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 February 28, 2006
[] 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: 35,156,622 shares of Common
Stock as of April 11, 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 February 28, 2006(unaudited)
and August 31, 2005 3
Statements of Operations for the Six Months and
Three months ended February 28, 2006 and 2005
(unaudited) 5
Statements of Cash Flows for the
Six Months ended February 28, 2006 and 2005.
(unaudited) 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Controls and Procedures 13
Part II - OTHER INFORMATION
Item 1. Legal 14
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 14
Item 6. Exhibits 14
Signatures 14
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
February 28, August 31,
2006 2005
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 2,055 $14,099
Accounts receivable - trade 19,823 5,313
Inventories 77,247 81,628
Prepaid expenses and other current assets 43,321 6,645
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Total Current Assets 142,446 107,685
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EQUIPMENT, less accumulated depreciation 1,875 2,665
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OTHER ASSETS:
Security deposits 28,048 26,000
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28,048 26,000
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$ 172,369 $136,350
========== ==========
See accompanying notes to financial statements
Page 3
NOFIRE TECHNOLOGIES, INC.
BALANCE SHEETS
February 28, August 31,
2006 2005
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 378,031 $ 378,031
Accounts payable and accrued expenses 1,086,425 841,036
Loans and advances payable to
Stockholders 426,634 408,610
Deferred salaries 1,649,552 1,440,445
Loans payable 326,213 279,300
Convertible Debentures 8% 469,928 469,928
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Total Current Liabilities 4,336,783 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 35,056,622
shares at February 28, 2006 and
34,802, 622, as of August 31, 2005 350,566 348,066
Capital in excess of par value 13,339,845 13,160,269
Unearned compensation 0 (3,675)
Accumulated Deficit (17,854,825) (17,185,660)
---------- ----------
Total Stockholders' Equity (Deficiency) (4,164,414) (3,681,000)
---------- ----------
$ 172,369 $ 136,350
========== ==========
See accompanying notes to financial statements
Page 4
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the Six Months For the Three Months
Ended February 28, Ended February 28,
2006 2005 2006 2005
---------- ------ ------ ------
(UNAUDITED) (UNAUDITED)
NET SALES $ 162,347 $ 189,913 $ 100,116 $ 73.639
---------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 77,416 108,779 41,184 40,480
Research and development costs 20,111 21,967 20,111 11,558
General and administrative 516,019 538,838 289,027 262,470
---------- ---------- ----------- ----------
613,546 669,584 350,322 314,508
---------- --------- ----------- ----------
LOSS FROM OPERATIONS (451,199) (479,671) (250,206) (240,869)
---------- ---------- ----------- ----------
OTHER EXPENSES:
Interest expense 253,709 178,255 77,878 61,393
Interest income - (154) - (75)
---------- ---------- ------------ ----------
253,709 178,101 77,878 61,318
---------- ---------- ------------ ----------
LOSS BEFORE INCOME TAXES (704,948) (657,772) (328,084) (302,187)
DEFERRED INCOME TAX BENEFIT 35,783 49,928 73 -
---------- ---------- ------------- ----------
NET LOSS $ (669,165) $ (607,844) (328,157) $(302,187)
========== ========== ============= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 34,868,050 29,394,631 34,917,122 33,219,936
========== ========== ============= ==========
BASIC AND DILUTED EARNINGS LOSS
PER COMMON SHARE $ (0.02) $ (0.02) $ (0.01) $ (0.01)
========== ========== ============== =========
See accompanying notes to financial statements
Page 5
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Six Months
Ended February 28,
2006 2005
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (669,165) (607,844)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 790 3,365
Amortization of interest expense for
discount on note payable 19,197 -
Warrants issued in exchange for loans
by officer 92,875 -
Repricing of warrants (35,310) 28,300
Warrants issued with debt conversion - 86,808
common stock released in exchange for
services 15,267 14,505
Changes in operating assets and liabilities
Inventory 4,381 10,882
Accounts receivable - trade (14,510) (17,542)
Prepaid expenses and other (36,676) (34,474)
Accounts payable and accrued expenses 245,389 132,857
Deferred salaries 209,107 91,051
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Net cash flows from operating activities (168,655) (292,092)
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See accompanying notes to financial statements
Page 6
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Six Months
Ended February 28,
2006 2005
--------- ---------
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES - -
Security deposits (2,048) (870)
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Net cash flows from investing activities (2,048) (870)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock,
net of related expenses 25,000 70,000
Net proceeds from short term loans 115,635 87,438
Payments on advances from stockholders (38,500) -
Loans and advances from stockholders 56,524 113,050
Interest accrued on loans from
stockholders - -
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Net cash flows from financing activities 158,569 270,488
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NET CHANGE IN CASH (12,044) ( 22,474)
CASH AT BEGINNING OF PERIOD 14,099 33,706
---------- ----------
CASH AT END OF PERIOD $ 2,055 $ 11,232
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) (35,783) (49,928)
======== =========
Interest paid $ 343 $ -
========== ==========
Common stock issued in exchange
for subscription receivable - $ 1,665,294
for settlement of debt - 10,000
========== ==========
See accompanying notes to financial statements
Page 7
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
February 28, 2006
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, 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 State
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)
February 28 2006
Six months ended Three months ended
February 28, February 28,
2006 2005 2006 2005
Net loss as reported $ (669,165) $(607,844) (328,157) (302,187)
Deduct: Stock-based compensation,
Net of tax 13,975 133,000 12,118 127,000
------- ----------- ------- ---------
Net loss, pro-forma $ (683,140) $(740,844) (340,275)$ (429,187)
Basic earnings per share
As reported $ (.01) $ (.02) $ (.01)
Pro-forma $ (.01) $ (.03) $ (.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 $15,267 of compensation expense for stock options and
warrants granted to employees during the six months ended February 28, 2006.
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 Six Months ended February 28,
2006 2005
Risk free interest rate 4.39% 4.0%
Expected life
Yrs 5 5
Dividend rate 0.0% 0.0%
Expected volatility 59.9% 73%
FASB 155 Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued FASB Statement No. 155, which is an
amendment of FASB Statements No. 133 and 140. This Statement: a) permits fair
value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, b) clarifies
which interest-only strip and principal-only strip are not subject to the
requirements of Statement 133, c) establishes a requirement to evaluate
interests in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, d) clarifies that concentrations
of credit risk in the form of subordination are not embedded derivatives, e)
amends Statement 140 to eliminate the prohibition on a qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. This Statement is effective for financial statements for fiscal
years beginning after September 15, 2006. Earlier adoption of this Statement
is permitted as of the beginning of an entity s fiscal year, provided the
entity has not yet issued any financial statements for that fiscal year.
Page 09
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
February 28, 2006
Management believes this Statement will have no impact on the financial
statements of the Company once adopted.
FASB 156 Accounting for Servicing of Financial Assets
In March 2006, the FASB issued FASB Statement No. 156, which amends FASB
Statement No. 140. This Statement establishes, among other things, the
accounting for all separately recognized servicing assets and servicing
liabilities. This Statement amends Statement 140 to require that all
separately recognized servicing assets and servicing liabilities be initially
measured at fair value, if practicable. This Statement permits, but does not
require, the subsequent measurement of separately recognized servicing assets
and servicing liabilities at fair value. An entity that uses derivative
instruments to mitigate the risks inherent in servicing assets and servicing
liabilities is required to account for those derivative instruments at fair
value. Under this Statement, an entity can elect subsequent fair value
measurement to account for its separately recognized servicing assets and
servicing liabilities. By electing that option, an entity may simplify its
accounting because this Statement permits income statement recognition of the
potential offsetting changes in fair value of those servicing assets and
servicing liabilities and derivative instruments in the same accounting
period. This Statement is effective for financial statements for fiscal years
beginning after September 15, 2006. Earlier adoption of this Statement is
permitted as of the beginning of an entity s fiscal year, provided the entity
has not yet issued any financial statements for that fiscal year. Management
believes this Statement will have no impact on the financial statements of
the Company once adopted.
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.
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.
