Final Results

RNS Number : 3238V

Quadrise Fuels International PLC

01 November 2010

 



Quadrise Fuels International plc

("Quadrise", "QFI" or "the Company")

Final Results for the year ended 30 June 2010

Quadrise Fuels International plc (AIM: QFI) today announces its results for the year ended 30 June 2010 and gives notice for the convening of an Annual General Meeting ("AGM") of the Company to be held at Parnell House, 25 Wilton Road, London SW1V 1YD on 9 December 2010 at 11.00 am.   

Operational highlights

·      Joint development of Quadrise MSAR® Marine Fuels with Maersk and AkzoNobel proceeded as planned, targeting the early commercial phase from mid 2011.  

·      Joint review with the owners of selected Saudi Arabian refineries confirms scope for highly profitable projects with potential to add considerable additional annual net income and early investment recovery.   

·      Prospect assessment reports following studies of PEMEX refineries in Mexico led to a request for a project development proposal and technological test by Quadrise at one of their candidate refineries. 

·      Client contributions to programme development costs assist the Company in reducing operating costs during the pre-revenue phase.

Financial highlights

·      Loss after tax reduced to £3.95 million (2009: £4.97 million) of which non-cash charges were £2.81 million (2009: £4.46 million) for the amortisation and impairment of intangible assets.

·      No debt and £1.63 million (2009: £2.88 million) in cash reserves at 30 June 2010.

·      Lead shareholding in newly formed Canadian ventures, Sparky Energy Corporation and Porient Fuels Corporation, 'spun out' of Quadrise Canada Corporation to exploit the application of new technologies developed by and licensed from Quadrise Canada Corporation.

·      Non-current assets increased to £20.10 million at 30 June 2010 (2009: £18.09 million).

·      Operating costs reduced to £1.18 million in 2010 (2009: £3.23 million).

Significant events post year end

·      Corporate restructuring to separate 'directly managed' interests from investments in Canadian affiliates, create product and/or geographic specialist subsidiaries and to extend management participation.  

·      Quadrise MSAR® Marine Fuels programme remains on course for seaborne trials early 2011 opening the way to participation in the marine fuels market which represents 40% of the global fuel oil market.     

·      Mexican programme firming up for PEMEX refinery based pilot project in first half 2011.

·      Saudi refinery residues tested in Sweden and confirmed to be suitable for the first refinery project proposal planned for 2011.

·      MOU executed with PowerSeraya Limited of Singapore for a joint programme to investigate and progress Quadrise MSAR® fuels supply for their 750MWe thermal power plant on Jurong Island.

Commenting on the results Ian Williams, Executive Chairman of QFI said:

"The past 12 months have seen a step change in progress over a broad front. The Lithuanian demonstration in 2008 provided a positive 'reference' to spur confidence among associates, partners and prospective clients. The team has capitalised on this success, winning the confidence of some of the largest companies in the world in the key target markets of Saudi Arabia and Mexico.

The international marine fuels project sees QFI partnering with Maersk and AkzoNobel, both industry leaders, in a fast track product formulation and fuel approval programme.

The new ventures in Canada add significant potential upside for our shareholders and the corporate restructuring offers more flexibility for prospective investors.

Much has been achieved over this period through the hard work and commitment of our staff and our associates. The company has proven its worth and potential through these developments and should now be well placed to attract investor support to fund the future."   

For additional information, please contact:

Quadrise Fuels International plc                                                                                

Ian Williams

Hemant Thanawala

[phone]

Fairfax I.S. PLC                                                                                                             

Simon Bennett / Katy Birkin

[phone]

Chairman's Statement and Business Review

I am pleased to present the annual results for Quadrise Fuels International plc ("Quadrise", "Company", "Group", "QFI") for the year ended 30 June 2010.

Introduction

The business strategy set in 2007 continues to guide the direction and activity of the Company through and beyond the reporting period. Development activity has focused on moving a limited number of projects through preparatory phases, with partners and associates, towards confirmation of commercial feasibility and implementation. Major advances have now been made in progressing the application of our MSAR® fuels technology towards full commercial application and revenue generation.

While QFI remains exposed to price and margin trends in global oil and gas markets, the selective approach has mitigated their impact. Focus on diesel engine fuels (marine and power generation) and fuel oil substitution in niche applications in the 'oil economies' of Saudi Arabia and Mexico, has shielded the QFI active project programme from the full impact of inter-fuels price, margin volatility and market uncertainty. 

The 2008 large scale commercial demonstration in Lithuania proved a key turning point in terms of awareness and credibility of QFI, facilitating access to new partners, clients and markets. However, due to a combination of market trends and a postponed refinery process upgrading project, continuation of the Lithuanian 'reference site' project was not feasible in 2009/2010. Prospects will be reviewed in 2011 when the deferred refinery project is expected to be completed.

Nevertheless, as has been advised in various announcements since 2009, QFI has formed relationships to progress defined business opportunities with world leading companies including AP Moller-Maersk ("Maersk"), major oil companies in Saudi Arabia and Mexico and potential utility consumers. In most cases, the associated pre-development programmes should, if successful, move directly to joint commercial activity during 2011 and 2012.

The marine fuels market is now expected to form a major component of the Company's future business mix. Growth in this very large global fuel oil market is expected to follow the recovery of international trade and commodity movements. The Joint Development Agreement ("JDA") between the Company and Maersk, with technical support from AkzoNobel, aims to formulate and test Quadrise MSAR® fuels to ensure compliance with international maritime emissions standards. This is a major challenge for the international shipping industry, as standards will become progressively more stringent from 2020. The JDA envisages completion of testing and approval of suitable MSAR® marine fuel during 1st quarter 2011 with commercial operations commencing later in the year.

Corporate Structure

Developments within associate companies, combined with a requirement to review and rationalise the QFI group structure, led to a post year end restructuring of the entities and interests within the QFI group during the 3rd quarter of 2010. Objectives achieved in this process included:

-     consolidation of interests in 'non-managed' associate companies directly under QFI;

-     consolidation of 'directly managed' business activity and resources under Quadrise International Limited (QIL);

-     introduction of equity participation at project level as an element of a revised performance related compensation policy.

Developments in the Canadian oil industry have had material implications for the prospects of Quadrise Canada Corporation (QCC). The reduction in natural gas prices in 2008/2009 seriously impacted the near term business prospects for MSAR® emulsion fuels in steam generation for oil field reservoir heating in Alberta. Historic price relationships are expected to be restored together with core business prospects in the longer term but general economic conditions and future prospects for incremental shale gas supply will tend to favour continuing low gas prices for some time. QCC clearly had an imperative to identify and develop alternative business opportunities which could reward and leverage its specialised capabilities, know-how and proprietary intellectual property and compensate for this pressure on near term corporate value.

QCC has been successful over the past two years in leveraging its intellectual property to identify and develop associated business opportunities. This programme has, to date, led to the formation of two new specialist energy companies which were 'spun off' from QCC. As a major QCC shareholder, QFI secured a pro-rata interest in these ventures on formation at no cost. This increased the 'non-managed' associate company portfolio of QFI, potentially adding significant future value for shareholders, while further supporting the requirement to rationalise the group structure.

