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, 1999
[ ] 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
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
Page 1
<PAGE>
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 its fiscal year ended August 31, 1999 $231,948
Aggregate market value of the voting stock held by
non-affiliates as of November 3, 1999 $5,327,964
Number of shares of common stock outstanding as of as of
November 3, 1999 14,035,974
Documents incorporated by reference:
NONE
Transitional small business disclosure format.
YES___ NO X
Page 2
<PAGE>
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.
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. Both these subsidiaries were dissolved in fiscal year
1997.
Under a Chapter 11 proceeding, the Bankruptcy Court confirmed a Plan of
Reorganization for the Company, which became effective on August 11, 1995.
Claims of creditors, to the extent allowed under the Plan, were required
to be paid over a four year period. (See Note 4 to Consolidated Financial
Statements, page F-11.)
BUSINESS OF THE COMPANY
The sole business of the Company is 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 retardation 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.
Page 3
<PAGE>
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,
Patent No. 4,965,296 - Intumescent Fire-Retardant and Electrically-
Conductive Coating Material, issued October 23,1990 and
Patent No. 5,723,515 - Intumescent Fire-Retardant Composition for
High Temperature and Long Duration Protection, issued March 3,
1998.
During fiscal years 1996 through 1999 the Company applied for
eight additional United States Patents. One was issued and is listed
above. Two others have been allowed and will be issued shortly.
During fiscal 1999 the Company purchased from a non-affiliate the
following United States Patent for $7,980:
Patent No. 4,956,218 - Fire Protection Blanket, issued September 11,
1990.
Although the Company believes its 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.
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 evaluating applications for them include construction, wood
products manufacturing, public and private housing, hotels, maritime,
automotive, 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. The first
orders for the Company's product in an application in a nuclear power
plant have been received with the first shipments made in the second and
fourth quarters of fiscal 1999. Additional shipments for this application
are expected to be made in fiscal 2000.
Page 4
<PAGE>
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 relies
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 retardant 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, Nullifire);
U.S. Gypsum (gypsum board); Stanchem Manufacturing (Albiclad); A/D
Fireproofing (A/D Firefilm); PPG Industries (PittChar); DuPont (Nextel);
Textron, Inc. (Chartek); Minerals Technology, Inc. (Firex); Herbert Co.
(Unitherm); and various wood coatings manufactured by Albi, American
Vamag, 3M, and DuPont. Such products may have a 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 has developed alternative sources of
supply for components and intends to continue seeking additional
alternatives as the demand for its products warrants.
MAJOR CUSTOMERS
The two largest customers during the most recent fiscal year represented
83% and 12% of total sales respectively. Sales to the larger customer are
expected to be an important part of future revenues. Relations with that
customer are good.
Page 5
<PAGE>
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, UL723, UL746C, ASTM E152 and UBC 8-2), transportation (NFPA
417, FAR 25.855(c)) utilities (ASTM E814-88 and IEEE 383), nuclear power
plants (NRC Generic Letter 86-10 Supplement 1) and high-speed ferries (IMO
A.754(18)). 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 3, 1999, the Company had seven employees, five 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 $8,750 pursuant to a
lease expiring February 29, 2000.
Page 6
<PAGE>
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 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
(a) MARKET INFORMATION
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.
1998-1999 1997-1998
Quarter Ended High Low High Low
------------- ---- --- ---- ---
November 30 $0.938 $0.36 $1.063 $0.625
February 28 $0.938 $0.656 $1.969 $0.75
May 31 $0.938 $0.531 $1.813 $0.938
August 31 $0.688 $0.469 $1.50 $0.688
(b) HOLDERS
As of November 3, 1999, there were approximately 300 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.
Page 7
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Since emerging from Chapter 11 bankruptcy on August 11, 1995, the Company
has continued product development and application testing. As a result,
several certifications have been obtained for specific applications, eight
additional patent applications have been filed: one of those has resulted
in a new patent and two others have been allowed but not yet issued.
