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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 |
For the fiscal year ended DECEMBER 31, 20022003
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Commission file number 0-24230
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FIBERSTARS, INC.
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of
incorporation or organization) | | 94-3021850
(I.R.S. Employer
Identification No.) |
44259 Nobel Drive, Fremont, CA 94538
(Address of principal executive offices) (Zip Code) |
Registrant's telephone number, including area code:(510) 490-0719
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Securities registered under section 12(b) of the Exchange Act:NoneNone
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Securities registered under Section 12(g) of the Exchange Act: |
Title of Each Class
Common Stock, $0.0001 par value
Series A Participating
Preferred Stock
Purchase Rights |
Indicate by check mark whether the registrant (1) has filed all reports required 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 ý No o
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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No ý
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately
$7,922,000$9,971,000 as of June 28,
2002 based2003 (based upon the last trading price of the Common Stock of registrant on the Nasdaq National Market as of that
date.date). This calculation does not reflect a determination that any person is an affiliate of the registrant for any other purpose.
As of March
28,25, 2003, there were
4,667,3216,526,995 shares of the registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors and Section 16 (a) Beneficial Ownership Reporting Compliance), 11,
12 (as to Beneficial Ownership),
12, 13
and 14 of Part III of this Report on Form 10-K incorporates information by reference from registrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for registrant's
20032004 Annual Meeting of Shareholders to be held May
21, 2003.
19, 2004.
When used in this Report, the words "expects," "anticipates," "estimates," "plans," and similar expressions are intended to identify forward-looking statements. These are statements that relate to future periods and include statements as to the Company's competitive position, future operating results, capital expenditures, product development and enhancements, liquidity and strategy, our accounting policies, the effect of recent accounting announcements, development and marketing of new products, relationships with customers and distributors, relationships with suppliers and ability to obtain components, as well as our remarks concerning our ability to compete in the fiber optic lighting market, the evolution and future size of the fiber optic lighting market, seasonal fluctuations, our expectations concerning the future performance of our acquired businesses, plans for and expected benefits of outsourcing and offshore manufacturing, trends in the price and performance of fiber optic lighting products, the benefits and performance of our lighting products, the adequacy of our current facilities, our strategy with regard to protecting our proprietary technology, our ability to retain qualified employees, our strategy with regard to dividends, our relationship with Advanced Lighting Technology,Technologies, Inc. ("ADLT") and future technologies expected to result from our relationship with ADLT. Forward- looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, those risks discussed below, as well as our ability to retain and obtain customer and distributor relationships, the cost of accessing or acquiring technologies or intellectual property, risks relating to developing and marketing new products, manufacturing difficulties, possible delays in the release of products, our ability to obtain components at reasonable prices, the impact of technological advances and competitive products, our ability to attract and retain qualified employees; and the risks set forth below under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Results" and in the Company's other periodic filings with the Securities and Exchange Commission (the "SEC").or SEC. These forward-looking statements speak only as of the date hereof. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Fiberstars®, BritePak®,
MaxCore™OptiCore™, Lightly Expressed®, Jazz Light™,
Fiberstars EFO™FX Light™, FX Spa Light™ and Fiberstars
Underground Illuminator™EFO™ are our registered trademarks. We also refer to trademarks of other corporations and organizations in this document.
All references to “Fiberstars,” “we,” “us,” “our” or “the Company” means Fiberstars, Inc. and its subsidiaries, except where it is made clear that the term means only the parent company.
Item 1. Description of Business
Fiberstars,
Inc. ("Fiberstars" or the "Company"), incorporated in California in 1985, develops and markets fiber optic lighting systems which are used in a variety of commercial and residential applications. The Company was one of the pioneers in the use of fiber optic technology in lighting. By continuing to improve the price and performance of its products and by expanding its marketing efforts, we believe Fiberstars has become the world's leading supplier in this market.
The Company's products often have advantages over conventional lighting in areas of efficiency, safety, maintenance and beauty, and thus can be used in place of conventional lighting in a number of applications. By delivering special lighting effects, which conventional lighting often cannot match, fiber optic lighting systems are especially attractive for a wide range of decorative applications such as the lighting of swimming pools and spas, signage, "neon" type decoration, landscaping and other areas of use within the commercial and residential markets.
New technologyTechnology developed by Fiberstars can be used for commercial and industrial downlights and can save up to 80% of the energy consumed by conventional electric lighting.
NewThis technology is also used in a new, non-fiber optic Fiberstars electric light for swimming pools which offers many benefits compared to other electric pool lights.
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The Company designs, develops and manufactures its lighting systems and markets and distributes its products worldwide, primarily through independent sales representatives, distributors and swimming pool builders.
Fiberstars' fiber optic lighting systems combine three types of products—illuminators, fiber, and fixtures—in configurations designed to meet the needs of specific markets. The electrically powered illuminators generate and focus light into the ends of optical fiber. Fiber tubing products connect to the illuminators and are designed to emit light either at the end of the fiber optics as a spot source of light, or along the length of the fiber optics, similar in effect to neon lighting. The systems can also include fixtures and other accessories designed for specific applications.
The Company manufactures a number of different illuminators for use in different applications. Most commercial illuminators utilize metal halide high intensity discharge (H.I.D.) lamps to provide long life and maximum brightness. Some include patented optical systems which have been designed by Fiberstars to enhance performance. Our lower cost illuminators use quartz halogen lamps, some of which are custom manufactured to Fiberstars' specifications.
New products introduced in
20022003 include the Fiberstars
JazzFX Light™
and Fiberstars Spa Lights™ for the swimming pool market and Fiberstars EFO™
Fiberjacks for commercial lighting markets. The EFO™ system is based on Fiberstars' patented
new CPC™ non-imaging optical system for efficiency in fiber optic light delivery. The
JazzFX Light™
product is Fiberstars first entry intoand FX Spa Light™ products complete Fiberstars’ line in the market for in-pool electric lighting systems.
Fiberstars EFO™ also takes advantage of a patented, proprietary
new large core fiber optic product called
MaxCore™OptiCore™, which has outstanding clarity with low attenuation for fiber optic lighting applications. The combination of
CPCCPC™ optics and
MaxCoreOptiCore™ fibers yields system light output efficiency ranging from 30 to 60 lumens-per-watt (depending on the configuration of the system), compared to approximately 12-15 lumens-per-watt for systems using traditional incandescent and halogen lamps.
MaxcoreOptiCore™ is manufactured by Fiberstars in its Solon, Ohio facility.
Fiberstars also markets small diameter stranded fiber products, such as its patented BritePak® fiber tubing
whichthat can maintain reasonably consistent brightness for side-lit fiber runs up to 100 feet in length. For end-lit applications, a wide variety of fiber
sizesSKU’s are available to enable one illuminator to illuminate several spotlights, which are typically placed within twenty feet of the illuminator. Stranded fiber is purchased from Mitsubishi and cabled and/or encased in a PVC tube by Fiberstars at its Fremont, California facility.
All of Fiberstars' fiber tubing products are manufactured in various lengths and diameters to meet the requirements of each particular market and application. The Company carries small amounts of finished goods inventory except during certain times of the year prior to heavy seasonal sales.
Fiberstars designs and manufactures certain fixtures and accessories within product lines. Other fixtures and accessories are supplied by third parties. The Company's Commercial Lighting Division produces a broad assortment of ceiling and landscape fixtures from which lighting designers may choose.
As part of its acquisition of Lightly Expressed,
Ltd. ("Ltd, or Lightly
Expressed")Expressed, in May 2000, Fiberstars acquired a line of high-end display case fixtures and a process for the manufacture of lightbars.
The3
In 2003, the Company manufacturessourced an additional lightbar designs and purchases othersdesign under OEM contracts from a manufacturer in Canada to offer a complete product line to customers. Fiberstars believes that fiber optics isare ideal for case lighting because all of the light is directed within a 6060- degree angle, which highlights merchandise well and does not generate heat like traditional (incandescent) lighting.
In 2004, Fiberstars will sell lighted water feature systems through its Pool and Spa division. These systems include lighted waterfalls, lighted laminar flows, lighted flowerpots and lighted globes that provide accent lighting for outdoor swimming pools and spas.
Applications and End-Users
The Company's fiber optic lighting products are manufactured to the specifications of architects, professional lighting designers, swimming pool builders or end-users. Our products have been installed for commercial lighting applications in fast food restaurants such as Burger King and McDonald's; retail stores such as Footlocker, Starbucks, Albertson's, Giant Food and Toys R Us; hotels such as the MGM Grand, Caesar's Palace, the Venetian and the Stratosphere Tower in Las Vegas; and entertainment facilities such as theme parks operated by the Walt Disney Company and Universal Studios. Fiberstars commercial lighting systems also have been used in a number of specialty applications, including theatrical productions, bridges, theater aisles and ceilings, and have been used by the Monterey Bay Aquarium, HBO Studios, AMC theaters, Chevron, New York's Trump Tower and New York Life. Examples of such installations
made in 2002 includedinclude Tiffany, Nordstrom's, Gertrude Hawk Chocolates, Marathon Coach, Sonic, Macy's, JR Dunn Jewelers,
Burdene's,Burdine's, Chuck E. Cheese, Hobb's Fountains, Wings, Cheescake Factory and Carnival Cruise Lines.
The Company's primary products for
swimming pool and spa lighting are designed to provide underwater lighting for newly constructed pools. In addition, Fiberstars markets products for spa lighting, pool perimeter lighting, patios, decks and landscape lighting. The Company's underwater lighting systems are installed in pools and spas built by major national pool builders and builder groups, as well as numerous regional and local pool builders throughout the United States,
Canada, Europe and
Canada.Australia.
Sales, Marketing and Distribution
Commercial Lighting Products
In the commercial lighting market, the Company's marketing efforts are directed at creating specifications for Fiberstars' systems in plans developed by architects, professional lighting designers and building owners. The Company reaches these professionals through its own national account sales personnel as well as approximately
6066 independent lighting representative organizations throughout the United States, approximately 20 of which account for a substantial majority of the Company's commercial lighting product sales. The independent lighting representatives assist in the specification process, directing orders to electrical equipment distributors, who, in turn, purchase products from Fiberstars. Domestic distributors of commercial lighting products typically do not engage in marketing efforts or stock any inventory of the Company's products. The Company's arrangements with its independent
lighting representatives do not prohibit the handling of conventional lighting products, including products that may be competitive with those of the Company, although such representatives typically do not handle competing fiber optic lighting products.
The Company's products are sold in Europe through two subsidiaries, Crescent Lighting Ltd. in the
UKUnited Kingdom and Lichtberatung Mann (LBM) in Germany. Together, these two companies oversee the sales operations in Europe, Russia and the Middle East which, as in the U.S., include sales through sub-distributors and sales representatives.
Outside of Europe, Russia and the Middle East, Fiberstars' commercial lighting products are sold internationally in more than 29 countries by approximately 23 distributors, including Mitsubishi, ADLT Australia and Venture LightingKoto in Japan.4
Swimming Pool and Spa Products
The Company's underwater lighting products are sold primarily for installation in new swimming pools and spas. Accordingly, our marketing efforts for swimming pool and spa products depend on swimming pool builders to recommend our products to their customers and to adapt their swimming pool designs to include
Fiberstarsour lighting
systems. Thesystems.The Company utilizes
its own national and regional sales
managers. Inrepresentative organizations that specialize in selling swimming pool products to pool builders and pool product distributors. Each representative organization typically has the exclusive right to sell the Company’s products within its territory, receiving commissions on sales in its territory.In September 2002, the Company discontinued its agreement to sell through the organization of the Laars/Jandy Division of Waterpik Technologies Inc.
("Waterpik")., or Waterpik. Prior to the cessation of this relationship, Waterpik received a commission on sales in its territory.
Regional and national distributors in the swimming pool market stock the Company's products to fill orders received from swimming pool builders. Some of these distributors engage in limited marketing activities for the Company's products.
The Company enters into incentive arrangements to encourage pool builders to purchase the Company's products. The Company has entered into agreements with certain large national pool builders under which the builders may purchase Fiberstars systems directly from the Company and offer the Company's products with their swimming pools. The Company provides pool builders and independent sales representatives with marketing tools, including promotional videos, showroom displays and demonstration systems. The Company also uses trade advertising and direct mail in addition to an ongoing program of sales presentations to pool builders and distributors.
South Central Pools,
("SCP"),or SCP, the largest pool distributor in the U.S. and the Company's largest pool customer, accounted for approximately
9%11% of the Company's net sales in
2003, 9% in 2002
and 8% in
2001 and 9% in 2000.2001. The Company expects to maintain its business relationship with SCP; however, a cessation or substantial decrease in the volume of purchases by this customer could reduce availability of the Company's products to end users and,
could, in turn, have a material adverse effect on the Company's net sales and results of operations. At December 31,
2002,2003, SCP accounted for
13%14% of accounts receivable and at December 31,
2001,2002, they accounted for
10%13% of accounts receivable.
The Company sells its spa products directly to spa manufacturers on an OEM basis throughout the
USU.S. and Canada, and through distributors in other locations.
Sales of the Company's
swimming pool and spa products follow a seasonal pattern, which typically results in higher sales in the second and fourth quarters as pool distributors stock shelves for the spring and summer seasons. The first quarter pool sales tend to be the lowest of any quarter for the year. In conformity with industry practice, extended terms are given to distributors for shipments in the fourth quarter of the year whereby they receive products in November and December for which they pay in equal installments from March through June of the following year.
The majority of sales of the Company's swimming pool lighting systems to date have been made in the U.S., Canada and Australia. However, the Company also sells through several distribution agreements in Europe. Pool lighting sales in Europe were not material in
2003, 2002
2001 or
2000.
Geographic Areas and Product Lines
The Company sells its products worldwide and has two product lines: Pool and Spa Lighting and Commercial Lighting. Information on the geographic split of revenues and revenues by product line may be found in Note
1311 to the Company's Consolidated Financial Statements.
The Company normally ships standard products within a few days after receipt of an order and custom products within 30 to 60 days of order receipt. Generally, there is not a significant backlog of orders, except at
year end.year-end. The Company's backlog at the end of
20022003 was
$859,000$1,261,000 compared to
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$2,182,000 $859,000 at the end of 2001. A total of $1,188,0002002. We anticipate that all of the 2001 backlog was forwill be filled within the pipeline of the Jazz Light™ product in anticipation of its initial shipments in the first quarter of 2002. All of this Jazz 2001 backlog was shipped in either the first or second fiscal quarter of 2002. The Company does not consider backlog to be an indicator of future performance.
current year.
The Company's products compete with a wide variety of lighting products, including conventional electric lighting in various forms, LED's and decorative neon lighting. The Company also experiences competition from other companies offering products containing fiber optic technology. Principal competitive factors include price, performance (including brightness, reliability and other factors), aesthetic appeal (including light color), market presence, installation, power consumption and maintenance requirements.The Company believes that its products compete favorably against conventional lighting in such areas as aesthetic appeal, ease of installation, maintenance and power consumption. The unique characteristics of fiber optic lighting (such as no heat or electricity at the light fixture, ability to change colors and remote lamp replacement) enable our products to be used in some situations where conventional lighting is not practical. However, the initial purchase price of the Company's products is typically higher than conventional lighting, and the Company's products
tend to beare often less bright than conventional alternatives. These deficiencies are being addressed in whole or in part by Fiberstars'
new CPCCPC™ technology products including EFO™. In the case of neon lighting, certain popular neon colors, such as bright red, cannot be achieved as effectively with the Company's products.
Fiberstars is engaged in ongoing efforts to develop and improve its products, adapt its products for new applications and design and engineer new products. The Company expects that its ability to compete effectively with conventional lighting technologies, other fiber optic lighting products and new lighting technologies that may be introduced will depend substantially upon achieving greater light output and reducing the cost of the Company's systems. In January 2003 the Company introduced a new, lower-priced illuminator based on its patented
CPCCPC™ optical technology. This technology improves performance by more efficiently capturing available
lamp lightlamp-light from highly efficient metal halide lamps. This product is an outgrowth of advanced technology acquired as part of the Company's acquisition of Unison (see "Research and Product Development" in this section)
. ..
Providers of conventional lighting systems include large lamp manufacturers and lighting fixture companies
whichthat have substantially greater resources than the Company. These conventional lighting companies may introduce new and improved products that may reduce or eliminate some of the competitive advantages of the Company's products. In commercial lighting, the Company also competes primarily with local and regional neon lighting manufacturers and craftspeople
who,that, in many cases, are better established in their local markets than the Company.
Direct competition from other fiber optic lighting products and pool lighting products has continued. Competitive products are offered in the pool market by Pentair, Inc.'s American Products Division, a major manufacturer of pool equipment and supplies, as well as Super Vision International. In commercial lighting, fiber optic lighting products are offered by an increasing number of smaller companies, some of which compete aggressively on price. Some of these competitors offer products with performance characteristics similar to those of the Company's products.
CertainIn past years, certain large companies in the conventional lighting industry,
are manufacturingmanufactured or licensed fiber optic lighting systems that compete with the Company's products.
For example, Schott, a German glass fiber company,
has formed an entity to entermarkets in the U.S.
market. Many companies compete with the Company in Asia, including Mitsubishi, Bridgestone and Toray. Mitsubishi sells Fiberstars'
BritePakBritePak(R) fiber tubing in Japan.
The Company cannot predict the impact of competition on its business. The Company believes that an increase in the rate of market expansion may be accompanied by an increase in competition.
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Increased competition could result in price reductions, reduced profit margins and loss of market share, which would adversely affect the Company's operating results. There can be no assurance that the Company will be able to continue to compete successfully against current and future competitors.
Assembly, Testing and Quality Assurance
The Company's illuminator manufacturing consists primarily of final assembly, testing and quality control. The Company uses independent contractors to manufacture some components and sub-assemblies and has worked with a number of its vendors to design custom components to meet Fiberstars' specific needs. Inventories of domestically produced component parts are managed on a just-in-time basis when practicable. The Company's quality assurance program provides for testing of all sub-assemblies at key stages in the assembly process as well as testing of finished products.
In
20022003 the Company continued
aits program to manufacture more of its products in
off-shoreoffshore locations, mainly
Taiwan. The Company plans to begin the manufacturing of products with a company in India
in 2003.and Mexico. As this process continues it is expected that more high volume products will be sourced
off-shoreoffshore where labor and component cost savings may be
achieved. Theachieved.In October 2003, the Company
intends to increase its sourcingentered into a Production Share Agreement with North American Production Sharing, Inc. and Industrias Unidas de B.C., S.A. de C.V., or North American. Under this agreement North American will provide administrative and manufacturing services, including labor services and the use of
off-shore components where there are cost advantages to doing so.manufacturing facilities in Mexico, for the manufacturing and assembly of certain of the Company’s fiber optic systems and related equipment and components.
Under a supply agreement, which was renewed in January 2001, Mitsubishi is the sole supplier of the Company's small diameter stranded fiber, which is the Company's largest selling fiber product. Since the
acquisition of Unison
acquisition,Fiber Optic Systems, LLC, or Unison, Fiberstars has been manufacturing large core fiber. The Company expects to maintain its relationship with Mitsubishi. Mitsubishi owns approximately
2.6% 2.0%of the Company's outstanding common stock and distributes certain Fiberstars' products in Japan. The Company also relies on sole source suppliers for certain lamps, reflectors, remote control devices and power supplies. Although the Company cannot predict the effect that the loss of one or more of such suppliers would have on the Company, such loss could result in delays in the shipment of products and additional expenses associated with redesigning products and could have a material adverse effect on the Company's operating results.
Research and Product Development
The Company believes that growth in fiber optic lighting will be driven by improvements in technology to provide increased light output at lower costs. Accordingly, the Company is committing much of its research and development resources to those challenges.
New opticalOptical technology developed by Fiberstars following the Unison acquisition has resulted in
new illuminator products for both the
swimming poolPool and Spa and the
commercial lighting division.Commercial Lighting Division. These new technology products are believed to be state-of-the-art in fiber optic lighting. In 2002, the Company completed the redesign of its high-end commercial illuminator, improving
brightness.efficiency. The
improved version of this product shipped for the first time in January
2003.2003 and the improved version shipped January 2004. Despite its ongoing development efforts, there can be no assurance that the Company will be able to achieve future improvements in brightness and cost, or that competitors will not develop lighting technologies that are brighter, less expensive or otherwise superior to those of the Company.
On February 1, 2000, the Company completed an agreement to acquire selected assets and all of the technology of Unison, the fiber optic lighting joint venture between ADLT and Rohm & Haas Company. As part of the agreement, the Company acquired key personnel, technologies and other assets. The Company believes that the acquisition has provided and may yet continue to provide the following benefits:
1.The Company received contributions from Unison personnel to its long range plans. For example, John Davenport, former manager of research and development at GE Lighting, has become the Company's Chief Operating Officer and Chief Technology Officer.
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2.The Company believes that the technology acquired has the potential to deliver the light output of certain electric lamps at competitive pricing to specifier-grade lighting fixtures, which has been a major goal of the Company. Additionally, the Company acquired 12 patents and a number of patents-pending, including technology in lamps, optics and fiber. Research and development based on the acquired technology has resulted in a number of patent applications and patents being issued in addition to those acquired in the transaction.
3.In connection with the acquisition, the Company entered into an ongoing technology exchange and supply agreement with ADLT covering lamps, power supplies, optical coatings and fixtures for fiber optic lighting applications.
4.The agreement provided the Company with $2,000,000 in research and development funds, paid over five quarters, against milestones for the completion of development work on large core plastic optical fiber as well as new technology lamp/optics projects. In exchange, the Company is required to pay royalties on the sales of products these technologies produce at a rate of 3% for five years, 2% for the next two years and 1% for the next three years, after which the Company assumes exclusive royalty-free rights. The Company began paying royalties in 2001.
5.The acquisition also included certain tangible assets valued, in the aggregate, at $625,000, including large core fiber manufacturing and fiber making equipment and certain other research and development equipment.The Company's goal, with the acquired technology from ADLT, was to improve the price/performance of fiber optic lighting systems to compete more directly with conventional lighting across a much broader spectrum of the general lighting market.
In 2000, the Company received a federal grant from the National Institute of Standards and Technology ("NIST") for up to $2,000,000 in funding over three years for research and development of solid core fiber for lighting purposes. This contract provided the Company with $520,000 in funding for the eleven-month period ended September 2001 and $914,000 for the one-year period
endingended September 2002 and
the Company has received approval to spend an additional $566,000 for the one-year period
endingended September 2003.
In February 2003, the Defense Advanced Research Projects Agency (“DARPA”) through the Army Aviation and Missile Command (“AMCOM”) awarded the Company and its partners a research and development contract for the development of next generation light sources, optics, luminaire and integrated illuminated technologies for its High Efficiency Distributed Lighting (“HEDLight”) project. Under this contract, the Company will receive $6,818,000 over three years based on achieving various research and development milestones. The milestones relate to the development of fiber optic illuminators and fixtures for installation on ships and aircraft. Upon achieving these milestones, the Company will receive $2,115,000, $2,599,000 and $2,104,000 for the calendar years ended December 31, 2003, 2004 and 2005, respectively. Funds for the first year have congressional budget approval and funds for subsequent years are subject to budget approval for those years.
On April 10, 2003 the Company announced that it and APL Engineered Materials, a subsidiary of ADLT, were awarded an additional $2,700,000 research and development contract from DARPA to develop a new arc discharge light source. The Company will receive $300,000 of this amount for its portion of this research. APL Engineered Materials will lead the light source project. The Company expects that the new high performance light source will provide improvements in efficacy and brightness and color rendering over the present Fiberstars EFO™ source. The Company received $1,463,000, net of payments to subcontractors, for DARPA contracts in 2003.
The Company augments its internal research and development efforts by involving certain of its component suppliers, independent consultants and other third parties in the process of seeking improvements in the Company's products and technology. The Company depends substantially on these parties to undertake research and development efforts necessary to achieve improvements that would not otherwise be possible given the multiple and diverse technologies that must be integrated in the Company's products and the Company's limited engineering, personnel and financial resources. These third parties have no material contractual commitments to participate in these efforts, and there can be no assurance that they will continue to do so.
