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: March 31, 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 (I.R.S. Employer
of 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
--- ---
The number of shares of the Registrant's common stock outstanding as of April
30, 1999 was 36,373,007.
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I FINANCIAL INFORMATION.................................................................................... 3
ITEM 1. FINANCIAL STATEMENTS............................................................................ 3
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998............................................. 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED).......................................... 4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998................................ 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE THREE MONTHS ENDED MARCH 31, 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
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands except share data) March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................................................. $ 50 $ 150
Accounts receivable - net ........................................................ 1,364 1,442
Notes receivable from joint venture partners ..................................... 4,912 4,912
Inventories ...................................................................... 3,857 4,480
Prepaid and other current assets ................................................. 27 13
-------- --------
Total current assets .................................................... 10,210 10,997
-------- --------
Property and equipment - net .............................................................. 4,609 5,230
-------- --------
Other assets:
Restricted cash .................................................................. 2,128 2,310
Patents - net .................................................................... 5,213 5,375
Investments in joint ventures .................................................... 1,425 1,425
Other ............................................................................ 426 431
-------- --------
Total other assets ...................................................... 9,192 9,541
-------- --------
Total assets ............................................................ $ 24,011 $ 25,768
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .................................................................... $ 1,382 $ 1,665
Accounts payable ................................................................. 1,430 1,724
Accrued expenses ................................................................. 1,324 1,271
-------- --------
Total current liabilities ............................................... 4,136 4,660
Long-term debt ............................................................................ 9,957 10,204
-------- --------
Total liabilities ....................................................... 14,093 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; shares
issued and outstanding: 36,015,034 at March 31, 1999 and 35,936,463 at
December 31, 1998 .......................................................... 36 36
Paid in capital .................................................................. 23,357 23,337
Accumulated deficit .............................................................. (15,847) (15,192)
Accumulated other comprehensive income (deficit):
Foreign currency translation adjustment ........................................ (891) (540)
-------- --------
Total stockholders' equity .............................................. 6,655 7,641
-------- --------
Total liabilities and stockholders' equity .............................. $ 24,011 $ 25,768
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Net sales .................................................................... $ 2,655 $ 1,563
Cost of sales ................................................................ 2,337 1,254
------------ ------------
Gross profit ........................................................ 318 309
Operating expenses:
Selling, general and administrative expenses ............................... 544 553
Research and development ................................................... 111 122
------------ ------------
Loss from operations ................................................ (337) (366)
Interest income .............................................................. 84 54
Interest expense ............................................................. (221) (162)
Foreign exchange loss-net .................................................... (197) (101)
Other income ................................................................. 16 58
------------ ------------
Net loss ............................................................ $ (655) $ (517)
============ ============
Basic and diluted loss per share of common stock ............................. $ (0.018) $ (0.014)
============ ============
Weighted average shares outstanding .......................................... 35,991,463 35,774,822
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss ......................................................................... $ (655) $ (517)
Other comprehensive income (loss):
Foreign currency translation adjustments ....................................... (351) 60
------- --------
Comprehensive loss ............................................................... $(1,006) $ (457)
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
5
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands except share data)
Three Months Ended
March 31,
--------------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................................. $ (655) $ (517)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization ............................................................. 494 361
Other ..................................................................................... 182 38
Changes in assets and liabilities:
Accounts receivable ..................................................................... (34) 425
Inventories ............................................................................. 276 (344)
Prepaid and other current assets ........................................................ (15) (183)
Accounts payable ........................................................................ (250) (608)
Accrued expenses ........................................................................ 93 (99)
------- -------
Net cash provided by (used in) operating activities ................................... 91 (927)
------- -------
Cash flows from investing activities:
Purchase of property and equipment ........................................................ (334) (388)
Reimbursement from government grant ....................................................... 261 --
Other ..................................................................................... (4) (151)
------- -------
Net cash used in investing activities ................................................. (77) (539)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock ........................................................ 20 --
Repayment of notes-net .................................................................... (226) (11)
Increase in long-term interest payable .................................................... 95 104
------- -------
Net cash provided by (used in) financing activities ................................... (111) 93
------- -------
Effect of foreign exchange rate change on cash .............................................. (3) 101
------- -------
Decrease in cash ............................................................................ (100) (1,272)
Cash, beginning of period ................................................................... 150 2,128
------- -------
Cash, end of period ......................................................................... $ 50 $ 856
======= =======
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
6
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands except share data)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheet as of March 31, 1999 and related
condensed statements of operations, comprehensive income (loss), and cash flows
for the three months ended March 31, 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:
March 31, December 31,
1999 1998
--------- ------------
Raw materials ........................... $1,388 $1,545
Work-in-progress ........................ 1,063 1,161
Finished goods .......................... 1,406 1,774
------ ------
Total ..... $3,857 $4,480
====== ======
3. 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, 2000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Sales for the three months ended March 31, 1999 were $1,092,000 higher than
sales for the same period in 1998, an increase of 69.9%. This increase was due
to an increase in volume shipped of 109% offset by a decrease in average selling
prices of 16.7%. The increase in volume was principally due to the addition of
new customers. Market prices continued to soften due to an over-supply of
products in the industry. The Company anticipates that prices will continue to
decline through 1999, but at a slower rate of decline compared to 1998.
