TIDMQFI
RNS Number : 0217B
Quadrise Fuels International PLC
05 October 2020
5 October 2020
Quadrise Fuels International plc
("Quadrise", "QFI", the "Company" and together with its
subsidiaries the "Group")
Final Results for the year ended 30 June 2020, Investor
Presentation and Notice of Annual General Meeting
Quadrise Fuels International plc (AIM: QFI) announces its
audited final results for the year ended 30 June 2020 and gives
notice that the Company's Annual General Meeting ("AGM") will be
held at 12pm on 27 November 2020.
Operational summary for the period and since the period end
Business Development
A prompt, proactive approach has ensured that Quadrise has been
able to mitigate, to a significant extent, the potential impact of
COVID-19 on its business development and project activities. This
has enabled Quadrise to continue to build positive momentum over
the period and demonstrate significant progress in a number of key
areas:
-- The planned trial in Morocco was paused in mid-March 2020,
just as mobilisation of the team to the client's site was due to
commence (with the equipment and fuel for the trial having already
arrived at the site). Prompt engagement with the client enabled the
start of the Phase 2 front end engineering and design ("FEED")
study to be brought forward with a significant part of this work
now completed. As a result of regular engagement with the client
both directly and through our in-country agent, we now plan to
complete the trial on-site in October 2020 and to finalise a Phase
2 FEED study thereafter.
-- Following the signing of the MoU with Valkor Technologies LLC
("Valkor") during Q1 2020, rapid progress has been made with a
Commercial Trial Agreement ("CTA") with Greenfield Energy LLC
("Greenfield", a joint venture between Valkor and Tomco Energy
plc), signed on 18 August 2020. Plans are now progressing for
Quadrise to undertake the trial at the Asphalt Ridge site (managed
by Greenfield) in Utah, USA. Preparatory work on the trial MSAR(R)
Manufacturing Unit ("MMU") has commenced and plans are being
finalised for Quadrise personnel to access the Asphalt Ridge
facility to install our plant during early December 2020, subject
to being able to comply with any relevant travel restrictions.
Commencement of the Utah MSAR(R) trial before year-end is reliant
on Quadrise Research Facility ("QRF") confirming the required
MSAR(R) formulation from the Asphalt Ridge oil samples to be
supplied during the planned November 2020 start-up.
-- Building on our long history in the region, following the
meetings with the major power utility in the Kingdom of Saudi
Arabia ("KSA") that were organised by our local partners Al Khafrah
Holding Group ("AKHG"), with whom we are now working to engage with
key stakeholders. To reinforce our commitment to the region, in
August 2020 we published a White Paper (in both Arabic and
English), outlining the substantial economic and environmental
advantages of MSAR(R) . This was followed, in September 2020 by
providing an Arabic version of the main elements of the Quadrise
website, including the animated video.
-- In Ecuador, we made rapid progress during the H1
2020;following an initial meeting in January, we undertook a series
of meetings in early March 2020 with the refinery and nearby power
utility, that led to the delivery and presentation (remotely) of a
detailed techno-economic study to the client team. Recent changes
in the client's management team have resulted in a delay to the
review of the study and the agreement of next steps. However, we
are working with in-country representatives at Freepoint to
progress this significant opportunity with both the client and the
relevant ministries.
-- In the marine market, Quadrise has continued to progress
opportunities with the intention of seeking to reach agreement
during 2020 for the undertaking of LONO trials with major companies
in the container and/or bulker markets.
-- We are working with Redliner in Mexico, though the impact of
COVID-19 restrictions on the client have been significant and
progress has not been as rapid as we had hoped at this time.
-- A new agency agreement covering certain Caribbean, Central
and South American markets with Energy & Petroleum Consultants
Ltd (ex-PDVSA emulsion fuel specialists) and an agency agreement
with Pacific Green Technologies, Inc (a major provider of marine
and land-based exhaust gas scrubbers), demonstrates our ability to
drive new opportunities for MSAR(R) .
-- Whilst at a very early stage, we are progressing some very
promising work at QRF which, if demonstrated in larger scale
studies, would fundamentally enhance the environmental performance
of MSAR(R) . "Green MSAR(R) " incorporates biofuels or derivatives
into MSAR(R) (displacing water and residue) with Nouryon additives.
This leads to significant reductions in both CO(2) and SOx
emissions when compared with HFO, as well as the reductions in NOx
and particulates that MSAR(R) already offers consumers. This could,
if successful, fundamentally increase the market opportunity and
the speed and scale of market penetration for Quadrise.
-- JGC - We are in discussions with JGC and a major diesel OEM
regarding a new joint initiative for MSAR(R) to reduce Japanese
refinery emissions of CO(2) using combined heat and power diesel
technology to replace residue-fired boilers.
Financial summary for the period
-- Prompt action in early 2020, together with the impact of
significantly reduced travel costs since mid-March 2020, has
enabled Quadrise to extend its business development "runway", with
the GBP2.4m in cash reserves as at 30 June 2020 (30 June 2019:
GBP1.1m) now sufficient to fund the Group to mid Q2 calendar
2021.
-- Loss after tax of GBP4.8m (2019: GBP3.0m) of which GBP1.4m
(2019: GBP1.5m) is attributable to production and development
costs, and GBP1.8m (2019: GBP1.5m) relates to administrative and
corporate expenses. Non-cash charges comprise GBP1.1m of fair value
adjustments to the Convertible Securities balance due (2019:
GBPnil) and GBP0.5m relating to share option and warrant expenses
(2019: GBP0.3m).
-- Cumulative tax losses of GBP53.7m (2019: GBP51.0m) available
for set-off against future profits.
-- Total assets of GBP6.3m at 30 June 2020 (2019: GBP5.1m).
Commenting on the results and progress since the period end,
Mike Kirk, Chairman of QFI, said:
"Despite the significant impediments caused by the COVID-19
pandemic, Quadrise has been able to build on the substantial
progress we delivered in 2019. Critical to our success has been the
combination of a wider range of project and development
opportunities, our established in-country partners in key markets
and our innovative approach.
It is very pleasing, therefore, to be able to outline our goal
of completing two key trials before the end of 2020. The first of
these is the Phase 1 trial at one of our client's sites in Morocco
(and to progress the on-site work to enable the Phase 2 FEED study
to be finalised in due course. This is scheduled to be followed by
the testing at the Asphalt Ridge site being managed by Greenfield
in Utah, USA - which is subject to the prior receipt and
confirmatory testing at QRF of samples from the facility in Utah
which is due to recommence operations in November 2020. In
addition, we continue to seek to reach agreement during 2020 for
the undertaking of marine LONO trials with major companies in the
container and/or bulker markets.
The QFI Project and Operations teams are now fully focused on
ensuring that we are able to mobilise all equipment and personnel
required for each of these trials. With the client site in Morocco
currently accessible, subject to conditions, our team are due to
travel out to the site within the next few weeks. Prior to this,
the work required to enable the trial MMU to be prepared for
operation and shipped to the Asphalt Ridge site in Utah is being
progressed. This includes ensuring that key Quadrise personnel can
undertake the necessary quarantine measures in place prior to,
during and after the trials.
Due to a reduction in operational costs (principally as a result
of virtually no travel costs since March 2020 and our proactive
approach to cost management), the benefits of which will be
reflected more fully in the current financial year, we have been
able to significantly extend our period of operation on existing
funds to mid-Q2 2021.
When this extended "runway" is allied with the recent progress
we have made on these two critical on-site trials which are due to
be completed in 2020, we have a high degree of confidence that we
will, on success, have a clear pathway to future commercial
revenues. This, alongside the significant additional potential that
Green MSAR(R) provides for Quadrise, would enable the funding
required to progress to sustainable commercial revenues to be put
in place prior to mid-Q2 2021.
The dedication and professionalism of the team and board of
Quadrise remains fundamental to our continued success, and as we
move into the final quarter of the year, I would like to pay
tribute to their efforts during what has been an incredibly
challenging period for all. I would also like to thank, once again,
our shareholders for their continued support of the business."
Live Investor Presentation
The Company is also pleased to announce that Mike Kirk,
Chairman, and Jason Miles, CEO will provide a live investor
presentation relating to the Business Update via the Investor Meet
Company ("IMC") platform on Tuesday 13th October at 14.00 BST.
The Company is committed to ensuring that there are appropriate
communication structures for all elements of its shareholder base
so that its strategy, business model and performance are clearly
understood:
-- The online presentation is open to all existing and potential shareholders
-- Questions can be submitted pre-event via your IMC dashboard
or at any time during the live presentation via the "Ask a
Question" function. Although the Company may not be in a position
to answer every question it receives, it will address the most
prominent within the confines of information already disclosed to
the market. Responses to the Q&A from the live presentation
will be published at the earliest opportunity on the Investor Meet
Company platform
Investor feedback can also be submitted directly to management
post-event to ensure the Company can gather the views of its
shareholder base
Investors can sign up to Investor Meet Company for free and add
Quadrise Fuels International plc via
https://www.investormeetcompany.com/quadrise-fuels-international-plc/register-investor
Investors who have already registered and added to meet the
Company, will be invited automatically.
Notice of Annual General Meeting
The Company's Annual General Meeting ("AGM") will be held at
12:00 noon on 27 November 2020 at the Company's registered office
address at First Floor, Gillingham House, 38-44 Gillingham Street,
London, SW1V 1HU.
As a result of measures introduced by the UK government to
combat the ongoing COVID-19 pandemic, the AGM will be held as a
closed meeting and shareholders will not be permitted to attend in
person. Any shareholder that seeks to attend the AGM in person will
not be permitted entry.
Shareholders are therefore strongly encouraged to vote by proxy.
The Company will convene the AGM with the minimum necessary quorum
(which the Company will facilitate) and voting on each resolution
at the AGM will be by poll and will include all valid proxy votes
received. The format of the meeting will be purely functional and
will comprise only the formal voting on the resolutions tabled.
We are of course disappointed that our AGM has been impacted by
COVID-19, but the safety and security of our shareholders and
colleagues remains our priority. We hope that all of our
shareholders will therefore understand the need for such
arrangements to be put in place.
The current situation is evolving and the Government may change
current restrictions or implement further measures relating to the
holding of general meetings during the affected period. The Company
will make any further announcement(s) in relation to any change to
arrangements in respect of the AGM by way of a Regulatory
Information Service.
To ensure that shareholders are still given the opportunity to
ask questions, following the conclusion of the AGM, the Company
will give a live online presentation via the Investor Meet Company
('IMC') platform on 27 November 2020 at 12.30pm GMT. Please see the
Live Investor Presentation section above for details of how to
register for this event.
