), a company registered in England and Wales, UK, which owns 89.4% of the currently issued Common shares. The Company’s ultimate parent company is TWC3N Limited, a company controlled principally by members of the Company's management team, including two members of TPS’s Board. Forward looking statements

This press release contains forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, or performance, and underlying assumptions and other statements that are other than statement of historical fact. These statements are subject to uncertainties and risks including, but not limited to, the ability to meet on-going capital needs, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition, the need to protect proprietary rights to technology, government regulation, and other risks defined in this document and in statements filed from time to time with the applicable securities regulatory authorities. Notice of no auditor review of interim financial statements Under Canadian National Instrument 51-102, Part 4, subsection 4.3(3(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying un-audited interim financial statements of the Company have been prepared by and are the responsibility of the Company’s management. The Company’s independent auditor has not performed a review of these financial statements in accordance with standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditor.

This review has been prepared as at 28 July 2017. OPERATIONAL REVIEW Business of the Company

Turbo Power Systems is a technology-led Company that designs and manufactures high-speed permanent magnet electric motors, generators and power electronics systems and provides bespoke solutions to transport, industrial, energy conversion, and defence markets. Its track record in engineering innovation, which has been built and tested over a substantial number of years, allows the Company to meet challenging design and manufacturing briefs with specific requirements relating to environmental performance and performance to volume demands across the world. TPS has a proven and worldwide track record in developing long term relationships with customers in its chosen markets built on delivering competitive products with proven reliability. Developed over the last 40 years, expertise in high-speed electrical machines and power electronics, allows TPS to explore its current and future portfolio and adjust accordingly to grow successfully in its chosen markets. Way Forward As a technology-led business, TPS understands the challenges of the market regarding quality, costs and timing. We continue to concentrate on three important pillars that will be key to achieving our long-term strategy, as follow:

• Improve the quality of the portfolio; • Superior execution within design development, manufacturing operations and support activities; and • Consistent delivery of internal improvements.

These will continue to underpin TPS’s strategy as the Company drives forward in its chosen markets. Market Overview Transport: Rail continues to be a major market for the Company, which the Board believes is a growing sector with huge investment globally, both in developed and developing countries. As an established supplier for auxiliary power units and battery charges TPS’s market share can increase based on further geographic expansion, traction systems, electric distribution systems and other added value services. As part of the Board’s plan to diversify the customer base, especially in the UK, the Company continues to win business with UK based customers. The current product lines of at seat power suppliers and static converters continue to interest customers and win awards. The static converter for the UK Mark 3 rolling stock was recently highly commended in the environment category of the Railway Industry Innovation Awards 2017. The Company continues to implement its strategy for expanding its Maintenance, Repair and Overhaul (MRO) services, especially in the UK, where it is working closely with both train operators and train service companies. In the UK the train purchasing and refurbishment timetable is governed by the franchise renewal schedule and the Company plans to take advantage of recent changes. Industrial: The HVAC Systems market has been a major market for the Company where TPS has a long-standing relationship with Daikin, a major OEM in this market. The Company continues to work closely with Daikin on the design and implement of the volume production of its next generation HVAC system. Energy: The Company continues to pursue the energy efficiency market for its electric motors and generators. Market studies have been conducted into energy recovery systems and the Board believes that TPS’s technology would work very well with the push into the energy space. The Company is currently exploring opportunities with partners to provide systems that can be self-sufficient for energy recovery and subsequent energy generation at on site locations. In addition, the Company’s power electronics’ technology developed over many years is proving to be a powerful base to design new state of the art solutions for new “Smart Grid” issues. The Company is seeking to expand on the trials undertaken to date with UK Power Networks and develop new innovative designs to solve issues associated with the low carbon technologies. Notwithstanding that this is a market where acceptance by the customer for production takes a considerable period, the Company sees this as an important market for future growth in both development design revenue and production revenues.

Defence: There is a growing market due to electrification of ships, one where TPS’s technologies are suitable for energy recovery, traction and emission mitigation in marine systems. It is a specialised field with high entry barriers. The Company identified that there were unique characteristics to the product range that would be applicable to this market. The Company had entered into a feasibility design contract for a scalable and high power, low speed motor. This initial contract was the first phase of the project, which will lead to a further contract for the development and design of a large multi megawatt motor. As reported on 15 March 2017 this contract was on hold while the outcome of the Company’s Strategic Review was determined. Since the Review was completed (as announced on 30 March 2017) active discussions on the contract are underway, but due to the complexity of the project and international negotiations these are taking slightly longer than originally envisaged. Current Operations Revenue in the quarter was down by 19% compared with the first quarter of 2017 and down by 31% on the second quarter of 2016. The decrease in the production revenue was due to customer driven delays and reschedules in production contracts. The Company had increased the production capacity for Daikin but the growth was slower than anticipated in the quarter. Deliveries to Eaton of the Jettison Fuel Pump continued in line with their requirements. Gross margin increased by 4% to 47% in the quarter (Q1 2017: 43%), reflecting the impact of the Company’s focus on profitable contracts and the mix of contracts. The overall expenses in the quarter of £1.59 million were down 6% compared to Q1 2017 (£1.61 million) but up 16% compared to £1.37 million at H1 2016, reflecting the increased investment in sales and marketing, focused research and development and administrative and other expenses. Headcount at 30 June 2017 was 106, down 9 from 30 June 2016:115, down 6 from 31 December 2016: 112 and down 2 from 31 March 2017:108. Support from TAO UK On 15 March 2017, pursuant to the terms of the existing agreement announced on 29 March 2016, the Company exercised its option to extend the repayment date of the £314,000 loan, from 1 April 2017 to 1 April 2018. All other conditions remain the same. At 30 June 2017, the loan amount including accrued interest is £0.34 million (2016: £0.33 million). Share Consolidation On 25 May 2017 the shareholders voted in favour of 5,000:1 share consolidation. The Company has started the preparation for this and is working closely with Computershare, the share registrars, to ensure that the process is completed efficiently. It is expected to be completed during the quarter ending 30 September 2017. Further details will be made available in due course. Summary In summary, the Company has continued to implement its strategy of bidding for profitable production and development contracts, whilst maintaining a disciplined and considered approach to costs. In the second quarter of 2017, this has resulted in reduced turnover, as new contracts take longer to finalise. More of the fixed salary costs have been channelled into preparing and analysing comprehensive bids to customers and on ensuring the research and development activities are in line with the Company’s and its potential customer’s needs. Going Concern These consolidated financial statements have been prepared on the basis of International Financial Reporting Standards (IFRS) applicable to a “going concern”, which assume that the Company will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations. As at 30 June 2017 the Company had net operating cash outflows, with current liabilities of £3.42 million and current assets of £5.31 million, which includes £0.35 million of cash. The Company has a cumulative deficit of £100.85 million as at 30 June 2017 and was loss making for the period then ended.

