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 April 30, 2002
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 0-27022
OPTICAL CABLE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1237042
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5290 Concourse Drive
Roanoke, Virginia 24019
(Address of principal executive offices, including zip code)
(540) 265-0690
(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.
(1) Yes X No ____ (2) Yes X No ____
--- ---
As of June 7, 2002, 55,431,279 shares of the registrant's Common Stock,
no par value, were outstanding.
OPTICAL CABLE CORPORATION
Form 10-Q Index
Six Months Ended April 30, 2002
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - April 30, 2002 and October 31,
2001 .......................................................................... 2
Condensed Statements of Operations - Three Months and Six
Months Ended April 30, 2002 and 2001 .......................................... 3
Condensed Statement of Changes in Stockholders' Equity -
Six Months Ended April 30, 2002 ............................................... 4
Condensed Statements of Cash Flows - Six Months Ended
April 30, 2002 and 2001 ....................................................... 5
Condensed Notes to Condensed Financial Statements .............................. 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................... 13-25
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..................... 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .............................................................. 27
Item 4. Submission of Matters to a Vote of Security Holders ............................ 28
Item 5. Other Information .............................................................. 29
Item 6. Exhibits and Reports on Form 8-K ............................................... 29
SIGNATURES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
OPTICAL CABLE CORPORATION
Condensed Balance Sheets
(Unaudited)
------------------
April 30, October 31,
Assets 2002 2001
------------------ -------------------
Current assets:
Cash and cash equivalents $ 133,155 $ 2,087,608
Trade accounts receivable, net of allowance for doubtful accounts
of $702,086 at April 30, 2002 and $572,853 at October 31, 2001 7,979,203 10,678,214
Income taxes refundable 978,835 1,108,007
Other receivables 440,500 371,656
Due from employees, net of allowance for uncollectible advances
of $70,000 34,543 35,018
Inventories 11,921,107 14,084,931
Prepaid expenses 234,441 185,831
Deferred income taxes 282,380 260,709
------------------ -------------------
Total current assets 22,004,164 28,811,974
Other assets, net 270,711 367,469
Property and equipment, net 12,207,125 12,685,053
Deferred income taxes 839,973 933,801
------------------ -------------------
Total assets $ 35,321,973 $ 42,798,297
================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Current notes payable to bank $ -- $ 8,271,000
Accounts payable and accrued expenses 3,019,983 5,537,313
Accrued compensation and payroll taxes 585,487 798,203
------------------ -------------------
Total current liabilities 3,605,470 14,606,516
Noncurrent note payable to bank 2,970,236 --
Other liabilities 162,936 326,553
------------------ -------------------
Total liabilities 6,738,642 14,933,069
------------------ -------------------
Shareholders' equity:
Preferred stock, no par value, authorized 1,000,000 shares; none
issued and outstanding -- --
Common stock, no par value, authorized 100,000,000 shares;
issued and outstanding 55,431,279 shares 5,474 --
Retained earnings 28,577,857 27,865,228
------------------ -------------------
Total shareholders' equity 28,583,331 27,865,228
Commitments and contingencies
------------------ -------------------
Total liabilities and shareholders' equity $ 35,321,973 $ 42,798,297
================== ===================
See accompanying condensed notes to condensed financial statements.
2
OPTICAL CABLE CORPORATION
Condensed Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- ----------------------------------
2002 2001 2002 2001
--------------- -------------- --------------- ----------------
Net sales $ 10,915,618 $ 17,376,605 $ 22,307,039 $ 34,372,805
Cost of goods sold 7,307,796 9,548,132 14,202,980 18,666,063
--------------- -------------- --------------- ----------------
Gross profit 3,607,822 7,828,473 8,104,059 15,706,742
Selling, general and administrative expenses 3,393,478 3,746,306 6,899,895 7,674,120
--------------- -------------- --------------- ----------------
Income from operations 214,344 4,082,167 1,204,164 8,032,622
--------------- -------------- --------------- ----------------
Other income (expense):
Losses on trading securities, net -- (5,164,075) -- (9,155,256)
Interest income 13,494 9,066 20,646 24,830
Interest expense (62,139) (98,213) (126,843) (248,083)
Other, net 983 16,792 1,167 15,296
--------------- -------------- --------------- ----------------
Other expense, net (47,662) (5,236,430) (105,030) (9,363,213)
--------------- -------------- --------------- ----------------
Income (loss) before income
tax expense 166,682 (1,154,263) 1,099,134 (1,330,591)
Income tax expense 58,505 2,503,665 386,505 2,441,950
--------------- -------------- --------------- ----------------
Net income (loss) $ 108,177 $ (3,657,928) $ 712,629 $ (3,772,541)
=============== ============== =============== ================
Net income (loss) per share:
Basic and diluted $ -- $ (0.06) $ 0.01 $ (0.07)
=============== ============== =============== ================
See accompanying condensed notes to condensed financial statements.
3
OPTICAL CABLE CORPORATION
Condensed Statement of Changes in Shareholders' Equity
(Unaudited)
Six Months Ended April 30, 2002
---------------------------------------------------------------------------
Total
Common Stock Retained Stockholders'
------------------------------------
Shares Amount Earnings Equity
----------------- ----------------- ----------------- -----------------
Balances at October 31, 2001 55,431,279 $ -- $ 27,865,228 $ 27,865,228
Stock-based compensation -- 5,474 -- 5,474
Net income -- -- 712,629 712,629
----------------- ----------------- ----------------- -----------------
Balances at April 30, 2002 55,431,279 $ 5,474 $ 28,577,857 $ 28,583,331
================= ================= ================= =================
See accompanying condensed notes to condensed financial statements.
4
OPTICAL CABLE CORPORATION
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended
April 30,
----------------------------------------
2002 2001
------------------ ------------------
Cash flows from operating activities:
Net income (loss) $ 712,629 $ (3,772,541)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation, amortization and accretion 597,057 475,861
Bad debt expense 133,263 494,203
Deferred income tax expense 72,157 698,561
Stock-based compensation expense 5,474 68,385
Unrealized gains on trading securities, net -- (183,191)
Decrease in trading securities -- 13,135,671
Decrease in payable to investment broker related to securities
trading -- (4,550,275)
(Increase) decrease in:
Trade accounts receivable 2,565,748 (5,064,599)
Income taxes refundable 129,172 1,162,118
Other receivables (68,844) (22,001)
Due from employees 475 975
Inventories 2,163,824 (1,245,391)
Prepaid expenses (48,610) (21,783)
Increase (decrease) in:
Accounts payable and accrued expenses (2,644,513) 878,292
Accrued compensation and payroll taxes (212,716) (101,205)
Income taxes payable -- 444,071
------------------ ------------------
Net cash provided by operating activities 3,405,116 2,397,151
------------------ ------------------
Cash flows from investing activities:
Purchase of property and equipment (152,563) (1,183,171)
Increase in cash surrender value of life insurance -- (54,085)
Receipt of cash surrender value of life insurance 367,469 --
------------------ ------------------
Net cash provided by (used in) investing activities 214,906 (1,237,256)
------------------ ------------------
Cash flows from financing activities:
Repayment of notes payable to bank, net (5,300,764) --
Payments for financing costs (273,711) --
Repurchase of common stock -- (1,578,109)
Proceeds from exercise of employee stock options -- 288,178
------------------ ------------------
Net cash used in financing activities (5,574,475) (1,289,931)
------------------ ------------------
Net decrease in cash and cash equivalents (1,954,453) (130,036)
Cash and cash equivalents at beginning of period 2,087,608 1,458,896
------------------ ------------------
Cash and cash equivalents at end of period $ 133,155 $ 1,328,860
================== ==================
See accompanying condensed notes to condensed financial statements.
5
OPTICAL CABLE CORPOATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
(1) General
The accompanying unaudited condensed financial statements of Optical
Cable Corporation (the Company) have been prepared in accordance with
accounting principles generally accepted in the United States of America
for interim financial reporting information and the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all material adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six months
ended April 30, 2002 are not necessarily indicative of the results that
may be expected for the fiscal year ending October 31, 2002. The
unaudited condensed financial statements and condensed notes are
presented as permitted by Form 10-Q and do not contain certain
information included in the Company's annual financial statements and
notes. For further information, refer to the financial statements and
notes thereto included in the Company's annual report on Form 10-K for
the fiscal year ended October 31, 2001.