The Company believes that the success of its business depends primarily on its technical innovations, marketing abilities and responsiveness to customer requirements, rather than on patents, trade secrets, trademarks, copyrights and other intellectual property rights. Nevertheless, the Company has a policy of seeking to protect its intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements and trade secrets. As of December 31,
2002,2003, the Company's intellectual property portfolio consisted of
3340 issued U.S. patents, various pending U.S. patent applications and various pending Patent Cooperation Treaty, or PCT, patent applications filed with the World Intellectual Property Organization
and whichthat serve as the basis of national patent filings in countries of interest. The Company's issued patents expire at various times between August 2008 and October 2022. Generally, the term of patent protection is 20 years from the earliest effective filing date
8
of the patent application. There can be no assurance, however, that the Company's issued patents are valid or that any patents applied for will be issued. There can be no assurance that the Company's competitors or customers will not copy aspects of the Company's fiber optic lighting systems or obtain information that the Company regards as proprietary. There also can be no assurance that others will not independently develop products similar to those sold by the Company. The laws of some foreign countries in which the Company sells or may sell its products do not protect the Company's proprietary rights in its products to the same extent as do the laws of the United States.
The Company is aware that a large number of patents and pending patent applications exist in the field of fiber optic technology. The Company also is aware that certain of its competitors hold and have applied for patents related to fiber optic lighting. Although, to date, the Company has not been involved in litigation challenging its intellectual property rights, the Company has in the past received communications from third parties asserting rights in its patents or that the Company's technology infringes intellectual property held by such third parties. Based on information currently available to the Company, it does not believe that any such claims involving the Company's technology or patents are meritorious. However, the Company may be required to engage in litigation to protect its patent rights or to defend against the claims of others. There can be no assurance that third parties will not assert claims that the Company's products infringe third party patents or other intellectual property rights or that, in case of a dispute, licenses to such technology will be available, if at all, on reasonable terms. In addition, the Company may need to take legal action to enforce its intellectual property rights in the future. In the event of litigation to determine the validity of any third-party claims or claims by the Company against third-parties, such litigation, whether or not determined in favor of the Company, could result in significant expense to the Company and divert the efforts of the Company's technical and management personnel from productive tasks. Also, in the event of an adverse ruling in such litigation, the Company might be required to expend significant resources to develop non-infringing technology or to obtain licenses to the infringing technology, which licenses may not be available on acceptable terms. In the event of a successful claim against the Company and the Company's failure to develop or license a substitute technology, the Company's operating results could be adversely affected.
As of December 31,
2002,2003, the Company had
143121 full time employees, of whom
4641 were involved in sales, marketing and customer service,
1922 in research and product development,
5845 in assembly and quality assurance, and
2013 in finance and administration. From time to time the Company also employs
part- timepart-time personnel in various capacities, primarily assembly and clerical support. The Company has never experienced a work stoppage, no employees are subject to any collective bargaining agreement, and the Company considers its employee relations to be good.
The Company believes that its future success will depend to a large extent on the continued contributions of certain employees, many of whom would be difficult to replace, and on its ability to attract and retain qualified technical, sales, marketing and management personnel, for whom competition is intense. The loss of or failure to attract and retain any such persons could delay product development cycles, disrupt the Company's operations or otherwise harm the Company's business or results of operations.
Available Information
Item 2. Description of PropertyThe Company's principal executive offices and manufacturing and assembly facilities are located in a 60,000 square foot facility in Fremont, California, under a lease agreement expiring in 2006. The Company has other local offices
under lease in the United States in
Seattle, WashingtonSolon, Ohio and in Europe in the United Kingdom in
Thatcham.Thatcham, both under lease. It also owns a local office in Berching, Germany. The Company believes that its current facilities are adequate to support its current and anticipated near-term
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operations and that it can obtain additional space it may need in the future at commercially reasonable terms.
Item 3. Legal ProceedingsWe are not currently a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security HoldersThere were no matters submitted to a vote of security holders during the quarter ended December 31, 2002.2003.
Executive Officers of the Registrant
The executive officers of the Company who are not directors, and their ages as of December 31, 2003, are as follows:
Name | Age | Position |
| John Davenport | 58 | Chief Operating Officer, Chief Technology Officer |
| Roger Buelow | 31 | Vice President, Engineering |
| Robert A. Connors | 55 | Vice President, Finance, Chief Financial Officer |
| Ted des Enfants | 32 | Vice President and General Manager, Fiberstars EFO |
| Barry R. Greenwald | 57 | Senior Vice President and General Manager, Pool Division |
| J. Steven Keplinger | 44 | Senior Vice President, Operations |
Mr. Davenport joined the Company in November 1999 as Vice President, Chief Technology Officer and was appointed Chief Operating Officer in July 2003. Prior to joining the Company, Mr. Davenport served as President of Unison from 1998 to 1999. Mr. Davenport began his career at GE Lighting in 1972 as a research physicist and thereafter served 25 years in various capacities including GE Lighting's research and development Manager and as development manager for high performance LED projects. He is a recognized global expert in light sources, lighting systems and lighting applications, with special emphasis in low wattage discharge lamps, electronic ballast technology and distributed lighting systems using fiber optics.
Mr. Buelow was appointed Vice President, Engineering for the Company in February 2003. Prior to joining Fiberstars in 1999, he served as Director of Engineering for Unison from 1998 to 1999. Prior to that he served 4 years as an engineer at General Electric in the Lighting division working on several fiber optic lighting projects. Mr. Buelow holds BS and MS degrees in Applied Mathematics and Systems Engineering from Case Western Reserve University, Cleveland, Ohio and is a Certified Quality Engineer with five utility patents.
Mr. Connors joined the Company in July 1998 as Vice President, Finance, and Chief Financial Officer. From 1984 to 1998, Mr. Connors held a variety of positions for Micro Focus Group Plc, a software company with 1997 revenues of $165 million, including Chief Financial Officer and Chief Operating Officer. Prior to working for Micro Focus Group Plc, he held senior finance positions with Eagle Computer and W. R. Grace.
Mr. des Enfants joined the Company in January 2004 as Vice President and General Manager, Fiberstars EFO. From 1994 to 2003, Mr. des Enfants held a variety of positions with the GE Lighting, most recently as District Sales Manager in the eastern region. From 1998 to 2001, he was National Account Manager with GE Lighting and from 1994 to 1998 held various Sales and Sales Manager positions at GE Lighting.
Mr. Greenwald joined the Company in October 1989 as General Manager, Pool Division. He became Vice President in September 1993 and Senior Vice President in February 1997. Prior to joining the Company, Mr. Greenwald served as National Sales Manager at Aquamatic, a swimming pool accessory company, from August 1987 to October 1989. From May 1982 to August 1987, Mr. Greenwald served as National Sales Manager at Jandy Inc., a swimming pool equipment company.
Mr. Keplinger joined the Company in August 1988 as Manager of Operations. He became Vice President in 1991 and Senior Vice President in February 1997. From June 1986 to August 1988, Mr. Keplinger was a sales representative at Leemah Electronics, an electronics manufacturing company. From February 1983 to June 1986, Mr. Keplinger was a sales manager with California Magnetics Corp, a custom transformer manufacturing company.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's Common Stock trades on the Nasdaq National Market tier of the Nasdaq Stock Marketsm under the symbol "FBST". The following table sets forth the high and low sale prices for the Company's Common Stock, as reported on the Nasdaq National Market for the periods indicated. These reported prices reflect interdealer prices without adjustments for retail markups, markdowns or commissions.
| | High
| | Low
|
|---|
| First quarter 2001 | | $ | 8.69 | | $ | 4.69 |
| Second quarter 2001 | | | 5.00 | | | 3.75 |
| Third quarter 2001 | | | 4.75 | | | 3.31 |
| Fourth quarter 2001 | | | 4.04 | | | 2.95 |
First quarter 2002 |
|
|
3.65 |
|
|
2.85 |
| Second quarter 2002 | | | 5.00 | | | 3.26 |
| Third quarter 2002 | | | 4.43 | | | 2.43 |
| Fourth quarter 2002 | | | 4.69 | | | 2.51 |
| | | | |
| | | | High | | | Low | |
| | |
| |
| |
| First quarter 2002 | | $ | 3.65 | | $ | 2.85 | |
| Second quarter 2002 | | | 5.00 | | | 3.26 | |
| Third quarter 2002 | | | 4.43 | | | 2.43 | |
| Fourth quarter 2002 | | | 4.69 | | | 2.51 | |
| | | | | | | | |
| First quarter 2003 | | | 4.40 | | | 2.66 | |
| Second quarter 2003 | | | 4.00 | | | 2.85 | |
| Third quarter 2003 | | | 4.20 | | | 3.13 | |
| Fourth quarter 2003 | | | 8.25 | | | 3.71 | |
There were approximately 225 holders of record of the Company's Common Stock as of March 25,
2003,2004, and the Company estimates that at that date there were approximately 800 additional beneficial owners.
The Company has not declared or paid any cash dividends and does not anticipate paying cash dividends in the foreseeable future.
Equity Compensation Plan Information
The following table sets forth certain information regarding the Company's equity compensation plans as of December 31,
2002:Plan category
| | Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
| | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
| | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
| |
|---|
| Equity compensation plans approved by security holders | | 1,432,000 | | $ | 4.57 | | 301,000 | (1) |
| Equity compensation plans not approved by security holders | | — | | | — | | — | |
| | |
| |
| |
| |
| Total | | 1,432,000 | | $ | 4.57 | | 301,000 | (2) |
- 2003:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by security holders | 1,393,000 | $4.18 | 49,000(1)(2) |
| Equity compensation plans not approved by security holders | — | — | — |
| Total | 1,393,000 | $4.18 | 49,000 |
___________
(1)Includes the number of shares reserved for issuance under the Company's 1994 Employee Stock Option Plan and under the 1994 Directors' Stock Option Plan.
(2)Includes 25,00018,000 shares available for sale pursuant to the Company's 1994 Employee Stock Purchase Plan. Shares of common stock will be purchased at a price equal to 85% of the fair market value per share of common stock on either the first day preceding the offering period or the last date of the offering period, whichever is less.11
Recent Sales of Unregistered Securities
On June 17, 2003, we entered into a Securities Purchase Agreement with a total of 10 private investors to invest up to approximately $4,388,250 million in Fiberstars in a private placement of our common stock and warrants to purchase shares of our common stock. In connection with this private placement, we issued warrants to purchase 81,104 shares of common stock to Merriman Curhan Ford & Co., as placement agent. The private placement closed in two stages on June 17, 2003 and August 18, 2003. The warrants have the same terms as the warrants issued pursuant to the Securities Purchase Agreement and have an exercise price of $4.50 per share. Each warrant has a term of five years and is not exercisable for 183 days from the date of the second closing.
In accordance with SFAS 142 the Company ceased amortizing goodwill as of December 31, 2001. Refer to Note 65 of the Notes to Consolidated Financial Statements.
Gross profit of $11,474,000 in 2002 remained essentially flat with gross profit of $11,447,000 achieved in 2001. However, gross profit margin decreased to 37.0% in 2002 compared to 39.4% in 2001 primarily due to higher freight in and freight out costs in 2002, up $632,000 or 2%, along with lower than normal gross margins on the new Jazz product, downcontributing $425,000 or 1.4%, off prior year pool margins, partially offset by higher International margins, up 1%.
Research and development expenses were $2,290,000 in 2002, a 17% decrease from research and development expenses in 2001 of $2,764,000. The decrease was largely due to the increase in expense credits in 2002 of $331,000 as compared to 2001 from a National Institute of Science and Technology ("NIST")the NIST award. Total NIST payments of $874,000 were credited against research and development expenses in 2002. The additional decrease in research and development expense in 2002 came as a result of lower personnel and project costs. Research and development expenses were 7.4% of sales in 2002 compared to 9.5% of sales in 2001. Research
Cash Used in Investing Activities
There was a net utilization of cash of $717,000 in the amount of $1,872,000 from operatinginvesting activities in 2002. This was a result of cash utilized2003 primarily due to fund the loss of $3,519,000, offset by a change in deferred tax of $2,035,000 and depreciation and amortization of $1,086,000, along with cash utilized to fund increases in inventories of $1,239,000 and other cash uses of $235,000. In addition, cash for investing activities totaling $793,000 was used to fund acquisitionsacquisition of fixed assets $142,000compared to $793,000 spent on acquiring fixed assets in 2002.
Cash Provided by Financing Activities
There was a net contribution of which was used to acquire tooling for new products released$3,447,000 in 2002 and scheduled to be introducedcash in 2003. Cash2003 from financing activities amountedactivities. This net contribution was primarily due to $2,213,000 in 2002 and related primarily tothe proceeds from issuancesthe sale of the Company’s common stock of $972,000 fromand warrants in a private placement completedwhich closed in two stages in June 2003 and August of 2003, as discussed below, with aggregate net proceeds of $3,812,000, net of fees and expenses. This was offset by the first fiscal quarterrepayment of 2002, along with bank borrowings of $522,000$607,000 and a bank overdraft of $691,000. Total cash utilization in 2002 was $353,000 as compared to the utilization of cash in 2001 of $646,000. Cash balances decline during the first quarter of each fiscal year, but then increase in the third quarter as
As a result of the
seasonal variancecash provided by operating and financing activities and the cash used in investing activities, there was a net increase in cash
needsin 2003 of
the Company, primarily as a result$4,023,000 that resulted in an ending cash balance of
the seasonal purchasing and payment patterns in the pool industry. In December 2001, the Company agreed$4,254,000. This compares to a collateralized bank linenet increase in cash of credit$99,000 in 2002 resulting in an ending cash balance of $231,000 for 2002.
The Company has a $5,000,000 Loan and Security Agreement (Accounts Receivable and Inventory) dated December 7, 2001, with Comerica Bank for working capital purposes forbearing interest equal to prime plus 0.25% per annum computed daily or a fixed rate term option of LIBOR plus 3%. Borrowings under this Loan and Security Agreement are collateralized by the Company’s assets and intellectual property. Specific borrowings againstare tied to accounts receivable and inventory upbalances, and the Company must comply with certain covenants with respect to $5,000,000.effective net worth and financial ratios. The Company had no borrowings against this facility as of December 31, 2003 and had borrowings of $416,000 as of December 31, 2002. As of December 31, 2002, the Company had $416,000 in borrowings against this line of credit. The Company expects to increase its utilization of its bank line of credit in the first quarter of fiscal 2003. Certain covenants associated with the bank line of credit require the Company to maintain certain net worth, debt to equity and quick ratios on a monthly basis for its U.S. and consolidated operations. The agreement is cancellable upon 30 days notice by either party. As of December 31, 20022003, the Company was not in conformitycompliance with these net worth and financial ratios.the profit covenant, but has received a waiver to this covenant from the bank.
The Company also has a $403,000$444,000 (in UK pounds sterling, based on the exchange rate at December 31, 2003) bank overdraft agreement with Lloyds Bank Plc through its UK subsidiary. There were no net borrowings against the overdraft agreementthis facility as of December 31, 2003 and December 31, 2002. In addition, at year end
As of December 31, 2003, the Company had a total borrowing of $484,000$475,000 (in Euros, based on the exchange rate as of December 31, 2003) against a credit facility which totals $616,000 heldnote payable secured by real property owned by its German subsidiary. This borrowing is largely held in order to finance the buildingAs of new offices owned byDecember 31, 2002, the Company in Berching, Germany. In addition,had $475,000 borrowed against this note. Additionally, there is a revolving line of credit of $214,000$254,000 (in Euros)Euros, based on the exchange rate at December 31, 2003) with Sparkasse Neumarkt Bank.As of December 31, 2003, there were no borrowings against this facility and as of December 31, 2002 there werewas $142,000 in borrowings against this facility.17
Future payments for borrowings by the Company's German subsidiary and minimum lease payments under operating leases as of December 31, 2002,2003, were as follows (in thousands):
| | | Borrowings By German Subsidiary | Non- Cancelable Operating Leases |
| | |
| |
| |
| 2004 | | | — | | | 1,061 | |
| 2005 | | | — | | | 1,082 | |
| 2006 | | | — | | | 808 | |
| Thereafter | | | 475 | | | — | |
| | |
| |
| |
| | | $ | 475 | | $ | 2,951 | |
| | Borrowings
By German
Subsidiary
| | Non-
Cancelable
Operating
Leases
|
|---|
| 2003 | | $ | 177 | | $ | 855 |
| 2004 | | | — | | | 881 |
| 2005 | | | — | | | 917 |
| 2006 | | | — | | | 717 |
| Thereafter | | | 449 | | | — |
| | |
| |
|
| | | $ | 626 | | $ | 4,241 |
| | |
| |
|
Additionally,
As part of the Company has issued warrants for the purchase of 100,000 shares of common stock on a contingency basis to the former shareholdersacquisition of Lightly Expressed Inc., a company whichin 2000, the Company acquired in 2000. Undergranted the terms of theseLightly Expressed shareholders warrants if the contingencies are met, the Companyto purchase 100,000 shares that may be required to pay cashexercised in lieu of sharesthree years if certain operating profits from sales of the Company's stock. The Company is not able to predict the amountproducts acquired are met. There were 50,000 warrants exercisable as of cash which might be paid out under this arrangement, if any.December 31, 2003.
In a March 2002 private placement, the Company sold 328,633 shares of common stock, for net proceeds of $972,000 (net of fees and expenses). In addition, each purchaser was issued a warrant to purchase a number of shares of the Company's common stock equal to 20% of the number of shares of common stock purchased by such purchaser in the offering. The purchase price of the common stock was $3.00 per share, which was based on
aan 8.8% discount on the
10 day10-day average price as of March 14,
2002.2003. The purchase price of the common stock for insiders who participated in the offering was $3.35, which was the higher of (1) the price on the closing date or (2) the
10 day10-day average price as of March 14, 2002, plus a $.03 premium because of the issuances of the warrants. The warrants have an initial exercise price of $4.30 per share, with a life of 5 years.
On June 17, 2003, the Company entered into a securities purchase agreement to sell up to 1,350,233 shares of common stock and warrants to purchase 405,069 shares of common stock for an aggregate purchase price of $4,388,250 in a two-stage private placement. The first stage of the private placement, involving the sale of 923,078 shares of common stock and warrants to purchase 276,922 shares of common stock, closed on June 17, 2003 with the Company receiving net proceeds of $2,769,000 (net of fees and expenses). The second stage of the private placement, involving the sale of 427,155 shares of common stock and warrants to purchase 128,147 shares of common stock, closed on August 18, 2003 with the Company receiving net proceeds of $1,043,000 (net of fees and expenses). As required by Nasdaq Marketplace Rules, the issuance and sale of the shares and warrants in the second stage were subject to shareholder approval because the price was less than the greater of book or market value per share and amounted to 20% or more of the Company’s common stock. The shareholders approved the issuance and sale of the shares and warrants in the second stage at a special meeting of shareholders held on August 12, 2003. For both stages, the purchase price of the common stock was $3.25 per share, which was a 12.5% discount on the 10-day average price as of June 1, 2003. The warrants have an initial exercise price of $4.50 per share and a life of 5 years. The warrants were valued at $641,000 and $297,000 for the first and second stages, respectively, based on a Black-Scholes calculation as of the June 17, 2003 and August 18, 2003 closing dates and under EITF 00-19 were included at those values in long term liabilities at the time of each closing. The balance of the net proceeds was accounted for as additional paid in capital. Under EITF 00-19, the Company marked-to-market the value of the warrants at the end of each accounting period until the registration statement for the shares and warrants was declared effective by the SEC on September 24, 2003. Once the registration statement for the shares and warrants was declared effective, the warrant value on the effective date was reclassified to equity as additional paid in capital. As a result of the change in value of the warrants issued in the first stage from the closing date to the end of the second quarter on June 30, 2003, the Company realized a benefit of $8,000 that was included in other income in the Condensed Consolidated Statement of Operations in the second quarter of 2003. As a result of the change in value of the first stage warrants from June 30, 2003 and the second stage warrants from the second closing date to September 30, 2003, the Company realized a benefit of $15,000 that was included in other income in the Condensed Consolidated Statement of Operations in the third quarter of 2003. The Company incurred a net lossis subject to certain indemnity provisions included in the stock purchase agreement entered into as part of $3,519,000the financing. In December 2003, the Company also issued warrants to purchase 81,104 shares of common stock to the firm Merriman Curhan and Ford & Co. as compensation as placement agent for the year ended December 31, 2002private placement. These warrants have the same terms as the warrants issued in the private placement.
The Company believes that existing cash balances, proceeds from the private placement and
has an accumulated deficitfunds available through the Company’s bank lines of
$5,178,000. Management believescredit along with funds
that may be generated from operations,
in 2003 along with its available bank line (Note 9 of the Notes to Consolidated Financial Statements) will be sufficient to finance the
Company's operationsCompany’s currently anticipated working capital requirements and capital expenditure requirements for
at least the next twelve months. However,
unforeseen adverse competitive, economic or other factors may damage the Company’s cash position, and thereby affect operations. From time to time the Company
is evaluating and may
pursuebe required to raise additional
equityfunds through public or
debtprivate financing,
in order to address the Company's overall business objectives.strategic relationships or other arrangements. There can be no assurance that such
financingfunding, if needed, will be available
at all, or available at a price that ison terms acceptable to the
Company. In addition, management plansCompany, or at all. Furthermore, any additional equity financing may be dilutive to
makestockholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require the Company to relinquish its rights to certain
expense reductions during the second quarter of
2003 in those parts of the Company's operations which will not affect the EFO product launch.its technologies or products. Failure to generate sufficient revenues
or to raise
additional capital
or reduce certain discretionary spendingwhen needed could have an adverse impact on the
Company'sCompany’s business, operating results and financial condition, as well as its ability to achieve its intended business objectives.
Subsequent Event
In February 2003, the Company was awarded an R&D contract with the United States Department of Defense. The Defense Advanced Research Projects Agency ("DARPA") contract calls for payments of $6,818,000 to the Company over three years based on achievement of various R&D milestones. Upon achievement of these milestones, $2,115,000, $2,599,000 and $2,104,000 will be paid to the Company during the calendar years ended December 31, 2003, 2004 and 2005, respectively. The milestones are for work to be performed in developing fiber optic illuminators and fixtures for installation on ships and planes. Funds for the first year have budget approval and funds for subsequent years will be released upon budget approval for those years.
18
Critical Accounting Policies
The preparation of financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies and the reported amounts of revenue and expenses in the financial statements. Material differences may result in the amount and timing of revenue and expenses if different judgments or different estimates were utilized. See Note 2 of Notes to Consolidated Financial Statements contains a discussion of the Company's significant accounting policies. Critical accounting policies, judgments and estimates which we believe have the most significant impact on the Company's financial statements are set forth below:
•Revenue recognition;
•Allowances for doubtful accounts, returns and discounts;
•Valuation of inventories; and
•Accounting for income taxes.
The Company recognizes revenue upon: (1) receipt of a purchase order from the customer or completion of a sales agreement with the customer; (2) shipment of the product has occurred or services have been provided; and (3) the sales price is fixed or determinable and collectibility is reasonably assured. Revenue from product sales is generally recognized upon shipment, and allowances are provided for estimated returns, discounts and warranties. Such allowances are adjusted periodically to reflect actual and anticipated returns, discounts and warranty expenses. Revenue on sales that include services such as design, integration and installation is generally recognized using the percentage-of-completion method. Under the percentage-of-completion method, revenue recognized reflects the portion of the anticipated contract revenue that has been earned, equal to the ratio of labor costs expended to date to anticipated final labor costs, based on current estimates of labor costs to complete the project. The Company's products are generally subject to warranties, and the Company provides for the estimated future costs of repair, replacement or customer accommodation in costs of sales. Fees for research and development services are determined on a cost-plus basis and are recognized as revenue when performed.
The Company recognizes shipments to pool lighting distributors as revenue upon shipment. Estimated sales returns are recorded upon recognition of revenues from distributors having rights of return, including exchange rights for unsold products. Historically, there have been minimal returns. Shipments made to commercial lighting representatives and distributors are also recognized as revenue upon shipment because in these instances the representative or distributor is acting as a pass-through agent to a specific lighting project for which the Company has an existing contract or purchase order.
Revenue recognition in each period is dependent on our application of these accounting policies. Our application of percentage-of-completion accounting is subject to our estimates of labor costs to complete each project. In the event that actual results differ from these estimates or we adjust these estimates in future periods, our operating results for a particular period could be materially affected.
