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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION    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, 2004 or [     ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to Commission file number 0-27202 ADVANCED LIGHTING TECHNOLOGIES, INC. 
  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 
  Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 [X] No [    ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [    ] No [X] 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] There were 1,131 shares of the Registrants Common Stock, $.001 par value per
share, outstanding as of
August 31, 2004. Documents Incorporated by Reference None




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INDEX Advanced Lighting Technologies, Inc. PageCautionary Statement Regarding Forward Looking Statements
    
    
    2PART IItem 1.
    
    Business
    
    
    2Item 2.
    
    Properties
    
    
    18Item 3.
    
    Legal Proceedings
    
    
    19PART IIItem 5.
    
    Market for Registrants Common Equity and Related Shareholder
Matters
    
    
    20Item 6.
    
    Selected Financial Data
    
    
    21Item 7.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    23Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    45Item 8.
    
    Financial Statements and Supplementary Data
    
    
    46Item 9.
    
    Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
    
    
    55PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    48Item 11.
    
    Executive Compensation
    
    
    51Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    55Item 13.
    
    Certain Relationships and Related Transactions
    
    
    56Item 14.
    
    Principal Accounting Fees and Services
    
    
    58PART IVItem 15.
    
    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
    
    
    59Signatures
    
    
    66EX-3.7 Certificate of Amendment by ShareholdersEX-3.9 Articles of IncorporationEX-10.1.17 Stock Purchase AgreementEX-10.1.18 Common & Preferred Stock Purchase AgreementEX-10.1.19 Voting Trust AgreementEX-10.2.8 Consent to Restructure & AmendmentEX-10.8 Third Amendment to Lease AgreementEX-10.9 Second Amendment to Option AgreementEX-12 Statement Regarding Computation of RatiosEX-14 Code of ConductEX-21 SubsidiariesEX-31.1 CertificationsEX-31.2 CertificationsEX-32.1 CertificationsEX-32.2 Certifications
 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. For
this purpose, any statement contained herein that is not a statement of
historical fact may be deemed to be a forward-looking statement. Without
limiting the foregoing, the words believes, anticipates, plans,
expects, and similar expressions are intended to identify forward-looking
statements. On February 5, 2003, the Company, and six of its United States
subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code. On December 10, 2003, the Company put into
effect its Plan of Reorganization, previously confirmed by the Bankruptcy
Court, and emerged from bankruptcy protection. The forward looking statements
include statements 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
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 Managements Discussion and Analysis of Financial Condition and
Results of Operations and Business, identifies important factors that could
cause such differences. 
 PART I 
 Item 1. Business Background The Company was formed on May 19, 1995 and acquired ownership, primarily by
merger 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 and other lighting products that
participates in the global lighting market. 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 2




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believes that this focus enhances its responsiveness to customer demand and has
contributed to its technologically advanced product development and
manufacturing capabilities. The Company has derived a substantial portion of its net sales from
international business. Revenues from customers outside of the United States
represented approximately 50% of net sales for fiscal 2004. The Companys
operations in India now produce about two-thirds of its component products sold
worldwide. International markets represent long-term attractive opportunities
for metal halide lighting products due to the increasing demand for
energy-efficient lighting products. The energy efficiency of metal halide
lighting is especially desirable in developing nations such as China due to the
relatively higher cost of energy and the high cost of power plant construction
in these countries. In the United States, the metal halide market is the fastest growing segment of
the lighting market, demonstrated by metal halide lamp sales having grown at a
compound annual rate of approximately 10% in the past decade, although growth
has varied substantially from year to year. In recent years, sales of metal
halide products in calendar year 2003 were comparable to those in fiscal 2000,
primarily due to the weakness of the U.S. economy over that past several years.
However, sales in calendar 2002 and calendar 2003 were up 3% per year over the
sales in the previous calendar year. In light of these results, the Company
believes the U.S. metal halide industry is beginning to recover and that sales
of metal halide lighting will begin to grow moderately. The Companys strong
market position, new product development capabilities, and participation in
international markets have enabled the Company to increase its revenues in its
core metal halide operations at rates in excess of the growth of the domestic
metal halide market. 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 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 third-party manufacturers for use
in the production of their metal halide products. Metal Halide Invented approximately 40 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 manufacturing
facilities and distribution centers, 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 2% over the past decade, domestic metal
halide lamp sales have grown at a compound annual rate of approximately 10%
over the same period, making metal halide the fastest growing segment of the
approximately $2.4 billion domestic lamp market. In 2003, metal halide
accounted for approximately 10.5% of domestic lamp sales by dollar volume. The Company believes that the growth of metal halide lighting noted above has
occurred primarily in commercial and industrial applications. In recent years,
metal halide systems have been introduced in 3




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fiber optic, electronic display projectors and automotive headlamp
applications, and the Company expects that these and other applications will
continue to drive growth in metal halide lighting. 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 Emergence from Bankruptcy On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its
United States subsidiaries, (collectively, the Debtors), completed their
previously announced financial restructuring when their Fourth Amended Chapter
11 Plan of Reorganization (the Final Plan) under the U.S. Bankruptcy Code
(the Bankruptcy Code) became effective and was substantially consummated.
ADLTs non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S.
subsidiary, were not a part of the proceedings under the Bankruptcy Code. The Debtors filed for reorganization under the Bankruptcy Code on February 5,
2003 (the Filing). From February 5, 2003 to December 10, 2003, the Debtors
operated their businesses as debtors-in-possession under court protection from
their creditors and claimants. Following approval by the creditors, preferred
shareholders and the common shareholders of the Predecessor Company entitled to
vote on the reorganization plan, on December 8, 2003, the Bankruptcy Court
entered an order confirming the Final Plan. On December 10, 2003, the
Effective Date of the Final Plan occurred and the reorganization of the Company
was substantially completed. Pursuant to the terms of the Final Plan, Saratoga Lighting Holdings, LLC
(Saratoga) received, in exchange for cancellation of its holdings of the
Predecessor Companys Series A Preferred Stock and Common Stock, and an $18
million cash investment, new redeemable preferred stock of the Reorganized
Company, with an initial liquidation preference of $29 million, and
approximately 91% of the common stock of the Reorganized Company (on a diluted
basis, assuming issuance of common stock of the Reorganized Company to its
senior management pursuant to the new management incentive plan). Under the
management incentive plan, shares equal to approximately 9% of the common stock
of the Reorganized Company have been issued. The Final Plan also provided
management fees to an affiliate of Saratoga. The fees consist of a one-time
advisory fee of $1.8 million that was paid in July 2004 from excess working
capital, and a quarterly management fee of $150,000 payable in advance. The
advisory fee is included in payables to related parties. The Final Plan provided that the holders of the Predecessor Companys Common
Stock (other than Saratoga and the Predecessor Companys Chief Executive
Officer) receive the benefit of certain equity investments held by the
Predecessor Company in Fiberstars, Inc. and Hexagram, Inc., as well as a
possible future payment, based on 3% of amounts received by Saratoga after
providing Saratoga with a return of capital plus an agreed rate of return, as
more fully described in the Final Plan. Options and warrants to purchase
Predecessor Company Common Stock which were not exercised prior to the
Effective Date were cancelled. Effective December 10, 2003, the Predecessor Companys secured banking facility
was amended and restated to provide financing for the Reorganized Company
following emergence from bankruptcy (the amended facility is referred to as the
Bank Credit Facility). The Bank Credit Facility is a $30 million 4




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facility that consists of a term loan that requires monthly principal payments
of $183,000 ($9.9 million
outstanding at June 30, 2004) with a revolving credit loan, subject to
availability, making up the remainder of the facility. Availability under the
revolving credit loan was $15.6 million and no balance was outstanding on the
revolving credit loan at June 30, 2004. Interest rates on the revolving credit
loan
are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004).
Interest rates on the term loan are based on Libor plus 3.50% or Prime plus
1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit
facility and the term loan is December 10, 2008. The financing arrangements
are described in greater detail in Note E, Financing Arrangements. With respect to the Predecessor Companys $100 million 8% Senior Notes due 2008
(the Old Notes), the Company had not made the semi-annual interest payments
due on September 16, 2002, March 15, 2003, and September 15, 2003. The Company
had continued to accrue interest on the Old Senior Notes at 8% through December
31, 2003, and accrued and unpaid interest on the Old Senior Notes would have
been $14.4 million as of that date. The Final Plan provided that the Old Notes
be exchanged for an aggregate principal amount of $114.4 million 11% Senior
Notes due 2009 (the New Notes). The New Notes bear interest at 11% from
January 1, 2004, and become due on March 31, 2009. Upon the Effective Date of
the Final Plan, pursuant to the approval of the Plan by holders of the Old
Senior Notes, all then existing defaults under the Indenture relating to the
Old Senior Notes were waived. Saratoga Investment Saratoga acquired all of the Common and Preferred shares owned by GE on August
15, 2003. As a result, Saratoga held 1,429,590 shares of Company Common Stock
and 761,250 shares of the Companys then existing Old Preferred Stock. Saratoga
received, in exchange for cancellation of its holdings of the Predecessor
Companys Common Stock and Old Preferred Stock, and an $18 million cash
investment, new redeemable preferred stock (the New Series A Preferred) of
the Reorganized Company, with an initial liquidation preference of $29 million,
and approximately 91% of the common stock of the Reorganized Company (on a
diluted basis, assuming issuance of common stock of the Reorganized Company to
its senior management pursuant to the new management incentive plan). Under
the management incentive plan, shares equal to approximately 9% of the common
stock of the Reorganized Company have been issued. The New Series A Preferred has a liquidation preference of $1,000 per share,
plus dividends at the rate of 8% per annum, when and if declared. The
cumulative undeclared dividends were $1.3 million as of June 30, 2004. The
initial carrying amount of the New Series A Preferred was set at $29 million,
the estimated fair value at the date of issuance. The Holder of the New Series
A Preferred may, by notice, require the Company to redeem the outstanding New
Series A Preferred within 21 days following the occurrence of certain corporate
events. The Company may redeem the New Series A Preferred in whole, but not in
part, at any time. The redemption price for the New Series A Preferred is
equal to the liquidation preference amount for such shares. The New Series A
Preferred shares are each entitled to one vote on each matter presented to
shareholders of the Company, as well as one vote on each matter required to be
voted upon by the New Series A Preferred as a class. As a consequence, the New
Series A Preferred represents approximately 96.3% of the voting power of the
Company at June 30, 2004. As of June 30, 2004, Saratoga held 98.8% of the
voting power of the Company. 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. 5




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Lighting Industry and Opportunities in Metal Halide Lighting The Company currently produces metal halide lighting products primarily for
commercial and industrial applications. Until recently, metal halide technology
served primarily the industrial and outdoor sectors, which the Company
estimates, represents approximately one-third 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 $200 million in 2003, 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 lamp market rather
than development of new power supply products for specialized metal halide
products and applications. Since the Company acquired its power supply
manufacturing operations in 1997, the development of appropriate power supply
sources focused on metal halide has enhanced the expansion of metal halide
applications, reduced the development time required to introduce new metal
halide products and improved 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. Other more recent applications for metal halide
systems include fiber optic systems 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. 6




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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 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 has sought 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. In the future,
the Company expects to achieve its strategic objectives primarily through
internal growth and focus on cost and quality. However, to the extent its
capital resources allow, the Company may consider other possible acquisition
and strategic investment opportunities. 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.
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 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. 7




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Improve Operating Cash Flow In the past the Company 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. The Company has also transferred a significant portion of
its component manufacturing to India resulting in further significant
reductions in its production cost. 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 also enters into agreements
with lighting agents to pay commissions for selling the Companys lamps. These
commissions 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 more recent applications such as fiber
optic systems 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 and design capability and 8




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unique metal halide focus, the Company expects to work with others in the
further development of additional specialty systems, such as fiber optic
lighting 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 web site on most lamps, 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. Increase Participation in International Markets The Company has and plans to continue to increase its participation 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, China and Japan. 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
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, lamp
components and other materials. The Company has existing joint ventures in
China and Korea. 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 lighting
  
  - tunnel lighting- billboard and sign lighting
  
  - gas station canopy lighting
  
  - indirect indoor sports and office lighting- site lighting
  
  - interior downlighting
  
  - parking garage lighting- soffit lighting
  
  - decorative lighting
  
  - security lighting- hazardous location lighting
  
  - retail store downlighting and track lighting
  
  - landscape lighting- accent lighting The Company also designs, manufactures and sells thin film deposition equipment
for the lighting, telecommunications, ophthalmic and optics industries. 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. 9




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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
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. The Company also produces optical thin film coatings, including coatings for
lighting applications with particular emphasis on coatings on lamp burners, as
well as antireflection coatings, and coatings for telecommunications products,
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
chemically bonded 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. Components and Systems A metal halide lighting system consists of at least a lamp and power supply,
but may include a fixture, electronic controls, optical systems, housing,
support systems or 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 manufacturing capabilities to assist and encourage its customers
to design, develop, produce and market metal halide systems for innovative
applications. The Companys component products include specialty and standard lamps, magnetic
and electronic power supplies, system controls and fiber optic components.
Specialty lamps are lamps designed and manufactured for particular OEM
applications. Standard lamps are high-volume lamps, which the Company primarily
manufactures at its lamp manufacturing facility in India or sources from other
lamp manufacturers. Power supplies are devices that regulate power and are
necessary for operation of HID and fluorescent lamps. System controls are
electrical components 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
approximately 400 lamps ranging from 50 watts to 2,000 watts. 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 manufactures at
its factory in India or 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 10




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##### Table of Contents



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. The Company also manufactures magnetic power supplies for HID lighting systems,
currently offering over 450 power supply products. The Company also sells
electronic power supplies and controls for metal halide lighting systems. The Company also believes that it has a significant opportunity to work with
others on the application of 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 The Company has the expertise to manufacture and sell turnkey lamp production
manufacturing groups The Company has sold equipment to various unrelated
entities in China. A metal halide lamp production equipment group consists of
up to 50 different production machines. Each lamp production equipment group
sells for between approximately $1.0 million to $5.0 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. The Company also manufactures and markets 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 the Company sells a system to a customer,
the Company will either operate the system for the customer at the Companys
facility or transfer the system to the customers facility. International Sales International sales aggregated $37.9 million (51% of net sales) for the six
months ended June 30, 2004, $34.8 million (49% of net sales) for the six months
ended December 31, 2003, $75.5 million (52% of net sales) for fiscal 2003, and
$62.2 million (37% of net sales) for fiscal 2002. For information regarding
the Companys international operations, see Note M to Notes to Consolidated
Financial Statements. 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 $19.3 million or 4.2% of
net sales into research and development over the last three full fiscal years.
In the six months ended June 30, 2004, the Company invested $2.8 million (3.8%
of net sales) in research 11




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and development; in the six months ended December 31, 2003, $3.1 million (4.4%
of net sales); in fiscal 2003, $6.5 million (4.5% of net sales); and in fiscal
2002, $6.9 million (4.2% of net sales). The Company has developed new
applications for metal halide lighting, improved the quality of its materials,
and introduced 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 consumption, (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 focuses on designing and developing improved electrodes, amalgams and
getters used in lamp manufacturing. The Company also expects to continue
producing thin film coatings primarily for lighting applications with
particular emphasis on coatings on lamp burners, as well as developing related
software, and reliable, cost-effective application processes. Components and Systems 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. Marketing and Distribution 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) and thin-film
coatings directly to other 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. Other lamp components
manufactured by the Company are used primarily in the manufacture of its own
lamps. 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. Sales of
materials accounted for approximately 25.5% of the Companys revenues for the
six months ended June 30, 2004, 24.3% for the six months ended December 31,
2003, 20.5% in fiscal 2003 and 15.5% in 2002. 12




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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, which 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 most lamps 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 66.1% of the Companys revenues
for the six months ended June 30, 2004, 66.6% for the six months ended December
31, 2003, 66.1% in fiscal 2003 and 55.4% in fiscal 2002. Systems Several of the Companys foreign operations market Ruud Lighting systems.
Prior to the sale of the Companys fixture subsidiaries in December 2001, most
of the Companys commercial lighting system sales were made by these
subsidiaries and were marketed primarily under the trade name Ruud Lighting.
Ruud Lighting marketed and distributed its products primarily by direct
marketing to lighting contractors. In addition to fixture products that are
sold by some of the Companys foreign operations including fixtures purchased
from Ruud Lighting, the Companys remaining system products are retrofit
kits, which combine the Companys lamps, power supplies and/or other
components in a single system. These retrofit kits allow an end user to
replace the lighting system within an installed fixture to improve 13




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##### Table of Contents



lighting and/or energy efficiency with minimal out-of-pocket cost. By
marketing these retrofit metal halide systems, the Company believes it may
capture a greater market share in the metal halide industry. See also Recent
Developments. Systems accounted for approximately 5.7% of the Companys revenues for the six
months ended June 30, 2004, 6.5% for the six months ended December 31, 2003,
6.2% in fiscal 2003 and 26.6% in fiscal 2002. 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 2.7% of the Companys revenues for the six months ended June 30,
2004, 2.6% for the six months ended December 31, 2003, 7.2% in fiscal 2003 and
2.5% in fiscal 2002. Manufacturing and Operations The Companys lamp manufacturing facility in Chennai (Madras), India operates
six days a week, 16 hours a day, with the Companys lamp manufacturing
employees working in two eight-hour shifts each day. The Companys lamp
manufacturing facility in Solon, Ohio operates five days a week with one full
shift and a partial second shift. 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 borosilicate glass container and sealed. Finally, the lamp
is finished by adding an electrical contact. 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 borosilicate glass 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 also produces magnetic power supplies at its facility
in Chennai (Madras) India, which operates six days a week with two full shifts.
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 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. 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 and
high-speed dispensers for salts and metal pieces that are used by the Company
and sold to other metal halide lamp manufacturers. At the Companys 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 its
optical coatings operation has 14




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expertise over a broad range of thin film deposition technologies allowing
application of the coating technology most suitable for a particular client
need. Raw Materials and Suppliers The Company sources its raw materials from a variety of suppliers. Presently,
it sources most of its quartz tubing and borosilicate glass bulbs for lamps
from GE and Osram-Sylvania. 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. 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. In this regard the Company
has a 40% ownership interest in Aldrich-APL LLC, a manufacturer and distributor
of ultra-pure inorganics and metals for high-technology applications, which
serves as one of the Companys raw materials suppliers. Since the Company is
the primary supplier of metal halide salts to the metal halide lamp industry,
any disruption in supply would also affect each producer of the affected lamp
type. Raw materials and components for coatings and equipment are sourced from
outside suppliers. The Company has multiple qualified sources for critical
materials and components. 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 and only several smaller competitors internationally. The
competition in salts is based on the technological ability to develop salt
formulation for customers and maintain 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. The Companys optical coatings unit has one or two principal competitors in
each of its traditional markets (lighting, coating equipment and
government/aerospace). The Company believes that 15




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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. 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
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 power supply products compete primarily with products of two
manufacturers, Advance Transformer, a subsidiary of Philips, and
Universal/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 that 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. The lighting systems market is highly fragmented. Competitors
generally market their systems through distributors and lighting agents. 16




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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.
The patent positions of companies such as the Company 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.
Nevertheless, as an innovation-driven designer and manufacturer, the Company
will continue to develop new products and processes and will seek to protect
its rights through the continued use of patents and other means. 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. 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 2004, fiscal 2003 and fiscal 2002 attributable to
compliance with such legislation were not material. Employees As of June 30, 2004, the Company had approximately 1,480 full-time employees,
consisting of employees engaged in the designing, manufacturing and marketing
of materials (170 employees), system components and systems (1,278 employees),
and production equipment (20 employees) and 12 employees in
corporate/administrative services. 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. 17




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##### Table of Contents



Item 2. Properties The Companys headquarters are located in Solon, Ohio, and the Company
maintains manufacturing facilities in California, Ohio, Illinois, Chennai
(Madras), India, and Nova Scotia, Canada. Set forth below is certain
information with respect to the Companys principal facilities as of June 30,
2004: ApproximateSquare
    
    Owned/Facility Location
    
    Activities
    
    Footage
    
    LeasedNorth AmericaSolon, Ohio
    
    System components manufacturing, distribution warehouse, office
    
    
    330,000
    
    
    OwnedSanta Rosa, California
    
    Manufacturing, office
    
    
    144,000
    
    
    LeasedUrbana, Illinois
    
    Materials manufacturing, office
    
    
    120,000
    
    
    OwnedAmherst, Nova Scotia, Canada
    
    Power supply manufacturing, office
    
    
    45,000
    
    
    OwnedMississauga, Ontario, Canada
    
    Distribution warehouse
    
    
    13,000
    
    
    LeasedOtherChennai (Madras) India
    
    System components manufacturing
    
    
    100,000
    
    
    OwnedWantirna South, Victoria, Australia
    
    Distribution warehouse, office
    
    
    33,000
    
    
    OwnedNottingham, England
    
    Distribution warehouse
    
    
    14,000
    
    
    LeasedRickmansworth, England
    
    Sales office
    
    
    2,000
    
    
    Leased
 The Solon, Ohio facility is subject to a mortgage of $4.3 million as of June
30, 2004. The Urbana, Illinois facility is a portion of the security for the
Bank Credit Facility (see Note E Financing Arrangements, in Notes to
Consolidated Financial Statements in Item 8). The aggregate annual rental cost
of leased facilities is approximately $1.2 million, and the average remaining
lease term is 7 years. 18




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##### Table of Contents



Item 3. Legal Proceedings On February 5, 2003, the Company and all of its U.S.-based subsidiaries
(excluding Deposition Sciences, Inc.) each voluntarily filed for protection
under the provisions of Chapter 11 of the Federal Bankruptcy Code. Following
confirmation of the Companys Fourth Amended Plan of Reorganization by the
Bankruptcy Court on December 8, 2003, the Plan became effective on December 10,
2003. See Emergence from Bankruptcy under Recent Developments in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. On May 9, 2003, a complaint was filed in the Cuyahoga County, Ohio Court of
Common Pleas by the widow of an employee of Venture Lighting International,
Inc., who died following an industrial accident at Venture Lightings Solon
facility. The suit, styled Karnosh, etc. v ADLT Realty Corp I, Inc., et al (CV
03 500755),alleged that Venture Lighting knowingly exposed the employee to an
unreasonably dangerous risk. In addition, the suit named ADLT Realty Corp I,
Inc., the owner of the facility, and certain named and unnamed defendants
involved in the installation and repair of an industrial garage door involved
in the accident, alleging liability on various theories involving the failure
to maintain the door safely. The plaintiff voluntarily dismissed its claims
against both Venture Lighting and ADLT Realty on May 19, 2004. The Companys reorganization proceedings have been terminated, however, the
Bankruptcy Court has retained jurisdiction over a disputed creditor claim by
Rohm and Haas Company of approximately $2.1 million. The claim relates to the
payment of the purchase price for Rohm and Haas Companys interest in Unison
Fiber Optic Lighting Systems, LLC.(Unison). The Company purchased the Rohm
and Haas interest in Unison for cash, a promissory note and certain other
consideration in February 2000. The Company has contested Rohm and Haas
Companys claim to the unpaid portions of the consideration and is seeking
repayment of a portion of the approximately $1.3 million the Company has
already paid Rohm and Haas Company. The Company does not believe an adverse
determination regarding this claim would have a material adverse affect on the
Company or its operations. 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. 19




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##### Table of Contents



PART II 
  Item 5.
    Market for the Registrants Common Equity and Related Shareholder
Matters Pursuant to the Companys Plan of Reorganization, the Companys Common Stock,
which had been registered under the Securities Exchange Act of 1934, was
cancelled and Saratoga Lighting Holdings, LLC (Saratoga) became the owner of
100% of the voting securities of the Company. Subsequently, shares of Company
Preferred Stock and Common Stock were sold to a director of the Company and
shares of Common Stock were sold to certain executive officers of the Company.
There is no established public market for the Companys equity securities.
There are no equity securities of the Company subject to any options, warrants
or conversion rights, no shares of Company common stock currently may be sold
pursuant to Rule 144 under the Securities Act of 1933 and the Company has not
agreed to register the sale of equity securities by any shareholders. In the fourth quarter of fiscal 2004, the Company sold 31.67 shares of its
Common Stock and 338.33 shares of its Series A Preferred Stock to a member of
its board of directors. The consideration was $1,000 per share. The proceeds
were used for general corporate purposes. The sale of the shares was exempt
from registration under the Securities Act of 1933, as amended (the Securities
Act), pursuant Section 4(2) of the Securities Act. The sales were made to a
director of the Company for investment. The shares were not offered to other
investors. The terms of the Companys $30 million 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 11%
Senior Notes limits the payment of cash dividends to $2 million plus amounts
determined by the Companys earnings and equity investment in the Company after
the effective date of the Companys Plan of Reorganization. In addition,
financial covenants, including ratios, contained in the 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. The Companys 2003 Equity Incentive Plan was approved by the Companys sole
shareholder and 2.20 shares of Company Common Stock are available for grant
under the Plan. 20




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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. ReorganizedCompany
    
    Predecessor
CompanySix Months
    
    Six MonthsEnded
    
    Ended
    
    Year Ended June 30,June 30,
    
    December 31,2004
    

2003
    
    2003
    
    2002
    
    2001
    
    2000(In thousands)Operating Statement Data:Net sales
    
    $
    74,075
    
    
    $
    70,510
    
    
    $
    145,087
    
    
    $
    164,786
    
    
    $
    219,347
    
    
    $
    228,509Costs and expenses:Cost of sales
    
    
    43,230
    
    
    
    43,361
    
    
    
    93,167
    
    
    
    109,758
    
    
    
    136,538
    
    
    
    142,349Marketing and selling
    
    
    11,184
    
    
    
    11,311
    
    
    
    22,004
    
    
    
    30,771
    
    
    
    42,493
    
    
    
    40,535Research and development
    
    
    2,839
    
    
    
    3,095
    
    
    
    6,494
    
    
    
    6,850
    
    
    
    10,793
    
    
    
    12,038General and administrative
    
    
    8,819
    
    
    
    6,208
    
    
    
    11,444
    
    
    
    15,502
    
    
    
    13,831
    
    
    
    15,385Provision for loan impairment
    
    
    
    
    
    
    
    
    
    
    2,700
    
    
    
    7,100
    
    
    
    
    
    
    
    Refinancing and non-recurring items
    
    
    
    
    
    
    
    
    
    
    2,387
    
    
    
    
    
    
    
    
    
    
    
    Gain on settlement of lawsuit (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (554
    )
    
    
    
    
    
    
    Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (80
    )
    
    
    (1,115
    )
    
    
    Special charges and asset impairment (2)
    
    
    
    
    
    
    
    
    
    
    13,157
    
    
    
    10,561
    
    
    
    
    
    
    
    (475
    )Amortization of intangible assets
    
    
    474
    
    
    
    177
    
    
    
    343
    
    
    
    336
    
    
    
    2,862
    
    
    
    2,766Income (loss) from operations
    
    
    7,529
    
    
    
    6,358
    
    
    
    (6,547
    )
    
    
    (15,458
    )
    
    
    13,945
    
    
    
    15,911Other income (expense):Interest income (expense), net
    
    
    (6,621
    )
    
    
    (7,271
    )
    
    
    (11,046
    )
    
    
    (11,777
    )
    
    
    (12,824
    )
    
    
    (13,393
    )Income (loss) from investments (3)
    
    
    98
    
    
    
    3
    
    
    
    (1,596
    )
    
    
    (2,347
    )
    
    
    (234
    )
    
    
    70Gain on restructuring (4)
    
    
    
    
    
    
    1,184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-off of deferred loan costs (4)
    
    
    
    
    
    
    (2,251
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reorganization expenses (4)
    
    
    
    
    
    
    (11,258
    )
    
    
    (7,435
    )
    
    
    
    
    
    
    
    
    
    
    Gain (loss) from sale of fixture subsidiaries
    
    
    
    
    
    
    
    
    
    
    (1,003
    )
    
    
    227
    
    
    
    
    
    
    
    Income (loss) before income taxes,
minority interest, and cumulative
effect of accounting change
    
