Back to GetFilings.com
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________
Commission File Number: 0-19945
NoFire Technologies, Inc.
-------------------------
(Name of small business issuer in its charter)
Delaware 22-3218682
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Industrial Avenue, Upper Saddle River, New Jersey 07458
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 818-1616
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.20 per share
Page 1
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by the Court.
YES X NO___
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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___
Check if there is no disclosure of delinquent filers contained in this
form in response to Item 405 of Regulation S-B, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of the Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its fiscal year ended August 31,2003 $427,784
Aggregate market value of the voting stock held by $ 3,092,620
non-affiliates as of December 12, 2003
Number of shares of common stock outstanding as of as of
December 12, 2003 20,939,019
Documents incorporated by reference:
NONE
Transitional small business disclosure format.
YES___ NO X
Page 2
PART I
Item 1. DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY; REORGANIZATION
NoFire Technologies, Inc. ("NoFire" or the "Company") is a development
stage company engaged in the development, manufacture and marketing of
fire retardant, intumescent products. The Company was organized under
the laws of the State of Delaware on July 13, 1987.
Under a Chapter 11 proceeding, the Bankruptcy Court confirmed a Plan of
Reorganization for the Company, which became effective on August 11, 1995.
Claims of creditors, to the extent allowed under the Plan, were required
to be paid over a four year period. (See Note 4 to Financial Statements.)
BUSINESS OF THE COMPANY
The business of the Company is the development, manufacture and
marketing of fire retardant products and related consulting services.
The Company manufactures a liquid fire retardant for use as a coating
material, like paint, on many different kinds of substances to render
them fire and heat resistant. The product can be manufactured in various
liquid forms, specifically adapted for the particular substrate,
application and degree of protection required; or as a coated textile
product, typically a woven fiberglass material, coated with the NoFire
liquid product.
The NoFire liquid product belongs to a class of materials called
intumescents, which means that they expand in size when heated.
Intumescents, which have been produced since the 1950's, have a high
degree of fire retardation and add significant heat protection to a
coated surface upon expansion. The major performance characteristics of
intumescent products include: useful temperature range; degree of fire
and heat protection; adhesion to substrate; degree of toxicity in both
the liquid state and during combustion; amount of flame spread and smoke
developed during combustion; ease of application; durability; resistance
to weather; and price. Early intumescent products, as well as many current
products, have had significant deficiencies with respect to several of
these
important performance characteristics (primarily the degree of fire and
heat protection, useful temperature range, and/or toxicity) that have
limited their usefulness.
Page 3
The Company has developed intumescent products intended to eliminate or
minimize these deficiencies and (i) provide significant protection for a
wide range of substrates with relatively thin coats of fire protective
material, (ii) be useful over a wide temperature range and (iii) utilize
a water based, nontoxic formula. The NoFire products are manufactured
based on formulas that combine a fluid intumescent with fibers of various
sizes and types, which together provide the desired fire retardancy. The
NoFire liquid formulas are covered by three United States Patents and
corresponding patents and patent applications in over 30 foreign
countries. The United States Patents are:
No. 4,879,320 - Intumescent Fire-Retardant Coating Material,
issued November 7, 1989,
No. 4,965,296 - Intumescent Fire-Retardant and Electrically-
Conductive Coating Material, issued October 23,1990 and
No. 5,723,515 - Intumescent Fire-Retardant Composition for
High Temperature and Long Duration Protection, issued March 3,
1998.
The Company also has obtained United States Patents on certain
applications:
No. 5,985,385 - Fire and Heat Protection Wrap for Conduits, Cable
Trays, Other Electrical Transmission Lines and Gas and Oil
Pipelines, issued November 16, 1999
No. 6,048,805 - Fire, Heat and Back draft Protection Shield for
Firefighters, issued April 11, 2000
No. 6,074,714 - Fire and Heat Protection Wrap for Structural Steel
Columns, Beams and Open Web Joists, issued June 13, 2000
No. 6,114,003 - Insulation Blanket Having an Inner Metal Core Air
Cell and Adjoining Outer Insulation Layers, issued September 5,
2000
No. 6,510,807 - Pre-Fabricated Fireproof Bulkhead with Special
Interlocking Joints for a ship, issued January 28, 2003.
During fiscal 1999 the Company purchased from a non-affiliate the
Following United States Patent for $7,980:
No. 4,956,218 - Fire Protection Blanket, issued September 11,
1990.
The Company has submitted two additional patent applications to the
United States Patent Office.
Page 4
Although the Company believes its patents are valid and enforceable, in
the event of a challenge to their validity or an infringement of such
patents, the Company's limited financial resources may restrict its
ability to defend or enforce its rights under such patents in legal
proceedings.
The NoFire products are potentially useful on many different substrates,
including wood and wood products, metals (steel, aluminum, and various
alloys), certain plastics, fabrics and textiles (fiberglass, natural and
synthetic fibers). Industries that are presently using these types of
product or are evaluating applications for them include maritime,
military, nuclear power plants, construction, wood products manufacturing,
public and private housing, hotels, automotive, railway, and airports. In
developing these opportunities, the Company has passed numerous tests and
obtained various certifications for specific applications.
MARKETING/DISTRIBUTION
The Company markets its products using several different methods,
depending upon the applications, industry, product, or territory being
targeted. These methods include: direct marketing; use of independent
agents/distributors; and exclusive and nonexclusive licensing
arrangements. Because the Company has limited resources, it relies
primarily upon independent parties to market and distribute its products
In the past two fiscal years the Company has added distributors for
California, Hawaii, the South, Southwest and Middle Atlantic States, as
well as Europe, the Middle East, India, Korea, China and South East Asia.
COMPETITION
There are many types of fire retardant products in general use today
for many different applications. In addition to intumescent products,
ablative, insulative and cementitious products are used, depending on the
particular application, severity of fire retardant requirements, weight,
space restrictions, and cost. Competition for the NoFire products may
include all of these types of fire retardants and will depend on the
particular application targeted. Typically, each application has a
product or fire retardant technique of choice, which is usually the least
expensive fire protection that meets the necessary requirements. Among
the Company's primary competitors (products) are: W.R. Grace & Co.
(Monocote); Carboline Company (Pyrocrete, Pyrolite, Nullifire);
U.S. Gypsum (gypsum board); Stanchem Manufacturing (Albiclad); A/D
Fireproofing (A/D Firefilm); PPG Industries (PittChar); DuPont (Nextel);
Textron, Inc. (Chartek); Minerals Technology, Inc. (Firex); Herbert
Co.(Unitherm); and various wood coatings manufactured by Albi, American
Vamag, 3M, and DuPont. Such products may have a competitive advantage over
the NoFire products because they either have an established share of the
market, are well publicized and recognized, and/or are manufactured by
companies having far greater resources than the Company.
Page 5
SOURCES OF SUPPLY
The NoFire liquid products are a blend of numerous liquids and solids,
purchased from various third party suppliers. Several of such components
are currently available only from a small number of suppliers. In the
event that such suppliers were to terminate the manufacture or sale of
such components for any reason, then the manufacture of NoFire products
could be interrupted. The Company has developed alternative sources of
supply for components and intends to continue seeking additional
alternatives as the demand for its products warrants.
MAJOR CUSTOMERS
The Company's two largest customers during the most recent fiscal year
represented 36%, and 13% of total sales respectively. Sales to those
customers are expected to be an important part of future revenues, and
relations with them are good.
GOVERNMENT REGULATIONS AND APPROVALS; RESEARCH AND DEVELOPMENT
For most applications, fire retardant products are required to undergo
testing for approvals by government or independent laboratories. These
requirements are typically determined either by government agencies, such
as the U.S. Nuclear Regulatory Commission, U.S. Coast Guard or U.S. Navy;
or nationally recognized organizations, such as the American Society for
Testing and Material ("ASTM") or Underwriters Laboratories, Inc. ("UL");
or international organizations such as the International Maritime
Organization ("IMO").
Product development is continuing in many different areas. New products
have been approved and introduced into the market. Some of these products
are, SBarrier (structural steel fire protection), NoFire LP (lower price
high performance), and OEM products.
Various NoFire products have been tested and certified by independent
laboratories for various applications in the areas of: building materials
and construction (ASTM E84-87, UL94, UL723, UL746C, ASTM E152 and UBC 8-2);
transportation (NFPA 417, FAR 25.855(c)); utilities (ASTM E814-88 and IEEE
383); nuclear power plants (NRC Generic Letter 86-10 Supplement 1); and
high-speed ferries (IMO A.754(18)). In maritime, naval and other
government applications, products have been listed in the U.S. Navy's
Qualified Product List (QPL), were accepted for listing by the General
Service Administration for all U.S. Government applications, received type
approval according to the International Maritime Organization's SOLAS
codes by the U.S. Coast Guard and four of the world's major ship
registries, and were approved by Det Norske Veritas for distribution in
the European Community (EC). The Company also has state and city approvals
such as the states of California and Rhode Island and a MEA (Material
Equipment Acceptance) from the city of New York.
