##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 __________ FORM 10-Q (Mark One) þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the quarterly period ended March 31, 2005 or o
    
    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. 
  Ohio
    
    34-1803229(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 32000 Aurora Road, Solon, Ohio
    
    44139(Address of principal executive offices)
    
    (Zip Code)
 440 / 519-0500 
  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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ Indicate by check mark
whether the registrant has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes þ No o There were 1,131 shares of the Registrants Common Stock, $.001 par value per share, outstanding as
of March 31, 2005.




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##### 



INDEX Advanced Lighting Technologies, Inc. Page No.Part I
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets Reorganized Company as of March 31, 2005 and June 30, 2004
    
    
    2Condensed Consolidated Statements of Operations Reorganized Company for the Three Months Ended March 31, 2005
    
    
    4Reorganized Company for the Nine Months Ended March 31, 2005
    
    
    4Reorganized Company for the Three Months Ended March 31, 2004
    
    
    4Predecessor Company for the Six Months Ended December 31, 2003
    
    
    4Condensed Consolidated Statement of Shareholders Equity Reorganized Company for the Nine Months Ended March 31, 2005
    
    
    5Condensed Consolidated Statements of Cash Flows Reorganized Company for the Nine Months Ended March 31, 2005
    
    
    6Reorganized Company for the Three Months Ended March 31, 2004
    
    
    6Predecessor Company for the Six Months Ended December 31, 2003
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4.
    
    Controls and Procedures
    
    
    21Part II
    
    Other InformationItem 6.
    
    Exhibits and Reports on Form 8-K
    
    
    22Signatures
    
    
    
    
    23
 1




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##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets of Reorganized Company(in thousands, except per share amounts) (Unaudited)
    
    
    (Audited)March 31,
    
    
    June 30,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    2,483
    
    
    $
    4,701Trade receivables, less allowances of $851 and $706
    
    
    29,958
    
    
    
    29,787Inventories:Finished goods
    
    
    17,310
    
    
    
    16,105Raw materials and work-in-process
    
    
    13,539
    
    
    
    9,07330,849
    
    
    
    25,178Prepaid expenses
    
    
    1,971
    
    
    
    1,552Total current assets
    
    
    65,261
    
    
    
    61,218Property, plant and equipment:Land and buildings
    
    
    19,936
    
    
    
    18,165Machinery and equipment
    
    
    30,258
    
    
    
    29,100Furniture and fixtures
    
    
    2,504
    
    
    
    1,88052,698
    
    
    
    49,145Less accumulated depreciation
    
    
    5,481
    
    
    
    2,11847,217
    
    
    
    47,027Receivables from related parties
    
    
    3,023
    
    
    
    4,282Investments in affiliates
    
    
    2,255
    
    
    
    2,360Other assets
    
    
    3,870
    
    
    
    3,849Intangible assets, net
    
    
    24,457
    
    
    
    24,810Goodwill
    
    
    50,411
    
    
    
    50,561$
    196,494
    
    
    $
    194,107
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 2




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##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets of Reorganized Company(in thousands, except per share amounts) (Unaudited)
    
    
    (Audited)March 31,
    
    
    June 30,2005
    
    
    2004Liabilities and shareholders equityCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    8,968
    
    
    $
    4,184Accounts payable
    
    
    10,496
    
    
    
    10,755Payables to related parties
    
    
    899
    
    
    
    2,973Employee-related liabilities
    
    
    5,346
    
    
    
    6,197Accrued income and other taxes
    
    
    1,327
    
    
    
    1,414Other accrued expenses
    
    
    7,301
    
    
    
    9,216Total current liabilities
    
    
    34,337
    
    
    
    34,739Long-term debt
    
    
    124,715
    
    
    
    126,679Deferred tax liabilities
    
    
    857
    
    
    
    700Total liabilities
    
    
    159,909
    
    
    
    162,118Minority interest
    
    
    1,953
    
    
    
    1,477Preferred stock, $.001 par value, 239 shares authorized;
29 shares issued and outstanding
    
    
    29,338
    
    
    
    29,338Common shareholders equityCommon stock, $.001 par value, 80,000 shares authorized;
1 share issued and outstanding
    
    
    1
    
    
    
    1Paid-in-capital
    
    
    1,130
    
    
    
    1,130Accumulated other comprehensive income (loss)
    
    
    889
    
    
    
    (216
    )Retained earnings
    
    
    3,274
    
    
    
    259Total common shareholders equity
    
    
    5,294
    
    
    
    1,174$
    196,494
    
    
    $
    194,107
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 3




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##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Operations (Unaudited)(In thousands) PredecessorReorganized Company
    
    
    
    CompanyQuarter
    
    
    Nine Months
    
    
    Quarter
    
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    
    EndedMarch 31,
    
    
    March 31,
    
    
    March 31,
    
    
    
    December 31,2005
    
    
    2005
    
    
    2004
    
    
    
    2003Net sales
    
    $
    40,272
    
    
    $
    119,972
    
    
    $
    36,944
    
    
    
    $
    70,510Costs and expenses:Cost of sales
    
    
    24,335
    
    
    
    71,278
    
    
    
    22,475
    
    
    
    
    43,361Marketing and selling
    
    
    6,125
    
    
    
    17,967
    
    
    
    5,729
    
    
    
    
    11,311Research and development
    
    
    1,486
    
    
    
    4,598
    
    
    
    1,507
    
    
    
    
    3,095General and administrative
    
    
    3,886
    
    
    
    11,360
    
    
    
    4,617
    
    
    
    
    6,208Amortization of intangible assets
    
    
    246
    
    
    
    735
    
    
    
    227
    
    
    
    
    177Income from operations
    
    
    4,194
    
    
    
    14,034
    
    
    
    2,389
    
    
    
    
    6,358Other income (expense):Interest expense
    
    
    (3,453
    )
    
    
    (10,345
    )
    
    
    (3,410
    )
    
    
    
    (7,459
    )Interest income
    
    
    104
    
    
    
    301
    
    
    
    110
    
    
    
    
    188Income from investments
    
    
    53
    
    
    
