Final Results

MicroFuze International Plc ("MicroFuze" or "the Company") MicroFuze, a developer of innovative surface engineering technology, announces its preliminary results for the period ended 31 December, 2006. Key Highlights: * development of strategy with adoption of Boron, instead of Chrome, as preferred donor metal * formalisation of a technology commercialisation agreement with Applied Thermal Coatings, Inc. ("ATC"), of the USA, including access to their significant client base * relocation of offices and technology development lab from Alstom Materials Technology Centre to ATC * extensive and promising discussions with a large power generation entity in the US to use microwave diffused turbine blades and accessories * currently reviewing a proposal relating to first production microwave and analysing a number of financing options including debt financing and leasing * restructuring of the board and management team, reflecting the slower than anticipated commercialisation of the technology, commercial priorities and new focus on Boron * monthly burn rates, as a result of the above mentioned restructuring, have been significantly reduced * fund raising planned for additional working capital * continuing investment in "cool plasma" technology * continuing to review other opportunities in emerging technologies for rapid commercialisation Chairman's Statement The Company has continued to make progress in the diffusion of boron into high value metals for a large customer in the power generation industry in the USA. To further assist this progress, and as announced on 19 December 2006, the Company has entered into a technology development agreement with ATC who through its principals have a long and experienced history in metal treatment solutions in the USA. As anticipated at the time of the IPO, a larger microwave, purpose designed for a particular application, is required to meet market volumes and realize the economies of scale in production necessary to be price competitive. Since design specifications are derived from results in the lab, success with Boron to industry standards was required before procurement could begin. The original Chrome design was not effective for Boron, and a new approach was taken. This resulted in unanticipated delays in excess of six months. As previously announced the Company has undertaken a restructuring of the board and management team and various cost cutting measures. This will both preserve and redirect capital to the Boron program. As the Company nears ordering its first production microwave and the subsequent commercial ramp up phase it will seek additional funding. In line with this the Company is currently reviewing fund raising, debt financing and joint venture initiatives. Results Summary: The loss from ordinary activities after minorities for the period ended 31 December, 2006 was £2,314,004, a loss of 2p per share. This loss is inclusive of exceptional items, being research and development in respect of the original and additional projects, totalling £347,062 and share based payments of £728,862. Business Operations: Development of Strategy: MicroFuze remains encouraged by the many opportunities for chromising across numerous industries, but has made the decision to place its primary focus on boronising in the power generation industry. The Company believes this to be its best strategy for rapid commercialisation and a focused rather than multi-national diversified product approach would best utilise its resources. Both opportunities are discussed in more depth below. Chrome: The completion of our original commercial order from Diffusion Technologies has been delayed (with agreement of the customer) due to the development microwave being committed full-time to the Boron product enhancement and process validation. This original business opportunity (using chrome) successfully established microwave diffusion as an alternative to conventional diffusion, but required the Company's original development microwave to be committed to production. This order is planned to be completed in the smaller development microwave once the production microwave has been purchased and is on-line and processing Boron orders. Diffusion Technologies is accepting conventionally diffused studs from ATC in the meantime. Additional Chrome product orders from the manufacturing sector are anticipated once the development microwave is recommitted to such production. Boron: The Company, through its affiliation with ATC, was offered an opportunity to enter the high-valued power generation industry immediately, if Boron could be diffused in a microwave. Encouraged by the successes with Chrome, a decision was taken to concentrate development efforts on one product - Boron into Stainless Steel - for one industry, and suspend the multi-national diversified products approach. Potential customers have been advised and assured of resumption in development when a capability is re-established. Whilst technically challenging to handle as a donor element, once activated and diffused, Boron has been credited with providing hardness and lubricity characteristics without some of the disadvantages of Chrome. Success in a microwave required acquisition of new powders and creation of new operating protocols. The transition from Chrome was slower than expected, increasing development costs and delaying the commercial roll-out. Potentially, this concentration of development and marketing resources is very beneficial to MicroFuze as it provides an early entry point to a significant market segment. The potential customer is a recognised industry champion, and has expressed its willingness to endorse this technology to its other suppliers and industry partners. As a large and influential buyer, this utility is well placed to insist upon its