UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-SB
(Amendment
No. 5)
General
Form for Registration of Securities of Small Business Issuers
Under
Section 12(b) or (g) of the Securities Exchange Act of 1934
NNRF,
INC.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
|
|
98-0216309
|
|
(State
of incorporation)
|
|
(IRS
Employer ID Number)
|
1574
Gulf Rd., # 242, Point Roberts, WA 98281
(Address
of principal executive offices) (Zip Code)
(604)
943-0706
(Registrant's
telephone number)
Securities
to be registered under Section 12(g) of the Exchange Act:
|
Title
of each class
To
be registered
|
|
Name
of each exchange on which
each
class is to be registered
|
|
Common
|
|
NASDAQ
Over the Counter Bulletin Board
|
NNRF,
INC.
TABLE
OF CONTENTS
|
PART
I
|
|
|
|
|
|
Item
1
|
|
Description
of Business.
|
|
2
|
|
Item
2
|
|
Management’s
Discussion and Analysis or Plan of Operation.
|
|
17
|
|
Item
3
|
|
Description
of Property.
|
|
25
|
|
Item
4
|
|
Security
Ownership of Certain Beneficial Owners and Management.
|
|
26
|
|
Item
5
|
|
Directors
and Executive Officers, Promoters and Control Persons.
|
|
27
|
|
Item
6
|
|
Executive
Compensation.
|
|
30
|
|
Item
7
|
|
Certain
Relationships and Related Transactions and Director
Independence.
|
|
30
|
|
Item
8
|
|
Description
of Securities.
|
|
30
|
|
|
|
|
|
|
|
PART
II
|
|
|
|
|
|
Item
1
|
|
Market
for Common Stock and Related Stockholder Matters.
|
|
32
|
|
Item
2
|
|
Legal
Proceedings.
|
|
33
|
|
Item
3
|
|
Changes
In and Disagreements with Accountants.
|
|
33
|
|
Item
4
|
|
Recent
Sales of Unregistered Securities.
|
|
33
|
|
Item
5
|
|
Indemnification
of Officers and Directors.
|
|
37
|
|
|
|
|
|
|
|
PART
F/S
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm Financial
Statements.
|
|
|
PART
I
EXPLANATORY
NOTE
We
are
filing this Amendment No. 5 to the General Form for Registration of Securities
on Form 10-SB to register our common stock, par value $0.001, pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
Once
we
have completed this registration, we will be subject to the requirements of
Regulation 13A under the Exchange Act, which will require us to file annual
reports on Form 10-KSB, quarterly reports on Form 10-QSB, and current reports
on
Form 8-K, and we will be required to comply with all other obligations of the
Exchange Act applicable to issuers filing registration statements pursuant
to
Section 12(g).
Effective
July 19, 2007, we amended our articles of incorporation to change our name
from
“Nucon-RF, Inc.” to “NNRF, Inc.”.
As
used
in this Amendment No. 5 to Form 10-SB, unless the context requires otherwise,
"we", "us", “our”, “NNRF”, "Company" or “Issuer” means NNRF, Inc., formerly
known as Nucon-RF, Inc. Our principal place of business is located at
119526
Moscow, Leninskij prospekt 146, Suite 332
and
our
principal executive office is located at 1574 Gulf Rd., # 242, Point Roberts,
WA
98281.
CAUTION
REGARDING FORWARD-LOOKING INFORMATION
All
statements contained in this Amendment No. 5 to Form 10-SB, other than
statements of historical facts that address future activities, events or
developments are forward-looking statements, including, but not limited to,
statements containing the words "believe," "anticipate," "expect" and words
of
similar import. These statements are based on certain assumptions and analyses
made by us in light of our experience and our assessment of historical trends,
current conditions and expected future developments as well as other factors
we
believe are appropriate under the circumstances. However, whether actual
results
will conform to the expectations and predictions of management is subject
to a
number of risks and uncertainties that may cause actual results to differ
materially.
Such
risks include, among others, the following: international, national and local
general economic and market conditions: our ability to sustain, manage or
forecast our growth; raw material costs and availability; new product
development and introduction; existing government regulations and changes in,
or
the failure to comply with, government regulations; adverse publicity;
competition; the loss of significant customers or suppliers; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; the ability to attract and retain
qualified personnel; the ability to protect technology; and other factors
referenced in this filing.
Consequently,
all of the forward-looking statements made in this Amendment No. 5 to Form
10-SB
are qualified by these cautionary statements and there can be no assurance
that
the actual results anticipated by management will be realized or, even if
substantially realized, that they will have the expected consequences to
or
effects on our business operations.
ITEM
1 DESCRIPTION OF
BUSINESS
Historical
Summary
Nucon,
Inc. was organized on August 25, 2005 under the laws of the State of Nevada.
On
May 23, 2006, Stafford Energy, Inc., a Nevada corporation (“Stafford”), acquired
100% of the issued and outstanding capital stock of Nucon, Inc., a Nevada
corporation, in exchange for 22,500,000 shares of common stock pursuant to
that
certain merger and share exchange agreement (“Merger Agreement”). At the
closing, Stafford amended its articles of incorporation and changed its name
to
Nucon-RF, Inc. (“Nucon”), and its two wholly-owned subsidiaries, Abucco
Technologies, Inc., a Canadian corporation (“Abucco”), and Stafford Energy
Canada, Ltd., a Canadian corporation (“Stafford Canada”), became wholly owned
subsidiaries of Nucon. Nucon, Inc., a Nevada corporation, remains a wholly
owned
subsidiary of Nucon. On July 19, 2007, we amended our articles of incorporation
to change our name to “NNRF, Inc.”.
As
the
shares of Stafford common stock issued to Nucon shareholders in the merger
transaction represented a controlling interest, the transaction has been
accounted for as a recapitalization, or reverse merger, with Nucon being
considered the acquirer. The recapitalization has been accounted for at
historical cost.
Abucco
Technologies Inc. is a developer and provider of embedded solutions that monitor
and control remote devices and appliances using wireless and TCP/IP connections.
Given that Abucco’s business is not synergistic with that of the Company, NNRF
will divest itself of Abucco in 2007. In addition, NNRF will dissolve Stafford
Canada in 2007. Stafford Canada has had no operations since inception.
In
addition to the two foregoing subsidiaries, the Company incorporated OOO
Nucon-RUS (“Nucon-RUS”), a limited liability company formed under the laws of
the Russian Federation (“RF”) in 2007. Nucon-RUS is a wholly owned subsidiary of
Nucon. In January 2007, Nucon became fully accredited to do business in the
RF
by the Russian Ministry of Justice.
Business
Development
Overview
NNRF
is a
technical solutions company focused on high-end environmental markets in the
Former Soviet Union (“FSU”), Eastern Europe and Asia. NNRF has offices in
Moscow, Russia, and Berlin, Germany.
The
mission of NNRF is to provide cutting edge solutions for the management of
nuclear waste and power quality challenges facing the Russian, European, Asian
and other markets
.
To
this
end, NNRF presently has technologies that it has either licensed or acquired
in
the high-end environmental impact areas of nuclear facility construction, safety
and remediation, wastewater treatment, and power quality. NNRF intends to market
and either distribute to resellers or sell the products and services related
to
the foregoing technologies.
NNRF’s
customers, through its investment in ATOLL (defined below) and partners
currently consist of, among others, Rosenergoatom, the operating utility of
Russia’s nuclear facilities; Atomstroyexport, established by the Russian
government to promote the export of Russian construction, operation and
modernization of nuclear power plants abroad; Stroikomplektinvest, a
construction supply distributor serving as NNRF’s marketing partner for power
quality equipment in the Republic of Tatarstan; and the International Center
for
Environmental Sciences of the Federal Ministry of Nuclear Energy
(“ICES”).
NNRF
began its operations in November 2005 and has accomplished the initial stages
of
its business strategy. With several key strategic alliances established, NNRF
has the present capability of providing product, technological and technical
service support addressing radioactive waste, wastewater and power quality
challenges including compliance, shielding, transport and storage requirements,
plant equipment protection and energy efficiency. NNRF also has in-house
expertise in radiological protection and radiological waste management. In
addition, with the acquisition of 50% of ZAO Electro Machinery Building Plant
ATOLL (“ATOLL”), NNRF, via ATOLL, is manufacturing and supplying parts and
equipment for new and existing nuclear facilities in the RF.
NNRF
has
licensed,
acquired or distributes the following technologies:
1.
NuCap
TM
is
a
radiation and corrosion-resistant silicon geopolymer
material
that has been licensed from
Global Matrechs, Inc. NuCap
TM
stabilizes, contains, encapsulates and stores nuclear waste. Applied similar
to
paint, Nu-Cap
TM
can
be
applied to the encapsulation of the thousands of iron drums around the world
that contain radioactive materials and are subject to corrosion and leakage.
The
Company has licensed NuCap
TM
from
Global Matrechs, Inc. on an exclusive basis for the Former Soviet Union and,
on
a non-exclusive basis, for the European Union countries, China and India.
NuCap
TM
will be
manufactured by Dow Corning pursuant to a manufacturing agreement between Global
Matrechs and Dow Corning.
2.
The
Environmental Potentials waveform correction absorber equipment
suppresses
power surges and filters out high frequency noise over electrical lines, helping
prevent flash fires and other damage to computer-controlled electronic
equipment. The Company has entered a Territorial Sub-Distributor Agreement
with
Power Quality Holdings, Inc. regarding the placement of the foregoing equipment
in the Russian Federation.
3.
Feecom/Biecom
is
a
non-toxic polymer-based nuclear waste shielding material that can be molded
as
needed into various forms, including bricks and plates, containers or plaster
on
fixed walls. This material which encapsulates and shields nuclear radiation
could replace the toxic lead walls currently in place in nuclear reactors and
x-ray rooms globally. NNRF has acquired the Feecom/Biecom technology
from
Dr.
Hans-Jürgen Engelmann in consideration for options to purchase 150,000 shares of
common stock, exercisable for a period of ten (10) years at $0.75 per share.
In
addition, Dr. Engelmann will receive a royalty equal to 2.5% of the gross
revenues relating to the sale of Feecom/Biecom to third parties.
4.
ASPECT
and
NNRF
are engaged in joint efforts in the implementation of complex technologies
and
equipment on the basis of a gradient-porous metal-ceramic membrane known as
Trumem™. NNRF’s Chief Executive Officer, Dr. Valery Lebedev, developed Trumem™.
Trumem™ is a high-output, long-lasting, inexpensive and compact purification
unit for all types of liquid wastes, including radioactive wastes. These
technologies should provide the basis for a technological breakthrough in
solving the current problems of radioactive liquid wastes. NNRF has entered
into
a Cooperation Agreement with ASPECT, a Russian research, production and
marketing entity engaged in the development, introduction and transfer of
innovative high-tech technologies and projects, to jointly engage in the
implementation and commercialization of complex technologies and equipment
of a
gradient-porous metal-ceramic membrane known as “TRUMEM™”, a high-output,
long-lasting, inexpensive and compact purification unit for all types of liquid
wastes, including radioactive wastes. The principal application of TRUMEM™ will
involve the rehabilitation of water basins which have become contaminated with
liquid radioactive wastes.
NNRF
has
entered into alliances with several Russian and European companies to market,
distribute, and sell various products and services for the nuclear remediation
industry. These companies include:
1.
Rosenergoatom,
the operating utility of Russia’s nuclear power plants.
2.
Atomstroyexport,
charged by the Ministry of the Russian Federation for Atomic Energy with
promoting the export of Russian-made products for nuclear power projects
abroad.
3.
TPA,
Ltd., the official marketing agent of three Russian manufacturing facilities
which produce products for the nuclear industry
.
In early July 2007, TPA became a division of Atomenergomash. NNRF does not
have
an agreement with Atomenergomash.
4.
TRI-ION
-Wasser Technik, a German company specializing in cleaning water with heavy
metal and other isotopes in the Russian Federation.
The
key
business and other objectives of NNRF are to (i) become a primary provider
of
equipment, services and technologies for nuclear facility construction, safety
and remediation, wastewater treatment, multilateral nuclear decommissioning
projects and power quality products and services, either directly or through
its
wholly owned subsidiary Nucon-RUS, and its 50% owned affiliate,
ATOLL,
(ii) commence selling products globally in 2008, (iii) acquire and develop
unique environmental impact technologies each year of operation to market,
distribute and sell, and (iv) become a fully reporting company under the
Securities Exchange Act of 1934, as amended, and commence trading on the Over
the Counter Bulletin Board (“OTCBB”) as soon as commercially practicable.
To
accomplish the foregoing objectives, NNRF’s strategy consists of the
following:
|
|
·
|
Maintain
and establish further key alliances with Russian government agencies
responsible for the nuclear waste remediation and power quality
industries;
|
|
|
·
|
Enter
into strategic relationships and acquire companies, both Russian
and
otherwise, which supply products and services to the RF government
agencies responsible for the domestic and export nuclear markets;
and
|
|
|
·
|
Identify,
develop and acquire innovative, proprietary technologies which have
environmental and economic applications for the Russian, European
and
Asian markets.
|
Bankruptcy,
Receivership or Similar Proceedings
NNRF
has
not been involved in any bankruptcy, receivership or similar
proceeding.
Acquisition
of 50% of ATOLL
In
March
2007, NNRF completed its requirements for the acquisition of 50% of ATOLL,
a
private joint stock Russian company. Under Russian law, NNRF is limited to
50%
ownership in ATOLL. At this time, we do not exercise significant influence,
or
control, over management or the operations of ATOLL. Further, the existing
management of ATOLL are influenced by a group of stockholders who control the
other 50% of ATOLL. As a result, the operations and decisions made by management
of ATOLL are made without input or involvement of the Company. While we
anticipate that over time we may be able to exercise significant influence
over
the operations of ATOLL given our ongoing discussions with ATOLL management
and
the group of stockholders holding the other 50% of ATOLL, until we are able
to
do so we will have no control over the decisions made by existing ATOLL
management, which are influenced significantly by the group of stockholders
holding the other 50% of ATOLL.
ATOLL
is
based in St. Petersburg, Russia and is a manufacturer and supplier of spare
parts for existing nuclear power plants, products for the modernization of
nuclear power plants and equipment for facilities currently under construction.
The
original terms of the acquisition agreement with ATOLL provided that NNRF
pay
$4,290,000 to ATOLL and issue ATOLL 2,000,000 shares of common stock. The
original agreement was modified to reflect the following: (i) two closings,
the
first of which was completed in the fourth quarter of 2006 when NNRF paid
$1,166,250 in consideration for 13.25% of the issued and outstanding capital
stock of ATOLL, and the second of which occurred in March 2007 and consisted
of
NNRF acquiring an additional 36.75% of ATOLL for $1,000,000 and the issuance
of
4,000,000 shares of common stock; and (ii) certain real estate interests
of
ATOLL were spun-out of ATOLL for the benefit of ATOLL stockholders other
than
NNRF. As a result, NNRF has no real estate holdings, either on its own or
through its 50% ownership in ATOLL.
The
primary purchaser of the equipment for nuclear power plants in Russia is
Rosenergoatom, with whom NNRF has an established relationship to provide
technologies, services and equipment as discussed below.
NNRF
estimates that US$3,000,000 to US$4,000,000 will be required for additional
capital expenditures at manufacturing facilities operated by ATOLL to ensure
projected production can be satisfied. ATOLL has informed the Company that
it
intends to expand the production capability of the ATOLL facility relating
to
storage containers utilized for a variety of nuclear waste as well as develop
and complete new container
prototypes.
ATOLL
anticipates moving a portion of is production facilities into (a) its existing
joint venture with Atomenergomash, (b) other manufacturing facilities such
as
JSC Electroprivod, and (c) prospective joint ventures with one or more nuclear
power plants in the RF to produce a variety of spare parts for nuclear power
plants.
The
business model of ATOLL is to supply spare parts for existing nuclear power
plants, products for the modernization of nuclear power plants, equipment for
facilities currently under construction, and supply its storage container
products to the Federal dry storage facility currently under construction
in Zelesnogorsk, Krasnoyarsk region in Siberia. This facility is projected
to commence operations in 2008. The Chief Executive Officer of NNRF, Dr. Valery
Lebedev, was the General Director of the nuclear waste storage facility in
Zelesnogorsk from 1989-1999, served as the Deputy Minister of the Ministry
of
Atomic Energy (1999-2002), and formerly served as an advisor to the Minister
of
Atomic Energy of the RF.
The
ATOLL
manufacturing process utilizes advanced computer
numerically
controlled (“CNC”) machinery. The products manufactured at the ATOLL facility
include spare parts for the entire nuclear cycle, including spare parts and
mechanisms for nuclear power plants, and handling equipment for nuclear waste
containers designed for long term storage of radioactive wastes and spent fuel.
The foregoing manufacturing capabilities have applicability in the foreign
markets of China and India, among other countries utilizing Russian designed
nuclear reactors.
ATOLL
has
approximately 220 employees consisting of engineers, nuclear industry
specialists, technical experts in nuclear equipment design and construction,
and
skilled manufacturing operators of CNC based machinery. The technical level
of
the ATOLL employee base has established ATOLL as a designated supplier to
facilities operated by Rosenergoatom, the operator and owner of all 31 nuclear
reactors in the RF.
ATOLL
has
its own construction bureau and develops all of its own drawings and technical
specifications for the manufacturing cycle. ATOLL has established its production
as the technical standard for spare parts and mechanisms for the WWER-440 and
WWER-1000 nuclear reactors presently in operation and under construction in
both
the RF and certain foreign markets. The drawings and technical specifications
for the spare parts and mechanisms of the foregoing nuclear reactors are the
proprietary intellectual property of ATOLL.
ATOLL
has
existing and prior foreign trade contracts with operators of nuclear power
plants outside of the RF (e.g., Ukraine and Bulgaria), and exports spare parts
for WWER-440 and WWER-1000 nuclear reactors to each of these countries. ATOLL
also has technical support and production capacity to support sales to other
export markets. NNRF believes that substantial marketing opportunities exist
which may result in increases in sales to these foreign markets and other
markets. The WWER-440 and WWER-1000 nuclear reactors are the latest designs
from
Russia. NNRF recently supported the marketing activities presented by ATOLL
at
the
European
Bank of Reconstruction and Development (“EBRD”) in December 2006.
The
WWER-440 and WWER-1000 nuclear reactors, similarly to all reactors worldwide,
require continuous replacement of their operating parts due to strict safety
standards established by the nuclear industry. Government mandated requirements
establish consistent and long term contracts for the production output of ATOLL
in the RF, existing foreign markets and future markets such as China and India.
ATOLL currently has booked advance sales through the year 2010.
NNRF
believes the ATOLL acquisition offers a consistent revenue stream and opens
up
future market opportunities for the technical innovations, acquired and licensed
technologies, and further acquisitions currently in the due diligence phase
or
under investigation by NNRF; provided, however, until such time as we are able
to exercise significant influence over the operations of ATOLL there can be
no
assurance that ATOLL will operate in a manner consistent with our long-term
strategy.
Business
of Issuer
In
addition to the ATOLL acquisition, NNRF has focused on procuring key strategic
partnerships and alliances principally in the RF since its inception. A
description of the current and prospective products and services of NNRF
follow.
Products
and Services; Licenses; Prospective Acquisitions; Marketing; Customers; Raw
Materials and Principal Suppliers
Rosenergoatom
Nucon
has
a working relationship with Rosenergoatom to co-lead an international consortium
(“Consortium”) of European and Russian companies to provide equipment,
technologies and services to Rosenergoatom. This working relationship is
anticipated to be evidenced by a definitive agreement in the second half of
2007
upon further advancements of the recently formed Russian state entity, Atomprom,
which controls all energy generating nuclear facilities in Russia.
In
January 2007,
the
upper
house of Russia’s parliament, the
Federation
Council, has approved the Act (“Act”) to reform civil assets of Russian Federal
Atomic Energy Agency (Rosenergoatom). According to the Act, a united holding,
Atomprom, will emerge in Russia. Its authorized capital will be established
by
the stocks contributed by joint-stock companies set up on the assets of
government enterprises of the nuclear energy complex. Atomprom will be a
complete-cycle corporation with activities ranging from uranium production
to
production of electric energy and construction of new power plants provided,
however, they are not of defense designation. Atomprom’s creation is part of the
reform of Russia’s nuclear industry which is anticipated to consolidate all
civil assets of the nuclear industry into the holding company, Atomprom, in
an
effort to increase the use of nuclear energy, as a percentage of all energy
utilized in Russia, up to 25%. Atomprom is anticipated to incorporate such
industry’s giants as TVEL, Tekhsnabexport, Energoprom, and other companies.
It
is
anticipated that upon entering into a definitive agreement with Rosenergoatom
in
the second half of 2007, Rosenergoatom will provide monthly income to NNRF
in
2007 as NNRF anticipates placing a significant number of its owned and licensed
products, services and technologies in Rosenergoatom facilities.
Rosenergoatom
is the operating utility of all nuclear power plants in the RF and is
responsible for insuring nuclear and radiation safety in all phases of nuclear
power plant operations in compliance with RF legislation as well as providing
scientific and technical support. Rosenergoatom operates all ten (10)
state-owned RF nuclear power plants consisting of 31 reactor
units representing a total of 23,242-MW of installed electrical
capacity. The foregoing represents approximately 18% of the RF power
grid.
