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.
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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 [ ]
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
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Total Current Assets 234,658 190,998
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OTHER ASSETS:
Security deposits 38,357 37,240
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$ 273,015 $228,238
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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
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Total Current Liabilities 7,350,427 6,626,010
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LONG TERM LIABILITY
Deferred revenue-licenses 10,261 11,242
STOCKHOLDERS' DEFICIENCY:
Common stock $.01 par value:
Authorized - 150,000,000 shares
issued and outstanding 45,318,017
shares at May 31, 2010 and
41,761,715 at August 31, 2009 453,180 406,360
Capital in excess of par value 19,995,523 19,293,602
Stock subscription receivable (15,250) (13,250)
Accumulated Deficit (27,521,126) (26,095,778)
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Total Stockholders' Deficiency (7,087,673) (6,409,014)
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$ 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
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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
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(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
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Net cash flows used in operating activities (306,848) (87,567)
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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)
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Net cash flows used in investment activities (1,117) (174)
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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)
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Net cash flows provided by financing activities 304,943 93,411
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NET CHANGE IN CASH (3,022) 5,670
CASH AT BEGINNING OF PERIOD 6,089 2,334
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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
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