TABLE OF CONTENTS




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|FORM 10-K                                       
|RISK FACTORS                                    
|PART I                                          
|                                                 | Item 1. Business                                                                              
|                                                 | Item 2. Properties                                                                            
|                                                 | Item 3. Legal Proceedings                                                                     
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                   
|PART II                                         
|                                                 | Item 5. Market for the Registrants Common Equity and Related Shareholder Matters             
|                                                 | Item 6. Selected Financial Data                                                               
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                                 | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                 | Item 8. Financial Statements and Supplementary Data                                           
|PART III                                        
|                                                 | Item 10. Directors and Officers of the Registrant                                             
|                                                 | Item 11. Executive Compensation                                                               
|                                                 | Item 12. Security Ownership of Certain Beneficial Owners and Management                       
|                                                 | Item 13. Certain Relationships and Related Transactions                                       
|PART IV                                         
|                                                 | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|SIGNATURES                                      
|EXHIBIT INDEX                                   
|EX-10.15  Eighth Amendment Agreement            
|EX-10.16  Lease Agreement                       
|EX-10.17  Agreement                             
|EX-10.18  Second Amendment to Lease             
|EX-10.19  Option Agrmt to Purchase Real Property
|EX-10.20  Agreement                             
|EX-10.24  2nd Amend/Contingent Warrant Agreement
|EX-12  Ratio of Earnings to Fixed Charges       
|EX-21  Subsidiaries of the Registrant           
|EX-23  Consent of Independent Auditors          
|EX-24  Power of Attorney                        

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



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FORM 10-K

(Mark One)X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30,
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

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|------------------------------------------------------
|ADVANCED LIGHTING TECHNOLOGIES, INC.                  
|                                                      
|(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|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                                      
|                                                    
|(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 Par Value

Indicate by check (ü) 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
  ü     No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K  [X]

The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of August 31, 2001 was $51,477,506.

There were 23,314,078 shares of the Registrants Common Stock, $.001 par value
per share, outstanding as of
August 31, 2001.



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|Documents Incorporated by Reference                                                                                                                                                    
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|Portions of the Registrants Proxy Statement for use at the 2001 Annual
Shareholders Meeting are incorporated by reference into Part III
of this Form 10-K to the extent stated herein.



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INDEX

Advanced Lighting Technologies, Inc.

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|--------------------------------------------------------- |  | ---- | - | 
|                                                          |  | Page
|                                                          |  |     
|Cautionary Statement Regarding Forward Looking Statements |  |      | 2 | 
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|                                                         
|                                                         
|Risk Factors                                              |  |      | 2 | 

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|------------- |  | ------------------------------------------------------------------------------------- |  | --
|             
|              |  | PART I                                                                                |  |   
|             
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|             
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|Item 1.       |  | Business                                                                              |  | 13
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|             
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|Item 2.       |  | Properties                                                                            |  | 32
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|             
|Item 3.       |  | Legal Proceedings                                                                     |  | 33
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|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                   |  | 33
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|              |  | PART II                                                                               |  |   
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|Item 5.       |  | Market for Registrants Common Equity and Related Shareholder
Matters                 |  | 34
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|Item 6.       |  | Selected Financial Data                                                               |  | 35
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|Item 7.       |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations |  | 38
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|Item 7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 61
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|Item 8.       |  | Financial Statements and Supplementary Data                                           |  | 62
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|Item 9.       |  | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure  |  | 63
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|              |  | PART III                                                                              |  |   
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|Item 10.      |  | Directors and Executive Officers of the Registrant                                    |  | 63
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|Item 11.      |  | Executive Compensation                                                                |  | 63
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|Item 12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 63
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|Item 13.      |  | Certain Relationships and Related Transactions                                        |  | 63
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|              |  | PART IV                                                                               |  |   
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|Item 14.      |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 64
|             
|             
|             
|             
|Signatures    |  |                                                                                       |  | 72
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|Exhibit Index |  |                                                                                       |  | 74

1



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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Report contains statements which constitute forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include statements regarding the intent, belief or
current expectations of Advanced Lighting Technologies, Inc. and its
subsidiaries (the Company or ADLT), its directors or its officers with
respect to, among other things: (i) the Companys financing plans; (ii) trends
affecting the Companys financial condition or results of operations; (iii)
continued growth of the metal halide lighting market; (iv) the Companys
operating strategy and growth strategy; (v) potential acquisitions or joint
ventures by the Company; (vi) the declaration and payment of dividends; (vii)
litigation affecting the Company; (viii) the timely development and market
acceptance of new products; (ix) the possibility that any success at Deposition
Sciences, Inc. (an ADLT subsidiary) will not be reflected in the value of the
ADLT common stock; (x) the ability to provide adequate incentives to retain and
attract key employees; and (xi) the impact of competitive products and pricing.
Prospective investors are cautioned that any such forward looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the forward
looking statements as a result of various factors. The accompanying information
contained in this Report, including without limitation the information set forth
under the headings Risk Factors, Managements Discussion and Analysis of
Financial Condition and Results of Operations and Business, identifies
important factors that could cause such differences.




RISK FACTORS

You should consider carefully the following factors, as well as the other
information that we include or incorporate by reference in this report, in
evaluating an investment in our securities. To make the discussion of these
factors easier to read, when we discuss the Company we refer to it as we.

If Metal Halide Lighting Does Not Gain Wider Market Acceptance,
Our Business and Financial Performance May Suffer

We derive a substantial portion of our net sales and income from selling metal
halide materials, systems and components, and production equipment. Revenues
from metal halide products represented approximately 75% of net sales in fiscal
2001 and 72% of net sales in fiscal 2000. Our current operations and growth
strategy are focused on the metal halide lighting and telecommunications
industries. Metal halide is the newest of all commercial lighting technologies.
Metal halide lamp sales represented approximately 10% of domestic lamp sales in
calendar year 2000 compared to fluorescent and incandescent lamps which
represented approximately 85% of the same market. We attribute our success to
the increased acceptance of metal halide lighting in commercial and industrial
uses. Our future results are dependent upon continued growth of metal halide
lighting for these and other uses. However, metal halide lamps are not
compatible with the substantial installed base of incandescent and fluorescent
lighting fixtures, and the installation of a metal halide lighting system
typically involves higher initial costs than incandescent and fluorescent
lighting systems. Metal halide products may not continue to gain market share
within the overall lighting market or competitors may introduce better lighting
technologies, displacing metal halide lighting in the market. As a growth
company, either of these occurrences could have a material adverse effect on our
business and our results of operations and the value of our securities.

2



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General Electric Companys Relationship with Us Could Limit Our Ability to Grow

On October 6, 1999, GE made an investment of $20.6 million for 761,250 shares of
our convertible preferred stock and a warrant which GE has exercised to acquire
998,703 shares of our common stock. Pursuant to the terms of the GE investment
agreement, GE has the right, by converting its preferred shares, to acquire
approximately 3,000,000 of our common shares. GE now holds 1,429,590 shares of
Company Common Stock. The Series A Stock and the Common Stock represent
approximately 17% of the voting power and equity ownership of the Company at
August 31, 2001. GE may get additional rights in the future if we are unable to
maintain a 2 to 1 ratio of earnings before interest, taxes, depreciation and
amortization to interest charges for a six-month measurement period. Measurement
periods are the six months ending on the last day of each fiscal quarter until
September 30, 2010. We did not maintain this ratio for the six months ended
December 31, 1999, September 30, 2000 or June 30, 2001, but we did for the
six-month periods ended March 31, 2001, December 31, 2000, June 30, 2000, and
March 31, 2000 . Due to amendments to our agreements with GE, GE waived its
rights to obtain shares as a result of our failure to maintain these ratios in
the past. GE recently agreed to such a waiver regarding our failure to maintain
the ratio for the six months ended June 30, 2001. If we fail to maintain the
ratio in future measurement periods and we do not maintain the ratio in the
three calendar quarters immediately prior to the failure, GE would obtain the
right to purchase and vote additional shares of our stock and acquire voting
control of our company.

On the first future failure, if it happens, GE would obtain rights to purchase
and/or vote a number of shares determined by a formula at the time of the
failure. The number of shares owned or available to GE at that time would be
greater than 35% but less than a majority of our stock. At the time of the
second future failure, if it happens, GE would own or have the right to purchase
and/or vote the number of shares, which would be a majority of our stock. The
existence of a large block of shares which could effectively control our
shareholder votes, or which could be sold in public or private sales, may limit
our ability to obtain financing in the future from other sources, including
public offerings or private sale of our common stock.

We intend to devote substantial resources to developing the telecommunications
business of our subsidiary, Deposition Sciences, Inc. (DSI). This will adversely
affect our ability to meet the GE ratio unless we maintain positive earnings
before interest, taxes, depreciation and amortization at DSI. As a result, the
investment in telecommunications may negatively affect our ability to maintain
the required ratio under our agreement with GE. If we fail to maintain the
required ratio, in the circumstances described in the preceding paragraph, GE
would obtain the additional rights to purchase and/or vote our common shares as
described above.

If GE or Another Investor Can Vote More Than 35% of Our Stock, We May Have to Repay Loans

If GE, or any investor or group of investors, other than Mr. Hellman or his
family, own or get the right to vote and/or acquire, a total of more than 35% of
our stock, our credit facility banks will have the right to demand payment under
our revolving and term loans, and we will have to offer to repurchase our 8%
Notes at a purchase price of 101% of the face amount, together with unpaid
interest. These provisions may make it more difficult for someone to take us
over. We cant be sure that we will have adequate resources to meet our
obligations relating to these loans and our 8% Notes if an investor gains a 35%
voting interest. Even if we can meet these obligations, if we have to repay the
credit facility banks and repurchase our 8% Notes, it could hurt our ability to
finance operations and future growth.

3



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General Electric Companys Rights Could Strain Our Financial Resources

In October 2004, GE has a one-time right to make us redeem their preferred
stock, although we have up to one year to arrange financing. GE also has the
right to make us redeem their preferred stock if GE does not get the necessary
governmental approvals of their rights to acquire more of our shares in the
future, if we issue additional common shares, if any of our subsidiaries issue
additional common shares or if we borrow more than a total of $210 million. The
existence of these limits may reduce our ability to obtain financing in the
future. If we have to redeem the preferred stock, our financial resources will
be reduced, and could cause us to default under the indenture governing our 8%
Senior Notes Due 2008. We are required to redeem shares of this preferred stock,
which have not been converted to common stock by October 2010. Although GE
cannot make us redeem their preferred stock if a default results, the failure to
redeem GEs preferred stock after GE makes a request for redemption could
adversely affect our relationship with GE.

Our Proposed Sale of Our Fixtures
Businesses May Not Be Completed or May Not Be Completed as Promptly
as We Expect, Reducing the Benefits of the Transaction to Us

As we announced on September 21, 2001, we have signed a letter of intent to sell
our fixture subsidiaries, Ruud Lighting, Kramer Lighting and Ruud Lighting
Europe, to an investor group led by Alan J. Ruud. As we announced, the
transaction is expected to reduce our debt by approximately $41 million and to
increase operating margins (the percentage of operating profit for each sales
dollar). The transaction is subject to certain conditions, including approval by
our board of directors, approval by our lending banks and completion of
financing arrangements by the purchasers. We cannot be certain that we will get
these approvals or that we can get them promptly. If the transaction is not
completed or if it is delayed, the benefits of the transaction will not be
realized or will be delayed. The failure to realize the benefits of the Ruud
transaction promptly could have an adverse effect on the operations and
profitability of our business.

Our Proposed Sale of Our Fixtures Businesses Will Reduce Our Total Assets
and Total Revenues and Our Reduced Size May Make It More Difficult To Get Financing

We have signed a letter of intent to sell our fixture subsidiaries because our
management believes that by reducing our debt and improving our operating
margins, our stock will be a more attractive investment. However, our total
assets and total revenues would be reduced, and as a smaller company, we may
have difficulty attracting investors, even with improved operating results.

General Electric Companys Relationship with Us Could Harm Our Relationship
with Other Lighting Companies

Some of our significant suppliers and customers are also lighting companies. We
have not experienced any adverse impact from these other companies since the
March 1999 public announcement of the agreement in principle regarding GEs
investment. However, we do not yet know if this increased investment will have
an adverse affect on our relationship with other major companies in the lighting
business.

4



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We Will Require Substantial Expenditures to Exploit Our Technology for
Telecommunications Products

DSI has technology that can be used in telecommunications applications. However,
the effort to exploit this technology for production of additional
telecommunications products and the expansion of production capabilities for
current products, will require us to make substantial expenditures for
facilities and machinery and research and development (although approximately
$17 million of our initial phase of $23 million in expenditures has been
completed). We are devoting substantial resources for new facilities and
equipment to the production of thin film coatings, assemblies and components
used in telecommunications. We may be required to seek additional equity or debt
financing to compete effectively in these markets. We cannot precisely determine
the timing and amount of funding requirements and each will depend on several
factors, including our acquisitions and the demand for our products and products
under development. Such additional financing may not be available when needed,
or, if available, may not be on terms satisfactory to us.

Our Degree of Indebtedness Could Limit Our Ability to Grow and React to
Changes in Market Conditions

At June 30, 2001, we had approximately $164.0 million of total indebtedness
outstanding and $117.8 million of preferred and common shareholders equity. At
June 30, 2001, we also had $18.1 million available (subject to borrowing base
compliance and other limitations) to be drawn under our bank credit facility.

The indentures under which we have issued and may issue our debt securities
permit us and our subsidiaries to incur substantial amounts of additional
indebtedness in the future. The degree to which we are leveraged could have
important consequences to holders of our securities, including the following:



| |  | our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be limited, and                  
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | our flexibility in planning for or reacting to changes in market conditions
may be limited, causing us to be more vulnerable in the event of a downturn
in our business.

Operating Without Additional Cash Resources Could Limit Our Operations and Growth

Subsequent to our year ended June 30, 2001, we instituted cost reduction
measures intended to allow our operations to produce more cash revenues than we
spend on operations. We have spent more money on our operations than the
revenues our operations have generated in four of our last five fiscal years,
and have spent more money on operations and investing in our business than our
operations have generated in each of our last six fiscal years. While we believe
we will generate more cash in our operations than we are spending on operations,
we cant assure investors that the cost-saving measures will generate positive
cash flow from our operations in the future. In addition, we are not currently
generating sufficient cash in our business to make the investments in our future
growth that we would like. Our ability to borrow additional money under our $65
million bank credit facility is limited. In order to have enough cash for future
operations and growth, we must generate greater net cash flow and/or demonstrate
our ability to achieve acceptable financial results in order to increase our
access to additional cash resources from lenders and investors.

5



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Allocation of ADLT Resources to DSI May Not be in the Best Interest of ADLT Shareholders

The success of DSIs telecommunications business unit will depend not only on
access to external sources of capital and the expansion of the
telecommunications infrastructure but also the internal resources of ADLTs
consolidated business. Although we are allocating financial and human resources
to DSI because we believe the investment will ultimately return enhanced value
to ADLT and our shareholders, there can be no assurance of such success. In
addition, the allocation of resources to the telecommunications business unit
may result in us allocating fewer resources to our core lighting business. As a
result, until such time, if any, that we achieve a positive return on our
investment in DSIs telecommunications business unit, our future liquidity may
be adversely affected and our operating results will be adversely affected.

Our Loan to Mr. Hellman May Impair Our Capital Resources

On October 8, 1998, we made a $9 million loan to Wayne R. Hellman, our Chairman
and CEO. The loan was originally due on October 6, 1999. Mr. Hellman has paid
interest accrued on the loan through October 6, 1999. We made additional
advances to Mr. Hellman of $2.785 million in fiscal 2001 and $970,350 since June
30, 2001. The term of the loan has been extended to October 6, 2001. If Mr.
Hellman doesnt repay the loan in accordance with the current understanding, it
could materially and adversely affect our ability to obtain money from lenders
and investors. If we take action to make Mr. Hellman pay the loan, it may hurt
Mr. Hellmans performance, which could hurt our operations.

If We Are Unable to Develop and Broaden Product Lines Our Business May Suffer

We have broadened our systems and components product line. The marketing efforts
and strategies for such product extensions are quite different from those we
have used for our historical operations. These differences are based on the need
to focus efforts on sales to the user of the products rather than lighting
fixture original equipment manufacturers. We may not be successful in adding new
products to our current product categories or in developing new categories of
products. If we are unable to successfully add new products or develop new
product categories, this could adversely affect our future growth and financial
results.

Our Business Success Has Been Based on New Products, and If We Do Not
Introduce New Products, Our Business May Suffer

We attribute our historical success, in large part, to the introduction of new
products in each of our product lines to meet the requirements of our customers.
Our future success will depend upon our continued ability to develop and
introduce innovative metal halide lighting and telecommunications products. Even
though we spent significant amounts on research and development in fiscal 2001
and in prior years, we may not be able to develop or introduce innovative
products in the future. Even if a new product is developed for a particular use,
the product may not be commercially successful. In addition, competitors
occasionally have followed our introduction of successful metal halide lighting
products with similar product offerings. As a result of these and other factors,
we may not continue to be successful in introducing new products. Since we are
viewed as a growth company, if we are unable to successfully introduce new
products, this inability could adversely affect our financial results and the
value of our securities.

6



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Our Significant Past Growth and Future Growth Objectives Strain Our Resources

We have experienced significant growth in recent years. This has placed a strain
on our management, employees, finances and operations. In light of current
economic conditions, we have taken actions to reduce costs and our workforce. In
addition, we recently announced that we had signed a letter of intent to sell
our fixture subsidiaries, Ruud Lighting, Kramer Lighting and Ruud Lighting
Europe. Nevertheless, we have set aggressive growth objectives for net sales and
net income in our remaining businesses, which may continue to strain our
resources. These objectives may be increasingly difficult to achieve. To achieve
these objectives, we will seek to develop new products and new uses for our
products and seek to expand our distribution capabilities. We may also seek to
acquire and/or invest in related businesses inside and outside of the United
States. Any of our efforts in pursuit of these objectives may expose us to risks
that could adversely affect our results of operations and financial condition.
To manage growth effectively, we must continue to implement changes in many
aspects of our business; expand our information systems; increase the capacity
and productivity of our materials, components, systems and production equipment
operations; develop our metal halide systems capability; and hire, develop,
train and manage an increasing number of managerial, production and other
employees. Also, we have made and may continue to extend our product lines
through acquisitions. The success of these acquisitions will depend on the
integration of the acquired operations with our existing operations. If we are
unable to anticipate or manage growth effectively, our operating results could
be adversely affected. Likewise, if we are unable to successfully integrate
acquired operations and manage expenses and risks associated with integrating
the administration and information systems of acquired companies, our operating
results could be adversely affected.

We May Be Unable to Realize Benefits from Acquisitions and Investments

In order to implement our business strategy, we may from time-to-time consider
expansion of our products and services through joint ventures, strategic
partnerships and acquisitions of, and/or investments in, other business
entities. We have no agreement or understanding with any significant prospective
acquisition or investment candidate in respect of a specific transaction. We
cannot be certain as to the timing or amount of any return or anticipated
benefits that we might realize on any acquisition or investment. In addition,
the indenture governing our 8% Notes currently limits the amount available for
investments (but not acquisitions) to a total available amount of approximately
$6 million (which is expected to be dedicated to the purchase note we would get
in the Ruud Transaction).

Acquisitions or investments could require us to commit funds, which could reduce
our future liquidity. Our possible future acquisitions or investments could
result in additional debt, contingent liabilities and amortization expenses
related to certain intangible assets, as well as write-offs of unsuccessful
acquisitions, any or all of which could materially adversely affect our
performance, and, therefore, holders of our securities. We have made several
acquisitions since 1997. We have entered into a letter of intent to sell Ruud
Lighting, Inc., our largest acquisition to date, and two other subsidiaries.
There can be no assurance that we will be able to integrate future acquisitions
or to manage any expanded operations effectively. In addition, since 1997 we
have made substantial investments in entities that we do not and will not be
able to control. We may find it difficult or impossible to realize cash flows
from these investments, or to liquidate these investments, which could adversely
affect the holders of our securities.

7



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The Extent of Our International Business Operations Could Hurt Our Performance

We have derived, and expect to derive in the future, a substantial portion of
our net sales from our international business. Revenues from customers outside
of the United States represented approximately 33% of our net sales for fiscal
2001. Our international joint ventures and operations and our export sales are
subject to the risks inherent in doing business abroad, including delays in
shipments, adverse fluctuations in currency exchange rates, increases in import
duties and tariffs, and changes in foreign regulations and political climate. We
have granted and will grant our joint ventures and operations in foreign
countries rights to use our technology. While we will attempt to protect our
intellectual property rights in these foreign joint ventures and operations, the
laws of many foreign countries do not protect intellectual property rights to
the same extent as the laws of the United States.

Approximately 22% of our 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 these currencies versus the U.S. dollar could
have a material adverse effect on our business and results of operations and,
therefore, holders of our securities. We did not hedge our foreign currency
exposure in fiscal 2001, however we have started a program in fiscal 2002 to
hedge some foreign currency balance sheet exposures which is intended to reduce
any significant impact on earnings or cash flows.

If We Are Unable to Protect Our Important Patents and Trade Secrets or
If Others Enforce Rights Against Us, Our Business May Suffer

We rely primarily on trade secret, trademark and patent laws to protect some of
our rights to our products, like proprietary manufacturing processes and
technologies, product research, concepts and trademarks. These rights are
important to the success of our products and our competitive position. The
actions that we take to protect our proprietary rights may not be adequate to
prevent imitation of our products, processes or technology. Our proprietary
information may become known to competitors; we may not be able to effectively
protect our rights to non-patented proprietary information; and others may
independently develop substantially equivalent or better products that do not
infringe on our intellectual property rights. Other parties may assert rights
in, and ownership of, our patents and other proprietary rights. Any of these
developments could adversely affect the way we currently conduct our business.
The patent positions of companies such as ADLT and its subsidiaries can be
highly uncertain and involve complex legal and factual questions, and therefore
the breadth of claims allowed in such patents and their enforceability cannot be
predicted. Therefore, we cannot assure you that the claims in any existing or
subsequently issued patent will be sufficient to protect ADLTs or its
subsidiaries intellectual property; or that such patent will not be challenged,
invalidated, held unenforceable or circumvented; or that the rights granted
thereunder will provide proprietary protection or competitive advantages.

Any litigation involving misappropriation of our trade secrets or other
intellectual property rights could require us to increase significantly the
resources devoted to such efforts. In addition, an adverse determination in
litigation could subject us to the loss of our rights to a particular trade
secret, trademark or patent; could require us to grant licenses to third
parties; could prevent us from manufacturing, selling or using related aspects
of our products; or could subject us to substantial liability. Because we are a
company that relies on advanced technology and innovation, any of these
occurrences could have a material adverse effect on our results of operations.

8



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If We Lose Our Key Personnel, It Could Adversely Affect Our Business

We are highly dependent on the continued services of Wayne R. Hellman, our
founder, Chairman, Chief Executive Officer, and principal shareholder. We and
Mr. Hellman have entered into an employment agreement providing for a term
ending December 31, 2003. The loss of the services of Mr. Hellman for any reason
could have a material adverse effect on our business and, in turn, to investors
in our securities. We are the beneficiary of life insurance that we maintain
with respect to Mr. Hellman, in the amount of $8 million.

Control of Our Stock by Principal Shareholders May Allow Them to
Significantly Influence Shareholder Decisions, Which Could Adversely
Affect Interests of Other Holders of Our Securities

Mr. Hellman individually owns approximately 7.1% of the outstanding shares of
our common stock and, individually and in other capacities, has the power to
vote a total of 14.4% of the outstanding shares of common stock (or
approximately 12.3% of the shareholder voting power). Mr. Ruud individually owns
approximately 9.2% of the outstanding shares of common stock and, individually
and as a voting trustee, has the power to vote a total of approximately 15.6% of
the outstanding shares of common stock (or approximately 13.3% of the
shareholder voting power). GE owns shares of our preferred stock with voting
power equivalent to approximately 11.6% of our common stock and GE owns
approximately 6.1% of our common stock. This gives GE approximately 17.0% of
total shareholder voting power. In addition to GEs ownership, in the future, GE
may gain the right to vote shares owned or voted by Mr. Hellman and Mr. Ruud. As
a result, although GE, Mr. Hellman, and Mr. Ruud have no arrangement or
understanding of any kind with each other as to the current voting of their
shares, either GE, Mr. Hellman, or Mr. Ruud, or any combination of them, may be
able to significantly influence, and may be able effectively to control, all
matters requiring shareholder approval, including the election of directors
(which could control our affairs and our management), amendments to our articles
of incorporation, mergers, share exchanges, the sale of all or substantially all
of our assets, going-private transactions and other fundamental transactions.
Accordingly, the decisions of our principal shareholders could have a material
adverse effect on the market price of our common stock or the value of our other
securities.

Our Stock Price Has Varied Widely and May Vary Widely in the Future. Wide
Variation May Make it Difficult for Us to Sell Our Stock and Strain Our
Financial Resources

Our common stock first became publicly traded in December 1995. After the
initial public offering, the stock price rose substantially from the initial
public offering price of $10 per share. The price of our common stock has varied
widely. During fiscal 2001, the price for our common stock ranged from $3.90 to
$19.94 per share. From June 30, 2001 through September 10, 2001, the price of
our common stock ranged from $2.29 to $5.86. In addition, we cannot predict the
ultimate success of our telecommunications business unit, which may cause
substantial fluctuations in the market price of our common stock. Our net
revenues and operating results, and the net revenues of our telecommunications
business unit, in future quarters may be below the expectations of public market
securities analysts and investors. In such event, the price of our common stock
would likely decline, perhaps substantially. This wide variation and the
possibility of wide variation in the future may make it difficult for us to sell
shares of our common stock at prices which we believe reflect the value of our
stock or make it difficult to sell our common stock at all. If we cant sell our
common stock to obtain the money we need, it may be difficult to operate and
grow.

9



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Environmental Regulations Could Strain Our Resources

Our operations are subject to federal, state, local and foreign laws and
regulations governing, among other things, emissions to air, discharge to
waters, and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. We believe that our business operations
and facilities are being operated in compliance in all material respects with
applicable environmental, health and safety laws and regulations, many of which
provide for substantial fines and criminal sanctions for violations. However,
the operations of manufacturing plants entail risks in these areas, and we could
incur material costs or liabilities. In addition, we could be required to make
potentially significant expenditures to comply with evolving environmental,
health and safety laws, regulations or requirements that may be adopted or
imposed in the future. The imposition of significant environmental liabilities
on us could have a material adverse effect on our business and financial
results.

Because Our Primary Competitors Are More Established and Have More Resources
Than We Do, We May Lack the Resources to Capture Increased Market Share

We compete with respect to our major lighting products with numerous
well-established producers of materials, components, and systems and equipment,
many of which possess greater financial, manufacturing, marketing and
distribution resources than we do. In addition, many of these competitors
products utilize technology that has been broadly accepted in the marketplace
(i.e., incandescent and fluorescent lighting) and is better known to consumers
than is our metal halide technology. We compete with GE, Philips Electronics
N.V. and Siemens A.G.s OSRAM/Sylvania, Inc. subsidiary in the sale of metal
halide lamps. We estimate, based on published industry data, that these three
companies had a combined domestic market share of approximately 85% for metal
halide lamps based on units sold and approximately 95% of the total domestic
lamp market. Accordingly, these companies dominate the lamp industry and exert
significant influence over the channels through which all lamp products,
including ours, are distributed and sold. Our component products and systems
also face strong competition, particularly in the power supply market, in which
our two largest competitors, Advanced Transformer Co. (a division of Philips)
and Magnetek, Inc., each have a larger market share than we do. Our competitors
may increase their focus on metal halide materials, systems and components, and
expand their product lines to compete with our products. This type of increase
or expansion could make it more difficult for us to maintain sales or grow.

DSI competes with respect to its major telecommunications products with numerous producers of components and systems, many of which
possess greater financial, manufacturing, marketing and distribution resources than DSI. The principal competitors for DSI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. DSIs failure to effectively compete in the telecommunications market
could adversely affect the trading price of our common stock.

We Sell Products to Our Competitors and Purchase Components from Our
Competitors, and These Relationships Could Change Based on Our Competitors
Interests. This Creates a Risk of Potential Declines in Sales and Reduced Access
to Components.

Although we compete with GE, Philips and Sylvania in the sale of our lighting
products, we also purchase a significant quantity of raw materials and private
label lamps from these three companies

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(aggregating $13.8 million in fiscal
2001, of which $9.4 million was from GE) and derive significant revenue from
sales of our materials, components, and systems to each of these three companies
(aggregating $22.2 million in fiscal 2001, of which $7.6 million was to GE). Any
significant change in our relationships with these companies, or in the manner
in which these companies participate in the manufacturing, distribution, and
sale of metal halide lighting products, could have a material adverse effect on
our business and, in turn, holders of our securities.

If the Telecommunications Business Unit Does Not Achieve Acceptable
Manufacturing Volumes, Yields or Sufficient Product Reliability,
Our Operating Results Could Suffer

The manufacture of DSIs products involves highly complex and precise processes,
requiring production in highly controlled and clean environments. Changes in
DSIs manufacturing processes, or those of its suppliers, or inadvertent use of
defective or contaminated materials, could significantly reduce DSIs
manufacturing yields and product reliability. To the extent that the
telecommunications business unit does not achieve acceptable manufacturing
yields or experiences product shipment delays, our business, operating results
and financial condition could be materially and adversely affected.

If we are successful in expanding the market for DSIs telecommunications
products, we must increase our manufacturing volumes to meet customers needs
and satisfy customer demand. Failure to do so may materially harm our business,
operating results and financial condition. In some cases, existing manufacturing
techniques, which involve substantial manual labor, may be insufficient to
achieve the volume or cost targets of our customers. As such, we will need to
develop new manufacturing processes and techniques, which are anticipated to
involve higher levels of automation, to achieve the targeted volume and cost
levels. In addition, it may be difficult to hire qualified manufacturing
personnel in a timely fashion, if at all, when customer demands increase over
shortened time periods. While we continue to devote research and development
efforts to improvement of our manufacturing techniques and processes, we may not
achieve manufacturing volumes and cost levels that will fully satisfy customer
demands.

If DSIs Customers Do Not Qualify DSIs Manufacturing Lines for Volume
Shipments, Our Operating Results Could Suffer

Customers will not purchase any of DSIs products (other than limited numbers of
evaluation units) prior to qualification of the manufacturing line for the
product. Each new manufacturing line must go through varying levels of
qualification with our customers. This qualification process determines whether
the manufacturing line achieves the customers quality, performance and
reliability standards. Delays in qualification can result in significant lost
revenue opportunity over the term of that program. DSI may experience delays in
obtaining customer qualification of new facilities. If DSI fails in the timely
qualification of these or other new manufacturing lines, our operating results
and customer relationships would be adversely affected.

Fiber Optic Component Average Selling Prices Are Declining

Prices for telecommunications fiber optic components are generally declining
because of, among other things, increased competition and greater unit volumes
as telecommunications service providers continue to deploy fiber optic networks.
We anticipate that average-selling prices will decrease in the future in
response to product introductions by competitors and DSI or to other factors,
including price pressures from significant customers. Therefore, DSI must (1)
timely develop and introduce new products that incorporate features that can be
sold at higher selling prices and (2) reduce its manufacturing costs.

11



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Failure to achieve any or all of the foregoing may have a material adverse effect on our
business, financial condition and operating results.

Our Agreements with Creditors Impose Restrictions that Could Impede Our Growth

The bank credit facility and the 8% Notes indenture contain restrictive covenants, including



| |  | covenants limiting our ability and our subsidiaries ability to incur
additional indebtedness, pay dividends, make investments, consummate asset
sales, enter into transactions with affiliates and incur liens; and                                           
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | covenants imposing restrictions on the ability of our subsidiaries to pay
dividends or make payments to us, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of our assets.

Although the covenants are subject to exceptions that were designed to allow us
and our subsidiaries to operate without undue restraint, these covenants could
adversely affect our ability to finance our future operations or capital needs
or engage in other business activities, which may be in our interest. In
addition, our bank credit facility requires that we maintain financial ratios.
Our growth will depend in part upon our ability to fund acquisitions and
investments, any of which may make it more difficult to maintain financial
ratios. Our ability to comply with these provisions may be affected by events
beyond our control. A breach of any of these covenants or the inability to
comply with the required financial ratios could result in a default under our
bank credit facility that would entitle the lenders to accelerate payment of the
entire debt. This would adversely affect us and holders of our securities. We
replaced our earlier credit facility in 1999, and we have amended our bank
credit facility since it was put into place, in part to amend these covenants.
These amendments were necessary to allow us to borrow cash necessary to maintain
our operations and to finance purchases of machinery and equipment to improve
our operations. As a growth company, we may need to amend or replace our bank
credit facility prior to its maturity on July 1, 2004.

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PART I

Item 1.  Business

Background

The Company was formed on May 19, 1995 and acquired ownership, primarily by
merger (the Combination), of affiliated companies that were previously under
common ownership and management (the Predecessors). Unless the context
otherwise requires, the Company refers to Advanced Lighting Technologies,
Inc., its subsidiaries and the Predecessors. Industry data in this Report with
respect to the lighting industry is reported on a calendar year basis and
includes the industrial, commercial and residential sectors but not the
automotive sector. Unless otherwise stated herein, such industry data is derived
from selected reports published by the National Electrical Manufacturers
Association (NEMA).

The Company

Advanced Lighting Technologies, Inc. is an innovation-driven designer,
manufacturer and marketer of metal halide lighting products. Metal halide
lighting combines superior energy efficient illumination with long lamp (i.e.,
light bulb) life, excellent color rendition and compact lamp size. The Company
believes that it is the only designer and manufacturer in the world focused
primarily on metal halide lighting. As a result of this unique focus, the
Company has developed substantial expertise in all aspects of metal halide
lighting. The Company believes that this focus enhances its responsiveness to
customer demand and has contributed to its technologically advanced product
development and manufacturing capabilities.

The metal halide market is the fastest growing segment of the domestic lighting
market, demonstrated by metal halide lamp sales having grown at a compound
annual rate of approximately 14% since 1993, although growth has varied
substantially from year to year. The Companys strong market position, new
product development capabilities, strategic acquisitions and participation in
international markets have enabled the Company to increase its revenues at rates
in excess of the growth of the domestic metal halide market. The Companys sales
increased at a compound annual growth rate of 26.1% to $219.4 million in fiscal
2001 from $86.9 million in fiscal 1997.

The Company has integrated vertically to design, manufacture and market a broad
range of metal halide products, including materials used in the production of
lamps, and lamps and other components for lighting systems as well as complete
metal halide lighting systems. The Companys materials and components are used
in the manufacture of its own lighting systems for sale to end-users and are
sold to

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third-party manufacturers for use in the production of their metal halide
products. The vertical integration of the Companys approach to its products is
illustrated below:

Metal Halide Products
Vertical Integration from Materials through Systems

|                           |  |                       
|-------------------------- |  | ----------------------
|Products for Manufacturers |  | Products for End Users



Metal Halide

Invented approximately 35 years ago, metal halide is the newest of all major
lighting technologies and can produce the closest simulation to sunlight of any
available lighting technology. 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. In addition, due to metal halides superior lighting
characteristics, the Company believes many opportunities exist to metal
halidize applications currently dominated by older incandescent and fluorescent
lighting technologies. For example, a 100-watt metal halide lamp, which is
approximately the same size as a household incandescent lamp, produces as much
light as five 100 watt incandescent lamps and as much as three 34-watt,
four-foot long fluorescent lamps. However, metal halide lamps are not compatible
with the substantial installed base of incandescent and fluorescent lighting
fixtures. While metal halide systems generally offer lower costs over the life
of a system, the installation of a metal halide lighting system typically
involves higher initial costs than incandescent and fluorescent lighting
systems.

While domestic sales of incandescent and fluorescent lamps have grown at a
compound annual rate of approximately 3% since 1993, domestic metal halide lamp
sales have grown at a compound annual rate of approximately 14% over the same
period, making metal halide the fastest growing segment of the

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approximately $2.8 billion domestic lamp market. In 2000, metal halide accounted for
approximately 10% of domestic lamp sales by dollar volume.

The Company believes that the majority of the growth of metal halide lighting
has occurred in commercial and industrial applications. Metal halide systems
have been introduced in fiber optic, projection television and automotive
headlamp applications. The Company believes that additional opportunities for
metal halide lighting exist in other applications where energy efficiency and
light quality are important. As a result of the Companys dominant position in
metal halide materials, the Company expects to benefit from continued growth in
metal halide markets. In addition, the Company expects to be a leader in metal
halides continued market expansion by providing innovative metal halide system
components and integrated systems.

