UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 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 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share (Title of Class)
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),
Yes X No___
and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 1, 1999: $5,572,299.
Number of shares outstanding as of March 1, 1999: 36,015,034.
DOCUMENTS INCORPORATED BY REFERENCE
None
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FIBERCORE, INC.
TABLE OF CONTENTS
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PART I................................................................................. 3
ITEM 1. BUSINESS......................................................... 3
ITEM 2. PROPERTIES....................................................... 16
ITEM 3. LEGAL PROCEEDINGS................................................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.......................................................... 17
PART II ............................................................................... 18
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS....................................... 18
ITEM 6. SELECTED FINANCIAL DATA........................................... 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................................. 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................... 54
PART III ............................................................................... 55
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT........................................................ 55
ITEM 11. EXECUTIVE COMPENSATION............................................ 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................... 59
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 61
PART IV ................................................................................ 64
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K....................................................... 64
SIGNATURES.............................................................................. 67
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PART I
ITEM 1. BUSINESS
GENERAL
FiberCore, Inc. ("FiberCore" or the "Company") is engaged in the
business of developing, manufacturing, and marketing single-mode and multi-mode
optical fiber and optical fiber preforms for the telecommunications and data
communications industry. Preforms are the basic component from which optical
fiber is drawn and subsequently cabled. The Company has developed a patented
preform production process which management believes to be competitive with
other existing production methods in use. Through its wholly-owned subsidiary,
Automated Light Technologies, Inc. ("ALT"), the Company manufactures patented
cable monitoring systems, a patented long range fault locator, cable protection
devices, and electro-optical talk sets.
In June 1994, the Company formed a wholly-owned subsidiary in Germany,
FiberCore Jena GmbH ("FCJ"), which leases a manufacturing facility in Jena,
Germany ("the Jena Facility") for a fixed monthly sum, and acquired certain
equipment located in that facility from SICO Quarzschmelze Jena GmbH ("SICO").
Until the year 2001, the Company's ownership of the equipment is subject to the
right of the German government, from which SICO purchased the equipment, to
repossess the equipment in the event the Company ceases production. The
agreement pursuant to which the Company acquired the equipment provided for the
issuance of 2,221,141 shares of Common Stock to SICO in exchange for the
equipment. The Jena Facility is an existing 26,500 square foot optical fiber
manufacturing plant that has been in operation since 1986.
On July 18, 1995, FiberCore, Incorporated, the predecessor to
FiberCore, Inc., incorporated under the laws of the State of Nevada in November
1993, merged into Venturecap, Inc. ("Venturecap"), an inactive corporation,
organized under the laws of the State of Nevada in 1987. Venturecap issued
3.671307 shares in exchange for each outstanding share of FiberCore,
Incorporated and, as a result, Venturecap issued a total of 24,617,133 shares
for all of the outstanding shares of FiberCore, Incorporated. After the merger,
Venturecap changed its name to FiberCore, Inc.
On September 18, 1995, the Company acquired Automated Light
Technologies, Inc. ALT, a Delaware corporation organized in 1986, manufactures
equipment which monitors and identifies faults in fiber optic cables, cable
protection devices, and electro-optical talk sets.
In January 1996, the Company established a subsidiary, InfoGlass
Incorporated ("InfoGlass"), through which it intends eventually to conduct its
North American fiber optic business. InfoGlass is currently inactive.
In November 1997, the Company entered into a joint-venture agreement
with PNB Equity Resource Corporation Sdn. Bhd. ("PERC") and Federal Power Sdn.
Bhd. ("FDP"), both of which are Malaysian corporations, to form FiberCore Asia
Sdn. Bhd. ("FCA"). FCA, which is incorporated in Malaysia, was established to
construct and operate a manufacturing facility in Malaysia for the production of
optical fiber and optical fiber preforms. The Company owns 51% of FCA, and FDP
and PERC own 37% and 12%, respectively.
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BUSINESS (CONTINUED)
The Company granted FCA a license to use the Company's technology for
its 51% ownership, while FDP and PERC contributed cash and notes for their
respective ownership interest. Due principally to the economic and currency
crisis experienced in the Asian/Pacific region the debt financing necessary to
construct the manufacturing facility has not, as yet, been obtained. The Company
and the other partners in FCA are continuing to seek financing and additional
equity for FCA. The products of FCA will be marketed principally in the Pacific
Rim.
The following is an organizational chart depicting the Company's
principal subsidiaries and ownership percentage.
FIBERCORE, INC.
CORPORATE STRUCTURE
HEADQUARTERS
(USA)
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FIBERCORE ASIA FOI (PVT.) LTD. FIBERCORE JENA GMBH INFOGLASS, INC. FIBERCORE MIDEAST LTD. ALT, INC.
SDN. BHD. (PAKISTAN) (GERMANY) (USA) (ASIA) (USA)
(MALAYSIA) 30% OWNED 100% OWNED 100% OWNED 100% OWNED 100% OWNED
51% OWNED MIDDLE EAST FIBER CABLES CO.
15% OWNED BY
FIBERCORE MIDEAST LTD.
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Substantially all of the Company's sales are from optical fiber and
optical fiber preforms. ALT accounted for less than 5% of sales in each of the
last three years.
RECENT DEVELOPMENTS
In January 1998, Corning Incorporated filed suit against the Company
claiming the Company's phosphorus containing fiber violated a Corning patent.
During 1998 the suit was settled and the Company agreed not to solicit, market
or sell phosphorus containing multimode fiber in the United States until the
Corning patent expires in July 1999. The Company also agreed to conduct an
arbitration process to determine whether the Company's singlemode fiber violates
the Corning patent. In March 1999, the arbitrator issued an opinion concluding
that FiberCore's singlemode fiber does not violate the Corning patent. The
Company has not, in the past, sold any material quantities of its fiber in the
United States.
In April 1995, the Company issued a note to AMP, Incorporated ("AMP")
(the "AMP Note"). The AMP Note is a ten-year $5,000,000 convertible note. AMP, a
company listed on the New York Stock Exchange, with worldwide sales in excess of
$5.7 billion in 1997, is a manufacturer of electrical and optical connection
devices, systems and other equipment including fiber optic cable. The AMP Note
is collateralized by the Company's patents, patent applications, licenses,
rights and royalties arising from such patents. The AMP Note is subject to
prepayment on demand in the event the Company is the issuer of securities to be
sold by the Company under an effective registration statement. On November 27,
1996 AMP converted $3,000,000 of principal plus $540,985 of accrued interest
into 3,058,833 shares of Common Stock of the Company. The remaining outstanding
principal plus accrued interest may be converted into Common Stock of the
Company at $0.66 per share, until maturity, April 17, 2005.
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BUSINESS (CONTINUED)
In July 1996, AMP entered into a five year supply contract (renewable
at AMP's option for an additional five year period) with the Company whereby AMP
has undertaken to purchase from the Company at least 50% of AMP's future glass
optical fiber needs. Under this contract, the Company sold fiber totaling
approximately $1,801,000 and $1,238,000 in 1998 and 1997, respectively, to an
AMP cabling contractor in Europe. The Company expects to begin supplying optical
fiber to AMP in the United States in 1999. On November 27, 1996, the Company
obtained an additional $3,000,000 loan at an interest rate of prime plus 1%,
from AMP to facilitate the funding of the expansion of the Jena Facility. In
exchange AMP received a ten-year note and common stock purchase warrants
exercisable until November 27, 2001. Under the terms of the loan and warrant
agreement, on November 27, 1998 the number of warrants was increased to
2,765,487 and the warrant exercise price was adjusted to $0.7232 per share. In
connection with the new AMP loan and the expansion of the Jena Facility, the
Company was awarded a grant from the German Government of approximately
$2,700,000 and received a loan from Berliner Bank of approximately $4,621,000.
As part of the new $3,000,000 loan from AMP, Mohd A. Aslami, Charles De Luca,
Dr. M. Mahmud Awan (a former director of the Company) and AMP entered into a
Voting Agreement pursuant to which they agreed to vote together to elect a slate
of directors to the Board of Directors of the Company. AMP has waived the
implementation of this slate of directors. The Voting Agreement also requires a
classified and three year staggered Board of Directors. Such Voting Agreement
would remain in effect until the earlier of (i) termination of the new AMP loan
agreement, or (ii) an underwritten public offering by the Company which
generates at least $5,000,000.
In 1995, the Company, through its subsidiary, FiberCore MidEast Ltd.
("FME"), entered into a joint venture agreement (the "MidEast JV Agreement")
with Middle East Fiber Optic Manufacturing Company Limited ("MEOFC"), a Saudi
Arabian company and John Royle and Sons, Inc. ("Royle"), a manufacturer of cable
manufacturing systems. Pursuant to the agreement, the parties jointly own Middle
East Fiber Cables Co., ("MEFC"), a Saudi Arabian joint venture company. MEFC
manufactures and sells optical fiber and optical fiber cable both inside and
outside of Saudi Arabia. The Company and Royle each contributed $500,000 to the
venture and initially had a 15% interest in MEFC. MEOFC contributed $2,330,000
and held a 70% interest. The Company and MEFC have entered into a long-term
supply agreement for MEFC to purchase and the Company to supply fiber and
preforms over the next five years. Shipments under this agreement began in 1997.
The Company may not transfer its interest in MEFC to any entity other than Royle
or MEOFC without the permission of such parties. In February 1999, the equity of
MEFC was restructured to facilitate the investment of a new equity partner. As a
result, a portion of the Company's equity has been converted to a loan to MEFC
in the amount of Saudi Rials 800,000 (approximately $213,000) and the Company's
equity in MEFC was reduced to 8%. MEFC began operations in 1998 and had sales of
approximately SR1,833,000 (U.S. $489,000) for the year ended December 31, 1998.
In connection with the Company's participation in MEFC, on October 5,
1995, Middle East Specialized Cables Co., ("MESC") a Saudi Arabian company in
which the owners of MEOFC have an interest, purchased 367,131 shares of Common
Stock at an aggregate price of $500,000. In November 1996, MESC purchased a
second block of 367,131 shares of Common Stock for an additional $500,000. The
proceeds of this sale were used as the Company's capital contribution to MEFC,
described above. In 1997, MESC was also issued 312,061 shares of Common Stock
and was granted Warrants to purchase 550,696 shares of Common Stock at an
exercise price of $1.63 per share through April 13, 1997, upon delivery of a
supply agreement between the Company and MEFC. The warrants expired without
exercise.
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BUSINESS (CONTINUED)
On January 11, 1996, pursuant to a Share Purchase Agreement, Techman
International Corp. ("Techman") agreed to purchase for $1,000,000 a total of
734,260 shares of Common Stock and Warrants exercisable at $1.63 per share into
550,696 shares of Common Stock expiring on January 11, 1998. The Warrants
expired without exercise. Dr. M. Mahmud Awan, a former director of the Company,
is the President and sole shareholder of Techman. Additionally, Techman would be
issued 312,061 shares of Common Stock upon the delivery of a supply agreement
between Fiber Optic Industries (Pvt.) Ltd., ("FOI") and the Company. FOI is a
joint venture between the Company and Techman which was formed for the purpose
of constructing and operating a fiberdraw and optical fiber cable manufacturing
facility in Pakistan. In 1996, the 734,260 shares and the 312,061 shares, above,
were issued to Techman in exchange for the payment of $1,000,000 and the
delivery by Techman of a twenty year supply agreement between the Company and
FOI. The Company used $500,000 of the proceeds as an additional capital
contribution in FOI. The Company maintains a 30% ownership interest in FOI. Due
to a delay in the construction of the manufacturing plant, in 1997 the supply
agreement was canceled and the 312,061 shares have been canceled. Due to the
political and economic situation in Pakistan this project has been further
delayed and will be reviewed in 1999.
On July 31, 1996, the Company borrowed $500,000 under two loan
agreements with the spouses of the Chairman and Chief Executive Officer and the
Executive Vice President of the Company. The loans are in the amount of $250,000
each, bear interest at the prime rate plus one percent (currently 9.25%) and are
due on July 31, 1999. The Company expects that these loans will be renewed. In
conjunction with the loans, each lender received Warrants to purchase 115,220
shares of Common Stock at a price of $1.81 per share. The Warrants expire on
July 31, 2001.
In September 1997, the Company borrowed $150,000 from Techman
International Corporation. The note bears interest at prime plus 1% per year and
matured on September 17, 1998. In conjunction with the note, Techman was granted
warrants to purchase 69,132 common shares of the Company at an exercise price of
$0.625 per share. The note was renewed and the maturity date extended to
December 31, 1999.
In April 1997, the Company borrowed $250,000 from Techman under a note
maturing in 2000. The annual interest rate on the note is the prime rate plus
1%, adjustable quarterly and payable quarterly. In conjunction with the note,
Techman was granted warrants to purchase 115,220 common shares of the Company at
an exercise price of $0.78 per share.
In addition to the above two notes with Techman, in 1997, the Company
borrowed $345,000 for working capital from the Chief Executive Officer,
shareholders, and certain companies of which certain directors of FiberCore are
shareholders. The loans bear interest at the prime rate plus one (1) percent per
year, and mature in 1998 ($125,000) and 2000 ($220,000). In 1997 and 1998,
$75,000 of the notes maturing in 1998 were repaid. The remaining note of $50,000
has been renewed and matures in 1999.
In 1998, the expansion of the Jena facility was completed, more than
doubling the production capacity of that plant. The expansion was funded by
German government grants and loans, as described above. The Company anticipates
that it will outgrow the current leased facility and therefore is planning to
construct a new manufacturing facility in the Jena area. The Company expects to
finance this new facility under similar financing arrangements to the earlier
expansion, utilizing German Government grants and guaranteed loans and equity.
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BUSINESS (CONTINUED)
FIBER OPTIC PREFORM MANUFACTURING TECHNOLOGIES
Optical fibers are solid strands of hair-thin, high quality glass which
are usually combined to form cables for transmitting information via light
pulses from one point to another. The fibers consist of a core of high-purity
glass that transmits light encased within a covering layer designed to reduce
signal loss through the side walls of the fibers. Information transmitted
through optical fibers is converted from electrical impulses into light waves by
a laser or light emitting diode. At point of reception, the light waves are
converted back into electrical impulses by a photo-detector.
Communication by means of light waves guided through glass fibers
offers a number of advantages over conventional means of transmitting
information. Glass fibers carry significantly more information than metallic
conductors and, unlike metallic conductors, are not subject to electromagnetic
or radio frequency interference. Signals of equal strength can be transmitted
over much longer distances through optical fibers than through metallic
conductors and require the use of fewer repeaters (devices which strengthen a
signal). Further, fiber-optic cables, which typically consists of numerous
optical fibers encased in one or more plastic sheaths, are substantially smaller
and lighter than metallic conductor cables of the same capacity, so they can be
less expensive and more easily installed, particularly in limited conduit or
duct spaces.
There are two basic types of communication optical fibers: multimode
fiber and single-mode fiber. Multi-mode fiber has a larger core (the area where
the light travels) than single-mode fiber, carries less bandwidth and is more
expensive. It is generally used over relatively short distances in wiring
buildings and groups of buildings. The electronics and the connectors required
to work with multi-mode fiber are less costly than the electronics required for
single-mode fiber. For example, the light source for multi-mode fiber can be
light emitting diodes, while single-mode fiber requires laser light sources.
Single-mode fiber is used in long-distance trunk lines (cables between cities)
and fiber-to-the-curb (cable from a central office to the curb in front of an
office building or home).
The three basic technologies widely used to manufacture multi-mode and
single-mode optical fiber are:
1. Outside Vapor Deposition ("OVD"), otherwise known as the "Corning
process."
2. Inside Vapor Deposition ("IVD"), which is also known as Modified
Chemical Vapor Deposition ("MCVD") or the "AT&T process". Due to its
flexibility and relative ease of operation, this process is the most
widely used around the world by independent manufacturers.
3. Axial Vapor Deposition ("AVD"), also known as the "Japanese process".
This process is similar to the Corning process.
