##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 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
 
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
 þ o
 o þ




---



##### 



INDEX
 Advanced Lighting Technologies, Inc.
 Page No.Part I
    
    Financial InformationItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Balance Sheets 
March 31, 2006 and June 30, 2005
    
    
    2Condensed Consolidated Statements of Operations 
Three and Nine Months Ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statement of Shareholders Equity 
Nine Months Ended March 31, 2006
    
    
    5Condensed Consolidated Statements of Cash Flows 
Nine Months Ended March 31, 2006 and 2005
    
    
    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
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21Part II
    
    Other InformationItem 5.
    
    Other Information
    
    
    22Item 6.
    
    Exhibits
    
    
    22Signatures
    
    
    23
 1




---



##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets  (in thousands, except per share amounts)
 (Unaudited)
    
    
    (Audited)March 31,
    
    
    June 30,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,998
    
    
    $
    2,643Trade receivables, less allowances of $732 and $687
    
    
    33,755
    
    
    
    29,069Inventories:Finished goods
    
    
    25,766
    
    
    
    20,849Raw materials and work-in-process
    
    
    16,161
    
    
    
    13,10841,927
    
    
    
    33,957Prepaid expenses
    
    
    2,924
    
    
    
    1,421Total current assets
    
    
    80,604
    
    
    
    67,090Property, plant and equipment:Land and buildings
    
    
    20,540
    
    
    
    20,466Machinery and equipment
    
    
    32,197
    
    
    
    31,260Furniture and fixtures
    
    
    3,943
    
    
    
    2,59256,680
    
    
    
    54,318Less accumulated depreciation
    
    
    14,455
    
    
    
    6,80842,225
    
    
    
    47,510Receivables from related parties
    
    
    1,804
    
    
    
    2,983Investments
    
    
    2,145
    
    
    
    4,946Other assets
    
    
    3,177
    
    
    
    2,980Intangible assets, net
    
    
    23,723
    
    
    
    24,327Goodwill
    
    
    50,051
    
    
    
    50,001$
    203,729
    
    
    $
    199,837
 See Notes to Condensed Consolidated Financial Statements
 2




---



##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Balance Sheets  (in thousands, except per share amounts)
 (Unaudited)
    
    
    (Audited)March 31,
    
    
    June 30,2006
    
    
    2005Liabilities and shareholders equityCurrent liabilities:Short-term debt and current portion of long-term debt
    
    $
    17,619
    
    
    $
    11,984Accounts payable
    
    
    9,445
    
    
    
    11,471Payables to related parties
    
    
    846
    
    
    
    310Employee-related liabilities
    
    
    3,894
    
    
    
    7,568Accrued income and other taxes
    
    
    1,028
    
    
    
    793Other accrued expenses
    
    
    5,835
    
    
    
    8,085Total current liabilities
    
    
    38,667
    
    
    
    40,211Long-term debt
    
    
    122,226
    
    
    
    120,026Deferred tax liabilities
    
    
    734
    
    
    
    826Deferred lease credits
    
    
    3,500Total liabilities
    
    
    165,127
    
    
    
    161,063Minority interest
    
    
    2,769
    
    
    
    2,155Preferred stock, $.001 par value, 239 shares authorized;
29 shares issued and outstanding
    
    
    29,688
    
    
    
    29,338Common shareholders equityCommon stock, $.001 par value, 80,000 shares authorized;
1 share issued and outstanding
    
    
    1
    
    
    
    1Paid-in-capital
    
    
    1,183
    
    
    
    1,130Accumulated other comprehensive income
    
    
    (405
    )
    
    
    51Retained earnings
    
    
    5,366
    
    
    
    6,099Total common shareholders equity
    
    
    6,145
    
    
    
    7,281$
    203,729
    
    
    $
    199,837
 See Notes to Condensed Consolidated Financial Statements
 3




---



##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Operations (Unaudited)  (in thousands)
 Quarter Ended March 31,
    
    
    Nine Months Ended March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    42,079
    
    
    $
    40,272
    
    
    $
    119,650
    
    
    $
    119,972Costs and expenses:Cost of sales
    
    
    24,428
    
    
    
    24,335
    
    
    
    69,670
    
    
    
    71,278Marketing and selling
    
    
    7,320
    
    
    
    6,604
    
    
    
    20,567
    
    
    
    19,227Research and development
    
    
    1,585
    
    
    
    1,486
    
    
    
    4,752
    
    
    
    4,598General and administrative
    
    
    2,851
    
    
    
