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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1998
[ ] 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
-------- ----------
(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
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.20 per share
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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___
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 if there is no disclosure of delinquent filers contained in this
form in response to Item 405 of Regulation S-B, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III
of the Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for it fiscal year ended August 31, 1998 $39,674
Aggregate market value of the voting stock held by
non-affiliates as of November 19, 1998 $7,503,172
Number of shares of common stock outstanding as of as of
November 19, 1998 12,333,859
Documents incorporated by reference:
NONE
Transitional small business disclosure format.
YES___ NO X
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PART I
Item 1. DESCRIPTION OF BUSINESS
BACKGROUND OF THE COMPANY; REORGANIZATION
NoFire Technologies, Inc. ("NoFire" or the "Company") is a
development stage company engaged in the development, manufacture and
marketing of fire retardant, intumescent products. The Company was
organized under the laws of the State of Delaware on July 13, 1987 and
was formerly known as PNF Industries, Inc., and prior to that, Portafone
International Cellular Communications, Inc. and NFW Capital Group, Inc.
Effective February 27, 1990 the Company acquired all of the
outstanding common stock of Portafone Communications, Inc. ("Portafone")
and its wholly-owned subsidiary, Unicell Corporation ("Unicell"), in
exchange for newly issued shares of the Company's common stock.
Portafone was engaged in the business of selling, installing, renting and
operating cellular telephones. Unicell was a licensed reseller of
cellular services in New York and Massachusetts.
On August 6, 1991, the Company acquired 89% of the outstanding
common stock of both No Fire Ceramic Products, Inc. and No Fire
Engineering, Inc. (collectively the "No Fire Companies") in exchange for
newly issued shares of PNF common stock together with an option to
acquire the remaining 11% of such shares. The No Fire Companies were
engaged in the business of developing and manufacturing fire retardant,
intumescent products. For financial reporting purposes, the acquisition
was accounted for as a reverse acquisition of the Company by the No Fire
Companies. Both these subsidiaries were dissolved in fiscal year 1997.
The Company ceased operations in the cellular telephone business and
sold the assets of Unicell, consisting essentially of customer accounts
and accounts receivable, to Nationwide Cellular Services, Inc.
("Nationwide") and CellularOne in December, 1993 in exchange for
Nationwide's and CellularOne's assumption of certain indebtedness of
Unicell.
On August 31, 1994, involuntary petitions in bankruptcy were filed
against the Company and certain of its subsidiaries in the U.S.
Bankruptcy Court for the District of New Jersey. In late September 1994,
the actions were consolidated and converted into a voluntary Chapter 11
reorganization proceeding in respect of the Company. On April 7, 1995,
the Bankruptcy Court confirmed a Plan of Reorganization for the Company,
which Plan became effective on August 11, 1995.
Under the Plan, (i) all then outstanding Common Stock and other
equity securities of the Company (including warrants, options and
convertible securities) were canceled, (ii) new investors made an
aggregate equity contribution of $2 million to the Company and thereby
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acquired 7,546,400 shares of new Common Stock at an average purchase
price of $0.265 per share, (iii) public shareholders (defined as
shareholders who (a) acquired their shares either in the Company's initial
public offering or on the open market, (b) are not current or former
members of the Company's management and (c) held more than ten shares of
the Company's Common Stock prior to the effective date of the Plan (the
"Effective Date")) received an aggregate of 433,600 shares of new Common
Stock, and (iv) certain class action claimants received 20,000 shares of
Common Stock. Claims of creditors, to the extent allowed under the Plan,
are required to be paid over a four year period. (See Note 4 to
Consolidated Financial Statements, page F-12.)
The confirmed Plan also provided that the Board of Directors will
consist of between five and nine individuals, that Sam Oolie, one of the
new investors in the Company, shall be Chairman of the Board of Directors
and Chief Executive Officer of the Company and shall have the right to
designate a majority of the members of the Company's Board of Directors
for a period of two years following the Effective Date, that Dr. Samuel
Gottfried shall be President and Chief Technical Officer of the Company
and that Charles R. Stone, who retired during fiscal 1998, shall be Vice
President and Chief Financial Officer of the Company upon the Effective
Date. In addition, pursuant to the Plan, the Company amended and restated
its Certificate of Incorporation and, as part of such amendment and
restatement, changed its name to "NoFire Technologies, Inc."
BUSINESS OF THE COMPANY
Since the disposition of its cellular telephone business in 1993,
the sole business of the Company has been the development, manufacture
and marketing of fire retardant products. The Company manufactures a
fire retardant product for use as a coating material on many different
kinds of substances to render them fire and heat resistant. The product
can be manufactured in various liquid forms, specifically adapted for the
particular substrate, application and degree of protection required; or as
a textile product, typically a woven fiberglass material, coated with the
NoFire liquid product.
The NoFire liquid product belongs to a class of materials called
intumescents, which means that they expand in size when heated.
Intumescents, which have been produced since the 1950's, have a high
degree of fire retardancy and add significant heat protection to a
coated surface upon expansion. The major performance characteristics of
intumescent products include: useful temperature range; degree of fire
and heat protection; adhesion to substrate; degree of toxicity in both
the liquid state and during combustion; amount of smoke developed during
combustion; ease of application; durability; resistance to weather; and
price. Early intumescent products, as well as many current products,
have had significant deficiencies with respect to several of these
important performance characteristics (primarily the degree of fire and
heat protection, useful temperature range, and/or toxicity) that have
limited their usefulness.
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The Company has developed intumescent products intended to eliminate
or minimize these deficiencies and (i) provide significant protection for
a wide range of substrates with relatively thin coats of fire protective
material, (ii) be useful over a wider temperature range and (iii) utilize
a waterbased, nontoxic formula. The NoFire products are manufactured
based on two basic formulas, electrically conductive and nonconductive.
Both formulas combine a fluid intumescent with fibers of various
sizes and types, which together provide the desired fire retardancy.
Most applications require the nonconductive formula, while the
conductive formula is useful for specific applications where electrical
conductivity of the surface is advantageous. The NoFire formulas are
covered by three United States Patents and corresponding patents and patent
applications in over 30 foreign countries. The United States Patents are:
Patent No. 4,879,320 - Intumescent Fire-Retardant Coating Material,
issued November 7, 1989 and
Patent No. 4,965,296 - Intumescent Fire-Retardant and Electrically-
Conductive Coating Material, issued October 23,1990.
Patent No. 5,723,515 - Intumescent Fire-Retardant Composition for
High Temperature and Long Duration Protection, issued March 3,
1998
Although the Company believes such patents are valid and
enforceable, in the event of a challenge to their validity or an
infringement of such patents, the Company's limited financial resources
may restrict its ability to defend or enforce its rights under such
patents in legal proceedings.
During fiscal years 1996, 1997 and 1998 the Company applied for
five additional United States Patents, one of which was issued and is
listed above.
