2 October 2023

                                                                            

Quadrise plc

("Quadrise", "QED", the "Company" and together with its subsidiaries the "Group")

 

Final Results and Notice of AGM

 

Quadrise (AIM:QED), the supplier of MSAR^® and bioMSAR™ emulsion technology and fuels, providing innovative lower cost and lower carbon alternatives to fuel oil and biofuels, is pleased to announce its audited final results for the year ended 30 June 2023.

 

The Company also gives notice that the Company's Annual General Meeting ("AGM") will be held at 12 noon on 27 November 2023 at the Park Plaza County Hall Hotel, 1 Addington Street, London, SE1 7RY.

 

Operational Summary:

 

·    Marine - Following the completion of key preparatory steps for the Proof-of-Concept and Letter Of No Objection ("LONO") commercial trials on bioMSAR™ with MSC Shipmanagement during the year, Quadrise intends to conclude agreements with project stakeholders, which include a major global trading company, as soon as possible. Quadrise equipment will be installed and commissioned at the bunker terminal site ahead of the commercial-scale Proof-of-Concept and LONO trials on bioMSAR™, which are expected to commence in Q1 2024 provided the relevant permits are received in time.

 

·    Morocco -The industrial demonstration test at the client site in Morocco is now expected to be completed in October 2023, following the installation and commissioning of a replacement pump and maintenance of the client's commercial unit during September. The client remains supportive of the Company's efforts to progress the commercial trial. Upon successful conclusion of the trial, the parties will enter into discussions for potential commercial supply, in addition to concluding agreements for testing at other client sites as required.

 

·    Utah - Valkor Technologies LLC ("Valkor") has informed the Company that it expects to conclude project financing relating to their primary project site at in Utah in Q4 2023. Provided a minimum of US$15 million is successfully raised, Valkor will pay Quadrise US$1.0 million under the terms of the Site License and Supply Agreement signed in June 2023. The Agreement was amended in August 2023 in order to remove conditionality with regard to Valkor's receipt of drilling permits. A further US$0.5 million is due from Valkor upon delivery of an MSAR^® Manufacturing Unit to the project site in Utah, again, subject to Valkor's receipt of the minimum project financing.

 

·    bioMSAR™ - In June 2023, Quadrise signed a Joint Development Agreement with BTG Bioliquids to investigate the use of their propriety pyrolysis bio-oil (FPBO) as an alternative biofuel feedstock for bioMSAR™. In addition, Quadrise successfully produced stable blends of bioMSAR™ containing up to 40% of Vertoro's crude sugar oil (CSO™) at pilot scale at the Company's research facility. This demonstrated improved engine efficiency, and lower NOx and particulate emissions upon combustion when compared to conventional diesel. Further testing is also ongoing with other biofuels suppliers.

 

Financial Summary:

 

·   Loss after tax of £3.1m (2022: £2.6m), of which of £1.7m (2022: £1.5m) is attributable to production and development costs and £1.3m (2022: £1.4m) relates to administrative and corporate expenses.

 

·   Total assets of £5.0m as at 30 June 2023 (2022: £8.0m).

 

·   Cash balances as at 30 June 2023 of £1.3m (2022: £4.4m). An additional £1.94m (gross) was raised in July 2023 via a placing and open offer.

 

·   Cumulative tax losses of £62.1m (2020: £60.0m) potentially available for set-off against any future profits.

 

Jason Miles, Chief Executive Officer of Quadrise, commented:

 

"The decarbonisation of the energy sector continues to advance during a period of escalating energy costs, increasing legislation and pressure to reduce emissions and control global warming.

Against this background, Quadrise is positioning itself to be one of the key decarbonisation solution providers in this rapidly changing global energy market.

Whilst progress across each of the Company's key projects during the period has been at a slower pace than we had initially envisaged, important milestones for each are now nearing. Agreements covering our commercial vessel trial with MSC and other stakeholders are expected to be signed in Q4 2023, with the trial itself planned to commence in Q1 2024. Supply of our first MSAR^® site license and equipment to Valkor in Utah is expected in Q4 2023, pending successful conclusion of Valkor's project financing. Following the installation of an alternative pump, the MSAR^® and bioMSAR™ commercial trial in Morocco is due to conclude before the end of October 2023.

We continue to invest and collaborate in research and development to enhance our IP portfolio and future opportunities, evidenced by our patent applications and the continuing advancement of bioMSARâ„¢ and bioMSARâ„¢ Zero with a growing number of partners in the renewable fuel sector.

We look forward to the important period ahead during which we expect to make significant progress in commercialising our innovative fuel technology."

 

Notice of Annual General Meeting

 

The Company's Annual General Meeting ("AGM") will be held at 12 noon on 27 November 2023 at the Park Plaza County Hall Hotel, 1 Addington Street, London, SE1 7RY.

 

 

 

For additional information, please contact:

 

 

 

About Quadrise

Quadrise is the supplier of MSAR^® and bioMSAR™ emulsion technology and fuels, providing innovative lower cost and lower carbon alternatives to fuel oil and biofuels in the global power generation, shipping, industrial and refining industries.

 

Learn more: www.quadrise.com

 

Certain of the information contained within this announcement is deemed by the Company to constitute inside information as stipulated under The Market Abuse Regulation (EU 596/2014) pursuant to the Market Abuse (Amendment) (EU Exit) Regulations 2018. Upon the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

 

Chairman's Statement

The cost of energy and the transition to secure sustainable fuels continue to be top priorities for governments, businesses and communities. During the year ended 30 June 2023, Quadrise has continued to position itself as a provider of innovative decarbonisation solutions and the Board remains confident in both the quality of the Company's solutions and the commercial opportunities that they provide.

