10QSB 1 r10qsb0507.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended May 31, 2007 [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _________ Commission File Number: 0-19945 NoFire Technologies, Inc. ------------------------- (Name of small business issuer in its charter) Delaware 22-3218682 --------- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21 Industrial Avenue, Upper Saddle River, New Jersey 07458 ----------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number (201) 818-1616 ------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by the Court. YES X NO --- --- State the number of shares of each of the issuer's classes of common equity outstanding at the latest practicable date: 38,263,079 shares of Common Stock as of July 5, 2007. Transitional Small Business Disclosure Format (check one): YES NO X --- --- Page 1 NOFIRE TECHNOLOGIES, INC. FORM 10-QSB INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of May 31, 2007(unaudited) and August 31, 2006 3 Statements of Operations for the Nine Months and Three months ended May 31, 2007 and 2006 (unaudited) 5 Statements of Cash Flows for the Nine Months ended May 31, 2007 and 2006 (unaudited) 6 Notes to the Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Controls and Procedures 13 Part II - OTHER INFORMATION Item 1. Legal 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13 Item 3. None Item 6. Exhibits 14 Signatures 14 Certification of Financial Information Exhibits 31.1 31.2 Sarbanes-Oxley Act Section 906 Certification Exhibits 32.1 32.2 Page 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOFIRE TECHNOLOGIES, INC. BALANCE SHEETS May 31, August 31, 2007 2006 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 17,915 $18,107 Accounts receivable - trade 14,574 4,411 Inventories 156,585 67,403 Prepaid expenses and other current assets 23,709 - --------- ---------- Total Current Assets 212,783 89,921 --------- ---------- EQUIPMENT, less accumulated depreciation - 1,086 --------- ---------- OTHER ASSETS: Security deposits 37,064 36,714 ---------- --------- 37,064 36,714 ---------- --------- $ 249,847 $127,721 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. BALANCE SHEETS May 31, August 31, 2007 2006 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Settled liabilities $ 378,031 $ 378,031 Accounts payable and accrued expenses 1,369,392 1,152,412 Loans and advances payable to Stockholders 311,538 475,538 Deferred salaries 2,149,024 1,875,218 Loans payable 290,735 389,415 Convertible Debentures 8% 595,928 425,094 Convertible Debenture 10% net of discount 165,000 89,591 ---------- -------- Total Current Liabilities 5,259,648 4,785,299 ---------- -------- LONG TERM LIABILITY - - STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.01 par value: Authorized - 150,000,000 shares Issued and outstanding 38,263,079 shares at May 31, 2007 and 35,806,622, as of August 31, 2006 382,630 358,066 Capital in excess of par value 17,217,622 13,923,791 Accumulated Deficit (22,610,053) (18,939,435) ---------- ---------- Total Stockholders' Equity (Deficiency) (5,009,801) (4,657,578) ---------- ---------- $ 249,847 $ 127,721 ========== ========== See accompanying notes to financial statements Page 4 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS
For the Nine Months For the Three Months Ended May 31, Ended May 31, 2007 2006 2007 2006 ---------- ------ ------ ------ (UNAUDITED) (UNAUDITED) NET SALES $ 551,692 $ 222,373 $ 72,080 $ 60,026 ---------- --------- ---------- ---------- COSTS AND EXPENSES: Cost of sales 293,041 123,386 59,514 45,969 Research and development costs 34,183 34,190 9,639 14,079 General and administrative (includes equity based compensation expense of $137,568 and $43,443 for the nine months and $ 0 and $78,753 for the three months ended May 31,2007 and 2006) 855,909 833,561 215,045 361,568 ---------- ---------- ----------- -------- 1,183,133 991,137 284,198 421,616 ---------- --------- ----------- -------- LOSS FROM OPERATIONS (631,441) (768,764) (212,118) (361,590) ---------- ---------- ----------- --------- OTHER EXPENSES: Interest expense (includes equity based interest expense and debt extension cost of $2,833,050 and $281,883 for the nine months and $1,484,736 and $281,883 for the three months ended May 31,2007 and 2006) 3,075,670 620,880 1,576,062 369,078 ---------- ---------- ------------ --------- LOSS BEFORE INCOME TAXES (3,707,111) (1,389,644) (1,788,180) (730,668) INCOME TAX BENEFIT 36,493 35,783 - - ---------- ---------- ------------- ------- NET LOSS $(3,670,618) $(1,353,861) (1,788,180) $(730,668) ========== ========== ============= ========= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 37,173,652 34,966,622 37,173,652 34,966,622 ========== ========== ============= ========== BASIC AND DILUTED EARNINGS LOSS PER COMMON SHARE $ (0.10) $ (0.04) $ (0.05) $ (0.02) ========== ========== ============== =========
See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the Nine Months Ended May 31, 2007 2006 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,670,619) $(1,353,861) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 1,086 1,185 Amortization of interest expense for discount on convertible debentures - 324,107 Amortization of interest expense for discount on notes payable 120,243 - Warrants issued in exchange for loans by officer 139,908 92,875 Equity issued in exchange for services 137,568 Repricing of warrants - 20,178 Warrants and common stock in exchange for services - 50,447 Warrants issued for debt conversion 2,572,899 - Changes in operating assets and liabilities Inventory (89,182) 29,577 Accounts receivable - trade (10,163) (686) Prepaid expenses and other (23,709) (19,196) Accounts payable and accrued expenses 247,784 372,758 Deferred salaries 273,806 319,993 ---------- --------- Net cash flows from operating activities (300,379) (163,623) ---------- ---------
