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, 2001
[ ] 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.
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(Name of small business issuer in its charter)
Delaware 22-3218682
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(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
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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: 19,820,430 shares of Common
Stock as of June 30, 2001.
Transitional Small Business Disclosure Format (check one):
YES NO X
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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, 2001
and August 31, 2000 3
Statements of Operations for the Nine Months
ended May 31, 2001 and 2000; and the Three
Months ended May 31, 2001 and 2000 5
Statements of Cash Flows for the Nine Months
ended May 31, 2001 and 2000 6
Notes to Unaudited Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Page 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31 August 31,
2001 2000
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 132,717 $ 103,607
Accounts receivable - trade 31,054 23,712
Inventory 157,512 102,694
Prepaid expenses and other current assets 54,158 54,522
--------- ----------
Total Current Assets 375,441 284,535
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EQUIPMENT, less accumulated depreciation 11,724 13,466
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OTHER ASSETS:
Patents, less accumulated amortization of
$1,508,147 at May 31, 2001 and
$1,503,192 at August 31, 2000 24,884 29,839
Security deposits 19,379 19,379
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44,263 49,218
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$ 431,428 $ 347,219
========== ==========
See accompanying notes to financial statements
Page 3
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
2001 2000
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Current portion of settled liabilities $1,193,686 $1,211,416
Accounts payable and accrued expenses 746,678 795,859
Loans, and advances payable to
stockholders 10,250 10,250
Deferred salaries 650,226 650,226
Convertible debentures - 1/2%
over prime, due within one
year 1,500,000 500,000
---------- ---------
4,100,840 3,167,751
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OTHER LIABILITIES: - -
---------- ---------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 16,631,151
shares at May 31, 2001 and
16,595,151 at August 31, 2000 3,326,230 3,319,030
Capital in excess of par value 2,250,071 2,247,191
Deficit accumulated in the development
stage (9,245,713) (8,386,753)
---------- ----------
Total Stockholders' Equity (Deficiency) (3,669,412) (2,820,532)
---------- ----------
$ 431,428 $ 347,219
========== ==========
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
2001 2000 2001 2000 May 31, 2001
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
NET SALES $ 171,641 $ 91,417 $ 30,639 $ 27,691 $ 985,554
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 79,849 45,400 14,741 14,012 529,821
Write-down of excess inventory - - - - 55,000
General and administrative 1,000,937 1,508,116 323,869 546,822 12,341,178
---------- ---------- ---------- ---------- ----------
1,080,786 1,553,516 338,610 560,834 12,925,999
---------- ---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (909,145) (1,462,099) (307,971) (533,143) (11,940,445)
---------- ---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest expense 162,826 93,917 57,879 35,476 1,269,405
Interest income (6,244) (4,568) (1,312) (2,762) (23,105)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- ---------- ---------- ----------
156,582 89,349 56,567 32,714 1,810,722
---------- ---------- ---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (1,065,727) (1,551,448) (364,538) (565,857) (13,751,167)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,065,727) (1,551,448) (364,538) (565,857) (15,186,559)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 507,952
---------- ---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (1,065,727) $(1,551,448) (364,538) (565,857) (14,678,607)
DEFERRED INCOME TAX BENEFIT 206,767 - - - 206,767
---------- ---------- ---------- ---------- ----------
NET LOSS $ (858,960) $(1,551,448) $ (364,538) $ (565,857) $(14,471,840)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 16,629,151 15,224,352 16,628,651 14,881,652
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE, BASIC
AND DILUTED $ (0.05) $ (0.10) $ (0.02) $ (0.04)
========== ========== ========== ==========
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
2001 2000 May 31, 2001
--------- --------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (858,960) $(1,551,448) $(14,471,840)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 6,697 259,196 1,823,786
Extraordinary gain on debt discharge - - (507,952)
Amortization of interest expense for
settled liabilities - - 634,522
Revaluation of assets and liabilities
to fair value - - 482,934
Litigation settlement - - 198,996
Common stock issued in exchange for