For additional information, please contact:
Quadrise Fuels International plc +44 (0)20 7031 7321
Mike Kirk, Chairman
Jason Miles, Chief Executive Officer
Cenkos Securities plc +44 (0)20 7397 8900
Nominated Adviser
Ben Jeynes
Katy Birkin
Peel Hunt LLP
+44 (0)20 7418 8900
Joint Broker
Richard Crichton
David McKeown
Shore Capital Stockbrokers Limited +44 (0)20 7408 4090
Joint Broker
Tony Gibbs
Fiona Conroy
FTI Consulting
+44 (0)20 3727 1000
Public and Investor Relations
Ben Brewerton
Ntobeko Chidavaenzi
The information communicated within this announcement was deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014 prior to the release of this
announcement. Upon the publication of this announcement, this
inside information is now considered to be in the public
domain.
Chairman's Statement
Overview of the 2020 Financial Year and significant post
year-end events
Introduction
The 2020 financial year was a critical year for Quadrise, with
sufficient funding raised in September 2019 to enable the business
to progress and expand our portfolio of MSAR(R) project
opportunities during the year and to continue activity through to
mid Q2 calendar 2021.
Quadrise's well-established strategy to broaden and deepen the
range of available project opportunities through our network of
influential partners in major global markets proved to be very
effective in 2020. This has enabled Quadrise, at negligible
cash-cost, to use the skills, networks and resources of our
partners to effectively and efficiently scale our in-house business
development capabilities. Integral to this strategy is that we now
have a range of opportunities at various stages of development;
from early stage discussions and market assessments, to active
on-site projects to evaluate MSAR(R) technology ahead of a decision
to progress to commercial implementation. In addition, this network
of in-country partners has played a pivotal role in enabling
Quadrise to mitigate the impact of COVID-19 on our project and
business development activities - which is outlined in more detail
below.
Our 2019 funding programme commenced with the announcement of up
to GBP4 million (gross) funding from Bergen Global Opportunities
Fund ("Bergen"). The first GBP2 million tranche was drawn down in
September 2019 and this underpinned our GBP1.84 million open offer
which was fully underwritten by Peel Hunt and a GBP0.72 million
subscription - raising additional funds of GBP2.56 million (gross).
We were delighted with the response from our shareholders to the
open offer, which saw a take-up of 75%. In addition, and whilst not
currently available to the Company, the Bergen funding could
provide an additional drawdown of up to a further GBP2 million,
subject to certain conditions precedent having been met, including
the granting by shareholders of the relevant authorities to allot
shares at a General Meeting, though the Company is not reliant on
this to continue its operations through to mid Q2 2021.
Our continued close working relationship with Nouryon was
further enhanced by a new three-year Exclusive Purchase and Supply
Agreement that we signed in October 2019. We have maintained
regular contact with Nouryon throughout the period and have been
delighted to welcome new senior members of their team to our
regular quarterly updates. We have also initiated tri-partite
discussions with Nouryon and another Carlyle Group entity to review
MSAR(R) project opportunities.
MSAR(R) Market Background
The business development and project opportunities discussed
below were undertaken during a period of significant change and
volatility in the global liquid fuels markets. During the 2020
financial year, positive trends persisted for much of the first
half of the period. However, from mid-February through to the end
of April 2020 oil prices were severely impacted by the combination
of the unfolding COVID-19 pandemic and the dispute between the KSA
and Russia. Whilst prices started to recover from the end of April
2020, they remain at a discount of circa 30% overall to the average
values seen in 2019. Fuel oil-gasoil spreads narrowed to
$100-150/mt as fuel oil prices have remained uncharacteristically
strong due to supply and demand. Whilst the recent short-term
liquid fuels prices and volatility have negatively impacted MSAR(R)
economics in some markets, in most regions they remain favourable
and the longer-term trend is still very positive. MSAR(R) 's
enhanced environmental performance will, we believe, be of
increasing importance to both producers and consumers, alongside
its substantial economic benefits. Despite the disruption caused by
COVID-19, the use of high-sulphur fuels in combination with
scrubbers will in our view be the de-facto lowest cost solution to
meet the International Maritime Organization ("IMO") 2020 sulphur
standard for the maritime sector, and national or World Bank
regulations for utilities and industrial consumers. This provides a
positive backdrop for Quadrise to work with refiners and fuel
consumers to progress MSAR(R) projects, potentially combined with
new Environmental, Social and Governance ("ESG") initiatives.
Project/Business Development Activities
Despite the unprecedented impact of COVID-19 on global
economies, we made substantive progress in several areas as
summarised below:
Industrial Applications
Morocco - Following the announcement on 30 November 2019, of the
signature of the agreement with the major chemicals group in
Morocco, rapid progress was made with site visits in both December
2019 and January 2020. This enabled the Quadrise team to review the
specific facilities for the intended trials of MSAR(R) fuel;
enabling the design and fabrication of the equipment to be used at
the pilot kiln. This work was completed in February 2020 and the
pumping and heating unit was commissioned and tested at QRF,
alongside bespoke burner tips that were manufactured to a custom
design by our in-house combustion experts. The final stage of the
preparations in the UK was the production at QRF of over 1 tonne of
MSAR(R) for the trial.
All the equipment and fuel required for the trial were shipped
to Morocco in March 2020 and is safely stored on the client's site.
Unfortunately, at this point our plans were severely impacted by
COVID-19 and the site was closed to external visitors and to the
clients own employees who were not essential for site operations
from March 2020. Despite this setback, we were delighted with the
responses to the challenges from the client and our Moroccan
agent.
The first positive action taken by the Quadrise project team was
to engage with the client to bring forward the second phase work
that would have followed the successful completion of the trial on
the pilot kiln facility. The client reaffirmed the importance of
this project and were happy to agree to this. Whilst this work was
undertaken at our risk, with payment being conditional on
progressing to phase two, most of the work has been undertaken by
our in-house project team.
Since that time, regular project and steering group meetings
have taken place and we now plan to complete the trial in October
2020. This will, of course, be subject to the site remaining
accessible for our team and safe procedures being provided by the
client. Assuming the trial proceeds on this basis, the overall
timetable will not have been extended significantly. Furthermore,
the most recent discussions with the client have highlighted the
potential to move straight to trials on their commercial kilns
using around 20 tonnes of MSAR(R) fuel that can be produced at QRF,
pumped into an ISO tank and shipped to the client site, together
with the new pumping and heating unit and new bespoke burner tips.
Other application trials on kilns, calciners and utility boilers
are being discussed that could then follow.
Upstream Applications
-- During Q1 2020 a Memorandum of Understanding ("MOU") was
signed with Valkor Technologies ("Valkor"), to investigate the
potential deployment of MSAR(R) technology in Utah, USA. These
discussions continued during Q2 and we were delighted to announce
on 18(th) August 2020, that we had signed a Commercial Trial
Agreement ("CTA") with Greenfield Energy LLC ("Greenfield" - a
joint-venture between Valkor and Tomco Energy plc), to undertake
testing at the Petroteq Oil Sand Plant ("POSP") located at the
Asphalt Ridge Facility in Utah, USA, which is operated and managed
by Greenfield.
The first phase of the CTA ("Phase 1"), for which Quadrise is
being paid $150,000 includes:
o Proof of Concept formulation and test work at the Quadrise
Research Facility using oil samples supplied by Greenfield.
o Loan of Quadrise MSAR(R) commercial production equipment,
MSAR(R) test equipment and supply of MSAR(R) additives.
o Supply of specialist services and personnel to assist
Greenfield in completing the commercial scale demonstration trial
to produce over 600 barrels (100mt) of power grade MSAR(R) .
Phase 1 work is expected to be completed during 2H 2020, subject
to preparatory work and commissioning of the Asphalt Ridge facility
by Greenfield, ahead of Quadrise receiving and testing of Utah oil
samples at QRF, and our personnel accessing the site in Utah to
assemble the MSAR(R) plant and complete the trial before the end of
the year.
Pending a successful Phase 1, Quadrise will then work with
Greenfield to develop plans for commercial MSAR(R) production
facilities capable of treating 10,000 barrels of oil per day
("Phase 2") and to agree terms for the granting of a conditional
MSAR(R) licence to Greenfield, once commercial terms have been
agreed for Phase 2 and binding agreements entered into.
-- The agreement with Merlin Energy Resources remains in place,
however Quadrise is focused on the opportunities being explored in
Utah through Greenfield - where progress has been rapid.
-- Quadrise's discussions with stakeholders and government
officials regarding an upstream heavy oil project in Africa, have
not progressed due to the political situation in the country.
Power Applications, Refinery Refuelling, & Co-Development
Opportunities
-- Kingdom of Saudi Arabia - Quadrise management and our local
partners Al Khafrah Holding Group ("AKHG") attended a meeting in
Riyadh in March 2020 alongside representatives from the major power
utility and a major boiler OEM to discuss resuming the planned
400MWe boiler trial using in-Kingdom MSAR(R) manufacture. Following
this positive meeting, AKHG has maintained contact with the power
utility and a further meeting was held via conference call, with
follow-up over the summer. In parallel, we are jointly progressing
contacts at the highest levels with other major stakeholders to
promote MSAR(R) , with Quadrise supporting this through a
significant enhancement to our profile in the region. In particular
via the publication (in August 2020) and continued promotion of a
White Paper (in both English and Arabic) outlining the significant
economic and environmental advantages that MSAR(R) use and fuel
production in-Kingdom would deliver to KSA and the Middle East. The
Quadrise website has also recently been launched in Arabic for
regional stakeholders.
-- South America (Freepoint Commodities) - This is an excellent
example of how Quadrise's longstanding business development
experience can lead to project opportunities progressing very
rapidly from a "standing start". QFI and Freepoint jointly met with
senior management of the national oil company in Ecuador in early
January 2020 to review an exciting MSAR(R) opportunity for refinery
refuelling, leading to domestic power generation and export
opportunities that would reduce energy costs and emissions for the
country. This is a refinery well known to Quadrise, as we had
worked on a project there several years earlier, that would,
however, have required very significant investment and working
capital. Following the initial meeting, a three-person team from
Quadrise visited the sites and the adjacent power utility in early
March 2020. During the next two months there was extensive dialogue
with the client's technical and economic teams, following which
Quadrise remotely presented its extensive Techno-Economic Study to
the client team. This was positively received and Quadrise and the
client are reviewing the next steps, including proof of concept
testing at QRF and trialling MSAR(R) use at the refinery, as a
precursor to commercial implementation on success. In parallel we
have initiated a programme to investigate upstream applications for
MSAR(R) in the country, commencing with a recent presentation to
the Society of Petroleum Engineers Ecuador.
-- Mexico (Redliner & Freepoint Commodities) - MSAR(R)
opportunities in Mexico are wide-ranging and include upstream,
refinery refuelling, domestic power generation and fuel exports
that also reduce imports. Our principal activities are with our
agents Redliner, who have been progressing opportunities with the
national oil company and have successfully engaged with
stakeholders at very senior levels. Despite this, as a result of
delays by the client in the essential sharing of information during
COVID-19, we have not been able to undertake the techno-economic
study for multiple refineries as planned. Whilst this is
frustrating, it is not unusual in this market and we continue to
work with Redliner to progress activities as there is a clear
economic rationale. Most recently MSAR(R) briefings were submitted
directly by Redliner to the Energy Secretary and key Directors
(Upstream and Refining) of the national oil company.
