10-Q 1 r10q1108.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended November 30, 2008 [] 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 --- --- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large Accelerated Filer ___Accelerated Filer___ Smaller Reporting Company [X} Non Accelerated Filer ____ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X} State the number of shares of each of the issuer's classes of common equity outstanding at the latest practicable date: 40,273,465 shares of Common Stock as of January 15, 2009. Page 1 NOFIRE TECHNOLOGIES, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of November 30, 2008(unaudited) and August 31, 2008 3 Statements of Operations for the Three Months ended November 30, 2008 and 2007 (unaudited) 5 Statements of Cash Flows for the Three Months ended November 30, 2008 and 2007 (unaudited) 6 Notes to Unaudited Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 Item 4(t). Controls and Procedures 12 Part II - OTHER INFORMATION Item 1. Legal Proceeding 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13 Item 6. Exhibits 13 Signatures 13 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 November 30, August 31, 2008 2008 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 919 $ 2,334 Accounts receivable - trade 47,640 83,451 Inventories 95,395 203,068 Prepaid expenses and other current assets 41,521 22,419 --------- ---------- Total Current Assets 185,475 311,272 --------- ---------- OTHER ASSETS: Security deposits 37,065 37,065 ---------- --------- $ 222,540 $348,337 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. BALANCE SHEETS November 30, August 31, 2008 2008 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Settled liabilities $ 378,031 $ 378,031 Accounts payable and accrued expenses 1,724,304 1,610,733 Loans and advances payable to stock holders 209,530 247,874 Deferred salaries 2,543,444 2,449,900 Loans payable 404,583 408,583 Convertible Debentures 8% 595,928 595,928 Debt discount (266,086) - ---------- --------- Total Current Liabilities 5,589,734 5,691,049 ---------- --------- LONG TERM LIABILITY Deferred revenue-licences 12,223 12,550 STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.01 par value: Authorized - 150,000,000 shares issued and outstanding 40,273,465 shares at November 30, 2008 and August 31, 2008 402,735 402,735 Capital in excess of par value 19,072,919 18,778,157 Stock subscription receivable (13,250) (13,250) Accumulated Deficit (24,841,821) (24,522,904) ---------- ---------- Total Stockholders' Equity (Deficiency) (5,379,417) (5,355,262) ---------- ---------- $ 222,540 $ 348,337 ========== ========== See accompanying notes to financial statements Page 4 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS For the Three Months Ended November 30, 2008 2007 ---------- ------ (UNAUDITED) SALES Sales Product $ 179,446 $ 83,842 Licenses 75,335 - ---------- --------- NET SALES 254,781 83,842 ---------- ---------- COSTS AND EXPENSES: Cost of sales 187,668 30,596 General and administrative 277,833 282,010 Testing 12,017 15,418 ---------- ---------- 477,518 328,024 ---------- --------- LOSS FROM OPERATIONS (222,737) (244,182) ---------- ---------- OTHER EXPENSES: Interest expense including $28,676 and $16,500 of equity based interest expense for the three months ended November 2008 and 2007 respectively 117,652 81,831 Interest income (18) - ---------- ---------- TOTAL OTHER EXPENSES 117,634 81,831 ----------- ---------- LOSS BEFORE INCOME TAXES (340,371) (326,013) INCOME TAX BENEFIT 21,453 48,152 ---------- ---------- NET LOSS $ (318,918) $ (277,861) ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 40,273,465 39,616,185 ========== ========== BASIC AND DILUTED EARNINGS LOSS PER COMMON SHARE $ (.01) $ (0.01) ========== ========== See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the Three Months Ended November 30, 2008 2007 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (318,918) (277,861) Adjustments to reconcile net loss to cash flows from operating activities: Amortization of interest expense for discount on note payable 28,676 - Amortization of deferred revenue (327) Equities issued as interest and beneficial conversion features on current and past due loans payable 16,500 Changes in operating assets and liabilities Inventory 107,673 (43,258) Accounts receivable 35,811 288,708 Prepaid and other expenses (19,102) 77,450 Receivable for sale of state tax loss (48,152) Accounts payable and accrued expenses 113,571 (41,370) Deferred salaries 93,544 74,040 ---------- --------- Net cash flows from operating activities 40,928 46,052 ---------- ---------
See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the Three Months Ended November 30, 2008 2007 --------- --------- (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES ---------- -------- Net cash flows from investment activities - - ---------- --------- CADH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock net of related expenses - 166,208 Proceeds on advances from stockholders - (59,000) Repayment of short-term loans (4,000) (165,000) Loans and advances paid to stockholders (38,343) - ---------- ---------- Net cash flows from financing activities (42,343) (57,792) ---------- ---------- NET CHANGE IN CASH (1,415) (11,735) CASH AT BEGINNING OF PERIOD 2,334 31,416 ---------- ---------- CASH AT END OF PERIOD $ 919 $ 19,681 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 29,490 $ 29,369 ========== ========== Income taxes paid (received) $ (21,453) $ (48,152) =========== ===========
