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: June 30, 1999
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 of incorporation (I.R.S. Employer
or organization) Identification No.)
253 Worcester Road, P.O. Box 180
Charlton, MA 01507
------------------
(Address and Zip Code of principal executive offices)
(508) 248-3900
--------------
(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 July 30,
1999 was 36,373,007.
FIBERCORE, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I FINANCIAL INFORMATION.................................................. 3
ITEM 1. FINANCIAL STATEMENTS.......................................... 3
CONDENSED CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998............ 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND
1998 (UNAUDITED).............................................. 4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 AND 1998........................................ 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)................................................... 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)................................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................... 11
PART II OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS............................................. 12
ITEM 2. CHANGES IN SECURITIES......................................... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 12
ITEM 5. OTHER INFORMATION............................................. 12
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K................................ 12
SIGNATURES...................................................................... 13
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data) June 30, December 31,
1999 1998
---------- ------------
(Unaudited)
ASSETS
Current assets:
Cash........................................................................... $ 85 $ 150
Accounts receivable - net...................................................... 1,499 1,442
Notes receivable from joint venture partners................................... 4,949 4,912
Inventories.................................................................... 3,812 4,480
Prepaid and other current assets............................................... 30 13
-------- ---------
Total current assets.................................................. 10,375 10,997
-------- ---------
Property and equipment - net............................................................ 4,558 5,230
-------- ---------
Other assets:
Restricted cash ............................................................. 2,027 2,310
Patents - net.................................................................. 5,067 5,375
Investments in joint ventures.................................................. 1,425 1,425
Other.......................................................................... 593 431
-------- ---------
Total other assets.................................................... 9,112 9,541
-------- ---------
Total assets.......................................................... $ 24,045 $ 25,768
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................................. $ 1,957 $ 1,665
Accounts payable............................................................... 1,551 1,724
Accrued expenses............................................................... 1,303 1,271
-------- ---------
Total current liabilities............................................. 4,811 4,660
Long-term liabilities................................................................... 9,876 10,204
-------- ---------
Total liabilities..................................................... 14,687 14,864
-------- ---------
Minority interest ...................................................................... 3,263 3,263
-------- ---------
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 out-
standing: 36,373,007 at June 30, 1999 and 35,936,463 at December 31, 1998.... 36 36
Paid in capital................................................................ 23,461 23,337
Accumulated deficit............................................................ (16,566) (15,192)
Accumulated other comprehensive income (deficit):
Accumulated translation adjustment......................................... (836) (540)
-------- ---------
Total stockholders' equity............................................ 6,095 7,641
-------- ---------
Total liabilities and stockholders' equity............................ $ 24,045 $ 25,768
======== ========
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 Six Months Ended
June 30, June 30,
--------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales ...................................... $ 2,371 $ 1,879 $ 5,026 $ 3,442
Cost of sales .................................. 1,946 1,608 4,283 2,862
----------- ----------- ----------- -----------
Gross profit .......................... 425 271 743 580
Operating expenses:
Selling, general and administrative expenses . 637 683 1,181 1,236
Research and development ..................... 178 118 289 240
----------- ----------- ----------- -----------
Loss from operations .................. (390) (530) (727) (896)
Interest income ................................ 1 3 85 57
Interest expense ............................... (227) (170) (448) (332)
Foreign exchange income (loss) - net ........... (121) 37 (318) (64)
Other income - net ............................. 18 112 34 170
----------- ----------- ----------- -----------
Net loss .............................. $ (719) $ (548) $ (1,374) $ (1,065)
=========== =========== =========== ===========
Basic and diluted loss per share of common stock $ (0.02) $ (0.02) $ (0.04) $ (0.03)
=========== =========== =========== ===========
Weighted average shares outstanding ............ 36,262,861 35,803,458 36,127,912 35,789,223
=========== =========== =========== ===========
See accompanying notes to the condensed consolidated financial statements
4
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands except share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
Net loss ..................................................... $ (719) $ (548) $ (1,374) $ (1,065)
Other comprehensive income (loss):
Foreign currency translation adjustment..................... 55 (73) (296) (13)
------- -------- -------- --------
Comprehensive loss ........................................... $ (664) $ (621) $ (1,670) $ (1,078)
======= ======== ======== ========
See accompanying notes to the condensed consolidated financial statements.
