QFI.L Regulatory News (QFI)

RNS Number : 3482J

Quadrise Fuels International PLC

29 March 2010

 

Quadrise Fuels International plc

 

29 March 2010

 

Quadrise Fuels International plc

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

 

Quadrise Fuels International plc, the manufacturer of MSAR®, a second generation oil-in-water emulsion fuel, for use in power generation and industrial and marine diesel engines, presents its interim results for the six months ended 31 December 2009.

 

HIGHLIGHTS

 

Financial

 

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

 

·; Loss after tax of £1.87 million (2008: £2.42 million), which includes a non-cash charge of £1.49 million (2008: £2.97 million) for amortisation and impairment of intangible assets.

 

·; Loss per share 0.40 pence (2008: 0.53 pence).

 

·; No debt and £2.27 million (2008: £4.24 million) in cash reserves at 31 December 2009.

 

·; Cash burn excluding project costs remains at £1.5 million per annum

 

Operational

 

·; Joint Development Agreement signed with A.P.Moller-Maersk ("Maersk") for collaborative development of a marine fuel version of MSAR®.

 

·; Oil based power refuelling prospects in Saudi Arabia and Mexico continue to move forward.

 

Commenting, Bill Howe, Chief Executive Officer, said:

 

"Our business strategy of selectively targeting a limited number of highly prospective elements of the 500 million ton per annum heavy fuel oil market for substitution by lower cost MSAR® continues to yield results. We are particularly pleased to be making progress in the marine fuel sector through our agreement with Maersk which, if successful, will open up the 150 million ton per annum bunker fuel market; an area where liquid fuels will prevail and where inter-fuels competition will be very limited."

 

 

Enquiries:

 

Quadrise Fuels International plc Tel: +44 (0)772 537 2841

Bill Howe, Chief Executive Officer

 

Fairfax I.S. PLC Tel: +44 (0)207 598 5368

Katy Birkin

 

Capital MS&L Tel: +44 (0)207 307 5330

Penny Freer/Hollie Vile

 

Chairman's and CEO's Statement

 

Business Overview

 

Shareholders have been prior advised of the unprecedented movements in oil product prices and their impact on QFI's business. Our expectation is that there will be a progressive return to normality as the world economy recovers. Notwithstanding the current market conditions, good progress has nevertheless been made with substantial counter-parties in our core target markets.

 

Operational Progress

 

Our strategy of pursuing former Orimulsion customers familiar with emulsion fuels and fully equipped to immediately handle MSAR® has paid dividends. The success of the commercial demonstration at the Mazeikiai refinery and Elektrenai power plant (a prior user of Orimulsion) has provided impetus and credibility to our efforts to move large prospects forward in our core target markets. We remain optimistic about prospects in Saudi Arabia, Kuwait, Mexico and with the marine fuel development.

 

·; Saudi Arabia - after submission of techno-economic assessment data for use of MSAR® technology on 3 refineries, feedback from our counterparty remains positive. We have identified almost 8000MWe of steam cycle power plant capacity in Saudi Arabia which it may be possible to progressively convert to MSAR® fuel. This will be an extended process but could see potential for 5 million tons per annum of MSAR® production in the medium term. As indicated in the 2009 Annual Report we anticipate announcing further news on this prospect during the first half of 2010.

 

·; Kuwait has the potential for a further 2 million tons per annum. It is QFI's intention to develop this market on the back of anticipated progress in Saudi Arabia.

 

·; Mexico - progress continues based on development of definitive project assessment data in Mexico, a market that may support 4 million tons per annum of MSAR® production. A specific location has been identified for the first MSAR® trial, to be followed by commercial application on an internal refinery refuelling project and external power plant supply. Like Saudi Arabia we expect to report further during the first half of 2010.

