QFI.L Regulatory News (QFI)

4 March 2013

Quadrise Fuels International plc

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

Quadrise Fuels International plc presents its interim results for the six months ended 31 December 2012

HIGHLIGHTS

Financial

·; Cash reserves of £4.02 million as at 31 December 2012 (£2.44 million as at 31 December 2011), sufficient to progress to early stage commercial operations and sustainable revenues based on the current business plan and prospects.

·; The successful placing of 50 million new ordinary shares in October 2012, raising gross £3.50 million, which has served to strengthen the financial and shareholder base to allow the management to focus on driving the lead programmes forward as effectively as possible.

·; Loss after tax from continuing operations for the period of £3.35 million (2011: £1.60 million), which includes a non-cash charge of £1.8m (2011: £nil) for the impairment of available for sale investments.

·; Loss per share 0.45 pence (2011: 0.22 pence).

Operational

·; Key milestones passed in the Marine programme with the formulation and testing of Marine MSAR® 2 fuel, targeting the largest new generation marine propulsion engines.

·; Confirmation that Quadrise MSAR® technology is now approved for application in Saudi Aramco refineries providing additional impetus to the KSA project programme.

·; Selective additions to the active project portfolio with an oil major in Europe and a South American oil company - both being self-funding and having early development potential.

Commenting, Ian Williams, Executive Chairman, said:

"The Company has passed several key milestones in our lead programmes since mid 2012. This, together with selective project additions and a successful share placing, has served to broaden the base and materially de-risk the business. Quadrise continues to benefit from the enthusiasm, commitment and support of our partners in all major programmes, many of whom are leading companies in their industries at a global level. We are very appreciative of this support and believe, as they do, that our combined efforts will be well rewarded in the future.

Appreciation of the "Quadrise Proposition" continues to grow, evidenced by both direct enquiries and specialist and general media exposure. Increased awareness of the value-adding potential for refiners and the "green contribution" associated with production, distribution and combustion has become evident in our general business interactions.

Quadrise is increasingly seen to be a 'game changer', displacing established practice in some large and complex industries. The same industries are also known for rapid adaptation when leading players adopt new technologies. The profile of our projects and partners would indicate that Quadrise shareholders could reasonably expect to benefit in such circumstances."

-ENDS-

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

Chairman's Statement

Business Overview

This review prefaces the 2013 Interim Report and serves to update shareholders on material developments over the six months ended 31 December 2012 and post balance sheet events since the period end.

The Group interests which are directly managed by our 100% owned subsidiary, Quadrise International Limited ("QIL"), will again be the main focus of this review, as they continue to represent the most prospective, advanced and valuable programmes in the Group's portfolio. Recent developments have adversely affected our Canadian interests and the value of these investments has been revised at the half year. The background to these adjustments is provided in this review.

Directly Managed Interests

The QIL business offers an opportunity for consumers of heavy fuel oil to reduce their energy costs substantially by converting to Quadrise MSAR® emulsion fuels priced at a discount to the conventional alternative. In addition, in many applications, there are important environmental benefits to be gained relating to the nature of the fuel and its combustion characteristics.

The heavy fuel oil market, while in relative decline at a global level, is and will remain a very large market currently consuming in excess of 550 million tonnes per annum. At prices of around US$650 per tonne, annual sales values exceed US$350 billion.

The Quadrise value proposition is driven by a step-change in refining margins. This results from converting current practice in which heavy residues are diluted with high value distillates, to the production of Quadrise MSAR® where water and proprietary chemicals are used to dilute the heavy residue. The added value is realised from the "released" high value distillates and the price spread between crude oil, fuel oil and gas oil (diesel). Market fundamentals drive these spreads - especially the differential global demand growth between diesel fuel and heavy fuel oil.

The consensus among authoritative forecasters is that these price spreads will continue to widen in the medium and longer term - which should sustain and broaden the 'Quadrise Opportunity'. The prime causes are the burgeoning thirst for distillate transportation fuels in the developing economies, continuing bias towards diesel in Europe, continuing conversion to 'green energy' in mature economy power generation, and 'environment driven' fuel switching. These will further increase distillate demands on an already constrained refining industry.

