Final Results

Surface Transforms PLC
02 September 2003



2 September 2003


               Preliminary results for the year ended 31 May 2003


Surface Transforms plc, manufacturers of high technology carbon ceramic
materials, announces preliminary results for the year ended 31 May 2003.


Financial and business highlights:


• Introduced new business model following strategic review in February
  2003


• Successfully increased revenues from significantly lower cost base


• Increased turnover by 130% to £240,000 (2002: £104,000)


• Operating loss before tax of £1.13 million, with the second half losses
  falling to £333,000.


• Partnership with world-leading aircraft brake systems manufacturer now
  producing regular monthly revenues


• Strengthened board with the appointments of two non-executive
  directors, both have experience of building profitable high technology
  businesses


• Moved from Ofex to the AIM market and raised £1.3 million (£0.9 million
  net)


Derek Whitney, Chairman of Surface Transforms, comments:


'The Company has made good progress and we have achieved some important
milestones in our principal aerospace and automotive markets. Following the
strategic review and the management and board changes, the Company has now
embarked on the next phase of expansion which will see our technology have
broader application in our target markets. These markets include additional
commercial and military aircraft brake systems, rocket motor systems, clutch pad
applications in Formula 1, high performance and GT cars and a number of other
industrial and defence applications.'


For enquiries please contact:

Julio Faria                                  Neil Boom

Managing Director                            Managing Director
Surface Transforms plc                       Gresham PR Ltd.
01928 735 498                                020 7404 9000



Chairman's Statement


The Company has made good progress and has achieved some important milestones in
its principal aerospace and automotive markets. Following a strategic review,
the Company is now focussed on three core activities as it develops its
proprietary carbon ceramic technologies. These are (1) knowledge based
collaborative ventures with global commercial partners in aircraft braking and
rocket propulsion materials. (2) contract development activity with commercial
partners in the automotive and transportation markets where carbon fibre
reinforced ceramic (CFRC) application opportunities abound; and (3) CFRC product
sales.


Financial Results


Turnover for the year was 130% higher than the previous period at £239,755 
(2002: £104,063). Operating losses for the year were £1,129,909 (2002: £569,033 
loss) and these included non-recurring, exceptional costs associated with the 
write down of £293,048 of inventory relating to the change in the Company's 
approach to the Formula 1 automotive market. Operating losses before exceptional
items were £836,861 (2002: £569,033 loss).


In February, the Board initiated a strategic review which resulted in the
substantial reduction of the Company's cost base in the second half of the year.
Operating losses in the second half of the year reduced to £332,637 (full year
2003 : £1,129,909 loss)


The Company's cash and working capital position has been stabilised since the
year end; this has resulted from improved trading and the receipt of substantial
R&D tax credits relating to the previous two years. The Company has no bank
borrowings.



Operating Activities


AIRCRAFT BRAKES


The collaborative partnership with a world-leading aircraft brake systems
supplier continues to progress well and our partner has committed considerable
financial and technical resources to the technical collaboration. In December
2002, the Company delivered the initial pilot plant on time and on budget. This
plant is producing test brake materials for a yet-to-be-launched wide-bodied
commercial jet airliner. Work is progressing on the full-scale plant design and
Surface Transforms is discussing important service and licence agreements with
its partner which should underpin future income and long term licence payments
if Surface Transforms's technology is ultimately adopted on the targeted
aircraft.


Surface Transforms's materials are included in the test programme because of
their weight-saving advantages over rival products. In the aerospace market
small weight savings can produce substantial reductions in aircraft running
costs, a crucial element in the decision-making process for all aircraft buyers.
Surface Transforms's products have a considerable technical edge. As ever,
shareholders should be aware that as with all new leading-edge technologies
there are no guarantees that the Surface Transforms's technology will ultimately
be adopted on the aircraft. Nevertheless, progress to date and the investment
made by our partner is encouraging and indicates that Surface Transforms's
product has applications as an economic solution for a variety of aircraft
braking requirements.



