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, 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 (I.R.S. Employer
incorporation 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
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The number of shares of the Registrant's common stock outstanding as of October
31, 1999 was 37,373,007.
1
FIBERCORE, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I FINANCIAL INFORMATION............................................................................................. 3
ITEM 1. FINANCIAL STATEMENTS............................................................................ 3
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 1999 (UNAUDITED) AND DECEMBER 31, 1998................................ 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998 (UNAUDITED)....................................................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998............................................................ 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 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) September 30, December 31,
1999 1998
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash.................................................................................... $ 574 $ 150
Accounts receivable - net............................................................... 1,845 1,442
Notes receivable from joint venture partners............................................ 4,949 4,912
Inventories............................................................................. 3,911 4,480
Prepaid and other current assets........................................................ 30 13
--------- ---------
Total current assets........................................................... 11,309 10,997
--------- ---------
Property and equipment - net..................................................................... 4,456 5,230
--------- ----------
Other assets:
Restricted cash ...................................................................... 2,095 2,310
Patents - net........................................................................... 4,945 5,375
Investments in joint ventures........................................................... 1,425 1,425
Other................................................................................... 506 431
--------- ---------
Total other assets............................................................. 8,971 9,541
--------- ---------
Total assets................................................................... $ 24,736 $ 25,768
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................................................................... $ 2,572 $ 1,665
Accounts payable........................................................................ 1,522 1,724
Accrued expenses........................................................................ 1,386 1,271
--------- ---------
Total current liabilities...................................................... 5,480 4,660
Long-term liabilities............................................................................ 10,134 10,204
--------- ---------
Total liabilities.............................................................. 15,614 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: 37,373,007 at September 30, 1999 and 35,936,463 at December 31, 1998.......... 37 36
Paid in capital......................................................................... 23,710 23,337
Accumulated deficit..................................................................... (17,155) (15,192)
Accumulated other comprehensive income (deficit):
Accumulated translation adjustment.................................................. (733) (540)
Total stockholders' equity..................................................... 5,859 7,641
--------- ---------
Total liabilities and stockholders' equity..................................... $ 24,736 $ 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 Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Net sales..................................................... $ 2,824 $ 2,301 $ 7,850 $ 5,743
Cost of sales................................................. 2,563 1,949 6,846 4,690
------------- -------------- ------------- ------------
Gross profit......................................... 261 352 1,004 1,053
Operating expenses:
Selling, general and administrative expenses................ 580 885 1,761 2,121
Research and development.................................... 125 114 414 354
------------- -------------- ------------- ------------
Loss from operations................................. (444) (647) (1,171) (1,422)
Interest income............................................... -- 2 85 59
Interest expense.............................................. (233) (241) (681) (573)
Foreign exchange income (loss) - net.......................... (30) 195 (348) 131
Other income - net............................................ 118 11 152 60
------------- -------------- ------------- ------------
Net loss............................................. $ (589) $ (680) $ (1,963) $ (1,745)
============== ============== ============== ============
Basic and diluted loss per share of common stock.............. $ (0.02) $ (0.02) $ (0.05) $ (0.05)
============== ============== ============== ============
Weighted average shares outstanding........................... 36,709,964 35,817,785 36,324,061 35,798,803
============== ============== ============== ============
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 Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Net loss ..................................................... $ (589) $ (680) $ (1,963) $ (1,745)
Other comprehensive income (loss):
Foreign currency translation adjustment..................... 103 277 (193) 264
------------- -------------- ------------- ------------
Comprehensive loss $ (486) $ (403) $ (2,156) $ (1,481)
============== ============== ============== ============
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)
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
Cash flows from operating activities:
Net loss.............................................................................. $ (1,963) $ (1,745)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization......................................................... 1,342 1,189
Other, principally unrealized foreign exchange losses................................. 435 23
Changes in assets and liabilities:
Accounts receivable................................................................... (572) 211
Inventories........................................................................... 159 (1,277)
Prepaid and other current assets...................................................... (18) 85
Accounts payable...................................................................... (150) (28)
Accrued expenses...................................................................... 163 147
----------- ----------
Net cash used in operating activities.............................................. (604) (1,395)
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment.................................................... (965) (968)
Reimbursement from government grant................................................... 511 338
Other ............................................................................... (153) (196)
----------- ----------
Net cash used in investing activities.............................................. (607) (826)
----------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock.................................................... 374 --
Increase in long-term interest payable................................................ 289 314
Proceeds (repayment) of debt - net.................................................... 974 281
----------- ----------
Net cash provided by financing activities.......................................... 1,637 595
----------- ----------
Effect of foreign exchange rate change on cash.......................................... (2) (184)
----------- ----------
Increase (decrease) in cash............................................................. 424 ( 1,810)
Cash, beginning of period............................................................... 150 2,128
----------- ----------
Cash, end of period..................................................................... $ 574 $ 318
=========== ==========
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 September 30, 1999 and
the related condensed statements of operations and comprehensive income (loss)
for the three and nine month periods and statements of cash flows for the nine
month periods ended September 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:
September 30, 1999 December 31, 1998
------------------ -----------------
Raw material $ 1,637 $ 1,545
Work-in-progress 1,043 1,161
Finished goods 1,231 1,774
----- -----
Total $ 3,911 $ 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 $215 in the
balance sheet amount from December 31, 1998 to September 30, 1999 is the result
of the exchange rate change. The change is accounted for as an unrealized
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, as amended, 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 NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND 1998
Sales for the three and nine month periods ended September 30, 1999
were $2,824,000 and $7,850,000, respectively, compared to sales of $2,301,000
and $5,743,000 for the same periods in 1998. This represents an increase of
$523,000 or 22.7% for the three months and $2,107,000 or 36.7% for the nine
months ended September 30, 1999 compared to the same periods in 1998. This
increase was due to increases in volume of approximately 67% shipped to new and
continuing customers. During the third quarter 1999, the Company began shipping
significant quantities to new customers outside Western Europe, principally to
North America. The increase in sales due to higher volumes was partially offset
by a decrease in average selling prices of approximately 20% in 1999 compared to
1998. Market prices continued to soften during the first nine months of 1999 due
to an over supply of products in the industry, however, the prices have begun to
stabilize as the excess capacity appears to be dissipating.
