Final Results

RNS Number : 6983G

Quadrise Fuels International PLC

27 October 2008

 



Quadrise Fuels International plc

('Quadrise' or 'the Company')

Final Results for the year ended 30 June 2008

Quadrise Fuels International plc (AIM: QFI), the producer of emulsion fuel as a low cost substitute for heavy fuel oil for use in power generation plants and industrial diesel engines, today announces its results for the year ended 30 June 2008 and gives notice for the convening of a General Meeting ('GM') of the Company to be held at Parnell House 25 Wilton Road, London SW1V 1YD on Thursday, 11 December 2008 at 11.30 am.

HIGHLIGHTS

Financial

• No debt and £3.61 million (2007: £5.87 million) in cash reserves at 30 June 2008. 

• Operating costs contained at modest levels through outsourcing and shared services. 

• Loss after tax of £22.46 million (2007: £11.92 million), which includes a non-cash charge of £11.94 million (2007: £8.65 million) for amortisation and impairment of intangible assets and £7.92 million (2007: £nil) for impairment of available for sale investments. This reflects a prudent and conservative management approach. 

• Resultant loss per share 4.86 pence (2007: 2.74 pence).

Operational

• A major commercial demonstration of the manufacture and combustion of MSAR® fuel was completed successfully in Lithuania between July and September 2008. 

• Anticipate closure of a contract in Lithuania by February 2009.

• Development of core geographic territories and the diesel market continues to progress.

Commenting on the results, Bill Howe, Chief Executive of Quadrise, said:

'Our revised business strategy is yielding results. The success of our commercial demonstration in Lithuania with AB Mazeikiu Nafta and AB Lietuvos Elektrine puts us in a position to secure a long term MSAR® supply contract in the short term and will see us transformed to a revenue generating business from 2010. The credibility of our technology will be transformed by the Company's first commercial application and should facilitate the successful progression of other business prospects in our development pipeline. The company is investigating a number of options to raise funds for construction of the Lithuanian project. These include non-recourse loan finance secured against the Lithuanian revenue streams. I am fortunate to have a team that is without equal in the emulsion fuels field and with an unsurpassed understanding of the oil refining and power plant interfaces critical to our business. The team has done an outstanding job this year in bringing our technology to the point of commercialisation.'

For further information please contact:

Quadrise Fuels International plc 020 7550 4930

Ian Williams, Chairman

Bill Howe, Chief Executive

Hemant Thanawala, Finance Director

Capital MS&L 020 7307 5330

Penny Freer

James Madsen

Smith & Williamson Corporate Finance Limited, Nominated Adviser & Broker    020 7131 4000

Azhic Basirov  Siobhan Sergeant

Hichens Harrison & Co plc - Broker

020 7382 7791

Jeremy Chantry

CHAIRMAN'S STATEMENT

Introduction 

Quadrise has made major progress in the transition to commercial operations in the reporting period and now anticipates first substantial revenues from 2010. 

As advised in previous reports, major changes which have affected global energy markets since late 2006 led to a strategic review and adaptation of the Company's business model and a redefinition of first phase business development priorities. This review was completed in early 2007 and set the near term objectives and activity programmes for the 2008 business year and beyond.

Key objectives for the year included selecting and progressing prime project opportunities to MSAR® fuel trials, and securing a 'reference site', with a prospect of continuous operation, by mid 2009. Shareholders have been kept informed, through the regular release of a series of Company announcements, of the Company's associated activities and progress achieved. Quadrise has met all of the key objectives, most notably in the form of the well-publicised project in Lithuania.  

While the recent focus has been largely on progressing this first commercial opportunity through the demonstration phase towards securing a long term supply contract, Quadrise is also actively engaged in progressing several further opportunities along the same path. 

These developments have led to an increased level of awareness of the Company and the value potential of our MSAR® fuels and associated technologies. The growing recognition and credibility that Quadrise management has achieved in the energy field is testimony to their professionalism and capability, and bodes well for the future. 

