<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1997
[ ] 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
--- ---
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by the Court.
YES X NO
--- ---
State the number of shares of each of the issuer's classes of common equity
outstanding at the latest practicable date: 9,597,200 shares of Common
Stock as of July 3, 1997.
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
Page 1
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NOFIRE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements:
Balance Sheets as of May 31, 1997
and August 31, 1996 3
Statements of Operations for
the Nine Months ended May 31, 1997
and 1996; and the Three Months ended
May 31, 1997 and 1996 5
Statements of Cash Flows for the
Nine Months ended May 31, 1997 and 1996 6
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Page 2
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Part I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 4,945 $ 2,474
Inventory 100,394 56,761
Prepaid expenses and other current assets 13,922 7,722
------------ ------------
Total Current Assets 119,261 66,957
------------ ------------
EQUIPMENT, less accumulated depreciation 4,631 6,240
------------ ------------
OTHER ASSETS:
Patents, less accumulated amortization
of $525,000 at May 31, 1997 and
$300,000 at August 31, 1996 975,000 1,200,000
Security deposits 18,473 18,473
Excess of reorganization value over net
assets, less accumulated amortization
of $73,857 at May 31, 1997 and
$42,204 at August 31, 1996 137,164 168,817
------------ ------------
1,130,637 1,387,290
------------ ------------
$ 1,254,529 $ 1,460,487
============ ============
See accompanying notes to financial statements
Page 3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1997 1996
------------ ------------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $ 790,441 $ 592,853
Accounts payable and accrued expenses 439,405 323,773
Due to stockholders 101,153 76,253
Deferred salaries 339,822 200,970
Other current liabilities 20,000 20,000
------------ ------------
1,690,821 1,213,849
------------ ------------
OTHER LIABILITIES
Settled liabilities, less current
maturities 1,555,823 1,895,089
Convertible debentures - 8% due
January 31, 1999 436,002 436,002
------------ ------------
1,991,825 2,331,091
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 9,423,500
shares at May 31, 1997 and 8,549,500
shares at August 31, 1996 1,884,700 1,709,900
Capital deficiency (1,440,706) (2,114,908)
Retained earnings (deficit) (2,872,111) (1,634,802)
Unearned stock compensation - (44,643)
----------- ------------
Total Stockholders' Equity (Deficiency) (2,428,117) (2,084,453)
----------- ------------
$ 1,254,529 $ 1,460,487
=========== ============
See accompanying notes to financial statements
Page 4
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
For the Nine Months For the Three Months Development
Ended May 31 Ended May 31 Stage
1997 1996 1997 1996 (Since Inception)
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 35,067 $ 35,274 $ 7,484 $ 6,054 $ 392,992
COSTS AND EXPENSES:
Cost of sales 16,270 21,650 3,369 3,694 240,024
Selling, general and administrative 1,033,728 1,106,912 302,702 368,058 6,224,447
----------- ----------- ----------- ----------- -----------
1,049,998 1,128,562 306,071 371,752 6,464,471
----------- ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,014,931) (1,093,288) (298,587) (365,698) (6,071,479)
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES:
Interest expense 222,378 184,394 78,815 65,756 483,302
Interest income - - - - (6,774)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
----------- ----------- ----------- ----------- -----------
222,378 184,394 78,815 65,756 1,040,950
----------- ----------- ----------- ----------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,237,309) (1,277,682) (377,402) (431,454) (7,112,429)
DISCONTINUED OPERATIONS - - - - (1,435,392)
----------- ----------- ----------- ----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (1,237,309) (1,277,682) (377,402) (431,454) (8,547,821)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 449,583
----------- ----------- ----------- ----------- -----------
NET LOSS $(1,237,309) $(1,277,682) $ (377,402) $ (431,454) $(8,098,238)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 9,066,833 8,188,782 8,998,583 8,188,782
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE $ (0.14) $ (0.16) $ (0.04) $ (0.05)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
Page 5
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
During
For the Nine Months Development
Ended May 31 Stage
1997 1996 (Since Inception)
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,237,309) $(1,277,682) $(8,098,238)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 259,296 259,068 697,660
Extraordinary gain on debt discharge - - (449,583)
Interest expense incurred to state settled
liabilities at present value 173,760 164,504 382,018
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock released in exchange for services 44,643 - 62,500
Changes in operating assets and liabilities
(net of effects from reverse purchase
acquisition)
Inventory (43,633) (19,889) (100,394)
Prepaid expenses (6,200) 1,245 (13,922)
Accounts payable and accrued expenses 115,632 (123,467) 2,706,392
Security deposits - (8,714) (18,473)
Deferred salaries 138,852 138,852 339,822
Obligation from discontinued operations - - 51,118
----------- ----------- -----------
Net cash flows from operating activities (554,959) (866,083) (3,759,170)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,032) (3,485) (27,801)
Increase in patent costs - - (131,290)
Acquisition accounted for as a
reverse purchase - - (517,893)
----------- ----------- ----------
