SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 20, 2000
FIBERCORE, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 000-21823 87-0445729
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
253 Worcester Road, P.O. Box 180 01507
Charlton, MA
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 248-3900
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
PORTIONS AMENDED
The registrant hereby amends Item 7 and the Exhibit Index of its Current
Report on Form 8-K filed on July 3, 2000 to include financial statements of
businesses acquired and pro forma financial information in accordance with Item
7(a)(4) within 60 days after the due date of the initial filing. Except as set
forth in Item 7 below and in the Exhibit Index, no other changes are made to the
Current Report on Form 8-K filed on July 3, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The audited financial statements for Xtal Fibras Opticas S.A. as of
December 31, 1999 and 1998 and for each of the years then ended.
(b) Pro Forma Financial Information.
Pro Forma Combined Financial Statements for FiberCore, Inc.,
including the unaudited pro forma combined balance sheet at December 31, 1999,
statements of operations for the year ended December 31, 1999 and the quarter
ended March 31, 2000.
(c) Exhibits
The exhibits listed on the Exhibit Index are filed as part of this
report.
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
Exhibit 2.1 Investment Agreement, dated June 1, 2000
Exhibit 4.1 Loan Agreement for $10 million, dated June 20, 2000
Exhibit 4.2 Loan Agreement for $2.5 million, dated June 20, 2000
Exhibit 10.1 Share Pledge Agreement, dated June 20, 2000
Exhibit 10.2 Warranty Agreement, dated June 20, 2000
Exhibit 10.3 Assumption of Indebtedness Agreement, dated June 20, 2000
Exhibit 10.4 Shareholders' Agreement, dated June 20, 2000
Exhibit 10.5 Supply Agreement, dated June 20, 2000
Exhibit 10.6 Patent Assignment and Transfer Agreement, dated June 20,
2000
Exhibit 23.1 Consent of Deloitte Touche Tohmatsu Auditores
Independentes, dated July 10, 2000
Exhibit 99.1 Press Release of the Registrant, dated June 21, 2000.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf of the
Registrant by the undersigned thereunto duly authorized.
FIBERCORE, INC.
By: /s/ Michael J. Beecher
---------------------------------------------
Name: Michael J. Beecher
Title: Chief Financial Officer and Treasurer
Date: July 10, 2000
<PAGE>
XTAL FIBRAS
OPTICAS S.A.
Financial Statements as of
December 31, 1999 and 1998 and for each
of the years then ended
Deloitte Touche Tohmatsu Auditores Independentes
<PAGE>
INDEX TO FINANCIAL STATEMENTS PAGE
----
REPORT OF INDEPENDENT AUDITORS F-1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
AND FOR EACH OF THE YEARS THEN ENDED
Balance Sheets F-2
Statements of Operations F-4
Statements of Comprehensive Loss F-5
Statements of Changes in Shareholders' Equity F-6
Statements of Cash Flows F-7
Notes to the Financial Statements F-9
INTERIM FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
AND FOR THE THREE MONTH PERIOD THEN ENDED
Interim Balance Sheets F-30
Interim Statements of Operations F-32
Interim Statements of Comprehensive Income F-33
Interim Statements of Changes in Shareholders' Equity F-34
Interim Statements of Cash Flows F-35
Notes to the Interim Financial Statements F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Board of Directors and Shareholders of XTAL Fibras Opticas S.A.:
We have audited the accompanying balance sheets of XTAL Fibras Opticas S.A. as
of December 31, 1999 and 1998, and the related statements of operations,
comprehensive loss, cash flows and changes in shareholders' equity for each of
the years then ended, all expressed in United States dollars. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of XTAL Fibras Opticas S.A. as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE TOUCHE TOHMATSU Campinas, Brazil
Auditores Independentes May 31, 2000
F-1
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
BALANCE SHEETS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
December 31
------------------
1999 1998
-------- --------
ASSETS
Current assets
Cash and cash equivalents 225 36
Trade accounts receivable, net (note 5) 4,807 1,838
Inventories (note 6) 4,053 7,829
Prepaid expenses, other 497 1,076
-------- --------
Total current assets 9,582 10,779
-------- --------
Property, plant and equipment, net (note 8) 10,378 16,446
Recoverable taxes 101 149
Loans - related parties - 57
Escrow deposits (note 7) 7 10
-------- --------
108 216
-------- --------
Total assets 20,068 27,441
======== ========
(Continue)
F-2
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
BALANCE SHEETS
(Expressed in thousands of United States dollars) (continued)
------------------------------------------------------------------------------
December 31
------------------
1999 1998
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Trade accounts payable - suppliers 4,952 4,177
Current portion of long-term debt (note 9) 340 68
Taxes other than income 356 46
Payroll and other charges 614 668
Other 21 144
-------- --------
Total current liabilities 6,283 5,103
-------- --------
NON-CURRENT LIABILITIES
Long-term debt (note 9) 288 55
Intercompany (note 10) 624 -
Long-term taxes 852 1,028
Other long-term liabilities (note 14 (a)) 741 341
Deferred income tax (note 4) 41 48
-------- --------
Total non-current liabilities 2,546 1,472
Commitments and contingencies (note 14)
SHAREHOLDERS' EQUITY
Preferred stock - no par value, 49,963,256 shares authorized
and 5,137,571 and 472,033 issued and outstanding at
December 31, 1999 and 1998, respectively 11,497 5,194
Common stock - no par value, 49,963,256 shares authorized
and 5,137,571 and 472,033 issued and outstanding at
December 31, 1999 and 1998, respectively 11,497 5,194
Appropriated retained earnings:
Legal reserve 140 140
Unappropriated retained (deficit) (8,113) (9,672)
Accumulated other comprehensive (loss) income (3,782) 2,836
Advance for future increase of Capital (note 14 (b)) - 17,174
-------- --------
Total shareholders' equity 11,239 20,866
-------- --------
Total liabilities and shareholders' equity 20,068 27,441
======== ========
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------
F-3
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
STATEMENTS OF OPERATIONS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
Years ended
December 31
------------------
1999 1998
-------- --------
GROSS SALES
Total gross sales 25,164 13,944
Value-added and excise tax on sales (7,392) (3,220)
-------- --------
NET SALES 17,772 10,724
-------- --------
Cost of sales (16,043) (11,869)
-------- --------
GROSS PROFIT (LOSS) 1,729 (1,145)
Selling and marketing expenses (456) (1,870)
General and administrative expenses (1,500) (2,461)
Depreciation (300) (79)
-------- --------
Operating expenses (2,256) (4,410)
NON-OPERATING (EXPENSES) INCOME
Interest income (note 3) 405 129
Interest expenses (note 3) (2,646) (2,937)
Other non-operating (expense) income, net (233) 39
-------- --------
LOSS BEFORE INCOME TAX AND SOCIAL CONTRIBUTION (3,001) (8,324)
INCOME TAX (EXPENSES) BENEFIT AND SOCIAL CONTRIBUTION (8) 21
-------- --------
NET (LOSS) (3,009) (8,303)
======== ========
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------
F-4
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
STATEMENTS OF COMPREHENSIVE LOSS
(Expressed in thousands of United States dollars) (Continued)
------------------------------------------------------------------------------
Years ended
December 31
------------------
1999 1998
-------- --------
NET LOSS (3,009) (8,303)
-------- --------
Other comprehensive loss:
Foreign currency translation adjustment (6,618) (701)
Recognition of deferred tax liability on change in
functional
Currency (note 2 (b)) - (74)
-------- --------
Net translation (loss) in the year (6,618) (775)
-------- --------
COMPREHENSIVE LOSS (9,627) (9,078)
======== ========
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------
F-5
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Advance
Appropriated Accumulated For
retained Unappropriated other future
earnings retained comprehensive increase
Common Preferred legal earnings income of
stock stock reserve (deficit) (loss) capital Total
--------- -------- --------------- -------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AS OF JANUARY, 1, 1998 5,194 5,194 140 (1,369) 3,611 - 12,770
Net loss to common and preferred shares - - - (8,303) - - (8,303)
Recognition of deferred tax liability
on change
in functional currency (note 2 (b)) - - - - (74) - (74)
Net translation loss for the year - - - - (701) - (701)
Advance for future increase of capital - - - - - 17,174 17,174
--------- -------- --------------- -------------- --------------- ------------ -------
BALANCES AS OF DECEMBER 31, 1998 5,194 5,194 140 (9,672) 2,836 17,174 20,866
--------- -------- --------------- -------------- --------------- ------------ -------
Net loss to common and preferred shares - - - (3,009) - - (3,009)
Net translation loss for the year (6,618) (6,618)
Increase in capital (note 14 (b)) 6,303 6,303 - 4,568 - (17,174) -
--------- -------- --------------- -------------- --------------- ------------ -------
BALANCES AS OF DECEMBER 31, 1999 11,497 11,497 140 (8,113) (3,782) - 11,239
========= ======== =============== ============== =============== ============ =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------
F-6
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
Years ended
December 31
------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss (3,009) (8,303)
Adjustments to reconcile net loss to cash provided by (used
in)
operating activities:
Depreciation 1,116 1,294
Allowance for doubtful accounts - 1,367
Write-down for slow moving inventories 136 -
Write-down for investments - 36
Gain or loss on disposal of fixed assets (12) (1)
Exchange translation (578) 1,111
Deferred income tax 8 (21)
Decrease (increase) in assets
Trade accounts receivable (2,969) 1,241
Inventories 3,640 (1,444)
Other current assets 579 (744)
Recoverable taxes 48 (47)
Escrow deposits 3 1
Increase (decrease) in liabilities
Trade accounts payable 775 (1,121)
Taxes other than income 310 (91)
Payroll and other charges (54) 124
Other current liabilities (123) 144
Long-term taxes (176) 258
Other long-term liabilities 400 195
-------- --------
Net cash provided by (used in) operating activities 94 (6,001)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (900) (2,789)
Proceeds on disposal of property, plant and equipment 317 32
-------- --------
Net cash (used in) investing activities (583) (2,757)
-------- --------
(Continue)
F-7
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars) (Continued)
------------------------------------------------------------------------------
Years ended
December 31
------------------
1999 1998
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt:
Proceeds 726 21,622
Repayments (110) (14,153)
Intercompany loans:
Proceeds 5,177 9,181
Repayments (5,103) (7,971)
-------- --------
Net cash provided by financing activities 690 8,679
-------- --------
Effect of exchange rate changes on cash and cash equivalents (12) (10)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 201 (79)
Cash and cash equivalents, as of beginning of the year 36 125
-------- --------
Cash and cash equivalents, as of end of the year 225 36
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest 34 459
Taxes on income - -
The accompanying notes are an integral part of these financial statements.
