<PAGE>
UNITED STATES 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 December 31, 1995
------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________________
Commission file number 0-17569
---------------------------
FIBERCHEM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 84-1063897
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1181 Grier Drive, Suite B, Las Vegas, Nevada 89119
(Address of principal executive offices)
(702) 361-9873
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
------ -------
As of February 12, 1996, the issuer had 20,622,407 shares of Common Stock,
par value $.0001 per share, issued and outstanding.
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
December 31, September 30,
1995 1995
--------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $541,331 $911,186
Note receivable from sale of subsidiary 106,390 106,390
Accounts receivable, net of allowance for doubtful
accounts of $111,716 as of December 31, 1995
and September 30, 1995 723,952 565,766
Inventories 977,831 991,302
Other 223,255 109,844
--------------- -------------
Total current assets 2,572,759 2,684,488
--------------- -------------
Equipment 570,716 570,716
Less accumulated depreciation (447,718) (433,285)
--------------- -------------
Net equipment 122,998 137,431
--------------- -------------
Other assets:
Interest receivable on notes receivable
for exercise of options 148,414 129,580
Certificate of deposit - security for note payable 18,000 18,000
Technology costs, net of accumulated
amortization of $327,325 at December 31, 1995
and $317,942 at September 30, 1995 142,381 151,764
Patent costs, net of accumulated amortization of
$1,266,888 at December 31, 1995 and
$1,207,163 at September 30, 1995 540,156 574,736
--------------- -------------
Total other assets 848,951 874,080
--------------- -------------
$3,544,708 $3,695,999
--------------- -------------
--------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(UNAUDITED)
December 31, September 30,
1995 1995
-------------- ----------------
<S> <C> <C>
Current liabilities:
Current installments of note payable $6,832 $6,832
Accounts payable 181,943 176,774
Accrued expenses 578,400 287,507
------------- -------------
Total current liabilities 767,175 471,113
Note payable, net of current installments 8,202 9,866
------------- -------------
Total liabilities 775,377 480,979
------------- -------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized
10,000,000 shares; 229,676 and 214,462 convertible
shares issued and outstanding at December 31, 1995
and September 30, 1995, respectively;
at liquidation value 3,445,140 3,216,930
Common stock, $.0001 par value. Authorized 40,000,000
and 30,000,000 shares at December 31, 1995 and
September 30, 1995, respectively; 20,611,844 and
20,532,033 shares issued and outstanding at
December 31, 1995 and September 30, 1995, respectively 2,060 2,053
Additional paid-in capital 24,673,805 24,844,392
Treasury stock - preferred, 10,000 shares at cost (150,000) (150,000)
Deficit (23,617,195) (23,094,922)
------------- -------------
4,353,810 4,818,453
Notes receivable for exercise of options (1,583,854) (1,597,837)
Deferred compensation (625) (5,596)
------------- -------------
Total stockholders' equity 2,769,331 3,215,020
------------- -------------
$3,544,708 $3,695,999
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three month period ended
-------------------------------------
December 31, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Revenues $503,341 $184,520
Cost of revenues 210,436 88,538
Gross profit 292,905 95,982
---------------- ----------------
Operating expenses:
Research, development and engineering 272,472 311,582
General and administrative 317,688 359,363
Sales and marketing 261,174 165,964
---------------- ----------------
Total operating expenses 851,334 836,909
---------------- ----------------
Loss from operations (558,429) (740,927)
---------------- ----------------
Other income (expense):
Interest expense (1,640) (1,570)
Interest income 37,796 65,050
Other, net -- 204
---------------- ----------------
Total other income (expense) 36,156 63,684
---------------- ----------------
Net loss ($522,273) ($677,243)
---------------- ----------------
---------------- ----------------
Shares of common stock used in computing loss per share 20,588,080 20,183,300
---------------- ----------------
---------------- ----------------
Net loss per share ($0.03) ($0.03)
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
<TABLE>
<CAPTION>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
Preferred Stock Common Stock Additional
------------------------ ---------------------- Paid-In
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 214,462 $3,216,930 20,532,033 $2,053 24,844,392
Preferred stock dividend:
In stock 15,214 228,210 -- -- (228,210)
In cash -- -- -- -- (23,645)
Common stock issued:
For services -- -- 5,204 1 6,667
Exercise of options -- -- 73,576 6 73,570
Exercise of warrants 1,031 -- 1,031
Payments received on notes receivable for
exercise of options -- -- -- -- --
Deferred compensation earned -- -- -- -- --
Net loss -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 229,676 3,445,140 20,611,844 2,060 24,673,805
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Treasury Notes
Stock - Receivable
Preferred for Exercise Deferred
Stock Deficit of Options Compensation Total
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1995 (150,000) (23,094,922) (1,597,837) (5,596) 3,215,000
Preferred stock dividend:
In stock -- -- -- -- --
In cash -- -- -- -- (23,645)
Common stock issued:
For services -- -- -- -- 6,668
Exercise of options -- -- -- -- 73,576