Increasing
demands on technical safety regulations and radiation protection standards
at
the Russian nuclear energy facilities has caused ever increasing demands on
equipment, plants and technologies for the construction, modernization and
operation of the facilities of Rosenergoatom (See
www.nti.org/db/nisprofs/russia/govt/rosenerg.htm).
The
companies in the Consortium will enjoy a “most favored nations” status with
Rosenergoatom and each company therein will provide new technologies, technical
and system support, and equipment which have been utilized in modern
construction and industry projects for the purpose of continuous
improvement of quality and safety. Several of the companies represented in
the
Consortium have experience working at Rosenergoatom facilities, including the
Kalin Nuclear Power Station, Kursk Nuclear Power Station, Dry Storage Facility
-Zelesnogorsk and Belojarsk Nuclear Power Station. Four of the companies in
the
Consortium have working relationships with NNRF. NNRF anticipates that it will
complete contracts with the remaining companies in the Consortium in 2007.
Assuming such agreements are reached with the remaining companies in the
Consortium, NNRF will have a broader opportunity to place its products and
services to members of the Consortium, each of which work closely with
Rosenergoatom in the provision of equipment, technologies and services to
nuclear facilities overseen by Rosenergoatom.
NNRF
has
also commenced an acquisition program to acquire Russian companies who desire
to
continue and improve their sales to Rosenergoatom, or desire to become a member
of the Consortium, including the execution of a letter of intent relating to
the
acquisitions of 25.5% of each of JSC Electroprivod and Velkont described below.
In
addition to NNRF and
GGS
Consulting
und Vetriebs
GmbH,
Berlin
,
Germany
(“GGS”), a management and project development company,
the
Consortium presently consists of the following companies:
|
|
·
|
Doka
GmbH, Austria, formwork technology -
http://www.doka.com/
|
|
|
·
|
E+S
Planbau GmbH, Germany, setting up various types of cooling towers
- E + S
Planbau Kühlturmbau GmbH (Niederlassung Elstra)
|
|
|
·
|
Max
Frank GmbH, Germany, special articles for reinforced concrete engineering
-
http://www.maxfrank.de
|
|
|
·
|
Wacker
AG, Germany, construction engineering - http://www.wacker-ag.ch/
|
|
|
·
|
Liebherr
AG, Switzerland, construction engineering -
http://www.liebherr.com/lh/en/691.asp
|
|
|
·
|
Intracamion,
Germany, transportation and logistics-
http://www.intracamion.de/
|
Atomstroyexport
Atomstroyexport
(“ASE”) was established in 1998 by the Ministry of the Russian Federation for
Atomic Energy in order to promote the export of Russian-made products for
nuclear power projects abroad. ASE was created by a merger of "Atomenergoexport"
and "Zarubezhatomenergostroy." In the 25 years prior to the merger, the two
Russian companies worked with foreign countries in the construction, operation
and modernization of nuclear power plants (See
www.atomstroyexport.ru/index-e.htm
).
ASE
possesses the experience and engineering capabilities to operate in the global
market. The nuclear power plants built for its customers in the former Soviet
Union (“FSU”), China, India and other countries constitute a future market for
NNRF technologies and services. The latest projects of ASE include construction
of two nuclear power units (2000 MW total) in China, two nuclear power units
of
similar capacity in India, as well as other activities in Eastern Europe. NNRF
has been advised by ASE that it anticipates entering into a joint cooperation
agreement for the markets of India, China and Bulgaria in
2007.
There can be no assurance that NNRF and ASE will enter into a joint cooperation
agreement for the Indian, Chinese and Bulgarian markets.
A
consortium led by ASE has been awarded a contract for the stabilization of
the
existing shelter (“Shelter”) of Reactor 4 at Chernobyl which is contaminated
with radioactive dust and debris. The contract was signed between SSE Chernobyl
and Atomstroyexport on July 15, 2005 for US$45,000,000. The contract reference
number is SIP-07-1-001-02. ASE completed this portion of the contract in the
fall of 2006 and NNRF and ASE are evaluating various engineering solutions
and
possible proposals to SSE Chernobyl for 2007. There can be no assurance that
NNRF will enter into contract(s) similar in size to the US$45,000,000 contract
between SSE Chernobyl and Atomstroyexport.
In
order
to proceed with the necessary work inside the Shelter,
ASE
and
NNRF entered into a cooperation agreement on November 22, 2005 which provides
that NNRF will be the project partner and supplier to ASE for the purpose of
providing
material(s),
technologies and services that can reliably suppress and encapsulate radioactive
dust
in the
Chernobyl Shelter Implementation Plan (“SIP”). The SIP was conceived in 1992 and
funded by the G-7 donor countries through the EBRD in Ukraine.
The
principal aim of the SIP, collaboration between the EU, the U.S. and Ukraine,
is
to convert Chernobyl’s Reactor 4, which was totally destroyed by the 1986
nuclear accident, into an environmentally-safe site. The project has an
estimated completion cost of US$1.091 billion and will be completed by
2009-2011
(http://new.chnpp.gov.ua/eng/articles.php?lng=en&pg=47).
The
materials to be provided by NNRF will address the immediate safety issues
as well as long term safe maintenance of the Shelter and the future possibility
of removing radioactive debris and safely transporting and disposing of it.
NNRF
intends to apply a technology known as NuCap™ at Chernobyl. NNRF has licensed
NuCap™ from Global Matrechs. NuCap™ is a highly radiation resistant silicon
geo-polymer material for encapsulation of radioactive wastes. NuCap™ is highly
resistant to radiation and corrosion and has been engineered to resolve the
tasks of the nuclear waste industry that cannot be solved reliably and
economically by currently available technologies in encapsulation of nuclear
and
hazardous wastes. NuCap™ applications range from on-site stabilization, design
and development, containment and encapsulation, to transportation and final
storage and disposal. NuCap™ can also assist in resolving the special challenges
faced by operating reactors in nuclear power plants and research
facilities.
NuCap™
has been tested at Chernobyl (where there is an estimated 45 tons of radioactive
dust at Reactor 4) since 2000 and these tests have conclusively proven that
NuCap™ is durable under the most extreme environmental conditions and is proven
to be resistant to radioactive, environmental and corrosive conditions. NuCap™
has also been proven to provide excellent encapsulation qualities for final
disposal in addition to the present task of radioactive dust suppression. Dow
Corning will manufacture the NuCap™ material for NNRF through the projected
contract end date of 2009-11.
NNRF
recently completed procedures for the import of NuCap
TM
into the
RF under the Foreign Economic Activity Commodity Nomenclature (FEACN), and
has
received a classification from the Russian Customs Ministry. In addition, on
February 27, 2007, the Administration of Federal Supervision Agency for Customer
Protection and Human Welfare in the RF certified
NuCap
TM
for dust
suppression and encapsulation on remedial work on energy objects.
During
the certification process, NNRF prepared a full description of the
NuCap
TM
products
in Russian language specification sheets including complete information on:
(i)
material; (ii) eq
uipment;
(iii) instructions on use; and (iv) disposal solution after use.
NNRF
has
assembled a working group assigned to the marketing of NuCap
TM
.
This
group has identified multiple uses and applications for NuCap
TM
in
conjunction with decommissioning, shielding and disposal issues with various
Russian agencies and has been conducting meetings with various users during
the
import and certification processes. To this end, NNRF has signed an agreement
with the Department of Nuclear Sites Decommissioning of the Federal Agency
of
Nuclear Energy of the Russian Federation to supply nuclear safety technologies,
products and equipment for Russian and G-7 and G-8 funded nuclear waste
decontamination projects, including Andreyeva Bay, Sayda Bay and the ship LEPSE
in Murmansk Harbor, Greminhka Bay.
The
decontamination of Andreyeva Bay, Building No. 5, a highly contaminated former
radioactive waste storage site undergoing decommissioning, is a high priority
for the government. Andreyeva Bay contains extremely high levels of radioactive
dust that prevent further disposal of more than 150,000 tons of radioactive
construction materials, 1.5 million tons of associated metals, and thousands
of
tons of solid and liquid radioactive waste. Much of this material comes from
spent nuclear fuel assemblies of decommissioned Soviet-era nuclear powered
submarines. (See www.nti.org/e_research/e3_43a.html ).
In
decontaminating Building No. 5, NuCap
TM
will be
used for the containment of radioactive dust, radioactive sludge, broken fuel
assembly elements and highly radioactive fuel pieces, and for general
containment of radioactive floors and walls. This containment, once complete,
will increase the safety for construction personnel to enter a contaminated
building to perform decontamination projects.
NNRF
is in
discussions
with the following organizations regarding the use of NuCap
TM
on
various projects:
|
|
·
|
The
Federal Agency of Nuclear Energy of
Russia
|
|
|
·
|
The
Dismantling Department of the Federal Agency of Nuclear Energy
|
|
|
·
|
The
State Concern -- Rosenergoatom
|
|
|
·
|
The
Mining and Chemical Combine ("MCC") of Zheleznogorsk -- nuclear waste
disposal and remediation
|
|
|
·
|
The
Ministry of Science and Technology of the Federal Republic of
Germany
|
|
|
·
|
Lithuanian
Energy Institute
|
|
|
·
|
European
Bank of Reconstruction and
Development
|
|
|
·
|
The
Annual Conference of Nuclear Technologies
(Germany)
|
TPA,
LTD
.
TPA,
Ltd.
is located in St. Petersburg and is the official marketing agent for three
manufacturing facilities which manufacture products for the nuclear industry.
These three companies include: (i) Muromsky zavod truboprovodnoi armatury
(“PTPA”); (ii) Kurgansky zavod truboprovodnoi armatury (“IKAR”);
and (iii) NPO (“SATURN”). As discussed above, in early July 2007, TPA became a
division of Atomenergomash.
The
PTPA,
IKAR and SATURN factories produce primary products for the nuclear, oil, gas
and
water industry in the RF, including valves, tubes and pumps. One of the
substantial customers of the three factories is Rosenergoatom. The products
manufactured by PTPA, IKAR and SATURN are sold exclusively through their
marketing company, TPA, Ltd.
TPA,
Ltd.
is also the exclusive dealer of UKRROSMETALL, located in Sumy, Ukraine.
UKRROSMETALL consists of 10 manufacturing facilities, including Poltava Turbine
Works. Collectively, the ten manufacturing facilities produce turbines, both
for
steam and gas, and ball valves.
NNRF
will
support the marketing activities for each of the 13 manufacturing facilities
in
the framework of the Consortium with Rosenergoatom. To this end, on December
12,
2005 NNRF and TPA, Ltd. entered into a representation agreement which provides
that NNRF will receive a minimum monthly fee, plus 2.5% of the gross sales
revenues of TPA which are initiated by NNRF.
The
first
commission revenues from TPA will be received following completion of the
registration of 000 Nucon-RUS, which registration was recently completed with
the RF.
Feecom
& Biecom
In
July
2006, NNRF entered into an agreement with Dr. Hans Jürgen Engelmann,
to
acquire a technology which produces two composite radiation shielding materials
known as FEECOM and BIECOM.
The
new
composite shielding material used in FEECOM and BIECOM is a polymer with an
additive and a metal blocker which NNRF believes provide new dimensions in
radiation safety. A distinctive feature of this new material is that it is
possible to modify its protection and construction properties in a variety
of
different ways according to the demands of each application. Another advantage
of the new material is that it is more flexible than traditional shielding
materials. The shielding material also surpasses steel in withstanding corrosion
attacks and can be modified with the same structural integrity as steel to
be
used as a construction material. The shielding materials are not toxic and
can
be manufactured in an environmentally friendly manner and have excellent thermal
stability.
The
moldable nature of the new shielding material will provide a significant number
of applications for many general shielding devices such as: syringe shields,
glove boxes, electron accelerators, radon generators, use in isotope production,
or for temporary and permanent shielding applications for which NNRF is
presently working in cooperation with Russian State enterprises for domestic
and
foreign projects. Variations in mould configurations for the product include
bricks and plates, containers and plaster on fixed walls.
On
March
1, 2007, NNRF retained Fachhochschule Hannover to undertake the following
independent tests on FEECOM and BIECOM: tensile tests; pressure tests;
notchedbar impact-binding-tests; 240 hour salt spray tests as corrosion tests;
determination of flash point; determination of combustibility; resistance to
leaching in weak acid, in weak alkalis, and in normal tap water; sorption
ability; and gas diffusion hydrogen. The purpose of the foregoing tests is
further independent determination of the efficacy and multi-uses of FEECOM
and
BIECOM.
NNRF
is
establishing sales and marketing office in Lower Saxony (Germany). On May 1,
2007, NNRF retained Klaus Rose to serve as the sales and marketing manager
of
the Company’s shielding, decommissioning and recycling technology portfolio
(i.e., FEECOM / BIECOM) to nuclear facilities and multi-national nuclear service
companies. Mr. Rose has extensive experience in the nuclear shielding materials
field. Mr. Rose’s consulting firm, RCE Rose Consulting & Engineering
(“RCE”), has provided various on-site radiological shielding solutions,
including dosimetry services, as well as nuclear power plant safety training
programs to nuclear utility companies in the European Union. These companies
include British Nuclear Fuel Corporation, Risley, U.K., Siemens KWU, Erlangen,
ENSA, Santander, Spain and others. Prior to founding RCE, Mr. Rose held advanced
positions at several European companies manufacturing products for use in
nuclear power plants. Mr. Rose was engaged as a project engineer, a radiation
protection officer, and marketing and sales manager. These companies included
NOELL GmbH, NUKEM Group and VOEST ALPINE mce.
Dr.
Engelmann, who serves as our Project Manager for Shielding Materials and
Technology, will provide technical assistance to Mr. Rose. The goal for this
marketing office in Western Europe is the development of new modifications
of
the shielding material - with a particular focus on applications targeted for
German governmental funding from the State of Lower Saxony to further research
and development and manufacturing to be established there. All future know-how,
subsequent applications and other intellectual property will be exclusively
owned by Nucon.
ASPECT
In
April
2007, Nucon entered into an agreement with ASPECT, a Russian research,
production and marketing center that develops, introduces and transfers
innovative high-tech technologies and projects. ASPECT is the official managing
company in the development of international and Russian environmental projects
for the Federal Ministry of Nuclear Energy of the Russian Federation and
Rosenergoatom, the operator of all Russian nuclear reactors, and includes the
participation of all the companies of the nuclear industry within the RF. ASPECT
has decades of experience as a contractor in improving systems for the handling
of radioactive waste and their recycling at sites of the Federal Ministry of
Nuclear Energy.
The
agreement between ASPECT and NNRF is to engage in joint efforts in the
implementation of complex technologies and equipment on the basis of a
gradient-porous metal-ceramic membrane known as Trumem™. Trumem™, which was
co-developed by NNRF’s Chief Executive Officer, Dr. Valery Lebedev, is a
high-output, long-lasting, inexpensive and compact purification unit for all
types of liquid wastes, including radioactive wastes. These technologies should
provide the basis for a technological breakthrough in solving the current
problems of radioactive liquid wastes. Presently, these problems are
fundamentally unsolved at nuclear sites worldwide. This technology has been
successfully developed, produced and operated within closed Russian nuclear
facilities. The agreement provides the basis to introduce these technologies
for
the first time to the global nuclear marketplace.
The
characteristic features of the membrane Trumem™ include the following: high
mechanical strength, elasticity, lightweight, proven production capabilities,
resistance to abrasive wear and high resistance to aggressive media.
Applications of Trumem™ include the global nuclear power plant market,
processing of liquid radioactive wastes, cleaning of water basins with spent
nuclear fuel, filtration of toxic liquids, cleaning of industrial wastes,
conditioning of water, and application in the field of oil and gas chemistry.
NNRF
will
be responsible for establishing global strategic alliances to introduce the
technology in the markets of the United States, Canada, Argentina, Brazil,
China, Republic of Korea, Japan, Taiwan, Belgium, Finland, France, Germany,
Spain, Sweden, Czech Republic, Slovakia, Slovenia, Bulgaria, Romania and
Switzerland. Both NNRF and ASPECT will concentrate their joint resources to
improve the efficacy of the pilot production of the membrane
Trumem™.
Environmental
Potentials
NNRF
has
entered into a Territorial Sub-Distribution Agreement with a US-based company,
Power Quality Holdings, Inc., to sell and distribute products manufactured
by
the power quality company, Environmental Potentials, Inc. (“EP”), throughout the
RF.
Nucon-RUS,
a limited liability entity under Russian law and a wholly owned subsidiary
of
NNRF, is registered with the Russian customs authority. Nucon-RUS is the vehicle
which allows NNRF to enter into the import-export business in the RF and to
enter into international agreements, including the power quality
business.
EP
Waveform Correction Absorber
The
EP
Waveform Correction Absorber is a high quality, yet affordable, transient
voltage surge suppression (“TVSS”) and high frequency noise filtering modular
technology. The TVSS is developed and manufactured by EP
(www.ep2000.com/index.html). The TVSS technology filters damaging power
pollution being used by electrical equipment, thereby lowering operating costs
and downtime and increasing productivity. The Russian power grid is particularly
sensitive to these disturbances due to its lack of modernization and
maintenance, and NNRF believes that the TVSS technology will provide the answer
to a long-term problem experienced by commercial operators in the Russian
Federation.
EP
Technology
Poor
power quality involves pollution on electrical lines resulting from high
frequency induced electrical noise, switching transients, and nonlinear and
unbalanced load reflections. Power surges, both voltage and current, are
occurring continually in today’s power systems. Power surges may occur
naturally, such as from lighting and static electricity, or are manmade, such
as
inductive surges from motors, transformers, solenoids, etc. This poor power
quality can wreak havoc on electrical systems - reducing operating efficiency
and creating excess heat that displaces normal power distribution and output.
This in turn causes electrical systems and equipment to deteriorate and to
malfunction. It is critical in microprocessor based manufacturing
industries.
EP
has
developed a proprietary low pass filter technology that allows it to filter
and
absorb the power anomaly within the unit itself without sending any anomalies
to
ground, neutral or back on the line. To date, there is no modular TVSS available
that can protect
equipment
from high voltage surges and spikes as well as filter out a broad range of
high
frequency noise except the EP-2000 series products.
Next
Steps
NNRF
has
concluded beta-test installations of the EP technology in multiple facilities
in
Russia including automated manufacturing plants, government facilities and
commercial buildings during the period February to September 2006.
The
first
four beta trials have successfully concluded with excellent results: one trial
was at one of the Russian Central Bank facilities; the second at a large Russian
aviation repair and testing facility; the third at a casino in central Moscow;
and the fourth at the Ministry of Construction and Architecture in the Republic
of Tatarstan.
NNRF
has
also completed a rigorous Russian certification program for the EP products
through the certification agency employed by the Russian Ministry of Defense.
NNRF anticipates that the beta-trials will result in sales to various Russian
government agencies. To this end, the most recent beta trials which took place
in the city of Kazan, Republic of Tatarstan, led to an
exclusive
mandate from the Republic of Tatarstan, Ministry of Construction &
Architecture, to commence sales and installation of EP equipment in newly
constructed buildings within the Republic.
The
EP
units to be installed in Tatarstan are to be provided by NNRF and sold through
its Tatarstan-based marketing and sales partner, Stroikomplektinvest
(http://www.stroikomplektinvest.ru). Among the first projects covered under
the
mandate will be the installation of EP equipment in Solnechny, or Sun City,
a
new government office/employee complex in Tatarstan. NNRF recently received
a
purchase order from Stroikomplektinvest for sixty (60) units of EP equipment.
State
Scientific-Research Institute Science and Production Enterprise
(“Lutch”)
NNRF,
through ATOLL, is in the final stages of concluding an agreement with Lutch,
located in Podolsk, Russia, to acquire the rights to a proprietary silicon
carbide based technology and the engineering plans and expertise for the
construction of storage containers for the transportation and storage of spent
radioactive fuel. Given that we do not currently exercise significant influence
over the operations of ATOLL, there can be no assurance that the acquisition
of
Lutch will occur.
Lutch
is
a closed Russian government facility under the supervision of Rosenergoatom.
A
contract for the manufacturing and certification of four silicon carbide
containers by Lutch is scheduled. This contract contemplates 13 stages in
total.
The goal at the conclusion of the process will be the certification of the
containers by the Ministry of Health for use in the RF. This certification
will
be conducted under the aegis of the International Atomic Energy Agency (“IAEA”).
Presently,
there is approximately 240,000 tons of spent nuclear fuel in the world. Of
the
foregoing amount, 85,000 tons have been reprocessed and 155,000 tons are being
stored. Most are stored under conditions that present a clear and potential
danger to the environment and human beings. Spent nuclear fuel must be safely
isolated for thousands of years because radio nuclides, when in water, food,
soil, air or human lungs, will cause oncological diseases and
death.
Copper,
titanium, steel, lead and nickel/chrome/molybdenum alloys are presently used
as
materials for nuclear waste containers, but each have one common drawback:
they
are electro-conductive and thus are prone to electrochemical corrosion including
local corrosion in subterranean waters (pitting, inter-crystalline, crevice,
etc.). This can lead to leakage into the environment. It was for the foregoing
reason that the U.S. government has placed a hold on the proposed Yucca Mountain
facility in Nevada.