 

In July 2023, the Company announced that it had raised gross proceeds of £1.94 million via a placing of new ordinary shares in the Company and subsequent open offer to qualifying shareholders at an issue price of 1.25 pence per share. The funds raised will, together with receipts from contracted but conditional payments in respect of the Company's Utah project with Valkor, enable the Company to continue to finance its projects through to mid-2024 and thereby to achieve further milestones that add shareholder value.

 

The successful completion of the fundraising under difficult market conditions demonstrated the continuing confidence of new and existing investors in the potential of our technology and its applicability to real-world problems. The result is that the current financial year is pivotal for Quadrise, with our key objectives being:

 

·    To progress business in North America, building on a bridgehead to be established in Utah.

·    To contract sources of heavy residues and glycerine for product supply outside North America.

·    To be ready to scale-up our marine business following the planned completion of the trial with MSC.

Our near-term strategy remains to focus on the key projects in Morocco, Utah and with MSC, which represent the most efficient use of our financial resources and provide the fastest and most material pathways to commercialisation. Important milestones are expected to be achieved in Q4 2023 in each of these key projects:

 

·    Following the signing of a Site License & Supply Agreement with Valkor Technologies LLC in June 2023, commercial revenues are now expected from Valkor subject to successful completion of their heavy oil project financing. This is a critical milestone in attracting new customers, investors and strategic partners. We now look forward to the commencement of Valkor's pilot drilling operations ahead of the winter season.

·    The trial with our customer in Morocco is anticipated to resume in early October 2023 after a series of technical delays caused by feed pump problems, with commercial discussions then to take place following confirmation of a successful trial.

·    We also look forward to being able to update the market on the next steps with respect to fuel supply logistics for the long-awaited on-board trial of bioMSAR™ with MSC, with the finalisation of trial agreements expected in Q4 2023. The 4,000-hour trial is planned to start in Q1 2024.

 

Looking further ahead, we continue to develop the next generation of bioMSARâ„¢ fuel and energy delivery technologies, with the goal of producing a commercially competitive net-zero product before 2030.

 

The year ended 30 June 2023 could be characterised as one of continued strategic and operational progress, but without a breakthrough. Each of our projects has several moving parts, and the management task is significant in bringing the Company to an inflexion point. However, we hope to see the results of progress to date come to fruition during the final quarter of 2023. The Board remains active in evaluating strategic initiatives that would de-risk and/or facilitate the delivery of our key objectives set out above, such as M&A activity, joint ventures or other strategic partnerships. As I stated last year, our ambitions for the business are limited more by the availability of financial and operational resources than by the scale of the significant opportunities that the Company can address.

 

The Board remains committed in its determination for the Company to deliver on its strategic objectives and together with management, we look forward to driving the business into commercial revenues and generating value for our shareholders, whom I thank for their continued support and engagement throughout the year.

 

Results for the Year

 

The consolidated after-tax loss for the year to 30 June 2023 was £3.1m (2022: £2.6m), with the loss per share for the year increasing to 0.22p from 0.18p in 2022. Production and development costs of £1.7m (2022: £1.5m) comprise the costs of the Group's R&D facility ('QRF' in Essex), its operational staff and consultants, and ongoing bioMSAR™ and MSAR^® development costs. These costs are largely related to fixed costs with the increase due to bioMSAR™ development and testing costs.

Administration expenses of £1.3m (2022: £1.4m), comprise the Group's corporate staff and directors' costs, professional advisor fees, PR/IR costs and head office costs.

At 30 June 2023, the Group had total assets of £5.0m (2022: £8.0m). The most significant balances were cash of £1.3m (2022: £4.4m), intangible assets of £2.9m (2022: £2.9m), and property, plant and equipment of £0.4m (2022: £0.4m). The Group has tax losses arising in the UK of approximately £62.0m (2020: £60.0m) that are potentially available to be carried forward against any future profits.

 

Andy Morrison

Non-executive Chairman

29 September 2023

Chief Executive's Statement

Introduction

The global energy industry faces mounting pressure to reduce carbon emissions whilst delivering practical and cost-efficient energy solutions to consumers. In recent times, escalating energy prices have emerged as significant contributors to global inflation, exacerbated by the ongoing Ukraine conflict and Russian sanctions. Simultaneously, there is a crucial global goal to halve greenhouse gas ("GHG") emissions by 2050, a target set by the IPCC to mitigate the severe consequences of climate change.

Addressing the Maritime Decarbonisation Challenge

The shipping sector is responsible for roughly 3% of global GHG emissions. The sector is under increasing scrutiny from European regulators who are encouraging maritime operators to explore lower-carbon and eventually net-zero alternatives. These include longer-term options such as green hydrogen, ammonia, and methanol, with each of these demanding substantial investments and posing logistical and safety challenges. While several lower-carbon and potentially net-zero solutions are in development, these are not yet ready for widespread adoption. Implementation will require significant investment, either in retrofitting existing fleets or the building of new vessels and the logistical challenges of delivery should not be underestimated in the context of currently reduced global ship building capacity.

Revolutionary Quadrise Technology

Our patented Quadrise technology offers a practical and cost-effective path for operators in the marine, industrial, and power sectors to decarbonise, reduce energy costs, and lower associated emissions safely. MSAR^® reduces fuel consumption in diesel engines by up to 10% and simultaneously lowers GHG emissions by the same margin. By incorporating renewable glycerine to produce the economical bioMSARâ„¢, we can further reduce GHG emissions by over 20%. The Quadrise solutions are readily available, utilising existing infrastructure to achieve cost savings and GHG reduction. bioMSARâ„¢ outperforms LNG and FAME marine fuel blends in terms of lower CO₂ emissions per unit of energy. Other bioMSARâ„¢ benefits include its water dispersibility, improved safety, and biodegradability.