See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the Nine Months Ended May 31, 2007 2006 --------- --------- (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES - - Security deposits (350) (2,048) ---------- -------- Net cash flows from investing activities (350) (2,048) ---------- ------ CASH FLOWS FROM FINANCING ACTIVITIES Payments on short-term loans (74,480) - Proceeds from issuance of common stock, net of related expenses 413,017 35,000 Net proceeds from short term loans 88,347 Payments on advances from stockholders (38,000) (38,500) Loans and advances from stockholders 70,978 ---------- ---------- Net cash flows from financing activities 300,537 155,825 ---------- ---------- NET CHANGE IN CASH (192) ( 9,846) CASH AT BEGINNING OF PERIOD 18,107 14,099 ---------- ---------- CASH AT END OF PERIOD $17,915 $ 4,253 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid (received) $ (37,586) $(35,783) ======== ========= Interest paid $ 41,709 $ 24,254 ========== ========== Conversion of related party debt to convertible 8% debenture $ 126,000 - =========== ============ Common stock issued for debt conversion $ 53,550 $ 65,009 ========== ==========
See accompanying notes to financial statements Page 7 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31,2007 NOTE 1 - Basis of Presentation: The balance sheet at the end of the preceding fiscal year has been derived from the audited balance sheet contained in the Company's Form 10-KSB for the year ended August 31, 2006 (the "10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments which include only normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made. The results of operations for interim periods are not necessarily indicative of the operating results for the full year. Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the published rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the 10-KSB for the most recent fiscal year. NOTE 2 - Reorganization: Under a Chapter 11 proceeding, the Bankruptcy Court confirmed a Plan of Reorganization for the Company, which became effective on August 11, 1995. Claims of creditors, to the extent allowed under the Plan, were required to be paid over a four-year period. NOTE 3- Summary Of Significant Accounting Policies: Loss per Share - Loss per share is based on the weighted average number of shares outstanding during the periods. The effect of warrants outstanding is not included since it would be anti-dilutive. Estimates and Uncertainties - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affects 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. Equity Based Compensation- The Company adopted the provisions of SFAS 123R on September 1, 2005, under the modified prospective method. Page 8 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENT (Unaudited) May 31, 2007 The equity-based employee compensation expense has been determined utilizing a fair value method, the Black-Scholes option-pricing model. The Company has recorded compensation expense for warrants granted to employees and consultants during the nine months ended May 31, 2006 in the amount of $15,267. During the nine months ended May 31, 2007 the Company recorded $ 137,568 in compensation expense for the issuance of stock and warrants. (see note 6) In accordance with SFAS 123, the fair value of each option grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: For the nine Months ended May, 2007 2006 Risk free interest rate 4.54% 4.52% Expected life Yrs 5 5 Dividend rate 0.0% 0.0% Expected volatility 200% 113% New Accounting Pronouncements- 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 which for the company is the first quarter of fiscal 2009. Earlier application is permitted provided that the reporting entity has not yet issued financial statements for that fiscal year. Management believes this Statement will have no impact on the financial statements of the Company once adopted. FASB 159 - Fair Value Option for Financial Assets and Financial Liabilities In February 2007, the FASB issued FASB Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" (SFAS 159). This Statement provides companies with an option to measure, at specified election dates, many financial instruments and certain other items at fair value that are not currently measured at fair value. A company that adopts SFAS 159 will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective for fiscal years beginning after November 15, 2007, which for the company is the first quarter of fiscal 2009. Management doesn't believe that the adoption of SFAS 159 will have a material impact. Page 9 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2007 NOTE 4 - Management's Actions to Overcome Operating and Liquidity Problems: The Company's financial statements have been presented on the going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company's viability as a going concern is dependent upon its ability to achieve profitable operations through increased sales and/or obtaining additional