 

·; Marine Fuels Development - The success in Lithuania, coupled with increasing oil prices over the past year has enabled us to move the marine application forward more rapidly than originally anticipated. Fuel represents a very high proportion of a shipping company's operating cost providing a major incentive to commercialise lower cost MSAR® in this new application. As announced on 5 March 2010 a Joint Development Agreement was signed with A.P.Moller-Maersk ("Maersk") to jointly investigate and develop, over an approximate 12 month period, a marine version of MSAR® emulsion fuel to exploit the 150 million ton per annum bunker fuel market. Maersk are the world's largest container shipping organisation operating some 500 vessels and purchasing 10 million tons of bunker fuel annually. The development programme will capitalise on QFI's skills in emulsion fuel application and use in large diesel engines. Maersk will contribute their vast shipping industry experience and provide unsurpassed technical expertise relating to naval architecture, machinery systems, fuels, exhaust gas emissions and technical ship management. Maersk vessels provide excellent testing platforms for new technologies. In the event the development programme is successful, Maersk and QFI will seek to expediently implement the technology.

 

Financial Position

 

Quadrise continues to operate within its budget and its available financial resources. Projects are developed on a highly cost efficient basis and with a requirement for client contribution to the funding of field trials. Cash burn, excluding project costs, has been reduced to £1.5 million per annum. At 31 December 2009 Quadrise had cash funds of £2.27 million.

 

Quadrise Canada Corporation ("QCC")

 

QCC's prime target market, the manufacture of MSAR® as a fuel for steam raising for heavy oil production in Canada, has been affected by a combination of project delays and price uncertainty. New technology in natural gas extraction from unconventional reserves is projected to result in increased future supply of low cost natural gas in North America. In the medium term natural gas will continue to have a price advantage over MSAR® in Canadian heavy oil production, delaying application of our technology and associated QFI dividend receipts from QCC. These changes in the Canadian market have led to a restructuring of the QCC business, as reported in the 2009 Annual Report, which has combined a reduction in the cost base and a search for new business opportunity to leverage QCC's resources and intellectual property. A number of opportunities have been identified by QCC and several have been selected for assessment with prospective partners. The value of these new initiatives is difficult to quantify at this time but early indications are that they could be material. Progress will be reported to shareholders when confidentiality permits and the prospects are considered to be more certain to proceed. Notwithstanding the uncertainty surrounding progress of its new business lines, the QCC investment has been retained unchanged in the Company's statement of financial position at the equivalent of C$3.00 per share, which in aggregate totals £5.48 million (2008: £5.48 million).

 

 

 

AkzoNobel

 

The Company continues to receive excellent pre-project technical support from its alliance partner AkzoNobel. The relationship between the companies remains positive.

 

Future Prospects

 

All projects in the current QFI programme are commercially complex and, as a result, carry a high degree of uncertainty. Whilst this is typical in the development of the type of project in which our technology finds its prime application, positive fundamentals support all QFI prospects under consideration. The conversion of any one of our prospects to a contract, as anticipated in the next phase of the Company's development, will result in a material volume of business and fully under-pin our future.

 

 

 

Ian Williams G W Howe

Chairman Chief Executive Officer

26 March 2010 26 March 2010

 

 

Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 31 December 2009

 

	Notes	6 months ended 31 December 2009 Unaudited £'000	Restated 6 months ended 31 December 2008 Unaudited £'000	Year ended 30 June 2009 Audited £'000
Continuing operations
Revenue from sale of goods		-	3,537	3,537
Other income		43	73	1,196
Raw materials, consumables, transportation, tank rental and analysis costs		-	(2,821)	(2,827)
Amortisation of intangible assets	5	(1,485)	(1,485)	(2,970)
Impairment of intangible assets	7	-	(1,489)	(1,489)
Other administration expenses		(497)	(1,143)	(3,226)
Foreign exchange gain		53	934	690
Operating loss		(1,886)	(2,394)	(5,089)
Finance costs		(2)	(61)	(63)
Finance income		21	33	45
Loss before tax		(1,867)	(2,422)	(5,107)
Taxation		-	-	135
Loss for the period from continuing operations		(1,867)	(2,422)	(4,972)
Total comprehensive income for the period		(1,867)	(2,422)	(4,972)
Loss for the period attributable to:
Owners of the parent		(1,867)	(2,422)	(4,972)
Total comprehensive income attributable to:
Owners of the parent		(1,867)	(2,422)	(4,972)
Loss per share - pence
Basic	6	(0.40) p	(0.53) p	(1.10) p
Diluted	6	(0.40) p	(0.53) p	(1.10) p

 

 

Condensed Consolidated Statement of Financial Position

As at 31 December 2009

 