When the restructuring is completed, with the inclusion of Quadrise Asia Limited, by the latest 30 November 2010, QFI will become a holding company with a combination of 'managed interests' which are held by QIL (a wholly owned subsidiary) and a portfolio of directly held 'non-managed' interests, all of which have some linkage and association with hydrocarbon emulsion technology and/or MSAR® fuels.

Financial 

The Group continued to be affected by challenging conditions in the financial markets and general disaffection regarding junior AIM listed energy stocks. Despite being debt free and having positive business prospects, the institutional equity capital market has been effectively closed to the Company for all practical purposes until very recently.

The combination of selective focus on key prospects, continuous cost review and client contribution to pre-commercial project costs has enabled the Group to complete the planned 2010 business programme below budget. The major shareholder, International Energy Group AG, continued to assist through the waiving of certain charges and reduction of other service fees for the 2010 financial year. The funds conserved will assist in bridging the period to closure of "bankable" commercial contracts.

The after tax loss for the year to 30 June 2010 was £3.9 million (2009: £5.0 million) with net available funds held at year end of £1.6 million (2009: £2.9 million). Further details are provided in the Financial Review.

The post year end corporate restructuring resulted in renegotiation of certain obligations and a further reduction in fixed overhead. This will not of itself assure the 'bridge' to commercial revenues and additional funds will be required to progress the QIL 'managed business' programme. The revised corporate structure makes it possible for investors to participate at several 'levels', dependent on their particular interest. The flexibility now available to select investment in a listed parent company or an un-listed subsidiary also widens the investor market. A concerted effort will be made during the next 6 months to introduce the funds required to crystallise the promising venture programme now within our reach.

Managed Activities Review

The Lithuanian commercial demonstration provided a truly invaluable spur to progress the 2009/2010 selected projects programme. Independent expert reports and client testimonials verifying key aspects such as technical, economic, operational and environmental performance of Quadrise MSAR® fuels served to both open new doors and minimise preliminaries.

Marine Bunker Market

Arguably the most important breakthrough in late 2009 was the confirmation by Maersk of their potential interest in the joint development of a suitable emulsion fuel for substitution of fuel oil in marine engine application. The international marine bunker market is one of the largest global fuel oil markets and is facing serious challenges related to compliance with new progressive emissions standards. From 2020 new standards can only be met if the fuel oil sulphur content can be dramatically reduced, or if the ship owners can afford the additional cost of on-board emissions scrubbing. The practical and economic feasibility of adaptation by the oil refining industry to production of the large volumes of very low sulphur fuel oil or distillates required for this major market is in doubt. The associated cost will have major implications for refining process economics and related oil product costs and prices.

Following discussions with QFI and AkzoNobel, Maersk came to understand that MSAR® marine fuels could contribute to a solution by offering a lower cost MSAR® emulsion fuel suitable for marine application. Refiners could supply the heavy residues from existing plants without expensive reconfiguration, and the MSAR® process could produce a 'fit for purpose' marine emulsion fuel. By passing on a portion of the Quadrise related value add to the ship operator, the fuel cost saving would in the future make a major contribution to the cost of on-board emissions scrubbing and enable 'affordable compliance'.

Having satisfied themselves that the QFI proposition held substantial promise, Maersk entered into a Joint Development Agreement ("JDA") with the Company during the first quarter of 2010. The JDA defines a programme intended to satisfy all stakeholders that MSAR® marine fuels can meet all technical requirements for marine fuel application. The programme will also confirm that it is feasible to arrange supply to international vessel operators in major bunkering hubs - initially on key routes but eventually on a global basis.

The programme defined in the JDA has progressed on time and on budget. The key technical challenge is to meet consistently a specification which will allow the ship operator to switch from bunker fuel oil to MSAR® fuel, without any modifications to on-board fuel preparation and combustion systems. The only requirement would be segregated fuel storage which in itself is becoming a mandatory feature of shipping operations to meet compliance in different regions.  The technical aspects of the fuel development programme have been fully supported by AkzoNobel using their extensive know-how base, research facilities and expertise. The programme to date has passed all key development milestones. Participation has been extended to marine engine manufacturers, selected oil refiners, operators of fuel testing facilities and classification societies. The improvements achieved in formulation and quality standards have exceeded expectations and are testimony to the quality and commitment of the programme partners.

The land based fuel evaluation and qualification process should be complete by December 2010 and a commercial scale proving sea trial is planned for the first quarter of 2011. The agreement provides that on success this will move forward to a commercial phase for the supply of MSAR® marine fuel, initially to the Maersk shipping fleet. Revenues from this sector are anticipated before December 2011.

Saudi Arabia

The 2007 strategic review identified Saudi Arabia as a priority target market for QFI.

The 'case study' programme which identified the opportunities within the Saudi refining industry was completed during 2010 in association with the local partner and the refinery owners. The QFI team has since engaged directly with the Saudi principals in a joint review of the technical and economic recommendations for the major oil refineries.

Joint studies confirmed that application of MSAR® technology offers compelling prospects to add substantially to the profitability and operating efficiency of several major refineries and the Saudi Arabian oil supply balance.  Studies also confirmed that very little plant change and capital expenditure would be required for the initial project programme.

In summary:

-     MSAR® technology can convert heavy residues into emulsion fuels in large volumes and increase the yield of high value distillate fuels without major changes in several Saudi refineries.

-     MSAR® fuel could displace heavy fuel oil used in Saudi Arabia for thermal power generation, seawater desalination and industrial consumers such as cement plants.

-     Resultant additional 'middle distillate' availability through MSAR® implementation reduces import requirements and in the future could yield export volumes.

-     MSAR® fuel may itself find export markets in and beyond the region.  

The Group reached agreement with partners and principals to progress the first Saudi MSAR® project to be sited within a major Saudi refinery where studies identified high value potential. Preparatory engineering design is planned for the period through to early 2011, with a view to implementation later that year.

Quadrise will also move to formalising corporate joint venture arrangements with local partners, contractual arrangements with refinery owners and the pilot project development and licensing contract. Testing of heavy residues from the Saudi refinery commenced in the AkzoNobel facilities in early October 2010. This work is intended to optimise and pilot test MSAR® fuel formulations on Saudi residues.

Continuous operation of the MSAR® plant from late 2011 should provide a basis for progression to full scale operations, and also the extension of Quadrise MSAR® projects to other qualifying Saudi refineries.  Business scale-up will be dependent as well on the rate of acceptance of MSAR® fuels by major Saudi fuel oil consumers, especially in the power generation sector, where plant change and emissions treatment aspects may impede volume growth.  Potential MSAR® fuel clients external to Saudi are also being targeted to fast-track the user acceptance within the Kingdom.

QFI is aware of similar opportunities in the Middle East and North Africa generally. Limited resources have required that attention to these be deferred until a foothold is secured in the Saudi Arabian market. Success in Saudi Arabia and the availability of an operational reference plant is expected to provide a springboard to future regional opportunity beyond 2012.