5
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands except share data)
Six Months Ended
June 30,
-----------------------
1999 1998
---- ----
Cash flows from operating activities:
Net loss................................................................... $(1,374) $ (1,065)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.............................................. 958 737
Other, principally unrealized foreign exchange losses...................... 527 34
Changes in assets and liabilities:
Accounts receivable........................................................ (267) 313
Inventories................................................................ 130 (677)
Prepaid and other current assets........................................... (18) (18)
Accounts payable........................................................... (104) (326)
Accrued expenses........................................................... 95 137
--------- ----------
Net cash used in operating activities................................... (53) (865)
--------- ----------
Cash flows from investing activities:
Purchase of property and equipment......................................... (758) (740)
Reimbursement from government grant........................................ 248 136
Other .................................................................... (193) (131)
--------- ----------
Net cash used in investing activities................................... (703) (735)
--------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock......................................... 124 ---
Increase in long-term interest payable..................................... 190 208
Proceeds (repayment) of debt - net......................................... 380 (2)
--------- ----------
Net cash provided by financing activities............................... 694 206
--------- ----------
Effect of foreign exchange rate change on cash............................... (3) (201)
--------- ----------
Decrease in cash............................................................. (65) (1,595)
Cash, beginning of period.................................................... 150 2,128
--------- ----------
Cash, end of period.......................................................... $ 85 $ 533
========= ==========
See accompanying notes to the condensed consolidated financial statements.
6
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 June 30, 1999 and the
related condensed statements of operations and comprehensive income (loss) for
the three and six month periods and statements of cash flows for the six month
periods ended June 30, 1999 and 1998 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, 1998
included in the Company's Report on Form 10-K.
2. INVENTORIES
Inventories consist of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Raw material $ 1,287 $ 1,545
Work-in-progress 1,086 1,161
Finished goods 1,439 1,774
-------- --------
Total $ 3,812 $ 4,480
======== ========
3. RESTRICTED CASH
Restricted cash represents the German Mark (DM) 3,850 deposit with the
Berliner Bank securing the loan from the Berliner Bank of DM7,700. The deposit
is reflected in the financial statements in the U.S. Dollar equivalent using the
exchange rates in effect at the balance sheet date. The decrease of $283 in the
balance sheet amount from December 31, 1998 to June 30, 1999 is the result of
the exchange rate change. The change is accounted for as a foreign exchange loss
in the statement of operations.
4. ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheets
and measure those instruments at fair value. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its
resulting designation. The Company is evaluating the effect this new standard
will have on the Company's financial statements. The Company is required to
adopt this standard by January 1, 2001.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Sales for the three and six month periods ended June 30, 1999 were
$2,371,000 and $5,026,000, respectively, compared to sales of $1,879,000 and
$3,442,000 for the same periods in 1998. This represents an increase of $492,000
or 26% for the three months and $1,584,000 or 46% for the six months ended June
30, 1999 compared to the same periods in 1998. This increase was due to
increases in volume shipped to continuing customers and the addition of new
customers in 1999, offset by a decrease in average selling prices in 1999
compared to 1998. Market prices continued to soften during the first six months
of 1999 due to an over supply of products in the industry, however, the Company
anticipates that prices will begin to stabilize in the second half of 1999 as
the excess capacity appears to be dissipating.
Gross profit was $425,000 (17.9% of sales) and $743,000 (14.8% of
sales) for the three and six month periods ended June 30, 1999, respectively,
compared to $271,000 (14.4% of sales) and $580,000 (16.9% of sales) for the same
periods of 1998. Although the percentage margin for the six months of 1999 was
lower than the comparable period in 1998 due partially to lower average selling
prices in 1999 and partially due to an accidental interruption in production in
the first quarter of 1999, the margin in the second quarter of 1999 improved
from 12% in the first quarter 1999. This improvement was due to lower production
costs in the second quarter. The lower costs are the result of continuing
production process improvements. The Company anticipates that the gross margins
will improve as production levels are increased and further cost reductions and
process improvements are implemented.