During the period under review the fundamentals and market trends met the expectations of industry analysts resulting in a positive outlook for QFI at a macro level.

Important milestones were passed in several of our key programmes during the review period. In addition, QIL carefully extended its portfolio of prospects. In this regard, preliminary evaluations are progressing with a South American oil company and advanced joint scoping studies are underway with a global oil major. Associated QIL project definition and evaluation work will be largely funded by the client companies, and both opportunities have the potential to progress on a relatively fast track.

Notwithstanding advances achieved in core programmes and new additions, progress to assured fuel flows and associated revenues did not meet the objectives set out in 2011. The Company therefore required further funding to bridge the time to the delayed revenue phase, and the board elected to place 50 million new ordinary shares in October 2012. The shares were successfully placed at 7 pence per share, double the price at which funds had been raised in March 2011.

In combination, progress with our core programmes, the selective addition of new opportunities and the closing of a successful placing have served to materially de-risk the directly managed business portfolio.

Marine MSAR® Bunker Fuel

The Marine Fuels programme has been the focus of the technical development effort since mid 2012. The reformulated Marine MSAR® 2 fuel has set new standards in optimising both technical performance and formulation economics. This programme was informed by the results of the earlier Sorø Mærsk seaborne trial and the requirements of the most modern large scale marine propulsion engines for which the reformulated Marine MSAR® 2 fuel is designed.

As advised in a related RNS release in January 2013, the tests completed late 2012 at a leading engine manufacturer's state of the art test facility successfully demonstrated the general efficacy and performance of the fuel as intended.

Fuel trials at this stage of development become very exacting. The standard approach to pre-market testing of an "innovative fuel" targeting a major global market requires a wide variety of performance related aspects to be measured and assessed. This leads to a comprehensive report with associated recommendations. All parties involved were pleased with the Marine MSAR® 2 test results which represent a major milestone in the programme towards commercial operations. The report has usefully provided further understanding that will translate into operating practices and standards when Marine MSAR® 2 is in seaborne service, which in turn will make a valuable contribution to risk management in the early commercial phase.

The results achieved have served to underpin the confidence of all parties to the Joint Development Programme, and who have committed considerable effort and resources to progress to the stage now reached. Shipping operations are highly capital intensive and dependent on assured efficiency and reliability. Prudence clearly should prevail in the transition from development to early commercial introduction of our new proprietary Marine MSAR® 2 fuel.

Should the follow up programme advance as planned, the Company will be required to commit to production capacity by mid 2013, to assure supply to cover the early commercial volumes during the second half of the year. This is expected to be a progressive process which will be closely managed by Mærsk, QIL and the candidate oil refinery.

It is anticipated that an initial seaborne evaluation across a representative range of vessels and engines will be required prior to a full commercial roll-out. This programme is still subject to a number of third party approvals which are receiving attention. It will also require agreement to detailed plans, commercial terms and execution of associated contracts with the stakeholders in the period to mid 2013. QIL currently expects that the full commercial roll-out should start in earnest early in 2014.

At approximately 180 million tonnes per annum, the US$100 billion plus global marine bunker fuel oil market is large by any standard - both in volume and geographic spread. The Quadrise Marine MSAR® 2 market entry is expected to be assisted by the industry concentration and the dominance of the five major global bunker fuel "supply hubs", of which Singapore is the volume leader. Most major shipping companies lift their fuel at these hubs, which are also oil refining centres serving their respective supply envelopes. The principal implications of this are that QIL should be able to reach a very large sector of the global marine market through a highly rationalised supply infrastructure and selective relationships with key refining industry partners. Several global oil majors have their own or joint venture refining capacity in the top five bunker fuel supply hubs.

A number of developments in environmental standards affecting the marine market have gained momentum over the past year. The profile and intensity are expected to increase and lead to several new requirements impacting fuel quality and emissions standards. These developments are likely to favour the competitive position of Quadrise marine fuel as the combination of Marine MSAR® 2 together with the addition of 'emissions scrubbing' equipment on large ships should provide lowest cost compliance in both open ocean and Emission Control Area operations. In addition, superior mono-nitrogen oxide ("NOx") performance and particulate emissions ("Black Soot") would ensure further competitive advantage.