The Company remains critically dependent upon i) customers paying to contractual terms and ii) the continued financial support of its intermediate parent undertaking TAO Sustainable Power Solutions (UK) Limited (TAO UK) which in turn is dependent on its parent company TWC3N Limited (TWC3N). The Company relies on TAO UK for continued financial support in the form of the loan made available to the Company, and in order to meet any shortfall in budgeted or forecasted working capital requirements and support the Company's growth plans. If not secured, this may result in the curtailment of the Company’s activities. The timing of required financial support from TAO UK will depend on the Company’s ability to generate cash from operations. In reasonably sensitised cash flow forecasts, and particularly dependent on the yet to be agreed settlement, including payment profile, of certain warranty provisions, support may well be required before the date of loan repayment in April 2018. However, the Directors believe that they will succeed in delivering the Company’s projected financial performance and that financial support from TAO UK, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. As is typical with any company placing reliance on other group entities for financial support, there can be no certainty that this support will continue although, at the date of approval of these financial statements, the Board have no reason to believe that TAO UK will not do so. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided when required (the latest being £0.31 million on 29 March 2016), rescheduling the repayment date of that loan to 1 April 2018 and that the majority of the Board are TAO UK / TWC3N representatives, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation. If the Company is unable to either generate positive cash flows from operations or ensure the continued financial support from TAO UK and ultimately TWC3N its parent company, or secure additional debt or equity financing, these conditions and events indicate the existence of a material uncertainty which may cast significant doubt regarding the Company’s ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. These consolidated financial statements do not reflect any adjustments that would be necessary if the going concern assumption were not appropriate. Summary of Quarterly Results The following table shows selected quarterly consolidated financial information of the Company for the last eight quarters: All amounts in £’000

Revenue Research and product

development

General and administrative

Operating (loss)/profit

Net (loss)/profit

Loss per share pence

September 2015 3,246 118 831 346 34 0.00 December 2015 1,973 360 790 (895) (992) (0.03)

March 2016 3,350 416 916 (136) (148) (0.00)

June 2016 3,732 413 863 227 164 0.00

September 2016 3,575 486 883 66 22 0.00

December 2016 3,267 504 1,102 (753) (803) (0.02)

March 2017 3,210 568 966 (297) (344) (0.01)

June 2017 2,586 538 910 (267) (306) (0.01)

Quarterly revenues are down 19% on the previous quarter, to £0.62 million, due to certain customers rescheduling their orders into the second half of 2017. Research and development expenditure continues at a similar rate to the previous quarter, in line with the Board approved strategy to drive the Company’s technology forward. General and Administration expenses have decreased 5% in the second quarter compared with the previous quarter, and remain in line with the Company’s expectations for 2017. Copies of Quarterly and Annual Results The Company’s full Financial Results and Managements’ Discussion and Analysis for 2016 together with the Second quarters 2017 Financial Results and Managements’ Discussion and Analysis are available on www.sedar.com. The Annual Report and Financial Statements for 2016 have been mailed to shareholders.

Copies of the quarterly and annual results are available from the Company’s office at 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead, NE11 0QD, United Kingdom or available to view from the Company's website at www.turbopowersystems.com. Review of the quarter ended 30 June 2017 Revenue Revenue in the quarter ended 30 June 2017 was down 31% at £2.59 million (Q2 2016: £3.73million.)

