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 May 31, 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
No Fire 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
-----------------------------------------------------------
(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
--- ---
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
--- ---
State the number of shares of each of the issuer's classes of common equity
outstanding at the latest practicable date: 34,779,122 shares of Common
Stock as of July 15, 2005.
Transitional Small Business Disclosure Format (check one):
YES NO X
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Page 1
NO FIRE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Balance Sheets as of May 31, 2005 (unaudited)
and August 31, 2004 3
Statements of Operations for the Nine Months
and Three Months ended May 31, 2005
and 2004 (unaudited) 5
Statements of Cash Flows for the
Nine Months ended May 31,2005 and 2004
(unaudited) 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Controls and Procedures 16
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Sales of Unregistered Securities 16
Item 6. Exhibits 17
Signatures 17
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
NO FIRE TECHNOLOGIES, INC.
BALANCE SHEETS
May 31, August 31,
2005 2004
----------- ----------
(UNAUDITED) (AUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 9,217 $ 33,706
Accounts receivable - trade 3,211 15,962
Inventories 88,791 86,113
Prepaid expenses and other current assets 17,884 12,294
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Total Current Assets 119,103 148,705
--------- ----------
EQUIPMENT, less accumulated depreciation 3,106 4,399
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$1,531,779 at May 31, 2005 and
$1,528,023 at August 31, 2004 1,253 5,008
Security deposits 25,750 24,880
Foreign tax credits 46,500 -
---------- ---------
73,503 29,888
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$ 195,712 $ 182,992
========== ==========
See accompanying notes to financial statements
Page 3
NO FIRE TECHNOLOGIES, INC.
BALANCE SHEETS
May 31, August 31,
2005 2004
----------- ----------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $1,153,426 $1,153,426
Accounts payable and accrued expenses 642,330 481,234
Loans and advances payable to
stockholders 233,621 29,071
Deferred salaries 702,872 504,195
Loans payable 337,611 250,173
Convertible Debentures 8% 469,928 482,208
---------- ---------
Total Current Liabilities 3,539,788 2,900,307
---------- ---------
LONG TERM LIABILITY
Convertible Debenture 8% - 1,610,294
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.01 par value:
Authorized -150,000,000 shares
Issued and outstanding 34,791,622
shares at May 31, 2005 and 21,744,019
shares at August 31, 2004 347,916 4,348,804
Capital in excess of par value 13,172,317 6,774,313
Accumulated Deficit (16,854,334) (15,450,726)
Unearned Compensation (9,975)
---------- ----------
Total Stockholders' Equity (Deficiency) (3,344,076) (4,327,609)
---------- ----------
$ 195,712 $ 182,992
========== ==========
See accompanying notes to financial statements
Page 4
NO FIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the Nine Months For the Three Months
Ended May 31, Ended May 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
NET SALES $ 464,691 $ 385,875 $ 274,777 $ 252,332
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 170,742 128,339 61,963 68,473
Research and development costs 36,773 50,620 14,805 19,006
General and administrative 1,010,250 830,492 478,113 300,312
---------- ---------- --------- ----------
1,217,765 1,009,451 554,881 387,791
---------- --------- ---------- ----------
LOSS FROM OPERATIONS (753,074) (623,576) (280,104) (135,459)
---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest expense 693,690 232,191 515,434 22,489
Interest income 70 (225) 225 (75)
---------- ---------- ---------- ----------
693,760 231,966 515,659 22,414
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES $ (1,446,834) $ (855,542) $ (795,763) $ (157,873)
INCOME TAX BENEFIT-Net 43,225 43,290 - -
---------- ---------- ---------- ----------
NET LOSS $ (1,403,609) $ (812,252) $ (795,763) (157,873)
========== ========== ========== ==========
(LOSS) PER SHARE, BASIC AND
DILUTED $ (0.047) $ (0.045) $ (0.025) $ (0.008)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 31,401,705 20,939,019 31,401,705 20,939,019
========== ========== ========== ==========
See accompanying notes to financial statements
Page 5
NO FIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended May 31,
2005 2004
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,403,609) $(812,252)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 5,048 6,698
