TABLE OF CONTENTS




|                                                  |                                                                                                |                                                                      |  |  |  |  |  | 
|------------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- |  |  |  |  |  | 
|Part I                      Financial Information
|                                                  | Item 1. Financial Statements (Unaudited)                                                      
|                                                  |                                                                                                | Condensed Consolidated Balance Sheets                               
|                                                  |                                                                                                | Condensed Consolidated Statements of Operations (Unaudited)         
|                                                  |                                                                                                | Condensed Consolidated Statement of Shareholders Equity (Unaudited)
|                                                  |                                                                                                | Condensed Consolidated Statements of Cash Flows (Unaudited)         
|                                                  |                                                                                                | Notes to Condensed Consolidated Financial Statements (Unaudited)    
|                                                  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                  | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            
|Part II. Other Information                       
|                                                  | Item 1. Legal Proceedings                                                                     
|                                                  | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|Exhibit 10.1                                     
|Exhibit 10.2                                     
|Exhibit 12                                       



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##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549




FORM 10-Q

(Mark One)

|                                                                                         
|-----------------------------------------------------------------------------------------
|X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|For the quarterly period ended December 31, 2001                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|or                                                                                       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|For the transition period from  to                                                       

Commission File Number: 0-27202

ADVANCED LIGHTING TECHNOLOGIES, INC.




(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Ohio
(State or other jurisdiction of incorporation or organization)     |  | 34-1803229
(I.R.S. Employer Identification No.)
|
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|32000 Aurora Road, Solon, Ohio
(Address of principal executive offices) |  | 44139
(Zip Code)                               

440 / 519-0500




(Registrants telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (CHECKMARK) No

There were 23,447,139 shares of the Registrants Common Stock, $.001 par value
per share, outstanding as of January 17, 2002.





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##### Table of Contents



INDEX

Advanced Lighting Technologies, Inc.

|           |  |                                                                                                                          |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                                          |  | Page
|           |  |                                                                                                                          |  | No. 
|           |  |                                                                                                                          |  |     
|Part I     |  | Financial Information                                                                                                    |  |     
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Item 1.    |  | Financial Statements (Unaudited)                                                                                         |  |     
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|           |  | Condensed Consolidated Balance Sheets 
December 31, 2001 and June 30, 2001                                              |  | 2   
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|           |  | Condensed Consolidated Statements of Operations 
Three months and six months
         
ended December 31, 2001 and 2000 |  | 3   
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|           |  | Condensed Consolidated Statement of Shareholders Equity 
Six months ended
December 31, 2001                            |  | 4   
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|           |  | Condensed Consolidated Statements of Cash Flows 
Six months ended December 31,
2001 and 2000                            |  | 5   
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|           |  | Notes to Condensed Consolidated Financial
Statements                                                                     |  | 6   
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations                                    |  | 17  
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                                               |  | 31  
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Part II    |  | Other Information                                                                                                        |  |     
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Item 1.    |  | Legal Proceedings                                                                                                        |  | 32  
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                         |  | 32  
|          
|          
|          
|          
|           |  |                                                                                                                          |  |     
|          
|          
|          
|          
|Signatures |  |                                                                                                                          |  | 34  

1



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##### Table of Contents









Advanced Lighting Technologies, Inc.




Condensed Consolidated Balance Sheets(in thousands, except per share amounts)


|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------- | ------- | ------------ | ------ | --------- | ------- | -------- | ------ | 
|                                                                                                                                                                                                                       |                                                                          |                                   |         | (Unaudited)  |        | (Audited)
|                                                                                                                                                                                                                       |                                                                          |                                   |         | December 31, |        | June 30, 
|                                                                                                                                                                                                                       |                                                                          |                                   |         | 2001         |        | 2001     
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |          
|Assets                                                                                                                                                                                                                 |                                                                          |                                   |         |              |        |           |         |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Current assets:                                                                                                                                                                                                        |                                                                          |                                   |         |              |        |           |         |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Cash and cash equivalents                                                |                                   | $       | 1,875        |        |           | $       | 3,652    |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Trade receivables, less allowances of $1,846 and $1,248                  |                                   |         | 27,441       |        |           |         | 32,762   |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Inventories:                                                             |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       |                                                                          | Finished goods                    |         |              | 20,152 |           |         |          | 27,122 | 
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       |                                                                          | Raw materials and work-in-process |         |              | 11,163 |           |         |          | 22,207 | 
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          |                                   | 31,315  |              |        |           | 49,329  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Prepaid expenses                                                         |                                   |         | 2,193        |        |           |         | 3,140    |       
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|Total current assets                                                                                                                                                                                                   |                                                                          |                                   | 62,824  |              |        |           | 88,883  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Property, plant and equipment:                                                                                                                                                                                         |                                                                          |                                   |         |              |        |           |         |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Land and buildings                                                       |                                   |         | 28,040       |        |           |         | 44,399   |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Machinery and equipment                                                  |                                   |         | 78,039       |        |           |         | 84,116   |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Furniture and fixtures                                                   |                                   |         | 15,761       |        |           |         | 21,830   |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Assets held for sale                                                     |                                   |         | 5,454        |        |           |         | 2,479    |       
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          |                                   | 127,294 |              |        |           | 152,824 |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Less accumulated depreciation                                            |                                   |         | 27,355       |        |           |         | 30,734   |       
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          |                                   | 99,939  |              |        |           | 122,090 |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Receivables from related parties                                                                                                                                                                                       |                                                                          |                                   | 1,421   |              |        |           | 2,177   |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Investments in affiliates                                                                                                                                                                                              |                                                                          |                                   | 13,738  |              |        |           | 13,761  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Other assets                                                                                                                                                                                                           |                                                                          |                                   | 14,320  |              |        |           | 7,955   |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Intangible assets                                                                                                                                                                                                      |                                                                          |                                   | 3,362   |              |        |           | 30,890  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Excess of cost over net assets of businesses acquired, net                                                                                                                                                             |                                                                          |                                   | 4,197   |              |        |           | 50,245  |         
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          | $                                 | 199,801 |              |        | $         | 316,001 |         
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|Liabilities and shareholders equity                                                                                                                                                                                   |                                                                          |                                   |         |              |        |           |         |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Current liabilities:                                                                                                                                                                                                   |                                                                          |                                   |         |              |        |           |         |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Short-term debt and current portion of long-term debt                    |                                   | $       | 7,886        |        |           | $       | 8,858    |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Accounts payable                                                         |                                   |         | 15,035       |        |           |         | 20,944   |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Payables to related parties                                              |                                   |         | 791          |        |           |         | 1,200    |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Employee-related liabilities                                             |                                   |         | 2,766        |        |           |         | 3,759    |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Accrued income and other taxes                                           |                                   |         | 348          |        |           |         | 1,030    |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Other accrued expenses                                                   |                                   |         | 9,582        |        |           |         | 7,036    |       
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|Total current liabilities                                                                                                                                                                                              |                                                                          |                                   | 36,408  |              |        |           | 42,827  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Long-term debt                                                                                                                                                                                                         |                                                                          |                                   | 128,579 |              |        |           | 154,914 |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Minority interest                                                                                                                                                                                                      |                                                                          |                                   | 498     |              |        |           | 416     |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Preferred stock, $.001 par value, per share; 1,000 shares authorized;
761 Series A convertible redeemable shares issued and outstanding at
December 31, 2001 (redemption value  $24,431 at December 31, 2001)         |                                                                          |                                   | 20,901  |              |        |           | 19,554  |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|Common shareholders equity
Common stock, $.001 par value, 80,000 shares authorized,
23,432 shares issued and     outstanding as of December 31, 2001
and 23,288 shares issued and outstanding as of     June 30, 2001 |                                                                          |                                   | 23      |              |        |           | 23      |         
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Paid-in-capital                                                          |                                   |         | 216,019      |        |           |         | 217,030  |       
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Accumulated other comprehensive income (loss)                            |                                   |         | (4,325       | )      |           |         | (5,058   | )     
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Loan and interest receivable from officer, less reserve of $4,600 and $0 |                                   |         | (9,545       | )      |           |         | (13,140  | )     
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                      
|                                                                                                                                                                                                                       | Retained earnings (deficit)                                              |                                   |         | (188,757     | )      |           |         | (100,565 | )     
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          |                                   | 13,415  |              |        |           | 98,290  |         
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       
|                                                                                                                                                                                                                       |                                                                          | $                                 | 199,801 |              |        | $         | 316,001 |         
|                                                                                                                                                                                                                       |                                                                          |                                   |         |              |        |           |         |          |       

See notes to condensed consolidated financial statements

2



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##### Table of Contents



Advanced Lighting Technologies, Inc.




Condensed Consolidated Statements of Operations (Unaudited)(In thousands, except per share dollar amounts)


|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | - | ------------------ | ------ | ---------------- | - | ------ | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                |                                                              |   | Three Months Ended |        | Six Months Ended
|                                                                                                |                                                              |   | December 31,       |        | December 31,    
|                                                                                                |                                                              |   |                    |        |                 
|                                                                                                |                                                              |   | 2001               |        | 2000             |   | 2001   |        | 2000
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |     
|Net sales                                                                                       |                                                              | $ | 48,804             |        |                  | $ | 57,036 |        |      | $ | 100,694 |        |   | $ | 110,807 |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Costs and expenses:                                                                             |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Cost of sales                                                |   |                    | 30,414 |                  |   |        | 33,630 |      |   |         | 63,317 |   |   |         | 65,494 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Marketing and selling                                        |   |                    | 10,113 |                  |   |        | 11,729 |      |   |         | 21,290 |   |   |         | 22,731 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Research and development                                     |   |                    | 2,497  |                  |   |        | 3,092  |      |   |         | 5,334  |   |   |         | 6,583  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative                                   |   |                    | 3,910  |                  |   |        | 3,301  |      |   |         | 8,255  |   |   |         | 7,008  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Provision for loan impairment                                |   |                    |       |                  |   |        |       |      |   |         | 4,600  |   |   |         |       |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Gain on settlement of lawsuit                                |   |                    |       |                  |   |        |       |      |   |         | (554   | ) |   |         |       |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Special charges                                              |   |                    |       |                  |   |        |       |      |   |         | 9,009  |   |   |         |       |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Amortization of intangible assets                            |   |                    | 86     |                  |   |        | 706    |      |   |         | 170    |   |   |         | 1,409  |  
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Income (loss) from operations                                                                   |                                                              |   | 1,784              |        |                  |   | 4,578  |        |      |   | (10,727 | )      |   |   | 7,582   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other income (expense):                                                                         |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest expense                                             |   |                    | (2,964 | )                |   |        | (3,463 | )    |   |         | (6,057 | ) |   |         | (7,227 | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest income                                              |   |                    | 36     |                  |   |        | 263    |      |   |         | 62     |   |   |         | 487    |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income (loss) from equity investments                        |   |                    | (145   | )                |   |        | (21    | )    |   |         | (211   | ) |   |         | 18     |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Gain from sale of fixture subsidiaries                       |   |                    | 227    |                  |   |        |       |      |   |         | 227    |   |   |         |       |  
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Income (loss) before income taxes, minority
interest and cumulative effect of accounting change |                                                              |   | (1,062             | )      |                  |   | 1,357  |        |      |   | (16,706 | )      |   |   | 860     |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense                                                                              |                                                              |   | 260                |        |                  |   | 77     |        |      |   | 234     |        |   |   | 97      |       
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Income (loss) before minority interest and
cumulative effect of accounting change               |                                                              |   | (1,322             | )      |                  |   | 1,280  |        |      |   | (16,940 | )      |   |   | 763     |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Minority interest in income of consolidated subsidiary                                          |                                                              |   | (43                | )      |                  |   | (20    | )      |      |   | (82     | )      |   |   | (24     | )     
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Income (loss) before cumulative
effect of accounting change                                     |                                                              |   | (1,365             | )      |                  |   | 1,260  |        |      |   | (17,022 | )      |   |   | 739     |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cumulative effect of accounting change                                                          |                                                              |   |                   |        |                  |   |       |        |      |   | (71,171 | )      |   |   |        |       
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Net income (loss)                                                                               |                                                              | $ | (1,365             | )      |                  | $ | 1,260  |        |      | $ | (88,193 | )      |   | $ | 739     |       
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Earnings (loss) per share  basic:                                                              |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income (loss) before cumulative
effect of accounting changes |   | $                  | (.09   | )                |   | $      | .03    |      |   | $       | (  .79 | ) |   | $       | (.02   | )
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                                | Earnings (loss) per share  basic                            |   | $                  | (.09   | )                |   | $      | (.21   | )    |   | $       | (3.84  | ) |   | $       | (.27   | )
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Earnings (loss) per share  diluted:                                                            |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income (loss) before cumulative
effect of accounting changes |   | $                  | (.09   | )                |   | $      | .03    |      |   | $       | (  .79 | ) |   | $       | (.02   | )
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                                | Earnings (loss) per share  diluted                          |   | $                  | (.09   | )                |   | $      | (.20   | )    |   | $       | (3.84  | ) |   | $       | (.27   | )
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|Weighted average shares outstanding:                                                            |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Basic                                                        |   |                    | 23,375 |                  |   |        | 22,343 |      |   |         | 23,346 |   |   |         | 21,655 |  
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       
|                                                                                                | Diluted                                                      |   |                    | 23,375 |                  |   |        | 23,454 |      |   |         | 23,346 |   |   |         | 21,655 |  
|                                                                                                |                                                              |   |                    |        |                  |   |        |        |      |   |         |        |   |   |         |       

3



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##### Table of Contents



Advanced Lighting Technologies, Inc.




