UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 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.
(Exact name of registrant as specified in its charter)
Nevada 87-0445729
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
253 Worcester Road, P.O. Box 180
Charlton, MA 01507
- --------------------------------------------------------------------------------
(Address and Zip Code of principal executive offices)
(508) 248-3900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
The number of shares of the Registrant's common stock outstanding as of November
14, 2001 was 61,303,571.
FIBERCORE, INC. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION..............................................3
ITEM 1. FINANCIAL STATEMENTS...................................3
CONDENSED CONSOLIDATED BALANCE SHEETS
AT SEPTEMBER 30, 2001 (UNAUDITED) AND
DECEMBER 31, 2000......................................3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
AND 2000 (UNAUDITED)...................................4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)...........................................5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(UNAUDITED)............................................6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)............................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK..................................................13
PART II OTHER INFORMATION.................................................15
ITEM 1. LEGAL PROCEEDINGS.....................................15
ITEM 2. CHANGES IN SECURITIES.................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.......................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...15
ITEM 5. OTHER INFORMATION.....................................15
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K........................15
SIGNATURES....................................................................16
EXHIBIT INDEX.................................................................17
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share data) September December
30, 2001 31, 2000
---------- ---------
(Unaudited)
ASSETS
Current assets:
Cash ............................................... $ 7,451 $ 5,051
Accounts receivable, net ........................... 7,553 8,332
Other receivables .................................. 1,876 707
Inventories ........................................ 10,890 6,193
Prepaid and other current assets ................... 1,922 466
------- -------
Total current assets ......................... 29,692 20,749
------- -------
Property and equipment, net .............................. 37,165 21,421
------- -------
Other assets:
Notes receivable from joint venture partner ........ 4,948 4,949
Restricted cash .................................... 1,791 1,849
Patents, net ....................................... 3,914 4,171
Investment in joint venture ........................ 925 925
Deferred tax asset ................................. 186 722
Goodwill, net ...................................... 8,507 11,336
Other .............................................. 1,663 1,331
------- -------
Total other assets ........................... 21,934 25,283
------- -------
Total assets ................................. $ 88,791 $ 67,453
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term
debt ............................................. $ 8,676 $ 2,253
Accounts payable ................................... 10,308 8,621
Accrued expenses ................................... 5,437 4,892
Advance payments from customers .................... -- 2,936
------- -------
Total current liabilities .................... 24,421 18,702
------- -------
Deferred income .......................................... 47 --
Long-term debt ........................................... 20,069 9,849
------- -------
Total liabilities ............................ 44,537 28,551
------- -------
Minority interest ........................................ 4,966 4,750
------- -------
Stockholders' equity:
Preferred stock, $.001 par value, authorized
10,000,000 shares; of which 1 share of Series
A ($.001 par value) is issued and outstanding .... -- --
Common stock, $.001 par value, authorized
100,000,000 shares; issued and outstanding:
60,856,904 at September 30, 2001 and
57,667,790 at December 31, 2000 .................. 61 58
Additional paid-in-capital ......................... 63,912 56,219
Accumulated deficit ................................ (16,105) (19,893)
Accumulated other comprehensive (loss):
Accumulated translation adjustment ................. (8,580) (2,232)
------- -------
Total stockholders' equity ................... 39,288 34,152
------- -------
Total liabilities and stockholders' equity ......... $ 88,791 $ 67,453
======= =======
See accompanying notes to the condensed consolidated financial statements.
