UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
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.
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(Exact name of registrant as specified in its charter)
Nevada 87-0445729
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
253 Worcester Road, P.O. Box 180
Charlton, MA 01507
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(Address and Zip Code of principal executive offices)
(508) 248-3900
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
Yes |X| No | |
and
(2) has been subject to such filing requirements for the past 90 days.
Yes |X| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
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The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 28, 2002: $ 53,859,000
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Number of shares outstanding as of March 28, 2002: 61,589,533
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
The registrant's S-3 prospectus filed under the Securities Act of 1933 in
September 2000 is incorporated by reference into Part II hereof.
FIBERCORE, INC.
TABLE OF CONTENTS
PAGE
PART I.......................................................................3
ITEM 1. BUSINESS......................................................3
ITEM 2. PROPERTIES...................................................20
ITEM 3. LEGAL PROCEEDINGS............................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........21
PART II.....................................................................22
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS .........................................22
ITEM 6. SELECTED FINANCIAL DATA......................................23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..........................24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................63
PART III....................................................................64
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........64
ITEM 11. EXECUTIVE COMPENSATION.......................................66
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ..............................................71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............72
PART IV.....................................................................73
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON 8-K...73
SIGNATURES..................................................................74
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PART I
------
ITEM 1. BUSINESS
GENERAL
The Company was incorporated as FiberCore Incorporated in Nevada in November
1993, and commenced commercial operations at that time. In July 1995, we merged
with and into Venturecap, Inc., an inactive Nevada corporation traded on the OTC
Bulletin Board. Following the merger, Venturecap changed its name to FiberCore,
Inc. On November 16, 2000, our common stock became quoted on the Nasdaq SmallCap
Market. Our executive offices are located at 253 Worcester Road, Charlton,
Massachusetts, 01507 and our telephone number is (508) 248-3900. Our World Wide
Web site address is www.FiberCoreUSA.com.
FiberCore, Inc. ("FiberCore" "FCI" or the "Company") is engaged in the business
of developing, manufacturing, and marketing single-mode and multimode optical
fiber and optical fiber preforms for the telecommunications and data
communications industry. Preforms are the basic component from which optical
fiber is drawn and subsequently cabled. The Company's principal operating units
are FiberCore Jena A.G. ("FCJ"), the Company's wholly owned subsidiary in
Germany and Xtal FiberCore Brasil S.A. ("Xtal"), the Company's 90% owned
subsidiary in Campinas, Brazil, which was acquired in June 2000.
FCJ is the Company's first operating entity which is located in Jena, Germany.
FCJ produces both single-mode and multimode fiber and preforms, with an emphasis
on the multimode market. FCJ ships products to customers throughout the world
with its major markets in Europe and North America. The Company has been in the
process of expanding the operations of FCJ with the construction of a new
building 2 km from the original facility. The first phase of this expansion was
completed early in 2002 with all equipment operational by mid-year. A second
phase of expansion, predominantly the acquisition of equipment to complete the
utilization of the new building, will begin in 2002 and should be completed in
2003. When both phases are complete, total capacity will have been increased by
more than 200% from 2001 levels.
Xtal was acquired in June 2000 and is located in Campinas, Brazil. Xtal produces
both single-mode and multimode fiber and single-mode preforms, with an emphasis
on the single-mode market. Xtal ships products worldwide with its primary
markets in the Americas and Asia Pacific regions. The Company has plans to
expand the operations of Xtal, but has delayed most of these plans due to the
slowdown in the single mode market in South America and worldwide, which began
during the second half of 2001.
FiberCore USA, Inc., a newly created wholly owned subsidiary of the Company,
entered into an agreement pursuant to which the Retirement Systems of Alabama
("RSA") would partially finance construction of the Company's first U.S.
manufacturing plant in Auburn, Alabama. This facility will primarily produce
multimode fiber. The Company currently plans for this facility to be operational
early in 2004, although the Company has maintained flexibility in the financing
plans to modify the schedule depending on market conditions.
In March 2001, the Company formed FiberCore Thailand, ("FCT"), a wholly owned
subsidiary. The Company intends to manufacture single-mode fiber and preform for
sale primarily to the Asian/Pacific market in a new facility to be built in
Thailand. The Company has made a deposit of approximately $315,000, including
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$125,000 paid subsequent to December 31, 2001, for land in Thailand, which it
intends to use to build the plant. Discussions are underway with various banks
and potential investors, including the Industrial Development Bank of Thailand,
to finance the project. The Company has been granted certain tax incentives by
the government of Thailand that will run for over 10 years from the start of
operations.
In February 2002, the Company formed FiberCore Africa ("FC Africa"), a joint
venture with the Industrial Development Corp ("IDC") of South Africa and local
investors to build a manufacturing facility for single-mode fiber in Cape Town,
South Africa. This facility is expected to serve the African market, as well as
the Middle East and other export markets when it is operational during the
second half of 2003.
FiberCore Asia Sdn.Bhd. ("FC Asia"), incorporated as a joint venture in Malaysia
and presently 51% owned by the Company with the right to increase the ownership
up to 58%, was established to build and operate a local manufacturing facility
for the production of optical fiber and preform in Malaysia's Multimedia Super
Corridor, with tax-free status for five years extendable to 10 years.
Construction of the Malaysian facility has been delayed due to recent economic
conditions in the area and the other projects the Company is currently engaged
in. The Company believes that the economies in this region will improve, and the
Company, together with its Joint Venture partners, plans to develop a
significant presence in the region at that time.
The Company's other subsidiaries serve fiber-related activities. Through
FiberCore Machinery ("FCM"), a wholly owned subsidiary of FCJ that was formed in
March 2000, the Company designs, manufactures and installs specialty equipment
used to manufacture optical fiber and preforms. Currently, FCM primarily
supplies perform manufacturing equipment to the Company's fiber manufacturing
operations.
In May 2000, FiberCore Quarz GmbH ("FCQ") was formed in Germany as a wholly
owned subsidiary of the Company. In April, 2001, FiberCore Glas GmbH ("FCG") was
formed in Germany as a wholly owned subsidiary of FCJ. FCQ and FCG will be
utilizing the Company's newly patented Plasma Outside Vapor Deposition ("POVD")
technology to complement the outside supply of synthetic silica tubes that
periodically is in short supply. In the first phase of implementation, the
Company will be setting up a pilot production facility in Jena-Maua, Germany. In
July 2001 FCQ purchased an existing building located near the new FCJ plant to
establish the production operation. The facility and equipment are being
financed through a combination of German grants, loans and internal financing.
The plant will begin operations later in 2002. In addition to assuring an
internal source of supply, the POVD technology will reduce the cost of tubes to
the Company, its subsidiaries and affiliates. Initially the technology will be
introduced to the manufacturing of single-mode fiber and, at a later date, to
multimode fiber.
On June 1, 2001, the Company acquired the capital stock of Data Communications
Inc. ("DCI"), a privately-held company located in Hyannis, Massachusetts, to
boost the breadth of the Company's technical capabilities used in support of
bringing optical fiber closer to the end-user. The combined subsidiary was
subsequently renamed DCI FiberCore.
Middle East Fiber Cables is a cable manufacturer, located in Saudi Arabia, in
which the Company holds a 7% interest.
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_______________________________________________________
| |
| FIBERCORE |
____________________________| USA |__________________________
| | | |
| | | |
| |_______________________________________________________| |
| | | | |
| | | | |
| | | | |
| | | | |
_____________________ ___________________________ _____________________ _________________________ _______________
| | | | | | | | | |
| FiberCore Jena* | | Xtal FiberCore Brasil* | | FiberCore Asia** | | FiberCore Thailand** | |FiberCore USA**|
| (100%) | | (90%) | | (51%) | | (100%) | | (100%) |
| Germany | | Brazil | | Malaysia | | Thailand | | USA |
| MM/SM Fiber | | Single-mode | | Single-mode | | Single-Mode | | MM/SM Fiber |
| & Preforms | | Fiber (some MM) | | Fiber & Preform | | Fiber Preform | | |
|_____________________| |___________________________| |_____________________| |_________________________| |_______________|
| | | | |
| | | | |
| | | | |
______|____________________ |________________ | | |
| | | | | |
| | | | | |
______________________ __________________ ____________________ ______________ _____________________ ___________________
| | | | | | | | | | | |
|FiberCore Machinery***| |FibereCore Glas***| |FiberCore Quarz*** | | MEFC*** | | DCI FiberCore*** | |FiberCore Africa**|
| (100%) | | (100%) | | (100%) | | (7%) | | (100%) USA | | (60%) |
| Germany | | Germany | | Germany | | Saudi Arabia | | Network Design, | | South Africa |
| Equipment | |Silica Jacketing &| | Silica Jacketing &| | Opitcal | | Install, Maintain | |Single-mode Fiber |
| | |Deposition Tubes | | Deposition Tubes | | Fiber Cable | |Monitoring Equipment| | |
|______________________| |__________________| ____________________| |______________| |____________________| |__________________|
*Fiber
**Fiber (planned)
***Fiber Related
RECENT DEVELOPMENTS
SALE OF SECURITIES
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The Company has completed the following sales of securities during the past
fiscal year:
1) On January 12, 2001, Crescent International Ltd. ("Crescent") converted
$4,000,000 of convertible debt held as of December 31, 2000 into 1,570,680
shares of Common Stock.
2) On August 20, 2001, the Company replaced existing equity line of credit
with Crescent International, Ltd. (Crescent) under which the Company could
place up to $19,000,000 of common stock with a new line totaling the same
amount. The new agreement replaced the Company's previous agreement with
Crescent, which was a $30,000,000 equity line. The Company drew upon
$11,000,000 of the line in 2000 and used the proceeds toward the purchase
of Xtal FiberCore Brasil, S.A. Pursant to the new agreement the Company
has completed the following transactions:
o a private placement in reliance on Section 4(2), dated August 20,
2001 pursuant to which the Company issued 661,625 shares of Common
Stock to Crescent for $3,000,000 and warrants to purchase up to
39,698 shares of common stock at an exercise price of $4.53 to
Gruntal & Co, LLC ("Gruntal"). The purchase price was at a premium
over the closing price of FiberCore's common stock on August 20,
2001;
o a private placement in reliance on Section 4(2), dated October 31,
2001, pursuant to which the Company issued 446,667 shares of Common
Stock to Crescent for $1,000,000 and warrants to purchase up to
26,800 shares of common stock at an exercise price of $2.2388 per
share to Gruntal.
3) As of January 15, 2002, the Company sold $5,000,000 of 5% convertible
subordinated debentures to a group of investors consisting of Riverview
Group, LLC, Laterman & Co. and Forevergreen Partners. The Company's
agreements with the investors require the Company to register the shares
-5-
of the Company's common stock issuable upon conversion of the debentures
or exercise of warrants sold to the investors in connection with the sale
of the debentures. The Company is in the process of registering the resale
of the shares into which the debentures may be converted and the shares
issuable upon exercise of the described warrants. The debentures mature in
January of 2004, but the Company must redeem $500,000 of the outstanding
debentures each month starting in April 2002, and may do so in shares of
the Company's common stock if certain conditions are met.
The purchase agreement also provides for the Company's issuance to the
investors of an additional $1,000,000 of 5% four year debentures upon the
effectiveness of a registration statement. In addition, the purchase
agreement also allows the investors to purchase, at their option, up to an
additional $3,000,000 of debentures (to the extent that the Company has
not required the investors to purchase convertible subordinated debentures
pursuant to the provision described in the next sentence) at any time
before January 15, 2003, if the average of the volume weighted average
trading prices for the 5 trading days prior to the investors' notice to
the Company requiring the Company to sell them additional debentures is
greater than $2.6973. In addition, at any time before January 15, 2003,
the Company may require the investors to purchase up to $3,000,000 of
convertible subordinated debentures (to the extent the investors have not
purchased convertible debentures at their option pursuant to the provision
described in the preceding sentence) if the average of the volume weighted
average trading prices for the 5 trading days prior to the Company's
providing the investors with notice requiring them to purchase additional
debentures is greater than $4.4505.
The proceeds from the foregoing financing transaction will be used to support
the Company's expansion program including capacity expansion and productivity
initiatives in Germany, initial funding for FiberCore Africa, working capital
and other corporate purposes.
In connection with the Company's transaction with Crescent, the Company filed a
registration statement on Form S-3 (Registration No. 33340406) which became
effective on September 29, 2000. The registration statement provided for
Crescent's resale of the shares of Common Stock previously issued to Crescent,
the shares of Common Stock issuable to Crescent upon exercise of warrants, and
456,886 shares of Common Stock issuable upon exercise of warrants issued to
Gruntal. The registration statement also included a shelf registration of
4,200,000 shares of Common Stock which the Company may sell through one or more
underwritten offerings. As of December 31, 2000, the Company had not sold any
shares under the registration statement.
In January 2001, the Company engaged Merrill Lynch & Co. to act as a financial
advisor in connection with any proposed business combination transaction or
other corporate transactions.
In connection with the Company's transaction with Riverview Group, LLC, Laterman
& Co. and Forevergreen Partners, the Company filed a registration statement on
Form S-3 on February 12, 2002. The registration statement is not yet effective
as of the date of this filing.
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ACQUISITION OF DCI DATA COMMUNICATIONS, INC.
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On June 1, 2001, the Company acquired the capital stock of DCI Data
Communications, Inc., a privately-held company located in Hyannis,
Massachusetts. DCI was merged into FiberCore's Automated Light Technologies
(ALT) subsidiary and the merged entity was subsequently renamed DCI FiberCore,
Inc. ("DCI"). The Company expects DCI to boost the breadth of the Company's
technical capabilities used in support of bringing optical fiber closer to the
end-user. The results of DCI for 2001 were not significant to the results of
operations set forth in the Company's consolidated financial statements.
DCI designs, installs and maintains low cost fiber optic networks, primarily in
the northeast U.S., for local area network applications, such as those used in
hospitals, universities, government and commercial buildings. When combined with
ALT's current product line, which includes early warning detection systems that
monitor and identify faults in fiber optic cables, cable protection devices and
electro-optical talk sets, DCI will have a proprietary base of technologies to
help bring fiber to the end-user.
The purchase price of DCI was approximately $1,100,000 and consisted, almost
exclusively, of the issuance of 252,669 shares of FiberCore common stock.
101,068 of these shares of common stock are held in escrow and are contingently
issuable based on certain conditions. The cost of the acquisition of $1,100,000
exceeds the estimate of the fair value of the net asset acquired by $520,000.
This excess, which has been accounted under purchase accounting as goodwill, is
being amortized over 20 years.
APPOINTMENT OF CHIEF FINANCIAL OFFICER
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On July 27, 2001, the Company announced the promotion of Robert P. Lobban to the
position of Vice President, Chief Financial Officer and Treasurer. Mr. Lobban
replaced Mr. Steven Phillips, the interim Chief Financial Officer since August
1, 2000. Mr. Phillips, a Director of the Company since 1995, resumed his role as
a consultant to the Company.
JOINT VENTURE IN SOUTH AFRICA
- -----------------------------
On February 4, 2002, the Company announced that it entered into a joint venture
with the Industrial Development Corp (IDC) of South Africa, a quasi governmental
agency, and local investors to build a manufacturing facility for single-mode
fiber in Cape Town, South Africa. The joint venture, FC Africa, is a US$28
million (326 million South African Rand) project, consisting of approximately
$17 million in equity and $11 million in loans. For its contribution of
technology and approximately $1.7 million in cash, FiberCore has a 60% equity
interest, with rights to purchase the remaining 40% between 2004 and 2006.
FiberCore will make its investment during the course of the construction of the
facility and the installation of equipment. Several other participants, led by
the IDC of South Africa, will contribute approximately $7 million for a 40%
equity interest in the joint venture. This is a Rand-based transaction so all
U.S. dollar figures are approximate.
To complete the funding of the project, FC Africa closed on an approximately
US$11 million bank facility with a consortium of lenders, comprised of the IDC
of South Africa, PSG Investment Bank Limited and BOE Bank Limited. In addition,
the joint venture is eligible to receive tax and other benefits with an
estimated current value of approximately $18 million, spread over the next few
years.
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Experienced, local senior management and key technical personnel have agreed to
join the FC Africa team. This management team will be supported by existing
FiberCore staff from the United States as well as from its facilities in Germany
and Brazil.
The plant is expected to be operational during the second half of 2003.
FINANCING FOR U.S. PLANT
- ------------------------
The Company has chosen Auburn, Alabama for its first U.S. manufacturing plant,
which will primarily produce multimode fiber.
The operating company, FiberCore USA, Inc., is a wholly owned subsidiary of FCI.
FCI will contribute one third of the $30 million estimated project cost and the
remaining funds will be in the form of a 15-year loan provided by The Retirement
Systems of Alabama ("RSA"). The loan will carry an 8% interest rate with equal
semiannual payments of principal and interest. The plant's property, plant and
equipment will serve as collateral for the loan. Under the terms of the
agreements reached with RSA and the City of Auburn, the funding commitment and
land grant expires on September 30, 2002 unless the Company makes an initial
draw on or before that date. The facility is currently scheduled to be
operational by early 2004.
In addition to the contribution of the site property by the City of Auburn,
valued at approximately $1.1 million FiberCore U.S. will be eligible to receive
tax abatements and credits and other incentives from the city and state over the
next 20 years with an estimated current value in excess of $10 million.
ACQUISITION OF XTAL FIBRAS OPTICAS, S.A.
- ----------------------------------------
On June 20, 2000, the Company, through a wholly owned subsidiary, acquired as of
June 1, 2000, 90% of the capital stock of Xtal Fibras Opticas, S.A., ("Xtal"),
from Algar S.A., ("Algar"), one of the largest private conglomerates in Brazil,
and entered into an agreement to acquire the remaining 10% of the capital stock
(collectively, the "Acquisition"). Xtal's manufacturing facility is located in
Campinas, Brazil and manufactures primarily single-mode optical fiber for sale
mainly in Brazil.
At the closing of the Acquisition, the Company paid Algar $10,000,000 in cash
and issued to Algar a $10,000,000, 6% note, payable on December 31, 2000.
According to the terms of the agreement, the Company was entitled to receive a
$1,000,000 discount if the $10,000,000 note was prepaid by August 31, 2000. On
August 29, 2000, Algar's Chief Operating Officer, on behalf of Algar, agreed to
allow the discount if the remaining $9,000,000 of the note was paid by September
8, 2000. On September 8, 2000 the Company paid $9,000,000, together with
interest, to Algar. Subsequently, Algar disputed the understanding. On December
29, 2000, the Company, in full settlement of the dispute, paid Algar $200,000,
receiving, in effect, an $800,000 rather than a $1,000,000 discount. At the
closing, the Company also issued a $2,500,000, 6% note, payable in two
installments of $1,250,000 each, on September 20, 2001, and on December 20,
2002, respectively. The obligation to repay the $2,500,000 note is contingent on
Xtal's attaining specified profitability targets in 2000 and 2001; the targets
in 2000 and 2001 were achieved. The first contingent loan of $1,250,000 was
repaid as of December 31, 2001. The Company may acquire the remaining 10% of the
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stock upon payment of $2,500,000, plus 6% interest on or before June 20, 2003.
FIBER OPTIC PREFORM MANUFACTURING TECHNOLOGIES
Optical fibers are solid strands of hair-thin, high quality glass, bundled
together in cables, through which information is transmitted via light pulses
from one point to another. At the transmission point, electrical impulses
representing the information are converted into light waves by a laser or light
emitting diode. At the point of reception, the light waves are converted back
into electrical impulses by a photo-detector. Each fiber consists of a central
core of high-purity glass encased in a glass cladding of a lower refractive
index. The light signals are transmitted through the core and the cladding is
designed to reduce signal loss from the fiber to the outside.
Communication by means of light waves guided through glass fibers offers a
number of advantages over conventional means of transmitting information through
metallic conductors. Glass fibers carry significantly more information
(bandwidth) than metallic conductors but, unlike metallic conductors, are not
subject to electromagnetic or radio frequency interference. Signals of equal
strength can be transmitted over much longer distances through optical fibers
than through metallic conductors and require the use of fewer repeaters (devices
which strengthen a signal). Further, fiber-optic cables, which typically
consists of numerous optical fibers encased in one or more plastic sheaths, are
substantially smaller and lighter than metallic conductor cables of the same
capacity, so they can be less expensive and more easily installed, particularly
in limited conduit or duct spaces.
There are two basic types of communication optical fibers: multimode fiber and
single-mode fiber. Multimode fiber has a larger core (the area where the light
travels) than single-mode fiber, has less information carrying capacity
(bandwidth), and is more expensive, but it is easier to use. It is generally
used over relatively short distances in wiring buildings, groups of buildings as
well as campus networks. The electronics and the connectors required to work
with multimode fiber are less costly than the electronics required for
single-mode fiber. For example, the light source for multimode fiber can be
light emitting diodes as well as recently introduced low cost VCSEL (vertical
cavity, surface emitting lasers) while single-mode fiber requires more costly
laser light sources. Single-mode fiber is used in long-distance trunk lines
(cables between cities), fiber-to-the-curb (cable from a central office to the
curb in front of an office building or home) and fiber-to-the home applications.
The three basic technologies widely used to manufacture multimode and
single-mode optical fiber are:
1. Outside Vapor Deposition ("OVD").
2. Inside Vapor Deposition ("IVD"), which is also known as Modified Chemical
Vapor Deposition ("MCVD"). Due to its flexibility, relative ease of
operation and relatively lower capital investment this process is the most
widely used around the world by independent manufacturers.
