-----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, O5v9gRweuNgMYYuRdzrBftMXzdnYIjqwN9MQgofYNSAGam3Vz7JXRHiNgtOz2x17 0pbvA9RZ1XgtQu2cqAy5Ww== 0000823070-06-000028.txt : 20061214 0000823070-06-000028.hdr.sgml : 20061214 20061214123159 ACCESSION NUMBER: 0000823070-06-000028 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20061031 FILED AS OF DATE: 20061214 DATE AS OF CHANGE: 20061214 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: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-11061 FILM NUMBER: 061276240 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 10KSB 1 r10k0806.txt 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, 2006 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from ________ Commission File Number: 0-19945 NoFire Technologies, Inc. (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 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, 2006 $363,720 Aggregate market value of the voting stock held by $1,693,566 non-affiliates as of November 9, 2006 Number of shares of common stock outstanding as of November 9, 2006 36,583,944 Documents incorporated by reference: NONE Transitional small business disclosure format. YES___ NO X 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 redundancy. The NoFire liquid formulas are covered by three United States Patents and corresponding patents and patent applications in over 30 foreign countries. The United States Patents are: No. 4,879,320 - Intumescent Fire-Retardant Coating Material, issued November 7, 1989 No. 4,965,296 - Intumescent Fire-Retardant and Electrically- Conductive Coating Material, issued October 23, 1990; and 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. During fiscal 1999 the Company purchased from a non-affiliate the following United States Patent for $7,980: No. 4,956,218 - Fire Protection Blanket, issued September 11, 1990. The Company has submitted two additional patent applications to the United States Patent 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 three largest customers during the most recent fiscal year represented 47.3%, 7.1% and 5.2% 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, SBarrier (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 Organizations, 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 such as 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. The Company's direct costs for research and development (which has been conducted primarily by its chief executive officer and chief technical officer, Dr. Gottfried, as a part of his overall duties) have not been material and have not been segregated for accounting purposes. EMPLOYEES As of December 15, 2006, the Company had seven employees, six 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 ending August 31, 2005 was approximately $11,278. Monthly rent payments for the year ended August 31, 2006 is approximately $11,960. 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. 2005-2006 2004-2005 Quarter Ended High Low High Low - ------------- ---- --- ---- --- November 30 $0.15 $0.11 $0.31 $0.11 February 28 $0.15 $0.09 $0.29 $0.16 May 31 $0.25 $0.22 $0.34 $0.20 August 31 $0.20 $0.14 $0.23 $0.21 (b) HOLDERS As of August 31, 2006 there were approximately 261 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 our securities without registration under the Securities Act 0f 1933 as amended during the two years ended August 31, 2005 and August 31, 2006. 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 Notes 9/04 common 71,428 0.14 9/04 common 214,428 0.14 9/04 common 659,003 0.14 (1) 9/04 common 9,323,444 0.14 (1) 9/04 common 14,286 0.14 (3) 9/04 common 12,500 0.23 (4) 12/04 common 2,271,941 0.14 (1) 1/05 common 121,429 0.14 (1) 2/05 common 50,000 0.20 (2) 2/05 common 65,000 0.28 (3) 3/05 common 214,286 0.14 5/05 common 30,000 0.30 (2) 8/05 common 15,000 0.22 (4) 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 (1) Issued in conjunction with a conversion of 8% Convertible Bonds (2) Issued in conjunction with conversion of debt (3) Issued as fees (4) Issued for services rendered 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 Office. Item 1 - Business of the Company. Marketing efforts to develop new applications and establish new customers were continued in fiscal 2006. The efforts undertaken by the Company in application development, product approvals and marketing initiatives should assist it in creating greater sales in fiscal 2007 and beyond. The greatest obstacles encountered in obtaining major sales contracts are the multitude of tests and approvals required, competition against well established and better-capitalized companies, cost, and the slow process of specifying a new product in highly regulated applications. 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 advanced to the Company $56,926. The Company is accruing interest on the advance at the rate of 15% per annum. During the fiscal year eleven accredited investors purchased 1,000,000 shares of the Companys common stock for $100,000.00. In addition they received 928,571 five-year warrants exercisable at prices ranging from $0.10 to $0.15 per share. The warrants vested immediately. 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 Companys common stock to be held in escrow. An officer of the Company also guaranteed the debt. In October of 2006 the Company paid $40,000 of principal and interest to October 25, 2006 on the entire amount. (see subsequent events) 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 October 2005 the Company borrowed from two individuals $46,135. These loans bore no interest and have no specific due date. During December 2005 the Company borrowed from two individuals $10,000. These loans bore no interest and have no specific due date. 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. 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. (see subsequent events) 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 is 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 is being repaid at the rate of 25% on each credit card sale. In August 2006 the Company sold a 10% Convertible Debenture for $165,000. The debenture is 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. 