Further discussions with the major independent power project
developer, who is supportive of MSAR(R) fuel's economic and
environmental advantages for new build power projects in the
region, are pending progress with the national oil company.
-- European Refiner - As we outlined in late 2019, the client is
comparing the economics of MSAR(R) with another refinery solution
to enable IMO 2020 compliant fuel supply; though the complex
refinery testing that was due to be carried out during Q2 and Q3
2020 has not been completed due to COVID-19 complications and
associated impacts to refinery margins. We are awaiting
clarification from the client as to when this evaluation work will
be completed but expect this to be delayed to 2021 after which we
will be informed of the decision to proceed with the MSAR(R)
solution or otherwise.
-- Nouryon - Following the positive initial discussions with
Nouryon regarding business collaboration opportunities between
Quadrise, Nouryon and related companies within the Carlyle Group,
Quadrise has continued to review the medium and long-term
opportunities to leverage the strongly aligned interests of all
participants. We have progressed our regular updates very
effectively with Nouryon using MS Teams.
-- Kuwait - This project has been directly impacted by COVID-19,
with no substantive progress having been made. We remain actively
engaged with our local agents Hawazin and they will be assisting
Quadrise in progressing this during 2020, aligned with our Middle
East White Paper and associated activities in the region.
Marine Applications
-- The implementation of IMO 2020 compliance was the main focus
for shipping companies and operators during most of the period,
though from early March, COVID-19 had a material adverse
operational impact. The sector, has however, benefitted from
significant reductions in fuel costs (which in the container
segment represent around 70% of operating costs), regardless of the
operators' positions on compliance options. There remains a general
consensus that scrubbers alongside the use of high-sulphur fuels is
the lowest cost solution for operators; though scrubber
installation activity was reduced from Q2 onwards, as a result of
the impact of COVID-19 on shipyard/drydock availability. We have
continued to progress opportunities with two major shipping
companies, each with large fleets and leading positions in scrubber
implementation in their segments of the shipping industry. These
discussions have continued with their technical, operational and
senior management teams to progress MSAR(R) Letter Of No Objection
("LONO") testing and we are working towards the implementation of
agreements with the respective companies during 2020.
-- We have continued to evaluate the opportunity to establish or
link with a physical bunker fuel supplier, to provide a supply
network for high sulphur fuels in parallel with MSAR(R) for the
LONO testing opportunities we are seeking to progress. These have
not progressed as rapidly as we initially hoped, as the bunker
market has been adversely impacted by COVID-19. However, this is a
market opportunity that we will continue to review, albeit it is
not considered a high priority at this time. As noted previously,
any decision to enter this market would be alongside trusted
counterparties who can manage the commodity price risk, provide the
working capital requirements and counterparty credit facilities and
manage the logistics of a physical bunkering operation.
Other
After the reporting period Quadrise signed an agency agreement
in August 2020 with Energy & Petroleum Consultants ("E&PC")
for specific territories in Central and South America that consume
fuel oil. The principals of E&PC are seasoned energy and
emulsion fuel project specialists that previously worked with Jason
Miles in the PDVSA Bitor Orimulsion fuel business.
There are no material updates to report on opportunities with
the European Oil Major, Bitumina, API Poly-GCL or Maersk Line.
New Environmental, Social and Governance Initiatives
Quadrise has always had strong environmental credentials, though
we recognised in 2019/20 that we had not highlighted this as
clearly as the economic case. As a result, we have focused
significant effort into setting out the environmental benefits, as
well as our social and governance credentials much more clearly. We
are fully aware that renewables will play an increasing role in
meeting the world's energy needs. However, there will be a long
transition period, during which fossil fuels will continue to play
an important role - and our MSAR(R) technology enables this to be
done in a manner which minimises the impact on the environment
through significantly reducing emissions compared with the
"standard" solutions currently being used. To highlight this, we
have materially increased our focus on this aspect in marketing and
investor relations materials and, more recently, created a distinct
Environmental, Social and Governance ("ESG") section on our
website.
Alongside highlighting the broader benefits of our MSAR(R)
technology, we have launched a body of work that upon success will
fundamentally increase its intrinsic ESG credentials. Examples
include:
-- Green MSAR(R) - Our Research, Development and Innovation
("RDI") team have been investigating opportunities to reduce
emissions of SO(x) and CO(2) from MSAR(R) by enabling sustainable
fuel sources to be incorporated into MSAR(R) to further enhance its
environmental benefits. Whilst this work is at an early stage,
positive progress has been made on formulations which incorporate
sustainable fuels into MSAR(R) increasing its economic value as a
fuel and materially reducing SO(x) and CO(2) emissions. We look
forward to providing shareholders with more information on this
initiative in due course.
-- Gas Scrubbers - An agency agreement was signed in July 2020
with Pacific Green Technologies, Inc ("PGT") Group, a company that
is becoming a world leader at providing sustainable cleantech
solutions for climate change, green energy and emissions control.
Their gas scrubbers have applications in the marine, power and
industrial sectors that we are developing and, as agent, Quadrise
will receive an agency fee based on sales of PGT technology linked
to MSAR(R) projects. The use of MSAR(R) alongside these solutions
enables customers to fund these environmental improvements, whilst
ensuring that the local communities are able to benefit from the
significant reduction in emissions.
-- Metals Recovery - Quadrise is collaborating with a UK
technology and engineering company that specialise in process plant
development, project risk analysis, and engineering and design.
They design and license technology for the extraction and recovery
of metals (particularly vanadium and nickel - with the former
having increasing use in the production of batteries that are
essential for large-scale adoption of renewable energy solutions)
from ashes, minerals, refinery residues, spent catalyst and
industrial by-products. There is a strong synergy with MSAR(R) fuel
ash, as the almost complete burnout of carbon concentrates the
metals in the ash which makes the metals recovery significantly
cheaper.
-- JGC - We are in discussions with JGC regarding a new joint
initiative for MSAR(R) to reduce Japanese refinery emissions of
CO(2) using combined heat and power diesel technology to replace
residue-fired boilers.
Delivery of Key Business Objectives
Our broad spread of activities has really come to the fore in
2020, with material progress achieved across several core markets.
As a result, we believe that we have continued to deliver on one of
our key objectives; to rebuild shareholder confidence and
demonstrate that their long-term support continues to be
justified.
With the substantial funding put in place during autumn 2019, we
secured our ability to pursue our business development activities
through to mid-Q2 calendar 2021. Since then we have made
significant progress in several markets, which brings the Company
closer to being able to advance towards commercial revenues and
profitability.
Changes to the Board during the year.
On 1 February 2020 the Company announced the promotion of Jason
Miles to Chief Executive Officer (from Chief Operating Officer) and
Mark Whittle's promotion to Chief Operating Officer from his
previous role as Head of Projects. Jason and Mark have been key to
the Company's business and project development initiatives and I
look forward to working alongside them in their new roles as the
Company progresses into its next stage.
Two non-executive directors stepped down during the year, with
Hemant Thanawala resigning effective 31 December 2019 to pursue
other business interests and Bryan Sanderson leaving on 14 July
2020 to assist the Company with its cost reduction initiatives. We
thank Hemant and Bryan for their service and wish them well in
their future endeavours.
Response to the COVID-19 Pandemic and Cost Reduction Actions
COVID-19 Mitigations
As we reported at the time of our interim results, we put in
place pragmatic and measured initiatives to protect our staff,
their families and the business. These ensured that we could
continue to operate QRF throughout the year, with no direct impact
on planned testing and operational support activities. Initially
QRF was closed to all external access, including staff from our
London office but with appropriate COVID-19 procedures and social
distancing measures in place activities have returned to
normal.
Our London office remained closed until August 2020, though most
staff continue to work effectively from home. This has had limited
impact on our activities, with very effective use being made of
in-country agents/representatives, together with web-based
conferencing communications. A recent example being QFI's use of
remote conferencing to deliver a presentation on MSAR(R) to the
Society of Petroleum Engineers Ecuador.
As noted above whilst it was not possible, from mid-March 2020,
to access the customer site in Morocco, we have been able to
progress our activities with minimal impact to the overall
timetable for the planned pilot facility trial. We are now
preparing to be able to resume face to face meetings and site
visits during 2020, provided it can be done in a way which is safe
for our staff, and we are appreciative of the client's commitment
and flexibility in this regard.
The planned trial in Utah later this year will also be reliant
on Quadrise staff being able to access the site and we are putting
appropriate plans in place, though these will be subject to being
able to comply with any restrictions on UK residents being able to
travel to the US.
Despite the global disruption caused by COVID-19, Quadrise has
continued to progress business development activities on multiple
fronts, and the levels of engagement with partners, prospective
clients and project stakeholders have generally increased. We
believe that this is a result of the economic and environmental
advantages that MSAR(R) offers being more widely known in the
market and that these advantages are even more crucial now.
Cost Reduction Actions
We continue to operate with a small but well-formed team at
Quadrise and being very mindful that all our activities are
currently funded directly from cash reserves, we have always had a
keen eye on costs, and acted very early, ahead of the general
lockdown to have a further close review of our cost base. As a
result, we took the decision to exercise the break clause in the
lease at our current London Office, allowing the Company to locate
to lower cost and more flexible premises at the end of Q1 2021.
Given the timing of cost reductions, administrative expense savings
are expected to be more fully reflected during the current
financial year.
We have utilised the furlough scheme for a small number of our
London and QRF based staff as appropriate and we continue to review
staffing levels and overall costs to maximise the use of remaining
cash reserves.
Following a thorough review of the Company's cost base, which
included the reduction of lease commitments and non-exec director's
fees discussed above, alongside the significant reduction in our
travel-related expenses from mid-March 2020 onwards Quadrise was
able to extend its period of operation on the current cash reserves
from 31 December 2020 (as announced at the time of completing the
fundraising in October 2019 to mid-Q2 calendar 2021
RDI and Operations Activities
Research, development and innovation ("RDI") activities remain a
core function and underpin our technology-led offering, with QRF
our hub for these activities. During the first half of the period,
work was focused on the fabrication and commissioning of a new lab
mill that is suitable for both development and testing work on
heavier residues that require higher working temperatures and
pressures for MSAR(R) manufacture. During Q1 calendar 2020,
preparation for the trial in Morocco was the main activity and
included the design, fabrication and commissioning of the pumping
and heating unit, testing of a bespoke in-house designed burner tip
and production of the fuel for the trial. All of which was
completed on time, enabling the equipment and fuel to be available
on site as planned, before the COVID-19 lockdown prevented trial
commencement.
The ability to utilise QRF to produce relatively small volumes
of MSAR(R) fuel (up to 20 tonnes) has proved to be instrumental in
our work to progress the trials in Morocco (without needing to
involve a third-party refiner for fuel production). This will
continue to be of critical importance as part of our plan to
mobilise on site during 2020 and to seek to mitigate the impact of
the delay to the start of the on-site work on the overall project
programme.