    542
    
    
    
    
    
    
    
    
    3Gain on restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,184Write-off of deferred loan costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,251
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,258
    )Income (loss) before income taxes
and minority interest
    
    
    898
    
    
    
    4,532
    
    
    
    (911
    )
    
    
    
    (13,235
    )Income tax expense
    
    
    409
    
    
    
    1,041
    
    
    
    301
    
    
    
    
    360Income (loss) before minority interest
    
    
    489
    
    
    
    3,491
    
    
    
    (1,212
    )
    
    
    
    (13,595
    )Minority interest in income
of consolidated subsidiary
    
    
    (137
    )
    
    
    (476
    )
    
    
    (141
    )
    
    
    
    (251
    )Net income (loss)
    
    $
    352
    
    
    $
    3,015
    
    
    $
    (1,353
    )
    
    
    $
    (13,846
    )
 See Notes to Condensed Consolidated Financial Statements, including Basis of
Presentation describing the Reorganized Company and Predecessor Company. 4




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Statement of Shareholders Equity (Unaudited)
Nine Months Ended March 31, 2005(in thousands) AccumulatedOther
    
    
    
    
    
    
    CommonPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    ShareholdersStock
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity
    
    
    TotalBalance at June 30, 2004
    
    $
    29,338
    
    
    
    1
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    (216
    )
    
    $
    259
    
    
    $
    1,174
    
    
    $
    30,512Net income -
reorganized company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,015
    
    
    
    3,015
    
    
    
    3,015Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,105
    
    
    
    
    
    
    
    1,105
    
    
    
    1,105Balance at March 31, 2005
    
    $
    29,338
    
    
    
    1
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    889
    
    
    $
    3,274
    
    
    $
    5,294
    
    
    $
    34,632
 See Notes to Condensed Consolidated Financial Statements, including
Basis of Presentation describing the Reorganized Company. 5




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Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)(in thousands) Reorganized
    
    
    Reorganized
    
    
    
    PredecessorCompany
    
    
    Company
    
    
    
    CompanyNine Months
    
    
    Three Months
    
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    
    EndedMarch 31,
    
    
    March 31,
    
    
    
    December 31,2005
    
    
    2004
    
    
    
    2003Operating activitiesNet income (loss)
    
    $
    3,015
    
    
    $
    (1,353
    )
    
    
    $
    (13,846
    )Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:Depreciation
    
    
    3,419
    
    
    
    1,056
    
    
    
    
    3,412Amortization
    
    
    735
    
    
    
    227
    
    
    
    
    177Provision for doubtful accounts
    
    
    173
    
    
    
    177
    
    
    
    
    381Loss (income) from investments
    
    
    (542
    )
    
    
    
    
    
    
    
    (3
    )Gain on restructuring
    
    
    
    
    
    
    
    
    
    
    
    (1,184
    )Write-off of deferred loan costs
    
    
    
    
    
    
    
    
    
    
    
    2,251Reorganization expenses in excess of (less than)
cash payments of reorganization expenses
    
    
    (1,842
    )
    
    
    (4,743
    )
    
    
    
    2,968Old Senior Note interest accrued but not paid
    
    
    
    
    
    
    
    
    
    
    
    4,000Payment of pre-petition payables
    
    
    (371
    )
    
    
    (4,214
    )
    
    
    
    Changes in current assets and liabilities and other
    
    
    (5,940
    )
    
    
    3,147
    
    
    
    
    6,017Net cash provided by (used in) operating activities
    
    
    (1,353
    )
    
    
    (5,703
    )
    
    
    
    4,173Investing activitiesCapital expenditures
    
    
    (4,135
    )
    
    
    (608
    )
    
    
    
    (1,799
    )Purchase of business
    
    
    
    
    
    
    (827
    )
    
    
    
    Investment in affiliate
    
    
    
    
    
    
    
    
    
    
    
    (592
    )Proceeds from sale of investment
    
    
    450
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (3,685
    )
    
    
    (1,435
    )
    
    
    
    (2,391
    )Financing activitiesNet borrowings under revolving credit loan
    
    
    6,372
    
    
    
    2,045
    
    
    
    
    Net borrowings under debtor in possession facility
    
    
    
    
    
    
    
    
    
    
    
    (25,126
    )Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    
    11,000Payments of long-term debt and capital leases
    
    
    (3,552
    )
    
    
    (1,153
    )
    
    
    
    (1,522
    )Investment by Saratoga Lighting Holdings, LLC
    
    
    
    
    
    
    
    
    
    
    
    18,000Officer loan repayment
    
    
    
    
    
    
    
    
    
    
    
    1,334Stock purchases by executive management
    
    
    
    
    
    
    61
    
    
    
    
    Net cash provided by financing activities
    
    
    2,820
    
    
    
    953
    
    
    
    
    3,686Increase (decrease) in cash and cash equivalents
    
    
    (2,218
    )
    
    
    (6,185
    )
    
    
    
    5,468Cash and cash equivalents, beginning of period
    
    
    4,701
    
    
    
    9,635
    
    
    
    
    4,167Cash and cash equivalents, end of period
    
    $
    2,483
    
    
    $
    3,450
    
    
    
    $
    9,635Supplemental cash flow informationInterest paid
    
    $
    13,601
    
    
    $
    3,418
    
    
    
    $
    1,200Income taxes paid (refunds received), net
    
    
    740
    
    
    
    159
    
    
    
    
    159Capitalized interest
    
    
    19
    
    
    
    42
    
    
    
    
    37
 See Notes to Condensed Consolidated Financial Statements, including Basis of
Presentation describing the Reorganized Company and Predecessor Company. 6




