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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-21823
FIBERCORE, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0445729
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
174 Charlton Road, P. O. Box 206
Sturbridge, MA 01566
(Address and Zip Code of principal executive offices)
(508) 347-7744
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
Yes X No
--- ---
and
(2) has been subject to such filing requirements for the past 90 days.
Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 1997: $19,328,375.
Number of shares outstanding as of February 28, 1997: 35,316,676.
DOCUMENTS INCORPORATED BY REFERENCE
None
FIBERCORE, INC.
TABLE OF CONTENTS
Page
PART I ............................................................................................................. 3
ITEM 1. BUSINESS ................................................................................ 3
ITEM 2. PROPERTIES .............................................................................. 16
ITEM 3. LEGAL PROCEEDINGS ....................................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ................................................................................. 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 ..................................................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............................................. 26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ..................................................... 56
PART III ........................................................................................................... 57
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT .............................................................................. 57
ITEM 11. EXECUTIVE COMPENSATION .................................................................. 59
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT .......................................................................... 62
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................................... 64
PART IV ............................................................................................................ 66
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K ............................................................................. 66
SIGNATURES ......................................................................................................... 69
2
PART I
ITEM 1. BUSINESS
GENERAL
FiberCore, Inc. ("FiberCore" or the "Company") is engaged in the business of
developing, manufacturing, and marketing single-mode and multi-mode optical
fiber and optical fiber preforms for the telecommunications and data
communications industry.
The Company's products include single-mode and multi-mode optical fiber and
optical fiber preforms. 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 more cost effective
than existing production methods in use. Through its wholly owned subsidiary,
Automated Light Technologies, Inc. ("ALT"), the Company manufactures patented
cable monitoring systems, a patented long range fault locator, cable protection
devices, and electro-optical talk sets.
In June 1994, the Company formed a wholly owned subsidiary in Germany,
FiberCore Glasfaser Jena GmbH ("FCJ"), which leased a manufacturing facility in
Jena, Germany ("the Jena Facility") for a fixed monthly sum, and acquired
certain equipment located in that facility from SICO Quarzschmelze Jena GmbH
("SICO"). Until the year 2001, the Company's ownership of the equipment is
subject to the right of the German government, from which SICO purchased the
equipment, to repossess the equipment in the event the Company ceases
production. The agreement pursuant to which the Company acquired the equipment
provides for the issuance of 2,221,141 shares of Common Stock to SICO in
exchange for the equipment. The Jena Facility is an existing 26,500 square foot
optical fiber manufacturing plant which has been in operation since 1986.
On July 18, 1995, FiberCore, Incorporated, the predecessor to FiberCore,
Inc., incorporated under the laws of the State of Nevada in November 1993,
merged into Venturecap, Inc. ("Venturecap"), an inactive corporation, organized
under the laws of the State of Nevada in 1987. Venturecap issued 3.671307 shares
in exchange for each outstanding share of FiberCore, Incorporated and, as a
result, Venturecap issued a total of 24,617,133 shares for all of the
outstanding shares of FiberCore, Incorporated. After the merger, Venturecap
changed its name to FiberCore, Inc.
On September 18, 1995, the Company acquired Automated Light Technologies,
Inc. ("ALT"). ALT, a Delaware corporation organized in 1986 and engaged in the
business of manufacturing equipment which monitors and identifies faults in
fiber optic cables, cable protection devices, and electro-optical talk sets.
In January 1996, the Company established a subsidiary, InfoGlass
Incorporated ("InfoGlass"), through which it intends eventually to conduct its
North American fiber optic business. The Company is currently planning the
construction of a U.S. manufacturing facility to be operated by Infoglass,
although there can be no assurance that the Company will obtain the financing
necessary to construct this facility.
3
The following is an organizational chart depicting the principal
subsidiaries of the Company, all of which are wholly-owned by the Company,
except Fiber Optic Industries (Pvt.) Ltd. ("FOI") (30%) and Middle East Optical
Fiber Cable Co. ("MEFC") (15%):
COMPANY CORPORATE STRUCTURE
FiberCore, Inc.
Headquarters
(USA)
- -----------------------------------------------------------------------------------------------------------------------------------
FOI (Pvt) Ltd. FiberCore Glasfaser Jena GmbH InfoGlass, Inc. FiberCore Mideast Ltd. ALT, Inc.
(Pakistan) (Germany) (USA) (Asia) (USA)
30% Owned by FCI 100% Owned by FCI 100% Owned by FCI 100% Owned by FCI 100% owned by
MEFC FCI
15% Owned
Company and ALT sales by product group for the last three years were as follows
(includes sales of ALT prior to its acquisition by the Company):
(dollars in thousands)
YEARS ENDED
DECEMBER 31
--------------------------------------
1994 1995 1996
---- ---- ----
Optical Fiber and
Preform........................... $ 231 $ 3,009 $ 7,907
ALT Products...................... 476 246 189
------- --------- ---------
Total....... $ 707 $ 3,255 $ 8,096
======= ========= =========
RECENT DEVELOPMENTS
In April 1995, the Company issued a note to AMP, Incorporated ("AMP") (the
"AMP Note"). The AMP Note is a ten year $5,000,000 convertible note. AMP, a
company listed on the New York Stock Exchange, with worldwide sales in excess of
$5.0 billion in 1995, is a manufacturer of electrical and optical connection
devices, systems and other equipment including fiber optic cable. Principal plus
accrued interest on the AMP Note at a rate of LIBOR plus one percent may be
converted into Common Stock through April 17, 2005. Until April 17, 2000, the
conversion price is $1.16 per share; thereafter the conversion price is equal to
the price per share paid by a third party investor in the private sale of Common
Stock immediately prior to such conversion. The AMP Note is collateralized by
the Company's patents, patent applications, licenses, rights and royalties
arising from such patents. The AMP Note is subject to prepayment on demand in
the event the Company is the issuer of securities to be sold by the Company
under an effective registration statement. On November 27, 1996 AMP converted
$3,000,000 of principal plus $540,985 of accrued interest into 3,058,833 shares
of Common Stock of the Company.
In July 1996, AMP entered into a five year supply contract (renewable at
AMP's option for an additional five year period) with the Company whereby AMP
has undertaken to purchase from the Company at least 50% of AMP's future glass
optical fiber needs. On November 27, 1996, the Company
4
obtained an additional $3,000,000 loan at an interest rate of prime plus 1%,
adjustable on the first business day of each calendar quarter, from AMP to fund
the expansion of the Jena Facility. In exchange AMP received a 10 year note and
common stock purchase warrants exercisable for up to 1,382,648 shares of Common
Stock at $1.45 per share and expiring on November 27, 2001. In connection with
the new AMP loan and the expansion of the Jena Facility, the Company has been
awarded a grant from the German Government of approximately $2,700,000 and has
received a loan from Berliner Bank of approximately $5,100,000, which has been
funded contemporaneously with the new $3,000,000 AMP loan. The Company also
agreed to issue AMP additional shares of Common Stock in the event the Company's
share price does not exceed $2.17 for 30 consecutive trading days by November
27, 1998. The issuance of additional shares under the new AMP Loan would have a
dilutive effect on the Company's other shareholders and could adversely affect
the market price of the Common Stock. As part of the new $3,000,000 loan from
AMP, Mohd A. Aslami, Charles DeLuca, M. Mahmud Awan and AMP entered into a
Voting Agreement pursuant to which they agreed to vote together to elect a slate
of directors to the Board of Directors of the Company. The proposed slate of
directors initially consists of Mohd A. Aslami, Charles DeLuca, Hans F.W.
Moeller, one nominee of AMP and three outside directors, one of whom is Dr. M.
Mahmud Awan. The Voting Agreement also requires a classified and three year
staggered Board of Directors. Such Voting Agreement would remain in effect until
the earlier of (i) termination of the new AMP loan agreement, or (ii) an
underwritten public offering by the Company which generates at least $5,000,000.
Since October 1995, Middle East Specialized Cables Co. ("MESC") has purchased
734,262 shares of Common Stock for an aggregate purchase price of $1,000,000.
MESC will also be issued 312,061 shares of Common Stock and will be granted
Warrants to purchase 550,696 shares of Common Stock at an exercise price of
$1.63 per share through April 13, 1997, upon delivery of a supply agreement,
valued at $33 million between the Company and MEFC, a joint venture between the
Company, MESC and others. On exercise of the Warrants MESC will receive an
additional 238,635 shares of Common Stock.
On November 1, 1995, the Company entered into an International Distributor
Agreement with Techman International Corp. ("Techman"). Under such agreement,
Techman will be issued Warrants for the exercise of up to 1,000,000 shares of
Common Stock. The Warrants will be exercised and the applicable shares will be
issued ratably by the Company as commissions on Company sales generated by
Techman up to $200,000,000. Dr. M. Mahmud Awan, a director of the Company, is
president and sole shareholder of Techman.
On January 11, 1996, pursuant to a Share Purchase Agreement, Techman agreed
to purchase for $1,000,000 a total of 734,260 shares of Common Stock, and
Warrants exercisable at $1.63 per share into 550,696 shares of Common Stock
expiring on January 11, 1998. Additionally, Techman would be issued 312,061
shares of Common Stock upon the delivery of a supply agreement between FOI and
the Company. FOI is a joint venture between the Company and Techman. In 1996,
the 734,260 shares and the 312,061 shares, above, were issued to Techman in
exchange for the payment of $1,000,000 and the delivery by Techman of a twenty
year supply agreement between the Company and FOI, which management believes
could generate revenues of up to approximately $93 million over five years,
although there can be no assurance such revenues will be received. The Company
used $450,000 of the proceeds as an additional capital contribution in FOI. The
Company maintains a 30% ownership interest in FOI.
5
On July 31, 1996, the Company borrowed $500,000 under two loan agreements
with the spouses of the Chairman and Chief Executive Officer and the Executive
Vice President of the Company. The loans are in the amount of $250,000 each,
bear interest at the prime rate plus one percent (currently 9.25%) and are due
on June 30, 1999. In conjunction with the loans, each lender received Warrants
to purchase 115,220 shares of Common Stock at a price of $1.81 per share. The
Warrants expire on July 31, 2001.
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
which 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: multi-mode fiber
and single- mode fiber. Multi-mode fiber has a larger core (the area where the
light travels) than single-mode fiber, carries less bandwidth and is more
expensive. It is generally used over relatively short distances in wiring
buildings and groups of buildings. The electronics and the connectors required
to work with multi-mode fiber are less costly than the electronics required for
single mode-fiber. For example, the light source for multi-mode fiber can be
light emitting diodes, while single-mode fiber requires laser light sources.
Single-mode fiber is used in long-distance trunk lines (cables between cities)
and fiber-to-the-curb (cable from a central office to the curb in front of an
office building or home).
The three basic technologies widely used to manufacture multi-mode and
single-mode optical fiber are:
1. Outside Vapor Deposition ("OVD"), otherwise known as the "Corning process."
2. Inside Vapor Deposition ("IVD"), which is also known as Modified Chemical
Vapor Deposition ("MCVD") or the "AT&T process". Due to its flexibility and
relative ease of operation, this process is the most widely used around the
world by independent manufacturers.
3. Axial Vapor Deposition ("AVD"), also known as the "Japanese process". This
process is similar to the Corning process.
6
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, 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, intends to draw fiber from preforms and to manufacture
fiber optic cable.
The Company's patented technology can be best described as a "rod-and-tube"
process, or as a hybrid of the OVD, IVD and the AVD processes. The Company's
process takes advantage of available high quality doped(1) and undoped fused
silica rods and tubes during the manufacturing process to produce more
efficiently single-mode optical fiber preform and single-mode fiber at a
substantially reduced cost than the alternative processes.
Specifically, the Company's process places a high-purity "core" glass rod
inside a high-purity glass tube or "clad", which has a lower refractive index
than the core, and collapses the tube over the rod to form an intermediate
preform. The Company purchases the glass tubes and manufactures the "core" glass
inside of the purchased glass tube. The composite material is subsequently
converted to a glass rod referred to as an intermediate preform. Such
intermediate preform can also be manufactured by any of the other existing
processes. This intermediate preform is placed inside another purchased tube and
collapsed together to form a final preform, which has the proper ratio of
core-to-outside-diameter-glass. The preform is then drawn into finished fiber by
placing it inside a "draw furnace", heated to approximately 2000 degrees
Celsius, and "stretched" into tens of thousands of meters of hair-thin, flexible
glass fiber. The Company believes that its patented process offers
manufacturing-cost and capital-investment advantages over the processes
currently in use by competitors for the manufacture of optical fiber, because
(i) the machine time necessary to produce a given size preform is significantly
less, thereby allowing the Company to produce more preforms in the same time
period; and (ii) the Company purchases the tube while manufacturing a much
smaller portion of the clad and all of the core which accounts for approximately
5% of the preform, while the OVD process, for example, manufactures 100% of the
preform, requiring substantially more capital investment.
- --------
(1) Doping means adding other glass materials, such as germanium dioxide to the
silica glass.
