Final Results for the year ended 30 June 2019

RNS Number : 8979O

Quadrise Fuels International PLC

07 October 2019

 

7 October 2019

Quadrise Fuels International plc

("Quadrise", "QFI", the "Company" and together with its subsidiaries the "Group")

Final Results for the year ended 30 June 2019

Quadrise Fuels International plc (AIM: QFI) announces its audited final results for the year ended 30 June 2019 and gives notice that the Company's Annual General Meeting ("AGM") will be held at 12:00 noon on 29 November 2019.

Completion of Fundraising

Following the fundraising that closed in January 2019 and ensured that the business was funded through to October 2019, a structured process was put in place to enable a substantive fundraising programme before the end of Q3 2019.  This process was concluded successfully at the end of September 2019, providing the Company with assured funding through the medium-term of up to £6.5m (before expenses), of which £4.5m is now in place consisting of:

·      £2m of funding from Bergen Global Opportunity Fund, LP ("Bergen"), with the potential to draw down a further £2m tranche available in August 2020.

·      A fully underwritten Open Offer raising £1.84m (before expenses), with take-up of approximately 75% - an excellent response from our long-term shareholders.

·      Further funding via subscriptions of about £0.72m (before expenses).

Operational summary for the period and since the period end

Business Development

Quadrise has demonstrated staged progress in a number of important areas:

·      Following an introduction by Freepoint Commodities LLC ("Freepoint"), Quadrise entered into an agreement with Aleph Commodities in February 2019 covering Kuwait, which led to the Agency Agreement with Hawazin in May 2019 to progress opportunities for MSAR^® in Kuwait.

·      New representation in the Kingdom of Saudi Arabia ("KSA") in May 2019 - Quadrise is now working with Al Khafrah to progress MSAR^® opportunities in KSA - augmented with a Services Agreement with Aleph, in June 2019 covering KSA. 

·      Agreement with Younes Maamar, former CEO of the Moroccan state-owned power and water utility, ONEE, in February 2019.

·      A number of other agreements to cover important emerging markets including Russia and Eastern Europe, China and Mexico.

Financial summary for the period

·     £1.1m in cash reserves as at 30 June 2019 (30 June 2018: £2.2m) with a further £4.5m raised after year end.

·     Loss after tax of £3.0m (2018: £3.3m) of which £1.5m (2018: £2.0m) relates to production and development costs, and £1.5m (2018: 1.5m) relates to administrative and corporate expenses.

·     Cumulative tax losses of £51.0m (2018: £49.5m) available for set-off against future profits.

·     Total assets of £5.1m at 30 June 2019 (2018: £6.5m).

Commenting on the results and the recent successful funding, Mike Kirk, Executive Chairman of QFI, said:

"2019 has been a hugely important year for Quadrise in which we have made significant progress in implementing our strategy of accessing a broader range of project opportunities. Through this approach, we are now developing momentum in a number of markets in which we are seeking to progress these opportunities to commercial-scale trials and ultimately supply contracts. With the recently confirmed funding in place, we now have the financial capacity to progress these through the remainder of 2019 and into 2020. 

With a broader range of opportunities allied to our proven project management and research, development and innovation expertise, we have significantly reduced delivery risk. We remain acutely aware that there may be further challenges ahead, but we have made real progress so far in 2019 and are well positioned to build on these milestones.

We have a high degree of confidence that Quadrise will be in a position to demonstrate material progress during the current financial year, providing the pathway to future commercial revenues.

The dedication and professionalism of the team at Quadrise remains fundamental to our continued success, and I would like to thank everyone for their commitment during the year. I would also like to thank our shareholders, once again, for their support at a critical time for the business."

Notice of Annual General Meeting

The AGM is to be held at Park Plaza Victoria, 239 Vauxhall Bridge Road, London SW1V 1EQ on 29 November 2019 at 12.00 noon.

For additional information, please contact:

Quadrise Fuels International plc                                                                                   [phone]

Mike Kirk, Executive Chairman

Jason Miles, Chief Operating Officer

Cenkos Securities plc                                                                                                        [phone]

Nominated Adviser

Dr Azhic Basirov

Ben Jeynes

Katy Birkin

Peel Hunt LLP                                                                                                                    [phone]

Joint Broker

Richard Crichton

David McKeown

Shore Capital Stockbrokers Limited                                                                            [phone]

Joint Broker

Tony Gibbs

Fiona Conroy

FTI Consulting                                                                                                                   [phone]

Public and Investor Relations

Ben Brewerton

Ntobeko Chidavaenzi

 

Chairman's Statement

Overview of the 2019 Financial Year and substantial post year-end events

The 2019 financial year was one in which we made concrete steps to implement our strategy of developing a wider range of MSAR^® project and commercial opportunities. We have demonstrated staged progress in a number of important markets for Quadrise and are, therefore, well positioned to advance these opportunities with our commercial partners in the relevant countries/regions. This provides, we believe, firm foundations for the Company's future growth. The recently completed up to £6.5m funding (£4.5m of which is in place now) secures the Company's financial position in enabling the Company to continue to operate and advance its business development initiatives at current levels of expenditure until 31 December 2020.