------------------------------------------------------------------------------
F-8
<PAGE>
XTAL FIBRAS OPTICAS S.A.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
(Expressed in thousands of United States dollars, except number of shares and
where otherwise noted)
------------------------------------------------------------------------------
1. THE COMPANY AND ITS OPERATIONS
Xtal Fibras Opticas S.A. ("the Company") is a privately held corporation
organized under the laws of the Federative Republic of Brazil and
headquartered in Uberlandia, state of Minas Gerais, with manufacturing
facilities in Campinas, state of Sao Paulo.
The Company is engaged in the business of manufacturing, marketing and
selling optical fibers and optical components, byproducts or similar
products.
XTAL is a subsidiary of Algar S.A. Empreendimentos e Participacoes
("Algar"), which owns approximately 99.99% of the total outstanding capital
shares. Algar has subsidiaries working in Telecommunications (telephone
services, engineering construction and maintenance of communications
networks and long distance transmission), Agribusiness, Services and
Leisure. Algar has approximately 23 companies and 4 divisions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of presentation
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America ("U.S. GAAP"), which differ in certain respects from generally
accepted accounting principles in Brazil ("Brazilian GAAP"), as
applied by the Company in the preparation of its statutory financial
statements and for other purposes.
Shareholders' equity and operations included in these financial
statements differ from those included in the statutory accounting
records as a result of (i) the effects of differences between the rate
of devaluation of the Brazilian real ("R$") against the United States
dollar ("$", "U.S.$", or "U.S. dollar"), and (ii) differences in the
methods of measuring amounts under U.S. GAAP and Brazilian GAAP.
b) Foreign currency translation
The Company, which transacts the majority of its business in Brazilian
reais, and, to a lesser extent, in U.S. dollars, has selected the U.S.
dollar as its reporting currency. The U.S. dollar amounts for all
periods presented have been remeasured (translated) following the
guidelines established in Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation" ("SFAS 52").
F-9
<PAGE>
Prior to December 31, 1997 and pursuant to SFAS 52 and Emerging Issues
Task Force ("EITF") D-55, "Determining a Highly Inflationary Economy",
Brazil was considered to have a highly-inflationary economy.
Accordingly, the Company's reporting currency (US$) was defined as its
functional currency and the remeasurement procedures adopted by the
Company through this date were as follows:
(i) Inventories, property, plant and equipment and accumulated
depreciation, as well as shareholders' equity accounts, were
translated at historical exchange rates and monetary assets and
liabilities denominated in Brazilian currency were translated at
period-end exchange rates (December 31, 1997 - R$ 1.1164: US$
1.00);
(ii) Depreciation and other costs and expenses relating to assets
remeasured at historical exchange rates were calculated based on
the U.S. dollar amount of the assets. Other accounts in the
statements of operations and cash flows were translated at the
average exchange rates prevailing during the period;
(iii) the translation gain or loss resulting from this remeasurement
process was included in the statements of operations currently;
and
(iv) pursuant to paragraph 9(f) of SFAS No. 109 "Accounting for Income
Taxes" ("SFAS 109"), deferred taxes were not recorded with
respect to differences relating to assets and liabilities
translated at historical rates that resulted from changes in
exchange rates or indexing for Brazilian tax purposes.
As from January 1, 1998 the Company concluded that the Brazilian
economy had ceased to be highly inflationary and changed its
functional currency from the reporting currency (U.S. dollars) to the
local currency (R$). Accordingly, as of January 1, 1998 the Company
translated the U.S. dollar amounts of non-monetary assets and
liabilities into reais at the current exchange rate and those amounts
became the new accounting bases for such assets and liabilities. The
resulting deferred taxes associated with the differences between the
new functional currency bases and the tax bases ((iv) above) were
reflected as a deferred tax liability with a corresponding debit taken
directly to the cumulative translation adjustment component of
shareholders' equity.
In mid-January 1999, significant changes occurred in the Brazilian
government's foreign exchange rate policy, which resulted in the
elimination of exchange controls referred to as trading bands. These
trading bands ensured that the real to U.S. dollar exchange rate
remained within a given range. On January 15, 1999, the Brazilian
Central Bank ceased to intervene in the foreign exchange market,
except in exceptional circumstances to mitigate excessive volatility,
and the real to U.S. dollar exchange rate was allowed to fluctuate
freely. On July 30, 1999, the real was trading at approximately R$
1.7892 to US$ 1.00, as compared to the exchange rates in effect on
December 31, 1998 of R$ 1.2087 to US$ 1.00 and on December 31, 1999 of
R$ 1.7890 to US$ 1.00.
The effects of the real devaluation has resulted in a net translation
loss, arising from the translation of the balance sheet accounts
(monetary and non-monetary assets and liabilities) from Brazilian
reais to U.S. dollars. The translation loss has been allocated
directly to the cumulative translation account in shareholders'
equity.
F-10
<PAGE>
c) Foreign currency transactions
Monetary assets and liabilities of Xtal, denominated in currencies
other than the functional currency are measured into their respective
functional currencies at exchange rates in effect at the balance sheet
date. The resulting exchange gains or losses are included in the
statement of operations.
d) Use of estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of
the dates of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. In the preparation
of these financial statements, estimates and assumptions have been
made by management concerning the selection of useful lives of
property, plant and equipment, provisions necessary for trade
receivables, inventories and contingent liabilities, income tax
valuation allowances and other similar evaluations. Actual results may
vary from those estimates.
e) Cash and cash equivalents
Cash and cash equivalents include cash on hand, interest-bearing time
deposits and other interest-bearing short-term securities denominated
in Brazilian reais. Time deposits classified as cash equivalents have
original maturities of three months or less.
f) Accounts receivable
Accounts receivables are stated at estimated realizable values.
Allowances are recorded, when necessary, in an amount considered by
management to be sufficient to meet probable future losses related to
uncollectible accounts.
g) Inventories
Inventories are stated at the lower of average cost of acquisition or
production, or market.
h) Property, plant and equipment
Owned property, plant and equipment is recorded at cost. Expenditures
for maintenance and repairs are charged to expense when incurred.
F-11
<PAGE>
Depreciation is provided on a straight-line basis over the useful
lives of the assets as follows:
Years
-------
Buildings and improvements 10-25
Machinery and equipment 3-10
Furniture and fixtures 5-10
Installations 6-10
Vehicles 5
EDP equipment 3
Assets under construction are not depreciated until they are placed in
service.
i) Recoverability of long-lived assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS
121"), management reviews long-lived assets, primarily property, plant
and equipment to be held and used in the business and certain deposits
and tax incentive investments, for impairment whenever events or
changes in circumstances indicate that the carrying value of an asset
or group of assets may not be recoverable.
Assets are grouped and evaluated for possible impairment at a plant
level; impairment is assessed based on undiscounted cash flows from
forecasted operating results of the business over the estimated
remaining lives of the assets.
j) Compensated absences
Vacation expense is fully accrued in the period the employee renders
services to earn such vacation.