    
    1,006
    
    
    
    (13,235
    )
    
    
    (27,627
    )
    
    
    (29,355
    )
    
    
    887
    
    
    
    2,588Income taxes
    
    
    489
    
    
    
    360
    
    
    
    946
    
    
    
    252
    
    
    
    516
    
    
    
    635Income (loss) before minority interest and
cumulative effect of accounting change
    
    
    517
    
    
    
    (13,595
    )
    
    
    (28,573
    )
    
    
    (29,607
    )
    
    
    371
    
    
    
    1,953Minority interest in income
of consolidated subsidiary
    
    
    (258
    )
    
    
    (251
    )
    
    
    (333
    )
    
    
    (219
    )
    
    
    (100
    )
    
    
    (25
    )Income (loss) before cumulative
effect of accounting change
    
    
    259
    
    
    
    (13,846
    )
    
    
    (28,906
    )
    
    
    (29,826
    )
    
    
    271
    
    
    
    1,928Cumulative effect of accounting change (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,171
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    259
    
    
    $
    (13,846
    )
    
    $
    (28,906
    )
    
    $
    (100,997
    )
    
    $
    271
    
    
    $
    1,928
 21




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##### Table of Contents



ReorganizedCompany
    
    Predecessor CompanyJune 30,
    
    June 30,2004
    
    2003
    
    2002
    
    2001
    
    2000(in thousands)Balance Sheet Data:Cash and cash equivalents
    
    $
    4,701
    
    
    $
    4,167
    
    
    $
    2,874
    
    
    $
    3,652
    
    
    $
    3,890Total assets
    
    
    194,557
    
    
    
    174,276
    
    
    
    193,700
    
    
    
    316,001
    
    
    
    304,475Total debt outstanding
    
    
    131,313
    
    
    
    134,661
    
    
    
    139,687
    
    
    
    163,772
    
    
    
    165,207Preferred stock
    
    
    29,338
    
    
    
    24,475
    
    
    
    22,290
    
    
    
    19,554
    
    
    
    16,999Common shareholders equity (deficit)
    
    
    1,174
    
    
    
    (22,704
    )
    
    
    3,282
    
    
    
    98,290
    
    
    
    82,783
  (1)
    
    In fiscal 2002, the Company recorded a gain on the settlement of a claim,
net of legal fees, as a result of the enforcement of a non-compete
agreement with several former employees of a subsidiary of the Company.  (2)
    
    In fiscal 2001 and 2002 the Companys subsidiary Deposition Sciences,
Inc. (DSI) made significant investments in building telecommunication
product manufacturing equipment and related facilities to apply its
thin-film coating technology to telecom products. With the decline in the
global telecommunication business and uncertainty regarding the recovery
of the telecom market, the Company recognized a $10,433 charge in fiscal
2003 related to the abandonment of certain long-lived assets and write
down of certain assets held for sale to fair value. The Company also
recorded a charge of $1,150 in fiscal 2003 for an impairment related to a
non-refundable option to purchase for $11,500 the building currently
leased by DSI that was not likely to be exercised before its original
expiration in March 2004. Additionally, as a result of the delisting of
the Companys common shares from the Nasdaq National Market, the Company
recorded an asset impairment charge of $1,163 for the write-off of
deferred costs associated with its shelf offerings in fiscal 2003. The
Company also recognized a $411 charge in fiscal 2003 related to the
abandonment of lamp manufacturing equipment. Fiscal 2002 results include
special charges related to the consolidation of the Companys power supply
manufacturing operations into its high-efficiency facility in Chennai
(Madras), India, reduction of staffing levels at most locations, and
evaluation of equipment and investments in light of its long-term
strategies. The amounts are classified in the fiscal 2002 statement of
operations as: cost of sales  $688 and, special charges  $10,561.  (3)
    
    In fiscal 2003, the Income (loss) from investments includes a charge of
$703 related to impairment of its investment in a foreign joint venture
involved in the manufacturing of metal halide lamps. In fiscal 2002, the
loss from investments includes a loss from the sale of a preferred stock
investment in Venture Lighting Japan of $2,007.  (4)
    
    In the six months ended December 31, 2003, the Company recorded several
items related to the Companys
reorganization and emergence from bankruptcy. The gain on restructuring of
$1,184 includes a net increase in the receivable from officer of $1,169
related to the settlement related to the officer loan approved by the
bankruptcy court, as well as the impact of the implementation of the
court-approved plan and a settlement with General Electric related to
amounts owed to and receivable from GE. The write-off of deferred loan
costs of $2,251 is related to the accounting for the cancellation of the
$100,000 8% Senior Notes in accordance with Emerging Issues Task Force No.
96-19, Debtors Accounting for a Modification or Exchange of Debt
Instruments.Reorganization expenses of $11,258 represent the cost of
consultants, investment bankers, and attorneys related to the Companys
efforts to reorganize under Chapter 11 Bankruptcy. Reorganization expenses
of $7,435 were also incurred in fiscal 2003.  (5)
    
    In fiscal 2002, the Company recorded $71,171 as a cumulative effect of
accounting change relating to the impairment of goodwill and other
indefinite lived intangible assets in accordance with the Financial
Accounting
Standards Board Statement of Accounting Standards (FAS) No. 142, Goodwill
and Intangible Assets. FAS 142 provides authoritative guidance on
accounting for and financial reporting of goodwill and intangible assets
acquired in business combinations. FAS 142 requires that these assets be
tested for impairment, and as a result, the Company recorded $71,171 as a
cumulative effect of accounting change as of July 1, 2001. 22




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##### Table of Contents



Item 7.
    Managements Discussion and Analysis of Financial Condition and
Results of Operations. (Dollars in thousands) 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 is an innovation-driven designer, manufacturer and marketer focused
on metal halide lighting products, including materials, system components,
systems and equipment. Metal halide lighting is currently used primarily in
commercial and industrial applications such as factories and distribution
centers, outdoor site and landscape lighting, sports facilities and large
retail spaces such as superstores. Systems, components and materials revenue is
recognized when products are shipped, and equipment revenue is recognized under
the percentage of completion method. Consistent with the Companys strategy for new product introductions, the
Company invests substantial resources in research and development to engineer
materials and system components to be included in customers specialized
systems. Such expenditures have enabled the Company to develop new applications
for metal halide lighting, improve the quality of its materials, and introduce
new specialized products, such as the Uni-Form® pulse start metal halide
products. Uni-Form® pulse start products 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. See also Item 1. Business  Recent Developments above and
Liquidity and Capital Resources below. Recent Developments Emergence from Bankruptcy On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its
United States subsidiaries, (collectively, the Debtors), completed their
previously announced financial restructuring when their Fourth Amended Chapter
11 Plan of Reorganization (the Final Plan) under the U.S. Bankruptcy Code
(the Bankruptcy Code) became effective and was substantially consummated.
ADLTs non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S.
subsidiary, were not a part of the proceedings under the Bankruptcy Code. For
financial reporting purposes, the Company used an effective date of December
31, 2003. The results of operations for the period from December 10, 2003 to
December 31, 2003 were not material. The Debtors filed for reorganization under the Bankruptcy Code on February 5,
2003 (the Filing). From February 5, 2003 to December 10, 2003, the Debtors
operated their businesses as debtors-in-possession under court protection from
their creditors and claimants. Following approval by the creditors, preferred
shareholders and the common shareholders of the Predecessor Company entitled to
vote on the reorganization plan, on December 8, 2003, the Bankruptcy Court
entered an order confirming the Final Plan. On December 10, 2003, the
Effective Date of the Final Plan occurred and the reorganization of the Company
was substantially completed. Pursuant to the terms of the Final Plan, Saratoga Lighting Holdings, LLC
(Saratoga) received, in exchange for cancellation of its holdings of the
Predecessor Companys Series A Preferred Stock and Common Stock, and an $18,000
cash investment, new redeemable preferred stock of the Reorganized 23




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##### Table of Contents



Company, with an initial liquidation preference of $29,000, and approximately
91% of the common stock of the Reorganized Company (on a diluted basis,
assuming issuance of common stock of the Reorganized Company to its senior
management pursuant to the new management incentive plan). Under the
management incentive plan, shares equal to approximately 9% of the common stock
of the Reorganized Company have been issued. The Final Plan also provided
management fees to an affiliate of Saratoga. The fees consist of a one-time
advisory fee of $1,800 that was paid in July 2004 from excess working capital,
and a quarterly management fee of $150 payable in advance. The advisory fee is
included in payables to related parties. The Final Plan provided that the holders of the Predecessor Companys Common
Stock (other than Saratoga and the Predecessor Companys Chief Executive
Officer) receive the benefit of certain equity investments held by the
Predecessor Company in Fiberstars, Inc. and Hexagram, Inc., as well as a
possible future payment, based on 3% of amounts received by Saratoga after
providing Saratoga with a return of capital plus an agreed rate of return, as
more fully described in the Final Plan. Options and warrants to purchase
Predecessor Company Common Stock which were not exercised prior to the
Effective Date were cancelled. Effective December 10, 2003, the Predecessor Companys secured banking facility
was amended and restated to provide financing for the Reorganized Company
following emergence from bankruptcy (the amended facility is referred to as the
Bank Credit Facility). The Bank Credit Facility is a $30,000 facility that
consists of a term loan that requires monthly principal payments of $183
($9,900 outstanding at June 30, 2004) with a revolving credit loan, subject to
availability, making up the remainder of the facility. Availability under the
revolving credit loan was $15,600 and no balance was outstanding on the
revolving credit loan at June 30, 2004. Interest rates on the revolving credit
loan are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004).
Interest rates on the term loan are based on Libor plus 3.50% or Prime plus
1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit
facility and the term loan is December 10, 2008. The Reorganized Company paid
a closing fee of $110 in connection with the establishment of the Bank Credit
Facility. The financing arrangements are described in greater detail in Note
E, Financing Arrangements. With respect to the Predecessor Companys $100,000 8% Senior Notes due 2008
(the Old Notes), the Company had not made the semi-annual interest payments
due on September 16, 2002, March 15, 2003,
and September 15, 2003. The Company had continued to accrue interest on the
Old Senior Notes at 8%
through December 31, 2003, and accrued and unpaid interest on the Old Senior
Notes would have been
$14,400 as of that date. The Final Plan provided that the Old Notes be
exchanged for an aggregate principal amount of $114,400 11% Senior Notes due
2009 (the New Notes). The New Notes bear interest at 11% from January 1,
2004, and become due on March 31, 2009. Upon the Effective Date of the Final
Plan, pursuant to the approval of the Plan by holders of the Old Senior Notes,
all then existing defaults under the Indenture relating to the Old Senior Notes
were waived. The Final Plan permitted other unsecured creditors of the Debtors to choose
payment of their claims (in the amount agreed or determined by the Bankruptcy
Court, with interest at 1.32% per year from February 5, 2003 to December 10,
2003) in full, over 12 months following the Effective Date with interest at
1.32% per year, or within 45 days following the Effective Date or, if later,
the date that the amount of claim is determined, at 85% of the amount of the
claim. Elections of the 85% Now alternative resulted in a $241 reduction in
the amounts payable in respect of claims. The Final Plan provided that
obligations of the Debtors to General Electric Company (GE) and its
subsidiaries would be offset against obligations of GE and its subsidiaries to
the Debtors and Deposition Sciences Inc., a non-Debtor subsidiary of the
Company, and that any remaining pre-petition obligations of the Debtors to GE
would be treated as unsecured indebtedness under the Final Plan. Additionally,
the Company and GE agreed to 24




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##### Table of Contents



a settlement of disputed amounts that, together with GEs election of the 85%
Now treatment of the remaining pre-petition amounts, resulted in a loss of
$247. As described in the Disclosure Statement relating to the Final Plan, the
Company has established incentives to GE for incremental purchases from the
Company (other than APL Engineered Materials, Inc.). Upon the confirmation of the Final Plan, the Companys investment banker became
entitled to receive, in addition to monthly fees and reimbursement of expenses,
fees based on formulas contained in the Companys agreement with the investment
banker, that were agreed between the parties to be $2,500, and approved by the
Bankruptcy Court. The Company recorded $1,000 of these fees as reorganization
expenses in fiscal 2003 and $1,500 in fiscal 2004. The Company incurred
reorganization expenses of $11,258 for the six months ended December 31, 2003,
for consultants, investment bankers, attorneys and other costs related to the
Companys efforts to reorganize under Chapter 11 Bankruptcy. Reorganization
expenses of $7,435 were also incurred in fiscal 2003. Saratoga Investment Saratoga acquired all of the Common and Preferred shares owned by GE on August
15, 2003. As a result, Saratoga held 1,429,590 shares of Company Common Stock
and 761,250 shares of the Companys then existing Old Preferred Stock. Saratoga
received, in exchange for cancellation of its holdings of the Predecessor
Companys Common Stock and Old Preferred Stock, and an $18,000 cash investment,
new redeemable preferred stock (the New Series A Preferred) of the
Reorganized Company, with an initial liquidation preference of $29,000, and
approximately 91% of the common stock of the Reorganized Company (on a diluted
basis, assuming issuance of common stock of the Reorganized Company to its
senior management pursuant to the new management incentive plan). Under the
management incentive plan, shares equal to approximately 9% of the common stock
of the Reorganized Company have been issued. The New Series A Preferred has a liquidation preference of $1 per share, plus
dividends at the rate of 8% per annum, when and if declared. The cumulative
undeclared dividends were $1,293 as of June 30, 2004. The initial carrying
amount of the New Series A Preferred was set at $29,000, the estimated fair
value at the date of issuance. The Holder of the New Series A Preferred may,
by notice, require the Company to redeem the outstanding New Series A Preferred
within 21 days following the occurrence of certain corporate events. The
Company may redeem the New Series A Preferred in whole, but not in part, at any
time. The redemption price for the New Series A Preferred is equal to the
liquidation preference amount for such shares. The New Series A Preferred
shares are each entitled to one vote on each matter presented to shareholders
of the Company, as well as one vote on each matter required to be voted upon by
the New Series A Preferred as a class. As a consequence, the New Series A
Preferred represents approximately 96.3% of the voting power of the Company at
June 30, 2004. As of June 30, 2004, Saratoga held 98.5% of the voting power of
the Company. Highlights of Financial Performance After Emergence from Bankruptcy The performance of the Company in the first six months after emergence from
bankruptcy was generally in line with expectations. Sales for the six months
ended June 30, 2004 were $74,075 as compared with the companys projections for
the six months of $74,191 in its October 3, 2003 Disclosure Statement. Income
from operations was $7,529 for the six months ended June 30, 2004. The
Disclosure Statement projection of income from operations before reorganization
expenses for the six months ended June 30, 2004 was $9,750. The actual results
for the six months ended June 30, 2004 included three significant items that
substantially account for the difference between the actual income from
operations for these six months and the projection in the Disclosure Statement. 25




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##### Table of Contents



First, in accordance with accounting standards generally accepted in the United
States, inventory at December 31, 2003 was recorded at fair value in the
Companys condensed consolidated balance sheet for the Reorganized Company,
which amount approximated $1,500 above manufacturing cost. Cost of sales in
the third quarter of fiscal 2004 included this additional amount above the
Companys manufacturing cost and reduced reported gross margin and net profit
as the inventory was sold. The second significant difference related to the
CEO retention bonus of $2,027 recorded in the six months ended June 30, 2004
(this bonus was reflected in the Disclosure Statement projections in July
2004). The after-tax amount of this bonus, approximately $1,350, is scheduled
to be applied against the Companys receivable from the CEO upon payment of the
bonus. An additional retention bonus amount of $2,027 is expected to be
recorded ratably in fiscal 2005. The third notable difference was a reduction
in depreciation expense of $1,461 related to the effects of the application of
fresh-start accounting principles. While other differences occurred, the
Company performed in line with the operating plan included in the Disclosure
Statement for the six months ended June 30, 2004. Consolidation of Power Supply Production Operations and Restructuring of
Worldwide Operations In fiscal 2002, the Company implemented plans to improve efficiencies in its
power supply business, reduce costs worldwide and assess certain equipment and
investments in light of its long-term strategies. The following paragraphs
provide information related to special charges and asset impairment recorded as
a result of certain actions taken by the Company: Centralize Certain Power Supply Manufacturing Operations into India
Operations.A charge of $6,082 was recorded in fiscal 2002 relating to
the first quarter restructuring and centralizing certain power supply
manufacturing operations into the Companys high-efficiency and low-cost
manufacturing plant in Chennai (Madras), India. Of this charge, costs of
$2,293 were recorded for the closing of the Companys manufacturing
facilities in the United Kingdom, Australia and U.S., including costs of
$2,036 associated with a non-cancelable lease. Severance and benefits to
approximately 160 terminated employees at the above locations totaled
$1,411 and were paid by the end of fiscal 2002. Property, primarily
consisting of building, equipment and intangibles, was disposed of or
written down to net realizable value resulting in a charge of $2,041. In
addition, certain power supply product lines were exited which resulted
in a write-down of inventory of $337. This amount is included in cost of
goods sold. Staffing Reductions. During the first quarter of fiscal 2002, a program
was completed to reduce the number of employees across all business
units. Approximately 90 employees, exclusive of the above-noted
employees, were terminated and total severance and benefits costs for
this program were $1,857. All employees were paid by the end of fiscal
2002. Write-off of Long-lived Assets and Other Charges.Due to the decline in
current business conditions, certain long-lived assets and product lines
were evaluated for impairment in light of future growth areas of the
business and a focus on profit margins and core opportunities. As a
result, charges of $1,425 and $1,552 were recorded in the first and
fourth quarter of fiscal 2002, respectively, to recognize write-downs in
investments and equipment. In addition, a $333 charge was taken for the
abandonment of certain projects and exiting several product lines. 26




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##### Table of Contents



In the first quarter of fiscal 2003 the Company announced that it would
relocate some of its power supply production from Nova Scotia, Canada into the
Chennai (Madras), India production facility in order to further reduce its
costs. The relocation resulted in the elimination of approximately 100
positions at the Canadian facility during the third and fourth quarter of
fiscal 2003. Severance and other costs related to this relocation were
minimal. Sale of Fixture Subsidiaries On December 12, 2001 the Company completed the sale of a significant portion of
its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and
Ruud Lighting Europe Ltd. subsidiaries) to an investor group led by Alan J.
Ruud. From January 1998 until the time of the transaction, Mr. Ruud was a
director of the Company, served as its Vice Chairman and Chief Operating
Officer, and held in excess of 5% of the Companys outstanding common stock.
The fixture subsidiaries assets consisted primarily of manufacturing
equipment, inventory and accounts receivable and the Ruud Lighting
manufacturing facility located in Racine, Wisconsin. The consideration
received by the Company consisted of a cash payment of $28,000 (adjusted dollar
for dollar to reflect the amount of any changes in working capital and funded
indebtedness between September 2, 2001 and December 3, 2001) and promissory
notes totaling $6,000 due December 1, 2006. As part of this transaction,
funded indebtedness of $9,005 continued to be the obligation of Ruud Lighting
and the Company retained title to the Rhode Island manufacturing facility of
Kramer Lighting. Upon sale of the facility in September 2002, the Company paid
Ruud Lighting one-third of the net proceeds or $427 in accordance with the
terms of the agreement. Preliminary estimates of the adjustment in the cash
consideration resulted in a net reduction of $2,458 in the cash received at
closing. The preliminary estimates were subject to a review process under the
agreement. The sale of the subsidiaries resulted in a gain of $227 in the
quarter ended December 31, 2001. In May 2003, Ruud Lighting, Inc. and its shareholders filed claims with the
Bankruptcy Court in connection with the final settlement of purchase price,
alleged breaches of the agreement and post closing administrative services of
approximately $5,880. The Company, Ruud Lighting, Inc. and the Ruud Lighting
shareholders entered into a settlement agreement dated September 8, 2003,
settling the Ruud claims, as well as claims by the Debtors against Ruud
Lighting, Inc. and its shareholders. Pursuant to the terms of the settlement,
the original notes were cancelled and the Company received new notes from the
Ruud Lighting, Inc. shareholders in the aggregate amount of $3,000. These notes
are due December 1, 2006, but rebates earned on purchases by Ruud Lighting,
Inc. pursuant to its current agreement with the Debtors will be credited toward
prepayment of the principal and interest on the notes. The Company is no
longer required to make payments on a non-cancelable operating lease for the
unused Elkhorn, Wisconsin facility, and receives from Ruud Lighting, Inc. one
half of the amount of any sublease payments received. In addition, the
agreement provided for mutual releases by the parties. The Bankruptcy Court
issued a final order approving the settlement on October 16, 2003. As a result
of this settlement, the Company recorded a loss of $1,003 in fiscal 2003. As a
result of the issuance of the final order approving the settlement, the Company
recorded a reduction in its liabilities subject to compromise of $1,463 and a
reduction in its special charge accrual related to the Elkhorn facility of
$1,323. 27




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##### Table of Contents



Results of Operations The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a
new reporting entity and adoption of fresh start accounting in accordance with
Statement of Position No. 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. For financial reporting purposes,
the Company used an effective date of December 31, 2003. References to
Predecessor Company refer to the Company prior to December 31, 2003.
References to Reorganized Company refer to the Company on and after December
31, 2003. A black line has been drawn between the results of operations noted
below to distinguish between the Reorganized Company and the Predecessor
Company. Because the results of operations for the Reorganized Company and
Predecessor Company are not considered comparable in all respects, the
discussions below compare the last six months of fiscal 2004 with the last six
months of fiscal 2003 and the first six months of fiscal 2004 with the first
six months of fiscal 2003, rather than a single discussion of twelve month
periods ended June 30, 2004 and 2003. Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003 Reorganized Company
    
    
    Predecessor CompanySix Months Ended
    
    
    Six Months EndedJune 30, 2004
    
    
    June 30, 2003Net sales
    
    $
    74,075
    
    
    
    100.0
    %
    
    
    $
    73,367
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    43,230
    
    
    
    58.4
    
    
    
    
    46,925
    
    
    
    64.0Marketing and selling
    
    
    11,184
    
    
    
    15.1
    
    
    
    
    10,653
    
    
    
    14.5Research and development
    
    
    2,839
    
    
    
    3.8
    
    
    
    
    3,383
    
    
    
    4.6General and administrative
    
    
    8,819
    
    
    
    11.9
    
    
    
    
    5,138
    
    
    
    7.0Refinancing and non-recurring items
    
    
    
    
    
    
    
    
        
    
    84
    
    
    
    0.1Special charges and asset impairment
    
    
    
    
    
    
    
    
    
    
    
    6,443
    
    
    
    8.8Amortization of intangible assets
    
    
    474
    
    
    
    0.6
    
    
    
    
    173
    
    
    
    0.2Income from operations
    
    
    7,529
    
    
    
    10.2
    
    
    
    
    568
    
    
    
    0.8Other income (expense):Interest expense
    
    
    (6,852
    )
    
    
    (9.3
    )
    
    
    
    (5,598
    )
    
    
    (7.6
    )Interest income
    
    
    231
    
    
    
    0.3
    
    
    
    
    287
    
    
    
    0.4Income (loss) from investments
    
    
    98
    
    
    
    0.1
    
    
    
    
    (944
    )
    
    
    (1.3
    )Reorganization expenses
    
    
    
    
    
    
    
    
    
    
    
    (7,435
    )
    
    
    (10.1
    )Loss from sale of fixture subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    (1,003
    )
    
    
    (1.4
    )Income (loss) before income
taxes and minority interest
    
    
    1,006
    
    
    
    1.4
    
    
    
    
    (14,125
    )
    
    
    (19.3
    )Income taxes
    
    
    489
    
    
    
    0.7
    
    
    
    
    512
    
    
    
    0.7Income (loss) before minority interest
    
    
    517
    
    
    
    0.7
    
    
    
    
    (14,637
    )
    
    
    (20.0
    )Minority interest in income
of consolidated subsidiary
    
    
    (258
    )
    
    
    (0.4
    )
    
    
    
    (174
    )
    
    
    (0.2
    )Net income (loss)
    
    $
    259
    
    
    
    0.3
    %
    
    
    $
    (14,811
    )
    
    
    (20.2
    %)
 Factors, which have affected the results of operations for the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003 are discussed
below. The six months ended June 30, 2004 are the first six months of
operations following the reorganization. 28




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##### Table of Contents



Net Sales. Net sales increased 1.0% to $74,075 in the last six months of
fiscal 2004 from $73,367 in the last six months of fiscal 2003. Metal halide
product sales increased 7% to $58,771 compared with $55,126 in the same period
last year. This increase in metal halide product sales is the result of an
increase in lamp sales. Sales of APL materials decreased 1% over the same
period a year ago. Geographically, these materials sales decreased 12% in the
U.S. but increased 5% outside the U.S. Non-metal halide lighting product sales
decreased 29% over the year ago period due primarily to a decrease in power
supply sales. Sales of lamp manufacturing equipment decreased to $1,251 in the
last six months of fiscal 2004 from $2,077 in the last six months of fiscal
2003. Total lighting product sales inside the U.S. decreased 3% in the last six
months of fiscal 2004 as compared to the same period a year ago due to a
reduction in power supply sales that have a lower margin than the Companys
other products. Total lighting product sales outside the U.S. increased 2% as
compared to the year ago period due to increases in lamp and material sales. 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 7.9% to $43,230 in the last six months
of fiscal 2004 from $46,925 in the last six months of fiscal 2003. In
accordance with Statement of Position (SOP) 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, inventory as of December
31, 2003, was recorded at fair value, which amount approximated $1,500 above
manufacturing cost in the Companys condensed consolidated balance sheet as of
December 31, 2003. Cost of sales in the last six months of fiscal 2004
includes this additional amount above the Companys manufacturing cost and
reduced reported gross margin and net profit as the inventory was sold. As a
percentage of net sales, cost of sales, including the $1,500 described above,
decreased to 58.4% in the last six months of fiscal 2004 from 64.0% in the last
six months of fiscal 2003. The additional $1,500 represented 2.0% of sales for
the six-month period. The reduction in cost of sales as a percentage of sales
is due to the transfer of lamp and power supply production to India,
improvements in cost management, an improvement in the product mix (more lamp
and material sales and less power supply sales), and a reduction in
depreciation expense of $1,461 related primarily to the effects of the
application of
SOP 90-7. Marketing and Selling Expenses.Marketing and selling expenses increased 5.0%
to $11,184 in the last six months of fiscal 2004 from $10,653 in the last six
months of fiscal 2003. As a percentage of net sales, marketing and selling
expenses increased to 15.1% in the last six months of fiscal 2004 from 14.5 %
in the last six months of fiscal 2003. Research and Development Expenses. Research and development expenses decreased
16.1% in the last six months of fiscal 2004 to $2,839 from $3,383 in the last
six months of fiscal 2003. Research and development expenses incurred related
to: (i) expansion and continued improvement of the line of Uni-Form® pulse
start lamps (with improved energy efficiency, quicker starting and restarting
and a more compact arc source, which improves the light and reduces material
costs) intended to replace many first generation metal halide lamps in
industrial and commercial applications; (ii) continual development of new
materials for the worlds major lighting manufacturers; (iii) development and
testing of electronic and electromagnetic power supply systems; and, (iv)
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. As a percentage
of net sales, research and development expenses decreased to 3.8% in the last
six months of fiscal 2004 from 4.6% in the last six months of fiscal 2003. The
Company expects to continue to make substantial expenditures on 29




