SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 2005
[] 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.
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(Name of small business issuer in its charter)
Delaware 22-3218682
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Industrial Avenue, Upper Saddle River, New Jersey 07458
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (201) 818-1616
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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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
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State the number of shares of each of the issuer's classes of common equity
outstanding at the latest practicable date: 34,806,622 shares of Common
Stock as of January 15, 2006
Transitional Small Business Disclosure Format (check one):
YES NO X
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Page 1
NOFIRE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Balance Sheets as of November 30, 2005(unaudited)
and August 31, 2005 3
Statements of Operations for the Three Months
ended November 30, 2005 and 2004 (unaudited) 5
Statements of Cash Flows for the
Three Months ended November 30, 2005 and 2004.
(unaudited) 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Controls and Procedures 12
Part II - OTHER INFORMATION
Item 1. Legal 13
Item 6. Exhibits 13
Signatures 13
Certification of Financial Information Exhibits 31.1 31.2
Sarbanes-Oxley Act Section 906 Certification Exhibits 32.1 32.2
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
BALANCE SHEETS
November 30, August 31,
2005 2005
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(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 2,585 $14,099
Accounts receivable - trade 6,346 5,313
Inventories 89,778 81,628
Prepaid expenses and other current assets 94,828 6,645
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Total Current Assets 193,537 107,685
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EQUIPMENT, less accumulated depreciation 2,270 2,665
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OTHER ASSETS:
Security deposits 28,048 26,000
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28,048 26,000
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$ 223,855 $136,350
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See accompanying notes to financial statements
Page 3
NOFIRE TECHNOLOGIES, INC.
BALANCE SHEETS
November 30, August 31,
2005 2005
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 378,031 $ 378,031
Accounts payable and accrued expenses 983,848 841,036
Loans and advances payable to
Stock holders 399,111 408,610
Deferred salaries 1,556,014 1,440,445
Loans payable 335,635 279,300
Convertible Debentures 8% 469,928 469,928
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Total Current Liabilities 4,122,567 3,817,350
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LONG TERM LIABILITY - -
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.01 par value:
Authorized - 150,000,000 shares
Issued and outstanding 34,806,622
shares at November 30, 2005 and
August 31, 2005 348,066 348,066
Capital in excess of par value 13,283,566 13,160,269
Unearned compensation (3,675) (3,675)
Accumulated Deficit (17,526,669) (17,185,660)
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Total Stockholders' Equity (Deficiency) (3,898,712) (3,681,000)
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$ 223,855 $ 136,350
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See accompanying notes to financial statements
Page 4
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the Three Months
Ended November 30,
2005 2004
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(UNAUDITED)
NET SALES $ 62,231 $ 116,274
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COSTS AND EXPENSES:
Cost of sales 36,232 68,298
General and administrative 226,992 287,061
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263,224 355,359
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LOSS FROM OPERATIONS (200,993) (239,085)
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OTHER EXPENSES:
Interest expense 175,871 116,862
Interest income - (79)
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175,871 116,783
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LOSS BEFORE INCOME TAXES (376,864) (355,868)
DEFERRED INCOME TAX BENEFIT 35,856 49,928
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NET LOSS $ (341,008) $(305,940)
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 32,198,933 26,645,492
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BASIC AND DILUTED EARNINGS LOSS
PER COMMON SHARE $ (0.01) $ (0.01)
========== ==========
See accompanying notes to financial statements
Page 5
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months
Ended November 30,
2005 2004
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (341,008) (305,940)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 395 1,683
Amortization of interest expense for
Discount on note payable 16,434 -
Discount on note payable 49,300 -
Warrants issued in exchange for loans
By officer 92,875 -
Repricing of warrants (35,310) 10,100
Warrants issued with debt conversion - 86,808
Changes in operating assets and liabilities
Inventory (8,150) 2,800
Accounts receivable - trade ( 1,033) (22,547)
Prepaid expenses and other (88,183) (51,330)
Receivable for sale of state
tax loss - (49,928)
Accounts payable and accrued expenses 142,809 113,101
Security deposits (2,048) -
Deferred salaries 115,569 99,265
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Net cash flows from operating activities (58,350) (115,988)
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See accompanying notes to financial statements
Page 6
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Three Months
Ended November 30,
2005 2004
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(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES - -
CADH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock,
net of related expenses - 40,000
Net proceeds from short term loans 56,335 -
Payments on advances from stockholders (9,499) (10,500)
Loans and advances from stockholders - 21,550
Interest accrued on loans from
stockholders - 18,753
Proceeds from issuance of convertible
debentures - 30,000
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Net cash flows from financing activities 48,836 99,803
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NET CHANGE IN CASH (11,514) ( 16,185)
CASH AT BEGINNING OF PERIOD 14,099 33,706
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CASH AT END OF PERIOD $ 2,585 $ 17,521
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SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 10,101 $ 663
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Common stock issued in exchange
for debt $ - $ 1,381,800
========== ==========
See accompanying notes to financial statements
Page 7
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
November 30, 2005
NOTE 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has been derived
from the audited balance sheet contained in the Company's Form 10-KSB for th
year ended August 31, 2005 (the "10-KSB") and is presented for comparative
purposes. All other financial statements are unaudited. In the opinion of
management, all adjustments which include only normal recurring adjustments
necessary to present fairly the financial position, results of operations and
cash flows for all periods presented have been made. The results of
operations for interim periods are not necessarily indicative of the operating
results for the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been omitted in accordance with the published rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the 10-KSB for the most recent fiscal year.