The basic production unit from which fiber "is drawn" is a preform. A
preform is a cylindrical high purity glass rod with a high refractive index
glass material in the central part of the rod (the "core") and a low refractive
index glass material in the outer part of the rod (the "clad"). The rod can be
less than one inch to several inches in diameter and one to several meters in
length. From one such preform many thousands of meters of optical fiber can be
drawn. The OVD and AVD processes both manufacture 100% of the glass composing
the final preform and are comparable in terms of machine speeds that manufacture
glass per unit of time. These speeds are significantly higher than those of the
IVD process. In contrast,
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BUSINESS (CONTINUED)
the IVD process manufactures only about one-third of the total glass required in
the manufacture of a preform, with the balance of the glass being purchased in
the form of a tube at costs significantly lower than that of either OVD or AVD,
thus balancing the overall expense.
Optical fiber cable is produced from optical fiber by first coloring
the coated fiber and then encasing the fiber in a protective jacket.
PROPRIETARY MANUFACTURING PROCESS AND PRODUCTS
The Company manufactures both multi-mode and single-mode preforms and
fiber, but does not manufacture optical fiber cable, although MEFC, in which the
Company has an interest, draws fiber from preforms and manufactures fiber optic
cable.
The Company's patented technology can be best described as a
"rod-and-tube" process, or as a hybrid of the OVD, IVD and the AVD processes.
The Company's process takes advantage of available high quality doped 1 and
undoped fused silica rods and tubes during the manufacturing process to produce
more efficiently single-mode optical fiber preform and single-mode fiber at a
substantially reduced cost than the alternative processes.
Specifically, the Company's process places a high-purity "core" glass
rod inside a high-purity glass tube or "clad", which has a lower refractive
index than the core, and collapses the tube over the rod to form an intermediate
preform. The Company purchases the glass tubes and manufactures the "core" glass
inside of the purchased glass tube. The composite material is subsequently
converted to a glass rod referred to as an intermediate preform. Such
intermediate preform can also be manufactured by any of the other existing
processes. This intermediate preform is placed inside another purchased tube and
collapsed together to form a final preform, which has the proper ratio of
core-to-outside-diameter-glass. The preform is then drawn into finished fiber by
placing it inside a "draw furnace", heated to approximately 2000 degrees
Celsius, and "stretched" into tens of thousands of meters of hair-thin, flexible
glass fiber. The Company believes that its patented process offers
manufacturing-cost and capital-investment advantages over the processes
currently in use by competitors for the manufacture of optical fiber, because
(i) the machine time necessary to produce a given size preform is significantly
less, thereby allowing the Company to produce more preforms in the same time
period; and (ii) the Company purchases the tube while manufacturing a much
smaller portion of the clad and all of the core which accounts for approximately
5% of the preform, while the OVD process, for example, manufactures 100% of the
preform, requiring substantially more capital investment.
Prior to its acquisition by the Company, the Jena Facility was
manufacturing multi-mode fiber and preform for the Eastern European market.
Management believes the time and cost required to achieve manufacturing
efficiencies at the Jena Facility were minimized as a result of management's
knowledge and experience in fiber production and machine design.
_____________________
1 Doping means adding other glass materials, such as germanium dioxide to
the silica glass.
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BUSINESS (CONTINUED)
ALT PRODUCTS
The Company's ALT subsidiary has four principal products, all of which
are manufactured at the Company's Charlton, Massachusetts facility.
ALT's Fiber Optic Cable Monitoring Systems ("FOCMS") facilitate the
continuous monitoring of fiber optic and copper cables. The FOCMS consist of
sensors housed in a protective cover placed at cable splice points and connected
to a central monitoring system. ALT holds two United States patents covering
this technology. ALT purchased one of these patents and know-how relating to
fiber optic cable monitoring systems on September 7, 1986, from Norscan, a
Canadian company. Norscan retained the right to use the technology in Canada and
the rights to a Canadian reissuance of the purchased patent and has had the
technology in operation on the Trans Canada fiber optic network since 1988. ALT
intends to make the technology widespread in other regions worldwide. A dispute
exists between ALT and Norscan with respect to Norscan selling FOCMS products,
in competition with ALT products, that utilize technology other than the
technology assigned to ALT pursuant to its agreement with Norscan. ALT contends
that, in so doing, Norscan is violating a non-competition provision of Norscan's
agreement with ALT. Failure by ALT and Norscan to resolve this dispute could
materially adversely affect the future sales of ALT products. (See Item 3. Legal
Proceedings)
ALT also manufactures patented long-range fault locators, which are
generally used in pairs. Typically, each device is applied at a point on a fiber
optic cable, less than 100 miles from the other unit. These devices can detect
and locate cable faults between the units.
In addition, ALT manufactures cable protection devices, which are
applied at cable splice joints prior to cables entering a building to protect
against hazardous electrical currents that could otherwise be carried by metal
sheaths encasing optical fibers, and electro-optical talksets. Talksets are used
by field personnel to communicate over optical fiber, twisted pair-cable
(regular telephone cable), and metal sheaths encasing optical fibers and copper
cables.
Customers for the FOCMS and other ALT Products have included telephone
companies worldwide, including MCI Telecommunications Corp., AT&T Corp. and
Pacific Telesis.
ALT is not actively marketing these products because of lack of
resources, but is planning to market such products in the future.
RESEARCH AND DEVELOPMENT
In 1998, the Company filed two patents for a production process that
the Company believes when implemented will substantially reduce the Company's
manufacturing cost of optical fiber and preforms. The Company is currently
installing a pilot machine using this new process in Jena and expects this pilot
machine to be on line in mid 1999.
The Company conducts research and development ("R&D") activities at its
Jena Facility and Charlton, Massachusetts offices. Additionally, the Company is
conducting product development R&D under two contracts with two scientific
research laboratories in Russia. The Company's research and
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BUSINESS (CONTINUED)
development activities consist primarily of optical fiber manufacturing process
improvements and optical fiber product development. The Company is currently
conducting research in Germany under three grants from the German government
totaling approximately $78,063.
The Company incurred costs of $475,000, $434,000 and $420,000 for
research and process development for the fiscal years ended December 31, 1998,
1997, and 1996, respectively. The principal purpose of the research activity is
to improve the production process for the manufacturing of fiber preforms, with
concentration on reducing production time and reducing raw material consumption
per unit of product. ALT's expenditures are principally for product development
and enhancements of its products.
Five of the Company's employees devote substantially all of their time
to research and development, which includes process and product development.
SALES AND MARKETING
To capitalize on the growth in fiber demand, the Company's sales and
marketing objective is to increase market penetration by developing long-term,
strategic relationship supply contracts for both preform and fiber products as
rapidly as practical; expanding the Company's global sales and marketing
programs; and emphasizing the performance and cost advantages of the Company's
patented technology for its key customers. The Company plans to sell products in
areas where it can reasonably expect to avoid direct competition from major
suppliers of fiber, such as Lucent Technologies and Corning, and secure its
customer base through strategic alliances. Consistent with this strategy,
initial marketing efforts for singlemode fiber and preform have been focused on
establishing strategic alliances in developing countries where management
believes the demand is growing more rapidly than in Europe and the Americas.
Multimode fiber is marketed in Europe and the Americas where management believes
market opportunities are the greatest for this product.
Management believes the telecommunications infrastructure of developing
countries is in the early stages of evolution and competition is not well
established. In the past, developing countries would typically purchase older,
previously deployed communications technology and equipment. However, the lack
of a copper cable infrastructure and a desire to become more technologically
advanced has driven some developing countries to choose fiber optic cable
networks to develop a sophisticated communications network. These countries must
first install a fiber optic infrastructure of trunk and feeder lines followed by
fiber, copper or wireless to the subscriber loop. The Company is initially
targeting the large fiber optic cable manufacturing companies in Asia, the
Middle East, the Pacific Rim, and certain European markets. Four employees
devote substantially all of their time to sales and marketing and are assisted
in this effort by independent sales representatives.
JOINT MANUFACTURING AND MARKETING ARRANGEMENTS
The Company is seeking to increase market penetration in optical fiber
markets through strategic alliances and/or joint ventures similar to the MEFC
and FCA joint ventures. These relationships are being structured so that the
Company provides the preforms and the related technology requirements and the
partner provides the financing, operating and local marketing expertise. In this
way, it may be possible for the Company to rapidly obtain market penetration
with little, if any, capital investment.
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BUSINESS (CONTINUED)
Discussions regarding similar joint ventures and/or strategic alliances are
underway, although there can be no assurances that such discussions will lead to
the consummation of any transactions.
CUSTOMERS, INVENTORY, BACKLOG AND ADVERTISING
A key element of the Company's marketing strategy is to maintain
sufficient raw material and finished goods inventories to enable the Company to
fill customer orders promptly. This strategy requires a substantial amount of
working capital to maintain inventories at a level sufficient to meet
anticipated demand.
CUSTOMERS REPRESENTING OVER 10% OF SALES
The following table is based on the total sales of the Company for all
periods presented.
% OF SALES
1998
Customer A 23%
Customer B 22%
Customer C 13%
Customer D 10%
1997
Customer A 42%
Customer B 17%
Customer C Less than 10%
Customer D Less than 10%
1996
Customer A 56%
Customer B 15%
Customer C Less than 10%
Customer D Less than 10%
The Company believes that only the loss of Customers A and B would have
a material adverse effect on the Company.
BACKLOG, SALES AND ADVERTISING
At December 31, 1998 the Company had a backlog of orders approximating
$3.9 million ($4.1 million at December 31, 1997). During 1998, four of the
Company's employees were engaged in sales activities, and the Company utilized
manufacturers' sales representatives in certain geographic markets. In 1998, the
Company employed a full-time international marketing/sales manager and one full
time sales person for the European market. Also in 1999, the Company intends to
expand its independent sales
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BUSINESS (CONTINUED)
representative organization to provide broader representation primarily in the
Pacific Rim. Assisted by local representatives, management intends to establish
potential relationships with key managers of local cable and telephone
companies. In addition, other management executives are engaged in negotiating
long-term supply agreements with current and potential customers.
Due to the nature of the industry, the Company does not currently
engage in extensive advertising. The Company promotes its products principally
through direct mailings and visits to potential customers, distribution of
product brochures through sales representatives and exhibiting at industry trade
shows.
COMPETITION
Due to the high demand for the Company's fiber, the Company has
initially concentrated on manufacturing and selling fiber and has increased its
fiber manufacturing capability in Jena, Germany, and plans to further increase
capacity through building a new facility in Jena and a planned facility in
Malaysia. However, because competition in the production of preforms is somewhat
limited, the Company plans to increase its emphasis on marketing preforms to
that segment of the market outside the U.S. and Europe.
FIBER PREFORM
Management believes that there is limited competition in the sale of
preforms to cable manufacturers who draw their own fiber. Such competition,
however, is expected to grow. At present, the competition for singlemode
preforms on a worldwide basis is limited to two United States manufacturers,
SpecTran and Alcatel. SpecTran's product sales are for unique fiber applications
and Alcatel is directly marketing singlemode preforms. Additionally, Lycom,
Alcatel and Nokia, in Europe, Shin-Etsu from Japan and DaeWoo from Korea have
begun marketing singlemode preforms.
The predominant practice of most fiber manufacturers is to make fiber
optic preform only for their internal use and not to sell preform to other
fiber-optic manufacturers. Management believes these large companies will not
enter the preform market since fiber manufacturers have an inherent disincentive
in selling preforms; they have already invested heavily in plant, equipment and
technology to convert preforms into fiber and/or cable, and by selling preforms
they would be giving up value-added margins. The Company's customers are not
vertically integrated, and require preforms that are in limited supply.
FIBER
The competition in multimode fiber products is limited to a few
manufacturers in North America and Europe. They include Corning Incorporated,
Lucent Technologies, Alcatel, SpecTran and Plasma Optical Fiber. Management
believes that Corning, Lucent Technologies, and Alcatel generally supply the
bulk of their production to their own cablers or joint venture partners.
Therefore, in the US, multimode fiber will be the primary product due to the
Company's unique technological and cost advantage, coupled with the fact that
the other three large US producers do not focus on the multimode fiber as their
primary business. Furthermore, FiberCore plans to offer several types of
multimode fibers for specific applications and performance advantages such as
different glass composition for radiation resistant fiber for Government
applications, and special coatings for high performance cable designs.
Additionally,
12
<PAGE>
BUSINESS (CONTINUED)
because of the Company's manufacturing flexibility, the Company is positioned to
respond quickly to special customer requirements and applications.
The competition in the singlemode fiber market is much more extensive
than in the preform market or the multimode fiber market. Most of the
competition for fiber comes from Corning and Lucent Technologies. Competition in
the fiber market is primarily based on availability and quality, and more
recently price. In the past, with some exceptions, the Company's fiber has been
generally priced at comparable levels to fiber manufactured by the larger
producers. In the future, FiberCore will concentrate on marketing its new line
of high performance products to support emerging protocols, such as Gigabit
Ethernet, as well our ValuGrade and EconoGrade line of products, which have
excellent price/performance characteristics.
ALT PRODUCTS
The Company's management believes there is limited or no direct
competition for its FOCMS product line except for Norscan. Most other competing
technologies and products are more complementary to the Company's products than
true competitors because these products and the Company's products are both
needed to perform short range and long range fault locating.
Numerous companies manufacture cable protection devices. The Company
believes, however, that it has the only product approved by Underwriters
Laboratories, an internationally recognized certifying organization.
Numerous companies manufacture field talksets that enable personnel to
communicate over either twisted pair, metal sheath or optical fiber. The Company
knows of no other company that manufactures a product that enables personnel to
communicate over all three media, although many companies have or can acquire
the technology to create such a device.
PRODUCT WARRANTIES
Customers may obtain refunds for any defective fiber and fiber preforms
shipped by the Company within 90 days of delivery. The Company extends one year
warranties on ALT Products.
PATENTS
The Company is the registered owner in the United States of U.S. Patent
No. 4,596,589 relating to optical fiber fabrication. The patent, which expires
in 2003, was acquired in 1993 from Gregory Perry, a co-founder of the Company.
The existing patent provides a more efficient method for fabricating a
single-mode optical fiber preform by substantially reducing the time and cost
required to produce the preform. The patent also provides an efficient method of
attaching cladding material around a single-mode fiber core. The Company has
filed an application in the United States and European Common Market improving
upon the process covered by the above patent, and intends to file in other
foreign jurisdictions, as well as filing further improvement patents for its
process.
13
<PAGE>
BUSINESS (CONTINUED)
In 1997 and 1998, the Company filed two patent applications in the U.S.
for a process which the Company believes will improve the cost and efficiency of
producing optical fiber preforms. The Company is currently in the process of
preparing additional patent applications for the production of optical fiber and
preforms that are expected to be filed in 1999.
The Company is the registered owner in the United States of three
patents covering its cable monitoring systems and fault locating methods. The
Company acquired the first such U.S. patent, Patent No. 4,480,251, which covers
cable monitoring systems and expires in 2001, from Norscan. A patent issued by
the United Kingdom for the same technology was also acquired by the Company from
Norscan. The Company has filed international patent applications covering this
technology in various other countries around the world, although none have yet
been granted. Pursuant to the Company's agreement with Norscan, Norscan has the
right to a Canadian patent reissuance and may otherwise use the technology in
Canada. The Company has improved upon Norscan's technology and obtained a
European patent and United States patent, Patent No. 5,077,526, which expires in
2008 covering the improvements. The Company also owns a United States patent,
Patent No. 4,947,469 expiring in 2007, and a European patent covering a cable
fault location method. In addition, the Company owns a United States patent
covering the provision of backup power to optical communications systems.
The Company's ability to compete effectively will depend, in part, on
its ability to protect its patents. There can be no assurance that the steps
taken by the Company to protect its intellectual property will be adequate to
prevent misappropriation or that others will not develop competitive
technologies or products. Furthermore, there can be no assurance that others
will not independently develop products that are similar or superior to the
Company's products or technologies, duplicate any of the Company's technologies,
or design around the patents issued to the Company. In addition, the validity
and enforceability of a patent can be challenged after its issuance. While the
Company does not believe that its patents infringe upon the patents or other
proprietary rights of any other party, other parties may claim that the
Company's patents do infringe upon such patents or other proprietary rights.