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Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005
(Dollars in thousands) A. Organization Advanced Lighting Technologies, Inc. (the Company or ADLT) is an innovation-driven designer,
manufacturer and marketer focused on metal halide lighting products, including materials, system
components, systems and equipment. B. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America 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 adjustments related to the Companys
emergence from bankruptcy. 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,
2004. The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect
reported amounts and related disclosures. Actual results could differ from those estimates. On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its United States
subsidiaries, completed their previously announced financial restructuring when their Fourth
Amended Chapter 11 Plan of Reorganization (the Final Plan) under the U.S. Bankruptcy Code became
effective and was substantially consummated. ADLTs non-U.S. operating subsidiaries and Deposition
Sciences, Inc., a U.S. subsidiary, were not a part of the proceedings under the Bankruptcy Code.
The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity
and the adoption of fresh start accounting in accordance with Statement of Position No. 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code. Also, as encouraged
under SEC Staff Accounting Bulletin No. 54, Push Down Basis of Accounting Required in Certain
Limited Circumstances, the Company has reflected an additional adjustment to establish a new basis
for its assets and liabilities based on the amount paid by Saratoga Lighting Holdings, LLC
(Saratoga) for its ownership. For financial reporting purposes, the Company used an effective
date of December 31, 2003. References in these financial statements to Predecessor Company refer
to the Company prior to December 31, 2003. References to Reorganized Company refer to the
Company on and after December 31, 2003, after giving effect to the issuance of new securities in
exchange for the previously outstanding securities in accordance with the Final Plan, the
additional investment in the Company by Saratoga, and the implementation of fresh start and push
down accounting. 7




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##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005
(Dollars in thousands) B. Basis of Presentation (continued) A black line has been drawn between the Reorganized Company and Predecessor Company results of
operations and statements of cash flows. The results of operations and statements of cash flows
for the Reorganized Company and Predecessor Company are not considered comparable in all respects. Reporting Periods The Companys subsidiaries have fiscal years that end on the Sunday closest to June 30 and fiscal
quarters that end on the Sunday closest to the respective calendar quarter end. As a result, the
first nine months of fiscal 2005 consisted of 40 weeks as compared to the first nine months of
fiscal 2004 that consisted of 39 weeks. The three month periods ended March 31, 2005 and 2004
consisted of 13 weeks. Income Taxes Actual income tax expense for the interim periods differ from the amounts computed by applying the
U.S. Federal income tax rate of 35% to the income (loss) before income taxes because under FAS No.
109, Accounting for Income Taxes, the tax benefit related to the U.S. loss for these interim
periods was required to be reserved in a valuation allowance due to the uncertainty regarding the
ultimate realization of the tax benefit of such losses. The income tax expense recognized for the
interim periods relates to income taxes on certain foreign subsidiaries income. The Company had
net operating losses at December 31, 2003 which, in accordance with the principles of fresh-start
accounting, were not included in the net deferred tax assets of the Reorganized Company. These net
operating losses are available to be utilized, and, to the extent the net operating losses are
utilized ($150 in the current quarter), goodwill will be reduced accordingly for the benefit
received. C. Comprehensive Income (Loss) For the quarters ended March 31, 2005 and 2004, the Companys comprehensive income (loss) was $218
and $(1,338), respectively. For the nine months ended March 31, 2005, the Companys comprehensive
income was $4,120. For the six months ended December 31, 2003, the Companys comprehensive income
(loss) was $(12,487). These amounts include the periods net income (loss) and the Companys
other component of comprehensive income, foreign currency translation adjustments. 8




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##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005
(Dollars in thousands) D. Financing Facilities The Companys Bank Credit Facility is a $30,000 facility that consists of a term loan requiring
monthly principal payments of $183 ($8,250 outstanding at March 31, 2005) with a revolving credit
loan, subject to availability, making up the remainder of the facility. Availability of borrowings
under the revolving credit loan is determined by the Companys eligible account receivables and
inventories. The amount outstanding under the revolving credit loan was $6,372 at March 31, 2005.
Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (6.50%
at March 31, 2005). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus
1.50% (7.25% at March 31, 2005). The final maturity of the facility is December 10, 2008. The
revolving credit loan amount at March 31, 2005 has been classified as a current liability in
accordance with the provisions of Emerging Issues Task Force Issue No. 95-22, Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit Agreements that include Both a
Subjective Acceleration Clause and a Lock-box Arrangement. The Bank Credit Facility includes affirmative and negative covenants customary for this type of
agreement, prohibits cash dividends and includes financial covenants relating to Minimum Adjusted
EBITDA and Capital Expenditures. The principal security for the Bank Credit Facility 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 in North America and the United Kingdom and the Companys facility in Urbana, Illinois,
and is cross-collateralized and secured with the revolving credit loan. The Companys long-term debt includes $114,400 of 11% Senior Notes due March 2009. The Notes are
redeemable at the Companys option, in whole or in part, at any time at a redemption price equal to
the principal amount of the New Notes plus accrued interest. Interest on the Notes is payable
semi-annually on March 31 and September 30. The Indenture for the Notes 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. There are no
sinking fund requirements. 9




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##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005
(Dollars in thousands) E. Saratoga Investment Saratoga received, in exchange for cancellation of its holdings of the Predecessor Companys Common
Stock and Old Preferred Stock, and an $18,000 cash investment, new redeemable preferred stock (the
Series A Preferred) of the Reorganized Company, with an initial liquidation preference of
$29,000, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis,
assuming issuance of common stock of the Reorganized Company to its senior management pursuant to
the new management incentive plan). Under the management incentive plan, shares equal to
approximately 9% of the common stock of the Reorganized Company have been issued. The Series A Preferred has a liquidation preference of $1 per share, plus dividends at the rate of
8% per annum, when and if declared. The cumulative undeclared dividends were $3,125 as of March
31, 2005. The initial carrying amount of the Series A Preferred was set at $29,000, the estimated
fair value at the date of issuance. The Holder of the Series A Preferred may, by notice, require
the Company to redeem the outstanding Series A Preferred within 21 days following the occurrence of
certain corporate events. The Company may redeem the Series A Preferred in whole, but not in part,
at any time. The redemption price for the Series A Preferred is equal to the liquidation
preference amount for such shares. The Series A Preferred shares are each entitled to one vote on
each matter presented to shareholders of the Company, as well as one vote on each matter required
to be voted upon by the Series A Preferred as a class. As a consequence, the Series A Preferred
represents approximately 96.3% of the voting power of the Company at March 31, 2005. As of March
31, 2005, Saratoga held 98.5% of the voting power of the Company. 10




