<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, 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
-------------
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: 13,549,860 shares of Common
Stock as of July 1, 1999.
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, 1999
and August 31, 1998 3
Statements of Operations for the
Nine Months ended May 31, 1999
and 1998; and the Three Months ended
May 31, 1999 and 1998 5
Statements of Cash Flows for the
Nine Months ended May 31, 1999 and 1998 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 13
Signatures 13
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1999 1998
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 84,137 $ 170,400
Inventories 118,225 70,602
Prepaid expenses and other current assets 18,555 12,251
--------- ----------
Total Current Assets 220,917 253,253
--------- ----------
EQUIPMENT, less accumulated depreciation 5,585 4,238
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$1,126,197 at May 31, 1999 and
$900,000 at August 31, 1998 381,783 600,000
Excess of reorganization value over net
assets, less accumulated amortization
of $158,265 at May 31, 1999 and
$126,613 at August 31, 1998 52,756 84,409
Security deposits 19,836 19,836
---------- ---------
454,375 704,245
---------- ---------
$ 680,877 $ 961,736
========== ==========
See accompanying notes to financial statements
Page 3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
1999 1998
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,326,268 $ 803,811
Accounts payable and accrued expenses 548,197 531,047
Loans and advances payable to stockholders 34,405 57,750
Deferred salaries 650,226 542,526
8% convertible debentures 436,002 436,002
---------- ---------
2,995,098 2,371,136
---------- ---------
SETTLED LIABILITIES, LESS CURRENT MATURITIES 85,879 658,363
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 13,334,582
shares at May 31, 1999 and
11,945,634 shares at August 31, 1998 2,666,916 2,389,127
Capital in excess of par value 813,287 297,595
Deficit accumulated in the development
stage (5,880,303) (4,754,485)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,400,100) (2,067,763)
---------- ----------
$ 680,877 $ 961,736
========== ==========
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
1999 1998 1999 1998 May 31,1999
---------- --------- --------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 122,696 $ 18,626 $ 6,796 $ 12,225 $ 562,337
---------- ---------- --------- --------- ----------
COSTS AND EXPENSES:
Cost of sales 50,358 8,782 3,058 5,903 310,923
Write-down of excess inventory - - - - 35,000
Selling, general and administrative 1,059,562 953,015 352,286 341,931 8,917,637
---------- ---------- --------- --------- ----------
1,109,920 961,797 355,344 347,834 9,263,560
---------- ---------- --------- --------- ----------
LOSS FROM OPERATIONS (987,224) (943,171) (348,548) (335,609) (8,701,223)
---------- ---------- --------- --------- ----------
OTHER EXPENSES:
Interest expense 139,369 179,496 48,153 55,834 921,646
Interest income (772) - (66) - (8,298)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- --------- --------- ----------
138,597 179,496 48,087 55,834 1,477,770
---------- ---------- --------- --------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,125,821) (1,122,667) (396,635) (391,443) (10,178,993)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- --------- --------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,125,821) (1,122,667) (396,635) (391,443) (11,614,385)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 507,952
---------- ---------- --------- --------- ----------
NET LOSS $(1,125,821) $(1,122,667) $(396,635) $(391,443) $(11,106,433)
========== ========== ========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,694,318 10,072,842 12,581,417 10,041,350
========== ========== ========= =========
EARNINGS (LOSS) PER SHARE $ (0.09) $ (0.11) $(0.03) $ (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
1999 1998 May 31, 1999
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,125,821) $(1,122,667) $(11,106,433)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 258,275 257,081 1,385,141
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities 50,968 113,060 615,378
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock released in exchange for
services - 69,200 131,700
Write-down of excess inventory - - 35,000
Changes in operating assets and
liabilities (net of effects from
reverse purchase acquisition)
Inventories (47,623) 12,730 (153,225)
Prepaid expenses (6,304) (1,412) (18,555)
Accounts payable and accrued
expenses 17,150 93,714 2,795,184
Security deposits - - (19,836)
Deferred salaries 107,700 113,853 650,226