3
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Dollars in thousands except share Three Months Ended Nine Months Ended
data) September 30, September 30,
------------------- ----------------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales ............................ $ 8,823 $ 13,188 $ 43,116 $ 23,054
Cost of sales ........................ 5,734 9,329 25,980 16,773
----- ------ ------ ------
Gross profit ................... 3,089 3,859 17,136 6,281
Operating expenses:
Selling, general and
administrative expenses ......... 2,253 1,665 6,212 3,338
Research and development .......... 502 233 1,524 663
----- ------ ------ ------
Income from operations ......... 334 1,961 9,400 2,280
Interest income ...................... 65 128 198 209
Interest expense ..................... (1,008) (709) (1,807) (6,533)
Foreign exchange income (loss) - net . (1,617) 16 (1,827) (18)
Other income - net ................... 10 37 143 98
----- ------ ------ ------
Income (loss) before income taxes and
minority interest .................. (2,216) 1,433 6,107 (3,964)
Provision for income taxes ........... (308) (507) (2,103) (902)
----- ------ ------ ------
Income (loss) before minority interest (2,524) 926 4,004 (4,866)
Minority interest in (income) loss of
subsidiary ......................... 283 (90) (216) (127)
----- ------ ------ ------
Net income (loss) .............. $ (2,241) $ 836 $ 3,788 $ (4,993)
===== ====== ====== ======
Income (loss) per share of common
stock
Basic ................................ $ (0.04) $ 0.02 $ 0.06 $ (0.11)
Diluted .............................. (0.04) 0.01 0.06 (0.11)
Weighted average shares outstanding:
Basic ................................ 60,205,880 52,803,670 59,636,649 47,073,042
Diluted .............................. 60,205,880 59,482,582 65,633,372 47,073,042
See accompanying notes to the condensed consolidated financial statements.
4
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands ) Three Months Nine Months Ended
Ended September 30 September 30,
------------------ ------------
2001 2000 2001 2000
---- ---- ---- ----
Net income (loss) ................ $(2,241) $ 836 $ 3,788 $(4,993)
Other comprehensive income (loss):
Foreign currency translation
adjustment ..................... (1,481) (699) (6,348) (745)
------- ------- ------- --------
Comprehensive income (loss) ...... $(3,722) $ 137 $(2,560) $(5,738)
======= ======= ======= ========
See accompanying notes to the condensed consolidated financial statements.
5
FIBERCORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands) Nine Months Ended
September 30,
------------
2001 2000
Cash flows from operating activities:
Net income (loss) ..................................... $ 3,788 $ (4,993)
Adjustments to reconcile net income (loss)
to net cash provided from operating
activities:
Depreciation and amortization ......................... 2,632 1,943
Non-cash interest expense ............................. -- 5,405
Deferred income tax provision ......................... 536 234
Foreign currency translation loss and other ........... 1,503 127
Changes in assets and liabilities, excluding acquisitions:
Accounts receivable ................................... (710) (2,086)
Other receivables ..................................... (1,184) --
Inventories ........................................... (5,579) 187
Prepaid and other current assets ...................... (1,521) 450
Accounts payable ...................................... 3,238 1,028
Accrued expenses ...................................... (1,028) 1,233
------- --------
Net cash provided from operating activities ........ 1,675 3,528
------- --------
Cash flows from investing activities:
Purchase of property and equipment .................... (19,178) (2,882)
Reimbursement from government grant ................... 1,383 155
Cash used for acquisition ............................. (295) (10,460)
Cash acquired from acquisition ........................ 27 196
Other ................................................. (466) (958)
------- --------
Net cash used in investing activities .............. (18,529) (13,949)
------- --------
Cash flows from financing activities:
Proceeds from issuance of common
stock ................................................. 2,874 17,671
Proceeds from long-term debt .......................... 11,300 7,500
Proceeds from notes payable ........................... 7,079 300
Repayment of long-term debt ........................... (435) (2,904)
Repayment of notes payable ............................ (926) (9,300)
Financing costs ....................................... (178) --
------- --------
Net cash provided by financing activities .......... 19,714 13,267
------- --------
Effect of foreign exchange rate changes on cash .......... (460) 45
------- --------
Increase in cash ......................................... 2,400 2,891
Cash, beginning of period ................................ 5,051 487
------- --------
Cash, end of period ...................................... $ 7,451 $ 3,378
======= ========
Supplemental disclosure:
Common stock issued for conversion of debt ............ $ 4,000 $ 6,079
Property acquired under capital leases ................ 3,471 --
Cash paid for interest ................................ 1,683 448
Cash paid for taxes ................................... 872 50
See accompanying notes to the condensed consolidated financial statements.