Exercise of warrants 1,031
Payments received on notes receivable for
exercise of options -- -- 13,983 -- 13,963
Deferred compensation earned -- -- -- 4,971 4,971
Net loss -- (522,273) -- -- (522,273)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 (150,000) (23,617,195) (1,583,854) (625) 2,769,331
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three month period ended
----------------------------------
December 31, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss (522,273) (677,243)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Depreciation 14,433 13,822
Amortization 69,108 69,434
Accrued interest on notes receivable for exercise of options (26,854) --
Common stock issued for services 23,044 64,395
Changes in assets and liabilities:
Increase in accounts receivable (158,186) (48,389)
Decrease (increase) in inventories 13,471 (151,285)
Increase in other current assets (113,411) (32,607)
Increase in accounts payable 5,169 22,746
Increase (decrease) in accrued expenses 290,893 (36,766)
-------------- --------------
Net cash used in operating activities (404,606) (775,893)
-------------- --------------
Cash flows from investing activities:
Purchase of equipment -- (1,907)
Payments for patents (25,145) (14,753)
-------------- --------------
Net cash used in investing activities (25,145) (16,660)
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements
(continued)
6
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three month period ended
----------------------------------
December 31, December 31,
1995 1994
---------------- ----------------
<S> <C> <C>
Cash flows from financing activities:
Payments on note payable (1,664) --
Proceeds from the exercise of options and warrants 74,607 --
Proceeds from the issuance of common stock and warrants -- 11,750
Proceeds from interest and notes receivable for exercise of options 10,598 5,155
Payment of dividend on preferred stock (23,645) (53,339)
Purchase of treasury stock - preferred -- (150,000)
------------ ------------
Net cash provided by (used in) financing activities 59,896 (186,434)
------------ ------------
Net decrease in cash and cash equivalents (369,855) (978,987)
Cash and cash equivalents at beginning of period 911,186 3,477,103
------------ ------------
Cash and cash equivalents at end of period $541,331 $2,498,116
------------ ------------
------------ ------------
Supplemental Cash Flow Information
Noncash investing and financing activities:
Preferred stock issued as dividends $228,210 --
Reduction in interest and notes receivable for
exercise of options in exchange for services $12,267 15,221
------------ ------------
------------ ------------
Interest paid $1,640 1,570
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
================================================================================
(1) PRESENTATION OF UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements include the
accounts of FiberChem, Inc. ("FCI" or the "Company") and its subsidiaries. All
inter-company accounts and transactions have been eliminated.
The unaudited consolidated financial statements have been prepared in
accordance with Item 310 of Regulation S-B and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows of the Company, in conformity
with generally accepted accounting principles. The information furnished, in
the opinion of management, reflects all adjustments (consisting primarily of
normal recurring accruals) necessary to present fairly the financial position as
of December 31, 1995 and September 30, 1995, and the results of operations and
cash flows of the Company for the three-month periods ended December 31, 1995
and 1994. The results of operations are not necessarily indicative of results
which may be expected for any other interim period or for the year as a whole.
For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year ended
September 30, 1995.
Certain Fiscal 1995 Financial Statement amounts have been reclassified to
conform with the presentation in the Fiscal 1996 Financial Statements.
(2) CAPITAL STOCK
During Fiscal 1993 and Fiscal 1994, the Company conducted a private
placement of convertible preferred stock ("Convertible Preferred Stock"). Each
share of the Convertible Preferred Stock is convertible into ten shares of FCI
Common Stock, initially at $1.50 per share. The conversion ratio is subject to
customary anti-dilution provisions. Dividends are cumulative and are payable
annually, at the sole discretion of the holders, in cash (11%) or additional
shares of Convertible Preferred Stock (8% of the number of shares owned at date
of declaration). In November 1994, the Company paid cash dividends of $53,339
and issued 14,362 shares of Convertible Preferred Stock dividends. Subsequent
to the issuance of the Convertible Preferred Stock dividends, the Company
reacquired 10,000 shares of the Convertible Preferred Stock dividend for $15 per
share. In November 1995, the Company paid cash dividends of $23,645 and issued
15,214 shares of convertible Preferred Stock dividends. The Convertible
Preferred Stock entitles the holder to a liquidation preference of $15 per share
upon liquidation, dissolution or winding up of the Company. The Convertible
Preferred Stock is redeemable by the Company when and if the closing bid price
of FCI's Common Stock is at least 200% of the conversion price for twenty
consecutive trading days. Upon redemption, the Company would issue ten shares
of its Common Stock for each share of Convertible Preferred Stock. As of
December 31, 1995, the Company had 219,676 shares of Convertible Preferred Stock
issued, excluding the 10,000 shares repurchased by the Company and held as
treasury stock.