Financial Performance and Funding 

The board has consistently applied a conservative approach in financial matters and the Company has remained free of debt throughout the year. Non-core services continued to be 'outsourced' to limit fixed overheads, and spending levels were tightly controlled to conserve equity funds. No equity funds were raised in the year, or at any time since listing in early 2006, and the Company has progressed right through to the present pre-commercial stage on the funds provided by the 2006 placing. 

Quadrise is now in transition to the early commercial phase which will require new funding to meet capital expenditure associated with processing plant establishment and related site works and services. Ranges of deal structures and funding combinations have been considered to optimise the financing of fuel manufacturing capacity. Project viability appears to be encouragingly robust and management have engaged with finance providers to progress the preferred combination of equity and conventional project finance.  

Directors, Management and Associates 

Quadrise has a relatively small team of very high calibre experienced management who have been responsible for the commendable progress made since the last report. The body of specialist expertise represented in the combination of the Quadrise team and our specialist associates and partners is unmatched at a global level. 

Progress across the selected group of prime projects has illustrated the ability to gain the attention and respect of both management and specialists in oil refining and power generation organisations that are MSAR® fuels project targets. The ability of Quadrise's management to coordinate and direct these programmes has been key to the progress made. 

The dedication and commitment of the team was well illustrated in the very successful Lithuanian project, which saw management and specialists from Quadrise, AkzoNobel, contractors and consultants working around the clock in the installation, preparation and operation of the MSAR® fuel manufacturing and supply systems. 

The resignation of Tony Kallis, former Executive Director - Business Development, in order to return to South Africa, was accepted with great reluctance. His expertise and experience were invaluable in the re-focusing of the business model and in creating new market relationships. Fortunately his services are still available to the Company on a consultancy basis. 

Jason Miles succeeded Mr Kallis and was appointed to the board in his place. Jason brings a wealth of experience in the emulsion fuels field and played a central role in securing and progressing the Lithuanian project opportunity.

Dr Ian Duckels joined the board as a non-executive director to replace Tony Lowrie who stood down at the Annual General Meeting. I would like to record the Company's appreciation of the contribution made by Mr Lowrie over his term on the board, especially with regard to advice on financial matters. Dr Duckels has a long association with Quadrise and brings a great deal of experience of the global energy sector to the Company. 

The prime period of the Alliance Agreement, which provides Quadrise access to AkzoNobel proprietary technology know-how and services, has been extended for two years in recognition of the significant progress achieved over the year. The Company enjoys a close and constructive relationship with AkzoNobel. The Company places considerable value on this association and is highly appreciative of the quality and extent of support received from the AkzoNobel Surface Chemistry management and specialists in developing our business activities. 

Market Rating and Future Outlook 

The directors have been very conscious of continuing shareholder concerns regarding the market rating of the Company over the past year. Recent events and trends in the financial markets have served to put even greater pressure on the AIM energy sector, in particular the junior pre-revenue subset. 

These recent developments have further reduced the Quadrise market rating despite communication on the very encouraging developments in Lithuania. While we can not reasonably expect to raise awareness and change perceptions in the very near term, it should be possible to do so as this and other project activity intensifies during 2009.  

Quadrise is now 'on the cusp' of the early commercial phase and is poised to move forward progressively towards developing a multi project portfolio realising the Quadrise business potential in terms of MSAR® fuel sales revenues and profitability.

The staffing requirements to support varying levels of expansion have been scoped, as have the implications for recruitment and training.

The directors would like to again thank shareholders for their understanding and support of the Company during the extended preparatory phase. We believe that significant value has been added over this time, and expect that this will be realised to the benefit of all as we move forward and secure a position as a value added fuel supplier in the global energy market. 

