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, 2007
[] 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
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(State or other jurisdiction of (I.R.S. Employer
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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 $0.01 per share
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by the Court.
YES X NO___
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
Check if there is no disclosure of delinquent filers contained in this form in
response to Item 405 of Regulation S-B and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its fiscal year ended August 31, 2007 $1,004,714
Aggregate market value of the voting stock held by $6,563,799
non-affiliates as of November 15, 2007
Number of shares of common stock outstanding as of
November 15, 2007 39,689,769
Documents incorporated by reference: NONE
Transitional small business disclosure format.
YES___ NO X
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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 3 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.
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 protection. The NoFire liquid formulas are
covered by a United States Patent and corresponding patents and patent
applications in over 30 foreign countries. The United States Patent is:
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; and
No. 6,510,807 Pre-Fabricated Fireproof Bulkhead with Special Interlocking
Joints for a Ship, issued January 28, 2003.
The Company has submitted two additional patent applications to the United
States Patent and Trademark Office.
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.
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 four largest customers during the most recent fiscal year
represented 29%, 14%, 11% and 10% 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
S Barrier (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, 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 from the states of California and Rhode
Island and a MEA (Material Equipment Acceptance) from the City of New York.
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.
EMPLOYEES
As of December 07, 2007, the Company had nine employees, seven 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, 2008. Monthly rent payments for the year ended
August 31, 2006 were approximately $11,960. Monthly rent payments for the year
ended August 31, 2007 were approximately $12,733.
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
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.
2006-2007 2005-2006
Quarter Ended High Low High Low
------------- ---- --- ---- ---
November 30 $0.23 $0.10 $0.15 $0.11
February 28 $1.37 $0.42 $0.15 $0.09
May 31 $0.95 $0.71 $0.25 $0.22
August 31 $1.00 $0.60 $0.20 $0.14
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(b) HOLDERS As of November 15, 2007 there were approximately 285 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
Company securities without registration under the Securities Act of 1933, as
amended ("Securities Act") during the two years ended August 31, 2006 and
August 31, 2007. 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
1/06 common 200,000 0.10
2/06 common 50,000 0.10
3/06 common 100,000 0.10
8/06 common 650,000 0.10
9/06 common 180,000 0.14
10/06 common 597,322 0.11-0.17
11/06 common 123,048 0.14-0.20
12/06 common 584,919 0.14-0.18
01/07 common 209,583 0.16-0.25
02/07 common 284,749 0.34
03/07 common 136,994 0.20-0.85
04/07 common 86,192 0.99-1.11
05/07 common 253,650 0.0875-0.50
07/07 common 41,667 0.60
08/07 common 1,078,250 0.60-0.80
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company continues product development and application testing. As a result
of these activities, certifications have been obtained for specific
applications as discussed in Item 1 - Government Regulations and Approvals;
Research and Development, and additional patent applications have been filed
resulting in the issuance of six patents since August 1995, and two
applications awaiting action by the U.S. Patent and Trademark Office.
Item 1 - Business of the Company. Marketing efforts to develop new
applications and establish new customers were continued in fiscal 2007. The
efforts undertaken by the Company in application development, product
approvals and marketing initiatives should assist it in creating greater sales
in fiscal 2008 and beyond.
The greatest obstacles encountered in obtaining major sales contracts are the
multitude of tests and approvals required, competition against well
established, better-capitalized companies, cost, the slow process of
specifying a new product in highly regulated applications and educating the
public on the existence of fire protection products and the advantages of
Nofire over other well publicized but low performance products. 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
During the fiscal year Mr. Oolie was repaid $266,100 against amounts
advanced to the Company. The Company is accruing interest on the advance at
the rate of 15% per annum.
During the fiscal year 45 accredited investors purchased 2,559,275 shares
of the Company's common stock for $782,403. In addition they received
1,279,638 five-year warrants exercisable at prices ranging from $0.16 to $1.20
per share. The warrants vested immediately. In addition another 867,400 shares
were issued for the exercise of warrants which resulted in proceeds to the
Company of $354,800.
In September 2005 an accredited individual loaned the Company $100,000 at 15%
interest. The note was due in one year and is collateralized by 2,000,000
shares of the Company's common stock to be held in escrow. An officer of the
Company also guaranteed the debt. In October 2006 the Company paid $40,000
of principal and interest to October 25, 2006 on the entire amount.
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.
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 current period $24,000 of the debt was paid or converted to
common stock.
In March 2006 the Company borrowed, from an individual, $29,000 at an interest
rate of 2% per month. In conjunction with the transaction 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 April $9,000 was repaid and an
additional $10,000 was repaid in June 2006. In October 2006 the balance of
the loan was repaid with interest.
In April 2006 the Company borrowed $25,000 from a director of the Company. The
Note carries an interest rate of $500 per month and was due July 21, 2006. In
conjunction with the transaction the Company issued five-year warrants to
purchase 50,000 shares of the Company s common stock at an exercise price of
$.20 per share.
During July 2006 the Company borrowed $5,000 from a company who makes loans on
future credit card sales. The loan was repaid during the current year.
In August 2006 the Company sold a 10% Convertible Debenture for $165,000.
