<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------------------------
[ ] 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 May 8, 1996, the issuer had 21,097,492 shares of Common Stock, par
value $.0001 per share, issued and outstanding.
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
(UNAUDITED)
(Restated)
---------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $911,186 $2,072,077
Note receivable from sale of subsidiary 106,390 106,390
Accounts receivable, net of allowance for doubtful
accounts of $111,716 at September 30, 1995
and $66,864 at March 31, 1996 565,766 515,122
Inventories 991,302 1,106,956
Other 109,844 121,613
------------- -------------
Total current assets 2,684,488 3,922,158
------------- -------------
Equipment 570,716 575,515
Less accumulated depreciation (433,285) (459,993)
------------- -------------
Net equipment 137,431 115,522
------------- -------------
Other assets:
Patent and technology costs, net of accumulated
amortization of $1,525,105 at September 30, 1995
and $1,656,839 at March 31, 1996 726,500 645,940
Financing costs, net of accumulated amortization of
$16,478 at March 31, 1996 -- 411,726
Other 147,580 192,327
------------- -------------
Total other assets 874,080 1,249,993
------------- -------------
Total assets $3,695,999 $5,287,673
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, March 31,
1995 1996
(UNAUDITED)
(Restated)
---------------------------------
<S> <C> <C>
Current liabilities:
Current installments of note payable to bank $6,832 $7,069
Accounts payable 176,774 79,752
Accrued expenses 287,507 376,615
Interest payable -- 28,250
Other -- 2,691
------------- -------------
Total current liabilities 471,113 494,377
Senior convertible notes payable -- 2,825,000
Note payable to bank, net of current installments 9,866 6,271
------------- -------------
Total liabilities 480,979 3,325,648
------------- -------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized
10,000,000 shares; 214,462 and 216,089 convertible
shares issued and outstanding at September 30, 1995
and March 31, 1996, respectively;
at liquidation value 3,216,930 3,241,335
Common stock, $.0001 par value. Authorized 30,000,000
and 40,000,000 shares at September 30, 1995 and
March 31, 1996, respectively; 20,532,033 and
20,777,061 shares issued and outstanding at
September 30, 1995 and March 31, 1996, respectively 2,053 2,077
Additional paid-in capital 24,844,392 24,907,041
Treasury stock - preferred, 10,000 shares, at cost (150,000) (150,000)
Accumulated Deficit (23,094,922) (24,466,779)
------------- -------------
4,818,453 3,533,674
Notes receivable for exercise of options (1,597,837) (1,571,232)
Deferred compensation (5,596) (417)
------------- -------------
Total stockholders' equity 3,215,020 1,962,025
------------- -------------
Total liabilities and stockholders' equity $3,695,999 $5,287,673
------------- -------------
------------- -------------
</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 Six-month period ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
1995 1996 1995 1996
(Restated) (Restated)
--------------------------------------------------------
<S> <C> <C> <C> <C>
Gross revenues $369,002 $293,064 $553,522 $799,645
Less: returns & allowances -- (285,200) -- (288,440)
----------- ----------- ----------- -----------
Net revenues 369,002 7,864 553,522 511,205
Cost of revenues 169,513 3,703 258,051 214,139
----------- ----------- ----------- -----------
Gross profit 199,489 4,161 295,471 297,066
----------- ----------- ----------- -----------
Operating expenses:
Research, development and
engineering 319,689 252,247 631,271 524,719
General and administrative 362,864 323,828 722,227 641,516
Sales and marketing 181,601 182,898 347,565 444,072
Inventory valuation allowance -- 91,467 -- 91,467
----------- ----------- ----------- -----------
Total operating expenses 864,154 850,440 1,701,063 1,701,774
----------- ----------- ----------- -----------
Loss from operations (664,665) (846,279) (1,405,592) (1,404,708)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (562) (46,397) (2,132) (48,037)
Interest income 56,139 43,092 121,189 80,888
Other, net -- -- 204 --
----------- ----------- ----------- -----------
Total other income (expense) 55,577 (3,305) 119,261 32,851
----------- ----------- ----------- -----------
Net loss ($609,088) ($849,584) ($1,286,331) ($1,371,857)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares of common stock used in
computing loss per share 20,202,276 20,715,380 20,192,684 20,651,382
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share ($0.03) ($0.04) ($0.06) ($0.07)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Restated)
<TABLE>
