SPRAY FOAM INSULATION MARKET OVERVIEW According to some studies tthe insulation market in North rth America is projected to be 11 billion dollars in 2012. The Market is broken down into the following insulation types – USA - Insulation Market

Based on this data the he Spray Applied Polyurethane Foam Insulation segment is estimated* at 990 million illion dollars. * 9% of $11,000,000,000 = $990,000,000 0,000

The Spray Applied Polyurethane Foam (SPUF) is one of the fastest growing segments in the insulation market - estimated at an annual growth rate of almost 5%. As the product grows in acceptance and use – safety requirements continue to be reviewed and updated. SP SPUF,, like most other organic materials, is combustible. SPUF’s, while formulated w with flame-retardants to decrease the flame spread and control the burning characte characteristics is not sufficient alone. To address the fire safety of SPUF, the International Code Council (ICC) has written AC 377, the Acceptance Criteria for Spray-Applied Applied Foam Plastic Insulation.. This document ultimately classifies and details what testing is necessary to safely apply the SPUF. Copies of this document are available at the ICC ICC-ES website www.ICC-ES.org. In most cases the SPUF must be covered with sheetrock or a Thermal / Ignition Barrier – this is prescribed by the ICC. About the ICC - The International Code Council is a member member-focused focused association dedicated to helping the building safety community and construction in industry dustry provide safe, sustainable and affordable

construction through the development of codes and standards used in the design, build and compliance process. Most U.S. communities and many global markets choose the International Codes. The International Codes, or I-Codes, published by ICC, provide minimum safeguards for people at home, at school and in the workplace. The I-Codes are a complete set of comprehensive, coordinated building safety and fire prevention codes. Building codes benefit public safety and support the industry’s need for one set of codes without regional limitations.

The foam industry response to AC-377, under the direction of the Spray Polyurethane Foam Alliance (SPFA), published AY-126 Thermal Barriers And Ignition Barriers For The Spray Polyurethane Foam Industry to provide a more detailed overview and explanation of the ICC requirements. These documents help the industry understand and comply with the safety requirements of applying SPUF. Copies of this document are available at the SPFA website http://www.sprayfoam.org/. About the SPFA - Founded in 1987 originally as the Polyurethane Foam Contractors Division, the Spray Polyurethane Foam Alliance (SPFA) is the voice, along with the educational and technical resource, for the spray polyurethane foam industry. Our experienced staff and member-comprised committees provide a wide variety of services to the industry. SPFA develops tools designed to educate and influence the construction industry with the positive benefits of spray polyurethane foam roofing, insulation, and climate control systems. Although the SPFA is a completely independent trade association, we have a strong relationship with the American Chemistry Council (ACC) and the Center for Polyurethanes Industry (CPI). These groups have assisted the SPFA to better serve the spray polyurethane foam industry's business needs on local and statewide issues.

The result of these code requirements are that a percentage of the SPUF applied in the insulation market, for both commercial and residential applications, require the use of a Thermal or Ignition Barrier, like Flame Seal TB. This percentage varies based on the current enforced code. Based on our estimates, the current codes require the application of a Thermal Barrier over approximately 30% of all commercial applications and an Ignition Barrier over approximately 10% of all residential applications. The basic difference in the two barrier types is the Thermal Barriers require a thicker coating (25 mils for FS TB) versus the Ignition Barrier (410 mils depending on the foam brand). The relevant market size determined as part of this evaluation consider the above the application percentages.

SPUF Market There are two common SPUF types – Closed Cell – that is 1.75# foam - Open Cell which is a 0.5# Foam. In general terms, CC Foam is gaining popularity – as the product provide a much higher R value per sq/ft, increases the dimensional strength of the structure, and can provide a moisture/vapor barrier. The foam types used in most structures are determined at the discretion of the building owner, design professional or homeowner. Price is a major factor in this decision. Most foam companies manufacture both types of foam. The table below details the estimated sales break down of the foam manufacturers SPUF type.

SPUF Sales by Foam Type and Manufacturer

Foam Manufacturer

Closed Cell % of Sales

Open Cell % of Sales

BASF Bayer Bio Based CertainTeed Demilec Dow Gaco Icynene Lapolla NCFI Premium Other

90%

10%

70%

30%

50%

50%

70%

30%

50%

50%

90%

10%

70%

30%

20%

80%

60%

40%

70%

30%

20%

80%

50%

50%

In most commercial applications Closed Cell Foam is utilized, while in residential applications Open Cell Foam is predominantly sprayed. This is changing as Closed Cell Foam is gaining market share.

