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, 1996 [ ] 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 --- --- Page 1 State the number of shares of each of the issuer's classes of common equity outstanding at the latest practicable date: 9,104,500 shares of Common Stock as of December 31, 1996. Transitional Small Business Disclosure Format (check one): YES NO X --- --- NOFIRE TECHNOLOGIES, INC. FORM 10-QSB INDEX PART I - FINANCIAL INFORMATION PAGE Item 1. Unaudited Consolidated Financial Statements: Consolidated Balance Sheets as of November 30, 1996 and August 31, 1996 3 Consolidated Statements of Operations for the Three Months ended November 30, 1996 and 1995 5 Consolidated Statements of Cash Flows for the Three Months ended November 30, 1996 and 1995 6 Notes to Unaudited Consolidated 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) CONSOLIDATED BALANCE SHEETS November 30, August 31, 1996 1996 ------------ ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 1,037 $ 2,474 Inventory 63,112 56,761 Prepaid expenses and other current assets 6,825 7,722 --------- ---------- Total Current Assets 70,974 66,957 --------- ---------- EQUIPMENT, less accumulated depreciation 6,836 6,240 --------- ---------- OTHER ASSETS: Patents, less accumulated amortization of $375,000 at November 30, 1996 and $300,000 at August 31, 1996 1,125,000 1,200,000 Security deposits 18,473 18,473 Excess of reorganization value over net assets, less accumulated amortization of $52,755 at November 30,1996 and $42,204 at August 31, 1996 158,266 168,817 ---------- --------- 1,301,739 1,387,290 ---------- --------- $1,379,549 $1,460,487 ========== ========== See accompanying notes to consolidated financial statements Page 3 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) CONSOLIDATED BALANCE SHEETS November 30, August 31, 1996 1996 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Current portion of settled liabilities $ 751,878 $ 592,853 Accounts payable and accrued expenses 383,672 323,773 Due to stockholders 72,253 76,253 Deferred salaries 244,818 200,970 Other current liabilities 20,000 20,000 ---------- -------- 1,472,621 1,213,849 ---------- --------- OTHER LIABILITIES Settled liabilities, less current maturities 1,553,360 1,895,089 Convertible debentures - 8% due January 31, 1999 436,002 436,002 ---------- ---------- 1,989,362 2,331,091 ---------- ---------- STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.20 par value: Authorized - 25,000,000 shares Issued and outstanding - 8,954,500 shares at November 30, 1996 and 8,549,500 shares at August 31, 1996 1,790,900 1,709,900 Capital deficiency (1,790,909) (2,114,908) Retained earnings (deficit) (2,064,569) (1,634,802) Unearned stock compensation (17,856) (44,643) ---------- ---------- Total Stockholders' Equity (Deficiency) (2,082,434) (2,084,453) ---------- ---------- $1,379,549 $1,460,487 ========== ========== See accompanying notes to consolidated financial statements Page 4 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) CONSOLIDATED STATEMENTS OF OPERATIONS Cumulative During For the Three Months Development Ended November 30, Stage 1996 1995 (Since Inception) --------- --------- ---------- (UNAUDITED) NET SALES $ 22,113 $ 4,290 $ 380,038 COSTS AND EXPENSES: Cost of sales 10,440 2,729 234,194 Selling, general and administrative 371,473 398,831 5,562,192 --------- --------- --------- 381,913 401,560 5,796,386 --------- --------- --------- LOSS FROM OPERATIONS (359,800) (397,270) (5,416,348) --------- --------- --------- OTHER EXPENSES: Interest expense 69,970 58,843 330,894 Interest income - - (6,774) Reorganization items - - 365,426 Litigation settlement - - 198,996 --------- --------- ---------- 69,970 58,843 888,542 --------- --------- ---------- LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (429,770) (456,113) (6,304,890) DISCONTINUED OPERATIONS - - (1,435,392) --------- --------- ---------- LOSS BEFORE EXTRAORDINARY ITEM (429,770) (456,113) (7,740,282) EXTRAORDINARY ITEM - Gain on debt discharge - - 449,583 --------- --------- ----------- NET LOSS $(429,770) $(456,113) $(7,290,699) ========= ========= =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 8,747,000 8,187,000 ========= ========= EARNINGS (LOSS) PER SHARE $ (0.05) $ (0.06) ========= ========= See accompanying notes to consolidated financial statements Page 5 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) CONSOLIDATED STATEMENTS OF CASH FLOWS Cumulative During For the Three Months Development Ended November 30, Stage 1996 1995 (Since Inception) --------- --------- ---------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(429,770) $(456,113) $(7,290,699) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 86,439 86,301 524,803 Extraordinary gain on debt discharge - - (449,583) Interest expense incurred to state settled liabilities at present value 57,921 55,659 266,179 Revaluation of assets and liabilities to fair value - - 482,934 Litigation settlement - - 198,996 Common stock released in exchange for services 26,787 - 44,644 Changes in operating assets and liabilities (net of effects from reversed purchase acquisition) Inventory (6,351) (6,065) (63,112) Prepaid expenses 897 10,822 (6,825) Accounts payable and accrued expenses 59,900 (71,493) 2,650,660 Security deposits - (3,204) (18,473) Deferred salaries 43,848 43,848 244,818 Obligation from discontinued operations - - 51,118 ---------- --------- --------- Net cash flows from operating activities (160,329) (340,245) (3,364,540) ---------- ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (1,483) - (28,252) Increase in patent costs - - (131,290) Acquisition accounted for as a reverse purchase - - (517,893) ---------- ---------- ---------- Net cash flows from investing activities (1,483) - (677,435) ---------- ---------- ---------- See accompanying notes to consolidated financial statements Page 6 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) CONSOLIDATED STATEMENTS OF CASH FLOWS Cumulative During For the Three Months Development Ended November 30, Stage 1996 