<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, 2000
[ ] 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 (IRS Employer
incorporation or organization) Identification No.)
21 Industrial Avenue, Upper Saddle River, New Jersey 07458
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(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
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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
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State the number of shares of each of the issuer's classes of common equity
outstanding at the latest practicable date: 16,595,151 shares of Common
Stock as of July 6, 2000.
Transitional Small Business Disclosure Format (check one):
YES NO X
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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, 2000
and August 31, 1999 3
Statements of Operations for the Nine Months
ended May 31, 2000 and 1999; and the
Three months ended May 31, 2000 and
1999 5
Statements of Cash Flows for the Nine Months
ended May 31, 2000 and 1999 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
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
2000 1999
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 51,329 $ 338,089
Inventory 125,858 91,003
Prepaid expenses and other current assets 58,153 43,397
--------- ----------
Total Current Assets 235,340 472,489
--------- ----------
EQUIPMENT, less accumulated depreciation 13,915 7,333
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$1,427,793 at May 31, 2000 and
$1,201,596 at August 31, 1999 80,187 306,384
Excess of reorganization value over net
assets, less accumulated amortization
of $200,469 at May 31, 2000 and
$168,816 at August 31, 1999 10,552 42,205
Security deposits 19,836 19,836
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110,575 368,425
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$ 359,830 $ 848,247
========== ==========
See accompanying notes to financial statements
Page 3
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NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
2000 1999
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,224,360 $1,395,037
Accounts payable and accrued expenses 679,219 647,535
Loans and advances payable to
stockholders 10,250 26,250
Deferred salaries 650,226 650,226
8% convertible debentures - 436,002
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Total Current Liabilities 2,564,055 3,155,050
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SETTLED LIABILITIES, LESS CURRENT MATURITIES 4,572 23,912
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 16,595,151
shares at May 31, 2000 and
14,035,974 at August 31, 1999 3,319,030 2,807,195
Capital in excess of par value 2,319,748 1,158,217
Deficit accumulated in the development
stage (7,847,575) (6,296,127)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,208,797) (2,330,715)
---------- ----------
$ 359,830 $ 848,247
========== ==========
See accompanying notes to financial statements
Page 4
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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
2000 1999 2000 1999 May 31, 2000
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES $ 91,417 $ 122,696 $ 27,691 $ 6,796 $ 763,006
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 45,400 50,358 14,012 3,058 422,694
Write-down of excess inventory - - - - 35,000
General and administrative 1,508,116 1,059,562 546,822 352,286 10,833,892
---------- ---------- ---------- ---------- ----------
1,553,516 1,109,920 560,834 355,344 11,291,586
---------- ---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (1,462,099) (987,224) (533,143) (348,548) (10,528,580)
---------- ---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest expense 93,917 139,369 35,476 48,153 1,067,540
Interest income (4,568) (772) (2,762) (66) (14,280)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- ---------- ---------- ----------
89,349 138,597 32,714 48,087 1,617,682
---------- ---------- ---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,551,448) (1,125,821) (565,857) (396,635) (12,146,262)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,551,448) (1,125,821) (565,857) (396,635) (13,581,654)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 507,952
---------- ---------- ---------- ---------- ----------
NET LOSS $(1,551,448) $(1,125,821) $ (565,857) $ (396,635) $(13,073,702)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 15,224,352 12,694,318 14,881,652 12,581,417
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE, BASIC
AND DILUTED $ (0.10) $ (0.09) $ (0.04) $ (0.03)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
Page 5
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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
2000 1999 May 31, 2000
--------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,551,448) $(1,125,821) $(13,073,702)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 259,196 258,275 1,730,690
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities - 50,968 634,522
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 (34,855) (47,623) (160,858)
Prepaid expenses (14,756) (6,304) (58,153)
Accounts payable and accrued
expenses 169,048 17,150 3,063,570
Security deposits - - (19,836)
Deferred salaries - 107,700 650,226
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (1,172,815) (745,655) (6,841,745)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (7,928) (1,773) (40,712)
Increase in patent costs - (7,980) (139,270)
Acquisition accounted for as a
reverse purchase - - (517,893)