financing. Without achieving these, there is substantial doubt about the Company s ability to continue as a going concern. The Company has a liability for settled claims payable to creditors in connection with its reorganization under the Plan. Without the achievement of profitable operations or additional financing, funds for repayment would not be available. Management believes that successful passing of stringent tests, obtaining various civil and government approvals, and actions it has undertaken to revise the Company s operating and marketing structure should provide it with the opportunity to generate revenues needed to realize profitable operations and to attract the necessary financing and/or capital for the payment of outstanding obligations. NOTE 5 Convertible Debentures-Other Debt and Capital: On September 2, 2005 the Company borrowed from an accredited investor $100,000 at the annual interest rate of 15%. The note has a one-year maturity date. In October 2006 the Company paid $40,000 of the above debt with accrued interest. The balance remains outstanding. On April 8, 2007, the Company and its lender extended the maturity date of The 10% Convertible Debenture in the amount of $165,000, to August 7, 2007. The Company issued warrants to purchase 1,000,000 shares of common stock with a term of five years at an exercise price of $0.10 per share and to purchase 1,000,000 shares of common stock with a term of five years at an exercise price of $0.20. The warrants contain a Repricing provision should shares be issued at less than $0.10 during the term of the warrant. A cashless exercise provision and certain provisions similar to the holders of common stock for other equity related transactions are also provided. The market price of the Company's stock at the extension date was $0.45, hence the fair market value of such warrants, $888,808 was expensed as an extension fee during for the quarter ended May 31, 2007 In May 2007, $469,928 of 8% Convertible Debentures previously issued were reissued for $595,928. In conjunction with the above the Company charged $595,968 to interest expense for the beneficial conversion features attributed to such debt. Page 10 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2007 NOTE 6- Equity Transactions: Warrants were issued during the nine months as follows: Name Issue Expire Amount Exercise Price Investors September 06 September2011 90,000 $.20 Individuals (3) October 06 October 2011 80,000 $.11 to $.20 (A) Investors (11) October 06 October 2011 298,661 $.20 Individual November 06 November 2011 10,000 $.16 (A) Investors (4) November 06 November 2011 59,318 $.20 Investors (10) December 06 December 2011 252,595 $.20 Officer December 06 December 2016 1,400,000 $.20 (B) Investors (5) January 07 January 2012 104,792 $.20 to $.25 Employees (3) January 07 January 2012 310,000 $.20 Officer January 07 January 2012 472,668 $.20 Investors (5) February 07 February 2012 69,706 $.34 to $.52 Lender February 07 February 2012 2,000,000 $.10 (C) Investors (2) March 07 March 2012 8,492 $.90 Investors (5) April 07 April 2012 46,797 $1.05 to $1.20 Lender May 07 May 2012 2,000,000 $.10 to $20 (C) (A) $13,493 was charged to interest expense in conjunction with 3 out of 4 of these issuances. (B) In December 2006 the Company issued 1,400,000 warrants to an officer of the Company. The warrants are convertible into the Company's common stock at $.20 per share and expire in ten years. These warrants were issued in recognition of the substantial loans made to the Company. The Company will record $139,908 as interest expense in conjunction with this issuance. The warrants vested immediately. (C) In February 2007 $1,050,192 was charged to interest expense and in May 2007 $888,808 was charged to interest expense, respectively, in conjunction with these transactions (see note 5) During the nine months ended May 31, 2007 627,159 warrants expired. The Company raised $413,017 through the sale of 1,959,368 shares of unregistered common stock and the issuance of 975,225 warrants to purchase common stock at prices between $.20 and $1.20 per share to accredited investors. (see item 2) In January 2007 the Company issued 145,336 shares of the Company's common stockand 72,668 warrants to consultants for a combined expense of $37,495 which approximates the market value of such equities issued. During the nine months ended May 31,2007 267,400 shares of common stock were issued upon the exercise of warrants paid by conversion of debt in the amount Of $53,550. Page 11 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2006 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company continued its product development and application testing, and now Have numerous certifications for specific applications. Since August 1995, the Company has applied for eight patents, five of which have been issued. The other three are pending. Additionally, one patent has been purchased by the Company. The Company has been increasing its marketing efforts principally by retaining the services of specialized distribution firms. The Company's management believes that marketing efforts to date have brought the Company closer to achieving greater sales for applications in many diverse industries including: military, maritime, wood products, structural steel and nuclear power plants. Significant tests have been passed and approvals received to qualify the Company's products in naval and other military and