Page 6
The Company also conducts in-house fire and heat endurance tests
exclusively for research and development and feasibility studies. These
tests are used to develop applications and solutions to problems, but are
not a substitute for tests by independent laboratories or government
agencies that are generally required before the product can be sold for
particular applications. The Company's direct costs for research and
development (which has been conducted primarily by its chief executive
officer and chief technical officer, Dr. Gottfried, as a part of his
overall duties) have not been material and have not been segregated for
accounting purposes.
EMPLOYEES
As of November 28, 2003, the Company had seven employees, six of whom
were full-time employees.
Item 2. DESCRIPTION OF PROPERTY
The Company occupies 12,700 square feet of space at 21 Industrial
Avenue, Upper Saddle River, New Jersey. The facility includes office
space, storage space and an area for the mixing and testing of products
and is adequate for the Company's current requirements. The Company
rents such space pursuant to a lease expiring August 31, 2005. Monthly
rent payments for the year ending August 31, 2004 are approximately
$10,741. Monthly rent payments for the year ended August 31,2005 are
approximately $11,278.
Item 3. LEGAL PROCEEDINGS
As a result of the bankruptcy reorganization proceeding referred to in
Item 1, until unsecured creditors whose claims were recognized in the
Plan are paid in full, the Bankruptcy Court has continuing jurisdiction
relative to (i) the approval and payment of certain claims and expenses
and (ii) the disposition of the two patents owned by the Company at the
time of the bankruptcy.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
Page 7
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The Company's shares are quoted on the "OTC Bulletin Board". Pink Sheets,
LLC, formerly The National Quotation Bureau, reported the following high
and low bid quotations which reflect inter-dealer prices, without retail
markup, markdown or commission and may not represent actual transactions.
2002-2003 2001-2002
Quarter Ended High Low High Low
------------- ---- --- ---- ---
November 29 $0.40 $0.31 $0.47 $0.15
February 28 $0.33 $0.20 $0.41 $0.31
May 30 $0.26 $0.12 $0.45 $0.36
August 29 $0.30 $0.24 $0.45 $0.31
(b) HOLDERS
As of November 28, 2003, there were approximately 290 holders of record of
the Company's outstanding Common Stock.
(c) DIVIDENDS
The Company has not paid any cash dividends and intends to retain
earnings, if any, during the foreseeable future for use in its operations.
Payment of cash dividends in the future will be determined by the
Company's Board of Directors based upon the Company's earnings, financial
condition, capital requirements and other relevant factors.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company continues product development and application testing. As
a result of these activities, certifications have been obtained for
specific applications as discussed in Item 1 - Government Regulations and
Approvals; Research and Development, and additional patent applications
have been filed resulting in the issuance of six patents since August
1995, and two applications awaiting action by the U.S. Patent Office
referred to in Item 1 - Business of the Company.
Marketing efforts to develop new applications and establish new customers
were continued in fiscal 2003. The efforts undertaken by the Company in
application development, product approvals and marketing initiatives
should assist it in creating greater sales in fiscal 2004 and beyond
The greatest obstacles encountered in obtaining major sales contracts are
the multitude of tests and approvals required, competition against well
established and better-capitalized companies, cost, and the slow process
of specifying a new product in highly regulated applications. The Company
intends to continue its research efforts to adapt its products to meet
Page 8
market requirements. Sales and marketing efforts will concentrate on
current products and applications through direct sales and distributor
license agreements. Continuing efforts are being made to obtain greater
domestic and international sales by enlarging the Company's distributor
network.
The number of manufacturing and quality control employees will increase
with increased production. The salaried administrative and marketing
staff will be evaluated and may be increased to support sales and
marketing initiatives. Additional support for direct sales is expected
to be provided by commissioned independent agents or new full time
employees on a heavily weighted commission basis.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 2002, the Company sold to an accredited investor a note
for $150,000. The note bears interest at a rate of 8%, was due no later
than January 31, 2002 and was secured by the assignment of the proceeds
of an additional sale of the Company's New Jersey Net Operating Loss
Carry Forward. $90,000 was repaid during the year. The terms were
modified, and the $60,000 balance now has no specific maturity date and
no specific security. In connection with the issuance of the note, five-
year warrants were granted for 100,000 shares of common stock at an
exercise price of $0.20 per share. Also during fiscal 2002, additional
funding of $250,000 was obtained by the sale of 807,000 units consisting
of one share of common stock and five-year warrants to purchase 0.70363
shares at an exercise price of $0.50 per share. The sales were made to
four accredited investors. During the fiscal year 2002, the officers
deferred an additional $311,650 of their salaries. Also in fiscal 2002,
$205,960 was obtained through an additional sale of a portion of the
Company's New Jersey Operating Loss Carry Forward under a program sponsored
by that State.
In fiscal 2003, the Company received $90,000 from an accredited investor, in
exchange for a note, payable with an additional $5,000,representing interest,
due no later than April 30, 2003. The note is collateralized by a security
interest in funds to be received from certain future sales. The Company also
granted, to the accredited investor, a warrant for the purchase of 50,000
shares of the Company's common stock at an exercise price of $0.25. Accordingly,
the note has been discounted to reflect the issuance of the warrants. As of
the present date, the note has not been paid.
Also in fiscal 2003, the Company received $54,652 from another accredited
investor, in exchange for a note, bearing interest at 18% and payable no later
than May 30,2003. The note is personally guaranteed by the Chief Financial
Officer of the Company and is collateralized by a security interest in funds to
be received from certain future sales. The Company also granted, to the
accredited investor, a warrant for the purchase of 100,000 shares of the
Company's common stock at an exercise price of $0.20. Accordingly, the note has
been discounted to reflect the issuance of the warrants. As of the present
date, the note has not been paid. In July 2003, 50,000 shares of the Company's
Common stock was issued to this investor. The value of the shares issued were
Charged to interest expense.
Page 9
Also during the fiscal year, the Company received $88,811 from a stockholder,
In exchange for a note bearing interest at 6.00% and payable by December 31,
2004. The note is collateralized by a security interest in two of the
Company's patents. The proceeds were used to pay the severance and social
security taxes owed to Admiral Retz.
On August 20, 2003, the Company issued, to an accredited investor,
a $200,000 convertible debenture which matures on February 28, 2004, bearing
interest at 8%. The debenture entitles the holder, on or before February 28,
2004, to convert the debt into common stock at a rate of one share for each
$0.226 principal amount plus any outstanding accrued interest. The debenture
contains a beneficial conversion feature, as the conversion price was less than
the fair value of the common stock at the date of issuance.
In September 2003, as part of this deal, the Company issued 100,000 shares
of common stock and five-year warrants to purchase 1,000,000 shares of the
Company's common stock at $0.30 per share to this accredited investor. The
warrants vested immediately. The value attributed to these transactions and
the beneficial conversion feature, totaling $160,000, has been charged to
interest expense.
During the year, the officers deferred an additional $291,104 of their salaries.
Also in fiscal 2003, $180,557 was obtained through an additional sale of a
portion of the Company's New Jersey Operating Loss Carry Forward under a
program sponsored by that state.
Because of limited cash resources, the Company has deferred payment of
$1,168,718 from the installments of the Chapter 11 liability to unsecured
creditors that were due in September 1996, 1997, 1998 and 1999. Of the
delinquent amount, $790,686 is due to officers and directors of the
Company. In order to pay those liabilities and meet working capital needs
until significant sales levels are achieved, the Company will continue to
explore alternative sources of funding including exercise of warrants, bank
and other borrowings, issuance of convertible debentures, issuance of
common stock to settle debt, and the sale of equity securities in a public
or private offering.
There is no assurance that revenues from sales, and/or financing efforts
described above will be sufficient to fund the Company's cash requirements
in the future.
Page 10
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED AUGUST 31, 2003 AND 2002
The Company remained a development stage company in fiscal year 2003.
Sales of $427,784 represented an increase of $178,682 or 71.5% from the
$249,102 in the prior year.
The net loss of $1,107,418 for fiscal year 2003 was $120,003 or 12.2%
greater than the net loss of $987,415 in the prior year.
General and administrative expenses of $1,155,509 in fiscal year 2003
were $45,811 or 3.8% less than the prior year. The most significant
changes were increases of $82,500 in severance and $39,000 in professional
fees, and decreases in repricing of warrants of $88,000 and officers'
salaries of $134,000.