    3,407
    
    
    
    8,880
    
    
    
    10,100Amortization of
intangible assets
    
    
    259
    
    
    
    246
    
    
    
    785
    
    
    
    735Special charges and asset
impairment
    
    
    4,093
    
    
    
    
    
    
    
    4,093Income from operations
    
    
    1,543
    
    
    
    4,194
    
    
    
    10,903
    
    
    
    14,034Other income (expense):Interest expense
    
    
    (3,651
    )
    
    
    (3,453
    )
    
    
    (10,866
    )
    
    
    (10,345
    )Interest income
    
    
    75
    
    
    
    104
    
    
    
    245
    
    
    
    301Income from investments
    
    
    3
    
    
    
    53
    
    
    
    351
    
    
    
    542Income (loss) before income
taxes and minority interest
    
    
    (2,030
    )
    
    
    898
    
    
    
    633
    
    
    
    4,532Income tax expense
    
    
    345
    
    
    
    409
    
    
    
    752
    
    
    
    1,041Income (loss) before
minority interest
    
    
    (2,375
    )
    
    
    489
    
    
    
    (119
    )
    
    
    3,491Minority interest in income
of consolidated subsidiary
    
    
    (229
    )
    
    
    (137
    )
    
    
    (614
    )
    
    
    (476
    )Net income (loss)
    
    $
    (2,604
    )
    
    $
    352
    
    
    $
    (733
    )
    
    $
    3,015
 See Notes to Condensed Consolidated Financial Statements
 4




---



##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Statement of Shareholders Equity (Unaudited)
Nine Months Ended March 31, 2006  (dollars in thousands)
 AccumulatedOther
    
    
    
    
    
    
    CommonPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Comprehensive
    
    
    Retained
    
    
    ShareholdersStock
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Income (Loss)
    
    
    Earnings
    
    
    Equity
    
    
    TotalBalance at June 30, 2005
    
    $
    29,338
    
    
    
    1,131
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    51
    
    
    $
    6,099
    
    
    $
    7,281
    
    
    $
    36,619Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (733
    )
    
    
    (733
    )
    
    
    (733
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (456
    )
    
    
    
    
    
    
    (456
    )
    
    
    (456
    )Preferred stock issuance
    
    
    350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350Stock purchases by management
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    
    
    
    
    53
    
    
    
    53Balance at March 31, 2006
    
    $
    29,688
    
    
    
    1,184
    
    
    $
    1
    
    
    $
    1,183
    
    
    $
    (405
    )
    
    $
    5,366
    
    
    $
    6,145
    
    
    $
    35,833
 See Notes to Condensed Consolidated Financial Statements
 5




---



##### 



Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)  (in thousands)
 Nine Months Ended March 31,2006
    
    
    2005Operating activitiesNet income (loss)
    
    $
    (733
    )
    
    $
    3,015Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation
    
    
    4,248
    
    
    
    3,419Amortization
    
    
    785
    
    
    
    735Provision for doubtful accounts
    
    
    150
    
    
    
    173Income from investments
    
    
    (351
    )
    
    
    (542
    )Payment of reorganization expenses
    
    
    
    
    
    
    (1,842
    )Payment of pre-petition payables
    
    
    
    
    
    
    (371
    )Special charges and asset impairment
    
    
    4,093Changes in
current assets and liabilities and otherTrade receivables
    
    
    (4,836
    )
    
    
    (345
    )Inventories
    
    
    (7,970
    )
    
    
    (5,247
    )Prepaids and other assets
    
    
    (752
    )
    
    
    785Accounts payable and accrued expenses
    
    
    (7,179
    )
    
    
    (2,972
    )Other
    
    
    150
    
    
    
    1,839Net cash used in operating activities
    
    
    (12,395
    )
    
    
    (1,353
    )Investing activitiesCapital expenditures
    
    
    (3,483
    )
    
    
    (4,135
    )Proceeds from sale of investment
    
    
    3,154
    
    
    
    450Proceeds from sale-leaseback
    
    
    3,841Net cash provided by (used in) investing activities
    
    
    3,512
    
    
    
    (3,685
    )Financing activitiesNet borrowings under revolving credit loan
    
    
    5,894
    
    
    
    6,372Proceeds from long-term debt
    
    
    3,850
    
    
    
    Payments of long-term debt and capital leases
    
    
    (1,909
    )
    
    
    (3,552
    )Issuance of preferred stock
    
    
    350
    
    
    