2017 2016 £’000 £’000 Production 2,351 3,619 Development 235 113 2,586 3,732

Production revenue decreased in the quarter by 35% to £2.35 million (Q2 2016: £3.62 million), due to customer driven delays and reschedules in production contracts into the second half of 2017. Development revenue doubled to £0.24 million (Q2 2016: £0.11 million) as development contracts progress. Cost of Sales The cost of sales was £1.27 million (Q2 2016: £2.08 million). Gross Profit Gross profit decreased, in line with the fall in revenue, by 20% to £1.32 million (Q2 2016: £1.65 million), with gross margin increasing to 51% (Q2 2016: 44%). The Company remains committed to increasing the profitability of both its current and future contracts. Distribution costs The Company’s costs increased by 55% to £0.14 million (Q2 2016: £0.09 million) as the company engaged in more marketing activity including trade shows and in bid preparation as the Company expands its upfront activities to ensure that profitable contracts are pursued. Research and product development Research and product development costs in the quarter increased by 32% to £0.54 million (Q2 2016: £0.41 million), as more of the fixed salary costs have been channelled into ensuring the research and development activities are in line with the Company’s and its potential customer’s needs while new contracts are negotiated. This is net of the UK Government’s Research and Development Enhanced Credit (RDEC) tax credits of £0.10 million (Q2 2016: £0.10 million). General and administrative costs General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company’s public listings (which ceased on 2 June 2017), were up by 6% compared to 2016 to £0.91 million (Q2 2016: £0.86 million). The Company continues to review and control its costs without prejudicing the business operational strengths, with a reduction in headcount of 8% compared with 30 June 2016 (30 June 2017: 106, 31 March 2017: 108, 31 December 2016: 112 and 30 June 2016: 115) Operating loss Operating loss before other operating income was £0.27 million (Q2 2016: profit £0.29 million). Finance expense Finance expense was £0.01 million which arose from the interest on the loans from TAO UK (Q2 2016: £0.01 million). Net loss The Company recorded a net loss of £0.31 million (Q2 2016: profit £0.16 million). Review of the six months ended 30 June 2017 Revenue Revenue in the six months ended 30 June 2017 was down 18% at £5.80 million (H1 2016: £7.08million.)

2017 2016 £’000 £’000 Production 5,204 6,675 Development 592 407 5,796 7,082

Production revenue decreased in the six months by 22% to £5.20 million (H1 2016: £6.68 million), due to customer driven delays and reschedules in production contracts into the second half of 2017. Development revenue increased 43% to £0.59 million (H1 2016: £0.41 million) as development contracts progress. Cost of Sales The cost of sales was £3.09 million (H1 2016: £4.13 million). Gross Profit Gross profit decreased by 8% to £2.71 million (H1 2016: £2.95 million), with gross margin increasing to 48% (H1 2016: 42%). The Company remains committed to increasing the profitability of both its current and future contracts. Distribution costs The Company’s costs increased by 74% to £0.30 million (H1 2016: £0.17 million) as the company engaged in more marketing activity including trade shows and in bid preparation as the Company expands its upfront activities to ensure that profitable contracts are pursued. Research and product development Research and product development costs in the six months increased by 34% to £1.11 million (H1 2016: £0.83 million), as more of the fixed salary costs have been channelled into ensuring the research and development activities are in line with the Company’s and its potential customer’s needs while new contracts are negotiated. This is net of the UK Government’s RDEC tax credits of £0.10 million (H1 2016: £0.10 million). General and administrative costs General and administrative costs, which consist mainly of staff costs, facilities costs and the costs associated with the Company’s public listings (which ceased on 2 June 2017), were up by 6% compared to 2016 to £1.88 million (H1 2016: £1.78 million). The Company continues to review and control its costs without prejudicing the business operational strengths, the headcount has reduced, by 6 in the six months, to 106 at 30 June 2017 (31 December 2016: 112). Operating loss Operating loss before other operating income was £0.57 million (H1 2016: profit £0.17 million). Finance expense Finance expense was £0.01 million which arose from the interest on the loans from TAO UK (H1 2016: £0.01 million). Net loss The Company recorded a net loss of £0.65 million (H1 2016: profit £0.02 million).

Cash flows for the six months ended 30 June 2017

Operating cash flows The Company recorded an operating cash outflow before working capital movements of £0.55 million for the six months (H1 2016: inflow £0.12 million). After adjusting for changes in working capital items the Company had an overall cash outflow from operations of £nil (H1 2016: £0.61 million). Investing activities Cash outflows from capital investments in the six months were £0.15 million (H1 2016: £0.06 million).

Financing activities There was no cash received from financing activities in the first quarter (H1 2016: £0.31 loan from TAO UK). Overall cash outflow for the period Overall the cash outflow during the quarter was £0.21 million (H1 2016: Outflow £0.40 million).

Balance sheet as at 30 June 2017

The Company ended the period with an unrestricted cash balance of £0.35 million compared with £0.57 million at 31 December 2016. Substantially all of the Company’s cash balances are denominated in Sterling.

In addition, the Company had no restricted cash (31 December 2016: £4,000, relating to utilities deposits).

Non-current assets have increased from £0.83 million at 31 December 2016 to £0.86 million at 30 June 2017, after depreciation and amortisation charges of £0.12 million.

Loans and borrowings are the TAO UK loan of £0.31 million plus £0.03 million of accrued interest. The loan and interest are shown as a non-current liability repayable on 1 April 2018, and accrues interest at 6% per annum, payable annually.

Net current assets at 30 June 2017, excluding restricted cash balances included under current assets, were £1.89 million (31 December 2016: £2.56 million).

As at 30 June 2017, the Company had 3,336,865,922 common shares issued and outstanding and 892,777,778 A ordinary shares issued and outstanding. As at that date there were 3,772,728 outstanding share options.

Contractual Obligations

Payments due by period Total 2017

2018 2019 2020 2021

and there after

£’000 £’000 £’000 £’000 £’000 £’000 Trade and other payables Loan notes

2,374

338

2,374

-

-

338

- -

- -

- -

Operating leases 1,621 148 295 295 295 588 ______ ______ ______ ______ ______ ______ 4,333 2,522 633 295 295 588

______ ______ ______ ______ ______ ______

Shareholders’ equity

The movement in shareholders’ surplus comprised:

2017 £’000 As at 1 January 2017 3,132 Loss for the period (651) As at 30 June 2017 2,481

As at 28 July 2017, the Company had 3,336,865,922 common shares issued and outstanding and 892,777,778 A ordinary shares issued and outstanding. As at that date there were 3,772,728 outstanding share options.