The debenture was due in February 2007 and is convertible into the Company's
common stock at the rate of $0.10 per share. There was no beneficial
conversion feature to value for the conversion terms as the stock price
exceeded the conversion price on the debt issue date.
In conjunction with the above the Company issued 2,000,000 five-year
warrants exercisable into the Company s common stock at the rate of $0.10
per share. The warrants vested immediately. These warrants were valued at
$87,010 and were amortized over the term of the debt.
In February 2007 the Company and its lender extended the maturity date of the
10% Convertible Debenture in the amount of $165,000 to April 2007.
In conjunction with the above the Company issued 2,000,000 five-year
warrants exercisable into the Company's common stock at the rate of $0.10
per share. The company recorded an expense of $1,050,192 for this extension
fee.
On April 8, 2007, the Company and its lender extended the maturity date of
The 10% Convertible Debenture in the amount of $165,000, to August 7, 2007.
The Company issued warrants to purchase 1,000,000 shares of common stock with
a term of five years at an exercise price of $0.10 per share and to purchase
1,000,000 shares of common stock with a term of five years at an exercise
price of $0.20. The warrants contain a Repricing provision should shares be
issued at less than $0.10 during the term of the warrant. A cashless exercise
provision and certain provisions similar to the holders of common stock for
other equity related transactions are also provided. The market price of the
Company's stock at the extension date was $0.45, hence the fair market value
of such warrants, $888,808 was expensed as an extension fee during for the
quarter ended May 31, 2007
The chairman of the board has pledged his stock holdings in the Company and
the Company has pledged all of its assets to secure the above Debenture.(See
Note 6)
During September 2007 the above debenture together with accrued interest was
paid. (see subsequent events in the financial statements)
During the year, the officers deferred an additional $556,290 of their
salaries.
Also in fiscal 2007, $38,255 was obtained through an additional sale of a
portion of the Company s New Jersey Operating Loss Carry Forward under a
program sponsored by that state.
Because of limited cash resources, the Company has deferred payment of
$378,031 from the installments of the 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 revenue 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, 2007 AND 2006
Sales of $1,004,714 represented an increase of $640,994 or 176% from sales of
$363,720 in the prior year.
The net loss of $3,841,925 for fiscal year 2007 was $2,088,150 more than the
net loss of $1,753,775 in the prior year.
General and administrative expenses and research and development costs of
$1,257,079 in fiscal year 2007 were $64,856, or 5.4%, more than the prior year.
The main components of the changes are as follows:
8/31/2007 8/31/2006 Difference
Material $ 460,749 196,845 263,904
Testing 47,299 60,398 (13,099)
Mfg O/H 45,432 49,283 (3,851)
Rent 152,794 143,526 9,268
Repricing warrants 0 20,178 (20,178)
Professional Fees 108,803 103,233 5,480
Insurance 29,584 46,144 (16,550)
NJ Tax Refund 38,255 35,783 2,472
Interest Expense 3,153,684 764,210 2,389,474
Commissions 19,633 21,844 (2,211)
Penalties 39,169 25,823 13,346
Salaries management 513,152 521,123 (7,971)
Salaries administrative 74,380 79,221 (4,841)
Equity based compensation 139,021 53,846 85,175
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During the fiscal years 2006 and 2007, the Company realized approximately
$35,783 and $38,255 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 the Company's 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 the Company to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses, and related
disclosure on contingent assets and liabilities at the date of the 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 judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. We believe that
the Company's critical accounting policies are limited to those described
below. For a detailed discussion on the application of these and other
accounting policies see note 1 to our financial statements.
Accounting for Income Taxes
As part of the process of preparing the Company's financial statements the
Company is required to estimate its income tax. Management judgment is
required in determining the provision of its deferred tax asset. The Company
recorded a valuation for the full-deferred tax asset from its 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 the Company adjusts these estimates in future periods
t5he Company may need to adjust such estimates to a going concern basis.
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 last two years ended August 31, 2007 and 2006. The
Company lacks sufficient capital to pay its 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
The computation of the expense associated with stock-based compensation
requires the use of a valuation model. SFAS 123(R) is a complex accounting
standard, the application of which requires significant judgment and the use of
estimates, particularly surrounding Black-Scholes assumptions such as stock
price volatility, expected option lives, and expected option forfeiture rates,
to value equity-based compensation. The Company currently uses a Black-Scholes
option pricing model to calculate the fair value of its stock options. The
Company primarily uses historical data to determine the assumptions to be used
in the Black-Scholes model and has no reason to believe that future data is
likely to differ materially from historical data. However, changes in the
assumptions to reflect future stock price volatility and future stock award
exercise experience could result in a change in the assumptions used to value
awards in the future and may result in a material change to the fair value
calculation of stock-based awards. SFAS 123(R) requires the recognition of the
fair value of stock compensation in net income. Although every effort is made
to ensure the accuracy of our estimates and assumptions, significant
unanticipated changes in those estimates, interpretations and assumptions may
result in recording stock option expense that may materially impact our
Item 7. FINANCIAL STATEMENTS
The Company's annual financial statements for the fiscal years ended
August 31, 2007 and August 31, 2006, together with the report thereon by the
Company's independent auditors, are set forth herein commencing on page F-1 of
this Form 10-KSB and are incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
During the fiscal years ended August 31 2007, and August 31, 2006 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 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
Management, including the Chief Executive Officer and Chief Financial
Officer, has conducted an evaluation of the effectiveness of the design and
operation of 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, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in
ensuring that information required to be disclosed 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 controls over financial reporting that
have materially affected, or are reasonably likely to materially affect,
internal control over financial reporting during the period covered by this
report.