services 10,080 - 141,780
Write-down of excess inventory - - 55,000
Changes in operating assets and liabilities
(net of effects from reverse purchase
acquisition)
Accounts receivable - trade (7,342) - (31,054)
Inventory (54,818) (34,855) (212,512)
Prepaid expenses 364 (14,756) (54,158)
Accounts payable and accrued
expenses (49,181) 169,048 3,131,029
Security deposits - - (19,379)
Deferred salaries - - 650,226
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (953,160) (1,172,815) (8,127,504)
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment - (7,928) (40,712)
Increase in patent costs - - (164,320)
Acquisition accounted for as a
reverse purchase - - (517,893)
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Net cash flows from investing activities - (7,928) (722,925)
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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
2001 2000 May 31, 2001
--------- --------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - - 1,506,113
Principal Payments on notes payable - - (75,000)
Principal Payment of settled liabilities (17,730) (190,017) (2,869,162)
Proceeds from issuance of common stock,
net of related expenses - 1,100,000 8,474,943
Payments on advances from stockholders - (16,000) (60 750)
Loans and advances from stockholders - - 79,053
Interest accrued on loans from
stockholders - - (8,053)
Proceeds from issuance of convertible
debentures 1,000,000 - 1,936,002
---------- ---------- ----------
Net cash flows from financing activities 982,270 893,983 8,983,146
---------- ---------- ----------
NET CHANGE IN CASH 29,110 (286,760) 132,717
CASH AT BEGINNING OF PERIOD 103,607 338,089 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 132,717 $ 51,329 $ 132,717
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 2,752 $ 7,405 $ 73,978
========== ========== ==========
Income taxes paid (benefit) $ (206,767) $ - $ (206,767)
========== ========== ==========
Common stock issued in exchange
for settlement of debt and
accrued interest $ - $ 573,366 $ 845,176
========== ========== ==========
Common stock issued in exchange
for subscriptions receivable $ - $ - $ 95,000
========== ========== ==========
Common stock issued in exchange for
services $ 10,080 $ - $ 141,780
========== ========== ==========
See accompanying notes to financial statements
Page 7
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2001
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, 2000 (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:
The Company owned 89% of the outstanding common stock of both No Fire Ceramic
Products, Inc. and No Fire Engineering, Inc. together with an option to
acquire the remaining 11% of such stock. Both of those subsidiaries were
dissolved during the fiscal year ended August 31, 1997.
Under a Chapter 11 proceeding, the Bankruptcy Court confirmed a Plan of
Reorganization for the Company which became effective on August 11, 1995.
Claims of creditors, to the extent allowed under the Plan, were required to be
paid over a four year period.
Page 8
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2001
NOTE 3 - 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 successful passing of stringent tests, obtaining
various civil and government approvals, and actions it has undertaken to
revise the Company's operating and marketing structure, should provide it with
the opportunity to generate revenues needed to realize profitable operations
and to attract the necessary financing and/or capital for the payment of
outstanding obligations.
NOTE 4 - Warrants:
The Company has issued warrants for the purchase of common stock as follows:
Shares Exercise Price
---------- --------------
40,000 $ .40
2,940,000 .50
700,000 .5625
4,104,480 .67
2,777,780 .72
22,500 .75
4,668,718 1.00
52,000 1.25
178,500 1.50
3,435,275 2.00
422,500 3.00
----------
19,341,753
The warrants vest to the holders in various intervals ranging from issue date
to seven years from issuance.
Page 9
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 numerous certifications for specific applications. Since August 1995, the
Company has applied for eight patents, five of which have been issued. 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 distribution firms. The
Company's management believes that marketing efforts to date have brought the
Company closer to achieving greater sales for applications in many diverse
industries including: military, maritime, wood products, structural steel and
nuclear power plants. Significant tests were passed and approvals received in
the past fiscal year to qualify the Company's products in naval and other
military and governmental applications. Aggressive marketing efforts are
underway to obtain orders in these applications. Obstacles encountered in
obtaining orders for most applications are the continuing tests and approvals
required, competition against well established and better capitalized
companies, cost, the slow process of specifying new products in highly
regulated industrial applications, and decisions not to use any fire retardant
product.