Mexico

Fundamental features of its energy industry and proximity to central American heavy fuel oil consumers ranked Mexico as a prime target market for the Quadrise MSAR® business.  The Mexican national oil company, PEMEX, has a mandate to manage and develop all facets of the oil industry, and its counterpart, CFE, has responsibility for power generation in the state sector.

Initial assessments with American associates indicated a viable and substantial opportunity to replicate the QFI Lithuanian 'producer to consumer' configuration on a major, multi project scale in Mexico. This led to a programme aimed at finding a local private sector joint venture partner while introducing the Quadrise technology and its potential value to PEMEX and CFE. The intention was to secure their support for the production and consumption of MSAR® fuel in PEMEX refineries, and substitution of heavy fuel oil in CFE oil fired power plants.

QFI has aimed to limit cost and adopted a policy of requiring client contribution to, or the funding of, 'pilot projects'. This had delayed progress with PEMEX whilst the policy on funding 'new technology evaluation' was revised. MSAR® initiatives progressed in earnest during 2009/10 following favourable legal changes within the Mexican petroleum sector. Over the same period representative PEMEX refinery heavy residues were confirmed as suitable for MSAR® fuels manufacture by AkzoNobel.

Early in 2010 PEMEX invited QFI to Mexico along with other emulsion fuel suppliers to present their technology offering for residue emulsions.  MSAR® was selected as the technology of choice for testing and possibly implementation in their Salamanca refinery.  Preliminary studies had earlier been carried out at the Salamanca refinery in 2008 by QFI so limited additional work was required. The QFI proposal has since been accepted and forms the basis of an agreement under negotiation whereby PEMEX will fund a pilot demonstration plant installation to take place during 2011 with provision that, on success, the programme will move on to the first commercial scale operation in Mexico.  The MSAR® value proposition has proved sufficiently compelling to justify PEMEX undertaking to meet the cost of the programme.

While selective MSAR® business opportunities should be available in Mexico, the global gas price and North American oversupply will limit future fuel oil demand and promote conversion to cogeneration or combined cycle gas turbine systems in replacement and new build generators.

As a growing importer of distillate fuels, Mexico does however have an urgent need to raise the light product yield of its refineries. This imperative, together with the potential to export MSAR® fuels to Central American power generators, could provide a broader base for the Quadrise/PEMEX association in the longer term.

Asia/Singapore

The company announced on 25 October 2010 that QIL has entered into an MOU with PowerSeraya Ltd, a leading Singapore power utility, to jointly investigate opportunities for the supply of Quadrise MSAR® fuel to their generating facilities.

PowerSeraya completed a programme in 2005 to covert 750MWe of thermal boiler capacity to allow flexible multi-fuel operation. Following joint confirmation of viability the programme is intended to progress to a commercial phase in which Quadrise MSAR® fuel will replace the more expensive conventional heavy fuel oil.

PowerSeraya has experience of the use of emulsion fuels as their plant conversion was originally associated with supply of Venezuelan sourced Orimulsion fuels which are no longer available.  

This is a key development as it potentially provides an ideal reference plant within the Asia region and prospectively a springboard to further opportunity in this area of rapid economic development.

General

The journey to continuous commercial operations with assured revenue has been more challenging and protracted than expected.  Programmes now underway in the QIL 'managed activity' portfolio offer the prospect of a corporate transition from 'preparations to operations' over the next twelve to eighteen months. Furthermore, Quadrise is in very good company in this process as the programmes involved are supported by very large and reputable partners, clients and associates who share our confidence in the prospects of these ventures. In each case, there are several further phases to follow with the same parties. However, as advised in the finance section of this report, the Company will have to secure additional near term funding to progress these programmes.

Board and Management

Continuity of our highly qualified and experienced specialists, Jason Miles and Simon Craige, has been critical to the progress made on a broad front over the past year. As the project programmes crystallise in the near future, and when finances permit, the team will have to be expanded to meet the call for services during the early commercial phase. The dedication and commitment of management has been the prime contributor to progress and is testimony to their personal conviction on the merits and ultimate success of the Quadrise business. 

The corporate re-structuring led to several changes to the QFI board after the 2010 financial year end:

-     Messrs Ian Williams and Hemant Thanawala again assumed executive responsibilities as Executive Chairman and Finance Director, respectively.

-     Mr Bill Howe resigned as CEO of the Company and as a director of the Company. The board is very appreciative of the central role played by Bill Howe in leading implementation of the current business strategy.

The period under review has again made very special demands on our non-executive directors Messrs Laurie Mutch and Ian Duckels who continue to chair, respectively, the Audit and Compensation committees.

The agreements reached in 2009 which include partial deferred compensation for the non-executive directors and no charge by International Energy Services Limited for the services of Messrs Williams and Thanawala for the period to 31 December 2010, have remained unchanged.  

Partners and Associates

The continuing support and commitment of AkzoNobel has been invaluable over the past year. The Group has come to count on the consistently high quality of the AkzoNobel support services and their commitment to the success of our joint programmes.

The unique combination of deep expertise and creative partnership was again evidenced in the outstanding technical results from the marine fuels development programme.  In each of the key 'active projects' the Group is reliant on the services of AkzoNobel and our alliance with them is a very important asset.

The AkzoNobel Alliance Agreement was again formally amended during the current year, adding two years to the initial term such that neither party can terminate the agreement, having given the required 12 months notice, before December 2013. The terms provide that active projects and related site licenses survive the Alliance Agreement.

The past year has seen the emergence of new partnerships and associations, most notably with Maersk in the context of marine fuels. QFI understands the importance of a low cost marine fuels solution to the Maersk shipping business, and appreciates the support and encouragement at board level for the JDA programme.

Canadian Developments

The Company holds non-managed minority interests in a portfolio of unlisted Canadian associate companies. The principal interest at 30 June 2010 was the 20.4% holding in QCC, which has key skills and expertise in hydrocarbon emulsions. QCC is the ultimate owner of proprietary intellectual property and patents in this and related fields which have resulted from extensive in-house R&D programmes directed from their own facilities over many years.

QCC owns the controlling interest in Denimotech, the specialist Danish emulsion mill manufacturer. Denimotech has participated in technology development to enable safe high temperature/high pressure emulsion fuel manufacturing. This is aimed at extending the range of MSAR® fuel feedstocks to severe process refining residues. This, in turn, will ultimately reduce the cost of MSAR® and make it more competitive.  QCC have had some significant success in this programme.

Recent developments which led to the formation of 'spin off' venture companies have been described under the Corporate Structure section of this report. QCC is being transformed, in the medium term, into a technology research and services company. It holds no equity interest in these ventures but contracts to provide them with services, technologies and licenses while retaining ownership of all of the intellectual property developed in its programmes.

QCC has further business venture concepts in the development phase which could become candidates for new ventures in the medium term. The expectation is that QFI would receive a pro-rata holding in any such additional ventures if and when this should happen. 

Sparky Energy Corporation (Sparky)

Following investment in the seed placing which closed on 31 August 2010, QFI holds a 17.8% interest and remains the largest shareholder.

