QFI.L Regulatory News (QFI)

26 March 2012

Quadrise Fuels International plc

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

Quadrise Fuels International plc presents its interim results for the six months ended 31 December 2011.

HIGHLIGHTS

Financial

·; Cash reserves of £2.44 million as at 31 December 2011 (£0.97 million as at 31 December 2010), sufficient to progress to full commercial operations and sustainable revenues based on the current business plan and prospects.

·; Acquisition during the period of the Group's first commercial-scale MSAR® Manufacturing Unit.

·; Loss after tax for the period of £1.60 million (2010: £1.65 million), which includes a non-cash charge of £0.68 million (2010: £0.68 million) for the amortisation and impairment of intangible assets.

·; Loss per share 0.22 pence (2010: 0.32 pence).

Operational

·; Seaborne use of Marine MSAR® fuels is underway with evaluation report by mid-year.

·; Energy sector developments in target markets extend the opportunities for Quadrise MSAR® technology and the scale of future business potential.

Commenting, Ian Williams, Executive Chairman, said:

"Quadrise has advanced significantly in our managed programmes, most notably in marine fuels. The support of our joint development partners has been unstinting and is greatly appreciated. Our MSAR® fuels continue to gain recognition by major industries having the most to gain from using our technology and consuming our fuels.

The measurable contribution that MSAR® technology and fuels will make to conserving the environment has also gained wider recognition, especially the impact of changing refinery yields, reducing NOx, and practically eliminating 'black soot' emissions."

-ENDS-

For further information, please refer to the Company's website at www.quadrisefuels.com or contact:

Chairman's Statement

Quadrise Fuels International plc ("Quadrise", "Company", "Group", "QFI") presents its interim results for the six months ended 31 December 2011.

Business Overview

This review prefaces the 2012 Interim Report and serves to update shareholders on material developments over the six months ended 31 December 2011 and post balance sheet events to mid-March 2012.

The focus of this section of the report will be on QFI Group interests which are directly managed by our 100% owned operating subsidiary Quadrise International Limited ("QIL"). An update will also be provided on the associate companies which comprise our Canadian investments.

Directly Managed Interests

The principal business of QIL is to supply technology and services and sell a replacement for heavy fuel oil, branded MSAR® fuel oil. This is a very large market in which over 600 million tonnes of oil are sold every year. QIL has focussed on a limited number of selected geographic and market sectors within this global market.

The application of MSAR® fuel technology in association with major client corporations in these sectors can deliver "game changing" advantages to the refiners providing the low value heavy residue feedstock and to the users converting from conventional heavy fuel oil to Quadrise MSAR® fuel. Advantages for refiners and users are both economic and environmental - the most recent example of the latter being the increased focus on the emission of 'black soot' from oil products combustion and the comparative performance of MSAR® fuels which practically eliminate carbon particulate emissions.

During the period under review there have been positive developments affecting the Company's prospects in the early target markets. While the future will always remain uncertain, there is consensus that the fundamental drivers of these key trends are likely to be sustained. These include:

·; the increasing importance of fuel cost to the international shipping industry - comprising up to 75% of operating costs;

·; the widening divergence in demand growth between distillate fuels (diesel and aviation fuel) and fuel oil and the pressure on limited global distillate production capacity;

·; prescription of reduced sulphur levels for all marine bunker fuels; and

·; the associated increase in local market subsidies borne by oil based economies, for example, Saudi Arabia, Mexico and others which have to import refined products such as petrol and diesel at rising world prices.

These trends, and the associated widening of price spreads between fuel oil and distillates, all support the Quadrise value proposition. When producing MSAR® fuel, the refiner recovers high value distillates for use in higher value 'light' fuels, and the consumer is provided with a lower cost 'greener' substitute for fuel oil for its ships, power plants or industrial steam raising.

While good progress has and continues to be made in our key managed programmes, we expected to achieve more by this time in the execution of key contracts which map the progression to full commercial operations. There is no change in direction, however the simple reality is that programmes involving acceptance of innovative ideas in large organisations involve many stakeholders and do take time.

Marine MSAR® Bunker Fuel

As advised in related RNS releases, an extensive programme of fuel development and formulation optimisation has been conducted since 2010 under the Joint Development Agreement in association with A.P.Møller-Mærsk ("Mærsk") and AkzoNobel.

