August 3, 2012
FormFORM S-1
Under
UNDER THE SECURITIES ACT OF 1933
FIBERSTARS,
94-3021850 | |||
(State or other jurisdiction of | |||
incorporation or organization) | (I.R.S. Employer Identification No.) |
44529 Nobel Drive
DAVID N. RUCKERT
Copies
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If delivery
Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | |||
Non-accelerated filer ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Proposed maximum | Proposed maximum | Amount of | |||||||
Title of each class of securities to be | Amount to be | offering price per | aggregate offering | registration | |||||
registered | registered | share(1) | price(1) | fee(2) | |||||
Common Stock, $.0001 par value(2) | 1,622,025 Shares | $8.92 | $14,468,463 | $1,834 |
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) based upon the average of the high ($9.24) and low ($8.60) prices of our common stock on the Nasdaq National Market on May 24, 2004.
(2) Associated with the Common Stock are Series A Participating Preferred Stock Purchase Rights that will not be exercisable or be evidenced separately from the common stock prior to the occurrence of certain events.
Title of Each Class of Securities to be Registered | Amount to be Registered (1) | Proposed Maximum Offering Price Per Share (2) | Proposed Maximum Aggregate Offering Price | Amount of Registration Fee (3) | |||||||||
Common Stock, $0.0001 par value per share | 29,525,000 | $0.25 | $7,381,250 | $845.89 |
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(1) | The shares being registered include such indeterminate number of additional shares of common stock issuable for no additional consideration by reason of any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration, which results in an increase in the number of outstanding shares of our common stock. In the event of a stock split, stock dividend or similar transaction involving our common stock, in order to prevent dilution, the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a) under the Securities Act of 1933. |
(2) | Estimated solely for the purpose of computing the registration fee in accordance with Rule 457(a) of the Securities Act. The Registrant’s common stock is quoted on the Over The Counter Bulletin Board under the symbol “EFOI.” This estimate is based upon the closing sales price per share of the shares of common stock of the Registrant on August 1, 2012. |
(3) | Pursuant to Rule 457(p), the registration fee that was paid with the Registrant’s registration statement on Form S-3, Registration Statement No. 333-181930, that was filed on June 6, 2012 and later withdrawn, is being applied to the registration fee for this Form S-1 Registration Statement. |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. |
Subject to Completion, Dated May 27, 2004
PROSPECTUS
1,622,025 Shares
FIBERSTARS, INC.
Common Stock
______________________
This prospectus relates to the offer and sale from time to time by the selling shareholders identified herein ofsell up to 1,541,01129,525,000 shares of common stock and up to 81,014 shares issuable upon the exercise of a warrant. The warrant entitles the holder to purchase one share of common stock for $4.50.
Our common stock is traded on the Nasdaq National Market under the symbol “FBST.” The last reported sale price of our common stock on the Nasdaq National Market on May 24, 2004 was $8.74 per share.
The selling shareholders may offer and sell their respectiveconsisting of (a) 19,600,000 shares in transactions on the Nasdaq National Market, in negotiated transactions, or both. These sales may occur at fixed prices that are subject to change, at prices that are determined by prevailing market prices, or at negotiated prices.
The selling shareholders may sell shares to or through broker-dealers, who may receive compensation in the form of discounts, concessions or commissions from the selling shareholders own, and (b) 9,925,000 shares covered by warrants that the purchasersselling shareholders own.
We may receive proceeds on the exercise of warrants for shares of our common stock covered by this prospectus.
4 for a discussion of these risks.
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About This Prospectus | |
Prospectus Summary | 2 |
Risk Factors | 4 |
Special Note Regarding Forward-Looking Statements | 12 |
Use of Poceeds | 12 |
Selling Shareholders’ Transactions | 13 |
The Selling Shareholders | 13 |
Plan of Distribution | 16 |
Description of Securities | 18 |
Indemnification of Directors and Officers | 19 |
Legal Matters | 20 |
Experts | 20 |
Where You Can Find More Information | 20 |
Information Incoporated By Reference | 20 |
Common stock outstanding prior to this offering | 44,541,696 shares—This number does not include the 9,925,000 shares covered by warrants owned by the Selling Shareholders and listed in the table on page 15. | |
29,525,000 shares—This number includes both the 19,600,000 shares owned by the Selling Shareholders, and the 9,925,000 shares covered by the warrants owned by them, and listed in the table on page 15. | ||
54,466,696 shares—This number includes both the 19,600,000 shares owned by the Selling Shareholders, and the 9,925,000 shares covered by the warrants owned by them, and listed in the table on page 15. | ||
We will receive no proceeds from the sale by the Selling Shareholders of shares of common stock in this offering. We may receive proceeds on the exercise of warrants for shares of our common stock in this offering. We will use those proceeds for general corporate purposes. | ||
EFOI |
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We areThis “Prospectus Summary--Transactions” section outlines the transactions where and when the Selling Shareholders, defined below, acquired their shares of our common stock, based upon our records and the SEC filings of the Selling Shareholders.
