QFI.L Regulatory News (QFI)

21 Mar 2007 12:00

Quadrise Fuels International PLC21 March 2007 21 March 2007 Quadrise Fuels International plc ("QFI", "Quadrise" or "the Company") Quadrise Fuels International plc (AIM: QFI), specialist manufacturers of MSARemulsion fuel for power plant and refinery fuelling and steam generationapplications, today announces its interim results for the period from 10 October2005 to 31 December 2006. HIGHLIGHTS Financial • No debt and £ 10.62 million in cash reserves at 31 December 2006. • Operating costs contained at modest levels through outsourcing and shared services. • Loss after tax of £ 6.71 million, which includes a non-cash charge of £ 5.19 million for amortisation of intangible fixed assets reflecting a prudent and conservative accounting policy. • Resultant loss per share 1.58 pence. • Uplift in value of Quadrise Canada Corporation shares, resulting in a net increase in equity of £ 1.40 million. • Acquisition of 8% interest in Paxton Corporation (Canada) ("Paxton") for £ 0.2 million. Operational • Phase 1 substantially completed by end 2006 led to a greatly enhanced understanding of business potential and produced a selective list of key early business opportunities. • Phase 2 leading to selective early commercial contracts is progressing. • Two demonstration MSAR fuel trials are underway in client facilities. • Additional short listed refuelling prospects are in development with further announcements anticipated. Strategic • A two-pronged strategy has evolved to tackle immediate power plant and refinery refuelling prospects, whilst pursuing fuelling of future large-scale oil fired power generation capacity increases in the Middle East. • The Paxton business model involves burning MSAR fuel for the co-generation of power and CO2 for enhanced oil recovery, with coincident CO2 sequestration, avoiding release of green house gases. Paxton is potentially a very substantial future consumer of MSAR fuels creating additional sales potential for associate company Quadrise Canada Corporation. Commenting on the interim results, Bill Howe - Chief Executive of Quadrise said: "We had planned for a modest loss during the period but this was increased dueto the prudent amortisation of certain intangible assets. The Company continuesto be debt-free and our cash position remains strong. On this basis, we areadequately funded to cover our projected normal operating expenses to the end of2008. The QFI team has completed very valuable work during Phase 1, providing newinsights and defining new opportunities. A key result has been the recognitionand understanding of the scale of opportunity to add substantial value at theinterface between QFI and the oil refining industry. The Company is uniquely placed and equipped to promote a paradigm shift invaluation and management of the energy chain from crude oil through refining tofuel supply for steam and power generation. This is currently being applied tospecific business opportunities by QFI which we anticipate to translate intofull scale project assessment during the course of 2007 and progress tocommercial fuel supply contracts thereafter." MSAR is a registered trade mark of Quadrise Fuels International plc. For further information, please contact: Quadrise Fuels International plcBill Howe, CEOHemant Thanawala, CFOT: +44 (0)20 7550 4930 Smith & Williamson Corporate Finance LimitedAzhic Basirov / Siobhan Sergeant+44 (0)20 7131 4000 Parkgreen CommunicationsSimon Robinson / Victoria Thomas+44 (0)20 7493 3713 Notes to editors: Quadrise Fuels International plc ("Quadrise") produces an emulsion fuel as a lowcost substitute for conventional heavy fuel oil ("HFO") for use in powergeneration plants and large steam raising or energy consuming industries. In manufacturing its fuels, Quadrise uses the least valuable elements of the oilbarrel, thus providing a very cost effective product whilst simultaneouslyfacilitating a means to market for the least desirable heavy crudes and refineryderived residues. The emulsion fuel product, termed MSAR (Multiphase Superfine Atomised Residue),has superior combustion characteristics to conventional HFO and coal, and hascomparable or superior environmental performance in respect of greenhouseemissions. In addition to providing operating cost savings MSAR may facilitate the upwardrevaluation of resource or industrial plant assets by extending their economiclife or increasing their on-line load factor. Quadrise adopts a number of business models, including on site fuels manufactureat refineries, at point of use - either adjacent to or on customers facilities,and at central manufacturing facilities acting as bulk fuel suppliers. Chairman and CEO's Statement Quadrise Fuels International plc ("QFI" or "Quadrise" or "the Company") has madevery substantial progress since its admission to trading on AIM in April 2006.This has resulted in the successful completion of Phase 1, as described below,and progressing well into the Phase 2 of our business development programme. Completion of Phase 1 Following the successful share placing and admission process in April 2006, ourattention moved directly to the key elements of Phase 1 of the businessdevelopment programme. This involved a number of related research, review andmarketing activities designed to identify, confirm and select the mostprospective early opportunities for the application of our technology and theassociated sales of Quadrise MSAR fuel. An important objective of Phase 1 was to secure agreement to test MSAR fuels inclient facilities. Programmes for test burns of MSAR fuel are underway with aleading Far East refiner and a North African power generator. In both cases, weare optimistic that the tests will lead to future commercial application of ourtechnology. The review process has provided the management with a basis on which to focus ona limited number of prime business opportunities. The strategy now is to furtherprioritise these core prospects, which comprise some 2000MWe of power capacity,and secure MSAR fuel supply contracts as early as possible to financiallyunderpin the business. Identified prime prospects, if secured, could result inrevenues for QFI in excess of USD $200 million per annum when fully operational. Phase 1 also included a comprehensive international survey of oil refinerieswhich could be candidates for the supply of low value vacuum residue suitablefor MSAR fuel feedstock. This work also served to identify and quantify thepotential for significant additional profit generation in certain crude oilrefining processes which would result when heavy residues are disposed tofeedstock for the manufacture of MSAR fuel. QFI is confident of contracting witha number of refineries, not only to secure our feedstock requirements but alsoto provide them low-cost fuel for internal use within their boilers andfurnaces. This internal refinery fuel firing market was identified in the Phase1 programme and could become a large market for QFI fuels in its own right. Thiswas not anticipated at the time of the Company listing last April. Progressing into Phase 2 The Company is now embarking on Phase 2 of our business development programme,which has two thrusts: 1. The upgrading of our identified core prospects to bankable MSAR supplycontracts in joint development programmes with our potential clients. This willtypically involve completion of preliminary financial analyses followed bynegotiation of binding MOU's and moving thereafter to an agreed joint programmeof design, estimating and project development. The detailed scope of work anddefinitive capital requirements established in this process, together withestimates of operating costs, are all prerequisites to finalising terms andclosure of each MSAR supply contract. Preliminary financial analyses are nearingcompletion for a number of the core prospects. 