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Unassociated Document
U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
x
ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2007.
o
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the
transition period from _____
to
_____
Commission
file number
NNRF,
INC.
(Name
of
Small Business Issuer in its Charter)
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Nevada
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98-0216309
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(State
of Incorporation)
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(IRS
Employer Identification No.)
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1574
Gulf Rd., #242, Point Roberts, WA
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98281
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number (
604
)
943
-
0706
Securities
Registered Pursuant of Section 12(b) of the Act: None
Securities
Registered Pursuant of Section 12(g) of the Act: Common Stock, $0.001 Par
Value
Indicate
by check mark of the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No x
Indicate
by check mark whether the issuer (1) filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past
90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K (229.405)is not contained herein, and will not be contained,
to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. o
Indicate
by check mark whether the registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). Yes o No
x
State
the
aggregate market value of voting stock held by non-affiliates computed by
reference to the price at which the common equity was sold, or the average
bid
and asked price of such common equity, as of a specified date within the past
60
days. $23,587,107 (based upon $0.66 per share as of April 8, 2008).
State
the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date.
Common
Stock, $0.001 par value, 47,973,240 shares outstanding as of April 8, 2008,
which includes 669,144 shares held in escrow.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Transitional
Small Business Disclosure Format (check one) Yes o No x
NNRF,
Inc.
FORM
10-KSB
December
31, 2007
TABLE
OF CONTENTS
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Page
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PART
I
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ITEM
1.
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Description
of Business
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1
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ITEM
2.
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Description
of Property
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0ITEM
3.
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Legal
Proceedings
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ITEM
4.
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Submission
of Matters to a Vote of Security Holders
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PART
II
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ITEM
5.
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Market
for Common Equity, Related Stockholder Matters and Small
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Business
Issuer Purchases of Equity Securities
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ITEM
6.
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Management's
Discussion and Analysis or Plan of Operation
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ITEM
7.
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Financial
Statements and Supplementary Data
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ITEM
8.
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Changes
In and Disagreements With Accounting and Financial
Disclosure
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ITEM
8A(T)
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Controls
and Procedures
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ITEM
8B.
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Other
Information
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PART
III
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ITEM
9.
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Directors,
Executive Officers, Promoters, Control Persons and Corporate
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Governance;
Compliance with Section 16(a) of the Exchange Act
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ITEM
10.
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Executive
Compensation
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ITEM
11.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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ITEM
12.
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Certain
Relationships and Related Transactions and Director
Independence
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ITEM
13.
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Exhibits
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ITEM
14.
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Principal
Accounting Fees and Services
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SIGNATURES
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EXHIBIT
INDEX
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PART
I
Item
1. Description of Business.
FORWARD-LOOKING
STATEMENT NOTICE:
Certain
information included herein contains statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, or the Exchange
Act, such as statements relating to plans for product development, product
placement, capital spending and financing sources. Such forward-looking
information involves important risks and uncertainties that could significantly
affect anticipated results in the future and, accordingly, such results may
differ from those expressed in any forward-looking statements made herein.
These
risks and uncertainties include, but are not limited to, relatively limited
operating history, history of operating losses, the inability to obtain
additional capital, the failure to successfully expand our operations, the
legal
and regulatory requirements related to our industry and the countries within
which we operate, the inability to enter into strategic partnerships with state
and private owned entities, the loss of key personnel, adverse economic
conditions, adverse currency rate fluctuations, the inability to protect our
proprietary information against unauthorized use by third parties, the control
of our common stock by our management, the classification of our common stock
as
“penny stock,” the absence of any right to dividends, the costs associated with
the issuance of and the rights granted to additional securities, the
unpredictability of the trading of our common stock and the ability of our
Board
of Directors to issue up to 10,000,000 shares, $0.001 par value, of Class A
and
Class B preferred stock, collectively.
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. and Stafford Energy Canada, Ltd have been inactive since
December 31, 2006. The Company intends to divest itself of, or dissolve, both
subsidiaries in 2008.
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.
NNRF
provides technologies, either owned or licensed, that are intended for use
in
nuclear facilities, nuclear and hazardous waste management, and the public
health sector.
NNRF
has
made investments in, and anticipates making further investments in, strategic
businesses that either operate or intend to operate in the nuclear, automotive
and aviation industries in Russia. In addition, the Company has, and will
continue to, either develop and market, or license and market, internationally,
technologies related to the nuclear industry. NNRF has invested in
companies currently operating in the nuclear and automotive industries in Russia
and has entered into a joint venture with a Russian company, the Engineering
Center for Nuclear Containers, to design and develop containers for
transportation and long term storage of high level radioactive waste. Further,
the Company presently has technologies that it has either licensed or acquired
in the areas of nuclear safety and remediation, wastewater treatment, and power
quality. NNRF has, and will continue to, market and either distribute to
resellers or sell the products and services related to the foregoing
technologies in various international markets. During 2007, NNRF concentrated
its international marketing efforts in Europe. NNRF has offices in Moscow,
Russia and Munich, Germany.