1995 (Since Inception) ---------- ---------- ---------- (UNAUDITED) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds of notes payable - - 721,000 Payments on notes payable - - (75,000) Payment of settled liabilities (240,625) 1,105,035) (1,672,696) Proceeds from issuance of common stock 405,000 - 3,681,340 Collection of stock subscription receivable - 95,000 95,000 Proceeds from issuance of long-term debt - - 785,113 Advances received from stockholders (4,000) 50,000 72,253 Proceeds from issuance of 8% convertible debentures - - 436,002 ---------- ---------- ---------- Net cash flows from financing activities 160,375 (960,035) 4,043,012 ---------- ---------- ---------- NET CHANGE IN CASH (1,437) (1,300,280) 1,037 CASH AT BEGINNING OF PERIOD 2,474 1,496,442 - ---------- ---------- ---------- CASH AT END OF PERIOD $ 1,037 $ 196,162 $ 1,037 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 2,809 $ 21,111 $ 35,640 ========== ========== ========== Income taxes paid $ - $ - $ - ========== ========== ========== Common stock issued in exchange for settlement of debt $ - $ - $ 46,750 ========== ========== ========== Common stock issued in exchange for subscriptions receivable $ - $ - $ 95,000 ========== ========== ========== Common stock issued in exchange for services, net of unearned compensation $ 26,787 $ - $ 44,644 ========== ========== ========== See accompanying notes to consolidated financial statements Page 7 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) November 30, 1996 NOTE 1 - Basis of Presentation: The balance sheet at the end of the preceding fiscal year has been derived from the audited consolidated balance sheet contained in the Company's Form 10-KSB for the year ended August 31, 1996 (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. Page 8 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) November 30, 1996 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 that virtually all pre-petition claims of the Company would be paid in full over a four-year period. 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 NOFIRE TECHNOLOGIES, INC. AND SUBSIDIARIES (Development Stage Companies) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) November 30, 1996 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. NOTE 5 - Warrants: The Company has issued warrants for the purchase of common stock as follows: Shares Exercise Price -------- -------------- 990,000 $1.00 802,500 2.00 35,000 2.50 50,000 3.00 50,000 3.25 12,000 5.00 --------- 1,939,500 The warrants will vest to the holders in various intervals ranging from issue date to three 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 improvement and testing. It now has several certifications for specific applications and has filed for two additional patents. Continuing marketing efforts have brought the Company closer to achieving significant sales for applications in such diverse industries as high-speed ferries, nuclear generation plants, electric utilities, low-cost manufactured homes, and automotive. The Company believes that important supply contracts will be obtained from one or more of these areas in this fiscal year permitting the Company to leave the development stage. The greatest obstacles to obtaining such contracts are the continuing tests and approvals required and the high price of the product. The Company's most pressing need is a cash infusion as discussed below in the section on Liquidity and Capital Resources. The Company's product line has been developed to the stage where it can be sold commercially in a form that is safe, easy to use and performs its intended function well. 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 ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995 The Company remained a development stage company. Sales of $22,113 for the three months ended November 30, 1996 represented an increase of 416% from the $4,290 for the comparable three-month period of the prior year. Cost of goods sold during the same periods increased 283% from $2,729 to $10,440 resulting in a gross profit of $11,673 compared to $1,561 in the prior year. Selling, general and administrative expenses for the three- months ended November 30, 1996 were $371,473 representing a decrease of $27,358 or 7% from the $398,831 of the similar period of the prior year. The difference is generally represented by modest excess expenses in the earlier period to bring the operating company out of the bankruptcy trusteeship. Interest expense of $69,970 in the current period was an increase of $11,127 or 19% from the $58,843 of the similar period of the prior year. The change is represented primarily by the interest expense accrued on the convertible debentures issued in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES At November 30, 1996 the Company had cash balances of $1,037. In order to fund continuing operations during the quarter ended on that date, $405,000 was obtained by the private sales of unregistered common stock with warrants to several qualified investors. Because of limited cash resources, the Company has deferred payment of $334,594 of the second installment of the Chapter 11 liability to unsecured creditors that was due in late September 1996. In order to meet that liability and meet working capital needs until significant sales levels are achieved, the Company will continue to explore alternative sources of Page 11 funding including exercise of warrants, bank and other borrowings, issuance of convertible debentures and the sale of equity securities in a public or private offering. Through December 31, 1996, an additional $150,000 was obtained in private sales of unregistered common stock with warrants to qualified investors. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended November 30, 1996. 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 7, 1997 NoFire Technologies, Inc. By: /s/ Sam Oolie Sam Oolie Chairman and Chief Executive Officer By: /s/ Charles R. Stone Charles R. Stone Vice President and Chief Financial Officer (Chief Accounting Officer) Page 12