warrants in units, each unit consisting of one share of common stock and one-half warrant to purchase one share of common stock. The purchase price of each unit was $0.25. We were incorporatedraised a total of $4.9 million in Californiathe offering. Each warrant separated immediately from the share of common stock in 1995. Our executive offices are locatedthe unit, is fully exercisable at 44259 Nobel Drive, Fremont, California 94538$0.54 per share, and our telephone number is (510) 490-0719. Our website address is located at http://www.fiberstars.com. The information containedexpires three years from the date of purchase.
Fiberstars(R), BritePak(R), CPC(TM), Fiberstars EFO(TM), Fiberstars Spa Lights(TM), Fiberstars Underground Illuminator(TM), FX Light(TM), FX Spa Lights(TM), JazzLight(TM), LightlyExpressed(R)the Act in Section 4(2) of the Act and OptiCore(TM) are our registered trademarks.Rule 506 of Regulation D. We also referhave agreed with the investors in the private placement to trademarksregister for re-sale to the public under the Securities Act of other corporations1933 the shares and organizations in this prospectus.
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RISK FACTORS
Our operating results are subject to fluctuations caused by many factors that could result in decreased revenues and a drop in the priceacquire shares of our common stock.stock only if you can afford to lose your entire investment.
Risks Associated with Our Business. |
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 levelswhich are affected by housing market trends, interest rates and the weather. BecauseSales of our pool and spa lighting products depend substantially upon the level of new pool construction, which is also affected by housing market and construction trends. In addition, due to the seasonality of construction, our sales of swimming pool and commercial lighting products, and thus our overall revenuesrevenue and income, have tended to be significantly lower in the first and third quarter of each year. Various economicOur future results of operations may experience substantial fluctuations from period to period as a consequence of these factors, and such conditions and other trendsfactors affecting capital spending may alter these seasonal trendsaffect the timing of orders. An economic downturn coupled with a decline in our net sales could adversely affect our ability to meet our working capital requirements, support our capital requirements and growth objectives, or could otherwise adversely affect our business, financial condition, and results of operations. As a result, any general or market-specific economic downturns, particularly those affecting new building construction and renovation, or that cause end-users to reduce or delay their purchases of lighting products, services, or retrofit activities, would have a material adverse effect on our business, cash flows, financial condition, and results of operations.
competitive position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.
We expect to introduce additional newcompete with lighting products each yearutilizing traditional lighting technology provided by many vendors. Additionally, in the pool and spaadvanced lighting and commercialmarkets in which we have primarily competed to date, competition has largely been fragmented among a number of small manufacturers. However, some of our competitors, particularly those that offer traditional lighting markets. Delivery of these products, may cause usare larger companies with greater resources to incur additional unexpecteddevote to research and development, expenses. We could have difficulties manufacturing, these new products as a result of our inexperience with them or the costs could be higher than expected. Any delaysand marketing.
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 opticLED lighting products for downlighting, display case and water lighting, and neon and other lighted signs.than we possess. We aremay also experiencingface competition from light emitting diode, or LED, products in watertraditional lighting and in neon and other lighted signs. Our competitors include some very large and well-establishedfixture companies, such as Acuity Brands Lighting, Cooper Lighting, Hubbell Lighting, Lithonia Lighting, and Royal Philips Schott, 3M, Bridgestone, Pentair, MitsubishiElectronics. The relatively low barriers to entry into the lighting industry and Osram/Siemens. Allthe limited proprietary nature of many lighting products also permit new competitors to enter the industry easily.