The $215,796 increase in interest expense resulted mainly from increases
of $24,541 of interest due to officers, $33,666 of interest on loans
payable and $160,000 as a discount on the value of a convertible debenture
and a decrease of $24,798 in interest on late legal fees.
During the fiscal years 2002 and 2003, the Company realized approximately
$206,000 and $180,000 through the sale of a portion of its New Jersey Net
Operating Loss Carry Forward under a program sponsored by that state.
Item 7. FINANCIAL STATEMENTS
The Company's annual financial statements for the fiscal year ended
August 31, 2003, together with the report thereon by the Company's
independent auditors, Wiss & Company, LLP, ("Wiss"), are set forth
herein commencing on page F-1 of this Form 10-KSB and are incorporated
herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None
Page 11
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
The following table sets forth the names of all directors and officers of
the Company and the position in the Company held by them:
Name Age Position
Samuel Gottfried 57 Director, Chief
Executive Officer,
Chief Technical
Officer and
Assistant Treasurer
Sam Oolie 67 Director, Chairman
of the Board, Chief
Operating Officer,
Chief Financial Officer
and Treasurer
Bernard J. Koster 70 Director
Gerald H. Litwin 61 Director
Alphonso Margino 65 Vice President
and Secretary
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have
qualified. Officers are elected by the Board of Directors and serve at
the pleasure of the Board of Directors.
Sam Oolie
Mr. Oolie has served as a Director of the Company since September,
1993, as Chairman of the Board and Chief Operating Officer and Chief
Financial Officer since August 16, 1995. He was Chief Executive Officer
from August 16, 1995 to July 26, 1999. Since 1985, Mr. Oolie has been
Chairman of Oolie Enterprises, a privately owned Investment Company. Mr.
Oolie also serves as a Director of Comverse Technology, Inc., a
manufacturer of voice storage and forwarding systems and message management
computer services, since May 1985; and NCT Group, Inc., a company that
develops and manufactures electronic noise cancellation devices and
Internet browsing speed enhancement, since April 1987.
Page 12
Samuel Gottfried
Dr. Gottfried was named a director of the Company and appointed
President of its fire retardant products subsidiaries in August 1991.
He was appointed Interim Chairman of the Board and Chief Executive
Officer on August 14, 1992 until September 1, 2000. On August 16, 1995 he
was elected President, Chief Technical Officer and Assistant Treasurer of
the Company. On January 1, 2003 he was elected Chief Executive Officer. Dr.
Gottfried holds a doctorate in electrical engineering from New York
University and a Ph.D. in electrophysics from the Polytechnic Institute of
New York.
Bernard J. Koster
Mr. Koster has served as a Director of the Company since
September 1993. Mr. Koster is an attorney and accountant and since
January 1, 1993 has been of counsel to the law firm of Litwin & Tierman,
P.A., formerly Gerald H. Litwin, P.A.
Gerald H. Litwin
Mr. Litwin has served as a Director of the Company since August 16,
1995. During the past five years, Mr. Litwin, an attorney, has been a
principal in the law firm of Litwin & Tierman, P.A.,and previously was the
principal of Gerald H. Litwin, P.A. Mr. Litwin's firms served as the
Company's General Counsel, and his current firm continues to provide
certain legal services to the Company.
Alphonso Margino
On June 15, 1998 Mr. Margino was appointed to the board and named to
the offices of Vice President and Secretary. He served on the board until
November 24, 1998. Previous to June 15, 1998, he was associated with the
Company in marketing capacities.
During the past five years none of the foregoing persons (a) has served as
a general partner or an executive officer of any business as to which a
bankruptcy petition was filed during his service in such capacity or within
two years thereafter; (b) was convicted in a criminal proceeding or is
subject to a pending criminal proceeding (excluding traffic violations and
other minor offenses); or (c) has been subject to any order, judgment or
decree, not subsequently reversed, suspended or vacated, by any court of
competent jurisdiction, permanently or temporarily barring, suspending or
otherwise limiting his involvement in any type of business, securities or
banking activity.
The Board of Directors of the Company has established an Executive
Committee (Dr. Gottfried, Mr. Oolie), an Audit Committee (Mr. Litwin and
Mr. Koster), and a Compensation Committee (Mr. Koster,
Mr. Litwin and Mr. Oolie).
Page 13
Item 10. EXECUTIVE COMPENSATION
The Company's Summary Compensation Table is set forth below. Except as
discussed in Notes 2 and 3 to such table, the Company had no Option/SAR
Grants, Aggregated Option/SAR Exercises or Fiscal Year End Option/SAR's
for the years ended August 31, 2003, 2002, and 2001, nor were there any
long-term incentive plan awards, stock options or stock appreciation
rights.
Non-employee Directors are not compensated for Board of Directors
meetings or committee meetings attended.
SUMMARY COMPENSATION TABLE
For the Years Ended August 31, 2003, 2002, and 2001
Name and Year Ended Salary Salary Options All other
Principal Position August 31 Paid Deferred(1) SAR's Compensation
- ------------------ ---------- ------ ----------- ----- -----------
Samuel Gottfried 2003 $43,168 $ 99,759 (3) None
Chief Executive Officer 2002 $88,379 $79,541 (3) None
from January 1, 2003 2001 $143,768 $24,616 (3) None
and Chief Technical
Officer And Assistant
Treasurer from August 16,
1995
Sam Oolie 2003 $30,668 $101,530 (3) None
Chairman of the Board, 2002 $56,501 $97,600 (3) None
Chief Operating Officer 2001 $112,430 $36,251 None None
And Chief Executive Officer
until July 26, 1999, and
Chief Financial Officer
Since January 2, 2003
William A. Retz 2003 $19,038 $38,076 (3) $113,811
Chief Executive Officer 2002 $67,448 $103,323 (3) None
from September 1, 2000 2001 $125,733 $39,462 (2) $10,080(2)
until January 2, 2003
Alfonso Margino 2003 $21,585 $51,740 (3) None
Vice President and 2002 $42,563 $34,867 (3) None
Secretary since 2001 $71,987 $5,753 None None
June 15, 1998
Page 14
Note (1) Amounts shown as salary deferred are payable when revenues or
financings permit payment as determined by the Board of Directors.
Note (2) Warrants granted and compensation paid in the form of common
stock are discussed in the following description of RAdm Retz employment
agreement.
Note (3) On September 5, 2000 the Company's Executive Committee authorized
the issuance of a five-year warrant to Dr. Gottfried for 278,000 shares at
an exercise price of $0.50 per share. This warrant became fully vested on
September 5, 2001. On November 5, 2001, a five-year warrant was issued to
Radm Retz for 100,000 shares at an exercise price of $0.35 per share with
immediate vesting. On November 5, 2001, expiring warrants were replaced
with new five-year warrants at an exercise price of $0.35 per share to the
following officers: Mr. Oolie, 300,000; Dr. Gottfried, 160,000; and Mr.
Margino, 100,000. The replacement options were immediately vested. On
July 22, 2003, seven-year warrants were issued at an exercise price of
$0.30 per share to the following officers: Mr. Oolie, 725,000; Dr.
Gottfried 500,000; and Mr. Margino, 250,000.
EMPLOYMENT AGREEMENTS
On September 1, 2000, an employment agreement became effective with William
A. Retz, Rear Admiral, USN (Ret). The agreement is was terminable by the
Company at any time, with or without defined cause. Compensation consisted
of a base annual salary of $165,000. On the commencement date of the
agreement, 36,000 shares of common stock were released to RAdm Retz with
the
$10,080 value recorded as additional compensation. Also under the
agreement, a warrant for 500,000 shares of common stock was granted with
vesting of 100,000 shares on the first five anniversary dates of the
commencement date of the agreement. All warrants expired on the earlier of
the seventh anniversary of the commencement date of the agreement or the
date at which a sale of the Company may occur.
William A. Retz, R. Adm., USN (Ret) resigned effective January 2, 2003 as
Chief Executive Officer, director, and employee of the Company for personal
reasons. Admiral Retz has not had any disagreements with the management of the
Company.
The Company reached a severance agreement with Admiral Retz whereby he
received $82,500. The Company also accelerated the vesting of warrants
to purchase 200,000 shares of the Company's common stock at $0.5625 per share.
