UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment 2
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 0-21823
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FIBERCORE, INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-0445729
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
253 Worcester Road, P.O. Box 180
Charlton, MA 01507
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(Address and Zip Code of principal executive offices)
(508) 248-3900
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(Registrant's telephone number, including area code)
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
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(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 [ ].
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The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 1, 2000: $227,559,969.
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Number of shares outstanding as of March 1, 2000: 41,932,472.
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DOCUMENTS INCORPORATED BY REFERENCE
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None
2
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FIBERCORE, INC.
TABLE OF CONTENTS
PAGE
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PART I.........................................................................4
ITEM 1. BUSINESS.....................................................4
ITEM 2. PROPERTIES..................................................15
ITEM 3. LEGAL PROCEEDINGS...........................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.....................................................16
PART II.......................................................................17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................17
ITEM 6. SELECTED FINANCIAL DATA.....................................18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.........................19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...........................................26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.........................51
PART III......................................................................52
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT..................................................52
ITEM 11. EXECUTIVE COMPENSATION......................................54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..............................................57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............59
PART IV.......................................................................60
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.................................................60
SIGNATURES....................................................................61
3
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PART I
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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. The Company's principal operating unit
is FiberCore Jena GmbH ("FCJ"), the Company's wholly-owned subsidiary in
Germany.
On September 18, 1995, the Company acquired Automated Light Technologies,
Inc. ("ALT"). ALT, a Delaware corporation organized in 1986, manufactures
equipment that monitors and identifies faults in fiber optic cables, cable
protection devices, and electro-optical talk sets. The Company has focused its
resources on developing its optical fiber and preform business and, therefore,
has not been actively developing the ALT business. The Company, however, intends
to devote resources and efforts to the ALT products as resources become
available.
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.
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.
<TABLE>
FIBERCORE, INC.
CORPORATE STRUCTURE
Headquarters
(USA)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 (inactive) (inactive) Middle East Fiber Cables Co.
15% Owned by
FiberCore MidEast Ltd.
</TABLE>
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BUSINESS (continued)
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 by the Company agreeing not to solicit, market
or sell phosphorus containing multimode fiber in the United States until the
Corning patent expired in July 1999. The Company also agreed to conduct an
arbitration 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. Prior to July
1999, the Company had not sold any material quantities of fiber in the United
States.
In July 1996, Tyco Electronics Corp. ("Tyco"), (formerly AMP,
Incorporated), entered into a supply contract which ends on December 31, 2000
(renewable at Tyco's option for an additional five year period) with the Company
whereby Tyco has undertaken to purchase from the Company at least 50% of Tyco's
future glass optical fiber needs.
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 has a 15% interest in MEFC. MEFC began
operations in 1998 and had sales of approximately U.S.$6,587,000 and
U.S.$489,000 for the years ended December 31, 1999 and 1998, respectively. MEFC
reported income from operations of approximately U.S.$433,000 for the year ended
December 31, 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, and
bear interest at the prime rate plus one percent (currently 9.25%). The loans
were renewed in 1999 and in conjunction with the renewal the new loans were
convertible into common shares of the Company at $0.26 per share which was the
closing trading price on the renewal date. Also, each lender received warrants
to purchase 323,082 common shares at a price of $0.26 per share. The Warrants
expire on October 1, 2004. In December 1999, the loans were converted into
common shares of the Company.
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. 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. In addition,
due to the increased demand for the Company's products and the rapid growth in
the industry in general, the Company is planning to add capacity through joint
ventures such as FCA, and through acquisitions.
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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 singlemode fiber. Multi-mode fiber has a larger core (the area where the
light travels) than singlemode 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 or core rod.
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
silca glass.
7
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BUSINESS (continued)
ALT PRODUCTS
The Company's ALT subsidiary has four principal products, all of which are
manufactured through subcontractors, with final assembly and testing done 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.
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.
The Company has focused its resources on developing its optical fiber and
preform business and, therefore, has not been actively developing the ALT
business. Accordingly, the activities of ALT have been limited. The Company,
however, intends to devote resources and efforts to the ALT products as
resources become available.
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. In mid-1999, the Company
installed a pilot machine using this new process in Jena. The preliminary
results of this process are very positive and the Company is planning to expand
its production capacity using this process in 2000.
The Company conducts research and development ("R&D") activities at its
Jena Facility and Charlton, Massachusetts offices. The Company's research and
development activities consist primarily of optical fiber manufacturing process
improvements and optical fiber product development.
8
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BUSINESS (continued)
In addition, the Company is conducting R&D activities in developing the
following new products:
a. Fiber Lasers. Fiber Lasers are used in laser projection
applications, including laser television ("TV"), which are expected
to be more cost effective than flat panel TV's. Fiber lasers can
also be used in heavy-duty commercial laser printers. The Company is
funding 55% of this project through government grants, and the
project requires an additional investment of approximately $72,000.
The Company expects to complete the development of Fiber Lasers by
the middle of 2003, and then begin marketing the products. The
Company does not anticipate significant sales of this product in the
near future.
b. Laser Power Transmitting Fibers ("LPTF"). LPTF's for high power
transmission to be used in conjunction with various type of lasers.
Fiber Laser and LPTF are expected to replace gas lasers in certain
applications such as laser welding, laser cutting, and laser
surgery. The Company is funding the entire cost of this project. The
Company expects to complete development of technology to manufacture
laser transmitting fibers with an improved lifespan to be used in
Laser TV applications by the end of October, 2000, and to begin
marketing the product by the end of 2000. The Company does not
anticipate significant sales of this product in the near future.
c. Bragg Grading Fiber ("BGF"). BGFS's can also create band-path that,
like filters, will work in the dense wavelength division
multiplexing ("DWDM") applications. The Company is funding 55% of
this project through government grants and outside sources, and the
project requires an additional investment of approximately $351,000.
The Company has completed the development of highly photosensitive
fibers. However, at present, the imprinting of BGF's is being done
in cooperation with IPHT/Jena, a German research institute. The
Company may begin marketing the highly photosensitive fibers this
year, and anticipates that it will begin marketing BGF's by the
middle of 2001. The Company does not anticipate significant sales of
this product in the near future.
The Company's R&D expenditures have increased by approximately 52% during
1999 from the prior year. Such expenditures amounted to $722,000, $475,000 and
$434,000 for the fiscal years ended December 31, 1999, 1998, and 1997,
respectively. The principal purpose of the research activity is to implement new
technology, 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.
Eight of the Company's employees devote substantially all of their time to
research and development. In addition, the Company has contracts with several
individuals who are involved in process development projects.
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BUSINESS (continued)
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. In July 1999, the
Company began selling into the North American market and anticipates that sales
growth in this region will be more rapid than in Europe.
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. 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.
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BUSINESS (continued)
CUSTOMERS REPRESENTING OVER 10% OF SALES
The following table is based on the total sales of the Company for all periods
presented.
1999 % OF SALES
Leone AG 24%
Pinacl Ltd. 21%
Siemens AG 10%
Optical Cable Corp. 10%
1998
Leone AG 23%
Pinacl Ltd. 22%
Siemens AG 13%
Belden Wire & Cable 10%
1997
Leone AG 42%
Pinacl Ltd. 17%
The Company believes that the loss of the top two customers (in percentage
of sales) would have a material adverse effect on the Company.
The customers representing more than 10% of the Company's accounts
receivable at the end of the last three years are the same customers
representing 10% or more of the Company's total sales.
BACKLOG, SALES AND ADVERTISING
At December 31, 1999, the Company had a backlog of orders approximating
$12.8 million ($3.9 million at December 31, 1998). This represents a 228%
increase over the backlog in the previous year. During 1999, four of the
Company's employees were engaged in sales activities, and the Company utilized
manufacturers' sales representatives in certain geographic markets. In 1999, the
Company employed two additional full time sales people for the European market.
Also in 1999, the Company expanded its independent sales 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.
The Company also maintains product information on its web-site, and plans to
expand such activities in the future.
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BUSINESS (continued)
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 U.S., 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 U.S. 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, 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. 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.