There can be no assurance that the Company would be successful in defending
against such a claim of infringement. Moreover, the expense of defending against
such a claim could be substantial. (See Item 3. Legal Proceedings).
INTERNATIONAL OPERATIONS
The Company is subject to all the risks of conducting business
internationally. These risks include unexpected changes in legislative or
regulatory requirements and fluctuations in the United States dollar and the
German mark, and other currencies in which the Company is doing business from
time to time. The business and operations of the Company's Germany subsidiary,
FCJ, are subject to the changing economic and political conditions prevailing
from time to time in Germany. Labor costs, corporate taxes and employee benefit
expenses are high compared to the rest of the European Union, the United States
and Japan. FCA, the Company's joint venture in Malaysia, is subject to similar
international risks, including the currency fluctuations recently experienced in
the Pacific Rim region. The Company's participation in MEFC and its investment
in FOI are subject to the risks of doing business in Saudi Arabia, the Middle
East and Asia in general. These risks include, but are not limited to, the
threat of regional conflict. In 1998, 1997 and 1996, FCJ accounted for 99%, 97%,
and 98% of the Company's sales, respectively.
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<PAGE>
BUSINESS (CONTINUED)
TRADEMARKS
FCJ is the owner of the registered trademark InfoGlass(R) under which
it markets its optical fiber products. In 1997, the Company filed for
registration of the trademarks "EconoGrade" and "ValuGrade" for products it
introduced in the market in 1998. ALT is the owner of the registered trademark
Floodhound(R) which is used in the sale of the Company's water leak detection
devices.
SEASONALITY
The Company's business does not have strong seasonal fluctuations and
the Company does not expect material seasonal variations to revenue.
RAW MATERIALS
The Company presently can purchase all its raw material requirements
for its optical fiber and preform business. The major component of a preform is
silica glass tubing which is available in various sizes. Various high purity
gases such as oxygen, nitrogen, argon, helium, chlorine and chemicals such as
silicon tetrachloride, silicon tetra fluoride and germanium tetrachloride are
used in the process of manufacturing preform. During 1998, the Company's optical
fiber and preform business purchased approximately 90% of its key glass tubing
raw material from one supplier. This supplier accounted for over 46% and 50% of
the Company's glass tube requirements in 1996 and 1997, respectively. If the
Company becomes unable to continue to purchase raw materials from this supplier,
there can be no assurance that the Company will not face difficulties in
obtaining raw materials on commercially acceptable terms, which could have a
material adverse effect on the Company. To limit future shortages of key
materials, the Company successfully identified other suppliers of this material.
The Jena Facility has the capability to manufacture the high-purity synthetic
core glass using a first purchased cladding tube, as well as adding additional
purchased cladding tubes using the Company's patented production process.
The Company's ALT subsidiary uses raw materials widely available from
numerous suppliers.
EMPLOYEES
At December 31, 1998, the Company employed 80 persons, of whom 4 are
executives, 9 are engaged in sales and administration, 62 are engaged in
manufacturing and 5 are engaged principally in research and development.
Seventy-three (73) of the Company's employees are located in Jena, Germany. The
Company is not party to any collective bargaining agreements and the Company
does not maintain a pension plan. The Company considers its relations with
employees to be satisfactory and believes that its employee turnover does not
exceed the industry average.
15
<PAGE>
ITEM 2. PROPERTIES
The Company leases 5,000 square feet of office space as its Corporate
Headquarters in Charlton, Massachusetts. The monthly rent is $2,250 and the
rental agreement is on a monthly basis.
The Company's optical fiber and preform manufacturing facility is
located in Jena, Germany. The facility is leased from SICO. It occupies
approximately 26,500 sq. ft., including 17,200 sq. ft. of clean room
manufacturing space, 6,100 sq. ft. of office and storage space and an additional
3,200 sq. ft. of outside facilities for gas storage tanks. The Company owns all
machinery and equipment at the facility, subject to certain restrictions. In
1999, the term of the lease was extended to December 31, 2001 and is renewable
for additional terms aggregating 25 years. The Company maintains casualty and
liability insurance on the Jena Facility. There is no assurance that in the
event of a loss, policy limits will not be exceeded.
ITEM 3. LEGAL PROCEEDINGS
In January 1998, Corning, Incorporated ("Corning") filed an action
against the Company claiming that the Company infringed a Corning patent by
marketing and selling certain optical fiber products in the United States. In
March 1998 the Company and Corning concluded a settlement agreement wherein the
Company acknowledged the validity of Corning's patent and agreed, prior to the
expiration of the patent, not to make, market, and sell or offer to sell
infringing multimode optical fiber or optical fiber preforms in the United
States in violation of Corning's patent except to certain customers. In turn,
Corning agreed not to seek damages and dismissed the action. The Company also
agreed to conduct an arbitration process to determine whether the Company's
singlemode fiber violates the Corning patent. In March 1999, the arbitrator
issued his opinion concluding that FiberCore's singlemode fiber does not violate
the Corning patent. Management believes that the result of this action will not
have a material adverse impact on the Company.
The Company's FiberCore Jena subsidiary, SICO and SICO's president, Mr.
Walter Nadrag (who was previously the Managing Director of FiberCore Jena) are
defendants in a lawsuit in Germany brought against them by COIA GmbH ("COIA"), a
former customer, claiming damages of approximately $200,000 arising from
FiberCore Jena's alleged failure to comply with a sales contract. The case was
dismissed by the lower court and COIA appealed this decision. On appeal, the
court found that although there was a contract, COIA was not entitled to
damages. COIA has filed an appeal to this decision with Germany's appeals court.
In addition to the above, the Company is subject to various claims which arise
in the ordinary course of business. The Company believes such claims,
individually or in the aggregate, will not have a material adverse affect on the
business of the Company.
The Company's ALT subsidiary is in a dispute with Norscan, a Canadian
company, with respect to Norscan selling FOCMS products, in competition with ALT
products and in violation of a non-competition agreement between ALT and
Norscan. Although no litigation has commenced as of the date of this report with
respect to this dispute, ALT would be the claimant in any lawsuit brought in
connection with this matter. Failure by ALT and Norscan to resolve this dispute
could have a material adverse affect on the future sales of ALT Products.
16
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders ("Annual Meeting"),
held on November 17, 1998, 28,817,717 shares of Common Stock were represented in
person or by proxy, constituting a quorum of the total of 35,849,035 shares of
Common Stock outstanding and entitled to vote at the Annual Meeting.
At the Annual Meeting, the election of Deloitte & Touche LLP,
independent certified public accountants, as auditors of the Company for the
fiscal year ended December 31, 1998, was ratified by a vote of 28,769,817 shares
(80.3% of the outstanding Common Stock). Holders of 19,400 shares voted against
the proposal and holders of 28,500 shares abstained. There were no broker
non-votes on this proposal.
( The remainder of this page intentionally left blank.)
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded on the Over the Counter (OTC) Bulletin
Board. There were 226 holders of record and approximately 1,500 beneficial
owners of Common Stock as of March 1, 1999. The public market for the Common
Stock on the Bulletin Board, where the stock trades under the symbol FBCE, is
limited. Set forth below for the periods indicated are the high and low closing
prices for the Common Stock as reported on the Bulletin Board.
STOCK PRICE AND DIVIDEND POLICY
Period High Low
------ ---- ---
1998
1st quarter $0.75 $0.29
2nd quarter $0.50 $0.25
3rd quarter $0.44 $0.14
4th quarter $0.19 $0.11
1997
1st quarter $6.25 $0.63
2nd quarter $1.50 $0.44
3rd quarter $1.06 $0.50
4th quarter $0.88 $0.31
The payment of dividends, if any, in the future is within the
discretion of the Board of Directors and will depend on the Company's earnings,
its capital requirements, financial condition, contractual and legal
restrictions and other relevant factors. The Company does not expect to declare
or pay any dividends in the foreseeable future. In addition, the ability of the
Company to pay cash dividends in the future will be subject to its ability to
meet certain other of its obligations.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company for each of the
years 1998, 1997, 1996, 1995, and 1994, has been derived from the audited
financial statements and notes thereto of the Company and its predecessors. The
information set forth below is qualified by reference to, and should be read in
conjunction with, the consolidated financial statements and related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1998(1) 1997(1) 1996(1) 1995(1) 1994(2)(3)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales................................. $ 8,201 $ 7,078 $ 8,096 $3,094 $ 231
Costs and expenses:
Cost of sales............................. 6,534 5,702 7,200 4,509 1,064
Research and development.................. 475 434 420 75 90
Selling, general, and administrative...... 2,981 3,148 4,324 2,100 700
Interest expense, net..................... 746 638 387 368 7
Other income (expense), net............... 193 (234) 102 (51) 5
----------- ---------- --------- ------- ----------
Loss before provision for income taxes.... (2,342) (3,078) (4,133) (4,009) (1,625)
Provision for income taxes................ --- --- --- --- ---
Net loss.................................. $ (2,342) $ (3,078) $ (4,133) $(4,009) $ (1,625)
----------- ---------- --------- ------- ----------
Basic and diluted loss per share............ $ (0.07) $ (0.09) $ (0.13) $ (0.15) $ (0.07)
=========== ========== ========= ======= ==========
Weighted average shares
outstanding............................... 35,833,501 35,744,182 31,695,693 26,584,630 22,873,322
=========== ========== ========= ======= ==========
Balance Sheet Data:
Working capital (deficit)................. $ 6,337 $ 8,091 $ 191 $ (277) $ (519)
Total assets.............................. 25,768 26,107 17,642 14,783 4,270
Long-term obligations..................... 10,204 9,851 4,587 5,000 456
Total liabilities......................... 14,864 13,351 7,618 8,415 1,687
Minority interest......................... 3,263 3,217 --- --- ---
Accumulated deficit....................... (15,192) (12,850) (9,772) (5,638) (1,628)
Stockholders' equity...................... 7,641 9,539 10,024 6,368 2,583
</TABLE>
1. Includes the results of ALT from September 18, 1995.
2. Does not include the results of ALT.
3. Reflects the Venturecap merger as of the beginning of the period.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars and Deutsche Marks in Thousands)
BACKGROUND
Certain statements in this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. The important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements include, but are not limited to (i) the
information being of a preliminary nature and therefore subject to further
adjustment; (ii) the ability of the Company to contain costs, to grow internally
or by acquisition and to integrate acquired businesses into the Company's group
of companies; (iii) the uncertainties of litigation; (iv) the Company's
dependence on significant customers; (v) changing conditions in the optical
fiber industry which could adversely affect the Company's business; (vi)
unsettled economic conditions in several of the countries in which the Company
operates; (vii) competitive actions by other companies, including the
development by competitors of new or superior services or products, price
reductions or the entry into the market of new competitors; (viii) the ability
of the Company to deal with the Year 2000 Issue on a timely basis; (ix) all the
risks inherent in the development, introduction, and implementation of new
products and services; and other factors both referenced and not referenced in
this Form 10-K. When used in this Form 10-K, the words "estimate", "project",
"anticipate", "expect", "intend", "believe", and similar expressions are
intended to identify forward-looking statements, and the above described risks
inherent therein.
FiberCore, Incorporated, the predecessor to the Company, was organized
under the laws of the State of Nevada on November 5, 1993. Venturecap, Inc. was
a development stage enterprise, with no significant operations, no significant
assets or liabilities and was inactive from 1990 until the time of the
Venturecap Merger with FiberCore, Incorporated on July 18, 1995. The Venturecap
Merger has been accounted for as a pooling of interests. Subsequent to the
Venturecap Merger, Venturecap changed its name to FiberCore, Inc. (hereinafter
"FiberCore" or the "Company").
The Company operates primarily through its FiberCore Jena subsidiary.
The Company maintains its corporate headquarters in Charlton, Massachusetts
which is staffed by executive, research and engineering, accounting and
administrative personnel. The following discussion and analysis of the results
of operations is based on the Company's audited financial statements for the
years ended December 31, 1998, 1997 and 1996.
RESULTS OF OPERATIONS
Year Ended December 31, 1998
Net sales for the year ended December 31, 1998 were $1,123 greater
(15.9%) than net sales
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in 1997. The increase was principally due to a 20% increase in volume shipped to
new and existing customers in 1998 over 1997, offset by lower average selling
prices. Average selling prices decreased in 1998 compared to 1997, primarily due
to an increase in the available supply of fiber in the market. Substantially all
of the Company's sales are through its German subsidiary, FiberCore Jena.
Cost of sales increased by $832 or 15% over 1997 due to the increase in
volume shipped, offset by a decrease in costs per unit of production. This lower
per unit cost is primarily due to upgrades to the production equipment, improved
production efficiencies and improved production yields resulting from process
improvements.
Gross profit improved to 20.3% of net sales in 1998 from 19.4% of net
sales in 1997. This improvement resulted from the production improvements as
discussed above, offset by the lower average selling prices.
Selling, general and administrative expenses decreased by $167 or 5.3%
in 1998 compared to 1997. This decrease was due to lower administrative costs at
the parent company and FiberCore Jena, offset by an increase in sales costs due
to the addition of personnel in the second half of 1998 and an increase in the
provision for doubtful accounts receivable at ALT.
Research and development costs increased $41 or 9.4% in 1998 over 1997.
The increase is principally attributable to an increase in research and process
development activities at FiberCore Jena.
Interest income increased $39 in 1998 compared to 1997 due to the
increase in income from the investments of the DM 3,850 security deposit with
the Berliner Bank.
Interest expense increased 22% to $811 in 1998 compared to $664 in
1997. This increase is attributable to the higher average balance of outstanding
loans used for working capital in 1998 at the parent company and the higher
average outstanding balance in 1998 of the loan from the Berliner Bank used for
the expansion of the Jena facility. Interest of $132 on the Berliner Bank loan
was capitalized during the year for the expansion of the German plant.
Other income-net was $193 in 1998 compared to net expense of $234 in
1997. This change was principally due to the foreign currency exchange gain of
$170 on the German mark deposit with the Berliner Bank that is security for the
loan, compared to a foreign currency exchange loss on this deposit in 1997.
The net loss for the year 1998 was $2,342 compared to $3,078 for 1997,
a decrease of $736 or 23.9%. The primary cause of the decrease was the increase
in gross profit and the decrease in administrative costs, offset by the increase
in interest expense and the change in other income as discussed above.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Year Ended December 31, 1997
Net sales for the year ended December 31, 1997 were $7,078 or 12.6%
lower than net sales in 1996. The decrease was principally due to a decline in
the value of the German mark versus the U.S. dollar of 13.3%. Average selling
prices were 26% higher in 1997 compared to 1996, due to an increase in sales
volume of multi-mode fiber and a decrease in sales volume of single-mode fiber.
Substantially all of the Company's sales are through its German subsidiary,
FiberCore Jena.
Cost of sales decreased by 20.8% from 1996 to 1997. This decrease was
attributable to the decline in the value of the German mark and a lower per unit
cost of production resulting from upgrades to the production equipment and
production process improvements. As a result of these improvements, gross profit
for the year ended December 31, 1997 was $1,376 or 19.4% of sales compared to
$896 or 11.1% of sales in 1996.
Selling, general, and administrative costs decreased $1,176 in 1997
from 1996 or 27.2%. This decrease was principally due to the costs incurred in
1996 of $846 for the value of options granted to employees and $421 for the
costs associated with the registration of the Company's common stock with the
Securities and Exchange Commission. Additionally, FiberCore Jena's
administrative costs increased by approximately $135 after giving effect to the
decline in value of the German mark. This increase was principally due to an
increase in administrative personnel and other administrative costs.
Interest expense increased 69.0% to $664 in 1997 compared to $393 in
1996. This increase was due to the increase in interest on the AMP loans of $172
resulting from a higher average interest rate on these loans in 1997 compared to
1996. Additionally, the Company incurred an increase in interest costs of $62 on
loans borrowed for working capital purposes, and approximately $40 of interest
and fees on the Berliner Bank loan. Interest of $176 on the Berliner Bank loan
was capitalized during the year for the expansion of the German plant.