NNRF’s
has relationships, through its investment in ATOLL (defined below with which
it
participates in management decisions), with Rosenergoatom, the operating utility
of Russia’s nuclear civil facilities; and has direct relationships with
Atomstroyexport, established by the Russian government to promote the export
of
Russian construction, operation and modernization of nuclear power plants
abroad; the International Center for Environmental Sciences of the Federal
Agency of Nuclear Energy (“ICES”), an agency that is focused on nuclear waste
decontamination matters in Russia; the Russian based Engineering Center for
Nuclear Containers; and Stroikomplektinvest, a construction supply distributor
serving as NNRF’s marketing partner for power quality equipment in the Republic
of Tatarstan.
NNRF
began its operations in November 2005 and has accomplished the initial stages
of
its business strategy. With several key strategic alliances established as
noted
above, NNRF has the present capability of providing product, technological
and
technical service support addressing radioactive waste, wastewater and power
quality challenges, and energy efficiency, shielding, transport and storage
requirements, and plant equipment protection. NNRF also has in-house expertise
in radiological protection and radiological waste management. In addition,
with
NNRF’s 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. In accordance with Russian
law, 26% of the shares of ATOLL are held and managed by Nucon-RUS, a
wholly-owned subsidiary of NNRF. The remaining 24% of the shares are held by
NNRF.
NNRF
owns, has licensed, or distributes the following technologies:
1.
FEECOM/BIECOM - is a non-toxic polymer-based 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 used in nuclear reactors
and x-ray rooms around the world. NNRF previously 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. A patent application has been filed with the European Patent
Office for this technology.
2. Bicoflex
-
is a
flexible mixture of silicone and bismuth powder material that provides radiation
shielding. The product can be manufactured in various forms including aprons,
mats, curtains and garments. Bicoflex is produced by NNRF in Hannover, Germany
and has been fully tested and proven to effectively block radiation.
Quality
assurance is tested by the Fachhoschule Hannover University of Applied Sciences
in its special department for radioecology and nuclear safety.
3. Radseal
-
Manufactured in Germany, this radioactive two-part geopolymer has been fully
tested by a European-based nuclear research center and has been cleared by
the
customs department in Russia for importation into Russia. NNRF plans to offer
Radseal for use as dust suppression in contaminated areas in former nuclear
facilities in the RF and other international markets.
4. Trumem
-
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. Trumem is 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’s Chief Scientific Officer,
Dr. Valery Lebedev, co-invented Trumem. This technology may provide the basis
for a technological breakthrough in solving the current problems of radioactive
liquid wastes. Trumem is patent protected in Russia and the European Union.
To
accomplish its objectives, NNRF’s strategy consists of the
following:
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Maintain
and establish further key alliances with government funding agencies
and
other international groups responsible for nuclear waste
remediation;
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Enter
into strategic relationships and acquire an interest in companies
which
supply products and services to agencies responsible for nuclear
markets;
and
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Identify,
develop and acquire innovative, proprietary technologies which have
international environmental and economic
applications.
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Acquisition
of 50% of ATOLL
In
March
2007, NNRF completed the acquisition of 50% of the issued and outstanding stock
of ATOLL, a private joint stock Russian company. NNRF owns 24% of ATOLL and
Nucon-RUS, a wholly-owned subsidiary of NNRF, owns 26% of ATOLL. In November
2007, two members of NNRF management were appointed to the board of directors
of
ATOLL. Additionally, the Director of Strategic Development of ATOLL, has taken
a
management position with NNRF assisting in overseeing operations in Russia.
ATOLL’s
headquarters are located in Moscow, Russia, and its production facilities are
located in St. Petersburg, Moscow, and near the city of Kirov, Russia. ATOLL
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, among other things.
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 NNRF common stock.
The
original agreement was subsequently 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,
not including NNRF. As a result, NNRF has no real estate holdings, either on
its
own or through its 50% ownership in ATOLL. In the future, NNRF will provide
ATOLL the sum of $2,000,000 for the purchase of new equipment to meet expected
increases in demand for ATOLL products.
The
primary purchaser of equipment for nuclear power plants in Russia is
Rosenergoatom, with whom ATOLL has an established relationship to provide
technologies, services and equipment as discussed below.
During
the third and fourth quarter of 2007, ATOLL moved a portion of its production
facilities from St. Petersburg into a facility owned by Velcont located in
the
Kirov region of Russia. This relocation is intended to improve production
efficiencies and reduce overall production costs. The Kirov region is more
closely located to customers and material suppliers than St. Petersburg,
Russia.
The
business model of ATOLL is to supply spare parts for existing nuclear power
plants, supply products for the modernization of nuclear power plants, supply
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. The Chief
Scientific Officer of NNRF, Professor Dr. Valery Lebedev, from 1989-1999 was
the
General Director of the Mining Chemical Combine in Zelesnogorsk, in which the
dry storage facility will become a separate business unit, 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 120 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 of all 31 nuclear reactors
in
the RF.