Recent Developments

Proposed Sale of Fixture Operations

In September 2001, the Company announced that it had signed a letter of intent
to sell its fixture subsidiaries, known as Ruud Lighting, Kramer Lighting, and
Ruud Lighting Europe, to an investor group led by Alan J. Ruud, ADLTs current
President and Chief Operating Officer. The transaction is expected to reduce the
Companys debt by approximately $41 million. In addition, the Company would
receive a $6 million purchase note. If the Company receives the consent of the
majority in principal amount of its 8% Senior Notes, it may require delivery of
3 million shares of Company common stock in satisfaction of the purchase note.
The Company anticipates that the sale will be completed in the fiscal 2002
second quarter ending December 31, 2001. The Company expects a
substantial noncash charge from the transaction based on the current
terms of the letter of intent. Mr. Wayne R. Hellman, the Companys
Chief Executive Officer and Mr. Steven C. Potts, the Companys Chief Financial
Officer will assume Mr. Ruuds responsibilities. The letter of intent is subject
to certain conditions including approval of the transaction by the Companys
Board of Directors, approval by the Companys lending banks and completion of
financing arrangements by the purchasers. The Company has no assurance that
these conditions can be satisfied, or that any consent can be obtained from
holders of the Companys 8% Senior Notes.

Consolidation of Power Supply
Operations

In July 2001, the Company announced that it is consolidating its power supply
production operations from Draycott, England into its existing high-efficiency
factory in Chennai (Madras), India. The Companys magnetic and electronic
ballast, ignitor and electronic controls manufacturing will be relocated from
England to India during the first half of fiscal 2002. The consolidation is
expected to reduce manufacturing costs by providing a central manufacturing
location to serve the Companys international operations.

The Company plans to take a charge that is related to closing costs, including
severance packages, costs associated with moving equipment and related set-up
costs. The charge is expected to be between $1.5 million and $2
million and will be taken
in the first quarter of fiscal 2002. The Company expects the consolidation to
result in cost savings of approximately $2 million per year.

Restructuring of Worldwide
Operations

In August 2001, the Company announced that it will further restructure its
worldwide operations. As a result of this restructuring, the Company expects to
reduce operating costs by approximately $8 million

15



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annually. The plan includes staff reductions at all levels and the
consolidation of certain overlapping operations.

The combined effect of the consolidation of the power supply operations
discussed above and the worldwide restructuring is expected to be annualized
savings of approximately $10 million. The Company expects to take a total charge of
approximately $4 million to $6 million relating to severance and implementation costs
for these actions, most of which will be taken in the first quarter of fiscal
2002.

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
million shelf
registration filed with the Securities and Exchange Commission which became
effective in July 2000.

Executive Offices

The Companys principal executive offices are located at 32000 Aurora Road,
Solon, Ohio 44139 and its telephone number is 440/519-0500.

Lighting Industry

Opportunities in Metal Halide

The Company currently produces metal halide lighting products for commercial,
industrial and residential applications. Until recently, metal halide technology
served primarily the industrial and outdoor sectors, which the Company
estimates, represents approximately 32% of U.S. lighting fixture sales. However,
with the miniaturization of metal halide lamps and fixtures and the recognition
of the benefits of metal halide technology, including improved light color,
energy efficiency, lower operating temperature and safety of metal halide
products relative to other technologies, significant opportunities for growth
exist. Key factors driving growth in the metal halide industry include:

Demand for Specialized Lamps.The demand for specialized metal halide lamps has
increased as the Companys original equipment manufacturer (OEM) and lighting
agent customers have recognized the benefits associated with using specialized
metal halide products. Although GE, Philips and Sylvania are the lighting
industry leaders, these companies have traditionally focused on the larger
incandescent and fluorescent markets and have limited production of metal halide
lamps to general applications, such as commercial and industrial applications.
While these standard-type metal halide lamps represent a substantial majority of
total metal halide lamp sales, they do not afford the OEM or lighting agent
complete flexibility in designing lighting contract bids. When an agent places
his bid for a lighting contract, he may specify the Companys specialized metal
halide lamps that give better light and greater energy savings in an attempt to
differentiate his bid from a competitor who only specifies standard products.

Development of New and Advanced Metal Halide Power Supplies.Historically, the
introduction of new metal halide lamps and systems has been constrained by the
lack of complementary metal halide power supplies. Significant engineering
expertise is required to adapt existing power supplies for new metal halide
products. The Company believes that while domestic sales of metal halide power
supplies approximated $210 million in 2000, power supply manufacturers, like
lamp manufacturers, have focused on the larger fluorescent power supply market
and, to a lesser extent, on the standard-type metal halide

16



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lamp market rather than development of new power supply products for specialized metal halide
products and applications. The development of appropriate power supply sources
focused on metal halide should significantly enhance the expansion of metal
halide applications, reduce the development time currently required to introduce
new metal halide products and improve the reliability and durability of existing
metal halide products.

Opportunity for Integrated Metal Halide Systems.Metal halide systems for
commercial and industrial applications are assembled primarily by fixture
manufacturers, lighting agents, and intermediaries who are limited in their
ability to integrate different components that comprise a metal halide system.
The Company believes that significant growth opportunities exist through the
packaging of compatible, reliable system components for OEM customers from a
single supplier. In addition, the Company believes that metal halide systems
have significant potential to displace older lighting technologies in
traditional applications and those residential applications will represent a
substantial market for metal halide lighting within the next five years. Other
potential applications for metal halide systems include fiber optic systems,
projection television displays and automotive headlamps.

International Demand for Metal Halide.International markets represent long-term
attractive opportunities for metal halide products as developing nations
continue to build infrastructure to support their growing economies. Facilities
such as train stations, airports, government buildings, highways and factories
all require substantial lighting for which metal halide products are well
suited. In addition, given the high energy efficiency of metal halide and the
high cost of energy in developing nations (including the high cost of power
plant construction), the Company believes that the international metal halide
market will grow faster than the United States market in the long term.

Strategy  Lighting

The Company believes that metal halide technology represents the best lighting
technology for a wide variety of applications, many of which are not yet served
by an appropriate metal halide product. As the principal supplier of metal
halide materials to the metal halide lamp industry, the Company expects to
benefit from continued growth in metal halide markets. The Company also expects
to lead metal halides continued market expansion, by providing innovative metal
halide system components and integrated systems through the operating and growth
strategies highlighted below.

The Companys strategic objective for lighting is to remain focused on the metal
halide market and expand its leadership position in the metal halide lighting
industry by: (i) continuing to use its vertical integration to introduce new
products and applications; (ii) using its experience and technology to
continually reduce cost and improve quality to improve cash flow from
operations; (iii) strengthening the Companys relationships with OEMs and
lighting agents to increase the number of metal halide applications and the
penetration of the Companys products in new metal halide installations; and
(iv) seeking to demonstrate the superiority of metal halide lighting solutions,
thereby stimulating domestic and international demand for the Companys
products.

The Company seeks to achieve its strategic objective through internal growth,
acquisitions and strategic investments, and focus on cost and quality. The
Companys acquisitions and investments have been made in businesses that, when
combined with the Companys existing capabilities and metal halide focus, are
intended to provide technological, product or distribution synergies and offer
the potential to enhance the Companys competitive position or accelerate
development of additional metal halide market opportunities. To the extent its
capital resources allow, the Company may consider other possible acquisition and
strategic investment opportunities.

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Operating Strategy  Lighting

The Company focuses its resources primarily on designing, manufacturing and
marketing metal halide materials, system components, and systems. By focusing on
metal halide, the Company believes it has developed unique design, manufacturing
and marketing expertise. Such expertise provides the Company with significant
competitive advantages, which enable the Company to deliver highly customized
products to meet customer needs. The Companys experienced workforce is
dedicated to improving metal halide lighting products, production processes and
developing new applications for this technology. The Company has retained key
personnel in the consolidation of equipment operations at its Solon facility.

In addition, in order to increase the number of metal halide applications and
the penetration of the Companys products, the Company pursues the following
operating strategies:

Continue to Use Vertical
Integration

The Company began operations as a manufacturer of metal halide salts and
expanded into production of system components, initially lamps. The Company has
expanded its focus to include magnetic and electronic power supplies. The
Company has broadened its materials manufacturing capabilities to include
filtering and optical coatings for lighting applications, through its
acquisition of DSI in 1998. Through this vertical integration, the Company is
able to develop and package complementary system components which enable metal
halide lighting to penetrate applications and markets currently served by older
technologies. The Company will continue to use vertically integrated operations
where we have competitive advantages based on patent-protected technology and
first-to-market product leadership.

Improve Operating Cash Flow

The Company has historically depended on outside capital sources to fund growth.
In order to reduce this dependence and to improve its operating results, the
Company continues to focus primarily on its metal halide products and to use its
experience in the design and manufacture of metal halide materials, components
and systems and focused metal halide technology to reduce operating costs by
improving production processes and product quality without substantial capital
investment. Management believes that achieving cost and quality goals will
enhance operating cash flow to allow for profitable growth in a tight capital
environment. The anticipated improvements should also improve overall financial
performance, which will improve the Companys access to capital for future
investments in its business.

Strengthen OEM and Lighting Agent
Relationships

The Company concentrates on developing strong relationships with lighting
fixture OEMs by providing the key system components for a lighting fixture,
either alone or packaged as a unit, tailored to meet their needs. Historically,
the Company provided specialized lamps tailored to meet OEM needs. With its
ability to design and manufacture power supplies, the Company expects to better
meet OEM needs by packaging the principal system components (lamps, power
supplies, switches and controls) for a lighting fixture. Frequent interaction
with OEMs serves dual purposes, providing the Company with valuable ideas for
new component products and providing OEMs with the information necessary to
market the Companys new products. Lamps and power supplies designed for a
specific fixture are included with the fixture when sold by the OEM, increasing
distribution of the Companys products. The Company has also entered into
agreements with lighting agents to pay commissions for selling the Companys
lamps. Such

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commissions, unique among lamp manufacturers, provide the agent an
incentive to include the Companys metal halide lamps in its bids on a
construction or renovation project.

Seek to Demonstrate Superiority of
Metal Halide Lighting Solutions

The Company seeks to demonstrate the superiority of metal halide lighting
solutions to its customer base, including OEMs, lighting agents and contractors,
thereby stimulating domestic and international demand for the Companys
products. The Company believes that metal halide lighting systems have
significant potential to displace older lighting technologies in traditional
applications, as well as potential applications such as fiber optic systems,
projection television displays and automotive headlamps.

Long-Term Growth Strategy  Lighting

The Company is continuing to introduce more products for new applications and to
expand the distribution channels for its products. The key elements of the
Companys long-term growth strategy include:

Introduce New Products and
Systems

The Company believes it has introduced a majority of the new lamps in the
domestic, metal halide lamp industry since 1985. As applications become
increasingly complex, the advantage of simultaneous design of components as an
integrated system is becoming more significant. The Company now manufactures and
markets complementary component packages for OEMs. The Company intends to
develop, manufacture and market additional types of high performance and
technologically advanced metal halide materials, components and systems.
Capitalizing on its expanding production capability, design capability and
unique metal halide focus, the Company expects to develop additional specialty
systems, such as fiber optic lighting systems and projection television optical
systems.

Increase Sales of Existing
Products

By expanding existing relationships and developing new relationships with
lighting agents and OEMs, the Company expects to increase sales of existing
specialty lamps and power supplies. The Company also expects its sales of
replacement lamps, as well as power supplies, to increase as the installed base
of fixtures for the Companys specialty lamps and power supplies increases. The
Company expects to increase sales in the replacement lamp market, in part
through a novel direct marketing approach to end users. The Company prints its
toll-free phone number and e-commerce web site address on each lamp, and
customers can order replacement lamps directly from the Company for express
delivery. In addition, this interaction with customers provides the Company with
the opportunity to market additional metal halide products.

Participate in International
Markets

The Company intends to capitalize on opportunities in international markets in
three ways. First, the Company directly exports its products to countries that
do not impose restrictive tariffs, local content laws and other trade barriers.
The primary countries and regions in which the Company directly markets products
are the United Kingdom, Western Europe, Australia, Canada and Japan. Since July
1995, the Company has strengthened its distribution capabilities by acquiring or
investing in its distributors in these countries. Second, the Company has
pursued and may pursue strategic acquisitions and has built or may build
manufacturing facilities in international markets. Third, in countries that
impose trade

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restrictions, the Company has sold production equipment or has
entered into joint ventures with local lamp manufacturers. Purchasers of
production equipment have become customers for the Companys metal halide salts
and other materials. The Company has existing joint ventures in China, Korea and
Japan.

Penetrate the Residential Lighting
Market

The Company believes that residential and consumer applications will represent a
promising market for metal halide lighting within the next five years. Over the
longer term, the Company intends to lead metal halides penetration of the
residential lighting market by: (i) developing the use of metal halide fiber
optic systems primarily through its relationship with Fiberstars, Inc.; and (ii)
marketing metal halide portable lighting fixtures (e.g., table and floor lamps)
in an e-commerce format (Microsun.com).

Products

The Company designs, manufactures and sells metal halide materials, components
and systems, which are used in a wide variety of applications and locations
including:

|                              |  |                               |  |                           |  |  |  | 
|----------------------------- |  | ----------------------------- |  | ------------------------- |  |  |  | 
|- floodlighting               |  | - sports arena lighting       |  | - general lighting       
|- architectural area lighting |  | - commercial downlighting     |  | - industrial highbays    
|- general industrial lighting |  | - airport and railway station |  | - tunnel lighting        
|- billboard and sign lighting |  | lighting                      |  | - indirect indoor sports 
|- site lighting               |  | - gas station canopy lighting |  | and office lighting      
|- soffit lighting             |  | - interior downlighting       |  | - parking garage lighting
|- hazardous location lighting |  | - decorative lighting         |  | - security lighting      
|- accent lighting             |  | - retail store downlighting   |  | - landscape lighting     
|                              |  | and track lighting            |  |                           |  | 

The Company also designs, manufactures and sells thin film deposition equipment
for the lighting, telecommunications, ophthalmic and optics industries. The
Company also designs, manufactures, and sells photometric measurement
instruments.

Materials

The Company produces and sells metal halide salts, electrodes, amalgams and
getters. Metal halide salts are the primary ingredients within the arc tube of
metal halide lamps, which determine the lighting characteristics of the lamp.
Electrodes form the electrical connections within the lamp. Amalgams are
chemicals that are used in the arc tubes of high pressure sodium (HPS) lamps
and in fluorescent lamps. Getters are devices required to be included in each
metal halide lamp to prevent impurities from interfering with lamp operation.

The Company produces over 300 different metal halide salts that can be used in
metal halide lamps to produce different lighting characteristics. In addition to
meeting its own needs, the Company believes it produces all of the metal halide
salts used in metal halide lamps manufactured in the United States, including
those manufactured by GE, Philips and Sylvania, and 80% of the metal halide
salts used in metal halide lamps manufactured overseas. The Company serves all
major lamp manufacturers, each of which uses different metal halide salts. The
Company vigorously guards each customers specific formulas from other
customers, including the Companys own lamp engineers. Because of its ability to
produce these ultra pure metal halide doses, the Company has also been called
upon by its lamp

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manufacturer customer base to produce most of the amalgams used
in the domestic production of HPS lighting and, most recently, to develop and
supply a new amalgam for fluorescent applications.

Through DSI, the Company also now produces optical thin film coatings, including
coatings for lighting applications with particular emphasis on coatings for
metal halide arc tubes, as well as antireflection coatings, and coatings for
telecommunications products, electrochromic coatings for glass and plastic
ophthalmic lenses, multilayer magnetic films and emissivity modification films
for classified government applications, and infrared multilayer optical films on
flexible polymeric substrates. Through a reactive sputtering process, these
coatings are electrostatically attached to a product surface. When used in
lighting applications, these coatings can significantly improve the optical
performance of the light source, protect the system and its components from
harmful ultra-violet and infrared radiation, and increase the energy efficiency
of the entire system. See also Telecommunication Applications of Company
Technology.

Systems and Components

The Companys component products include specialty and standard lamps, magnetic
and electronic power supplies, system controls and switches and fiber optic
cable. Specialty lamps are lamps designed and manufactured for particular OEM
applications. Standard lamps are high-volume lamps, which the Company typically
buys for resale under arrangements with GE and Sylvania. Power supplies are
devices that regulate power and are necessary for operation of HID and
fluorescent lamps. System controls and switches are auxiliary electrical
controls included in fixtures and systems.

The Company believes it differentiates itself from other metal halide lamp
manufacturers by offering a wider variety of lamps, many of which have been
customized to offer a specific solution to a lighting problem. Since 1985, the
Company believes that it has introduced a majority of the new lamps in the
domestic, metal halide lamp industry. Currently, the Company offers 86
specialty, 298 second-generation Uni-Form® pulse start and 115 standard-type
lamps in 20 different watt variations ranging from 50 watts to 2,000 watts for
over 30 different applications. In certain instances, the Company produces these
products for its competitors on a private label basis in order to capture sales
through competitors distribution channels. The Company also sells standard-type
lamps, which it sources from other manufacturers.

In fiscal 1999, the Company introduced its new line of 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. In fiscal 2001, the
Company began to offer an expanded line of Uni-Form® pulse start lighting
components and systems. As part of the expanded line, the Company offers unique
retrofit kits that enable customers to convert to second-generation metal halide
products without having to replace the entire lighting system. Many utility
companies are offering rebates to their customers who purchase the
energy-efficient retrofit kits in order to encourage energy conservation.

Through Venture Lighting Power Systems, North America (formerly Ballastronix),
the Companys Canadian subsidiary which manufactures magnetic power supplies,
and Venture Lighting Europe (formerly Parry), the Companys United Kingdom
subsidiary which manufactures magnetic and electronic power supplies for HID
lighting systems, the Company currently offers over 450 power supply products.
The Company also offers electronic controls for metal halide lighting systems.

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A metal halide lighting system consists of a fixture, lamp, power supply,
related electronic controls, optical systems, housing, support systems and any
other necessary components assembled into a product for an end user. The Company
believes it will be able to combine its metal halide expertise and system
component manufacturing capabilities to assist and encourage its customers to
design, develop, produce and market metal halide systems for innovative
applications.

The Company also believes that it has a significant opportunity to introduce
metal halide technology to fiber optic lighting systems. Because of metal halide
lightings ability to produce varied lighting effects, it is particularly well
suited to be adapted as the light source for fiber optic lighting systems. Fiber
optic lighting systems are currently used in accent applications, such as
swimming pool lighting or as replacement lighting for neon lighting. In
applications such as these, it is important that electricity and heat be located
separately from the desired point of light emission.

Production Equipment

In fiscal 1999, due to economic conditions in general, especially outside the
United States, and as a result of the Companys cash preservation strategy, the
Companys equipment manufacturing operation in Bellevue, Ohio was closed.
Machinery, equipment and research and development facilities necessary to allow
the Company to continue manufacturing and support of lamp production equipment,
at reduced levels, has been moved to the Companys Solon, Ohio facility. The
Company temporarily ceased the manufacture and sale of turnkey lamp production
manufacturing groups in fiscal 1999. The Company is currently manufacturing and
selling an equipment group to an unrelated entity in China. Although the Company
could resume the sale of turnkey groups to third parties at any time, the
Company believes that currently the best opportunity lies in manufacturing or
acquiring lamp production equipment for use by the Company. The Company also
manufactures and sells photometric measuring equipment, which is used to measure
quantity and quality of light for design and testing of lighting products and
systems.

A metal halide lamp production equipment group consists of up to 50 different
production machines. Each lamp production equipment group sold (sells) for
between $1.0 million to $6.0 million. In order to maintain manufacturing
flexibility, the Company must continually update its own component production
equipment, through the internal design and fabrication of production equipment.
The Company has leveraged its manufacturing expertise by selling lamp production
equipment groups in international markets to independent companies or to joint
ventures with local lamp manufacturers. In connection with each lamp production
equipment group sale, the Company is required to provide lamp designs and
specifications, and production training, at the same time, creating a customer
for its materials products.

Through DSI, a leader in the development of sophisticated thin film deposition
equipment and measurement instrumentation and thin film products, the Company
also has the capability to manufacture and market turnkey deposition equipment
to produce thin film coatings for a variety of applications. These systems
employ sputtering technology to place optically precise thin coatings on
lighting components and other materials. When DSI sells a system to a customer,
DSI will either operate the system for the customer at DSIs facility or
transfer the system to the customers facility. See also Telecommunication
Applications of Company Technology.

International Sales

International sales aggregated $72.1 million (33% of net sales) for fiscal 2001,
$79.1 million (35% of net sales) for fiscal 2000 and $68.9 million (35% of net
sales) for fiscal 1999. For information regarding the Companys international
operations, see Note Q to Notes to Consolidated Financial Statements.

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Product Design and Development

Management believes one of its key strengths is its ability to design and
develop new products. The Company has dedicated research and development efforts
in each of its product lines having invested $45.1 million or 7.0% of net sales
into research and development over the last three full fiscal years. In fiscal
2001, the Company invested $12.7 million (5.8% of net sales) in research and
development; in fiscal 2000, $14.8 million (6.5% of net sales); and in fiscal
1999, $17.7 million (9.0% of net sales). 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. Historically, the Companys efforts primarily have been focused on
the development of materials and system components.

Materials. The Company is
focused on improving the purity of, and production processes for, metal halide
salts. The Company pursues these efforts proactively as well as in response to
customer requests for specific metal halide salts. The Company also focuses on
designing and developing improved electrodes, amalgams and getters used in lamp
manufacturing. Through DSI, the Company expects to continue producing thin film
coatings primarily for lighting applications with particular emphasis on
coatings for metal halide lighting systems, as well as develop related software,
measurement and test instrumentation and reliable, cost-effective application
processes. See also Telecommunication Applications of Company Technology.

Systems and Components.The Companys product design and development has focused
on developing innovative components to meet the specialized needs of various
customers, including lighting fixture OEMs. The Companys product design teams
work together with OEMs on the design, development and commercialization of new
system components. Such collaborative development efforts have resulted in the
design of improved metal halide lamps with reduced wattage, better energy
efficiency, smaller size and increased life expectancy.

Since 1996, the Company has increased its focus on design and development of
integrated systems. The Company expects efforts in this area to continue to be
important as the Company seeks to develop new fiber optic applications and
packages matched components for lighting fixture OEMs.

Marketing and Distribution

Commercial Products

The marketing and distribution of the Companys diverse range of commercial
products varies by individual product and by product category, as described
below. All sales data are exclusive of inter-company sales.

Materials

The Company markets materials (metal halide and other salts) directly to all
high intensity discharge lamp manufacturers, primarily GE, Philips and Sylvania
for use in their manufacture of lamps. The Company also markets lamp materials
to its joint venture partners. In addition, the Company works very closely with
its customers to manufacture materials according to their specifications.
Certain customer-developed materials are considered proprietary to the Companys
customers. The other lamp

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components manufactured by the Company are used primarily in the manufacture
of its own lamps; however, some outside sales are
made to other lamp manufacturers. The principal customers for the thin-film
coating products of the Company include major lamp manufacturers. In addition,
the Company markets its thin-film coatings to government suppliers for use in
aerospace applications and to fiber optic telecommunications systems
manufacturers. See also Telecommunication Applications of Company Technology.
Sales of materials accounted for approximately 13.3% of the Companys revenues
in fiscal 2001, 13.2% in 2000 and 12.3% in 1999.

System Components

Electrical distributors typically market only standard-type lamps, and the
Company believes that its specialty lamp products do not lend themselves to the
traditional marketing channels associated with standard-type lamp products.
Accordingly, the Company has adopted innovative marketing techniques for its
lamps. As a result, in initial distribution, the Company markets its metal
halide system components through OEMs, which generally have been involved in the
design of the lamp, and commissioned lighting agents, who package the Companys
lamps and power supplies in their bids on construction or renovation projects.
Due to the fact that the Companys lamps are produced to the specifications
required to match a particular fixture or use by an OEM, the Companys lamp will
generally be included with the fixture each time the fixture is sold. The
Company intends to market complementary lamps and power supplies as a package to
provide better service to its OEM customers and lighting agents, as well as to
increase sales.

The Company also has distributed its metal halide lamps through lighting agents.
Unlike GE, Philips and Sylvania that each have extensive local distributor
relationships, the Company has entered into agency agreements with lighting
agents who represent a full line of fixture manufacturers, under which the agent
receives a commission for selling the Companys lamps. The Company believes it
is the only major lamp manufacturer to distribute its products through lighting
agents. This relationship allows the lighting agent to package the Companys
metal halide lamps with the other products included in its bid on a project. By
bidding a more complete or unique package, the lighting agent has a competitive
advantage over less complete bids and, if selected, earns a commission on
Company lamps sold, which agents generally do not receive from other lamp
suppliers.

The Company intends to increase its sales of replacement lamps through direct
marketing by exploiting both the Companys internally developed capabilities.
Since 1994, the Company has printed its toll-free number on each lamp that it
sells, allowing a customer to call the Company, rather than an electrical
distributor, to order a replacement lamp. This enables the customer to speak to
a more knowledgeable representative, thereby increasing the accuracy and
efficiency of service to the end user. This interaction also allows the Company
to suggest enhanced products better suited for the end users needs. In
addition, the Company telemarkets replacement lamps in connection with catalogue
distributions. Lamps are delivered by express courier to end users, thereby
providing service efficiency comparable to local electrical distributors.
Replacement lamps are typically sold at a higher gross margin than lamps sold
initially through OEMs or lighting agents.

In addition to packaging power supplies with lamps, the Company is continuing
direct marketing to OEMs and sales through electrical distributors. Sales of
system components accounted for approximately 44.1% of the Companys revenues in
fiscal 2001, 44.4% in fiscal 2000 and 43.1% in fiscal 1999.

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Systems

The Companys commercial lighting systems are marketed primarily under the trade
name Ruud Lighting. Ruud Lighting markets and distributes its products
primarily by direct marketing to lighting contractors. By marketing complete
metal halide systems, the Company believes it may capture a greater market share
in the metal halide industry. As a direct marketer of these commercial lighting
systems, Ruud Lighting has helped the Companys new systems and technologies
(embedded with the Companys system components) to gain wider acceptance in the
marketplace. Ruud Lighting works closely with lighting contractors and is able
to efficiently assist them in implementing these new systems and technologies.
The Company has announced that it has signed a letter of intent to sell Ruud
Lighting and two other fixture subsidiaries. See also Recent Developments.

The Company is also seeking to lead metal halides penetration of the
residential lighting market by: (i) developing the use of metal halide fiber
optic systems through its relationship with Fiberstars, Inc. and (ii) marketing
metal halide portable lighting fixtures (e.g., table and floor lamps) in an
e-commerce format (Microsun.com).

Systems accounted for approximately 40.9% of the Companys revenues in fiscal
2001, 40.0% in fiscal 2000 and 40.5% in fiscal 1999.

Production Equipment

The Companys production equipment is manufactured for internal use and is
marketed to existing companies for turnkey production of thin-film coatings and
metal halide lamps. External sales of production equipment accounted for
approximately 1.8% of the Companys revenues in fiscal 2001, 2.5% in fiscal 2000
and 4.1% in fiscal 1999.

Manufacturing and Operations

The Companys lamp manufacturing facilities in Solon, Ohio and Chennai (Madras),
India operates five days a week, 16 hours a day, with the Companys lamp
manufacturing employees working in two eight-hour shifts each day. The
manufacturing of metal halide lamps consists of three primary processes. First,
the quartz arc tube is shaped, electrodes for carrying the current are
installed, the metal halide salt dose is introduced and the arc tube is sealed.
The process is performed at high temperatures in carefully controlled conditions
to ensure that the arc tube is properly sealed and that no impurities enter the
arc tube. Second, the arc tube is mounted inside a pyrex bulb container and
sealed. Finally, the lamp is finished by adding a contact for the electrical
outlet. Although light output of metal halide lamps is not affected by ambient
temperatures, an outer bulb is used to prevent contact with the arc tube, which
operates at extremely high temperatures. Quartz and pyrex® are used in the
production of metal halide lamps because of their durability and ability to
retain shape and function at extremely high temperatures. Finished lamps are
inspected, tested and then shipped in accordance with customer instructions. The
Solon facility also houses research and development operations and lamp
production equipment operations.

The Company produces magnetic power supplies at its facility in Amherst, Nova
Scotia, which operates five days a week with one full shift and a partial second
shift. The Company produces magnetic and electronic power supplies at its
facility in Draycott, England, which operates five days a week with one full
shift. The manufacture of magnetic power supplies is a combination of batch and
production line processes. The production line process starts with a coil
winding department, progresses to an in-line coil

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and core operation and then to final assembly. Subassemblies for ignitors
and capacitors are located off-line in a batch operation for inclusion in final assembly.

In July 2001, the Company announced that it is consolidating its power supply
production operations from Draycott, England into its existing high-efficiency
factory in Chennai (Madras), India. The Companys magnetic and electronic ballast,
ignitor and electronic controls manufacturing will be relocated from England to
India during the first half of fiscal 2002. The consolidation is expected to
reduce manufacturing costs by providing a central manufacturing location to
serve the Companys international operations.

The Company plans to take a consolidation charge that is related to closing
costs, including severance packages, costs associated with moving equipment and
related start-up costs. The charge is related to this consolidation is expected
to be between $1,500 and $2,000 and will be taken in the first quarter of fiscal
2002. The Company expects the consolidation to result in a cost savings of
approximately $2,000 per year.

The Company produces all of the metal halide salts it uses and sells at its
facility in Urbana, Illinois. The Urbana facility, with approximately 90
employees working a single shift, also produces precision metal pieces,
precision metal electrode leads and high speed dose dispensers which are used by
the Company and sold to other metal halide lamp manufacturers.

The Ruud Lighting manufacturing facility in Racine, Wisconsin operates five days
per week, with two eight-hour shifts per day. The manufacturing process is
primarily assembly-to-order based on customer needs. Ruud Lightings facility is
ISO 9001-registered. The paint finishing facility is eight years old and is
capable of providing the combination of E-Coat primer and acrylic powder topcoat
finishing style typically required by the automotive industry.

At the Companys DSI facility in Santa Rosa, California, the Company produces
optical thin film coatings for a variety of applications, as well as equipment
for deposition of thin film coatings. The facility operates five days per week
with three eight-hour shifts per day. Coatings and systems are produced in
accordance with exacting customer specifications. Management believes that DSI
has expertise over a broad range of thin film deposition technologies allowing
application of the coating technology most suitable for a particular client
need. See also Telecommunication Applications of Company Technology.

Raw Materials and Suppliers

The Company sources its raw materials from a variety of suppliers. Presently, it
sources most of its quartz tubing and pyrex® bulbs for lamps from GE. Although
an interruption in these supplies could disrupt the Companys operations, the
Company believes that alternative sources of supply exist and could be arranged
prior to the interruption having a material adverse effect on the Companys
operations or sales. The materials for the Companys power supply products are
readily available on the open market. The Company also purchases certain of its
industrial standard-type lamps from GE and Sylvania. This enables the Company to
devote its production equipment to higher margin specialty lamps.

Most of the raw materials used in the production of metal halide salts can be
sourced from several suppliers. The Company has been the dominant supplier of
metal halide salts to the metal halide lamp industry for many years. Therefore,
the Company has focused on addressing any circumstance that could jeopardize the
continued production of these vital materials. Since the Company is the primary
supplier

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of metal halide salts to the metal halide lamp industry, any disruption
in supply would also affect each producer of the affected lamp type.

Components for Ruud Lightings systems are sourced from the Company as well as
outside suppliers. The great majority of components are readily available from
multiple suppliers.

Raw materials and components for DSI coatings and equipment are sourced from
outside suppliers. The Company has multiple qualified sources for critical
materials and components. See also Telecommunication Applications of Company
Technology.

Competition

General

Metal halide systems compete with other types of lighting technology for many
applications. The Companys metal halide lamps compete with lamps produced by
other metal halide lamp manufacturers, primarily GE, Philips and Osram-Sylvania.
Metal halide technology is the newest of all lighting technologies and although
the market awareness and the uses of metal halide lamps continue to grow,
competition exists from older technologies in each metal halide application.

Materials

The Company produces materials that are used by the Company and virtually all
other manufacturers of metal halide lamps. In metal halide salts, where the
Company has successfully used its technology focus and manufacturing capability
to develop superior products, the Company believes it has no competitors in the
United States. In overseas markets, one lamp manufacturer produces metal halide
salts, principally for its own use. The competition in salts is based on the
technological ability to develop salt formulation for customers and product
uniformity and purity. The Company believes it is the leading producer of salts
because it is the leader in uniformity and purity. In other materials
categories, the Companys chief competition is internal production by GE,
Philips and Sylvania. The competition in these products is based primarily on
price and delivery, with some competition based on technological ability to
create solutions for unique applications. The Companys products compete most
effectively for external sales where they are created for unique applications.

DSI has one or two principal competitors in each of its traditional markets
(lighting, coating equipment and government/aerospace). The Company believes
that competition in thin film coatings is generally based on quality of
coatings, technological expertise to design and deliver customized coating
solutions and customer service. The Company believes that it competes
successfully on the basis of all three of these measures. While competition is
strenuous with these existing competitors, management believes that the high
technical content of the products and services in these markets make entry by
new thin film coating manufacturers relatively difficult. See also
Telecommunication Applications of Company Technology.

System Components

GE, Philips and Sylvania are the Companys principal competitors in the
production of metal halide lamps. Although GE, Philips and Sylvania have focused
their efforts on the larger incandescent and fluorescent markets, all three
companies produce metal halide lamps. These three companies have emphasized
sales of a relatively small variety of standard-type metal halide lamps, such as
those found in

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the most common commercial and industrial applications, which the
Company believes represents approximately 75% of the total metal halide lamp
segment.

Although the Company believes its technical and engineering expertise in the
production of specialty metal halide lamps and its unique marketing approach
give it a competitive advantage in this market, the Companys three primary
competitors have significantly longer operating histories, substantially greater
financial, technical and other resources and larger marketing and distribution
organizations than the Company and could expand their focus into specialty
lamps.

The Company does not believe that the foreign lamp manufacturers to whom the
Company has sold lamp production equipment compete with the Companys specialty
products. Due to the technical and engineering expertise required to produce a
new type of metal halide lamp, these purchasers have typically only produced the
standard-type lamps in which the Company has trained them. Although these
purchasers could potentially produce specialty lamp types to compete with the
Company, these purchasers would need to develop or acquire the expertise
required to produce specialty metal halide lamps.

The Companys North American and European power supply products compete
primarily with products of two manufacturers, Advance Transformer, a subsidiary
of Philips, and MagneTek, both headquartered in the United States. Both these
companies have focused on the large fluorescent power supply market whereas the
focus of the Companys power supply operations has been in HID magnetic power
supplies for use primarily in metal halide applications. Competition in power
supplies has traditionally depended on price and delivery, which has resulted in
the failure to develop power supplies to optimize metal halide lighting systems.
The Companys power supply operations intend to compete on the ability to
deliver power supplies which are designed to enhance performance of metal halide
lighting systems.

Systems

Lighting systems compete on the basis of system cost, operating cost, quality of
light and service. The Company feels that metal halide systems compete
effectively against other technologies in each of these areas in many
applications. Although the lighting systems market is highly fragmented, Ruud
Lighting is the only metal halide systems manufacturer which uses direct
marketing to contractors. Ruud Lighting has over 10,000 customers for this
direct marketing effort. Competitors generally market these systems through
distributors and lighting agents.

DSI has one or two principal competitors in each of its traditional markets
(lighting, coating equipment and government/aerospace). While competition is
strenuous with these existing competitors, management believes that the high
technical content of the products and services in these markets make entry by
new thin film coating manufacturers relatively difficult.

DSI competes with respect to its major telecommunications products with numerous producers of components and systems, many of which
possess greater financial, manufacturing, marketing and distribution resources than DSI. The principal competitors for DSI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.

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Intellectual Property

The Company relies primarily on trade secret, trademark, and patent laws to
protect its rights to certain aspects of its products, including proprietary
manufacturing processes and technologies, product research and concepts and
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. In the past, the Company has
successfully taken legal action to enjoin misappropriation of trade secrets by
other parties. Any litigation involving misappropriation of the Companys trade
secrets or other intellectual property rights could require the Company to
increase significantly the resources devoted to such efforts. In addition, an
adverse determination in litigation could subject the Company to the loss of its
rights to a particular trade secret, trademark or patent; could require the
Company to grant licenses to third parties; could prevent the Company from
manufacturing, selling or using certain aspects of its products; or could
subject the Company to substantial liability, any of which could have a material
adverse effect on the Companys results of operations. The patent positions of
companies such as ADLT and its subsidiaries can be highly uncertain and involve
complex legal and factual questions, and therefore the breadth of claims allowed
in such patents and their enforceability cannot be predicted. Therefore, we
cannot provide assurance that the claims in any existing or subsequently issued
patent will be sufficient to protect ADLTs or its subsidiaries intellectual
property or that such patent will not be challenged, invalidated, held
unenforceable or circumvented, or that the rights granted thereunder will
provide proprietary protection or competitive advantages. See also Item 3.
Legal Proceedings.

Telecommunication Applications of Company Technology

Telecommunications Business Unit

A portion of the in-process research and development which was acquired when the
Company purchased 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. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations -
Update on In-Process Research and Development.

