-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Eww3/pJO5C9gix1dL8rYH0VuLDJc1o2VhxQa+65fFTbrQ7rv9WpqQb9UxIVBIIGk QZV3vE7ocU5dqT+Kn9quUA== 0000823070-04-000026.txt : 20040713 0000823070-04-000026.hdr.sgml : 20040713 20040713123739 ACCESSION NUMBER: 0000823070-04-000026 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOFIRE TECHNOLOGIES INC CENTRAL INDEX KEY: 0000823070 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS CHEMICAL PRODUCTS [2890] IRS NUMBER: 223218682 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11061 FILM NUMBER: 04911596 BUSINESS ADDRESS: STREET 1: 21 INDUSTRIAL AVE CITY: UPPER SADDLE RIVER STATE: NJ ZIP: 07458 BUSINESS PHONE: 2018181616 FORMER COMPANY: FORMER CONFORMED NAME: PNF INDUSTRIES INC DATE OF NAME CHANGE: 19950913 FORMER COMPANY: FORMER CONFORMED NAME: PORTAFONE INTERNATIONAL CELLULAR COMMUNICATIONS INC DATE OF NAME CHANGE: 19920128 FORMER COMPANY: FORMER CONFORMED NAME: NFW CAPITAL GROUP INC DATE OF NAME CHANGE: 19900427 10QSB 1 r10q0504.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 31,2004 [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _________ Commission File Number: 0-19945 NoFire Technologies, Inc. ------------------------- (Name of small business issuer in its charter) Delaware 22-3218682 --------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21 Industrial Avenue, Upper Saddle River, New Jersey 07458 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (201) 818-1616 ------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the Court. YES X NO --- --- State the number of shares of each of the issuer's classes of common equity outstanding at the latest practicable date: 20,939,019 shares of Common Stock as of July 13,2004. Transitional Small Business Disclosure Format (check one): YES NO X --- --- Page 1 NOFIRE TECHNOLOGIES, INC. FORM 10-QSB INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of May 31,2004 (unaudited) and August 31, 2003 3 Statements of Operations for the Nine Months ended May 31,2004 and 2003 and the period July 13,1987 (date of inception) through May 31, 2004 (unaudited) 5 Statements of Cash Flows for the Nine Months ended May 31, 2004 and 2003 and the period July 13, 1987 (date of inception) through May 31, 2004 (unaudited). 6 Notes to Unaudited Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Controls and Procedures 14 Part II - OTHER INFORMATION Item 1. Legal 14 Item 6. Exhibits and Reports on Form 8-K Signatures 14 Certification of Financial Information 15 Sarbanes-Oxley Act Section 906 Certification Exhibit 1 Page 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS May 31, August 31, 2004 2003 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 765 $ 197,161 Accounts receivable - trade 17,389 59,353 Inventories 55,567 54,067 Prepaid expenses and other current assets 60,083 46,747 --------- ---------- Total Current Assets 133,804 357,328 --------- ---------- EQUIPMENT, less accumulated depreciation 4,752 6,495 --------- ---------- OTHER ASSETS: Patents, less accumulated amortization of $1,531,272 at May 31, 2004 and $1,523,013 at August 31, 2003 5,063 10,018 Security deposits 24,880 19,379 ---------- --------- 29,943 29,397 ---------- --------- $ 168,499 $ 393,220 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS May 31, August 31, 2004 2003 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Settled liabilities $1,168,718 $1,168,718 Accounts payable and accrued expenses 845,569 830,287 Loans and advances payable to stockholders 74,471 16,470 Deferred salaries 1,552,313 1,362,743 Loans payable 250,173 293,463 Convertible Debentures 8% 430,000 200,000 ---------- --------- Total Current Liabilities 4,321,244 3,871,681 ---------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.20 par value: Authorized - 50,000,000 shares Issued and outstanding -20,939,019 shares at May 31, 2004 and August 31, 2003 4,187,804 4,187,804 Capital in excess of par value 4,138,757 4,000,757 Deficit accumulated in the development stage (12,479,306) (11,667,022) ---------- ---------- Total Stockholders' Equity (Deficiency) (4,152,745) (3,478,461) ---------- ---------- $ 168,499 $ 393,220 ========== ========== See accompanying notes to financial statements Page 4 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS
July 13, 1987 (Date of For the nine Months For the three Months Inception) Ended May 31, Ended May 31, through 2004 2003 2004 2003 May 31, 2004 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) (UNAUDITED) NET SALES $385,875 $ 290,379 $ 252,332 $ 102,526 $ 2,115,859 ---------- ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales 128,339 149,410 68,473 60,986 1,038,770 Write down of excess inventory - - - - 55,000 General and administrative 881,112 824,721 319,318 263,728 15,910,395 Severance - 82,500 - 82,500 82,500 ---------- ---------- --------- ---------- ---------- 1,009,451 1,056,631 387,791 324,714 17,086,665 ---------- - --------- ---------- ---------- ---------- LOSS FROM OPERATIONS (623,576) (766,252) (135,459) (222,188) (14,970,806) ---------- ---------- ---------- ---------- ---------- OTHER EXPENSES: Interest expense 232,191 137,590 22,489 54,407 1,986,472 Interest income (225) (225) (75) (75) (24,665) Reorganization items - - - - 365,426 Litigation settlement - - - - 198,996 ---------- ---------- ---------- ---------- --------- 231,966 137,365 22,414 54,332 2,526,229 ---------- ---------- ---------- ---------- ---------- LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (855,542) (903,617) (157,873) (276,520) (17,497,035) DISCONTINUED OPERATIONS (1,435,392) ---------- ---------- ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY ITEM (855,542) (903,617) (157,873) (276,520) (18,932,427) EXTRAORDINARY ITEM - Gain on debt discharge - - - - 507,952 ---------- ---------- ---------- ---------- ---------- LOSS BEFORE INCOME TAXE $(855,542) (903,617) (157,873) (276,520) (18,424,475) DEFERRED INCOME TAX BENEFIT 43,290 180,557 636,574 ---------- ---------- ---------- ---------- ---------- NET LOSS $(812,252) (723,060) (157,873) (276,520) (17,787,901) ========== ========== ========== ========== ========== (LOSS) PER SHARE, BASIC AND DILUTED $(0.045) $(0.04) $(0.008) $(0.01) ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,939,019 20,624,366 20,939,019 20,622,352 ========== ========== ========== ==========
See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS
July 13, 1987 (Date of For the Nine Months Inception) Ended May 31, through 2004 2003 May 31, 2004 --------- --------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (812,252) (723,060) $(17,705,401) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 6,698 6,699 1,850,579 Extraordinary gain on debt discharge - - (507,952) Amortization of interest expense for settled liabilities - - 634,522 Amortization of interest expense for discount on convertible debentures 138,000 - 298,000 Amortization of interest expense for discount on note payable - 25,296 38.781 Revaluation of assets and liabilities to fair value - - 482,934 Litigation settlement - - 198,996 Common stock issued in exchange for services - - 141,780 Repricing of warrants - (44,000) Common stock issued as interest on Past due loan payable 14,000 Write-down of excess inventory - - 55,000 Warrants issued for consulting services - 25,000 25,000 Changes in operating assets and liabilities (net of effects from reverse purchase acquisition) Accounts receivable - trade 41,964 17,351 (17,389) Inventories (1,500) 58,585 (110,567) Prepaid expenses (13,111) (2,452) (59,858) Accounts payable and accrued expenses 15,250 183,698 3,804,367 Security deposits (5,501) - (24,880) Deferred salaries 189,570 229,614 1,552,613 Obligation from discontinued operations - - 51,118 ---------- --------- ---------- Net cash flows from operating activities (440,882) (223,269) (9,278,357) ---------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment - - (40,712) Increase in patent costs - - (164,320) Acquisition accounted for as a reverse purchase - - (517,893) ----------- --------- ---------- Net cash flows from investing activities - - (722,925) ----------- --------- ----------
See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS
July 13,1987 (Date of For the Nine Months Inception) Ended May 31, through 2004 2003 May 31, 2004 --------- --------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt - - 1,506,113 Principal payments on notes payable - - (75,000) Principal payment on settled liabilities - (9,714) (2,894,130) Proceeds from issuance of common stock, net of related expenses - - 8,774,943 Payments on advances from stockholders - - (60,750) Loans and advances from stockholders 57,776 8,021 142,749 Interest accrued on loans from stockholders - - (8,053) Proceeds from issuance of convertible debentures 230,000 - 2,366,002 Proceeds from short-term loans (43,290) 233,463 250,173 ---------- ---------- --------- Net cash flows from financing activities 244,486 231,770 10,002,047 ---------- ---------- --------- NET CHANGE IN CASH (196,396) 8,501 765 CASH AT BEGINNING OF PERIOD 197,161 483 - ---------- ---------- -- -------- CASH AT END OF PERIOD $ 765 $ 8,984 $ 765 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 1,154 $ 7,317 $ 88,617 ========== ========== ========== Income taxes paid (received) (43,290) (180,557) (593,284) ========== ========== ========== Warrants issued in settlement of accrued Interest - - $ 479,839 =========== ========== ========== Common stock issued in exchange for settlement of debt $ - $ - $2,439,816 ========== ========== ========== Common stock issued in exchange for subscriptions receivable $ - $ - $ 95,000 ========== ========== ========== Common stock issued in exchange for services $ - $ - $ 131,700 ========== ========== ==========