The NoFire products are potentially useful on many different
substrates, including wood and wood products, metals (steel, aluminum,
and various alloys), certain plastics, fabrics and textiles (fiberglass,
natural and synthetic fibers). Industries that are presently using these
types of product or are developing applications for them include the
construction, public and private housing, maritime, automotive, railway
cars, airports, nuclear power plants and military. The Company is
actively pursuing business opportunities in these and other markets, has
passed numerous tests and obtained several certifications, but has not yet
shipped significant amounts of its products. The first order for the
Company's product in an application in a nuclear power plant has been
received with the first shipment scheduled for the second quarter of
fiscal 1999.
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MARKETING/DISTRIBUTION
The Company markets its products using several different methods,
depending upon the applications, industry, product, or territory being
targeted. These methods include: direct marketing; use of independent
agents/distributors; and exclusive and nonexclusive licensing
arrangements. Because the Company has limited resources, it expects to
rely primarily upon independent third parties to market and distribute
its products.
COMPETITION
There are many types of fire retardant products in general use today
for many different applications. In addition to intumescent products,
ablative, insulative and cementitious products are used, depending on the
particular application, severity of fire retardancy requirements, weight,
space restrictions, and cost. Competition for the NoFire products may
include all of these types of fire retardants and will depend on the
particular application targeted. Typically, each application has a
product or fire retardant technique of choice, which is usually the least
expensive fire protection that meets the necessary requirements. Among
the Company's primary competitors (products) are: W.R. Grace & Co.
(Monocote); Carboline Company (Pyrocrete, Pyrolite, Intumescent 285);
U.S. Gypsum (gypsum board); Stanchem Manufacturing (Albiclad); A/D
Fireproofing (A/D Firefilm); PPG Industries (PettChar); DuPont (Nextel);
Textron, Inc. (Chartex); Minerals Technology, Inc. (Firex); Herbert Co.
(Unitherm); Nullifire; and various wood coatings manufactured by Albi,
American Vamag, 3M, and DuPont. Such products may have a substantial
competitive advantage over the NoFire products because they either have
an established share of the market, are well publicized and recognized,
have passed the required tests and achieved the required approvals for
use and/or are manufactured by substantial companies having far greater
resources than the Company.
SOURCES OF SUPPLY
The NoFire liquid products are a blend of numerous liquids and
solids, purchased from various third party suppliers. Several of such
components are currently available only from a small number of suppliers.
In the event that such suppliers were to terminate the manufacture or
sale of such components for any reason, then the manufacture of NoFire
products could be interrupted. The Company is developing alternative
sources of supply for components and intends to continue to do so as the
demand for its products warrants.
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MAJOR CUSTOMERS
The two largest customers during the most recent fiscal year
represented 43% and 27% of total sales respectively. Because sales
in the development stage are minimal, the Company is not dependent on any
one of these customers for future sales.
GOVERNMENT REGULATIONS AND APPROVALS; RESEARCH AND DEVELOPMENT
For most applications, fire retardant products are required to
undergo testing for approvals by government or independent laboratories.
These requirements are typically determined either by government
agencies, such as the U.S. Nuclear Regulatory Commission, or nationally
recognized organizations, such as the American Society for Testing and
Material ("ASTM") or Underwriters Laboratories, Inc. ("UL"). Product
development is continuing in many different areas, and the NoFire product
has been tested and certified by independent laboratories for various
applications in the areas of building materials and construction (ASTM
E84-87, UL94, UL746C, ASTM E152 and UBC 42-2), transportation (NFPA 417,
FAR 25.855(c)) utilities (ASTM E814-88) and nuclear power plants (NRC
Generic Letter 86-10 Supplement 1). To date, the Company has not yet
obtained approvals for use on such applications as structural steel,
roofing and others. Such approvals must be obtained before the NoFire
product can be used for any of these applications. There is no assurance
that the NoFire product will satisfy these testing requirements or meet
other performance criteria established by prospective customers. The
Company conducts in-house fire and heat endurance tests exclusively for
research and development and feasibility studies. These tests are used to
develop applications and solutions to problems, but are not a substitute
for tests by independent laboratories or government agencies that are
generally required before the product can be sold for particular
applications. The Company's direct costs for research and development
(which has been conducted primarily by its president and chief technical
officer, Dr. Gottfried, as a part of his overall duties) have not been
material and have not been segregated for accounting purposes.
EMPLOYEES
As of November 19, 1998, the Company had six employees, four of
whom were full-time employees.
Item 2. DESCRIPTION OF PROPERTY
The Company occupies 12,700 square feet of space at 21 Industrial
Avenue, Upper Saddle River, New Jersey. The facility includes office
space, storage space and an area for the mixing and testing of products
and is adequate for the Company's current requirements. The Company
rents such space at an approximate monthly rental of $8,700 pursuant to a
lease expiring August 31, 1999.
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Item 3. LEGAL PROCEEDINGS
As a result of the bankruptcy reorganization proceeding described in
Item 1, until unsecured creditors whose claims were recognized in the
Plan are paid in full, the Bankruptcy Court has continuing jurisdiction
relative to (i) the approval and payment of certain claims and expenses
and (ii) the disposition of the Company's two patents owned by the Company
at the time of the bankruptcy.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's shares are quoted on the "OTC Bulletin Board". The National
Quotation Bureau reported the following high and low bid quotations which
reflect inter-dealer prices, without retail markup, markdown or commission
and may not represent actual transactions.
1997-1998 1996-1997
Quarter Ended High Low High Low
------------- ---- --- ---- ---
November 30 $1.063 $0.625 $1.625 $0.875
February 28/29 $1.969 $0.75 $0.938 $0.594
May 31 $1.813 $0.938 $2.25 $0.375
August 31 $1.50 $0.688 $2.063 $0.813
(b) HOLDERS
As of November 19, 1998, there were approximately 179 holders of
record of the Company's outstanding Common Stock.
(c) DIVIDENDS
The Company has not paid any cash dividends and intends to retain
earnings, if any, during the foreseeable future for use in its operations.
Payment of cash dividends in the future will be determined by the
Company's Board of Directors based upon the Company's earnings, financial
condition, capital requirements and other relevant factors.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
After emerging from Chapter 11 bankruptcy on August 11, 1995, and
through fiscal years 1996, 1997 and 1998, the Company continued product
development and application testing. As a result, several certifications
have been obtained for specific applications, four additional patent
applications have been filed and one of those has resulted in a new
patent. Marketing efforts to develop new applications and establish new
customers continued. Though these efforts did not result in significant
sales in fiscal years through 1998, several events give promise for fiscal
1999 and beyond. Those events include: highest rated intumescent product
in U.S. Navy tests; receipt of an MEA (Materials and Equipment Acceptance
Division) acceptance from the City of New York and specification by their
Department of Housing Preservation and Development; approval by the State
Fire Marshall of California; successful demonstration at Underwriters
Laboratory of heat barrier and upgrades for applications in the nuclear
power generating industry; successful demonstration of sixty-minute heat
barriers for high-speed ferry boats; successful demonstration of heat
barrier protection for composite panels for use in the rail transportation
industry; passage of fire spread tests for coated fiberboard panels and
successful demonstration in laboratory tests of underbody protection for
automobiles. The greatest obstacles to obtaining major sales contracts
are the multitude of tests and approvals required, competition against
well established and better capitalized companies, and the slow process of
specifying a new product in highly regulated applications. The Company
intends to continue its research efforts to develop and improve its
products 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 as sales increase, with additional sales and marketing efforts
being provided by commissioned independent contractors.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1997 and 1998, funds required to continue the
Company's product development and marketing efforts were provided by the
private sale of common stock with warrants in the amounts of $1,092,700 in
fiscal 1997 and $1,800,000 in fiscal 1998. Of the private sales in fiscal
1998, $1,250,000 was to the group of accredited investors discussed below.