7
Prior to its acquisition by the Company, the Jena Facility was used to
manufacture multi-mode fiber and preform for the Eastern European market. The
Company's lease of the Jena Facility provides a potentially efficient, low-cost,
existing manufacturing operation. Management believes the time and cost required
to achieve manufacturing efficiencies at the Jena Facility can potentially be
minimized as a result of management's knowledge and experience in fiber
production and machine design.
ALT PRODUCTS
The Company's ALT subsidiary has four principal products, all of which are
manufactured at the Company's Sturbridge, Massachusetts facility and are
marketed by independent sales representatives.
ALT's Fiber Optic Cable Montitoring Systems ("FOCMS") facilitate the
continuous monitoring of fiber optic and copper cables. The FOCMS consist of
sensors housed in a protective cover placed at cable splice points and connected
to a central monitoring system. ALT holds two United States patents covering
this technology. ALT purchased one of these patents and know-how relating to
fiber optic cable monitoring systems on September 7, 1986, from Norscan, a
Canadian company. Norscan retained the right to use the technology in Canada and
the rights to a Canadian reissuance of the purchased patent and has had the
technology in operation on the Trans Canada fiber optic network since 1988. ALT
intends to make the technology widespread in other regions worldwide. A dispute
exists between ALT and Norscan with respect to Norscan selling FOCMS products,
in competition with ALT products, that utilize technology other than the
technology assigned to ALT pursuant to its agreement with Norscan. ALT contends
that, in so doing, Norscan is violating a non-competition provision of Norscan's
agreement with ALT. Failure by ALT and Norscan to resolve this dispute could
materially adversely affect the future sales of ALT products.
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, which 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 and Pacific
Telesis.
ALT also has developed flood and leak detection devices for the home. ALT is
not actively marketing these products because of lack of resources, but may
attempt to market such products in the future.
RESEARCH AND DEVELOPMENT
The Company conducts research and development activities at its Jena Facility
and Sturbridge offices. The Company's research and development activities
consist primarily of optical fiber
8
manufacturing process improvements and fault locating technology improvements,
as well as the development for sale of new fault locating products. The Company
is currently conducting research in Germany under two grants from the German
government totaling approximately $107,000.
The Company incurred costs of $420,000, $75,000 and $90,000 for research and
process development for the fiscal years ended December 31, 1996, 1995, and
1994, respectively. The principal purpose of the research activity is to improve
the production process for the manufacturing of fiber preforms, with
concentration on reducing production time and reducing raw material consumption
per unit of product. ALT's expenditures are principally for product development
and enhancements of its products.
Three of the Company's employees devote over 90% of their time, and two
employees devote over 50% of their time to research and development, which
includes process and product development.
SALES AND MARKETING
The Company's initial marketing efforts are being primarily targeted at the
overseas markets, particularly toward developing nations whose
telecommunications infrastructure is in the early stages of evolution and where
competition is not well established. The Company is initially targeting the
large fiber optic cable manufacturing companies in Asia, the Middle East, the
Pacific Rim, and certain European and Eastern European markets.
The Company's sales and marketing objective is to develop long-term,
strategic relationship/supply contracts for both preform and fiber products as
rapidly as practical, emphasizing the cost advantages of the Company's patented
technology.
JOINT MARKETING ARRANGEMENTS
Pursuant to an agreement executed in June 1994 and subsequently amended on
June 17, 1995 (the "Royle Cooperation Agreement"), which expires in June 1999,
the Company has been making joint proposals to sell fiber and preforms with John
Royle and Sons, Inc. ("Royle"), a manufacturer, distributor and value added
installer of cable manufacturing systems with customers and sales channels
worldwide. Gregory Perry, a shareholder and a former director of the Company, is
Director of Fiber Technology at Royle.
The Company is attempting to enter into joint ventures with potential foreign
and domestic partners, including cable manufacturers, to build modern plants for
producing optical fiber and optical fiber cable. Most of these plants will
require preform as "raw material". In 1995, Royle and the Company, each through
subsidiaries, entered into such an agreement (the "Mideast JV Agreement") with
Middle East Fiber Optic Manufacturing Company Limited ("MEOFC"), a Saudi Arabian
company. Pursuant to the agreement, the parties jointly own MEFC, a Saudi
Arabian joint venture company. MEFC will engage in the manufacture and sale of
optical fiber and optical fiber cable both inside and outside of Saudi Arabia.
The Company and Royle each contributed $500,000 to the venture and each holds a
15% interest in MEFC. MEOFC contributed $2,330,000 and holds a 70% interest.
MEFC has placed a $5,500,000 purchase order with Royle for fiber optic cable
9
manufacturing equipment, and intends to purchase fiber and preforms from the
Company. The Company and MEFC have entered into a long-term supply agreement for
MEFC to purchase and the Company to supply fiber and preforms totaling
approximately $33,000,000 over the next five years. Shipments under this
agreement are expected to commence in 1997. The Company may not transfer its
interest in MEFC to any entity other than Royle or MEOFC without the permission
of such parties.
In connection with the Company's participation in MEFC, on October 5, 1995,
MESC, a Saudi Arabian Company in which the owners of MEOFC have an interest,
purchased 367,131 shares of Common Stock at an aggregate price of $500,000. In
November 1996, MESC purchased a second block of 367,131 shares of Common Stock
for an additional $500,000. The proceeds of this sale ($500,000) was used as the
Company's capital contribution to MEFC, described above.
The Company is seeking to increase market penetration in optical fiber
markets through strategic alliances and/or joint ventures similar to the MEFC
joint venture. Currently, negotiations are underway with several potential new
joint venture partners. 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 in India, China and several
other countries, 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.
10
CUSTOMERS REPRESENTING OVER 10% OF SALES
The following table is based on the combined sales of the Company and ALT for
all periods presented.
Optical Fiber and
Preform Business ALT Combined
---------------- --- --------
1996
Leonische Drahtwerker AG 57% -- 56%
Pinacl 15% -- 15%
Deats Construction Co., Inc. -- 48% Less than 10%
Henkle E. McCoy -- 19% Less than 10%
MCI -- 16% Less than 10%
1995
Leonische Drahtwerker AG 62% -- 57%
Deats Construction Co., Inc. -- 11% Less than 10%
Henkle E. McCoy -- -- Less than 10%
MCI -- 11% Less than 10%
Sterilite 11% -- 10%
Condumer, Inc. 10% -- Less than 10%
1994
Leonische Drahtwerker AG 28% -- 9%
Deats Construction Co., Inc. -- -- --
Henkle E. McCoy -- -- --
MCI -- 36% 24%
Sterilite -- -- --
Condumer, Inc. -- -- --
AT&T -- 10% Less than 10%
Traylor Brothers -- 19% 13%
SICO 72% -- 23%
The Company believes that only the loss of Leonische Drahtwerker AG and
Pinacl would have a material adverse effect on the Company.
11
The Company currently has a backlog of orders approximating $18.6 million and
supply agreements, which, in management's opinion, are sufficient to consume the
Company's current production capacity and the current expansion of capacity at
the Jena Facility. Accordingly, sales of optical fiber and preforms are being
made by only one full-time salaried employee who is engaged in sales as only a
portion of his duties. The Company, however, plans to commence the use of
independent local sales representatives in some international markets during
1997 to coincide with the Company's planned additional expansion of the
Company's production facilities beyond the current expansion of the Jena
Facility. Assisted by local representatives, management intends to host seminars
in key countries to identify the best possible sales opportunities and 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. Sales of ALT
products are made by one salaried full-time Company employee based in
Massachusetts, who is engaged in sales as only a portion of his duties, as well
as by a number of independent sales agents.
The Company does not currently engage in extensive advertising. Commencing
in 1997, and in conjunction with the use of local sales representatives, the
Company intends to advertise in trade journals. The advertising effort will
focus on developing an overall corporate image as well as name recognition of
the product and awareness of its competitive advantages. Advertisements will
also include reader response cards to generate sales leads for direct follow-up.
In addition, the Company intends to exhibit at selected industry trade shows.
COMPETITION
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 single-mode preforms on a
world-wide basis is limited to two United States manufacturers, SpecTran
Specialty Optics ("SpecTran"), formerly Ensign Bickford Optics/Lightwave
Technologies, Inc., and Alcatel U.S.A. SpecTran's product sales are for unique
fiber applications. Alcatel U.S.A. is marketing single mode preforms and has the
capability to market multi-mode preforms now and in the future. In Europe,
Lycom, Alcatel and Nokia, Shin-Etsu from Japan and DaiWoo from Korea are
marketing single mode 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 demand for fiber currently exceeds supply and 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 disadvantages associated with selling preforms to third
parties for companies like Corning and AT&T do not apply to the Company,
because, unlike those companies, the Company's customers are not vertically
integrated, and require preforms which are in limited supply.
12
Due to the current high demand for fiber, the Company has initially
concentrated on manufacturing and selling fiber and currently plans to increase
its fiber manufacturing capability. Because competition in the production of
preforms is somewhat limited, the Company plans to focus its future
manufacturing and marketing efforts on the preform segment of the market.
FIBER
The competition in multi-mode fiber products is limited to a few
manufacturers in North America and Europe. They include Corning, AT&T, Alcatel
and SpecTran in the United States and Plasma Optical Fiber and Alcatel in
Europe. Management believes that Corning, AT&T, and Alcatel generally supply the
bulk of their production to their own cablers or joint venture partners.
The competition in the single-mode fiber market is much more extensive than
in the preform market or the multi-mode fiber market. Most of the competition
for fiber comes from Corning and AT&T. Both Corning and AT&T have several joint
ventures throughout the world, but, it is believed by management, generally play
significantly smaller roles than their partners. Competition in the fiber market
is primarily based on availability and quality. With some exceptions, the
Company's fiber is generally priced at comparable levels to fiber manufactured
by the larger producers.
ALT PRODUCTS
The Company's management believes there is limited or no direct competition
for its FOCMS product line except 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 U/L Laboratories, an
internationally recognized certifying organization.
Numerous companies manufacture field talksets that enable personnel to
communicate over either twisted pair, metal sheath or optical fiber. The Company
knows of no other company that manufactures a product that enables personnel to
communicate over all three media, although many companies have or can acquire
the technology to create such a device.
PRODUCT WARRANTIES
Customers may obtain refunds for any defective fiber and fiber preforms
shipped by the Company within 90 days of delivery. The Company extends one year
warranties on ALT Products.
PATENTS
The Company is the registered owner in the United States of U.S. Patent No.
4,596,589 relating to optical fiber fabrication. The patent, which expires in
2003, was acquired in 1993 from Gregory Perry, a co-founder of the Company and
currently a consultant to the Company on an as needed basis. The existing patent
provides a more efficient method for fabricating a single-mode optical fiber
preform
13
by substantially reducing the time and cost required to produce the preform. The
patent also provides an efficient method of attaching cladding material around a
single-mode fiber core. The Company has filed an application in the United
States and European Common Market improving upon the process covered by the
above patent, and intends to file in other foreign jurisdictions, as well as
filing further improvement patents for its process.
In addition, in conjunction with its acquisition of equipment located at the
Jena Facility, the Company acquired the right and title to all SICO patents and
expertise developed or owned by SICO relating to fiber optics. In the event the
Company were to default on its obligations to SICO, the Company's title to these
patents could revert to SICO. Without the use of SICO patents and technology,
the Company's expense in manufacturing optical fiber and optical fiber preforms
could increase substantially.
The Company is the registered owner in the United States of three patents
covering its cable monitoring systems and fault locating methods. The Company
acquired the first such U.S. patent, Patent No. 4,480,251, which covers cable
monitoring systems and expires in 2001, from Norscan. A patent issued by the
United Kingdom for the same technology was also acquired by the Company from
Norscan. The Company has filed international patent applications covering this
technology in various other countries around the world, although none have yet
been granted. Pursuant to the Company's agreement with Norscan, Norscan has the
right to a Canadian patent reissuance and may otherwise use the technology in
Canada. The Company has improved upon Norscan's technology and obtained a
European patent and United States patent, Patent No. 5,077,526, which expires in
2008 covering the improvements. The Company also owns a United States patent,
Patent No. 4,947,469 expiring in 2007, and a European patent covering a cable
fault location method. In addition, the Company owns a United States patent
covering the provision of backup power to optical communications systems.
The Company's ability to compete effectively will depend, in part, on its
ability to protect its patents. There can be no assurance that the steps taken
by the Company to protect its intellectual property will be adequate to prevent
misappropriation or that others will not develop competitive technologies or
products. Furthermore, there can be no assurance that others will not
independently develop products that are similar or superior to the Company's
products or technologies, duplicate any of the Company's technologies, or design
around the patents issued to the Company. In addition, the validity and
enforceability of a patent can be challenged after its issuance. While the
Company does not believe that its patents infringe upon the patents or other
proprietary rights of any other party and is unaware of any claim of such
infringement, other parties may claim that the Company's systems 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.
INTERNATIONAL OPERATIONS
The Company is subject to all the risks of conducting business
internationally. These risks include unexpected changes in legislative or
regulatory requirements and fluctuations in the United States dollar and the
German mark, and other currencies in which the Company is doing business from
time to time. The Company has limited foreign currency fluctuation exposure and
does not currently engage in foreign
14
currency hedging transactions. 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 and weekly working hours are shorter
compared to the rest of the European Union, the United States and Japan. The
Company's participation in MEFC and its investment in FOI are subject to the
risks of doing business in Saudi Arabia, and in the Middle East in general.
