Quadrise Fuels International : Half yearly interim report – period ended 31 December 2021

Quadrise Fuels International plc

Company Registration No. 05267512

Interim Report and Consolidated Financial Statements

For the 6 month period to 31 December 2021

Quadrise Fuels International plc ("Quadrise", "QFI", the "Company" and together with its subsidiaries the "Group") presents its unaudited interim results for the six months ended 31 December 2021

Chairman's Statement

I am pleased and excited to have been appointed as Chairman of Quadrise and look forward to working with the Group's dedicated and talented team. The Company continues to progress its pipeline of exciting projects in the marine, industrial and upstream sectors and, having now examined the key challenges and opportunities facing the Company, I look forward to engaging with shareholders and discussing progress with them. I believe that I have joined Quadrise at a pivotal time, under the backdrop of ambitious global climate targets driven by both public and investor sentiment and when the Company's undoubtedly strong ESG credentials will come increasingly into sharp and positive relief. Given this backdrop and following discussions with management and the Board, I believe our immediate priorities are to:

• 1. Determine which of our projects can drive revenues and positive cashflows within our available cash and manpower resources.

  Our projects with MSC in the marine sector, our industrial project in Morocco and our upstream project with Greenfield Energy LLC ("Greenfield") in Utah have progressed but not at the pace originally envisaged. In addition to headwinds from the Covid-19 pandemic and subsequent destabilising global events, they each have several moving parts with many of these outside the influence and control of Quadrise. Discussions with our key counterparties are ongoing and we are determined to bring each of these projects to clear milestone points.

• 2. Position Quadrise squarely amongst the growing cohort of Green Economy companies.

  The rapid intensification of ESG and climate-change focused policies across the world presents a huge opportunity for Quadrise. The focus on largescale and immediate Net Zero carbon solutions to climate change often underplays the valuable and critical role that must be played by transitional technologies such as ours. Quadrise's proprietary MSAR® and low carbon bioMSAR™ solutions can drive tangible cost and emissions savings for adopters immediately without the need for significant capital investment.

Looking further ahead, opportunities which maximise our ESG credentials such as bioMSAR™ will be prioritised and advanced. We expect to continue to develop the next generation of bioMSAR™ fuels and energy delivery technologies, with the goal of producing a fully Net Zero product by 2030. A stronger focus on using Quadrise's unique emulsion technologies and expertise will leave the Company more squarely positioned within the ESG sector and less exposed to risks and uncertainties outside our own influence. Quadrise will aim to qualify for the LSE Green Economy Mark, which will provide third-party validation of our green credentials and increase visibility among investors and other stakeholders, including industrial partners.

As the Company's financial circumstances permit, we intend to explore and bring on complementary technologies and additional businesses to reinforce Quadrise's reputation in the ESG space and help to ensure that our products and services are part of the conversation when potential clients are looking at ESG and decarbonisation solutions.

As shareholders would rightly expect from us, Quadrise will maintain its own commitment to the highest ESG reporting standards. This is reflective not only of public sentiment, but also redoubled ESG commitments from significant institutional investors.

I am very much looking forward to helping the board and management team to deliver a prosperous future for this Company. On behalf of the Board, I would like to thank our loyal shareholders for their support and patience throughout the pandemic.

Financial Position

The Group held cash and cash equivalents of approximately £5.6 million as at 31 December 2021 (31 December 2020: £1.1 million), sufficient to reach revenue generation in H2 2022 subject to the conclusion of commercial project agreements.

The Group recorded a loss of £1.5 million for the six months to 31 December 2021 (2020: £2.3 million). This included production and development costs of £0.7 million (2020: £0.6 million) and administration expenses of £0.7 million (2020: £0.8 million). The prior year loss of £2.3 million also included a non-cash fair value loss arising on the valuation of convertible securities of £0.7 million.

Basic and diluted loss per share was 0.11p (2020: 0.21p).

The Group's total assets amounted to £9.3 million as at 31 December 2021 (£4.9 million as at 31 December 2020). In addition to the cash and cash equivalents, this included fixed tangible assets (mainly plant and equipment) of £0.4 million and MSAR® trade name of £2.9 million.

The Group has accumulated tax losses of approximately £58.4 million (2019: £53.7 million) available to be carried forward against future profits.