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BUSINESS (continued)
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 highly dependent on its patents. The Company's long-term
strategy includes becoming a low-cost producer of fiber optic performs and
optical fiber to independent manufacturers of fiber optic cable. To do this, the
Company must continually improve its manufacturing processes at its facilities
by implementing the Company's patented technologies, by developing new
techniques that lower production costs, and by offering new and competitive
products. With these patents, manufacturing efficiencies are increased, thereby
reducing manufacturing cost and improving overall profitability. The Company is
also able to expand its business and reduce the need for cash financing by
leveraging the Company's intellectual property. For example, in the Malaysian
joint venture, the Company contributed the value of its technology in return for
a 51% interest in the joint venture. Similarly, because of increases in
manufacturing efficiency provided by the Company's patented technology, the
Company can increase capacity with less equipment than otherwise needed. The
Company's capitalizing on its technology reduces cash requirements, thereby
reducing the likelihood of additional shareholder dilution. The Company's
patents also help protect the Company from competition by preventing others from
using the technology covered by the patent.
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
13
<PAGE>
BUSINESS (continued)
jurisdictions, as well as filing further improvement patents for its process.
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 2000.
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 tech- nology 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, the Euro,
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. To date, essentially all of the
Company's revenues have come from its wholly-owned subsidiary, FCJ.
14
<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.
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 1999, the Company's optical
fiber and preform business purchased approximately 95% of its key glass tubing
raw material from one supplier, Heraeus Quarz Glas GmbH & Co.K.G., located in
Hanau, Germany. Heraeus Quarz Glas GmbH & Co.K.G. accounted for over 90% and 50%
of the Company's glass tube requirements in 1998 and 1997, respectively. Heraeus
Quarz has committed to supply the Company's tube requirements for 2000. If the
Company becomes unable to continue to purchase raw materials from Heraeus Quarz,
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 the possibility of future
shortages of key materials, the Company has 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.
EMPLOYEES
At December 31, 1999, the Company employed 96 persons, of whom 3 are
executives, 13 are engaged in sales and administration, 72 are engaged in
manufacturing and 8 are engaged principally in research and development. Ninety
(90) 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.
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
30,000 sq. ft., including 20,700 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 monthly lease cost is approximately $24,000. The
Company maintains casualty and liability insurance on the Jena Facility.
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 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.
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 rendered judgment in favor of the Company and the case was dismissed.
The Company is currently in a dispute with Techman International Corp.
("Techman") relating to (i) certain loans made to the Company by Techman in the
aggregate principle amount of $418,000 plus unpaid interest in the approximate
current amount of $94,000 and (ii) the Company's investment of $500,000 in Fiber
Optic Industries (Pakistan) Ltd. ("FOI"), a joint venture company organized and
controlled by Techman. The Company's investment in FOI is subject to a guarantee
by Techman. The Company also has a dispute relating to shares of the Company
issued to Techman, or its principal, M. Mahmud Awan, a former director of the
Company. A portion of those shares have been canceled by the Company because of
the failure of Techman to satisfy certain conditions related to their issuance.
The parties have had periodic discussions related to the foregoing, but to date
have not reached a resolution of these matters. Based upon discussions with the
Company's legal counsel and their review of documents, management believes that
Techman breached the joint venture agreement and the guarantee and that the
Company has valid claims against Techman in an amount equal to or in excess of
the amounts of the loans, plus unpaid interest, although there can be no
assurance at this time as to the ultimate outcome of these disputes. The Company
intends to pursue all available remedies to resolve these disputes.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS (continued)
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
(The remainder of this page intentionally left blank.)
------------------------------------------------------
16
<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 209 holders of record and approximately 2,000 beneficial
owners of Common Stock as of March 1, 2000. 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
1999
----
4th quarter $2.13 $0.39
3rd quarter $0.69 $0.22
2nd quarter $0.36 $0.16
1st quarter $0.50 $0.13
1998
----
4th quarter $0.19 $0.11
3rd quarter $0.44 $0.14
2nd quarter $0.50 $0.25
1st quarter $0.75 $0.29
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. Under the Tyco (AMP) November 27, 1996 Term Loan Agreement,
the Company is prohibited from paying dividends as long as the loan remains
outstanding. 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.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company for each of the years
1999, 1998, 1997, 1996, and 1995 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>
---------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales.............................. $ 12,126 $ 8,201 $ 7,078 $ 8,096 $ 3,094
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales.......................... 9,820 6,534 5,702 7,200 4,509
Research and development............... 722 475 434 420 75
Selling, general, and administrative... 3,237 2,981 3,148 4,324 2,100
Interest expense, net.................. 952 746 638 387 368
Other (expense) income, net............ (336) 208 (213) 102 (51)
----------- ----------- ----------- ----------- -----------
Loss before provision for income taxes. (2,941) (2,327) (3,057) (4,133) (4,009)
Benefit (provision) for income taxes... 937 (15) (21) --- ---
----------- ----------- ----------- ----------- -----------
Net loss............................... $ (2,004) $ (2,342) $ (3,078) $ (4,133) $ (4,009)
=========== =========== =========== =========== ===========
Basic and diluted loss per share $ (0.05) $ (0.07) $ (0.09) $ (0.13) $ (0.15)
=========== =========== =========== =========== ===========
Weighted average shares
outstanding............................ 36,610,544 35,833,501 35,744,182 31,695,693 26,584,630
=========== =========== =========== =========== ===========
Balance Sheet Data:
Working capital (deficit).............. $ 1,041 $ 1,425 $ 3,208 $ 191 $ (277)
Total assets........................... 24,062 25,768 26,107 17,642 14,783
Long-term obligations.................. 9,563 10,204 9,851 4,587 5,000
Total liabilities...................... 14,085 14,864 13,351 7,618 8,415
Minority interest...................... 3,263 3,263 3,217 --- ---
Accumulated deficit.................... (17,196) (15,192) (12,850) (9,772) (5,638)
Stockholders' equity................... 6,714 7,641 9,539 10,024 6,368
</TABLE>
(1) Includes the results of ALT from September 18, 1995.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
(Dollars, Deutsche Marks and Euros 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) 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.
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, 1999, 1998 and 1997.
RESULTS OF OPERATIONS
Year Ended December 31, 1999
Net sales for the year ended December 31, 1999 were $3,925 greater (47.9%)
than net sales in 1998. The increase was principally due to a 123% increase in
volume shipped to new and existing customers in 1999 compared to 1998, offset by
lower average selling prices ranging from 15% to 33%. Average selling prices
decreased in the first half of 1999 compared to 1998, primarily due to an
increase in the available supply of fiber in the market. In addition, the
Company began selling into the North American market in the second half of 1999,
where average prices were slightly lower than in Europe. This oversupply
condition appears to have disappeared completely in the last quarter of 1999,
and prices have stabilized and increased for some products. The current demand
for the Company's products exceeds the Company's capacity, and, therefore, the
Company is expanding its production capacity in
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Germany and seeking other alternatives to supply its customers' requirements.
Substantially all of the Company's sales are through its German subsidiary,
FiberCore Jena.
Cost of sales increased by $3,286 or 50.3% over 1998 due to the increase
in volume shipped, offset by a decrease in costs per unit of production. Due to
the mix of products sold it is not practicable to disclose costs per unit of
production for each of the different products. Average production costs overall
declined by approximately 28% from 1998 to 1999. This decrease in production
costs was the result of changes in the mix of products produced, improved
production yields (lower raw material consumption for the volume produced) and
production process improvements resulting in a greater volume of production per
machine hour. The Company continuously invests in process development to further
reduce costs.
Gross profit was $2,306 or 19.0% of net sales in 1999 compared to $1,667
or 20.3% of net sales in 1998. The slightly lower margin percentage was due to
the lower average selling prices noted above, and the higher costs of selling
into the North American market. Despite these lower prices and higher selling
costs, the Company was able to substantially offset these declines through
improvements in production efficiencies and yields thus lowering per unit
production costs.
Selling, general and administrative expenses increased by $256 or 8.6% in
1999 compared to 1998. This increase was principally due to an increase in bad
debt expense of $242 and higher sales costs at the Company's German subsidiary,
offset by lower administrative costs at the parent company. The increase in bad
debt expense was primarily due to the write off of $389 due from one customer as
a result of a dispute involving a specific sale. Although the Company continues
to sell to this customer, the Company does not anticipate future similar
write-offs related to this customer and the customer does not represent a
significant part of the Company's total sales.
Research and development costs increased $247 or 52% in 1999 over 1998.
The increase is principally attributable to the costs to develop a new
technology for the production of preform. The Company believes that this
investment will result in substantially lower production costs in the future,
thus increasing profitability and maintaining the Company's competitiveness.
Interest income increased $45 in 1999 compared to 1998 primarily due to
the increase in income from the investments of the DM 3,850 security deposit
with the Berliner Bank.