AUTOMOTIVE MARKETS


After the disappointment in December 2002 of the FIA rule change, stipulating
one supplier only for the F1 brake market, the Company has sought to widen the
market application opportunities it has with its proprietary CFRC technology.


Indy Racing and GT


In January 2003, Surface Transforms received its first order to supply
development brake discs and pads from one of the most successful teams that
competes in the Indy Car Racing League (IRL). The order, for the supply of brake
discs and pads, has been delivered and the Company is working closely with the
US distributor to evaluate the brake pad prototypes to market CFRC brakes to
other IRL teams.


Entry to the GT car market has been recent and testing has commenced with two
established GT racing teams, both of which have conducted a number of successful
on-car tests and off-car assessments. This market is expected to have good
potential for Surface Transforms over the longer term.


High Performance Cars

Surface Transforms is collaborating on developing and testing products with a
leading international supplier of complete braking systems to a number of the
car manufacturing majors. The Company's partner's sales are in both the OEM
(original equipment manufacture) and the after markets.


CARBON FIBRE PREFORMS

Several orders for carbon fibre preforms have been successfully completed and
delivered satisfactorily to customers. The Company is now well-placed to push
ahead for a greater penetration of this market. In preparation for a focused
sales campaign, the needling plant has been relocated to a new, self-contained
unit that is much better suited to production than the previous location. There
is confidence that the personnel and resources are available to significantly
increase the Company's share of the carbon preforms market.


OTHER MARKET APPLICATIONS

Surface Transforms has been working since 2001 in development programmes to
supply a bespoke rocket propulsion part to a division of BAe Systems called
Roxel. Testing on the lightweight rocket component continues to progress. The
Company has recently been invited by Roxel to tender for a second programme
requiring a different specification part to be supplied in CFRC material.


In the rail market, Surface Transforms has supplied the development partner
SabWabco, the world's leading supplier of complete rail brake systems, with
several full-scale rotors as part of a new programme for a lightweight rail
project.


Work on products for two important and fast-growing new market applications for
resin transfer moulding and ballistics is providing encouraging results, and
demonstrates that Surface Transforms's CFRC technology can be used more broadly
in commercial contexts. The Company shall report on these in more detail as
these development projects mature.



Directors and the Board


The expansion of the Company, the listing on AIM and the recently initiated
Company-wide strategic review have ushered in a number of changes on the board
designed to provide a platform for future expansion.


The executive directors are Julio Faria, Managing Director and Dr. Geoff Gould,
Sales & Marketing Director. David Levis, Commercial Director, has expressed his
intention to resign from the Company and pursue his other interests. His
contribution to the Company over the past three years has been significant and
we wish him well with his future career. We shall shortly be appointing a
Financial Controller, with the intention that this is made a board appointment
after an appropriate period.


Kevin D'Silva joined the board in March 2003 as a non-executive director. He has
extensive strategic business experience in the public company arena and an
excellent track record in the building of a fast-growing, profitable
technological group. In April this year, Peter Holland joined the board as a
non-executive -director,and brought with him the scientific and marketing
experience accumulated over 20 successful years in the chemical polymer
processing and formulation business. David Williams left the board in April 2003
and returned to his Formula 1 career as an executive director in the Jordan
team. I would like to place on record the thanks of all connected with the Group
to David Williams.


After three years as Chairman, which saw Surface Transforms float successfully
on Ofex and then move to AIM, I shall not be seeking re-election as director at
the forthcoming Annual General meeting and the board has elected Kevin D'Silva
to succeed me as Chairman. I shall continue to remain a shareholder and expect
that the new senior managerial talent that has been introduced to the Company
will progress the business through its next phases of expansion.