2. The targeted development of business opportunities in highlyprospective oil-fuelled power generation markets. In countries which continue tobuild new oil-fuelled facilities for power generation and desalination,significant advantage could be realised from the application of Quadrisetechnology. This is particularly the case in certain Middle Eastern states. QFI has an Alliance Agreement with Akzo Nobel Surface Chemistry AB ("AkzoNobel") providing for close cooperation on the development of businessopportunities and associated specialist services and research programmes. Anexcellent working relationship has been forged with the Akzo Nobel managementand specialists whose expert assistance in progressing our core projects ishighly appreciated. Associated Companies Quadrise Canada Corporation ("QCC"), the associate company in which QFI owns a20.9% equity position, continues to develop well. QCC secured their firstcontract during the reporting period from Paramount Resources for its SurmontProject. This project involves the processing of heavy oil into MSAR fuel forthe production of steam and power in heavy oil production and anticipates theconsumption of 3,000 BPD of MSAR from late 2009; rising ultimately to 13,000BPD. QFI has also acquired an 8% interest in Paxton Corporation. Paxton, a Canadiancompany, has been established to co-generate power and CO2 through thecombustion of MSAR. The CO2 will be used for enhanced oil recovery purposes andwill be sequestered underground in the process. This concept permits powergeneration without the release of greenhouse gases and the associated impact onglobal warming. The development of the Paxton business is expected to contributea substantial additional market for MSAR sales by QCC. Financial Performance Cash reserves for the Group stood at £10.62 million as at 31 December 2006.These are considered sufficiently adequate for normal business developmentactivities through to the end of 2008. The Company's outsourcing and shared services policy contributed to thecontainment of operating expenditure at relatively modest levels through theperiod to substantive completion of Phase 1. As major projects progress to contract closure, specific associated financingarrangements will be required to take them forward. QFI's contribution to costsand capital expenditure for specific projects will depend on their particularfeatures and the extent of QFI's interest. Project funding should generally beexpected to be raised against each business prospect in question throughconventional means. Transition to IFRS from UK GAAP The Board has elected to transition to IFRS from UK GAAP for this reportingperiod, with the effective transition date being 10 October 2005. This hasrequired a review of all the accounting policies to ensure their appropriatenesswith IFRS. As part of this review, the Board commissioned an independent valuation of theintangible fixed assets which formed part of the reverse takeover transaction inMarch 2006. This was to identify the key components therein, to confirm theirfair values at the time and adopt the appropriate policy. As a result of thisreview, the Board has adopted a policy for the amortisation of those assetswhich have a finite life. A key asset that fits this description is thecombination of rights secured under the Akzo Nobel Alliance Agreement, togetherwith other unpatented technologies, industry know-how and trade secrets, whichdrive the principal business case for QFI. Under the present arrangements, theAkzo Nobel Alliance Agreement, while intended to continue on an evergreen basis,could be terminated by Akzo Nobel or QFI on a 12 months' notice at any timeafter 20 December 2009. Whilst the directors believe that it is likely to be inthe commercial best interests of both parties to continue the agreement beyond20 December 2009, there can be no guarantee that this will occur. The directorshave, accordingly, taken a prudent position to amortise this intangible assetover the remaining lifespan of the current agreement. This approach has resultedin a non-cash charge of £5.19 million for the period. The directors have alsowritten-off goodwill arising on acquisition of Zareba plc of £0.58 millionduring the period. The investment in our associate, Quadrise Canada Corporation, has been fairvalued to £15.71 million as at 31 December 2006, based on a price per share ofCDN $ 9.75 resulting in an increase in equity, net of deferred tax provision, of£1.4 million in the period. Directors and Staff The Company has a relatively small core team of high quality professionals. Theteam quickly adopted an effective and constructive approach to combining theirefforts in the pursuit of our key objectives. The team is complemented by awider group of highly experienced specialist outsourced consultants, most ofwhom have an equity interest in the Company. QFI management will be the key ingredient in successfully realising the futurecontracts that will put the Company on its path to a prosperous future. Ourthanks and appreciation are extended to them for the dedication and enthusiasmshown in progressing opportunities and creating recognition for the Company in achallenging and active energy market. Outlook QFI is able to combine and harness Akzo Nobel technologies with our own experttechnical and commercial understanding of oil refining and related oil economicsand our specialist knowledge of emulsion fuels combustion. The synergies offered by the novel combination of these elements creates avaluable new paradigm for the energy chain from crude oil through refining tofuel supply for steam and power generation. This novel perspective is currentlybeing applied to specific business opportunities by QFI. We anticipate that thiswill translate into full scale project assessment during the course of 2007 andprogress to commercial fuel supply contracts thereafter. It was announced last year that Orimulsion, the world's most prolific emulsionfuel, would cease manufacture in December 2006. This has left certain powergenerators stranded and without a cost competitive comparable fuel supply,further enhancing our prospects. With prevailing high oil prices anticipated to continue, our ability to supply alower cost alternative to conventional fuel oil is an extremely positive factorin our proposition to the oil fuelled power generation industry. Ian Williams Bill HoweChairman Chief Executive Officer Independent Review Report to Quadrise Fuels International plc Introduction We have been instructed by the Company to review the financial informationcomprising the Consolidated Balance Sheet, Consolidated Income Statement,Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flowand notes thereon and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for theCompany for the purpose of their interim report and for no other purpose. We donot, therefore, in producing this report, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or intowhose hands it may come save where expressly agreed by our prior consent inwriting. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the Directors. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board as if that Bulletin applied. A reviewconsists principally of making enquiries of the Directors and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Auditing Standards and thereforeprovides a lower level of assurance than an audit. Accordingly we do not expressan audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the period ended 31December 2006. MRI Moores Rowland LLPChartered Accountants3 Sheldon SquareLondon W2 6PS 20 March 2007 Consolidated Balance SheetAs at 31 December 2006 2006 £ K UnauditedAssetsNon-current assetsIntangible assets 31,521Investments held-for-sale 15,914Equipment 1 -------Non-current assets 47,436 ------- Current AssetsCash and cash equivalents 10,615Trade and other receivables 206Prepayments and other current assets 43 -------Current Assets 10,864 -------TOTAL ASSETS 58,300 =======Equity and liabilitiesNon-current liabilitiesDeferred tax liabilities 600 -------Non-current liabilities 600 ------- Current liabilitiesTrade and other payables 3,730Tax liabilities 39Accruals and other current liabilities 176 -------Current liabilities 3,945 ------- Equity attributable to equity holders of the parentIssued capital 4,617Share premium 53,565Cumulative translation adjustment 34Revaluation reserve 1,402Other reserves 842Accumulated losses (6,705) ------Total shareholders' equity 53,755 ------TOTAL EQUITY AND LIABILITIES 58,300 ====== Consolidated Income Statementfor the period 10 October 2005 to 31 December 2006 Note 2006 £ K UnauditedContinuing operationsOther income 367Write-off of goodwill on acquisition 4 (584)Write-down of intangible assets 4 (5,188)Administration expenses (1,686) -------Operating loss (7,091)Finance costs (27)Finance revenue 340Write-off investment/asset 4 104Foreign exchange gains 8 --------Loss before tax (6,666)Taxation (39) --------Loss for the period (6,705) ========Earnings per share - pence loss per shareBasic 5 (1.58)Diluted 5 (1.55) Consolidated Statement of Changes in EquityAs at 31 December 2006 2006 £ K Unaudited Loss for the financial period (6,705)Share options reserve 320New shares issued 50,163Capital contribution 8,019Reverse acquisition reserve 522Revaluation of investments held-for-sale 1,402Cumulative translation adjustment 34 -------Shareholders' funds at 31 December 2006 53,755 ======= Consolidated Statement of Cash Flowsfor the period 10 October 2005 to 31 December 2006 2006 £ K Unaudited Operating activitiesLoss before tax from continuing operation (6,666)Interest expense 27Interest income (340)Depreciation 1Write-off of goodwill on acquisition 584Write-down of intangibles 5,188Foreign exchange (gain) (8)Share-based payments expense 320Other gains and losses (264)Write-off capitalised development costs 856Working capital adjustments:Increase in trade and other receivables (1,331)Increase in trade and other payables (633)Income tax paid (39) -------Net cash outflows from operating activities (2,305) -------Investing activitiesPurchase of investments held-for-sale (639)Acquisition of subsidiaries, net of cash acquired 1,255Interest received 340 -------Net cash flows used in investing activities 956 -------Financing activitiesProceeds from issue of shares 12,941Transaction costs incurred with share issues (1,021)Interest paid (27) -------Net cash used in financing activities 11,893 ------- Net increase in cash and cash equivalents 10,544Net foreign exchange differences 71 -------Cash and cash equivalents at 31 December 2006 10,615 ======= Notes to the Group financial statements 1. General Information Zareba plc changed its name to Quadrise Fuels International plc ("QFI","Quadrise", "Company") on 19 April 2006 via an Extraordinary General Meeting.QFI and its subsidiaries ("the Group") are engaged principally in themanufacture and marketing of emulsified fuel for power generation and steamraising activities. It is listed on the AIM market of the London Stock Exchange. QFI, the legal parent company was incorporated on 22 October 2004 as a limitedcompany under the Companies Act with registered number 5267512. It is domiciledat, and is registered at Parnell House, 25 Wilton Road, London. SW1V 1YD. The information for the period ended 31 December 2006 does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. A copyof the statutory accounts for Quadrise Fuels International plc to 31 March 2006,company only, prepared under UK GAAP has been delivered to the Registrar ofCompanies. The financial statements were authorised for issue on 20 March 2007by the Board of Directors. 2. Accounting policies (2.1) Basis of preparation The consolidated financial information presented has been prepared on ahistorical cost basis, except for available-for-sale financial and derivativefinancial instruments which are valued at fair value. The consolidated financialstatements are presented in UK sterling ("£"), due to the nature of the Group'sactivities and the fact that the Group is presently expected to transact more ofits business in UK sterling than any other currency. All values are rounded tothousands of pounds except when otherwise indicated. These financial statements have been prepared in accordance with InternationalFinancial Reporting Standard Number 34, Interim Financial Reporting, and therequirements of International Financial Reporting Standard Number 1, First-timeadoption of International Financial Reporting Standards, ("IFRS"), and IFRICinterpretations issued, and effective, or issued and early adopted, as at thedate of these statements. The preparation of financial statements in conformity with IFRS accountingprinciples requires the use of estimates and assumptions that affect thereported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of expenses during the reporting period.Although theses estimates are based on management's best knowledge of theamount, event or actions, actual results ultimately may differ from thoseestimates. The Board has reviewed the accounting policies set out below andconsiders them to be the most appropriate to the Group's business activities. (2.2) Basis of Consolidation These interim consolidated financial statements of the Group comprise thefinancial statements of Quadrise Fuels International plc and its subsidiaries asat 31 December 2006. The financial statements of the subsidiaries are preparedfor the same reporting period as the parent company using consistent accountingpolicies. On 19 June 2006 the Company announced the change of its year-end from31 March to 30 June. All intercompany balances, transactions, income and expenses and profits andlosses resulting from intra-group transactions are eliminated in full.Subsidiaries are fully consolidated from the date of acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control is normally evident when QFI, or a company which it controls, owns morethan 50% of the voting rights of a company's share capital. Investments inassociated companies (generally investments of between 20% to 50 % in acompany's