Interest expense increased 30.9% to $1,062 in 1999 compared to $811 in
1998. This increase is attributable to the higher average balance of outstanding
loans used for working capital in 1999 at the parent company and the higher
average outstanding balance in 1999 of the working capital lines of credit at
the German subsidiary.
Other expense-net was $336 in 1999 compared to other income-net of $208 in
1998. This change was principally due to the foreign currency exchange loss of
$329 on the German mark deposit with the Berliner Bank that is held as security
for the loan, compared to a foreign currency exchange gain on this deposit in
1998. The Deutsche Mark declined in value by approximately 14% from the end of
1998 to the end of 1999.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
The Company recorded a net tax benefit of $937 in 1999 as a result of
recognizing the future tax benefit of the remaining net operating loss carryover
from the German subsidiary. The net loss tax benefits had previously been fully
reserved; however, the Company's German subsidiary has had three continuous
years of operating profits and projects an operating profit for the year 2000,
and therefore, the tax benefits of the loss carryover are more than likely to be
realized.
The net loss for the year 1999 was $2,004 compared to $2,342 for 1998, a
decrease of $338 or 14.4%. The primary cause of the decrease was the increase in
gross profit and the recognition of the tax benefit described above, partially
offset by the higher administrative, research and development and interest
costs.
Year Ended December 31, 1998
Net sales for the year ended December 31, 1998 were $1,123 greater (15.9%)
than net sales 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. Due to the
mix of products sold it is not practicable to disclose costs per unit of
production for each of the different products. Average production costs overall
declined by approximately 4% from 1997 to 1998. This decrease in production
costs was the result of improved production yields (lower raw material
consumption for the volume produced) and production process improvements and
upgrades to the production equipment resulting in a greater volume of production
per machine hour.
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. The increase in the provision for
doubtful accounts receivable was primarily due to the write off of $167 due to
ALT from one customer. This was the only sale to this customer and the Company
no longer sells to this company.
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.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 $208 in 1998 compared to other expense-net of $213 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.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company anticipates that the results of operations will continue to
improve in 2000 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 costs. In
addition, the increase in demand in the industry will continue to strengthen
selling prices, further improving the Company's profit margins.
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 2000. The
Company will continue to utilize short-term borrowings to fund its working
capital requirements.
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 the full capacity
of this facility in 2000 to meet its sales projections. The Company is currently
seeking to raise approximately $23,500 to construct this new plant, and expects
that this financing will be provided from 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 joint-venture 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 situation in the Pacific Rim that has delayed the
construction of this facility, the region continues to invest in infrastructure
projects of which optical fiber is a part. Demand
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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 all of the outstanding warrants and options are
exercised, the total proceeds that the Company would receive upon the exercise
is approximately $9,368. 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 $1,170 in 2000, excluding revolving credit lines expected to be
renewed, and including interest). There are long payment deferral periods on a
substantial amount of the Company's outstanding loans. Under the Tyco Note, the
remaining $2,000 in principal and accrued interest are due and payable at
maturity in April 2005. Similarly, under the $3,000 Tyco 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. Subsequent to December 31, 1999, certain of the
options and warrants were exercised and a note was converted into shares of the
Company. The Company may seek to refinance certain of the notes due in 2000,
although there can be no assurance that such refinancing will be obtained.
Certain notes are due to officers and directors of the Company.
The Company currently has a backlog of orders aggregating approximately
$12,800, which is scheduled to be shipped in 2000. This represents approximately
90% of the current capacity of the Jena facility. The backlog at December 31,
1998 and 1997 was approximately $3,900 and $4,100, respectively. The increase in
the order backlog at December 31, 1999, reflects the increase in demand for the
Company's products and the very tight supply situation in the industry.
The following changes in balance sheet amounts are net of the effect of
the change in the currency exchange rates from December 31, 1998 to December 31,
1999.
Year Ended December 31, 1999
For the year ended December 31, 1999, the Company used $348 for operating
activities. This was a substantial improvement over the $1,281 used for
operating activities in 1998. This significant improvement was due primarily to
the increase in sales and gross profit, higher depreciation costs and other
non-cash costs incurred in 1999.
Accounts receivable increased by $1,185 due to the significant increase in
sales in 1999 compared to 1998. Inventory decreased by $807 also due to the
increase in sales. Accounts payable decreased by $108 in 1999 due to a decrease
in payables at the parent company offset by an increase at the German
subsidiary. The increase at FiberCore Jena is primarily due to the increase in
purchases of raw materials for production. Accrued liabilities increased $98 in
1999 over 1998, principally due to an increase in accrued interest on notes
payable.
During 1999, the Company invested $1,156 in fixed assets, principally for
new equipment at the Jena facility. This was funded in part by $556 in grants
from the German government. Other assets
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
increased by $49 in 1999, principally for investments in new patents.
Notes payable increased by $755 in 1999 over 1998, principally due to
borrowings under the lines of credit at FiberCore Jena used for working capital,
and notes to certain officers and directors for previously unpaid salaries, fees
and expenses. The Company received $250 in proceeds from the sale of common
shares in 1999. Long-term interest payable increased by $391 due to the increase
in accrued interest payable on the Tyco loans wherein the interest is payable at
maturity in 2005 and 2006.
Year Ended December 31, 1998
For the year ended December 31, 1998, the Company used $1,281 for
operating activities. This was a substantial improvement over the $2,650 used
for operating activities 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 materials 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 Tyco loans wherein the interest is payable at maturity in 2005
and 2006.
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
1999 were not significant, principally because the Company focused its available
resources on developing the optical fiber business.
At December 31, 1999 and 1998, ALT's long-lived assets consisted of
patents with a net book value of $4,628 and $5,279, respectively, related to
products that monitor and locate faults in copper and optical fiber cables. The
Company believes the underlying technology for this product line is viable and
that the products have been and will be well-received by the data and
communications industries.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Other than Norscan, there is little or no competition.
Although the Company has not been aggressively marketing the ALT products
due to limited resources, there is an active market for these products and the
Company plans to invest in marketing these products. The patents have an
intrinsic value and the Company has developed a business plan to capitalize on
this value and intends to implement the plan. Due to a lack of available
resources, the Company was not able to begin implementation in 1999. The Company
is in the process of raising sufficient capital to renew efforts at marketing
the ALT products, and, in that regard, in early 2000 the Board of Directors of
the Company passed a resolution to allocate up to $1.0 million to ALT over the
next twelve months. The Company further believes that the ALT patents had and
have significant future value, and the future net cash flows from sales of ALT
products will be sufficient to fully recover the patent costs in a reasonable
period of time. In addition, the Company is currently 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.
YEAR 2000 COMPLIANCE
As expected, the Company did not experience any significant problems as a
result of the year 2000 issue.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheets
and measure those instruments at fair value. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its
resulting designation. The Company is evaluating the effect this new standard
will have on the Company's financial statements. The Company is required to
adopt this standard, as amended, by January 1, 2001.
(The remainder of this page intentionally left blank.)
25
<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 Euro.
Foreign Currency Risk. FiberCore Jena may, from time to time, purchase
short-term forward exchange contracts to hedge payments and/or receipts due in
currencies other than the Euro or Deutsche Mark. At December 31, 1999, FiberCore
Jena had outstanding forward exchange contracts for the sale of U.S. Dollars
totaling $450,000 which mature at various dates in 2000. The weighted-average
exchange rate in these contracts is $1.0185 per Euro. A 10% change in the
year-end exchange rate could result in a gain or loss on these contracts of
approximately $40,000.
At December 31, 1999, 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 $25,000 for
each of the years 2000 through 2005, and by approximately $19,000 in 2006.
Substantially all of the Company's sales are through it German subsidiary.
Additionally, at December 31, 1999, 41% and 19% of the Company's assets are at
its German and Malaysian subsidiaries, respectively. The Company, therefore, is
subject to foreign currency translation gains or losses in reporting its
consolidated financial position and results of operations.
Interest Rate Risk. At December 31, 1999, the Company had short-term 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 1999
interest expense by approximately $55,000.
(The remainder of this page intentionally left blank.)
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report...................................... 28
Consolidated Balance Sheets at December 31, 1999 and 1998......... 29
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997............................... 30
Consolidated Statements of Comprehensive Income (Loss) for the
Years Ended December 31, 1999, 1998 and 1997................... 31
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997................... 32
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997............................... 33
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1999, 1998 and 1997............................... 34
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
FiberCore, Inc.