	Notes	As at 31 December 2009 Unaudited £'000	As at 31 December 2008 Unaudited £'000	As at 30 June 2009 Audited £'000
Assets
Non-current assets
Property, plant and equipment		-	8	-
Intangible assets	7	10,160	13,130	11,645
Available for sale investments	8	6,470	6,447	6,447
Non-current assets		16,630	19,585	18,092
Current assets
Cash and cash equivalents		2,271	4,236	2,878
Trade and other receivables		333	212	317
Prepayments		20	9	30
Current assets		2,624	4,457	3,225
TOTAL ASSETS		19,254	24,042	21,317

 

Equity and liabilities
Current liabilities
Trade and other payables		119	525	315
Current liabilities		119	525	315
Equity attributable to equity holders of the parent
Issued share capital		4,617	4,617	4,617
Share premium		53,634	53,634	53,634
Revaluation reserve		566	566	566
Share option reserve		1,009	974	1,009
Reverse acquisition reserve		522	522	522
Accumulated losses		(41,213)	(36,796)	(39,346)
Total shareholders' equity		19,135	23,517	21,002
TOTAL EQUITY AND LIABILITIES		19,254	24,042	21,317

 

Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 31 December 2009

 

	Accumulated Losses £'000	Issued Capital £'000	Share Premium £'000	Revaluation Reserve £'000	Share Option Reserve £'000	Reverse acquisition Reserve £'000	Total £'000
As at 1 July 2008	(34,374)	4,617	53,634	566	910	522	25,875
Loss for the period	(2,422)	-	-	-	-	-	(2,422)
Total recognised income and expense for the period	(2,422)	-	-	-	-	-	(2,422)
Share options reserve	-	-	-	-	64	-	64
Shareholders' equity at 31 December 2008	(36,796)	4,617	53,634	566	974	522	23,517

 

 

	Accumulated Losses £'000	Issued Capital £'000	Share Premium £'000	Revaluation Reserve £'000	Share Option Reserve £'000	Reverse acquisition Reserve £'000	Total £'000
As at 1 July 2009	(39,346)	4,617	53,634	566	1,009	522	21,002
Loss for the period	(1,867)	-	-	-	-	-	(1,867)
Total recognised income and expense for the period	(1,867)	-	-	-	-	-	(1,867)
Shareholders' equity at 31 December 2009	(41,213)	4,617	53,634	566	1,009	522	19,135

 

Condensed Consolidated Statement of Cash Flows

For the 6 months ended 31 December 2009

 

	Notes	6 Months ended 31 December 2009 Unaudited £'000	6 Months ended 31 December 2008 Unaudited £'000	Year ended 30 June 2009 Audited £'000
Operating activities
Loss before tax from continuing operations		(1,867)	(2,422)	(5,107)
IEG share option benefit to QFI employees		-	-	(1,111)
Finance costs		2	61	63
Finance income		(21)	(33)	(45)
Other income - QCC warrants		(23)	-	-
Amortisation of intangible assets	5	1,485	1,485	2,970
Impairment of intangible assets	7	-	1,489	1,489
Depreciation of property, plant and equipment		-	12	20
Share based payment expense - granted by the Company		-	64	99
Share based payment expense - granted by IEG		-	-	1,111
Working capital adjustments
Increase in trade and other receivables		(16)	(2)	(107)
Decrease in prepayments		10	114	93
Decrease in trade and other payables		(196)	(111)	(321)
Cash (utilised) / generated in operations		(626)	657	(846)
Finance costs		(2)	(61)	(63)
Taxation received		-	-	135
Net cash (outflow) / inflow from operating activities		(628)	596	(774)
Investing activities
Finance income		21	33	45
Net cash inflow from investing activities		21	33	45
Net (decrease) / increase in cash and cash equivalents		(607)	629	(729)
Cash and cash equivalents at the beginning of the period		2,878	3,607	3,607
Cash and cash equivalents at the end of the period		2,271	4,236	2,878

 

 Notes to the Group Financial Statements

 

1. General Information

Quadrise Fuels International plc ("QFI", "Quadrise", "Company") and its subsidiaries ("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 listed on the AIM market of the London Stock Exchange.