In February 2003 the Company entered into a consulting agreement with
Admiral Retz for the period of one year, whereby he was to receive $3,000
per month from February 1, 2003 to July 31, 2003 and $5,000 per month
from August 1, 2003 to January 31, 2004. In conjunction with this agreement
the Company accelerated the vesting of warrants to purchase 100,000 shares
of the Company's common stock at $0.5625 per share. Accordingly, $25,000 has
been charged to consulting expense for the period
Page 15
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of November 28, 2003 the number of
shares of Common Stock owned of record or beneficially owned by each of
the Company's officers, directors, and stockholders owning at least 5% of
the Company's issued and outstanding shares of Common Stock, by all of the
Company's officers and directors as a group, and the percentage of the
total outstanding shares represented by such shares.
Name and Address Shares Beneficially Approximate
Beneficial Owner Owned (1) Percent of Class (2)
- ---------------- ------------------- --------------------
Sam Oolie 2,625,000 8.0%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Samuel Gottfried 2,538,000 7.7%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Alphonso Margino 543,000 1.7%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Bernard J. Koster 211,300 0.7%
7 Old Smith Road
Tenafly, NJ 07670
Gerald H. Litwin 885,000 2.7%
Two University Plaza
Hackensack, NJ 07601
Robert Downey (3) 2,242,911 6.8%
755 Park Avenue
New York, NY 10021
NF Partners (3) 13,414,718 41.0%
667 Madison Avenue
New York, NY 10021
All officers and directors 6,802,300 20.8%
as a group (five persons)
Page 16
Note (1) Shares Beneficially Owned includes fully vested warrants in the
following amounts: Oolie 1,025,000; Gottfried 1,338,000; Margino
355,000; Koster 127,500; Litwin 885,000; Downey 1,403,667; and NF Partners
6,694,475.
Note (2) As of November 28, 2003, there were 20,939,019 shares of Common
Stock issued and outstanding. Percentage of Class for all officers and
directors as a group is computed on 32,767,661 shares which includes
11,828,642 shares exercisable within 60 days pursuant to warrants owned by
all the persons included.
Note (3) Mr. Downey and NF Partners are members of a group of accredited
investors who purchased their interest in the Company under agreements to
purchase units consisting of common stock and warrants for common stock at
varying prices beginning in 1998. The final purchase was made in fiscal
2000. NF Partners also purchased debentures convertible into common stock.
Forms 13D, which included as exhibits the full text of the agreements, were
filed with the SEC for each purchase under the agreements and the purchase
of convertible debentures.
COMPLIANCE WITH SECTION 16(a) OF THE 1934 ACT
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based on a review
of copies of Forms 3, 4 and 5 and amendments thereto furnished to the
Company during or with respect to its fiscal year ended August 31, 2003,
the Company believes that no director or officer of the Company or
beneficial owner of more than 10% of the Company's Common Stock failed to
file on a timely basis reports required by Section 16(a) of the Exchange
Act during such fiscal year.
Page 17
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of loans made to fund the Company's operations during its
trusteeship under a Chapter 11 bankruptcy that ended on August 11, 1995
plus accrued interest to that date, there were balances due at September
1, 1996 of $171,137 to Mr. Oolie, and $10,918 to Mr. Koster. No payments
have been made against these balances, which are included in the Company's
liability for settled claims.
On November 5, 2001, five-year warrants were granted to replace expiring
warrants to the following officers and directors: Mr. Oolie, 300,000
shares, Dr. Gottfried 160,000 shares, Mr. Margino 100,000 shares, Mr.
Litwin 100,000 shares and Mr. Koster 25,000 shares. The replacement
warrants have an exercise price of $0.30 per share and are fully vested. On
December 11, 2001, warrants were granted to Mr. Koster and Mr. Litwin
entitling them each to purchase 20,000 shares of the Company's Common Stock
at a price of $0.40 per share. On November 5, 2001, a five-year warrant
was granted to RAdm Retz to purchase 100,000 shares of the Company's Common
Stock at a price of $0.35 per share. On July 22, 2003 seven-year warrants
were granted to the following officers and directors: Mr. Oolie 725,000 Dr.
Gottfried 500,000 Mr. Margino 250,000 and Mr. Koster 25,000. The warrants
have an exercise price of $0.30 per share. All of the retained warrants are
included in the warrants outstanding as noted in Item 11, Note 1.
Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A., and
provides certain legal services to the Company. At August 31,2003, the
Company was obligated to that firm in the amount of $388,679, which
includes fees for legal services rendered during the pendency of the
Company's bankruptcy reorganization proceedings. Interest had been accrued
on unpaid balances since fiscal 1997. Expenses of fiscal 2003 were $44,091
for legal services and $62,446 for interest charges, and in fiscal 2002,
$36,457 in fees and $87,245 in interest charges. In addition, Litwin &
Holsinger (a predecessor to Litwin and Tierman) filed a claim as an
unsecured creditor in the bankruptcy proceedings in the gross amount of
$140,403 in respect of pre-petition legal services rendered and has
received one distribution in the amount of $15,584 in respect thereof.
In July 2003, the Company issued warrants to Mr. Litwin to purchase a total of
700,000 shares of the Company's common stock for $0.30 per share, expiring in
seven years, in settlement of interest owed to Litwin & Tierman. The warrants
vested immediately.
During three fiscal years ended 2003, the officers deferred a total of
$712,517 of their salaries. Effective June 2, 2002, interest at the annual
rate of 6% was accrued on the salaries deferred. The total interest accrued
was $41,539 at August 31, 2003.
Page 18
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
A. THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY ARE BEING FILED
PURSUANT TO ITEM 7 AS PART OF THIS ANNUAL REPORT ON FORM 10-KSB
1. FINANCIAL STATEMENTS
Index to Financial Statements F-1
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet as of August 31, 2003 F-3
Statements of Operations for the Years
Ended August 31, 2003 and 2002 and
the period July 13, 1987 (date of
inception) through August 31, 2003 F-4
Statements of Changes in Stockholders' Equity
(Deficiency) for the Years Ended August 31,
1989 through August 31, 2003 F-5 to F-7
Statements of Cash Flows for the Years
Ended August 31, 2003 and 2002 and
the period July 13, 1987 (date of
inception) through August 31, 2003 F-8
Notes to Financial Statements F-9 to F-19
2. EXHIBITS
Sarbanes-Oxley Act section 906 Certification Exhibit 1
3. REPORTS ON FORM 8-K
None
Item 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, the Company's
Chief Executive Officer and Chief Financial Officer performed an evaluation
of disclosure controls and procedures, which have been designed to permit
the Company to effectively identify and timely disclose important
information. They concluded that the controls and procedures were
effective. Since the date of the evaluation no significant changes in
internal controls or in other factors that could significantly affect
internal controls have been made.
Page 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOFIRE TECHNOLOGIES, INC.
Date: December 12, 2003 By: /s/ Sam Gottfried
------------------------
Sam Gottfried,
Chief Executive Officer
Date: December 12, 2003 By: /s/ Sam Oolie
------------------------
Sam Oolie
Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
SIGNATURE DATE
/s/ Samuel Gottfried
- ---------------------------- December 12, 2003
Samuel Gottfried, Director
/s/ Bernard J. Koster
- ----------------------------- December 12, 2003
Bernard J. Koster, Director
/s/ Gerald H. Litwin
- ----------------------------- December 12, 2003
Gerald H. Litwin, Director
/s/ Sam Oolie
- ----------------------------- December 12, 2003
Sam Oolie, Director
Page 20
I, Sam Oolie, certify that:
1. I have reviewed this annual report on Form 10-KSB of NoFire
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal control
Page 21
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 12, 2003 /s/ Sam Oolie
---------------------------
Sam Oolie,
Chief Financial Officer
Page 22
I, Samuel Gottfried, certify that:
1. I have reviewed this annual report on Form 10-KSB of NoFire
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability torecord,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
Page 23
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 12, 2003 /s/ Samuel Gottfried
------------------------
Samuel Gottfried
Chief Executive Officer
Page 24
INDEX TO FINANCIAL STATEMENTS
Page
------
Report of Independent Auditors F-2
Financial Statements:
Balance sheet at August 31, 2003 F-3
Statements of operations for the years ended
August 31, 2003 and 2002 and the period July 13,
1987 (date of inception) through August 31, 2003 F-4
Statements of changes in stockholders' equity
(deficiency) for the years ended August 31, 1989
through August 31, 2003 F-5 to F-7
Statements of cash flows for the years ended
August 31, 2003 and 2002 and the period July 13,
1987 (date of inception) through August 31, 2003 F-8
Notes to financial statements F-9 to F-19
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors
NoFire Technologies, Inc.