Ian Williams

Chairman

24 October 2008

CHIEF EXECUTIVES REVIEW

During the past 12 months Quadrise has refined and enhanced the post listing business strategy outlined in last year's annual report. This strategy, designed to accommodate a high oil price environment, has dictated our operational focus and culminated in the establishment of a pipeline of business opportunities where the fundamental market drivers for success are in place. Our first commercial project is now close to realisation following a very successful large-scale commercial manufacturing and refuelling demonstration of MSAR® fuel in Lithuania.

Business Strategy

Our forward strategy remains unaltered and continues to comprise two elements.   

Short Term - Phase 1

Our short term Phase 1 strategy continues; focused on the pursuit of power plant refuelling opportunities in circumstances where clients have of necessity to include oil as part of their fuel mix. Although the high oil price environment has diminished opportunities for firing oil in conventional steam cycle power plants, for those clients still dependent on conventional liquid fuels there is, at current oil prices, an even greater incentive to consider using our lower cost MSAR® product. We are pursuing highly material contracts in this, the first phase of the Company's development. A single commercial success has the potential to fully underpin the cost of our operations and transform Quadrise to revenue generating status.

Long Term - Phase 2

Quadrise continues to develop those geographic markets where the fundamentals for oil use in conventional steam cycle power plants remain positive (Saudi Arabia, Kuwait and Mexico). The use of oil as a power generation fuel will continue to grow off a high base in these countries providing a platform for ongoing expansion of the Quadrise business.

In addition to its longer-term geographic activity, Quadrise has applied focus to the worldwide market for diesel engine power generation where inter-fuels competition is more limited and margins are potentially higher. Once manufacturing hubs developed as part of our Phase 1 strategy are up and running, Quadrise sees high potential to source MSAR® from these facilities and act as a fuel provider to concentrated areas of diesel power generation. Over 20 countries have individual requirements in excess of 500MWe. These, together with new-build opportunities, represent the prime targets for the Company to act as a merchant fuel provider for the diesel engine market.

Review of Activities

Power Plant Refuelling

The primary focus of Quadrise's activity during the year has been the performance of a large-scale commercial demonstration of the manufacture and combustion of MSAR® in Lithuania. To facilitate the demonstration, Quadrise entered into a contract with the Lithuanian oil refiner AB Mazeikiu Nafta for the purchase of heavy residue for the manufacture of MSAR®. Contemporaneously we secured a sales contract with the Lithuanian state power generator AB Lietuvos Elektrine for the supply of 20,000 tonnes of MSAR® delivered to its 1800MWe Elektrenai power plant ('Elektrenai').

Working together with AkzoNobel, our technology licensor, Quadrise established, during May/June 2008, a 500 tonne per day manufacturing facility on the AB Mazeikiu Nafta oil refinery site. The refinery is owned by the Polish energy group PKN Orlen; operators of 7 oil refineries in central Europe. 

As part of the pre-manufacturing activity, Quadrise was responsible for the design, supply and construction of the temporary MSAR® manufacturing facility and procurement of all needed process chemicals and consumables. The manufacturing operation was undertaken on a 24/7 operating basis during July and August 2008 and was manned by Quadrise and AkzoNobel specialists plus a limited number of direct-hire personnel. MSAR® production was stored in tankage at the refinery site and was intermittently shipped 300km by rail to Elektrenai in 3,000 tonne parcels. The existing rail loading facilities at the refinery were operated sequentially with conventional heavy fuel oil dispatch, demonstrating the practicality of concurrent production of MSAR® and heavy fuel oil. 

MSAR® was offloaded from rail cars and stored at the power plant prior to its use at Elektrenai. Combustion took place in two 150MWe super-critical steam generators equipped with modern pollution control equipment meeting all EU emission specifications. During September 2008, MSAR® fired generation capacity at Elektrenai reliably supplied up to 300MWe on an ongoing basis into the Lithuanian grid. All 20,000 tonnes of the MSAR® was combusted by mid September 2008. Quadrise specialists provided on-site support to the Elektrenai personnel during the entire period of the demonstration, from delivery and quality checks of the MSAR® through to its combustion.