6
FIBERCORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands except share data)
1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of September 30, 2001 and the
related condensed consolidated statements of operations and comprehensive income
(loss) for the three and nine-month periods and statements of cash flows for the
nine-month periods ended September 30, 2001 and 2000 included herein have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission for reports on Form 10-Q. These statements
are unaudited. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included and such
adjustments consist of normal recurring items.
The condensed consolidated financial statements do not contain certain
information included in the Company's annual audited financial statements. These
financial statements should be read in conjunction with the annual audited
financial statements and notes thereto for the year ended December 31, 2000
included in the Company's Report on Form 10-K.
Certain amounts in the prior year have been reclassified to conform to
the current period presentation.
2) ACQUISITION OF DATA COMMUNICATIONS, INC.
On June 1, 2001, the Company acquired Data Communications, Inc., ("DCI"),
a privately held company located in Hyannis, MA and merged it into Automated
Light Technologies ("ALT") a wholly owned subsidiary of the Company. The merged
company has been renamed DCI FiberCore, Inc. The Company believes that the
merger will enhance the breadth of the Company's technical capabilities used in
support of bringing optical fiber closer to the end-user.
DCI designs, installs and maintains low cost fiber optic networks
primarily in the northeastern United States 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 FiberCore,
Inc. will have a proprietary base of technologies to help bring fiber to the
end-user.
The purchase price of DCI of $856 was comprised of shares of the Company's
Common Stock and cash. Additionally, 50,534 shares of Common Stock are issuable
on June 1, 2002, and 50,534 shares of Common Stock are issuable on June 1, 2003,
in each case upon the satisfaction of certain contingencies. Pro-forma
information regarding the DCI acquisition is not material.
The cost of the acquisition, excluding contingently issuable shares, at
June 1, 2001, exceeded the preliminary estimated fair value of the net assets
acquired by approximately $519.
7
3) INVENTORIES
Inventories consist of the following:
September 30, 2001 December 31, 2000
------------------ -----------------
Raw material $ 4,422 $ 4,418
Work-in-progress 1,188 992
Finished goods 5,280 783
-------- -------
Total $ 10,890 $ 6,193
======== =======
4) RESTRICTED CASH
Restricted cash represents the German Mark (DM) 3,850 deposit with the
Sparkasse Bank, Jena securing the loan from the Sparkasse Bank, Jena of DM
7,700. The deposit is reflected in the financial statements in the U.S. Dollar
equivalent using the exchange rates in effect at the balance sheet date. The
decrease of $58 in the balance sheet amount from December 31, 2000 to September
30, 2001 is the result of the exchange rate change. The change is accounted for
as an unrealized foreign exchange loss in the statement of operations.
5) FINANCING ACTIVITIES DURING 2001
Notes payable at September 30, 2001 included:
i) $5,738 in short-term notes payable at Xtal for purchase of raw
materials and general working capital.
ii) $1,011 representing the current portion of a 3-year capital lease
with B.V. Leasing S.A. in Brazil
Long-term debt at September 30, 2001 included:
i) $9,409 related to the Fleet Bank line of credit under a 5-year
revolving loan agreement dated December 26, 2000 used for the
expansions in Brazil and Germany and for general working capital
purposes. $7,259 was borrowed during the first nine months of
2001.
ii) $2,162 represented the long-term portion of a new 3-year capital
lease with B.V. Leasing S.A. in Brazil for equipment at Xtal.
iii) $3,582 due to Sparkasse Bank, Jena in Germany under a $25,000
financing agreement with several banks in Germany for
construction of new manufacturing facilities and purchase of
equipment at FCJ.
iv) $298 due to AVV Leasing in Germany under a 5-year capital lease
for the purchase of the building for FiberCore Machinery.
v) $977 due to Sparkasse Bank in Jena, Germany under a 10-year loan
for the purchase of land and building for FiberCore Quarz (FCQ).