Immediate and Future Deployment

Our technology is ready for rapid deployment, delivering immediate benefits as we transition towards net-zero fuel solutions, which may become mandatory as early as 2030. To seize this opportunity, we have established an R&D strategy, leveraging our innovative and adaptable technology. We are collaborating with fellow innovators in the sustainable fuel sector to expand our portfolio of lower-cost, renewable, and abundant biofuel components. As an example, we are formulating a bioMSARâ„¢ blend with Vertoro BV, producers of a crude sugar oil ("CSOâ„¢"). Diesel engine testing of this blend at Aquafuel is set to conclude in Q4 2023. Additionally, Quadrise has entered into a Joint Development Agreement with BTG Bioliquids to explore the use of their 'FPBO' biofuel, derived from agricultural and sawmill waste, alongside other related net-zero R&D activities.

Ongoing Projects

Our core projects encompass the marine, upstream, and industrial sectors, with further projects in the pipeline for downstream and power plant applications. Our current focus is on demonstrating MSAR^® and bioMSAR™ technology at a commercial scale, progressing these opportunities into commercial supply agreements.

The demand for scalable and certified low or zero-emission shipping services is evident in the historic tender recently issued by an alliance of freight buyers including Amazon, IKEA, Philips and over 20 other major global companies. The RfP (Request for Proposal) launched by ZEMBA (Zero Emission Maritime Buyers Alliance) seeks bids with sufficient capacity to move 600,000 containers over 3 years on ships that offer 90% reduction in GHG emissions compared to traditional fossil fuels. This is further evidence of the demand for our technology solutions and the concerted industry effort to accelerate decarbonisation in shipping.

MSC - A framework agreement with MSC Shipmanagement ("MSC") was signed in July 2022 to test and trial both of our economical, cleaner marine fuel and biofuel alternatives on their container vessels. Quadrise is excited to be collaborating with MSC to decarbonise the largest container ship fleet in the world as they lead the way in advancing the marine sector's transition towards a net-zero future.

 

A number of preparatory steps have been completed by stakeholders prior to commencing the Letter Of No Objection ("LONO") fuel trials of both bioMSAR™ and MSAR^® on board the MSC Leandra:

 

·    Wärtsilä Services of Switzerland carried out optical combustion and engine wear tests on bioMSAR™ in December 2022.

·    The emulsion fuel booster unit was inspected, upgraded where necessary, and tested in readiness for use.

·    The vessel was fully inspected by MSC and installed with equipment designed to reduce emissions and improve vessel efficiency.

·    A hazard identification and operability workshop was recently completed involving MSC, Quadrise, Wärtsilä and Lloyds Register using the framework developed for the prior use of MSAR^® on the main 2-stroke engine, when the vessel was owned by Maersk.

 

Quadrise is progressing the fuel production and supply activities necessary for the above commercial trials, with the intention of concluding agreements with project stakeholders, which include a major global trading company, as soon as possible. Following the installation and commissioning of Quadrise equipment at the bunker terminal site, the intention is then to commence commercial-scale Proof-of-Concept and LONO trials on bioMSARâ„¢ in Q1 2024 provided the relevant permits are received in time.

 

Once the initial MSAR^® or bioMSAR™ fuel has been loaded and the on-board systems commissioned, the vessel will be bunkering and burning bioMSAR™ through the initial Proof-of-Concept testing phase, followed by the LONO trial, which is currently expected to be of 4,000-hour duration.

 

In addition to progressing this opportunity with MSC, the Company continues to assess strategic means and/or partnerships with the intention of accelerating the commercialisation of both bioMSAR™ and MSAR^® for marine applications.

 

Utah - Our project in Utah, USA with Valkor Technologies LLC ("Valkor") involves the use of MSAR^® technology to emulsify low-sulphur heavy oil. Valkor has interests in multiple projects at the Asphalt Ridge site with anticipated oil deposits of billions of barrels. Valkor plan to recover heavy oil from oil-sand and sub-surface oil deposits at their Primary Project Site ("PPS") at Asphalt Ridge using production methods that mitigate greenhouse gas emissions. Crucially, by using Quadrise technology, the viscosity of the extracted heavy oil is reduced, facilitating transportation whilst avoiding the use of costly diluents or excessive heat in the supply chain. The resulting MSAR^® or bioMSAR™ produced is an alternative to very low sulphur fuel oil (<0.5%S "VLSFO") or biofuels used in multiple industrial, power and marine fuel applications. Oil samples from the PPS supplied by Valkor were successfully converted to both MSAR^® and bioMSAR™ by our RDI team in 2022.

 

Valkor is leading activities for the award of drilling permits at Asphalt Ridge as follows:

·     Valkor undertook successful exploration drilling and optimisation of oil sands processing technologies during 2022.

·     In December 2022, and on behalf of their project partners Heavy Sweet Oil LLC ("HSO") and AC Oil LLC ("ACO"), Valkor submitted a pilot drilling development plan to the State of Utah's Board of Oil, Gas and Mining (the "OGM Board") and the permits for this were awarded subject to technical approval by the Utah Division of Oil, Gas and Mining (the "Division").

·     Once technical approval is received (expected by Valkor to be in early October 2023), Valkor plan to commence pilot drilling at the PPS in October 2023 and in parallel submit Underground Injection Control permit applications for the subsequent injection of steam for enhanced heavy oil recovery.

·     Using standard well spacing of 40 acres, Valkor expect to be able to drill up to 12 wells under the pilot development plan approved by the OGM Board in December 2022 and managed by the Division, upon receipt of technical approvals as stated above.

·     In addition to the pilot drilling programme, Valkor, on behalf of project sponsors HSO and ACO, applied for approval of a Unitisation Plan. This allows for up to 119 wells to be drilled at Asphalt Ridge, using a reduced well spacing of 2.5 acres. The OGM Board met in August 2023 to review the Plan, and this was, for the moment, declined. Their view was that without a producing well in place, there was insufficient evidence of heavy oil properties and sub-surface locations within the planned area to support the Plan as submitted. 

