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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, 2004
[ ] 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 NO X
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 31,2004 $ 488,282
Aggregate market value of the voting stock held by $ 3,363,705
non-affiliates as of November 22, 2004
Number of shares of common stock outstanding as of as of
November 22, 2004 31,991,748
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 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, South East Asia, Ghana
and West Africa, Malaysia and Singapore, and Australia and Mexico.
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 three largest customers during the most recent fiscal year
represented 29.4%, 6.4% and 6.1% 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 22, 2004, 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.
2003-2004 2002-2003
Quarter Ended High Low High Low
------------- ---- --- ---- ---
November 29 $0.27 $0.27 $0.40 $0.31
February 28 $0.30 $0.30 $0.33 $0.20
May 30 $0.15 $0.14 $0.26 $0.12
August 31 $0.12 $0.12 $0.30 $0.24
(b) HOLDERS
As of November 22, 2004 there were approximately 287 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.
RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding sales or issuances
of our securities without registration under the Securities Act 0f 1933 as
Amended during the two years ended August 31,2004. All sales were made
solely to accredited investors, without a broker, and were made in reliance
on Section 4(2) or 4(6) of the Securities Act, and Rule 506 under Regulation D.
Conversion
Price
Date Title Number Cash Price Notes
6/03 common 166,667 0.33
8/04 common 675.000 0.14 (1)
(1) Issued in conjunction with a conversion of 8% Convertible Bonds.
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
Page 8
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 2004. The efforts undertaken by the Company in
application development, product approvals and marketing initiatives
should assist it in creating greater sales in fiscal 2005 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
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% per annem, 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.
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 per share.
Accordingly the note has been discounted to reflect the issuance of the
warrants. As of the present date, the note has not been paid.
Page 9
Also in fiscal 2003, the Company received $54,652 from another accredited
investor, in exchange for a note, bearing interest at 18% per annem 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 the sale of the Company?s New Jersey Net Operating
Loss CarryForward. The final amount due of approximately $25,765 was paid in
December 2004. 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 per share. Accordingly, the note has been discounted to
reflectthe issuance of the warrants. In July 2003, 50,000 shares of the
Company's Common stock was issued to this investor. The value of the shares
issued was charged to interest expense.
Also during the fiscal year, the Company received $88,811 from a stockholder,
in exchange for a note bearing interest at 6.00% per annem 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% per annem. 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 transaction, 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, had been charged to
interest expense.
In August 2004 the above debenture was reissued in the amount of $220,180
which included interest to date. The debenture entitles the holder, on or
before February 17, 2005, to convert the debt into common stock at a rate of
one share for each $0.14 principal amount plus any outstanding accrued
interest. The reissued debenture contains no beneficial conversion feature
since the stock was quoted at $0.14 on that date.
During the year, the officers deferred an additional $348,978 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.
Page 10
Because of limited cash resources, the Company has deferred payment of
$1,153,426 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, $775,395 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.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED AUGUST 31, 2004 AND 2003
Sales of $488,282 represented an increase of $60,498 or 14.2% from the
$427,784 in the prior year.
The net loss of $3,783,704 for fiscal year 2004 was $2,676,281 or 242%
greater than the net loss of $1,107,418 in the prior year.
General and administrative expenses of $1,211,660 in fiscal year 2004
were $56,151 or 0.5% less than the prior year.
The $2,612,110 increase in interest expense resulted mainly from an
amount charged for the value of warrants issued to officers and directors
in conjunction with the debt conversion on August 30, 2004.
During the fiscal years 2003 and 2004, the Company realized approximately
$180,000 and $43,000 through the sale of a portion of its New Jersey Net
Operating Loss Carry Forward under a program sponsored by that state.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires
us to make estimates and judgements that affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure
on contingent assets and liabilities at the date of our financial at the
date of our financial statements. Actual results may differ from these
estimates under different assumptions and conditions.
Critical accounting policies are defined as those that are reflective
of significant judgements and uncertainties, and potentially result in
materially different results under different assumptions and conditions.
We believe that our critical accounting policies are limited to those
described below. For a detailed discussion on the application of these
and other accounting policies see our note 1 to our financial statements.
Page 11
Accounting for Income Taxes
As part of the process of preparing our financial statements we are
required to estimate our income taxes. Management judgment is required in
determining our provision of our deferred tax asset. We recorded a valuation
for the full deferred tax asset from our net operating losses carried forward
due to the Company not demonstrating any consistent profitable operations.
In the event that the actual results differ from these estimates or we adjust
these estimates in future periods we may need to adjust such valuation recorded.