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations(Dollars in thousands) This report on Form 10-Q may contain forward-looking statements that involve risks and
uncertainties. The operation of the Company and its subsidiaries involves risks and uncertainties,
including the strength of the recovery of the U.S. economy, trends affecting the Companys
financial condition or results of operations, continued growth of the metal halide lighting market,
the Companys operating and growth strategies, potential acquisitions or joint ventures by the
Company, litigation affecting the Company, the timely development and market acceptance of new
products, the ability to provide adequate incentives to retain and attract key employees, the
impact of competitive products and pricing, and other risks. 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 is an innovation-driven designer, manufacturer and marketer focused on metal halide
lighting products, including materials, system components, systems and equipment. Metal halide
lighting is currently used primarily in commercial and industrial applications such as factories
and distribution centers, outdoor site and landscape lighting, sports facilities and large retail
spaces such as superstores. 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 systems. 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 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. 11




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Results of Operations Quarter Ended March 31, 2005 compared to Quarter Ended March 31, 2004 The following table sets forth, as a percentage of net sales, certain items in the Companys
Condensed Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004: Three Months Ended
    
    
    Three Months EndedMarch 31, 2005
    
    
    March 31, 2004Net sales
    
    $
    40,272
    
    
    
    100.0
    %
    
    $
    36,944
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    24,335
    
    
    
    60.4
    
    
    
    22,475
    
    
    
    60.8Marketing and selling
    
    
    6,125
    
    
    
    15.2
    
    
    
    5,729
    
    
    
    15.5Research and development
    
    
    1,486
    
    
    
    3.7
    
    
    
    1,507
    
    
    
    4.1General and administrative
    
    
    3,886
    
    
    
    9.7
    
    
    
    4,617
    
    
    
    12.5Amortization of intangible assets
    
    
    246
    
    
    
    0.6
    
    
    
    227
    
    
    
    0.6Income from operations
    
    
    4,194
    
    
    
    10.4
    
    
    
    2,389
    
    
    
    6.5Other income (expense):Interest expense
    
    
    (3,453
    )
    
    
    (8.6
    )
    
    
    (3,410
    )
    
    
    (9.3
    )Interest income
    
    
    104
    
    
    
    0.3
    
    
    
    110
    
    
    
    0.3Income from investments
    
    
    53
    
    
    
    0.1
    
    
    
    
    
    
    
    Income (loss) before income taxes
and minority interest
    
    
    898
    
    
    
    2.2
    
    
    
    (911
    )
    
    
    (2.5
    )Income tax expense
    
    
    409
    
    
    
    1.0
    
    
    
    301
    
    
    
    0.8Income (loss) before minority interest
    
    
    489
    
    
    
    1.2
    
    
    
    (1,212
    )
    
    
    (3.3
    )Minority interest in income
of consolidated subsidiary
    
    
    (137
    )
    
    
    (0.3
    )
    
    
    (141
    )
    
    
    (0.4
    )Net income (loss)
    
    $
    352
    
    
    
    0.9
    %
    
    $
    (1,353
    )
    
    
    (3.7
    %)
 Factors that have affected the results of operations for the third quarter of fiscal 2005 as
compared to the third quarter of fiscal 2004 are discussed below. Net Sales. Net sales increased 9.0% to $40,272 in the third quarter of fiscal 2005 from $36,944 in
the third quarter of fiscal 2004. Third quarter metal halide product sales increased 11% to
$32,678 compared with $29,436 in the same period last year. This increase in metal halide product
sales is primarily the result of an increase in sales of lamps and power supplies. Non-metal
halide lighting product sales decreased 4% over the year ago period due primarily to a decrease in
non-metal halide material sales. Total lighting product sales inside the U.S. increased 15% in the third quarter of fiscal 2005 as
compared to the same period a year ago due primarily to an increase in sales of lamps and power
supplies. Total lighting product sales outside the U.S. increased 4% as compared to the year ago
period due primarily to increases in lamp sales and an increase in foreign currency exchange rates. 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. 12




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Cost of Sales.Cost of sales increased 8.3% to $24,335 in the third quarter of fiscal 2005 from
$22,475 in the third quarter of fiscal 2004. Cost of sales in the third quarter of fiscal 2004
included an additional amount of $1,500 above the Companys normal manufacturing cost. In
accordance with fresh-start accounting principles, inventory as of December 31, 2003, was
recorded at fair value, which amount approximated $1,500 above manufacturing cost in the Companys
condensed consolidated balance sheet as of December 31, 2003. This additional amount reduced
reported gross margin and net profit in the third quarter of fiscal 2004 as the inventory was sold.
As a percentage of net sales, cost of sales was 60.4% for the third quarter of fiscal 2005. This
compares with cost of sales of 60.8% for fiscal 2004, including the $1,500 described above. The
additional $1,500 represented 4.1% of sales in the third quarter of fiscal 2004. The relatively high percentage of cost of sales in the third quarter of fiscal 2005 was due to
several factors including a change in the mix of product sales toward lamps and power supplies that
typically have a lower margin than material sales. Additionally, the cost of copper and steel used
in the production of power supplies has risen significantly from the year ago comparable period.
Finally, the Company incurred some additional costs due to its previously announced transition of
its North American power supply manufacturing operation to Chennai, India. While this transition
will result in higher costs during the last half of fiscal 2005, the Company believes that the
lower cost of production in India will benefit the Company in fiscal 2006 and beyond. Marketing and Selling Expenses.Marketing and selling expenses increased 6.9% to $6,125 in the
third quarter of fiscal 2005 from $5,729 in the third quarter of fiscal 2004. As a percentage of
net sales, marketing and selling expenses decreased to 15.2% in the third quarter of fiscal 2005
from 15.5% in the third quarter of fiscal 2004. This decrease in marketing and selling expenses as
a percentage of sales was a result of a more rapid increase in sales than the increase in marketing
and selling expenses. Research and Development Expenses. Research and development expenses remained relatively constant
at $1,486 in the third quarter of fiscal 2005 as compared to $1,507 in the third quarter of fiscal
2004. Research and development expenses relate to: (i) expansion of the product line and
continued improvement in lamp technology including the line of Uni-Form® pulse start lamps (with
improved energy efficiency, quicker starting and restarting and a more compact arc source, which
improves the light and reduces material costs); (ii) continual development of new materials for the
worlds major lighting manufacturers; (iii) development and testing of electronic and
electromagnetic power supply systems; and, (iv) improvement of coating processes of optical
thin-films to broaden the applications and development of new thin-film materials, and using
coatings to develop improvements to lighting technologies. 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 decreased 15.8% to $3,886
in the third quarter of fiscal 2005 as compared to $4,617 in the third quarter of fiscal 2004. The
decrease in general and administrative expenses was primarily due to a decrease in the CEO
retention bonus expense of $507 (A total of $2,027 is being accrued ratably over the twelve months
ended fiscal 2005, while $2,027 was accrued over the last six months of fiscal 2004). The
after-tax amount of the CEO
retention bonus, approximately $1,147, is scheduled to be applied against the Companys receivable
from the CEO in July 2005. Amortization of Intangible Assets.Amortization expense of $246 in the third quarter of fiscal
2005 was comparable to amortization expense of $227 in the third quarter of fiscal 2004. 13