A joint venture between Sparky and Optimal Resources Inc. holds a license for the application of the Enhanced Oil Recovery technology developed by QCC. As the 50% owner of oil reserves and associated production owned by the JV, Sparky is, in effect, an oil production company.

Development phase laboratory simulations showed that the QCC technology should increase recovery of oil in place from selective reservoirs by 20% to 40% after other techniques (e.g. conventional water flood) have been applied. The QCC technology is undergoing field trial application on JV properties and results should be known by December 2010.

If successful, the JV will accelerate its field development programme moving to rapid commercialisation. This will also result in new revenues for QCC in terms of service fees, license fees and production royalties.

Preparatory field work has involved re-generation of 'depleted field' wells which are now back on line and undergoing preparation for future production of enhanced oil recovery stimulated oil flow.

Indications to date are that Sparky could add considerable value to QFI over the medium term.

Porient Fuels Corporation (Porient)

An overview of this new venture, in which QFI holds a 16.9% interest, was announced on 30 June 2010. 

Porient is a venture aimed at application of emulsion fuels and related technologies to add value to produced Canadian heavy oil. The time frame is longer and the scope and complexities are a different order of magnitude to that of Sparky.

The Porient 'concept' has attracted the attention and support of several very large Canadian companies and state agencies. QCC continues to support the programme by providing management and technical expertise.

The venture is at an early stage. Key participants are progressing a wide ranging technical and economic review and assessment programme set out in a Joint Development Agreement. Future direction and prospects should be clarified by the 2010 year end.

QFI have made no additional direct investment in Porient and will view any future request to do so on its merits at the time.

Paxton Corporation (Paxton)

QFI holds 3.8 % of Paxton having been invited to subscribe on incorporation in March 2006.

Paxton was originally formed to exploit the production of CO2 for miscible flooding of oil and gas fields to enhance production. The CO2 was to be derived from combustion of MSAR® fuels in an oxygen enriched environment in a specially designed sequential process plant train. While several candidate oilfield opportunities were identified, no projects have yet been implemented.

QCC and Paxton were both attracted to the business prospects of Clean Energy Systems ("CES") a development company specialising in clean energy. The company was formed by ex NASA engineers who had successfully designed and trialed a novel 'steam generator' based on rocket propulsion combustion technology. It seemed this generator could potentially burn MSAR® fuel and be up-scaled for oilfield steam generation application. This would offer considerable savings compared with existing steam plant configurations.

Both companies made investments in CES, but QCC subsequently sold its shareholding to Paxton which now holds around 27% of CES.

The CES steam gun development has since progressed and a recent announcement confirmed that the US Department of Energy has provided a grant of US$ 30 million to CES to develop a clean energy project in California. Some progress has also been made on the application of the technology in oil production.  

Share Placing - September 2010

Directly after the formation of the new Canadian venture company, Sparky Energy Corporation, QFI were advised of a short notice seed financing, on attractive terms. Unless QFI followed its interest, the financing would potentially reduce the Company's holding in this prospective new venture from 16.9% to around 11%.

The Sparky placing was not a capitalisation issue with pro-rata shareholder rights, and QFI did not have the funds available to hold its equity position. The only practical option to raise funds for this purpose was to approach a limited number of shareholders on very short notice to support a placing of new issue shares in QFI to raise the funds to subscribe to the Sparky placing.

The Company was able to raise £875,000 at a price of £0.01 per share for this purpose and investors were granted, in addition, warrants on a one-for-one basis also priced at £0.01 per share.

The Sparky offer was priced at C$0.50 per share and QFI acquired 2 million additional shares which raised our holding to 17.8%, thereby achieving our objective.

As reported in the review of Canadian venture investments, the Sparky field programme was ready to proceed pending receipt of the seed funding and field operations are already underway. The Company has a very clear path forward and is geared to move rapidly. Technology application risk clearly still exists, but success in the field application of the QCC licensed technology may be expected to add significant early value to Sparky and to QFI shareholder value.

Future Outlook

The Group is now positioned to progress from 'preparations to operations' and, subject to limited additional near term funding, to enter the long awaited early commercial phase. This has taken longer and cost more than originally anticipated, with time to revenue progressively recalibrated in the process.

The lack of access to additional funding has been as much a concern in the recent past, as was the impact of revised emission standards and re-alignment of prices and values which drove the revision of the company strategy in the 2007/8 period. We are hopeful, however, that the combination of top quality partners and clients and defined pathways to early revenues will attract the funding required for the next phase.  

Objectively, however, by energy industry standards, the total cost of the progress delivered by the Quadrise team has been very modest, relative to the value-add potential in selective applications. The Quadrise MSAR® value proposition, now effectively evidenced, has attracted leading international fuel producers and consumers to associate with our QFI projects.

Success in the next phase is dependent on securing sufficient funding for the bridge to project development and conversion of the pilot programmes to continuous commercial operations. This will be the focus of attention for the management and the board over the coming months.

Ian Williams

Executive Chairman

29 October 2010

Financial Review

Overview

As stated in the Chairman's Statement and Business Review, the main thrust for the Group and its management during the year under review and beyond was to continue to make progress on its principal prospects and leads whilst ensuring low operational overheads in view of the limited funds in treasury. At the same time, steps have been taken to reorganise the Group to align with the future direction of the business activity, combined with a programme to raise awareness of the Group and its business prospects within the investor community, on a selective basis.

The Group started off last year with a cash balance of £2.9 million of which £1.3 million was spent during the year.  With constraints on the available financial resources, Quadrise sought to have the costs of any detailed evaluations or demonstrations covered by the counter-parties, wherever possible. This conservative strategy will continue to be applied until the Group is better capitalised and moves into a robust revenue phase.

Results for the Year

The consolidated after-tax loss for the year to 30 June 2010 was £3.9 million (2009: £5.0 million). This included a charge of £2.8 million (2009: £4.5 million) for the amortisation and impairment of intangible assets, administration expenses of £1.2 million (2009: £3.2 million) and bank deposit interest income of £0.05 million (2009: £0.05 million). The non-cash share based payment expense, included in the administration expenses, was £nil (2009: £1.2 million).

Basic and diluted loss per share was 0.86p (2009: 1.10p).

Statement of Financial Position

At 30 June 2010, the Group had net assets of £21.9 million (2009: £21.0 million). The most significant balances were intangible assets of £8.8 million (2009: £11.6 million), available for sale investments of £11.3 million (2009: £6.4 million) and cash of £1.6 million (2009: £2.9 million). The available for sale investments include interests in 2 new Canadian entities - Sparky Energy Corporation and Porient Fuels Corporation - which were both acquired in June 2010 at no cost as a result of the reorganisation of Quadrise Canada Corporation.  The interest in Sparky Energy Corporation has been determined to have a fair value of £3.0 million as at the date of acquisition.

Cash Flow

The Group ended the year with £1.6 million of cash and cash equivalents (2009: £2.9 million). The Group continues to remain debt free.