3. Axial Vapor Deposition ("VAD"), also known as the "Japanese process".
-9-
The raw material (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 range from a few to over 80 millimeters in diameter and one to several
meters in length. From one such preform many thousands of meters of optical
fiber can be drawn. 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 multimode and single-mode preforms and fiber, but
does not manufacture optical fiber cable.
The Company's patented technology can be best described as a "rod-and-tube"
process, or as a hybrid of the OVD, MCVD, AVD, and the Company's latest POVD
(Plasma Outside Vapor Deposition) processes. The Company's process takes
advantage of available high quality doped (adding other glass materials, such as
germanium dioxide to the silica glass) and undoped fused silica rods and tubes
during the manufacturing process to produce more efficiently optical fiber
preform and fiber.
DCI FIBERCORE PRODUCTS
- ----------------------
DCI FiberCore was created through the acquisition of DCI in June, 2001. DCI was
merged into the Company's ALT subsidiary and the combined entity was re-named
DCI FiberCore, Inc. DCI FiberCore designs, installs and maintains low cost
optical fiber networks primarily in the Northeast U.S., for local area network
applications, such as those used in hospitals, universities, government and
commercial buildings. DCI has also begun diversifying sales activities in North
America, South America, Europe and the Middle East. Some of these projects
include a new FTTH (fiber-to-the-home) project in Brazil and design and
installation of an optical fiber network at the Company's new facility in
Germany.
DCI's current product line of components consists of the following:
Fiber Optic Cable Monitoring Systems ("FOCMS") facilitate the continuous
monitoring of fiber optic and copper cables. The FOCMS consist of sensors housed
in a protective cover placed at cable splice points and connected to a central
monitoring system. DCI FiberCore holds two United States patents covering this
technology.
The Company's management believes there is limited or no direct competition for
its FOCMS product line except for Norscan Instruments, Ltd ("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.
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.
-10-
Cable Protection Devices and Talk Sets: Protection devices are installed at
cable splice joints prior to the cables entering a building to protect against
hazardous electrical currents that could otherwise be carried by metal sheaths
encasing optical fibers. Field personnel use electro-optical talk sets to
communicate over optical fiber, twisted pair-cable (regular telephone cable),
and metal sheaths encasing optical fibers and copper cables.
Numerous companies manufacture cable protection devices. The Company believes,
however, that it has the only product listed by Underwriters Laboratories, an
internationally recognized certifying organization.
While other companies manufacture field talk sets that enable personnel to
communicate by 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.
When combined with the current product line of components, the acquired DCI
business will have a proprietary base of technologies to help bring fiber to the
end user.
RESEARCH AND DEVELOPMENT
In 1997 and 1998, the Company filed two patents for a production process that
the Company believes will substantially reduce the Company's manufacturing cost
of optical fiber and preforms. In mid-1999, the Company installed the first
machine using this new process in Jena, Germany for research and development.
Based on encouraging preliminary results, the Company subsequently built two
new, next generation machines utilizing this process in 2001. The Company plans
to start up a pilot production plant with 6 additional machines in 2002 at FCQ's
new facility in Jena-Maua, Germany. Additional equipment will be installed in
the future, based on operating results from the pilot plant. The 1997 patent
filing for POVD was issued by the U.S. patent office in July of 2001 with USP
number 6,253,580. The Company has filed the corresponding patent applications in
many foreign countries through the Patent Cooperation Treaty (PCT) and expects
that counterpart filings will be issued in the near future, while the same POVD
patent has been issued in South Africa already.
The Company conducts research and development ("R&D") activities primarily at
its manufacturing facilities. The Company's research and development activities
are designed to improve the production process of fiber and preforms with
special emphasis on cost reduction and the development of new processes and
products. R&D efforts relative to process improvement and product cost reduction
have taken a higher level of priority due to the recent slowdown in the
single-mode market. Some of the other development programs consist of:
1) Metropolitan Area Network fibers that are more suitable for shorter
distances such as Internet access, Feeder Loop (also known as
"Metropolitan Area Network"), Fiber to the Curb and Fiber to the Home
applications.
2) POVD process enhancements to manufacture cladding material for optical
fiber more economically and to increase production rate of both
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single-mode and multimode preform relative to other competing
technologies, generating significant savings in production costs. In March
2001, the Company filed another patent application that resulted from the
continuing POVD development efforts. Two more patent disclosures were
prepared and they are currently under review and preparation for filing
the applications. We further expect to apply and ultimately receive
several additional patents, as we continue the development of this
process.
3) Single-mode Fiber for Undersea Applications: special dispersion
compensating fiber pairs that will be utilized in long-distance underwater
networks.
In FY 2001, the Company introduced the following new products and enhanced
versions of early products as a result of past R&D activities:
1) HighPower - Small Core (HPSC) Fiber: provides high power transmission in
the near-UV and visible range. This fiber is suitable for Laser TV, sensor
and medical applications.
2) Photosensitive Optical Fiber (PSFP): used primarily for Fiber Bragg
Grating (FBG) fabrication. FBGs have quickly established themselves as one
of the key enabling technologies behind the 'DWDM (Dense Wave Division
Multiplexing) Revolution'. They can be used to reflect, filter or disperse
light within an optical fiber. FBGs can also be used in the fabrication of
optical strain and temperature sensors, with quasi-distributed
measurements possible using gratings written sequentially into a
continuous length of fiber. DWDM allows more information to be sent on a
single fiber.
3) High Performance Multimode Fibers for Gigabit and 10 Gigabit Ethernet
Applications.
4) Special Multimode Fibers: developed for use in new small form-factor
components.
5) Special Single-mode Fibers: fibers with modified dispersion, low or high
OH (water) content, special mode fields and cut-off wavelengths.
6) New Coatings: specialty and polyimide coatings for high temperature,
military and sensor applications.
7) Improved radiation resistant fiber and coatings for military applications.
8) Specialty preforms.
The Company's R&D expenditures have increased by 50% during 2001 from the prior
year and 102% during 2000 from the prior year. Such expenditures amounted to
$2,189,000, $1,459,000 and $722,000 for the fiscal years ended December 31,
2001, 2000 and 1999, respectively. Twenty-six (26) of the Company's employees
devote substantially all of their time to research and development. In addition,
the Company has contracts with several individuals who are involved in contract
engineering and/or development work.
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SALES AND MARKETING
MARKETING STRATEGY
- ------------------
To capitalize on the long-term continued growth in fiber demand, the Company's
sales and marketing strategy has been to increase market penetration through
developing long-term, strategic relationship supply contracts for both preform
and fiber products as rapidly as practical, expanding the Company's global sales
and marketing programs, and emphasizing the performance and cost advantages of
the Company's patented technologies. Consistent with this strategy, and with the
downturn in demand for single-mode fiber in North America and Europe starting in
July of 2001, caused by a sharp reduction in capital spending coupled with an
overcapacity of installed fiber, the Company increased sales and marketing
efforts for single-mode fiber and preform. These efforts have been focused on
establishing strategic alliances in developing countries such as China where
management believes the demand is growing more rapidly than in Europe and the
Americas. However, prices in China have also been weakening, as the large fiber
manufacturers, including those from Japan and Korea reduce inventories, amidst a
falling Japanese Yen, and there have been some recent indications that demand
may be softening. Multimode fiber that was initially marketed in Europe and the
Americas, is now also being marketed and sold into emerging countries such as
China and Korea. Unlike single-mode, the demand for the Company's multimode
products was not significantly affected in 2001 due to the economic downturn.
Management believes the telecommunications infrastructure of developing
countries is in the early stages of evolution and competition is not well
established. In the past, developing countries would typically purchase older,
previously deployed communications technology and equipment. However, the lack
of a copper cable infrastructure, the desire to become more technologically
advanced, and the rapid growth in cellular communication and electronic commerce
have driven most developing countries to choose fiber rather than copper to
develop a sophisticated communications network. These countries must first
install a fiber optic infrastructure of trunk and feeder lines followed by
fiber, copper or wireless to the subscriber loop. The Company is initially
targeting the large fiber optic cable manufacturing companies in Asia, the
Middle East, the Pacific Rim, and certain European and Eastern European markets.
Ten employees plus several strategically located agencies devote substantially
all of their time to sales and marketing, covering several regions throughout
the world, including the United States, South America, Western and Eastern
Europe, Asia Pacific, the Middle East and Africa. In certain areas of these
regions, independent sales representatives assist in the sales and marketing
efforts.
STRATEGIC RELATIONSHIPS
- -----------------------
The Company continues to increase market penetration in optical fiber markets
through strategic alliances and/or joint ventures. The Company has several
strategic customer relationships and has established two joint ventures. In
addition, discussions are presently underway with potential foreign and domestic
investors, and joint venture partners, including cable manufacturers, to build
plants for producing optical fiber and optical fiber preform that would supply
existing or planned fiber optic cable plants.
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These relationships are being structured for the Company to provide the preforms
and/or fiber and the related technology requirements, and the other partner to
provide the financing, operating, and local marketing expertise. Using this
approach, it may be possible for the Company to more rapidly obtain market share
with a relatively small capital investment.
EXPANSION
- ---------
The Company anticipates that product demand will continue to be generated from
its strategic alliances, as well as from independent manufacturers of fiber
optic cable. The Company intends to capitalize on the expected long-term growth
of the fiber optics industry by constructing a number of facilities to produce
optical fiber and optical fiber preforms. The Company plans to use a
well-balanced, phased-in approach for establishment of these facilities.
In response to customer demand for the Company's fiber, the Company has begun
implementing its capacity expansion program. A second, larger facility in Jena,
Germany has completed construction and was officially opened February 14, 2002.
This new facility will improve manufacturing efficiency, increase the Company's
competitiveness in the marketplace, and will more than double the capacity of
the original FCJ plant during the first phase of the project. The Company has
received financing commitments for the second phase of the project that will
allow FCJ to complete furnishing the new facility with additional equipment that
will further increase capacity.
The Company's Brazilian subsidiary, Xtal, has a current capacity of over
1,000,000 kms of single-mode fiber per year. With the integration of FiberCore
and Xtal technologies and some additional investment, this capacity is expected
to more than double within the next two years. The technology integration has
already had an effect, increasing Xtal's capacity from 500,000 kms in 1999. The
plant also has available excess building space as well as land for new
construction, which will allow the Company to add auxiliary processing equipment
to further accelerate capacity increases. In the longer term, the Company is
planning on new facilities in South Africa, United States and Asia.
COMPETITION
The Company is the only "pure" fiber supplier in the Western Hemisphere and
Europe. With Corning, OFS (formerly Lucent) and Alcatel all involved in
manufacturing cable and have limited (fiber) supply, independent cablers have
turned to FiberCore for fiber, which has altered the competitive environment.
Due to this high demand for the Company's fiber and to increase market share,
the Company has concentrated on manufacturing and selling fiber rather than
preform. During 2000, the Company began increasing its fiber manufacturing
capability at FiberCore Jena in Germany, and in June 2000 acquired Xtal in
Brazil. In addition, the Company is increasing capacity through the new facility
in Jena and will be increasing capacity in Brazil through an equipment and
facilities expansion. In the second half of 2001 and into 2002, the major fiber
producers, such as Corning and Japanese and Korean producers, who normally use
most of their production to supply their own cabling facilities and do not
normally compete directly with the Company, have entered into the independent
market in a stronger way due to the slowdown in the single-mode market. This has
contributed to lower prices in the fiber market and making contracts with new
customers more competitive.
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FIBER
- -----
The competition in multimode fiber products is limited to a few manufacturers in
North America and Europe. They include Corning, Inc., OFS (formerly Lucent
Technologies), Alcatel, and Plasma Optical Fiber. Management believes that
Corning, Inc., OFS, and Alcatel generally supply the majority of their
production to their own cabling facilities and/or joint venture partners.
Therefore, in the US and Europe, multimode fiber will be the Company's primary
product, due to the Company's unique technological and cost advantage, coupled
with the fact that the other three large U.S. producers do not focus on the
multimode fiber as their primary business. Furthermore, FiberCore plans to offer
several types of multimode fibers for specific applications and performance
advantages. These include different glass composition for radiation resistant
fiber for Government applications, high performance multimode fiber for emerging
network protocols, such as 1 and 10 Gigabit Ethernet, and special coatings for
customer specific applications. Additionally, because of manufacturing
flexibility, the Company is positioned to respond quickly to special customer
requirements and applications.
The competition in the single-mode fiber market is much more extensive than in
the preform market or the multimode fiber market. Most of the competition for
fiber comes from Corning, Inc. and OFS in North America and Europe and from
Corning, Furukawa and Sumitomo in Asia. Competition in the fiber market was
primarily based on availability and quality and during the last global shortage
enabled the industry to raise prices after many years of falling prices. The
recent downturn in the economy that affected global demand for single-mode fiber
has also once again driven pricing to record low levels caused primarily by a
number of large producers trying to deplete high levels of inventory. The
Company believes that single-mode pricing will start to increase again in the
second half of 2002 or early 2003 along with increased and growing demand. In
the past, with some exceptions, the Company's fiber has been generally priced at
comparable levels to fiber manufactured by the larger producers. Overall,
changes in both product and manufacturing have enabled the Company to keep pace
with global pricing trends and, if required, compete below market levels. The
Company began actively marketing its new line of high performance products to
support emerging protocols, as well as our ValuGrade and EconoGrade line of
products, which have excellent price/performance characteristics.
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. The largest competitor in this product is Shin Etsu, a
Japanese company. In addition, Alcatel supplies limited quantities of
single-mode preform.
The predominant practice of most fiber manufacturers is to make fiber optic
preforms only for their internal use and not to sell preforms to other
fiber-optic manufacturers. Management believes these large companies will not
enter the preform market because of the built-in inherent disincentive in
selling preforms; they have already invested heavily in plant, equipment and
technology to convert preforms into fiber and/or cable, and by selling preforms
they would be giving up value-added margins. The Company's customers are not
vertically integrated and require preforms that are in limited supply. This is
particularly true in Asia where the Company has made significant strides in
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marketing its preforms to many of the newly established cable companies set up
to take advantage of the significant growth expected over the next 5 to 10
years.
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.
CUSTOMERS REPRESENTING OVER 10% OF SALES
- ----------------------------------------
For 2001, one customer exceeded the 10% level of overall sales. Cabelte Cabos
Electricos S/A represented 19% of the Company's sales in 2001 and 11% in 2000.
In 2000, Furukawa Industrial S/A was the only other company that exceeded the
10% level with sales to them totaling 11% of all sales. In 1999, 4 companies
exceeded that level - Leone AG (24%), Pinnacl (21%), Siemens AG (10%), and
Optical Cable Corp (10%).
The Company is seeking to decrease its dependency on any one customer by
expanding its presence in more markets and adding new customers each year. In
previous years, the loss of any of the largest customers (in percentage of
sales) would have had a material adverse effect on the Company. The broadening
of the Company's customer base coupled with longer-term contracts and agreements
presents less risk in the event that any of the largest customers decide to
cancel contracts or orders. However, the loss of business in the second half of
2001 from our largest customer, when combined with the overall market slowdown,
particularly in South America, had a significant negative impact on our business
during that period and was the major contributor to the change from a net profit
of $6 million in the first half of 2001 to a net loss of $5.5 million in the
second half of the year.
BACKLOG, SALES AND ADVERTISING
At December 31, 2001, the Company had a backlog of orders approximating $292
million ($190 million at December 31, 2000), of which approximately $48 million
is currently scheduled for 2002 shipments. This backlog represents a 54%
increase over the backlog in the previous year. This number may change as a
result of re-pricing mechanisms in the Company's contracts and potential
re-schedules due to changing business conditions. All backlog numbers are
calculated based on pricing levels in effect as of the date indicated. The
backlog does not include any orders taken or anticipated in 2002. The increase
in the order backlog reflects the strong market for fiber during the first half
of 2001, which resulted in the Company booking a significant number of
multi-year contracts, as well as the Company's position as the only "pure" fiber
supplier in the Western Hemisphere and Europe. The Company also had additional
bookings in the second half of 2001 as it added new business in the Asia Pacific
region. However, these bookings were more than offset by the shipments during
the period and the re-pricing of existing backlog under the periodic price
setting structure of most of the Company's long-term contracts with customers.
The Company also experienced a re-scheduling from many of its customers,
particularly in the South American market, which had the effect of pushing out
the planned delivery schedule of the backlog. However, during this period the
Company has not experienced any cancellations of orders or contracts to date.
-16-
During 2001, seventeen of the Company's employees were engaged in sales
activities, five in Europe, two in North America, eight in South America, and
two in Asia, the Middle East and Africa along with several agencies located
within Asia. Assisted by local representatives, management intends to establish
strategic relationships with key managers of local CATV, telephone, and cable
companies. In addition, other management executives are engaged in negotiating
long-term supply agreements with current and potential customers.
PATENTS
In order to be competitive in the hi-tech industry, companies invest significant
resources in research and development. To protect these valuable intellectual
properties, companies file patent applications. The Company is also heavily
invested and highly dependent on its patents. The Company's long-term strategy
includes becoming a low-cost producer of fiber optic preforms and optical fiber
to independent manufacturers of fiber optic cable. To do this, the Company must
continually improve its manufacturing processes at its facilities by
implementing the Company's patented technologies, by developing new techniques
that lower production costs, and by offering new and competitive products. With
these patents, manufacturing efficiencies are increased, thereby reducing
manufacturing cost and improving overall profitability. The Company is also able
to expand its business and reduce the need for cash financing by leveraging the
Company's intellectual property. For example, in the South African joint
venture, the Company contributed the value of its technology in return for a 50%
interest in the joint venture while contributing cash for an additional 10%
interest. Similarly, because of increases in manufacturing efficiency provided
by the Company's patented technology, the Company can increase capacity with
less equipment than otherwise needed. By capitalizing on its technology, in this
manner, the Company reduced its cash requirements and the likelihood of
additional shareholder dilution. The Company plans to use this financing
technique in future transactions when and as appropriate. The Company's patents
also help protect the Company from competition by preventing others from using
the technology covered by the patent. In 1997 and 1998, the Company filed two
patent applications in the U.S. for a process, which the Company believes will
improve the cost and efficiency of producing optical fiber preforms. The 1997
patent filing was approved by the U.S. Patent office July 3, 2001 and issued
with USP Number 6,253,580. This U.S. patent relates to the Company's unique POVD
technology. The Company has filed the corresponding patent applications in many
foreign countries through the Patent Cooperation Treaty (PCT) and expects that
counterpart filings will be issued in the near future, while the same POVD
patent has been issued in South Africa already. In March 2001, the Company filed
another patent application that resulted from the continuing POVD development
efforts. Two more patent disclosures were prepared and they are currently under
review and preparation for filing the application.
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 from Norscan a patent issued by the United Kingdom for the same
technology. In addition, 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 re-issuance 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, that
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
-17-
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 intellectual property. There can be no assurance that the
steps taken by the Company to protect its intellectual property will be adequate
to prevent misappropriation or that others will not develop competitive
technologies or products. Furthermore, there can be no assurance that others
will not independently develop products that are similar or superior to the
Company's products or technologies, duplicate any of the Company's technologies,
or design around the patents issued to the Company. In addition, the validity
and enforceability of a patent can be challenged after its issuance. While the
Company does not believe that its patents infringe upon the patents or other
proprietary rights of any other party, other parties may claim that the
Company's patents do infringe upon such patents or other proprietary rights.
There can be no assurance that the Company would be successful in defending
against such a claim of infringement. Moreover, the expense of defending against
such a claim could be substantial.
INTERNATIONAL OPERATIONS
The Company is subject to all the risks of conducting business internationally.
These risks include unexpected changes in legislative or regulatory requirements
and fluctuations in the United States Dollar, the Japanese Yen, the Euro, the
Brazilian Real, and other currencies in which the Company is doing business from
time to time. The business and operations of FCJ and Xtal are subject to the
changing economic and political conditions prevailing from time to time,
primarily in Germany and Brazil, respectively. In addition, Brazil's economy has
been subject to periods of high inflation. FiberCore Asia, the Company's joint
venture in Malaysia, which has been delayed because of the recent financial
crisis in Asia, is subject to similar international risks. There is also the
threat of regional conflict. The Company's participation in MEFC is subject to
the risks of doing business in Saudi Arabia and the Middle East in general.
These risks include, but are not limited to, the threat of regional conflict. To
date, essentially all of the Company's revenues have come from its subsidiaries,
FCJ and Xtal.
TRADEMARKS
FCJ is the owner of the registered trademarks InfoGlas(R) and EconoGrade(R)
under which it markets its optical fiber products.
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
-18-
the process of manufacturing preform. During 2001, FCJ purchased approximately
95% of its key glass- tube raw material from Heraeus Quarz Glas GmbH & Co. KG
("Heraeus") located in Hanau, Germany. Heraeus accounted for approximately 95%
of the German facilities glass tube requirements in 2000 and 1999 as well.
During 2001, Xtal purchased approximately 55% of its preform requirements from
Shin Etsu, a Japanese Company, and 81% of its requirement in 2000. In early
2002, the Company entered into a five-year contract with Heraeus to supply
tubes. Quantities under the contract, together with glass from other sources are
expected to satisfy most of the Company's current needs. Under the contract, the
supply of glass increases significantly in 2002, in line with the Company's
existing commitments from its customers. Quantities for 2003 will be set within
the next several months. The contract contains mutual "take or pay" provisions
to the extent that the Company purchases less than or Heraeus delivers less than
the agreed upon annual percentage covered by the annual purchase order. For 2002
and 2003, the agreed upon percentage rates are 80% and 70%, respectively. Given
the Company's backlog, it is unlikely that the Company will suffer any material
consequences as a result of its purchasing less than the agreed upon percentage.
