UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
OR
[ ] 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: 0-21823
FIBERCORE, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0445729
------------ ------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
253 Worcester Road, P.O. Box 180
Charlton, MA 01507
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(Address and Zip Code of principal executive offices)
(508) 248-3900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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_________
---
The number of shares of the Registrant's common stock outstanding as of October
31, 1998 was 35,849,035.
1
FIBERCORE, INC. AND SUBSIDIARIES
INDEX
PAGE
----
ART I FINANCIAL INFORMATION ............................................................... 3
ITEM 1. FINANCIAL STATEMENTS....................................................... 3
CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1998
(UNAUDITED) AND DECEMBER 31, 1997.......................................... 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED).............. 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)............... 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)............ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS....................................................... 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................. 9
PART II OTHER INFORMATION ................................................................... 10
ITEM 1. LEGAL PROCEEDINGS........................................................... 10
ITEM 2. CHANGES IN SECURITIES....................................................... 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 10
ITEM 5. OTHER INFORMATION........................................................... 10
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K.............................................. 10
SIGNATURES.................................................................................... 11
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data)
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash............................................................ $ 318 $ 2,128
Accounts receivable - net....................................... 1,228 1,501
Notes receivable from joint venture partners.................... 4,912 4,883
Inventories..................................................... 4,565 3,057
Prepaid and other current assets................................ 17 22
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Total current assets.......................................... 11,040 11,591
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Property and equipment - net........................................ 5,232 4,808
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Other assets:
Restricted cash .............................................. 2,307 2,140
Patents - net................................................... 5,539 6,014
Investments in joint ventures................................... 1,425 1,425
Other........................................................... 435 129
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Total other assets............................................. 9,706 9,708
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Total assets................................................... $25,978 $26,107
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................... $ 886 $ 594
Accounts payable................................................. 1,809 1,778
Accrued expenses................................................. 1,315 1,128
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Total current liabilities...................................... 4,010 3,500
Long-term liabilities............................................... 10,571 9,851
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Total liabilities.............................................. 14,581 13,351
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Minority interest .................................................. 3,264 3,217
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Stockholders' equity:
Preferred stock, $.001 par value, authorized 10,000,000 shares;
no shares issued and outstanding............................... --- ---
Common stock, $.001 par value, authorized 100,000,000 shares;
issued and outstanding: 35,849,035 at September 30, 1998 and
35,774,822 at December 31, 1997.............................. 36 36
Paid in capital............................................... 23,296 23,221
Accumulated deficit........................................... (14,595) (12,850)
Accumulated other comprehensive income (deficit):
Accumulated translation adjustment........................... (604) (868)
------ ------
Total stockholders' equity.............................. 8,133 9,539
------ ------
Total liabilities and stockholders' equity............ $25,978 $26,107
====== ======
See accompanying notes to the condensed consolidated financial statements.
3
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except share data)
Three Months Ended Nine Months Ended
September 30 September 30,
---------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales............................................... $ 2,301 $ 1,869 $ 5,743 $ 5,419
Cost of sales........................................... 1,949 1,486 4,690 4,452
----------- -------- ---------- ------------
Gross profit................................... 352 383 1,053 967
Operating expenses:
Selling, general and administrative expenses.......... 885 716 2,121 2,168
Research and development.............................. 114 130 354 425
----------- ------------ ----------- -------------
Loss from operations........................... (647) (463) (1,422) (1,626)
Interest income......................................... 2 8 59 22
Interest expense........................................ (241) (213) (573) (605)
Foreign exchange income (loss) - net.................... 195 (31) 131 (200)
Other income - net...................................... 11 (1) 60 9
------------ ------------ ----------- -------------
Net loss....................................... (680) (700) (1,745) (2,400)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments.............. 277 (252) 264 (1,008)
------------ ------------ ------------ ------------
Comprehensive loss............................. $ (403) $ (952) $ (1,481) $ (3,408)
============ ============ ============ ============
Basic and diluted loss per share of common stock........ $ (0.02) $ (0.02) $ (0.05) $ (0.07)
============ ============ =========== ============
Weighted average shares outstanding..................... 35,817,785 35,882,978 35,798,803 35,682,756
============ ============ =========== =============
See accompanying notes to the condensed consolidated financial statements.