Liquidity

Cash and cash equivalents at 30 June 2017 were £0.35 million (31 December 2016: £0.57 million).

There was no restricted cash at 30 June 2017 (31 December 2016: £4,000).

The Company reported a loss in the six months of £0.65 million and has a cumulative deficit of £100.85 million. The Company’s ability to continue as a going concern depends on its ability to generate positive cash flows from operations or secure additional debt or equity financing.

The Company has not changed its approach to Currency risk and Interest rate risk management from that of the prior year and as disclosed in the annual statements at 31 December 2016.

Currency risk management

The Company’s expenditure is principally denominated in Sterling, which is funded from Sterling cash balances. Exchange differences, which arise on consolidation of the Company’s Canadian operations, are included in exchange adjustments within the income statement. At 30 June 2017 the Sterling equivalent of Canadian Dollar denominated net liabilities amounted to £1,200 (31 December 2016: net liabilities £5,900).

The Company receives a significant proportion of its revenue in US Dollars (including from contracts with Canadian customers). As such the Company routinely maintains a significant receivables balance in US Dollars, which are revalued at each period end. At 30 June 2017 the Sterling equivalent of the US Dollar denominated assets amounted to £0.53 million (31 December 2016: £0.54 million). To manage its foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, the Company uses forward foreign exchange contracts. Further information is provided in Note 7 Derivative Financial Instruments. Interest rate risk management

The analysis of the Company’s financial assets and borrowings analysed between floating and fixed interest rates is shown below

30 June 2017 31 December 2016 £’000 £’000 Floating rate financial assets 353 565 Fixed rate borrowings (338) (328)

The fixed rate borrowings are at 6.0% per annum.

Financial instruments

The Company’s financial assets and liabilities consist primarily of the cash and cash equivalents, restricted cash, trade receivables, trade payables and loans.

30 June 2017 31 December 2016 Loans and

receivables Financial liabilities

Loans and receivables

Financial liabilities

£’000 £’000 £’000 £’000 Asset/(Liability) Cash and cash equivalent 353 - 565 - Restricted cash - - 4 - Trade, prepayments and other receivables

1,864 - 2,272 -

Trade and other payables - (2,374) - (2,569) Derivative financial instruments - - - (4) Loans - (338) - (328) Total 2,217 (2,712) 2,841 (2,901)

The amounts at which the assets and liabilities above are recorded are considered to approximate to fair value. Fair value estimation The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. Techniques, such as estimated discounted cash flows, are used to determine fair value for the financial instruments. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to the short-term nature of trade receivables and payables. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the group for similar financial instruments. Derivative financial instruments The Company uses foreign exchange forwards to help manage its foreign exchange risk. The Company classifies these derivatives as financial assets at fair value through profit and loss. Derivatives are classified as current assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the income statement within ‘Other gains – net’ in the period in which they arise. Financial Risk Management and Capital Structure

The Company’s risk management programme remains as detailed on page 51 in the Annual Report and Financial Statements 31 December 2016. Save for the change in the Company’s ultimate parent announced on 30 March 2017, there have been no significant changes since 31 December 2016.

Further information is provided in Management’s Discussion and Analysis and the notes to these Condensed Consolidated Interim Financial Statements. Related Party Transactions On 15 March 2017, the Company announced that its wholly owned subsidiary Turbo Power Systems Limited had exercised its option to extend the repayment date of the £314,000 loan provided by TAO UK from 1 April 2017 to 1 April 2018.

Critical accounting policies and estimates These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards applicable to a going concern, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 30 June 2017 the Company had net operating cash outflows. Therefore, the Company may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £100.85 million as at 30 June 2017. Further information on Going Concern is provided in Note 2. The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately differ from those estimates. Estimates and underlying assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial year are disclosed on page 42 in the Annual Report and Financial Statements for 31 December 2016.

Principal Risks and Uncertainties

Risk or uncertainty

Mitigation approach

Operating revenues TPS has entered into large development and manufacturing contracts. The outcome of this is that large amounts of revenue are associated with one product line and one customer. As there is reliance on large contracts being signed by the Company, the impact of not signing a large contract would be high on the results of the Company in any one year. The Company recognises that it is increasingly difficult to forecast when these new contracts will be signed due to the importance customers associate such large values. The Company has suffered and will continue to suffer from delays in expected contract award dates.

The Company is seeking to change the emphasis on new contract signings. The Company has a growing revenue stream associated with repair, maintenance and overhaul that does not rely on large value contracts. The Company is focusing efforts to increase the percentage of revenue associated with these activities in addition with the new major contract awards. The Company has always worked closely with its current customer base. Going forward this will continue, but greater emphasis is being put into working with new customers and hence increasing the number of contracts in bid and diluting the relative impact of individual contract awards.

Cost overrun on contracts due to technology risk TPS is a technology-led company. As the products that it develops are technology driven, the Company is looking to use the latest design and practices when a new contract is won. This enables the Company to make the most efficient solution for each project. Due to these technology advances there is a significant risk extra costs may be incurred while developing new ideas to fulfil contracts.

The Company seeks to mitigate these risks by significant up front planning and research. The new ideas are reviewed by senior personnel and approved before use in new projects. A project based reporting and review system is in place to monitor the activities and the output from design and testing phases. A system of cost control is in place to ensure that budgets are monitored and any variances recognised early and taken into account to mitigate them in future activities.

Further development activities TPS undertakes research activities to ensure that the technology used is current and forward looking. There is a risk that the Company misses a directional change in where technology is moving and does not produce new and efficient designs.