(2) Allowance for Doubtful Accounts for Trade Accounts Receivable
A summary of changes in the allowance for doubtful accounts for trade
accounts receivable for the six months ended April 30, 2002 and 2001
follows:
Six Months Ended
April 30,
---------------------------------
2002 2001
-------------- --------------
Balance at beginning of period $ 572,853 $ 1,909,069
Bad debt expense 133,263 494,203
Losses charged to allowance (4,030) (2,191,105)
Recoveries added to allowance -- 983
-------------- --------------
Balance at end of period $ 702,086 $ 213,150
============== ==============
One of the Company's two major distributors filed for liquidation under
bankruptcy laws in January 2001. As of October 31, 2000, the Company
specifically reserved approximately $1,772,000 for estimated
uncollectible accounts receivable from this distributor. As of January
31, 2001, the Company wrote off that $1,772,000 reserve, as well as an
additional bad debt reserve related to this distributor of approximately
$419,000 incurred during the first quarter of fiscal year 2001, for a
total write-off of approximately $2,191,000 for estimated uncollectible
accounts receivable from this distributor for the six months ended April
30, 2001. There were no net sales attributed to this distributor
subsequent to the first quarter of fiscal year 2001.
6
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
(3) Inventories
Inventories at April 30, 2002 and October 31, 2001, consisted of the
following:
April 30, October 31,
2002 2001
------------------ ----------------
Finished goods $ 5,215,605 $ 4,328,379
Work in process 1,938,160 3,064,975
Raw materials 4,704,434 6,641,985
Production supplies 62,908 49,592
------------------ ----------------
S 11,921,107 $ 14,084,931
================== ================
(4) Notes Payable to Bank
Under a loan agreement with its bank dated March 10, 1999 and amended on
October 30, 2001, the Company had a $5 million secured revolving line of
credit and a $4.5 million secured revolving line of credit. As of October
31, 2001, the Company had combined outstanding borrowings under these
lines of credit in the amount of $8,271,000 with $1,229,000 unused and
available.
The lines of credit bore interest at 1.50% above the monthly LIBOR rate
(3.79% as of October 31, 2001) and were equally and ratably
collateralized by the Company's accounts receivable, contract rights,
inventory, furniture and fixtures, machinery and equipment and general
intangibles.
On April 25, 2002, the Company closed its new credit facility with
Wachovia Bank, National Association (formerly First Union National
Bank). The new three-year credit facility provides up to a maximum of
$25.0 million and replaces the Company's previous $9.5 million credit
facility described above.
The new credit facility bears interest at three-quarters of one percent
(0.75%) per annum above the prime rate (5.5% as of April 30, 2002) and
may be reduced by one-quarter of one percent (0.25%) upon meeting certain
fixed charge coverage ratio requirements. The facility also provides a
LIBOR based rate at the Company's option. The facility is collateralized
by all of the Company's tangible and intangible assets. Borrowings under
the credit facility are subject to certain coverage ratios, advance
limits and qualifications that are applied to the Company's accounts
receivable, inventory and fixed assets. The Company's ability to access
the full amount of the credit facility will depend on the future growth
of the Company's borrowing base. As of April 30, 2002, the Company had
outstanding borrowings under the new credit facility in the amount of
$2,970,236, with $5,098,264 unused and available. The outstanding balance
on the credit facility has been reflected as noncurrent based on the
scheduled maturity of the credit facility.
In connection with obtaining the new credit facility described above, the
Company incurred various costs totaling $273,711. These financing costs
have been deferred and are included in other assets, net in the
accompanying condensed balance sheet as of April 30, 2002. These deferred
financing costs are being amortized to interest expense using the
straight-line method over the life of the credit facility, which
approximates the effective interest method.
7
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
(5) Stock Option Plan
The Company applies the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations for employee stock option grants and SFAS No. 123,
Accounting for Stock-Based Compensation and EITF Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services, for
nonemployee stock option grants. Stock option activity during the six
months ended April 30, 2002 was as follows:
Number of Weighted-Average
Shares Exercise Price
------------------- --------------------
Balance at October 31, 2001 1,013,562 $6.97
Granted 2,743,475 0.93
Exercised --
Forfeited (32,250) 3.78
-------------------
Balance at April 30, 2002 3,724,787 $2.55
===================
At April 30, 2002, there were approximately 1,600,000 additional shares
available for grant under the Plan.
Effective November 16, 2001, the Board of Directors approved grants of
stock options for a total of 250,000 shares with a per share exercise
price of $1.25 equal to the closing price of the Company's common stock
on the date of grant. These grants were made to executive officers of the
Company and vest in equal monthly installments over four years.
Effective February 12, 2002, the Board of Directors approved grants of
stock options to purchase a total of 24,975 shares of the Company's
common stock at an exercise price of $0.89 per share, the closing price
at the date of grant. These grants were made to those independent members
of the Board of Directors who had not served as an executive officer of
the Company during the past year. These options vest monthly over one
year.
On March 5, 2002 and April 11, 2002, the Compensation Committee of the
Board of Directors approved grants of stock options to purchase a total
of 2,388,000 shares and 80,500 shares, respectively, of the Company's
common stock at an exercise price of $0.90 per share and $0.96 per share,
the respective closing prices at the dates of the grants. These grants
were made to employees (other than the executive officers) and
nonemployee outside sales personnel. These options vest in equal
quarterly installments over five years. Included in the 2,388,000 options
granted on March 5, 2002 were 135,000 options to nonemployees.
(6) Income Taxes
As of April 30, 2001, the Company had assessed the realizability of its
deferred tax assets relating to the capital loss carry forward and
unrealized net loss generated by the Company's trading securities during
8
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
the six months ended April 30, 2001. As a result, the Company determined
that it was more likely than not that these deferred tax assets totaling
approximately $3,148,000 as of April 30, 2001, will not be realized.
Accordingly, the Company established a valuation allowance for deferred
tax assets in the amount of approximately $3,148,000 as of April 30,
2001, which is included in income tax expense for the six months ended
April 30, 2001.
(7) Net Income (Loss) Per Share
Basic net income (loss) per share excludes dilution and is computed by
dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period.
Diluted net income (loss) per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the net income (loss) of the Company.
The following is a reconciliation of the numerators and denominators of
the net income (loss) per share computations for the periods presented:
Net Income Shares Per Share
Three Months Ended April 30, 2002 (Numerator) (Denominator) Amount
- --------------------------------- -------------------- ------------------- -------------------
Basic net income per share $ 108,177 55,431,279 $ --
===================
Effect of dilutive stock options -- 26,484
-------------------- -------------------
Diluted net income per share $ 108,177 55,457,763 $ --
==================== =================== ===================
Net Loss Shares Per Share
Three Months Ended April 30, 2001 (Numerator) (Denominator) Amount
- --------------------------------- -------------------- ------------------- -------------------
Basic net loss per share $ (3,657,928) 56,277,995 $ (0.06)
===================
Effect of dilutive stock options -- 203,222
-------------------- -------------------
Diluted net loss per share $ (3,657,928) 56,481,217 $ (0.06)
==================== =================== ===================
Net Income Shares Per Share
Six Months Ended April 30, 2002 (Numerator) (Denominator) Amount
- ------------------------------- -------------------- ------------------- -------------------
Basic net income per share $ 712,629 55,431,279 $ 0.01
===================
Effect of dilutive stock options -- 463,147
-------------------- -------------------
Diluted net income per share $ 712,629 55,894,426 $ 0.01
==================== =================== ===================
Net Loss Shares Per Share
Six Months Ended April 30, 2001 (Numerator) (Denominator) Amount
- ------------------------------- -------------------- ------------------- -------------------
Basic net loss per share $ (3,772,541) 56,317,635 $ (0.07)
===================
Effect of dilutive stock options -- 332,458
-------------------- -------------------
Diluted net loss per share $ (3,772,541) 56,650,093 $ (0.07)
==================== =================== ===================
9
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
(8) Shareholders' Equity
On November 2, 2001, the Board of Directors of the Company adopted a new
Shareholder Rights Plan (the "Rights Plan") and declared a dividend of
one preferred share purchase right (a "Right") on each outstanding share
of common stock. Under the terms of the Rights Plan, if a person or group
acquires 15% (or other applicable percentage, as provided in the Rights
Plan) or more of the outstanding common stock, each Right will entitle
its holder (other than such person or members of such group) to purchase,
at the Right's then current exercise price, a number of shares of common
stock having a market value of twice such price. In addition, if the
Company is acquired in a merger or other business transaction after a
person or group has acquired such percentage of the outstanding common
stock, each Right will entitle its holder (other than such person or
members of such group) to purchase, at the Right's then current exercise
price, a number of the acquiring company's common shares having a market
value of twice such price.
Upon the occurrence of certain events, each Right will entitle its holder
to buy one one-thousandth of a Series A preferred share ("Preferred
Share"), at an exercise price of $25, subject to adjustment. Each
Preferred Share will entitle its holder to 1,000 votes and will have an
aggregate dividend rate of 1,000 times the amount, if any, paid to
holders of common stock. The Rights will expire on November 2, 2011,
unless the date is extended or unless the Rights are earlier redeemed or
exchanged at the option of the Board of Directors for $0.0001 per Right.
Generally, each share of common stock issued after November 5, 2001 will
have one Right attached. The adoption of the Rights Plan has no impact on
the financial position or results of operations of the Company.
The Company has reserved 100,000 of its authorized preferred stock for
issuance upon exercise of the Rights.