Selling, general and administrative costs were $637,000 and $1,181,000
for the three and six month periods ended June 30, 1999, respectively, compared
to costs of $683,000 and $1,236,000 for the same periods in 1998. This
represents a decrease of $46,000 or 6.7% and $55,000 or 4.5% for the three and
six month periods ended June 30, 1999, respectively, compared to the same
periods in 1998. This decrease is principally due to reductions in staff at the
Company's headquarters.
Research and development costs were $178,000 and $289,000 for the three
and six month periods ended June 30, 1999, respectively, compared to costs of
$118,000 and $240,000 for the same periods in 1998. This is an increase of
$60,000 (50.8%) and $49,000 (20.4%) for the three and six month periods ended
June 30, 1999, respectively, compared to 1998. The increase during the second
quarter of 1999 was due to increased spending on technology development and
process improvements. The Company intends to continue to increase spending on
research and development during the remainder of 1999.
Interest income increased $28,000 or 49.1% during the first half of
1999 compared to the same period in 1998. This increase is due to an increase in
investment income on the security deposit with the Berliner Bank.
Interest expense increased by $57,000 (33.5%) and $116,000 (34.9%) for
the three and six month periods ended June 30, 1999, respectively, compared to
the same periods in 1998. The increase is principally due to the capitalization
of interest on the expansion project at the Company's German subsidiary in 1998.
The expansion project was completed in 1998 and no interest costs were
capitalized in the first half of 1999.
The Company had foreign exchange losses of $121,000 and $318,000 for
the three and six month periods ended June 30, 1999, respectively, compared to a
gain of $37,000 in the second quarter 1998 and a loss of $64,000 for the first
six months of 1998. The loss is principally due to the impact of the decline in
the value of the German mark versus the U.S. dollar on the German mark security
deposit at the Berliner Bank.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Other income decreased by $136,000 (80%) in the first half of 1999 compared to
the first half of 1998. This decrease is due to a decrease in research grants
and other miscellaneous income items.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $53,000 in the first half of 1999, a
significant improvement compared to a cash outflow for operations of $865,000 in
the first half of 1998. This improvement is primarily due to the higher sales
thereby reducing inventory, improved gross margin and higher depreciation and
other non-cash charges. More specifically, this resulted from the loss for the
period of $1,374,000 offset by depreciation and amortization and other non-cash
items of $1,485,000 and changes in other working capital items. Accounts
receivable increased $267,000 as a result of the increased sales. Inventories
decreased by $130,000 due to the higher level of shipments during the period,
while accounts payable were reduced by $104,000. Accrued expenses increased by
$95,000 principally due to an increase in interest payable.
The Company invested $758,000 in new equipment during the first quarter
of 1999 and received $248,000 in German government grants for investments.
Notes payable increased by $380,000 in the first half of 1999 due to
the increase in amounts drawn on the working capital credit lines at the German
subsidiary. These short term borrowings were required to fund increases in
production to achieve the increased sales.
Long-term interest payable increased $190,000 during the first half of
1999, due to the accrual of interest on the AMP loans wherein the interest is
payable at maturity of these loans.
The Company received $124,000 in proceeds from the issuance of common
stock principally from converting certain current liabilities to common shares
at the approximate fair market value of the shares.
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, and has substantially completed,
reviewing, correcting and testing all of the Year 2000 compliance issues. The
Company has modified or replaced substantially all of its internal use software
and hardware, where necessary, and installed modified third-party software,
where necessary, 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 the 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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
With regard to internal use software and hardware for both information
technology and non-information technology systems, the Company has reviewed
substantially all such systems. The Company has 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 installed in 1998, and, based on communication with the supplier,
this software is Year 2000 compliant. The administrative software at the
Company's headquarters requires upgrading and the supplier of this software has
advised the Company that they have and are prepared to install Year 2000
compliant upgrades. This upgrade will be completed in August 1999. 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.
