<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 February 28, 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: 13,105,415 shares of Common
Stock as of March 31, 1999.
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 February 28, 1999
and August 31, 1998 3
Statements of Operations for the
Six Months ended February 28, 1999
and 1998; and the Three Months ended
February 28, 1999 and 1998 5
Statements of Cash Flows for the
Six Months ended February 28, 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
February 28, August 31,
1999 1998
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 62,479 $ 170,400
Inventories 114,132 70,602
Prepaid expenses and other current assets 25,304 12,251
--------- ----------
Total Current Assets 201,915 253,253
--------- ----------
EQUIPMENT, less accumulated depreciation 5,727 4,238
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$1,050,000 at February 28, 1999 and
$900,000 at August 31, 1998 450,000 600,000
Excess of reorganization value over net
assets, less accumulated amortization
of $147,714 at February 28, 1999 and
$126,613 at August 31, 1998 63,307 84,409
Security deposits 19,836 19,836
---------- ---------
533,143 704,245
---------- ---------
$ 740,785 $ 961,736
========== ==========
See accompanying notes to financial statements
Page 3
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
February 28, August 31,
1999 1998
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,353,893 $ 803,811
Accounts payable and accrued expenses 544,175 531,047
Loans and advances payable to stockholders 51,131 57,750
Deferred salaries 612,531 542,526
8% convertible debentures 436,002 436,002
---------- ---------
2,997,732 2,371,136
---------- ---------
SETTLED LIABILITIES, LESS CURRENT MATURITIES 41,520 658,363
---------- ----------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 12,924,859
shares at February 28, 1999 and
11,945,634 shares at August 31, 1998 2,584,972 2,389,127
Capital in excess of par value 600,232 297,595
Deficit accumulated in the development
stage (5,483,671) (4,754,485)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,298,467) (2,067,763)
---------- ----------
$ 740,785 $ 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 Six Months For the Three Months Inception)
Ended February 28, Ended February 28, through
1999 1998 1999 1998 February 28 1999
---------- --------- --------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
NET SALES $ 115,900 $ 6,401 $108,740 $ 795 $ 555,541
COSTS AND EXPENSES:
Cost of sales 47,300 2,880 44,078 317 307,865
Write-down of excess inventory - - - - 35,000
Selling, general and administrative 707,276 611,083 342,911 310,698 8,565,351
---------- ---------- --------- --------- ----------
754,576 613,963 386,989 311,015 8,908,216
---------- ---------- --------- --------- ----------
LOSS FROM OPERATIONS (638,676) (607,562) (278,249) (310,220) (8,352,675)
---------- ---------- --------- --------- ----------
OTHER EXPENSES:
Interest expense 91,216 123,662 52,548 57,219 873,493
Interest income (706) - - - (8,232)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- --------- --------- ----------
90,510 123,662 52,534 57,219 1,429,683
---------- ---------- --------- --------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (729,186) (731,224) (330,783) (367,439) (9,782,358)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- --------- --------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (729,186) (731,224) (330,783) (367,439) (11,217,750)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 507,952
---------- ---------- --------- --------- ----------
NET LOSS $ (729,186) $ (731,224) $(330,783) $(367,439) $(10,709,798)
========== ========== ========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,468,515 9,914,263 12,403,548 9,865,731
========== ========== ========= =========
EARNINGS (LOSS) PER SHARE $ (0.06) $ (0.07) $ (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 Six Months Inception)
Ended February 28, through
1999 1998 February 28, 1999
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(729,186) $(731,224) $(10,709,798)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 171,385 172,509 1,298,251
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities 34,234 80,648 598,644
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock released 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)
Inventories (43,530) 10,603 (149,132)
Prepaid expenses (13,053) 3,587 (25,304)
Accounts payable and accrued
expenses 13,129 15,451 2,791,163
Security deposits - - (19,836)
Deferred salaries 70,005 76,158 612,531
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (497,016) (373,268) (5,211,685)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,773) (1,060) (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) (1,060) (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 Six Months Inception)
Ended February 28, through
1999 1998 February 28, 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 (100,994) (149,748) (2,650,037)
Proceeds from issuance of common stock,
net of related expenses 498,481 525,679 6,685,772
Proceeds from issuance of long-term debt - - 785,113
Net loans and advances from stockholders (6,619) 1,750 51,131
Proceeds from issuance of 8% convertible
debentures - - 436,002
---------- ---------- ----------
Net cash flows from financing activities 390,868 377,681 5,953,981
---------- ---------- ----------
NET CHANGE IN CASH (107,921) 3,353 62,479
CASH AT BEGINNING OF PERIOD 170,400 505 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 62,479 $ 3,858 $ 62,479
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 12,090 $ 4,477 $ 64,158
========== ========== ==========
Income taxes paid $ - $ - $ -
========== ========== ==========
Common stock issued in exchange
for settlement of debt $ 18,481 $ 110,679 $ 271,810
========== ========== ==========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
========== ========== ==========
Common stock issued in exchange for
services, net of unearned compensation $ - $ - $ 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)
February 28, 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)
February 28, 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 raising
additional financing.