ATOLL
has
its own construction design division 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 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.
The
WWER-440 and WWER-1000 nuclear reactors, similar 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, potentially, future markets such as
China and India. ATOLL currently has booked advance sales through the year
2010.
NNRF
believes the ATOLL acquisition offers opportunities for cash dividends 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 There can be no assurance that ATOLL will
operate profitably.
Acquisition
of 25.5% of JSC Electroprivod and Velcont
NNRF
has
executed agreements and has commenced the acquisition of 25.5% of JSC
Electroprivod and 25.5% of Velcont for the collective sum of $8,000,000. Each
of
the acquisitions will be made together with management of ATOLL, who will
purchase an equal share of JSC Electroprivod and Velcont, and collectively
the
parties will own 51% of each entity upon the closing. To date, NNRF has acquired
3.3% of Velcont in consideration for $525,000.
Velcont
is located in the city of Kirov-Chepetsk, Russia, and JSC Electroprivod is
located in the city of Kirov, Russia. JSC Electroprivod intends to relocate
certain aspects of its manufacturing to the Velcont facility. This relocation
is
intended to result in higher levels of efficiency and may result in substantial
cost savings.
Velcont
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, Velcont has approximately
500,000 square feet of production facilities and employs approximately 1,200
skilled workers.
JSC
Electroprivod is a scientific and technical complex and a leading designer
of
micro-electronic equipment in the RF and is licensed by the Federal Ministry
of
Nuclear Energy of the RF 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.
Alliances
and Strategic Partnerships
In
addition to the ATOLL 50% acquisition, and the ongoing acquisition of interests
in JSC Electroprivod and Velcont, since its inception, NNRF has focused on
procuring key strategic partnerships and alliances principally in the RF and
acquiring or licensing key technologies. A description of the current alliances
and strategic partnerships of NNRF follows.
Rosenergoatom
NNRF
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 future upon further
advancements of the Russian state entity, Atomprom, which controls all energy
generating nuclear facilities in Russia.
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 approximately 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 operated by Rosenergoatom.
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 upon the 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.
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. There
can be no assurance that NNRF and ASE will enter into a joint cooperation
agreement for the Indian, and East European markets.
Engineering
Center for Nuclear Containers (ECNC)
ECNC
is a
Moscow and St. Petersburg based company that designs and manufactures containers
for the long term storage of nuclear and other types of waste. ECNC has worked
with Minatom and provides waste storage containers fully licensed for the
storage of radioactive and toxic waste.
International
Center for Environmental Sciences (ICES)
ICES
is
located in Moscow and is a Russian State agency dealing with ecological security
and environmental matters related to the handling (including transportation
and
storage) of radioactive and toxic waste in Russia. ICES is also actively
involved in environmental issues concerning the dismantling of Russian nuclear
powered submarines.
TPA,
Ltd.
During
2007, TPA became a department of Atomenergomash a Russian state entity. As
a
result of the restructuring of TPA, the relationship between the Company and
TPA
was terminated.
Products
and Technologies
FEECOM/BIECOM
FEECOM/BIECOM
is a polymer with a metal blocker additive which NNRF believes provides new
methods in providing radiation safety. A distinctive feature of this new
material is that it is possible to modify its protection and construction
properties in different ways based upon the demands of each application. 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, can be
manufactured in an environmentally friendly manner, and have excellent thermal
stability.
The
moldable nature of the new shielding material provides a significant number
of
applications for many general shielding devices. 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 (a German testing facility)
to
undertake the following independent tests on FEECOM/BIECOM: tensile tests;
pressure tests; notched-bar 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 to provide further independent determination of the efficacy and multi-uses
of FEECOM/BIECOM.
NNRF
is
establishing a sale 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 served in the capacities of project engineer,
radiation protection officer, and marketing and sales manager while working
at
NOELL GmbH, NUKEM Group and VOEST ALPINE mce.
Dr.
Engelmann, who serves as our Director of Project and Sales Division - Shielding
and Encapsulation EU, 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 for
further research and development, and manufacturing anticipated to be
established in Lower Saxony, Germany.
Bicoflex
Bicoflex,
formulated by NNRF, is a flexible mixture of silicone and bismuth powder
material that provides radiation shielding. The product can be manufactured
in
various forms including aprons, mats, curtains and garments. Bicoflex is
manufactured in Germany and has been fully tested and proven to effectively
block radiation. In addition, in curtain form, the product can be used in
geometrically challenging situations where FEECOM/BIECOM cannot be effectively
used as a radiation blocker.
Radseal
Radseal
is a radioactive two-part geopolymer that can be used for the containment and
encapsulation of radioactive dust, radioactive sludge, broken fuel assembly
elements and highly radioactive fuel pieces, and for general containment on
radioactive floors and walls. Such containment, once complete, increases the
safety for construction personnel to perform decontamination services. NNRF
anticipates delivering an initial shipment of Radseal to Russia during 2008
for
field and demonstration testing in cooperation with ICES.