The £2m Bergen funding and proposed open offer was announced on 23 August 2019. We felt it was important to demonstrate that we value our long-term and very supportive retail shareholders by offering them the opportunity to participate in the funding on substantially the same terms as Bergen. We were, therefore, delighted to announce on 9 September 2019 that we had increased the scale of the open offer by 20% to £1.84m and to have had this fully underwritten by Peel Hunt. In addition, we had been able to raise a further £0.72m via a subscription. The results of the open offer announced on 30 September 2019 showed that take-up was 75% which we and our advisors regarded as an excellent outcome in challenging stock-market conditions.

Business Development

As noted in the Company's interim results to 31 December 2018.  we are very clear on the requirement to deliver near-term business development milestones and secure additional funding to progress to sustainable commercial revenues and we have been actively engaged in delivering on both fronts during 2019. Important developments during (and immediately after) the period included:

November 2018

·      Co-Marketing and Project Development Agreement ("CMPDA") with Freepoint

·      Memorandum of Understanding ("MoU") and MSAR^® test programme with a European oil major.

February/March 2019

·      Agreement with Aleph Commodities ("Aleph") covering Kuwait (a territory under the CMPDA with Freepoint), which builds on Quadrise's earlier work to demonstrate the feasibility of MSAR opportunities in the country.

·      Agreement with Younes Maamar, former CEO of the Moroccan state-owned power and water utility, ONEE.

May/June 2019

·      Agency Agreement with Hawazin (Ahmad Al Otaibi and Faisal Al-Kharafi) in Kuwait - delivery of the first milestone with Aleph triggering the award of 5 million warrants to them.

·      Memorandum of Agreement ("MoA") with our new partner, Al Khafrah Holding Group, to accelerate the substantial opportunities in the Kingdom of Saudi Arabia ("KSA").

·      Services Agreement with Aleph covering KSA, to work in collaboration with Quadrise and Al Khafrah to accelerate our access to this major market opportunity.

·      Other agreements to enable access to markets in China and Mexico.

August 2019

·      MoA with a European Oil Refiner to evaluate and develop a potential MSAR^® project at one of their refineries, including proof of concept testing and project scoping activities.

·      MoU with Merlin Energy Resources to evaluate, develop and promote upstream heavy-oil projects using MSAR^® as a cost-effective solution to unlock value.

 

We now have a much broader pipeline of activities and opportunities that we will continue to progress during 2019-2020. The use of relevant local partners to assist in this activity enables Quadrise to access these markets in a cost and time effective manner and to align our internal resources appropriately to projects that present the most immediate opportunities. These priorities are reviewed regularly with resources reallocated appropriately.  Progress on individual projects varies over time, with periods of relatively little apparent activity suddenly transforming into intense project-based activity, or vice versa, primarily due to external circumstances outside of Quadrise's control.

Delivery of Key Business Objectives

With this broad spread of activities and the progress achieved in core markets, we believe that we have delivered strong progress on one of our key objectives for the year; to rebuild shareholder confidence and demonstrate that their long-term support continues to be justified.

We were delighted to secure the fundings announced on 23 August and 9 September 2019, the combination of which will be fundamental to the Company being able to advance towards material commercial revenues and profitability.

Collectively, these actions will, we believe, enable us to build a sustainable business based on the commercial adoption of MSAR^® technology at scale and, through this, to rebuild investor confidence and deliver long term shareholder value.

MSAR^® Market Background

As stated in the interim results, the positive shifts in the liquid fuel markets continued throughout 2018 and this trend has been maintained through 2019. This trend is a combination of strong MSAR^® economics, driven by the widening Heavy Fuel Oil ("HFO") and distillate fuels spread, together with increasing acceptance in the market that there will continue to be a significant demand for high sulphur HFO post the implementation of the International Maritime Organisation ("IMO") 2020 regulations. Marine operators, including Maersk, are accelerating plans for Exhaust Gas Cleaning System ("EGCS" or "scrubbers") installations as retrofits on existing vessels and on newbuilds. This should provide a stable platform for Quadrise to work with refiners and fuel consumers in the power, marine and industrial markets to progress MSAR^® projects over the next year.

Power Generation Opportunities

In Kuwait, our agreements with Aleph and Hawazin have positioned Quadrise to build on the work we had already concluded successfully in 2018 to demonstrate our technology to key participants in the local refining market. We are jointly building on this strong base and look forward to demonstrating substantial progress during 2019. In Morocco, we are making good progress with Younes Maamar. whilst the power market may provide further complimentary supply opportunities.

KSA still offers a very large market opportunity and we have put in place material changes to better address this. We amicably exited our long-term relationship with Rafid and established a new agreement with Al Khafrah to act as our local agent, supplemented by a further services agreement with Aleph. Through these actions we expect to develop broad and influential relationships that will enable us to reengage in the country and accelerate plans to develop the substantial opportunities for fuel oil substitution with MSAR^®.

The agreements that we have reached with agents generally include a success-based incentive structures, with material rewards only due upon the delivery of relevant disclosable project milestones and contracts that lead to the establishment of MSAR^® projects and commercial sales. This ensures that the interests of all parties are aligned to bring projects and commercial opportunities at pace.

We continue to pursue power market opportunities in other regions through existing relationships with major stakeholders, though in the near-term our focus will be on the opportunities in Europe, the Middle East and Morocco.

