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 ----------------------------------------------------------- (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: 16,595,151 shares of Common Stock as of July 6, 2000. Transitional Small Business Disclosure Format (check one): YES NO X --- --- Page 1 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 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 ---------- --------- 110,575 368,425 ---------- --------- $ 359,830 $ 848,247 ========== ========== See accompanying notes to financial statements Page 3 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 ---------- --------- Total Current Liabilities 2,564,055 3,155,050 ---------- --------- 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 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF OPERATIONS 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) 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) ========== ========== ========== ========== See accompanying notes to financial statements Page 5 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS July 13, 1987 (Date of For the Nine Months Inception) Ended May 31, through 2000 1999 May 31, 2000 --------- --------- ---------- (UNAUDITED) (UNAUDITED) 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) ----------- --------- ---------- Net cash flows from investing activities (7,928) (9,753) (697,875) ----------- --------- ---------- See accompanying notes to financial statements Page 6 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS July 13,1987 (Date of For the Nine Months Inception) Ended May 31, through 2000 1999 May 31, 2000 --------- --------- ---------- (UNAUDITED) (UNAUDITED) 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 ========== ========== ========== See accompanying notes to financial statements Page 7 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 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 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 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 Page 11 $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 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