Silicon
carbide is not subject to corrosion in subterranean waters of all known
solutions. This has been confirmed through extensive testing, mathematical
modeling and design-theoretical analysis. Silicon carbide also possesses unique
combinations of physical-mechanical and thermal physical properties and
represents the most complete known convection-diffusion barrier against radio
nuclides. NNRF intends to file one or more patent applications on these silicon
carbide based technologies employed in the development of the nuclear waste
containers.
In
2005,
there was 20,000 tons of spent nuclear fuel in Russia. Annually, 1,000 tons
of
spent nuclear fuel is being extracted from reactors in Russia. Of this annual
amount, 150 tons are being reprocessed. Spent nuclear fuel is being built
up in
Russia, as it is in the U.S. and other countries employing nuclear power
plants.
In
addition to the container components of stainless steel and silicon carbide,
NuCap™
can be used
as
a
damping material and integral component in all containers. Once the fuel is
loaded and sealed through a proprietary welding process into containers,
the
containers would be transported to the Russian dry fuel storage facility
at
Zelesnogorsk. Dr. Lebedev, the Chief Executive Officer of NNRF, formerly
served
as the General Director of Zelesnogorsk from 1999-2001. Assuming that ATOLL
produces the aforementioned containers, the containers would be sold to the
Federal Ministry of Atomic Energy and the Federal Ministry of Defense. Dr.
Lebedev formerly served as the Vice Minister of Ministry of Atomic Energy
and
during his tenure he also served as the Secretary of State of MINATOM and
was
the representative and advisor of MINATOM to both the Duma and the President
of
the Russian Federation. Given that the Company has no control over the
operations of ATOLL, it is inherently subject to ATOLL’s discretion in producing
NuCap™ and the containers which would be used for the storage of spent nuclear
fuel and other waste materials. In the event ATOLL does not produce NuCap™ or
the containers, the Company will not realize any revenues from these key
product
offerings, and as a result the operating results of the Company would be
negatively impacted.
In
addition to the proposed transaction with Lutch, for which there can be no
assurance given that we do not currently exercise significant influence over
the
operations of ATOLL, NNRF is also reviewing other advanced radiation containment
technologies.
Fire
Resistant Cable -
Fireproof
Swelling Cable Cover
Fire
resistant cable and fireproof swelling cable cover technology is for use in
nuclear and fossil fuel power plants and other high-impact utility industry
applications. When exposed to fire and/or extreme heat, the
cable expands and blocks off all connections through the chases where the
cables go from room to room. The technology allows the electrical cable to
withstand temperatures up to 1100C for 45 minutes and prevents the spread of
fire which is critical in all power generation facilities. The fireproof
swelling cable cover is non-toxic with high adhesive properties and has been
approved for use by the fire authorities in Russia and is fully licensed. The
proven technology has immediate applications in the nuclear power plants of
Rosenergoatom and Atomstroyexport and other facilities in the RF.
NNRF
has
concluded negotiations to acquire this technology and a definitive agreement
will be forthcoming in the second half of 2007. In sum, NNRF will purchase
the
intellectual property from Seversk (formerly known as Tomsk-7), Ministry of
the
Russian
Federation
for Atomic Energy, Russian Research Institute of Organic Materials, Bochvar
Institute. It is NNRF’s belief that it will complete the acquisition during the
second half of 2007 and commence sales thereafter.
NNRF
believes its marketing office being established in Lower Saxony, Germany will
be
sufficient to handle sales of this technology to nuclear and non-nuclear
operating power plants in Western and Central Europe.
NNRF
believes that this technology can be marketed to utility plants globally, and
there is presently no known non-organic competition. NNRF has enlisted a
production partner: Novosibirskenenergo Holding (www.nske.ru/eng) for
manufacturing of the product lines. Production is presently anticipated to
commence in the third quarter of 2007 and NNRF believes it will be able to
commence deliveries thereafter.
Tri-Ion
- Wasser Technik
On
December 12, 2005, NNRF entered into an agreement with the German company,
Tri-Ion -Wasser Technik (“Tri-Ion”) to represent it in the RF. NNRF will
organize the placement of Tri-Ion’s technologies and engineering services within
the Russian and Ukrainian Vodokanals, including the EWP.
Tri-Ion
specializes in cleaning water which contains heavy metal and other isotopes.
It
is licensed and permitted to work in the food industry. The Russian industrial
partner for hardware and pumps is Hydromshservice.
NNRF
will
receive approximately 15% of the revenues in consideration for these services.
Tri-Ion
is currently working providing water cleaning services in Europe and South
America.
Potential
Acquisition of JSC Electroprivod and Velkont
NNRF
has
executed a letter of intent to acquire 25.5% of JSC Electroprivod and 25.5%
of
Velkont for the collective sum of $3,500,000 to $8,500,000. The final
acquisition price for the two investments will be determined upon the completion
of a thorough due diligence investigation and will include the purchase of
new
equipment for Velkont. Each of the acquisitions will be made together with
management of ATOLL, who will purchase an equal share of JSC Electroprivod
and
Velkont and collectively the parties will own 51% of each entity upon the
closing.
Subject
to satisfactory completion of its ongoing due diligence investigations of the
two entities, and procurement of sufficient capital to finance the two
acquisitions, for which no assurance can be given, NNRF anticipates that it,
along with management of ATOLL, will jointly execute a definitive agreement
with
JSC Electroprivod and Velkont in the third quarter of 2007. NNRF has retained
a
Moscow based FSB security cleared auditing firm, 2K Audit (www.2kaudit.ru/en),
to conduct a thorough due diligence investigation of JSC Electroprivod and
Velkont as well as audit the financial statements of each entity under U.S.
GAAP.
Velkont
is located in the city of Kirov-Chepetsk, and JSC Electroprivod is located
in
the city of Kirov. NNRF intends to purchase only the nuclear power plant
equipment production and ecological services divisions of JSC Electroprivod.
Upon completion of the acquisition, NNRF intends to transfer the foregoing
divisions to the Velkont facility and believes that this will result in higher
levels of efficiency and may result in substantial cost savings.
Velkont
is fully licensed by the Federal Ministry of Atomic Energy of the Russian
Federation (“Minatom”) for the production of nuclear power plant equipment and
holds other licenses for the production of equipment and microelectronics for
the aeronautical and automotive industries. Presently, Velkont has approximately
550,000 square feet of production facilities and employs 1,400 skilled workers.
JSC
Electroprivod is a scientific and technical complex and a leading designer
of
micro-electronic equipment in the Russia Federation and is licensed by the
Federal Ministry of Nuclear Energy of the Russian Federation and other federal
Ministries. Over the last 50 years, JSC Electroprivod has designed and developed
over 1,500 products used in the Russian and the CIS aeronautical and automotive
industries. More than 200 of these items are currently being manufactured at
factories in the cities of Kirov, Kirovo-Chepetsk, Kizlyar, Kursk, Saratov
and
Tyumen.
COMPETITION
Nuclear
Industry
Based
on
its inclusion in the Consortium with Rosenergoatom, NNRF’s licensed and acquired
technologies with applications in the nuclear industry may not be subject to
competitive bidding in the traditional sense. However, outside of the RF, NNRF
will be subject to significantly greater competition from other companies,
many
of which will have far greater intellectual, financial, marketing and other
resources than NNRF.
Power
Quality Industry
Many
of
the TVSS competitors in the market their products globally, including in Russia.
These companies are both small and large and are separated into three different
tiers:
1
st
Tier
(larger
more established in surge suppression businesses)
|
|
·
|
Dehn
+ Sohne:
German
Top 4 leader in hard-wired surge protection in Europe
|
|
|
·
|
Phoenix
Contact:
German
Top 4 leader in hard-wired surge protection in Europe
|
|
|
·
|
OBO
Betterman:
German
Top 4 leader in hard-wired surge protection in Europe
|
|
|
·
|
Belkin:
produces mostly plug in surge protection for pc’s and other
appliances
|
2
nd
Tier
(medium
size companies not as well recognized globally as above companies)
|
|
·
|
ZIS
Company:
local
Moscow-based Russian company
|
|
|
·
|
MTL
Surge Technologies:
UK
company
|
|
|
·
|
V.S.
Products Ltd:
Canadian
Co.
|
3
rd
Tier
(smaller
or more localized companies with less market share for surge
suppression)
|
|
·
|
MIDA
Industrial Group
(local Moscow-based Russian co.)
|
GOVERNMENT
APPROVAL AND GOVERNMENT REGULATIONS
Nucon
has
received all necessary regulatory and other approvals necessary to offer its
various licensed and acquired technologies. The Company is required to comply
with the following environmental regulations, presently consisting of (i) the
Federal Nuclear and Radiation Safety Authority of the Russian Federation with
respect to the Russian Federation, (ii) the EURATOM Treaty with respect to
all
European Union member countries, and (iii) the U.S. Nuclear Regulatory
Commission Regulations Title 10, Code of Federal Regulations with respect to
U.S. matters, the latter of which will apply only upon the placement of the
Company’s products in the U.S., which is not applicable at this time. Each of
the foregoing regulations generally require testing and certification of the
Company’s products by an independent third party prior to placement in nuclear
or other facilities. In the event our products are not tested on a timely basis,
or we experience a delay in receiving, or fail to receive, the necessary
certifications, government approvals, permits, consents and clearances, our
business and results of operations may be adversely affected. There can be
no
assurance that we will receive each of the foregoing on a timely basis.
At
the
present time no further governmental approvals are required for the operation
of
our business. From time to time we do expect that we will have to obtain custom
and other clearances to offer certain of our products and services in countries
that we have not previously operated in. We do believe, however, that in each
future instance we will be successful in obtaining all necessary permits,
approvals, consents and clearances.
COSTS
AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The
costs
and effects of compliance with environmental laws are not anticipated to prevent
the Company from achieving its business objectives nor have a materially adverse
effect on its results of operations.
EMPLOYEES
We
employ
five (5) full-time employees
in our
Moscow, Russia office, two (2) employees in Germany, and two (2) employees
in
North America. In addition, the Company utilizes a total of seven (7)
consultants. The consultants provide public relation services, merger and
acquisition advisory services, business development services, legal services,
corporate and media awareness services, investment banking services, and sales
and marketing, services.
REPORTS
TO SECURITY HOLDERS
You
can
inspect the registration statement, the exhibits and the schedules thereto
filed
with the Commission, without charge, at the Securities and Exchange Commission’s
Public Reference. You can also obtain copies of these materials from the public
reference section of the Commission located at 100 F Street, NE, Room 1580,
Washington, DC 20549, at prescribed rates. You can obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The
Commission maintains a web site on the Internet that contains reports, proxy
and
information statements, and other information regarding issuers that file
electronically with the Commission at www.sec.gov. For additional information
please visit www.nnrf.com.
ITEM
2 MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW.
Certain
statements in this General Form For Registration Of Securities Of Small Business
Issuer on Form 10-SB, particularly under this Item 2, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements,
expressed or implied by such forward-looking statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed herein. The words "believe", "expect", "anticipate", "seek" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements that speak
only
as of the date the statement was made.
Plan
of Operation
NNRF
is a
technical solutions company focused on high-end environmental markets in the
FSU, Eastern Europe and Asia. NNRF has offices in Moscow, Russia, and Berlin,
Germany. Our
mission
is to provide cutting edge solutions for the management of nuclear waste and
power quality challenges facing the Russian, European and Asian
markets
.
We
have
licensed
or acquired technologies in the high-end environmental impact areas of nuclear
facility construction, safety and remediation, wastewater treatment, and power
quality, and intend to market and either distribute to resellers or sell the
products and services related to the foregoing technologies.
Our
current clients and partners include Rosenergoatom, the operating utility of
Russia’s nuclear facilities; Atomstroyexport, established by the Russian
government to promote the export of Russian construction, operation and
modernization of nuclear power plants abroad; and Stroikomplektinvest, a
construction supply distributor acting as NNRF’s marketing partner for power
quality equipment in the Republic of Tatarstan.
We
recently completed the purchase of 50% of ATOLL, a m
anufacturer
of spare parts for the entire nuclear cycle, including spare parts and
mechanisms for nuclear power plants, and handling equipment for nuclear waste
containers designed for long term storage of radioactive wastes and spent fuel.
We anticipate that our 50% ownership in ATOLL will result in us booking
significant revenues and profits in fiscal year 2007 based on the existing
on-hand orders of ATOLL. We are also in the due diligence phase of our proposed
acquisitions of 25.5% of JSC Electroprivod and 25.5% of Velkont, and are
currently considering other potential acquisitions in the RF.
Historically,
all of our revenues have been derived from the business of Abucco. It is our
intention to divest ourselves of Abucco as soon as practicable in fiscal 2007
given that its revenues have declined precipitously and its operations are
incongruent with the initiatives of NNRF.
The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the notes
to those statements included elsewhere in this statement. In addition to the
historical consolidated financial information, the following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties.
Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those
set
forth under "Risk Factors" and elsewhere in this statement.
Results
of Operations for the Year Ended December 31, 2006 and the Period From Inception
(August 25) to December 31, 2005.
Revenues.
For
the
fiscal year ended December 31, 2006, revenues were $5,343 as compared to zero
during the period August 25, 2005 (“Inception”) through December 31, 2005. Cost
of sales was $1,615 during the year ended December 31, 2006, and gross profit
was $3,728 during the period. There was no cost of sales or gross profit during
the period from Inception through December 31, 2005.
Operating
Expenses
.
During
the fiscal year ended December 31, 2006, general and administrative expenses
totaled $7,153,429 as compared to $254,018 from Inception through December
31,
2005. The general and administrative expenses during 2006 principally related
to
non-cash items consisting of the issuance of shares of common stock as payment
for services of $6,101,500. Foreign currency exchange loss was $5,558 during
the
fiscal year ended December 31, 2006 and $287 during the fiscal year ended
December 31, 2005.
Interest
Expense
.
Interest expense was $5,072,484 during the fiscal year ended December 31, 2006
and zero during 2005.
Net
Loss
.
For the
fiscal year ended December 31, 2006, net loss was $12,227,743 as compared to
$254,305 for the period from Inception through December 31, 2005.
Results
of Operations for the Six Months Ended June 30, 2007 and June 30,
2006
Revenues.
For
the
six months ended June 30, 2007 and 2006, the Company did not realize revenues.
Accordingly, there were no cost of sales during such periods.
Operating
Expenses
.
For the
six months ended June 30, 2007, general and administrative expenses totaled
$6,127,529, as compared to $3,534,688 for the six months ended June 30, 2006.
The general and administrative expenses for the six months ended June 30,
2007
principally related to non-cash items consisting of $5,191,291 of stock based
compensation. Foreign currency exchange loss was zero for the six months
ended
June 30, 2007, as compared to $1,855 for the six months ended June 30, 2006.
Interest
Expense
.
Interest expense was $4,792,281 for the six months ended June 30, 2007, as
compared to zero for the six months ended June 30, 2006.
Net
Loss
.
Net
loss for the six months ended June 30, 2007 was $10,919,810, as compared
to
$3,533,893 for the six months ended June 30, 2006.
The
foregoing revenues, operating expenses and net losses are not indicative
of what
future operating results are anticipated to be. Management for the Company
believes that revenues should increase measurably and outpace operating
expenses, thereby resulting in net income for fiscal year
2007.
Liquidity
and Capital Resources
.
At
June
30, 2007, our principal source of liquidity consisted of $125,583 of cash,
as
compared to $130,249 of cash at December 31, 2006. As of June 30, 2007, we
had
working capital of $125,440, as compared to a working capital deficit of
$363,880 at December 31, 2006. In addition, our stockholders’ equity was
$4,700,532 at June 30, 2007, as compared to $335,810 at December 31, 2006.
Our
operations used net cash of $1,405,822 during the six months ended June 30,
2007, as compared to $113,097 during the six months ended June 30, 2006.
Our
operations used net cash of $893,863 during the fiscal year ended December
31,
2006, as compared to $113,895 of net cash during the period from Inception
to
December 31, 2005.
Investing
activities for the six months ended June 30, 2007 used net cash of $1,000,000,
as compared to cash provided of $4,710 in the six months ended June 30, 2006.
The $1,000,000 used in the six months ended June 30, 2007 related to the
cash
payment made on the purchase of an additional 36.75% of ATOLL. Investing
activities for the fiscal year ended December 31, 2006 used net cash of
$1,161,591, as compared to $11,813 of net cash used in investing activities
during the period from Inception through December 31, 2005. The majority
of the
cash used in the fiscal year ended December 31, 2006 related to the purchase
of
13.25% of ATOLL for $1,166,250.
Financing
activities provided $2,401,185 during the six months ended June 30, 2007,
as
compared to $106,091 during the six months ended June 30, 2006. The majority
of
the financing provided during the six months ended June 30, 2007 related
to our
private placement of 8% convertible promissory notes. Financing activities
provided $2,162,060 during the fiscal year ended December 31, 2006 as compared
to $152,601 of net cash provided by financing activities during the period
from
Inception through December 31, 2005. The significant increase related to
the
receipt by the Company during the fiscal year ended December 31, 2006 of
$196,562 of proceeds from shareholder advances, $1,654,630 of proceeds from
convertible debt, and $310,868 from the issuance of common stock.
We
will
require additional capital in the future to possibly expand the manufacturing
facilities of ATOLL, to make acquisitions, and for general working capital.
We
anticipate that we will require a minimum of $3,500,000 to fund prospective
acquisitions. While we hope to achieve some, or all, of the foregoing through
cash flow, there can be no assurance that we will be successful in doing so.
To
the extent we are not, we will seek require additional capital to achieve our
long-term business objectives from prior, and possibly other, funding sources.
There can be no assurance that such financing will be available, or if
available, on acceptable terms. If a future financing is procured in the form
of
equity, the shareholdings of the current stockholders of the Company will be
diluted.
Going
Concern Qualification
The
Company's independent auditors have included an explanatory paragraph in their
report on the December 31, 2006 financial statements discussing issues which
raise substantial doubt about the Company's ability to continue as a "going
concern." The going concern qualification is attributable to the Company's
historical operating losses, the Company's lack of cash reserves and capital,
and the amount of capital which the Company projects it needs to achieve
profitable operations.
RISK
FACTORS
The
Company is subject to a high degree of risk. The following risks, if any one
or
more occurs, could materially harm the business, financial condition or future
results of operations of the Company. If that occurs, the trading price of
the
Company’s common stock could decline.
The
Company has a limited operating history and has experienced operating losses
since its inception.
From
inception through June 30, 2007, the Company has incurred a net loss of
$23,401,858 and has not generated revenues. As a development stage entity,
the
Company may continue to incur losses until it is able to generate sufficient
revenues and cash flows from its various business initiatives outlined herein.
If the Company is unable to generate sufficient revenues and cash flows to
meet
its costs of operations, it could be forced to curtail or cease its business
operations.
The
Company’s auditors have included a going concern risk in their
opinion.
The
opinion of the Company’s auditors includes a going concern risk due to the
Company being a development stage enterprise that has had nominal sales,
has
experienced losses from operations and has had negative cash flows from
operating activities since inception for the year ended December 31, 2006,
and
the six months ended June 30, 2007. Accordingly, in the opinion of the Company’s
auditors, the foregoing conditions raise substantial doubt about the Company’s
ability to continue as a going concern.
The
Company does not exercise significant influence over the operations of ATOLL.
The
group
of stockholders that control the other 50% of ATOLL have historically
represented and controlled management and operations of ATOLL. This group of
stockholders continues to work closely with management of ATOLL. We are working
towards changing management and developing better working and operating
relationships with the existing management of ATOLL and the group controlling
the 50% of ATOLL not owned by the Company. Until such management changes
have been effected, and until we have been able to develop closer relationships
with the other 50% owners of ATOLL, we will be unable to exercise significant
control over ATOLL. As a result of the foregoing, there can be no assurance
that
the decisions made by existing management of ATOLL, in close consultation with
the group of stockholders holding the other 50% of ATOLL, will be in-line with
the vision and long-term strategy of the Company. Accordingly, our business
and
results of operations could be adversely affected.
The
Company’s capitalization is limited and will require additional funds.
A
limiting factor on the growth of the Company, including its ability to penetrate
new markets, make acquisitions, attract new customers, and deliver products
and
services in the areas of nuclear facility construction, safety and remediation,
wastewater treatment, and power quality, is the limited capitalization of the
Company compared to other companies in the industry. The Company believes that
currently available capital resources will be sufficient to fund the Company
for
several months; provided, however, the Company will require additional funding
in the future to achieve all of its proposed objectives and to repay the
Company’s outstanding convertible promissory notes to the extent not otherwise
converted into shares of common stock. Any delay in meeting the Company’s
anticipated funding requirements will affect its ability to fully implement
its
business plan, and in the event the Company is unsuccessful in procuring the
requisite additional equity or debt financing, the Company’s business, operating
results and financial condition will be materially adversely
affected.
A
change in the current political landscape or general economic conditions in
the
Russian Federation could have a major impact on the future success of the
Company.
The
existing and future strategic and contractual relationships between the Company
and governmental agencies in the Russian Federation are significantly dependent
on the current political environment remaining status quo. Any change, elected
or otherwise, in the political landscape in the Russian Federation could have
a
material adverse effect on the Company’s business, operating results and
financial condition. In addition, t
he
Company's business, earnings, asset values and prospects may be materially
and
adversely affected by developments with respect to inflation, interest rates,
currency fluctuations, price and wage controls, exchange control regulations,
taxation, expropriation, social instability, or other economic developments
in
or affecting the Russian Federation. The Company has no control over such
conditions and developments, and can provide no assurance that such conditions
and developments will not adversely affect the Company's future
operations.
