-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GiUfQDFeTcsTXs6NP8wfLvmifQzJQakB4hlhYPXTZeS1z0YYK+bff+pSVWXtys2u 5W0vRoBHnDxA5cO57JYGWg== 0000912057-97-018028.txt : 19970520 0000912057-97-018028.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-018028 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIBERCHEM INC CENTRAL INDEX KEY: 0000811014 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 841063897 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-17569 FILM NUMBER: 97608280 BUSINESS ADDRESS: STREET 1: 1181 GRIER DR STE B CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 702-361-9873 MAIL ADDRESS: STREET 2: 1181 GRIER DRIVE, SUITE B CITY: LAS VEGAS STATE: NV ZIP: 89119 FORMER COMPANY: FORMER CONFORMED NAME: TIPTON INDUSTRIES INC /IA/ DATE OF NAME CHANGE: 19880401 10-Q/A 1 FORM 10-QSB/A 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 June 30, 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 94-1063897 (State of 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 the filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such sooner 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 August 8, 1996, the issuer had 25,672,836 shares of Common Stock per share, issued and outstanding. FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS September 30, June 30, 1995 1996 (UNAUDITED) (Restated) -------------------------- Current assets: Cash and cash equivalents $911,186 $4,069,338 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 June 30, 1996 565,766 363,987 Inventories 991,302 1,199,733 Other 109,844 97,836 ---------- ---------- Total current assets 2,684,488 5,837,284 ---------- ---------- Equipment 570,716 597,504 Less accummulated depreciation (433,285) (472,506) ---------- ---------- Net equipment 137,431 124,998 ---------- ---------- Other assets: Patent and technology costs, net of accumulated amortization of $1,525,105 at September 30, 1995 and $1,723,631 at June 30, 1996 726,500 616,539 Financing costs, net of accumulated amortization of $31,819 at June 30, 1996 -- 241,019 Other 147,580 220,205 ---------- ---------- Total other assets 874,080 1,077,763 ---------- ---------- Total assets $3,695,999 $7,040,045 ---------- ---------- ---------- ---------- See accompanying notes to consolidated financial statements. 2 FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, JUNE 30, 1995 1996 (UNAUDITED) (RESTATED) --------------------------------- Current liabilities: Current installments of note payable to bank $ 6,832 $ 7,191 Accounts payable 176,774 137,204 Accrued expenses 287,507 313,848 Interest payable - 77,622 ---------- ---------- Total current liabilities 471,113 535,865 Senior convertible notes payable - 1,800,000 Note payable to bank, net of current installments 9,866 4,427 ----------- ----------- Total liabilities 480,979 2,340,292 ----------- ----------- 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 June 30, 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 June 30, 1996, respectively; 20,532,033 and 22,508,102 shares issued and outstanding at September 30, 1995 and June 30, 1996, respectively 2,053 2,550 Additional paid-in capital 24,844,392 28,560,699 Treasury stock - preferred, 10,000 shares, at cost (150,000) (150,000) Accumulated Deficit (23,094,922) (25,397,075) ----------- ----------- 4,818,453 6,257,509 Notes receivable for exercise of options (1,597,837) (1,557,548) Deferred compensation (5,596) (208) ----------- ----------- Total stockholders' equity 3,215,020 4,699,753 ----------- ----------- Total liabilities and stockholders' equity $3,695,999 $7,040,045 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements 3 FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three-month period ended Nine-month period ended ----------------------------- ---------------------------- June 30, June 30, June 30, June 30, 1995 1996 1995 1996 (Restated) (Restated) ------------------------------------------------------------- Gross revenues $320,534 $202,303 $874,056 $1,001,949 Less returns and allowances -- (78,695) -- (367,135) ------------ ------------- ------------- -------------- Net revenues 320,534 123,609 874,056 634,814 Cost of revenues 140,822 59,021 398,873 273,160 ------------ ------------- ------------- -------------- Gross profit 179,712 64,588 475,183 361,654 ------------ ------------- ------------- -------------- Operating expenses: Research, development and engineering 294,457 351,649 925,728 876,368 General and aministrative 374,174 357,833 1,096,401 962,571 Sales and marketing 153,920 236,679 501,485 680,751 Inventory valuation allowance -- 63,369 -- 155,036 ------------ ------------- ------------- -------------- Total