The Company has a structure of senior engineers who are responsible for reviewing market trends and identifying new technologies as they become useful in our products. The Company also partakes in research projects that are originated via bodies such as Innovate UK. These projects typically involve University departments as well as a diverse group on interested parties. This helps the Company understand potential customer and supplier’s knowledge and requirements.

Manufacturing issues The Company is at the forefront of electrical machine design and power electronic forethought. The Company is always looking for ways to make its products more efficient and to use latest technology to enhance the product offering.

As part of this culture, the manufacture of the product can be extremely complex and time consuming. There may be issues with the design that are only evident when in volume manufacture and there may be a difficult, and therefore risky, manufacturing process. These may adversely impact the quality of the units manufactured and the manufacturing efficiency cost effectiveness. If faults are found internally, then there is an increase in manufacturing costs and therefore decrease profitability. If faults are only found when with the customers then this impacts warranty costs and can have a big impact on reputation.

The Company seeks to minimise manufacturing issues by conforming to international quality standards such as ISO 9001, and AS 9100. The Company is fiercely proud of its quality process and takes good practice seriously. During the manufacturing process all new processes are documented with pictures to ensure that they are easy to follow and check. The process is then approved by operations, engineering and quality departments in line with best practice. The manufacturing engineer role acts as a bridge between the design team and the manufacturing personnel. This is pivotal in ensuring that any issues are resolved efficiently and with the correct long term objective. The quality inspections during manufacture should reduce the chances of incorrect assembly and lead to a quality unit being produced.

Risk or uncertainty

Mitigation approach

Dependence of key personnel TPS is a technology-led company and hence reliant on key personnel. The Company has a group of senior personnel who oversee the design research and implementation. Having been through major personnel number changes in the last few years, key positions exist within the Company that require succession plans to be in place.

The Company works closely with key personnel to ensure that they are fully motivated and engaged on interesting and rewarding projects. The Company believes that the roles should be aligned to the individual’s ability, so these can be within technical expertise or management responsibility. Where a key position has been identified a succession plan has been drawn up.

Foreign currency exchange rate fluctuations TPS is subject to foreign currency risk. Foreign currency sales (and to a much lesser extent) purchases are made in US Dollars. The Company’s major contracts are denominated in US Dollars and therefore a major portion of cash receipts are in US Dollars. The Company is therefore exposed to movements in foreign currency rates over time.

The Company seeks over time, to balance currency requirements with currency inflows. Where there is excess currency inflow the Company seeks to match, to the extent possible, planned currency sales through forward foreign currency exchange contracts. The level of currency hedging is dependent on the credit limits available for future currency deals and the perceived currency forecast movement. Part of the Board’s strategy has been to seek increased sales where contracts are undertaken in £ Sterling.

Future funding The Company has been loss making for a number of years and has been critically reliant on regular increases in external funding. As noted above under Going Concern, TPS is dependent on customers paying to contractual terms in order to meet forecast working capital requirements and support the Company’s growth plans. If this does not continue, this may well result in the curtailment of the Company’s activities, partly due to customer concerns over the Company’s continuing viability.

The Company works closely with TAO UK, its majority shareholder, and with TAO’s parent TWC3N to ensure that it is fully aware of the financial situation of the Company on a very regular basis and also of customer concerns. The Company seeks to gain approval for all budgets, working closely with TAO UK on all financial and operational matters, assisted by the two representatives of TAO UK on the Board who form the majority of the Board. During the first quarter of 2017 the Company extended the repayment date of its borrowings, of £314,000 from TAO UK from 1 April 2017 to 1 April 2018.

Internal Control The Board of Directors has overall responsibility for the accounting policies and ensuring that the Company maintains an adequate system of internal financial control to provide them with reasonable assurance that assets are safeguarded and of the reliability of financial information used for the business and for publication. More detail on the Company’s internal control can be found on page 27 of the Annual Report and Financial Statements for the year ended 31 December 2016.

Turbo Power Systems Inc. Condensed consolidated interim income statement Unaudited ________________________________________________________________________________

Notes Quarter ended 30 June

Six months ended 30 June

2017 2016 2017 2016 £’000 £’000 £’000 £’000 Revenue 5 2,586 3,732 5,796 7,082 Cost of sales (1,267) (2,078) (3,087) (4,130) Gross profit 1,319 1,654 2,709 2,952 Expenses Distribution costs (138) (89) (295) (170) Research and product development (538) (413) (1,106) (829) General and administrative (910) (863) (1,877) (1,779) Total expenses (1,586) (1,365) (3,278) (2,778) Operating (loss)/ profit before other operating

income (267) 289 (569) 174

Other profit / (losses) - net - (62) 4 (83) Operating (loss)/ profit (267) 227 (565) 91

Finance expense (5) (5) (10) (5)

(Loss) / profit before tax (272) 222 (575) 86

Income tax expense (34) (58) (76) (70)

Net (loss) / profit and total comprehensive (loss) /

profitfor the periods

(306) 164

(651) 16

(Loss) / profit per share – basic and diluted 6 (0.01)p 0.00p (0.02)p 0.00p

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc. Condensed consolidated interim statement of financial position Unaudited ________________________________________________________________________________

Notes As at 30 June

As at 31 December

2017 2016

£’000 £’000 Current assets Restricted cash - 4 Inventories 2,829 3,163 Trade and other receivables 1,864 2,272 Prepayments 263 170 Cash and cash equivalents 353

565

5,309

6,174

Non-current assets Intangible assets 374 431 Property, plant and equipment 484 402 858

833

Total assets 6,167

7,007

Current liabilities Trade and other payables 2,374 2,569 Derivative financial instruments 7 - 4 Provisions 8 712 712 Loans and borrowings 10 338 328 3,424 3,613