Xtal is party to a three year take-or-pay contract, expiring in June 2003, with
Shin Etsu for the delivery of single-mode preforms to Xtal. In 2001, Xtal
purchased approximately $10,900,000 of product under the contact. The contract
calls for monthly purchases of preform with 50% of the volume at a fixed price
and 50% to be set quarterly based on market prices. There are provisions in the
contract that provide for exceptions for both parties regarding the requirements
to ship or purchase preforms. In the fourth quarter of 2001, Xtal elected not to
take most of the contracted volume under one of these provisions. Shin Etsu is
contesting Xtal's interpretation of the contract and has submitted a claim to
arbitration relative to this volume and additional volumes under a non-related
agreement which is not a take-or-pay agreement.
If the Company becomes unable to secure its raw material requirements, as
needed, there can be no assurance that the Company will be able to obtain raw
materials on commercially acceptable terms, and such failure to obtain raw
materials could have a material adverse effect on the Company. To limit the
possibility of future shortages of key materials, the Company has successfully
identified alternate suppliers. In addition, the Company plans to augment its
tube requirements through its own internally manufactured tubes, using its new
POVD technology. The Company believes this technology will yield a significant
competitive advantage through increased manufacturing efficiency and reduced
production costs. Both FCJ and Xtal have the capability to manufacture the
high-purity synthetic core glass using a first purchased cladding tube, as well
as adding purchased cladding tubes using the Company's patented production
process.
EMPLOYEES
At December 31, 2001, the Company employed 398 persons, of whom 3 are officers,
59 are in sales and administration, 310 are in manufacturing and 26 are
principally in research and development. Of the 398 employees, 34 are
headquartered in the United States, 173 in Brazil, and 191 in Germany. Almost
all of Xtal's production and industrial employees are members of a union. The
collective bargaining agreement covering substantially all members (executives
are not covered) provides for an annual distribution to employees of a specified
amount, as agreed by the Union and Xtal in the first quarter of each year, for
the following year. DCI employs a number of people through various unions in
connection with installation of fiber optic networks. As of year-end, DCI
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employed 21 union employees. DCI pays wages for these employees, however all
benefits are provided through the unions. DCI pays union dues to cover these
costs. There are no collective bargaining agreements with these employees. The
Company is not party to any other collective bargaining agreements and the
Company does not maintain a pension plan. The Company considers its relations
with employees to be satisfactory and believes that its employee turnover does
not exceed the industry average.
ITEM 2. PROPERTIES
The Company leases 5,000 square feet of office space as its Corporate
Headquarters in Charlton, Massachusetts. The monthly rent is $2,750, and the
rental agreement is on a monthly basis.
The Company, through its subsidiaries, has two manufacturing facilities. FCJ's
original facility is located in Jena, Germany. That manufacturing facility is
leased at a monthly cost of approximately $23,000 and occupies approximately
47,000 sq. ft., including 23,500 sq. ft. of production space, 15,000 sq. ft. of
office and storage space and an additional 9,000 sq. ft. of outside facilities
for gas storage tanks. FCJ owns all machinery and equipment, subject to certain
restrictions, at the Jena facility. In 2000, the term of the lease for the Jena
operation was extended to December 31, 2003 and is renewable for additional
successive one-year terms, at the option of the Company; the Company intends to
remain in this facility and will use it in conjunction with a newly constructed
facility in Jena-Maua, which will become operational in 2002. Xtal owns the land
and buildings at its facility in Campinas, Brazil, which includes approximately
5 acres of land. The site is comprised of 6 separate buildings for a total of
70,000 sq. ft. that contain 14,000 sq. ft. of production space, 21,000 sq. ft.
of support and storage space, 14,000 sq. ft. of external facilities for gas
storage tanks and other space, and 21,000 sq. ft. of office space.
The Company maintains casualty and liability insurance at both facilities.
The Company has a deposit on 18 acres of land for the purpose of building a
facility in Thailand.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently in litigation with Techman International Corp.
("Techman") and M. Mahmud Awan ("Awan") who controls Techman, relating to
certain investments, contracts and other claims. Both parties are seeking
approximately $500,000 in cash. In addition, the Company is suing Techman and
Awan for the return of shares that have been canceled by the Company because of
the failure of Techman and Awan to satisfy certain conditions related to their
issuance. The litigation is in the discovery and motion phase. The Company
believes that its claims against Techman and Awan are good and that it will
ultimately prevail on its claims, but given the uncertainties inherent in
litigation, the outcome cannot be predicted with any reasonable certainty at
this time.
Xtal is party to a 3 year take-or-pay contract expiring in June 2003, with Shin
Etsu for the delivery of single-mode preforms to Xtal. In 2001, Xtal purchased
approximately $10,900,000 of product under the contact. The contract calls for
monthly purchases of preform with 50% of the volume at a fixed price and 50% to
be set quarterly based on market prices. There are provisions in the contract
that provide for exceptions for both parties regarding the requirements to ship
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or purchase preforms. In the fourth quarter of 2001, Xtal elected not to take
most of the contracted volume under one of these provisions. Shin Etsu is
contesting Xtal's interpretation of the contract and has submitted a claim to
arbitration relative to this volume and additional volumes under a non-related
agreement which is not a take-or-pay agreement. The total amount in dispute is
approximately $4,400,000, with approximately $1,750,000 related to the
take-or-pay contract. Xtal and the Company have submitted their position to the
arbitration panel. However, if Xtal were to ultimately lose, Xtal could be
required to purchase the preforms in question as well as pay the costs of
arbitration. In that case, the legal costs of arbitration would negatively
impact the Company's operating results, but the costs of the material would
become part of inventory/cost of sales. This could potentially have a negative
operating impact as well, depending on the price of the preforms determined in
the arbitration ruling versus the market price of the preforms at the time of
the ruling. The parties have had settlement discussions during this period but
have not reached an agreement at this time. Xtal has continued to purchase
preforms from Shin Etsu under the contract since the fourth quarter of 2001.
In addition to the above, the Company is subject to various claims that arise in
the ordinary course of business. The Company believes such claims, individually
or in the aggregate, will not have a material adverse effect on the business of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
In November, 2000, the Company's stock began trading on the NASDAQ small-cap
market. The Company's stock previously traded on the Over the Counter (OTC)
Bulletin Board. There were 248 holders of record and approximately 15,000
beneficial owners of Common Stock as of January 28, 2002. Set forth below for
the periods indicated are the high and low prices for the Common Stock as
reported on the Bulletin Board and Nasdaq small-cap. The Company's stock trades
under the symbol FBCE.
STOCK PRICE AND DIVIDEND POLICY
PERIOD HIGH LOW
2001
4th quarter $ 3.14 $2.06
3rd quarter $ 6.35 $2.25
2nd quarter $ 7.09 $3.75
1st quarter $ 8.63 $3.56
2000
4th quarter $ 7.16 $2.19
3rd quarter $ 9.31 $4.41
2nd quarter $ 7.00 $2.81
1st quarter $11.00 $1.72
The payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements, financial condition, contractual and legal restrictions and other
relevant factors. Under the Fleet Loan Agreement, and related documents, the
Company is prohibited from paying dividends as long as the loan remains
outstanding. The Company does not expect to declare or pay any dividends in the
foreseeable future. In addition, the ability of the Company to pay cash
dividends in the future will be subject to its ability to meet certain other of
its obligations.
See Footnote 11 - Stockholders' Equity for a description of recent equity
transactions.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data of the Company for each of the years 2001,
2000, 1999, 1998, and 1997 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)
2001 2000(1) 1999 1998 1997
Operating Data: ---- ------ ---- ---- ----
Net Sales $ 52,362 $ 36,919 $ 12,126 $ 8,201 $ 7,078
Costs and expenses:.........
Cost of sales............... 36,084 25,118 9,820 6,534 5,702
Selling, general, and
administrative............. 8,692 5,071 3,237 2,981 3,148
Research and development.... 2,189 1,459 722 475 434
Interest expense, net....... 2,028 5,832 952 746 638
Other income (expense), net. 484 226 (336) 208 (213)
Income (loss) before ---------- ---------- ---------- ---------- ------------
provision for income taxes
and minority interest...... 3,853 (335) (2,941) (2,327) (3,057)
(Provision) benefit for
income taxes............... (3,006) (2,054) 937 (15) (21)
Income (loss) before ---------- ---------- ---------- ---------- ------------
minority interest.......... 847 (2,389) (2,004) (2,342) (3,078)
Minority interest in income
of consolidated subsidiary. (367) (308) -- -- --
---------- ---------- ---------- ---------- ------------
Net income (loss)........... 480 $ (2,697) $ (2,004) $ (2,342) $ (3,078)
Income (loss) per share of ========== ========== ========== ========== ===========
common stock................
Basic......................... $ 0.01 $ (0.05) $ (0.05) $ (0.07) $ (0.09)
========== ========== ========== ========== ===========
Diluted....................... $ 0.01 $ (0.05) $ (0.05) $ (0.07) $ (0.09)
Weighted average shares ========== ========== ========== ========== ===========
outstanding:................
Basic......................... 58,074,724 49,043,882 36,610,544 35,833,501 35,744,182
Diluted....................... 63,885,536 49,043,882 36,610,544 35,833,501 35,744,182
Balance Sheet Data:
(Deficiency) Working capital (1,319) 2,047 1,041 1,425 3,208
Total assets................ 92,983 67,453 24,062 25,768 26,107
Long-term obligations....... 22,475 9,849 9,563 10,204 9,851
Total liabilities........... 49,491 28,551 14,085 14,864 13,351
Minority interest........... 5,117 4,750 3,263 3,263 3,217
Accumulated deficit......... (19,413) (19,893) (17,196) (15,192) (12,850)
Stockholders' equity........ 38,375 34,152 6,714 7,641 9,539
1)Includes results from the acquisition of Xtal as of June 1, 2000. Additionally,
interest expense, net, includes $5,405 of non-cash, non-recurring interest expense on
convertible debt.
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BACKGROUND
Certain statements in this Form 10-K constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors, which may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. The important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements include, but are not limited to (i) the
information being of a preliminary nature and therefore subject to further
adjustment; (ii) the ability of the Company to contain costs, to grow internally
or by acquisition and to integrate acquired businesses into the Company's group
of companies; (iii) the uncertainties of litigation; (iv) the Company's
dependence on significant customers and suppliers; (v) changing conditions in
the optical fiber industry which could adversely affect the Company's business;
(vi) unsettled economic conditions in several of the countries in which the
Company operates; (vii) competitive actions by other companies, including the
development by competitors of new or superior services or products, price
reductions or the entry into the market of new competitors; (viii) the delivery
of and ability to commission new equipment as scheduled; and (ix) all the risks
inherent in the development, introduction, and implementation of new products
and services; and other factors both referenced and not referenced in this Form
10-K. When used in this Form 10-K, the words "estimate", "project",
"anticipate", "expect", "intend", "believe", "plan" and similar expressions are
intended to identify forward-looking statements, and the above described risks
inherent therein.
The Company's principal operating companies are FCJ and Xtal. FCJ manufactures
both multimode and single-mode fiber and preforms with an emphasis on the
multimode market; Xtal manufactures both multimode and single-mode fiber and
single-mode preforms with an emphasis on the single-mode market.
The Company maintains its corporate headquarters in Charlton, Massachusetts,
which is staffed primarily by executive, 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, 2001, 2000 and 1999.
CRITICAL ACCOUNTING POLICIES
For a detailed discussion of the Company's accounting policies, refer to the
Summary of Significant Accounting Policies on page 43 for a summary of
significant accounting policies.
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements contain information that is pertinent to management's discussion and
analysis. 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.
-24-
The Company believes the following critical accounting policies involve
additional management judgment due to the sensitivity of the methods,
assumptions and estimates necessary in determining the related asset and
liability amounts.
REVENUE RECOGNITION:
The Company recognizes revenues in accordance with invoice terms, typically when
products are shipped and accruals for sales returns and other allowances are
provided at the time of shipment based upon past experience. If actual future
returns and allowances differ from past experience, additional allowances may be
required.
INVENTORY VALUATION:
Inventory is valued at the lower of actual cost to purchase and/or manufacture
the inventory or the estimated market value of the inventory. The Company
provides estimated inventory allowances for slow-moving and obsolete inventory
based on current assessments about future demands, market conditions and related
management initiatives. If market conditions are less favorable than those
projected by management, additional inventory allowances may be required.
ACCOUNTS RECEIVABLE:
We perform ongoing credit evaluations of our customers and adjust credit limits
based upon payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that we have in the past. Since our accounts receivable are concentrated
in a relatively few number of customers, a significant change in the liquidity
or financial position of any one of these customers could have a material
adverse impact on the collectability of our accounts receivable and our future
operating results.
VALUATION OF LONG-LIVED ASSETS:
We periodically review the carrying value of our long-lived assets for continued
appropriateness. This review is based upon our projections of anticipated future
cash flows. While we believe that our estimates of future cash flows are
reasonable, different assumptions regarding such cash flows could materially
affect our evaluations
RESULTS OF OPERATIONS
Year Ended December 31, 2001
The results for the twelve-month period include the operations of DCI, which was
acquired on June 1, 2001 and merged into ALT as of the date of the acquisition,
and the results of Xtal, which was acquired June 1, 2000. The results for 2001
includes a full year of operations for Xtal as compared to seven month's
operations in 2000. Sales for the twelve-month period ended December, 31, 2001
increased by $15,443,000 or 42% compared to the comparable period in 2000. The
-25-
increase includes twelve month's sales for Xtal of $32,392,000 for 2001,
compared to sales for the full year of 2000 of $33,433,000, only $21,916,000 of
which was included in operations of the Company since the acquisition date of
June 1, 2000. The decrease in sales for Xtal as compared to the full year of
2000 was attributable to the dramatic decline in the South American fiber market
as well as the worldwide market for single-mode fiber and deterioration of
pricing during the last half of 2001. This included the loss of sales to a major
customer in the second half of the year who was in breach of contract during
that period, after buying fiber at significantly higher levels than 2000 during
the first half of the year. Sales for Xtal decreased in the final seven-month
period in 2001 as compared to the same period in 2000 by $8,737,000 or 40%.
The South American customer referenced above has paid all of the accounts
receivable owed to the Company, approximately $3,200,000 which was part of the
breach of contract. The Company is in ongoing discussions with this customer and
expects to resume shipping fiber to this customer in the first half of 2002 at a
significantly lower rate than in early 2001 due to the much lower demand levels
that currently exist in the South American market. Shipments have not yet
resumed to this customer. Xtal and the customer are operating under an existing
contract, and the Company expects to be the primary supplier of optical fiber to
this customer over the next several years. The Company would expect that sales
will return to previous levels with this customer when the South American market
strengthens to the level of early 2001 performance and assuming our customer is
able to secure contracts at similar levels to its previous performance. There
can be no assurance as to when and if these two conditions will occur.
Notwithstanding that no shipments were made to this customer after July of 2001,
total sales to them increased by over $4,000,000 from 2000 to 2001. If this
customer had purchased product at the same volume level in the second half of
the year as it did in the first half of the year, revenues would have been
higher by about $8,000,000 after adjusting for declining prices during the
period. Overall, the softening in the South American market, including the
situation with the customer described above, and the associated reduction in
pricing brought about by the overall softening in the worldwide single-mode
fiber market, resulted in a reduction in sales of approximately $13,000,000 from
the first half of 2001 to the second half of the year. As a result of the lower
demand, the Company has been operating its Xtal facility at reduced production
levels since September 2001. The Company does not intend to reduce production
levels at FCJ, the Company's German subsidiary.
The Company expects volume and pricing to remain at depressed levels for the
first and second quarters of 2002 and should begin to recover thereafter. Xtal
is expected to have improved volume levels beginning in the second quarter of
2002 as a result of new business in the Asian market as well as new customers in
South America. Sales from the Company's German subsidiary, FCJ increased by
$3,783,000 or 25% for the year ended December 31, 2001. The revenue increases
were primarily due to higher shipment volume to new and continuing customers.
The majority of FCJ's shipments are multi-mode fiber and that market was not as
adversely affected either in demand or pricing as the single-mode market.
Company-wide, the volume increase in fiber shipments during 2001 represented an
increase in sales of $15,800,000 while the net effect of pricing changes
decreased revenues by $1,600,000 million as compared to 2000. However, pricing
was higher during the first half of the year and then decreased significantly
during the second half of the year.
26-
Gross profit was $16,278,000 or 31% of sales in 2001 compared to $11,801,000 or
32% of sales in 2000. The $4,477,000 increase in gross profit occurred during
the first-half of the year. Margins declined in the third and fourth quarters as
a result of pricing pressures due to the slowdown in the overall fiber market
and reached a low of (7%) in the fourth quarter. The sudden and unprecedented
change in demand in the market has driven single-mode fiber prices down from
their levels in the first half of 2001. This is expected to continue until
industry inventories are trimmed and supply and demand factors become better
aligned. The Company expects continued pricing pressure in the near term that
will continue to negatively affect gross margins. The Company anticipates that
the gross margins will improve later in 2002 as both volumes and pricing start
to recover from the currently depressed levels in the single-mode fiber market.
In addition, we expect margins will improve over time, as a result of higher
production levels and continued cost reductions, process improvements and
integration of technology between operations. Some variation can be expected
from quarter to quarter as (i) incremental costs are incurred in connection with
the installation and start-up of new equipment, and (ii) pricing variation due
to scheduled market-pricing adjustments made on a quarterly basis in accordance
with the terms of new and existing contracts.
Selling, general and administrative ("SG&A") costs increased $3,621,000 or 71%
compared to 2000. SG&A costs were 17% of sales in 2001 as compared to 14% during
2000. The increase in percent of sales was attributable to the reduced sales
levels during the second half of 2001, as SG&A was 11% during the first half of
2001. The inclusion of Xtal for the entire year of 2001 as compared to seven
months in 2000 and the acquisition of DCI, accounted for $1,200,000 or 33% of
the increase. FCQ and FCM accounted for approximately $125,000 of the increase
as compared to 2000. Increases in personnel, legal and accounting fees, travel
and trade show expenses at all locations accounted for the balance of the
increase.
Research and development costs increased $730,000 or 50% over 2000. The Company
intends to continue to invest in its research and development to increase
production efficiency, reduce manufacturing costs and develop new products. The
Company believes this investment will result in increased profitability through
increased production efficiency.
Excluding the effect of non-cash interest charges, in the amount of $5,405,000,
recorded in 2000 with respect to the deemed beneficial conversion attributable
to $7,500,000 in notes issued to Crescent International, Ltd., interest expense
would have increased by $1,477,000. The borrowings for 2001 were primarily
related to expansion of facilities in Germany and Brazil and general working
capital used at all locations. The Company had foreign exchange gains of
$381,000 compared to a gain of $98,000 for 2000. The gains were principally due
to the impact of the fluctuations in the value of the Brazilian Real versus the
Japanese Yen and the German Deutsche Mark on foreign currency denominated
invoices and loans for Xtal raw material purchases.
The Company recorded a tax provision of $3,006,000 for 2001, compared to a
provision of $2,054,000 in 2000. The provision is primarily a result of taxable
income earned at the Company's operations in Germany and Brazil. The provision
reflects no tax benefits attributable to operating losses incurred in the U.S.
-27-
Year Ended December 31, 2000
The results for the twelve month period ended December 31, 2000 includes the
operations of Xtal, from June 1, 2000.
Net sales for the year ended December 31, 2000 increased by $24,793,000, or
204%, over 1999. The increase includes the sales of Xtal for the seven months
ended December 31, 2000 of $21,916,000. Additionally, sales from the Company's
German subsidiary increased by $2,870,000 or 24% for the year ended December 31,
2000. The revenue increase is primarily due to increases in product shipped to
new and continuing customers, as well as increases in product prices. High
product demand, higher pricing and strong sales growth at both facilities
continued to strengthen during the year.
Cost of sales increased by $15,298,000 or 156% over 1999 due to the increase in
volume shipped, offset by a decrease in costs per unit of production. Of this
amount, $14,978,000 relates to Xtal. Due to the mix of products sold, it is not
practical to disclose costs per unit of production for each of the different
products. Average production costs overall declined by approximately 26% from
1999 to 2000. This decrease in production costs was the result of changes in the
mix of products produced, improved production yields (lower raw material
consumption for the volume produced) and production process improvements
resulting in a greater volume of production per machine hour. The Company
continuously invests in process development to further reduce costs.
Gross profit was $11,801,000 or 32% of net sales in 2000 compared to $2,306,000
or 19% of net sales in 1999. Of the $9,495,000 increase, Xtal accounted for
$6,938,000; FCJ accounted for $2,553,000, a 111% increase over the $2,306,000
reported for the prior year. The rise in gross profit results from the addition
of Xtal, increases in prices and quantities shipped, and manufacturing process
improvements.
Selling, general and administrative costs increased by $1,834,000 or 57%, over
1999. This increase is almost entirely attributable to expenses incurred by
Xtal. Selling, general and administrative costs were 14% of net sales in 2000
compared to 27% of net sales in 1999, reflecting a higher sales base.
Research and development costs were $1,459,000, an increase of $737,000 or 102%
over the prior year. Of this increase, $558,000 or 75% relates to Xtal. The
Company intends to continue its research and development to increase production,
reduce manufacturing costs and develop new products.
Interest income increased $257,000 in 2000 compared to 1999 primarily due to the
increase in income from the investments of the DM 3,850,000 security deposit
with the Sparkasse Jena and interest income from Xtal.
Non-cash interest expense of $5,405,000, which was offset by an increase in
paid-in-capital, relates to the deemed beneficial conversion feature of the
$7,500,000 convertible notes issued to Crescent International Ltd. in June and
July 2000.