Condensed Consolidated Statement of Shareholders Equity (Unaudited)
Six Months Ended December 31, 2001(in thousands)




|                                                                               |  |           |        |              |  |           |        |               |  |               |    |  |  |   |         |   |  |             |        |  
|------------------------------------------------------------------------------ |  | --------- | ------ | ------------ |  | --------- | ------ | ------------- |  | ------------- | -- |  |  | - | ------- | - |  | ----------- | ------ | -
|                                                                               |  |           |        |              |  |           |        |               |  |               |    |  |  |   |         |   |  | Accumulated
|                                                                               |  |           |        |              |  |           |        |               |  |               |    |  |  |   |         |   |  | Other      
|                                                                               |  | Preferred |        | Common Stock |  | Paid-In   |        | Comprehensive
|                                                                               |  | Stock     |        | Shares       |  | Par Value |        | Capital       |  | Income (Loss)
|                                                                               |  |           |        |              |  |           |        |               |  |              
|Balance at July 1, 2001                                                        |  | $         | 19,554 |              |  |           | 23,288 |               |  | $             | 23 |  |  | $ | 217,030 |   |  | $           | (5,058 | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net loss                                                                       |  |           |       |              |  |           |       |               |  |               |   |  |  |   |        |   |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Preferred shares accretion                                                     |  |           | 1,347  |              |  |           |       |               |  |               |   |  |  |   | (1,347  | ) |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Loan to officer                                                                |  |           |       |              |  |           |       |               |  |               |   |  |  |   |        |   |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Reserve for loan impairment                                                    |  |           |       |              |  |           |       |               |  |               |   |  |  |   |        |   |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Stock purchases by employees                                                   |  |           |       |              |  |           | 38     |               |  |               |   |  |  |   | 82      |   |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Stock issued to
employee benefit plan                                          |  |           |       |              |  |           | 106    |               |  |               |   |  |  |   | 254     |   |  |             |       |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Reversal of foreign currency
translation adjustments due
to sale of subsidiary |  |           |       |              |  |           |       |               |  |               |   |  |  |   |        |   |  |             | 573    |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Foreign currency
translation adjustment                                        |  |           |       |              |  |           |       |               |  |               |   |  |  |   |        |   |  |             | 160    |  
|                                                                               |  |           |        |              |  |           |        |               |  |               |    |  |  |   |         |   |  |             |        |  
|Balance at
December 31, 2001                                                   |  | $         | 20,901 |              |  |           | 23,432 |               |  | $             | 23 |  |  | $ | 216,019 |   |  | $           | (4,325 | )
|                                                                               |  |           |        |              |  |           |        |               |  |               |    |  |  |   |         |   |  |             |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                               |  |            |         |           |  |       |          |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ---------- | ------- | --------- |  | ----- | -------- | - |  | - | ------- | -
|                                                                               |  | Loan and   |         |           |  |       |          |   |  |  
|                                                                               |  | Interest   |         |           |  |       |          |   |  |  
|                                                                               |  | Receivable |         | Retained  |  |       |          |  
|                                                                               |  | From       |         | Earnings  |  |       |          |  
|                                                                               |  | Officer    |         | (Deficit) |  | Total
|                                                                               |  |            |         |           |  |      
|Balance at July 1, 2001                                                        |  | $          | (13,140 | )         |  | $     | (100,564 | ) |  | $ | 117,845 |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Net loss                                                                       |  |            |        |           |  |       | (88,193  | ) |  |   | (88,193 | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Preferred shares accretion                                                     |  |            |        |           |  |       |         |   |  |   |        |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Loan to officer                                                                |  |            | (1,005  | )         |  |       |         |   |  |   | (1,005  | )
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Reserve for loan impairment                                                    |  |            | 4,600   |           |  |       |         |   |  |   | 4,600   |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Stock purchases by employees                                                   |  |            |        |           |  |       |         |   |  |   | 82      |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Stock issued to
employee benefit plan                                          |  |            |        |           |  |       |         |   |  |   | 254     |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Reversal of foreign currency
translation adjustments due
to sale of subsidiary |  |            |        |           |  |       |         |   |  |   | 573     |  
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Foreign currency
translation adjustment                                        |  |            |        |           |  |       |         |   |  |   | 160     |  
|                                                                               |  |            |         |           |  |       |          |   |  |   |         |  
|Balance at
December 31, 2001                                                   |  | $          | (9,545  | )         |  | $     | (188,757 | ) |  | $ | 34,316  |  
|                                                                               |  |            |         |           |  |       |          |   |  |   |         |  

See notes to condensed consolidated financial statements

4



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##### Table of Contents



Advanced Lighting Technologies, Inc.




Condensed Consolidated Statements of Cash Flows (Unaudited)(in thousands)


|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |          |   |       |         |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------------- |  | -------------------- | --------------------------------------------------- | - | ---------------- | ------- | -------- | - | ----- | ------- | -
|                                               |                                                                                                    |  |                      |                                                     |   | Six Months Ended
|                                               |                                                                                                    |  |                      |                                                     |   | December 31,    
|                                               |                                                                                                    |  |                      |                                                     |   |                 
|                                               |                                                                                                    |  |                      |                                                     |   | 2001             |         | 2000    
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|Operating
activities                           |                                                                                                    |  |                      |                                                     |   |                  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Net income (loss)                                                                                  |  | $                    | (88,193                                             | ) |                  | $       | 739      |  
|                                              
|                                              
|                                              
|                                              
|                                               | Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |  |                      |                                                     |   |                  |         |          |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Depreciation                                        |   |                  | 3,981   |          |   |       | 4,138   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Amortization                                        |   |                  | 170     |          |   |       | 1,409   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Provision for doubtful accounts                     |   |                  | 1,113   |          |   |       | 152     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Loss (income) from equity investment                |   |                  | 211     |          |   |       | (18     | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Gain on sale of subsidiaries                        |   |                  | (227    | )        |   |       |        |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Cumulative effect of accounting change              |   |                  | 71,171  |          |   |       |        |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Special charges                                     |   |                  | 4,337   |          |   |       |        |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Provision for loan impairment                       |   |                  | 4,600   |          |   |       |        |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Changes in operating assets and liabilities:        |   |                  |         |          |   |       |         |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Trade receivables                                   |   |                  | (1,189  | )        |   |       | (2,229  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Inventories                                         |   |                  | 2,459   |          |   |       | 2,750   |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Prepaids and other assets                           |   |                  | 204     |          |   |       | 272     |  
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Accounts payable and accrued expenses               |   |                  | (375    | )        |   |       | (7,934  | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Liabilities related to special charges              |   |                  | 2,858   |          |   |       | (70     | )
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  |                      | Other                                               |   |                  | 552     |          |   |       | (1,214  | )
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|                                               |                                                                                                    |  |                      | Net cash provided by (used in) operating activities |   |                  | 1,672   |          |   |       | (2,005  | )
|                                              
|                                              
|                                              
|                                              
|Investing activities                           |                                                                                                    |  |                      |                                                     |   |                  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Capital expenditures                                                                               |  |                      | (8,482                                              | ) |                  |         | (10,718  | )
|                                              
|                                              
|                                              
|                                              
|                                               | Investment in affiliates                                                                           |  |                      | (88                                                 | ) |                  |         |         |  
|                                              
|                                              
|                                              
|                                              
|                                               | Net proceeds from sale of subsidiaries                                                             |  |                      | 24,166                                              |   |                  |         |         |  
|                                              
|                                              
|                                              
|                                              
|                                               | Purchases of businesses                                                                            |  |                      |                                                    |   |                  |         | (366     | )
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|                                               |                                                                                                    |  |                      | Net cash provided by (used in) investing activities |   |                  | 15,596  |          |   |       | (11,084 | )
|                                              
|                                              
|                                              
|                                              
|Financing activities                           |                                                                                                    |  |                      |                                                     |   |                  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from revolving credit facility                                                            |  |                      | 95,162                                              |   |                  |         | 110,102  |  
|                                              
|                                              
|                                              
|                                              
|                                               | Payments of revolving credit facility                                                              |  |                      | (100,531                                            | ) |                  |         | (116,025 | )
|                                              
|                                              
|                                              
|                                              
|                                               | Proceeds from long-term debt                                                                       |  |                      | 84                                                  |   |                  |         | 173      |  
|                                              
|                                              
|                                              
|                                              
|                                               | Payments of long-term debt and capital leases                                                      |  |                      | (13,092                                             | ) |                  |         | (3,259   | )
|                                              
|                                              
|                                              
|                                              
|                                               | Loan to officer                                                                                    |  |                      | (1,004                                              | ) |                  |         | (1,900   | )
|                                              
|                                              
|                                              
|                                              
|                                               | Net proceeds from public offering                                                                  |  |                      |                                                    |   |                  |         | 22,900   |  
|                                              
|                                              
|                                              
|                                              
|                                               | Issuance of common stock                                                                           |  |                      | 336                                                 |   |                  |         | 514      |  
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|                                               |                                                                                                    |  |                      | Net cash provided by (used in) financing activities |   |                  | (19,045 | )        |   |       | 12,505  |  
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|Decrease in cash and cash equivalents          |                                                                                                    |  | (1,777               | )                                                   |   |                  | (584    | )       
|                                              
|                                              
|                                              
|                                              
|Cash and cash equivalents, beginning of period |                                                                                                    |  | 3,652                |                                                     |   |                  | 3,890   |         
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|                                               |                                                                                                    |  |                      | Cash and cash equivalents, end of period            |   | $                | 1,875   |          |   | $     | 3,306   |  
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|Supplemental
cash flow information             |                                                                                                    |  |                      |                                                     |   |                  |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Interest paid        |                                                     | $ | 6,252            |         |          | $ | 7,058 |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Income taxes paid    |                                                     |   | 88               |         |          |   | 24    |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Capitalized interest |                                                     |   | 603              |         |          |   | 188   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Details of acquisitions                                                                            |  |                      |                                                     |   |                  |         |         
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Assets acquired      |                                                     |   |                 |         |          | $ | 899   |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Liabilities assumed  |                                                     |   |                 |         |          |   | (288  | )      
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                    |  | Stock or debt issued |                                                     |   |                 |         |          |   | (245  | )      
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         
|                                               |                                                                                                    |  |                      | Net cash paid for acquisitions                      |   |                  |        |          |   | $     | 366     |  
|                                               |                                                                                                    |  |                      |                                                     |   |                  |         |         

See notes to condensed consolidated financial statements

5



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##### Table of Contents



Advanced Lighting Technologies, Inc.




Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)


A. Organization

Advanced Lighting Technologies, Inc. (the Company or ADLT) is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems and equipment. The
Company also develops, manufactures and markets passive optical
telecommunications devices, components and equipment based on the optical
coating technologies of its wholly-owned subsidiary, Deposition Sciences, Inc.

B. Basis of Presentation and Accounting Change

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
financial statements include all material adjustments necessary for a fair
presentation, including adjustments of a normal and recurring nature as well as
the special charges described in Note H, a gain on the settlement of a lawsuit,
the reserve for loan impairment described in Note G, and the effects of the
accounting change for goodwill and intangible assets acquired in a business
combination described below. For further information, refer to the
consolidated financial statements and notes thereto included in the companys
annual report on Form 10-K for the year ended June 30, 2001. Operating results
for the three months and six months ended December 31, 2001 are not necessarily
indicative of the results that may be expected for the full-year ending June
30, 2002.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect reported amounts and related disclosures. Actual results could
differ from those estimates.

Accounting Change  Goodwill and Intangible Assets

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 141, Business Combinations, and FAS
142, Goodwill and Intangible Assets. FAS 141 is effective for all business
combinations completed after June 30, 2001 and requires using the purchase
method of accounting. The pooling of interest method of accounting is
prohibited except for transactions initiated before July 1, 2001.

FAS 142 is effective for fiscal years beginning after December 15, 2001,
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of FAS
142. Early adoption of FAS 142 is permitted. Major provisions of FAS 142

6



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

B. Basis of Presentation and Change in Accounting Principles (continued)

require intangible assets acquired in a business combination to be recorded
separately from goodwill if they arise from contractual or other legal rights
or are separable from the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as part of a related
contract, asset or liability. In addition, goodwill, as well as intangible
assets with indefinite lives, will no longer be subject to amortization
effective July 1, 2001. Finally, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator. Previously, the Company measured goodwill and
intangibles (to be held and used) with indefinite lives for impairment using
undiscounted cash flows under the guidance of FAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

The Company adopted FAS 142 as of July 1, 2001. The Company evaluated goodwill
of $66,172 and intangible assets with indefinite lives of $11,874, which
represents tradenames. The Company used third party appraisals and expected
future discounted cash flows to determine the fair value of the reporting units
and whether any impairment of goodwill or indefinite lived intangible assets
existed as of the above date. As a result of this evaluation, the Company
recorded a cumulative effect of change in accounting principle for the
estimated impairment of goodwill and other indefinite lived intangible assets
of $71,171, or $(3.05) per share, as of the beginning of fiscal 2002. Also,
the impact of adopting FAS 142 was to reduce amortization and, consequently,
the loss before cumulative effect of accounting change for the second quarter
of fiscal 2002 by $459, or $.02 per share. The impact of adopting FAS 142 was
to reduce the loss before cumulative effect of accounting change for the first
six months of fiscal 2002 by $1,098, or $.05 per share. Amortization of
intangible assets in the second quarter of fiscal 2001 would have been $88, a
reduction of $618, or $.03 per share if the accounting change related to
acquired intangible amortization required by FAS 142 had been applied to that
quarter. Amortization of intangible assets in the first six months of fiscal
2001 would have been $176, a reduction of $1,233, or $.06 per share if the
accounting change related to acquired intangible amortization required by FAS
142 had been applied to that period.