Because of limited cash resources, the Company has deferred payment of
$470,073 from the second and third installments of the Chapter 11
liability to unsecured creditors that was due in September 1996 and 1997.
As of November 19, 1998, it has deferred an additional $268,853 of the
installment due in late September 1998. Of the delinquent amounts,
$472,419 is due to officers and directors. In order to pay those
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liabilities and meet working capital needs until significant sales levels
are achieved, the Company's continued viability will depend on alternative
sources of funding including exercise of warrants and sale of debentures
and/or equity securities in a public offering or private investment
transactions.
On June 15, 1998, a group of accredited investors agreed, in addition to
amounts previously invested in 1998, to invest an additional $650,000 at
their option or when certain sales criteria are met. If that total amount
is invested, the Company will issue 866,667 units consisting of one share
of common stock and warrants for two and one-half shares of common stock
at an exercise price of $0.75 per share expiring in five years from date
of exercise.
In a supplemental agreement dated October 26, 1998, that same group
committed to invest an additional $480,000 to be paid in as cash is
required by the Company, until March 31, 1999. That full amount would
entitle the investors to 960,000 units consisting of one share of common
stock and warrants for two and one-half shares of common stock at an
exercise price of $0.50 per share expiring in five years from date of
exercise. On October 28, 1998, $185,000 was invested under this agreement
resulting in the issuance of 370,000 shares of common stock and warrants
for 925,000 shares of common stock.
In the second quarter of fiscal 1999, shipments will begin to an unrelated
contractor holding a contract to apply the Company's products in a nuclear
power plant. The total requirement through November 30, 1999 is estimated
at $650,000 with the order already received valued at $100,000. Management
believes that contracts for this application will be granted by other
nuclear power plants as this new product becomes accepted in the industry.
As a result of this opportunity and several others that are continuing to
fruition, the Company anticipates the start of cash flow from sales in
fiscal 1999.
There is no assurance that sales of additional units of stock and
warrants and/or revenues from sales will be sufficient to fund the
Company's cash requirements in the future.
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED AUGUST 31, 1998 AND 1997
The Company remained a development stage company in fiscal year 1998.
Sales of $39,674 represented a decrease of $2,368 or 6% from the $42,042
in the prior year.
The net loss of $1,519,842 for fiscal year 1998 was $79,999 or 5%
smaller than the loss of $1,599,841 in the prior year.
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The Company's product approved for application under a contract awarded to
an unrelated contractor requires that the product be produced under the
contractor's direct supervision. As a result, a write-down of excess
inventory of $35,000 in fiscal 1998 was expensed for finished goods
inventory in excess of anticipated future requirements.
General and administrative expenses of $1,349,039 in fiscal year 1998
were $30,720 or 2% more than the prior year. Most expenses were equal to
or less than the prior year. The largest decrease was in salary expenses
where the total amounts paid and deferred were $433,396 which was $78,335
or 15% less than the prior year. A second important decrease was that the
final write off of anticipated expenses from the Chapter 11 of $48,300 in
fiscal 1997 were not required in 1998. The largest increase in general
and administrative expenses was in professional fees which grew $103,910
or 68% to $256,239 in fiscal 1998. The growth in the expense was
accounted for principally by increases in marketing consulting of $147,700
offset by decreases of $33,000 in Financial Public Relations costs and
$18,000 in legal fees.
Interest expense of $216,745 was $87,861 or 29% less than the $304,606 of
the prior year. Accounting rules relating to future annual payments of
Chapter 11 claims require that such claims be stated at their net present
value. As a result, the Company recognizes interest expense over the
scheduled repayment term of the claims. The expense recognized was
$231,680 in fiscal year 1997 and $124,474 in fiscal year 1998. This
$107,206 decrease was offset by an increase of $21,285 to $46,040 in
interest charged on late payment of legal fees.
Item 7. FINANCIAL STATEMENTS
The Company's annual financial statements for the fiscal year ended
August 31, 1998, together with the report thereon by the Company's
independent auditors, Wiss & Company, LLP, ("Wiss"), are set forth
herein commencing on page F-1 of this Form 10-KSB and are incorporated
herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None
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PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
The following table sets forth the names of all directors and
officers of the Company and the position in the Company held by them:
Name Age Position
Dr. Samuel Gottfried 52 Director, President,
Chief Technical
Officer and
Assistant Treasurer
Bernard J. Koster 65 Director
Gerald H. Litwin 56 Director
Alphonso Margino 60 Director, Vice President
and Secretary
Sam Oolie 62 Director, Chairman
of the Board and
Chief Executive Officer
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have
qualified. Officers are elected by the Board of Directors and serve at
the pleasure of the Board of Directors.
Dr. Samuel Gottfried
Dr. Gottfried was named a director of the Company and appointed
President of its fire retardant products subsidiaries in August 1991.
He was appointed Interim Chairman of the Board and Chief Executive
Officer on August 14, 1992. On August 16, 1995 he was electedPresident,
Chief Technical Officer and Assistant Treasurer of the Company. Dr.
Gottfried holds a doctorate in electrical engineering from New York
University and a Ph.D. in electrophysics from the Polytechnic Institute of
New York.
Bernard J. Koster
Mr. Koster has served as a Director of the Company since
September, 1993. Mr. Koster is an attorney and accountant and since
January 1, 1993 has been of counsel to the law firm of Gerald H.
Litwin, P.A. formerly Litwin and Holsinger, Hackensack, New Jersey.
Since 1993, Mr. Koster has also served as a Director of Tofutti Brands,
Inc., a health food manufacturer.
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Gerald H. Litwin
Mr. Litwin has served as a Director of the Company since August 16,
1995. During the past five years, Mr. Litwin, an attorney, has been the
principal of Gerald H. Litwin, P.A. and previously a partner in the law
firm of Litwin & Holsinger, Hackensack, New Jersey. Mr. Litwin's firms
served as the Company's General Counsel, and his current firm continues to
provide certain legal services to the Company.
Alphonso Margino
Mr. Margino was appointed to the board and named to the offices of
Vice President and Secretary on June 15, 1998. Until August 11, 1995, Mr.
Margino was Vice Chairman of the Board and President of a former
subsidiary of the Company. In the interim period, he continued to be
associated with the Company in marketing capacities.
Sam Oolie
Mr. Oolie has served as a Director of the Company since September,
1993 and as Chairman of the Board and Chief Executive Officer since
August 16, 1995. Since 1985, Mr. Oolie has been Chairman of Oolie
Enterprises, a privately owned investment company. Mr. Oolie also
serves as a Director of Avesis, Inc., a provider of optical and dental
services to employee groups, since March, 1985; Comverse Technology,
Inc., a manufacturer of voice storage and forwarding systems and
message management computer services, since May, 1985; and Noise
Cancellation Technologies, Inc., a company developing and manufacturing
electronic noise cancellation devices, since April, 1987.