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) During the year, the officers deferred an additional $509,373 of their salaries Also in fiscal 2006, $35,856 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, 2006 AND 2005 Sales of $363,720 represented an decrease of $180,081 or 33% from the $543,801 in the prior year. The net loss of $(1,753,775) for fiscal year 2006 was $18,840 more than the net loss of $1,734,935 in the prior year. General and administrative expenses and research and development costs of $1,171,580 in fiscal year 2006 was $210,968 or 14.5% less than the prior year. The main components of the changes are as follows: 8/31/2006 8/31/2005 Difference Material $ 196,845 217,604 (20,759) Testing 60,398 52,359 8,039 Mfg O/H 49,283 45,452 3,831 Rent 143,526 135,332 8,194 Repricing warrants 20,178 55,015 (34,837) Professional Fees 103,233 124,463 (21,230) Insurance 46,144 84,126 (37,982) NJ Tax Refund 35,783 42,150 (6,367) Interest Expense 726,698 739,631 (12,933) Bad Debt Expense 0 108,588 (108,588) Commissions 21,844 68,376 (46,532) Amortization and Depreciation 1,578 6,735 (5,157) Penalties 25,823 10,612 15,211 During the fiscal years 2005 and 2006, the Company realized approximately $49,928 and $35,783 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 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 our note 1 to our financial statements. Accounting for Income Taxes As part of the process of preparing the Companys financial statements the Company is 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 to 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, 2006 and 2005. 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 We have adopted Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"("SFAS 123"), effective September 1, 2005. As provided for by SFAS 123, we have also elected to account for our stock-based compensation programs according to the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"("APB 25")." Accordingly, compensation expense has been recognized based on the intrinsic value of stock issued or warrants granted to employees and directors for services rendered prior to September 2005. Item 7. FINANCIAL STATEMENTS The Company's annual financial statements for the fiscal years ended August 31,2006 and August 31, 2005, 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 August 31 2006 and August 31, 2005 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 Our management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), as of the end of the period covered by this Annual Report on Form 10-KSB. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period covered by this report. PART 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 60 Director, Chief Executive Officer, Chief Technical Officer and Assistant Treasurer Sam Oolie 70 Director, Chairman of the Board, Chief Operating Officer, Chief Financial Officer and Treasurer Bernard J. Koster 73 Director Gerald H. Litwin 64 Director Alphonso Margino 68 Secretary 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, 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. Mr. Oolie also serves as a Director of Comverse Technology, Inc., a manufacturer of voice storage and forwarding systems and message management computer services, since May 1985. 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 five 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. Except as discussed in Notes 2 and 3 to such table, the Company had no Option/SAR Grants, Aggregated Option/SAR Exercises or Fiscal Year End Option/SAR's for the years ended August 31, 2006, 2005, and 2004, 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, 2006, 2005, and 2004 Name and Year Ended Salary Salary Options All other Principal Position August 31 Paid Deferred(1) SAR's Compensation - ------------------ ---------- ------ ----------- ----- ----------- Samuel Gottfried Chief Executive Officer 2006 None $221,184 from January 1, 2003 2005 $ 29,180 $188,779 (4)(5) and Chief Technical 2004 $ 49,217 $144,837 (4)(5) Officer And Assistant Treasurer from August 1 Sam Oolie 2006 None $221,184 Chairman of the Board, 2005 $ 8,616 $210,187 Chief Operating Officer 2004 $ 44,591 $145,433 (4)(5) And Chief Executive Officer until July 26, 1999, and Chief Financial Officer Since January 2, 2003 William A. Retz 2006 None None Chief Executive Officer 2005 None None from September 1, 2000 2004 None None (2) $25,000 until January 2, 2003 Alfonso Margino 2006 $ 3,750 $74,145 Vice President 2005 $15,000 $61,660 And Secretary since 2004 $24,087 $58,708 (4) 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. Note (2) Consulting agreement as discussed below. Note (3) On September 5, 2000 the Company s Executive Committee authorized the issuance of a five-year warrant to Dr. Gottfried for 278,000 shares at an exercise price of $0.50 per share. This warrant became fully vested on September 5, 2001. On November 5, 2001, a five- year warrant was issued to Radm Retz for 100,000 shares at an exercise price of $0.35 per share with immediate vesting. On November 5, 2001, expiring warrants were replaced with new five-year warrants at an exercise price of $0.35 per share to the following officers: Mr. Oolie, 300,000; Dr. Gottfried, 160,000; and Mr. Margino, 100,000. The replacement options were immediately vested. On July 22, 2003, seven-year warrants were issued at an exercise price of $0.30 per share to the following officers: Mr. Oolie, 725,000; Dr. Gottfried 500,000; and Mr. Margino, 250,000. In conjunction with a debt conversion agreement all of the above warrants have been cancelled as of August 30, 2004 (see note 4 below). Note (4) On August 30, 2004 the Company entered into conversion of debt agreement whereby officers and directors of the Company agreed to convert certain debt into an 8% convertible debenture. The debenture allows for a conversion at the rate of $0.14 per share of common stock. In addition warrants were issued at the rate of 3 times the number of shares. On August 30, 2004 the officers and directors returned 8,305,460 previously issued warrants as part of the transaction. Note (5) In January 2004 the board of directors authorized an increase in compensation to Dr. Gottfried and Mr. Oolie. The new compensation beginning 1/1/04 is $213,000 annually for each of them. In February 2003 the Company entered into a consulting agreement with Admiral Retz for the period of one year, whereby he was to receive $3,000 per month from February 1, 2003 to July 31, 2003 and $5,000 per month from