Amortization of interest expense for
discount on convertible debentures 423,059 138,000
Repricing of warrants 50,860 -
Warrants issued with debt conversion 105,000 -
Warrants and shares issued in exchange
for services 8,884 -
Changes in operating assets and liabilities
Inventory (2678) ( 1,500)
Accounts receivable - trade 12,751 41,964
Prepaid expenses and other (5,590) (13,111)
Accounts payable and accrued expenses 139,491 15,250
Deferred salaries 198,677 189,570
Foreign tax credit 46,500 -
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Net cash flows from operating activities (421,607) (435,381)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Security deposits (870) (5,501)
--------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES (870) (5,501)
--------- --------
See accompanying notes to financial statements
Page 6
NO FIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended May 31,
2005 2004
--------- ---------
(UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of related expenses $ 106,000 $ -
Payments on advances from stockholders
Loans and advances from stockholders 204,550 57,776
Proceeds from issuance of convertible
debentures - 230,000
Proceeds from short-term loans 87,438 (43,290)
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Net cash flows from financing activities 397,988 244,486
---------- ----------
NET CHANGE IN CASH (24,489) (196,396)
CASH AT BEGINNING OF PERIOD 33,706 197,161
-------- ----------
CASH AT END OF PERIOD $ 9,217 $ 765
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 6,878 $ 1,154
========== ==========
Income taxes paid (received) (43,225) $(43,290)
=========== =========
Common stock issued
Conversion of convertible debt $ 1,614,434 $ -
Settlement of debt 10,000 -
========== ==========
See accompanying notes to financial statements
Page 7
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 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 the
year ended August 31, 2004 (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 policies:
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).
Page 8
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
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:
For the Nine months For the three months
ended ended
5/31/2005 5/31/2004 5/31/2005 5/31/2004
Net loss available to common
Shareholders, as reported $(1,403,609) $(812,252) $ (795,763) (157,873)
Deduct: Stock-based compensation
Net of tax 133,000 459,513 0 0
Net loss available to common
Shareholders, pro-forma 1,536,609 1,271,765 795,763 157,873
Basic earnings per share:
As reported $ (0.047) $(0.045) $ (.025) $ (.0008)
Pro-forma $ (0.048) $ (0.06) $ (.025) $ (.0008)
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 nine months ended May 31, 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 nine months ended
May 31,2005 May 31,2004
Risk free interest rate 4.0 4.0
Expected life 5 YEARS 6.5 YEARS
Dividend rate 0.00% 0.00%
Expected volatility 73% 18%
New Accounting Pronouncements -
FASB 151 Inventory Costs
In November 2004, the FASB issued FASB Statement 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 criteria specified in ARB No. 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. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is
permitted for inventory costs incurred during fiscal years beginning
after the date this Statement is issued. Management believes this
Page 9
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
Statement will have no impact on the financial statements of the
Company once adopted.
FASB 152 Accounting for Real Estate Time-Sharing Transactions
In December 2004, the FASB issued FASB Statement No. 152, which amends
FASB Statement No. 66, Accounting for Sales of Real Estate, to
reference the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement of
Position (SOP) 04-2, Accounting for Real Estate Time-Sharing
Transactions. This Statement also amends FASB Statement No. 67,
Accounting for Costs and Initial Rental Operations of Real Estate
Projects, to state that the guidance for (a) incidental operations and
(b) costs incurred to sell real estate projects does not apply to real-
estate time-sharing transactions. The accounting for those operations
and costs is subject to the guidance in SOP 04-2. This Statement is
effective for financial statements for fiscal years beginning after
June 15, 2005. Management believes this Statement will have no impact
on the financial statements of the Company once adopted.
FASB 153 Exchanges of Nonmonetary Assets
In December 2004, the FASB issued FASB Statement No. 153. This
Statement addresses the measurement of exchanges of nonmonetary assets.