-28-
Other interest expense was $794,000 in 2000 compared to $1,062,000 in 1999. The
decrease was attributable primarily to the repayment and conversion of 1999
outstanding loans.
The Company recorded a tax provision of $2,054,000 in 2000 compared to a net tax
benefit of $937,000 in 1999. The provision for 2000 is primarily the result of
taxable income earned by the Company's foreign operations in Brazil and Germany.
The provision also reflects no benefit for U.S. operating losses and the
$5,405,000 non-cash interest expense described above. In 1999, the Company
recognized the future tax benefit of the remaining net operating loss carryover
from the German subsidiary.
Excluding the effect of non-cash interest charges of $5,405,000, net income for
2000 was $2,708,000 rather than a net loss of $2,697,000 compared to a net loss
of $2,004,000 for 1999. The primary cause of the $4,712,000 increase was the
increase in sales, the increase in gross margins, the decrease in the percentage
of selling, general and administrative expenses to net sales, partially offset
by higher research and development expenses and the provision for taxes.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
- -------
The downturn in the economy and the telecommunications industry in particular as
a result of cutbacks in capital spending, coupled with an overcapacity of
installed fiber, affected global demand for single-mode fiber primarily in North
America, South America and Europe starting in July, 2001. While projected
volumes in Asia are still strong, pricing has eroded by more than 50% to record
lows for single-mode fiber, caused primarily by decreased demand and a number of
large producers trying to deplete high levels of inventory.
The Company expects pricing to level off in the second quarter of 2002 and begin
increasing in the second half of 2002 or early 2003. We also expect to see
demand start to increase in this same period in North America and Europe with
the increase in volumes preceding price increases.
Multimode fiber was not affected as dramatically as single-mode fiber due to the
economic downturn, but there was a decline in volume in the fourth quarter,
primarily as a result of customers working down inventory. Pricing declined only
8 to 10%. The Company has started to see a recovery in multimode order volume
since the beginning of 2002.
While we anticipate improvement in product demand and pricing over the course of
the next year, these trends in both demand and pricing for fiber, while part of
a periodic cycle in the industry, cannot be assured of reversing themselves in
any certain time frame. If these factors do not improve, the Company will
continue to be adversely affected which could result in continuing pressure on
gross margins, further losses and negative cash flows from operations. This
could impact on the Company's ability to meet its current obligations and to
raise additional capital. The Company continues to focus on reducing product and
SG&A costs to minimize the effect of the above trends while continuing to invest
in development efforts to position the Company for the expected rebound in the
industry. Additionally, the Company has the ability to utilize the remaining
$15,000,000 of the equity line of credit with Crescent to meet capital needs in
2002.
-29-
The Company currently has a backlog of approximately $292,000,000, up from
$190,000,000 at the end of 2000. Approximately $48,000,000 of this backlog is
currently scheduled for delivery in 2002. This number may change as a result of
re-pricing mechanisms in the Company's contracts and rescheduling due to
changing business conditions. All backlog numbers are calculated based on
pricing levels in effect as of the date indicated. The backlog does not include
any orders taken or anticipated in 2002. The increase in the order backlog
reflects the strong market for fiber during the first half of 2001, which
resulted in the Company booking a significant number of multi-year contracts, as
well as the Company's position as the only "pure" fiber supplier in the Western
Hemisphere and Europe. The Company also had additional bookings in the second
half of 2001 as it added new business in the Asia Pacific region. However, these
bookings were more than offset by the shipments during the period and the
re-pricing of existing backlog under the periodic price setting structure of
most of the Company's long-term contracts with customers. The Company also
experienced rescheduling from many of its customers, particularly in the South
American market, which had the effect of pushing out the planned delivery
schedule of the backlog. The Company intends to capitalize on the expected
long-term growth of the fiber optics industry by constructing a number of
facilities to produce optical fiber and preforms, using a well-balanced,
phased-in approach for the establishment of these facilities.
A second and larger facility in Jena, Germany has recently completed
construction and had its grand opening in February 2002. The capacity levels
will be increasing throughout 2002 and 2003 as new equipment is brought online
at this facility. The financing required for this expansion has been secured.
This new facility will improve manufacturing efficiency; increase the Company's
competitiveness in the marketplace, and more than double previous capacity
levels in the first phase of the expansion and increase total capacity in Jena
by over 200% when both phases of the expansion come online.
The Company's Brazilian subsidiary, Xtal, has a current capacity of
approximately 1,000,000 kms of single-mode fiber per year. With the integration
of FiberCore and Xtal technologies and some additional investment, this capacity
is expected to more than double within the next 2 years. The technology
integration has already had an effect, increasing Xtal's capacity from
approximately 500,000 kms in 1999. The plant also has available excess building
space as well as land for new construction, which will allow the Company to add
auxiliary processing equipment to further increase capacity more rapidly. The
Company had initiated expansion plans at Xtal before the recent slowdown in the
marketplace. The schedule for this expansion has been delayed as a result of the
slowdown in the single-mode market. However, the Company will continue to
install new equipment that is designed to improve margins. In the longer term,
the Company is planning on new facilities in South Africa, the United States and
Asia.
The Company plans to finance the expansions through a combination of long-term
borrowings, government grants, equity placements, and customer and internal
financing.
DCI FiberCore is currently a small portion of the Company's revenue stream with
$940,000 in revenue in 2001. The Company expects that this entity will be a
rapidly growing portion of its business in the coming years. The combination of
DCI's capabilities in designing, installing and maintaining telecommunications
-30-
networks with the equipment capabilities of ALT should improve the sales
potential of both parts of DCI.
In June 2000, the Company concluded a financing arrangement with Crescent
International Ltd. with respect to a $30,000,000 commitment. Through a series of
transactions in 2000, the Company sold $11,000,000 of securities pursuant to the
arrangement and as of December 31, 2000, the Company could require Crescent to
purchase up to $19,000,000 of additional shares of Common Stock, based on a
market-based pricing formula; subject to certain terms and limitations set forth
in the Company's agreements with Crescent and with respect to which Crescent has
registration rights.
In December 2000, the Company closed on a $10,000,000, five (5) year revolving
credit loan agreement with Fleet National Bank, but the maximum principal amount
of the loan decreases by $750,000 on December 26, 2001 and each subsequent year.
Loan payments, in the amount of $750,000, may be made by way of a reduction in
the amount available under the credit facility. As of December 31, 2000 the
Company borrowed $2,150,000. These funds were used to increase the
capitalization of FCJ with respect to FCJ's $25,000,000 project financing, which
closed in January 2001. The financing included approximately $11,000,000 in
loans and equipment leases, and $8,000,000 in grants from agencies of the German
government. The Company contributed the balance of the funds.
The Company is not relying on the conversion of warrants and options to fund its
expansion plans; however, if all of the outstanding "in the money" warrants and
options as of March 26, 2002 are exercised for cash, the total proceeds that the
Company would receive upon the exercise is approximately $2,144,000. Some of
these options and warrants have a cashless exercise feature, which could reduce
the actual amount realized upon exercise.
In addition, a substantial amount of the Company's outstanding loans are
long-term. Aside from the Fleet loan, principal under the 1996 Berliner Bank
loan, which was assumed by Sparkasse Jena in 2001, is due and payable in 2006;
however, interest at 6.25% is paid quarterly. The following changes in balance
sheet amounts are net of the effect of the change in the currency exchange rates
from December 31, 2000 to December 31, 2001.
Year Ended December 31, 2001
The Company generated negative cash flow from operations of $3,976,000 for 2001,
compared to positive cash flow from operations of $9,171,000 for 2000. The
decrease in operating cash flow resulted primarily from: the reduction of net
income (excluding the non-cash interest expense in 2000) compared to 2000 of
$2,228,000 that was primarily due to net losses in the second half of the year
of $5,548,000; the build-up in finished goods inventory by $2,494,000, most of
which occurred during the second half of the year due to the dramatic reduction
in sales, as compared to a reduction of inventory in 2000 of $363,000; a change
in accrued expenses and advance payments from customers of $3,438,000 as
compared to 2000 due to the utilization of a $2,936,000 advance payment by a
customer; an increase of only $1,064,000 in accounts payable in 2001 as compared
to an increase of $3,164,000 in 2000; and an increase in other receivables of
$4,691,000 compared to a $756,000 increase in 2000, primarily related to a
$1,743,000 deposit due from a vendor in the first half of 2002 (this will be
paid during the second quarter 2002), an increase in refundable taxes in both
Germany amounting to $1,158,000 and in Brazil amounting to $1,763,000. These
-31-
taxes are essentially VAT taxes, which are based upon raw materials and
equipment purchases and refunded on the basis of future sales. The positive cash
flow for the prior year included a $5,405,000 charge for non-cash interest
expense.
The foreign exchange gains were attributable to the weakness of the Japanese Yen
versus the Brazilian Real and the US Dollar in the fourth quarter of the year.
During the third quarter, one of the Company's larger South American customers
breached its contract with Xtal. This breach consisted of missed payments of
$3,200,000 for accounts receivable and the subsequent suspension of shipments
starting in July. The cumulative effect of this breach, together with a lower
demand from other customers, had a negative impact on cash flow during the
quarter for Xtal. As a result of this situation, the Company had an increase in
inventory levels at the end of the third quarter and therefore reduced
production levels at the Brazilian facility during the third and fourth
quarters. The Company also increased its short-term borrowings during the second
half of the year to compensate for the reduced cash flow from operations during
the period. The Company reached a resolution with this customer in October 2001.
As of the end of January 2002, all of the outstanding receivables owed by the
customer have been collected. The Company is currently negotiating with the
customer with respect to shipments for 2002. The Company is currently active in
the Asian market and expects to increase shipments to that market in 2002, after
initial orders were taken and shipped in the fourth quarter of 2001. The Company
is also focusing on increasing its shipments of multimode fiber out of Xtal in
2002. The Company has temporarily slowed its capacity expansion at Xtal,
although expenditures for equipment that are expected to reduce production costs
will continue in 2002.
The Company invested $24,813,000 in new equipment and facilities for both major
locations during 2001, with most of the investment occurring in Germany. A new
manufacturing facility was constructed for FCJ as part of the expansion process
there and the grand opening was held in February 2002. The Company will continue
to equip this new facility throughout 2002 and 2003. A building was acquired in
Jena, Germany to house the 6 new machines that will be the initial operations of
FiberCore Glas, which will begin production of glass tubes in the second half of
2002 using the Company's recently patented POVD process. Grant funds received
related to the expansion in Germany amounted to $2,092,000. These funds reduce
the cost basis of the assets acquired. Cash paid in connection with the DCI
acquisition was $292,000, while cash acquired with the DCI acquisition was
$27,000.
The Company received proceeds of long-term debt of $15,067,000 during 2001.
These funds were used for the purchase of equipment and facilities at the
Company's German and Brazilian locations to fund the expansion of these
locations and for general working capital. In January of 2001, long-term debt
was reduced by $4,000,000 as a result of the conversion by Crescent
International, Ltd. of such debt into 1,570,680 shares of Common Stock of the
Company. Upon conversion, the interest associated with the debt was waived.
Additionally, there were principal payments on long-term debt for the year of
$609,000. Proceeds of short-term notes payable amounted to $8,224,000 for 2001.
These notes were used primarily for short-term working capital purposes in
Brazil. Short-term notes for Xtal amounting to $1,190,000 were paid during 2001.
On August 20, 2001, the Company replaced its existing equity line of credit with
Crescent International Ltd. ("Crescent"), which had an availability of
$19,000,000 with a new equity line with Crescent providing for the same
-32-
availability. The new agreement extends the period during which Crescent can be
obligated to purchase the Company's common stock and contains several positive
features, including a pricing mechanism more advantageous to the Company. The
Company received net proceeds of $2,698,000 upon the sale of common stock to
Crescent on August 22, 2001 pursuant to the new agreement, and net proceeds of
$902,000 upon an additional sale on October 26, 2001. The proceeds from the
foregoing sales to Crescent were used to fund capacity expansion and for other
corporate purposes. The Company anticipates utilizing a portion of the remaining
$15,000,000 of this equity line to reduce its short-term loans during 2002.
On January 15, 2002, the Company announced that it closed on a private placement
of $6,000,000 in 5% Convertible Subordinated Debentures to institutional
investors, with the option to increase the total dollar amount up to $9,000,000.
Under the terms of the transaction, FiberCore received $5,000,000 at closing and
will receive an additional $1,000,000 upon the effectiveness of a registration
statement, which was filed on February 12, 2002 in connection with the
transaction. Each of the parties has an option to place up to an additional
$3,000,000 of the Debentures under certain conditions, provided, the aggregate
additional placement does not exceed $3,000,000. The proceeds will be used to
support FiberCore's capital expenditure program, including the recently
announced capacity expansion and productivity initiatives in Germany, initial
funding for FiberCore Africa and other corporate purposes.
As of December 31, 2001, contractual cash obligations, commitments and
contingencies of the Company were as follows:
CONTRACTUAL CASH OBLIGATIONS
Less than 1 After 5
(Dollars in Total year 1-3 years 4-5 years years
thousands) ----- ---- --------- --------- -----
Notes Payable $10,859 $10,859 $ --- $ --- ---
Long-term debt 20,724 702 8,500 3,507 8,015
Capital lease
obligations 3,722 1,269 2,173 280 ---
Operating leases 8,615 1,882 5,102 1,631 ---
Unconditional
purchase obligations* 21,539 18,097 3,442 --- ---
Total contractual ------- ------- ------- ----- -----
cash obligations $65,459 $32,809 $19,217 $5,418 $8,015
======= ======== ======= ======= ======
* Refers to raw material purchase requirements under take-or-pay agrees as
part of our ordinary course of business.
Year Ended December 31, 2000
For the year ended December 31, 2000, the Company generated $9,171,000 in cash
from operating activities. This was a major improvement over the $348,000 used
for operating activities in 1999. This significant improvement was due primarily
to the increase in sales and gross profit, higher depreciation costs and other
non-cash costs incurred, including a non-cash interest charge of $5,405,000, in
2000.
-33-
Accounts receivable increased by $2,629,000 due to the significant increase in
sales in 2000 and the acquisition of Xtal compared to 1999. Inventory decreased
by $363,000 also due to the increase in sales. Accounts payable increased by
$3,164,000 in 2000 due to a decrease in payables at the parent company offset by
an increase at FCJ and as a result of the acquisition of Xtal.
During 2000, the Company invested $9,950,000 in fixed assets, principally for
the expansion project at FCJ and for equipment purchases at Xtal. Cash paid for
the acquisition of Xtal amounted to $19,586,000.
The Company received net proceeds of $15,211,000 from the sale of common stock,
principally from the exercise of warrants to purchase common stock by Tyco, and
by Tyco's $9,000,000 purchases of common stock. The Company received proceeds
from long-term debt, net of repayment of $9,741,000. The principal proceeds of
long-term debt were $7,500,000 of convertible notes from Crescent, $3,500,000 of
which, was converted to common shares of the Company prior to year-end and
$4,000,000 that was converted in January. The Company also received $2,150,000
from Fleet Bank, that was used for the expansion at FCJ. Loan repayments in
addition to the Crescent conversion included repayment of $9,000,000 to Algar,
used for the Xtal acquisition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheets
and measure those instruments at fair value. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its
resulting designation. The Company adopted FAS 133, as amended by FAS 138,
beginning January 1, 2001. Adoption of this new accounting standard did not have
any impact on the Consolidated Statement of Operations. As of December 31, 2001,
the Company had no forward exchange contracts or other hedging instruments.
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." The Company will adopt
this new standard beginning January 1, 2002. With the adoption of SFAS No. 142,
goodwill is no longer subject to amortization over its estimated useful life,
but will be subject to an annual assessment for impairment by applying a
fair-value based test. The Company anticipates that the adoption of this new
standard will result in the discontinuation of annual goodwill amortization of
approximately $530,000, in 2002. We have not completed our initial assessment of
recoverability.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company will adopt this new standard
beginning January 1, 2002. We do not expect the adoption of this standard to
have material impact on the statement of financial position or results of
operations.
-34-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks from changes in foreign currency exchange
rates and interest rates. The Company has two principal operating subsidiaries,
which are located in foreign counties. FCJ is located in Germany and its
functional currency is the Euro. Xtal is located in Brazil and its functional
currency is the Brazilian Real.
FOREIGN CURRENCY RISK. FCJ may, from time to time, purchase short-term forward
exchange contracts to hedge payments and/or receipts due in currencies other
than the Euro or Deutsche Mark ("DM"). At December 31, 2001, FCJ did not have
any outstanding forward exchange contracts. At December 31, 2001, the Company
had a long-term loan denominated in DM totaling DM7,700,000. The principal of
the loan is due at maturity, September 2006. Interest on the loan is payable
quarterly at the fixed rate of 6.25% per annum. A 10% change in the DM exchange
rate to the U.S. dollar could increase or decrease the interest cash flow
requirements of the Company by approximately $22,000 for each of the years 2000
through 2005, and by approximately $16,000 in 2006.
Substantially all of the Company's sales are through FCJ, and Xtal, with a
relatively small contribution from DCI. Additionally, at December 31, 2001, 35%,
48%, and 5% of the Company's assets are at its German, Brazilian, and Malaysian
subsidiaries, respectively. The Company, therefore, is subject to foreign
currency translation gains or losses in reporting its consolidated financial
position and results of operations.
INTEREST RATE RISK. At December 31, 2001, the Company had a long-term loan with
an interest rate based on the prime rate or LIBOR. The Company selects either
one, two or three-month Libor based on prevailing market rates. A 10% change in
the interest rates on this loan would have increased or decreased interest
expense by approximately $28,000 for 2001.
(The remainder of this page intentionally left blank.)
-35-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report................................................37
Consolidated Balance Sheets at December 31, 2001 and 2000...................38
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000, and 1999...........................................39
Consolidated Statements of Comprehensive Income (Loss) for the Years
Ended December 31, 2001, 2000 and 1999......................................40
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999................................41
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999............................................42
Notes To Consolidated Financial Statements for the Years Ended
December 31, 2001, 2000 and 1999............................................43
-36-
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
FiberCore, Inc.
Charlton, Massachusetts
We have audited the accompanying consolidated balance sheets of FiberCore, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, comprehensive income (loss), changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of FiberCore, Inc. and subsidiaries as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
DELOITTE & TOUCHE LLP
Hartford, Connecticut
March 28, 2002
-37-
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(Dollars in thousands except share data) 2001 2000
---- ----
ASSETS
Current assets:
Cash..................................................... $ 1,721 $ 5,051
Accounts receivable, less allowance for doubtful
accounts of $703 in 2001 and $836 in 2000............... 8,436 8,332
Other receivables........................................ 5,398 707
Inventories.............................................. 8,099 6,193
Prepaid and other current assets......................... 1,022 466
------- --------
Total current assets.................................... 24,676 20,749
------- -------
Property and equipment..................................... 50,124 26,033
Less - accumulated depreciation............................ (6,568) (4,612)
------- -------
Property and equipment -- net............................ 43,556 21,421
------- -------
Other assets:
Notes receivable from joint venture partners............. 4,948 4,949
Restricted cash.......................................... 1,753 1,849
Patents, less accumulated amortization of $4,117 in 2001
and $3,496 in 2000...................................... 3,855 4,171
Investment in joint venture.............................. 925 925
Deferred tax asset....................................... 383 722
Goodwill, net of accumulated amortization of $882 in
2001 and $363 in 2000................................... 10,897 11,336
Other.................................................... 1,990 1,331
------- -------
Total other assets...................................... 24,751 25,283
------- -------
Total assets............................................ $ 92,983 $ 67,453
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current installment on long-term debt.. $ 10,859 $ 2,253
Accounts payable......................................... 8,746 8,621
Accrued expenses......................................... 5,966 4,892
Advance payments from customers.......................... -- 2,936
Other liabilities........................................ 424 --
------- -------
Total current liabilities............................. 25,995 18,702
Deferred income.......................................... 1,021 --
Long-term debt........................................... 22,475 9,849
-------- -------
Total liabilities....................................... 49,491 28,551
-------- --------
Minority interest.......................................... 5,117 4,750
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, $ .001 par value, authorized 10,000,000
shares; no shares issued and outstanding................ -- --
Series A preferred stock, $ .001 par value, authorized
1 share; 1 share issued and outstanding................. -- --
Common stock, $ .001 par value, authorized 100,000,000
shares; shares issued and outstanding: 61,481,139 in
2001 and 57,667,970 in 2000 ............................ 61 58
Additional paid-in-capital............................... 64,847 56,219
Accumulated deficit...................................... (19,413) (19,893)
Accumulated other comprehensive loss:
Accumulated translation adjustment....................... (7,120) (2,232)
------- -------
Total stockholders' equity.............................. 38,375 34,152
------- -------
Total liabilities and stockholders' equity.............. $92,983 $67,453
======= ========
See accompanying notes to consolidated financial statements.
-38-
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
(Dollars in thousands except share data)
2001 2000 1999
---- ---- ----
Net sales............................ $52,362 $36,919 $12,126
Cost of sales........................ 36,084 25,118 9,820
---------- ---------- ----------
Gross profit......................... 16,278 11,801 2,306
Selling, general and
administrative expenses............ 8,692 5,071 3,237
Research and development............. 2,189 1,459 722
---------- ---------- ----------
Income (loss) from operations........ 5,397 5,271 (1,653)
Interest income...................... 243 367 110
Non-cash interest expense on
convertible debt................... -- (5,405) --
Interest expense..................... (2,271) (794) (1,062)
Other income (expense), net ......... 484 226 (336)
---------- ---------- ----------
Income (loss) before income taxes
and minority interest.............. 3,853 (335) (2,941)
(Provision) benefit for income
taxes ............................. (3,006) (2,054) 937
---------- ---------- ----------
Income (loss) before minority
interest .......................... 847 (2,389) (2,004)
Minority interest in income of
subsidiary......................... (367) (308) --
---------- ---------- ----------
Net Income (loss).................... $480 $(2,697) $(2,004)
Income (loss) per share of common ========== ========== ==========
stock
Basic................................ $ 0.01 $ (0.05) $ (0.05)
========== ========== ==========
Diluted ............................. $ 0.01 $ (0.05) $ (0.05)
========== ========== ==========
Weighted average shares outstanding
Basic................................ 58,074,724 49,043,882 36,610,544
========== ========== ==========
Diluted.............................. 63,885,536 49,043,882 36,610,544
========== ========== ==========
See accompanying notes to consolidated financial statements.