Going Concern
The financial statements of the Company have been prepared assuming that the
Company will continue as a going concern. The Company has had negative working
capital for each of the least two years ended August 31, 2004 and 2003. The
Company lacks sufficient capital to pay their debts timely. Those conditions
raise substantial doubt about the abilities to continue as a going concern.
The financial statements of the Company do not include any adjustments that
might be necessary should the Company be unable to continue as a going concern.
Accounting for Stock Based Compensation
We have adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation"("SFAS 123"). As provided for by SFAS
123, we have also elected to account for our stock-based compensation programs
according to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees"("APB 25")." Accordingly, compensation
expense has been recognized based on the intrinsic value of stock issued or
warrants granted to employees and directors for services rendered or warrants
issued in connection with debt.
Item 7. FINANCIAL STATEMENTS
The Company's annual financial statements for the fiscal year ended
August 31, 2004, together with the report thereon by the Company's
independent auditors, Radin, Glass & Co. LLP are set forth
herein commencing on page F-1 of this Form 10-KSB and are incorporated
herein by reference.
The statement of operations, cash flows and stockholders' equity
(deficiency) for the year ended August 31, 2003 has been presented as
unaudited due to an outstanding audit fee due to the previous auditors.
The previous auditing firm has neither reviewed this filing nor consented
to the inclusion of the report previously issued. At such time as the
outstanding audit fee is resolved, the Company will seek to have the
previous auditors consent to the inclusion of their report.
Page 12
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
Our previous accountants resigned as the principal
independent accountant effective April 12 2004. They were engaged
as the principal accountant in July 1995.Since that time, they have
reviewed all of the our financial statements.
In April, 2004 the Company engaged Radin Glass and Co. LLP as its
independent accountant.
The decision to change accountants was approved by the Board of
Directors of the Registrant.
During the fiscal year August 31,2003, and the subsequent interim
period through the date of resignation, there were no disagreements
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
former accountant's satisfaction, would have caused it to make reference
to the subject matter of the disagreement in connection with its report.
Item 8A. CONTROLS AND PROCEDURES
Our management, including the Chief Executive Officer and
Chief Financial Officer, have conducted an evaluation of the effectiveness
of the design and operation of our disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), as of the end of the period covered by this
Annual Report on Form 10-KSB. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in ensuring that
information required to be disclosed by us in the reports we file
or submit under the 1934 Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
There have been no changes in internal control over financial
reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting during
the period covered by this report.
Page 13
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 58 Director, Chief
Executive Officer,
Chief Technical
Officer and
Assistant Treasurer
Sam Oolie 68 Director, Chairman
of the Board, Chief
Operating Officer,
Chief Financial Officer
and Treasurer
Bernard J. Koster 71 Director
Gerald H. Litwin 62 Director
Alphonso Margino 66 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 14
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 August 15, 1995. 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 15
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, 2004, 2003, and 2002, 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, 2004, 2003, and 2002
Name and Year Ended Salary Salary Options All other
Principal Position August 31 Paid Deferred(1) SAR's Compensation
- ------------------ ---------- ------ ----------- ----- -----------
Samuel Gottfried 2004 $ 49,217 $144,837 (4)(5) None
Chief Executive Officer 2003 $ 43,168 $99,759 (3) None
from January 1, 2003 2002 $ 88,379 $79,541 (3) None
and Chief Technical
Officer And Assistant
Treasurer from August 16,
1995
Sam Oolie 2004 $ 44,591 $145,433 (4)(5) None
Chairman of the Board, 2002 $ 30,668 $101,530 (3) None
Chief Operating Officer 2002 $ 56,501 $97,600 None None
And Chief Executive Officer
until July 26, 1999, and
Chief Financial Officer
Since January 2, 2003
William A. Retz 2004 None None (2) $25,000
Chief Executive Officer 2002 $ 19,038 $ 38,076 (3) $113,811
from September 1, 2000 2002 $ 67,448 $103,323 (3) None
until January 2, 2003
Alfonso Margino 2004 $24,087 $58,708 (4) None
Vice President and 2003 $21,585 $51,740 (3) None
Secretary since 2002 $42,563 $34,867 (3) None
June 15, 1998
Page 16
Note (1) Amounts shown as salary deferred are payable when revenues or
financings permit payment as determined by the Board of Directors.
Note (2) Consulting agreement as discussed below.
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. In conjunction with a debt
conversion agreement all of the above warrants have been cancelled as of
August 30, 2004. (see note 4 below)
Note (4) On August 30, 2004 the Company entered into conversion of debt
agreement whereby officers and directors of the Company agreed to convert
certain debt into an 8% convertible debenture. The debenture allows for a
conversion at the rate of $0.14 per share of common stock.