    Stock purchases by management
    
    
    53Net cash provided by financing activities
    
    
    8,238
    
    
    
    2,820Decrease in cash and cash equivalents
    
    
    (645
    )
    
    
    (2,218
    )Cash and cash equivalents, beginning of period
    
    
    2,643
    
    
    
    4,701Cash and cash equivalents, end of period
    
    $
    1,998
    
    
    $
    2,483Supplemental cash flow informationInterest paid
    
    $
    13,855
    
    
    $
    13,601Income taxes paid
    
    
    554
    
    
    
    740
 6




---



##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2006
 A. Organization
  B. Basis of Presentation
   Reporting Periods
  Income Taxes
 Accounting for Income Taxes
 7




---



##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2006
 C. Investment in Fiberstars
  Accounting for Derivative Instruments
and Hedging Activities,
 Accounting for Certain Investments in Debt and
Equity Securities
 D. Comprehensive Income
  8




---



##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2006
 E. Financing Facilities
  Balance
Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include Both
a Subjective Acceleration Clause and a Lock-box Arrangement
   9




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##### 



Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2006
 F. Deferred Lease Credits
  G. Issuance of Preferred Stock
  H. Subsequent Event
     10




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 (Dollars in thousands)
   General
  ® ®
  11




---



##### 



Results of Operations
 Quarter Ended March 31, 2006 Compared to Quarter Ended March 31, 2005
  Quarter Ended
    
    
    Quarter EndedMarch 31, 2006
    
    
    March 31, 2005Net sales
    
    $
    42,079
    
    
    
    100.0
    %
    
    $
    40,272
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    24,428
    
    
    
    58.1
    
    
    
    24,335
    
    
    
    60.4Marketing and selling
    
    
    7,320
    
    
    
    17.4
    
    
    
    6,604
    
    
    
    16.4Research and development
    
    
    1,585
    
    
    
    3.8
    
    
    
    1,486
    
    
    
    3.7General and administrative
    
    
    2,851
    
    
    
    6.8
    
    
    
    3,407
    
    
    
    8.5Amortization of intangible assets
    
    
    259
    
    
    
    0.6
    
    
    
    246
    
    
    
    0.6Special charges and asset impairment
    
    
    4,093
    
    
    
    9.7Income from operations
    
    
    1,543
    
    
    
    3.7
    
    
    
    4,194
    
    
    
    10.4Other income (expense):Interest expense
    
    
    (3,651
    )
    
    
    (8.7
    )
    
    
    (3,453
    )
    
    
    (8.6
    )Interest income
    
    
    75
    
    
    
    0.2
    
    
    
    104
    
    
    
    0.3Income from investments
    
    
    3
    
    
    
    0.0
    
    
    
    53
    
    
    
    0.1Income (loss) before income taxes
and minority interest
    
    
    (2,030
    )
    
    
    (4.8
    )
    
    
    898
    
    
    
    2.2Income tax expense
    
    
    345
    
    
    
    0.8
    
    
    
    409
    
    
    
    1.0Income (loss) before minority interest
    
    
    (2,375
    )
    
    
    (5.6
    )
    
    
    489
    
    
    
    1.2Minority interest in income
of consolidated subsidiary
    
    
    (229
    )
    
    
    (0.5
    )
    
    
    (137
    )
    
    
    (0.3
    )Net income (loss)
    
    $
    (2,604
    )
    
    
    -6.2
    %
    
    $
    352
    
    
    
    0.9
    %
  Net Sales
   12




---



##### 



Cost of Sales.
 Marketing and Selling Expenses.
 Research and Development Expenses ®
 General and Administrative Expenses.
 Special Charges and Asset Impairment.
 Amortization of Intangible Assets.
 Income from Operations.
 Interest Expense.
 13




---



##### 



Income from Investments.
 Income Tax Expense.
 Nine Months Ended March 31, 2006 Compared to Nine Months Ended March 31, 2005
   Nine Months Ended
    
    
    Nine Months EndedMarch 31, 2006
    
    
    March 31, 2005Net sales
    
    $
    119,650
    
    
    
    100.0
    %
    
    $
    119,972
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    69,670
    
    
    
    58.2
    
    
    
    71,278
    
    
    
    59.4Marketing and selling
    
    
    20,567
    
    
    
    17.2
    
    
    
    19,227
    
    
    
    16.0Research and development
    
    
    4,752
    
    
    
    4.0
    
    
    
    4,598
    
    
    
    3.9General and administrative
    
    
    8,880
    
    
    