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; and (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 $2.61
million in fiscal 2001, an increase of 80% over the $1.45 million recognized in
fiscal 2000. 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

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capacity to support sales of up to $10 million 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. The principal competitors for the Companys DWDM 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 these large OEMs also represent substantial opportunities for sales of its products.

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 is in discussions with several investment banking
firms to assist in identifying and implementing the best strategic alternative
for the telecommunications unit.

Environmental Regulation

The Companys operations are subject to federal, state, local and foreign laws
and regulations governing, among other things, emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas,
which could potentially result in significant expenditures in order to comply
with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.

In 1993, the Company entered into a consent decree with the City of Solon Sewer
District (Solon) with respect to the discharge of mercury into the sewer
system from its Solon, Ohio plant operations. The Company instituted procedures
to comply with this consent decree, and the consent decree expired by its terms
due to the Companys operation within required discharge limits for the period
required by the decree. Routine monthly sampling of the effluent by City of
Solon between September 1995 and September 1996 revealed instances of mercury
discharge in excess of the limits imposed by Solon. Subsequent tests conducted
by Solon showed mercury discharges within required limits. In March 1999, there
was a single instance which showed mercury discharges above the required limits.
The Company has reviewed and updated its plan intended to prevent intermittently
exceeding Solons mercury standards. The Company believes the cost of continued
compliance will not have a material effect on its financial position or results
of operations.

30



---



The Company believes that the overall impact of compliance with regulations and
legislation protecting the environment will not have a material effect on its
future financial position or results of operations. Capital expenditures and
operating expenses in fiscal 2001, fiscal 2000 and fiscal 1999 attributable to
compliance with such legislation were not material.

Employees

As of June 30, 2001, the Company had approximately 2088 full-time employees,
consisting of employees engaged in the designing, manufacturing and marketing of
materials (223 employees), system components (1,237 employees), systems (584
employees) and production equipment (20 employees) and 24 employees in
corporate/administrative services. As a result of the proposed sale of three
fixture subsidiaries and the consolidation and restructuring of worldwide
operations, the number of employees will decline significantly. The Company
believes that its employee relations are good. The Companys employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage.

31



---



Item 2. Properties

The Companys headquarters are located in Solon, Ohio, and the Company maintains
manufacturing facilities in California, Ohio, Illinois, Wisconsin, Rhode Island,
Chennai (Madras), India, Nova Scotia, Canada and Draycott, England. Set forth
below is certain information with respect to the Companys principal facilities
as of June 30, 2001:

|                                    |  |                                               |  |         |         |             |       |        |  |       |  | 
|----------------------------------- |  | --------------------------------------------- |  | ------- | ------- | ----------- | ----- | ------ |  | ----- |  | 
|                                    |  |                                               |  |         |         | Approximate |       |        |  |      
|                                    |  |                                               |  |         |         | Square      |       | Owned/
|Facility Location                   |  | Activities                                    |  | Footage |         | Leased     
|                                    |  |                                               |  |         |         |            
|North America                       |  |                                               |  |         |         |             |       |        |  |       |  | 
|                                   
|                                   
|                                   
|                                   
|Racine, Wisconsin                   |  | Office, manufacturing, finishing,             |  |         | 440,000 |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|                                    |  | distribution warehouse                        |  |         |         |             |       |        |  |      
|                                   
|                                   
|                                   
|                                   
|Solon, Ohio                         |  | Office, systems components manufacturing,     |  |         | 330,000 |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|                                    |  | distribution warehouse                        |  |         |         |             |       |        |  |      
|                                   
|                                   
|                                   
|                                   
|Urbana, Illinois                    |  | Materials manufacturing                       |  |         | 62,000  |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Santa Rosa, California              |  | Office, manufacturing                         |  |         | 180,000 |             |       | Leased
|                                   
|                                   
|                                   
|                                   
|                                    |  |                                               |  |         |         |             | 7,000 |        |  | Owned
|                                   
|                                   
|                                   
|                                   
|Amherst, Nova Scotia, Canada        |  | Office, power supply manufacturing, warehouse |  |         | 45,000  |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Middletown, Rhode Island            |  | Office, fixture manufacturing                 |  |         | 37,000  |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Mississauga, Ontario, Canada        |  | Distribution warehouse, office                |  |         | 13,000  |             |       | Leased
|                                   
|                                   
|                                   
|                                   
|Other                               |  |                                               |  |         |         |             |       |        |  |       |  | 
|                                   
|                                   
|                                   
|                                   
|Draycott, England                   |  | Office, power supply manufacturing, warehouse |  |         | 125,000 |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Chennai (Madras) India              |  | System components manufacturing               |  |         | 40,000  |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Wantirna South, Victoria, Australia |  | Distribution warehouse, office                |  |         | 33,000  |             |       | Owned 
|                                   
|                                   
|                                   
|                                   
|Mitcham, Victoria, Australia        |  | Distribution warehouse, office                |  |         | 15,000  |             |       | Leased
|                                   
|                                   
|                                   
|                                   
|Florence, Italy                     |  | Office, fixture assembly, warehouse           |  |         | 10,000  |             |       | Leased

The owned facilities are subject to mortgages in the following approximate
outstanding amounts as of June 30, 2001: Racine  $8.9 million; Solon  $4.6
million; Santa Rosa  $375,000; and Urbana  $487,000. The aggregate annual
rental cost of leased facilities is approximately $2.1 million, and the average
remaining lease term is 7.2 years.

32



---



Item 3. Legal Proceedings

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.
1:00CV836, 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. The Company and
the CEO filed a Motion to Dismiss the Complaint, which was denied. The case will
now proceed. The Company and the CEO intend to continue to vigorously defend
against these actions.

Excluding the case noted above, the Company does not have pending any litigation
which, separately or in the aggregate, if adversely determined, could reasonably
be expected to have a material adverse effect on the Company. The Company and
its subsidiaries may, from time to time, be a party to litigation or
administrative proceedings that arise in the normal course of their business.

The Companys DSI subsidiary has received notice from a competitor, which
manufactures and markets equipment for the application of thin-films and
provides thin-film coatings for lighting and other markets. The competitor
questioned whether certain of DSIs equipment infringes on the competitors
patented process. DSI responded to this inquiry and has not received any further
communication concerning this question as to infringement since April 1999. In
the event any claim of infringement is made, DSIs management intends to
vigorously defend any such claim. The Company does not expect such patent
opposition to be successful and, even if it were successful, the Company does
not believe that it would have a material adverse effect on DSIs or ADLTs
business, business prospects or results of operations. Separately, the same
competitor filed an opposition to DSIs European MicroDyn® patent. DSI
successfully defended the opposition.

Item 4. Submission of Matters to a Vote of Security Holders

None.

33



---



PART II

Item 5.  Market for the Registrants Common Equity and Related Shareholder Matters

The Common Stock is quoted on the Nasdaq National Market under the symbol
ADLT. The following table sets forth for the periods indicated the range of
high and low sale prices for the Common Stock, as reported on the Nasdaq
National Market:

|                                 |                |  |      |       |     |  |   |       | 
|-------------------------------- | -------------- |  | ---- | ----- | --- |  | - | ----- | 
|                                 |                |  | High |       | Low
|                                 |                |  |      |       |    
|Fiscal
Year Ending June 30, 2001
|                                 | First Quarter  |  | $    | 19.94 |     |  | $ | 11.31 | 
|                                
|                                
|                                
|                                
|                                 | Second Quarter |  |      | 12.81 |     |  |   | 4.00  | 
|                                
|                                
|                                
|                                
|                                 | Third Quarter  |  |      | 9.88  |     |  |   | 4.00  | 
|                                
|                                
|                                
|                                
|                                 | Fourth Quarter |  |      | 6.73  |     |  |   | 3.90  | 
|                                
|                                
|                                
|                                
|Fiscal
Year Ended June 30, 2000 
|                                 | First Quarter  |  | $    | 9.00  |     |  | $ | 6.88  | 
|                                
|                                
|                                
|                                
|                                 | Second Quarter |  |      | 8.50  |     |  |   | 4.75  | 
|                                
|                                
|                                
|                                
|                                 | Third Quarter  |  |      | 23.75 |     |  |   | 5.56  | 
|                                
|                                
|                                
|                                
|                                 | Fourth Quarter |  |      | 22.00 |     |  |   | 9.13  | 

As of June 30, 2001 there were approximately 278 holders of record of the
Companys Common Stock. The Company has never declared or paid a cash dividend.
The terms of the Companys $65 million Bank Credit Facility prohibit the payment
of dividends, other than dividends consisting of Company stock, without the
consent of the lending banks. The Companys Indenture relating to its 8% Senior
Notes limits the payment of cash dividends by the Company to certain amounts
determined by the Companys earnings and equity investment in the Company after
March 31, 1998. In addition, financial covenants, including ratios, contained in
the Bank Credit Facility, may limit payment of dividends indirectly.

The Company does not intend to declare or pay any cash dividends for the
foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Companys business.

34



---



Item 6.  Selected Financial Data

The following table contains certain selected financial data and is qualified by
the more detailed Consolidated Financial Statements and Notes thereto of the
Company. The selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Managements Discussion
and Analysis of Financial Condition and Results of Operations included in Items
7 and 8 below.

|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |     |        | 
|--------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | --------------------------------------------------- | ------- | ----------------------------------------------- | ------- | ---- | ------- | -------------------------- | ------- | ---- | -------- | ----- | ------- | - | ------- | ----- | ------- | - |  |  |  | - | ------ | --- | ------ | 
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         | Fiscal Year Ended June 30, |         |      |          |       |         |   |         |      
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |      
|                                                                                                                            |                                          |                                                     |         | 2001                                            |         | 2000 |         | 1999                       |         | 1998 |          |       |         |   |         | 1997 
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |      
|                                                                                                                            |                                          |                                                     |         | (In thousands, except per share dollar amounts)
|Operating Statement Data:                                                                                                   |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Net sales (1)                                                                                                               |                                          | $                                                   | 219,448 |                                                 |         | $    | 228,596 |                            |         | $    | 196,428  |       |         | $ | 169,900 |       |         |   |  |  |  | $ | 86,913 |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Costs and expenses:                                                                                                         |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Cost of sales                                       |         |                                                 | 130,481 |      |         |                            | 135,114 |      |          |       | 135,349 |   |         |       | 101,416 |   |  |  |  |   |        |     | 45,536 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Marketing and selling (1)                           |         |                                                 | 46,751  |      |         |                            | 45,132  |      |          |       | 48,684  |   |         |       | 31,822  |   |  |  |  |   |        |     | 16,457 | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Research and development                            |         |                                                 | 12,693  |      |         |                            | 14,763  |      |          |       | 17,680  |   |         |       | 10,843  |   |  |  |  |   |        |     | 5,804  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | General and administrative                          |         |                                                 | 13,831  |      |         |                            | 15,385  |      |          |       | 21,192  |   |         |       | 12,208  |   |  |  |  |   |        |     | 7,184  | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Loss from settlement of claim (2)                   |         |                                                 |        |      |         |                            |        |      |          |       |        |   |         |       |        |   |  |  |  |   |        |     | 771    | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Gain on sale of property                            |         |                                                 | (1,115  | )    |         |                            |        |      |          |       |        |   |         |       |        |   |  |  |  |   |        |     |       | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Fiber optic joint venture formation costs           |         |                                                 |        |      |         |                            |        |      |          |       |        |   |         |       | 212     |   |  |  |  |   |        |     | 286    | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Purchased research and development (3)              |         |                                                 |        |      |         |                            |        |      |          |       |        |   |         |       | 18,220  |   |  |  |  |   |        |     |       | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Special charges (3)                                 |         |                                                 |        |      |         |                            | (475    | )    |          |       | 31,107  |   |         |       | 15,918  |   |  |  |  |   |        |     |       | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Amortization of intangible assets                   |         |                                                 | 2,862   |      |         |                            | 2,766   |      |          |       | 2,789   |   |         |       | 1,691   |   |  |  |  |   |        |     | 406    | 
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Income (loss) from operations                                                                                               |                                          |                                                     | 13,945  |                                                 |         |      | 15,911  |                            |         |      | (60,373  | )     |         |   | (22,430 | )     |         |   |  |  |  |   | 10,469 |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Interest income (expense), net                                                                                              |                                          |                                                     | (12,824 | )                                               |         |      | (13,393 | )                          |         |      | (12,767  | )     |         |   | (2,388  | )     |         |   |  |  |  |   | (668   | )  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Gain (loss) from equity investment (4)                                                                                      |                                          |                                                     | (234    | )                                               |         |      | 70      |                            |         |      | (6,318   | )     |         |   | (501    | )     |         |   |  |  |  |   |       |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Income (loss) from continuing operations before
income taxes, minority interest, extraordinary
charge and accounting change |                                          |                                                     | 887     |                                                 |         |      | 2,588   |                            |         |      | (79,458  | )     |         |   | (25,319 | )     |         |   |  |  |  |   | 9,801  |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Income taxes                                                                                                                |                                          |                                                     | 516     |                                                 |         |      | 635     |                            |         |      | 2,281    |       |         |   | (1,311  | )     |         |   |  |  |  |   | 2,697  |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Income (loss) from continuing operations before
extraordinary charge and accounting change                                  |                                          |                                                     | 371     |                                                 |         |      | 1,953   |                            |         |      | (81,739  | )     |         |   | (24,008 | )     |         |   |  |  |  |   | 7,104  |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Minority interest                                                                                                           |                                          |                                                     | (100    | )                                               |         |      | (25     | )                          |         |      |         |       |         |   |        |       |         |   |  |  |  |   |       |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Recontinuance of previously discontinued operations (5)                                                                     |                                          |                                                     |        |                                                 |         |      |        |                            |         |      | 1,331    |       |         |   | (1,331  | )     |         |   |  |  |  |   |       |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Income (loss) before extraordinary
charge and accounting change                                                             |                                          |                                                     | 271     |                                                 |         |      | 1,928   |                            |         |      | (80,408) |       |         |   | (25,339 | )     |         |   |  |  |  |   | 7,104  |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Extraordinary charge, net of
applicable income tax benefits (6)                                                             |                                          |                                                     |        |                                                 |         |      |        |                            |         |      | (902     | )     |         |   | (604    | )     |         |   |  |  |  |   |       |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Cumulative effect for change in accounting (7)                                                                              |                                          |                                                     |        |                                                 |         |      |        |                            |         |      | (2,443   | )     |         |   |        |       |         |   |  |  |  |   |       |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Net income (loss)                                                                                                           |                                          | $                                                   | 271     |                                                 |         | $    | 1,928   |                            |         | $    | (83,753  | )     |         | $ | (25,943 | )     |         |   |  |  |  | $ | 7,104  |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Earnings (loss) per share  diluted (8):                                                                                    |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Income
(loss) from continuing operations |                                                     | $       | (.10                                            | )       |      | $       | .0                         |         |      | $        | (4.04 | )       |   | $       | (1.32 | )       |   |  |  |  |   | $      | .52 |       
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Recontinuance of previously discontinued operations |         |                                                 |        |      |         |                            |        |      |          |       | .07     |   |         |       | (.07    | ) |  |  |  |   |        |     |       | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Extraordinary charge                                |         |                                                 |        |      |         |                            |        |      |          |       | (.05    | ) |         |       | (.04    | ) |  |  |  |   |        |     |       | 
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            |                                          | Cumulative effect for change in accounting (8)      |         |                                                 | (.24    | )    |         |                            |        |      |          |       | (.12    | ) |         |       |        |   |  |  |  |   |        |     |       | 
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Net earnings (loss) per share  diluted                                                                                     |                                          | $                                                   | (.34    | )                                               |         | $    | .0      |                            |         | $    | (4.14    | )     |         | $ | (1.43   | )     |         |   |  |  |  | $ | .52    |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    
|Shares used for computing per share amounts  diluted                                                                       |                                          |                                                     | 22,446  |                                                 |         |      | 21,331  |                            |         |      | 20,232   |       |         |   | 18,195  |       |         |   |  |  |  |   | 13,558 |    
|                                                                                                                            |                                          |                                                     |         |                                                 |         |      |         |                            |         |      |          |       |         |   |         |       |         |   |  |  |  |   |        |    

35



---



|                    |                             |  |      |         |      |  |                            |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------- | --------------------------- |  | ---- | ------- | ---- |  | -------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                    |                             |  |      |         |      |  | Fiscal Year Ended June 30, |         |      |  |     
|                    |                             |  |      |         |      |  |                           
|                    |                             |  | 2001 |         | 2000 |  | 1999                       |         | 1998 |  | 1997
|                    |                             |  |      |         |      |  |                            |         |      |  |     
|Balance Sheet Data: |                             |  |      |         |      |  |                            |         |      |  |      |         |  |  |   |         |  |  |   |        
|                   
|                   
|                   
|                   
|                    | Cash and cash equivalents   |  | $    | 3,652   |      |  | $                          | 3,890   |      |  | $    | 3,830   |  |  | $ | 21,917  |  |  | $ | 4,198   | 
|                   
|                   
|                   
|                   
|                    | Working capital             |  |      | 46,056  |      |  |                            | 40,004  |      |  |      | 18,629  |  |  |   | 79,852  |  |  |   | 42,380  | 
|                   
|                   
|                   
|                   
|                    | Total assets                |  |      | 316,001 |      |  |                            | 304,475 |      |  |      | 284,506 |  |  |   | 329,434 |  |  |   | 134,838 | 
|                   
|                   
|                   
|                   
|                    | Long-term debt              |  |      | 154,914 |      |  |                            | 158,110 |      |  |      | 152,496 |  |  |   | 117,756 |  |  |   | 35,908  | 
|                   
|                   
|                   
|                   
|                    | Preferred stock             |  |      | 19,554  |      |  |                            | 16,999  |      |  |      |        |  |  |   |        |  |  |   |        | 
|                   
|                   
|                   
|                   
|                    | Common shareholders equity |  |      | 98,290  |      |  |                            | 82,783  |      |  |      | 77,441  |  |  |   | 170,837 |  |  |   | 66,032  | 



|(1) |  | Net sales for all years presented have been adjusted to include shipping
and handling fees charged to customers. Previously these amounts were
classified in marketing and selling expense as an offset to freight costs
incurred. This reclassification reflects the adoption of Emerging Issues
Task Force (EITF) Issue 00-10, Accounting for Shipping and Handling Fees
and Costs. EITF Issue 00-10 requires that all amounts billed to a customer
in a sales transaction related to shipping and handling be classified as
revenue. Net sales and marketing and selling expenses were both increased
by $3,729 in fiscal 2001, $3,560 in fiscal 2000, $3,225 in fiscal 1999,
$1,551 in fiscal 1998 and $423 in fiscal 1997.                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | On March 1, 1996, a former Venture shareholder, asserted a claim against
certain officers and directors of the Company, and subsequently against the
Company, seeking $3,600 in damages relating to the redemption of his
Venture shares prior to the Combination. On August 23, 1996, another former
Venture shareholder filed a similar claim against the Company and such
officers and directors seeking damages of $1,600. On November 29, 1996, the
Company and such officers and directors entered into a settlement of both
claims for an aggregate amount of $475. The pretax charge of $771 in fiscal
1997 represents the $475 settlement plus legal and other directly-related
costs, net of insurance recoveries.                                                                                                                                                                                                                                                                                                   
|   
|(3) |  | Fiscal 1999 results include special charges related to the Companys plans
to accelerate its focus on metal halide products, insulate it from
deteriorating economic conditions in the Pacific Rim, exit its non-core
products, integrate fully its core and acquired U.S. operations to produce
profitable growth and reduce its use of cash. Specific initiatives by the
Company included principally: (a) limiting further Pacific Rim expansion,
(b) changing global lamp manufacturing strategy, (c) restructuring
marketing operations in North America and Europe, (d) accelerating exit
from non-core product lines, (e) consolidating equipment manufacturing
operations, (f) reducing corporate and administrative overhead, and (g)
evaluating long-lived assets. Also included in special charges are amounts
related to the wind-down of portable fixture manufacturing operations. The
amounts are classified in the fiscal 1999 statement of operations as: cost
of sales $3,956 and, special charges $31,107.
|   
|    |  | Fiscal 1998 results include special charges related to the purchase price
allocation for Deposition Sciences, Inc. (DSI) of $18,220 for purchased
in-process research and development. The special charges also include
$17,984 principally relating to the rationalization of the Companys global
power supply operations, principally: (a) the discontinuance of certain
power supply products at the Companys power supply facilities, (b) the
write-down of certain intangible and fixed assets and (c) charges related
to the consolidation and rationalization cost of distribution activities
and of new information systems and a reassessment of investments. The
amounts are classified in the fiscal 1998 statement of operations as: cost
of sales  $2,066; purchased in-process research and development 
$18,220; and, special charges  $15,918.                                                                                                                                                          
|   
|(4) |  | In fiscal 1999, the loss from equity investments includes a pretax noncash
write-down of $5,883 related to the Companys investment in the Unison
joint venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(5) |  | Microsun Technologies, Inc. (Microsun) was identified in March 1998 for
disposition through a plan to distribute to ADLT shareholders all of the
ownership of Microsun in a tax-free spin-off transaction estimated to be
completed by December 1998. Because of the deterioration of the capital
markets and the inability to raise capital necessary to spin-off the
Microsun business, the Company concluded that it would wind-down the
operations, close the manufacturing facilities and liquidate the assets of
Microsun. In October 1999,                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

36



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| |     |  | management decided, with the approval of the
Board of Directors to retain the Microsun business  the portable lighting
fixture products business that uses metal halide lighting technology  as
part of the Companys continuing operation. In accordance with the
accounting requirements for re-continuance, the financial statements have
been reclassified to present Microsun within continuing operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (6) |  | In fiscal 1999, the Company incurred an extraordinary loss on the early
extinguishment of debt of $902. In fiscal 1998, the Company incurred an
extraordinary loss on the early extinguishment of debt of $604.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | (7) |  | In fiscal 1999, the Company recorded $2,443 as a cumulative change in
accounting principle relating to the write-off of start up costs in
accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up
Activities. SOP 98-5 provides authoritative guidance on accounting for and
financial reporting of start-up costs and organization costs, and required
that the Company expense all previously capitalized start-up costs and
organization costs as a cumulative effect of a change in accounting
principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | (8) |  | Net earnings (loss) per share is based upon the income attributable to
holders of Common Stock. Such income has been decreased by preferred share
accretion of $7,884 ($.35 per share) in fiscal 2001 and $1,796 ($.08 per
share) in fiscal 2000. The Company adopted Emerging Issues Task Force
(EITF) Issue 00-27, Application of EITF 98-5, `Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios, to Certain Convertible Instruments in the quarter ended December
31, 2000. EITF Issue 00-27 requires that a convertible instruments
beneficial conversion feature be measured using an effective conversion
price. As a result, the value assigned to the redeemable preferred stock
was adjusted by $5,329 for the discount related to the beneficial
conversion option. This additional discount was immediately accreted to
paid-in capital in a manner similar to a cumulative effect of an accounting
change since the redeemable preferred stock was convertible at the time of
issuance.

37



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Item 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands, except per share data amounts)

The following discussion should be read in connection with the Companys
Consolidated Financial Statements and Notes thereto included in Item 8 -
Financial Statements and Supplementary Data.

General

The Company designs, manufactures and markets 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 warehouses, outdoor site and landscape lighting, sports
facilities and large retail spaces such as superstores. With the January 1998
acquisition of Deposition Sciences, Inc.(DSI), the Company also manufactures
and markets turnkey deposition equipment to produce thin film coatings for a
variety of applications. 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 7.0% 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 introduced in 1999 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
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. See also Item 1.
Business  Recent Developments above and Liquidity and Capital Resources
below.

Recent Developments

Proposed Sale of Fixture Operations

In September 2001, the Company announced that it had signed a letter of intent
to sell its fixture subsidiaries, known as Ruud Lighting, Kramer Lighting, and
Ruud Lighting Europe, to an investor group led by Alan J. Ruud, ADLTs current
President and Chief Operating Officer. The transaction is expected to reduce the
Companys debt by approximately $41,000. In addition, the Company would receive
a $6,000 purchase note. If the Company receives the consent of the majority in
principal amount of its 8% Senior Notes, it may require delivery of 3,000,000
shares of Company common stock in satisfaction of the purchase note. The Company
anticipates that the sale will be completed in the fiscal 2002 second quarter
ending December 31, 2001. The Company expects a substantial
noncash charge from the transaction based on the current terms of the
letter of intent. Mr. Wayne R. Hellman, the Companys Chief Executive
Officer and Mr. Steven C. Potts, the Companys Chief Financial Officer will
assume Mr. Ruuds responsibilities. The letter of intent is subject to certain
conditions including approval of the transaction by the

38



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Companys Board of Directors, approval by the Companys lending banks and
completion of financing arrangements by the purchasers. The Company has no assurance that these
conditions can be satisfied, or that any consent can be obtained from holders of
the Companys 8% Senior Notes.

Consolidation of Power Supply
Production Operations

In July 2001, the Company announced that it is consolidating its power supply
production operations from Draycott, England into its existing high-efficiency
factory in Chennai (Madras), India. The Companys magnetic and electronic
ballast, ignitor and electronic controls manufacturing will be relocated from
England to India during the first half of fiscal 2002. The consolidation is
expected to reduce manufacturing costs by providing a central manufacturing
location to serve the Companys international operations.

The Company plans to take a charge that is related to closing costs, including
severance packages, costs associated with moving equipment and related set-up
costs. The charge is expected to be between $1,500 and $2,000 and will be taken
in the first quarter of fiscal 2002. The Company expects the consolidation to
result in cost savings of approximately $2,000 per year.

Restructuring of Worldwide
Operations

In August 2001, the Company announced that it will further restructure its
worldwide operations. As a result of this restructuring, the Company expects to
reduce operating costs by approximately $8,000 annually. The plan includes staff
reductions at all levels and the consolidation of certain overlapping
operations.

The combined effect of the consolidation of the power supply operations
discussed above and the worldwide restructuring is expected to be annualized
savings of approximately $10,000. The Company expects to take a total charge of
approximately $4,000 to $6,000 relating to severance and implementation costs
for these actions, most of which will be taken in the first quarter of fiscal
2002.

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 which became
effective in July 2000.

General Electric Company Investment

On October 6, 1999, General Electric Company (GE) completed an investment in
the Company of $20,554. In addition, GE and the Company entered into a
five-year, renewable agreement for the supply of metal halide salts to GE.

The GE investment includes 761,250 shares of the Companys newly created Series
A 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)
which GE has exercised to acquire 998,703 shares of Common Stock. 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. See Terms of the Series A Stock below. Pursuant to
the terms of the stock purchase agreement, GE provided the Company with
candidates for the Companys Board of Directors who are

39



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not directors, officers, employees or 10% shareholders of GE. The Company is required to cause the number
of such candidates serving on the Board to be equal to the greater of 20% of the
number of members of the Board or the number of members which most nearly
corresponds to GEs percentage ownership interest in the Company. In December
1999, the Company appointed two GE candidates to the Board of Directors.

The proceeds of the GE transaction were applied principally to the reduction of
short-term liabilities and outstanding amounts under the Companys Bank Credit
Facility, and had the effect of increasing available borrowings under the
Companys Bank Credit Facility.

The following summaries of the terms of the Series A Stock, the Terms of the
Initial Warrant and Additional Terms of the GE Transaction are summaries of the
definitive documents in connection with the GE investment.

Terms of the Series A Stock

The Series A Stock is a newly authorized series of preferred stock of the
Company created for issuance in the GE transaction. 761,250 shares of Series A
Stock have been authorized and issued to GE. 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
(Liquidation Preference Amount).

Each outstanding share of Series A Stock is convertible at any time into four
shares (subject to adjustment as described below) of Common Stock of the
Company. Prior to conversion, holders of Series A Stock are entitled to vote in
all shareholder matters together with the holders of Company Common Stock as a
single class. In any such vote, the holders of Series A Stock are entitled to
four votes (equal to the number of shares of Common Stock into which the Series
A Stock held may initially be converted).

The Company is required to redeem any shares of Series A Stock which have not
been converted or retired on September 30, 2010. Any such redemption would be
made at the Liquidation Preference Amount. In addition, holders of the Series A
Stock may require the Company to redeem their shares of Series A Stock by giving
notice to the Company on or before September 30, 2004. If such notice is given,
the Company will be required to make such redemption on or prior to September
30, 2005. In addition, holders of Series A Stock will be entitled to require the
Company to redeem the Series A Stock following the occurrence of any of the
following events (each a Triggering Event): any action by the Company to give
effect to certain major corporate actions, including actions to merge, sell all
or a substantial portion of its assets (other than in the ordinary course of
business), issue capital stock, incur or have outstanding indebtedness for
borrowed money in excess of $210,000. Upon the occurrence of a Triggering Event,
the holders of the Series A Stock may require the Company to redeem their shares
of Series A Stock by giving notice to the Company within 90 days following the
Triggering Event. If such notice is given, the Company will be required to make
such redemption within one year following such notice. Any such redemption would
be made at the Liquidation Preference Amount. Under the terms of the Companys
Bank Credit Facility and the indenture (the Indenture) relating to the
Companys Senior Notes due 2008, the redemption of the Series A Stock would
currently constitute an event of default, permitting acceleration of the related
indebtedness. If prior consent of the banks is obtained, the redemption is
permitted under the Bank Credit Facility. Payments for the redemption of equity
securities are Restricted Payments under the Indenture. The total of all
Restricted Payments under the Indenture (with exceptions not applicable to
stock redemption) cannot exceed one-half of the total of

40



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consolidated net earnings of the Company (excluding consideration of certain unusual items) from
April 1, 1998 (taken as a single period) plus the amount of proceeds received
from sales of non-redeemable stock. As of June 30, 2001, the Company had a net
loss, excluding extraordinary items, of $79,358 for the period. Proceeds of
qualifying stock sales for the period have been approximately $26,700 (including
the proceeds of the Companys public offering of Common Stock completed in
August 2000). Until this deficit has been cured, and sufficient proceeds are
received and/or earnings are achieved, the Company cannot redeem the Series A
Stock without causing an event of default with respect to the Senior Notes. In
addition, the Indenture prohibits Restricted Payments (with exceptions not
applicable to stock redemptions) at any time where the ratio of EBITDA to
Interest Expense for the preceding four fiscal quarters does not exceed 2.5 to
1.

If the Company fails to make any redemption as required (subject to permitted
deferrals in the event that such redemption would cause an event of default with
respect to certain indebtedness of the Company), the conversion ratio of the
Series A Stock would be increased from four shares of Common Stock to eight
shares of Common Stock per share of Series A Stock. In addition, the conversion
ratio is subject to adjustment to prevent dilution of the interest of GE by the
issuance of Common Stock after October 6, 1999. Except for issuance of shares
under existing employee benefit plans, and certain other enumerated exceptions,
any shares of Common Stock issued at a price below $6.75 per share, or, if
higher, below the then current market price, would result in adjustment of the
conversion ratio. Any adjustment in the conversion ratio would not affect the
voting power represented by shares of Series A Stock prior to conversion.

Upon liquidation, each share of Series A Stock will be entitled to be paid the
Liquidation Preference Amount prior to any payment or distribution to the
holders of Company Common Stock. Following such payment, holders of Series A
Stock will be entitled to a proportional share of any distribution to holders of
Company Common Stock based on the number of shares of Common Stock into which
the Series A Stock could have been converted at the time of the liquidation.

Additional Terms of the GE
Transaction

In addition to GEs initial investment, under certain circumstances, GE will be
entitled to make additional investments in the Company and receive the right to
vote additional shares of Company Common Stock. The exercise of certain of these
rights is subject to applicable law, including the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (HSR Approval). GE and the Company entered into a
Contingent Warrant Agreement (Contingent Warrant Agreement). The Contingent
Warrant Agreement identifies certain occurrences, which will entitle GE to
exercise these rights.

Upon the Second Occurrence (defined below), if it occurs, GE would receive the
right to vote the number of shares then owned by Wayne R. Hellman and Hellman,
LTD. pursuant to proxies granted by Messrs. Hellman and Ruud. GE would receive
the right to vote the number of shares as to which Mr. Hellman then has voting
power pursuant to the Hellman Voting Trust or Irrevocable Proxies granted with
respect to shares removed from the Hellman Voting Trust (all shares voted by Mr.
Hellman, approximately 3.3 million shares at August 31, 2001, are referred to
collectively as the Hellman Shares). GE would also have an option, at the then
current market price, to purchase from Messrs. Hellman and Ruud, the number of
shares of Common Stock which, together with the shares owned by GE, would
represent 25% of the voting power of the Company. The Company would also be
required to grant to GE an additional warrant (the First Contingent Warrant)
to purchase shares of Company Common Stock at the then current market price. The
number of shares subject to the First Contingent Warrant would be equal to the
number of shares required to allow GE to have a majority of the voting power of
the Company,

41



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assuming GE had effective proxies with respect to all shares as to
which Messrs. Hellman and Ruud then have voting power. At August 31, 2001, the
number of shares subject to the First Contingent Warrant would have been
approximately 3.6 million shares. The number of shares subject to the First
Contingent Warrant increases on a one-for-one basis for each share newly issued
by the Company and increases on a two-for-one basis for each share sold as to
which Messrs. Hellman or Ruud have voting power.

The issuance of the First Contingent Warrant, the options on shares held by
Messrs. Hellman and Ruud, and effectiveness of GEs proxy with respect to any
such shares is subject to HSR Approval unless the market value of shares held by
GE and subject to the option, is less than $50,000 at any time within the
previous 45 days (which requires the Company and GE to provide information to
the federal government to allow it to determine whether to contest an increase
by GE to an interest in the Company in excess of 25% pursuant to antitrust law).
If the proxies become effective after the Second Occurrence, GE will have the
proxies to vote the number of Hellman Shares and will be entitled to exercise
approximately 37.9% of the then outstanding voting power of the Company
(assuming that none of the Hellman Shares have been transferred by the
beneficial owners and no issuance of additional shares by the Company other than
pursuant to the GE transaction) or approximately 36.2% of the voting power of
the Company on a fully diluted basis. Therefore, upon a Second Occurrence and
the ability to exercise the First Contingent Warrant, GE could obtain in excess
of 35% of the voting power of the Company on a fully diluted basis. If GE were
to acquire in excess of 35% of the voting power of the Company on a fully
diluted basis, the terms of the Indenture relating to the 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 (Offer to Repurchase Notes), and the Companys
banks will have the ability to demand payment of the Bank Credit Facility.

Upon the Third Occurrence (defined below), GE would receive the right to vote
the number of shares then owned by Mr. Ruud, and the right to vote the number of
shares as to which Mr. Ruud then has voting power pursuant to the Ruud Voting
Trust or Irrevocable Proxies granted with respect to shares removed from the
Ruud Voting Trust, currently approximately 3.6 million shares (the Ruud
Shares). The effectiveness of this right requires that the conditions for the
effectiveness of the proxies following the Second Occurrence have been
satisfied. If the proxies on the Ruud Shares become effective after the Third
Occurrence, GE will have the right to vote the Ruud Shares and will be entitled
to exercise approximately 50.0% of the then outstanding voting power of the
Company (assuming that none of the Hellman Shares or the Ruud Shares have been
sold by the beneficial owners, no exercise by GE of the Contingent Warrants and
no issuance of additional shares by the Company other than pursuant to the GE
transaction) or approximately 47.8% of the voting power of the Company on a
fully diluted basis. If the Company has not already made an Offer to Repurchase
Notes, it will be required to make the offer upon effectiveness of the proxy on
the Ruud Shares and the Companys banks will have the ability to demand payment
of the Bank Credit Facility. In addition, GE will receive an additional warrant
(the Second Contingent Warrant) which will entitle GE to purchase additional
shares of Common Stock at the then current market price. The number of shares
subject to the Second Contingent Warrant will be the number of shares necessary
to give GE 50% plus one vote of the voting power of the Company (including the
exercise of all outstanding Warrants, shares subject to irrevocable proxies, the
shares subject to the Second Contingent Warrant and all proxies held with
respect to Hellman Shares and Ruud Shares). After the Third Occurrence, if the
Company issues additional shares of Common Stock to anyone other than GE, GE
will be entitled to purchase, on the same terms given to the third party, the
number of shares required to maintain GEs voting power.

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 (as defined) to Interest Expense (as
defined) over the applicable measurement periods. The

42



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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. The first failure to maintain the required ratio would
be the First Occurrence, the second such failure would be the Second
Occurrence and the third such failure would be the Third Occurrence. The
ratio for the six months ended December 31, 1999, was 1.9 to 1.0 and, therefore,
the First Occurrence has taken place. However, after the First Occurrence, if
the Company maintains the required ratio in the three fiscal quarters
immediately prior to the failure, a Second Occurrence or Third Occurrence, as
the case may be, would not be effective as a result of such failure. In August
2000 in connection with the Companys public offering and sale of 1.7 million
shares of its Common Stock, GE agreed that there would be no measurement periods
for the six-month periods ended June 30, 2000 or September 30, 2000. GE has also
agreed that there would be no measurement period for the six-month period ended
June 30, 2001. The Company did not maintain at least a 2.0 to 1 ratio of EBITDA
to Interest Expense in each of the last three quarters of fiscal 2001. Under the
terms of the transaction, EBITDA consists of net earnings, plus interest
expense, plus depreciation and amortization, plus income taxes, less
extraordinary gains and gains from asset sales plus extraordinary losses and
losses from asset sales. Interest Expense consists of interest expense (net of
interest income) calculated in accordance with generally accepted accounting
principles, but excludes amortization of deferred financing costs up to a
maximum of $125 in any fiscal quarter.