In addition warrants were issued at the rate of 3 times the number of
shares. These warrants cannot be exercised until such time as the Company
increases the authorized number of common stock shares. Therefore they are
not included in Item 11 as shares beneficially owned.
On August 30,2004 The officers and directors returned 8,305,460 previously
Issued warrants as part of the transaction.
Note (5) In January 2004 the board of directors authorized an increase
in compensation to Dr. Gottfried and Mr. Oolie. The new compensation
beginning 1/1/04 is $213,00 annually for each of them.
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 17
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of November 22, 2004 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 4,698,496 14.7%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Samuel Gottfried 4,064,952 12.7%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Alphonso Margino 1,388,000 4.3%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Bernard J. Koster 184,713 0.6%
7 Old Smith Road
Tenafly, NJ 07670
Gerald H. Litwin 1,867,900 5.8%
Two University Plaza
Hackensack, NJ 07601
Robert Downey (3) 1,249,692 3.4%
755 Park Avenue
New York, NY 10021
NF Partners (3) 10,364,118 28.7%
667 Madison Avenue
New York, NY 10021
All officers and directors 12,204,061 38.1%
as a group (five persons)
* Excludes warrants issued but not exercisable until new authorization
of common stock is completed.
Page 18
Note (1) Shares Beneficially Owned includes fully vested warrants in the
following amounts: Downey 410,448; and NF Partners 3,643,875.
Note (2) As of November 22, 2004, there were 31,991,748 shares of Common
Stock issued and outstanding. Percentage of Class for all officers and
directors as a group is computed on 31,991,748 shares which excludes
1,181,066 shares of common stock that cannot be converted until certain
income goals are met. Percentage of class for Robert Downey and NF Partners
is computed on outstanding common stock in the amount of 36,046,071.
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, 2004
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.
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 payment
has been made to Mr. Oolie which is included in the Company's liability
for settled claims. Mr. Koster converted his claim into a convertible
debenture on August 30, 2004. (see below)
On August 30, 2004 the Company entered into conversion of debt agreement
whereby officers and directors of the Company agreed to convert certain
debt into an 8% convertible debenture. The debenture allows for a
conversion at the rate of $0.14 per share of common stock.
In addition warrants were issued at the rate of 3 times the number of
shares. These warrants cannot be exercised until such time as the Company
increases the authorized number of common stock shares. Therefore they are
Page 19
not included in Item 11 as shares beneficially owned.
A schedule of the conversion is shown below:
Name Debt Converted Shares Warrants
- --------- --------------- ------------ -------------
Sam Oolie $ 539,000 3,850,000 11,550,000
Samuel Gottfried 498,000 3,557,142 10,671,426
Alfonso Margino 275,000 1,964,285 5,892,855
Gerald Litwin 258,000 1,842,857 5,528,571
Bernard Koster 15,292 109,228 327,684
On November 1, 2004 a portion of the above was converted to common stock
(see note of subsequent events in financial statements.)
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 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. On August 30, 2004 all
of the above warrants were cancelled as part of the convertible debentures
issued
(see above)
Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A., and
provides certain legal services to the Company. At August 31,2004, the
Company was obligated to that firm in the amount of $150,670, 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 2004 were $17,461
for legal services, and in fiscal 2003, $ 44,091 in fees and $62,446 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. In
August 2004, as part of the issuance of the convertible debenture, these
warrants were cancelled.
During three fiscal years ended 2004, the officers deferred a total of
$814,015 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 $79,973 at August 30, 2004. The accrued salaries and interest were
converted to a debenture on August 30,2004 (see above)
Page 20
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
A. THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY ARE BEING FILED
PURSUANT TO ITEM 7 AS PART OF THIS ANNUAL REPORT ON FORM 10-KSB
1. FINANCIAL STATEMENTS
Index to Financial Statements F-1
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Balance Sheet as of August 31, 2004 F-3
Statements of Operations for the Years
Ended August 31, 2004 and 2003 (unaudited) F-4
Statements of Changes in Stockholders' Equity
(Deficiency) for the years ended August 31,2004
and 2003 (unaudited) F-5
Statements of Cash Flows for the Years
Ended August 31, 2004 and 2003 (unaudited) and F-6
Notes to Financial Statements F-7 to F-18
2. EXHIBITS
Sarbanes-Oxley Act Section 906 Certification Exhibit 1
3. REPORTS ON FORM 8-K
None
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed and unbilled for the fiscal year
ended August 31, 2004 for professional services rendered by our
principal accountants for the audits of our annual financial statements
and the review of our financial statements included in our quarterly
reports on Form 10-QSB were approximately$ 18,627.