Financial Statement Presentation Changes

Certain amounts for prior periods have been reclassified to conform to the
current period reporting presentation.

C. Comprehensive Income (Loss)

For the three- and six-months ended December 31, 2001 the Companys
comprehensive income (loss) was $(867) and $(87,460), respectively. For the
three- and six-months ended December 31, 2000, the Companys comprehensive
income (loss) was $1,708 and $(190), respectively. These amounts include net
income (loss) and the Companys other component of comprehensive income,
foreign currency translation adjustments.

7



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

D. Bank Credit Facility and Senior Notes

The Company maintained a Bank Credit Facility with a $40,000 revolving credit
loan and $25,000 term loan provided by several financial institutions.
Interest rates on revolving credit loans outstanding were based, at the
Companys option, on LIBOR plus 2.25% or the agent banks prime rate. Under the
term loan, the Company pays monthly principal payments that total $3,576
annually, with the unpaid balance due at maturity. Interest rates on the term
loan were based, at the Companys option, on LIBOR plus 2.75% or the agent
banks prime rate.

During the quarter ended December 31, 2001, in connection with the sale of the
fixture subsidiaries, the Company amended the Bank Credit Facility to reduce
the revolving credit loan to $25,000 and the term loan to $13,000 and change
certain covenants under the agreement. Availability of borrowings under the
revolving credit loan is determined by the Companys eligible account
receivables and inventories. Interest rates on the revolving credit loans
outstanding are based, at the Companys option, on LIBOR plus 2.75% or the
agent banks prime rate. Interest rates on the term loan are based, at the
Companys option, on LIBOR plus 3.25% or the agent banks prime rate. The Bank
Credit Facility matures on July 1, 2004.

The Bank Credit Facility contains certain affirmative and negative covenants
customary for this type of agreement, prohibits cash dividends, and includes
financial covenants with respect to the coverage of certain fixed charges. The
principal security for the revolving credit loan is substantially all of the
personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the
Companys machinery and equipment and is cross-collateralized and secured with
the revolving credit loan.

The Company has $100,000 of 8% Senior Notes due March 15, 2008. The notes are
redeemable at the Companys option, in whole or in part, on or after March 15,
2003 at certain preset redemption prices. Interest on the Senior Notes is
payable semiannually on March 15 and September 15 of each year. There are no
sinking fund requirements.

The Notes Indenture contains covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined therein) to
incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, make investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and, with respect to the Company,
engage in mergers and consolidations.

E. General Electric Company Investment

In October 1999, General Electric Company (GE) completed an investment in the
Company of $20,554. In exchange for the investment, GE received 761,250 shares
of the Companys newly created Series A Preferred Stock convertible at any time
into 3,045,000 shares of Company Common Stock (subject to adjustment). GE also
received a Warrant (the Initial Warrant) to purchase an additional 1,000,000
shares of Company Common Stock (subject to adjustment), which GE has

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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

E. General Electric Company Investment (continued)

fully exercised to acquire 998,703 shares of Common Stock of the Company. GE
now holds 1,429,590 shares of Company Common Stock. The Series A Stock and
the Common Stock held by GE represent approximately 17.0% of the voting power
and equity ownership of the Company at December 31, 2001.

The Series A Stock has a liquidation preference of $27 per share, plus an
amount equal to 8% per annum compounded annually from the date of issuance to
the date of payment. The Company is required to redeem any shares of Series A
Stock which have not been converted or retired on September 30, 2010. In
addition, GE may, by notice, require the Company to redeem the outstanding
Series A Stock, within one year following either September 30, 2004, or the
occurrence of certain corporate events.

If the Company fails to maintain certain financial ratios over certain
measurement periods, GE will have the right to acquire a combination of
subscription rights to additional shares and proxies with respect to shares
voted by the Chief Executive Officer (CEO) of the Company and Alan J. Ruud,
giving GE the ability to obtain the majority of the voting power of the
Company. The basis for GEs additional rights will be the failure of the
Company to maintain a 2.0 to 1.0 ratio of EBITDA to Interest Expense, as
defined, over the applicable measurement periods. The first measurement period
was the six months ended December 31, 1999. Thereafter, the measurement periods
are the six months ending on the last day of each successive fiscal quarter
until September 30, 2010 (excluding the six month periods ended on June 30,
2000, September 30, 2000, June 30, 2001, September 30, 2001, and December 31,
2001, as amended by agreements between GE and the Company).

A measurement period for which the Company fails to maintain the required ratio
is referred to as an Occurrence, however, if the Company maintains a 2.0 to
1.0 ratio in the three fiscal quarters immediately prior to a failure, a
Second Occurrence or Third Occurrence, as the case may be, would not be
effective. The First Occurrence was effective in the six-month measurement
period ended December 31, 1999. The ratio for the six months ended December
31, 2001, was (1.20) to 1.0 (1.24 to 1.0 for the quarter ended December 31,
2001 and (3.52) to 1.0 for the quarter ended September 30, 2001).

A Second Occurrence would: (i) give GE the ability to vote the number of
shares currently voted by the CEO of the Company, approximately 2.8 million
shares at September 30, 2001, (ii) give GE the option to purchase shares from
the CEO of the Company and Alan J. Ruud which, together with the shares owned
by GE, would represent 25% of the voting power of the Company, and (iii)
require the Company to grant GE an additional warrant to purchase shares, at
the then current market price, approximating 5,506,190 shares at December 31,
2001. The ability to vote the shares, purchase shares or obtain the warrant
would be dependent upon compliance with antitrust laws. GE is not required to
purchase additional shares of the Company. If GE owns and/or obtains the
immediate

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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

E. General Electric Company Investment (continued)

right to acquire and/or vote in excess of 35% of the voting power of the
Company, the terms of the Indenture relating to the Companys Senior Notes
would require that the Company offer to repurchase the $100,000 principal
amount of outstanding Senior Notes due 2008 at a price of 101% of the principal
amount thereof, plus accrued interest, and the Companys banks will have the
ability to demand payment of the Bank Credit Facility. Upon a Third
Occurrence, GE would have the right to vote shares currently voted by Alan J.
Ruud and be granted a warrant to purchase (at the then current market price)
additional shares of Common Stock sufficient in number to give GE 50% plus one
vote of the voting power of the Company.

As described above, the terms of the Series A Preferred Stock permit the holder
to require the Company to redeem the Series A Preferred Stock, in whole or in
part, if the Company authorizes or issues common stock or warrants or options
to purchase common stock, with certain exceptions. The holder has 90 days to
exercise its right. Pursuant to the terms of the Series A Preferred Stock, if
the holder exercises the right to require redemption, the Company is not
required to redeem the Series A Preferred Stock for a period of one year, or
thereafter, so long as the redemption would cause an event of default under the
Companys indebtedness, including its Bank Credit Facility and its Indenture
relating to its 8% Senior Notes due 2008. The Bank Credit Facility and
Indenture restrictions on redemption of stock are similar to the restrictions
on payment of dividends.

F. Issuance of Common Stock

On August 31, 2000, the Company completed a public offering of 1,700,000 shares
of its common stock at a price of $15.00 per share under a $300,000 shelf
registration filed with the Securities and Exchange Commission that became
effective in July 2000.

The public offering reduced the amount available for the issuance of various
debt and equity securities under the shelf registration statement to
approximately $274,500. The Company initially used the net proceeds from the
public offering of approximately $22,900 to repay revolving credit loan
borrowings. The Company has expended substantially the entire amount as of
December 31, 2001 on capital improvements, including optical coating production
equipment, filter testing and measurement equipment, and production facilities,
and on research and development in its telecommunications business unit.

In addition to the $300,000 shelf registration discussed above, in July 2000 a
$100,000 shelf registration became effective under which the Company may from
time-to-time issue various debt and equity securities to acquire assets,
businesses or securities. The Company has no outstanding securities issued
under this registration statement.

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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

G. Related Party Transaction

Pursuant to an agreement dated October 8, 1998, as amended, between the Company
and its Chairman and Chief Executive Officer (the CEO), the Company,
following approval by the Companys Board of Directors, has loaned a total of
$14,145 to its CEO at an interest rate of 8%. The proceeds of the loan have
been used by the Companys CEO to reduce the principal balance outstanding of
margin loan accounts, which are secured by 1,042,492 shares of the Companys
Common Stock owned by the CEO and a related entity. In connection with the
loan, the Companys Board of Directors obtained the CEOs agreement to an
extension of his employment agreement to December 31, 2003. The loan agreement
prohibits the CEO from encumbering his shares of the Companys Common Stock in
any manner except pursuant to the existing agreements governing the CEOs
margin accounts, without the consent of the Companys Board of Directors.

The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
On January 22, 2002, the Board and CEO agreed in principle to a plan that
extends the maturity of the loan to July 31, 2007. Under the terms of the
plan, the CEO will sell certain assets in an orderly manner in order to
maximize the net proceeds, which will be used to pay a portion of the loan.
The CEO will continue his 10b5-1 plan to sell shares he now owns pursuant to
Rule 144 when the stock price exceeds $15 per share. In addition, the CEO will
be expected to apply after-tax cash bonuses earned from the Company toward
repayment of the loan. Interest on the loan in the future will accrue at the
same rate that the Company pays on its revolving credit loan. The loan will be
repayable immediately if the CEO ceases to be employed by the Company. The
Board reserved the right to demand payment to prevent an unacceptable strain on
cash resources.

The Companys ability to collect amounts due according to the contractual terms
of the loan agreement is largely dependent on the ultimate realization from the
sale of assets owned by the CEO, including the CEOs investment in common stock
of the Company. When determining the fair value of investments in common
stock, the Company considers both the current market price and also volatility
in the stock price over the period in which the Company estimates it would take
to sell those shares into the market.

Loan receivables are measured for impairment based on either the present value
of expected future cash flows discounted at the loans effective interest rate
or the fair value of the underlying collateral or other assets available to
repay the loan. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company evaluates the collectibility of both the interest and
principal when assessing the need for a possible impairment on the loan. In
the quarter ended September 30, 2001, in accordance with the provisions of FAS
Statement No. 5, Accounting for Contingencies, and FAS Statement No. 114,
Accounting by Creditors for Impairment of a Loan, the Company recorded a
valuation reserve for an impaired loan of $4,600 related to the amount by which
the carrying value of the loan exceeded the underlying fair value of the assets
available to repay the loan. In the six months ended December 31, 2001, no
interest was recognized or paid on the loan. The Company will recognize
recoveries on amounts previously reserved for after considering both the fair
value of the underlying assets and evidence of repayments on the loan.

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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

H. Special Charges

During the quarter ended September 30, 2001, the Company recorded special
charges related to changes in its operations, which are intended to improve
efficiencies and reduce costs world-wide. The special charges principally
relate to consolidating the Companys power supply manufacturing operations
into its high-efficiency facility in Chennai (Madras), India; reducing staffing
levels at most locations and evaluating certain equipment and investments in
light of its long-term strategies.

The special charges were determined in accordance with formal plans developed
by the Companys management, approved by the CEO and subsequently reviewed with
the Companys Board of Directors using the best information available to it at
the time. Actions associated with closing facilities began in the first
quarter and are expected to be substantially completed by the end of fiscal
2002. A total of approximately 250 employees were terminated enterprise-wide
from almost all units of the Company. Assets related to the above actions are
no longer in use or are held for sale and were written-down to their estimated
fair values. The amount the Company will ultimately incur may change as the
Companys plans are executed and actions are completed.