Andy Morrison Chairman

25 March 2022

Chief Executive's Statement

Our global opportunity

The past few weeks have witnessed major market upheaval following the Russian invasion of Ukraine. The resulting increases in both energy prices and volatility have further emphasised the reliance that the global economy has on fossil fuels and the need to use these resources more efficiently as the world transitions to a Net Zero future. We believe that Quadrise's unique MSAR® and bioMSAR™ technology can play a significant role in helping achieve this goal and establishing the Company as an attractive investment in the wider ESG context. During the period we accelerated the development and commercialisation of our bioMSAR™ technology and fuel, and in parallel continued to develop energy transition technology and Net Zero fuel solutions to offer to our global clients. According to the Intergovernmental Panel for Climate Change (IPCC), the world has until 2030 to cut human-caused CO2 emissions by half, in addition to other greenhouse gas ("GHG") emissions such as methane, to have a 50% chance of avoiding the worst effects of climate change by 2050. As part of the Glasgow Climate Pact, 153 countries have put forward new or updated emissions targets, covering around 80% of the world's GHG emissions. At COP 26, 100 countries also committed to reduce global methane emissions by 30% by 2030 by signing the Global Methane Pledge. We believe that Quadrise's unique MSAR® and bioMSAR™ technology can play a significant role in attaining these goals.

bioMSAR™ and our transition to Net Zero

The focus on large-scale and immediate Net Zero carbon solutions to climate change often neglects the fact that hydrocarbons in different forms will remain a large part of the global energy mix for decades to come, in light of the lack of current and planned renewable energy capacity. There are however fuels which can be adopted immediately to bridge the gap between the carbon intensive fuels of today and the Net Zero energy sources of the future. These "transition fuels" allow emissions savings to be made immediately, and include our innovative low carbon bioMSAR™ fuel, which takes advantage of our proven emulsion fuel technology platform. bioMSAR™ utilises clean, renewable glycerine, a by-product of current biodiesel manufacturing processes, to create a low cost, low carbon biofuel.

When evaluating transition fuels, there are a number of factors that are important:

• 1. Fuel composition and "global warming potential", which takes into account CO2, methane, soot ("Black Carbon") and NOx- emissions.

• 2. The efficiency of the transition fuel in converting energy to power at a commercial scale.

• 3. The resulting emissions from combustion.

• 4. The overall cost to the consumer.

Testing of bioMSAR™ on a high-speed 4-stroke Cummins diesel engine at Aquafuel and on a medium-speed 4-stroke Wärtsilä diesel engine at the VTT facility in Finland has shown that bioMSAR™ use results in an increase in engine efficiency of over 3%, and NOx reductions of over 20% when compared with marine diesel fuel. The most recently completed round of testing at Aquafuel used an engine that had been modified to simulate larger, high compression engines, like the low-speed 2-stroke engines used in the marine sector. Engine efficiency was increased by over 13% by advancing injection timing, and unlike marine diesel, there was no increase in NOx emissions with increased engine efficiency.

Switching from marine diesel to bioMSAR™ would therefore allow shipping operators to reduce both fuel consumption and CO2 emissions. Further development and test work is planned during 2022, but the positive results to date support our plans for larger scale trials on commercial diesel engines for bioMSAR™. Commercial trials are planned with MSC, as well as for use in industrial and boiler applications.

The glycerine content of bioMSAR™ can be adjusted to meet the client's demands for CO2 savings, providing a cost-effective transition fuel solution to meet and go beyond increasingly stringent decarbonisation requirements. When compared to LNG and FAME, transition fuels which are increasingly being adopted by the marine industry, the superior efficiency of bioMSAR™ leads to proven higher CO2 emissions savings. bioMSAR™ delivers energy at a lower cost per unit, and unlike LNG uses a biofuel that is dispersible in water, non-flammable, non-toxic and biodegradable. An international patent application for bioMSAR™ has been submitted jointly with Nouryon and complements our existing MSAR® IP.

The marine sector has reduced CO2 emissions by 30% from 2008 to 2020, but still contributes 940 million tons or 2.5% of global emissions. Based on recent results from VTT testing, bioMSAR™ could reduce emissions of CO2 by over 25%. For a large vessel consuming 25,000 tons of HFO annually, equating to 23,000 tons of CO2, that is equivalent to the annual emissions of 11,000 average petrol cars.

