10QSB 1 r10q0202.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 February 28, 2002 [ ] 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 April 8, 2002. 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 February 28, 2002 and August 31, 2001 3 Statements of Operations for the Six Months ended February 28, 2002 and 2001; and the Three months ended February 28, 2002 and 2001 5 Statements of Cash Flows for the Six Months ended February 28, 2002 and 2001 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 11 Signatures 12 Page 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS February 28, August 31, 2002 2001 ----------- ---------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash $ 24,333 $ 44,412 Accounts receivable - trade 13,085 22,453 Inventories 108,522 153,095 Prepaid expenses and other current assets 55,399 51,264 --------- ---------- Total Current Assets 201,339 271,224 --------- ---------- EQUIPMENT, less accumulated depreciation 9,980 11,143 --------- ---------- OTHER ASSETS: Patents, less accumulated amortization of $1,513,101 at February 28, 2002 and $1,509,798 at August 31, 2001 19,930 23,233 Security deposits 19,379 19,379 ---------- --------- 39,309 42,612 ---------- --------- $ 250,628 $ 324,979 ========== ========== See accompanying notes to financial statements Page 3 NOFIRE TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS February 28, August 31, 2002 2001 ----------- ---------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Settled liabilities $1,178,939 $1,187,503 Accounts payable and accrued expenses 869,901 768,485 Loans, and advances payable to stockholders 10,250 10,250 Deferred salaries 913,023 759,989 Loan Payable - 8% 60,000 - ---------- --------- 3,032,113 2,726,227 ---------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIENCY): Common stock $.20 par value: Authorized - 50,000,000 shares Issued and outstanding - 19,820,430 shares at February 28, 2002 and August 31, 2001 3,964,086 3,964,086 Capital in excess of par value 3,220,339 3,206,855 Deficit accumulated in the development stage (9,965,910) (9,572,189) ---------- ---------- Total Stockholders' Equity (Deficiency) (2,781,485) (2,401,248) ---------- ---------- $ 250,628 $ 324,979 ========== ========== 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 Six Months For the Three Months Inception) Ended February 28, Ended February 28, through 2002 2001 2002 2001 February 28, 2002 ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) NET SALES $ 103,758 141,002 $ 42,670 $ 103,782 $ 1,156,856 ---------- ---------- ---------- ---------- ---------- COSTS AND EXPENSES: Cost of sales 56,676 65,108 22,638 48,350 612,869 Write-down of excess inventory - - - - 55,000 General and administrative 584,910 677,068 297,270 303,236 13,257,364 ---------- ---------- ---------- ---------- ---------- 641,586 742,176 319,908 351,586 13,925,233 ---------- ---------- ---------- ---------- ---------- LOSS FROM OPERATIONS (537,828) (601,174) (277,238) (247,804) (12,768,377) ---------- ---------- ---------- ---------- ---------- OTHER EXPENSES: Interest expense 62,157 104,947 29,528 54,586 1,368,512 Interest income (304) (4,932) (202) (2,939) (23,987) Reorganization items - - - - 365,426 Litigation settlement - - - - 198,996 ---------- ---------- ---------- ---------- ---------- 61,853 100,015 29,326 51,647 1,908,947 ---------- ---------- ---------- ---------- ---------- LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (599,681) (701,189) (306,564) (299,451) (14,677,324) DISCONTINUED OPERATIONS - - - - (1,435,392) ---------- ---------- ---------- ---------- ---------- LOSS BEFORE EXTRAORDINARY ITEM (599,681) (701,189) (306,564) (299,451) (16,112,716) EXTRAORDINARY ITEM - Gain on debt discharge - - - - 507,952 ---------- ---------- ---------- ---------- ---------- LOSS BEFORE INCOME TAXES (599,681) $ (701,189) $ (306,564) $ (299,451) $(15,604,764) DEFERRED INCOME TAX BENEFIT 205,960 206,767 - - 412,727 ---------- ---------- ---------- ---------- ---------- NET LOSS $ (393,721) $ (494,422) $ (306,564) $ (299,451) $(15,192,037) ========== ========== ========== ========== ========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 19,820,430 16,628,151 19,820,430 16,626,651 ========== ========== ========== ========== EARNINGS (LOSS) PER SHARE, BASIC AND DILUTED $ (0.02) $ (0.03) $ (0.02) $ (0.02) ========== ========== ========== ==========
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 Six Months Inception) Ended February 28, through 2002 2001 February 28, 2002 --------- --------- ---------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (393,721) $ (494,422) $(15,192,037) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization 4,466 4,465 1,830,484 Extraordinary gain on debt discharge - - (507,952) Amortization of interest expense for settled liabilities - - 634,522 Amortization of interest expense for discount on note payable 13,484 - 13,484 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 9,368 (62,569) (13,085) Inventories 44,573 (26,407) (163,522) Prepaid expenses (4,135) (91) (55,398) Accounts payable and accrued expenses 101,415 (41,524) 3,348,891 Security deposits - - (19,379) Deferred salaries 153,034 - 913,023 Obligation from discontinued operations - - 51,118 ---------- --------- ---------- Net cash flows from operating activities (71,515) (610,468) (8,281,141) ---------- --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment - - (40,712) Increase in patent costs - - (164,320) Acquisition accounted for as a reverse purchase - - (517,893) ----------- --------- ---------- Net cash flows from investing activities - - (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 Six Months Inception) Ended February 28, through 2002 2001 February 28, 2002 --------- --------- ---------- (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 (8,564) (11,687) (2,883,909) Proceeds from issuance of common stock, net of related expenses - - 8,474,943 Payments on advances from stockholders - - (60,750) Loans and advances from stockholders - - 79,053 Interest accrued on loans from stockholders - - (8,053) Proceeds from issuance of convertible debentures - 600,000 1,936,002 Proceeds from short-term loans 60,000 - 60,000 ---------- ---------- ---------- Net cash flows from financing activities 51,436 588,313 9,028,399 ---------- ---------- ---------- NET CHANGE IN CASH (20,079) (22,155) 24,333 CASH AT BEGINNING OF PERIOD 44,412 103,607 - ---------- ---------- ---------- CASH AT END OF PERIOD $ 24,333 $ 81,452 $ 24,333 ========== ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 4,393 $ 2,108 $ 78,514 ========== ========== ========== Income taxes paid (benefit) $ (205,960) $ (206,767) $ (412,727) ========== ========== ========== Common stock issued in exchange for settlement of debt and accrued interest $ - $ - $2,439,816 ========== ========== ========== 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) February 28, 2002 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, 2001 (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 accounting principles generally accepted in the United States of America 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) February 28, 2002 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/or 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: In September 2001, the Company received $150,000 from an accredited investor in exchange for a note bearing interest at 8% and payable no later than January 31, 2002. The Company also granted to the investor a warrant for the purchase of 100,000 shares of the Company's common stock at an exercise price of $0.20 per share. Accordingly, the note was discounted to reflect the calculated fair value of the warrant issued. In November 2001, the expiration date for warrants to purchse 885,000 shares of the Company's common stock, granted from October 1996 to June 1997, was extended to November 2006. In addition, these warrants were repriced whereby the exercise price was reduced from $2.00 per share to $0.35 per share. At February 28, 2002, no additional expense exists relating to the repricing because the calculated fair value of the repriced warrants is less than the fair value of the warrants as originally issued. In November 2001, the Company issued warrants to the Chief Executive Officer of the Company to purchase 100,000 shares of the Company's common stock for $0.35 per share, expiring in five years. The warrants vest immediately. In December 2001, the Company issued warrants to four employees and two outside directors to purchase a total of 80,000 shares of the Company's common stock for $0.40 per share, expiring in five years. The warrants vest immediately. Also in December 2001, warrants for 323,500 shares expired. 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 have been passed and approvals received 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 the decisions not to use any fire retardant product. In general, the Company's products perform their intended uses well and are 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 independent commission agents or employees compensated principally by commission. COMPARISON SIX MONTHS ENDED FEBRUARY 28, 2002 AND FEBRUARY 28, 2001 Sales of $103,758 for the six months ended February 28, 2002 represented a decrease of $37,244 or 26% from the $141,002 of the comparable six-month period of the prior year. Cost of goods sold during the same periods were $56,676 compared to $65,108, resulting in a gross profit of $47,082 compared to $75,894 in the prior year. General and administrative expenses for the six months ended February 28, 2002 were $584,910 representing a decrease of $92,158 or 13% from the $677,068 of the similar period of the prior year. The most significant changes were decreases of $31,700 in marketing costs, $16,600 in legal costs and $15,400 in travel expenses. Page 10 The convertible debentures issued during the period in 2001 were converted into common stock prior to the start of the period this year which conversion accounted for the major part of the $42,790 decrease in interest expense between the periods. During the periods in both 2001 and 2002, the Company realized about $206,000 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 FEBRUARY 28, 2002 AND FEBRUARY 28, 2001 Sales of $42,670 for the three months ended February 28, 2002 represented a decrease of $61,112 or 59% from the $103,782 for the comparable three-month period of the prior year. Cost of goods sold for the same periods decreased to $22,638 from $48,350, resulting in a gross profit of $20,032 compared to $55,432 in the similar period of the prior year. General and administrative expenses for the three months ended February 28, 2002 were $297,270 representing a decrease of $5,966 or 2% from the $303,236 of the similar period of the prior year. There was no significant change in any specific category of expense. The convertible debentures issued during the period in 2001 were converted into common stock prior to the start of the period this year which conversion accounted for the major part of the $25,058 decrease in interest expense between the periods. LIQUIDITY AND CAPITAL RESOURCES At February 28, 2002 the Company had cash balances of $24,333. In order to fund continuing operations during the six months ended on that date, $150,000 was obtained through a sale of a note to an accredited investor. $90,000 of principal was repaid during the period. The note bears interest of 8%, and was due no later than January 31, 2002. The $60,000 balance has no specific maturity date. The principal repayment was made from the proceeds of the fiscal 2002 sale of the state operating loss carryforward described above. The remaining balance is unsecured. The Company has deferred payment of $1,178,939 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 requisite financing ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended February 28, 2002. Page 11 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: April 8, 2002 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