-39-
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands )
2001 2000 1999
---- ---- ----
Net income (loss) $ 480 $(2,697) $ (2,004)
Other comprehensive (loss) income:
Foreign currency translation
adjustments (4,888) (1,226) (466)
------ ------- ----------
Comprehensive loss $(4,408) (3,923) (2,470)
======== ======== ==========
See accompanying notes to consolidated financial statements.
-40-
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands except share data)
ACCUMULATED
COMMON STOCK OTHER
COMPREHENSIVE RETAINED TOTAL
PAR PAID-IN INCOME EARNINGS STOCKHOLDERS
SHARES VALUE CAPITAL (LOSS) (DEFICIT) EQUITY
- ----------------------------------------------------------------------------------------------------
Balance, December
31, 1998.............. 35,936,463 $ 36 $23,337 $ (540) $(15,192) $ 7,641
Sale of stock for
cash.................. 1,000,000 1 249 250
Issuance of stock
for conversion of
debt.................. 4,468,139 5 1,060 1,065
Issuance of stock
options for
services.............. 94 94
Discount on notes
for value of
warrants.............. 134 134
Foreign currency
translation
adjustment............ (466) (466)
Loss for the year....... (2,004) (2,004)
- -------------------------------------------------------------------------------------------------
Balance, December
31, 1999.............. 41,404,602 $ 42 $24,874 $ (1,006) $(17,196) $ 6,714
Sale of stock for
cash.................. 3,193,369 3 12,893 12,896
Issuance of stock
for conversion of
debt.................. 8,704,275 9 10,164 10,173
Issuance of stock on
exercise of
options and
warrants.............. 4,132,800 4 2,405 2,409
Issuance of stock
options for
services.............. 232,924 478 478
Deemed interest on
convertible debt...... 5,405 5,405
Foreign currency
translation
adjustment............ (1,226) (1,226)
Loss for the year....... (2,697) (2,697)
- ------------------------------------------------------------------------------------------------
Balance, December 31,
2000.................. 57,667,970 $ 58 $56,219 $(2,232) $(19,893) $34,152
Sale of stock for
cash.................. 1,826,487 2 3,787 3,789
Issuance of stock
for conversion of
debt.................. 1,570,680 1 3,999 4,000
Issuance of stock
options for
services.............. 163,333 236 236
Issuance of stock
options for
acquisition of DCI.... 252,669 606 606
Foreign currency
translation
adjustment............ (4,888) (4,888)
Income for the year..... 480 480
- ------------------------------------------------------------------------------------------------
Balance, December 31,
2001.................. 61,481,139 $ 61 $64,847 $(7,120) $(19,413) $38,375
================================================================================================
See accompanying notes to consolidated financial statements
-41-
FIBERCORE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(Dollars in thousands except share data) 2001 2000 1999
Cash flows from operating activities:
Net income (loss)........................ $ 480 $ (2,697) $ (2,004)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Issuance of stock options for services
performed............................... 236 119 94
Depreciation and amortization............ 4,184 2,815 1,932
Deferred income tax (benefit)............ 297 100 (952)
Non-cash interest expense................ -- 5,405 391
Foreign currency translation (gain) loss
and other............................... (761) 235 209
Changes in assets and liabilities:
Accounts receivable...................... (905) (2,629) (1,185)
Other receivables........................ (4,691) (756) 411
Inventories.............................. (2,494) 363 807
Prepaid and other current assets......... (557) 443 (41)
Accounts payable......................... 1,064 3,164 (108)
Accrued expenses......................... (829) 2,609 98
-------- -------- --------
Net cash provided by (used in) operating
activities............................ (3,976) 9,171 (348)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment...... (24,813) (9,950) (1,156)
Reimbursement from government grant...... 2,092 165 556
Cash used for acquisition................ (292) (19,586) --
Cash acquired from acquisition........... 27 196 --
Other.................................... (700) (17) (49)
Net cash used in investing activities... (23,686) (29,192) (649)
Cash flows from financing activities:
Proceeds from issuance of common stock... 3,789 15,211 250
Proceeds from long-term debt............. 15,067 10,650 --
Proceeds from notes payable.............. 8,224 300 755
Repayment of notes payable............... (1,190) (1,209) --
Repayment of long term debt.............. (609) -- --
Financing costs.......................... (590) (328) --
Net cash provided by financing activities 24,691 24,624 1,005
Effect of foreign exchange rate change on
cash..................................... (359) (39) 329
Increase (decrease) in cash................ (3,330) 4,564 337
Cash, beginning of year.................... 5,051 487 150
Cash, end of year.......................... $ 1,721 $ 5,051 $ 487
Supplemental disclosure:
Common stock issued for conversion of debt $4,000 $10,173 $1,065
Property acquired under capital leases... 4,119 -- --
Cash paid for interest................... 1,711 600 310
Cash paid for taxes...................... 1,005 778 --
================================================================================
See accompanying notes to consolidated financial statements.
-42-
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Incorporation and nature of operations
- --------------------------------------
FiberCore, Inc. (the "Company") is primarily engaged in the business of
developing, manufacturing, and marketing single-mode and multimode optical fiber
and optical fiber preforms for the telecommunications and data communications
industry. The Company operates as a single segment enterprise.
The Company's principal operating companies are FCJ, a wholly owned subsidiary
in Germany and Xtal, a 90% owned Brazilian company acquired June 1, 2000. FCJ
manufactures both multimode and single-mode fiber and preforms with an emphasis
on the multimode market; Xtal manufactures both single-mode and multimode fiber
and single-mode preforms with an emphasis on the single-mode market.
In March 2000, FCJ formed FCM, a wholly owned subsidiary in Germany, which
designs and manufactures the specialized fiber equipment used by the Company's
operating units.
In May 2000, FCQ was formed in Germany as a wholly owned subsidiary of
FiberCore, Inc. FCQ will be utilizing the Company's newly patented Plasma
Outside Vapor Deposition ("POVD") technology to complement the supply of
synthetic silica tube.
In April of 2001, FiberCore Glas (FCG) was formed in Germany as a wholly owned
subsidiary of FCJ. FCG will be utilizing the Company's newly patented POVD
technology to complement the supply of synthetic silica tube.
FiberCore Asia Sdn. Bhd. ("FC Asia") was formed in 1997 to construct an
optical-fiber manufacturing facility in Malaysia. Construction of the Malaysian
facility required loan financing which, due to the economic downturn in Asia,
has been delayed.
FC Africa was formed in February 2002 as a joint venture between FCI and local
investors in South Africa to construct an optical fiber manufacturing facility
in the Cape Town, South Africa area. This facility will focus on the single-mode
market for both domestic and export consumption and is expected to be
operational by the second half of 2003.
The Company's common stock is listed on the Nasdaq Small-cap market.
Use of estimates in the preparation of financial statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
-43-
Principles of consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation. Minority interest on the balance sheet
includes 10% ownership of Xtal, by its former owner, Algar, S.A.
The Company holds a 51% ownership in FC Asia, which is consolidated in the
financial statements. Minority interest on the balance sheet includes the
Malaysian partners' 49% ownership.
The Company holds a 7% interest, carried at $925,000, in Middle East Fiber Cable
Co. ("MEFC"), a cable manufacturing company that operates in Saudi Arabia. In
2001, the Company made approximately $975,000 in preform sales to MEFC and
$807,000 in 2000. MEFC began operations in 1998 and the Company believes that
its share in the value of MEFC exceeds its investment. The Company is a
co-guarantor with the other joint venture partners for certain credit facilities
provided by banks to MEFC. The assets of MEFC also collateralize these credit
facilities. At December 31, 2001, the Company was contingently liable for these
loans in the amount of approximately $140,000.
Inventories
- -----------
Inventories are valued at the lower of cost or market using the first-in,
first-out method.
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. Property and equipment is
depreciated using the straight-line method over the estimated useful lives of
the assets.
Restricted Cash
- ---------------
In connection with the 1997 expansion of the FCJ facility, the Company obtained
a loan from the Berliner Bank in Germany. Sparkasse Jena in Germany assumed the
loan under the same terms and conditions in 2001. Cash in the amount of German
marks 3,850,000 (approximately U.S. $1,753,000 at December 31, 2001), has been
deposited with this institution as collateral for this loan.
Patents
- -------
Patents are amortized on a straight-line basis over seventeen years, which is
the estimated useful life of the patents. The Company evaluates the
recoverability of patents from expected future cash flows.
-44-
Fair value of financial instruments
- -----------------------------------
The Company has financial instruments, which consist of cash, short-term
receivables, accounts payable and notes payable, for which their carrying
amounts approximate fair value due to the short maturity of those instruments.
The principal amount of the long-term debt approximates fair value because the
interest rates on these instruments approximate current market rates.
Translation of foreign currencies
- ---------------------------------
The translation of foreign subsidiaries financial statements into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using an average
exchange rate for the period. Unrealized gains or losses resulting from
translation are included in stockholders' equity as other comprehensive income
(loss).
Revenue
- -------
Revenue is recognized when products are shipped for all businesses.
Research and Development
- ------------------------
Research and development costs are expensed as incurred. The Company received
$127,000, $209,000 and $161,000 in grants for research and development
activities in 2001, 2000 and 1999, respectively. The grant funds received are
accounted for in other income. The principal terms of the grants are that the
grant funds received are used only for the specific project for which the grants
were awarded and that the research project is completed in accordance with the
terms of the grant award. The projects progress is evaluated on a periodic basis
(usually quarterly) and in the event that the Company determined that the
conditions of the grant were not met or the grantor has advised the Company that
the funds were not used as intended, then the Company would record the liability
at the date of such determination with an offsetting charge to income. The
Company has completed or is completing all research projects in accordance with
the terms of the grants and therefore has not recorded any obligation to repay
any grant funds received.
Income taxes
- ------------
The Company accounts for income taxes in accordance with the asset and liability
method. Deferred taxes are recognized for the future tax consequences
attributable to the differences between the book and tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enacted date.
-45-
Earnings (loss) per share of common stock
- -----------------------------------------
Basic earnings (loss) per share of common stock is computed by dividing net
income (loss) by the weighted average number of common shares outstanding during
the year. Diluted earnings per share assumes that outstanding common shares were
increased by shares issuable upon the exercise of options and warrants for which
market price exceeds the exercise price, less shares, which could have been
purchased by the Company with the related proceeds.
Stock-based compensation
- ------------------------
FASB Statement No. 123 "Accounting for Stock-Based Compensation" defines a fair
value based method of accounting for an employee stock option or similar equity
instrument. However, the Company will continue to measure compensation cost for
employee stock compensation transactions using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25 "Accounting for Stock Issued to
Employees" as permitted under FASB 123.
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which requires that an entity recognize all
derivatives as either assets or liabilities in the consolidated balance sheets
and measure those instruments at fair value. The accounting for changes in fair
value of a derivative depends on the intended use of the derivative and its
resulting designation. The Company adopted FAS 133, as amended by FAS 138,
beginning January 1, 2001. Adoption of this new accounting standard did not have
any impact on the Consolidated Statement of Operations. As of December 31, 2001,
the Company had no forward exchange contracts or other hedging instruments.
In June 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets." The Company will adopt
this new standard beginning January 1, 2002. With the adoption of SFAS No. 142,
goodwill is no longer subject to amortization over its estimated useful life,
but will be subject to an annual assessment for impairment by applying a
fair-value based test. The Company anticipates that the adoption of this new
standard will result in the discontinuation of annual goodwill amortization of
approximately $530,000, in 2002. We have not completed our initial assessment of
recoverability.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." The Company will adopt this new standard
beginning January 1, 2002. We do not expect the adoption of this standard to
have a material impact on the statement of financial position or results of
operations.
Impairment of Long-Lived Assets
- -------------------------------
The Company reviews the recoverability of its long-lived assets, including
goodwill and other intangible assets, when events or changes in circumstances
occur that indicate that the carrying value of the asset may not be recoverable.
The assessment of possible impairment is based on the Company's ability to
recover the carrying value of the asset from expected future undiscounted
-46-
operating cash flows of the related operations. If these cash flows are less
than the carrying value of such asset, an impairment loss is recognized for the
difference between estimated fair value and carrying value. The measurement of
impairment requires management to estimate the fair value of long-lived assets.
Reclassifications
- -----------------
Certain amounts in the prior year financial statements have been reclassified to
conform to the 2001 presentation.
(2) EARNINGS PER SHARE
Basic earnings per share ("EPS") is based on the weighted average number of
common shares outstanding, excluding common stock equivalents. Diluted EPS
reflects the potential dilution of EPS that could occur if securities or other
contracts to issue common shares were exercised or converted.
For the year ended December 31, 2001, basic and diluted earnings per share were
calculated. For the years 2000 and 1999, there was no difference between basic
and diluted earnings per share due to the losses of the Company.
The following table shows securities outstanding as of December 31, that dilute
basic EPS. Since there were losses in 2000 and 1999, the securities listed below
were not included in the computation of diluted EPS because to do so would have
been anti-dilutive.
2001 2000 1999
--------- --------- ---------
Employee stock options...................... 3,805,078 4,516,783 6,073,151
Warrants to acquire common stock............ 2,005,734 3,368,276 5,190,613
Common stock to be issued for
convertible debt.......................... 0 1,570,680 5,616,699
--------- --------- ---------
Total................................. 5,810,812 9,455,739 16,880,463
========= ========= ==========
(3) ACQUISITIONS AND STRATEGIC INVESTMENTS
On June 1, 2001, the Company acquired the capital stock of DCI Data
Communications, Inc., a privately-held company located in Hyannis,
Massachusetts. DCI was merged into FiberCore's Automated Light Technologies
(ALT) subsidiary and the merged entity was subsequently renamed DCI FiberCore,
Inc. The Company expects DCI to boost the breadth of the Company's technical
capabilities used in support of bringing optical fiber closer to the end-user.
The results of DCI for 2001 were not significant to the results of operations
set forth in the Company's consolidated financial statements.
DCI designs, installs and maintains low cost fiber optic networks, primarily in
the northeast U.S., for local area network applications, such as those used in
hospitals, universities, government and commercial buildings. When combined with
ALT's current product line, which includes early warning detection systems that
monitor and identify faults in fiber optic cables, cable protection devices and
electro-optical talk sets, DCI will have a proprietary base of technologies to
help bring fiber to the end-user.
The purchase price of DCI was approximately $1,100,000 and consisted, almost
exclusively, of the issuance of 252,669 shares of FiberCore common stock.
101,068 of these shares of common stock are held in escrow and are contingently
issuable based on certain conditions. The cost of the acquisition of $1,100,000
exceeds the estimate of the fair value of the net asset acquired by $520,000.
This excess, which has been accounted under purchase accounting as goodwill, is
being amortized over 20 years.
On June 20, 2000, the Company closed on an agreement to acquire, as of June 1,
2000, full ownership of Xtal FiberCore, Brasil (formerly "Xtal Fibras Opticas,
S.A."), a wholly owned subsidiary of Algar S.A. The $25,000,000 purchase price
is payable over a three year period; however, $2,500,000 is subject to achieving
certain profitability targets. At the closing, the Company paid $10,000,000 in
cash and issued to Algar a $10,000,000 note payable with interest at 6% payable
on December 31, 2000 for 90% of Xtal. According to the terms of the agreement,
the Company was entitled to receive a $1,000,000 discount if the $10,000,000
note was prepaid by August 31, 2000. On August 29, 2000, Algar's Chief Operating
Officer, on behalf of Algar, agreed to allow the discount if the remaining
$9,000,000 of the note was paid by September 8, 2000. On September 8, 2000, the
Company paid $9,000,000 together with interest, to Algar. Subsequently, Algar
disputed the understanding. On December 29, 2000, the Company, in full
settlement of the dispute, paid Algar $200,000 receiving, in effect, an $800,000
rather than a $1,000,000 discount. At the closing, the Company also issued a
$2,500, 6% note, payable in two installments of $1,250,000 each, on September
20, 2001, and on December 20, 2002, respectively. The obligation to repay the
$2,500,000 note is contingent on Xtal's attaining specified profitability
targets in 2000 and 2001; the targets in 2000 and 2001 were achieved. The
Company may acquire the remaining 10% of the stock upon payment of an additional
$2,500,000 plus 6% interest on or before June 20, 2003. The cost of the
acquisition of $22,486,000 exceeds the estimate of the fair value of the net
assets acquired by $11,699,000. This excess, which has been accounted for under
purchase accounting as goodwill, is being amortized over twenty years.
-47-
Assuming the acquisition of Xtal had occurred at the beginning of each period
presented, the pro forma net sales, gross profit, net loss and basic and diluted
loss per share of common stock are provided below.
(DOLLARS IN THOUSANDS) PRO FORMA
YEAR ENDED DECEMBER 31,
2000 1999
--------- ---------
Net sales....................................... $ 48,408 $ 29,898
Gross Profit ................................... $ 13,461 $ 4,035
Net Loss ....................................... $ (2,390) $ (5,420)
Basic and diluted loss per share of common
stock......................................... $ (.05) $ (.13)
Weighted average shares outstanding ............ 51,866,828 42,614,451
In November 1997, the Company entered into a joint-venture agreement with
Federal Power Sdn. Bhd. ("FDP") and PNB Equity Resource Corporation ("PERC") to
form FiberCore Asia Sdn. Bhd. ("FC Asia") in Malaysia. FC Asia was established
to construct and operate an optical fiber preform manufacturing facility in
Malaysia. The Company owns 51% of FC Asia, and FDP and PERC own 37% and 12%,
respectively.
The Company granted FC Asia a license to use the Company's technology in
exchange for the Company's ownership interest, and FDP and PERC contributed cash
of $1,683,000 and notes of $4,949,000 for their ownership interests. Due to the
economic situation in Malaysia and the Pacific Rim the debt financing required
for the project has not, as yet, been obtained. The Company and the other
shareholders in FC Asia are continuing to seek alternative financing and
additional equity partners for FC Asia.
(4) RECEIVABLES
Activity in the allowance for doubtful accounts consisted of the following for
the years ended December 31:
(Dollars in thousands) 2001 2000 1999
----- ----- ------
Balance at beginning of period............. $ 836 $ 220 $ 200
Additions charged to expense............... -- 17 409
Xtal allowance acquired.................... -- 803 --
Deductions................................. (133) (204) (389)
------ ------- ------
Balance at end of period............. $ 703 $ 836 $ 220
====== ======= ======
-48-
Other receivables consist of the following at December 31:
(Dollars in thousands) 2001 2000
------ --------
Due from suppliers......................... $2,369 $ --
Value added tax............................ 2,921 567
Other...................................... 108 140
------ -------
Total................................ $5,398 $ 707
====== =======
(5) INVENTORIES
Inventories consist of the following at December 31:
(Dollars in thousands) 2001 2000
------ ------
Raw materials............................... $3,913 $4,418
Work-in-process ............................ 1,379 992
Finished goods ............................. 2,807 783
------ ------
Total ................................ $8,099 $6,193
====== ======
(6) PROPERTY AND EQUIPMENT
Property and equipment, including capital leases, consist of the following at
December 31:
(Dollars in thousands) ESTIMATED
USEFUL LIVES 2001 2000
----------- ----------- ----------
Land................................. $ 1,562 $ 1,248
Buildings............................ 25 years 4,447 3,010
Vehicles............................. 5 years 13 --
Office equipment..................... 2-5 years 832 695
Machinery and equipment.............. 2-12 years 25,317 16,006
Furniture and fixtures............... 5-7 years 21 21
Leasehold improvements............... 3-10 years 800 405
Construction in progress............. 22,706 8,321
----------- ----------
55,698 29,706
Less grant proceeds received......... (5,574) (3,673)
----------- -----------
Total.......................... $ 50,124 $ 26,033
=========== ===========
Depreciation on property and equipment charged to expense was $2,946,000 in
2001, $1,793,000 in 2000 and $1,058,000 in 1999. Capital leases included above
are $369,000 for buildings and $3,750,000 for equipment with accumulated
depreciation of $243,000 as of December 31, 2001.