NOTE 2 - Reorganization:
The Company owned 89% of the outstanding common stock of both No Fire Ceramic
Products, Inc. and No Fire Engineering, Inc. together with an option to
acquire the remaining 11% of such stock. Both of those subsidiaries were
dissolved during the fiscal year ended August 31, 1997.
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.
NOTE 3- SUMMARY OF SIGNIFICANT ACCOUNTING POLOCIES:
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:
Page 8
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENT
(Unaudited)
November 30, 2005
Three months ended
November 30,
2005 2004
Net loss as reported $ 341,008 $ 305,940
Deduct: Stock-based compensation,
Net of tax 1,857 6,000
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Net loss, pro-forma $ 342,865 $ 311,940
Basic earnings per share
As reported $ (.01) $ (.01)
Pro-forma $ (.01) $ (.01)
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 three months ended November 30, 2005
and 2004.
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:
For the Three Months ended November 30,
2005 2004
Risk free interest rate 4.26% 4.0%
Expected life
Yrs 10 8.5
Dividend rate 0.0% 0.0%
Expected volatility 40.6% 18%
NOTE 4 - Management's Actions to Overcome Operating and Liquidity
Problems:
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 s viability as a
going concern is dependent upon its ability to achieve profitable operations
through increased sales and/or obtaining additional financing. Without
achieving these, there is substantial doubt about the Company s ability to
continue as a going concern.
The Company has a liability for settled claims payable to creditors in
connection with its reorganization under the Plan. Without the achievement
of profitable operations or additional financing, funds for repayment would
not be available.
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NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
November 30, 2005
Management believes that successful passing of stringent tests, obtaining
various civil and government approvals, and actions it has undertaken to
revise the Company's operating and marketing structure should provide it
with the opportunity to generate revenues needed to realize profitable
operations and to attract the necessary financing and/or capital for the
payment of outstanding obligations.
NOTE 5 CONVERTIBLE DEBENTURES AND OTHER DEBT:
On September 2, 2005 the Company borrowed, from an accredited investor,
$100,000 at the interest rate of 15%. The note has a one year maturity
date.
In conjunction with the above $100,000 note, ten year $.14 warrants were
issued for the purchase of 1,000,000 shares of the Company s common
stock. The recorded debt was discounted for the allocated value to the
warrants issued of $65,734 and is shown on the balance sheet as
$50,700 as of November 30, 2005. The discount will be amortized to
expense at approximately $16,000 per quarter.
During October 2005 the Company borrowed from two individuals $36,135.
These loans bore no interest and have no specific due date.
Note 6- 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).
Page 10
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
November 30, 2005
During the 3 months ended November 30, 2005 20,000 warrants were issued to
an employee. The warrants are convertible into the company s common stock
at $0.18 per share and expire in five years. The warrants vested immediately.
There was no stock based compensation issued in the quarter ended November 2004.
In November 2005 the Company issued 1,000,000 warrants to an officer of the
Company. The warrants are convertible into the Company s common stock at $.20
per share and expire in ten years. These warrants were issued in recognition
of the substantial loans made to the Company.
During the quarter ended November 30, 2005 117,565 warrants expired
NOTE 7- SUBSEQUENT EVENTS
In December 2005 the company received $35,856 in payment on the sale of
the company s New Jersey Carry Forward Loss for 2004. In was then
used to retire a portion of a loan which was collaterized by the receivable.