During the past five years, except as set forth in the next
succeeding paragraph, none of the foregoing persons (a) has served as a
general partner or an executive officer of any business as to which a
bankruptcy petition was filed during his service in such capacity or
within two years thereafter; (b) was convicted in a criminal proceeding
or is subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses); or (c) has been subject to any
order, judgment or decree, not subsequently reversed, suspended or
vacated, by any court of competent jurisdiction, permanently or
temporarily barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activity.
Dr. Gottfried, Mr. Koster, Mr. Margino and Mr. Oolie were members of
the Company's Board of Directors in 1994 when bankruptcy proceedings were
commenced against the Company. In addition, Dr. Gottfried was a defendant
in an action commenced by the Securities and Exchange Commission against
the Company, Dr. Gottfried and certain former shareholders, officers,
directors and accountants of the Company in the United States District
Court for the District of New Jersey on September 27, 1994 alleging
various violations of the federal securities laws by the defendants. Dr.
Gottfried did not admit or deny any wrongdoing. The action was resolved
through the entry of consent judgments against the defendants permanently
enjoining the defendants, including the Company and Dr. Gottfried, against
future securities laws violations.
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The Board of Directors of the Company has established an Executive
Committee (Dr. Gottfried and Mr. Oolie), an Audit Committee (Mr. Koster
and Mr. Litwin), and a Compensation Committee (Mr. Koster, Mr. Litwin and
Mr. Oolie). The Executive Committee met several times during fiscal 1998.
Item 10. EXECUTIVE COMPENSATION
The Company's Summary Compensation Table is set forth below. Except
as discussed in Note 2 to such table, the Company had no Option/SAR
Grants, Aggregated Option/SAR Exercises or Fiscal Year End Option/SAR's
for the years ended August 31, 1998, 1997 and 1996, nor were there any
long-term incentive plan awards, stock options or stock appreciation
rights.
Non-employee Directors are not compensated for Board of Directors
meetings or committee meetings attended.
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SUMMARY COMPENSATION TABLE
For the Years Ended August 31, 1998, 1997 and 1996
Name and Year Ended Salary Salary Options All Other
Principal Position August 31 Paid Deferred(1) SAR's Compensation
- ------------------ --------- ------ ----------- ----- -----------
Sam Oolie 1998 $59,550 $75,010 None None
Chairman of the Board 1997 $53,118 $75,010 (2) None
and Chief Executive 1996 $50,678 $75,010 None None
Officer since
August 16, 1995
Samuel Gottfried 1998 $99,565 $39,998 None None
Chairman of the Board 1997 $98,820 $39,998 (2) None
through August 15, 1995 1996 $96,290 $39,988 None None
President and Chief
Technical Officer
since August 16, 1995
Alfonso Margino 1998 $52,142 $25,012 None None
Vice President and 1997 $51,942 $25,012 (2) None
Secretary since 1996 $51,917 $25,012 None None
June 15, 1998
Note (1) Amounts shown as salary deferred for fiscal years 1998, 1997 and
1996 represent amounts payable to such executives in the future commencing
when the Company achieves sales at an annualized rate over $2 million and
such payments are authorized by the Board of Directors.
Note (2) At a meeting of the Company's Board of Directors held on June
18, 1997, the Board authorized the issuance of warrants at an exercise
price of $2.00 per share with immediate vesting to Mr. Oolie, 300,000
shares; Dr. Gottfried, 160,000 shares and Mr. Margino, 100,000 shares.
EMPLOYMENT AGREEMENTS
The Company has no employment agreements in effect.
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Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of November 19, 1998 the number of
shares of Common Stock owned of record or beneficially owned by each of
the Company's officers, directors, and stockholders owning at least 5% of
the Company's issued and outstanding shares of Common Stock, by all of the
Company's officers and directors as a group, and the percentage of the
total outstanding shares represented by such shares.
Name and Address Shares Beneficially Approximate
Beneficial Owner Owned (1) Percent of Class (2)
- ---------------- ------------------- ---------------------
Sam Oolie 1,900,000 15.04%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Samuel Gottfried 1,760,000 13.65%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Alphonso Margino 288,000 2.32%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Bernard J. Koster 126,300 1.02%
7 Old Smith Road
Tenafly, NJ 07670
Gerald H. Litwin 125,000 1.00%
Two University Plaza
Hackensack, NJ 07601
Robert Downey (4) 1,246,916 9.43%
755 Park Avenue
New York, NY 10021
Edward Kaplan 716,666 5.69%
1000 Connecticut Avenue, NW
Washington, DC 20036
NF Partners (4) 3,829,822 25.41%
667 Madison Avenue
New York, NY 10021
Charles R. Stone (3) 645,400 5.10%
33 Ellis Road
West Caldwell, NJ 07006
Page 16
<PAGE>
All officers and directors 4,199,300 32.12%
as a group (five persons)
Note (1) Shares Beneficially Owned includes fully vested warrants in the
following amounts: Oolie 300,000; Gottfried 560,000; Margino 100,000;
Koster 42,500; Litwin 125,000; Downey 890,654; Kaplan 250,000; NF Partners
2,735,587; Stone 325,000; and Winnerman 401,200.
Note (2) As of November 19,1998, there were 12,334,529 shares of Common
Stock issued and outstanding. Percentage of Class for all officers and
directors as a group is computed on 13,462,359 shares which includes
1,127,500 shares exercisable within 60 days pursuant to warrants owned by
all the persons included.
Note (3) Mr. Stone was an officer and director of the Company until his
retirement on November 30, 1997.
Note (4) Mr. Downey and NF Partners are members of a group of accredited
investors who entered into agreements on June 16, 1998 and October 28,
1998 to severally purchase units consisting of common stock and warrants
for common stock. Forms 13D, which included as exhibits the full text of
the agreements, were filed with the SEC for each purchase under the
agreements.
COMPLIANCE WITH SECTION 16(A) OF THE 1934 ACT
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Commission
initial reports of ownership and reports of changes in ownership of the
Company's Common Stock. Officers, directors and greater than 10%
stockholders are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file. Based on a review
of copies of Forms 3, 4 and 5 and amendments thereto furnished to the
Company during or with respect to its fiscal year ended August 31,1998,
the Company believes that no director or officer of the Company or
beneficial owner of more than 10% of the Company's Common Stock failed to
file on a timely basis reports required by Section 16(a) of the Exchange
Act during such fiscal year.
Page 17
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of loans made to fund the Company's operations during its
trusteeship under the Chapter 11 bankruptcy that ended on August 11, 1995
plus accrued interest to that date, there were balances due at September
1, 1996 of $183,458 to Mr. Oolie, $11,704 to Mr. Koster and $93,516 to Mr.
Stone. No payments have been made against these balances in fiscal 1997
or 1998. The balances are included in the Company's liability for settled
claims at net present value.
Messrs. Oolie and Stone have made loans and advances to the Company,
and partial repayments have been made. At August 31, 1997 the balances
were $36,000 and $35,000 to Mr. Oolie and Mr. Stone respectively, and at
August 31, 1998 they were $22,750 and $35,000. The balance due to Mr.