Non-current liabilities Provisions 8 262

262

262

262

Total liabilities 3,686 3,875 Equity (deficit) Share capital 11 71,408 71,408 Capital contribution reserve 11 12,786 12,786 Convertible shares 11 17,310 17,310 Other reserves 1,823 1,823 Retained deficit (100,846)

(100,195)

Equity 2,481 3,132 Total liabilities and equity 6,167 7,007

Approved by the Board: R J Piper, Chairman 28 July 2017 The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc. Condensed consolidated interim statement of changes in equity Unaudited ________________________________________________________________________________

Common Share

capital

Capital Contribution

reserve

Convertible Shares

Other reserves

Accumulated deficit

Total

£’000 £’000 £’000 £’000 £’000 £’000 Balance at 1 January 2016 71,408 12,367 17,310 1,823 (99,430) 3,478

Net profit - - - - 16 16

Balance at 30 June 2016 71,408 12,367 17,310 1,823 (99,414) 3,494

Capital contribution - 419 - - - 419

Net loss - - - - (781) (781)

Balance at 31 December 2016 71,408 12,786 17,310 1,823 (100,195) 3,132

Net loss - - - - (651) (651)

Balance at 30 June 2017 71,408 12,786 17,310 1,823 (100,846) 2,481

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc. Condensed consolidated interim statement of cash flows Unaudited _____________________________________________________________________

Six months ended 30 June

2017 2016 £’000 £’000 Cash flows from operating activities Net (loss)/ profit for the period (651) 16 Adjustments for: Finance expense 10 5 Taxation 76 70 Depreciation of property, plant and equipment 62 60 Amortization of intangible assets 58 52 Derivative financial instrument (4) 83 R and D Tax Credits (102) (168) Operating cash flows before movements in working

capital (551) 118

Changes in working capital items Decrease in inventories 334 36 Decrease in restricted cash 4 57 Decrease / (Increase) in trade and other receivables 498 (1,032) (Increase) in prepayments (93) (115) (Decrease) / Increase in trade and other payables (195) 568 (Decrease) in provisions - (243) Cash used in operating activities (3) (611) Taxation (64) (36) Net cash used in operating activities (67) (647) Investing activities Purchase of property, plant and equipment (144) (48) Purchase of intangible assets (1) (14) Net cash used in investing activities (145) (62)

Cash flows from financing activities

Proceeds from increase in loans - 314 Net cash from financing activities - 314 Net decrease in cash and cash equivalents (212) (395) Cash and cash equivalents at the beginning of the

period 565 496

Cash and cash equivalents at the end of the period 353 101

The Notes form an integral part of these condensed consolidated interim financial statements.

Turbo Power Systems Inc. Notes to the condensed consolidated interim financial statements Unaudited ________________________________________________________________________________ 1 Reporting entity Turbo Power Systems Inc. (“The Company”) is subsisting pursuant to the Business Corporations Act (Yukon Territory). The Company’s registered office is Suite 200-204 Lambert Street, Whitehorse, Yukon Y1A 3T2, Canada. The Company conducts operations through its wholly owned subsidiary company, Turbo Power Systems Limited (“TPSL”), whose main trading address is 1 Queens Park, Queensway North, Team Valley Trading Estate, Gateshead NE11 0QD, United Kingdom. The Company’s parent undertaking is TAO Sustainable Power Solutions (UK) Limited (“TAO UK”), a company registered in England and Wales, UK, which owns 89.4%. The Company’s ultimate parent company is TWC3N Limited (“TWC3N”), a company controlled principally by members of the Company's management team. These condensed consolidated interim financial statements of the Company as at and for the quarter ended 30 June 2017 comprises of the Company and its subsidiaries. The Company’s subsidiaries comprise:

Trading status

Place of incorporation

% Ownership

Turbo Power Systems Limited Trading England 100% Turbo Power Systems Development Limited Dormant England 100% Intelligent Power Systems Limited Dormant England 100% Nada-Tech Limited Dormant England 100%

2 Going concern These consolidated financial statements have been prepared on the basis of International Financial Reporting Standards (IFRS) applicable to a “going concern”, which assume that the Company will continue in operation for the foreseeable future and will be able to realise its assets and discharge its liabilities in the normal course of operations. As at 30 June 2017 the Company had net operating cash outflows, with current liabilities of £3.42 million and current assets of £5.31 million, which includes £0.35 million of cash. The Company has a cumulative deficit of £100.85 million as at 30 June 2017 and was loss making for the period then ended. The Company remains critically dependent upon i) customers paying to contractual terms and ii) the continued financial support of its intermediate parent undertaking TAO Sustainable Power Solutions (UK) Limited (TAO UK) and its parent company TWC3N. The Company relies on TAO UK for continued financial support in the form of the loan made available to the Company, and in order to meet any shortfall in budgeted or forecasted working capital requirements and support the Company's growth plans. If not secured, this may result in the curtailment of the Company’s activities. The timing of required financial support from TAO UK will depend on the Company’s ability to generate cash from operations. In reasonably sensitised cash flow forecasts, and particularly dependent on the yet to be agreed settlement, including payment profile, of certain warranty provisions, support may well be required before the date of loan repayment in April 2018. However, the Directors believe that they will succeed in delivering the Company’s projected financial performance and that financial support from TAO UK, will remain in place to enable the Company to meet budgeted and forecasted working capital requirements and support the Company's growth plans. As is typical with any company placing reliance on other group entities for financial support, there can be no certainty that this support will continue although, at the date of approval of these financial statements, the Board have no reason to believe that TAO UK will not do so. Although there are no formal letters of support in place for the purpose of the directors' going concern assessment of the Company, the directors of the Company have taken comfort from the actions taken by TAO UK, in that loans have been provided when required (the latest being £0.31 million on 29 March 2016), rescheduling the repayment date of that loan to 1 April 2018 and that the majority of the Board are TAO UK / TWC3N representatives, in forming their conclusion that they believe it is appropriate to prepare these financial statements on a going concern basis. Accordingly, they have continued to adopt the going concern basis of preparation. If the Company is unable to either generate positive cash flows from operations or ensure the continued financial support from TAO UK and ultimately TWC3N its parent company, or secure additional debt or equity financing, these conditions and events indicate the existence of a material uncertainty which may cast