Outlook


Following the strategic review and the management and board changes, the Company
has recently commenced the next phase of expansion, which will see Surface
Transforms's technology have broader commercial applications in its target
markets. These will include additional commercial and military aircraft braking
systems, rocket motor systems, clutch applications, high performance and GT cars
and a number of other industrial and defence applications.


The prospects within the Company's chosen application markets have widened
considerably this past calendar year, despite the disappointments in the Formula
1 market. The revised business model, focuses, alongside CFRC product sales, on
collaborative and contract development of its CFRC technology with a larger
range of clients. This strategy reduces over-dependence on a few large client
projects, while at the same time improves cash inflow and application diversity,
and over the longer term should lead to the greater commercial adoption of
Surface Transforms's unique CFRC technology.




                             SURFACE TRANSFORMS PLC
                             PROFIT & LOSS ACCOUNT
                             YEAR ENDED 31 MAY 2003


                Note            2003             2003           2003             2002
                                Before      Exceptional          After      As restated
                           exceptional            items    exceptional   (see note 2)
                               items     (see note 4)          items
                                   £                £              £                £

Turnover                     239,755                -        239,755          104,063
Cost of                     (105,814)        (293,048)      (398,862)         218,120
sales
                       --------------- ---------------- -------------- ----------------
Gross profit/                133,941         (293,048)      (159,107)         322,183
(loss)

Distribution                  (2,552)               -         (2,552)         (12,043)
costs
Administrative              (617,644)               -       (617,644)        (409,271)
expenses
before
development
costs
Development                 (350,606)               -       (350,606)        (479,902)
costs
Other                              -                -              -           10,000
operating
income
                       --------------- ---------------- -------------- ----------------
Operating                   (836,861)        (293,048)    (1,129,909)        (569,033)
loss
                       --------------- ----------------
Interest                                                       6,677            7,968
receivable and
similar
income
                                                        -------------- ----------------
Loss on
ordinary
activities
before                                                    (1,123,232)        (561,065)
taxation
Tax on loss on                                               158,850                -
ordinary
activities
                                                        -------------- ----------------
Loss on
ordinary
activities
after taxation                                              (964,382)        (561,065)
and for the
financial
year
                                                        ============== ================

Loss per
ordinary  
share
Basic and          3                                          (10.86p)           (7.5p)
diluted
                                                        ============== ================
                                                                    


All amounts relate to continuing activities.



                             SURFACE TRANSFORMS PLC

                                 BALANCE SHEET

                               AS AT 31 MAY 2003

              Note                               2003                                 2002
                                    £               £                £                   £
Fixed
assets
Intangible                                     10,758                               12,976
assets
Tangible                                       97,893                              130,376
assets
                                         --------------                   ------------------
                                              108,651                              143,352
Current
assets
Stocks                         70,068                          338,171
Debtors                       294,387                           76,834
Cash at bank      6           178,175                          139,595
and in hand
                       ----------------                  ---------------
                              542,630                          554,600

Creditors:
amounts
falling
due within                    (77,608)                        (118,442)
one year
                       ----------------                  ---------------
Net current                                   465,022                              436,158
assets
                                         --------------                   ------------------
Net assets                                    573,673                              579,510
                                         ==============                   ==================
Capital and
reserves
Called up                                      93,799                               79,156
share
capital
Share premium                               1,967,775                            1,023,873
account
Other                                         520,399                              520,399
reserves
Profit and                                 (2,008,300)                          (1,043,918)
loss
account
                                         --------------                   ------------------
Equity                                        573,673                              579,510
shareholder's
funds
                                         ==============                   ==================




                             SURFACE TRANSFORMS PLC

               Reconciliation of movements in shareholders' funds

                                                      2003                2002
                                                         £                   £

Loss for the financial year                       (964,382)           (561,065)
New share capital subscribed
(net of issue costs)                               958,545             592,852
                                          ------------------  ------------------
Net (reduction in)/addition to                      (5,837)             31,787
shareholders' funds
Opening shareholders' funds                        579,510             547,723
                                          ------------------  ------------------
Closing shareholders' funds                        573,673             579,510
                                          ==================  ==================