    7.4
    
    
    
    10,100
    
    
    
    8.4Amortization of intangible assets
    
    
    785
    
    
    
    0.7
    
    
    
    735
    
    
    
    0.6Special charges and asset impairment
    
    
    4,093
    
    
    
    3.4
    
    
    
    
    
    
    
    Income from operations
    
    
    10,903
    
    
    
    9.1
    
    
    
    14,034
    
    
    
    11.7Other income (expense):Interest expense
    
    
    (10,866
    )
    
    
    (9.1
    )
    
    
    (10,345
    )
    
    
    (8.6
    )Interest income
    
    
    245
    
    
    
    0.2
    
    
    
    301
    
    
    
    0.2Income from investments
    
    
    351
    
    
    
    0.3
    
    
    
    542
    
    
    
    0.5Income before income taxes
and minority interest
    
    
    633
    
    
    
    0.5
    
    
    
    4,532
    
    
    
    3.8Income tax expense
    
    
    752
    
    
    
    0.6
    
    
    
    1,041
    
    
    
    0.9Income (loss) before minority interest
    
    
    (119
    )
    
    
    (0.1
    )
    
    
    3,491
    
    
    
    2.9Minority interest in income
of consolidated subsidiary
    
    
    (614
    )
    
    
    (0.5
    )
    
    
    (476
    )
    
    
    (0.4
    )Net income (loss)
    
    $
    (733
    )
    
    
    -0.6
    %
    
    $
    3,015
    
    
    
    2.5
    %
 14
       Net Sales
   Cost of Sales.
 Marketing and Selling Expenses.
 Research and Development Expenses ®
 15




---



##### 



General and Administrative Expenses.
 Special Charges and Asset Impairment.
 Amortization of Intangible Assets.
 Income from Operations.
 Interest Expense.
 Income from Investments.
 Accounting for Derivative Instruments
and Hedging Activities,
   16




---



##### 



Income Tax Expense.
    Liquidity and Capital Resources
    17




---



##### 



Net Cash Used in Operating Activities.
 Net Cash Provided by Investing Activities.
 Net Cash Provided by Financing Activities.
  Critical Accounting Policies
  18




---



##### 



Valuation of Accounts and Notes Receivable
   Inventory Valuation Reserves
  Valuation of Long-Lived Assets
  19




---



##### 



Revenue Recognition
  Deferred Tax Assets and Valuation Allowance
  Foreign Currency
  20




---



##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk
  Item 4. Controls and Procedures
  21




---



##### 



Part II. Other Information
  Item 5. Other Information
  Item 6. 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
    
    Certificate of Amendment by Directors or Incorporators to Articles of Advanced Lighting Technologies, Inc.
    
    
    (3
    )3.3
    
    Amended and Restated Code of Regulations
    
    
    (4
    )4.1
    
    Reference is made to Exhibit 2.110.1
    
    Lease Agreement dated February 28, 2006
between Deposition Sciences, Inc. and First
Industrial Development Services, Inc.31.1
    
    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.(3)
    
    Incorporated by reference to Exhibit 3.1 in Companys Current Report on Form 8-K datedDecember 29, 2005, filed January 5, 2006.(4)
    
    Incorporated by reference to Exhibit 3.2 in Companys Quarterly Report on Form 10-Q for the
period ended September 30, 2004, filed November 12, 2004. 22




---



##### 



SIGNATURES
  ADVANCED LIGHTING TECHNOLOGIES, INC.Date: May 10, 2006
    
    By:
    
    /s/ Wayne R. HellmanWayne R. HellmanChief Executive OfficerDate: May 10, 2006
    
    By:
    
    /s/ Wayne J. VespoliWayne J. VespoliChief Financial Officer
 23




---



##### 



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
    
    Certificate of Amendment by
Directors or Incorporators to Articles of Advanced Lighting
Technologies, Inc.
    
    
    (3
    )3.3
    
    Amended and Restated Code of Regulations
    
    
    (4
    )4.1
    
    Reference is made to Exhibit 2.110.1
    
    Lease Agreement dated February 28, 2006 between Deposition Sciences, Inc.
and First Industrial Development Services, Inc.31.1
    
    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.(3)
    
    Incorporated by reference to Exhibit 3.1 in Companys Current Report on Form 8-K dated December 29, 2005, filed January 5, 2006.(4)
    
    Incorporated by reference to Exhibit 3.2 in Companys Quarterly Report on Form 10-Q for the
period ended September 30, 2004, filed November 12, 2004.