(9) Personnel Matters
On December 3, 2001, the Company issued a press release that announced
that, upon the recommendation of the independent Special Committee of its
Board of Directors, the Board of Directors had removed Robert Kopstein as
the Company's Chairman, President and Chief Executive Officer. Also see
note 11.
(10) Segment Information and Business and Credit Concentrations
The Company has a single reportable segment for purposes of segment
reporting pursuant to SFAS No. 131. In addition, the Company's fiber
optic cable products are similar in nature.
The Company provides credit, in the normal course of business, to various
commercial enterprises, governmental entities and not-for-profit
organizations. Concentration of credit risk with respect to trade
receivables is limited due to the Company's large number of customers.
The Company also manages exposure to credit risk through credit
approvals, credit limits and monitoring procedures. Management believes
that credit risks as of April 30, 2002 and October 31, 2001 have been
adequately provided for in the financial statements.
10
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
For the three months ended April 30, 2002, one customer accounted for
approximately $1,096,000, or 10.0% of net sales. For the three months
ended April 30, 2001, one major domestic distributor accounted for
approximately $1,822,000, or 10.5% of net sales. During first quarter
2002, this distributor advised the Company that it will no longer stock
the Company's products as part of its regular product offering. For the
six months ended April 30, 2002 and 2001, no single customer accounted
for more than 10% of net sales.
For the six months ended April 30, 2002 and 2001, approximately 73% and
77%, respectively, of net sales were from customers located in the United
States, while approximately 27% and 23%, respectively, were from
international customers.
(11) Contingencies
On September 27, 2000, the Equal Employment Opportunity Commission
("EEOC") filed a lawsuit under Title VII of the Civil Rights Act against
the Company in the United States District Court for the Western District
of Virginia. The lawsuit alleged a pattern or practice of discrimination
on the bases of gender and race. The lawsuit sought injunctive and other
relief and damages in an unspecified amount. On December 13, 2001, the
parties reached an agreement as to the amount of a settlement (subject to
final documentation and judicial review and approval). On February 20,
2002, the Company reached a final settlement of the case and the court
issued a Consent Decree setting forth the terms of the settlement.
Pursuant to the settlement and Consent Decree, the Company paid $500,000
on or about February 20, 2002; and will pay $175,000 in January 2003 and
$175,000 in January 2004, to satisfy any gender and race class claims;
the Company paid $75,000 on or about February 20, 2002 to one individual
specifically named in the complaint; and will spend at least $75,000 for
the Company's planned diversity, recruitment and human resource
management programs over the term of the Consent Decree. The Company
recorded a charge in the fourth quarter of fiscal year 2001 in the amount
of $901,553 representing $575,000 (current portion) payable upon entry of
the Consent Decree, as well as $326,553 (noncurrent portion) representing
the present value of two equal payments in the amount of $175,000 payable
in January 2003 and 2004. During the six months ended April 30, 2002, the
Company recorded accretion of the associated discount in the amount of
$6,621. The $75,000 used for the Company's planned diversity, recruitment
and human resource management programs will be expensed as incurred.
The Company was named as a defendant in two lawsuits filed in the United
States District Court for the Southern District of New York seeking to
compel the Company to authorize its transfer agent to transfer
unregistered, restricted stock on the Company's stock ledger. The first
suit was filed on October 22, 2001, by Bear, Stearns & Co. Inc. and Bear,
Stearns Securities Corporation (collectively, "Bear Stearns"). The second
suit was filed on October 26, 2001, by UBS PaineWebber Inc.
("PaineWebber"). In each case, PaineWebber and Bear Stearns sought
injunctive relief with respect to common stock of the Company sold by
them in the course of liquidating either repossessed shares or brokerage
accounts of the Company's former Chairman, President and Chief Executive
Officer, to cover personal margin loans made by the brokerage firms to
him. Both suits also contained a claim of
11
(Continued)
OPTICAL CABLE CORPORATION
Condensed Notes to Condensed Financial Statements
Six Months Ended April 30, 2002
(Unaudited)
monetary damages caused by the alleged wrongful refusal by the Company to
authorize the transfers in connection with the liquidations. During the
quarter ended April 30, 2002, both suits were dismissed. PaineWebber
voluntarily dismissed its lawsuit with prejudice, while the Bear Stearns
lawsuit was voluntarily dismissed without prejudice.
The Company, Mr. Robert Kopstein, our former Chairman, President
and Chief Executive Officer, two of the Company's officers and
directors, Luke J. Huybrechts and Kenneth W. Harber, are named as
defendants in a consolidated putative class action lawsuit pending in
the United States District Court for the Western District of Virginia
(the "Consolidated Suit"). The first class action lawsuit was filed on
November 26, 2001, by Charles S. Farrell, Jr., on behalf of himself
and others similarly situated. The second class action lawsuit was
filed on December 14, 2001, by Lerner Group, on behalf of itself and
others similarly situated. The third class action lawsuit was filed on
December 27, 2001, by Richard Simone, on behalf of himself and others
similarly situated. The fourth class action lawsuit was filed on
January 31, 2002, by Charles H. Yeatts, on behalf of himself and
others similarly situated. In each of the four suits, the defendants
in the actions were the Company, Mr. Kopstein and various John Does
(unidentified officers and/or directors of the Company during the
class period described below). Pursuant to the Private Securities
Litigation Reform Act of 1995, the United States District Court for
the Western District of Virginia appointed a group of shareholders as
the lead plaintiff for the Consolidated Suit. The four suits were
consolidated into a single action and the lead plaintiff filed a
consolidated amended class action complaint on May 2, 2002. In the
Consolidated Suit, the plaintiffs purport to represent purchasers of
the Company's common stock during the period ranging from June 14,
2000, through September 26, 2001, (the putative class period), and
allege that the defendants violated Sections 10(b) and 20 of the
federal Securities Exchange Act of 1934 in making certain alleged
misrepresentations and/or omitting to disclose material facts. The
plaintiffs in the Consolidated Suit seek compensatory damages in an
unspecified amount, as well as reasonable costs and expenses incurred
in the cause of action, including attorneys' fees and expert fees. On
June 10, 2002, the Defendants moved to dismiss the Consolidated Suit.
Management intends to vigorously defend the Consolidated Suit. The
Company may, however, incur substantial costs in defending the
Consolidated Suit, regardless of its merit or outcome. At this early
stage in the Consolidated Suit, management cannot make a reasonable
estimate of the monetary amount of its resolution, or estimate a range of
reasonably possible losses, if any. If the Company is unsuccessful, it
could be subject to damages that may be substantial and could have a
material adverse effect on the Company's financial position, results of
operations and liquidity.
From time to time, the Company is involved in various other claims and
legal actions arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
(12) Subsequent Events
On June 14, 2002, the Company announced the layoff of 28 employees,
representing almost 15 percent of its full-time employees. The reductions
included both production and staff positions. The layoffs were part of a
company-wide downsizing and will result in a charge of approximately
$120,000 during the third fiscal quarter of 2002.
Subsequent to April 30, 2002, Optical Cable Corporation received
notification from Nasdaq regarding the Company's noncompliance with the
listing requirements for the Nasdaq National Market, where the Company's
common stock is presently traded. As a Nasdaq National Market company,
Optical Cable is subject to all the requirements of its listing
agreement with Nasdaq. The Company received notification from Nasdaq
that its common stock failed to meet the minimum $1.00 per share trading
price requirement for continued inclusion under Marketplace Rule
4450(a)(5). The Company will be provided until August 13, 2002, to regain
compliance or be delisted. In order to regain compliance the Company's
common stock must close at $1.00 per share or more for a minimum of 10
consecutive trading days prior to August 13. In an effort to regain
compliance with the Nasdaq National Market's minimum trading price
requirement, the Company is considering several options, including a
reverse stock split. Under Virginia law, such an action would require
an amendment to the Company's articles of incorporation that must be
approved by both the Board of Directors and the shareholders. In the
event a reverse stock split were effected, the number of shares held by
each shareholder and the total number of outstanding shares would be
reduced proportionately.
12
Item 2. Management's Discussion and Analysis Results of Operations and Financial
Condition
Forward Looking Information
This Form 10-Q may contain certain forward-looking information within the
meaning of the federal securities laws. The forward-looking information may
include, among other information, statements concerning our outlook for the
future; statements of belief; future plans, strategies or anticipated events;
and similar information and statements concerning matters that are not
historical facts. Such forward-looking information is subject to risks and
uncertainties that may cause actual events to differ materially from our
expectations. Factors that could cause or contribute to such differences
include, but are not limited to, the level of sales to key customers or
distributors; the economic conditions affecting network service providers; the
slowdown in corporate spending on information technology; actions by
competitors; fluctuations in the price of raw materials (including optical
fiber); our dependence on a single manufacturing facility; our ability to
protect our proprietary manufacturing technology; market conditions influencing
prices or pricing; our dependence on a limited number of suppliers; an adverse
outcome in litigation, claims and other actions against us, including, but not
limited to, the shareholder litigation that has been filed; the effect of sales
of our common stock by the various brokerage firms alleging that our former
President and Chief Executive Officer pledged substantially all of his
personally-held unregistered shares of our common stock to cover personal margin
loans; technological changes and introductions of new competing products; the
current recession; terrorist attacks or acts of war, particularly given the acts
of terrorism against the United States on September 11, 2001 and subsequent
military responses by the United States; ability to retain key personnel;
changes in market demand, exchange rates, productivity, weather and market and
economic conditions in the areas of the world in which we operate and market our
products.