Shareholders were advised towards the end of 2011 that the focus would move to sea borne assessment. This required a limited fuel production run at the AB Orlen Lietuva refinery and the installation and calibration of monitoring equipment on a Mærsk container ship to provide the operating performance information required by all participants. The leading engine manufacturers are also directly involved in this programme.

A common feature of all innovative fuels development programmes is that enough time is allowed for analysis of data, correction of any deficiencies and exploitation of opportunities that might be revealed by the results of 'in service' performance. These results and assessments may inform a collective effort to further refine and optimise fuel formulations in terms of both performance and economics.

On completion, the programme is planned to move to the next phase involving use of MSAR® fuel in a sample of the Mærsk fleet. This is expected to start during the third quarter of 2012. However, timing will be conditional on the 'issues and opportunities' list arising from the trials currently on-going. Because the participants are collaborating in terms of multiparty non-disclosure agreements, reports on operations and outcomes may only be made public when all are agreed.

The development of Marine MSAR® fuel continues to attract increasing attention from many quarters including the specialist press, refining industry (majors and juniors), the shipping industry and the regulators. The tide appears to have turned in many respects, particularly with the shipping industry, the engine manufacturers and the refiners. Clearly, if the large consumers of marine bunker fuel start calling for Quadrise's lower cost Marine MSAR®, the fuel 'supply chain' is expected to respond.

Saudi Arabian Market

As a leading producer of crude oil and a rapidly industrialising economy, the Kingdom of Saudi Arabia ("KSA") attracts the constant attention of the specialist oil and energy media. The government has to manage the balance of near and longer term imperatives. This requires adapting progressively to realise better value from the use of key natural resources - oil and gas reserves.

The scale of the challenge is illustrated by a recent HSBC review predicting the need to import about 248 billion litres of petrol and diesel over the next 10 years to meet the shortfall from KSA domestic production. At current prices that would cost around $170 billion. A related issue is that local consumer prices remain the lowest in the world. For example, petrol sells for about GBP 0.08 per litre (equating to US$10.00 per barrel). The enormous under-recovery of the cost of imports has to be funded from oil export revenues.

Similar economics feature in the KSA power generation sector where for some time 'cheap' crude oil has frequently been used to fuel thermal power plants. A recent analysis predicted that unless these practices change, KSA may in the future require up to 50% of its crude oil production for local power generation. Even today, some 60% of power generation in KSA is based on oil (mostly crude oil and heavy fuel oil).

There is clearly a renewed determination in KSA to deal with these macro oil and energy sector issues constructively, by aggressive adaptation, restructuring and investment to improve the use of resources and add value within the country.

Feasibility studies by Quadrise specialists during 2009/10 identified several attractive project opportunities in the KSA refining industry. These were subsequently confirmed by independent reports written by Saudi specialists during 2011. The initial focus was on the technology fit and the refinery based activity - a micro view.

The macro issues in KSA have opened the potential for Quadrise MSAR® fuels technology to release local distillate production and reduce associated imports, and the scope for MSAR® fuel to displace crude and fuel oil in KSA power generation. The focus now is the benefit to KSA of the "integrated value add" from the refineries to the power plants.

While a logical progression, given the KSA macro issues, this shift has impacted the finalising and execution of the QIL agreements and the associated MSAR® plant demonstration activities. On the positive side, however, the "integrated value" scope represents a far larger business prospect than had previously been contemplated by the Company.

Material progress on the agreements is expected during the first half of 2012. In anticipation of related developments, negotiations are progressing to settle the form, nature and terms of future association with our Saudi partners.

Mexico - PEMEX

Circumstances in Mexico have many parallels with those in KSA. A similar approach has also been followed over the past two years, leading to the present situation where the execution of contracts will mark the start of a programme which has been defined in association with PEMEX commercial and technical management.

As the national oil company PEMEX management priorities are driven by government policy and fully aligned with national interest. The value offered by Quadrise has been recognised, the intention to proceed with an MSAR® demonstration has been confirmed in principle, and the steps to contract execution have been agreed. All that remains is to clear the remaining legal and administrative pre-conditions and formally execute the contracts.

The programme to follow involves an MSAR® manufacturing unit installation in a PEMEX refinery for a proving demonstration which, on success, will progress to become the first commercial operation within the PEMEX portfolio. This is still expected to proceed in the first half of 2012. As with KSA the benefits of the 'integrated value add' are substantial, but in the medium term there should also be scope for the export of MSAR® fuels to supply power generators in the region.