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Net cash flows from investing activities (7,928) (9,753) (697,875)
----------- --------- ----------
</TABLE>
See accompanying notes to financial statements
Page 6
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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
2000 1999 May 31, 2000
--------- --------- ----------
(UNAUDITED) (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 (190,017) (100,994) (2,833,916)
Proceeds from issuance of common stock,
net of related expenses 1,100,000 793,481 8,547,500
Proceeds from issuance of long-term debt - - 785,113
Net loans and advances from stockholders (16,000) (23,345) 10,250
Issuance (repayment) of 8% convertible
debentures - 436,002
---------- ---------- ----------
Net cash flows from financing activities 893,983 669,145 7,590,949
---------- ---------- ----------
NET CHANGE IN CASH (286,760) (86,263) 51,329
CASH AT BEGINNING OF PERIOD 338,089 170,400 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 51,329 $ 84,137 $ 51,329
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 7,405 $ 12,593 $ 69,779
========== ========== ==========
Income taxes paid $ - $ - $ -
========== ========== ==========
Common stock issued in exchange
for settlement of debt and
accrued interest $ 573,366 $ 18,481 $ 845,176
========== ========== ==========
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
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NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2000
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, 1999 (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.
Effective August 6, 1991, PNF acquired 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. Both of those subsidiaries were
dissolved during the fiscal year ended August 31, 1997.
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. 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. As of
that date, the Company adopted "fresh start reporting" and implemented the
effects of such adoption in its balance sheet as of August 31, 1995.
Page 8
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NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2000
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 its reorganization under the Plan. Without the achievement of
profitable operations or additional financing, funds for repayment would not
be available.
Management believes that actions it has undertaken to revise the Company's
operating and marketing structure should provide it with the opportunity to
generate revenues and improve its operating performance. Agreements for
future infusion of capital and issuance of convertible debentures are
discussed in the Management's Discussion of Liquidity and Capital Resources
section.
Page 9
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NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2000
NOTE 5 - Warrants:
The Company has issued warrants for the purchase of common stock as follows:
Shares Exercise Price
---------- --------------
2,400,000 $ .50
800,000 .5625
4,104,480 .67
2,777,780 .72
22,500 .75
4,564,718 1.00
52,000 1.25
978,500 1.50
3,459,275 2.00
35,000 2.50
1,222,500 3.00
50,000 3.25
12,000 5.00
----------
20,478,753
The warrants vest to the holders in various intervals ranging from issue date
to seven years from issuance.
Page 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company continued its product development and application testing, and now
has several certifications for specific applications. Since August 1995, the
Company has applied for eight patents, four of which have been issued and one
other has been allowed so that a patent will be issued shortly. The other
three are pending. Additionally, one patent has been purchased by the
Company. The Company is substantially increasing its marketing efforts
principally by retaining the services of specialized marketing firms. The
Company's management believes that marketing efforts to date have brought the
Company closer to achieving significant sales for applications in diverse
industries including: military, shipping, wood products, structural steel and
nuclear power plants.
One version of the Company's principal product, designed for military
applications, was recently listed in the U.S. Navy's Qualified Product List
(QPL) and was also accepted for listing by the General Service Administration
for all U.S. Government applications. The principal product has received type
approval according to the International Maritime Organization's SOLAS codes by
the U.S. Coast Guard, and by three of the world's major ship registries.
Additionally, the product was approved by Det Norske Veritas for distribution
in the European Community (EC). Aggressive marketing efforts are underway to
obtain orders for applications in the Navy and other military and governmental
agencies. In the high-speed ferry project, the Company's fire protection
system has passed stringent tests and was approved for use by Transport of
Canada. In the nuclear power generating industry, an unaffiliated contractor
has been qualified to upgrade the fire protection of electrical cables at U.S.
nuclear power plants specifying the Company's product. The first purchase
orders, valued at $190,000, to provide materials for that application were
shipped in the last fiscal year. Obstacles encountered in obtaining orders
are the continuing tests and approvals required, competition against well
established and better capitalized companies, cost, and the slow process of
specifying new products in highly regulated industrial applications.