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Income from Operations.As a result of the items noted above, the Company realized income from
operations in the third quarter of fiscal 2005 of $4,194 as compared to income from operations of
$2,389 in the year ago period. Interest Expense.Interest expense in the third quarter of fiscal 2005 of $3,453 was comparable to
the interest expense of $3,410 in the third quarter of fiscal 2004. The interest expense in both
periods includes interest on the Companys 11% Senior Notes. Income (Loss) from Investments.The income from investments in the third quarter of fiscal 2005 of
$53 represents the equity income from the Companys 40% ownership of Aldrich-APL LLC, a
manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications. Income (Loss) before Income Taxes and Minority Interest.The Company had income before income
taxes and minority interest of $898 in the third quarter of fiscal 2005 as compared to a loss
before income taxes and minority interest of $(911) in the third quarter of fiscal 2004. Income Tax Expense.Income tax expense was $409 for the third quarter of fiscal 2005 as compared
to $301 in the third quarter of fiscal 2004. The income tax expense in both quarters related to
certain of the Companys foreign operations. At June 30, 2004, the Company had net operating loss carryforwards of $130,833 available to reduce
future United States federal taxable income, which expire 2008 through 2024. On August 15, 2003,
Saratoga purchased the preferred and common shares owned by GE. This transaction caused an
ownership change greater than 50% which will limit the annual net operating loss the Company can
use to offset any future taxable income pursuant to Section 382 of the Internal Revenue Code. This
limitation is effective with the fiscal year ended June 30, 2004. The Company also has a capital
loss carryforward of $40,117 available to reduce future capital gains. The usage of this
carryforward will also be limited as a result of the ownership change. This carryforward expires
in 2007. The Company also had research and development credit carryforwards of approximately $3,818
available at June 30, 2004, which expire 2008 through 2020. Additionally, in conjunction with the
Alternative Minimum Tax (AMT) rules, the Company had available AMT credit carryforwards for tax
purposes of approximately $98, which may be used indefinitely to reduce regular federal income
taxes. The usage of these credits will also be limited as a result of the ownership change. Also, at June 30, 2004, the Company had foreign net operating loss carryforwards for tax purposes
totaling $1,163 that expire 2006 to 2007 and $9,395 that have no expiration dates. Nine Months Ended March 31, 2005 compared to Nine Months Ended March 31, 2004 The Companys emergence from Chapter 11 bankruptcy proceedings in December 2003 resulted in a new
reporting entity and the adoption of fresh start reporting. Generally accepted accounting
principles do not permit combining the results of the Reorganized Company with those of the
Predecessor Company in the condensed consolidated financial statements. Accordingly, the
Consolidated Statement of Operations does not present results for the nine months ended March 31,
2004. However, in order to provide useful information and to facilitate understanding of the
operating results for the nine months ended March 31, 2005 relative to the corresponding fiscal
2004 period, the following discussion combines the reported 14




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##### 



operating income of the Predecessor
Company for the six months ended December 31, 2003 and of the Reorganized Company for the three
months ended March 31, 2004. These amounts are presented by caption in the table below and are
captioned Pro Forma Results. The primary impacts of fresh start reporting on operating income was that it caused a decline
in depreciation expense due to the asset write-downs recorded in conjunction with fresh start
reporting and an increase in amortization expense due to the fresh start adjustment of identifiable
intangible assets. Depreciation expense totaled $3,419 for the nine months ended March 31, 2005
and $4,468 for the nine months ended March 31, 2004. Amortization expense was $735 for the nine
months ended March 31, 2005 and $404 for the nine months ended March 31, 2004. Also, cost of sales
in the third quarter of fiscal 2004 included an additional amount of $1,500 above the Companys
normal manufacturing cost. In accordance with fresh-start accounting principles, inventory as of
December 31, 2003, was recorded at fair value, which amount approximated $1,500 above manufacturing
cost in the Companys condensed consolidated balance sheet as of December 31, 2003. The Companys subsidiaries have fiscal years that end on the Sunday closest to June 30 and
fiscal quarters that end on the Sunday closest to the respective calendar quarter end. The first
nine months of fiscal 2005 consisted of 40 weeks as compared to the first nine months of fiscal
2004 that consisted of 39 weeks. As a result, an increase of approximately 2.5% in sales and costs
and expenses resulted from the additional week in the first nine months of fiscal 2005 compared to
the first nine months of fiscal 2004. The following table sets forth, as a percentage of net sales, certain items in the Companys
Condensed Consolidated Statements of Operations for the nine months ended March 31, 2005 and 2004: Reorganized Company
    
    
    Pro Forma ResultsNine Months Ended
    
    
    Nine Months EndedMarch 31, 2005
    
    
    March 31, 2004Net sales
    
    $
    119,972
    
    
    
    100.0
    %
    
    $
    107,454
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    71,278
    
    
    
    59.4
    
    
    