The table below contains the estimated market share of the foam manufacturer. The data is based on our calculated sq/ft applied for both commercial and residential applications combined.

Manufacture SPUF Market Share

SPUF Market Share by Manufacturer Lapolla 8%

NCFI 4%

Premium 1%

Other 3% BASF 22%

Icynene 16%

Gaco 3% Dow 4%

Bayer 8%

Demilec 17%

Bio Based 6% Certainteed 8%

Three manufactures (BASF, Demilec, Icynene) make up almost 60% of the total market. BASF SF has focused on supporting the Commercial market segment, while Demilec and Icynene have developed strong business in the Residential market segment. In both Commercial and Residential applications the Thermal or Ignition Barrier is a requirement when the foam is exposed and/or can come in human contact i.e. Attic Storage. In the case of a commercial structure – this is a more straightforward determination - iss the SPUF exposed? Most design professional are conservative and require and d specify a Safety Coating. These Specifications are very important as they can be taken directly from the information provided by the Foam Manufacturers. The key here is important to note – If a Safety Coating is Spec’ed into a Foam Manufacturers Speci Specifications – this greatly improves the chances a Design Professional will REQUIRE it’s use on a project. In the case of Residential application, it can be more complicated – in Attics or Crawl Spaces – is there ingress/egress ngress/egress is there storage? In most cases ses the applicators makes this recommendation – unfortunately, price becomes a factor here as many applicators do not prescribe a safety coating due to the increased cost. These issues are on the forefront of the SPFA, as they recognize the long long-term liability ility of this type of recommendations. Ultimately, the local Fire Official Officials, have the jurisdiction to make this determination – so education is paramount.

A detailed estimate of the sq/ft applied by foam manufacturer, type of foam and target segment is listed below. SPUF Market by Foam Manufacturer and Market Segment

Foam Manufacturer BASF Bayer Bio Based CertainTeed Demilec Dow Gaco Icynene Lapolla NCFI Premium Other Total % Market Total

Commercial CC Sq/Ft

Residential CC Sq/ft

122,400,000

30,600,000

24,285,714

8,400,000

33,600,000

25,714,286

5,000,000

20,000,000

35,714,286

16,800,000

25,200,000

25,714,286

19,500,000

45,500,000

92,857,143

3,150,000

28,350,000

5,000,000

3,500,000

10,500,000

8,571,429

3,600,000

20,400,000

137,142,857

7,200,000

28,800,000

34,285,714

6,300,000

14,700,000

12,857,143

50,000

950,000

5,714,286

625,000

11,875,000

17,857,143

196,525,000 22.01%

270,475,000 30.30%

Residential OC Sq/Ft

425,714,286 47.69%

The Residential market makes up over 75% of the total applied SPUF by sq/ft. It is estimated that only 8% of all SPUF sprayed in residential applications require a Thermal or Ignition Barrier. The most important market for our Safety Coating is the Commercial Building segment. As previously noted - this segment requires coverage on 22% of all square footage applied. In many cases the commercial building market is serviced and the SPUF is applied by the larger and well-established applicators.

The Chart below details the Commercial Market Share by Applicator.

Commercial Application by Manufacture Sq/Ft Gaco 2%

Icynene 2%

Lapolla 4%

NCFI Premium 0% 3% Other 0%

Dow 2% Demilec 10%

Certainteed 9% BASF 62%

Bio Based 2% Bayer 4%

BASF controls the majority of this market. They have done an excellent job targeting this commercial segment. They support the entire industry, including the Design Professionals, Applicators, and Code Officials. They have established their products as the key SPUF for commercial applications. They have also built a wellwell defined network of trained applicators. Some key points about Flame Seal TB •

Flame Seal is currently written in the Specifications for Bayer Bayseal Foam – for both Commercial and Residential construction.

•

Flame Seal has developed an On On-Line Line training program that was developed to train the applicators on applying Flame Seal TB.

•

Flame Seal has written its own Specification for the use of Flame Seal TB as a Thermal or an Igniti Ignition Barrier.