Equity financing:
i) 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 with a new equity line with Crescent
providing for the same 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 $2,874 upon the sale of
common stock to Crescent on August 22, 2001 pursuant to the new
agreement, and net proceeds of $977 upon an additional sale on
October 26, 2001. The proceeds from the foregoing sales to
Crescent will be used to fund capacity expansion and for other
corporate purposes.
8
6) DISPUTE WITH CUSTOMER
During the third quarter, one of the Company's larger South American
customers breached its contract with the Company. This breach consisted of
missed payments of $2,800 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, was 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 and therefore reduced production levels at the
Brazilian facility later in the quarter. The Company also increased its
short-term borrowings during the quarter to compensate for the reduced cash flow
from operations during the period. The Company has since reached a resolution
with this customer subsequent to the end of the third quarter, with all of the
outstanding receivables scheduled to be paid during the fourth quarter and
shipments to resume to the customer by year-end. As of November 13, 2001, the
first two scheduled payments amounting to approximately $1,570 U. S. dollars
have been received. As a result of the softening in the South American market,
the Company has also temporarily slowed its capacity expansion at Xtal.
7) NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, the Company adopted SFAS 133, as amended by
SFAS 138, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. All derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. This adoption did not have a material effect on the Company's
financial statements.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations be accounted
for under the purchase method. The statement further requires separate
recognition of intangible assets that meet one of two criteria. The
statement applies to all business combinations initiated after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of fiscal 2001 at
which time amortization will cease and the Company will perform a transitional
goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standards on existing goodwill and other intangible assets. While
the ultimate impact of the new accounting standards has yet to be determined,
goodwill amortization expense for the nine months ended September 30, 2001 was
$397.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
Forward-looking Statements
This report includes "forward-looking statements" made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company to differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions; ability
to obtain required financing; loss of market share through competition; major
equipment failure; currency fluctuations; ability to increase capacity;
introduction of competing products by other companies; changes in industry
capacity; dependence on limited manufacturing facilities; pressure on prices
from competition or from purchasers of the Company's products; availability of
qualified personnel; changes in, or the failure or inability to comply with,
government regulation; and the loss of any significant customers. These
forward-looking statements speak only as of the date of this report. The Company
expressly disclaims any obligation or undertaking to disseminate any updates to
any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001
AND 2000
The results for the three and nine-month periods include the operations of
DCI, which was recently merged into ALT from June 1, 2001, the date of the
merger, and the results of Xtal FiberCore Brasil S.A. ("Xtal") acquired June 1,
2000.
Sales for the three and nine-month periods ended September, 30, 2001 were
$8,823 and $43,116, respectively, compared to sales of $13,188 and $23,054 for
the same periods in 2000. This represents a decrease of $4,365 or 33% for the
three months and an increase of $20,062 or 87% for the nine months ended
September 30, 2001 compared to the same periods in 2000. The decrease for the
three months ended September 30, 2001 was attributable to FiberCore Brasil
("Xtal") whose sales decreased by $6,268, compared to the same period in 2000.
The decrease was due to the loss of sales to a major customer who was in breach
of contract during the third quarter (see Note 6 for a more detailed discussion)
as well as a major softening in demand in the South American market during the
period. The Company expects sales levels to rebound at Xtal in the fourth
quarter due to an increase in export sales. For the nine months ended September
30, 2001, sales attributable to Xtal were $26,577. Sales for Xtal for the third
quarter and first nine months of 2000 were $9,214 and $23,325, respectively.