governmental applications. Aggressive marketing efforts are underway to obtain orders in these applications. Obstacles encountered in obtaining orders for most applications are the continuing tests and approvals required, competition against well established and better capitalized companies, cost, the slow process of specifying new products in highly regulated industrial applications and the decisions not to use any fire retardant product. In general, the Company's products perform their intended uses well and are in a form that is safe and easy to use. The Company's most pressing need continues to be cash infusion as discussed below in the section on Liquidity and Capital Resources. The Company is limiting its research and development efforts in order to concentrate on sales of existing products. While new market opportunities frequently arise, the Company has opted to concentrate on targeting sales of present products rather than developing new products. Efforts to establish additional U.S. distributors are being accelerated. Additional efforts are also being directed to increase international sales by establishing distributor relationships in strategic locations throughout the industrialized and third world. The number of manufacturing and quality control employees will increase with increased production. The salaried administrative and marketing staff will be evaluated and may be increased to support sales and marketing initiatives. Additional support for direct sales is expected to be provided by independent commission agents or employees compensated principally by commission. COMPARISON NINE MONTHS ENDED May 31, 2007 AND May 31, 2006 Sales of $551,692 for the nine months ended May 31, 2007 represented an increase of 148% from the $222,373 for the comparable nine-month period of the prior year. Cost of goods sold during the same periods increased from $123,386 to $293,041 resulting in a gross profit of $268,651 compared to $98,987 in the prior year. Selling, general and administrative expenses for the nine months ended May 31, 2007 were $855,909,representing an increase of $22,448 or 2.7% from the $833,561 of the similar period of the prior year. COMPARISON THREE MONTHS ENDED May 31, 2007 AND May 31, 2006 Sales of $72,080 for the three months ended May 31, 2007 represented an increase of 20% from the $60,026 for the comparable three-month period of the prior year. Cost of goods sold during the same periods increased from $45,969 to $59,514 resulting in a gross profit of $14,057 compared to $13,566 in the prior year. Selling, general and administrative expenses for the three months ended May 31, 2007 were $215,045, representing a decrease of Page 12 $146,523 or 40.5% from the $361,568 of the similar period of the prior year. The main component of the decrease was a $78,000 reduction in compensation expense. LIQUIDITY AND CAPITAL RESOURCES At May 31, 2007 the Company had cash balances of $17,915. During the quarter ended May 31,2007 an officer was repaid loans by the Company a total of $ 24,500. The Company has deferred payment of $378,031 of the installments of the Chapter 11 liability to unsecured creditors that was due in September 1996, 1997, 1998 and 1999. In order to pay those liabilities and meet working capital needs until significant sales levels are achieved, the Company will continue to explore alternative sources of funding including exercise of warrants, bank and other borrowings, issuance of convertible debentures, issuance of common stock to settle debt, and the sale of equity securities in a public or private offering. There is no assurance that the Company will be successful in securing requisite financing. Item 3 CONTROLS AND PROCEDURES Our management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "1934 Act"), as of the end of the period covered by this Quarterly Report on Form 10-QSB/A. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period covered by this report PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the nine months ended May 31,2007 the Company sold to accredited investors 1,959,368 shares of the Company's common stock for $413,017. In conjunction, the Company issued five-year warrants to purchase 975,225 shares of the Company's common stock at an exercise price of $.20 to $1.20 per share. Date Title Number Cash Price 9/06 common 180,000 $.14 10/06 common 361,557 $.10 10/06 common 99,999 $.11 10/06 common 135,776 $.17 11/06 common 118,636 $.10 12/06 common 584,919 $.14 to $.18 1/07 common 209,583 $.15 to $.25 2/07 common 139,412 $.34 3/07 common 116,994 $.20 to $.85 4/07 common 86,242 $.99 to $1.11 5/07 common 6,250 $1.04 Page 13 During the nine months ended May 31,2007 267,400 shares of common stock were issued for the exercise of warrants paid by conversion of debt in the amount Of $53,550. During the nine months ended May 31,2007 145,336 shares of common stock were issued for consulting services valued at the then market value of $.26 per share. The proceeds were used for working capital. Item 3. None ITEM 6. EXHIBITS Exhibits 31.1 31.2 Certification of Financial Information Exhibit 32.1 32.2 Sarbanes-Oxley Act Section 906 Certification SIGNATURES In accordance with the requirements of the 1934 Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 05, 2007 NoFire Technologies, Inc.$ By: /s/ Samuel Gottfried Samuel Gottfried Chief Executive Officer By: /s/ Sam Oolie Sam Oolie Chairman of the Board, Chief Financial Officer Page 14