Testing of the oil samples from Greenfield will be a priority,
ahead of planned on-site trial activities in Utah towards the end
of 2020. Operational support activities for this project during the
remainder of calendar 2020 will be focused, initially, on ensuring
that all equipment is adequately prepared for the challenges of
working in the very cold winter conditions in Utah.
As described above, during 2020 and to date, the RDI team have
completed initial testing and scoping for a new programme of work
at QRF to further improve the environmental performance and
credentials of MSAR(R) using sustainable fuel sources. Positive
progress has been made in this regard and work will continue for
the remainder of the year and potentially into 2021. Some of the
opportunities being investigated offer novel patent opportunities
to enhance Quadrise's Intellectual Property portfolio.
PR/IR Activities
During the year the Company maintained its commitment to
communicating effectively with its stakeholders.
In addition to enhanced shareholder engagement across a number
of platforms, the Company's targeted approach to commercial
engagement saw the preparation, publication and active promotion of
the White Paper on the MSAR(R) opportunity in the Middle East;
including the new section on the website in both English and Modern
Standard Arabic ("MSA") - this work will be expanded during
calendar 2020 to provide a "lite" version of our website in MSA -
reinforcing our longstanding presence and commitment to the region,
as well as similar content in Spanish.
Results for the Year
The consolidated after-tax loss for the year to 30 June 2020 was
GBP4.8m (2019: GBP3.0m).
Production and development costs of GBP1.4m (2019: GBP1.5m)
comprise the costs of the Group's operational staff and
consultants, QRF running costs, equipment and consumables and
depreciation expense amongst others. These costs have decreased
slightly as the 2019 charges include residual costs of
decommissioning the Group's MSAR(R) manufacturing unit and
associated equipment at the Cepsa refinery.
Administration expenses of GBP1.8m (2019: GBP1.5m), comprise the
Group's corporate staff and directors' costs, professional advisor
fees, PR/IR costs and head office costs. The increase of GBP0.3m
has arisen due to increased professional fees incurred as a result
of the fundraising activities during the year and an increase in
executive directors' bonus payments as none were awarded in the
prior year.
Fair value adjustment charges to the Convertible Securities of
GBP1.1m (2019: nil) have arisen during the year (see note 10).
Non-cash share option charges of GBP0.5m (2019: GBP0.2m) have
increased due to the award of share options to staff and directors
in the prior year which are expensed over the vesting period (see
note 11). The increase in finance costs to GBP146k (2019: GBP6k) is
due to a GBP140k finance fee arising as part of the Convertible
Securities instrument (see note 10), which was settled by issuance
of shares.
Basic and diluted loss per share was 0.49p (2019: 0.34p).
Statement of Financial Position
At 30 June 2020, the Group had total assets of GBP6.3m (2019:
GBP5.1m). The most significant balances were intangible assets of
GBP2.9m (2019: GBP2.9m), property, plant and equipment of GBP0.6m
(2019: GBP0.7m), and cash of GBP2.4m (2019: GBP1.1m). Further
information on intangible assets is provided in note 8 below.
Cash Flow
The Group ended the year with GBP2.4m of cash and cash
equivalents (2019: GBP1.1m). In September 2019, the Group raised
GBP2.0m through the issuance of the Convertible Security to Bergen
and gross proceeds of GBP2.56m via the fully underwritten open
offer and accompanying subscription. GBP3.1m was utilised in
operating activities during the year (2019: GBP2.7m).
Capital Structure
The Company had 922,711,895 ordinary shares of 1p each in issue
at 30 June 2019. On 22 August 2019, 3,888,889 new ordinary shares
were issued at 3.6p per share and a further 4,500,000 new ordinary
shares were issued at par as part of the Convertible Security
transaction announced on 23 August 2019 (see note 10). A further
64,656,051 new ordinary shares were issued at 3.96p per share on 1
October 2019 as a result of the Open Offer and Subscription
announced on 9 September 2019. Upon exercise of conversion rights
over the Convertible Security, new ordinary shares were issued to
Bergen as follows:
Date Number of Conversion
shares price (GBP)
24 March
2020 8,333,333 0.012
----------- -------------
16 April
2020 8,333,333 0.012
----------- -------------
23 June 2020 22,727,273 0.011
----------- -------------
20 August
2020 18,750,000 0.016
----------- -------------
7 September
2020 23,529,412 0.017
----------- -------------
The Company's current issued share capital stands at
1,077,430,186 ordinary shares of 1p each, all with voting
rights
Taxation
The Group has tax losses arising in the UK of approximately
GBP53.7m (2019: GBP51.0m ) that are available, under current
legislation, to be carried forward against future profits. GBP26.6m
(2019: GBP23.5m) of the tax losses carried forward represent
trading losses within Quadrise Fuels International plc, GBP25.8m
(2019: GBP25.8m) represent non-trade deficits arising on intangible
assets within Quadrise International Limited, GBP0.6m (2019:
GBP0.9m) represent pre-trading losses incurred by subsidiaries,
GBP0.8m (2019: GBP0.8m) represent management expenses incurred by
Quadrise International Limited, an d GBP0.1m (2019: GBP0.1m)
represent capital losses within Qua drise Fuels International
plc.
Outlook - Current trading and prospects.
The Quadrise team has been able to build on the platform created
in 2019 and has created significant momentum, despite the COVID-19
pandemic.
The final quarter of 2020 will be a very busy period, as we are
poised to complete two critical trials/tests; first in Morocco and
then in Utah, USA. Whilst these timings could be subject to
revision in the light of further controls relating to the COVID-19
pandemic in the UK, Morocco or the US, and in the case of the test
in the US, confirming the required MSAR(R) formulation from the
Asphalt Ridge oil samples to be supplied during the planned
November 2020 start-up. W e remain confident in our ability to
complete these critical projects in 2020.
Alongside these activities, in the industrial and upstream
markets we have undertaken significant work to underpin the
substantial opportunities in KSA and the wider Middle East region,
with the publication of the Middle East White Paper and having key
segments of our website now available in Arabic.
In Central and South America, we are continuing to progress the
opportunities in Ecuador and Mexico and have added further to our
roster of agents in this important region, to complement the
activities of Freepoint and Redliner.
In the marine market, we are seeking to conclude LONO trial
agreements with major shippers in the container/bulker markets. The
physical bunker market has been significantly impacted by the
COVID-19 pandemic and we will not be progressing this opportunity
in 2020.
Our ability to respond rapidly to the opportunity with
Greenfield/Valkor is, we believe, a clear demonstration of how our
proven project management and RDI expertise enables us to engage
with leading companies and reduces the delivery risk to our project
activities.
The significant commitment to PR/IR activities during 2020 will
continue through the rest of the year and into 2021, with a White
Paper focused on the Latin American market and a Spanish version of
the main portions of our website being planned for Q4 2020. We will
also continue to use a broad spread of routes to engage with
shareholders, including interviews with Proactive Investors,
presentations at retail investor forums and events, and the use of
Investor Meet Company to provide regular updates and Q&A
sessions for our substantial and loyal retail shareholder base.
Whilst global commerce remains significantly impacted by
COVID-19, we remain confident that we can meet the challenging
timetables we have put in place for the trials in Morocco and Utah,
USA, though there may be challenges along the way. Successful
delivery of these critical trials/tests will fundamentally de-risk
Quadrise's business across all end-user and geographic markets and
provide, we believe, a clear path to commercial revenues.
QFI has a small, but very capable team and our continued
progress is only possible through the significant contribution of
everyone working within the business and I would like to thank them
all for their continued dedication and professionalism. Finally, I
would like to thank, once again, our shareholders for their support
which as always will remain fundamental to the long-term success of
Quadrise.
Mike Kirk
Chairman
2 October 2020
Strategic Report
For the year ended 30 June 2020
Principal Activity
The principal activity of the Company is to develop markets for
its proprietary emulsion fuel (" MSAR(R) ") as a low-cost
substitute for conventional heavy fuel oil ("HFO") for use in power
generation plants, industrial applications and marine diesel
engines.
Business Review and Future Developments
A full review of the Group's activities during the year, recent
events and future developments is contained in the Chairman's
Statement.
Key Performance Indicators
The Group's key performance indicators are:
-- Development and commercial performance against the Group's
business model and project timetables established with partners and
clients, and
-- Financial performance and position against the approved budgets and cashflow forecasts.
The Board regularly reviews the Group's business model, with a
business development review being held fortnightly between the
Executive Directors and two of the Group's Non-Executive Directors.
The commercial performance of the Company and discussion of each of
the Company's key projects and business development opportunities
is discussed at length in the Chairman's Statement.
Each year, a detailed two-year budget and cash forecast is
prepared by the Executive Directors and the Head of Finance, and
following an extensive review process, is then approved by the
Board. Performance against budget and updated cash projections are
included within the monthly management accounts which are issued to
and reviewed by the board. Further information regarding
performance against budget and the cost savings measures introduced
during the year, which have extended the Group's projected period
of operation from 31 December 2019 to mid Q2 calendar 2021, is
included in the Chairman's Statement.
Going Concern
The Group had a cash balance of GBP2.4m as at 30 June 2020. The
Directors acknowledge that this cash balance is only sufficient to
cover the Group's operating requirements up to mid Q2 calendar
2021. These conditions indicate the existence of material
uncertainty regarding the Group's and Company's ability to continue
as a going concern.
The Directors have determined that the continuation of the Group
as a going concern is dependent upon successfully raising
sufficient funds in the short term, and that they have a reasonable
expectation that such funds will be raised, although no binding
funding agreements are in place at the date of this report. The
Directors therefore have determined that it is appropriate to
prepare the financial statements on a going concern basis. For
further details behind the judgments and estimations used by the
Directors in reaching this determination, refer to note 2.
Principal Business Risks
Each year in the second quarter, the Audit Committee assists the
Executive Team in a structured zero-based re-assessment of the
Company's emerging and principal risks. This is conducted for each
operational sector and organisational level including the Company's
research and development facility, QRF, and then aggregated for the
Company as a whole. The risk level is determined by its
probability, impact on the Company, and whether the risk has
increased or decreased over the last 12 months. A summary of
"Principal Risks and Uncertainties" is reviewed at a board meeting.
Subsequently a Risk Mitigation Strategy and Action Plan is
incorporated into the annual Business Planning exercise conducted
in June.
The principal risks identified during this exercise, ranked in
order of the likelihood of occurrence, are set out below. These may
not include all of the risk factors that could affect future
results. Actual results could differ materially from those
anticipated as a consequence of these and various other factors,
and those set forth in the Group's other periodic and current
reports filed with the authorities from time to time.
Delay in commercialisation of MSAR(R) and funding risks due to
COVID-19
There is a risk that the commercialisation of MSAR (R) could be
delayed further due to the global COVID-19 pandemic, or unforeseen
technical and/or commercial challenges. This could mean that the
Group may need to raise further equity funds to remain operational.