AUDIT-RELATED FEES
The aggregate fees billed for the fiscal year ended
August 31, 2004 for assurance and related services rendered by
our principal accountants related to the performance of the audit
or review of our financial statements, specifically accounting
research, were $ .0.
Page 21
TAX AND OTHER FEES
There aggregate fees billed for the fiscal years ended
August 31, 2004 and 2003 for tax related or other services rendered
by our principal accountants in connection with the preparation of
our federal and state tax returns was $ 6,000.
APPROVAL OF NON-AUDIT SERVICES AND FEES
We did not have independent directors or an audit
committee during fiscal 2004 or 2003. We plan to form an Audit
Committee consisting solely of independent directors and, consistent
with SEC policies and guidelines regarding audit independence, the
Audit Committee will responsible for the pre-approval of all audit
and permissible non-audit services provided by our principal
accountants on a case-by-case basis.
Page-22
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 14, 2004 By: /s/ Sam Gottfried
------------------------
Sam Gottfried,
Chief Executive Officer
Date: December 14, 2004 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 14, 2004
Samuel Gottfried, Director
/s/ Bernard J. Koster
- ----------------------------- December 14, 2004
Bernard J. Koster, Director
/s/ Gerald H. Litwin
- ----------------------------- December 14, 2004
Gerald H. Litwin, Director
/s/ Sam Oolie
- ----------------------------- December 14, 2004
Sam Oolie, Director
Page 23
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 officer 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,is made known to us by
others within the Company 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 officer 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 officer 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 24
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 14, 2004 /s/ Sam Oolie
---------------------------
Sam Oolie,
Chief Financial Officer
Page 25
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 officer 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 is made known to us by
others within the Company, 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 officer 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 officer 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 26
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 14, 2004 /s/ Samuel Gottfried
------------------------
Samuel Gottfried
Chief Executive Officer
Page 27
INDEX TO FINANCIAL STATEMENTS
Page
------
Report of Independent Registered Public Accounting Firm F-2
Financial Statements:
Balance sheet at August 31, 2004 F-3
Statements of operations for the years ended
August 31, 2004 and 2003 (unaudited) F-4
Statements of changes in stockholders' equity
(deficiency) for years ended August 31,2004
and 2003 (unaudited) F-5
Statements of cash flows for the years ended
August 31, 2004 and 2003 (unaudited) F-6
Notes to financial statements F-7 to F-18
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
NoFire Technologies, Inc.
We have audited the accompanying balance sheet of NoFire Technologies, Inc.
as of August 31, 2004 and the related statements of operations, changes in
stockholder's equity (deficiency) and cash flows for the year ended
August 31, 2004. 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 audit.
We conducted our audit in accordance with the auditing standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit and the report of the other auditors provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respect, the financial position of NoFire Technologies, Inc. as
of August 31, 2004, and the result of its operations and its cash flows for
the years then ended 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 1 to the
financial statements, the Company has incurred substantial losses from
operations since inception and at August 31, 2004 had a stockholder's
deficiency of $4,327,609 a working capital deficiency of $2,751,602. 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.
Radin, Glass & Co., LLP
Certified Public Accountants
New York, New York
November 17, 2004
F-2
NOFIRE TECHNOLOGIES, INC.
BALANCE SHEET
AUGUST 31, 2004
ASSETS
CURRENT ASSETS:
Cash $ 33,706
Accounts Receivable - trade 15,962
Inventories 86,113
Prepaid expenses and other current assets 12,924
-----------
Total Current Assets $ 148,705
EQUIPMENT, LESS ACCUMULATED DEPRECIATION
OF $36,313 4,399
OTHER ASSETS:
Patents, less accumulated amortization
of $1,528,023 5,008
Security deposits 24,880 29,888
----------
$ 182,992
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 1,153,426
Accounts payable and accrued expenses 481,234
Loans and advances payable to stockholders 29,071
Deferred salaries 504,195
Loans payable 250,173
Convertible debenture 8% 482,208
----------
Total Current Liabilities 2,900,307
LONG TERM LIABILITY
Convertible debenture 8% 1,610,294
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued, to be issued, and outstanding-
21,744,019 4,348,804
Capital in excess of par value 6,774,313
Accumulated Deficit (15,450,726)
----------
Total Stockholders' Equity (Deficiency) (4,327,609)
----------
$ 182,992
=========
See accompanying notes to financial statements
F-3
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Year Ended August 31,
2004 2003
(Unaudited)
---------- ----------
NET SALES $ 488,282 $ 427,784