Details of the actions and related special charges recorded during the six
months ended December 31, 2001 are summarized as follows:

|                                              |                               |         |       |         |         |          |       |               |                |   |       |     |  |   |       |       | 
|--------------------------------------------- | ----------------------------- | ------- | ----- | ------- | ------- | -------- | ----- | ------------- | -------------- | - | ----- | --- |  | - | ----- | ----- | 
|                                              |                               |         | Total |         | Noncash |          | Cash  |               | Liabilities at
|Description                                   |                               | Charges |       | Charges |         | Payments |       | Dec. 31, 2001
|                                              |                               |         |       |         |         |          |       |              
|Consolidate power supply operations
Severance |                               | $       | 1,243 |         |         | $        |      |               |                | $ | 1,015 |     |  | $ | 228   |      
|                                             
|                                             
|                                             
|                                             
|                                              | Lease cancelations            |         |       | 1,835   |         |          |       |              |                |   |       | 90  |  |   |       | 1,745 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Write-down of assets          |         |       | 2,579   |         |          |       | 2,579         |                |   |       |    |  |   |       |      | 
|                                             
|                                             
|                                             
|                                             
|                                              | Shut-down costs of facilities |         |       | 265     |         |          |       |              |                |   |       | 113 |  |   |       | 152   | 
|                                             
|                                             
|                                             
|                                             
|Reduce staffing requirements                  |                               |         | 2,017 |         |         |          |      |               |                |   | 1,284 |     |  |   | 733   |      
|                                             
|                                             
|                                             
|                                             
|Impairment of long-lived assets               |                               |         | 1,425 |         |         |          | 1,425 |               |                |   |      |     |  |   |      |      
|                                             
|                                             
|                                             
|                                             
|Other                                         |                               |         | 333   |         |         |          | 333   |               |                |   |      |     |  |   |      |      
|                                              |                               |         |       |         |         |          |       |               |                |   |       |     |  |   |       |      
|                                              |                               | $       | 9,697 |         |         | $        | 4,337 |               |                | $ | 2,502 |     |  | $ | 2,858 |      
|                                              |                               |         |       |         |         |          |       |               |                |   |       |     |  |   |       |      

Total special charges for the six months ended December 31, 2001 of $9,697 are
classified in the consolidated statement of operations as cost of sales ($688)
and special charges ($9,009).

12



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

I. Earnings Per Share

Earnings (loss) per share is computed as follows:

|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |        |        |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | ----------------------------- | ------------------------------------------------------------------------------------------------------------------ | ------ | ------------------ | ------ | ---------------- | ------ | ------ | ------ | ------ | ------- | ------ | ------ | ---- | ------ | ------ | ------ | -
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        | Three Months Ended |        | Six Months Ended
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        | December 31,       |        | December 31,    
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                 
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        | 2001               |        | 2000             |        | 2001   |        | 2000  
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |       
|Income available to common shareholders:                              |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Income (loss) before cumulative effect of accounting change |                               | $                                                                                                                  | (1,365 | )                  |        | $                | 1,260  |        |        | $      | (17,022 | )      |        | $    | 739    |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Cumulative effect of accounting change                      |                               |                                                                                                                    |       |                    |        |                  |       |        |        |        | (71,171 | )      |        |      |       |       
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      |                                                                                                                    | Net income (loss)                                           |                               |                                                                                                                    | (1,365 | )                  |        |                  | 1,260  |        |        |        | (88,193 | )      |        |      | 739    |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Less: Preferred shares accretion                            |                               |                                                                                                                    | (694   | )                  |        |                  | (648   | )      |        |        | (1,347  | )      |        |      | (1,258 | )     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    |                                                             |                               | Additional preferred shares accretion from
cumulative effect of accounting change
for beneficial conversion option |        |                    |       |                  |        |        | (5,329 | )      |         |        |       |      |        |        | (5,329 | )
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      |                                                                                                                    | Net income (loss) attributable to common shareholders       |                               | $                                                                                                                  | (2,059 | )                  |        | $                | (4,717 | )      |        | $      | (89,540 | )      |        | $    | (5,848 | )     
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|Weighted average shares  basic                                       |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Outstanding at beginning of period                          |                               |                                                                                                                    | 23,354 |                    |        |                  | 20,482 |        |        |        | 23,288  |        |        |      | 20,482 |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Issued pursuant to public offering                          |                               |                                                                                                                    |       |                    |        |                  | 1,700  |        |        |        |        |        |        |      | 1,081  |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Issued for exercise of warrant                              |                               |                                                                                                                    |       |                    |        |                  | 141    |        |        |        |         |        |        |      | 70     |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Issued for exercise of stock options                        |                               |                                                                                                                    |       |                    |        |                  |       |        |        |        |        |        |        |      | 10     |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Issued pursuant to employee stock purchase plan             |                               |                                                                                                                    | 8      |                    |        |                  | 6      |        |        |        | 17      |        |        |      | 3      |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Issued pursuant to 401(k) plan                              |                               |                                                                                                                    | 13     |                    |        |                  | 14     |        |        |        | 41      |        |        |      | 9      |       
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      |                                                                                                                    |                                                             | Basic weighted average shares |                                                                                                                    |        | 23,375             |        |                  |        | 22,343 |        |        |         | 23,346 |        |      |        | 21,655 |       
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|Weighted average shares  diluted                                     |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Basic from above                                            |                               |                                                                                                                    | 23,375 |                    |        |                  | 22,343 |        |        |        | 23,346  |        |        |      | 21,655 |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Effect of warrant prior to exercise                         |                               |                                                                                                                    |       |                    |        |                  | 858    |        |        |        |        |        |        |      |       |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      |                                                                                                                    | Effect of stock options                                     |                               |                                                                                                                    |       |                    |        |                  | 253    |        |        |        |        |        |        |      |       |       
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      |                                                                                                                    |                                                             |                               | Diluted weighted average shares                                                                                    |        |                    | 23,375 |                  |        |        | 23,454 |        |         |        | 23,346 |      |        |        | 21,655 |  
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|Earnings (loss) per share  basic:                                    |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Income (loss) before cumulative effect of accounting changes                                                       |                                                             | $                             | (.06                                                                                                               | )      |                    | $      | .06              |        |        | $      | (  .73 | )       |        | $      | .04  |       
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Preferred shares accretion                                                                                         |                                                             |                               | (.03                                                                                                               | )      |                    |        | (.03             | )      |        |        | (.06   | )       |        |        | (.06 | )     
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      | Income (loss) before cumulative effect of accounting
changes including preferred shares accretion                  |                                                             |                               | (.09                                                                                                               | )      |                    |        | .03              |        |        |        | (.79   | )       |        |        | (.02 | )     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Cumulative effect of accounting change                                                                             |                                                             |                               |                                                                                                                   |        |                    |        |                 |        |        |        | (3.05  | )       |        |        |     |       
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|                                                                      | Earnings (loss) per share before cumulative effect of
accounting change for beneficial conversion option           |                                                             |                               | (.09                                                                                                               | )      |                    |        | .03              |        |        |        | (3.84  | )       |        |        | (.02 | )     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Additional preferred shares accretion from cumulative effect
of accounting change for beneficial conversion option |                                                             |                               |                                                                                                                   |        |                    |        | (.24             | )      |        |        |       |         |        |        | (.25 | )     
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       
|Earnings (loss) per share
attributable to common shareholders  basic |                                                                                                                    | $                                                           | (.09                          | )                                                                                                                  |        | $                  | (.21   | )                |        | $      | (3.84  | )      |         | $      | (.27   | )   
|                                                                      |                                                                                                                    |                                                             |                               |                                                                                                                    |        |                    |        |                  |        |        |        |        |         |        |        |      |        |       

13



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

I. Earnings Per Share (continued)

|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |      |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | - | ------------------ | ---- | ---------------- | - | ---- | ---- | ---- | - | ----- | ------ | - | - | ---- | ---- | -
|                                                                      |                                                                                                                    |   | Three Months Ended |      | Six Months Ended
|                                                                      |                                                                                                                    |   | December 31,       |      | December 31,    
|                                                                      |                                                                                                                    |   |                    |      |                 
|                                                                      |                                                                                                                    |   | 2001               |      | 2000             |   | 2001 |      | 2000
|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |     
|Earnings (loss) per share  diluted:                                  |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |     
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Income (loss) before cumulative effect of accounting changes                                                       |   | $                  | (.06 | )                |   | $    | .06  |      |   | $     | (  .73 | ) |   | $    | .04  |  
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Preferred shares accretion                                                                                         |   |                    | (.03 | )                |   |      | (.03 | )    |   |       | (.06   | ) |   |      | (.06 | )
|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |      |  
|                                                                      | Income (loss) before cumulative effect of accounting
changes including preferred shares accretion                  |   |                    | (.09 | )                |   |      | .03  |      |   |       | (.79   | ) |   |      | (.02 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Cumulative effect of accounting change                                                                             |   |                    |     |                  |   |      |     |      |   |       | (3.05  | ) |   |      |     |  
|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |      |  
|                                                                      | Earnings (loss) per share before cumulative effect of
accounting change for beneficial conversion option           |   |                    | (.09 | )                |   |      | .03  |      |   |       | (3.84  | ) |   |      | (.02 | )
|                                                                     
|                                                                     
|                                                                     
|                                                                     
|                                                                      | Additional preferred shares accretion from cumulative effect
of accounting change for beneficial conversion option |   |                    |     |                  |   |      | (.23 | )    |   |       |       |   |   |      | (.25 | )
|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |      |  
|Earnings (loss) per share
attributable to common shareholders  basic |                                                                                                                    | $ | (.09               | )    |                  | $ | (.20 | )    |      | $ | (3.84 | )      |   | $ | (.27 | )   
|                                                                      |                                                                                                                    |   |                    |      |                  |   |      |      |      |   |       |        |   |   |      |      |  

The diluted weighted average shares calculation excludes the antidilutive
effect of outstanding stock options and warrants which totaled 1,410 shares for
the six months ended December 31, 2000.

J. Sale of Subsidiaries

On December 12, 2001 the Company completed the sale of a significant portion of
its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and
Ruud Lighting Europe subsidiaries) to an investor group led by Alan J. Ruud.
From January 1998 until the time of the transaction, Mr. Ruud was a director of
the Company and served as Vice Chairman and Chief Operating Officer of the
Company and holds in excess of 5% of the Companys outstanding common stock.
The fixture subsidiaries assets consisted primarily of manufacturing
equipment, inventory and accounts receivable and the Ruud Lighting
manufacturing facility located in Racine, Wisconsin.

The consideration received by the Company consisted of a cash payment of
$28,000 (adjusted dollar for dollar to reflect the amount of any changes in
working capital and funded indebtedness between September 2, 2001 and December
3, 2001) and promissory notes totaling $6,000. Preliminary estimates of the
adjustment in the cash consideration resulted in a net reduction of $2,458 in
the cash received at closing. The preliminary estimates are subject to a
review process under the agreement that is expected to be completed prior to
year end. The notes will be payable December 1, 2006, although, upon receipt of
consent from the holders of its 8% Senior Notes, the Company may require
payment of $3,000 in principal amount by surrender of 1,500,000 shares of
Company common stock at any time prior to December 1, 2002. As part of this
transaction, funded indebtedness of $9,005 continued to be the obligation of
Ruud Lighting and the Company retained title to the Rhode Island manufacturing
facility of Kramer Lighting. Upon sale of the facility, the Company will pay
Ruud Lighting the lesser of $500 or one-third of the net proceeds of the sale.

The sale of the subsidiaries resulted in a gain of $227 in the quarter ended
December 31, 2001. The final amount of proceeds to be received and gain or
loss realized will be based upon a review process under purchase
agreement that
is expected to be completed prior to year end.

14



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

K. Contingency

In April and May 1999, three class action suits were filed in the United States
District Court, Northern District of Ohio, by certain alleged shareholders of
the Company on behalf of themselves and purported classes consisting of Company
shareholders, other than the defendants and their affiliates, who purchased
stock during the period from December 30, 1997 through September 30, 1998 or
various portions thereof. A First Amended Class Action Complaint,
consolidating the three lawsuits, was filed on September 30, 1999, and the
action is now pending before a single judge. The named defendants in the case
 styled In re Advanced Lighting Technologies, Inc. Securities Litigation,
Master File No. 1:99CV836,pending before the United States District Court,
Northern District of Ohio  are the Company and its Chairman and Chief
Executive Officer (CEO).

The First Amended Class Action Complaint alleges generally that certain
disclosures attributed to the Company contained misstatements and omissions
alleged to be violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5, including claims for fraud on the market arising from
alleged misrepresentations and omissions with respect to the Companys
financial performance and prospects and alleged violations of generally
accepted accounting principles by, among other things, improperly recognizing
revenue and improper inventory accounting. The Complaint seeks certification
of the purported class, unspecified compensatory and punitive damages, pre- and
post-judgment interest and attorneys fees and costs.

The Company and the CEO believe that these claims lack merit, and intend to
continue to vigorously defend this action. The Company and its CEO filed a
Motion to Dismiss the Complaint, which was denied. The Company participated in
a mediation in December 2001 which did not result in a settlement of this
action. The case will now proceed.

On December 4 and December 12, 2001, separate lawsuits were filed in state and
Federal courts in Ohio by separate shareholders of the Company allegedly on
behalf of the Company, derivatively, against officers and directors of the
Company. The allegations in the two cases are substantially similar, and the
state case has been removed to the United States District Court, Northern
District of Ohio, where the two cases, Gobble v Hellman, et al. 1:02CV0076-AA
and Tanigawa v Ruud, et al. 1:01CV2807, are pending. The
Company is a nominal defendant in these actions. The individual defendants in the
Tanigawacase include, among others, Wayne R. Hellman, the Chief Executive Officer and
Chairman of the Board, who is also beneficial owner of more than 5% of the
outstanding common stock of the Company, Alan J. Ruud, former Chief Operating
Officer and Vice Chairman of the Board, who is also beneficial owner of more
than 5% of the outstanding common stock of the Company, and Messrs. Francis H.
Beam, John E. Breen, John R. Buerkle, Theodore A. Filson,
Louis S. Fisi, Thomas K. Lime and A Gordon Tunstall, directors of the Company.
The Gobble complaint names the same defendants, but also names Steven C. Potts,
who is Chief Financial Officer and is a director.