-49-
(7) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
(Dollars in thousands) 2001 2000
-------- --------
Accrued wages, benefits & taxes............ $ 1,525 $ 1,593
Accrued interest........................... 235 120
Accrued legal and audit.................... 276 266
Accrued income taxes....................... 2,198 406
Other...................................... 1,732 2,507
-------- --------
Total................................ $ 5,966 $ 4,892
======== ========
(8) NOTES PAYABLE
Notes payable consist of the following at December 31:
(Dollars in thousands) 2001 2000
---- ----
Notes payable to Banco ABC Brasil SA with interest at 10.5%,
due at various dates from January 6 through July 25, 2002 1,234 ---
Note payable to Banco BNL do Brasil SA with interest at
3.2%, due March 29, 2002 408 ---
Notes payable to Banco do Estado de Sao Paulo SA with
interest rates ranging from 3.2 - 5.0%, due at various dates
from February 27, 2002 through June 3, 2002 2,346 179
Notes payable to Banco Sudameris Brasil SA with interest at
1.7%, due November 28, 2002 2,565 ---
Notes payable to Banco Bilbao Vizcaya Argentaria Brasil SA
with interest at 1.7%, due June 18, 2002 501 ---
Note payable to Dresdner Bank with interest at 7.56%, due
February 20, 2001 --- 312
Amounts outstanding under working capital loans from
Brazilian banks with interest rates ranging from 29% to 34%
due March 31, 2002 584 512
Note payable to Algar S.A with interest at 6%, due
December 20, 2002 1,250 1,250
Current portion of capital lease with Banco Votorantin SA
with interest at 19% maturing May 2004 1,221 ---
Current portion of mortgage on building with Sparkasse Jena
with interest at 7% due June 30, 2011 43 ---
-50-
2001 2000
(Dollars in thousands) ------- ------
Current portion of capital lease with AVV Thuringen GmbH
with interest at 15.75%, due November 1, 2006 48 ---
Current portion of Fleet Bank loan - floating rate based on
Libor, due December 26, 2002 659 ---
------- ------
Total $10,859 $2,253
======= ======
At December 31, 2001, Xtal had notes payable to various Brazilian banks
amounting to $7,638,000. The notes bear interest at annual rates ranging from
1.7% to 34%. The notes are due at various dates throughout 2002. The funds were
used for working capital purposes.
At December 31, 2000, the Company's Brazilian subsidiary, Xtal maintained two
lines of credit of approximately $512,000 with Brazilian banks. The notes bear
interest at 18.33% per year. The notes, which were unsecured, were paid in full
in January 2001. As of December 31, 2001, Xtal maintained two lines amounting to
$584,000, with interest rates ranging from 29% to 34%.
Pursuant to the acquisition of Xtal, the Company issued $2,500,000 of 6% notes,
payable in two installments of $1,250,000 each, on September 20, 2001, and on
December 20, 2002, respectively. The obligation to repay the $2,500,000 note is
contingent on Xtal's attaining specified profitability targets in 2000 and 2001;
the profitability targets for 2000 and 2001 were met. At December 31, 2000, the
first loan was booked. That loan was paid as of December 31, 2001. The second
contingent loan was booked as of December 31, 2001 and is due with interest at
6% on December 20, 2002.
During April of 2001, Xtal purchased $3,750,000 of equipment under a capital
lease with Banco Votorantin SA, with an annual interest rate of 19%. The lease
will be paid off in May 2004. The principal portion of the lease due in 2002 is
$1,221,000.
During August of 2001, FCQ borrowed $956,000 from Sparkasse Jena for the
purchase of a building with an interest rate of 7%. Principal payments start
June 30, 2002. The loan matures in June of 2011.
As of June, 2001, FCJ financed $369,000 towards the cost of a new building for
FiberCore Machinery, with an interest rate of 16% due in November of 2006. The
current portion of principal payments of $48,000 is reflected in notes payable.
The conversion prices of convertible notes either equaled or exceeded the
trading price of the Company's stock on the date of issue. All of the proceeds
of the notes were used for working capital.
-51-
(9) LONG-TERM DEBT
Long-term debt consists of the following at December 31:
(Dollars in thousands) 2001 2000
------- -------
Note payable to Sparkasse Jena, with interest at 6.25%,
due September 30, 2006. $ 3,507 $ 3,699
Capital lease with AVV Thuringen GmbH. with interest at
15.75%, due November 1, 2006 280 ---
Mortgage payable to Sparkasse Jena with interest at 7% due
June 30, 2011 913 ---
Notes payable to consortium of Banks in Germany at interest
rates ranging from 5.6% to 6.15% due March 31, 2011 7,102 ---
Convertible note payable to Crescent International, with
interest at 8%, due June 9, 2002 (Converted January 11,
2001). --- 4,000
Capital lease with Banco Votorantin SA with interest at 19%,
due May, 2004 2,173 ---
Fleet Bank line of credit - Floating rate based on Libor,
due December 26, 2005, net of current installment. 8,500 2,150
------- ------
Total $22,475 $ 9,849
======= =======
During the year ended December 31, 1997, the Company drew down 7,700,000 German
marks (approximately U.S. $3,507,000 at December 31, 2001) under a loan
agreement with the Sparkasse Jena. The proceeds were used to fund the expansion
of the Company's plant in Germany. The loan bears interest at 6.25% annually and
is due on September 30, 2006. A cash deposit of approximately $1,753,000
collateralizes the loan. The Sparkasse Jena loan contains certain financial
ratio covenants. At December 31, 2001, the Company was in compliance with these
covenants.
On May 19, 2000 in a private placement, the Company issued 4,451,509 shares of
common stock to Tyco Electronics Corporation, a wholly owned subsidiary of Tyco
International Ltd, upon conversion of all outstanding debt and accrued interest,
in the amount of $6,432,000. The remaining debt discount of $629,000 was
recorded as a credit to additional paid-in-capital. In addition, Tyco paid
$2,000,000 upon the exercise of warrants to purchase 2,765,487 shares of common
stock. In connection with the debt conversion, Tyco released its liens on the
Company's assets.
As part of a private placement transaction with Crescent International Ltd.
("Crescent"), the Company issued on June 9, 2000 and July 5, 2000 secured, two
year, 8% convertible notes, in the amounts of $6,000,000 and $1,500,000,
respectively.
-52-
On June 26, and December 29, 2000, Crescent converted $2,000,000 of the
$6,000,000 note and the $1,500,000 note into 685,871 and 590,760 shares of
common stock, respectively. The convertible notes are convertible into common
shares of the Company at the lower of (i) the volume-weighted-average trading
prices during the 10 trading days preceding the closing, or (ii) 93% of the
average of the lowest three consecutive weighted-average trading prices during
the 22 trading days preceding the conversion. In connection with the deemed
beneficial conversion feature of the $6,000,000 and $1,500,000 note and, in
accordance with accounting pronouncements, the Company recorded as of June 9,
2000 and July 5, 2000, $5,317,000 and $88,000, respectively, of non-cash
interest expense offset by an increase in additional paid-in-capital. The
adjustments have no effect to the net equity of the Company. The remaining
$4,000,000 of the June 9, 2000 note was converted by Crescent on January 11,
2001 into 1,570,680 shares. In addition, Crescent released its liens and pledges
on all collateral.
On December 26, 2000, the Company closed on a $10,000,000, five (5) year
revolving credit loan agreement with Fleet National Bank, but the maximum
principal amount of the loan decreases by $750,000 on December 26, 2001 and each
subsequent year. Contemporaneously with each reduction, the Company shall repay
to the Bank the amount, if any, by which the outstanding principal balance
exceeds the loan commitment as so reduced, together with accrued interest and
unpaid interest, thereon. The Company is required to pay commitment fees of 1%
per annum on the unused balance of the Fleet revolving credit loan. The loan is
guaranteed by Tyco Sigma Limited, a wholly owned subsidiary of Tyco
International Ltd., pursuant to a Guarantor Indemnification Agreement entered
into with the Company and three managing shareholders of the Company. Under the
guarantee, the Company is obligated to make quarterly payments to Tyco Sigma
Limited in an amount equal to 0.4% (1.6% annually) on the $10,000,000. At the
Company's election, the interest rate is equal to either the bank's prime rate
or 1.5% above the bank's LIBOR rate, which is set at one, two and three month
intervals. In addition, so long as obligations remain owing to Fleet, the
Company will not pay any dividends or make similar distributions. While the
Company entered into a Pledge and Security Agreement with respect to
substantially all of the Company's assets, as part of the closing, the Pledge
and Security Agreement is not effective and no security interest shall attach
unless the bank elects upon the occurrence of an event of default or the
existence of an adverse credit rating with respect to Tyco International Group
S.A. If an event of default occurs, Tyco Sigma can exercise its rights as holder
of its share of the Series A Preferred Stock to cause the Company's Board of
Directors to be expanded to include a sufficient number of additional
(Tyco/designated) Series A directors such that the Series A directors constitute
a majority of the Board of Directors. If the Guarantor Indemnification Agreement
is terminated, all Series A directors will be deemed to resign, and the Series A
Preferred Stock will automatically be cancelled. The Series A Preferred Stock
contains no other voting rights or dividend, liquidation, conversion, or other
monetary rights or preferences.
During 2001, the Company borrowed $7,008,646 under the Fleet Bank line of
credit, with interest based on Libor. The proceeds were used for the expansion
at FCJ, investment in FCQ and general working capital purposes at all locations.
FCJ borrowed $7,102,000 from a consortium of German banks during the course of
2001 with interest rates ranging from 5.6% to 6.2%, maturing in March of 2011.
Principal payments commence in 2003. The proceeds were used for the expansion.
-53-
Scheduled maturities of long-term debt and capital leases are as follows at
December 31, 2001:
(Dollars in thousands)
2003 $ 750
2004 2,923
2005 7,000
2006 3,787
2011 8,015
-----------
Total $ 22,475
===========
(10) COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries have entered into various leases for its office
and production space. The Company's office lease is on a monthly basis at a
monthly rental of $2,750. FCJ conducts part of its operations from premises
under an operating lease. The lease provides for fixed monthly rental payments
of $23,000 for 2002 and $19,000 for 2003. The lease expires December 31, 2003,
however, the Company has the option to renew the lease annually with six months
notice. The Company intends to remain at these premises and use them in
conjunction with the new building which has been constructed and will be used in
2002. Xtal owns the land and buildings in which its operations are conducted.
The Company has an outstanding S-3 registration statement, which was declared
effective on September 29, 2000 by the Securities and Exchange Commission. The
S-3 covers primarily the resale of securities held by Crescent International
Ltd. and underwritten sales of common stock, from time to time, by the Company.
Additionally, the Company filed a new S-3 registration statement on February 12,
2002. This S-3 has not yet been declared effective.
The Company has two vendor supply contracts which contain "take or pay"
provisions to the extent that the Company purchases less than the agreed upon
annual percentage covered by the annual purchase order. One contract also
contains "take or pay" provisions if the vendor delivers less than the agreed
upon amount covered by the annual purchase order. If the vendor delivers less
than the contracted amount, they are required to pay a fee to FiberCore based on
the amount of the shortage. The Company and Xtal are currently engaged in
arbitration with one of these suppliers regarding volumes not taken during the
fourth quarter of 2001, which is described more completely below. The Company
currently has the following commitments under these take or pay contracts:
2002 $18,096,513
2003 $ 3,441,997
Xtal is party to a three (3) year take-or-pay contract expiring in June 2003,
with Shin Etsu for the delivery of single-mode preforms to Xtal. In 2001, Xtal
purchased approximately $10,900,000 of product under the contact. The contract
calls for monthly purchases of preform with 50% of the volume at a fixed price
and 50% to be set quarterly based on market prices. There are provisions in the
contract that provide for exceptions for both parties regarding the requirements
to ship or purchase preforms. In the fourth quarter of 2001, Xtal elected not to
take most of the contracted volume under one of these provisions. Shin Etsu is
contesting Xtal's interpretation of the contract and has submitted a claim to
-54-
arbitration relative to this volume and additional volumes under a non-related
agreement which is not a take-or-pay agreement. The total amount in dispute is
approximately $4,400,000, with approximately $1,750,000 related to the
take-or-pay contract. Xtal and the Company have submitted their position to the
arbitration panel. However, if Xtal were to ultimately lose, Xtal could be
required to purchase the preforms in question as well as pay the costs of
arbitration. In that case, the legal costs of arbitration would negatively
impact the Company's operating results, but the costs of the material would
become part of inventory/cost of sales. This could potentially have a negative
operating impact as well, depending on the price of the preforms determined in
the arbitration ruling versus the market price of the preforms at the time of
the ruling. The parties have had settlement discussions during this period but
have not reached an agreement at this time. Xtal has continued to purchase
preforms from Shin Etsu under the contract since the fourth quarter of 2001.
Future minimum lease payments under non-cancelable operating leases (with
minimum or remaining lease terms in excess of one year) are as follows, as of
December 31, 2001:
(Dollars in thousands)
FISCAL YEAR ENDING
DECEMBER 31, AMOUNT
------------------- --------------
2002.................... $ 1,882
2003.................... 1,915
2004.................... 1,598
2005.................... 1,589
2006.................... 1,631
2007 and thereafter..... 1,756
-------------
Total.............. $ 10,371
=============
Included in the statements of operations for the years ended December 31, 2001,
2000 and 1999 is operating lease expense of $1,377,000, $396,000, and $384,000,
respectively.
The Company is currently in litigation with Techman International Corp.
("Techman") and M. Mahmud Awan ("Awan") who controls Techman, relating to
certain investments, contracts and other claims. Both parties are seeking
approximately $500,000 in cash. In addition, the Company is suing Techman and
Awan for the return of shares that have been canceled by the Company because of
the failure of Techman and Awan to satisfy certain conditions related to their
issuance. The litigation is in the discovery and motion phase. The Company
believes that its claims against Techman and Awan are good and that it will
ultimately prevail on its claims, but given the uncertainties inherent in
litigation, the outcome cannot be predicted with any reasonable certainty at
this time.
ALT is contingently liable for certain debt of a former subsidiary, Allied
Controls, Inc. ("Allied"), in the amount of approximately $200,000. Allied is
current in its payments with respect to this debt.
The Company is a co-guarantor with the other joint venture partners for certain
credit facilities provided by banks to MEFC. The assets of MEFC collateralize
the obligations under the credit facility. At December 31, 2001, the Company was
contingently liable for these loans in the amount of approximately $140,000.
-55-
In addition to the above, the Company is subject to various claims, which arise
in the ordinary course of business. The Company believes such claims,
individually or in the aggregate, will not have a material adverse effect on the
financial position or results of operations of the Company.
(11) STOCKHOLDERS' EQUITY
The Company has completed the following sales of securities during the past
three years:
1) a private placement in reliance on Section 4(2) of the Securities Act of
1933 ("Section 4(2)), dated July, 1999, pursuant to which the Company
issued to a private investor 1,000,000 shares of Common Stock for
$250,000;
2) a private placement in reliance on Section 4(2), dated May 16, 2000,
pursuant to which the Company issued 485,002 shares to ten offshore
accredited investors for $1,550,000;
3) a private placement in reliance on Section 4(2), dated May 19, 2000,
pursuant to which the Company issued 4,451,529 shares of Common Stock to
Tyco Electronics Corporation, a wholly owned subsidiary of Tyco
International Ltd, upon its conversion of $6,432,000 outstanding debt,
including interest, and issued 2,765,487 shares of Common Stock upon the
exercise of warrants for $2,000,000;
4) a private placement in reliance on Section 4(2) with Crescent
International Ltd, ("Crescent") dated June 9, 2000, with respect to a
$30,000,000 commitment pursuant to which the Company:
o issued 1,200,274 shares of Common Stock for $3,500,000 on June 9,
2000;
o issued $7,500,000 in debt convertible into shares of Common Stock,
of which $2,000,000 on June 29, 2000 and $1,500,000 on December 29,
2000 were converted into 685,871 and 590,760 shares of Common Stock,
respectively. The remaining $4,000,000 held as of December 31, 2000
was converted into 1,570,680 shares of Common Stock on January 12,
2001; and
o could require Crescent to purchase up to $19,000,000 of additional
shares of Common Stock, based on a market-based pricing formula;
subject to certain terms and limitations set forth in the Company's
Agreements with Crescent and with respect to which Crescent has
registration rights.
o a private placement in connection with transactions with Crescent,
pursuant to which the Company issued to Gruntal, its then investment
banker and agent in the Crescent transactions, warrants to purchase
up to 504,146 shares (includes 47,260 warrants issued December 29,
2000, of Common Stock at a weighted average exercise price of $3.56;
5) a private placement in reliance on Section 4(2), dated September 5, 2000,
pursuant to which the Company issued 1,352,275 shares of Common Stock to
Tyco Sigma Limited, a wholly owned subsidiary of Tyco International Ltd.,
for $9,000,000;
-56-
6) an offering in reliance on Regulation S, dated September 15, 2000 pursuant
to which the Company issued 155,718 shares of Common Stock to two venture
capital companies located outside the U.S. for $1,110,000; and
7) On August 20, 2001, the Company replaced existing $19,000,000 equity line
with Crescent with a new line totaling the same amount. Pursuant to the
new agreement, the Company has completed the following transactions:
o a private placement in reliance on Section 4(2), dated August 20,
2001 pursuant to which the Company issued 661,625 shares of Common
Stock to Crescent for $3,000,000;
o a private placement in reliance on Section 4(2), dated October 31,
2001, pursuant to which the Company issued 446,667 shares of Common
Stock to Crescent for $1,000,000;
8) As of January 15, 2002, the Company sold $5,000,000 of 5% convertible
subordinated debentures to a group of investors consisting of Riverview
Group, LLC, Laterman & Co. and Forevergreen Partners. The Company's
agreements with the investors require the Company to register the shares
of the Company's common stock issuable upon conversion of the debentures
or exercise of warrants sold to the investors in connection with the sale
of the debentures. The Company is in the process of registering the resale
of the shares into which the debentures may be converted and the shares
issuable upon exercise of the described warrants. The debentures mature in
January of 2004, but the Company must redeem $500,000 of the outstanding
debentures each month, commencing April 1, 2002, and may do so in shares
of the Company's common stock if certain conditions are met.
The purchase agreement also provides for the Company's issuance to the
investors of an additional $1,000,000 of 5% four year debentures upon the
effectiveness of a registration statement. In addition, the purchase
agreement also allows the investors to purchase, at their option, up to an
additional $3,000,000 of debentures (to the extent that the Company has
not required the investors to purchase convertible subordinated debentures
pursuant to the provision described in the next sentence) at any time
before January 15, 2003, if the average of the volume weighted average
trading prices for the 5 trading days prior to the investors' notice to
the Company requiring the Company to sell them additional debentures is
greater than $2.6973. In addition, at any time before January 15, 2003,
the Company may require the investors to purchase up to $3,000,000 of
convertible subordinated debentures (to the extent the investors have not
purchased convertible debentures at their option pursuant to the provision
described in the preceding sentence) if the average of the volume weighted
average trading prices for the 5 trading days prior to the Company's
providing the investors with notice requiring them to purchase additional
debentures is greater than $4.4505.
The Company has or will use the proceeds in from the foregoing sales of
securities primarily to finance the acquisition of Xtal and improvements at
Xtal's facilities and for research and development activities, support the
Company's expansion program including capacity expansion and productivity
initiatives in Germany, initial funding for FiberCore Africa, working capital
and other Corporate purposes.
-57-
In connection with the Company's transaction with Crescent, the Company filed a
registration statement on Form S-3 which became effective on September 29, 2000.
The registration statement provided for Crescent's resale of the shares of
Common Stock previously issued to Crescent, the shares of Common Stock issuable
to Crescent upon exercise of warrants, and 456,886 shares of Common Stock
issuable upon exercise of warrants issued to Gruntal. The registration statement
also included a shelf registration of 4,200,000 shares of Common Stock which the
Company may sell through one or more underwritten offerings. As of December 31,
2000, the Company had not sold any shares under the registration statement.
In January 2001, the Company engaged Merrill Lynch & Co. to act as a financial
advisor in connection with any proposed business combination transaction or
other corporate transactions. Merrill also served as placement agent for the
Company's sale of $5,000,000 convertible debentures on January 15, 2002.
The following represents the stock option activity, price range and weighted
average price during the three years ended December 31, 2001.
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES RANGE EXERCISE
---------- --------------- ----------
Outstanding at December 31, 1998 2,020,225 $0.003-$1.58 $0.95
Granted in 1999 4,052,926 $0.1875-$2.125 $0.49
---------- -------------- ----------
Outstanding at December 31, 1999 6,073,151 $0.003-$2.125 $0.641
Granted in 2000 110,416 $3.81-$4.906 $3.915
Exercised in 2000 (1,172,986) $0.003-$1.58 $0.47
Expired in 2000 (493,798) $1.16-$2.13 $1.42
--------- ------------- ---------
Outstanding at December 31, 2000: 4,516,783 $0.1875-$4.906 $0.60
Granted in 2001 781,500 $4.125-$6.11 $4.46
Exercised in 2001 (548,831) $0.1875-$1.58 $0.28
Expired in 2001 (192,000) $0.27-$4.125 $0.53
--------- ------------- ---------
Outstanding at December 31, 2001: 4,557,452 $0.1875-$6.11 $1.30
=========================================
At December 31, 2001:
Exercisable 3,617,294 $0.1875-$4.906 $0.70
Not Exercisable 940,158 $0.5625-$6.11 $3.59
Options vest at various dates, generally over the three-year period from the
date of the grant. The options granted in 2001, 2000 and 1999 expire ten (10)
years from the grant date.
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A summary of the status of the Company's stock options and weighted average
prices at December 31, 2001 are as follows:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF OPTIONS EXERCISE REMAINING OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING PRICE YEARS EXERCISABLE PRICE
- ----------------- ---------- ------- --------- ---------- -------
$0.1875 - $0.5625 2,997,827 $0.24 7 2,876,995 $0.22
$0.57 - $1.50 148,709 $1.45 * 148,709 $1.45
$1.51 - $4.906 1,258,916 $3.25 7 591,590 $2.81
$4.92-$6.11 152,000 $5.78 -- -- --
---------- ----- ---------- -----
$0.1875 - $6.11 4,557,452 $1.30 3,617,294 $0.69
========== ===== ========== =====
* Options granted and exercisable have no expiration date.