Other expense-net was $234 in 1997 compared to other income-net of $102
in 1996. This change was principally due to an increase in foreign currency
exchange losses of $294 on the German mark deposit with the Berliner Bank that
is security for the loan and a decrease in German research grants of $58.
The net loss for the year 1997 was $3,078 compared to $4,133 for 1996,
a decrease of $1,055 or 25.5%. The primary cause of the decrease was the
increase in gross profit, the decrease in administration costs, offset by the
increase in interest expense and other expenses as described above.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company anticipates that the results of operations will improve
significantly in 1999 compared to the losses experienced in prior years. This
expectation is based on a projected increase in sales both in dollar amounts and
volume, and the projected continuing improvement in manufacturing
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
costs. The major expansion and upgrading of the Jena facility was completed in
1998, thus providing an increase in capacity and substantially improved
efficiencies in production. This improvement will be moderately offset by an
anticipated weakening in market prices of the Company's products due to the
excess capacity in the market, although the Company believes that market prices
will decline at a slower rate in 1999 compared to 1998.
This expected increase in sales and improved profitability is expected
to have a positive impact on the Company's cash flow, such that the Company
projects that it will have a positive cash flow from operations in 1999. The
Company will continue to utilize short-term borrowings to fund its working
capital requirements. In this regard, the Company expects to increase the lines
of credit currently available totaling approximately $1,200 at its German
subsidiary. There is no assurance, however, that the increase in these credit
lines will be obtained.
Further, the Company is planning to build a new manufacturing facility
in Germany to replace the existing leased facility and to increase production
capacity. The current facility has limited space for expansion of the
manufacturing operation, and the Company expects to operate at full capacity of
this facility in 1999 to meet its sales projections. The Company is currently
seeking to raise approximately $21,000 to construct this new plant, and expects
that this financing will be provided from new equity of $1,500 and a combination
of German government grants and guaranteed loans, similar to the financing used
to fund the recently completed expansion. Although management is optimistic,
there can be no assurance that such financing will be obtained.
Additionally, the Company, through its Malaysian subsidiary FCA, is in
the process of raising approximately $25,000 in debt and equity financing to
finance the construction of the FCA manufacturing plant. The plan to construct
the facility in Malaysia is considered part of the Company's long-term strategy.
Notwithstanding the current economic situation in the Pacific Rim, the region
continues to invest in infrastructure projects of which optical fiber is a part.
Demand for the Company's products is projected to continue to grow in the
Pacific Rim region at a faster rate than in other major markets. Substantially
all of the products that are planned to be produced in the Malaysian facility
are targeted for export to the Asia and Pacific Rim region.
The Company is not relying on the conversion of Warrants and Options to
fund its operations; however, if the Warrants and Options are exercised, the
total proceeds that the Company would receive upon the exercise is approximately
$6,040. To the extent that the Warrants and Options are exercised, the Company
intends to use the proceeds from the exercise of such Warrants and Options for
working capital purposes, including debt service (approximately $1,356 in 1999,
including interest). There are long payment deferral periods on a substantial
amount of the Company's outstanding loans. Under the AMP Note, the remaining
$2,000 in principal and accrued interest are due and payable at maturity in
April 2005. Similarly, under the $3,000 AMP loan, payments of interest are
deferred for the first five years. Thereafter, accrued and unpaid interest is
payable quarterly. The principal and any remaining accrued interest is payable
at maturity on November 27, 2006. As for the German loan, principal is also due
and payable at the tenth anniversary of closing; however, interest at 6.25 % is
paid quarterly. The Company may seek to refinance certain of the notes due in
1999, although there can be no assurance that such refinancing will be obtained.
Certain notes are due to officers and directors of the Company.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Company currently has a backlog of orders aggregating approximately
$3,900, which is scheduled to be shipped in 1999. The backlog at December 31,
1997 and 1996 was approximately $4,100 and $7,400, respectively. Additionally,
the Company has entered into, or is negotiating, long-term supply agreements.
These include supply agreements with MEFC, AMP, and others. Pursuant to the
supply agreement with AMP, which provides for an initial term of five years and
for an additional five year term at AMP's option, AMP has undertaken to purchase
at least 50% of its global fiber requirements from the Company. Shipments to
MEFC began in the fourth quarter 1997 and shipments to an AMP cabling
subcontractor began in 1996. Shipments to AMP in the U.S. are expected to begin
in 1999.
The following changes in balance sheet amounts are net of the effect of
the change in the currency exchange rates from December 31, 1997 to December 31,
1998.
Year Ended December 31, 1998
For the year ended December 31, 1998, the Company used $607, net of
depreciation and amortization, for operations before changes in working capital.
This was a substantial improvement over the $1,724 used for operations in 1997.
This significant improvement was due primarily to the increase in sales and
gross profit, higher depreciation costs and other non-cash costs incurred in
1998.
Inventory increased by $1,187 principally due to an increase in work in
process at year-end to provide for planned shipments in January 1999 and an
increase in raw materials at year end. The build-up of raw material at year end
was in anticipation of price increases on certain materials expected at the
beginning of 1999. Accounts payable decreased by $114 in 1998 due to the
repayment of an advance of funds to FCA received in 1997 from one of the
partners, offset by an increase in accounts payable at the parent company.
Accrued liabilities increased $102 in 1998 over 1997, principally due to an
increase in accrued interest on outstanding notes payable.
During 1998 the Company invested $1,895 in fixed assets, principally
for new equipment at the Jena facility. This was funded in part by $929 in
grants from the German government. Additionally, other assets increased by $205,
principally due to an increase in deferred costs related to the design and
development of the FCA facility.
Notes payable increased by $597 in 1998 over 1997, principally due to
borrowings under the lines of credit at FCJ, used for working capital. Long-term
interest payable increased by $416 due to the increase in accrued interest
payable on the AMP loans wherein the interest is payable at maturity in 2005 and
2006.
Year Ended December 31, 1997
During the year ended December 31, 1997, the Company used $1,724 net of
depreciation and amortization for operations, before changes in working capital.
Accounts receivable increased by $354 principally due to the sales of ALT
products and a large sale to MEFC in December 1997. Inventories increased by
$1,398 as a result of the increase in production in FiberCore Jena and lower
than expected shipments of preforms to MEFC. The lower shipments were due to
MEFC not having completed the installation of their draw tower. The increase in
other receivables of $202 was due to an outstanding
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
receivable for German government grants of $422 reduced by a decrease in VAT
taxes receivable.
Accounts payable increased $260, principally due to advances received
and to be repaid to one of the partners in FCA. Accrued liabilities increased by
$37 primarily due to increases in accrued interest for loans.
Cash used in investing activities was $2,551 for the year ended
December 31, 1997. This was principally due to the investment for expansion of
the Jena facility of $4,211 reduced by grants received from the German
government of $1,775.
Cash received from financing activities included $328 received from the
exercise of employee stock options and $394 in short-term borrowings for working
capital. The Company drew down $4,280 on the Berliner Bank loan for the
expansion of the Jena plant. Additionally, the Company borrowed $470 in
long-term loans to finance operations. Long-term interest payable increased $418
due to the interest on the AMP loans which is payable at maturity.
ALT
ALT was acquired by the Company as of September 18, 1995. ALT has
historically operated at a loss, has cumulative losses from its date of
inception, and requires additional capital to operate. Sales of ALT products in
1998 were not significant, principally because the Company focused its available
resources on developing the optical fiber business. The Company recently
completed a revised business plan for ALT that provides for developing and
enhancing ALT's products and allocating certain resources to ALT for marketing
the products. The Company will seek to raise funds to implement this plan and is
also in discussions with potential partners that have interest in the ALT
product lines and have expressed an interest in forming a joint venture to
manufacture and market its products. The Company's management believes that
there is significant potential for sales of ALT's products. This will, however,
require funding to implement the plan and there can be no assurance that such
funding will be obtained or that a joint venture with new partners will be
consummated.
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 some 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.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 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. 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 through December 31, 1998 for Year
2000 modifications to its software and hardware, and expects to incur
approximately $5 for such costs 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.
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.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
[The remainder of this page intentionally left blank.]
27
<PAGE>
ITEM 7A. 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 is the
Deutsche Mark ("DM").
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 DM. At December 31, 1998, FiberCore Jena had no
outstanding forward exchange contracts.
At December 31, 1998, the Company had a long-term loan denominated in
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 December 31, 1998, 42% and 21% 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 December 31, 1998, 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 1998 interest expense
by approximately $56,000.
( The remainder of this page intentionally left blank)
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
PAGE
----
Independent Auditors' Report.................................................... 30
Consolidated Balance Sheets at December 31, 1998 and 1997...................... 31
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 .................................... 32
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
December 31, 1998, 1997 and 1996 .................................... 33
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998, 1997 and 1996 .................................... 34
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996........................................... 35
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996 .................................... 36
</TABLE>
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
FiberCore, Inc.
Charlton, Massachusetts
We have audited the accompanying consolidated balance sheets of FiberCore, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, comprehensive income (loss), changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FiberCore, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the results of their operations and cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 24, 1999
30
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
(Dollars in thousands except share data) 1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $ 150 $ 2,128
Accounts receivable, less allowance for doubtful accounts
of $200 in 1998 and $33 in 1997............................... 863 937
Notes receivable from joint venture partners....................... 4,912 4,883
Other receivables.................................................. 579 564
Inventories........................................................ 4,480 3,057
Prepaid and other current assets................................... 13 22
------- -------
Total current assets........................................... 10,997 11,591
------- -------
Property and equipment.................................................. 7,603 6,559
Less accumulated depreciation........................................... 2,373 1,751
------- -------
Property and equipment - net................................... 5,230 4,808
------- -------
Other assets:
Restricted cash.................................................... 2,310 2,140
Patents, less accumulated amortization of $2,179 in 1998
and $1,520 in 1997............................................... 5,375 6,014
Investments in joint ventures...................................... 1,425 1,425
Other.............................................................. 431 129
------- -------
Total other assets.............................................. 9,541 9,708
------- -------
Total assets................................................... $25,768 $26,107
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................................... $ 1,665 $ 594
Accounts payable.................................................... 1,724 1,778
Accrued expenses.................................................... 1,271 1,128
------- -------
Total current liabilities....................................... 4,660 3,500
Long-term interest payable............................................... 876 460
Long-term debt........................................................... 9,328 9,391
------- -------
Total liabilities............................................... 14,864 13,351
------- -------
Minority interest ....................................................... 3,263 3,217
------- -------
Commitments and contingencies (Note 10)
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: 35,936,463 in 1998 and 35,774,822 in 1997.. 36 36
Additional paid in capital............................................ 23,337 23,221
Accumulated deficit................................................... (15,192) (12,850)
Accumulated other comprehensive loss:
Accumulated translation adjustment................................. (540) (868)
------- -------
Total stockholders' equity........................................ 7,641 9,539
------- -------
Total liabilities and stockholders' equity........................ $25,768 $26,107
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net sales.............................................. $ 8,201 $ 7,078 $ 8,096
Cost of sales.......................................... 6,534 5,702 7,200
-------------- -------------- --------------
Gross profit ..................................... 1,667 1,376 896
Operating expenses:
Selling, general and administrative expenses......... 2,981 3,148 4,324
Research and development............................. 475 434 420
--------------- --------------- ---------------
Loss from operations.............................. (1,789) (2,206) (3,848)
Interest income........................................ 65 26 6
Interest expense....................................... (811) (664) (393)
Other income (expense) - net........................... 193 (234) 102
--------------- --------------- ---------------
Net loss.......................................... $ (2,342) $ (3,078) $ (4,133)
=============== =============== ===============
Basic and diluted loss per share of common stock....... $ (0.07) $ (0.09) $ (0.13)
=============== =============== ===============
Weighted average shares outstanding.................... 35,833,501 35,744,182 31,695,693
=============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Net loss............................................... $(2,342) $(3,078) $(4,133)
Other comprehensive income (loss):
Foreign currency translation adjustments............. 328 (1,084) 1
------- ------ ---------
Comprehensive loss..................................... $(2,014) $(4,162) $(4,132)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Common Stock:
Balance, beginning of year..................................... $ 36 $ 35 $ 30
Sale of stock for cash......................................... 2
Reissuance of stock for conversion of debt..................... 3
Stock issued on exercise of options and warrants............... 1
-------- ------- -------
Balance, end of year........................................... 36 36 35
-------- ------- -------
Additional Paid in Capital:
Balance, beginning of year..................................... 23,221 19,545 11,761
Sale of stock for cash......................................... 1,498
Issuance of stock for conversion of debt....................... 4,052
Issuance of stock for investment in joint venture.............. 425 425
Discount on AMP note for value of warrants..................... 963
Compensation cost of options issued to employees............... 846
Stock issued on exercise of options and warrants............... 41 328
Contribution of capital in Malaysia joint venture (FCA)........ 75 3,348
Stock canceled on cancellation of supply agreement with FOI.... (425)
------ -------- ------
Balance, end of year........................................... 23,337 23,221 19,545
------ -------- ------
Accumulated Other Comprehensive Income (Loss):
Balance, beginning of year..................................... (868) 216 215
Foreign currency translation adjustments....................... 328 (1,084) 1
--------- -------- --------
Balance, end of year........................................... (540) (868) 216
--------- --------- --------
Accumulated Deficit:
Balance, beginning of year..................................... (12,850) (9,772) (5,639)
Loss for the year.............................................. (2,342) (3,078) (4,133)
-------- -------- -------
Balance, end of year........................................... (15,192) (12,850) (9,772)
------- ------- -------
Total stockholder's equity....................................... $ 7,641 $ 9,539 $ 10,024
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
34
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(Dollars in thousands except share data) 1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net loss.................................................... $(2,342) $(3,078) $(4,133)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 1,735 1,354 1,226
Compensation cost for stock options......................... --- --- 846
Foreign currency translation loss and other................. 20 319 105
Changes in assets and liabilities:
Accounts receivable......................................... (31) (354) (93)
Other receivables........................................... 30 (202) (132)
Inventories................................................. (1,187) (1,398) (514)
Prepaid and other current assets............................ 90 (6) 11
Accounts payable............................................ (114) 260 (159)
Accrued expenses............................................ 102 37 829
------- -------- -------
Net cash used in operating activities................... (1,697) (3,068) (2,014)
------ -------- -------
Cash flows from investing activities:
Purchases of property and equipment......................... (1,895) (4,211) (1,161)
Reimbursement from government grant......................... 929 1,775 960
Investments in joint ventures............................... --- (50) (950)
Other....................................................... (205) (65) 1
------- -------- -------
Net cash used in investing activities................... (1,171) (2,551) (1,150)
------ -------- -------
Cash flows from financing activities:
Cash contribution by minority shareholders
in FCA.................................................. --- 1,683 ---
Proceeds from issuance of common stock on
exercise of options..................................... 41 328 1,500
Proceeds from long-term debt................................ --- 4,750 3,500
Restricted long-term cash deposits.......................... --- --- (2,498)
Proceeds from notes payable................................. 597 394 200
Repayment of notes payable.................................. (37) --- (200)
Increase in long-term interest payable...................... 416 418 42
Other....................................................... --- --- (23)
--------- --------- --------
Net cash provided by financing activities............... 1,017 7,573 2,521
-------- --------- --------
Effect of foreign exchange rate change on cash................ (127) (16) ---
-------- --------- --------
Increase (decrease) in cash................................... (1,978) 1,938 (643)
Cash, beginning of year....................................... 2,128 190 833
-------- --------- --------
Cash, end of year............................................. $ 150 $ 2,128 $ 190
========= ========= =======
Supplemental disclosure:
Cash paid during the year for interest.................. $ 274 $ 222 $ 18
Shares issued for investment in joint venture........... $ --- $ 425 $ ---
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Incorporation and nature of operations
FiberCore, Inc. (the "Company") is involved in the research, development,
production and sales of optical fiber and optical fiber preforms for the
telecommunications industry. FiberCore Jena GmbH ("FCJ"), the Company's
principal operating subsidiary located in Germany, manufactures optical fiber
and optical fiber preforms. Automated Light Technologies, Inc. ("ALT"), a
wholly-owned subsidiary of the Company, is a manufacturer and distributor of
fiber optic cable monitoring and fault locating systems for the
telecommunications industry. FiberCore Asia Sdn. Bhd. ("FCA") was formed in 1997
to construct an optical-fiber manufacturing facility in Malaysia. The Company
reports as a single segment enterprise.