4
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands except share data)
Nine Months Ended
September 30,
------------------
1998 1997
----- ----
Cash flows from operating activities:
Net loss.............................................................................. $ (1,745) $ (2,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................................... 1,189 1,009
Other ............................................................................... 190 72
Foreign currency (gain) loss.......................................................... (167) 281
Changes in assets and liabilities:
Accounts receivable................................................................... 211 (230)
Inventories........................................................................... (1,277) (1,307)
Prepaid and other current assets...................................................... 85 72
Accounts payable...................................................................... (28) (13)
Accrued expenses...................................................................... 147 336
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Net cash used in operating activities.............................................. (1,395) (2,180)
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Cash flows from investing activities:
Purchase of property and equipment.................................................... (968) (2,963)
Reimbursement from government grant................................................... 338 662
Other ............................................................................... (196) (63)
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Net cash used in investing activities.............................................. (826) (2,364)
----------- ---------
Cash flows from financing activities:
Proceeds from sale of common stock.................................................... --- 103
Increase in long-term interest payable................................................ 314 ---
Proceeds (repayment) of debt - net.................................................... 281 4,544
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Net cash provided by financing activities.......................................... 595 4,647
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Effect of foreign exchange rate change on cash.......................................... (184) (15)
---------- ---------
Decrease in cash........................................................................ (1,810) (88)
Cash, beginning of period............................................................... 2,128 190
--------- ---------
Cash, end of period..................................................................... $ 318 $ 278
========== =========
Supplemental Disclosure:
Shares issued in exchange for investment in joint venture............................ --- $ 425
See accompanying notes to the condensed consolidated financial statements.
5
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and Marks in thousands except share data)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 1998 and
the related condensed statements of operations for the three and nine month
periods and statements of cash flows for the nine month periods ended September
30, 1998 and 1997 included herein have been prepared by the Company in
accordance with the rules and regulations of the Securities and Exchange
Commission for reports on Form 10-Q. These statements are unaudited. In the
opinion of management, all adjustments necessary for a fair presentation of such
financial statements have been included and such adjustments consist of normal
recurring items.
The condensed consolidated financial statements do not contain certain
information included in the Company's annual audited financial statements. These
financial statements should be read in conjunction with the annual audited
financial statements and notes thereto for the year-ended December 31, 1997
included in the Company's report on Form 10-K.
2. INVENTORIES
Inventories consist of the following:
September 30, 1998 December 31, 1997
------------------ -------------------
Raw material $1,294 $ 997
Work-in-progress 444 315
Finished goods 2,827 1,745
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Total $4,565 $3,057
===== =====
3. ACCOUNTING PRONOUNCEMENTS
Effective for 1998, the Company implemented Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income". Other
comprehensive income (loss) for the Company consists of foreign currency
translation adjustments. The reports for prior periods included in the financial
statements have been restated to reflect this change.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997
Sales increased by $432,000 (23.1%) and $324,000 (6.0%) for the three and nine
month periods ended September 30, 1998, respectively, compared to the same
periods in 1997. This increase is the result of increased shipments and the
addition of new customers offset by a decline in the average value of the German
mark during the nine months of 1998 compared to the same period in 1997. The
increase in sales is more significant in light of the lower average sales prices
in 1998 compared to 1997 resulting from competitive price pressures.