Radioactive
Waste Containers
NNRF
has
entered into a joint venture agreement with Moscow-based Engineering Center
for
Nuclear Containers (“ECNC”) to design, develop and market containers which will
hold high level radioactive waste generated by nuclear power plants and other
radioactive waste producing operations. This joint venture is planned to be
named the Nuclear Container Corporation (“NCC”). NNRF will own 50% of NCC. The
goal at the conclusion of the design and development process will be the
certification of the containers by the Russian Federal
Service on Environmental, Technology and Nuclear Control
Rostechnadzor
for use
in the RF and internationally. This certification will be conducted under the
aegis of the International Atomic Energy Agency (“IAEA”). ECNC currently
supplies containers in Russia which are designed for other radioactive
waste.
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 companies in the nuclear industry within the RF. ASPECT
has
decades of experience as a contractor in improving systems for the handling
of
radioactive waste and recycling at sites of the Federal Ministry of Nuclear
Energy.
The
agreement between ASPECT and NNRF is to engage in joint efforts to incorporate
complex technologies and equipment in the form of a gradient-porous
metal-ceramic membrane known as Trumem. NNRF will be responsible for
establishing global strategic alliances to introduce and market the Trumem
technology internationally.
EP
Waveform Correction Absorber
The
EP
Waveform Correction Absorber is a high quality transient voltage surge
suppression (“TVSS”) and high frequency noise filtering modular technology that
is manufactured in the United States. The TVSS technology filters damaging
power
pollution being used by electrical equipment, thereby lowering operating costs
and downtime and increasing productivity.
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 reduce operating efficiency and create excess heat that displaces
normal power distribution and output. This in turn causes electrical systems
and
equipment to deteriorate and to malfunction, and is critical in microprocessor
based manufacturing industries.
NNRF
intends to market this product in Russia to users of expensive electrical
equipment such as high output office printers, CT scanners, robots, offices
with
multiple computer installations and other users where power surges cause
significant damage or pose significant danger to operations.
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 1100 Celsius 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 subject to completion of
due
diligence by NNRF which is expected to be completed in the last half of 2008.
Representatives from Nucon-RUS will be meeting with management of Seversk
(formerly known as Tomsk-7), Ministry of the Russian Federation for Atomic
Energy, Russian Research Institute of Organic Materials, Bochvar Institute
to
finalize the terms of the agreement.
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. Tri-Ion
specializes in cleaning water which contains heavy metals and other isotopes,
and is licensed to operate in the food industry. The Russian industrial partner
for hardware and pumps is Hydromshservice. NNRF intends to market Tri-Ion’s
technologies and engineering services within the Russian and Ukrainian
Vodokanals.
Tri-Ion
specializes in cleaning water which contains heavy metals and other isotopes.
It
is licensed and permitted to work in the food industry. NNRF will receive
approximately 15% of the revenues in consideration for these services. Tri-Ion
is currently providing water cleaning services in Europe and South
America.
COMPETITION
NNRF’s
technologies may be subject to significantly greater competition from other
companies, many of which have far greater intellectual, financial, marketing
and
other resources than NNRF. Other technologies may be developed that are superior
or less expensive than those owned or licensed by NNRF. Alliances and
partnerships may be subject to change.
GOVERNMENT
APPROVAL AND GOVERNMENT REGULATIONS
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 requires
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 within.
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
and one
(1) part time employee in our Moscow, Russia office, three (3) 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.
Item
2.
Description of Property.
We
lease
approximately 800 square feet of office space in Moscow, Russia, located at
117393Moscow,
20 Architect Vlassov’s st.
The
monthly lease rate is approximately $6,000 and the lease has a term of
12-months, expiring on March 1, 2009.
We
lease
executive office space in Munich, Germany, located at Theresienstrasse 6-8,80333
Munich, Germany. The lease is month-month and has a lease rate of approximately
$3,000 per month.
Item
3. Legal
Proceedings.
We
are
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, formal 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 the Company, or any of our
subsidiaries, threatened against or affecting the Company, our common stock,
any
of our subsidiaries, or our officers or directors in their capacities with
each,
in which an adverse decision could have a material adverse effect.
Item
4. Submission
of Matters to a Vote of Security Holders.
No
matter
was submitted to a vote of the security holders, through the solicitation of
proxies or otherwise, during the fourth quarter of the fiscal year covered
by
this report.
PART
II
Item
5.
Market for Common Equity Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities.
Market
Information
Our
common stock is currently quoted on the Pink Sheets Electronic Interdealer
Quotation and Trading System under the symbol “NNRI.PK.”