These risks include, but are not limited to, the threat of regional conflict. In
1996, 1995 and 1994, FCJ accounted for 98%, 90% and 100% of the Company's sales,
respectively.
TRADEMARKS
FCJ is the owner of the registered trademark Infoglass(R) under which it
markets its optical fiber products. ALT is the owner of the registered trademark
Floodhound(R) which is used in the sale of the Company's water leak detection
devices. These products are not currently marketed by the Company.
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 the years 1994 and 1995, the
Company's optical fiber and preform business purchased approximately 90% of its
key glass tubing raw material from one supplier. This supplier accounted for
over 46% of the Company's glass tube requirements in 1996. If the Company
becomes unable to continue to purchase raw materials from this supplier, there
can be no assurance that the Company will not face difficulties in obtaining raw
materials on commercially acceptable terms, which could have a material adverse
effect on the Company. To limit future shortages of key materials, the Company
successfully identified other suppliers of this material. The Jena Facility has
the capability to manufacture the high-purity synthetic core glass using a first
purchased cladding tube, as well as adding additional purchased cladding tubes
using the Company's patented production process.
The Company's ALT subsidiary uses raw materials widely available from
numerous suppliers.
EMPLOYEES
At December 31, 1996, the Company employed 66 persons, of whom 4 are
executives, 7 are engaged in administration, 50 are engaged in manufacturing and
5 are engaged principally in research and development; of the Company's
employees 57 are located in Jena, Germany. The Company is not party to any
collective bargaining agreements and the Company does not maintain a pension
plan. The Company considers its relations with employees to be satisfactory and
believes that its employee turnover does not exceed the industry average.
15
ITEM 2. PROPERTIES
The Company subleases 5,000 square feet of office space as its headquarters
in Sturbridge, Massachusetts. The Company is currently planning to relocate its
headquarters in the Sturbridge area although no site has, as yet, been acquired.
The Company's optical fiber and preform manufacturing facility is located in
Jena, Germany. The facility is leased from SICO. It occupies approximately
26,500 sq. ft., including 17,200 sq. ft. of clean room manufacturing space,
6,100 sq. ft. of office and storage space and an additional 3,200 sq. ft. of
outside facilities for gas storage tanks. The Company owns all machinery and
equipment at the facility, subject to certain restrictions. The lease expires in
2000 and is renewable for additional terms aggregating 25 years. The Company
maintains casualty and liability insurance on the Jena Facility. There is no
assurance that in the event of a loss, policy limits will not be exceeded.
ITEM 3. LEGAL PROCEEDINGS
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, a former
customer, claiming damages of approximately $200,000 arising from FiberCore
Jena's alleged failure to comply with a sales contract. The Company believes no
sales contract existed and is aggressively defending this action. In addition to
the above, the Company is subject to various claims which arise in the ordinary
course of business. The Company believes such claims, individually or in the
aggregate, will not have a material adverse affect on the business of the
Company.
The Company's ALT subsidiary is in a dispute with Norscan, a Canadian company,
with respect to Norscan selling FOCMS products, in competition with ALT products
and in violation of a non-competition agreement between ALT and Norscan.
Although no litigation has commenced as of the date of this report with respect
to this dispute, ALT would be the claimant in any lawsuit brought in connection
with this matter. Failure by ALT and Norscan to resolve this dispute could have
a material adverse affect on the future sales of ALT Products.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
16
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 230 holders of record and 389 beneficial owners of Common Stock as of
February 28, 1997. 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. The prices prior to July 18, 1995 reflect the
price of Venturecap, a predecessor to the Company, which traded under the symbol
VTUR.
STOCK PRICE AND DIVIDEND POLICY
Period High Bid Low Bid
------ -------- -------
1995
1st quarter No Reported Trades No Reported Trades
2nd quarter (first reported
bid on May 11, 1995) $4.94 $2.55
3rd quarter $4.45 $2.75
4th quarter $3.25 $2.37
1996
1st quarter $3.12 $2.00
2nd quarter $7.25 $1.75
3rd quarter $7.44 $3.00
4th quarter $4.13 $2.63
1997
1st quarter
to March 14, 1997 $6.25 $1.06
The payment of dividends, if any, in the future is within the discretion of
the Board of Directors and will depend on the Company's earnings, its capital
requirements, financial condition, contractual and legal restrictions and other
relevant factors. The Company does not expect to declare or pay any dividends in
the foreseeable future. In addition, the ability of the Company to pay cash
dividends in the future will be subject to its ability to meet certain other of
its obligations.
17
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company for each of the years
1996, 1995, 1994, 1993, and 1992 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)
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995(1) 1994(2)(3) 1993(2)(3) 1992(4)
---- ------- ---------- ---------- -------
Operating Data:
Net sales $8,096 $3,094 $231 -- --
------- ------ --------
Costs and expenses:
Cost of sales 7,200 4,509 1,064 -- --
Research and development 420 75 90 -- --
Selling, general, and administrative 4,324 2,100 700 $ 1 --
Interest expense, net 387 368 7 -- --
Other expense (income), net (102) 51 (5) -- --
------- ------- -------- ------ ------
Income (loss) before
provision for income taxes (4,133) (4,009) (1,625) (1) --
Provision for income taxes -- -- -- -- --
Net income (loss) (4,133) (4,009) (1,625) (1) --
Primary earnings (loss) per
share (0.13) (0.15) (0.07) -- --
Weighted average shares
outstanding 31,695,693 26,584,630 22,873,322 21,309,323 955,450
Balance Sheet Data:
Working capital (deficit) 150 (277) (519) 403 5
Total assets 17,642 14,783 4,270 645 5
Long-term debt 4,545 5,000 456 -- --
Total liabilities 7,617 8,415 1,687 4 --
Accumulated deficit (9,771) (5,638) (1,628) (3) (2)
Stockholders' equity 10,025 6,368 2,583 641 5
18
FIBERCORE, INC.
NOTES TO SELECTED FINANCIAL DATA
1. Includes the results of ALT from September 18, 1995 through December 31,
1995.
2. Does not include the results of ALT.
3. Reflects the Venturecap merger as of the beginning of the period.
4. The year 1992 reflects the financial position of Venturecap, Inc. which was
a development stage company, prior to the merger with FiberCore,
Incorporated in 1995. Venturecap had no significant activities in those
years. FiberCore, Incorporated was formed in November 1993.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars and Deutsche Marks in Thousands)
BACKGROUND
This Annual Report on Form 10-K contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such statements are only predictions and the actual
events or results may differ materially from the results discusssed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed in other
filings made by the Company with the Securities and Exchange Commission.
FiberCore, Incorporated, the predecessor to the Company, was organized under
the laws of the State of Nevada on November 5, 1993. Venturecap, Inc. was a
development stage enterprise, with no significant operations, no significant
assets or liabilities and was inactive from 1990 until the time of the
Venturecap Merger with FiberCore, Incorporated on July 18, 1995. Venturecap
issued 24,617,133 common shares for all of the outstanding shares of FiberCore,
Incorporated. The Venturecap Merger has been accounted for as a pooling of
interests. Subsequent to the Venturecap Merger, Venturecap changed its name to
FiberCore, Inc. (hereinafter "FiberCore" or the "Company").
The Company operates primarily through its FiberCore Jena subsidiary. The
Company maintains a headquarters in Sturbridge, Massachusetts which is staffed
by executive, 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, 1996,
1995 and 1994.
RESULTS OF OPERATIONS
Year Ended December 31, 1996
Total revenues for the year ended December 31, 1996 were $8,096 compared with
revenues of $3,094 for the year ended December 31, 1995, an increase of 162%.
This increase in revenues was attributable to the Company's increase of
production capacity resulting from an upgrade of the Jena Facility, and the
Company's sales and marketing efforts resulting in the addition of new
customers.
Gross profit for the year ended December 31, 1996 was $896 compared to a loss
of $1,415 for the year ended December 31, 1995. This difference was attributable
to the higher volume of production and the upgrade of the Jena Facility since
its acquisition in July 1994. The improvement and upgrading of machinery and
equipment and production process technology changes resulted in better
production yields and lower per unit production costs.
Selling, general and administrative expenses were $4,324 for the year ended
December 31, 1996 compared to $2,100 for the year ended December 31, 1995, an
increase of 106%. This increase was due primarily to non-cash compensation
expense of $846 incurred in connection with the grant to employees and others of
options to acquire 382,184 shares of common stock of the Company, the
acquisition of ALT in September, 1995, which accounted for $704 of the increase
and approximately $421 of legal,
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
accounting, and other costs incurred in connection with the Company's
registering its common stock with the Securities and Exchange Commission.
Additionally, the commencement of increased production at the Jena Facility, the
Company's increased sales and marketing efforts and the addition of personnel in
Germany, added to this increase in costs.
Interest expense for the year ended December 31, 1996 was $393 compared to
$516, a decrease of 24% from the year earlier comparable period. This decrease
was due to the repayment in 1995 of a working capital line of credit that was
outstanding for most of 1995, offset by the interest on the AMP Note.
Interest income was $6 for the year ended December 31, 1996 compared to $148
in 1995. The decrease of $142 was principally due to the interest earned on the
short-term investment of the $5,000 AMP loan in 1995. The AMP loan proceeds were
used in 1995 to repay a line of credit and investments in the Jena Facility.
Other income, net of other expense, was $102 for the year ended December 31,
1996 compared to net expense of $51 in 1995. The increase in other income in
1996 was principally due to the receipt of research grants of $109 in Germany.
The net loss for the year ended December 31, 1996 was $4,133, an increase of
$124 (3%) from the loss of $4,009 in the corresponding period in 1995. The
primary cause of the increase was the improvement in sales and gross profit at
the Jena Facility offset by the changes in administrative and interest income
and expense as described above.
Year Ended December 31, 1995
Total revenues for the year ended December 31, 1995 were $3,094 compared to
$231 for the prior year, an increase of $2,863 (1,239%). This increase in
revenues was due to the acquisition of the Jena Facility by the Company in July
1994, with sales commencing primarily in the last quarter of the year and
expansion and upgrade of the Jena Facility since its acquisition. The results
for 1995 reflect a full year of operations and the related increase in sales
volume to new customers.
Selling, general and administrative costs increased by $1,400 in 1995, a 200%
increase over 1994. This increase is principally attributable to the full year
of operation at the Jena Facility compared to only six months of operation in
1994. In addition, the acquisition of ALT in September 1995 added $223 to
administrative costs in 1995.
Interest expense was $516 in 1995 compared to $22 in 1994, a 2,245% increase.
This increase was caused by a working capital loan that was outstanding during
1995 and interest on the AMP Note that was closed in April 1995.
Interest income was $148 in 1995 compared to $15 in 1994, an increase of
$133 (887%). This
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
increase resulted principally from the short term investment of the proceeds of
the AMP Note.
The net loss for the year ended December 31, 1995 of $4,009 was $2,384 or
147% greater than the loss of $1,625 for the year ended December 31, 1994. The
increase in loss is principally related to the increase in costs as described
above and the full year of operations of the Jena Facility resulting in an
increase in the gross loss on sales of $582 or 70%. The cost of goods sold as a
percent of sales decreased from 461% in 1994 to 146% in 1995. This is typical of
the nature of a capital intensive production operation wherein capacity and
through-put increases result in a significant improvement in per unit production
costs, as fixed costs are spread over a higher production volume.
Year Ended December 31, 1994
Total revenues for the year ended December 31, 1994 were $231 compared to
$-0- for the prior period in 1993. This was due to the acquisition of the Jena
Facility by the Company in July 1994, with shipments commencing primarily in the
last quarter of the year. The predecessor to the Company was incorporated in
November 1993 and had no production or revenues during the two months of 1993.
The operating loss for the year ended December 31, 1994 of $1,625 was due to
startup and production inefficiencies at the Jena Facility, selling, general and
administrative expenses of $700, and research and development expenses of $90.
For the period ended December 31, 1993, the Company had no comparable expenses.
For the year ended December 31, 1994, the Company had net interest expense of
$7, primarily attributable to its capitalized lease obligations of the Jena
Facility.
LIQUIDITY AND CAPITAL RESOURCES
Year Ended December 31, 1996
During the year ended December 31, 1996, the Company used $1,972 for
operating activities, principally resulting from the loss for the period of
$4,133 reduced by depreciation and amortization of $1,226 and non-cash
compensation expense of $846. Inventory increased $514 due to the higher volume
of production during the year. Accounts payable was reduced by $159, while
accrued expenses increased by $871. The increase in accrued expenses is
principally attributable to an increase in accrued salaries, legal and audit
fees. Certain officers deferred payment of their salaries during the year to
improve the Company's cash available for other purposes. Also, during the period
the Company utilized cash in investing activities of $1,150, principally for
equipment ($1,161) and investments in joint ventures ($950), reduced by grants
from the German government ($960) used to acquire equipment. Cash generated
through financing totaled $2,479, principally from the sale of stock ($1,500)
and new borrowings ($3,700), reduced by collateral for a bank loan to finance
investments in the Jena Facility ($2,498), and repayment of a note ($200).