August 1, 2003 to January 31, 2004. In conjunction with this agreement the Company accelerated the vesting of warrants to purchase 100,000 shares of the Company s common stock at $0.5625 per share. Accordingly, $25,000 has been charged to consulting expense for the period Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of November 9, 2006 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 18,384,127 37.3% NoFire Technologies, Inc. 21 Industrial Avenue Upper Saddle River, NJ 07458 Samuel Gottfried 15,700,123 33.1% NoFire Technologies, Inc. 21 Industrial Avenue Upper Saddle River, NJ 07458 Alphonso Margino 8,656,568 20.3% NoFire Technologies, Inc. 21 Industrial Avenue Upper Saddle River, NJ 07458 Bernard J. Koster 1,226,652 3.2% 7 Old Smith Road Tenafly, NJ 07670 Gerald H. Litwin 7,471,600 17.7% Two University Plaza Hackensack, NJ 07601 Lavin Holdings, LLC 7,515,388 20.5% 483 Winthrop Road Teaneck, NJ 07666 Carole Salkind 6,340,435 15.5% 18911 Collins Ave Sunny Isles Beach Fl. 33160 John Cavanna 4,045,287 10.3% 2337 Lemoine Ave Fort Lee NJ 07024 All officers and directors 51,439,070 70.6% as a group (five persons) Note (1) As of November 9, 2006, there were 36,583,944 shares of Common Stock issued and outstanding. Percentage of class for all officers and directors as a group are computed on 72,891,398 shares. Percentage of class for Lavin Holdings LLC, Carole Salkind and John Cavanna is computed on outstanding common stock in the amount of 36,583,944. 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, 2005 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 Exchange Act during such fiscal year. Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As a result of loans made to fund the Company's operations during its trusteeship under a Chapter 11 bankruptcy that ended on August 11, 1995 plus accrued interest to that date, there were balances due at September 1, 1996 of $171,137 to Mr. Oolie, and $10,918 to Mr. Koster. Mr. Koster and Mr. Oolie converted their claims into a convertible debenture on August 30, 2004 (see below). On August 30, 2004 the Company entered into conversion of debt agreement whereby officers and directors, consultants of the Company agreed to convert certain debt into an 8% convertible debenture. The debenture allows for a conversion at the rate of $0.14 per share of common stock. Additional interest on such debt was converted at the same rate in November and December 2004. In addition warrants were issued at the rate of 3 times the number of shares. The total amount of shares and warrants issued for the $1,614,434 of debt converted was 11,716,512 shares of common stock and 35,614,434 warrants as shown in the schedule below. A schedule of the conversion is shown below: Name Debt Converted Shares Warrants - --------- --------------- ------------ ------------- Sam Oolie $ 540,422 3,923,531 11,770,596 Samuel Gottfried 499,314 3,625,030 10,875,093 Alfonso Margino 275,726 2,008,642 6,025,026 Gerald Litwin 258,681 1,867,900 5,603,700 Bernard Koster 15,292 110,713 332,139 Mitchell Goldstone 25,000 180,998 542,994 All of the above was converted during the fiscal year 2005. On November 5, 2001, five-year warrants were granted to replace expiring warrants to the following officers and directors: Mr. Oolie, 300,000 shares, Dr. Gottfried 160,000 shares, Mr. Margino 100,000 shares, Mr. Litwin 100,000 shares and Mr. Koster 25,000 shares. The replacement warrants have an exercise price of $0.30 per share and are fully vested. On December 11, 2001, warrants were granted to Mr. Koster and Mr. Litwin entitling them each to purchase 20,000 shares of the Company s Common Stock at a price of $0.40 per share. On July 22, 2003 seven-year warrants were granted to the following officers and directors: Mr. Oolie 725,000 Dr. Gottfried 500,000 Mr. Margino 250,000 and Mr. Koster 25,000. The warrants have an exercise price of $0.30 per share. On August 30, 2004 all of the above warrants were cancelled as part of the convertible debentures issued (see above) Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A. and provides certain legal services to the Company. At August 31, 2006, the Company was obligated to that firm in the amount of $319,449. Expenses in fiscal 2005 were $33,980 for legal services, and in fiscal 2006, $ 18,227 in fees. In addition, Litwin & Holsinger (a predecessor to Litwin and Tierman) 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. In August 2005 the balance of the bankruptcy debt was converted to an 8% convertible debenture. In July 2003, the Company issued warrants to Mr. Litwin to purchase a total of 700,000 shares of the Company s common stock for $0.30 per share, expiring in seven years, in settlement of interest owed to Litwin & Tierman. The warrants vested immediately. In August 2004, as part of the issuance of the convertible debenture, these warrants were cancelled. During three fiscal years ended 2006, the officers deferred a total of $1,326,117 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 $170,163 at August 30, 2006. 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. 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, 2006 F-3 Statements of Operations for the years ended August 31, 2006 and 2005 F-4 Statements of Changes in Stockholders' Equity (Deficiency) for the years ended August 31,2006 and 2005 F-5 Statements of Cash Flows for the Years Ended August 31, 2006 and 2005 F-6 Notes to Financial Statements F-8 to F-22 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, 2006 and 2005 for professional services rendered by our principal accountants for the audits of our annual financial statements and the review of our financial statements included in our quarterly reports on Form 10QSB were approximately $17,500 and $18,000, respectively. AUDIT-RELATED FEES The aggregate fees billed for the fiscal years ended August 31, 2006 and 2005 for assurance and related services rendered by our principal accountants related to the performance of the audit or review of our financial statements, specifically accounting research, were $ 0 for each year. TAX AND OTHER FEES There aggregate fees billed for the fiscal years ended August 31, 2006 and 2005 for tax related or other services rendered by our principal accountants in connection with the preparation of our federal and state 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 2006 or 2005. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NOFIRE TECHNOLOGIES, INC. Date: December 11, 2006 By: /s/ Sam Gottfried ------------------------ Sam Gottfried, Chief Executive Officer Date: December 11, 2006 By: /s/ Sam Oolie ------------------------ Sam Oolie Chief Financial Officer In accordance with the Exchange 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 11, 2006 Samuel Gottfried, Director /s/ Bernard J. Koster - ----------------------------- December 11, 2006 Bernard J. Koster, Director /s/ Gerald H. Litwin - ----------------------------- December 11, 2006 Gerald H. Litwin, Director /s/ Sam Oolie - ----------------------------- December 11, 2006 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, 2006 F-3 Statements of operations for the years ended August 31, 2006 and 2005 F-4 Statements of changes in stockholders' equity (deficiency) for years ended August 31,2006 and 2005 F-5 Statements of cash flows for the years ended August 31, 2006 and 2005 F-6 Notes to financial statements F-8 to F-22 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, 2006, and the related statements of operations, stockholders equity (deficiency) and cash flows for each of the years then ended August 31, 2006 and 2005. 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, 2006, and the results of its operations and its cash flows for each of the years then ended August 31, 2006 and 2005, 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 $1.7 million for each of the years ended August 31, 2006 and 2005, and has a substantial working capital deficiency as of August 31, 2006. 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 16, 2006 F-2 NOFIRE TECHNOLOGIES, INC BALANCE SHEET ASSETS August 31, 2006 CURRENT ASSETS: Cash $ 18,107 Accounts Receivable - trade 4,411 Inventories 67,403 ----------- Total Current Assets 89,921 EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF $39,626 1,086 OTHER ASSETS: Security deposits 36,714 --------- $127,721 ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Settled liabilities $ 378,031 Accounts payable and accrued expenses 1,152,412 Loans and advances payable to stockholders 475,538 Deferred salaries 1,875,218 Loans payable 389,415 Convertible debenture 8% (net of discount) 425,094 Convertible debenture 10% (net of discount) 89,591 ---------- Total Current Liabilities 4,785,299 STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.01 par value: Authorized -150,000,000 shares issued, to be issued, and outstanding- 35,806,621 358,066 Capital in excess of par value 13,923,791 Accumulated Deficit (18,939,435) ---------- Total Stockholders' Equity (Deficiency) (4,657,578) ---------- $ 127,721 ========= See accompanying notes to financial statements F-3 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS Year Ended August 31, 2006 2005 ---------- ---------- NET SALES $ 363,720 $ 543,801 ---------- ---------- COSTS AND EXPENSES: Cost of sales 196,845 217,604 General and administrative 1,192,223 1,371,358 ---------- ---------- 1,389,068 1,588,962 ---------- ---------- LOSS FROM OPERATIONS ( 1,025,348) (1,045,161) ---------- ---------- OTHER EXPENSES (INCOME): Interest expense (Equity based portion $319,396 and $514,007, respectfully) 764,210 739,631 Interest income 0 71 -------- -------- 764,210 739,702 -------- ---------- LOSS BEFORE INCOME TAXES (1,789,558) (1,784,863) INCOME TAX BENEFIT 35,783 49,928 ---------- -------- NET LOSS $ (1,753,775) $(1,734,935) ========== ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC AND DILUTED 35,052,775 32,198,993 ========== ========== BASIC AND DILUTED LOSS PER COMMON SHARE: $ (.05) $ (.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 Unearned Total Shares Amount of Par Value (Deficit) Compensation Stockholders (Deficit) Equity ---------- ---------- -------- ----------- ----------- --------- BALANCES, AUGUST 31, 2004 21,744,019 $4,348,804 $6,774,313 $(15,450,726) $ 0 $(4,327,609) YEAR ENDED AUGUST 31, 2005 Conversion of indebtedness 709,003 141,801 (39,539) 102,262 Conversion of indebtedness related party 11,716,814 2,343,363 (728,929) 1,614,434 Sale of securities 544,285 108,857 (28,845) 80,012 Repriced warrants 0 0 35,310 35,310 Equities issued with debt/ beneficial conversion rights 65,000 13,000 515,067 528,067 Recapitalization adjustment Change in par value May 23, 2005 (6,608,033) 6,608,033 Shares, options, warrants issued for services 27,500 275 24,859 0 (3,675) 21,459 Net loss (1,734,934) (1,734,934) ----------- ----------- --------- ------------- -------- ------------ BALANCES, August 31, 2005 34,806,621 $ 348,066 $13,160,269 $(17,185,660) $(3,675) (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 50,171 3,675 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) $ 0 $( 4,657,578) ========== ========= =========== ============== ======= ===========
F-5 See accompanying notes to financial statements NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS Year Ended August 31, 2006 2005 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,753,775 ) $(1,734,934) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 1,579 6,742 Amortization of unearned compensation and debt discount 32,713 - Equities issued as interest and beneficial Conversion features on current and past due loan payable 603,803 528,067 Warrants issued for consulting services 50,171 21,459 Repricing of warrants 20,178 35,310 Accounts receivable - trade 902 10,649 Inventories 14,425 4,484 Prepaid expenses and other current 6,645 6,279 Accounts payable and accrued expenses 215,016 127,938 Deferred salaries 430,473 448,192 ---------- ---------- Net cash flows used by operating activities (377,870) (545,814) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Security deposits (10,715) (1,120) ----------- ----------- NET CASH FLOWS FROM INVESTING ACTIVITIES: (10,715) (1,120) ------------ --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of related expenses 100,000 80,013 Net proceeds from short-term loans 136,855 117,938 Loans and advances received from stockholders 155,738 314,448 Proceeds from issuance of convertible debentures - 14,928 ---------- ---------- Net cash flows from financing activities 392,593 527,327 ---------- ---------- NET INCREASE (DECREASE) IN CASH 4,008 (19,607) CASH AT BEGINNING OF YEAR 14,099 33,706 ---------- ---------- CASH AT END OF YEAR $ 18,107 $ 14,099 ========== ========== F-6 