---------- ----------
COSTS AND EXPENSES:
Cost of sales 159,933 228,689
General and administrative 1,211,660 1,155,509
Write-down of inventory 12,000 -
---------- ----------
1,371,593 1,384,198
---------- ----------
LOSS FROM OPERATIONS ( 883,311) ( 956,414)
---------- ----------
OTHER EXPENSES (INCOME):
Interest expense 2,943,971 331,861
Interest income (288) (300)
---------- ----------
2,943,683 331,561
---------- ----------
LOSS BEFORE INCOME TAXES (3,826,994) (1,287,975)
DEFERRED INCOME TAX BENEFIT 43,290 180,557
---------- --------
NET LOSS $ (3,783,704) $(1,107,418)
========== =========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 21,010,942 20,664,834
========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE: $ (.18) $ (.05)
========== ==========
See accompanying notes to financial statements
F-4
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
STATMENTS OF CHANGES IN STOCKHOLDERS? EQUITY (DEFICIENCY)
Common Stock
------------------------ Capital
Number of in Excess Accumulated
Shares Amount of Par Value (Deficit) Total
---------- ---------- -------- ----------- ---------
BALANCES, AUGUST 31, 2002 20,627,530 $4,125,506 $3,352,919 $(10,559,604) $(3,081,179)
YEAR ENDED AUGUST 31, 2003 (unaudited)
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
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)
---------- ---------- ---------- ----------- ----------
BALANCES, AUGUST 31,2003 (unaudited) 20,939,019 $4,187,804 $4,000,757 $(11,667,022) $(3,478,461)
YEAR ENDED AUGUST 31,2004
Value of discount on convertible
Debenture charged to interest expense 138,000
Issuance of common stock under
private placement at $.15 per share 100,000 20,000 4,500
Conversion of debt for stock
at $.14 per share 675,000 135,000 (59,000)
Issuance of common stock in connection
with services rendered 30,000 6,000 (6,000)
Value of warrants issued in connection
with conversion of debt, issuance
of convertible debentures and services 2,696,056
Net loss (3,783,704)
---------- ----------- ----------- ---------- ----------
$ 21,744,019 $4,348,804 $6,774,013 $(15,450,726)$(4,327,609)
========== ========== ========== =========== =========
F-5
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Year Ended August 31,
2004 2003
(Unaudited)
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,783,704) $(1,107,418)
Adjustments to reconcile net loss
to net cash flows from
operating activities:
Depreciation and amortization 7,106, 8,933
Amortization of interest expense for
discount on note payable 25,297
Amortization of interest expense for
discount on convertible debentures 77,500 160,000
Warrants issued for services and debt 2,687,056
Common Stock issued as interest on
past due loan payable 14,000
Warrants issued for consulting services 9,000 25,000
Repricing of warrants ( 44,000)
Accounts receivable - trade 43,391 (33,267)
Inventories (32,046) 84,218
Prepaid expenses 33,823 5,472
Accounts payable and accrued
expenses (63,845) 287,670
Security deposits 5,501 -
Deferred salaries and interest 482,744 291,104
Obligation from discontinued
operations - -
---------- ----------
Net cash flows used by
operating activities (533,474) (282,991)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on settled
liabilities (15,292) (9,714)
Proceeds from issuance of common
stock, net of related expenses 161,000 50,000
Net proceeds from short-term loans (43,290) 233,463
Loans and advances received from
stockholders 12,601 5,920
Proceeds from issuance of
convertible debentures 255,000 200,000
---------- ----------
Net cash flows from
financing activities 370,019 479,669
---------- ----------
NET CHANGE IN CASH (163,455) 196,678
CASH AT BEGINNING OF YEAR 197,161 44,412
---------- ----------
CASH AT END OF YEAR $ 33,706 $ 483
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 7,235 $ 8,364
========== ==========
Income taxes paid (benefit) $ (43,290) $ (180,557)
========== ==========
NON-CASH FINANCING ACTIVITIES:
Warrants issued in settlement
of accrued interest $ - $479,839
=========== ==========
Convertible debentures issued for
deferred salaries and payables $ 1,610,294 $ -
========== ==========
Common stock issued in exchange
for services $ 30,000 $ -
========== ==========
See accompanying notes to financial statements
F-6
NOFIRE TECHNOLOGIES, INC.
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, throughout the world.
Going Concern- The Company's financial statements have been presented
on the going 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.
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.
F-7
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 was $1743 and $2,324 for
of the years ended August 31, 2004 and 2003, respectively.
Intangible Assets - Patents are amortized on a straight-line basis
over 5 years. Amortization expense was $4,956 and $6,609 for the
years ended August 31, 2004and 2003, respectively.
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, 2004:
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 three customers comprising a
concentrated risk. Management continually evaluates the credit
risk associated with accounts receivable and believes that the
risk is limited
F-8
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS
Advertising Costs - The Company expenses costs for trade shows,
marketing and promotional activities as incurred. Expenses were approximately
$7,800 and $15,000 for the years ended August 31, 2004 and August 31, 2003,
respectively.