The proceeds from the sale of stock noted above were received from Techman
under the Techman
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Share Purchase Agreement entered into in January 1996. Under that Agreement,
Techman subscribed to purchase 734,260 shares of the Company for $1,000. The
payment of $1,000 resulted in an increase in equity and was used as working
capital, improving the Company's ability to meet its current obligations, and as
a capital contribution for the FOI joint venture ($450). The sale of stock to
MESC ($500) was used as a capital contribution to the MEFC joint venture.
The Company expects to continue to incur operating losses until such time as
the Jena Facility's production equipment is expanded and fully upgraded, and
manufacturing inefficiencies are substantially eliminated. The Company has and,
with additional capital, will continue to transfer its more efficient and
productive technology to its Jena Facility with management's expectation of
improved operating results. The expansion of the Jena Facility, currently
underway, will result in improved production yields thus lowering production
costs per unit of preform and fiber. Additionally, the expansion will increase
throughput resulting in increased production volume. The Company has already
received commitments from current customers to purchase this increase in
production volume. Management anticipates that these increased sales combined
with lower per unit production costs will lead to profitability. The Company
will require an estimated $7,800 in capital investment for the Jena Facility. Of
this amount approximately $2,000 will be for building expansion and $5,800 for
equipment upgrades and new equipment.
The Company, therefore, has sought additional financing from one or more of
the following sources: (i) issuance of convertible instruments or stock in
private or public offerings; (ii) financing for the Jena Facility through a
combination of German bank loans, German federal and state government grants,
loan guarantees, and equity investments generated in all or part from (i) above;
(iii) exercise of stock Options and Warrants; and (iv) loans from officers,
directors, and principal stockholders of the Company. Funds for such loans to
the Company from officers, directors, and principal stockholders would be
derived, in part, from sales or pledges (to obtain loans) of Common Stock by
such individuals.
The Company believes that its success in raising additional capital is
dependent on investors' beliefs in the Company's technology, its position in the
fiber optics industry, and its strategic business plan. Achieving profitability
is dependent, in part, on raising additional funds to invest in capital
expenditures. In this regard, the Company has received a grant from the German
government of 4,000 Deutsche Marks (DM) (approximately $2,700) and a loan from
the Berliner Bank of 7,700 DM (approximately $5,100). These funds totaling
$7,800, are committed to the upgrade and expansion of the Jena Facility
described above. On November 27, 1996, AMP loaned the Company $3,000, part of
which has been used as collateral for the Berliner Bank Loan. As part of the new
AMP loan, AMP also converted $3,000 of principal plus interest on the existing
$5,000 loan into 3,058,833 shares of Common Stock.
The Company is not relying on the conversion of Warrants and Options to fund
the upgrade and expansion of the Jena Facility; however, if the Warrants and
Options are exercised, the total proceeds that the Company would receive upon
the exercise is approximately $6,242. To the extent that the Warrants and
Options are exercised, the Company intends to use the proceeds from the exercise
of such
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Warrants and Options for working capital purposes, including debt service
(approximately $80 per quarter beginning January 1997 through December 2001).
There are long payment deferral periods on a substantial amount of the Company's
outstanding loans. Under the AMP Note, the remaining $2,000 in principal and
accrued interest are due and payable at maturity in April 2005. Similarly, under
the new $3,000 AMP loan, payments of interest are deferred for the first five
years. Thereafter, accrued and unpaid interest is payable quarterly. The
principal and any remaining accrued interest is payable at maturity on November
27, 2006. As for the German loan, principal is also due and payable at the tenth
anniversary of closing; however, interest at 6.25% is due and payable quarterly.
The Company does not foresee any inability to meet its current debt
requirements.
The Company currently has a backlog of orders aggregating approximately
$18,600 which is scheduled to be shipped in 1997 and 1998. The backlog at
December 31, 1995 was approximately $4,800. Additionally, the Company has
entered into, or is negotiating, long-term supply agreements which, in the
opinion of management, could generate sales of up to approximately $251,000 in
the aggregate, although there can be no assurance. These include supply
agreements with MEFC, AMP, FOI and others. Pursuant to the supply agreement with
AMP, which provides for an initial term of five years and for an additional five
year term at AMP's option, AMP has undertaken to purchase at least 50% of its
global fiber requirements from the Company. The Company estimates that this
could amount to over $60,000 in sales over the five year period, significantly
improving the Company's cash flow and profits, although there can be no
assurance that actual sales will reach this amount.
The Company's ALT subsidiary is in a dispute with Norscan, a Canadian
company, with respect to Norscan selling FOCMS products, in competition with ALT
products and in violation of a non-competition agreement between ALT and
Norscan. Although no litigation has commenced in this dispute, ALT would be the
claimant in any lawsuit brought in connection with this matter. Failure by ALT
and Norscan to resolve this dispute could have a material adverse affect on the
future sales of ALT Products. ALT sales for the year ended December 31, 1996
were $189. The possible impact on sales of ALT resulting from failure to resolve
the Norscan dispute is not determinable.
Year Ended December 31, 1995
At December 31, 1995, the Company had cash of $833 and non-cash current
assets of $2,305. During 1995, the Company used $3,232 for operating activities.
This cash was used principally to fund the loss of $4,009, adjusted for
depreciation and amortization of $747. Accounts payable and accrued expenses
increased $1,652 and receivables and inventory increased $1,675, due to the
increases in sales, production and material costs and other operating costs.
Cash used in investing activities was $1,647 principally for the purchase of
equipment ($1,817). In addition, the Company acquired ALT in a non-cash
transaction for Common Stock valued at $7,000.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
During the year the Company received $5,454 from financing activities,
principally through the sale of common stock ($500) and the issuance of the AMP
Note for $5,000. These funds were used to finance operations and acquire
equipment as noted above.
Year Ended December 31, 1994
At December 31, 1994, the Company had cash of $258 and non-cash current
assets of $453. During the year, the Company used $831 in operating activities
principally from the loss for the year of $1,625, adjusted for depreciation and
amortization of $289 and reduced by an increase in accounts payable.
Cash used in investing activities was $597, principally due to the purchase
of equipment ($593). The Company also acquired equipment from SICO of $2,996 in
exchange for shares valued at $2,420 and a capital lease agreement of $576.
Cash from financing activities was $1,284 resulting primarily from the sale
of Common Stock ($1,549), issuance of a note ($200) and repurchase of stock
($500). The proceeds from the sale of stock were used to fund operating costs
and purchase equipment as noted above.
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. The Company intends to
raise additional funds for ALT, however, there is no assurance that such funds
will be available. ALT has received an order from Pakistan Telecom in the amount
of $152, for a test installation of the fiber optic cable monitoring system. If
the test installation is successful, the Company anticipates that Pakistan
Telecom will place an order for additional installations estimated to be valued
at approximately $1,660, although there can be no assurance that such sales will
be realized. This increase in revenues, if realized, would provide sufficient
cash flow to sustain operations and improve the profitability of ALT's
operations.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Reports .........................................................................27-28
Consolidated Balance Sheets at December 31, 1996 and 1995 ................................................29
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 ....................................................................30
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 ..............................................................31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ....................................................................34
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1996, 1995 and 1994 ....................................................................35
26
INDEPENDENT AUDITORS' REPORT
The Boards of Directors and Stockholders
FiberCore, Inc.
Sturbridge, Massachusetts
We have audited the accompanying consolidated balance sheet of FiberCore, Inc.
and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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, 1996, and the results of their operations and cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 20, 1997
27
LETTERHEAD OF MOTTLE MCGRATH BRANEY & FLYNN, P.C.
INDEPENDENT AUDITORS' REPORT
The Boards of Directors and Stockholders
FiberCore, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of FiberCore, Inc.
and Subsidiaries as of December 31, 1995 and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FiberCore, Inc. and
Subsidiaries as of December 31, 1995 and the results of their operations and
their cash flows for the years ended December 31, 1995 and 1994 in conformity
with generally accepted accounting principles.
/s/ MOTTLE McGRATH BRANEY & FLYNN, P.C.
MOTTLE McGRATH BRANEY & FLYNN, P.C.
Worcester, Massachusetts
July 29, 1996
28
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands except share data) 1996 1995
---- ----
ASSETS
Current assets:
Cash ........................................................................... $ 190 $ 833
Accounts receivable, less allowance for doubtful accounts of $36 in 1996 and
$39 in 1995 .................................................................. 675 583
Other receivables .............................................................. 418 286
Inventories .................................................................... 1,921 1,407
Prepaid and other current assets ............................................... 18 29
-------- --------
Total current assets ....................................................... 3,222 3,138
-------- --------
Property and equipment .............................................................. 5,244 5,044
Less accumulated depreciation ....................................................... 1,473 925
-------- --------
Property - net ............................................................. 3,771 4,119
-------- --------
Other assets:
Restricted cash ................................................................ 2,498 --
Patents, less accumulated amortization of $861 in 1996 and $203 in 1995 ........ 6,648 7,400
Investments in joint ventures .................................................. 1,375 54
Other .......................................................................... 128 72
-------- --------
Total other assets ......................................................... 10,649 7,526
-------- --------
Total assets ............................................................... $ 17,642 $ 14,783
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable .................................................................. $ 200 $ 609
Accounts payable ............................................................... 1,652 1,811
Accrued expenses ............................................................... 1,220 995
-------- --------
Total current liabilities .................................................. 3,072 3,415
Long-term debt ...................................................................... 4,545 5,000
-------- --------
Total liabilities .......................................................... 7,617 8,415
-------- --------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.001 par value, authorized 10,000,000 shares; no shares issued
and outstanding ................................................................ -- --
Common stock, $.001 par value, authorized 100,000,000 shares; shares issued and
outstanding: 35,233,250 in 1996 and 30,506,963 in 1995 ......................... 35 30
Paid in capital ................................................................ 19,545 11,761
Accumulated deficit ............................................................ (9,771) (5,638)
Accumulated translation adjustment ............................................. 216 215
-------- --------
Total stockholders' equity ................................................. 10,025 6,368
-------- --------
Total liabilities and stockholders' equity ................................. $ 17,642 $ 14,783
======== ========
See accompanying notes to consolidated financial statements.
29
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except share data)
1996 1995 1994
---- ---- ----
Net sales .................................... $ 8,096 $ 3,094 $ 231
Cost of sales ................................ 7,200 4,509 1,064
------------ ------------ ------------
Gross profit (loss) ..................... 896 (1,415) (833)
Operating expenses:
Selling, general and administrative expenses 4,324 2,100 700
Research and development ................... 420 75 90
------------ ------------ ------------
Loss from operations .................... (3,848) (3,590) (1,623)
Interest income .............................. 6 148 15
Interest expense ............................. (393) (516) (22)
Other income (expense) ....................... 102 (51) 5
------------ ------------ ------------
Net loss ................................ $ (4,133) $ (4,009) $ (1,625)
============ ============ ============
Loss per share of common stock ............... $ (.13) $ (.15) $ (.07)
============ ============ ============
Weighted average shares outstanding .......... 31,695,693 26,584,630 22,873,322
============ ============ ============
See accompanying notes to consolidated financial statements.
30
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except share data)
COMMON STOCK ACCUMULATED
$.001 PAR PAID-IN SUBSCRIPTION ACCUMULATED TRANSLATION
SHARES VALUE CAPITAL RECEIVABLE DEFICIT ADJUSTMENT
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 21,309,323 $ 21 $ 703 $ (80) $ (4) $ --
Issuance of stock in exchange
for equipment 2,221,141 2 2,418 -- -- --
Issuance of stock for cash 1,421,714 2 1,547 -- -- --
Proceeds received -- -- -- 80 -- --
Issuance of stock for services 7,390 -- 8 -- -- --
Proceeds from capital contribution -- -- 1 -- -- --
Purchase of treasury stock,
(458,916 shares) -- -- -- -- -- --
Currency translation adjustment -- -- -- -- -- 10
Net loss -- -- -- -- (1,625) --
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 24,959,568 $ 25 $ 4,677 $ -- $ (1,629) $ 10
---------- ---------- ---------- ---------- ---------- ----------
TREASURY
STOCK TOTAL
---------- ----------
Balance, December 31, 1993 $ -- $ 640
Issuance of stock in exchange
for equipment -- 2,420
Issuance of stock for cash -- 1,549
Proceeds received -- 80
Issuance of stock for services -- 8
Proceeds from capital contribution -- 1
Purchase of treasury stock,
(458,916 shares) (500) (500)
Currency translation adjustment -- 10
Net loss -- (1,625)
---------- ----------
Balance, December 31, 1994 $ (500) $ 2,583
---------- ----------
See accompanying notes to consolidated financial statements.