See accompanying notes to financial statements Page 7 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2004 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, 2003 (the "10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 10-KSB for the most recent fiscal year. NOTE 2 - 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 plan of reorganization confirmed by the United States Bankruptcy Court. 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 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 Page-8 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2004 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:
For the Nine months ended For the Three months ended May 31, MAY 31, 2004 2003 2004 2003 Net loss available to common Shareholders, as reported $ (653,499) $(446,540) 0 0 Deduct: Stock-based compensation Net of tax 459,513 - 0 0 Net loss available to common Shareholders, pro-forma $1,113,012 $(446,540) 0 0 Basic earnings per share: As reported $ (.03) $ (.02) 0 0 Pro-forma $ (.05) $ (.02) 0
The above stock-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model. The Company has recorded no compensation expense for stock options and warrants granted to employees during the three or nine months ended May 31, 2004 and 2003. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: Page 9- NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2004
For the Nine months ended May 31, 2004 2003 Risk free interest rate 4.0% 0 Expected life 6.5 years n/a Dividend rate 0.00% 0.00% Expected volatility 18% n/a
New Accounting Pronouncements - In May 2003, the FASB issued Statements of Financial Accounting Standards No. 150 b ("SFAS No. 150"), SFAS No. 150 established standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This SFAS is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in accounting principles for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 will not have a material effect on the financial statements. The Company has adopted SFAS No. 150. In December 2003, the FASB revised SFAS No. 132, Employers' Disclosures about Pensions and Other Post-Retirement Benefits. This revision requires additional disclosures to those in the original SFAS No. 132 about assets, obligations, cash flows and net periodic benefit cost of deferred benefit pension plans and other deferred benefit post-retirement plans. The required information should be provided separately for pension plans and for other post-retirement benefit plans. This statement revision is effective for fiscal year ending after December 14, 2003 and interim periods beginning after December 15, 2003. The adoption of this revision is not expected to have a material impact on the Company's results of operations, financial position or disclosures. NOTE 4 - CONVERTIBLE DEBENTURES: Between September and October 2003, the Company issued to six accredited investors $230,000 of convertible debentures which mature between May and October 2004 bearing interest at 8% per annum. The debentures entitle the holders to convert the debt into common stock at a rate of one share for each $0.30 principal amount plus any outstanding accrued interest. In conjunction with this transaction, the Company issued warrants to the six investors, to purchase a total of 1,165,000 shares of the Company's common stock for $0.30-$0.32 per share, expiring in five years. The warrants vested immediately. As of May 31,2004 the debenture due in May had not been paid. The value attributed to the warrants issued along with the debenture transactions above, totaling $138,000, has been charged to interest expense. Page 10- NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2004 During the quarter ended May 31,2004 warrants for the purchase of 1,024,030 shares of the Company's common stock expired unexercised. NOTE 5- WARRANTS In December of 2003 the Company issued five-year warrants to purchase a total of 165,000 shares of the Company's common stock to three employees and two individuals at an exercise price of $0.30 per share. The warrants vested immediately. In January of 2004 the Company issued five-year warrants to purchase a total of 28,500 shares of the Company's common stock to two employees and three individuals at an exercise price of $0.30 per share. The warrants vested immediately. In January of 2004 the Company issued seven-year warrants to purchase a total of 5,057,460 shares of the Company's common stock to three officers and two directors at an exercise price of $0.33 per share. The warrants vested immediately. In April 2004, the Company issued warrants to eight individuals to purchase a total of 100,000 and 20,000 shares of the Company's common stock for $0.50 and $0.35 per share respectively, expiring in five years. The warrants vested immediately. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company continued its product development and application testing and now has numerous certifications for specific applications. Since August 1995, the Company has applied for eight patents, five of which have been issued. The other three are pending. Additionally, one patent has been purchased by the Company. The Company has been increasing its marketing efforts principally by retaining the services of specialized distribution firms. The Company's management believes that marketing efforts to date have brought the Company closer to achieving greater sales for applications in many diverse industries including: military, maritime, wood products, structural steel and nuclear power plants. Significant tests have been passed and approvals received to qualify the Company's products in naval and other military and governmental applications. Aggressive marketing efforts are underway to obtain orders in these applications. Obstacles encountered in obtaining orders for most applications are the continuing tests and approvals required, competition against well established and better capitalized companies, cost, the slow process of specifying new products in highly regulated industrial applications, and the decisions not to use any fire retardant product. In general, the Company's products perform their intended uses well and are in a form that is safe and easy to use. The Company's most pressing need continues to be cash infusion as discussed below in the section on Liquidity and Capital Resources. The Company is limiting its research and development efforts in order to concentrate on sales of existing products. While new market opportunities frequently arise, the Company has opted to concentrate on targeting sales of present products rather than developing new products. Page-11 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) 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 NINE MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 Sales of $385,875 for the nine months ended May 31, 2004 represented an increase of 33% from the $290,379 for the comparable nine-month period of the prior year. Cost of goods sold during the same periods decreased from $149,410 to $128,339 resulting in a gross profit of $257,536 compared to $140,969 in the prior year. Selling, general and administrative expenses for the nine months ended May 31, 2004 were $881,112, and $824,721 for the similar period of the prior year. The most significant changes were increases in repricing of warrants, commissions and testing of $44,000, $50,523 and $15,392 respectively and decreases in professional fees and payroll taxes of $41,787 and $12,471. COMPARISON THREE MONTHS ENDED MAY 31, 2004 AND MAY 31, 2003 Sales of $252,332 for the three months ended May 31,2004 represented an increase of 146% from the $102,526 for the comparable three-month period of the prior year. Cost of goods sold during the same periods increased 12% from $60,986 to $68,473 resulting in a gross profit of $183,859 compared to $41,540 in the prior period. Selling, general and administrative expenses for the three months ended May 31, 2004 were $319,318, which represented an increase of 21% from the $263,728 for the similar period of the prior year. The most significant changes were increases of approximately $50,000 in commissions and deferred officers salaries of approximately %36,000, and decreases in payroll taxes of $6696 and $9526 in professional fees. During the nine months ended May 31,2004 and 2003 the Company realized approximately $43,000 and $180,000, respectively, through the sale of a portion of its New Jersey Net Operating Loss Carry Forward under a program sponsored by that state. LIQUIDITY AND CAPITAL RESOURCES At May 31, 2004 the Company had cash balances of $765. In order to fund continuing operations during the nine months ended on that date the Company issued to six accredited investors $230,000 worth of convertible debentures which mature between May and October 2004 bearing interest at 8% per annum. The debentures entitle the holders to convert the debt into common stock at a rate of one share for each $0.30 principal amount plus any outstanding accrued interest. As of May 31,2004 the debenture due in May had not been paid. The Company has deferred payment of $1,168,718 of the installments of the Chapter 11 liability to unsecured creditors that were due in September 1996, 1997, 1998 and 1999. Of that deferred amount, $790,686 is due to officers and directors of the Company. In order to pay those liabilities and meet working capital needs until significant sales levels are achieved, the Company will continue to explore alternative sources of funding including exercise of Page-12 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) 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. CRITICAL ACCOUNTING POLICIES The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and 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 