15



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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
December 31, 2001
(Dollars in thousands, except per share data)

K. Contingency (continued)

The suits allege breaches of duties by the defendants relating to the matters
which are the subject of The Advanced Lighting Technologies, Inc Securities
Litigation, to alleged insider trading by certain directors, to a loan made to
Mr. Hellman and to the sale of certain fixture facilities to an investment
group led by Mr. Ruud. The Complaints primarily seek unspecified  money or compensatory and
punitive damages and attorneys fees and costs.

The Company and the defendants believe that these claims lack merit and intend to vigorously defend these actions.

On January 10, 2002, an additional lawsuit was
filed in state court in Ohio by a shareholder of the Company
allegedly on behalf of the Company, derivatively, against officers
and directors of the Company. The allegations in the case are
substantially similar to the Gobble and Tanigawa cases.
The case is pending in the Common Pleas Court of the County of
Cuyahoga, Ohio, and is styled Miller v. Hellman, et al.,
02-458660-CV. The Company is a nominal defendant in this action. The
individual defendants in the Miller case include, among others, Wayne
R. Hellman, the Chief Executive Officer and Chairman of the Board,
who is also beneficial owner of more than 5% of the outstanding
common stock of the Company, Steven C. Potts, the Chief Financial
Officer and a director of the Company, Alan J. Ruud, former Chief
Operating Officer and Vice Chairman of the Board, who is also
beneficial owner of more than 5% of the outstanding common stock of
the Company, and Messrs. Francis H. Beam, John E. Breen, John R.
Buerkle, Theodore A. Filson, Louis S. Fisi, Thomas K. Lime and A
Gordon Tunstall, directors of the Company.

The Miller Complaint is substantially
similar to the Gobble and Tanigawa complaints and
primarily seeks
unspecified money damages and attorneys' fees and
costs. The Company and the defendants believe that these claims lack
merit and intend to vigorously defend this
action.

The Company, from time to time, is subject to routine litigation incidental to
its business. Although there can be no assurance as to the ultimate
disposition of routine litigation, management of the Company believes, based
upon information available at this time, that the ultimate outcome of these
matters will not have a material adverse effect on the operations and financial
condition of the Company.

16



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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.

(Dollar amounts in thousands, except per share amounts)


This report on Form 10-Q may contain forward-looking statements that involve
risks and uncertainties. Covenants in the Companys Bank Credit Facility, the
Indenture relating to the Companys 8% Senior Notes and the Companys
agreements with General Electric Company limit certain corporate actions. As a
result, implementation of certain strategic alternatives may require consent or
replacement of these ADLT financing sources. The Company has no assurance that
such consents or replacement financing can be obtained in a manner to permit
timely implementation of these strategic alternatives. Other risks and
uncertainties include the strength of the recovery of the U.S. economy, the
Companys financing plans, trends affecting the Companys financial condition
or results of operations, continued growth of the metal halide lighting market,
the Companys operating strategy and growth strategy, potential acquisitions or
joint ventures by the Company, the declaration and payment of dividends,
litigation affecting the Company, the timely development and market acceptance
of new products, the possibility that any success at Deposition Sciences, Inc.
(an ADLT subsidiary) will not be reflected in the value of the ADLT common
stock, the ability to provide adequate incentives to retain and attract key
employees, the impact of competitive products and pricing, and other risks
which are detailed in the Companys Form 10-K for the fiscal year ended June
30, 2001, in particular, see Risk Factors. For this purpose, any statement
contained herein that is not a statement of historical fact may be deemed to be
a forward-looking statement. Without limiting the foregoing, the words
believes, anticipates, plans, expects, and similar expressions are
intended to identify forward-looking statements. The Companys actual results
may differ materially from those indicated by such forward-looking statements
based on the factors outlined above.

The following is managements discussion and analysis of certain significant
factors which have affected the results of operations and should be read in
conjunction with the accompanying unaudited Condensed Consolidated Financial
Statements and notes thereto.

General

The Company designs, manufactures and markets metal halide lighting products,
including materials, systems and components. Metal halide lighting is
currently used primarily in commercial and industrial applications such as
factories and warehouses, outdoor site and landscape lighting, sports
facilities and large retail spaces such as superstores. The Company also
develops, manufactures, and markets passive optical telecommunications devices,
components and equipment based on the optical coating technologies of its
wholly owned subsidiary, Deposition Sciences, Inc. (DSI). Systems,
components and materials revenue is recognized when products are shipped, and
equipment revenue is recognized under the percentage of completion method.

Consistent with the Companys strategy for new product introductions, the
Company invests substantial resources in research and development to engineer
materials and system components to be included in customers specialized
lighting systems. Over the last three fiscal years, the Company has spent an
aggregate of $45,136 on research and development, representing 7% of aggregate
net sales over that period. Such expenditures have enabled the Company to
develop new applications for metal halide lighting, improve the quality of its
materials, and introduce new specialized products, such as the Uni-Form® pulse
start products. Uni-Form® pulse start products are a new generation of metal
halide components and systems which permit (a) increased light output with
lower power utilization, (b) faster starting, (c) a quicker restart of lamps
which have been recently turned off, and (d) better color uniformity. The
Company has spent additional amounts for manufacturing process

17



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##### Table of Contents



and efficiency enhancements, which were charged to cost of goods sold when
incurred. While research and development expenditures have declined over the
last three fiscal years in connection with the Companys commitment to generate
positive operating cash flow, the Company expects to continue to make
substantial expenditures on research and development to enhance its position as
the leading innovator in the metal halide lighting industry.

Recent Developments

Sale of Fixture Subsidiaries

On December 12, 2001 the Company completed the sale of a significant portion of
its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and
Ruud Lighting Europe subsidiaries) to an investor group led by Alan J. Ruud.
From January 1998 until the time of the transaction, Mr. Ruud was a director of
the Company and served as Vice Chairman and Chief Operating Officer of the
Company and holds in excess of 5% of the Companys outstanding common stock.
The fixture subsidiaries assets consisted primarily of manufacturing
equipment, inventory and accounts receivable and the Ruud Lighting
manufacturing facility located in Racine, Wisconsin.

The consideration received by the Company consisted of a cash payment of
$28,000 (adjusted dollar for dollar to reflect the amount of any changes in
working capital and funded indebtedness between September 2, 2001 and December
3, 2001) and promissory notes totaling $6,000. Preliminary estimates of the
adjustment in the cash consideration resulted in a net reduction of $2,458 in
the cash received at closing. The preliminary estimates are subject to a
review process under the agreement that is expected to be completed prior to
year end. The notes will be payable December 1, 2006, although, upon receipt
of consent from the holders of its 8% Senior Notes, the Company may require
payment of $3,000 in principal amount by surrender of 1,500,000 shares of
Company common stock at any time prior to December 1, 2002. As part of this
transaction, funded indebtedness of $9,005 continued to be the obligation of
Ruud Lighting and the Company retained title to the Rhode Island manufacturing
facility of Kramer Lighting. Upon sale of the facility, the Company will pay
Ruud Lighting the lesser of $500 or one-third of the net proceeds of the sale.

The sale of the subsidiaries resulted in a gain of $227 in the quarter ended
December 31, 2001. The final amount of proceeds to be received and gain or
loss realized will be based upon a review process under the purchase agreement,
and that is expected to be completed prior to year end.

Consolidation of Power Supply Production Operations and Restructuring of
Worldwide Operations

The Company has implemented plans to improve efficiencies in its power supply
business, reduce costs world-wide and assess certain equipment and investments
in light of its long-term strategies. The following paragraphs provide
information related to special charges as a result of certain actions taken by
the Company:



| |  | Centralize Certain Power Supply Manufacturing Operations into India
Operations.A charge of $5,922 was recorded in the first quarter of
fiscal 2002 relating to restructuring and centralizing certain power
supply manufacturing operations into the Companys high-efficiency and
low-cost manufacturing plant in Chennai (Madras), India. Of this charge,
costs of $2,301 were recorded for the closing of the Companys
manufacturing facilities in the United Kingdom, Australia and U.S.,
including costs of $2,036 associated with a non-cancelable lease.
Amounts related to the lease will be paid over the term of the lease,
which expires in 2006. Severance and benefits to approximately 160
terminated employees at the above locations totaled $1,243 and will be
paid by the end of fiscal 2002. Property,
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | primarily consisting of building, equipment and intangibles, was disposed
of or is for sale, and written down to net realizable value resulting in
a charge of $2,041. In addition, certain power supply product lines were
exited which resulted in a write-down of inventory of $337. This amount
is included in cost of goods sold.                                                                                                                                                                                                      
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Staffing Reductions.During the first quarter of fiscal 2002 a program
was completed to reduce the number of employees across all business
units. Approximately 90 employees, exclusive of the above-noted
employees, were terminated and total severance and benefits costs for
this program were $2,017. All employees will be paid by the end of
fiscal 2002.                                                                                                                                                                             
|
| |  | Write-off of Long-lived Assets and Other Charges.Due to the decline in
current business conditions, certain long-lived assets and product lines
were evaluated for impairment in light of future growth areas of the
business and a focus on profit margins and core opportunities. As a
result, a charge of $1,425 was recorded in the first quarter of fiscal
2002 to recognize a write-down in investments and equipment. In
addition, a $333 charge was taken for the abandonment of certain projects
and exiting several product lines.

Telecommunications Business Unit

In February 2000, the Company announced the creation of its Fiber Optic
Telecommunications Business Unit, which develops and manufactures passive
optical telecommunications devices and components, based on its optical coating
technology. The telecommunications operations are located in Santa Rosa,
California. The Telecommunications Unit exploits the proprietary coating
equipment, advanced thin film technologies, and measurement capabilities
developed by DSI over the last fifteen years for a wide variety of demanding
products in both military and commercial applications.

Prior to the formation of the telecommunications unit, the development and
coating of telecommunications products was performed by DSIs R&D Engineering
unit. With the formation of the telecommunications unit, two employees were
transferred from the R&D Engineering unit to the telecommunications unit with
additional engineering and sales personnel being hired for the unit. Also, DSI
assigned thin film coating machines from other areas of the company as well as
purchasing and constructing additional equipment to be used in the
telecommunication business.

A portion of the in-process research and development which was acquired when
the Company acquired DSI was for research and development projects directed at
telecommunications applications (the Fiber Optics Project). These projects
involved the development of processes for the application of optical coatings
to products for telecommunications applications. At the time of the
acquisition, the future importance of these technologies and optical products
to telecommunications infrastructure was not clear.

The Fiber Optics Project was directed at development of (i) optical coatings
that reduce insertion losses in fiber optic communications systems, including
wavelength division multiplexing (WDM) and dense wavelength division
multiplexing (DWDM) systems; (ii) collimating micro-optics for use in WDM and
DWDM systems; (iii) filter elements for use in WDM systems; (iv) secondary
filter elements for use in DWDM systems; (v) narrow bandpass filter elements
for use in the multiplex/demultiplex function of DWDM systems. WDM and DWDM
are technologies that allow multiple wavelengths of light to be simultaneously
transmitted through a single fiber optic cable. The first four projects have
resulted in commercial products, and sales of these products reached $2,613 in
fiscal 2001, an increase of 80% over the $1,453 recognized in fiscal 2000.

19



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##### Table of Contents



Telecommunication product sales for the first six months of fiscal 2002 were
$650, a 46% decrease from $1,208 in the second quarter of fiscal 2001.
Backorders in the telecom product area grew to approximately $3,700 on
contracts scheduled to commence in the third and fourth quarter of fiscal 2002.
The Company has demonstrated key DWDM filter manufacturing capabilities using
its patented MicroDyn® technology. The Company believes that it will develop
and market commercial narrow bandpass filter products that take advantage of
the Companys patented MicroDyn® sputtering technology.

While the Company does apply optical coatings to elements supplied by its
customers, the supply of entire assemblies and components is expected to be an
increasing portion of its business. The Company expects that this trend to
forward integration will continue. The Company has existing manufacturing
capacity to support sales of up to $10,000 per year of existing products.
Following additional capital investments, the Company anticipates achieving
additional manufacturing capability and revenue for DWDM products using
MicroDyn® technology. The Company believes that it can increase its production
capacity for its telecommunications products beyond existing levels with
additional capital expenditures, on which this growing business depends.

DSI believes that the current supply exceeds demand for many of these thin film
coating products for the telecommunications industry. This situation is
expected to continue for the next one to two years. The principal competitors
for the Companys products are certain large OEMs, such as JDS Uniphase
Corporation, Corning Incorporated, and Lucent Technologies, Inc., which have
significant internal capability to manufacture thin film filter products, and a
variety of smaller companies which specialize in optical coatings, such as
Cierra Photonics, Inc., Precision Optics Corp., Inc., Barr Associates, Inc.,
Iridian Spectral Technologies, Ltd., Thin Film Technologies, Inc., and
Evaporated Coatings, Inc. The Company also believes that the large OEMs also
represent substantial opportunities for sales of its products.

The Company believes that the competitive environment for its products is based
primarily on technical performance, delivery and service, as well as price.
The Company believes that DSIs fifteen-year history of high volume, efficient
production of high quality optical components provides it with significant
advantages in this regard. Furthermore, the Company believes that its core
competencies in optical coating and coating equipment development and
manufacture, its experienced workforce and its ability to develop
telecommunications solutions, backed by the required measurement technology,
will permit it to compete successfully in this product area.