F-12
<PAGE>
k) Income taxes
Brazilian income taxes comprise federal income tax and social
contribution, the latter a federally mandated tax based on income, as
recorded in XTAL's respective accounting records. There are no state
or local income taxes in Brazil.
For the purposes of these financial statements, the Company has
applied SFAS 109 for all periods presented. SFAS 109 requires the
application of the comprehensive liability method of accounting for
income taxes. Under this method, a company is required to recognize a
deferred tax asset or liability for all temporary differences and
operating losses, except that, prior to 1998 and in accordance with
paragraph 9(f) of SFAS 109, deferred taxes were not recorded for
differences relating to certain assets and liabilities that were
remeasured from reais to U.S. dollars at historical exchange rates and
that resulted from changes in exchange rates or indexing to inflation
in local currency for tax purposes. Such accumulated differences were
recognized in shareholders' equity when the Company adopted the real
as the functional currency on January 1, 1998.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of changes in tax rates is
recognized in income in the period that includes the enactment date.
Deferred tax assets and liabilities are reduced through the
establishment of a valuation allowance, as appropriate, if, based on
the weight of evidence, it is more likely than not that the deferred
tax assets will not be realized.
l) Summary of Brazilian tax structure
Taxes in Brazil are levied by the federal, state, and municipal
governments. Additionally, certain taxes are levied related to
employment of personnel. The principal federal taxes applicable to
Xtal are:
o Corporate Income Tax (IRPJ)
o Social contribution on net profits (CSLL)
o Social contribution on turnover (COFINS)
o Social integration contribution on turnover (PIS)
o Financial transactions tax (IOF)
The main state tax is the merchandise circulation tax (ICMS), or
simply the state value added tax (VAT). The principal municipal tax is
the service tax (ISS).
F-13
<PAGE>
Corporate Income Tax: In general, all business entities are liable for
corporate income tax, including both corporations (S.A.'s) and limited
liability companies (limitadas). A consortium is not regarded as a
separate taxable entity for tax purposes; each company belonging to
the consortium is taxed individually. The corporate income tax rate is
15% on annual net income of $R240,000 or less and 25% on net income
before taxes greater than $R240,000. Additionally an 8% tax is levied
on net income before taxes for social contribution (discussed below)
and, as such, brings the total effective tax rate to 33%. The total
33% is a creditable for US income tax purposes.
Social Contribution on Net Profit: The social contribution on net
profit (CSLL) is intended to fund social and welfare programs and is
paid in addition to the corporate income tax. The rate is calculated
as 8% of net income before taxes.
Social Contribution on Turnover: Social contribution on turnover
(COFINS) is levied at 2% of monthly sales to finance social security
and welfare programs.
Social Integration Contribution on Turnover: Legal entities must
contribute 0.65% of monthly sales to a federal program (PIS), whose
purpose is to allow employees to participate in Brazil's economic
growth.
Financial Transaction Tax: The financial transaction tax (IOF) is
levied on specific Brazilian and foreign financial transactions. The
tax is payable by borrowers, purchases of securities and foreign
currency. The rates vary according to the maturity terms and types of
transactions. The rate has been as high as 25%. Currently a tax of 2%
is levied on foreign loans with initial terms less than two years. The
tax is used by the government in the implementation of monetary
policy.
F-14
<PAGE>
ICMS: ICMS is a sales value added tax levied by the states on the
circulation of merchandise and transportation services and represents
the major source of revenue for the states. It is charged on each
delivery of goods from the production stage to the consumer stage.
Assets imported from abroad are also taxable. Other taxable items
include interstate and inter municipal transportation services,
communication services, and the generation and distribution of
electric energy. ICMS rates vary from 0% to 25% but are most commonly
found in the 17%-18% range. The tax is usually paid monthly and is
calculated by successive sellers collecting ICMS on all sales (output
tax) and subtracting ICMS paid during the month on purchases (input
tax). If the output tax exceeds the input tax the excess must be
remitted to the state, conversely if the input tax exceeds the output
tax the residual is carried forward to be used against future output
tax collections.
Service Tax: Service tax (ISS) is levied on gross sales derived from
services rendered. The tax rates vary between 2% and 10%, but the
typical rate is 5%. Activities classified as services are set forth in
federal legislation. The following activities are normally considered
services: consulting, advertising, engineering, building,
transportation, activities of hospitals, public entertainment,
tourism, leasing of equipment, activities of hotels, and movie
studios.
Recoverable taxes: The recoverable taxes included in the balance
sheet accounts relate to excise tax (IPI) imposed on goods or products
imported or manufactured in Brazil. The tax is levied on the price of
transactions, inclusive of ancillary expenses and ICMS. Tax rates
differ according to the characterization of product, with luxury items
subject to the highest rate of 365%, and the average rate being 15%.
Limited exemptions may apply. The tax is "equivalent" (as determined
under the IPI laws) to a value added tax; that is, entities are
entitled to record input tax credits for IPI paid and collect
offsetting IPI debits from their customers.
m) Pension plan
The Company participates in a single-employer funded
defined-contribution pension plan (the "Fundo Integrativo Dos
Funcionarios do Grupo Algar"). Pension plan benefits for the Fundo
Integrativo Dos Funcionarios do Grupo Algar Plan, are based primarily
on participants' compensation on retirement and years of service. The
Plan is available to substantially all employees of the Company.
n) Other assets and liabilities
Other assets and liabilities are stated at known or likely amounts
plus related charges and monetary adjustments and provisions for
market value adjustment, if applicable.
o) Sales and expenses
Sales revenues are recognized as finished goods are shipped and as
other products are supplied. Expenses and costs are recognized on the
accrual basis.
F-15
<PAGE>
p) Environmental expenditures
Expenditures relating to ongoing compliance with environmental
regulations, designed to minimize the environmental impact of the
Company's operations, are charged against earnings on the date
expended. Provisions for expenditures are charged against earnings at
the time that they are considered to be probable and reasonably
estimable. Management believes that, at present, its plant is in
substantial compliance with the environmental regulations applicable
to it.
q) Marketing costs
Marketing costs are reported in selling and marketing expenses and
include costs of advertising and other marketing activities.
r) Start-up costs
In accordance with the American Institute of Certified Public
Accountants ("AICPA") Statement of Position ("SOP") 98-5, "Reporting
the Costs of Start-Up Activities", start-up costs are expensed as
incurred.
s) Concentration of credit risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, are principally bank deposits and
accounts receivable. Cash and cash equivalents are deposited with high
credit quality financial institutions. Accounts receivables typically
represent purchases and are derived from the revenues earned from
customers in Brazil and are denominated in Brazilian reais. The
company maintains an allowance for uncollectible accounts based upon
the expected collectibility of accounts receivable. During the years
ended December 31, 1999 and 1998, approximately 53 % and 56 % in gross
sales were generated from two clients.
t) Comprehensive income (loss)
Effective January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." Under SFAS 130 changes in net assets
of an entity resulting from transactions and other events and
circumstances from non-owner sources are reported in a financial
statement for the period in which they are recognized. Adoption of
SFAS 130 did not impact the financial statements of the Company.
u) Segment Reporting
Effective January 1, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." The company
operates as a single segment and will evaluate additional segment
disclosure requirements as it expands its operations.
F-16
<PAGE>
v) New accounting pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No.
133", which defers the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities",
issued in June 1998, requires that all derivative financial
instruments be reflected on the balance sheet at fair value, with
changes in fair value recognized periodically in earnings or as a
component of other comprehensive income, depending on the nature of
the underlying item being hedged. In the event that an entity does not
effectively hedge against an underlying item, changes in the fair
value of the derivative will be recognized currently in the statement
of operations. The impact of adopting this statement is not expected
to be material to the Company.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software developed or Obtained for Internal Use." SOP 98-1
provides guidance on accounting for the costs of computer software
developed or obtained for internal use. The pronouncement identifies
the characteristics of internal use software and provides guidance on
new cost recognition principles. The impact of adopting this statement
was not material to the Company.
3. INTEREST INCOME AND EXPENSES
For the years
Ended December 31
-----------------
1999 1998
------- -------
Interest income
Interest income on cash equivalents 3 27
Interest income on intercompany credit 152 12
Exchange rate variations 248 78
Other 2 12
------- -------
405 129
======= =======
Interest expense
Interest expense on loan debt - (737)
Interest expense on Intercompany loan (795) (246)
Exchange rate variations on loans/supplies (1,300) (637)
Interest on liabilities other than loans (39) (51)
Banking charges, taxes and other (512) (1,266)
------- -------
(2,646) (2,937)
======= =======
F-17
<PAGE>
4. INCOME TAXES
Income taxes in Brazil include federal income tax and social contribution.