Because Xtal was acquired June 1, 2000, only $11,808 was included in the
Company's sales for the nine months ended September 30, 2000. Sales for the
Company's German subsidiary, FiberCore Jena, GmbH ("FCJ") increased by $1,444 or
36% for the three months ended September 30, 2001 compared to the same period in
2000 and $4,643 or 41% for the nine-month period as compared to the same period
in 2000, primarily due to increases in volume shipped to new and continuing
customers.
Gross profit was $3,089 (35% of sales) and $17,136 (40% of sales) for the
three and nine-month periods ended September 30, 2001, respectively, compared to
$3,859 (29% of sales) and $6,281 (27% of sales) for the same periods in 2000.
Gross profit decreased by $770 or 20% for the three-month period and increased
$10,855 or 173% for nine months in 2001 as compared to the prior year. The gross
profit for Xtal decreased $1,462 for the quarter as a result of the lower
shipment levels. For nine months in 2001 the gross profit for Xtal increased by
$7,095 as compared to the prior year, which included $3,064 of gross profit for
the period June through September of 2000. Gross profit at FCJ increased by $332
or 23% for the three-month period and $3,114 or 98% for the nine months of 2001
as compared to the prior year. The increase in gross profit for nine months was
attributable to higher production volumes, cost reductions and process
improvements at FCJ for both the three and nine-month periods and for Xtal for
the first six months of 2001. Gross margins declined in the third quarter as a
result of pricing pressures due to the slowdown in the overall fiber market. The
sudden and unprecedented change in demand in the market is driving singlemode
fiber prices down from their levels in the first half of 2001. This is expected
to continue until industry inventories are brought back into balance with
demand, which is anticipated to occur toward mid-2002. 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 over time, however, as a result of higher production levels and
continued efforts in the areas of cost reductions, process improvements and
integration of technology between operations. There may be some variation 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.
10
Selling, general and administrative costs increased $588 or 35%, and
$2,874 or 86% for the three and nine-month periods ended September 30, 2001,
respectively, compared to the same periods in 2000. Increases in personnel,
legal and accounting fees, travel and trade show expenses at all locations and
the acquisition of DCI accounted for the increase in both the three and
nine-month periods. Xtal accounted for $1,171 of the increase for the nine-month
period, including amortization of goodwill of $388, as there were only four
months of selling, general and administrative expenses incurred for Xtal during
the same period in 2000.
Research and development costs increased $269 or 115% and $861 or 130% for
the three and nine-month periods ended September 30, 2001. Xtal accounted for
$527 of the increase for the nine-month period as compared to the prior year.
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 and plans to more than
double 2000 spending levels on research and development in 2001.
Interest expense increased by $299 for the three-month period and
decreased by $4,726 for the nine-month period ended September 30, 2001,
respectively, compared to the same periods in 2000. The increase in the
three-month period is primarily a result of higher working capital loans as
compared to the same period in the prior year. The decrease for the nine month
period is due principally to the $5,405 non-cash interest charge recorded in
connection with the deemed beneficial conversion feature of the $6,000 note
issued to Crescent International Ltd. in June, 2000, with the offset recorded as
an increase in paid-in-capital. The charge had no effect on the net equity of
the Company. The borrowings during the first nine months of 2001 were primarily
related to expansion of facilities in Germany and Brazil and general working
capital uses at all locations. Excluding the non-cash interest expense, interest
expense increased by $679 for the nine-month period as compared to the prior
year.
The Company had foreign exchange losses of $1,617 and $1,827 for the three
and nine-month periods ended September 30, 2001, respectively, compared to a
gain of $16 in the third quarter of 2000 and a loss of $18 for the first nine
months of 2000. The losses in the third quarter are 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 weakness in the
Brazilian Real, which occurred primarily in the latter part of the third quarter
was mainly attributable to the financial crisis in Argentina. The Real has since
strengthened and as of November 9th was up by 5% versus the U.S. dollar since
the end of the third quarter.