Charlton, Massachusetts
We have audited the accompanying consolidated balance sheets of FiberCore, Inc.
and subsidiaries as of December 31, 1999 and 1998, 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, 1999. 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 auditing standards generally accepted
in the United States of America. 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, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 24, 2000
28
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
1999 1998
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash........................................................... $ 487 $ 150
Accounts receivable, less allowance for doubtful accounts of
$220 in 1999 and $200 in 1998................................ 1,927 863
Other receivables.............................................. 86 579
Inventories.................................................... 3,047 4,480
Prepaid and other current assets............................... 16 13
------- -------
Total current assets........................................ 5,563 6,085
------- -------
Property and equipment............................................ 7,109 7,603
Less accumulated depreciation..................................... 3,047 2,373
Property and equipment - net................................ 4,062 5,230
Other assets:
Notes receivable from joint venture partners................... 4,949 4,912
Restricted cash................................................ 1,981 2,310
Patents, less accumulated amortization of $2,838 in 1999 and
$2,179 in 1998............................................... 4,762 5,375
Investments in joint ventures.................................. 1,425 1,425
Deferred tax asset............................................. 905 ---
Other.......................................................... 415 431
------- -------
Total other assets.......................................... 14,437 14,453
------- -------
Total assets................................................ $24,062 $25,768
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................. $ 2,006 $ 1,665
Accounts payable............................................... 1,536 1,724
Accrued expenses............................................... 980 1,271
------- -------
Total current liabilities................................... 4,522 4,660
Long-term interest payable........................................ 1,267 876
Long-term debt.................................................... 8,296 9,328
------- -------
Total liabilities........................................... 14,085 14,864
------- -------
Minority interest................................................. 3,263 3,263
------- -------
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: 41,404,602 in 1999 and
35,936,463 in 1998........................................... 42 36
Additional paid in capital..................................... 24,874 23,337
Accumulated deficit............................................ (17,196) (15,192)
Accumulated other comprehensive loss:
Accumulated translation adjustment.......................... (1,006) (540)
------- -------
Total stockholders' equity.................................. 6,714 7,641
------- -------
Total liabilities and stockholders' equity.................. $24,062 $25,768
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
29
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales.................................... $ 12,126 $ 8,201 $ 7,078
Cost of sales................................ 9,820 6,534 5,702
--------- --------- ---------
Gross profit .............................. 2,306 1,667 1,376
Operating expenses:
Selling, general and administrative expenses 3,237 2,981 3,148
Research and development.................... 722 475 434
--------- --------- ---------
Loss from operations....................... (1,653) (1,789) (2,206)
Interest income.............................. 110 65 26
Interest expense............................. (1,062) (811) (664)
Other (expense) income - net................. (336) 208 (213)
--------- --------- ---------
Loss before income taxes.................. (2,941) (2,327) (3,057)
Benefit (provision) for income taxes 937 (15) (21)
--------- --------- ---------
Net loss................................... $ (2,004) $ (2,342) $ (3,078)
========= ========= =========
Basic and diluted loss per share of
common stock .............................. $ ( 0.05) $ (0.07) $ (0.09)
========= ========= =========
Weighted average shares outstanding.......... 36,610,544 35,833,501 35,744,182
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Loss..................................... $ (2,004) $ (2,342) $ (3,078)
Other comprehensive (loss) income:
Foreign currency translation adjustments... (466) 328 (1,084)
-------- -------- --------
Comprehensive loss........................... $ (2,470) $ (2,014) $ (4,162)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands except share data)
<TABLE>
<CAPTION>
Accumulated
Other Retained Total
Common Stock Paid-In Comprehensive Earnings Stockholders'
Shares Par Value Capital Income (Loss) (Deficit) Equity
------ --------- ------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 35,233,250 $ 35 $ 19,545 $ 216 $ (9,772) $ 10,024
Stock issued on exercise of
options and warrants 541,572 1 328 329
Issuance of stock for investment
in joint venture 312,061 425 425
Contribution of capital in FCA 3,348 3,348
Stock canceled on cancellation
of supply agreement with FOI (312,061) (425) (425)
Foreign currency translation
adjustment (1,084) (1,084)
Loss for the year (3,078) (3,078)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 35,774,822 36 23,221 (868) (12,850) 9,539
Stock issued on exercise of
options and warrants 161,641 41 41
Contribution of capital in FCA 75 75
Foreign currency translation
adjustment 328 328
Loss for the year (2,342) (2,342)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 35,936,463 36 23,337 (540) (15,192) 7,641
Sale of stock for cash 1,000,000 1 249 250
Issuance of stock for
conversion of debt 4,468,139 5 1,060 1,061
Issuance of stock options
for services 94 94
Discount on notes for value
of warrants 134 134
Foreign currency translation
adjustment (466) (466)
Loss for the year (2,004) (2,004)
------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 41,404,602 $ 42 $ 24,874 $(1,006) $(17,196) $ 6,714
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
32
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended
December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
(Dollars in thousands except share data) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................... $(2,004) $(2,342) $(3,078)
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of stock options for services
performed................................ 94
Depreciation and amortization.............. 1,932 1,735 1,354
Deferred income tax benefit................ (952)
Non-cash interest expense.................. 391 416 418
Foreign currency translation loss and other 209 20 319
Changes in assets and liabilities:
Accounts receivable........................ (1,185) (31) (354)
Other receivables.......................... 411 30 (202)
Inventories................................ 807 (1,187) (1,398)
Prepaid and other current assets........... (41) 90 (6)
Accounts payable........................... (108) (114) 260
Accrued expenses........................... 98 102 37
------- ------- -------
Net cash used in operating activities.. (348) (1,281) (2,650)
------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment........ (1,156) (1,895) (4,211)
Reimbursement from government grant........ 556 929 1,775
Other...................................... (49) (205) (115)
------- ------- -------
Net cash used in investing activities.. (649) (1,171) (2,551)
------- ------- -------
Cash flows from financing activities:
Cash contribution by minority
shareholders in FCA..................... 1,683
Proceeds from issuance of common stock..... 250 41 328
Proceeds from long-term debt............... 4,750
Proceeds from notes payable................ 755 597 394
Repayment of notes payable................. (37)
------- ------- -------
Net cash provided by financing
activities............................ 1,005 601 7,155
------- ------- -------
Effect of foreign exchange rate change on
cash....................................... 329 (127) (16)
------- ------- -------
Increase (decrease) in cash.................. 337 (1,978) 1,938
Cash, beginning of year...................... 150 2,128 190
------- ------- -------
Cash, end of year............................ $ 487 $ 150 $ 2,128
======= ======= =======
Supplemental disclosure:
Cash paid during the year for interest $ 310 $ 274 $ 222
Shares issued for investment in joint
venture.................................. --- --- $ 425
Shares issued for conversion of debt....... $ 1,065 --- ---
</TABLE>
See accompanying notes to consolidated financial statements.
33
<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 sale 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.
In January 1997, the Company registered the resale of 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 Nasdaq
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 accounting principles
generally accepted in the United States of America 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 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.
34
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
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
(approximately U.S. $1,981 at December 31, 1999), has been deposited with this
institution as collateral for this loan.
(g) Patents
Patents are amortized on a straight-line basis over seventeen years, which is
the estimated useful life of the patents. The Company evaluates the
recoverability of patents from expected future cash flows.
(h) Investments in joint ventures
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.
The Company's 15% ownership interest in Middle East Optical Fiber Cable Co.
("MEFC") is carried at cost of $925.
The Company has a 30% ownership interest in Fiber Optic Industries (Pvt.) Ltd.
("FOI"). FOI is inactive.
(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 accounts using an average
exchange rate for the period. Unrealized gains or losses resulting from
translation are included in stockholders' equity as other comprehensive income
(loss).
35
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Amounts in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
(k) Revenue
Revenue is recognized when products are shipped.
(l) Research and Development
Research and development costs are expensed as incurred. The Company received
$161, $66, and $62 in grants for research and development activities in 1999,
1998, and 1997, respectively. The grant funds received are accounted for in
other income. The principal terms of the grants are that the grant funds
received are used only for the specific project for which the grants were
awarded and that the research project is completed in accordance with the terms
of the grant award. The projects progress is evaluated on a periodic basis
(usually quarterly) and in the event that the Company determined that the
conditions of the grant were not met or the grantor has advised the Company that
the funds were not used as intended, then the Company would record the liability
at the date of such determination with an offsetting charge to income. The
Company has completed or is completing all research projects in accordance with
the terms of the grants and therefore has not recorded any obligation to repay
any grant funds received.