operating expenses 822,551 972,952 2,523,614 2,674,726 ------------ ------------- ------------- -------------- Loss from operations (642,839) (908,364) (2,048,431) (2,313,072) ------------ ------------- ------------- -------------- Other income (expense): Interest expense (2,318) (79,467) (4,450) (127,504) Interest income 50,297 57,535 171,486 138,423 Other net 1,606 -- 1,810 -- ------------- ------------ ------------- ------------- Total other income (expense) 49,585 (21,932) 168,846 10,919 ------------- ------------ ------------- ------------- Net loss ($593,254) ($930,296) ($1,879,585) ($2,302,153) ------------- ------------ ------------- ------------- ------------- ------------ ------------- ------------- Shares of common stock used in computing loss per share 20,217,606 22,094,615 20,200,991 21,130,704 ------------- ------------ ------------- ------------- ------------- ----------- ------------- ------------- Net loss per share ($0.03) ($0.04) ($0.09) ($0.11) ------------- ------------ ------------- ------------- ------------- ------------ ------------- -------------
See accompanying notes to consolidated financial statements 4 FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (RESTATED)
Preferred Stock Common Stock Additional ------------------------- ------------------------- Paid-In Shares Amount Shares Amount Capital ---------- ---------- ----------- -------- ----------- 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 cash -- -- 3,333,333 333 2,653,984 For services -- -- 5,204 1 6,667 Conversion from senior convertible notes payable -- -- 1,281,250 128 883,329 Conversion from preferred stock (13,587) (203,805) 135,870 14 203,791 Exercise of options -- -- 219,381 21 219,360 Exercise of warrants -- -- 1,031 -- 1,031 Payments received on notes receivable for exercise of options -- -- -- -- -- Deferred compensation earned -- -- -- -- -- Net loss -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1996 216,089 $3,241,335 25,508,102 $2,550 28,560,699 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Treasury Notes Stock - Accumu- Receivable Preferred lated for Exercise Deferred Stock Deficit of Options Compensation Total ----------- ----------- ------------ ------------ ----------- 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: For cash -- 2,654,317 For services -- -- -- -- 6,668 Conversion from senior convertible notes payable -- -- -- -- 883,457 Conversion from preferred stock -- -- -- -- -- Exercise of options -- -- -- -- 219,381 Exercise of warrants -- -- -- -- 1,031 Payments received on notes receivable for exercise of options -- -- 40,289 -- 40,289 Deferred compensation earned -- -- -- 5,388 5,388 Net loss -- (2,302,153) -- -- (2,302,153) ----------- ----------- ----------- ----------- ----------- Balance at June 30, 1996 (150,000) (25,397,075) (1,557,548) (208) 4,699,753 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5 FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine-month period ended --------------------------- June 30, June 30, 1995 1996 (Restated) ----------- ----------- Cash flows from operating activities: Net loss ($1,879,585) ($2,302,153) Adjustments to reconcile net loss to net cash flows used in operating activities: Depreciation 41,435 39,221 Amortization of patent and technology costs 210,861 198,526 Amortization of financing costs -- 45,641 Accrued interest on notes receivable for exercise of options -- (80,189) Common stock issued for services 184,658 43,522 Provision for loss on accounts receivable -- 51,337 Inventory valuation allowance -- 118,811 Changes in assets and liabilities: (Increase) decrease in accounts receivable (467,502) 150,442 Increase in inventories (284,925) (327,242) (Increase) decrease in other current assets (55,521) 12,008 Increase (decrease) in accounts payable 114,175 (39,570) Increase in accrued expenses 50,266 26,341 Increase in interest payable -- 77,622 ----------- ----------- Net cash used in operating activities (2,086,138) (1,985,683) ----------- ----------- Cash flows from investing activities: Purchase of equipment (21,768) (26,788) Payments for patents (67,084) (88,564) ----------- ----------- Net cash used in investing activities ($88,852) ($115,352) ----------- ----------- See accompanying notes to consolidated financial statements (continued)