    65,836
    
    
    
    61.3Marketing and selling
    
    
    17,967
    
    
    
    15.0
    
    
    
    17,040
    
    
    
    15.8Research and development
    
    
    4,598
    
    
    
    3.8
    
    
    
    4,602
    
    
    
    4.3General and administrative
    
    
    11,360
    
    
    
    9.5
    
    
    
    10,825
    
    
    
    10.1Amortization of intangible assets
    
    
    735
    
    
    
    0.6
    
    
    
    404
    
    
    
    0.4Income from operations
    
    
    14,034
    
    
    
    11.7
    
    
    
    8,747
    
    
    
    8.1
 Net Sales. Net sales increased 11.6% to $119,972 in the first nine months of fiscal 2005 from
$107,454 in the first nine months of fiscal 2004, due in part to the additional week during the
first nine months of fiscal 2005. Metal halide product sales for the first nine months of fiscal
2005 increased 16% to $94,646 compared with $81,872 in the same period last year. This increase in
metal halide product sales was primarily the result of an increase in lamp and material sales.
Non-metal halide lighting product sales decreased 17% over the year ago period due primarily to a
decrease in power supply sales. Total lighting product sales inside the U.S. increased 12% in the first nine months of fiscal 2005
as compared to the same period a year ago primarily due to an increase in lamp and power supply
sales. Total lighting product sales outside the U.S. increased 9% as compared to the year ago
period due primarily to increases in lamp and material sales and an increase in foreign currency
exchange rates. 15




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##### 



Cost of Sales.Cost of sales increased 8.3% to $71,278 in the first nine months of fiscal 2005
from $65,836 in the first nine months of fiscal 2004, due in part to the additional week during the
first nine months of fiscal 2005. As noted above, in accordance with fresh-start accounting
principles, inventory as of December 31, 2003, was recorded at fair value, which amount
approximated $1,500 above manufacturing cost in the Companys condensed consolidated balance sheet
as of December 31, 2003. This additional amount reduced reported gross margin and net profit in
the third quarter of fiscal 2004 as the inventory was sold. As a percentage of net sales, cost of
sales was 59.4% for the first nine months of fiscal 2005. This compares with cost of sales of
61.3% for the first nine months of fiscal 2004, including the $1,500 described above. The
additional $1,500 represented 1.4% of sales in the first nine months of fiscal 2004. Cost of sales expense was positively impacted by the continuing transfer of lamp and power supply
production to India, improvements in cost management, an improvement in the product mix (stronger
growth in lamp and material sales than in power supply sales), and a reduction in depreciation
expense of $637 related primarily to the effects of the application of fresh-start accounting
principles at December 31, 2003. Cost of sales expense was negatively impacted by increases in the
cost of copper and steel used in the production of power supplies as compared to the year ago
period and additional costs due to its previously announced transition of the Companys North
American power supply manufacturing operation to Chennai, India. While this transition will result
in higher costs during the last half of fiscal 2005, the Company believes that the lower cost of
production in India will benefit the Company in fiscal 2006 and beyond. Marketing and Selling Expenses.Marketing and selling expenses increased 5.4% to $17,967 in the
first nine months of fiscal 2005 from $17,040 in the first nine months of fiscal 2004. As a
percentage of net sales, marketing and selling expenses decreased to 15.0% in the first nine months
of fiscal 2005 from 15.8% in the first nine months of fiscal 2004. The decrease as a percentage of
sales resulted from the significant increase in sales that occurred while marketing and selling
expenses grew at a slower rate. Research and Development Expenses. Research and development expenses remained consistent at $4,598
in the first nine months of fiscal 2005 as compared to $4,602 in the first nine months of fiscal
2004. Research and development expenses incurred related to: (i) expansion of the product line
and continued improvement in lamp technology including the line of Uni-Form® pulse start lamps
(with improved energy efficiency, quicker starting and restarting and a more compact arc source,
which improves the light and reduces material costs) (ii) continual development of new materials
for the worlds major lighting manufacturers; (iii) development and testing of electronic and
electromagnetic power supply systems; and, (iv) improvement of coating processes of optical
thin-films to broaden the applications and development of new thin-film materials, and using
coatings to develop improvements to lighting technologies. 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 4.9% to $11,360
in the first nine months of fiscal 2005 as compared to $10,825 in the first nine months of fiscal
2004. The increase in general and administrative expenses was primarily due to an increase in the
CEO retention bonus expense of $507 (A total of $2,027 is being accrued ratably over the twelve
months ended fiscal 2005, while $2,027 was accrued over the last six months of fiscal 2004). The
after-tax amount of the fiscal 2005 CEO retention bonus, approximately $1,147, is scheduled to be
applied against the Companys receivable from the CEO in July 2005. 16