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##### Table of Contents



research and development to enhance its position as the leading innovator in
the metal halide lighting industry. General and Administrative Expenses.General and administrative expenses
increased 71.6% to $8,819 in the last six months of fiscal 2004 from $5,138 in
the last six months of fiscal 2003. The increase in general and administrative
expenses was primarily due to the accrual of $3,368 of bonuses, including
$2,027 for the CEO retention bonus. The after-tax amount of this bonus
accrual, approximately $1,350, is scheduled to be applied against the Companys
receivable from the CEO upon payment of the bonus. Fiscal 2004 also includes
Saratoga management fees of $300. Refinancing and Non-recurring Items.Refinancing and non-recurring items in
fiscal 2003 reflect the cost of consultants, investment bankers and attorneys
related to the Companys efforts to refinance its Bank Credit Facility and to
restructure its $100,000 8% Senior Notes prior to the Companys Chapter 11
filing. Amortization of Intangible Assets.Amortization expense increased to $474 in
the last six months of fiscal 2004 from $173 in the last six months of fiscal
2003. The increase was due to the amortization of identifiable intangibles
established in accordance with the provisions of SOP 90-7. Income from Operations.As a result of the items noted above, including the
$1,500 inventory adjustment and the retention bonus of $2,027, the Company
realized income from operations in the last six months of fiscal 2004 of $7,529
as compared to income from operations of $568 in the year ago period. Interest Expense.Interest expense increased to $6,852 in the last six months
of fiscal 2004 from $5,598 in the last six months of fiscal 2003. The increase
in interest expense is primarily due to the increase in the interest rate on
the Companys New Senior Notes to 11% from 8% for the Old Senior Notes. Interest Income.Interest income decreased to $231 in the last six months of
fiscal 2004 from $287 in the last six months of fiscal 2003 due primarily to a
reduction in interest expense on the notes due from Ruud Lighting, Inc and its
shareholders, offset by an increase in the interest recognized on the loan
receivable from officer. Income (Loss) from Investments.The income from investments in the last six
months of fiscal 2004 of $98 represents the equity income from the Companys
40% ownership of Aldrich-APL LLC, a manufacturer and distributor of ultra-pure
inorganics and metals for high-technology applications. The loss from
investments in the last six months of fiscal 2003 consists of a charge of $703
related to the impairment of the Companys investment in a foreign joint
venture involved in the manufacturing of metal halide lamps and an equity loss
of $241 from the Companys investment in Fiberstars, Inc., a marketer and
distributor of fiber optic lighting products. The Final Plan provided that the
holders of the Predecessor Companys Common Stock (other than Saratoga and the
Predecessor Companys CEO) receive the benefit of certain equity investments
held by the Predecessor in Fiberstars. As a result, no further equity income
or loss related to this investment has been recorded subsequent to December 31,
2003. Reorganization Expenses.Reorganization expenses, totaling $7,435 in the last
six months of fiscal 2003, reflect the cost of consultants, investment bankers
and attorneys related to the Companys efforts to reorganize under Chapter 11
Bankruptcy. Loss from Sale of Fixtures Subsidiaries.See Sale of Fixture Subsidiaries
above. 30




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##### Table of Contents



Income (Loss) before Income Taxes and Minority Interest.The Company had
income before income taxes and minority interest of $1,006 in the last six
months of fiscal 2004 as compared to a loss before income taxes and minority
interest of $(14,125) in the last six months of fiscal 2003. Income Tax Expense.Income tax expense was $489 for the last six months of
fiscal 2004 as compared to $512 in the last six months of fiscal 2003. The
income tax expense in both periods related to certain of the Companys foreign
operations. At June 30, 2004, the Company had net operating loss carryforwards of $130,833
available to reduce future United States federal taxable income, which expire
2008 through 2024. On August 15, 2003, Saratoga purchased the preferred and
common shares owned by GE. This transaction caused an ownership change greater
than 50% which will limit the annual net operating loss the Company can use to
offset any future taxable income pursuant to Section 382 of the Internal
Revenue Code. This limitation is effective with the fiscal year ended June 30,
2004. The Company also has a capital loss carryforward of $40,117 available to
reduce future capital gains. The usage of this carryforward will also be
limited as a result of the ownership change. This carryforward expires in
2007. The Company also had research and development credit carryforwards of
approximately $3,818 available at June 30, 2004, which expire 2008 through
2020. Additionally, in conjunction with the Alternative Minimum Tax (AMT)
rules, the Company had available AMT credit carryforwards for tax purposes of
approximately $98, which may be used indefinitely to reduce regular federal
income taxes. The usage of these credits will also be limited as a result of
the ownership change. Also, at June 30, 2004, the Company had foreign net operating loss
carryforwards for tax purposes totaling $1,163 that expire 2006 to 2007 and
$9,395 that have no expiration dates. Due to the uncertainty of the ultimate realization of the deferred tax asset,
valuation allowances of $10,379 were recorded by the Company as of June 30,
2004. The Company has net operating losses which, in accordance with the
principles of fresh start accounting, were not recorded. These net operating
losses are available to be utilized, and, to the extent the net operating
losses are utilized, goodwill will be reduced accordingly for the benefit
received. 31




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##### Table of Contents



Six Months Ended December 31, 2003 Compared with Six Months Ended December 31,
2002 Predecessor CompanySix Months Ended
    
    Six Months EndedDecember 31, 2003
    
    December 31, 2002Net sales
    
    $
    70,510
    
    
    
    100.0
    %
    
    $
    71,720
    
    
    
    100.0
    %Costs and expenses:Cost of sales
    
    
    43,361
    
    
    
    61.5
    
    
    
    46,242
    
    
    
    64.5Marketing and selling
    
    
    11,311
    
    
    
    16.0
    
    
    
    11,351
    
    
    
    15.8Research and development
    
    
    3,095
    
    
    
    4.4
    
    
    
    3,111
    
    
    
    4.3General and administrative
    
    
    6,208
    
    
    
    8.8
    
    
    
    6,306
    
    
    
    8.8Provision for loan impairment
    
    
    
    
    
    
    
    
    
    
    2,700
    
    
    
    3.8Refinancing and non-recurring items
    
    
    
    
    
    
    
    
    
    
    2,303
    
    
    
    3.2Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (0.1
    )Special charges and asset impairment
    
    
    
    
    
    
    
    
    
    
    6,714
    
    
    
    9.4Amortization of intangible assets
    
    
    177
    
    
    
    0.3
    
    
    
    170
    
    
    
    0.2Income (loss) from operations
    
    
    6,358
    
    
    
    9.0
    
    
    
    (7,115
    )
    
    
    (9.9
    )Other income (expense):Interest expense
    
    
    (7,459
    )
    
    
    (10.6
    )
    
    
    (6,010
    )
    
    
    (8.4
    )Interest income
    
    
    188
    
    
    
    0.3
    
    
    
    275
    
    
    
    0.4Income (loss) from investments
    
    
    3
    
    
    
    
    
    
    
    (652
    )
    
    
    (0.9
    )Gain on restructuring
    
    
    1,184
    
    
    
    1.7
    
    
    
    
    
    
    
    Write-off of deferred loan costs
    
    
    (2,251
    )
    
    
    (3.2
    )
    
    
    
    
    
    
    Reorganization expenses
    
    
    (11,258
    )
    
    
    (16.0
    )
    
    
    
    
    
    
    Income (loss) before income
taxes and minority interest
    
    
    (13,235
    )
    
    
    (18.8
    )
    
    
    (13,502
    )
    
    
    (18.8
    )Income taxes
    
    
    360
    
    
    
    0.5
    
    
    
    434
    
    
    
    0.6Income (loss) before minority interest
    
    
    (13,595
    )
    
    
    (19.3
    )
    
    
    (13,936
    )
    
    
    (19.4
    )Minority interest in income
of consolidated subsidiary
    
    
    (251
    )
    
    
    (0.3
    )
    
    
    (159
    )
    
    
    (0.2
    )Net income (loss)
    
    $
    (13,846
    )
    
    
    (19.6
    %)
    
    $
    (14,095
    )
    
    
    (19.7
    %)
 Net Sales. Net sales decreased 1.7% to $70,510 in the first six months of
fiscal 2004 from $71,720 in the first six months of fiscal 2003. Metal halide
product sales decreased 2% to $52,370 in the first six months of fiscal 2004
compared with $53,575 in the same period last year. This decrease in metal
halide
sales is the result of a 7% decrease in U.S. metal halide sales. Sales of APL materials increased 1% over the same period a year ago.
Geographically, these materials sales decreased 6% in the U.S. and increased 6%
outside the U.S. Non-metal halide lighting product sales increased 7% compared
with the year ago period due primarily to an increase in power supply sales. Total lighting product sales inside the U.S. decreased 6% in the first six
months of fiscal 2004 as compared to the same period a year ago. Total lighting
product sales outside the U.S. increased 2% as compared to the year ago period.
Sales of lamp manufacturing equipment decreased to $1,403 in the first six
months of fiscal 2004 from $2,142 in the first six months of fiscal 2003. 32




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##### Table of Contents



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 6.2% to $43,361 in the first six months
of fiscal 2004 from $46,242 in the first six months of fiscal 2003. As a
percentage of net sales, cost of sales decreased to 61.5% in the first six
months of fiscal 2004 from 64.5% in the first six months of fiscal 2003. The
reduction in cost of sales as a percentage of sales is primarily due to the
transfer of lamp and power supply production to India and improvements in cost
management. Marketing and Selling Expenses.Marketing and selling expenses of $11,311 in
the first six months of fiscal 2004 were comparable to the $11,351 incurred in
the first six months of fiscal 2003. Research and Development Expenses. Research and development expenses of $3,095
in the first six months of fiscal 2004 were comparable to the $3,111 incurred
in the first six months of fiscal 2003. Research and development expenses
incurred related to: (i) expansion and continued improvement of the line of
Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting
and restarting and a more compact arc source, which improves the light and
reduces material costs) intended to replace many first generation metal halide
lamps in industrial and commercial applications; (ii) continual development of
new materials for the worlds major lighting manufacturers; (iii) development
and testing of electronic and electromagnetic power supply systems; and, (iv)
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 Company
expects to continue to make substantial expenditures on research and
development to enhance its position as the leading innovator in the metal
halide lighting industry. General and Administrative Expenses.General and administrative expenses of
$6,208 in the first six months of fiscal 2004 were comparable to the $6,306
incurred in the first six months of fiscal 2003. Provision for Loan Impairment.In the quarter ended December 31, 2002, the
Company increased its valuation reserve for an impaired officer loan of $2,700
related to the amount by which the carrying value of the loan receivable from
officer exceeded the underlying fair value of the assets available to repay the
loan. No interest income was recorded or paid on the loan in fiscal 2004 and
2003. Refinancing and Non-recurring Items.Refinancing and non-recurring items in
fiscal 2003 reflect the cost of consultants, investment bankers and attorneys
related to the Companys efforts to refinance its Bank Credit Facility and to
restructure its $100,000 8% Senior Notes prior to the Companys Chapter 11
filing. Gain on Sale of Property.The Company recorded a gain on the sale of property
in the first six months of fiscal 2003 of $62 related to the sale of a building
in Middletown, Rhode Island that formerly served as a fixture manufacturing
facility. Special Charges and Asset Impairment.In fiscal 2001 and 2002 the Companys
subsidiary Deposition Sciences, Inc. (DSI) made significant investments in
building telecommunication product manufacturing equipment and related
facilities to apply its thin-film coating technology to telecom products. With
the decline in the global telecommunication business and uncertainty regarding
the recovery of the telecom market, the Company recognized a $5,551 charge in
the second quarter of fiscal 2003 related to the abandonment of certain
long-lived assets and the write down of certain equipment held for sale to fair
value. Additionally, as a result of the delisting of the Companys common
shares from the Nasdaq 33




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##### Table of Contents



National Market, the Company recorded an asset impairment charge of $1,163 for
the write-off of deferred costs related to its shelf offerings. Amortization of Intangible Assets.Amortization expense of $177 in the first
six months of fiscal 2004 was comparable to amortization expense of $170 in the
first six months of fiscal 2003. Income (Loss) from Operations.As a result of the items noted above, the
Company realized income from operations in the first six months of fiscal 2004
of $6,358 as compared to a loss of $(7,115) in the first six months of fiscal
2003. Interest Expense.Interest expense increased to $7,459 in the first six months
of fiscal 2004 from $6,010 in the first six months of fiscal 2003. The Company
continued to accrue interest on its $100,000 of 8% Senior Notes through
December 31, 2003. The increase in interest expense is primarily due to the
increase in deferred loan cost amortization of $1,026 resulting from costs
related to the Companys Replacement Debtor-in-Possession Facility. Interest Income.Interest income decreased to $188 in the first six months of
fiscal 2004 from $275 in the first six months of fiscal 2003 due primarily to
the settlement with Ruud Lighting, Inc and its shareholders, which lowered the
amount of notes receivable from them. Income (Loss) from Investments.The income from investments in the first six
months of fiscal 2004 of $3 and the loss from investments in the first six
months of fiscal 2003 of $(652) represents the equity income (loss) from the
Companys investment in Fiberstars, Inc., a marketer and distributor of fiber
optic lighting products. Gain on Restructuring.The gain on restructuring in fiscal 2004 includes a net
increase in the receivable from officer of $1,169 related to the settlement
approved by the bankruptcy court. The gain on restructuring also includes the
impact of the implementation of the Plan approved by the court and a settlement
with GE related to amounts owed to and receivable from GE. Write-off of Deferred Loan Costs.The write-off of deferred loan costs of
$2,251 represents the write-off of deferred loan costs related to the $100,000
8% Senior Notes in accordance with Emerging Issues Task Force Issue No.
(EITF) 96-19, Debtors Accounting for a Modification or Exchange of Debt
Instruments. Reorganization Expenses.Reorganization expenses, totaling $11,258 in the
first six months, reflect the cost of consultants, investment bankers and
attorneys related to the Companys efforts to reorganize under Chapter 11
Bankruptcy. Income (Loss) before Income Taxes and Minority Interest.The Company had a
loss before income taxes and minority interest of $(13,235) in the first six
months of fiscal 2004 as compared to a loss before income taxes and minority
interest of $(13,502) in the first six months of fiscal 2003. Income Tax Expense.Income tax expense was $360 for the first six months of
fiscal 2004 as compared to $434 in the first six months of fiscal 2003. The
income tax expense in both periods related to certain of the Companys foreign
operations. 34




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##### Table of Contents



Overview of the Results of Operations  Fiscal 2003 Compared to Fiscal 2002 The Companys operations for fiscal 2003 resulted in a loss before cumulative
effect of accounting change of $(28,906) compared to income before cumulative
effect of accounting change of $(29,826) for fiscal 2002. The Company realized
a net loss of $(28,906) for fiscal 2003, compared to net loss of $(100,997) for
fiscal 2002. The following factors should be considered in comparing the Companys
operations for fiscal 2003 and fiscal 2002:  
    
    Results for fiscal 2003 include special charges and asset
impairment of $13,157, provision for loan impairment of $2,700,
refinancing and non-recurring items of $2,387, reorganization expenses
of $7,435, a gain on the sale of property of $62, a loss from
investment of $703, and a loss on the sale of fixture subsidiaries of
$1,003.  
    
    Results for fiscal 2002 include special charges and asset
impairment of $11,249, provision for loan impairment of $7,100, a loss
on sale of preferred stock investment of $2,007, a gain on settlement
of lawsuit of $554, a gain on the sale of fixture subsidiaries of $227,
and a gain on the sale of property of $80. Fiscal 2003 Compared with Fiscal 2002 Net Sales. Net sales decreased 12.0% to $145,087 in fiscal 2003 from $164,786
in fiscal 2002. The decrease in sales is due to the sale of the Companys
fixture subsidiaries in December 2001, offset by higher sales in the remainder
of Companys operations. Excluding the fixture subsidiaries, sales for fiscal
2003 were $145,087 compared with $129,702 for fiscal 2002. Metal halide sales,
excluding the fixture subsidiaries, increased 13% to $112,920 for fiscal 2003
compared with $100,158 for fiscal 2002. This increase is due in part to the
sale of metal halide lamp production equipment into China for a total of $4,219
and to lamp and ballast sales to the former fixture subsidiaries that are now
external sales. Excluding these two items, metal halide sales increased 5% in
fiscal 2003 compared to fiscal 2002, which was a result of growth in the sales
of lamps, power supplies and materials outside the United States. Excluding the fixture subsidiaries, fiscal 2003 sales of the Companys
second-generation metal halide lighting product line, Uni-Form® pulse start,
grew 12% to $32,821 from $29,366 as compared to fiscal 2002. About half of
this increase is due to sales to the former fixture subsidiaries that are now
external sales. Sales of APL materials increased 17% as compared to fiscal
2002. Geographically, these sales of materials increased 17% in the U.S. and
18% outside the U.S. Excluding the fixture subsidiaries, non-metal halide
lighting sales increased 6%, due to the managed decline of some non-metal
halide product sales offset by increases in sales of more profitable non-metal
halide materials. Excluding the fixture subsidiaries, lighting sales inside the U.S. increased 3%
in fiscal 2003 as compared to fiscal 2002. Excluding sales to the former
fixture subsidiaries that are now external sales, lighting sales inside the
U.S. decreased 3% in fiscal 2003 compared with fiscal 2002. The Company expects
that a stronger U.S. economy will result in an improved lighting market for the
Companys products. Lighting sales outside the U.S. increased 23% in total,
16% excluding the equipment sales. 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. 35




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##### Table of Contents



Cost of Sales.Cost of sales decreased 15.1% to $93,167 in fiscal 2003 from
$109,758 in fiscal 2002. The decrease is attributable to the sale of the
fixture subsidiaries, offset by costs related to the higher level of the
remaining operations. As a percentage of net sales, cost of sales decreased to
64.2% in fiscal 2003 from 66.6% in fiscal 2002. Cost of sales, in fiscal 2002,
were negatively impacted by several unusual items including inventory
write-downs, additional costs related to the move of the European power supply
production to India, and unfavorable overhead variances resulting from the
decrease in production due to the Companys commitment to significant
reductions in inventory levels. The benefits of the transfer of power supply
production are beginning to be realized in fiscal 2003 resulting in an
improving gross margin. Marketing and Selling Expenses.Marketing and selling expenses decreased
28.5% to $22,004 in fiscal 2003 from $30,771 in fiscal 2002. As a percentage of
net sales, marketing and selling expenses declined to 15.2% in fiscal 2003 from
18.7% in fiscal 2002. The decrease in both amount and percentage of net sales
is primarily attributable to the sale of the fixture subsidiaries, as marketing
and selling expenses were higher as a percentage of net sales for these
subsidiaries. Additionally, the Company was able to reduce these costs in its
remaining operations. Research and Development Expenses. Research and development expenses declined
5.2% in fiscal 2003 to $6,494 from $6,850 in fiscal 2002. The decrease is
partially attributable to the sale of the fixture subsidiaries. Fiscal 2002
expenditures for the fixture subsidiaries totaled $1,398. The Company
increased expenditures in its remaining operations by $1,042, primarily in
research and development related to materials. Research and development
expenses incurred related to: (i) expansion and continued improvement of the
line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker
starting and restarting and a more compact arc source, which improves the light
and reduces material costs) intended to replace many first generation metal
halide lamps and fixtures in industrial and commercial applications; (ii)
continual development of new materials for the worlds major lighting
manufacturers; (iii) 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; and, (iv) development and testing of electronic and
electromagnetic power supply systems. As a percentage of net sales, research
and development expenses increased to 4.5% in fiscal 2003 from 4.2% in fiscal
2002. In spite of the Companys commitment to generate positive operating cash
flow, the Company expects to continue to make substantial expenditures on
research and development to enhance its position as the leading innovator in
the metal halide lighting industry. General and Administrative Expenses.General and administrative expenses of
$11,444 were 26.2% lower in fiscal 2003 compared to $15,502 in fiscal 2002.
The decrease includes $2,100 attributable to the fixture subsidiaries in fiscal
2002 and a reduction of corporate costs, including salaries and professional
services. Provision for Loan Impairment.In fiscal 2003, the Company increased its
valuation reserve for an impaired officer loan by $2,700 related to the amount
by which the carrying value of the loan receivable from officer exceeded the
underlying fair value of the assets available to repay the loan. In fiscal
2002, the Company increased the valuation reserve related to this loan by
$7,100. No interest income was recorded or paid on the loan in fiscal 2003 and
2002. Refinancing and Non-Recurring Expenses.These expenses, totaling $2,387 for
fiscal 2003, reflect the cost of consultants, investment bankers and attorneys
related to the Companys efforts to refinance its Bank Credit Facility and
address its capital structure prior to the Companys Chapter 11 Bankruptcy
filing. 36




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Gain on Settlement of Lawsuit.In fiscal 2002, the Company recorded a gain on
the settlement of lawsuit totaling $554, net of legal fees, as a result of the
enforcement of a non-compete agreement with several former employees of a
subsidiary of the Company. Gain on Sale of Property.The Company recorded a gain on the sale of property
in the first quarter of fiscal 2003 of $62 related to the sale of a building in
Middletown, Rhode Island that formerly served as a fixture manufacturing
facility. A building formerly occupied by DSI was sold in the fourth quarter
of fiscal 2002 and resulted in a gain of $80. Special Charges and Asset Impairment.In fiscal 2001 and 2002 the Companys DSI
subsidiary made significant investments in building telecommunication product
manufacturing equipment and related facilities to apply its thin-film coating
technology to telecom products. With the decline in the global
telecommunication business and uncertainty regarding the recovery of the
telecom market, the Company recognized a $10,433 charge in fiscal 2003 related
to the abandonment of certain long-lived assets and write down of certain
assets held for sale to fair value. The Company also recorded a charge of
$1,150 in fiscal 2003 for an impairment related to a non-refundable option to
purchase for $11,500 the building currently leased by DSI that was not likely
to be exercised before its original expiration in March 2004. As a result of
the delisting of the Companys common shares from the Nasdaq National Market,
the Company recorded an asset impairment charge of $1,163 for the write-off of
deferred costs associated with its shelf offerings in fiscal 2003. The Company
recognized a $411 charge in fiscal 2003 related to the abandonment of lamp
manufacturing equipment. For a discussion of special charges and asset impairment in fiscal 2002, see
Consolidation of Power Supply Production Operations and Restructuring of
Worldwide Operations above. Amortization of Intangible Assets.Amortization expense in fiscal 2003 and
fiscal 2002 was comparable. Income (Loss) from Operations.As a result of the items noted above, the
Company realized a loss from operations in fiscal 2003 of $(6,547) as compared
to a loss from operations of $(15,458) in fiscal 2002. Interest Expense.Interest expense decreased to $11,608 in fiscal 2003 from
$12,121 in fiscal 2002. The Company accrued interest on its $100,000 of 8%
Senior Notes through the end of fiscal 2003, however the semi-annual interest
payment due September 16, 2002 and March 15, 2003 were not made. The decrease
in interest expense is attributable to a reduction in debt outstanding from the
sale of the fixture subsidiaries, offset by a slight increase in interest rates
in fiscal 2003. Interest Income.Interest income increased to $562 in fiscal 2003 from $344 in
fiscal 2002. The increase is attributable to interest earned on the $6,000 of
notes receivable created by the sale of the fixture subsidiaries in December
2001. Income (Loss) from Investments.The income (loss) from investments in fiscal
2003 of $(1,596) consists of a charge of $703 related to impairment of its
investment in a foreign joint venture involved in the manufacturing of metal
halide lamps and an equity loss of $893 from the Companys investment in
Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.
The Fiberstars loss was primarily due to a provision related to a valuation
allowance recorded against the Fiberstars deferred tax assets. The income
(loss) from investments in the fiscal 2002 of $(2,347) consists of a loss on
the sale of a preferred stock investment in Venture Lighting Japan of $(2,007)
and an equity loss of $(340) from the Companys investment in Fiberstars. 37




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Reorganization Expenses.Reorganization expenses, totaling $7,435 in fiscal
2003, reflect the cost of consultants, investment bankers and attorneys related
to the Companys efforts to reorganize under Chapter 11 Bankruptcy. The
Company will continue to incur similar costs for the next several quarters. Gain (Loss) from Sale of Fixture Subsidiaries.See Sale of Fixture
Subsidiaries above. Income (Loss) before Income Taxes, Minority Interest and Cumulative Effect of
Accounting Change.The Company had a loss before income taxes, minority
interest and cumulative effect of accounting change of $(27,627) in fiscal 2003
as compared to a loss before income taxes, minority interest and cumulative
effect of accounting change of $(29,355) in fiscal 2002. Income Tax Expense.Income tax expense was $946 for fiscal 2003 as compared
to $252 in fiscal 2002. The income tax expense in fiscal 2003 and 2002 related
primarily to certain of the Companys foreign operations. Cumulative Effect of Accounting Change.The Company adopted FAS 142 in the
first quarter of fiscal 2002 and recorded a cumulative effect of change in
accounting principle for the impairment of goodwill and other indefinite lived
intangible assets of $71,171, or $(3.04) per share, as of the beginning of
fiscal 2002 (July 1, 2001). Liquidity and Capital Resources The Companys sources of liquidity include cash and cash equivalents, cash flow
from operations and amounts available under its Bank Credit Facility. See Note
E to the Consolidated Financial Statements for a description of the Bank Credit
Facility. The Company believes these sources of liquidity are sufficient for at
least the next several years. As a result of the exchange of the $100,000 8%
Senior Notes due March 2008 for $114,400 11% Senior Notes due March 2009, the
Company has extended the maturity of most of its debt until 2009. The Company
believes that its cash flow from operations will be more than adequate to
service the debt, prior to the maturity of the 11% Senior Notes. The Bank Credit Facility is a $30,000 facility that consists of a term loan
that requires monthly principal payments of $183 ($9,900 outstanding at June
30, 2004) with a revolving credit loan, subject to availability, making up the
remainder of the facility. Availability under the revolving credit loan was
$15,600 and no balance was outstanding on the revolving credit loan at June 30,
2004. Interest rates on the revolving credit loan are based on Libor plus
2.75% or Prime plus .75% (5.00% at June 30, 2004). Interest rates on the term
loan are based on Libor plus 3.50% or Prime plus 1.50% (5.75% at June 30,
2004). The final maturity of the revolving credit facility and the term loan
is December 10, 2008. The Company paid a closing fee of $110 in connection
with the establishment of the Bank Credit Facility. The Bank Credit Facility contains certain affirmative and negative covenants
customary for this type of agreement, prohibits cash dividends, and includes
financial covenants related to Minimum Adjusted EBITDA and Capital
Expenditures. At June 30, 2004, the Company was in compliance with the terms
of the Bank Credit Facility. The principal security for the Bank Credit
Facility is substantially all of the personal property of the Company and each
of its North American and United Kingdom subsidiaries. The term loan is
secured by substantially all of the Companys machinery and equipment in North
America and the United Kingdom as well as the Companys facility in Urbana,
Illinois, and is cross-collateralized and secured with the revolving credit
loan. 38




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##### Table of Contents



Cash decreased $4,934 during the six months ended June 30, 2004. Cash provided
by operating activities totaled $289, cash used in investing activities totaled
$3,845, and cash used in financing activities totaled $1,378. Net Cash Provided by Operating Activities.Net cash provided by operating
activities totaled $289 for the six months ended June 30, 2004. This included
payments of reorganization expenses totaling $5,049 and pre-petition
liabilities of $4,371 as a result of the Companys emergence from Chapter 11
Bankruptcy. Excluding these bankruptcy-related payments, net cash provided by
operating activities during the six months totaled $9,709. Net Cash Used in Investing Activities.In the six months ended June 30, 2004,
net cash used in investing activities totaled $3,845, of which $3,018 related
to capital expenditures for plant and equipment, primarily machinery and
equipment. The Companys capital expenditure program is expected to
approximate between $5,000 and $6,000 in fiscal 2005. Future capital
expenditures beyond this level will be discretionary, as the Company presently
has sufficient operating capacities to support several years of sales growth at
its historical rates. During the fiscal 2004 third quarter, the Company
acquired certain assets of Narva Lighting Limited (Narva), located in London,
England, for $827. Narva specializes in the distribution and marketing of
metal halide lighting products in the United Kingdom and Europe. Net Cash Provided by (Used in) Financing Activities.In the six months ended
June 30, 2004, net cash used in financing activities was $(1,378) resulting
from $1,847 of scheduled payments of long-term debt net of proceeds of $469
from the issuance of preferred and common stock to the Companys management and
a director. The interest-bearing obligations of the Company totaled $131,313 as of June 30,
2004, and consisted of: $9,900 of term-loan borrowings under the Bank Credit
Facility; $114,400 of 11% Senior Notes; mortgages of $4,456; a promissory note
of $1,970; and obligations of foreign subsidiaries and other debt of $587. Schedule of Certain Contractual Obligations The following table details the Companys projected payments for its
significant contractual obligations as of June 30, 2004. The table is based
upon available information and certain assumptions the Company believes are
reasonable. Payments Due by PeriodLess than
    