Net cash flows from investing activities (1,032) (3,485) (676,984)
----------- ----------- ----------
</TABLE>
See accompanying notes to financial statements
Page 6
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
During
For the Nine Months Development
Ended May 31 Stage
1997 1996 (Since Inception)
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable - - 721,000
Payments on notes payable - - (75,000)
Payment of settled liabilities (315,438) (1,310,370) (1,747,509)
Proceeds from issuance of common stock 849,000 - 4,125,340
Collection of stock subscription receivable - 95,000 95,000
Proceeds from issuance of long-term debt - - 785,113
Advances received from stockholders 24,900 165,000 101,153
Proceeds from issuance of 8% convertible
debentures - 436,002 436,002
----------- ----------- -----------
Net cash flows from financing activities 558,462 (614,368) 4,441,099
----------- ----------- -----------
NET CHANGE IN CASH 2,471 (1,483,936) 4,945
CASH AT BEGINNING OF PERIOD 2,474 1,496,442 -
----------- ----------- -----------
CASH AT END OF PERIOD $ 4,945 $ 12,506 $ 4,945
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 8,072 $ 27,938 $ 40,903
=========== =========== ===========
Income taxes paid $ - $ - $ -
=========== =========== ===========
Common stock issued in exchange
for settlement of debt $ - $ - $ 46,750
=========== =========== ===========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
=========== =========== ===========
Common stock issued in exchange for
services, net of unearned compensation $ 44,643 $ - $ 62,500
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
Page 7
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
May 31, 1997
NOTE 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has been derived
from the audited consolidated balance sheet contained in the Company's Form
10-KSB for the year ended August 31, 1996 (the "10-KSB") and is presented for
comparative purposes. All other financial statements are unaudited. In the
opinion of management, all adjustments which 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 generally accepted accounting principles 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.
Loss per Share - Loss per share is based on the weighted average number of
shares outstanding during the periods. The effect of warrants outstanding
and shares issueable in connection with convertible debentures is not included
since it would be anti-dilutive.
NOTE 2 - Reorganization:
Prior to August 11, 1995, the effective date of its confirmed Plan of
Reorganization (the "Plan") pursuant to Chapter 11 proceedings under the
United States Bankruptcy Code (the "Code"), the Company operated under the
name of PNF Industries, Inc. ("PNF") and subsidiaries.
PNF was organized under the laws of the State of Delaware on July 13, 1987.
Effective February 27, 1990, PNF acquired all the outstanding common stock of
Portafone Communications, Inc. ("Portafone") with its wholly owned
subsidiary, Unicell Corporation ("Unicell"). Portafone was engaged in the
business of selling, installing and renting cellular telephones. Unicell was
licensed to act as a reseller of cellular services in New York and
Massachusetts. The cellular phone business was discontinued during calendar
year 1993.
Effective August 6, 1991, PNF acquired 89% of the outstanding common stock of
both No Fire Engineering, Inc. and No Fire Ceramic Products, Inc. in a
transaction accounted for as a reverse acquisition. Collectively, those two
companies developed, manufactured and sold fire retardant intumescent
products. Both these subsidiaries were disolved during the present fiscal year.
Page 8
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NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
May 31, 1997
On August 31, 1994, involuntary petitions for relief under Chapter 11 of the
Code were filed against the Company and certain of its former subsidiaries.
Under the provisions of the Code, claims against the Company in existence prior
to the Petition Date were stayed. The Company continued its business operations
and was managed by a Bankruptcy Trustee. On April 7, 1995 the Bankruptcy
Court confirmed the Plan. The Plan provided that virtually all pre-petition
claims of the Company would be paid in full over a four-year period.
On August 11, 1995, the effective date of the Plan, PNF emerged from Chapter
11 as a reorganized company under the name NoFire Technologies, Inc. For
financial reporting purposes, the Company reported the effective date as of
August 31, 1995.
As of August 11, 1995, the Company adopted "fresh start reporting" and
implemented the effects of such adoption in its balance sheet as of August
31, 1995.
NOTE 3- Fresh Start Reporting:
At August 31, 1995, under the principles of fresh start reporting, the
Company's total assets were recorded at their estimated reorganization value
of $1,750,000, with such value allocated to identifiable assets on the basis
of their estimated fair value. The reorganization value included the patents
for intumescent fire retardant products which patents were valued at
$1,500,000.
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 raising additional financing.
The Company has a liability for settled claims payable to creditors and
accrued expenses incurred in connection with the Plan. Without the
achievement of profitable operations or additional financing, funds for
repayment would not be available.
Page 9
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NOFIRE TECHNOLOGIES, INC.
(Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
May 31, 1997
Management believes that actions currently being undertaken to obtain
significant sales contracts will provide it with the opportunity to realize
profitable operations and to attract the necessary financing and/or capital
for the payment of outstanding obligations.
