10-Q 1 r10q53109.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 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. ------------------------- (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: 40,298,465 shares of Common Stock as of July 20, 2009. Transitional Small Business Disclosure Format (check one): YES NO X --- --- 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 ----------- ---------- (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 --------- ---------- Total Current Assets 210,143 311,272 --------- ---------- OTHER ASSETS: Security deposits 37,240 37,065 ---------- --------- $ 247,383 $ 348,337 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. BALANCE SHEETS May 31, August 31, 2009 2008 ----------- ---------- (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) - ---------- --------- Total Current Liabilities 6,264,537 5,691,049 ---------- --------- LONG TERM LIABILITY: Deferred revenue -licences 11,569 12,550 ---------- -------- - 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) ---------- ---------- Total Stockholders' Equity (Deficiency) (6,028,723) (5,355,262) ---------- ---------- $ 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 --------- --------- (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 ---------- -------- Net cash flows from operating activities (87,567) (29,505) --------- ---------
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) - ---------- ------ 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 ---------- ---------- Net cash flows from financing activities 93,411 316 ---------- ---------- NET CHANGE IN CASH 5,670 (29,189) CASH AT BEGINNING OF PERIOD 2,334 31,416 ---------- ---------- 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