Allowances for Doubtful Accounts, Returns and Discounts
The Company establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of our customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. For each year ended December 31, the allowance for doubtful accounts, returns and discounts was $1,096,000 for 2003, $1,034,000 for 2002 and $1,334,000 for 2001 and $2,178,000 for 2000.2001. The amount charged to revenue for returns and discounts was $141,000 in 2003, $956,000 in 2002 and $1,487,000 in 2001 and $1,357,000 in 2000.2001. The19
amount charged to expenses for doubtful accounts was $2,000 in 2003, $78,000 in 2002 and $274,000 in 2001 and $936,000 in 2000.2001. In the event that actual returns, discounts and bad debts differ from these estimates or we adjust these estimates in future periods, our operating results and financial position could be materially affected.
The Company states inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or market. The Company establishes provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles and current inventory levels. During
2002, $201,0002003, $128,000 was charged to cost of sales for excess and obsolete inventories. Adjustments to our estimates, such as forecasted sales and expected product lifecycles, could harm our operating results and financial position could be materially affected.
Accounting for Income Taxes
As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax liability in each of the jurisdictions in which we do business. This process involves estimating our actual current tax expense together with assessing temporary differences resulting form differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not more likely than not or is unknown, we must establish a valuation allowance.
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. At December 31,
2002,2003, we have recorded a full valuation allowance
of $2.4 million against our deferred tax assets, due to uncertainties related to our ability to utilize our deferred tax assets, primarily consisting of certain net operating losses carried forward. The valuation allowance is based on our estimates of taxable income by jurisdiction and the period over which our deferred tax assets will be recoverable.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS"), No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". Under SFAS No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method. SFAS No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles and the testing for impairment of existing goodwill and other intangibles. The Company adopted SFAS No. 142 effective January 1, 2002 (see Note
65 of the Notes to Consolidated Financial Statements).
20
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board, or APB, Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. The provisions of SFAS No. 144 were adopted by the Company as of January 1, 2002.
In November 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products." EITF No. 01-09 requires recording certain consideration paid to distributors of the Company's products as a reduction of revenue. The provisions of EITF No. 01-09 were adopted by the Company beginning January 1, 2002. The Company has incurred no change as a result of adopting EITF No. 01-09.
In June 2002, FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract.
We are required to adoptThe Company adopted the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The adoption of SFAS 146 will change on a prospective basis the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred.
Management does not expect the adoption of SFAS 146 to have a material impact on the Company's financial position or results of operations.In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15,
2002. Management does not expect the adoption of FIN 45 to have a material impact on the Company's financial position or results of operations.2002.. The Company has adopted the disclosure provisions of FIN 45 relating to product warranty effective for the year ended December 31,
2002 (see Note 2 of the Notes to Consolidated Financial Statements).2002.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Management does not expect2002. The Company has adopted the adoptionprovisions of EITF Issue No. 00-21 to have a material impact on the Company's financial position or results of operations.21
00-21.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure" ("SFAS 148"). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods ending after December 15, 2002. The Company has adopted the disclosure requirements of SFAS 148 as of December 31,
2002 (see Note 2 of the Notes to Consolidated Financial Statements).2002.
In January 2003,2002, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003.2002. For variable interest entities created or acquired prior to February 1, 2003,2002, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Management2002. The Company has adopted the provisions of FIN 46.The company is still assessingcontinuing to evaluate the impact of FIN 4646-R and its related guidance for its adoption as of March 31, 2004. However, it is not expected to have a material impact on the Company'scompany’s Consolidated Financial Statements.
In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. It establishes classification and measurement standards for three types of freestanding financial
positioninstruments that have characteristics of both liabilities and
resultsequity. Instruments within the scope of
operations.SFAS No. 150 must be classified as liabilities within the company’s Consolidated Financial Statements and be reported at settlement date value. The provisions of SFAS No. 150 are effective for (1) instruments entered into or modified after May 31, 2003, and (2) pre-existing instruments as of July 1, 2003. In November 2003, through the issuance of FSP 150-3, the FASB indefinitely deferred the effective date of certain provisions of SFAS No. 150, including mandatorily redeemable instruments as they relate to minority interests in consolidated finite-lived entities. The adoption of SFAS No. 150, as modified by FSP 150-3, did not have a material effect on the Consolidated Financial Statements.
Factors that May Affect Results
Our quarterly operating results are subject to fluctuations caused by many factors whichthat could result in decreased revenues and a drop in the price of our common stock.
Our quarterly operating results can vary significantly depending upon a number of factors. It is difficult to predict the lighting market's acceptance of
and demand for our products on a quarterly basis, and the level and timing of orders received can fluctuate substantially. Our sales volumes
also fluctuate.fluctuate, as does the relative volume of sales of our various products with significantly different product margins. Historically we have shipped a substantial portion of our quarterly sales in the last month of each of the second and fourth quarters of the year. Our product development and marketing expenditures may vary significantly from quarter to quarter and are made well in advance of potential resulting revenue. Significant portions of our expenses are relatively fixed in advance based upon our forecasts of future sales. If sales fall below our expectations in any given quarter, we will not be able to make any significant adjustment in our operating expenses, and our operating results will be adversely affected.
Our sales are dependent upon new construction levels and are subject to seasonal and general economic trends.
Sales of our pool and spa lighting products, which currently are available only with newly constructed pools and spas, depend substantially upon the level of new construction of pools. Sales of commercial lighting products also depend significantly upon the level of new building construction and renovation. Construction levels are affected by housing market trends, interest rates and the weather. Because of the seasonality of construction, our sales of swimming pool and commercial lighting products, and thus our overall revenues and income, have tended to be significantly lower in the first
and the third quarter of each year. Various economic and other trends may alter these seasonal trends from year to year, and we cannot predict the extent to which these seasonal trends will continue.
Recent and continued weakness in the U.S. economy may continue to affect construction and our business. Additionally, some business segments, such as themed entertainment, remain weak as a result of reduced air travel following the September 11,
2001 tragedy and the
uncertainty in world affairs.outbreak and spread of Severe Acute Respiratory Syndrome, or SARS. Themed entertainment is a key source of revenues for
the Company'sour commercial lighting segment and continued softness
inof this industry will potentially have a material negative effect on
the Company'sour future commercial lighting sales.
22
If we are not able to timely and successfully develop, manufacture, market and sell our new products, our operating results will decline.
We
introducedexpect to introduce additional new products
in 2002 and expect to introduce further new products in 2003each year in the Pool and Spa Lighting and Commercial Lighting markets.
Delivery of these products may cause us to incur additional unexpected research and development expenses. We could have difficulties manufacturing these new products as a result of our inexperience with
them.them or the costs could be higher than expected. Any delays in the introduction of these new products could result in lost sales, loss of customer confidence and loss of market share. Also, it is difficult to predict whether the market will accept these new products. If any of these new products fails to meet expectations, our operating results will be adversely affected.
We operate in markets that are intensely and increasingly competitive.
Competition is increasing in a number of our markets. A number of companies offer directly competitive products, including fiber optic lighting products for downlighting, display case and water lighting, and neon and other lighted signs. Oursigns.We are also experiencing competition from light emitting diode, LED, products in water lighting and in neon and other lighted signs.Our competitors include some very large and well-established companies such as Philips, Schott, 3M, Bridgestone, Pentair, Mitsubishi and Osram/Siemens. All of these companies have substantially greater financial, technical and marketing resources than we do. We may not be able to adequately respond to fluctuations in competitive pricing. We anticipate that any future growth in fiber optic lighting will be accompanied by continuing increases in competition, which could adversely affect our operating results if we cannot compete effectively.
We rely on intellectual property and other proprietary information that may not be protected and that may be expensive to protect.
We currently hold 3340 patents. There can be no assurance, however, that our issued patents are valid or that any patents applied for will be issued. We have a policy of seeking to protect our intellectual property through, among other things, the prosecution of patents with respect to certain of our technologies. There are many issued patents and pending patent applications in the field of fiber optic technology, and certain of our competitors hold and have applied for patents related to fiber optic lighting. Although, to date, we have not been involved in litigation challenging our intellectual property rights or asserting intellectual property rights of others, we have in the past received communications from third parties asserting rights in our patents or that our technology infringes intellectual property rights held by such third parties. Based on information currently availableavail able to us, we do not believe that any such claims involving our technology or patents are meritorious. However, we may be required to engage in litigation to protect our patent rights or to defend against the claims of others. In the event of litigation to determine the validity of any third party claims or claims by us against such third party, such litigation, whether or not determined in our favor, could result in significant expense and divert the efforts of our technical and management personnel, regardless of the outcome of such litigation.
We rely on distributors for a significant portion of our sales and terms and conditions of sales are subject to change with very little notice.
Most of the Company'sour products are sold through distributors, and the Company doeswe do not have long-term contracts with itsour distributors. Some of these distributors are quite large, particularly in the pool products market, such as South Central Pools ("SCP"). These distributors in some cases sell the products of competitors as well.market. If these distributors particularly SCP, significantly change their terms with the Companyus or change their historical pattern of ordering products from the Company,us, there could be a significant impact on the Company'sour revenues and profits.
The loss of a key sales representative could have a negative impact on our net sales and operating results.
We rely on key sales representatives for a significant portion of our sales. These sales representatives have unique relationships with our customers and would be difficult to replace. The loss of a key sales representative could interfere with our ability to maintain customer relationships and result in declines in our net sales and operating results.
We depend on key employees in a competitive market for skilled personnel, and the loss of the services of any of our key employees could materially affect our business. The Company's
Our future success will depend to a large extent on the continued contributions of certain employees, many of whom would be difficult to replace.
TheOur future success
of the Company23
will also will depend on itsour ability to attract and retain qualified technical, sales, marketing and management personnel, for whom therecompetition is competition.intense. The loss of or failure to attract and retain any such persons could delay product development cycles, disrupt the Company'sour operations or otherwise harm the Company'sour business or results of operations.
We depend on a limited number of suppliers from whom we do not have a guarantee to adequate supplies, increasing the risk that loss of or problems with a single supplier could result in impaired margins, reduced production volumes, strained customer relations and loss of business.
Mitsubishi is the sole supplier of
the Company'sour fiber, other than the large core fiber
the Company now manufactures followingand think film coatings, we manufacture based on technology acquired in the Unison
acquisition. The Companytransaction. We also
reliesrely on a sole source for certain lamps, reflectors, remote control devices and power supplies. The loss of one or more of
the Company'sour suppliers could result in delays in the shipment of products, additional expense associated with redesigning products, impaired margins, reduced production volumes, strained customer relations and loss of business or could otherwise harm
theour results of operations.
We depend on ADLT for a number of components for our products. ADLT has recently filed for Chapter 11 bankruptcy, which could result in an interruption of supply and increased costs for these components.
ADLT supplies the Companyus with certain lamps, power supplies, reflectors and coatings. The Company hasWe have identified alternative suppliers for these components, but there could be an interruption of supply and increased costs if a transition to a new supplier were required.required.We could lose current or prospective customers as a result of supply interruptions. Increased costs would negatively impact our gross profit margin and results of operations.
Current global conflicts, including military actionWe are becoming increasingly dependent on foreign sources of supply for many of our components and in Iraq,some cases complete assemblies, which due to distance or political events may result in a lack of timely deliveries.
In order to save costs, we are continually seeking off-shore supply of components and assemblies. This results in longer lead times for deliveries which can mean less responsiveness to sudden changes in market demand for the products involved. Some of the countries where components are sourced may be less stable politically than the U.S., and this could adversely affectlead to an interruption of the Company's customers or suppliers. Thisdelivery of key components. Delays in the delivery of key components could result in delays in product shipments, additional expenses associated with locating alternative component sources or redesigning products, impaired margins, reduced production volumes, strained customer relations and loss of customers, any of which could harm our results of operations.
We are subject to manufacturing risks, including fluctuations in the costs of purchased components and raw materials due to market demand, shortages and other factors.
We depend on various components and raw materials for use in the manufacturing of our products. We may not be able to successfully manage price fluctuations due to market demand or shortages. In addition to risks associated with sole and foreign suppliers, significant increases in the costs of or sustained interruptions in our receipt of adequate amounts of necessary components and raw materials could harm our margins, result in manufacturing halts and negatively impact our results of operations.
Because we depend on a limited number of significant customers for our net sales, the loss of a significant customer, reduction in order size, or the effects of volume discounts granted to significant customers from time to time could harm our operating results.
Our business
slow downis currently dependent on a limited number of significant customers, and we anticipate that we will continue to rely on a limited number of customers. The loss of any significant customer would harm our net sales and operating results. Customer purchase deferrals, cancellations, reduced order volumes or
an interruption of supply. Beginning in March 2003, the United Statesnon-renewals from any particular customer could cause our quarterly operating results to fluctuate or decline and its allies have undertaken military conflict with Iraq. Severe or protracted military conflictharm our business. In addition, volume discounts granted to significant customers from time to time could lead to reduced profit margins, and negatively affect the Company's revenuesimpact our operating results.
Our components and its sources of supply. Thisproducts could have design, defects or compatibility issues, which could be costly to correct and could result in the rejection of our products and damage to our reputation, as well as lost sales, diverted development resources and increased warranty reserves and manufacturing costs.
We cannot be assured that we will not experience defects or compatibility issues in components or products in the future. Errors or defects in our products may arise in the future, and, if significant or perceived to be significant, could result in rejection of our products, product returns or recalls, damage to our reputation, lost revenues, diverted development resources and increased customer service and support costs and warranty claims. Errors or defects in our products could also result in product liability claims. We estimate warranty and other returns and accrue reserves for such costs at the time of sale. Any estimates, reserves or accruals may be insufficient to cover sharp increases in product returns, and such returns may harm our operating results. In addition, customers may require design changes in our products in order to suit their needs. Losses, delays or damage to our reputation due to design or defect issues would likely harm our business, financial condition and results of operations.
If we are unable to predict market demand for our products and focus our inventories and development efforts to meet market demand, we could lose sales opportunities and experience a significant negative impact ondecline in sales.
In order to arrange for the Company's financial resultsmanufacture of sufficient quantities of products and avoid excess inventory we need to accurately predict market demand for each of our products. Significant unanticipated fluctuations in future periods depending on the length of the conflictdemand could cause problems in our operations. We may not be able to accurately predict market demand in order to properly allocate our manufacturing and severity of the conflict.distribution resources among our products. As a result we may experience declines in sales and lose, or fail to gain, market share.
We depend on sufficientcollaboration with third parties, who are not subject to material contractual commitments, to augment our research and development efforts.
Our research and development efforts include collaboration with third parties. Many of these third parties are not bound by any material contractual commitment leaving them free to end their collaborative efforts at will. Loss of these collaborative efforts would adversely affect our research and development efforts and could have a negative effect on our competitive position in the market. In addition, arrangements for joint development efforts may require us to make royalty payments on sales of resultant products or enter into licensing agreements for the technology developed, which could increase our costs and negatively impact our results of operations.
We have experienced negative cash liquidityflow from all sources of cash available to the Company to finance on-going operations and growth.may continue to do so in the future. We may need to raise additional capital in the near future, but our ability to do so may be limited.
While the Company haswe have historically been able to fund cash needs from operations, from bank lines of credit or from capital markets, due to competitive, economic or other factors there can be no assurance that the Companywe will continue to be able to do so. If our capital resources are insufficient to satisfy our liquidity requirements and overall business objectives we may seek to sell additional equity securities or obtain debt financing. Adverse business conditions due to a continued weak economic environment or a weak market for the Company'sour products couldhave led to and may lead to continued negative cash flow from operations, andwhich may require the Companyus to raise additional financing, including equity financing. The CompanyAny equity financing may be dilutive to shareholders, and debt financing, if available, will increase expenses and may involve restrictive covenants. We may be required to raise additional capital, at times and in amounts, which are uncertain, especially under the current capital market conditions. Under these circumstances, if the Company iswe are unable to acquire additional capital or isare required to raise it on terms that are less satisfactory than desired, it may have a material adverse effect on the Company'sour financial condition, which could require the Companyus to curtail itsour operations significantly, sell significant assets, seek arrangements with strategic partners or other parties that may require itus to relinquish significant rights to products, technologies or markets, or explore other strategic alternatives including a merger or sale of our company.
Our stock price has been and will likely continue to be volatile and you may be unable to resell your shares at or above the Company.24
price you paid.
Other factors
Our businessstock price has been and is subjectlikely to be highly volatile, particularly due to our relatively limited trading volume. Our stock price could fluctuate significantly due to a number of factors, including:
variations in our anticipated or actual operating results;
sales of substantial amounts of our stock;
dilution as a result of additional risks that could materiallyequity financing by us;
announcements about us or about our competitors, including technological innovation or new products or services;
conditions in the fiber optic lighting industry;
governmental regulation and legislation; and
changes in securities analysts’ estimates of our performance, or our failure to meet analysts’ expectations.
Many of these factors are beyond our control.
In addition, the stock markets in general, and The Nasdaq National Market and the market for fiber optic lighting and technology companies in particular, have experienced extreme price and volume fluctuations recently. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These broad market and industry factors may adversely affect the market price of our future business, including:•manufacturing risks, includingcommon stock, regardless of our actual operating performance.
In the risks of shortages in materials or components necessary to our manufacturing and assembly operations, the risks of increasespast, companies that have experienced volatility in the market prices of raw materials and components andtheir stock have been the risksobject of being unable to achieve certain gross profit margin improvements.
•risks in changes in competitor prices to whichsecurities class action litigation. If we were the Company would need to respond;
•sales and distribution risks, such as risksobject of changes in product mix or distribution channels thatsecurities class action litigation, it could result in lower margins;
•riskssubstantial costs and a diversion of the loss of a significant distributor or sales representative;
•risks of the loss of or substantial decrease in orders by a significant customer or swimming pool builder;
•risks of the effects of volume discounts that we grant from time to time to our larger customers, including reduced profit margins;
•risks of product returnsmanagement’s attention and exchanges: we cannot be assured that we will not experience component problems in the future that could require increased warranty reserves and manufacturing costs;resources.
•risks associated with product development and introduction problems, such as increased research, development and marketing expenses associated with new product introductions;
•dependence on collaborating with third parties, which are not subject to material contractual commitments, to augment the Company's research and development efforts; and
•risks associated with delays in the introduction of new products and technologies, including lost sales and loss of market share.
Item 7A. Qualitative or Quantitative Disclosures About Market RiskAt December 31, 2002,2003, the Company had $231,000$715,000 in cash held in foreign currencies as translated at period end foreign currency exchange rates. The balances for cash held overseas in foreign currencies is subject to exchange rate risk. The Company has a policy of maintaining cash balances in local currencies unless an amount of cash is occasionally transferred in order to repay intercompany debts.
The Company has certain bank borrowings in foreign currencies. The Company had a total borrowing of $484,000$475,000 against a credit facility which totals $616,000$731,000 (in Euros) held by its German subsidiary. This borrowing is largely held in order to finance the building of new offices owned by the Company in Berching, Germany. Of the amounts due under this borrowing, $35,000 is due in 2003 and $439,000$475,000 is due in 2008. In addition, there is a revolving line of credit of $214,000$254,000 (in Euros) with Sparkasse Neumarkt Bank. As of December 31, 2002,2003, there was $142,000 inwere no borrowings against this facility.
Item 8. Consolidated Financial Statements and Supplementary DataData.The Company's Consolidated Financial Statements and related notes thereto required by this item are listed and set forth in this
reportReport in Item
15 (a)15(a). The accompanying notes are an integral part of
thesethose consolidated financial statements.
25
Supplementary Financial Information
The following table sets forth selected unaudited financial information for the Company for the eight quarters in the period ended December 31,
2002.2003. This information has been prepared on the same basis as the audited financial statements and, in the opinion of management, contains all adjustments necessary for a fair presentation thereof.
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)2002 QUARTERS ENDED
| | DEC. 31
| | SEP. 30
| | JUN. 30
| | MAR. 31
| |
|---|
| Net sales | | $ | 7,447 | | $ | 7,155 | | $ | 8,768 | | $ | 7,590 | |
| Gross profit | | | 2,638 | | | 2,567 | | | 3,383 | | | 2,886 | |
| | As a percent of net sales | | | 35.4 | % | | 35.9 | % | | 38.6 | % | | 38.0 | % |
| Net income (loss) | | | (478 | ) | | (2,974) | * | | 3 | | | (70 | ) |
| | As a percent of net sales | | | (6.4 | )% | | (41.6 | )% | | — | % | | (0.9 | )% |
| Net income (loss) per share: | | | | | | | | | | | | | |
| | Basic | | $ | (0.09 | ) | $ | (0.58 | ) | $ | — | | $ | (0.01 | ) |
| | Diluted | | $ | (0.09 | ) | $ | (0.58 | ) | $ | — | | $ | (0.01 | ) |
2001 QUARTERS ENDED
|
|
DEC. 31
|
|
SEP. 30
|
|
JUN. 30
|
|
MAR. 31
|
|
|---|
| Net sales | | $ | 6,989 | | $ | 6,717 | | $ | 8,471 | | $ | 6,876 | |
| Gross profit | | | 2,874 | | | 2,531 | | | 3,433 | | | 2,609 | |
| | As a percent of net sales | | | 41.1 | % | | 37.7 | % | | 40.5 | % | | 37.9 | % |
| Net income (loss) | | | (518 | ) | | (615 | ) | | (278 | ) | | (717 | ) |
| | As a percent of net sales | | | (7.4 | )% | | (9.2 | )% | | (3.3 | )% | | (10.5 | )% |
| Net income (loss) per share: | | | | | | | | | | | | | |
| | Basic | | $ | (0.11 | ) | $ | (0.13 | ) | $ | (0.06 | ) | $ | (0.15 | ) |
| | Diluted | | $ | (0.11 | ) | $ | (0.13 | ) | $ | (0.06 | ) | $ | (0.15 | ) |
| | | | | | |
2003 QUARTERS ENDED | | DEC. 31 | SEP. 30 | JUN. 30 | MAR. 31 |
| |
| |
| |
| |
| |
| Net sales | | $ | 7,418 | | $ | 6,367 | | $ | 7,574 | | $ | 5,879 | |
| Gross profit | | | 3,060 | | | 2,360 | | | 2,875 | | | 2,046 | |
| As a percent of net sales | | | 41.3 | % | | 37.1 | % | | 38.0 | % | | 34.8 | % |
| Net income (loss) | | | 110 | | | (181 | ) | | 85 | | | (622 | ) |
| As a percent of net sales | | | 1.5 | % | | (2.8) | % | | 1.1 | % | | (10.6) | % |
| Net income (loss) per share: | | | | | | | | | | | | | |
| Basic | | $ | 0.02 | | $ | (0.03 | ) | $ | 0.02 | | $ | (0.12 | ) |
| Diluted | | $ | 0.02 | | $ | (0.03 | ) | $ | 0.02 | | $ | (0.12 | ) |
| | | | | | | | | | | | | | |
2002 QUARTERS ENDED | | DEC. 31 | SEP. 30 | JUN. 30 | MAR. 31 |
| |
| |
| |
| |
| |
| Net sales | | $ | 7,447 | | $ | 7,155 | | $ | 8,768 | | $ | 7,590 | |
| Gross profit | | | 2,638 | | | 2,567 | | | 3,383 | | | 2,886 | |
| As a percent of net sales | | | 35.4 | % | | 35.9 | % | | 38.6 | % | | 38.0 | % |
| Net income (loss) | | | (478 | ) | | (2,974)* | | | 3 | | | (70 | ) |
| As a percent of net sales | | | (6.4) | % | | (41.6) | % | | — | % | | (0.9) | % |
| Net income (loss) per share: | | | | | | | | | | | | | |
| Basic | | $ | (0.09 | ) | $ | (0.58 | ) | $ | — | | $ | (0.01 | ) |
| Diluted | | $ | (0.09 | ) | $ | (0.58 | ) | $ | — | | $ | (0.01 | ) |
___________
*Note: Included in these results is a $2,405,000 charge for a valuation allowance for deferred taxes taken in the quarter ended September 30, 2002.
In accordance with SFAS 142 the Company ceased amortizing goodwill as of December 31, 2001. Refer to Note 65 of the Notes to Consolidated Financial Statements.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
As disclosed in our current report on Form 8-K filed October 2, 2003, we changed independent accountants effective September 29, 2003. Not applicable.