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 61 Director, Chief
Executive Officer,
Chief Technical
Officer and
Assistant Treasurer
Sam Oolie 71 Director, Chairman
of the Board, Chief
Operating Officer,
Chief Financial Officer
and Treasurer
Bernard J. Koster 74 Director
Gerald H. Litwin 65 Director
Alphonso Margino 69 Secretary
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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 and, 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.
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 electro physics
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 seven 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 Counsel, and
his current firm continues to provide certain legal services to the Company.
Alphonso Margino
On June 15, 1992 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, 1992, 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).
Item 10. EXECUTIVE COMPENSATION
The Company's Summary Compensation Table is set forth below. The Company had
no Option/SAR Grants, Aggregated Option/SAR Exercises or Fiscal Year End
Option/SAR's for the years ended August 31, 2007, 2006, and 2005, 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, 2007, 2006, and 2005
Name and Year Ended Salary Salary Options All other
Principal Position August 31 Paid Deferred(1) SAR's Compensation
------------------ ---------- ------ ----------- ----- -----------
Samuel Gottfried 2007 None $213,100
Chief Executive Officer 2006 None $221,184
from January 1, 2003 2005 $ 29,180 $188,779
and Chief Technical
Officer And Assistant
Treasurer from
August 1, 2003
Sam Oolie 2007 None $216,400
Chairman of the Board, 2006 $ None $221,184
Chief Operating Officer 2005 $ 8,616 $210,187
|
And Chief Executive Officer
until July 26, 1999, and
Chief Financial Officer
Since January 2, 2003
Alfonso Margino 2007 $ None $75,000
Vice President 2006 $ 3,750 $74,145
And Secretary since 2005 $15,000 $61,660
June 15, 1998
|
Note (1) Amounts shown as salary deferred are payable when revenues or
financings permit payment as determined by the Board of Directors.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 15, 2007 the number of shares
of Common Stock owned of record or beneficially 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 including Percent of Class
(1) Warrants
---------------- ------------------- ------------------
Sam Oolie
NoFire Technologies, Inc. 19,784,127 36.8%
21 Industrial Avenue
Upper Saddle River, NJ 07458
Samuel Gottfried
NoFire Technologies, Inc. 15,700,123 31.0%
21 Industrial Avenue
Upper Saddle River, NJ 07458
Alphonso Margino
NoFire Technologies, Inc. 9,066,303 19.7%
21 Industrial Avenue
Upper Saddle River, NJ 07458
Bernard J. Koster
7 Old Smith Road 1,217,652 3.0%
Tenafly, NJ 07670
Gerald H. Litwin
Two University Plaza 7,521,600 16.6%
Hackensack, NJ 07601
Lavin Holdings, LLC
483 Winthrop Road 8,354,632 22.6%
Teaneck, NJ 07666
Carole Salkind
18911 Collins Ave 6,640,436 14.4%
Sunny Isles Beach, FL. 33160
John Cavanna
2337 Lemoine Ave 4,268,730 10.1%
Fort Lee, NJ 07024
Iroquois Capital Management LLC 6,000,000 13.3%
641 Lexington Ave
New York. NY 10022
All officers and directors 53,289,805 68.6%
as a group (five persons)
|
Note (1) As of November 15, 2007, there were 39,689,769 shares of Common
Stock issued and outstanding. Percentage of class for all officers and
directors as a group is computed on 77,784,723 shares which includes
38,094,954 warrants held by these individuals. Percentage of class for
Lavin Holdings LLC, Carole Salkind, John Cavanna and Iroquois Capital
Management LLC is computed on outstanding common stock in the amount of
39,689,769.
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 5% 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 5% 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, 2007 the Company believes that no director or officer of the
Company or beneficial owner of more than 5% of the Company's Common Stock
failed to file on a timely basis reports required by Section 16(a) of the
1934 Act during such fiscal year.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A. which
provides certain legal services to the Company. At August 31, 2007, the
Company was obligated to that firm in the amount of $350,517. Expenses in
fiscal 2006 were $18,227 for legal services, and in fiscal 2007, $ 31,262
for legal services.
In April 2006 the Company borrowed $25,000 from a director of the Company. The
note carries an interest rate of $500 per month and was due July 21, 2006. In
conjunction with the transaction the Company issued five-year warrants to
purchase 50,000 shares of the Company's common stock at an exercise price of
$.20 per share.
The Company issued 1,000,000 warrants to its CFO in connection with the
debt advances to the Company by its CFO. The warrants have an exercise
price of $.14 per share for ten years. An expense of $92,875 had been
recorded for the fair value of these warrants issued.
The Company issued 1,400,000 warrants to its CFO in connection with
the debt advances to the Company by its CFO. The warrants have an
exercise price of $.20 per share for five years. An expense of
$139,908 had been recorded for the fair value of these warrants
issued.