•

Flame Seal TB,, like all Prescribed Thermal Barriers, can only be applied over any specific foam once the product has been approved over that individual foam. Independent test must be successfully run run, documented and certified in advance of application plication over the SPUF.

•

Flame Seal is currently ac accredited as an ICC Certified - Thermal Barrier over the following manufacturers – BASF, Bayer and Dow, and, as an ICC Certified – Ignition Barrier over the following manufacturers - Bio Based, CertainTeed, CertainTee Icynene and Touch-and and-Seal.. Flame Seal has also been tested over

Certainteed and Bio Based as a Thermal Barrier and is actively working with the entire group of Foam Manufacturers to achieve these important certifications, including ICC ESR Reports. o It is also important to point out that several Foam Manufacturers have developed their own Ignition Barrier, because that particular test is fairly easy to pass. This is why Flame Seal’s primary focus in the Thermal Barrier aspect of this Market.

Thermal and Ignition Barrier Market The Thermal and Ignition Barrier market is a portion of the entire SPUF industry, which is defined by the code requirements. Only certified safety products, over a specific foam brand, allow for SPUF to be applied any commercial or residential application that requires a Thermal or Ignition Barrier. The data below is an estimate of the market size in US dollars of the Safety Coating Market, based on the information reviewed in this document. Thermal Barrier Market Size by Manufacturer

Foam Manufacturer

BASF Bayer Bio Based Certainteed Demilec Dow Gaco Icynene Lapolla NCFI Premium Other Total

FS TB Market Potential Commercial CC

FS TB Market Potential for Residential OC

Total Relevant Market

$23,884,283

$896,091

$24,780,375

$1,688,788

$977,554

$2,666,342

$904,708

$1,221,943

$2,126,651

$3,377,575

$977,554

$4,355,130

$3,845,008

$3,462,171

$7,307,179

$678,531

$203,657

$882,188

$791,619

$366,583

$1,158,202

$678,531

$4,887,771

$5,566,302

$1,447,532

$1,303,406

$2,750,938

$1,266,591

$488,777

$1,755,368

$15,078

$325,851

$340,930

$113,088

$610,971

$724,060

$38,691,332

$15,722,331

$54,413,664

* This data is based on our coverage rates (65 sq/ft gallon) and average coast per gallon of $45.

The Thermal and Ignition Barrier market (Relevant Market) is estimated at over $72,000,000 and growing. The key to the market is the relationship with the

Manufacturers, their Dealers and the National Applicators. BASF has the largest market share of Foam (22%) and Commercial Business (122 million sq/ft) and the need for a Safety Coating (over $23,000,000).

Competitors There are several competitors in the market, including three that offer Intumescent Coatings, and others that offer Cementitious type products. The key competitors are IFTI, No Burn and TPR2 with the Intumescent Coatings and K-13 and Ure-K with the Cementitious type products. At this time we do not have much data on the market share of these competitive products, we are aware that the Foam Manufacturers have established relationships with some of these competitors and can extrapolate sales of some of these competitive products. Here is a brief list of competitive products along with a short overview.

Competitive Products

Overview Example: International Cellulose Corporation (ICC) is the world’s leading manufacturer of cellulose spray-applied thermal insulation and acoustical finishes. International Cellulose has developed a number of cellulose products such as K-13, SonaSpray “fc”, SonaKrete, Ure-K, Protek13, and Celbar.

Cellulose / Cementitious Materials

Fire Retardants

Cellulose and/or Cementitious insulation materials as a Thermal Barrier are not a preferred solution for customers due to the fact that the finished surfaces are extremely irregular, and they flake and crack over time. Since the Polyurethane Foam insulation has a much more appealing appearance, it is difficult to sell customers or contractors on the idea of downgrading the finished appearance, as well as changing a solid surface to one that flakes and falls off in places over time. Further, thorough cleaning the surface of these types of insulation is extremely difficult, if not impossible.

Fire Retardants, Inc. specializes in fire retardant paint, varnish, coatings and solutions for fabric, paper, wood, metal and many other surfaces. Capable of providing “Ignition Barrier” protection for SPUF, but not Thermal Barrier compliance.

PPG Fire Protective Coatings

PPG offers a broad product line of fire protective coatings including traditional thick-film, a new thin-film coating alternative as well as a fireretardant flat latex paint. Capable of providing “Ignition Barrier” protection for SPUF, but not Thermal Barrier compliance. FIRESHELL® (F10E) is a proprietary nonflammable, intumescent, interior LATEX coating.

