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, 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: 20,466,110 shares of Common
Stock as of June 27, 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 May 31, 2002
and August 31, 2001 3
Statements of Operations for the Nine Months
ended May 31, 2002 and 2001; and the
Three months ended May 31, 2002 and
2001 5
Statements of Cash Flows for the Nine Months
ended May 31, 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
May 31, August 31,
2002 2001
----------- ----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 103,714 $ 44,412
Accounts receivable - trade 12,463 22,453
Inventories 114,785 153,095
Prepaid expenses and other current assets 53,120 51,264
--------- ----------
Total Current Assets 284,082 271,224
--------- ----------
EQUIPMENT, less accumulated depreciation 9,399 11,143
--------- ----------
OTHER ASSETS:
Patents, less accumulated amortization of
$1,514,753 at May 31, 2002 and
$1,509,798 at August 31, 2001 18,278 23,233
Security deposits 19,379 19,379
---------- ---------
37,657 42,612
---------- ---------
$ 331,138 $ 324,979
========== ==========
See accompanying notes to financial statements
Page 3
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
May 31, August 31,
2002 2001
----------- ----------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Settled liabilities $1,178,432 $1,187,503
Accounts payable and accrued expenses 948,665 768,485
Loans, and advances payable to
stockholders 10,250 10,250
Deferred salaries 993,910 759,989
Loan Payable - 8% 60,000 -
---------- ---------
3,191,257 2,726,227
---------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.20 par value:
Authorized - 50,000,000 shares
Issued and outstanding - 20,466,110
shares at May 31, 2002 and
19,820,430 at August 31, 2001 4,093,222 3,964,086
Capital in excess of par value 3,291,203 3,206,855
Deficit accumulated in the development
stage (10,244,544) (9,572,189)
---------- ----------
Total Stockholders' Equity (Deficiency) (2,860,119) (2,401,248)
---------- ----------
$ 331,138 $ 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 Nine Months For the Three Months Inception)
Ended May 31, Ended May 31, through
2002 2001 2002 2001 May 31, 2002
---------- ---------- ---------- ---------- ----------
(UNAUDITED) (UNAUDITED)
NET SALES $ 165,836 $ 171,641 $ 62,078 $ 30,639 $ 1,218,934
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of sales 87,680 79,849 31,004 14,741 643,873
Write-down of excess inventory - - - - 55,000
General and administrative 871,237 1,000,937 286,326 323,869 13,543,691
---------- ---------- ---------- ---------- ----------
958,917 1,080,786 317,330 338,610 14,242,564
---------- ---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (793,081) (909,145) (255,252) (307,971) (13,023,630)
---------- ---------- ---------- ---------- ----------
OTHER EXPENSES:
Interest expense 85,616 162,826 23,459 57,879 1,391,971
Interest income (382) (6,244) (78) (1,312) (24,065)
Reorganization items - - - - 365,426
Litigation settlement - - - - 198,996
---------- ---------- ---------- ---------- ----------
85,234 156,582 23,381 56,567 1,932,328
---------- ---------- ---------- ---------- ----------
LOSS BEFORE DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (878,315) (1,065,727) (278,633) (364,538) (14,955,958)
DISCONTINUED OPERATIONS - - - - (1,435,392)
---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (878,315) (1,065,727) (278,633) (364,538) (16,391,350)
EXTRAORDINARY ITEM - Gain on
debt discharge - - - - 507,952
---------- ---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (878,315) $(1,065,727) $ (278,633) $ (364,538) $(15,883,398)
DEFERRED INCOME TAX BENEFIT 205,960 206,767 - - 412,727
---------- ---------- ---------- ---------- ----------
NET LOSS $ (672,355) $ (858,960) $ (278,633) $ (364,538) $(15,470,671)
========== ========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 19,856,301 16,629,151 19,838,366 16,628,651
========== ========== ========== ==========
EARNINGS (LOSS) PER SHARE, BASIC
AND DILUTED $ (0.03) $ (0.05) $ (0.01) $ (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 Nine Months Inception)
Ended May 31, through
2002 2001 May 31, 2002
--------- --------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (672,355) $ (858,960) $(15,470,671)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation and amortization 6,699 6,697 1,832,717
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 9,990 (7,342) (12,463)
Inventories 38,310 (54,818) (169,785)
Prepaid expenses (1,856) 364 (53,120)
Accounts payable and accrued
expenses 180,180 (49,181) 3,427,656
Security deposits - - (19,379)
Deferred salaries 233,921 - 993,910
