10-Q 1 rr10q053110final.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, 2010 [] 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] 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: 45,318,017 shares of Common Stock as of July 20, 2010. Page 1 NOFIRE TECHNOLOGIES, INC. FORM 10-Q INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements: Balance Sheets as of May 31, 2010(unaudited) and August 31, 2009 3 Statements of Operations for the Nine Months and Three months ended May 31, 2010 and 2009 (unaudited) 5 Statements of Cash Flows for the Nine Months ended May 31, 2010 and 2009 (unaudited) 6 Notes to Unaudited Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 Item 4(t) Controls and Procedures 13 Part II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13 Item 6. Exhibits 13 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, 2010 2009 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 3,067 $ 6,089 Accounts receivable - trade 116,770 89,498 Inventories 104,732 90,563 Prepaid expenses and other current assets 10,089 4,848 --------- ---------- Total Current Assets 234,658 190,998 --------- ---------- OTHER ASSETS: Security deposits 38,357 37,240 ---------- --------- $ 273,015 $228,238 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. BALANCE SHEETS May 31, August 31, 2010 2009 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Settled liabilities $ 378,031 $ 378,031 Accounts payable and accrued expenses 2,450,733 2,170,975 Loans and advances payable to stockholders 72,348 189,148 Deferred salaries 3,217,350 2,915,870 Loans payable 538,363 452,890 Convertible Debentures 8% (net) 693,602 519,096 ---------- --------- Total Current Liabilities 7,350,427 6,626,010 ---------- --------- LONG TERM LIABILITY Deferred revenue-licenses 10,261 11,242 STOCKHOLDERS' DEFICIENCY: Common stock $.01 par value: Authorized - 150,000,000 shares issued and outstanding 45,318,017 shares at May 31, 2010 and 41,761,715 at August 31, 2009 453,180 406,360 Capital in excess of par value 19,995,523 19,293,602 Stock subscription receivable (15,250) (13,250) Accumulated Deficit (27,521,126) (26,095,778) ---------- ---------- Total Stockholders' Deficiency (7,087,673) (6,409,014) ---------- ---------- $ 273,015 $ 228,238 ========== ========== 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, 2010 2009 2010 2009 ---------- ------ ------ ------ (UNAUDITED) (UNAUDITED) SALES Product $ 659,481 $ 462,528 $ 277,519 $ 226,762 Revenues 12,334 185,586 3,654 - -------- --------- ---------- --------- NET SALES 671,815 648,114 281,173 226,762 ---------- --------- ---------- ---------- COSTS AND EXPENSES: Cost of sales 377,593 362,960 179,763 115,169 Research and development costs 43,534 35,818 14,072 13,133 General and administrative (includes equity based compensation expense of $103,766 and $ 44,250 for the nine months ended May 31, 2010 and 2009 and $8,717 and $-0- for the three months ended May 31, 2010) and 2009 925,996 1,008,601 367,378 418,276 ---------- ---------- ----------- ---------- 1,347,123 1.407,379 561,213 546,578 ---------- --------- ----------- ---------- LOSS FROM OPERATIONS (675,308) (759,265) (280,040) (319,816) ---------- ---------- ----------- ---------- OTHER EXPENSES: Interest expense (includes equity based interest expense of $483,002 and $175,352 for the nine months ended May 31, 2010 and 2009 and $54,831 and $72,850 for the three months ended May 31,2010 and 2009) 791,532 445,371 158,102 159,184 ---------- ---------- ----------- --------- LOSS BEFORE INCOME TAXES (1,466,840) (1,204,636) (438,142) (479,000) DEFERRED INCOME TAX BENEFIT 41,492 21,453 - - ---------- ---------- ----------- ---------- NET LOSS $(1,425,348) $(1,183,183) $(438,142) $(479,000) ========== ========== =========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING basic & diluted 43,304,965 39,936,235 45,147,499 40,298,464 PER COMMON SHARE $ (0.03) $ (0.03) $ (0.01) $(0.01)
See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the nine Months Ended May 31, May 31, 2010 2009 --------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,425,348) $(1,183,183) Adjustments to reconcile net loss to cash flows from operating activities: Equity issued in exchange for services 107,894 44,250 Warrants issued in exchange for debt Extension - Amortization of interest expense for Discount on notes payable 174,506 173,353 Equities issued as interest and beneficial Conversion features on current and past Due loans payable 308,427 - Changes in operating assets and liabilities Amortization of deferred revenue (981) (981) Inventory (14,169) 72,764 Accounts receivable (27,272) 39,531 Prepaid and other expenses (5,241) (5,496) Accounts payable and accrued expenses 273,856 339,214 Deferred revenue 70,311 Deferred salaries 301,480 362,670 ---------- --------- Net cash flows used in operating activities (306,848) (87,567) ---------- ---------
See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS
For the nine Months Ended May 31, May,31 2010 2009 --------- --------- (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES Security deposits (1,117) (174) ---------- -------- Net cash flows used in investment activities (1,117) (174) ---------- --------- CADH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock net of related expenses 336,000 - Payment on short term loans (116,800) - Net proceeds (repayment of) short term loans 85,743 169,532 Payments on advances from stockholders - (76,121) ---------- ---------- Net cash flows provided by financing activities 304,943 93,411 ---------- ---------- NET CHANGE IN CASH (3,022) 5,670 CASH AT BEGINNING OF PERIOD 6,089 2,334 ---------- ---------- CASH AT END OF PERIOD $ 3,067 $8,004 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 7,875 $ 49,380 ========== ========== Income taxes paid (received) $ (42,036) $(21,453) =========== ===========
See accompanying notes to financial statements Page 7 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2010 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-K for the year ended August 31, 2010 (the 10-K) 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-K for the most recent fiscal year. NOTE 2- 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 and fasb guidance for recording equity based compensation. The weighted average fair value of warrants and shares has been estimated on the date of grant using the Black-Scholes pricing model. There was $103,766 and $44,250 of expense recorded for the nine months ended May 31, 2010 and May 31,2009, respectively In accordance with fasb guidance, 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: Page 8 NOFIRE TECHNOLOGIES, INC NOTES TO FINANCIAL STATEMENT (Unaudited) May 31, 2010 For the nine Months ended May 31, 2010 2009 Risk free interest rate 2.54% 2,76% Expected life Years 4.75 5 Dividend rate 0.0 0.0% Expected volatility 149% to 164% 311% New Accounting Pronouncements - We have reviewed the 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 3 : Management s Actions to Overcome Operating and Liquidity Problems: The Company's financial statements have been presented on a 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. 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 4 Other Debt: In September 2009 the Company borrowed $33,000 from an accredited investor. The Company pledged the proceeds from the sale of the 2008 New Jersey tax loss carry forward. In conjunction with the above the Company issued five year warrants to purchase 50,000 shares of the Company s common stock at $.08 per share. These warrants vested immediately. Page 9 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2010 In December 2009 the loan was repaid with the proceeds of the sale. In November 2009 two accredited investors loaned the Company a total of $50,000, which bear interest at the rate of 15% per annum. In conjunction with the above the Company issued five year warrants to purchase 50,000 shares of the Company s common stock at $.12 and $.15 per share. The warrants vested immediately. In December 2009 an accredited investor loaned the Company a total of $75,000, which bears interest at the rate of 15%, per annum. In conjunction with the above the Company issued five year warrants to purchase 100,000 shares of the Company s common stock at $.11 per share. These warrants vested immediately. In May 2010 an accredited investor loaned the Company a total of $25,000, which bears interest at the rate of 15%, per annum. In conjunction with the above the Company issued five year warrants to purchase 33,333 shares of the Company s common stock at $.11 per share. These warrants vested immediately. On May 21, 2010 the Company entered into a Short Term Preferred Note Preferred Note with periodic draws available from May 21 to July 1, 2010, totaling $200,000. This Preferred Note bears interest at 2% per month and is due October 21, 2010. As further consideration for entering into this arrangement the Company is obligated to pay $25,000 in origination fees and issued to the note holders 750,000 warrants exercisable at $0.113 per share, which were valued at $73,103 and will be expensed over the term of such arrangement. These note holders also require other loans in the amount of $11,000 to be repaid prior to the maturity of the Preferred Note. The chairman has pledged either 1,000,000 shares of stock or 2,000,000 warrants as security if the Company defaults on the terms of this Preferred Note. Further restrictions on the operations of the Company with regards to this arrangement, while the debt remains outstanding, there are prohibitions against paying salaries in arrears, repayment of any other existing note holder debts, issuance of any additional notes or borrow money from any source, grant additional stock or warrants to any creditor, past or present employee or director without prior written approval. The Company, however, may issue shares and warrants to obtain cash at the prevailing market price of such stock. Page 10 NOFIRE TECHNOLOGIES, INC. NOTES TO THE FINANCIAL STATEMENTS (Unaudited) May 31, 2010 NOTE 5- Equity Transactions Warrants were issued during the period as follows: Type Issue Date Expiration Date Shares issued ExercisePrice Purpose Investors(2) October 08 October 13 1,504,436 $.30 {A} Investors(2) November 