The Brazilian statutory rates for the years presented are as follows:
Year ended
December 31,
-----------------
1999 1998
-------- -------
% %
- -
Federal income tax 25.00 25.00
Social contribution 12.00 8.00
-------- -------
Composite income tax rate 37.00 33.00
======== =======
The amount reported as income tax (expense) benefit in the consolidated
statements of operations is reconciled to tax expense at the statutory
federal income tax rate as follows:
Year ended
December 31,
-----------------
1999 1998
-------- -------
$ $
- -
Income before income taxes (3,009) (8,303)
======== =======
Tax benefit, at statutory rates 1,113 2,740
Increase in valuation allowance (1,113) (2,740)
Effect of changes in tax rates (2) -
Effects of differences between indexation and
translation;
Depreciation on a different asset base 13 24
Other (19) (3)
-------- -------
Tax (expense) benefit as reported in the
Statement of operations (8) 21
======== =======
The major components of the deferred tax accounts are as follows:
As of December 31
--------------------
1999 1998
--------- ---------
Brazilian net operating loss carryforwards 2,459 2,044
Deferred income tax relating to temporary differences 620 629
--------- ---------
Gross deferred income tax assets 3,079 2,673
Valuation allowance (3,079) (2,673)
--------- ---------
Deferred income tax assets, net of valuation - -
allowances
========= =========
As of December 31
--------------------
1999 1998
--------- ---------
Deferred income tax liabilities:
Deferred non current income tax liability on change
in functional
Currency 41 48
--------- ---------
Total non-current deferred income tax liabilities 41 48
========= =========
F-18
<PAGE>
5. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivables relate primarily to sales to domestic customers.
The Company has concentration credit risk for accounts receivable from some
customers, which is subject to business cycle variations. Such customers
held balances at each year-end as follows:
December 31
-----------------
1999 1998
------- --------
Furukawa Ind. S/A Produtos Eletronicos 899 -
Marsicano S/A Ind. e Cond. Eletricos 923 1,367
Cabelte Cabos Eletricos 585 -
Telcon Fios e Cabos para Telecomunicacao 836 346
Alcatel Telecomunicacoes S/A 2,028 -
Cabelte Industris Brasileira Ltda. - 847
Other 459 645
------- --------
5,730 3,205
Allowance for doubtful account (923) (1,367)
------- --------
Total 4,807 1,838
======= ========
6. INVENTORIES
December 31
-----------------
1999 1998
------- --------
Finished products 640 3,777
Work in process 772 556
Raw materials and indirect materials 2,332 2,552
Resale materials 153 336
Imports in progress 292 608
------- --------
4,189 7,829
Allowance for slow-moving inventory (136) -
------- --------
4,053 7,829
======= ========
7. ESCROW DEPOSITS
The Company is contesting the payment of certain taxes and has made
court-approved escrow deposits of equivalent amounts pending final
decisions. Deposits of US$ 7 (1998- US$ 10), which relate to proceedings
for which the Company has received favorable rulings or for which loss is
not considered probable, have no offsetting allowances.
F-19
<PAGE>
8. PROPERTY, PLANT AND EQUIPMENT
Years 1999 1998
------ -------- ---------
Land 140 207
Buildings and improvements 10-25 4,228 5,817
Machinery and equipment 3-10 8,972 8,749
Furniture and fixtures 5-10 163 218
Installations 6-10 934 728
Vehicles 5 29 53
EDP equipment 3 238 222
-------- --------
14,704 15,994
Accumulated depreciation (4,344) (4,773)
Projects in progress 18 5,225
-------- --------
10,378 16,446
======== ========
9. LONG-TERM DEBT
Long-term loans and financing relate primarily to permanent asset import
financing, at an interest rate of LIBOR plus 0.75% to 2.18% per annum,
secured by Algar S.A. Empreendimentos e Participacoes. The maturities of
long-term debt are as follows:
December 31
------------
1999
---------
2000 340
2001 288
---------
Total long-term debt 628
Current portion of long-term debt 340
---------
Total 288
=========
F-20
<PAGE>
10. RELATED PARTY TRANSACTIONS/BALANCES
Transactions/balances with related parties were as follows:
<TABLE>
<CAPTION>
Administrative Interest
Assets Liabilities expenses expense, net
----------- --------------- ------------------- -----------------
<S> <C> <C> <C> <C>
1999
----
Due to related parties:
Algar S.A. Empreendimentos
e Participacoes - 624 203 770
Algar Telecom S.A. - 203 -
----------- --------------- ------------------- -----------------
- 624 406 770
=========== =============== =================== =================
1998
----
Due from related parties:
Algar S.A. Empreendimentos
e Participacoes 57 - - -
Due to related parties:
Algar S.A. Empreendimentos
e Participacoes - - 308 281
----------- --------------- ------------------- -----------------
57 - 308 281
=========== =============== =================== =================
</TABLE>
The $624 loan matures on September 30, 2000 and carries interest at a rate
of 17.81%. Company management considers related-party transactions/balances
as usual market transactions. Intercompany transactions/balances relate to
contracts at average interest rates, which during the year approximated the
market rates.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation sale. Significant
differences can arise between the fair value and carrying amounts of
financial instruments that are recognized at historical cost amounts.
F-21
<PAGE>
The carrying amounts and fair values of the Company's financial instruments
as of December 31 are as follows:
As of December 31
-----------------------------------
1999 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount value Amount Value
--------- ------ --------- ------
On balance sheet financial instruments:
Cash and cash equivalents 225 225 36 36
Escrow deposits 7 7 10 10
Long-term debt (including current
portion) 628 628 123 123
The values provided are representative of the fair values as of December
31, 1999 and 1998 and do not reflect subsequent changes in the economy,
interest and tax rates, and other variables that may impact determination
of fair value. The following methods and assumptions were used in
estimating fair values for financial instruments:
Cash and cash equivalents and short-term investments: The carrying amount
reported in the balance sheet for cash and cash equivalents and short-term
investments approximates fair value due to the short maturity of these
instruments.
Escrow deposits: The carrying amount of escrow deposits approximates fair
value, as interest is receivable on such deposits at a variable market
rate.
Long-term debt: The carrying value of the Company's long term debt
approximates fair value due to the interest rates of these instruments.
12. SHAREHOLDERS' EQUITY
Capital and shareholder rights
(i) Share capital
Subscribed and paid-in capital comprises 10,275,142 shares of no par
value, of which 5,137,571 are common shares and 5,137,571 are
preferred shares.
F-22
<PAGE>
(ii) Share rights
Common shares have the right to vote at shareholder meetings while
preferred shares are non-voting. Preferred shares do, however, have
priority in the return of capital in the event of liquidation and in
the receipt of a mandatory non-cumulative dividend (the "Mandatory
dividend") of 25% of consolidated net income as determined in
accordance with Brazilian Corporate Law, due to both preferred and
common shareholders. Under Brazilian Corporate Law, any payment of
interim dividends and interest attributable to shareholders equity is
netted off against the amount of the Mandatory Dividend in the year of
payment (applicable). In any year, the board of directors of the
Company may determine that it is inadvisable in view of the Company's
financial position to pay the Mandatory Dividend. In this case, any
retained earnings of the Company must be allocated to a special
reserve account. Furthermore, in the event that the Mandatory Dividend
is omitted for three consecutive years, the preferred shares acquire
voting rights until payment of such dividends is reserved.
(iii) Appropriated retained earnings
Under Brazilian Corporate Law, Xtal is required to appropriate 5% of
its annual statutory accounting basis local currency earnings, after
absorbing accumulated losses, to a statutory reserve until each such
reserve equals 20% of paid capital. The reserve may be used to
increase capital or absorb losses, but may not be distributed as
dividends.
(iv) Unappropriated retained earnings
Dividend distributions are limited to retained earnings of the Company
as determined in accordance with the Brazilian Corporate Law. There
were no distributable retained earnings as of December 31, 1999 and
1998, respectively.
(v) Dividends
Dividends are payable in Brazilian reais, and are reflected in the
financial statements upon approval. Brazilian Law permits the payment
of dividends only from retained earnings based on the amounts stated
in the Company's statutory accounting records. No dividends were
declared or paid for the years ended 1999 and 1998, respectively.
F-23
<PAGE>
13. PAYROLL, PROFIT SHARING AND RELATED CHARGES
Approximately 100% of the Company's production and industrial employees are
members of the Participacao nos Resultados da Epresa (the "Union"). The
collective bargaining agreement (between the Union and Xtal - covering all
Company employees who are formally members of the Union, executives are not
covered), provides for an annual distribution to employees of a specified
amount, as agreed by the Union and the Company in the first quarter of each
year, for the following year. On an individual employee basis, the
distribution is dependent on department and grade. Expenses of the Company
under these programs are included in general and administrative expenses
and amounted to $ 119 and $65 for the years ended December 31, 1999, and
1998, respectively.