Marketing efforts to develop new applications and establish new customers
have continued. Several efforts undertaken by the Company should assist
it in creating greater sales in fiscal 2000 and beyond. The results of
those efforts 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 its Department
of Housing Preservation and Development; approval by the State Fire
Marshall of California; successful demonstration at Omega Point
Laboratories of heat barrier and upgrades for applications in the nuclear
power generating industry with the first orders placed in fiscal 1999;
successful passage of IMO A.754(18) for sixty-minute structural fire
protection for high-speed ferry boats; passage of UL723 Classification by
Underwriters Laboratories for use in construction; passage of Uniform
Building Code 8-2 on sheet rock and plywood; passage of IEEE 383 standard
test on electrical cables for use in utilities; 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, cost, 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 will be evaluated and may be increased to support sales
and marketing initiatives. Additional sales support is expected to be
provided by commissioned independent agents.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal years 1998 and 1999, 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 $1,800,000 in
fiscal 1998 and $1,280,000 in fiscal 1999. Of the private sales in fiscal
1998, $1,250,000 was to the group of accredited investors discussed below.
All of such sales in fiscal 1999 were to that group.
Page 8
<PAGE>
Because of limited cash resources, the Company has deferred payment of
$722,052 from the installments of the Chapter 11 liability to unsecured
creditors that were due in September 1996, 1997 and 1998. As of November
3, 1999, it has deferred an additional $589,106 of the installment due in
late September 1999. Of the delinquent amounts, $790,686 is due to
officers and directors. In order to pay those 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 $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
issue. That agreement remains in effect.
In fiscal 1999, under a supplemental agreement dated October 26, 1998,
that same group invested an additional $480,000 which entitled 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 issue.
Also in fiscal 1999, under a second supplemental agreement dated March 22,
1999, that same group invested an additional $800,000 which entitled the
investors to 1,111,112 units consisting of one share of common stock and
warrants for two and one-half shares of common stock at an exercise price
of $0.72 per share expiring in five years from date of issue.
In fiscal 1999, shipments of $190,000 were made to an unrelated contractor
holding a contract to apply the Company's products in a nuclear power
plant. The total requirement of the Company's material for that contract
is estimated at $650,000 and the contractor has advised the Company that
there is a revised completion date of April 2000. The anticipated balance
to be ordered and shipped in the first half of fiscal 2000 is about
$460,000. 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 increasing sales in
fiscal 2000.
There is no assurance that revenues from sales, and/or sales of additional
units of stock and warrants will be sufficient to fund the Company's cash
requirements in the future.
Page 9
<PAGE>
RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED AUGUST 31, 1999 AND 1998
The Company remained a development stage company in fiscal year 1999.
Sales of $231,948 represented an increase of $192,274 or 485% from the
$39,674 in the prior year.
The net loss of $1,541,642 for fiscal year 1999 was $21,800 or 1.4%
greater than the loss of $1,519,842 in the prior year.
The write-down of excess inventory of $35,000 in fiscal 1998 was not
required in fiscal 1999. The reserve for excess inventory was considered
reasonable at the end of the fiscal year.
General and administrative expenses of $1,467,701 in fiscal year 1999
were $118,662 or 9% more than the prior year. Most expenses were
comparable to that of the prior year. The major increases were $24,000 or
8.5% in administrative salaries, $11,000 in travel costs from new
marketing efforts, $43,000 or 114% for legal fees resulting from several
minor one-time issues including developing a contract with the new Chief
Executive Officer, $25,000 or 78% in accelerated activities related to
patents, and a new expense of $12,000 for the annual meeting, The largest
decrease was $43,000 in deferred officer's salaries which ended in May
1999 when full salaries were restored.
Interest expense of $191,346 was $25,399 or 12% less than 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 $124,474 in
fiscal year 1998 and $70,112 in fiscal year 1999. This $54,362 decrease
was principally offset by an increase of $31,063 to $77,134 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, 1999, 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
Page 10
<PAGE>
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 53 Director, President,
Chief Technical
Officer and
Assistant Treasurer
Robert Rand Isen 41 Director and Chief
Executive Officer
Bernard J. Koster 66 Director
Gerald H. Litwin 57 Director
Alphonso Margino 61 Vice President
and Secretary
Sam Oolie 63 Director, Chairman
of the Board, Chief
Operating Officer
and Treasurer
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 elected
President, 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.