 

QFI, the legal parent company, was incorporated on 22 October 2004 as a limited company under the Companies Act 1985 with registered number 05267512. It is domiciled at, and is 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 June 2009 annual report and accounts, which have been prepared in accordance with International Financial Reporting Standards as adopted for use by the European Union. The interim report is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006, but is based on the latest statutory accounts. These accounts, upon which the auditors issued an unqualified opinion, have been delivered to the registrar of companies.

 

The interim report for the 6 months ended 31 December 2009 was approved by the Board on 26 March 2010.

 

(2.2) Change in Accounting Policies

IAS 1 (revised 2007) Presentation of Financial Statements - effective for annual periods beginning on or after 1 January 2009. IAS 1 (revised 2007) presents transactions with owners in detail and non-owner changes in equity as a single line in the Statement of Changes in Equity. The standard introduces a Condensed Consolidated Statement of Comprehensive Income which presents all items of unrecognised income and expense and is linked to the Consolidated Income Statement. In addition, the Consolidated Balance Sheet has been renamed to Condensed Consolidated Statement of Financial Position and the Consolidated Cash Flow Statement has been renamed to Condensed Consolidated Statement of Cash Flows.

 

Revised IFRS 8 Operating Segments - effective for annual periods beginning or after 1 January 2009. IFRS 8 is a disclosure standard that has resulted in a redesignation of the Group's reportable segments (see note 4), but has no impact on the reported results or financial position of the Group.

 

 

3. Going Concern

The Directors have prepared projected cash flow information for the period to 31 March 2011. Key assumptions used in the projected cash flow model are:

 

·; Head office costs will remain at current levels, and

·; Major project related costs will not be incurred during the period.

 

As a result of the above, the Directors consider it appropriate to prepare the financial statements on a going concern basis. Accordingly, the financial statements do not reflect any adjustments that would be required in the event that the Group were unable to achieve its forecast cash flows.

 

 

4. Segmental Information

The Group is engaged in 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. In the opinion of the Directors, the Group's activities comprise one class of business. As a result, the Group's primary format for segment reporting is geographical segments.

 

Geographical Segments

 

Period ended 31 December 2009	Europe	Canada	Total
	£'000	£'000	£'000
Revenue - sale to external customers	-	-	-
Segment result	(1,489)	(23)	(1,512)
Unallocated net expenses			(374)
Operating loss			(1,886)
Finance costs			(2)
Finance income			21
Loss before tax			(1,867)
Taxation			-
Loss for the period from continuing operations			(1,867)

 

4. Segmental Information (continued)

 

As at 31 December 2009	Europe	Canada	Total
	£'000	£'000	£'000
Assets and Liabilities
Segment assets	12,745	6,470	19,215
Unallocated assets			39
Total assets			19,254
Segment liabilities	24	-	24
Unallocated liabilities			95
Total liabilities			119

 

Other segment information
Amortisation of intangible assets	1,485	-	1,485

 

 

 

Period ended 31 December 2008	Europe	Canada	Total
	£'000	£'000	£'000
Revenue - sale to external customers	3,537	-	3,537
Segment result	(1,708)	7	(1,701)
Unallocated net expenses			(693)
Operating loss			(2,394)
Finance costs			(61)
Finance income			33
Loss before tax			(2,422)
Taxation			-
Loss for the period from continuing operations			(2,422)

 

As at 31 December 2008	Europe	Canada	Total
	£'000	£'000	£'000
Assets and Liabilities
Segment assets	17,512	6,447	23,959
Unallocated assets			83
Total assets			24,042
Segment liabilities	141	-	141
Unallocated liabilities			384
Total liabilities			525

 

Other segment information
Depreciation of property, plant and equipment	12	-	12
Amortisation of intangible assets	1,485	-	1,485
Impairment of intangible assets	1,489	-	1,489

 

 

 

Year ended 30 June 2009	Europe	Canada	Total
	£'000	£'000	£'000
Revenue - sale to external customers	3,537	-	3,537
Segment result	(3,893)	8	(3,885)
Unallocated net 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			(4,972)

 

 

 

4. Segmental Information (continued)

 

As at 30 June 2009	Europe	Canada	Total
	£'000	£'000	£'000
Assets and Liabilities
Segment assets	14,820	6,447	21,267
Unallocated assets			50
Total assets			21,317
Segment liabilities	102	-	102
Unallocated liabilities			213
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

 

 

5. 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 Quadrise. Under the present arrangements, while intended to continue on an evergreen basis, AkzoNobel or Quadrisemay effectively terminate, at 12 months notice, the AkzoNobel Alliance Agreement at any time 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 agreement. At 31 December 2009, the remaining amortisation period for this intangible asset was 24 months. This amortisation policy has resulted in a non-cash charge of £1,485,000 (2008: £1,485,000) to the Statement of Comprehensive Income for the six month period ended 31 December 2009. Refer to note 7 for further details.