While there is some way yet to go, and prudence remains the watch word, the Company is cautiously confident that it is now on the cusp of commercial entry to this major global market. Quadrise has the product, partners and means to secure a material participation for Marine MSAR® 2 fuel, with the potential for continuous growth as our product proves its competitive advantage in commercial service.

QIL has been following the emergence of Liquefied Natural Gas ("LNG") as a possible marine fuel competitor. LNG has specialised storage and handing requirements which are expected to limit intrusion into mainstream shipping operations. In contrast Quadrise Marine MSAR® 2 has been formulated to replace marine fuel oil with no changes to the fuel handing systems other than segregation. It is, in all material respects, fully exchangeable with conventional bunker fuel oil in seaborne operational service.

Saudi Arabia

The Kingdom of Saudi Arabia ("KSA") was selected as a prime market for Quadrise technology several years ago as it is an oil-based economy. Crude oil and fuel oil will continue to be used for thermal power generation and as a prime energy source for water desalination and industrial steam generation. In addition, KSA has one of the highest growth rates in power consumption and per capita electricity demand.

Local demand growth for light petroleum products has led to a mismatch between the distillate fuels production from domestic refineries and the market requirements. This results in the KSA government having to deal with a large and growing net import requirement of high value diesel, petrol and kerosene, valued at around US$17 billion per annum.

Joint studies undertaken with Saudi Aramco specialists over an extended period of due diligence led, in 2012, to the approval of Quadrise MSAR® technology for application in Saudi Aramco refineries. A key result of the assessment has been the scope for increased local distillate production associated with transition from operating in "conventional fuel oil production mode", to operating in "Quadrise mode" in which heavy residues are converted into MSAR® power generation fuels. As an average total of 25 million tonnes of crude oil and fuel oil are consumed annually for thermal power generation, the business potential for Quadrise fuels is very large, and the benefit of associated distillate import substitution runs to billions of US dollars per annum.

Following the approval of our technology, QIL finalised contractual terms with our KSA partner, M/S Rafid Group for Trading and Contracting ("Rafid"). Rafid is a long established enterprise and provides a wide selection of energy related services to Saudi Aramco and other clients in association with its specialist partners. These range from seismic services to process plant fabrication, supply and installation and drilling rig supply and operations. Quadrise and Rafid are now working in very close association to progress an initial project which Saudi Aramco has advised should be sited in their largest refinery. The key to progress and priority for all stakeholders in the near term is to secure the commitment and participation of an identified large thermal power plant. This is a pre-requisite for final Saudi Aramco management approval. Progression to a substantial fully integrated KSA based project will become the focus of attention after the first process unit is installed and MSAR® fuel is produced to confirm the capabilities of the technology in service.

Past experience suggests it is unwise to be definitive on the timing of future programmes in development with very large oil companies - this is understandable, given the scale and complexity of their planning and development processes. However, in the KSA programme with Saudi Aramco, the direction has become clear and the requirements are now better defined. QIL and our partners are fully prepared to proceed quickly, and have offered an interim MSAR® fuel export alternative to enable a smaller scale fuel production programme to proceed pending agreement and preparations at the KSA based power plant. The timetable on which the project moves forward will clearly depend on the requirements and priorities of Saudi Aramco.

The next phase of the Saudi Aramco programme includes the preliminary scoping and detailed design and engineering work associated with the installation of the MSAR® process units and tie-ins to facilities and oil storage and movements systems. This should take place in parallel with the assessment and planning for any adaptations required in the power plant fuel supply systems. We now expect to finalise the terms on which Quadrise experts will assist Saudi Aramco project development specialists in this work during the second quarter of 2013.

Americas

PEMEX

The Group targeted Mexico as a key opportunity several years ago. This led to a series of reviews with PEMEX, the national oil company, to identify both Quadrise technology application opportunities in their refinery portfolio, and potential buyers for the associated MSAR® fuel production. There are many similarities with the Saudi Arabian circumstances, especially the relatively high level of Mexican distillate fuels demand which currently accounts for large volumes of imported products.