Page 11
<PAGE>
Robert Rand Isen
Mr. Isen was named as a director on July 6, 1999 and became Chief
Executive Officer on July 26, 1999. From 1997 to 1999 he was General
Manager and Vice President of Perfecseal, Inc., a Bemis Company, a
provider of medical packaging. From 1986 to 1997 Mr. Isen was General
Counsel and Senior Vice President of Paramount Packaging Corporation, a
provider of flexible packaging for consumer and food products which was
sold to the Bemis Company in 1997. Mr. Isen holds a JD Degree from Boston
University School of Law.
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.
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
On June 15, 1998 Mr. Margino was appointed to the board and named to
the offices of Vice President and Secretary. He resigned from the board
on November 24, 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, as Chairman of the Board since August 16, 1995, and as Chief
Operating Officer since July 26, 1999. He was Chief Executive Officer
from August 16, 1995 to July 26, 1999. 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 NCT Group,
Inc., a company developing and manufacturing electronic noise cancellation
devices, since April, 1987.
Page 12
<PAGE>
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.
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 1999.
Item 10. EXECUTIVE COMPENSATION
The Company's Summary Compensation Table is set forth below. Except as
discussed in Notes 2 and 3 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, 1999, 1998 and 1997, 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.
Page 13
<PAGE>
SUMMARY COMPENSATION TABLE
For the Years Ended August 31, 1999, 1998 and 1997
Name and Year Ended Salary Salary Options All Other
Principal Position August 31 Paid Deferred(1) SAR's Compensation
- ------------------ ---------- ------ ----------- ----- ------------
Sam Oolie 1999 $80,812 $57,700 None None
Chairman of the Board, 1998 $59,550 $75,010 None None
Chief Operating Officer 1997 $53,118 $75,010 (2) None
since July 26, 1999 and
Chief Executive Officer
until July 26, 1999
Robert Rand Isen 1999 $20,769 None (3) None
Chief Executive Officer
since July 26, 1999
Samuel Gottfried 1999 $115,255 $30,760 None None
President and Chief 1998 $99,565 $39,998 None None
Technical Officer 1997 $98,820 $39,998 (2) None
Alfonso Margino 1999 $58,317 $19,240 (2) None
Vice President and 1998 $52,142 $25,012 None None
Secretary since 1997 $51,942 $25,012 (2) None
June 15, 1998
Note (1) Amounts shown as salary deferred for fiscal years 1999, 1998 and
1997 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. The deferrals ended
during fiscal 1999.
Note (2) At a meeting of the Company's Board of Directors held on June 18,
1997, the Board authorized the issuance of five-year 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. On November 24,
1998 the Executive Committee authorized the issuance of a five-year warrant to
Mr. Margino for 5,000 shares at an exercise price of $1.50 per share with
immediate vesting.
Note (3) On July 6, 1999 the Board of Directors approved the issuance to Mr.
Isen of three warrants for the Company's common stock, all of which were
issued on July 26, 1999. One warrant is for 800,000 shares, runs for seven
years with an exercise price of $0.5625 and vests at 200,000 shares on each
anniversary date of employment. Another warrant for 800,000 shares runs for
four years with an exercise price of $1.50 and vests when the price of the
Company's common stock exceeds $5.00 per share for sixty consecutive trading
days. The final warrant for 800,000 shares runs for four years with an
exercise price of $3.00 and vests when the price of the Company's common stock
exceeds $10.00 per share for sixty consecutive days.
EMPLOYMENT AGREEMENTS
The Company has one employment agreement in effect. An agreement to employ
Robert Rand Isen as Chief Executive Office became effective July 26, 1999 and
runs for four years from that date, terminable by the Company at any time, with
or without defined cause. Compensation consists of a base annual salary of
$200,000 and an incentive bonus payable at the end of the thirteenth month of
employment of $25,000, or $50,000 if net sales reach $4,000,000 with
operating margins of 50% or more. Additionally under the contract, three
warrants were granted which are described in Note (3) to the compensation
table above.