    Years
    
    Years
    
    AfterTotal
    
    1 Year
    
    2 and 3
    
    4 and 5
    
    5 YearsLong Term Debt
    
    $
    131,313
    
    
    $
    4,634
    
    
    $
    8,860
    
    
    $
    117,716
    
    
    $
    103Operating Leases
    
    
    8,405
    
    
    
    1,449
    
    
    
    2,488
    
    
    
    2,319
    
    
    
    2,149Interest on Debt
    
    
    61,725
    
    
    
    13,454
    
    
    
    26,072
    
    
    
    22,151
    
    
    
    48Total Contractual Obligations
    
    $
    201,443
    
    
    $
    19,537
    
    
    $
    37,420
    
    
    $
    142,186
    
    
    $
    2,300
 39




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##### Table of Contents



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
presents principle cash flows and related weighted-average interest rates by
maturity dates as set forth in the respective lending agreement.
Weighted-average variable rates are based on implied forward rates as derived
from published spot rates. June 30,
    
    
    
    
    
    
    
    
    
    Fair ValueJune 30,(dollars in millions)
    
    2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    Total
    
    2004LiabilitiesLong-term Debt, including
Current PortionFixed Rate
    
    $
    2.2
    
    
    $
    4.2
    
    
    
    
    
    
    
    
    
    
    $
    114.4
    
    
    
    
    
    
    $
    120.8
    
    
    $
    120.8Average Interest Rate
    
    
    10.9
    %
    
    
    11.0
    %
    
    
    
    
    
    
    
    
    
    
    11.0
    %
    
    
    Variable Rate
    
    $
    2.5
    
    
    $
    2.4
    
    
    $
    2.2
    
    
    $
    2.2
    
    
    $
    1.1
    
    
    $
    0.1
    
    
    $
    10.5
    
    
    $
    10.5Average Interest Rate
    
    
    5.1
    %
    
    
    5.0
    %
    
    
    4.9
    %
    
    
    5.0
    %
    
    
    5.3
    %
 Liabilities at June 30, 2003, included $106,934 of fixed-rate debt and $27,727
of variable-rate debt. Interest rates on the fixed-rate debt to maturity
ranged from 2.9% to 10.0%, while interest rates on the variable-rate debt to
maturity ranged from 4.50% to 15.0% as of June 30, 2003. Foreign Currency Exchange Risk. The Company is exposed to foreign exchange
rate differences and during the first eight months of fiscal 2003 minimized the
effects of these exposures through the use of derivatives. Through the first
eight months of fiscal 2004, the Company did not hedge its foreign currency
exposure and, therefore, did not enter into any foreign currency derivative
financial instruments. In March 2004 the Company resumed its use of
derivatives to minimize the effects of these exposures on certain receivable
and payable balances. The Company sells products in foreign currencies, mainly the pound sterling,
Euro, Canadian dollar, Japanese yen and Australian dollar. The majority of
these products costs are incurred in U.S. dollars. Therefore, the Company is
exposed to currency movements in that if the U.S. dollar strengthens, the
translated value of the foreign currency and the resulting margin will be
reduced. The Company does not change the price of its products for short-term
exchange rate movements. Presently, the Company does not hedge this exposure. 40




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Critical Accounting Policies The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires us to make estimates and judgments that effect the reported amounts of
our assets, liabilities, revenues and costs and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to: valuation of accounts and
notes receivable and loan receivable from officer, valuation of investments,
valuation of long-lived assets, valuation of inventory valuation reserves,
revenue recognition, and deferred tax assets. We base our estimates on
historical experience and on various other assumptions that we believe
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the following policies as critical to our business
operations and the understanding of our results of operations. For a detailed
discussion on the application of these and other accounting policies, see Note
C of the Notes to Consolidated Financial Statements. New Reporting Entity and Adoption of Fresh Start Accounting The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a
new reporting entity and adoption of fresh start reporting in accordance with
Statement of Position (SOP) No. 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. The consolidated financial
statements as of and for the six months ended December 31, 2003 reflect
reorganization adjustments for the discharge of debt and adoption of fresh
start reporting. The reorganization value of the assets of the consolidated
group of $170,000 prior to the investment by Saratoga, which served as the
basis for the Final Plan approved by the bankruptcy court, was used to
determine the value allocated to the assets and liabilities of the Reorganized
Company in proportion to their relative fair values in conformity with
Statement of Financial Accounting Standards No. 141, Business Combinations. The reorganization value of the Company was determined after negotiations
between Saratoga and the Creditors Committee, and in consideration of several
factors and by reliance on various valuation methods, including discounting
cash flow and price/earnings and other applicable calculations. The factors
considered by the parties to the bankruptcy included forecasted operating and
cash flow results, discounted residual values at the end of the forecast period
based on capitalized cash flows for the last year of that period, market share
and position, competition and general economic considerations, projected sales
growth, and potential profitability. A black line has been drawn between the accompanying consolidated balance sheet
as of June 30, 2004 and June 30, 2003 to distinguish between the Reorganized
Company and the Predecessor Company. A black line has also been drawn between
the consolidated statement of operations and of cash flows for the six months
ended June 30, 2004 and the other periods presented to distinguish between the
Reorganized Company and the Predecessor Company. The results of the periods
shown for the Predecessor Company are not considered to be comparable to those
of the Reorganized Company. 41




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Reorganization adjustments recorded as of December 31, 2003 resulted primarily from the following:  
    
    Exchange of $100,000 of 8% Senior Notes and accrued interest through December
31, 2003 of $14,400 for $114,400 of 11% Senior Notes;  
    
    Issuance to Saratoga of 29,000 shares of the Companys New Series A Preferred
Shares and 1,000 of its New Common Shares in exchange for $18,000 and all of
the equity interests of Saratoga in the Company purchased from GE for
$12,000, including the 761,250 shares of the Companys Old Preferred Stock
and 1,429,590 shares of the Companys Old Common Stock, and push-down of
Saratogas investment;  
    
    Cancellation of the existing common stock in exchange for two investments of
the company with a net book value of $7,192 as of the effective date of the
Plan; and,  
    
    Increase in the receivable from officer of $1,169 resulting from a
court-approved settlement and reclassification of the receivable to related
party receivables from the equity section of the condensed consolidated
balance sheet. Fresh start adjustments recorded as of December 31, 2003 resulted primarily from the following:  
    
    Reduction of property, plant and equipment carrying values, including
reduction of the Companys real estate by $11,644 and personal property by
$28,790;  
    
    Adjustment of the identifiable intangible assets to $24,675 including
customer contracts and relationships of $10,000, trademarks and tradenames of
$8,635, and technology of $6,040;  
    
    Reduction in the value of inventory of $1,997 related to inventory being
disposed of by June 30, 2004; and,  
    
    Increase in the value of inventory of $1,500 related to an adjustment in
accordance with FAS No. 141, which requires that inventory be recorded at
fair value on the reorganized companys balance sheet. The increase in
inventory of $1,500 above manufacturing cost reduced reported gross margin
and net profit in the third quarter of fiscal 2004 as the inventory was sold. These preliminary adjustments were based upon the work of outside appraisers,
as well as internal valuation estimates using discounted cash flow analyses, to
determine the relative fair values of the Companys assets and liabilities and
are not expected to differ materially. As encouraged under SEC Staff Accounting Bulletin No. 54, Push Down Basis of
Accounting Required in Certain Limited Circumstances, the Company has reflected
an additional adjustment to establish a new basis for its assets and
liabilities based on the amount paid by Saratoga for its ownership at December
31, 2003. Valuation of Accounts and Notes Receivable and Loan Receivable from Officer Management evaluates and makes estimates of the collectibility of the Companys
accounts and notes receivable, including unbilled accounts receivable related
to long-term equipment contracts, based on a combination of factors.
Management analyzes historical bad debts, customer credit-worthiness, and
current economic trends in evaluating the adequacy of the allowance for
doubtful accounts and whether there is any impairment in its notes receivable.
In circumstances where the Company is aware of a certain customers inability
to meet its financial obligation, a specific reserve is recorded to reduce the
receivable to the amount the Company believes will be collected. Material
changes in the allowance for doubtful accounts may occur if the results of
managements evaluation change or if a different method is used to estimate
possible losses. The accounts receivable balance was $29,787, net of an
allowance of $706 as of June 30, 2004. 42




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The Company has notes receivable plus accrued interest from the Ruud Lighting,
Inc. shareholders in the aggregate amount of $3,198. These notes are due
December 1, 2006, but rebates earned on purchases by Ruud Lighting, Inc.
pursuant to its current agreement with the Debtors will be credited toward
prepayment of the principal and interest on the notes. The Company believes
the total receivable amount will be realized in accordance with the terms of
the notes. The Company has a loan receivable from the Chief Executive Officer (CEO).
Management periodically evaluates the adequacy of the underlying assets to
repay this loan and when it estimates the proceeds from the sale of such assets
are not adequate records a reserve. Based on its estimates, Management
recorded an impairment charge of $9,800 on the loan receivable during the two
previous fiscal years. No interest related to the loan was recorded in first
six months of fiscal 2004 and all of two
previous fiscal years. Interest on the loan accrues at the same rate as the
Company pays on its credit facility and totaled $84 in the six months ended
June 30, 2004. As part of the reorganization, the officer loan documents were modified to
reduce the amount of the outstanding indebtedness owed by the officer to an
amount (the Designated Amount) equal to the difference between (1) the fair
market value of the CEOs personal assets and (2) the amounts owing to other
secured creditors of the CEO that hold mortgages, liens and/or security
interests upon or in property of the CEO, on a priority senior to the liens and
security interests securing the CEOs loan from the Company, to the extent of
the fair market value of such property. The Designated Amount was set at
$4,024. The Company believes the loan receivable amount will be realized in
accordance with the terms of loan documents. Valuation of Long-Lived Assets The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a
new reporting entity and adoption of fresh start reporting in accordance with
SOP No. 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. The Companys tangible assets were adjusted in accordance
with SOP 90-7 which resulted in a decrease in the Companys real estate of
$11,644 and a decrease in personal property (machinery and equipment and
furniture and fixtures) of $28,790. The Companys identifiable intangible
assets were adjusted to $24,675 representing customer contracts and
relationships of $10,000, trademarks and tradenames of $8,635, and technology
of $6,040. In addition to the above, the application of SOP 90-7 and SEC Staff Accounting
Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited
Circumstances, resulted in the elimination of the existing goodwill and the
establishment of a new amount of goodwill of $51,011, that represents the
reorganization value in excess of amounts allocable to identifiable assets.
In accordance with the provisions of Statement of Financial Accounting
Standards (FAS) No. 142, Goodwill and Other Intangible Assets, no
amortization of goodwill was recorded in fiscal 2003 or fiscal 2004.
Additionally, the newly-established goodwill will not be amortized. Rather,
the Company will evaluate this asset for impairment at least annually and
whenever there is an impairment indicator using the fair value guidelines of
FAS No. 142. The Company evaluates the carrying value of its investment in other long-lived
assets for impairment such as property, plant and equipment whenever there is
an impairment indicator, generally using an undiscounted cash flow methodology.
During fiscal 2003, the Company recognized a $10,844 charge primarily related
to the abandonment of certain of its telecommunication fixed assets due to the
uncertainty of the recovery of the global telecom industry, and the write down
of certain assets held for sale. 43




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Inventory Valuation Reserves The Company values its inventory for accounting purposes at the lower of cost
(first-in, first-out method) or market. In circumstances where the Company is
aware of a problem in the valuation of a certain item, a specific reserve is
recorded to reduce the item to its net realizable value. For all other
inventory, the Company records a reserve based on a combination of factors,
including actual usage in recent history and projected usage in the future. If
expected circumstances should change due to general economic or product
obsolescence issues resulting in lower-than-expected usage, managements
estimate of the net realizable value could be reduced by a material amount. Revenue Recognition The Company has entered into certain contracts with customers for the
construction of lighting and thin-film coating equipment. Revenue is
recognized on these contracts as work on the contract progresses using the
percentage of completion method of accounting, which relies on estimates of
total expected contract revenues and costs. Under this method reasonable
estimates of the costs applicable to the various stages of a contract are made,
thus, impacting the level of recognized revenue. Since the financial reporting
of these contracts depends on estimates, which are assessed continually during
the term of the contract, recognized revenues and profit are subject to
revisions as the contract progresses toward completion. Revisions in profit
estimates are reflected in the period in which the facts that give rise to the
revision become known. Should estimates indicate a loss is expected to be
incurred under a contract, cost of sales is charged with a provision for such
loss. Deferred Tax Assets and Valuation Allowance The Company had approximately $10,379 of net deferred tax assets related
principally to certain unused tax credits and loss carryforwards as of June 30,
2004. The realization of these assets is based upon the Company generating
future taxable income. Due to the Companys historical results it is uncertain
as to when it will realize taxable income that will allow it to utilize its tax
credits and loss carryforwards and, accordingly, has recorded a valuation
allowance of approximately $10,379. Additionally, on August 15, 2003, Saratoga
purchased the preferred and common shares owned by GE. This transaction caused
an ownership change greater than 50% which will limit the annual net operating
loss and tax credit carryforwards the Company can use to offset any future
taxable income pursuant to Section 382 of the Internal Revenue Code. This
limitation is effective with the fiscal year ending June 30, 2004. The Company
has net operating losses which, in accordance with the principles of fresh
start accounting, were not recorded. These net operating losses are available
to be utilized, and, to the extent the net operating losses are utilized,
goodwill will be reduced accordingly for the benefit received. Management will
continue to evaluate the realization of these deferred tax assets that are
subject to the Companys future operations. The Companys future operations
will be influenced by the general business environment, which is difficult to
predict and beyond the control of the Company. 44




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Impact of Recently Issued Accounting Standards In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation (FIN) No. 46 Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements.The Company was required to account for interests in VIEs existing
on January 31, 2003, under the provisions of FIN No. 46 as of July 1, 2003, the
beginning of the Companys fiscal 2004 first quarter. The FIN addresses the
consolidation of business enterprises of variable interest entities and certain
required disclosures related to such relationships. The Company determined
that none of its investments meet the requirement for consolidation or
disclosure under this FIN. In May 2003, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.FAS No. 150 changes the
classification in the statement of financial position of certain common
financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to recognize
changes in fair value or redemption amount, as applicable, in earnings. FAS No.
150 was effective for the Company as of July 1, 2003. The provisions of FAS
No. 150 had no impact on the condensed consolidated financial statements. Impact of Inflation Although inflation has slowed in recent years, it continues to be a factor in
the 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. 45




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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, 2004 ADVANCED LIGHTING TECHNOLOGIES, INC. SOLON, OHIO 46




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REPORT OF MANAGEMENT Management of Advanced Lighting Technologies, Inc. is responsible for the
preparation of the accompanying consolidated financial statements of the
Company and its subsidiaries. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
of America. The Company is responsible for the integrity and objectivity of the financial
statements and, accordingly, the financial statements include amounts reported
based upon informed judgments and estimates made by management to reflect the
expected results of certain events and transactions. The Company maintains a
system of internal accounting controls designed to provide reasonable assurance
that the books and records reflect the transactions of the Company. The
concept of reasonable assurance is based on the recognition that the cost of a
system of internal controls must be related to the benefits derived. The accompanying consolidated financial statements have been audited by Grant
Thornton LLP and their report is included herein. Their audits were made in
accordance with standards of the Public Company Accounting Oversight Board
(United States). They obtained an understanding of the Companys system of
internal controls sufficient to plan their audit and determine the nature,
timing and extent of procedures to be performed during their audit. The Company has an audit committee composed of three Directors who are not
members of management. The committee meets regularly with management and the
independent auditors in connection with its review of matters relating to the
Companys financial statements, the Companys system of internal accounting
controls and the services of the independent auditors. The committee also
meets with the independent auditors, without management present, to discuss
appropriate matters. The committee also recommends to the Directors the
appointment of the independent auditors. August 31, 2004 /s/ Wayne R. Hellman
    
    /s/ Christopher F. ZerullWayne R. Hellman
    
    Christopher F. ZerullChief
Executive Officer
    
    Vice President andChief Accounting Officer
 47




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##### Table of Contents



LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES 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: Audited Consolidated Financial Statements: PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets:Reorganized Company as of June 30, 2004
    
    
    F-3Predecessor Company as of June 30, 2003
    
    
    F-3Consolidated Statements of Operations:Reorganized Company for the Six Months Ended June 30, 2004
    
    
    F-5Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002
    
    
    F-5Consolidated Statements of Shareholders Equity:Reorganized Company for the Six Months Ended June 30, 2004
    
    
    F-6Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002
    
    
    F-6Consolidated Statements of Cash Flows:Reorganized Company for the Six Months Ended June 30, 2004
    
    
    F-7Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002
    
    
    F-7Notes 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




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##### Table of Contents



Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders
Advanced Lighting Technologies, Inc. We have audited the accompanying consolidated balance sheet of Advanced
Lighting Technologies, Inc. (the Reorganized Company) as of June 30, 2004, and
the related consolidated statements of operations, shareholders equity and
cash flows for the six months ended June 30, 2004. We have also audited the
accompanying consolidated balance sheet of Advanced Lighting Technologies, Inc.
(the Predecessor Company) as of June 30, 2003 and the related consolidated
statements of operations, shareholders equity and cash flows for the six
months ended December 31, 2003 and for each of the two years in the period
ended June 30, 2003. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based upon our audits. We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. (the Reorganized Company) as of June 30,
2004 and the consolidated results of its operations and its cash flows for the
six months ended June 30, 2004 and the consolidated financial position of
Advanced Lighting Technologies, Inc. (the Predecessor Company) as of June 30,
2003 and the consolidated results of its operations and its cash flows for the
six months ended December 31, 2003 and for each of the two years in the period
ended June 30, 2003 in conformity with accounting principles generally accepted
in the United States of America. As discussed in Note B to the consolidated financial statements, the United
States Bankruptcy Court for the Northern District of Illinois confirmed the
Companys Amended Plan of Reorganization (the plan) on December 8, 2003.
Confirmation of the plan and the Companys emergence from bankruptcy resulted
in the discharge of certain claims against the Company that arose before
February 5, 2003 and the cancellation and exchange of equity interests as
provided by the plan. The plan was substantially consummated and the Company
emerged from bankruptcy on December 10, 2003. In connection with its emergence
from bankruptcy, the Company adopted fresh start accounting as of December 31,
2003. As discussed in Note C to the consolidated financial statements, in fiscal 2002
the Company changed its accounting method for goodwill and intangible assets. /s/ Grant Thornton
 Cleveland, Ohio.
August 27, 2004 F-2




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets(in thousands, except per share amounts) Reorganized
  
    PredecessorCompany
  

    CompanyJune 30,
  
    June 30,2004
  
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,701
    
  
    $
    4,167Trade receivables, less allowances of $706 and $979
    
    
    29,787
    
  
    
    31,312Inventories:Finished goods
    
    
    16,105
    
    
    
    15,242Raw materials and work-in-process
    
    
    9,073
    
  


    
    8,69325,178
    
  

    
    23,935Prepaid expenses
    
    
    1,552
    
  
    
    1,374Total current assets
    
    
    61,218
    
  

    
    60,788Property, plant and equipment:Land and buildings
    
    
    18,165
    
  
    
    33,822Machinery and equipment
    
    
    29,100
    
  
    
    72,583Furniture and fixtures
    
    
    1,880
    
  
    
    17,91249,145
    
  
    
    124,317Less accumulated depreciation
    
    
    2,118
    
  
    

    35,98147,027
    
  
    
    88,336Receivables from related parties
    
    
    4,282
    
  
    
    6,463Investments in affiliates
    
    
    2,360
    
  
    
    8,668Other assets
    
    
    3,849
    
  
    
    2,976Intangible assets
    
    
    24,810
    
  
    
    2,572Goodwill
    
    
    51,011
    
  
    
    4,473$
    194,557
    
  
    $
    174,276
 See Notes to Consolidated Financial Statements, including Emergence fromBankruptcy describing the Reorganized Company and Predecessor Company. F-3




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets(in thousands, except per share amounts) Reorganized
    
    PredecessorCompany
    
    CompanyJune 30,
    
    June 30,2004
    
    2003Liabilities and shareholders equityLiabilities not subject to compromise:Current liabilities:Short-term debt and current portion of long-term debt
    
    $
    4,634
    
    
    $
    2,241Accounts payable
    
    
    10,755
    
    
    
    10,814Payables to related parties
    
    
    2,973
    
    
    
    790Employee-related liabilities
    
    
    6,197
    
    
    
    2,895Accrued income and other taxes
    
    
    1,414
    
    
    
    1,294Other accrued expenses
    
    
    9,216
    
    
    
    6,839Debtor-in-Possession Facility
    
    
    
    
    
    
    25,126Total current liabilities
    
    
    35,189
    
    
    
    49,999Long-term debt
    
    
    126,679
    
    
    
    5,324Deferred tax liabilities
    
    
    700
    
    
    
    Total liabilities not subject to compromise
    
    
    162,568
    
    
    
    55,323Liabilities subject to compromise
    
    
    
    
    
    
    116,214Total liabilities
    
    
    162,568
    
    
    
    171,537Minority interest
    
    
    1,477
    
    
    
    968New preferred stock, $.001 par value per share; 239 shares authorized; 29 shares issued and outstanding
    
    
    29,338
    
    
    
    Old preferred stock, $.001 par value per share;
1,000 shares authorized; 761 Series A convertible
redeemable shares issued
    
    
    
    
    
    
    24,475Common shareholders equity (deficit)New common stock, $.001 par value per share, 80,000
shares authorized; 1 share issued and outstanding
    
    
    1
    
    
    
    Old common stock, $.001 par value per share, 80,000
shares authorized; 23,807 shares issued
    
    
    
    
    
    
    24Paid-in-capital
    
    
    1,130
    
    
    
    212,724Accumulated other comprehensive income (loss)
    
    
    (216
    )
    
    
    (640
    )Loan and interest receivable from
officer, less $9,800 reserve
    
    
    
    
    
    
    (4,344
    )Retained earnings (accumulated deficit)
    
    
    259
    
    
    
    (230,468
    )1,174
    
    
    
    (22,704
    )$
    194,557
    
    
    $
    174,276
 See Notes to Consolidated Financial Statements, including Emergence from
Bankruptcy describing the Reorganized Company and Predecessor Company. F-4




---



##### Table of Contents



Advanced Lighting Technologies, Inc.
Consolidated Statements of Operations(in thousands, except per share dollar amounts) ReorganizedCompany
    
    
    Predecessor CompanySix Months
    
    
    Six MonthsEndedJune 30,
    
    
    EndedDecember 31,
    
    Year Ended June 30,2004
    
    
    2003
    
    2003
    
    2002Net sales
    
    $
    74,075
    
    
    
    $
    70,510
    
    
    $
    145,087
    
    
    $
    164,786Costs and expenses:Cost of sales
    
    
    43,230
    
    
    
    
    43,361
    
    
    
    93,167
    
    
    
    109,758Marketing and selling
    
    
    11,184
    
    
    
    
    11,311
    
    
    
    22,004
    
    
    
    30,771Research and development
    
    
    2,839
    
    
    
    
    3,095
    
    
    
    6,494
    
    
    
    6,850General and administrative
    
    
    8,819
    
    
    
    
    6,208
    
    
    
    11,444
    
    
    
    15,502Provision for loan impairment
    
    
    
    
    
    
    
    
    
    
    
    2,700
    
    
    
    7,100Refinancing and non-recurring items
    
    
    
    
    
    
    
    
    
    
    
    2,387
    
    
    
    Gain on settlement of lawsuit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (554
    )Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (80
    )Special charges and asset impairment
    
    
    
    
    
    
    
    
    
    
    
    13,157
    
    
    
    10,561Amortization of intangible assets
    
    
    474
    
    
    
    
    177
    
    
    
    343
    
    
    
    336Income (loss) from operations
    
    
    7,529
    
    
    
    
    6,358
    
    
    
    (6,547
    )
    
    
    (15,458
    )Other income (expense):Interest expense
    
    
    (6,852
    )
    
    
    
    (7,459
    )
    
    
    (11,608
    )
    
    
    (12,121
    )Interest income
    
    
    231
    
    
    
    
    188
    
    
    
    562
    
    
    
    344Income (loss) from investments
    
    
    98
    
    
    
    
    3
    
    
    
    (1,596
    )
    
    
    (2,347
    )Gain on restructuring
    
    
    
    
    
    
    
    1,184
    
    
    
    
    
    
    
    Write-off of deferred loan costs
    
    
    
    
    
    
    
    (2,251
    )
    
    
    
    
    
    
    Reorganization expenses
    
    
    
    
    
    
    
    (11,258
    )
    
    
    (7,435
    )
    
    
    Gain (loss) from sale of fixture subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    (1,003
    )
    
    
    227Income (loss) before income taxes,
minority interest, and cumulative
effect of accounting change
    
    
    1,006
    
    
    
    
    (13,235
    )
    
    
    (27,627
    )
    
    
    (29,355
    )Income taxes
    
    
    489
    
    
    
    
    360
    
    
    
    946
    
    
    
    252Income (loss) before minority interest and
cumulative effect of accounting change
    
    
    517
    
    
    
    
    (13,595
    )
    
    
    (28,573
    )
    
    
    (29,607
    )Minority interest in income
of consolidated subsidiary
    
    
    (258
    )
    
    
    
    (251
    )
    
    
    (333
    )
    
    
    (219
    )Income (loss) before cumulative
effect of accounting change
    
    
    259
    
    
    
    
    (13,846
    )
    
    
    (28,906
    )
    
    
    (29,826
    )Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,171
    )Net income (loss)
    
    $
    259
    
    
    
    $
    (13,846
    )
    
    $
    (28,906
    )
    
    $
    (100,997
    )
 See Notes to Consolidated Financial Statements, including Emergence fromBankruptcy describing the Reorganized Company and Predecessor Company. F-5




---



##### Table of Contents



Advanced Lighting Technologies, Inc.
Consolidated Statements of Shareholders Equity
For the Three Years Ended June 30, 2004(in thousands) Loan andAccumulated
    
    InterestPreferred
    
    Common Stock
    
    Paid-In
    
    OtherComprehensive
    
    ReceivableFrom
    
    RetainedEarnings
    

CommonShareholdersStock
    
    Shares
    
    Par Value
    
    Capital
    
    Income (Loss)
    
    Officer
    
    (Deficit)
    
    Equity
    
    TotalBalance at June 30, 2001
    
    $
    19,554
    
    
    $
    23,288
    
    
    $
    23
    
    
    $
    217,030
    
    
    $
    (5,058
    )
    
    $
    (13,140
    )
    
    $
    (100,565
    )
    
    $
    98,290
    
    
    $
    117,844Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,997
    )
    
    
    (100,997
    )
    
    
    (100,997
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,545
    
    
    
    
    
    
    
    
    
    
    
    1,545
    
    
    
    1,545Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99,452
    )
    
    
    (99,452
    )Preferred shares accretion
    
    
    2,736
    
    
    
    
    
    
    
    
    
    
    
    (2,736
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,736
    )
    
    
    Loan to officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,004
    )
    
    
    
    
    
    
    (1,004
    )
    
    
    (1,004
    )Reserve for loan impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,100
    
    
    
    
    
    
    
    7,100
    
    
    
    7,100Stock purchases
by employees
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    112Stock issued pursuant to
employee benefit plan
    
    
    
    
    
    
    221
    
    
    
    1
    
    
    
    398
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    399
    
    
    
    399Reversal of foreign currency
translation adjustments due
to sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    573
    
    
    
    
    
    
    
    
    
    
    
    573
    
    
    
    573Balance at June 30, 2002
    
    
    22,290
    
    
    
    23,588
    
    
    
    24
    
    
    
    214,804
    
    
    