significant doubt regarding the Company’s ability to continue as a going concern and, therefore, to continue realising its assets and discharging its liabilities in the normal course of business. These consolidated financial statements do not reflect any adjustments that would be necessary if the going concern assumption were not appropriate. 3 Basis of preparation These condensed consolidated interim financial statements have been prepared in accordance with IAS34 Interim Financial Reporting. The Company’s condensed consolidated interim financial statements were prepared in accordance with the accounting policies set out in Note 3 to the consolidated financial statements for the year ended 31 December 2016, and using the same methods of computation. The condensed consolidated interim financial statements were authorised for issuance by the Board of Directors on 28 July 2017. The condensed consolidated interim financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments. The condensed consolidated interim financial statements are presented in £ sterling, rounded to the nearest £1,000, which is the Company’s functional and presentation currency. 4 Critical accounting judgements and key sources of estimation uncertainty

These condensed consolidated interim financial statements have been prepared on the basis of International Financial Reporting Standards applicable to a ‘going concern’, which assume that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. As at 30 June 2017 the Company had net operating cash outflows. Therefore, the Company may require additional funding which, if not raised, may result in the curtailment of activities. The Company has a cumulative deficit of £100.85 million as at 30 June 2017. Further information on Going Concern is provided in Note 2. The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, revenue and expenses and the related disclosures of contingent assets and liabilities. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Estimates and underlying assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected.

5 Segmental analysis The Company reports by its distinct segments of production and development, both segments operate in the United Kingdom. Except for the investments held by the Company which are located in Canada, all of the Company’s assets are located in the United Kingdom.

Six months ended 30 June 2017 Production Development Unallocated Total

£’000 £’000 £’000 £’000

Revenue 5,204 592 - 5,796

Segment operating profit/(loss) 1,030 (1,599) 4 (565) Finance expense - - (10) (10) Taxation expense - - (76) (76)

Net profit / (loss) and total comprehensive profit / (loss)

1,030 (1,599) (82) (651)

Total assets 4,991 823 353 6,167 Total liabilities (1,781) (593) (1,312) (3,686)

Six months ended 30 June 2016 Production Development Unallocated Total

£’000 £’000 £’000 £’000

Revenue 6,675 407 - 7,082

Segment operating profit/(loss) 1,570 (1,396) (83) 91 Finance expense - - (5) (5) Taxation expense - - (70) (70)

Net profit / (loss) and total comprehensive profit / (loss)

1,570 (1,396) (158) 16

Total assets 7,042 1,110 110 8,262 Total liabilities (2,795) (931) (1,042) (4,768)

Geographic Segmental Information

Quarter Ended 30 June

Six months ended 30 June

Total Revenues by destination 2017 2016 2017 2016 £’000 £’000 £’000 £’000 UK 888 1,601 2,712 3,174 USA 1,186 2,087 2,223 3,461 Rest of world 163 38 443 290 Canada 349 6 417 157 2,586 3,732 5,795 7,082

All property, plant and equipment were located within the United Kingdom during both periods ended 30 June 2017 and 30 June 2016

6 (Loss) / profit per share (Loss) / profit per common share has been calculated using the weighted average number of shares in issue during the relevant financial periods.

Quarter ended 30 June Six months ended 30 June

2017 2016 2017 2016

Numerator for basic loss per share calculation: (Loss)/profit attributable to equity shareholders (£306,000) £164,000 (£651,000) £16,000

Denominator: For basic net (loss)/profit – weighted average

shares outstanding 3,336,865,922 3,336,865,922 3,336,865,922 3,336,865,922

For diluted net (loss)/profit – weighted average shares

4,233,416,428 4,234,516,428 4,233,416,428 4,234,516,428

Basic and diluted Basic loss per common share – pence (0.01)p 0.00p (0.02)p 0.00p Diluted loss per common share – pence (0.01)p 0.00p (0.02)p 0.00p

As the Company experienced a loss in the quarter and in the year to date all potential common shares outstanding from dilutive securities are considered anti-dilutive and are excluded from the calculation of diluted loss per share. Details of dilutive potential securities outstanding included in EPS calculations at 30 June 2017 are as follows:

As at 30 June As at 30 June 2017 2016 Common shares potentially issuable: - under stock options 3,772,728 4,872,728 - pursuant to A Ordinary Share conversion 892,777,778 892,777,778 896,550,506 897,650,506

7 Derivative financial instrument

30 June 2017

31 December 2016

Assets Liabilities Assets Liabilities £’000 £’000 £’000 £’000 Forward Exchange Contracts - - - 4 Total - - - 4 Less non-current portion: - - - - Current portion - - - 4

The notional principal amounts of the outstanding forward foreign exchange contracts at 30 June 2017 were £nil million (2016: £0.67 million).