Asia /Singapore

The Company continued to work with Power Seraya to develop a MSAR® fuel supply chain for their Jurong based plant through 2011. The focus has now moved to possibilities in the Asia region. While a number of supply related discussions are currently live, no commitment has yet been made.

Canadian Investments

The Canadian companies all originated in varying degrees, to exploit the proprietary technologies arising out of the Quadrise Canada Corporation ("QCC") research and development programme.

With the exception of Paxton Corp, where QFI was originally invited to invest, the QFI holdings have been largely secured through equity grants in venture companies which were 'spun out' of QCC. The initial stakes mirrored the 20% shareholding in QCC, but in most cases this has changed as a result of dilution, mergers and, in one case, additional investment.

The 're-parcelling' of assets and interests within these related entities has and will continue to better prepare the individual companies to add value for their respective shareholders.

Optimal Resources Inc. ("ORI") - 8.6%

The pilot programme to field test the Enhanced Oil Recovery ("EOR") technology continued through the review period and beyond. While there have been a number of setbacks and operational difficulties, each of the four production wells that have been in operation either continuously or sporadically through the trial period have consistently produced incremental oil as a result of the EOR activity.

The company continues to benefit from continuous production from a single well which, having previously produced only 1 barrel of oil per day with a 95% water cut, performed for several months following EOR stimulation in the field, at a steady 42 barrels of oil per day with an 80% water cut. Continuity of this production is not assured, and a phased decline is anticipated, but in the interim oil revenues make a valuable contribution to cash flow. The Lloydminster field stimulation programme has been curtailed pending the next phase of development. Management intend future development to extend to properties with proven remaining oil reserves well suited to incremental recovery using the ORI proprietary technologies.

A recent strategic review of the requirements for success has resulted in:

·; appointment of a new management team;

·; agreement that all EOR technology and associated IP and support resources should transfer from QCC to ORI on acceptable terms (payment to be in shares of ORI). A world-wide patent application was filed jointly by QCC and ORI in October 2011;

·; identification of target acquisitions to grow the oil reserve base; and

·; a programme to attract new funds to transform ORI into a junior oil company with the competitive advantage of an effective EOR technology.

These are all positive developments which, if successful, would result in a significant increase in the value of QFI's shareholding.

An interesting feature of the regulatory system is that while state royalties are generally around 35% of oil revenue, those applying to EOR status wells are capped at 5% of revenue. When oil is priced at over $100+ per barrel this amounts to a considerable differential for a specialist EOR producer.

Quadrise Canada Corp. ("QCC") - 20.4% and Porient Fuels Co. ("PFC") - 16.9%

The proprietary technologies (in varying stages of development, registration and commercialisation) have been retained in QCC, as have the tax losses associated with past development costs.

There is an urgent requirement to commercialise the QCC proprietary fuels technologies. Funding the related business programme will call for new partners and investors. Legal and fiscal constraints on transfer of the associated patents, knowhow and tax pools require that QCC itself become the 'fuels' company. The intention is to transfer all of the non-fuels technologies, royalty rights and certain other assets into PFC, which will then become the 'incubator' of these early stage assets and will 'spin off' each asset as appropriate. PFC would also become the recipient of all royalties as may be contractually due on the use of proprietary technologies. For example the royalties due from ORI to QCC, per barrel, on production of 'enhanced recovery oil'.

The associated restructuring should be completed before mid-2012 and the remaining companies are likely to be re-named as appropriate, in this process. The restructuring and reallocation of assets and interests is also intended to rationalise resources and reduce cost. In all these are positive developments for QFI, and may also provide scope for a closer business association in the future.

Paxton Corporation ("PC") - 3.8%

This is a non-core investment for QFI, however, the pace of development has changed and the most recent advice to shareholders indicates that significant progress is imminent.

In addition to its own activities, PC has a 30+% interest in Clean Energy Systems ("CES") - a company which has developed and licensed the use of Steam Gun technology for low cost steam and power generation using rocket combustion technology.

Mærsk Oil has acquired a license for the use of the CES technology which offers zero-emission power generation in combination with oil and gas projects. They have created a subsidiary venture, TriGen Technology, which offers related services to industry. Paxton has secured and retains certain rights associated with these developments.