Gross profit was $261,000 (9.2% of sales) and $1,004,000 (12.8% of
sales) for the three and nine month periods ended September 30, 1999,
respectively, compared to $352,000 (15.3% of sales) and $1,053,000 (18.3% of
sales) for the same periods of 1998. The percentage margin for the nine months
of 1999 was lower than the comparable period in 1998 due principally 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 third quarter of
1999 was further impacted by higher costs for delivery of product to customers
outside of Western Europe. 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 $580,000 and $1,761,000
for the three and nine month periods ended September 30, 1999, respectively,
compared to costs of $885,000 and $2,121,000 for the same periods in 1998. This
represents a decrease of $305,000 or 34.5% and $360,000 or 17.0% for the three
and nine month periods ended September 30, 1999, respectively, compared to the
same periods in 1998. This decrease is principally due to reductions in staff
and lower professional fees at the Company's headquarters and reductions in
administrative costs at the Company's ALT subsidiary .
Research and development costs were $125,000 and $414,000 for the three
and nine month periods ended September 30, 1999, respectively, representing 4.4%
and 5.5% of sales, respectively, compared to costs of $114,000 and $354,000 for
the same periods in 1998.. This is an increase of $11,000 (9.6%) and $60,000
(16.9%) for the three and nine month periods ended September 30, 1999,
respectively, compared to 1998. The increase during the nine months of 1999 was
due to increased spending on a new technology development project and other
process improvements. The Company intends to continue to increase spending on
research and development during the remainder of 1999.
Interest income increased $26,000 or 44.1% during the first nine months
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 $108,000 (18.8%) for the nine months
ended September 30, 1999, compared to the same period in 1998. In 1998 the
Company capitalized certain interest costs on the expansion project at the
Company's German subsidiary and therefore interest charged to income in 1998 was
lower than 1999.. The expansion project was completed in 1998 and no interest
costs were capitalized in 1999.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company had foreign exchange losses of $30,000 and $348,000 for the
three and nine month periods ended September 30, 1999, respectively, compared to
a gain of $195,000 in the third quarter 1998 and a gain of $131,000 for the
first nine 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.
Other income increased by $92,000 (153%) in the first nine months of
1999 compared to the first nine months of 1998. This increase is due to an
increase in research grants and other miscellaneous income items.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations was $604,000 in the first nine months of 1999,
a significant improvement compared to a cash outflow for operations of
$1,395,000 in the first nine months of 1998. This improvement is primarily due
to the higher volume of sales, reductions of inventory, and higher depreciation
and other non-cash charges. More specifically, this resulted from the loss for
the period of $1,963,000 offset by depreciation and amortization and other
non-cash items of $1,777,000 and changes in other working capital items.
Accounts receivable increased $572,000 as a result of the increased sales.
Inventories decreased by $159,000 due to the higher level of shipments during
the period, while accounts payable were reduced by $150,000. Accrued expenses
increased by $163,000 principally due to an increase in interest payable.
The Company invested $965,000 in new equipment during the first nine
months of 1999 and received $511,000 in German government grants for
investments. Other assets increased by $153,000 in the nine months of 1999,
principally due to investments in patents and an increase in other deferred
costs.
Notes payable increased by $974,000 in the first nine months of 1999
due principally 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 $289,000 during the first nine
months of 1999, due to the accrual of interest on the AMP Incorporated loans
wherein the interest is payable at maturity of these loans. AMP Incorporated was
recently acquired by Tyco International Ltd.
The Company received $374,000 in proceeds from the issuance of common
stock, principally from the private sales of shares and 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.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
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 was upgraded in August 1999 and the supplier of this
software has advised the Company that this upgrade is Year 2000 compliant. 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 has substantially completed the Year 2000 project and
does not anticipate any significant impact on its operations as a result of the
Year 2000 issue. The Company incurred costs of approximately $9,000 through
September 30, 1999 for Year 2000 modifications to its software and hardware.
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 September 30, 1999, FiberCore Jena had no
outstanding forward exchange contracts.
At September 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 $26,000 for each of the years 1999 through 2005, and by
approximately $20,000 in 2006.
Substantially all of the Company's sales are through it German
subsidiary. Additionally, at September 30, 1999, 40% and 18% 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 September 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 interest expense for the
first nine months of 1999 by approximately $48,000.
11
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
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: November 12, 1999 /s/ Mohd Aslami
-----------------------------
Dr. Mohd A. Aslami
Chairman, President and Chief
Executive Officer
(Duly Authorized Officer)
Date: November 12, 1999 /s/ Michael J. Beecher
-----------------------------
Michael J. Beecher
Chief Financial Officer and Treasurer
(Principal Financial Officer)
13