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We rely onof operations. In addition, the cost of addressing any intellectual property litigation claim, both in legal fees and other proprietary informationexpenses, and the diversion of management resources, regardless of whether the claim is valid, could be significant and could materially harm our business, financial condition and results of operations.
Wewe currently hold 40 patents. There can be no assurance, however, that our issued patents are validpurchase from a small number of third-party suppliers become unavailable for any reason 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 available to us, we do not believe that any such claims involving our technology or patents are meritorious. However,third-party manufacturers otherwise experience delays, we may be requiredincur delays in shipment, which would damage our business.
We rely on distributors formanufacture a significant portion of the component parts incorporated into our products. We purchase our component parts from third-party manufacturers that serve the advanced lighting systems market and believe that alternative sources of supply are readily available for most component parts. However, consolidation in the lighting industry could result in one or more current suppliers being acquired by a competitor, rendering us unable to continue purchasing necessary amounts of key components at competitive prices.
market and sell our products. Most of our products are sold through third-party independent distributors and sales representatives. In addition, these parties provide technical sales support to end-users. Our current agreements within these sales channels are non-exclusive with regard to lighting products in general, but exclusive with respect to LED lighting and fiber optic products. We anticipate that any such agreements we do not have long-term contracts with our distributors. Some of these distributors are quite large, particularlyenter into in the pool products market.future will be on similar terms. Furthermore, our agreements are generally short-term, and can be cancelled by these sales channels without significant financial consequence. We cannot control how these sales channels perform and cannot be certain that we or end-users will be satisfied by their performance. If these distributors and sales representatives significantly change their terms with us, or change their historical pattern of ordering products from us, there could be a significant impact on our 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 keyprofits.
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.
Our future success will depend to a large extent on the continued contributions of certain employees, many of whom wouldsuch as our current Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and President. These and other key employees may be difficult to replace. Our future success will also depend on our ability to attract and retain qualified technical, sales, marketing, and management personnel, for whom competition is very intense. The loss of, or failure to attract, hire, and retain, any such persons could delay product development cycles, disrupt our operations, or otherwise harm our business or results of operations.
We depend on a limited number of suppliershave been successful in hiring experienced energy solutions salespeople 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 our stranded fiber, which is used extensively in our fiber pool and spa lighting products. We also rely on a sole source for certain lamps, reflectors, remote control devices, power supplies and thin film coatings. The loss of one or more of our suppliers could result in delaysleading firms in the shipment of products, additional expense associated with redesigning products, impaired margins, reduced production volumes, strained customer relationsindustry but if these individuals are not successful in achieving our expectations, then planned sales may not occur and loss of business or otherwise harm our results of operations.
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We depend on Advanced Lighting Technologies, Inc., or ADLT, for a number of components for our products.
ADLT supplies us with certain lamps, power supplies, reflectors and coatings. We 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. 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.
We are becoming increasingly dependent on foreign sources of supply for many of our components and in 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 lead to an interruption of the delivery 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. Weanticipated net sales 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,realized.
We use plants in Mexico and India to manufacture and assemble manyportion of our products. The supply of these finished goods may be impacted by local political or social conditions as well as the financial strength of the companies with which we do business.
As we attempt to reduce manufacturing expenses, we are becoming increasinglybusiness is dependent upon offshore companies for the manufacturing and final assemblyexistence of many of our products. To do so, we must advance certain raw materials, inventory and production costs to these offshore manufacturers. The supply of finished goods from these companies, andgovernment funding, which may not be available into the raw materials, inventory and funds which we advance to them, may be at risk depending upon the varying degrees of stability of the local political, economic and social environments in which they operate, and the financial strength of the manufacturing companies themselves.
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 is 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 non-renewals from any particular customer could cause our quarterly operating results to fluctuate or decline and harm our business. In addition, volume discounts granted to significant customers from time to time could lead to reduced profit margins and negatively impact our operating results.
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Our components and products could have design, defects or compatibility issues, which could be costly to correctfuture and could result in the rejectiona significant reduction in sales and could cause significant harm to our business.
We cannot be assuredsupported by federal government funding. If government funding is reduced or eliminated, there is no guarantee that we will not experience defects or compatibility issueswould be able to continue to fund our activities in components or products in the future. Errors or defects in our products may arise in the future, and,these areas at their current levels, 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.
all. If we are unable to predict market demandmaintain our access to government funding in these areas, there could be a significant impact on our net sales and profits.