The Company recorded a tax provision related to the Company's foreign
subsidiaries of $308 and $2,103 for the three and nine-month periods ended
September 30, 2001, respectively. The Company's tax provision for the same
periods in 2000 was $507 and $902 for the three and nine-month periods,
respectively. The tax provision for the three-month period for Xtal was $255
lower than the comparable period in the prior year. The principal reason for the
increase in income taxes for the nine-month period of 2001 was the inclusion of
the results of Xtal for nine months, whose tax provision was $1,096 as compared
to $546 for the comparable period in the prior year. The balance of the tax
provisions for the three-month and nine-month periods was attributable to FCJ.
11
LIQUIDITY AND CAPITAL RESOURCES
The Company generated positive cash flow from operations of $1,675 for the
first nine months of 2001, a decrease of $1,853 compared to the cash flow from
operations of $3,528 in the first nine months of 2000. The decrease in operating
cash flow resulted primarily from the build-up in finished goods inventory at
Xtal during the third quarter. The positive cash flow for the prior year
included a $5,405 charge for non-cash interest expense.
The foreign exchange losses for the quarter resulted primarily from losses
attributable to raw material purchases and associated loans at Xtal. The
increase in other receivables of $1,184 is principally related to receivables
from the German government for refund of VAT taxes. Inventories increased at
September 30, 2001 by $5,579, principally as a result of the breach of contract
with one of the Company's larger South American customers and the general
softening in the South American market. The Company expects that inventory will
decline during the fourth quarter as the fiber is shipped to existing customers
as well as to new customers in Asia.
During the third quarter, one of the Company's larger South American
customers breached its contract with the Company. This breach consisted of
missed payments of $2,800 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, was 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 and therefore reduced production levels at the
Brazilian facility later in the quarter. The Company also increased its
short-term borrowings during the quarter to compensate for the reduced cash flow
from operations during the period. The Company has since reached a resolution
with this customer subsequent to the end of the third quarter, with all of the
outstanding receivables scheduled to be paid during the fourth quarter and
shipments to resume to the customer by year-end. As of November 13, 2001, the
first two scheduled payments amounting to approximately $1,570 U.S. dollars have
been received. As a result of the softening in the South American market, the
Company has also temporarily slowed its capacity expansion at Xtal.
The Company invested $19,178 in new equipment and facilities for both
major locations during the first nine months of 2001. A building in Jena,
Germany was acquired for FiberCore Quarz to begin production of glass tubes
using the Company's recently patented POVD process. Cash paid in connection with
the DCI acquisition was $295, while cash acquired with the DCI acquisition was
$27.
The Company received proceeds of long-term debt of $11,300 during the
first nine months. 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 as a result of the conversion by Crescent
International, Ltd. of such debt into 1,570,680 shares of Common Stock of the
Company. Additionally, there were principal payments on long-term debt during
the first nine months of $435. Proceeds of short-term notes payable amounted to
$7,079 during the first nine months of 2001. These notes were used primarily for
short-term working capital purposes in Brazil. Short-term notes for Xtal
amounting to $926 were paid during the first nine months of 2001.
12
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 with a new equity line with Crescent providing for the same
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 $2,874 upon the sale of common stock to
Crescent on August 22, 2001 pursuant to the new agreement, and net proceeds of
$977 upon an additional sale on October 26, 2001. The proceeds from the
foregoing sales to Crescent will be used to fund capacity expansion and for
other corporate purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition
of intangible assets that meet one of two criteria. The statement applies to all
business combinations initiated after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. The statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. Existing
goodwill will continue to be amortized through the remainder of fiscal 2001 at
which time amortization will cease and the Company will perform a transitional
goodwill impairment test. SFAS No. 142 is effective for fiscal periods beginning
after December 15, 2001. The Company is currently evaluating the impact of the
new accounting standards on existing goodwill and other intangible assets. While
the ultimate impact of the new accounting standards has yet to be determined,
goodwill amortization expense for the nine months ended September 30, 2001 was
$397.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
(Amounts in thousands)
The Company is exposed to market risks from changes in foreign currency
exchange rates and interest rates. The Company has two principal operating
subsidiaries, FCJ, which is located in Germany and Xtal, which is located in
Campinas, Brazil. FCJ's functional currency is the EURO and Xtal's functional
currency is the Real.