Depending on market conditions and investor sentiments, there is a
risk that the Group may be unable to raise the required funds when
necessary. The Group mitigates this risk by maintaining strong
control over its pre-revenue expenditure, keeping up the momentum
on its key projects and maintaining regular contact with the
financial markets and investor community. Further discussion of the
impact of COVID-19 on the Group and the Group's mitigating action
is included in the Chairman's Statement.
Market risk
The marketability of MSAR(R) fuels is affected by numerous
factors beyond the control of the Group . These include variability
of price spreads between light and heavy oils, the relative
competitiveness of oil, gas and coal prices both for prompt and
future delivery, and the future use of hydrocarbons for energy,
utilities, transportation, petrochemicals and industrial
applications. The Group mitigates this risk by continuing to
promote the environmental contribution of MSAR and explaining the
assured contribution of hydrocarbons to the global energy mix. The
Company further mitigates this risk by increasing the potential
applicability of MSAR(R) technology to various sectors, as
evidenced by applications in the upstream and industrial sections
announced during the year and discussed in the Chairman's
Statement.
Feedstock sourcing
There is a risk in respect of appropriately located and ongoing
price competitive availability of heavy oil residue feedstock as
oil refiners seek to extract more transportation fuels from each
barrel of crude using residue conversion processes. The Group
mitigates this risk where possible by utilising its deep
understanding of the global refining industry, targeting qualifying
suppliers matched to prospective major consumers. A commercial
contract would motivate candidate feedstock suppliers to expedite
feedstock supply.
Commercial risks
There is a risk the Group will not achieve a commercial return
due to major unanticipated change in a key variable or, more
likely, the aggregate impact of changes to several variables which
results in sustained depressed margins.
The competitive position could be affected by changes to the f
uel oil-gasoil spreads, government regulations concerning taxation,
duties, specifications, importation and exportation of hydrocarbon
fuels and environmental aspects. Freight costs contribute
substantially to the final cost of supplied products and a major
change in the cost of bulk liquid freight markets could have an
adverse effect on the economics of the fuels business. The Group
would mitigate this risk through establishing appropriate
flexibilities in the contractual framework, offtake arrangements
and price risk management through hedging.
Technological risk
There is a risk that the technology used for the production of
MSAR(R) fuel may not be adequately robust for all applications in
respect of the character and nature of the feedstock and the
particular parameters of transportation and storage pertaining to a
specific project. This risk may jeopardise the early
commercialisation of the technology and subsequent implementation
of projects; or give rise to significant liabilities arising from
defective fuel during plant operations. The Group mitigates this
risk by ensuring that its highly experienced key personnel are
closely involved with all areas of MSAR(R) formulation and
manufacture, and that the MSAR(R) fuel is thoroughly tested before
being put into operational use.
Competition risks
There is a risk that new competition could emerge with similar
technologies sufficiently differentiated to challenge the MSAR (R)
process, although at the date of this report no evidence of
significant competition has been noted. Were such competition to
emerge, this could result, over time, in further price competition
and pressure on margins beyond that assumed in the Group 's
business planning. This risk is mitigated by the limited global
pool of expertise in the emulsion fuel market combined with an
enhanced R&D programme aimed at optimising cost and performance
and protection of intellectual property. The Group also makes best
use of scarce expertise by developing close relationships with
strategic counterparties such as Nouryon while ensuring that key
employees are suitably incentivised.
Other Business Risks
Dependence on key personnel
The Group 's business is dependent on obtaining and retaining
the services of key personnel of the appropriate calibre as the
business develops. The success of the Group will continue to be
dependent on the expertise and experience of the Directors and the
management team, and the loss of personnel could still have an
adverse effect on the Group . The Group mitigates this risk by
ensuring that key personnel are suitably incentivised and
contractually bound.
Environmental risks
The Group 's operations are subject to environmental risks
inherent in the oil processing and distribution industry. The Group
is subject to environmental laws and regulations in connection with
all of its operations. Although the Group ensures compliance with
all applicable environmental laws and regulations, there are
certain risks inherent to its activities, such as accidental
spills, leakages or other circumstances that could expose the Group
to potential liability.
Further, the Group may require approval from the relevant
authorities before it can undertake activities which are likely to
impact the environment. Failure to obtain such approvals may
prevent or delay the Group from undertaking its desired activities.
The Group is unable to predict definitively the effect of
additional environmental laws and regulations, which may be adopted
in the future, including whether any such laws or regulations would
materially increase the Group 's cost of doing business, or affect
its operations in any area of its business. The Group mitigates
this risk by ensuring compliance with environmental legislation in
the jurisdictions in which it operates, and closely monitoring any
pending regulation or legislation to ensure compliance.
No profit to date
The Group has incurred aggregate losses since its inception and
it is therefore not possible to evaluate its prospects based on
past performance. There can be no certainty that the Group will
achieve or sustain profitability or achieve or sustain positive
cash flow from its activities.
Corporate and regulatory formalities
The conduct of petroleum processing and distribution requires
compliance by the Group with numerous procedures and formalities in
many different national jurisdictions. It may not in all cases be
possible to comply with or obtain waivers of all such formalities.
Additionally, functioning as a publicly listed company requires
compliance with the stock market regulations. The Group mitigates
this risk through commitment to a high standard of corporate
governance and 'fit for purpose' procedures, and by maintaining and
applying effective policies.
Economic, political, judicial, administrative, taxation or other
regulatory factors
The Group may be adversely affected by changes in economic,
political, judicial, administrative, taxation or other regulatory
factors, in the areas in which the Group operates and conducts its
principal activities.
Mike Kirk
Chairman
2 October 2020
Consolidated Statement of Comprehensive Income
For the year ended 30 June 2020
Notes Year ended Year ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
Continuing operations
Revenue - 22
Production and development costs (1,357) (1,475)
Other administration expenses (1,821) (1,462)
Fair value adjustments arising
on Convertible Securities 10 (1,133) -
Share option charge 11 (474) (154)
Warrant charge 12 (65) (105)
Foreign exchange gain/(loss) (1) 10
---------------------------------- ------ -------------- --------------
Operating loss 4 (4,851) (3,164)
Finance costs (146) (6)
Finance income 7 3
---------------------------------- ------ -------------- --------------
Loss before tax (4,990) (3,167)
Taxation 5 147 184
---------------------------------- ------ -------------- --------------
Loss and total comprehensive loss
for the year
from continuing operations to owners
of the parent (4,843) (2,983)
------------------------------------------ -------------- --------------
Loss per share - pence
Basic 6 (0.49)p (0.34)p
Diluted 6 (0.49)p (0.34)p
---------------------------------- ------ -------------- --------------
Consolidated Statement of Financial Position
As at 30 June 2020
Notes As at As at
30 June 2020 30 June 2019
GBP'000s GBP'000s
Assets
Non-current assets
Property, plant and equipment 7 582 730
Intangible assets 8 2,924 2,924
Non-current assets 3,506 3,654
------------------------------- ------ -------------- --------------
Current assets
Cash and cash equivalents 2,380 1,060
Trade and other receivables 213 169
Prepayments 112 106
Stock 61 61
------------------------------- ------ -------------- --------------
Current assets 2,766 1,396
------------------------------- ------ -------------- --------------
TOTAL ASSETS 6,272 5,050
------------------------------- ------ -------------- --------------
Equity and liabilities
Current liabilities
Trade and other payables 198 288
Convertible Securities 10 2,045 -
------------------------------- --- --------- ---------
Current liabilities 2,243 288
------------------------------- --- --------- ---------
Equity attributable to owners
of the parent
Issued share capital 10,351 9,227
Share premium 75,431 74,438
Share option reserve 3,927 3,455
Warrant reserve 1,122 105
Reverse acquisition reserve 522 522
Accumulated losses (87,324) (82,985)
------------------------------- --- --------- ---------
Total shareholders' equity 4,029 4,762
------------------------------- --- --------- ---------
TOTAL EQUITY AND LIABILITIES 6,272 5,050
------------------------------- --- --------- ---------
Consolidated Statement of Changes in Equity
For the year ended 30 June 2020
Share Reverse
Issued Share option Warrant acquisition Accumulated
capital premium reserve reserve reserve losses Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
1 July 2018 8,622 73,642 3,432 - 522 (80,133) 6,085
Loss and total
comprehensive loss
for the year - - - - - (2,983) (2,983)
Share option charge - - 154 - - - 154
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Transfer of balances
relating to expired
share options - - (131) - - 131 -
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Warrant charge - - - 105 - - 105
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
New shares issued 605 908 - - - - 1,513
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Share issue costs - (112) - - - - (112)
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
30 June 2019 9,227 74,438 3,455 105 522 (82,985) 4,762
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
1 July 2019 9,227 74,438 3,455 105 522 (82,985) 4,762
Loss and total
comprehensive loss
for the year - - - - (4,843) (4,843)
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Fair value adjustments
arising on Convertible
Securities - - - - - 502 502
Share option charge - - 474 - - - 474
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Transfer of balances
relating to expired
share options - - (2) - - 2 -
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Warrant charge - - - 65 - - 65
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Warrants issued
as part of Open
Offer and Subscription - (816) - 816 - - -
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Shares and warrants
issued as part
of Convertible
Securities transaction. 84 101 - 136 - - 321
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
New shares issued 647 1,914 - - - - 2,561
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Share issue costs - (263) - - - - (263)
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Shares issued upon
exercise of Convertible
Security 393 57 - - - - 450
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
30 June 2020 10,351 75,431 3,927 1,122 522 (87,324) 4,029
-------------------------- ---------- ---------- ---------- ----------- ------------- -------------- ----------
Consolidated Statement of Cash Flows
For the year ended 30 June 2020
Notes Year ended Year ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
Operating activities
Loss before tax from continuing
operations (4,990) (3,167)
Fair value adjustments
arising on Convertible
Securities 10 1,133 -
Convertible Securities
finance fee (non-cash) 10 140 -
Depreciation 7 172 230
Loss on disposal of fixed
assets - 25
Finance costs paid 6 6
Finance income received (7) (3)
Share option charge 11 474 154
Warrant charge 12 65 105
Working capital adjustments
(Increase)/decrease in
trade and other receivables (44) 19
(Increase)/decrease in
prepayments (6) 16
Decrease in trade and other
payables (90) (112)
Cash utilised in operations (3,147) (2,727)
--------------------------------- --------- -------------- --------------
Finance costs paid (6) (6)
Taxation received 5 147 184
Net cash outflow from operating
activities (3,006) (2,549)
--------------------------------- --------- -------------- --------------
Investing activities
Finance income received 7 3
Purchase of property, plant
and equipment 7 (24) (24)
Net cash outflow from investing
activities (17) (21)
--------------------------------- --------- -------------- --------------
Financing activities
Issue of ordinary share
capital 2,606 1,513
Issue costs (263) (112)
Increase in Convertible
Securities 10 2,000 -
Net cash inflow from financing
activities 4,343 1,401
Net increase/(decrease)
in cash and cash equivalents 1,320 (1,169)
Cash and cash equivalents
at the beginning of the
year 1,060 2,229
--------------------------------- --------- -------------- --------------
Cash and cash equivalents
at the end of the year 2,380 1,060
--------------------------------- --------- -------------- --------------
Notes to the Financial Information
1. Basis of Preparation and Significant Accounting Policies
The financial information for the year ended 30 June 2020 set
out in this announcement has been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union (IFRS).