For
the
periods indicated, commencing with the date on which NNRF merged with Stafford
Energy, Inc., May 23, 2006, and concluding on April 8, 2008, 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
|
|
|
0.70
|
|
|
Fourth
Quarter (October-December 2006)
|
|
|
1.01
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
|
First
Quarter (January-March 2007)
|
|
|
1.79
|
|
|
0.55
|
|
|
Second
Quarter (April-June 2007)
|
|
|
8.96
|
|
|
1.74
|
|
|
Third
Quarter (July 1 - September 30, 2007)
|
|
|
5.35
|
|
|
1.94
|
|
|
Fourth
Quarter (October 1 - December 31, 2007)
|
|
|
2.74
|
|
|
1.12
|
|
| |
|
|
|
|
|
|
|
|
Fiscal
Year 2008
|
|
|
|
|
|
|
|
|
First
Quarter (January 1 - March 31, 2008)
|
|
|
1.10
|
|
|
0.44
|
|
|
Second
Quarter (April 1 - April 8, 2008)
|
|
|
0.66
|
|
|
0.42
|
|
On
April
8, 2008, the closing price of our common stock was $0.66.
Holders
of Record
As
of
April 8, 2008, we had approximately 268 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.
Dividends
There
are
no restrictions imposed on the Company which limit its ability to declare or
pay
dividends on its common stock, except for corporate state law limitations.
No
cash dividends have been declared or paid to date and none are expected to
be
paid in the foreseeable future.
Recent
Sales of Unregistered 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 $205,755,
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 were 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.
In
addition, Mercer was issued, in consideration for serving as the placement
agent, warrants to purchase 500,000 shares of common stock, exercisable at
$0.10
per share, on a cashless basis, for a period of five (5) years. 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 84,746 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. In November 2007, the Company issued the Lender an additional 500,000
shares of common stock pursuant to the terms of the Credit Facility. The Company
valued the shares of common stock at $935,000 based on the current fair value
of
the Company’s common stock on the date of issuance. The Company expensed the
value of the common stock upon issuance.
During
the fiscal year ended December 31, 2007, the Company received $1,282,000 in
net
proceeds pursuant to the Credit Facility, and issued 2,092,860 shares of common
stock, collectively, to third parties in consideration for the pledges under
the
terms of the Credit Facility. In the three months ended March 31, 2008, the
Company received $416,991 in net proceeds pursuant to the Credit Facility,
and
issued 669,144 shares of common stock, collectively, to third parties in
consideration for the pledges under the terms of the Credit
Facility.
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.
Securities
Issued under Equity Compensation Plans
The
following table summarizes our equity compensation plan information as of
December 31, 2007. Information is included for equity compensation plans not
approved by our security holders.
Equity
Compensation Plan Information.
|
Plan Category
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a)
(c)
|
|
|
Equity
compensation plans approved by security holders(1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Equity
compensation plans not approved by security holders(2)
|
|
|
5,821,667
|
|
$
|
0.75
|
|
|
178,333
|
|
|
Total
|
|
|
5,821,667
|
|
|
|
|
|
178,333
|
|
| (1) |
As
of December 31, 2007, the Company did not have any equity compensation
plans that were approved by its
stockholders.
|
| (2) |
Includes
the 2007 Stock Option and Incentive
Plan.
|
Repurchases
of Equity Securities
The
Company did not repurchase any shares of its common stock during fiscal year
2007 or fiscal year 2006.
Item
6.
Management’s Discussion and Analysis or Plan of Operation.
Certain
statements in this Form 10-KSB 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
has
made investments in, and anticipates making further investments in, strategic
businesses that either operate or intend to operate in the nuclear, automotive
and aviation industries in Russia. In addition, the Company has, and will
continue to, either develop and market, or license and market, internationally,
technologies related to the nuclear industry. NNRF has invested in
companies currently operating in the nuclear and automotive industries in Russia
and has entered into a joint venture with a Russian company, the Engineering
Center for Nuclear Containers, to design and develop containers for
transportation and long term storage of high level radioactive waste. Further,
the Company presently has technologies that it has either licensed or acquired
in the areas of nuclear safety and remediation, wastewater treatment, and power
quality. NNRF has, and will continue to, market and either distribute to
resellers or sell the products and services related to the foregoing
technologies in various international markets. During 2007, NNRF concentrated
its international sales and marketing efforts in Europe. NNRF has offices in
Moscow, Russia and Munich, Germany.
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.
During
2007 we completed the purchase of 50% of ATOLL, a manufacturer
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 revenues
and profits in fiscal year 2008 based on the existing on-hand orders of ATOLL.
We completed the due diligence phase of our proposed acquisitions of 25.5%
of
JSC Electroprivod and 25.5% of Velcont, and are currently considering other
potential acquisitions in the RF.
In
November 2007 we entered into a 50-50 joint venture with the Moscow based
Engineering Center for Nuclear Containers to design and develop containers
designed for the transportation and long term storage of high level radioactive
waste.