    (2,940
    )
    
    
    (7,044
    )
    
    
    (201,562
    )
    
    
    3,282
    
    
    
    25,572Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,906
    )
    
    
    (28,906
    )
    
    
    (28,906
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,300
    
    
    
    
    
    
    
    
    
    
    
    2,300
    
    
    
    2,300Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,606
    )
    
    
    (26,606
    )Preferred shares accretion
    
    
    2,185
    
    
    
    
    
    
    
    
    
    
    
    (2,185
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,185
    )
    
    
    Warrants issuable to
General Electric Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reserve for loan impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,700
    
    
    
    
    
    
    
    2,700
    
    
    
    2,700Stock purchases
by employees
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Stock issued pursuant to
employee benefit plan
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    87Balance at June 30, 2003
    
    
    24,475
    
    
    
    23,807
    
    
    
    24
    
    
    
    212,724
    
    
    
    (640
    )
    
    
    (4,344
    )
    
    
    (230,468
    )
    
    
    (22,704
    )
    
    
    1,771Net loss -
predecessor company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,846
    )
    
    
    (13,846
    )
    
    
    (13,846
    )Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,359
    
    
    
    
    
    
    
    
    
    
    
    1,359
    
    
    
    1,359Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,487
    )
    
    
    (12,487
    )Effect of reorganization
and fresh start reporting:Reclassification to
related party receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,344
    
    
    
    
    
    
    
    4,344
    
    
    
    4,344Extinguishment of old stock
    
    
    (24,475
    )
    
    
    (23,807
    )
    
    
    (24
    )
    
    
    (212,724
    )
    
    
    (719
    )
    
    
    
    
    
    
    244,314
    
    
    
    30,847
    
    
    
    6,372Issuance of new stock
    
    
    29,000
    
    
    
    1
    
    
    
    1
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    30,000Balance at
December 31, 2003
    
    
    29,000
    
    
    
    1
    
    
    
    1
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    30,000Net income -
reorganized company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    259
    
    
    
    259Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    
    
    
    
    
    
    
    
    (216
    )
    
    
    (216
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Stock purchases by
management / director
    
    
    338
    
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131
    
    
    
    469Balance at June 30, 2004
    
    $
    29,338
    
    
    
    1
    
    
    $
    1
    
    
    $
    1,130
    
    
    $
    (216
    )
    
    $
    
    
    
    $
    259
    
    
    $
    1,174
    
    
    $
    30,512
 See Notes to Consolidated Financial Statements, including Emergence fromBankruptcy describing the Reorganized Company and Predecessor Company. F-6




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Consolidated Statements of Cash Flows(in thousands) ReorganizedCompany
    



    
    Predecessor CompanySix Months
    
    
    Six MonthsEndedJune 30,
    
    
    EndedDecember 31,
    
    Year Ended June 30,2004
    
    
    2003
    
    2003
    
    2002Operating activitiesNet income (loss)
    
    $
    259
    
    
    
    $
    (13,846
    )
    
    $
    (28,906
    )
    
    $
    (100,997
    )Adjustments to reconcile net income (loss)
to net cash used in operating activities:Depreciation
    
    
    2,136
    
    
    
    
    3,412
    
    
    
    6,737
    
    
    
    6,972Amortization
    
    
    474
    
    
    
    
    177
    
    
    
    343
    
    
    
    336Provision for doubtful accounts
    
    
    180
    
    
    
    
    381
    
    
    
    (456
    )
    
    
    1,275Loss (income) from investments
    
    
    (98
    )
    
    
    
    (3
    )
    
    
    1,596
    
    
    
    2,347Gain on sale of property
    
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (80
    )Special charges and asset impairment
    
    
    
    
    
    
    
    
    
    
    
    13,157
    
    
    
    5,889Provision for loan impairment
    
    
    
    
    
    
    
    
    
    
    
    2,700
    
    
    
    7,100Loss (gain) on sale of fixture subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    1,003
    
    
    
    (227
    )Gain on restructuring
    
    
    
    
    
    
    
    (1,184
    )
    
    
    
    
    
    
    Write-off of deferred loan costs
    
    
    
    
    
    
    
    2,251
    
    
    
    
    
    
    
    Reorganization expenses in excess of (less than)
cash payments of reorganization expenses
    
    
    (5,049
    )
    
    
    
    2,968
    
    
    
    3,923
    
    
    
    Old Senior note interest accrued but not paid
    
    
    
    
    
    
    
    4,000
    
    
    
    8,000
    
    
    
    2,400Payment of pre-petition payables
    
    
    (4,371
    )
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,171Changes in operating assets and liabilities, excluding
effects of acquisitions and dispositions:Trade receivables
    
    
    (985
    )
    
    
    
    777
    
    
    
    (1,732
    )
    
    
    (2,781
    )Inventories
    
    
    (1,680
    )
    
    
    
    380
    
    
    
    2,755
    
    
    
    7,082Prepaid and other assets
    
    
    908
    
    
    
    
    859
    
    
    
    (1,142
    )
    
    
    1,286Accounts payable and accrued expenses
    
    
    8,030
    
    
    
    
    2,549
    
    
    
    (290
    )
    
    
    (2,164
    )Net liabilities (payments) related to special charges
    
    
    
    
    
    
    
    
    
    
    
    (287
    )
    
    
    1,627Other
    
    
    485
    
    
    
    
    1,452
    
    
    
    2,350
    
    
    
    1,677Net cash provided by operating activities
    
    
    289
    
    
    
    
    4,173
    
    
    
    9,689
    
    
    
    2,913Investing activitiesCapital expenditures
    
    
    (3,018
    )
    

    
    (1,799
    )
    
    
    (5,325
    )
    
    
    (14,825
    )Proceeds from sale of real estate
    
    
    
    
    

    
    
    
    
    
    1,326
    
    
    
    1,435Proceeds from sale of preferred stock investment
    
    
    
    
    

    
    
    
    
    
    300
    
    
    
    1,000Proceeds from sale of subsidiaries
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    24,166Purchase of business
    
    
    (827
    )
    

    
    
    
    
    
    
    
    
    
    Investments in affiliates
    
    
    
    
    

    
    (592
    )
    
    
    
    
    
    
    (88
    )Net cash provided by (used in) investing activities
    
    
    (3,845
    )
    

    
    (2,391
    )
    
    
    (3,699
    )
    
    
    11,688Financing activitiesNet borrowings (payments) under revolving credit loan
    
    
    
    
    

    
    
    
    
    
    (17,559
    )
    
    
    1,526Net borrowings (payments) under debtor-in-possession facility
    
    
    
    
    

    
    (25,126
    )
    
    
    25,126
    
    
    
    Proceeds from long-term debt and capital leases
    
    
    
    
    

    
    11,000
    
    
    
    79
    
    
    
    151Payments of long-term debt and capital leases
    
    
    (1,847
    )
    

    
    (1,522
    )
    
    
    (12,448
    )
    
    
    (16,562
    )Investment by Saratoga Lighting Holdings, LLC
    
    
    
    
    

    
    18,000
    
    
    
    
    
    
    
    Issuance of common and preferred stock
    
    
    469
    
    

    
    
    
    
    
    105
    
    
    
    510Officer loan repayment (loan to officer)
    
    
    
    
    

    
    1,334
    
    
    
    
    
    
    
    (1,004
    )Net cash provided by (used in) financing activities
    
    
    (1,378
    )
    

    
    3,686
    
    
    
    (4,697
    )
    
    
    (15,379
    )Increase (decrease) in cash and cash equivalents
    
    
    (4,934
    )
    

    
    5,468
    
    
    
    1,293
    
    
    
    (778
    )Cash and cash equivalents, beginning of year
    
    
    9,635
    
    

    
    4,167
    
    
    
    2,874
    
    
    
    3,652Cash and cash equivalents, end of year
    
    $
    4,701
    
    

    $
    9,635
    
    
    $
    4,167
    
    
    $
    2,874Supplemental cash flow informationInterest paid
    
    $
    3,703
    
    

    $
    1,200
    
    
    $
    2,772
    
    
    $
    11,765Income taxes paid (refunds received), net
    
    
    356
    
    

    
    159
    
    
    
    33
    
    
    
    (25
    )Capitalized interest
    
    
    8
    
    

    
    37
    
    
    
    370
    
    
    
    900
 See Notes to Consolidated Financial Statements, including Emergence fromBankruptcy describing the Reorganized Company and Predecessor Company. F-7




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) 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. B . Emergence from Bankruptcy On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its
United States subsidiaries, (collectively, the Debtors), completed their
previously announced financial restructuring when their Fourth Amended Chapter
11 Plan of Reorganization (the Final Plan) under the U.S. Bankruptcy Code
(the Bankruptcy Code) became effective and was substantially consummated.
ADLTs non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S.
subsidiary, were not a part of the proceedings under the Bankruptcy Code. For
financial reporting purposes, the Company used an effective date of December
31, 2003. The results of operations for the period from December 10, 2003 to
December 31, 2003 were not material. References in these financial statements
to Predecessor Company refer to the Company prior to December 31, 2003.
References to Reorganized Company refer to the Company on and after December
31, 2003, after giving effect to the issuance of new securities in exchange for
the previously outstanding securities in accordance with the Final Plan, the
additional investment in the Company by Saratoga Lighting Holdings, LLC, and
the implementation of fresh start and push down accounting. The events that
occurred during fiscal 2003 and the first two quarters of fiscal 2004 relating
to the Chapter 11 proceedings, the securities issued in accordance with the
Final Plan, and the fresh start and push down accounting adjustments are
described in Company Restructuring and Reorganization, Fresh Start and Push
Down Adjustments below. Company Restructuring The Debtors filed for reorganization under the Bankruptcy Code on February 5,
2003 (the Filing). From February 5, 2003 to December 10, 2003, the Debtors
operated their businesses as debtors-in-possession under court protection from
their creditors and claimants. Following approval by the creditors, preferred
shareholders and the common shareholders of the Predecessor Company entitled to
vote on the reorganization plan, on December 8, 2003, the Bankruptcy Court
entered an order confirming the Final Plan. On December 10, 2003, the
Effective Date of the Final Plan occurred and the reorganization of the Company
was substantially completed. Plan of ReorganizationPursuant to the terms of the Final Plan, Saratoga
Lighting Holdings, LLC (Saratoga) received, in exchange for cancellation of
its holdings of the Predecessor Companys Series A Preferred Stock and Common
Stock, and an $18,000 cash investment, new redeemable preferred stock of the
Reorganized Company, with an initial liquidation preference of $29,000, and
approximately 91% of the common stock of the Reorganized Company (on a diluted
basis, assuming issuance of common stock of the Reorganized Company to its
senior management pursuant to the new management incentive plan). Under the
management incentive plan, shares equal to approximately 9% of the common stock F-8




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) B. Emergence from Bankruptcy (continued) of the Reorganized Company have been issued. The Final Plan also provided
management fees to an affiliate of Saratoga. The fees consist of a one-time
advisory fee of $1,800 that was paid in July 2004 from excess working capital,
and a quarterly management fee of $150 payable in advance. The advisory fee is
included in payables to related parties. The Final Plan provided that the holders of the Predecessor Companys Common
Stock (other than Saratoga and the Predecessor Companys Chief Executive
Officer) receive the benefit of certain equity investments held by the
Predecessor Company in Fiberstars, Inc. and Hexagram, Inc., as well as a
possible future payment, based on 3% of amounts received by Saratoga after
providing Saratoga with a return of capital plus an agreed rate of return, as
more fully described in the Final Plan. Options and warrants to purchase
Predecessor Company Common Stock which were not exercised prior to the
Effective Date were cancelled. Effective December 10, 2003, the Predecessor Companys secured banking facility
was amended and restated to provide financing for the Reorganized Company
following emergence from bankruptcy (the amended facility is referred to as the
Bank Credit Facility). The Bank Credit Facility is a $30,000 facility that
consists of a term loan that requires monthly principal payments of $183
($9,900 outstanding at June 30, 2004) with a revolving credit loan, subject to
availability, making up the remainder of the facility. Availability under the
revolving credit loan was $15,600 and no balance was outstanding on the
revolving credit loan at June 30, 2004. Interest rates on the revolving credit
loan are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004).
Interest rates on the term loan are based on Libor plus 3.50% or Prime plus
1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit
facility and the term loan is December 10, 2008. The Reorganized Company paid
a closing fee of $110 in connection with the establishment of the Bank Credit
Facility. The financing arrangements are described in greater detail in Note
E, Financing Arrangements. With respect to the Predecessor Companys $100,000 8% Senior Notes due 2008
(the Old Notes), the Company had not made the semi-annual interest payments
due on September 16, 2002, March 15, 2003,
and September 15, 2003. The Company had continued to accrue interest on the
Old Senior Notes at 8%
through December 31, 2003, and accrued and unpaid interest on the Old Senior
Notes would have been
$14,400 as of that date. The Final Plan provided that the Old Notes be
exchanged for an aggregate principal amount of $114,400 11% Senior Notes due
2009 (the New Notes). The New Notes bear interest at 11% from January 1,
2004, and become due on March 31, 2009. Upon the Effective Date of the Final
Plan, pursuant to the approval of the Plan by holders of the Old Senior Notes,
all then existing defaults under the Indenture relating to the Old Senior Notes
were waived. The Final Plan permitted other unsecured creditors of the Debtors to choose
payment of their claims (in the amount agreed or determined by the Bankruptcy
Court, with interest at 1.32% per year from February 5, 2003 to December 10,
2003) in full, over 12 months following the Effective Date with interest at
1.32% per year, or within 45 days following the Effective Date or, if later,
the date that the amount of F-9




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) B. Emergence from Bankruptcy (continued) claim is determined, at 85% of the amount of the claim. Elections of the 85%
Now alternative resulted in a $241 reduction in the amounts payable in respect
of claims. The Final Plan provided that obligations of the Debtors to General
Electric Company (GE) and its subsidiaries would be offset against
obligations of GE and its subsidiaries to the Debtors and Deposition Sciences
Inc., a non-Debtor subsidiary of the Company, and that any remaining
pre-petition obligations of the Debtors to GE would be treated as unsecured
indebtedness under the Final Plan. Additionally, the Company and GE agreed to
a settlement of disputed amounts that, together with GEs election of the 85%
Now treatment of the remaining pre-petition amounts, resulted in a loss of
$247. As described in the Disclosure Statement relating to the Final Plan, the
Company has established incentives to GE for incremental purchases from the
Company (other than APL Engineered Materials, Inc.). Upon the confirmation of the Final Plan, the Companys investment banker became
entitled to receive, in addition to monthly fees and reimbursement of expenses,
fees based on formulas contained in the Companys agreement with the investment
banker, that were agreed between the parties to be $2,500, and approved by the
Bankruptcy Court. The Company recorded $1,000 of these fees as reorganization
expenses in fiscal 2003 and $1,500 in fiscal 2004. The Company incurred
reorganization expenses of $11,258 for the six months ended December 31, 2003,
for consultants, investment bankers, attorneys and other costs related to the
Companys efforts to reorganize under Chapter 11 Bankruptcy. Reorganization
expenses of $7,435 were also incurred in fiscal 2003. As described in the Disclosure Statement relating to the Final Plan, the
Company has established a bonus plan for its executive officers. Pursuant to
the bonus plan, senior officers will be entitled to bonuses based on business
objectives for the Company or its subsidiaries. The aggregate amount of these
bonuses for fiscal 2004 was $868. In addition, the employment agreement with the Companys Chief Executive
Officer (CEO) includes a retention bonus program pursuant to which the CEO is
entitled to a retention bonus payable in two equal installments, as follows:
(1) $2,027 as of July 1, 2004 ($1,350 for application against the Companys
loan to the CEO); and (2) $2,027 as of July 1, 2005 ($1,350 for application
against the Companys loan to the CEO). Notwithstanding the foregoing, however,
the CEO will not be entitled to receive the July 1, 2005 bonus, if the CEO has
resigned or been terminated for cause prior to the date each such retention
bonus payment is to be made. See Note J, Related Party Transactions. Reorganization, Fresh Start and Push Down Adjustments The Companys emergence from Chapter 11 bankruptcy proceedings resulted in a
new reporting entity and adoption of fresh start reporting in accordance with
Statement of Position (SOP) No. 90-7, Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. The consolidated financial
statements reflect reorganization F-10




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) B. Emergence from Bankruptcy (continued) adjustments recorded as of December 31, 2003 for the discharge of debt and
adoption of fresh start reporting. The reorganization value of the assets of
the consolidated group, which served as the basis for the Final Plan approved
by the Bankruptcy Court, is $170,000 prior to the investment by Saratoga. This
amount was used to determine the value allocated to the assets and liabilities
of the Reorganized Company in proportion to their relative fair values in
conformity with Statement of Financial Accounting Standards (FAS) No. 141,
Business Combinations. The reorganization value of the Company was determined after negotiations
between Saratoga and the Creditors Committee, and in consideration of several
factors and by reliance on various valuation methods, including discounting
cash flow and price/earnings and other applicable calculations. The factors
considered by the parties to the bankruptcy included forecasted operating and
cash flow results, discounted residual values at the end of the forecast period
based on capitalized cash flows for the last year of that period, market share
and position, competition and general economic considerations, projected sales
growth, and potential profitability. A black line has been drawn between the accompanying consolidated balance sheet
as of June 30, 2004 and June 30, 2003 to distinguish between the Reorganized
Company and the Predecessor Company. A black line has also been drawn between
the consolidated statement of operations and of cash flows for the six months
ended June 30, 2004 and the other periods presented to distinguish between the
Reorganized Company and the Predecessor Company. The results of the periods
shown for the Predecessor Company are not considered to be comparable to those
of the Reorganized Company. Reorganization adjustments recorded as of December 31, 2003 resulted primarily from the following:  
    
    Exchange of $100,000 of 8% Senior Notes and accrued interest through December
31, 2003 of $14,400 for $114,400 of 11% Senior Notes;
    
    Issuance to Saratoga of 29,000 shares of the Companys New Series A Preferred
Shares and 1,000 of its New Common Shares in exchange for $18,000 and all of
the equity interests of Saratoga in the Company purchased from GE for
$12,000, including the 761,250 shares of the Companys Old Preferred Stock
and 1,429,590 shares of the Companys Old Common Stock, and push-down of
Saratogas investment;
    
    Cancellation of the existing common stock in exchange for two investments of
the company with a net book value of $7,192 as of the effective date of the
Final Plan; and,
    
    Increase in the receivable from officer of $1,169 resulting from a
court-approved settlement and reclassification of the receivable to related
party receivables from the equity section of the condensed consolidated
balance sheet. F-11




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) B. Emergence from Bankruptcy (continued) Fresh start adjustments recorded as of December 31, 2003 resulted primarily from the following:  
    
    Reduction of property, plant and equipment carrying values, including
reduction of the Companys real estate by $11,644 and personal property by
$28,790;
    
    Adjustment of the identifiable intangible assets to $24,675 including customer
contracts and relationships of $10,000, trademarks and tradenames of $8,635,
and technology of $6,040;
    
    Reduction in the value of inventory of $1,997 related to inventory being
disposed of by June 30, 2004; and,
    
    Increase in the value of inventory of $1,500 related to an adjustment in
accordance with FAS No. 141, which requires that inventory be recorded at fair
value on the reorganized companys balance sheet. The increase in inventory
of $1,500 above manufacturing cost reduced reported gross margin and net
profit in the third quarter of fiscal 2004 as the written-up inventory was
sold. These preliminary adjustments were based upon the work of outside appraisers,
as well as internal valuation estimates using discounted cash flow analyses, to
determine the relative fair values of the Companys assets and liabilities and
are not expected to differ materially. As encouraged under SEC Staff Accounting Bulletin No. 54, Push Down Basis of
Accounting Required in Certain Limited Circumstances, the Company has reflected
an additional adjustment to establish a new basis for its assets and
liabilities based on the amount paid by Saratoga for its ownership at December
31, 2003. The following table reflects the reorganization, fresh start and
push down adjustments to the Companys Consolidated Balance Sheet discussed
above: Unaudited Balance Sheet as of December 31, 2003Push-DownPredecessor
    
    Reorganization
    
    Fresh Start
    
    Accounting
    
    ReorganizedCompany
    
    Adjustments
    
    Adjustments
    
    Adjustments
    
    CompanyCurrent assets
    
    $
    61,524
    
    
    
    3,188
    
    
    
    (524
    )
    
    
    
    
    
    $
    64,188Property, plant and equipment, net
    
    
    86,864
    
    
    
    
    
    
    
    (40,434
    )
    
    
    
    
    
    
    46,430Investments and other assets
    
    
    13,616
    
    
    
    (3,012
    )
    
    
    1
    
    
    
    
    
    
    
    10,605Intangible assets, net
    
    
    2,597
    
    
    
    
    
    
    

    22,078
    
    
    
    
    
    
    
    24,675Goodwill
    
    
    4,573
    
    
    
    
    
    
    
    23,129
    
    
    
    23,309
    
    
    
    51,011Total assets
    
    $
    169,174
    
    
    
    176
    
    
    
    4,250
    
    
    
    23,309
    
    
    $
    196,909Short-term debt and current portion of long-term debt
    
    $
    5,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,060Accounts payable and accrued expenses
    
    
    46,078
    
    
    
    (15,515
    )
    
    
    1,395
    
    
    
    
    
    
    
    31,958Long-term debt
    
    
    128,672
    
    
    
    (600
    )
    
    
    
    
    
    
    
    
    
    
    128,072Total liabilities
    
    
    179,810
    
    
    
    (16,115
    )
    
    
    1,395
    
    
    
    
    

    
    
    165,090Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    600Minority interest
    
    
    1,219
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,219New preferred stock
    
    
    
    
    
    
    
    
    
    
    5,691
    
    
    
    23,309
    
    
    
    29,000Old preferred stock
    
    
    24,475
    
    
    
    (24,475
    )
    
    
    
    
    
    
    
    
    
    
    New common stock
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Old common stock
    
    
    24
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    Accumulated deficit
    
    
    (245,453
    )
    
    
    1,139
    
    
    
    244,314
    
    
    
    
    
    
    
    Other shareholders equity
    
    
    209,099
    
    
    
    39,651
    
    
    
    (247,751
    )
    
    
    
    
    
    
    999Total liabilities and shareholders equity
    
    $
    169,174
    
    
    
    176
    
    
    
    4,250
    
    
    
    23,309
    
    
    $
    196,909
 F-12




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) B. Emergence from Bankruptcy (continued) The application of SOP 90-7 and SEC Staff Accounting Bulletin No. 54, Push Down
Basis of Accounting Required in Certain Limited Circumstances, resulted in the
elimination of the existing goodwill and the establishment of a new amount of
goodwill of $51,011, that represents the reorganization value in excess of
amounts allocable to identifiable assets. In accordance with the provisions
of Statement of Financial Accounting Standards (FAS) No. 142, Goodwill and
Other Intangible Assets, the newly-established goodwill will not be amortized.
Rather, the Company will evaluate this asset for impairment at least annually
and whenever there is an impairment indicator using the fair value guidelines
of FAS No. 142. C. 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 are accounted for under the
cost method. Accounting Estimates The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America 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 an original maturity
of three months or less when purchased to be cash equivalents. F-13




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) C. Significant Accounting Policies (continued) 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 and its subsidiaries
maintain cash balances at several financial institutions located in foreign
countries which totaled $2,793 at June 30, 2004. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents. Any investment of cash
by the Company is primarily in high quality institutional money-market
portfolios and high quality securities. 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. Accounts written off, net of recoveries totaled $201 for the six
months ended June 30, 2004, $633 for the six months ended December 31, 2003,
$439 in fiscal 2003 and $370 in fiscal 2002. Credit risk on trade receivables
is minimized as a result of the large and diverse nature of the Companys
worldwide 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. At June 30,
2004 and 2003, self-constructed assets in progress, classified as machinery
and equipment, were $2,733 and $3,090 respectively. 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, 30 to 40 years; machinery and
equipment, 5 to 15 years; furniture and fixtures, 5 to 10 years; and, leasehold
improvements, the lease periods. Deferred Financing Costs The costs related to the issuance of debt are capitalized and amortized to
interest expense using the straight-line method over the lives of the related
debt. Financing costs of $440 related to the Bank Credit Facility have been
capitalized and are included in the caption Other assets at June 30, 2004. F-14




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) C. Significant Accounting Policies (continued) Intangible Assets and Accounting Change for Goodwill and Certain Intangible Assets
Intangible assets are amortized using the straight-line method over the following lives: Patented technology and trade secrets
    
    8 - 15 yearsCustomer contracts and relationships
    
    10 - 20 years
 Amortization expense for each of the next five fiscal years is estimated to be
$955 per year. 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 requires the application of the
purchase method of accounting for all business combinations. 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, is no longer subject to amortization. Finally,
goodwill and intangible assets with indefinite lives are tested for impairment
annually and whenever there is an impairment indicator. The Company adopted FAS 142 as of July 1, 2001. The Company evaluated goodwill
of $66,172 and intangible assets with indefinite lives of $11,874, which
represents tradenames. The Company used third party appraisals and expected
future discounted cash flows to determine the fair value of the reporting units
and whether any impairment of goodwill or indefinite lived intangible assets
existed as of the above date. As a result of this evaluation, the Company
recorded a cumulative effect of accounting change for the estimated impairment
of goodwill and other indefinite lived intangible assets of $71,171, as of the
beginning of fiscal 2002. The impact of adopting FAS 142 was to reduce
amortization and, consequently, the loss before cumulative effect of accounting
change for fiscal 2002 by $1,315. Accumulated amortization was $474 and $2,782
at June 30, 2004 and 2003, 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 estimated fair value of the underlying collateral or other assets
available to repay the loan. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. The Company evaluates the collectibility of both the interest and
principal when assessing the need for a possible impairment on the loan. Earnings Per Share Due to the Companys emergence from bankruptcy and the implementation of Fresh
Start Reporting, the presentation of earnings per share is not meaningful for
the periods presented in the accompanying condensed consolidated financial
statements. F-15




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) C. Significant Accounting Policies (continued) Revenue Recognition The Company follows the provisions of Staff Accounting Bulletin No. 101 (SAB
101), Revenue Recognition in Financial Statements, which codifies the
requirements for recognizing revenue. 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 and other 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. Shipping and Handling Fees and Costs The Company classifies all amounts billed to a customer in a sales transaction
related to shipping and handling is classified as revenue. The Company records
shipping and handling costs as Marketing and Selling costs, and these amounts
totaled $1,833 for the six months ended June 30, 2004, $1,543 for the six
months ended December 31, 2003, $3,458 in fiscal 2003, and $5,342 in fiscal
2002. Derivative Financial Instruments 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 the Company to recognize all derivatives on the
balance sheet date at fair value. Any gains or losses from changes in fair
value of derivative instruments designated as hedges and having a high
correlation with the underlying exposures are deferred. During the six months ended June 30, 2004, the first eight months of fiscal
2003 and all of fiscal 2002, the Company used foreign currency forward
contracts that mature in 30 days to reduce its exposure to adverse fluctuations
in foreign currency exchange rates. These foreign exchange hedging activities
did not create exchange rate risk since gains and losses on these contracts
offset losses and gains on the underlying positions. The Company has elected
not to treat these instruments as hedges for accounting purposes and,
accordingly, both realized and unrealized gains and losses on these derivative
instruments have been recorded in general and administrative expense.
Derivative financial instruments are not entered into for trading or
speculative purposes. F-16