Amounts presented in the following discussion have been rounded to the nearest
hundred thousand, unless the amounts are less than one million, in which case
the amounts have been rounded to the nearest thousand.
Overview
We are a leading manufacturer of a broad range of tight-buffered fiber optic
cables primarily for the local area network and premise markets, often referred
to as the enterprise market. Our tight-buffered fiber optic cables are
well-suited for use in short to moderate distance applications to connect
metropolitan, access and enterprise networks. Our tight-buffered fiber optic
cables are derived from technology originally developed for military
applications requiring rugged, flexible and compact fiber optic cables. Our
tight-buffered fiber optic cables can be used both indoors and outdoors, are
easy and economical to install, provide a high degree of reliability and offer
industry leading performance characteristics. We have designed and implemented
an efficient and highly automated manufacturing process based on proprietary
technologies. This enables us to produce high quality indoor/outdoor
tight-buffered fiber optic cable rapidly and cost efficiently.
We sell our products through our sales force to original equipment
manufacturers, and to major distributors, regional distributors and various
smaller distributors. For the three months ended April 30, 2002 and 2001,
approximately 48.4% and 41.5% of our net sales were from sales to distributors.
For the six months ended April 30, 2002 and 2001, approximately 44.2% and 43.3%
of our net sales were from sales to distributors. International net sales were
20.5% and 24.2% of total net sales for the three months ended April 30, 2002 and
2001. International net sales were 27.5% and 23.5% of total net sales for the
six months ended April 30, 2002 and 2001. Substantially all of our international
sales are denominated in U.S. dollars.
Net sales consist of gross sales of products less discounts, refunds and
returns. Revenue is recognized at the time of product shipment or delivery to
the customer and at the time the customer takes ownership and assumes risk of
loss, based on shipping terms. During the second quarter of 2002, one customer
accounted
13
(Continued)
for approximately $1.1 million, or 10% of net sales. During the second quarter
of 2001, one major domestic distributor accounted for approximately $1.8
million, or 10.5% of net sales. During first quarter 2002, this distributor
advised us that it will no longer stock our products as part of its regular
product offering. No single customer accounted for more than 10% of our net
sales during the six months ended April 30, 2002 or 2001.
A significant percentage of the selling price of our fiber optic cable is based
on the cost of raw materials used. Because single-mode fiber is less expensive
than multimode fiber, single-mode fiber optic cables have a lower per unit
selling price than comparable multimode fiber optic cables. We believe that the
metropolitan and access markets are predominantly the users of single-mode fiber
optic cable, and that increasingly, single-mode fiber is also being used for
other short to moderate distance installations where higher bandwidth is
required. To the extent that our sales mix shifts toward single-mode cables, we
will have to increase the volume of our sales to maintain our current level of
net sales.
Cost of goods sold consists of the cost of materials, compensation costs,
product warranty costs and overhead related to our manufacturing operations. The
largest percentage of costs included in cost of goods sold is attributable to
costs of materials that are variable as opposed to fixed costs.
Selling, general and administrative expenses consist of the compensation costs
for sales and marketing personnel, shipping costs, travel expenses, customer
support expenses, trade show expenses, advertising, bad debt expense, the
compensation cost for administration, finance and general management personnel,
as well as legal and accounting fees.
Other expense, net consists primarily of realized and unrealized net losses on
trading securities, interest income and interest expense. In January 2000, we
began actively buying and selling shares in the Nasdaq 100 Trust, which is
designed to closely track the price and yield performance of the Nasdaq 100
stock index. We utilized short-term margin borrowings payable to an investment
broker to finance our position in these trading securities. Our margin
borrowings were collateralized by the trading securities and were subject to
margin provisions, which could have resulted in the sale of some or all of, and
on certain occasions did result in the sale of some of, the trading securities
to meet margin calls. Our active trading in the Nasdaq 100 Trust continued
through May 14, 2001, the date of the last purchase of these shares. On October
3, 2001, as part of a policy to invest future excess funds only in short-term
interest-bearing investments, we sold all of our remaining investment in the
Nasdaq 100 Trust and paid off the outstanding margin borrowings. As a result,
there were no gains or losses resulting from the trading of securities for the
six months ended April 30, 2002. Our Board of Directors has adopted an
Investment Objectives and Guidelines policy, in which we state that we will make
no additional cash investments in the above-mentioned Nasdaq 100 Trust or in
stocks of other companies. In addition, our Investment Objectives and Guidelines
policy states that any future investments will be in U.S. dollar denominated
short-term, interest-bearing, investment-grade securities.
For accounting purposes during first quarter 2001, we categorized our investment
in the Nasdaq 100 Trust as trading securities, and we recorded the investment on
our balance sheet at fair value, which was based on quoted market prices.
Purchases and sales of trading securities were recognized on a trade-date basis,
the date the order to buy or sell is executed. Net realized gains or losses were
determined on the first-in, first-out cost method. We marked our investment to
market on each balance sheet date. Any decline in fair value was recorded as an
unrealized loss, while any increase in fair value was recorded as an unrealized
gain. Realized gains and losses and unrealized holding gains and losses from
trading securities were included in other expense, net.
14
(Continued)
In the second quarter of 2001, we recognized net losses of $5.2 million in
connection with our securities trading activities in other expense, net.
Likewise, during the six months ended April 30, 2001, we recognized net losses
of $9.2 million in connection with our securities trading activities in other
expense, net. In the second quarter of 2001 and for the six months ended April
30, 2001, we incurred interest expense of $98,000 and $248,000, respectively, on
the margin borrowings related to our securities trading activities. Since
October 2001, we have held no trading securities in accordance with our current
investment policy and had no outstanding margin borrowings.
Results of Operations
The following table sets forth selected line items from our condensed statements
of operations as a percentage of net sales for the periods indicated:
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------------- --------------------------------
2002 2001 2002 2001
-------------- -------------- ------------- ---------------
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 67.0 54.9 63.7 54.3
-------------- -------------- ------------- ---------------
Gross profit 33.0 45.1 36.3 45.7
Selling, general and administrative expenses 31.1 21.6 30.9 22.3
-------------- -------------- ------------- ---------------
Income from operations 1.9 23.5 5.4 23.4
Other expense, net (0.4) (30.1) (0.5) (27.2)
-------------- -------------- ------------- ---------------
Income (loss) before income
tax expense 1.5 (6.6) 4.9 (3.8)
Income tax expense 0.5 14.4 1.7 7.1
-------------- -------------- ------------- ---------------
Net income (loss) 1.0 % (21.0)% 3.2 % (10.9)%
============== ============== ============= ===============
Three Months Ended April 30, 2002 and 2001
Net Sales
Net sales decreased 37.2% to $10.9 million for the three months ended April 30,
2002 from $17.4 million for the three months ended April 30, 2001. The decrease
in net sales during the second quarter of 2002, when compared to the same period
last year, was a result of weak economic conditions on market demand, a trend
that significantly affected our net sales beginning in the second half of fiscal
year 2001. Total fiber meters shipped during the second quarter of 2002
decreased 39.7% to 36.5 million fiber meters shipped from 60.5 million fiber
meters shipped for the same period in 2001.
During the second quarter of 2002, we experienced an increase in product mix for
cable containing multimode fiber (which typically has a higher relative sales
price), compared to cable containing single-mode fiber (which typically has a
lower relative sales price), when compared to the second quarter of 2001. The
percentage of multimode fiber meters shipped to total fiber meters shipped
during the second quarter of 2002 was 76.1% compared to 58.1% during the second
quarter of 2001; however, the impact of the decreased market demand and pricing
outweighed the impact on sales resulting from the change in product mix.
Cable containing multimode fiber is generally used for communications over
shorter distances where the higher bandwidth capacity and the higher
transmission equipment cost of single-mode fiber is not required. Multimode
fiber cable is often used in datacom applications. Cable containing single-mode
fiber is generally used for communications over longer distances and where
higher bandwidth capacity is required. Single-mode fiber cable is often used in
telecom, CATV and various Internet applications.