We strongly believe that both MSAR® and bioMSAR™ will have an important role to play in the transition to a sustainable future. We recognise that Net Zero energy solutions will become mandatory in the future, and we have an RDI strategy in place to take advantage of this opportunity. Our emulsion technology platform is innovative and adaptable. Our RDI team are investigating the use of other renewable fuels to produce a fuel blend with a Net Zero carbon contribution. In parallel, we are also investigating alternative methods of sourcing renewable glycerine from non-conventional sources, as well as contacting biodiesel suppliers to source the required volumes and quality of renewable, fuel-grade glycerine and other biofuels to provide a platform for future growth.

Key projects

Our key projects in the marine, upstream and industrial sectors have each been subject to delays during the period under review, and our focus is now to finalise a number of commercial project agreements expeditiously that will demonstrate MSAR® and bioMSAR™ technology at commercial scale during 2022 and to prioritise our available resources.

MSC - Our discussions with MSC regarding the proposed LONO fuel trials on board their commercial container vessels are progressing to the key decision points for both parties.Since the signature of the Joint Development Agreement with MSC in Q1 2021, the scope of this project has evolved from conducting the planned vessel trials using MSAR® to instead using bioMSAR™ following the positive test results on 4-stroke diesel engines. The testing of bioMSAR™ on a marine vessel opens up the opportunity to test and use MSAR® in the future.

The Original Engine Manufacturer ("OEM") resources required to facilitate the trials are currently very limited due to a significant backlog caused by the Covid-19 pandemic and a full programme of testing on multiple future fuel solutions. Participation of the OEMs is important to verify test plans and results, which then leads to the required support from Class Societies and Flag States for the vessel testing. As a result of this backlog, OEMs are focusing their resources solely on fuels which offer higher CO2 reductions such as bioMSAR™. Testing of MSAR® and bioMSAR™ by Wärtsilä Switzerland on their optical combustion chamber is now scheduled for late Q2-2022, with injector wear rig testing on bioMSAR™ scheduled for late Q3-2022.

We are currently working to finalise the LONO trial programme and subsequent bioMSAR™ commercial terms with MSC, with trial preparations commencing in Q2 2022 leading to the trials themselves commencing before the end of this calendar year, and taking 9 months to conclude thereafter.

Utah - Our project in Utah involves using MSAR® technology to emulsify low-sulphur 10-13° API heavy oil, which can be recovered from the billions of barrels of oil-sand deposits located at Asphalt Ridge in Utah, USA. Some of the oil sands are mined, but there are also high-quality heavy oil seams sub-surface at around 1000 feet. Oil samples were provided from the Petroteq Oil Sands Plant operated by our client, Greenfield Energy LLC ("Greenfield"), which is now wholly owned by AIM-listed TomCo Energy PLC ("TomCo"), after their purchase of the remaining 50% stake in the Greenfield JV in August last year from Valkor Technologies LLC ("Valkor"). The oil samples were successfully converted to both MSAR® and bioMSAR™ by our RDI team at QRF. Quadrise is now working with TomCo and Valkor to source new commercial opportunities for MSAR® and bioMSAR™ at sites in in Utah. The proposed means of oil extraction at one such site in Utah is anticipated to be "carbon negative" through the application of carbon capture and sequestration. Exploration drilling at this site is well underway. The current expectation is that production drilling at this site will take place in the summer, following the receipt of the required permits, with oil then available for conversion to bioMSAR™ and MSAR® for client site trials during H2 2022. These trials would then be expected to lead to commercial supply. Discussions with stakeholders to finalise agreements and commercial supply are in progress.

Morocco - We are currently working with the new client team to update our Material Transfer and Cooperation Agreement, with the intention of conducting site trials from Q2 2022. The first of these trials will be at "Site B", which consumes around one third of the client's annual HFO consumption, where 60mt of MSAR® will be combusted. The Quadrise trial equipment is in Morocco, and with the testing of bitumen samples for the MSAR® fuel production now complete, production of the 60mt of MSAR® can commence upon signature of the updated agreement. Following the Site B trial, the results and a feasibility study for MSAR® use at a second client site ("Site A") will be delivered to the client. A subsequent commercial trial will then take place at Site A later in 2022, subject to the client's maintenance programme. Assuming the successful conclusion of these trials, the intention would then be to conclude a commercial supply agreement covering one or more of the client's sites in Morocco during H2 2022.