6 FIBERCHEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine-month period ended --------------------------- June 30, June 30, 1995 1996 (Restated) --------- ---------- Cash flows from financing activities: Proceeds from common stock and warrant Units -- $3,000,000 Proceeds from senior convertible notes payable -- 2,825,000 Payment of financing costs -- (773,887) Proceeds from note payable to bank $ 21,000 -- Payments on note payable to bank (2,666) (5,080) Proceeds from the exercise of options and warrants 47,301 220,412 Proceeds from interest and notes receivable for exercise of options 15,056 16,387 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 (122,648) 5,259,187 ---------- ---------- Net increase (decrease) in cash and cash equivalents (2,297,638) 3,158,152 Cash and cash equivalents at beginning of period 3,477,103 911,186 ---------- ---------- Cash and cash equivalents at end of period $ 1,179,465 $4,069,338 ---------- ---------- ---------- ---------- Supplemental Cash Flow Information Interest paid $ 4,450 $ 4,242 ---------- ---------- ---------- ---------- Noncash investing and financing activities: Senior convertible notes payable converted to common stock -- 1,025,000 Preferred stock converted to common stock -- 203,805 Preferred stock issued as dividends 228,210 Reduction in interest and notes receivable for exercise of options in exchange for services $ 37,133 $ 34,054
See accompanying notes to consolidated financial statements 7 FIBERCHEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 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 June 30, 1996 and September 30, 1995, and the results of operations and cash flows of the Company for the three-month and nine-month periods ended June 30, 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. Certain Fiscal 1995 Financial Statement amounts have been reclassified to conform with the presentation in the Fiscal 1996 Financial Statements. 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 $600,000 should not be recorded as revenue during the three-month period ended June 30, 1996 ("Third Quarter 1996"). This included approximately $500,000 of the Company's products provided in accordance with an OEM strategic alliance agreement recently entered into with Whessoe Varec, Inc. ("Whessoe Varec"). Although Whessoe Varec is highly respected in the aboveground storage tank ("AST") market, the Company's AST leak detection products are new to Whessoe Varec and Whessoe Varec has not had the opportunity to demonstrate sales and installations at customer sites, and revenue has not been recognized in the current period. Additionally, contingencies or modifications in sales terms related to certain sales arose during the Third Quarter 1996, resulting in sales returns and allowances during the Third Quarter of approximately $79,000. For the nine-month period ended June 30, 1996 ("Nine Month Period 1996") these amounts are approximately $900,000 (revenue) and $367,000 (returns and allowances) respectively. (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 June 30, 1996, an aggregate face amount of $1,025,000 of the Notes had been converted to Common Stock resulting in the issuance of 1,281,250 shares of Common Stock. 8 FIBERCHEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 or until conversion, if earlier, when the proportionate unamortized amount is charged to additional paid in capital. 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. (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 June 30, 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. On May 31, 1996 the Company completed an offering under Regulation S, of 3,333,333 Units, at a price of $0.90 per Unit for total gross proceeds of $3,000,000 before costs and expenses of the offering. Each Unit consisted of one share of Common Stock and one warrant to purchase one share of Common Stock (the "Unit Warrants"). The Unit Warrants are each exercisable at $1.00 at any time from May 31, 1996 through May 30, 2001. The Company paid fees and expenses associated with the Unit offering amounting to $345,683. Also in connection with the Unit offering, the Company issued to the Placement Agent for the offering, for nominal consideration, warrants to purchase 333,333 shares of Common Stock ("the Placement Agent Warrants"), at an exercise price of $0.90 per share. This exercise price will be adjusted if the average closing bid price of the Common Stock during the 30 business days prior to May 31, 1997 is less than $1.00 to an exercise price representing a 10% discount from such thirty-day average closing bid price. These Placement Agent Warrants are exercisable at any time from November 30, 1996 through May 30, 2001. During the nine-month period ended June 30, 1996 (the "Nine-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 $219,381 from the exercise of 219,381 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 $16,387 cash and $34,054 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 $5,388 in connection with certain deferred compensation