Marine MSAR^® Opportunities

The impending implementation of the IMO 2020 sulphur regulations has provided an increasingly positive market background for Quadrise across all markets. In the marine market in particular, the increasing uptake of scrubbers combined with the continued use of high sulphur fuel oil is widely regarded as the lowest cost compliance option for ship owners and operators in all major segments including the container, tanker and dry bulk markets. Although there remains some limited debate in the market regarding open-loop scrubbers and resulting seawater discharge, this is now widely regarded as proven technology. We believe that any coastal water or port authority bans on open loop discharge will have a minimal impact on the overall economic viability of scrubber installation, with rapid investment payback of one to two years for most installations.

Quadrise is benefiting from this market dynamic and remains in discussions with a number of market participants to progress trials ahead of making decisions on the adoption of MSAR^® alongside existing scrubber installation. However, capacity within the technical teams at shippers is at a premium, given the impending IMO deadline of 1st January 2020, so engagement and resourcing remains challenging. Maersk has now reversed its previous policy decision to only use compliant fuels and will now be installing scrubbers on some of its fleet. We have continued our discussions with Maersk in relation to the Royalty Agreement and related future MSAR^® opportunities.

 

RDI and Operations Activities

We have maintained investment in our Research, Development and Innovation ("RDI") activities and have hosted a number of investor and client visits during the year to demonstrate the high-quality team and facilities at QRF which remain central to our technology-led offering and the provision of operational project support, that includes bespoke equipment manufacture and supply. We continue to develop our pilot production facilities at QRF to handle the more challenging residues from complex refineries. These residues need to be emulsified at much higher temperatures and pressures and this capability will be increasingly important to support our broader business development activities. The ability of Quadrise to manufacture small volumes of MSAR^® at QRF could play a vital role in expediting future trial activities.

PR/IR Activities

Our close control of costs has continued without impacting our business development and PR/IR activities that are essential to the development of our business. Targeted investment during the period has included continued development of the website, more active use of other media such as Proactive Investors to reinforce the value of the positive news-flow that our business development activities have generated and increased use of investor conference calls to engage directly with our shareholders on a regular basis.

Results for the Year

The consolidated after-tax loss for the year to 30 June 2019 was £3.0m (2018: £3.3m). This included production and development costs of £1.5m (2018: £2.0m), administration expenses of £1.5m (2018: £1.5m), a share option charge of £0.2m (2018: £0.1m), interest income of £3k (2018: £18k) and a tax credit of £184k (2018: £294k).

Basic and diluted loss per share was 0.34p (2018: 0.38p).

Statement of Financial Position

At 30 June 2019, the Group had total assets of £5.1m (2018: £6.5m). The most significant balances were intangible assets of £2.9m (2018: £2.9m), property, plant and equipment of £0.7m (2018: £1.0m), and cash of £1.1m (2018: £2.2m). Further information on intangible assets is provided in note 8 below.

Cash Flow

The Group ended the year with £1.1m of cash and cash equivalents (2018: £2.2m) with £1.5m having been raised through the open offer in January 2019, and £2.7m having been utilised in its operating activities during the year (2018: £3.0m).

Capital Structure

The Company had 862,204,976 ordinary shares of 1p each in issue at 31 December 2018. As announced on 21 January 2019, the Company issued 60,506,919 new ordinary shares raising a total of £1.51m (before expenses). On 30 August 2019, 8,388,889 new ordinary shares were issued as part of the Convertible Security transaction announced on 23 August 2019.. A further 64,656,049 new ordinary shares were issued on 1 October 2019 as a result of the Open Offer and Subscription announced on 9 September 2019. The Company's current issued share capital stands at 995,756,835 ordinary shares of 1p each all with voting rights.

Taxation

The Group has tax losses arising in the UK of approximately £51.0m (2018: £49.5m) that are available, under current legislation, to be carried forward against future profits. £23.5m (2018: £21.5m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2018: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £0.9m (2018: £1.3m) represent pre-trading losses incurred by subsidiaries, £0.8m (2018: £0.8m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2018: £0.1m) represent capital losses within Quadrise Fuels International plc.

 

Outlook - Current trading and prospects. `

We are now building significant momentum across a broad range of opportunities in the power and marine markets, and our efforts remain focused on moving these forwards at pace through the remainder of 2019 and into 2020, now that we have secured substantial funding. Our evolved business development approach is reducing risk through having a broader portfolio of opportunities supported by our partners. Alongside this, our proven project management and RDI expertise enhances our ability to engage with leading companies and reduces the delivery risk to our project activities.

Though progress remains subject to potential delays and challenges, we have made substantive progress so far in 2019. We are well positioned to capitalise on the significant opportunities that we have secured to date, and to manage the risk that we still face - though we believe that these risks have reduced materially during the year.

We will continue to invest in PR/IR activities to ensure that there is a broad and deep understanding of Quadrise among our current and potential shareholders and customers. As part of this process, we have continued to upgrade the website and have most recently included an animated video which we will also be using at relevant industry events and meetings. We will also be investing in enhancing our capabilities to better support our loyal and longstanding shareholder base.

With 2020 approaching we firmly believe that MSAR^® technology has significant commercial potential, and our recent announcements demonstrate that an increasing number of participants in the energy, power and marine markets are aligned to this view and are incentivised to deliver value for Quadrise and our shareholders. As a result, the Directors have a high degree of confidence that Quadrise will be in a position to demonstrate that material progress has been made which will provide the pathway to commercial revenues. We look forward to being able to provide timely updates as we progress through the current financial year.