<CAPTION>
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:
Conversion from preferred stock (13,587) (203,805) 135,870 14 203,791
For services -- -- 5,204 1 6,667
Exercise of options -- -- 102,923 9 103,015
Exercise of warrants 1,031 -- 1,031
Payments received on notes receivable for
exercise of options -- -- -- -- --
Deferred compensation earned -- -- -- -- --
Net loss -- -- -- -- --
-------- ---------- ---------- ------ ----------
Balance at March 31, 1996 216,089 $3,241,335 20,777,061 $2,077 24,907,041
-------- ---------- ---------- ------ ----------
-------- ---------- ---------- ------ ----------
<CAPTION>
Treasury Notes
Stock - Accumu- Receivable
Preferred lated 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) 3,215,020
Preferred stock dividend:
In stock -- -- -- -- --
In cash -- -- -- -- (23,645)
Common stock issued:
Conversion from preferred stock -- -- -- -- --
For services -- -- -- -- 6,668
Exercise of options -- -- -- -- 103,024
Exercise of warrants 1,031
Payments received on notes receivable for
exercise of options -- -- 26,605 -- 26,605
Deferred compensation earned -- -- -- 5,179 5,179
Net loss -- (1,371,857) -- -- (1,371,857)
--------- ----------- ------------ ------------ ----------
Balance at March 31, 1996 (150,000) (24,466,779) (1,571,232) (417) 1,962,025
--------- ----------- ------------ ------------ ----------
--------- ----------- ------------ ------------ ----------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six-month period ended
------------------------
March 31, March 31,
1995 1996
(Restated)
---------- ----------
Cash flows from operating activities:
Net loss ($1,286,331) ($1,371,857)
Adjustments to reconcile net loss to net
cash flows used in operating activities:
Depreciation 27,779 26,708
Amortization of patent and technology costs 139,810 131,734
Amortization of financing costs -- 16,478
Accrued interest on notes receivable
for exercise of options -- (52,767)
Common stock issued for services 125,183 32,216
Provision for loss on accounts receivable -- 50,725
Inventory valuation allowance -- 55,242
Changes in assets and liabilities:
Increase in accounts receivable (342,442) (81)
Increase in inventories (227,636) (170,896)
Increase in other current assets (54,426) (11,769)
(Decrease) increase in accounts payable 77,485 (97,022)
(Decrease) increase in accrued expenses (4,466) 89,108
Increase in interest payable -- 28,250
Increase in other current liabilities -- 2,691
---------- ----------
Net cash used in operating activities (1,545,044) (1,271,240)
---------- ----------
Cash flows from investing activities:
Purchase of equipment (21,367) (4,799)
Payments for patents (56,189) (51,174)
---------- ----------
Net cash used in investing activities ($77,556) ($55,973)
---------- ----------
See accompanying notes to consolidated financial statements
(continued)
6
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six-month period ended
-----------------------
March 31, March 31,
1995 1996
(Restated)
--------- ---------
Cash flows from financing activities:
Proceeds from senior convertible notes payable $ -- $2,825,000
Payment of financing costs -- (428,204)
Proceeds from note payable to bank 21,000 --
Payments on note payable to bank (1,057) (3,358)
Proceeds from the exercise of options and warrants 24,786 104,055
Proceeds from interest and notes receivable
for exercise of options 10,166 14,256
Payment of dividend on preferred stock (53,339) (23,645)
Purchase of treasury stock - preferred (150,000) --
--------- ---------
Net cash provided by (used in) financing
activities (148,444) 2,488,104
--------- ---------
Net increase (decrease) in cash and cash equivalents (1,771,044) 1,160,891
Cash and cash equivalents at beginning of period 3,477,103 911,186
--------- ---------
Cash and cash equivalents at end of period $1,706,059 $2,072,077
--------- ---------
--------- ---------
Supplemental Cash Flow Information
Noncash investing and financing activities:
Preferred stock converted to common stock $ -- $ 203,805
Preferred stock issued as dividends 215,430 228,210
Reduction in interest and notes receivable for
exercise of options in exchange for services 26,833 22,957
--------- ---------
--------- ---------
Interest paid $ 2,132 $ 3,309
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements
7
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
RESTATEMENT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(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 March 31, 1996 and September 30, 1995, and the results of operations and cash
flows of the Company for the three-month and six-month periods ended March 31,
1996 and 1995. 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.