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (745,655) (464,441) (5,460,324)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,773) (1,060) (30,634)
Increase in patent costs (7,980) - (139,270)
Acquisition accounted for as a
reverse purchase - - (517,893)
----------- --------- ----------
Net cash flows from investing activities (9,753) (1,060) (687,797)
----------- --------- ----------
</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
1999 1998 May 31, 1999
--------- --------- ----------
(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 (100,991) (281,851) (2,650,034)
Proceeds from issuance of common stock,
net of related expenses 793,481 756,579 6,980,772
Proceeds from issuance of long-term debt - - 785,113
Net loans and advances from stockholders (23,345) (3,250) 34,405
Proceeds from issuance of 8% convertible
debentures - - 436,002
---------- ---------- ----------
Net cash flows from financing activities 669,145 471,478 6,232,258
---------- ---------- ----------
NET CHANGE IN CASH (86,263) 5,977 84,137
CASH AT BEGINNING OF PERIOD 170,400 505 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 84,137 $ 6,482 $ 84,137
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 12,593 $ 8,408 $ 64,661
========== ========== ==========
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, net of unearned compensation $ - $ 69,200 $ 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, 1999
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, 1998 (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, 1999
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
for a fixed amount that would pay in full over a four year period virtually
all pre-petition claims known on the confirmation date. With additional
claims approved after that date considered, the fixed amount covered 94%
of the final approved claims.
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 obtaining
additional financing.
The Company has a liability for settled claims payable to creditors 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, 1999
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. Agreements
for future infusion of capital are discussed in the Management's
Discussion of Liquidity and Capital Resources section.
NOTE 5 - Warrants:
The Company has issued warrants for the purchase of common stock as
follows:
Shares Exercise Price
-------- --------------
2,400,000 $ .50
1,024,303 .72
4,544,718 1.00
40,000 1.25
178,500 1.50
3,447,275 2.00
35,000 2.50
422,500 3.00
50,000 3.25
12,000 5.00
----------
12,154,296
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. Since August 1995,
the Company has applied for seven patents, one of which was issued in 1998
and a second has been allowed so that a patent will be issued shortly. The
other five are pending. Additionally, one patent was purchased in the current
period. Continuing marketing efforts have brought the Company closer to
achieving significant sales for applications in such diverse industries as
high-speed ferries, naval and commercial ships, wood product building
components, concrete and structural steel column protections, automotive,
aircraft and consumer products. In the high-speed ferry project, the
Company's fire protection system recently passed stringent tests and was
approved for use by Transport of Canada. In the nuclear power generating
industry, an unrelated contractor has been awarded a contract to upgrade the
fire protection of electrical cables at a large U.S. nuclear power plant
specifying the Company's product. The first purchase order, valued at
$100,000, to provide materials for that contract was shipped in the quarter
ended February 28, 1999. The second order, also valued at about $100,000, is
scheduled for shipment in July 1999. Pre-production orders for about $10,000
were shipped or use in an application in the wood building products industry.
The Company believes that additional orders in these two areas, as well as
orders relative to several other projects, will be obtained in this fiscal
year. Obstacles encountered in obtaining these orders 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
continues to be cash infusion as discussed below in the section on Liquidity
and Capital Resources. The Company's products perform their intended uses
well and are beginning to 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 new market opportunities. The number of manufacturing and quality control
employees will increase with increased production. Generally, the salaried
administrative and marketing staff is anticipated to remain constant with
additional sales and marketing efforts provided by commissioned independent
contractors. An additional full-time executive with strong industrial
marketing experience is to begin employment in late July 1999.