If
the Company fails to
establish
and maintain key alliances with Russian government agencies responsible for
the
nuclear waste remediation and power quality industries or enter into strategic
relationships or acquire companies which supply products and services to such
agencies, the
Company’s
growth will be limited.
A
key
component of the Company’s business plan is (i)
establishing
and maintaining key alliances with Russian government agencies responsible
for
the construction and ongoing maintenance of the 31 nuclear reactors in the
RF,
waste remediation and power quality industries, (ii) entering into strategic
relationships and acquiring companies, both Russian and foreign, which supply
products and services to the Russian Federation government agencies responsible
for the domestic and export nuclear markets, and (iii) identifying, developing
and acquiring innovative, proprietary technologies which have environmental
and
economic applications for Russian, European and Asian markets. The
Company
views each of the foregoing as critically important to its near, mid and
long-term strategy, however there can be no assurance that the Company will
achieve and maintain some, or all, of the foregoing. In the event the Company
is
unsuccessful, the Company’s overall business, financial condition and results of
operations may be materially adversely affected.
The
Company’s future revenues are difficult to predict given that its various
business initiatives are at an early stage.
It
is not
feasible to predict with assurance the timing or the amount of revenues that
the
Company will receive from its various business initiatives. Any substantial
delay in the introduction of products and services could result in significant
delays in revenues and the need to raise additional capital through the issuance
of additional equity or debt securities sooner than the Company intends. In
view
of the emerging nature of certain of the technologies to be offered by the
Company, there can be no assurance that the Company will capture market share
and that revenues will be significant.
The
Company will rely upon various third party manufacturers to produce most of
its
products and, accordingly, will be subject to risks inherent in outsourcing
manufacturing.
Our
future success will depend, in large part, on our manufacturers’ ability,
including most importantly ATOLL, to meet customers’ expectations with respect
to volume, quality, consistency, and performance. Additionally, our
manufacturing partners will be required to manufacture new and existing products
with design improvements as developed by the Company or third party partners.
Further, as we will be competing in a competitive marketplace comprised of
numerous multi-billion dollar entities that manufacture products in-house,
we
will, from time to time, be subject to potential manufacturing delays and other
matters outside of our direct control. Unless we acquire a manufacturing
facility for each of our products, we will be reliant upon our manufacturing
partners, each of which have other clients for which they manufacture products,
to produce high quality products on a what we anticipate will be a rapidly
increasing production schedule.
The
Company will need to sell additional shares of common stock and possibly
additional debt to finance future growth, the result of which is that our
stockholders’ ownership will be diluted and future earnings, if any, will be
adversely impacted.
Our
business strategy includes expansion through organic growth, acquiring
complementary technologies and businesses, and the establishment of additional
strategic alliances. To accomplish the foregoing, we will issue additional
equity securities that will dilute our stockholders' stock ownership. We may
also issue and assume debt and incur impairment losses related to goodwill
and
other tangible assets if we acquire another company, all of which could
negatively impact our results of operations.
There
exists a measurable risk of environmental liability and we presently lack
environmental liability insurance.
The
Company's radioactive contaminant technology is subject to numerous federal
and
local laws and regulations relating to the storage, handling, emission,
transportation and discharge of such materials, and the use of specialized
technical equipment in the processing of such materials. There is always the
risk that such materials might be mishandled, or that there might be equipment
or technology failures, which could result in significant claims for personal
injury, property damage, and clean-up or remediation. Any such claims against
the Company could have a material adverse effect on the Company. The Company
does not presently carry any environmental liability insurance, and may be
required to obtain such insurance in the future in amounts that are not
presently predictable. There can be no assurance that such insurance will
provide coverage against all claims, and claims may be made against the Company
(even if covered by insurance policies) for amounts substantially in excess
of
applicable policy limits. Any such event could have a material adverse effect
on
the Company.
We
may be subject to product liability claims relating to ATOLL in the future,
and
may not have sufficient product liability insurance to cover any claims, thereby
potentially exposing us to substantial liabilities.
As
a 50%
owner of ATOLL, the Company could become subject to product liability claims
from consumers of ATOLL products. The Company intends for ATOLL to maintain
adequate product liability insurance, but product liability insurance alone
may
not be sufficient to cover any potential product liability claim. Failure to
maintain sufficient insurance coverage could have a material adverse effect
on
ATOLL’s business, and consequently the Company’s business, prospects and results
of operations if claims are made that exceed the coverage ATOLL has in place
or
obtains in the future.
Currency
rate fluctuations may have an adverse effect on our business and results of
operations.
We
expect
to derive most, if not all, of our revenues from operations outside of the
U.S.
As a result, the majority of our revenues will typically be denominated in
non-U.S. currencies, and our operating results may be affected by changes in
the
relative values of the applicable non-U.S. currencies and the U.S. dollar.
We
are not utilizing hedging instruments, nor do we anticipate doing so in the
future.
We
are dependent on our key personnel and will have a need for additional
personnel.
The
Company’s future performance will be substantially dependent on the continued
services and on the performance of our senior management. In particular, Dr.
Valery Lebedev, Chief Executive Officer, Alexander Stepanenko, Chief Operating
Officer, Peter Goerke, Executive Vice President, and Dr. Hans-Jürgen Engelmann,
Project Manager for Shielding Materials and Technology. The Company’s
performance also depends on our ability to attract, retain and motivate
additional key employees. The loss of the services of Messrs. Lebedev,
Stepanenko, Goerke or Engelmann, or any other key personnel could have a
material adverse effect on our business, prospects, financial condition and
results of operations. We do not currently carry key man insurance on any of
the
foregoing parties. We anticipate doing so in the future with respect to certain
members of management.
The
acquisition of 50% of ATOLL along with the various strategic partnerships and
other business initiatives are anticipated to result in an increase in the
demands on our management and our operating systems and internal controls.
The
Company’s anticipated future growth will likely strain existing management
resources and operational, financial, human and management information systems
and controls, which may not be adequate to support our operations and will
require us to develop further financial and management controls, reporting
systems and procedures. There can be no assurance that we will be able to
develop such controls, systems or procedures effectively, or on a timely basis.
Our failure to do so could have a material adverse effect on our internal
controls, business, operating results and financial condition.
We
have issued stock options to all of our directors, officers, key employees
and
certain consultants, pursuant to our 2007 Stock Option and Incentive Plan,
which
will have a dilutive effect on our book value.
We
have
implemented our 2007 Stock Option and Incentive Plan to provide a mechanism
for
issuance of stock options and restricted stock to our officers, directors,
key
employees and consultants. As of June 30, 2007, we have issued and outstanding
options to purchase 5,821,667 shares of common stock. Because stock options
granted under the Plan will generally only be exercised when the exercise
price
for such option is below the then market value of our common stock, the exercise
of stock options will cause dilution to the book value per share of our common
stock. The grant of restricted stock awards will have a similar dilutive
effect
on our book value.
Although
we generally enter into confidentiality and non-compete agreements with all
of
our employees and consultants, if we are unable to protect our proprietary
information against unauthorized use by others, our competitive position could
be harmed.
Our
proprietary information is critically important to our competitive position
and
is a significant aspect of the products we provide. If we are unable to protect
our proprietary information against unauthorized use by others, our competitive
position could be harmed. We generally enter into confidentiality and
non-compete agreements with our employees and consultants, and control access
to, and distribution of, our documentation and other proprietary information.
Despite these precautions, we cannot assure you that these strategies will
be
adequate to prevent misappropriation of our proprietary information. Therefore,
we could be required to expend significant amounts to defend our rights to
proprietary information in the future if a breach were to occur. No assurance
can be given that we will have the financial ability to defend and/or protect
our proprietary rights.
There
is a very limited market for the securities of the Company at this
time.
Our
common stock currently trades on the Pink Sheets and there is a very limited
market. In addition, our common stock is considered a "penny stock" which
subjects our shares to rules affecting their ability to be sold.
Under
the
penny stock regulations, a broker-dealer selling penny stocks to anyone other
than an established customer or “accredited investor" (generally, an individual
with a net worth in excess of $1,000,000 or annual income exceeding $200,000
or
$300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser’s written consent
to the transaction prior to the sale, unless the broker-dealer is otherwise
exempt. In addition, unless the broker-dealer or the transaction is otherwise
exempt, the penny stock regulations require the broker-dealer to (i) deliver,
prior to any transaction involving a penny stock, a disclosure schedule relating
to the penny stock, (ii) to disclose commissions payable to the broker-dealer
and the registered representative and current quotations for the securities,
(iii) send monthly statements disclosing recent price information with respect
to the penny stock held in a customer's account and information with respect
to
the limited market in penny stocks.
We
are not yet certified as being in compliance with the internal control rules
required by the Sarbanes-Oxley Act of 2002.
The
primary purpose of filing his Form 10-SB is to become a fully reporting company
under the Exchange Act and to have the Company’s common stock quoted on the
OTCBB. Once we become a fully reporting company, Section 404 of the
Sarbanes-Oxley Act of 2002 (“SOX”) will apply. The Securities and Exchange
Commission (“Commission”) adopted Section 404 to require public companies to
include a report of management’s internal controls over financial reporting in
their annual reports. In addition, the independent registered public accounting
firm auditing a company’s financial statements must also attest to and report on
management’s assessment of the effectiveness of our internal controls. We are
presently not subject to these requirements, however, when we become a reporting
company under the Exchange Act, we will be subject to these requirements.
While
we
expect to allocate significant resources to develop the necessary documentation
and testing procedures required by Section 404 of SOX, there is a risk that
we
will not comply with all of the requirements imposed by this rule. In the event
we identify significant deficiencies or material weaknesses in our internal
controls, taking into account the companies we intend to acquire, that we cannot
correct in a timely manner or we are unable to receive a positive attestation
from our independent registered public accounting firm with respect to our
controls, investors and others may lose confidence in the reliability of our
financial statements and our stock price and ability to obtain equity or debt
financing as needed could suffer.
In
addition, in the event that our independent registered public accounting firm
is
unable to rely on our internal controls in connection with their audit of our
financial statements, and in the further event that they are unable to satisfy
themselves as to the material accuracy of our financial statements and related
disclosures, it is possible that we could receive a qualified or adverse audit
opinion on those financial statements which could also adversely affect the
market price of our common stock and our ability to secure additional financing
as needed.
We
do not intend to pay dividends on our common stock in the foreseeable
future.
Our
current plan is to reinvest all future earnings, if applicable, for working
capital, future acquisitions, marketing and capital expenditures. Therefore,
stockholders in the Company should not expect to receive dividends on their
shares of common stock.
The
Company’s articles of incorporation, bylaws and state law contain provisions
that preserve current management.
Provisions
of state law, the Company’s articles of incorporation and by-laws may
discourage, delay or prevent a change in the Company’s management team that
stockholders may consider favorable. These provisions include:
|
|
·
|
authorizing
the issuance of “blank check” preferred stock without any need for action
by stockholders;
|
|
|
·
|
permitting
stockholder action by written consent; and
|
|
|
·
|
establishing
advance notice requirements for nominations for election to the board
of
directors or for proposing matters that can be acted on by stockholders
at
stockholder meetings
|
These
provisions could allow the Company’s board of directors to affect the investor’s
rights as a stockholder since the board of directors can make it more difficult
for preferred stockholders or common stockholders to replace members of the
board of directors. Because the board of directors is responsible for appointing
the members of the management team, these provisions could in turn affect any
attempt to replace the current or future management team.
ITEM
3. DESCRIPTION
OF PROPERTY.
We
lease
approximately 1,000 square feet of office space in Moscow, Russia located at
119526
Moscow, Leninskij prospekt 146, Suite 332
.
The
monthly lease rate is $4,300 and the lease has a term of 12-months, expiring
on
December 31, 2007.
We
lease
executive office (shared) space in Berlin, Germany located at
Friedrichstrasse
200, 7th Floor 10117 Berlin, Germany
.
The
lease is month-month and has a lease rate of $3,000 per month.
The
following table is a list of the beneficial ownership of common stock as
of
September 19, 2007 of (i) all persons who beneficially owned more than 5%
of our outstanding common stock, (ii) all directors, (iii) all
executive officers and (iv) all directors and executive officers as a
group, according to record-ownership listings as of that date.
The
beneficial ownership is calculated based on 47,472,263 shares of common stock
outstanding as of September 19, 2007. Beneficial ownership is determined
in
accordance with the rules of the Commission and generally includes voting
or
investment power with respect to securities and, accordingly, includes shares
issuable upon exercise of options that are exercisable within 60 days of
September 19, 2007.
Unless
otherwise indicated, the persons identified in this table have sole voting
and
sole investment powers with regard to the shares beneficially owned and have
the
following address, c/o NNRF, Inc.,
119526
Moscow, Leninskij prospekt 146, Suite 332.
SECURITY
OWNERSHIP OF MANAGEMENT
|
Title
of Class
|
|
Name
and Address of
Beneficial
Owner (1)
|
|
Amount
and
Nature
of Beneficial Owner
|
|
|
|
|
Common
|
|
Valery
A. Lebedev, Ph.D. - CEO (4)
|
|
3,147,334
|
|
6.63
|
%
|
|
Common
|
|
J.
Holt Smith - President (2,5)
|
|
640,000
|
|
1.35
|
%
|
|
Common
|
|
Alexander
S. Stepanenko - COO (6)
|
|
3,147,333
|
|
6.63
|
%
|
|
Common
|
|
J.P.
Todd Sinclair (1) - CFO (2,7)
|
|
1,243,669
|
|
2.62
|
%
|
|
Common
|
|
Peter
Goerke - EVP & Secretary (8)
|
|
3,750,000
|
|
7.90
|
%
|
|
Common
|
|
Lawrence
C. McQuade - Chairman (3,9)
|
|
350,000
|
|
0.74
|
%
|
|
|
|
Officers
and Directors as a Group (6 parties)
|
|
12,248,836
|
|
25.80
|
%
|
|
|
(1)
Each of the parties named above have sole voting and investment
power
(2)
The business address for Messrs. Smith and Sinclair is c/o NNRF,
Inc.,
1574 Gulf Rd., # 242, Point Roberts, WA 98281.
(3)
The business address for Mr. McQuade is 51 East 42
nd
Street, 11
th
Floor, New York, NY 10017.
(4)
Valery A. Lebedev, our Chief Executive Officer, holds 2,647,334
shares of
common stock, and an option to purchase 500,000 shares of common
stock,
exercisable at $0.75 per share through March 1, 2017.
(5)
J.
Holt Smith, our President and a Director, holds an option to purchase
640,000 shares of common stock, exercisable at $0.75 per share
through
March 1, 2017.
(6)
Alexander S. Stepanenko, our Chief Operating Officer, holds 2,647,333
shares of common stock, and an option to purchase 500,000 shares
of common
stock, exercisable at $0.75 per share through March 1, 2017.
(7)
J.P.
Todd Sinclair, our Chief Financial Officer, holds 603,669 shares
of common
stock, and an option to purchase 640,000 shares of common stock,
exercisable at $0.75 per share through March 1, 2017.
(8)
Peter
Goerke, our Executive Vice President and Secretary, holds 2,583,333
shares
of common stock, and an option to purchase 1,166,667 shares of
common
stock, exercisable at $0.75 per share through March 1, 2017.
(9)
Lawrence
C. McQuade, our Chairman of the Board, holds 100,000 shares of
common
stock, and an option to purchase 250,000 shares of common stock,
exercisable at $0.75 per share through March 1,
2017.
|
There
are
no arrangements which may result in a change in control.
ITEM
5 DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The
Company's directors and executive officers are as follows:
|
|
|
Age
|
|
Title
|
|
|
|
|
|
|
|
Prof.
Valery A. Lebedev, Ph.D.
|
|
65
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
Lawrence
C. McQuade, JD
|
|
79
|
|
Chairman
of the Board
|
|
|
|
|
|
|
|
J.
Holt Smith, Esq.
|
|
65
|
|
President
and Director
|
|
|
|
|
|
|
|
Alexander
S. Stepanenko
|
|
45
|
|
Chief
Operating Officer
|
|
|
|
|
|
|
|
J.P.
Todd Sinclair
|
|
56
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
Peter
Goerke
|
|
45
|
|
Executive
Vice President and Secretary
|
|
|
|
|
|
|
|
|
|
71
|
|
Director
of Project and Sales Division - Shielding & Encapsulation
EU
|
Professor
Valery
A. Lebedev,
PhD
, is
the Chief Executive Officer of NNRF
.
Prof.
Lebedev is the
former
General
Director of the Mining Chemical Combine at Zhelesnogorsk where NNRF plans on
conducting
a
portion
of its
nuclear waste
remediation
business. After receiving his PhD from the Moscow Institute of
Energetics,
Prof.
Lebedev
rapidly
advanced
at the Mining Chemical Combine from Engineer to General Director of the
facility. During this time, Prof. Lebedev was appointed as the Deputy Minister
of the Ministry of Atomic Energy (1999-2002). Through his scientific and
management skills and persistence,
Prof.
Lebedev
has gained the trust
and
confidence of his
colleagues
in the international nuclear industry which
provides
NNRF
with
an essential advantage in its marketing activities. Prof. Lebedev enjoys the
highest status of science in the Russian Federation as an Academician of the
Russian Federation Academy of Science.
Lawrence
C. McQuade
serves
as the Chairman of the Board of NNRF for a term concluding at the Company’s 2008
annual stockholders meeting.
Mr.
McQuade is a founder and partner of River Capital International, a financial
services company which focuses on Russia and Eastern Europe, and manages the
Volga Fund - an open ended limited partnership investing in Russian securities.
Mr. McQuade also serves as the Chairman of Qualitas International and worked
with Price Waterhouse as co-advisor to the Russian Federal Securities Commission
in establishing the Russian mutual fund industry. Mr. McQuade was previously
the
Vice Chairman of Prudential-Bache Mutual Fund Management, the Executive Vice
President and Director of W.R. Grace & Co and the President and CEO of
Procon Incorporated. Mr. McQuade has held many public positions in the U.S.
government including Assistant Secretary of the U.S. Department of Commerce
and
Assistant Secretary of the U.S. Department of Defense. Lastly, Mr. McQuade
has
also served as director, chairman or trustee on over 20 prestigious councils
and
commissions throughout his career, including the U.S. Council on Foreign
Relations, the President’s Commission on White House Fellows and the Foreign
Policy Institute. Mr. McQuade graduated from Yale with a B.A. in Economics,
Oxford with a B.A. in Jurisprudence (Rhodes Scholar) and Harvard Law School
with
a LLB.
J.
Holt Smith
serves
as President and a Director of NNRF. Mr. Smith’s term as a director concludes at
the Company’s 2008 annual stockholders meeting. Mr. Smith commenced his career
in 1967 when he joined the Fort Worth, Texas law firm of McDonald, Sanders,
Ginsburg, Phillips, Maddox and Newkirk, becoming a partner in 4 years. In 1979,
he joined The United States Trust Company of New York opening their Beverly
Hills, California office. In 1980, he became a member of the Los Angeles law
firm of Bushkin, Gaims, Gaines and Jonas serving as head of the Securities
Department. From 1988 to present he practiced law with his own firm,
Smith & Associates during which time he also joined the politically active
firm of Kelley, Lytton & Vann in Los Angeles. Mr. Smith brings a wealth of
experience in business and securities law that will be instrumental in guiding
NNRF through its stages of growth. Mr. Smith is a graduate of Vanderbilt
University with a Bachelor of Arts degree in English and Philosophy and a Juris
Doctorate degree in Law in 1966.
Alexander
S. Stepanenko
serves
as Chief Operating Officer of NNRF overseeing all marketing and operations
at
NNRF. Mr. Stepanenko was educated and employed as a lawyer in Russia between
1987 and 1996. In addition, he served for over 10 years as Managing Director
for
several Russian companies including an auto trade group, a construction services
company, and a German-based shipping and forwarding company. As a result of
his
professional experience over the last 20 years, Mr. Stepanenko has significant
expertise in marketing, negotiations, import/export operations and legal
issues.
J.P.
Todd Sinclair
serves
as Chief Financial Officer of NNRF. Mr. Sinclair commenced his career as an
auditor with Price Waterhouse and served in various capacities for a period
of
eight years. From 1985 to 1992, Mr. Sinclair served as Chief Financial Officer
and Secretary of XCAN Grain Ltd., at that time Canada’s largest privately owned
grain exporter with annual sales and shipment of grains in excess of $500
million dollars. Mr. Sinclair oversaw all foreign exchange activities,
documentary negotiations and trade finance (over $100 million dollars of lines
of credit). From 1992 to 1994, Mr. Sinclair has served as Controller/Chief
Financial Officer of BSE Limited, Canada’s largest golf course
contractor/builder. From 1994 to 1996, Mr. Sinclair served as Vice President
Finance and Corporate Secretary of AVCAN Limited, a publicly traded company
involved in early stage GPS technology. Since 1997, Mr. Sinclair served as
a
consultant to several public and private operating companies. Mr. Sinclair
received a Bachelor of Arts (Hons) and Bachelor of Commerce (Hons) from the
University of Manitoba. Mr. Sinclair received his Chartered Accountant
designation from the Canadian Institute of Chartered Accountants.