Subsequent to its September 30, 1996 fiscal year end, the Company reviewed
its revenue recognition policy and determined that contingencies associated with
installations, modifications in sales terms or other conditions existed or had
arisen with respect to certain sales transactions previously recorded by the
Company and concluded that sales transactions aggregating approximately $300,000
should not be recorded as revenue during the three-month period ended March 31,
1996 ("Second Quarter 1996"). Additionally, contingencies or modifications in
sales terms related to certain sales arose during the Second Quarter 1996,
resulting in sales returns and allowances during the Second Quarter of
approximately $285,000.
Certain Fiscal 1995 Financial Statement amounts have been reclassified to
conform with the presentation in the Fiscal 1996 Financial Statements.
(2) CONVERTIBLE DEBT
On February 15, 1996, the Company completed an offering under Regulation S,
promulgated under the Securities Act of 1933, as amended (the "Offering"), of 8%
Senior Convertible Notes due February 15, 1999 (the "Notes"), for $2,825,000.
Interest on the Notes is to be paid semi-annually, commencing August 15, 1996,
at a rate of 8% per annum. The Notes are convertible into shares of common
stock of the Company (the "Common Stock") at a conversion price (the "Conversion
Price") of $0.80 per share at any time after March 26, 1996 and before the close
of business on February 14, 1999. The Conversion Price will be adjusted if the
average closing bid price of the Common Stock during the 30 business days prior
to February 15, 1997 is less than the Conversion Price. In that event, the
Conversion Price will be adjusted to a price representing a 10% discount from
the thirty-day average closing bid price of the Common Stock for the 30 business
days prior to February 15, 1997. As of May 8, 1996, an aggregate face amount of
$250,000 of the Notes had been converted to Common Stock resulting in the
issuance of 312,500 shares of Common Stock.
The Company paid fees and expenses associated with the offering amounting
to $428,204, which is being amortized as interest expense over the three-year
term of the Notes. Also in connection with the Offering, the Company issued to
the Placement Agent for the Offering, for nominal consideration, warrants to
purchase 353,125 shares of Common Stock, at an exercise price of $0.80 per share
(the "Exercise Price"). The Exercise Price will be adjusted in the same event
and in the same manner as the
8
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
RESTATEMENT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Conversion Price of the Notes. These warrants are exercisable at any time on or
after August 15, 1996 through February 14, 2001.
(3) 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 March
31, 1996, the Company had 206,089 shares of Convertible Preferred Stock
outstanding, excluding the 10,000 shares repurchased by the Company and held as
treasury stock.
During the six-month period ended March 31, 1996 ("Six-Month Period 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 $103,024 from the exercise of
103,024 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 $14,256 cash and $22,957 in services as payments on
notes and interest receivable for the exercise of stock options that were issued
during Fiscal 1994; and 5) expensed an aggregate of $5,179 in connection with
certain deferred compensation arrangements.
Also during the Six-Month Period 1996, the Company issued warrants to
purchase 75,000 shares of its Common Stock at an exercise price of $0.90 per
share, exercisable at any time on or after August 15, 1996 through February 14,
2001, in connection with certain financial, marketing and strategic planning
services. The Company also issued during the Six-Month Period 1996 options to
purchase an aggregate of 191,300 shares of its Common Stock at an exercise price
of $1.00 per share. These options were granted to employees of the Company
under its 1995 Employee Stock Option Plan and are exercisable at any time for a
period ending five years from the date of grant.
(4) REVENUES
Gross revenues during the Six-Month Period 1996 included sales of the
Company's products for projects for Unocal `76 Products, Star Enterprises
(Texaco, Inc.), The BP Oil Company, Explorer Pipeline Company, and one of the
Big Three United States automobile manufacturers. In addition, products
representing approximately $300,000 at net selling prices were shipped to
representatives and distributors for resale to end customers. However, in
accordance with the Company's revisions to its revenue recognition policy as
discussed in Note 1 above, these shipments are excluded from revenue and are
instead included in inventory as consigned products. The Company anticipates
that these shipments will be recognized as revenue as the products are sold and
installed at end customers' locations over succeeding months; however, there can
be no assurance whether or when such sales and installations will occur nor
whether or when they will be recognized as revenue.