The joint evaluations indicated the scope for several profitable projects, but it was agreed that a 'single unit' demonstration plant should be installed at a selected refinery to start the programme. The associated contracts, setting the terms on which Quadrise will provide pre-production services, were negotiated with PEMEX and progressed to 'final draft' form in early 2012, but have not yet been executed. Being a state company, PEMEX is directly affected by changes in government policy and ministerial direction. It is expected that with the completion of the presidential elections, the associated appointments should have a positive effect on matters previously deferred - including the execution of the Quadrise agreements. Recent advice from senior executive level is that PEMEX remains supportive and wishes to proceed with the demonstration plant programme.

While the delays have been frustrating, the Company has not incurred any material cost on the Mexican programme over the past 18 months pending execution of contracts.

Central and South America

The Company reached agreement with Quadrise Canada Corporation in mid 2012 that QIL would take control of all MSAR® fuels business developments in Central and South America ("CSA"). An agreement was concluded with Nexidea Incorporated ("Nexidea") for the purpose of identifying and promoting project opportunities, with a view to the formation of related joint ventures to be led by QIL. Nexidea, a Dallas based company, specialises in refining process and logistics technologies and has long established consultancy relationships with the CSA refining industry which have greatly assisted direct access at senior level for the representation of Quadrise project proposals.

QIL and Nexidea ranked a limited number of opportunities, selecting the most prospective for early engagement. Having first executed a Non-Disclosure Agreement by year end 2012, the Company received and evaluated comprehensive live data on the refining operations of a large oil company. A high level feasibility assessment was then completed with their technical management and QIL was asked to provide a 'business case' for presentation to their management committee. The presentation was well received and is expected to progress to a joint project development assessment in which QIL and Nexidea will provide services on commercial terms. The assessment will also make recommendations regarding the form of the project. This could result in the first CSA joint venture extending from manufacturing to distribution and marketing along the lines of the model first envisaged by the QIL / Nexidea Agreement.

QIL and Nexidea will continue to investigate additional opportunities in CSA but until the Group has assured commercial traction in our core projects, further CSA developments may have to be postponed given the limits to Group resources.

Asia and Others

QIL continued to work with YTL PowerSeraya during 2012 under the renewed Memorandum of Understanding to establish a manufacturing source and supply chain of MSAR® fuel for their power plant on Jurong Island, Singapore. A range of sources has been reviewed and selective evaluations have been conducted with a number of refining companies. Joint refinery meetings will be continued in 2013 aimed at reaching an agreement for installation of a demonstration plant and subsequent fuels supplies.

The Company is also progressing an evaluation programme with an oil major, aimed at adding value to heavy residue streams associated with a proprietary process configuration. Development costs are largely being borne by the client. A positive outcome could lead to multiple opportunities across a number of similar refineries. The decision on a pilot installation or test may be taken during 2013.

Non - Managed Investments in Canada

The current investments share a common linkage and origin, all having been spawned from the initial participation in Quadrise Canada Corporation ("QCC"), originally formed for the purpose of creating and supplying a market for MSAR® fuels to substitute for high cost gas in steam generation boilers in the Alberta oil fields.

A number of recent North American energy related developments have adversely affected these investments. As these impacts are likely to persist beyond the medium term, QFI has carefully assessed the implications for the continuity and value of the companies concerned. An assessment conducted in the period under review with the management of the companies concerned has resulted in a more conservative approach than had previously been applied.

Quadrise Canada Corporation ("QCC") - 20.4% shareholding

Since inception, QCC pursued two parallel programmes:

1. a comprehensive Research and Development programme aimed at the creation and ownership of patented proprietary technologies associated with the core business of emulsion fuels; and

2. a technology services and MSAR® fuel marketing programme aimed at the substitution of gas in oil field steam generation - identified as a major Canadian energy growth opportunity in 2003-4.

By 2010, it became clear that the fundamentals leading to a collapse in the gas price were likely to endure and would effectively eliminate the oil field steam generation emulsion fuel opportunity in the medium, and possibly longer term.

QCC then researched other opportunities to exploit their specialised intellectual property and knowhow, and identified a number of potential new business prospects. The first of these involved the development of a novel Enhanced Oil Recovery ("EOR") technology. Various other specialised ventures have followed.