During the three-month period ended December 31, 1995 ("First Quarter
1996"), the Company: 1) issued 5,204 shares of Common Stock of the Company,
valued at $6,668, to an individual for services; 2) received $73,576 from the
exercise of 73,576 options to purchase Common Stock at an exercise price of
$1.00 per share; 3) received $1,031 from the exercise of warrants at an exercise
price of $1.00 per share; 4) received $10,598 cash and $3,385 in exchange for
services as payments on notes receivable for the exercise of stock options that
were issued during Fiscal 1994; and 5) expensed an aggregate of $4,971 in
connection with certain deferred compensation arrangements.
8
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
================================================================================
(3) REVENUES
Revenues during the First Quarter 1996 were primarily from sales to the
Company's customers and included sales of the Company's products for projects
for Shell Oil Company, Star Enterprises (Texaco, Inc.), Citgo, The BP Oil
Company, Explorer Pipeline Company, and one of the Big Three United States
automobile manufacturers. Management anticipates that revenues will increase
throughout Fiscal 1996, based on indications that purchases of its equipment
have been included in the 1996 budgets of these and other companies in the
petroleum industry. Worldwide, however, there can be no assurance that sales
volume will reach a level which will result in profitable operations and
positive cash flow on a continuing monthly basis.
In October 1995, the Company entered into an agreement with Rauscher Pierce
& Clark, Inc. ("RPC") wherein RPC, acting as financial advisor and placement
agent, would assist the Company in a private placement of debt and/or equity
securities. Based on commitments and strong indications of interest, the
Company expects to finalize, during February 1996, the placement of between
$2,000,000 and $3,000,000 in 8%, 3-year promissory notes convertible into Common
Stock of the Company.
The Company has incurred substantial losses and is in need of additional
financing to continue as a going concern. Based on the Company's anticipated
convertible debt funding and the Company's product sales and expected sales,
Management believes that it will have adequate capital resources to continue its
operations into the foreseeable future; however, there can be no assurance that
forecasted sales levels will be realized to achieve profitable operations, nor
that the anticipated financing will occur, nor that it will be in an amount
sufficient to enable the Company to continue its operations.
-----------------------------------------------------
9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the Unaudited Consolidated Financial Statements and notes thereto.
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company had working capital of $1,805,584 at December 31, 1995,
compared with working capital of $2,213,375 at September 30, 1995, a decrease of
$407,791. Also, the Company had decreases in cash and cash equivalents of
$369,855 and in stockholders' equity of $445,689. These decreases are primarily
a result of the Company's net loss for the three-month period ended December 31,
1995 ("First Quarter 1996") of $522,273. In addition, during the First Quarter
1996, the Company paid cash dividends of $23,645 and issued 15,214 shares,
valued at $228,210, of Convertible Preferred Stock dividends.
The Company had net cash provided by financing activities of $59,896 during
the First Quarter 1996 as compared with net cash used in financing activities of
$186,434 during the three-month period ended December 31, 1994 ("First Quarter
1995"). During the First Quarter 1996, the Company received $74,607 from the
exercise of 73,576 options and 1,031 warrants to purchase FCI Common Stock and
$10,598 in cash payments on interest and notes receivable for the exercise of
options. In addition, the Company paid $23,645 in cash dividends on its
Convertible Preferred Stock, as discussed above, and made payments of $1,664 on
its note payable. During the First Quarter 1995, the Company received $11,750
from the exercise of options to purchase 7,956 shares of Common Stock and $5,155
in cash payments on notes receivable for the exercise of stock options. In
addition, the company paid $53,339 in cash dividends on Convertible Preferred
Stock, and purchased 10,000 shares of its Convertible Preferred Stock for
$150,000.
The Company had net cash used in operating activities of $404,606 during
the First Quarter 1996 as compared with net cash used in operating activities of
$775,893 for the First Quarter 1995. The deficit during the First Quarter 1996
is primarily a result of the Company's net loss of $522,273, offset by
adjustments to reconcile net loss to net cash used in operating activities
including an increase in accounts receivable of $158,186, a decrease in
inventories of $13,471, an increase in other current assets of $113,411, as well
as increases in accounts payable of $5,169 and accrued expenses of $290,893. In
addition, these adjustments include $23,044 related to the issuance of FCI's
Common Stock for services provided to the Company, accrued interest of $26,854
on notes receivable for the exercise of options, amortization of $69,108 and
depreciation of $14,433. The deficit during the First Quarter 1995 is primarily
a result of the Company's net loss from operations of $677,243, offset by
adjustments to reconcile net loss to net cash used in operating activities
including increases in inventories of $151,285, accounts receivable of $48,389,
other current assets of $32,607 and accounts payable of $22,746 and a decrease
in accrued expenses of $36,766. In addition, these adjustments include an
aggregate of $64,395 related to the issuance of FCI's Common Stock for services
provided to the Company, amortization of $69,434 and depreciation of $13,822.