TPR2

IFTI

No Burn

Capable of providing “Ignition Barrier” protection for SPUF, but not true Thermal Barrier compliance. (TPR2 has not passed a Thermal Barrier test in precise accord with both the IBC codes AND the Room Corner Test protocol. Ex: F10E was tested on wood studded walls, which according to IBC codes only qualifies for use on “wood studded walls”, which only exist in homes that will be sheet rocked. Therefore, for virtually all industrial applications, the testing does not match the requirements. DC315 is a single component, LATEX, spray applied, intumescent coating for use in thermal and ignition barrier applications over spray applied polyurethane foam insulation. Capable of providing “Ignition Barrier” protection for SPUF, but not true Thermal Barrier compliance. (DC315 has not passed a Thermal Barrier test in precise accord with both the IBC codes AND the Room Corner Test protocol. Ex: All Thermal Barrier tests have wood studded walls, which, according to IBC codes only qualifies for use on “wood studded walls”, which only exist in homes that will be sheet rocked. Therefore, for virtually all industrial applications, the testing does not match the requirements.

Fire resistant coatings technology, since 1998, No-Burn®, Inc. (NBI) has manufactured and distributed fire retardant coatings and intumescent paints. Capable of providing “Ignition Barrier” protection for SPUF, but not Thermal Barrier compliance.

Channels to Market Due to the complex nature of the SPUF market and the unique type and number of competitors many channels to market have developed. Each manufacturer has created their specific marketing strategy. In a few cases the Foam Manufacturer sells the FR coating directly to the Applicator. In most cases the Foam Manufacturer makes recommendations to the dealers and applicators. In all cases – the Safety Coating must be pre-qualified by an independent lab to be accepted by the local Fire Official. There are also thousands of applicators representing sole proprietorships, regional applicators and national applicators, all apply spray foam and need to utilize either a Safety Coating. This market structure has created various opportunities to market Flame Seal TB. There are 6 market channels we intend to explore. •

Foam Manufacturers

•

Architects and Architectural Organizations

•

National Applicators

•

Regional and Local Applicators

•

Re-sellers

•

Third Party Manufacturers – Re-Brand.

Each channel will require a unique program to establish a market presence. The most important program to establish is acquiring certification with the Foam Manufacturers. Without this certification marketing the FS TB to their customers is unproductive. It is also important to work with the manufacturers to get the FS-TB spec’ed into their Architectural Specification information. Once we are specified into their specifications, we can present this information to the Applicators to support the application of our product into both commercial and residential applications. The relationship with the Applicators is another key program that requires significant support. The training program is the center piece of this effort – as once we Certify the Applicators and demonstrate the many support services we offer – this relationship will provide a strong basis to support market growth. In addition to these market channels – we can start to develop a presence with the Architectural Community – by provided Lunch and Learn seminars – highlighting

the use and benefits of applying FS TB over Foam. Finally, we can also begin to inform and educate the many State Fire Marshals of the FS TB.

Foam Manufacturers The Foam manufacturers support the SPUF market to varying degrees depending upon their specific marketing program. In some cases – the manufacturer sells the SPUF to Applicators or Dealers, while in other cases, the manufacturers has an application division, which applies to SPUF under their responsibility. In terms of the Thermal and Ignition Barrier, the Foam Manufacturers support varies even further. The key issue with the Foam manufacturers is that AC-377 requires each SPUF brand to be certified with a specific Thermal and Ignition Barrier.

National Applicators There are several National Applicators who apply SPUF. In many cases these companies have been involved in the insulation industry and have expanded into the Foam Insulation market. These companies are very important to the industry and have outlets in many locations throughout the United States. Flame Seal is working with several of these to establish a working relationship with their organizations. This includes establishing credit terms, offering corporate wide training, providing on site audits as necessary. We have established an agreement with Service Partners, the largest distributor of materials and supplies in the Insulation Industry in the United States. Through Service Partners, we have an indirect relationship with their mother company, Masco, which is the largest National Applicators organization in North America. Masco sprays BASF foam and has asked us to coordinate with Quadrant for certification.