The Company applies APB Opinion 25 in accounting for its stock compensation
plans. Had compensation cost been determined on the basis of fair value pursuant
to FASB Statement No. 123, net loss and loss per share would have been as
follows:
(Dollars in thousands) 2001 2000 1999
---- ----- ----
Net loss
- --------
As reported $ 480 $(2,697) $(2,004)
====== ======== =========
Pro forma $(413) $(3,076) $(2,230)
===== ======== =========
Basic earnings (loss) per share
- ------------------------------
As reported $ 0.01 $ (0.05) $ (0.05)
Pro forma $ (0.01) $ (0.06) $ (0.06)
Diluted earnings (loss) per share
- ---------------------------------
As reported $ 0.01 $ (0.05) $ (0.05)
Pro forma $ (0.01) $ (0.06) $ (0.06)
The weighted average fair value of options granted during 2001, 2000 and 1999
was $2.64, $3.09 and $0.29, 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:
ASSUMPTIONS STOCK PLAN
-------------- -----------------
Dividend yield --
Risk-free interest 5.0%
rate
Expected life 3 years in 2001 and
2000and 10 years in
1999
Expected volatility 89% in 2001, 140% in
2000 and 50% for 1999
At December 31, 2001 there were outstanding warrants to purchase 3,279,941
common shares at exercise prices ranging from $0.25 to $7.179 per share. Of the
warrants outstanding, 1,606,462 were held by certain officers of the Company and
their spouses. Warrants issued in conjunction with debt issues were valued using
the Black-Scholes method and the Company recorded debt discount for the fair
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value of these warrants. The debt discount was amortized to interest expense
over the term of the loans.
The warrants are exercisable from the date of the grant and expire at various
dates to October 2006.
(12) INCOME TAXES
The provision (benefit) for income taxes consists of the following components:
(Dollars in thousands) 2001 2000 1999
------ ------ -----
Current:
- --------
Federal $ --- $ --- $ ---
State --- 8 15
Foreign 2,709 1,946 ---
------- ------ -------
$ 2,709 $1,954 $ 15
------- ------ -------
Deferred:
- ---------
Federal $ --- $ --- $ ---
State --- --- ---
Foreign 297 100 (952)
------- ------ --------
297 100 (952)
------- ------ --------
$ 3,006 $2,054 $ (937)
======= ====== ========
The provision for income taxes differs from the amount computed by applying the
statutory U.S. Federal income tax rate to income before income taxes as a result
of the following:
(Dollars in thousands) 2001 2000 1999
------ ------ -------
U.S. Federal income tax
(benefit) at
statutory rate $ 1,220 $ (113) $(1,000)
State income taxes, net
of Federal benefit 1 5 12
Non-deductible expenses 214 2,181 287
Foreign tax rate
differential 314 (269) 46
Recognition of NOL --- --- (905)
U.S. loss with no tax
benefit 1,210 303 623
Other, net 47 (53) ---
-------- ------- ---------
$ 3,006 $ 2,054 $ (937)
======== ======= =========
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The significant components of the deferred tax assets as of December 31, 2001
and December 31, 2000 are as follows:
(Dollars in thousands) 2001 2000
------ ------
Deferred Liabilities: --- ---
Total Deferred Tax
Liability --- ---
Deferred Assets:
Reserves $ 1,003 $ 789
Net Operating loss
carry-forward 9,941 7,397
Foreign tax credit 273 273
-------- -------
Total Deferred Tax Asset $ 11,217 $8,459
Valuation allowance (10,834) (7,737)
-------- -------
Net Deferred Tax Asset $ 383 $ 722
======== =======
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. In 2001, FiberCore retained a full valuation
allowance against the net operating losses of Xtal that was acquired in June
2000. A deferred tax asset has been established for post-acquisition temporary
differences. The net deferred tax asset applicable to FiberCore is fully
reserved. During 1999, the Company reversed the valuation allowance attributable
to the net deferred tax asset applicable to FCJ. This resulted in an income tax
benefit of $952,000. The total valuation allowance increased $3,097,000,
$2,038,000 and $338,000 in 2001, 2000, and 1999 respectively.
The Company has net operating loss carry forwards available of approximately
$21,064,000 at December 31, 2001 for federal tax purposes. There has been no
federal income tax expense for the years 2001, 2000, and 1999. The majority of
the net operating loss carry-forwards expire in the years 2009 through 2021.
ALT has pre-acquisition net operating loss carry forwards available of
approximately $519,000 at December 31, 2001 for federal and state tax purposes.
The loss carry forwards expire between the years 2001 and 2010.
Xtal has pre-acquisition net operating loss carry forwards of approximately
$4,369,000 for corporate income and social contribution taxes. The use of the
losses is limited to 30% of taxable income per year and the losses can be
carried forward indefinitely.
(13) MAJOR CUSTOMERS
For 2001, one customer exceeded the 10% level of consolidated sales. Cabelte
Cabos Electricos SA represented 19% of the Company's sales in 2001 and 11% in
2000. In 2000, Furukawa Industrial S/A was the only other company that exceeded
the 10% level with sales to them totaling 11% of sales. In 1999, 4 companies
exceeded that level - Leone AG (24%), Pinnacl (21%), Siemens AG (10%), and
Optical Cable Corp (10%).
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As of December 31, 2001, there were no customer's accounts receivable, which
amounted to 10% or more of total trade accounts receivable. As of December 31,
2000, Cabelte Cabos Electricos S.A. accounted for $2,728,000 or 30% of accounts
receivable and Brasfio Industria e Commercio S.A. accounted for $1,495,000 or
16%. As of December 31, 1999, Pinnacl, Ltd, which was acquired by Tyco
International in 2001, accounted for $669,000 or 34% and Leone AG accounted for
$472,000 or 24%.
(14) RELATED PARTY TRANSACTIONS
In 2001, the Company had sales to MEFC of $975,000, in which the Company holds a
7% interest; sales in 2000 to MEFC were $807,000. On August 1, 2000, Mr. Steven
Phillips assumed the role of interim Chief Financial Officer. He continued in
that role through July 26, 2001, at which time he resumed his role as a
consultant to the Company. Prior to July 31, 2000 and subsequent to July 26,
2001, the Company had a consulting agreement with One Financial Group
Incorporated ("OFG"), a company controlled by Mr. Phillips who is also a
director of the Company. OFG provided services as a financial advisor and for
the period July 27, 2001 to December 31, 2001, the Company incurred costs of
$119,000 in connection with services rendered by OFG. During the period from
January 1, to July 31, 2000, the Company incurred costs of $116,000.
(15) FOREIGN OPERATIONS
The Company has operations in four principal geographic areas: the United States
(Company and DCI), Germany (FCJ), Brazil (Xtal) and Malaysia (FC Asia).
Following is a summary of information by area for the years ended December 31,
2001, 2000 and 1999:
(Dollars in thousands) 2001 2000 1999
---- ---- ----
Net sales to customers in:
United States................................... $ 9,981 $ 4,241 $ 1,697
Germany......................................... 5,198 5,944 5,432
United Kingdom.................................. 3,955 2,995 2,895
Brazil.......................................... 24,360 22,276 ---
Other........................................... 8,868 1,463 2,102
-------- -------- --------
Net sales as reported in the accompanying
consolidated statements of operations $ 52,362 $ 36,919 $ 12,126
========= ======== ========
Long-lived assets:
United States(1)................................ $ 8,520 $ 7,938 $ 9,375
Germany......................................... 22,524 7,432 3,788
Brazil(2)....................................... 31,929 25,278 ---
Malaysia........................................ 5,334 5,334 5,336
--------- -------- --------
Total long-lived assets $ 68,307 $ 45,982 $ 18,499
========= ======== ========
(1) Includes $506 of Goodwill
(2) Includes $10,391 of Goodwill in 2001 and $11,335 of Goodwill in 2000
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. FC Asia had no significant operations since its formation in
1997.
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(16) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(DOLLARS IN THOUSANDS)
QUARTERS FIRST SECOND THIRD FOURTH
- ------------------------------------ ------- -------- ------- --------
2001(1)
Net sales $16,226 $18,066 $ 8,823 $ 9,247
Gross Profit 6,591 7,230 3,089 (632)
Net income (loss) 2,979 3,049 (2,241) (3,307)
Basic income (loss) per share(5) $ 0.05 $ 0.05 $ (0.04) $ (0.05)
Diluted income (loss) per share $ 0.05 $ 0.05 $ (0.04) $ (0.05)
2000(2)
Net sales $ 3,453 $ 6,413 $ 13,188 $13,865
Gross profit 732 1,690 3,859 5,520
Net income (loss) (3) (496) (5,333) 836 2,296
Basic income (loss) per share(5) $ (0.01) $ (0.11) $ 0.02 $ 0.04
Diluted income (loss) per share (4) $ (0.01) $ (0.11) $ 0.01 $ 0.04
1999
Net sales $ 2,655 $ 2,371 $ 2,824 $ 4,276
Gross profit 318 425 261 1,302
Net loss (655) (719) (589) (41)
Basic and diluted loss per share $ (0.02) $ (0.02) $ (0.02) $ 0.00
(1) The Company purchased DCI as of June 1, 2001
(2) The Company purchased Xtal as of June 1, 2000
(3) During the second quarter the Company recorded a non-cash interest
charge of $5,317 related to beneficial conversion features on
convertible debt.
(4) As the Company reported a consolidated net loss for the year ended
December 31, 2000, basic and diluted earnings per share for that period
were the same. As the Company reported a consolidated net income for the
third and fourth quarter of 2000, the Company had both basic and diluted
earnings per share for those periods.
(5) The sum of the quarterly loss per share does not equal the annual loss
per share due to rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not Applicable
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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, 2001.
NAME AGE POSITION
- ------------------- ----- --------------------------------------------
Dr. Mohd A. Aslami 55 Chairman of the Board of Directors, Chief
Executive Officer, and President
Charles De Luca 64 Member of the Management Board and Director
of FCJ
Robert P. Lobban 47 Chief Financial Officer and Treasurer
Steven Phillips 56 Special Director and Consultant
Hedayat Amin-Arsala 60 Director
Javad K. Hassan 61 Director
Michael A. Robinson 36 Director
Dr. Aslami is a co-founder, Chairman of the Board of Directors and Chief
Executive Officer of the Company. Dr. Aslami has served as Chairman and Chief
Executive Officer of FiberCore Jena, the Company's wholly owned subsidiary in
Germany, since 1994. Dr. Aslami also co-founded ALT in 1986, and served as its
President, Chief Executive Officer and director from 1986 to 1994. Dr. Aslami
received a Ph.D. in chemical engineering from the University of Cincinnati in
1974.
Mr. De Luca is a member of the Management Board of FCJ and is a co-founder and
director of the Company. Mr. De Luca also co-founded and became an Executive
Vice President and director of ALT in 1986. Mr. De Luca received his MBA in
marketing and business management from St. Johns University in 1974.
Mr. Lobban joined FiberCore in April of 2001 as the Vice President of Finance
and was named Chief Financial Officer and Treasurer July 27, 2001. Prior to
joining the Company, Mr. Lobban was the Chief Financial Officer of a publicly
held manufacturing company in Phoenix, Arizona. He has 25 years experience as a
senior financial executive and spent nine years as management consultant to
several Fortune 500 companies. Mr. Lobban holds a Bachelor of Science Degree in
Industrial Engineering from Northeastern University and a Masters in Business
Administration from the Harvard Graduate School of Business.
Mr. Phillips became interim Chief Financial Officer and Treasurer of the Company
in August 2000 and continued in that role until July 26, 2001. Mr. Phillips
served as a financial consultant to the Company for many years prior to assuming
the role of interim Chief Financial Officer and has resumed the role of
financial consultant as of July 27, 2001. He became a director of the Company in
May 1995 and became a director of ALT in May 1989. He also served as interim
Chief Financial Officer for a start-up internet company and as Chief Financial
Officer of the Winstar Government Securities Company L.P., a registered U.S.
Government securities dealer which he co-founded. Since August 1987, Mr.
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Phillips has served as a director, Secretary and Chief Financial Officer of
James Money Management, Inc. a private investment company.
Mr. Amin-Arsala held various senior positions with the World Bank for 18 years.
He was in charge of World Bank operations in countries of East and South Asia,
retiring in 1987. He served as the Minister of Finance for the Afghan Interim
Government from 1989 to 1992, and Minister of Foreign Affairs for Afghanistan
from 1993 to 1996. Since 1996, Mr. Amin-Arsala has acted in an advisory capacity
to the United Nations and the United States Agency for International Development
and has served a number of governmental and non-governmental humanitarian
organizations. Mr. Amin-Arsala has been appointed Minister of Finance of the
Afghan Interim Government.
Mr. Hassan joined AMP Incorporated (now Tyco) in 1988 as Vice President of
Technology and in 1993 was appointed Corporate Vice President, Strategic
Businesses, later renamed Global Interconnect Systems Business ("GISB") where he
pioneered and deployed a new strategy to take Tyco from a connector company to a
global interconnection systems and solutions organization. He was named
President of GISB in 1993. After retiring from Tyco in 1998, Mr. Hassan founded
and is Chairman and CEO of NeST (Network Systems and Technologies), a provider
of software systems and electronics design and manufacturing with over 2000
employees. He is Chairman of AM Communications, a public company providing
broadband network monitoring and management systems to cable TV operators, and
General Partner to MESA (Middle East and Southeast Asia) Venture Capital Fund
for targeted investments in US-based technology companies. He is a member of the
board of several companies and currently serves as Chairman of the Electronic
Development Commission for the Government of Kerala in India. Mr. Hassan's
membership on the Board of Directors of FiberCore, Inc. is not pursuant to any
agreement with Tyco. Mr. Hassan received a B.S.M.E. degree from Kerala
University in 1962, a Masters of Materials Science degree from the University of
Bridgeport, Connecticut in 1968 and was elected IEEE Fellow, Institute of
Electrical and Electronics Engineers in 1986.
Mr. Robinson became a director of the Company in October 2000. Mr. Robinson is
Senior Vice President and Corporate Treasurer of Tyco International Ltd., a
global, diversified manufacturing and service company. Mr. Robinson was
appointed Treasurer of Tyco in March 1998. Prior to this appointment, he was a
Vice President in the Investment Banking Department at Merrill Lynch, focusing
on conglomerate and healthcare companies. Previously, he held positions at
Colgate-Palmolive and Bankers Trust Company. Mr. Robinson holds a Bachelors
Degree in Accounting, summa cum laude, from Florida A&M University and a Masters
of Business Administration Degree from the Graduate School of Business at
Harvard University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules thereunder, the Company's executive officers and directors
are required to file with the Securities and Exchange Commission and the
National Association of Securities Dealers, Inc. reports of ownership and
changes in ownership of Common Stock. Copies of such reports are required to be
furnished to the Company. Based solely on review of the copies of such reports
furnished to the Company, or written representations that no other reports were
required, the Company believes that during the year ended December 31, 2001 all
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of its executive officers and directors complied with the requirements of
Section 16(a), except that: Mr. Hedayat Amin-Arsala, a director of the Company,
did not timely file the report on Form 4 with respect to his acquisition of
options to purchase up to 5,000 shares of the Company's common stock. Also, Mr.
Javad K. Hassan, a director of the Company, did not timely file the report on
Form 4 with respect to his acquisition of options to purchase up to 5,000 shares
of the Company's common stock.
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.
Restricted Securities
Fiscal Other Annual Stock Underlying
Name and Principal Position Year Salary $ Bonus $ Compensation Award(s) Options/SARs(#)
- ------------------------------ ------- -------- ------ ------------- ----------- ---------------
Dr. Mohd Aslami 2001 360,000 72,000 --- 250,000
Chairman, Chief Executive 2000 200,000 70,000 --- ---
Officer & President 1999 133,334 --- --- 1,114,644
Charles De Luca 2001 135,000 20,000 --- 60,000
Director, Member of Board 2000 115,000 25,000 --- ---
Management of FiberCore Jena 1999 76,761 --- --- 515,296
AG
Steven Phillips (*)interim Chief
Financial Officer, Treasurer 2001 116,666 23,350 --- 66,000
and Director 2000 83,333 21,000 --- --- ---
Robert P. Lobban(***), Chief 2001 111,903 16,500 85,000
Financial Officer and
Treasurer
Michael J. Beecher(**)
Chief Financial Officer &
Treasurer 2000 67,083 --- --- ---
1999 86,250 --- --- --- 408,972
* For the five months commencing August 1, 2000 and for seven months ended
July 26, 2001. Options to purchase up to 5,000 shares of the Company's
common stock were granted to Mr. Phillips as a Director of the Company in
2001.
** For the seven months ended July 31, 2000
*** For the eight months commencing April 26, 2001. Mr. Lobban became Chief
Financial Officer and Treasurer on July 27, 2001.
Under an agreement dated October 1, 1998, in 1999 Dr. Aslami, Mr. De Luca and
Mr. Beecher accepted salary reductions of 33.3%, 33.3%, and 25.0%, respectively
and were awarded stock options for these salary reductions to purchase shares of
739,644, 425,296, and 318,972, respectively. The option exercise price is
$0.1875 per share, which was the closing price of the shares as of the date of
the agreement.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table lists the options granted to the executive officers during
the year ended December 31, 2001.
- ------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------------
Name Number of % of Total Exercise Expiration Potential realized Potential
Securities Options/ or base Date values at assumed realized values
Underlying SARs Granted price annual rates of stock at assumed annual
Options/ to Employees ($/Share) price appreciation rates of stock
SARs in Fiscal Year for option term price
Granted 5%($) appreciation.
(#) for option term
10% ($)
- --------------- ------------- --------------- ----------- ------------------ ----------------------- -------------------
Dr. Mohd 250,000 40.0% $4.125 Feb. 21, 2011 $648,548 $1,643,547
Aslami
- --------------- ------------- --------------- ----------- ------------------ ----------------------- -------------------
Charles De 60,000 7.7% $4.125 Feb. 21, 2011 $155,651 $394,451
Luca
- --------------- ------------- --------------- ----------- ------------------ ----------------------- -------------------
Steven 61,000 7.8% $4.125 Feb. 21, 2011 $158,246 $401,025
Phillips 5,000 0.6% $5.98 July 27, 2011 $18,804 $47,653
- --------------- ------------- --------------- ----------- ------------------ ----------------------- -------------------
Robert P. 60,000 7.7% $4.24 Apr. 26, 2011 $159,991 $405,448
Lobban 25,000 3.2% $5.28 July 24, 2011 $83,014 $210,374
- --------------- ------------- --------------- ----------- ------------------ ----------------------- -------------------
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AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTIONS/SAR VALUES
The following table lists the options/SARs exercised during the year and the
options/SARs held by the executive officers that were unexercised at December
31, 2001.
Number of Securities
Underlying unexercised Value of unexercised
Options/SARs In-the-money options/SARs
at Fiscal Year-End (#) at Fiscal Year-End ($)
Shares acquired Value Exercisable/ Exercisable/
Name on exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------------ ---------------- ------------ ----------------------- ---------------------------
Dr. Mohd Aslami 0 0 1,133,891/291,666 $758,257/$265,625
Charles De Luca 106,324 $389,412 445,022/70,000 $336,580/$228,750
Steven Phillips (*) 0 0 1,369,541/45,666 $390,405/$167,747
Robert P. Lobban (**) 0 0 0/85,000 $0/$254,400
(*) Includes options exercised and held by One Financial Group, Incorporated,
a company controlled by Mr. Phillips. Mr. Phillips was Interim Chief
Financial Officer until July 26, 2001. 5,000 of his un-exercisable shares
were granted for his services as an outside director.
(**) Robert P. Lobban became Chief Financial Officer and Treasurer on July 27,
2001.
COMPENSATION COMMITTEE
- ----------------------
In April 2000 the Board of Directors established a Compensation Committee. The
board members participating on the committee are Michael A. Robinson, Hedayat
Amin-Arsala and Javad K. Hassan. Mr. Robinson is the Chairman of the committee.
All members are considered outside directors.
EXECUTIVE COMPENSATION PROGRAM
- ------------------------------
The Company has not, as yet, adopted a formal executive compensation program,
although it intends to adopt such program. It is expected that such plan will
reflect the following executive compensation philosophy and contain the
compensation components as described below. Such program may contain all or some
of the components and will be subject to change by the Board of Directors.
COMPENSATION PHILOSOPHY
- -----------------------
The Company's mission is to be a significant provider of optical fiber and
optical fiber preforms in the markets it serves. To support this and other
strategic objectives as approved by the Board of Directors and to provide
adequate returns to shareholders, the Company must compete for, attract,
develop, motivate and retain top quality executive talent at the corporate
office and operating business units of the Company during periods of both
favorable and unfavorable world-wide business conditions.
The Company's executive compensation program is a critical management tool in
achieving this goal. "Pay for performance" is the underlying philosophy for the
Company's executive compensation program. The program is designed to link
executive pay to corporate performance, including share price, recognizing that
there is not always a direct and short-term correlation between executive
performance and share price. To align shareholder interests and executive
rewards, significant portions of each executive's compensation will
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represent "at risk" pay opportunities related to accomplishment of specific
business goals.
The program will be designed and administered to:
o provide annual and longer term incentives that help focus each
executive's attention on approved corporate business goals the
attainment of which, in the judgment of the Board of Directors,
should increase long-term shareholder value;
o link "at risk" pay with appropriate measurable quantitative and
qualitative achievements against approved performance parameters;
o reward individual and team achievements that contribute to the
attainment of the Company's business goals; and
o provide a balance of total compensation opportunities, including
salary, bonus, and longer term cash and non-cash and equity
incentives, that are competitive with similarly situated companies
and reflective of the Company's performance.