 

 

6. Loss Per Share

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

 

	6 months ended 31 December 2009 Unaudited	6 months ended 31 December 2008 Unaudited	Year ended 30 June  2009 Audited
Loss for the period from continuing operations (£'000)	(1,867)	(2,422)	(4,972)
Weighted average number of shares:
Basic	461,726,857	461,726,857	461,726,857
Diluted	461,726,857	461,726,857	461,726,857
Loss per share:
Basic	(0.40) p	(0.53) p	(1.10) p
Diluted	(0.40) p	(0.53) p	(1.10) p

 

 

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 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 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. Intangible Assets

 

	31 December 2009 Unaudited £'000	31 December 2009 Unaudited £'000	31 December 2009 Unaudited £'000	31 December 2008 Unaudited £'000	31 December 2008 Unaudited £'000	31 December 2008 Unaudited £'000
	Indefinite	Finite	Total	Indefinite	Finite	Total
Cost
Opening balance	10,786	25,901	36,687	10,786	25,901	36,687
Additions	-	-	-	-	-	-
Closing balance	10,786	25,901	36,687	10,786	25,901	36,687
Amortisation
Opening balance	(6,567)	(18,475)	(25,042)	(5,078)	(15,505)	(20,583)
Amortisation	-	(1,485)	(1,485)	-	(1,485)	(1,485)
Impairment	-	-	-	(1,489)	-	(1,489)
Closing balance	(6,567)	(19,960)	(26,527)	(6,567)	(16,990)	(23,557)
Net book value	4,219	5,941	10,160	4,219	8,911	13,130

 

 

				30 June 2009 Audited £'000	30 June 2009 Audited £'000	30 June 2009 Audited £'000
				Indefinite	Finite	Total
Cost
Opening balance				10,786	25,901	36,687
Additions				-	-	-
Closing balance				10,786	25,901	36,687
Amortisation
Opening balance				(5,078)	(15,505)	(20,583)
Amortisation				-	(2,970)	(2,970)
Impairment				(1,489)	-	(1,489)
Closing balance				(6,567)	(18,475)	(25,042)
Net book value				4,219	7,426	11,645

 

 

Intangibles include intellectual property of £36.7m, which comprises both assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC") 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 69 months. The Group does not have any internally generated intangibles.

 

The Board has reviewed the accounting policy and adopted an amortisation policy on those assets which have a finite life as indicated in note 5. As a consequence of adopting this policy, a non-cash charge of £1.5m (2008: £1.5m) has been recognised in the statement of comprehensive income during the period.

 

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 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 year end.

 

 

 

7. Intangible Assets (continued)

For QCC's royalty payments, which assume that QCC will continue as a going concern and be in a position to pay the royalties when they fall due, 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 year end. The additional probability factor of 50% reflects the current difficult market conditions in Canada and the extended project delays and pricing uncertainties.

 

Taking all these factors into account, the Directors performed a review of the fair value of the intangibles at 31 December 2009. As a result of this review, the Directors concluded that no impairment is necessary for the six month period to 31 December 2009.

 

 

8. Available for Sale Investments

	31 December 2009 Unaudited £'000	31 December 2008 Unaudited £'000	30 June 2009  Audited £'000
Unquoted securities
Opening balance	6,447	6,447	6,447
Additions	23	-	-
Closing balance	6,470	6,447	6,447

 

Unquoted securities represent the Group's investment in QCC and Paxton Corporation (Paxton), both of which are incorporated in Canada. At the balance sheet date the Group held a 20.44% (2008: 20.44%) share in the ordinary issued capital of QCC and a 3.75% (2008: 3.75%) share in the ordinary issued capital of Paxton. QCC is independent of the Group and is responsible for its own policy-making decisions. There have been no material transactions between QCC and the Group during the period or any interchange of managerial personnel. As a result, the Directors do not consider that they have significant influence over QCC and as such this investment is not accounted for as an associate. Furthermore, QCC share options and warrants in issue at the balance sheet date result in the Group having an effective diluted holding in QCC of 17.13% (2008: 18.34%).