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 53,484 $ 30,000 ========== ========== Income taxes paid (benefit) $ (35,783) $( 49,928) ========== ========== Convertible debentures and other debt converted to equity $ $ - $ 1,716,696 ========== ========== Common stock issued in exchange for services $ 89,846 $ 21,459 ========== ========== 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 $ 1,579 and $1,734 for of the years ended August 31, 2006 and 2005, respectively. F-8 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENTS Intangible Assets - Patents are amortized on a straight-line basis over 5 years. Amortization expense was $5,008 for the year ended August 31, 2005. Income Taxes - Deferred income taxes arise from temporary differences between financial and tax reporting, principally for deferred compensation and net operating loss carry forwards. Risk Concentrations - The following summarizes the risk concentration of the Company as of August 31, 2006: Cash Concentrations - The Company maintains a cash balance with a financial institution which at some times may exceed federally insured limits. Accounts Receivable - The Company grants unsecured credit to many of its customers with two customers comprising a concentrated risk. Management continually evaluates the credit risk associated with accounts receivable and believes that the risk is limited. Revenue Recognition Revenues are recognized when the Company s products are shipped. Cost of Sales - Cost of sales includes the following costs: material costs, freight in, direct labor and packaging costs. Indirect costs of sale items included as selling, general and administrative costs for the years ended August 31, 2006 and 2005 are as follows: shipping and receiving labor of $8,667 and $8,272, and shipping costs of $8,638 and $5,716 respectively. Advertising Costs - The Company expenses costs for trade shows, marketing and promotional activities as incurred. Expenses were approximately $5,698 and $7,563 for the years ended August 31, 2006 and August 31, 2005, 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 54,289,824 warrants outstanding is not included since it would be anti-dilutive. Equity based compensation - We previously accounted for stock-based compensation issued to our employees under Accounting Principles Board Opinion 25 (APB 25). Accordingly, no compensation costs for stock options issued to employees, which was measured as the excess, if any, of the fair value of our common stock at the date of grant over the exercise price of the options. The pro forma net earnings per share amounts as if the fair value method had been used are presented below for the year ended August 31, 2005, in accordance with the Company s adoption of SFAS 123(R). F-9 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENT For purposes of the following disclosures during the transition period of the adoption of SFAS 123(R), the weighted average fair value of options has been estimated on the date of grant using the Black-Scholes options pricing model. The Company has granted warrants to purchase common stock to employees in the year ending August 31, 2006, which have been recorded as an expense in the amount of $86,171, as such warrants vested immediately upon issuance. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value provisions of FASB Statement No. 123, Accounting for Stock Based Compensation, to stock-based employee compensation for the year ended August 31, 2005. ? Year ended August 31, 2005 Net loss as reported $(1,734,934) Deduct: Stock-based compensation, Net of tax $ (155,146) ----------- Net loss, pro-forma $(1,890,080) Basic earnings per share As reported $ (0.05) Pro-forma $ (0.06) The above stock-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model. In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: For the Year ended August 31, 2006 2005 Risk free interest rate 5.25% 4.26% Expected life 5 yrs 8.5 yrs Dividend rate 0.02% 0.0% Expected volatility 124% 97% F-10 NOFIRE TECHNOLOGIES INC NOTES TO FINANCIAL STATEMENTS FASB 155 Accounting for Certain Hybrid Financial Instruments In February 2006, the FASB issued FASB Statement No. 155, which is an amendment of FASB Statements No. 133 and 140. This Statement: a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, b) clarifies which interest-only strip and principal-only strip are not subject to the requirements of Statement 133, c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, d) clarifies those concentrations of credit risk in the form of subordination are not embedded derivatives, and e)amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for financial statements for fiscal years beginning after September 15, 2006. Earlier adoption of this Statement is permitted as of the beginning of an entity s fiscal year, provided the entity has not yet issued any financial statements for that fiscal year. FASB 156 Accounting for Servicing of Financial Assets In March 2006, the FASB issued FASB Statement No. 156, which amends FASB Statement No. 140. This Statement establishes, among other things, the accounting for all separately recognized servicing assets and servicing liabilities. This Statement amends Statement 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. This Statement permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. Under this Statement, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. By electing that option, an entity may simplify its accounting because this Statement permits income statement recognition of the potential offsetting changes in fair value of those servicing assets and servicing liabilities and derivative instruments in the same accounting period. This Statement is effective for financial statements for fiscal years beginning after September 15, 2006. Earlier adoption of this Statement is permitted as of the beginning of an entity s fiscal year, provided the entity has not yet issued any financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statement of the company once adopted. F-11 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. NOTE 2 - INVENTORIES: Inventories, net of reserves, at August 31, 2006 consisted of the following: Testing material $ 3,000 Raw material $ 44,978 Finished goods 19,425 -------- $ 67,403 ======== 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, 2006, 