Stone is represented by a note dated December 19, 1995 with an 8% interest
rate. To August 31, 1998, interest of $7,564 has accrued and none has been
paid.
On June 18,1997, the Company's Board of Directors authorized the
issuance of warrants to Mr. Oolie, Dr. Gottfried, Mr. Margino, Mr. Koster,
Mr. Litwin and Mr. Stone entitling such holders to purchase respectively
300,000, 160,000, 100,000, 25,000, 25,000 and 200,000 shares of the
Company's Common Stock at a price of $2.00 per share. These warrants are
included in the warrants outstanding as noted in Item 11, Note 1.
Mr. Litwin is the principal of the law firm of Gerald H. Litwin,
P.A., which served as the Company's general counsel to November 4, 1996,
and continues to provide certain legal services to the Company. The
Company is obligated to that firm in the amount of $335,985 which includes
fees for legal services rendered during the pendency of the Company's
bankruptcy reorganization proceedings through August 31, 1998. Interest
has been accrued on unpaid balances since fiscal 1997. Expenses of fiscal
1997 were $53,872 for legal services and $20,166 for interest charges, and
in fiscal 1998, $28,727 in fees and $46,071 in interest charges. In
addition, Litwin & Holsinger, the predecessor firm, filed a claim as an
unsecured creditor in the bankruptcy proceedings in the gross amount of
$140,403 in respect of pre-petition legal services rendered and has
received one distribution in the amount of $15,584 in respect thereof.
Since Mr. Stone's retirement at November 30, 1997, C.R.Stone Associates,
of which he is the principal, has provided limited services to the
Company. Fees earned during fiscal 1998 were $20,245.
Page 18
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
A. THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY ARE BEING FILED
PURSUANT TO ITEM 7 AS PART OF THIS ANNUAL REPORT ON FORM 10-KSB
1. FINANCIAL STATEMENTS
Index to Financial Statements F-1
Independent Auditors' Report F-2
Financial Statements:
Balance Sheet as of August 31, 1998 F-3
Statements of Operations for the Years
Ended August 31, 1998 and 1997 F-4
Statements of Changes in Stockholders' Equity
(Deficiency) for the Years Ended August 31,
1989 through August 31, 1998 F-5 to F-6
Statements of Cash Flows for the Years
Ended August 31, 1998 and 1997 F-7
Notes to Financial Statements F-8 to F-17
2. EXHIBITS
None
3. REPORTS ON FORM 8-K
None
Page 19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NOFIRE TECHNOLOGIES, INC.
Date: November 24, 1998 By: /s/ Sam Oolie
------------------------
Sam Oolie,
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE DATE
/s/ Samuel Gottfried
- ---------------------------- November 24, 1998
Samuel Gottfried, Director
/s/Bernard J. Koster
- ----------------------------- November 23, 1998
Bernard J. Koster, Director
/s/ Gerald H. Litwin
- ----------------------------- November 23, 1998
Gerald H. Litwin, Director
/s/ Alphonso Margino
- ----------------------------- November 24, 1998
Alphonso Margino, Director
/s/ Sam Oolie
- ----------------------------- November 24, 1998
Sam Oolie, Director
Page 20
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-2
Financial Statements:
Balance sheet at August 31, 1998 F-3
Statements of operations for the years ended August 31, 1998
and 1997 and the period July 13, 1987 (date of inception)
through August 31, 1998 F-4
Statements of changes in stockholders' equity for the years
ended August 31, 1989 through August 31, 1998 F-5 to F-6
Statements of cash flows for the years ended August 31, 1998
and 1997 and the period July 31, 1987 (date of inception)
through August 31, 1998 F-7
Notes to financial statements F-8 to F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
NoFire Technologies, Inc.
We have audited the accompanying balance sheet of NoFire Technologies,
Inc. (A Development Stage Company) as of August 31, 1998 and the related
statements of operations, changes in stockholders' equity and cash flows
for each of the two in the period ended August 31, 1998 as listed in the
accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NoFire Technologies,
Inc. at August 31, 1998, and the results of its operations and its cash
flows for the aforementioned periods in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred substantial losses from
operations since inception and at August 31, 1998 had a stockholders'
deficiency of $2,067,763 and a working capital deficiency of $2,117,883.
These factors raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
WISS & COMPANY, LLP
Livingston, New Jersey
October 28, 1998
F-2
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 170,400
Inventories 70,602
Prepaid expenses and other current assets 12,251
----------
Total Current Assets $ 253,253
EQUIPMENT, LESS ACCUMULATED DEPRECIATION OF $24,623 4,238
OTHER ASSETS:
Patents, less accumulated amortization of $900,000 600,000
Excess of reorganization value over net assets,
less accumulated amortization of $126,613 84,409
Security deposits 19,836
----------
704,245
----------
$ 961,736
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $ 803,811
Accounts payable and accrued expenses 531,047
Loans and advances payable to stockholders 57,750
Deferred salaries 542,526
8% convertible debentures 436,002
----------
Total Current Liabilities $2,371,136
SETTLED LIABILITIES, LESS CURRENT MATURITIES 658,363
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 11,945,634 shares 2,389,127
Capital in excess of par value 297,595
Deficit accumulated in the development stage (4,754,485)
----------
Total Stockholders' Equity (Deficiency) (2,067,763)
----------
$ 961,736
==========
See accompanying notes to financial statements
F-3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 13, 1987
(Date of
Inception)
Year Ended August 31 through
1998 1997 August 31, 1998
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 39,674 $ 42,042 $ 439,641
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 17,853 18,958 260,565
Write-down of excess inventory 35,000 - 35,000
General and administrative 1,349,039 1,318,319 7,858,075
---------- ---------- ----------
1,401,892 1,337,277 8,153,640
---------- ---------- ----------
LOSS FROM OPERATIONS (1,362,218) (1,295,235) (7,713,999)
---------- ---------- ----------
OTHER EXPENSES (INCOME):
Interest expense 216,745 304,606 782,277
Interest income (752) - (7,526)
Reorganization items - - 365,426
Litigation settlement - - 198,996
---------- ---------- ----------
215,993 304,606 1,339,173
---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,578,211) (1,599,841) (9,053,172)
DISCONTINUED OPERATIONS - - (1,435,392)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY
ITEM (1,578,211) (1,599,841) (10,488,564)
EXTRAORDINARY ITEM -
Gain on debt discharge 58,369 - 507,952
---------- ---------- ----------
NET LOSS $(1,519,842) $(1,599,841) $(9,980,612)
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,483,170 9,199,271
========== ==========
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE
Loss before extraordinary
item $ (.15) $ (.17)
Extraordinary item .01 -
---------- ----------
Net loss $ (.14) $ (.17)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Capital During the
Number of in Excess Development
Shares Amount of Par Value Stage
--------- --------- ---------- ----------------
<S> <C> <C> <C> <C>
BALANCES, SEPTEMBER 1, 1988 $ - $ - $ -
YEAR ENDED AUGUST 31, 1989:
Issuance of common stock 3,000 1,500 - -
Net loss - - - (45,844)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1989 3,000 1,500 - (45,844)