Substantially all of the Company's sales are from the Company's German
subsidiary, FiberCore Jena GmbH. Sales of the subsidiary in German Marks were DM
3,980,430 and DM 10,113,374 for the quarter and nine months ended September 30,
1998, respectively, compared to DM 3,132,492 and DM 9,006,528 for the same
periods in 1997, representing an increase of 27.1% for the quarter and 12.3% for
the nine months ended September 30, 1998 over the corresponding periods in 1997.
Gross profit was $352,000 (15.3% of sales) and $1,053,000 (18.3% of
sales) for the quarter and nine months ended September 30, 1998, respectively,
compared to $383,000 (20.5% of sales) and $967,000 (17.8% of sales) for the
corresponding periods in 1997. The decrease in the profit margin in the third
quarter of 1998 was principally due to lower average sales prices compared to
the same period in 1997. The profit margins are expected to improve as further
production efficiencies are implemented.
Selling, general and administrative costs increased by $169,000
(23.6%) for the three months ended September 30, 1998 compared to the same
period in 1997. This increase was principally the result of an increase in the
provision for doubtful accounts of $165,000 for a receivable from a Pakistan
customer of the Company's Automated Light Technologies subsidiary. No similar
accounts are outstanding at September 30, 1998 and, therefore, the Company does
not anticipate further losses of this nature and magnitude.
Research and development costs decreased 12.3% and 16.7% during the
quarter and nine month periods ended September 30, 1998, respectively, compared
to the corresponding periods in 1997. This decrease was due to higher costs
incurred for a specific product development project in Germany during the first
nine months of 1997.
Interest expense was $28,000 higher (13.1%) during the third quarter
of 1998 compared to the third quarter of 1997 due to the higher average
outstanding debt in 1998. Interest expense was $32,000 lower for the nine months
ended September 30, 1998 compared to the corresponding period in 1997
principally due to the capitalization of interest in the first half of 1998
related to the expansion project in Germany.
Foreign exchange income was $195,000 and $131,000 for the quarter and
nine months ended September 30, 1998, respectively, compared to foreign exchange
losses of $31,000 and $200,000 for the corresponding periods in 1997. The income
in 1998 resulted principally from the gain on a German Mark deposit with a
German bank due to the strengthening of the German mark at the end of the third
quarter 1998.
As a result of the changes as described above, the Company had a net
loss for the three months ended September 30, 1998 that was 2.9% lower than the
loss in the same period of 1997. The loss for the nine months ended September
30, 1998 was 27.3% lower than the loss in the corresponding period in 1997.
7
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $1,395,000 in the first nine months of
1998 compared to $2,180,000 in the same period in 1997. This resulted from the
loss in the first nine months of 1998 of $1,745,000 offset by depreciation and
amortization of $1,189,000 and other non-cash charges of $23,000 and changes in
other working capital items. The Company's German subsidiary is generating a
positive cash flow from operations and management anticipates that this will
continue.
Accounts receivable decreased $211,000, principally as a result of the
collection of grants due from the German government. Inventories increased
$1,277,000 resulting from the increased capacity and to provide stock for
shipments during the planned December holiday shut-down. Accrued liabilities
increased $147,000 principally due to the increase in accrued interest on notes.
During the first nine months of 1998, the Company invested $968,000 in
new equipment and the expansion of the production facility in Germany. This was
funded, in part, by $338,000 in grants from the German government. Other assets
increased $196,000 principally due to an increase in deferred costs related to
the Malaysian subsidiary.
Long-term interest payable increased $314,000 during the first nine
months of 1998, principally on the AMP loans wherein interest is payable at
maturity. Short-term notes payable increased $281,000 due to borrowings under
lines of credit for working capital at the German subsidiary.
Management anticipates that its German subsidiary will continue to
generate a positive cash flow from operations and the Company will be able to
sustain its operations through short-term borrowing. The Company's German
subsidiary has a committed working capital line of credit from two German banks
for 2,000,000 German Marks, approximately $1,198,000. On a consolidated basis
management anticipates that the cash flows from operations will be positive
while investing activities will continue to be funded by short and long term
borrowings.