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) D. Sale of Subsidiaries and Investments On December 12, 2001 the Company completed the sale of a significant portion of
its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and
Ruud Lighting Europe Ltd. subsidiaries) to an investor group led by Alan J.
Ruud. From January 1998 until the time of the transaction, Mr. Ruud was a
director of the Company, served as its Vice Chairman and Chief Operating
Officer, and held in excess of 5% of the Companys outstanding common stock.
The business assets consisted primarily of manufacturing equipment, inventory
and accounts receivable and the Ruud Lighting manufacturing facility located in
Racine, Wisconsin. The consideration received by the Company consisted of a
cash payment of $28,000 (adjusted dollar for dollar to reflect the amount of
any changes in working capital and funded indebtedness between September 2,
2001 and December 3, 2001) and promissory notes totaling $6,000 due December 1,
2006. As part of this transaction, funded indebtedness of $9,005 continued to
be the obligation of Ruud Lighting and the Company retained title to the Rhode
Island manufacturing facility of Kramer Lighting. Upon sale of the facility in
September 2002, the Company paid Ruud Lighting one-third of the net proceeds or
$427 in accordance with the terms of the agreement. Preliminary estimates of
the adjustment in the cash consideration resulted in a net reduction of $2,458
in the cash received at closing. The preliminary estimates were subject to a
review process under the agreement. The sale of the subsidiaries resulted in a
gain of $227 in the quarter ended December 31, 2001. In May 2003, Ruud Lighting, Inc. and its shareholders filed claims with the
Bankruptcy Court in connection with the final settlement of purchase price,
alleged breaches of the agreement and post closing administrative services of
approximately $5,880. The Company, Ruud Lighting, Inc. and the Ruud Lighting
shareholders entered into a settlement agreement dated September 8, 2003,
settling the Ruud claims, as well as claims by the Debtors against Ruud
Lighting, Inc. and its shareholders. Pursuant to the terms of the settlement,
the original notes were cancelled and the Company received new notes from the
Ruud Lighting, Inc. shareholders in the aggregate amount of $3,000 with
interest at 8%. These notes are due December 1, 2006, but rebates earned on
purchases by Ruud Lighting, Inc. pursuant to its current agreement with the
Debtors will be credited toward prepayment of the principal and interest on the
notes. The Company is no longer required to make payments on a non-cancelable
operating lease for the unused Elkhorn, Wisconsin facility, and receives from
Ruud Lighting, Inc. one half of the amount of any sublease payments received.
In addition, the agreement provided for mutual releases by the parties. The
Bankruptcy Court issued a final order approving the settlement on October 16,
2003. As a result of this settlement, the Company recorded a loss of $1,003 in
fiscal 2003. As a result of the issuance of the final order approving the
settlement, the Company recorded a reduction in its liabilities subject to
compromise of $1,463 and a reduction in its special charge accrual related to
the Elkhorn facility of $1,323. In March 2002, the Company sold its preferred stock investment in Venture
Lighting Japan for $1,300, consisting of $1,000 in cash and $300 paid in August
2002. The sale resulted in a loss of $2,007 during fiscal 2002. The loss is
included in the caption Income (loss) from investments in the Consolidated
Statement of Operations. F-17




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) E. Financing Arrangements Short-term debt consisted of the following: Reorganized

    PredecessorCompany

    CompanyJune 30,

    June 30,2004

    2003Debtor-in-Possession Facility  revolver
    
    $
    
    


    $
    6,626Debtor-in-Possession Facility  term loans
    
    
    
    

    
    18,500Current portion of long-term debt
    
    
    4,634
    

    
    2,241$
    4,634
    

    $
    27,367
 Effective December 10, 2003, the Companys Debtor-in-Possesion Facility was
amended and restated to provide financing for the company following emergence
from bankruptcy (the amended facility is referred to as the Bank Credit
Facility). The Bank Credit Facility is a $30,000 facility that consists of a
term loan that requires monthly principal payments of $183 ($9,900 outstanding
at June 30, 2004) with a revolving credit loan, subject to availability, making
up the remainder of the facility. Availability of borrowings under the
revolving credit loan is determined by the Companys eligible account
receivables and inventories, and availability was $15,600 with no balance
outstanding on the revolving credit loan at June 30, 2004. Interest rates on
the revolving credit loan are based on Libor plus 2.75% or Prime plus .75%
(5.00% at June 30, 2004). Interest rates on the term loan are based on Libor
plus 3.50% or Prime plus 1.50% (5.75% at June 30, 2004). The final maturity of
the revolving credit facility and the term loan is December 10, 2008. For most
of fiscal 2003 and until December 2003, the Companys interest cost on bank
loans ranged from 6.25% to 7.75%. In fiscal 2002, the Company interest cost on
bank loans ranged from 4.75% to 6.75%. The Bank Credit Facility includes affirmative and negative covenants customary
for this type of agreement, prohibits cash dividends and includes financial
covenants relating to Minimum Adjusted EBITDA and Capital Expenditures. The
principal security for the Bank Credit Facility is substantially all of the
personal property of the Company and each of its North American and United
Kingdom subsidiaries. The term loan was secured by substantially all of the
Companys machinery and equipment in North America and the United Kingdom and
the Companys facility in Urbana, Illinois, and is cross-collateralized and
secured with the revolving credit loan. On December 10, 2003, in connection with the Companys emergence from
bankruptcy proceedings, the Companys Old 8% Senior Notes were cancelled and,
in exchange for such Old Senior Notes, the Company issued $114,400 of 11%
Senior Notes due March 2009 (New Notes). The aggregate principal amount of
the New Notes is equal to the aggregate principal amount of the Companys Old
Senior Notes, plus interest, which would have accrued and been unpaid through
December 31, 2003. The New Notes bear interest at 11%. The New Notes are
redeemable at the Companys option, in whole or in part, at any time at a
redemption price equal to the principal amount of the New Notes plus accrued
interest. Interest on the New Notes is payable semi-annually on March 31 and
September 30. The fair value of the Companys Senior Notes at June 30, 2004 and
2003 approximated $114,400 and $55,000, F-18




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) E. Financing Arrangements (continued) respectively. The estimated fair value of the Companys remaining debt at June
30, 2004 and 2003 approximated carrying value, as the effective rates for this
debt were comparable to market rates. The Indenture for the New Notes contains covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries (as defined
therein) to incur indebtedness, pay dividends, prepay subordinated
indebtedness, repurchase capital stock, make investments, create liens, engage
in transactions with stockholders and affiliates, sell assets and, with respect
to the Company, engage in mergers and consolidations. There are no sinking fund
requirements. Long-term debt consisted of the following: Reorganized
    
    
    PredecessorCompany
    
    
    CompanyJune 30,
    
    
    June 30,2004
    
    
    2003Senior unsecured 11% notes, due March 2009
    
    $
    114,400
    
    
    
    
    Senior unsecured 8% notes, due March 2008
    
    
    
    
    
    
    $
    100,000Bank Credit Facility  term loan
    
    
    9,900
    
    
    
    
    Mortgage notes payable
    
    
    4,456
    
    
    
    
    5,712Term loan
    
    
    
    
    
    
    
    1,008Promissory note
    
    
    1,970
    
    
    
    
    1,970Other
    
    
    587
    
    
    
    
    845131,313
    
    
    
    
    109,535Less current portion of long-term debt
    
    
    (4,634
    )
    
    
    
    (2,241
    )Reclassification to liabilities subject to compromise:Senior unsecured 8% notes, due March 2008
    
    
    
    
    
    
    
    (100,000
    )Promissory note
    
    
    
    
    
    
    
    (1,970
    )$
    126,679
    
    
    
    $
    5,324
 Mortgage notes payable consisted of one note of $4,317 bearing interest at
9.39% and one note at $139 bearing interest at 7.41%. At June 30, 2004, these
notes were collateralized by land and buildings with a net carrying value of
$8,315. 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 Company has paid principal of $330 through June 30, 2004. The
note is currently payable, however, the Company has objected to this claim, the
resolution of which is still being pursued through the bankruptcy court. Aggregate maturities of debt (including capital lease obligations) for the five
fiscal years subsequent to June 30, 2004, were as follows: 2005  $4,634; 2006
 $6,653; 2007  $2,207; 2008  $2,208; and 2009  $115,508; thereafter 
$103. F-19




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) F. Shareholders Equity Saratoga Lighting Holdings, LLC Investment Saratoga acquired all of the Common and Preferred shares owned by GE on August
15, 2003. As a result, Saratoga held 1,429,590 shares of Company Common Stock
and 761,250 shares of the Companys then existing Old Preferred Stock. Saratoga
received, in exchange for cancellation of its holdings of the Predecessor
Companys Common Stock and Old Preferred Stock, and an $18,000 cash investment,
new redeemable preferred stock (the New Series A Preferred) of the
Reorganized Company, with an initial liquidation preference of $29,000, and
approximately 91% of the common stock of the Reorganized Company (on a diluted
basis, assuming issuance of common stock of the Reorganized Company to its
senior management pursuant to the new management incentive plan). Under the
management incentive plan, shares equal to approximately 9% of the common stock
of the Reorganized Company have been issued. The New Series A Preferred has a liquidation preference of $1 per share, plus
dividends at the rate of 8% per annum, when and if declared. The cumulative
undeclared dividends were $1,293 as of June 30, 2004. The initial carrying
amount of the New Series A Preferred was set at $29,000, the estimated fair
value at the date of issuance. The Holder of the New Series A Preferred may,
by notice, require the Company to redeem the outstanding New Series A Preferred
within 21 days following the occurrence of certain corporate events. The
Company may redeem the New Series A Preferred in whole, but not in part, at any
time. The redemption price for the New Series A Preferred is equal to the
liquidation preference amount for such shares. The New Series A Preferred
shares are each entitled to one vote on each matter presented to shareholders
of the Company, as well as one vote on each matter required to be voted upon by
the New Series A Preferred as a class. As a consequence, the New Series A
Preferred represents approximately 96.3% of the voting power of the Company at
June 30, 2004. As of June 30, 2004, Saratoga held 98.5% of the voting power of
the Company. 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 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 or $.47
per share and expire ten years from the date of grant. A total of 623,500
options were granted under the Plan in fiscal 2002. No options were granted in
fiscal 2004 and fiscal 2003. Options cancelled in fiscal 2004, fiscal 2003 and
fiscal 2002 totaled 175,000, 687,500 and 1,875,000, respectively. No DSI
options have been exercised. Options for 4,730,936 shares are exercisable at
June 30, 2004. F-20




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) G. 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
these plans were $429 for the six months ended June 30, 2004, $331 for the six
months ended December 31, 2003, $688 in fiscal 2003, and $1,107 in fiscal 2002. H. Income Taxes Income (loss) from operations before income taxes, minority interest, and
cumulative effect of accounting change were attributable to the following
sources: ReorganizedCompany
    
    
    Predecessor CompanySix Months
    
    
    Six MonthsEndedJune 30,
    
    
    EndedDecember 31,
    
    Year Ended June 30,2004
    
    
    2003
    
    2003
    
    2002United States
    
    $
    (4,143
    )
    
    
    $
    (18,778
    )
    
    $
    (32,971
    )
    
    $
    (27,161
    )Foreign
    
    
    5,149
    
    
    
    
    5,543
    
    
    
    5,344
    
    
    
    (2,194
    )Totals
    
    $
    1,006
    
    
    
    $
    (13,235
    )
    
    $
    (27,627
    )
    
    $
    (29,355
    )
 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. Income taxes have been provided as follows: ReorganizedCompany
        

    Predecessor CompanySix Months
        

    Six MonthsEndedJune 30,
    
    
    EndedDecember 31,
    
    Year Ended June 30,2004
    
    
    2003
    
    2003
    
    2002CurrentFederal
    
    $
    
    
    
    
    $
    
    
    
    $
    (125
    )
    
    $
    (162
    )State and local
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Foreign
    
    
    399
    
    
    
    
    350
    
    
    
    449
    
    
    
    163399
    
    
    
    
    350
    
    
    
    324
    
    
    
    (31
    )DeferredFederal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and local
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign
    
    
    90
    
    
    
    
    10
    
    
    
    622
    
    
    
    283$
    0
    
    
    $
    090
    
    
    
    
    10
    
    
    
    622
    
    
    
    283$
    489
    
    
    
    $
    360
    
    
    $
    946
    
    
    $
    252
 F-21




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) H. Income Taxes (continued) 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, 2004 and 2003 are as follows: Reorganized
    
    
    PredecessorCompany
    
    
    CompanyJune 30,
    
    
    June 30,2004
    
    
    2003Deferred tax assets:Net operating loss carryforwards
    
    $
    3,583
    
    
    
    $
    38,787Capital loss carryforward
    
    
    
    
    
    
    
    15,646Research and development tax credits
    
    
    
    
    
    
    
    3,818Tax under financial reporting special charges
and equity write-down
    
    
    1,804
    
    
    
    
    7,076Impairment of officer loan
    
    
    
    
    
    
    
    3,822Impairment of fixed assets
    
    
    
    
    
    
    
    5,735Depreciation
    
    
    6,658
    
    
    
    
    Other
    
    
    2,913
    
    
    
    
    3,11914,958
    
    
    
    
    78,003Deferred tax liabilities:Tax over financial reporting
depreciation and amortization
    
    
    5,279
    
    
    
    
    7,1545,279
    
    
    
    
    7,154Net deferred tax assets before valuation allowance
    
    
    9,679
    
    
    
    
    70,849Valuation allowance
    
    
    (10,379
    )
    
    
    
    (70,719
    )Net deferred tax assets (liabilities)
    
    $
    (700
    )
    
    
    $
    130
 Due to the uncertainty of the ultimate realization of the deferred tax assets,
valuation allowances of $10,379 and $70,719 were recorded by the Company as of
June 30, 2004 and 2003, respectively. The net decrease in the valuation
allowance for fiscal 2004 was $60,340. The Company has U.S. net operating
losses which, in accordance with the principles of fresh start accounting, were
not included in the net deferred tax assets of the Reorganized Company. The
net deferred tax liabilities represent the difference in basis between book and
tax depreciation in the Companys Indian operation. These net operating
losses are available to be utilized, and, to the extent the net operating
losses are utilized, goodwill will be reduced accordingly for the benefit
received. F-22




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) H. Income Taxes (continued) The statutory federal income tax rate and the effective income tax rate are
reconciled as follows: ReorganizedCompany
    
    Predecessor CompanySix Months
    
    Six MonthsEndedJune 30,
    
    EndedDecember 31,
    
    Year Ended June 30,2004
     
    2003
    
    2003
    
    2002Statutory tax rate
    
    
    35.0
    %
    
    
    (35.0
    )%
    
    
    (35.0
    )%
    
    
    (35.0
    )%Capital loss
    
    
    
    
    
    
    
    
    
    
    (7.0
    )
    
    
    (44.8
    )Foreign tax rate differential
    
    
    (133.5
    )
    
    
    (11.9
    )
    
    
    (1.4
    )
    
    
    4.6Nondeductible permanent items
    
    
    23.5
    
    
    
    17.7
    
    
    
    0.8
    
    
    
    0.2Valuation allowance change
    
    
    120.6
    
    
    
    31.9
    
    
    
    46.8
    
    
    
    76.6Other
    
    
    3.0
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (0.8
    )Effective tax rate
    
    
    48.6
    %
    
    
    2.7
    %
    
    
    3.4
    %
    
    
    0.8
    %
 At June 30, 2004, the Company had net operating loss carryforwards of $130,833
available to reduce future United States federal taxable income, which expire
2008 through 2024. On August 15, 2003, Saratoga purchased the preferred and
common shares owned by GE (See Note F). This transaction caused an ownership
change greater than 50% which will limit the annual net operating loss the
Company can use to offset any future taxable income pursuant to Section 382 of
the Internal Revenue Code. This limitation is effective with the fiscal year
ended June 30, 2004. The Company also has a capital loss carryforward of
$40,117 available to reduce future capital gains. The usage of this
carryforward will also be limited as a result of the ownership change. This
carryforward expires in 2007. The Company also had research and development credit carryforwards of
approximately $3,818 available at June 30, 2004, which expire 2008 through
2020. Additionally, in conjunction with the Alternative Minimum Tax (AMT)
rules, the Company had available AMT credit carryforwards for tax purposes of
approximately $98, which may be used indefinitely to reduce regular federal
income taxes. The usage of these credits will also be limited as a result of
the ownership change. Also, at June 30, 2004, the Company had foreign net operating loss
carryforwards for tax purposes totaling $1,163 that expire 2006 to 2007 and
$9,395 that have no expiration dates. F-23




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) I. Special Charges and Asset Impairment In fiscal 2001 and 2002 the Companys DSI subsidiary made significant
investments in building telecommunication product manufacturing equipment and
related facilities to apply its thin-film coating technology to telecom
products. With the continuing decline in the global telecommunication business
and uncertainty regarding the recovery of the telecom market, the Company
recognized a $10,433 charge in fiscal 2003 related to the abandonment of
certain long-lived assets and write down of certain assets held for sale to
fair value. The Company also recorded a charge of $1,150 in fiscal 2003 for an
impairment related to a non-refundable option to purchase for $11,500 the
building currently leased by DSI that was not likely to be exercised before its
original expiration in March 2004. Additionally, as a result of the delisting
of the Companys common shares from the Nasdaq National Market, the Company
recorded an asset impairment charge of $1,163 for the write-off of deferred
costs associated with its shelf offerings in fiscal 2003. The Company also
recognized a $411 charge in fiscal 2003 related to the abandonment of lamp
manufacturing equipment. Finally, the Company recognized a charge of $703
related to impairment of its investment in a foreign joint venture involved in
the manufacturing of metal halide lamps. This $703 charge is included in the
caption Income (Loss) from Investments in the Consolidated Statements of
Operations. During the year ended June 30, 2002, the Company recorded special charges
related to changes in its operations, which are intended to improve
efficiencies and reduce costs world-wide. The special charges principally
relate to consolidating the Companys power supply manufacturing operations
into its high-efficiency facility in Chennai (Madras), India; reducing staffing
levels at most locations and evaluating certain equipment and investments for
impairment in light of its long-term strategies. The special charges were determined in accordance with formal plans developed
by the Companys management, approved by the CEO and subsequently reviewed with
the Companys Board of Directors using the best information available to it at
the time. Actions associated with closing facilities began in the first
quarter of fiscal 2002 and were substantially completed by the end of fiscal
2002. A total of approximately 250 employees were terminated enterprise-wide
from almost all units of the Company. Assets related to the above actions that
were no longer in use or held for sale were written-down to their estimated
fair values. During the year, the Company revised certain estimates related to
its plans. As of June 30, 2002, all actions required by the plans were
completed and the remaining liabilities related primarily to a long-term lease
obligation that terminates in August 2006. The Company, Ruud Lighting, Inc. and the Ruud Lighting shareholders entered
into a settlement agreement dated September 8, 2003 settling their claims, as
well as claims by the Debtors against Ruud Lighting, Inc. and its shareholders
(See Note D, Sale of Subsidiaries and Investments). As a result of the
settlement, the Company is no longer liable for the long-term lease obligation. F-24




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) I. Special Charges and Asset Impairment (continued) Details of the actions and related special charges recorded during the fiscal
year ended June 30, 2002 and related payments made during fiscal 2002 and 2003
are summarized as follows: Year Ended June 30, 2002Cash/
    
    Charged to
    
    Reclassi-
    
    Charges
    
    BalanceJune 30,
    
    Charges
    
    BalanceJune 30,Description
    
    Noncash
    
    Operations
    
    fications
    
    Utilized
    
    2002
    
    Utilized
    
    2003Consolidate power supply operations
Severance
    
    Cash
    
    $
    1,243
    
    
    $
    168
    
    
    $
    1,411
    
    
    
    
    
    
    
    
    
    
    
    Lease cancellations
    
    Cash
    
    
    1,835
    
    
    
    
    
    
    
    225
    
    
    $
    1,610
    
    
    $
    287
    
    
    $
    1,323Write-down of assets
    
    Noncash
    
    
    2,579
    
    
    
    
    
    
    
    2,579
    
    
    
    
    
    
    
    
    
    
    
    Shut-down costs of facilities
    
    Cash
    
    
    265
    
    
    
    (8
    )
    
    
    240
    
    
    
    17
    
    
    
    
    
    
    
    17Reduce staffing requirements
    
    Cash
    
    
    2,017
    
    
    
    (160
    )
    
    
    1,857
    
    
    
    
    
    
    
    
    
    
    
    Impairment of long-lived assets
    
    Noncash
    
    
    2,977
    
    
    
    
    
    
    
    2,977
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    Noncash
    
    
    333
    
    
    
    
    
    
    
    333
    
    
    
    
    
    
    
    
    
    
    
    $
    11,249
    
    
    $
    
    
    
    $
    9,622
    
    
    $
    1,627
    
    
    $
    287
    
    
    $
    1,340
 Total special charges for the first quarter of the fiscal year ended June 30,
2002 of $9,697 are classified in the consolidated statement of operations as
cost of sales $(688) and special charges $(9,009). During the fourth quarter of
fiscal 2002, the Company evaluated for impairment certain telecommunication
equipment that is being held for sale. As a result, a charge of $1,552 was
recorded for the difference between the carrying amount and the fair value of
the equipment. J. Related Party Transactions The related party transactions described below took place prior to, or were
approved in connection with, the reorganization pursuant to the Final Plan of
Reorganization. Pursuant to an agreement dated October 8, 1998, as amended, between the
Predecessor Company and its Chairman and Chief Executive Officer (the CEO),
the Predecessor Company, following approval by its Board of Directors, had a
loan recorded for $14,144 to its CEO, including principal of $12,789 and
accrued interest. The proceeds of the loan were used by the CEO to reduce the
principal balance outstanding of margin loan accounts, which was subsequently
repaid. In connection with the loan, the Predecessor Companys Board of
Directors obtained the CEOs agreement to an extension of his
employment agreement to December 31, 2003. On July 26, 2002, the Predecessor
Company and the CEO executed an amendment to the loan documents, implementing
the agreement in principle, reached in January 2002, to extend the maturity of
the loan to July 31, 2007. In accordance with the provisions of FAS Statement No. 5, Accounting for
Contingencies, and FAS Statement No. 114, Accounting by Creditors for
Impairment of a Loan, the Predecessor Company determined the above loan was
impaired and recorded a valuation reserve against the loan. The F-25




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands) J. Related Party Transactions (continued) Predecessor Company recorded an impairment loss of $2,700 in fiscal 2003 and
$7,100 in fiscal 2002, reflecting the amount by which the carrying value of the
loan exceeded the underlying estimated fair value of the assets available to
repay the loan at that time. The Company did not record interest income of $335
in the first six months of fiscal 2004, $829 in fiscal 2003, and $674 in fiscal
2002. Interest on the
loan accrues at the same rate as the Company pays on its credit facility and
totaled $84 in the six months ended June 30, 2004. As discussed in the Disclosure Statement approved October 3, 2003, as part of
the reorganization, the Predecessor Company, Saratoga and the CEO, agreed in
principle, subject to formal approval of the special committee (of independent
directors) of the Predecessor Companys Board of Directors, formal
documentation and Bankruptcy Court approval of the treatment of the CEO loan
pursuant to a separate motion to be filed with the bankruptcy court, that the
CEO loan documents would be modified to reduce the amount of the outstanding
indebtedness owed by the CEO to an amount (the Designated Amount) equal to
the difference between (1) the fair market value of the CEOs personal assets
and (2) the amounts owing to other secured creditors of the CEO that hold
mortgages, liens and/or security interests upon or in property of the CEO, on a
priority senior to the liens and security interests securing the CEOs loan
from the Company, to the extent of the fair market value of such property. The
Designated Amount was set at $4,024. Additionally, the Company received on the
Effective Date of the Plan, the proceeds from the CEOs settlement of
litigation of approximately $1,300 and the proceeds of an investment by the CEO
in an affiliate of the Company. Other than reducing the amount of the CEO loan
as described above, the loan would otherwise remain in full force and effect.
The loan may be accelerated if the CEO ceases to be employed by the Company as
a result of his voluntary resignation or termination for cause. On January 8,
2004, the Bankruptcy Court approved the terms of the settlement, which had
previously been approved by the independent directors of the Predecessor
Company, and the agreement became effective January 21, 2004. The consolidated
balance sheet for the Reorganized Company includes the effects of the reduction
of the loan to the Designated Amount, eliminates the valuation reserve with
respect to the loan, and reflects the reclassification of the loan to related
party receivables from the equity section of the balance sheet. Information
regarding bonuses payable to the CEO is set forth in Note B, Emergence from
Bankruptcy. One of the Companys subsidiaries held a demand note from H&F Five, Inc., a
company owned by Messrs. Hellman, and certain other employees and former
employees of the Company, in the amount of $200 bearing interest at 8.5% per
annum. At December 31, 2003, the total amount of the loan, including accrued
interest, was $351. H&F Five, Inc. subsequently transferred these assets in
return for a minority interest in a limited liability company that makes
specialty chemicals. Based on an independent appraisal of the interest of H&F
Five, Inc. in the limited liability company at $592, the H&F Five Inc.
shareholders received cash payments for that value, less the outstanding
balance of the loan, in respect of their respective shares. The payment of
$121 that would otherwise have been made to Mr. Hellman was applied to the
principal amount of his loan from the Company. Effective December 31, 2003, H&F
Five, Inc. was merged with a wholly-owned subsidiary of the Company. F-26




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands)  J.
    
    Related Party Transactions (continued) Both General Electric Company and the Ruud Lighting, Inc. shareholders were
related parties in fiscal 2003 and fiscal 2002 due to their share ownership in
the Company. The Company had sales to GE (materials, lamps and lamp
components) totaling $6,822 in fiscal 2003 and $5,903 in fiscal 2002. The
Company purchased lamps and raw materials from GE totaling $3,076 in fiscal
2003 and $3,353 in fiscal 2002. Included in the balance sheet caption of trade
receivables at June 30, 2003 were receivables from GE of $2,648. Included in
the balance sheet caption of trade payables at June 30, 2003 were payables to
GE of $2,660. The Company had sales to Ruud Lighting (primarily lamps and
power supplies) totaling $6,537 during fiscal 2003 and $3,729 in fiscal 2002
subsequent to the sale of Ruud Lighting in December 2001. The Company
purchased fixtures from Ruud Lighting totaling $1,219 during fiscal 2003 and
$1,500 in fiscal 2002 subsequent to the sale of Ruud Lighting. Included in the
balance sheet caption of trade receivables at June 30, 2003 were receivables
from Ruud Lighting of $1,347. Included in the balance sheet caption of trade
payables at June 30, 2003 are payables to Ruud Lighting of $1,748. The Company incurred fees for consulting services to two former directors of
the Company and to a consulting firm owned by another former director of the
Company. The fees totaled $606 in fiscal 2003 and $400 in fiscal 2002.
Information regarding related party transactions with Saratoga is contained in
Note B.  K.
    
    Commitments The Company leases buildings and certain equipment under non-cancelable
operating lease agreements. Total rent expense was $962 for the six months
ended June 30, 2004, $1,108 for the six months ended December 31, 2003, $2,454
in fiscal 2003, and $2,764 in fiscal 2002. Future minimum lease commitments
for the five fiscal years subsequent to June 30, 2004, were as follows: 2005 
$1,449; 2006  $1,336; 2007  $1,152; 2008  $1,157; 2009  $1,162;
thereafter  $2,149; Total  $8,405. F-27




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands)  L.
    