YEAR ENDED AUGUST 31, 1990:
Issuance of common stock 50 1,000 - -
Net loss - - - (278,916)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1990 3,050 2,500 - (324,760)
YEAR ENDED AUGUST 31, 1991:
Adjustment due to reverse
acquisition (3,050) (2,500) 2,500 -
Acquisition accounted for
as a reverse purchase 3,071,659 307 (307) (517,893)
Net loss - - - (592,276)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1991 3,071,659 307 2,193 (1,434,929)
YEAR ENDED AUGUST 31,1992:
Issuance of common stock 394,736 39 2,252,860 -
Net loss - - - (1,414,562)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1992 3,466,395 346 2,255,053 (2,849,491)
YEAR ENDED AUGUST 31, 1993:
Net loss - - - (1,357,669)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1993 3,466,395 346 2,255,053 (4,207,160)
YEAR ENDED AUGUST 31, 1994:
Net loss - - - (699,650)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1994 3,466,395 346 2,255,053 (4,906,810)
YEAR ENDED AUGUST 31, 1995:
Shares canceled in
connection with the
consummation of the
reorganization plan (3,466,395) (346) (2,255,053) -
Net loss - - - (837,210)
Effect of adoption of
fresh-start reporting - - (2,814,258) 5,744,020
Shares issued in connection
with debt discharge at
$.25 per share 187,000 37,400 9,350 -
Shares issued in connection
with reorganization plan
at $.25 per share 8,000,000 1,600,000 400,000 -
--------- ---------- ----------- ----------
BALANCES, AUGUST 31, 1995 8,187,000 1,637,400 (2,404,908) -
YEAR ENDED AUGUST 31, 1996:
Issuance of common stock
under private placement
at $1 per share 300,000 60,000 240,000 -
Issuance of common stock in
exchange for services at
$1 per share 62,500 12,500 50,000 -
Net loss - - - (1,634,802)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1996 8,549,500 1,709,900 (2,114,908) (1,634,802)
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Capital During the
Number of in Excess Development
Shares Amount of Par Value Stage
--------- --------- ---------- ----------------
<C> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1997:
Issuance of common stock
under private placement
at a range of $.75 to
$1 per share 1,117,700 223,540 869,160 -
Net loss - - - (1,599,841)
--------- ---------- ---------- ----------
BALANCES, AUGUST 31, 1997 9,667,200 $1,933,440 $(1,245,748) $(3,234,643)
YEAR ENDED AUGUST 31, 1998:
Issuance of common stock
under private placement
at $.90 per share net of
expenses of $76,745 1,388,884 277,777 895,474 -
Issuance of common stock
under private placement
at $1 per share 550,000 110,000 440,000 -
Issuance of common stock in
exchange for services at
$.50 to $1 per share 119,200 23,840 45,360 -
Shares issued in connection
debt discharge at $.89 to
$1 per share 220,350 44,070 162,505 -
Net loss - - - (1,519,842)
---------- ---------- ----------- ----------
BALANCES, AUGUST 31, 1998 11,945,634 $2,389,127 $ 297,595 $(4,754,485)
========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 31, 1987
(Date of inception)
Year Ended August 31 through
1998 1997 August 31, 1998
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,519,842) $(1,599,841) $(9,980,612)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization 345,775 345,727 1,126,866
Extraordinary gain on debt discharge (58,369) - (507,952)
Amortization of interest expense for
settled liabilities 124,471 231,681 564,410
Revaluation of assets and liabilities to
fair value - - 482,934
Litigation settlement - - 198,996
Common stock issued in exchange for services 69,200 44,643 131,700
Write-down of excess inventory 35,000 - 35,000
Changes in operating assets and liabilities
(net of effects from reverse purchase
acquisition):
Inventories (8,760) (40,081) (105,602)
Prepaid expenses 2,842 (7,371) (12,251)
Accounts payable and accrued expenses 95,560 94,514) 2,778,034
Security deposits (1,363) - (19,836)
Deferred salaries 151,548 190,008 542,526
Obligation from discontinued operations - - 51,118
---------- ---------- ----------
Net cash flows from operating activities (766,938) (740,720) (4,714,669)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,060) (1,032) (28,861)
Increase in patent costs - - (131,290)
Acquisition accounted for as a reverse purchase - - (517,893)
---------- ---------- ----------
Net cash flows from investing activities (1,060) (1,032) (678,044)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 721,000
Principal payments on notes payable - - (75,000)
Principal payments on settled liabilities (769,308) (347,664) (2,549,043)
Proceeds from issuance of common stock,
net of related expenses 1,723,251 1,092,700 6,187,291
Proceeds from issuance of long-term debt - - 785,113
Payments on advances from stockholders (13,250) - (13,250)
Loans and advances received from stockholders - - 79,053
Interest accrued on loans from stockholders (2,800) (5,253) (8,053)
Proceeds from issuance of 8% convertible
debentures - - 436,002
---------- ---------- ----------
Net cash flows from financing activities 937,893 739,783 5,563,113
---------- ---------- ----------
NET CHANGE IN CASH 169,895 (1,969) 170,400
CASH AT BEGINNING OF YEAR 505 2,474 -
---------- ---------- ----------
CASH AT END OF YEAR $ 170,400 $ 505 $ 170,400
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 8,390 $ 10,847 $ 52,068
========== ========== ===========
Income taxes paid $ - $ - $ -
========== ========== ===========
Common stock issued in exchange for
settlement of debt $ 206,579 $ - $ 253,329
========== ========== ===========
Common stock issued in exchange for
subscriptions receivable $ - $ - $ 95,000
========== ========== ===========
Common stock issued in exchange for
services $ 69,200 $ 44,643 $ 131,700
========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Nature of the Business and Summary of Significant Accounting
Policies:
Nature of the Business - The Company manufactures and markets intumescent
fire retardant products. The Company, which has realized limited sales
while it continues to develop a market for its products, has been
operating as a development stage enterprise since inception.
Estimates and Uncertainties - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect 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 cash, other assets,
accounts payable, accrued expenses, settled liabilities, due to
stockholders and convertible debentures. 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.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Equipment - Equipment is recorded at cost and is depreciated primarily
using the straight-line method over the estimated useful lives of 5 to 7
years for furniture and fixtures, manufacturing equipment and data
processing equipment. Depreciation expense was $571 and $3,523 for the
years ended August 31, 1998 and 1997, respectively.
Intangible Asset - Patents and the excess of reorganization value over net
assets are amortized on a straight-line basis over 5 years. Amortization
expense totaled $342,204 for each of the years ended August 31, 1998 and
1997.
Income Taxes - Deferred income taxes arise from temporary differences
between financial and tax reporting, principally for deferred
compensation, imputed interest on settled claims and net operating loss
carryforwards.
F-8
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Concentration of Credit Risk - The Company maintains a cash balance with a
brokerage firm which is insured by the Securities Investor Protection
Corporation up to $100,000. The uninsured balance totaled approximately
$51,000 at August 31, 1998.
Stock-Based Compensation - Statement of Financial Accounting Standards No.