(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) Forward exchange contracts
In 1999, FiberCore Jena GmbH, the Company's German subsidiary, entered into
forward exchange contracts for the sale of U.S. dollars. At December 31, 1999,
outstanding contracts totaled $450. Gains
36
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
and losses on the contracts are recorded in the Consolidated Statements of
Operations. The contract values approximated the market values at December 31,
1999. (See also footnote 16.)
(q) Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1999 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.
For the years ended December 31, 1999, 1998 and 1997, there is 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.
1999 1998 1997
---- ---- ----
Employee stock options 6,073,151 2,020,225 1,387,778
Warrants to acquire common stock 5,190,613 4,903,185 4,968,818
Common stock to be issued for
convertible debt 5,616,699 4,927,232 2,060,308
---------- ---------- ---------
Total 16,880,463 11,850,642 8,416,904
========== ========== =========
(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 in exchange
for the Company's ownership interest, and FDP and PERC contributed cash of
$1,683 and notes of $4,949 for their ownership interests. 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 recent economic situation in Malaysia and the
Pacific Rim the debt financing required for the project has not, as yet, been
obtained. The
37
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(3) ACQUISITIONS AND STRATEGIC INVESTMENTS (CONTINUED)
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"). The Company has a 15% ownership interest
in the joint venture. MEFC constructed its manufacturing facility in 1996 and
1997 and began operations in 1998. In 1999, MEFC had sales of $6,500 and net
income of $432. Accordingly, the Company believes that its share in the value of
MEFC exceeds its investment. 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, 1999, the Company was contingently liable for these loans in the
amount of $792.
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. FOI was formed in
1996 and has had no significant operations since its formation.
The Company believes that Techman, which guaranteed the Company's investment in
FOI, has breached its obligations under the joint venture agreement and,
therefore, the Company is pursuing actions to recover its investment (see
Commitments and Contingencies). The Company believes that its investment in FOI
of $500 will be completely recovered through the guarantee of Techman.
(4) RECEIVABLES
Activity in the allowance for doubtful accounts consisted of the following for
the years ended December 31:
1999 1998 1997
---- ---- ----
Balance at beginning of period...... $ 200 $ 33 $ 36
Additions charged to expense........ 409 167 ---
Deductions.......................... (389) --- (3)
------- ------- -------
Balance at end of period............ $ 220 $ 200 $ 33
======= ======= =======
Other receivables consist of the following at December 31:
1999 1998 1997
---- ---- ----
German government grants............ $ --- $ 419 $ 423
Value added tax..................... 32 99 112
Other............................... 54 61 29
------ ------- -------
Total......................... $ 86 $ 579 $ 564
====== ======= =======
38
<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:
1999 1998
---- ----
Raw materials....................... $ 1,745 $ 1,545
Work-in-process..................... 361 1,161
Finished goods...................... 941 1,774
-------- -------
Total......................... $ 3,047 $ 4,480
======= =======
(6) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
ESTIMATED
USEFUL LIVES 1999 1998
------------ ---- ----
Office equipment.................... 2-5 years $ 360 $ 315
Machinery and equipment............. 2-12 years 9,303 9,899
Furniture and fixtures.............. 5-7 years 21 21
Leasehold improvements.............. 3-10 years 380 395
Construction in progress............ 803 706
--------- -------
10,867 11,336
Less grant proceeds received........ (3,758) (3,733)
--------- -------
Total......................... $ 7,109 $ 7,603
========= =======
Depreciation on property and equipment charged to expense was $1,058 in 1999,
$928 in 1998, and $560 in 1997. During 1998 and 1997, the Company capitalized
interest costs of $132 and $178, respectively, on the expansion project at
FiberCore Jena. The project was substantially completed in 1998, and, therefore,
no interest was capitalized in 1999.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1999 1998
---- ----
Accrued wages, benefits & taxes................. $ 398 $ 457
Accrued interest................................ 198 218
Accrued legal and audit......................... 140 39
Other .......................................... 244 557
------ ------
Total..................................... $ 980 $1,271
====== ======
39
<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>
1999 1998
---- ----
<S> <C> <C>
Convertible note payable to an officer of the Company with interest at
8.0% per year, due December 31, 2000, convertible into common shares
of the Company at $0.25 per share. $ 192 $ ---
Convertible note payable to an officer of the Company with interest at
8.0% per year, due December 31, 2000, convertible into common shares
of the Company at $0.25 per share. 119 ---
Note payable to shareholder with interest at prime plus 1% (9.25% at
December 31, 1999), due March 6, 2000. 220 ---
Note payable to Techman International Corporation with interest at
prime plus 1%, due April 16, 2000. (see Commitments and Contingencies) 250 ---
Note payable to Techman International Corporation with interest at
prime plus 1% due December 31, 1999. (see Commitments and Contingencies) 168 150
Note payable to an officer of the Company, interest at prime plus 1%,
due September 17, 2000. 50 50
Convertible note payable with interest at 8.0% per year, due December
31, 2000, convertible into common shares of the Company at $0.25 per
share. A director of the Company controls the lender. 181 ---
Convertible notes payable to the spouses of officers of the Company,
with interest at prime plus 1% (9.25% at December 31, 1998), due
September 31, 2000. --- 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
Amounts outstanding under revolving lines of credit from banks with
interest at 8.0%. 859 716
Discount attributable to warrants issued in conjunction with notes. (33) ---
------ ------
Total $2,006 $1,665
====== ======
</TABLE>
40
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(8) NOTES PAYABLE (CONTINUED)
In conjunction with certain of the notes, the Company issued to the lenders in
1999 an additional 812,425 warrants to purchase common shares of the Company at
exercise prices of $0.25 and $0.26 per share, the closing market price at the
dates of issue. The fair value of the warrants has been recorded as debt
discount. Related party interest expense on notes payable was $90, $91, and $91,
in 1999, 1998 and 1997, respectively.
In 1999, the $500 in notes plus accrued interest due the spouses of the officers
were converted into 2,543,352 shares of the Company and the $249 note plus
accrued interest due a director was converted into 1,488,243 shares, consistent
with the terms of the note. Subsequent to December 31, 1999, the $220 note plus
accrued interest due March 6, 2000 was converted into 249,220 shares of the
Company.
The Company's subsidiary, FiberCore Jena, maintains two lines of credit of DM
1,000 (approximately US $514) each with German banks. The notes bear interest at
8% per year. Interest expense on amounts drawn under these notes was $51, $29,
and $3 in 1999, 1998 and 1997, respectively. One of the lines of credit is
collateralized by the inventory of FiberCore Jena.
The conversion prices of the convertible notes is equal to or exceeded the
trading price of the Company's stock on the date of issue. All of the proceeds
of the notes were used for working capital.
(This space intentionally left blank.)
41
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(9) LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31: 1999 1998
<S> <C> <C>
Note payable to Berliner Bank, interest at 6.25%, due September 30, 2006. $ 3,962 $ 4,621
Convertible note payable to Tyco Electronics Corp. (formerly AMP,
Incorporated) interest at 3-month London Interbank Offered Rate plus one
percent (6.40% at December 31, 1999), due April 17, 2005. 2,000 2,000
Note payable to Tyco, interest at prime plus one percent (9.25% at
December 31, 1999), due November 27, 2006. 3,000 3,000
Discount attributable to warrants issued in conjunction with the
$3,000 note above. (666) (763)
Note payable to shareholder with interest at prime plus 1% due
March 6, 2000. (see notes payable) --- 220
Note payable to Techman International Corporation with interest at
prime plus 1% (9.25% at December 31, 1998), due April 16, 2000. (see
notes payable) --- 250
Total $ 8,296 $ 9,328
======= =======
</TABLE>
During the year ended December 31, 1997, the Company drew down 7,700 German
marks (approximately U.S.$3,962) 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 $1,981.
In April 1995, FiberCore Incorporated issued to Tyco, 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%, (6.4% at December 31, 1999). No interest
is due until the earlier of: Tyco conversion of debt to stock, a public
financing by the Company which gives Tyco the right to call the loan, or
maturity. On November 27, 1996, Tyco converted $3,000 of principal and $541 of
accrued interest relating to the original $5,000 ten year debenture, into
3,058,833 shares of common stock of the Company. The Tyco 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 and is convertible into shares of the Company at $0.66 per
share.