We have audited the accompanying balance sheet of NoFire Technologies,
Inc. (A Development Stage Company) as of August 31, 2003 and the related
statements of operations, changes in stockholders' equity (deficiency)
and cash flows for the two years in the period then ended and the period
July 13, 1987, date of inception, through August 31, 2003. 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 auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NoFire
Technologies, Inc. at August 31, 2003, and the results of its operations
and its cash flows for the aforementioned periods in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has incurred substantial losses
from operations since inception and at August 31, 2003 had a
stockholders' deficiency of $3,478,461 and a working capital deficiency
of $3,425,542. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to
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.
/s/ Wiss & Company, LLP
WISS & COMPANY, LLP
Livingston, New Jersey
November 15, 2003
F-2
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 2003
ASSETS
CURRENT ASSETS:
Cash $ 197,161
Accounts Receivable - trade 59,353
Inventories 54,067
Prepaid expenses and other current assets 46,747
-----------
Total Current Assets $ 357,328
EQUIPMENT, LESS ACCUMULATED DEPRECIATION
OF $34,217 6,495
OTHER ASSETS:
Patents, less accumulated amortization
of $1,523,013 10,018
Security deposits 19,379
----------
29,397
----------
$ 393,220
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 1,168,718
Accounts payable and accrued expenses 830,287
Loans and advances payable to stockholders 16,470
Deferred salaries 1,362,743
Loans payable 204,652
Convertible debenture 8% 200,000
----------
Total Current Liabilities 3,782,870
LOAN PAYABLE 88,811
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued, to be issued, and outstanding-
20,939,019 4,187,804
Capital in excess of par value 4,000,757
Deficit accumulated in the development stage (11,667,022)
----------
Total Stockholders' Equity (Deficiency) (3,478,461)
----------
$ 393,220
=========
See accompanying notes to financial statements
F-3
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
July 13, 1987
(Date of Inception)
Year Ended August 31, Through
2003 2002 August 31, 2003
---------- ---------- ----------
NET SALES $ 427,784 $ 249,102 $ 1,729,984
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 228,689 125,549 910,431
General and administrative 1,155,509 1,201,320 15,029,283
Write-down of excess inventory - - 55,000
---------- ---------- ----------
1,384,198 1,326,869 15,994,714
---------- ---------- ----------
LOSS FROM OPERATIONS ( 956,414) (1,077,767) (14,264,730)
---------- ---------- ----------
OTHER EXPENSES (INCOME):
Interest expense 331,861 116,065 1,754,281
Interest income (300) (457) (24,440)
Reorganization items - - 365,426
Litigation settlement - - 198,996
---------- ---------- ----------
331,561 115,608 2,204,263
---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,287,975) (1,193,375) (16,558,993)
DISCONTINUED OPERATIONS - - (1,435,392)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,287,975) (1,193,375) (17,994,385)
EXTRAORDINARY ITEM -
Gains on debt discharge - - 507,952
---------- ---------- ----------
LOSS BEFORE INCOME TAXES (1,287,975) (1,193,375) (17,486,433)
DEFERRED INCOME TAX BENEFIT 180,557 205,960 593,284
---------- ---------- ----------
NET LOSS $ (1,107,418) $ ( 987,415) $(16,893,149)
========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 20,664,834 20,028,931
========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE: $ (.05) $ (.05)
========== ==========
See accompanying notes to financial statements
F-4
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Deficit
Common Stock Accumulated
------------------------ Capital During the
Number of in Excess Development
Shares Amount of Par Value Stage
---------- ---------- ---------- ------------
BALANCES, SEPTEMBER 1, 1988 - $ - $ - $ -
YEAR ENDED AUGUST 31, 1989:
Issuance of common stock 3,000 1,500 - -
Net loss - - - (45,844)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1989 3,000 1,500 - (45,844)
YEAR ENDED AUGUST 31, 1990:
Issuance of common stock 50 1,000 - -
Net loss - - - (278,916)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1990 3,050 2,500 - (324,760)
YEAR ENDED AUGUST 31, 1991:
Adjustment due to reverse
acquisition (3,050) (2,500) 2,500 -
Acquisition accounted for
as a reverse purchase 3,071,659 307 (307) (517,893)
Net loss - - - (592,276)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1991 3,071,659 307 2,193 (1,434,929)
YEAR ENDED AUGUST 31, 1992:
Issuance of common stock 394,736 39 2,252,860 -
Net loss - - - (1,414,562)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1992 3,466,395 346 2,255,053 (2,849,491)
YEAR ENDED AUGUST 31, 1993
Net loss - - - (1,357,669)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1993 3,466,395 346 2,255,053 (4,207,160)
YEAR ENDED AUGUST 31, 1994
Net loss - - - (699,650)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1994 3,466,395 346 2,255,053 (4,906,810)
YEAR ENDED AUGUST 31, 1995
Shares canceled in connection
with the consummation of the
reorganization plan (3,466,395) (346) (2,255,053) -
Net loss - - - (837,210)
Effect of adoption of
fresh-start reporting - - (2,814,258) 5,744,020
Shares issued in connection
with debt discharge at
$.25 per share 187,000 37,400 9,350 -
Shares issued in connection
with reorganization plan
at $.25 per share 8,000,000 1,600,000 400,000 -
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1995 8,187,000 1,637,400 (2,404,908) -
See accompanying notes to financial statements
F-5
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
Deficit
Common Stock Accumulated
------------------------ Capital During the
Number of in Excess Development
Shares Amount of Par Value Stage
---------- ---------- ---------- ------------
YEAR ENDED AUGUST 31, 1996
Issuance of common stock
under private placement
at $1 per share 300,000 $ 60,000 $ 240,000 $ -
Issuance of common stock in
exchange for services at
$1 per share 62,500 12,500 50,000 -
Net loss (1,634,802)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1996 8,549,500 1,709,900 (2,114,908) (1,634,802)
YEAR ENDED AUGUST 31, 1997:
Issuance of common stock under
private placement at a range
of $.75 to $1 per share 1,117,700 223,540 869,160 -
Net loss (1,599,841)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1997 9,667,200 1,933,440 (1,245,748) (3,234,643)
YEAR ENDED AUGUST 31, 1998:
Issuance of common stock under
private placement at $.90
per share, net of expenses
of $76,745 1,388,884 277,777 895,474 -
Issuance of common stock under
private placement at $1 per share 550,000 110,000 440,000 -
Issuance of common stock in
exchange for services at a
range of $.50 to $1 per share 119,200 23,840 45,360 -
Shares issued in connection with
debt discharge at a range of
$.89 to $1 per share 220,350 44,070 162,509 -
Net loss - - - (1,519,842)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1998 11,945,634 2,389,127 297,595 (4,754,485)
YEAR ENDED AUGUST 31, 1999
Issuance of common stock under
private placements at a range
of $.50 to $.72 per share,
net of expenses of $19,793 2,071,115 414,223 845,986 -
Shares issued in connection with
debt discharge at a range of
$.95 to $.99 per share 19,225 3,845 14,636 -
Net loss - - - (1,541,642)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1999 14,035,974 2,807,195 1,158,217 (6,296,127)
YEAR ENDED AUGUST 31, 2000
Issuance of common stock under
private placements at $.67
per share, net of expenses
of $72,557 1,641,792 328,358 699,085 -
Issuance of common stock in
exchange for conversion of
convertible debentures at a
rate of $.625 per share 917,385 183,477 389,889 -
Net loss - - - (2,090,626)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 2000 16,595,151 3,319,030 2,247,191 (8,386,753)
YEAR ENDED AUGUST 31, 2001
Issuance of common stock in
exchange for services at a
rate of $.28 per share 36,000 7,200 2,880 -
F-6
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
CONCLUDED
Issuance of common stock in
exchange for conversion of
convertible debentures at a
rate of $.50 per share 3,189,279 637,856 956,784 -
Net loss - - - (1,185,436)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 2001 19,820,430 3,964,086 3,206,855 (9,572,189)
YEAR ENDED AUGUST 31, 2002
Value of warrants issued in
connection with short-term loan
treated as a discount on
the loan - - 13,484 -
Repricing of warrants - - 44,000 -
Issuance of common stock under
private placements at $.50
per share 807,100 161,420 88,580 -
Net loss - - - (987,415)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 2002 20,627,530 $4,125,506 $3,352,919 $(10,559,604)
YEAR ENDED AUGUST 31, 2003
Issuance of common stock under
private placement at $.30
per share 166,667 33,333 16,667
Cancellation of issued common
stock never claimed (5,178) (1,035) 1,035
Repricing of warrants (44,000)
Value of warrants issued in
connection with short-term loan
treated as a discount on the loan 25,297
Value of warrants issued for
forgiveness of accrued interest 479,839
Value attributed to acceleration of
vesting of warrants for consulting
services 25,000
Value of discount on convertible
Debentures charged to interest expense 100,000 20,000 140,000
Issuance of common stock in connection
with past due loan, charged to
interest expense 50,000 10,000 4,000
Net loss (1,107,418)
---------- ---------- ---------- ------------
20,939,019 $4,187,804 $4,000,757 $(11,667,022)
========== ========== ========== ============
See accompanying notes to financial statements
F-7
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
July 13, 1987
(Date of Inception)
Year Ended August 31, Through
2003 2002 August 31, 2003
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,107,418) $(987,415) $(16,893,149)
Adjustments to reconcile net loss
to net cash flows from
operating activities:
Depreciation and amortization 8,933 8,930 1,843,881
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities - - 634,522
Amortization of interest expense for