arrangements. Also during the Nine-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 9 FIBERCHEM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- August 15, 1996 through February 14, 2001, in connection with certain financial, marketing and strategic planning services. The Company also issued during the Nine-Month Period 1996 options to purchase an aggregate of 518,800 shares of its Common Stock at exercise prices of $1.00 per share. These options were granted to employees and directors 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 Nine-Month Period 1996 included sales of the Company's products for projects for Unocal `76 Products, Shell Oil Company, The BP Oil Company, Explorer Pipeline Company, CalNev Pipeline, the U.S. Navy, the U.S. Federal Bureau of Investigation and one of the Big Three United States automobile manufacturers. In addition, products representing approximately $900,000 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. Installation of approximately $220,000 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 payment 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 24% of net revenues for the Third Quarter 1996 and 8% of net revenues for the Six-Month Period 1996. Revenues from a second customer amounted to 19% and 6% of net revenues for the Third Quarter 1996 and the Six Month Period 1996, respectively. The Company has incurred substantial losses since its inception and may need additional financing to continue as a going concern. Based on the Company's convertible debt funding and its equity capital 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 additional financing, if needed, will occur in amounts sufficient to enable the Company to continue its operations. ----------------------------------------------------- 10 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 June 30, 1996, an aggregate face amount of $1,025,000 of the Notes had been converted to Common Stock resulting in the issuance of 1,281,250 shares of Common Stock and as of August 8, 1996 an additional $125,000 face amount of the Notes had been converted resulting in the issuance of 156,250 additional 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 or until conversion, if earlier, when the proportionate unamortized amount is charged to additional paid in capital. 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. On May 31, 1996 the Company completed an offering also under Regulation S, of 3,333,333 Units, at a price of $0.90 per Unit for total gross proceeds of $3,000,000 before costs and expenses of the offering. Each Unit consisted of one share of Common Stock and one warrant to purchase one share of Common Stock (the "Unit Warrants"). The Unit Warrants are each exercisable at $1.00 at any time from May 31, 1996 through May 30, 2001. The Company paid fees and expenses associated with the Unit offering amounting to $345,683. Also in connection with the Unit offering, the Company issued to the Placement Agent for the offering, for nominal consideration, warrants to purchase 333,333 shares of Common Stock ("the Placement Agent Warrants"), at an exercise price of $0.90 per share. This exercise price will be adjusted if the average closing bid price of the Common Stock during the 30 business days prior to May 31, 1997 is less than $1.00 to an exercise price representing a 10% discount from such thirty-day average closing bid price. These Placement Agent Warrants are exercisable at any time from November 30, 1996 through May 30, 2001. Primarily as a result of the sale of the Notes and the Units, the Company had net cash provided by financing activities of $5,259,187, during the nine-month period ended June 30, 1996 ("Nine-Month Period 1996") as compared with net cash used in financing activities of $122,648 during the nine-month period ended June 30, 1995 ("Nine-Month Period 1995"). Also during the Nine-Month Period 1996 the Company received $220,412 from the exercise of 219,381 options and 1,031 warrants to purchase Common Stock and $16,387 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 11 above, and made payments of $5,080 on its note payable to a bank. During the Nine-Month Period 1995, the Company received $47,301 from the exercise of options to purchase 39,385 shares of Common Stock and $15,056 in cash payments on notes receivable for the exercise of 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 Nine-Month Period 1995 the Company borrowed $21,000 from a local bank for the purchase of equipment and made repayments of $2,666 on the loan. The Company had net cash used in operating activities of $1,985,683 during the Nine-Month Period 1996 as compared with net cash used in