<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 November 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________
Commission File Number: 0-19945
NoFire Technologies, Inc.
-------------------------
(Name of small business issuer in its charter)
Delaware 22-3218682
--------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Industrial Avenue, Upper Saddle River, New Jersey 07458
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (201) 818-1616
-------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
--- ---
Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by the Court.
YES X NO
--- ---
State the number of shares of each of the issuer's classes of common equity
outstanding at the latest practicable date: 12,704,859 shares of Common
Stock as of December 31, 1998.
Transitional Small Business Disclosure Format (check one):
YES NO X
--- ---
Page 1
<PAGE>
NOFIRE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements:
Balance Sheets as of November 30, 1998
and August 31, 1998 3
Statements of Operations for the Three Months
ended November 30, 1998 and 1997 5
Statements of Cash Flows for the
Three Months ended November 30, 1998 and 1997 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
November 30, August 31,
1998 1998
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 74,370 $ 170,400
Inventory 79,736 70,602
Prepaid expenses and other current assets 17,957 12,251
--------- ----------
Total Current Assets 172,063 253,253
--------- ----------
EQUIPMENT, less accumulated depreciation 5,869 4,238
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$975,000 at November 30, 1998 and
$900,000 at August 31, 1998 525,000 600,000
Excess of reorganization value over net
assets, less accumulated amortization
of $137,164 at November 30, 1998 and
$126,613 at August 31, 1998 73,858 84,409
Security deposits 19,836 19,836
---------- ---------
618,694 704,245
---------- ---------
$ 796,626 $ 961,736
========== ==========
See accompanying notes to financial statements
Page 3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
November 30, August 31,
1998 1998
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,370,953 $ 803,811
Accounts payable and accrued expenses 495,238 523,483
Loans, accrued interest and advances
due to stockholders 58,212 65,314
Deferred salaries 580,221 542,526
8% convertible debentures 436,002 436,002
---------- ---------
2,940,626 2,371,136
---------- ---------
SETTLED LIABILITIES, LESS CURRENT MATURITIES 43,685 658,363
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 12,484,859
shares at November 30, 1998 and
11,945,634 shares at August 31, 1998 2,496,972 2,389,127
Capital in excess of par value 468,231 297,595
Deficit accumulated in the development
stage (5,152,888) (4,754,485)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,187,685) (2,067,763)
---------- ----------
$ 796,626 $ 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 Three Months Inception)
Ended November 30, through
1998 1997 November 30, 1998
---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES $ 7,160 $ 5,606 $ 446,801
---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 3,222 2,562 263,787
Write-down of excess inventory - - 35,000
General and administrative 364,365 300,386 8,222,440
---------- ---------- ----------
367,587 302,948 8,521,227
---------- ---------- ----------
LOSS FROM OPERATIONS (360,427) (297,342) (8,074,426)
---------- ---------- ----------
OTHER EXPENSES:
Interest expense 38,668 66,443 820,945
Interest income (692) - (8,218)
Reorganization items - - 365,426
Litigation settlement - - 198,996
---------- ---------- ----------
37,976 66,443 1,377,149
---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (398,403) (363,785) (9,451,575)
DISCONTINUED OPERATIONS - - (1,435,392)
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (398,403) (363,785) (10,886,967)
EXTRAORDINARY ITEM - Gain on
debt discharge - - 507,952
---------- ---------- ----------
NET LOSS $ (398,403) $ (363,785) $(10,379,015)
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,142,107 9,742,200
========== ==========
EARNINGS (LOSS) PER SHARE, BASIC
AND DILUTED $ (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 Three Months Inception)
Ended November 30, through
1998 1997 November 30, 1998
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (398,403) $ (363,309) $(10,379,015)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 85,692 85,676 1,212,558
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities 17,117 46,084 581,527
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock issued in exchange for
services - - 131,700
Write-down of excess inventory - - 35,000
Changes in operating assets and liabilities
(net of effects from reverse purchase
acquisition)
Inventory (9,134) 6,430 (114,736)
Prepaid expenses (5,706) (1,942) (17,957)
Accounts payable and accrued
expenses (28,245) (7,330) 2,749,789
Security deposits - (500) (19,836)
Deferred salaries 37,695 43,848 580,221
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (300,984) (191,519) (5,015,653)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,773) - (30,634)
Increase in patent costs - - (131,290)
Acquisition accounted for as a
reverse purchase - - (517,893)
----------- --------- ----------
Net cash flows from investing activities (1,773) - (679,817)
----------- --------- ----------
</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 Three Months Inception)
Ended November 30, through
1998 1997 November 30, 1998
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - - 721,000
Principal Payments on notes payable - - (75,000)
Principal Payment of settled liabilities (46,171) (15,924) (2,595,214)
Proceeds from issuance of common stock,
net of related expenses 260,000 200,000 6,447,291
Proceeds from issuance of long-term debt - - 785,113
Net loans and advances from stockholders (7,102) 7,850 50,648
Proceeds from issuance of 8% convertible
debentures - - 436,002
---------- ---------- ----------
Net cash flows from financing activities 206,727 191,926 5,769,840
---------- ---------- ----------
NET CHANGE IN CASH (96,030) 407 74,370
CASH AT BEGINNING OF PERIOD 170,400 505 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 74,370 $ 912 $ 74,370
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 9,524 $ 2,303 $ 61,592
========== ========== ==========
Income taxes paid $ - $ - $ -
========== ========== ==========
Common stock issued in exchange
for settlement of debt $ 18,481 $ - $ 271,810
========== ========== ==========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
========== ========== ==========
Common stock issued in exchange for
services $ - $ - $ 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)
November 30, 1998
NOTE 1 - Basis of Presentation:
The balance sheet at the end of the preceding fiscal year has been
derived from the audited balance sheet contained in the Company's Form
10-KSB for the year ended August 31, 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)
November 30, 1998
On August 31, 1994, involuntary petitions for relief under Chapter 11 of
the Code were filed against the Company and certain of its subsidiaries.