The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary
assets should be measured based on the fair value of the assets
exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance.
A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of
the exchange. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. Earlier application is
permitted for nonmonetary asset exchanges incurred during fiscal years
beginning after the date this Statement is issued. Management
believes this Statement will have no impact on the financial statements
of the Company once adopted.
FASB 123 (revised 2004) Share-Based Payments
In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supercedes APB
Opinion No. 25, Accounting for Stock Issued to Employees, and its
related implementation guidance. This Statement establishes standards
for the accounting for transactions in which an entity exchanges it?s
equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entities
equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-
based payment transactions. This Statement does not change the
accounting guidance for share-based payment transactions with parties
other than employees provided in Statement 123 as originally issued and
Page 10
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
EITF Issue No. 96-18, Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. This Statement does not address the
accounting for employee share ownership plans, which are subject to
AICPA Statement of Position 93-6, Employers Accounting for Employee
Stock Ownership Plans.
A nonpublic entity will measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date
fair value of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services
received in exchange for an award of liability instruments based on its
current fair value; the fair value of that award will be re-measured
subsequently at each reporting date through the settlement date.
Changes in fair value during the requisite service period will be
recognized as compensation cost over that period. A nonpublic entity
may elect to measure its liability awards at their intrinsic value
through the date of settlement.
The grant-date fair value of employee share options and similar
instruments will be estimated using the option-pricing models adjusted
for the unique characteristics of those instruments (unless observable
market prices for the same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized
as an addition to paid-in-capital. Cash retained as a result of those
excess tax benefits will be presented in the statement of cash flows as
financing cash inflows. The write-off of deferred tax assets relating
to unrealized tax benefits associated with recognized compensation cost
will be recognized as income tax expense unless there are excess tax
benefits from previous awards remaining in paid-in capital to
which it can be offset.
The notes to the financial statements of both public and nonpublic
entities will disclose information to assist users of financial
information to understand the nature of share-based payment
transactions and the effects of those transactions on the financial
statements.
The effective date for public entities that do not file as small
business issuers will be as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. For public
entities that file as small business issuers and nonpublic entities the
effective date will be as of the beginning of the first interim or
annual reporting period that begins after December 15, 2005. Management
intends to comply with this Statement at the scheduled effective date
for the relevant financial statements of the Company.
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 Companys ability to
continue as a going concern.
Page 11
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
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.
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:
On August 30, 2004 the Company entered into a Conversion of Debt
Agreement, whereby officers and directors of the Company agreed to
convert certain debt into an 8% convertible debenture. The debenture
allowed for a conversion at the rate of $0.14 per share of common
stock of unpaid principal and accrued interest.
On November 30, 2004 $ 1,283,400 of the above debenture was converted
into the Companys common stock.
In December 2004 the balance of the Convertible Debenture totaling $326,894
was converted into the Companys common stock.
In addition warrants were issued at the rate of 3 times the number of
Shares
During the nine months, two accredited investors converted $55,000 of
their Convertible Debentures into 659,003 shares of the Companys common
stock.
During the nine months, $400,000 of Convertible Debentures previously
Issued were reissued to include interest and penalties in the amount
of $69,928.
In conjunction with the above the Company issued 1,200,000 $0.22 ten
Year warrants to purchase the Companys common stock. The warrants
vested immediately. The Company charged $ 423,059 to interest expense
on this transaction.
Note 6- Equity transactions
In May 2005 pursuant to a proxy statement filed, the Company increased
its authorized Common Stock to 150,000,000 shares, par value $.01.
During the nine months ended May 31, 2005 4,146,980 warrants expired.
On November 30, 2004 the Company issued to two accredited investors
285,714 shares of the Companys common stock for $40,000. In addition,
the Company issued 857,145 $0.14 ten-year warrants to purchase the
Companys common stock. The warrants vested immediately.