Peter
Goerke
serves
as Executive Vice President and Secretary of NNRF. Mr. Goerke was born in East
Germany and was educated in Russia at the prestigious Moscow State Institute
for
International Relations and has been conducting business in Russia and the
Former Soviet Union for the past 22 years. With a specialization in economics
and business administration, Mr. Goerke was appointed to assist in the
post-unification efforts of Germany as the representative in Siberia of the
Unification Agency of the German government, the Treuhandanstalt, in 1993.
Mr.
Goerke has consulted for many German companies doing business in Russia and
has
also taught economics, business administration and economic law at the Deutsche
Private Finanzakademie AG in Munich. Mr. Goerke’s talents in facilitating
business between Germany, the US and Russia and his fluency in German, Russian
and English have made him an integral part of the NNRF team.
Dr.
Hans-Jürgen Engelmann
serves
as NNRF’s Project Manager for Shielding Materials and Technology. Dr. Engelmann
is a recognized expert in shielding materials and since 1965 has devoted his
career to this field. Dr. Engelmann has held many important government
positions, the last being the Head and General Division Manager of the
"Technology and Development" division of DBE (Deutsche Gesellschaft zum Bau
und
Betrieb fur Abfallstoffe m.b.H, Peine Germany), and as Deputy Manager of
"CASSIOPEE", a government agency responsible for nuclear safety. Previously,
Dr.
Engelmann was employed in the waste management research division of DBE and
was
charged with the development and procurement of shielding containers for
transport of radioactive waste and design of technical systems of storage and
final disposal including planning, layout, and transaction of transport of
radioactive waste. Dr. Engelmann currently has active membership in the
following societies: Member of the Club of Agencies
in
Europe; Member of the CEG (Contact Expert Group) of the IAEA (International
Atomic Energy Agency) for supporting Russia; and Member of the German Nuclear
Society.
During
the past five years, no director, person nominated to be a director, executive
officer, promoter or control person of the Company has been involved in any
of
the following:
|
(1)
(2)
|
Any
bankruptcy petition filed by or against any business of which such
person
was a general partner or executive officer either at the time of
the
bankruptcy or within two years prior to that time;
Any
conviction in a criminal proceeding or being subject to a pending
criminal
proceeding (excluding traffic violations and other minor
offenses);
|
|
|
|
|
(3)
|
Being
subject to any order, judgment or decree, not subsequently reversed
,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limited
his
involvement in any type of business, securities or banking activities;
and
|
|
|
|
|
(4)
|
Being
found by a court of competent jurisdiction (in a civil action), the
Commission or the Commodity Futures Trading Commission to have violated
a
federal or state securities or commodities law, and the judgment
has not
been reversed, suspended or vacated.
|
The
Company has established a board of advisors (“Advisory Board”). Members thereof
serve for a minimum term of one (1) year and receive, on an annual basis,
$12,000 and an option to purchase 20,000 shares of common stock (“Options”)
pursuant to the Company’s 2007 Stock Option and Incentive Plan. The Option are
exercisable for a period of ten (10) years at an exercise price equal to or
greater than the closing price of the Company’s common stock on the date of
grant.
The
initial member of the Advisory Board is Professor Valery Zubov, Ph.D. Mr.
Zubov’s bio follows:
Dr.
Valery Zubov serves as a top ranking Deputy of the Duma, which is the lower
house of the Russian Parliament. Dr. Zubov is primarily responsible for drafting
legislation pertaining to the formation of more effective financial markets
in
Russia and modernizing Russia’s banking system. Dr. Zubov is a member of the
Russian Federal Parliament Committee on Credit Organizations and Financial
Markets. In addition, Dr. Zubov is the former Governor of Russia’s Krasnoyarsk
region and of the founders and deputy directors of the Krasnoyarsk region stock
exchange.
ITEM 6.
EXECUTIVE
COMPENSATION.
The
following information is provided concerning the compensation of the named
executive officers for the last two fiscal years:
SUMMARY
COMPENSATION TABLE
|
Name
and Principal
Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards
|
|
Non-Equity
Incentive Plan Compensation
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All
other
Compensation
|
|
Total
|
|
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
Valery
A. Lebedev, Ph.D. -
|
|
|
2006
|
|
|
100,000
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
176,000
|
|
|
CEO
|
|
|
2005
|
|
|
24,000
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
28,000
|
|
|
J.
Holt Smith -
|
|
|
2006
|
|
|
48,000
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,000
|
|
|
President
|
|
|
2005
|
|
|
16,000
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,000
|
|
|
Alexander
S. Stepanenko -
|
|
|
2006
|
|
|
72,000
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
148,000
|
|
|
COO
|
|
|
2005
|
|
|
24,000
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
28,000
|
|
|
J.P.
Todd Sinclair - CFO (1)
|
|
|
2006
|
|
|
32,000
|
|
|
|
|
|
384,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416,000
|
|
|
Peter
Goerke -
|
|
|
2006
|
|
|
72,000
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
148,000
|
|
|
EVP
and Secretary
|
|
|
2005
|
|
|
24,000
|
|
|
|
|
|
16,000
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
36,000
|
|
(1)
On
June 1, 2006, Mr. Sinclair was issued 240,000 shares of restricted common stock.
ITEM
7 CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
During
the period August 25, 2005 through June 30, 2006, our President, J. Holt Smith,
loaned the Company a total of $20,000 (“Loan”) for working capital. The Loan was
non interest bearing. On July 1, 2006, Mr. Smith converted the Loan into 259,740
shares of common stock, or approximately $0.07 per share.
Except
as
otherwise indicated herein, there have been no related party transactions,
or
any other transactions required to be disclosed pursuant to Item 404 of
Regulation S-B.
|
|
(4)
Valery A. Lebedev, our Chief Executive Officer, holds 2,647,334
shares of
common stock, and an option to purchase 500,000 shares of common
stock,
exercisable at $0.75 per share through March 1, 2017.
(5)
J.
Holt Smith, our President and a Director, holds an option to
purchase
640,000 shares of common stock, exercisable at $0.75 per share
through
March 1, 2017.
(6)
Alexander S. Stepanenko, our Chief Operating Officer, holds 2,647,333
shares of common stock, and an option to purchase 500,000 shares
of common
stock, exercisable at $0.75 per share through March 1, 2017.
(7)
J.P.
Todd Sinclair, our Chief Financial Officer, holds 603,669 shares
of common
stock, and an option to purchase 640,000 shares of common stock,
exercisable at $0.75 per share through March 1, 2017.
(8)
Peter
Goerke, our Executive Vice President and Secretary, holds 2,583,333
shares
of common stock, and an option to purchase 1,166,667 shares of
common
stock, exercisable at $0.75 per share through March 1, 2017.
(9)
Lawrence
C. McQuade, our Chairman of the Board, holds 100,000 shares of
common
stock, and an option to purchase 250,000 shares of common stock,
exercisable at $0.75 per share through March 1,
2017.
|
ITEM
8.
DESCRIPTION
OF SECURITIES.
Common
Stock
The
Company is authorized to issue 100,000,000 shares of common stock, $0.001
par
value. As of September 19, 2007, there were 47,472,263 shares of common stock
issued and outstanding. Of the foregoing amount, the public float consists
of
approximately 5,250,000 unrestricted and freely tradable shares. The remaining
approximate 41,998,813 issued and outstanding shares of common stock are
restricted. Holders of shares of common stock are entitled to one vote per
share
on all matters to be voted upon by the shareholders. The approval of proposals
submitted to shareholders at a meeting other than for the election of directors
requires the favorable vote of a majority of the shares voting, except in
the
case of certain fundamental matters (such as certain amendments to the Articles
of Incorporation, and certain mergers and reorganizations). Shareholders
are
entitled to receive such dividends as may be declared from time to time by
the
Board of Directors out of funds legally available therefore, and in the event
of
liquidation, dissolution or winding up of the Company, to share ratably in
all
assets remaining after payment of the liquidation preference on the then
outstanding preferred stock, if any, and liabilities. The holders of shares
of
Common Stock have no preemptive, conversion or subscription rights. All shares
of common stock issued upon either the conversion of the 8% convertible
promissory notes or the exercise of the warrants to purchase common stock
issued
in connection therewith, shall be, when issued, fully paid and
non-assessable.
Preferred
Stock
The
Company has designated two classes of preferred stock; Class A and Class B
Preferred Stock. Each class has 5,000,000 shares authorized and is convertible
into common stock as follows: (i) Class A preferred stock converts at the rate
of one preferred share for ten common shares; and (ii) Class B Preferred stock
converts at the rate of one preferred share for twelve shares of common stock.
The preferred stock is non-voting. The other designation, rights, preferences
and privileges of preferred stock shall be determined from time to time by
the
Board of Directors. Accordingly, the Board of Directors is empowered, without
soliciting stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights or privileges. Preferred stock
with dividend, liquidation, conversion, voting or other rights or privileges
could adversely affect the voting power or other rights of the holders of common
stock. In the event of issuance, the preferred stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing
a
change in control.
Convertible
Notes
On
June
18, 2007, 8% convertible promissory notes in the original principal amount
of
$4,700,000, along with accrued interest in the amount of $196,539, were
converted into 6,528,763 shares of common stock. The 8% convertible promissory
notes were converted at the rate of $0.75 per share.
Options
On
March
1, 2007, the board of directors of the Company approved the 2007 Stock Option
and Incentive Plan (“Plan”). The Plan must also be approved by a majority of the
stockholders of the Company. The Plan provides the Company with a mechanism
to
grant to employees, officers, directors and key consultants, stock options
and
bonuses in the form of stock and options.
Under
the
Plan, we can grant awards for the purchase of up to six million shares of Common
Stock in the aggregate, including “incentive stock options” within the meaning
of Section 422 of the United States Internal Revenue Code of 1986, as amended,
and non-qualified stock options. The board of directors currently has the
authority to determine the persons to whom awards will be granted, the nature
of
the awards, the number of shares to be covered by each grant, the terms of
the
grant and with respect to options, whether the options granted are intended
to
be incentive stock options, the duration and rate of exercise of each option,
the option price per share, the manner of exercise and the time, manner and
form
of payment upon exercise of an option. In the near term, the Company will form
a
compensation committee to address all compensation matters, including issuance
of options under the Plan.
As
of the
date of this Memorandum, the Company has issued options to purchase 5,821,667
shares of common stock, all at an exercise price of $0.75 per share, to a
total
of fifteen (15) persons. The weighted average exercise price of the options
outstanding under the Plan is $0.75, and the average remaining term, as of
September 19, 2007, is approximately 9.4 years.
Warrants
As
of
September 19, 2007, there are warrants outstanding to purchase 5,554,526
shares
of common stock with exercise prices ranging from $0.10 per share to $2.95
per
share. The weighted average exercise price of the outstanding warrants is
$1.74
per share.
Dividends
The
Company has not declared any cash dividends on its common stock in the last
two
fiscal years. The payment of dividends in the future, if any, will be within
the
discretion of the Company's Board of Directors. The Company presently intends
to
retain
all
earnings, if any.
Transfer
Agent
Our
independent stock transfer agent is Signature Stock Transfer, Inc., located
at
One Preston Park, 2301 Ohio Drive, Suite 100, Plano, TX 75093, (972)
612-4120.
PART
II
ITEM
1. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Market
Information
Our
common stock is currently quoted on the
Pink
Sheets Electronic Interdealer Quotation and Trading System under the symbol
“NNRF.PK.”
For
the
periods indicated, commencing with the date on which NNRF merged with Stafford
Energy, Inc., May 23, 2006, the following table sets forth the high and low
bid
prices per share of common stock, as reported by www.pinksheets.com. These
prices represent inter-dealer quotations without retail markup, markdown, or
commission and may not necessarily represent actual transactions.
|
Periods
|
|
High
|
|
Low
|
|
|
Fiscal
Year 2006
|
|
|
|
|
|
|
|
|
Second
Quarter (May 23-June 2006)
|
|
|
2.20
|
|
|
1.01
|
|
|
Third
Quarter (July-September 2006)
|
|
|
1.42
|
|
|
.70
|
|
|
Fourth
Quarter (October-December 2006)
|
|
|
1.01
|
|
|
.60
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
|
First
Quarter (January-March 2007)
|
|
|
1.79.83
|
|
|
.55
|
|
|
Second
Quarter (April-June 2007)
|
|
|
8.96.66
|
|
|
1.74
|
|
|
Third
Quarter (July 1 - September 19, 2007)
|
|
|
5.35.35
|
|
|
1.94
|
|
On
September 19, 2007, the closing price of our common stock was $3.00.
Holders
of Record
As
of
September 19, 2007 we had approximately 245 holders of record of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies.
ITEM
2.
LEGAL
PROCEEDINGS.
We
are
currently not involved in any litigation that we believe could have a materially
adverse effect on our financial condition or results of operations. There is
no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock,
any
of our subsidiaries or of our company’s or our company’s subsidiaries’ officers
or directors in their capacities as such, in which an adverse decision could
have a material adverse effect.
ITEM
3.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
We
have
had no disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures with any of
our
accountants for the year ended December 31, 2006 or any interim period. We
have not had any other changes in nor have we had any disagreements, whether
or
not resolved, with our accountants on accounting and financial disclosures
during our recent fiscal year or any later interim period.
ITEM
4.
RECENT
SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES.
In
May
2006, Stafford Energy, Inc. issued 3,000,000 shares of common stock to two
individuals in consideration for the settlement of $3,000 owed to the
individuals for mergers and acquisitions services provided to Stafford prior
to
the merger between it and the Company. The shares were valued at $1.05 per
share, which was the fair value of the shares on the date of issuance and
resulted in the recognition of $3,147,000 of compensation expense. The issuance
of the above securities was effected in reliance on the exemptions for sales
of
securities not involving a public offering, as set forth in Section 4(2)
of the
Securities Act of 1933, as amended (the “Act”) and Rule 506 promulgated
thereunder. Each offeree was provided access to the financial statements
and any
other information that they deemed relevant or necessary in making their
respective decision to accept shares of common stock in exchange for the
monies
owed to them by them by the Company. Each offeree was deemed to have the
financial or business experience necessary to evaluate the risks of the
foregoing decision.
On
May
23, 2006, the Company issued 22,500,000 shares of common stock to forty-nine
(49) individuals in exchange for 100% of the issued and outstanding common
stock
of Nucon, Inc., a Nevada corporation, in conjunction with the Merger and Plan
of
Share Exchange between Stafford Energy, Inc. and Nucon, Inc. The 22,500,000
shares of common stock were valued at $5,000, or $0.00022 per share. The
issuance of the above securities was effected in reliance on the exemptions
for
sales of securities not involving a public offering, as set forth in Section
4(2) of the Act and Rule 506 promulgated thereunder. Each offeree was provided
access to the financial statements and any other information of Stafford Energy,
Inc. that they deemed relevant or necessary in making their respective decision
to accept shares of common stock in exchange for their shares of common stock
of
Nucon, Inc. Each offeree was deemed to have the financial or business experience
necessary to evaluate the risks associated with the share exchange.
On
June
1, 2006, the Company issued a total of 1,080,000 shares of common stock to
five
(5) consultants for services consisting of legal, accounting, marketing,
strategic and financial consulting. The 1,080,000 shares of common stock were
valued at $1,512,000, or $1.40 per share. The issuance of the above securities
was effected in reliance on the exemptions for sales of securities not involving
a public offering, as set forth in Section 4(2) of the Act and Rule 506
promulgated thereunder. Each offeree was provided access to the Company’s
financial statements and any other information that they deemed relevant or
necessary in making their respective decision to accept shares of common stock
in exchange for services. Each offeree was deemed to have the financial or
business experience necessary to evaluate the risks of the foregoing decision.
During
the period from inception through June 30, 2006, the Company received $342,128
in loans from ten (10) individuals. The loans were non-interest bearing and
were
payable on demand. On July 1, 2006, the lenders made demand on the Company,
and
the Company agreed to the conversion of $342,128 of outstanding principal into
4,593,073 shares of common stock, conversion of $0.07 per share. The issuance
of
the above securities was effected in reliance on the exemptions for sales of
securities not involving a public offering, as set forth in Section 4(2) of
the
Act and Rule 506 promulgated thereunder. Each offeree was provided access to
the
Company’s financial statements and any other information that they deemed
relevant or necessary in making their respective decision to accept shares
of
common stock in exchange for their outstanding loans. Each offeree was deemed
to
have the financial or business experience necessary to evaluate the risks of
exchanging their outstanding notes for shares of common stock in the
Company.
On
July
1, 2006, the Company sold 185,000 shares of common stock to ten (10) third
parties in consideration for $138,750, or $0.75 per share. The issuance of
the
above securities was effected in reliance on the exemptions for sales of
securities not involving a public offering, as set forth in Section 4(2) of
the
Act and Rule 506 promulgated thereunder. Each offeree was provided access to
the
Company’s financial statements and any other information that they deemed
relevant or necessary in making their respective decision to purchase shares
of
common stock of the Company. Each offeree was deemed to have the financial
or
business experience necessary to evaluate the risks of their investment in
the
Company.
On
September 10, 2006, the Company issued 400,000 common shares to a consultant
for
public relation services rendered to the Company. The 400,000 shares of common
stock were valued at $556,000, or $1.39 per share. The issuance of the above
securities was effected in reliance on the exemptions for sales of securities
not involving a public offering, as set forth in Section 4(2) of the Act and
Rule 506 promulgated thereunder. The offeree was provided access to the
Company’s financial statements and any other information that they deemed
relevant or necessary in making their respective decision to accept shares
of
common stock in exchange for services. The offeree was deemed to have the
financial or business experience necessary to evaluate the risks of the
foregoing decision.
During
the period October 2006 through March 2007, the Company sold 274,167 shares
of
common stock to twenty-three (23) third parties in consideration for $205,375,
or $0.75 per share. The issuance of the above securities was effected in
reliance on the exemptions for sales of securities not involving a public
offering, as set forth in Section 4(2) of the Act and Rule 506 promulgated
thereunder. Each offeree was provided access to the Company’s financial
statements and any other information that they deemed relevant or necessary
in
making their respective decision to purchase shares of common stock of the
Company. Each offeree was deemed to have the financial or business experience
necessary to evaluate the risks of their investment in the
Company.
In
December 2006, the Company issued 750,000 shares of common stock to a consultant
for investor relations and merger and acquisition consulting services. The
750,000 shares of common stock were valued at $562,500, or $0.75 per share.
The
issuance of the above securities was effected in reliance on the exemptions
for
sales of securities not involving a public offering, as set forth in Section
4(2) of the Act and Rule 506 promulgated thereunder. The offeree was provided
access to the Company’s financial statements and any other information that they
deemed relevant or necessary in making their respective decision to accept
shares of common stock in exchange for services. The offeree was deemed to
have
the financial or business experience necessary to evaluate the risks of the
foregoing decision.
In
December 2006, the Company issued a total of 432,000 shares of common stock
to
seven (7) individuals, consisting of members of management and certain key
consultants, as partial payment for services rendered in 2006. The 432,000
shares were valued at $324,000, or $0.75 per share. The issuance of the above
securities was effected in reliance on the exemptions for sales of securities
not involving a public offering, as set forth in Section 4(2) of the Act and
Rule 506 promulgated thereunder. Each offeree was provided access to the
Company’s financial statements and any other information that they deemed
relevant or necessary in making their respective decision to accept shares
of
common stock in exchange for services. Each offeree was deemed to have the
financial or business experience necessary to evaluate the risks of the
foregoing decision.
On
February 16, 2007, the Company issued the sum of 50,000 shares of common stock
to a consultant for marketing and investor relations consulting services. The
50,000 shares were valued at $39,500, or $0.79 per share. The issuance of the
above securities was effected in reliance on the exemptions for sales of
securities not involving a public offering, as set forth in Section 4(2) of
the
Act and Rule 506 promulgated thereunder. The offeree was provided access to
the
Company’s financial statements and any other information that they deemed
relevant or necessary in making their respective decision to accept shares
of
common stock in exchange for services. The offeree was deemed to have the
financial or business experience necessary to evaluate the risks of the
foregoing decision.
During
the period commencing in late July 2006 and concluding in March 2007, the
Company issued 8% convertible promissory notes (“Notes”) in the collective
original principal amount of $4,700,000 to seventy-four (74) third parties.
The
Notes have a term of two (2) years and bear simple interest at the rate of
8%
per annum, payable at maturity. The Notes are convertible as follows (i) at
seventy-five ($0.75) cents per share at any time prior to the Company’s common
stock being quoted on the OTCBB; (ii) for a period of ninety (90) days from
the
date the Company’s common stock is quoted on the OTCBB, at the lesser of a 25%
discount to the closing price on the business day preceding the date of
conversion or One ($1.00) Dollar with a floor of seventy-five ($0.75) cents;
or
(iii) thereafter, at the greater of a 25% discount to the closing price on
the
business day preceding the date of conversion or seventy-five ($0.75) cents.
In
addition, as of February 9, 2007, the Company has issued warrants to purchase
2,350,000 shares of common stock, exercisable for a period of two (2) years
at
$1.50 per share (“Warrants”). The Notes and Warrants have been placed by Mercer
Capital Ltd. (“Mercer”) on a best efforts basis. Mercer receives (i) a
commission of ten (10%) percent and a non-accountable expense allowance of
three
(3%) percent on all Notes sold, and (ii) a warrant to purchase shares of common
stock equal to ten (10%) percent of the common stock issuable upon conversion
of
the Notes (“Mercer Warrants”). The Mercer Warrants are exercisable on a cashless
basis at the rate of $0.75 per share for a period of five (5) years. The Mercer
Warrants consist of the right to purchase 861,667 shares on the above terms.