Page 14
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of November 3, 1999 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 13.25%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Samuel Gottfried 1,760,000 12.06%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Alphonso Margino 293,000 2.07%
NoFire Technologies, Inc.
21 Industrial Avenue
Upper Saddle River, NJ 07458
Bernard J. Koster 146,300 1.04%
7 Old Smith Road
Tenafly, NJ 07670
Gerald H. Litwin 145,000 1.02%
Two University Plaza
Hackensack, NJ 07601
Robert Downey (3) 2,362,726 15.03%
755 Park Avenue
New York, NY 10021
Edward Kaplan 716,666 5.02%
1000 Connecticut Avenue, NW
Washington, DC 20036
NF Partners (3) 7,256,949 37.76%
667 Madison Avenue
New York, NY 10021
All officers and directors 4,244,300 27.91%
as a group (five persons)
Page 15
<PAGE>
Note (1) Shares Beneficially Owned includes fully vested warrants in the
following amounts: Oolie 300,000; Gottfried 560,000; Margino 105,000;
Koster 62,500; Litwin 145,000; Downey 1,687,661; Kaplan 250,000; and NF
Partners 5,183,535
Note (2) As of November 3,1999, there were 14,035,974 shares of Common
Stock issued and outstanding. Percentage of Class for all officers and
directors as a group is computed on 15,208,474 shares which includes
1,172,500 shares exercisable within 60 days pursuant to warrants owned by
all the persons included.
Note (3) Mr. Downey and NF Partners are members of a group of accredited
investors who entered into agreements on June 16, 1998, October 28, 1998
and March 22, 1999 to purchase units consisting of common stock and
warrants for common stock as described in the section on liquidity and
capital resources. 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 31,1999,
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.
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 $171,947 to Mr. Oolie, and $10,918 to Mr. Koster. No payments
have been made against these balances which are included in the Company's
liability for settled claims at net present value.
Page 16
<PAGE>
On June 18,1997, the Company's Board of Directors authorized the issuance
of warrants to Mr. Oolie, Dr. Gottfried, Mr. Margino, Mr. Koster, and Mr.
Litwin entitling such holders to purchase respectively 300,000, 160,000,
100,000, 25,000 and 25,000 shares of the Company's Common Stock at a price
of $2.00 per share. On January 21, 1999 the board authorized the issuance
of warrants to Mr. Koster and Mr. Litwin entitling them each to purchase
20,000 shares of the Company's Common Stock at a price of $1.25 per share.
All of 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 $416,677 which includes fees
for legal services rendered during the pendency of the Company's
bankruptcy reorganization proceedings. Interest has been accrued on
unpaid balances since fiscal 1997. Expenses of fiscal 1998 were $28,727
for legal services and $46,071 for interest charges, and in fiscal 1999,
$51,297 in fees and $77,134 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.
Page 17
<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, 1999 F-3
Statements of Operations for the Years
Ended August 31, 1999 and 1998 and
the period July 13, 1987 (date of
inception) through August 31, 1999 F-4
Statements of Changes in Stockholders' Equity
(Deficiency) for the Years Ended August 31,
1989 through August 31, 1999 F-5 to F-6
Statements of Cash Flows for the Years
Ended August 31, 1999 and 1998 and
the period July 13, 1987 (date of
inception) through August 31, 1999 F-7
Notes to Financial Statements F-8 to F-16
2. EXHIBITS
None
3. REPORTS ON FORM 8-K
None
Page 18
<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 16, 1999 By: /s/ Sam Oolie
------------------------
Sam Oolie,
Chairman of the Board,
Chief Operating Officer
and Treasurer
Date: November 17, 1999 By: /s/ Robert Rand Isen
------------------------
Robert Rand Isen,
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 16, 1999
Samuel Gottfried, Director
/s/ Robert Rand Isen
- ----------------------------- November 17, 1999
Robert Rand Isen, Director
/s/ Bernard J. Koster
- ----------------------------- November 17, 1999
Bernard J. Koster, Director
/s/ Gerald H. Litwin
- ----------------------------- November 17, 1999
Gerald H. Litwin, Director
/s/ Sam Oolie
- ----------------------------- November 16, 1999
Sam Oolie, Director
Page 19
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Financial Statements:
Balance sheet at August 31, 1999 F-3
Statements of operations for the years ended
August 31, 1999 and 1998 and the period July 13,
1987 (date of inception) through August 31, 1999 F-4
Statements of changes in stockholders' equity
for the years ended August 31, 1989 through
August 31, 1999 F-5 to F-6
Statements of cash flows for the years ended
August 31, 1999 and 1998 and the period July 13,
1987 (date of inception) through August 31, 1999 F-7
Notes to financial statements F-8 to F-16
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, 1999 and the related
statements of operations, changes in stockholders' equity and cash flows
for each of the two years in the period ended August 31, 1999 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, 1999, 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, 1999 had a stockholders'
deficiency of $2,330,715 and a working capital deficiency of $2,682,561.