FiberCore Incorporated, the predecessor to FiberCore, Inc. was organized under
the laws of the State of Nevada on November 5, 1993. On July 18, 1995, FiberCore
Incorporated merged with Venturecap, Inc., ("Venturecap"), an inactive company
organized in the State of Nevada in 1987. Following the merger Venturecap
changed its name to FiberCore, Inc. The merger was accounted for as a pooling of
interests and, accordingly, the Company's consolidated financial statements have
been restated for all prior periods as if the merger took place at the beginning
of such periods. In January 1997 the Company registered all of its then
outstanding shares under an S-1 filing with the Securities and Exchange
Commission. The Company's common stock is traded on the
Over-The-Counter-Bulletin Board under the symbol "FBCE".
(b) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
(d) Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
(e) Property and equipment
Property and equipment is stated at cost, net of grants received applicable to
acquisitions. The cost of maintenance and repairs is charged to expense as
incurred. Expenditures for significant renewals or improvements to properties
and equipment are added to the basis of the asset.
36
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
In 1998, 1997, and 1996 the Company received grants from the German government
to be used in the expansion of the FCJ facility. All grant proceeds received
have been netted against the cost of the assets acquired.
Property and equipment is depreciated using the straight-line method over the
estimated useful lives of the assets.
(f) Restricted Cash
In connection with the expansion of the FCJ facility, the Company obtained a
loan from the Berliner Bank in Germany. Cash in the amount of German marks 3,850
(U.S. $2,310), has been deposited with this institution as collateral for this
loan.
(g) Patents
Patents are amortized on a straight-line basis over seventeen years. The Company
evaluates the recoverability of patents from expected future cash flows.
(h) Investments in joint ventures
The Company has a 30% ownership interest in Fiber Optic Industries (Pvt.) Ltd.
("FOI"), which is accounted for using the equity method of accounting.
The Company's 15% ownership interest in Middle East Optical Fiber Cable Co.
("MEFC") is carried at cost.
The Company holds a 51% ownership in FCA, which is consolidated in the financial
statements. Minority interest on the balance sheet reflects the Malaysian
partners' 49% ownership.
(i) Fair value of financial instruments
The Company has financial instruments, which consist of cash, short-term
receivables, accounts payable and notes payable, for which their carrying
amounts approximate fair value due to the short maturity of those instruments.
The principal amount of the long-term debt approximates fair value because the
interest rates on these instruments approximate current market rates.
(j) Translation of foreign currencies
The translation of foreign subsidiaries financial statements into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense
37
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
accounts using an average exchange rate for the period. Unrealized gains or
losses resulting from translation are included in stockholders' equity.
(k) Revenue
Revenue is recognized when earned which is principally when products are
shipped.
(l) Research and Development
Research and development costs are expensed as incurred.
(m) Income taxes
The Company accounts for income taxes in accordance with the asset and liability
method. Deferred taxes are recognized for the future tax consequences
attributable to the differences between the book and tax basis of assets and
liabilities.
(n) Loss per share of common stock
Basic loss per share of common stock is computed based on the weighted average
shares outstanding during the year. The stock purchase warrants and stock
options have not been included in the computation of basic loss per share since
the effect would be anti-dilutive.
(o) Stock based compensation
FASB Statement No. 123 "Accounting for Stock-Based Compensation" defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. However, the Company will continue to measure compensation cost for
employee stock compensation transactions using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25 "Accounting for Stock Issued to
Employees" as permitted under FASB 123.
(p) Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1998 presentation.
(2) EARNINGS PER SHARE
Basic earnings per share ("EPS") is based on the weighted average number of
common shares outstanding, excluding common stock equivalents. Diluted EPS
reflects the potential dilution of EPS that could occur if securities or other
contracts to issue common shares were exercised or converted. At
38
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(2) EARNINGS PER SHARE (CONTINUED):
December 31, 1998, 1997 and 1996, there would have been no difference between
basic and diluted earnings per share due to the losses of the Company.
The following table shows securities outstanding as of December 31, that could
potentially dilute basic EPS in the future that were not included in the
computation of diluted EPS because to do so would have been antidilutive.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---- ---- ----
Employee stock options 2,020,225 1,387,778 978,434
Warrants to acquire common stock 4,903,185 4,968,818 4,549,249
Common stock to be issued for
convertible debt 4,927,232 2,060,308 1,881,446
--------- --------- ---------
Total 11,850,642 8,416,904 7,409,129
========== ========= =========
</TABLE>
(3) ACQUISITIONS AND STRATEGIC INVESTMENTS
In November 1997, the Company entered into a joint-venture agreement with
Federal Power Sdn. Bhd. ("FDP") and PNB Equity Resource Corporation ("PERC") to
form FiberCore Asia Sdn. Bhd. ("FCA") in Malaysia. FCA was established to
construct and operate an optical fiber preform manufacturing facility in
Malaysia. The Company owns 51% of FCA, and FDP and PERC own 37% and 12%,
respectively.
The Company granted FCA a license to use the Company's technology for the
Company's ownership, and FDP and PERC contributed cash of $1,683 and notes of
$4,883 for their ownership. As part of the joint venture agreement, the Company
has entered into a put option agreement with FDP and PERC wherein the Company
has agreed to purchase FDP's and PERC's shares, at their option, in the event
that certain production benchmarks are not achieved. The Company also entered
into a support contract with FCA to provide design and construction management
for the facility, marketing services and administrative support services. Due to
the current economic situation in Malaysia and the Pacific Rim the debt
financing required for the project has not, as yet, been obtained. The Company
and the other shareholders in FCA are continuing to seek alternative financing
and additional equity partners for FCA.
In April 1995, the Board of Directors ratified actions by FiberCore Incorporated
to enter into a joint venture with John Royle & Sons Co. and Middle East
Specialized Cables Company ("MESC") for a period of 15 years to be known as
Middle East Fiber Cables Co. ("MEFC"). As part of the agreement the Company
issued to MESC 734,262 shares of common stock for $1,000, (approximately $1.36
per share). The agreement also provides that MESC will receive 312,061 shares of
common stock upon the completion and execution of a product supply contract
between the Company and MEFC. The agreement was completed and the shares issued
in 1997. The Company invested $500 of the $1,000 purchase price in MEFC as a
capital contribution to the joint venture, as required by the agreement, and in
the process acquired a 15% interest in MEFC. MEFC constructed it's manufacturing
facility in 1996 and 1997 and
39
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(3) ACQUISITIONS AND STRATEGIC INVESTMENTS (CONTINUED):
began operations in 1998. The Company is a co-guarantor with the other joint
venture partners for certain credit facilities provided by banks to MEFC. These
credit facilities are also collateralized by the assets of MEFC. At December 31,
1998 the Company was contingently liable for these loans in the amount of $792.
Subsequent to December 31, 1998, in order to provide additional operating
capital to MEFC, the capital of MEFC was restructured and a new shareholder
acquired a 14% interest in MEFC. As a result of this restructuring the Company's
equity in MEFC was reduced from 15% to 8% and 800 Saudi Rials, (approximately
$213), of the Company's equity was converted to a long-term loan to MEFC.
On January 11, 1996, as part of a share purchase agreement with Techman
International Corporation ("Techman"), a related party, a joint venture was
established between the Company and Techman. The joint venture, FOI, is located
in Pakistan. The Company has a 30% ownership interest in FOI. The Company
acquired its interest in FOI by making a $500 capital contribution to the joint
venture and issuing 312,061 shares of Company common stock to Techman valued at
approximately $1.36 per share, ($425) for a long term agreement to supply fiber
and preforms to FOI. FOI was formed in 1996 and had no significant operations in
1996, 1997 or 1998. In December 1997, due to a delay in the construction of the
manufacturing plant, the supply agreement was canceled and the 312,061 shares
have been canceled. Due to the political and economic situation in Pakistan this
project has been further delayed and will be reviewed in 1999.
(4) RECEIVABLES
Activity in the allowance for doubtful accounts consisted of the following for
the years ended December 31:
1998 1997 1996
---- ---- ----
Balance at beginning of period............... $ 33 $36 $39
Additions charged to expense................. 167 -- 1
Deductions................................... -- (3) (4)
----- ----- ------
Balance at end of period..................... $200 $33 $36
==== === ===
Other receivables consist of the following at December 31:
1998 1997
---- ----
German government grants.................. $419 $423
Value added tax........................... 99 112
Other..................................... 61 29
---- ----
Total........................... $579 $564
==== ====
Notes receivable of $4,912 at December 31, 1998 are due from the minority
shareholders in FCA for the balance of their capital contribution and are due in
1999.
40
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(5) INVENTORIES
Inventories consist of the following at December 31:
1998 1997
---- ----
Raw materials............................ $1,545 $ 997
Work-in-process.......................... 1,161 315
Finished goods........................... 1,774 1,745
----- -----
Total................................ $4,480 $3,057
===== =====
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
ESTIMATED
USEFUL LIVES 1998 1997
------------ ---- ----
Office equipment...................... 2-5 years $ 315 $ 243
Machinery and equipment............... 2-12 years 9,899 5,619
Furniture and fixtures................ 5-7 years 21 21
Leasehold improvements................ 3-10 years 395 7
Construction in progress.............. 706 3,267
------- -----
11,336 9,157
Less grant proceeds received.......... (3,733) (2,598)
------- -----
Total........................ $ 7,603 $6,559
====== =====
Depreciation on property and equipment charged to expense was $928 in 1998, $560
in 1997, and $548 in 1996. During 1998 and 1997 the Company capitalized interest
costs of $132 and $178, respectively, on the expansion project at FiberCore
Jena.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1998 1997
---- ----
Accrued wages, benefits & taxes............... $ 457 $ 547
Accrued interest.............................. 218 116
Accrued legal and audit....................... 39 80
Other ..................................... 557 385
------ ------
Total................................ $1,271 $ 1,128
===== =====
41
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(8) NOTES PAYABLE
Notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---- ----
Notes payable to the spouses of officers of the Company, with interest
at prime plus 1% (9.25% at December 31, 1998), due July 31, 1999. $ 500 --
Convertible note payable to a director, interest at the prime rate plus
1% (9.25%, at December 31, 1998) with principal and interest due September 30,
1999, all principal and accrued interest, if any, convertible
into common stock of the Company at approximately $.1875 per share. 249 $218
Note payable to Techman International Corporation with interest at
prime plus 1% due December 31, 1999. 150 150
Note payable to an officer of the Company, interest at prime plus 1%,
due September 17, 1999. 50 50
Note payable with interest at prime plus 1% due on September 30, 1998.
A director of the Company is a principal of the lender. -- 25
Notes payable with interest at prime plus 1% due on September 30, 1998. -- 12
Amounts outstanding under revolving lines of credit from banks with
interest at 8.0%. 716 139
------ ---
Total $1,665 594
===== ===
</TABLE>
On July 31, 1996, the Company borrowed $500 under two loan agreements from the
spouses of Dr. Aslami and Mr. De Luca. The loans are in the amount of $250 each
and bear interest at the prime rate plus one percent (currently 9.25%), and are
due on July 31, 1999. In conjunction with the loans each lender received
warrants to purchase 115,220 shares of Common Stock at the rate of $1.81 per
share. The warrants expire on July 31, 2001. Interest expense on these notes was
$49 and $48 in 1998 and 1997, respectively.
In September 1997, the Company borrowed $150 from Techman International
Corporation. The note bears interest at prime plus 1% per year and matured on
September 17, 1998. In conjunction with the note, Techman was granted warrants
to purchase 69,132 common shares of the Company at an exercise price of $0.625
per share. Dr. M. Mahmud Awan, a former director of the Company is the President
and sole shareholder of Techman. In 1998 and 1997, the Company incurred interest
expense of $14 and $4 on this note, respectively. On January 1, 1999 the note
was renewed and is payable on December 31, 1999.
42
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(8) NOTES PAYABLE (CONTINUED):
Also, in 1997 the Company borrowed $50 from the President of the Company. The
interest rate is prime plus 1%. The note was renewed and is due on September 17,
1999. In conjunction with the note the lender was issued warrants to purchase
62,500 common shares of the Company at an exercise price of $0.6875 per share.
Interest expense on this note was $4 and $1 in 1998 and 1997, respectively.
In September and November 1997 the Company also borrowed $75 under various notes
with interest at prime plus 1%. In conjunction with the notes the lenders were
granted warrants to purchase 55,000 common shares of the Company at an exercise
price of $0.6875 per share. The notes have been repaid. Interest expense on
these notes was $2 in 1997.
The Company's subsidiary, FiberCore Jena, maintains two lines of credit of DM
1,000 (approximately US $601) each with German banks. The notes bear interest at
8% per year. Interest expense in 1998 was $29 on amounts drawn under these
notes. One of the lines of credit is collateralized by the inventory of
FiberCore Jena.
All of the proceeds of the notes were used for working capital.
(this space intentionally left blank)
43
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(9) LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C> <C>
Long-term debt consists of the following at December 31: 1998 1997
---- ----
Note payable to Berliner Bank, interest at 6.25%, due September 30, 2006. $4,621 $4,280
Convertible note payable to AMP Incorporated, interest at 3-month London
Interbank Offered Rate plus one percent (6.31% at December 31,
1998), due April 17, 2005. 2,000 2,000
Note payable to AMP, interest at prime plus one percent (9.25% at December
31, 1998), due November 27, 2006. 3,000 3,000
Discount attributable to warrants issued in conjunction with the $3,000
note above. (763) (859)
Note payable to shareholder with interest at prime
plus 1% (9.25% at December 31, 1998) due March 6, 2000. 220 220
Note payable to Techman International Corporation with interest at prime
plus 1% (9.25% at December 31, 1998), due April 16, 2000. 250 250
Notes payable to the spouses of officers of the Company, with interest at
prime plus one percent (9.5% at December 31, 1997), due July 31, 1999. -- 500
-------- ------
Total $9,328 $9,391
======== =======
</TABLE>
During the year ended December 31, 1997, the Company drew down 7,700 German
marks (approximately $4,621) under a loan agreement with the Berliner Bank. The
proceeds were used to fund the expansion of the Company's plant in Germany. The
loan bears interest at 6.25% annually and is due on September 30, 2006. The loan
is collateralized by a deposit with the bank of approximately $2,310.
In April 1995, FiberCore Incorporated issued to AMP, a floating rate,
collateralized, ten year debenture in the amount of $5,000, due April 17, 2005,
with interest, at an annualized rate adjusted quarterly, equal to the 3-month
London Interbank Offered Rate plus 1%, (6.31% at December 31, 1998). No interest
is due until the earlier of: AMP conversion of debt to stock, a public financing
by the Company and AMP elects to call the loan, or maturity. On November 27,
1996, AMP converted $3,000 of principal and $541 of accrued interest relating to
the original $5,000 ten year debenture, into shares of common stock of the
Company at the rate of approximately $1.16 per share (3,058,833 shares). The AMP
notes are collateralized by the Company's patents, patent applications,
licenses, rights and royalties resulting from such patents and the equipment of
FCJ. The remaining principal balance remained subject to the terms of the
original debenture agreement. The conversion agreement contains certain
valuation guarantees of the market value of the Company's common stock. Unless
the closing price of the Company's common
44
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(9) LONG-TERM DEBT (CONTINUED):
shares equals or exceeds $1.7364 for 30 consecutive trading days during the
first two (2) years following the closing at a time when AMP was not restricted
from selling such shares, then effective on the second anniversary of the
closing, an additional number of shares of Company common stock shall be issued
to AMP and an adjustment shall be made in the conversion rate for the
outstanding balance of the debenture such that the total number of shares held
and convertible by AMP would have a market value (based on the average closing
price of Company's shares during the last thirty (30) trading days preceding the
second anniversary of the closing) equal to $7,500; provided, however, that not
more than 6,478,810 Company shares will be issued or issuable to AMP as a result
of the conversion of the $5,000 debenture and this guarantee. In the
alternative, the Company may satisfy this guarantee on the second anniversary of
the closing by offering or arranging for its designee to offer to purchase from
AMP the converted shares and the outstanding balance of the debenture, including
accrued interest, for $7,500 reduced prorata for any intervening sales of shares
by AMP. Such offer to purchase shall be for cash only in immediately available
funds. On November 27, 1998, as a result of the valuation guarantee, the
conversion price was adjusted to $0.66 per share.