operating activities of $2,086,138 during the Nine-Month Period 1995. The deficit during the Nine-Month Period 1996 is primarily a result of the Company's net loss of $2,302,153, offset by adjustments to reconcile net loss to net cash used in operating activities including a decrease in accounts receivable of $150,442, an increase in inventories of $327,242, and a decrease in other current assets of $12,008, as well as a decrease in accounts payable of $39,570 and increases in accrued expenses of $26,341 and interest payable of $77,622. In addition, these adjustments include $43,522 related to the issuance of Common Stock for services provided to the Company, accrued interest of $80,189 on notes receivable for the exercise of options, amortization of patent and technology costs of $198,526, depreciation of $39,221, amortization of Note financing costs of $45,641, provisions for loss on accounts receivable of $51,337, and inventory valuation adjustments for, primarily, consignment inventories of $118,811. The deficit during the Nine-Month Period 1995 is primarily a result of the Company's net loss of $1,879,585, offset by adjustments to reconcile net loss to net cash used in operating activities including increases in inventories of $284,925, accounts receivable of $467,502, other current assets of $55,521, accounts payable of $114,175 and accrued expenses of $50,266. In addition, these adjustments include an aggregate of $184,658 related to the issuance of Common Stock for services provided to the Company, amortization of patent and technology costs of $210,861 and depreciation of $41,435. The Company had net cash used in investing activities of $115,352 during the Nine-Month Period 1996 as compared to net cash used in investing activities of $88,852 for the Nine-Month Period 1995. During the Nine-Month Period 1996, the Company made payments in the amount of $88,564 for United States and foreign patent applications and $26,788 for the purchase of equipment. During the Nine-Month Period 1995, the Company made payments of $67,084 for patent applications and $21,768 for the purchase of equipment. The Company had working capital of $5,301,419 at June 30, 1996, compared with working capital of $2,213,375 at September 30, 1995, an increase of $3,088,044. This increase primarily resulted from the net proceeds of approximately $2,397,000 from the sale of the Notes as well as net proceeds of $2,654,317 from the sale of the Units, offset in part by the Company's net loss for the Nine-Month Period 1996 of $2,302,153. Stockholders' equity increased $1,484,733 during the Nine-Month Period 1996 primarily as a result of the sale of the Units as well as the conversion of a portion of the Notes, offset in part by the Company's net loss for the period. In addition, during the Nine-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 The Company entered into an OEM Strategic Alliance Agreement as of June 30, 1996 with Whessoe Varec, whereby Whessoe Varec was granted exclusive worldwide right to market the Company's products in the AST market. The Agreement was accompanied by firm orders for approximately $1.7 million of the Company's products of which approximately $500,000 was to be shipped during June, 1996 and an additional approximately $500,000 is to be shipped by September 30, 1996. In order to avoid duplicate freight and other costs Whessoe Varec requested segregation of their inventory (rather than shipping to their California warehouse), and subsequent direct shipment to Whessoe Varec's customers as requested by Whessoe Varec. Since the Company's products are new to Whessoe Varec and Whessoe 12 Varec has not had an opportunity to demonstrate the timing of actual installation at customer sites, revenue has not been recognized in the current period. The Company anticipates that revenue will be recognized as Whessoe Varec develops its market, although there can be no assurance as to when or even if this will occur. Whessoe Varec and its parent company Whessoe PLC manufacture and market (along with other products) products to AST owners worldwide, claim a substantial portion of the market for its products, and are highly regarded in the AST market. Management believes its alliance with Whessoe Varec will provide its products with Whessoe Varec's name recognition, Whessoe Varec's substantial sales and marketing capabilities and immediate presence among Whessoe Varec's customer base, all of which are anticipated to contribute to a relatively more rapid recognition and acceptance of the Company's products in the AST market. 