·     It is important to note that the OGM Board's decision on the Unitisation plan does not impact Valkor's intention to drill the pilot wells conditionally granted by the Board in December 2022. Pilot well drilling would then potentially support a further PPS Unitisation Plan application in due course. Valkor are also managing conventional oil sands projects for other clients that are not subject to associated approvals for drilling or Unitisation.

·     Valkor are now actively seeking minimum project financing of US$15 million which is required in order to progress their activities at the PPS planned for Q4 2023.

In June 2023, Quadrise signed a Site License and Supply Agreement ("SLA") with Valkor. Under the SLA, Quadrise has granted Valkor the exclusive right and licence to use its technology at the PPS and to market the fuel on a non-exclusive basis from Utah. In exchange, Valkor will pay Quadrise US$1.0 million subject to receipt by Valkor of a minimum US$15 million of PPS project financing referred to above, which Valkor expect to receive in Q4 2023.

 

Further conditionality in the SLA, relating to the award by the Division of the drilling and underground injection permits for the PPS was waived by Valkor in August 2023, based on the positive progress already made on these activities. Also under the SLA, Valkor will pay Quadrise a further US$0.5 million upon delivery of an MSAR Manufacturing Unit ("MMU") to the PPS, again, subject to Valkor's receipt of the minimum project financing.

 

The Company is in regular contact with Valkor, who remain confident of receipt of the minimum project financing of US$15 million in the near term, however, until this is received there remains a risk that the aggregate US$1.5m due to Quadrise is significantly delayed or not received at all.

 

Following Valkor's receipt of the MMU, Quadrise will provide engineering and other support services for a minimum of two years in exchange for a quarterly retainer of US$75,000. Valkor may then choose to purchase the technology and MMU for a further US$1.0 million.

 

A non-binding Heads of Agreement has also been entered into between the parties which sets out the basis on which Quadrise and Valkor will seek to agree a conditionally exclusive Sub-License Agreement to be granted to Valkor covering the state of Utah, as well as the terms on which the resulting net profit generated will be shared between Quadrise and Valkor.

 

Morocco - In June 2022, QIL signed a new Material Transfer & Cooperation Agreement with its client in Morocco, a major chemicals company, under which QIL will manufacture trial quantities of MSAR^® and bioMSAR™ for the purpose of an industrial demonstration test at the client's 'Site-B' facility. QIL will then provide the client with a written report on the efficacy of using MSAR^® and bioMSAR™. Provided the client-specified deliverables regarding performance and product quality are met, the parties will enter into discussions for a potential commercial supply of MSAR^® and/or bioMSAR™. In parallel with preparations for the site demonstration tests, Quadrise has completed a technical and economic feasibility study for a potential additional industrial demonstration test at a second site of the client. This additional industrial demonstration test will be subject to future agreement, once confirmed.

 

Following the signature of the new Agreement, volumes of MSAR^® and bioMSAR™ were produced by Quadrise at a site in Europe and shipped to Morocco in Q4 2022. Due to the process of clearing a new fuel through Moroccan customs, the commencement of the MSAR^® demonstration test was subject to delays, with 60mt of MSAR^® and 10mt of bioMSAR™ arriving at Site B in late February 2023. Following the completion of the site engineering set up, and finalisation of the client's production schedule, the trial formally commenced in May 2023.

 

Cold start-up of the client's commercial unit was carried out and the initial unit combustion warm-up sequence was tested using MSAR^® fuel. Whilst running at 100% load a mechanical component in the pumping and heating unit ("PHU") failed progressively. This reduced the available unit load achievable from the burner, and it became impossible to complete the testing during May as originally planned. The parties agreed to pause the trial so that the client could complete their scheduled production run, and the respective pump could be replaced. Unfortunately, it was not possible to complete the test at full load due to a progressive decline in replacement fuel pump performance on several occasions during August 2023, indicating a design issue with the pump units at high pressure.

 

A replacement pump of alternative design from a new supplier has been expedited to Morocco, installed in the PHU, and commissioned by the Quadrise team. The trial is now expected to be completed in October 2023, following maintenance of the client's commercial unit where the testing was carried out in September. The client remains supportive of the Company's efforts to resolve this final issue and progress the commercial trial at the next available opportunity.

 

Upon successful conclusion of the trial, the parties will enter discussions for potential commercial supply, in addition to concluding agreements for testing at other client sites as required. Commercial supply will be dependent on the Company being able to source appropriately situated and priced feedstock.

 

Other projects - QIL signed a Letter of Intent in Q1 2023 with a central American power provider outlining our mutual intent for a commercial test of MSAR^® and bioMSAR™ at the provider's power plant, with the conclusion of a Test Agreement and site trial being the precursors for entry into a Fuel Supply Agreement. Discussions are ongoing and we originally expected agreements to be finalised during Q4'23. However, the region is experiencing a significant and extended drought that is forcing the electricity sector into an ongoing emergency situation as hydroelectric dams are generating less power, and all other power plants are running at full capacity in order to close the gap. Therefore, the opportunity to conduct a site trial is delayed. Together with our local agents, we continue to explore other opportunities in the region. Efforts continue to progress activities in Mexico with the state oil company (Pemex) and utility operators.

 

In December 2022, Quadrise received and successfully commissioned our prototype 5 tonne per hour emulsion system that will be used for the production of MSAR^® and bioMSAR™ fuels for site trials and potential 'blend-on-board' ("BoB") testing on marine vessels. BoB involves installation of an MSAR^® Manufacturing Unit ("MMU") and associated equipment on board a marine vessel, with MSAR^® and bioMSAR™ produced on board. This allows vessels additional routing flexibility as well as simplifying the MSAR^® and bioMSAR™ supply chain. A joint patent application with Nouryon was filed in April 2023 covering BoB. Quadrise has received enquiries from a number of marine operators regarding BoB which are in the scoping phase of project development and BoB is also under investigation as part of the MSC framework agreement. QIL is currently in discussions with a refinery in Asia who are interested in using this unit to conduct a refinery refuelling trial using MSAR^® in advance of a potential commercial agreement.