QFI comprises a small, but very capable team and the progress that we have made, and that is still to be delivered, is only possible through the significant contribution of everyone working within the business and I would like to thank all for their continued dedication and professionalism. Finally, I would like to thank our shareholders once again for their support through some challenging times. This support has been, and will remain, fundamental to the long-term success of Quadrise.

Mike Kirk

Executive Chairman

4 October 2019

 

Strategic Report

For the year ended 30 June 2019

Principal Activity

The principal activity of the Company is to develop markets for its proprietary emulsion fuel ("MSAR^®") as a low-cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants, industrial applications and marine diesel engines.

Business Review and Future Developments

A full review of the Group's activities during the year, recent events and future developments is contained in the Chairman's Statement.

Key Performance Indicators

The Group's key performance indicators are:

·      Development and commercial performance against the Group's business plans and project timetables established with clients, and

·      Financial performance and position against the approved budgets and cashflow forecasts.

The Board regularly reviews the Group business plans, project timetables, budgets and cashflow forecasts in order to optimise the application of available resources. Consideration of the Group's performance against Key Performance Indicators is contained in the Chairman's Statement.

Going Concern

The Group had a cash balance of £1.1m as at 30 June 2019. Funds of £4.5m (gross) were raised during the period following year end. Having conducted a full review of the updated business plan, budgets and associated commitments, the Directors have concluded that the Group has sufficient financial resources to continue in operational existence for at least the forthcoming year and, therefore, continues to adopt the going concern basis in preparing the accounts. Note 2 contains further details in this respect.

Principal Business Risks

Set out below are certain risk factors relating to the Group's business. However, these may not include all of the risk factors that could affect future results. Actual results could differ materially from those anticipated as a consequence of these and various other factors, and those set forth in the Group's other periodic and current reports filed with the authorities from time to time.

Delay in commercialisation of MSAR^® and funding risks

There is a risk that the commercialisation of MSAR^® could be delayed further due to unforeseen technical and/or commercial challenges. This could mean that the Group may need to raise further equity funds to remain operational. Depending on market conditions and investor sentiments, there is a risk that the Group may be unable to raise the required funds when necessary. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, keeping up the momentum on its key projects as far as possible, and maintaining regular contact with the financial markets and investor community.

Market risk

The marketability of MSAR^® fuels is affected by numerous factors beyond the control of the Group. These include variability of price spreads between light and heavy oils, the relative competitiveness of oil, gas and coal prices both for prompt and future delivery, and the future use of hydrocarbons for energy, utilities, transportation, petrochemicals and industrial applications. The Group cannot mitigate this risk by its nature, other than by increasing the potential applicability of MSAR^® technology to various sectors but pays close attention to these markets in order to react in a timely and effective manner and focus its efforts.

Feedstock sourcing

There is a risk in respect of appropriately located and ongoing price competitive availability of heavy oil residue feedstock as oil refiners seek to extract more transportation fuels from each barrel of crude using residue conversion processes. The Group mitigates this risk where possible by utilising its deep understanding of the global refining industry, targeting qualifying suppliers matched to prospective major consumers.

Commercial risks

There is a risk the Group will not achieve a commercial return due to major unanticipated change in a key variable or, more likely, the aggregate impact of changes to several variables which results in sustained depressed margins.

The competitive position could be affected by changes to government regulations concerning taxation, duties, specifications, importation and exportation of hydrocarbon fuels and environmental aspects. Freight costs contribute substantially to the final cost of supplied products and a major change in the cost of bulk liquid freight markets could have an adverse effect on the economics of the fuels business. The Group would mitigate this risk through establishing appropriate flexibilities in the contractual framework, offtake arrangements and price risk management through hedging.

 

Technological risk

There is a risk that the technology used for the production of MSAR^® fuel may not be adequately robust for all applications in respect of the character and nature of the feedstock and the particular parameters of transportation and storage pertaining to a specific project. This risk may jeopardise the early commercialisation of the technology and subsequent implementation of projects; or give rise to significant liabilities arising from defective fuel during plant operations. The Group mitigates this risk by ensuring that its highly experienced key personnel are closely involved with all areas of MSAR^® formulation and manufacture, and that the MSAR^® fuel is thoroughly tested before being put into operational use.

Competition risks

There is a risk that new competition could emerge with similar technologies sufficiently differentiated to challenge the MSAR^® process. This could result, over time, in further price competition and pressure on margins beyond that assumed in the Group's business planning. This risk is mitigated by the limited global pool of expertise in the emulsion fuel market combined with an enhanced R&D programme aimed at optimising cost and performance and protection of intellectual property. The Group also makes best use of scarce expertise by developing close relationships with strategic counterparties such as AkzoNobel while ensuring that key employees are suitably incentivised.

Other Business Risks

Dependence on key personnel

The Group's business is dependent on obtaining and retaining the services of key personnel of the appropriate calibre as the business develops. The success of the Group will continue to be dependent on the expertise and experience of the Directors and the management team, and the loss of personnel could still have an adverse effect on the Group. The Group mitigates this risk by ensuring that key personnel are suitably incentivised and contractually bound.