08 November 13 550,000 $.25-$.30 {A} Individual September 09 September 19 50,000 $.08 {B} Investor October 09 October 11 300,000 $.0833 {A} Individual(5) October 09 October 14 118,943 $.04-$.06 {C}{D} Individual(3) November 09 November 14 67.000 $.10-$.14 {B} Individuals(2) December 09 December 14 83,468 $.07-$.10 {C) Employee s(5) December 09 December 14 700,000 $.08 (E) Investors (4) December 09 December 11-14 1,141,250 $.08-$.11 (A) Individual(3) January 10 January 15 472,071 $.06-$.10 (C) Employee s(4) January 10 January 15-17 3,392,575 $.10 (E) Investor s 6) January 10 January 12-15 2,011,399 $.06-$.1 (A) Individual February 10 February 15 39,666 $.105 (C) Employee February 10 February 15 125,000 $.10 (E) Individual March 10 March 15 17,772 $.11 (C) Individuals(2) April 10 April 15 33,500 $.11 (C) Employee s(3) May 10 May 15 65,000 $.11 (E) Employee May 10 May 15 113,636 $.11 (E) Individual(3) May 10 May 15 508,333 $.11-$.113 (C) {A} Equity Raise {B} Debt Cost {C} Services {D} Rent {E} Compensation During the nine months ended May 31, 2010 and May 31, 2009 479,500 and 1,090,000 warrants to purchase shares of the Company s common stock expired. NOTE 6 - COMMITMENTS AND CONTINGENCIES: 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. On December 18, 2009 a summary judgment was entered against the Company . The lawsuit was settled on 5/12/2010 for $50,000 payable $5,000 per month beginning 7/1/2010 NOTE 7 - SUBSEQUENT EVENTS: On May 21, 2010 the Company entered into a Short Term Preferred Note Preferred Note with periodic draws available from May 21 to July 1, 2010, totaling $200,000. This Preferred Note bears interest at 2% per month and is due October 21, 2010. As further consideration for entering into this arrangement the Company is obligated to pay $25,000 in origination fees and issued to the note holders 750,000 warrants exercisable at $0.113 per share, which were valued at $73,103 and will be expensed over the term of such arrangement. These note holders also require other loans in the amount of $11,000 to be repaid prior tothe maturity of the Preferred Note. The chairman has pledged either 1,000,000 shares of stock or 2,000,000 warrants as security if the Company defaults on the terms of this Preferred Note. Further restrictions on the operations of the Company with regards to this arrangement, while the debt remains outstanding, prohibitions against from paying salaries in arrears, repayment of any other existing note holder debts, issuance of any additional notes or borrow money from any source, grant additional stock or warrants to any creditor, past or Page 11 present employee or director without prior written approval. The Company may issue shares and warrants to obtain cash at the prevailing market price of such stock. 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 NINE MONTHS ENDED May 31, 2010 AND May 31, 2009: Sales of $671,815 for the nine months ended May 31 2010 represented an increase of 3.6% from the $648,114 for the comparable nine-month period of the prior year. Cost of goods sold during the same period increased from $362,960 to $377,593 resulting in a gross profit of $294,222 compared to $285,154 in the prior year. Selling, general and administrative expenses for the nine months ended May 31 were $925,996, representing a decrease of $82,605 or 9% from the $1,008,601 of the similar period of the prior year. Equity based compensation expense of $103,766 increased by $68,233 from the comparable period of the prior year COMPARISON THREE MONTHS ENDED May 31 2010 and May 31 2009: Sales of $281,173 for the three months ended May 31 represented a increase of 24.0% from the $226,762 for the comparable three-month period of the prior year. Cost of goods sold during the same period increased from $115,169 to $179,763 resulting in a gross profit of $101,410 compared to $106,449 in the prior year. Selling, general and administrative expenses for Page 12 the three months ended May 31 2010 were $367,398 representing a decrease of $50,878 or 12.1% from the $418,276 of the similar period of the prior year. Equity based compensation expense was $8,717 for the three months ended May 31, 2010 compared to $44,250 for the comparable prior year period. During the periods ended May 31, 2010 and May 31, 2009, the Company realized approximately $41,492 and $21,453, 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 May 31, 2010 the Company had cash a balance of $3,067. 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 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. On December 18, 2009 a summary judgement was entered against the Company The lawsuit was settled on 5/12/2010 for $50,000 ($5,000 per month beginning 7/1/2010). Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the period, 4,156,438 shares of common stock sold for $334,000. Proceeds were used for working capital. Item 6. EXHIBITS Exhibits 31.1 31.2 Certification of Financial Information Exhibit 32.1 32.2 Sarbanes-Oxley Act Section 906 Certification Page 13 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, 2010 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 14