FOREIGN CURRENCY RISK. FCJ and Xtal may, from time to time, purchase
short-term forward exchange contracts to hedge payments and/or receipts due in
currencies other than the EURO and Real. At September 30, 2001, FCJ had
outstanding forward exchange contracts for the sale of U.S. Dollars totaling
$200, which mature at various dates in 2001. The weighted-average exchange rate
in these contracts is $.9197 per Euro. A 10% change in the exchange rate could
result in a gain or loss on these contracts of approximately $18. At September
30, 2001, Xtal had no outstanding forward exchange contracts.
At September 30, 2001, the Company had a long-term loan denominated in
Deutsche Marks (DM) totaling DM7,700. The principal of the loan is due at
maturity in September 2006. Interest on the loan is payable quarterly at the
fixed rate of 6.25% per annum. A 10% change in the DM exchange rate to the U.S.
dollar could increase or decrease the cash flow requirements of the Company by
approximately $22 for each of the years 2001 through 2005, and $17 in 2006.
13
Substantially all of the Company's sales are through FCJ and Xtal. The
Company has effectively hedged its sales by pricing most of the Company's sales
in U.S. dollars. Xtal purchases a significant amount of raw materials outside of
Brazil and is therefore subject to foreign exchange risks. Additionally, at
September 30, 2001, 48%, 27% and 9% of the Company's assets are at Xtal, FCJ,
and the Company's Malaysian subsidiary, 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 September 30, 2001, the Company had short and
long-term loans with interest rates based on the prime rate and LIBOR, which are
adjusted quarterly based on the prevailing market rates. A 10% change in the
interest rates on these loans would have increased or decreased the first nine
months of 2001 interest expense by approximately $26.
14
PART II - OTHER INFORMATION
ITEMS 1 - 3.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
At the Company's Annual Meeting of Shareholders ("Annual Meeting"),
held on July 27, 2001, 52,845,360 shares of Common Stock were
represented, in person or by proxy, constituting a quorum, of the
total of 59,565,685 shares of Common Stock outstanding and entitled
to vote at the Annual Meeting.
At the Annual Meeting, the directors nominated were elected by the
following votes:
Number of Shares Number of Shares
Voted For Against
----------------- -----------------
Javad K. Hassan 42,430,118 10,410,242
Michael A. Robinson 52,705,407 134,893
No director received fewer than 42,430,118 votes or 71.2% of the
outstanding Common Stock.
At the Annual Meeting, the election of Deloitte & Touche, LLP,
independent certified public accountants, as auditors for the
Company for the fiscal year ending December 31, 2001, was ratified
by a vote of 52,660,649 shares (88.4% of the outstanding Common
Stock). Holders of 92,715 shares voted against the proposal and
holders of 86,996 shares abstained.
ITEM 5.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 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:
Current report on Form 8-K Report filed on September
4, 2001
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FiberCore, Inc.
(Registrant)
/s/ Dr. Mohd A. Aslami
Date: November 14, 2001 ---------------------------------------
Dr. Mohd A. Aslami
Chairman, President and Chief
Executive Officer
(Duly Authorized Officer)
/s/ Robert P. Lobban
Date: November 14, 2001 ---------------------------------------
Robert P. Lobban
Chief Financial Officer and Treasurer
(Principal Financial Officer)
16
EXHIBIT INDEX
The following lists the exhibits which are filed as part of this report.
EXHIBIT NUMBER
- ---------------
10.1 Stock Purchase Agreement between the Company and Crescent
International, Ltd., dated as of August 20, 2001.
10.2 Registration Rights Agreement between the Company and Crescent
International, Ltd., dated as of August 20, 2001.