Ann: Operational update, page-2

CFOAM Limited - Operational Update
December 2016
Highlights:
 Significant capital improvements underway with expected completion by early Q1-
2017
 Material improvement in yield, quality, logistics and fully-loaded production costs
 Annual production capability at current site can grow to +30,000 ft3 per annum
 US Navy on-site final testing, validation and design phase successfully completed
 New markets identified to be major value drivers in 2017, and beyond
Triadelphia, WV, USA By way of brief background, CFOAM Limited (CFO) was admitted to the
official list of the ASX on 24 October 2016. CFO, through its wholly owned US subsidiary, Carbon
Innovations, LLC (CIL), assumed operational control and oversight of the CFOAM® production
platform in July 2016.
During this period, prior to taking full legal control on 22 October 2016, CFO completed multiple
pivotal operational tasks including:
- significant de-bottlenecking of key areas of the CFOAM® production process,
- important re-start repairs and identification of key, major maintenance programs,
- manufacturing and inventory build out of the CFOAM® 30 product line,
- optimization of the entire production platform process - which dramatically increased
production run yields/reduced production run times, markedly reduced direct production
costs and improved end-product quality and consistency.
Sales and marketing of the full array of CFOAM® product lines commenced when full legal ownership
of the core business was realized on 22 October 2016.
Platform Commercialisation Progress
Immediate near-term objectives include the full commercialization of the manufacturing platform
and developing a proven and dedicated sales and marketing team. CFO management have already
identified key personnel and expect to make strategic hires in early-2017 to increase global
awareness of CFOAM® products, and meet the array of current customer opportunities. The
primary platform objective is to transition CFOAM® from essentially what has been a specialized
R&D enterprise to a highly profit-oriented and growth-centric business platform.
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CFO management have already invested capital towards specifically targeted areas of the
manufacturing platform, and as referred to above, the results of this capital injection have had a
high impact and have yielded measurably positive outcomes to date:
 Major reactor vessel repairs and upgrades have already been performed;
 Additional, redesigned billet racks and feedstock trays have been purchased; and
 A new, upgraded milling machine has been sourced and ordered.
Some immediately realized key platform highlights that have been achieved directly from these
capital expenditure projects are:
 While the budgeted Year 1 annual production target was 10,000 ft3, CFO met, or exceeded,
this annualized production rate for three consecutive months (August to October 2016).
This was achieved prior to formal legal ownership of the research and development business
 Current CFOAM® output now stands at approximately 12,000 ft3 per annum, and is
increasing commensurate with sales and market demand of the CFOAM® product
 The continuous improvement programs already implemented and discussed above have
achieved realized gains of over 20% in both CFOAM® yield and quality of foam billets
produced
The current manufacturing facility has, conservatively, the capability of expanding and growing
CFOAM® annual capacity output to approximately 30,000 ft3 at the current site.
Sales and Marketing Activities
CFO will focus the initial marketing efforts on three core product lines:
 CFOAM® 20 – low density, fire resistant, insulating, energy absorbing foam products
 CFOAM® 30 – mid-density, fire resistant, insulating, energy absorbing foam products
 Graphitized foam products – suitable for high thermal conductivity applications
CFO currently has sales enquiries, programs, licensing discussions and quotations out, for multiple
applications, with multiple customers, including, but not limited to, composite tooling, energy
absorption applications, replacement of legacy materials in multiple sectors (such as metal alloys,
fibro-composites etc.), and fire resistance programs – e.g. CFOAM® joiner panels to be used in rail,
automotive, commercial/residential property, and ship building applications.
Aerospace Composite Tooling
CFOAM’s® high strength, low thermal expansion coefficient, light weight and lower cost make
it ideal for use in aerospace mould tools. Current customers and key commercial
opportunities include Northrup Grumman, Boeing Company, Coast Composites, Janicki
Industries, Airbus Group, Virgin Galactic and others.