In late September 2008, both AB Mazeikiu Nafta and AB Lietuvos Elektrine declared the demonstration a success, paving the way for negotiation of Quadrise's first long term MSAR® supply contract, a matter currently of significant attention by our team.

Quadrise are following a number of similar power plant refuelling prospects. These trail the Lithuanian development by some months and progress has been slower than anticipated given the concentration of our resources on the Lithuanian development. We fully expect these opportunities to be facilitated following the Lithuanian success which has fully demonstrated the viability of our strategy of alignment of candidate power plants with appropriately located and configured oil refineries. 

Oil Field Development

The oil field development project outlined in the interim annual report has moved more slowly than anticipated due to political inertia. We continue to follow this prospect, which has very positive fundamentals. One of the stakeholders in this venture continues to cover Quadrise's project development costs.

Market Development

Consistent with our belief that Saudi Arabia and Kuwait offer outstanding long term potential, we have continued market development in these territories. Quadrise has engaged with a major Saudi Arabian engineering company active in the power generation and oil and gas businesses to promote the technology and execute resulting contracts. We anticipate an acceleration of activity in the Middle East during the coming year.

We continue market development in Mexico. This market will be handled through our 'to be formed' company Quadrise Fuels US LP (QFUS), in which Quadrise will hold a 76% interest. Formation of QFUS is well advanced and we have made positive progress with Mexican clients towards a demonstration firing of MSAR® fuel.  

Associated Companies

Quadrise Canada Corporation (QCC)

Quadrise owns an 18.7% interest in QCC and will also receive a 6.67% royalty based on QCC's net income before tax (after recovery by QCC of all start-up and development costs) from MSAR® business in Canada. QCC operates in Canada under an exclusive technology agreement with AkzoNobel. Relationships with QCC are positive and the two companies' executives meet on a twice-yearly basis to review matters of common interest.

QCC's Canadian business is heavily orientated to use of MSAR® as the steam raising energy source for SAGD (steam assisted gravity drainage) heavy oil recovery in Alberta. This market has excellent long term potential, but at present is suffering from delays in project release due to environmental, permitting, fiscal and cost escalation issues. These delays have prompted the prudent approach of writing down the valuation of both our shareholding and royalty stream associated with QCC in our balance sheet. We remain positive, however, regarding the long term potential of QCC.

Paxton Corporation

Quadrise owns a 3.7% interest in Paxton Corporation, a Canadian company active in enhanced oil recovery. Paxton successfully raised CAD $20m during the course of the year to develop its activity in oil field recovery using CO2 sweep methodology. Paxton envisage oxy-firing MSAR® to generate low cost CO2 whilst co-producing steam and power. 

Alliance Agreement with AkzoNobel

AkzoNobel is Quadrise's technology licensor and also provides pre-project emulsion testing, specialist chemicals and proprietary equipment. We maintain a regular dialogue with our licensor to discuss and pre-plan business development activity, resolve technical issues, review market developments and agree strategy for the MSAR® technology.  

During the course of the year AkzoNobel agreed to extend our Alliance Agreement by two years. This agreement is applicable worldwide other than Nafta, China and Japan. During the year AkzoNobel have additionally authorised Quadrise to develop the Mexican oil and power plant market - a key territory in respect of our Phase 2 business strategy. 

Relationships remain extremely positive and AkzoNobel's support to the Lithuanian commercial demonstration was outstanding. 

Financial

Quadrise operated within its budget during the financial year. Costs were well controlled and the Company expects to reach December 2008 with approximately £2.5m cash resources exclusive of monies received from current fundraising activity associated with the Lithuanian commercial project. The Quadrise management team is to be particularly commended for its control of the cost of the major logistical exercise in Lithuania. This required commitments by the Company in excess of £3m, which, because of a sound commercial strategy, and highly competent management of the demonstration, was largely recovered through the MSAR® sales revenues. 