Environmental risks

The Group's operations are subject to environmental risks inherent in the oil processing and distribution industry. The Group is subject to environmental laws and regulations in connection with all of its operations. Although the Group intends to be in compliance, in all material respects, with all applicable environmental laws and regulations, there are certain risks inherent to its activities, such as accidental spills, leakages or other circumstances that could expose the Group to extensive liability.

Further, the Group may require approval from the relevant authorities before it can undertake activities which are likely to impact the environment. Failure to obtain such approvals may prevent or delay the Group from undertaking its desired activities. The Group is unable to predict definitively the effect of additional environmental laws and regulations, which may be adopted in the future, including whether any such laws or regulations would materially increase the Group's cost of doing business, or affect its operations in any area of its business. The Group mitigates this risk by ensuring compliance with environmental legislation in the jurisdictions in which it operates, and closely monitoring any pending regulation or legislation to ensure compliance.

No profit to date

The Group has incurred aggregate losses since its inception and it is, therefore, not possible to evaluate its prospects based on past performance. There can be no certainty that the Group will achieve or sustain profitability or achieve or sustain positive cash flow from its activities.

Corporate and regulatory formalities

The conduct of petroleum processing and distribution requires compliance by the Group with numerous procedures and formalities in many different national jurisdictions. It may not in all cases be possible to comply with or obtain waivers of all such formalities. Additionally, functioning as a publicly listed company requires compliance with the stock market regulations. The Group mitigates this risk through commitment to a high standard of corporate governance and 'fit for purpose' procedures, and by maintaining and applying effective policies.

Economic, political, judicial, administrative, taxation or other regulatory factors

The Group may be adversely affected by changes in economic, political, judicial, administrative, taxation or other regulatory factors, in the areas in which the Group operates and conducts its principal activities.

Mike Kirk

Executive Chairman

4 October 2019

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2019

	Notes	Year ended 30 June 2019 £'000s	Year ended 30 June 2018 £'000s
Continuing operations
Revenue		22	9
Production and development costs		(1,475)	(2,002)
Other administration expenses		(1,462)	(1,518)
Share option charge	10	(154)	(53)
Warrant charge		(105)	-
Foreign exchange gain/(loss)		10	(3)
Operating loss	4	(3,164)	(3,567)
Finance costs		(6)	(7)
Finance income		3	18
Loss before tax		(3,167)	(3,556)
Taxation	5	184	294
Loss and total comprehensive loss for the year from continuing operations		(2,983)	(3,262)
Loss per share - pence
Basic	6	(0.34)p	(0.38)p
Diluted	6	(0.34)p	(0.38)p

 

Consolidated Statement of Financial Position                                 

As at 30 June 2019                                                                                                            

	Notes	As at 30 June 2019 £'000s	As at 30 June 2018 £'000s
Assets
Non-current assets
Property, plant and equipment	7	730	961
Intangible assets	8	2,924	2,924
Non-current assets		3,654	3,885
Current assets
Cash and cash equivalents		1,060	2,229
Trade and other receivables		169	188
Prepayments		106	122
Stock		61	61
Current assets		1,396	2,600
TOTAL ASSETS		5,050	6,485

Equity and liabilities
Current liabilities
Trade and other payables		288	400
Current liabilities		288	400
Equity attributable to equity holders of the parent
Issued share capital		9,227	8,622
Share premium		74,438	73,642
Share option reserve		3,455	3,432
Warrant reserve		105	-
Reverse acquisition reserve		522	522
Accumulated losses		(82,985)	(80,133)
Total shareholders' equity		4,762	6,085
TOTAL EQUITY AND LIABILITIES		5,050	6,485

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2019

	Issued capital £'000s	Share premium £'000s	Share option reserve £'000s	Warrant reserve £'000s	Reverse acquisition reserve £'000s	Accumulated losses £'000s	Total £'000s
1 July 2017	8,622	73,642	3,704	-	522	(77,196)	9,294
Loss and total comprehensive loss for the year	-	-	-		-	(3,262)	(3,262)
Share option charge	-	-	53	-	-	-	53
Transfer of balances relating to expired share options	-	-	(325)	-	-	325	-
30 June 2018	8,622	73,642	3,432	-	522	(80,133)	6,085
1 July 2018	8,622	73,642	3,432	-	522	(80,133)	6,085
Loss and total comprehensive loss for the year	-	-	-	-	-	(2,983)	(2,983)
Share option charge	-	-	154	-	-	-	154
Transfer of balances relating to expired share options	-	-	(131)	-	-	131	-
Warrant charge	-	-	-	105	-	-	105
New shares issued net of costs	605	796	-	-	-	-	1,401
30 June 2019	9,227	74,438	3,455	105	522	(82,985)	4,762

 

Consolidated Statement of Cash Flows

For the year ended 30 June 2019

	Notes	Year ended 30 June 2019 £'000s	Year ended 30 June 2018 £'000s
Operating activities
Loss before tax from continuing operations		(3,167)	(3,556)
Depreciation	7	230	230
Loss on disposal of fixed assets		25	-
Finance costs paid		6	7
Finance income received		(3)	(18)
Share option charge		154	53
Warrant charge		105	-
Working capital adjustments
Decrease in trade and other receivables		19	114
Decrease in prepayments		16	31
(Decrease)/increase in trade and other payables		(112)	153
Cash utilised in operations		(2,727)	(2,986)
Finance costs paid		(6)	(7)
Taxation received		184	294
Net cash outflow from operating activities		(2,549)	(2,699)
Investing activities
Finance income received		3	18
Purchase of property, plant and equipment	7	(24)	(135)
Net cash outflow from investing activities		(21)	(117)
Financing activities
New shares issued net of issue costs		1,401	-
Net cash inflow from financing activities		1,401	-
Net decrease in cash and cash equivalents		(1,169)	(2,816)
Cash and cash equivalents at the beginning of the year		2,229	5,045
Cash and cash equivalents at the end of the year	14	1,060	2,229

 

Notes to the Financial Information

1.     Basis of Preparation and Significant Accounting Policies

The financial information for the year ended 30 June 2018 set out in this announcement has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).