123 "Accounting for Stock-Based Compensation," ("FAS 123") encourages, but
does not require companies to record compensation cost, for stock-based
employee compensation plans, at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for warrants is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
Earnings Per Share - Statement of Financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share" requires the disclosure of both diluted and
basic earnings per share. Basic earnings per share is based upon the
weighted average of all common shares outstanding. The computation of
diluted earnings per share does not assume the conversion, exercise or
contingent issuance of securities which would have an antidilutive effect
on earnings per share.
Recently Issued Accounting Standards - In June 1997 the Financial
Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting comprehensive income in financial statements and SFAS No.
131 amends certain reporting and disclosure requirements for segments from
previous standards. In February 1998, the FASB issued SFAS No. 132
"Employers' Disclosures about Pensions and Other Postretirement Benefits."
SFAS No. 132 revises employers' disclosures about pension and other
postretirement benefit plans. In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company will adopt these
statements in fiscal 1999. The adoption of these statements is not
expected to have a material effect on the Company's financial statements.
F-9
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Basis of Presentation and 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
has reported substantial losses since inception. The Company's viability
as a going concern is dependent upon its ability to achieve profitable
operations through increased sales, raising additional financing or
receiving additional capital.
On August 11, 1995, the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to a plan of reorganization (the "Plan").
As of August 11, 1995, in accordance with AICPA Statement of Position 90-7
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" (SOP 90-7), the Company adopted "fresh start reporting" and
implemented the effects of such adoption in its balance sheet as of August
31, 1995.
Under the principles of fresh start reporting, the Company's total assets
were recorded at their estimated reorganization value, with the
reorganization value allocated to identifiable assets on the basis of
their estimated fair value. The Company's reorganization value of
$1,750,000 included its patents for its intumescent fire retardant
products which were valued at $1,500,000.
On August 31, 1998, the Company had a net book value recorded for patents
and excess of reorganization value over net assets totaling $684,409.
Future recoverability of these intangible assets continues to be
evaluated. During August 1997, the Company conducted an independent
appraisal of its patents by a valuation specialist to ascertain future
recoverability. The appraisal report assessed marketability of the
Company's product to customers and, in the alternate, marketability of the
patents to outside parties possessing the ability to utilize the
technology supported in the intangibles.
During 1998, the Company's product was approved for application in a
nuclear power plant facility under a contract awarded to an unrelated
contractor. Based on job specification estimates, the Company anticipates
total sales to approximate $643,000 over a period of 15 months from the
balance sheet date.
F-10
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
The contractor is not required to purchase defined quantities at defined
time intervals. In August 1998, the Company received an initial order for
product resulting in revenues of approximately $100,000 to be recognized
in the second quarter of fiscal 1999.
At August 31, 1998, based on the previous valuation report and the
anticipated revenue stream in 1999, no impairment to the intangibles
exists.
As discussed in Note 4, the Company has a liability for settled claims
payable to creditors and has incurred accrued expenses in connection with
its reorganization. Certain settled claims, including accrued interest
due on September 27, 1998, 1997 and 1996, remain unpaid. Without
additional financing/capital or the achievement of profitable operations,
funds for repayment of these installments or future ones would not be
available.
On October 26, 1998, the Company and certain investors entered into a
stock purchase agreement whereby the investors would purchase up to an
aggregate of 960,000 investment units, each unit consisting of one share
of common stock, and five year warrants to purchase 2.5 shares of common
stock at an initial exercise price of $.50 per share, for a maximum
aggregate consideration of $480,000. On October 28, 1998, $185,000 was
invested under this agreement resulting in the issuance of 370,000 shares
of common stock and warrants for 925,000 shares of common stock.
Management believes that actions it has undertaken to revise the Company's
operating and marketing structure will provide it with the opportunity to
generate the revenues needed to realize profitable operations and/or
obtain the necessary financing and/or capital for the payment of
outstanding obligations. The initial step in evolving the action plan of
the Company has been realized by virtue of its products specified use in
the aforementioned nuclear power plant contract.
Note 3 - Inventories:
Inventories at August 31, 1998 consist of the following:
Raw Material $ 35,169
Finished goods 35,433
--------
$70,602
========
F-11
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
At August 31, 1998, the Company evaluated the components of its inventory
including, among other issues, the future marketability of its previously
manufactured product given its history of sales. As discussed in Note 2,
the Company has had its product approved for use under a contract awarded
to an unrelated contractor for application in a nuclear power plant.
However, the product purchased for application by the contractor must be
produced under the contractor's direct supervision. As a result, the
Company's existing finished goods inventory can not be utilized and a
write-down for excess inventory of $35,000 has been recognized.
Note 4 - Settled Claims:
Settled claims consist of claims payable to creditors for which payment
has been deferred beyond the Plan's effective date pursuant to the terms
and conditions of the Plan, as agreed upon between the Company and its
creditors. At August 31, 1998, settled liabilities of $1,462,000, net of
deferred interest of approximately $68,000 (to state the claims at present
value), is payable as follows:
Year Ending August 31,
---------------------
1999 $ 803,811
2000 634,451
2001 23,912
----------
$1,462,174
==========
During the year ended August 31, 1998, the following transactions were
consummated for settlement of outstanding claims:
During March and April of 1998, the Company settled outstanding claim
obligations with four claimants. The claims, totaling approximately
$199,000, were settled in exchange for the issuance of approximately
214,000 shares of the Company's common stock and warrants equivilent to
the same number of shares of common stock. The warrants are exercisable
at a price of $2 per share over a five year period.
No gain or loss has been recognized for the extinguishment of these
liabilities since the market price of the stock and warrants issued at
the time of settlement approximated the debt outstanding.
F-12
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
On June 16, 1998, the Company settled an obligation for the gross
payment of $750,000 of claims outstanding to a former stockholder. The
claims, which carried a net present value of approximately $708,000 on
June 16, 1998, were extinguished through a cash payment of $650,000
resulting in an extraordinary gain on debt discharge of approximately
$58,000.
The claims settled were payable by the Company through September 17,
1999.
During the year ended August 31, 1998, the Company has repaid
approximately $102,000 towards claims payable to unsecured creditors.
The Company is currently delinquent on its scheduled payments to certain
creditors due September 27, 1998, 1997 and 1996 in the gross amount of
approximately $779,000. The Company does not have funds available for
repayment and without additional capital or financing, payments cannot be
made. In accordance with the provisions of the plan of reorganization,
the long-term portion of claims outstanding at August 31, 1998 are not
accelerated due to the default.
Note 5 - Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following:
Legal fees $344,187
Interest 96,664
Payroll and payroll taxes 12,007
Other 78,189
--------
$531,047
========
Note 6 - Convertible Debentures:
During the year ended August 31, 1996 the Company issued to various
accredited investors $436,000 in 8% convertible debentures each having a
maturity date of January 31, 1999.
The debentures entitle the holders, on or before December 30, 1998, to
convert the debt into common stock at a rate of one share for each $1
principal amount plus any outstanding accrued interest. As of August 31,
1998 no debentures have been converted and unpaid interest has been
accrued in the amount of $88,000.