The Lithuanian commercial project requires an estimated £12m to execute. Various means of raising these monies are under consideration, including the sourcing of non-recourse financing secured by the Lithuanian contract revenues. 

The Future 

Quadrise is currently focussed on securing the commercial contract for the Lithuanian power plant refuelling project, which should generate revenues from January 2010. We anticipate that success in Lithuania, as reflected by a commercial contract, will radically enhance the Company's credibility with potential clients in the oil refining and power sectors and provide positive impetus to other prospects we have in the pipeline. We expect an acceleration of activity in 2009 and growth in the Company's resources.

Given the changing dynamics of the energy business the core management team regularly re-visits and tests its future growth plan and business strategy. We are convinced that the strategy developed post listing is sound and robust and plays to the market fundamentals. We are thus well positioned as we go forward. 

The team has achieved a lot in the past year; having performed outstandingly well and fully achieving its objectives. We are looking to the future with a high level of confidence and optimism.  

Bill Howe

Chief Executive Officer

24 October 2008

FINANCIAL REVIEW

Introduction

The prime focus for the Group and its management during the year was to progress various high-ranking prospects and leads, identified in the previous period, through to detailed evaluations, formal proposals and commercial demonstrations. This objective has been successfully achieved, leading to a large-scale commercial demonstration in Lithuania in August/September of this year. The Lithuanian trial demonstration involved the manufacturing and burning of 20,000 tonnes of MSAR® on commercial terms which made a significant contribution towards the costs of the trial for Quadrise. Following the success of this demonstration, the management is now engaged in negotiations for long-term commercial contracts and anticipates securing them by early 2009, generating revenues for Quadrise from early 2010. 

In keeping with the established early-stage business and financial management strategy, Quadrise has maintained a low overhead base during the year with outsourcing of non-core services. This strategy will continue as we move forward.

Results for the year

The after-tax loss for the year to 30 June 2008 is £22.5m (2007 £11.9m). This includes a charge of £11.9m (2007 £8.6m) for the amortisation and impairment of intangible assets, a charge of £7.9m (2007 £Nil) for the impairment of the investment in Quadrise Canada Corporation, administration expenses of £2.6m (2007 £3.4m) and bank deposit interest income of £0.3m (2007 £0.5m). The charge for the share options, included in the administration expenses, is £0.4m (2007 £0.5m).

Basic and diluted loss per share is 4.86p (2007: 2.74p).

Balance Sheet

At 30 June 2008, the Group had net assets of £25.9m (2007 £49.4m). The most significant balances are intangible assets of £16.1m (2007 £28.0m), available for sale investments of £6.4m (2007 £16.1m) and cash of £3.6m (2007 £5.9m).

Cash Flow

The Group ended the year with £3.6m of cash and cash equivalents (2007 £5.9m). The Group continues to remain debt free. All the Group's cash is held with Coutts & Co and at 30 June 2008, £3.2m (2007 £5.1m) was placed on short-term deposits with it.

Capital Structure

The Group 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 2008. Following the Annual General Meeting held on 12 September 2008, the Board presently has an authority to issue up to 300,000,000 ordinary shares under sections 80 and 89 of the Companies Act 1985. These authorities will be reviewed at the next AGM, as appropriate.

Treasury and Financial Risk Management

Control over treasury and 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 comprise principally of 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 interest risk, liquidity risk and foreign exchange risk. The Board reviews and establishes appropriate policies for the management of such risks and monitors them on a regular basis.

Taxation

At 30 June 2008, the Group has tax losses of approximately £20.2m (2007 £2.3m) arising in the UK that are available indefinitely against future taxable profits under current legislation. Deferred tax assets of approximately £2.7m (2007 £3.2m) have not, however, been recognised in the financial statements as a result of the uncertainties of their realisation in the foreseeable future. 