The Company also entered into a number of other agreements with GE in connection
with the transaction. The Company has entered into a standard registration
rights agreement, which will require the Company, upon GEs request, to register
the sale of the shares of Company Common Stock issued in connection with the
investment. If GE were to require such registration and sell a substantial
number of shares, it could adversely affect the market price of Company shares
and the ability of the Company to sell equity securities.

In addition to the proxies granted to GE by Messrs. Hellman and Ruud, Messrs.
Hellman and Ruud have granted to GE a first refusal right on the sale of their
shares. This agreement requires that if Messrs. Hellman and Ruud, or Hellman
Ltd., wish to sell shares of Company stock, they must first offer the shares to
GE on the same terms. The effect of sales of Company stock by Messrs. Hellman
and Ruud and Hellman Ltd. to third parties would be to increase the number of
shares which GE would have to buy from the Company pursuant to the Contingent
Warrants to obtain voting control of the Company. After issuance of the Second
Contingent Warrant, such sales would eliminate GEs contractual right to achieve
complete voting control. In addition, upon a Second Occurrence, GE will have an
option to purchase shares from Messrs. Hellman and Ruud, which would permit GE
to raise its ownership to 25% of the outstanding shares of Company Common Stock.

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

43



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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
telecommunications business.

A portion of the in-process research and development which was acquired when the
Company purchased 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.
(For more information, see Update on In-Process Research and Development.)

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.
Telecommunication product sales for the fourth quarter of fiscal 2001
approximated $600, up 16% from $517 in the fourth quarter of fiscal 2000.
Backorders in the telecom product area grew to $3,200 at June 30, 2001 from
$1,800 at December 31, 2000. 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. 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, rather than 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

44



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ability to develop telecommunications solutions, backed by the required
measurement technology, will permit it to continue 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 is in discussions with several investment banking
firms to assist in identifying and implementing the best strategic alternative
for the telecommunications unit.

Discontinued Operations Subsequently Retained

Microsun Technologies, Inc. (Microsun) was identified in March 1998 for
disposition through a plan to distribute to ADLT shareholders all of the
ownership of Microsun in a tax-free spin-off transaction estimated to be
completed by December 1998. Because of the deterioration of the capital markets
and the inability to raise capital necessary to spin-off the Microsun business,
the Company concluded that it would wind-down the operations, close the
manufacturing facilities and liquidate the assets of Microsun. At June 30, 1999,
the plan of wind-down had been accomplished, the manufacturing facilities closed
and substantially all assets had been disposed. Accordingly, there were no
remaining discontinued operations accrued losses associated with Microsun at
June 30, 1999.

In October 1999, management decided, with the approval of the Board of
Directors, to retain the Microsun business  the portable lighting fixture
products business that uses metal halide lighting technology  as part of the
Companys continuing operation. The decision to retain the business was based on
managements belief that, among other reasons, the market demand for Microsun
products remains substantial; the market potential will be expanded as the
Microsun portable lighting fixtures will be marketed and sold along with other
existing lines of products for residential use in an e-commerce format
(Microsun.com); and the Microsun business will use the fulfillment
capabilities and infrastructure of existing ADLT businesses.

In retaining the Microsun business, the Company concentrates on assembling
fixtures produced by subcontractors, thereby eliminating the need for the
machinery, equipment and facilities that were used in the previous operation.
The assembly process is performed at existing ADLT businesses utilizing existing
facilities and operations. The Company utilizes the customer service systems and
personnel of an existing ADLT business, as well as the Internet to receive,
process and fill orders. Therefore, the Microsun business has been retained but
without the use of the manufacturing processes or assets used in the previous
operations.

In accordance with the accounting requirements for recontinuance, the
accompanying financial statements have been reclassified to present Microsun
within continuing operations. At June 30, 1999, substantially all assets had
been disposed and no remaining accrued losses associated with discontinued
operations remained. The revenues and the net amount charged to the income
statement for the year

45



---



ended June 30, 1999, the last year during which the
business was reported as discontinued operations consisted of the following:

|                                                                     |  |   |        |  
|-------------------------------------------------------------------- |  | - | ------ | -
|Net sales                                                            |  | $ | 4,719  |  
|                                                                     |  |   |        |  
|Reclassification of discontinued
operations to continuing operations |  | $ | 10,374 |  
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Discontinued operations provision                                    |  |   | (9,043 | )
|                                                                     |  |   |        |  
|Recontinuance of previously discontinued operations                  |  | $ | 1,331  |  
|                                                                     |  |   |        |  

The $10,374 reclassified to continuing operations for the year ended June 30,
1999 consisted of a loss from operations of $4,128; write-downs of assets to net
realizable value of $5,533 in connection with the decision in November 1998 to
wind-down the Microsun business related to inventory ($2,448), fixed assets
($1,690), and other assets ($1,395); and costs related to severance,
lease/contract cancellations and facility shut-down costs of $713. These costs
and write-downs are classified in special charges ($3,798) and cost of sales
($2,448).

Fiscal 1999 Special Charges

The Company implemented plans resulting in changes to its operations intended to
accelerate and intensify the Companys focus on its metal halide products,
insulate it from deteriorating economic conditions in the Pacific Rim and the
anticipated decline of non-core products, integrate fully its core and acquired
U.S. operations to produce profitable growth, and reduce and redirect its use of
cash resources. This came in response to a reduction in the Companys revenues
in the first quarter of fiscal 1999 as compared to the fourth quarter of fiscal
1998 and due to economic conditions in general, especially outside the United
States. To implement this strategy, the Company took the following actions:

Limiting Pacific Rim Expansion.In recognition of the near-term effects of the
crisis in Asian capital markets, the Company modified its expansion plans in the
Pacific Rim and is acting to limit its exposure by limiting further investment
in Pacific Rim ventures. The Company evaluated its existing foreign investments
and joint ventures in the Pacific Rim region and wrote-off investments of $475.
In addition, future contract commitments totaling $1,160 were accrued in
connection with the Companys decision to limit its exposure in the Pacific Rim
area.

The Company retained several lamp manufacturing equipment groups, which were
originally expected to be shipped to Asia pursuant to equipment contracts with
Pacific Rim companies. The decision to terminate the foreign equipment contracts
resulted in a reversal of sales of $14,961 and cost of sales of $6,413 in the
second quarter, which were previously recorded under the percentage of
completion method. This reversal reduced operating income by $8,548 ($.42 per
share). Had the sales related to the terminated equipment contracts not been
reversed, reported sales and cost of sales would have been as follows:

|            |  |                          |         |               |  |   |         | 
|----------- |  | ------------------------ | ------- | ------------- |  | - | ------- | 
|            |  | Year Ended June 30, 1999
|            |  |                         
|            |  | Sales                    |         | Cost of Sales
|            |  |                          |         |              
|As reported |  | $                        | 196,428 |               |  | $ | 135,349 | 
|           
|           
|           
|           
|Pro forma   |  |                          | 211,389 |               |  |   | 141,762 | 

Changing Global Lamp Manufacturing Strategy.The Company revised its global lamp
manufacturing strategy to reduce the overall cost of its lamps, including moving
some production to the manufacturing facilities of certain foreign joint
ventures. With this change in its global manufacturing strategy the

46



---



Company discontinued a major program that was in progress to increase its U.S. lamp
manufacturing capability and productivity. This decision resulted in abandoning
and disposing of fixed assets of $7,841, the majority of which had not been
placed in service. Substantially all of these fixed assets were disposed of
prior to June 30, 1999. The impact of suspending depreciation related to these
fixed assets was not material to depreciation expense for the year. Further,
certain joint venture investments of $465 made for the purpose of developing
additional lamp production were terminated, as these specific investments were
not considered integral to the Companys future manufacturing strategy.

In addition, to reduce costs related to its lamp production activities, the
Company consolidated its Bellevue, Ohio specialty lamp manufacturing operations
into its Solon lamp manufacturing facility. The cost to close this facility,
including $328 in severance and benefits for terminated employees, was $708.

Restructuring Marketing Operations in North America and Europe.The Company
restructured its marketing operations in Canada to eliminate certain
distribution channels and centers. Warehouses in Toronto and Vancouver have been
closed and $338 recorded to cover primarily future lease commitments for these
facilities. OEM and plant growth sales channels have been retained and serviced
out of Amherst, Nova Scotia, while after-market lamp sales are being serviced
through a distributor. The Company incurred shutdown costs, including $132 in
severance and benefits for terminated employees, of $279 to close its marketing
facilities in Canada.

The Company also restructured its marketing operations in Europe and the U.K. to
make them more cost efficient. The restructuring of marketing operations in the
U.K. resulted in selling its subsidiaries in France and Germany and recognizing
a loss on the sale of these subsidiaries of $559. Costs related to the shutdown
of these facilities, including $184 in severance and benefits for terminated
employees, and streamlining remaining operations amounted to $873.

Accelerating Exit from Non-core Products Lines.The Company eliminated the
remaining non-metal halide product lines being sold by its Canadian operations.
The Company has sold these product lines and inventory to a third party.
Revenues that related to the non-core product lines approximated $4,100 for
fiscal 1999.

Consolidating Equipment Manufacturing Operation into Solon, Ohio Facility.The
Companys equipment manufacturing operation in Bellevue, Ohio was closed.
Machinery, equipment and research and development facilities necessary to allow
the Company to continue manufacturing and support of lamp production equipment,
at reduced levels, was moved to the Companys Solon, Ohio facility. In
connection with closing its equipment manufacturing facility in Bellevue, Ohio,
$642 of fixed assets, primarily leaseholds and equipment, were abandoned and
written-off. In addition, the Company recorded $2,449 for a future lease
commitment on this manufacturing facility and $1,139 for shutdown costs,
including $642 in severance and benefits for terminated employees.

Reducing Corporate and Administrative Overhead.The Company was increasing its
corporate and administrative staff levels to support its aggressive growth
goals. In light of its focus on internal growth, instead of continued
acquisitions and joint ventures, the Company reduced its corporate and
administrative overhead, including a significant reduction in staff levels and
benefit programs.

Severance and employee benefits for corporate and administrative staff,
including the termination of an employee benefit program, resulted in total
costs of $3,779 enterprise-wide.

47



---



All of the above actions resulted in the termination of approximately 240
employees at substantially all locations. All terminated employees have left the
company and have been paid.

Evaluation of Long-Lived Assets.Certain long-lived assets, principally related
to fixed assets and investments, were evaluated for impairment in value. Fair
value for these assets was based on whether the carrying amount of the asset was
recoverable. Based on this analysis, an impairment loss of $3,830 and $1,544 was
recognized for certain long-term assets and investments. All long-term assets
were disposed by June 30, 1999. The impact of suspending depreciation related to
these long-lived assets was not material to depreciation expense for the year.

Reducing Capital Expenditures. Previously announced plans to spend approximately
$20,000 on capital expansion, primarily production equipment, and approximately
$14,500 on facilities improvements in fiscal 1999 were substantially reduced.

At June 30, 2000, all actions required by the plans were substantially completed
and the $96 balance, as of June 30, 2000, was utilized during fiscal 2001.

In addition to the costs noted above, the Company incurred special charges
related to the wind-down of portable fixture manufacturing operations, which are
described in the section Discontinued Operations Subsequently Retained.

The cost related to the actions noted above, along with those related to the
wind-down of portable fixture manufacturing operations, are included in special
charges of $35,063 ($1.73 per share) for fiscal 1999. The charges are classified
in the consolidated statement of operations as cost of sales ($3,956) and
special charges ($31,107). In connection with these actions, the Company
incurred additional costs of $596 and $764 related to cost of sales and research
and development expense for transactions with affiliates.

Fiscal 1999 Implementation Costs

Certain of the actions resulting in fiscal 1999 special charges also caused
substantial implementation costs, which are not included in the special charges
classification. Three manufacturing sites were consolidated into one, which
together with employee terminations, resulted in severe workforce disruption.
The Company also incurred costs to relocate and consolidate its marketing
operations in North America and transition its marketing operations in Europe.

The launch of the Companys Uni-Form® pulse start products resulted in
substantial quality, rework and productivity issues. In addition, the Company
also undertook other initiatives enterprise-wide in fiscal 1999 that resulted in
nonrecurring costs. Specifically, the Company began the implementation of new
information systems resulting in various installation costs in fiscal 1999. In
addition, during fiscal 1999 the Company incurred one-time costs to establish a
sales office in Japan to sell its metal halide materials to lamp manufacturers
in the Pacific Rim.

Update on In-Process Research and Development

In connection with the January 1998 purchase of DSI, the Company allocated
$18,220 of the $24,100 purchase price to in-process research and development
projects. This allocation represented the estimated fair value based on
risk-adjusted cash flows related to the incomplete research and development
projects. At the date of acquisition, the development of these projects had not
yet reached

48



---



technological feasibility and had no alternative future uses.
Accordingly, these costs were expensed as of the acquisition date. DSIs
in-process research and development value was comprised of five primary research
and development programs, which were in process at the time of the acquisition.

The MicroDyn/Automation Project was intended to improve the coating process of
optical thin-films to both rigid and flexible surfaces so that the process can
be used in a wider array of applications. The Plastics (Acrylic) Coating Project
was designed to produce a method for applying thin-film coatings to plastics or
other similar materials that cannot withstand the heat generated during the
standard coating process. The goal of the Deposition Material Development
Project was to develop new thin-film materials that can be used in coatings and
to improve existing coating materials. The Lighting Projects were intended to
develop improvements to existing lighting technologies by using coatings to
improve efficiency and increase the longevity of lamp life; including
ultra-violet blockers, color enhancement/correction and lumen maintenance. The
Fiber Optic Project was intended to improve telecommunications by providing
optical thin-film coatings that are used in conjunction with optical fibers to
increase the transmission capacity of the fiber. Two segments of the Fiber Optic
Project, directed at the development of filters to reduce insertion loss in
fiber optic communication systems and filters for wavelength division
multiplexing (WDM), have reached commercial feasibility. The third segment of
the project, which is an expansion of the original project, related to the
development of filters for dense wavelength division multiplexing (DWDM), has
not achieved commercial feasibility as of June 30, 2001.

Currently, the focus of the Companys efforts is on the MicroDyn/Automation and
Deposition Material Development Projects. The Lighting-Focused Projects were
completed in fiscal 2001. The Company has made significant progress on all of
these projects resulting in some commercial implementation. However, the
Plastics (Acrylic) Coating Project was abandoned in light of DSIs focus on the
telecommunications business. Annual Company expenditures related to these
original projects included $800 in fiscal 1998, $1,800 in fiscal 1999, $2,100 in
fiscal 2000, and $1,900 expended through June 30, 2001.

Certain projects within the in-process research and development programs, if
successful, will not be fully completed for some time after attaining technical
feasibility. Additionally, even if successfully completed, these projects will
require maintenance research and development after they have reached a state of
technological and commercial feasibility. However, there is substantial risk
associated with the completion of the above active projects and there is no
steadfast assurance that each will meet with either technological or commercial
success. The delay or outright failure of the DSI programs may materially impact
the Companys financial condition.

The original Fiber Optics Project related to telecommunications was
substantially completed as of September 30, 2000. However, because of the growth
of the telecommunications market and the rate of advancement in
telecommunication products, the Company has focused its efforts to the
production process (MicroDyn/Automation Project) and the development of
additional telecommunications products and the expenditures related thereto will
be greater than described above. See also Telecommunications Business Unit.

49



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Results of Operations

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

|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |      |  
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- |  | ------------------- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                                                                                            |                                       |  | Year Ended June 30,
|                                                                                                                            |                                       |  |                    
|                                                                                                                            |                                       |  | 2001                |      | 2000 |  | 1999 
|                                                                                                                            |                                       |  |                     |      |      |  |      
|Net sales                                                                                                                   |                                       |  | 100.0               | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Costs and expenses:                                                                                                         |                                       |  |                     |      |      |  |       |      |   |  |       |     
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Cost of sales                         |  |                     | 59.4 |      |  |       | 59.1 |   |  |       | 68.9 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Marketing and selling                 |  |                     | 21.3 |      |  |       | 19.7 |   |  |       | 24.8 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Research and development              |  |                     | 5.8  |      |  |       | 6.5  |   |  |       | 9.0  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | General and administrative            |  |                     | 6.3  |      |  |       | 6.7  |   |  |       | 10.8 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Gain on sale of property              |  |                     | (0.5 | )    |  |       |     |   |  |       |     |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Special charges                       |  |                     |     |      |  |       | (0.2 | ) |  |       | 15.8 |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Amortization of intangible assets     |  |                     | 1.3  |      |  |       | 1.2  |   |  |       | 1.4  |  
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     
|Income (loss) from operations                                                                                               |                                       |  | 6.4                 |      |      |  | 7.0   |      |   |  | (30.7 | )   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Other income (expense):                                                                                                     |                                       |  |                     |      |      |  |       |      |   |  |       |     
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Interest expense                      |  |                     | (6.3 | )    |  |       | (6.3 | ) |  |       | (7.1 | )
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Interest income                       |  |                     | 0.4  |      |  |       | 0.4  |   |  |       | 0.6  |  
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                            | Income (loss) from equity investments |  |                     | (0.1 | )    |  |       | 0.0  |   |  |       | (3.2 | )
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     
|Income (loss) from continuing operations before income taxes,
minority interest, extraordinary charge and accounting change |                                       |  | 0.4                 |      |      |  | 1.1   |      |   |  | (40.4 | )   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Income taxes                                                                                                                |                                       |  | 0.2                 |      |      |  | 0.3   |      |   |  | 1.2   |     
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     
|Income (loss) from continuing operations before minority
interest, extraordinary charge and accounting change               |                                       |  | 0.2                 |      |      |  | 0.8   |      |   |  | (41.6 | )   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Minority interest in income of consolidated subsidiary                                                                      |                                       |  | (0.1                | )    |      |  |      |      |   |  |      |     
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Recontinuance of previously discontinued operations                                                                         |                                       |  |                    |      |      |  |      |      |   |  | 0.7   |     
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     
|Income (loss) before extraordinary charge and accounting change                                                             |                                       |  | 0.1                 |      |      |  | 0.8   |      |   |  | (40.9 | )   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Extraordinary charge from early extinguishment
of debt, net of income tax benefits                                          |                                       |  |                    |      |      |  |      |      |   |  | (0.5  | )   
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|                                                                                                                           
|Cumulative effect of change in accounting for start-up costs                                                                |                                       |  |                    |      |      |  |      |      |   |  | (1.2  | )   
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     
|Net income (loss)                                                                                                           |                                       |  | 0.1                 | %    |      |  | 0.8   | %    |   |  | (42.6 | %)  
|                                                                                                                            |                                       |  |                     |      |      |  |       |      |   |  |       |     

Factors, which have affected the results of operations and net income during
fiscal 2001 as compared to fiscal 2000 and during fiscal 2000 as compared to
fiscal 1999, are discussed below.

Overview of the Results of Operations  Fiscal 2001 Compared to Fiscal 2000

The Companys operations for fiscal 2001 resulted in income from continuing
operations before minority interest, extraordinary charge and accounting change
of $371 compared to income from continuing operations of $1,953 for fiscal 2000.
The Company realized net income of $271 for fiscal 2001, compared to a net
income of $1,928 for fiscal 2000.

50



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The following factors should be considered in comparing the Companys continuing
operations for fiscal 2001 and fiscal 2000:

| |  | Results for fiscal 2001 include a gain on the sale of property of $1,115 ($.05
per share).
|- |  | ------------------------------------------------------------------------------------------
| |  | Results for fiscal 2000 include a special charge reversal of $475
($.02 per share).       

After excluding the items noted above, the Companys operating activities would
have resulted in a loss from continuing operations before minority interest,
extraordinary charge and accounting change of $(744) for fiscal 2001, as
compared to income from continuing operations before minority interest,
extraordinary charge and accounting change of $1,478 for fiscal 2000.

Fiscal 2001 Compared with Fiscal 2000

Net sales.Net sales decreased 4.0% to
$219,448 in fiscal 2001 from $228,596 in
fiscal 2000. The decrease in sales in fiscal 2001 is mainly attributable to lost
sales resulting from the Companys strategic decision to exit additional
non-core business lines, as well as the devaluation of foreign currencies
relative to the strength of the U.S. dollar. During fiscal 2001, the Company
lost about $6,000 in sales by exiting certain non-metal halide lighting product
lines, about $4,000 by exiting non-telecommunications optical coating product
lines, and about $4,000 in sales due to the strength of the U.S. dollar.

Metal halide sales for fiscal 2001 were $163,676, down 1% from $164,793 in
fiscal 2000. Total pulse start product sales increased 39% to $46,240 in fiscal
2001 from $33,166 in fiscal 2000. Sales of the Companys core metal halide
materials, a key indicator of industry trends, declined 7% as compared to fiscal
2000. Geographically, these sales of materials declined 4% in the U.S. and 9%
outside the U.S. Non-metal halide lighting sales declined 9% due to the
elimination of certain non-metal halide lighting products.

Lighting sales inside the U.S. declined 1% in fiscal 2001 as compared to fiscal
2000. While sales of metal halide system components, lamps and power supplies,
increased 5%, this increase was offset by the managed decline of non-metal
halide product sales and a 3% decline in sales of metal halide fixture products.
Lighting sales outside the U.S. declined 6%, which the Company primarily
attributes to foreign currency exchange and the managed decline of non-metal
halide product sales noted above.

DSIs telecommunications product sales for fiscal 2001 were $2,613, up 80% from
$1,453 in fiscal 2000. During fiscal 2001, DSI introduced a new family of
forward integrated components. Backorders in the telecom product area grew to
$3,200 as of June 30, 2001.

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.

The Company believes that fiscal 2002 sales will be in the range of $135,000 to
$145,000, excluding the fixture operations. The Company expects that earnings
per share, after preferred shares accretion and excluding the one-time charges
associated with the recently announced restructuring, other unusual charges and
the costs associated with the sale of the fixture operations, are expected to be
in the range of $.15 to $.25.

Cost of Sales.Cost of sales decreased 3.4% to $130,481 in fiscal 2001 from
$135,114 in fiscal 2000. The decrease was primarily attributable to decreased
unit volume. As a percentage of net sales, cost of sales increased slightly to
59.4% in fiscal 2001 from 59.1% in fiscal 2000, resulting in gross margins of
40.6% in fiscal 2001 and 40.9% in fiscal 2000. The Company experienced lower
gross profit in fiscal

51



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2001 in its fixture operations and at its DSI subsidiary
compared with fiscal 2000. However, partially offsetting this loss was an
increase in gross profit from its other metal halide lamp, power supply and
specialty materials operations.

Marketing and Selling Expenses.Marketing and selling expenses increased 3.6% to
$46,751 in fiscal 2001 from $45,132 in fiscal 2000. As a percentage of net
sales, marketing and selling expenses increased to 21.3% in fiscal 2001 from
19.7% in fiscal 2000. The increase in marketing and selling expenses were
related to more aggressive marketing efforts for fixtures and telecommunications
products.

Research and Development Expenses.Research and development expenses declined
14.0% to $12,693 in fiscal 2001 from $14,763 in fiscal 2000. Research and
development expenses are incurred related to: (i) expansion 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. The decrease
in research and development was primarily a result of a reduction in spending
related to the development of Uni-Form® pulse start lamps and the Companys
efforts to control the level of its research and development spending. As a
percentage of net sales, research and development expenses decreased to 5.8% in
fiscal 2001 from 6.5% in fiscal 2000.

General and Administrative Expenses.General and administrative expenses
declined 10.1% to $13,831 in fiscal 2001 from $15,385 in fiscal 2000. The
Company reduced corporate legal expenses by $436, which was offset by an
increase in the provision for doubtful accounts of $579. Also, fiscal 2001
general and administrative expenses were reduced by the elimination of
acquisition-related litigation accruals of $1,847 that, based on review with
legal counsel, are no longer required. As a percentage of net sales, general and
administrative expenses decreased to 6.3% in fiscal 2001 from 6.7% in fiscal
2000.

Gain on Sale of Property.DSI operations are in the process of moving into a
much larger leased facility in Santa Rosa, California. Previously, the Company
owned four buildings and leased several others that comprised the DSI business
campus in Santa Rosa. Three of the buildings were sold in fiscal 2001 resulting
in net proceeds of $2,117 and a gain on the sale of $1,115.

Special Charges.During fiscal 2000, the Company revised certain estimates
related to its plans and reversed $475 of previously recorded special charges
that were no longer deemed necessary. The reversal resulted primarily from the
settlement of a lease cancellation for less than the estimated amount and
revised estimates for severance and related costs.

Amortization of Intangible Assets.Amortization expense remained relatively constant at $2,862 in fiscal 2001 as compared to $2,766
in fiscal 2000. Amortization expense relates primarily to the amortization of goodwill and other intangible assets related to the
January 1998 acquisitions of Ruud Lighting, Inc. and Deposition Sciences, Inc.

Income (Loss) from Operations.As a result of the items noted above, income from
operations in fiscal 2001 was $13,945 as compared to income from operations in
fiscal 2000 of $15,911. Income from operations represented 6.9% of sales in
fiscal 2001 as compared with 7.0% in fiscal 2000.

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Interest Expense.Interest expense decreased to $13,839 in fiscal 2001 from
$14,314 in fiscal 2000. This decrease resulted primarily from the lower average
debt outstanding during fiscal 2001 as compared to fiscal 2000.

Interest Income.Interest income increased to $1,015 in fiscal 2001 from $921 in
fiscal 2000. This increase is attributable to an increase of $107 in interest
income from the loan to officer.

Income (Loss) from Equity Investments.The loss from equity investments in
fiscal 2001 represents $234 of losses from the Companys investment in
Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.
The income from equity investments in fiscal 2000 represents $70 of earnings
from the Companys investment in Fiberstars, Inc.

Income (Loss) from Continuing Operations before Income Taxes and Minority
Interest.The Company had income from continuing operations before income taxes
and minority interest of $887 in fiscal 2001 as compared to income from
continuing operations before income taxes and minority interest of $2,588 in
fiscal 2000.

Income Taxes.Income tax expense was $516 in fiscal 2001 as compared to $635 in
fiscal 2000. The income tax expense in both years relates primarily to certain
of the Companys foreign operations.

At June 30, 2001, the Company had net operating loss carryforwards (NOLs) 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.

Overview of the Results of Operations  Fiscal 2000 Compared to Fiscal 1999

The Companys operations for fiscal 2000 resulted in income from continuing
operations before minority interest, extraordinary charge and accounting change
of $1,953 compared to a loss from continuing operations before extraordinary
charge and accounting change of $81,739 for fiscal 1999. The Company realized
net income of $1,928 for fiscal 2000, compared to a net loss of $83,753 for
fiscal 1999.

The following factors should be considered in comparing the Companys continuing
operations for fiscal 2000 and fiscal 1999:



| |  | Results for fiscal 2000 include a special charges reversal of $475 ($.02 per share).                                                                         
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Results for fiscal 1999 include $35,063 in special charges ($1.73 per
share) and the effect of termination of equipment contracts of $8,548
($.42 per share).

After excluding the above charges, the Companys operating activities would have
resulted in income from continuing operations before minority interest,
extraordinary charge and accounting change of

53



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$1,478 for fiscal 2000, as compared to a loss from continuing operations before minority interest,
extraordinary charge and accounting change of $38,128 for fiscal 1999.

Fiscal 2000 Compared with Fiscal 1999

Net sales.Net sales increased 16.4% to $228,596 in fiscal 2000 from $196,428 in
fiscal 1999. Commercial and industrial sales increased 11.2% to $225,361 in
fiscal 2000 as compared to $202,706 in fiscal 1999. Sales of Microsun
residential product decreased to $1,782 in fiscal 2000 from $4,719 in fiscal
1999 due to the decision to wind-down the portable residential fixture
manufacturing operations in the second quarter of fiscal 1999. In addition,
Microsun sales were lower in fiscal 2000 due to the absence of the advertising
in major metropolitan newspapers which occurred in fiscal 1999. No lamp
equipment sales were recorded in fiscal 2000 due to the cessation of these sales
in the second quarter of fiscal 1999. Fiscal 1999 includes the reversal of
$14,961 in lamp equipment sales due to the termination of equipment contracts
noted above, offset by $2,971 of lamp equipment sales recorded prior to the
termination. Telecommunication product sales for fiscal 2000 were $1,453, up 46%
from $993 in fiscal 1999. Government-related business at DSI decreased by almost
$3,000 for fiscal 2000 from fiscal 1999 due to the refocusing of DSI to the
rapidly expanding telecommunications component market.

Fiscal 2000 commercial and industrial sales (which exclude the residential,
telecommunications and lamp equipment amounts discussed above) reflect continued
growth in the sales of the Companys core U.S. metal halide operations, in
non-metal halide products, and in overseas sales. The Companys commercial and
industrial metal halide sales increased 11% (8% increase in the United States)
from the year ago period. The Companys core metal halide materials business, a
key indicator of industry trends, was up 29% from fiscal 1999. Geographically,
these sales of materials were up 12% in the U.S. and grew 56% outside the U.S.

Commercial and industrial sales outside the U.S. increased 25%. The Company
attributes the increase in international sales to increased sales of its
materials and optical coatings, especially in the Pacific Rim. Sales of
non-metal halide products grew 12% primarily due to the increase in sales of
zinc mercury materials for fluorescent lighting and thin-film coating equipment.

Sales increases were driven by increased volume in the Companys materials,
components and systems. 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 0.2% to $135,114 in fiscal 2000 from
$135,349 in fiscal 1999. As a percentage of net sales, cost of sales decreased
to 59.1% in fiscal 2000 from 68.9% in fiscal 1999. The Companys restructuring
efforts in fiscal 1999 resulted in a significant disruption of the ongoing
business of the Company and, as a result, a significant increase in its costs
and expenses. The biggest single area of increased costs occurred as a result of
the consolidation of the lamp and equipment operations. Three manufacturing
sites were consolidated into one, which together with employee terminations,
resulted in severe workforce disruption. Simultaneously, the Company attempted
to accelerate production of new products such as Uni-Form® pulse start and
began the implementation of extensive, new information systems. Largely as a
result of these initiatives, the Company incurred significantly higher costs
related to quality, rework and productivity issues. Additionally, the Company
has continued to reduce its manufacturing costs through cost-cutting and
productivity gains, especially in its lighting systems operations.

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Cost of sales in fiscal 1999 include a credit of $6,413 related to the
termination of equipment contracts and $3,956 of inventory write-downs related
to the exit of nonfocus product lines and wind-down of the Microsun business.
Excluding these items, cost of sales decreased 2.0% to $135,114 in fiscal 2000
from $137,806 in fiscal 1999. The abnormally high level of cost of sales in
fiscal 1999 was primarily a result of the production problems noted above in
fiscal 1999 as compared to a more normalized cost of sales amount in fiscal
2000. As a percentage of net sales, excluding the effect of the terminated
equipment contracts and inventory write-downs, cost of sales decreased to 59.1%
in fiscal 2000 from 65.2% in fiscal 1999.

Marketing and Selling Expenses.Marketing and selling expenses decreased 7.3% to
$45,132 in fiscal 2000 from $48,684 in fiscal 1999. As a percentage of net
sales, marketing and selling expenses decreased to 19.7% in fiscal 2000 from
24.8% in fiscal 1999. This decrease is primarily due to the manner in which the
Company was selling its residential portable lighting fixtures. In the first six
months of fiscal 1999, the Company was utilizing newspaper ads in major
metropolitan newspapers and catalogues to sell these fixtures. As described in
the section Discontinued Operations Subsequently Retained, the Company is now
utilizing the customer service systems and personnel of an existing ADLT
business, as well as the Internet, to receive, process and fill orders, which
has resulted in a reduction in marketing and selling expenses. The reduction in
marketing and selling expenses, as a percent of sales, is also a result of the
Companys efforts to better manage its expenditures including salaries and
benefits and travel costs. As a percentage of net sales, excluding the effect of
the terminated equipment contracts in fiscal 1999, marketing and selling
expenses decreased to 19.7% in fiscal 2000 from 21.3% in fiscal 1999.

Research and Development Expenses.Research and development expenses decreased
16.5% to $14,763 in fiscal 2000 from $17,680 in fiscal 1999. Research and
development expenses are incurred related to: (i) expansion of the new 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) intended to replace many first generation metal halide
lamps in industrial and commercial applications; (ii) development and testing of
electronic power supply systems; (iii) development of new materials for the
worlds major lighting manufacturers; and, (iv) research and development efforts
aimed at 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. The decrease in
research and development was primarily a result of a reduction in spending
related to the development of Uni-Form® pulse start lamps and the Companys
efforts to control the level of its research and development spending. As a
percentage of net sales, excluding the effect of the terminated equipment
contracts in fiscal 1999, research and development expenses decreased to 6.5% in
fiscal 2000 from 8.4% in fiscal 1999.

General and Administrative Expenses.General and administrative expenses
decreased 27.4% to $15,385 in fiscal 2000 from $21,192 in fiscal 1999. The
decrease reflects the Companys efforts to control general and administrative
costs and was primarily related to reductions in professional services (audit,
tax, legal, information system and other) of $1,557, travel costs of $1,232, and
compensation costs of $605. The reduction in travel costs related in part to the
Companys decision to reduce enterprise-wide travel in favor of less costly
video-conference communication. As a percentage of net sales, excluding the
effect of the terminated equipment contracts in fiscal 1999, general and
administrative expenses decreased to 6.7% in fiscal 2000 from 10.0% in fiscal
1999.

Special Charges.See discussion of special charges above.

55



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Amortization of Intangible Assets.Amortization expense remained relatively constant at $2,766 in fiscal 2000 as compared to $2,789
in fiscal 1999. Amortization expense relates primarily to the amortization of goodwill and other intangible assets related to the
January 1998 acquisitions of Ruud Lighting, Inc. and Deposition Sciences, Inc.

Income (Loss) from Operations.As a result of the items noted above, income from
operations in fiscal 2000 was $15,911 as compared to a loss from operations in
fiscal 1999 of $60,373. Income from operations represented 7.0% of sales in
fiscal 2000.

Interest Expense.Interest expense increased to $14,314 in fiscal 2000 from
$13,889 in fiscal 1999. This increase resulted primarily from the higher average
debt outstanding during fiscal 2000 as compared to fiscal 1999.

Interest Income.Interest income decreased to $921 in fiscal 2000 from $1,122 in
fiscal 1999. This decrease is attributable to lower average cash equivalents and
short-term investments in fiscal 2000 as compared to fiscal 1999, offset by an
increase of approximately $200 in interest income from the loan to officer.

Income (Loss) from Equity Investments.The income from equity investments in
fiscal 2000 represents $70 of earnings from the Companys investment in
Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.
The loss from equity investments in fiscal 1999 represents $109 of earnings from
the Companys investment in Fiberstars, Inc., offset by a pretax noncash
write-down of $5,883 related to the Companys investment in the Unison joint
venture and a $544 loss from the Companys investment in Venture Lighting Japan,
a manufacturer and marketer of metal halide lamps in Japan.

Income (Loss) from Continuing Operations before Income Taxes.The Company had
income from continuing operations before income taxes of $2,588 in fiscal 2000
as compared to a loss from continuing operations before income taxes of $79,458
in fiscal 1999.

Income Taxes.Income tax expense was $635 in fiscal 2000 as compared to $2,281
in fiscal 1999. The income tax expense in fiscal 2000 relates primarily to
certain of the Companys foreign operations. The income tax expense in fiscal
1999 relates primarily to the establishment of a valuation allowance related to
the net deferred tax assets of the Company.

Recontinuance of Previously Discontinued Operations.See Discontinued Operations Subsequently Retained above.

Cumulative Effect of Accounting Change.The Company adopted Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities,
effective July 1, 1998, which resulted in the cumulative effect of the
accounting change of $2,443 in fiscal 1999.

Liquidity and Capital Resources

The Companys principal financial requirements are for capital expenditures,
market development activities, research and development efforts, acquisitions
and strategic investments, and working capital. These requirements have been,
and the Company expects they will continue to be, financed through a combination
of cash flow from operations, borrowings under credit facilities and the sale of
stock and debt under two shelf registration statements for $300,000 and
$100,000. These shelf registration

56



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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 $238 during fiscal 2001. Cash provided
by operating activities totaled $2,376 and cash provided by financing activities
totaled $19,695. Cash used in investing activities totaled $22,309.