31
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except share data)
COMMON STOCK ACCUMULATED
$.001 PAR PAID-IN SUBSCRIPTION ACCUMULATED TRANSLATION TREASURY
SHARES VALUE CAPITAL RECEIVABLE DEFICIT ADJUSTMENT STOCK TOTAL
----------- ----------- --------- ----------- --------- ----------- ----------- -----------
Balance, December 31, 1994 24,959,568 $ 25 $ 4,677 $ -- $ (1,629) $ 10 $ (500) $ 2,583
Issuance of stock for services 40,434 -- 44 -- -- -- -- 44
Reissuance of treasury
stock as loan incentive -- -- (455) -- -- -- 500 45
Issuance of stock for
acquisition of ALT 8,811,137 9 6,991 -- -- -- -- 7,000
Issuance of stock for
cash 367,131 -- 500 -- -- -- -- 500
Retirement of shares
held by ALT (3,671,307) (4) 4 -- -- -- -- --
Currency translation
adjustment -- -- -- -- -- 205 -- 205
Net loss -- -- -- -- (4,009) -- -- (4,009)
----------- -------- --------- ------------ --------- --------- ------------- ---------
Balance, December 31, 1995 30,506,963 $ 30 $ 11,761 $ -- $ (5,638) $ 215 $ -- $ 6,368
----------- -------- --------- ------------ --------- --------- ------------- ---------
See accompanying notes to consolidated financial statements.
32
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands except share data)
COMMON STOCK ACCUMULATED
$.001 PAR PAID-IN SUBSCRIPTION ACCUMULATED TRANSLATION TREASURY
SHARES VALUE CAPITAL RECEIVABLE DEFICIT ADJUSTMENT STOCK
----------- ---------- ---------- -------- ---------- ---------- ----------
Balance, December 31, 1995 30,506,963 $ 30 $ 11,761 $ -- $ (5,638) $ 215 $ --
Issuance of stock in exchange
for debt and accrued interest 3,312,835 3 4,052 -- -- -- --
Issuance of stock for cash
to Techman International 734,260 1 999 -- -- -- --
Issuance of stock for cash 367,131 1 499 -- -- -- --
Issuance of stock for investment
in joint venture of FOI 312,061 -- 425 -- -- -- --
Compensation cost recognized
on options issued to employees -- -- 846 -- -- -- --
Discount on AMP note from
issuance of warrants -- -- 963 -- -- -- --
Currency translation adjustment -- -- -- -- -- 1 --
Net loss -- -- -- -- (4,133) --
----------- ---------- ---------- -------- ---------- ---------- ----------
Balance, December 31, 1996 35,233,250 $ 35 $ 19,545 $ -- $ (9,771) $ 216 $ --
=========== ========== ========== ======== ========== ========== ==========
TOTAL
----------
Balance, December 31, 1995 $ 6,368
Issuance of stock in exchange
for debt and accrued interest 4,055
Issuance of stock for cash
to Techman International 1,000
Issuance of stock for cash 500
Issuance of stock for investment
in joint venture of FOI 425
Compensation cost recognized
on options issued to employees 846
Discount on AMP note from
issuance of warrants 963
Currency translation adjustment 1
Net loss (4,133)
----------
Balance, December 31, 1996 $ 10,025
==========
See accompanying notes to consolidated financial statements.
33
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
(Dollars in thousands except share data) 1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net loss .................................................................. $(4,133) $(4,009) $(1,625)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 1,226 747 289
Bad debt expense ....................................................... 1 28 --
Compensation cost for stock options .................................... 846 -- --
Other .................................................................. 104 45 --
Changes in assets and liabilities:
Accounts receivable .................................................... (93) (555) (189)
Other receivables ...................................................... (132) 11 (122)
Inventories ............................................................ (514) (1,131) (134)
Prepaid and other current assets ....................................... 11 (20) (3)
Accounts payable ....................................................... (159) 853 866
Accrued expenses ....................................................... 871 799 87
------- ------- -------
Net cash used in operating activities .............................. (1,972) (3,232) (831)
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment ..................................... (1,161) (1,817) (593)
Reimbursement from government grant .................................... 960 -- --
Investments in joint ventures .......................................... (950) (54) --
Other .................................................................. 1 224 (4)
------- ------- -------
Net cash used in investing activities .............................. (1,150) (1,647) (597)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of common stock ..................................... 1,500 500 1,549
Proceeds from long-term debt ........................................... 3,500 5,000 --
Restricted long-term cash deposits ..................................... (2,498) -- --
Proceeds from notes payable ............................................ 200 -- 200
Repayment of notes payable ............................................. (200) (7) --
Purchase of treasury stock ............................................. -- -- (500)
Other .................................................................. (23) (39) 35
------- ------- -------
Net cash provided by financing activities ......................... 2,479 5,454 1,284
------- ------- -------
(Decrease) increase in cash ............................................. (643) 575 (144)
Cash, beginning of year ................................................ 833 258 402
------- ------- -------
Cash, end of year ...................................................... $ 190 $ 833 $ 258
======= ======= =======
Supplemental disclosure:
Cash paid during the year for interest $ 18 $ 183 $ 1
Reduction of property and equipment book value due to cancellation of
obligation under capitalized lease -- 499 --
Equipment acquired in exchange for common stock and capital lease -- -- 2,996
See accompanying notes to consolidated financial statements.
34
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Incorporation and nature of operations
FiberCore, Inc. (the "Company") is involved in the research, development,
production and sales of optical fiber and optical fiber preforms for the
telecommunications industry. FiberCore Glasfaser 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 Incorporated, the predecessor to FiberCore, Inc. was organized under
the laws of the State of Nevada on November 5, 1993. On July 18, 1995, FiberCore
Incorporated merged with Venturecap, Inc., ("Venturecap"), an inactive company
organized in the State of Nevada in 1987. Approximately 24,600,000 shares of
Venturecap common stock were exchanged for all of the outstanding shares of
FiberCore Incorporated. Following the merger Venturecap changed its name to
FiberCore, Inc. The per share merger consideration states that each share of
FiberCore Incorporated stock shall be converted into 3.6713070 shares of
Venturecap stock. The merger was accounted for as a pooling of interests and,
accordingly, the Company's consolidated financial statements have been restated
for all prior periods as if the merger took place at the beginning of such
periods.
(b) Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(c) Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.
35
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(d) 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 $2,498, has been
deposited with this institution as collateral for this loan.
(e) Inventories
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
(f) 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.
In 1996, the Company began receiving grants from the German government to be
used in the expansion of the FCJ facility. All grant proceeds received have been
netted against the cost of the assets acquired.
Property and equipment is depreciated using the straight-line method over the
estimated useful lives of the assets.
(g) Patents
Patents are amortized on a straight-line basis over seventeen years. The Company
evaluates the recoverability of patents from expected future cash flows.
(h) Investments in joint ventures
The Company has a 30% ownership interest in Fiber Optic Industries (Pvt.) Ltd.
("FOI"), which is accounted for using the equity method of accounting.
The Company's 15% ownership interest in Middle East Optical Fiber Cable Co.
("MEFC") is carried at cost.
36
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Dollars in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(i) Fair value of financial instruments
The Company has financial instruments, which consist of cash, short-term
receivables, accounts payable and a note payable, for which their carrying
amounts approximate fair value due to the short maturity of those instruments.
The carrying amount of the investments in joint ventures approximates fair value
as no significant operations have occurred in either joint venture in 1996 and
management believes that the carrying amounts were not impaired at December 31,
1996 and therefore reflect the corresponding fair values.
The principal amount of the long-term debt approximates fair value because the
interest rates on these instruments change with market interest 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.
(k) Income taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". Deferred taxes are
recognized based on the differences between the book and tax basis of assets and
liabilities.
(l) Loss per share of common stock
Primary 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 primary loss per share
since the effect would be anti-dilutive.
37
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(m) 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".
(n) Reclassifications
Certain amounts in the prior year financial statements have been reclassified to
conform to the 1996 presentation.
(2) ACQUISITIONS AND STRATEGIC INVESTMENTS
On September 18, 1995, the Company acquired all the outstanding stock of ALT.
The purchase method of accounting for business combinations was used. The
operating results of ALT have been included in the Company's consolidated
results of operations from the date of acquisition. The acquisition, valued at
approximately $7,000, was made with the issuance of 8,811,137 shares of
restricted common stock of the Company valued at approximately $0.80 per share.
The fair value of assets acquired was approximately $7,700, of which
approximately $7,500 is attributable to patents developed or acquired by ALT
over the years. ALT now operates as a wholly-owned subsidiary of the Company.
The following proforma unaudited consolidated operating results of the Company
for the years ended December 31, 1995 and 1994, assuming the acquisition had
been made as of January 1, 1995 and 1994, are summarized below:
1995 1994
---- ----
Net sales ................................... $ 3,255 $ 707
Net loss ..................................... (4,625) (2,359)
Loss per share............................ $ ( .15) $ ( .08)
38
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(2) ACQUISITIONS AND STRATEGIC INVESTMENTS (continued)
In April 1995, the Board of Directors ratified actions by FiberCore Incorporated
to enter into a joint venture with John Royle & Sons Co. and Middle East
Specialized Cables Company ("MESC") for a period of 15 years to be known as
Middle East Fiber Cables Co. ("MEFC"). As part of the agreement the Company
issued to MESC 734,262 shares of common stock for $1,000, (approximately $1.36
per share). The agreement also provides that MESC will receive 312,061 shares of
common stock and warrants to purchase 550,696 shares upon the completion and
execution of a product supply contract between the Company and MEFC. MESC must
exercise the warrants to purchase shares of the Company's common stock at
approximately $1.63 per share, within a two year period to receive an additional
238,635 shares. The Company invested $500 of the $1,000 purchase price in MEFC
as a capital contribution to the joint venture, as required by the agreement,
and in the process acquired a 15% interest in MEFC. There were no significant
operations which occurred in 1996 for MEFC. MEFC is expected to commence
operations in 1997.
On January 11, 1996, as part of a share purchase agreement with Techman
International Corporation (Techman), a related party, a joint venture was
established between the Company and Techman. The joint venture, FOI, is located
in Pakistan. The Company has a 30% ownership interest in FOI. The Company
acquired its interest in FOI by making a $450 capital contribution to the joint
venture and issuing 312,061 shares of Company common stock to Techman valued at
approximately $1.36 per share, ($425). In addition to the ownership interest,
the Company concluded a long term agreement to supply fiber and preforms to FOI.
FOI was formed in 1996 and had no significant operations in 1996. FOI is
expected to commence operations in 1997.
(3) RECEIVABLES
Activity in the allowance for doubtful accounts consisted of the following for
the years ended December 31:
1996 1995 1994
---- ---- ----
Balance at beginning of period............... $39 $-- $--
Additions charged to expense................. 1 28 --
Additions - Other............................ -- 11 --
Deductions................................... 4 -- --
--- --- ---
Balance at end of period $36 $39 $--
=== === ===
39
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(3) RECEIVABLES (continued)
Other receivables consist of the following at December 31:
1996 1995
---- ----
Value added tax ...................... $181 $189
SICO ................................. -- 69
MEFC ................................. 219 25
Other ................................ 18 3
---- ----
Total ..................... $418 $286
==== ====
The value added tax receivable is comprised principally of advance payments to
the German tax authorities that are to be refunded to FCJ.
(4) INVENTORIES
Inventories consist of the following at December 31:
1996 1995
---- ----
Raw materials ............................ $ 841 $ 736
Work-in-process .......................... 403 17
Finished goods ........................... 677 654
------ ------
Total ............................ $1,921 $1,407
====== ======
40
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars in thousands except share data)
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
ESTIMATED
USEFUL LIVES 1996 1995
------------ ---- ----
Office equipment ................. 2 - 5 years $ 156 $ 109
Machinery and equipment .......... 2 - 12 years 5,068 4,809
Furniture and fixtures ........... 5 - 7 years 18 18
Leasehold improvements ........... 3 - 10 years 7 5
Construction in progress.......... 955 103
------- -------
6,204 5,044
Less grant proceeds received.. (960) --
------- -------
Total............................. $ 5,244 $ 5,044
======= =======
Depreciation on property and equipment charged to expense was $548 in 1996, $523
in 1995 and $254 in 1994.
Included above are grants received from the German government for use by the
Company as part of the expansion of the FCJ facility. The Company received
grants of $960 in 1996 which have been applied against costs incurred by the
Company as part of the expansion of the FCJ facility.
(6) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
1996 1995
---- ----
Accrued interest ............................................... $ 72 $351
Accrued wages, benefits & taxes ................................ 568 323
Accrued legal and audit ........................................ 170 86
Other .......................................................... 410 235
------ ----
Total................................................... $1,220 $995
====== ====
41
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(7) NOTES PAYABLE
Notes payable consist of the following at December 31:
1996 1995
---- ----
Convertible note payable to a director of ALT, interest at 8.5%, with principal
and interest due April 1, 1997, all principal and accrued interest, if any,
convertible into common stock of the Company at approximately $1.36 per share. $200 $ --
Note payable to Connecticut Innovations, Inc., ("CII"). -- 210
Note payable to Connecticut Development Authority, ("CDA"). -- 199
Note payable to Harkerside Trust, interest at 10.5%, payable semi-
annually, due December 6, 1995. -- 200
---- ----
$200 $609
==== ====
The note payable to CII with interest at 8.5% payable monthly, was issued with
detachable stock warrants to purchase shares of common stock of ALT at $1.50 per
share. On July 10, 1996, CII agreed to exchange the balance of the note plus
accrued interest and the warrants for 111,462 shares of the Company.