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 which require leak detection and/or some form of secondary containment. To the Company's knowledge, no other equipment or methods have received such an approval. There are in excess of 32,000 active ASTs in Florida and a deadline of 1999 for compliance. In response to the growth potential for the global AST market as a result of the alliance with Whessoe Varec, and the potential of the offshore and onshore process water markets, the Company restructured its sales and marketing organization along strategic business unit lines, under the direction of Tom Collins who has assumed the position of Vice President of Sales and Marketing. Strategic business unit (SBU) managers have been appointed for these two key market areas and consideration is being given to further additions as circumstances warrant. The Company has also added Dr. Mitch Means to its technical staff as Director of Applications and Development. Dr. Means previously worked with Nalco Chemical Company, a leading supplier of chemicals for water treatment use, and for Turner Design, Inc., a private instrumentation manufacturer active in the water monitoring field. In addition, the Company recently added two persons to its customer service and support staff. Further expansion of the Company's sales staff is expected to be completed by the end of the Company's fiscal year. Revenues for the Nine-Month Period 1996 included sales for projects for Unocal `76 Products, Shell Oil Company, The BP Oil Company, Explorer Pipeline Company, CalNev Pipeline, the U.S. Navy, the U.S. Federal Bureau of Investigation and one of the Big Three United States automobile manufacturers. Revenues for the three-month period ended June 30, 1996 ("Third Quarter 1996"), included a fourth system for Shell Oil Company and fourth and fifth systems for Unocal `76 Products. Revenues for the Nine-Month Period 1996 also include revenues for sales of products under an exclusive distribution agreement with QED Environmental Systems, Inc. for resale in the subsurface (groundwater) remediation and monitoring markets. Management anticipates that revenues will continue to increase throughout fiscal 1996 and fiscal 1997, based on indications that purchases of its equipment have been included in the 1996 budgets of companies in the petroleum industry worldwide and based on the Company's alliance with Whessoe Varec. 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. To date, spending of capital funds on the Company's products has proceeded at a slower pace than management had originally anticipated, primarily due to extended intervals between purchase and installation of the Company's products. While these delays have been entirely due to scheduling and/or weather problems, they have slowed the Company's ability to use recent customers as references, thus delaying an anticipated "domino 13 effect" on other potential customers. However, during early August 1996 several important installations were scheduled and successfully completed. 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 impact of competitive products and pricing, and other risks detailed from time to time in the Company's SEC reports. Gross profit for the Nine-Month Period 1996 was $361,564 or 57% of net revenues compared to $475,183 or 54% of net revenues for the Nine-Month Period 1995. Gross profit for the Third Quarter 1996 was $64,588 or 52% of net revenues compared to gross profit of $179,712 or 56% of revenues for the Third Quarter 1995. Third Quarter 1996 gross profit reflects the impact of allowances recorded against sales for prior periods as discussed above and in Note 1 to the Consolidated Financial Statements. Research, development and engineering expenditures decreased by $49,360, or 5%, during the Nine-Month Period 1996 from the Nine-Month Period 1995 and increased by $57,192 or 19%, during the Third Quarter 1996 over the Third Quarter 1995. The decrease is primarily attributable to the Company's focus on commercialization of its inventions and technology rather than on new research activities during most of 1995 and the first half of 1996. The Company eliminated most of its consulting agreements and other spending for such research activities. During the Third Quarter 1996, the Company hired a Director of Development, whose primary focus is the development and refinement of applications for current products. Compensation and personnel relocation costs along with increased spending for development materials and supplies account for the increase in Third Quarter 1996 expenses over Third Quarter 1995. The Company is actively pursuing commercialization of its electronic semi-conductor chemical sensor ("Sensor-on-a-Chip") being developed with Texas Instruments, Inc. ("TI") and