our financial statements. Actual results may differ from these estimates under different assumptions and conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions. We believe that our critical accounting policies are limited to those described below. For a detailed discussion on the application of these and other accounting policies, see the notes to our financial statements. STOCK 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. We have recorded no compensation expense for stock options and warrants granted to employees during the three or nine months ended May 31, 2004. In accordance with FAS 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 utilizing certain assumptions as disclosed in the footnotes to this Form 10QSB. If we applied the recognition provisions of FAS 123 using the Black-Scholes option pricing model, the net income (loss) would increase by $459,513.The pro-forma stock-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model. ACCOUNTING FOR INCOME TAXES As part of the process of preparing our financial statements we are required to estimate our income taxes. Management judgment is required in determining our provision of our deferred tax asset. We recorded a valuation for the full deferred tax asset from our net operating losses carried forward due to the Company not demonstrating any consistent profitable operations. In the event that the actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust such valuation recorded. Page-13 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) GOING CONCERN The financial statements of the Company have been prepared assuming that the Company will continue as a going concern. The Company has had negative working capital for each of the last two years ended August 31, 2003 and 2002 and has incurred substantial losses since inception. Those conditions raise substantial doubt about the ability 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. Item 3. Controls and Procedures Within the 90-day period prior to the date of this report, the Company's Chief Executive Officer and Chief Financial Officer performed an evaluation of the Company's disclosure controls and procedures, which have been designed to permit the Company to effectively identify and timely disclose important information. They concluded that the controls and procedures were effective. Since the date of the evaluation, the Company has made no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls. PART II. OTHER INFORMATION Item 1. Legal Proceedings None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K An 8-K was filed on April 19, 2004 stating a change of auditors as of April 12,2004 Exhibit 1- Sarbanes-Oxley Act Section 906 Certification No reports on Form 8-K were filed during the quarter ended May 31,2004. 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: July 13, 2004 NoFire Technologies, Inc. By: /s/ Samuel Gottfreid Sam Gottfreid Chief Executive Officer By: /s/ Sam Oolie Sam Oolie Chairman of the Board, Chief Financial Officer Page-14 I, Sam Oolie, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of NoFire Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's board of directors (or persons performing the equivalent functions): Page 15 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I indicated in this quarterly report that there were no significant changes in internal controls or in other factors that could significantly affect internal control subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 13,2004 /s/Sam Oolie ------------- - -------------- Sam Oolie, Chief Financial Officer Page 16 I, Samuel Gottfried certify that: 1. I have reviewed this quarterly report on Form 10-QSB of NoFire Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant is made known particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's board of directors (or persons performing the equivalent functions): Page 17 a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: July 13,2004 /s/ SamuelGottfreid --------------------- Samuel Gottfreid -------------------- Chief Executive Officer Page 18 CERTIFICATION Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of NoFire Technologies, Inc., a Delaware corporation (the Company), does hereby certify, to the best of such officer's knowledge and belief, that: The Quarterly Report on Form 10-QSB for the Quarter ended May 31, 2004 of the Company fully complies with the requirements of section 13 (a) or 15 (d) of the Securities Exchange Act of 1934: and The information contained in the Form 10-QSB fairly presents in all material respect the financial condition and results of operations of the Company. Dated: July 13, 2004 /s/ Samuel Gottfreid ------------------- Chief Executive Officer Dated: July 13, 2004 /s/ Sam Oolie ----------------------- Chief Financial Officer EXHIBIT 1 -----END PRIVACY-ENHANCED MESSAGE-----