Operations Highlights

On April 19, 2006 four of FCTL's solid oxide fuel cell systems ("SOFC") systems were commissioned at the opening of the solid oxide fuel cell facility at the University of Toronto at Mississauga (UTM). This marked Canada's first installation of solid oxide fuel cells in a university student residence, as well as the world's first multi-unit SOFC installation. The systems have accumulated over 6,300 hours of operation, and generated 25 MW of electricity along with 18 MW of heat. The output from these systems has been used to heat and power 12 townhouse units in the UTM student residence complex.

FCTL delivered two Balance of Plants ("BOPs") to Siemens Power Generation Inc. ("Siemens") as part of a contract signed in January and expects that it will deliver the remaining three BOPs in the third quarter.

The statutory Arrangement between Madison and Fuel Cell Technologies Corporation ("FCTC") was completed on April 1, 2006 following fulfillment of the conditions of closing. The Arrangement and three supporting resolutions with respect to the Arrangement were previously approved by an overwhelming majority of shareholders and optionholders at a Special Meeting held on March 22, 2006, after which FCTC obtained Court approval of the Arrangement on March  23, 2006.

As a result of the transaction, FCTC's operating subsidiary sold all of its operating assets and business, including Madison's investment of $1,550,000, to FCTL in exchange for assumption of specified liabilities. FCTL is now continuing the solid oxide fuel cell business with the same management and employees, owned by the same shareholders, but with a cash influx of $1.55 million to go forward. FCTC has changed its name to MP Western Properties Inc., and neither Madison nor MP Western Properties Inc. retains any interest in FCTL.

FCTL is now treated as a reporting issuer in Ontario, and may be treated as a reporting issuer in the other jurisdictions in Canada with substantially the same regulatory provisions as those in Ontario.

The proceeds of the transaction with Madison have provided the company with additional funds to continue the fuel cell business and meet existing contractual obligations. In order to commercialize the 5kW system additional funding is necessary. Over the last year, Management, with the support of the Board, has spent considerable effort evaluating the business strategy and actions to date. The outcome is a consensus that FCTL's chances of success are maximized by focusing on FCTL's core strengths, which include control system and balance of plant expertise, system integration and alliance management.

FCTL's systems currently incorporate Siemens Power Generation's industry leading, innovative tubular cell stacks that have demonstrated unsurpassed stack life and stability. Though considered by customers to be "best in class", FCTL's systems remain expensive, and the current system is not a commercially viable product in its current state.

New cell stacks and generators are now being developed by many companies. The probability that in 2-3 years there will be low cost generators available that would allow the production and sales of systems that incorporate these generators at a price that will meet consumer price expectations is increasing steadily. In order to accommodate such generators FCTL is extending the flexibility of its Balance of Plant (BOP) to develop a more generic system capable of integration with different generators with only minimum modifications required.

        FCTL's strategy is based on the following key tenets:

    - there is a large and growing market for small scale SOFCs in stationary
      applications;
    - FCTL's leadership in the development of SOFCs can be parlayed into
      brand equity to protect its position in the supply chain;
    - FCTL is well positioned to take advantage of its significant BOP and
      control systems expertise; and
    - the company will consolidate and protect its existing intellectual
      property to further secure its leadership in the SOFC market.
    

During the second quarter, discussions with several leading stack/generator suppliers have commenced with a view towards putting in place supply agreements that would provide FCTL the option of incorporating these generators into FCTL systems should they meet performance and price criteria. Management believes that this strategy will allow FCTL to leverage its leadership in SOFC systems to capture a significant market share of the stationary power market.

Summary of Financial Results

Total revenue for the three months and six months ended June 30, 2006 was $643,573 and $893,539 respectively. Second quarter revenue includes the revenue from the two BOPs delivered to Siemens as well as the majority of the revenue from the Data Package Agreement signed with Siemens in January 2006 and does not reflect the shipments to the Hydrogen Village site at UTM. The revenue from this project will not be recognized until the entire project is largely completed, anticipated for later this year.

Expenses for the three months ended June 30, 2006 were $444,773, comprised mainly of general and administrative expenses of $320,035 and research and development expenses of $74,423. A foreign exchange gain of $32,939 was realized in the quarter.

FCTL's current assets as of June 30, 2006 were $3,227,101, comprised of $311,640 of accounts receivable, a cash balance of $861,341 and inventories of $1,750,501.

During the quarter ending June 30, 2006, there was a net cash inflow of $811,487 as a result of the cash acquired through the Arrangement. The monthly average net cash utilization during the quarter ended June 30, 2006 was $105,480 per month.

FCTL's cash balance raises substantial doubt about the Company's ability to continue as a going concern. In order to continue operations the Company must obtain additional financing through the issue of shares and/or from loans, and management continues to pursue various avenues with the objective of providing funds to the business.

About FCTL

FCTL is a Canadian company that is poised to revolutionize the field of residential heat and power. As a leading producer of solid oxide fuel cell (SOFC) systems, FCTL's goal is to provide on-site combined heat and power to households around the world. With the potential to utilize hydrocarbon fuels with up to 90% efficiency as well as operate on clean fuels such as hydrogen, SOFC systems are widely considered to be one of the most promising technologies for clean and efficient power generation.