The Company had net cash used in investing activities of $25,145 during the
First Quarter 1996 as compared to net cash used in investing activities of
$16,660, for the First Quarter 1995. During the First Quarter 1996, the Company
made payments in the amount of $25,145 for new United States and foreign patent
applications. During the First Quarter 1995, the Company made payments of
$14,753 for patent applications and $1,907 for the purchase of equipment. As of
February 1996, the Company has 20 United States and 10 foreign patents issued
and 6 United States and 15 foreign patent applications pending.
10
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
During the First Quarter 1996, the Company had revenues of $503,341, an
increase of $318,821 or 173% over the First Quarter 1995. Revenues for First
Quarter 1996, were primarily from sales of the Company's PetroSense-Registered
Trademark- Portable Hydrocarbon Analyzers, PetroSense-Registered Trademark-
Continuous Monitoring Systems and PetroSense-Registered Trademark- Digital
Hydrocarbon Probes and included sales for projects for Shell Oil Company, Star
Enterprises (Texaco, Inc.), Citgo, The BP Oil Company, Explorer Pipeline
Company, and one of the Big Three United States automobile manufacturers. A
significant portion of revenues for the first quarter 1995 consisted of sales to
distributors and manufacturer's representative organizations and included
discounts comparable to industry norms for distributors and manufacturer's
representatives. As a result of the higher proportion of revenues from end
customers and from a higher proportion of sales of its Continuous Monitoring
Systems, gross profit during First Quarter 1996, was 58% of revenues, as
compared to 52% of revenues during First Quarter 1995.
Research, development and engineering expenditures decreased by $39,110, or
13%, during the First Quarter 1996 over the First Quarter 1995. The decrease is
primarily attributable to the Company's current focus on commercialization of
its inventions and technology rather than on new research activities. As a
result, the Company has eliminated most of its consulting agreements for the
development of new sensor technologies. The Company is actively pursuing
commercialization of its electronic semi-conductor chemical sensor being
developed with Texas Instruments, Inc. and anticipates it will generate revenue
from this product in 1996, although there is no assurance that this will occur.
General and administrative expenditures decreased by $41,675, or 13%,
during the First Quarter 1996 over the First Quarter 1995. The decrease is
primarily attributable to reduced expenditures for legal fees, salaries and
consulting fees.
Sales and marketing expenditures increased by $95,210 or 57%, during the
First Quarter 1996 over the First Quarter 1995. The increase is attributable to
increased commissions related to the increase in sales, and to additional
technical and other marketing and sales support activities.
The Company's interest income decreased by $27,254, or 42%, during the
First Quarter 1996 over the First Quarter 1995 and is attributable to a decrease
in the amount of short-term investments, which were approximately $900,000 and
$2.5 million at December 31, 1995 and 1994, respectively.
As a result of the foregoing, the Company incurred a net loss of $522,273,
or a net loss of $.03 per share, for the First Quarter 1996 as compared to a
net loss of $677,243, or a net loss of $.03 per share, for the First Quarter
1995.
Management does not consider that inflation has had a significant effect on
the Company's operations to date, nor is inflation expected to have a material
impact over the next year.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three-month
period ended December 31, 1995.
--------------------------------------------------
11
<PAGE>
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.
FIBERCHEM, INC.
FEBRUARY 13, 1996 By: /s/ Geoffrey F. Hewitt
- ----------------- -----------------------------------
Date Geoffrey F. Hewitt
President and Chief Executive Officer
FEBRUARY 13, 1996 By: /s/ Melvin W. Pelley
- ----------------- -----------------------------------
Date Melvin W. Pelley
Chief Financial Officer and Secretary
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements as of December 31, 1995 and for the three-month
period then ended and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-30-1995
<CASH> 541,331
<SECURITIES> 0
<RECEIVABLES> 942,058
<ALLOWANCES> (111,716)
<INVENTORY> 977,831
<CURRENT-ASSETS> 2,572,759
<PP&E> 570,716
<DEPRECIATION> (447,718)
<TOTAL-ASSETS> 3,544,708
<CURRENT-LIABILITIES> 767,175
<BONDS> 8,202
0
3,445,140
<COMMON> 2,060
<OTHER-SE> (677,869)
<TOTAL-LIABILITY-AND-EQUITY> 3,544,708
<SALES> 503,341
<TOTAL-REVENUES> 503,341
<CGS> 210,436
<TOTAL-COSTS> 1,061,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,640
<INCOME-PRETAX> (522,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (522,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (522,273)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Omitted because of antidilutive effect of net loss.
</FN>
</TABLE>