The EOR technology was 'spun off' and entities were created in which QFI was initially provided equity participation in proportion to its QCC interest at no cash cost. A merger with a junior oil production company followed leading to the present situation in which QFI holds 8.6% of Optimal Resources Inc. QFI also participated in an equity funding round in mid 2010 when the prospects of the EOR technology looked very promising.

During the QFI assessment of QCC, it became evident that QCC had very limited remaining resources and would be advised to focus exclusively on a few 'best ranked' possibilities. This led also to the changes in CSA described above.

The Company maintained a close liaison with QCC in the recent past to ensure an informed and realistic perspective on the prospects for the remaining active programmes. This has led to a decision to reduce the carried value of the QCC shares from C$0.96 to C$0.41 per share. Together with other minor adjustments this amounts to a write down of C$2 million, reducing the carry value to C$1.54 million as at 31 December 2012.

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

ORI, as it had evolved by early 2012, became a combined:

·; Junior oil exploration and production company with its own small oil field in Lloydminster, which straddles the provincial border between Alberta and Saskatchewan in Canada; and

·; EOR company with cost competitive proprietary technology for application in its own operations and under contract in third party client oil production from clastic reservoirs.

ORI last raised funds in late 2011 and became reliant on oil sales revenues from previously abandoned wells in Lloydminster brought back into production with the EOR technology.

An independent review and report issued by incoming management mid 2012 set a new direction intended to progress both aspects of the business - production and client service. However, a series of setbacks has since led to a situation where the continuity of ORI could be at risk. These include:

·; Failure of the production wells and loss of revenue through 'watering out';

·; Severe winter conditions curtailing operations;

·; A series of delays in permitting, delivery of equipment and chemicals; and

·; Inability to secure client service contracts pending independent verification of the technology.

In addition, and more importantly, the sea-change in North American oil and gas production and related values over the past half year has adversely impacted the Canadian oil industry. Canadian producers are compelled to use the pipeline system to deliver their production to US based refiners. The incremental use of shale oils and light crude from additional US horizontal drilling programmes has produced a glut of availability in the USA closer to the refineries. The realised price has dropped from almost parity with WTI ("West Texas Intermediate" - the price reference crude) to a near 50% discount off WTI. Furthermore, it seems unlikely that the fundamentals will change even in the medium term. At these prices, there is hardly a market for conventional production and higher cost operations are the first to be shut down. This includes much of the "conventional EOR" operations which generally involve substantial additional cost. In such circumstances ORI will be unable to progress a client service business in North America in the foreseeable future.

While ORI management have a number of initiatives in hand which could extend the life of the company, QFI has decided that it would be prudent to write down the value of the holding to equate an estimated "risked liquidation value". This virtually eliminates all of the remaining carried value which is reduced from C$3.9 million to C$0.125 million as at 31 December 2012.

Paxton Corporation ("PC") - 3.8% shareholding

When PC was formed by the founding shareholders of Paramount Oil and Gas, QCC shareholders were invited to participate for up to 50% of the initial placing. QFI did subscribe on a proportionate basis to secure its present shareholding but has since been diluted.

PC's activities and prospects are covered at some length in the QFI 2012 Annual Report. PC is adequately funded to assure continuity pending commitment to its first major project - for which substantial additional equity funds will be required. Financial markets are presently considered to be largely unresponsive to new technology related risk, causing the intended placing to be deferred until markets are judged to be less risk-averse.

PC holds a 30% effective interest in Clean Energy Systems ("CES") which has promising technology now licensed to Mærsk Oil. Mærsk have since created a service business named TriGen Technology to offer associated high efficiency steam and power related services to industry.

The QFI interest in PC is considered to be carried at fair value and available for sale.

Financial Position

The Group held cash and cash equivalents of £1.65 million as at 30 June 2012. As advised above, it became evident early in the third quarter of 2012 that additional equity funds would be required to cover the core business programme through to assured revenues. This led to the successful placing of 50 million new ordinary shares in October 2012, raising £3.50 million before expenses, which has served to strengthen the financial base to allow the management to focus on driving the lead programmes forward as effectively as possible. The achievement of a placing price that was 100% higher than that applied in March 2011 was gratifying and reflective of the progress made in the key projects over the period. Since that time, the QFI share price has moved strongly and appears to have stabilised above 10 pence per share. The QFI share price performance was ranked 5th in a peer group of 106 junior energy sector companies over the 12 months to December 2012.