Obligation from discontinued
operations - - 51,118
---------- --------- ----------
Net cash flows from operating activities (191,627) (953,160) (8,401,253)
---------- --------- ----------
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 Nine Months Inception)
Ended May 31, through
2002 2001 May 31, 2002
--------- --------- ----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - - 1,506,113
Principal payments on notes payable - - (75,000)
Principal payments of settled liabilities (9,071) (17,730) (2,884,416)
Proceeds from issuance of common stock,
net of related expenses 200,000 - 8,674,943
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 - 1,000,000 1,936,002
Proceeds from short-term loan 150,000 - 150,000
Principal payment on short-term loan (90,000) - (90,000)
---------- ---------- ----------
Net cash flows from financing activities 250,929 982,270 9,227,892
---------- ---------- ----------
NET CHANGE IN CASH 59,302 29,110 103,714
CASH AT BEGINNING OF PERIOD 44,412 103,607 -
---------- ---------- ----------
CASH AT END OF PERIOD $ 103,714 $ 132,717 $ 103,714
========== ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 5,397 $ 2,752 $ 79,538
========== ========== ==========
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)
May 31, 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.
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. Without
achieving these, there is substantial doubt about the Company's ability to
continue as a going concern.
Page 8
NOFIRE TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
May 31, 2002
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 terms were modified, and the $60,000 remaining balance
has no specific maturity date. 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 purchase 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
May 31, 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.
In May 2002, as part of the sale of units described in Note 5 to the
Financial Statements, the Company issued five-year warrants for the
purchase of 454,318 shares of its common stock at an exercise price of
$0.50 per share.
NOTE 5 - Common Stock:
During May 2002, additional funding of $200,000 was obtained by the sale of
645,680 units consisting of one share of common stock and five-year warrants
to purchase 0.70363 shares at an exercise price of $0.50 per share. The
sales were made to three accredited investors.
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 NINE MONTHS ENDED MAY 31, 2002 AND MAY 31, 2001
Sales of $165,836 for the nine months ended May 31, 2002 represented a
decrease of $5,805 or 3% from the $171,641 of the comparable nine-month
period of the prior year. Cost of goods sold during the same periods were
$87,680 compared to $79,849, resulting in a gross profit of $78,156 compared
to $91,792 in the prior year. General and administrative expenses for the
nine months ended May 31, 2002 were $871,237 representing a decrease of
$129,700 or 13% from the $1,000,937 of the similar period of the prior year.
The most significant changes were decreases of $49,700 in marketing costs,
$25,500 in professional fees and $21,700 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 $77,210 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 MAY 31, 2002 AND MAY 31, 2001
Sales of $62,078 for the three months ended May 31, 2002 represented an
increase of $31,439 or 103% from the $30,639 for the comparable three-month
period of the prior year. Cost of goods sold for the same periods increased
to $31,004 from $14,741, resulting in a gross profit of $31,074 compared to
$15,898 in the similar period of the prior year. General and administrative
expenses for the three months ended May 31, 2002 were $286,326 representing a
decrease of $37,543 or 12% from the $323,869 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 $34,420 decrease in interest
expense between the periods.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 2002 the Company had cash balances of $103,714. In order to
fund continuing operations during the nine 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 terms were modified,
and the $60,000 balance now 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.
During May 2002, additional funding of $200,000 was obtained by the sale of
645,680 units consisting of one share of common stock and five-year warrants
to purchase 0.70363 shares at an exercise price of $0.50 per share. The
sales were made to three accredited investors.
The Company has deferred payment of $1,178,432 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 May 31, 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: July 2, 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