COMPARISON NINE MONTHS ENDED MAY 31, 1999 AND MAY 31, 1998
The Company remained a development stage company. Sales of $122,696 for the
nine months ended May 31, 1999 represented an increase of $104,070 over
the $18,626 of the comparable nine-month period of the prior year. Cost of
goods sold during the same periods were $50,358 compared to $8,782, resulting
in a gross profit of $72,338 compared to $9,844 in the prior year. Selling,
general and administrative expenses for the nine months ended May 31,
1999 were $1,059,562 representing an increase of $106,547 or 11% from the
$953,015 of the similar period of the prior year. Most categories of expense
remained at relatively constant levels. The most significant changes were an
increase of $53,300 in marketing consulting fees and $47,200 in legal fees
mostly related to the infusion of new funds. Administrative salaries
were reduced by $45,000 which was partly offset by a $5,000 increase in a
consulting expense category.
Page 11
<PAGE>
COMPARISON THREE MONTHS ENDED MAY 31, 1999 AND MAY 31, 1998
Sales of $6,796 for the three months ended May 31, 1999 represented a
decrease of $5,429 from the $12,225 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods decreased $2,844
from $5,903 to $3,058 resulting in a 41% decrease in gross profit from $6,322
to $3,738. Selling, general and administrative expenses for the three months
ended May 31, 1999 were $352,286, representing an increase of $10,355 or 3%
from the $341,931 of the similar period of the prior year. Most categories
of expense remained at relatively constant levels. The most significant
changes were a $23,000 decrease in marketing consulting fees to $27,000
and an increase of $20,000 in legal fees mostly related to the infusion of
new funds.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999 the Company had cash balances of $84,137. In order to fund
continuing operations during the nine months ended on that date, $775,000 was
obtained by the private sales of unregistered common stock with warrants to a
group of accredited investors. Of these funds, $480,000 was obtained under an
agreement whereby this amount would be invested in exchange for 960,000 units
consisting of one share of common stock and five-year warrants to purchase 2.5
shares of common stock at an exercise price of $.50 per share. The additional
$295,000 was obtained under a second agreement whereby up to $800,000 would be
provided in exchange for 1,111,112 investment units consisting of one share of
common stock and warrants to purchase 2.5 shares of common stock at an
exercise price of $.72 per share. On July 1,1999, an additional $155,000 was
invested under this agreement. At the stockholders' meeting on March 19, 1999
the number of authorized shares of common stock was increased from 25,000,000
to 50,000,000 to accommodate these transactions as well as other stock
issuances that may be necessary in the future. Because of limited cash
resources, the Company has deferred payment of $730,716 of the second, third
and fouth installments of the Chapter 11 liability to unsecured creditors
that were due prior to the balance sheet date. In order to meet those
liabilities and meet working capital needs until more 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 dabt,
and the sale of equity securities in public and private offerings. The
investment group discussed above has advised the Company that it has in the
past and will continue to file all reports with the SEC that it deems
appropriate including Schedules 13D and Forms 3 and 4.
YEAR 2000 ISSUE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue. The
Year 2000 problem is the result of computer programs being written using
two digits rather than four digits to define the year. Any programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in major system failure or
miscalculations. The Company presently believes that the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems. However, there can be no assurance that the systems of other
companies on which the Company's systems rely also will be timely converted
or that any such failure to convert by another company would not have an
adverse effect on the Company's systems.
Page 12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended May 31,
1999.
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 12, 1999 NoFire Technologies, Inc.
By: /s/ Sam Oolie
Sam Oolie
Chairman and Chief
Executive Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Balance Sheet as of May 31, 1999 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> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 84,137
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 118,225
<CURRENT-ASSETS> 220,917
<PP&E> 30,634
<DEPRECIATION> 25,049
<TOTAL-ASSETS> 680,877
<CURRENT-LIABILITIES> 2,995,098
<BONDS> 0
0
0
<COMMON> 2,666,916
<OTHER-SE> (5,067,016)
<TOTAL-LIABILITY-AND-EQUITY> 680,877
<SALES> 122,696
<TOTAL-REVENUES> 122,696
<CGS> 50,358
<TOTAL-COSTS> 1,059,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 138,597
<INCOME-PRETAX> (1,125,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,125,821)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,125,821)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