During the three fiscal years ended 2007, the officers deferred a total of
$1,481,639 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 $247,573 at August 31, 2007.
Item 13. EXHIBITS
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
Sherb & Co., LLP. F-2
Financial Statements:
Balance Sheet as of August 31, 2007 F-3
Statements of Operations for the years
ended August 31, 2007 and 2006 F-4
Statements of Changes in Stockholders' Equity
(Deficiency) for the years ended August 31,2007
and 2006 F-5
|
Statements of Cash Flows for the Years
Ended August 31, 2007 and 2006 F-6
Notes to Financial Statements F-8 to F-16
2. EXHIBITS none
|
2. Certification of Financial Information Exhibits 31.1 31.2
3. Sarbanes-Oxley Act Section 906 Certification Exhibits 32.1 32.2
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed and unbilled for the fiscal years ended August 31,
2007 and 2006 for professional services rendered by the Company's principal
accountants for the audits of its annual financial statements and the review
of its financial statements included in our quarterly reports on Form 10QSB
were approximately $25,000 and $17,500, respectively.
AUDIT-RELATED FEES
The aggregate fees billed for the fiscal years ended August 31, 2007 and 2006
for assurance and related services rendered by our principal accountants
related to the performance of the audit or review of the Company's financial
statements, specifically accounting research was $ 0 for each year.
TAX AND OTHER FEES
The aggregate fees billed for the fiscal years ended August 31, 2007 and
2006 for tax related or other services rendered by the Company's principal
accountants in connection with the preparation of its federal and state income
tax returns was $-0- and $-0-, respectively.
APPROVAL OF NON-AUDIT SERVICES AND FEES
We did not have any non-audit services provided by our principal accountants
during fiscal 2007 or 2006.
SIGNATURES
In accordance with Section 13 or 15(d) of the 1934 Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NOFIRE TECHNOLOGIES, INC.
Date: December 13, 2007 By: /s/ Sam Gottfried
------------------------
Sam Gottfried,
Chief Executive Officer
Date: December 13 , 2007 By: /s/ Sam Oolie
------------------------
Sam Oolie
Chief Financial Officer
|
In accordance with the 1934 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 13, 2007
Samuel Gottfried, Director
/s/ Bernard J. Koster
----------------------------- December 13, 2007
Bernard J. Koster, Director
/s/ Gerald H. Litwin
----------------------------- December 13, 2007
Gerald H. Litwin, Director
/s/ Sam Oolie
----------------------------- December 13, 2007
Sam Oolie, Director
|
INDEX TO FINANCIAL STATEMENTS
Page
------
Report of Independent Registered Public Accounting Firm
Sherb & Co. F-2
Financial Statements:
Balance sheet at August 31, 2007 F-3
Statements of operations for the years ended
August 31, 2007 and 2006 F-4
Statements of changes in stockholders' equity
(deficiency) for years ended August 31,2007
and 2006 F-5
Statements of cash flows for the years ended
August 31, 2007 and 2006 F-6
Notes to financial statements F-8 to F-16
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Directors
NoFire Technologies, Inc.
Upper Saddle River, New Jersey
We have audited the accompanying balance sheet of NoFire
Technologies, Inc. as of August 31, 2007, and the related
statements of operations, stockholders equity
(deficiency) and cash flows for each of the years then ended
August 31, 2007 and 2006. 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 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 provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial
position of NoFire Technologies, Inc. as of August 31, 2007, and
the results of its operations and its cash flows for each of the
years then ended August 31, 2007 and 2006, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
has suffered recurring losses from operations, including a net
loss of approximately $3.8 million and $1.8 million for each of the years
ended August 31, 2007 and 2006, and has a substantial working capital
deficiency as of August 31, 2007. These factors raise substantial doubt
concerning the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/s/ Sherb & Co., LLP
Certified Public Accountants
New York, New York
November 30, 2007
|
F-2
NOFIRE TECHNOLOGIES, INC
BALANCE SHEET
ASSETS
August 31, 2007
CURRENT ASSETS:
Cash $ 31,416
Accounts receivable - trade 301,286
Inventories 97,784
Prepaid expenses and other current assets 94,842
-----------
Total Current Assets 525,328
|
OTHER ASSETS:
Security deposits 37,065
---------
$562,393
==========
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 378,031
Accounts payable and accrued expenses 1,363,228
Loans and advances payable to stockholders 199,438
Deferred salaries 2,080,503
Loans payable 290,737
Convertible debenture 8% 595,928
Convertible debenture 10% 165,000
----------
Total Current Liabilities 5,072,865
|
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.01 par value:
Authorized -150,000,000 shares
issued, and outstanding-39,383,932 393,830
Capital in excess of par value 17,877,058
Accumulated Deficit (22,781,360)
----------
Total Stockholders' Equity (Deficiency) (4,510,472)
----------
$ 562,393
=========
|
See accompanying notes to financial statements
F-3
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
Year Ended August 31,
2007 2006
---------- ----------
Sales:
Sales Product $ 838,530 $ 352,593
Royalty revenues 166,184 11,127
------------------------
NET SALES 1,004,714 363,720
---------- ----------
COSTS AND EXPENSES:
Cost of sales 460,749 196,845
Research and development costs 47,299 60,398
General and administrative
(includes equity based
compensation of $139,021
and $53,846 respectively. 1,209,780 1,131,825
---------- ----------