9
<PAGE>
FIBERCHEM, INC. AND SUBSIDIARIES
RESTATEMENT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Installation of approximately $150,000 of the Company's products at several
different customer sites has been delayed, primarily resulting from delay in the
customers' own installation schedules. As a result, the timing of payments to
the Company has been delayed and the original sales have been reversed and shown
as returns in the current period, along with certain other previous sales to
distributors and representatives, the payment for which has become contingent
upon eventual sale to and payment by end customers.
Revenues from one customer amounted to 63% of gross revenues for the Second
Quarter 1996 and 23% of gross revenues for the Six-Month Period 1996.
The Company has incurred substantial losses and may need additional
financing to continue as a going concern. Based on the Company's convertible
debt funding and its continuing equity capital funding efforts, 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 financing will occur in
amounts sufficient to enable the Company to continue its operations.
------------------------------------------------------------
10
<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
On February 15, 1996, the Company completed an offering under Regulation S,
promulgated under the Securities Act of 1933, as amended (the "Offering"), of 8%
Senior Convertible Notes due February 15, 1999 (the "Notes"), for $2,825,000.
Interest on the Notes is to be paid semi-annually, commencing August 15, 1996,
at a rate of 8% per annum. The Notes are convertible into shares of common
stock of the Company (the "Common Stock") at a conversion price (the "Conversion
Price") of $0.80 per share at any time after March 26, 1996 and before the close
of business on February 14, 1999. The Conversion Price will be adjusted if the
average closing bid price of the Common Stock during the 30 business days prior
to February 15, 1997 is less than the Conversion Price. In that event, the
Conversion Price will be adjusted to a price representing a 10% discount from
the thirty-day average closing bid price of the Common Stock for the 30 business
days prior to February 15, 1997. As of May 8, 1996, an aggregate face amount of
$250,000 of the Notes had been converted to Common Stock resulting in the
issuance of 312,500 shares of Common Stock.
The Company paid fees and expenses associated with the offering amounting
to $428,204, which amount is being amortized as interest expense over the
three-year term of the Notes. Also in connection with the Offering, the Company
issued to the Placement Agent for the Offering, for nominal consideration,
warrants to purchase 353,125 shares of Common Stock, at an exercise price of
$0.80 per share (the "Exercise Price"). The Exercise Price will be adjusted in
the same event and in the same manner as the Conversion Price of the Notes.
These warrants are exercisable at any time on or after August 15, 1996 through
February 14, 2001.
Primarily as a result of the sale of the Notes, the Company had net cash
provided by financing activities of $2,488,104, during the six-month period
ended March 31, 1996 ("Six-Month Period 1996") as compared with net cash used in
financing activities of $148,444 during the six-month period ended March 31,
1995 ("Six-Month Period 1995"). Also during the Six-Month Period 1996 the
Company received $104,055 from the exercise of 102,923 options and 1,031
warrants to purchase Common Stock and $14,256 in cash payments on interest and
notes receivable for 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 $3,358 on its note payable to a bank. During the Six-Month
Period 1995, the Company received $24,786 from the exercise of options to
purchase 16,880 shares of Common Stock and $10,166 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. Also during the
Six-Month Period 1995 the Company borrowed $21,000 from a local bank for the
purchase of equipment and made repayments of $1,057 on the loan.
The Company had net cash used in operating activities of $1,271,240 during
the Six-Month Period 1996 as compared with net cash used in operating activities
of $1,545,044 during the Six-Month Period 1995. The deficit during the
Six-Month Period 1996 is primarily a result of the Company's net loss of
$1,371,857, offset by adjustments to reconcile net loss to net cash used in
operating activities including increases in accounts receivable of $81,
inventories of $170,896, and other current assets of $11,769, as well as a
decrease in accounts payable of $97,022 and increases in accrued expenses of
$89,108, interest payable of $28,250 and other current liabilities of $2,691.