As an additional part of this agreement, on November 27, 1996, AMP issued to the
Company $3,000 under a ten-year note, secured by equipment owned by the Company,
with interest at prime plus one percent, (9.25% at December 31, 1998). Terms of
the debenture state that interest shall be accrued, but not paid, for the first
five years of the loan and a portion of the proceeds are required to be used as
collateral for the German bank loan for the expansion of its FCJ facility. The
principal will become due before the maturity date if the major financing is
repaid or the collateral is released by the German financial institution.
In conjunction with the $3,000 note above, AMP was issued five year warrants to
acquire 1,382,648 shares of the Company's stock at an exercise price of
approximately $1.45 per share. The Company has guaranteed the market value of
their stock. Unless the closing price of the Company's common shares equals or
exceeds $2.1697 for a period of thirty (30) consecutive trading days during the
first two (2) years following the closing at a time when AMP was not restricted
from selling such shares, then the exercise price of the warrants shall be
adjusted effective as of the second anniversary of the closing by multiplying
$1.4465 per share by a fraction the denominator of which is $2.1697 and the
numerator of which is the average closing price of the shares during the last
thirty (30) trading days preceding the second anniversary of the closing;
provided, however, that the adjusted exercise price shall not be less than
$0.7232 per share (50% of $1.4465). In the alternative, the Company or its
designee may offer to purchase the warrants on the second anniversary of the
closing for an amount equal to $1,000; provided, however, that AMP shall have
the right not to sell, in which case the guarantee will no longer be available.
On November 27, 1998, as a result of the valuation guarantee, the exercise price
of the warrants was reduced to $0.7232 per share and the number of shares
issuable on exercise was increased to 2,765,487. Interest expense on the AMP
notes was $416, $418, and $335, for the years ended December 31, 1998, 1997 and
1996, respectively.
45
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(9) LONG-TERM DEBT (CONTINUED):
Also, during the year ended December 31, 1997, the Company borrowed $220 from a
shareholder under a note maturing in 2000. The annual interest rate on the note
is the prime rate plus 1% adjustable quarterly and payable quarterly. In
conjunction with the note, the lender was granted warrants to purchase 69,132
shares of common stock of the Company at an exercise price of $1.53 per share.
The warrants expire on March 7, 2002. The proceeds of the note were used for
working capital. Interest expense on this note was $21 and $14 in 1998 and 1997,
respectively.
In April 1997, the Company borrowed $250 from Techman under a note maturing in
2000. The annual interest rate on the note is the prime rate plus 1%, adjustable
quarterly and payable quarterly. In conjunction with the note, Techman was
granted warrants to purchase 115,220 common shares of the Company at an exercise
price of $0.78 per share. Dr. M. Mahmud Awan, a former director of the Company
is the sole shareholder of Techman. Interest expense on this note was $24 and
$17 in 1998 and 1997, respectively.
Scheduled principal maturities of long-term debt, excluding $763 of discounts
attributable to warrants, are as follows at December 31, 1998:
2000............................... $ 470
2005............................... 2,000
2006............................... 7,621
-------
Total............ $10,091
======
(10) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered into various leases for its office
and production space. The Company's office lease is on a monthly basis at a
monthly rental of $2.
FCJ conducts its operations from premises under an operating lease with SICO
Quarzschmelze Jena GmbH ("SICO"). The lease provides for fixed monthly rental
payments of $34 through its expiration in December 31, 2001, and is renewable
for up to 25 years.
46
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED):
Future minimum lease payments under noncancelable operating leases (with minimum
or remaining lease terms in excess of one year) are as follows:
FISCAL YEAR ENDING DECEMBER 31, AMOUNT
------------------------------- ------
1999.................................. $ 414
2000.................................. 416
2001.................................. 403
2002.................................. 16
2003 ................................. 16
Thereafter ........................... 16
------
Total........................ $ 1,281
======
Included in the statements of operations for the years ended December 31, 1998,
1997 and 1996 is rent expense of $372, $411 and $456, respectively.
In January 1998, Corning, Incorporated ("Corning") filed an action against the
Company claiming that the Company infringed a Corning patent by marketing and
selling certain optical fiber products in the United States. In March 1998, the
Company and Corning concluded a settlement agreement wherein the Company has
acknowledged the validity of Corning's patent and agreed, prior to the
expiration of the patent, not to make, market, and sell or offer to sell
infringing multimode optical fiber or optical fiber preforms in the United
States in violation of Corning's patent, except to certain customers. In turn,
Corning agreed not to seek damages and has dismissed the action. The Company
also agreed to conduct an arbitration process to determine whether the Company's
singlemode fiber violates the Corning patent. In March 1999, the arbitrator
issued an opinion concluding that FiberCore's singlemode fiber does not violate
the Corning patent. Management believes that the result of this action will not
have a material adverse impact on the Company.
The Company's FiberCore Jena subsidiary, SICO and SICO's president, Mr. Walter
Nadrag (who was previously the Managing Director of FiberCore Jena) are
defendants in a lawsuit in Germany brought against them by COIA GmbH ("COIA"), a
former customer, claiming damages of approximately $200 arising from FiberCore
Jena's alleged failure to comply with a sales contract. The case was dismissed
by the lower court and COIA appealed this decision. On appeal the court found
that although there was a contract, COIA was not entitled to damages. COIA has
appealed this decision to Germany's highest court. In addition to the above, the
Company is subject to various claims which arise in the ordinary course of
business. The Company believes such claims, individually or in the aggregate,
will not have a material adverse affect on the financial position or results of
operations of the Company.
47
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company's ALT subsidiary is in a dispute with Norscan, a Canadian company,
with respect to Norscan selling FOCMS products, in competition with ALT products
and in violation of a non-competition agreement between ALT and Norscan.
Although no litigation has commenced as of the date of this report with respect
to this dispute, ALT would be the claimant in any lawsuit brought in connection
with this matter. Failure by ALT and Norscan to resolve this dispute could have
a material adverse affect on the future sales of ALT Products.
ALT is contingently liable for certain debt of a former subsidiary, Allied
Controls, Inc. ("Allied"), approximating $733.
The Company is a co-guarantor with the other joint venture partners for certain
credit facilities provided by banks to MEFC. These credit facilities are also
collateralized by the assets of MEFC. At December 31, 1998 the Company was
contingently liable for these loans in the amount of $792.
(11) STOCKHOLDERS' EQUITY
The following represents the stock option activity during the years ended
December 31, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
STOCK OPTIONS $.003 $0.1875 $0.68 $1.09 $1.16 1.36 $1.43 $1.45 $1.50 $1.51 $1.58 $2.00
- ------------- ----- ------- ----- ----- ----- ---- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 256,991 -- -- 33,042 -- -- 67,188 -- 41,993 178,679 -- --
Granted in 1996 18,357 -- 64,248 -- 87,492 55,193 -- 148,709 -- -- -- 26,542
------ ------- ------ -------- ------ ------ ------- ------- ------ ------- -------- ------
Balance,
December 31, 1996 275,348 -- 64,248 33,042 87,492 55,193 67,188 148,709 41,993 178,679 -- 26,542
Granted in 1997 -- -- -- -- 300,000 -- -- -- -- -- 409,500 --
Exercised in 1997 (201,921) -- (10,000) (33,042) -- (55,193) -- -- -- -- -- --
------ ------- ------ -------- ------ ------ ------- ------- ------ ------- -------- ------
Balance,
December 31, 1997 73,427 -- 54,248 0 387,492 0 67,188 148,709 41,993 178,679 409,500 26,542
Granted in 1998 -- 695,703 -- -- -- -- -- -- -- -- -- --
Exercised in 1998 (36,714) -- -- -- -- -- -- -- -- -- -- (26,542)
------ -- -- -- -- -- -- -- -- -- -- --------
Balance,
December 31, 1998 36,713 695,703 54,248 0 387,492 0 67,188 148,709 41,993 178,679 409,500 0
====== ======= ====== - ======= = ====== ======= ====== ======= ======= ========
Options
Exercisable 36,713 0 54,248 0 387,492 0 67,188 148,709 41,993 178,679 367,000 0
====== ======= ====== - ======= = ====== ======= ====== ======= ======= ========
</TABLE>
Options vest at rates stated in each employee's contract, principally at the
grant date or the anniversary date of the employee's date of hire. The options
granted in 1998 expire ten (10) years from the grant date. Options granted prior
to 1998 have no expiration date.
48
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock options and weighted average
prices are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance beginning of
year 1,387,778 $1.32 978,434 $0.98 577,893 $0.81
Exercised (63,256) $0.84 (300,156) $0.40 --- ---
Granted 695,703 $0.1875 709,500 $1.40 400,541 $1.22
---------- ------- -------
Balance
end of year 2,020,225 $0.95 1,387,778 $1.32 978,434 $0.98
========= ========= =======
Exercisable at end of
year 1,282,022 $1.34 1,072,064 $1.34 905,008 $1.06
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF OPTIONS EXERCISE REMAINING OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING PRICE YEARS EXERCISABLE PRICE
-------------- ----------- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$0.003 36,713 $0.003 * 36,713 $.003
$0.1875 695,703 $0.1875 10 -- --
$0.68 - $1.16 441,740 $1.10 * 441,740 $1.10
$1.43 - $1.58 846,069 $1.52 * 803,569 $1.53
---------- ---- ---------- -----
$.003 - $1.58 2,020,225 $0.95 * 1,282,022 $1.34
========= ==== ========== =====
</TABLE>
* Options granted and exercisable have no expiration date.
49
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. Compensation cost charged to operations was $846 in 1996 related to
options granted at an exercise price less than the market price of the shares at
the dates of the grants. Had compensation cost been determined on the basis of
fair value pursuant to FASB Statement No. 123, net loss and loss per share would
have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Net loss
- --------
<S> <C> <C> <C>
As reported $(2,342) $(3,078) $(4,133)
====== ====== ======
Pro forma $(2,391) $(3,174) $(4,295)
====== ====== ======
Basic and diluted loss per share
- --------------------------------
As reported $ (0.07) $ (0.09) $ (0.13)
====== ====== ======
Pro forma $ (0.07) $ (0.09) $ (0.14)
====== ====== ======
</TABLE>
The weighted average fair value of options granted during 1998, 1997 and 1996
was $0.07, $0.14 and $2.52 per share, respectively.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes model. The following assumptions were made in estimating fair
value:
<TABLE>
<CAPTION>
Stock
Assumptions Plan
----------- ----
<S> <C>
Dividend yield --
Risk-free interest rate 5.5%
Expected life 10 years in 1998 and 2 years in 1997 and 1996
Expected volatility 50% in 1998, 20% in 1997 and 40% in 1996
</TABLE>
50
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
The following warrants to purchase common stock have been issued during the
years ended December 31, 1998, 1997, and 1996, at the exercise prices indicated.
<TABLE>
<CAPTION>
WARRANTS $0.19 $0.63 $0.69 $0.72 $0.78 $0.82 $0.95 $1.31 $1.43 $1.45 $1.53 $1.63 $1.81
- -------- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
Dec. 31, 1995 83,985 598,423 5,511 550,696
Issued in 1996 1,382,648 697,546 230,440
------------------------------------------------------------------------------------------------------------------
Balance,
Dec. 31, 1996 83,985 598,423 5,511 1,382,648 1,248,242 230,440
Issued in 1997 69,132 117,500 115,220 640,445 101,394
Expired in 1997 (550,696)
Exercised in
1997 (73,426)
------------------------------------------------------------------------------------------------------------------
Balance,
Dec. 31, 1997 69,132 117,500 115,220 640,445 83,985 524,997 5,511 1,382,648 101,394 697,546 230,440
Granted in 1998 249,074 2,765,487
Expired/
Canceled 1998 (1,382,648) (697,546)
------------------------------------------------------------------------------------------------------------------
Balance
Dec. 31, 1998 249,074 69,132 117,500 2,765,487 115,220 640,445 83,985 524,997 5,511 0 101,394 0 230,440
======= ====== ======= ========= ======= ======= ====== ======= ===== = ======= = =======
</TABLE>
The weighted average fair value of warrants granted during 1998, 1997 and 1996
was $0.01, $0.18 and $1.05 based on total warrants of 3,014,561, 1,043,691, and
2,310,634 granted in 1998, 1997 and 1996, respectively. The warrants are
exercisable from the date of the grant and expire at various dates to October
2003.
(12) INCOME TAXES
The significant components of the net deferred tax asset as of December 31, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating loss carry forwards $ 4,456 $ 3,687
Less valuation allowance (4,456) (3,687)
------ ------
Net deferred tax asset $ 0 $ 0
======== =========
</TABLE>
The Company has incurred losses in 1995 through 1998, and, accordingly there is
no income tax provision.
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. Accordingly, a full valuation allowance has
been recorded due to the historical losses of the Company.
51
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(12) INCOME TAXES (CONTINUED)
The Company has net operating loss carry forwards available of approximately
$8,967, at December 31, 1998 for federal and state tax purposes. The majority of
the net operating loss carry forwards expire in the years 2009 through 2013.
FCJ has net operating loss carry forwards at December 31, 1998 of approximately
$1,932 for corporation tax and trade income tax purposes available to offset
future taxable income. Under German tax law the losses can be carried forward
indefinitely.
Because future profitability is uncertain, such benefits have been fully
reserved.
In addition, ALT has pre-acquisition net operating loss carry forwards available
of approximately $4,278, at December 31, 1998 for federal and state tax
purposes. The loss carry forwards expire between the years 2001 and 2010.
(13) MAJOR CUSTOMERS AND SUPPLIERS
The major customers listed below accounted for approximately the following
amounts and related percentages of the trade accounts receivable balance of the
Company at December 31:
CUSTOMER 1998 1997
-------- ---- ----
AMOUNT % AMOUNT %
------ - ------ -
B $ 120 14 $ 87 9
C 212 25 --- ---
E 381 44 381 39
The approximate net product sales by the Company to its major customers and the
related percentages are as follows:
<TABLE>
<CAPTION>
CUSTOMER 1998 1997 1996
-------- ---- ---- ----
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
A $1,859 23 $2,990 42 $4,524 56
B 1,801 22 1,238 17 1,217 15
C 1,107 13 --- -- --- ---
D 832 10 --- -- --- ---
</TABLE>
The Company purchases raw materials from various suppliers and in some cases
there are a limited number of suppliers for certain materials. In 1998, 1997 and
1996 one supplier accounted for 90%, 50%,
52
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(13) MAJOR CUSTOMERS AND SUPPLIERS (CONTINUED):
and 46%, respectively, of the Company's requirement of one particular item.
Although the Company maintains a good relationship with this supplier the loss
of this supplier could have a material impact on the Company's ability to
manufacture its required volume of product. The Company has identified
alternative sources for this material and continues to seek alternative sources
of supply.
(14) RELATED PARTY TRANSACTIONS
The former managing director of FCJ was the controlling shareholder of SICO.
Transactions with SICO during the years ended December 31, 1998, 1997 and 1996
consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rent of premises....................................................... $354 $331 $356
Purchase of services and utilities..................................... 318 286 611
Other expenses......................................................... --- 17 ---
Sales of fibers........................................................ 25 49 176
</TABLE>
In January 1996, the Company reached an agreement with Techman, whereby Techman
purchased 734,260 shares for $1 million ($1.36 per share). Techman is a related
party as the president and sole shareholder of Techman is a former director of
the Company. Upon acceptance of the offer and delivery of the 734,260 shares,
the Company delivered to Techman warrants, granting Techman the right to
purchase 550,696 shares of the Company at $1.63 per share exercisable in whole
or in part within a 2 year period. The warrants expired in January 1998.