The note payable to CDA with interest at 12% payable monthly, was issued with
detachable stock warrants to purchase 100,000 shares of common stock of ALT at
$1.50 per share. In August 1996, the Company and CDA agreed to exchange the
balance of the note plus accrued interest and the warrants for 142,540 shares of
the Company.
42
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(8) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1996 1995
------ -----
Convertible note payable to AMP Incorporated ("AMP"), interest at 3-month London
Interbank Offered Rate plus one percent (6.5625% at December 31, 1996),
due April 17, 2005. $2,000 $5,000
Note payable to AMP, interest at prime plus one percent
(9.25% at December 31, 1996), due November 27, 2006. 3,000 --
Discount attributable to warrants issued in conjunction
with the $3,000 note above. (955) --
Notes payable to the spouses of officers of the Company, with interest at prime
plus one percent (9.25% at December
31, 1996), due July 31, 1999. 500 --
------ ------
$4,545 $5,000
====== ======
The AMP notes are collateralized by the Company's patents, patent applications,
licenses, rights and royalties resulting from such patents and the equipment of
FCJ.
In April 1995, FiberCore Incorporated issued to AMP, a floating rate,
collateralized, ten year debenture in the amount of $5,000, due April 17, 2005,
with interest, at an annualized rate adjusted quarterly, equal to the 3-month
London Interbank Offered Rate plus 1%, (6.5625% at December 31, 1996). No
interest is due until the earlier of: AMP conversion of debt to stock, a public
financing by the Company and AMP elects to call the loan, or maturity. AMP has
the option to convert the outstanding loan plus accrued interest into common
stock of the Company at approximately $1.16 per share in years 1-5 or the per
share price provided for in the last third party private equity financing in
years 6-10.
On November 27, 1996, AMP converted $3,000 of principal and $541 of accrued
interest relating to the original $5,000 ten year debenture, into shares of
common stock of the Company at the rate of approximately $1.16 per share
(3,058,833 shares) and entered into a multi-year supply
43
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(8) LONG-TERM DEBT (continued)
agreement. The remaining principal balance remained subject to the terms of the
original debenture agreement. The conversion agreement contains certain
valuation guarantees of the market value of the Company's common stock. Unless
the closing price of the Company's common shares equals or exceeds $1.7364 for
30 consecutive trading days during the first two (2) years following the closing
at a time when AMP was not restricted from selling such shares, then effective
on the second anniversary of the closing, an additional number of shares of
Company common stock shall be issued to AMP and an adjustment shall be made in
the conversion rate for the outstanding balance of the debenture such that the
total number of shares held and convertible by AMP would have a market value
(based on the average closing price of Company's shares during the last thirty
(30) trading days preceding the second anniversary of the closing) equal to
$7,500; provided, however, that not more than 6,478,810 Company shares will be
issued or issuable to AMP as a result of the conversion of the $5,000 debenture
and this guarantee.
In the alternative, the Company may satisfy this guarantee on the second
anniversary of the closing by offering or arranging for its designee to offer to
purchase from AMP the converted shares and the outstanding balance of the
debenture, including accrued interest, for $7,500 reduced prorata for any
intervening sales of shares by AMP. Such offer to purchase shall be for cash
only in immediately available funds.
As an additional part of this agreement, on November 27, 1996, AMP issued to the
Company $3,000 under a ten-year note, secured by equipment owned by the Company,
with interest at prime plus one percent, (9.25% at December 31, 1996). 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 of approximately $5,100 for the planned
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 loan agreement, AMP was issued five year warrants to
acquire 1,382,648 shares of the Company's stock at an exercise price of
approximately $1.45 per share. The Company has guaranteed the market value of
their stock. Unless the closing price of the Company's common shares equals or
exceeds $2.1697 for a period of thirty (30) consecutive trading days during the
first two (2) years following the closing at a time when AMP was not restricted
from selling such shares, then the exercise price of the warrants shall be
adjusted effective as of the second anniversary of the closing by multiplying
$1.4465 per share by a fraction the denominator of which is $2.1697 and the
numerator of which is the average closing price of the shares during the last
thirty (30) trading days preceding the second anniversary of the closing;
provided, however, that the adjusted exercise price shall not be less than
$0.7232 per share (50% of $1.4465). In the alternative, the Company or its
designee may offer to purchase the warrants on the second anniversary of the
closing for an amount equal to $1,000; provided, however, that AMP shall have
the right not to sell, in which case the guarantee will no longer be available.
44
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(8) LONG-TERM DEBT (continued)
In connection with the new AMP loan and the expansion of the FCJ facility, the
Company has been awarded a grant from the German government of approximately
$2,700 and has received a loan from Berliner Bank of approximately $5,100. The
loan from Berliner Bank bears interest at 6.25% per year. Interest is payable
quarterly and the principal is due in a lump sum on September 30, 2006. The loan
is collateralized by a deposit with the bank of $2,498. At December 31, 1996 and
1995 there were no amounts outstanding on this loan.
Scheduled principal maturities of long-term debt are as follows:
1999 ............................................... $ 500
2005................................................ 2,000
2006................................................ 3,000
-------
Total................ $ 5,500
=======
(9) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered into various leases for its office
and production space. The Company's office lease expired on January 31, 1997. On
February 1, 1997, the Company agreed to sub-lease the same office space from the
new lessee, on a month to month basis.
FCJ conducts its operations from premises under an operating lease with SICO
Quarzschmelze Jena GmbH ("SICO"). The lease expires in June, 2000, and contains
various renewal options. The rental payments for the facility is fixed per month
through June 30, 2000. On July 1, 1995, the lease rental was changed from $21 to
$30 per month.
Future minimum lease payments under noncancellable operating leases (with
minimum or remaining lease terms in excess of one year) are as follows:
FISCAL YEAR ENDING DECEMBER 31, AMOUNT
1997 .................................................. $ 374
1998 .................................................. 356
1999 .................................................. 356
2000 .................................................. 178
---------
Total ................ $ 1,264
========
45
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(9) COMMITMENTS AND CONTINGENCIES (continued)
Included in the statements of operations for the years ended December 31, 1996,
1995 and 1994 is rent expense of $456, $413 and $169, respectively.
Substantially, all lease payments are to a related party, SICO.
FCJ is a defendant in a case brought against it by a German firm, COIA GmbH.
COIA is suing FCJ, SICO and SICO's president, Mr. Walter Nadrag, (who was
previously the managing director of FCJ) (the "Defendants") for approximately
$200 (reduced from the earlier claim of $1.5 million), alleging that the
Defendants failed to comply with a sales contract. The Company believes no such
sales contract existed because COIA failed to provide the required end user
certificate which the Company believes was required under United States law and
COIA failed to pay FCJ for previous sales to COIA. The Company is aggressively
defending this action. In addition, the Company is subject to various claims
which arise in the ordinary course of business. The Company believes that these
claims and legal actions, individually or in the aggregate, will not have a
material adverse affect on the financial position or results of operations of
the Company.
ALT is contingently liable for debt of a former subsidiary, Allied Controls,
Inc. ("Allied"), approximating $900, details of which are described below.
ALT and two of its key officers have issued the following guarantees and/or
security interests with respect to certain loans of its spun-off former
subsidiary Allied. In a $250 financing of Allied from the State of Connecticut
acting through the Department of Economic Development ("DED"), dated as of
October 9, 1992, DED received a guarantee and security interest in certain
assets from ALT. In a $250 financing of Allied from the State of Connecticut,
acting through CDA, dated as of June 9, 1992, CDA received a guarantee from two
key officers of ALT.
Under a plan of reorganization, on May 14, 1991, the present Allied acquired the
assets and assumed certain liabilities of a corporation that had filed for
voluntary protection under Chapter 11 of the U.S. Bankruptcy Code. One of the
assumed liabilities was a $650 SBA loan dated May 29, 1989, (originally in the
amount of $1,000) from American National Bank, now Lafayette American National
Bank ("Lafayette"). As a condition of the loan assumption on March 21, 1991,
Lafayette obtained the guarantees of ALT and two key officers of ALT which
guarantees were in addition to the initial loan guarantees Lafayette already had
from other persons. Before commencing proceedings to enforce the guarantees
first against ALT and second against the two key officers, Lafayette must first
take all reasonable steps to realize upon the assets of Allied and the security
provided by the initial guarantors. In the event of a deficiency, Lafayette may
enforce its guarantee against ALT, provided that at all times it simultaneously
and diligently pursues actions to enforce its guarantees from the initial
individual loan guarantors.
46
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(9) COMMITMENTS AND CONTINGENCIES (continued)
Allied is now current with its payments under this loan. In addition, Allied
management has been in discussions with several potential buyers of Allied
which, if successful, would eliminate the aforementioned guarantees that have
been provided by ALT.
(10) STOCKHOLDERS' EQUITY
The following stock options were granted during the years ended December 31,
1996, 1995 and 1994:
Stock options $.003 $0.68 $1.09 $1.16 $1.36 $1.43 $1.45 $1.50 $1.51 $2.00
- ------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Granted in 1994 220,278 -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Balance,
Dec. 31, 1994 220,278 -- -- -- -- -- -- -- -- --
Granted in 1995 36,713 -- 33,042 -- -- -- -- -- -- --
Granted in 1995
in connection
with the ALT
acquisition -- -- -- -- -- 67,188 -- 41,993 178,679 --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Balance,
Dec. 31, 1995 256,991 -- 33,042 -- -- 67,188 -- 41,993 178,679 --
Granted in 1996 18,357 64,248 -- 87,492 55,193 -- 148,709 -- -- 26,542
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Balance,
Dec. 31, 1996 275,348 64,248 33,042 87,492 55,193 67,188 148,709 41,993 178,679 26,542
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Options
exercisable 201,922 64,248 33,042 87,492 55,193 67,188 148,709 41,993 178,679 26,542
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Options vest at rates stated in each employees contract, principally at the
grant date or the anniversary date of the employee's date of hire. The options
have no expiration dates and no options were exercised in 1996, 1995, and 1994.
47
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(10) STOCKHOLDERS' EQUITY (continued)
A summary of the status of the Company's stock options and weighted average
prices are as follows:
1996 1995 1994
-------------------------- ---------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- ----- ------- ----- ------- -----
Balance
beginning of year 577,893 $ .81 220,278 $.003 -- $ --
Granted 400,541 $1.22 357,615 $1.30 220,278 $ .003
------- ------- -------
Balance
end of year 978,434 $ .98 577,893 $ .81 220,278 $ .003
======= ======= =======
Exercisable at
end of year 905,008 $1.06 456,740 $1.02 51,398 $ .003
======= ======= =======
Weighted Weighted
Average Average
Range of Options Exercise Remaining Options Exercise
Price Exercise Outstanding Price Years (1) Exercisable Price
- -------------- ----------- ----- --------- ----------- -----
$.003 275,348 $.003 -- 201,922 $.003
$0.68 - $1.36 239,975 $1.07 -- 239,975 $1.07
$1.43 - $2.00 463,111 $1.51 -- 463,111 $1.51
------- ----- -- ------- -----
$.003 - $2.00 978,434 $0.98 -- 905,008 $1.06
======= =======
(1) Options granted and exercisable have no expiration date.
48
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(10) STOCKHOLDERS' EQUITY (continued)
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. Compensation cost charged to operations was $846 in 1996 related to
options granted at an exercise price less than the market price of the shares at
the dates of the grants. Had compensation cost been determined on the basis of
fair value pursuant to FASB Statement No. 123, net loss and loss per share would
have been as follows:
1996 1995
---- ----
Net loss
- --------
As reported $(4,133) $(4,009)
======== ========
Pro forma $(4,295) $(4,535)
======== ========
Primary loss per share
- ----------------------
As reported $ (.13) $ (.15)
========== =========
Pro forma $ (.14) $ (.17)
========== =========
The weighted average fair value of options granted during 1996 and 1995 was
$2.52 and $1.48 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 2 years
Expected volatility 40 %
49
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(10) STOCKHOLDERS' EQUITY (continued)
The following warrants to purchase common stock have been issued during the
years ended December 31, 1996, 1995, and 1994:
Warrants $0.95 $1.31 $1.36 $1.43 $1.45 $1.63 $1.81
- -------- ----- ----- ----- ----- ----- ----- -----
Issued in 1994 -- 479,565 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balance, Dec. 31, 1994 -- 479,565 -- -- -- -- --
Issued in 1995 -- 118,858 -- -- -- 550,696 --
Issued in 1995 in
connection with the ALT
acquisition 83,985 -- -- 5,511 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Balance
December 31, 1995 83,985 598,423 -- 5,511 -- 550,696 --
Issued in 1996 -- -- 146,850 -- 1,382,648 550,696 230,440
--------- --------- --------- --------- --------- --------- ---------
Balance Dec. 31, 1996 83,985 598,423 146,850 5,511 1,382,648 1,101,392 230,440
========= ========= ========= ========= ========= ========= =========
The weighted average fair value of warrants granted during 1996 and 1995 was
$1.05 and $1.63 based on total warrants of 2,310,634 and 759,050 granted in
1996 and 1995, respectively. The warrants are exercisable from the date of the
grant.