The Company's 51% owned joint venture in Malaysia, FiberCore Asia Sdn.
Bhd. ("FCA"), which was established to construct and operate a manufacturing
facility in Malaysia is subject to the recent international risks of the Far
East including currency fluctuations and the general economic instability in the
region. Due to this current economic instability, there are uncertainties
regarding the sources and timeliness of obtaining financing necessary to
construct the manufacturing facility. The Company and the joint venture partners
are pursuing alternative sources of financing for this project.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's internal use computer programs and hardware, both administrative
and technical ( " embedded" systems such as process control computers ), that
are date sensitive may recognize a date using "00" as the Year 1900 rather than
the Year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities for both the
Company and its customers who rely on its products.
The Company is actively engaged, but has not yet completed, reviewing,
correcting and testing all of the Year 2000 compliance issues. Based on the
current, albeit incomplete review and remediation, the Company has determined
that it will be required to modify or replace some of its internal use software
and hardware, and
8
install modified third-party software so that they will function properly, as a
system, with respect to dates in the Year 2000 and thereafter.
The Company presently believes that with modifications to its
third-party software and the replacement of certain internal use software and
non-compatible hardware, the Year 2000 issue will not pose significant
operational problems for the Company or its customers. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the Company and its customers.
With regard to internal use software and hardware, the Company is
currently reviewing all such items. To date, it has been determined that a small
amount of older computer equipment must be replaced, but the type and amount are
not significant and will be replaced in the ordinary course as systems are
upgraded. With regard to third-party software, it has been determined that some
software is not compliant and will need to be upgraded as vendors provide Year
2000 compliant versions. New administrative software at the Company's German
subsidiary was recently installed, and, based on communication with the
supplier, this software is Year 2000 compliant. The administrative software at
the Company's headquarters will require upgrading and the supplier of this
software has advised the Company that they have and are prepared to install Year
2000 compliant upgrades. The Company also utilizes third-party vendors for
processing data and payments, e.g. payroll services, shareholder records, etc.
The Company has initiated communications with its vendors to determine the
status of their systems. Should these vendors not be compliant in a timely
manner, the Company may be required to process transactions manually or delay
processing until such time as the vendors are Year 2000 compliant. The Company
is in the process of developing contingency plans to reduce the risks of
vendors' systems impacting the Company's operations.
At this time, the Company believes its most reasonably likely worst
case scenario is that key suppliers could experience disruptions in their
ability to deliver key raw materials and/or services due to their own Year 2000
issues. In the event that this scenario does occur, the Company does not expect
that it would have a material adverse affect on the Company's financial position
and results of operations, as there are alternative sources of supply for the
Company's principal materials.
The Company will utilize both internal and external resources to
reprogram, or replace and test its software products for the Year 2000
modifications. The Company anticipates completing the Year 2000 project as soon
as practical, but not later than June 1999, which is prior to any anticipated
impact. The total cost of the Year 2000 project is estimated to be less than
$100,000 and is not considered to be material, and will be funded through
existing cash resources and future operating cash flows. The requirements for
the correction of Year 2000 issues and that date on which the Company believes
it will complete the Year 2000 modifications are based on management's current
best estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third-party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that may cause such material differences
include, but are not limited to , the availability of personnel trained in this
area, the ability to locate and collect all relevant computer codes and similar
uncertainties. Based upon the current best estimate for remediation of the Year
2000 issues, the Company believes the risk is minimal that the Company will not
comply with current commitments and internal processing needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
9
PART II - OTHER INFORMATION
ITEMS 1 - 5
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FiberCore, Inc.
(Registrant)
Date: November 5, 1998 /s/ Mohd A. Aslami
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Dr. Mohd A. Aslami
Chairman, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 5, 1998 /s/ Michael J. Beecher
-----------------------
Michael J. Beecher
Chief Financial Officer
and Treasurer
(Principal Financial Officer)
11