The financial information has been prepared on the historical cost basis, except for the revaluation of certain financial instruments. Details of the accounting policies applied are set out in the financial statements for the year ended 30 June 2019.

The financial information is prepared in Pounds Sterling and all values are rounded to the nearest thousand Pounds (£'000) except where otherwise indicated.

The financial information contained in this announcement does not constitute the Company's statutory financial statements for the year ended 30 June 2019 but has been extracted from them. These financial statements will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The auditors have reported on these financial statements, and their report was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.

Statutory financial statements for the year ended 30 June 2018 have been delivered to the Registrar of Companies. The auditor's report on these financial statements was unqualified and did not contain any statement under section 498(2) or (3) Companies Act 2006.

The Directors do not propose a dividend in respect of the year ended 30 June 2019 (2018: nil).

This announcement was approved by the Board on 4 October 2019.

2.     Going Concern

The Group's business activities and financial position, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement.

The Group had a cash balance of £1.1m as at 30 June 2019. On 22 August 2019 the Group issued the first tranche of a convertible security, for which proceeds of £2m were received in exchange. On 9 September 2019 the Group announced a fully underwritten open offer to raise a further gross £1.8 million, as well as a subscription to raise further gross proceeds of £0.7m. The open offer and subscription were conditional on shareholder approval of resolutions at the General Meeting of 27 September 2019, which was duly granted.

The directors have carried out a detailed assessment of going concern as part of the financial reporting process, and having conducted a full review of the updated business plan, budgets and associated commitments at the year end, have concluded that the Group has adequate financial resources to continue in operational existence for at least the forthcoming year, and therefore continue to adopt the going concern basis in preparing the accounts.

3.     Segmental Information

For the purpose of segmental information, the reportable operating segment is determined to be the business segment. The Group principally has one business segment, the results of which are regularly reviewed by the Board. This business segment is a business to produce emulsion fuel (or supply the associated technology to third parties) as a low cost substitute for conventional heavy fuel oil ("HFO") for use in power generation plants and industrial and marine diesel engines.

The Group's only geographical segment during the year was the UK.

4.     Operating Loss

Operating loss is stated after charging:	Year ended 30 June 2019 £'000s	Year ended 30 June 2018 £'000s
Fees payable to the Company's auditor for the audit of the Company's annual accounts. Fees payable to the Company's auditor and its associates for other services:	16	15
Audit of accounts of subsidiaries          Tax compliance services	16 5	15 8
Consultants and other professional fees (including legal)	238	269
Depreciation of property, plant and equipment	230	230
Research and development costs	178	296

 

5.     Taxation

	Year ended 30 June 2019 £'000s	Year ended 30 June 2018 £'000s
UK corporation tax credit	(184)	(294)
Total	(184)	(294)

No liability in respect of corporation tax arises as a result of trading losses.

Tax Reconciliation	Year ended 30 June 2019 £'000s	Year ended 30 June 2018 £'000s
Loss on continuing operations before taxation	(2,983)	(3,262)
Loss on continuing operations before taxation multiplied by the UK corporation tax rate of 19% (2018: 19%)	(567)	(620)
Effects of:
Non-deductible expenditure	40	51
R&D tax credit	(184)	(294)
Tax losses carried forward	528	569
Total taxation credit on loss from continuing operations	(184)	(294)

The Group has tax losses arising in the UK of approximately £51.0m (2018: £49.5m) that are available, under current legislation, to be carried forward against future profits. £23.5m (2018: £21.5m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £25.8m (2018: £25.8m) represent non-trade deficits arising on intangible assets within Quadrise International Limited, £0.9m (2018: £1.3m) represent pre-trading losses incurred by subsidiaries, £0.8m (2018: £0.8m) represent management expenses incurred by Quadrise International Limited, and £0.1m (2018: £0.1m) represent capital losses within Quadrise Fuels International plc.

A deferred tax asset representing these losses and other timing differences at the statement of financial position date of approximately £8.7m (2018: £8.4m) has not been recognised as a result of existing uncertainties in relation to its realisation.  

6.     Loss Per Share

The calculation of loss per share is based on the following loss and number of shares:

	Year ended  30 June 2019	Year ended 30 June 2018
Loss for the year (£'000s)	(2,983)	(3,262)
Weighted average number of shares:
Basic	888,728,557	862,204,976
Diluted	888,728,557	862,204,976
Loss per share:
Basic	(0.34)p	(0.38)p
Diluted	(0.34)p	(0.38)p

Basic loss per share is calculated by dividing the loss for the year from continuing operations of the Group by the weighted average number of ordinary shares in issue during the year.

