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 May 31, 2009
[] 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.
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(Name of small business issuer in its charter)
Delaware 22-3218682
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Industrial Avenue, Upper Saddle River, New Jersey 07458
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (201) 818-1616
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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
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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: 40,298,465 shares of Common
Stock as of July 20, 2009.
Transitional Small Business Disclosure Format (check one):
YES NO X
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Page 1
NOFIRE TECHNOLOGIES, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Balance Sheets as of May 31, 2009 (unaudited)
and August 31, 2008 3
Statements of Operations for the Nine Months and
Three Months ended May 31, 2009 and May
31, 2008 (unaudited) 5
Statements of Cash Flows for the Nine Months ended
May 31, 2009 and May 31, 2008(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. Controls and Procedures 13
Part II - OTHER INFORMATION
Item 1. Legal 13
2. Unregistered Sales of Equity Securities and
use of proceeds 13
3. None 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
May 31, August 31,
2009 2008
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(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 8,004 $ 2,334
Accounts receivable - trade 43,920 83,451
Inventories 130,304 203,068
Prepaid expenses and other current assets 27,915 22,419
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Total Current Assets 210,143 311,272
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OTHER ASSETS:
Security deposits 37,240 37,065
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$ 247,383 $ 348,337
========== ==========
See accompanying notes to financial statements
Page 3
NOFIRE TECHNOLOGIES, INC.
BALANCE SHEETS
May 31, August 31,
2009 2008
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(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $ 378,031 $378,031
Accounts payable and accrued expenses 2,044,654 1,610,733
Loans and advances payable to stockholders 171,754 247,874
Deferred salaries 2,787,571 2,449,900
Loans payable 453,390 408,583
Convertible debentures 8% 693,602 595,928
Debt discount (264,465) -
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Total Current Liabilities 6,264,537 5,691,049
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LONG TERM LIABILITY:
Deferred revenue -licences 11,569 12,550
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- -
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.01 par value:
Authorized - 150,000,000 shares
issued and outstanding 40,298,465
shares at May 31, 2009 and
40,273,465 at August 31, 2008 402,985 402,735
Capital in excess of par value 19,286,975 18,778,157
Stock receivable (13,250) (13,250)
Accumulated Deficit (25,705,433) (24,522,904)
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Total Stockholders' Equity (Deficiency) (6,028,723) (5,355,262)
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$ 247,383 $ 348,337
========== ==========
See accompanying notes to financial statements
Page 4
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
For the Nine Months For the Three Months
Ended Ended
May 31, May 31, May 31, May 31,
2009 2008 2009 2008
---------- ------ ------ ------
(UNAUDITED) (UNAUDITED)
SALES
Product $ 648,114 $ 434,705 $ 226,762 $ 123,517
Licenses - 12,928 - 3,817
-------- --------- ---------- ---------
NET SALES 648,114 447,633 226,762 127,334
---------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 362,960 189,804 115,169 98,966
Research and development costs 35,818 50,699 13,133 20,846
General and administrative (includes
equity based compensation expense of
$44,250 and $194,353 for the nine
months ended May 31, 2009 and 2008
and$ -0- and $46,824 for the three
months ended May 31, 2009) and 2008 1,008,601 1,049,605 418,276 364,482
---------- ---------- ----------- ----------
1,407,379 1.290,108 546,578 484,294
---------- --------- ----------- ----------
LOSS FROM OPERATIONS (759,265) (842,475) (319,816) (356,960)
---------- ---------- ----------- ----------
OTHER EXPENSES:
Interest expense (includes
equity based interest expense of
$175,352 and $397,846 for the nine
months ended May 31, 2009 and 2008
and $72,850 and $369,052 for the three
months ended May 31,2009 and 2008) 445,371 638,858 159,184 456,721
---------- ---------- ----------- ---------
LOSS BEFORE INCOME TAXES (1,204,636) (1,481,333) (479,000) (813,681)
DEFERRED INCOME TAX BENEFIT 21,453 49,164 - -
---------- ---------- ----------- ----------
NET LOSS $(1,183,183) $(1,432,169) $(479,000) $(813,681)
========== ========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING basic & diluted 40,285,965 39,936,235 40,298,464 40,000,965
PER COMMON SHARE $ (0.03) $ (0.04) $ (0.01) $(0.02)
See accompanying notes to financial statements
Page 5
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months
Ended
May 31, May,31,
2009 2008
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,183,183) $(1,432,169)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization - -
Amortization of interest expense for
discount on note payable 173,353 -
Warrants issued in exchange for loans
by officer - -
Equity issued in exchange for services 44,250 194,352
Warrants issued for debt conversion
or extension - 397,846
Amortization of deferred revenue (981) -
Changes in operating assets and
liabilities
Inventory 72,764 (54,435)
Accounts receivable - trade 39,531 243,269
Prepaid expenses and other (5,496) 66,146
Accounts payable and accrued expenses 339,214 274,430
Deferred revenue 70,311 -
Deferred salaries 362,670 281,056
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Net cash flows from operating activities (87,567) (29,505)
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See accompanying notes to financial statements
Page 6
NOFIRE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
For the Nine Months
May 31, May 31,
2009 2008
--------- ---------
(UNAUDITED)
CASH FLOWS FROM INVESTING ACTIVITIES
Security deposits (174) -
---------- --------
Net cash flows from investing activities (174) -
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock,
net of related expenses - 234,509
Payments on advances from stockholders - (116,039)
Repayment of convertible debenture - (165,000)
Loans and advances repaid to stockholders (76,121) -
Net proceeds from short term loans 169,532 46,846
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Net cash flows from financing activities 93,411 316
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NET CHANGE IN CASH 5,670 (29,189)
CASH AT BEGINNING OF PERIOD 2,334 31,416
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CASH AT END OF PERIOD $ 8,004 $ 2,227
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (received) (21,453) (49,164)
======== =========
Interest paid $ 49,380 $194,854
========== ==========
See accompanying notes to financial statements
Page 7
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2009
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 equity-based employee compensation expense has been determined by using
the weighted average fair value of warrants has been estimated on the date of
grant using the Black-Scholes warrants pricing model. The Company has granted
warrants to purchase common stock to employees and consultants during the
period ended May 31,2009 in the amount of $44,250 and $ 194,353 for the
period ended May 31, 2008. The warrants vested immediately upon issuance.
Page 8
NOFIRE TECHNOLOGIES, INC
NOTES TO FINANCIAL STATEMENT
(Unaudited)
May 31, 2009
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 31,2009 May 31, 2008
Risk free interest rate 2.76% 3.74%
Expected life
Yrs 5 5
Dividend rate 0.0% 0.0%
Expected volatility 311% 202% to 211%
New Accounting Pronouncements
In May 2009, Statement of Financial Accounting Standards No. 165 Subsequent
Events was issued. The objective of this Statement is to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. In accordance with this Statement, an entity should apply the
requirements to interim or annual financial periods ending after June 15, 2009
Management intends to adopt this new standard with the filing of the second
quarter interim financial statements. The adoption of this new standard is not
expected to have a material impact on the financial statements of the Company.
We have reviewed all other issued but not yet effective accounting
pronouncements and have deemed such accounting pronouncements not
to be relevant or the adoption of such accounting pronouncements once
effective will not have a material effect 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 may 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)
May 31, 2009
NOTE 5 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 net operating loss
carry forward for the year 2007 for such payment.
In December 2008 the Company paid an additional $21,355 of the debt
using the proceeds of the sale of the New Jersey net operating loss
carry forward for the year 2008 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.
As of April 2009, a balance of $6,500 is still due.
During the quarter ended May 31,2009 the Company borrowed an additional
$43,227 from two individuals. The debts are evidenced by short term
demand notes.
NOTE 6- Equity Transactions:
Warrants were issued during the period 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
Employees (5) January 09 January 2014 561,000 $.10
Investor May 09 May 2014 3,000,000 $.08
During the period ended May 31, 2009, 1,090,000 warrants to purchase shares
of the Company s common stock expired.
Note 7 Manufacturing and Licensing Agreements:
In March 2008, the Company entered into a Manufacturing Agreement, with a
Singapore based company. This Manufacturing Agreement has several financial
components which require payments over a period time within a year. These
payments are for a 10 year license fee of $18,200, consultancy work totaling
$57,995 and prepaid material for product development. The license fee portion
and $7,800 of prepaid material were previously paid and will be amortized over
the term of the agreement ratably. Once the Singapore based company begins
manufacturing the Nofire products, the Singapore based company will be
obligated to pay a 2% royalty on Nofire product sales.