The
issuance of the above securities was effected in reliance on the exemptions
for
sales of securities not involving a public offering, as set forth in Section
4(2) of the Act and Rule 506 promulgated thereunder. Each offeree was provided
access to the Company’s financial statements and any other information that they
deemed relevant or necessary in making their respective decision to purchase
the
Notes. Each offeree was deemed to have the financial or business experience
necessary to evaluate the risks of their investment in the Company.
On
May
17, 2007, the Company issued 250,000 shares of common stock pursuant to a
Business Advisory Agreement (“Advisory Agreement”). The Advisory Agreement
provides that the third party will render financial and business advisory
consulting advice, among other services. The 250,000 shares were valued at
$1,362,500, or $5.45 per share.
On
June
18, 2007, 8% convertible notes, in the original principal amount of $4,700,000
and accrued interest of $196,539, were converted into 6,528,719 shares of
common
stock, a conversion rate of $0.75 per share. On the date of conversion, the
closing market price of the Company’s common stock was $5.35. Since the accrued
interest was converted at a rate lower that the fair value, the Company recorded
the per share difference of $4.60 (totaling $1,205,440) as additional expense.
On
June
19, 2007, the Company issued 50,000 shares of common stock to a third party
to
serve as an advisor on the foreign capital markets (i.e., the Middle East
and
Europe), waste management services and potential contracts in the Middle
East
and Europe, as well as strategic alliances. The 50,000 shares were valued
at
$257,500, or $5.15 per share.
On
August
27, 2007, the Company entered into a revolving credit facility agreement
(“Credit Facility”) in the amount of $2,500,000, with Professional Offshore
Opportunity Fund, Ltd. (the “Lender”). Under the terms of the Credit
Facility, the Company may borrow up to $2,500,000 from Lender, with $500,000
advanced on closing and additional amounts to be advanced in increments not
to
exceed $250,000, or more if the parties agree, in any thirty-day period,
unless
waived by Lender, in which case the loan amount could exceed $250,000 in
that
period. The Company is required to repay all principal and accrued but
unpaid interest on amounts advanced pursuant to the Credit Facility no later
than August 28, 2009. The initial $500,000 advance under the Credit Facility
was
made on September 6, 2007.
The
material terms of the Credit Facility are as follows: (i) the Company has
arranged for restricted shares of common stock, held by third parties, to
be
pledged as collateral for the loans pursuant to a Pledge Agreement between
Lender and such third parties; (ii) Lender may reduce the amount of the
outstanding loans by retaining for its own account pledged stock, subject
to the
volume restrictions of Rule 144 (no more than 1% of the outstanding shares
for a
90 day period.); (iii) the loans bear interest at the rate of 8% per annum;
(iv)
on each advance, the Company must repay any accrued but unpaid interest and
Lender may withhold two months interest from any advance as prepaid interest;
(v) the Company may prepay the principal and interest on the loan without
penalty; (vi) Lender may withhold from any advance a retention fee equal
to 5%
of the amount loaned; (vi) in connection with the issuance of the loan, the
Company provided Lender a commitment fee of $50,000 and common stock equal
to
$250,000 (the shares were valued at the closing price on September 6, 2007,
or
$2.97 per share, the date on which the first funding in the amount of $500,000
occurred under the Credit Facility. The foregoing equates to 84,175 shares
of
common stock. The shares of common stock include piggyback registration
rights.
In
consideration for the pledge of a total of 1,842,859 of restricted shares
of
common stock (“Pledged Shares”), held by third parties, as collateral against
the Credit Facility, the Company entered into a Common Stock and Warrant
Agreement with each of such third parties providing for the following
consideration, collectively: (i) restricted shares of common stock in the
amount
of 2,763,489 shares (“Pledge Share Consideration”), or 150% of the amount of
shares of common stock pledged; and (ii) warrants to purchase 1,842,859 shares
of common stock, exercisable for a period of two (2) years at $2.95 per share
(“Pledge Warrant Consideration”), the closing price of the Company’s common
stock on August 27, 2007. The Common Stock and Warrant Agreements provide
that
in the event Lender does not reduce the amount of the outstanding loans under
the Credit Facility by retaining for its own account Pledged Shares, then
the
Pledge Share Consideration shall be reduced in proportion to the amount of
Pledged Shares not retained for Lender’s account for the purpose of reducing the
amount of the outstanding loans under the Credit Facility. In addition, the
third parties received one (1) demand registration right.
The
Company paid Newbridge Securities Corporation the sum of $100,000 and issued
150,000 shares of restricted common stock in consideration for placing the
Credit Facility.
ITEM
5.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS.
The
Company’s Bylaws provide that the Company shall indemnify its directors and
officers to the fullest extent
legally
permissible under the law of the State of Nevada
;
provided, however, the Company may modify the extent of indemnification by
individual contracts with its directors and officers; provided, further, that
the Company shall not be required to indemnify any director or officer in
connection with any proceeding (or part thereof) initiated by such person unless
(i) such indemnification is expressly required to be made by law; (ii) the
proceeding was authorized by the Board of Directors of the Company; (iii) such
indemnification is provided by the Company, in its sole discretion, pursuant
to
the powers vested in the Company under the Nevada Revised Statutes; or (iv)
such
indemnification is required to be made under the Bylaws. The Company is aware
that in the opinion of the Commission indemnification of officers and directors
is against public policy.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
FINANCIAL STATEMENTS
June
30, 2007 and 2006 (Unaudited)
and
December
31, 2006 and 2005
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
TABLE
OF CONTENTS
|
|
|
Page
|
|
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2007 (Unaudited) and
December
31, 2006 and 2005
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations for the Six Months Ended June 30,
2007
and 2006 (Unaudited), for the Period from August 25, 2005
(Date
of Inception) through June 30, 2007 (Unaudited), for the Year
Ended
December 31, 2006, and for the Periods from August 25, 2005
(Date
of Inception) through December 31, 2005 and
2006
|
|
|
F-4
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the Period from
August
25, 2005 (Date of Inception) through December 31, 2006
and
for the Six Months Ended June 30, 2007
(Unaudited)
|
|
|
F-5
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Six Months Ended
June
30, 2007 and 2006 (Unaudited), and for the Period from
August
25, 2005 (Date of Inception) through June 30, 2007
(Unaudited)
|
|
|
F-6
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the Year Ended
December
31, 2006 and for Periods from August 25, 2005
(Date
of Inception) through December 31, 2005 and
2006
|
|
|
F-7
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-8
|
|
|
H
ANSEN
,
B
ARNETT
&
M
AXWELL,
P.C.
A
Professional Corporation
CERTIFIED
PUBLIC ACCOUNTANTS
AND
BUSINESS
CONSULTANTS
5
Triad Center, Suite 750
Salt
Lake City, UT 84180-1128
Phone:
(801) 532-2200
Fax:
(801) 532-7944
www.hbmcpas.com
|
|
Registered
with the Public Company
Accounting
Oversight Board
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and the Stockholders
NNRF,
Inc.
We
have
audited the accompanying condensed consolidated balance sheets of NNRF, Inc.
and
subsidiaries (a development stage company) as of December 31, 2006 and 2005
and
the related condensed consolidated statements of operations, stockholders’
equity (deficit), and cash flows for the year ended December 31, 2006, for
the
period from August 25, 2005 (date of inception) through December 31, 2005,
and
for the cumulative period from August 25, 2005 (date of inception) through
December 31, 2006. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of the NNRF, Inc. and
subsidiaries (a development stage company) as of December 31, 2006 and 2005
and
the results of their operations and their cash flows for the year ended December
31, 2006, for the period from August 25, 2005 (date of inception) through
December 31, 2005, and for the period from August 25, 2005 (date of inception)
through December 31, 2006, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2, the Company is
a
development stage enterprise that has had nominal sales, has experienced
losses
from operations and has had negative cash flows from operating activities
since
inception and for the year ended December 31, 2006. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans concerning these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
HANSEN,
BARNETT & MAXWELL, P.C.
Salt
Lake
City, Utah
March
30,
2007
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
BALANCE SHEETS
|
|
|
June
30
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
125,583
|
|
$
|
130,249
|
|
$
|
26,893
|
|
|
Prepaid
expenses
|
|
|
366,061
|
|
|
6,249
|
|
|
11,361
|
|
|
Total
Current Assets
|
|
|
491,644
|
|
|
136,498
|
|
|
38,254
|
|
|
Furniture
and Equipment,
net
of accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
of
$4,015 at June 30, 2007 (unaudited), and $3,415 and $1,272
at
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006 and 2005, respectively
|
|
|
8,842
|
|
|
9,442
|
|
|
10,541
|
|
|
Deferred
loan costs,
net
of
accumulated
amortization of $66,579
|
|
|
|
|
|
|
|
|
|
|
|
at
December 31, 2006
|
|
|
-
|
|
|
307,881
|
|
|
-
|
|
|
Investment
in ATOLL,
at
cost
|
|
|
4,566,250
|
|
|
1,166,250
|
|
|
-
|
|
|
Total
Assets
|
|
$
|
5,066,736
|
|
$
|
1,620,071
|
|
$
|
48,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
expenses
|
|
$
|
141,973
|
|
$
|
133,128
|
|
$
|
8,000
|
|
|
Management
fee payable
|
|
|
183,348
|
|
|
271,625
|
|
|
142,499
|
|
|
Accrued
interest
|
|
|
1,842
|
|
|
56,584
|
|
|
-
|
|
|
Shareholder
advances
|
|
|
39,041
|
|
|
39,041
|
|
|
147,601
|
|
|
Total
Current Liabilities
|
|
|
366,204
|
|
|
500,378
|
|
|
298,100
|
|
|
Long-Term
Convertible Notes Payable,
net
of unamortized discounts
|
|
|
|
|
|
|
|
|
|
|
|
of
$1,165,617 at December 31, 2006
|
|
|
-
|
|
|
783,883
|
|
|
-
|
|
|
Total
Liabilities
|
|
|
366,204
|
|
|
1,284,261
|
|
|
298,100
|
|
|
Stockholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
Class
A Preferred Stock - $0.001 par value; 5,000,000 shares authorized;
none
outstanding
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Class
B Preferred Stock - $0.001 par value; 5,000,000 shares authorized;
none
outstanding
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock - $0.001 par value; 100,000,000 shares authorized;
44,474,959 shares
at June 30, 2007 (unaudited), and 33,529,406 shares and 22,500,000
shares
outstanding, at December 31, 2006 and 2005,
respectively
|
|
|
44,475
|
|
|
33,529
|
|
|
22,500
|
|
|
Additional
paid-in capital (deficit)
|
|
|
28,068,652
|
|
|
12,787,497
|
|
|
(17,500
|
)
|
|
Deficit
accumulated during the development stage
|
|
|
(23,401,858
|
)
|
|
(12,482,048
|
)
|
|
(254,305
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(10,737
|
)
|
|
(3,168
|
)
|
|
-
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
4,700,532
|
|
|
335,810
|
|
|
(249,305
|
)
|
|
Total
Liabilities and Stockholders' Equity (Deficit)
|
|
$
|
5,066,736
|
|
$
|
1,620,071
|
|
$
|
48,795
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
For
the Period from
|
|
|
|
|
|
|
|
|
August
25, 2005
|
|
|
|
|
For
the Six Months Ended
|
|
(Date
of Inception)
|
|
|
|
|
June
30,
|
|
through
|
|
|
|
|
2007
|
|
2006
|
|
June
30, 2007
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Sales
|
|
$
|
-
|
|
$
|
3,434
|
|
$
|
5,343
|
|
|
Cost
of Sales
|
|
|
-
|
|
|
784
|
|
|
1,615
|
|
|
Gross
Profit
|
|
|
-
|
|
|
2,650
|
|
|
3,728
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
6,127,529
|
|
|
3,534,688
|
|
|
13,534,976
|
|
|
Foreign
currency exchange loss
|
|
|
-
|
|
|
1,855
|
|
|
5,845
|
|
|
Total
Operating Expenses
|
|
|
6,127,529
|
|
|
3,536,543
|
|
|
13,540,821
|
|
|
Operating
Loss
|
|
|
(6,127,529
|
)
|
|
(3,533,893
|
)
|
|
(13,537,093
|
)
|
|
Interest
Expense
|
|
|
(4,792,281
|
)
|
|
-
|
|
|
(9,864,765
|
)
|
|
Net
Loss
|
|
$
|
(10,919,810
|
)
|
$
|
(3,533,893
|
)
|
$
|
(23,401,858
|
)
|
|
Basic
and Diluted Loss per Share
|
|
$
|
(0.30
|
)
|
$
|
(0.15
|
)
|
|
|
|
|
Basic
and Diluted Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding
|
|
|
36,525,989
|
|
|
23,155,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Period from
|
|
|
|
|
|
For
the Year
|
|
|
August
25, 2005
|
|
|
|
|
|
Ended
|
|
|
(Date
of Inception) through
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
Sales
|
|
$
|
5,343
|
|
$
|
-
|
|
$
|
5,343
|
|
|
Cost
of Sales
|
|
|
1,615
|
|
|
-
|
|
|
1,615
|
|
|
Gross
Profit
|
|
|
3,728
|
|
|
-
|
|
|
3,728
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
7,153,429
|
|
|
254,018
|
|
|
7,407,447
|
|
|
Foreign
currency exchange loss
|
|
|
5,558
|
|
|
287
|
|
|
5,845
|
|
|
Total
Operating Expenses
|
|
|
7,158,987
|
|
|
254,305
|
|
|
7,413,292
|
|
|
Operating
Loss
|
|
|
(7,155,259
|
)
|
|
(254,305
|
)
|
|
(7,409,564
|
)
|
|
Interest
Expense
|
|
|
(5,072,484
|
)
|
|
-
|
|
|
(5,072,484
|
)
|
|
Net
Loss
|
|
$
|
(12,227,743
|
)
|
$
|
(254,305
|
)
|
$
|
(12,482,048
|
)
|
|
Basic
and Diluted Loss per Share
|
|
$
|
(0.44
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
Basic
and Diluted Weighted-Average
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Outstanding
|
|
|
27,693,415
|
|
|
22,500,000
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
During
the
|
|
|
Other
|
|
|
Stockholders'
|
|
|
|
|
|
Common
Stock
|
|
|
Capital
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Equity
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
(Deficit)
|
|
|
Stage
|
|
|
Loss
|
|
|
(Deficit)
|
|
|
August
25, 2005 (Date of Inception)
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Issuance
of common stock for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
2005 - $0.0002 per share
|
|
|
22,500,000
|
|
|
22,500
|
|
|
(17,500
|
)
|
|
-
|
|
|
-
|
|
|
5,000
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(254,305
|
)
|
|
-
|
|
|
(254,305
|
)
|
|
Balance
- December 31, 2005
|
|
|
22,500,000
|
|
|
22,500
|
|
|
(17,500
|
)
|
|
(254,305
|
)
|
|
-
|
|
|
(249,305
|
)
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,227,743
|
)
|
|
-
|
|
|
(12,227,743
|
)
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,168
|
)
|
|
(3,168
|
)
|
|
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,230,911
|
)
|
|
Acquisition
of Stafford - May 2006
|
|
|
359,500
|
|
|
359
|
|
|
(136,542
|
)
|
|
-
|
|
|
-
|
|
|
(136,183
|
)
|
|
Issuance
of common stock for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2006 - $0.75 per share
|
|
|
185,000
|
|
|
185
|
|
|
138,565
|
|
|
-
|
|
|
-
|
|
|
138,750
|
|
|
October
2006 - $0.75 per share
|
|
|
128,500
|
|
|
129
|
|
|
95,996
|
|
|
-
|
|
|
-
|
|
|
96,125
|
|
|
December
2006 - $0.75 per share
|
|
|
101,333
|
|
|
101
|
|
|
75,899
|
|
|
-
|
|
|
-
|
|
|
76,000
|
|
|
Issuance
of commons stock for conversion of liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2006 - $1.05 per share
|
|
|
2,857
|
|
|
3
|
|
|
2,997
|
|
|
-
|
|
|
-
|
|
|
3,000
|
|
|
July
2006 - $1.10 per share
|
|
|
311,025
|
|
|
311
|
|
|
341,817
|
|
|
-
|
|
|
-
|
|
|
342,128
|
|
|
December
2006 - $0.75 per share
|
|
|
432,000
|
|
|
432
|
|
|
323,568
|
|
|
-
|
|
|
-
|
|
|
324,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for payment of interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
2006 - $1.10 per share
|
|
|
4,282,048
|
|
|
4,282
|
|
|
4,705,970
|
|
|
-
|
|
|
-
|
|
|
4,710,252
|
|
|
Issuance
of common stock for services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
2006 - $1.05 per share
|
|
|
2,997,143
|
|
|
2,997
|
|
|
3,144,003
|
|
|
-
|
|
|
-
|
|
|
3,147,000
|
|
|
July
2006 - $1.40 per share
|
|
|
1,080,000
|
|
|
1,080
|
|
|
1,510,920
|
|
|
-
|
|
|
-
|
|
|
1,512,000
|
|
|
September
2006 - $1.39 per share
|
|
|
400,000
|
|
|
400
|
|
|
555,600
|
|
|
-
|
|
|
-
|
|
|
556,000
|
|
|
December
2006 - $0.75 per share
|
|
|
750,000
|
|
|
750
|
|
|
561,750
|
|
|
-
|
|
|
-
|
|
|
562,500
|
|
|
Value
of warrants issued to placement agent
|
|
|
-
|
|
|
-
|
|
|
240,810
|
|
|
-
|
|
|
-
|
|
|
240,810
|
|
|
Beneficial
conversion feature and allocated value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
warrants related to convertible debt
|
|
|
-
|
|
|
-
|
|
|
1,243,644
|
|
|
-
|
|
|
-
|
|
|
1,243,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
33,529,406
|
|
|
33,529
|
|
|
12,787,497
|
|
|
(12,482,048
|
)
|
|
(3,168
|
)
|
|
335,810
|
|
|
Net
loss (Unaudited)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10,919,810
|
)
|
|
-
|
|
|
(10,919,810
|
)
|
|
Foreign
currency translation adjustment (Unaudited)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,569
|
)
|
|
(7,569
|
)
|
|
Comprehensive
Loss (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,927,379
|
)
|
|
Issuance
of common stock for cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
2007 - $0.75 per share (Unaudited)
|
|
|
44,334
|
|
|
44
|
|
|
33,206
|
|
|
-
|
|
|
-
|
|
|
33,250
|
|
|
Issuance
of commons stock for investment in ATOLL:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March
2007 - $0.60 per share (Unaudited)
|
|
|
4,000,000
|
|
|
4,000
|
|
|
2,396,000
|
|
|
-
|
|
|
-
|
|
|
2,400,000
|
|
|
Issuance
of common stock for services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February
2007 - $0.79 per share (Unaudited)
|
|
|
50,000
|
|
|
50
|
|
|
39,450
|
|
|
-
|
|
|
-
|
|
|
39,500
|
|
|
March
2007 - $1.37 per share (Unaudited)
|
|
|
2,500
|
|
|
3
|
|
|
3,422
|
|
|
-
|
|
|
-
|
|
|
3,425
|
|
|
March
2007 - $1.79 per share (Unaudited)
|
|
|
20,000
|
|
|
20
|
|
|
35,780
|
|
|
-
|
|
|
-
|
|
|
35,800
|
|
|
May
2007 - $5.45 per share (Unaudited)
|
|
|
250,000
|
|
|
250
|
|
|
1,362,250
|
|
|
-
|
|
|
-
|
|
|
1,362,500
|
|
|
June
2007 - $5.15 per share (Unaudited)
|
|
|
50,000
|
|
|
50
|
|
|
257,450
|
|
|
-
|
|
|
-
|
|
|
257,500
|
|
|
Issuance
of common stock for conversion of debt;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2007 - $0.75 per share (Unaudited)
|
|
|
6,266,667
|
|
|
6,267
|
|
|
4,693,733
|
|
|
|
|
|
|
|
|
4,700,000
|
|
|
Issuance
of common stock for accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
additional interest;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
2007 - $5.35 per share (Unaudited)
|
|
|
262,052
|
|
|
262
|
|
|
1,401,717
|
|
|
-
|
|
|
-
|
|
|
1,401,979
|
|
|
Warrants
issued to placement agent (Unaudited)
|
|
|
-
|
|
|
-
|
|
|
824,394
|
|
|
-
|
|
|
-
|
|
|
824,394
|
|
|
Beneficial
conversion feature and allocated value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
warrants related to convertible debt (Unaudited)
|
|
|
-
|
|
|
-
|
|
|
741,187
|
|
|
-
|
|
|
-
|
|
|
741,187
|
|
|
Stock-based
compensation (Unaudited)
|
|
|
-
|
|
|
-
|
|
|
3,492,566
|
|
|
-
|
|
|
-
|
|
|
3,492,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- June 30, 2007 (Unaudited)
|
|
|
44,474,959
|
|
$
|
44,475
|
|
$
|
28,068,652
|
|
$
|
(23,401,858
|
)
|
$
|
(10,737
|
)
|
$
|
4,700,532
|
|
The
accompanying notes are an integral part of
these consolidated financial statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
For
the Period from
|
|
|
|
|
|
|
|
|
August
25, 2005
|
|
|
|
|
For
the Six Months Ended
|
|
(Date
of Inception)
|
|
|
|
|
June
30,
|
|
through
|
|
|
|
|
2007
|
|
2006
|
|
June
30, 2007
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(10,919,810
|
)
|
$
|
(3,533,893
|
)
|
$
|
(23,401,858
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
600
|
|
|
1,180
|
|
|
4,015
|
|
|
Amortization
of loan costs and debt discount
|
|
|
3,421,644
|
|
|
-
|
|
|
3,727,477
|
|
|
Amortization
of prepaid costs
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Common
stock issued for interest and services
|
|
|
2,904,165
|
|
|
3,147,000
|
|
|
13,412,917
|
|
|
Stock-based
compensation related to option issuanc
|
|
|
3,492,566
|
|
|
-
|
|
|
3,492,566
|
|
|
Changes
in assets and liabilities, net of effects
|
|
|
|
|
|
|
|
|
|
|
|
from
acquisition of Stafford Energy:
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
-
|
|
|
-
|
|
|
3,559
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
7,718
|
|
|
33,035
|
|
|
Prepaid
expenses and other current assets
|
|
|
(360,881
|
)
|
|
(11,923
|
)
|
|
(367,130
|
)
|
|
Accrued
expenses
|
|
|
55,894
|
|
|
276,821
|
|
|
681,839
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(1,405,822
|
)
|
|
(113,097
|
)
|
|
(2,413,580
|
)
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
(1,044
|
)
|
|
(12,857
|
)
|
|
Purchase
of investment in Atoll
|
|
|
(1,000,000
|
)
|
|
-
|
|
|
(2,166,250
|
)
|
|
Cash
acquired in acquisition of Stafford Energy
|
|
|
-
|
|
|
5,754
|
|
|
5,703
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(1,000,000
|
)
|
|
4,710
|
|
|
(2,173,404
|
)
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from shareholder advances
|
|
|
-
|
|
|
106,091
|
|
|
344,163
|
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
2,367,935
|
|
|
-
|
|
|
4,022,565
|
|
|
Proceeds
from issuance of common shares
|
|
|
33,250
|
|
|
-
|
|
|
349,118
|
|
|
Cash
Flows from Financing Activities:
|
|
|
2,401,185
|
|
|
106,091
|
|
|
4,715,846
|
|
|
Effect
on Exchange Rate Changes on Cash
|
|
|
(29
|
)
|
|
-
|
|
|
(3,279
|
)
|
|
Net
Change in Cash
|
|
|
(4,666
|
)
|
|
(2,296
|
)
|
|
125,583
|
|
|
Cash
at Beginning of Period
|
|
|
130,249
|
|
|
26,893
|
|
|
-
|
|
|
Cash
at End of Period
|
|
$
|
125,583
|
|
$
|
24,597
|
|
$
|
125,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for additional investment in ATOLL
|
|
$
|
2,400,000
|
|
$
|
-
|
|
|
|
|
|
Conversion
of liabilities to equity
|
|
$
|
4,869,539
|
|
$
|
3,000
|
|
|
|
|
|
Purchase
of Stafford Energy, net of cash acquired
|
|
$
|
-
|
|
$
|
136,183
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
For
the Period from
|
|
|
|
|
For
the Year
|
|
August
25, 2005
|
|
|
|
|
Ended
|
|
(Date
of Inception) through
|
|
|
|
|
December
31,
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,227,743
|
)
|
$
|
(254,305
|
)
|
$
|
(12,482,048
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
from
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2,143
|
|
|
1,272
|
|
|
3,415
|
|
|
Amortization
of loan costs and debt discount
|
|
|
305,833
|
|
|
-
|
|
|
305,833
|
|
|
Amortization
of prepaid costs
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for interest and services
|
|
|
10,508,752
|
|
|
-
|
|
|
10,508,752
|
|
|
Changes
in assets and liabilities, net of effects
|
|
|
|
|
|
|
|
|
|
|
|
from
acquisition of Stafford Energy:
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
3,559
|
|
|
-
|
|
|
3,559
|
|
|
Accounts
receivable
|
|
|
33,035
|
|
|
-
|
|
|
33,035
|
|
|
Prepaid
expenses and other current assets
|
|
|
5,112
|
|
|
(11,361
|
)
|
|
(6,249
|
)
|
|
Accrued
expenses
|
|
|
475,446
|
|
|
150,499
|
|
|
625,945
|
|
|
Net
Cash Used in Operating Activities
|
|
|
(893,863
|
)
|
|
(113,895
|
)
|
|
(1,007,758
|
)
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(1,044
|
)
|
|
(11,813
|
)
|
|
(12,857
|
)
|
|
Purchase
of investment in Atoll
|
|
|
(1,166,250
|
)
|
|
-
|
|
|
(1,166,250
|
)
|
|
Cash
acquired in acquisition of Stafford Energy
|
|
|
5,703
|
|
|
-
|
|
|
5,703
|
|
|
Net
Cash Used in Investing Activities
|
|
|
(1,161,591
|
)
|
|
(11,813
|
)
|
|
(1,173,404
|
)
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from shareholder advances
|
|
|
196,562
|
|
|
147,601
|
|
|
344,163
|
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
1,654,630
|
|
|
-
|
|
|
1,654,630
|
|
|
Proceeds
from issuance of common shares
|
|
|
310,868
|
|
|
5,000
|
|
|
315,868
|
|
|
Cash
Flows from Financing Activities:
|
|
|
2,162,060
|
|
|
152,601
|
|
|
2,314,661
|
|
|
Effect
on Exchange Rate Changes on Cash
|
|
|
(3,250
|
)
|
|
-
|
|
|
(3,250
|
)
|
|
Net
Change in Cash
|
|
|
103,356
|
|
|
26,893
|
|
|
130,249
|
|
|
Cash
at Beginning of Period
|
|
|
26,893
|
|
|
-
|
|
|
-
|
|
|
Cash
at End of Period
|
|
$
|
130,249
|
|
$
|
26,893
|
|
$
|
130,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of liabilities to equity
|
|
$
|
648,128
|
|
|
|
|
|
|
|
|
Purchase
of Stafford Energy, net of cash acquired
|
|
$
|
136,183
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these
consolidated financial statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
NOTE
1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
- Nucon,
Inc.