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 18, 1999
F-2
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 1999
ASSETS
CURRENT ASSETS:
Cash $ 338,089
Inventories 91,003
Prepaid expenses and other current assets 43,397
-----------
Total Current Assets $ 472,489
EQUIPMENT, LESS ACCUMULATED DEPRECIATION
OF $25,451 7,333
OTHER ASSETS:
Patents, less accumulated amortization
of $1,201,596 306,384
Excess of reorganization value over net assets,
less accumulated amortization of $168,817 42,205
Security deposits 19,836
----------
368,425
----------
$ 848,247
==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $ 1,395,037
Accounts payable and accrued expenses 647,535
Loans and advances payable to stockholders 26,250
Deferred salaries 650,226
8% convertible debentures 436,002
----------
Total Current Liabilities $3,155,050
SETTLED LIABILITIES, LESS CURRENT MATURITIES 23,912
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 14,035,974 shares 2,807,195
Capital in excess of par value 1,158,217
Deficit accumulated in the development stage (6,296,127)
----------
Total Stockholders' Equity (Deficiency) (2,330,715)
----------
$ 848,247
==========
See accompanying notes to financial statements
F-3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
July 13, 1987
(Date of Inception)
Year Ended August 31, Through
1999 1998 August 31, 1999
---------- ---------- ----------
NET SALES $ 231,948 $ 39,674 $ 671,589
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 116,729 17,853 377,294
Write-down of excess inventory - 35,000 35,000
General and administrative 1,467,701 1,349,039 9,325,776
---------- ---------- ----------
1,584,430 1,401,892 9,738,070
---------- ---------- ----------
LOSS FROM OPERATIONS (1,352,482) (1,362,218) (9,066,481)
---------- ---------- ----------
OTHER EXPENSES (INCOME):
Interest expense 191,346 216,745 973,623
Interest income (2,186) (752) (9,712)
Reorganization items - - 365,426
Litigation settlement - - 198,996
---------- ---------- ----------
189,160 215,993 1,528,333
---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,541,642) (1,578,211) (10,594,814)
DISCONTINUED OPERATIONS - - (1,435,392)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,541,642) (1,578,211) (12,030,206)
EXTRAORDINARY ITEM -
Gains on debt discharge - 58,369 507,952
---------- ---------- ----------
NET LOSS $(1,541,642) $(1,519,842) $(11,522,254)
========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 12,901,549 10,483,170
========== ==========
BASIC AND DILUTED LOSS
PER COMMON SHARE:
Loss before extraordinary item $ (.12) $ (.15)
Extraordinary item - .01
---------- ----------
Net loss $ (.12) $ (.14)
========== ==========
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
Common Stock Accumulated
------------------------ 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 cancelled 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) -
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
(Concluded)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------------------ Capital During the
Number of in Excess Development
Shares Amount of Par Value Stage
---------- ---------- ---------- ------------
<C> <C> <C> <C> <C>
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)
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 a
range of $.50 to $1 per share 119,200 23,840 45,360 -
Shares issued in connection with
debt discharge at a range of
$.89 to $1 per share 220,350 44,070 162,509 -
Net loss - - - (1,519,842)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1998 11,945,634 2,389,127 297,595 (4,754,485)
YEAR ENDED AUGUST 31, 1999
Issuance of common stock under
private placements at a range
of $.50 to $.72 per share,
net of expenses of $19,793 2,071,115 414,223 845,986 -
Shares issued in connection with
debt discharge at a range of
$.95 to $.99 per share 19,225 3,845 14,636 -
Net loss - - - (1,541,642)
---------- ---------- ---------- ------------
BALANCES, AUGUST 31, 1999 14,035,974 $ 2,807,195 $ 1,158,217 $(6,296,127)
========== ========== ========== ============
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
July 13, 1987
(Date of Inception)
Year Ended August 31, Through
1999 1998 August 31, 1999
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,541,642) $(1,519,842) $(11,522,254)