Capital Structure

The Company had 461,726,857 ordinary shares of 1p each in issue, out of its authorised share capital of 1,000,000,000 ordinary shares, at 30 June 2010. As announced on 3 September 2010, the Company issued a further 87,500,000 new ordinary shares raising £875,000. The subscribers were also granted warrants on a one-for-one basis, also priced at £0.01 per share, exercisable by 30 June 2011. The shares placed and warrants issued fell within the authority granted to the Board under section 551 and 571 of the Companies Act 2006 at the last AGM of 10 December 2009. These authorities will be reviewed again at the next AGM, as appropriate. The Company's current issued share capital stands at 549,226,857 ordinary shares of 1p each all with voting rights.

Treasury and Financial Risk Management

Control over treasury and financial risk management is exercised by the Board and its Audit Committee through the setting of policies and the regular review of forecasts and financial exposures. Presently, the Group's financial instruments consist principally of available for sale investments, cash and liquid resources and other items such as accounts receivable and payable, which arise directly from its operations. It is still the Group's policy not to undertake any trading activity in financial instruments, including derivatives.

The principal risks arising from the Group's financial instruments are those associated with interest, liquidity and foreign exchange. The Board reviews and establishes appropriate policies for the management of such risks and monitors them on a regular basis.

Taxation

At 30 June 2010, the Group had tax losses arising in the UK of approximately £27.4 million (2009: £23.2 million) that are available indefinitely against future taxable profits under current legislation. £6.5 million (2009: £4.9 million) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £20.8 million (2009: £18.2 million) represent non-trade losses arising through the impairment of intangible assets within Quadrise International Limited and £0.1 million (2009: £0.1 million) represent non-trade losses within Quadrise Fuels International plc. A deferred tax asset of approximately £7.7 million (2009: £7.1 million) has not, however, been recognised in the financial statements as a result of the uncertainties of its realisation in the foreseeable future.

Outlook

Following the reorganisation of the business after the year end, Quadrise Fuels International plc will operate as an investment holding company, whilst Quadrise International Limited and its new project-specific subsidiaries will manage the core emulsion fuels business going forward. This provides a more robust basis for protecting the value in the Canadian investments for our shareholders and at the same time, providing a more flexible structure within Quadrise International Limited for operational effectiveness and financial structuring. We shall also continue to place cash management at the forefront of our near term financial management strategy until the Group is better capitalised and in a sustainable revenue phase.  

Hemant Thanawala

Finance Director

29 October 2010

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2010

	Notes	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000
Continuing operations
Revenue from sale of goods		-	3,537
Other income	4	67	1,196
Raw materials, consumables, transportation, tank rental and analysis costs		-	(2,827)
Amortisation of intangible assets	6	(2,637)	(2,970)
Impairment of intangible assets	11	(176)	(1,489)
Other administration expenses		(1,177)	(3,226)
Foreign exchange gain		63	690
Operating loss	5	(3,860)	(5,089)
Finance costs	7	(3)	(63)
Finance income	8	45	45
Loss before tax		(3,818)	(5,107)
Taxation	9	(131)	135
Loss for the year from continuing operations		(3,949)	(4,972)
Other Comprehensive Income
Changes in fair value of available for sale investments		4,797	-
Other comprehensive income for the year net of tax		4,797	-
Total comprehensive income / (loss) for the year		848	(4,972)
Loss for the year attributable to:
Owners of the Company		(3,949)	(4,972)
Total comprehensive income / (loss) attributable to:
Owners of the Company		848	(4,972)
Loss per share - pence
Basic	10	(0.86) p	(1.10) p
Diluted	10	(0.86) p	(1.10) p

Consolidated Statement of Financial Position                                          

As at 30 June 2010                                                                                                                      

	Notes	As at 30 June 2010 £'000	As at 30 June 2009 £'000
Assets
Non-current assets
Intangible assets	11	8,832	11,645
Available for sale investments	12	11,269	6,447
Non-current assets		20,101	18,092
Current assets
Cash and cash equivalents		1,634	2,878
Trade and other receivables		212	317
Prepayments		30	30
Current assets		1,876	3,225
TOTAL ASSETS		21,977	21,317

Equity and liabilities
Current liabilities
Trade and other payables		127	315
Current liabilities		127	315
Equity attributable to equity holders of the parent
Issued share capital		4,617	4,617
Share premium		53,634	53,634
Revaluation reserve		5,363	566
Share option reserve		1,009	1,009
Reverse acquisition reserve		522	522
Accumulated losses		(43,295)	(39,346)
Total shareholders' equity		21,850	21,002
TOTAL EQUITY AND LIABILITIES		21,977	21,317

Consolidated Statement of Changes in Equity

For the year ended 30 June 2010

	Accumulated losses £'000s	Issued capital £'000s	Share premium £'000s	Revaluation reserve £'000s	Share option reserve £'000s	Reverse acquisition reserve £'000s	Total £'000s
Shareholders' equity at 1 July 2008	(34,374)	4,617	53,634	566	910	522	25,875
Loss for the year	(4,972)	-	-	-	-	-	(4,972)
Total comprehensive loss for the year	(4,972)	-	-	-	-	-	(4,972)
Share option reserve	-	-	-	-	99	-	99
Shareholders' equity at 30 June 2009	(39,346)	4,617	53,634	566	1,009	522	21,002
Loss for the year	(3,949)	-	-	-	-	-	(3,949)
Other comprehensive income	-	-	-	4,797	-	-	4,797
Total comprehensive income for the year	(3,949)	-	-	4,797	-	-	848
Shareholders' equity at 30 June 2010	(43,295)	4,617	53,634	5,363	1,009	522	21,850

Consolidated Statement of Cash Flows

For the year ended 30 June 2010

	Notes	Year ended 30 June 2010 £'000	Year ended 30 June 2009 £'000
Operating activities
Loss before tax from continuing operations		(3,818)	(5,107)
IEG share option benefit to QFI employees		-	(1,111)
Finance costs	7	3	63
Finance income	8	(45)	(45)
Other income - QCC warrants	4	(25)	-
Amortisation of intangible assets	6	2,637	2,970
Impairment of intangible assets	11	176	1,489
Depreciation of property, plant and equipment		-	20
Share based payment expense - granted by the Company		-	99
Share based payment expense - granted by IEG		-	1,111
Working capital adjustments
Increase in trade and other receivables		(26)	(107)
Decrease in prepayments		-	93
Decrease in trade and other payables		(188)	(321)
Cash utilised in operations		(1,286)	(846)
Finance costs	7	(3)	(63)
Taxation received	9	-	135
Net cash outflow from operating activities		(1,289)	(774)
Investing activities
Finance income	8	45	45
Net cash inflow from investing activities		45	45
Net decrease in cash and cash equivalents		(1,244)	(729)
Cash and cash equivalents at the beginning of the year		2,878	3,607
Cash and cash equivalents at the end of the year		1,634	2,878

Notes to the Financial Statements

1.   Basis of Preparation and Significant Accounting Policies

The financial information for the year ended 30 June 2010 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 2010.

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 does not constitute the company's statutory financial statements for the year ended 30 June 2010 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 auditor's report on these financial statements was unqualified, did not contain any statement under section 498(2) or (3) Companies Act 2006, but did draw attention to the disclosure of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.