No exceptional expenditures were incurred during the period. Operating costs were generally held to planned levels, the majority being associated with staff, office and travel, and contracted services associated with project development programmes. No bonuses were paid to senior executives or executive directors during the period in review.

The Group held £4.02 million in cash and equivalents on 31 December 2012. A strategy review held in December 2012 found that this is expected to be sufficient to fund the Group through to the early revenue phase providing the core programmes are not unduly delayed. It is anticipated that most of the cost of pre-commercial development work in the coming 12 months will be recovered from clients thereby reducing the effective net cash burn of the Group.

The Group recorded a loss of £3.35 million for the 6 months period to 31 December 2012 (2011: £1.60 million), of which £1.82 million related to the impairment of the Canadian investments, a non-cash item. In addition, the Revaluation reserve was reduced by £1.87 million as at 31 December 2012 to eliminate part of the previous upward revaluation of the Canadian investments.

Outlook

The Company made good progress in 2012 and is well positioned to achieve several key breakthroughs in 2013.

Interactions with the institutional investment community indicate that Quadrise continues to gain recognition and is increasingly 'on the radar' in some sectors. We are certainly very aware and appreciative of support for the Company among a wide group of private shareholders who take a keen interest in our progress.

The Canadian developments are disappointing, and an unfortunate outcome for the Canadian management who have persevered for over a decade to create value for their shareholders. These interests have not been the focus of QFI's core activities and the Company's future prospects are not dependent on the Canadian investments or expertise. As a result, QFI should feel little practical impact from the present difficulties faced by QCC and ORI but remains available to advise and assist where this could help in preserving value.

The selective addition of two manageable QIL self-funding projects with potential for early development has served to broaden the opportunity base and de-risk the business.

Quadrise is increasingly referred to as a 'game changer' in some very large industries with long established practices. The same industries are, however, also renowned for rapid adaptation when lead players adopt new technologies to gain competitive advantage. The next two years may be seminal in determining the extent to which this will prove to be the case - as the 'game changing' becomes a reality.

Ian Williams

Chairman

1 March 2013

Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 31 December 2012

Condensed Consolidated Statement of Financial Position

As at 31 December 2012

The interim accounts, accompanying policies and notes 1 to 13 (forming an integral part of these interim accounts), were approved and authorised for issue by the Board on 1 March 2013 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 2012

Condensed Consolidated Statement of Cash Flows

For the 6 months ended 31 December 2012

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 2012, 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 2012, 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 2012 were approved by the Board on 1 March 2013.

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 2012, the remaining amortisation period for this intangible asset was 24 months. The amortisation of this intangible has resulted in a non-cash charge of £685,000 to the statement of comprehensive income for the 6 month period to 31 December 2012 (for the 6 month period to 31 December 2011: £684,000).

5. 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 41.75 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.

6. Property, plant and equipment

7. Intangible Assets

Intangibles comprise intellectual property with a cost of £36.69m, including assets of finite and indefinite life. QCC's royalty payments of £7.69m and the MSARÒtrade name of £3.10m 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 £25.90m, 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 £685k has been recognised in the statement of comprehensive income for the 6 month period to 31 December 2012 (for the 6 month period to 31 December 2011: £684,000).

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 2012, 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 2012.

8. 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.

At the statement of financial position date, the Group held a 20.44% share in the ordinary issued capital of QCC, a 3.75% share in the ordinary issued capital of Paxton, a 9.54% share in the ordinary issued capital of ORI and a 16.86% share in the ordinary issued capital of Porient.

QCC is independent of the Group and is responsible for its own policy-making decisions. There have been no material transactions between QCC and the Group during the year or any interchange of managerial personnel. As a result, the Directors do not consider that they have significant influence over QCC and as such this investment is not accounted for as an associate. Furthermore, QCC share options and warrants in issue at the statement of financial position date result in the Group having an effective diluted holding in QCC of 20.52%.

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

Given that there is no active market in the shares of any of above companies, the Directors have determined the fair value of the unquoted securities at 31 December 2012. In this regard, the Directors considered other factors such as past equity placing pricing and assessment of risked net present value of the enterprises to arrive at their conclusion on any impairment for all of the unquoted securities.