15
(Continued)
Gross Profit
Gross profit margin, or gross profit as a percentage of net sales, decreased to
33.0% in the second quarter of 2002 from 45.1% in the second quarter of 2001, as
production costs did not decrease at the same relative rate as the decrease in
net sales. By comparison, the gross profit margin for fourth quarter 2001 was
21.8%, a quarter in which we wrote-off slow-moving and impaired inventory to net
realizable value, disposed of certain impaired finished goods inventory, and
adjusted inventory for book to physical variances resulting from year-end
physical inventory counts. Although raw material cost per fiber meter shipped
decreased slightly during the second quarter of 2002 compared to the second
quarter of 2001, an increase in production cost resulted from increases in labor
and overhead cost per fiber meter shipped which offset the decrease in raw
material cost per fiber meter shipped.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales were
31.1% in the second quarter of 2002, compared to 21.6% in the second quarter of
2001. By comparison, selling, general and administrative expenses were 47.2% of
net sales in the fourth quarter of 2001, mainly due to the $902,000 charge
recorded in anticipation of settlement of the lawsuit with the Equal Employment
Opportunity Commission for alleged prior discriminatory practices and related
complaints. The higher percentage in the second quarter of 2002 reflects the
fact that net sales for the quarter decreased 37.2% compared to the same period
last year, while selling, general and administrative expenses only decreased
9.4% compared to the second quarter of 2001. The decrease in selling, general
and administrative expenses during the second quarter of 2002 compared to the
same period last year is explained by a decrease in sales commissions and
shipping costs, and a decrease of $201,000 in bad debt expense, that were
partially offset by an increase in legal and other professional fees.
Other Income (Expense)
Other expense, net decreased to $48,000 in the second quarter of 2002 from $5.2
million in the second quarter of 2001. The decrease was primarily due to
cessation of securities trading activity, the liquidation of our remaining
investments in the Nasdaq 100 Trust and the pay off of the outstanding margin
borrowings prior to the end of fiscal year 2001. In the second quarter of 2001,
we recognized net losses of $5.2 million in connection with our securities
trading activities, and incurred interest expense of $98,000 on the margin
borrowings related to such activities. Since October 2001, we have held no
trading securities in accordance with our current investment policy and had no
outstanding margin borrowings. Please see our discussion of trading securities
in "Overview" above.
Income (Loss) Before Income Tax Expense
Income (loss) before income tax expense increased to pretax income of $167,000
in the second quarter of 2002 from a pretax loss of $1.2 million in the second
quarter of 2001. This increase was primarily due to the $5.2 million decrease in
losses on trading securities, net and the $353,000 decrease in selling, general
and administrative expenses, partially offset by the $4.2 million decrease in
gross profit largely resulting from the decrease in net sales.
Income Tax Expense
Income tax expense decreased to $59,000 in the second quarter of 2002 from $2.5
million in the second quarter of 2001. Although we incurred a pretax loss for
the three months ended April 30, 2001, our reported income tax expense differed
from the expected income tax benefit, computed based on an expected effective
tax rate of 35.0%, due primarily to the establishment of a valuation allowance
for deferred tax assets in the
16
(Continued)
amount of $3.1 million. As of April 30, 2001, we assessed the realizability of
our deferred tax assets relating to the capital loss carryforward and unrealized
net losses from our trading securities and determined that it was more likely
than not that these deferred tax assets will not be realized. For the three
months ended April 30, 2002, our effective tax rate was 35.1%. Fluctuations in
our effective tax rates typically are due primarily to the amount and timing of
the tax benefits related to our Extraterritorial Income Exclusion and our
foreign sales corporation, both of which exempt from federal income taxation a
portion of the net profit realized from sales outside of the United States of
products manufactured in the United States.
Net Income (Loss)
Net income for the second quarter of 2002 was $108,000, compared to a net loss
of $3.7 million for the second quarter of 2001. This $3.8 million increase in
net income was primarily due to the $5.2 million decrease in losses on trading
securities, net, the $353,000 decrease in selling, general and administrative
expenses, and the $2.4 million decrease in income tax expense, partially offset
by the $4.2 million decrease in gross profit largely resulting from the decrease
in net sales.
Six Months Ended April 30, 2002 and 2001
Net Sales
Net sales decreased 35.1% to $22.3 million for the six months ended April 30,
2002 from $34.4 million for the six months ended April 30, 2001. The decrease in
net sales during the first six months of 2002, when compared to the same period
last year, was a result of weak economic conditions on market demand, discussed
above. Total fiber meters shipped during the first six months of 2002 decreased
37.8% to 74.2 million fiber meters shipped from 119.2 million fiber meters
shipped for the same period in 2001.
During the first six months of 2002, we experienced an increase in product mix
for cable containing multimode fiber (which typically has a higher relative
sales price), compared to cable containing single-mode fiber (which typically
has a lower relative sales price), when compared to the same period in 2001. The
percentage of multimode fiber meters shipped to total fiber meters shipped
during the first six months of 2002 was 69.7% compared to 59.9% during the same
period in 2001; however, the impact of the decreased market demand and pricing
outweighed the impact on sales resulting from the change in product mix.
Gross Profit
Gross profit margin decreased to 36.3% in the first six months of 2002 from
45.7% for the same period in 2001, as production costs did not decrease at the
same relative rate as the decrease in net sales. Raw material cost per fiber
meter shipped was relatively constant when comparing the first six months of
2002 to the same period in 2001. Therefore, most of the production cost increase
was a result of increases in labor and overhead cost per fiber meter shipped.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales were
30.9% in the first six months of 2002, compared to 22.3% for the same period in
2001. The higher percentage in the first six months of 2002 reflects the fact
that net sales for the period decreased 35.1% compared to the same period last
year, while selling, general and administrative expenses only decreased 10.1%
compared to the same period in 2001. The decrease in selling, general and
administrative expenses during the first six months of 2002 compared to the same
period last year is explained by a decrease in sales commissions and shipping
costs,
17
(Continued)
and a decrease of $361,000 in bad debt expense, that were partially offset by an
increase in legal and other professional fees.
Other Income (Expense)
Other expense, net decreased to $105,000 for the first six months of 2002 from
$9.4 million for the same period in 2001. The decrease was primarily due to
cessation of securities trading activity, the liquidation of our remaining
investments in the Nasdaq 100 Trust and the pay off of the outstanding margin
borrowings prior to the end of fiscal year 2001. In the first six months of
2001, we recognized net losses of $9.2 million in connection with our securities
trading activities, and incurred interest expense of $248,000 on the margin
borrowings related to such activities,. Since October 2001, we have held no
trading securities in accordance with our current investment policy and had no
outstanding margin borrowings. Please see our discussion of trading securities
in "Overview" above.
Income (Loss) Before Income Tax Expense
Income (loss) before income tax expense increased to pretax income of $1.1
million in the first six months of 2002 from a pretax loss of $1.3 million for
the same period in 2001. This increase was primarily due to the $9.2 million
decrease in losses on trading securities, net and the $774,000 decrease in
selling, general and administrative expenses, partially offset by the $7.6
million decrease in gross profit largely resulting from the decrease in net
sales.
Income Tax Expense
Income tax expense decreased to $387,000 in the first six months of 2002 from
$2.4 million for the same period in 2001. Although we incurred a pretax loss for
the six months ended April 30, 2001, our reported income tax expense differed
from the expected income tax benefit, computed based on an expected effective
tax rate of 35.0%, due primarily to the establishment of a valuation allowance
for deferred tax assets discussed above. For the six months ended April 30,
2002, our effective tax rate was 35.2%.
Net Income (Loss)
Net income for the first six months of 2002 was $713,000, compared to a net loss
of $3.8 million for the same period in 2001. This $4.5 million increase in net
income was primarily due to the $9.2 million decrease in losses on trading
securities, net, the $774,000 decrease in selling, general and administrative
expenses, and the $2.1 million decrease in income tax expense, partially offset
by the $7.6 million decrease in gross profit largely resulting from the decrease
in net sales.
Financial Condition
Total assets decreased $7.5 million, or 17.5%, to $35.3 million at April 30,
2002, from $42.8 million at October 31, 2001. This decrease was primarily due to
a $2.7 million decrease in trade accounts receivable, net, resulting from the
decreased sales volume during the first six months of 2002 as compared to the
last six months of 2001, a $2.2 million decrease in inventories, and a $2.0
million decrease in cash and cash equivalents.
Total liabilities decreased $8.2 million, or 54.9%, to $6.7 million at April 30,
2002, from $14.9 million at October 31, 2001. This decrease was primarily due to
a $8.3 million decrease in notes payable to our bank under our previous lines of
credit, and a $2.7 million decrease in accounts payable and accrued expenses and
18
(Continued)
accrued compensation and payroll taxes, partially offset by an increase in
long-term debt of $3.0 million under our new revolving line of credit with a
three year term.
Total stockholders' equity at April 30, 2002 increased $718,000, or 2.3% during
the first two quarters of 2002. The increase resulted primarily from net income
retained for the six months ended April 30, 2002.