(11) INCOME TAXES
The significant components of the net deferred tax asset as of December 31, 1996
and 1995 were as follows:
1996 1995
---- ----
Net operating loss carry forwards $ 2,738 $ 1,717
Accrued expenses 75 --
Less valuation allowance (2,813) (1,717)
------- -------
Net deferred tax asset $ -- $ --
======= =======
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.
50
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(11) INCOME TAXES (continued)
The Company has net operating loss carry forwards available of approximately
$3,822, at December 31, 1996 for federal and state tax purposes. The majority of
the net operating loss carry forward expires in the years 2009 through 2011.
FCJ has net operating loss carry forwards at December 31, 1996 of approximately
$2,686 for corporation tax and trade income tax purposes available to offset
future taxable income. Under German tax law the losses can be carried forward
indefinitely.
Because future profitability is uncertain, such benefits have been fully
reserved.
In addition, ALT has pre-acquisition net operating loss carry forwards available
of approximately $4,278, at December 31, 1996 for federal and state tax
purposes. The loss carry forwards expire between the years 2001 through 2011.
(12) MAJOR CUSTOMERS AND SUPPLIERS
The major customers listed below accounted for approximately the following
amounts and related percentages of the trade accounts receivable balance of the
Company at December 31:
CUSTOMER 1996 1995
- -------------- ----------------------- --------------------
AMOUNT % AMOUNT %
-------- ---- --------- ----
A $ 167 23 $ 233 40
B 211 30 - -
C 109 15 - -
D - - 134 23
E - - 132 23
51
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(12) MAJOR CUSTOMERS AND SUPPLIERS (continued)
The approximate net product sales by the Company to its major customers and the
related percentages are as follows:
CUSTOMER 1996 1995 1994
- --------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ------- -------- ------ ---------- ------
A $ 4,524 56 $1,855 60 $ 65 28
B 1,217 15 -- -- -- --
D -- -- 319 10 -- --
F -- -- -- -- 166 72
The major supplier listed below accounted for approximately the following amount
and related percentage of the trade accounts payable balance of the Company at
December 31:
Supplier 1996 1995
-------- ----------------------------------------------
AMOUNT % AMOUNT %
--------- -------- --------- -------
A $ 355 22 - -
The approximate net product purchases by the Company from its major supplier and
the related percentage is as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ------- -------- ------ ---------- ------
A $ 2,404 33 - - - -
(13) RELATED PARTY TRANSACTIONS
On August 19, 1995 and amended in January 1996, a capital lease agreement
between SICO and FCJ was revised. It was agreed that SICO would keep 2,221,141
shares, originally held as collateral, of the Company as payment for an
obligation under a capital lease. The outstanding lease obligation, which
amounted to $499 on August 19, 1995, was canceled. As a result, the net book
value of the assets was reduced by $499.
The managing director of FCJ was the controlling shareholder of SICO. In
November 1995, this officer resigned from his position with FCJ.
52
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(13) RELATED PARTY TRANSACTIONS (continued)
Transactions with SICO during the years ended December 31, 1996, 1995 and 1994
consist of the following:
1996 1995 1994
---- ---- ----
Property and equipment under capital lease ......... $ -- $ -- $2,996
Purchase price reduction of property and
equipment under capital lease ........................... -- 499 --
Rent of premises .................................................. 356 315 127
Purchase of services and utilities......................... 611 874 407
Purchase of materials .......................................... -- 351 69
Interest ............................................................. -- 26 --
Other expenses .................................................... -- 22 --
Sales of fibers ...................................................... 176 131 166
In 1994, SICO was FCJ's main supplier of materials and its main customer
accounting for approximately 72% of its sales. In 1996 and 1995, SICO is no
longer a principal customer or the main supplier of materials.
In January 1996, the Company reached an agreement with Techman, whereby Techman
purchased 734,260 shares for $1 million ($1.36 per share). Techman is a related
party as the president and sole shareholder of Techman is a director of the
Company. Upon acceptance of the offer and delivery of the 734,260 shares, the
Company delivered to Techman warrants, granting Techman the right to purchase
550,696 shares of the Company at $1.63 per share exercisable in whole or in part
within a 2 year period. The Company also issued an additional 312,061 shares to
Techman upon all partners of FOI completing all documents required to form FOI,
and FOI and the Company executing an exclusive supply agreement for sales of
preforms to FOI.
The Company maintains a consulting agreement with Techman under which Techman
provides administration, marketing, technical and personnel advisory services to
the Company. The agreement is on a month to month basis at a monthly fee of
$3,000 and is terminable at any time by the Company. For the years ended
December 31, 1996 and 1995, Techman was paid $36,000 and $21,000, respectively,
for such services.
For the years ended December 31, 1996 and 1995, Mr. Phillips, a director, was
paid a consulting fee of $64,950, and $25,875, respectively.
53
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(14) FOREIGN OPERATIONS
The Company has operations in two principal geographic areas: the United States
(Company and ALT) and Germany (FCJ). Following is a summary of information by
area for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
------- ------- -------
Net sales to customers:
United States ............................... $ 196 $ 305 $ --
Germany ..................................... 7,900 2,789 231
------- ------- -------
Net sales as reported in the accompanying
consolidated statements of operations .... $ 8,096 $ 3,094 $ 231
======= ======= =======
Income (loss) from operations:
United States .............................. $(3,893) $(1,757) $ (644)
Germany .................................... 45 (1,833) (979)
------- ------- -------
(3,848) (3,590) (1,623)
Interest income ............................... 6 148 15
Interest expense .............................. (393) (516) (22)
Other income (expense) ........................ 102 (51) 5
------- ------- -------
Net loss as reported in the accompanying
consolidated statements of operations .. $(4,133) $(4,009) $(1,625)
======= ======= =======
Identifiable assets:
United States .............................. $ 8,441 $ 8,488
Germany .................................... 9,201 6,295
------- -------
Total assets as reported in the accompanying
consolidated balance sheets .............. $17,642 $14,783
======== =======
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.
54
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except share data)
(15) SUBSEQUENT EVENTS
On January 14, 1997 the Company was notified by the Securities and Exchange
Commission ("SEC") that the Company's registration statement on Form S-1 and
Form 8-A were declared effective. Accordingly, the Company is subject to the
filing requirements of the Securities Exchange Act of 1934. The registration
statement registered then currently outstanding securities and, therefore, the
Company did not receive any proceeds as a result thereof.
55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Board of Directors of the Company approved the replacement of Mottle
McGrath Braney & Flynn, P. C. (the "Former Accountants") as the Company's
independent outside accountants and the selection of Deloitte & Touche LLP as
the Company's new independent outside accountants.
The report of the Former Accountants on the financial statements of the
Company for the fiscal year ended December 31, 1995 contained no adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. The report on the financial statements of
the Company for the fiscal year ended December 31, 1994 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to audit
scope or accounting principles. The report was qualified as to the Company's
ability to continue as a going concern.
During the Company's fiscal years ended December 31, 1995 and 1994 and
through the date of this report, there were no disagreements with the Former
Accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to their satisfaction would have caused them to make reference
thereto in their report on the financial statements for such years. During the
fiscal years ended December 31, 1995 and 1994 and through the date of this
report, the Former Accountants did not advise the Company with respect to the
matters described in paragraphs (a)(1)(v)(A) through (D) of Item 304 of
Regulation S-K.
The Company engaged Deloitte & Touche LLP as its new independent
accountants effective January 16, 1997. During the two fiscal years preceding
its appointment and through the date hereof, the Company had not consulted with
Deloitte & Touche LLP on items regarding:
(i) The application of accounting principles to a specific completed
or contemplated transaction, or the type of audit opinion that might be rendered
on the Company's financial statements; there was no written or oral advice
provided that was an important factor in reaching a decision as to any
accounting, auditing or financial reporting issue; or
(ii) Any matter that was the subject of a disagreement or a reportable
event required to be identified pursuant to paragraph (a)(1)(v) of Item 304 of
Regulation S-K.
The Company has provided the Former Accountants with a copy of the
foregoing disclosures and has requested in writing that the Former Accountants
furnish it with a letter addressed to the Securities and Exchange Commission
(the "SEC") stating whether or not it agrees with such disclosures. A copy of
such letter is filed as an exhibit to this report in accordance with Item 601 of
Regulation S-K.
56
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, 1996.
NAME AGE POSITION
Dr. Mohd A. Aslami 50 Chairman Of The Board Of Directors, Chief
Executive Officer, President and Director
Charles DeLuca 59 Executive Vice President, Secretary and Director
of the Company and General Manager of the Company's
ALT subsidiary
Michael J. Beecher 52 Chief Financial Officer and Treasurer
Hans F.W. Moeller 67 Managing Director of the Company's FiberCore
Jena subsidiary
Zaid Siddig 59 Director
Steven Phillips 51 Director
Dr. M. Mahmud Awan 45 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 and became President, Chief
Executive Officer and a director of ALT in 1986. Dr. Aslami received a Ph.D. in
chemical engineering from the University of Cincinnati (1974).
Mr. DeLuca is a co-founder, Executive Vice President, Secretary and a
director of the Company. Mr. DeLuca also co-founded and became an Executive Vice
President and director of ALT in 1986. Mr. DeLuca received his MBA in marketing
and business management from St. Johns University in 1974.
Mr. Beecher became Chief Financial Officer of the Company in April 1996. Mr.
Beecher was the Vice President/Treasurer and Chief Financial Officer at the
University of Bridgeport from 1989 through 1995. Mr. Beecher is a Certified
Public Accountant and is a member of the American Institute of Certified Public
Accountants.
Mr. Moeller became Managing Director of FiberCore Jena in the fourth
quarter of 1995 on a part time basis. He served as a director of FiberCore
Incorporated from 1994 through March 1996. As part of a reorganization of the
Company, he resigned his position as a director and agreed to serve as a
director of the Company's newly formed subsidiary InfoGlass. From 1993 to 1994,
he
57
served as Vice Chairman of Schott Corporation ("Schott"), a United States
subsidiary of Schott A.G., a corporation specializing in the production of,
among other things, optical glass. From 1989 to 1993, he served as President of
Schott. Mr. Moeller was a member of the Board of Directors of Schott from 1989
to 1994.
Mr. Siddig became a director of the Company in 1994. He also serves as a
consultant to the Board of Directors of FiberCore Jena. Since 1991, Mr. Siddig
has been active as a private investor and has occasionally served as a
consultant to ALT. Mr. Siddig is the uncle of Dr. Aslami's wife.
Mr. Phillips became a director of the Company in May 1995 and became a
director of ALT in 1989. Since co-founding the Winstar Government Securities
Company L. P., a registered government securities dealer which specializes in
odd-lot securities transactions, Mr. Phillips has served as Chief Financial
Officer, Secretary, and a Director. Since August 1987, Mr. Phillips has served
as a director, Secretary and Chief Financial Officer of James Money Management,
Inc., a private investment company. Since June 1987, Mr. Phillips has served as
director and President of One Financial Group Incorporated, a financial
consulting company of which he is the majority stockholder.
Dr. Awan is the founder and President of Techman International Corporation,
a Massachusetts company engaged in providing technical, sales and management
consulting services to various industrial companies in the United States and
abroad. Dr. Awan has been responsible for the development of several high tech
companies in Massachusetts over the past 10 years and serves on the Board of
Directors of a number of professional organizations as well as these companies.
He is an active investor in the Pakistani market and has maintained
manufacturing and distribution operations in Karachi, Islamabad, and Lahore
since 1982. Dr. Awan has been instrumental in promoting satellite networks for
Pakistan. His company was licensed in 1994 by the Government of Pakistan to
operate a national and international satellite data communication network
throughout Pakistan. Dr. Awan received a Ph.D. in economics from Clark
University (1974).
58
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
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Principal Position Fiscal Salary Bonus Other Restricted Securities
Year $ $ Annual Stock Underlying
Compen- Award(s) Options/
sation $ SARs(#)
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Mohd Aslami 1996 146,500 -- -- -- 60,913
Chairman, Chief Executive 1995 146,500 -- -- -- --
Officer & President 1994 178,729 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Charles DeLuca (1) 1996 98,398 -- -- -- 46,050
Executive Vice President 1995 28,699 -- -- -- --
& Secretary 1994 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Michael J. Beecher (2) 1996 53,708 -- -- -- 64,248
Chief Financial Officer 1995 -- -- -- -- --
& Treasurer 1994 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Hans Moeller (3) 1996 98,596 -- -- -- 55,193
Managing Director, 1995 7,227 -- -- -- 33,042
FiberCore Glasfaser Jena 1994 -- -- -- -- --
GmbH
- ------------------------------------------------------------------------------------------------------------------------------------
(1) From September 18, 1995 with the acquistion of ALT.