Loss per Share - Loss per share is based on the weighted average number of
shares outstanding during the periods. The effect of warrants outstanding
is not included since it would be anti-dilutive.
Equity Based Compensation- The Company follows the intrinsic value method
of Accounting Principles Board Opinion No. 25, ?Accounting for Stock Issued to
Employees? (APB 25) and related interpretations in accounting for its employee
stock options because, in the opinion of management, Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation
?(FAS 123) requires use of option valuation models that were not developed
for use in valuing employee stock options. FAS 123 permits a company to elect
to follow the intrinsic value method of APB 25 rather than the alternative
fair value accounting provided under FAS 123, but requires pro forma net
income (loss) and earnings (loss) per share disclosures as well as various
other disclosures. The Company has adopted the disclosure provisions required
under Financial Accounting standards Board Statement No. 148, ?Accounting for
Stock-Based Compensation Transition and Disclosure ? (FAS 148).
If the recognition provisions of SFAS 123 using the Black-Scholes
option pricing model, were applied, the resulting pro-forma net income (loss)
available to common shareholders, and pro-forma net income (loss) available
to common shareholders per share would be as follows:
Year ended
August 31,
2004 2003
Net loss available to common (3,783,704) $(1,107,418)
Shareholders, as reported
Deduct: Stock-based compensation,
Net of tax $ (459,513) $ (566,000)
Net loss available to common ------- -----------
Shareholders, pro-forma $ (4,243,217) $(1,673,418)
Basic earnings per share
As reported $ (0.18) $ (0.05)
Pro-forma $ (0.20) $ (0.08)
The above stock-based employee compensation expense has been determined
utilizing a fair value method, the Black-Scholes option-pricing model.
The Company has recorded no compensation expense for stock options and warrants
granted to employees during the years ended August 31, 2004 and 2003.
In accordance with SFAS 123, the fair value of each option grant has been
estimated as of the date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions:
F-9
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENT
For the Year ended August 31,
2004 2003
Risk free interest rate 4.00% 5.00%
Expected life 5 yrs 5 yrs
Dividend rate 0.0% 0.0%
Expected volatility 44% 232%
New Accounting Pronouncements - In May 2003, the FASB issued Statements
of Financial Accounting Standards No. 150 b (?SFAS No. 150?), SFAS No. 150
established standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances) because that financial instrument embodies
\ an obligation of the issuer. This SFAS is effective for financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period beginning after
June 15, 2003. It is to be implemented by reporting the cumulative effect
of a change in accounting principle for financial instruments created before
the issuance date of SFAS No. 150 and still existing at the beginning of
the interim period of adoption. Restatement is not permitted. The adoption
of SFAS No. 150 will not have a material effect on the financial statements.
The Company has adopted SFAS No. 150.
In December 2003, the FASB revised SFAS No. 132 Employers? Disclosures
about Pensions and Other Post Retirement Benefits. This revision requires
additional disclosures to those in the original SFAS No. 132 about assets,
obligations, cash flows and net periodic benefit cost of deferred benefit
pension plans and other deferred benefit post-retirement plans. The required
information should be provided separately for pension plans and for other
post-retirement benefit plans. This statement revision is effective for
fiscal year ending after December 14, 2003 and interim periods beginning after
December 15, 2003. The adoption of this revision is not expected to have
a material impact the Company?s our results of operations, financial position
or disclosures.
In November 2004, the FASB issued FASB No. 151, which revised ARB No.43,
relating to inventory costs. This revision is to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling costs and wasted
material (spoilage). This Statement requires that these items be recognized
as a current period charge regardless of whether they meet the criterion
specified in ARB 43. In addition, this Statement requires the allocation of
fixed production overheads to the costs of conversion be based on normal
capacity of the production facilities.
F-10
NOFIRE TECHNOLOGIES INC
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - INVENTORIES:
Inventories, net of reserves, at August 31, 2004 consisted of the following:
Testing material $ 5,000
Raw material $ 49,399
Finished goods 31,714
--------
$ 86,113
========
NOTE 3 - 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, 2004, settled liabilities payable totaled
$1,153,426.
The claims settled were payable by the Company through September 27,
1999 and during the year ended August 31, 2004, the Company converted
approximately $15,292 into an 8% convertible debenture.