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. NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following: F-12 NOFIRE TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS Legal fees $ 344,963 Commissions 32,801 Interest 348,364 Payroll and payroll taxes 36,756 Accounts payable 185,567 Other 203,961 ---------- $ 1,152,412 ========= NOTE 5 RELATED PARTY TRANSACTIONS In March 2003 the Company received $88,811 from a stockholder, in exchange for a note bearing interest at 6.00% and payable by December 31, 2004. The note is collateralized by a security interest in two of the Company s patents. In August 2005 this note was purchased by Mr. Oolie. All original rights remain the same. On August 30, 2004 the company entered into conversion of debt agreement whereby officers, directors and consultants of the Company agreed to convert certain debt into an 8% convertible debenture. The debenture allows for a conversion at the rate of $0.14 per share of common stock. Additional interest on such debt was converted at the same rate in November and December 2004 In addition warrants were issued at the rate of 3 times the number of shares. The total amount of shares and warrants issued for the $1,614,434 of debt converted during the fiscal year 2005 was 11,716,814 shares of common stock and 35,614,434 warrants as reflected in the schedule below. A schedule of the conversion is shown below: Name Debt Converted Shares Warrants - --------- --------------- ------------ ------------- Sam Oolie $ 540,422 3,923,531 11,770,596 Samuel Gottfried 499,314 3,625,030 10,875,093 Alfonso Margino 275,726 2,008,642 6,025,026 Gerald Litwin 258,681 1,867,900 5,603,700 Bernard Koster 15,292 110,713 332,139 Mitchell Goldstone 25,000 180,998 542,994 F-13 NOFIRE TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS On November 5, 2001, five-year warrants were granted to replace expiring warrants to the following officers and directors: Mr. Oolie, 300,000 shares, Dr. Gottfried 160,000 shares, Mr. Margino 100,000 shares, Mr. Litwin 100,000 shares and Mr. Koster 25,000 shares. The replacement warrants have an exercise price of $0.30 per share and are fully vested. On December 11, 2001, warrants were granted to Mr. Koster and Mr. Litwin entitling them each to purchase 20,000 shares of the Company s Common Stock at a price of $0.40 per share. On July 22, 2003 seven-year warrants were granted to the following officers and directors: Mr. Oolie 725,000, Dr. Gottfried 500,000, Mr. Margino 250,000 and Mr. Koster 25,000. The warrants have an exercise price of $0.30 per share. On August 30, 2004 all of the above warrants were cancelled as part of the convertible debentures issued. (see above) Mr. Litwin is a principal of the law firm of Litwin & Tierman, P.A., and provides certain legal services to the Company. At August 31, 2006, the Company was obligated to that firm in the amount of $319,449.Expenses in fiscal 2006 were $18,225 for legal services, and in fiscal 2005, $ 33,980 in fees. In addition, Litwin & Holsinger (a predecessor to Litwin and Tierman) 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. In August 2005 the balance of the bankruptcy debt was converted to an 8% convertible debenture. In July 2003, the Company issued warrants to Mr. Litwin to purchase a total of 700,000 shares of the Company s common stock for $0.30 per share, expiring in seven years, in settlement of interest owed to Litwin & Tierman. The warrants vested immediately. In August 2004, as part of the issuance of the convertible debenture, these warrants were cancelled. During three fiscal years ended 2006, the officers deferred a total of $1,326,117 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 $170,163 at August 30, 2006. 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. During 2006 Mr. Oolie advanced an additional $56,928 to the Company. These Advances are due on demand and bear interest at %15 per annum NOTE 6 - SETTLED CLAIMS PAYABLE TO RELATED PARTIES: At August 31, 2004, settled claims payable includes amounts due to current officers and members of the Board of Directors of the Company totaling approximately $775,395, all of which are delinquent. On August 30, 2005, the Company converted this amount into an 8% convertible debenture. (see above) NOTE 7 CONVERTIBLE DEBENTURES AND OTHER DEBT: During the fiscal year ended August 31, 2005, $400,000 of Convertible F-14 NOFIRE TECHNOLOGIES INC. NOTES TO FINANCIAL STATEMENTS Debenture previously issued were reissued to include interest and penalties in the amount of $69,928. In conjunction with the above the Company issued 1,200,000 $0.22 ten-year warrants to purchase the Company s common stock. The warrants vested immediately. The Company charged $423,059 to interest expense on this transaction. On August 30, 2004 the Company entered into conversion of debt agreement whereby officers and directors of the Company agreed to convert certain debt into an 8% convertible debenture. The debenture allows for a conversion at the rate of $0.14 per share of common stock. The beneficial conversion feature related to these debentures has been valued at $2,588,056 and expensed, since predominately all of such debt was converted into equity in November 2004. In addition warrants were issued at the rate of 3 times the number of shares issued upon conversation of such debt. From November 1, 2004 through January 31, 2005 $1,614,434 of related party debt including interest on above debentures were converted into common stock. In January 2005, the Company borrowed $65,000 from an individual. The note was due January 12, 2006 and has an interest rate of 15%. The note is partially collateralized with the proceeds from the sale of the Company s 2004 New Jersey loss carryforward. $35,856 was paid in December 2005. In conjunction with the above 65,000 shares of the Company s common stock were issued at $.28 per share as a fee. 