In order to arrange for the manufacture of sufficient quantities of productswith electrical codes and avoid excess inventorysafety standards have facilitated certification approvals, we need to accurately predict market demand for each of our products. Significant unanticipated fluctuations in demand could cause problems in our operations. We may notcannot ensure that we will be able to accurately predict market demandobtain any such certifications for our new products or that, if certification standards are amended, that we will be able to maintain such certifications for our existing products. Moreover, although we are not aware of any effort to amend any existing certification standard or implement a new certification standard in a manner that would render us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to occur.
We depend on collaboration 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 positionacquire businesses 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.
The accounting standards boards’ proposal to expense employee and director stock options could result in increased costs associated with these options.
The accounting standards boards is considering a proposal that would require companies to expense employee and director stock options. If this proposal is adopted,future, including future lighting retrofit businesses, we may have increased costs associated with employee and director stock options on a forward-looking and backward-looking basis. At this time it is not possible to predict the magnitude of these costs and the impact our financial statements.
We have experienced negative cash flow from operations and may continue to do so in the future. We may need to raiseissue securities or promissory notes that are convertible or exchangeable for shares of our common stock. These issuances would dilute shareholders’ percentage ownership interest, which would have the effect of reducing influence on matters on which our shareholders vote, and might dilute the book value of our common stock. Shareholders may incur additional capitaldilution if holders of stock options, whether currently outstanding or subsequently granted, exercise those options, or if warrant holders exercise warrants purchasing shares of our common stock. If an insufficient amount of authorized, but unissued, shares of common stock exists to issue in the near future, but our ability to do so may be limited.
While we 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 we 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 tolong term in connection with a continued weak economic environment or a weak market for our products have led to and may lead to continued negative cash flow from operations, which may require us to raise additional financing, including equity financing. Anysubsequent equity financing may be dilutive to shareholders, and debt financing, if available, will increase expenses and may involve restrictive covenants. Weor acquisition transactions, we may be required to raiseask our shareholders to authorize additional capital,shares before undertaking, or as a condition to completing, a financing or acquisition transaction.
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Our stock price has been and is likely to be highly volatile, particularly due to our relatively limited trading volume. Our stock price could fluctuate significantly due toacquisition transactions resulting in a large number of factors, including:
Many of these factors are beyond our control.
stock. In addition, the stock marketslack of a robust secondary market may require a shareholder who desires to sell a large number of shares to sell those shares in general, andincrements over time in order to mitigate any adverse impact of 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 affectsales on the market price of our common stock, regardless of ourstock.
In the past, companies that have experienced volatilityresults or outcomes to differ materially from those expressed in the market prices of their stock have been the object of securities class action litigation. If we were the object of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus containsany forward-looking statements that involve risks and uncertainties. Many of these statements appear, in particular, in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include, but are not limited to, statements about:
In some cases, you can identify forward-looking statementsmade by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “predict,” “potential,” “plan,” “is designed to” or the negative of these terms, and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to known and unknown risks and uncertainties. Given these uncertainties,us, you should not place undue reliance on theseany such forward-looking statements. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” Also, theseFurther, any forward-looking statements represent our estimates and assumptionsstatement speaks only as of the date of this prospectus. Unless required by U.S. federal securities laws, we do not intendon which it is made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which ones will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding thatmay cause our actual future results, mayperformance, or achievements to be materially different from anythe future results, performance, or achievements expressed or implied by any forward-looking statements. We qualify all of our forward-lookingThese statements by these cautionary statements.
PROCEEDS FROM THE OFFERING
We will not receive any proceeds from the sale of the shares by the selling shareholders. However, we will receive the exercise price if a selling shareholder exercises its warrant. We cannotmay be certain as to when and if this warrant will be exercised and as to the amount of the proceeds we will actually receive from the exercise because of the net issuance exercise provisions of the warrant. All proceeds from the sale of the shares will be for the account of the selling shareholders, as described below. See “Principal and Selling Shareholders” and “Plan of Distribution.”