In addition, these adjustments include $32,216 related to the issuance of Common
Stock for services provided to the Company, accrued interest of $52,767 on notes
receivable for the exercise of options, amortization of patent and technology
costs of
11
<PAGE>
$131,734, depreciation of $26,708, amortization of Note financing costs of
$16,478, provision for loss on accounts receivable of $50,725 and inventory
valuation allowances of $55,242. The deficit during the Six-Month Period 1995
is primarily a result of the Company's net loss from operations of $1,286,331,
offset by adjustments to reconcile net loss to net cash used in operating
activities including increases in inventories of $227,636, accounts receivable
of $342,442, other current assets of $54,426 and accounts payable of $77,485 and
a decrease in accrued expenses of $4,466. In addition, these adjustments
include an aggregate of $125,183 related to the issuance of Common Stock for
services provided to the Company, amortization of patent and technology costs of
$139,810 and depreciation of $27,779.
The Company had net cash used in investing activities of $55,973 during the
Six-Month Period 1996 as compared to net cash used in investing activities of
$77,556 for the Six-Month Period 1995. During the Six-Month Period 1996, the
Company made payments in the amount of $51,174 for United States and foreign
patent applications and $4,799 for the purchase of equipment. During the
Six-Month Period 1995, the Company made payments of $56,189 for patent
applications and $21,367 for the purchase of equipment.
The Company had working capital of $3,427,781 at March 31, 1996, compared
with working capital of $2,213,375 at September 30, 1995, an increase of
$1,214,406. This increase primarily resulted from the net proceeds of
approximately $2,397,000 from the sale of the Notes, offset in part by the
Company's net loss for the Six-Month Period 1996 of $1,371,857. Stockholders'
equity decreased $1,252,995 during the Six-Month Period 1996 primarily as a
result of the net loss for the period. In addition, during the Six-Month Period
1996, the Company paid cash dividends of $23,645 and issued 15,214 shares,
valued at $228,210, of Convertible Preferred Stock dividends.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Gross revenues for the Six-Month Period 1996 were $799,645, an increase of
$246,123 or 44% over revenues for the Six-Month Period 1995; gross revenues for
the Second Quarter 1996 were $293,064, a decrease of $75,938 or 21% from
revenues for the Second Quarter 1995. During the Second Quarter 1996, the
Company recognized returns of and allowances against sales previously recorded
in the amount of $285,200, as a result of contingencies arising during the
Second Quarter, including delays in customers' projects and the extension of
payment terms to certain distributors and representatives. As a result, net
revenues for the Second Quarter were $7,864 compared to revenues for the Second
Quarter 1995 of $369,002 and net revenues for the Six-Month Period 1996 were
$511,205, a decrease of $42,317 or 8% from revenues for the Six-Month Period
1995.
During the Second Quarter 1996, Amoco Production Company placed an order
with one of the Company's representatives for approximately $230,000 of the
Company's systems for installation on Amoco's offshore oil production platforms.
The systems will be used to monitor hydrocarbon levels in water discharged from
the platforms. The Company anticipates that sales revenue will be recognized
over succeeding months as the systems are installed by Amoco; however there can
be no assurance that such will be the case nor when installation and recognition
of sales will occur.
The Company's products have recently been approved by the State of
Florida's Department of Environmental Protection for use in leak detection
applications in the presence of existing contamination, as well as in
non-contaminated sites. Management believes that this approval provides
operators of above-ground storage tanks a financially advantageous method of
compliance with the State of Florida's developing regulations. To the Company's
knowledge, no other equipment or methods have received such an approval.
12
<PAGE>
The discussions in this Report include forward looking discussions that
involve risks and uncertainties, including the timely development and acceptance
of the Company's products, the timely acceptance of existing products, the
impact of competitive products and pricing, the impact of governmental
regulations or lack thereof with respect to the Company's markets, the timely
funding of customers' projects, customer payments to the Company, and the other
risks detailed from time to time in the Company's SEC reports.
Gross profit for the Six-Month Period 1996 was $297,066 or 58% of net
revenues compared to $295,471 or 53% of net revenues for the Six-Month Period
1995. Gross profit for the Second Quarter 1996 was $4,161 or 53% of net
revenues compared to gross profit of $199,489 or 54% of net revenues for the
Second Quarter 1995.
