10QSB 1 r10q0501.txt 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. ------------------------- (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: 19,820,430 shares of Common Stock as of June 30, 2001. 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, 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 --------- ---------- EQUIPMENT, less accumulated depreciation 11,724 13,466 --------- ---------- 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 ---------- --------- 44,263 49,218 ---------- --------- $ 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 ---------- --------- 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) ----------- --------- ---------- Net cash flows from investing activities - (7,928) (722,925) ----------- --------- ----------
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