Statutory financial statements for the year ended 30 June 2009 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.

2.   Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement and Business Review.  The financial position of the Group, its cash flows and liquidity position are described in the Financial Review.

The Directors have carried out a detailed assessment of going concern as part of the annual financial reporting process, taking into consideration a number of matters such as forecast cash flows, medium and long term business plans including expectations over timing of future revenues, and realisability of investments.  More specifically, the assessment considered the following:

·        Ongoing funding initiatives to raise new equity funds to finance the Group's active projects;

·        Flexed cash flow projections, providing for indefinite postponement of active projects should this funding not be obtained to planned timescales;

·        Continued reduction in general operating costs;

·        Potential to raise funds through realising some or all of the Group's unlisted investments through private sales;

·        Potential for alternative funding arrangements for one or more active projects, such as formation of a joint venture with an industry player to provide technical, commercial and financial support.

On the basis of this assessment, the Directors have a reasonable expectation that the Group will be able to secure the necessary funding to enable it to continue as a going concern, and have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. 

However, there remains a material uncertainty over the Group's ability to secure some or all of such funding in the current economic environment, and therefore over the applicability of the going concern basis of preparation.  Should the Group not be able to secure some or all of this funding, the going concern basis of preparation may no longer be applicable and significant adjustments may be required to the financial statements, in particular to the carrying value of available for sale investments and intangible assets.

3.   Segment Reporting

For the purpose of segmental information the reportable operating segment is determined to be the business segment.  The Group principally has two business segments, the results of which are regularly reviewed by the Board: 

·        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 and

·        the holding of a portfolio of non-managed interests. 

Information regarding the results of each reportable segment is as follows.    

Business Segments

Year ended 30 June 2010	Emulsion Fuel	Non-Managed Interests	Total
	£'000s	£'000s	£'000s
Revenue - sale to external customers	-	-	-
Segment result	(3,177)	33	(3,144)
Unallocated net corporate expenses			(716)
Operating loss			(3,860)
Finance costs			(3)
Finance income			45
Loss before tax			(3,818)
Taxation			(131)
Loss for the year from continuing operations attributable to equity holders of the company			(3,949)

As at 30 June 2010	Emulsion Fuel	Non-Managed Interests	Total
	£'000s	£'000s	£'000s
Assets and Liabilities
Segment assets	9,022	11,269	20,291
Unallocated corporate assets			1,686
Total assets			21,977
Segment liabilities	30	-	30
Unallocated corporate liabilities			97
Total liabilities			127

Other segment information
Amortisation of intangible assets	2,637	-	2,637
Impairment of intangible assets	176	-	176

Year ended 30 June 2009	Emulsion Fuel	Non-Managed Interests	Total
	£'000s	£'000s	£'000s
Revenue - sale to external customers	3,537	-	3,537
Segment result	(3,893)	8	(3,885)
Unallocated net corporate expenses			(1,204)
Operating loss			(5,089)
Finance costs			(63)
Finance income			45
Loss before tax			(5,107)
Taxation			135
Loss for the year from continuing operations attributable to equity holders of the company			(4,972)

As at 30 June 2009	Emulsion Fuel	Non-Managed Interests	Total
	£'000s	£'000s	£'000s
Assets and Liabilities
Segment assets	11,942	6,447	18,389
Unallocated corporate assets			2,928
Total assets			21,317
Segment liabilities	97	-	97
Unallocated corporate liabilities			218
Total liabilities			315

Other segment information
Depreciation of property, plant and equipment	20	-	20
Amortisation of intangible assets	2,970	-	2,970
Impairment of intangible assets	1,489	-	1,489

Geographical Segments

The Group's main geographical segments during the year were Europe and Canada.  The following tables present certain asset information regarding the Group's geographical segments.  

	30 June 2010	30 June 2009
	£'000s	£'000s
Non-current assets
Europe	8,832	11,645
Canada	11,269	6,447
Total	20,101	18,092

4.   Other Income

Other income includes:	Year ended 30 June 2010 £'000s	Year ended 30 June 2009 £'000s
Recoverable costs recharged to related parties	35	54
Other recoverable costs recharged	7	27
Receipt of Directors fees from QCC	-	4
IEG share option benefit to QFI employees	-	1,111
Warrants granted by QCC in lieu of Directors' fees (refer note 12)	25	-
Total	67	1,196

The IEG share option benefit to QFI employees of £nil (2009: £1,111k) relates to the share options granted by International Energy Group AG (IEG), from its own holding of shares in QFI, to certain Directors and employees of QFI.  Due to the nature and condition of these grants, where the benefit of such incentive accrues to QFI as a whole rather than to a particular shareholder, the benefit has been recognised in the Statement of Comprehensive Income under Other Income.

5.   Operating Loss

Operating loss is stated after charging:	Year ended 30 June 2010 £'000s	Year ended 30 June 2009 £'000s
Auditor's remuneration:
Audit services	23	35
Non-audit services - tax	5	5
Non-audit services - other	9	-
Consultants and other professional fees (including legal)	173	380
Depreciation of property, plant and equipment	-	20
Amortisation of intangible assets	2,637	2,970
Impairment of intangible assets	176	1,489

The parent company, Quadrise Fuels International plc, bears the audit costs of all the subsidiaries in the Group.

6.   Amortisation of Intangible Assets

The Board has reviewed the accounting policy for intangible assets and has amortised those assets which have a finite life.  A key asset that fits this description is the combination of rights secured under the AkzoNobel Alliance Agreement, together with other unpatented technologies, industry know-how and trade secrets, which drive the principal business case for Quadrise.  Under the prior year arrangements, while intended to continue on an evergreen basis, AkzoNobel or Quadrise could effectively terminate, at 12 months notice, the AkzoNobel Alliance Agreement at any time after 20 December 2011.  On 15 April 2010, however, a further two year extension to the termination clause was agreed resulting in AkzoNobel or Quadrise being able to terminate the agreement, at 12 months notice, at any time after 20 December 2013.  Whilst the Directors believe that it is likely to be in the commercial best interests of both parties to continue the agreement beyond 20 December 2013, there can be no guarantee that this will occur.  The Directors have, accordingly, amortised this intangible asset over the remaining lifespan of the extended agreement.  At 30 June 2010, the remaining amortisation period for this intangible asset was 42 months.  The amortisation of this intangible has resulted in a non-cash charge of £2,637k (2009: £2,970k) to the statement of comprehensive income for the year ended 30 June 2010.  If this change in the amortisation period had not been applied, the amortisation charge for the year would have been higher by £333k.

7.   Finance Costs

	Year ended 30 June 2010 £'000s	Year ended 30 June 2009 £'000s
Corporate finance fees	-	40
Bank charges	3	23
Total	3	63

8.   Finance Income

All finance income recognised during the current and prior year has arisen from interest on bank deposits.