The Company recognizes that the successful, full-scale development of its
telecommunications business unit requires a level of focus and resources that
the Company may not be able to provide while this unit resides within a
subsidiary of the Company. In pursuit of maximizing shareholder value, the
Company has and will continue to explore various strategic alternatives that
would enable the telecommunications business unit to pursue an aggressive,
focused strategy with sufficient assets and cash to compete in this market.

No final decisions have been made about the future courses of action to be
pursued. However, the Company has had discussions with several investment
banking firms to assist in identifying and implementing the best strategic
alternative for the telecommunications unit.

20



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##### Table of Contents



Results of Operations  Selected Items as a Percentage of Net Sales

The following table sets forth, as a percentage of net sales, certain items in
the Companys Condensed Consolidated Statements of Operations for the indicated
periods:

|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |      |  
|----------------------------------------------------------------------------------------------- | -------------------------------------- |  | ------------------ | ---- | ---------------- |  | ---- | ---- | ---- |  | ----- | ---- | - |  | --- | ---- | -
|                                                                                                |                                        |  | Three Months Ended |      | Six Months Ended
|                                                                                                |                                        |  | December 31,       |      | December 31,    
|                                                                                                |                                        |  |                    |      |                 
|                                                                                                |                                        |  | 2001               |      | 2000             |  | 2001 |      | 2000
|                                                                                                |                                        |  |                    |      |                  |  |      |      |     
|Net sales                                                                                       |                                        |  | 100                | %    |                  |  | 100  | %    |      |  | 100   | %    |   |  | 100 | %   
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Costs and expenses:                                                                             |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Cost of sales                          |  |                    | 62.3 |                  |  |      | 59.0 |      |  |       | 62.9 |   |  |     | 59.1 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Marketing and selling                  |  |                    | 20.7 |                  |  |      | 20.6 |      |  |       | 21.1 |   |  |     | 20.5 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Research and development               |  |                    | 5.1  |                  |  |      | 5.4  |      |  |       | 5.3  |   |  |     | 6.0  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative             |  |                    | 8.0  |                  |  |      | 5.8  |      |  |       | 8.2  |   |  |     | 6.3  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Provision for loan impairment          |  |                    |     |                  |  |      |     |      |  |       | 4.6  |   |  |     |     |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Gain on settlement of lawsuit          |  |                    |     |                  |  |      |     |      |  |       | (0.5 | ) |  |     |     |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Special charges                        |  |                    |     |                  |  |      |     |      |  |       | 8.9  |   |  |     |     |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Amortization of intangible assets      |  |                    | 0.2  |                  |  |      | 1.2  |      |  |       | 0.2  |   |  |     | 1.3  |  
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|Income (loss) from operations                                                                   |                                        |  | 3.7                |      |                  |  | 8.0  |      |      |  | (10.7 | )    |   |  | 6.8 |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other income (expense):                                                                         |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest expense                       |  |                    | (6.1 | )                |  |      | (6.1 | )    |  |       | (6.0 | ) |  |     | (6.5 | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest income                        |  |                    | 0.1  |                  |  |      | 0.5  |      |  |       | 0.1  |   |  |     | 0.5  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income (loss) from equity investments  |  |                    | (0.3 | )                |  |      | 0.0  |      |  |       | (0.2 | ) |  |     | 0.0  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Gain from sale of fixture subsidiaries |  |                    | 0.4  |                  |  |      |     |      |  |       | 0.2  |   |  |     |     |  
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|Income (loss) before income taxes, minority
interest and cumulative effect of accounting change |                                        |  | (2.2               | )    |                  |  | 2.4  |      |      |  | (16.6 | )    |   |  | 0.8 |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense                                                                              |                                        |  | 0.5                |      |                  |  | 0.2  |      |      |  | 0.2   |      |   |  | 0.1 |     
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|Income (loss) before minority interest and
cumulative effect of accounting change               |                                        |  | (2.7               | )    |                  |  | 2.2  |      |      |  | (16.8 | )    |   |  | 0.7 |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Minority interest in income of consolidated subsidiary                                          |                                        |  | (0.1               | )    |                  |  | 0.0  |      |      |  | (0.1  | )    |   |  | 0.0 |     
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|Income (loss) before cumulative
effect of accounting change                                     |                                        |  | (2.8               | )    |                  |  | 2.2  |      |      |  | (16.9 | )    |   |  | 0.7 |     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cumulative effect of accounting change                                                          |                                        |  |                   |      |                  |  |     |      |      |  | (70.7 | )    |   |  |    |     
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     
|Net income (loss)                                                                               |                                        |  | (2.8               | %)   |                  |  | 2.2  | %    |      |  | (87.6 | %)   |   |  | 0.7 | %   
|                                                                                                |                                        |  |                    |      |                  |  |      |      |      |  |       |      |   |  |     |     

Factors which have affected the results of operations for the second quarter of
fiscal 2002 as compared to the second quarter of fiscal 2001 are discussed
below.

Quarter Ended December 31, 2001 Compared with Quarter Ended December 31, 2000

Net Sales. Net sales decreased 14.4% to $48,804 in the second quarter of
fiscal 2002 from $57,036 in the second quarter of fiscal 2001. The decrease in
sales is primarily due to the sale of the fixture subsidiaries. Excluding the
fixture subsidiaries, sales for the second quarter of fiscal 2002 were $33,550
compared with $34,289 for the second quarter of fiscal 2001. Second quarter
metal halide sales, excluding the fixture subsidiaries, declined 3% to 26,138
compared with $26,997 in the same period last year. Excluding the fixture
subsidiaries, fiscal 2002 second quarter sales of the Companys
second-generation metal halide lighting product line, Uni-Form® pulse start,
grew 28% to 7,871 from $6,126 in the comparable quarter a year ago. Sales of
APL materials, a key indicator of industry trends, decreased 7% over the same
quarter a year ago. Geographically, these sales of

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materials decreased 3% in the U.S. and decreased 9% outside the U.S. Non-metal
halide lighting sales declined 21%, due to the sale of the fixture subsidiaries
and the managed decline of some non-metal halide product sales.

DSIs telecommunication product sales for the second quarter of fiscal 2002
were $332, a decrease of 51% from $676 in the second quarter of fiscal 2001.
The decrease is attributed to the overall decline in the telecommunications
industry. However, sales of DSIs non-telecom products increased 37% to $2,292
in the second quarter of fiscal 2002 from $1,678 in the second quarter of
fiscal 2001 as the Company capitalized on DSIs expertise in thin-film optical
coatings and optical coating equipment manufacturing opportunities.

Lighting sales inside the U.S. declined 22% for the second quarter of fiscal
2002 as compared to the same period a year ago, primarily due to the sale of
the fixture subsidiaries. Lighting sales outside the U.S. declined 7%, which
the Company attributes to weakness in the world economy.

Pricing in the metal halide lighting business is competitive, and prices for
the Companys products have remained flat or declined slightly. The
introduction of new products has helped to stabilize the Companys product
pricing.

Cost of Sales.Cost of sales decreased 9.6% to $30,414 in the second quarter
of fiscal 2002 from $33,630 in the second quarter of fiscal 2001. The decrease
is primarily attributable to the sale of the fixture subsidiaries. As a
percentage of net sales, cost of sales increased to 62.3% in the second quarter
of fiscal 2002 from 59.0% in the second quarter of fiscal 2001. The increase in
cost of sales as a percentage of sales was reflected across all areas of the
Companys sales including materials, system components and systems. The
margins were also negatively impacted by the shift in the mix of product sales
reflecting increases in lower margin power supply sales and decreases in higher
margin materials sales.

Marketing and Selling Expenses.Marketing and selling expenses decreased
13.8% to $10,113 in the second quarter of fiscal 2002 from $11,729 in the
second quarter of fiscal 2001. The decrease is primarily attributable to the
sale of the fixture subsidiaries and is comparable with the decrease in sales.

Research and Development Expenses. Research and development expenses declined
19.2% in the second quarter of fiscal 2002 to $2,497 from $3,092 in the second
quarter of fiscal 2001. Research and development expenses incurred related to:
(i) expansion and continued improvement of the line of Uni-Form® pulse start
lamps and fixtures (with improved energy efficiency, quicker starting and
restarting and a more compact arc source, which improves the light and reduces
material costs) intended to replace many first generation metal halide lamps
and fixtures in industrial and commercial applications; (ii) improving the
coating process of optical thin-films to broaden the applications, developing
new thin-film materials, and using coatings to develop improvements to lighting
and telecommunications technologies; (iii) development of new materials for the
worlds major lighting manufacturers; and, (iv) development and testing of
electronic and electromagnetic power supply systems. As a percentage of net
sales, research and development expenses decreased to 5.1% in the second
quarter of fiscal 2002 from 5.4% in the second quarter of fiscal 2001. While
research and development expenditures declined in connection with the Companys
commitment to generate positive operating cash flow, the Company expects to
continue to make substantial expenditures on research and development to
enhance its position as the leading innovator in the metal halide lighting
industry.

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General and Administrative Expenses.General and administrative expenses of
$3,910 were 18.4% higher in the second quarter of fiscal 2002 compared to
$3,301 in the second quarter of fiscal 2001. In the second quarter of fiscal
2001, expenses were reduced by the elimination of a $500 litigation-related
accrual that, based on review with legal counsel, was no longer required.

Amortization of Intangible Assets.Amortization expense decreased to $86 in
the second quarter of fiscal 2002 from $706 in the second quarter of fiscal
2001. The decrease in amortization expense is due to the adoption in the
fiscal 2002 first quarter of Statement of Financial Accounting Standards (FAS)
No. 142, Goodwill and Intangible Assets. As a result, goodwill, as well as
intangible assets with indefinite lives, are no longer subject to amortization.

Income (Loss) from Operations.As a result of the items noted above, the
Company realized income from operations in the second quarter of fiscal 2002 of
$1,784 as compared to income from operations of $4,578 in the second quarter of
fiscal 2001.

Interest Expense.Interest expense decreased to $2,964 in the second quarter
of fiscal 2002 from $3,463 in the second quarter of fiscal 2001. The decrease
is primarily attributable to the significant reduction in interest rates
related to a portion of the Companys debt.

Interest Income.Interest income decreased to $36 in the second quarter of
fiscal 2002 from $263 in the second quarter of fiscal 2001. The decrease is
attributable to the cessation of interest income recognition on the loan
receivable from officer.

Income (Loss) from Equity Investments.The income (loss) from equity
investments in the second quarter of fiscal 2002 of $(145) and fiscal 2001 of
$(21) represent the equity loss from the Companys investment in Fiberstars,
Inc., a marketer and distributor of fiber optic lighting products.

Gain from Sale of Fixture Subsidiaries.See Sale of Fixture Subsidiaries
above.

Income (Loss) before Income Taxes and Minority Interest.The Company had a
loss before income taxes and minority interest of $(1,062) in the second
quarter of fiscal 2002 as compared to income before income taxes and minority
interest of $1,357 in the second quarter of fiscal 2001.

Income Taxes.Income tax expense was $260 for the second quarter of fiscal
2002 as compared to $77 in the second quarter of fiscal 2001. The income tax
expense in the second quarters of fiscal 2002 and 2001 related primarily to
certain of the Companys foreign operations.

At June 30, 2001, the Company had net operating loss carryforwards of $88,901
available to reduce future United States federal taxable income, which expire
in varying amounts from 2008 to 2021.

The Company also has research and development credit carryforwards for tax
purposes of approximately $3,818, which expire in varying amounts from 2008 to
2015. Additionally, in conjunction with the Alternative Minimum Tax (AMT)
rules, the Company had available AMT credit carryforwards for tax purposes of
approximately $259, which may be used indefinitely to reduce regular federal
income taxes.

Also at June 30, 2001, the Company had foreign net operating loss carryforwards
for tax purposes totaling $1,698 that expire in varying amounts from 2002 to
2007 and $8,053 that have no expiration dates.

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Six Months Ended December 31, 2001 Compared with Six Months Ended December 31, 2000

Net Sales. Net sales decreased 9.1% to $100,694 in the first six months of
fiscal 2002 from $110,807 in the first six months of fiscal 2001. The decrease
in sales is primarily attributed to the sale of the fixture subsidiaries.
Excluding the fixture subsidiaries, sales for the first six months of fiscal
2002 were $65,610 compared with $66,214 for the first six months of fiscal
2001. Metal halide sales, excluding the fixture subsidiaries, declined 2% to
$50,388 for the first six months of fiscal 2002 compared with $51,560 for the
first six months of fiscal 2001. Excluding the fixture subsidiaries, fiscal
2002 second quarter sales of the Companys second-generation metal halide
lighting product line, Uni-Form® pulse start, grew 28% to $15,233 from $11,874
in the comparable quarter a year ago. Sales of APL materials, a key indicator
of industry trends, decreased 6% over the same six months a year ago.
Geographically, these sales of materials decreased 19% in the U.S., but
increased 2% outside the U.S. Non-metal halide lighting sales declined 14%,
due to the sale of the fixture subsidiaries and the managed decline of some
non-metal halide product lines.