 

bioMSAR™ and bioMSAR™ Zero development - During the period, Quadrise has successfully tested bioMSAR™ produced using glycerine sourced from a variety of European suppliers in advance of commercial vessel trials with MSC.  In parallel the Company has been investigating alternative feedstocks to glycerine for bioMSAR™ and oil-soluble biofuels that would allow the development of a commercial net-zero version, 'bioMSAR™ Zero', by 2030.  As part of this work, following the June 2023 signature of a Joint Development Agreement with BTG Bioliquids, their propriety pyrolysis bio-oils (FPBO) and related sugars have been tested at the Company's research facility QRF, with successful bioMSAR™ blends being produced using the sugars. In addition, Quadrise successfully produced stable blends of bioMSAR™ containing up to 40% of Vertoro's crude sugar oil (CSO™) at pilot scale.  Engine tests of CSO bioMSAR™ demonstrated improved engine efficiency, as well as lower NOx and visible particulate emissions during use when compared to conventional diesel. A joint patent application with Vertoro was filed in August 2023 covering CSO bioMSAR™.  Further testing will now take place including the Vertoro CSO and BTG Bioliquids sugars feedstocks in bioMSAR™ fuels at reputable third-party testing facilities.

 

Outlook

 

In March 2023, the Group rebranded as Quadrise plc to better align with our focus on energy decarbonisation and carbon mitigation. Our annual Sustainability Report, launched in November 2022, provides valuable insights into our environmental contributions and commitment to create a net-zero fuel by 2030.

Environmental considerations and emissions regulations are becoming ever more prominent in driving the business case for MSAR^® and bioMSAR™ technology. In the United States, the Inflation Reduction Act has created a favourable environment for energy decarbonisation technologies which we look forward to capitalising upon with our partner, Valkor.

 

The introduction and implementation of environmental regulations, particularly in Europe, is expected to increase biofuel use in our target sectors. Shipping is now included in the EU ETS and Fit-for-55 regulations, which are expected to increase the use of marine biofuels from 2024 for most vessels operating within or near EU waters. Revenues raised in the sector via the ETS are to be reinvested into an Innovation Fund reserved for sustainable shipping, the protection of maritime habitats and for funding programmes to decarbonise the maritime sector. Additionally, subsidies are still available for renewable waste-based biofuel feedstocks such as glycerine that should enhance the attractiveness of bioMSARâ„¢ against competing biofuels in certain bunker locations. Market conditions and trends therefore provide a favourable environment for Quadrise to progress its contract discussions and business development activities on all fronts.

 

During 2022-23, we have seen energy security, climate change, and fuel costs rise to the top of the policy agenda for governments and businesses alike, and the need for solutions such as ours has never been more vital. The positioning of Quadrise as an energy decarbonisation enabler is an important statement of intent to progress licence agreements and commercial-scale trials which are expected to lead to supply contracts and commercial revenues from MSAR^® and bioMSAR™.

 

The energy sector is experiencing significant shifts, with energy security, climate change, and fuel costs taking centre stage. Quadrise remains dedicated to its mission and appreciates the ongoing support of our shareholders in seeking to shape a cleaner future.

 

Jason Miles

Chief Executive Officer

29 September 2023

 

Strategic Report

For the year ended 30 June 2023

 

Principal Activity

 

The principal activity of the Company is to develop markets for its proprietary emulsion fuels, MSAR^® and bioMSAR™ as low-cost, more environmentally friendly substitutes for conventional heavy fuel oil ("HFO") and biofuels for use in power generation plants, industrial and upstream oil 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 and CEO Statements.

 

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 progress against the key performance indicators above, with a review held at least monthly with Non-Executive Directors. The commercial performance of the Company and each of the Company's key projects and business development opportunities are discussed at length in the Chairman and CEO Statements.

 

Each year, a detailed two-year budget and cash forecast is prepared by the Executive team, 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 issued to and reviewed by the Board.

 

For the year ended 30 June 2023, progress against the Group's business model was slower than anticipated, with delays to key projects as discussed in the CEO statement. The financial performance of the Group was ahead of budget due to lower than forecast expenditure on operations, staff and consulting costs and net project expenditure as a result of delays to project timetables.

 

Going Concern

 

The Group had a cash balance of £1.34m as of 30 June 2023. In July 2023, the Company raised funds of £1.94 million (before expenses) via a placing and subsequent open offer of new ordinary shares in the Company. Based on the latest Company forecasts which assume the anticipated and important receipt of an aggregate of US$1.5m from Valkor as described above, these funds are expected to be sufficient to reach forecast commercial revenues and cover net project expenditure and fixed costs up to the end of June 2024. Additional funding will be required beyond this point to bridge the gap to the generation of sustainable positive cashflows, which are currently planned to commence in H2 2025. The Directors have determined that the continuation of the Group as a going concern will be dependent upon successfully raising sufficient funds in the future to bridge this gap and the prior receipt of the Valkor income. The Directors have a reasonable expectation that such funds will be raised, although no binding funding agreements are in place at the date of this report, and have therefore determined that it is appropriate to prepare the financial statements on a going concern basis. However, in the absence of additional funding being in place at the date of this report these conditions indicate the existence of a material uncertainty. This may cast significant doubt on the Company's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. For further details behind the judgments and estimations used by the Directors in reaching this determination, refer to note 3.