1,717,828 1,389,068
--------- ----------
LOSS FROM OPERATIONS ( 713,114) (1,025,348)
---------- ----------
OTHER EXPENSES (INCOME):
Interest expense (Equity
based portion $2,712,807)and
$603,173, respectively) 3,153,684 764,210
-------- --------
LOSS BEFORE INCOME TAXES (3,866,798) (1,789,558)
INCOME TAX BENEFIT 24,873 35,783
---------- --------
NET LOSS $ (3,841,925) $(1,753,775)
========== =========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING-BASIC AND DILUTED 37,533,174 32,052,775
========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE: $ (.10) $ (.05)
========== ==========
|
See accompanying notes to financial statements
F-4
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
STATMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIENCY)
Common Stock
Number of Capital in Excess Accumulated Total
Shares Amount of Par Value (Deficit) Stockholders
(Deficit)
Equity
BALANCES, August 31, 2005 34,806,621 $ 348,066 $13,166,594 $(17,185,660) (3,681,000)
YEAR ENDED AUGUST 31, 2006
Issuance of warrants with debt-
Related party 92,875 92,875
Equities issued with debt/beneficial
Conversion rights 510,298 510,298
Sale of stock 1,000,000 10,000 90,000 100,000
Repriced warrants expense 20,178 20,178
Equities issued for service
And amortization 53,846 53,846
Net Loss (1,753,775) (1,753,775)
------------ --------- ----------- ------------- -----------
BALANCES, August 31, 2006 35,806,621 $ 358,066 $13,923,791 $(18,939,435) $(4,657,578
Issuance of warrants with debt
-related party 139,908 139,908
Equities issued with debt/beneficial
Conversion rights 2,572,899 2.572,899
Sale of stock 2,559,275 25,593 756,810 782,403
Exercise of warrants 867,400 8,674 346,126 354,800
Equity issued for services 149,636 1,496 137,525 139,021
Net loss (3,841,925) (3,841,925)
---------------------------------------------------- ----------
Balance as of August 31,2007 39,383,932 $ 393,830 $17,877,058 $ (22,781,360) $(4,510,472)
========== ========= =========== ============== ===========
|
F-5
See accompanying notes to financial statements
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Year Ended August 31,
2007 2006
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,841,925 ) $(1,753,775)
Adjustments to reconcile net loss
to net cash flows from
operating activities:
Depreciation and amortization 1,086 1,579
Amortization of unearned compensation
and debt discount 120,243 32,713
Equities issued as interest and beneficial
conversion features on current and past
due loans payable 2,712,807 603,803
Equities issued for consulting services 139,021 50,171
Repricing of warrants 0 20,178
Accounts receivable - trade (296,875) 902
Inventories (30,381) 14,425
Prepaid expenses and other current (94,842) 6,645
Accounts payable and accrued
expenses 210,818 215,016
Deferred salaries 205,285 430,473
---------- ----------
Net cash flows used by
operating activities (874,763) (377,870)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposits (351) (10,715)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (351) (10,715)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
Stock and exercise of warrants,
net of related expenses 1,137,203 100,000
Payments on short term loans (98,680) -
Net proceeds from short-term loans 126,000 136,855
Loans and advances received from
stockholders (276,100) 155,738
---------- ----------
Net cash flows from
financing activities 888,423 392,593
---------- ----------
NET INCREASE (DECREASE) IN CASH 13,309 4,008
CASH AT BEGINNING OF YEAR 18,107 14,099
---------- ----------
CASH AT END OF YEAR $ 31,416 $ 18,107
========== ==========
F-6
|
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS-CONTINUED
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 57,066 $ 53,484
========== ==========
Income taxes paid (benefit) $ (38,255) $( 35,783)
========== ==========
Equity issued in exchange
for services $ 139,021 $ 89,846
========== ==========
|
See accompanying notes to financial statements
F-7
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.
As discussed in Note 3, 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.
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 accounts
receivable, other assets, accounts payable, accrued expenses, settled
liabilities and due to stockholders. The amounts reported for financial
instruments are considered to be reasonable approximations of their fair
values. The fair value estimates presented herein were based on market or
other information available to management. The use of different market
assumptions and/or estimation methodologies could have a material effect on
the estimated fair value amounts.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Equipment - Equipment is recorded at cost and is depreciated primarily using
the straight-line method over the estimated useful lives of 5 to 7 years for
furniture and fixtures, manufacturing equipment and data processing equipment.
Depreciation expense was $ 1,086 and $1,579 for the years ended August 31,
2007 and 2006, respectively.
Income Taxes - Deferred income taxes arise from temporary differences between
financial and tax reporting, principally for deferred compensation ,equity
based transactions and net operating loss carry forwards.
Risk Concentrations - The following summarizes the risk concentration of the
Company as of August 31, 2007:
Cash Concentrations - The Company maintains a cash balance with a financial
institution, which at some times may exceed federally, insured limits.
F-8
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENTS
Accounts Receivable - The Company grants unsecured credit to many of its
customers with four customers comprising a concentrated risk. Management
continually evaluates the credit risk associated with accounts receivable and
believes that the risk is limited.