    Quarterly Results of Operations (Unaudited) The following is a summary of the quarterly results of operations for the years
ended June 30, 2004 and 2003: Reorganized Company
    
    
    Predecessor CompanyFiscal 2004, Three Months EndedJun 30
    
    Mar 31
    
    
    Dec 31 (a)
    
    Sep 30 (b)Net sales
    
    $
    37,131
    
    
    $
    36,944
    
    
    
    $
    37,678
    
    
    $
    32,832Gross profit
    
    
    16,376
    
    
    
    14,469
    
    
    
    
    14,496
    
    
    
    12,653Net income (loss)
    
    
    1,612
    
    
    
    (1,353
    )
    
    
    
    (7,474
    )
    
    
    (6,372
    )
 Predecessor CompanyFiscal 2003, Three Months EndedJun 30 (c)
    
    Mar 31 (d)
    
    Dec 31 (e)
    
    Sep 30 (f)Net sales
    
    $
    36,664
    
    
    $
    36,703
    
    
    $
    38,133
    
    
    $
    33,587Gross profit
    
    
    12,631
    
    
    
    13,811
    
    
    
    13,428
    
    
    
    12,050Net income (loss)
    
    
    (11,737
    )
    
    
    (3,074
    )
    
    
    (12,614
    )
    
    
    (1,481
    )
  (a)
    
    Second Quarter 2004  Net income was reduced by reorganization expenses of $(5,635)
and a write-off of deferred loan costs of $(2,251). Net income was increased by a gain
on restructuring of $1,184.(b)
    
    First Quarter 2004  Net income was reduced by reorganization expenses of $(5,623).(c)
    
    Fourth Quarter 2003  Net income was reduced by: (i) asset impairment of $(6,443)
related primarily to certain telecommunications equipment, (ii) reorganization expenses
of $(3,472), (iii) a loss from sale of fixture subsidiaries of $(1,003), and (iv) a loss from
investment of $(703).(d)
    
    Third Quarter 2003  Net income was reduced by refinancing and reorganization expenses
of $4,047.(e)
    
    Second Quarter 2003  Net income was reduced by: (i) asset impairment of $(5,551)
related to the abandonment of certain long-lived assets and the write-down of certain
equipment held for sale to fair value, (ii) asset impairment of $(1,163) for the write-off
of deferred costs related to the Companys shelf offerings, (iii) provision for loan
impairment of $(2,700) and (iv) refinancing expenses of $(2,303). F-28




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##### Table of Contents



Advanced Lighting Technologies, Inc.
Notes to Consolidated Financial Statements
June 30, 2004
(Dollars in thousands)  M.
    
    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. Net sales by country, based on the location of the business unit, for the six
months ended June 30, 2004, the six months ended December 31, 2003, fiscal
2003, and fiscal 2002 follows: ReorganizedCompany
    
    Predecessor CompanySix Months
 

    Six MonthsEnded
 

    Ended
    
    Year Ended June 30,June 30,
 

    December 31,2004
 

    2003
    
    2003
    
    2002United States
    
    $
    43,107
    
 
    $
    40,326
    
    
    $
    83,719
    
    
    $
    110,718Canada
    
    
    10,991
    
 
       
    11,875
    
    
    
    26,534
    
    
    
    22,619United Kingdom
    
    
    11,248
    
 
    
    9,899
    
    
    
    21,679
    
    
    
    18,713Australia
    
    
    5,974
    
 

    
    6,348
    
    
    
    10,685
    
    
    
    11,304Other
    
    
    2,755
    
 
    
    2,062
    
    
    
    2,470
    
    
    
    1,432$
    74,075
    
 

    $
    70,510
    
    
    $
    145,087
    
    
    $
    164,786
 Long-lived assets by country, based on the location of the asset, as of June
30, 2004 and 2003 follows: Reorganized

    PredecessorCompany

    CompanyJune 30,


    June 30,2004


    2003United States
    
    $
    112,867
    


    $
    73,223Canada
    
    
    1,905
    


    
    3,230United Kingdom
    
    
    595
    


    
    1,217Australia
    
    
    1,549
    


    
    4,269India
    
    
    9,181
    

    
    16,288$
    126,097
    

    $
    98,227
 For the six months ended June 30, 2004, the six months ended December 31, 2003,
fiscal 2003, and fiscal 2002, no single customer accounted for 10% or more of
the Companys net sales. F-29




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##### Table of Contents



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 following table sets forth certain information regarding each of the
Companys current directors and executive officers: Name
    
    Age
    
    PositionChristian L. Oberbeck
    
    
    44
    
    
    DirectorDamon H. Ball
    
    
    47
    
    
    DirectorRichard A. Petrocelli
    
    
    36
    
    
    DirectorRobert Cizik
    
    
    73
    
    
    Non-Executive Chairman and DirectorWayne R. Hellman
    
    
    58
    
    
    Chief Executive Officer and DirectorSabu Krishnan
    
    
    46
    
    
    Chief Operating Officer and DirectorWayne J. Vespoli*
    
    
    43
    
    
    Executive Vice President and TreasurerWayne L. Platt*
    
    
    65
    
    
    Executive Vice PresidentLee A. Bartolomei*
    
    
    65
    
    
    Vice PresidentJames L. Schoolenberg*
    
    
    61
    
    
    Vice PresidentChristopher F. Zerull*
    
    
    45
    
    
    Vice President and Chief Accounting Officer* Executive officer only
 Christian L. Oberbeckbecame a director of the Company in December 2003. Mr.
Oberbeck is one of the founders of Saratoga Partners where he has been Managing
Director since its formation as an independent entity in September 1998. Prior
to that time, Mr. Oberbeck was a Managing Director of Warburg Dillon Read Inc.
and its predecessor entity, Dillon, Read & Co. Inc., where he was a Managing
Director responsible for the management of the Saratoga funds. Mr. Oberbeck is
also a director of Koppers, Inc. and several private companies. Damon H. Ballbecame a director of the Company in December 2003. Since May
2002, Mr. Ball has served as Managing Director of Saratoga Partners, a private
equity investment fund. From August 2001 to May 2002, Mr. Ball served as
Senior Advisor to Saratoga Partners. Mr. Ball also has served, from May 1999
through May 2002, as the President and Managing Director of Sextant Capital
Advisors, LLC, a financial advisory company formed by Mr. Ball. Previously,
Mr. Ball was with Desai Capital Management Incorporated for ten and a half
years where he served as a Senior Vice President from 1992 to 1999, and as a
Vice President prior to such time. Mr. Ball also serves as a director of
Restoration Hardware. Richard A. Petrocellibecame a director of the Company in December 2003. He is
the Chief Financial Officer of Saratoga Partners where he has been since
October 1998. Prior to that time, Mr. Petrocelli was a Vice President in the
corporate finance department of Gabelli Asset Management. Mr. Petrocelli is
also a director of several private companies. 48




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##### Table of Contents



Robert Cizikwas elected Non-Executive Chairman and Director in May 2004. He
has been the Non-Executive Chairman of Koppers, Inc. since July 1999. Mr.
Cizik retired from Cooper Industries, Inc. where he served as President, Chief
Executive Officer and Chairman of the Board from 1973 to 1996. He previously
served as a director of Harris Corporation from 1988 until November 1999, Air
Products and Chemicals, Inc. from 1992 until January 2002, Temple-Inland Inc.
from 1984 until May 2004 and Wingate Partners from 1994 until May 2004. Wayne R.. Hellmanhas served as the chief executive and a director of the Company since 1995 and as chief executive or other senior officer of each of
the Companys predecessor companies since 1983. From 1968 to 1983 he was
employed by the lighting division (GE Lighting) of General Electric Company.
While at General Electric, Mr. Hellman served as Manager of Strategy Analysis
for the Lighting Business Group; Manager of Engineering for the Photo Lamp
Department; Halarc Project Venture Manager; Manager of Quartz Halogen
Engineering and Manager of Metal Halide Engineering. As the Halarc Project
Venture Manager, he was given the responsibility of developing metal halide
technology. Mr. Hellman is also currently a director of Fiberstars, Inc., a
manufacturer and marketer of fiber optic lighting systems. Sabu Krishnanwas appointed a director of the Company in April 2003. He was
elected as ADLTs Chief Operating Officer in February 2003 and became President
of Venture Lighting International, Inc. (VLI) in April 2003. Mr. Krishnan
joined VLI in 1995 and has served in management positions of increasing
responsibility at VLI. Mr. Krishnans primary recent responsibility has been
the successful launch of the Companys Indian manufacturing operations in both
lamps and power supplies. Mr. Krishnan is also currently a director of
Fiberstars, Inc. Wayne J. Vespoliwas elected Executive Vice President and Treasurer in January
2004. His primary responsibilities include the companys financing and
treasury operations, as well as strategic and financial planning. Prior to
joining the company, Mr. Vespoli was a principal in The Parkland Group, a
turnaround consulting firm. Mr. Vespoli was employed by the Parkland Group
from 2002 to 2004. From 1988 to 2001, Mr. Vespoli was employed by Chiquita
Brands International, Inc., in various financial and managerial positions.
From 1982 to 1988, Mr. Vespoli was employed by Arthur Andersen and Co., most
recently as an Audit Manager. Lee A. Bartolomeihas been President of Deposition Sciences, Inc. since its
formation in 1985. Prior to that, Mr. Bartolomei was employed by Optical
Coating Laboratory, Inc., where his last position was Senior Vice President of
Operations. Mr. Bartolomei holds several patents for thin film components and
processing. Wayne L. Plattbecame Executive Vice President of the Company in April 2003,
having served as Vice President of the Company since January 2002. He joined
Venture Lighting International as President in 1998. From 1996 to 1997, he
served as Vice President of Manufacturing and Engineering of Sylvania Lighting
International in Geneva, Switzerland. Prior to that, he served for eight years
as Plant Manager of the High Intensity Discharge division of Osram Sylvania in
New Hampshire. James L. Schoolenbergjoined APL Engineered Materials, Inc. in 1975 and has
served as President and Chief Executive Officer of APL since 1994. Prior to
joining APL, Mr. Schoolenberg was a faculty member of the Physics Department at
Western Michigan University. Mr. Schoolenberg was responsible for the
development of numerous new techniques and procedures improving the production
efficiency and quality of APLs metal halide products. 49




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##### Table of Contents



Christopher F. Zerullwas appointed a Vice President of the Company in December
2003 and Chief Accounting Officer in April 2003. He joined the Company as
Assistant Controller in March 1997 and was appointed Controller in July 1999.
For the eleven years prior to joining the Company, he was employed in financial
capacities with Agency Rent-A-Car, Inc. and National Auto Credit, Inc. From
1981 to 1985 he was employed as a certified public accountant with a
predecessor of Deloitte & Touche LLP, an international accounting firm. On February 5, 2003, the Company and all of its U.S.-based subsidiaries
(excluding Deposition Sciences, Inc.) each voluntarily filed for protection
under the provisions of Chapter 11 of the Federal Bankruptcy Code. See
Emergence from Bankruptcy under Recent Developments in Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. Audit Committee Financial Expert.The Board of Directors has determined that
no member of the Audit Committee is a financial expert for the purposes of
applicable Securities and Exchange Commission disclosure requirements. The
Board of Directors has determined that each of Messrs. Ball,
Petrocelli and Cizik is financially sophisticated and that, as a result, the Companys
Audit Committee can properly perform its functions. Code of Ethics.The Company has a code of ethics applicable to certain
senior officers. The Companys code of ethics has been filed as Exhibit 14 to
this Annual Report on Form 10-K. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 (the Exchange Act)
requires the Companys executive officers and directors, and persons who own
more than ten percent of a registered class of the Companys equity securities,
to file reports of ownership with the Securities and Exchange Commission and
the Nasdaq National Market. Specific due dates for these reports have been
established, and the Company is required to report any failure to file by those
dates during fiscal 2004. All of these fiscal 2004 filing requirements were
satisfied by the Companys Executive Officers and directors, and persons who
own more than ten percent of a registered class of the Companys equity
securities. 50




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##### Table of Contents



Item 11. Executive Compensation COMPENSATION OF EXECUTIVE OFFICERS The following tables set forth certain information with respect to all
compensation paid or earned for services rendered to the Company in all
capacities for the fiscal years ended June 30, 2004, 2003, and 2002 by the
Companys top five highest paid Executive Officers. The Company has not
granted any stock appreciation rights, nor does it have any defined benefit
employee pension plan. The Company did not grant any stock options during
fiscal 2004 and has no options outstanding. SUMMARY COMPENSATION TABLE Annual Compensation ($)Other AnnualName and Principal Position
    
    Year
    
    Salary
    
    Bonus
    
    
    
    
    
    CompensationWayne R. Hellman
    
    
    2004
    
    
    $
    300,914
    
    
    
    (1
    )
    
    $
    2,327,000
    
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )Chief Executive Officer and Director
    
    
    2003
    
    
    
    299,231
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )2002
    
    
    
    250,000
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Sabu Krishnan (4)
    
    
    2004
    
    
    
    228,654
    
    
    
    
    
    
    
    187,500
    
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )Chief Operating Officer and Director
    
    
    2003
    
    
    
    177,692
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    (3
    )James L. Schoolenberg (5)
    
    
    2004
    
    
    
    190,000
    
    
    
    
    
    
    
    95,000
    
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )Vice President
    
    
    2003
    
    
    
    190,087
    
    
    
    
    
    
    
    142,500
    
    
    
    
    
    
    
    
    
    
    
    (3
    )2002
    
    
    
    179,318
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Wayne L. Platt (5)
    
    
    2004
    
    
    
    190,731
    
    
    
    
    
    
    
    95,000
    
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )Executive Vice President
    
    
    2003
    
    
    
    190,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )2002
    
    
    
    182,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Lee A. Bartolomei (5)
    
    
    2004
    
    
    
    158,261
    
    
    
    
    
    
    
    95,000
    
    
    
    (2
    )
    
    
    
    
    
    
    (3
    )Vice President
    
    
    2003
    
    
    
    168,615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )2002
    
    
    
    166,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
 Long-Term CompensationAwards
    
    PayoutsRestricted
    
    SecuritiesStock
    
    Underlying
    
    LTIP
    
    All OtherName and Principal Position
    
    Year
    
    Awards ($)
    
    Options ($)
    
    Payouts ($)
    
    Compensation ($)Wayne R. Hellman
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    (7
    )Chief Executive Officer and Director
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    800,000
    
    
    
    (6
    )
    
    
    
    
    
    
    358
    
    
    
    (7
    )Sabu Krishnan (4)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,279
    
    
    
    (7
    )Chief Operating Officer and Director
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,769
    
    
    
    (7
    )James L. Schoolenberg (5)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,997
    
    
    
    (7
    )Vice President
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    50,000
    
    
    
    (6
    )
    
    
    
    
    
    
    Wayne L. Platt (5)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice President
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    90,000
    
    
    
    (6
    )
    
    
    
    
    
    
    Lee A. Bartolomei (5)
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,058
    
    
    
    (7
    )Vice President
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,823
    
    
    
    (7
    )2002
    
    
    
    
    
    
    
    30,000
    
    
    
    (6
    )
    
    
    
    
    
    
    5,536
    
    
    
    (7
    )
 51




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##### Table of Contents



(1)
    
    Mr. Hellman is a party to an Employment Agreement with the Company. The
Employment Agreement has an initial term expiring July 1, 2005. Through
this Employment Agreement, Mr. Hellman is entitled to receive annual base
compensation of $300,000. In addition, Mr. Hellman will be entitled to
receive a bonus in each year in an amount between 50% and 150% of his base
salary, provided the Company meets certain performance criteria. For
fiscal 2004, the minimum bonus threshold was an Adjusted EBITDA of
$23,500,000 and achievement of a $27,000,000 Adjusted EBITDA was required
for the superior bonus. Based on the Adjusted EBITDA of $24,600,000, that
the Company calculated pursuant to the Employment Agreement, Mr. Hellmans
bonus for Fiscal 2004 will be $300,000. In addition, Mr. Hellman is
entitled to additional bonuses of $2,027,000, the first of which is
effective July 2004, and the second of which is effective July 1, 2005,
provided Mr. Hellmans Employment Agreement has not been terminated at
that time. $1,350,000 of each such additional bonus is for application
directly to the reduction of Mr. Hellmans loan from the Company. The
Employment Agreement provides for annual increases in the annual base
compensation as determined by the Compensation Committee during the term
of this Employment Agreement. Pursuant to this Employment Agreement, Mr.
Hellman has agreed not to compete with the Company for a period of one
year after termination of employment. Prior to the effective date of Mr.
Hellmans current employment agreement, Mr. Hellman was a party to an
Employment Agreement with the Company. The former Employment Agreement had
an initial term expiring December 31, 1998. In fiscal 1999, Mr. Hellmans
former Employment Agreement was extended through December 31, 2003.
Through this Employment Agreement, Mr. Hellman was entitled to receive
annual base compensation of $195,000. In addition, Mr. Hellman was
entitled to receive bonuses in amounts determined by the Compensation
Committee. The former Employment Agreement provided for annual increases
in annual base compensation in amounts determined by the Compensation
Committee during the term of this Employment Agreement. During fiscal
2003, Mr. Hellmans annual base compensation was set at $300,000, and no
bonus was paid. Also includes compensation deferred pursuant to the
Companys 401(k) deferred compensation plan. Under the current and former
Employment Agreements, Mr. Hellman participates in Company sponsored life,
health, and disability insurance coverage.(2)
    
    Bonuses include amounts to be paid in fiscal 2005 with respect to fiscal
2004.(3)
    
    Perquisites provided to these executive officers consisted primarily of
life, dental and medical insurance costs, the total of which did not
exceed the lesser of $50,000 or 10% of the persons salary and bonus.(4)
    
    Mr. Krishnan was elected to the office of Chief Operating Officer on
February 13, 2003. He was appointed a director of the Company on April
22, 2003.(5)
    
    Each was appointed as an executive officer of the Company on January 22,
2002. Mr. Platt was
appointed Executive Vice President of the Company on April 8, 2003.(6)
    
    Options to purchase shares of old common stock of the Company, which were
canceled pursuant to the Final Plan.(7)
    
    Company contributions to the 401(k) plan. 52




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##### Table of Contents



DEPOSITION SCIENCES, INC. OPTION EXERCISES
IN LAST FISCAL YEAR AND 2004 FISCAL YEAR END
DEPOSITION SCIENCES INC. OPTION VALUES Number of SecuritiesUnderlying Unexercised
    
    Value of UnexercisedShares
    
    
    
    
    
    Options at Fiscal
    
    In-the-Money OptionsAcquired on
    
    Value
    
    Year-End ($)
    
    at Fiscal Year-End ($)Name
    
    Exercise ($)
    
    Realized ($)
    
    Exercisable/Unexercisable
    
    Exercisable/UnexercisableWayne R. Hellman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    /
    
    
    
    750,000
    
    
    
    *Sabu Krishnan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    /
    
    
    
    6,000
    
    
    
    *James L. Schoolenberg
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    /
    
    
    
    25,000
    
    
    
    *Wayne L. Platt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    /
    
    
    
    25,000
    
    
    
    *Lee A. Bartolomei
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    /
    
    
    
    
    
    
    
    *
 * All of Deposition Sciences Inc.s issued and outstanding stock is held by
the Company. There is no meaningful basis on which to establish a market value
per share for purposes of determining whether or the extent to which the
unexercised options held were in-the-money at fiscal year-end. COMPENSATION OF DIRECTORS All directors of the Company receive reimbursement for reasonable out-of-pocket
expenses incurred in connection with meetings of the Board of Directors.
Employees of the Company and employees and principals of Saratoga Lighting
Holdings, LLC, receive no additional compensation for their service on the
Board of the Company. Mr. Robert Cizik, the non-executive Chairman of the
Board, receives annual compensation of $180,000 for his services as Chairman.
In addition, the Board of Directors authorized the sale of 338.33 shares of
Series A Preferred Stock and 31.67 shares of Common Stock at $1,000 per share.
20 shares of Common Stock are subject to forfeiture if Mr. Cizik leaves his
position within 5 years. The number of shares subject to forfeiture is reduced
by 4 shares each year. EMPLOYMENT AGREEMENTS Mr. Hellman is a party to an Employment Agreement with the Company. The
Employment Agreement has an initial term expiring July 1, 2005. Through this
Employment Agreement, Mr. Hellman is entitled to receive annual base
compensation of $300,000. In addition, Mr. Hellman will be entitled to receive
a bonus in an amount between 50% and 150% of his base salary, provided the
Company meets certain performance criteria. For fiscal 2004, the minimum bonus
threshold was an Adjusted EBITDA of $23,500,000 and achievement of a
$27,000,000 Adjusted EBITDA was required for the superior bonus. Based on the
Adjusted EBITDA of $24,600,000, that the Company calculated pursuant to the
Employment Agreement, Mr. Hellmans bonus for Fiscal 2004 will be $300,000. In
addition, Mr. Hellman is entitled to additional bonuses of $2,027,000, the
first of which was payable in July 2004, and the second of which is payable on
July 1, 2005, provided Mr. Hellmans Employment Agreement has not been
terminated at that time. $1,350,000 of each such additional bonus is for
application to the reduction of Mr. Hellmans loan from the Company. The
Employment Agreement provides for annual increases in the annual base
compensation as determined by the Compensation Committee during the term of
this Employment Agreement. Under this Employment Agreement, Mr. Hellman
participates in Company sponsored life, health and disability insurance
coverage. Pursuant to this Employment Agreement, Mr. Hellman has agreed not to
compete with the Company for a period of one year after termination of
employment. 53




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##### Table of Contents



Mr. Schoolenberg is a party to an employment agreement with the Company for an
initial term expiring December 10, 2006. Through this Employment Agreement,
Mr. Schoolenberg is entitled to receive annual base compensation of $190,000.
In addition, Mr. Schoolenberg will be entitled to receive a bonus in an amount
between 25% and 75% of his base salary, provided the Company meets certain
performance criteria. Based on the Adjusted EBITDA of $24,600,000, that the
Company calculated pursuant to the Employment Agreement, Mr. Schoolenbergs
bonus for Fiscal 2004 will be $95,000. The Employment Agreement provides for
annual increases in the annual base compensation as determined by the
Compensation Committee during the term of this Employment Agreement. Under
this Employment Agreement, Mr. Schoolenberg participates in Company sponsored
life, health and disability insurance coverage. Pursuant to this Employment Agreement, Mr. Schoolenberg has agreed
not to compete with the Company for a period of one year after termination of
employment. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors requires a majority to be
non-executive directors. From and after December 10, 2003, this Committee
consisted of Messrs. Oberbeck, Ball and Petrocelli. On
September 8, 2004, Mr. Cizik replaced Mr. Ball on the
Committee. Prior to December 10, 2003, the
Committee consisted of three former directors, Messrs. A Gordon Tunstall,
Theodore Filson and John Gonzalez. The Compensation Committee also serves as the 2003 Equity Incentive Plan
Committee. This Committee granted restricted stock awards for 99.12 shares of
Common Stock to five executive officers of the Company. The Committee also has
authority to make all determinations as to future grants of stock and stock
options under the Plans. 54




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
 CERTAIN HOLDERS OF VOTING SECURITIES The following table sets forth information regarding the ownership of the
Companys Common Stock as of August 31, 2004, by each of the continuing
directors and executive officers of the Company, by each person or group known
by the Company to be the beneficial owner of more than five percent of the
Companys outstanding Common Stock, and by all directors and executive officers
of the Company as a group. Common Shares
    
    Preferred SharesBeneficially Owned (2)
    
    Beneficially OwnedPercent of
    
    
    
    
    
    Percent of
    
    Percent ofName and Address (1)
    
    Number
    
    Class
    
    Number
    
    Class
    
    Voting PowerSaratoga Lighting Holdings LLC
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Saratoga Partners IV, L.P.
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Saratoga Coinvestment IV, LLC
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Saratoga Associates IV, LLC
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Christian L. Oberbeck
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Damon H. Ball
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Richard A. Petrocelli
    
    
    1,099.12
    
    
    
    97.2
    %
    
    
    29,000.00
    
    
    
    98.8
    %
    
    
    98.8
    %Robert Cizik
    
    
    31.67
    
    
    
    2.8
    %
    
    
    338.33
    
    
    
    1.2
    %
    
    
    1.2
    %Wayne R. Hellman
    
    
    38.55
    
    
    
    3.4
    %
    
    
    
    
    
    
    *
    
    
    
    *Sabu Krishnan
    
    
    27.53
    
    
    
    2.4
    %
    
    
    
    
    
    
    *
    
    
    
    *Wayne J. Vespoli
    
    
    5.51
    
    
    
    0.5
    %
    
    
    
    
    
    
    *
    
    
    
    *Lee A. Bartolomei
    
    
    11.01
    
    
    
    1.0
    %
    
    
    
    
    
    
    *
    
    
    
    *Wayne L. Platt
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    *James L. Schoolenberg
    
    
    16.52
    
    
    
    1.5
    %
    
    
    
    
    
    
    *
    
    
    
    *Christopher F. Zerull
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
    
    
    
    *All Directors and Executive Officers
as a Group (11 persons)
    
    
    1,130.79
    
    
    
    100.0
    %
    
    
    29,338.33
    
    
    
    100.0
    %
    
    
    100.0
    %
  *
    
    Less than one percent(1)
    
    The business address of each of Messrs. Hellman, Krishnan, Vespoli,
Platt and Zerull is 32000 Aurora Road, Solon, Ohio 44139; The business
address of Saratoga Lighting Holdings, LLC (Saratoga), Saratoga
Partners IV, L.P., Saratoga Coinvestment IV LLC, Saratoga Associates
IV LLC, Saratoga Management Company LLC, Christian L. Oberbeck, Damon
H. Ball, and Richard A. Petrocelli (collectively, the Saratoga
Group) is 535 Madison Avenue, 4th Floor, New York, NY 10022. The
business address for Mr. Cizik is Cizik Interests, 8839 Harness Creek
Lane, Houston, TX 77024. The business address for Mr. Bartolomei is
Deposition Sciences, Inc., 3300 Coffey Lane, Santa Rosa, CA 95403. The
business address for Mr. Schoolenberg is APL Engineered Materials
Inc., 2401 N. Willow Road, Urbana, IL 61801.(2)
    
    Shares beneficially owned by the Saratoga entities and Messrs.
Oberbeck, Ball and Petrocelli include 1,000 shares of Common Stock
owned by Saratoga and 99.12 shares of Common Stock which are owned by
Messrs. Hellman, Krishnan, Vespoli, Bartolomei and Schoolenberg, which
are held in a Voting Trust, of which Saratoga is the voting trustee.
Each of the shares in the voting trust is also shown as beneficially
owned by the respective individuals.   55




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions CERTAIN TRANSACTIONS WITH DIRECTORS, OFFICERS AND SHAREHOLDERS Saratoga Lighting Holdings, LLC (Saratoga) acquired all of the Common and
Preferred shares owned by GE on August 15, 2003. As a result, Saratoga held
1,429,590 shares of Company Common Stock and 761,250 shares of the Companys
then existing Old Preferred Stock. Saratoga received, in exchange for
cancellation of its holdings of the Predecessor Companys Common Stock and Old
Preferred Stock, and an $18,000,000 cash investment, new redeemable preferred
stock (the New Series A Preferred) of the Reorganized Company, with an
initial liquidation preference of $29,000,000 and approximately 91% of the
common stock of the Reorganized Company (on a diluted basis, assuming issuance
of common stock of the Reorganized Company to its senior management pursuant to
the new management incentive plan). Under the management incentive plan,
shares equal to approximately 9% of the common stock of the Reorganized Company
have been issued. The New Series A Preferred has a liquidation preference of $1,000 per share,
plus dividends at the rate of 8% per annum, when and if declared. The
cumulative undeclared dividends were $1,293,000 as of June 30, 2004. The
initial carrying amount of the New Series A Preferred was set at $29,000,000,
the estimated fair value at the date of issuance. The Holder of the New Series
A Preferred may, by notice, require the Company to redeem the outstanding New
Series A Preferred within 21 days following the occurrence of certain corporate
events. The Company may redeem the New Series A Preferred in whole, but not in
part, at any time. The redemption price for the New Series A Preferred is
equal to the liquidation preference amount for such shares. The New Series A
Preferred shares are each entitled to one vote on each matter presented to
shareholders of the Company, as well as one vote on each matter required to be
voted upon by the New Series A Preferred as a class. As a consequence, the New
Series A Preferred represents approximately 96.3% of the voting power of the
Company at June 30, 2004. As of June 30, 2004, Saratoga held 98.5% of the
voting power of the Company. The Final Plan also provided management fees to an affiliate of Saratoga. The
Company has an advisory and consulting agreement with Saratoga pursuant to
which the Company pays a management fee of $150,000 per quarter to Saratoga in
lieu of Directors fees to Messrs. Oberbeck, Ball and Petrocelli. In addition,
Saratoga may provide the Company with financial advisory services in connection
with significant business transactions, including, but not limited to: (i)
identification, negotiation and analysis of acquisitions and dispositions by
the Company or its subsidiaries; (ii) negotiations and analysis of financing
alternatives, including in connection with acquisitions, capital expenditures
and refinancing of indebtedness; (iii) finance functions, including assistance
in financial projections; (iv) human resource functions, including searching
and hiring of executives; and (v) such other services as the Board of Directors
and Saratoga shall agree. For such services, the Company will pay Saratoga
compensation comparable to compensation paid for such services by similarly
situated companies. In July 2004 the Company paid Saratoga $1.8 million related
to advisory services related to the Companys restructuring in December 2003. Pursuant to a loan agreement dated October 8, 1998, as amended, between the
Company and Mr. Hellman, its Chairman and Chief Executive Officer (the Hellman
Loan Agreement), the Company has loaned $12,789,350 to Mr. Hellman. The
proceeds of the loans were used to reduce the outstanding principal balance of
a margin account loan, which was originally secured by 2,053,070 shares of
Company Common Stock owned by Mr. Hellman and Hellman Ltd. (the Hellman
Personal Shares). The margin loans were fully repaid in the quarter ended
March 31, 2002. In connection with the original loan, the Board asked for and
received Mr. Hellmans agreement to extend the term of his employment 56