equity) where significant influence is exercised by the company areaccounted for using the equity method. An assessment of investments inassociates is performed when there is an indication that the asset has beenimpaired or the impairment losses recognised in prior years no longer exist.When the Group's share of losses exceeds the carrying amount of the investment,the investment is reported at nil value and recognition of losses isdiscontinued except to the extent of the Group's commitment. Investments wherethe Company holds less than 20% are accounted for on a fair value basis inaccordance with IAS 39 and are held as investments held-for-sale. The Board has reviewed the accounting policies set out below and considers themto be the most appropriate to the Group's business activities. (2.3) Changes in accounting principles The accounting policies adopted are consistent with those of the previousfinancial periods except for: a) Adoption of IFRS Previously the Company and its subsidiaries prepared their financial statementsin accordance with UK GAAP. The Group elected to publish its first consolidatedfinancial statements to 31 December 2006 under IFRS with its transition date toIFRS being 10 October 2005. b) Introduction of IFRS - First time adoption The rules for first time adoption of IFRS are set out in IFRS 1, First-timeAdoption of International Financial Reporting Standards. In general, selectedaccounting policies must be applied retrospectively in determining the openingbalance sheet under IFRS. However, IFRS 1 allows a number of exemptions to thisgeneral principle. Exemptions to which the Group has taken advantage are notedbelow: Adoption date for subsidiaries The Group has elected not to adopt IFRS for its subsidiaries as permitted byIFRS 1 and will continue to report on local GAAP for the foreseeable future. Fixed asset valuation The Group has elected not to measure fixed assets at fair value on the date oftransition. c) Other changes i) During the period Quadrise Power Systems AG changed its accounting policiesto write-off development costs as incurred, (note 4c). ii) The Group has adopted the following new and amended IFRS and IFICinterpretations during the period. Adoption of these revised standards andinterpretations did not have any affect on the equity of the Group. They didhowever give rise to additional disclosures: - IAS 1 and 19 Amendment - Actuarial Gains and Losses, Group Plans and Disclosures - IAS 21 Amendment - The Effect of Changes in Foreign Exchange Rates - IAS 39 Amendment - Cash Flow Hedge Accounting of Forecast Intra-group Transactions - IAS 39 Amendment - The Fair Value Option - IAS 39 and IFRS 4 - Financial Guarantee Contracts - IFRIC 4 Determining whether an arrangement contains a Lease iii) The Group has not elected to early adopt IFRS 7, IAS 1 amended of IFRIC 8,IFRIC 7, IFRIC 9, IFRIC 10, IFRIC 11 and IFRIC 12. Adoption of these standardsis anticipated to have no effect on the financial statements of the Group. (2.4) Significant accounting judgements and estimates Judgements In the process of applying the Group's accounting policies, management has madethe following judgements, apart from those involving estimations, which have themost significant effect on the amounts recognised in the financial statements: Estimates and assumptions The key assumptions concerning the future and other key sources of estimationuncertainty at the balance sheet date that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities with thefinancial period are discussed below. Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis.This requires an estimation of the "value in use" of the cash-generating unitsto which the goodwill is allocated. Estimating the value in-use required theGroup to make an estimate of the expected cash flows from the cash-generatingunit and also to choose a suitable discount rate in order to calculate thepresent value of those cash flows. Other intangible assets The Group determines whether the intellectual property is impaired if indicationof an impairment come to management's attention. (2.5) Revenue recognition Revenue is recognised to the extent that is probable that the economic benefitswill flow to the Group and the revenues can be reliably measured. To date theGroup is in a pre revenue-generating start-up phase. (2.6) Foreign currency translation The consolidated financial statements are presented in UK sterling, which is theCompany's functional and presentation currency. Each entity in the Groupdetermines its own functional currency and items included in the financialstatements of each entity are measured using that functional currency.Transactions in foreign currencies are initially recorded using the functionalcurrency rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are re-translated at thefunctional currency rate of exchange ruling at the balance sheet date. Alldifferences are taken to the income statement. Non-monetary items measured atfair value in a foreign currency are translated using the exchange rates at thedate when the fair value was determined. The functional currency of the foreign operations, Quadrise Power Systems AG, isUS Dollars. As at the reporting date, the assets and liabilities of thissubsidiary are translated into the presentation currency of the Group, namely UKSterling, at the rate of exchange ruling at the balance sheet date and, itsincome statement is translated at the weighted average rate for the period. Theexchange differences arising on the translation are taken directly to a separatecomponent of equity ("Cumulative Translation Adjustment"). On disposal of aforeign entity, the deferred cumulative amount recognised in equity relating tothat particular foreign operation is recognised in the income statement as partof the gain or loss on sale. The following exchange rates are used in the Group's major currencies: ISO Code Unit Balance Sheet Income Statement-------- ---- ------------- ---------------- United States USD $ 1 1.9591 1.85743 Canada CDN $ 1 2.2851 2.09416 Note - The income statement exchange rate noted above relates to the period from23 February to 31 December 2006. The period relates to the acquisition date ofQuadrise Power Systems AG to the end of the accounting period. (2.7) Foreign currency transactions Transactions during the period in foreign currencies are translated into therespective local currencies at the exchange rate prevailing at the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesare translated into respective local currencies at the exchange rates prevailingat the period-end. Exchange gains and losses are recognised in the incomestatement. (2.8) Business combinations The results of businesses acquired are consolidated from the effective date ofacquisition, whereby upon acquisition of a business or an associate, net assetsare restated at fair value in accordance with IFRS. (2.9) Goodwill Goodwill acquired in a business combination is initially measured at cost beingthe excess of the cost of the business combination over the Group's interest inthe net fair value of the identifiable assets, liabilities and contingentliabilities. Following initial recognition, goodwill is measured at cost less any accumulatedimpairment loss. Goodwill is reviewed annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a