DSIs telecommunication product sales for the six months of fiscal 2002 were
$650, a decrease of 46% from $1,208 in the first six months of fiscal 2001.
The decrease is attributed to the overall decline in the telecommunications
industry. However, sales of DSIs non-telecom products increased 42% to $4,658
in the first half of fiscal 2002 from $3,282 in the second quarter of fiscal
2001 as the Company capitalized on DSIs expertise in thin-film optical
coatings and optical coating equipment manufacturing opportunities.

Lighting sales inside the U.S. declined 13% for the first six months of fiscal
2002 as compared to the same period a year ago, primarily due to the sale of
the fixture subsidiaries. Lighting sales outside the U.S. declined 3%, which
the Company attributes to weakness in the world economy.

Pricing in the metal halide lighting business is competitive, and prices for
the Companys products have remained flat or declined slightly. The
introduction of new products has helped to stabilize the Companys product
pricing.

Cost of Sales.Cost of sales decreased 3.3% to $63,317 in the first six
months of fiscal 2002 from $65,494 in the first six months of fiscal 2001. As a
percentage of net sales, cost of sales increased to 62.9% in the first six
months of fiscal 2002 from 59.1% in the first six months of fiscal 2001.
Excluding the inventory write-down of $688, cost of sales increased to 61.6% in
the first six months of fiscal 2002. The increase in cost of sales as a
percentage of sales was reflected across all areas of the Companys sales
including materials, system components and systems. The margins were also
negatively impacted by the shift in the mix of product sales reflecting
increases in lower margin power supply sales and decreases in higher margin
materials sales.

Marketing and Selling Expenses.Marketing and selling expenses decreased 6.3%
to $21,290 in the first six months of fiscal 2002 from $22,731 in the first six
months of fiscal 2001. The decrease is primarily attributable to the sale of
the fixture subsidiaries.

Research and Development Expenses.Research and development expenses declined
19.0% in the first six months of fiscal 2002 to $5,334 from $6,583 in the first
six months of fiscal 2001. Research and development expenses incurred related
to: (i) expansion and continued improvement of the line of Uni-Form® pulse
start lamps and fixtures (with improved energy efficiency, quicker starting and
restarting and a more compact arc source, which improves the light and reduces
material costs) intended to replace many first generation metal halide lamps
and fixtures in industrial and commercial applications; (ii) improving the
coating process of optical thin-films to broaden the applications, developing
new thin-film materials, and using coatings to develop improvements

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to lighting and telecommunications technologies; (iii) development of new
materials for the worlds major lighting manufacturers; and, (iv) development
and testing of electronic and electromagnetic power supply systems. As a
percentage of net sales, research and development expenses decreased to 5.3% in
the first six months of fiscal 2002 from 6.0% in the first six months of fiscal
2001. While research and development expenditures declined in connection with
the Companys commitment to generate positive operating cash flow, the Company
expects to continue to make substantial expenditures on research and
development to enhance its position as the leading innovator in the metal
halide lighting industry.

General and Administrative Expenses.General and administrative expenses
increased 17.8% to $8,255 in the first six months of fiscal 2002 from $7,008 in
the first six months of fiscal 2001. The increase is due in part to an increase
in corporate professional services (including legal and consulting fees) of
$624. Also, in fiscal 2001, expenses were reduced by the elimination of a $500
litigation-related accrual that, based on review with legal counsel, was no
longer required.

Provision for Loan Impairment.In the first quarter of fiscal 2002, the Company
recorded a valuation reserve for an impaired loan of $4,600 related to the
amount by which the carrying value of the loan receivable from officer exceeded
the underlying fair value of the assets available to repay the loan. In fiscal
2002, no interest income has been recognized or paid on the loan.

Gain on Settlement of Claim.The Company recorded a gain on the settlement of
a claim, net of legal fees, as a result of the enforcement of a non-compete
agreement with several former employees of a subsidiary of the Company. The
terms of the settlement should result in an additional receipt by the Company
of $525 in June 2002, however, the Company will not reflect this contingent
gain amount until cash proceeds are realized at that time.

Special Charges.See Consolidation of Power Supply Production Operations and
Restructuring of Worldwide Operations above.

Amortization of Intangible Assets.Amortization expense decreased to $170 in
the first six months of fiscal 2002 from $1,409 in the first six months of
fiscal 2001. The decrease in amortization expense is due to the adoption in
the fiscal 2002 first quarter of Statement of Financial Accounting Standards
(FAS) No. 142, Goodwill and Intangible Assets. As a result, goodwill, as well
as intangible assets with indefinite lives, is no longer subject to
amortization.

Income (Loss) from Operations.As a result of the items noted above, the
Company incurred a loss from operations in the first six months of fiscal 2002
of $(10,727) as compared to income from operations of $7,582 in the first six
months of fiscal 2001. Excluding special charges of $(9,697), the provision for
loan impairment of $(4,600) and the gain on settlement of claim of $554, the
Company realized income from operations of $3,016 in the first six months of
fiscal 2002.

Interest Expense.Interest expense decreased to $6,057 in the first six months
of fiscal 2002 from $7,227 in the first six months of fiscal 2001. The
decrease is primarily attributable to the significant reduction in interest
rates related to a portion of the Companys debt.

Interest Income.Interest income decreased to $62 in the first six months of
fiscal 2002 from $487 in the first six months of fiscal 2001. The decrease is
attributable to the cessation of interest income recognition in the first
quarter of fiscal 2002 related to the loan receivable from officer as mentioned
above.

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Income (Loss) from Equity Investments.The income (loss) from equity
investments in the first six months of fiscal 2002 of $(211) and fiscal 2001 of
$18 represent the equity earnings (loss) from the Companys investment in
Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.

Gain from Sale of Fixture Subsidiaries.See Sale of Fixture Subsidiaries
above.

Income (Loss) before Income Taxes, Minority Interest and Cumulative Effect of
Accounting Change.The Company had a loss before income taxes, minority
interest and cumulative effect of accounting change of $(16,706) in the first
six months of fiscal 2002 as compared to income before income taxes, minority
interest and cumulative effect of accounting change of $860 in the first six
months of fiscal 2001. Excluding special charges of $(9,697), the provision for
loan impairment of $(4,600), the gain on settlement of claim of $554 and the
gain on sale of the fixture subsidiaries of $227, the Company realized a loss
before income taxes, minority interest and cumulative effect of accounting
change of $(3,190) in the first six months of fiscal 2002.

Income Taxes.Income tax expense was $234 for the first six months of fiscal
2002 as compared to income tax expense of $97 in the first six months of fiscal
2001. The income tax expense in the first six months of fiscal 2002 and 2001
related primarily to certain of the Companys foreign operations.

At June 30, 2001, the Company had net operating loss carryforwards of $88,901
available to reduce future United States federal taxable income, which expire
in varying amounts from 2008 to 2021.

The Company also has research and development credit carryforwards for tax
purposes of approximately $3,818, which expire in varying amounts from 2008 to
2015. Additionally, in conjunction with the Alternative Minimum Tax (AMT)
rules, the Company had available AMT credit carryforwards for tax purposes of
approximately $259, which may be used indefinitely to reduce regular federal
income taxes.

Also at June 30, 2001, the Company had foreign net operating loss carryforwards
for tax purposes totaling $1,698 that expire in varying amounts from 2002 to
2007 and $8,053 that have no expiration dates.

Cumulative Effect of Accounting Change.The Company adopted FAS 142 in the
first quarter of fiscal 2002 and recorded a cumulative effect of change in
accounting principle for the impairment of goodwill and other indefinite lived
intangible assets of $71,171, or $(3.05) per share, as of the beginning of
fiscal 2002 (July 1, 2001).

Liquidity and Capital Resources

The Companys principal financial requirements are for working capital, capital
expenditures, market development activities, and research and development
efforts. These requirements have been, and the Company expects they will
continue to be, financed primarily through a combination of cash flow from
operations, borrowings under credit arrangements and the sale of stock and debt
under two shelf registration statements for $300,000 and $100,000. These shelf
registration statements will not be available for offerings, other than
investment grade debt securities, until the market value of common equity held
by non-affiliates again exceeds $75,000.

Cash decreased $1,777 during the first six months of fiscal 2002. Cash provided
by operating activities totaled $1,672 and cash provided by investing
activities totaled $15,596. Cash used in financing activities totaled $19,045.

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Net Cash Provided by (Used in) Operating Activities.Net cash provided by
operating activities totaled $1,672 during the first six months of fiscal 2002
as compared to a cash usage of $2,005 in the first six months of fiscal 2001.

Net Cash Provided by (Used in) Investing Activities.During the first six
months of fiscal 2002, net cash provided by investing activities totaled
$15,596, which consisted primarily of net proceeds from the sale of the fixture
subsidiaries of $24,166, net of capital expenditures of $8,482. Capital
expenditures in fiscal 2002 related to building improvements and additional
machinery and equipment to improve production processes, which should result in
increased productivity and capacity in the production of telecommunications and
lighting products. The Company plans to limit its capital expenditure program
for the next twelve months.

Under its $300,000 shelf registration, in September 2000, the Company sold
1,700,000 shares of common stock for $15.00 per share to fund the future
expansion of its telecommunications business. The net proceeds from the stock
offering of $22,900 were initially used to repay indebtedness outstanding under
the Bank Credit Facility. The Company has expended substantially the entire
amount as of December 31, 2001 on capital improvements, including optical
coating production equipment, filter testing and measuring equipment,
production facilities, and on research and development, in the
telecommunications business. Future telecommunications capital expenditures
will be determined based upon the economic recovery of the telecommunications
industry.

The Company estimates its capital expenditures will approximate $6,000 to
$8,000 over the next twelve months. Future capital expenditures beyond this
level will be discretionary, as the Company presently has sufficient operating
capacities to support several years of sales growth at its historical rates.

Net Cash Provided by (Used in) Financing Activities.During the first six
months of fiscal 2002, net cash used in financing activities was $19,045, that
primarily represents repayments of bank debt under the Companys credit
facilities.

The Company has $100,000 of 8% Senior Notes due March 15, 2008. The notes are
redeemable at the Companys option, in whole or in part, on or after March 15,
2003 at certain preset redemption prices. Interest on the Senior Notes is
payable semiannually on March 15 and September 15 of each year. There are no
sinking fund requirements.

Pursuant to an agreement dated October 8, 1998, as amended, between the Company
and its Chairman and Chief Executive Officer (the CEO), the Company,
following approval by the Companys Board of Directors, has loaned a total of
$14,145 to its CEO at an interest rate of 8%. The proceeds of the loan have
been used by the Companys CEO to reduce the principal balance outstanding of
margin loan accounts, which are secured by 1,042,492 shares of the Companys
Common Stock owned by the CEO and a related entity. In connection with the
loan, the Companys Board of Directors obtained the CEOs agreement to an
extension of his employment agreement to December 31, 2003. The loan agreement
prohibits the CEO from encumbering his shares of the Companys Common Stock in
any manner except pursuant to the existing agreements governing the CEOs
margin accounts, without the consent of the Companys Board of Directors.

The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
On January 22, 2002, the Board and CEO agreed in principle to a plan that
extends the maturity of the loan to July 31, 2007. Under the terms of the
plan, the CEO will sell certain assets in an orderly manner in order to
maximize the net proceeds, which will be used to pay a portion of the loan.
The CEO will continue his 10b5-1 plan to sell shares he now owns pursuant to
Rule 144 when the stock price

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exceeds $15 per share. In addition, the CEO will be expected to apply
after-tax cash bonuses earned from the Company toward repayment of the loan.
Interest on the loan in the future will accrue at the same rate that the
Company pays on its revolving credit loan. The loan will be repayable
immediately if the CEO ceases to be employed by the Company. The Board
reserved the right to require earlier repayment if ADLT requires the payment to
prevent an unacceptable strain on cash resources.

The Companys ability to collect amounts due according to the contractual terms
of the loan agreement is largely dependent on the ultimate realization from the
sale of assets owned by the CEO, including the CEOs investment in common stock
of the Company. When determining the fair value of investments in common
stock, the Company considers both the current market price and also volatility
in the stock price over the period in which the Company estimates it would take
to sell those shares into the market.

Loan receivables are measured for impairment based on either the present value
of expected future cash flows discounted at the loans effective interest rate
or the fair value of the underlying collateral or other assets available to
repay the loan. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. The Company evaluates the collectibility of both the interest and
principal when assessing the need for a possible loss accrual. In the quarter
ended September 30, 2001, the Company recorded a valuation reserve for an
impaired loan of $4,600 related to the amount by which the carrying value of
the loan exceeded the underlying fair value of the assets available to repay
the loan. The Company will recognize recoveries on amounts previously reserved
for after considering the fair value of the underlying assets and evidence of
repayments on the loan.

Ability to Advance Future Operations.The Company has implemented, and will
continue to implement, changes in its operational activities intended to reduce
the use of its cash resources to a level at or below the cash flow generated by
its operations. The Companys working capital (current assets less current
liabilities) at December 31, 2001 was $26,416, resulting in a working capital
ratio of current assets to current liabilities of 1.7 to 1.0, as compared to
$46,056 or 2.1 to 1.0 at June 30, 2001. As of December 31, 2001, the Company
had $1,875 in cash and cash equivalents.