 

Longer term viability statement

 

In reaching its conclusion on the going concern assessment and longer-term viability of the Group, the Board reviewed the Group's three-year cash flow forecasts which cover the period to revenue generation and positive cashflow. This period is applicable because it extends to the point at which the Group is forecast to be generating sustainable positive cashflows. The Board reviewed the underlying assumptions in this cashflow, together with sensitivity analysis performed on these projections. The Board believes these forecasts are based on a prudent assessment of the Group's prospects and target markets, taking account of reasonably possible scenarios given current market and economic conditions. The risks outlined below have been considered by the Board in their determination of longer-term viability, most significantly 'Delay in commercialisation of MSAR^® and funding risks' and 'No profit to date'.

 

In its sensitivity analysis and review of underlying assumptions, which cover these risks, the Board looked at delays in project timelines or that certain projects might not be realised. The impact on the Company's longer-term viability is that the timing and level of funds required to take the Group to the point of sustainable positive cashflows is then affected. However, the Board consider that the Group remains viable in the longer term under the sensitivities modelled.

 

The Board therefore has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, provided it is in receipt of the Valkor income and is able to raise the funding required as outlined in the Going Concern note above.

 

Climate Change

 

As discussed in both the Chairman's and CEO's statements, our bioMSAR^TM technology offers an alternative to HFO with over 25% lower CO₂ emissions. The Directors believe that the growing global emphasis on the COP 26 Goals, specifically the goal of transition to global net-zero carbon by 2050, present Quadrise with increasing opportunities to assist marine, power and industrial clients in obtaining a cost-effective solution to lowering their carbon emissions. Government actions to reduce climate change therefore provide opportunities to Quadrise, but the Board acknowledges that the Company may also be presented with additional risks due to these actions.

 

Risks, including those introduced by climate change and governmental actions to reduce climate change, are discussed in the next section.

 

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. The review considers each operational sector and organisational level including the Company's research and development facility, QRF, and risks are then triaged 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 the risk factors that could affect future results. Actual results could differ materially from those anticipated because 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.

 

Receipt of funds from Valkor

The Company's cashflow forecasts assume the receipt of an aggregate of US$1.5m of revenues from Valkor, which, together with the £1.34m cash balance as at 30 June 2023 and the £1.94million (gross) raised via the July 2023 placing and open offer, are expected to be sufficient to reach forecast commercial revenues and cover net project expenditure and fixed costs up to the end of June 2024. At the date of this report, there remains a risk that the $1.5m from Valkor is either not received or is significantly delayed, in which event the Company's ability to progress its projects will be at risk without further funding. The Group mitigates this risk by maintaining strong control over its pre-revenue expenditure, as well as by actively evaluating strategic initiatives that would de-risk and/or facilitate the delivery of the Group's key objectives.  

 

Environmental constraints, climate change and decarbonisation

The increasingly hostile public attitude towards fossil fuels is a significant challenge resulting in a rapid move away from hydrocarbons towards fully renewable fuels. Whilst MSAR^® provides considerable environmental advantages, and bioMSAR™ offers the added benefits of carbon reduction, neither offer a net-zero carbon solution. The Group mitigates this risk by continuing to invest in research and development to pursue 'net-zero' carbon fuel solutions as part of its aim to be at net zero by 2030 and pursue business opportunities that will assist in the achievement of this goal. The Company provides progressive decarbonisation solutions for applications such as shipping, where the existing legacy fleet will be in service for many years to come.

 

Market scope and risk

Aligned with the constraints above, and faced with the move away from hydrocarbons, the Group must still progress its MSAR^® and bioMSAR™ endeavours into a volume business. The Group mitigates this challenge by continuing to promote the environmental contribution of MSAR^® and bioMSAR™ and explaining the assured ongoing contribution of hydrocarbons to the global energy mix. The Group further mitigates this risk by increasing the potential applicability of Quadrise technology to various sectors, as evidenced by the opportunities in the upstream and industrial sectors discussed in the CEO's Statement. Nevertheless, the marketability of our fuels is affected by numerous factors beyond the control of the Group, for example the variability of price spreads between light and heavy oils, the relative cost of biofuel components, and the relative competitiveness of oil, gas, biofuel and coal prices both for prompt and future delivery.

 

Commercial return

The Group has made considerable progress in its rapid development and enhancement of bioMSAR™ whilst continuing to advance commercial opportunities for MSAR^® and reduce its treat costs in the face of changes to fuel oil-gasoil spreads. During the product development of bioMSAR™ there remain the considerable challenges of testing, feedstock availability (see below), glycerine treatment options, formulation costs and commercial feasibility still to overcome. 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 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.

 

Feedstock sourcing - MSAR^®

IMO2020 has impacted high sulphur residue supply, and MSAR^® economics are vulnerable to changes in fuel oil-gasoil spreads. Securing low-cost residue looks increasingly challenging. There is a risk in respect of appropriately located residues and ongoing price competitive availability of such 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. An MSAR^® commercial contract would motivate candidate feedstock suppliers to expedite feedstock supply.

 

Feedstock sourcing - bioMSARâ„¢

Whilst sufficient quantities have been identified for immediate trial purposes, the volumes and quality of renewable glycerine required for a substantial commercial marine or industrial bioMSARâ„¢ contract are beyond those readily accessible. To mitigate this the Company is rapidly increasing its knowledge of current and potential glycerine sources and engaging with suppliers. Clearly a commercial contract would again stimulate this market and thus expedite feedstock supply. The Company is also researching other renewable feedstocks that could be utilised together with, or instead of glycerine, such as Vertoro's CSOâ„¢ biofuel.

 

Delay in commercialisation of MSAR^® and funding risks

There is a risk that the commercialisation of MSAR^® and bioMSAR™ could be delayed further, or unforeseen technical and/or commercial challenges arise. This could mean that the Group may ultimately need to raise further equity funds to remain operational. Depending on market conditions and investor sentiment, 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.