Adjustments to reconcile net loss
to net cash flows from
operating activities:
Depreciation and amortization 344,628 342,775 1,471,494
Extraordinary gain on debt discharge - (58,369) (507,952)
Amortization of interest expense for
settled liabilities 70,112 124,471 634,522
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock issued in exchange
for services - 69,200 131,700
Write-down of excess inventory - 35,000 35,000
Changes in operating assets and
liabilities (net of effects from
reverse purchase acquisition):
Inventories (20,401) (8,760) (126,003)
Prepaid expenses (31,146) 2,842 (43,397)
Accounts payable and accrued
expenses 116,488 95,560 2,894,522
Security deposits - (1,363) (19,836)
Deferred salaries 107,700 151,548 650,226
Obligation from discontinued
operations - - 51,118
---------- ---------- ----------
Net cash flows from
operating activities (954,261) (766,938) (5,668,930)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (3,923) (1,060) (32,784)
Increase in patent costs (7,980) - (139,270)
Acquisition accounted for as a
reverse purchase - - (517,893)
---------- ---------- ----------
Net cash flows from
investing activities (11,903) (1,060) (689,947)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 721,000
Principal payments on notes payable - - (75,000)
Principal payments on settled
liabilities (94,856) (769,308) (2,643,899)
Proceeds from issuance of common
stock, net of related expenses 1,260,209 1,723,251 7,447,500
Proceeds from issuance of long-term debt - - 785,113
Payments on advances from stockholder (31,500) (13,250) (44,750)
Loans and advances received from
stockholders - - 79,053
Interest accrued on loans from
stockholder - (2,800) (8,053)
Proceeds from issuance of 8%
convertible debentures - - 436,002
---------- ---------- ----------
Net cash flows from
financing activities 1,133,853 937,893 6,696,966
---------- ---------- ----------
NET CHANGE IN CASH 167,689 169,895 338,089
CASH AT BEGINNING OF YEAR 170,400 505 -
---------- ---------- ----------
CASH AT END OF YEAR $ 338,089 $ 170,400 $ 338,089
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 16,953 $ 8,390 $ 62,374
========== ========== ==========
Income taxes paid $ - $ - $ -
========== ========== ==========
Common stock issued in exchange
for settlement of debt $ 18,481 $ 206,579 $ 271,810
========== ========== ==========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
========== ========== ==========
Common stock issued in exchange
for services $ - $ 69,200 $ 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 $828 and $571 for the years ended August
31, 1999 and 1998, respectively.
Intangible Assets - Patents and the excess of reorganization value over
net assets are amortized on a straight-line basis over 5 years. Amortization
expense totaled $343,800 and $342,204 for the years ended August 31, 1999 and
1998, respectively.
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.
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 totalled approximately
$225,000 at August 31, 1999.
F-8
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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, obtaining 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, 1999, the Company had a net book value recorded for patents
and excess of reorganization value over net assets totaling $348,589. 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
F-9
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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. The contractor is not required to purchase defined quantities at
defined time intervals from the Company. Based on job specification
estimates, the Company anticipates total sales to approximate $643,000. For
the year ended August 31, 1999, the Company realized approximately $193,000 in
sales from this contract with the balance expected to be realized in the
fiscal year ending August 31, 2000.
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 due on September 27, 1996 through 1999
remain unpaid. As discussed in Note 6, the Company's convertible debentures
matured on January 31, 1999. Without additional financing/capital or the
achievement of profitable operations, funds for repayment of these obligations
would not be available.