9.   Taxation

	Year ended 30 June 2010 £'000s	Year ended 30 June 2009 £'000s
UK corporation tax charge / (credit)	131	(131)
Adjustment for prior year	-	(4)
Total	131	(135)

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

Tax Reconciliation	Year ended 30 June 2010 £'000s	Year ended 30 June 2009 £'000s
Loss on continuing operations before taxation	(3,818)	(5,107)
Loss on continuing operations before taxation multiplied by the UK corporation tax rate of 28% (2009: 28%)	(1,069)	(1,430)
Effects of:
Expenses not deductible for tax purposes	31	954
Non taxable income	32	-
Other tax adjustments	-	318
Losses not utilised	-	3
Surrender of tax losses for R&D credit	-	151
R&D tax credit	131	(131)
Tax losses carried forward	1,006	-
Total taxation charge / (credit) on loss from continuing operations	131	(135)

The Group has tax losses arising in the UK of approximately £27.4m (2009: £23.2m) that are available, under current legislation, to be carried forward against future profits. £6.5m (2009: £4.9m) of the tax losses carried forward represent trading losses within Quadrise Fuels International plc, £20.8m (2009: £18.2m) represent non-trade deficits arising on intangible assets within Quadrise International Limited and £0.1m (2009: £0.1m) representcapital 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 £7.7m (2009: £7.1m) has not been recognised as a result of existing uncertainties in relation to its realisation.  

10.   Loss Per Share

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

	Year ended          30 June 2010	Year ended 30 June 2009
Loss for the year from continuing operations (£'000s)	(3,949)	(4,972)
Weighted average number of shares:
Basic	461,726,857	461,726,857
Diluted	461,726,857	461,726,857
Loss per share:
Basic	(0.86) p	(1.10) p
Diluted	(0.86) p	(1.10) 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 23.6m share options 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.

11.   Intangible Assets

	QCC Royalty Payments	MSAR® Trade Name	Technology and Know-How	Total
	£'000s	£'000s	£'000s	£'000s
Cost
Opening balance - 1 July 2009	7,686	3,100	25,901	36,687
Additions	-	-	-	-
Closing balance - 30 June 2010	7,686	3,100	25,901	36,687
Amortisation and Impairment
Opening balance - 1 July 2009	(6,567)	-	(18,475)	(25,042)
Amortisation	-	-	(2,637)	(2,637)
Impairment	-	(176)	-	(176)
Closing balance - 30 June 2010	(6,567)	(176)	(21,112)	(27,855)
Net book value at 30 June 2010	1,119	2,924	4,789	8,832

	QCC Royalty Payments	MSAR® Trade Name	Technology and Know-How	Total
	£'000s	£'000s	£'000s	£'000s
Cost
Opening balance - 1 July 2008	7,686	3,100	25,901	36,687
Additions	-	-	-	-
Closing balance - 30 June 2009	7,686	3,100	25,901	36,687
Amortisation and Impairment
Opening balance - 1 July 2008	(5,078)	-	(15,505)	(20,583)
Amortisation	-	-	(2,970)	(2,970)
Impairment	(1,489)	-	-	(1,489)
Closing balance - 30 June 2009	(6,567)	-	(18,475)	(25,042)
Net book value at 30 June 2009	1,119	3,100	7,426	11,645

Intangibles comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's royalty payments of £7.7m and the MSARÒ 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 are expected to generate net cash inflows for the Group.  The assets with indefinite life are not amortised. The remaining intangibles amounting to £25.9m, primarily made up of technology and know-how, are considered as finite assets and amortised over 93 months.  The Group does not have any internally generated intangibles.

The Board has reviewed the accounting policy and has amortised those assets which have a finite life as indicated Note 6.  As a consequence a non-cash charge of £2.6m (2009: £3.0m) has been recognised in the statement of comprehensive income during the year.

The Group tests intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. 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 the year 2026 to ensure the full benefit of all current projects is realised. The key assumptions used in these calculations include discount rates, turnover projections, growth rates, joint venture participation expectations and expected gross margins. 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.  For the MSAR® trade name and technology and know-how intangible, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 2.5% and the pre-tax discount rate applied to the cash flow projections is 13%.  These assumptions are consistent with the prior year.  For Quadrise Canada Corporation's royalty payments, the growth rate used for the extrapolation of cash flows beyond budgeted projections is 1.5% and the pre-tax discount rate applied to the cash flow projections is 25%, against which a further 50% probability factor has been applied.  These assumptions are consistent with the prior year.  The additional probability factor of 50% reflects the continuing difficult market conditions in Canada and the extended delays on the anticipated Quadrise Canada Corporation MSAR® projects.

Taking all these factors into account, the Directors performed a review of the recoverable amount of the intangibles at 30 June 2010. As a result of this review, the Directors concluded that the MSAR® trade name should be written down to a recoverable amount of £2.9m.  This resulted in an impairment charge of £176k to the statement of comprehensive income for the year ended 30 June 2010.

12.   Available for Sale Investments

	Consolidated	Consolidated
	30 June 2010 £'000s	30 June 2009 £'000s
Unquoted securities
Opening balance	6,447	6,447
Additions - QCC warrants	25	-
Changes in fair value	4,797	-
Closing balance	11,269	6,447

Unquoted securities represent the Group's investment in Quadrise Canada Corporation (QCC), Paxton Corporation (Paxton), Sparky Energy Corporation (Sparky) and Porient Fuels Corporation (Porient), all of which are incorporated in Canada. 

In early June 2010, QCC advised shareholders of its success in developing new technologies and application opportunities by exploiting the intellectual property built up by QCC itself over a number of years.  Shareholders approved a plan of arrangement whereby QCC shareholders were allocated shares in two new energy sector companies on a pro rata basis to their fully diluted holding in QCC.  As a result, on 8 June 2010, the Group was allocated 3,682,500 shares in Sparky and 3,682,500 shares in Porient. 

At the statement of financial position date the Group held a 20.44% share in the ordinary issued capital of QCC, a 3.75% share in the ordinary issued capital of Paxton, a 16.86% share in the ordinary issued capital of Sparky and a 16.86% share in the ordinary issued capital of Porient. 

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

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 year 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.  Furthermore, QCC share options and warrants in issue at the statement of financial position date result in the Group having an effective diluted holding in QCC of 17.13%. 

The Directors performed a review of the fair value of the unquoted securities at 30 June 2010.  Due to the lack of an active market in any of the securities, the Directors considered other factors such as past equity placing pricing and assessment of risked net present value of the enterprises to arrive at their conclusion of the fair value for all of the unquoted securities.  This is in accordance with Level 2 of the hierarchy as stated in IFRS 7 for determining fair values.

The QCC shares were previously valued at C$3.00 per share based on reported sales or transfers between third parties at a price of C$3.00 or higher.  In order to determine the fair value of the QCC shares as at year end, an enterprise NPV calculation was carried out on the most recent QCC financial model made available by QCC management.  This model shows all income associated with the business over the next 19 years.  Applying a discount rate of 17.5% as well as a further probability factor, ranging between 25% to 75% to take into account project timing and size, the model indicates a fair value for QCC of C$3.17 per share.  Based on this, the Directors have concluded that the investment in QCC should be valued at C$3.17 per share as at 30 June 2010, resulting in a gain in equity of £1,912k, of which £1,602k relates to foreign exchange.  The total value of the QCC investment as at year end is £7,388k (2009: £5,476k).