(“Nucon”)
was
organized on August 25, 2005, under the laws of the State of Nevada. On May
23,
2006, Stafford Energy, Inc. a Nevada corporation, (“Stafford”), acquired 100% of
the issued and outstanding common stock of Nucon from the Nucon shareholders
in
exchange for the issuance of 22,500,000 shares of common stock. The Nucon
shareholders received a majority of the common stock of Stafford; accordingly,
the reorganization of Nucon into Stafford was accounted for as the
recapitalization of Nucon at historical cost. The accompanying consolidated
financial statements include the historical operations of Nucon and have
been
restated on a retroactive basis to reflect the 22,500,000 shares of Stafford’s
common stock issued to the Nucon shareholders for all periods presented.
In
connection with the recapitalization of Nucon, Stafford changed its name
to
Nucon-RF, Inc. On July 19, 2007, Nucon-RF, Inc. changed its name to NNRF,
Inc.
(“NNRF”). All references herein to
NNRF
or the
Company refer to Nucon, Inc. prior to May 23, 2006 and to Nucon-RF, Inc.
and
subsidiaries thereafter.
In
2007,
the Company formed OOO Nucon-RUS (“Nucon-RUS”), a limited liability company
under the laws of the Russian Federation. Nucon-RUS is a wholly owned subsidiary
of
NNRF
.
In
January 2007, Nucon-RUS became fully accredited to do business in the Russian
Federation by the Russian Ministry of Justice.
Interim
Financial Statements
- In the
opinion of management, all adjustments have been made and consist of normal
recurring items necessary to present fairly the Company’s financial position,
and the results of operations and cash flows in accordance with accounting
principles generally accepted in the United States of America. The results
of
operations for any interim period are not necessarily indicative of the results
for the entire year.
Consolidation
-
The
accompanying consolidated financial statements include the accounts of
NNRF
,
Inc.
and the following wholly owned subsidiaries after May 23, 2006: Nucon, Inc.,
Abucco Technologies Inc. (Abucco), Stafford Energy Canada Inc. (“Stafford
Canada”) and Nucon-RUS from the dates of their acquisition or formation.
Intercompany accounts and transactions have been eliminated in consolidation.
Due to the Company not being able to influence significant control over its
investment in ATOLL, the Company accounts for this investment at its cost.
Nature
of Operations
-
NNRF
is a
development stage company whose planned principal operations have not commenced.
NNRF
plans to
market
products, technologies, technical and engineering services to government
and
private sector clients in the Russian Federation, European and Asian markets
to
enable the clients to manage high-end environmental impacts. NNRF intends
to
a
cquire
manufacturing facilities, technical support companies and proprietary
technologies to enable it to manufacture its planned products and to provide
its
planned technical and engineering services. To date, NNRF has had no sales
or
revenue from its planned environmental impact services
business.
The
Company’s only sales have been through its subsidiary, Abucco, which has
realized very limited sales of its wireless technology products to customers
in
Canada. These limited operations are not part of the Company’s planned principal
business. The wireless technology operations amounted to less than 10% of
the
losses of the Company for each period presented; accordingly, segment
information is not presented herein.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
Use
of Estimates
- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements. These same estimates
may
affect the disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual amounts and results could differ from those
estimates.
Functional
Currency
- The
United States dollar is the functional currency for the Company’s operations.
The Company has significant agreements denominated in United States dollars,
which comprise a majority of the Company’s obligations and expenses.
The
Canadian dollar is the functional currency for the operations of Abucco.
These
assets and liabilities are translated into U.S. dollars at exchange rates
as of
the balance sheet date. Related revenues, expenses, gains and losses are
translated at the average exchange rates during the period. Foreign currency
translation adjustments from translating the financial statements of Abucco
are
included as a component of accumulated other comprehensive
loss.
Fair
Value of Financial Instruments
-
At
December 31, 2006 and June 30, 2007 the carrying amount of the management
fee
payable and the shareholder advances payable approximate their estimated
fair
values because of the immediate or short-term maturity of these financial
instruments. The fair value of the convertible notes payable at December
31,
2006 was $1,949,500, which was the face amount of the notes. The face amount
of
the notes represents fair value because the underlying instruments are at
interest rates which approximate current market rates. The carrying amount
of
the investment in ATOLL at June 30, 2007 and December 31, 2006 was $4,566,250
and $1,166,250, respectively. The carrying amount of the investment in ATOLL
is
deemed to be the fair value because it is not practicable to determine the
fair
value of the investment due to current lack of financial information from
ATOLL.
Equipment
-
Equipment
is carried at cost, net of accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
equipment. Estimated useful lives range from 3 to 5 years. Depreciation expense
was $2,143 and $1,272, respectively, for the year ended December 31, 2006
and
for the period from August 25, 2005 (date of inception) through December
31,
2005. Depreciation expense was $600 and $1,180, for the six months ended
June
30, 2007 and 2006, respectively.
Long-Lived
Assets
- The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by
a
comparison of the carrying amount of the asset to estimated undiscounted
future
cash flows expected to be generated by the asset. If the carrying amount
of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized for the amount by which the carrying amount exceeds the fair value.
The Company has evaluated its investment in ATOLL and concluded that the
investment was not impaired at June 30, 2007 and December 31, 2006. Management
believes there is no impairment of any other long-lived assets as of June
30,
2007 and December 31, 2006.
Revenue
Recognition
-
Revenues
from sales of wireless technology by Abucco are recognized at the time of
unit
commissioning. The Company charges a per-client, per-month repetitive service
fee, regardless of the services provided.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
Income
Taxes
- The
Company recognizes an asset or liability for the tax benefit from operating
loss
carryforwards and for the deferred tax consequences of temporary differences
between the tax bases of assets or liabilities and their reported amounts
in the
financial statements. Temporary differences will result in taxable or deductible
amounts in future years when the amounts reported in the financial statements
are recovered or settled. Deferred tax assets or liabilities are measured
using
enacted tax rates that are anticipated to be in effect when operating losses
are
expected to be realized and the temporary differences are expected to reverse.
Deferred tax assets are reviewed periodically for recoverability and a valuation
allowance is provided when it is more likely than not that the deferred tax
assets will not be realized.
Basic
and Diluted Loss Per Common Share
-
Basic
loss per share is computed by dividing net loss by the weighted-average number
of common shares outstanding during the period. Diluted loss per share is
computed by dividing net loss by the weighted-average number of common shares
and dilutive potential common shares that were outstanding during the period.
The following potential common shares were not included in the calculation
of
diluted loss per share as there effects would be
anti-dilutive:
|
|
|
|
|
|
|
|
|
For
the Period
|
|
|
|
|
|
|
|
|
from
August 25, 2005
|
|
|
|
|
For
the Six Months Ended
June
30,
|
|
For
the Year Ended
December
31,
|
|
(Date
of Inception) through
|
|
|
|
|
2007
|
|
2006
|
|
2006
|
|
December
31, 2005
|
|
|
Convertible
notes payable and
|
|
|
|
|
|
|
|
|
|
|
related
accrued interest
|
|
|
-
|
|
|
-
|
|
|
2,674,779
|
|
|
-
|
|
|
Stock
warrants
|
|
|
3,711,667
|
|
|
-
|
|
|
1,234,685
|
|
|
-
|
|
|
Stock
options
|
|
|
5,821,667
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
9,533,334
|
|
|
-
|
|
|
3,909,464
|
|
|
-
|
|
Comprehensive
Loss -
Comprehensive
loss includes the net loss for the period and the foreign currency translation
adjustment.
Stock
Based Compensation
- The
Company recognizes stock-based compensation in accordance with the fair value
recognition provisions of SFAS No. 123(R), “Share-Based Payment.” SFAS
No. 123(R) generally requires share-based payments to employees, including
grants of employee stock options and other equity awards, to be
recognized
in the statement of operations based on their fair values. Thus, the Company
records compensation expense for all share-based awards granted, based on
the
grant date fair value estimated in accordance with the provisions of SFAS
123(R). The Company adopted SFAS 123(R) using the modified prospective method,
which requires that compensation expense for the portion of awards
for
which the requisite service has not yet been rendered and that are outstanding
as of the adoption date be recorded over the remaining service period. Prior
to
the adoption of SFAS No. 123(R) on January 1, 2006, the Company had no
share-based compensation arrangements. Accordingly, no prior periods have
been
restated, the impact of SFAS 123(R) is not presented, and no pro forma amounts
are presented for 2006 had the Company recognized stock-based compensation
in
accordance with SFAS No. 123(R).
Stock-based
compensation expense recognized during the period is based on the value of
the
stock-based payment awards that is ultimately expected to vest. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
NOTE
2 - BUSINESS CONDITION
The
Company is in the development stage as of June 30, 2007 and December 31,
2006.
The Company had generated revenue of $0 and $5,343, respectively from sales
of
Abucco’s wireless technology products for the six months ended June 30, 2007 and
the year ended December 31, 2006, respectively. At June 30, 2007 and December
31, 2006 the Company has generated no revenue from its planned
environmental-impact
products
and services. Through June 30, 2007 and December 31, 2006, the Company had
accumulated losses of $23,401,858 and $12,482,048 respectively and used
$2,390,503 and $1,007,758 respectively of cash in operating activities since
inception. At December 31, 2006, the Company had a working capital deficiency
of
$363,880. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset
amounts or the amount of liabilities that might be necessary should the Company
be unable to continue as a going concern.
The
Company's ability to continue as a going concern depends on its ability to
acquire
manufacturing
facilities, technical support companies and proprietary technologies
for its
core business, to generate sufficient revenue and cash flows to meet the
Company’s obligations and to obtain additional financing as may be required to
fund operations. Management’s plans include generating income from the Company’s
existing licensed technologies and from dividend income from ATOLL to permit
the
Company to generate sufficient income and cash flow to continue as a going
concern. There is no assurance these plans will be realized.
NOTE
3 - ACQUISITION OF STAFFORD ENERGY, INC.
Prior
to
the reorganization of
NNRF
,
Stafford had 359,500 shares of common stock outstanding. The reverse acquisition
of Stafford was recognized by
NNRF
as the
constructive issuance of the 359,500 shares of common that remained outstanding.
The consolidated financial statements include the operations of Stafford
and its
wholly owned subsidiary, Abucco Technologies, Inc., from May 23, 2006. At
the
date of acquisition, Stafford was a development stage enterprise; therefore,
the
shares constructively issued to the Stafford shareholders were recognized
at the
fair value of net liabilities assumed on the date of the acquisition. The
net
liabilities assumed consisted of the following:
|
Cash
|
|
$
|
5,703
|
|
|
Trade
accounts receivable
|
|
|
33,307
|
|
|
Inventory
|
|
|
3,584
|
|
|
Accounts
payable
|
|
|
(59,492
|
)
|
|
Accrued
liabilities
|
|
|
(82,285
|
)
|
|
Advances
from shareholders
|
|
|
(37,000
|
)
|
|
Net
Liabilities Assumed
|
|
$
|
(136,183
|
)
|
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
NOTE
4 - INVESTMENT IN ZAO ELECTRO MACHINERY BUILDING PLANT ATOLL
At
December 31, 2006, the Company had acquired 13.25% of the equity interests
of
Zao Electro Machinery Building Plant Atoll (“ATOLL”), a Russian company for
$1,166,250. In March 2007, the Company acquired an additional 36.75% interest
for $1,000,000 in cash payments and the issuance of 4,000,000 shares of the
Company’s common stock valued at $2,400,000 or $0.60 per share, which was equal
to the closing price of the common stock on the date of the transaction.
The
remaining 50% ownership of ATOLL is concentrated among a very small group
of
shareholders. Due to this concentration and the nature of the industry that
ATOLL operates in, the Company, at this time is unable to influence significant
control. Accordingly, the investment in ATOLL will continue to be recognized
at
the lower of cost or fair value in accordance with FASB Interpretation 35
“Criteria
for Applying the Equity Method of Accounting for Investments in Common
Stock.”
The 50%
ownership of ATOLL has been recorded at cost of $4,566,250.
ATOLL
is
a manufacturing and research facility established to develop, manufacture
and
sell products designated for nuclear facilities such as nuclear power plants.
The Company has evaluated its investment in ATOLL and concluded that the
investment was not impaired at June 30, 2007.
NOTE
5 - SHAREHOLDER ADVANCES
Various
current shareholders loaned the Company $147,601 from August 25, 2005 through
December 31, 2005 and loaned the Company an additional $194,527 through June
2006. In July 2006, the Company issued 4,593,073 shares of common stock at
$0.07
per share upon conversion of $342,128 of the loans payable to the shareholders.
The fair value per share of the common stock on July 1, 2006 was $1.10 based
upon the trading price of the common stock and the price the Company had
issued
common stock for cash about the same time, and resulted in the shareholders
receiving a beneficial conversion option of $1.03 per share, or $4,710,252,
which was charged to interest expense on the date of issuance.
The
remaining $39,041 payable to the shareholders is from prior loans from Stafford
shareholders and is due on demand and does not have a stated interest rate.
NOTE
6 - CONVERTIBLE NOTES PAYABLE
$1,949,500
Convertible Notes
From
July
through December 2006, the Company issued $1,949,500 of 8% convertible notes
payable and 974,750 warrants in a private placement offering for $1,654,630,
net
of a 13% cash commission paid to the placement agent of $294,870. The placement
agent was also issued 259,935 warrants. The warrants issued to the note holders
are exercisable for two years from the date issued at $1.50 per share; the
warrants issued to the placement agent are exercisable through June 30, 2011
at
$0.75 per share. The notes are due two years from the date of issuance and
are
convertible into common stock as follows: (A) at $0.75 per share at any time
prior to the shares of the Company’s common stock being quoted on the
Over-the-Counter Bulletin Board (“OTCBB”); (B) for a period of 90 days from the
date the shares of the Company’s common stock are quoted on the OTCBB, at the
lesser of a 25% discount to the closing price on the business day preceding
the
date of conversion or $1.00 with a floor of $0.75 per share: or (C) thereafter,
at the greater of a 25% discount to the closing price on the business day
preceding the date of conversion or $0.75 per share.
The
fair
value of the warrants was determined by the Black-Scholes option pricing
model
using the following weighted-average assumptions: volatility of 255%, risk-free
interest rate of 4.86%, dividend yield of 0% and a term of 2.60 years. The
fair
value of the placement agent warrants was $240,810 and the fair value of
the
warrants issued to the note holders was $831,013. Based on the effective
conversion price of the convertible notes payable, the note holders received
a
beneficial conversion option of $829,660.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
The
net
proceeds were allocated between the convertible notes payable and the warrants
issued to the note holders based on their relative fair values and resulted
in
$544,629 being allocated to the convertible notes payable (before $374,460
of
capitalized deferred loan costs), $413,992 allocated to the warrants issued
to
the note holders, $240,810 allocated to the warrants issued to the placement
agent and $829,660 allocated to the beneficial conversion option. The resulting
discount to the convertible notes payable of $1,404,871 and the deferred
loan
costs are being amortized over the term of the convertible notes. Through
December 31, 2006, Company had recognized $239,254 of amortization of the
discount as interest expense.