Outlook

The Group has firmly adhered to its early-stage business strategy during the year under review and will continue to do so going forward. We shall also continue to place cash management at the forefront of our financial management strategy and are focused on minimising the Group's working capital requirements where possible. 

Given the current state of affairs, the Group is well positioned to reach its primary goal of securing its first revenues from the Lithuanian project from early 2010 and in progressing other highly prospective opportunities at the same time. This may, however, call for additional financial resources, depending on the structure of the commercial arrangements reached with the counterparties. The board will continue to monitor these situations and will take the most appropriate action as and when required.  

Hemant Thanawala

Finance Director

24 October 2008

Consolidated Income Statement

For the year ended 30 June 2008

	Note	Year ended 30 June 2008 £'000s	18 Months ended 30 June 2007 £'000s
Continuing operations
Other income		46	287
Write-off of goodwill on acquisition		-	(584)
Amortisation of intangible assets	3	(5,708)	(8,646)
Impairment of intangible assets	6	(6,229)	-
Impairment of available for sale investments	7	(7,921)	-
Administration expenses		(2,574)	(3,439)
Operating loss	2	(22,386)	(12,382)
Finance costs		-	(126)
Finance revenue	4	255	507
Loan write-off gain		-	115
Foreign exchange (loss) / gain		(326)	10
Loss before tax		(22,457)	(11,876)
Taxation		-	(41)
Loss for the year from continuing operations attributable to equity holders of the company		(22,457)	(11,917)
Loss per share - pence loss per share
Basic	5	(4.86) p	(2.74) p
Diluted	5	(4.86) p	(2.74) p

Consolidated Balance Sheet

As at 30 June 2008

	Note	As at 30 June 2008 £'000s	As at 30 June 2007 £'000s
Assets
Non-current assets
Property, plant and equipment		20	1
Intangible assets	6	16,104	28,041
Available for sale investments	7	6,447	16,131
Non-current assets		22,571	44,173
Current assets
Cash and cash equivalents		3,607	5,874
Trade and other receivables		210	66
Prepayments		123	7
Current assets		3,940	5,947
TOTAL ASSETS		26,511	50,120

Equity and liabilities
Current liabilities
Trade and other payables		636	755
Current liabilities		636	755
Equity attributable to equity holders of the parent
Issued capital		4,617	4,617
Share premium		53,634	53,634
Revaluation reserve		566	2,002
Share option reserve		910	507
Reverse acquisition reserve		522	522
Accumulated losses		(34,374)	(11,917)
Total shareholders' equity		25,875	49,365
TOTAL EQUITY AND LIABILITIES		26,511	50,120

Consolidated Statement of Changes in Equity

For the year ended 30 June 2008

	Accumulated  Losses £'000s	Issued Capital £'000s	Share Premium £'000s	Revaluation reserve £'000s	Share Option reserves £'000s	Reverse acquisition reserve £'000s	Total £'000s
As at 1 January 2006	-	100	-	-	-	-	100
New shares issued	-	4,517	54,751	-	-	-	59,268
Share issue costs	-	-	(1,117)	-	-	-	(1,117)
Share options reserve	-	-	-	-	507	-	507
Revaluation of available for sale investments	-	-	-	2,002	-	-	2,002
Reverse acquisition reserve	-	-	-	-	-	522	522
Loss for the period	(11,917)	-	-	-	-	-	(11,917)
Shareholders' equity at 30 June 2007	(11,917)	4,617	53,634	2,002	507	522	49,365
Share options reserve	-	-	-	-	403	-	403
Impairment of available for sale investments	-	-	-	(2,002)	-	-	(2,002)
Revaluation of available for sale investments	-	-	-	566	-	-	566
Loss for the year	(22,457)	-	-	-	-	-	(22,457)
Shareholders' equity at 30 June 2008	(34,374)	4,617	53,634	566	910	522	25,875