In general, the Company's products perform their intended uses well and are
being 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 is limiting its
research and development efforts in order to concentrate on sales of existing
products. While new market opportunities frequently arise, the Company has
opted to concentrate on targeting sales of present products rather than
developing new products. Efforts to establish additional U.S. distributors are
being accelerated. Additional efforts are also being directed to increase
international sales by establishing distributor relationships in strategic
locations throughout the industrialized world.
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 support for direct sales is expected to be provided by commissioned
independent agents or new full time employees on a heavily weighted commission
basis.
COMPARISON NINE MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000
Sales of $171,641 for the nine months ended May 31, 2001 represented an
increase of $80,224 or 88% from the $91,417 of the comparable nine-month period
of the prior year. Cost of goods sold during the same periods were $79,849
compared to $45,400, resulting in a gross profit of $91,792 compared to
$46,017 in the prior year. General and administrative expenses for the nine
months ended May 31, 2001 were $1,000,937 representing a decrease of
$507,179 or 34% from the $1,508,116 of the similar period of the prior year.
The most significant change was a decrease of $252,895 in the amortization of
patents and other assets. The value of those assets was established at the
conclusion of the Chapter 11 proceeding in 1995 and was amortized over five
years ending in fiscal 2000. Other decreases were $57,600 in testing expenses,
$38,800 in legal fees, $37,000 in marketing consultants, $34,900 in travel
expenses and $31,000 in officer salaries and bonuses.
Page 10
The $68,909 increase in interest expense mainly results from the interest
accrued on the new convertible debentures. During the period ended in 2001,
the Company realized $206,767 through the sale of a portion of its New Jersey
Net Operating Loss Carry Forward under a program sponsored by that state.
COMPARISON THREE MONTHS ENDED May 31, 2001 AND MAY 31, 2000
Sales of $30,639 for the three months ended May 31, 2001 represented an
increase of $2,948 from the $27,691 for the comparable three-month period of
the prior year. The later year's sales were comprised of shipments to twice
the number of customers as the earlier period. Cost of goods sold for the
same periods increased to $14,741 from $14,012, resulting in a gross profit of
$15,898 compared to $13,679 in the similar period of the prior year. General
and administrative expenses for the three months ended May 31, 2001 were
$323,869 representing a decrease of $222,953 or 41% from the $546,822 of the
similar period of the prior year. The most significant decrease was $84,300
in the amortization of patents and other assets. The value of those assets was
established at the conclusion of the Chapter 11 proceeding in 1995 and was
amortized over five years ending in fiscal 2000. Other decreases were $37,000
in marketing consulting fees and $31,100 in testing costs. The $22,403
increase in interest expense mainly results from the interest accrued on the
new convertible debentures.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2001 the Company had cash balances of $132,717. In order to fund
continuing operations during the nine months ended on that date, $1,000,000 was
obtained through issuance of convertible debentures. The debentures are
convertible into common stock at a price of $0.50 per share, bear interest at
1/2% over the prime rate and mature on April 30, 2002. If interest payments
are current, the Company may extend the maturity to December 31, 2002. The
issuance was to an accredited investor who has advised the Company that it has
and will continue to file all reports with the SEC that it deems appropriate
including Schedules 13D and Forms 3 and 4. An additional $206,767 was obtained
through the sale of a portion of the Company's New Jersey Operating Loss Carry
Forward as described above. On June 22, 2001, all convertible debentures and
interest accrued on them were converted into 3,189,279 shares of common stock.
Because of its limited cash resources, the Company has deferred payment of
$1,187,503 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. In
order to pay 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. There is no
assurance that the Company will be successful in securing adequate financing
.
Page 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended May 31, 2001.
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 11, 2001 NoFire Technologies, Inc.
By: /s/ William A. Retz
William A. Retz
Chief Executive Officer
By: /s/ Sam Oolie
Sam Oolie
Chairman of the Board,
Chief Operating Officer
and Treasurer
Page 12