The Company does not have significant interface applications with
customers, suppliers and others. However, the Company has communicated with all
of its significant suppliers and large customers to determine the extent to
which the Company's systems and operations are vulnerable to those third
parties' failure to remediate their own Year 2000 Issue. The Company's German
subsidiary has also communicated with all of its critical suppliers and has
received certification from these suppliers that their systems will not cause
any disruption to the German subsidiary as a result of the Year 2000 issue.
There can be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted and would not have an adverse
effect on the Company's systems.
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 to complete the Year 2000
modifications. The Company anticipates completing the Year 2000 project as soon
as practical, but not later than August 31, 1999, which is prior to any
anticipated impact. The Company incurred approximately $6,000 through June 30,
1999 for Year 2000 modifications to its software and hardware, and expects to
incur additional costs of approximately $3,000 in 1999. 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. 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.
10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company is exposed to market risks from changes in foreign currency
exchange rates and interest rates. The Company's principal operating subsidiary,
FiberCore Jena, is located in Germany and its functional currency, effective
January 1, 1999, is the EURO.
FOREIGN CURRENCY RISK. FiberCore Jena may, from time to time, purchase
short-term forward exchange contracts to hedge payments and/or receipts due in
currencies other than the EURO. At June 30, 1999, FiberCore Jena had no
outstanding forward exchange contracts.
At June 30, 1999, the Company had a long-term loan denominated in
Deutsche Marks (DM) totaling DM7,700,000. The principal of the loan is due at
maturity, September 2006. Interest on the loan is payable quarterly at the fixed
rate of 6.25% per annum. A 10% change in the DM exchange rate to the U.S. dollar
could increase or decrease the cash flow requirements of the Company by
approximately $29,000 for each of the years 1999 through 2005, and by
approximately $22,000 in 2006.
Substantially all of the Company's sales are through it German
subsidiary. Additionally, at June 30, 1999, 38% and 19% of the Company's assets
are at its German and Malaysian subsidiaries, respectively. The Company,
therefore, is subject to foreign currency translation gains or losses in
reporting its consolidated financial position and results of operations.
INTEREST RATE RISK. At June 30, 1999, the Company had short and long term loans
with interest rates based on the prime rate and LIBOR which are adjusted
quarterly based on the prevailing market rates. A 10% change in the interest
rates on these loans would have increased or decreased the first quarter 1999
interest expense by approximately $30,000.
11
PART II - OTHER INFORMATION
ITEMS 1 - 3
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders ("Annual Meeting"),
held on June 29, 1999, 29,613,925 shares of Common Stock were
represented, in person or by proxy, constituting a quorum, of the total
of 36,373,007 shares of Common Stock outstanding and entitled to vote
at the Annual Meeting.
At the Annual Meeting, the directors nominated were elected by the
following votes:
Number of Shares Number of Shares
Voted For Withheld
---------------- ----------------
William T. Hanley 29,513,502 100,423
Javad K. Hassan 26,454,669 3,159,256
Hedayat Amin-Arsala 29,513,502 100,423
Steven Phillips 29,513,502 100,423
No director received fewer than 26,454,669 votes or 72.7% of the
outstanding Common Stock. There were no broker non-votes on this
proposal.
At the Annual Meeting, the selection of Deloitte & Touche LLP,
independent certified public accountants, as auditors for the Company
for the fiscal year ending December 31, 1999, was ratified by a vote of
29,499,456 shares (81.1% of the outstanding Common Stock). Holders of
26,075 shares voted against the proposal and holders of 88,394 shares
abstained. There were no broker non-votes on this proposal.
ITEM 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
12
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: August 3, 1999 /s/ Mohd Aslami
--------------------------------------------------------
Dr. Mohd A. Aslami
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)
Date: August 3, 1999 /s/ Michael J. Beecher
--------------------------------------------------------
Michael J. Beecher
Chief Financial Officer and Treasurer
(Principal Financial Officer)