an application of its hydrocarbon Sensor-on-a-Chip with Gilbarco, Inc. Recently, the Company has supplied, in cooperation with TI, prototype chips for a breath alcohol application to a leading manufacturer of ignition interlock devices for the automotive industry, and is pursuing a strategic alliance for the development of sensors for the industrial hygiene market with a leading supplier of equipment in that field. The Company also 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 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. Approximately $50,000 of revenue was recognized under this contract in the Third Quarter 1996 and the remaining $50,000 is expected to be recognized during the Fourth Quarter 1996. General and administrative expenditures decreased by $133,830, or 12%, during the Nine-Month Period 1996 from the Nine-Month Period 1995 and decreased by $16,341, or 4%, during the Third Quarter 1996 from the Third Quarter 1995. The decreases are primarily attributable to reduced expenditures for salaries and consulting fees. Sales and marketing expenditures increased by $179,266, or 36%, during the Nine-Month Period 1996 from the Nine-Month Period 1995 and increased by $82,759, or 54%, during the Third Quarter 1996 from the Third Quarter 1995. These increases are attributable primarily to additional technical and other marketing and sales support activities and personnel. The Company's interest income decreased by $33,063, or 19%, during the Nine-Month Period 1996 from the Nine-Month Period 1995 and increased by $7,238, or 14%, during the Third Quarter 1996 from the Third 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 net proceeds from the sale of the Notes on February 15, 1996 and approximately $2.7 million in net proceeds from the sale of the Units on May 31, 1996. Interest expense increased by $123,054 and by $77,149 during the Nine-Month Period 1996 and the Third Quarter 1996, respectively, from the year earlier periods as a result of interest expense 14 accrued on the Notes from February 16, 1996 to June 30, 1996 in the amount of $77,622 and amortization of the costs associated with the sale of the Notes in the amount of $45,641. As a result of the foregoing, the Company incurred a net loss of $930,296, or a net loss of $.04 per share, for the Third Quarter 1996 as compared to a net loss of $593,254, or a net loss of $.03 per share, for the Third Quarter 1995. Net loss for the Nine-Month Period 1996 was $2,302,153 or a net loss of $.11 per share, as compared to a net loss of $1,879,585, or a net loss of $.09 per share, for the Nine-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. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders ("the Meeting") was held at the Company's offices on May 31, 1996. At the Meeting, the following directors were re-elected to serve three-year terms or until their successors have been duly elected and qualified: NOMINEE FOR ELECTION AGAINST ELECTION AUTHORITY WITHHELD - ------- ------------ ---------------- ------------------ Scott J. Loomis 17,213,157 23,000 118,900 Walter Haemmerli 17,213,157 23,000 118,900 Also at the Meeting, the Stockholders 1) ratified the adoption of the Company's 1996 Employee Stock Purchase Plan, providing for the purchase by employees of up to 250,000 shares of the Company's Common Stock from time-to-time at 85% of the then prevailing market price, by a vote of 15,799,671 FOR, 601,593 AGAINST and 250,470 ABSTAINING; and 2) ratified the appointment of KPMG Peat Marwick LLP as the independent public accountants for the Company for the fiscal year ending September 30, 1996 by a vote of 17,248,004 FOR, 5,841 AGAINST and 12,100 ABSTAINING. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None. (b) Reports on Form 8-K. A report on Form 8-K was filed by the Company on July 15, 1996 reporting under Item 5. Other Events the offering and sale of 3,333,333 Units, each Unit consisting of one share of the Company's Common Stock and one Warrant to purchase one share of Common Stock, at a price of $0.90 per Unit. ---------------------------------------------- 15 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 16 EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 (RESTATED) AND FOR THE THREE-MONTH AND NINE-MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS SEP-30-1996 JUN-30-1996 4,069,338 0 537,241 (66,864) 1,199,733 5,837,284 597,504 (472,506) 7,040,045 535,865 1,804,427 0 3,241,335 2,550 1,455,868 7,040,045 634,814 634,814 273,160 2,947,886 0 51,337 127,504 (2,302,153) 0 (2,302,153) 0 0 0 (2,302,153) (.11) 0 Omitted because of antidilutive effect of net loss.
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