The interest-bearing obligations of the Company totaled $136,465 as of December
31, 2001, and consisted of: $23,664 of borrowings under the Bank Credit
Facility; $100,000 of 8% Senior Notes; mortgages of $5,545; promissory notes of
$2,300; obligations of foreign subsidiaries of $4,879; and, capital leases of
$77.

The Company maintained a Bank Credit Facility with a $40,000 revolving credit
loan and $25,000 term loan provided by several financial institutions.
Interest rates on revolving credit loans outstanding were based, at the
Companys option, on LIBOR plus 2.25% or the agent banks prime rate. Under the
term loan, the Company pays monthly principal payments that total $3,576
annually, with the unpaid balance due at maturity. Interest rates on the term
loan were based, at the Companys option, on LIBOR plus 2.75% or the agent
banks prime rate.

During the quarter ended December 31, 2001, in connection with the sale of the
fixture subsidiaries, the Company amended the Bank Credit Facility to reduce
the revolving credit loan to $25,000 and the term loan to $13,000 and change
certain covenants under the agreement. Availability of borrowings under the
revolving credit loan is determined by the Companys eligible account
receivables and inventories. Interest rates on the revolving credit loans
outstanding are based, at the Companys option, on LIBOR plus 2.75% or the
agent banks prime rate. Interest rates on the term

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loan are based, at the Companys option, on LIBOR plus 3.25% or the agent
banks prime rate. The Bank Credit Facility matures on July 1, 2004.

The Bank Credit Facility contains certain affirmative and negative covenants
customary for this type of agreement, prohibits cash dividends, and includes a
financial covenant with respect to the coverage of certain fixed charges. The
principal security for the revolving credit loan is substantially all of the
personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan is secured by substantially all of the
Companys machinery and equipment and is cross-collateralized and secured with
the revolving credit loan.

As discussed above, the Company has had discussions with several investment
banking firms to assist in identifying and implementing the best strategic
alternative for the telecommunications business unit.

On August 31, 2000, the Company completed a public offering of 1,700,000 shares
of its common stock at a price of $15.00 per share under a $300,000 shelf
registration filed with the Securities and Exchange Commission that became
effective in July 2000.

The public offering reduced the amount available for the issuance of various
debt and equity securities under the shelf registration statement to
approximately $274,500. The net proceeds from the public offering of
approximately $22,900 were initially used to repay indebtedness outstanding
under the Bank Credit Facility. The Company has expended substantially the
entire amount as of December 31, 2001 on capital improvements, including
optical coating production equipment, filter testing and measurement equipment,
production facilities, and on research and development in its
telecommunications business unit.

In addition to the $300,000 shelf registration discussed above, in July 2000 a
$100,000 shelf registration became effective under which the Company may from
time-to-time issue various debt and equity securities to acquire assets,
businesses or securities. The Company has no outstanding securities issued
under this registration statement. These shelf registration statements will not
be available for offerings, other than investment grade debt securities, until
the market value of common equity held by non-affiliates again exceeds $75,000.

The Company has implemented a working capital improvement program to conserve
or generate cash over the next twelve months. The Companys ability to fund
operations, service debt and provide for capital expenditures is dependent on
the future success of its working capital improvement plan. The Company
believes that with an improvement in working capital, reduced capital
expenditures and a better business climate for its products, its liquidity will
be adequate over the next twelve months.

The Company believes that if it is able to improve its working capital, and
along with its available cash, anticipated cash flow from operations, and
availability under its Bank Credit Facility, that the Company should be able to
fund its operations for at least the next 12 months. However, should the
Company not achieve its working capital initiatives, its operations and its
capital expenditures program may be adversely impacted, including its ability
to borrow under its Credit Facility. Beyond the next year, the Company
believes a return to profitability and positive cash flow from operations, the
growth in the popularity and applications for metal halide products and
systems, and opportunities in telecommunications and optical coatings should
enable the Company to access additional capital resources, as needed.

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Impact of Recently Issued Accounting Standards

In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 141, Business Combinations, and FAS
142, Goodwill and Intangible Assets. FAS 141 is effective for all business
combinations completed after June 30, 2001 and requires using the purchase
method of accounting. The pooling of interest method of accounting is
prohibited except for transactions initiated before July 1, 2001.

FAS 142 is effective for fiscal years beginning after December 15, 2001,
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of FAS
142. Early adoption of FAS 142 is permitted. Major provisions of FAS 142
require intangible assets acquired in a business combination to be recorded
separately from goodwill if they arise from contractual or other legal rights
or are separable from the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as part of a related
contract, asset or liability. In addition, goodwill, as well as intangible
assets with indefinite lives, will no longer be subject to amortization
effective July 1, 2001. Finally, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator. Previously, the Company measured goodwill and
intangibles (to be held and used) with indefinite lives for impairment using
undiscounted cash flows under the guidance of FAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

The Company adopted FAS 142 as of July 1, 2001. The Company evaluated goodwill
of $66,172 and intangible assets with indefinite lives of $11,874, which
represents tradenames. The Company used third party appraisals and expected
future discounted cash flows to determine the fair value of the reporting units
and whether any impairment of goodwill or indefinite lived intangible assets
existed as of the above date. As a result of this evaluation, the Company
recorded a cumulative effect of change in accounting principle for the
estimated impairment of goodwill and other indefinite lived intangible assets
of $71,171, or $(3.05) per share, as of the beginning of fiscal 2002.
The impact of adopting FAS 142 was to reduce amortization and, consequently,
the loss before cumulative effect of accounting change for the second quarter
of fiscal 2002 by $459, or $.02 per share. The impact of adopting FAS 142 was
to reduce the loss before cumulative effect of accounting change for the first
six months of fiscal 2002 by $1,098, or $.05 per share. Amortization of
intangible assets in the second quarter of fiscal 2001 would have been $88, a
reduction of $618, or $.03 per share if the accounting change related to
acquired intangible amortization required by FAS 142 had been applied to that
quarter. Amortization of intangible assets in the first six months of fiscal
2001 would have been $176, a reduction of $1,233, or $.05 per share if the
accounting change related to acquired intangible amortization required by FAS
142 had been applied to that period.

In August 2001, the Financial Accounting Standards Board issued FAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.This statement
addresses financial accounting for the impairment and disposal of long-lived
assets, and supersedes FAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.The Company must adopt FAS
No. 144 on July 1, 2002. Management is currently studying the potential effect
of adopting this statement.

30



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##### Table of Contents



Foreign Currency

Approximately 22% of the Companys net sales in fiscal 2001 were denominated in
currencies other than U.S. dollars, principally pounds sterling, Australian
dollars and Canadian dollars. A weakening of such currencies versus the U.S.
dollar could have a material adverse effect on the Company. The Company
started a program in fiscal 2002 to hedge a portion of its foreign currency
balance sheet exposures which is intended to reduce any significant impact on
earnings and cash flow.




Item 3. Quantitative and Qualitative Disclosures about Market Risk

During the six months ended December 31, 2001, there have been no material
changes in the reported market risks presented in the Companys Annual Report
on Form 10-K for the year ended June 30, 2001.

The Company enters into forward exchange contracts to reduce its exposure to
fluctuations in related foreign currencies. These contracts are with a major
financial institution and the risk of loss is considered remote. The Company
does not hold or issue derivative financial instruments for trading purposes.
The total value of open contracts and any risk to the Company as a result of
these arrangements is not material to the Companys financial position,
liquidity or results of operations.

31



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##### Table of Contents






Part II. Other Information

Except as noted below, the items in Part II are inapplicable or, if applicable,
would be answered in the negative. These items have been omitted and no other
reference is made thereto.




Item 1. Legal Proceedings

The information included in Note K of the Notes to Condensed Consolidated
Financial Statements (Unaudited) included in this Report on Form 10-Q is
hereby incorporated by reference.




Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | -- | -
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                            |  | Incorporated
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                      |  | by Reference
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |             
|3.1     |  | Second Amended and Restated Articles of Incorporation filed
September 26, 1995                                                                                                                                                                                                                                                                                                             |  |              | (1 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|3.2     |  | Certificate of Adoption of Third Amendment to Second Amended
and Restated Articles of Incorporation filed October 6, 1999                                                                                                                                                                                                                                                                  |  |              | (2 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|3.3     |  | Certificate of Adoption of Fourth Amendment to Second Amended
and Restated Articles of Incorporation filed March 16, 2000                                                                                                                                                                                                                                                                  |  |              | (3 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|3.4     |  | Code of Regulations                                                                                                                                                                                                                                                                                                                                                                        |  |              | (4 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|4.1     |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4                                                                                                                                                                                                                                                                                                                                        |  |              |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|10.1    |  | Tenth Amendment Agreement by and among Advanced Lighting
Technologies, Inc. and certain of its subsidiaries and PNC Bank,
National Association, as agent for certain other banks dated as of
December 12, 2001, amending the Credit Agreement by and among the
same parties dated as of May 21, 1999                                                                                       |  |              |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|10.2    |  | Fourth Amendment to Contingent Warrant Agreement dated as of
December 31, 2001 by and among Advanced Lighting Technologies,
Inc., General Electric Company, Wayne R. Hellman, individually and as
voting trustee under Voting Trust Agreement dated October 10, 1995,
Hellman Ltd. And Alan J. Ruud, individually and as voting trustee
under Voting Trust Agreement dated January 2, 1998 |  |              |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |              |    |  
|       
|       
|       
|       
|12      |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                            |  |              |    |  



---

|(1) |  | Incorporated by reference to Exhibit of same number in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1996.                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to Exhibit of same number in Companys
Quarterly Report on Form 10-Q/A for the Quarterly Period ended September
30, 1999 filed January 14, 2000.
|   
|   
|   
|   
|(3) |  | Incorporated by reference to Exhibit of same number in Companys Annual
Report on
Form 10-K for the Annual Period ended June 30, 2000 filed September 27,
2000.           
|   
|   
|   
|   
|(4) |  | Incorporated by reference to Exhibit 3.2 in Companys Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.                         

32



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##### Table of Contents





|(b) |  | Reports on Form 8-K.                                                                                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | One Report on Form 8-K was filed during the quarter ended December 31, 2001.                                                                                                                                                  
|   
|    |  | On December 27, 2001, the Company filed a Current Report dated December
12, 2001, reporting under Item 2 the sale of the Companys fixture subsidiaries (Ruud
Lighting, Inc., Kramer Lighting, Inc. and Ruud Lighting Europe).

33



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##### Table of Contents






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 hereunto duly authorized.

|      |  |                   |  |  |          |                                                                             
|----- |  | ----------------- |  |  | -------- | ----------------------------------------------------------------------------
|      |  |                   |  |  | ADVANCED | LIGHTING  TECHNOLOGIES,  INC.                                               
|     
|Date: |  | February 14, 2002 |  |  |          | By:/s/ Wayne R. Hellman
      Wayne R. Hellman
      Chief Executive Officer
|     
|Date: |  | February 14, 2002 |  |  |          | By:/s/ Steven C. Potts
      Steven C. Potts
      Chief Financial Officer  

34



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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------- | -- | -
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|Number  |  | Title                                                                                                                                                                                                                                                                                                                                                                                      |  | Page No.
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |         
|3.1     |  | Second Amended and Restated Articles of Incorporation filed
September 26, 1995                                                                                                                                                                                                                                                                                                             |  |          | (1 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|3.2     |  | Certificate of Adoption of Third Amendment to Second Amended
and Restated Articles of Incorporation filed October 6, 1999                                                                                                                                                                                                                                                                  |  |          | (2 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|3.3     |  | Certificate of Adoption of Fourth Amendment to Second Amended
and Restated Articles of Incorporation filed March 16, 2000                                                                                                                                                                                                                                                                  |  |          | (3 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|3.4     |  | Code of Regulations                                                                                                                                                                                                                                                                                                                                                                        |  |          | (4 | )
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|4.1     |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4                                                                                                                                                                                                                                                                                                                                        |  |          |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|10.1    |  | Tenth Amendment Agreement by and among Advanced Lighting
Technologies, Inc. and certain of its subsidiaries and PNC Bank,
National Association, as agent for certain other banks dated as of
December 12, 2001, amending the Credit Agreement by and among the
same parties dated as of May 21, 1999                                                                                       |  |          |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|10.2    |  | Fourth Amendment to Contingent Warrant Agreement dated as of
December 31, 2001 by and among Advanced Lighting Technologies,
Inc., General Electric Company, Wayne R. Hellman, individually and as
voting trustee under Voting Trust Agreement dated October 10, 1995,
Hellman Ltd. And Alan J. Ruud, individually and as voting trustee
under Voting Trust Agreement dated January 2, 1998 |  |          |    |  
|       
|       
|       
|       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                            |  |          |    |  
|       
|       
|       
|       
|12      |  | Statement Re: Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                            |  |          |    |  



---

|(1) |  | Incorporated by reference to Exhibit of same number in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1996.                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Incorporated by reference to Exhibit of same number in Companys
Quarterly Report on Form 10-Q/A for the Quarterly Period ended September
30, 1999 filed January 14, 2000.
|   
|   
|   
|   
|(3) |  | Incorporated by reference to Exhibit of same number in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2000 filed
September 27, 2000.           
|   
|   
|   
|   
|(4) |  | Incorporated by reference to Exhibit 3.2 in Companys Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.                         

35