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock trades on the Nasdaq National Market tier of the Nasdaq Stock Marketfound under the symbol “FBST.” The following table sets forth the high and low sale prices for our 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 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 | ||||
First quarter 2004 | 10.75 | 6.15 |
There were approximately 225 holders of record of our common stock as of April 30, 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.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the fiscal years ended December 31, 2003, 2002 and 2001 and the selected consolidated balance sheet data as of December 31, 2003 and 2002 have been derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statements of operations data for the three-month periods ended March 31, 2004 and 2003 and the selected consolidated balance sheet data as of March 31, 2004 are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the fiscal years ended December 31, 2000 and 1999 and the selected consolidated balance sheet data as of December 31, 2001, 2000 and 1999 are derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated balance sheet data as of March 31, 2003 is derived from our unaudited financial statements not included in this prospectus. It should be read in conjunction with the information appearing under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere“Business” in our 2011 Annual Report on Form 10-K, as well as in this prospectus.
SELECTED CONSOLIDATED FINANCIAL DATA(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended | ||||||||||||||||||||||
YEARS ENDED DECEMBER 31, | March 31, | |||||||||||||||||||||
1999 | 2000 | 2001 | 2002 | 2003 | 2003 | 2004 | ||||||||||||||||
OPERATIONS DATA | ||||||||||||||||||||||
Net sales | $ | 33,311 | $ | 36,921 | $ | 29,053 | $ | 30,960 | $ | 27,238 | $ | 5,879 | $ | 6,008 | ||||||||
Gross profit | 14,333 | 15,019 | 11,447 | 11,474 | 10,341 | 2,046 | 2,101 | |||||||||||||||
As a percent of net sales | 43.0 % | 40.7 % | 39.4 % | 37.1 % | 38.0 % | 34.8% | 35.0% | |||||||||||||||
Research and development expenses | 1,484 | 1,673 | 2,764 | 2,290 | 1,279 | 200 | 270 | |||||||||||||||
As a percent of net sales | 4.5 % | 4.5 % | 9.5 % | 7.4 % | 4.7 % | 3.4% | 4.5% | |||||||||||||||
Sales and marketing expenses | 8,044 | 9,038 | 8,371 | 7,907 | 7,188 | 1,748 | 1,977 | |||||||||||||||
As a percent of net sales | 24.2 % | 24.5 % | 28.8 % | 25.5 % | 26.4 % | 29.7% | 32.9% | |||||||||||||||
General and administrative expenses | 2,558 | 4,023 | 3,627 | 2,709 | 2,435 | 664 | 624 | |||||||||||||||
As a percent of net sales | 7.7 % | 10.9 % | 12.5 % | 8.8 % | 8.9 % | 11.3% | 10.4% | |||||||||||||||
Write-off in-process technology | ||||||||||||||||||||||
acquired | — | 938 | — | — | — | — | — | |||||||||||||||
As a percent of net sales | — % | 2.5 % | — % | — % | — % | — % | — % | |||||||||||||||
Income (loss) before tax | 2,255 | (711) | (3,381) | (1,441) | (594) | (598) | (763) | |||||||||||||||
As a percent of net sales | 6.8 % | (1.9) % | (11.6) % | (4.7) % | (2.2) % | (10.2)% | (12.7)% | |||||||||||||||
Net income (loss) | 1,413 | (454) | (2,128) | (3,519) | (608) | (622) | (764) | |||||||||||||||
As a percent of net sales | 4.2 % | (1.2) % | (7.3) % | (11.4) % | (2.2) % | (10.6)% | (12.7)% | |||||||||||||||
Net income (loss) per share | ||||||||||||||||||||||
Basic | $ | 0.35 | $ | (0.10 ) | $ | (0.45 ) | $ | (0.70 ) | $ | (0.10 ) | (0.12) | (0.10) | ||||||||||
Diluted | $ | 0.35 | $ | (0.10 ) | $ | (0.45 ) | $ | (0.70 ) | $ | (0.10 ) | (0.12) | (0.10) | ||||||||||
Shares used in per share calculation: | ||||||||||||||||||||||
Basic | 3,986 | 4,572 | 4,756 | 5,028 | 5,993 | 5,112 | 7,280 | |||||||||||||||
Diluted | 4,080 | 4,572 | 4,756 | 5,028 | 5,993 | 5,112 | 7,280 | |||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||||
Total assets | $ | 20,392 | $ | 24,619 | $ | 21,434 | $ | 20,101 | $ | 24,343 | $ | 24,119 | $ | 24,163 | ||||||||
Cash, cash equivalents and short-term | ||||||||||||||||||||||
investments | 1,904 | 1,230 | 584 | 231 | 4,254 | 188 | 1,648 | |||||||||||||||
Working capital | 8,948 | 10,602 | 8,498 | 7,417 | 12,449 | 7,188 | 12,773 | |||||||||||||||
Short-term borrowings | 8 | 8 | 101 | 593 | 30 | 3,767 | 163 | |||||||||||||||
Long-term borrowings | 626 | 482 | 419 | 449 | 521 | 450 | 458 | |||||||||||||||