Net cash provided by (used in) operating activities.Net cash provided by
operating activities totaled $2,376 in fiscal 2001 as compared to cash used in
operating activities of $13,274 in fiscal 2000. Net income plus depreciation and
amortization totaled $11,623 in fiscal 2001 as compared to $11,939 in fiscal
2000. The Company achieved its goal to generate positive cash flow from
operations in fiscal 2001. The Company intends to manage its cash resources to
generate positive cash flow from operating activities for fiscal 2002 and
beyond.

Net cash used in investment activities.During fiscal 2001, investing activities
used $22,309 of cash including $24,209 for capital expenditures and $366 related
to purchases of businesses. The Company sold several smaller properties that
housed some of the DSI operations and generated net proceeds of $2,117. The
Company is currently leasing a much larger facility for DSI.

Capital expenditures, primarily for production equipment and facility
improvements, totaled $24,209 in fiscal 2001 as compared to $5,636 in fiscal
2000. Capital expenditures in fiscal 2001 related to 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 expenditures for the next twelve months,
except for its telecommunications business. 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
approximately $23,000 were used to repay indebtedness outstanding under the Bank
Credit Facility. The Company incurred approximately $17,000 in fiscal 2001 for
expenditures on capital improvements, including optical coating production
equipment, filter testing and measuring testing and measuring equipment and
production facilities, and on research and development, in the
telecommunications business.

The Company estimates its maintenance level for capital expenditures in the
lighting business will approximate $6,000 to $8,000 over the next twelve months.
Future capital expenditures (excluding the telecommunications business) 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.During fiscal 2001, net financing
activities provided cash of $19,695, which included $22,890 of net proceeds from
an offering of 1,700,000 shares of the Companys common stock and net repayments
of debt of $1,322.

On March 13, 1998, the Company sold $100,000 of 8% Senior Notes due March 15,
2008, resulting in net proceeds of $96,150. From September 1998 until August
2000, interest on these notes was calculated at 8.5%. During August 2000, the
Company completed a registered exchange offer to existing noteholders, which
resulted in reducing the interest rate on the Senior Notes to 8.0% from 8.5%.

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 $13,140 to
its CEO as of June 30, 2001, at an interest rate of 8%. Subsequent to June 30,
2001, the Company loaned an additional $970 to its CEO. The proceeds of the

57



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loans have been used by the Companys CEO to reduce the principal balance
outstanding of margin loan accounts, which are secured by 1,715,042 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.
The term of the loan has been extended by the Board to October 6, 2001. The
Board has 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 all 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. There has been a deterioration in the fair value of
various investments owned by the CEO during fiscal 2001. A continued
deterioration in the fair value of these investments could make it probable that
the Company would not collect all amounts due in accordance with the contractual
terms of the loan agreement which would result in the loan being impaired.
Impairment of the loan receivable would result in the recognition of a loss
accrual based on the Companys assessment of the ultimate realization under the
loan agreement.

Ability to advance future operations.The Company has begun to implement, 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 June
30, 2001 was $46,056, resulting in a working capital ratio of current assets to
current liabilities of 2.1 to 1.0, as compared to $39,949 or 1.9 to 1.0 at June
30, 2000. As of June 30, 2001, the Company had $3,652 in cash and cash
equivalents.

The interest-bearing obligations of the Company totaled $163,772 as of June 30,
2001, and consisted of: $41,034 of borrowings under the Bank Credit Facility;
$100,000 of 8% Senior Notes; mortgages of $15,380; a promissory note of $2,300;
a term loan of $3,023; capital leases of $230; and, other obligations of foreign
subsidiaries of $1,805.

The Company has a $65,000 Bank Credit Facility consisting of a $40,000 revolving
credit loan and $25,000 term loan provided by several financial institutions.
The revolving credit loan matures in July 2004. Interest rates on loans
outstanding, under the revolving credit loan, are based, at the Companys
option, on LIBOR plus 2.25% or the agent banks prime rate (6.75% at June 30,
2001). Availability of borrowings is determined by the Companys eligible
accounts receivable and inventories. The Company had unused availability of
$18,063 as of June 30, 2001. The term loan matures in July 2004. The Company
pays monthly principal payments of $298, with the unpaid balance due at
maturity. Interest rates on the term loan are based, at the Companys option, on
LIBOR plus 2.75% or the agent banks prime rate.

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.

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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 is in 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 that may be available in the future for
the issuance of various debt and equity securities under the shelf registration
statement to approximately $274,500. The Company used the net proceeds from the
public offering of approximately $23,000 to repay revolving credit loan
borrowings. The Company subsequently borrowed under its revolving credit loan
facility in fiscal 2001 to fund 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 at DSI.

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 believes that the available cash, anticipated cash flow from
operations, and the initiatives outlined above, along with the availability
under its existing Bank Credit Facility, will enable the Company to fund its
operations for at least the next 12 months. Beyond this time, 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 the telecommunications business should enable the Company
to access additional capital resources, as needed.

Market Risk Disclosures

Market Risk Disclosures.The following discussion about the Companys market
risk disclosures involves forward looking statements. Actual results could
differ materially from those projected in the forward looking statements. The
Company is exposed to market risk related to changes in interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for speculative or trading purposes.

Interest Rate Sensitivity.The following table provides information about the Companys debt obligations and financial instruments
that are sensitive to changes in interest rates. For debt obligations, the table

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presents principle cash flows and related weighted-average interest rates by
expected maturity dates. Weighted-average variable rates are based on implied
forward rates as derived from published spot rates.

|                                                                             |                       |      |     |      |   |      |          |      |   |      |     |            |          |       |     |      |   |   |     |      |            |   |       |      |   |   |       |      |  |   |      |      | 
|---------------------------------------------------------------------------- | --------------------- | ---- | --- | ---- | - | ---- | -------- | ---- | - | ---- | --- | ---------- | -------- | ----- | --- | ---- | - | - | --- | ---- | ---------- | - | ----- | ---- | - | - | ----- | ---- |  | - | ---- | ---- | 
|                                                                             |                       |      |     |      |   |      |          |      |   |      |     |            |          |       |     |      |   |   |     |      |            |   |       |      |   |   |       |      | 
|                                                                             |                       |      |     |      |   |      | June
30, |      |   |      |     |            |          |       |     |      |   |   |     |      | Fair
Value
|                                                                             |                       |      |     |      |   |      |          |      |   |      |     |            | June
30,
|(dollars in millions)                                                        |                       | 2002 |     | 2003 |   | 2004 |          | 2005 |   | 2006 |     | Thereafter |          | Total |     | 2001
|                                                                             |                       |      |     |      |   |      |          |      |   |      |     |            |          |       |     |     
|Liabilities
Long-term Debt, including
    Current Portion
        Fixed Rate |                       | $    | 2.9 |      |   | $    | 0.3      |      |   | $    | 0.4 |            |          | $     | 0.4 |      |   | $ | 4.4 |      |            | $ | 100.8 |      |   | $ | 109.2 |      |  | $ | 78.4 |     
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Average Interest Rate |      |     | 8.1  | % |      |          | 8.2  | % |      |     | 8.1        | %        |       |     | 8.1  | % |   |     | 8.1  | %          |   |       | 8.0  | % |   |       |      |  |   |      |      | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Variable Rate         |      | $   | 6.0  |   |      | $        | 5.5  |   |      | $   | 12.3       |          |       | $   | 30.5 |   |   | $   | 0.2  |            |   | $     | 0.1  |   |   | $     | 54.6 |  |   | $    | 54.6 | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Average Interest Rate |      |     | 6.7  | % |      |          | 7.2  | % |      |     | 8.8        | %        |       |     | 10.5 | % |   |     | 12.8 | %          |   |       | 10.6 | % |   |       |      |  |   |      |      | 

Liabilities at June 30, 2000, included $110,477 of fixed-rate debt and $54,192
of variable-rate debt. Interest rates on the fixed-rate debt to maturity ranged
from 6.65% to 18.70%, while interest rates on the variable-rate debt to maturity
ranged from 8.29% to 10.50% as of June 30, 2000. In fiscal 1999, the Company
entered into an interest rate swap with a notional amount of $10,000. During the
fourth quarter of fiscal 2000, the Company early-terminated the interest rate
swap, resulting in a realized gain of $120.

Foreign Currency Exchange Risk.During fiscal 2001 and prior years, the Company
did not hedge its foreign currency exposure and, therefore, did not enter into
any forward foreign exchange contracts to hedge foreign currency transactions.

The Company has operations outside the United States with foreign-currency
denominated assets and liabilities, primarily denominated in pounds sterling,
Australian dollars, and Canadian dollars. Because the Company has
foreign-currency denominated assets and liabilities, financial exposure may
result, primarily from the timing of transactions and the movement of exchange
rates. The Company began a program in fiscal 2002 to hedge its foreign currency
balance sheet exposures which is intended to reduce any significant impact on
earnings or cash flows.

Sales and expenses denominated in foreign currencies are subject to the effect
of foreign currency fluctuations and these fluctuations may have an impact on
margins and on common shareholders equity.

Impact of Recently Issued Accounting Standards

The Company adopted Statement of Financial Accounting Standards (FAS) No. 133
Accounting for Derivative Instruments and Hedging Activities as of July 1,
2000. FAS 133 requires that all derivatives, such as interest rate exchange
agreements (swaps), be recognized on the balance sheet at fair value. The
Company had no derivatives as at July 1, 2000, and therefore, no resulting
transition adjustments. The Company had no derivatives as at June 30, 2001.

The Company adopted Emerging Issues Task Force (EITF) Issue 00-27,
Application of EITF 98-5, Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios, to Certain Convertible
Instruments in the quarter ended December 31, 2000. EITF Issue 00-27 requires
that a convertible instruments beneficial conversion feature be measured using
an effective conversion price. As a result, the value assigned to the redeemable
preferred stock was adjusted by

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$5,329 for the discount related to the
beneficial conversion option. This additional discount was immediately accreted
to paid-in capital in a manner similar to a cumulative effect of an accounting
change since the redeemable preferred stock was convertible at the time of
issuance. The impact of this change is noted in the Statements of Consolidated
Shareholders Equity and in Note L Earnings Per Share.

The Company adopted EITF Issue 00-10, Accounting for Shipping and Handling Fees
and Costs in the year ended June 30, 2001. EITF Issue 00-10 requires that all
amounts billed to a customer in a sales transaction related to shipping and
handling be classified as revenue. Accordingly, the Company has reclassified
such amounts to revenue within the financial statements. EITF Issue 00-10 also
requires the disclosure of the amount and classification of shipping and
handling costs. The Company records shipping and handling costs as Marketing
and Selling costs, and these amounts totaled $8,799 in fiscal 2001, $8,272 in
fiscal 2000 and $7,146 in fiscal 1999.

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. Earlier adoption of FAS 142 is permitted, and the Company is considering
the early adoption of FAS 142 effective first quarter of fiscal year 2002. 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. Finally, goodwill and intangible assets with indefinite lives will
be tested for impairment annually and whenever there is an impairment indicator.
As a result, adoption of FAS 142 in the first quarter of fiscal 2002 would
result in a reduction in annual amortization expense in fiscal 2002 of
approximately $2,300 based on the level of this expense in fiscal 2001. Of this
reduction, approximately $1,900 relates to the three fixture subsidiaries that
the Company intends to sell. See Recent Developments  Sale of Fixture
Operations.

Impact of Inflation

Although inflation has slowed in recent years, it continues to be a factor in
our economy. However, management does not believe that inflation has or will
have a significant impact on its operations. Although the Company has not raised
prices significantly in recent years, it has been able to lower overall costs
sufficiently to offset inflation.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The information set forth under the subcaption Market Risk Disclosures
contained in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations is incorporated herein by reference.

61



---



Item 8. Financial Statements and Supplementary Data

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED JUNE 30, 2001

ADVANCED LIGHTING TECHNOLOGIES, INC.

SOLON, OHIO

62



---



LIST OF FINANCIAL STATEMENTS AND FINANCIAL



Form 10-K-Item 14(a)(1) and (2), (c) and (d) 
 ADVANCED LIGHTING TECHNOLOGIES, INC.

The following consolidated financial statements of Advanced
Lighting Technologies, Inc. are included in Item 8:

|                                           |                                                                                                          |      |  |     | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ---- |  | --- | 
|                                           |                                                                                                          | Page
|                                           |                                                                                                          |     
|Audited Consolidated Financial Statements: |                                                                                                          |      |  |    
|                                          
|                                          
|                                          
|                                          
|                                           | Report of Grant Thornton LLP, Independent Auditors                                                       |      |  | F-2 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Balance Sheets as of June 30,
        2001 and 2000                                         |      |  | F-3 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Operations for the
        Years Ended June 30, 2001, 2000 and 1999           |      |  | F-4 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Shareholders
        Equity for the Years Ended June 30, 2001, 2000 and 1999 |      |  | F-5 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Consolidated Statements of Cash Flows for the
        Years Ended June 30, 2001, 2000 and 1999           |      |  | F-6 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Notes to Consolidated Financial Statements                                                               |      |  | F-8 | 

Financial Statement Schedules:

None



| |                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | All schedules for which provision is made in the applicable
        accounting regulation of the Securities and Exchange Commission
        are not required under the related instructions or are
        inapplicable and therefore have been omitted.

F-1



---



Report of Grant Thornton LLP, Independent Auditors

Board of Directors and Shareholders



We have audited the accompanying consolidated balance sheets of
Advanced Lighting Technologies, Inc. as of June 30, 2001
and 2000, and the related consolidated statements of operations,
shareholders equity and cash flows, for each of the three
years in the period ended June 30, 2001. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Advanced Lighting
Technologies, Inc. as of June 30, 2001 and 2000 and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended June 30, 2001,
in conformity with accounting principles generally accepted in
the United States of America.



| |                       
| | ----------------------
| | /S/ GRANT THORNTON LLP

Cleveland, Ohio





F-2



---



ADVANCED LIGHTING TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS


(in thousands, except per share amounts)

|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |          |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------- | ------- | -------- | ------ | - | ------- | -------- | ------ | 
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | June 30,                          |         | June 30,
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | 2001                              |         | 2000    
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |         
|Assets                                                                                                                                                                                                                         |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Current assets:                                                                                                                                                                                                                |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Cash and cash equivalents                                                                                                                                                                                          |                                   | $       | 3,652    |        |   | $       | 3,890    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Trade receivables, less allowances of $1,248 and
        $1,129                                                                                                                                                    |                                   |         | 32,762   |        |   |         | 31,983   |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Inventories:                                                                                                                                                                                                       |                                   |         |          |        |   |         |          |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | Finished goods                    |         |          | 27,122 |   |         |          | 26,532 | 
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | Raw materials and work-in-process |         |          | 22,207 |   |         |          | 21,930 | 
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   | 49,329  |          |        |   | 48,462  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Prepaid expenses                                                                                                                                                                                                   |                                   |         | 3,140    |        |   |         | 1,881    |       
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|Total current assets                                                                                                                                                                                                           |                                                                                                                                                                                                                    |                                   | 88,883  |          |        |   | 86,216  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Property, plant and equipment:                                                                                                                                                                                                 |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Land and buildings                                                                                                                                                                                                 |                                   |         | 44,399   |        |   |         | 44,187   |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Production machinery and equipment                                                                                                                                                                                 |                                   |         | 84,116   |        |   |         | 62,323   |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Other equipment                                                                                                                                                                                                    |                                   |         | 2,479    |        |   |         | 5,077    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Furniture and fixtures                                                                                                                                                                                             |                                   |         | 21,830   |        |   |         | 20,893   |       
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   | 152,824 |          |        |   | 132,480 |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Less accumulated depreciation                                                                                                                                                                                      |                                   |         | 30,734   |        |   |         | 23,317   |       
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   | 122,090 |          |        |   | 109,163 |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Receivables from related parties                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   | 2,177   |          |        |   | 3,755   |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Investments in affiliates                                                                                                                                                                                                      |                                                                                                                                                                                                                    |                                   | 13,761  |          |        |   | 14,251  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Other assets                                                                                                                                                                                                                   |                                                                                                                                                                                                                    |                                   | 7,955   |          |        |   | 7,037   |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Intangible assets                                                                                                                                                                                                              |                                                                                                                                                                                                                    |                                   | 30,890  |          |        |   | 31,791  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Excess of cost over net assets of businesses
        acquired, net                                                                                                                                                             |                                                                                                                                                                                                                    |                                   | 50,245  |          |        |   | 52,262  |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | $                                 | 316,001 |          |        | $ | 304,475 |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|Liabilities and shareholders
        equity                                                                                                                                                                                   |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Current liabilities:                                                                                                                                                                                                           |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Short-term debt and current portion of long-term
        debt                                                                                                                                                      |                                   | $       | 8,858    |        |   | $       | 7,097    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Accounts payable                                                                                                                                                                                                   |                                   |         | 20,944   |        |   |         | 20,389   |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Payables to related parties                                                                                                                                                                                        |                                   |         | 1,200    |        |   |         | 2,639    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Employee-related liabilities                                                                                                                                                                                       |                                   |         | 3,759    |        |   |         | 3,913    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Accrued income and other taxes                                                                                                                                                                                     |                                   |         | 1,030    |        |   |         | 1,436    |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Other accrued expenses                                                                                                                                                                                             |                                   |         | 7,036    |        |   |         | 10,793   |       
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|Total current liabilities                                                                                                                                                                                                      |                                                                                                                                                                                                                    |                                   | 42,827  |          |        |   | 46,267  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Long-term debt                                                                                                                                                                                                                 |                                                                                                                                                                                                                    |                                   | 154,914 |          |        |   | 158,110 |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Minority interest                                                                                                                                                                                                              |                                                                                                                                                                                                                    |                                   | 416     |          |        |   | 316     |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Preferred stock, $.001 par value, per share;
        1,000 shares authorized; 761 Series A convertible
        redeemable shares issued and outstanding at June 30, 2001
        (redemption value  $23,507 at June 30, 2001) |                                                                                                                                                                                                                    |                                   | 19,554  |          |        |   | 16,999  |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|Common shareholders equity:                                                                                                                                                                                                   |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Common stock, $.001 par value, per share; 80,000
        shares authorized; 23,288 shares issued and outstanding as of
        June  30, 2001 and 20,482 shares issued and outstanding as
        of June 30, 2000 |                                   |         | 23       |        |   |         | 20       |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Paid-in-capital                                                                                                                                                                                                    |                                   |         | 217,030  |        |   |         | 195,786  |       
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Accumulated other comprehensive income (loss)                                                                                                                                                                      |                                   |         | (5,058   | )      |   |         | (2,659   | )     
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Loan receivable from officer                                                                                                                                                                                       |                                   |         | (13,140  | )      |   |         | (9,528   | )     
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                              
|                                                                                                                                                                                                                               | Retained earnings (deficit)                                                                                                                                                                                        |                                   |         | (100,565 | )      |   |         | (100,836 | )     
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   | 98,290  |          |        |   | 82,783  |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    | $                                 | 316,001 |          |        | $ | 304,475 |         
|                                                                                                                                                                                                                               |                                                                                                                                                                                                                    |                                   |         |          |        |   |         |         

See notes to consolidated financial statements

F-3



---



ADVANCED LIGHTING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except per share dollar amounts)

|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                            |                                                             |                    
|                                                                                                                                            |                                                             | Year Ended June 30,
|                                                                                                                                            |                                                             |                    
|                                                                                                                                            |                                                             | 2001                |         | 2000    |   | 1999
|                                                                                                                                            |                                                             |                     |         |         |   |     
|Net sales                                                                                                                                   |                                                             | $                   | 219,448 |         |   | $    | 228,596 |         |   | $ | 196,428 |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Costs and expenses:                                                                                                                         |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Cost of sales                                               |                     |         | 130,481 |   |      |         | 135,114 |   |   |         | 135,349 |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Marketing and selling                                       |                     |         | 46,751  |   |      |         | 45,132  |   |   |         | 48,684  |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Research and development                                    |                     |         | 12,693  |   |      |         | 14,763  |   |   |         | 17,680  |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | General and administrative                                  |                     |         | 13,831  |   |      |         | 15,385  |   |   |         | 21,192  |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Gain on sale of property                                    |                     |         | (1,115  | ) |      |         |        |   |   |         |        |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Special charges                                             |                     |         |        |   |      |         | (475    | ) |   |         | 31,107  |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Amortization of intangible assets                           |                     |         | 2,862   |   |      |         | 2,766   |   |   |         | 2,789   |  
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Income (loss) from operations                                                                                                               |                                                             |                     | 13,945  |         |   |      | 15,911  |         |   |   | (60,373 | )      
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Other income (expense):                                                                                                                     |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Interest expense                                            |                     |         | (13,839 | ) |      |         | (14,314 | ) |   |         | (13,889 | )
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Interest income                                             |                     |         | 1,015   |   |      |         | 921     |   |   |         | 1,122   |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Income (loss) from equity investments                       |                     |         | (234    | ) |      |         | 70      |   |   |         | (6,318  | )
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Income (loss) from continuing operations
        before income taxes, minority interest, extraordinary charge and
        accounting change |                                                             |                     | 887     |         |   |      | 2,588   |         |   |   | (79,458 | )      
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Income taxes                                                                                                                                |                                                             |                     | 516     |         |   |      | 635     |         |   |   | 2,281   |        
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Income (loss) from continuing operations
        before minority interest, extraordinary charge and accounting
        change               |                                                             |                     | 371     |         |   |      | 1,953   |         |   |   | (81,739 | )      
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Minority interest in income of consolidated
        subsidiary                                                                              |                                                             |                     | (100    | )       |   |      | (25     | )       |   |   |        |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Recontinuance of previously discontinued
        operations                                                                                 |                                                             |                     |        |         |   |      |        |         |   |   | 1,331   |        
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Income (loss) before extraordinary charge
        and accounting change                                                                     |                                                             |                     | 271     |         |   |      | 1,928   |         |   |   | (80,408 | )      
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Extraordinary charge from early extinguishment of
        debt, net of income tax benefits                                                  |                                                             |                     |        |         |   |      |        |         |   |   | (902    | )      
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|Cumulative effect of change in accounting for
        start-up costs                                                                        |                                                             |                     |        |         |   |      |        |         |   |   | (2,443  | )      
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Net income (loss)                                                                                                                           |                                                             | $                   | 271     |         |   | $    | 1,928   |         |   | $ | (83,753 | )      
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Earnings (loss) per share  Basic
        and Diluted:                                                                                      |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Income (loss) from continuing operations                    |                     | $       | (.10    | ) |      | $       | .01     |   |   | $       | (4.04   | )
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Recontinuance of previously discontinued
        operations |                     |         |        |   |      |         |        |   |   |         | .07     |  
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Extraordinary charge                                        |                     |         |        |   |      |         |        |   |   |         | (.05    | )
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Cumulative effect of accounting change                      |                     |         | (.24    | ) |      |         |        |   |   |         | (.12    | )
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Earnings (loss) per share  Basic
        and Diluted                                                                                       |                                                             | $                   | (.34    | )       |   | $    | .01     |         |   | $ | (4.14   | )      
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|Weighted average shares outstanding:                                                                                                        |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            | Basic                                                       |                     |         | 22,446  |   |      |         | 20,372  |   |   |         | 20,232  |  
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        
|                                                                                                                                            | Diluted                                                     |                     |         | 22,446  |   |      |         | 21,331  |   |   |         | 20,232  |  
|                                                                                                                                            |                                                             |                     |         |         |   |      |         |         |   |   |         |        

See notes to consolidated financial statements.

F-4



---



ADVANCED LIGHTING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


For the Three Years Ended June 30, 2001

(in thousands)


|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | ------------ |  | --------- | ------ | ------------- |  | ------ | -- |  |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                   |  |           |        |              |  |           |        |              
|                                                                                                                                   |  |           |        | Common Stock |  |           |        | Comprehensive
|                                                                                                                                   |  | Preferred |        |              |  | Paid-In   |        | Income       
|                                                                                                                                   |  | Stock     |        | Shares       |  | Par Value |        | Capital       |  | (Loss)
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |       
|Balance at June 30, 1998                                                                                                           |  |           |       |              |  |           | 20,189 |               |  |        | 20 |  |  |   | 189,828 |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net loss                                                                                                                           |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  | $ | (83,753 | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Loan to officer                                                                                                                    |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of shares in connection with the
        purchase of a business                                                           |  |           |       |              |  |           | 2      |               |  |        |   |  |  |   | 29      |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |           |       |              |  |           | 18     |               |  |        |   |  |  |   | 279     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |           |       |              |  |           | 41     |               |  |        |   |  |  |   | 312     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |           |       |              |  |           | 28     |               |  |        |   |  |  |   | 206     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   | (949    | )
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Comprehensive loss                                                                                                                 |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  | $ | (84,702 | )
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Balance at June 30, 1999                                                                                                           |  |           |       |              |  |           | 20,278 |               |  |        | 20 |  |  |   | 190,654 |   |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net income                                                                                                                         |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  | $ | 1,928   |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net proceeds from issuance of preferred shares
        and warrant                                                                 |  | $         | 15,203 |              |  |           |        |               |  |        |   |  |  |   | 5,000   |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Preferred shares accretion                                                                                                         |  |           | 1,796  |              |  |           |        |               |  |        |    |  |  |   | (1,796  | ) |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest on loan to officer                                                                                                        |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest payment received                                                                                                          |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of shares in connection with the
        purchase of a business                                                           |  |           |       |              |  |           | 40     |               |  |        |   |  |  |   | 535     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |           |       |              |  |           | 71     |               |  |        |   |  |  |   | 718     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |           |       |              |  |           | 29     |               |  |        |   |  |  |   | 195     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |           |       |              |  |           | 64     |               |  |        |   |  |  |   | 480     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   | (1,710  | )
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Comprehensive income                                                                                                               |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  | $ | 218     |  
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Balance at June 30, 2000                                                                                                           |  |           | 16,999 |              |  |           | 20,482 |               |  |        | 20 |  |  |   | 195,786 |   |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net income                                                                                                                         |  |           |       |              |  |           |       |               |  |        |   |  |  |   |        |   |  | $ | 271     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net proceeds from public offering of common shares                                                                                 |  |           |       |              |  |           | 1,700  |               |  |        | 2  |  |  |   | 22,888  |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Preferred shares accretion                                                                                                         |  |           | 2,555  |              |  |           |       |               |  |        |   |  |  |   | (2,555  | ) |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Value of beneficial conversion option of
        preferred shares                                                                  |  |           | (5,329 | )            |  |           |       |               |  |        |   |  |  |   | 5,329   |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Additional preferred shares accretion from
        cumulative effect of accounting change for beneficial conversion
        option |  |           | 5,329  |              |  |           |       |               |  |        |   |  |  |   | (5,329  | ) |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Loan to officer                                                                                                                    |  |           |       |              |  |           |       |               |  |        |   |  |  |   |        |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest on loan to officer                                                                                                        |  |           |       |              |  |           |       |               |  |        |   |  |  |   |        |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of warrant                                                                                                                |  |           |       |              |  |           |       |               |  |        |   |  |  |   | 37      |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|GE warrant exercised                                                                                                               |  |           |       |              |  |           | 999    |               |  |        | 1  |  |  |   | (1      | ) |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |           |       |              |  |           | 12     |               |  |        |   |  |  |   | 148     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |           |       |              |  |           | 28     |               |  |        |   |  |  |   | 167     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |           |       |              |  |           | 67     |               |  |        |   |  |  |   | 560     |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |           |       |              |  |           |        |               |  |        |   |  |  |   |        |   |  |   | (2,399  | )
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Comprehensive loss                                                                                                                 |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  | $ | (2,128  | )
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  
|Balance at June 30, 2001                                                                                                           |  | $         | 19,554 |              |  |           | 23,288 |               |  | $      | 23 |  |  | $ | 217,030 |   |  |   |         |  
|                                                                                                                                   |  |           |        |              |  |           |        |               |  |        |    |  |  |   |         |   |  |   |         |  

[Additional columns below]

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

|                                                                                                                                   |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---------- |  | --------- | ------- | ----- |  | - | -------- | - |  | - | ------- | -
|                                                                                                                                   |  | Accumulated   |        | Loan       |  |           |         |      
|                                                                                                                                   |  | Other         |        | Receivable |  | Retained  |         |      
|                                                                                                                                   |  | Comprehensive |        | From       |  | Earnings  |         |      
|                                                                                                                                   |  | Income (Loss) |        | Officer    |  | (Deficit) |         | Total
|                                                                                                                                   |  |               |        |            |  |           |         |      
|Balance at June 30, 1998                                                                                                           |  |               |       |            |  |           |        |       |  |   | (19,011  | ) |  |   | 170,837 |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net loss                                                                                                                           |  |               |       |            |  |           |        |       |  |   | (83,753  | ) |  |   | (83,753 | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Loan to officer                                                                                                                    |  |               |       |            |  | $         | (9,520  | )     |  |   |         |   |  |   | (9,520  | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of shares in connection with the
        purchase of a business                                                           |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 29      |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 279     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 312     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 206     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |               | (949   | )          |  |           |        |       |  |   |         |   |  |   | (949    | )
|                                                                                                                                   |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                                                                 |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Balance at June 30, 1999                                                                                                           |  |               | (949   | )          |  |           | (9,520  | )     |  |   | (102,764 | ) |  |   | 77,441  |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net income                                                                                                                         |  |               |       |            |  |           |        |       |  |   | 1,928    |   |  |   | 1,928   |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net proceeds from issuance of preferred shares
        and warrant                                                                 |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 20,203  |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Preferred shares accretion                                                                                                         |  |               |        |            |  |           |         |       |  |   |          |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest on loan to officer                                                                                                        |  |               |       |            |  |           | (728    | )     |  |   |         |   |  |   | (728    | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest payment received                                                                                                          |  |               |       |            |  |           | 720     |       |  |   |         |   |  |   | 720     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of shares in connection with the
        purchase of a business                                                           |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 535     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 718     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 195     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 480     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |               | (1,710 | )          |  |           |        |       |  |   |         |   |  |   | (1,710  | )
|                                                                                                                                   |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|Comprehensive income                                                                                                               |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Balance at June 30, 2000                                                                                                           |  |               | (2,659 | )          |  |           | (9,528  | )     |  |   | (100,836 | ) |  |   | 99,782  |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net income                                                                                                                         |  |               |       |            |  |           |        |       |  |   | 271      |   |  |   | 271     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Net proceeds from public offering of common shares                                                                                 |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 22,890  |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Preferred shares accretion                                                                                                         |  |               |       |            |  |           |        |       |  |   |         |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Value of beneficial conversion option of
        preferred shares                                                                  |  |               |       |            |  |           |        |       |  |   |         |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Additional preferred shares accretion from
        cumulative effect of accounting change for beneficial conversion
        option |  |               |       |            |  |           |        |       |  |   |         |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Loan to officer                                                                                                                    |  |               |       |            |  |           | (2,785  | )     |  |   |         |   |  |   | (2,785  | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Interest on loan to officer                                                                                                        |  |               |       |            |  |           | (827    | )     |  |   |         |   |  |   | (827    | )
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Issuance of warrant                                                                                                                |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 37      |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|GE warrant exercised                                                                                                               |  |               |       |            |  |           |        |       |  |   |          |   |  |   |        |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock options exercised                                                                                                            |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 148     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock purchases by employees                                                                                                       |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 167     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Stock issued pursuant to employee benefit plan                                                                                     |  |               |       |            |  |           |        |       |  |   |         |   |  |   | 560     |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Foreign currency translation adjustment                                                                                            |  |               | (2,399 | )          |  |           |        |       |  |   |         |   |  |   | (2,399  | )
|                                                                                                                                   |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|Comprehensive loss                                                                                                                 |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|                                                                                                                                  
|Balance at June 30, 2001                                                                                                           |  | $             | (5,058 | )          |  | $         | (13,140 | )     |  | $ | (100,565 | ) |  | $ | 117,844 |  
|                                                                                                                                   |  |               |        |            |  |           |         |       |  |   |          |   |  |   |         |  

See notes to consolidated financial statements

F-5



---



ADVANCED LIGHTING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)

|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |          |        |        |         |  
|-------------------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------- | ------ | ------ | ------- | -------- | ----- | ------ | ------- | -------- | ------ | ------ | ------- | -
|                                                         |                                                                                              |                                                                                        
|                                                         |                                                                                              | For the Years Ended June 30,                                                           
|                                                         |                                                                                              |                                                                                        
|                                                         |                                                                                              | 2001                                                                                    |                                             | 2000                                                        |        | 1999  
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |       
|Operating activities                                     |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                        
|                                                        
|                                                        
|                                                        
|Net income (loss)                                        |                                                                                              | $                                                                                       | 271                                         |                                                             |        | $      | 1,928   |          |       | $      | (83,753 | )       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Adjustments to reconcile net income (loss) to net
        cash used in operating activities: |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |          |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Depreciation                                                                            |                                             |                                                             | 8,490  |        |         |          | 7,245 |        |         |          | 6,387  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Amortization                                                                            |                                             |                                                             | 2,862  |        |         |          | 2,766 |        |         |          | 2,789  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Provision for doubtful accounts                                                         |                                             |                                                             | 867    |        |         |          | 288   |        |         |          | 882    |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Loss (income) from equity investments                                                   |                                             |                                                             | 234    |        |         |          | (70   | )      |         |          | 6,318  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Gain on sale of property                                                                |                                             |                                                             | (1,115 | )      |         |          |      |        |         |          |       |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Special charges and terminated equipment contracts                                      |                                             |                                                             |       |        |         |          | (475  | )      |         |          | 43,611 |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Deferred income taxes                                                                   |                                             |                                                             |       |        |         |          |      |        |         |          | 2,836  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Extraordinary item                                                                      |                                             |                                                             |       |        |         |          |      |        |         |          | 902    |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Cumulative effect of change in accounting
        principle                             |                                             |                                                             |       |        |         |          |      |        |         |          | 2,443  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              | Changes in operating assets and liabilities,
        excluding effects of acquisitions: |                                             |                                                             |        |        |         |          |       |        |         |          |        |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Trade receivables                           |                                                             |        | (1,597 | )       |          |       | (5,275 | )       |          |        | 255    |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Inventories                                 |                                                             |        | (698   | )       |          |       | (5,178 | )       |          |        | 4,138  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Prepaids and other assets                   |                                                             |        | (495   | )       |          |       | (1,826 | )       |          |        | (1,841 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Accounts payable and accrued expenses       |                                                             |        | (4,816 | )       |          |       | (7,786 | )       |          |        | 2,641  |        
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Payments related to special charge accruals |                                                             |        | (96    | )       |          |       | (3,196 | )       |          |        | (5,183 | )      
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         |                                                                                              |                                                                                         | Other                                       |                                                             |        | (1,531 | )       |          |       | (1,695 | )       |          |        | (1,737 | )      
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                         |                                                                                              |                                                                                         |                                             | Net cash provided by (used in) operating
        activities |        |        | 2,376   |          |       |        | (13,274 | )        |        |        | (19,312 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Investing activities                                     |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Capital expenditures                                                                         |                                                                                         |                                             | (24,209                                                     | )      |        |         | (5,636   | )     |        |         | (22,130  | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from sale of real estate                                                            |                                                                                         |                                             | 2,117                                                       |        |        |         |         |       |        |         |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Sale of short-term investments, net                                                          |                                                                                         |                                             |                                                            |        |        |         | 350      |       |        |         |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Purchases of businesses                                                                      |                                                                                         |                                             | (366                                                        | )      |        |         | (3,274   | )     |        |         | (4,390   | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Investments in affiliates                                                                    |                                                                                         |                                             | 149                                                         |        |        |         | (72      | )     |        |         | (2,394   | )     
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                         |                                                                                              |                                                                                         |                                             | Net cash used in investing activities                       |        |        | (22,309 | )        |       |        | (8,632  | )        |        |        | (28,914 | )
|                                                        
|                                                        
|                                                        
|                                                        
|Financing activities                                     |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from revolving credit facility                                                      |                                                                                         |                                             | 215,339                                                     |        |        |         | 201,534  |       |        |         | 216,977  |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Payments of revolving credit facility                                                        |                                                                                         |                                             | (221,141                                                    | )      |        |         | (192,463 | )     |        |         | (211,521 | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Proceeds from long-term debt                                                                 |                                                                                         |                                             | 11,388                                                      |        |        |         | 121      |       |        |         | 36,622   |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Payments of long-term debt and capital leases                                                |                                                                                         |                                             | (6,908                                                      | )      |        |         | (8,822   | )     |        |         | (3,986   | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Issuance of preferred stock and stock purchase
        warrant                               |                                                                                         |                                             |                                                            |        |        |         | 20,203   |       |        |         |         |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Issuance of common stock and warrants                                                        |                                                                                         |                                             | 912                                                         |        |        |         | 1,393    |       |        |         | 797      |       
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Loan to officer                                                                              |                                                                                         |                                             | (2,785                                                      | )      |        |         |         |       |        |         | (9,000   | )     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Net proceeds from public offering                                                            |                                                                                         |                                             | 22,890                                                      |        |        |         |         |       |        |         |         |       
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                         |                                                                                              |                                                                                         |                                             | Net cash provided by financing activities                   |        |        | 19,695  |          |       |        | 21,966  |          |        |        | 29,889  |  
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|Increase (decrease) in cash and cash
        equivalents |                                                                                              |                                                                                         | (238                                        | )                                                           |        |        | 60      |          |       |        | (18,337 | )       
|                                                        
|                                                        
|                                                        
|                                                        
|Cash and cash equivalents, beginning of year             |                                                                                              |                                                                                         | 3,890                                       |                                                             |        |        | 3,830   |          |       |        | 22,167  |         
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         
|                                                         |                                                                                              |                                                                                         |                                             | Cash and cash equivalents, end of
        year              |        | $      | 3,652   |          |       | $      | 3,890   |          |        | $      | 3,830   |  
|                                                         |                                                                                              |                                                                                         |                                             |                                                             |        |        |         |          |       |        |         |         

See notes to consolidated financial statements

F-6



---



ADVANCED LIGHTING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS 
CONTINUED


(in thousands)

|                                   |                                           |                                           |                    |        |      |      |   |        |         |     |   |        |        |     |  
|---------------------------------- | ----------------------------------------- | ----------------------------------------- | ------------------ | ------ | ---- | ---- | - | ------ | ------- | --- | - | ------ | ------ | --- | -
|                                   |                                           |                                          
|                                   |                                           | Year Ended June 30,                      
|                                   |                                           |                                          
|                                   |                                           | 2001                                      |                    | 2000   |      | 1999
|                                   |                                           |                                           |                    |        |      |     
|Supplemental cash flow information |                                           |                                           |                    |        |      |      |   |        |         |     |   |       
|                                  
|                                  
|                                  
|                                  
|                                   | Interest paid                             |                                           | $                  | 13,483 |      |      | $ | 14,887 |         |     | $ | 12,241 |       
|                                  
|                                  
|                                  
|                                  
|                                   | Income taxes paid (refunds received), net |                                           |                    | 302    |      |      |   | (23    | )       |     |   | (1,660 | )     
|                                  
|                                  
|                                  
|                                  
|                                   | Capitalized interest                      |                                           |                    | 619    |      |      |   | 458    |         |     |   | 645    |       
|                                   | Noncash transactions                      |                                           |                    |        |      |      |   |        |         |     |   |        |       
|                                  
|                                  
|                                  
|                                  
|                                   |                                           | Equipment acquired through capital leases |                    |        |     |      |   |        |        |     |   |        | 77     |    
|                                  
|                                  
|                                  
|                                  
|                                   |                                           | Stock issued for purchases of businesses  |                    |        | 245  |      |   |        | 535     |     |   |        | 29     |    
|                                  
|                                  
|                                  
|                                  
|                                   | Detail of acquisitions:                   |                                           |                    |        |      |      |   |        |         |     |   |        |       
|                                  
|                                  
|                                  
|                                  
|                                   |                                           | Assets acquired                           |                    | $      | 899  |      |   | $      | 14,428  |     |   | $      | 10,143 |    
|                                  
|                                  
|                                  
|                                  
|                                   |                                           | Liabilities assumed                       |                    |        | (288 | )    |   |        | (10,529 | )   |   |        | (5,659 | )  
|                                  
|                                  
|                                  
|                                  
|                                   |                                           | Stock issued for purchase of business     |                    |        | (245 | )    |   |        | (535    | )   |   |        | (29    | )  
|                                   |                                           |                                           |                    |        |      |      |   |        |         |     |   |       
|                                   |                                           | Cash paid                                 |                    |        | 366  |      |   |        | 3,364   |     |   |        | 4,455  |    
|                                  
|                                  
|                                  
|                                  
|                                   |                                           |                                           | Less cash acquired |        |      |     |   |        |         | (90 | ) |        |        | (65 | )
|                                   |                                           |                                           |                    |        |      |      |   |        |         |     |   |       
|                                   |                                           | Net cash paid for acquisitions            |                    | $      | 366  |      |   | $      | 3,274   |     |   | $      | 4,390  |    
|                                   |                                           |                                           |                    |        |      |      |   |        |         |     |   |       

See notes to consolidated financial statements

F-7



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




A. Organization

Advanced Lighting Technologies, Inc. (the Company)
is an innovation-driven designer, manufacturer and marketer of
metal halide and other lighting products, which include
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. (DSI).

B. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries, after
elimination of all significant inter-company accounts and
transactions and related revenues and expenses. Investments in
50% or less owned companies and joint ventures over which the
Company has the ability to exercise significant influence are
accounted for under the equity method. All other investments and
investments of less than 20% are accounted for under the cost
method.

Accounting Estimates

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

Translation of Foreign Currency

All assets and liabilities of applicable foreign subsidiaries
are translated into United States dollars at year-end exchange
rates while revenues and expenses are translated at
weighted-average exchange rates in effect during the year. The
net effect of these translation adjustments is shown in the
accompanying financial statements as a component of
shareholders equity.

Cash Equivalents

The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentration of credit risks consist primarily of temporary
cash and cash equivalents, short-term investments and trade
receivables. The Company invests its cash primarily in a high
quality institutional money-market portfolio and high quality
securities and limits the amount of credit exposure to any one
financial institution.

F-8



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




B. Significant Accounting Policies (continued)

The Company provides credit in the normal course of business,
primarily to major manufacturers and distributors in the
lighting industry and, generally, collateral or other security
is not required. The Company conducts ongoing credit evaluations
of its customers and maintains allowances for potential credit
losses which, when realized, have been within the range of
managements expectations. Credit risk on trade receivables
is minimized as a result of the large and diverse nature of the
Companys world wide customer base.

Inventories

Inventories are valued at the lower of cost (first-in, first-out
method) or market.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. The cost of
self-constructed assets includes related materials, labor,
overhead and interest. Repair and maintenance costs are expensed
as incurred.

Depreciation is computed for financial reporting purposes by the
straight-line method based on the estimated useful lives of the
assets, both those owned and under capital lease, as follows:
buildings, 15 to 40 years; machinery and equipment, 5 to
25 years; furniture and fixtures, 5 to 15 years; and,
leasehold improvements, the lease periods.

Intangible Assets

Intangible assets are amortized using the straight-line method
over the following lives:

|                                        |  |  |               | 
|--------------------------------------- |  |  | ------------- | 
|                                       
|                                       
|                                       
|                                       
|Excess of cost over net assets acquired |  |  | 8 - 40 years  | 
|                                       
|                                       
|                                       
|                                       
|Patents, trademarks and tradenames      |  |  | 17 - 40 years | 
|                                       
|                                       
|                                       
|                                       
|Other intangibles                       |  |  | 10 - 40 years | 

The Company examines the carrying value of its intangible assets
when indicators of impairment are present. When the undiscounted
cash flows are not sufficient to recover the assets
carrying amount, an impairment loss would be charged to expense
in the period identified. Accumulated amortization was $9,684
and $6,906 at June 30, 2001 and 2000, respectively.

Valuation of Loan Receivables

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.

F-9



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




B. Significant Accounting Policies (continued)

Revenue Recognition

Revenues from the sale of metal halide materials, system
components (lamps, power supplies, system controls, fiber optic
cable) and systems are recognized when products are shipped and
revenues on production equipment contracts are recognized under
the percentage of completion method.

Advertising Expense

External costs incurred in providing media advertising and
promoting products are expensed the first time the advertising
or promotion takes place.

Research and Development

Research and development costs, primarily the development of new
products and modifications of existing products, are charged to
expense as incurred.

Stock Compensation Arrangements

In accordance with Statement of Financial Accounting Standards
(FAS) No. 123, Accounting and Disclosure
of Stock-Based Compensation, the Company accounts for
stock compensation arrangements using the intrinsic value based
method in APB Opinion No. 25 Accounting for Stock
Issued to Employees, and discloses the effect on net
income (loss) and earnings (loss) per share of the
fair value based method in FAS No. 123.

Accounting Change  Costs of Start-Up Activities

In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position (SOP) 98-5,
Reporting on the Costs of Start-Up Activities. The
SOP requires that costs related to start-up activities be
expensed as incurred. The Company adopted the provisions of this
SOP in fiscal year 1999, the effect of which ($2,443 or $.12 per
diluted common share) is reflected as a cumulative effect of
change in accounting principle.

New Accounting Standards

The Company adopted Statement of Financial Accounting Standards
(FAS) No. 133 Accounting for Derivative
Instruments and Hedging Activities as of July 1,
2000. FAS 133 requires that all derivatives, such as interest
rate exchange agreements (swaps), be recognized on the balance
sheet at fair value. The Company had no derivatives as at
July 1, 2000, and therefore, no resulting transition
adjustments. The Company had no derivatives as at June 30,
2001.

F-10



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




B. Significant Accounting Policies (continued)

The Company adopted Emerging Issues Task Force
(EITF) Issue 00-27, Application of EITF 98-5,
Convertible Securities with Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios, to Certain
Convertible Instruments in the quarter ended
December 31, 2000. EITF Issue 00-27 requires that a
convertible instruments beneficial conversion feature be
measured using an effective conversion price. As a result, the
value assigned to the redeemable preferred stock was adjusted by
$5, 329 for the discount related to the beneficial conversion
option. This additional discount was immediately accreted to
paid-in capital in a manner similar to a cumulative effect of an
accounting change since the redeemable preferred stock was
convertible at the time of issuance. The impact of this change
is noted in the Statements of Consolidated Shareholders
Equity and in Note L Earnings Per Share.

The Company adopted EITF Issue 00-10, Accounting for
Shipping and Handling Fees and Costs in the year ended
June 30, 2001. EITF Issue 00-10 requires that all amounts
billed to a customer in a sales transaction related to shipping
and handling be classified as revenue. Accordingly, the Company
has reclassified such amounts to revenue within these financial
statements. EITF Issue 00-10 also requires the disclosure of the
amount and classification of shipping and handling costs. The
Company records shipping and handling costs as Marketing
and Selling costs, and these amounts totaled $8,799 in
fiscal 2001, $8,272 in fiscal 2000 and $7,146 in fiscal 1999.

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.
Earlier adoption of FAS 142 is permitted, and the Company is
evaluating the early adoption of FAS 142 effective first quarter
of fiscal year 2002. 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. Finally, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and
whenever there is an impairment indicator. Adoption of FAS 142
in the first quarter of fiscal 2002 would result in a reduction
in annual amortization expense in fiscal 2002 of approximately
$2,300 based on the level of this expense in fiscal 2001. Of
this reduction, approximately $1,900 relates to the three
fixture subsidiaries that the Company intends to sell. See Note
R Subsequent Event.

F-11



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




B. Significant Accounting Policies (continued)

Financial Statement Presentation Changes

Certain amounts for prior years have been reclassified to
conform to the current year reporting presentation.

C. Acquisitions

During fiscal 2001, 2000 and 1999, the Company completed the
following business combinations, all of which were accounted for
by the purchase method and, accordingly, results of operations
for the acquired businesses have been included in the
consolidated statement of operations from their respective dates
of acquisition. Assets acquired and liabilities assumed have
been recorded at fair value based on appraisals and the best
estimates available.

On October 2, 2000, the Company acquired all of the assets
and liabilities of Ruud Lighting New Zealand Ltd.
(RLNZ), located in Auckland, New Zealand. RLNZ was
the exclusive distributor of the Companys fixture products
in New Zealand. The total purchase price of $611 consisted of
$366 in cash and a note payable of $245. The purchase price
resulted in an excess of cost over net assets acquired of $286,
which is being amortized over 20 years.

During the third quarter of fiscal 2000, the Company increased
to 93% its ownership of Asian Lighting Resources, Ltd., its lamp
manufacturing joint venture in Chennai (Madras), India.
Subsequently, the name of this entity was changed to Venture
Lighting India Limited. The total purchase price for this
additional ownership interest consisted of $2,993 in cash. The
excess of the investment over the net tangible assets acquired
of $2,018 is being amortized over 25 years. Beginning with
the third quarter , the Company began consolidating the results
of this subsidiary into its financial statements and deducting
the minority interest share in arriving at net income. The
Companys investment in the joint venture was previously
accounted for by the cost method.

On October 1, 1999, the Company acquired the remaining 50%
ownership interest in Lighting Sciences, Inc. (LSI), its joint
venture in Scottsdale, Arizona, which specializes in the testing
and development of lighting products and technology. The total
purchase price consisted of 40,000 shares of the Companys
Common Stock (valued at $535). The purchase price resulted in an
excess of cost over net assets acquired of $323, which is being
amortized over 8 years.

On September 15, 1998, the Company acquired all of the
capital stock outstanding of Ruud Lighting Europe, Srl.
(RLE), located in Florence, Italy. RLE assembles and
directly markets, in Europe and the Middle East, high-intensity
discharge (HID) lighting systems, with a strong
focus on metal halide installations, for commercial, industrial,
outdoor and related lighting applications. The total purchase
price consisted of $930 in cash. The purchase price resulted in
an excess of cost over net assets acquired of $1,329, which is
being amortized over 20 years.

F-12



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




C. Acquisitions (continued)

On August 31, 1998, the Company acquired all the assets and
liabilities of Venture Lighting New Zealand (VLNZ),
located in Auckland, New Zealand. VLNZ was the exclusive
distributor of the Companys metal halide lamps in New
Zealand. The total purchase price of $254 consisted of $225 in
cash and 2,000 shares of the Companys Common Stock (valued
at $29). The purchase price resulted in an excess of cost over
net assets acquired of $562, which is being amortized over
20 years.

On July 8, 1998, the Company acquired all of the capital
stock outstanding of Kramer Lighting, Inc. (Kramer),
located in Middletown, Rhode Island, and purchased the land and
building of Kramer from an affiliate of Kramer. Kramer
manufactures and directly markets HID lighting systems, with a
strong focus on metal halide installations, for commercial,
industrial, outdoor, and related lighting applications. The
total purchase price consisted of $2,612 in cash. The purchase
price resulted in an excess of cost over net assets acquired of
$2,466, which is being amortized over 25 years.

In fiscal 2001, general and administrative expenses were reduced
by the elimination of acquisition-related litigation accruals of
$1,847 that, based on review with legal counsel, are no longer
required.

D. Fiber Optics Joint Venture and Transactions with Unison
and Fiberstars, Inc.

On December 31, 1997, the Company and Rohm and Haas Company
(Rohm and Haas) completed a series of agreements
that resulted in the formation of Unison Fiber Optics Lighting
Systems LLC (Unison), a joint venture focused on the
manufacture and sale of fiber optic lighting systems to the
worldwide lighting market. In consideration for a 50% interest
in Unison, the Company contributed its subsidiary, Advanced
Cable Lite Corporation, $2,000 in cash, other fiber optic
lighting system assets and obligated itself to contribute an
additional $3,000 in cash under a note due January 1, 2000.
The Company accounted for its investment in Unison under the
equity method.

During the fourth quarter of fiscal 1999, the Company began an
effort to restructure its investment, considering the joint
ventures financial condition, and reviewed various
strategic alternatives, including possible ownership changes. In
connection with the restructuring and review process, the
Company concluded that sufficient uncertainty existed regarding
the ultimate recovery of the investment. As a result, the
Company revalued its investment to $569 and recorded a pretax
non-cash write-down of $5, 883, which is reflected in the
consolidated statement of operations as a loss from equity
investments.

In February 2000, the Company acquired Rohm and Haas
Companys interest in Unison and, simultaneously, Unison
transferred a substantial portion of its personal property
(including intellectual property) to Fiberstars,
Inc.(Fiberstars). The transaction included
cross-licensing of technology and a commitment by the Company to
continue support of fiber optic lighting research and
development. The Company paid $3,000, of which $2,300 is
represented by a note payable in January 2002, to obtain the
remaining interest in Unison. As consideration for the
transferred assets to Fiberstars, the Company received four
warrants to purchase a total of 1,000,000 shares of Fiberstars
common stock for nominal consideration. These warrants are
exercisable based on stock price and sales of products using
Unison

F-13



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




D. Fiber Optics Joint Venture and Transactions with Unison
and Fiberstars, Inc. (continued)

technology, but may be converted into at least 674,375 shares of
Fiberstars common stock at any time. The Company also owns
approximately 1,023,000 common shares of Fiberstars, or 24% of
Fiberstars shares outstanding, and accounts for its
investment on the equity method.

E. Investment in Joint Venture

On April 2, 1997, the Company invested approximately $3,800
of cash in exchange for a 30% common stock interest in Koto
Luminous Co., Ltd. (Koto), the Companys sole
agent in Japan. Subsequent to the date of investment, Koto, a
marketer and distributor of metal halide lamps, began doing
business under the name Venture Lighting Japan. Using the
proceeds of the investment and an additional investment by an
affiliate, Venture Lighting Japan has equipped and is operating
a metal halide lamp manufacturing facility in Japan. During the
second quarter of fiscal 1999, the Company exchanged its common
stock interest for nonvoting preferred stock and also purchased
additional nonvoting preferred stock in Koto. As a result, the
Company changed its method of accounting for its investment in
Venture Lighting Japan from the equity method to the lower of
cost or net realizable value.

F. Financing Arrangements

Short-term debt consisted of the following:

|                                  |  |          |       |      |  |   |       | 
|--------------------------------- |  | -------- | ----- | ---- |  | - | ----- | 
|                                  |  |         
|                                  |  | June 30,
|                                  |  |         
|                                  |  | 2001     |       | 2000
|                                  |  |          |       |     
|Trade facility                    |  | $        | 549   |      |  | $ | 538   | 
|                                 
|                                 
|                                 
|                                 
|Current portion of long-term debt |  |          | 8,309 |      |  |   | 6,559 | 
|                                  |  |          |       |      |  |   |       | 
|                                  |  | $        | 8,858 |      |  | $ | 7,097 | 
|                                  |  |          |       |      |  |   |       | 

The Company, on behalf of a foreign subsidiary, maintains a
multi-option borrowing facility with a foreign bank that
includes a trade facility with borrowing capacity of $561 as of
June 30, 2001. The trade facility, along with other
borrowings with a foreign bank, is collateralized with
substantially all the assets of the subsidiary. This facility
allows the foreign subsidiary to issue documentary letters of
credit for imports and term-trade finance for importing its
inventory. The interest rate of this facility varies, depending
upon the denomination of the currency advanced, and ranged from
7.1% to 8.5% in fiscal 2001. The weighted average interest rate
on the trade facility was approximately 8.0% and 8.3% during
fiscal 2001 and fiscal 2000, respectively.

F-14



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




F. Financing Arrangements (continued)

Long-term debt consisted of the following:

|                                                     |  |          |         |      |  |   |         | 
|---------------------------------------------------- |  | -------- | ------- | ---- |  | - | ------- | 
|                                                     |  |         
|                                                     |  | June 30,
|                                                     |  |         
|                                                     |  | 2001     |         | 2000
|                                                     |  |          |         |     
|Senior unsecured 8% notes, due March 2008            |  | $        | 100,000 |      |  | $ | 100,000 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Bank Credit Facility  revolving credit
        loan |  |          | 16,034  |      |  |   | 21,836  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Bank Credit Facility  term loan                     |  |          | 25,000  |      |  |   | 17,619  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Mortgage notes payable                               |  |          | 15,380  |      |  |   | 16,546  | 
|                                                    
|                                                    
|                                                    
|                                                    
|Term loan                                            |  |          | 3,023   |      |  |   | 4,030   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Promissory note                                      |  |          | 2,300   |      |  |   | 2,300   | 
|                                                    
|                                                    
|                                                    
|                                                    
|Obligations under capital leases                     |  |          | 230     |      |  |   | 670     | 
|                                                    
|                                                    
|                                                    
|                                                    
|Other                                                |  |          | 1,256   |      |  |   | 1,668   | 
|                                                     |  |          |         |      |  |   |         | 
|                                                     |  |          | 163,223 |      |  |   | 164,669 | 
|                                                    
|                                                    
|                                                    
|                                                    
|Less current portion                                 |  |          | 8,309   |      |  |   | 6,559   | 
|                                                     |  |          |         |      |  |   |         | 
|                                                     |  | $        | 154,914 |      |  | $ | 158,110 | 
|                                                     |  |          |         |      |  |   |         | 

The Companys Credit Facility consists of a $40,000
revolving credit loan and a $25,000 term loan provided by
several financial institutions (Bank Credit
Facility). In fiscal 2001, the Company amended the Bank
Credit Facility to increase the term loan to $25,000 from
$20,000 and extended the maturity to July 1, 2004 for both
loans.

Interest rates on loans outstanding, under the revolving credit
loan, are based, at the Companys option, on LIBOR plus
2.25% or the agent banks prime rate (6.75% at
June 30, 2001). The weighted average interest rates on the
revolving credit loan were 6.32% at June 30, 2001 and 9.49%
at June 30, 2000. The Company is also obligated to pay a
commitment fee of .375% on the unused portion of the loan.
Availability of borrowings under the revolving credit loan is
determined by the Companys eligible accounts receivable
and inventories.

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 are based, at the
Companys option, on LIBOR plus 2.75% or the agent
banks prime rate. The weighted average interest rates on
the term loan were 6.61% at June 30, 2001 and 9.50% at
June 30, 2000. 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 the Companys
machinery and equipment and is cross collateralized and secured
with the revolving credit loan.

The Company sold $100,000 of Senior Notes due March 2008,
resulting in net proceeds of approximately $96,150. The Notes
are redeemable at the Companys option, in whole or in
part, on or

F-15



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




F. Financing Arrangements (continued)

after March 15, 2003 at certain preset redemption prices.
Interest on the Notes is payable semiannually on March 15
and September 15 of each year. During August 2000, the
Company completed an exchange offer to existing noteholders,
which resulted in reducing the interest rate on the Notes to
8.0% from 8.5%. There are no sinking fund requirements.
Approximately $76,300 of the net proceeds from the Notes were
used to repay amounts outstanding under an existing credit
facility, thereby lengthening the term of the Companys
debt, most of which had been incurred to finance the
acquisitions of Ruud Lighting, Inc. and DSI. 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.

Mortgage notes payable consisted of six separate notes at
various rates of interest, ranging from 6.88% to 9.5%, and at
June 30, 2001 were collateralized by land and buildings
with a net carrying value of $25,063.

In connection with the Companys investment in Venture
Lighting India Limited., the Company assumed a term loan with a
balance at June 30, 2001 of $3,023 that bears interest at
LIBOR plus 3% and matures January 10, 2004. The loan is
secured by the subsidiarys facility, machinery and
equipment, and inventory.

As part of the purchase price for Rohm and Haas Companys
50% interest in Unison Fiber Optic Systems LLC
(Unison), the Company entered into a $2,300
promissory note to Rohm and Haas that bears interest at 6.65%
compounded quarterly. The note matures January 31, 2002. In
partial consideration for the Companys initial purchase of
a 50% interest in Unison, the Company executed an 8% promissory
note in the amount of $3,000 that was paid in January 2000.

The Company leases certain equipment under agreements that are
classified as capital leases. The lease agreements have varying
terms and the leased assets, with a net carrying value of $1,104
at June 30, 2001, are included in the consolidated balance
sheet as machinery and equipment and furniture and fixtures.

Aggregate maturities of long-term debt (including capital lease
obligations) for the five fiscal years subsequent to
June 30, 2001, were as follows: 2002  $8,309;
2003  $5,894; 2004  $12,681;
2005  $30,912; and 2006  $4,543.

The fair value of the Companys Senior Notes at
June 30, 2001 and 2000 approximated $69,000 and $70,000,
respectively. The estimated fair value of the Companys
remaining debt at June 30, 2001 and 2000 approximated
carrying value, as the effective rates for this debt were
comparable to market rates. Debt issuance costs, classified with
other assets, are being amortized over the terms of the related
debt.

F-16



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




F. Financing Arrangements (continued)

During fiscal 1999, the Company entered into an interest rate
swap agreement for a notional amount of $10,000 with a fixed pay
rate of 6.63% and a receive rate of LIBOR. The swap agreement is
a contract to exchange floating rate for fixed interest payments
quarterly over the life of the agreement without the exchange of
the underlying notional amounts. The notional amount of the
interest rate agreement is used to measure interest to be paid
or received and does not represent the amount of exposure to
credit loss. The net cash amounts paid or received on the
agreement are recognized as an adjustment to interest expense.
During fiscal 2000, the Company early-terminated the interest
rate swap agreement which resulted in a realized gain of $120.

The Company uses standby letters of credit to satisfy certain
security deposits with service providers, to make borrowings,
and as security for a loan to a foreign investee. These letters
are irrevocable and expire within 12 months of issuance.
Standby letters of credit outstanding as of June 30, 2001
were $1,535. Historically, the Company has not experienced any
significant claims against these financial instruments.
Management does not expect any material losses to result from
these off-balance-sheet instruments because performance is not
expected to be required, and therefore, is of the opinion that
the fair value of these instruments is zero.

G. Shareholders Equity

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
used the net proceeds from the public offering of approximately
$22,900 to repay revolving credit loan borrowings. The Company
expects to borrow a similar amount (including amounts already
borrowed since the offering) under its revolving credit loan
facility to fund 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 at DSI.

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.

F-17



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




G. Shareholders Equity (continued)

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 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 June 30, 2001. The proceeds of
the transaction were applied principally to the reduction of
short-term liabilities and outstanding amounts under the
Companys Bank Credit Facility.

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 certain officers of the
Company, giving GE the ability to obtain the majority of the
voting power of the Company. 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 ending on June 30, 2000,
September 30, 2000 and June 30, 2001 as amended by
agreements between GE and 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 ratio for the six months ended June 30, 2001, was 1.84
to 1.0 (1.65 to 1.0 for the quarter ended June 30, 2001 and
2.01 to 1.0 for the quarter ended March 31, 2001).

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.

F-18



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




G. Shareholders Equity (continued)

A Second Occurrence would: (i) give GE the ability to vote
the number of shares currently voted by the Chief Executive
Officer (CEO) of the Company, approximately
3.3 million shares, (ii) give GE the option to
purchase shares from the CEO and the President of the Company
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 3.5 million
shares at June 30, 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 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 the President 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.

ADLT Stock Option Plans

The Companys 1995 Incentive Award Plan and 1998 Incentive
Award Plan provide for the granting of A and
B incentive stock options to purchase common stock
of the Company. The A options become exercisable
based on stock price or over one-to-five years from the date of
grant depending on the Companys operating performance. The
B options become exercisable at the rate of 25%
after one year, 35% after two years, and 40% after three years.
The Companys 1997 Billion Dollar Market Capitalization
Incentive Award Plan provides for the granting of incentive
stock options to purchase common stock of the Company. The
options become exercisable when the Companys market
capitalization, excluding the impact of stock issued in
completing acquisitions, reaches one billion dollars or after
six years, whichever comes first. All options have been granted
at market value on the date of grant and expire ten years from
the date of grant. At June 30, 2001, the Company had
3,800,471 shares reserved for future issuance upon exercise of
stock options granted under the option plans.

F-19



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




G. Shareholders Equity (continued)

Information related to stock options for the years ended
June 30 are as follows:

|                                                                        |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|----------------------------------------------------------------------- |  | ------- | --------- | --------- |  | ------- | ----- | --------- |  | ------- | --------- | --------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                                        |  |         |           |           |  |        
|                                                                        |  | 2001    |           | 2000      |  | 1999   
|                                                                        |  |         |           |           |  |        
|                                                                        |  |         |           | Weighted- |  |         |       | Weighted- |  |         |           | Weighted-
|                                                                        |  |         |           | Average   |  |         |       | Average   |  |         |           | Average  
|                                                                        |  |         |           | Exercise  |  |         |       | Exercise  |  |         |           | Exercise 
|                                                                        |  | Options |           | Price     |  | Options |       | Price     |  | Options |           | Price    
|                                                                        |  |         |           |           |  |         |       |           |  |         |           |          
|Outstanding, beginning of year                                          |  |         | 3,445,137 |           |  | $       | 14.58 |           |  |         | 2,751,866 |           |  | $ | 16.36 |  |  |   | 2,601,347 |   |  | $ | 18.24 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Granted                                                                 |  |         | 562,997   |           |  |         | 5.59  |           |  |         | 1,038,000 |           |  |   | 9.71  |  |  |   | 682,600   |   |  |   | 10.18 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Exercised                                                               |  |         | (12,704   | )         |  |         | 9.72  |           |  |         | (70,365   | )         |  |   | 10.56 |  |  |   | (18,590   | ) |  |   | 15.13 | 
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Forfeited                                                               |  |         | (456,661  | )         |  |         | 15.30 |           |  |         | (274,364  | )         |  |   | 15.09 |  |  |   | (513,491  | ) |  |   | 17.68 | 
|                                                                        |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Outstanding, end of year                                                |  |         | 3,538,769 |           |  |         | 13.01 |           |  |         | 3,445,137 |           |  |   | 14.58 |  |  |   | 2,751,866 |   |  |   | 16.36 | 
|                                                                        |  |         |           |           |  |         |       |           |  |         |           |           |  |   |       |  |  |   |           |   |  |   |       | 
|Weighted -average fair value of options granted
        during the year |  | $       | 3.47      |           |  |         |       |           |  | $       | 5.14      |           |  |   |       |  |  | $ | 4.69      |   |  |   |      | 

The following table summarizes additional information concerning
outstanding and exercisable options at June 30, 2001:

|                |                |                     |  |                     |           |           |  |         |           |           |  |   |       |  |  |  |           |  |  |   |       | 
|--------------- | -------------- | ------------------- |  | ------------------- | --------- | --------- |  | ------- | --------- | --------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                |                |                     |  |                     |           |          
|                |                | Options Outstanding |  |                    
|                |                |                     |  | Options Exercisable
|                |                |                     |  | Weighted-           |           |           |  |        
|                |                |                     |  | Average             |           | Weighted- |  |         |           | Weighted-
|                |                |                     |  | Remaining           |           | Average   |  |         |           | Average  
|Range of        |                |                     |  | Contractual         |           | Exercise  |  |         |           | Exercise 
|Exercise Prices |                | Options             |  | Life                |           | Price     |  | Options |           | Price    
|                |                |                     |  |                     |           |           |  |         |           |          
|$               | 4.40 to 9.99   |                     |  |                     | 1,499,262 |           |  |         | 9.4 years |           |  | $ | 6.44  |  |  |  | 114,632   |  |  | $ | 7.00  | 
|                | 10.00 to 15.99 |                     |  |                     | 526,537   |           |  |         | 9.0 years |           |  |   | 12.75 |  |  |  | 192,416   |  |  |   | 11.76 | 
|                | 16.00 to 22.99 |                     |  |                     | 1,273,197 |           |  |         | 7.4 years |           |  |   | 18.97 |  |  |  | 868,967   |  |  |   | 19.15 | 
|                | 23.00 to 26.00 |                     |  |                     | 239,773   |           |  |         | 7.8 years |           |  |   | 23.97 |  |  |  | 215,633   |  |  |   | 23.98 | 
|                |                |                     |  |                     |           |           |  |         |           |           |  |   |       |  |  |  |           |  |  |   |       | 
|                |                |                     |  |                     | 3,538,769 |           |  |         |           |           |  |   |       |  |  |  | 1,391,648 |  |  |   |       | 
|                |                |                     |  |                     |           |           |  |         |           |           |  |   |       |  |  |  |           |  |  |   |       | 

DSI Stock Option Plan

Deposition Sciences, Inc. (DSI), a non-public
subsidiary of ADLT, adopted the 2001 Equity Incentive Plan. DSI
currently has 100,000,000 shares authorized and 50,000,000
shares outstanding, all of which are owned by ADLT. The 2001
Equity Incentive Plan initially provides for the granting of
stock options to purchase up to 10,000,000 shares of common
stock of DSI. The number of shares available will be increased
by 18% of DSI shares issued, up to a maximum of 16,200,000
shares. The vesting terms of the options vary, including vesting
based on a change in control or public offering of DSI or on a
vesting

F-20



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




G. Shareholders Equity (continued)

schedule no more than five years from the date of grant. The
options have been granted at fair value on the date of grant of
$.46 per share and expire ten years from the date of grant. A
total of 7,885,000 options were granted under the Plan and
13,000 of these options were exercised in fiscal 2001. Options
for 2,344,000 shares are exercisable at June 30, 2001. The
fair values of the stock options issued by DSI and included in
the calculation of the pro forma net income and pro forma
earnings per share below were estimated using the Black-Scholes
option pricing model with the following weighted-average
assumptions used for grants: expected volatility of 80%;
risk-free interest rate of 4.60%; and expected life of
4 years with no dividend yield.

Accounting for Stock-Based Compensation

If the Company had elected to report compensation expense for
the ADLT Incentive Award Plans and the DSI Equity Incentive Plan
based on the fair value at the grant dates for all awards
consistent with the methodology prescribed by Statement of
Financial Accounting Standard No. 123, Accounting for
Stock-Based Compensation, net income and earnings per
share would be as follows:

|                                      |  |                     |        |      |  |      |       |   |  |   |         |  
|------------------------------------- |  | ------------------- | ------ | ---- |  | ---- | ----- | - |  | - | ------- | -
|                                      |  |                    
|                                      |  | Year Ended June 30,
|                                      |  |                    
|                                      |  | 2001                |        | 2000 |  | 1999
|                                      |  |                     |        |      |  |     
|Net income (loss) as reported         |  | $                   | 271    |      |  | $    | 1,928 |   |  | $ | (83,753 | )
|                                     
|                                     
|                                     
|                                     
|Pro forma                             |  |                     | (1,417 | )    |  |      | (321  | ) |  |   | (85,763 | )
|                                     
|                                     
|                                     
|                                     
|                                     
|Earnings (loss) per share as reported |  | $                   | (.34   | )    |  | $    | .01   |   |  | $ | (4.14   | )
|                                     
|                                     
|                                     
|                                     
|Pro forma                             |  |                     | (.41   | )    |  |      | (.10  | ) |  |   | (4.24   | )

The fair values of the ADLT stock options issued by the Company
and included in the calculation of the pro forma net income and
pro forma earnings per share were estimated using the
Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in fiscal 2001,
2000 and 1999, respectively: expected volatility of 71%, 61%,
and 54%; risk-free interest rates of 5.17%, 6.54%, and 5.61%;
and expected lives of 4 years, 4 years, and
4 years with no dividend yield.

Employee Stock Purchase Plan

The Companys 1997 Employee Stock Purchase Plan authorized
and made available for sale to employees, at a discount of 15%,
a total of 100,000 shares of the Companys Common Stock.
All of the shares authorized under the 1997 Plan have been
issued. The Companys 2001 Employee Stock Purchase Plan
authorized and made available for sale to employees, at a
discount of 15%, a total of 250,000 shares of the Companys
Common Stock. The Plan provides substantially all employees who
have completed six months of service an opportunity to purchase
shares through payroll deductions, up to 10% of eligible
compensation.

F-21



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




G. Shareholders Equity (continued)

The purchase price of each share is 85% of the month-end closing
market price of the Companys Common Stock. Employees
purchased 28,167 shares in fiscal 2001, 28,967 shares in fiscal
2000 and 41,233 shares of stock in fiscal 1999. At June 30,
2001, there were 242,056 shares available for future purchases.

Shares Issued Pursuant to Defined Contribution Plan

Beginning in February 1999, pursuant to the terms of the
Companys 401(k) Retirement and Savings Plan, the Company
partially matches, with its Common Stock, the contributions made
by employees to their plan accounts. The Company has authorized
and made available for contribution a total of 200,000 shares of
Common Stock, and contributed 67,474 shares in fiscal 2001,
64,318 shares in fiscal 2000 and 28,107 shares in fiscal 1999.
At June 30, 2001, there were 40,101 shares available for
future contributions.

H. Employee Benefits

The Company has defined contribution elective savings and
retirement plans that cover substantially all full-time
employees in its domestic and foreign subsidiaries. The Company
matches the contributions of participating employees on the
basis of the percentages specified in the respective plans,
ranging from 1% to 4% of eligible employee earnings.
Contributions charged to income for the defined contribution
plans, including expense associated with the Common Stock
issuances related to the 401(k) Retirement and Savings Plan
described in Note G, were $1,526 in fiscal 2001, $1,215 in
fiscal 2000 and $1,218 in fiscal 1999.

I. Income Taxes

Income (loss) from continuing operations before income
taxes, minority interest, extraordinary charges and accounting
change were attributable to the following sources:

|              |  |                     |        |      |  |      |       |  |  |   |         |  
|------------- |  | ------------------- | ------ | ---- |  | ---- | ----- |  |  | - | ------- | -
|              |  |                    
|              |  | Year Ended June 30,
|              |  |                    
|              |  | 2001                |        | 2000 |  | 1999
|              |  |                     |        |      |  |     
|United States |  | $                   | (1,720 | )    |  | $    | 2,372 |  |  | $ | (73,795 | )
|             
|             
|             
|             
|Foreign       |  |                     | 2,607  |      |  |      | 216   |  |  |   | (5,663  | )
|              |  |                     |        |      |  |      |       |  |  |   |         |  
|Totals        |  | $                   | 887    |      |  | $    | 2,588 |  |  | $ | (79,458 | )
|              |  |                     |        |      |  |      |       |  |  |   |         |  

The provision for income taxes is computed using the liability
method and is based on applicable federal and state statutory
rates adjusted for permanent differences between financial and
taxable income.