Tier 1 after market suppliers, and the Original Equipment Manufacturers, using microwave diffusion as the preferred treatment, and testify to the practical benefits. Production Microwave: MicroFuze is currently reviewing a proposal from Microwave Materials Technology, Inc. ("MMT"), the supplier of our development microwave and supplier to the US Government's Oak Ridge National Labs, relating to the production microwave. MMT has a strong working knowledge of our microwave process and has experience in scale-up vacuum vessels similar to those of our design. MMT has introduced design modifications exclusively for the MicroFuze application. The Company, in conjunction with the above proposal, is analysing a number of financing options for the microwave, including debt financing and leasing. Applied Thermal Coatings, Inc. ("ATC"): The Owner and CEO of ATC, Mr Harley Grant, is a co-inventor of the original technology and has worked closely with MicroFuze over the past three years to confirm its commercial potential and to assist with the technical validation of a market for the process. ATC is using its client base in order to extend its supply of surface treatments to include diffusion of Boron using microwave technology. Mr Grant has represented the microwave technology as an attractive opportunity to his clients on behalf of MicroFuze. Microwave diffusion has advantages over conventional diffusion, although some customer parts will still require conventional treatment and the ATC business is well positioned to provide it. A joint working relationship has now been established between ATC and MicroFuze which provides a one-stop shop for our key customers. ATC have agreed to enter into a sub-licence agreement with MicroFuze to produce the first commercial Boron diffusion in a microwave. Mr Jeff Henry, former Director of Materials Technology Center at Alstom, has recently joined ATC as President and Chief Operating Officer and is supporting the development of the technology at the MicroFuze lab now located within the ATC premises. Mr Henry is a recognised world authority on metal failure analysis and remedy, publishing and presenting in the scientific arena for the past twenty years. Before joining ATC, Mr Henry was Director of Alstom Power's Materials Technology Centre and worked directly with major players in the power industry around the world. ATC's commitment, through its collaboration agreement with MicroFuze, is to staff and operate, under MicroFuze's supervision, the proposed production microwaves for the power generation industry. ATC will be charged commercial rates for the lease of the above mentioned microwaves. Cool Plasma: Professor Nguyen Tran in Melbourne, Australia has continued to work on the development of a microwave diffusion process which creates alloys without the presence or generation of significant heat in the surface of the target metal, which is referred to as 'cool plasma' technology. Early results have been promising and experimentation is now concentrated on more exotic metals identified by the defence industry. Furthermore the Company has developed and will continue to develop intellectual property (including the filing of patents) as a result of Professor Tran's work. Management: Following a review of the Company's needs, future growth strategy and desire to conserve cash resources, cost savings have been implemented throughout the Company. Starting with the Board, the number of directors has been reduced from five to three. The recent commercial agreement with ATC has provided the Board with confidence that regionalising leadership in the US is most appropriate at this time. Focusing on one application and industry will, over time, require a new structure and management focus. The advent of production scale-up activity and supply agreements with customers will later necessitate new appointments being made. Current Cash Position: The net cash position of the Company at 31 March, 2007 was £648,869. As announced on the 19 of December 2006 the Company has undertaken numerous cost reduction initiatives which have been implemented over the first quarter of 2007. This has resulted in the monthly burn rate being significantly reduced from approximately £110,000 to approximately £50,000 by April 2007. Capital expenditure of approximately £130,000 ($USD 260,000) is planned on the first production microwave, for which the Company is analysing a number of financing options including debt financing and leasing. As per the collaboration agreement with ATC, this microwave will in turn be leased to ATC at commercial rates. ATC will in addition incur costs for the staffing and operations of the microwave. Whilst revenues for the year did not meet expectations this was in part due to the need to confirm the technology and validity of the scientific process through a third-party review. This resulted in the Company's lab being offline for approximately two months. The strategic decision to introduce Boron and focus on one application for one industry created both immediate opportunities for global commercialisation and a need for further development. This has resulted in delays to the Company's forecasted business rollout of in excess of six months. Outlook: MicroFuze has continued with its top-down strategy of market penetration, initially by gaining support from the leading users of the surface treatment properties and spreading this knowledge down to original equipment manufacturers (OEMs) and Tier 1 aftermarket suppliers. For example, it is anticipated that as a result of the work being done with a large US corporation in the power generation industry, other suppliers of surface treatment to the power generation industry will also follow with adoption of the technology. The Company has been able to adapt itself to meet the market's