Research, development and engineering expenditures decreased by $106,552,
or 17%, during the Six-Month Period 1996 from the Six-Month Period 1995 and
decreased by $67,442 or 21%, during the Second Quarter 1996 from the Second
Quarter 1995. The decreases are primarily attributable to the Company's current
focus on commercialization of its inventions and technology rather than on new
research activities. The Company has eliminated most of its consulting
agreements for such activities. The Company is actively pursuing
commercialization of its electronic semi-conductor chemical sensor
("Sensor-on-a-Chip") being developed with Texas Instruments, Inc. and an
application of its hydrocarbon Sensor-on-a-Chip with Gilbarco, Inc. The Company
entered into a development contract with the U. S. Department of Energy, through
Bechtel Nevada Corporation, for the development of a sensor for
trichloroethylene, or TCE, a pollutant often found in groundwater. The contract
is anticipated to result in proof of feasibility and approximately $100,000 in
revenue to the Company over a six-month period. Further development could
result in a sensor product line for the Company's commercial markets, as well
as for the Department of Energy's applications.
General and administrative expenditures decreased by $80,711, or 11%,
during the Six-Month Period 1996 from the Six-Month Period 1995 and decreased by
$39,036, or 11%, during the Second Quarter 1996 from the Second Quarter 1995.
The decreases are primarily attributable to reduced expenditures for legal fees,
salaries and consulting fees.
Sales and marketing expenditures increased by $96,507, or 28%, during the
Six-Month Period 1996 from the Six-Month Period 1995 and increased by $1,297, or
1%, during the Second Quarter 1996 from the Second Quarter 1995. These
increases are attributable to additional technical and other marketing and sales
support activities.
The Company's interest income decreased by $40,301, or 33%, during the
Six-Month Period 1996 from the Six-Month Period 1995 and decreased by $13,047,
or 23%, during the Second Quarter 1996 from the Second Quarter 1995 and is
attributable to a decrease in the amount of short-term investments over the two
periods until receipt of approximately $2.5 million in proceeds from the sale of
the Notes on February 15, 1996. Interest expense increased $45,905 and
$45,835 during the Six-Month Period 1996 and the Second Quarter 1996,
respectively, from the year earlier periods as a result of interest expense
accrued on the Notes from February 16, 1996 to March 31, 1996 in the amount of
$28,250 and amortization of the costs associated with the sale of the Notes in
the amount of $16,478.
As a result of the foregoing, the Company incurred a net loss of $849,584,
or a net loss of $.04 per share, for the Second Quarter 1996 as compared to a
net loss of $609,088, or a net loss of $.03 per share, for the Second Quarter
1995. Net loss for the Six-Month Period 1996 was $1,371,857, or a net loss of
$.07 per share, as compared to a net loss of $1,286,331, or a net loss of $.06
per share, for the Six-Month Period 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on Form 8-K was filed by the Company on March 7, 1996
concerning the offering and sale of 8% Senior Convertible Notes due February 15,
1999.
--------------------------------------------------
14
<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.
May 14, 1997 by: /s/ Geoffrey F. Hewitt
- ------------ ----------------------------------
Date Geoffrey F. Hewitt
President and Chief Executive Officer
May 14, 1997 by: /s/ Melvin W. Pelley
- ------------ ----------------------------------
Date Melvin W. Pelley
Chief Financial Officer and Secretary
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS AS OF MARCH 31, 1996 (RESTATED) AND FOR THE
THREE-MONTH AND SIX-MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,072,077
<SECURITIES> 0
<RECEIVABLES> 688,376
<ALLOWANCES> (66,864)
<INVENTORY> 1,106,956
<CURRENT-ASSETS> 3,922,158
<PP&E> 575,515
<DEPRECIATION> (459,993)
<TOTAL-ASSETS> 5,287,673
<CURRENT-LIABILITIES> 494,377
<BONDS> 2,831,271
0
3,241,335
<COMMON> 2,077
<OTHER-SE> (1,281,387)
<TOTAL-LIABILITY-AND-EQUITY> 5,287,673
<SALES> 511,205
<TOTAL-REVENUES> 511,205
<CGS> 214,139
<TOTAL-COSTS> 1,915,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50,725
<INTEREST-EXPENSE> 48,037
<INCOME-PRETAX> (1,371,857)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,371,857)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,371,857)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0<F1>
<FN>
<F1>OMITTED BECAUSE OF ANTIDILUTIVE EFFECT OF NET LOSS.
</FN>
</TABLE>