                              CASH FLOW STATEMENT

                         FOR THE YEAR ENDED 31 MAY 2003



                                    Note               2003               2002

                                                          £                  £

Net cash outflow from operating        5           (917,597)          (768,880)
activities
Return on investments and servicing                   6,677              7,968
of finance
Taxation                                                  -                  -
Capital expenditure                                  (9,045)           (52,737)
                                            -----------------  -----------------
Cash outflow before financing                      (919,965)          (813,649)
Financing                                           958,545            592,852
                                            -----------------  -----------------
Increase/(decrease) in cash in the                   38,580           (220,797)
period
                                            =================  =================



Notes


1.         Nature of Financial Information


The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2003 or 2002. The financial
information for 2002 is derived from the statutory accounts for 2002 which have
been delivered to the registrar of companies. The auditors have reported on the
2002 accounts: their report was unqualified and did not contain statements under
section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2003
will be finalised on the basis of the financial information presented by the
directors in this preliminary announcement and will be delivered to the
registrar of companies following the company's annual general meeting.


2.         Basis of preparation


The accounting policies have been applied consistently in dealing with items
which are considered material in relation to the company's financial statements
except as noted below. The company has adopted FRS 18 'Accounting policies' and
FRS 19 'Deferred tax' in these financial statements.

The financial statements have been prepared in accordance with applicable
accounting standards and in accordance with the historical cost convention.


Change in format of profit and loss account


In accordance with FRS 18 ' Accounting policies' the directors decided to change
the format of the profit and loss account to separately highlight development
expenses. The directors believe this provides a better understanding of the
company's activities in the year. Cost of sales, administrative expenses and
development expenses have all been reclassified. The change in format has
resulted in no change to operating loss in either year.


3.                  Loss per share


The calculation of basic loss per ordinary share is based on the loss for the
financial year divided by the weighted average number of shares in issue during
the year.


Losses and number of shares used in the calculations of loss per ordinary share
are set out below:

Basic
                                                     2003                 2002
                                                        £                    £

Loss after tax                                   (964,382)            (561,065)

Weighted average number of shares               8,882,861            7,515,251

Loss per share                                      10.86p                 7.5p
                                           ================     ================


The calculation of diluted loss per ordinary share is identical to that used for
the basic loss per ordinary share. This is because the exercise of warrants and
options would have the effect of reducing the loss per ordinary share and is
therefore not dilutative under the terms of FRS14.



4.            Exceptional items


Following Formula 1 regulatory changes introduced during the year which
restricted the supply of products to that market, the directors decided to
terminate all ongoing Formula 1 development. This resulted in a Formula 1 stock
write down of £293,048.



5.            Reconciliation of operating loss to net cash flow from operating
activities

                                                     2003                 2002
                                                        £                    £

Operating loss                                 (1,129,909)            (569,033)
Depreciation charge                                41,628               38,886
Amortisation charge                                 2,218                2,224
Profit on sale of fixed assets                       (100)                   -
Decrease/(increase) in stocks                     268,103             (300,269)
Increase in debtors                               (58,703)              (3,724)
(Decrease)/increase in creditors                  (40,834)              63,036
                                        -------------------  -------------------
Net cash outflow from operating                  (917,597)            (768,880)
activities
                                        ===================  ===================



6.            Reconciliation of net cash flow to movement in net funds

                                                      2003                2002
                                                         £                   £

Increase/(decrease) in cash in the                  38,580            (220,797)
period
                                          ------------------  ------------------
Change in net funds resulting from cash             38,580            (220,797)
flows
                                          ------------------  ------------------
Movement in net funds in the period                 38,580            (220,797)
Net funds at the start of the period               139,595             360,392
                                          ------------------  ------------------
Net funds at the end of the period                 178,175             139,595
                                          ==================  ==================








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