42
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(9) LONG-TERM DEBT (CONTINUED):
As an additional part of this agreement, on November 27, 1996, Tyco 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, 1999).
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, Tyco was issued five-year warrants to
acquire 2,765,487 shares of the Company's stock at an exercise price of
approximately $0.72 per share. Interest expense on the Tyco notes was $391,
$416, and $418, for the years ended December 31, 1999, 1998 and 1997,
respectively.
The Berliner Bank loan and the Tyco Note agreements contain certain financial
ratio covenants. At December 31, 1999, the Company was in compliance with these
covenants.
Scheduled principal maturities of long-term debt, excluding $666 of discounts
attributable to warrants, are as follows at December 31, 1999:
2005.................... $2,000
2006.................... 6,962
------
Total....... $8,962
======
(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 $24 through its expiration on December 31,
2001, and is renewable for up to 25 years.
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
2000................................ $ 355
2001................................ 340
2002................................ 13
2003 ............................... 9
--------
Total......................... $ 717
========
Included in the statements of operations for the years ended December 31, 1999,
1998 and 1997 is rent expense of $384, $372 and $411, respectively.
43
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(10) COMMITMENTS AND CONTINGENCIES (CONTINUED):
The Company is currently in a dispute with Techman International Corp.
("Techman") relating to (i) certain loans made to the Company by Techman in the
aggregate principle amount of $418, plus unpaid interest in the approximate
current amount of $94 and (ii) the Company's investment of $500 in Fiber Optic
Industries (Pakistan) Ltd. ("FOI"), a company organized and controlled by
Techman. The Company's investment in FOI is subject to a guarantee by Techman.
The Company also has a dispute relating to shares of the Company issued to
Techman, and M. Mahmud Awan, a former director of the Company. A portion of
those shares have been canceled by the Company because of the failure of Techman
to satisfy certain conditions related to their issuance. The parties have had
periodic discussions related to the foregoing, but to date have not reached a
resolution of these matters. Based upon discussions with the Company's legal
counsel and their review of documents, management believes that Techman has
breached the joint venture agreement and the guarantee and the Company has valid
claims against Techman in an amount equal to or in excess of the amounts of the
loans, plus unpaid interest, although there can be no assurance at this time as
to the ultimate outcome of these disputes. The Company intends to pursue all
available remedies to resolve these disputes.
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 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'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. On appeal the court
rendered judgement for the Company and the case was dismissed.
ALT is contingently liable for certain debt of a former subsidiary, Allied
Controls, Inc. ("Allied"), approximating $579.
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, 1999 the Company was
contingently liable for these loans in the amount of $792.
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 effect on the
financial position or results of operations of the Company.
44
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(11) STOCKHOLDERS' EQUITY
The following represents the stock option activity, price range and weighted
average price during the three years ended December 31, 1999.
WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE RANGE EXERCISE
Outstanding at December 31, 1996 978,434 $0.003-$2.00 $0.98
Granted in 1997 709,500 $ 1.16-$1.58 $1.40
Exercised in 1997 (300,156) $0.003-$1.36 $0.39
--------------------------------------------------------------------------------
Outstanding at December 31, 1997 1,387,778 $0.003-$2.00 $1.32
Granted in 1998 695,703 $0.1875 $0.1875
Exercised in 1998 (63,256) $0.003-$2.00 $0.84
--------------------------------------------------------------------------------
Outstanding at December 31, 1998 2,020,225 $0.003-$1.58 $0.95
Granted in 1999 4,052,926 $0.1875-$2.125 $0.49
Exercised in 1999 --- --- ---
--------------------------------------------------------------------------------
Outstanding at December 31, 1999 6,073,151 $0.003-$2.125 $0.641
================================================================================
At December 31, 1999:
Exercisable 3,770,128 $0.003-$1.58 $0.61
Not Exercisable 2,303,023 $0.003-$2.125 $0.70
Options vest at various dates, generally over the three-year period from the
date of the grant. The options granted in 1999 and 1998 expire ten (10) years
from the grant date. Options granted prior to 1998 have no expiration date.
A summary of the status of the Company's stock options and weighted average
prices at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF OPTIONS WEIGHTED AVERAGE REMAINING OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE YEARS EXERCISABLE PRICE
-------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
$0.003 36,713 $ 0.003 * 36,713 $.003
$0.1875 - $0.5625 4,193,629 $ 0.22 9 2,445,606 $0.21
$0.68 - $1.16 441,740 $ 1.10 * 441,740 $1.10
$1.43 - $1.58 846,069 $ 1.52 * 846,069 $1.52
$2.125 555,000 $ 2.125 10 --- ---
------- ---------- --------- -----
$.003 - $2.125 6,073,151 $ 0.64 3,770,128 $0.61
========= ========== ========= =====
</TABLE>
* Options granted and exercisable have no expiration date.
45
<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. 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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net loss
As reported $(2,004) $(2,342) $(3,078)
======== ======= =======
Pro forma $(2,230) $(2,391) $(3,174)
======== ======= =======
Basic and diluted loss per share
As reported $ ( 0.05) $ (0.07) $ (0.09)
========= ======== ========
Pro forma $ ( 0.06) $ (0.07) $ (0.09)
========= ======== ========
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997
was $0.29, $0.07 and $0.14 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:
Stock
Assumptions Plan
----------- ----
Dividend yield --
Risk-free interest rate 5.5%
Expected life 10 years in 1999 and 2 years in 1998 and 1997
Expected volatility 50% in 1999, 50% in 1998 and 20% in 1997
46
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1999 there were outstanding warrants to purchase 5,190,613
common shares at exercise prices ranging from $0.19 to $1.53 per share. Of the
warrants outstanding, 1,503,884 were held by certain officers of the Company and
their spouses, 249,074 by a director of the Company, 2,765,487 by Tyco and
255,676 by One Financial Group Incorporated, a company controlled by a director.
Warrants issued in conjunction with debt issues are valued using the
Black-Scholes method and the Company recorded debt discount for the fair value
of these warrants. The debt discount is amortized to interest expense over the
term of the loans to which they relate.
The warrants are exercisable from the date of the grant and expire at various
dates to October 2004.
(12) INCOME TAXES
The components of income (loss) before income taxes and the benefit (provision)
for income taxes are as follows:
1999 1998 1997
---- ---- ----
Income (loss) before income taxes:
----------------------------------
United States $ (3,661) $ (2,809) $ (3,314)
Foreign 720 482 257
-------- -------- --------
Total $ (2,941) $ (2,327) $ (3,057)
======== ======== ========
Benefit (provision) for income taxes:
-------------------------------------
Current state income taxes $ (15) $ (15) $ (21)
Utilization of foreign net
operating loss carry forwards (158) (188) (194)
Reversal of valuation allowance 1,110 188 194
-------- -------- --------
Total $ 937 $ (15) $ (21)
======== ======== ========
The significant components of the net deferred tax asset as of December 31, 1999
and 1998 were as follows:
1999 1998
---- ----
Net operating loss carry-forwards $ 5,699 $ 4,456
Less valuation allowance (4,794) (4,456)
-------- -------
Net deferred tax asset $ 905 $ 0
======== =======
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. During 1999, the Company reversed the valuation
allowance attributable to the net deferred tax asset applicable to FiberCore
Jena GmbH. This resulted in an income tax benefit of $952. FiberCore Jena has
had operating profits for the years 1997 to 1999 and
47
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(12) INCOME TAXES (CONTINUED)
projects continued profitability in 2000 and, therefore, it is probable that the
deferred tax asset will be realized. The net deferred tax asset applicable to
FiberCore, Inc. is fully reserved. The total valuation allowance increased $338,
$769, and $1,000, in 1999, 1998, and 1997, respectively.
The Company has net operating loss carry forwards available of approximately
$11,985 at December 31, 1999 for federal and state tax purposes. As a result,
there is no federal income tax expense for the years 1999, 1998, and 1997. The
majority of the net operating loss carry forwards expire in the years 2009
through 2019.
FCJ has net operating loss carry forwards at December 31, 1999 of approximately
$1,978 for corporation tax and $711 for trade income tax purposes available to
offset future taxable income. Under German tax law, the losses can be carried
forward indefinitely. FCJ would need to earn approximately $2,466 to fully
utilize these loss carry forwards.
In addition, ALT has pre-acquisition net operating loss carry forwards available
of approximately $4,278, at December 31, 1999 for federal and state tax
purposes. The loss carry forwards expire between the years 2001 and 2010.