NOTE 5 - Warrants:
The Company has issued warrants for the purchase of common stock as follows:
Shares Exercise Price
------- --------------
990,000 $1.00
1,426,500 2.00
35,000 2.50
100,000 3.00
50,000 3.25
12,000 5.00
----------
2,613,500
The warrants vest to the holders in various intervals ranging from issue date
to three years from issuance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company continued its product improvement and testing. It now has several
certifications for specific applications and has filed for three additional
patents. Continuing marketing efforts have brought the Company closer to
achieving significant sales for applications in such diverse industries as
nuclear generation plants, high-speed ferries, electric utilities, low-cost
manufactured homes, and automotive. The Company believes that important supply
contracts will be obtained from one or more of these areas within the next year
permitting the Company to leave the development stage. The greatest obstacles
to obtaining such contracts are the continuing tests and approvals required and
the high price of the product. The Company's most pressing need is a cash
infusion as discussed below in the section on Liquidity and Capital Resources.
Page 10
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The Company's products perform their intended functions well and have been
developed to the stage where they can be sold commercially in a form that is
safe and easy to use. The Company intends to continue its research and testing
efforts to meet market opportunities. The number of manufacturing and quality
control employees will increase with increased production. The salaried
administrative and marketing staff is anticipated to remain constant with
additional sales and marketing efforts provided by commissioned independent
contractors.
COMPARISON NINE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996
The Company remained a development stage company. Sales of $35,067 for the
nine months ended May 31, 1997 represented a decrease of 1% from the
$35,274 for the comparable nine-month period of the prior year. Cost of goods
sold during the same periods decreased 25% from $21,650 to $16,270 resulting
in a gross profit of $18,797 compared to $13,624 in the prior year. Selling,
general and administrative expenses for the nine-months ended May 31, 1997 were
$1,033,728 representing a decrease of $73,184 or 7% from the $1,106,912
of the similar period of the prior year. Interest expense of $222,378 in the
current period was an increase of $37,984 or 21% from the $184,394 of the
similar period of the prior year. The change is represented by interest accrued
on delinquent payments to a supplier of services and the interest expense
accrued on the convertible debentures issued in the prior fiscal year.
COMPARISON THREE MONTHS ENDED MAY 31, 1997 AND MAY 31, 1996
Sales of $7,484 for the three months ended May 31, 1997 represented an increase
of 24% from the $6,054 for the comparable three-month period of the prior year.
Cost of goods sold during the same periods decreased 9% from $3,694 to $3,369
resulting in a gross profit of $4,115 compared to $2,360 in the prior year.
Selling, general and administrative expenses for the three months ended May 31,
1997 were $302,702 representing a decrease of $65,356 or 18% from the $368,058
of the similar period of the prior year. Most ongoing expenses were lower in
the current year. The largest reductions were in testing, $12,700, salaries,
$13,200, and professional fees, $13,600. Interest expense of $78,815 in the
current period was an increase of $13,059 or 20% from the $65,756 of the similar
period of the prior year. The change is represented by the interest accrued on
delinquent payments to a supplier of services and interest accrued on the
convertible debentures issued in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1997 the Company had cash balances of $4,945. In order to fund
continuing operations during the nine months ended on that date, $849,000 was
obtained by the private sales of unregistered common stock with warrants to
several accredited investors. Because of limited cash resources, the Company
has deferred payment of $271,772 of the second installment of the Chapter 11
liability to unsecured creditors that was due in late September 1996. In order
to meet that liability and meet working capital needs until significant sales
Page 11
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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 and the sale of equity securities in a public or private
offering. From June 1 to July 3, 1997, an additional $173,700 was obtained in
private sales of unregistered common stock with warrants to accredited
investors.
Part II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended May 31, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: July 7, 1997 NoFire Technologies, Inc.
By: /s/ Sam Oolie
Sam Oolie
Chairman and Chief Executive
Officer
By: /s/ Charles R. Stone
Charles R. Stone
Vice President and Chief Financial
Officer
(Chief Accounting Officer)
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Balance Sheet as of May 31, 1997 and the unaudited Statement of
Operations for the nine months then ended and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> MAR-1-1997
<PERIOD-END> MAY-31-1997
<CASH> 4,945
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 100,394
<CURRENT-ASSETS> 119,261
<PP&E> 27,802
<DEPRECIATION> 23,171
<TOTAL-ASSETS> 1,254,529
<CURRENT-LIABILITIES> 1,690,821
<BONDS> 436,002
0
0
<COMMON> 1,884,700
<OTHER-SE> (4,312,817)
<TOTAL-LIABILITY-AND-EQUITY> 1,254,529
<SALES> 7,484
<TOTAL-REVENUES> 7,484
<CGS> 3,369
<TOTAL-COSTS> 306,071
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,815
<INCOME-PRETAX> (377,402)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (377,402)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