discount on note payable 25,297 13,484 38,781
Amortization of interest expense for
discount on convertible debentures 160,000 160,000
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock issued in exchange
for services - 141,780
Common Stock issued as interest on
past due loan payable 14,000 14,000
Write-down of excess inventory - - 55,000
Warrants issued for consulting services 25,000 - 25,000
Repricing of warrants (44,000) 44,000
Changes in operating assets and
liabilities (net of effects from
reverse purchase acquisition):
Accounts receivable - trade (33,267) (3,633) (59,353)
Inventories 84,218 14,810 (109,067)
Prepaid expenses 5,472 (955) (46,747)
Accounts payable and accrued
expenses 287,670 253,971 3,789,117
Security deposits - - (19,379)
Deferred salaries 291,104 311,950 1,363,043
Obligation from discontinued
operations - - 51,118
---------- ---------- ----------
Net cash flows from
operating activities (282,991) (344,858) (8,837,475)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - - (40,712)
Increase in patent costs - - (164,320)
Acquisition accounted for as a
reverse purchase - - (517,893)
---------- ---------- ----------
Net cash flows from
investing activities - - (722,925)
---------- ---------- ----------
F-8
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company}
STATEMENT OF CASH FLOWS
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - - 1,506,113
Principal payments on long-term debt - - (75,000)
Principal payments on settled
liabilities (9,714) (9,071) (2,894,130)
Proceeds from issuance of common
stock, net of related expenses 50,000 250,000 8,774,943
Net proceeds from short-term loans 233,463 60,000 293,463
Payments on advances from stockholders - - (60,750)
Loans and advances received from
stockholders 5,920 84,973
Interest accrued on loans from
stockholder - (8,053)
Proceeds from issuance of
convertible debentures 200,000 2,136,002
---------- ---------- ----------
Net cash flows from
financing activities 479,669 300,929 9,757,561
---------- ---------- ----------
NET CHANGE IN CASH 196,678 (43,929) 197,961
CASH AT BEGINNING OF YEAR 483 44,412 -
---------- ---------- --------
CASH AT END OF YEAR $ 197,161 $ 483 197,961
========== ========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,364 $ 6,132 $ 88,617
========== ========== ==========
Income taxes paid (benefit) $ (180,557) $ (205,960) $ (593,284)
========== ========== ==========
Warrants issued in settlement
of accrued interest $ 479,839 - $ 479,839
=========== ========== ==========
Common stock issued in exchange
for settlement of debt $ - $ $ 2,439,816
========== ========== ==========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
========== ========== ==========
Common stock issued in exchange
for services $ - $ - $ 131,700
========== ========== ==========
See accompanying notes to financial statements
F-8 CONCLUDED
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Nature of the Business - The Company manufactures and markets
intumescent fire retardant products. The Company, which has realized
limited sales while it continues to develop a market for its products, has
been operating as a development stage enterprise since inception.
Estimates and Uncertainties - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results, as determined at a later date, could differ from those estimates.
Financial Instruments - Financial instruments include cash, accounts
receivable, other assets, accounts payable, accrued expenses, settled
liabilities, and due to stockholders. The amounts reported for financial
instruments are considered to be reasonable approximations of their fair
values. The fair value estimates presented herein were based on market or
other information available to management. The use of different market
assumptions and/or estimation methodologies could have a material effect on
the estimated fair value amounts.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Equipment - Equipment is recorded at cost and is depreciated
primarily using the straight-line method over the estimated useful lives
of 5 to 7 years for furniture and fixtures, manufacturing equipment and
data processing equipment. Depreciation expense totaled $2,324 for each
of the years ended August 31, 2003 and 2002, respectively.
Intangible Assets - Patents are amortized on a straight-line basis
over 5 years. Amortization expense was $6,609 and $6,606 for the
years ended August 31, 2003 and 2002.
Income Taxes - Deferred income taxes arise from temporary differences
between financial and tax reporting, principally for deferred compensation
and net operating loss carry forwards.
Risk Concentrations - The following summarizes the risk concentration
of the Company as of August 31, 2003:
Cash Concentrations - The Company maintains a cash balance with a
financial institution which at some times may exceed federally
insured limits.
Accounts Receivable - The Company grants unsecured credit to
virtually all of its customers with two customers comprising a
concentrated risk. Management continually evaluates the credit
risk associated with accounts receivable and believes that the
risk is limited
F-9
NOFIRE TECHNOLOGIES, INC
(A Development Stage Comp
NOTES TO FINANCIAL STATEMENTS
Advertising Costs - The Company expenses costs for trade shows,
marketing and promotional activities as incurred. Expenses were approximately
$15,000 and $14,000 for the years ended August 31, 2003 and August 31, 2002,
respectively.
Stock-Based Compensation -The Company accounts for stock-based compensation
under the recognition and measurement principles of APB opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. No
stock-based employee compensation cost is reflected as net income, as all
warrants granted had an exercise price equal or greater than the market value
of the underlying common stock on the date of grant. The following table
illustrates the effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of FASB statement No. 123,
"Accounting for Stock-Based Compensation", to stock-based employees
compensation.
Year ended August 31,
2003 2002
Net loss as reported $(1,107,418) $(987,415)
Deduct Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects $(566,000) $(227,000)
------------ -----------
$(1,673,418) $(1,214,415)
============ ============
Loss per share
Basic-as reported $(0.05 $(0.05)
========== ============
Basic-pro forma $(0.08) $(0.06)
========== ============
The fair value of the warrants were estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-
average assumptions, respectively: risk-free interest rates of 5.0%,
dividend yield of 0.0%, volatility factors of the expected market price of
the Company's Common Stock of 232% and an expected life equaling the
warrants' exercise periods.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's warrants have
characteristics significantly different from those of normal publicly
traded stock, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock warrants.
Earnings (Loss) Per Share - Statement of Financial Accounting
Standards (SFAS) No. 128 "Earnings Per Share" requires the disclosure of
F-10
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
both diluted and basic earnings (loss) per share. Basic earnings (loss)
per share is based upon the weighted average of all common shares outstanding.
The computation of diluted earnings (loss) per share does not assume the
conversion, exercise or contingent issuance of securities which would have an
antidilutive effect on earnings (loss) per share.
Recent Accounting Pronouncements -In November 2002, the Financial
Accounting Standards Board ("FASB") issued FASB Interpretation (FIN) No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN45 requires
that a liability be recorded in the guarantor's balance sheet upon issuance of
a guarantee. In addition, FIN45 requires disclosures about the guarantees
that an entity has issued, including a roll forward of the entity's
product warranty liabilities. The Company does not expect FIN 45 to have
a material impact on its financial position, results of operations or cash
flows.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. SFAS No.148provides alternative
methods of transition for a voluntary change to the fair value based
method of accounting for employee stock-based compensation. SFAS No. 148
also requires that disclosures of the pro forma effect of using the fair
value method of accounting for stock-based employee compensation
be displayed more prominently and in tabular format. Additionally, SFAS
No. 148 requires disclosure of the pro forma effect in interim financial
statements. The transition and annual disclosure requirements are
effective for our 2003 fiscal year. The interim disclosure requirements are
not effective. The Company does not expect the adoption of SFAS NO. 148 to
have a material impact on its financial position, results of operations or
cash flows.
In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities. This Interpretation clarifies the application of
Accounting Research Bulletin No 51,Consolidated Financial Statements,
to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities with
out additional subordinated financial support from other after
January 31, 2003, and is effective as of July 31, 2003for variable interest
entities created prior to February 1,2003. The Company does not expect the
adoption of FIN 46 to have a material effect on its financial position, results
of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This statement
amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, for implementation issues related to the definition of a
derivative and other FASB projects related to financial instruments.
SFAS No. 149 requires that contracts with comparable characteristics be
accounts for in a similar fashion. SFAS No. 149 applies prospectively
to contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The Company does not expect the
adoption of SFAS No. 149 to have a material effect on its financial position,
results of operations or cash flows.