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive options over ordinary shares. Potential ordinary shares resulting from the exercise of share options have an anti-dilutive effect due to the Group being in a loss position. As a result, diluted loss per share is disclosed as the same value as basic loss per share. The 23.1m dilutive share options and the 5m dilutive warrants issued by the Company and which are outstanding at year-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position.

 

7.     Property, plant and equipment

Consolidated
	Leasehold Improvements	Computer Equipment	Software	Office Equipment	Plant and machinery	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Cost
Opening balance - 1 July 2018	166	91	43	16	1,428	1,744
Additions	15	-	-	-	9	24
Disposals	-	-	-	-	(47)	(47)
Closing balance - 30 June 2019	181	91	43	16	1,390	1,721
Depreciation
Opening balance - 1 July 2018	(109)	(63)	(36)	(16)	(559)	(783)
Depreciation charge for the year	(57)	(15)	(5)	-	(153)	(230)
Disposals	-	-	-	-	22	22
Closing balance - 30 June 2019	(166)	(78)	(41)	(16)	(690)	(991)
Net book value at 30 June 2019	15	13	2	-	700	730
Consolidated
	Leasehold Improvements	Computer Equipment	Software	Office Equipment	Plant and machinery	Total
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Cost
Opening balance - 1 July 2017	107	91	43	16	1,352	1,609
Additions	59	-	-	-	76	135
Closing balance - 30 June 2018	166	91	43	16	1,428	1,744
Depreciation
Opening balance - 1 July 2017	(67)	(47)	(31)	(15)	(393)	(553)
Depreciation charge for the year	(42)	(16)	(5)	(1)	(166)	(230)
Closing balance - 30 June 2018	(109)	(63)	(36)	(16)	(559)	(783)
Net book value at 30 June 2018	57	28	7	-	869	961

 

8.   Intangible Assets

Consolidated

	QCC royalty payments	MSAR® trade name	Technology and know-how	Total
	£'000s	£'000s	£'000s	£'000s
Cost
Balance as at 1 July 2018 and 30 June 2019	7,686	3,100	25,901	36,687
Amortisation and Impairment
Balance as at 1 July 2018 and 30 June 2019	(7,686)	(176)	(25,901)	(33,763)
Net book value as at 30 June 2019	-	2,924	-	2,924

Cost
Balance as at 1 July 2016 and 30 June 2018	7,686	3,100	25,901		36,687
Amortisation and Impairment
Balance as at 1 July 2016 and 30 June 2018	(7,686)	(176)	(25,901)		(33,763)
Net book value as at 30 June 2018	-	2,924	-		2,924

Intangible assets comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC's) royalty payments of £7.7m and the MSAR^® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets would be expected to generate net cash inflows for the Group, as they arise from cashflows resulting from Quadrise and QCC gaining a permanent market share. The assets with indefinite life are not amortised, but the QCC royalty payments intangible asset became fully impaired in 2012.

The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and were amortised over 93 months, being fully amortised in 2012. The Group does not have any internally generated intangibles.

The recoverable amount of intangible assets is determined based on a 'value in use' calculation using cash flow forecasts derived from the most recent financial model information available. These cash flow forecasts extend to 30 June 2035 to ensure the full benefit of all current projects is realised. The rationale for using a timescale up to 2035 with the growth projections forecast, is that as time progresses, Quadrise expects to gain an increasing foothold in the existing HFO market (~ 450m tonnes p.a.) which is already well established. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations, expected gross margins and the lifespan of the project. Management estimates the discount rates using pre-tax rates that reflect current market assessments of the time value of money and risks specific to expected future projects. Turnover projections, growth rates, margins and project lifespans are all estimated based on the latest business models and the most recent discussions with customers, suppliers and other business partners.

For the MSAR^® trade name intangible, the pre-tax discount rate applied to the cash flow projections is 20% (2018: 20%) and the growth rate used for the extrapolation of cash flows beyond budgeted projections is 0% (2018: 0%).

A 5% increase in the discount rate used would result in no impairment charge for the MSAR^® trade name intangible.

Amortisation of Intangible Assets

The Board has reviewed the accounting policy for intangible assets and has amortised those assets which have a finite life. All intangible assets with a finite life were fully amortised as at 30 June 2019.

 

9.   Investments

At the statement of financial position date, the Group held a 20.44% share in the ordinary issued capital of Quadrise Canada Corporation ("QCC"), a 3.75% share in the ordinary issued capital of Paxton Corporation ("Paxton"), a 9.54% share in the ordinary issued capital of Optimal Resources Inc. ("ORI") and a 16.86% share in the ordinary issued capital of Porient Fuels Corporation ("Porient"), all of which are incorporated in Canada.

QCC is independent of the Group and is responsible for its own policy-making decisions. There have been no material transactions between QCC and the Group during the period or any interchange of managerial personnel. As a result, the Directors do not consider that they have significant influence over QCC and as such this investment is not accounted for as an associate.

The Group has no immediate intention to dispose of its investments unless a beneficial opportunity to realise these investments arises.

Given that there is no active market in the shares of any of above companies, the Directors have determined the fair value of the unquoted securities at 30 June 2019. The shares in each of these companies were valued at CAD $nil on 1 July 2018. Shareholder communications received during the year to 30 June 2019 indicate that the business models for each of these companies remain highly uncertain, with minimal possibility of any material value being recovered from their asset base. On that basis, the directors have determined that the investments should continue to remain valued at CAD $nil at 30 June 2019.   