26
PART III
Item 9A. Controls and Procedures
(a)Evaluation of disclosure controls and procedures. We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet, and management believes that they meet, reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the limitations noted above, our disclosure controls and procedures were effective to ensure that material information relating to us, including our consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this Annual Report on Form 10-K was being prepared.
(b)Changes in internal controls. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation described in Item 9A(a) above that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant The information required by this Item regarding directors and nominees is incorporated herein by reference tofrom the information under the caption "PROPOSAL NO. 1: ELECTION OF DIRECTORS" in the Company's definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company's 20032004 Annual Meeting of Shareholders to be held on May 21, 200319, 2004 (the "Proxy Statement"). Item 405 of Regulation S-K calls for disclosure of any known late filings or failure by an insider to file
The Company has a report required byseparately designated standing Audit Committee established in accordance with Section 163(a)(58)(A) of the Securities Exchange Act of 1934, as amended. This disclosureThe members of the Audit Committee are John B. Stuppin, David Traversi (Chairperson) and Philip Wolfson. All of such members meet the independence standards established by The Nasdaq Stock Market for serving on an audit committee. SEC regulations require the Company to disclose whether a director qualifying as an “audit committee financial expert” serves on the Company’s Audit Committee. The Company’s Board of Directors has determined that Mr. Traversi qualifies as an “audit committee financial expert” within the meaning of such regulations.
The Company’s Board of Directors adopted a Code of Ethics and Business Conduct for all of its directors, officers and employees on February 25, 2004. The Company's Code of Ethics and Business Conduct is contained inavailable free of charge upon request. To request a copy of the section entitled "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" inCode of Ethics and Business Conduct, please send a written request to the Proxy Statement and is incorporated herein by reference.Executive Officers
The executive officersSecretary of the Company who are not directors, and their ages as of December 31, 2002, are as follows:
Name
| | Age
| | Position
|
|---|
John Davenport | | 58 | | Chief Operating Officer, Chief Technology Officer |
Roger Buelow |
|
30 |
|
Vice President, Engineering |
Robert A. Connors |
|
54 |
|
Vice President, Finance, Chief Financial Officer |
Barry R. Greenwald |
|
56 |
|
Senior Vice President and General Manager, Pool Division |
J. Steven Keplinger |
|
43 |
|
Senior Vice President, Operations and Retail |
Mr. Davenport joined the Company in November 1999 as Vice President, Chief Technology Officer and was appointed Chief Operating Officer in July 2002. Prior to joining the Company, Mr. Davenport served as President of Unison from 1998 to 1999. Mr. Davenport began his career at GE Lighting in 1972 as a research physicist and thereafter served 26 years in various capacities including GE Lighting's research and development Manager and as development manager for high performance LED projects. He is a recognized global expert in light sources, lighting systems and lighting applications, with special emphasis in low wattage discharge lamps, electronic ballast technology and distributed lighting systems using fiber optics.
Mr. Buelow was appointed Vice President, Engineering for the Company in February 2003. Prior to joining Fiberstars in 1999, he served as Director of Engineering for Unison from 1998 to 1999. Prior to that he served 4 years as an engineer at General Electric in the Lighting division working on several fiber optic lighting projects. Mr. Buelow holds BS and MS degrees in Applied Mathematics and Systems Engineering from Case Western Reserve University, Cleveland, Ohio and is a Certified Quality Engineer with five utility patents.
Mr. Connors joined the Company in July 1998 as Vice President, Finance, and Chief Financial Officer. From 1984 to 1998, Mr. Connors held a variety of positions for Micro Focus Group Plc, a software company with 1997 revenues of $165 million, including Chief Financial Officer and Chief Operating Officer. Prior to working for Micro Focus Group Plc, he held senior finance positions with Eagle Computer and W. R. Grace.
Mr. Greenwald joined the Company in October 1989 as General Manager, Pool Division. He became Vice President in September 1993 and Senior Vice President in February 1997. Prior to joining the Company, Mr. Greenwald served as National Sales Manager at Aquamatic, a swimming pool
27
accessory company, from August 1987 to October 1989. From May 1982 to August 1987, Mr. Greenwald served as National Sales Manager at Jandy Inc., a swimming pool equipment company.
Mr. Keplinger joined the Company in August 1988 as Manager of Operations. He became Vice President in 1991 and Senior Vice President in February 1997. From June 1986 to August 1988, Mr. Keplinger was a sales representative at Leemah Electronics, an electronics manufacturing company. From February 1983 to June 1986, Mr. Keplinger was a sales manager with44259 Nobel Drive, Fremont, California Magnetics Corp, a custom transformer manufacturing company.
94538.
Item 11. Executive CompensationThe information regarding executive compensation required by Item 11 is incorporated herein by reference tofrom the information in the Proxy Statement under the captions "EXECUTIVE COMPENSATION AND OTHER MATTERS," "PROPOSAL NO. 1: ELECTION OF DIRECTORS—Director Compensation" and "PROPOSAL NO. 1: ELECTION OF DIRECTORS—Compensation Committee Interlocks and Insider Participation."
Item 12. Security Ownership of Certain Beneficial Owners and ManagementThe information regarding security ownership of certain beneficial owners and management required by Item 12 is incorporated herein by reference
tofrom the information in the Proxy Statement under the caption "SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT."
Equity Compensation Plan Information
The information regarding equity compensation plans required by Item 12 can be found inunder Item 5.5 of this report.
Item 13. Certain Relationships and Related TransactionsThe information regarding certain relationships and related transactions required by Item 13 is incorporated herein by reference to the information in the Proxy Statement under the caption "CERTAIN TRANSACTIONS."
Item 14. Principal Accountant Fees and Services
The information regarding principal accountant fees and services and the pre-approval policies and procedures required by Item 14 is incorporated by reference from the information contained in the Proxy Statement under the caption “RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS – Principal Accountant Fees and Services” and “RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS – Pre-Approval Policies and Procedures.”
PART IV
Item 14. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedure pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in reports that the Company files or submits under the Exchange Act.
There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
28
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a)(a)- (1) Financial Statements
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fiberstars, Inc.
We have audited the accompanying consolidated balance sheet of Fiberstars, Inc. as of December 31, 2003, and the related consolidated statements of operations,comprehensive income (loss), shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Fiberstars, Inc. as of December 31, 2003, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
San Francisco, California
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Fiberstars, Inc.
Fremont, California
In our opinion, the accompanying consolidated balance
sheetssheet and the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows present fairly, in all material respects, the financial position of Fiberstars, Inc. and its subsidiaries (the Company) at December 31, 2002 and
2001 and the results of their operations and their cash flows for each of the
threetwo years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note
65 to the consolidated financial statements, effective January 1, 2002, the Company ceased amortization of its goodwill on adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
/s/ PricewaterhouseCoopers LLP
February 14, 2003 except for Note 16, for
which the date is March 17, 200329
CONSOLIDATED BALANCE SHEETS,
December 31, 20022003 and 2001
2002
(amounts in thousands except share amounts)
| | | | |
| | | | 2003 | | | 2002 | |
| | |
| |
| |
ASSETS | | |
| Current assets: | | | | | | | |
| Cash and cash equivalents | | $ | 4,254 | | $ | 231 | |
| Accounts receivable, net of allowances for doubtful accounts of $357 in 2003 and $435 in 2002 | | | 5,610 | | | 5,208 | |
| Notes and other receivables | | | 143 | | | 239 | |
| Inventories, net | | | 6,618 | | | 6,808 | |
| Prepaids and other current assets | | | 246 | | | 343 | |
| Total current assets | | | 16,871 | | | 12,829 | |
| Fixed assets, net | | | 2,634 | | | 2,581 | |
| Goodwill, net | | | 4,190 | | | 4,032 | |
| Intangibles, net | | | 306 | | | 462 | |
| Other assets | | | 118 | | | 197 | |
| | | | | | | | |
| Total assets | | $ | 24,119 | | $ | 20,101 | |
| | |
| |
| |
LIABILITIES | | |
| Current liabilities: | | | | | | | |
| Accounts payable | | $ | 2,205 | | $ | 2,011 | |
| Accruals and other current liabilities | | | 2,413 | | | 2,117 | |
| Bank overdraft | | | --- | | | 691 | |
| Short-term bank borrowings | | | 30 | | | 593 | |
| | |
| |
| |
| Total current liabilities | | | 4,648 | | | 5,412 | |
| Long-term bank borrows and liabilities | | | 521 | | | 449 | |
| | |
| |
| |
| Total liabilities | | | 5,169 | | | 5,861 | |
| Commitments and contingencies (Note 8). | | | | | | | |
SHAREHOLDERS' EQUITY | | |
Preferred stock, par value $0.0001 per share: | | | | | | | |
| Authorized: 2,000,000 shares in 2003 and 2002 | | | | | | | |
| Issued and outstanding: no shares in 2003 and 2002 | | | | | | | |
Common stock, par value $0.0001 per share: | | | | | | | |
| Authorized: 30,000,000 shares in 2003 and 2002 | | | | | | | |
| Issued and outstanding: 6,316,694 shares in 2003 and 4,667,321 shares in 2002 | | | 1 | | | 1 | |
| Additional paid-in capital | | | 24,531 | | | 19,611 | |
| Notes receivable from shareholder | | | (224 | ) | | (75 | ) |
| Accumulated other comprehensive income (loss) | | | 428 | | | (119 | ) |
| Accumulated deficit | | | (5,786 | ) | | (5,178 | ) |
| | |
| |
| |
| Total shareholders' equity | | | 18,950 | | | 14,240 | |
| | |
| |
| |
| Total liabilities and shareholders' equity | | $ | 24,119 | | $ | 20,101 | |
| | |
| |
| |
The accompanying notes are an integral part of these financial statements.
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2003, 2002 and 2001
(amounts in thousands except per share amounts)
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| Net sales | | $ | 27,238 | | $ | 30,960 | | $ | 29,053 | |
| Cost of sales | | | 16,897 | | | 19,486 | | | 17,606 | |
| | |
| |
| |
| |
| Gross profit | | | 10,341 | | | 11,474 | | | 11,447 | |
| | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | |
| Research and development | | | 1,279 | | | 2,290 | | | 2,764 | |
| Sales and marketing | | | 7,188 | | | 7,907 | | | 8,371 | |
| General and administrative | | | 2,435 | | | 2,709 | | | 3,627 | |
| | |
| |
| |
| |
| Total operating expenses | | | 10,902 | | | 12,906 | | | 14,762 | |
| Loss from operations | | | (561 | ) | | (1,432 | ) | | (3,315 | ) |
| Other income (expense): | | | | | | | | | | |
| Equity in joint venture's income | | | 6 | | | 16 | | | 15 | |
| Interest and other income | | | 80 | | | 41 | | | 41 | |
| Interest expense | | | (119 | ) | | (66 | ) | | (122 | ) |
| | |
| |
| |
| |
| Net loss before income taxes | | | (594 | ) | | (1,441 | ) | | (3,381 | ) |
| Benefit from (provision for) income taxes | | | (14 | ) | | (2,078 | ) | | 1,253 | |
| | |
| |
| |
| |
| Net loss | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
| | |
| |
| |
| |
| Net loss per share—basic and diluted | | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.45 | ) |
| | | | | | | | | | | |
| Shares used in per share calculation—basic and diluted | | | 5,993 | | | 5,028 | | | 4,756 | |
The accompanying notes are an integral part of these financial statements.
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2003, 2002 and 2001
(amounts in thousands)
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| Net loss | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
| Other comprehensive loss: | | | | | | | | | | |
| Foreign currency translation adjustments | | | 870 | | | 444 | | | (192 | ) |
| Income tax benefit (provision) | | | (323 | ) | | (164 | ) | | 71 | |
| | |
| |
| |
| |
| Comprehensive loss | | $ | (61 | ) | $ | (3,239 | ) | $ | (2,249 | ) |
| | |
| |
| |
| |
The accompanying notes are an integral part of these financial statements.
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2003, 2002 and 2001
(amounts in thousands)
| | Common Stock | | Additional Paid-In | | | Notes Receivable From | | | Accumulated Other Comprehensive | | | (Accumulated Deficit) Retained | | | |
| | | Shares | | | Amount | | | | | | | | | | | | Earnings | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2000 | | | 4,288 | | $ | 1 | | $ | 18,443 | | $ | (75 | ) | $ | (278 | ) | $ | 469 | | $ | 18,560 | |
Exercise of common stock options | | | 28 | | | | | | 81 | | | | | | | | | | | | 81 | |
Issuance of common stock under employee stock purchase plan | | | 12 | | | | | | 39 | | | | | | | | | | | | 39 | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | (121 | ) | | | | | (121 | ) |
| Net loss | | | | | | | | | | | | | | | | | | (2,128 | ) | | (2,128 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
Balances, December 31, 2001 | | | 4,328 | | | 1 | | | 18,563 | | | (75 | ) | | (399 | ) | | (1,659 | ) | | 16,431 | |
| Issuance of common stock—private placement | | | 329 | | | | | | 972 | | | | | | | | | | | | 972 | |
Non-employee stock-based compensation | | | | | | | | | 48 | | | | | | | | | | | | 48 | |
Issuance of common stock under employee stock purchase plan | | | 10 | | | | | | 28 | | | | | | | | | | | | 28 | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | 280 | | | | | | 280 | |
| Net loss | | | | | | | | | | | | | | | | | | (3,519 | ) | | (3,519 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
Balances, December 31, 2002 | | | 4,667 | | | 1 | | | 19,611 | | | (75 | ) | | (119 | ) | | (5,178 | ) | | 14,240 | |
| Issuance of common stock—private placement | | | 1,350 | | | | | | 3,730 | | | | | | | | | | | | 3,730 | |
Non-employee stock-based compensation | | | | | | | | | 27 | | | | | | | | | | | | 27 | |
Issuance of common stock under employee stock purchase plan | | | 8 | | | | | | 23 | | | | | | | | | | | | 23 | |
| Issuance of common stock under employee stock purchase plan | | | 292 | | | | | | 1,140 | | | (224 | ) | | | | | | | | 916 | |
| Note receivable from shareholder | | | | | | | | | | | | 75 | | | | | | | | | 75 | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | 547 | | | | | | 547 | |
| Net loss | | | | | | | | | | | | | | | | | | (608 | ) | | (608 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
Balances, December 31, 2003 | | | 6,317 | | $ | 1 | | $ | 24,531 | | $ | (224 | ) | $ | 428 | | $ | (5,786 | ) | $ | 18,950 | |
| | |
| |
| |
| |
| |
| |
| |
| |
The accompanying notes are an integral part of these financial statements.
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2003, 2002 and 2001
(amounts in thousands)
| | 2002
| | 2001
| |
|---|
| ASSETS | |
| Current assets: | | | | | | | |
| | Cash and cash equivalents | | $ | 231 | | $ | 584 | |
| | Accounts receivable, net of allowances for doubtful accounts of $435 in 2002 and $415 in 2001 | | | 5,208 | | | 4,802 | |
| | Notes and other receivables | | | 239 | | | 209 | |
| | Inventories | | | 6,808 | | | 5,423 | |
| | Prepaids and other current assets | | | 343 | | | 623 | |
| | Deferred income taxes | | | — | | | 1,441 | |
| | |
| |
| |
| | | Total current assets | | | 12,829 | | | 13,082 | |
| Fixed assets, net | | | 2,581 | | | 2,600 | |
| Goodwill, net | | | 4,032 | | | 4,537 | |
| Intangibles, net | | | 462 | | | — | |
| Other assets | | | 197 | | | 279 | |
| Deferred income taxes | | | — | | | 936 | |
| | |
| |
| |
| | | Total assets | | $ | 20,101 | | $ | 21,434 | |
| | |
| |
| |
LIABILITIES |
|
| Current liabilities: | | | | | | | |
| | Accounts payable | | $ | 2,011 | | $ | 2,395 | |
| | Accruals and other current liabilities | | | 2,117 | | | 2,088 | |
| | Bank overdraft | | | 691 | | | — | |
| | Short-term bank borrowings | | | 593 | | | 101 | |
| | |
| |
| |
| | | Total current liabilities | | | 5,412 | | | 4,584 | |
| Long-term bank borrowings | | | 449 | | | 419 | |
| | |
| |
| |
| | | Total liabilities | | | 5,861 | | | 5,003 | |
Commitments and contingencies (Note 10). |
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
Preferred stock, par value $0.0001 per share: |
|
|
|
|
|
|
|
| | Authorized: 2,000,000 shares in 2002 and 2001 | | | | | | | |
| | Issued and outstanding: no shares in 2002 and 2001 | | | | | | | |
| Common stock, par value $0.0001 per share: | | | | | | | |
| | Authorized: 30,000,000 shares in 2002 and 2001 | | | | | | | |
| | Issued and outstanding: 4,667,321 shares in 2002 and 4,328,514 shares in 2001 | | | 1 | | | 1 | |
| | Additional paid-in capital | | | 19,611 | | | 18,563 | |
| Notes receivable from shareholder | | | (75 | ) | | (75 | ) |
| Accumulated other comprehensive loss | | | (119 | ) | | (399 | ) |
| Accumulated deficit | | | (5,178 | ) | | (1,659 | ) |
| | |
| |
| |
| | | Total shareholders' equity | | | 14,240 | | | 16,431 | |
| | |
| |
| |
| | | | Total liabilities and shareholders' equity | | $ | 20,101 | | $ | 21,434 | |
| | |
| |
| |
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
Cash flows from operating activities: | | | | | | | | | | |
| Net loss | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
| Depreciation and amortization | | | 961 | | | 1,086 | | | 1,426 | |
| Provision for doubtful accounts receivable | | | (22 | ) | | 78 | | | 274 | |
| Non-employee stock-based compensation | | | --- | | | 48 | | | — | |
| Deferred income taxes | | | --- | | | 2,035 | | | (808 | ) |
| Equity in joint venture | | | 6 | | | (16 | ) | | (15 | ) |
| Changes in assets and liabilities: | | | | | | | | | | |
| Accounts receivable, trade | | | (238 | ) | | (314 | ) | | 2,210 | |
| Inventories | | | 398 | | | (1,239 | ) | | 218 | |
| Prepaid and other current assets | | | 219 | | | 334 | | | (213 | ) |
| Other assets | | | 73 | | | 150 | | | (173 | ) |
| Accounts payable | | | 168 | | | (344 | ) | | (1,101 | ) |
| Accruals and other current liabilities | | | (28 | ) | | (171 | ) | | 89 | |
| | |
| |
| |
| |
| Total adjustments | | | 1,537 | | | 1,647 | | | 1,907 | |
| | |
| |
| |
| |
| Net cash provided by (used in) operating activities | | | 929 | | | (1,872 | ) | | (221 | ) |
| | |
| |
| |
| |
Cash flows from investing activities: | | | | | | | | | | |
| | | | | | | | | | | |
| Acquisition of fixed assets | | | (717 | ) | | (793 | ) | | (530 | ) |
| | |
| |
| |
| |
| Net cash used in investing activities | | | (717 | ) | | (793 | ) | | (530 | ) |
| | |
| |
| |
| |
Cash flows from financing activities: | | | | | | | | | | |
| Proceeds from issuances of common stock | | | 4,920 | | | 1,000 | | | 119 | |
| Repayment of loan made to shareholder | | | 75 | | | - | | | - | |
| Loan made to shareholder | | | (224 | ) | | --- | | | --- | |
| Proceeds from (repayments of) long-term bank borrowings | | | (26 | ) | | 30 | | | (38 | ) |
| Net proceeds from short-term bank borrowings | | | (607 | ) | | 492 | | | 93 | |
| Bank overdraft | | | (691 | ) | | 691 | | | — | |
| | |
| |
| |
| |
| Net cash provided by financing activities | | | 3,447 | | | 2,213 | | | 174 | |
| | |
| |
| |
| |
Effect of exchange rate changes on cash | | | 364 | | | 99 | | | (69 | ) |
| | |
| |
| |
| |
Net increase (decrease) in cash and cash equivalents | | | 4,023 | | | (353 | ) | | (646 | ) |
Cash and cash equivalents, beginning of year | | | 231 | | | 584 | | | 1,230 | |
| | |
| |
| |
| |
Cash and cash equivalents, end of year | | $ | 4,254 | | $ | 231 | | $ | 584 | |
| | |
| |
| |
| |
Supplemental information: | | | | | | | | | | |
| Interest paid | | $ | 119 | | $ | 42 | | $ | 122 | |
| Fully depreciated assets disposed of | | $ | --- | | $ | 1,544 | | $ | — | |
| Income taxes paid (received) | | $ | --- | | $ | (636 | ) | $ | 276 | |
The accompanying notes are an integral part of these financial statements30
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 2002, 2001 and 2000
(amounts in thousands except per share amounts)
| | 2002
| | 2001
| | 2000
| |
|---|
| Net sales | | $ | 30,960 | | $ | 29,053 | | $ | 36,921 | |
| Cost of sales | | | 19,486 | | | 17,606 | | | 21,902 | |
| | |
| |
| |
| |
| | | | Gross profit | | | 11,474 | | | 11,447 | | | 15,019 | |
| | |
| |
| |
| |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
| | Research and development | | | 2,290 | | | 2,764 | | | 1,673 | |
| | Sales and marketing | | | 7,907 | | | 8,371 | | | 9,038 | |
| | General and administrative | | | 2,709 | | | 3,627 | | | 4,023 | |
| | Write-off of in-process technology acquired | | | — | | | — | | | 938 | |
| | |
| |
| |
| |
| | | Total operating expenses | | | 12,906 | | | 14,762 | | | 15,672 | |
| | |
| |
| |
| |
| | | | Loss from operations | | | (1,432 | ) | | (3,315 | ) | | (653 | ) |
| Other income (expense): | | | | | | | | | | |
| | Equity in joint venture's income | | | 16 | | | 15 | | | 4 | |
| | Interest and other income | | | 41 | | | 41 | | | 30 | |
| | Interest expense | | | (66 | ) | | (122 | ) | | (92 | ) |
| | |
| |
| |
| |
| | | | Loss before income taxes | | | (1,441 | ) | | (3,381 | ) | | (711 | ) |
| Benefit from (provision for) income taxes | | | (2,078 | ) | | 1,253 | | | 257 | |
| | |
| |
| |
| |
| | | | Net loss | | $ | (3,519 | ) | $ | (2,128 | ) | $ | (454 | ) |
| | |
| |
| |
| |
| Net loss per share—basic and diluted | | $ | (0.70 | ) | $ | (0.45 | ) | $ | (0.10 | ) |
| | |
| |
| |
| |
| Shares used in per share calculation—basic and diluted | | | 5,028 | | | 4,756 | | | 4,572 | |
| | |
| |
| |
| |
The accompanying notes are an integral part of these financial statements
31
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31, 2002, 2001 and 2000
(amounts in thousands)
| | 2002
| | 2001
| | 2000
| |
|---|
| Net loss | | $ | (3,519 | ) | $ | (2,128 | ) | $ | (454 | ) |
| Other comprehensive loss: | | | | | | | | | | |
| | Foreign currency translation adjustments | | | 444 | | | (192 | ) | | (196 | ) |
| | Income tax benefit (provision) | | | (164 | ) | | 71 | | | 71 | |
| | |
| |
| |
| |
| | | Comprehensive loss | | $ | (3,239 | ) | $ | (2,249 | ) | $ | (579 | ) |
| | |
| |
| |
| |
The accompanying notes are an integral part of these financial statements
32
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2002, 2001 and 2000
(amounts in thousands)
| | Common Stock
| |
| | Notes
Receivable
From
Shareholder
| | Accumulated
Other
Comprehensive
Loss
| | (Accumulated
Deficit)
Retained
Earnings
| |
| |
|---|
| | Additional
Paid-In
Capital
| |
| |
|---|
| | Shares
| | Amount
| | Total
| |
|---|
| Balances, December 31, 1999 | | 4,004 | | $ | — | | $ | 13,973 | | $ | (75 | ) | $ | (153 | ) | $ | 923 | | $ | 14,668 | |
| Exercise of common stock options | | 180 | | | 1 | | | 777 | | | | | | | | | | | | 778 | |
| Tax benefit from exercise of stock options | | | | | | | | 174 | | | | | | | | | | | | 174 | |
| Issuance of common stock under employee stock purchase plan | | 4 | | | | | | 22 | | | | | | | | | | | | 22 | |
| Issuance of common stock for acquisitions | | 100 | | | | | | 775 | | | | | | | | | | | | 775 | |
| Warrants issued during the year | | | | | | | | 2,722 | | | | | | | | | | | | 2,722 | |
| Foreign exchange rate translation adjustment | | | | | | | | | | | | | | (125 | ) | | | | | (125 | ) |
| Net loss | | | | | | | | | | | | | | | | | (454 | ) | | (454 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
| Balances, December 31, 2000 | | 4,288 | | | 1 | | | 18,443 | | | (75 | ) | | (278 | ) | | 469 | | | 18,560 | |
| Exercise of common stock options | | 28 | | | | | | 81 | | | | | | | | | | | | 81 | |
| Issuance of common stock under employee stock purchase plan | | 12 | | | | | | 39 | | | | | | | | | | | | 39 | |
| Foreign exchange rate translation adjustment | | | | | | | | | | | | | | (121 | ) | | | | | (121 | ) |
| Net loss | | | | | | | | | | | | | | | | | (2,128 | ) | | (2,128 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
| Balances, December 31, 2001 | | 4,328 | | | 1 | | | 18,563 | | | (75 | ) | | (399 | ) | | (1,659 | ) | | 16,431 | |
| Issuance of common stock—private placement | | 329 | | | | | | 972 | | | | | | | | | | | | 972 | |
| Non-employee stock based compensation | | | | | | | | 48 | | | | | | | | | | | | 48 | |
| Issuance of common stock under employee stock purchase plan | | 10 | | | | | | 28 | | | | | | | | | | | | 28 | |
| Foreign exchange rate translation adjustment | | | | | | | | | | | | | | 280 | | | | | | 280 | |
| Net loss | | | | | | | | | | | | | | | | | (3,519 | ) | | (3,519 | ) |
| | |
| |
| |
| |
| |
| |
| |
| |
| Balances, December 31, 2002 | | 4,667 | | $ | 1 | | $ | 19,611 | | $ | (75 | ) | $ | (119 | ) | $ | (5,178 | ) | $ | 14,240 | |
| | |
| |
| |
| |
| |
| |
| |
| |
The accompanying notes are an integral part of these financial statements
33
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2002, 2001 and 2000
(amounts in thousands)
| | 2002
| | 2001
| | 2000
| |
|---|
| Cash flows from operating activities: | | | | | | | | | | |
| | Net loss | | $ | (3,519 | ) | $ | (2,128 | ) | $ | (454 | ) |
| | |
| |
| |
| |
| | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | |
| | | Depreciation and amortization | | | 1,086 | | | 1,426 | | | 1,513 | |
| | | Write-off of in-process technology acquired | | | — | | | — | | | 938 | |
| | | Provision for doubtful accounts receivable | | | 78 | | | 274 | | | 936 | |
| | | Non-employee stock based compensation | | | 48 | | | — | | | — | |
| | | Deferred income taxes | | | 2,035 | | | (808 | ) | | (750 | ) |
| | | Equity in joint venture | | | (16 | ) | | (15 | ) | | (4 | ) |
| | | Changes in assets and liabilities: | | | | | | | | | | |
| | | | Accounts receivable, trade | | | 314 | | | 2,210 | | | (1,785 | ) |
| | | | Inventories | | | (1,239 | ) | | 218 | | | (1,369 | ) |
| | | | Prepaid and other current assets | | | 334 | | | (213 | ) | | 63 | |
| | | | Other assets | | | 151 | | | (173 | ) | | (222 | ) |
| | | | Accounts payable | | | (344 | ) | | (1,101 | ) | | 926 | |
| | | | Accruals and other current liabilities | | | (171 | ) | | 89 | | | (437 | ) |
| | |
| |
| |
| |
| | | | | Total adjustments | | | 1,647 | | | 1,907 | | | (191 | ) |
| | |
| |
| |
| |
| | | Net cash used in operating activities | | | (1,872 | ) | | (221 | ) | | (645 | ) |
| | |
| |
| |
| |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
| | Repayment of loans made under notes receivable | | | — | | | — | | | 79 | |
| | Acquisition of fixed assets | | | (793 | ) | | (530 | ) | | (935 | ) |
| | |
| |
| |
| |
| | | Net cash used in investing activities | | | (793 | ) | | (530 | ) | | (856 | ) |
| | |
| |
| |
| |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
| | Proceeds from issuances of common stock | | | 1,000 | | | 119 | | | 974 | |
| | Proceeds from (repayments of) long-term bank borrowings | | | 30 | | | (38 | ) | | (101 | ) |
| | Proceeds from short-term bank borrowings | | | 492 | | | 93 | | | 1,500 | |
| | Repayment of short-term bank borrowings | | | — | | | — | | | (1,500 | ) |
| | Bank overdraft | | | 691 | | | — | | | | |
| | |
| |
| |
| |
| | | Net cash provided by financing activities | | | 2,213 | | | 174 | | | 873 | |
| | |
| |
| |
| |
| Effect of exchange rate changes on cash | | | 99 | | | (69 | ) | | (46 | ) |
| | |
| |
| |
| |
| Net decrease in cash and cash equivalents | | | (353 | ) | | (646 | ) | | (674 | ) |
| Cash and cash equivalents, beginning of year | | | 584 | | | 1,230 | | | 1,904 | |
| | |
| |
| |
| |
| Cash and cash equivalents, end of year | | $ | 231 | | $ | 584 | | $ | 1,230 | |
| | |
| |
| |
| |
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
| | Interest paid | | $ | 42 | | $ | 122 | | $ | 93 | |
| | Fully depreciated assets disposed of | | $ | 1,544 | | $ | — | | $ | — | |
| | Income taxes paid (received) | | $ | (636 | ) | $ | 276 | | $ | 577 | |
The Company purchased certain businesses during 2000. In conjunction with the acquisitions, assets and liabilities were assumed as follows:
Fair value of assets acquired |
|
$ |
3,497 |
|
| Capital stock and warrants issued | | | (3,497 | ) |
| | |
| |
| Liabilities assumed | | $ | 0 | |
| | |
| |
The accompanying notes are an integral part of these financial statements
34
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
Fiberstars, Inc. (the "Company") develops and assembles lighting products using fiber optic technology for commercial lighting and swimming pool and spa lighting applications. The Company markets its products for worldwide distribution primarily through independent sales representatives, distributors and swimming pool builders.