Liquidity and Capital Resources
Our primary capital needs have been to fund working capital requirements and
capital expenditures. Our primary source of capital for these purposes has been
cash provided from operations and borrowings under our bank lines of credit
described below. The outstanding balance under our new line of credit totaled
$3.0 million as of April 30, 2002 and has been reflected as long-term debt based
on the scheduled maturity of the credit facility. The outstanding balance of
$3.0 million as of April 30, 2002 reflects a decrease of $5.3 million from the
$8.3 million balance outstanding under our previous lines of credit at October
31, 2001.
Our cash and cash equivalents totaled $133,000 as of April 30, 2002, a decrease
of $2.0 million, compared to $2.1 million as of October 31, 2001. The cash and
cash equivalents decrease for the six months ended April 30, 2002, was primarily
due to the repayment of notes payable to bank, net, totaling $5.3 million,
partially offset by net cash provided by operating activities of $3.4 million.
On April 30, 2002, we had working capital of $18.4 million, compared to $14.2
million as of October 31, 2001, an increase of $4.2 million. The ratio of
current assets to current liabilities as of April 30, 2002, was 6.1 to 1,
compared to 2.0 to 1 as of October 31, 2001. The increase in working capital
during the six months ended April 30, 2002 was primarily caused by a decrease in
notes payable to bank of $8.3 million, reflected entirely as a current liability
at October 31, 2001, and a $2.7 million decrease in accounts payable and accrued
expenses and accrued compensation and payroll taxes, partially offset by a $2.0
million decrease in cash and cash equivalents, a $2.7 million decrease in trade
accounts receivable, net and a $2.2 million decrease in inventories.
Net cash provided by operating activities was approximately $3.4 million for the
six months ended April 30, 2002, compared to $2.4 million for the six months
ended April 30, 2001. Net cash provided by operating activities during the first
six months of 2002 primarily resulted from cash provided by operating income, a
$2.6 million decrease in trade accounts receivable and a $2.2 million decrease
in inventories, partially offset by a $2.9 million decrease in accounts payable
and accrued expenses (including accrued compensation and payroll taxes). Net
cash provided by operating activities for the six months ended April 30, 2001
primarily resulted from cash provided by operating income, a decrease in trading
securities of $13.1 million, a decrease in income taxes refundable of $1.2
million and an increase in accounts payable and accrued expenses of $878,000,
partially offset by an increase in trade accounts receivable of $5.1 million, an
increase in inventories of $1.2 million and a decrease in payable to investment
broker of $4.6 million. We have entered into written agreements to purchase raw
optical fiber. These commitments total $7.6 million, $10.7 million, $6.9 million
and $1.0 million in fiscal years 2002, 2003, 2004 and 2005, respectively.
Net cash provided by investing activities totaled $215,000 for the first six
months in 2002, compared to net cash used in investing activities of $1.2
million for the first six months of 2001. Net cash generated in investing
activities during the first six months of 2002 primarily resulted from $367,000
provided by the receipt of the cash surrender value of a life insurance policy
on a former officer, partially offset by $153,000 in purchases of property and
equipment. Net cash used in investing activities during the first six months of
2001 primarily resulted from expenditures related to property and equipment and
a $54,000 increase in the cash surrender value of the life insurance policy of a
former officer.
19
(Continued)
Net cash used in financing activities was $5.6 million for the six months ended
April 30, 2002, compared to $1.3 million for the six months ended April 30,
2001. Net cash used in financing activities for the six months ended April 30,
2002 was the result of repayments on notes payable to our bank under our lines
of credit and payments for financing costs related to our new credit facility.
Net cash used in financing activities for the six months ended April 30, 2001
was primarily the result of repurchases of common stock in the amount of $1.6
million.
On April 25, 2002, we closed our new credit facility with Wachovia Bank,
National Association (formerly First Union National Bank). The new three-year
credit facility provides up to a maximum of $25.0 million and replaces our
previous $9.5 million credit facility.
The new credit facility bears interest at three-quarters of one percent (0.75%)
per annum above the prime rate (5.5% as of April 30, 2002) and may be reduced by
one-quarter of one percent (0.25%) upon meeting certain fixed charge coverage
ratio requirements. The facility also provides a LIBOR based rate at our option.
The facility is collateralized by all of our tangible and intangible assets.
Borrowings under the credit facility are subject to certain coverage ratios,
advance limits and qualifications that are applied to our accounts receivable,
inventory and fixed assets. Our ability to access the full amount of the credit
facility will depend on the future growth of our borrowing base. As of April 30,
2002, we had outstanding borrowings under the new credit facility in the amount
of approximately $3.0 million, with approximately $5.1 million unused and
available. The outstanding balance on the credit facility has been reflected as
noncurrent based on the scheduled maturity of the credit facility. We believe
that our cash flow from operations and our credit facility will be adequate to
fund our operations for at least the next twelve months.
On September 27, 2000, the Equal Employment Opportunity Commission ("EEOC")
filed a lawsuit under Title VII of the Civil Rights Act against us in the United
States District Court for the Western District of Virginia. The lawsuit alleged
a pattern or practice of discrimination on the bases of gender and race. The
lawsuit sought injunctive and other relief and damages in an unspecified amount.
On December 13, 2001, the parties reached an agreement as to the amount of a
settlement (subject to final documentation and judicial review and approval). On
February 20, 2002, we reached a final settlement of the case with the EEOC and
the court issued a Consent Decree setting forth the terms of the settlement.
Pursuant to the settlement and Consent Decree, we paid $500,000 on or about
February 20, 2002; and will pay $175,000 in January 2003 and $175,000 in January
2004, to satisfy any gender and race class claims; we paid $75,000 on or about
February 20, 2002 to one individual specifically named in the complaint; and
will spend at least $75,000 for our planned diversity, recruitment and human
resource management programs over the term of the Consent Decree. We recorded a
charge in the fourth quarter of fiscal year 2001 in the amount of $902,000
representing $575,000 payable upon entry of the Consent Decree, as well as
$327,000 representing the present value of two equal payments in the amount of
$175,000 payable in January 2003 and 2004. As of April 30, 2002, we have paid
$575,000 and accreted $7,000 of the discount associated with recording the
liability at its present value. Of the remaining liability totaling $333,000 as
of April 30, 2002, $170,000 has been reflected as current. The $75,000 to be
used for our planned diversity, recruitment and human resource management
programs will be expensed as incurred.
We were named as a defendant in two lawsuits filed in the United States District
Court for the Southern District of New York seeking to compel us to authorize
our transfer agent to transfer unregistered, restricted stock on our stock
ledger. The first suit was filed on October 22, 2001, by Bear, Stearns & Co.
Inc. and Bear, Stearns Securities Corporation (collectively, "Bear Stearns").
The second suit was filed on October 26, 2001, by UBS PaineWebber Inc.
("PaineWebber"). In each case, PaineWebber and Bear Stearns sought injunctive
relief with respect to our common stock sold by them in the course of
liquidating either repossessed shares or brokerage accounts of Mr. Robert
Kopstein, our former Chairman, President and Chief Executive Officer, to
20
(Continued)
cover personal margin loans made by the brokerage firms to Mr. Kopstein. Both
suits also contained a claim of monetary damages caused by the alleged wrongful
refusal by us to authorize the transfers in connection with the liquidations.
During the quarter ended April 30, 2002, both suits were dismissed. PaineWebber
voluntarily dismissed its lawsuit with prejudice, while the Bear Stearns lawsuit
was voluntarily dismissed without prejudice.
The Company, Mr. Robert Kopstein, our former Chairman, President and Chief
Executive Officer, two of the Company's officers and directors, Luke J.
Huybrechts and Kenneth W. Harber, are named as defendants in a consolidated
putative class action lawsuit pending in the United States District Court for
the Western District of Virginia (the "Consolidated Suit"). The first class
action lawsuit was filed on November 26, 2001, by Charles S. Farrell, Jr., on
behalf of himself and others similarly situated. The second class action lawsuit
was filed on December 14, 2001, by Lerner Group, on behalf of itself and others
similarly situated. The third class action lawsuit was filed on December 27,
2001, by Richard Simone, on behalf of himself and others similarly situated. The
fourth class action lawsuit was filed on January 31, 2002, by Charles H. Yeatts,
on behalf of himself and others similarly situated. In each of the four suits,
the defendants in the actions were the Company, Mr. Kopstein and various John
Does (unidentified officers and/or directors of the Company during the class
period described below). Pursuant to the Private Securities Litigation Reform
Act of 1995, the United States District Court for the Western District of
Virginia appointed a group of shareholders as the lead plaintiff for the
Consolidated Suit. The four suits were consolidated into a single action and the
lead plaintiff filed a consolidated amended class action complaint on May 2,
2002. In the Consolidated Suit, the plaintiffs purport to represent purchasers
of the Company's common stock during the period ranging from June 14, 2000,
through September 26, 2001, (the putative class period), and allege that the
defendants violated Sections 10(b) and 20 of the federal Securities Exchange
Act of 1934 in making certain alleged misrepresentations and/or omitting to
disclose material facts. The plaintiffs in the Consolidated Suit seek
compensatory damages in an unspecified amount, as well as reasonable costs and
expenses incurred in the cause of action, including attorneys' fees and expert
fees. On June 10, 2002, the Defendants moved to dismiss the Consolidated Suit.