Energy Absorbing, Fire Resistance Applications
CFOAM’s® high compressive strength, light weight/low density, fire resistance, insulating
properties and energy absorbing properties make it ideally suited to a number of these
applications.
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CFOAM® has undergone extensive testing and validation by the US Defense Department and
its contractors. Discussions are ongoing, and customer testing is underway to use CFOAM® for
fire resistant panels in rail car flooring and joiner wall/ceiling panels in both housing (safe
room applications) and vessel marine applications. Additionally, above ground rail car
applications for potential universal use in the USA and Europe are also being tested. Material
changes to specific safety standards and codes which govern rail carriage and transport in the
US could materially increase the requirement to utilize CFOAM® as a direct replacement for
incumbent materials which will no longer meet the minimum burn time thresholds of current
materials.
Defense Related Applications
Extensive research, validation testing and proving of CFOAM® has been conducted through
the US Government’s SBIR program. Further, the recent Presidential election result in the US
is expected to have a lasting and dramatic impact on defense spending, and specific programs
to upgrade or proliferate current defense programs and systems. Some of these positive
changes will directly, or indirectly, impact potential CFOAM® demand as both a superior
material for retrofit/replacement or as a key supply material for new programs.
Current programs and discussions are ongoing with major counterparties including:
• Huntington Ingalls
• US Navy
• Northrop Grumman
With reference to CFO’s key, current program with the US Navy i.e. the uptake exhaust stack
replacement program affecting some of the Navy’s most important strategic vessels - CFOAM®
use will significantly reduce manufacturing costs, essentially eliminate ongoing
maintenance/replacement requirements and achieve dramatic weight reduction versus the
incumbent materials used in existing vessel uptake exhausts systems. Recent critical
accomplishments with this program include:
- Successful on-site testing completion of full diameter CFOAM® stack segment;
- Design of next testing phase for installation on selected vessel(s) (target Q1-17);
- Establishment of a committee to define and quantify the immediate, and longer-term, US
Navy program requirements and their impact on production measures to meet the
material quantity of CFOAM® required to meet the demands of the program.
PFOAM - New Product Line
CFO expects to finalize and sign a license agreement later this month giving it access to 10
patents and intellectual property related to the production a graphitized/densified carbon
foam product. This product, produced from a mesophase pitch feedstock, has thermal
conductivity properties greater than aluminium and copper. CFO intends to introduce this
new product line with the name PFOAM. Currently, CFO controls the manufacturing capability
to produce PFOAM at scale, cost and output rate to penetrate already identified markets
including LED lighting. Production of PFOAM is planned for Q1 2017. Sales of PFOAM have
already been awarded pending execution of the license agreement. Selling price margins are
expected to significantly exceed that of other CFOAM® products. This is an extremely exciting
and compelling new product line, and one which will independently complement the
significant CFOAM® platform.

Capital Expenditure Projects
Post-IPO, CFO initiated a number of capital projects that were previously identified and discussed in
the Prospectus. Projects currently underway and on-going include:
 Design and construction of a new feedstock loading system, reducing both loading cycle time
and man-hours required to perform this task.
 Selection, procurement and installation of a new 3-axis, automated milling machine
 Electrical and PLC upgrades reducing production downtime
 Major maintenance repairs to the reactor vessel increasing system availability, and reducing
down-time delays between production runs - from +24-hours to < 3-hours
 Additional sets of racks and pans procured, further reducing cycle load time
 Acquisition and installation of storage containers allowing for on-site storage of up to 4,000 ft3
of finished CFOAM® product
CFO expects to have all projects identified above completed by no later than 31 January 2017.
Summary
In summary, CFO management has targeted and realized multiple platform and business goals in a
matter of weeks. As CFO enters 2017, the efficiency and quality of the total CFOAM® production,
logistics and sales businesses is measurably improved, and has been materially optimized to meet
the multiple commercial opportunities that the Company is involved with. We look forward to
keeping our shareholders abreast of these exciting developments over the coming months.