2. Summary of Significant Accounting Policies:
The consolidated financial statements include the accounts of Fiberstars, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
The Company incurred a net loss of $3,519,000 for the year ended December 31, 2002 and has an accumulated deficit of $5,178,000. Management believes funds generated from operations in 2003 along with its available bank line (Note 9 of the Notes to Consolidated Financial Statements) will be sufficient to finance the Company's operations for the next twelve months. However, the Company is evaluating and may pursue additional equity or debt financing in order to address the Company's overall business objectives. There can be no assurance that such financing will be available, or if available at a price that is acceptable to the Company. In addition, management plans to make certain expense reductions during the second quarter of 2003 in those parts of the Company's operations which will not affect the EFO product launch. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have an adverse impact on the Company's ability to achieve its intended business objectives.
Certain prior period amounts have been reclassified to conform to the current year's presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted
accounting principlesin the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported
period. Actualperiod.Estimates include, but are not limited to, the establishment of reserves for accounts receivable, sales returns, and warranty claims; the useful lives for property, equipment, and intangible assets, and stock-based compensation.Actual results could differ from those estimates.
The Company considers all highly liquid investments purchased with
a remainingan original maturity of three months or less to be cash equivalents.
Investments in Joint Ventures:
The Company records its investments in joint ventures under the equity method of accounting.
Fair Value of Financial Instruments:
Carrying amounts of certain of the Company's financial instruments including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate fair value due to their short maturities. Based on borrowing rates currently available to the Company for loans with similar terms, the carrying value of long-term debt obligations also approximates fair value.
35
The Company recognizes revenue upon: (1) receipt of a purchase order from the customer or completion of a sales agreement with the customer; (2) shipment of the product has occurred or services have been provided; and (3) the sales price is fixed or determinable and collectibility is reasonably assured. Revenue from product sales is generally recognized upon shipment, and allowances are provided for estimated returns, discounts and warranties. Such allowances are adjusted periodically to reflect actual and anticipated returns, discounts and warranty expenses. Revenue on sales that includes services such as design, integration and installation is generally recognized using the percentage-of-completion method. Under the percentage-of-completion method, revenue recognized reflects the portion of the anticipated contract revenue that has been earned, equal to the ratio of labor costs expended to date to anticipated final labor costs, based on current estimates of labor costs to complete the project. The Company's products are generally subject to warranties, and the Company provides for the estimated future costs of repair, replacement or customer accommodation in costs of sales. Fees for research and development services are determined on a cost-plus basis and are recognized as revenue when performed.FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
The Company recognizes shipments to pool lighting distributors as revenue upon shipment. Estimated sales returns are recorded upon recognition of revenues from distributors having rights of return, including exchange rights for unsold products. Shipments made to commercial lighting representatives and distributors are also recognized as revenue upon shipment because in these instances the representative or distributor is acting as a pass-through agent to a specific lighting project for which the Company has an existing contract or purchase order.
The Company states inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or market. The Company establishes provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles and current inventory levels. Charges to cost of sales for excess and obsolete inventories amounted to $128,000, $201,000 and $155,000 in 2003, 2002 and $377,0002001, respectively.
Accounts Receivable:
The Company’s customers are currently concentrated in
2002, 2001the United States and
2000, respectively.Europe. In the normal course of business, the Company extends unsecured credit to its customers related to the sale of its products. Typical credit terms require payment within 30 days from the date of delivery or service. The Company evaluates and monitors the creditworthiness of each customer on a case-by-case basis. The Company provides allowances for sales returns and doubtful accounts based on its continuing evaluation of its customers’ ongoing requirements and credit risk. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company does not require collateral from its customers.
As part of the process of preparing
ourits consolidated financial statements,
we arethe Company is required to estimate
ourits income tax liability in each of the jurisdictions in which
we doit does business. This process involves estimating
ourthe Company’s income tax liability in each of the jurisdictions in which
we doit does business. This process involves estimating
ourthe Company’s actual current tax expense together with assessing temporary differences resulting form differing treatment of items, such as deferred revenues, for tax and accounting purposes. These differences result in deferred tax assets and
assets and liabilities, which are included in
ourthe consolidated balance sheet.
WeThe Company must then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent
wethe Company believe that recovery is not more likely than not, or
is unknown,
wethe Company must establish a valuation allowance.
Significant management judgment is required in determining ourthe provision for income taxes, ourthe deferred tax assets and liabilities and any valuation allowance recorded against oursuch deferred tax assets. At December 31, 2002, we have2003, the Company’s deferred tax assets primarily consist of certain net operating losses carried forward. The Company has recorded a full valuation allowance of $2,405,000$2,596,000 against ourthese deferred tax assets, due to uncertainties related to ourits ability to utilize ourthose deferred tax assets, primarily36
consisting of certain net operating losses carried forward.. The valuation allowance is based on our estimateestimates of taxable income by jurisdiction and the periodperiods over which ourits deferred tax assets willcould be recoverable.
Long-lived Assets: Tangible assets represent purchased intangible assets and
Goodwill represents the excess of acquisition cost over the fair value of tangible and identified intangible net assets of the businesses acquired. Goodwill is not amortized, but is subjected to an annual impairment test. Intangible assets from acquisitions are stated at cost and are amortized on a straight-line basis over the estimated life of the assets acquired, or goodwill.but in no case for a period longer than 10 years. Fixed assets are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets (two to five years). Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or the lease term, whichever is shorter, generally 3 to 7 years. Intangible assets from acquisitions are amortized on a straight-line basis over the estimated life of the assets acquired, but in no case for a period longer than 10 years. When events or changes in circumstances indicate that assets may be impaired, an evaluation is performed comparing the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount to determine if a write-down to market value or discounted cash flow is required.FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
Certain Risks and Concentrations:
The Company invests its excess cash in deposits and high-grade short-term securities with two major banks.
The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At times the cash balances could exceed the amounts insured by the FDIC. The Company has not experienced any losses in such accounts and believes it is not exposed to significant risk of loss.
The Company sells its products primarily to commercial lighting distributors and residential pool distributors and pool installation contractors in North America, Europe and the Far East. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Although the Company maintains allowances for potential credit losses that it believes to be adequate, a payment default on a significant sale could materially and adversely affect its operating results and financial condition. At December 31,
2002,2003, one customer accounted for
13%14% of accounts receivable and at December 31,
2001,2002, the same customer accounted for
10%13% of accounts receivable. The customer also accounted for
9%11%,
8%9% and
9%8% of net sales in
2003, 2002
and 2001,
and 2000, respectively.
The Company currently buys all of its small diameter stranded fiber, the main component of most of its products, from one supplier. There are a limited number of fiber suppliers, and even if an alternative supplier were obtained, a change in suppliers could cause delays in manufacturing and a possible loss of sales which would adversely affect operating results.
The Company also relies on sole source suppliers for certain lamps, reflectors, remote control devices and power supplies. Although the Company cannot predict the effect that the loss of one or more of such suppliers would have on the Company, such loss could result in delays in the shipment of products and additional expenses associated with redesigning products and could have a material adverse effect on the Company's operating results.
Research and Development:
Research and development costs are charged to operations as incurred. In
20012000 the Company received a federal grant
underfrom the National Institute of Standards and Technology ("NIST") for
up to $2,000,000 over three years for research and development of
solidlarge core fiber for lighting purposes. This award provided the Company with $520,000 in funding for the
eleven montheleven-month period beginning
37
November 2000 and ended September 2001 and $914,000 for the one-year period ended September 2002, and the Company has received approval to spend an additional $566,000 for the one-year period ending September 2003. The Company records the amount of NIST funding for each period as a credit to research and development expense. During the Company's fiscal years ended December 31, 2003, 2002 and 2001, amounts of $507,000, $874,000 and 2000, a total of $874,000, $543,000 and $76,000 were recorded respectively, as a credit to research and development expenses under the NIST grant. The accounting for the NIST contract is subject to independent audit at the end of the contract for the award year ending September 30, 2003.
In February 2003, DARPA awarded the Company and its partners a research and development contract for the development of next generation light sources, optics, luminaire and integrated illuminated technologies for its High Efficiency Distributed Lighting (“HEDLight”) project. The DARPA contract calls for payments of $6,818,000 to the Company over three years based on achievement of various research and development milestones. On April 10, 2003 the Company announced that it and APL Engineered Materials, a subsidiary of Advanced Lighting Technologies Inc. (“ADLT”), were awarded a further $2.7 million research and development contract from the DARPA to develop a new arc discharge light source. The Company will receive $300,000 of this amount for its portion of this research. APL Engineered Materials will lead the light source project. The contract provided the company $1,463,000 in funding for the fiscal year 2003, net of subcontractor fees. The Company records the amount of DARPA funding for each period as a credit to research and development expense. The milestones are for work performed in developing fiber optic illuminators and fixtures for installation on ships and aircraft. Funds for the first year of the award ending October 31.have congressional budget approval and funds for subsequent years are subsequent to budget approval for those years.
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
Basic
EPSearnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted
EPSearnings (loss) per share is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of incremental shares upon exercise of stock options.
A reconciliation of the numerator and denominator of basic and diluted EPSearnings (loss) per share is provided as follows(in thousands, except per share amounts):
|
| | |
|
FIBERSTARS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002 |
| | Years Ended December 31,
| |
|---|
| | 2002
| | 2001
| | 2000
| |
|---|
| Numerator—Basic and Diluted EPS | | | | | | | | | | |
| | Net loss | | $ | (3,519 | ) | $ | (2,128 | ) | $ | (454 | ) |
| Denominator—Basic and Diluted EPS | | | | | | | | | | |
| | Weighted average shares outstanding | | | 5,028 | | | 4,765 | | | 4,572 | |
| | |
| |
| |
| |
| Basic and diluted loss per share | | $ | (0.70 | ) | $ | (0.45 | ) | $ | (0.10 | ) |
| | |
| |
| |
| |
| | | Years Ended December 31, |
| | |
|
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| Numerator—Basic and Diluted earnings (loss) per share | | | | | | | | | | |
| Net loss | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
| Denominator—Basic and Diluted earnings (loss) per share | | | | | | | | | | |
| Weighted average shares outstanding | | | 5,993 | | | 5,028 | | | 4,756 | |
| Basic and diluted loss per share | | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.45 | ) |
The shares outstanding used for calculating basic and diluted
EPSearnings (loss) per share includes 445,000 shares of common stock issuable for no cash consideration upon exercise of certain exchange provisions of warrants held by
ADLT (see Note 5).ADLT.
Options and warrants to purchase
1,989,017 shares, 1,598,076 shares
1,529,678 shares and
1,667,8611,529,678 shares of common stock were outstanding at December 31,
2003, 2002
2001 and
2000,2001, respectively, but were not included in the calculations of diluted
EPSearnings (loss) per share because
their exercise prices were greater than the
average fair market price of the common shares.
Stock-Based Compensation:
As of December 31, 2002,2003, the Company has four stock-based employee compensation plans, which are described more fully in Note 11.9. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings (loss) per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123,Accounting for Stock-Based Compensation, to stock-based employee compensation.
38
(in thousands, except per share amounts):
| | Years Ended December 31,
| |
|---|
| | 2002
| | 2001
| | 2000
| |
|---|
| Net Loss—as reported | | $ | (3,519 | ) | $ | (2128 | ) | $ | (454 | ) |
| Add: Stock-based employee compensation expense included in reported net income, net of related tax effects | | | — | | | — | | | — | |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | | (699 | ) | | (488 | ) | | (530 | ) |
| | |
| |
| |
| |
| Net Loss—Pro forma | | $ | (4,218 | ) | $ | (2,616 | ) | $ | (984 | ) |
| | |
| |
| |
| |
| Basic and Diluted Loss Per Share—As reported | | $ | (0.70 | ) | $ | (0.45 | ) | $ | (0.10 | ) |
| | |
| |
| |
| |
| Basic and Diluted Loss Per Share—Pro forma | | $ | (0.84 | ) | $ | (0.55 | ) | $ | (0.22 | ) |
| | |
| |
| |
| |
| | | Years Ended December 31, |
| | |
|
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| Net Loss—as reported | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects | | | — | | | — | | | — | |
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | | | (527 | ) | | (699 | ) | | (488 | ) |
| Net Loss—Pro forma | | $ | (1,135 | ) | $ | (4,218 | ) | $ | (2,616 | ) |
| Basic and Diluted Loss Per Share—As reported | | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.45 | ) |
| Basic and Diluted Loss Per Share—Pro forma | | $ | (0.19 | ) | $ | (0.84 | ) | $ | (0.55 | ) |
The fair value of each option grant and stock purchase plan grant combined is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2003, 2002 2001 and 2000:2001:
| | 2002
| | 2001
| | 2000
|
|---|
| Fair value of options issued | | $2.53 | | $1.89 | | $3.79 |
| Exercise price | | $4.46 | | 3.69 | | $6.20 |
| Expected life of option | | 3.90 years | | 3.65 years | | 3.95 years |
| Risk-free interest rate | | 4.19% | | 4.61% | | 6.23% |
| Expected volatility | | 72% | | 67% | | 78% |
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| Fair value of options issued | | $ | 1.65 | | $ | 2.53 | | $ | 1.89 | |
| Exercise price | | $ | 5.04 | | $ | 4.46 | | | 3.69 | |
| Expected life of option | | | 3.93 years | | | 3.90 years | | | 3.65 years | |
| Risk-free interest rate | | | 3.87 | % | | 4.19 | % | | 4.61 | % |
| Expected volatility | | | 48 | % | | 72 | % | | 67 | % |
Foreign Currency Translation:
The Company's international subsidiaries use their local currencies as their functional currencies. For those subsidiaries, assets and liabilities are translated at exchange rates in effect at the balance sheet date and income and expense accounts at average exchange rates during the year. Resulting translation adjustments are recorded directly to a separate component of shareholders' equity. Foreign currency transaction gains and losses are included as a component of interest income and other. Gains and losses from foreign currency translation are included as a separate component of comprehensive income.
The Company expenses the costs of advertising as incurred. Advertising expenses were
$119,000, $203,000
$13,000 and
$97,000$13,000 for the years ended December 31,
2003, 2002
and 2001,
and 2000, respectively.
The Company warrants finished goods against defects in material and workmanship under normal use and service for periods of one to three years for illuminators and fiber. A liability for the estimated
39
future costs under product warranties is maintained based on estimated future warranty expense for products outstanding under warranty:
| | Year ended
December 31, 2002
| |
|---|
| | (in thousands)
| |
|---|
| Balance at the beginning of the year | | $ | 220,000 | |
| Accruals for warranties issued during the year | | | 619,000 | |
| Accruals related to pre-existing warranties (including changes in estimates) | | | — | |
| Settlements made during the year (in cash or in kind) | | | (579,000 | ) |
| | |
| |
| Balance at the end of the year | | $ | 260,000 | |
| | |
| |
| | | Year ended December 31, 2003 |
| | |
(in thousands) | |
| Balance at the beginning of the year | | $ | 260,000 | |
| Accruals for warranties issued during the year | | | 637,000 | |
Accruals related to pre-existing warranties (including changes in estimates) | | | — | |
| Settlements made during the year (in cash or in kind) | | | (567,000 | ) |
| Balance at the end of the year | | $ | 330,000 | |
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS"), No.141,No. 141, "Business Combinations" and SFAS No.142,No. 142, "Goodwill and Other Intangible Assets". Under SFAS No.141,No. 141, all business combinations initiated after June 30, 2001 must be accounted for using the purchase method. SFAS No.142No. 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions upon adoption for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles and the testing for impairment of existing goodwill and other intangibles. The Company adopted SFAS No.142No. 142 effective January 1, 2002 see(see Note 65 of the Notes to Consolidated Financial Statements.Statements).
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement supersedes SFAS No. 121 and the accounting and reporting provisions of Accounting Principles Board, or APB, Opinion No. 30, "Reporting the Results of
Operations—Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. The provisions of SFAS No. 144 were adopted by the Company as of January 1, 2002.
In November 2001, the Emerging Issues Task Force ("EITF") reached a consensus on EITF Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer or a Reseller of the Vendor's Products." EITF No. 01-09 requires recording certain consideration paid to distributors of the Company's products as a reduction of revenue. The provisions of EITF No. 01-09 were adopted by the Company beginning January 1, 2002. The Company has incurred no change as a result of adopting EITF No. 01-09.
In June 2002,
the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities". SFAS 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a
40
one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. We are required to adoptThe Company adopted the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS No. 146. The adoption of SFAS 146 will change on a prospective basis the timing of when restructuring charges are recorded from a commitment date approach to when the liability is incurred. Management does not expect the adoption of SFAS 146 to have a material impact on the Company's financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.
Management does not expect the adoption of FIN 45 to have a material impact on the Company's financial position or results of operations. The Company has adopted the disclosure provisions of FIN 45 relating to product warranty
effective for the year ended December 31, 2002.
In November 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21
will apply to revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Management does not expect2002. The Company has adopted the
adoptionprovisions of EITF Issue No.
00-21 to have a material impact on the Company's financial position or results of operations.00-21.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation, Transition and Disclosure" ("SFAS 148"). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods ending after December 15, 2002. The Company has adopted the disclosure requirements of SFAS 148 as of December 31, 2002.2002 (see Note 2 of the Notes to Consolidated Financial Statements).
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
In January
2003,2002, the FASB issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after
41
January 31, 2003.2002. For variable interest entities created or acquired prior to February 1, 2003,2002, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. Management2002. The Company has adopted the provisions of FIN 46.The company is still assessingcontinuing to evaluate the impact of FIN 4646-R and its related guidance for its adoption as of March 31, 2004. However, it is not expected to have a material impact on the Company'scompany’s Consolidated Financial Statements.
In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. It establishes classification and measurement standards for three types of freestanding financial
positioninstruments that have characteristics of both liabilities and
resultsequity. Instruments within the scope of
operations.SFAS No. 150 must be classified as liabilities within the company’s Consolidated Financial Statements and be reported at settlement date value. The provisions of SFAS No. 150 are effective for (1) instruments entered into or modified after May 31, 2003, and (2) pre-existing instruments as of July 1, 2003. In November 2003, through the issuance of FSP 150-3, the FASB indefinitely deferred the effective date of certain provisions of SFAS No. 150, including mandatorily redeemable instruments as they relate to minority interests in consolidated finite-lived entities. The adoption of SFAS No. 150, as modified by FSP 150-3, did not have a material effect on the Consolidated Financial Statements.