Management intends to vigorously defend the Consolidated Suit. We may, however,
incur substantial costs in defending ourselves against the Consolidated Suit,
regardless of its merit or outcome. At this early stage in the Consolidated
Suit, management cannot make a reasonable estimate of the monetary amount of its
resolution, or estimate a range of reasonably possible losses, if any. If we are
unsuccessful, we could be subject to damages that may be substantial and could
have a material adverse effect on our financial position, results of operations
and liquidity.
From time to time, we are involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
our financial position, results of operations or liquidity.
On June 14, 2002, we announced the layoff of 28 employees, representing almost
15% of our full-time employees. The reductions included both production and
staff positions. The layoffs were part of a company-wide downsizing and will
result in a charge of approximately $120,000 during the third fiscal quarter of
2002.
21
(Continued)
Contractual Obligations and Commitments
The table below sets forth a summary of our contractual obligations and
commitments that will impact on our future liquidity:
Contractual Obligations Fiscal Years Ending October 31,
-----------------------------------------------------------------------------------
and Commitments 2002 2003 2004 2005 Totals
- ------------------------------ --------------- ---------------- ---------------- ---------------- ----------------
Bank lines of credit $ -- -- -- 2,970,000 2,970,000
Long-term Optical Fiber
Supply Agreements 7,576,000 10,717,000 6,931,000 1,016,000 26,240,000
EEOC Settlement -- 175,000 175,000 -- 350,000
--------------- ---------------- ---------------- ---------------- ----------------
Total $ 7,576,000 10,892,000 7,106,000 3,986,000 29,560,000
=============== ================ ================ ================ ================
Bank Lines of Credit
On April 25, 2002, we closed our new credit facility with Wachovia Bank,
National Association (formerly First Union National Bank). The new credit
facility has a term of three-years and replaces our previous $9.5 million credit
facility. See further discussion under "Liquidity and Capital Resources."
Long-Term Optical Fiber Supply Agreements
During fiscal year 2001, we entered into separate long-term supply agreements
with two optical fiber suppliers. One agreement expires on December 31, 2003 and
the other on December 31, 2004. The aggregate required purchases related to
these agreements (subject to certain annual price adjustments) during the terms
of the agreements are set forth above. Additionally, one of the supply
agreements requires that one-half of all single-mode fiber purchases through
December 31, 2004 above the committed amounts be purchased from that supplier at
market prices. We believe that the fiber purchase commitments are consistent
with our expected requirements.
Equal Employment Opportunity Commission Settlement
On September 27, 2000, the Equal Employment Opportunity Commission ("EEOC")
filed a lawsuit under Title VII of the Civil Rights Act against us in the United
States District Court for the Western District of Virginia. The lawsuit alleged
a pattern or practice of discrimination on the bases of gender and race. The
lawsuit sought injunctive and other relief and damages in an unspecified amount.
On December 13, 2001, the parties reached an agreement as to the amount of a
settlement (subject to final documentation and judicial review and approval). On
February 20, 2002, we reached a final settlement of the case with EEOC and the
court issued a Consent Decree setting forth the terms of the settlement.
Pursuant to the settlement and Consent Decree, we paid $500,000 on or about
February 20, 2002; and will pay $175,000 in January 2003 and $175,000 in January
2004, to satisfy any gender and race class claims; we paid $75,000 on or about
February 20, 2002 to one individual specifically named in the complaint; and
will spend at least $75,000 for our planned diversity, recruitment and human
resource management programs over the term of the Consent Decree. We recorded a
charge in the fourth quarter of fiscal year 2001 in the amount of $902,000
representing $575,000 payable upon entry of the Consent Decree, as well as
$327,000 representing the present value of two equal payments in the amount of
$175,000 payable in January 2003 and 2004. As of April 30, 2002, we have paid
$575,000 and accreted $7,000 of the discount associated with recording the
liability at its present value. Of the remaining liability totaling $333,000 as
of April 30, 2002, $170,000 has been reflected as current. The $75,000 to be
used for our planned diversity, recruitment and human resource management
programs will be expensed as incurred, and is not reflected in the Contractual
Obligations and Commitments table above.
22
(Continued)
Critical Accounting Policies
Revenue Recognition
Revenue is recognized at the time of product shipment or delivery to the
customer, provided that the customer takes ownership and assumes risk of loss
based on shipping terms. Net sales consists of gross sales of products, less
discounts, refunds and returns. We estimate sales returns based on our analysis
and judgment of historical trends, identified returns and the potential for
additional returns. We also provide certain volume incentives, discounts and
rebates to certain of our distributors. Payments of any such volume incentives,
discounts and rebates are reflected in net sales.
Trade Accounts Receivable and Allowance for Doubtful Accounts
In connection with the sale of our products, we have trade accounts receivable
outstanding from our customers at any given time. We review outstanding trade
accounts receivable at the end of each quarter and record allowances for
doubtful accounts as deemed appropriate for (i) certain individual customers and
(ii) for all other trade accounts receivable in total not specifically reviewed.
In determining the amount of allowance for doubtful accounts to be recorded for
individual customers, we consider the age of the receivable, the financial
stability of the customer, discussions that may have been had with the customer
and our judgment as to the overall collectibility of the receivable from that
customer. In addition, we establish an allowance for all receivables that have
not been individually reviewed. This general allowance for doubtful accounts is
based on a percentage of total trade accounts receivable with different
percentages used based on the different age of the receivables. The percentages
used are based on our historical experience and our current judgment regarding
the state of the economy.
Inventories
Inventories of raw materials and production supplies are stated at the lower of
cost (specific identification for optical fibers and first-in, first-out for
other raw materials and production supplies) or market. Inventories of work in
process and finished goods are stated at average cost, which includes raw
materials, direct labor and manufacturing overhead. At the end of each quarter,
we review our inventories to ensure they are carried at net realizable value.
Individual inventory items are viewed and adjustments are made based on the age
of the inventory and our judgment as to the salability of that inventory.
Long-Lived Assets
Our property and equipment are stated at cost. Depreciation and amortization are
provided for using both straight-line and declining balance methods over the
estimated useful lives of the assets. We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. We have no significant intangible assets
recorded on our balance sheet.
Commitments and Contingencies
Liabilities for loss contingencies arising from product warranties and defects,
claims, assessments, litigation, fines and penalties and other sources are
recorded when it is probable that a liability has been incurred and the amount
of the assessment can be reasonably estimated. Actual results could differ from
these estimates.
(Continued)
23
Future Accounting Considerations
In July 2001, the Financial Accounting Standards Board, also known as the FASB,
issued Statement of Financial Accounting Standards, referred to as SFAS, No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires the use of the purchase method of accounting for
all business combinations. The use of the pooling-of-interests method is
prohibited for business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill and certain intangible assets would no longer be
amortized, but rather be tested for impairment annually or whenever an event
occurs indicating that the assets may be impaired. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. Neither standard is expected to
have a material effect on our financial position, results of operations or
liquidity.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The standard applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and (or) normal use of the asset.
SFAS No. 143 requires that the fair value of a liability for an assets
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, an
entity would recognize a gain or loss on settlement.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We are
currently evaluating the impact of SFAS No. 143 on our financial position,
results of operations and liquidity.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of; however, it retains many of the
fundamental provisions of that Statement.
SFAS No. 144 also supersedes the accounting and reporting provisions of APB
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a segment of a business.
However, it retains the requirement in APB No. 30 to report separately
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment, or in a distribution to
owners) or is classified as held for sale. By broadening the presentation of
discontinued operations to include more disposal transactions, the FASB has
enhanced management's ability to provide information that helps financial
statement users to assess the effects of a disposal transaction on the ongoing
operations of an entity.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Early application is encouraged. The
provisions of SFAS No. 144 generally are to be applied prospectively. We are
currently evaluating the impact of SFAS No. 144 on our financial position,
results of operations and liquidity.
24
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,
which rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and an amendment of that Statement, SFAS No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No.
44, Accounting for Intangible Assets of Motor Carriers. SFAS No. 145 amends SFAS
No. 13, Accounting for Leases, to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 shall be
applied in fiscal years beginning after May 15, 2002. The provisions of SFAS No.
145 related to SFAS No. 13 shall be effective for transactions occurring after
May 15, 2002. All other provisions of SFAS No. 145 shall be effective for
financial statements issued on or after May 15, 2001. We are currently
evaluating the impact of SFAS No. 145 on our financial position, results of
operations and liquidity.
As of April 30, 2002, there are no other new accounting standards issued, but
not yet adopted by us, which are expected to be applicable to our financial
position, operating results or financial statement disclosures.