Shareholders’ equity | 14,668 | 18,560 | 16,431 | 14,240 | 19,174 | 13,772 | 19,443 | |||||||||||||||
Common shares outstanding | 4,004 | 4,288 | 4,328 | 4,667 | 6,317 | 4,667 | 6,527 |
In accordance with SFAS 142 we ceased amortizing goodwill as of December 31, 2001. Refer to note 5 of the notes to consolidated financial statements for the year ended December 31, 2003. There are no other major changes affecting comparability of the years.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS
The following discussion and analysis of our financial condition andprospectus generally. Actual events or results of operations should be read in conjunction with “Selected Consolidated Financial Data” and the consolidated financial statements and related notes on pages F-1 through F-35 of this prospectus. Our actual results couldmay differ materially from those anticipateddiscussed in these forward-looking statements as a result of a number ofvarious factors, including, those discussed inwithout limitation, the risks outlined under “Risk Factors” and elsewherematters described in this prospectus. See “Special Note Regarding Forward-Looking Statements.”
Resultsprospectus generally. In light of Operations
Three Months Ended March 31, 2004these risks and 2003
Net Sales
Net sales increased 2% to $6,008,000 foruncertainties, there can be no assurance that the three months ended March 31, 2004, as compared to $5,879,000 for the three months ended March 31, 2003. This increase resulted primarily from a 6% increaseforward-looking statements contained in pool and spa lighting sales partially offset by a 2% decreasethis prospectus will in commercial lighting sales. The increase in pool and spa lighting sales was largely due to increased sales of fiber optic lighting systems and Jazz light systems for swimming pools partially offset by decreased sales of spa products. The decrease in sales of spa products primarily reflects increased competition in the spa market. The 2% reduction in commercial lighting sales primarily reflects soft demand in the United States themed-entertainment and light bars market, which was partially offset by an increase in commercial lighting sales in Europe as comparedfact occur. In addition to the same period a year ago. Due to anticipated improvements in the pool and spa lighting market and increased sales of EFO TM systems in commercial lighting markets, we believe our net sales will increase in 2004.
Gross Profit
Gross profit was $2,101,000 for the three months ended March 31, 2004, a 3% increase in the dollar amount when compared to $2,046,000 for the three months ended March 31, 2003. The gross profit margin percentage of 35% for the three months ended March 31, 2004 was equal to the gross profit margin achieved in the same period in 2003. During the first quarter of 2004 an increase in the pool and spa gross profit margin was offset by a decrease in the gross profit margin for the commercial lighting markets. The increase in the dollar amount of gross profit was due to the increase in sales. If net sales remain flat or increase, we believe overall gross profit will increase in 2004, as we expect our cost of sales to decrease as we increase our offshore manufacturing in Mexico and India.
Operating Expenses
Research and development expenses were $270,000 for the three months ended March 31, 2004, an increase of $70,000 compared to the three months ended March 31, 2003. This increase was primarily due to increased research and development efforts on commercial lighting projects during the first quarter of 2004 compared to the same period of 2003. During the first quarter of 2004, we accrued $587,000 in net credits for fundsinformation expressly required to be received fromincluded in this prospectus, we provide such further material information, if any, as may be necessary to make the Defense Advanced Research Projects Agency, or DARPA, under a contract awarded to usrequired statements, in February 2003. This compares to $342,000 in net credits accrued in connection with the DARPA contract and an additional $106,000 under an award from the National Institute of Science, or NIST, during the first quarter of 2003. We expect research and development expenses to increase in 2004 as we plan to increase our development of commercial lighting products, primarily EFO, along with additional DARPA work.