---



##### 



Amortization of Intangible Assets.Amortization expense increased to $735 in the first nine months
of fiscal 2005 from $404 in the first nine months of fiscal 2004. The increase was due to the
amortization of identifiable intangibles established at December 31, 2003 in accordance with the
provisions of fresh-start accounting. Income from Operations.As a result of the items noted above, the Company realized income from
operations in the first nine months of fiscal 2005 of $14,034 as
compared to pro forma income from operations
of $8,747 in the year ago period. Liquidity and Capital Resources The Companys sources of liquidity include cash and cash equivalents, cash flow from operations and
amounts available under its Bank Credit Facility. The Company believes these sources of liquidity
are sufficient for at least the next several years. As a result of the exchange of the $100,000 8%
Senior Notes due March 2008 for $114,400 11% Senior Notes due March 2009, the Company has extended
the maturity of most of its debt until 2009. The Company believes that its cash flow from
operations will be more than adequate to service the debt, prior to the maturity of the 11% Senior
Notes. The Bank Credit Facility is a $30,000 facility that consists of a term loan that requires monthly
principal payments of $183 ($8,250 outstanding at March 31, 2005) with a revolving credit loan,
subject to availability, making up the remainder of the facility. The amount outstanding under the
revolving credit loan was $6,372 at March 31, 2005. Interest rates on the revolving credit loan
are based on Libor plus 2.75% or Prime plus .75% (6.50% at March 31, 2005). Interest rates on the
term loan are based on Libor plus 3.50% or Prime plus 1.50% (7.25% at March 31, 2005). The final
maturity of the revolving credit facility and the term loan is December 10, 2008. The Bank Credit Facility contains certain affirmative and negative covenants customary for this
type of agreement, prohibits cash dividends, and includes financial covenants related to Minimum
Adjusted EBITDA and Capital Expenditures. At March 31, 2005, the Company was in compliance with
the terms of the Bank Credit Facility. The principal security for the Bank Credit Facility 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 in North America and the United Kingdom as well as the Companys facility in Urbana,
Illinois, and is cross-collateralized and secured with the revolving credit loan. Cash decreased $2,218 during the nine months ended March 31, 2005. Cash used in operating
activities totaled $1,353, cash used in investing activities totaled $3,685, and cash provided by
financing activities totaled $2,820. Net Cash Provided by (Used in) Operating Activities.Net cash used in operating activities totaled
$1,353 for the nine months ended March 31, 2005. This reflects the $12,584 payment of both
semi-annual interest payments related to the Companys Senior Notes due March 31 and September 30.
It also reflects the impact of one-time payments of reorganization expenses totaling $1,842 and
pre-petition liabilities of $371 related to the Companys emergence from Chapter 11 Bankruptcy,
which have now been fully paid. Finally, net cash used in operating activities reflects an
increase in inventory of $5,671. A portion of the increase in inventory is expected to be a
permanent increase due to the longer supply chain which results from the continuing shift of
production to India, but a portion also resulted from a temporary
increase in safety stocks to minimize the risk of supply disruptions during the repositioning of 17




---



##### 



manufacturing to India. The Company expects that the safety stock inventory levels will be reduced
when the transfer of power supply production from North America to India is completed. The
Company does not believe any further increase in inventory levels will be required as reductions in
safety stock requirements offset any future growth in inventories associated with expanding
revenues. Net Cash Used in Investing Activities.In the nine months ended March 31, 2005, net cash used in
investing activities totaled $3,685, including $4,135 related to capital expenditures for plant and
equipment, the majority of which relates to machinery and equipment. The capital expenditures in
fiscal 2005 also include a building purchase of $1,232 in Chennai, India, that will house the
Companys power supply manufacturing operation. The Company will move these operations from its
existing lamp manufacturing facility resulting in additional capacity for the Companys lamp
manufacturing operations. The Companys capital expenditure program is expected to approximate
between $5,000 and $6,000 in fiscal 2005. 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 Financing Activities.In the nine months ended March 31, 2005, net cash
provided by financing activities was $2,820 resulting from an increase in borrowings on the
Companys revolving credit loan of $6,372, net of $3,552 of scheduled payments of long-term debt
that included the one-time payment of $1,402 to Rohm and Haas Company related to a promissory note
obligation. The interest-bearing obligations of the Company totaled $133,683 as of March 31, 2005, and
consisted of: $14,622 outstanding under the Bank Credit Facility; $114,400 of 11% Senior Notes;
mortgages of $4,371; and obligations of foreign subsidiaries and other debt of $290. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that effect the reported amounts of our
assets, liabilities, revenues and costs and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including those related to:
valuation of accounts and notes receivable and loan receivable from officer, valuation of
investments, valuation of long-lived assets, valuation of inventory valuation reserves, revenue
recognition, and deferred tax assets. We base our estimates on historical experience and on
various other assumptions that we believe reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. We have identified the following policies as critical to our business operations and the
understanding of our results of operations. For a detailed discussion on the application of these
and other accounting policies, see Note C of the Notes to Consolidated Financial Statements in
the Annual Report on Form 10-K for the Period Ended June 30, 2004. Valuation of Accounts and Notes Receivable and Loan Receivable from Officer Management evaluates and makes estimates of the collectibility of the Companys accounts and notes
receivable, including unbilled accounts receivable related to long-term equipment contracts, based
on a 18




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##### 



combination of factors. Management analyzes historical bad debts, customer credit-worthiness,
and current economic trends in evaluating the adequacy of the allowance for doubtful accounts and
whether there is any impairment in its notes receivable. In circumstances where the Company is
aware of a certain customers inability to meet its financial obligation, a specific reserve is
recorded to reduce the receivable to the amount the Company believes will be collected. Material
changes in the allowance for doubtful accounts may occur if the results of managements evaluation
change or if a different method is used to estimate possible losses. The accounts receivable
balance was $29,958, net of an allowance of $851 as of March 31, 2005. The Company also has a loan and interest receivable of $2,914 from the Chief Executive Officer.
The loan documents require that the after-tax proceeds of bonuses payable to the CEO be applied
against the loan and interest. In the second quarter of fiscal 2005, the Company applied the
after-tax proceeds of the CEO retention and performance bonuses of $1,314 to the balance
outstanding. Management periodically evaluates the adequacy of the underlying assets to repay this
loan. The Company believes the loan receivable amount will be realized in accordance with the
terms of loan documents. Inventory Valuation Reserves The Company values its inventory for accounting purposes at the lower of cost (first-in, first-out
method) or market. In circumstances where the Company is aware of a problem in the valuation of a
certain item, a specific reserve is recorded to reduce the item to its net realizable value. For
all other inventory, the Company records a reserve based on a combination of factors, including
actual usage in recent history and projected usage in the future. If expected circumstances should
change due to general economic or product obsolescence issues resulting in lower-than-expected
usage, managements estimate of the net realizable value could be reduced by a material amount. Valuation of Long-Lived Assets The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity
and adoption of fresh start reporting in accordance with SOP No. 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code. The Companys tangible assets were adjusted
in accordance with SOP 90-7 which resulted in a decrease in the Companys real estate of $11,644
and a decrease in personal property (machinery and equipment and furniture and fixtures) of
$28,790. The Companys identifiable intangible assets were adjusted to $24,675 representing
customer contracts and relationships of $10,000, trademarks and tradenames of $8,635, and
technology of $6,040. In addition to the above, the application of SOP 90-7 and SEC Staff Accounting Bulletin No. 54,
Push Down Basis of Accounting Required in Certain Limited Circumstances, resulted in the
elimination of the existing goodwill and the establishment of a new amount of goodwill of $50,561,
that represents the reorganization value in excess of amounts allocable to identifiable assets.
In accordance with the provisions of Statement of Financial Accounting Standards (FAS) No. 142,
Goodwill and Other Intangible Assets, no amortization of goodwill was recorded in fiscal 2003 or
fiscal 2004. Additionally, the newly-established goodwill will not be amortized. Rather, the
Company will evaluate this asset for impairment at least annually and whenever there is an
impairment indicator using the fair value guidelines of FAS No. 142. The Company evaluates the carrying value of its investment in other long-lived assets for
impairment such as property, plant and equipment whenever there is an impairment indicator,
generally using an undiscounted cash flow methodology. 19