8 Provisions

Asset Retirement Obligations

Warranty Total

£’000 £’000 £’000 Balance at 1 January 2016 285 681 966 Utilised in period (5) (238) (243) Balance at 30 June 2016 280 443 723 Utilised in period (186) (213) (399) Provided in period - 650 650 Balance at 31 December 2016 94 880 974 Utilised in period - - - Balance at 30 June 2017 94 880 974

30 Jun 31 Dec Analysed as: 2017 2016 £’000 £’000 Current liabilities 712 712

Non-current liabilities 262 262

Total 974 974

Asset Retirement Obligations: Asset Retirement Obligations relate to costs expected to be incurred in reinstating the property leased by the Company to its original condition. One lease was terminated in 2013 and the sole surviving lease will terminate in 2022. In 2016 the Company agreed a settlement for the lease that was terminated in 2013 and consequently released the provision of £191,000 relating to this lease. The Company has recorded no further increase in accretion expense in 2017 (2016: £nil). After the expiry of the current lease in 2022 the provision is expected to be utilised. Warranty: Production units sold by the Company are provided with a warranty against operational failure. The warranty period provided is dependent upon the sales agreement with the customer and the nature of the unit, but typically is between one and two years from the date of delivery. The warranty provision is maintained at a level calculated to reflect the current costs of repair and incidence of failure of existing and similar units. During the final quarter of 2015 the Company received a claim from a customer for warranty, relating to a fault within motor units delivered to a customer during 2013 to 2015. The Company included a one off provision expense in 2015 of £0.50 million, of which £0.45 million remained at 31 December 2015. During 2016 the £0.45 million was fully utilised. The Company reported a contingent liability as at 31 December 2015 in relation to further costs that might be arising out of the warranty claim. Having reviewed the current situation, especially in relation to ongoing customer relationships and insurance proceeds that might be receivable, the Company provided a further £0.65 million as at 31 December 2016 (2015: £0.50 million) to cover any further potential negotiations. Subject to those negotiations, this matter has been treated as a current liability as it is more than likely to be resolved within the next twelve months. Any payment related to this matter will be dependent on agreement with our customer on all matters that are critical for maintaining the long-term relationship between the two companies.

9 Loans and borrowings On 29 March 2016, the Company announced that its wholly owned subsidiary Turbo Power Systems Limited had entered into an agreement to draw down on a new loan to be provided by TAO UK, to support working capital requirements. The additional amount available to draw down as follows: 29 March 2016 £314,000 This amount was repayable on 1 April 2017, which can be extended, at the Company’s request, for a further year, and accrues interest at 6% per annum, payable annually. In March 2017, TAO UK extended the loan repayment date to 1 April 2018. All other conditions remain the same.

30 June 2017

31 December 2016

Fixed rate loans £’000 £’000 Due after one year Loans 314 314 Accrued Interest 24 14 Total 338 328

The Company has drawn down on all its borrowing facilities as at 30 June 2017 (2016: all loans drawn down in full). There is unpaid accrued interest of £0.02 million included in the loan amount at 30 June 2017 (2016: £nil) 10 Share capital and options Share capital and other reserves

Share Capital Common Shares Convertible Shares

(A Ordinary Shares) Number £’000 Number £’000

At 30 June 2016 and at 31 December 2016

3,336,865,922 71,408 892,777,778 17,310

At 30 June 2017 3,336,865,922 71,408 892,777,778 17,310 The Company is authorised to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series, without nominal or par value. All common shares rank equally with regard to the Company’s residual assets. The holders of common shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company. Holders of A Ordinary Shares of Turbo Power Systems Limited (“TPSL”) (Convertible shares), carry no voting rights, cannot attend any shareholder meetings and, in the event of winding-up of TPSL are entitled to a maximum distribution of £500,000 in aggregate, to rank before the Common Shares. The A Ordinary shares are convertible into an equal number of Common Shares of the Company on request by the holder, having given 61 days’ notice. Under certain take over or change in control events, the A Ordinary Shares are exchangeable under "super exchange" rights, converting for 3 Common shares of the Company for every A Ordinary Share held. As at 30 June 2017 all the A Ordinary Shares were owned by TWC3N, the Company’s ultimate parent company. As the A Ordinary Shares are non-participating interests in TPSL and are non-voting, no current year or cumulative net losses have been allocated to the A Ordinary Shares. Capital contribution reserve At 30 June 2017 the Capital contribution reserve, which arose in 2016 and earlier years from the waiver of the TAO UK Loans and accrued interest and the repayment of the Regional Growth Fund grant, was £12.79 million (31 December 2016: £12.79 million). Other reserves At 30 June 2017, other reserves comprise of the stock compensation reserve of £1,823,000 (31 December 2016: £1,823,000). Potential issue of common shares The Company has issued share options under the 2002 Stock Option Plan and A Ordinary Shares that are convertible into common shares of the Company.

30 June 31 December

2017 2016

Under stock option plan 3,772,728 4,872,728

Pursuant to A Ordinary Share conversion 892,777,778 892,777,778

896,550,506 897,650,506

11 Related party transactions Transactions with the parent and ultimate parent company During the periods ended 30 June 2016 and 30 June 2017 the Company undertook no significant transactions with related parties. Save for the loans and borrowings (see Note 9 above) and any accrued interest, there were no amounts outstanding at 31 December 2015 and 30 June 2016 between either the Company and TAO UK or the Company and TWC3N Limited. Key Management personnel compensation In addition to their salaries, the Company provides non-cash benefits to executive management and contributes to a defined contribution pension plan. Some executive officers participate in the share option programme. Key management personnel compensation comprises the following:

Quarter ended 30 June Six months ended 30 June 2017 2016 2017 2016 £’000 £’000 £’000 £’000 Salaries 142 139 282 277 Pension contributions 11 9 22 18 153 148 304 295