Under the provisions of the Code, claims against the Company in
existence prior to the Petition Date were stayed. The Company continued
its business operations and was managed by a Bankruptcy Trustee. On
April 7, 1995 the Bankruptcy Court confirmed the Plan. The Plan provided
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 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 raising
additional financing.
The Company has a liability for settled claims payable to creditors and
accrued expenses incurred in connection with its reorganization under
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)
November 30, 1998
Management believes that actions currently being undertaken to obtain
significant sales contracts will provide it with the opportunity to
realize profitable operations and to attract the necessary financing
and/or capital for the payment of outstanding obligations. An agreement
for future infusion of capital is 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
-------- --------------
1,300,000 $ .50
4,544,718 1.00
170,000 1.50
3,447,275 2.00
35,000 2.50
422,500 3.00
50,000 3.25
12,000 5.00
---------
9,981,493
The warrants vest to the holders in various intervals ranging from
issue date to three years from issuance.
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company continued its product development and application testing. It
now has several certifications for specific applications and has filed for
five additional patents, one of which has led to the issuance of a patent.
Continuing marketing efforts have brought the Company closer to achieving
significant sales for applications in such diverse industries as high-speed
ferries and naval ships, electric utilities, wood product building components,
concrete and structural steel column protection, and automotive. In the
nuclear power generating industry, an unrelated contractor has been awarded a
contract to upgrade the fire protection of control wiring at a large U.S.
nuclear power plant specifying the Company's product. The first purchase
order, valued at $100,000, has been issued to the Company for shipment
scheduled for the second quarter of the present fiscal year. Additional
orders totaling about $550,000 for material required to complete the contract
are expected through this fiscal year and into the first quarter of the next
fiscal year. The Company also believes that contracts will be awarded by
other nuclear power plants as well as other industries in this fiscal year.
The greatest obstacles to obtaining these other contracts are the continuing
tests and approvals required, competition against well established and better
capitalized companies, and the slow process of specifying new products in
highly regulated industrial applications. The Company's most pressing need is
cash infusion as discussed below in the section on Liquidity and Capital
Resources. The Company's products perform their intended uses well and have
been developed to the stage where they can be sold commercially in a form that
is safe and easy to use. The Company intends to continue its research and
testing efforts to meet market opportunities. The number of manufacturing and
quality control employees will increase with increased production. The salaried
administrative and marketing staff is anticipated to remain constant with
additional sales and marketing efforts provided by commissioned independent
contractors.
COMPARISON THREE MONTHS NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
Sales of $7,160 for the three months ended November 30, 1998 represented an
increase of 28% from the $5,606 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods increased 26%
from $2,562 to $3,222 resulting in a gross profit of $3,938 compared to
$3,044 in the prior year. Selling, general and administrative expenses for
the three months ended November 30, 1998 were $364,365, representing an
increase of $63,979 or 21% from the $300,386 of the similar period of the
prior year. Most categories of expense remained at constant levels. The most
significant change was an increase in consulting fees of $64,500, $55,300 of
which was for marketing consultants and $9,200 for financial consultants.
Expense reductions were $12,100 in officers' salaries resulting from the
retirement on November 30, 1997, of the former Vice President and Chief
Financial Officer. The $27,775 reduction in interest expense is represented
mainly by the smaller amortization of interest expense for settled Chapter 11
liabilities.
Page 11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1998 the Company had cash balances of $74,370. In order to
fund continuing operations during the three months ended on that date,
$260,000 was obtained by the private sales of unregistered common stock with
warrants to a group of accredited investors. These funds were obtained under
an agreement dated October 26, 1998 whereby up to $480,000 would be invested
in increments as required in exchange for 960,000 units consisting of one
share of common stock and five-year warrants to purchase 2.5 shares at an
exercise price of $.50 per share. Because of limited cash resources, the
Company has deferred payment of $760,957 of the second, third and fourth
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 significant sales levels are achieved,
the Company will continue to explore alternative sources of funding
including exercise of warrants, bank and other borrowings, issuance of
convertible debentures, issuance of common stock to settle debt, and the
sale of equity securities in a public or private offering such as sales under
the agreement noted above. Subsequent to November 30, 1998, an additional
$110,000 was obtained under that agreement. The investment group has advised
the Company that it filed all reports with the SEC that they deemed 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 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 hat any such failure to convert by
another company would not have an adverse effect on the Company's systems.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended November 30,1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: January 13, 1999 NoFire Technologies, Inc.
By: /s/ Sam Oolie
Sam Oolie
Chairman and Chief
Executive Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Balance Sheet as of November 30, 1998 and the unaudited Statement of
Operaions for the three months then ended and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 74,370
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 79,736
<CURRENT-ASSETS> 172,063
<PP&E> 30,634
<DEPRECIATION> 24,765
<TOTAL-ASSETS> 796,626
<CURRENT-LIABILITIES> 2,940,626
<BONDS> 0
0
0
<COMMON> 2,496,972
<OTHER-SE> (4,684,657)
<TOTAL-LIABILITY-AND-EQUITY> 796,626
<SALES> 7,106
<TOTAL-REVENUES> 7,106
<CGS> 3,222
<TOTAL-COSTS> 364,365
<OTHER-EXPENSES> (692)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,668
<INCOME-PRETAX> (398,403)
<INCOME-TAX> 0
<INCOME-CONTINUING> (398,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (398,403)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