On December 17, 2005 a note payable for $123,800 was extended for an
additional year. The interest rate of 12% remained the same.
As a fee for the above, the Company issued 300,000 five-year warrants for the
purchase of common stock of the Company at $.07 per share and a late fee of
$12,000.
In December 2005 the company borrowed $10,000 from an individual. The note is
Due January 15, 2006 and bears no interest.
Warrants were issued in December and January as follows.
Name Issue Expire Amount Price
Employees (5) December 05 December 10 400,000 $.10
Note holder December 05 December 10 300,000 $.07
Individual December 05 December 10 10,000 $.07
Employee January 06 January 11 10,000 $.20
The warrants vested immediately.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company continued its product development and application testing, and now
have numerous certifications for specific applications. Since August 1995, the
Company has applied for eight patents, five of which have been issued. The
other three are pending. Additionally, one patent has been purchased by the
Company. The Company has been increasing its marketing efforts
principally by retaining the services of specialized distribution firms. The
Company's management believes that marketing efforts to date have brought the
Company closer to achieving greater sales for applications in many diverse
industries including: military, maritime, wood products, structural steel and
nuclear power plants. Significant tests have been passed and approvals
received to qualify the Company s products in naval and other military and
governmental applications. Aggressive marketing efforts are underway to
obtain orders in these applications. Obstacles encountered in obtaining
orders for most applications are the continuing tests and approvals required,
competition against well established and better capitalized companies, cost,
Page 11
the slow process of specifying new products in highly regulated industrial
applications and the decisions not to use any fire retardant product.
In general, the Company s products perform their intended uses well and are
in a form that is safe and easy to use. The Company s most pressing need
continues to be cash infusion as discussed below in the section on Liquidity
and Capital Resources. The Company is limiting its research and development
efforts in order to concentrate on sales of existing products. While new
market opportunities frequently arise, the Company has opted to concentrate
on targeting sales of present products rather than developing new products.
Efforts to establish additional U.S. distributors are being accelerated.
Additional efforts are also being directed to increase international sales
by establishing distributor relationships in strategic locations throughout
the industrialized world.
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 independent
commission agents or employees compensated principally by commission.
COMPARISON THREE MONTHS ENDED NOVEMBER 30, 2005 AND NOVEMBER 30, 2004
Sales of $62,231 for the three months ended November 30, 2005 represented an
Decrease of 46.5% from the $116,274 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods decreased from
$68,298 to $36,232 resulting in a gross profit of $25,999 compared to $47,976
in the prior year. Selling, general and administrative expenses for the three
months ended November 30, 2005 was $226,992, representing a decrease of
$60,069 or 20.9% from the $287,061 of the similar period of the prior year.
The main components of the decrease are: Professional fees of approximately
$8,000, Insurance $6,400 and Repricing of warrants of $45,410.
During the quarters ended November 30, 2005 and 2004 the Company realized
approximately $35,856 and $49,928, respectively, through the sale of a
portion of its New Jersey Net Operating Loss Carry Forward under a program
sponsored by that state.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 2005 the Company had cash balances of $ 2,585.
On September 2, 2005 the Company borrowed, from an accredited investor,
$100,000 at the interest rate of 15%. The note has a one year maturity
date.
In conjunction with the above $100,000 note, ten year $.14 warrants were
issued for the purchase of 1,000,000 shares of the Company s common
stock. The recorded debt was discounted for the allocated value to the
warrants issued of $65,734 and is shown on the balance sheet as
$50,700 as of November 30, 2005. The discount will be amortized to
expense at approximately $16,000 per quarter.
During October 2005 the Company borrowed from two individuals $36,135.
These loans bore no interest and have no specific due date.
The Company has deferred payment of $378,031 of the installments of the
Page 12
Chapter 11 liability to unsecured creditors that were due in September 1996,
1997, 1998 and 1999. 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 the Company will be
successful in securing requisite financing.
Item 3 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 Quarterly Report on Form 10-QSB/A. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
ITEM 6. EXHIBITS
Exhibits 31.1 31.2 Certification of Financial Information
Exhibit 32.1 32.2 Sarbanes-Oxley Act Section 906 Certification
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: January 11, 2006 NoFire Technologies, Inc.
By: /s/ Samuel Gottfried
Sam Gottfried
Chief Executive Officer
By: /s/ Sam Oolie
Sam Oolie
Chairman of the Board,
Chief Financial Officer
Page 13