(2) Started employment on April 15, 1996
(3) Started employment on October 1, 1995
59
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table lists the options granted to the executive officers during
the year ended December 31, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------------------
Name Number of % of Total Exercise Exp. Value at Potential Potential
----
Securities Options/ or base Date Grant Date realized realized
----
Underlying SARs price Market values at values at
Options/ Granted to ($/Share) Price assumed assumed
---------
SARs Employees 0% ($) annual rates annual
------
Granted in Fiscal of stock rates of
(#) Year price stock price
--- ----
apprec. For apprec.
option term For option
5%($) term
10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
Dr. Mohd Aslami (a, 60,913 25% $1.45 -- $289,337 $230,670 $261,774
b)
- ------------------------------------------------------------------------------------------------------------------------------------
Charles DeLuca (a ,b) 46,050 19% $1.45 -- $218,738 $174,386 $197,900
- ------------------------------------------------------------------------------------------------------------------------------------
Michael Beecher (a, c) 64,248 26% $0.68 -- $152,589 $124,479 $140,882
- ------------------------------------------------------------------------------------------------------------------------------------
Hans Moeller (a, b) 55,193 23% $1.36 -- $262,167 $213,976 $242,159
- ------------------------------------------------------------------------------------------------------------------------------------
Table
a. The term of options used in the potential realized value calculation is two
years
b. The market value per share at the date of grant was $4.75
c. The market value per share at the date of grant was $2.375
60
COMPENSATION OF DIRECTORS
The Company does not maintain any standard compensation arrangements or
plans for directors.
The Company, however, maintains a consulting agreement with Techman under
which Techman provides administration, marketing, technical and personnel
advisory services to the Company. Dr. M. Mahmud Awan, a director of the Company,
is the President and sole shareholder of Techman. The agreement is on a month to
month basis at a monthly fee of $3,000 and is terminable at any time by the
Company. For the year ended December 31, 1996, Techman was paid $36,000 for such
services.
Mr. Phillips, a director of the Company, continues to be a consultant to
ALT and the Company without a formal agreement, but the Company and Mr. Phillips
intend to enter into such an agreement. The Company anticipates that the
agreement will provide that Mr. Phillips will serve as a senior financial
advisor to the Company for a term of one year, renewable at the Company's option
and Mr. Phillips' consent. Mr. Phillips will be paid a retainer of $60,000 per
year payable in monthly installments of $5,000, based on an hourly rate of $185
per hour. The retainer will be adjusted quarterly based on actual hours of
service. For the year ended December 31, 1996, Mr. Phillips' fee was $64,950.
61
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
PRINCIPAL SECURITYHOLDERS
The following table sets forth certain information regarding the ownership
of the Common Stock as of February 28, 1997, 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.
NAME
AND SHARES %
ADDRESS(1) OWNED OWNED
Mohd Aslami........................................... 7,593,329 (2), (11) 17.6
Charles DeLuca........................................ 4,576,276 (3), (11) 10.6
Gregory A. Perry...................................... 3,572,881 (4) 8.3
Steven Phillips....................................... 845,399 (5) 2.0
Zaid Siddig........................................... 591,735 (6) 1.4
M. Mahmud Awan........................................ 2,597,017 (7), (11) 6.0
Hans F.W. Moeller..................................... 88,235 (8) 0.2
AMP Incorporated ..................................... 6,169,154 (9), (11) 14.3
SICO Quarzschemelze Jena GmbH......................... 2,040,891 4.7
Michael J. Beecher.................................... 54,248 (10) 0.1
All directors and executive officers as a group
(7 persons)............................................ 16,346,239 37.9%
- -------------------------------
(1) The addresses of the persons and entities named in this table are as
follows: Messrs. Aslami, DeLuca, Perry, Siddig, Beecher, Moeller, Ramsey,
Awan, and the Ariana Trust c/o FiberCore, Inc., P. O. Box 206, 174 Charlton
Road, Sturbridge, MA 01566; AMP Incorporated, 470 Friendship Road,
Harrisburg, PA 17105; and Sico Quarzchemelze Jena GmbH, Goscheweitzer Str.
20 07745, Jena, Germany.
(2) Includes 157,473 shares and Warrants to purchase 115,220 shares held by Dr.
Aslami's wife, 425,085 shares held by Dr. Aslami's children, 1,998,589 and
608,914 shares held respectively by the Ariana Trust and the Kabul
Foundation, trusts of which Dr. Aslami's wife is trustee and of which Dr.
Aslami's children are beneficiaries, and 284,860 shares held by the Raja
Foundation, a trust of which Dr. Aslami's wife and Mr DeLuca's wife are
trustees and of which various organizations and family members are
beneficiaries. Dr. Aslami disclaims beneficial ownership of all such
shares. Also includes 60,913 currently exercisable options.
62
(3) Includes 1,395,097 shares and Warrants to purchase 115,220 shares held by
Elizabeth DeLuca, Mr. DeLuca's wife, 347,715 shares held by Mr. DeLuca's
children, 608,914 shares held by the Dawn Foundation, a trust of which Mrs.
DeLuca is trustee and of which Mr. DeLuca's children are beneficiaries, and
174,053 shares held by the Raja Foundation, a trust of which Dr. Aslami's
wife and Mr. DeLuca's wife are trustees and of which various organizations
and family members are beneficiaries. Mr. DeLuca disclaims beneficial
ownership of all shares. Also includes 46,050 currently exercisable
options.
(4) Includes 1,358,384 shares held by Beth Perry, Mr. Perry's wife, and 146,852
shares held by Mr. Perry's children. Mr. Perry disclaims beneficial
ownership of all such shares.
(5) Include 41,746 currently exercisable options issued to One Financial Group
Incorporated.
(6) Mr. Siddig is the uncle of Dr. Aslami's wife.
(7) Includes shares issuable to Techman or its designee upon exercise of
Warrants (550,696), and shares (1,000,000) to be issued ratably as
commissions on Company sales up to $200 million.
(8) Includes 88,235 currently exercisable options.
(9) Includes shares into which the AMP Note is convertible at $1.16 per share
and Warrants to purchase 1,382,648 shares.
(10) Includes 54,248 currently exercisable options.
(11) Under the AMP loan, the Company, Mohd A. Aslami, Charles DeLuca, M. Mahmud
Awan and AMP entered into a Voting Agreement pursuant to which they agreed
to vote together to elect a slate of directors to the Board of Directors of
the Company. Such slate of directors initially consists of Mohd A. Aslami,
Charles DeLuca, Hans Moeller, one nominee of AMP and three outside
directors, one of whom is Dr. Awan.
63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEALINGS WITH SICO
Since June 1994, FiberCore Jena has leased its office and manufacturing
facility in Germany from SICO Quarzschmelze Jena GmbH ("SICO"). At February 28,
1997 SICO owned 2,040,891 shares of Common Stock (approximately 4.7% of the
Company). The lease payment is fixed for the initial term of the lease (which
expires on June 30, 2000) at DM 51,376 per month (approximately $33,327). SICO
is also a reseller customer of the Company. In 1995 and 1996, SICO accounted for
approximately 10% and less than 1%, respectively, of Company total sales.
DEALINGS WITH TECHMAN
Since 1995, the Company has maintained a working relationship with Techman,
a technology management company headquartered in Massachusetts since 1982. Dr.
M. Mahmud Awan, the President and sole shareholder of Techman, is a director of
the Company. Techman specializes in sales of fiber optic products and
telecommunication systems.
On November 1, 1995, the Company entered into an International Distributor
Agreement with Techman to market the Company's products worldwide. Techman
agreed to receive customary sales commissions in the form of Warrants
exercisable into 1,000,000 shares of Common Stock to be issued to Techman for
sales of the Company's products up to $200,000,000. Such shares will be issued
upon receipt of the proceeds of any such sales.
Pursuant to the Techman Share Purchase Agreement dated January 11, 1996,
Techman purchased 734,260 shares of Common Stock for $1,000,000 (approximately
$1.36 per share) and was granted Warrants exercisable into 550,696 shares of
Common Stock at $1.63 per share. Additionally, the Company issued an additional
312,061 shares of Common Stock to Techman on (i) the formation of FOI (a joint
venture), in which the Company holds a 30% ownership interest, and (ii) the
completion of a supply agreement between FOI and the Company. Under the
agreement, $450,000 of the $1,000,000 share purchase price was invested by
Techman for the Company in FOI as an additional capital contribution.
FOI, a company incorporated in Islamabad under the laws of Pakistan, was
formed to manufacture optical fiber products in Pakistan, and is in the process
of raising capital to fund the construction of a manufacturing facility. Since
its inception in June 1995, FOI has been funded primarily by Techman. FOI has
contracted with First Capital Securities Corporation Limited to arrange for
listing of FOI on the Karachi Stock Exchange.
The Company maintains a consulting agreement with Techman under which
Techman provides administration, marketing, technical and personnel advisory
services to the Company. The agreement is on a month to month basis at a monthly
fee of $3,000 and is terminable at any time by the Company. For the years ended
December 31, 1996 and 1995, Techman was paid $36,000 and $21,000, respectively,
for such services.
64
DEALINGS WITH AMP
In April 1995, the Company issued the AMP Note, which is a ten year
$5,000,000 convertible note, to AMP, Incorporated, a company listed on the New
York Stock Exchange and a manufacturer of electrical and optical connection
devices, systems and other equipment including fiber optic cable. Principal of
the AMP Note plus accrued interest at a rate of LIBOR plus one percent may be
converted into Common Stock through April 17, 2005. Until April 17, 2000, the
conversion price is $1.16 per share; thereafter the conversion price is equal to
the price per share paid by a third party investor in the private sale of Common
Stock immediately prior to such conversion. The AMP Note is subject to
prepayment on demand in the event the Company is the issuer of securities to be
sold by the Company under an effective registration statement.
In July 1996, AMP entered into a five year supply contract (renewable at
AMP's option for an additional five year period) with the Company whereby the
Company will supply AMP with at least 50% of AMP's future glass optical fiber
needs. On November 27, 1996 the Company obtained an additional $3,000,000 loan
at an interest rate of prime plus 1%, adjustable on the first business day of
each calendar quarter, from AMP to fund the expansion of the Jena Facility, in
exchange for a ten year note and $2,000,000 of common stock purchase warrants
exercisable for up to 1,382,648 shares of Common Stock at $1.45 and expiring on
November 27, 2001. AMP also converted $3,000,000 of principal plus $540,985 of
accrued interest on the AMP Note into 3,058,833 shares of Common Stock. In
connection with the new loan from AMP, the Company agreed to issue AMP
additional shares of Common Stock in the event the Company's share price does
not exceed $2.17 for 30 consecutive trading days by November 27, 1998. The
issuance of additional shares under the new AMP loan would have a dilutive
effect on the Company's other shareholders and could adversely affect the market
price of the Common Stock.
LOANS
On July 31, 1996, the Company borrowed $500,000 under two loan agreements
from the spouses of Dr. Aslami and Mr. DeLuca. The loans are in the amount of
$250,000 each and bear interest at the prime rate plus one percent (currently
9.25%), and are due on July 31, 1999. In conjunction with the loans each lender
received warrants to purchase 115,220 shares of Common Stock at the rate of
$1.81 per share. The warrants expire on July 31, 2001.
CONSULTING
Mr. Phillips, a director of the Company, continues to be a consultant to
ALT and the Company without a formal agreement, but the Company and Mr. Phillips
intend to enter into such an agreement. The Company anticipates that the
agreement will provide that Mr. Phillips will serve as a senior financial
advisor to the Company for a term of one year, renewable at the Company's option
and Mr. Phillips' consent. Mr. Phillips will be paid a retainer of $60,000 per
year payable in monthly installments of $5,000, based on an hourly rate of $185
per hour. The retainer will be adjusted quarterly based on actual hours of
service. For the years ended December 31, 1996 and 1995, Mr. Phillips' fee was
$64,950, and $25,875, respectively.
65
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 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 DeLuca.
+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 DeLuca.
+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 DeLuca.
+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 DeLuca.
+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.
66
+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. dated 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 DeLuca 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.
67
+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 DeLuca 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.
+14.0 Copy of patents purchased from SICO.
+16.0 Letter re: change in certifying accountant.
+22 List of subsidiaries of FiberCore, Inc.
+27 Financial Data Schedule.
(b) Reports on Form 8-K
On January 17, 1997, the Company filed a report on Form 8-K,
reporting the change in the principal accountants.
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIBERCORE, INC.
(Registrant)
By: /s/ Mohd A. Aslami March 26, 1997
--------------------------------------
Dr. Mohd A. Aslami
Chairman, Chief Executive Officer
And President
By: /s/ Michael J. Beecher March 26, 1997
-----------------------------------------
Michael J. Beecher
Chief Financial Officer and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Mohd A. Aslami Chairman of the Board, March 26, 1997
------------------ President
Dr. Mohd A. Aslami Chief Executive Officer,
Director
(Principal Executive Officer)
/s/ Charles DeLuca Executive Vice President March 26, 1997
- ------------------ Secretary and Director
Charles DeLuca
/s/ Steven Phillips Director March 26, 1997
- -------------------
Steven Phillips
/s/ Zaid Siddig Director March 26, 1997
- ---------------
Zaid Siddig
/s/ M. Mahmud Awan Director March 26, 1997
- ------------------
Dr. M. Mahmud Awan
69