25
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not engage in derivative financial instruments or derivative commodity
instruments. As of April 30, 2002, our financial instruments are not exposed to
significant market risk due to interest rate risk, foreign currency exchange
risk, commodity price risk or equity price risk.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On September 27, 2000, the Equal Employment Opportunity Commission
("EEOC") filed a lawsuit under Title VII of the Civil Rights Act
against the Company in the United States District Court for the Western
District of Virginia. The lawsuit alleged a pattern or practice of
discrimination on the bases of gender and race. The lawsuit sought
injunctive and other relief and damages in an unspecified amount. On
December 13, 2001, the parties reached an agreement as to the amount of
a settlement (subject to final documentation and judicial review and
approval). On February 20, 2002, the Company reached a final settlement
of the case and the court issued a Consent Decree setting forth the
terms of the settlement. Pursuant to the settlement and Consent Decree,
the Company paid $500,000 on or about February 20, 2002; and will pay
$175,000 in January 2003 and $175,000 in January 2004, to satisfy any
gender and race class claims; the Company paid $75,000 on or about
February 20, 2002 to one individual specifically named in the
complaint; and will spend at least $75,000 for the Company's planned
diversity, recruitment and human resource management programs over the
term of the Consent Decree. We recorded a charge in the fourth quarter
of fiscal year 2001 in the amount of $901,553 representing $575,000
payable upon entry of the Consent Decree, as well as $326,553
representing the present value of two equal payments in the amount of
$175,000 payable in January 2003 and 2004. As of April 30, 2002, we
have paid $575,000 and accreted $6,621 of the discount associated with
recording the liability at its present value. Of the remaining
liability totaling $333,174 as of April 30, 2002, $170,238 has been
reflected as current. The $75,000 to be used for the Company's planned
diversity, recruitment and human resource management programs will be
expensed as incurred.
The Company was named as a defendant in two lawsuits filed in the
United States District Court for the Southern District of New York
seeking to compel the Company to authorize its transfer agent to
transfer unregistered, restricted stock on the Company's stock ledger.
The first suit was filed on October 22, 2001, by Bear, Stearns & Co.
Inc. and Bear, Stearns Securities Corporation (collectively, "Bear
Stearns"). The second suit was filed on October 26, 2001, by UBS
PaineWebber Inc. ("PaineWebber"). In each case, PaineWebber and Bear
Stearns sought injunctive relief with respect to common stock of the
Company sold by them in the course of liquidating either repossessed
shares or brokerage accounts of the Company's former Chairman,
President and Chief Executive Officer, to cover personal margin loans
made by the brokerage firms to him. Both suits also contained a claim
of monetary damages caused by the alleged wrongful refusal by the
Company to authorize the transfers in connection with the liquidations.
During the quarter ended April 30, 2002, both suits were dismissed.
PaineWebber voluntarily dismissed its lawsuit with prejudice, while the
Bear Stearns lawsuit was voluntarily dismissed without prejudice.
The Company, Mr. Robert Kopstein, our former Chairman, President
and Chief Executive Officer, two of the Company's officers and
directors, Luke J. Huybrechts and Kenneth W. Harber, are named as
defendants in a consolidated putative class action lawsuit pending in
the United States District Court for the Western District of Virginia
(the "Consolidated Suit"). The first class action lawsuit was filed on
November 26, 2001, by Charles S. Farrell, Jr., on behalf of himself
and others similarly situated. The second class action lawsuit was
filed on December 14, 2001, by Lerner Group, on behalf of itself and
others similarly situated. The third class action lawsuit was filed on
December 27, 2001, by Richard Simone, on behalf of himself and others
similarly situated. The fourth class action lawsuit was filed on
January 31, 2002, by Charles H. Yeatts, on behalf of himself and
others similarly situated. In each of the four suits, the defendants
in the actions were the Company, Mr. Kopstein and various John Does
(unidentified officers and/or directors of the Company during the
class period described below). Pursuant to the Private Securities
Litigation Reform Act of 1995, the United States District Court for
27
PART II. OTHER INFORMATION
the Western District of Virginia appointed a group of shareholders as
the lead plaintiff for the Consolidated Suit. The four suits were
consolidated into a single action and the lead plaintiff filed a
consolidated amended class action complaint on May 2, 2002. In the
Consolidated Suit, the plaintiffs purport to represent purchasers of
the Company's common stock during the period ranging from June 14,
2000, through September 26, 2001, (the putative class period), and
allege that the defendants violated Sections 10(b) and 20 of the
federal Securities Exchange Act of 1934 in making certain alleged
misrepresentations and/or omitting to disclose material facts. The
plaintiffs in the Consolidated Suit seek compensatory damages in an
unspecified amount, as well as reasonable costs and expenses incurred
in the cause of action, including attorneys' fees and expert fees. On
June 10, 2002, the Defendants moved to dismiss the Consolidated Suit.
Management intends to vigorously defend the Consolidated Suit. The
Company may, however, incur substantial costs in defending the
Consolidated Suit, regardless of its merit or outcome. At this early
stage in the Consolidated Suit, management cannot make a reasonable
estimate of the monetary amount of its resolution, or estimate a range
of reasonably possible losses, if any. If we are unsuccessful, we could
be subject to damages that may be substantial and could have a material
adverse effect on our financial position, results of operations and
liquidity.
From time to time, the Company is involved in various other claims and
legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters will
not have a material adverse effect on the Company's financial position,
results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
The following information is furnished for matters submitted to a vote of
security holders during the three months ended April 30, 2002:
(a) The Annual Meeting of Shareholders of Optical Cable Corporation was held on
March 12, 2002.
(b) The name of each director elected at the meeting follows:
Neil D. Wilkin, Jr.
Craig H. Weber
Luke J. Huybrechts
Kenneth W. Harber
Randall H. Frazier
John M. Holland
(c) A brief description of each matter voted upon at the meeting and the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes, as to each such matter, including a
separate tabulation with respect to each nominee for office follows:
28
PART II. OTHER INFORMATION
1. To elect the following six directors to serve for the terms of office
specified in the proxy statement and until their successors are duly
elected and qualified.
Votes Votes 10
Director Votes for against abstaining non-votes
-------- --------- ------- ---------- ---------
Neil D. Wilkin, Jr. 33,286,956 -- 1,187,321 --
Craig H. Weber 33,824,940 -- 649,337 --
Luke J. Huybrechts 33,297,549 -- 1,176,728 --
Kenneth W. Harber 33,283,874 -- 1,190,403 --
Randall H. Frazier 33,837,822 -- 636,455 --
John M. Holland 33,844,397 -- 629,880 --
2. To ratify the selection of KPMG LLP as independent accountants for the
Company for fiscal year 2002.
Votes Votes Broker
Votes for against abstaining non-votes
-------------- ------------- -------------- ------------
34,012,174 409,258 52,845 --
Item 5. Other Information.
In February 2002, our Board appointed Craig H. Weber to serve as a
new member of the Board.
On June 14, 2002, the Company announced the layoff of 28 employees,
representing almost 15% of its full-time employees. The reductions
included both production and staff positions. The layoffs were part of
a company-wide downsizing and will result in a charge of approximately
$120,000 during the third fiscal quarter of 2002.
Also on June 14, 2002, the Company announced the receipt of
notification from Nasdaq regarding the Company's noncompliance with
the listing requirements for the Nasdaq National Market, where the
Company's common stock is presently traded. As a Nasdaq National
Market company, the Company is subject to all the requirements of its
listing agreement with Nasdaq. The Company received notification from
Nasdaq that its common stock failed to meet the minimum $1.00 per
share trading price requirement for continued inclusion on the Nasdaq
National Market. The Company will be provided until August 13, 2002 to
regain compliance. The Company is considering several options to
regain compliance with the minimum price requirement. If compliance is
not demonstrated by August 13, 2002, Nasdaq may decide to delist the
Company. The Company would have the right to appeal any delisting
decision.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K for the six
months ended April 30, 2002:
Exhibit 3.1 - Amended and Restated Articles of Incorporation
(incorporated by reference to Exhibit 1 to the Company's Form
8-A filed with the Commission on November 5, 2001).
Exhibit 3.2 - Bylaws of Optical Cable Corporation, as amended
(filed as Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October 31, 1997 (file
number 0-37022), and incorporated herein by reference)).
Exhibit 4.1 - Form of certificate representing preferred share
purchase right (filed as Exhibit 5 to the Company's Form 8-A
filed with the Commission on November 5, 2001 and incorporated
by reference herein).
Exhibit 10.1 - Loan and Security Agreement by and among Congress
Financial Corporation (as agent), Wachovia Bank, National
Association (as lender) and Optical Cable Corporation dated
April 18, 2002.
(b) Reports on Form 8-K filed during the three months ended April 30,
2002:
None.
29
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.
OPTICAL CABLE CORPORATION
(Registrant)
Date: June 14, 2002 /s/Neil D. Wilkin, Jr.
------------------------------------------
Neil D. Wilkin, Jr.
President and Chief Financial Officer
(principal executive officer and principal
financial and accounting officer)
30