Consolidated Cash Flow Statement 

For the year ended 30 June 2008

	Note	Year ended 30 June 2008 £'000s	18 Months ended 30 June 2007 £'000s
Operating activities
Loss before tax from continuing operations		(22,457)	(11,876)
Interest expense		-	126
Interest income	4	(255)	(507)
Income tax paid		-	41
Impairment of goodwill on acquisition		-	584
Amortisation of intangibles	3	5,708	8,646
Impairment of intangibles	6	6,229	-
Impairment of available for sale investments	7	7,921	-
Depreciation of property, plant and equipment		5	-
Share-based payments expense		403	507
Impairment of capitalised development costs		-	911
Foreign exchange loss/(gain)		326	(10)
Loan write off gain		-	(115)
Working capital adjustments
Increase in trade and other receivables		(260)	(73)
Increase in trade and other payables		(118)	(427)
Cash generated from operations		(2,498)	(2,193)
Interest paid		-	(126)
Income tax paid		-	(41)
Net cash outflow from operating activities		(2,498)	(2,360)
Investing activities
Purchase of available for sale investments		-	(845)
Purchase of property, plant and equipment		(24)	-
Acquisition of subsidiaries		-	(3,416)
Interest received	4	255	507
Net cash inflow/(outflow) from investing activities		231	(3,754)
Financing activities
Proceeds from issue of shares		-	12,940
Transaction costs incurred with share issues		-	(952)
Net cash inflow from financing activities		-	11,988
Net (decrease)/increase in cash and cash equivalents		(2,267)	5,874
Cash and cash equivalents at the beginning of the year		5,874	-
Cash and cash equivalents at 30 June 2008		3,607	5,874

Notes to the Financial Statements

1.  Basis of Preparation and Significant Accounting Policies

The financial information set out in this announcement does not constitute the company's statutory financial statements for the year ended 30 June 2008. Statutory financial statements for the year ended 30 June 2008, prepared under International Financial Reporting Standards as adopted for use in the European Union, will be delivered to the Registrar of Companies following the Company's General Meeting. The auditors have reported on those accounts; their report was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.

The financial information for the year ended 30 June 2008 has been prepared using accounting policies which are consistent with those adopted in preparing the interim financial information for the period ended 31 December 2007.

The Board of Directors approved the preliminary results on 24 October 2008.

2.  Operating Loss 

Operating loss is stated after charging:	Year ended  30 June 2008 £'000s	18 Months ended  30 June 2007 £'000s
Staff cost	1,174	1,340
Auditor's remuneration:
Audit services	31	59
Non-audit services - tax	4	6
Non-audit services - other	2	2
Goodwill impairment	-	584
Impairment of available for sale investments	7,921	-
Amortisation of intangibles	5,708	8,646
Impairment of intangibles	6,229	-
Share option charge	403	507
Depreciation of property, plant and equipment	5	-

Staff cost includes the salaries of directors employed directly by the Company.

3.  Amortisation of Intangible Assets

The Board has reviewed the accounting policy for intangible assets and has adopted a policy for the amortisation of 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 QFI. Under the original arrangements, while intended to continue on an evergreen basis, AkzoNobel or QFI could terminate the AkzoNobel Alliance Agreement at 12 months notice at any time after 20 December 2009. In March 2008, however, a two-year extension to the termination clause was agreed resulting in AkzoNobel or QFI being able to terminate the agreement at 12 months notice at any time only after 20 December 2011. 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 2011, 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. This policy has resulted in a non-cash charge of £5,708k to the income statement for the year ended 30 June 2008. If this change in the amortisation period had not been applied, the amortisation charge would have been higher by £1,204k. Refer to Note 6 for further details.