Page 10
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
February 28, 2006
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. 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.
In January and February 2006 the Company sold to 4 accredited investors
and one employee 250,000 shares of the Company s common stock for $25,000.
In conjunction the Company issued five-year warrants to purchase 250,000
shares of the Company s common stock at an exercise price of $.085 to $.14
per share.
During February 2006 the Company borrowed from three individuals
$30,000. These loans will be paid back from the sale of the first 750
Gallons of A-18 in the amount of $36,000 and have no specific due date.
During the quarter ended February 28, 2006 two officers loaned the
Company a total of $7,522.
NOTE 6- WARRANTS
Warrants were issued during the quarter as follows.
Name Issue Expire Amount Exercise Price
Employees (5) December 05 December 2010 420,000 $.08.5 to .20
Note holder December 05 December 2010 300,000 $.07
Individual January 06 January 2011 270,000 $.08.5 to .14
The warrants vested immediately.
During the quarter ended February 28, 2006 40,000 warrants expired
NOTE 7- SUBSEQUENT EVENTS
In March 2006 the Company borrowed $29,000 from an individual. In conjunction
the Company issued five-year warrants to purchase 20,000 shares of the
Company s common stock at an exercise price of $.10 per share.
In March 2006 the Company sold to an accredited investor 100,000 shares
of the Company s common stock for $10,000. In conjunction
the Company issued five-year warrants to purchase 100,000 shares of the
Company s common stock at an exercise price of $.15 per share.
During March and April 2006 an officer loaned the company $ 6000.
Warrants were issued during the quarter as follows.
Name Issue Expire Amount Exercise Price
Individual March 06 March 2011 145,000 $.08.5 to .15
The warrants vested immediately.
Page 11
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,
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 SIX MONTHS ENDED FEBRUARY 28, 2006 AND FEBRUARY 28, 2005
Sales of $162,347 for the six months ended February, 2006 represented a
decrease of 14.5% from the $189,913 for the comparable six-month period of
the prior year. Cost of goods sold during the same periods decreased from
$108,779 to $74,416 resulting in a gross profit of $84,931 compared to $81,134
in the prior year. Selling, general and administrative expenses for the six
months ended February 28, 2006 was $536,130, representing a decrease of
$24,677 or 4.0% from the $560,807 of the similar period of the prior year.
The main components of the decreases are, increases in late charges of
approximately $12,400 and approximately $38,300 in salaries and decreases of
approximately $53,000, $12,300 and $7,900 in repricing of warrants, insurance
and professional fees respectively.
Page 12
COMPARISON THREE MONTHS ENDED FEBRUARY 28, 2006 AND FEBRUARY 28, 2005
Sales of $100,116 for the three months ended February 28, 2006 represented an
increase of 36.3% from the $73,639 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods increased from
$40,480 to $41,184 resulting in a gross profit of $43,024 compared to $33,159
in the prior year. Selling, general and administrative expenses for the three
months ended February 28, 2006 was $289,027, representing an increase of
$26,557 or 10.1% from the $262,470 of the similar period of the prior year.
The main components of the increases are late charges of approximately
$10,700 and approximately $38,300 in salaries and decreases of
approximately $8,000 and $6,000 in repricing of warrants and insurance
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 2006 the Company had cash balances of $ 2,055.
In January and February 2006 the Company sold to 4 accredited investors
and one employee 250,000 shares of the Company s common stock for $25,000.
In conjunction the Company issued five-year warrants to purchase 250,000
shares of the Company s common stock at an exercise price of $.085 to $.14
per share.
During February 2006 the Company borrowed from three individuals
$30,000 . These loans will be paid back from the sale of the first 750
gallons of A-18 in the amount of $36,000 and have no specific due date.
During the quarter ended February 28, 2006 two officers loaned the
Company a total of %7,522.
The Company has deferred payment of $378,031 of the installments of the
Chapter 11 liability to unsecured creditors that was 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.
Page 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Date Title Number Cash Price
1/06 common 50,000 $.10
2/06 common 200,000 $.10
The proceeds were used for working capital.
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: April 14, 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 14