<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, 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.
-------------------------
(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: 11,996,434 shares of Common
Stock as of July 7, 1998.
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, 1998
and August 31, 1997 3
Statements of Operations for the
Nine Months ended May 31, 1998
and 1997; and the Three Months ended
May 31, 1998 and 1997 5
Statements of Cash Flows for the
Nine Months ended May 31, 1998 and 1997 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1998 1997
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 6,482 $ 505
Inventory 84,112 96,842
Prepaid expenses and other current assets 16,505 15,093
--------- ----------
Total Current Assets 107,099 112,440
--------- ----------
EQUIPMENT, less accumulated depreciation 4,381 3,749
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$825,000 at May 31, 1998 and
$600,000 at August 31, 1997 675,000 900,000
Security deposits 18,473 18,473
Excess of reorganization value over net
assets, less accumulated amortization
of $116,061 at May 31, 1998 and
$84,408 at August 31, 1997 94,960 126,613
---------- ---------
788,433 1,045,086
---------- ---------
$ 899,913 $1,161,275
========== ==========
See accompanying notes to financial statements
Page 3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1998 1997
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,103,284 $ 839,357
Accounts payable and accrued expenses 532,001 438,287
Due to stockholders 67,750 71,000
Deferred salaries 504,831 390,978
---------- ---------
2,207,866 1,739,622
---------- ---------
OTHER LIABILITIES
Settled liabilities, less current
maturities 1,099,884 1,532,602
Convertible debentures - 8% due
January 31, 1999 436,002 436,002
---------- ----------
1,535,886 1,968,604
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 10,556,750
shares at May 31, 1998 and
9,667,200 shares at August 31, 1997 2,111,350 1,933,440
Capital deficiency (597,881) (1,245,748)
Retained earnings (deficit) (4,357,308) (3,234,643)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,843,839) (2,546,951)
---------- ----------
$ 899,913 $1,161,275
========== ==========
See accompanying notes to financial statements
Page 4
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
July 13, 1987
(Date of
For the Nine Months For the Three Months Inception)
Ended May 31, Ended May 31, through
1998 1997 1998 1997 May 31, 1998
---------- --------- --------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 18,626 $ 35,067 $ 12,225 $ 7,484 $ 418,593
COSTS AND EXPENSES:
Cost of sales 8,782 16,270 5,903 3,369 251,494
Selling, general and administrative 953,015 1,033,728 341,931 302,702 7,462,051
---------- ---------- --------- --------- ----------
961,797 1,049,998 347,834 306,071 7,713,545
---------- ---------- --------- --------- ----------
LOSS FROM OPERATIONS (943,171) (1,014,931) (335,609) (298,587) (7,294,952)
---------- ---------- --------- --------- ----------
OTHER EXPENSES:
Interest expense 179,496 222,378 55,834 78,815 745,028
Interest income - - - - (6,774)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- --------- --------- ----------
179,496 222,378 55,834 78,815 1,302,676
---------- ---------- --------- --------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,122,667) (1,237,309) (391,443) (377,402) (8,597,628)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- --------- --------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,122,667) (1,237,309) (391,443) (377,402) (10,033,020)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 449,583
---------- ---------- --------- --------- ----------
NET LOSS $(1,122,667) $(1,237,309) $(391,443) $(377,402) $(9,583,437)
========== ========== ========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 10,072,842 9,066,833 10,041,350 8,998,583
========== ========== ========= =========
EARNINGS (LOSS) PER SHARE $ (0.11) $ (0.14) $ (0.04) $ (0.04)
========== ========== ========= =========
</TABLE>
See accompanying notes to financial statements
Page 5
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 13, 1987
(Date of
For the Nine Months Inception)
Ended May 31, through
1998 1997 May 31, 1998
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,122,667) $(1,237,309) $(9,583,437)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 257,081 259,296 1,041,172
Extraordinary gain on debt discharge - - (449,583)
Interest expense incurred to state settled
liabilities at present value 113,060 173,760 552,999
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
Changes in operating assets and liabilities
(net of effects from reverse purchase
acquisition)
Inventory 12,730 (43,633) (84,112)
Prepaid expenses (1,412) (6,200) (16,505)
Accounts payable and accrued
expenses 93,714 115,632 2,778,988
Security deposits - - (18,473)
Deferred salaries 113,853 138,852 504,831
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (464,441) (554,959) (4,409,372)
---------- --------- ----------
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)
----------- --------- ----------
</TABLE>
See accompanying notes to financial statements
Page 6
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 13,1987
(Date of
For the Nine Months Inception)
Ended May 31, through
1998 1997 May 31, 1998
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 721,000
Principal Payments on notes payable - - (75,000)
Principal Payment of settled liabilities (281,851) (315,438) (2,061,586)
Proceeds from issuance of common stock 756,579 849,000 5,125,619
Collection of stock subscription receivable - - 95,000
Proceeds from issuance of long-term debt - - 785,113
Net advances from stockholders (3,250) 24,900) 67,750
Proceeds from issuance of 8% convertible
debentures - - 436,002
---------- ---------- ----------
Net cash flows from financing activities 471,478 558,462 5,093,898
---------- ---------- ----------
NET CHANGE IN CASH 5,977 2,471 6,482
CASH AT BEGINNING OF PERIOD 505 2,474 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 6,482 $ 4,945 $ 6,482
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 8,408 $ 8,072 $ 52,086
========== ========== ==========
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
Page 7
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 1998
NOTE 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has been
derived from the audited balance sheet contained in the Company's Form
10-KSB for the year ended August 31, 1997 (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 issuable 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 of those subsidiaries were dissolved
during the fiscal year ended August 31, 1997.