 

Technological risk

There is a risk firstly that the markets for MSAR^® and bioMSAR™ fuels adopt alternative fuels, making these technologies redundant or secondly that the technology used for their production may not be adequately robust for all applications. This is in respect of the character and nature of the feedstock and the 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^® and bioMSAR™ formulation and manufacture, and that the 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 Company's process. 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.

 

Environment, Social and Governance risks (ESG)

Quadrise is committed to providing safer, cleaner and more affordable energy. By leveraging our extensive RDI capabilities, and through continuous improvement processes, Quadrise aims to be carbon-neutral by 2030. Furthermore, high standards of corporate governance have always been a strength and this places the Company in the top tier of AIM companies. We maintain this commitment by adopting the highest disclosure standards of the UK Corporate Governance Code, through the experience and commitment of our Non-executive Directors and by following stringent Board policies and procedures. The Company works to exceptional health, safety, environmental protection and quality standards, with strong risk management processes in place, all of which are supported by a first-class team of professional advisors. 

 

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 the environmental risks inherent in the oil processing and distribution industry. The Group is subject to environmental laws and regulations in connection with all 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 such 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. The Group has no direct exposure to the Ukraine/Russia conflict.

 

Andy Morrison

Non-executive Chairman

29 September 2023

 

 

Consolidated Statement of Comprehensive Income

For the year ended 30 June 2023

 

 

 

Consolidated Statement of Financial Position                               

As at 30 June 2023                                                                                                            

 

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 30 June 2023

              

 

 

Consolidated Statement of Cash Flows

For the year ended 30 June 2023

 

 

Notes to the Financial Information

1.     Basis of Preparation and Significant Accounting Policies

The financial information for the year ended 30 June 2023 has been prepared in accordance UK adopted international accounting standards in conformity with the requirements of the Companies Act 2006 and effective, or issued and early adopted, as at the date of those statements.

 

The financial information contained in this announcement does not constitute the Company's statutory financial statements for the year ended 30 June 2023 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.

 

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 2023.

 

The financial information is prepared in Pounds Sterling and all values are rounded to the nearest thousand Pounds (£'000) except where otherwise indicated.

 

Statutory financial statements for the year ended 30 June 2022 were 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 2023 (2022: nil).

 

This announcement was approved by the Board on 29 September 2023.

 

 

2.     Going Concern

 

The Group had a cash balance of £1.34m as of 30 June 2023. In July 2023, the Company raised funds of £1.94 million (before expenses) via a Placing and subsequent Open Offer. These funds are expected to be sufficient to cover net project expenditure and fixed costs up to 30 June 2024. Additional funding will be required to bridge the gap to the generation of sustainable positive cashflows, with these now forecast to commence in H2 2025.

 

The basis for these expectations is the Group business model, budget and business plan, and sensitivity analysis, which have been reviewed and approved by the Board. The model comprises the financial forecasts associated with each project opportunity deemed to have a realistic chance of progressing, with assumptions based on the latest market information, agreements with counterparties and the status of discussions.

 

The Directors carry out a detailed risk assessment process each year, with key risks and mitigating actions identified. Despite the ongoing global disruption caused by Russia's invasion of Ukraine, the Directors note the positive and sustained levels of engagement with partners, prospective clients and project stakeholders worldwide during the year, with progress continuing with regard to the Company's primary projects with MSC, Valkor and the client in Morocco. Existing and prospective commercial partners make decisions based on long-term considerations, and the Directors believe that the economic and environmental advantages offered by MSAR^® and bioMSAR^TM are increasingly attractive in periods of global uncertainty as counterparties look to both generate savings and further improve their environmental performance.

The Group's ability to reach commercial revenues and sustainable positive cashflows will be determined by the successful outcome of the forthcoming trials. The Board are confident that the trials will be successful based upon the following:

 

·      Morocco: The trial in Morocco involves the combustion of MSAR^® for power generation. This is a similar application to that successfully trialled by Quadrise at the Orlen Lietuva plant in Lithuania in 2011, where MSAR^® was consumed in a power plant boiler to generate electricity.

 

·      MSC: The MSC trials will take place on the same vessel used for the Maersk LONO trial (the MSC Leandra, formerly the Seago Istanbul). In addition, the engine manufacturer (Wartsila) and MSC are happy to proceed directly to on-vessel trials, rather than commencing with an initial stationary engine test, given their assessment of the low-risk nature of the trial.

 

·      Utah: The Utah application is in the upstream sector, where similar technology has been successfully demonstrated previously by Quadrise Canada.

 

In addition, the positive results generated by the Aquafuel testing on bioMSAR™ and the similar properties of MSAR^® and bioMSAR™ mean that trials involving bioMSAR™ do not have a significantly higher risk of failure than the MSAR^® equivalents.

 

The Directors have reviewed both the Group and Company's ability to operate as a going concern up to the 31 December 2024, and have determined that the continuation of the Group and Company as a going concern will be dependent upon successfully raising sufficient funds within 12 months of the financial statements sign off date to bridge the gap between the exhaustion of existing funds and the generation of sustainable positive cashflows. The Company is the 100% parent of Quadrise International Limited ('QIL'), the subsidiary through which the Group runs the operating and project activities discussed above. The Directors have a reasonable expectation that with positive trial results and ongoing progress to commercial revenues, such funds will be raised, although no binding funding agreements are in place at the date of this report, furthermore, notwithstanding the Board's confidence, there are currently no binding agreements in place in respect of commercial revenues.

 

The Directors have therefore concluded that it is appropriate to prepare the Group and Company financial statements on a going concern basis; however, in the absence of additional funding being in place at the date of this report, these conditions indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern and, therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The audit report draws attention to going concern by way of a material uncertainty.

 

The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.

 

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.     Taxation

 

 

No liability in respect of corporation tax arises as a result of trading losses.