new and more immediate demand for boronising. Having strategically moved away from chrome, it has forged a strong alliance with ATC which will assist with the fast-track commercialisation of the Boron technology to certain multi-national clients. At the same time, it has realigned the management team in a manner more suitable to meeting the needs of the Company and it has retained a reasonable cash position. The Company is currently engaged in discussions with certain funding parties with a view to accessing additional working capital. The Company continues to review other opportunities in emerging technologies which could attract additional capital. Additional capital is needed to fund the commercial rollout of the technology this year and over the next three years and to ensure adequate resources to maximise early returns from the pending commercialisation programme. In closing, I would like to thank all members of staff for their hard work and dedication in assisting the Company to move forward with its commercial plans. I would also like to thank our shareholders for their continuing support and interest in the Company. Peter Marks Chairman Enquiries For further information: MicroFuze International Plc www.microfuze.com Doug Parrish, Chief Executive Tel: +44 (0)20 7016 5100 parrish@microfuze.com Nominated Adviser Nabarro Wells & Co Limited John Wilkes/Hugh Oram Tel: +44 (0)20 7710 7400 microfuze@nabarro-wells.co.uk Media enquiries: Positive Profile Henry Gewanter Tel: +44 (0)20 7489 2028 henryg@positiveprofile.com Mob: + 44 (0) 7774 22 88 45 Consolidated profit and loss account For the period ended 31 December 2006 Note 2006 £ Turnover 2,867 Cost of sales - Gross profit 2,867 Administrative expenses (1,731,567) Share based employee compensation costs (728,862) Operating loss 2 (2,457,562) Other interest receivable and similar income 58,738 Interest payable and similar charges (1,693) Loss on ordinary activities before taxation (2,400,517) Tax on loss on ordinary activities - Loss on ordinary activities after taxation (2,400,517) Minority Interests __86,513 Loss for period (2,314,004) Loss per share pence Basic 2.0 Fully diluted 2.0 All activities relate to continuing operations. There are no recognised gains or losses other than those included in the profit and loss account. Consolidated balance sheet As at 31 December 2006 Note 2006 £ £ Fixed assets Tangible assets 81,788 Intangible assets 1,478,628 1,560,416 Current assets Debtors 61,680 Cash at bank and in hand 1,068,994 1,130,674 Creditors: Amounts falling due within one year (147,247) ___ Net current assets _983,427 Total net assets 2,543,843 Capital and reserves Called up share capital 223,682 Share premium account 3 4,026,259 Share options reserve 3 728,862 Profit and loss account 3 (2,314,004) Shareholders' funds 4 2,664,799 Minority interests (120,956) 2,543,843 Company balance sheet As at 31 December 2006 Note 2006 £ £ Fixed assets Tangible assets 1,120 Investments 1,600,000 1,601,120 Current assets Cash at bank and in hand 1,052,622 Debtors 1,207,755 2,260,377 Creditors: Amounts falling due within one year (147,235) Net current assets 2,113,142 Total net assets 3,714,262 Capital and reserves Called up share capital 223,682 Share premium account 3 4,026,259 Share options reserve 3 728,862 Profit and loss account 3 (1,264,541) Shareholders' funds 4 3,714,262 Consolidated cash flow statement For the period ended 31 December 2006 Note 2006 £ Net cash outflow from operating activities 5 (1,625,398) Returns on investment and servicing of finance 5 57,045 Taxation - Capital expenditure and financial investment 5 (29,445) Cash outflow before financing (1,597,798) Financing 5 2,666,792 Increase in cash in the period 1,068,994 Reconciliation of net cash flow to movement in net funds £ Increase in cash in the period 5 1,068,994 Opening net funds - Closing net funds 1,068,994 Notes to the financial statements For the period ended 31 December 2006 1. Accounting policies Basis of accounting The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. The financial statements have been prepared on a going concern basis. The group is still developing its products for market which are not projected to produce income before 2008. The company's forecast expenditure for the period to 30 June 2008 indicates that cash resources are sufficient for the company and group to meet its liabilities as they fall due. For the medium term, as referred to in the Chairman's Statement, the company is engaged in discussions to secure additional finance. Should the company be unable to continue trading, adjustments would have to be made to reduce the value of assets to their reasonable amounts, to provide for further liabilities which might arise, such as closure costs, and to classify fixed assets as current assets. Basis of consolidation The Group financial statements consolidate the accounts of the Company and its interest in subsidiary undertakings. All business combinations have been accounted for using the acquisition method of accounting. Overseas subsidiaries are consolidated using the closing rate method. Foreign exchange differences arising on consolidation are taken to reserves. Tangible fixed assets and depreciation Fixed assets are stated at cost less depreciation and impairment. Depreciation is calculated to write down the cost of all tangible fixed assets by equal annual instalments over their expected useful life, as follows: Plant and Machinery Over 3 - 10 years Motor Vehicles Over 3 years Fixtures, Fittings and Equipment Over 4 years Pensions The Company does not operate any pension scheme. Investments Fixed and current asset investments are stated at cost less provision for any impairment in value. Notes to the financial statements (continued) For the period ended 31 December 2006 1. Accounting policies (continued) Acquisitions Purchased goodwill is capitalised and classified as an asset on the balance sheet. Amortisation is calculated to write off the capitalised goodwill in equal instalments over a period of 20 years. Goodwill is reviewed for impairment following the first full year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying values may not be recoverable. Trading results of the acquired subsidiary undertakings are included from the date of acquisition. Deferred taxation Deferred tax is provided in full in respect of taxation deferred by timing differences between the treatment of certain items for taxation and accounting purposes, except for those timing differences in respect of which the standard specifies that deferred tax should not be recognised. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Foreign currencies Foreign currency transactions of individual companies are translated at the rates ruling when they occurred. Foreign currency monetary assets and liabilities are translated at the rates ruling at the balance sheet date. Any differences are taken to the profit and loss account. Turnover Turnover represents amounts receivable for goods and services net of VAT, trade discounts and other sales tax. Liquid resources The Group considers cash on short term deposits and other short term investments to be liquid resources. Share based payments The Group provides benefits to employees (including senior executives) of the Group in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity- settled transactions). Notes to the financial statements (continued) For the period ended 31 December 2006 1. Accounting policies (continued) Share based payments (continued) The cost of these equity-settled transactions with employees is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than market conditions linked to the price of the share of MicroFuze International Plc if applicable. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or other service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group's best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The profit and loss account charge or credit for a period represents the movements in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is only conditional upon a market condition. If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. Notes to the financial statements (continued) For the period ended 31 December 2006 2. Operating loss 2006 £ Operating loss is stated after charging: Depreciation 9,806 Auditors' remuneration - audit 23,000 Auditors' remuneration - listing fees 22,840 Other group company auditors' fees 10,000 Amortisation of goodwill 88,004 Exceptional item - research and development costs 347,062 3. Reserves Company Company Group Company and Group and Group Profit Profit Share Share and loss and loss option premium account account reserve account £ £ £ £ Loss for the period - - (2,314,004) (1,264,541) Premium on shares issued during the period - 4,026,259 - - Share options issued 728,862 - _____ -____ ______-_ At 31 December 2006 728,862 4,026,259 (2,314,004) (1,264,541) 4. Reconciliation of movement in shareholders' funds Group Company 2006 2006 £ £ Loss for the period (2,314,004) (1,264,541) Proceeds from issue of shares 4,249,941 4,249,941 Share options issued 728,862 728,862 Net addition to shareholders' funds 2,664,799 3,714,262 Opening shareholders' funds - - Closing shareholders' funds 2,664,799 3,714,262 Notes to the financial statements (continued) For the period ended 31 December 2006 5. Notes to the cash flow statement a Reconciliation of operating loss to net cash flow from operating activities 2006 £ Operating loss (2,457,562) Depreciation 9,806 Goodwill amortisation 88,004 Foreign exchange (5,276) Share based payments 728,862 Increase in debtors (35,298) Increase in creditors 46,066 _______ Net cash outflow from operating activities (1,625,398) b Analysis of cash flows Returns on investment and servicing of finance Interest received 58,738 Interest paid (1,693) Net cash inflow for returns on investment and servicing of finance 57,045 Capital expenditure and financial investment Purchase of fixed assets (29,445) Net cash inflow from financing Net receipts from issue of shares 2,649,941 Cash acquired with subsidiaries ___16,851 2,666,792 Notes to the financial statements (continued) For the period ended 31 December 2006 6. Post balance sheet events On 14 December 2006 (revised in 2007) the Company through its subsidiary MicroFuze Americas (MFA) entered into a collaboration agreement with Applied Thermal Coatings Inc (ATC) whereby ATC have agreed to provide MFA with development Laboratory accommodation and an analysis and testing laboratory. The agreement provides for the establishment of a limited liability company 90% owned by MFA which would licence the Microwave Diffusion Technology (MDT) to ATC for use in the Power Generation Industry. The fees to be charged by the new company amount to 10% of ATC's net sales relating to the use of the technology in the Power Generation Industry. The total potential market size available in the Power Generation field is estimated to be in excess of £20 million per annum. Annual General Meeting The Annual General Meeting of MicroFuze International Plc will be held at Floor 6, Saddlers House, Gutter Lane, London EC2V 6HS at 10.00 am on Friday 15 June 2007. Statutory Information The financial information set out above does not constitute the Company's statutory accounts for the period ended 31 December 2006, but is derived from those accounts. Statutory accounts for 2006 will be delivered to the registrar of companies following the Company's Annual General Meeting. The auditors have reported on those accounts. MicroFuze International plc

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