businesscombination is, from the acquisition date, allocated to each of the Group'scash-generating units, or groups of cash-generating units that are expected tobenefit from the synergies of the combination, irrespective of whether otherassets or liabilities are assigned to those units or groups of units. Each unitor group of units to which goodwill is so allocated represents the lowest levelwithin the Group at which the goodwill is monitored for internal managementpurposes. Impairment is determined by assessing the recoverable amount of thecash-generating unit (or group of cash-generating units), to which the goodwillrelates. Where the recoverable amount of the cash-generating unit (or group ofcash-generating units) is less than the carrying amount, an impairment loss isrecognised. Where goodwill forms part of a cash-generating unit (or group ofcash-generating units) and part of the operation within that unit is disposedof, the goodwill associated with the operation disposed of is included in thecarrying amount of the operation when determining the gain or loss on disposalof the operation. Goodwill disposed of in this circumstance is measured based onthe relative values of the operation disposed of and the portion of thecash-generating unit retained. (2.10) Intangible assets Intangible assets include intellectual property. Intangible assets acquiredseparately are measured initially at cost. The cost of intangible assetsacquired in a business combination is fair value as at the date of acquisition.Following initial recognition, intangible assets are carried at cost less anyaccumulated amortisation and any accumulated impairment loss. Intangible assets with finite lives are amortised over the useful economic lifeand assessed for impairment whenever there is an indication that the intangibleasset may be impaired. The amortisation period and the amortisation method foran intangible asset with a finite useful life is reviewed at each financialyear-end. Changes in the expected useful life of the expected pattern ofconsumption of future economic benefits embodied in the asset is accounted forby changing the amortisation period or method, as appropriate, and treated aschanges in accounting estimate. The amortisation expense on intangible assetswith finite lives is recognised in the income statement in the expenses categoryconsistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairmentannually either individually or at the cash-generating unit level. Suchintangibles are not amortised. The useful life of an intangible asset with anindefinite life is reviewed annually to determine whether indefinite lifeassessment continues to be supportable and if not, the change in the useful lifeassessment from indefinite to finite is made on a prospective basis. (2.11) Property and equipment All equipment is stated at cost less depreciation unless otherwise shown. Costincludes all relevant external expenditure incurred in acquiring the asset. Noproperty assets are currently held within the Group. The Group selects its depreciation rates carefully and reviews then regularly totake account of any changes in circumstances. When determining expected economiclives, the Group considers the expected rate of technological developments andthe intensity at which the assets are expected to be used. All assets aresubject to annual review and where necessary, further write-downs are made forany impairment in value. Equipment is recorded at cost, excluding the costs of day-to-day servicing, lessaccumulated depreciation and accumulated impairment in value. Such cost includesthe cost of replacing parts of such plant and equipment when that cost isincurred if the recognition criteria are met. Depreciation is calculated on astraight line basis over the useful life. Useful lives of major classes ofdepreciable assets are: Computer equipment 3 Years Furniture & fittings 4 Years Equipment 10 Years The initial cost of equipment comprises its purchase price, including importduties and non-refundable purchase taxes and any directly attributable costs ofbringing the asset to its working condition and location for its intended use.Expenditures incurred after the equipment has been placed into operation, suchas repairs and maintenance and overhaul costs, are normally charged to theincome statement in the period in which the costs are incurred. In situationswhere it can be clearly demonstrated that the expenditure has resulted in anincrease in the future economic benefits expected to be obtained from the use ofan item of equipment beyond its original assessed standard of performance, theexpenditures are capitalised as an additional cost of equipment. The useful life and depreciation method are reviewed periodically to ensure thatthe method and period of depreciation are consistent with the expected patternof economic benefits from items of equipment. An item of equipment is derecognised upon disposal or when no future economicbenefits are expected from its use or disposal. Any gain or loss onde-recognition of the asset (calculated as the difference between the netdisposal proceeds and the carrying amount of the asset) is included in theincome statement in the period the asset is derecognised. (2.12) Investments and other financial assets Financial assets are classified as either financial assets at fair value throughthe income statement, loans and receivables, held to maturity investments andavailable-for-sale financial assets, as appropriate. When financial assets arerecognised initially, they are at fair value plus, in the case of investmentsnot at fair value through the income statement, directly attributabletransaction costs. The Group determines the classification of its financialassets after initial recognition and, where allowed and appropriate,re-evaluates this designation at each financial year end. The Group currentlyholds only loans and available for sale financial assets which corresponds tothis category of assets. All regular way purchases and sales of financial assets are recognised on thetrade date being, for example, the day that the Group commits to purchase theasset. Regular way purchases or sales of financial assets are those that requiredelivery of assets within the period generally established by regulation orconvention in the market place. Investments held-for-sale Investments are those non-derivative financial assets that are designated asheld-for-sale or are not classified in any of the three preceding categories.After initial recognition available for sale financial assets are measured atfair value with gains or losses being recognised as a separate component ofequity until the investment is derecognised or until the investment isdetermined to be impaired at which time the cumulative gain or loss previouslyreported in equity is included in the income statement. The fair value of investments that are actively traded in organised financialmarkets is determined by reference to quoted market bid prices at the closure ofbusiness on the balance sheet date. For investments where there is no activemarket, fair value is determined using valuation techniques. Such techniquesinclude using recent arm's length market transactions; reference to the currentmarket value of which is substantially the same; discounted cash flow analysisand