Page 10
NOFIRE TECHNOLOGIES, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2009
In addition to the above the Company will generate additional profit from the
sale of propriety chemicals?to the licensee. These chemicals are necessary in
the manufacture of the product.
In April 2009 the Company entered into a distributor s agreement with a South
Korean based company.
In addition the above company is setting up a facility in South Korea for the
manufacture of the Company s product. It should be operational in the fall. The
Company anticipates generating additional profit from the sale of propriety
chemicals?to the licensee. These chemicals are necessary in the manufacture of
the product.
During March 2009 Fiat Group Automobiles S.p.a. (FGA) notified the Company that
due to accounting errors they have overpaid royalties in the amount of $78,622.
In conjunction with this the Company has reduced the royalty income year to
date to account for this change in estimate and has recorded a prepayment of
royalties for that amount.
NOTE 8- Subsequent Events:
During June 2009 the Company retained a new attorney to continue its
represention in the Hastings matter (see legal proceedings).
In conjunction with the above the Company issued 56,250 shares of the Companys
Common stock as part of the retainer. In addition the Company will pay an
additional fee of $5,000.
On June 17,2009 Alphanso Margino resigned as vice president and secretary of
The Company. As of the date of this filing the position remains unfilled.
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 governments
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 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 existing products rather than developing new products.
Efforts to establish additional U.S. distributors are being accelerated.
Page 11
Additional efforts are also being directed to increase international sales
by establishing distributor relationships in strategic locations throughout
the industrialized world.
The number of manufacturing and quality control employees will increase with
increased production. The salaried administrative and marketing staff will be
evaluated and may be increased to support sales and marketing initiatives.
Additional support for direct sales is expected to be provided by independent
commission agents or employees compensated principally by commission.
COMPARISON NINE MONTHS ENDED May 31, 2009 AND May 31, 2008
Sales of $648,114 for the nine months ended May 31, 2009 represented an
increase of 49.1% from the $434,705 for the comparable nine-month period of
the prior year. Cost of goods sold during the same period increased from
$189,804 to $362,960 resulting in a gross profit of $286,154 compared to
$244,901 in the prior year. Selling, general and administrative expenses for
the nine months ended May 31, 2009 were $1,049,605, representing an increase
of $193,696 from the $855,909 of the comparable period of the prior year.Equity
based compensation expense of $194,353 increased by $147,529 from the
comparable period of the prior year.
COMPARISON THREE MONTHS ENDED May 31, 2009 AND May 31, 2008
Sales of $226,762 for the three months ended May 31, 2009 represented an
increase of 81.5% from the $123,517 for the comparable three-month period of
the prior year. Cost of goods sold during the same period increased from
$98,966 to $115,169 resulting in a gross profit of $111,593 compared to
$24,551 in the prior year. Selling, general and administrative expenses for
the three months ended May 31, 2009 were $418,276 representing an
increase of $53,794 or 14.8% from the $364,482 of the comparable period of the
prior year. There was $46,834 recorded for equity based compensation expense
during the three months ended May 31, 2008 and $ -0- for the current
period.
During the periods ended May 31, 2009 and May 31,2008, the Company
realized approximately $21,453 and $49,164, respectively, through the sale of
a portion of its New Jersey Net Operating Loss Carry Forward under a program
sponsored by that state.
During March 2009 Fiat Group Automobiles S.p.a. (FGA) notified the Company that
due to accounting errors they have overpaid royalties in the amount of $78,622.
In conjunction with this the Company has reduced the royalty income year to
date to account for this change in estimate and has recorded a prepayment of
royalties for that amount.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2009 the Company had a cash balance of $8,004.
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 the 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 a result are not subject
to material foreign currency exchange rate risk.
Page 12
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.
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
In February 2009 an officer of the Company converted 250,000 warrants into
common stock of the Company.
The price was determined to be $.10 per share which calculated at $25,000.
The manner of payment was a reduction of $25,000 from the accrued payroll
due him.
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 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