The Paxton proprietary business which is associated with steam and CO2 generation for oil field application, and the CES technology, could both use Quadrise MSAR® fuels for the steam generators, though the Mærsk programme is based on use of 'associated gas' produced in the oil fields.

Paxton/Paramount have filed patent applications for a derivative technology which combines steam separation and gas separation for oil field application and will be testing a pilot plant in Q1 2012. Paramount plans to use the technology in their Hoole Grand Rapids Oil Sands Project, which they expect will become the world's first zero-emissions SAGD oil producer.

In view of the relatively low percentage shareholding in PC, the Company plans to dispose its PC shareholding at an appropriate time.

Financial Position

The Group held cash and cash equivalents of £3.962 million as at 30 June 2011. This included the proceeds of the placing of new ordinary shares which closed in March 2011. The average monthly costs for the half year averaged £172k which represented an increase from the previous 12 month average of £149k. This reflects the increased activity and contribution to the Marine fuels programme during the period.

Group funds were also used in this period for the acquisition of a full commercial scale MSAR® Manufacturing Unit fabricated in Denmark and supplied by AkzoNobel. This unit may be sold on under license to a refiner associated with one of the core projects before the end of the 2012 financial year. If so, a replacement would be acquired to ensure availability at short notice to avoid further delays during the early commercial phase.

The Group held £2.435 million in cash and equivalents on 31 December 2011. On present projections, this will be sufficient to fund the Company through to the early revenue phase, providing a 'license mode' contract basis applies as intended for both the Marine and the Saudi activities.

No funds have been reserved to limit dilution of QFI shareholding in the Canadian companies, some of which may be expected to raise new equity funds to progress their business opportunities.

Outlook

Contracts for the commercial phase of several core project programmes have not been finalised as early as had been planned. However, these delays have had to do with pace and scope rather than direction.

Management are confident of the interest, commitment and intentions of our partners, associates and prospective clients and expect commercial closures should reasonably be achieved within the 2012 financial year.

The Company and its potential have gained recognition and awareness on a broad front - from potential clients and refinery partners, to institutional and private investors. There has been a significant increase in the Company's share price since early February, suggesting that the growth potential of the Company is being recognised by the market.

On a macro level, there is a very good fit between the "Quadrise proposition" and increased focus on cost and profitability in refining, shipping and power generation, and in cost effective compliance with new and anticipated environmental performance standards. This all bodes very well for the progress and future value of the Company.

Ian Williams

Chairman

23 March 2012

Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 31 December 2011

Condensed Consolidated Statement of Financial Position

As at 31 December 2011

The interim accounts, accompanying policies and notes 1 to 14 (forming an integral part of these interim accounts), were approved and authorised for issue by the Board on 23 March 2012 and were signed on its behalf by:

I. Williams H. Thanawala

Chairman Finance Director

Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 31 December 2011

Condensed Consolidated Statement of Cash Flows

For the 6 months ended 31 December 2011

Notes to the Group Condensed Financial Statements

1. General Information

Quadrise Fuels International plc ("QFI", "Quadrise", the "Company") and its subsidiaries (together "the Group") are engaged principally in the manufacture and marketing of emulsified fuel for use in power generation, industrial and marine diesel engines and steam generation applications. The Company's ordinary shares are quoted on the AIM market of the London Stock Exchange.

QFI was incorporated on 22 October 2004 as a limited company under the Companies Act 1985 with registered number 05267512. It is domiciled and registered at Parnell House, 25 Wilton Road, London SW1V 1YD.

2. Summary of Significant Accounting Policies

(2.1) Basis of Preparation

The interim accounts have been prepared in accordance with IAS 34 'Interim financial reporting' and on the basis of the accounting policies set out in the annual report and accounts for the year ended 30 June 2011, which have been prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union. The interim accounts are unaudited and do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006.

The same accounting policies, presentation and methods of computation have been followed in these unaudited interim financial statements as those which were applied in the preparation of the Group's annual statements for the year ended 30 June 2011, upon which the auditors issued an unqualified opinion, and which have been delivered to the registrar of companies.

The interim accounts for the 6 months ended 31 December 2011 were approved by the Board on 23 March 2012.

The directors do not propose an interim dividend.

3. Segmental Information

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

Geographical Segments

The Group's main geographical segments during the period were Europe and Canada. The following table presents certain asset information regarding the Group's geographical segments.