Revenue Recognition- Revenue for product sales are recognized when the
Company s products are shipped. Revenues from royalty sales are recognized
once such royalties are deemed earned and collectible.
Cost of Sales - Cost of sales includes the following costs: material costs,
freight in, direct labor and packaging costs. Indirect costs of sales items
included as selling, general and administrative costs for the years ended
August 31, 2007 and 2006 are as follows: shipping and receiving labor of
$8,343 and $8,667, and shipping costs of $10,296 and $8,638, respectively.
Advertising Costs - The Company expenses costs for trade shows, marketing
and promotional activities as incurred. Expenses were approximately $9,535
and $5,698 for the years ended August 31, 2007 and August 31, 2006,
respectively.
Research and Development Costs- Expenditures relating to the development of
new products and processes, including significant improvements to existing
products,are expensed as incurred.
Loss per Share - Loss per share is based on the weighted average number of
shares outstanding during the periods. The effect of 60,556,794 warrants
outstanding is not included since it would be anti-dilutive.
Equity based compensation -
Effective September 1, 2006, the Company adopted provisions of SFAS 123R for
recording equity based compensation.
The weighted average fair value of warrants has been estimated on the date of
grant using the Black-Scholes warrants pricing model. The Company has granted
warrants to purchase common stock to employees in the years ended
August 31, 2006, and August 31, 2007 which have been recorded as an expense in
the amount of $101,526 and $86,171, respectively, as such warrants vested
immediately upon issuance.
In accordance with SFAS 123, the fair value of each warrant 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 year ended August 31,
2007 2006
Risk free interest rate 4.74 % 5.25 %
Expected life 4.75 yrs 5 yrs
Dividend rate 0.0 % 0.0%
Expected volatility 112% 124%
|
F-9
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
FASB 157 - Fair Value Measurements
In September 2006, the FASB issued FASB Statement No. 157. This
Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. This Statement
applies under other accounting pronouncements that require or permit
fair value measurements, the Board having previously concluded in those
accounting pronouncements that fair value is a relevant measurement
attribute. Accordingly, this Statement does not require any new fair
value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective
for financial statements for fiscal years beginning after November 15,
2007. Earlier application is permitted provided that the reporting
entity has not yet issued financial statements for that fiscal year.
Management believes this Statement will have no impact on the financial
statements of the Company once adopted.
FASB 159 - Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an Amendment
of FASB Statement No. 115" (SFAS 159). This Statement provides companies with
an option to measure, at specified election dates, many financial instruments
and certain other items at fair value that are not currently measured at fair
value. A company that adopts SFAS 159 will report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date. This Statement also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities
that choose different measurement attributes for similar types of assets and
liabilities. This Statement is effective for fiscal years beginning after
November 15, 2007, which for the company is the first quarter of fiscal 2009.
Management doesn't believe that the adoption of SFAS 159 will have a material
impact.
NOTE 2 - INVENTORIES:
Inventories, net of reserves, at August 31, 2007 consisted of the following:
Testing material $ 5,000
Raw material $ 65,015
Finished goods 27,769
--------
$ 97,784
========
|
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, 2007, settled liabilities payable totaled $378,031.
The Company is currently delinquent on its scheduled payments to certain
Creditors that were due September 27, 1996 through 1999 in the gross amount of
approximately $378,031. The Company does not have funds available for
repayment and without additional sales, capital or financing, payments
cannot be made.
F-10
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
Legal fees $ 361,918
Commissions 52,434
Interest 507,317
Payroll and payroll taxes 60,034
Accounts payable 245,099
Other 136,426
----------
$ 1,363,228
=========
|
NOTE 5 RELATED PARTY TRANSACTIONS
Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A.,which
provides certain legal services to the Company. At August 31, 2007, the
Company was obligated to that firm in the amount of $350,517. Expenses in
fiscal 2007 were $31,262 for legal services, and in fiscal 2006, $ 18,225 in
fees. In addition, Litwin & Holsinger (a predecessor to Litwin and
Tierman P.A.) 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.
During the three fiscal years ended 2007, the officers deferred a total of
$1,481,639 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 $247,572 at August 31, 2007.
On November 14, 2005, in conjunction with loans made to the Company. Mr. Oolie
was issued 1,000,000 ten-year warrants. These warrants were issued at $.20 and
vested immediately, for which an expense of $92,875 was recorded.
The Company issued 1,400,000 warrants to its CFO in connection with
the debt advances to the Company by its CFO. The warrants have an
exercise price of $.20 per share for five years. An expense of
$139,908 had been recorded for the fair value of these warrants
issued.
During 2007 Mr. Oolie was repaid $266,100 of advances made to the Company.
These advances are due on demand and bear interest at 15% per annum .
NOTE 6 CONVERTIBLE DEBENTURES AND OTHER DEBT:
In September 2005 an accredited investor loaned the Company $100,000 at 15%
interest. The note was due in one year and is collateralized by 2,000,000
shares of the Company s common stock to be held in escrow. An officer of the
Company also guaranteed the debt. In October 2006 the Company paid $40,000
of principal and interest to October 25, 2006 on the entire amount. As of
August 31, 2007, this amount is still due. (see
subsequent events)
F-11
NOTES TO NOFIRE TECHNOLOGIES, INC.