3. Inventories(in thousands):
| | December 31,
|
|---|
| | 2002
| | 2001
|
|---|
| Raw materials | | $ | 5,306 | | $ | 3,788 |
| Finished goods | | | 1,502 | | | 1,635 |
| | |
| |
|
| | | $ | 6,808 | | $ | 5,423 |
| | |
| |
|
| | | December 31, |
| | |
|
| | | | 2003 | | | 2002 | |
| | |
| |
| |
| Raw materials | | $ | 5,955 | | $ | 5,959 | |
| Inventory reserve | | | (714 | ) | | (653 | ) |
| | |
| |
| |
| Finished goods | | | 1,377 | | | 1,502 | |
| | |
| |
| |
| | | $ | 6,618 | | $ | 6,808 | |
| | |
| |
| |
4. Fixed Assets(in thousands):
| | | | December 31, |
| | | |
|
| | December 31,
| | | | 2003 | | | 2002 | |
|---|
| | 2002
| | 2001
| | |
| |
| |
|---|
| Equipment (useful life 5 years) | | $ | 3,259 | | $ | 3,666 | | | $ | 3,602 | | $ | 3,258 | |
| Tooling (useful life 2 - 5 years) | | 1,515 | | 1,791 | | | | 1,668 | | | 1,515 | |
| Furniture and fixtures (useful life 5 years) | | 199 | | 358 | | | | 213 | | | 199 | |
| Computer software (useful life 3 years) | | 226 | | 521 | | | | 253 | | | 226 | |
| Leasehold improvements (the shorter of useful life or lease life) | | 1,423 | | 889 | | | | 1,824 | | | 1,423 | |
| | |
| |
| | |
| |
| |
| | | 6,622 | | 7,225 | | | | 7,560 | | | 6,621 | |
| | | |
| |
| |
| Less accumulated depreciation and amortization | | (4,040 | ) | | (4,625 | ) | | | (4,926 | ) | | (4,040 | ) |
| | |
| |
| | |
| |
| |
| | | $ | 2,581 | | $ | 2,600 | | | $ | 2,634 | | $ | 2,581 | |
| | |
| |
| | |
| |
| |
In the first fiscal quarter of 2002, the Company removed fixed assets no longer in service from its balance sheet. This resulted in a decrease in gross fixed asset value of $1,544,000 and a corresponding decrease in accumulated depreciation of $1,544,000. 5. Acquisitions:FIBERSTARS, INC. On February 1, 2000, the Company completed the acquisition of selected assets of Unison Fiber Optic Systems, LLC ("Unison"), a joint venture between Advanced Lighting Technologies, Inc. ("ADLT") and Rohm & Haas Company. ADLT is a 24% shareholder of Fiberstars, Inc. common stock. The Company acquired key personnel, technology and fixed assets totaling $625,000 and, subject to achievement of development milestones, up to $2 million in development funds from Unison. In exchange for this, the Company issued warrants to ADLT for the purchase of up to 1 million shares of the Company's common stock at $0.01 per share. These warrants may not be exercised until the price of the Company's stock reaches certain trading levels on the Nasdaq National Market, as follows: 250,000 will be exercisable when the Company's stock price reaches $6.00; 250,000 when the price reaches $8.00; 250,000 when the price reaches $10.00; and 250,000 when the price reaches $12.00. These prices must be maintained as an average over at least 30 days. In addition, certain sales
42
milestones must be reached on products of Unison technology before the warrants can be exercised. At ADLT's option, the warrants may be exchanged by ADLT, regardless of their exercisability, for up to 445,000 newly issued Fiberstars shares. These newly issuable shares were included in the calculation of basic and diluted earnings per share for each of the years ended
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002, 20012003 and 2000. Additionally, the Company agreed to pay royalties on certain products over a 10 year period at rates ranging from 3% to 1%. Also, as part of the acquisition agreement for Unison, the Company agreed to provide $2,000,000 in development services to ADLT. The fees earned under this contract were recognized as revenue in 1999 and 2000, with associated development costs included in cost of sales. The Company valued the acquisition based on the value of the warrants. The acquisition was valued at $2,550,000 of which $977,000 was identified as intangible assets, $10,000 for goodwill, $625,000 for fixed assets acquired and $938,000 for in-process technology, which was written-off. The $938,000 allocated to in-process technology acquired was for certain lamp and optics technology and certain fiber producing technology the development of which had not yet reached a stage where it was certain that marketable products would result. There is currently no alternative use for this technology as it was designed specifically for the lighting industry. In accordance with generally accepted accounting principles, the amount allocated to in-process technology acquired, which was determined by an independent valuation, was recorded as a charge to expense in the first quarter of 2000. On April 18, 2000 the Company acquired Lightly Expressed, Ltd ("Lightly Expressed") for 100,000 shares of Fiberstars common stock and warrants to purchase 100,000 additional shares, provided certain operating profits are met in succeeding years. The acquisition was accounted for as a purchase. The Company valued the acquisition based on the value of stock and warrants issued. The value of the acquisition was $947,000 of which $815,000 was for intangibles and $132,000 for net assets acquired. The value of the acquisition attributable to the 100,000 newly issued shares was $775,000, based on the per share price of the Company's common stock. The value attributable to the 100,000 warrants issued was $344,820, based on the Black Scholes model. The key assumptions used included an exercise price of $6.00, a current share price of $7.75, and a volatility of 37% (based on historic share values).
At the time of the acquisition, the Company determined that a minimum of 50% of the warrants would be exercisable and accordingly, recorded $172,410 on acquisition. The Company will record additional goodwill for any warrants that become exercisable based on the difference between the fair value on the date the contingency is met and the amount previously recorded. No warrants became exercisable in 2001 or 2002.
The following table presents the unaudited pro forma results for the years ended December 31, 2000, assuming the Company had acquired Unison and Lightly Expressed at the beginning of 2000. Net loss and diluted loss per share amounts have been adjusted to include goodwill amortization of $197,000 for 2000. This information may not necessarily be indicative of the future combined results of the Company.
2002
| | Year Ended
December 31,
2000
| |
|---|
| | (in thousands, except
per share amounts)
| |
|---|
| Revenues | | $ | 37,121 | |
| Net loss | | | (551 | ) |
| Diluted loss per share | | | (0.12 | ) |
| Basic loss per share | | | (0.12 | ) |
43
6.5. Goodwill and
Intangibles—Adoption of SFAS 142Intangibles
The Company adopted the provisions of Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets," effective January 1, 2002. The following table summarizes the impact of adopting SFAS 142 on the net loss and net loss per share for all periods reported in the accompanying Condensed Consolidated Financial Statements (in thousands, except per share amounts):
| | | | | 2003 | | | 2002 | | | 2001 | |
| | 2002
| | 2001
| | 2000
| | |
| |
| |
| |
|---|
| Reported net loss | | $ | (3,519 | ) | $ | (2,128 | ) | $ | (454 | ) | | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) |
| Add back: goodwill amortization | | — | | 220 | | 243 | | | | — | | | — | | | 220 | |
| | |
| |
| |
| | |
| |
| |
| |
| Adjusted net loss | | $ | (3,519 | ) | $ | (1,908 | ) | $ | (211 | ) | | $ | (608 | ) | $ | (3,519 | ) | $ | (1,908 | ) |
| | |
| |
| |
| | |
| |
| |
| |
| Basic and diluted loss per share: | | | | | | | | | | | | | | | | | |
| Reported net loss per share | | $ | (0.70 | ) | $ | (0.45 | ) | $ | (0.10 | ) | | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.45 | ) |
| Goodwill amortization per share | | — | | 0.05 | | 0.05 | | | | — | | | — | | | 0.05 | |
| | |
| |
| |
| | |
| |
| |
| |
| Adjusted net loss per share | | $ | (0.70 | ) | $ | (0.40 | ) | $ | (0.05 | ) | | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.40 | ) |
| | |
| |
| |
| | |
| |
| |
| |
As part of adopting SFAS 142 the Company reclassified certain intangibles from goodwill to intangibles. These amounts were based on an analysis of the asset value of the Unison acquisition performed at the time of the Unison acquisition in January 2000. The after-tax add-back of goodwill amortization for 2001 includes a gross amount of additional goodwill amortization of $280,000, calculated at historical rates and partially offset by $60,000, due to a change in the life of certain Unison intangibles from 10 years to 5 years effective January 2002.
In accordance with the provisions of SFAS 142 the Company performed the transitional goodwill impairment test prior to the end of the second quarter of 2002 and the
first annual impairment test in the fourth quarter of
2002.2002 and 2003. The tests showed no impairment of the Company's goodwill asset. In accordance with SFAS 142, goodwill is subject to an annual impairment test.
The changes in the carrying amounts of goodwill and intangibles for the
yearyears ended December 31, 2002
and 2003 were as follows (in thousands):
| | Goodwill
| | Intangibles
| |
|---|
| | Gross
Carrying
Amount
| | Accumulated
Amortization
| | Net
Carrying
Amount
| | Gross
Carrying
Amount
| | Accumulated
Amortization
| | Net
Carrying
Amount
| |
|---|
| Balance as of January 1, 2002 | | $ | 6,261 | | $ | (1,724 | ) | $ | 4,537 | | $ | — | | $ | — | | $ | — | |
| Reclassification | | | (770 | ) | | 152 | | | (618 | ) | | 770 | | | (152 | ) | | 618 | |
| Amortization expense | | | — | | | — | | | — | | | — | | | (156 | ) | | (156 | ) |
| Exchange rate | | | | | | | | | 113 | | | | | | | | | | |
| | |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2002 | | $ | 5,491 | | $ | (1,572 | ) | $ | 4,032 | | $ | 770 | | $ | (308 | ) | $ | 462 | |
| | |
| |
| |
| |
| |
| |
| |
| | | Goodwill | Intangibles |
| | |
|
| | | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount |
| | |
| |
| |
| |
| |
| |
| |
| Balance as of January 1, 2002 | | $ | 6,261 | | $ | (1,724 | ) | $ | 4,537 | | $ | — | | $ | — | | $ | — | |
| Reclassification | | | (770 | ) | | 152 | | | (618 | ) | | 770 | | | (152 | ) | | 618 | |
| Amortization expense | | | — | | | — | | | — | | | — | | | (156 | ) | | (156 | ) |
| Exchange rate | | | | | | | | | 113 | | | | | | | | | | |
| | |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2002 | | $ | 5,491 | | $ | (1,572 | ) | $ | 4,032 | | $ | 770 | | $ | (308 | ) | $ | 462 | |
| Amortization expense | | | — | | | — | | | — | | | — | | | (156 | ) | | (156 | ) |
| Exchange rate | | | | | | | | | 158 | | | | | | | | | | |
| | |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2003 | | $ | 5,491 | | $ | (1,572 | ) | $ | 4,190 | | $ | 770 | | $ | (464 | ) | $ | 306 | |
| | |
| |
| |
| |
| |
| |
| |
Intangibles at December 31, 2003 include developed and core technology and patents with a gross carrying amount of $399,000 and $371,000, respectively, and accumulated amortization of $241,000 and $223,000, respectively. Intangibles at December 31, 2002 include developed and core technology and patents with a gross carrying amount of $399,000 and $371,000, respectively, and accumulated amortization of $160,000 and $148,000, respectively.FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
The estimated annual amortization expense for intangibles is $157,000 for each of fiscal 2003 and 2004 and $50,000 for each of fiscal 2005, 2006 and 2007.
7. Purchased In-process Research and Development: In February 2000, the Company purchased certain assets of Unison and accounted for the acquisition as a purchase (see Note 5). In the first quarter of fiscal 2000, a total of $938,000 was expensed as a write-off of in-process technology acquired. The total value of the acquisition was approximately $2,550,000.
As of the acquisition date, the technological feasibility of the in-process technology had not been established and the technology had no alternative future use. Therefore, the Company expensed the in-process research and development in the first quarter of 2000. The remaining intangible assets are being amortized using the straight-line method over the estimated useful life of the assets, ranging from 3 to 7 years.
The value assigned to this acquired in-process research and development was determined by identifying research projects in areas for which technological feasibility had not been established as of the acquisition date. These projects include the Compound Parabolic Collector ("CPC") project and the extruded large core fiber project. The value was determined by estimating the revenue contribution and the percentage of completion of each of these projects. The projects were deemed to be 56% complete on the date of acquisition based on a leveraging of core technology. The net cash flows were then discounted utilizing a weighted average cost of capital of 35%, which, among other related assumptions, the Company believes to be reasonable. This discount rate takes into consideration the inherent uncertainties surrounding the successful development of the in-process research and development, the expected profitability levels of such technology, and the uncertainty of technological advances that could potentially impact the estimates described above.
To date, actual results have been materially consistent with the Company's assumptions at the time of the acquisition. The assumptions primarily consist of a projected completion date for the products to be derived from the in-process technology acquired, the estimated cost required to bring them to completion and the pre-tax profit projected to be derived from these products. The initial illuminators using the CPC technology shipped in the fourth quarter of 2001. While this was later than planned, at the time of the acquisition the profit projected to be achieved from these products was not forecast to be material in fiscal 2000 or 2001. Initial products based on extruded solid core fiber are still under development and are not expected to begin shipping until the end of 2003, as projected in the development plan at the time of the acquisition. Failure to achieve the expected levels of revenue and net income from these products during the complete life cycle will have a negative impact on the return on investment expected at the time that the acquisition was finalized. This could also cause a reduction in value of other assets related to these development activities.
45
8.6. Accruals and Other Current Liabilities(in thousands):
| | December 31,
|
|---|
| | 2002
| | 2001
|
|---|
| Sales commissions and incentives | | $ | 661 | | $ | 1,003 |
| Accrued warranty expense | | | 260 | | | 220 |
| Accrued legal and accounting fees | | | 169 | | | 112 |
| Accrued employee benefits | | | 285 | | | 314 |
| Accrued rent | | | 189 | | | 155 |
| Note payable—related party | | | 120 | | | — |
| Others | | | 433 | | | 284 |
| | |
| |
|
| | | $ | 2,117 | | $ | 2,088 |
| | |
| |
|
| | | December 31, |
| | |
|
| | | | 2003 | | | 2002 | |
| | |
| |
| |
| Sales commissions and incentives | | $ | 846 | | $ | 661 | |
| Accrued warranty expense | | | 330 | | | 260 | |
| Accrued legal fees | | | 148 | | | 169 | |
| Accrued employee benefits | | | 218 | | | 285 | |
| Accrued rent | | | 187 | | | 189 | |
| Accrued payables—related parties | | | 417 | | | 120 | |
| Accrued DARPA payables | | | 99 | | | -- | |
| Others | | | 168 | | | 433 | |
| | |
| |
| |
| | | $ | 2,413 | | $ | 2,117 | |
| | |
| |
| |
The Company has
entered into the following borrowing arrangements with its banks:a)Aa $5,000,000 Loan and Security Agreement (Accounts Receivable and Inventory) dated as of December 7, 2001, with Comerica Bank bearing interest equal to prime plus 0.25% per annum computed daily or a fixed rate term option of LIBOR plus 3%. Borrowings under this lineLoan and Security Agreement are collateralized by the Company'sCompany’s assets and intellectual property. Specific borrowings are tied to accounts receivable and inventory balances, and the Company must maintaincomply with certain covenants with respect to effective net worth quick ratio and debt to equity ratio for the U.S. and consolidated entities. The agreement is cancellable upon 30 days notice by either party.financial ratios. The Company was in conformity with its net worthhad no borrowings against this facility as of December 31, 2003 and financial ratioshad borrowings of $416,000 as of December 31, 2002. There were borrowings of $416,000 against this facility at December 31, 2002 and no borrowings asAs of December 31, 2001.2003, the Company was not in conformity with the profit covenant, but has received a waiver to this covenant from the bank.
b)A $403,000
The Company also has a $444,000 (in UK pounds sterling, based on the exchange rate at December 31, 2002)2003) bank overdraft agreement with Lloyds Bank Plc.Plc through its UK subsidiary. There were no borrowings against this facility atas of December 31, 2003 and December 31, 2002.
As of December 31, 2003, the Company had a total borrowing of $475,000 (in Euros, based on the exchange rate effective as of December 31, 2003) against a note payable secured by real property owned by its German subsidiary. As of December 31, 2002, and 2001.
c)A $616,000the Company had $475,000 borrowed against this note. Additionally, there is a revolving line of credit of $254,000 (in German Deutsche Marks,Euros, based on the exchange rate at December 31, 2002) bank borrowing facility in Germany with Sparkasse Neumarkt Bank for the German office facility. There was $484,000 and $419,000 in borrowings against this facility as of December 31, 2002 and 2001, respectively as amended. Under the terms of this borrowing, $35,000 is due in 2003 and $449,000 is due in 2008. In addition, there is a revolving line of credit of $214,000 (in Euros based on the exchange rate as of December 31, 2002)2003) with Sparkasse Neumarkt Bank. As of December 31, 20022003, there were no borrowings against this facility and 2001,as of December 31, 2002 there was $142,000 and $101,000 respectively in borrowings against this facility.46
|
| | |
|
FIBERSTARS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
|
10.8. Commitments and Contingencies:
The Company occupies manufacturing and office facilities under non-cancelable operating leases expiring in 2006 under which it is responsible for related maintenance, taxes and insurance. Minimum lease commitments under the leases are as follows(in thousands):
Year ending December 31, | | | Minimum lease commitments | |
| |
| |
| 2004 | | $ | 1,061 | |
| 2005 | | | 1,082 | |
| 2006 | | | 808 | |
| | |
| |
| Total minimum lease payments | | $ | 2,951 | |
Year ending December 31,
| | Minimum lease
commitments
|
|---|
| 2003 | | $ | 855 |
| 2004 | | | 881 |
| 2005 | | | 917 |
| 2006 | | | 717 |
| | |
|
| Total minimum lease payments | | $ | 3,370 |
| | |
|
These leases included certain escalation clauses and thus rent expense was recorded on a straight-line basis. Rent expense approximated
$891,000, $926,000
$1,014,000 and
$979,000,$1,014,000 for the years ended December 31,
2003, 2002
and 2001,
and 2000, respectively.
At December 31,
2002,2003, a letter of credit in the amount of $350,000 was held by the Company on behalf of Sparkasse Neumarkt Bank. The letter of credit would be drawn against the Company's line of credit facility with Comerica Bank in the event of a default by the Company's German subsidiary, LBM, on its outstanding loan with Sparkasse Neumarkt
Bank (See Note 9). We areBank.
The Company is not currently a party to any material legal proceedings.
11.9. Shareholders' Equity:
The notes receivable from shareholders for common stock bear interest at a rate of 9% and are payable ten years from the date of issuance. The Company does not recognize interest on these notes receivable until it is received.
Under the terms of certain agreements with the Company, the holders of approximately 1,818,000 shares of common stock have certain demand and piggyback registration rights. All registration expenses generally
would beare borne by the Company.
As part of the acquisition of Unison, the Company provided ADLT with warrants to purchase one million shares of the Company's common stock exercisable at one penny per share. These warrants may not be exercised until the price of the Company's common stock reaches certain trading levels on the Nasdaq National Market, as follows: 250,000 will be exercisable when the price of the Company's common stock reaches $6.00; 250,000 when the price of the Company's common stock reaches $8.00; 250,000 when the price of the Company's common stock reaches $10.00; and 250,000 when the price of the Company's common stock reaches $12.00. These prices must be maintained as an average over at least 30 days. In addition, certain sales milestones must be reached on products developed from Unison technology before the warrants can be exercised. At ADLT's option, the warrants may be exchanged by ADLT, regardless of their exercisability, for up to 445,000 newly issued shares of common stock. The warrants expire in January 2010.
47
As part of the acquisition of Lightly Expressed, the Company granted the Lightly Expressed shareholders warrants to purchase 100,000 shares which may be exercised in three years if certain operating profits from sales of the products acquired are met. NoThere were 50,000 warrants were exercisable as of December 31, 2002.2003.
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
On June 17, 2003, the Company entered into a securities purchase agreement to sell up to 1,350,233 shares of Common Stock and warrants to purchase 405,069 shares of Common Stock for an aggregate purchase price of $4,388,250 in a two-stage private placement. The first stage of the private placement, involving the sale of 923,078 shares of Common Stock and warrants to purchase 276,922 shares of Common Stock, closed on June 17, 2003 with the Company receiving net proceeds of $2,769,000 (net of fees and expenses). The second stage of the private placement, involving the sale of 427,155 shares of Common Stock and warrants to purchase 128,147 shares of Common Stock, closed on August 18, 2003 with the Company receiving net proceeds of $1,043,000 (net of fees and expenses). As required by Nasdaq Marketplace Rules, the issuance and sale of the shares and warrants in the second stage were subject to shareholder approval because the price was less than the greater of book or market value per share and amounted to 20% or more of the Company’s Common Stock. The shareholders approved the issuance and sale of the shares and warrants in the second stage at a special meeting of shareholders held on August 12, 2003. For both stages, the purchase price of the Common Stock was $3.25 per share, which was a 12.5% discount on the 10-day average price as of June 1, 2003. The warrants have an initial exercise price of $4.50 per share and a life of 5 years. The warrants were valued at $641,000 and $297,000 for the first and second stages, respectively, based on a Black-Scholes calculation as of the June 17, 2003 and August 18, 2003 closing dates and under EITF 00-19 were included at those values in long term liabilities at the time of each closing. The balance of the net proceeds was accounted for as additional paid in capital. Under EITF 00-19, the Company marked-to-market the value of the warrants at the end of each accounting period until the registration statement for the shares and warrants was declared effective by the Securities and Exchange Commission (“SEC”) on September 24, 2003. Once the registration statement for the shares and warrants was declared effective, the warrant value on the effective date was reclassified to equity as additional paid in capital. As a result of the change in value of the warrants from the first stage from the closing date to the end of the second quarter on June 30, 2003, the Company realized a benefit of $8,000 which was included in other income in the Condensed Consolidated Statement of Operations in the second quarter of 2003. As a result of the change in value of the first stage warrants from June 30, 2003 and the second stage warrants from the second closing date to September 30, 2003, the Company realized a benefit of $15,000 which was included in other income in the Condensed Consolidated Statement of Operations in the third quarter of 2003. The Company is subject to certain indemnity provisions included in the stock purchase agreement entered into as part of the financing. In December 2003, the Company also issued warrants to purchase 81,104 shares of common stock to the firm Merriman Curhan and Ford & Co. as compensation as placement agent for the private placement. These warrants have the same terms as the warrants issued in the private placement.