14. COMMITMENTS AND CONTINGENCIES
(a) Accrued liability for legal proceedings
The Company is contesting the payment of certain taxes and
contributions and has made court escrow deposits (restricted deposits
for legal proceedings) of equivalent or lesser amounts pending final
legal decisions. Probable losses, provided as liabilities of the
Company based on the advice of outside legal counsel, are summarized
below:
December 31
----------------
1999 1998
-------- -------
Labor claims (1) 41 -
Income tax withheld at source - Intercompany loan 310 -
Income tax and social contribution 60 81
Value-added sales taxes ("ICMS") 164 129
Value-added sales taxes ("IPI") 146 126
Other 20 5
-------- -------
Total accrued liabilities for legal proceedings 741 341
======== =======
-----------------
(1) The Company is party to a number of lawsuits filed by former
employees related to overtime, dangerous working conditions and
various employment relationships. As of December 31, 1999 the Company
has accrued $ 41 relating to such lawsuits. Escrow deposits against
probable losses relating to labor claims totaled $ 150 as of December
31, 1999.
Management believes, based on advice from its attorneys, that the
provision for contingencies is sufficient to meet probable and
reasonably estimable losses, and that the ultimate resolution will not
have a significant effect on the Company's liquidity, consolidated
financial position or results of operations.
F-24
<PAGE>
(b) Financial guarantee and recourse arrangement (Advance for future
increase of capital)
On December 1, 1998, XTAL entered into an agreement of Advance of
Financial Resources to offset various supplier and financial debt with
Algar S.A. Empreendimentos e Participacoes ("Algar" or Parent Company)
for a total amount of US$ 4.2 million (advance for future increase of
capital). Such agreement was accounted for by the Parent Company as a
capital contribution and Xtal duly amended their by-laws and Social
Contract on April 27, 1999, to effectively increase capital. At
December 31, 1999, (pound)627 (approximately US$ 1,013) remained
payable in the name of Xtal to Unibanco at an interest rate of LIBOR
plus 11.79%. Several machines are given as guaranty for this loan. In
connection with the acquisition agreement described in Note 16, Algar
assumed the (pound)627 liability. This amount is not recorded as a
liability in the accompanying financial statements.
On December 31, 1998, XTAL entered into a second agreement of Advance
of Financial Resources for Future Capital Increase with Algar S.A.
Empreendimentos e Participacoes ("Algar") for a total amount of $13
million (Advance for future increase of capital) and such amount was
consigned in an account on behalf of Algar. This agreement was also
accounted for by the Parent Company as a capital contribution whereby
Xtal amended their by-laws and Social Contract to effectively increase
capital. In association with this agreement, there were two other
Agreements for the Assumption of Debt by the parties with the
following terms:
Algar assumes the debts of Xtal before various banks for a total of
US$ 8 million Algar assumes the debts of Xtal for a supplier totaling
US$ 3.5 million
Such agreements, added to the balance of intercompany loans payable in
the amount of US$ 1.5 million, were also accounted for by the Parent
company as a capital contribution. Xtal effectively registered these
amounts by amending and registering their Social Contract on April 27,
1999, to effectively increase capital. Approximately US$ 1.5 million,
due September 19, 2000, remains payable in the name of Xtal to Banco
Brascan S/A at an interest rate of LIBOR plus 2% per year. Also, US$
384 thousand and US$ 288 thousand, due October 31 and August 31, 2000
respectively, remain payable in the name of Xtal to Dresdner Bank
Lateinamerika AG at an interest rate of LIBOR plus 0.75% per year.
Algar remained the guaranty for this amount should Xtal default. In
connection with the acquisition agreement described in Note 16, Algar
assumed these liabilities, totaling approximately US$ 2,172. These
amounts are not recorded as liabilities in the accompanying financial
statements.
F-25
<PAGE>
(c) Postemployment benefits
The Company makes monthly contributions based on payroll expense to
the government pension, social security and severance indemnity plans.
Such payments are expensed as incurred.
In addition, certain payments are due on dismissal of employees
pursuant to Article 18 of Law 8.036 (dated May 11, 1990) being
principally (i) one month's salary, and (ii) a severance payment based
on the accumulated balance of each employees government severance
indemnity account. The Company makes contributions to the government
severance indemnity plan for each of its employees on a monthly basis;
the additional severance payment made by the Company is calculated at
40% of the balance of this account. Severance benefits payable to
employees do not vest or accumulate.
(d) Environmental issues
The Company is subject to Federal, State and Local laws and
regulations relating to the environment. These laws generally provide
for control of air and effluent emissions and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Civil penalties may be imposed for noncompliance.
Future information and developments will require the Company to
continually reassess the expected impact of environmental matters.
However, the Company has evaluated its total environmental exposure
based on current available data and believes that compliance with all
applicable laws and regulations will not have a material impact on the
Company's liquidity, consolidated financial position or results of
operations.
F-26
<PAGE>
15. SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 adopts a
"management approach" for segment reporting; this approach designates the
internal organization that is used by management for making decisions and
assessing performance as the source of the Company's reportable segments.
SFAS 131 also requires disclosure about products and services, geographical
areas, and major customers.
(a) Description of the types of products and services from which the
reportable segment derives its revenues
The Company has one reportable segment: optical fibers and related
byproducts. The segment produces two types of communication optical
fibers (as of December 31, 1999); multi-mode and single-mode fiber.
The Company has one production facility in Campinas.
(b) Measurement of segment profit and loss and segment assets
The accounting policies underlying the financial information provided
for the one segment is based on Brazilian GAAP. These amounts do not
differ from US GAAP. The Company's reportable segment offers separate
products. The reportable segment is the responsibility of one product
manager who has knowledge of product lines, operational risks and
opportunities.
(c) Geographical areas
International sales and operations for the Company account for
approximately 4% of consolidated net sales and long-lived assets,
respectively.
16. SUBSEQUENT EVENTS
o Changes in tax legislation
In 1999, the Government introduced changes to the income tax law with
effective dates throughout 2000. The significant provisions of these
changes are summarized below:
(i) The COFINS (tax for social security financing) rate remains
unchanged at 3%; however, beginning in January 2000, 33.33% of
COFINS can no longer be offset against Social Contribution on Net
Income ("CSSL");
(ii) The CSSL rate was reduced from 12% to 9% beginning in February
2000, and from 9% to 8% beginning January 2003; and
(iii) The assumed credit of IPI (Excise tax) can be offset against PIS
(Employees' Profit Participation Program) and COFINS.
F-27
<PAGE>
o Firm Commitment for the Acquisition of the Company
On April 26, 2000, the Company consummated an agreement with
Fibercore, Inc. (the "Buyer") and Algar S.A. (the "Seller") which sets
forth the terms and conditions for the sale of 90% of the outstanding
common stock or substantially all the assets and specified liabilities
of XTAL, subject to Algar holding a 10% equity interest in Xtal. On
the closing date (not to exceed 60 days from acceptance of the
acquisition agreement), a shareholders agreement shall be entered into
providing certain criteria. The purchase price for XTAL shall be US$
25 million, payable as follows and subject to the following terms and
conditions:
(i) Within 30 days of the signing or May 31, 2000, whichever is
later, Buyer shall pay the seller a sum of US$ 2 million in the
form of a deposit. This deposit may be returned to the buyer,
inclusive of accrued interest, based on reasonable interest
rates, if certain events do not transpire.
(ii) An additional US$ 8 million shall be paid in cash on closing
date, which is to be 60 days from the April 26, 2000 agreement or
June 30, 2000, whichever date is later.
(iii) US$ 10 million via a promissory note, bearing interest at 6%,
delivered at the closing date, and payable 180 days following the
close, or December 31, 2000, whichever is later. The promissory
note may be reduced in principal to US$ 7.5 million in the event
the seller does not deliver to the Buyer on the closing date, an
executed non cancelable 3 year purchase order (the "Purchase
Order"), at prevailing market prices which covers 50% of the
fiber optical requirements of Algar. The purchase price can be
reduced further, to US$ 6.5 million, provided that the Buyer
makes all payments thereunder on or before August 31, 2000.
(iv) In the event the Buyer does not make the payment under the
promissory note above, the buyer shall pay an additional 3%, in
addition to the original 6% per annum, plus the following
extensions:
(v) US$ 1.25 million through a promissory note bearing interest at 6%
per annum, payable 450 days following the closing date. The
principal and interest amount of the promissory note may be
reduced proportionately in the event the gross profit of Xtal for
the year 2000 does not achieve certain levels. US$ 1.25 million
through a promissory note bearing interest at 6% per annum,
payable 810 days following the closing date. The principal and
interest amount of the promissory note may be reduced
proportionately in the event the gross profit of Xtal for the
year 2001 does not achieve certain levels.