Page 8
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 1998
On August 31, 1994, involuntary petitions for relief under Chapter 11 of
the Code were filed against the Company and certain of its 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
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 1998
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
-------- --------------
997,500 $1.00
160,000 1.50
3,353,050 2.00
35,000 2.50
422,500 3.00
50,000 3.25
12,000 5.00
---------
5,030,050
The warrants will vest to the holders in various intervals ranging
from issue date to three years from issuance.
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company continued its product development and application testing. It
now has several certifications for specific applications and has filed for
four additional patents. One of those applications had led to the issuance
of a patent during the present fiscal year. Continuing marketing efforts
have brought the Company closer to achieving significant sales for
applications in such diverse industries as high-speed ferries and naval
ships, electric utilities, wood product building components, concrete and
structural steel column protection, and automotive. In the nuclear power
generating industry, a contractor has been awarded a contract to upgrade
the fire protection of control wiring at a large U.S nuclear power plant
specifying the Company's product. The Company believes that orders to
provide materials for that contract, as well as the first shipments against
those orders, should occur within the present fiscal year. The Company also
believes that contracts will be obtained from other nuclear power plants as
well as from other industries in this fiscal year. The greatest obstacles
to obtaining these other contracts are the continuing tests and approvals
required, competition against well established and better capitalized
companies, and the slow process of specifying new products in highly
regulated industrial applications. The Company's most pressing need is
cash infusion as discussed below in the section on Liquidity and Capital
Resources. The Company's products perform their intended uses 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, 1998 AND MAY 31, 1997
The Company remained a development stage company. Sales of $18,626 for
the nine months ended May 31, 1998 represented a decrease of 47% from
the $35,067 for the comparable nine-month period of the prior year.
Cost of goods sold during the same periods decreased 46% from
$16,270 to $8,782 resulting in a gross profit of $9,844 compared to
$18,797 in the prior year. Selling, general and administrative expenses
for the nine months ended May 31, 1998 were $953,015 representing a
decrease of $80,713 or 8% from the $1,033,728 of the similar period of
the prior year. Almost all categories of expense remained at constant
levels or were reduced. The most significant changes were reductions of
$12,000 in travel and related expenses, $42,900 in interest expense, and
$47,800 in salaries and related expenses resulting from a reduction in
clerical staff and the retirement on November 30, 1997, of the former
Vice President and Chief Financial Officer.
COMPARISON THREE MONTHS ENDED MAY 31, 1998 AND MAY 31, 1997
Sales of $12,225 for the three months ended May 31, 1998 represented an
increase of 63% from the $7,484 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods increased 75%
Page 11
<PAGE>
from $3,369 to $5,903 resulting in a gross profit of $6,322 compared to
$4,115 in the prior year. Selling, general and administrative expenses for
the three months ended May 31, 1998 were $341,931, representing an increase
of $39,229 or 13% from the $302,702 of the similar period of the prior year.
Most categories of expense remained at constant levels. The most significant
increase was a change in professional fees of $69,880 resulting principally
from work done by marketing consultants and a financial public relations firm.
Expense reductions were $13,700 in officers' salaries resulting from the
retirement on November 30 1997, of the former Vice President and Chief
Financial Officer, and $22,981 in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998 the Company had cash balances of $6,482. In order to fund
continuing operations during the nine months ended on that date, $550,000
was obtained by the private sales of unregistered common stock with warrants
to several accredited investors. In addition, one trade creditor and four
Chapter 11 claimants settled a total of $206,579 in net present value of
their claims against the Company by the issuance of 220,350 shares of the
Company's common stock. An additional 119,200 shares of common stock were
issued as compensation to three recipients representing $69,200 in
professional fees. Because of limited cash resources, the Company has
deferred payment of $185,126 of the second installment of the Chapter 11
liability to unsecured creditors that was due in late September 1996, and
$445,009 that was due in late September 1997. In order to meet those
liabilities and meet working capital needs until significant sales levels
are achieved, the Company will continue to explore alternative sources of
funding including exercise of warrants, bank and other borrowings, issuance
of convertible debentures, issuance of common stock to settle debt, and the
sale of equity securities in a public or private offering. Subsequent to May
31, 1998 and through July 7, 1998, an additional $1,250,000 was obtained in a
private sale of unregistered common stock with warrants to a group of
accredited investors. The investment group has advised the company that
they filed reports with the SEC that they deemed appropriate including
Schelules 13D and Forms 3.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended May 31,1998.
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 14, 1998 NoFire Technologies, Inc.
By: /s/ Sam Oolie
Sam Oolie
Chairman and Chief
Executive 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, 1998 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-31-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 6,482
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 84,112
<CURRENT-ASSETS> 107,099
<PP&E> 28,862
<DEPRECIATION> 24,481
<TOTAL-ASSETS> 899,913
<CURRENT-LIABILITIES> 2,207,866
<BONDS> 436,002
0
0
<COMMON> 2,111,350
<OTHER-SE> (4,955,189)
<TOTAL-LIABILITY-AND-EQUITY> 899,913
<SALES> 12,225
<TOTAL-REVENUES> 12,225
<CGS> 5,903
<TOTAL-COSTS> 341,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,834
<INCOME-PRETAX> (391,443)
<INCOME-TAX> 0
<INCOME-CONTINUING> (391,443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (391,443)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