The Paxton shares were previously valued at C$3.00 per share in the prior year based on a successful placing of shares in May 2008.  As at the date of this report, the last reported sale of Paxton shares between third parties occurred at a price of C$2.00 per share.  Based on this, the Directors have concluded that the Paxton investment should be valued at C$2.00 per share as at 30 June 2010, resulting in a loss in equity of £144k. The total value of the Paxton investment as at year end is £827k (2009: £971k).

The Sparky shares were received by the Group on 8 June 2010 for no consideration.  In order to determine the fair value of the Sparky shares on acquisition, an enterprise NPV calculation was carried out on the most recent Sparky financial model and information made available by Sparky management.  This NPV calculation shows all income associated with the business over the next 25 years, broken down into various phases from the initial pilot tests to the full scale commercial operations.  Applying a discount rate of 13% to the initial pilot tests, 60% to the first commercial project and, considering the risks and uncertainties associated with progression to the major commercial operations, excluding this phase from the valuation, it gives a value for Sparky of C$1.26 per share.  Based on this, the Directors have concluded that the investment should be fair valued on acquisition to C$1.26 per share, resulting in a gain in equity of £3,026k. The total value of the Sparky investment as at year end is £3,026k (2009: £nil).

The Porient shares were received by the Group on 8 June 2010 for no consideration.  As Porient is in its very early stages of development and is yet to be defined into a business with active projects, it has very little market presence or value.  Based on this, the Directors have concluded that the investment should be fair valued on acquisition to its nominal value of C$0.001 per share.  This has resulted in a gain in equity of £3k for the year ended 30 June 2010. The total value of the Porient investment as at year end is £3k (2009: £nil).

During the prior year, as part of its financial plan to preserve cash resources, QCC issued warrants to the Board in lieu of Directors fees.  On 2 January 2009, Ian Williams, a non-executive Director of QCC, received 18,889 warrants as part of this plan.  Each warrant entitles him to acquire one common share of QCC at a price of C$0.30 per common share.  One third of the warrants vested immediately upon grant date, a further one third of the warrants vested on 2 January 2010 and the remaining one third vest on 2 January 2011.  All warrants must be exercised by 2 January 2014.  Ian Williams transfers his QCC Director fees to the Company.  If all the warrants, granted to Ian Williams and transferred to the Company, were exercised at the statement of financial position date, the Group's holding in the issued shared capital of QCC would increase from 20.44% to 20.52%.  The total amount recognised in the statement of comprehensive income relating to these QCC warrants for the year ended 30 June 2010 is £25k (2009: £nil).

13.   Related Party Transactions

Non-executive Directors Ian Williams and Hemant Thanawala provide services under a service agreement with International Energy Services Limited (IESL), a subsidiary of International Energy Group AG (IEG), the ultimate parent of Quadrise Fuels International plc.  The service charge for the year amounted to £158k (2009: £352k), out of which £23k (2009: £160k) was incurred for Directors' and employees' salaries, and £135k (2009: £192k) was charged for rent and other office costs.  Trade payables include £7k (2009: £26k) payable at the statement of financial position date to IESL relating to these services.

Non-executive Director Laurence Mutch is also a Director of Laurie Mutch & Associates Limited, which has provided consulting services to the Group.  The total fees charged for the year amounted to £24k (2009: £35k), out of which £nil (2009: £12k) was for consulting services and £23k (2009: £23k) for non-executive Director fees.  The balance payable at the statement of financial position date was £5k (2009: £5k).

Ian Duckels is also a Director of Ritoil Associates Limited.  The total fees charged for the year related to non-executive Director fees and amounted to £23k (2009: £19k), with a balance of £5k (2009: £5k) payable at the statement of financial position date.

Trade receivables of the Group include £188k (2009: £166k) receivable from other related parties, which consists of £157k (2009: £137k) from Quadrise Fuels US and £31k (2009: £29k) from Wilton Petroleum Limited for shared personnel costs.  QFI and Wilton Petroleum Limited share the same ultimate parent company whilst QFI has an agreement with the current shareholder of Quadrise Fuels US to hold a 76% interest in the entity in the future.  Transactions with related parties are unsecured and made at normal market prices. The receivable from Quadrise Fuels US of £157k (2009: £137k) attracts interest at the US Prime rate plus 2% p.a effective from the date of the advance until repayment in full of the advance.  The receivable from Wilton Petroleum Limited of £31k (2009: £29k) attracts interest at the 6 month GBP LIBOR rate plus 3% p.a effective from 1 January 2009 and may be settled in cash or by equity conversion at the option of QFI.  

14.   Commitments and Contingencies

The Group had not entered into any finance or operating leases as at the statement of financial position date.  Additionally the Group has no capital commitments or contingent liabilities as at the statement of financial position date.

15.   Events After the End of the Reporting Period

Ian Williams and Hemant Thanawala, who had served, respectively, as non-executive Chairman and non executive Director, were reinstated into their previous executive roles as Executive Chairman and Finance Director respectively, effective from 9 July 2010. 

On 14 July 2010, the Group subscribed for an additional 2,000,000 shares in Sparky Energy Corp. ("Sparky") at a price of CAD $0.50 per share for a total cost of CAD $1,000,000 (approximately £636,500).  This acquisition of shares increased the Group's shareholding in Sparky from 16.9% at the year end to 19.5% at the time of the placement.  Further placements of shares during July and August 2010 by Sparky have diluted the Group's holding to 17.8% as at the date of this report.

On 13 August 2010, the Company secured binding agreements from certain existing shareholders to subscribe for 87,500,000 new ordinary shares of £0.01 each at a price of £0.01 per share, raising £875,000.  All of the subscription monies were received by the Company by 31 August 2010.  The subscribing shareholders also received 1 warrant for every new ordinary share subscribed for.  The warrants are exercisable on or before 30 June 2011 and each warrant carries the right to subscribe for 1 new ordinary share at a price of £0.01 per share.

On 17 August 2010, 3 new UK registered companies were incorporated in which Quadrise International Limited secured a 75% shareholding through subscription.  These companies are called Quadrise Marine Limited, Quadrise KSA Limited and Quadrise Americas Limited and will be engaged in the Group's principal activities. 

On 18 August 2010, Bill Howe resigned from the Board of Directors of the Company and its subsidiaries.

On 9 September 2010, 87,500,000 new ordinary shares of £0.01 each were admitted to trading on AIM.  Following the issue of the 87,500,000 new ordinary shares, the Company's issued share capital as of this date consisted of 549,226,857 ordinary shares of £0.01 each with voting rights.

On 5 October 2010, a further new UK registered company was incorporated in which Quadrise International Limited secured a 75% shareholding through subscription.  This company is called Quadrise Asia Limited and will be engaged in the Group's principal activities.

Jason Miles assumed a non-executive Director role in the Company effective from 18 October 2010.

16.   Copies of the Annual Report

Copies of the annual report will be available shortly on the Company's website at www.quadrisefuels.com and from the Company's registered office, Parnell House, 25 Wilton Road, London SW1V 1YD.

 

END

 

 

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