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, 1999 consist of the following:
Raw material $ 66,182
Finished goods 24,821
---------
$ 91,003
=========
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, a portion
of the Company's finished goods inventory was deemed, at August 31, 1998, to
require a write-down for excess inventory of $35,000. The Company continues
to evaluate its inventory for future usage in its normal course of business.
F-10
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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, 1999, settled liabilities are payable as follows:
Year Ending August 31,
----------------------
2000 $1,395,037
2001 23,912
----------
$1,418,949
==========
During the years ended August 31, 1999 and 1998, the following
transactions were consummated for settlement of outstanding claims:
During October of 1998, the Company settled outstanding claim
obligations with three claimants. The claims, totalling
approximately $19,000, were settled in exchange for the issuance of
approximately 19,000 shares of the Company's common stock and
warrants for the same number of shares of common stock. The
warrants are exercisable at a price of $2 per share over a five year
period.
During March and April of 1998, the Company settled outstanding
claim obligations with four claimants. The claims, totalling
approximately $199,000, were settled in exchange for the issuance of
approximately 214,000 shares of the Company's common stock and
warrants for 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.
The claims settled were payable by the Company through September 27, 1999
and during the year ended August 31, 1999, the Company repaid approximately
$95,000 towards settled claims.
The Company is currently delinquent on its scheduled payments to certain
creditors due September 27, 1996 through 1999 in the gross amount of
approximately $1,369,000. The Company does not have funds available for
repayment and without additional sales, capital or financing, payments cannot
be made.
F-11
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
Legal fees $460,174
Interest 123,648
Payroll and payroll taxes 33,715
Other 29,998
--------
$647,535
========
NOTE 6 - CONVERTIBLE DEBENTURES:
During the year ended August 31, 1996 the Company issued, to various
accredited investors, $436,000 in 8% convertible debentures which matured on
January 31, 1999.
The debentures entitled 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. No debentures were
converted and unpaid interest has been accrued in the amount of $123,000.
As of August 31, 1999, the Company has not paid these obligations,
however it continues to accrue interest. Repayment of this debt is not
possible without increased sales, obtaining additional financing or the
receipt of additional capital.
NOTE 7 - SETTLED CLAIMS PAYABLE TO RELATED PARTIES:
At August 31, 1999, the present value of settled claims payable includes
amounts due to current officers and members of the Board of Directors of the
Company totaling approximately $791,000, all of which are delinquent (Note 4).
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Lease - The Company's lease of its facility expires on February 29, 2000
with total lease commitments for the six months then ended approximating
$52,000.
Rent expense, inclusive of taxes and insurance, was approximately
$104,000 and $98,000 for the years ended August 31, 1999 and 1998,
respectively.
Employment Contract - On June 25, 1999, the Company entered into an
employment contract for its chief executive officer. The contract commenced
F-12
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
on July 26, 1999, and continues in effect for a period of four years, with
termination by the Company of the officer's employment at any time, with or
without cause (as defined).
Compensation under the terms of the contract includes a base salary of
$200,000 per annum with an incentive bonus due at the end of the thirteenth
month of employment as follows:
$50,000 if the Company achieves net sales during the first
anniversary period of employment of at least $4,000,000 with
operating margins of at least 50%.
$25,000 if the previously defined sales and gross margin goals are
not realized.
The Company granted three warrants for the purchase of the Company's
common stock pursuant to the execution of this contract as follows:
Warrants for 800,000 shares vesting at a rate of 200,000 shares on
each anniversary following the commencement of employment at an
exercise price of $0.5625 per share which was the closing price of
the Company's common stock at July 26, 1999. The warrants expire
seven years from the date of issuance.
Warrants for 800,000 shares vesting if, at any time during the four
year employment term, the closing price of the Company's common
stock equals or exceeds $5.00 per share for sixty consecutive
trading days. The exercise price is $1.50 per share.
Warrants for 800,000 shares vesting if, at any time during the four
year employment term, the closing price of the Company's common
stock equals or exceeds $10.00 per share for sixty consecutive
trading days. The exercise price is $3.00 per share.