The financial information has been prepared on the historical
cost basis, except for the revaluation of certain financial
instruments. Details of the accounting policies applied are set out
in the financial statements for the year ended 30 June 2020.
The financial information is prepared in Pounds Sterling and all
values are rounded to the nearest thousand Pounds (GBP'000) except
where otherwise indicated.
The financial information contained in this announcement does
not constitute the Company's statutory financial statements for the
year ended 30 June 2020 but has been extracted from them. These
financial statements will be delivered to the Registrar of
Companies following the Company's Annual General Meeting. The
auditors have reported on these financial statements, and their
report was unqualified and did not contain any statement under
section 498(2) or (3) Companies Act 2006.
Statutory financial statements for the year ended 30 June 2019
have been delivered to the Registrar of Companies. The auditor's
report on these financial statements was unqualified and did not
contain any statement under section 498(2) or (3) Companies Act
2006.
The Directors do not propose a dividend in respect of the year
ended 30 June 2020 (2019: nil).
This announcement was approved by the Board on 2 October
2020.
Interim results to 31 December 2019
The interim results to 31 December 2019 showed a total
comprehensive loss for the period of GBP3.11m, which included
warrant charges of GBP816k relating to warrants issued to
participants in the Open Offer and Subscription announced on 9
September 2019. These warrants fulfil the criteria to be recognised
as an equity instrument under IAS 32 (see note 12). The warrant
charge of GBP816k is therefore no longer included within total
comprehensive loss for the year and has instead been recognised in
equity.
The interim results for the six-month period ended 31 December
2020 will therefore include restated comparative results for the
six-month period ended 31 December 2019, which will incorporate the
adjustment referred to above.
2. Going Concern
As at 30 June 2020, the Group had a cash balance of GBP2.4m,
which is sufficient to fund the Group to mid Q2 calendar 2021. The
continuation of the Group as a going concern beyond mid Q2 calendar
2021 is therefore dependent upon successfully raising additional
funds prior to this date. There is thus a material uncertainty
which may cast doubt about the Group's and Company's ability to
continue as a going concern.
On preparing the financial statements on a going concern basis,
the Directors believe the Group has a realistic expectation of
raising funds prior to mid Q2 calendar 2021 . The assumptions used
as the basis for this judgement are that:
-- The Group can put forward a positive investment case to the
market, demonstrating that it has an active business development
programme which will result in the generation of commercially
sustainable revenues in the near term.
-- The market will then be receptive to this investment case and
be willing to provide the funding required prior to mid Q2 calendar
2021 .
The basis for these assumptions is, as outlined in the
Chairman's Statement, the demonstrable progress made during
2019-20. The Group's business development programme, led by the
Executive Directors, has generated a portfolio of project
opportunities, most recently demonstrated by the signature of the
commercial trial agreement with Greenfield Energy LLC and the
agreement with the industrial and chemicals company in Morocco. In
addition, active discussions continue relating, amongst others, to
the opportunities in the KSA, Ecuador, Mexico and the Marine
market. The board is actively involved with the business
development programme, and regularly appraised of progress, with
fortnightly business development update meetings held between the
Executive Directors and two of the Group's Non-Executive Directors,
as well as regular full board meetings of which there were 16
during the 2019-20 financial year.
The board regularly review the Group's business model and
financial projections. The business model shows total forecast
Group cashflows up to 30 June 2031 and forms the basis of the
investment case for the Company, anchored by the Group budget and
business plan which covers the next two financial years in detail.
The model comprises the financial forecasts associated with each
project opportunity deemed to have a realistic chance of
progressing, with assumptions made about i) the operating mode
(licence, tolling or merchant), ii) the equity percentage held in
the venture, iii) the cost of chemicals and equipment, iv) margins
and v) rates of growth. These assumptions are based on the latest
market information, agreements with counterparties and the status
of discussions. The Directors have a reasonable basis for assuming
the business development programme outlined above will result in
the generation of commercially sustainable revenues in the near
term.
The Directors carry out a detailed risk assessment process each
year, with key risks and mitigating actions identified. The
outbreak of the COVID-19 pandemic in early 2020 had the potential
to undermine the view that progress of the business development
programme towards commercially sustainable revenues would be
demonstrated in the near-term. However, despite the global
disruption caused by COVID-19, the Group has continued to progress
its business development activities utilising a combination of
web-conferencing and, where possible, in-person meetings with the
Group's in-country agents and representatives. This was
demonstrated most recently by the August 2020 signature of the
Greenfield MSAR(R) Commercial Trial Agreement in the midst of
COVID-19 related disruption in the USA. COVID-19 has had minimal
impact on the Group's normal UK operations, with London based staff
working remotely and QRF remaining fully operational throughout
2020, albeit with social-distancing measures in place and highly
restricted acceptance of third-party visitors. Significant cost
savings have also been made since the outbreak of COVID-19 through
careful management of discretionary expenditure and human
resources.
The Directors also note the positive and sustained levels of
engagement with partners, prospective clients and project
stakeholders worldwide during the course of 2020, despite global
COVID-19 disruption. Existing and prospective commercial partners
make decisions based on long-term considerations, and the Directors
believe that the economic and environmental advantages that MSAR(R)
offers are increasingly attractive in periods of global uncertainty
as counterparties look to both generate savings and further improve
their environmental performance.
The Directors acknowledge that project activities that require
being on site at client premises have been delayed and could be
subject to further delays depending upon the status of the pandemic
and restrictions put in place by governments in the months ahead.
Whilst these delays do not inherently affect the longer-term
business case which forms the basis for investment in the Group,
the revenues resulting from projects may be impacted. Although the
Group is not presently reliant upon any such revenues and the
resultant positive cash flows to fund its operations, it is reliant
upon existing shareholder funds and the ability to raise further
funds until such a time when the Group is commercially
self-sustaining.
The Group has an active programme of public and investor
relations with high levels of shareholder engagement across a range
of platforms. From a low of 1.18p in June 2019 the share price has
increased to a steady range of 2.68p-3.75p in the period to the
date of this report following positive news flow during that period
including the announcement of the Greenfield MSAR(R) Commercial
Trial Agreement on 18 Aug 2020. The Directors continue to explore
all possible funding opportunities and maintain regular active
dialogue with the Group's joint brokers, advisors and potential
strategic and funding partners. The finance committee of the board
(comprising the Executive Directors and two of the Group's
Non-Executive Directors) meets fortnightly, immediately after a
business development review, to discuss the Group's plans for a
financing programme and its timing relative to business development
progress. The Directors are therefore able to make a realistic
assessment of likely market and investor reaction to a strong
investment case and the likelihood that funding will be
provided.
The Directors also note that the Group has a history of being
able to successfully raise funds, as it has done so on a number of
occasions during recent years, including most recently in autumn
2019, with the receipt of GBP4.3m (net of costs) from an open
offer, subscription and the issue of the first GBP2m tranche of
Convertible Securities to Bergen Global Opportunity Fund, LP. A
second tranche of Convertible Securities, with a nominal value of
up to GBP2.15 million is conditionally available from Bergen with a
subscription price of up to GBP2.0 million (subject to the
aggregate nominal value not exceeding 3.5% of the Company's market
capitalisation on issue) from November 2020.
The Directors are therefore comfortable with the assumption that
the market will be receptive to a positive investment case and will
be willing to provide the funding required to allow the Group to
progress towards sustainable revenues and continue as a going
concern.
Based on the rationale for the key assumptions outlined above,
the Directors have therefore made the judgement that the financial
statements should be prepared on a going concern basis, despite no
binding funding agreement being in place at the date of this
report.
3. Segmental Information
For the purpose of segmental information, the reportable
operating segment is determined to be the business segment. The
Group principally has one business segment, the results of which
are regularly reviewed by the Board. This business segment is 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.
Geographical Segments
The Group's only geographical segment during the year was the
UK.
4. Operating Loss
Operating loss is stated after charging: Year ended Year ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts.
Fees payable to the Company's auditor
and its associates for other services
: 23 16
Audit of accounts of subsidiaries 23 16
Tax compliance services 3 5
Consultants and other professional
fees (including legal) 286 238
Depreciation of property, plant and
equipment 172 230
Research and development costs 241 178
5. Taxation
Year ended Year ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
UK corporation tax credit (147) (184)
Total (147) (184)
--------------------------- -------------- --------------
No liability in respect of corporation tax arises as a result of
trading losses.
Tax Reconciliation Year ended Year ended
30 June 2020 30 June 2019
GBP'000s GBP'000s
Loss on continuing operations before
taxation (4,990) (3,167)
Loss on continuing operations before
taxation multiplied by
the UK corporation tax rate of 19%
(2019: 19%) (948) (602)
Effects of:
Non-deductible expenditure 208 40
R&D tax credit (147) (184)
Temporary differences (13) -
Tax losses carried forward 753 562
Total taxation credit on loss from
continuing operations (147) (184)
-------------------------------------- ----------------- ----------------
The Group has tax losses arising in the UK of approximately
GBP53.7m (2019: GBP51.0m ) that are available, under current
legislation, to be carried forward against future profits. GBP26.6m
(2019: GBP23.5m) of the tax losses carried forward represent
trading losses within Quadrise Fuels International plc, GBP25.8m
(2019: GBP25.8m) represent non-trade deficits arising on intangible
assets within Quadrise International Limited, GBP0.6m (2019:
GBP0.9m) represent pre-trading losses incurred by subsidiaries,
GBP0.8m (2019: GBP0.8m) represent management expenses incurred by
Quadrise International Limited, an d GBP0.1m (2019: GBP0.1m)
represent capital losses within Qua drise Fuels International
plc.
A deferred tax asset representing these losses and other
temporary differences at the statement of financial position date
of approximately GBP10.2m (2019: GBP8.7m) has not been recognised
as a result of existing uncertainties in relation to its
realisation.
6. Loss Per Share
The calculation of loss per share is based on the following loss
and number of shares:
Year ended Year ended
30 June 2020 30 June 2019
Loss for the year (GBP'000s) (4,843) (2,983)
Weighted average number of shares:
Basic 982,793,918 888,728,557
Diluted 982,793,918 888,728,557
Loss per share:
-------------------------------------- -------------- --------------
Basic (0.49)p (0.34)p
-------------------------------------- -------------- --------------
Diluted (0.49)p (0.34)p
-------------------------------------- -------------- --------------
Basic loss per share is calculated by dividing the loss for the
year from continuing operations of the Group by the weighted
average number of ordinary shares in issue during the year.