In seeking to link executive pay to corporate performance, the Board believes
that the most appropriate measure of corporate performance is the increase in
long-term shareholder value, which involves improving such fundamental
quantitative performance measures as revenue, net income, cash flow, operating
margins, earnings per share and return on shareholders' equity. The Board may
also consider qualitative corporate and individual factors which it believes
bear on increasing the long-term value of the Company to its shareholders. These
include (i) the development of competitive advantages, (ii) the ability to deal
effectively with the complexity and globalization of the Company's businesses,
(iii) success in developing business strategies, managing costs and improving
the quality of the Company's products and services as well as customer
satisfaction, (iv) the general performance of individual job responsibilities,
and (v) the introduction of new products, new patents and other innovations.
COMPONENTS OF EXECUTIVE COMPENSATION PROGRAM
- --------------------------------------------
The Company's executive compensation program will consist of (i) an annual
salary, (ii) an annual bonus, (iii) issuance of restricted stock, and (iv) a
long-term incentive represented by stock options. As explained below, restricted
stock and stock options serve to link executive pay to corporate performance,
since the attainment of these awards depends upon meeting the quantitative and,
if applicable, qualitative performance goals which serve to increase long-term
shareholder value.
Salary and Bonus. In December of each year, the Board will set the annual salary
for the following year of each executive officer not subject to an employment
contract, and establish a potential bonus opportunity that executives (even
those subject to employment contracts) may earn for each of the quantitative
and, if applicable, qualitative performance goals established by the Committee.
The Board intends to set these targets in the first half of each year after a
detailed review by the Board of the Company's annual operating budget.
Stock Options and Restricted Stock. The longer-term component of the Company's
executive compensation program will consist of qualified and/or non-qualified
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stock option and restricted stock grants. The options generally permit the
option holder to buy the number of shares of Common Stock covered by the option
(an "option exercise") at a price equal to or greater than eighty-five percent
(85%) of the market price of the stock at the time of grant. Thus, the options
generally gain value only to the extent the stock price exceeds the option
exercise price during the life of the option. Generally a portion of the options
vest over a period of time and expire no later than ten years, and in many cases
five years after grant. In addition, in appropriate circumstances, the Company
will award restricted stock to executives. Executives will generally be subject
to limitations in selling the restricted stock immediately, and therefore will
have the incentive to increase shareholder value.
BASIS OF 2001 COMPENSATION
- --------------------------
As indicated in the Company's executive compensation philosophy, a major factor
in the Board's compensation decisions is the competitive marketplace for senior
executives. In setting competitive compensation levels, the Company will compare
itself to a self-selected group of companies of comparable size (a peer group),
market capitalization, technological and marketing capabilities, performance and
global presence with which the Company competes for executives.
STOCK PERFORMANCE GRAPH
The graph below provides Cumulative total return and assumes $100.00 invested at
the close of trading on January 14, 1997, in FiberCore, Inc., Russell 2000
Index, and the Peer Group and assumes reinvestment of dividends.
The Peer Group consists of the following companies; Corning, Inc., Lucent
Technologies, Inc. and Optical Cable Corp each of which does substantial
business in the fiber optic sector. The Company began using a different Peer
Group in the 2001 proxy because it provides a more meaningful basis of
comparison. One member of the old Peer Group, SpecTran Corp. was acquired by
Lucent Technologies, Inc. in the first quarter of 2000, and another member of
the old Peer Group, Luxtec Corporation was de-listed in November of 2000; the
third member of the old Peer Group has a significantly lower market cap than the
Company.
Management cautions that the stock price performance on the graph below is not
necessarily indicative of future performance.
CUMULATIVE TOTAL RETURN
Jan-14-97 12/97 12/98 12/99 12/00 12/01
--------- ------- ------- ------- ------- ------
FiberCore, Inc $ 100.00 $ 7.06 $ 2.09 $ 36.96 $ 63.04 $ 41.74
Russell 2000 $ 100.00 $120.66 $117.59 $142.58 $138.28 $141.74
Peer Group $ 100.00 $144.79 $367.34 $539.65 $172.11 $ 53.87
COMPENSATION OF DIRECTORS
- -------------------------
The Company maintains a compensation plan for outside directors (directors who
are not employees of the Company), wherein each outside director receives an
initial award of 10,000 non-qualified stock options and a fee of $10,000 per
year, payable quarterly, and $250 for each Board of Directors meeting or
Committee of the Board meeting attended. After the first year, outside directors
are awarded 5,000 stock options, which are exercisable one year from the grant
date.
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On August 1, 2000, Mr. Steven Phillips assumed the role of interim Chief
Financial Officer. He continued in that role through July 26, 2001, at which
time he resumed his role as a consultant to the Company. Prior to July 31, 2000
and subsequent to July 26, 2001, the Company had a consulting agreement with One
Financial Group Incorporated, ("OFG") a company controlled by Mr. Phillips who
is also a director of the Company. OFG provided services as a financial advisor
and for the period July 27 to December 31, 2001, the Company incurred costs of
$119,000 in connection with services rendered by OFG. During the period from
January 1 to July 31, 2000, the Company incurred costs of $116,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of
the Common Stock as of March 1, 2001, 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 ADDRESS (1) SHARES OWNED % OWNED
- -------------------------------- ----------- -------
Mohd Aslami.................. 9,560,594 (2), (10) 13.16
Charles De Luca.............. 6,269,914 (3), (10) 8.63
Robert Lobban................ 110,200 (8) 0.15
Steven Phillips.............. 3,227,853 (4), (10) 4.44
Hedayat Amin-Arsala.......... 2,317,607 (5) 3.19
Javad K. Hassan.............. 73,333 (6) 0.10
Michael Robinson............. --- (7) ---
Tyco International Ltd....... 11,628,224 (9) 16.01
All directors and executive
officers as a group
(7 persons)................ 21,559,501 29.67
(1) The addresses of the persons and entities named in this table are as
follows: Messrs. Aslami, De Luca, Phillips, Lobban Amin-Arsala and Hassan,
c/o FiberCore, Inc., P.O. Box 180, 253 Worcester Road, Charlton, Ma 01507;
Mr. Robinson and Tyco International Ltd., 9 West 57th Street, New York,
New York 10022.
(2) Includes 1,389,158 shares and warrants to purchase 323,082 shares held by
Dr. Aslami's wife, and 1,587,569 shares held by the Ariana trust of which
Dr. Aslami's wife is the trustee and his children are beneficiaries. Also
includes 2,027,016 options and warrants to purchase shares of the Company
held directly by Dr. Aslami, which includes 100,000 stock options granted
on January 28, 2002.
(3) Includes 2,646,772 shares and warrants to purchase 323,082 shares held by
Elizabeth De Luca, Mr. De Luca's wife. Also includes 756,242 options and
warrants to purchase shares of the Company held directly by Mr. De Luca,
which includes 25,000 stock options granted on January28, 2002.
(4) Includes 1,691,826 options and warrants to purchase shares of the Company,
which includes 34,000 stock options granted on January 28, 2002 and
1,243,712 in options held by One Financial Group, Incorporated, a Company
controlled by Mr. Phillips.
(5) Includes 110,499 shares held by Mr. Amin-Arsala's wife and options to
acquire 18,667 shares held by Mr. Amin-Arsala, as outside director
compensation.
(6) Includes options to acquire 20,000 held by Mr. Hassan, as outside director
compensation.
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(7) Mr. Robinson, Senior Vice President and Corporate Treasurer of Tyco
International Ltd, was elected to the Company's Board of Directors on
October 12, 2000.
(8) Includes options to acquire 100,000 shares, which include 15,000 stock
options granted on January 28, 2002.
(9) Of the total, 10,275,849 shares are held by Tyco Electronics Corporation
and 1,352,375 shares are held by Tyco Sigma Limited. Both entities are
wholly owned subsidiaries of Tyco International Ltd., a company traded on
the New York Stock Exchange.
(10) Under the Guarantor Indemnification Agreement, Mohd Aslami, Steven
Phillips and Charles De Luca are subject to various restrictions with
regard to the sale of their common stock.
ARRANGEMENTS WHICH COULD RESULT IN CHANGE OF CONTROL
- ----------------------------------------------------
Tyco International Group S.A. ("TIGSA"), an affiliate of Tyco International
Ltd., could gain control of the Company's board of directors. TIGSA guaranteed
the Company's obligations to Fleet National Bank under a $10,000,000 credit
facility between Fleet and the Company, dated as of December 20, 2000. Pursuant
to the Guarantor Indemnification Agreement between TIGSA, Dr. Mohd Aslami,
Charles De Luca, Steven Phillips (each a member of the Company's board of
directors), and the Company, dated as of December 26, 2000, the Company issued
one share of Series A Preferred Stock to TIGSA. The certificate of designations
governing the Series A Preferred Stock enables TIGSA to effectively take control
of the Company's board of directors if there is an event of default under the
Guarantor Indemnification Agreement. Events of default include the Company's
failure to timely pay TIGSA guarantee fees; the Company's failure to timely
repay TIGSA if TIGSA is required to perform under its guaranty of the Company's
obligations to Fleet; the Company's failure to comply with specific covenants;
the sale by any of Dr. Mohd Aslami, Charles De Luca or Steven Phillips during
any 12 month period after December 26, 2001 (until termination of the Guarantor
Indemnification Agreement) of more than 10% of the total number of shares each
owned or had the option to obtain during the 12 month period; the Company's
admission that we or any of the Company's subsidiaries cannot pay the Company's
debts as they become due; the Company's making an assignment for the benefit of
any of the Company's creditors; the commencement of bankruptcy proceedings
against the Company or the Company's subsidiaries or the appointment of a
receiver or trustee over a substantial part of the Company's or any of the
Company's subsidiaries' assets, which have not been discharged within 60 days;
or the acceleration of the Company's indebtedness or the indebtedness of any of
the Company's subsidiaries for borrowed money in an outstanding principal amount
of $2,500,000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LOANS
During February and March 2000, the Company borrowed a total of $300,000 from
the spouses of two officers and from a company affiliated with an outside
director. In exchange, the Company issued each party a $100,000 unsecured note,
bearing interest at 14%. The notes were repaid in September 2000.
On December 29, 2000, convertible notes issued to two officers and an outside
director in July 1999, totaling $548,000 including related party interest
expense, were converted into 2,190,850 common shares of the Company. Related
party interest expense on these notes in 2000 and 1999 was $72,000 and $90,000,
respectively.
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CONSULTING
On August 1, 2000, Mr. Steven Phillips assumed the role of interim Chief
Financial Officer. He continued in that role through July 26, 2001, at which
time he resumed his role as a consultant to the Company. Prior to July 31, 2000
and subsequent to July 26, 2001, the Company had a consulting agreement with
OFG, a company controlled by Mr. Phillips who is also a director of the Company.
OFG provided services as a financial advisor and for the period July 27 to
December 31, 2000, the Company incurred costs of $119,000 in connection with
services rendered by OFG. During the period from January 1 to July 31, 2000, the
Company incurred costs of $116,000.
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
The exhibits included as part of this report are listed in the
attached Exhibit Index, which is incorporated herein by
reference.
(B) REPORTS ON FORM 8-K
o Current Report on Form 8-K Report filed on December 10, 2001; and
o Current Report on Form 8-K Report filed on December 21, 2001.
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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: Mohd A. Aslami April 1, 2002
-----------------------------------
Dr. Mohd A. Aslami
Chairman, Chief Executive Officer
and President (Principal Executive
Officer)
By: Robert P. Lobban April 1, 2002
-----------------------------------
Robert P. Lobban
Chief Financial Officer and Treasurer
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, April 1, 2002
- -----------------------
Dr. Mohd A. Aslami President
Chief Executive Officer
Director
/s/ Charles De Luca Secretary and Director April 1, 2002
- -----------------------
Charles De Luca
/s/ Steven Phillips Director April 1, 2002
- -----------------------
Steven Phillips
/s/ Michael A. Robinson Director April 1, 2002
- -----------------------
Michael A. Robinson
/s/ Javad K. Hassan Director April 1, 2002
- -----------------------
Javad K. Hassan
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EXHIBIT INDEX
The following lists the exhibits which are filed as part of this report. Those
which have been previously filed are incorporated by reference to such previous
filing as indicated below.
EXHIBIT
NUMBER
- -------
2.1 Agreement dated February 13, 1987 between Norscan Instruments Ltd.
and Automated Light Technologies, Inc. ("ALT"). (1)
2.2 Agreement and Plan of Reorganization dated as of July 18, 1995
between Venturecap, Inc. and FiberCore Incorporated. (1)
2.3 Agreement of Merger dated as of July 18, 1995 between Venturecap,
Inc. and FiberCore Incorporated. (1)
2.4 Agreement and Plan of Reorganization dated as of September 18, 1995
between the FiberCore, Inc. Alt Merger Co., and ALT. (1)
2.5 Investment Agreement, dated June 1, 2000, by and among FiberCore,
Inc. and Algar S.A.-Empreendimentos e Participacoes Xtal Fibras
Opticas S.A. and Mamore Participacoes S.A. (2)
3.1 Certificate of Incorporation of FiberCore, Inc. (1)
3.2 Amended and Restated By-Laws of FiberCore, Inc. (12)
3.3 Amendments to By-Laws of FiberCore, Inc. (3)
3.4 Designations of Rights Privileges and Preferences of Series A
Preferred Stock Registrant, dated as of December 19, 2000. (3)
4.1 Warrant issued to Guido Roennefahrt, dated May 16, 2000, to
purchase 18,500 Shares of FiberCore Common Stock at an exercise
price of $3.20 per share. (9)
4.2 Warrant issued to Marc Drimer, dated May 16, 2000, to purchase
15,000 Shares of FiberCore Common Stock at an exercise price of
$3.20 per share. (9)
4.3 Warrant issued to Felix Rebholz, dated May 16, 2000, to purchase
15,000 Shares of FiberCore Common Stock at an exercise price of
$3.20 per share. (9)
4.4 Incentive Warrant, dated June 9, 2000, by and between FiberCore,
Inc. and Crescent International Ltd. (4)
4.5 Warrant issued to Gruntal & Co., LLC, dated April 14, 2000, to
purchase up to 300,000 Shares of FiberCore Common Stock. (6)
4.6 Warrant issued to Gruntal & Co., LLC, dated June 9, 2000, to
purchase up to 30,000 Shares of FiberCore Common Stock. (6)
4.7 Warrant issued to Gruntal & Co., LLC, dated June 9, 2000, to
purchase up to 72,016 Shares of FiberCore Common Stock. (6)
4.8 Warrant issued to Gruntal & Co., LLC, dated June 26, 2000, to
purchase up to 54,870 Shares of FiberCore Common Stock. (6)
4.9 Registration Rights Agreement, dated June 9, 2000, by and between
FiberCore, Inc. and Crescent International. (4)
4.10 Warrant issued to Felix Rebholz, dated September 14, 2000, to
purchase 1,000 Shares of FiberCore Common Stock at an exercise
price of $7.179 per share. (9)
4.11 Warrant issued to Marc Drimer, dated September 14, 2000, to
purchase 1,000 Shares of FiberCore Common Stock at an exercise
price of $7.179 per share. (9)
4.12 Warrant issued to Guido Roennefahrt, dated September 14, 2000, to
purchase 1,000 Shares of FiberCore Common Stock at an exercise
price of $7.179 per share. (9)
4.13 Warrant issued to Guido Roennefahrt, dated September 18, 2000, to
purchase 557 Shares of FiberCore Common Stock at an exercise price
of $7.179 per share. (9)
4.14 Warrant issued to Marc Drimer, dated September 18, 2000, to
purchase 558 Shares of FiberCore Common Stock at an exercise price
of $7.179 per share. (9)
4.15 Warrant issued to Felix Rebholz, dated September 18, 2000, to
purchase 557 Shares of FiberCore Common Stock at an exercise price
of $7.179 per share. (9)
4.16 Warrant issued to Gruntal & Co., LLC, dated December 29, 2000, to
purchase 47,260 shares of Shares of FiberCore Common Stock at an
exercise price of $2.538 per share. (9)
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4.17 Warrant issued to Gruntal & Co., LLC, dated December 29, 2000, to
purchase 100,000 shares of Shares of FiberCore Common Stock k at an
exercise price of $5.00 per share. (9)
4.18 Warrant issued to Gruntal & Co., LLC, dated January 11, 2001, to
purchase 125,654 Shares of FiberCore Common Stock at an exercise
price of $2.5443 per share. (9)
4.19 Warrant issued to Gruntal & Co., LLC, dated August 22, 2001, to
purchase 39,698 Shares of FiberCore Common Stock at an exercise
price of $4.53 per share. (9)
4.20 Warrant issued to Gruntal & Co., LLC, dated October 25, 2001, to
purchase 26,800 Shares of FiberCore Common Stock at an exercise
price of $2.2388 per share. (9)
4.21 Registration Rights Agreement among the Registrant, Riverview
Group, LLC, Laterman & Co. & Forevergreen Partners, dated as of
January 15, 2002. (10)
4.22 Convertible Subordinated Debenture issued to Riverview Group, LLC,
dated as of January 15, 2002. (10)
4.23 Convertible Subordinated Debenture issued to Laterman & Co., dated
as of January 15, 2002. (10)
4.24 Convertible Subordinated Debenture issued to Forevergreen Partners,
dated as of January 15, 2002. (10)
4.25 Warrant to purchase 80,000 shares of the Registrant's common stock,
issued to Riverview Group, LLC, dated as of January 15, 2002. (10)
4.26 Warrant to purchase 53, 334 shares of the Registrant's common
stock, issued to Riverview Group, LLC, dated as of January 15,
2002. (10)
4.27 Warrant to purchase 252,854 shares of the Registrant's common
stock, issued to Riverview Group, LLC, dated as of January 15,
2002. (10)
4.28 Warrant to purchase 26,666 shares of the Registrant's common stock,
issued to Laterman & Co., dated as of January 15, 2002. (10)
4.29 Warrant to purchase 11,953 shares of the Registrant's common stock,
issued to Laterman & Co., dated as of January 15, 2002. (10)
4.30 Warrant to purchase 38,619 shares of the Registrant's common stock,
issued to Forevergreen Partners, dated as of January 15, 2002. (10)
4.31 Convertible Subordinated Debentures and Warrants Purchase Agreement
among the Registrant, Riverview Group, LLC, Laterman & Co. &
Forevergreen Partners, dated as of January 15, 2002. (10)
10.1 Agreement, dated May 19, 2000, by and between FiberCore, Inc. and
Tyco Electronics Corporation. (5)
10.2 Standstill Agreement, dated May 19, 2000, by and between FiberCore,
Inc. and Tyco Electronics Corporation. (5)
10.3 Loan Agreement, dated June 20, 2000, by and between Algar S.A.
Empreendimentos e Participacoes, FiberCore Inc., and FiberCore
Ltda. (2)
10.4 Loan Agreement, dated June 20, 2000, by and between Algar S.A.
Empreendimentos e Participacoes, FiberCore Inc., and FiberCore
Ltda. (2)
10.5 Stock Purchase Agreement between the Company and Crescent
International, Ltd., dated as of August 20, 2001. (11)
10.6 Registration Rights Agreement between the Company and Crescent
International, Ltd., dated as of August 20, 2001. (11)
10.7 Securities Purchase Agreement by and between Crescent International
Ltd. and FiberCore, Inc., dated June 9, 2000. (4)
10.8 Loan Agreement between FiberCore, Inc. and Fleet National Bank,
dated as of December 20, 2000. (3)
10.9 Revolving Credit Note executed by FiberCore, Inc. in favor of Fleet
National Bank, dated as of December 20, 2000. (3)
10.10 Limited Guaranty by Tyco International S.A., dated as of December
20, 2000. (3)
10.11 Pledge and Security Agreement between FiberCore, Inc. and Fleet
National Bank, dated as of December 20, 2000. (3)
10.12 Collateral Assignment of Patents and Trademarks and Security
Agreement between FiberCore, Inc. and Fleet National Bank, dated as
of December 20, 2000. (3)
10.13 Guarantor Indemnification Agreement among Tyco International Group
S.A., FiberCore, Inc., Mohd Aslami, Charles DeLuca and Steven
Phillips, dated as of December 26, 2000. (3)
21.1 List of subsidiaries of FiberCore, Inc. (7)
23.1 Consent of Deloitte & Touche LLP.
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(1) denotes incorporated herein by reference to the Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission on March
26, 1997.
(2) denotes incorporated herein by reference to the exhibits to the Current
Report on Form 8-K, filed July 3, 2000, as amended July 10, 2000.
(3) denotes incorporated herein by reference to the exhibits to the Current
Report on Form 8-K, filed January 10, 2001.
(4) denotes incorporated herein by reference to the exhibits to the Current
Report on Form 8-K, filed June 15, 2000.
(5) denotes incorporated herein by reference to the exhibits to the Current
Report on Form 8-K, filed June 9, 2000.
(6) denotes incorporated herein by reference to the exhibits to the
Registration Statement on Form S-3/A, filed September 19, 2000.
(7) denotes incorporated herein by reference to the Annual Report on Form 10-K
for the year ended December 31, 1997, filed with the Commission on March
26, 1998.
(8) denotes incorporated herein by reference to the exhibits to the Quarterly
Report on Form 10-Q, filed on May 4, 2000.
(9) denotes incorporated herein by reference to the exhibits to the
Registration Statement on Form S-3, filed February 12, 2002.
(10) denotes incorporated herein by reference to the exhibits to the Current
Report on Form 8-K, filed February 5, 2002.
(11) denotes incorporated herein by reference to the exhibits to the Quarterly
Report on Form 10-Q, filed on November 14, 2001.
(12) denotes incorporated herein by reference to the exhibits to the Quarterly
Report on Form 10-Q, filed on November 14, 2000.
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