 

 

The Group has tax losses arising in the UK of approximately £62.10m (2022: £59.97m) that are available, under current legislation, to be carried forward against future profits. However, the ability to utilise the losses is restricted, being dependant on the type of loss and when it arose. The use of losses under the UK corporation tax regime was reformed from 1 April 2017 such that different rules on the use of losses apply to losses arising pre-April 2017 and post-April 2017. Pre-2017 trading losses can only be deducted against profits of the same trade within the company in which they arose, whereas the post-2017 trading losses can be used more widely and are deductible against total profits of the group.

 

 

A deferred tax asset representing these losses and other temporary differences at the statement of financial position date of approximately £15.53m (2022: £14.99m) has not been recognised as a result of existing uncertainties in relation to its realisation.

 

 

5.     Loss Per Share

 

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

 

 

Basic loss per share is calculated by dividing the loss for the 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 18.3m dilutive share options 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.

 

6.     Property, plant and equipment

 

 

 

 

7.   Intangible Assets

 

Consolidated

 

 

Intangible assets comprise intellectual property with a cost of £36.7m, including assets of finite and indefinite life. Quadrise Canada Corporation's ("QCC's) royalty payments of £7.7m and the MSAR^® trade name of £3.1m are termed as assets having indefinite life as it is assessed that there is no foreseeable limit to the period over which the assets 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 £25.9m, 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^® 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® 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 2033 with an assumed growth rate being used beyond that date.

 

The key assumptions used in this calculation are as follows:

 

 

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^® 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 2023 revenue forecast extends to 30 June 2033 which is considered to be a reasonable timeframe that allows   each project included within the forecast to reach full 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 £1.48m (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^® 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

 

 

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 2023.

 

8.   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 2023. The shares in each of these companies were valued at CAD $nil on 1 July 2022 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 2023. 

 

 

9.     Share Options

 

Share option expense for the year ended 30 June 2023 was £178k (2022: credit of £44k).

 

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:

 

The weighted average remaining contractual life of the 35.76 million options outstanding at the statement of financial position date is 6.40 years (2022: 4.64 years). The weighted average share price during the year was 1.57p (2022: 2.66p) 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 one-to-three-year period provided the recipient remains an employee of the Group. Options also may be exercised within an agreed period of an employee leaving the Group at the discretion of the Board.

 

The Company issued 36.2 million share options to directors and employees during the year (2022: 14.5 million). The fair value was calculated using the Black Scholes option pricing model. The weighted average inputs were as follows:

 

 

10.   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:

 

 

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 weighted average inputs into the Black Scholes option pricing model were as follows:

 

 

No warrants remain outstanding at the statement of financial position date. As at 30 June 2022, the weighted average remaining contractual life of the 40.2 million warrants outstanding was 0.23 years. The weighted average share price during the year was 1.57p (2022: 2.66p) 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 £nil (2022: £5k). The balance payable at the statement of financial position date was £nil (2022: £nil).

 

QED 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

 

Placing and Open Offer

 

On the 7 July 2023, the Company raised total gross proceeds of £1.1 million pursuant to a Placing of 88,000,000 New Ordinary Shares at a price of 1.25 pence per share. On 25 July 2023, additional gross proceeds of £0.84 million were raised from an Open Offer to qualifying shareholders for a total of 67,573,855 New Ordinary Shares at a price of 1.25 pence per share. The Placing and subsequent Open Offer raised a total of £1.94 million (before expenses) for the Company.

 

Issuance of Share Options

 

Performance Options

 

On 3 August 2023, the Company granted a total of 13,500,000 options (the 'Performance Options') over new ordinary shares of 1p each in the Company executives and employees of the Company in accordance with the provisions of the Company's Enterprise Management Incentive Plan ("EMI Plan"). The issue of these options follows the lapsing in full of the 11,950,000 options issued by the Company on 27 January 2023 due to the specific performance conditions of those options not having been met. 7,500,000 of the Performance Options were granted to Jason Miles, Chief Executive Officer of the Company.

 

The Performance Options have an exercise price of 2.5p, and will vest as to 50% on the first anniversary of grant and the remaining 50% shall vest on the second anniversary of the date of grant. All vestings are subject to the satisfaction of specific performance conditions prior to the first anniversary of grant. The Performance Options will be exercisable from vesting until the eighth anniversary of the date of grant.

 

Additional Options

 

On 3 September 2023 Quadrise also granted 4,500,000 options over new ordinary shares of 1p each in the Company to Non-Executive Directors of the Company in accordance with the provisions of the Company's Unapproved Share Option Plan 2016 ("2016 Plan") in the amounts set out below (the "Additional Options"). 

 

 

The Additional Options have an exercise price of 2.5p. There are no performance conditions to the vesting of the Additional Options, which will vest as to 50% on the first anniversary of grant and the remaining 50% shall vest on the second anniversary of the date of grant. The Additional Options will be exercisable from vesting until the eighth anniversary of the date of grant.

 

Nominal Value Options

 

On 3 August 2023, the Company granted a total of 35,555,555 nominal value options ('NVOs') over new ordinary shares of 1p each in the Company to executives and employees in accordance with the provisions of the Company's Enterprise Management Incentive Plan ("EMI Plan"). 6,666,667 of the Performance Options were granted to Jason Miles, Chief Executive Officer of the Company.

 

These Options have an exercise price of 1p, and will vest after 12 months from the date of grant, with vesting not subject to performance conditions. The NVOs will be exercisable from vesting until the tenth anniversary of the date of grant.

 

13. Copies of the Annual Report and Notice of Annual General Meeting

 

Copies of the annual report and of the notice convening the Company's 2023 annual general meeting will be available shortly from the Company's website at www.quadrisefuels.com and from the Company's registered office, Eastcastle House, 27-28 Eastcastle Street, London, W1W 8DH.