option pricing models. Loans and receivables Loans and receivables are non-derivatives financial assets with fixed ordeterminable payments that are not quoted in an active market. Such assets arecarried at amortised costs using the effective interest method. Gains or lossesare recognised in the income statement when the loans and receivables arederecognised or impaired, as well as through the amortisation period. (2.13) Impairment At each balance sheet date, reviews are carried out of the carrying amounts oftangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent if any, of the impairment loss. Where the asset does not generate cashflows that are independent from the other assets, estimates are made of thecash-generating unit to which the asset belongs. Intangible assets with anindefinite useful life are tested for impairment at least annually and wheneverthere is an indication that the asset may be impaired. The recoverable amount is the higher of fair value, less costs to sell, andvalue in use. In assessing value in use, estimated future cash flows arediscounted to their present value using a discount rate appropriate to thespecific asset or cash-generating unit. If the recoverable amount of an asset or cash-generating unit is estimated to beless than its carrying amount, the carrying amount of the asset orcash-generating unit is reduced to its recoverable amount. Impairment losses arerecognised immediately in the income statement. (2.14) Taxation Current Tax Current tax assets and liabilities for the current and prior periods aremeasured at the amount expected to be recovered from or paid to the taxauthorities. The tax rates and the tax laws used to compute the amount are thosethat are enacted, or substantively enacted, by the balance sheet date. Deferred Tax Deferred tax is provided using the liability method on temporary difference atthe balance sheet date between the tax bases of assets and liabilities and theircarrying amounts for financial reporting purposes. Deferred tax liabilities arerecognised for all taxable temporary differences except: (a) Where the deferred tax liability arises from the initial recognition ofgoodwill or of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accountingprofit or loss and; (b) In respect of taxable temporary differences associated with investment insubsidiaries and associates where the timing of the reversal of the temporarydifferences can be controlled and it is probable that the temporary differenceswill not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporarydifferences, carry-forward of unused tax credits and unused tax losses, to theextent that it is probable that taxable profits will be available against whichthe deductible temporary differences, and the carry-forward of unused taxcredits and unused tax losses can be utilised except: (a) Where the deferred income tax asset relating to the deductible temporarydifferences arise from the initial recognition of an asset or liability and (b)in respect of deductible temporary differences associated with investments insubsidiaries and associates, deferred tax assets are recognised only to theextent that it is probable; (c) that the temporary differences will reverse inthe foreseeable future and taxable profits will be available against which thetemporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probably thatsufficient taxable profits will be available to allow all or part of thedeferred income tax asset to be utilised. Unrecognisable deferred income taxassets are re-assessed at each balance sheet date and are recognisable to theextent that it has become probable that future taxable profits will allow thedeferred tax asset to be recovered. (2.15) Employee benefits The Group maintains various defined contribution plans for providing employeebenefits, which conforms to laws and practices in the countries concerned.Retirement benefit plans are generally funded by contributions from both theemployees and the companies to independent entities (multi-employer plan) thatoperate the retirement benefit schemes. Current service cost for definedcontribution plans is equivalent to the employer's contributions due for thatperiod. The Group's contributions to the defined contribution pension plans arecharged to the income statement in the year to which they relate. (2.16) Share-based payments Employees (including directors and senior executives) of the Group receiveremuneration in the form of share-based payment transactions, whereby theseindividuals render services as consideration for equity instruments("equity-settled transactions"). These individuals are granted share option rights approved by the Board, whichcan only be settled in shares of the respective companies that award theequity-settled transactions. No cash settled awards have been made or areplanned. The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevantindividuals become fully entitled to the award ("vesting point"). The cumulativeexpense recognised for equity-settled transactions at each reporting date untilthe vesting date reflects the extent to which the vesting period has expired andthe Group's best estimate of the number of equity instruments and value thatwill ultimately vest. The income statement charge for the period represents themovement in cumulative expense recognised as at the beginning and end of thatperiod. No equity-settled awards have been modified or cancelled during theperiod. The fair value of share-based remuneration is determined at the date of grantand recognised as an expense in the income statement on a straight-line basisover the vesting period, taking account of the estimated number of shares thatwill vest. The fair value is determined by use of a Black-Scholes model. (2.17) Separately disclosable items Items that are both material in size and unusual and infrequent in nature arepresented as separately disclosable items in the income statement or separatelydisclosed in the notes to the financial statements. The directors are of theopinion that the separate recording of these items provides helpful informationabout the Group's underlying business performance. (2.18) Financial risk management, recognition and accounting The Group's multi-national operations and debt financing arrangements expose itto a variety of financial risks that include the effects of changes in debtmaking prices, foreign currency exchange rates, credit risks, equity securitiesprices, liquidity and interest rates. The Group has in place a risk managementprogramme that seeks to limit the adverse affects on the financial performanceof the Group. The Board has approved the risk management policies applied by theGroup. These policies are implemented by central finance that prepares regular reportsto enable prompt identification of financial risks so that appropriate actionsmay be taken. The Group has a policy and procedures manual that sets outspecific guidelines to manage foreign exchange risk, interest rate risk, creditrisk and the use of financial instruments to manage these. No forward hedgingactivities are undertaken unless approved by the Group's FD. (2.19) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprisecash-in-hand bank balances, call money and unrestricted time deposit balanceswith an original maturity of 90 days or less. (2.20) Share