In general, 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's most pressing need continues to be cash infusion as discussed below
in the section on Liquidity and Capital Resources. 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 will be
evaluated and may be increased to support sales and marketing initiatives.
Additional sales and marketing support is expected to be provided by
commissioned independent agents.
COMPARISON NINE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
Sales of $91,417 for the nine months ended May 31, 2000 represented a decrease
of $31,279 from the $122,696 of the comparable nine month period of the prior
year. Cost of goods sold during the same periods were $45,400 compared to
$50,358, resulting in a gross profit of $46,017 compared to $72,338 in the
prior year. General and administrative expenses for the nine months ended May
31, 2000 were $1,508,116 representing an increase of $448,554 or 42% from the
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$1,059,562 of the similar period of the prior year. The most significant
increases were $186,000 in officers' salaries, $65,500 in testing expenses,
$80,000 for marketing costs including trade shows, and $57,500 in travel
expenses The $45,452 reduction in interest expense is mainly the result of
the elimination in the later period of the amortization of interest expense
for settled Chapter 11 liabilities.
COMPARISON THREE MONTHS ENDED MAY 31, 2000 AND MAY 31, 1999
Sales of $27,691 for the three months ended May 31, 2000 represented an
increase of $20,895 from the $6,796 for the comparable three-month period of
the prior year. Cost of goods sold for the same periods increased to $14,012
from $3,058, resulting in a gross profit of $13,679 compared to $3,738 in the
similar period of the prior year. General and administrative expenses for the
three months ended May 31, 2000 were $546,822 representing an increase of
$194,536 or 55% from the $352,286 of the similar period of the prior year.
The most significant increases were $56,500 in officers' salaries, $35,000 in
testing expenses, $33,000 in marketing and trade shows, and $32,400 in travel
expenses. The $12,677 reduction in interest expense is mainly the result of
the elimination in the later period of the amortization of interest expense
for settled Chapter 11 liabilities.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2000 the Company had cash balances of $51,329. In order to
fund continuing operations during the nine months ended on that date,
$1,100,000 was obtained by the sale of 1,641,791 units consisting of one share
of common stock and five-year warrants to purchase two and one-half shares at
an exercise price of $.67 per share. This sale was to a group of accredited
investors. In another agreement, at their option or when certain
sales criteria are met, that investment group will invest an additional
$650,000 in exchange for 866,667 units consisting of one share of common stock
and five-year warrants for two and one-half shares at an exercise price of
$0.75 per share. The investment group has advised the Company that it has and
will continue to file all reports with the SEC that it deems appropriate
including Schedule 13D and Forms 3 and 4. Because of the Company's limited
cash resources, it has deferred payment of $1,198,304 of the installments
of the Chapter 11 liability to unsecured creditors that were due in September
1996, 1997, 1998 and 1999. Of that deferred amount, $790,686 is due to
officers and directors of the Company. On January 31, 2000, the Company
issued 917,385 shares of its common stock upon the conversion of $436,002 8%
debentures along with $137,364 of accrued interest on that debt. In order to
meet its liabilities and 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
agreements noted above. There is no assurance that the Company will be
successful in securing requisite financing. On June 8, 2000 the Company
issued $500,000 of it's convertible debentures to the group of investors
described above. The debentures are convertible into common stock at a price
of $0.5938 per share. They bear interest at 1/2% over the prime rate and
mature on June 8, 2001. If interest payments are current, the Company can
have the note extended to December 31, 2001. The Company also has the right
to require conversion of the debentures at any time.
Page 12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended May 31, 2000.
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 6, 2000 NoFire Technologies, Inc.
By: /s/ Robert R. Isen
Robert R. Isen
Chief Executive Officer
By: /s/ Sam Oolie
Sam Oolie
Chairman of the Board,
Chief Operating Officer
and Treasurer
Page 13