During January 2005 an accredited investor loaned the Company $65,000
on a one year 15% note. The note is collateralized by future sales of
New Jersey State Carryover Losses and 500,000 shares of the Companys
common stock which is being held in escrow. In addition 65,000 shares
of the Companys common stock was issued as an additional fee.
Page 12
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
In February 2005, a creditor converted a $10,000 note into 50,000
shares of the Companys common stock at $.20. He also received 125,000 5
year warrants convertible at $.20 per share. The warrants vested
immediately.
In February 2005 the Company issued to a director 700,000 10 year
warrants convertible at $.22 per share. The warrants vested
immediately.
On March 17, 2005 an accredited investor purchased 214,286 shares of
the Companys common stock for $30,000 and was also issued 642,858, five
year warrants exercisable at $0.14 per share. The warrants vested
immediately.
On March 15, 2005, a creditor converted approximately $10,000 of debt
into 30,000 shares of the Companys common stock at $.20 per share.
He also received 40,000 5 year warrants convertible at $.20 per share.
The warrants vested immediately.
In conjunction with the above 60,000 $.20 per share five-year warrants
were issued as a modification to an existing consulting agreement.
These warrants vest at a rate of 5,000 per month for one year.
In addition 60,000 shares of the Companys common stock are to be issued
as consulting compensation over a one year period beginning March 15,
2005 at 5000 shares in each monthly period. As of May 31, 2005 12,500
shares of common stock have been recorded as earned.
NOTE 7- Subsequent events
In June 2005 an officer of the Company advanced loans to the Company
in the amount of $44,100 at 15% interest per annum.
In May of 2005 a judgment was entered against the Company in the amount of
$106,402.59 representing principal, interest, and legal fees on a past due
note payable of $88,811.25. A settlement was reached in the matter by agreeing
to make four payments of $22,202.81 beginning June 1, 2005. When all payments
are made, the matter will be considered fully settled. The first two payments
were made on time by an officer of the Company.
Page 13
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
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
has 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,
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.
COMPARISION NINE MONTHS AND THREE MONTHS ENDED MAY 31, 2005 AND 2004
Sales of $464,691 for the nine months ended May 31, 2005 represented an
increase of 20.4% from the $385,875 for the comparable nine-month period of
the prior year. Cost of goods sold during the same periods increased from
$128,339 to $170,742 resulting in a gross profit of $293,949 compared to
$257,536 in the prior year. Selling and general administrative expenses for
the nine months ended May 31, 2005 were $1,010,250, representing an increase
of $179,758 or 21.6% from the $830,492 of the similar period of the prior
year.
Page 14
NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
Sales of $274,777 for the three months ended May 31, 2005 represented an
increase of 8.9% from the $252,332 for the comparable three-month period of
the prior year. Cost of good sold during the same periods decreased from
$68,473 to $61,963 resulting in a gross profit of $212,814 compared to
$184,000 in the prior year. Selling and general administrative expenses for
the three months ended May 31, 2005 was $478,113, representing an increase of
$177,801 or 59.2% from the $300,312 of the similar period of the prior year.
The main components of the changes in the nine-month period are as follows.
May 31, May 31,
2005 2004 Difference
-------- -------- ----------
Material $165,564 $125,263 $40,301
Testing 36,773 50,620 (13,847)
Bad debt expense 62,088 - 62,088
Compensation expense 70,565 - 70,565
Mfg. Overhead 34,754 42,492 (7,738)
Rent 101,498 96,665 4,833
Commissions 62,984 57,531 5,453
Salaries and fringes 438,118 422,977 15,141
Insurance 70,674 40,647 30,027
Professional fees 96,355 110,860 (14,505)
Interest expense 693,689 232,191 461,498
During the period ended May 31, 2005 and May 31, 2004 the Company
realized approximately $50,000 and $43,000 respectively through the sale of a
portion of its New Jersey Operating Loss Carry Forward under a program
sponsored by the state.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2005 the Company had a cash balance of $9,217.