Americas - Discussions continue to progress with regard to potential projects with power generators in Panama and Honduras, and with the state oil companies and utility operators in Mexico. Our regional agent network is being utilised to progress these projects with Quadrise support as we expand our footprint in the region.

Outlook

The downstream oil sector has had to adapt rapidly to changes in demand driven by the IMO 2020 restrictions on marine sulphur emissions, followed by the ongoing pandemic and, most recently, Russia's invasion of Ukraine and the associated sanctions on Russian oil exports. These changes affected the availability and prices (relative to HFO) of refinery residuals utilised in MSAR® and bioMSAR™.

Despite changes to oil consumption, the underlying crude oil price has seen a very significant increase, which is positive for the upstream sector and for Quadrise. The demand for HFO in the power and marine sectors has also remained strong, the latter driven by the increasing use of exhaust gas cleaning systems (or "scrubbers") to comply with IMO 2020. Quadrise expects that distillate fuel demand will continue to recover in 2022 driven by the transportation sector. This will be positive for refinery margins and the HFO-distillate spread, underpinning the economic value of refinery residuals as an energy source for MSAR® and bioMSAR™ in our key markets.

Prices of underlying biofuels and derivatives have also increased dramatically during the last six months and this increase continues to be driven by reduced supply as a result of Covid-19. Price rises seen during 2021 appeared to be flattening and softening at the start of 2022, however underlying biofuel prices have spiked again, along with oil prices following the Russian invasion of Ukraine. Crude glycerine prices have been subject to similar trends as other biofuels and feedstocks. However, glycerine pricing remains competitive based on refining of crude glycerine to fuel grade when compared with biofuels such as FAME on both a unit energy basis and relative CO2 emissions savings "well-to- wake".

The publicly supported global energy transition towards the adoption of renewables and low emission fuel options is accelerating interest in bioMSAR™ and increasing the market opportunity in various sectors. During the next 12 months we plan to demonstrate the long-term economic and environmental benefits of MSAR® and bioMSAR™ projects through commercial-scale trials which, on successful completion, will lead to supply contracts and commercial revenues. In parallel, our RDI team is focused on identifying and developing new Net Zero fuel solutions, as well as looking into opportunities to deploy our MSAR® emulsion technology platform in new applications.

During the period, there were some changes to our senior team. Our former Chairman, Mike Kirk stepped down from his role following the AGM on 26 November 2021 after six years with the Company. Mike made a huge contribution during his time with Quadrise and left with our very best wishes. I am glad to report that we welcomed Phil Hill as our new COO in January, and then in February we were delighted to announce the appointment of our new non-executive Chairman, Andy Morrison. Both Phil and Andy have hit the ground running and are supporting the Company in progressing projects through to commercialisation. Our new arrivals and current team will be instrumental in shaping the future of the Company as it helps drive and benefit from the global energy transition to Net Zero.

On behalf of the team at Quadrise, I would like to thank our shareholders for their support and patience during the financial year to date, and we look forward to being able to announce material progress across our projects over the course of 2022.

Jason Miles

Chief Executive Officer 25 March 2022

Consolidated Statement of Comprehensive Income

For the 6 months ended 31 December 2021

Total comprehensive loss for the period from continuing operations

(1,519)

(2,278)

(4,260)

Note	6 months ended	6 months ended	Year ended
31 December	31 December	30 June
2021	2020	2021
Unaudited	Unaudited	Audited
£'000	£'000	£'000
Continuing operations
Revenue	75	8	17
Production and development costs	(686)	(645)	(1,377)
Other administration expenses	(743)	(770)	(1,527)
Fair value adjustments arising on Convertible	-	(668)	(1,257)
Securities
Share option charge	3	(165)	(147)	(303)
Warrant charge	-	-	-
Foreign exchange gain/(loss)	1	(5)	(9)
Operating loss	(1,518)	(2,227)	(4,456)
Finance costs	(1)	(51)	(4)
Finance income	-	-	50
Loss before tax	(1,519)	(2,278)	(4,410)
Taxation	-	-	150
Loss per share - pence
Basic	4	(0.11)p	(0.21)p	(0.36) p
Diluted	4	(0.11)p	(0.21)p	(0.36) p