capital The share capital reported in the consolidated financial statements is that ofQuadrise Fuels International plc. (2.21) Financial risk management objectives and policies The QFI business model relies on bespoke contracts that do not contain anycomplex financial instruments or terms and conditions. Embedded derivatives doexist within contracts (e.g. share options) and these are closely associatedwith the commercial terms and conditions of each contract but none is requiredto be further disclosed as part of IAS 32 and IAS 39. The Group does not enterinto any forward exchange rate contracts. The main risks arising from the Group's activities are cash flow interest raterisk, liquidity risk, foreign currency risk, price risk (fair value) and creditrisk. The Board reviews and agrees policies for managing each of these risks andthey are summarised as: Cash flow interest rate risk - the Group's exposure to the risk of changes inmarket interest rates relates primarily to the Group's non-current liabilitieswith a floating interest rate. The Group's policy is to manage its interest costusing variable rate debts that represent market rates. Liquidity risk - the Group raises funds as required on the basis of budgetedexpenditure and inflows for the next twelve months. When funds are sought, theGroup balances the costs and benefits of equity and debt financing. When fundsare received they are deposited with banks of high standing in order to obtainmarket interest rates. Foreign currency risk - as the Group's significant investment operations are inthe UK, its balance sheet can be affected by movements in the US Dollar/EnglishSterling exchange rates. The Group does not hedge this potential exposure. TheGroup enters into limited forward currency contracts as the transactionalforeign currency exposure is not considered material to the Group at present. Price risk - the carrying amount of the following financial assets andliabilities approximate to their fair value due to their short term nature: cashaccounts, accounts receivable, and accounts payable. Availablefor-sale-investments are valued at fair value based on recent shareholdertransactions or the underlying net asset base. Credit risk - with respect to credit risk arising from other financial assets ofthe Group, which comprise cash and time deposits, account receivables, andheld-for-sale investments, the Group's exposure to credit risk arises fromdefault of the counterparty, with a minimum exposure equal to the carryingamount of these instruments. The credit risk on cash is limited as cash isplaced with substantial financial institutions. (2.22) Loans and receivables Trade and other receivables and trade and other payables are initiallyrecognised at fair value. Fair value is considered to be the original invoiceamount, discounted where material, for short term receivables and payables. Longterm receivables and payables are measured at amortised cost using the effectiveinterest rate method. Where receivables are denominated in a foreign currency,retranslation is made in accordance with the foreign currency accounting policypreviously stated. (2.23) Borrowing costs Borrowing costs include interest charges and other costs incurred in connectionwith the borrowing of funds and are expensed as incurred. Interest and costs areaccounted for on the accruals basis and are recognised through the incomestatement in full. No interest or borrowing costs have been capitalised. (2.24) De-recognition and impairment of financial assets and liabilities Financial assets A financial asset is derecognised where; (a) the right to receive cash flowsfrom the asset have expired; (b) the Group retains the right to receive cashflows from the asset, but has assumed an obligation to pay them in full withoutmaterial delay to a third party under a pass-through arrangement; or (c) theGroup has transferred the rights to receive cash flows from the asset and (i)either has transferred substantially all the risks and rewards of the asset or(ii) has neither transferred nor retained substantially all the risks andrewards of the asset, but has transferred control of the asset. Financial liabilities A financial liability is derecognised when the obligation under the liability isdischarged or cancelled or expires. Where an existing financial liability isreplaced by another from the same lender on substantially different terms, orthe terms of an existing liability are substantially modified, such an exchangeor modification is treated as a de-recognition of the original liability and therecognition of a new liability, and the difference in the respective carryingamounts is recognised in the income statement. Impairment of financial assets The Group assesses at each balance sheet date whether a financial asset or groupof financial assets is impaired. (2.25) Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event and it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. Where theGroup expects some or all of a provision to be reimbursed, the reimbursement isrecognised as a separate asset but only when the reimbursement is virtuallycertain. The expense relating to any provision is presented in the incomestatement net of any reimbursement. If the effect of the time value of money ismaterial, provisions are discounted using a current pre-tax rate that reflects,where appropriate, the risks specific to the liability. Where discounting isused, the increase in the provision due to the passage of time is recognised asa borrowing cost. (2.26) Commitments and contingencies Commitments and contingent liabilities are recognised in the financialstatements. They are disclosed unless the possibility of an outflow of resourcesembodying economic benefits is remote. A contingent asset is not recognised inthe financial statements but disclosed when an inflow of economic benefits isprobable. (2.27) Events after the balance sheet date Post period-end events that provide additional information about a company'sposition at the balance sheet date are reflected in the financial statements.Post period-end events that are not adjusting events are disclosed in the noteswhen material. 3. Reverse acquisition accounting On 18 April 2006 the Company become the legal parent of Quadrise InternationalLimited in a share-for-share transaction and changed its name from Zareba plc toQuadrise Fuels International plc. Due to the relative size of the companies, theshareholders of Quadrise International Limited became the majority holders ofthe enlarged share capital. Further, the Company's continuing operations andexecutive management become those of Quadrise International Limited.Accordingly, the substance of the combination was that Quadrise InternationalLimited acquired Quadrise Fuels International plc in a reverse acquisitionaccounted for under IFRS 3. Under the Companies Act 1985 it would normally be necessary for the Company'sconsolidated accounts to follow the legal form of the business combination. Inthat case, the pre-combination results would be those of Quadrise FuelsInternational plc and Quadrise International Limited only from 18 April 2006.However, this would portray the combination as the acquisition of QuadriseInternational Limited by Quadrise Fuels International plc and would, in theopinion of the directors, fail to give