$2,750,500
Convertible Notes
In
February and March 2007, the Company issued $2,750,500 of 8% convertible
notes
payable and 1,375,250 warrants (exercisable at $1.50 per share) in a private
placement offering for $2,367,935, net of a 13% cash commission plus expenses
paid to the placement agent of $382,565. The placement agent was also issued
601,732 warrants exercisable at $0.75 per share and 500,000 warrants exercisable
at $0.10 per share. The warrants issued to the note holders are exercisable
for
two years from the date issued and the warrants issued to the placement agent
are exercisable for five years from the date of issuance.
The
notes
are due two years from the date of issuance and are convertible into common
stock as follows: (A) at $0.75 per share at any time prior to the shares
of the
Company’s common stock being quoted on the Over-the-Counter Bulletin Board
(“OTCBB”); (B) for a period of 90 days from the date the shares of the Company’s
common stock are quoted on the OTCBB, at the lesser of a 25% discount to
the
closing price on the business day preceding the date of conversion or $1.00
with
a floor of $0.75 per share: or (C) thereafter, at the greater of a 25% discount
to the closing price on the business day preceding the date of conversion
or
$0.75 per share.
The
fair
value of the warrants was determined by the Black-Scholes option pricing
model
using the following weighted-average assumptions: volatility of 241%, risk-free
interest rate of 4.77%, dividend yield of 0% and a term of 3.08 years. The
fair
value of the placement agent warrants was $824,394 and the fair value of
the
warrants issued to the note holders was $824,343. Based on the effective
conversion price of the convertible notes payable, the note holders received
a
beneficial conversion option of $386,560.
The
net
proceeds were allocated between the convertible notes payable and the warrants
issued to the note holders based on their relative fair values and resulted
in
$1,732,009 being allocated to the convertible notes payable (before $928,055
of
capitalized deferred loan costs), $353,027 allocated to the warrants issued
to
the note holders, $824,394 allocated to the warrants issued to the placement
agent and $386,560 allocated to the beneficial conversion option. The resulting
discount to the convertible notes payable of $1,018,491 and the deferred
loan
costs are being amortized over the term of the convertible notes.
Conversion
of Convertible Notes
In
total,
the Company issued $4,700,000 of 8% convertible notes, 2,350,000 subscriber
warrants, and 1,361,667 placement agent warrants. On June 18, 2007, 8%
convertible notes of $4,700,000 and accrued interest of $196,539 were converted
into 6,528,719 shares of common stock, a conversion rate of $0.75 per share.
On
the date of conversion, the closing market price of the Company’s common stock
was $5.35. Since the accrued interest was converted at a rate lower than
the
fair value, the Company recorded the per share difference of $4.60 (totaling
$1,205,440) as additional interest expense. In addition, at the time of
conversion, the Company amortized the remaining discounts on the convertible
notes of $1,960,634 and the remaining deferred loan costs of $1,158,442 to
interest expense. During the six months ended June 30, 2007, the Company
recognized $2,184,108 in amortization of the discounts and $1,237,536 in
amortization of the deferred loan costs as interest expense.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
NOTE
7 - INCOME TAXES
The
components of the net deferred tax asset at December 31, 2006 and 2005 were
as
follows:
|
December
31,
|
|
|
2006
|
|
|
2005
|
|
|
Operating
loss carry forwards
|
|
$
|
4,239,783
|
|
$
|
86,464
|
|
|
Less:
Valuation allowance
|
|
|
(4,239,783
|
)
|
|
(86,464
|
)
|
|
Net
Deferred Tax Asset
|
|
$
|
-
|
|
$
|
-
|
|
The
Company had tax operating loss carry forwards totaling approximately $12,227,743
at December 31, 2006, that will expire if unused in 2025.
There
was
no provision for, or benefit from, income taxes since inception. The following
is a reconciliation of the amount of tax benefit that would result from applying
the federal statutory rate to net loss with the provision for income taxes
for
the year ended December 31, 2006 and for the period from August 25, 2005
(date
of inception) through December 31, 2005:
|
|
|
2006
|
|
2005
|
|
|
Tax
expense at statutory rate
|
|
$
|
(4,239,783
|
)
|
$
|
(86,464
|
)
|
|
Permanent
difference
|
|
|
12,099
|
|
|
-
|
|
|
Change
in deferred tax asset valuation allowance
|
|
|
4,153,319
|
|
|
86,464
|
|
|
Effect
of difference in statutory tax rates
|
|
|
74,365
|
|
|
-
|
|
|
Net
Income Tax Expense
|
|
$
|
-
|
|
$
|
-
|
|
NOTE
8 - STOCKHOLDERS’ EQUITY
The
Company is authorized to issue 100,000,000 shares of common stock with a
par
value of $0.001 per share. The Company is authorized to issue 5,000,000 shares
of Class A preferred stock and 5,000,000 shares of Class B preferred stock.
Each
share of Class A preferred stock, if issued, will be convertible into ten
shares
of common stock and each share of Class B preferred stock will be convertible
into 12 shares of common stock. The preferred stock is non-voting and may
have
such rights, preferences and other limitations as determined by the Board
of
Directors.
Issuance
of Common Stock for Cash
-
In
August
2005, the Company issued 22,500,000 common shares for $5,000
cash.
In
July
2006, the Company issued 185,000 common shares for $138,750 at $0.75 per
share.
During October through December, 2006, the Company issued 229,833 common
shares
for $172,125 of cash at $0.75 per share. During January through March 31,
2007,
the Company issued 44,334 common shares for $33,250 of cash at $0.75. These
issuances for cash were to unrelated individuals and
entities.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
Issuance
of Common Stock for Settlement of Payables and Services
-
In
May,
2006, the Company issued 3,000,000 common shares to two individuals for the
settlement of $3,000 owed to the individuals and for investor relation services
rendered to the Company. The shares were valued at $1.05 per share, which
was
the fair value of the shares on the date of issuance and resulted in the
recognition of $3,147,000 of compensation for services. The 3,000,000 shares
of
common stock were issued in consideration for the outstanding debt as well
as
for investor relations services. The 3,000,000 shares of common stock vested
fully upon grant and there were no future performance
requirements.
In
June
2006, the Company issued 1,080,000 common shares to five individuals for
services rendered to the Company. The shares were valued at $1.40 per share,
which was the fair value of the shares on the date of issuance and resulted
in
the recognition of $1,512,000 of compensation for services. Of the total
shares
issued, 250,000 shares of common stock were issued for investor relations
services and 830,000 shares of common stock were issued for consulting services.
The 1,080,000 shares of common stock vested fully upon grant and there were
no
future performance requirements.
In
September 2006, the Company issued 400,000 common shares to a consultant
for
services rendered to the Company. The shares were valued at $1.39 per share,
which was the fair value of the shares on the date of issuance and resulted
in
the recognition of $556,000 of compensation for services. The 400,000 shares
of
common stock were issued for public relations services. The 400,000 shares
of
common stock vested fully upon grant and there were no future performance
requirements.
In
December, 2006, the Company issued 750,000 common shares to a consultant
for
services rendered to the Company. The shares were valued at $0.75 per share,
which was the fair value of the shares on the date of issuance and resulted
in
the recognition of $562,500 of compensation for services. The 750,000 shares
of
common stock were issued for merger and acquisition and strategic advisory
services rendered. The 750,000 shares of common stock vested fully upon grant
and there were no future performance requirements.
In
December, 2006, the Company issued 432,000 common shares to several members
of
management in satisfaction of a monthly share commitment. The shares were
valued
at $0.75 per share, which was the fair value of the shares on the date of
issuance and resulted in the satisfaction of $324,000 of management fees
payable. The 432,000 shares of common stock accrued monthly until December
31,
2006 and the related liability was revalued on a monthly basis. The 432,000
shares of common stock vested fully upon grant on December 31, 2006 and there
were no future performance requirements.
In
February 2007, the Company issued 50,000 common shares to one individual
for
services rendered to the Company. The shares were valued at $0.79 per share,
which was the fair value of the shares on the date of issuance and resulted
in
the recognition of $39,500 of compensation for services. The 50,000 shares
of
common stock were issued for investor relations services. The 50,000 shares
of
common stock vested fully upon grant and there were no future performance
requirements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
In
March
2007, the Company issued 2,500 common shares to a consultant for services
rendered to the Company. The shares were valued at $1.37 per share, which
was
the fair value of the shares on the date of issuance and resulted in the
recognition of $3,425 of compensation for services. The 2,500 shares of common
stock were issued for consulting services. The 2,500 shares of common stock
vested fully upon grant and there were no future performance
requirements.
In
March
2007, the Company issued 20,000 common shares to a consultant for services
rendered to the Company. The shares were valued at $1.79 per share, which
was
the fair value of the shares on the date of issuance and resulted in the
recognition of $35,800 of compensation for services. The 20,000 shares of
common
stock were issued for consulting services. The 20,000 shares of common stock
vested fully upon grant and there were no future performance
requirements.
In
May
2007, the Company issued 250,000 common shares to a consultant for services
rendered to the Company. The shares were valued at $5.45 per share, which
was
the fair value of the shares on the date of issuance and resulted in the
recognition of $1,362,500 of compensation for services. The 250,000 shares
of
common stock were issued for consulting services. The 250,000 shares of common
stock vested fully upon grant and there were no future performance
requirements.
In
June
2007, the Company issued 50,000 common shares to a consultant for services
rendered to the Company. The shares were valued at $5.15 per share, which
was
the fair value of the shares on the date of issuance and resulted in the
recognition of $257,500 of compensation for services. The 50,000 shares of
common stock were issued for consulting services. The 50,000 shares of common
stock vested fully upon grant and there were no future performance
requirements.
NOTE
9 - COMMITMENTS AND CONTINGIENCIES
The
Company has management agreements to pay monthly management fees totaling
$55,500. During 2006 and 2005, the Company had a commitment to issue 24,000
and
28,000 common shares per month to several members of management, respectively.
On December 29, 2006, the Company issued 432,000 shares to these individuals
with a value of $0.75 per share which was the fair value of the Company’s stock
on the date of issuance. On June 30, 2007, December 31, 2006, December 31,
2005,
the Company had management fees payable of $183,348, $271,625 and $142,499,
respectively.
NOTE
10 - STOCK OPTIONS
Effective
March 1, 2007, the Company implemented the 2007 Stock Option and Incentive
plan
(“Plan”). The Plan allows the Company to grant to employees, officers, directors
and consultants stock options and bonuses in the form of stock and options.
Under the Plan, the Company can grant awards for the purchase of up to 6,000,000
shares of common stock in the aggregate, including incentive and non-qualified
stock options.
On
March
1, 2007, the Company issued non-qualified options to purchase 5,821,667 shares
of common stock, exercisable at $0.75 per share to officers, directors and
consultants. These options vested upon issuance and expire in ten years.
The
options were valued at $3,492,566 as determined by using the Black-Scholes
option pricing model with the following assumptions: volatility of 240%,
risk-free interest rate of 4.56%, dividend yield of 0% and a term of 10.0
years.
The
expected volatility is based on the historical price volatility of our common
stock. The risk-free interest rate represents the U.S. Treasury bill rate
for
the expected life of the related stock options. The dividend yield represents
our anticipated cash dividend over the expected life of the stock options.
The
value
was expensed during the six months ended June 30, 2007 and included in general
and administrative expenses.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Information
as of June 30, 2007 and for the Three and Six Months Ended
June
30, 2007 and 2006 is Unaudited)
The
aggregate intrinsic value of options exercisable at June 30, 2007 was
$27,420,051. The intrinsic value is based on a June 29, 2007 closing price
of
the Company’s common stock of $5.46.
NOTE
11 - SUBSEQUENT EVENTS
On
August
27, 2007, the Company entered into a revolving credit facility agreement
(“Credit Facility”) in the amount of $2,500,000, with Professional Offshore
Opportunity Fund, Ltd. (the “Lender”). Under the terms of the Credit
Facility, the Company may borrow up to $2,500,000 from Lender, with $500,000
advanced on closing and additional amounts to be advanced in increments not
to
exceed $250,000, or more if the parties agree, in any thirty-day period,
unless
waived by Lender, in which case the loan amount could exceed $250,000 in
that
period. The Company is required to repay all principal and accrued but
unpaid interest on amounts advanced pursuant to the Credit Facility no later
than August 28, 2009. The initial $500,000 advance under the Credit Facility
was
made on September 6, 2007.
The
material terms of the Credit Facility are as follows: (i) the Company has
arranged for restricted shares of common stock, held by third parties, to
be
pledged as collateral for the loans pursuant to a Pledge Agreement between
Lender and such third parties; (ii) Lender may reduce the amount of the
outstanding loans by retaining for its own account pledged stock, subject
to the
volume restrictions of Rule 144 (no more than 1% of the outstanding shares
for a
90 day period.); (iii) the loans bear interest at the rate of 8% per annum;
(iv)
on each advance, the Company must repay any accrued but unpaid interest and
Lender may withhold two months interest from any advance as prepaid interest;
(v) the Company may prepay the principal and interest on the loan without
penalty; (vi) Lender may withhold from any advance a retention fee equal
to 5%
of the amount loaned; (vi) in connection with the issuance of the loan, the
Company provided Lender a commitment fee of $50,000 and common stock equal
to
$250,000 (the shares were valued at the closing price on September 6, 2007,
or
$2.97 per share, the date on which the first funding in the amount of $500,000
occurred under the Credit Facility. The foregoing equates to 84,175 shares
of
common stock. The shares of common stock include piggyback registration
rights.
In
consideration for the pledge of a total of 1,842,859 of restricted shares
of
common stock (“Pledged Shares”), held by third parties, as collateral against
the Credit Facility, the Company entered into a Common Stock and Warrant
Agreement with each of such third parties providing for the following
consideration, collectively: (i) restricted shares of common stock in the
amount
of 2,763,489 shares (“Pledge Share Consideration”), or 150% of the amount of
shares of common stock pledged; and (ii) warrants to purchase 1,842,859 shares
of common stock, exercisable for a period of two (2) years at $2.95 per share
(“Pledge Warrant Consideration”), the closing price of the Company’s common
stock on August 27, 2007. The Common Stock and Warrant Agreements provide
that
in the event Lender does not reduce the amount of the outstanding loans under
the Credit Facility by retaining for its own account Pledged Shares, then
the
Pledge Share Consideration shall be reduced in proportion to the amount of
Pledged Shares not retained for Lender’s account for the purpose of reducing the
amount of the outstanding loans under the Credit Facility. In addition, the
third parties received one (1) demand registration right.
The
Company paid Newbridge Securities Corporation the sum of $100,000 and issued
150,000 shares of restricted common stock in consideration for placing the
Credit Facility.
PART
III
EXHIBITS
|
Exhibit
Number
|
|
Description
of Exhibits
|
|
2.1
|
|
Merger
and Plan of Share Exchange by and between Stafford Energy, Inc.,
and
Nucon, Inc. dated May 23, 2006 (1)
|
|
|
|
|
|
3.1
|
|
Articles
of Incorporation (1)
|
|
|
|
|
|
3.11
|
|
Amendment
to Articles of Incorporation (*)
|
|
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws (1)
|
|
|
|
|
|
4.1
|
|
Form
of Common Stock Certificate (1)
|
|
|
|
|
|
4.2
|
|
Form
of Convertible Promissory Note (1)
|
|
|
|
|
|
4.3
|
|
Form
of Common Stock Purchase Warrant (2)
|
|
|
|
|
|
4.4
|
|
Form
of Registration Rights Agreement (2)
|
|
|
|
|
|
10.1
|
|
Employment
Agreement of Valery Alexandrovitch Lebedev dated October 31, 2005
(1)
|
|
|
|
|
|
10.2
|
|
Employment
Agreement of Todd Sinclair dated May 23, 2006 (1)
|
|
|
|
|
|
10.3
|
|
Employment
Agreement of Alexander S. Stepanenko (1)
|
|
|
|
|
|
10.4
|
|
Consultant
Agreement of Peter Goerke dated October 3, 2005 (1)
|
|
|
|
|
|
10.5
|
|
Stock
Option and Incentive Plan (2)
|
|
|
|
|
|
10.6
|
|
Investment
Banking Letter Agreement by and between Mercer Capital, Ltd. and
Nucon-RF,
Inc. dated January 23, 2007 (2)
|
|
|
|
|
|
10.7
|
|
Acquisition
Agreements by and between ZAO Electro Machinery Building Plant
ATOLL and
Nucon-RF, Inc. dated July 26, 2006 and March 7, 2007
(2)
|
|
|
|
|
|
10.8
|
|
Cooperation
Agreement between Association “ASPECT” and Nucon-RF, Inc. dated April 17,
2007 (3)
|
|
|
|
|
|
10.9
|
|
Cooperation
Agreement between Nucon, Inc. and Atomstroyexport dated November
22, 2005
(3)
|
|
|
|
|
|
10.10
|
|
Territorial
Sub-Distributor Agreement between Power Quality Holdings, Inc.
and Nucon,
Inc. dated December 14, 2005 (3)
|
|
|
|
|
|
10.11
|
|
Cooperation
Agreement between Tri Ion Wassertechnik and Nucon, Inc. dated February
8,
2006 (3)
|
|
|
|
|
|
10.12
|
|
Cooperation
Agreement between Truboprovodnaya armatura (TPA) and Nucon, Inc.
dated
December 12, 2005 (3)
|
|
|
|
|
|
10.13
|
|
Consulting
Agreement between Hanover Capital Corporation and Nucon, Inc. dated
October 1, 2006 (3)
|
|
|
|
|
|
10.14
|
|
Agreement
for Corporate Communications/Media and Investor Relations between
Eisenberg Communications and Nucon-RF, Inc. dated August 7, 2006
(3)
|
|
|
|
|
|
10.15
|
|
Consultancy
Agreement between Rose Consulting and Engineering and Nucon-RF,
Inc. dated
April 20, 2007 (3)
|
|
10.16
|
|
Consulting
Services Agreement between StockTiger.com - Richard Crockett
and Nucon-RF,
Inc. dated February 16, 2007 (3)
|
|
|
|
|
|
10.17
|
|
Business
Advisory Agreement between Newbridge Securities Corporation and
Nucon-RF,
Inc. dated May 17, 2007 (3)
|
|
|
|
|
|
10.18
|
|
Sales
Agreement between Global Matrechs, Inc. and Nucon, Inc. dated
April 25,
2006 (3)
|
|
|
|
|
|
10.19
|
|
Asset
Purchase Agreement between
Dr.
Hans-
Jürgen
Engelmann
and Nucon-RF, Inc. dated July 2006 (3)
|
|
|
|
|
|
10.20
|
|
Consulting
Agreement between Claridge Management and Nucon-RF, Inc. dated
June 19,
2007 (3)
|
|
|
|
|
|
10.21
|
|
Revolving
Credit Facility Agreement between Professional Offshore Opportunity
Fund,
Ltd. and NNRF, Inc. dated August 27, 2007 *
|
|
|
|
|
|
10.22
|
|
Registration
Rights Agreement between Professional Offshore Opportunity Fund,
Ltd. and
NNRF, Inc. dated August 27, 2007 *
|
|
|
|
|
|
10.23
|
|
Pledge
Agreement between Professional Offshore Opportunity Fund, Ltd,
on the one
hand, and Janet Wall Separate Property Rev. Trust 10/1/02 and
Darin
Nellis, on the other hand, dated August 27, 2007 *
|
|
|
|
|
|
10.24
|
|
Common
Stock and Warrant Agreement between Darin Nellis and NNRF, Inc.
dated
August 27, 2007 *
|
|
|
|
|
|
10.25
|
|
Common
Stock and Warrant Agreement between Janet Wall Separate Property
Rev.
Trust 10/1/02 and NNRF, Inc. dated August 27, 2007 *
|
|
|
|
|
|
10.26
|
|
Fee
Agreement between Newbridge Securities Corporation and NNRF,
Inc. dated
September 2, 2007 *
|
|
|
|
|
|
10.27
|
|
Registration
Rights Agreement between Newbridge Securities Corporation and
NNRF, Inc.
dated September 2, 2007 *
|
|
|
|
|
|
11.1
|
|
Statement
regarding computation of per share earnings (4)
|
|
|
|
|
|
21.1
|
|
List
of Subsidiaries (1)
|
*
Filed
Herewith
(1)
Previously filed as an exhibit to the Company’s Form 10-SB filing with the
Securities and Exchange Commission on February 22, 2007.
(2)
Previously filed as an exhibit to the Company’s Form 10-SB filing with the
Securities and Exchange Commission on May 15, 2007.
(3)
Previously filed as an exhibit to the Company’s Form 10-SB filing with the
Securities and Exchange Commission on July 24, 2007.
(4)
The
information required by this exhibit can be determined from the Financial
Statements included in Part F/S hereto.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
NNRF,
INC.
|
|
|
|
|
Date:
September 24, 2007
|
|
/s/
J. Holt Smith
|
|
|
J.
Holt Smith
President
and Principal Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
/s/
J.P. Todd Sinclair
|
|
|
J.P.
Todd Sinclair
Chief
Financial Officer and Principal Financial
and
Accounting Officer
|
Customisable watchlists with full streaming quotes from leading exchanges, such as LSE, NASDAQ, NYSE, AMEX, Bovespa, BIT and more.
Hot Features
Premium