10.   Share Options

Movement in the year:

The following table illustrates the number and weighted average exercise prices ("WAEP") of, and movements in, share options during the year:

	Number 30 June 2019	WAEP (pence) 30 June 2019	Number 30 June 2018	WAEP (pence) 30 June 2018
Outstanding as at 1 July	22,500,000	26.90	24,000,000	27.41
Granted during the year	19,150,000	7.29	-	-
Repurchased by grantor during the year	-	-	-	-
Expired during the year	(2,250,000)	17.35	(1,500,000)	35.16
Exercised during the year	-	-	-	-
Options outstanding as at 30 June	39,400,000	17.91	22,500,000	26.90
Exercisable as at 30 June	23,149,719	25.39	22,000,000	27.30

The weighted average remaining contractual life of the 39.4 million options outstanding at the statement of financial position date is 6.07 years (2018: 4.23 years). The weighted average share price during the year was 3.15p (2018: 5.55p) per share.

The expected volatility of the options reflects the assumption that historical volatility is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the options is based on historical data available at the time of the option issue and is not necessarily indicative of future trends, which may not necessarily be the actual outcome. 

The Share Option Schemes are equity settled plans, and fair value is measured at the grant date of the option. Options issued under the Schemes vest over a two year or three year period provided the recipient remains an employee of the Group. Options may be also exercised within one year of an employee leaving the Group at the discretion of the Board.

The Company issued 19.15m share options to directors and employees during the year (2018: nil) with a weighted average exercise price of 7.29p and the weighted average fair value of 4.60p.

The fair value was calculated using the Black Scholes option pricing model. The weighted average inputs were as follows

			2019	2018
Stock price:			6.29p	-
Exercise Price			7.29p	-
Interest Rate			0.75%	-
Volatility			113.4%	-
Expected term			4 years	-

 

11.  Related Party Transactions

QFI defines key management personnel as the Directors of the Company. There are no transactions with Directors, other than their remuneration as disclosed in the Report of Directors' Remuneration in the Annual Report.

12.  Events After the end of the Reporting Period

On 22 August 2019, the Company entered into an agreement with Bergen Global Opportunity Fund LP ('the Investor') whereby the Investor will provide up to £4.0 million of interest free unsecured funding, provided in two tranches through the issue by the Company of  Convertible Securities with a nominal value of up to £4.3 million, convertible into Ordinary Shares.

An initial tranche of Convertible Securities with a nominal value of £2.15 million was subscribed for by the Investor for £2.0 million 30 August 2019. A second tranche of Convertible Securities, with a nominal value of up to £2.15 million is conditionally available to the Company with a subscription price of up to £2.0 million. Both tranches have 24 month maturity dates from the dates of their respective issuance, and any Convertible Securities not converted prior to such dates will automatically convert into Ordinary Shares at such time.  

The Company also issued 4.9 million 36 month warrants to subscribe for new Ordinary Shares to the Investor by way of a Warrant Instrument initially exercisable at 5.78 pence per Ordinary Share, subject to anti-dilution and exercise price reduction provisions.

In connection with the Agreement, on 30 August 2019 the Company also issued to the Investor 3,888,889 new Ordinary Shares in settlement of a commencement fee of £140,000 and a further 4,500,000 new Ordinary Shares to collateralize the Agreement subscribed for at nominal value by the Investor.

The Convertible Securities are only converted to the extent that the Company has corporate authority to do so, and it is a term of the agreement that the Company must retain sufficient authority to issue and allot (on a non-pre-emptive basis) a sufficient number of Ordinary Shares potentially required to be issued under the terms of the Agreement (and the Warrant Instrument).

Pursuant to the terms of the Agreement, the Company is required to obtain and maintain sufficient non-pre-emptive share issuance authority from its shareholders in relation to the Ordinary Shares that may be required to be issued pursuant to the Agreement and Warrant Instrument.

The Agreement was completed and the Initial Tranche funded to the Company on the basis of the remaining current Authority from the 2018 annual general meeting, and also on the basis that an updated authority must be obtained at a General Meeting of shareholders. Such authority was obtained at a General Meeting held on September 27 2019. 

On 9 September 2019 the Company announced a fully underwritten open offer to raise up to approximately £1.8 million through the issue of up to 46,555,039 Open Offer Shares at the Issue Price of 3.96 pence per Open Offer Share on the basis of 1 Open Offer Share for every 20 Existing Ordinary Shares held on the Record Date (the "Open Offer").

The Company announced that it had entered into conditional binding agreements with the Subscribers to raise additional gross proceeds of £716,800 through the issue of an aggregate 18,101,012 Subscription Shares at 3.96 pence per Subscription Share, with 9,050,506 Subscription Warrants attached. inter alia, on the Resolutions being passed at the General Meeting.

The Open Offer and Subscription were conditional upon Shareholder approval of the Resolutions at the General Meeting of 27 September 2019, which was duly granted.

13.  Copies of the Annual Report

Copies of the Annual Report (including the Notice of Annual General Meeting) will be posted to shareholders and will be available shortly from the Company's website at www.quadrisefuels.com and from the Company's registered office, Gillingham House, 38-44 Gillingham Street, London, SW1V 1HU.

 

END

 

 

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