Our
scientific group developed our radiation blocking and shielding product line
FEECOM/BIECOM and commenced limited commercial production of these products.
In
addition our group developed a unique flexible version of this product called
Bicoflex. This product has specific applications for use in the manufacture
of
radiation garments and the Company has been in discussions with European
manufacturers for the supply of this product. The users of these products are
nuclear and medical facilities
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 Fiscal Year Ended December 31, 2007 and December 31,
2006.
Revenues.
For
the
fiscal year ended December 31, 2007, revenues were $NIL as compared to $5,343
at
December 31, 2006. Cost of sales was $NIL during the year ended December 31,
2007, and gross profit was $NIL during the period. Cost of sales was $1,615
during the year ended December 31, 2006, and gross profit was $3,728 during
the
period.
Operating
Expenses.
During
the fiscal year ended December 31, 2007, general and administrative expenses
totaled $7,101,548 as compared to $7,153,429 for the period ended December
31,
2006. The general and administrative expenses during 2007 principally related
to
non-cash items consisting of the issuance of shares of common stock as payment
for services of $3,230,225 and stock-based compensation related to the issuance
of options of $3,492,566. Foreign currency exchange loss was $NIL during the
fiscal year ended December 31, 2007 and $5,558 during the fiscal year ended
December 31, 2006.
Interest
Expense.
Interest expense was $14,706,771 during the fiscal year ended December 31,
2007.
Interest expense was $5,072,484 during the fiscal year ended December 31, 2006.
Significant items included interest expense for 2007 related to various non-cash
items, including $4,847,482 in fair value of warrants issued to pledgees in
connection with the credit facility provided by Professional Offshore
Opportunity Fund, Ltd.; $3,325,299 in the excess of fair value of shares issued
to pledgees in connection with the credit facility; and $3,671,644 in
amortization of loan debt issuance costs.
Equity
Income from ATOLL. During
the fiscal years ended December 31, 2007 and 2006, income recognized from the
Company’s investment in ATOLL was $5,662,717 and $39,780, respectively. The
increase is related to the increased ownership in ATOLL and an increase in
ATOLL’s net income.
Net
Loss.
For the
fiscal year ended December 31, 2007, net loss was $16,145,602 as compared to
net
loss of $12,187,963 for the fiscal year ended December 31, 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 outpace operating expenses in 2008 and result
in
net income for fiscal year 2008.
Liquidity
and Capital Resources.
At
December 31 2007, our principal source of liquidity consisted of $73,248 of
cash, as compared to $130,249 of cash at December 31, 2006. As of December
31,
2007, we had working capital deficit of $58,085, as compared to a working
capital deficit of $363,880 at December 31, 2006. In addition, our stockholders’
equity was $10,825,407 at December 31, 2007, as compared to $375,590 at December
31, 2006.
Our
operations used net cash of $2,215,946 during the twelve months ended December
31, 2007, as compared to $893,863 during the twelve months ended December 31,
2006.
Investing
activities for the year ended December 31, 2007 used net cash of $1,523,142,
as
compared to cash used of $1,161,591 in the twelve months ended December 31,
2006. The majority of the cash used in the fiscal year ended December 31, 2007
related to the purchase of 36.75% of ATOLL and 3% of Velcont.
Financing
activities provided $3,682,116 during the twelve months ended December 31,
2007,
as compared to $2,162,060 during the twelve months ended December 31, 2006.
The
majority of the financing provided during the fiscal year ended December 31,
2007 related to proceeds from our private placement of 8% convertible promissory
notes.
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 $15,000,000 to fund the JSC
Electroprivod and Velcont acquisitions, our investment in our container joint
venture, and additional equipment for ATOLL. While we hope to achieve some,
or
all, of the foregoing through cash flow, there is no assurance that we will
be
successful in doing so. To the extent we are not, we will require additional
capital to achieve our long-term business objectives. 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.
Off
Balance Sheet Arrangements
We
have
no off-balance sheet arrangements.
Qualitative
and Quantitative Disclosures About Market Risk
In
the
future, we anticipate deriving the large majority of our revenues from foreign
markets, thereby subjecting us to potential foreign currency exposure risks.
In
addition, given that a significant portion of our current business is located
in
Russia, we are subject to potential uncertainty when doing business therein,
including political, economic and other uncertainties, a major change in any
of
which could subject us to significant exposure.
Going
Concern Qualification
The
Company's independent auditors have included an explanatory paragraph in their
report on the December 31, 2007 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 December 31, 2007, the Company has incurred a net loss of
$28,587,870 and has generated minimal 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,
including receipt of cash dividends from ATOLL. If the Company is unable to
generate sufficient revenues and cash flows to meet its costs of operations,
it
will be forced to raise additional capital in the form of debt or equity, which
may or may not be available, the result of which would dilute the stockholders
of the Company, and the Company 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 through the twelve months ended December
31, 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’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 and periodic replacement
of equipment therein, remediation of nuclear and radioactive waste, wastewater
treatment, and power quality, among others, 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
a short period of time, and the Company will require additional funding
near-term and in the future to achieve all of its proposed objectives. 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, the 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, among others, 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 the 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. 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 the Company’s we have invested in, or plan to invest
in, our joint venture partners, 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
are, and 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 what we anticipate will be a rapidly increasing production
schedule.