F-28
<PAGE>
(vi) On the date which is 1,080 days following the closing date, the
Buyer shall, pursuant to the Buyer's call option, acquire the
remaining shares held by the Seller in Xtal or in the purchasing
entity upon payment in cash of US$ 2.5 million plus interest at a
rate of 6% per annum. The Buyer reserves the right to prepay this
amount at any time without penalty.
o Employment agreements
As part of the acquisition agreement, reasonable efforts are to be
made in executing agreements with key employees by XTAL or the buyer
for not less than one year, under customary terms and conditions.
These include, where appropriate, non-compete, confidentiality and
non-solicitation customer agreements.
------------------------------------------------------------------------------
F-29
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM BALANCE SHEETS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
March 31, December 31,
2000 1999
------------ ------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents 49 225
Trade accounts receivable, net 4,186 4,807
Inventories (note 3) 3,578 4,053
Prepaid expenses, other 999 497
------------ ------------
Total current assets 8,812 9,582
------------ ------------
Property, plant and equipment, net 10,467 10,378
Recoverable taxes 145 101
Other 7 7
------------ ------------
152 108
------------ ------------
Total assets 19,431 20,068
============ ============
(Continued)
F-30
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM BALANCE SHEETS
(Expressed in thousands of United States dollars) (Continued)
------------------------------------------------------------------------------
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Trade accounts payable - suppliers 4,011 4,952
Current portion of long-term debt 290 340
Taxes other than income 441 356
Payroll and other charges 818 614
Other 19 21
------------ ------------
Total current liabilities 5,579 6,283
------------ ------------
NON-CURRENT LIABILITIES
Long-term debt - 288
Intercompany 733 624
Long-term taxes 651 852
Other long-term liabilities 801 741
Deferred income tax 46 41
------------ ------------
2,231 2,546
Commitments and contingencies (note 4)
SHAREHOLDERS' EQUITY
Preferred stock - no par value, 49,963,256 shares
authorized and 5,137,571 issued and outstanding
at March 31, 2000 and December 31, 1999 11,497 11,497
Common stock - no par value, 49,963,256 shares
authorized and 5,137,571 issued and
outstanding at
March 31, 2000 and December 31, 1999 11,497 11,497
Appropriated retained earnings:
Legal reserve 140 140
Unappropriated retained (deficits) (8,015) (8,113)
Accumulated other comprehensive (loss) (3,498) (3,782)
------------ ------------
Total shareholders' equity 11,621 11,239
------------ ------------
Total liabilites and shareholders' equity 19,431 20,068
============ ============
The accompanying notes are an integral part of these Financial Statements.
------------------------------------------------------------------------------
F-31
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM STATEMENTS OF OPERATIONS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
March 31, March 31,
2000 1999
------------ -----------
(Unaudited) (Unaudited)
GROSS SALES
Total gross sales 9,454 1,201
Value-added and excise tax on sales (2,660) (287)
------------ -----------
Net sales 6,794 914
Cost of sales (6,270) (885)
------------ -----------
GROSS PROFIT 524 29
Selling and marketing expenses (106) (106)
General and administrative expenses (150) (339)
Depreciation (24) (26)
------------ -----------
Operating expenses (280) (471)
NON-OPERATING (EXPENSES) INCOME
Interest income 13 231
Interest expenses (91) (1,674)
Other non-operating (expense) income, net (60) 3
------------ -----------
INCOME (LOSS) BEFORE INCOME TAX AND
SOCIAL CONTRIBUTION 106 (1,882)
INCOME TAX (EXPENSES) BENEFIT AND SOCIAL (8) (131)
CONTRIBUTION
------------ -----------
Net income (loss) 98 (2,013)
============ ===========
The accompanying notes are an integral part of these Financial Statements.
------------------------------------------------------------------------------
F-32
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in thousands of United States dollars) (Continued)
------------------------------------------------------------------------------
March 31, March 31,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Net income (loss) 98 (2,013)
------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS),
NET OF TAX:
Foreign currency translation adjustment 284 (3,468)
------------ ------------
Other comprehensive income (loss) 284 (3,468)
------------ ------------
Comprehensive income (loss) 382 (5,481)
============ ============
The accompanying notes are an integral part of these Financial Statements.
------------------------------------------------------------------------------
F-33
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Appropriated
retained Unappropriated Accumulated
earnings retained other
Common Preferred legal earnings Comprehensive
stock stock reserve (deficit) income (loss) Total
----- ----- ------- --------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES AS OF 11,497 11,497 140 (8,113) (3,782) 11,239
JANUARY 1, 2000 (AUDITED)
Net income available to common
and preferred shares - - - 98 - 98
Net translation gain for the period - - - - 284 284
------- ------- ------- -------` ------- -------
BALANCES AS OF
MARCH 31, 2000 (UNAUDITED) 11,497 11,497 140 (8,015) (3,498) 11,621
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
------------------------------------------------------------------------------
F-34
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars)
------------------------------------------------------------------------------
Years ended
March 31
---------------------
2000 1999
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES (Unaudited) (Unaudited)
Net income (loss) 98 (2,013)
Adjustments to reconcile net income (loss)
to cash provided by operating activities:
Depreciation 329 239
Allowance for doubtful accounts-reversal (53) -
Exchange translation 55 (802)
Deferred income taxes 8 131
Decrease (increase) in assets:
Trade accounts receivable 674 999
Inventories 475 1,162
Other current assets (502) 92
Recoverable tax (44) 44
Other assets - 3
Increase (decrease) in liabilities
Trade accounts payable (941) (2,941)
Taxes other than on income 85 (15)
Payroll and other charge 204 (205)
Other current liabilities (2) (24)
---------- ---------
Long-term taxes (201) (256)
---------- ---------
Other long-term liabilities 60 (80)
---------- ---------
Net cash provided by (used in) operating activities 245 (3,666)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (170) (840)
Proceeds on disposal of property, plant and equipment 1 237
---------- ---------
Net cash used in investing activities (169) (603)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term debt
Proceeds 13 680
Repayments (343) (102)
Intercompany
Proceeds 345 3,872
Repayments (272) (132)
---------- ---------
Net cash (used in) provided by financing activities (257) 4,318
---------- ---------
(Continue)
F-35
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
INTERIM STATEMENTS OF CASH FLOWS
(Expressed in thousands of United States dollars) (Continued)
------------------------------------------------------------------------------
Years ended
March 31
---------------------
2000 1999
---------- ---------
(Unaudited) (Unaudited)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5 (11)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (181) 49
CASH AND CASH EQUIVALENTS AS OF
BEGINNING OF THE YEAR 225 36
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR 49 74
========== =========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest 55 25
Taxes on income - -
------------------------------------------------------------------------------
The accompanying notes are an integral part of these Financial Statements.
------------------------------------------------------------------------------
F-36
<PAGE>
XTAL FIBRAS OPTICAS S.A.
------------------------
NOTES TO THE INTERIM FINANCIAL INFORMATION
(Expressed in thousands of United States dollars, except number of shares and
where otherwise noted) (Continued)
------------------------------------------------------------------------------
1 INTERIM FINANCIAL STATEMENTS
The interim financial statements (the "Interim Financial Statements") of
XTAL Fibras Opticas S.A. (the "Company") has been prepared in accordance
with generally accepted accounting principles in the United States ("U.S.
GAAP"), which differ in certain respects from generally accepted accounting
principles in Brazil ("Brazilian GAAP"), as applied by the Company in the
preparation of its statutory financial statements and for other purposes.
Shareholders' equity and net (loss) income included in these Interim
Financial Statements differ from those included in the accounting records
as a result of (i) the effects of differences between the rate of
devaluation of the Brazilian real ("R$") against the United States dollar
("$", "US$ "or "U.S. dollar") and (ii) differences in the methods of
measuring amounts under U.S.GAAP and Brazilian GAAP.
These Interim Financial Statements should be read in conjunction with the
U.S. GAAP financial statements and related notes as of December 31, 1999
and 1998, and for each of the years then ended. For purposes of these
Interim Financial Statements, certain information and note disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The
Company believes that the disclosures made are adequate to make the
information not misleading.
The Interim Financial Statements are unaudited. In the opinion of
management, however, they include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of results of such
interim periods. The interim results for the period ended March 31, 2000,
are not necessarily indicative of results for the full calendar year.
2 BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes in the basis of presentation or the
accounting policies adopted by the Company during the current period.
(a) Foreign currency translation
The U.S. dollar amounts for the periods presented have been remeasured
(translated) from the Brazilian currency amounts in accordance with
the criteria set forth in Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign currency translation" ("SFAS 52").
F-37
<PAGE>
Xtal has translated all assets and liabilities into U.S. dollars at
the current exchange rate (March 31, 2000 - R$ 1.7473: US$ 1.00 and
March 31, 1999 - R$ 1.7220: US$ 1.00, respectively), and all accounts
in the statements of operations and cash flows at the average rates of
exchange in effect during the periods (R$ 1.7737: US$ 1.00 for the
period ended March 31, 2000 and R$ 1.7708: US$ 1.00 for the period
ended March 31, 1999, respectively). The translated amounts include
local currency indexation and exchange variances on assets and
liabilities denominated in foreign currencies. The related translation
adjustments are made directly to the cumulative translation adjustment
account in shareholders' equity.