(13) MAJOR CUSTOMERS
The approximate net product sales by the Company to its major customers and the
related percentages are as follows:
CUSTOMER 1999 1998 1997
-------- ------------ ------------ ------------
AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Leone AG $2,900 24 $1,859 23 $2,990 42
Pinacl Ltd. 2,527 21 1,801 22 1,238 17
Siemens AG 1,196 10 1,107 13 --- --
Optical Cable Corp. 1,158 10 --- -- --- --
Belden Wire & Cable 636 5 832 10 --- --
The Company purchases raw materials from various suppliers and in some cases
there are a limited number of suppliers for certain materials. In 1999, 1998 and
1997, one supplier accounted for 95%, 90%, and 50%, 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.
48
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(13) MAJOR CUSTOMERS (CONTINUED)
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:
1999 1998
------------- -------------
CUSTOMER AMOUNT % AMOUNT %
-------- ------ - ------ -
Leone AG $ 472 24 $ 0 0
Pinacl Ltd $ 669 34 $ 120 14
Siemens AG 0 0 $ 212 25
(14) RELATED PARTY TRANSACTIONS
A former managing director of FCJ is the controlling shareholder of SICO.
Transactions with SICO during the years ended December 31, 1999, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Rent of premises................................ $292 $354 $331
Purchase of services and utilities.............. 580 318 286
Other expenses.................................. 30 --- 17
Sales of fibers................................. --- 25 49
</TABLE>
In 1999, the Company has sales to MEFC of $236, in which the Company holds a 15%
interest.
The Company has a consulting agreement with One Financial Group, Incorporated,
that provides services as a financial advisor. Mr. Steven Phillips, a director
of the Company, controls One Financial Group. The Company incurred costs of $46
in each of the years 1998 and 1997 under this agreement. In 1999, One Financial
Group was granted options to purchase common stock of the Company in lieu of
receiving cash payment for services valued at $94. This amount is included in
selling, general and administrative expenses.
49
<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, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales to customers in:
United States........................... $ 1,697 $ 135 $ 128
Germany................................. 5,432 5,015 4,859
United Kingdom.......................... 2,895 1,801 1,234
Other................................... 2,102 1,250 857
--------- --------- ---------
Net sales as reported in the accompanying
consolidated statements of operations... $ 12,126 $ 8,201 $ 7,078
========= ========= =========
Long-lived assets:
United States........................... $ 9,375 $ 9,499 $ 9,936
Germany................................. 3,788 4,885 4,580
Malaysia................................ 5,336 5,299 ---
--------- --------- ---------
Total long-lived assets................. $ 18,499 $ 19,683 $ 14,516
========= ========= =========
</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 since its
formation in 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,
as amended, will have on the Company's financial statements. The Company is
required to adopt this standard by January 1, 2001.
50
<PAGE>
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Quarters First Second Third Fourth
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
----
Net sales $2,655 $2,371 $2,824 $4,276
Gross profit 318 425 261 1,302
Net loss (655) (719) (589) ( 41)
Basic and diluted loss per share (1) $ (0.02) $ (0.02) $ (0.02) $0.00
1998
----
Net sales $1,563 $1,879 $2,301 $2,458
Gross profit 309 271 352 735
Net loss (517) (548) (680) (597)
Basic and diluted loss per share $ (0.01) $ (0.02) $ (0.02) $ (0.02)
</TABLE>
(1) Note: The sum of the quarterly loss per share does not equal the annual
loss per share due to Rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
None.
51
<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, 1999.
NAME AGE POSITION
Dr. Mohd A. Aslami 53 Chairman of the Board of Directors, Chief
Executive Officer, and President
Charles De Luca 62 Managing Director of FiberCore Jena GmbH
And Director of the Company
Michael J. Beecher 55 Chief Financial Officer and Treasurer
Steven Phillips 54 Director
Hedayat Amin-Arsala 58 Director
Javad K. Hassan 59 Director
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 ALT in 1986, and served as its
President, Chief Executive Officer and director from 1986 to 1994. Dr. Aslami
received a Ph.D. in chemical engineering from the University of Cincinnati in
1974.
Mr. De Luca is Managing Director of FiberCore Jena GmbH and is a co-founder and
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.
52
<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. In addition to his consulting activities for the Company, Mr.
Phillips also serves as a director and financial advisor for several companies
through his company, One Financial Group Incorporated. Until recently, he served
as interim Chief Financial Officer for a start-up internet company, and, for
five years as Chief Financial Officer of The Winstar Government Securities
Company L. P., a registered U.S. Government securities dealer which he
co-founded. Since August 1987, Mr. Phillips has served as a director, Secretary
and Chief Financial Officer of James Money Management, Inc., a private
investment company.
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. Hassan joined AMP Incorporated (now Tyco) in 1988 as Vice President
Technology and in 1993 was appointed Corporate Vice President, Strategic
Businesses, later renamed Global Interconnect Systems Business ("GISB") where he
pioneered and deployed a new strategy to take Tyco from a connector company to a
global interconnection systems and solutions organization. He was named
President of GISB in 1993. After retiring from Tyco in 1998, Mr. Hassan founded
and is Chairman and CEO of NeST (Network Systems and Technologies) a provider of
software, systems and electronics design and manufacturing with over 2000
employees. He is Chairman of AM Communications, a public company providing
broadband network monitoring and management systems to cable TV operators, and
General Partner to MESA (Middle East and Southeast Asia) Venture Capital Fund
for targeted investments in US based technology companies. He is a member of the
board of several companies and currently serves as Chairman of the Electronic
Development Commission for the Government of Kerala in India. Mr. Hassan's
membership on the Board of Directors of FiberCore, Inc. is not pursuant to any
agreement with Tyco. Mr. Hassan received a B.S.M.E. degree from Kerala
University in 1962, a Masters of Materials Science degree from the University of
Bridgeport, Connecticut in 1968 and was elected IEEE Fellow, Institute of
Electrical and Electronics Engineers in 1986.
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules thereunder, the Company's executive officers and directors
are required to file with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. reports of ownership and
changes in ownership of Common Stock. Copies of such reports are required to be
furnished the Company. Based solely on review of the copies of such reports
furnished to the Company, or written representations that no other reports were
required, the Company believes that during the year ended December 31, 1999 all
of its executive officers and directors complied with the requirements of
Section 16(a), except that: Mohd Aslami, an officer and director of the Company,
did not timely file the reports on Form 4 in April, July, and October and the
annual Form 5 with respect to his acquisition of 1,114,644 options to purchase
shares of the Company and did not timely report his spouse's acquisition of
1,271,676 common shares issued on the conversion of debt; Mr. Charles De Luca,
an officer and director of the Company, did not timely file the reports on Form
4 in April, July, and October and the annual Form 5 with respect to his
acquisition of 515,296 options to purchase shares of the Company and did not
timely report his spouse's acquisition of 1,271,676 common shares issued on the
conversion of debt; and, Michael Beecher, an officer of the Company, did not
timely file the reports on Form 4 in April, July, and October and the annual
Form 5 with respect to his acquisition of 408,972 options to purchase shares of
the Company. Mr. Hedayat Amin-Arsala, a director of the Company, did not timely
file the annual Form 5
53
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED):
with respect to his acquisition of 54,666 options to purchase shares of the
Company and did not timely report his acquisition of 1,488,243 shares on
conversion of a loan in December 1999. Also, Mr. Javad K. Hassan, a director of
the Company did not timely file the annual Form 5 with respect to his
acquisition of 53,333 options to purchase shares of the Company.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------------------------------------------------------------
Other Restricted Securities
Name and Principal Year Annual Stock Underlying
Position Year Salary$ Bonus$ Compensation Award(s)$ Options/SARs(#)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Mohd Aslami 1999 133,334 --- --- 1,114,644
Chairman, Chief 1998 156,583 --- --- 184,911
Executive 1997 146,500 --- --- 359,752
Officer & President
--------------------------------------------------------------------------------------------
Charles De Luca 1999 76,761 --- --- 515,296
Managing Director, 1998 97,116 --- --- 106,324
FiberCore Jena GmbH 1997 98,398 --- --- 189,502
--------------------------------------------------------------------------------------------
Michael J. Beecher 1999 86,250 --- --- 408,972
Chief Financial Officer 1998 100,000 --- --- ---
& Treasurer 1997 85,000 --- --- 120,000
--------------------------------------------------------------------------------------------
Hans Moeller 1999 120,000 --- ---
Former Managing 1998 120,000 --- --- ---
Director, 1997 120,000 --- --- 300,000
FiberCore Jena GmbH
--------------------------------------------------------------------------------------------
</TABLE>
Under an agreement dated October 1, 1998, in 1999 Dr. Aslami, Mr. De Luca and
Mr. Beecher accepted salary reductions of 33.3%, 33.3%, and 25.0%, respectively
and were awarded stock options for these salary reductions to purchase shares of
739,644, 425,296, and 318,972, respectively. The option exercise price is
$0.1875 per share, which was the closing price of the shares as of the date of
the agreement.