F-22



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




I. Income Taxes (continued)

Income taxes have been provided as follows:

|         |                 |                     |     |      |   |      |     |      |   |   |       |       |  
|-------- | --------------- | ------------------- | --- | ---- | - | ---- | --- | ---- | - | - | ----- | ----- | -
|         |                 |                    
|         |                 | Year Ended June 30,
|         |                 |                    
|         |                 | 2001                |     | 2000 |   | 1999
|         |                 |                     |     |      |   |     
|Current  |                 |                     |     |      |   |      |     |      |   |   |       |      
|        
|        
|        
|        
|         | Federal         |                     | $   | (162 | ) |      | $   | 19   |   |   | $     | 669   |  
|        
|        
|        
|        
|         | State and local |                     |     | (131 | ) |      |     | (172 | ) |   |       | 219   |  
|        
|        
|        
|        
|         | Foreign         |                     |     | 269  |   |      |     | 305  |   |   |       | (253  | )
|         |                 |                     |     |      |   |      |     |      |   |   |       |      
|         |                 |                     | (24 | )    |   |      | 152 |      |   |   | 635   |      
|Deferred |                 |                     |     |      |   |      |     |      |   |   |       |      
|        
|        
|        
|        
|         | Federal         |                     |     |     |   |      |     |     |   |   |       | (352  | )
|        
|        
|        
|        
|         | State and local |                     |     |     |   |      |     |     |   |   |       | (94   | )
|        
|        
|        
|        
|         | Foreign         |                     |     | 540  |   |      |     | 483  |   |   |       | 2,092 |  
|         |                 |                     |     |      |   |      |     |      |   |   |       |      
|         |                 |                     | 540 |      |   |      | 483 |      |   |   | 1,646 |      
|         |                 |                     |     |      |   |      |     |      |   |   |       |      
|         |                 | $                   | 516 |      |   | $    | 635 |      |   | $ | 2,281 |      
|         |                 |                     |     |      |   |      |     |      |   |   |       |      

Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.

Significant components of the Companys net deferred tax
assets and liabilities at June 30, 2001 and 2000 are as
follows:

|                                                   |                                                                             |                     |         |        |  |   |         |        | 
|-------------------------------------------------- | --------------------------------------------------------------------------- | ------------------- | ------- | ------ |  | - | ------- | ------ | 
|                                                   |                                                                             |                    
|                                                   |                                                                             | Year Ended June 30,
|                                                   |                                                                             |                    
|                                                   |                                                                             | 2001                |         | 2000  
|                                                   |                                                                             |                     |         |       
|Deferred tax assets:                               |                                                                             |                     |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Net operating loss carryforwards                                            |                     | $       | 30,226 |  |   | $       | 24,295 | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Research and development tax credits                                        |                     |         | 3,818  |  |   |         | 3,196  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Tax under financial reporting special charges and
        equity write-down |                     |         | 2,938  |  |   |         | 7,402  | 
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Other                                                                       |                     |         | 3,778  |  |   |         | 1,040  | 
|                                                   |                                                                             |                     |         |        |  |   |         |       
|                                                   |                                                                             |                     | 40,760  |        |  |   | 35,933  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Deferred tax liabilities:                          |                                                                             |                     |         |        |  |   |         |       
|                                                  
|                                                  
|                                                  
|                                                  
|                                                   | Tax over financial reporting depreciation and
        amortization          |                     |         | 8,191  |  |   |         | 6,090  | 
|                                                   |                                                                             |                     |         |        |  |   |         |       
|                                                   |                                                                             |                     | 8,191   |        |  |   | 6,090   |       
|                                                   |                                                                             |                     |         |        |  |   |         |       
|Net deferred tax assets before valuation allowance |                                                                             |                     | 32,569  |        |  |   | 29,843  |       
|                                                  
|                                                  
|                                                  
|                                                  
|Valuation allowance                                |                                                                             |                     | (32,569 | )      |  |   | (29,843 | )     
|                                                   |                                                                             |                     |         |        |  |   |         |       
|Net deferred tax assets                            |                                                                             | $                   |        |        |  | $ |        |       
|                                                   |                                                                             |                     |         |        |  |   |         |       

Due to the uncertainty of the ultimate realization of a portion
of the deferred tax asset, valuation allowances of $32,569 and
$29,843 were recorded by the Company for the years ended
June 30, 2001

F-23



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




I. Income Taxes (continued)

and 2000, respectively. The net change in the valuation
allowance for fiscal 2001 and fiscal 2000 was $2,726 and $(479),
respectively.

The statutory federal income tax rate and the effective income
tax rate are reconciled as follows:

|                                                             |  |                     |       |      |  |      |       |   |  |  |       |   
|------------------------------------------------------------ |  | ------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | --
|                                                             |  |                    
|                                                             |  | Year Ended June 30,
|                                                             |  |                    
|                                                             |  | 2001                |       | 2000 |  | 1999
|                                                             |  |                     |       |      |  |     
|Statutory tax rate                                           |  |                     | 35.0  | %    |  |      | 35.0  | % |  |  | (35.0 | )%
|                                                            
|                                                            
|                                                            
|                                                            
|State and local income taxes, net of federal
        benefit |  |                     | (9.6  | )    |  |      | (4.4  | ) |  |  | 0.2   |   
|                                                            
|                                                            
|                                                            
|                                                            
|Research and development tax credit                          |  |                     | (70.1 | )    |  |      | (7.3  | ) |  |  | (0.9  | ) 
|                                                            
|                                                            
|                                                            
|                                                            
|Effect of foreign taxes                                      |  |                     | (11.7 | )    |  |      | 6.9   |   |  |  | 2.7   |   
|                                                            
|                                                            
|                                                            
|                                                            
|Nondeductible permanent items                                |  |                     | 44.7  |      |  |      | 8.1   |   |  |  |      |   
|                                                            
|                                                            
|                                                            
|                                                            
|Valuation allowance (reversal)                               |  |                     | 92.0  |      |  |      | (18.5 | ) |  |  | 38.2  |   
|                                                            
|                                                            
|                                                            
|                                                            
|Prior year overaccrual                                       |  |                     | (18.2 | )    |  |      |      |   |  |  |      |   
|                                                            
|                                                            
|                                                            
|                                                            
|Other                                                        |  |                     | (3.9  | )    |  |      | 4.8   |   |  |  | (2.3  | ) 
|                                                             |  |                     |       |      |  |      |       |   |  |  |       |   
|Effective tax rate                                           |  |                     | 58.2  | %    |  |      | 24.6  | % |  |  | 2.9   | % 
|                                                             |  |                     |       |      |  |      |       |   |  |  |       |   

Income taxes paid (net of refunds) were $302 in fiscal 2001,
$(23) in fiscal 2000 and $(1,660) in fiscal 1999.

At June 30, 2001, the Company had net operating loss
carryforwards (NOLs) of $88,901 available to reduce
future United States federal taxable income, which expire 2008
through 2021.

The Company also had research and development credit
carryforwards for tax purposes of approximately $3,818, which
expire 2008 through 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 2002 to 2007 and $8,053 that have no expiration
dates.

J. Special Charges and Terminated Equipment Contracts

During the year ended June 30, 1999, the Company recorded
special charges related to significant changes in its
operations, which accelerated and intensified the Companys
focus on its metal halide products.

The special charges principally relate to the execution of the
Companys shift in strategic direction and include:
limiting Pacific Rim expansion; changing global lamp
manufacturing strategy; restructuring marketing operations in
North America and Europe; accelerating an exit from noncore
product lines; reducing excess overhead including staffing
reductions; consolidating an equipment manufacturing

F-24



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




J. Special Charges and Terminated Equipment Contracts
(continued)

operation into the Companys Solon, Ohio facility and
significantly reducing the size of the operation; and, reducing
capital expenditures.

The special charges were determined in accordance with formal
plans developed by the Companys management and approved by
the Companys Board of Directors using the best information
available to it at the time. All actions required by the plans
were substantially completed by the end of fiscal 2000.
Employees were terminated enterprise-wide from almost all areas
and units of the Company. Assets related to the above actions
are no longer in use and have been sold or were written-down to
their estimated f air values.

Details of the actions and related special charges recorded
during fiscal 1999 and 2000 are summarized as follows:

|                                     |  |              |              |                          |  |          |        |                   |  |               |        |          |  |          |       |  |  |   |      |   |  |   |       |  |  |   |    | 
|------------------------------------ |  | ------------ | ------------ | ------------------------ |  | -------- | ------ | ----------------- |  | ------------- | ------ | -------- |  | -------- | ----- |  |  | - | ---- | - |  | - | ----- |  |  | - | -- | 
|                                     |  |              |              |                          |  |          |        |                   |  |               |        |         
|                                     |  |              |              | Year Ended June 30, 1999 |  |          |        |                   |  |               |        |         
|                                     |  |              |              |                          |  | Balance  |        | Reclassifications |  |               |        | Balance 
|                                     |  |              |              | Charged to               |  | Charges  |        | June 30,          |  | and (Credits) |        | Charges  |  | June 30,
|Description                          |  | Cash/Noncash |              | Operations               |  | Utilized |        | 1999              |  | to Operations |        | Utilized |  | 2000    
|                                     |  |              |              |                          |  |          |        |                   |  |               |        |          |  |         
|Lease/contract cancelations          |  |              | Cash/Noncash |                          |  | $        | 4,324  |                   |  | $             | 635    |          |  | $        | 3,689 |  |  | $ | (641 | ) |  | $ | 3,018 |  |  | $ | 30 | 
|                                    
|                                    
|                                    
|                                    
|Staffing reductions                  |  |              | Cash/Noncash |                          |  |          | 3,549  |                   |  |               | 2,868  |          |  |          | 681   |  |  |   | (131 | ) |  |   | 533   |  |  |   | 17 | 
|                                    
|                                    
|                                    
|                                    
|Program cancelation                  |  |              | Cash         |                          |  |          | 128    |                   |  |               | 0      |          |  |          | 128   |  |  |   | (21  | ) |  |   | 107   |  |  |   |   | 
|                                    
|                                    
|                                    
|                                    
|Terminate management benefit program |  |              | Cash/Noncash |                          |  |          | 1,516  |                   |  |               | 1,430  |          |  |          | 86    |  |  |   |     |   |  |   | 86    |  |  |   |   | 
|                                    
|                                    
|                                    
|                                    
|Shut-down costs of facilities        |  |              | Cash         |                          |  |          | 1,615  |                   |  |               | 1,537  |          |  |          | 78    |  |  |   | 10   |   |  |   | 88    |  |  |   |   | 
|                                    
|                                    
|                                    
|                                    
|Asset write-downs                    |  |              | Cash/Noncash |                          |  |          | 17,051 |                   |  |               | 17,002 |          |  |          | 49    |  |  |   | 308  |   |  |   | 357   |  |  |   |   | 
|                                    
|                                    
|                                    
|                                    
|Exit non-core inventories            |  |              | Noncash      |                          |  |          | 261    |                   |  |               | 261    |          |  |          |      |  |  |   |     |   |  |   |      |  |  |   |   | 
|                                    
|                                    
|                                    
|                                    
|Other                                |  |              | Cash         |                          |  |          | 373    |                   |  |               | 230    |          |  |          | 143   |  |  |   |     |   |  |   | 94    |  |  |   | 49 | 
|                                     |  |              |              |                          |  |          |        |                   |  |               |        |          |  |          |       |  |  |   |      |   |  |   |       |  |  |   |    | 
|                                     |  |              |              |                          |  | $        | 28,817 |                   |  | $             | 23,963 |          |  | $        | 4,854 |  |  | $ | (475 | ) |  | $ | 4,283 |  |  | $ | 96 | 
|                                     |  |              |              |                          |  |          |        |                   |  |               |        |          |  |          |       |  |  |   |      |   |  |   |       |  |  |   |    | 

The special charges for fiscal 1999 included costs related to
the actions described above and also include $6,246 related to
the wind-down of portable fixture manufacturing operations,
which are described in Note K Discontinued Operations
Subsequently Retained. Total special charges for fiscal
1999 of $35,063 are classified in the consolidated statement of
operations as cost of goods sold ($3,956) and special charges
($31,107). The Company incurred additional costs of $596 and
$764, as described in Note M, related to the above actions.

At June 30, 2000, all actions required by the plans were
substantially completed and the $96 balance, as of June 30,
2000, was utilized during fiscal 2001. During fiscal 2000, the
Company revised certain estimates related to its plans and
reversed $475 of previously recorded special charges that were
no longer deemed necessary. The reversal results primarily from
the settlement of a lease cancellation for less than the
estimated amount and revised estimates for severance and related
costs.

F-25



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




J. Special Charges and Terminated Equipment Contracts
(continued)

In conjunction with limiting its Pacific Rim expansion, the
Company terminated production equipment contracts related to the
completion of four lamp manufacturing equipment groups.
Accordingly, in the quarter ended December 31, 1998, the
Company reversed previously recognized sales of $14,961 and cost
of sales of $6,413 related to these contracts, which were
accounted for under the percentage-of-completion method.

These special charges reduced net income by $43,611, or $2.16
diluted earnings per share for fiscal 1999.

K. Discontinued Operations Subsequently Retained

Microsun Technologies, Inc. (Microsun) was
identified in March 1998 for disposition through a plan to
distribute to ADLT shareholders all of the ownership of Microsun
in a tax-free spin-off transaction estimated to be completed by
December 1998. Because of the deterioration of the capital
markets and the inability to raise capital necessary to spin-off
the Microsun business, the Company concluded that it would
wind-down the operations, close the manufacturing facilities and
liquidate the assets of Microsun. At June 30, 1999, the
plan of wind-down had been accomplished, the manufacturing
facilities closed and substantially all assets had been
disposed. Accordingly, there were no remaining discontinued
operations accrued losses associated with Microsun at
June 30, 1999.

In October 1999, management decided, with the approval of the
Board of Directors, to retain the Microsun business 
the portable lighting fixture products business that uses metal
halide lighting technology  as part of the
Companys continuing operation. The decision to retain the
business was based on managements belief that, among other
reasons, the market demand for Microsun products remains
substantial; the market potential will be expanded as the
Microsun portable lighting fixture s will be marketed and sold
along with other existing lines of products for residential use
in an e-commerce format (Microsun.com); and the
Microsun business will use the fulfillment capabilities and
infrastructure of existing ADLT businesses.

In retaining the Microsun business, the Company concentrates on
assembling fixtures produced by subcontractors, thereby
eliminating the need for the machinery, equipment and facilities
that were used in the previous operation. The assembly process
is performed at existing ADLT businesses utilizing existing
facilities and operations. The Company utilizes the customer
service systems and personnel of an existing ADLT business, as
well as the Internet, to receive, process and fill orders.
Therefore, the Microsun business has been retained but without
the use of the manufacturing processes or assets used in the
previous operations.

In accordance with the accounting requirements for
recontinuance, the accompanying financial statements have been
reclassified to present Microsun within continuing operations.
At June 30, 1999,

F-26



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




K. Discontinued Operations Subsequently Retained
(continued)

substantially all assets had been disposed and no remaining
accrued losses associated with discontinued operations remained.
The revenues and the net amount charged to the income statement
for the year ended June 30, 1999, the last year during
which the business was reported as discontinued operations
consisted of the following:

|                                                                             |  |   |        |  
|---------------------------------------------------------------------------- |  | - | ------ | -
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Net sales                                                                    |  | $ | 4,719  |  
|                                                                             |  |   |        |  
|Reclassification of discontinued operations to
        continuing operations |  | $ | 10,374 |  
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Discontinued operations provision                                            |  |   | (9,043 | )
|                                                                             |  |   |        |  
|Recontinuance of previously discontinued
        operations                  |  | $ | 1,331  |  
|                                                                             |  |   |        |  

The $10,374 reclassified to continuing operations for the year
ended June 30, 1999 consisted of a loss from operations of
$4,128; write-downs of assets to net realizable value of $5,533
in connection with the decision in November 1998 to wind-down
the Microsun business related to inventory ($2,448), fixed
assets ($1,690), and other assets ($1,395); and costs related to
severance, lease/contract cancellations and facility shut-down
costs of $713. These costs and write-downs are classified in
special charges ($3,798) and cost of sales ($2,448).

F-27



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




L. Earnings Per Share

Earnings (loss) per share is computed as follows:

|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |         |        |   | 
|------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------- | ------ | - | 
|                                                       |                                                                                                                                                                   |                                
|                                                       |                                                                                                                                                                   | Year Ended June 30,            
|                                                       |                                                                                                                                                                   |                                
|                                                       |                                                                                                                                                                   | 2001                            |                                                                                                                                       | 2000   |        | 1999  
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |       
|Income available to common shareholders:               |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Income (loss) from continuing operations
        before minority interest, extraordinary charge and accounting
        change                                     |                                 | $                                                                                                                                     | 371    |        |        | $ | 1,953  |        |        | $ | (81,739 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Less: Minority interest in income of consolidated
        subsidiary                                                                                              |                                 |                                                                                                                                       | (100   | )      |        |   | (25    | )      |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                                                                   |                                 | Preferred shares accretion                                                                                                            |        |        | (2,555 | ) |        |        | (1,796 | ) |         |        |  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                                                                   |                                 | Additional preferred shares
        accretion from cumulative effect    of accounting
        change for beneficial conversion option |        |        | (5,329 | ) |        |        |       |   |         |        |  | 
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       | Income (loss) from continuing operations
        before minority interest, extraordinary charge and accounting
        change attributable to common shareholders |                                 | $                                                                                                                                     | (7,613 | )      |        | $ | 132    |        |        | $ | (81,739 | )     
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       | Net income (loss)                                                                                                                                                 |                                 | $                                                                                                                                     | 271    |        |        | $ | 1,928  |        |        | $ | (83,753 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Less: Preferred shares accretion  total                                                                                                                          |                                 |                                                                                                                                       | (7,884 | )      |        |   | (1,796 | )      |        |   |        |       
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       | Net income (loss) attributable to common
        shareholders                                                                                                     |                                 | $                                                                                                                                     | (7,613 | )      |        | $ | 132    |        |        | $ | (83,753 | )     
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|Weighted average shares  Basic:                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Outstanding at beginning of period                                                                                                                                |                                 |                                                                                                                                       | 20,482 |        |        |   | 20,278 |        |        |   | 20,189  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued pursuant to public offering                                                                                                                                |                                 |                                                                                                                                       | 1,388  |        |        |   |       |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued in acquisitions                                                                                                                                            |                                 |                                                                                                                                       |       |        |        |   | 30     |        |        |   | 2       |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued for exercise of warrant                                                                                                                                    |                                 |                                                                                                                                       | 530    |        |        |   |       |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued for exercise of stock options                                                                                                                              |                                 |                                                                                                                                       | 11     |        |        |   | 18     |        |        |   | 17      |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued pursuant to employee stock purchase plan                                                                                                                   |                                 |                                                                                                                                       | 10     |        |        |   | 16     |        |        |   | 19      |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Issued pursuant to 401(k) plan                                                                                                                                    |                                 |                                                                                                                                       | 25     |        |        |   | 30     |        |        |   | 5       |       
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       |                                                                                                                                                                   | Basic weighted average shares   |                                                                                                                                       |        | 22,446 |        |   |        | 20,372 |        |   |         | 20,232 |  
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|Weighted average shares  Diluted:                     |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Basic from above                                                                                                                                                  |                                 |                                                                                                                                       | 22,446 |        |        |   | 20,372 |        |        |   | 20,232  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Effect of stock options and warrant                                                                                                                               |                                 |                                                                                                                                       |       |        |        |   | 959    |        |        |   |        |       
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       |                                                                                                                                                                   | Diluted weighted average shares |                                                                                                                                       |        | 22,446 |        |   |        | 21,331 |        |   |         | 20,232 |  
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|Earnings (loss) per share  Basic
        and Diluted: |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Income (loss) from continuing operations                                                                                                                          |                                 | $                                                                                                                                     | (.10   | )      |        | $ | .01    |        |        | $ | (4.04   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Recontinuance of previously discontinued
        operations                                                                                                       |                                 |                                                                                                                                       |       |        |        |   |       |        |        |   | .07     |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Extraordinary charge                                                                                                                                              |                                 |                                                                                                                                       |       |        |        |   |       |        |        |   | (.05    | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cumulative effect of accounting change                                                                                                                            |                                 |                                                                                                                                       | (.24   | )      |        |   |       |        |        |   | (.12    | )     
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        
|                                                       | Earnings (loss) per share  Basic
        and Diluted                                                                                                             |                                 | $                                                                                                                                     | (.34   | )      |        | $ | .01    |        |        | $ | (4.14   | )     
|                                                       |                                                                                                                                                                   |                                 |                                                                                                                                       |        |        |        |   |        |        |        |   |        

F-28



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




M. Related Party Transactions

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 $13,140
to its CEO as of June 30, 2001, at an interest rate of 8%.
Subsequent to June 30, 2001, the Company loaned an
additional $970 to its CEO. 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
1,715,042 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. The term of the loan has been extended by
the Board to October 6, 2001. 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.

In connection with the fiscal 1999 actions described in Note J,
the Company recognized $596 in cost of sales for the write-down
of specialty inventory and $764 in research and development
expenses related to transactions with affiliates. During fiscal
1999, the Company also recognized a $700 provision for
uncollectible advances and receivables related to transactions
with affiliates.

The Company had sales to GE (primarily lamps and lamp
components) totaling $7,575 in fiscal 2001, $7,869 in fiscal
2000 and $4,621 in fiscal 1999. The Company purchased lamps and
raw materials from GE totaling $9,396 in fiscal 2001, $13,928 in
fiscal 2000 and $13,498 in fiscal 1999. Included in the balance
sheet caption of trade receivables are receivables from GE in
the amount of $1,942 at June 30, 2001 and $1,621 at
June 30, 2000. Included in the balance sheet caption of
trade payables are payables to GE of $3,318 at June 30,
2001 and $3,112 at June 30, 2000.

During January 1996, the Company entered into a six-year
Aircraft Operating Agreement (Agreement) with an
unrelated company to charter certain airplanes for service into
locations which are not adequately served by commercial
carriers. The unrelated company leased the airplanes from an
affiliate of the Company owned by certain officers of the
Company. These officers guaranteed the repayment of $11,200 of
indebtedness incurred by the affiliate to purchase the
airplanes. The Companys minimum annual commitments under
the Agreement were $911. However, the only remaining aircraft
under the Agreement was sold and the leasing activities under
the Agreement ceased in December 1998. During

F-29



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




M. Related Party Transactions (continued)

May 1998, the Company began to charter airplanes from another
unrelated company. This unrelated company also leased the
airplanes from an affiliate of the Company owned by certain
officers of the Company. These officers guaranteed the repayment
of $6,400 of indebtedness incurred by the affiliate to purchase
an airplane. Both airplanes have been sold and no further costs
related thereto are being incurred. Fees paid by the Company
under these arrangements were $56 in fiscal 2001, $474 in fiscal
2000 and $1,616 in fiscal 1999.

The Company paid a director of the Company $108 in fiscal 2001,
$104 in fiscal 2000 and $100 in fiscal 1999 for consulting
services. The Company also paid another director of the Company
$93 in fiscal 2001 and $99 in fiscal 2000 for consulting
services.

The Company sold lamps, lamp components, and lamp production
equipment to an overseas company aggregating $1,373 in fiscal
2001, $1,194 in fiscal 2000 and $625 in fiscal 1999. The Company
purchased lamps from this overseas company aggregating $1,377 in
fiscal 2001, $1,108 in fiscal 2000 and $366 in fiscal 1999. An
executive officer and director of the overseas company was a
Director of the Company from January 1996 until January 2001.

During fiscal 1996, one of the Companys subsidiaries sold
the assets of its nonlamp product line to an affiliate of the
Company owned principally by certain officers of the Company for
an amount equal to the carrying amount of such assets as of
June 30, 1995. As of June 30, 2001 and 2000, the
Company had an 8.5% note from the affiliate for $220 related to
the sale of the assets of the nonlamp product line which is
recorded as a long-term receivable from related parties in the
consolidated balance sheet. Total principal and accrued interest
at June 30, 2001 was $317.

N. Commitments

The Company leases buildings and certain equipment under
noncancelable operating lease agreements. The Company paid
$1,150 in April 2001 for a non-refundable option to purchase, at
fair value, a building currently leased by DSI. The cost of the
option, if exercised, will be applied to the purchase price of
the building. The option expires in April 2004. Total rent
expense was $2,212 in 2001, $1,778 in 2000, and $1,878 in 1999.
Future minimum lease commitments, as of June 30, 2001, were
as follows:

|                       |  |   |        | 
|---------------------- |  | - | ------ | 
|                      
|                      
|                      
|                      
|Year:                  |  |   |        | 
|                      
|                      
|                      
|                      
|Fiscal 2002            |  | $ | 2,867  | 
|                      
|                      
|                      
|                      
|Fiscal 2003            |  |   | 2,395  | 
|                      
|                      
|                      
|                      
|Fiscal 2004            |  |   | 1,794  | 
|                      
|                      
|                      
|                      
|Fiscal 2005            |  |   | 1,707  | 
|                      
|                      
|                      
|                      
|Fiscal 2006            |  |   | 1,584  | 
|                      
|                      
|                      
|                      
|Thereafter             |  |   | 6,350  | 
|                       |  |   |        | 
|Minimum lease payments |  | $ | 16,697 | 
|                       |  |   |        | 

F-30



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




O. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of
operations for the years ended June 30, 2001 and 2000:

|                                    |      |                                 |        |        |  |        |        |        |  |   |        |       |  |   |        |       | 
|----------------------------------- | ---- | ------------------------------- | ------ | ------ |  | ------ | ------ | ------ |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                    |      |                                
|                                    |      | Fiscal 2001, Three Months Ended
|                                    |      |                                
|                                    |      | Jun 30                          |        | Mar 31 |  | Dec 31 |        | Sep 30
|                                    |      |                                 |        |        |  |        |        |       
|Net sales                           |      | $                               | 54,751 |        |  | $      | 53,890 |        |  | $ | 57,036 |       |  | $ | 53,771 |      
|                                   
|                                   
|                                   
|                                   
|Gross profit                        |      |                                 | 21,255 |        |  |        | 22,399 |        |  |   | 23,406 |       |  |   | 21,907 |      
|                                   
|                                   
|                                   
|                                   
|Income from operations              |      |                                 | 3,143  |        |  |        | 3,220  |        |  |   | 4,578  |       |  |   | 3,004  |      
|                                   
|                                   
|                                   
|                                   
|Net income (loss)                   |      | $                               | (393   | )      |  | $      | (75    | )      |  | $ | 1,260  |       |  | $ | (521   | )    
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |       |  |   |        |      
|Earnings (loss) per share  Basic   |      | $                               | (.04   | )      |  | $      | (.03   | )      |  | $ | (.21   | )     |  | $ | (.05   | )    
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |       |  |   |        |      
|Earnings (loss) per share  Diluted |      | $                               | (.04   | )      |  | $      | (.03   | )      |  | $ | (.20   | )     |  | $ | (.05   | )    
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |       |  |   |        |      
|Price Range of Common Stock:        |      |                                 |        |        |  |        |        |        |  |   |        |       |  |   |        |      
|                                   
|                                   
|                                   
|                                   
|                                    | High |                                 | $      | 6.73   |  |        | $      | 9.88   |  |   | $      | 12.81 |  |   | $      | 19.94 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Low  |                                 |        | 3.90   |  |        |        | 4.00   |  |   |        | 4.00  |  |   |        | 11.31 | 

|                                    |      |                                 |        |        |  |        |        |        |  |   |        |      |  |   |        |      | 
|----------------------------------- | ---- | ------------------------------- | ------ | ------ |  | ------ | ------ | ------ |  | - | ------ | ---- |  | - | ------ | ---- | 
|                                    |      |                                
|                                    |      | Fiscal 2000, Three Months Ended
|                                    |      |                                
|                                    |      | Jun 30                          |        | Mar 31 |  | Dec 31 |        | Sep 30
|                                    |      |                                 |        |        |  |        |        |       
|Net sales                           |      | $                               | 54,912 |        |  | $      | 55,717 |        |  | $ | 60,886 |      |  | $ | 57,081 |     
|                                   
|                                   
|                                   
|                                   
|Gross profit                        |      |                                 | 23,521 |        |  |        | 23,519 |        |  |   | 24,124 |      |  |   | 22,318 |     
|                                   
|                                   
|                                   
|                                   
|Income from operations              |      |                                 | 4,278  |        |  |        | 4,502  |        |  |   | 4,175  |      |  |   | 2,956  |     
|                                   
|                                   
|                                   
|                                   
|Net income (loss)                   |      | $                               | 685    |        |  | $      | 1,045  |        |  | $ | 980    |      |  | $ | (782   | )   
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |      |  |   |        |     
|Earnings (loss) per share  Basic   |      | $                               | .00    |        |  | $      | .02    |        |  | $ | .02    |      |  | $ | (.04   | )   
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |      |  |   |        |     
|Earnings (loss) per share  Diluted |      | $                               | .00    |        |  | $      | .02    |        |  | $ | .02    |      |  | $ | (.04   | )   
|                                    |      |                                 |        |        |  |        |        |        |  |   |        |      |  |   |        |     
|Price Range of Common Stock:        |      |                                 |        |        |  |        |        |        |  |   |        |      |  |   |        |     
|                                   
|                                   
|                                   
|                                   
|                                    | High |                                 | $      | 22.00  |  |        | $      | 23.75  |  |   | $      | 8.50 |  |   | $      | 9.00 | 
|                                   
|                                   
|                                   
|                                   
|                                    | Low  |                                 |        | 9.13   |  |        |        | 5.56   |  |   |        | 4.75 |  |   |        | 6.88 | 

F-31



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




P. Segment and Geographic Information

The Company has one reportable business segment: the design,
manufacture and sales of metal halide lighting products
including materials, system components, systems and production
equipment. The Companys telecommunications business unit
does not meet reportable operating segment criteria and has been
aggregated in the following information.

Net sales by country, based on the location of the business
unit, for fiscal 2001, 2000, and 1999 follows:

|               |  |                     |         |      |  |      |         |  |  |   |         | 
|-------------- |  | ------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|               |  |                    
|               |  | Year Ended June 30,
|               |  |                    
|               |  | 2001                |         | 2000 |  | 1999
|               |  |                     |         |      |  |     
|United States  |  | $                   | 165,698 |      |  | $    | 170,887 |  |  | $ | 144,665 | 
|              
|              
|              
|              
|Canada         |  |                     | 18,802  |      |  |      | 22,624  |  |  |   | 20,524  | 
|              
|              
|              
|              
|United Kingdom |  |                     | 20,831  |      |  |      | 21,450  |  |  |   | 19,998  | 
|              
|              
|              
|              
|Australia      |  |                     | 11,864  |      |  |      | 11,837  |  |  |   | 10,092  | 
|              
|              
|              
|              
|Other          |  |                     | 2,253   |      |  |      | 1,798   |  |  |   | 1,149   | 
|               |  |                     |         |      |  |      |         |  |  |   |         | 
|               |  | $                   | 219,448 |      |  | $    | 228,596 |  |  | $ | 196,428 | 
|               |  |                     |         |      |  |      |         |  |  |   |         | 

Long-lived assets by country, based on the location of the
asset, as of June 30, 2001 and 2000 follows:

|               |  |          |         |      |  |   |         | 
|-------------- |  | -------- | ------- | ---- |  | - | ------- | 
|               |  |         
|               |  | June 30,
|               |  |         
|               |  | 2001     |         | 2000
|               |  |          |         |     
|United States  |  | $        | 101,492 |      |  | $ | 89,344  | 
|              
|              
|              
|              
|Canada         |  |          | 2,509   |      |  |   | 2,604   | 
|              
|              
|              
|              
|United Kingdom |  |          | 5,044   |      |  |   | 5,767   | 
|              
|              
|              
|              
|Australia      |  |          | 1,548   |      |  |   | 1,764   | 
|              
|              
|              
|              
|India          |  |          | 11,566  |      |  |   | 9,298   | 
|              
|              
|              
|              
|Other          |  |          | 334     |      |  |   | 386     | 
|               |  |          |         |      |  |   |         | 
|               |  | $        | 122,493 |      |  | $ | 109,163 | 
|               |  |          |         |      |  |   |         | 

In fiscal 2001, 2000, and 1999, no single customer accounted for
10% or more of the Companys net sales.

F-32



---



Advanced Lighting Technologies, Inc.

Notes to Consolidated Financial Statements


June 30, 2001




Q. 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.
The Company and its CEO filed a Motion to Dismiss the Complaint,
which was denied. The case will now proceed. The Company and the
CEO intend to continue to vigorously defend against these
actions.

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.

R. Subsequent Event

On September 20, 2001, the Company signed a letter of
intent to sell a significant portion of its lamp fixture
business (Ruud Lighting, Kramer Lighting and Ruud Lighting Europe subsidiaries) to a group of investors led by Alan J. Ruud, the
Companys President and Chief Operating Officer. The letter
of intent is subject to certain conditions including approval of
the transaction by the Companys Board of Directors,
approval by the Companys lending institutions, and
completion of financing arrangements by the purchasers. The
selling price for this business is expected to approximate
$38,300, subject to adjustment for changes in the business
through the closing date. As part of this transaction, a
$9,000 mortgage note will continue to be the obligation of Ruud Lighting.
The Company anticipates a substantial noncash charge from the transaction based on the current terms of the letter of intent. The subsidiaries to be sold had sales of approximately $82,000
for fiscal 2001 and total assets of approximately $123,000 at
June 30, 2001.

F-33



---



Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

PART III

Item 10. Directors and Officers of the Registrant

The information required by Item 10 is incorporated herein
by reference to the Registrants definitive Proxy Statement
relating to its 2001 Annual Shareholders Meeting (Proxy
Statement), under the captions Nominees,
Continuing Directors and Executive Officers, and
Section 16(a) Beneficial Ownership Reporting
Compliance. This Proxy Statement will be filed with the
SEC prior to October 29, 2001.

Item 11. Executive Compensation

The information contained under the caption Compensation
of Executive Officers in the Proxy Statement is
incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners
and Management

The information contained under the caption Certain
Holders of Voting Securities in the Proxy Statement is
incorporated by reference.

Item 13. Certain Relationships and Related
Transactions

The information contained under the caption Certain
Transactions With Directors And Officers in the Proxy
Statement is incorporated by reference.

63



---



PART IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K

(a)(1) and (2). The following consolidated financial statements
of Advanced Lighting Technologies, Inc. are included in
Item 8:



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Report of Grant Thornton LLP, Independent Auditors                                                       
|
| | Consolidated Balance Sheets as of June 30, 2001 and 2000                                                 
|
| | Consolidated Statements of Operations for the Years Ended
        June 30, 2001, 2000 and 1999           
|
| | Consolidated Statements of Shareholders Equity for the
        Years Ended June 30, 2001, 2000, and 1999
|
| | Consolidated Statements of Cash Flows for the Years Ended
        June 30, 2001, 2000 and 1999           
|
| | Notes to Consolidated Financial Statements                                                               

Financial Statement Schedules:

(2)  The following Financial Statement Schedules are
included in Item 14(d):

None. All schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and therefore have been omitted.