The QCC shares were valued at CAD$0.96 on 1 July 2012. Shareholder communications received during the period to 31 December 2012 indicate that the current business model of QCC remains uncertain, and therefore it is still appropriate to base the fair value of QCC on a discounted net asset basis, looking only at the recoverable value of its net assets, in order to determine whether there has been any material impairment to the carrying value of QCC shares as at 31 December 2012.

Using the discount net asset basis, the value per share as at 31 December 2012 has been calculated at CAD$0.41, indicating a material impairment from the current carrying value of CAD$0.96 per share. The Directors have therefore concluded that the 3,682,500 QCC shares held at 31 December 2012 should be valued at CAD$0.41 per share, resulting in an impairment charge of £1.3m. The total valuation of the 3,682,500 shares held in QCC as at 31 December 2012 is £928,000.

The Paxton shares were valued at CAD$4.00 per share as at 1 July 2012. Shareholder communications received since 1 July 2012 show that Paxton continues to make progress in its business activities and there is therefore no indication of impairment in this investment. Based on this, the Directors have concluded that the value of CAD$4.00 per share continues to reflect the fair value of the 652,874 shares held in Paxton as at 31 December 2012. The total value of the Paxton investment as at 31 December 2012 is £1.62m.

ORI has a dual business model, whereby it acts as a Junior Oil Company - to secure an equity share in associated extended recoverable proven oil reserves, and a Service Provider - to provide EOR technology services to other oil producers. Due to the fall in the price of Canadian crude oil during the period, the long term viability of ORI's Service Provider business has been placed into doubt. As a result of this, the Directors have determined that ORI should now be valued on a discounted net asset basis. The Directors have concluded that the 5,682,500 shares in ORI should be valued at CAD$0.02 per share, resulting in an impairment of CAD$0.67 per share. This results in an impairment charge of £2.4m and a revised valuation of ORI of £79,000.

The Porient shares were received by the Group on 8 June 2010 for no consideration. As Porient was then in its very early stages of development and was yet to be defined into a business with active projects, it had very little market presence or value. Based on this, the Directors concluded that the investment should be fair valued on acquisition to its nominal value of CAD$0.001 per share. As Porient is still in the early stages of its development, the Directors have concluded that the investment should continue to be valued at CAD$0.001 per share. The total value of the Porient investment as at 31 December 2012 is £2,000.

9. Non-controlling Interest

Non-controlling interest at 31 December 2012 represents management's 12.5% 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 87.5% interest.

10. Related Party Transactions

During the period ended 31 December 2011, International Energy Services Limited ("IESL"), a subsidiary of International Energy Group AG ("IEG"), the promoter and single largest shareholder of Quadrise Fuels International plc, provided services for QFI under the terms of a service agreement. The service charge for the six months to 31 December 2011 amounted to £18,000, out of which £7,000 was incurred for employees' salaries and related costs, and £11,000 was charged for rent and other office costs. Trade payables included £nil payable at the statement of financial position date to IESL relating to these services. For the period ended 31 December 2012, the service agreement with IESL is no longer in operation.

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 2012 amounted to £53,000, comprising £33,000 for consulting services and £20,000 for Non-Executive Director fees (for the six month period to 31 December 2011, total fees were £35,000, comprising £17,000 for consulting services and £18,000 for Non-Executive Director fees). The balance payable at 31 December 2012 was £18,000 (as at 30 June 2012: £17,000).

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 2012 related to Non-Executive Director fees and amounted to £12,000, (for the six month period to 31 December 2011, total fees were £12,000, solely comprising Non-Executive Director fees) with the balance of £7,000 payable at 31 December 2012 (as at 30 June 2012: £7,000).

Trade receivables of the Group include £180,000 (30 June 2012: £167,000) receivable from other related parties, which consists of £180,000 (30 June 2012: £167,000) 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% pa effective from the date of the advance until repayment in full of the advance.

For the period ended 31 December 2012, the Company has recorded a provision for bad debt of £nil (30 June 2012: £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.

11. Seasonality

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

12. 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. 

13. 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.