The
Company will need to sell additional securities to finance future growth, which
will dilute our stockholders’ equity interests.
Our
business strategy includes expansion through internal 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, as well as, 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 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 cannot provide any assurance that we will be able to afford
a
sufficient level of environmental liability insurance, if it were offered to
us.
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’s two executive officers who serve
on the board of directors of ATOLL intend to have ATOLL 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 management. In particular, Peter Goerke,
Executive Vice President and Secretary, J.P. Todd Sinclair, Chief Financial
Officer, Dr. Valery Lebedev, Chief Scientific Officer, and Dr. Hans-Jürgen
Engelmann, Director of Project and Sales Division, Shielding and Encapsulation
EU. The Company’s performance also depends on our ability to attract, retain and
motivate additional key employees. The loss of the services of Messrs. Goerke,
Sinclair, Lebedev, 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.
Messrs.
Goerke and Sinclair are members of the board of directors of ATOLL and spend
a
measurable amount of time on ATOLL matters. 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 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 December 31, 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. The 2007 Stock Option and Incentive
Plan must still be approved by a majority of the stockholders of the Company
at
the next annual stockholders meeting.
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 limited market for the securities of the Company at this
time.
Our
common stock currently trades on the Pink Sheets and there is a 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.
Sarbanes-Oxley
Act of 2002.
In
future
periods, we will be required to evaluate our internal controls under Section
404
of the Sarbanes-Oxley Act of 2002 (“SOX”), and any adverse results from such
evaluation could result in a loss of investor confidence in our financial
reports and have an adverse effect on the price of our shares of common stock.
For the fiscal year ended December 31, 2007, we were not required to assess
our
system of internal controls. Pursuant to Section 404 of SOX, in the near future,
smaller reporting companies, such as NNRF, Inc. will be required to furnish
a
report by management on our internal controls over financial reporting.
This report will contain among other matters, an assessment of the
effectiveness of our internal control over financial reporting, including a
statement as to whether or not our internal control over financial reporting
is
effective. This assessment must include disclosure of any material
weaknesses in our internal control over financial reporting identified by our
management. This report must also contain a statement that our auditors
have issued an attestation report on our management’s assessment of these
internal controls. Public Company Accounting Oversight Board Auditing
Standard No. 2 provides the professional standards for auditors to attest to,
and report on, our management’s assessment of the effectiveness of internal
control over financial reporting under Section 404.
We
cannot
be certain that we will be able to complete our assessment, testing and any
required remediation in a timely fashion. During the evaluation and
testing process, if we identify one or more material weaknesses in our internal
control over financial reporting, we will be unable to assert that such internal
control is effective. If we are unable to assert that our internal control
over financial reporting is effective (or if our auditors are unable to attest
that our management’s report is fairly stated or they are unable to express an
opinion on the effectiveness of our internal controls), we could lose investor
confidence in the accuracy and completeness of our financial reports, which
could have a material adverse effect on our stock price.
Failure
to comply with the new rules may make it more difficult for us to obtain certain
types of insurance, including director and officer liability insurance. We
may be forced to accept reduced policy limits and coverage and/or incur
substantially higher costs to obtain the same or similar coverage. The
impact of these events could also make it more difficult for us to attract
and
retain qualified persons to serve on our board of directors, on committees
of
our board of directors, or as executive officers.
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 bylaws 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, if applicable, 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
7. Financial Statements.
NNRF,
INC. AND SUBSIDIARIES
(A
Development Stage Company)
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
Page
|
| |
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2 |
| |
|
|
|
Consolidated
Balance Sheets
|
|
F-3 |
| |
|
|
|
Consolidated
Statements of Operations
|
|
F-4 |
| |
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
|
F-5 |
| |
|
|
|
Consolidated
Statements of Cash Flows
|
|
F-6 |
| |
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-7 |
|
HANSEN,
BARNETT & MAXWELL, P.C.
A
Professional Corporation
CERTIFIED
PUBLIC ACCOUNTANTS
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 consolidated balance sheets of NNRF, Inc. and
subsidiaries (a development stage company) as of December 31, 2007 and 2006
and
the related consolidated statements of operations, stockholders’ equity, and
cash flows for the years then ended and for the period from August 25, 2005
(date of inception) through December 31, 2007. 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. The Company was not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. 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 NNRF, Inc. and subsidiaries
(a development stage company) as of December 31, 2007 and 2006 and the results
of their operations and their cash flows for the years then ended and for
the period from August 25, 2005 (date of inception) through December 31, 2007
in
conformity with accounting principles generally accepted in the United
States.