The Company has a liability for settled claims payable to creditors and
accrued expenses incurred in connection with the Plan. Without the
achievement of profitable operations or additional financing, funds for
repayment would not be available.
Page 9
<PAGE>
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
February 28, 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. 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
-------- --------------
2,400,000 $ .50
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
----------
11,129,993
The warrants will vest to the holders in various intervals ranging
from issue date to three years from issuance.
Page 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company continued its product development and application testing. It
now has several certifications for specific applications and has filed for
five additional patents of which one was issued in 1998 and a second has been
allowed so that a patent will be issued shortly. 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 and automotive. 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. Pre-
production orders for about $10,000 were shipped for 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. The salaried administrative and marketing staff is anticipated
to remain constant with additional sales and marketing efforts provided by
commissioned independent contractors.
COMPARISON SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
The Company remained a development stage company. Sales of $115,900 for the
six months ended February 28, 1999 represented an increase of $109,499 over
the $6,401 of the comparable six-month period of the prior year. Cost of
goods sold during the same periods were $47,300 compared to $2,880, resulting
in a gross profit of $68,600 compared to $3,521 in the prior year. Selling,
general and administrative expenses for the six months ended February 28,
1999 were $707,276 representing an increase of $96,193 or 16% from the
$611,083 of the similar period of the prior year. Most categories of expense
remained at relatively constant levels. The most significant change was an
increase of $76,000 in marketing consulting fees. Administrative salaries
were reduced by $47,000 which was partly offset by a $10,000 increase in a
consulting expense category.
Page 11
<PAGE>
COMPARISON THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
Sales of $108,740 for the three months ended February 28, 1999 represented an
increase of $107,945 from the $795 for the comparable three-month period of
the prior year. Cost of goods sold during the same periods increased $43,761
from $317 to $44,078 resulting in an increase in gross profit of $64,662
compared to $478. Selling, general and administrative expenses for the three
months ended February 28, 1999 were $342,911, representing an increase of
$32,213 or 10% from the $310,698 of the similar period of the prior year. Most
categories of expense remained at relatively constant levels. The most
significant change was an increase in marketing consulting fees of $21,000 and
a reduction in administrative salaries of $15,000.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1999 the Company had cash balances of $62,479. In order to
fund continuing operations during the six months ended on that date, $480,000
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 whereby up to this $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 of common stock at an exercise
price of $.50 per share. Because of limited cash resources, the Company has
deferred payment of $730,617 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 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 debt, and the sale of equity securities
in a public or private offering. On March 22, 1999, that same investment
group agreed to provide up to an additional $800,000 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 unit.
At the stockholders' meeting on March 19, the number of authorized shares of
common stock was increased from 25,000,000 to 50,000,000 which accommodates
this transaction as well as other stock issuances that may be necessary. On
March 30,1999, $130,000 was invested under this agreement. The investment
group 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 February 28,
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: April 5, 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 February 28, 1999 and the unaudited
Statement of Operations for the six months then ended and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 62,479
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 114,132
<CURRENT-ASSETS> 201,915
<PP&E> 30,634
<DEPRECIATION> 24,907
<TOTAL-ASSETS> 740,785
<CURRENT-LIABILITIES> 2,997,732
<BONDS> 0
0
0
<COMMON> 2,584,972
<OTHER-SE> (4,883,439)
<TOTAL-LIABILITY-AND-EQUITY> 740,785
<SALES> 115,900
<TOTAL-REVENUES> 115,900
<CGS> 47,300
<TOTAL-COSTS> 707,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,510
<INCOME-PRETAX> (729,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (729,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (729,186)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