NOTE 2 - BASIS OF PRESENTATION AND MANAGEMENT'S ACTIONS TO OVERCOME
OPERATING AND LIQUIDITY PROBLEMS:
The Company's financial statements have been presented on the going
F-11
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company
has reported substantial losses since inception. The Company's viability
as a going concern is dependent upon its ability to achieve profitable
operations through increased sales, obtaining additional financing or
receiving additional capital. This raises substantial doubt about the
Company's ability to continue as a going concern.
On August 11, 1995, the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to a plan of reorganization (the "Plan").
As of August 11, 1995, in accordance with AICPA Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7), the Company adopted "fresh start reporting" and
implemented the effects of such adoption in its balance sheet as of August
31, 1995.
Under the principles of fresh start reporting, the Company's total
assets were recorded at their estimated reorganization value, with the
reorganization value allocated to identifiable assets on the basis of
their estimated fair value. The Company's reorganization value of
$1,750,000 included its patents for its intumescent fire retardant
products which were valued at $1,500,000.
As discussed in Note 4, the Company has a liability for settled
claims payable to creditors and has incurred accrued expenses in
connection with its reorganization. Certain settled claims due on
September 27, 1996 through 1999 remain unpaid. Without additional
financing/capital or the achievement of profitable operations, funds for
repayment of these obligations would not be available.
Management believes that actions it has undertaken to revise the
Company's operating and marketing structure will provide it with the
opportunity to generate the revenues needed to realize profitable
operations and/or obtain the necessary financing and/or capital for the
payment of outstanding obligations.
NOTE 3 - INVENTORIES:
Inventories, net of reserves, at August 31, 2003 consisted of the following:
Raw material $ 24,397
Finished goods 29,670
--------
$ 54,067
========
At August 31, 2003, the Company had advanced approximately $40,000 to
a vendor towards the future purchase of inventory. The advance has been
included as a component of prepaid expenses and other current assets.
NOTE 4 - SETTLED CLAIMS:
Settled claims consist of claims payable to creditors for which
payment has been deferred beyond the Plan's effective date pursuant to the
terms and conditions of the Plan, as agreed upon between the Company and
its creditors. At August 31, 2003, settled liabilities payable totaled
$1,168,718.
The claims settled were payable by the Company through September 27,
1999 and during the year ended August 31, 2003, the Company repaid
approximately $10,000 towards settled claims.
F-12
NOFIRE TECHNOLOGIES INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The Company is currently delinquent on its scheduled payments to
certain creditors due September 27, 1996 through 1999 in the gross amount
of approximately $1,168,718. The Company does not have funds available
for repayment and without additional sales, capital or financing, payments
cannot be made.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
Legal fees $417,349
Commissions 9,819
Interest 63,015
Payroll and payroll taxes 13,851
Accounts payable 270,444
Other 55,809
----------
$ 830,287
=========
NOTE 6 - LOANS PAYABLE
In September 2001, the Company received $150,000 from an accredited
investor in exchange for a note bearing interest at 8% and payable no
later than January 31, 2002. $90,000 of principal was repaid during the
period. The terms were modified, and the unsecured $60,000 balance now
has no specific maturity date.
In February 2003, the Company received $90,000 from an accredited
investor, in exchange for a note, payable with an additional $5,000,
representing interest no later than April 30, 2003. The note is
collateralized by a security interest in funds to be received from certain
future sales. The Company also granted, to the accredited investor, a
warrant for the purchase of 50,000 shares of the Company's common stock at
an exercise price of $0.25. Accordingly, the note has been discounted to
reflect the issuance of the warrants. As of the date of this report, the note
has not been paid.
In February 2003, the Company received $54,652 from another accredited
investor, in exchange for a note, bearing interest at 18% and payable no
later than May 30,2003. The note is personally guaranteed by the Chief
Financial Officer of the Company and is collateralized by a security interest
in funds to be received from certain future sales. The Company also granted,
to the accredited investor, a warrant for the purchase of 100,000 shares of
the Company's common stock at an exercise price of $0.20. Accordingly, the note
has been discounted to reflect the issuance of the warrants. As of the
date of this report, the note has not been paid. In July 2003, 50,000 shares of
the Company's common stock were issued to this investor. The value of the
shares issued was charged to interest expense.
In March 2003 the Company received $88,811 from a stockholder, in
exchange for a note bearing interest at 6.00% and payable by December 31,
2004. The note is collateralized by a security interest in two of the Company's
patents.
NOTE 7 - SETTLED CLAIMS PAYABLE TO RELATED PARTIES:
At August 31, 2003, settled claims payable includes amounts due to
current officers and members of the Board of Directors of the Company
totaling approximately $791,000, all of which are delinquent (Note 4).
F-13
NOFIRE TECHNOLOGIES
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - CONVERTIBLE DEBENTURES:
On August 20, 2003, the Company issued, to an accredited investor,
a $200,000 convertible debenture which matures on February 28, 2004, bearing
interest at 8%. The debenture entitles the holder, on or before February 28,
2004, to convert the debt into common stock at a rate of one share for each
$0.226 principal amount plus any outstanding accrued interest. The debenture
contains a beneficial conversion feature, as the conversion price was less than
the fair value of the common stock at the date of issuance.
In September 2003, as part of this deal, the Company issued 100,000 shares
of common stock and five-year warrants to purchase 1,000,000 shares of the
Company's common stock at $0.30 per share to this accredited investor. The
warrants vested immediately. The value attributed to these transactions and
the beneficial conversion feature, totaling $160,000, has been charged to
interest expense.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
Lease - The Company's lease of its facility expires on August 31,
2005 with total annual lease commitments of $128,880 and $135,324 for the
years ending August 31, 2004 and 2005, respectively.
Rent expense, inclusive of taxes and insurance, was approximately
$125,000 and $119,000 for the years ended August 31, 2003 and 2002,
respectively.
Employment Contract - Effective September 1, 2000, the Company entered
into an employment agreement with its Chief Executive Officer. Compensation
consists of an annual base salary of $165,000. Additionally, the Company
granted a seven-year warrant for the purchase of 500,000 shares
of common stock, at an exercise price of $0.5625 per share, with vesting of
100,000 shares on the first five anniversary dates of the commencement date
of the agreement.
William A. Retz, R. Adm., USN (Ret) resigned effective January 2, 2003 as
Chief Executive Officer, director, and employee of the Company for personal
reasons. Admiral Retz has not had any disagreements with the management of the
Company.
The Company reached a severance agreement with Admiral Retz whereby he
received $82,500. The Company also accelerated the vesting of warrants
to purchase 200,000 shares of the Company's common stock at $0.5625 per
share.
In February 2003 the Company entered into a consulting agreement with
Admiral Retz for the period of one year, whereby he will receive $3,000
per month from February 1, 2003 to July 31, 2003 and $5,000 per month
from August 1, 2003 to January 31, 2004. In conjunction with this agreement
the Company accelerated the vesting of warrants to purchase 100,000 shares
of the Company's common stock at $0.5625 per share. Accordingly $25,000 has
been charged to consulting expense for the period.
F-14
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENT
NOTE 10 - SOURCES OF SUPPLY:
Several components of the Company's products are available from a
small number of suppliers. In the event that these suppliers were to
terminate the manufacture or sale of such components for any reason, then
the manufacture of the Company's products could be interrupted.
NOTE 11 - INCOME TAXES:
No provision for current and deferred income taxes is required for the
years ended August 31, 2003 and 2002.
The following is a reconciliation of income tax benefit computed at
the 34% statutory rate to the provision for income taxes:
2003 2002
--------- ---------
Tax at statutory rate $ 377,000 $ 321,000
Permanent and other items (66,000) (2,000)
State income tax, net of federal
income tax benefit 33,000 20,000
Valuation allowance (344,000) (339,000)
--------- ---------
$ - $ -
========= =========
As a result of the issuance of common stock pursuant to the Plan, the
Company experienced a greater than 50% change of ownership as defined in
Internal Revenue Code Section 382 ("Section 382"). Consequently, the
Company's ability to utilize net operating losses generated prior to the
effective date of the Plan is limited during the carry forward periods.
The Company has determined that the annual limitation under Internal
Revenue Code Section 382 on its ability to utilize net operating loss
carry forwards, totaling approximately $4,000,000, to be approximately
$150,000 per year expiring in 2010. Subsequent to the date of the Plan,
the Company has generated approximately $7,603,000 in net operating losses.