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##### Table of Contents



agreement to December 31, 2003. Mr. Hellman paid accrued interest of $720,000
on the loan through October 6, 1999. No loans were made under the Hellman Loan
Agreement in fiscal 2004. At December 9, 2003, the total amount of the loan,
including accrued interest, was $15,945,750. Mr. Hellman is required to apply after-tax cash bonuses received from the
Company and the after-tax proceeds of sales of collateral and distributions
relating to collateral toward repayment of the loan. Interest on the loan in
the future will accrue at the same rate that the Company pays on its revolving
credit facility. The loan may be accelerated if Mr. Hellman ceases to be
employed by the Company as a result of his voluntary resignation or termination
for cause. As part of the reorganization, the Company, Saratoga and Mr. Hellman agreed,
with formal approval of a special committee (of independent directors) of the
Companys Board of Directors and the Bankruptcy Court, that the CEO loan
documents would be modified to reduce the amount of the outstanding
indebtedness owed by the CEO to an amount (the Designated Amount) based on
difference between (1) the fair market value of the CEOs personal assets and
(2) the amounts owing to other secured creditors of the CEO that hold
mortgages, liens and/or security interests upon or in property of the CEO, on a
priority senior to the liens and security interests securing the CEOs loan
from the Company. Additionally, on the effective date of the plan, the proceeds
from the CEOs settlement of litigation of approximately $1,300,000 were paid
to the Company for application to the CEO loan (the amount of these proceeds
are included within the Designated Amount). Other than reducing the amount of
the CEO loan as described above, the loan remains in full force and effect.
The outstanding principal and interest on the CEO loan was $4,107,524 at June
30, 2004. One of the Companys subsidiaries held a demand note from H&F Five, Inc., a
company owned by Messrs. Hellman, and certain other employees and former
employees of the Company, in the amount of $200,000 bearing interest at 8.5%
per annum. At December 31, 2003, the total amount of the loan, including
accrued interest, was $351,000. On December 31, 2003, H&F Five, Inc. was
merged with a wholly-owned, indirect subsidiary of the Company and therefore
became part of the Company on a consolidated basis. Former shareholders of H&F
Five, Inc. received cash payments for their interests. Pursuant to a
settlement agreement approved by the Bankruptcy Court, the cash payment due to
Mr. Hellman, $124,500, was effectively credited against the outstanding
principal amount of the CEO loan. Diane Hellman, Mr. Hellmans wife, has served the Company in various marketing
positions since 1985, and currently serves as Executive Vice President of Sales
and Logistics. In fiscal 2004, Mrs. Hellmans salary, benefits and perquisites
were $192,125. Matthew Mazzola, Mrs. Hellmans son, serves as Regional Account
Manager for the Companys Venture Lighting International, Inc. subsidiary
(Venture Lighting International). In fiscal 2004, Mr. Mazzolas salary,
benefits and perquisites were $73,795. Josh Barry, Mr. Hellmans son-in-law,
serves the Company as Technical Leader for Venture Lighting International. In
fiscal 2004, Mr. Barrys salary, benefits and perquisites were $97,986. Lisa
Barry, Mr. Hellmans daughter, serves the Company as a Financial Analyst. In
fiscal 2004, Ms. Barrys salary, benefits and perquisites were $75,383.
Michael Tommervik, Mr. Bartolomeis stepson, serves the Company as Process
Engineer for its Deposition Sciences, Inc. subsidiary. In fiscal 2004, Mr.
Tommerviks salary, benefits and perquisites were $65,979. Joseph Bartolomei,
Mr. Bartolomeis son, serves the Company as Product Engineering Manager for its
Deposition Sciences, Inc. subsidiary. In fiscal 2004, Mr. Joseph Bartolomeis
salary, benefits and perquisites were $66,665. The Company does not intend to enter into any material transaction with
officers or directors, or their family members, without the approval of a
majority of the disinterested directors. 57




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##### Table of Contents



Item 14. Principal Accounting Fees and Services Aggregate fees for professional services rendered for the Company by Grant
Thornton as of or for the fiscal years ended June 30, 2004 and 2003 are set
forth below. The aggregate fees included in the Audit category are fees billed
for the fiscal years for the audit of the Companys annual financial statements
and statutory and regulatory filings or engagements. The aggregate fees
included in each of the other categories are fees billed in the fiscal years. Fiscal Year
    
    Fiscal YearCategory
    
    2004
    
    2003Audit Fees
    
    $
    442,000
    
    
    $
    541,0000Audit-Related Fees
    
    
    169,000
    
    
    
    187,000Tax Fees
    
    
    115,000
    
    
    
    52,000
 Audit Feesfor the fiscal years ended June 30, 2004 and 2003 were for
professional services rendered for the audits of the consolidated financial
statements of the Company, quarterly review of the financial statements
included in the Companys Quarterly Reports on Form 10-Q, consents,
international filings and other assistance required to complete the year end
audit of the consolidated financial statements. Audit-Related Feesas of the fiscal years ended June 30, 2004 and 2003 were for
assurance and related services associated with employee benefit plan audits,
assistance with technical accounting matters, and services related to the
Companys Chapter 11 Bankruptcy. Tax Feesas of the fiscal years ended June 30, 2004 and 2003 were for services
related to tax compliance, international tax advisory services and tax
planning. Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditors Effective for fiscal year 2004, the Audit Committee pre-approves all audit and
non-audit services provided by the independent auditors prior to the engagement
of the independent auditors with respect to such services. 58




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##### Table of Contents



PART IV 
 Item 15. 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 Independent Registered Public Accounting FirmConsolidated Balance Sheets:Reorganized Company as of June 30, 2004Predecessor Company as of June 30, 2003Consolidated Statements of Operations:Reorganized Company for the Six Months Ended June 30, 2004Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002Consolidated Statements of Shareholders Equity:Reorganized Company for the Six Months Ended June 30, 2004Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002Consolidated Statements of Cash Flows:Reorganized Company for the Six Months Ended June 30, 2004Predecessor Company for the Six Months Ended December 31, 2003
and Years Ended June 30, 2003 and 2002Notes to Consolidated Financial Statements
 Financial Statement Schedules: (2) The following Financial Statement Schedules are included in Item 15(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) PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference2.1
    
    Venture Lighting International, Inc., et al. Fourth Amended Chapter 11 Plan of Reorganization confirmed December 8, 2003 effective December 10, 2003 (Form
8-K, Exhibit 2.1)
    
    (12)3.1
    
    Second Amended and Restated Articles of Incorporation filed September 26, 1995
    
    (8)3.2
    
    Certificate of Adoption of Amended Articles of Incorporation filed February 12, 1997
    
    (8)
 59




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference3.3
    
    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)
    
    (3)3.4
    
    Certificate of Adoption of Fourth Amendment to Second Amended and Restated Articles of Incorporation filed March 16, 2000
    
    (4)3.5
    
    Certificate of Reorganization filed December 9, 2003 (Form 10-Q, Exhibit 3.5)
    
    (13)3.6
    
    Certificate of Adoption of Amendment to Article Fourth to Second Amended and Restated Articles of Incorporation filed December 10, 2003 (Form 10-Q, Exhibit
3.6)
    
    (13)3.7
    
    Certificate of Adoption of Amendment to Article Fourth to Second Amended and Restated Articles of Incorporation filed June 28, 20043.8
    
    Code of Regulations
    
    (1)3.9
    
    Composite Articles of Incorporation4.1
    
    Reference is made to Exhibit 2.110.1
    
    Management Contracts, Compensatory Plans and Arrangements10.1.1
    
    Loan Agreement dated as of October 8, 1998 between Advanced Lighting Technologies, Inc. and Wayne R. Hellman (Form 10-Q/A, Exhibit 10.1)
    
    (2)10.1.2
    
    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)
    
    (2)10.1.3
    
    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)
    
    (5)10.1.4
    
    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)
    
    (6)10.1.5
    
    Third  Amendment to Loan  Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting
Technologies, Inc. dated as of April 25, 2002 (Form 10-K, Exhibit 10.1.7)
    
    (8)
 60




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.1.6
    
    Fourth  Amendment to Loan
Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting Technologies, Inc. dated January 5, 2004 (Form 10-Q, Exhibit 10.2)
    
    (14)10.1.7
    
    Fifth  Amendment to Loan
Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting Technologies, Inc. dated February 19, 2004 (Form 10-Q, Exhibit 10.3)
    
    (14)10.1.8
    
    Deposition Sciences, Inc. 2001
Equity Incentive Plan (Form 10-Q, Exhibit 10.3)
    
    (6)10.1.9
    
    Management  Rights Agreement
between Saratoga  Partners IV, L.P. and Advanced  Lighting  Technologies,  Inc. dated March 22, 2004 (Form 10-Q, Exhibit 10.1)
    
    (14)10.1.10
    
    Settlement  Agreement by and among
Advanced  Lighting  Technologies,  Inc.,  Wayne R. Hellman and Saratoga  Lighting  Holdings LLC dated January 5, 2004 (Form 10-Q, Exhibit 10.5)
    
    (14)10.1.11
    
    First  Amendment to Settlement
Agreement by and among Advanced  Lighting  Technologies,  Inc.,  Wayne R. Hellman and Saratoga  Lighting Holdings LLC dated February 19, 2004 (Form 10-Q, Exhibit 10.6)
    
    (14)10.1.12
    
    Settlement Agreement by and among
Advanced Lighting Technologies,  Inc., Venture Lighting International,  Inc. Ruud Lighting, Inc., Alan
J. Ruud, Susan Ruud,  Theodore O.  Sokoly,  Christopher A. Ruud and Cynthia A. Johnson dated as of September 8, 2003 (Form 10-Q, Exhibit
10.4)
    
    (11)10.1.13
    
    Advanced Lighting Technologies, Inc.s 2003 Equity Incentive Plan adopted and effective December 18, 2003 (Form 10-Q, Exhibit 10.2)
    
    (13)10.1.14
    
    Employment Agreement between Wayne R. Hellman and Advanced Lighting Technologies, Inc. dated December 10, 2003 (Form 10-Q, Exhibit 10.3)
    
    (13)10.1.15
    
    Employment  Agreement between James  Schoolenberg and Advanced Lighting  Technologies,  Inc. dated December 10, 2003 (Form 10-Q, Exhibit
10.4)
    
    (13)
 61




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.1.16
    
    Management Services Agreement
between Saratoga Management Company, LLC and Advanced Lighting Technologies,  Inc. dated December 10, 2003 (Form 10-Q, Exhibit 10.5)
    
    (13)10.1.17
    
    Common Stock Purchase Agreement between Robert Cizik and Advanced Lighting Technologies, Inc. dated May 25, 200410.1.18
    
    Common and Preferred Stock Purchase Agreement between Robert Cizik and Advanced Lighting Technologies, Inc. dated May 25, 200410.1.19
    
    Voting Trust Agreement by and
between Saratoga Lighting Holdings LLC and certain  shareholders of Advanced Lighting  Technologies,  Inc. dated May 13, 200410.1.20
    
    Reorganization Plan, Lock-Up and Voting Agreement dated as of October 31, 2003 (Form 10-Q, Exhibit 10.5)
    
    (11)10.2
    
    Credit Facility Agreements10.2.1
    
    Post-Petition  Credit  Agreement
among Advanced  Lighting  Technologies,  Inc. and certain of its  subsidiaries  and PNC Bank,  National Association, as Agent and Certain Financial Institutions Dated as of February 6, 2003 (Form 10-Q Exhibit 10.1)
    
    (9)10.2.2
    
    Loan and Security Agreement, dated
June 30, 2003, by and among Advanced Lighting Technologies,  Inc. and certain of its subsidiaries, as Borrowers, and Ableco Finance LLC, as Lender, and Wells Fargo Foothill, Inc., as Agent and Lender (Form 10-K, Exhibit 10.2.29)
    
    (10)10.2.3
    
    Consent and First Amendment to Loan
and Security Agreement,  dated July 25, 2003, by and among Advanced
Lighting Technologies,  Inc. and certain of its subsidiaries,  as Borrowers, and Ableco Finance LLC, as Lender, and Wells Fargo Foothill, Inc., as Agent and Lender (Form 10-Q, Exhibit 10.1)
    
    (11)10.2.4
    
    Second Amendment to Loan and
Security Agreement,  dated August 21, 2003, by and among Advanced
Lighting  Technologies,  Inc. and certain of its subsidiaries,  as Borrowers,  and Ableco Finance LLC, as Lender, and Wells Fargo Foothill,  Inc., as Agent and Lender (Form 10-Q, Exhibit 10.2)
    
    (11)
 62




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.2.5
    
    Third Amendment to Loan and
Security Agreement, dated September 30, 2003, by and among Advanced
Lighting Technologies,  Inc. and certain of its subsidiaries,  as Borrowers,  and Ableco Finance LLC, as Lender, and Wells Fargo Foothill,  Inc., as Agent and Lender (Form 10-Q, Exhibit 10.3)
    
    (11)10.2.6
    
    Amended and Restated Loan and
Security Agreement by and among Advanced Lighting Technologies,  Inc. and certain of its subsidiaries, and Wells Fargo Foothill, Inc. dated December 10, 2003 (Form 10-Q, Exhibit 10.1)
    
    (13)10.2.7
    
    Amendment and Consent to the
Amended and Restated Loan and Security  Agreement by and among  Advanced  Lighting  Technologies,  Inc. and certain of its subsidiaries, and Wells Fargo Foothill, Inc. dated December 30, 2003 (Form 10-Q, Exhibit 10.4)
    
    (14)10.2.8
    
    Consent to  Restructure  and
Amendment  to the  Amended  and  Restated  Loan and  Security
Agreement  by and among  Advanced  Lighting Technologies, Inc. and certain of its subsidiaries, and Wells Fargo Foothill, Inc. dated May 31, 200410.3
    
    Lease Agreement by and between Macken Associates and Deposition Sciences, Inc. dated March 2, 2001
    
    (7)10.4
    
    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
    
    (7)10.5
    
    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
    
    (7)10.6
    
    Option Agreement to Purchase Real Property dated March 2, 2001 by and between Macken Associates and Deposition Sciences, Inc. 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
    
    (7)10.7
    
    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
    
    (7)
 63




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.8
    
    Third Amendment to Lease dated March 4, 2004 by and between Macken Associates and Deposition Sciences, Inc. amending the Lease Agreement by and between the
same parties dated March 2, 200110.9
    
    Second Amendment to Option Agreement to Purchase Real Property dated March 4, 2004 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, 200110.10
    
    Agreement between Advanced Lighting Technologies, Inc. and its Subsidiaries and Brown, Gibbons, Lang & Company dated as of February 5, 2003 (Form 10-Q
Exhibit 10.2)
    
    (9)12
    
    Statement regarding Computation of Ratios14
    
    Advanced Lighting Technologies, Inc. Code of Conduct21
    
    Subsidiaries of the Registrant as of June 30, 200431.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   (1)
    
    Incorporated by reference to referenced Exhibit in Companys
Registration Statement on Form S-1, Registration No. 33-97902,
effective December 11, 1995.(2)
    
    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. (SEC Accession No.:
0000950152-99-001926/ SEC File No.: 000-27202/SEC Film No.: 99565325)(3)
    
    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.(4)
    
    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.(5)
    
    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. 64




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##### Table of Contents



(6)
    
    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.(7)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2001 filed
September 28, 2001.(8)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2002 filed
October 15, 2002(9)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
2003 filed June 4, 2003.(10)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2003 filed
October 14, 2003.(11)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended September
30, 2003 filed November 12, 2003.(12)
    
    Incorporated by reference to referenced Exhibit in Companys
Current Report on Form 8-K dated December 8, 2003 filed December 23,
2003.(13)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended December
31, 2003 filed March 18, 2004.(14)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
2004 filed May 13, 2004.  (b)
    
    Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the quarter
ended June 30, 2004.  (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. 65




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##### Table of Contents



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 9, 2004
    
    By:
    /s/ Wayne R. HellmanWayne R. HellmanChief 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. Hellman
Wayne R. Hellman
    
    Chief Executive Officer and Director
    
    September 9, 2004/s/ Sabu Krishnan
Sabu Krishnan
    
    Chief Operating Officer and Director
    
    September 9, 2004/s/ Wayne Vespoli
Wayne Vespoli
    
    Executive Vice President and Treasurer
    
    September 9, 2004/s/ Christopher F. Zerull
Christopher F. Zerull
    
    Vice President and Chief Accounting Officer
    
    September 9, 2004/s/ Robert Cizik
Robert Cizik
    
    Non-Executive Chairman and Director
    
    September 9, 2004/s/ Christian Oberbeck
Christian Oberbeck
    
    Director
    
    September 9, 2004/s/ Damon Ball
Damon Ball
    
    Director
    
    September 9, 2004/s/ Richard Petrocelli
Richard Petrocelli
    
    Director
    
    September 9, 2004
 66




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##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549 EXHIBITS TO FORM 10-K FOR THE ANNUAL PERIOD ENDED JUNE 30, 2004 ADVANCED LIGHTING TECHNOLOGIES, INC. 67




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##### Table of Contents



EXHIBIT INDEX PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference2.1
    
    Venture Lighting International, Inc., et al. Fourth Amended Chapter 11 Plan of Reorganization confirmed December 8, 2003 effective December 10, 2003 (Form
8-K, Exhibit 2.1)
    
    (12)3.1
    
    Second Amended and Restated Articles of Incorporation filed September 26, 1995
    
    (8)3.2
    
    Certificate of Adoption of Amended Articles of Incorporation filed February 12, 1997
    
    (8)3.3
    
    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)
    
    (3)3.4
    
    Certificate of Adoption of Fourth Amendment to Second Amended and Restated Articles of Incorporation filed March 16, 2000
    
    (4)3.5
    
    Certificate of Reorganization filed December 9, 2003 (Form 10-Q, Exhibit 3.5)
    
    (13)3.6
    
    Certificate of Adoption of Amendment to Article Fourth to Second Amended and Restated Articles of Incorporation filed December 10, 2003 (Form 10-Q, Exhibit
3.6)
    
    (13)3.7
    
    Certificate of Adoption of Amendment to Article Fourth to Second Amended and Restated Articles of Incorporation filed June 28, 20043.8
    
    Code of Regulations
    
    (1)3.9
    
    Composite Articles of Incorporation4.1
    
    Reference is made to Exhibit 2.110.1
    
    Management Contracts, Compensatory Plans and Arrangements10.1.1
    
    Loan Agreement dated as of October 8, 1998 between Advanced Lighting Technologies, Inc. and Wayne R. Hellman (Form 10-Q/A, Exhibit 10.1)
    
    (2)10.1.2
    
    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)
    
    (2)10.1.3
    
    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)
    
    (5)




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.1.4
    
    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)
    
    (6)10.1.5
    
    Third  Amendment to Loan
Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting Technologies, Inc. dated as of April 25, 2002 (Form 10-K, Exhibit 10.1.7)
    
    (8)10.1.6
    
    Fourth  Amendment to Loan
Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting Technologies, Inc. dated January 5, 2004 (Form 10-Q, Exhibit 10.2)
    
    (14)10.1.7
    
    Fifth  Amendment to Loan  Agreement,  Secured  Promissory  Note and Security  Agreement  between Wayne R. Hellman and Advanced  Lighting
Technologies, Inc. dated February 19, 2004 (Form 10-Q, Exhibit 10.3)
    
    (14)10.1.8
    
    Deposition Sciences, Inc. 2001
Equity Incentive Plan (Form 10-Q, Exhibit 10.3)
    
    (6)10.1.9
    
    Management  Rights Agreement
between Saratoga  Partners IV, L.P. and Advanced  Lighting  Technologies,  Inc. dated March 22, 2004 (Form 10-Q, Exhibit 10.1)
    
    (14)10.1.10
    
    Settlement  Agreement by and among
Advanced  Lighting  Technologies,  Inc.,  Wayne R. Hellman and Saratoga  Lighting  Holdings LLC dated January 5, 2004 (Form 10-Q, Exhibit 10.5)
    
    (14)10.1.11
    
    First  Amendment to Settlement
Agreement by and among Advanced  Lighting  Technologies,  Inc.,  Wayne R. Hellman and Saratoga  Lighting Holdings LLC dated February 19, 2004 (Form 10-Q, Exhibit 10.6)
    
    (14)10.1.12
    
    Settlement Agreement by and among
Advanced Lighting Technologies,  Inc., Venture Lighting
International,  Inc. Ruud Lighting, Inc., Alan J. Ruud, Susan Ruud,  Theodore O.  Sokoly,  Christopher A. Ruud and Cynthia A. Johnson dated as of September 8, 2003 (Form 10-Q, Exhibit 10.4)
    
    (11)10.1.13
    
    Advanced Lighting Technologies,
Inc.s 2003 Equity Incentive Plan adopted and effective December 18, 2003 (Form 10-Q, Exhibit 10.2)
    
    (13)




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.1.14
    
    Employment Agreement between Wayne R. Hellman and Advanced Lighting Technologies, Inc. dated December 10, 2003 (Form 10-Q, Exhibit 10.3)
    
    (13)10.1.15
    
    Employment  Agreement between James  Schoolenberg and Advanced Lighting  Technologies,  Inc. dated December 10, 2003 (Form 10-Q, Exhibit
10.4)
    
    (13)10.1.16
    
    Management Services Agreement between Saratoga Management Company, LLC and Advanced Lighting Technologies,  Inc. dated December 10, 2003
(Form 10-Q, Exhibit 10.5)
    
    (13)10.1.17
    
    Common Stock Purchase Agreement between Robert Cizik and Advanced Lighting Technologies, Inc. dated May 25, 200410.1.18
    
    Common and Preferred Stock Purchase Agreement between Robert Cizik and Advanced Lighting Technologies, Inc. dated May 25, 200410.1.19
    
    Voting Trust Agreement by and between Saratoga Lighting Holdings LLC and certain  shareholders of Advanced Lighting  Technologies,  Inc.
dated May 13, 200410.1.20
    
    Reorganization Plan, Lock-Up and Voting Agreement dated as of October 31, 2003 (Form 10-Q, Exhibit 10.5)
    
    (11)10.2
    
    Credit Facility Agreements10.2.1
    
    Post-Petition  Credit  Agreement among Advanced  Lighting  Technologies,  Inc. and certain of its  subsidiaries  and PNC Bank,  National
Association, as Agent and Certain Financial Institutions Dated as of February 6, 2003 (Form 10-Q Exhibit 10.1)
    
    (9)10.2.2
    
    Loan and Security Agreement, dated June 30, 2003, by and among Advanced Lighting Technologies,  Inc. and certain of its subsidiaries, as
Borrowers, and Ableco Finance LLC, as Lender, and Wells Fargo Foothill, Inc., as Agent and Lender (Form 10-K, Exhibit 10.2.29)
    
    (10)10.2.3
    
    Consent and First Amendment to Loan and Security Agreement,  dated July 25, 2003, by and among Advanced Lighting Technologies,  Inc. and
certain of its subsidiaries,  as Borrowers, and Ableco Finance LLC, as Lender, and Wells Fargo Foothill, Inc., as Agent and Lender (Form
10-Q, Exhibit 10.1)
    
    (11)




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.2.4
    
    Second Amendment to Loan and Security Agreement,  dated August 21, 2003, by and among Advanced Lighting  Technologies,  Inc. and certain
of its subsidiaries,  as Borrowers,  and Ableco Finance LLC, as Lender, and Wells Fargo Foothill,  Inc., as Agent and Lender (Form 10-Q,
Exhibit 10.2)
    
    (11)10.2.5
    
    Third Amendment to Loan and Security Agreement, dated September 30, 2003, by and among Advanced Lighting Technologies,  Inc. and certain
of its subsidiaries,  as Borrowers,  and Ableco Finance LLC, as Lender, and Wells Fargo Foothill,  Inc., as Agent and Lender (Form 10-Q,
Exhibit 10.3)
    
    (11)10.2.6
    
    Amended and Restated Loan and Security Agreement by and among Advanced Lighting Technologies,  Inc. and certain of its subsidiaries, and
Wells Fargo Foothill, Inc. dated December 10, 2003 (Form 10-Q, Exhibit 10.1)
    
    (13)10.2.7
    
    Amendment and Consent to the Amended and Restated Loan and Security  Agreement by and among  Advanced  Lighting  Technologies,  Inc. and
certain of its subsidiaries, and Wells Fargo Foothill, Inc. dated December 30, 2003 (Form 10-Q, Exhibit 10.4)
    
    (14)10.2.8
    
    Consent to  Restructure  and  Amendment  to the  Amended  and  Restated  Loan and  Security  Agreement  by and among  Advanced  Lighting
Technologies, Inc. and certain of its subsidiaries, and Wells Fargo Foothill, Inc. dated May 31, 200410.3
    
    Lease Agreement by and between Macken Associates and Deposition Sciences, Inc. dated March 2, 2001
    
    (7)10.4
    
    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
    
    (7)10.5
    
    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
    
    (7)10.6
    
    Option Agreement to Purchase Real Property dated March 2, 2001 by and between Macken Associates and Deposition Sciences, Inc. 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
    
    (7)




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##### Table of Contents



PreviousFiling IfExhibit
    
    
    
    
    
    IncorporatedNumber
    
    Description
    
    by Reference10.7
    
    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
    
    (7)10.8
    
    Third Amendment to Lease dated March 4, 2004 by and between Macken Associates and Deposition Sciences, Inc. amending the Lease Agreement by and between the
same parties dated March 2, 200110.9
    
    Second Amendment to Option Agreement to Purchase Real Property dated March 4, 2004 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, 200110.10
    
    Agreement between Advanced Lighting Technologies, Inc. and its Subsidiaries and Brown, Gibbons, Lang & Company dated as of February 5, 2003 (Form 10-Q
Exhibit 10.2)
    
    (9)12
    
    Statement regarding Computation of Ratios14
    
    Advanced Lighting Technologies, Inc. Code of Conduct21
    
    Subsidiaries of the Registrant as of June 30, 200431.1
    
    Rule 13a-14(a)/15d-14(a) Certification31.2
    
    Rule 13a-14(a)/15d-14(a) Certification32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   (1)
    
    Incorporated by reference to referenced Exhibit in Companys
Registration Statement on Form S-1, Registration No. 33-97902,
effective December 11, 1995.(2)
    
    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. (SEC Accession No.:
0000950152-99-001926/SEC File No.:000-27202/SEC Film No.:99565325)(3)
    
    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.(4)
    
    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.




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##### Table of Contents



(5)
    
    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.(6)
    
    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.(7)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2001 filed
September 28, 2001.(8)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2002 filed
October 15, 2002(9)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
2003 filed June 4, 2003.(10)
    
    Incorporated by reference to referenced Exhibit in Companys Annual
Report on Form 10-K for the Annual Period ended June 30, 2003 filed
October 14, 2003.(11)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended September
30, 2003 filed November 12, 2003.(12)
    
    Incorporated by reference to referenced Exhibit in Companys
Current Report on Form 8-K dated December 8, 2003 filed December 23,
2003.(13)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended December
31, 2003 filed March 18, 2004.(14)
    
    Incorporated by reference to referenced Exhibit in Companys
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
2004 filed May 13, 2004.