For diluted loss per share, the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
potential dilutive options over ordinary shares. Potential ordinary
shares resulting from the exercise of share options have an
anti-dilutive effect due to the Group being in a loss position. As
a result, diluted loss per share is disclosed as the same value as
basic loss per share. The 29.3m dilutive share options and the
45.2m dilutive warrants issued by the Company and which are
outstanding at year-end could potentially dilute earnings per share
in the future if exercised when the Group is in a profit making
position.
7. Property, plant and equipment
Consolidated
Leasehold Computer Software Office Plant Total
Improvements Equipment Equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2019 181 91 43 16 1,390 1,721
Additions - 4 - - 20 24
Disposals - - - - - -
Closing balance
- 30 June 2020 181 95 43 16 1,410 1,745
------------------ -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2019 (166) (78) (41) (16) (690) (991)
Depreciation
charge for the
year (15) (11) (2) - (144) (172)
Disposals - - - - - -
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2020 (181) (89) (43) (16) (834) (1,163)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2020 - 6 - - 576 582
------------------ -------------- ----------- --------- ----------- --------------- ---------
Consolidated
Leasehold Computer Software Office Plant Total
Improvements Equipment Equipment and machinery
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Opening balance
- 1 July 2018 166 91 43 16 1,428 1,744
Additions 15 - - - 9 24
Disposals - - - - (47) (47)
Closing balance
- 30 June 2019 181 91 43 16 1,390 1,721
------------------ -------------- ----------- --------- ----------- --------------- ---------
Depreciation
Opening balance
- 1 July 2018 (109) (63) (36) (16) (559) (783)
Depreciation
charge for the
year (57) (15) (5) - (153) (230)
Disposals - - - - 22 22
------------------ -------------- ----------- --------- ----------- --------------- ---------
Closing balance
- 30 June 2019 (166) (78) (41) (16) (690) (991)
------------------ -------------- ----------- --------- ----------- --------------- ---------
Net book value
at 30 June 2019 15 13 2 - 700 730
------------------ -------------- ----------- --------- ----------- --------------- ---------
8. Intangible Assets
Consolidated
QCC royalty MSAR(R) Technology Total
payments trade name and know-how
GBP'000s GBP'000s GBP'000s GBP'000s
Cost
Balance as at 1 July
2019 and 30 June 2020 7,686 3,100 25,901 36,687
Amortisation and Impairment
Balance as at 1 July
2019 and 30 June 2020 (7,686) (176) (25,901) (33,763)
Net book value as
at 30 June 2020 - 2,924 - 2,924
----------------------------- ------------ ------------ -------------- ---------
Cost
Balance as at 1 July
2018 and 30 June 2019 7,686 3,100 25,901 36,687
Amortisation and Impairment
Balance as at 1 July
2018 and 30 June 2019 (7,686) (176) (25,901) (33,763)
Net book value as
at 30 June 2019 - 2,924 - 2,924
----------------------------- -------- ------ --------- ---------
Intangible assets comprise intellectual property with a cost of
GBP36.7m, including assets of finite and indefinite life. Quadrise
Canada Corporation's ("QCC's) royalty payments of GBP7.7m and the
MSAR(R) trade name of GBP3.1m are termed as assets having
indefinite life as it is assessed that there is no foreseeable
limit to the period over which the assets would be expected to
generate net cash inflows for the Group, as they arise from
cashflows resulting from Quadrise and QCC gaining a permanent
market share. The assets with indefinite life are not amortised,
but the QCC royalty payments intangible asset became fully impaired
in 2012.
The remaining intangibles amounting to GBP25.9m, primarily made
up of technology and know-how, are considered as finite assets and
were amortised over 93 months, being fully amortised in 2012. The
Group does not have any internally generated intangibles.
MSAR(R) trade name intangible asset
In accordance with IAS 36 "impairment of assets" and IAS 38
"intangible assets", a review of impairment for indefinite life
intangible assets is undertaken annually or at any time an
indicator of impairment is considered to exist. The discount rate
applied to calculate the present value is for the cash generating
unit ("CGU"). A CGU is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflows from other assets or groups of assets. The recoverable
amount of the CGU is assessed by reference to the value in use
("VIU"), being the net present value ("NPV") of future cash flow
expected to be generated by the asset, and fair value less costs to
sell ("FVLCS").
The recoverable amount of the MSAR(R) trade name intangible
asset has been determined using a VIU model. The expected future
cash flows utilised in the VIU model are derived by quantifying the
royalties that would result if the asset was licensed from a third
party in order to determine the income stream directly attributable
to the asset in isolation. The royalties are based on a percentage
of projected future revenues up to 30 June 2031 with an assumed
growth rate being used beyond that date.
The key assumptions used in this calculation are as follows:
2020 2019
Royalty rate (%
of projected revenue)
(1) 0.5% 0.5%
------------- -------------
Discount rate (2) 20% 20%
------------- -------------
Revenues forecast 30 June 2031 30 June 2035
up to (3)
------------- -------------
Growth rate beyond
forecast period
(4) 0% 0%
------------- -------------
1) The royalty rate used upon initial recognition of this
intangible asset was 0.33% of revenues determined as part of a
third-party intangible asset valuation exercise. This was increased
to 0.5% of revenues from 2011 onwards to reflect the wider
awareness of the MSAR(R) trademark in the market. .
2) The discount rate of 20% has been determined by management as
conservative estimate based on the uncertainty inherent in the
revenue forecasts. Management estimates the discount rates using
pre-tax rates that reflect current market assessments of the time
value of money and risks specific to expected future projects
3) The 2020 revenue forecast extends to 30 June 2031 which
ensures that each project included within the forecast reaches full
maturity. The revenue forecast prepared in the prior year extended
to 30 June 2035 as a result of the projects included in that
forecast taking until then to reach maturity.
4) No growth has been forecast beyond the forecast period due to
the uncertainty inherent in the revenue projections beyond the
stage of project maturity.
The revenue forecast is based on the latest Company business
model, which is regularly reviewed by management. The basis for the
inclusion of projects and the estimation of growth rates, margins
and project lifespans within the business model is based on the
latest agreements with counterparties, commodity and chemical
prices and the most recent discussions with customers, suppliers
and other business partners.
The 'base-case' impairment assessment based on the above inputs
shows a recoverable amount for the asset that is in excess of the
net book value of asset and therefore no impairment has been
identified, with the VIU exceeding
the carrying value by GBP3.4m (the 'headroom').
Management have performed sensitivity analyses whereby certain
parameters were flexed downwards by reasonable amounts and certain
scenarios were modelled for the CGU to assess whether the
recoverable value would result in an impairment charge. In
isolation, none of these scenarios would result in an impairment to
the MSAR(R) Trade Name intangible asset. However, a combination of
two or more of these scenarios could result in an impairment
charge, but management do not consider this likely. The following
sensitivities were applied
Results of sensitivity analysis
Scenario Resulting headroom Scenario which would
(GBP'm) reduce headroom
to nil
Delayed revenues 2.20 A 4 year delay to
(1 year) forecast revenues.
------------------- ------------------------
Delayed revenues 1.19 A 4 year delay to
(2 years) forecast revenues.
------------------- ------------------------
Increase in discount 0.12 Increase in discount
rate to 30% rate to 30.65%.
------------------- ------------------------
Removal of projects 0.37 Removal of projects
which generate 50% which generate 53.7%
of forecast revenues of revenues.
------------------- ------------------------
Finite company lifespan 1.39 Finite company lifespan
(to 30 June 2031). (to 30 June 2030).
------------------- ------------------------
Amortisation of Intangible Assets
The Board has reviewed the accounting policy for intangible
assets and has amortised those assets which have a finite life. All
intangible assets with a finite life were fully amortised as at 30
June 2020.
9. Investments
At the statement of financial position date, the Group held a
20.44% share in the ordinary issued capital of Quadrise Canada
Corporation ("QCC"), a 3.75% share in the ordinary issued capital
of Paxton Corporation ("Paxton"), a 9.54% share in the ordinary
issued capital of Optimal Resources Inc. ("ORI") and a 16.86% share
in the ordinary issued capital of Porient Fuels Corporation
("Porient"), all of which are incorporated in Canada.
QCC is independent of the Group and is responsible for its own
policy-making decisions. There have been no material transactions
between QCC and the Group during the period or any interchange of
managerial personnel. As a result, the Directors do not consider
that they have significant influence over QCC and as such this
investment is not accounted for as an associate.
The Group has no immediate intention to dispose of its
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 30 June 2020. The shares in each of
these companies were valued at CAD $nil on 1 July 2019 due to their
business models being highly uncertain, with minimal possibility of
any material value being recovered from their asset base. During
the year there has been no indication that this situation has
changed, therefore the directors have determined that the
investments should continue to remain valued at CAD $nil at 30 June
2020
10. Convertible Securities
On 22 August 2019, the Company entered into an agreement with
Bergen Global Opportunity Fund LP ('the Investor') whereby the
Investor will provide up to GBP4.0 million of interest free
unsecured funding, provided in two tranches through the issue by
the Company of Convertible Securities with a nominal value of up to
GBP4.3 million, convertible into Ordinary Shares.
An initial tranche of Convertible Securities with a nominal
value of GBP2.15 million was subscribed for by the Investor for
GBP2.0 million on 30 August 2019. A second tranche of Convertible
Securities, with a nominal value of up to GBP2.15 million is
conditionally available to the Company with a subscription price of
up to GBP2.0 million. Both tranches have 24 month maturity dates
from the dates of their respective issuance, and any Convertible
Securities not converted prior to such dates will automatically
convert into Ordinary Shares at such time.
The Company also issued 4.9 million 36 month warrants to
subscribe for new Ordinary Shares to the Investor by way of a
Warrant Instrument initially exercisable at 5.78p per Ordinary
Share, subject to anti-dilution and exercise price reduction
provisions.
In connection with the Agreement, on 30 August 2019 the Company
also issued to the Investor 3,888,889 new Ordinary Shares in
settlement of a commencement fee of GBP140,000 and a further
4,500,000 new Ordinary Shares to collateralise the Agreement
subscribed for at nominal value by the Investor.
The Convertible Securities are only converted to the extent that
the Company has corporate authority to do so, and it is a term of
the agreement that the Company must retain sufficient authority to
issue and allot (on a non-pre-emptive basis) a sufficient number of
Ordinary Shares potentially required to be issued under the terms
of the Agreement (and the Warrant Instrument).
Pursuant to the terms of the Agreement, the Company is required
to obtain and maintain sufficient non-pre-emptive share issuance
authority from its shareholders in relation to the Ordinary Shares
that may be required to be issued pursuant to the Agreement and
Warrant Instrument.
The Agreement was completed and the Initial Tranche funded to
the Company on the basis of the remaining current Authority from
the 2018 annual general meeting, and also on the basis that an
updated authority must be obtained at a General Meeting of
shareholders. Such authority was obtained at a General Meeting held
on September 27, 2019.