The significant components of the Company's net deferred tax asset are
summarized as follows:
August 31,
------------------------
2003 2002
---------- ---------
Net operating loss carry forwards $ 2,963,000 $2,933,000
Deferred compensation 553,000 431,000
---------- ----------
3,516,000 3,364,000
Valuation allowance 3,516,000 3,364,000
---------- ----------
$ - $ _
========== ==========
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax asset will not be realized. The Company
has determined, based on the Company's prior history of recurring losses,
that a full valuation allowance is appropriate at August 31, 2003 and 2002.
At August 31, 2003, the Company has federal and state net operating
loss carry forwards for financial reporting and income tax purposes of
approximately $8,509,000 and $1,173,000 respectively, which can be used to
offset current and future taxable income through the year 2022.
F-15
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
During each of the fiscal years 2003 and 2002, the Company sold a portion of
its state net operating loss carry forwards (NOL) realizing approximately
$181,000 and $206,000 respectively.
NOTE 12 - MAJOR CUSTOMERS:
Sales to two customers represented 36% and 13% of net sales
for the year ended August 31, 2003. Sales to three customers represented
37% and 13% and 11% of net sales for the year ended August 31, 2002.
NOTE 13 - WARRANTS:
For the years ended August 31, 2003 and 2002, a summary of the status
of warrants was as follows:
2003 2002
------------------- --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- -------- ---------- --------
Outstanding, beginning of year 19,866,150 $0.91 19,341,753 $1.02
Granted 2,737,500 0.27 847,897 0.44
Expired (5,086,568) 1.34 (323,500) 1.98
---------- ----- ---------- -----
Outstanding, end of year 17,517,082 $0.70 19,866,150 $0.91
========== ===== ========== =====
Exercisable, end of year 17,517,082 $0.70 19,452,150 $0.92
========== ===== ========== =====
The following table summarizes warrant data as of August 31, 2003:
Weighted
Average
Exercise Number Remaining Number
Price Outstanding Life in Years Exercisable
-------- ----------- ------------- -----------
$0.20 250,000 4.7 250,000
0.25 140,000 5.0 140,000
0.28 135,000 5.1 135,000
0.30 2,200,000 5.1 2,200,000
0.35 1,022,500 3.3 1,022,500
0.40 120,000 3.5 120,000
0.50 3,582,897 1.4 3,582,897
0.5625 700,000 1.7 700,000
0.72 6,882,260 1.2 6,882,260
0.75 22,500 1.3 22,500
1.00 1,109,000 0.1 1,109,000
1.25 52,000 0.5 52,000
1.50 18,500 0.3 18,500
2.00 1,132,425 0.5 1,132,425
3.00 150,000 0.5 150,000
--------- ----------
17,517,082 17,517,082
========== ==========
The weighted average grant date fair value of warrants granted during
the year ended August 31, 2003 was $ 0.27. No warrants had been exercised
by holders as of August 31, 2003.
F-16
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
During the year ended August 31, 2002, the exercise date for
warrants for 877,100 shares granted from April 1997 to December
1997 were extended to December 31, 2002.
In September 2001, the Company issued five year warrants to purchase
100,000 shares of the Company's common stock at $0.20 per share to an outside
director.
In November 2001, warrants to purchase 885,000 shares of the
Company's common stock, granted from October 1996 to June 1997, were
repriced whereby the exercise price was reduced from $2.00 per share to
$0.35 per share.
In November 2001, the Company issued warrants to the Chief Executive
Officer of the Company to purchase 100,000 shares of the Company's common
stock for $0.35 per share, expiring in five years. The warrants vest
immediately.
In December 2001, the Company issued warrants to four employees and
two outside directors to purchase a total of 80,000 shares of the
Company's common stock for $0.40 per share, expiring in five years. The
warrants vest immediately. Also in December 2001, warrants for 323,500
shares expired.
In May 2002, the Company issued five-year warrants to three
accredited investors for the purchase of 454,318 shares of the Company's
common stock at an exercise price of $0.50 per share.
In July 2002, the Company issued five-year warrants to an accredited
investor for the purchase of 113,579 shares of the Company's common stock
at an exercise price of $0.50 per share.
In January 2003, the Company issued warrants to three employees to
purchase a total of 80,000 shares of the Company's common stock for $0.25 per
share, expiring in five years. The warrants vested immediately.
In February 2003, the Company received $90,000 from an accredited
investor, in exchange for a note, payable with an additional $5,000
representing interest no later than April 30, 2003. The note is collateralized
by a security interest in funds to be received from certain future sales. The
Company also granted, to the accredited investor, a five year warrant for the
purchase of 50,000 shares of the Company's common stock at an exercise price of
$0.25. Accordingly, the note has been discounted to reflect the issuance of the
warrants. As of the date of this report, the note has not been paid.
In February 2003, the Company received $54,652 from another accredited
investor, in exchange for a note, bearing interest at 18% and payable no later
than May 30,2003. The note is personally guaranteed by the Chief Financial
Officer of the Company and is collateralized by a security interest in funds to
be received from certain future sales. The Company also granted, to the
accredited investor, a five-year warrant for the purchase of 100,000 shares of
the Company's common stock at an exercise price of $0.20. Accordingly, the note
has been discounted to reflect the issuance of the warrants. As of the date of
this report, the note has not been paid. In July, 2003, 50,000 shares of the
Company's common stock were issued to this investor. The value of the shares
Issued, $14,000, was charged to interest expense.
In June 2003, the Company issued 166,667 shares of the Company's common
stock to an accredited investor at $.30 per share. The Company also issued, to
F-17
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
the accredited investor, warrants for the purchase of 75,000 shares of the
Company's common stock at an exercise price of $.50 per share expiring in five
years. The warrants vested immediately.
In June 2003, the Company issued warrants to two individual investors to
purchase a total of 10,000 shares each of the Company's common stock for $0.25
and $0.35 per share respectively, expiring in five years. The warrants vested
immediately.
In July of 2003 the Company issued five-year warrants to purchase a total
of 85,000 shares of the Company's common stock three employees and an individual
accredited investor at an exercise price of $0.28 per share. The warrants
vested immediately.
In July 2003 the Company issued five-year warrants to purchase 25,000
shares of the Company's common stock to an outside director at an exercise
price of $0.30 per share. The warrants vested immediately.
In July 2003, the Company issued five-year warrants to purchase 50,000
shares of the Company's common stock to an accredited investor at an exercise
price of $0.20 per share. The warrants vested immediately.
In July 2003, the Company issued warrants to a director to purchase a
total of 700,000 shares of the Company's common stock for $0.30 per share,
expiring in seven years, in settlement of $479,839 of interest owed to the
director. The warrants vested immediately.
In July 2003, the Company issued warrants to three officers to purchase a
total of 1,475,000 shares of the Company's common stock for $0.30 per share,
expiring in seven years. The warrants vested immediately.
In August 2003, the Company issued five-year warrants to purchase a total
of 77,500 shares of the Company's common stock to two accredited investors at
an exercise price of $0.28 per share. The warrants vested immediately.
During the year ended August 31, 2003, warrants to purchase 5,086,568
shares of the Company's common stock expired unexercised.
F-18
NOFIRE TECHNOLOGIES, INC
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - SUBSEQUENT EVENTS:
In September 2003 the Company issued to four accredited investors
$105,000 worth of convertible debentures which mature on September 4, 2004,
bearing interest at 8%. The debenture entitles the holders, on or before
September 4, 2004,to convert the debt into common stock at a rate of one
share for each $0.336 principal amount plus any outstanding accrued interest.
In conjunction with this transaction, the Company issued warrants to the four
investors, to purchase a total of 525,000 shares of the Company's common
stock for $0.30, expiring in five years. The warrants vested immediately.
In October 2003 the Company issued to an accredited investor
$25,000 worth of convertible debentures which mature on October 21, 2004,
bearing interest at 8%. The debenture entitles the holders, on or before
October 21, 2004,to convert the debt into common stock at a rate of one
share for each $0.336 principal amount plus any outstanding accrued interest.
F-19
Exhibit 1
CERTIFICATION
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), each
of the undersigned officers of NoFire Technologies, Inc., a Delaware
corporation (the Company), does hereby certify, to the best of such
officer's knowledge and belief, that:
(1) The Annual Report on Form 10-KSB for the year ended August 31, 2003
of the Company fully complies with the requirements of section 13 (a) or
15 (d) of the Securities Exchange Act of 1934: and
(2) The information contained in the Form 10-KSB fairly presents in all
material respects, the financial condition and results of operations of
the Company.
Dated: December 12, 2003 /s/ Samuel Gottfried
-----------------------
Chief Executive Officer
Dated: December 12, 2003 /s/ Sam Oolie
-----------------------
Chief Financial Officer
EXHIBIT 1