4.  Finance Revenue

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

5.  Loss Per Share 

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

	Year ended 30 June 2008	18 Months ended 30 June 2007
Loss for the year from continuing operations (£000's)	(22,457)	(11,917)
Weighted average number of shares:
Basic	461,726,857	435,424,442
Diluted	461,726,857	435,424,442
Loss per share:
Basic	(4.86) p	(2.74) p
Diluted	(4.86) p	(2.74) 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 23.9m share options outstanding at year-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position

6.  Intangible Assets

	30 June 2008 £'000s	30 June 2008 £'000s	30 June 2008 £'000s	30 June 2007 £'000s	30 June 2007 £'000s	30 June 2007 £'000s
	Infinite	Finite	Total	Infinite	Finite	Total
Cost
Opening balance	10,786	25,901	36,687	-	-	-
Additions	-	-	-	10,786	25,901	36,687
Closing balance	10,786	25,901	36,687	10,786	25,901	36,687
Amortisation
Opening balance	-	(8,646)	(8,646)	-	-	-
Amortisation	-	(5,708)	(5,708)	-	(8,646)	(8,646)
Impairment	(5,078)	(1,151)	(6,229)	-	-	-
Closing balance	(5,078)	(15,505)	(20,583)	-	(8,646)	(8,646)
Net book value	5,708	10,396	16,104	10,786	17,255	28,041

Intangibles include intellectual property of £36.7m acquired from Quadrise International Limited, which comprises both assets of finite and infinite life. Quadrise Canada Corporation's royalty income of £7.7m and the MSAR® Trade name of £3.1m are termed as assets having infinite life and hence not amortised. The remaining intangibles amounting to £25.9m are primarily made up of technology and know-how, considered as finite assets and amortised over 69 months. The Board has reviewed the accounting policy and adopted an amortisation policy on those assets, which have a finite life. As a consequence of adopting this policy, a non-cash charge of £5.7m has been recognised in the income statement 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 budget information available. These cash flow forecasts extend to the year 2025 to ensure the full benefit of all potential 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 reasons of prudence the growth rate used for the extrapolation of cash flows beyond budgeted projections for all intangible impairment reviews was 2.5%. The pre-tax discount rate applied to the cash flow projections is 13%, with the exception of the Quadrise Canada Corporation's royalty income, to which a 25% discount rate was applied.

The directors performed a review of the fair value of the intangibles at 30 June 2008. As a result of this review, the directors concluded that Quadrise Canada Corporation's royalty income should be written down to a net fair value of £2.6m and the technology and know how written down to £10.4m. This resulted in a £6.2m impairment charge to the income statement for the year to 30 June 2008.

7.  Available for Sale Investments

	30 June 2008 £'000s	30 June 2007 £'000s
Unquoted securities
Opening balance	16,131	-
Acquisitions	-	14,129
Revaluation	566	2,002
Impairment	(9,922)	-
Foreign exchange	(328)	-
Closing balance	6,447	16,131

Unquoted securities represent the Group's investment in Quadrise Canada Corporation and Paxton Corporation, both of which are incorporated in Canada. As at the balance sheet date the Group held an 18.71% share in the ordinary issued capital of Quadrise Canada Corporation and a 3.75% share in the ordinary issued capital of Paxton Corporation. The directors do not consider that they have significant influence over either entity and as such these investments are not accounted for as associates.

The directors performed a review of the fair value of the unquoted securities at 30 June 2008. Due to the lack of an active market in either of the securities, the directors considered other factors such as past equity placing pricing and independent assessment of risked net present value of the enterprises to arrive at their conclusion of the fair value. As a result of that review, the directors concluded that the carrying value of Quadrise Canada Corporation should be adjusted to C$3.00 (£1.49) per share in the accounts. The most recent independent assessment of the risked net present value of the enterprise is however C$15.00 (£7.43). This resulted in an impairment charge of £7,921k and a foreign exchange loss of £328k in the income statement. Of the £9,922k impairment, £2,002k refers to impairment of the previously revalued investment. With regard to Paxton Corporation, the directors have concluded from their review that the investment should be revalued to C$3.00 (£1.49) per share in the accounts. This has resulted in a gain in equity of £566k.

8.  Copies of the Annual Report

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

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