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 of 2006 the Company paid $40,000 of principal and interest to October 25, 2006 on the entire amount. (see subsequent events) 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 October 2005 the Company borrowed from two individuals $46,135. These loans bore no interest and have no specific due date. During December 2005 the Company borrowed from two individuals $10,000. These loans bore no interest and have no specific due date. During February 2006 the Company borrowed from three individuals $20,000. These loans will be paid back from the sale of the first 500 gallons of A-18 sold in the amount of $24,000 and have no specific due date. F-15 NOFIRE TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENT 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. (see subsequent events) 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 is 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 is being repaid at the rate of 25% on each credit card sale. In August 2006 the Company sold a 10% Convertible Debenture for $165,000. The debenture is 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. 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) NOTE 8 - COMMITMENTS AND CONTINGENCIES: Lease - The Company's lease of its facility expires on August 31, 2008 with total annual lease commitments of $148,500 and $153,500 for the years ending August 31, 2007 and 2008, respectively. Rent expense, inclusive of taxes and insurance, was approximately $ 143,526 and $135,332 for the years ended August 31, 2006 and 2005, respectively. 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. F-16 NOTES TO NOFIRE TECHNOLOGIES, INC. FINANCIAL STATEMENTS NOTE 9 - 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 10 ? INCOME TAXES No provision for current and deferred income taxes is required for the years ended August 31, 2006 and 2005. The following is a reconciliation of income tax benefit computed at the 34% statutory rate to the provision for income taxes: 2006 2005 --------- --------- Tax at statutory rate $ 596,000 $ 590,000 Permanent and other items (194,000) (199,000) Temporary timing differences (219,000) (152,000) State income tax, net of federal income tax benefit 27,000 28,000 Valuation allowance (210,000) (267,000) --------- --------- $ - $ - ========= ========= 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 $4,000,000, to be approximately $150,000 per year expiring in 2010. Subsequent to the date of the Plan, the Company has generated approximately $8,570,000 in net operating losses, which expire through 2026. The significant components of the Companys net deferred tax asset are summarized as follows: August 31, ------------------------ 2006 ---------- Net operating loss carry forwards $4,270,000 ---------- Valuation allowance $4,270,000 ---------- $ 0 F-17 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, 2006 and 2005. At August 31, 2006, the Company has federal and state net operating loss carry forwards for financial reporting and income tax purposes of approximately $12,570,000 which can be used to offset current and future taxable income through the year 2026 During each of the fiscal years 2006 and 2005,the Company sold a portion of its state net operating loss carry forwards (NOL) realizing approximately $ 35,856 and $49,928, respectively. NOTE 11 - MAJOR CUSTOMERS: Sales to three customers represented 47.3%, 7.1% and 5.2% of net sales for the year ended August 31, 2006. Sales to three customers represented 38.6% 16.8% and 8.2% of net sales for the year ended August 31, 2005. NOTE 12 WARRANTS AND COMMON STOCK: For the years ended August 31, 2006 and 2005, a summary of the status of warrants were as follows: 2006 2005 ------------------- -------------------- Weighted Weighted Number Average Number Average of Exercise of Exercise Shares Price Shares Price ---------- -------- ---------- -------- Outstanding, beginning of year 47,231,818 0.17 45,033,668 $0.22 Granted 7,215,571 0.15 6,500,127 0.17 Exercised - - Cancelled/ forgiven - - (125,000) 0.32 Expired (157,565) 0.47 (4,176,980) 0.73 ---------- ----- ---------- ----- Outstanding, end of year 54,289,824 0.17 47,231,818 0.17 ========== ===== ========== ===== Exercisable, end of year 54,189,824 0.17 47,183,818 0.17 ========== ===== ========== ===== F-18 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENTS The following table summarizes warrant data as of August 31, 2006: Outstanding and exercisable Number of Weighted- Weighted Number Outstanding average remaining average exercisable life in exercise years price ------------ ------------------ ----------- - Range of exercise prices: $.01-$.15 45,210,449 5.58 $0.14 45,110,449 $.16-$.50 8,299,375 2.86 0.26 8,299,375 $.51-$.99 580,000 3.77 0.60 580,000 $1.00 or more 200,000 0.18 2.00 200,000 ------------ ---------- 54,289,824 54,189,824 Information, at date of issuance, regarding warrant grants during the year ended August 31, 2006: Shares Weighted Weighted average average exercise fair price value ------------ ------------ --------- Exercise price exceeds market price Exercise price equals market price 7,215,571 $0.15 $0.11 Exercise price is less than market price In addition the Company repriced and reissued warrants totaling 504,435 at a new exercise price of $0.14 per share. Due to the repricing of these warrants, an additional expense has been recorded in the amount of $20,178. The weighted average grant date fair value of warrants granted during the year ended August 31, 2006 was $ 0.11. No warrants had been exercised by holders as of August 31, 2006. F-19 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENTS In October 2004, the Company issued ten-year warrants to two accredited investors to purchase a total of 1,915,714 of the Company s common stock at an exercise price of $.14 per share. Such warrants were issued with debt proceeds, and $86,808 of interest expense was recorded for the value of such warrants issued. The warrants vested immediately. In October 2004, the Company issued five-year warrants to four employees to purchase 200,000 shares of the Company s common stock at an exercise price of $.14 per share. No compensation expense has been recorded as the warrant exercise price was at the then market price of the common stock. The warrants vested immediately. In November 2004, the Company issued ten-year warrants to two accredited investors to purchase a total of 917,859 of the Company s common stock at an exercise price of $.14 per share. Such warrants were issued with the sale of common stock to these investors. The warrants vested immediately. In January 2005, the Company issued five-year warrants to an employee to purchase 25,000 shares of the Company s common stock at an exercise price of $.14 per share. No compensation expense has been recorded as the warrant