The Company maintained a consulting agreement with Techman under which Techman
provided administration, marketing, technical and personnel advisory services to
the Company. The agreement was terminated in 1997. For the years ended December
31, 1997 and 1996, the Company incurred costs of $54 and $36, respectively, for
such services.
The Company has a consulting agreement with Mr. Steven Phillips, a director,
wherein Mr. Phillips provides services as a senior financial advisor. For the
years ended December 31, 1998, 1997 and 1996, the Company incurred costs of $46,
$46, and $65, respectively for such services.
53
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(15) FOREIGN OPERATIONS
The Company has operations in three principal geographic areas: the United
States (Company and ALT), Germany (FCJ), and Malaysia (FCA). Following is a
summary of information by area for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales to customers in:
United States............................................... $ 135 $ 128 $ 263
Germany..................................................... 5,015 4,859 6,315
United Kingdom.............................................. 1,801 1,234 1,126
Other....................................................... 1,250 857 392
------- ------ -------
Net sales as reported in the accompanying
consolidated statements of operations....................... $ 8,201 $ 7,078 $ 8,096
====== ====== =======
Long-lived assets:
United States............................................... $ 9,499 $ 9,936 $ 8,214
Germany..................................................... 4,885 4,580 6,205
Malaysia.................................................... 387 0 0
------ ------ --------
Total long-lived assets .................................. $14,771 $14,516 $14,419
====== ====== ======
</TABLE>
Inter-company sales are eliminated in consolidation and are excluded from net
sales reported in the accompanying consolidated statements of operations.
Identifiable assets are those that are identifiable with operations in each
geographic area. FCA (Malaysia) had no significant operations in 1998 and 1997.
(16) 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-------------------------------------
None.
54
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
EXECUTIVE OFFICERS AND DIRECTORS
The following tables set forth certain information with respect to each person
who was an executive officer or director of the Company as of December 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Dr. Mohd A. Aslami 52 Chairman of the Board of Directors, Chief
Executive Officer, President and Director
Charles De Luca 61 Executive Vice President, Secretary and Director
of the Company and General Manager of the Company's
ALT subsidiary
Michael J. Beecher 54 Chief Financial Officer and Treasurer
Hans F.W. Moeller 69 Managing Director of FiberCore Jena GmbH
Steven Phillips 53 Director
Hedayat Amin-Arsala 57 Director (appointed in January 1999)
William T. Hanley 51 Director (appointed in January 1999)
</TABLE>
Dr. Aslami is a co-founder, Chairman of the Board of Directors and Chief
Executive Officer of the Company. Dr. Aslami has served as Chairman and Chief
Executive Officer of FiberCore Jena, the Company's wholly-owned subsidiary in
Germany, since 1994. Dr. Aslami also co-founded and became President, Chief
Executive Officer and a director of ALT in 1986. Dr. Aslami received a Ph.D. in
chemical engineering from the University of Cincinnati (1974).
Mr. De Luca is a co-founder, Executive Vice President, Secretary and a director
of the Company. Mr. De Luca also co-founded and became an Executive Vice
President and director of ALT in 1986. Mr. De Luca received his MBA in marketing
and business management from St. Johns University in 1974.
Mr. Beecher became Chief Financial Officer of the Company in April 1996. Mr.
Beecher was the Vice President/Treasurer and Chief Financial Officer at the
University of Bridgeport from 1989 through 1995. Mr. Beecher is a Certified
Public Accountant and is a member of the American Institute of Certified Public
Accountants.
Mr. Moeller became Managing Director of FiberCore Jena in the fourth quarter of
1995 on a part time basis. He served as a director of FiberCore Incorporated
from 1994 through March 1996. As part of a reorganization of the Company, he
resigned his position as a director and agreed to serve as a director of the
Company's newly formed subsidiary InfoGlass. From 1993 to 1994, he served as
Vice Chairman of Schott Corporation ("Schott"), a United States subsidiary of
Schott A.G., a corporation specializing in the production of, among other
things, optical glass. From 1989 to 1993, he served as President of Schott. Mr.
Moeller was a member of the Board of Directors of Schott from 1989 to 1994.
55
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED):
Mr. Phillips became a director of the Company in May 1995 and became a director
of ALT in 1989. Since co-founding the Winstar Government Securities Company L.
P., a registered U.S. Government securities dealer that specializes in odd-lot
securities transactions, Mr. Phillips has served as Chief Financial Officer,
Secretary, and a Director. Since August 1987, Mr. Phillips has served as a
director, Secretary and Chief Financial Officer of James Money Management, Inc.,
a private investment company. Since June 1987, Mr. Phillips has served as
director and President of One Financial Group Incorporated, a financial
consulting company of which he is the majority stockholder.
Mr. Amin-Arsala held various senior positions with the World Bank for 18 years.
He was in charge of World Bank operations in countries of East and South Asia,
retiring in 1987. He served as the Minister of Finance for the Afghan Interim
Government from 1989 to 1992, and Minister of Foreign Affairs for Afghanistan
from 1993 to 1996. Since 1996, Mr. Amin-Arsala has acted in an advisory capacity
to the United Nations and the United States Agency for International Development
and has served a number of governmental and non-governmental humanitarian
organizations.
Mr. Hanley has been affiliated with Galileo Corporation ("Galileo") of
Sturbridge, Massachusetts for over 16 years. He joined Galileo in May 1982 as
Vice President of Manufacturing. He became Vice President of Manufacturing
Operations in April 1983 and was named Executive Vice President, Chief Operating
Officer and a Director on January 1, 1984. He was appointed President and Chief
Executive officer on August 1, 1984 and served in that position through November
17, 1998. Mr. Hanley is currently a consultant to Galileo. In 1993 Mr. Hanley
co-founded the Center for Advanced Fiberoptic Applications (CAFA) and was named
the Worcester Business Journal's Business Leader of the Year in 1994, as well as
one of the five most influential business people of Central Massachusetts. He is
currently a business consultant and a member of several Boards of Directors and
Advisory Boards for companies in Central Massachusetts. Mr. Hanley has a B.S.
degree in Glass Science from Alfred University, Alfred New York and graduated
with distinction from Corning Community College, Corning, New York.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Following is a summary of the compensation earned and/or paid to the Company's
Chief Executive Officer and its most highly compensated executive officers for
the last three years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Position Fiscal Year Salary$ Bonus$ Other Annual Restricted Stock Securities
Compensation Award(s)$ Underlying
Options/SARs(#)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Mohd Aslami 1998 156,583 --- --- 184,911
Chairman, Chief Executive 1997 146,500 --- --- 359,752
Officer & President 1996 146,500 --- --- 60,913
- ------------------------------------------------------------------------------------------------------------------------------------
Charles De Luca 1998 97,116 --- --- 106,324
Executive Vice President 1997 98,398 --- --- 189,502
& Secretary 1996 98,398 --- --- 46,050
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Beecher (1) 1998 100,000 --- --- ---
Chief Financial Officer 1997 85,000 --- --- 120,000
& Treasurer 1996 53,708 --- --- 64,248
- ------------------------------------------------------------------------------------------------------------------------------------
Hans Moeller 1998 120,000 --- --- ---
Managing Director, 1997 120,000 --- --- 300,000
FiberCore Jena GmbH 1996 98,596 --- --- 55,193
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Started employment on April 15, 1996.
56
<PAGE>
EXECUTIVE COMPENSATION (CONTINUED):
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table lists the options granted to the executive officers during
the year ended December 31, 1998.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------------
Name Number of % of Total Exercise Expiration Potential Potential realized
---- Securities Options/ or base Date realized values values at assumed
Underlying SARs Granted price --- at assumed annual rates of
Options/ to Employees ($/Share) annual rates of stock price apprec.
SARs in Fiscal stock price for option term
Granted Year apprec. For -----------
(#) ---- option term 10% ($)
--- -----------
--- 5%($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Mohd Aslami (a) 184,911 27% $0.1875 Dec. 31, 2008 $ 1,473 $22,883
- ------------------------------------------------------------------------------------------------------------------------------
Charles De Luca (a) 106,324 15% $0.1875 Dec. 31, 2008 $ 847 $13,157
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a. The market value per share at the date of grant was $0.12.
(The remainder of this page intentionally left blank.)
57
<PAGE>
EXECUTIVE COMPENSATION (CONTINUED):
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
- ----------------------------------------------------
AND FISCAL YEAR END OPTIONS/SAR VALUES
- --------------------------------------
The following table lists the options/SARs exercised during the year and the
options/SARs held by the executive officers that were unexercised at December
31, 1998.
<TABLE>
<CAPTION>
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
Number of Securities Value of unexercised
underlying unexercised In-the-money options/SARs at
Shares acquired Value options/SARs at FY-end (#) FY-end ($)
Name on exercise (#) realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------ ------------------------- ----------------------------
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Dr. Mohd Aslami --- --- 420,665/184,911 (Note 1)
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
Charles De Luca --- --- 235,552/106,324 (Note 1)
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
Michael J. Beecher --- --- 134,248/40,000 (Note 1)
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
Hans Moeller --- --- 300,000/0 (Note 1)
- -------------------------- ------------------- -------------- --------------------------------- -------------------------------
</TABLE>
Note 1 - At December 31, 1998 the fair value was less than the exercise price.
COMPENSATION OF DIRECTORS
- -------------------------
The Company maintains a compensation plan for outside directors, (directors who
are not employees of the Company), wherein each outside director receives an
initial award of 10,000 non-qualified stock options and a fee of $10,000 per
year, payable quarterly, and $250 for each Board of Directors meeting or
Committee of the Board meeting attended. No directors received compensation as a
director in 1998.
The Company has a consulting agreement with Mr. Phillips, a director of the
Company, wherein Mr. Phillips provides services as a senior financial advisor.
Mr. Phillips receives a retainer of $60,000 per year payable in monthly
installments of $5,000, based on an hourly rate of $185 per hour. The retainer
is adjusted quarterly based on actual hours of service. The agreement is for one
year from January 1, 1997 and is automatically renewed for one year periods
unless terminated by written notice 90 days prior to the expiration of each
renewal period. For the year ended December 31, 1998, Mr. Phillips' fee was
$45,860.
58
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
PRINCIPAL SECURITY HOLDERS
The following table sets forth certain information regarding the ownership of
the Common Stock as of March 1, 1999, with respect to (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each executive officer named in the Executive Compensation Table,
(iii) each director of the Company and (iv) all the directors and executive
officers of the Company as a group. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares
beneficially owned.
<TABLE>
<CAPTION>
NAME
AND SHARES %
ADDRESS(1) OWNED OWNED
---------- ----- -----
<S> <C> <C> <C>
Mohd Aslami.......................................... 7,760,578 (2), (10) 16.2
Charles De Luca...................................... 4,872,101 (3), (10) 10.2
Steven Phillips...................................... 1,250,795 (4) 2.6
Hans F.W. Moeller.................................... 388,235 (5) 0.8
Michael J. Beecher................................... 174,248 (6) 0.4
Hedayat Amin-Arsala.................................. 2,358,424 (7) 4.9
William T. Hanley.................................... 10,000 (8) less than .1
AMP Incorporated..................................... 9,244,297 (9),(10) 19.4
All directors and executive officers
as a group (7 persons)............................. 16,814,381 35.1%
</TABLE>
- ------------------------------------
(1) The addresses of the persons and entities named in this table are as
follows: Messrs. Aslami, De Luca, Phillips, Moeller, Beecher,
Amin-Arsala and Hanley, c/o FiberCore, Inc., P. O. Box 180, 253
Worcester Road, Charlton, MA 01507; AMP Incorporated, 470 Friendship
Road, Harrisburg, PA 17105.
(2) Includes 117,482 shares and Warrants to purchase 115,220 shares held by
Dr. Aslami's wife, 1,009,188 shares held by Dr. Aslami's children,
1,587,569, 104,296 and 608,914 shares held respectively by the Ariana
Trust, Children's Trust, and the Kabul Foundation, trusts of which Dr.
Aslami's wife and/or Dr. Aslami are trustees and of which Dr. Aslami's
children are beneficiaries, and 284,860 shares held by the Raja
Foundation, a trust of which Dr . Aslami's wife and Mr. De Luca's wife
are trustees and of which various organizations and family members are
beneficiaries. Dr. Aslami disclaims beneficial ownership of all such
shares. Also includes 668,076 options and warrants to purchase shares
of the Company.
(3) Includes 1,395,096 shares and Warrants to purchase 115,220 shares held
by Elizabeth De Luca, Mr. De Luca's wife, 507,715 shares held by Mr. De
Luca's children, 458,914 shares held by the Dawn Foundation, a trust of
which Mrs. De Luca is trustee and of which Mr. De Luca's children are
beneficiaries, and 174,053 shares held by the Raja Foundation, a trust
of which Dr. Aslami's wife and Mr. De Luca's wife are trustees and of
which various organizations and family members are beneficiaries. Mr.
De Luca disclaims beneficial ownership of all shares. Also includes
341,876 options.
59
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED):
(4) Includes 433,392 options and Warrants issued to One Financial Group,
Incorporated, a Company controlled by Mr. Phillips and 13,750 Warrants.
(5) Includes 300,000 options.
(6) Includes 174,248 options.
(7) Includes 10,499 shares held by Mr. Amin-Arsala's wife, 1,328,393 shares
into which the note held by Mr. Amin-Arsala is convertible, Warrants to
purchase 249,074 shares and options to acquire 10,000 shares to be
issued to Mr. Amin-Arsala for his appointment as a director.
(8) Includes options to acquire 10,000 shares to be issued to Mr. Hanley
for his appointment as a director.
(9) Includes 3,419,977 shares into which the AMP Note is convertible at
$0.6641 per share and Warrants to purchase 2,765,487 shares.
(10) Under the AMP loan, the Company, Mohd A. Aslami, Charles De Luca, M.
Mahmud Awan (a former director) and AMP entered into a Voting Agreement
pursuant to which they agreed to vote together to elect a slate of
directors to the Board of Directors of the Company.
(the remainder of this page is intentionally left blank)
60
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
DEALINGS WITH SICO
Since June 1994, FiberCore Jena has leased its office and manufacturing facility
in Germany from SICO Quarzschmelze Jena GmbH ("SICO"). The lease term was
amended to extend the current lease term to December 31, 2001 at a monthly rent
of DM 50,000 (approximately $30,000) with an option to renew the lease for a
period up to 25 years.
DEALINGS WITH TECHMAN
Since 1995, the Company has maintained a working relationship with Techman, a
technology management company headquartered in Massachusetts since 1982. Dr. M.
Mahmud Awan, the President and sole shareholder of Techman, is a former director
of the Company. Techman specializes in sales of fiber optic products and
telecommunication systems.
On November 1, 1995, the Company entered into an International Distributor
Agreement with Techman to market the Company's products worldwide. Techman
agreed to receive customary sales commissions in the form of Warrants
exercisable into 1,000,000 shares of Common Stock to be issued to Techman for
sales of the Company's products up to $200,000,000. Such shares will be issued
upon receipt of the proceeds of any such sales. The Agreement may be terminated
on 30 days notice and no commissions have been earned by Techman as of December
31, 1998.
Pursuant to the Techman Share Purchase Agreement dated January 11, 1996, Techman
purchased 734,260 shares of Common Stock for $1,000,000 (approximately $1.36 per
share) and was granted Warrants exercisable into 550,696 shares of Common Stock
at $1.63 per share. Additionally, the Company issued an additional 312,061
shares of Common Stock to Techman on (i) the formation of FOI (a joint venture),
in which the Company holds a 30% ownership interest, and (ii) the completion of
a supply agreement between FOI and the Company. Under the agreement, $500,000 of
the $1,000,000 share purchase price was invested by Techman for the Company in
FOI as an additional capital contribution. FOI, a company incorporated in
Islamabad under the laws of Pakistan, was formed to manufacture optical fiber
products in Pakistan. Due to a delay in the construction of the manufacturing
plant, in 1997 the supply agreement was canceled and the 312,061 shares were
canceled.
In April 1997, the Company borrowed $250,000 from Techman under a note maturing
in 2000. The annual interest rate on the note is the prime rate plus 1%,
adjustable quarterly and payable quarterly. In conjunction with the note,
Techman was granted warrants to purchase 115,220 common shares of the Company at
an exercise price of $0.78 per share.