FINANCIAL STATEMENT
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
In March 2006 the Company borrowed, from an individual, $29,000 at an interest
rate of 2% per month. In conjunction with the transaction 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 April $9,000 was repaid, and an
additional $10,000 was repaid in June 2006. In October 2006 the balance of
the loan was repaid with interest.
In April 2006 the Company borrowed $25,000 from a director of the Company. The
note carries an interest rate of $500 per month and was due July 21, 2006. In
conjunction with the transaction the Company issued five-year warrants to
purchase 50,000 shares of the Company s common stock at an exercise price of
$.20 per share.
During July 2006 the Company borrowed $5,000 from a company who makes loans on
future credit card sales. The loan has been repaid.
In August 2006 the Company sold a 10% Convertible Debenture for $165,000.
The debenture was due in February 2007 and is convertible into the Company s
common stock at the rate of $0.10 per share. There was no beneficial
conversion feature to value for the conversion terms as the stock price
exceeded the conversion price on the debt issue date.
In conjunction with the above the Company issued 2,000,000 five-year
warrants convertible into the Company s common stock at the rate of $0.10
per share. The warrants vested immediately. These warrants were valued at
$87,010 and are being amortized over the term of the debt.
In February 2007 the Company and its lender extended the maturity date of the
10% Convertible Debenture in the amount of $165,000 to April 2007.
In conjunction with the above the Company issued 2,000,000 five-year
warrants exercisable into the Company's common stock at the rate of $0.10
per share. The company recorded an expense of $1,050,192 for this extension
fee.
On April 8, 2007, the Company and its lender extended the maturity date of
The 10% Convertible Debenture in the amount of $165,000, to August 7, 2007.
The Company issued warrants to purchase 1,000,000 shares of common stock with
a term of five years at an exercise price of $0.10 per share and to purchase
1,000,000 shares of common stock with a term of five years at an exercise
price of $0.20. The warrants contain a Repricing provision should shares be
issued at less than $0.10 during the term of the warrant. A cashless exercise
provision and certain provisions similar to the holders of common stock for
other equity related transactions are also provided. The market price of the
Company's stock at the extension date was $0.45, hence the fair market value
of such warrants, $888,808 was expensed as an extension fee during for the
quarter ended May 31, 2007
The chairman of the board has pledged his stock holdings in the Company, and
the Company has pledged all of its assets, to secure the above Debenture.(See
Note 7)
In September 2007 the Debenture with accrued interest was repaid in full (see
Subsequent events.)
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
Lease - The Company's lease of its facility expires on August 31, 2008 with a
total annual lease commitment of $153,500 for the year
ending August 31,2008.
Rent expense, inclusive of taxes and insurance, was approximately $ 152,794
and $143,526 for the years ended August 31, 2007 and 2006, respectively.
F-12
NOTES TO NOFIRE TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
In conjunction with a $100,000 loan made in September 2005, a lien was issued
by the Company on two patents as collateral for the loan.
Also, 2,000,000 shares of the Company s common stock were issued in escrow to
be issued if the loan payment is defaulted.
The chairman of the board has pledged his stock holdings in the Company and
the Company has pledged all of its assets to secure the 10% Convertible
Debenture issued in August 2006.
In September 2007 the Debenture and accrued interest was repaid in full (see
Subsequent events)
NOTE 8- 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 9 - INCOME TAXES
No provision for current and deferred income taxes is required for the years
ended August 31, 2007 and 2006.
The following is a reconciliation of income tax benefit computed at the 34%
statutory rate to the provision for income taxes:
2007 2006
--------- ---------
Tax at statutory rate $ 1,306,000 $ 596,000
Permanent and other items (1,011,000) (194,000)
Temporary timing differences ( 131,000) (219,000)
State income tax, net of federal
income tax benefit 12,000 27,000
Valuation allowance (176,000) (210,000)
--------- ---------
$ - $ -
========= =========
|
As a result of the issuance of common stock pursuant to the Plan, the Company
experienced a greater than 50% change of ownership as defined in Internal
Revenue Code Section 382 ("Section 382"). Consequently, the Company's ability
to utilize net operating losses generated prior to the effective date of the
Plan is limited during the carry forward periods.
The Company has determined that the annual limitation under Internal Revenue
Code Section 382 on its ability to utilize net operating loss carry forwards,
totaling approximately $2,710,000, to be approximately $150,000 per year
expiring through 2010. Subsequent to the date of the Plan, the Company has
generated approximately $9,030,000 in net operating losses, which expire
through 2027.
The significant components of the Companys net deferred tax asset are
summarized as follows:
August 31,
------------------------
2007
----------
Net operating loss carry forwards $ 3,990,000
----------
Valuation allowance (3,990,000)
----------
$ -
===========
|
F-13
NOFIRE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
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 Companys prior history of recurring losses, that a
full valuation allowance is appropriate at August 31, 2007 and 2006.
At August 31, 2007, the Company has federal and state net operating loss
carry forwards for financial reporting and income tax purposes of
approximately $11,740,000, which can be used to offset current and future
taxable income through the year 2027
During each of the fiscal years 2007 and 2006,the Company sold a portion of
its state net operating loss carry forwards realizing approximately
$38,255 and $35,856, respectively.