a true and fair view of the substance ofthe business combination. Accordingly, the directors have adopted reverseacquisition accounting as the basis of the consolidation in order to give a trueand fair view. In invoking a true and fair view the directors note that the reverse acquisitionaccounting is endorsed under IFRS 3 and that the Urgent Issues Task Force (UITF)of the UK's Accounting Standard Board has considered the subject and concludedthat there are instances where it is right and proper to invoke the true andfair override in such a way. (UITF information sheet 17). By adopting reverse acquisition accounting for consolidation purposes, goodwillon acquisition of Zareba plc arises, which has been fully written-off to theincome statement, because Zareba plc had no continuing business and therefore nointrinsic value. The goodwill write-off is £584K. 4. Other income statement disclosures a) On the acquisition of Zareba plc, the AIM cash shell, the goodwill onacquisition of £584K was fully written off. b) The Board has reviewed the accounting policy for intangible assets andhas adopted a policy for the amortisation of those assets which have a finitelife. A key asset that fits this description is the combination of rightssecured under the Akzo Nobel Alliance Agreement, together with other unpatentedtechnologies, industry know-how and trade secrets, which drive the principalbusiness case for QFI. Under the present arrangements, the Akzo Nobel AllianceAgreement, while intended to continue on an evergreen basis, could be terminatedby Akzo Nobel or QFI on a 12 months' notice at any time after 20 December 2009.Whilst the directors believe that it is likely to be in the commercial bestinterests of both parties to continue the agreement beyond 20 December 2009,there can be no guarantee that this will occur. The directors have, accordingly,taken a prudent position to amortise this intangible asset over the remaininglifespan of the current agreement. This approach has resulted in a non-cashcharge of £5,188K for the period. c) The write-off investment/asset relates to Quadrise Power Systems AGwhich during the period wrote-off previously capitalised business developmentcosts relating to Quadrise following a change in accounting policies. 5. Earnings per share Profit/(loss) Weighted average Earnings per share for the period number of shares for the period £ K for the period pence 1p ordinary shares Basic EPSEarnings attributable to ordinary shares (6,705) 424,774,023 (1.58)Effect of dilutive sharesOptions 107 424,774,023 0.025 ------- ----------- -----Diluted EPS (6,598) 424,774,023 (1.55)Adjusted earnings - - - ------- ----------- -----Earnings per share fromcontinuing operations (6,598) 424,774,023 (1.55) Basic Adjustment for asset write down 104 424,774,023 0.02Adjustment forexceptional items 584 424,774,023 0.14 ------- ----------- -----Underlying EPS (5,910) 424,774,023 (1.39) ------- ----------- ----- The weighted average number of shares issued during the period, excluding shareoptions, was 424,774,023. Earnings per share is calculated by dividing the lossfor the period by the weighted average number of shares in issue during theperiod. Adjusted earnings per share is calculated by eliminating the effect ofexceptional items. Diluted loss per share of 1.55 pence is calculated by reference to the loss forthe financial period of £6,598K adjusted for options and the weighted averagenumber of shares in issue during the period of 424,774,023. 6. Share capital 31 December 31 December 2006 2006 Number of £ shares AuthorisedOrdinary shares of 1 pence each 1,000,000,000 10,000,000 ============= ========== 1,000,000,000 10,000,000 ============= ==========Allotted, called up and fully paidIncorporation of company 100 1Acquisition of QPS AG and inters 9,249,900 92,499Acquisition of Quadrise Limited 750,000 7,500 ------------- ---------- Issued equity prior to businesscombination 10,000,000 100,000Cost of business combinationConsolidated 10 shares at 0.1 pence parvalue for 1 share at 1 pence par value 20,330,000 203,300QIL shareholders convert QIL shares for QFI shares 375,827,136 3,758,271QFI shares list on AIM 64,769,721 647,697NOMAD Fees 200,000 2,000Options issued 600,000 6,000 -------------- ---------- 461,726,857 4,617,269 ============== ==========7. Acquisition of business (a) Quadrise restructuring, acquisition of Quadrise International Limited andreserve takeover to create Quadrise Fuels International plc On 10 October 2005 Quadrise International Limited was incorporated in order tofacilitate the acquisition of Quadrise Limited and the transference of all ofits Quadrise interests under one new company. On 23 February 2006 International Energy Group transferred its Quadriseinterests being 100% of Quadrise Power Systems AG, 1,097,500 common shares inQuadrise Canada Corporation, a 50% interest in Quadrise USA LP Inc, the rightsunder an alliance agreement with Akzo Nobel and other intangible assets in thecommercial department of the Quadrise MSAR technology. £K Net assets acquired:Net worth of QPS AG 431,097,500 common share in Quadrise Canada Corporation 4,112 ------Total net worth of acquisition 4,155Intellectual property on acquisition 29,861 ------Total 34,016 ======Satisfied by:Issuance of shares 34,016 ======Total consideration 34,016 ====== (b) Acquisition of Quadrise Limited On 10 March 2006 Quadrise International Limited acquired 100% of QuadriseLimited: £KNet assets acquired:Investments held in Quadrise Canada Corporation at fair value 9,278Intellectual property 6,826 ------Total 16,104 ====== Satisfied by:Cash consideration 4,692Shares consideration - Capital contribution 4,286Shares in Quadrise Canada Corporation at fair value - Capitalcontribution 3,734Foreign exchange 25750K new shares issued in QIL 3,367 ------Total consideration 16,104 ======(c) Acquisition of Zareba plc On 18 April 2006 the Company acquired Zareba plc, an AIM cash shell companythrough a reverse acquisition takeover in order to publicly list as QuadriseFuels International plc. Goodwill of £584k was realised on the acquisition,which was fully impaired in the period. £KNet assets acquired:Cash 1,201Goodwill arising on acquisition 584 ------Total 1,785 ======Satisfied by:Capital contribution 1,786 ------Total Consideration 1,786 ====== 8. Post- balance sheet events On 19 March 2007, the Company passed a resolution to exercise 652,874 warrantsfor the subscription and purchase of 652,874 common shares in the capital ofPaxton Corporation, a company registered in Alberta, Canada, at an exerciseprice of CDN $0.75 per common share. The purchase price of CDN $489,655.50 is tobe satisfied in a cash payment on or before 27 March 2007. Following theexercise of warrants, the Company will be interested in a total of 1,305,748common shares in Paxton Corporation. 9. Comparative figures No comparative figures have been included as the Company has not producedinterim results for a corresponding period prior to this announcement. 10. Copies of this announcement Copies of this announcement will be available on the Company's website atwww.quadrisefuels.com and from the Company's registered office, Parnell House,25 Wilton Road, London SW1V 1YD for a period of one month. This information is provided by RNS The company news service from the London Stock Exchange