See accompanying notes to financial statements Page 7 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 2008 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, 2008 (the "10-KSB") and is presented for comparative purposes. All other financial statements are unaudited. In the opinion of management, all adjustments that 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- Effective September 1, 2006, the Company adopted provisions of SFAS 123R for recording equity based compensation. The weighted average fair value of warrants has been estimated on the date of grant using the Black-Scholes warrants pricing model. There was $28,676 and $16,500 of expense recorded for the quarters ended November 30, 2008 and November 30, 2007, respectively. Page 8 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENT (Unaudited) November 30, 2008 In accordance with SFAS 123, the fair value of each warrant grant has been estimated as of the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: For the Three Months ended November 30, 2008 2009 Risk free interest rate 2.76% 4.76% Expected life Yrs 4.5 4.5 Dividend rate 0.0 0.0% Expected volatility 211% 110% New Accounting Pronouncements We have reviewed the issued but not yet effective accounting pronouncements have deemed such accounting pronouncements not to be relevant or the adoption of such accounting pronouncements once effective will not have a material effective on the Company s financial statements 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. Page 9 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 2008 NOTE 5 Convertible Debentures And Other Debt: On September 2, 2005 the Company borrowed from an accredited investor $100,000 at the interest rate of 15%. The note had a one-year maturity date. In October 2006 the Company paid $40,000 toward that debt plus accrued interest to the date of payment. In December 2007 the Company paid an additional $48,152 of the debt using the proceeds of the sale of the New Jersey tax carry forward for the year 2007 for such payment. 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. NOTE 6- Equity Transactions Warrants were issued during the quarter as follows: Name Issue Date Expiration Date Shares of Stock Exercise Price Investors (2) October 08 October 2013 1,504,436 $.30 Investors (2) November 08 November 2013 550,000 $.25-$.30 During the quarters ended November 30, 2007 and November 30, 2008 900,000 and 2,349,436 warrants to purchase shares of the Company s common stock expired. NOTE 7- Subsequent Events Warrants were issued in January 2009 as follows: Name Issue Date Expiration Date Shares of Stock Price Employees (5) January 09 January 14 561,000 $.10 Page 10 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) November 30, 2008 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: utilities 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 government 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 decision 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 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. Any new product opportunity will be pursued if it is viable. Additional efforts are also being directed to increase international sales by establishing distributor relationships in strategic locations throughout the industrialized and third world countries. 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 THREE MONTHS ENDED NOVEMBER 30, 2008 AND NOVEMBER 30, 2007 Sales of $254,781 for the three months ended November 30, 2008 represented an increase of 206% from the $83,842 for the comparable three-month period of the prior year. Cost of goods sold during the same period increased from $30,596 to $187,668 resulting in a gross profit of $67,113 compared to $53,246 in the prior year. Selling, general and administrative expenses for the three months ended November 30, 2008 were $277.833, representing a decrease of $4,177 or 1.5% from the $282,010 for the similar period of the prior year. Page 11 During the quarters ended November 30, 2008and 2007 the Company realized approximately $21,453 and $48,152 , respectively, through the sale of a portion of its New Jersey Net Operating Loss Carry Forward under a program sponsored by that State. LIQUIDITY AND CAPITAL RESOURCES At November 30, 2008 the Company had cash a balance of $ 919. The Company has deferred payment of $378,031 of 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 the Company will be successful in securing requisite financing. Item 3. Quantitative and Qualitative Disclosures about Market Risk The Company does not issue or invest in financial instruments or derivatives For trading or speculative purposes. Substantially all of the operations of the Company are conducted in the United States, and as such are not subject to Material foreign currency exchange rate risk. Item 4(t). 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-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports we file or submit under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. There have been no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the period covered by this report. Page 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings A complaint was filed in the Superior Court of New Jersey, Law Division, Bergen County on May 27, 2008. It is alleged by the plaintiff that the Company entered into a contract with Otis and June Hastings and $250,000 remains due and owing under said contract. The Company maintains that it has fully satisfied the terms of the contract, including all monetary obligations. On December 10, 2008 a mediation was held but the case was not resolved Discovery is proceeding. The Company believes this lawsuit is without merit and intends to vigorously dispute the claim. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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: January 20, 2009 NoFire Technologies, Inc. By: /s/ Samuel Gottfried Sam Gottfried Chief Executive Officer By: /s/ Sam Oolie Sam Oolie Chairman of the Board, Chief Financial Officer Page 13