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##### 



Revenue Recognition The Company has entered into certain contracts with customers for the construction of lighting and
thin-film coating equipment. The Company also has certain contracts related to the further
development and application of lighting and coating technologies for the U.S. government. Revenue
is recognized on these contracts as work on the contract progresses using the percentage of
completion method of accounting, which relies on estimates of total expected contract revenues and
costs. Under this method reasonable estimates of the costs applicable to the various stages of a
contract are made, thus, impacting the level of recognized revenue. Since the financial reporting
of these contracts depends on estimates, which are assessed continually during the term of the
contract, recognized revenues and profit are subject to revisions as the contract progresses toward
completion. Revisions in profit estimates are reflected in the period in which the facts that give
rise to the revision become known. Should estimates indicate a loss is expected to be incurred
under a contract, cost of sales is charged with a provision for such loss. Deferred Tax Assets and Valuation Allowance The Company had approximately $10,379 of net deferred tax assets related principally to certain
unused tax credits and loss carryforwards as of June 30, 2004. The realization of these assets is
based upon the Company generating future taxable income. Due to the Companys historical results
it is uncertain as to when it will realize taxable income that will allow it to utilize its tax
credits and loss carryforwards and, accordingly, has recorded a valuation allowance of
approximately $10,379. Additionally, on August 15, 2003, Saratoga purchased the preferred and
common shares owned by GE. This transaction caused an ownership change greater than 50% which will
limit the annual net operating loss and tax credit carryforwards the Company can use to offset any
future taxable income pursuant to Section 382 of the Internal Revenue Code. This limitation is
effective with the fiscal year ended June 30, 2004. The Company has net operating losses which, in
accordance with the principles of fresh start accounting, were not recorded. These net operating
losses are available to be utilized, and, to the extent the net operating losses are utilized,
goodwill will be reduced accordingly for the benefit received. Management will continue to
evaluate the realization of these deferred tax assets that are subject to the Companys future
operations. The Companys future operations will be influenced by the general business
environment, which is difficult to predict and beyond the control of the Company. Foreign Currency Approximately 31% of the Companys net sales in fiscal 2004 were denominated in currencies other
than U.S. dollars, principally pounds sterling, Australian dollars, Canadian dollars, Euros and
Japanese yen. A significant weakening of such currencies versus the U.S. dollar could have a
material adverse effect on the Company. Item 3. Quantitative and Qualitative Disclosures about Market Risk During the nine months ended March 31, 2005, 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,
2004. 20




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Item 4. Controls and Procedures The Company evaluated the design and operation of its disclosure controls and procedures as of
March 31, 2005, to determine whether they are effective in ensuring that the disclosure of required
information is timely made in accordance with the Exchange Act and the rules and forms of the
Securities and Exchange Commission. This evaluation was made under the supervision and with the
participation of management, including the Companys principal executive officer and chief
accounting officer. The principal executive officer and chief accounting officer have concluded,
based on their review, that the Companys disclosure controls and procedures, as defined at
Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that information required to be
disclosed by the Company in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms. No significant changes were made to the Companys internal controls or other
factors that could significantly affect these controls subsequent to the date of their evaluation. 21




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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 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit
    
    
    
    
    
    IncorporatedNumber
    
    
    Title
    
    
    by Reference2.1
    
    Venture Lighting International, Inc. et al. Fourth Amended Chapter 11
Plan of Reorganization confirmed December 8, 2003 effective
December 10, 2003
    
    (1
    )3.1
    
    Third Amended and Restated Articles of Incorporation filed
November 12, 2004
    
    (2
    )3.2
    
    Amended and Restated Code of Regulations
    
    (2
    )4.1
    
    Reference is made to Exhibit 2.112
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (1)
    Incorporated by reference to Exhibit of same number in Companys Current Report on Form 8-K
dated December 8, 2003, filed December 23, 2003.  (2)
    Incorporated by reference to Exhibit of same number in Companys Quarterly Report on Form
10-Q for the period ended September 30, 2004, filed November 12, 2004. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2005. 22




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##### 



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:  May 16, 2005
    By:
    /s/ Wayne R. HellmanWayne R. HellmanChief Executive OfficerDate:  May 16, 2005
    By:
    /s/ Christopher F. ZerullChristopher F. ZerullVice President and Chief Accounting Officer 23




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EXHIBIT INDEX Exhibit
    
    
    
    
    
    IncorporatedNumber
    
    
    Title
    
    
    by Reference2.1
    
    Venture Lighting International, Inc. et al. Fourth Amended Chapter 11
Plan of Reorganization confirmed December 8, 2003 effective
December 10, 2003
    
    (1
    )3.1
    
    Third Amended and Restated Articles of Incorporation filed
November 12, 2004
    
    (2
    )3.2
    
    Amended and Restated Code of Regulations
    
    (2
    )4.1
    
    Reference is made to Exhibit 2.112
    
    Statement Re: Computation of Ratio of Earnings to Fixed Charges31.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  (1)
    Incorporated by reference to Exhibit of same number in Companys Current Report on Form 8-K
dated December 8, 2003, filed December 23, 2003.  (2)
    Incorporated by reference to Exhibit of same number in Companys Quarterly Report on Form
10-Q for the period ended September 30, 2004, filed November 12, 2004.