Gross profit for the first three months of 1999 was $318,000 or 12.0% of
sales compared to $309,000 or 19.8% of sales for the first three months of 1998.
The decrease in the percentage margin was caused primarily by the lower selling
prices offset by lower average per unit costs. 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 decreased $9,000 or 1.6% in the
first quarter of 1999 compared to the first quarter of 1998, while research and
development costs decreased $11,000 (9.0%). The decrease in research and
development costs resulted from a reduction in personnel at the Company's
headquarters. The Company intends to increase spending on research and
development during the remainder of 1999.
Interest income increased $30,000 or 55.6% during the first quarter 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 $59,000 (36.4%) in the first quarter of 1999
compared to the same period 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 quarter of 1999.
Foreign exchange losses were $197,000 in the first quarter of 1999 compared
to $101,000 for the same period in 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 decreased by
$42,000 (72.4%) in the first quarter of 1999 compared to the first quarter of
1998. This decrease is due to a decrease in research grants and other
miscellaneous income items.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company achieved a positive cash flow from operations of $91,000 in the
first quarter of 1999 compared to a cash outflow for operations of $927,000 in
the first quarter of 1998. This resulted from the loss for the period of
$655,000 offset by depreciation and amortization and other charges of $676,000
and changes in other working capital items. Inventories decreased by $276,000
due to the higher level of shipments during the quarter, while accounts payable
were reduced by $250,000. Accrued expenses increased by $93,000 principally due
to an increase in interest payable.
The Company invested $334,000 in new equipment during the first quarter of
1999 and received $261,000 in German government grants for investments.
Notes payable decreased by $226,000 in the first quarter of 1999 due to the
repayment of amounts previously drawn on the working capital credit lines at the
German subsidiary. The Company anticipates that the use of these credit lines
will increase during the balance of 1999 as the Company increases production to
meet anticipated increases in sales.
Long-term interest payable increased $95,000 during the first quarter of
1999, due to the accrual of interest on the AMP loans wherein the interest is
payable at maturity of these loans.
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
<PAGE>
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 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.
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 June 1999, which is prior to any anticipated
impact. The Company incurred approximately $6,000 through March 31, 1999 for
Year 2000 modifications to its software and hardware, and expects to incur
additional costs of approximately $5,000 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
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
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 March 31, 1999, FiberCore Jena had no
outstanding forward exchange contracts.
At March 31, 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 March 31, 1999, 39% 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 March 31, 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 $15,000.
11
<PAGE>
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
<PAGE>
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: May 14, 1999 /s/ Mohd Aslami
-----------------------------------------------
Dr. Mohd A. Aslami
Chairman, President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 1999 /s/ Michael J. Beecher
-----------------------------------------------
Michael J. Beecher
Chief Financial Officer and Treasurer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000917770
<NAME> FIBERCORE, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 50
<SECURITIES> 0
<RECEIVABLES> 6,474
<ALLOWANCES> (198)
<INVENTORY> 3,857
<CURRENT-ASSETS> 10,210
<PP&E> 7,070
<DEPRECIATION> (2,461)
<TOTAL-ASSETS> 24,011
<CURRENT-LIABILITIES> 4,136
<BONDS> 9,957
0
0
<COMMON> 36
<OTHER-SE> 6,619
<TOTAL-LIABILITY-AND-EQUITY> 24,011
<SALES> 2,655
<TOTAL-REVENUES> 2,755
<CGS> 2,337
<TOTAL-COSTS> 2,992
<OTHER-EXPENSES> 197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> (655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (655)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