(3)  List of Exhibits (Exhibits available upon request)

|        |     |             |  |                                                                                                                                                                      |  |  |     |  
|------- | --- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |     |             |  | Previous                                                                                                                                                            
|        |     |             |  | Filing If                                                                                                                                                           
|Exhibit |     |             |  | Incorporated                                                                                                                                                        
|Number  |     | Description |  | by Reference                                                                                                                                                        
|        |     |             |  |                                                                                                                                                                     
|        | 3.1 |             |  | Second Amended and Restated Articles of
        Incorporation filed September 26, 1995                                                                               |  |  | (2  | )
|        | 3.2 |             |  | Certificate of Adoption of Third Amendment to
        Second Amended and Restated Articles of Incorporation filed
        October 6, 1999 (Form 10-Q/ A Exhibit 3.2) |  |  | (9  | )
|        | 3.3 |             |  | Certificate of Adoption of Fourth Amendment to
        Second Amended and Restated Articles of Incorporation filed
        March  16, 2000 (Form 10-K Exhibit 3.3)   |  |  | (12 | )
|        | 3.4 |             |  | Code of Regulations                                                                                                                                                  |  |  | (1  | )
|        | 4.1 |             |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and
        3.4                                                                                                          |  |  |     |  
|        | 4.2 |             |  | Form of Stock Certificate for Common Stock of
        Advanced Lighting Technologies, Inc (Form 10-K
        Exhibit 4.2).                                           |  |  | (12 | )

64



---



|        |      |             |  |                                                                                                                                                                                                                                           |  |                                                                                                                                                                                             |     |   |    |  
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | - | -- | -
|        |      |             |  |                                                                                                                                                                                                                                           |  | Previous                                                                                                                                                                                   
|        |      |             |  |                                                                                                                                                                                                                                           |  | Filing If                                                                                                                                                                                  
|Exhibit |      |             |  | Incorporated                                                                                                                                                                                                                             
|Number  |      | Description |  | by Reference                                                                                                                                                                                                                             
|        |      |             |  |                                                                                                                                                                                                                                          
|        |      |             |  |                                                                                                                                                                                                                                          
|        | 4.3  |             |  | Indenture between Advanced Lighting Technologies,
        Inc. and The Bank of New York, as Trustee, dated as of
        March 18, 1998 (Form 10-Q/ A Exhibit 4.3)                                                                        |  |                                                                                                                                                                                             | (4  | )
|        | 4.4  |             |  | Registration Rights Agreement between Advanced
        Lighting Technologies, Inc. and Morgan Stanley & Co.,
        Incorporated dated as of March 18, 1998 (Form S-4
        Exhibit 4.2)                                               |  |                                                                                                                                                                                             | (3  | )
|        | 4.5  |             |  | Form of Security for 8% Senior Notes due 2008
        originally issued by Advanced Lighting Technologies, Inc. on
        March 18, 1998 (Form S-4 Exhibit 4.3)                                                                          |  |                                                                                                                                                                                             | (3  | )
|        | 4.6  |             |  | Form of Security for 8% Senior Notes due 2008
        issued by Advanced Lighting Technologies, Inc. and registered
        under the Securities Act of 1933 (Form S-4 Exhibit 4.4)                                                       |  |                                                                                                                                                                                             | (3  | )
|
|        | 4.7  |             |  | First Supplemental Indenture dated
        September 25, 1998 between Advanced Lighting Technologies,
        Inc. and The Bank of New York amending the Indenture dated
        March 18, 1998 (Form  10-Q/ A No. 2
        Exhibit 4.1) |  |                                                                                                                                                                                             | (6  | )
|        | 4.8  |             |  | Registration Rights Agreement dated as of
        September 30, 1999 by and between Advanced Lighting
        Technologies, Inc. and General Electric Company (Form 10-Q/
        A Exhibit 4.2)                                          |  |                                                                                                                                                                                             | (9  | )
|        | 9.1  |             |  | Amended and Restated Voting Trust Agreement dated
        as of October  1, 1999 by and among Wayne R. Hellman, as
        voting trustee, and the Shareholders listed on Exhibit A
        thereto (Form 10-K Exhibit 9.3)               |  |                                                                                                                                                                                             | (12 | )
|        | 9.2  |             |  | Amended and Restated Voting Trust Agreement dated
        as of October  1, 1999 among Alan J. Rudd, as voting
        trustee, and the Shareholders listed on Exhibit A thereto
        (Schedule 13D Exhibit 1)                         |  |                                                                                                                                                                                             | (17 | )
|        | 10.1 |             |  | Management Contracts, Compensatory Plans and
        Arrangements                                                                                                                                                                         |  |                                                                                                                                                                                             |     |  
|        |      |             |  | 10.1.1                                                                                                                                                                                                                                    |  | Employment Agreement dated as of January 2,
        1998 among Ruud Lighting, Inc., Advanced Lighting Technologies,
        Inc. and Alan J. Ruud (Form 10-K/ A No. 2
        Exhibit 10.1) |     |   | (5 | )
|        |      |             |  | 10.1.2                                                                                                                                                                                                                                    |  | Employment Agreement dated as of
        February 12, 1998 between Advanced Lighting Technologies,
        Inc. and Nicholas R. Sucic (Form 10-Q/ A Exhibit 10.5)                           |     |   | (4 | )
|        |      |             |  | 10.1.3                                                                                                                                                                                                                                    |  | Loan Agreement dated as of October 8, 1998
        between Advanced Lighting Technologies, Inc. and Wayne R.
        Hellman (Form  10-Q/ A Exhibit 10.1)                                   |     |   | (7 | )

65



---



|        |      |  |  |                                                                                                                                                                                                                                                                     |  |                                                                                                                                                                                                                                    |    |   |     |  
|------- | ---- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | - | --- | -
|        |      |  |  |                                                                                                                                                                                                                                                                     |  | Previous                                                                                                                                                                                                                          
|        |      |  |  |                                                                                                                                                                                                                                                                     |  | Filing If                                                                                                                                                                                                                         
|        |      |  |  |                                                                                                                                                                                                                                                                     |  | Incorporated                                                                                                                                                                                                                      
|Exhibit |      |  |  |                                                                                                                                                                                                                                                                     |  | by Reference                                                                                                                                                                                                                      
|Number  |      |  |  | Description                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                   
|        |      |  |  |                                                                                                                                                                                                                                                                    
|        |      |  |  | 10.1.4                                                                                                                                                                                                                                                              |  | Secured Promissory Note of Wayne R. Hellman dated
        as of October 8, 1998 in the amount of $9,000,000 to
        Advanced Lighting Technologies, Inc. (Form 10-Q/ A
        Exhibit 10.2)                                    |    |   | (7  | )
|        |      |  |  | 10.1.5                                                                                                                                                                                                                                                              |  | First Amendment to Loan Agreement, Secured
        Promissory Note and Security Agreement between Wayne R. Hellman
        and Advanced Lighting Technologies, Inc. dated as of
        November 22, 2000 (Form 10-Q Exhibit 10.1) |    |   | (15 | )
|        |      |  |  | 10.1.6                                                                                                                                                                                                                                                              |  | Second Amendment to Loan Agreement, Secured
        Promissory Note and Security Agreement between Wayne R. Hellman
        and Advanced Lighting Technologies, Inc. dated as of
        March 15, 2001 (Form 10-Q Exhibit 10.1)   |    |   | (16 | )
|        |      |  |  | 10.1.7                                                                                                                                                                                                                                                              |  | Amended and Restated Employment Agreement between
        Wayne R. Hellman and Advanced Lighting Technologies, Inc. dated
        as of October 8, 1998 (Form 10-Q/ A Exhibit 10.4)                                                |    |   | (7  | )
|        |      |  |  | 10.1.8                                                                                                                                                                                                                                                              |  | Advanced Lighting Technologies, Inc. Amended and
        Restated 1995 Incentive Award Plan (Form S-1
        Exhibit 10.1 and 10.1/ A)                                                                                            |    |   | (1  | )
|        |      |  |  | 10.1.9                                                                                                                                                                                                                                                              |  | Advanced Lighting Technologies, Inc. 1997 Billion
        Dollar Market Capitalization Incentive Award Plan
        (Form 10-K/ A No. 2 Exhibit 10.11)                                                                             |    |   | (8  | )
|        |      |  |  | 10.1.10                                                                                                                                                                                                                                                             |  | Advanced Lighting Technologies, Inc. Amended and
        Restated 1998 Incentive Award Plan (Form 10-K/ A No. 2
        Exhibit  10.12)                                                                                            |    |   | (8  | )
|        |      |  |  | 10.1.11                                                                                                                                                                                                                                                             |  | Deposition Sciences, Inc. 2001 Equity Incentive
        Plan (Form  10-Q Exhibit 10.3)                                                                                                                                             |    |   | (16 | )
|        |      |  |  | 10.1.12                                                                                                                                                                                                                                                             |  | Mutual Release and Indemnification Agreement by
        and between Advanced Lighting Technologies, Inc. and Louis S.
        Fisi dated as of December 31, 1999 (Form 10-Q
        Exhibit 10.9)                                  |    |   | (10 | )
|        |      |  |  | 10.1.13                                                                                                                                                                                                                                                             |  | Consulting Agreement by and between Advanced
        Lighting Technologies, Inc. and Louis S. Fisi dated as of
        December  31, 1999 (Form 10-Q Exhibit 10.10)                                                                |    |   | (10 | )
|        | 10.2 |  |  | Credit 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 May 21, 1999 (Form 10-K/ A No. 2
        Exhibit 10.13) |  |                                                                                                                                                                                                                                    | (8 | )

66



---



|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |  |     |  
|------- | ---- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |      |             |  | Previous                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |      |             |  | Filing If                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Exhibit |      |             |  | Incorporated                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Number  |      | Description |  | by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.3 |             |  | Market Clearance Side Letter dated May 21,
        1999 by and among PNC Bank, National Association, PNC Capital
        Markets, Inc., Advanced Lighting Technologies, Inc.,
        Ballastronix, Incorporated, Canadian Lighting Systems Holding
        Incorporated, Parry Power Systems Limited and Venture Lighting
        Europe Ltd. (Form 10-K/ A No. 2 Exhibit 10.18)                                                                                         |  |  | (8  | )
|        | 10.4 |             |  | Side Letter Agreement dated August 5, 1999
        by and among Advanced Lighting Technologies, Inc. and certain of
        its subsidiaries, PNC Bank, National Association and BankBoston,
        N.A. relating to the Credit 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 May 21, 1999 (Form 10-Q/ A Exhibit  10.1) |  |  | (9  | )
|        | 10.5 |             |  | Assignment of Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and BankBoston, N.A. dated as of August 5, 1999
        (Form  10-Q/ A Exhibit 10.2)                                                                                                                                                                                                                                                 |  |  | (9  | )
|        | 10.6 |             |  | First 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 August 17, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q/ A Exhibit 10.3)                                                                                                    |  |  | (9  | )
|        | 10.7 |             |  | Second 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 August 18, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q/ A Exhibit 10.4)                                                                                                   |  |  | (9  | )
|        | 10.8 |             |  | Assignment and Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and National City Commercial Finance, Inc. dated as
        of November 2, 1999 (Form 10-Q Exhibit 10.1)                                                                                                                                                                                                                            |  |  | (10 | )
|        | 10.9 |             |  | Assignment and Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and Sovereign Bank dated as of November 2, 1999
        (Form 10-Q Exhibit 10.2)                                                                                                                                                                                                                                                    |  |  | (10 | )

67



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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                           |  |  |     |  
|------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |       |             |  | Previous                                                                                                                                                                                                                                                                                                                                                                 
|        |       |             |  | Filing If                                                                                                                                                                                                                                                                                                                                                                
|Exhibit |       |             |  | Incorporated                                                                                                                                                                                                                                                                                                                                                             
|Number  |       | Description |  | by Reference                                                                                                                                                                                                                                                                                                                                                             
|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                          
|        | 10.10 |             |  | Third 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 November 2, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q Exhibit 10.3)      |  |  | (10 | )
|        | 10.11 |             |  | Fourth 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 February 28, 2000, amending the Credit
        Agreement by and among the same parties dated as of May 21,
        1999 (Form 10-Q/ A Exhibit 10.1) |  |  | (11 | )
|        | 10.12 |             |  | Fifth 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 May 8, 2000, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999
        (Form  10-K Exhibit 10.19)         |  |  | (12 | )
|        | 10.13 |             |  | Sixth 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 July 1, 2000, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999
        (Form  10-Q Exhibit 10.1)         |  |  | (14 | )
|        | 10.14 |             |  | Seventh 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 March 27, 2001, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q Exhibit 10.2)      |  |  | (16 | )
|        | 10.15 |             |  | Eighth 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 June 12, 2001, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999                                         |  |  |     |  
|        | 10.16 |             |  | Lease Agreement by and between Macken Associates
        and Deposition Sciences, Incorporated dated March 2, 2001                                                                                                                                                                                                                                                        |  |  |     |  
|        | 10.17 |             |  | Agreement dated April 16, 2001 by and
        between Macken Associates and Deposition Sciences, Inc. amending
        the Lease Agreement by and between the same parties dated
        March 2, 2001                                                                                                                                                                    |  |  |     |  

68



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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |  
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |       |             |  | Previous                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |       |             |  | Filing If                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit |       |             |  | Incorporated                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Number  |       | Description |  | by Reference                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.18 |             |  | Second Amendment to Lease dated June 20,
        2001 by and between Macken Associates and Deposition Sciences,
        Inc. amending the Lease Agreement by and between the same
        parties dated March 2, 2001                                                                                                                                                                                                                                                                                                       |  |  |     |  
|        | 10.19 |             |  | Option Agreement to Purchase Real Property dated
        March 2, 2001 by and between Macken Associates and
        Deposition Sciences, Incorporated with respect to the premises
        leased by the second party from the first party pursuant to the
        Lease Agreement by and between them dated March 2, 2001                                                                                                                                                                                                  |  |  |     |  
|        | 10.20 |             |  | Agreement dated May 29, 2001 by and between
        Macken Associates and Deposition Sciences, Inc. amending the
        Option Agreement to Purchase Real Property by and between the
        same parties dated March 2, 2001                                                                                                                                                                                                                                                                                             |  |  |     |  
|        | 10.21 |             |  | Stock Purchase Agreement by and between Advanced
        Lighting Technologies, Inc. and General Electric Company dated
        as of September 28, 1999 (Form 10-Q/ A
        Exhibit 10.5)                                                                                                                                                                                                                                                                                                                                |  |  | (9  | )
|        | 10.22 |             |  | Contingent Warrant Agreement dated as of
        September 30, 1999 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, as subsequently amended and
        restated October 1, 2000 (Form 10-Q/ A
        Exhibit 10.6) |  |  | (9  | )
|        | 10.23 |             |  | Amendment to Contingent Warrant Agreement dated
        as of August 31, 2000 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 (Form 10-Q/ A Exhibit 10.6)                                                               |  |  | (14 | )
|        | 10.24 |             |  | Second Amendment to Contingent Warrant Agreement
        dated as of June 29, 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                                                                                      |  |  |     |  

69



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|        |       |             |  |                                                                                                                                                                                                                                                                                               |  |  |     |  
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |       |             |  | Previous                                                                                                                                                                                                                                                                                     
|        |       |             |  | Filing If                                                                                                                                                                                                                                                                                    
|Exhibit |       |             |  | Incorporated                                                                                                                                                                                                                                                                                 
|Number  |       | Description |  | by Reference                                                                                                                                                                                                                                                                                 
|        |       |             |  |                                                                                                                                                                                                                                                                                              
|        | 10.25 |             |  | Lamp Materials Purchase Agreement by and among
        Advanced Lighting Technologies, Inc., General Electric Company,
        acting through its GE Lighting business and APL Engineered
        Materials, Inc. dated as of September 30, 1999
        (Form 10-Q/ A Exhibit 10.8)          |  |  | (9  | )
|        | 10.26 |             |  | Patent and Technical Assistance Agreement by and
        among Advanced Lighting Technologies, Inc., APL Engineered
        Materials, Inc. and General Electric Company, acting through its
        GE Lighting business, dated as of September 30, 1999
        (Form 10-Q/ A Exhibit 10.9) |  |  | (9  | )
|        | 10.27 |             |  | Series A1 Warrant to Purchase Common Shares
        of Advanced Lighting Technologies, Inc. issued to General
        Electric Company dated as of October 6, 1999
        (Form 10-Q/ A Exhibit  10.7)                                                                                       |  |  | (9  | )
|        | 10.28 |             |  | Agency Agreement dated August 31, 2000 among
        Advanced Lighting Technologies, Inc., Raymond James &
        Associates, Inc. and Sanders Morris Harris Inc. (Form 8-K
        Exhibit 1.1)                                                                                             |  |  | (13 | )
|        | 12    |             |  | Statement regarding Computation of Ratios                                                                                                                                                                                                                                                     |  |  |     |  
|        | 21    |             |  | Subsidiaries of the Registrant as of
        June 30, 2001                                                                                                                                                                                                                                    |  |  |     |  
|        | 23    |             |  | Consent of Grant Thornton LLP                                                                                                                                                                                                                                                                 |  |  |     |  
|        | 24    |             |  | Powers of Attorney                                                                                                                                                                                                                                                                            |  |  |     |  



---



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to referenced Exhibit in
        Companys Registration Statement on Form S-1,
        Registration No. 33-97902, effective December 11, 1995.                           
|   
|(2) | 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 filed on
        February 14, 1997.
|   
|(3) | Incorporated by reference to referenced Exhibit in
        Companys Registration Statement on Form S-4
        Registration No. 333-58609 filed July 7, 1998.                                     
|   
|(4) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended March 31, 1998 filed on
        March 15, 1999.       
|   
|(5) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K/ A No. 2 for
        the Annual Period ended June  30, 1998 filed March 16,
        1999.          
|   
|(6) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A No. 2
        for the Quarterly Period ended September 30, 1998 filed
        March 15, 1999.

70



---





| |     |                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (7) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended December  31, 1998 filed
        March 15, 1999.  
|
| | (8) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K/ A No. 2 for
        the Annual Period ended June 30, 1999 filed April 25,
        2000.       
|
| | (9) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended September 30, 1999 filed
        January 14, 2000.



| |      |                                                                                                                                                                                              
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (10) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended December 31, 1999 filed
        February 14, 2000. 
|
| | (11) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended March 31, 2000 filed July 11,
        2000.     
|
| | (12) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K for the Annual
        Period ended June 30, 2000 filed September 27, 2000.                  
|
| | (13) | Incorporated by reference to referenced Exhibit in
        Companys Current Report on Form 8-K dated
        August 31, 2000 filed September  1, 2000.                                      
|
| | (14) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended September 30, 2000 filed
        November 14, 2000.
|
| | (15) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended December 31, 2000 filed
        February 14, 2001. 
|
| | (16) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended March  31, 2001 filed May 15,
        2001.        
|
| | (17) | Incorporated by reference to Exhibit 1 to Schedule 13D
        filed by Alan Ruud, et al., March 15, 2000.                                                                                   

(b). Reports on Form 8-K.

No reports on Form 8-K have been filed during the quarter
ended June 30, 2001.

(c). Exhibits.

The exhibits to this Form 10-K are submitted as a separate
section of this Report. See Exhibit Index.

(d). Financial Statement Schedules

None.

71



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.



| |                                     
| | ------------------------------------
| | ADVANCED LIGHTING TECHNOLOGIES, INC.

|                         |  |                                                                                             
|------------------------ |  | --------------------------------------------------------------------------------------------
|Date: September 28, 2001 |  | By: /s/ Wayne R. Hellman      Wayne
        R. Hellman
              Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.

|                                         |  |                                                                          |  |      |                    | 
|---------------------------------------- |  | ------------------------------------------------------------------------ |  | ---- | ------------------ | 
|Signature                                |  | Title                                                                    |  | Date
|                                         |  |                                                                          |  |     
|/s/ Wayne R. HellmanWayne R. Hellman     |  | Chief Executive Officer and Director                                     |  |      | September 28, 2001 | 
|/s/ Steven C. PottsSteven C. Potts       |  | Chief Financial Officer and Treasurer (Chief
        Accounting Officer) |  |      | September 28, 2001 | 
|/s/ Francis H. BeamFrancis H. Beam       |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ John E. BreenJohn E. Breen           |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ John R. BuerkleJohn R. Buerkle       |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ Theodore A. FilsonTheodore A. Filson |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ Louis S. FisiLouis S. Fisi           |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ John GonzalezJohn Gonzalez           |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ Thomas K. LimeThomas K. Lime         |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ Alan J. RuudAlan J. Ruud             |  | Director                                                                 |  |      | September 28, 2001 | 
|/s/ A Gordon TunstallA Gordon Tunstall   |  | Director                                                                 |  |      | September 28, 2001 | 



|  |                                                                                                                                                                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The undersigned, by signing his name hereto, does hereby execute
        this Report on behalf of the above indicated directors of
        Advanced Lighting Technologies, Inc. pursuant to Powers of
        Attorney executed by each such director appointing the
        undersigned as attorney-in-fact and filed with the Securities
        and Exchange Commission.



| |     |                    
| | --- | -------------------
| | By: | /s/ Steven C. Potts

| |                 
| | ----------------
| |                 
| | Steven C. Potts 
| | Attorney-in-Fact

72



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SECURITIES AND EXCHANGE COMMISSION



EXHIBITS TO

FORM 10-K

FOR THE ANNUAL PERIOD ENDED JUNE 30, 2001

ADVANCED LIGHTING TECHNOLOGIES, INC.

73



---



EXHIBIT INDEX

|        |     |             |  |                                                                                                                                                                                                                                           |  |  |     |  
|------- | --- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|        |     |             |  | Previous                                                                                                                                                                                                                                 
|        |     |             |  | Filing If                                                                                                                                                                                                                                
|Exhibit |     |             |  | Incorporated                                                                                                                                                                                                                             
|Number  |     | Description |  | by Reference                                                                                                                                                                                                                             
|        |     |             |  |                                                                                                                                                                                                                                          
|        | 3.1 |             |  | Second Amended and Restated Articles of
        Incorporation filed September 26, 1995                                                                                                                                                    |  |  | (2  | )
|        | 3.2 |             |  | Certificate of Adoption of Third Amendment to
        Second Amended and Restated Articles of Incorporation filed
        October 6, 1999 (Form 10-Q/ A Exhibit 3.2)                                                                      |  |  | (9  | )
|        | 3.3 |             |  | Certificate of Adoption of Fourth Amendment to
        Second Amended and Restated Articles of Incorporation filed
        March  16, 2000 (Form 10-K Exhibit 3.3)                                                                        |  |  | (12 | )
|        | 3.4 |             |  | Code of Regulations                                                                                                                                                                                                                       |  |  | (1  | )
|        | 4.1 |             |  | Reference is made to Exhibits 3.1, 3.2, 3.3 and
        3.4                                                                                                                                                                               |  |  |     |  
|        | 4.2 |             |  | Form of Stock Certificate for Common Stock of
        Advanced Lighting Technologies, Inc (Form 10-K
        Exhibit 4.2).                                                                                                                |  |  | (12 | )
|        | 4.3 |             |  | Indenture between Advanced Lighting Technologies,
        Inc. and The Bank of New York, as Trustee, dated as of
        March 18, 1998 (Form 10-Q/ A Exhibit 4.3)                                                                        |  |  | (4  | )
|        | 4.4 |             |  | Registration Rights Agreement between Advanced
        Lighting Technologies, Inc. and Morgan Stanley & Co.,
        Incorporated dated as of March 18, 1998 (Form S-4
        Exhibit 4.2)                                               |  |  | (3  | )
|        | 4.5 |             |  | Form of Security for 8% Senior Notes due 2008
        originally issued by Advanced Lighting Technologies, Inc. on
        March 18, 1998 (Form S-4 Exhibit 4.3)                                                                          |  |  | (3  | )
|        | 4.6 |             |  | Form of Security for 8% Senior Notes due 2008
        issued by Advanced Lighting Technologies, Inc. and registered
        under the Securities Act of 1933 (Form S-4 Exhibit 4.4)                                                       |  |  | (3  | )
|        | 4.7 |             |  | First Supplemental Indenture dated
        September 25, 1998 between Advanced Lighting Technologies,
        Inc. and The Bank of New York amending the Indenture dated
        March 18, 1998 (Form  10-Q/ A No. 2
        Exhibit 4.1) |  |  | (6  | )
|        | 4.8 |             |  | Registration Rights Agreement dated as of
        September 30, 1999 by and between Advanced Lighting
        Technologies, Inc. and General Electric Company (Form 10-Q/
        A Exhibit 4.2)                                          |  |  | (9  | )

74



---



| |      |  |  |                                                                                                                                                                                                                             |  |                                                                                                                                                                                                                                    |     |   |     |  
| | ---- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | - | --- | -
| | 9.1  |  |  | Amended and Restated Voting Trust Agreement dated
        as of October  1, 1999 by and among Wayne R. Hellman, as
        voting trustee, and the Shareholders listed on Exhibit A
        thereto (Form 10-K Exhibit 9.3) |  |                                                                                                                                                                                                                                    | (12 | )
| | 9.2  |  |  | Amended and Restated Voting Trust Agreement dated
        as of October  1, 1999 among Alan J. Rudd, as voting
        trustee, and the Shareholders listed on Exhibit A thereto
        (Schedule 13D Exhibit 1)           |  |                                                                                                                                                                                                                                    | (17 | )
| | 10.1 |  |  | Management Contracts, Compensatory Plans and
        Arrangements                                                                                                                                                           |  |                                                                                                                                                                                                                                    |     |  
| |      |  |  | 10.1.1                                                                                                                                                                                                                      |  | Employment Agreement dated as of January 2,
        1998 among Ruud Lighting, Inc., Advanced Lighting Technologies,
        Inc. and Alan J. Ruud (Form 10-K/ A No. 2
        Exhibit 10.1)                                        |     |   | (5  | )
| |      |  |  | 10.1.2                                                                                                                                                                                                                      |  | Employment Agreement dated as of
        February 12, 1998 between Advanced Lighting Technologies,
        Inc. and Nicholas R. Sucic (Form 10-Q/ A Exhibit 10.5)                                                                  |     |   | (4  | )
| |      |  |  | 10.1.3                                                                                                                                                                                                                      |  | Loan Agreement dated as of October 8, 1998
        between Advanced Lighting Technologies, Inc. and Wayne R.
        Hellman (Form  10-Q/ A Exhibit 10.1)                                                                          |     |   | (7  | )
| |      |  |  | 10.1.4                                                                                                                                                                                                                      |  | Secured Promissory Note of Wayne R. Hellman dated
        as of October 8, 1998 in the amount of $9,000,000 to
        Advanced Lighting Technologies, Inc. (Form 10-Q/ A
        Exhibit 10.2)                                    |     |   | (7  | )
| |      |  |  | 10.1.5                                                                                                                                                                                                                      |  | First Amendment to Loan Agreement, Secured
        Promissory Note and Security Agreement between Wayne R. Hellman
        and Advanced Lighting Technologies, Inc. dated as of
        November 22, 2000 (Form 10-Q Exhibit 10.1) |     |   | (15 | )
| |      |  |  | 10.1.6                                                                                                                                                                                                                      |  | Second Amendment to Loan Agreement, Secured
        Promissory Note and Security Agreement between Wayne R. Hellman
        and Advanced Lighting Technologies, Inc. dated as of
        March 15, 2001 (Form 10-Q Exhibit 10.1)   |     |   | (16 | )
| |      |  |  | 10.1.7                                                                                                                                                                                                                      |  | Amended and Restated Employment Agreement between
        Wayne R. Hellman and Advanced Lighting Technologies, Inc. dated
        as of October 8, 1998 (Form 10-Q/ A Exhibit 10.4)                                                |     |   | (7  | )
| |      |  |  | 10.1.8                                                                                                                                                                                                                      |  | Advanced Lighting Technologies, Inc. Amended and
        Restated 1995 Incentive Award Plan (Form S-1
        Exhibit 10.1 and 10.1/ A)                                                                                            |     |   | (1  | )
| |      |  |  | 10.1.9                                                                                                                                                                                                                      |  | Advanced Lighting Technologies, Inc. 1997 Billion
        Dollar Market Capitalization Incentive Award Plan
        (Form 10-K/ A No. 2 Exhibit 10.11)                                                                             |     |   | (8  | )

75



---



| |      |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                                                                                                                                                                                                   |    |   |     |  
| | ---- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | - | --- | -
| |      |  |  | 10.1.10                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Advanced Lighting Technologies, Inc. Amended and
        Restated 1998 Incentive Award Plan (Form 10-K/ A No. 2
        Exhibit  10.12)                                                           |    |   | (8  | )
| |      |  |  | 10.1.11                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Deposition Sciences, Inc. 2001 Equity Incentive
        Plan (Form  10-Q Exhibit 10.3)                                                                                                            |    |   | (16 | )
| |      |  |  | 10.1.12                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Mutual Release and Indemnification Agreement by
        and between Advanced Lighting Technologies, Inc. and Louis S.
        Fisi dated as of December 31, 1999 (Form 10-Q
        Exhibit 10.9) |    |   | (10 | )
| |      |  |  | 10.1.13                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | Consulting Agreement by and between Advanced
        Lighting Technologies, Inc. and Louis S. Fisi dated as of
        December  31, 1999 (Form 10-Q Exhibit 10.10)                               |    |   | (10 | )
| | 10.2 |  |  | Credit 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 May 21, 1999 (Form 10-K/ A No. 2
        Exhibit 10.13)                                                                                                                                                                                                      |  |                                                                                                                                                                                                   | (8 | )
| | 10.3 |  |  | Market Clearance Side Letter dated May 21,
        1999 by and among PNC Bank, National Association, PNC Capital
        Markets, Inc., Advanced Lighting Technologies, Inc.,
        Ballastronix, Incorporated, Canadian Lighting Systems Holding
        Incorporated, Parry Power Systems Limited and Venture Lighting
        Europe Ltd. (Form 10-K/ A No. 2 Exhibit 10.18)                                                                                        |  |                                                                                                                                                                                                   | (8 | )
| | 10.4 |  |  | Side Letter Agreement dated August 5, 1999
        by and among Advanced Lighting Technologies, Inc. and certain of
        its subsidiaries, PNC Bank, National Association and BankBoston,
        N.A. relating to the Credit 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 May 21, 1999 (Form 10-Q/ A Exhibit 10.1) |  |                                                                                                                                                                                                   | (9 | )
| | 10.5 |  |  | Assignment of Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and BankBoston, N.A. dated as of August 5, 1999
        (Form 10-Q/ A Exhibit 10.2)                                                                                                                                                                                                                                                 |  |                                                                                                                                                                                                   | (9 | )
| | 10.6 |  |  | First 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 August 17, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q/ A Exhibit 10.3)                                                                                                   |  |                                                                                                                                                                                                   | (9 | )

76



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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                           |  |  |     |   |  | 
| | ----- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | - |  | 
| | 10.7  |  |  | Second 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 August 18, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q/ A Exhibit 10.4)   |  |  | (9  | )
| | 10.8  |  |  | Assignment and Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and National City Commercial Finance, Inc. dated as
        of November 2, 1999 (Form 10-Q Exhibit 10.1)                                                                                                                            |  |  | (10 | )
| | 10.9  |  |  | Assignment and Acceptance Agreement by and among
        Advanced Lighting Technologies, Inc., PNC Bank, National
        Association and Sovereign Bank dated as of November 2, 1999
        (Form 10-Q Exhibit  10.2)                                                                                                                                                   |  |  | (10 | )
| | 10.10 |  |  | Third 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 November 2, 1999, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q Exhibit 10.3)      |  |  | (10 | )
| | 10.11 |  |  | Fourth 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 February 28, 2000, amending the Credit
        Agreement by and among the same parties dated as of May 21,
        1999 (Form 10-Q/ A Exhibit 10.1) |  |  | (11 | )
| | 10.12 |  |  | Fifth 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 May 8, 2000, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999
        (Form 10-K Exhibit 10.19)          |  |  | (12 | )
| | 10.13 |  |  | Sixth 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 July 1, 2000, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999
        (Form 10-Q Exhibit 10.1)          |  |  | (14 | )
| | 10.14 |  |  | Seventh 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 March 27, 2001, amending the Credit Agreement
        by and among the same parties dated as of May 21, 1999
        (Form 10-Q Exhibit 10.2)      |  |  | (16 | )

77



---



| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |  
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
| | 10.15 |  |  | Eighth 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 June 12, 2001, amending the Credit Agreement by
        and among the same parties dated as of May 21, 1999                                                                                                                                                                                           |  |  |     |  
| | 10.16 |  |  | Lease Agreement by and between Macken Associates
        and Deposition Sciences, Incorporated dated March 2, 2001                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |     |  
| | 10.17 |  |  | Agreement dated April 16, 2001 by and
        between Macken Associates and Deposition Sciences, Inc. amending
        the Lease Agreement by and between the same parties dated
        March 2, 2001                                                                                                                                                                                                                                                                                                                      |  |  |     |  
| | 10.18 |  |  | Second Amendment to Lease dated June 20,
        2001 by and between Macken Associates and Deposition Sciences,
        Inc. amending the Lease Agreement by and between the same
        parties dated March 2, 2001                                                                                                                                                                                                                                                                                                       |  |  |     |  
| | 10.19 |  |  | Option Agreement to Purchase Real Property dated
        March 2, 2001 by and between Macken Associates and
        Deposition Sciences, Incorporated with respect to the premises
        leased by the second party from the first party pursuant to the
        Lease Agreement by and between them dated March 2, 2001                                                                                                                                                                                                  |  |  |     |  
| | 10.20 |  |  | Agreement dated May 29, 2001 by and between
        Macken Associates and Deposition Sciences, Inc. amending the
        Option Agreement to Purchase Real Property by and between the
        same parties dated March 2, 2001                                                                                                                                                                                                                                                                                             |  |  |     |  
| | 10.21 |  |  | Stock Purchase Agreement by and between Advanced
        Lighting Technologies, Inc. and General Electric Company dated
        as of September 28, 1999 (Form 10-Q/ A
        Exhibit 10.5)                                                                                                                                                                                                                                                                                                                                |  |  | (9  | )
| | 10.22 |  |  | Contingent Warrant Agreement dated as of
        September 30, 1999 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, as subsequently amended and
        restated October 1, 2000 (Form 10-Q/ A
        Exhibit 10.6) |  |  | (9  | )
| | 10.23 |  |  | Amendment to Contingent Warrant Agreement dated
        as of August 31, 2000 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 (Form 10-Q/ A Exhibit 10.6)                                                               |  |  | (14 | )

78



---



| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                        |  |  |     |  
| | ----- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
| | 10.24 |  |  | Second Amendment to Contingent Warrant Agreement
        dated as of June 29, 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 |  |  |     |  
| | 10.25 |  |  | Lamp Materials Purchase Agreement by and among
        Advanced Lighting Technologies, Inc., General Electric Company,
        acting through its GE Lighting business and APL Engineered
        Materials, Inc. dated as of September 30, 1999
        (Form 10-Q/ A Exhibit 10.8)                                                                                                                                                   |  |  | (9  | )
| | 10.26 |  |  | Patent and Technical Assistance Agreement by and
        among Advanced Lighting Technologies, Inc., APL Engineered
        Materials, Inc. and General Electric Company, acting through its
        GE Lighting business, dated as of September 30, 1999
        (Form 10-Q/ A Exhibit 10.9)                                                                                                                                          |  |  | (9  | )
| | 10.27 |  |  | Series A1 Warrant to Purchase Common Shares
        of Advanced Lighting Technologies, Inc. issued to General
        Electric Company dated as of October 6, 1999
        (Form 10-Q/ A Exhibit  10.7)                                                                                                                                                                                                                                |  |  | (9  | )
| | 10.28 |  |  | Agency Agreement dated August 31, 2000 among
        Advanced Lighting Technologies, Inc., Raymond James &
        Associates, Inc. and Sanders Morris Harris Inc. (Form 8-K
        Exhibit 1.1)                                                                                                                                                                                                                                      |  |  | (13 | )
| | 12    |  |  | Statement regarding Computation of Ratios                                                                                                                                                                                                                                                                                                                                                                                              |  |  |     |  
| | 21    |  |  | Subsidiaries of the Registrant as of
        June 30, 2001                                                                                                                                                                                                                                                                                                                                                                             |  |  |     |  
| | 23    |  |  | Consent of Grant Thornton LLP                                                                                                                                                                                                                                                                                                                                                                                                          |  |  |     |  
| | 24    |  |  | Powers of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                     |  |  |     |  



---



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to referenced Exhibit in
        Companys Registration Statement on Form S-1,
        Registration No. 33-97902, effective December 11, 1995.                           
|   
|(2) | 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 filed on
        February 14, 1997.
|   
|(3) | Incorporated by reference to referenced Exhibit in
        Companys Registration Statement on Form S-4
        Registration No. 333-58609 filed July 7, 1998.                                     
|   
|(4) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended March 31, 1998 filed on
        March 15, 1999.       
|   
|(5) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K/ A No. 2 for
        the Annual Period ended June  30, 1998 filed March 16,
        1999.          

79



---





| |     |                                                                                                                                                                                                    
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (6) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A No. 2
        for the Quarterly Period ended September 30, 1998 filed
        March 15, 1999.
|
| | (7) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended December 31, 1998 filed
        March 15, 1999.       
|
| | (8) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K/ A No. 2 for
        the Annual Period ended June 30, 1999 filed April 25,
        2000.           
|
| | (9) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended September 30, 1999 filed
        January 14, 2000.    



|     |                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended December 31, 1999 filed
        February 14, 2000. 
|    
|(11) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q/ A for the
        Quarterly Period ended March 31, 2000 filed July 11,
        2000.     
|    
|(12) | Incorporated by reference to referenced Exhibit in
        Companys Annual Report on Form 10-K for the Annual
        Period ended June 30, 2000 filed September 27, 2000.                  
|    
|(13) | Incorporated by reference to referenced Exhibit in
        Companys Current Report on Form 8-K dated
        August 31, 2000 filed September 1, 2000.                                       
|    
|(14) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended September 30, 2000 filed
        November 14, 2000.
|    
|(15) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended December 31, 2000 filed
        February 14, 2001. 
|    
|(16) | Incorporated by reference to referenced Exhibit in
        Companys Quarterly Report on Form 10-Q for the
        Quarterly Period ended March 31, 2001 filed May 15,
        2001.         
|    
|(17) | Incorporated by reference to Exhibit 1 to Schedule 13D
        filed by Alan Ruud, et al., March 15, 2000.                                                                                   

80