Debt and equity instruments issued by the Company are classified
as either financial liabilities or as equity. An equity instrument
is any contract that evidences a residual interest in the assets of
an entity after deducting all of its liabilities Under the terms of
the Convertible Securities agreement of 22 August 2019, the Company
has no obligation to repay the securities in cash (unless the
Company defaults on the terms) and the number of shares which may
be issued upon conversion is variable. As there is therefore no
residual interest in the assets of the Company after conversion of
the Convertible Securities, the Convertible Securities meet the
criteria to be classified entirely as a financial liability.
The Convertible Securities instrument has been designated at
fair value on initial recognition, with the fair value being
assessed as GBP1.864m, being the nominal value of GBP2.15m less
interest and warrant charges. The Convertible Securities have a 24
month expiry date, before which all Securities must be fully
converted. Upon each exercise of conversion rights, the portion of
the Convertible Securities converted is assessed at fair value,
with the resulting fair value adjustment being recorded in the
Statement of Comprehensive Income.
During the year ended 30 June 2020, the Investor exercised their
conversion rights as follows:
Conversion Convertible Conversion No. of Share price Fair value
date Securities price (p) shares on conversion adjustment
converted awarded date (GBP'000)
(GBP) upon conversion
23 March
2020 100,000 1.2 8,333,333 1.68 40
------------ ----------- ----------------- --------------- ------------
15 April
2020 100,000 1.2 8,333,333 1.64 36
------------ ----------- ----------------- --------------- ------------
22 June
2020 250,000 1.1 22,727,273 2.98 426
------------ ----------- ----------------- --------------- ------------
Total 450,000 39,393,939 502
------------ ----------- ----------------- --------------- ------------
As at 30 June 2020, nominal value of GBP1.7m remains outstanding
to the investor under the terms of the Convertible Security
instrument. This balance has been assessed to have a fair value of
GBP2.05m with the resulting fair value adjustment of GBP631k being
recorded in the Statement of Comprehensive Income. The total fair
value adjustment charge for the year is therefore GBP1.13m.
The fair value assessment was performed using a 'base case'
model applying a factor for the propensity to convert, being a key
assumption, equal to 4.5%. Management have performed a sensitivity
analysis whereby this key parameter was flexed by reasonable
amounts to assess the impact on the fair value.
An increase to this assumption by 0.5% would result in an
increase of GBP604k in the fair value of the Convertible
Security.
11. Share Options
Movement in the year:
The following table illustrates the number and weighted average
exercise prices ("WAEP") of, and movements in, share options during
the year:
WAEP WAEP
Number (pence) Number (pence)
30 June 30 June 30 June 30 June
2020 2020 2019 2019
Outstanding as at 1
July 39,400,000 17.91 22,500,000 26.90
Granted during the year - - 19,150,000 7.29
Repurchased by grantor - - - -
during the year
Expired during the year (150,000) 7.50 (2,250,000) 17.35
Exercised during the - - - -
year
Options outstanding
as at 30 June 39,250,000 17.95 39,400,000 17.91
------------------------- ----------- --------- ------------ ---------
Exercisable as at 30
June 29,250,000 20.09 23,149,719 25.39
------------------------- ----------- --------- ------------ ---------
The weighted average remaining contractual life of the 39.3
million options outstanding at the statement of financial position
date is 5.05 years (2019: 6.07 years). The weighted average share
price during the year was 3.18p (2019: 3.15p) per share.
The expected volatility of the options reflects the assumption
that historical volatility is indicative of future trends, which
may not necessarily be the actual outcome. The expected life of the
options is based on historical data available at the time of the
option issue and is not necessarily indicative of future trends,
which may not necessarily be the actual outcome.
The Share Option Schemes are equity settled plans, and fair
value is measured at the grant date of the option. Options issued
under the Schemes vest over a two year or three year period
provided the recipient remains an employee of the Group. Options
also may be exercised within one year of an employee leaving the
Group at the discretion of the Board.
The Company issued nil share options to directors and employees
during the year (2019: 19.15m).
The fair value was calculated using the Black Scholes option
pricing model. The weighted average inputs were as follows
2020 2019
Stock price: - 6.29p
Exercise Price - 7.29p
Interest Rate - 0.75%
Volatility - 113.4%
Expected term - 4 years
===== ========
12. Warrants
Movement in the year:
The following table illustrates the number and weighted average
exercise prices ("WAEP") of, and movements in, warrants during the
year:
WAEP WAEP
Number (pence) Number (pence)
30 June 30 June 30 June 30 June
2020 2020 2019 2019
Outstanding as at 1
July 5,000,000 3.16 - -
Granted during the year 40,228,026 6.98 5,000,000 3.16
Exercised during the - - - -
year
Warrants outstanding
as at 30 June 45,228,026 6.56 5,000,000 3.16
------------------------- ----------- --------- ---------- ---------
Exercisable as at 30
June 45,228,026 6.56 5,000,000 3.16
------------------------- ----------- --------- ---------- ---------
The table below shows a reconciliation of warrants in the
year:
No. of WAEP
warrants (pence)
GBP
As at 1 July 2019 5,000,000 3.16
Sep 2019 - Convertible Security
warrants 4,900,000 5.78
Sep 2019 - Open Offer and Subscription
warrants 32,328,026 7.48
Dec 2019 - Grant to Younes Mamaar 3,000,000 3.53
As at 30 June 2020 45,228,026 6.56
=========== =========
The warrants are equity settled warrants which vest immediately
on grant date. Fair value is measured at the grant date of the
option using the Black Scholes pricing model. The inputs into this
model are: Stock price at the date of grant, exercise price,
interest rate, expected term and expected volatility. The expected
volatility of the warrants reflects the assumption that historical
volatility is indicative of future trends, which may not
necessarily be the actual outcome. The expected life of the
warrants is based on historical data available at the time of the
option issue and is not necessarily indicative of future trends,
which may not necessarily be the actual outcome.
The warrants granted during the year, and the inputs into the
Black Scholes pricing model for each grant are as follows
On 27 September 2019, the Company issued 4.9 million warrants
with an exercise price of 5.78p and a term of 3 years to Bergen as
part of the Convertible Security transaction announced on 23 August
2019 (see note 10). Inputs were as follows: Stock price 4.05p,
exercise price 5.78p, interest rate 0.75%, volatility 128%,
expected term 3.0 years. The resulting fair value of these warrants
of GBP136k is assessed as part of the fair value of the Convertible
Security instrument (see note 10).
On 30 September 2019, the Company issued 32.3 million warrants
with an exercise price of 7.48p and a term of 2.94 years to
participants in the Open Offer and Subscription announced on 9
September 2019. Inputs were as follows: Stock price 3.97p; exercise
price 7.48p; interest rate 0.75%, volatility 128%, expected term
2.94 years. The warrants were attached to the shares purchased with
one warrant being awarded for every two shares purchased and expire
on 6 September 2022. The warrants therefore fulfil the criteria to
be recognised as an equity instrument under IAS 32, with the fair
value of GBP816k being taken to equity.
On 4 December 2019, the Company issued 3 million warrants to
Younes Maamar pursuant to the Morocco Representation Agreement
announced on 6 March 2019, giving him the right exercise at a price
of 3.53p until 27 February 2022. Inputs were as follows: Stock
price 3.33p, exercise price 3.53p, interest rate 0.75%, volatility
126%, expected term 2.24 years. A charge of GBP65k has been
recognised in the income statement in respect of these warrants
under IFRS 2.
The Company issued 40.2 million warrants during the year (2019:
5 million) with a weighted average exercise price of 6.98p and a
weighted average fair value of 2.53p.
The weighted average inputs into the Black Scholes option
pricing model were as follows:
2020 2019
Stock price: 3.93p 3.38p
Exercise Price 6.98p 3.16p
Interest Rate 0.75% 0.75%
Volatility 128% 129%
Expected term (years) 2.89 1.75
========= =========
The weighted average remaining contractual life of the 45.2
million warrants outstanding at the statement of financial position
date is 1.99 years. The weighted average share price during the
year was 3.18p (2019: 3.15p) per share.
11. Related Party Transactions
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
year amounted to GBP30k (2019: GBPnil). The balance payable at the
statement of financial position date was GBPnil (2019: GBPnil).
QFI defines key management personnel as the Directors of the
Company. Other than as above, there are no transactions with
Directors, other than their remuneration as disclosed in the Report
of Directors' Remuneration.
12. Events After the end of the Reporting Period
On 18 August 2020, the Company entered an MSAR(R) Commercial
Trial Agreement with Greenfield Energy LLC , the joint venture
between Valkor and Tomco Energy plc. Pursuant to this the parties
have planned a phased implementation of MSAR(R) that covers:
-- A commercial trial of MSAR(R) technology at the Petroteq Oil
Sands Plant in Utah, USA, that is managed and operated by
Greenfield; with a commercial value to Quadrise of US$150,000
and
-- The development of commercial MSAR(R) plants of up to 10,000
barrels oil per day located at Utah facilities owned or operated by
Greenfield.
On 20 August 2020 the Company issued 18,750,000 new ordinary
shares following receipt of a notice of exercise in respect of the
Convertible Security to convert GBP300,000 of the Convertible
Security into new ordinary shares in the Company at a conversion
price of 1.6p per new ordinary share
On 21 August 2020 the Company granted a total of 10,000,000
options over new ordinary shares of 1p each in the Company to
directors of the Company in accordance with the provisions of (a)
the Company's Enterprise Management Incentive Plan ("EMI Plan"), in
respect of awards of an aggregate of 4,261,756 Options (the "EMI
Options") and (b) the Company's Unapproved Option Scheme 2016
("2016 Scheme") in respect of awards of an aggregate of 5,738,244
Options ("2016 Scheme Options").
Director Number of Options Plan Exercise
price
EMI Plan (1,261,756
Options)
2016 Scheme (738,244
Mike Kirk 2,000,000 Options) 7.5p
------------------ ----------------------- ---------
Jason Miles 5,000,000 2016 Scheme 7.5p
------------------ ----------------------- ---------
Mark Whittle 3,000,000 EMI Plan 7.5p
------------------ ----------------------- ---------
Total 10,000,000 - -
------------------ ----------------------- ---------
The EMI Options and the 2016 Scheme Options will vest as to 50%
on the first anniversary of the grant and the remaining 50% shall
vest on the second anniversary of the date of grant. All vestings
are subject to the satisfaction of certain performance conditions
prior to the vesting date. The 2016 Scheme Options and the EMI
Options will be exercisable from vesting until the eighth and tenth
anniversaries of grant respectively.
On 7 September 2020 the Company issued 23,529,412 new ordinary
shares following receipt of a notice of exercise in respect of the
Convertible Security to convert GBP400,000 of the Convertible
Security into new ordinary shares in the Company at a conversion
price of 1.7p per new ordinary share.
13. Copies of the Annual Report
Copies of the Annual Report (including the Notice of Annual
General Meeting) will be posted to shareholders and will be
available shortly from the Company's website at
www.quadrisefuels.com and from the Company's registered office,
Gillingham House, 38-44 Gillingham Street, London, SW1V 1HU.
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END
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