NOTE 10 - MAJOR CUSTOMERS:
Sales to four customers represented 29%, 14%, 11% and 10% of net sales for the
year ended August 31, 2007. Sales to three customers represented 47.3% 7.1%
and 5.2% of net sales for the year ended August 31, 2006.
NOTE 11 WARRANTS AND COMMON STOCK:
For the years ended August 31, 2007 and 2006, a summary of the status of
warrants were as follows:
2007 2006
------------------- --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
---------- -------- ---------- --------
Outstanding, beginning of year 54,289,824 0.17 47,231,818 $0.17
Granted 7,915,108 0.17 7,215,571 0.15
Exercised (867,400) 0.41 - -
Cancelled/ forgiven - - - -
Expired (780,738) 0.82 (157,565) 0.47
---------- ----- ---------- -----
Outstanding, end of year 60,556,794 0.16 54,289,824 0.17
========== ===== ========== =====
Exercisable, end of year 60,556,794 0.16 54,189,824 0.17
========== ===== ========== =====
|
The following table summarizes warrant data as of August 31, 2007:
Outstanding and exercisable
Number of Weighted- Weighted Number
Outstanding average remaining average exercisable
life in exercise
years price
------------ ------------------ ----------- -
Range of exercise prices:
$.01-$.15 48,200,450 4.61 $0.13 48,200,450
$.16-$.50 12,172,598 3.26 0.26 12,172,598
$.51-$.99 136,949 3.97 0.34 136,949
$1.00 or more 46,797 4.62 1.10 46,797
------------ -----------
60,556,794 60,566,794
|
F-14
NOFIRE TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENT
Information, at date of issuance, regarding warrant grants during the year
ended August 31, 2007:
Shares Weighted Weighted
average average
exercise fair
price value
------------ ------------ ---------
Exercise price exceeds
market price
Exercise price equals
market price 3,915,108 $0.22 $0.22
Exercise price is less
than market price 4,000,000 $0.13 $0.48
|
The weighted average grant date fair value of warrants granted during the
year ended August 31, 2007 was $ 0.28. Warrants had been exercised by
holders during the year ended August 31, 2007 in the amount of 867,400 with
proceeds of $354,800.
During fiscal year ended August 31, 2006 the following equity transactions
occurred;
The Company sold 1,000,000 shares of common stock and issued 968,571 five
year warrants with exercise prices ranging from $.10 to $.15 per share
for $100,000, which was the then trading prices of the common stock each
respective sale date.
The Company issued 1,000,000 warrants to its CFO in connection with the
debt advances to the Company by its CFO. The warrants have an exercise
price of $.14 per share for ten years. An expense of $92,875 had been
recorded for the fair value of these warrants issued.
The Company issued 4,550,000 warrants to unrelated parties for the
inducement of debt extensions and the lending of additional monies during
the year. These warrants have expiration dates ranging from five to ten
years with exercise prices ranging from $.07 to $.20 per share. The
Company recorded $510,298 for the beneficial conversion rights and
warrants issued in connection with such debt extended or newly issued,
which had been expensed except for the debt discount. There remains a debt
discount of $120,243 yet to be amortized over the term of such debt
outstanding.
The Company issued another 607,001 warrants for services rendered during
the year by consultants and its employees which warrants have been fairly
valued at $50,171, which has been expensed. These warrants have a five-year
term with exercise prices ranging from $.085 to $.20 per share. The exercise
prices were the then trading prices of the common stock at each
respective issue date.
During fiscal year ended August 31, 2007 the following equity
transactions occurred;
The Company sold 2,559,275 shares of common stock and issued 1,279,638
five year warrants with exercise prices ranging from $.20 to $1.05 per
share for $782,403, which was the then trading prices of the common stock
each respective sale date.
F-15
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENT
The Company issued 1,400,000 warrants to its CFO in connection with
the debt advances to the Company by its CFO. The warrants have an
exercise price of $.20 per share for five years. An expense of
$139,908 had been recorded for the fair value of these warrants
issued.
The Company issued 4,300,000 warrants to unrelated parties for the
inducement of debt extensions and the lending of additional monies
during the year. These warrants have exercise prices ranging from $.10
to $.20 per share and expire in five years. The Company recorded
$2,572,899 for the beneficial conversion rights and
warrants issued in connection with such debt extended.
The Company issued another 935,469 warrants and 149,636 shares of
common stock for services rendered during the year by consultants and
its employees which such warrants and shares have been fairly valued
at $139,021, which has been expensed. These warrants have a five-year
term with exercise prices ranging from $.16 to $.20 per share. The
exercise prices were the then trading prices of the common stock at
each respective issue date.
All warrants vested immediately.
NOTE 12 - SUBSEQUENT EVENTS:
In September 2007 the 10% Convertible Debenture in the amount of $165,000 with
Accrued interest was repaid (see note 6).
During the three months ended November 30, 2007 the Company sold an additional
305,939 shares of its common stock to seven accredited investors. The proceeds
from these sales totaled $79,223
In conjunction with the above the Company issued 152,970 five year $0.60
warrants. The warrants vested immediately.
F-16
15
15
30
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