4. 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. While intended to continue on an evergreen basis, AkzoNobel or Quadrise can effectively 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 31 December 2011, the remaining amortisation period for this intangible asset was 24 months. The amortisation of this intangible has resulted in a non-cash charge of £684k to the statement of comprehensive income for the 6 month period to 31 December 2011 (for the 6 month period to 31 December 2010: £684k).

5. Other Administration Expenses

Other administration expenses during the 6 month period to 31 December 2011 includes £nil (for the six month period to 31 December 2010: £380k) for costs incurred relating to the group restructuring.

6. Loss Per Share

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

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

For diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive options and warrants over ordinary shares. Potential ordinary shares resulting from the exercise of share options and warrants 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 45.2 million share options issued by the Company and which are outstanding at the period-end could potentially dilute earnings per share in the future if exercised when the Group is in a profit making position.

7. Property, plant and equipment

8. Intangible Assets

Intangibles comprise intellectual property with a cost of £36,687k, including assets of finite and indefinite life. QCC's royalty payments of £7,686k and the MSARÒtrade name of £3,100k 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 £25,901k, 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 further explained in Note 4. As a consequence a non-cash charge of £684k has been recognised in the statement of comprehensive income for the 6 month period to 31 December 2011 (for the 6 month period to 31 December 2010: £684k).

The Group tests intangible assets annually for impairment, or more frequently if there are indications that they might be impaired. For the 6 month period to 31 December 2011, there were no indications that the intangible assets may be impaired.

As a result, the Directors concluded that no impairment is necessary for the 6 month period to 31 December 2011.

9. Available for Sale Investments

Unquoted securities represent the Group's investment in Quadrise Canada Corporation ("QCC"), Paxton Corporation ("Paxton"), Optimal Resources Inc. ("ORI") and Porient Fuels Corporation ("Porient"), all of which are incorporated in Canada.

There have been no changes in relation to available for sale investments since the year end. Full details concerning these investments can be found in the annual accounts.

10. Non-controlling Interest

Non-controlling interest at 31 December 2011 represents management's 18.75% participation in the equity of the four project subsidiary companies that were set up as part of the group restructuring. Quadrise International Limited holds the remaining 81.25% interest.

11. Related Party Transactions

International Energy Services Limited ("IESL"), a subsidiary of International Energy Group AG ("IEG"), the promoter and single largest shareholder of Quadrise Fuels International plc, provides services for QFI under the terms of a service agreement. The service charge for the six months to 31 December 2011 amounted to £18k (for the 6 months period to 31 December 2010: £61k), out of which £7k (for the 6 month period to 31 December 2010: £3k) was incurred for employees' salaries and related costs, and £11k (for the 6 months period to 31 December 2010: £58k) was charged for rent and other office costs. Trade payables include £nil (30 June 2011: £52k) 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 six month period to 31 December 2011 amounted to £35k, comprising £17k for consulting services and £18k for Non-Executive Director fees (for the six month period to 31 December 2010, total fees were £10k and solely comprised of Non-Executive Director fees). The balance payable at 31 December 2011 was £21k (as at 30 June 2011: £20k).

Ian Duckels is also a director of Ritoil Associates Limited, which has provided Non-Executive Director services to the Group. The total fees charged for the six month period to 31 December 2011 related to Non-Executive Director fees and amounted to £12k, with a balance of £7k payable at 31 December 2011 (as at 30 June 2011: £7k).

Trade receivables of the Group include £155k (30 June 2011: £155k) receivable from other related parties, which consists of £155k (30 June 2011: £155k) from Quadrise Fuels US ("QFUS"), QFI has an agreement with the current shareholder of QFUS 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 QFUS 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.

For the period ended 31 December 2011, the Company has recorded a provision for bad debt of £nil (30 June 2011: nil).

The Company and IEG, the majority shareholder in the Company, entered into a Relationship Agreement on 22 March 2006. Pursuant to the Relationship Agreement, IEG has agreed to exercise its rights only as a shareholder of the Company, so as to ensure the Company is capable of carrying on its business independently of IEG. In addition IEG has agreed that neither it nor any proposed Director who is a Director or employee of IEG will participate in the deliberations of the board of Directors of the Company in relation to any proposal to enter into any commercial arrangements with IEG or its associates.

12. Seasonality

The operations of the Group are not affected by seasonal fluctuations.

13. Commitments and Contingencies

The Group has 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. 

14. Copies of the Interim Accounts

Copies of the interim accounts 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.