In order to fund continuing operations during the nine months ended on that
date, the Company issued to two accredited investors 285,714 shares of the
Companys common stock for $40,000. In addition the Company issued
857,145 $0.14 ten-year warrants to purchase the Companys common stock.
The warrants vested immediately. During January 2005 an accredited
investor loaned the company $65,000 in exchange for a one year 15%
note. The note is collateralized by future sales of New Jersey State
Carryover Losses and 500,000 shares of the Companys common stock, which
is being held in escrow. In addition 65,000 shares of the Companys
common stock was issued as an additional fee. During February 2005 the
Company established a line of credit of $25,000 from MBNA-Business
Elite.
On March 17, 2005 an accredited investor purchased 214,286 shares of
the Companys common stock for $30,000 and was also issued 642,858 5-
year warrants exercisable at $0.14. The warrants vested immediately. In
June an officer of the Company advanced loans to the Company in the
amount of $44,100 at 15% interest per annum. (see subsequent events)
The Company has deferred payment of $1,153,426 of the installments of the
Chapter 11 liability to unsecured creditors that were due in September 1996,
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NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
1997, 1998 and 1999. Of that deferred amount, $775,394 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 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 report on Form Q-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 SECs rules and forms.
There have been no changes in internal control over financial reporting
that has 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
In May of 2005 a judgment was entered against the Company in the amount of
$106,402.59 representing principal, interest, and legal fees on a past due
note payable of $88,811.25. A settlement was reached in the matter by agreeing
to make four payments of $22,202.81 beginning June 1, 2005. When all payments
are made, the matter will be considered fully settled. (see subsequent events).
Item 2. Sales of Unregistered Securities
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
allowed for a conversion at the rate of $0.14 per share of common
stock.
On November 30, 2004 $1,283,400 of the above debenture was converted
Into 9,323,444 of the Companys common stock and 27,970,332 of the
Companys warrants convertible at $0.14 per share.
In December 2004 the balance of the Convertible Debenture totaling $326,894
was converted into 2,393,370 the Companys common stock and 7,180,110 of the
Companys warrants convertible at $0.14 per share.
During the period two accredited investors converted $55,000 of their
Convertible Debentures into 659,003 shares of the Companys common
stock.
On November 30, 2004 the Company issued to two accredited investors
285,714 shares of the Companys common stock for $40,000. In addition
the Company issued 857,145 $0.14 ten-year warrants to purchase the
Companys common stock. The warrants vested immediately.
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NO FIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2005
During January 2005 an accredited investor loaned the Company $65,000
on a one year 15% note. The note is collateralized by future sales of
New Jersey State Carryover losses and 500,000 shares of the Companys
common stock, which is being held in escrow.
In addition 65,000 shares of the Companys common stock were issued as
an additional fee.
In February 2005, a creditor converted $10,000 into 50,000 shares of
the Companys common stock at $.20. He also received 125,000 5 year
warrants convertible at $.20 per share. The warrants vested
immediately.
On March 17, 2005 an accredited investor purchased 214,286 shares of
the Companys common stock for $30,000 and was also issued 642,858, five
year warrants exercisable at $0.14. The warrants vested
immediately.
On March 15, 2005, a creditor converted approximately $10,000 of debt
into 30,000 shares of the Companys common stock at $.20 per share.
He also received 40,000 5 year warrants convertible at $.20 per share.
The warrants vested immediately.
In conjunction with the above 60,000 $.20 five-year warrants were
issued as a modification to an existing consulting agreement. These
warrants vest at a rate of 5,000 per month for one year.
In addition 60,000 shares of the Companys common stock are to be issued
as consulting compensation over a one year period beginning March 15,
2005 at 5000 shares in each monthly period. As of May 31, 2005 12,500
shares of common stock have been recorded.
ITEM 6. EXHIBITS
Certification of Financial Information Exhibits 31.1 31.2
Sarbanes-Oxley Act Section 906 Certification Exhibits 32.1 32.2
SIGNATURES
In accordance with the requirements of the 1934 Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: July 15, 2005 No Fire 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 17