Consulting Agreements -
Effective July 1, 1999, the Company entered into an agreement,
expiring June 30, 2000, whereby a consultant is to provide among
other services, assistance in the sale of the Company's products to
targeted market sectors. As compensation for its services, the
consultant is to receive $3,000 per month as well as 12,000 shares
of common stock in the form of five year warrants exercisable at
$1.25 per share. The warrants vest in quarterly increments through
June 30, 2000 and are exercisable through June 30, 2004.
During the year ended August 31, 1998, the Company entered into a
consulting arrangement and issued 11,700 shares of stock for
services, recognizing expense of $11,700.
F-13
<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 a warrant
for 75,000 shares of common stock at an initial exercise price of
$2.00. The consultant warrants will vest contingently, based on
services rendered, at the rate of 1,250 shares 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 $3,616,000 in net operating losses which expire in 2014.
The Company has a deferred tax asset of approximately $2,311,000 at
August 31, 1999, representing principally the tax benefit of the loss carry
forwards under Internal Revenue Code 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, 1999.
F-14
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - MAJOR CUSTOMERS:
Sales to two customers represented 83% and 12% of net sales for the year
ended August 31, 1999. Sales to two customers represented 43% and 27% of net
sales for the year ended August 31, 1998.
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 expires on June 30, 2000. As of August 31, 1999
the joint venture has had no revenues.
NOTE 13 - WARRANTS:
Warrants for the purchase of common stock granted by the Company and
outstanding at August 31, 1999 are as follows:
Exercise Outstanding Warrants Granted Outstanding
Price September 1, 1998 in 1999 August 31, 1999
-------- ----------------- ---------------- ---------------
$0.50 - 2,400,000 2,400,000
0.5625 - 800,000 800,000
0.72 - 2,777,780 2,777,780
1.00 4,544,718 - 4,544,718
1.25 - 52,000 52,000
1.50 160,000 818,500 978,500
2.00 3,428,050 19,225 3,447,275
2.50 35,000 - 35,000
3.00 422,500 800,000 1,222,500
3.25 50,000 - 50,000
5.00 12,000 - 12,000
--------- --------- ----------
8,652,268 7,667,505 16,319,773
========= ========= ==========
F-15
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Warrants granted prior to August 31, 1998 are fully vested to the holders
and expire five years from grant date. Warrants granted during the year ended
August 31, 1999 are exercisable over a period from three months to seven years
with 5,255,505 shares vesting immediately as well as 2,400,000 shares and
12,000 shares vesting as described in the employment contract and consulting
agreement, respectively, as discussed in Note 8. No warrants had been
exercised by holders as of August 31, 1999.
As included in the total of warrants granted during August 31, 1999, the
Company granted warrants for the purchase of 2,400,000 shares of common stock
to one officer and warrants for the purchase of 5,000 shares of common stock
to another officer during the year ended August 31, 1999. The impact of
reporting in accordance with FAS 123 for common stock equivalents granted
during August 31, 1999 is summarized as follows:
Outstanding Exercisable
Exercise August 31, at August 31,
Price 1999 1999
------- ----------- -------------
$0.5625 800,000 -
1.50 805,000 5,000
3.00 800,000 -
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 the 5,000 warrants granted during August 31,
1999. Compensation expense, based on the Black-Scholes option pricing
formula, for the 5,000 warrants, is immaterial.
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-16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
audited Balance Sheet as of August 31, 1999 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-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 338,089
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 91,003
<CURRENT-ASSETS> 472,489
<PP&E> 32,784
<DEPRECIATION> 25,451
<TOTAL-ASSETS> 848,247
<CURRENT-LIABILITIES> 3,155,050
<BONDS> 0
0
0
<COMMON> 2,807,195
<OTHER-SE> (5,137,910)
<TOTAL-LIABILITY-AND-EQUITY> 848,247
<SALES> 231,948
<TOTAL-REVENUES> 231,948
<CGS> 116,729
<TOTAL-COSTS> 1,584,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,160
<INCOME-PRETAX> (1,541,642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,541,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,541,642)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