In mid-January 1999, significant changes occurred in the Brazilian
government's foreign exchange rate policy, which resulted in the
elimination of exchange controls, referred to as trading bands. These
trading bands ensured that the real to U.S. dollar exchange rate
remained within a given range. On January 15, 1999, the Brazilian
Central Bank ceased to intervene in the foreign exchange market,
except in exceptional circumstances to mitigate excessive volatility,
and the real to U.S. dollar exchange rate was allowed to fluctuate
freely. On July 30, 1999, the real was trading at approximately R$
1.7892 to US$ 1.00, as compared to the exchange rate in effect on
December 31, 1998 of R$ 1.2087 to US$ 1.00.
The effects of the real devaluation has resulted in a net translation
loss, arising from the translation of the balance sheet accounts
(monetary and non-monetary assets and liabilities) from Brazilian
reais to U.S. dollars. The translation loss has been allocated
directly to the cumulative translation account in shareholders'
equity. Foreign exchange transaction gains or losses are reflected
directly in income currently.
3. INVENTORIES
March 31, December 31,
2000 1999
------------ ------------
(Unaudited)
Finished products 525 640
Work in process 675 772
Raw material and indirect materials 2,300 2,332
Resale materials 144 153
Imports in progress 73 292
------------ ------------
3,717 4,189
Allowance for slow-moving inventory (139) (136)
------------ ------------
3,578 4,053
============ ============
F-38
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
(a) Tax and legal claims
The Company is contesting the payment of certain taxes and
contributions and has made court escrow deposits (restricted deposits
for legal proceedings) of equivalent or lesser amounts pending final
legal decisions. Probable losses, provided as liabilities of the
Company based on the advice of outside legal counsel, are summarized
below:
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
Labor claims (1) 42 41
Income tax withheld at source - 329 310
Intercompany loan
Income tax and Social contribution 63 60
Value-added sales taxes ("ICMS") 183 164
Value-added sales taxes ("IPI") 154 146
Others 30 20
----------- ------------
Total accrued liabilities for legal 801 741
proceedings
=========== ============
-----------------
(1) The Company is party to a number of lawsuits filed by former
employees. As of March 31, 2000 the Company has accrued $ 42
relating to such lawsuits. Escrow deposits (restricted deposits
for legal proceedings) against probable losses relating to labor
claims totaled $ 150.00 as of March 31, 2000 (1999 - $ 0.00).
Management believes, based on advice from its attorneys, that the
provision for contingencies is sufficient to meet probable and
reasonably estimable losses in the event of unfavorable rulings, and
that the ultimate resolution will not have a significant effect on the
Company's liquidity, consolidated financial position or results of
operations.
Financial guarantee and recourse arrangement (Advance for future increase
of capital)
On December 1, 1998, XTAL entered into an agreement of Advance of
Financial Resources to offset various supplier and financial debt with
Algar S.A. Empreendimentos e Participacoes ("Algar" or Parent Company)
for a total amount of US$ 4.2 million (advance for future increase of
capital). Such agreement was accounted for by the Parent Company as a
capital contribution and Xtal duly amended their by-laws and Social
Contract on April 27, 1999, to effectively increase capital. At March
31, 2000, (pound)502 (approximately US$ 800) remained payable in the
name of Xtal to Unibanco at an interest rate of LIBOR plus 11.79%.
Several machines are given as guaranty for this loan. In connection
with the acquisition agreement described in Note 16 of the annual
financial statements, Algar assumed the (pound)502 liability. This
amount is not recorded as a liability in the accompanying financial
statements.
F-39
<PAGE>
On December 31, 1998, XTAL entered into a second agreement of Advance
of Financial Resources for Future Capital Increase with Algar S.A.
Empreendimentos e Participacoes ("Algar") for a total amount of $13
million (Advance for future increase of capital) and such amount was
consigned in an account on behalf of Algar. This agreement was also
accounted for by the Parent Company as a capital contribution whereby
Xtal amended their by-laws and Social Contract to effectively increase
capital. In association with this agreement, there were two other
Agreements for the Assumption of Debt by the parties with the
following terms:
Algar assumes the debts of Xtal before various banks for a total of
US$ 8 million Algar assumes the debts of Xtal for a supplier totaling
US$ 3.5 million.
Such agreements, added to the balance of intercompany loans payable in
the amount of US$ 1.5 million, were also accounted for by the Parent
company as a capital contribution. Xtal effectively registered these
amounts by amending and registering their Social Contract on April 27,
1999, to effectively increase capital. Approximately US$ 1.5 million,
due September 19, 2000, remains payable in the name of Xtal to Banco
Brascan S/A at an interest rate of LIBOR plus 2% per year. Also, US$
384 thousand and US$ 288 thousand, due October 31 and August 31, 2000
respectively, remain payable in the name of Xtal to Dresdner Bank
Lateinamerika AG at an interest rate of LIBOR plus 0.75% per year.
Algar remained the guaranty for this amount should Xtal default. In
connection with the acquisition agreement described in Note 16 of the
annual financial statements, Algar assumed these liabilities, totaling
approximately US$ 2,172. These amounts are not recorded as liabilities
in the accompanying financial statements.
(c) Postemployment benefits
The Company makes monthly contributions based on payroll expense to
the government pension, social security and severance indemnity plans.
Such payments are expensed as incurred.
In addition, certain payments are due on dismissal of employees
pursuant to Article 18 of Law 8.036 (dated May 11, 1990) being
principally (i) one month's salary, and (ii) a severance payment based
on the accumulated balance of each employees government severance
indemnity account. The Company makes contributions to the government
severance indemnity plan for each of its employees on a monthly basis;
the additional severance payment made by the Company is calculated at
40% of the balance of this account. Severance benefits payable to
employees do not vest or accumulate.
(d) Environmental issues
The Company is subject to Federal, State and Local laws and
regulations relating to the environment. These laws generally provide
for control of air and effluent emissions and require responsible
parties to undertake remediation of hazardous waste disposal sites.
Civil penalties may be imposed for noncompliance.
Future information and developments will require the Company to
continually reassess the expected impact of environmental matters.
However, the Company has evaluated its total environmental exposure
based on current available data and believes that compliance with all
applicable laws and regulations will not have a material impact on the
Company's liquidity, consolidated financial position or results of
operations.
*****
------------------------------------------------------------------------------
F-40
<PAGE>
FiberCore, Inc.
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of March
31, 2000 and the pro forma combined statements of operations for the year ended
December 31, 1999 and the quarter ended March 31, 2000 give effect to; (i) the
acquisition of 90% of Xtal Fibras Opticas S.A. ("Xtal"), accounted for under the
purchase method of accounting; (ii) the private placement of the $6.0 million
convertible note and sale of FiberCore, Inc. common stock of $3.5 million to
Crescent International Ltd. ("Crescent") and related use of net proceeds, for
the acquisition; (iii) the issuance of common stock to Tyco Electronics
Corporation ("Tyco") on the exercise of common stock warrants in the amount of
$2.0 million, and the related use of proceeds for the acquisition, and; (iv) the
effect of the indemnification by Algar S.A. (the seller) for certain costs and
liabilities of Xtal. The historical financial information has been derived from
the respective historical financial statements of FiberCore, Inc. and Xtal, and
should be read in conjunction with these financial statements and the related
notes contained elsewhere herein or incorporated herein by reference.
The unaudited pro forma combined balance sheet at March 31, 2000
assumes that the acquisition, private placement of the convertible notes and the
sale of FiberCore, Inc. common stock to Crescent, the issuance of common stock
to Tyco on the exercise of common stock warrants and the indemnification by
Algar for certain costs and liabilities of Xtal. occurred on March 31, 2000.
The unaudited pro forma combined statements of operations combines
FiberCore's and Xtal's historical statements of operations for the year ended
December 31, 1999 and quarter ended March 31, 2000 and gives effect to the
acquisition, the private placement of the convertible notes and the sale of
FiberCore, Inc. common stock to Crescent, the issuance of common stock to Tyco
on the exercise of common stock warrants, and the indemnification by Algar for
certain costs and liabilities of Xtal as if they occurred on January 1, 1999.
Pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The total
estimated purchase cost of Xtal has been allocated on a preliminary basis to the
assets and liabilities based on management's estimates of their fair value with
the excess cost over the net assets acquired allocated to goodwill. Subsequent
to closing, the assets purchased and liabilities assumed will be fair valued and
the necessary studies completed to ascribe values to assets and indentifiable
intangibles, if any.
The unaudited pro forma combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial position of the combined company.