In a private placement in March 2002, the Company sold 328,633 shares of common stock for $972,000, net of fees and expenses of $28,000. In addition, each purchaser was issued a warrant to purchase a number of shares of the Company's common stock equal to 20% of the number of shares of common stock purchased by such purchaser in the offering. The purchase price of the common stock was $3.00 per share, which was based on
aan 8.8% discount on the
10 day10-day average price as of March 14, 2002. The purchase price of the common stock for insiders who participated in the offering was $3.35, which was the higher of (1) the price on the closing date or (2) the
10 day10-day average price as of March 14, 2002, plus a $.03 premium because of the issuances of the warrants. The warrants have an initial exercise price of $4.30 per share, with a life of 5 years.
|
| | |
|
FIBERSTARS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
|
Warrant activity comprised:
| | | | Shares | | | Warrants Outstanding Exercise Price | | | Warrants Exercisable | | | Amount | |
| | |
| |
| |
| |
| |
| | | | | | | | | | | | | (in thousands) | |
| Balance, December 31, 2000 | | | 1,100,000 | | $ | 2.00 - $6.00 | | | — | | $ | 3,000 | |
| Warrants granted | | | — | | $ | 2.00 - $6.00 | | | — | | $ | — | |
| | |
| | | | |
| |
| |
| Balance, December 31, 2001 | | | 1,100,000 | | $ | 2.00 - $6.00 | | | — | | $ | 3,000 | |
| Warrants granted | | | 65,726 | | $ | 4.30 | | | 65,726 | | $ | 283 | |
| | |
| | | | |
| |
| |
| Balance, December 31, 2002 | | | 1,165,726 | | $ | 2.00 - $6.00 | | | 65,726 | | $ | 3,283 | |
| Warrants granted | | | 486,173 | | $ | 4.50 | | | 276,922 | | $ | 1,265 | |
| Warrants cancelled | | | (50,000 | ) | $ | 6.00 | | | 50,000 | | | ($300 | ) |
| | | | | | | | |
| |
| |
| Balance, December 31, 2003 | | | 1,601,899 | | $ | 2.00 - $6.00 | | | 392,648 | | $ | 4,248 | |
| | |
| | | | |
| |
| |
| | Shares
| | Warrants
Outstanding
Exercise Price
| | Warrants
Exercisable
| | Amount
|
|---|
| |
| |
| |
| | (in thousands)
|
|---|
| Balance, December 31, 1999 | | — | | | | | — | | | |
| Warrants granted | | 1,100,000 | | $ | 2.00 - $6.00 | | — | | $ | 3,000 |
| | |
| | | | |
| |
|
| Balance, December 31, 2000 | | 1,100,000 | | $ | 2.00 - $6.00 | | — | | $ | 3,000 |
| | |
| | | | |
| |
|
Warrants granted |
|
— |
|
$ |
2.00 - $6.00 |
|
— |
|
$ |
— |
| | |
| | | | |
| |
|
| Balance, December 31, 2001 | | 1,100,000 | | $ | 2.00 - $6.00 | | — | | $ | 3,000 |
| | |
| | | | |
| |
|
Warrants granted |
|
65,726 |
|
$ |
4.30 |
|
65,726 |
|
$ |
283 |
| | |
| | | | |
| |
|
| Balance, December 31, 2002 | | 1,165,726 | | $ | 2.00 - $6.00 | | 65,726 | | $ | 3,283 |
| | |
| | | | |
| |
|
Upon adoption of the 1994 Stock Option Plan (see below), the Company's Board of Directors determined to make no further grants under the 1988 Stock Option Plan (the 1988 Plan). Upon cancellation or expiration of any options granted under the 1988 Plan, the related reserved shares of common stock will become available instead for options granted under the 1994 Stock Option Plan.
1994 Directors' Stock Option Plan:
At December 31,
2002,2003, a total of 400,000 shares of common stock had been reserved for issuance under the 1994 Directors' Stock Option Plan. The plan provides for the granting of nonstatutory stock options to
nonemployeenon-employee directors of the Company.
48
At December 31,
2002,2003, an aggregate of 1,550,000 shares of the Company's common stock had been reserved for issuance under the 1994 Stock Option Plan to employees, officers, and consultants at prices not lower than the fair market value of the common stock of the Company on the date of grant in the case of incentive stock options, and not lower than 85% of the fair market value on the date of grant in the case of non-statutory stock options. Options granted may be either incentive stock options or nonstatutory stock options. The plan administrator (the Board of Directors or a committee of the Board) determines the terms of options granted under the plan including the number of shares subject to the option, exercise price, term and exercisability.
Option activity under all plans comprised:
| | Options
Available
For Grant
| | Number of Shares
Outstanding
| | Weighted
Average Exercise
Price Per Share
|
|---|
| | (in thousands)
| | (in thousands)
| |
|
|---|
| Balance, December 31, 1999 | | 48 | | 1,693 | | | |
| | Additional shares reserved | | 200 | | | | | |
| | Granted | | (304 | ) | 304 | | $ | 5.69 |
| | Cancelled | | 149 | | (149 | ) | $ | 5.07 |
| | Exercised | | — | | (180 | ) | $ | 4.36 |
| | |
| |
| | | |
| Balance, December 31, 2000 | | 93 | | 1,668 | | $ | 4.74 |
| | Granted | | (85 | ) | 85 | | $ | 3.83 |
| | Cancelled | | 195 | | (195 | ) | $ | 4.85 |
| | Exercised | | — | | (28 | ) | $ | 2.93 |
| | |
| |
| | | |
| Balance, December 31, 2001 | | 203 | | 1,530 | | $ | 4.74 |
| | Granted | | (418 | ) | 418 | | $ | 4.41 |
| | Cancelled | | 516 | | (516 | ) | $ | 5.00 |
| | Exercised | | — | | — | | | — |
| | |
| |
| | | |
| Balance, December 31, 2002 | | 301 | | 1,432 | | $ | 4.57 |
| | |
| |
| | | |
49
|
| | |
|
FIBERSTARS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
|
| | | Options Available For Grant | Number of Shares Outstanding | Weighted Average Exercise Price Per Share |
| | |
| |
| |
| |
| | | | (in thousands) | | | (in thousands) | | | | |
| Balance, December 31, 2000 | | | 93 | | | 1,668 | | $ | 4.74 | |
| Granted | | | (85 | ) | | 85 | | $ | 3.83 | |
| Cancelled | | | 195 | | | (195 | ) | $ | 4.85 | |
| Exercised | | | — | | | (28 | ) | $ | 2.93 | |
| | |
| |
| | | | |
| Balance, December 31, 2001 | | | 203 | | | 1,530 | | $ | 4.74 | |
| Granted | | | (418 | ) | | 418 | | $ | 4.41 | |
| Cancelled | | | 516 | | | (516 | ) | $ | 5.00 | |
| Exercised | | | — | | | — | | | — | |
| | |
| |
| | | | |
| Balance, December 31, 2002 | | | 301 | | | 1,432 | | $ | 4.57 | |
| Granted | | | (369 | ) | | 369 | | $ | 4.41 | |
| Cancelled | | | 123 | | | (123 | ) | $ | 3.62 | |
| Exercised | | | | | | (291 | ) | | — | |
| Balance, December 31, 2003 | | | 55 | | | 1,387 | | $ | 4.87 | |
| | |
| |
| | | | |
At December 31, 2003, 2002 2001 and 2000,2001, options to purchase 1,000,1021,005,466 shares, 1,147,0071,100,102 shares and 1,131,8921,147,007 shares of common stock, respectively, were exercisable at weighted average fair values of $4.86, $4.54 and $4.67, and $4.52, respectively.
OPTIONS OUTSTANDING
| | OPTIONS CURRENTLY
EXERCISABLE
|
|---|
| |
| | Weighted
Average
Remaining
Contractual
Life
| |
|
|---|
Range of
Exercise Prices
| | Number of
Shares
Outstanding
| | Weighted
Average
Exercise Price
| | Number Exercisable
| | Weighted
Average
Exercise
Price
|
|---|
| | (in thousands)
| | (in years)
| |
| | (in thousands)
| |
|
|---|
| $ | 3.38 - $3.94 | | 559 | | 4.1 | | $ | 3.66 | | 205 | | $ | 3.57 |
| $ | 4.00 - $4.88 | | 536 | | 2.3 | | $ | 4.50 | | 360 | | $ | 4.51 |
| $ | 5.13 - $5.88 | | 151 | | 9.0 | | $ | 5.50 | | 312 | | $ | 5.46 |
| $ | 6.25 - $7.13 | | 186 | | 3.4 | | $ | 6.77 | | 89 | | $ | 6.83 |
| | | |
| | | | | | |
| | | |
| | | | 1,432 | | | | | | | 1,003 | | | |
| | | |
| | | | | | |
| | | |
OPTIONS OUTSTANDING | OPTIONS CURRENTLY EXERCISABLE |
Range of Exercise Prices | | Number of Shares Outstanding | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price |
| |
| |
| |
| |
| |
| |
| | | | (in thousands) | | | (in years) | | | | | | (in thousands) | | | | |
| $3.00 - $3.95 | | | 421 | | | 5.1 | | $ | 3.65 | | | 205 | | $ | 3.57 | |
| $4.00 - $4.88 | | | 417 | | | 2.3 | | $ | 4.52 | | | 360 | | $ | 4.51 | |
| $5.13 - $5.88 | | | 287 | | | 4.2 | | $ | 5.50 | | | 312 | | $ | 5.46 | |
| $6.25 - $7.23 | | | 262 | | | 4.7 | | $ | 6.91 | | | 128 | | $ | 6.83 | |
| | |
| | | | | | | |
| | | | |
| | | | 1,387 | | | | | | | | | 1,005 | | | | |
| | |
| | | | | | | |
| | | | |
1994 Employee Stock Purchase Plan:
At December 31, 2002,2003, a total of 100,000 shares of common stock had been reserved for issuance under the 1994 Employee Stock Purchase Plan. The plan permits eligible employees to purchase common stock through payroll deductions at a price equal to the lower of 85% of the fair market value of the Company's common stock at the beginning or end of the offering period. Employees may end their participation at any time during the offering period, and participation ends automatically on termination of employment with the Company. At December 31, 2002, 74,7692003, 82,214 shares had been issued under this plan.FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
On September 12, 2001, the Board of Directors of Fiberstars, Inc. declared a dividend distribution of one "Right" for each outstanding share of common stock of the Company to shareholders of record at the close of business on September 26,
2001.2002. One Right will also attach to each share of common stock issued by the Company subsequent to such date and prior to the distribution date defined below. With certain exceptions, each Right, when exercisable, entitles the registered holder to purchase from the Company one one-thousandth of a share of a new series of preferred stock, designated as Series A Participating Preferred Stock, at a price of $30.00 per one one-thousandth of a share, subject to adjustment. The Rights were distributed as a non-taxable dividend and expire ten years from the date of the Rights Plan. In general, the Rights will become exercisable and trade independently from the common stock on a distribution date that will occur on the earlier of (i) the public announcement of the acquisition by a person or group of 15% or more of the common stock or (ii) ten days after commencement of a tender or exchange offer for the common stock that would result in the acquisition of 15% or more of the common stock. Upon the occurrence of certain other events related to changes in ownership of the common stock, each holder of a Right would be entitled to purchase shares of common stock, or an acquiring corporation's common stock, having a market value of twice the exercise price. Under certain conditions, the Rights may be redeemed at $0.001 per Right by the Board of Directors. The description and terms of the Rights are set forth in a Rights Agreement dated as of September 20,
20012002 between the Company and Mellon Investor Services LLC, as rights agent.
50
The components of the benefit from (provision for) income taxes are as follows(in thousands):
| | | | Years Ended December 31, |
| | | |
|
| | Years Ended December 31,
| | | | 2003 | | | 2002 | | | 2001 | |
|---|
| | 2002
| | 2001
| | 2000
| | |
| |
| |
| |
|---|
| Current: | | | | | | | | | | | | | | | | | |
| Federal | | $ | — | | $ | 551 | | $ | (399 | ) | | $ | --- | | $ | — | | $ | 551 | |
| Foreign | | (43 | ) | | (105 | ) | | (25 | ) | | | 14 | | | (43 | ) | | (105 | ) |
| State | | — | | (1 | ) | | (69 | ) | | | --- | | | — | | | (1 | ) |
| | |
| |
| |
| | |
| |
| |
| |
| | | (43 | ) | | 445 | | (493 | ) | | | 14 | | | (43 | ) | | 445 | |
Deferred: |
|
|
|
|
|
|
| | | | | | | | | | |
| Federal | | (1,605 | ) | | 910 | | 646 | | | | | | | (1,605 | ) | | 910 | |
| State | | (430 | ) | | (102 | ) | | 104 | | | | | | | (430 | ) | | (102 | ) |
| | |
| |
| |
| | |
| |
| |
| |
| | | (2,035 | ) | | 808 | | 750 | | | | | | | (2,035 | ) | | 808 | |
| | |
| |
| |
| | |
| |
| |
| |
| Benefit from (provision for) income taxes | | $ | (2,078 | ) | $ | 1,253 | | $ | 257 | | | $ | (14 | ) | $ | (2,078 | ) | $ | 1,253 | |
| | |
| |
| |
| | |
| |
| |
| |
The following table shows the geographic components of pretax income (loss) between U.S. and foreign subsidiaries:
| | | | December 31, |
| | | |
|
| | December 31,
| | | | 2003 | | | 2002 | | | 2001 | |
|---|
| | 2002
| | 2001
| | 2000
| | |
| |
| |
| |
|---|
| U.S. | | $ | (2,021 | ) | $ | (3,568 | ) | $ | (757 | ) | | $ | (788 | ) | $ | (2,021 | ) | $ | (3,568 | ) |
| Foreign subsidiaries | | 580 | | 187 | | 46 | | | | 194 | | | 580 | | | 187 | |
| | |
| |
| |
| | |
| |
| |
| |
| | | $ | (1,441 | ) | $ | (3,381 | ) | $ | (711 | ) | | $ | (594 | ) | $ | (1,441 | ) | $ | (3,381 | ) |
| | |
| |
| |
| | |
| |
| |
| |
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
The principal items accounting for the difference between income taxes computed at the United States statutory rate and the benefit from (provision for) income taxes reflected in the statements of operations are as follows:
| | December 31,
| |
|---|
| | 2002
| | 2001
| | 2000
| |
|---|
| United States statutory rate | | 34.0 | % | 34.0 | % | 34.0 | % |
| State Taxes (net of federal tax benefit) | | 5.5 | % | 5.5 | % | 5.5 | % |
| Valuation allowance | | (181.1 | )% | — | | — | |
| Other | | (2.7 | )% | (2.4 | )% | (3.4 | )% |
| | |
| |
| |
| |
| | | (144.2 | )% | 37.1 | % | 36.1 | % |
| | |
| |
| |
| |
51
| | | December 31,
| | |
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| United States statutory rate | | | 34.0 | % | | 34.0 | % | | 34.0 | % |
| State Taxes (net of federal tax benefit) | | | 5.5 | % | | 5.5 | % | | 5.5 | % |
| Valuation allowance | | | (39.5 | ) | | (181.1) | % | | — | |
| Other | | | (2.3) | % | | (2.7) | % | | (2.4) | % |
| | |
| |
| |
| |
| | | | (2.3) | % | | (144.3) | % | | 37.1 | % |
| | |
| |
| |
| |
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset are as follows(in thousands):
| | | | December 31, |
| | | |
|
| | December 31,
| | | 2003 | | | 2002 | |
|---|
| | 2002
| | 2001
| |
| |
| |
|---|
| Allowance for doubtful accounts | | $ | 149 | | $ | 148 | | $ | 118 | | $ | 149 | |
| Accrued expenses and other reserves | | 989 | | 709 | | | 571 | | | 989 | |
| Tax credits | | 235 | | 509 | | | 155 | | | 235 | |
| Net operating loss | | 836 | | 755 | | | 1,519 | | | 836 | |
| Other | | — | | 256 | | | 233 | | | — | |
| | |
| |
| |
| |
| |
| Total deferred tax asset | | 2,209 | | 2,377 | | | 2,596 | | | 2,209 | |
| Valuation allowance | | (2,209 | ) | | — | | | (2,596 | ) | | (2,209 | ) |
| | |
| |
| |
| |
| |
| Net deferred tax asset | | $ | — | | $ | 2,377 | | $ | — | | $ | — | |
| | |
| |
| |
| |
| |
The deferred tax asset has been fully reserved by management in accordance with FASB 109 since management cannot forecast when the tax loss carryforwards will be realized.
As of December 31,
2002,2003, the Company has net operating loss carryforward of approximately
$2.2$4.2 million and
$1.6$1.3 million for federal and state income tax purposes, respectively. If not utilized, these carryforwards will begin to expire in 2020 for federal and 2008 for state purposes.
Under the Internal Revenue Code Section 382, the amounts of and benefits from net operating losses carryforwards may be impaired in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period.
13.11. Segments and Geographic Information:
The Company has two primary product lines: the pool and spa lighting product line and the commercial lighting product line, each of which markets and sells fiber optic lighting products. The Company markets its products for worldwide distribution primarily through independent sales representatives, distributors and swimming pool builders in North America, Europe and the Far East. FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 and 2002
A summary of geographic sales is as follows(in thousands):
| | | Years Ended December 31, |
| | |
|
| | | | 2003 | | | 2002 | | | 2001 | |
| | |
| |
| |
| |
| U.S. Domestic | | $ | 19,171 | | $ | 22,978 | | $ | 21,298 | |
| Other Countries | | | 8,067 | | | 7,982 | | | 7,755 | |
| | |
| |
| |
| |
| | | $ | 27,238 | | $ | 30,960 | | $ | 29,053 | |
| | |
| |
| |
| |
| | Years Ended December 31,
|
|---|
| | 2002
| | 2001
| | 2000
|
|---|
| U.S. Domestic | | $ | 22,978 | | $ | 21,298 | | $ | 26,533 |
| Other Countries | | | 7,982 | | | 7,755 | | | 10,388 |
| | |
| |
| |
|
| | | $ | 30,960 | | $ | 29,053 | | $ | 36,921 |
| | |
| |
| |
|
52
A summary of geographic long-lived assets (fixed assets and goodwill) is as follows(in thousands):
| | | | December 31, |
| | | |
|
| | December 31,
| | | 2003 | | | 2002 | |
|---|
| | 2002
| | 2001
| |
| |
| |
|---|
| U.S. Domestic | | $ | 5,501 | | $ | 5,791 | | $ | 5,081 | | $ | 5,501 | |
| Germany | | 1,418 | | 1,208 | | | 1,897 | | | 1,418 | |
| Other Countries | | 156 | | 138 | | | 152 | | | 156 | |
| | |
| |
| |
| |
| |
| | | $ | 7,075 | | $ | 7,137 | | $ | 7,130 | | $ | 7,075 | |
| | |
| |
| |
| |
| |
A summary of sales by product line is as follows(in thousands):
| | | | Years Ended December 31, |
| | | |
|
| | Years Ended December 31,
| | | 2003 | | | 2002 | | | 2001 | |
|---|
| | 2002
| | 2001
| | 2000
| |
| |
| |
| |
|---|
| Pool and Spa Lighting | | $ | 17,925 | | $ | 14,294 | | $ | 18,987 | | $ | 14,888 | | $ | 17,925 | | $ | 14,294 | |
| Commercial Lighting | | 13,035 | | 14,759 | | 16,235 | | | 12,350 | | | 13,035 | | | 14,759 | |
| Other | | — | | — | | 1,699 | |
| | |
| |
| |
| |
| |
| |
| |
| | | $ | 30,960 | | $ | 29,053 | | $ | 36,921 | | $ | 27,238 | | $ | 30,960 | | $ | 29,053 | |
| | |
| |
| |
| |
| |
| |
| |
14.12. Employee Retirement Plan:
The Company maintains a 401(k) profit sharing plan for its employees who meet certain qualifications. The Plan allows eligible employees to defer up to 15% of their earnings, not to exceed the statutory amount per year on a pretax basis through contributions to the Plan. The Plan provides for employer contributions at the discretion of the Board of Directors; however, no such contributions were made in
2003, 2002
2001 or
2000.2001.
15.13. Related Party Transactions:
In previous years, the Company advanced amounts to certain officers by way of promissory notes. The notes are collateralized by certain issued or potentially issuable shares of the Company's common stock. The notes bear interest at rates ranging from 6% to 8% per annum and are repayable at various dates through 2004. At December 31, 2003 and 2002, $16,000 and 2001, $62,000 and $88,000 was outstanding under the notes, respectively. At December 31, 2003, $4,000 was included in other assets and $12,000 was included in notes receivable and other assets. At December 31, 2002, $34,000 was included in other assets and $28,000 was included in notes receivable and other assets, at assets. In the second quarter of 2003, the Company took a charge of $27,000 in relation to renewing options held by a certain director that had expired.FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, $36,0002003 and 2002
As of December 31, 2003, ADLT was
included in other assets and $52,000 was included in notes and other receivables. ADLT is a holder of 24%approximately 20% of the Company's outstanding Common Stock. In January 2000, the Company executed the Mutual Supply Agreement with ADLT under which the Company buys certain lamps and components for its illuminators and through which the Company sells its finished products to ADLT. The terms of this agreement provide for specified pricing on products purchased from and sold to ADLT. The Company has purchased, and continues to purchase, components from ADLT under the terms of this agreement. Also, in January 2000, the Company entered into a Development Agreement with Unison, a wholly owned subsidiary of ADLT, under which the Company provided development services for which it received $2 million in fees from October 1999 through January 2001. In exchange, the Company will paypays royalties on the sales of products these technologiest echnologies produce at a
53
rate of 3% for the first five years, 2% for the next two years and 1% for the next three years, after which the Company assumes exclusive royalty-free rights.
rights to these products.
The Company had sales to ADLT under terms of the Mutual Supply Agreement and prior supply agreements of $156,000 during 2003, $345,000 during 2002 and $484,000 during 2001. Purchases were made from ADLT under these agreements with the Company along with royalties paid amounted to $657,000 in 2003, $1,207,000 in 2002 and $904,000 in 2001. Under the terms of the Development Agreement and a prior professional services agreement the Company received revenue from ADLT of $1,700,000 in 2000. There was no revenue received under this agreement in 2001. Accounts receivable from ADLT were $79,000$39,000 and $143,000$79,000 at December 31, 20022003 and 2001,2002, respectively. Accounts payable due to ADLT were $105,000$117,000 and $212,000$105,000 at December 31, 2003 and 2002, and 2001, respectively. 16. Subsequent Event: In February 2003, the Company was awarded an R&D contract with the United States Department of Defense. The Defense Advanced Research Projects Agency ("DARPA") contract calls for payments of $6,818,000 to the Company over three years based on achievement of various R&D milestones. Upon achievement of these milestones, $2,115,000, $2,599,000 and $2,104,000 will be paid to the Company during the calendar years ended December 31, 2003, 2004 and 2005 respectively. The milestones are for work to be performed in developing fiber optic illuminators and fixtures for installation on ships and planes. Funds for the first year have budget approval and funds for subsequent years will be released upon budget approval for those years.
Item 15 (continued)
(2)(2)- Financial Statement Schedules
The following Financial Statement Schedule of Fiberstars, Inc. is filed as part of this Form 10-K included in Item 15(d) below:
Schedule II—Valuation and Qualifying Accounts.
All other schedules are omitted either because they are not applicable or the required information is shown in the financial statements or the notes thereto.
Each management contract or compensatory plan or arrangement required to be filed has been identified.
The Company filed a current reportCurrent Report on Form 8-K on October 25, 20022, 2003 reporting under Item 54 the electionCompany’s dismissal of Mr. David M. TraversiPricewaterhouseCoopers LLP as its independent accountants and announcing the appointment Grant Thornton LLP as its independent accountant effective September 29, 2003.