54
<PAGE>
EXECUTIVE COMPENSATION (CONTINUED):
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
The following table lists the options granted to the executive officers during
the year ended December 31, 1999.
<TABLE>
-------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Potential
Potential realized values
Number of % of Total realized values at assumed
Securities Options/ at assumed annual annual rates of
Underlying SARs Granted Exercise rates of stock stock price
Options/ to Employees or base price appreciation appreciation for
SARs Granted in Fiscal price for option term option term 10%
Name (#) Year ($/Share) Expiration Date 5%($) ($)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Mohd Aslami 739,644 27.5% $0.1875 Oct. 1, 2008 $ 5,893 $ 91,530
375,000 $2.125 Dec. 31, 2009 $ 501,150 $ 1,270,014
-------------------------------------------------------------------------------------------------------------------------
Charles De Luca 425,296 12.7% $0.1875 Oct. 1, 2008 $ 3,388 $ 52,630
90,000 $2.125 Dec. 31, 2009 $ 120,276 $ 304,803
-------------------------------------------------------------------------------------------------------------------------
Michael J. Beecher 318,972 10.1% $0.1875 Oct. 1,2008 $ 2,541 $ 39,472
90,000 $2.125 Dec. 31, 2009 $ 120,276 $ 304,803
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(The remainder of this page intentionally left blank.)
55
<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, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of unexercised
Underlying unexercised In-the-money options/SARs at
Shares acquired Value Realized Options/SARs at FY-end (#) FY-end ($)
Name on exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dr. Mohd Aslami --- --- 975,398/744,822 $1,585,927/$715,530
-------------------------------------------------------------------------------------------------------------------------------
Charles De Luca --- --- 554,524/302,648 $896,676/$412,006
-------------------------------------------------------------------------------------------------------------------------------
Michael J. Beecher --- --- 333,734/249,486 $452,738/$309,004
-------------------------------------------------------------------------------------------------------------------------------
Hans Moeller --- --- 300,000/0 $289,500/$0
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
The Company has a consulting agreement with One Financial Group, Incorporated
that provides services as a financial advisor. Mr. Steven Phillips, a director
of the Company, controls of One Financial Group. The Company incurred costs of
$46,000 in each of the years 1998 and 1997 under this agreement. In 1999, One
Financial Group was granted options to purchase common stock of the Company in
lieu of payment for services valued at $94,000.
56
<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, 2000, 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>
Mohd Aslami............................................. 9,591,769 (2), (10) 16.5
Charles De Luca......................................... 6,286,360 (3), (10) 10.8
Steven Phillips......................................... 3,232,914 (4) 5.6
Hans F.W. Moeller....................................... 388,235 (5) 0.7
Michael J. Beecher...................................... 583,220 (6) 1.0
Hedayat Amin-Arsala..................................... 2,412,940 (7) 4.1
Javad K. Hassan......................................... 53,333 (8) .1
Tyco Electronics Corp. (formerly AMP)................... 9,244,297 (9),(10) 15.9
All directors and executive officers
as a group (7 persons)............................... 22,548,771 38.7%
</TABLE>
------------------------
(1) The addresses of the persons and entities named in this table are as
follows: Messrs. Aslami, De Luca, Phillips, Beecher, Amin-Arsala and
Hassan, c/o FiberCore, Inc., P. O. Box 180, 253 Worcester Road, Charlton,
MA 01507; Tyco Electronics Corp., 470 Friendship Road, Harrisburg, PA
17105; Mr. Moeller, 10 Mansion Lane, Greenwich, CT 06831.
(2) Includes 1,389,158 shares and warrants to purchase 323,082 shares held by
Dr. Aslami's wife, 316,420 shares held by Dr. Aslami's minor child and
1,587,569 shares held by the Ariana Trust of which Dr. Aslami's wife is
the trustee and his children are beneficiaries. Also includes 1,944,161
options and warrants to purchase shares of the Company and 766,406 shares
issuable on conversion of debt.
(3) Includes 2,666,772 shares and warrants to purchase 323,082 shares held by
Elizabeth De Luca, Mr. De Luca's wife. Also includes 941,697 options and
warrants to purchase shares of the Company and 475,582 shares issuable on
conversion of debt.
57
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED):
(4) Includes 1,631,574 options and Warrants and 730,604 shares issuable on
conversion of debt to One Financial Group, Incorporated, a Company
controlled by Mr. Phillips and 67,083 options and warrants.
(5) Includes 300,000 options.
(6) Includes 583,220 options.
(7) Includes 110,499 shares held by Mr. Amin-Arsala's wife.
(8) Includes options to acquire 53,333 shares to be issued to Mr. Hassan for
his appointment as a director.
(9) Tyco Electronics Corporation, formerly AMP Incorporated, is a wholly owned
subsidiary of Tyco International Ltd., a company traded on the New York
Stock Exchange. Includes 3,419,977 shares into which the Tyco Note is
convertible at $0.6641 per share and Warrants to purchase 2,765,487
shares.
(10) Under the Tyco loan, the Company, Mohd A. Aslami, Charles De Luca, M.
Mahmud Awan (a former director) and Tyco 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)
58
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
LOANS
During the year 1999, the Company issued notes to Dr. Aslami, Mr. De Luca and
One Financial Group Incorporated ("OFG"), in the amounts of $192,000, $119,000
and $181,000, respectively, for previously unpaid salaries, fees and expense.
Mr. Phillips, a director of the Company, controls OFG. The notes bear interest
at 8.0% per year and are due on December 31, 2000. In conjunction with the
notes, Dr. Aslami, Mr. De Luca and OFG were granted warrants to purchase shares
of the Company of 161,441, 84,525, and 150,735, respectively. The warrants have
an exercise price of $0.25 per share which was the closing trading price of the
shares at the date of issue and expire on July 1, 2004. Additionally, the unpaid
balance of the notes plus accrued and unpaid interest are also convertible into
shares of the Company at $0.25 per share, which was the closing trading price of
the shares at the date the notes were issued.
During the year, two notes each in the principal amount of $250,000, due the
spouses of Dr. Aslami and Mr. De Luca, matured and were renewed. In conjunction
with the renewal, each lender was granted warrants to purchase 323,082 shares of
the Company at $0.26 per share and the renewed notes included conversion rights
at the same $0.26 per share which was the closing trading price at the date of
issue. In December 1999, these notes were converted into 2,543,352 common shares
of the Company.
Also during 1999, Mr. Amin-Arsala converted a note due him from the Company in
the principal amount of $249,000 into 1,488,243 common shares of the Company.
CONSULTING
The Company has a consulting agreement with One Financial Group, Incorporated,
that provides services as a financial advisor. Mr. Steven Phillips, a director
of the Company, controls One Financial Group. The Company incurred costs of
$46,000 in each of the years 1998 and 1997 under this agreement. In 1999, One
Financial Group was granted options to purchase common stock of the Company in
lieu of receiving cash payment for services valued at $94,000. This amount is
included in selling, general and administrative expenses.
(The remainder of the page is intentionally left blank.)
59
<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)
EXHIBIT
NUMBER
-------
+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.
+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.
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.
(B) REPORTS ON FORM 8-K
None.
60
<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 September 18, 2000
----------------------------------------
Dr. Mohd A. Aslami
Chairman, Chief Executive Officer and
President (Principal Executive Officer)
By: /s/ Steven Phillips September 18, 2000
----------------------------------------
Steven Phillips
Interim 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.
/s/ Mohd A. Aslami Chairman of the Board, September 18, 2000
-------------------
Dr. Mohd A. Aslami President
Chief Executive Officer,
Director
/s/ Charles De Luca Secretary and Director September 18, 2000
-------------------
Charles De Luca
/s/ Steven Phillips
-------------------
Steven Phillips Director September 18, 2000
61