The Company is currently delinquent on its scheduled payments to
certain creditors due September 27, 1996 through 1999 in the gross amount
of approximately $1,153,426. The Company does not have funds available
for repayment and without additional sales, capital or financing, payments
cannot be made.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
Legal fees $167,835
Commissions 18,501
Interest 66,244
Payroll and payroll taxes 19,623
Accounts payable 153,203
Other 55,828
----------
$ 481,234
=========
NOTE 5 - 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
F-11
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
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 the sale of the company?s New Jersey net operating
loss. 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. 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 6 - SETTLED CLAIMS PAYABLE TO RELATED PARTIES:
At August 31, 2004, settled claims payable includes amounts due to
current officers and members of the Board of Directors of the Company
totaling approximately $775,395,all of which are delinquent.
On August 30, 2004, the Company converted approximately $15,292 into an
8% convertible debenture.
NOTE 7 ? CONVERTIBLE DEBENTURES:
On August 20, 2003, the Company issued, to an accredited investor,
a $200,000 convertible debenture which matured 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 transaction, 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.
In August 2004 the above debenture was reissued in the amount of $220,180
Which included interest to date. The debenture entitles the holder, on or
before February 17, 2005, to convert the debt into common stock at a rate of
one share for each $0.14 principal amount plus any outstanding accrued
interest. The reissued debenture contains no beneficial conversion feature
since the stock was quoted at $0.14 on that date.
F-12
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
Between September and November 2003, the Company issued to six
accredited investors $355,000 of convertible debentures which mature
between May and November 2004 bearing interest at 8% per annum. The debentures
entitle the holders to convert the debt into common stock at a rate of
one share for each $0.14 principal amount plus any outstanding accrued
interest. In conjunction with this transaction, the Company issued
warrants to the six investors, to purchase a total of 1,165,000 shares
of the Company?s common stock for $0.30-$0.32 per share, expiring
in five years. The warrants vested immediately.
The value attributed to the warrants issued along with the debenture
transactions above, totaling $138,000, has been charged to interest expense.
In August 2004 a $100,000 debenture was reissued in the amount of
$107,028 which included interest to date. The debenture entitles the holder,
on or before February 17, 2005, to convert the debt into common stock at a rate
of one share for each $0.14 principal amount plus any outstanding accrued
interest. The reissued debenture contains no beneficial conversion feature
since the stock was quoted at $0.14 on that date.
In August 2004 two debentures totaling $100,000 were converted into
common stock at the rate of 1 share for each $0.14.
F-13
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
On August 30, 2004 the company entered into conversion of debt agreement
whereby officers and directors of the company agreed to convert certain debt
into an 8% convertible debenture. The debenture allows for a conversion
at the rate of $0.14 per share of common stock. . The beneficial conversion
feature related to these debentures has been valued at $2,588,056 and expensed,
since predominately all of such debt was converted into equity in November 2004
In addition warrants were issued at the rate of 3 times the number of
shares. These warrants cannot be exercised until such time as the company
increases the authorized number of common stock shares.
On November 1, 2004 a portion of the above was converted to common stock
(see subsequent events)
NOTE 8 - 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, 2004 and 2003,
respectively.
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.
NOTE 9 - 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 10 - INCOME TAXES:
No provision for current and deferred income taxes is required for the
years ended August 31, 2004 and 2003.
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 $ 1,287,000 $ 377,000
Permanent and other items (1,090,000) (66,000)
State income tax, net of federal
income tax benefit 32,000 33,000
Valuation allowance (229,000) (344,000)
--------- ---------
$ - $ -
========= =========
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.
F-14
NOFIRE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENT
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 $8,190,000 in net operating losses.
The significant components of the Company?s net deferred tax asset are
summarized as follows:
August 31,
------------------------
2004 2003
---------- ---------
Net operating loss carry forwards $3,190,000 $2,963,000
Deferred compensation 719,000 553,000
---------- ----------
3,909,000 3,516,000
Valuation allowance 3,909,000 3,516,000
---------- ----------
$ - $ _
========== ==========
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, 2004 and 2003.
At August 31, 2004, the Company has federal and state net operating
loss carry forwards for financial reporting and income tax purposes of
approximately $9,085,000 and $1,180,000 respectively, which can be used to
offset current and future taxable income through the year 2022.
During each of the fiscal years 2004 and 2003, the Company sold a portion of
its state net operating loss carry forwards (NOL) realizing approximately
$43,290 and $181,000 respectively.
NOTE 11 - MAJOR CUSTOMERS:
Sales to three customers represented 29.4%, 6.4% and 6.1% of net sales
for the year ended August 31, 2004. Sales to two customers represented
36% and 13% of net sales for the year ended August 31, 2003.