 

The Group does not intend to dispose of its available for sale investments in the immediate future.

 

The Directors performed a review of the fair value of the unquoted securities at 31 December 2009. 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.

 

The QCC shares are currently valued at C$3.00 per share supported by a transaction in September 2009 whereby QCC shares were reported sold or transferred between third parties at a price of C$3.00. In the current reporting period it has become apparent that new technology in natural gas extraction from unconventional reserves is projected to result in increased future supply of low cost natural gas in North America. In the medium term natural gas will continue to have a price advantage over MSAR® in Canadian heavy oil production, delaying application of our technology. To counter the reduction in QCC's core business and as part of QCC's restructuring process, several new business opportunities and initiatives have been identified but are not yet fully agreed or quantified at this time and are at an early stage of development. QFI anticipate that further information to support the valuation of the Group's investment in QCC will be made available in the forthcoming months. In the interim the Directors resolved to maintain the current value of the QCC investment for the six month period to 31 December 2009.

 

The Paxton shares are currently valued at C$3.00 per share based on a successful placing of shares in May 2008. During the current period, there has been no indication of deterioration in Paxton's business prospects. As a result, the Directors have concluded that no impairment is necessary for the six month period to 31 December 2009.

 

 

9. Related Party Transactions

During the 2009 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 vests on 2 January 2011. All warrants must be exercised by 2 January 2014. Ian Williams transfers his QCC Director fees to the Company. Similarly, if all the warrants granted to Ian Williams are transferred to the Company and exercised at the balance sheet date, the Group's holding in the issued shared capital of QCC would increase from 20.44% to 20.52%. Other income of £23,000 (2008: £nil) has been recognised for the period relating to these warrants.

 

  

9. Related Party Transactions (continued)

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 6 months ended 31 December 2009 amounted to £88,000 (2008: £160,000), out of which £17,000 (2008: £51,000) was incurred for Directors' salaries, £4,000 (2008: £11,000) for staff salaries and £67,000 (2008: £98,000) was charged for rent and other office costs. Trade payables include £9,000 (2008: £79,000) payable at the balance sheet date to IESL relating to these services.

 

Non-executive Director Laurie Mutch is also a Director of Laurie Mutch & Associates Limited, which has provided consulting services to the Group. The total fees charged for the 6 months ended 31 December 2009 amounted to £11,000 (2008: £26,000), out of which £nil (2008: £12,000) was for consulting services and £11,000 (2008: £14,000) for non-executive Director fees. The balance payable at the balance sheet date was £5,000 (2008: £7,000).

 

Non-executive Director Ian Duckels is also a Director of Ritoil Associates Limited. The total fees charged for the 6 months ended 31 December 2009 related to non-executive Director fees and amounted to £11,000 (2008: £7,000), with a balance of £5,000 (2008: £7,000) payable at the balance sheet date.

 

Trade receivables of the Group include £172,000 (2008: £140,000) receivable from other related parties, which consists of £142,000 (2008: £111,000) from Quadrise Fuels US and £30,000 (2008: £29,000) from Wilton Petroleum Limited for shared personnel costs.

 

Transactions with related parties are unsecured and made at normal market prices. The receivable from Wilton Petroleum Limited of £30,000 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. All other outstanding balances at the end of the period are interest free and settlement occurs in cash.

 

 

10. Seasonality

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

 

 

11. Commitments and Contingencies

The Group has not entered into any finance or operating leases as at the balance sheet date. Additionally the Group has no capital commitments or contingent liabilities as at the balance sheet date. 

 

 

12. Events After the Balance Sheet Date

There are no events after the balance sheet date.

 

 

13. Corresponding Amounts

The condensed consolidated statement of comprehensive income for the period ended 31 December 2008 has been restated to show the revenue of £3,537,000 and related cost of sales of £2,821,000 on a grossed up basis which is consistent with the financial statements for the year ended 30 June 2009.

 

 

14. Copies of the Interim Report

Copies of the interim 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.

 

 

 

This information is provided by RNS

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