<PAGE>
FIBERCORE, INC.
PRO FORMA combined Balance Sheet
As of March 31, 2000
<TABLE>
<CAPTION>
(Dollars in thousands) FIBERCORE XTAL PRO FORMA COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,274 $ 49 $ 383 (a) $ 1,706
Accounts receivable, net 1,848 4,186 1,008 (b) 7,042
Inventories 2,852 3,578 6,430
Prepaid and other current assets 71 999 250 (c) 1,320
--------- --------- ----------- ---------
TOTAL CURRENT ASSETS 6,045 8,812 1,641 16,498
--------- --------- ----------- ---------
Property and equipment, net 3,497 10,467 2,500 (d) 16,464
Other assets:
Notes receivables from joint venture partners 4,949 4,949
Restricted cash 1,884 1,884
Patents, less accumulated amortization 4,636 4,636
Investments in joint ventures 1,425 1,425
Deferred/Recoverable tax asset 812 145 957
Other assets 417 7 424
Goodwill 7,634 (d) 7,634
--------- --------- ----------- ---------
TOTAL OTHER ASSETS 14,123 152 7,634 21,909
--------- --------- ----------- ---------
TOTAL ASSETS $ 23,665 $ 19,431 $ 11,775 $ 54,871
========= ========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,415 $ 290 $ 10,000 (a) $ 11,705
Accounts payable 1,531 4,011 5,542
Accrued taxes other than income 441 441
Accrued expenses 1,552 837 1,700 (e) 4,089
--------- --------- ----------- ---------
TOTAL CURRENT LIABILITIES 4,498 5,579 11,700 21,777
Long-term interest payable 1,373 1,373
Long-term taxes 697 697
Long-term debt 8,125 733 6,000 (a) 14,858
Other liabilities 801 801
--------- --------- ----------- ---------
TOTAL LIABILITIES 13,996 7,810 17,700 39,506
--------- --------- ----------- ---------
Minority interest 3,264 1,263 (f) 4,527
--------- --------- ----------- ---------
STOCKHOLDERS' EQUITY
Preferred stock 11,497 (11,497)(g) 0
Common stock 42 11,497 (11,495)(g) 44
Appropriated retained earnings - legal reserve 140 (140)(g) 0
Additional paid in capital 25,251 4,431 (g) 29,682
Accumulated deficit (17,692) (8,015) 8,015 (g) (17,692)
Accumulated other comprehensive loss (1,196) (3,498) 3,498 (g) (1,196)
--------- --------- ----------- ---------
TOTAL STOCKHOLDERS' EQUITY 6,405 11,621 (7,188) 10,838
--------- --------- ----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,665 $ 19,431 $ 11,775 $ 54,871
========= ========== =========== =========
</TABLE>
<PAGE>
FIBERCORE, INC.
PRO FORMA Income Statement
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
(Dollars in thousands) FIBERCORE XTAL PRO FORMA COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 12,126 $ 17,772 $ 29,898
Cost of sales 9,820 16,043 340 (h) 26,203
----------- --------- --------- ----------
Gross profit 2,306 1,729 (340) 3,695
Operating expenses:
Selling, general and administrative expenses 3,237 2,256 (557)(i) 4,936
Research and development 722 0 722
Amortization of goodwill 0 0 382 (j) 382
----------- --------- --------- ----------
Income (loss) from operations (1,653) (527) (165) (2,345)
Interest income 110 405 515
Interest expense (1,062) (2,646) (830)(k) (4,538)
Other (expense) income - net (336) (233) (569)
----------- --------- --------- ----------
Income (loss) before income taxes (2,941) (3,001) (995) (6,937)
Provision for income taxes 937 (8) 929
----------- --------- --------- ----------
Net income (loss) $ (2,004) $ (3,009) $ (995) $ (6,008)
=========== ========= ========= ==========
Basic and diluted income (loss)
per share of common stock $ (0.05) $ (0.15)
=========== ==========
Weighted average shares outstanding 36,610,544 2,231,826(l) 38,842,370
=========== ========= ==========
</TABLE>
<PAGE>
FIBERCORE, INC.
PRO FORMA Income Statement
Three months Ended March 31, 2000
<TABLE>
<CAPTION>
(Dollars in thousands) FIBERCORE XTAL PRO FORMA COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 3,453 $ 6,794 $ 10,247
Cost of sales 2,721 6,270 85 (h) 9,076
----------- --------- --------- ----------
Gross profit 732 524 (85) 1,171
Operating expenses:
Selling, general and administrative expenses 697 280 (114)(i) 863
Research and development 237 0 237
Amortization of goodwill 95 (j) 95
----------- --------- --------- ----------
Income (loss) from operations (202) 244 (66) (24)
Interest income 72 13 85
Interest expense (226) (91) (270)(k) (587)
Other (expense) income - net (82) (60) (142)
----------- --------- --------- ----------
Income (loss) before income taxes (438) 106 (336) (668)
Provision for income taxes (58) (8) (66)
----------- --------- --------- ----------
Net income (loss) $ (496) $ 98 $ (336) $ (734)
=========== ========= ========= ==========
Basic and diluted income (loss)
per share of common stock $ (0.012) $ (0.017)
=========== ==========
Weighted average shares outstanding 41,678,243 2,231,826 43,910,069
=========== ========= ==========
</TABLE>
<PAGE>
FIBERCORE, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(a) Adjustment represents the impact to cash, notes payable and long term debt
by funding activities and the acquisition of Xtal.
<TABLE>
<CAPTION>
Notes Long Term
Cash Payable Debt
----------------------------------------
<S> <C> <C> <C>
Exercise of common stock warrants by Tyco $ 2,000
Sale of common stock to Crescent $ 3,500
Issuance of a convertible note to Crescent $ 6,000 $ 6,000
Funds held in escrow - Crescent $ (250)
Cost of issue and legal fees $ (867)
Acquisition of Xtal from Algar $ (10,000) $ 10,000
----------------------------------------
$ 383 $ 10,000 $ 6,000
========================================
</TABLE>
(b) Adjustment represents the receivables for costs accrued by Xtal for which
the seller (Algar S.A.) has indemnified FiberCore, Inc. These accruals will
be paid by the seller under the indemnification agreement.
(c) Adjustment represents the amount of $250, held in escrow as part of the
Crescent investment agreement.
(d) Adjustments to reflect the purchase of 90% of Xtal for $21,500.
Purchase Price for Xtal.................................$ 21,500
NBV of assets acquired..................................$ 11,366
--------
Excess..................................................$ 10,134
========
The allocation of the excess is as follows;
Goodwill................................................$ 7,634
Property & Equipment....................................$ 2,500
--------
$ 10,134
(e) Adjustment represents the estimated costs of $1,700 for commissions, legal,
accounting and other fees related to the acquisition and Crescent
financing.
(f) Under the Xtal acquisition agreement, Algar will continue to own 10% of
Xtal. The adjustment represents Algar's minority interest in Xtal.
(g) Adjustment represents the impact on equity by the funding activities and
the elimination of equity of Xtal.
<TABLE>
<CAPTION>
Accumulated
Preferred Common Legal Additional Accumulated Other Comprehensive
Stock Stock Reserve Paid in Capital Deficit Income & (Deficit)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tyco exercise of warrants $ 1 $ 1,999
Sale of stock to Crescent 1 2,432
Elimination's - Xtal $ (11,497) $ (11,497) $ (140) $ 8,015 $ 3,498
--------------------------------------------------------------------------------------------------
Total $ (11,497) $ (11,495) $ (140) $ 4,431 $ 8,015 $ 3,498
==================================================================================================
</TABLE>
<PAGE>
(h) Adjustment represents the depreciation on the write-up to fair market value
on major assets purchased
Year Ending Quarter Ending
Dec. 31,1999 Mar. 31, 2000
------------- --------------
Depreciation on Building @ 25 yrs. $ 40 $ 10
Depreciation on Equipment @ 5 yrs. $ 300 $ 75
------------- --------------
Total $ 340 $ 85
============= ==============
(i) Adjustment represents costs accrued by Xtal for which the seller (Algar)
has indemnified FiberCore, Inc. These accruals will be paid by the seller
under the indemnification agreement referenced in note (b).
(j) Adjustment to reflect amortization of goodwill reported on the purchase of
Xtal referenced in note (c) over 20 years.
(k) Adjustment to reflect the interest on two (2) notes (Algar for $10,000 and
Crescent for $6,000), referenced in note (a). The Algar note is at 6% per
year and is due 7 months following the closing, and the Crescent note is at
8% per year and is due on June 9, 2002.
(l) The increase in the weighted average shares outstanding for the year ended
December 31, 1999 and the three months ended March 31, 2000 are as follows:
Exercise of common stock warrants by Tyco.......................1,031,552
Sale of common stock to Crescent............................... 1,200,274
----------
2,231,826
==========