F-13
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Related Party Transactions:
The following summarizes related party transactions for the year ended
August 31, 1998:
Loans and Advances Payable to Stockholders - Loans and advances payable to
stockholders at August 31, 1998 includes a note for $35,000 due to a
stockholder which bears interest at 8% per annum and non-interest bearing
advances totaling $22,750, net of repayments during the year ended august
31, 1998 of $13,250, due to another stockholder. Interest associated with
the loans, totaling $8,053, has been accrued at August 31, 1998.
Settled Claims - At August 31, 1998, the present value of settled claims
payable includes amounts due to current officers, stockholders and members
of the Board of Directors of the Company totaling approximately $842,000
of which approximately $414,000 is delinquent (Note 4).
Note 8 - Commitments and Contingencies:
Lease - The Company leases its facilities for a period of one year with
total lease commitments for August 31, 1998 approximating $104,000.
Rent expense, inclusive of taxes and insurance, was approximately $98,000
and $94,000 for the years ended August 31, 1998 and 1997, respectively.
Consulting Agreements -
Effective on July 1, 1996 the Company entered into a consulting
agreement expiring January 31, 1997 for among other consideration,
public relation activities performed on behalf of the Company. The
Company issued 62,500 shares of its common stock in exchange for these
services and recognized expense of approximately $45,000 for the year
ended August 31, 1997.
During the year ended August 31, 1998, the Company entered into a
similar consulting arrangement with the same consultant and issued
11,700 shares of stock for services. During the year ended, expenses
recognized under this agreement totaled $11,700.
F-14
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
During the year ended August 31, 1998, the Company entered into
another consulting agreement for a five-year period. As compensation
for such services, the consultant received 75,000 warrants, exercisable
for 75,000 shares of common stock at an initial exercise price of $2.00.
The consultant warrants will vest contingntly, based on services
rendered, at the rate of 1,250 warrants monthly over a five year period.
On May 12, 1998, this consultant also received 100,000 shares valued at
$50,000 in exchange for various consulting services rendered during the
year ended August 31, 1998.
Note 9 - Sources of Supply:
Several components of the Company's products are available from a small
number of suppliers. In the event that these suppliers were to terminate
the manufacture or sale of such components for any reason, then the
manufacture of the Company's products could be interrupted.
Note 10 - Income Taxes:
As a result of the issuance of common stock pursuant to the Plan, the
Company experienced a greater than 50% change of ownership as defined in
Internal Revenue Code Section 382 ("Section 382"). Consequently, the
Company's ability to utilize net operating losses generated prior to the
effective date of the Plan is limited during the carryforward periods.
The Company has determined that the annual limitation under Section 382 on
its ability to utilize net operating loss carry forwards, totaling
approximately $4,000,000, to be approximately $150,000 per year expiring
in 2010.
Subsequent to the effective date of the Plan, the Company has generated
approximately $2,631,000 in net operating losses which expire in 2013.
The Company has a deferred tax asset of approximately $1,961,000 at August
31, 1998, representing principally the tax benefit of the loss carry
forwards under Section 172 and for periods subsequent to the effective
date of the Plan. This deferred tax asset has been offset by a 100%
valuation allowance. A valuation allowance is provided when it is more
likely than not that some portion of the deferred tax asset will not be
realized. Based on the Company's operating results to date, a full
valuation allowance has been recorded at August 31, 1998.
F-15
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 11 - Major Customers:
Sales to two customers represented 43% and 27% of net sales for the year
ended August 31, 1998. Sales to four customers represented 25%, 23% 12%
and 10% of net sales for the year ended August 31, 1997.
Note 12 - Joint Venture:
On December 1, 1994 the Company entered into a licensing agreement with a
German entity ("licensee") for producing, manufacturing, marketing and
distributing the Company's products using the technology protected by the
Company's patents. The licensing agreement applies to motor vehicles,
industrial and agricultural vehicles and any similar transportation
vehicles, including their components in a territory defined as worldwide.
Included in the agreement was a provision for the future establishment of
a joint venture with the licensee.
The licensing agreement is to expire on June 30, 2000. As of August 31,
1998 the joint venture has had no revenues.
Note 13 - Warrants:
During the year ended August 31, 1998, the Company issued warrants for the
purchase of common stock as follows:
Warrants
Exercise Outstanding; Granted Outstanding
Price September 1, 1997 in 1998 August 31, 1998
----- ----------------- --------- ---------------
$1.00 990,000 3,554,718 4,544,718
1.50 - 160,000 160,000
2.00 2,409,200 1,018,850 3,428,050
2.50 35,000 - 35,000
3.00 160,000 262,500 422,500
3.25 50,000 - 50,000
5.00 12,000 - 12,000
--------- --------- ---------
3,656,200 4,996,068 8,652,268
========= ========= =========
Warrants granted prior to August 31, 1997 vest to the holders in various
intervals ranging from issue date to three years from the date of issue
and expire five years from grant date. Warrants granted during the year
ended August 31, 1998 are exercisable over a period of five years with
vesting ranging from issue date to one year from issue date. No warrants
had been exercised by holders as of August 31, 1998
F-16
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
No warrants or equity instruments were granted to officers or key
employees during the year ended August 31, 1998. The impact of reporting
in accordance with FAS 123 for warrants previously granted to officers and
key employees is summarized as follows:.
To report the impact of reporting in accordance with FAS 123, warrants
granted to officers and key employees are summarized as follows:
Outstanding Exercisable
Exercise August 31, at August 31,
Price 1998 1998
---------- ------------ ---------------
$1.00 475,000 475,000
2.00 760,000 760,000
3.25 50,000 50,000
Proforma results of operations, had FAS 123 been used to account for
stock-based compensation cost, would have resulted in additional
compensation expense due to the vesting of warrants granted in prior
years, of approximately $123,000 and $1,130,000 for the years ended August
31, 1998 and 1997, resulting in proforma net losses of approximately
$1,643,000 and $2,730,000 for those same reporting periods.
The fair value of the warrants were estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions, respectively: risk-free interest rates of 6.0%, dividend
yield of 0.0%, volatility factors of the expected market price of the
Company's Common Stock of 100% and an expected life equaling the warrants'
exercise periods.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's warrants have
characteristics significantly different from those of normal publicly
traded stock, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock warrants.
F-17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
Balance Sheet as of August 31, 1998 and the audited Statement of Operations for
the year then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> AUG-31-1998
<CASH> 170,400
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 70,602
<CURRENT-ASSETS> 253,253
<PP&E> 28,861
<DEPRECIATION> 24,623
<TOTAL-ASSETS> 961,736
<CURRENT-LIABILITIES> 2,371,136
<BONDS> 0
0
0
<COMMON> 2,389,127
<OTHER-SE> 4,456,890
<TOTAL-LIABILITY-AND-EQUITY> 961,736
<SALES> 39,674
<TOTAL-REVENUES> 39,674
<CGS> 17,853
<TOTAL-COSTS> 1,401,892
<OTHER-EXPENSES> 58,3693
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,993
<INCOME-PRETAX> (1,519,842)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,519,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 58,369
<CHANGES> 0
<NET-INCOME> (1,519,842)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