NOTE 12 - WARRANTS:
For the years ended August 31, 2004 and 2003, a summary of the status
of warrants was as follows:
2004 2003
------------------- --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- -------- ---------- --------
Outstanding, beginning of year 17,517,082 $0.70 19,866,150 $0.91
Granted 44,203,345 0.17 2,737,500 0.27
Exercised - -
Cancelled/ forgiven (8,692,619) 0.55 -
Cancelled to re-issue (504,435) 1.41
Expired (7,489,705) 0.92 (5,086,568) 1.34
---------- ----- ---------- -----
Outstanding, end of year 45,033,668 $0.22 17,517,082 0.70
========== ===== ========== =====
Exercisable, end of year 45,033,668 $0.22 17,517,082 0.70
========== ===== ========== =====
F-15
NOFIRE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
The following table summarizes warrant data as of August 31, 2003:
Outstanding and exercisable
Number of Weighted- Weighted Number
Outstanding average remaining average exercisable
life in exercise
years price
------------ ------------------ ----------- ----------
Range of exercise
prices:
$.01-$.15 36,156,249 9.28 $0.14 36,156,249
$.16-$.50 4,000,439 3.55 0.33 4,000,439
$.51-$.99 4,626,980 0.43 0.70 4,626,980
$1.00 or more 250,000 1.10 1.80 250,000
------------ ------------
45,033,668 45,033,668
Although there are 45,033,668 warrants exercisable such warrant exercises are
subject to limitation due to the number of authorized shares of the Company
requiring to be increased.
Information, at date of issuance, regarding warrant grants during the year
ended August 31, 2004:
Shares Weighted Weighted
average average
exercise fair
price value
------------ ------------ -----------
Exercise price exceeds
market price
Exercise price equals
market price 44,203,345 $0.17 $0.11
Exercise price is less
than market price
In addition the Company repriced and reissued certain warrants totaling
504,435 warrants a new exercise price of $0.14 per share. Due to the repricing
of these warrants, these warrants they are subject to revaluation at the end
of each reporting period under variable accounting. The stock price has since
declined to $0.12 as of the end of the year, resulting in a $90,000 gain on
revaluation. Such gain has been recorded as a reduction of the related interest
expense from the original issuance of these warrants.
The weighted average grant date fair value of warrants granted during
the year ended August 31, 2004 was $ 0.11. No warrants had been exercised
by holders as of August 31, 2004
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 the sale of the company?s New Jersey tax loss carry forward.
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. 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. The note was paid in December 2004.
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 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
F-16
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS
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.
In January of 2004 the Company issued five-year warrants to purchase a
total of 28,500 shares of the Company?s common stock to two employees and
three individuals at an exercise price of $0.30 per share. The warrants vested
immediately.
In January of 2004 the Company issued seven-year warrants to purchase a
total of 5,057,460 shares of the Company?s common stock to three officers and
two directors at an exercise price of $0.33 per share. The warrants vested
immediately. As of August 30, 2004 these warrants were cancelled.
In April 2004, the Company issued warrants to eight individuals to
purchase a total of 100,000 and 20,000 shares of the Company?s common stock for
$0.50 and $0.35 per share respectively, expiring in five years. The warrants
vested immediately.
In June 2004 the Company issued five year warrants to purchase 6,700
shares of the Company?s common stock for $0.30 for services. The warrants
vested immediately.
In August 2004, the Company issued five-year warrants to purchase a
total of 1,650,000 shares of the Company?s common stock to an accredited
investor at an exercise price of $0.14 per share. These warrants were issued
for the receipt of $100,000 in debt. The warrants vested immediately. The
value of such warrants of $188,000 was recorded as an expense.
During the year ended August 31, 2004, warrants to purchase 5,542,156
shares of the Company?s common stock expired unexercised.
In August 2004 three officers and two directors and a creditor cancelled
8,692,619 warrants in conjunction with a debt conversion agreement.
F-17
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - SUBSEQUENT EVENTS:
In November 2004 two convertible debentures totaling $55,000 including
interest, were converted into the Company?s common stock at the rate of one
share for each $0.14.
In conjunction with the above one investor cancelled 125,000 warrants.
In November 2004 two accredited investors purchased a total of 285,714
shares of the Company's common stock at $.14 per share. In addition the company
issued 882,142 five year warrants exercisable at $0.14 per share.
On November 1, 2004, the company agreed to a conversion of debt
whereby certain officers, directors and creditors converted $1,283,400 of 8%
convertible debentures into 9,323,444 of common stock at $0.14 per share.
In addition these individuals have the right to purchase warrants at
an amount equal to 3 times the conversion amount.
F-18
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, 2004
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 14, 2004 /s/ Samuel Gottfried
-----------------------
Chief Executive Officer
Dated: December 14, 2004 /s/ Sam Oolie
-----------------------
Chief Financial Officer
EXHIBIT 1