In September 1997, the Company borrowed $150,000 from Techman International
Corporation. The note bears interest at prime plus 1% per year and matured on
September 17, 1998. In conjunction with the note, Techman was granted warrants
to purchase 69,132 common shares of the Company at an exercise price of $0.625
per share. The note was renewed in 1999 and matures on December 31, 1999.
61
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED):
The Company maintained a consulting agreement with Techman under which Techman
provided administration, marketing, technical and personnel advisory services to
the Company. The agreement has been terminated. For the years ended December 31,
1997 and 1996, Techman was paid $54,000 and $36,000, respectively, for such
services.
DEALINGS WITH AMP
In April 1995, the Company issued a note to AMP, Incorporated ("AMP") (the "AMP
Note"). The AMP Note is a ten year $5,000,000 convertible note. AMP, a company
listed on the New York Stock Exchange, with worldwide sales in excess of $5.7
billion in 1997, is a manufacturer of electrical and optical connection devices,
systems and other equipment including fiber optic cable. The AMP Note is
collateralized by the Company's patents, patent applications, licenses, rights
and royalties arising from such patents. The AMP Note is subject to prepayment
on demand in the event the Company is the issuer of securities to be sold by the
Company under an effective registration statement. On November 27, 1996 AMP
converted $3,000,000 of principal plus $540,985 of accrued interest into
3,058,833 shares of Common Stock of the Company. The remaining outstanding
principal plus accrued interest may be converted into Common Stock of the
Company at $0.66 per share, until maturity, April 17, 2005.
In July 1996, AMP entered into a five year supply contract (renewable
at AMP's option for an additional five year period) with the Company whereby AMP
has undertaken to purchase from the Company at least 50% of AMP's future glass
optical fiber needs. Under this contract, the Company sold fiber totaling
approximately $1,801,000 and $1,238,000 in 1998 and 1997, respectively, to an
AMP cabling contractor in Europe. The Company expects to begin supplying optical
fiber to AMP in the United States in 1999. On November 27, 1996, the Company
obtained an additional $3,000,000 loan at an interest rate of prime plus 1%,
from AMP to facilitate the funding of the expansion of the Jena Facility. In
exchange AMP received a 10 year note and common stock purchase warrants
exercisable until November 27, 2001. Under the terms of the loan and warrant
agreement, on November 27, 1998 the number of warrants was increased to
2,765,487 and the warrant exercise price was adjusted to $0.7232 per share. In
connection with the new AMP loan and the expansion of the Jena Facility, the
Company was awarded a grant from the German Government of approximately
$2,700,000 and received a loan from Berliner Bank of approximately $4,621,000.
As part of the new $3,000,000 loan from AMP, Mohd A. Aslami, Charles De Luca, M.
Mahmud Awan (a former director of the Company) and AMP entered into a Voting
Agreement pursuant to which they agreed to vote together to elect a slate of
directors to the Board of Directors of the Company. AMP has waived the
implementation of this slate of directors. The Voting Agreement also requires a
classified and three year staggered Board of Directors. Such Voting Agreement
would remain in effect until the earlier of (i) termination of the new AMP loan
agreement, or (ii) an underwritten public offering by the Company which
generates at least $5,000,000.
LOANS
On July 31, 1996, the Company borrowed $500,000 under two loan agreements from
the spouses of Dr. Aslami and Mr. De Luca. The loans are in the amount of
$250,000 each and bear interest at the prime rate plus one percent (currently
9.25%), and are due on July 31, 1999. In conjunction with the loans each lender
received warrants to purchase 115,220 shares of Common Stock at the rate of
$1.81 per share. The warrants expire on July 31, 2001.
62
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED):
Also, in 1997, the Company borrowed $50,000 from Dr. Aslami. The
interest rate is prime plus 1% and the note matured on September 17, 1998. In
conjunction with the note the lender was issued warrants to purchase 62,500
common shares of the Company at an exercise price of $0.6875 per share. The note
was renewed in 1998.
In September and November 1997 the Company also borrowed $37,500 under
a note with interest at prime plus 1%. The note matures on the earlier of the
receipt of proceeds from any new financing received by the Company or September
30, 1998. In conjunction with the notes the lender was granted warrants to
purchase 27,500 common shares of the Company at an exercise price of $0.6875 per
share. Mr. Steve Phillips, a director of the Company, is a principal of the
lender. The note was repaid in 1998.
CONSULTING
The Company has a consulting agreement with Mr. Phillips, a director of
the Company, wherein Mr. Phillips provides services as a senior financial
advisor. Mr. Phillips receives a retainer of $60,000 per year payable in monthly
installments of $5,000, based on an hourly rate of $185 per hour. The retainer
is adjusted quarterly based on actual hours of service. The agreement is for one
year from January 1, 1997 and is automatically renewed for one year periods
unless terminated by written notice 90 days prior to the expiration of each
renewal period. For the year ended December 31, 1998, Mr. Phillips' fee was
$45,860.
(The remainder of the page is intentionally left blank.)
63
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
---------------------------------------------------
ON FORM 8-K
-----------
(A) 1. FINANCIAL STATEMENTS
See Item 8 of this Report
2. FINANCIAL STATEMENT SCHEDULES
The required disclosures are included in the footnotes to the
Financial Statements
3. EXHIBITS
(+ denotes incorporated herein by reference to the Annual
Report on Form 10-K for the year ended December 31, 1996,
filed with the Commission on March 26, 1997)
(x denotes incorporated herein by reference to the Annual
Report on Form 10-K for the year ended December 31, 1997,
filed with the Commission on March 26, 1998)
(xx denotes filed herewith)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
<S> <C>
+2.1 Agreement and Plan of Reorganization dated as of July 18, 1995 between Venturecap, Inc. and
FiberCore Incorporated.
+2.2 Agreement of Merger dated as of July 18, 1995 between Venturecap, Inc. and FiberCore
Incorporated.
+2.3 Agreement and Plan of Reorganization dated as of September 18, 1995 between the FiberCore, Inc.
Alt Merger Co., and Automated Light Technologies, Inc. ("ALT").
+2.4 Agreement dated February 13, 1987 between Norscan Instruments Ltd. and ALT.
+3.1 Certificate of Incorporation of FiberCore, Inc.
+3.2 By-Laws of FiberCore, Inc.
+10.1 Loan Agreement dated August 2, 1990 between ALT and Connecticut Innovations, Inc. ("CII").
+10.2 Promissory Note issued by ALT to CII.
+10.3 Security Agreement dated as of August 1990 between ALT and CII.
+10.4 Subordination executed August 2, 1990 between CII, Mohd Aslami, and Charles De Luca.
+10.5 Collateral Assignment and Security Agreement dated August 2, 1990 between ALT and CII.
+10.6 Loan Agreement dated December 5, 1990 between ALT and the Connecticut Development Authority
("CDA").
+10.7 Promissory Note dated December 5, 1990 issued by ALT to CDA.
+10.8 Guaranty dated December 5, 1990 issued to CDA by Mohd Aslami and Charles De Luca.
+10.9 Collateral Assignment and Security Agreement dated December 5, 1990 between ALT and CDA.
+10.10 Security Agreement dated as of December 5, 1990 between ALT and CDA.
+10.11 Subordination dated November 5, 1990 between CDA, Mohd Aslami and Charles De Luca.
+10.12 Form of Warrant issued by ALT to CDA.
+10.13 Form of Warrant issued by Agreement between ALT to Connecticut Innovations Incorporated.
+10.14 Form of Warrant issued by ALT.
+10.15 Form of FiberCore Incorporated Warrant.
+10.16 Assignment dated November 8, 1993 by Gregory Perry to FiberCore Incorporated of U.S. Patent No.
4,596,589.
+10.17 Lease executed January 31, 1994 between Cobra Realty Trust, FiberCore Incorporated, Mohd Aslami
and Charles De Luca.
+10.18 Agreement dated June 7, 1994 between Sico Quarzschmelze Jena,
GmbH ("Sico") and FiberCore Inc., to lease building and
equipment and to manufacture optical fiber and optical fiber
preform.
+10.19 Agreement dated August 19, 1995 between Sico and FiberCore
Glasfaser Jena GmbH, with supplemental agreement by Walter
Nadrag.
+10.20 Cooperation Agreement dated December 19, 1995 between Sico and FiberCore, Inc.
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
+10.21 Lease dated August 19, 1995 between Sico and FiberCore Glasfaser Jena GmbH.
+10.22 Agreement dated January 25, 1996 between FiberCore, Inc., FiberCore Glasfaser, Jena and Sico.
+10.23 Share Purchase Agreement dated January 11, 1996 between FiberCore, Inc. and Techman
International, Corp. ("Techman").
+10.24 Escrow Agreement dated as of April 13, 1995 between FiberCore Incorporated, Middle East
Specialized Cables Co. ("MESC") and Shawmut Bank, N.A.
+10.25 Escrow Amending Agreement dated September 15, 1995 between FiberCore, Inc., Middle East
Specialized Cables Co. ("MESC") and Shawmut Bank, N.A.
+10.26 Share Purchase Agreement dated as of April 13, 1995 between FiberCore Incorporated and MESC.
+10.27 Share Purchase Amending Agreement dated September 15, 1995 between the Registrant and MESC.
+10.28 Convertible Debenture Purchase Agreement effective as of April 17, 1995 between AMP
Incorporated and FiberCore Incorporated, with form of
Convertible Debenture Attached, as Exhibit A.
+10.29 Cooperation Agreement dated June 17, 1994 between John Royle & Sons and FiberCore Incorporated,
with Amendment No. 1 executed on the same date.
+10.30 Warrant issued by FiberCore, Inc. to Techman to purchase up to 550,696 shares of Common Stock.
+10.31 Agreement dated July 1, 1994 between FiberCore Incorporated and FiberCore Glasfaser Jena GmbH.
+10.32 Joint Venture Agreement dated January 31, 1996 between Middle East Optic Fiber Company
("MEOFC"), Royle Mid East Ltd. and FiberCore Mid East Ltd.
+10.33 Convertible Note Purchase Agreement and Convertible Promissory Note between FiberCore, Inc. and
Hedayat Amin-Arsala in the amount of $200,000, each dated March 15, 1996.
+10.34 Joint Venture Agreement dated May 21, 1995 between the Company, Techman and the other parties
named therein.
+10.35 International Distributor Agreement between Techman and the Company, dated November 1, 1995.
+10.36 Term Loan Agreement by and between FiberCore, Inc. as borrower and AMP Incorporated a lender
dated November 27, 1996.
+10.37 Term Promissory Note in the original principal amount of $3 million dated November 27, 1996.
+10.38 Amendment No. 1 to Convertible Debenture Purchase Agreement between FiberCore, Inc., as
borrower and AMP Incorporated as Lender dated November 27, 1996.
+10.39 Subsidiary Guarantee between FiberCore Glasfaser Jena GmbH and
AMP Incorporated dated November 27, 1996.
+10.40 Security Interest Agreement between FiberCore Glasfaser Jena
GmbH and AMP Incorporated dated November 27, 1996.
+10.41 Patent Security Agreement between FiberCore, Inc. and AMP Incorporated dated November 27, 1996.
+10.42 Warrant issued to AMP Incorporated to purchase shares of Common Stock of FiberCore, Inc.
November 27, 1996.
+10.43 Amended and Restated Convertible Debenture dated April 17, 1995.
+10.44 Voting Agreement between FiberCore, Inc., AMP Incorporated, Mohd Aslami, Charles De Luca and
Dr. M. Mahmud Awan dated November 27, 1996.
+10.46 Supply contract between AMP Incorporated and FiberCore, Inc. dated July 29, 1996.
+10.47 Loan Agreement between FiberCore, Inc. and Berliner Bank AG for the amount of DM 7,700,000
dated September 6, 1996.
+10.48 Grants Agreements between FiberCore Glasfaser Jena GmbH and
the Ministry of Economics and Infrastructure in the amount of
DM 2,300,000 dated June 12, 1996 and December 30, 1995.
+10.49 Intercompany Loan Agreement between FiberCore, Inc. and FiberCore Glasfaser Jena GmbH in
connection with the loan from Berliner Bank AG dated July 10, 1996.
+10.50 Form of Warrant issued by FiberCore, Inc. to Techman to exercise up to 1,000,000 shares of
Common Stock pursuant to the International Distributor Agreement dated November 1, 1995.
+10.51 Note Purchase and Warrant Agreement between FiberCore, Inc. and Bereshkai S. Aslami in the
amount of $250,000 and granting Warrants to purchase up to 115,220 shares of Common Stock.
+10.52 Note Purchase and Warrant Agreement between FiberCore, Inc. and Elizabeth De Luca in the amount
of $250,000 and granting Warrants to purchase up to 115,220 shares of Common Stock.
+10.53 Forbearance Agreement between ALT and CDA Authority and
granting of Warrants dated August 27, 1996.
+10.54 Forbearance Agreement between ALT and CII and granting of Warrants dated July 31, 1996.
+10.55 Long Term Preform Supply Agreement between FiberCore, Inc. and Fiber Optic Industries (Pvt.)
Limited dated July 25, 1996.
+10.56 Long-term supply agreement between FiberCore, Inc. and Middle East Optical Fiber Cable Co.
(MEFC) dated November 1, 1996.
x10.57 Joint Venture Agreement dated November 17, 1997 between FiberCore, Inc., Federal Power Sdn.
Bhd., and PNB Equity Resource Corporation Sdn. Bhd.
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
x10.58 Put Option Agreement dated November 17, 1997 between FiberCore, Inc., Federal Power Sdn. Bhd.
and PNB Equity Resource Corporation Sdn. Bhd.
x10.59 Note Purchase and Warrant Agreement dated September 17, 1997 between FiberCore, Inc. and Income
Partners LP.
x10.60 Note Purchase and Warrant Agreement dated September 17, 1997 between FiberCore, Inc. And
Techman International Corporation.
x10.61 Note Purchase and Warrant Agreement dated April 16, 1997 between FiberCore, Inc. and Techman
International Corporation.
x10.62 Note Purchase and Warrant Agreement dated September 17, 1997 between FiberCore, Inc. and Mohd
A. Aslami.
x10.63 Consulting Agreement dated January 1, 1997 between One Financial Group Incorporated and
FiberCore, Inc.
+14.0 Copy of patents purchased from Sico.
x22 List of subsidiaries of FiberCore, Inc.
xx27 Financial Data Schedule, which is submitted electronically to
the Securities and Exchange Commission for information
purposes only.
</TABLE>
(B) REPORTS ON FORM 8-K
None.
66
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ Mohd A. Aslami March 26, 1999
-------------------------------
Dr. Mohd A. Aslami
Chairman, Chief Executive Officer
and President (Principal Executive Officer)
By: /s/ Michael J. Beecher March 26, 1999
-------------------------------
Michael J. Beecher
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Mohd A. Aslami Chairman of the Board, March 26, 1999
- ------------------- President
Dr. Mohd A. Aslami Chief Executive Officer,
Director
/s/ Charles De Luca Executive Vice President March 26, 1999
- -------------------- Secretary and Director
Charles De Luca
/s/ Steven Phillips
- --------------------
Steven Phillips Director March 26, 1999
</TABLE>
67
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
Prior years financial data schedules have not been restated because there would
be no change in basic and diluted EPS.
</LEGEND>
<CIK> 0000917770
<NAME> FIBERCORE, INC.
<MULTIPLIER> 1,000
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 1,063
<ALLOWANCES> (200)
<INVENTORY> 4,480
<CURRENT-ASSETS> 10,997
<PP&E> 7,603
<DEPRECIATION> (2,373)
<TOTAL-ASSETS> 25,768
<CURRENT-LIABILITIES> 4,660
<BONDS> 10,204
0
0
<COMMON> 36
<OTHER-SE> 7,605
<TOTAL-LIABILITY-AND-EQUITY> 25,768
<SALES> 8,201
<TOTAL-REVENUES> 8,459
<CGS> 6,534
<TOTAL-COSTS> 9,990
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 811
<INCOME-PRETAX> (2,342)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,342)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,342)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