The Company furnished a Current Report on Form 8-K on October 22, 2003 furnishing under item 12 the Company’s press release and related conference call transcript relating to its financial results for the board of directors.(c)Exhibits
quarter ended September 30, 2003. (c)Exhibits
Exhibit Exhibit
Number
| | | Description of Documents
|
|---|
3(i).1 |
|
Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| |
| 3(i).2 |
|
Certificate of Determination of Series A Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). |
3(ii |
) |
| 3(ii) |
Bylaws of the Registrant, as amended (composite copy) (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 4.1 |
|
Form of warrantWarrant issued to the Underwriters in the Company's initial public offering (incorporated by reference to Exhibit 1.1 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 4.2 |
|
Rights Agreement dated as of September 20, 2001 between the Registrant and Mellon Investor Services (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A filed with the SEC on September 21, 2001). |
| |
| 4.3 |
|
Amendment No. 1 to Rights Agreement dated as of March 26, 2002, between Fiberstars, Inc.the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.2 to the Registrant's Amendment No. 1 to Form 8-A filed with the SEC on April 17, 2002). |
| |
| 4.4 |
|
Form of Warrant for the purchase of shares of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002). |
|
|
4.5 | Amendment No. 2 to Rights Agreement dated as of June 17, 2003, between the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
55
| |
| 4.6 | Amendment No. 3 to Rights Agreement dated as of December 8, 2003, between the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on February 10, 2004). |
| |
| 10.1† |
|
Form of Indemnification Agreement for directors and officers of the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.2† |
|
1988 Stock Option Plan, as amended, and forms of stock option agreement (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.3† |
|
1994 Stock Option Plan, amended as of May 24, 2000, (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-52042) filed with the SEC on December 18, 2000). |
| |
| 10.4† |
|
1994 Employee Stock Purchase Plan, amended as of December 7, 2000, (incorporated by reference to Exhibit 99.3 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-52042) filed with the SEC on December 18, 2000). |
| |
| 10.5† |
|
1994 Directors' Stock Option Plan, amended as of May 23, 2001, (incorporated by reference to Exhibit 99.299.1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-68844) filed with the SEC on August 31, 2001). |
| |
| 10.6 |
|
Registration Rights Agreement dated as of June 27, 1990, between the Registrant and certain holders of the Registrant's capital stock, as amended by Amendment No. 1 dated as of February 6, 1991 and Amendment No. 2 dated as of April 30, 1994 (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.7 |
|
Amendment No. 3 to Registration Rights Agreement to include Warrant shares as Registerable Securities (incorporated by reference to Exhibit 1.2 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| 10.8† |
|
Stock Purchase Agreement and related Promissory Note between David N. Ruckert and the Registrant dated as of December 9, 1987, as amended (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.9† |
|
Common Stock Purchase Warrant dated as of June 27, 1988 issued by the Registrant to Philip Wolfson (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.10 |
|
Lease Agreement dated December 20, 1993, between the Registrant and Bayside Spinnaker Partners IV (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.11 |
|
Form of Agreement between the Registrant and independent sales representatives (incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.12† |
|
Consulting Agreement dated August 25, 1994, between the Registrant and Philip Wolfson, M.D. (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
|
|
|
56
10.13* |
|
Distribution Agreement dated March 21, 1995, between the Registrant and Mitsubishi International Corporation (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
| |
| 10.14 |
|
Stock Purchase Agreement dated March 21, 1995, among the Registrant, Mitsubishi International Corporation and Mitsubishi Corporation (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
| |
| 10.15 |
|
Promissory Note dated as of October 7, 1996, issued in favor of the Registrant by Steve Keplinger (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996). |
| |
| 10.16 |
|
Promissory Note dated as of March 25, 1997, issued in favor of the Registrant by Barry Greenwald (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996). |
| |
| 10.17 |
|
Promissory Note dated as of March 15, 1998, issued in favor of the Registrant by Barry Greenwald (incorporated by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1997). |
| |
| 10.18* |
|
Asset Purchase Agreement dated August 31, 1998, by and among Fibre Optics International, Inc., Douglas S. Carver, Dave M. Carver, and the Registrant (incorporated by reference to Exhibit 10.32 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.19 |
|
Asset Purchase Agreement dated as of November 19, 1998, by and among the Registrant, Hillgate (4) Limited, Crescent Lighting Limited, Michael Beverly Morrison and Corinne Bertrand (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 4, 1998). |
| 10.20* |
|
Purchase and Take-over Agreement between Frau Claudia Mann, acting for LBM Lichtleit-Fasertechnik and Fiberstars Deutschland GmbH, represented by its Managing Director Herr Bernhard Mann (incorporated by reference to Exhibit 10.34 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.21* |
|
Asset Purchase Agreement dated as of December 30, 1998, between Respironics, Inc. and the Registrant (incorporated by reference to Exhibit 10.35 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.22 |
|
Multi-tenant Industrial Triple Net Lease last executed December 1, 1998, between the Registrant and Catellus Development Corporation (incorporated by reference to Exhibit 10.36 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.23 |
|
Multi-tenant Industrial Lease Agreement (Modified Gross) dated September 15, 1998, between the Registrant and Harsch Investment Corp., as Agent for MacArthur/Broadway Center, Inc. (incorporated by reference to Exhibit 10.37 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998), as amended by First Amendment to Lease dated December 13, 1999 (incorporated by reference to Exhibit 10.37 to the Registrant's Amended Annual Report on Form 10-K 405/A for the year ended December 31, 1999). |
|
|
|
57
10.24 |
|
Amended and Restated Promissory Note dated March 25, 1999, between the Registrant and J. Steven Keplinger (incorporated by reference to Exhibit 10.40 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.25 |
|
Asset Purchase Agreement dated as of January 14, 20012000, among Fiberstars, Inc.the Registrant and Unison Fiber Optic Lighting Systems, LLC (incorporated by reference to Exhibit 7.07(c) to Advanced Lighting Technologies, Inc.'s Amendment No. 3 to Schedule 13D filed with the SEC on March 9, 2001)2000). |
| |
| 10.26 |
|
Agreement and Plan of Reorganization dated April 18, 2000, between Fiberstars, Inc.the Registrant and Lightly Expressed, Ltd. (VA), Lightly Expressed, Ltd. (CA), William Leaman and Michael Weber (incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). |
| |
| 10.27 |
|
Loan Agreement dated September 1, 2000, between the Registrant and Wells Fargo Bank (incorporated by reference to Exhibit 10.32 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
| 10.28 |
|
Term Commitment Note of the Registrant dated as of September 1, 2000, to Wells Fargo Bank (incorporated by reference to Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
| 10.29 |
|
Revolving Line of Credit Note of the Registrant dated as of September 1, 2000, to Wells Fargo Bank (incorporated by reference to Exhibit 10.31 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
| 10.30* |
|
Three (3) Year Supply Agreement dated November 30, 2000, between the Registrant and Mitsubishi International Corporation (incorporated by reference to the exhibit of the same numberExhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| 10.31 |
|
Second Amended and Restated Investor Agreement dated January 31, 2000, betweenMarch 18, 2004 by and among the Registrant, Advanced Lighting Technologies, Inc., ADLT Class 7 Liquidating Trust; w/a/d January, 2004, and Unison Fiber Optic Lighting Systems, LLC (incorporated by reference to Exhibit 7(d) to Advanced Lighting Technologies, Inc.'s Amendment No. 3 to Schedule 13D filed with the SEC on March 9, 2000).LLC. |
| |
| 10.32* |
|
Exclusive Marketing and Distribution Agreement between the Registrant and Laars, Inc. effective July 31, 2000 (incorporated by reference to the exhibit of the same number to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| |
| 10.33 |
|
Extension—Loan Agreement between the Registrant and Wells Fargo Bank, National Association dated March 23, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
| |
| 10.34 |
|
Extension—Revolving Line of Credit Note by the Registrant dated as of March 23, 2001, to Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
| |
| 10.35 |
|
Continuing Security Agreement, Rights to Payment and Inventory by the Registrant dated as of March 23, 2001, to Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
|
|
|
58
10.36 |
|
Extension—Revolving Line of Credit Note of the Registrant dated as of August 10, 2001, to Wells Fargo Bank (incorporated by reference to Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). |
| |
| 10.37 |
|
Consulting Agreement effective as of October 18, 2001, between the Company and John B. Stuppin (incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 10.38 |
|
Loan and Security Agreement (Accounts and Inventory) as dated December 7, 2001, between Comerica Bank-California, a California banking corporation and the Company (incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 10.39 |
|
Common Stock and Warrant Purchase Agreement, dated March 21,29, 2002, by and among the Registrant and the investors named hereintherein (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002). |
| |
| 10.40 | Securities Purchase Agreement dated June 17, 2003, by and among the Registrants and the investors named therein (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
| 10.41 | Form of Warrant by and between the Registrants and each of the investors party to the Securities Purchase Agreement dated June 17, 2003 (incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
| |
| 10.42† | Form of Indemnification Agreement for officers of the Registrant. |
| |
| 10.43† | Form of Indemnification Agreement for directors of the Registrant. |
| |
| 10.44 | Production Share Agreement dated October 9, 2003, by and among the Registrant, North American Production Sharing, Inc. and Industrias Unidas de B.C., S.A. de C.V. |
| |
| 21.1 |
|
Significant subsidiaries of Fiberstars, Inc.the Registrant (incorporated by reference to the exhibit of the same number to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 23.1 |
|
Consent of Independent Accountants. |
99.1 |
|
23.2 | Consent of Independent Accountants. |
| |
| 31.1 | Certification by Chief Executive Officer pursuant to 13a-14(a). |
| |
| 31.2 | Certification by Chief Financial Officer pursuant to 13a-14(a). |
| |
| 32.1 | Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (1818 U.S.C. §1350).§ 1350. |
99.2 |
|
32.2 | Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (1818 U.S.C. §1350).§ 1350. |
___________
*Confidential treatment has been granted with respect to certain portions of this agreement.
†Indicates management contracts or compensatory plan or arrangement.59
(d)(d)- Financial Statement Schedules
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of Fiberstars, Inc.
Fremont, California
Our audit of the consolidated financial statements referred to in our report dated February 27, 2004, appearing in Item 15(a)1 of this Form 10-K also included an audit of the financial statement schedule for the year ended December 31, 2003 listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein for the year ended December 31, 2003 when read in conjunction with the related consolidated financial statements.
/s/ Grant Thornton LLP
San Francisco, California
February 27, 2004
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Fiberstars, Inc.
Our audits of the consolidated financial statements referred to in our report dated February 14,
2003, except for Note 16, for which the date is March 17, 2003, appearing in Item 15(a)1 of this Form 10-K also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
Description | | Balance at Beginning of Year | Charges To Revenue | Charges To Expenses | Deductions | Balance at End of Year |
| |
| |
| |
| |
| |
| |
| | | (Amounts in thousands) |
| Year Ended December 31, 2003 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | $ | 604 | | $ | | | $ | 1 | | $ | 141 | | $ | 465 | |
| Valuation allowance for deferred tax assets | | | 2,035 | | | — | | | 400 | | | — | | | 2,435 | |
| Year Ended December 31, 2002 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | | 585 | | | | | | 78 | | | 59 | | | 604 | |
| Valuation allowance for deferred taxAssets | | | | | | | | | 2,035 | | | | | | 2,035 | |
| Year Ended December 31, 2001 | | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | | 1,526 | | | 740 | | | 274 | | | 1,955 | | | 585 | |
SIGNATURESDescription
| | Balance at
Beginning of
Year
| | Charges
To Revenue
| | Charges
To Expenses
| | Deductions
| | Balance at
End of Year
|
|---|
| | (Amounts in thousands)
|
|---|
| Year Ended December 31, 2002 | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | $ | 585 | | $ | — | | $ | 78 | | $ | 59 | | $ | 604 |
| Valuation allowance for deferred tax assets | | | — | | | — | | | 2,035 | | | — | | | 2,035 |
| Year Ended December 31, 2001 | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | $ | 1,526 | | $ | 740 | | $ | 274 | | $ | 1,955 | | $ | 585 |
| Year Ended December 31, 2000 | | | | | | | | | | | | | | | |
| Allowance for doubtful accounts and returns | | | 598 | | | 656 | | | 936 | | | 664 | | | 1,526 |
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereto duly authorized, on the 2630th day of March 2003.2004.
|
|
|
|
Fiberstars, Inc. |
| | | FIBERSTARS, INC. |
|
|
By: |
|
/s/DAVID N. RUCKERT
David N. Ruckert
|
| |
David N. Ruckert Chief Executive Officer
(Principal Executive Officer) |
In accordance with the Securities Exchange Act of 1934, this Report has been signed by the following persons in the capacities and on the dates indicated.
| Signature
| | | Title
| | | Date
|
|---|
|
|
|
|
|
| | |
/s/ DAVID N. RUCKERT
David N. Ruckert | | Chief Executive Officer and Director
| |
DAVID N. RUCKERT | ((Principal Executive Officer)Officer) | |
| | March 26, 2003 |
/s/ ROBERT A. CONNORS
Robert A. Connors |
|
Chief Financial Officer
(Principal Financial and
Accounting Officer) |
|
March 26, 2003 |
/s/ JOHN B. STUPPIN
John B. Stuppin |
|
Director |
|
March 26, 2003 |
/s/ THEODORE L. ELIOT, JR.
Theodore L. Eliot, Jr. |
|
Director |
|
March 26, 2003 |
/s/ MICHAEL FEUER, PH.D.
Michael Feuer, Ph.D. |
|
Director |
|
March 26, 2003 |
/s/ B.J. GARET
B.J. Garet |
|
Director |
|
March 26, 2003 |
/s/ WAYNE R. HELLMAN
Wayne R. Hellman |
|
Director |
|
March 26, 2003 |
/s/ DAVID TRAVERSI
David Traversi |
|
Director |
|
March 26, 2003 |
/s/ PHILIP WOLFSON
Philip Wolfson |
|
Director |
|
March 26, 2003 |
62
CERTIFICATIONS
I, David N. Ruckert, certify that:
1. I have reviewed this annual report on Form 10-K of Fiberstars, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
�� a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 | | /s/ DAVID N. RUCKERT
David N. Ruckert
Chief Executive Officer |
63
I, Robert A. Connors, certify that:
1. I have reviewed this annual report on Form 10-K of Fiberstars, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 | | /s/ ROBERT A. CONNORS
Robert A. Connors
| Chief Financial Officer | |
ROBERT A. CONNORS | (Principal Financial and Accounting Officer) | |
| | |
/s/ JOHN B. STUPPIN | | |
JOHN B. STUPPIN | | |
| | |
/s/ THEODORE L. ELLIOT, JR. | | |
THEODORE L. ELLIOT, JR. | | |
| | |
| /s/JEFFREY BRITE. | | |
JEFFREY BRITE. | | |
| | |
| /s/SABU KRISHNAN | | |
SABU KRISHNAN | | |
| | |
/s/ WAYNE R. HELLMAN | | |
WAYNE R. HELLMAN | | |
| | |
/s/ DAVID TRAVERSI | | |
DAVID TRAVERSI | | |
| | |
/s/ PHILIP WOLFSON | | |
PHILIP WOLFSON | | |
64
EXHIBIT INDEX
Exhibit Exhibit
Number
| | | Description of Documents
|
|---|
| |
| 3(i).1 | | Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| |
| 3(i).2 |
|
Certificate of Determination of Series A Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit 3(i) to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). |
3(ii |
) |
| 3(ii) |
Bylaws of the Registrant, as amended (composite copy) (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
4.1 |
|
Form of warrantWarrant issued to the Underwriters in the Company's initial public offering (incorporated by reference to Exhibit 1.1 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 4.2 |
|
Rights Agreement dated as of September 20, 2001 between the Registrant and Mellon Investor Services (incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-A filed with the SEC on September 21, 2001). |
| |
| 4.3 |
|
Amendment No. 1 to Rights Agreement dated as of March 26, 2002, between Fiberstars, Inc.the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.2 to the Registrant's Amendment No. 1 to Form 8-A filed with the SEC on April 17, 2002). |
| |
| 4.4 |
|
Form of Warrant for the purchase of shares of Common Stock (incorporated by reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002). |
| |
| 4.5 | Amendment No. 2 to Rights Agreement dated as of June 17, 2003, between the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
| |
| 4.6 | Amendment No. 3 to Rights Agreement dated as of December 8, 2003, between the Registrant and Mellon Investor Services, LLC, as rights agent (incorporated by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K filed on February 10, 2004). |
| |
| 10.1† |
|
Form of Indemnification Agreement for directors and officers of the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.2† |
|
1988 Stock Option Plan, as amended, and forms of stock option agreement (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.3† |
|
1994 Stock Option Plan, amended as of May 24, 2000, (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-52042) filed with the SEC on December 18, 2000). |
| |
| 10.4† |
|
1994 Employee Stock Purchase Plan, amended as of December 7, 2000, (incorporated by reference to Exhibit 99.3 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-52042) filed with the SEC on December 18, 2000). |
| 10.5† |
|
1994 Directors' Stock Option Plan, amended as of May 23, 2001, (incorporated by reference to Exhibit 99.299.1 to the Registrant's Registration Statement on Form S-8 (Commission File No. 333-68844) filed with the SEC on August 31, 2001). |
| |
| 10.6 |
|
Registration Rights Agreement dated as of June 27, 1990, between the Registrant and certain holders of the Registrant's capital stock, as amended by Amendment No. 1 dated as of February 6, 1991 and Amendment No. 2 dated as of April 30, 1994 (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
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65
10.7 |
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Amendment No. 3 to Registration Rights Agreement to include Warrant shares as Registerable Securities (incorporated by reference to Exhibit 1.2 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
| |
| 10.8† |
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Stock Purchase Agreement and related Promissory Note between David N. Ruckert and the Registrant dated as of December 9, 1987, as amended (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
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| 10.9† |
|
Common Stock Purchase Warrant dated as of June 27, 1988 issued by the Registrant to Philip Wolfson (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
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| 10.10 |
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Lease Agreement dated December 20, 1993, between the Registrant and Bayside Spinnaker Partners IV (incorporated by reference to Exhibit 10.19 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
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| 10.11 |
|
Form of Agreement between the Registrant and independent sales representatives (incorporated by reference to Exhibit 10.20 to the Registrant's Registration Statement on Form SB-2 (Commission File No. 33-79116-LA) which became effective on August 17, 1994)). |
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| 10.12† |
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Consulting Agreement dated August 25, 1994, between the Registrant and Philip Wolfson, M.D. (incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
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| 10.13* |
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Distribution Agreement dated March 21, 1995, between the Registrant and Mitsubishi International Corporation (incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
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| 10.14 |
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Stock Purchase Agreement dated March 21, 1995, among the Registrant, Mitsubishi International Corporation and Mitsubishi Corporation (incorporated by reference to Exhibit 10.20 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1994). |
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| 10.15 |
|
Promissory Note dated as of October 7, 1996, issued in favor of the Registrant by Steve Keplinger (incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996). |
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| 10.16 |
|
Promissory Note dated as of March 25, 1997, issued in favor of the Registrant by Barry Greenwald (incorporated by reference to Exhibit 10.23 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1996). |
| 10.17 |
|
Promissory Note dated as of March 15, 1998, issued in favor of the Registrant by Barry Greenwald (incorporated by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1997). |
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| 10.18* |
|
Asset Purchase Agreement dated August 31, 1998, by and among Fibre Optics International, Inc., Douglas S. Carver, Dave M. Carver, and the Registrant (incorporated by reference to Exhibit 10.32 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
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66
10.19 |
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Asset Purchase Agreement dated as of November 19, 1998, by and among the Registrant, Hillgate (4) Limited, Crescent Lighting Limited, Michael Beverly Morrison and Corinne Bertrand (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed with the SEC on December 4, 1998). |
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| 10.20* |
|
Purchase and Take-over Agreement between Frau Claudia Mann, acting for LBM Lichtleit-Fasertechnik and Fiberstars Deutschland GmbH, represented by its Managing Director Herr Bernhard Mann (incorporated by reference to Exhibit 10.34 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
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| 10.21* |
|
Asset Purchase Agreement dated as of December 30, 1998, between Respironics, Inc. and the Registrant (incorporated by reference to Exhibit 10.35 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.22 |
|
Multi-tenant Industrial Triple Net Lease last executed December 1, 1998, between the Registrant and Catellus Development Corporation (incorporated by reference to Exhibit 10.36 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
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| 10.23 |
|
Multi-tenant Industrial Lease Agreement (Modified Gross) dated September 15, 1998, between the Registrant and Harsch Investment Corp., as Agent for MacArthur/Broadway Center, Inc. (incorporated by reference to Exhibit 10.37 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998), as amended by First Amendment to Lease dated December 13, 1999 (incorporated by reference to Exhibit 10.37 to the Registrant's Amended Annual Report on Form 10-K 405/A for the year ended December 31, 1999). |
| |
| 10.24 |
|
Amended and Restated Promissory Note dated March 25, 1999, between the Registrant and J. Steven Keplinger (incorporated by reference to Exhibit 10.40 to the Registrant's Amended Annual Report on Form 10-KSB/A for the year ended December 31, 1998). |
| |
| 10.25 |
|
Asset Purchase Agreement dated as of January 14, 20012000, among Fiberstars, Inc.the Registrant and Unison Fiber Optic Lighting Systems, LLC (incorporated by reference to Exhibit 7.07(c) to Advanced Lighting Technologies, Inc.'s Amendment No. 3 to Schedule 13D filed with the SEC on March 9, 2001)2000). |
| |
| 10.26 |
|
Agreement and Plan of Reorganization dated April 18, 2000, between Fiberstars, Inc.the Registrant and Lightly Expressed, Ltd. (VA), Lightly Expressed, Ltd. (CA), William Leaman and Michael Weber (incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000). |
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| 10.27 |
|
Loan Agreement dated September 1, 2000, between the Registrant and Wells Fargo Bank (incorporated by reference to Exhibit 10.32 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| 10.28 |
|
Term Commitment Note of the Registrant dated as of September 1, 2000, to Wells Fargo Bank (incorporated by reference to Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
| |
| 10.29 |
|
Revolving Line of Credit Note of the Registrant dated as of September 1, 2000, to Wells Fargo Bank (incorporated by reference to Exhibit 10.31 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000). |
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67
10.30* |
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Three (3) Year Supply Agreement dated November 30, 2000, between the Registrant and Mitsubishi International Corporation (incorporated by reference to the exhibit of the same numberExhibit 10.30 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| |
| 10.31 |
|
Second Amended and Restated Investor Agreement dated January 31, 2000, betweenMarch 18, 2004, by and among the Registrant, Advanced Lighting Technologies, Inc., ADLT Class 7 Liquidating Trust; u/a/d January, 2004 and Unison Fiber Optic Lighting Systems, LLC (incorporated by reference to Exhibit 7(d) to Advanced Lighting Technologies, Inc.'s Amendment No. 3 to Schedule 13D filed with the SEC on March 9, 2000).LLC. |
| |
| 10.32* |
|
Exclusive Marketing and Distribution Agreement between the Registrant and Laars, Inc. effective July 31, 2000 (incorporated by reference to the exhibit of the same number to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001)2000). |
| |
| 10.33 |
|
Extension—Loan Agreement between the Registrant and Wells Fargo Bank, National Association dated March 23, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
| |
| 10.34 |
|
Extension—Revolving Line of Credit Note by the Registrant dated as of March 23, 2001, to Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
| |
| 10.35 |
|
Continuing Security Agreement, Rights to Payment and Inventory by the Registrant dated as of March 23, 2001, to Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001). |
| |
| 10.36 |
|
Extension—Revolving Line of Credit Note of the Registrant dated as of August 10, 2001, to Wells Fargo Bank (incorporated by reference to Exhibit 10.30 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001). |
| |
| 10.37 |
|
Consulting Agreement effective as of October 18, 2001, between the Company and John B. Stuppin (incorporated by reference to Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 10.38 |
|
Loan and Security Agreement (Accounts and Inventory) as dated December 7, 2001, between Comerica Bank-California, a California banking corporation and the Company (incorporated by reference to Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
| |
| 10.39 |
|
Common Stock and Warrant Purchase Agreement, dated March 21,29, 2002, by and among the Registrant and the investors named hereintherein (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2002). |
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| 10.40 | Securities Purchase Agreement dated June 17, 2003, by and among the Registrants and the investors named therein (incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
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| 10.41 | Form of Warrant by and between the Registrants and each of the investors party to the Securities Purchase Agreement dated June 17, 2003 (incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed on June 19, 2003). |
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| 10.42† | Form of Indemnification Agreement for officers of the Registrant. |
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| 10.43† | Form of Indemnification Agreement for directors of the Registrant. |
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| 10.44 | Production Share Agreement dated October 9, 2003, by and among the Registrant, and North American Production Sharing, Inc. and Industrias Unidas de B.C., S.A. de C.V. |
| |
| 21.1 |
|
Significant subsidiaries of Fiberstars, Inc.the Registrant (incorporated by reference to the exhibit of the same number to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001). |
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68
23.1 |
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Consent of Independent Accountants. |
99.1 |
|
23.2 | Consent of Independent Accountants. |
| |
| 31.1 | Certification by Chief Executive Officer pursuant to 13a-14(a). |
| |
| 31.2 | Certification by Chief Financial Officer pursuant to 13a-14(a). |
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| 32.1 | Statement of Chief Executive Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (1818 U.S.C. §1350).§ 1350. |
99.2 |
|
32.2 | Statement of Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002 (1818 U.S.C. §1350).§ 1350. |
___________
*Confidential treatment has been granted with respect to certain portions of this agreement.
†Indicates management contracts or compensatory plan or arrangement.
QuickLinks
PART I
PART II
PART III
PART IV
FIBERSTARS, INC. CONSOLIDATED BALANCE SHEETS, December 31, 2002 and 2001 (amounts in thousands except share amounts)
FIBERSTARS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2002, 2001 and 2000 (amounts in thousands except per share amounts)
FIBERSTARS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the years ended December 31, 2002, 2001 and 2000 (amounts in thousands)
FIBERSTARS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31, 2002, 2001 and 2000 (amounts in thousands)
FIBERSTARS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2002, 2001 and 2000 (amounts in thousands)
FIBERSTARS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
FIBERSTARS, INC. SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
EXHIBIT INDEX