Regional Applicators Similar to the National Applicators the Regional Applicators are very strong in specific Regions throughout the United States. These companies need training and support, much like the larger companies. In addition to the Regional groups, there are many independent applicators that also need training. The Webinar is an important part of our efforts to secure professional and trained applicators throughout the USA.

Re-Sellers This is a very important group as they provide purchasing power to the myriad of smaller Applicators. Many applicators purchase very small quantities, and freight cost add significant cost when ordering small volumes. These Re-Sellers order in Bulk and market the products to their local customers – they provide the product at

a profit – but typically less than the freight cost for the applicator and they have the advantage of offering credit terms to many of the small local applicators. Currently, we are working with several potential re-sellers in the North East.

Third Party Resell This is a very small segment of the industry that operates as a Branded Wholesaler Applicator. The companies do not manufacture any products but offer superior service and support to the market. This niche market is growing as the market matures. Currently, we are working with one of these companies, TVM.

The Future of the SPUF Industry (excerpt from an internet article) Because of the slump, the contribution of residential construction to insulation demand fell from $3.3bn in 2004 to just $2bn in 2009, and total demand for fiberglass insulation (including industrial, heating, ventilation and air conditioning and other non construction applications) likewise declined from $4.0bn to $3.3bn. During the same period, insulation demand from the more vibrant nonresidential construction sector grew from $2.5bn to $2.9bn, and total demand for foamed plastic insulation increased from $3.2bn to $3.4bn. For the same reason, however, fiberglass also will benefit disproportionately from the recovery of residential construction, says the study, which forecasts that demand for fiberglass insulation will grow at an average annual rate of 9.1% from 2009-2014. The consumption of foamed plastic insulation materials, on the other hand, is projected to grow at 5.3% annually to $4.4bn in 2014. "As a result, fiberglass will once again become the leading insulation material in use in value terms, after briefly falling behind foamed plastic in 2009," the study concludes. Rigid urethanes comprise the largest segment of the total foamed plastic insulation market, according to the Freedonia study, which says urethanes accounted for 70% by weight of foamed plastic demand in 2009. PS accounted for another 27%. (See table.) Germany-based Bayer Material Science (BMS), a major supplier of PU raw materials and systems for the thermal insulation of residential and industrial buildings, expects sales of PU products to outperform the alternatives. "All in all, Bayer Material Science expects the PU markets related to [the construction] industry to grow by 6-8% on average in 2011," says Richard Northcote, head of strategic communications for the company. "This forecast is primarily based on a substitution of other insulation materials by PU rigid foam - due to its outstanding insulation performance - and an additional

trend to increase the thickness of the PU insulation layers due to increasing requirements regarding the energy efficiency of buildings." Other major players in PU insulation include US-based Huntsman, Dow and Cargill, and Germany-based BASF. Huntsman is a producer of methyl di-p-phenylene isocyanate (MDI), a key raw material. Dow produces isocyanates (MDI and toluene di-isocyanate, TDI) and polyols, the other key raw material for PUs. Cargill produces soy-based polyols. BASF produces both isocyanates and polyols, and is a major player in EPS insulation. The company also supplies a small but growing market for Basotect, a melamine-based foam used mainly for acoustic insulation, but increasingly for applications that require both acoustic and thermal insulation, such as train stations and aircraft. NEW BUILDING CODES
 Demand for such materials will be dramatically affected by imminent changes to US building codes, says Jack Armstrong, leader construction markets North America at BASF. Late last year, the basis for these codes - the International Code Council's International Energy Conservation Code - was modified, he explains. The new version, which will be issued in 2012, requires new and renovated homes and commercial buildings to use 30% less energy than those built to current standards. Other changes in the code include requiring continuous air barriers for the building envelope of commercial buildings and mandatory air infiltration tests on residential buildings to ensure envelope efficiency. Both favor demand for rigid foam insulation, he says. Consumption of fiberglass insulation may not decline in absolute terms, he adds, but PU and EPS foams will quickly gain share. "We'd expect to see a low double-digit increase in the amount of insulation used for each unit," says Armstrong. Similar changes are taking place around the world, even in Asia, he notes. "We see, especially in Canada and northern Europe, very, very strong mandates toward building performance," For example, a new EU directive requires that all residences must be net zero energy buildings by 2021; and commercial buildings must be net zero energy by 2019. Some member states are even advancing the deadlines.