The
accompanying consolidated 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 no sales from its planned
operations, has experienced losses from operations and has had negative cash
flows from operating activities since inception. 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
April
14,
2008
NNRF,
Inc.
CONSOLIDATED
BALANCE SHEETS
|
|
|
December 31,
|
|
December 31,
|
|
| |
|
2007
|
|
2006
|
|
| |
|
|
|
As Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
73,248
|
|
$
|
130,249
|
|
|
Prepaid
expenses and other current assets
|
|
|
276,059
|
|
|
6,249
|
|
|
Total
Current Assets
|
|
|
349,307
|
|
|
136,498
|
|
|
Furniture
and Equipment, net of accumulated depreciation of $4,015 and $3,415
at
December 31, 2007 and 2006, respectively
|
|
|
6,329
|
|
|
9,442
|
|
|
Deferred
loan costs, net of accumulated amortization of $66,579 at December
31,
2006
|
|
|
-
|
|
|
307,881
|
|
|
Equity
method investment in ATOLL
|
|
|
10,352,228
|
|
|
1,206,030
|
|
|
Investments,
at cost
|
|
|
525,655
|
|
|
-
|
|
|
Total
Assets
|
|
$
|
11,233,519
|
|
$
|
1,659,851
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
136,413
|
|
$
|
133,128
|
|
|
Management
fee payable
|
|
|
230,816
|
|
|
271,625
|
|
|
Accrued
interest
|
|
|
1,842
|
|
|
56,584
|
|
|
Shareholder
advances
|
|
|
39,041
|
|
|
39,041
|
|
|
Total
Current Liabilities
|
|
|
408,112
|
|
|
500,378
|
|
| |
|
|
|
|
|
|
|
|
Long-Term
Convertible Notes Payable, net of unamortized discount of $1,165,617
at
December 31, 2006
|
|
|
-
|
|
|
783,883
|
|
|
Total
Liabilities
|
|
|
408,112
|
|
|
1,284,261
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
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; 47,008,810
shares
and 33,529,406, shares issued and outstanding,
respectively
|
|
|
47,009
|
|
|
33,529
|
|
|
Additional
paid-in capital
|
|
|
39,052,399
|
|
|
12,787,497
|
|
|
Deficit
accumulated during the development stage
|
|
|
(28,587,870
|
)
|
|
(12,442,268
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
313,869
|
|
|
(3,168
|
)
|
|
Total
Stockholders' Equity
|
|
|
10,825,407
|
|
|
375,590
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
11,233,519
|
|
$
|
1,659,851
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
NNRF,
Inc.
CONSOLIDATED
STATEMENT OF OPERATIONS
| |
|
|
|
For the Period from
|
|
| |
|
|
|
August 25, 2005
|
|
| |
|
For the Year Ended
|
|
(Date of Inception)
|
|
| |
|
December 31,
|
|
through
|
|
| |
|
2007
|
|
2006
|
|
December 31, 2007
|
|
| |
|
|
|
As Restated
|
|
|
|
|
Sales
|
|
$
|
-
|
|
$
|
5,343
|
|
$
|
5,343
|
|
|
Cost
of Sales
|
|
|
-
|
|
|
1,615
|
|
|
1,615
|
|
|
Gross
Profit
|
|
|
-
|
|
|
3,728
|
|
|
3,728
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
7,101,548
|
|
|
7,153,429
|
|
|
14,508,995
|
|
|
Foreign
currency exchange loss
|
|
|
-
|
|
|
5,558
|
|
|
5,845
|
|
|
Total
Operating Expenses
|
|
|
7,101,548
|
|
|
7,158,987
|
|
|
14,514,840
|
|
|
Operating
Loss
|
|
|
(7,101,548
|
)
|
|
(7,155,259
|
)
|
|
(14,511,112
|
)
|
|
Interest
expense
|
|
|
(14,706,771
|
)
|
|
(5,072,484
|
)
|
|
(19,779,255
|
)
|
|
Equity
in income from ATOLL
|
|
|
5,662,717
|
|
|
39,780
|
|
|
5,702,497
|
|
|
Net
Loss
|
|
$
|
(16,145,602
|
)
|
$
|
(12,187,963
|
)
|
$
|
(28,587,870
|
)
|
|
Basic
and Diluted Loss per Share
|
|
$
|
(0.39
|
)
|
$
|
(0.44
|
)
|
|
|
|
|
Basic
and Diluted Weighted-Average Common Shares
Outstanding
|
|
|
40,954,215
|
|
|
27,693,415
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
NNRF,
Inc.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
For
the period from April 25, 2005 (Date of Inception) through December 31,
2005 and
for the Years ended December 31, 2006 and 2007
|
|
|
|
|
|
|
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 (Restated)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,187,963
|
)
|
|
-
|
|
|
(12,187,963
|
)
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,168
|
)
|
|
(3,168
|
)
|
|
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,191,131
|
)
|
|
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
|
|
|
| |