exercise price was at the then market price of the common stock. The warrants vested immediately. In February 2005, the Company issued ten-year warrants to a Director of the Company, for services rendered, to purchase 700,000 shares of the Company s common stock at an exercise price of $.22 per share. No compensation expense has been recorded as the warrant exercise price was at the then market price of the common stock. The warrants vested immediately. During February and March 2005, the Company issued to three creditors 107,500 Shares of common stock and five-year warrants to purchase 237,000 shares of the Company s common stock at $.20 per share. The warrants were issued for services rendered, equity raised and debt converted to equity. There was $22,969 recorded as compensation expense for the services portion. The warrants vested immediately. In March 2005, the Company issued ten-year warrants to an accredited Investor to purchase a total of 642,858 of the Company s common stock at an exercise price of $.14 per share. Such warrants were issued with the sale of common stock to these investors. The warrants vested immediately. Also in March 2005, the Company issued to an individual five-year warrants to purchase 17,500 shares of the Company s common stock at $.35 per share. The warrants were issued for services rendered, which $4,554 of compensation expense has been recorded. The warrants vested immediately. F-20 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENTS In May 2005, the Company issued ten-year warrants to an accredited Investor to purchase a total of 1,200,000 of the Company s common stock at an exercise price of $.22 per share. These warrants were issued in conjuction with an extension of a note payable. Interest expense in the amount of $423,059 was recorded for such warrants. The warrants vested immediately. 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 CEO, in connection to the debt advances to the Company by its CEO. The warrants have an exercise price of $.14 per share for ten years. An expense of $92,875 has 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 has recorded $510,298 for the beneficial conversion rights and warrants issued in connection with such debt extended or newly issued, which has been expensed except for the debt discount. The 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 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 which was the then trading prices of the common stock at each respective issue date. All warrants vested immediately, except 100,000 warrants, which vests 50,000 in November 2006 and 50,000 in May 2007, subject to the agreement still being in force. NOTE 13 - SUBSEQUENT EVENTS: In September 2006 the Company sold 180,000 shares of its common stock to a accredited investor for $.14 per share The proceeds totaled $25,200. In conjunction with the above, the Company issued five-year warrants to purchase a total of 90,000 shares of the Company s common stock at an exercise price of $.20. per share. The warrants vested immediately. F-21 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENTS During October 2006 additional advances of $3,500 were made to the Company by Mr. Oolie. During October 2006, the Company issued to three creditors 80,000 five-year warrants to purchase shares of the Companys common stock at $.11 per share. The warrants were issued for services rendered, which will be recorded as compensation expense. The warrants vested immediately. During October 2006 the Company sold 597,323 shares of its common stock to 13 accredited investors for between $.11 and $.17 per share. The proceeds totaled $ 74,280. In conjunction with the above, the Company issued five-year warrants to purchase a total of 298,663 shares of the Company s common stock at an exercise price of $.20 per share. The warrants vested immediately. Also during October 2006 the Company repaid the final $10,000 due to an individual lender, and a $40,000 partial payment of principal and approximately $17,000 of interest due on the $100,000 loan which was due in September of 2006. F-22 19 - - - 20 24 EX-31 2 rexhibit3106.txt Exhibit 31.1 CERTIFICATIONS* I, Sam Gottfried, certify that: 1. I have reviewed this 10kSB of NoFire Technologies; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statement, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f ) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, is made known to us by others particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 11, 2006________________ /s/ Sam Gottfried Sam Gottfried Chief Executive Officer Exhibit 31.1 CERTIFICATIONS* I, Sam Oolie, certify that: 1. I have reviewed this 10kSB of NoFire Technologies; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statement, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d -15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f ) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, is made known to us by others particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: December 11, 2006________________ /s/ Sam Oolie Sam Oolie Chief Financial Officer EX-32 3 rexhibit3206.txt Exhibit 32-1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Financial Report of NoFire Technologies, Inc. on Form 10KSB for the Fiscal Year ended 8/31/06 as filed with the Securities and Exchange Commission on the date hereof, I, Sam Gottfried, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10KSB fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Form 10KSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 11,2006 , 2006 Name /s/ Sam Gottfried (CEO) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to NoFire Technologies, Inc. and will be retained by NoFire Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 32-2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Financial Report of NoFire Technologies, Inc. on Form 10KSB for the Fiscal Year ended 8/31/06 as filed with the Securities and Exchange Commission on the date hereof, I, Sam Oolie, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10KSB fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Form 10KSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 11,2006 Name /s/ Sam Oolie (CFO) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to NoFire Technologies, Inc. and will be retained by NoFire Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----