Sales and marketing expenses increased by 13% to $1,977,000 for the three months ended March 31, 2004 as compared to $1,748,000 for the same period in 2003. This increase was due in part to our decision in October 2003 to no longer use internal sales representatives for our pool and spa products. This change resulted in a $72,000 increase in commissions paid to outside sales representatives partially offset by head-count reductions in our pool and spa group, with associated reductions in travel expenses, arising from our decision to use an outside sales representatives. In addition, we incurred a $90,000 as a result of an increased headcount and travel associated with the increased head-count in our commercial lighting group and increased travel expenses arising from increased attention paid to our national customers and prospects, and an $80,000 increase in European sales and marketing costs due to changes in exchange rates. We expect sales and marketing expenses to increase for 2004 as we anticipate increasing our sales and marketing efforts for our new products.
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General and administrative expense decreased 6% to $624,000 for the three months ended March 31, 2004 from $664,000 for the three months ended March 31, 2003. This decrease was primarily due to a reduction in personnel costs and lower accounting fees, including the head-count reduction in our pool and spa group. We expect general and administrative expenses to be relatively flat for 2004.
Net Loss
We recorded a net loss of $764,000 for the three months ended March 31, 2004 as compared to a net loss of $622,000 for the three months ended March 31, 2003. The increase in net loss largely reflects an increase in operating expenses compared to the corresponding period of 2003.
Years Ended December 31, 2003, 2002 and 2001
Net Sales
Net sales decreased 12% to $27,238,000 in 2003 as compared to 2002. The decrease was primarily a result of a decrease in the sales of pool products of 17% or $3,037,000 combined with a decline in sales of commercial lighting products of 5% or $685,000. The decline in pool lighting sales was primarily due to a decrease of $2,046,000 in sales of spa products and in-ground pool lighting products. This reduction in sales was attributable to the soft pool market in the first halflight of the year and increased competition. The decrease in commercial lighting sales was duecircumstances under which they are made, not misleading.
Net sales increased 7% to $30,960,000 in 2002 as compared to 2001. The increase was a result of an increase in the sales of pool products of 25% or $3,631,000 offset by a decline in sales of commercial lighting products of 12% or $1,724,000. The rise in pool lighting sales was largely due to increases from sales of the new Jazz, in-ground pool lighting product and spa products of $3,966,000 partially offset by a decline in other products of $305,000. The decrease in commercial lighting sales was due to a decline in U.S. domestic lighting sales of 24% or $1,801,000 partially offset by an increase in international sales of $175,000. Of the decrease in U.S. domestic lighting sales, $1,227,000 of the decline was due to a drop in resort and casino business, largely as an after-effect of the September 11, 2001 tragedy.
International sales accounted for approximately 28% of net sales in 2003 as compared to 26% of net sales in 2002 and 27% in 2001. The relative increase in international sales from 2002 to 2003 was due to growth in European sales compared to a decline in domestic sales. The increase in International sales was a result of higher sales from our German operation. The relative decrease in international sales from 2001 to 2002 was a result of the increase in domestic pool lighting sales in 2002.
Gross Profit
Gross profit of $10,341,000 in 2003 declined by 10% compared to gross profit of $11,474,000 achieved in 2002. However, gross profit as a percent of sales increased to 38% in 2003 compared to 37% in 2002. This increase was primarily due to a reduction in direct product costs in the second half of the year as a result of moving some of our manufacturing to offshore locations. We continue to take measures intended to improve margins in future periods by redesigning products for cost reductions and by balancing production between U.S. and offshore locations. We expect gross profit margin to improve slightly in 2004 dependent upon general economic conditions.
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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% in 2002 compared to 39% in 2001 primarily due to higher freight costs in 2002, up $632,000 or 2%, along with lower than normal gross margins on the new Jazz product, contributing $425,000 or 1% off prior year pool margins, partially offset by higher International margins, up 1%.
Operating Expenses
Research and development expenses were $1,279,000 in 2003, a 44% decrease from research and development expenses in 2002 of $2,290,000. The decrease was largely due to the increase in expense credits in 2003 under the Defense Advanced Research Projects Agency, or DARPA, contracts awarded to us in February and April of 2003. Funds to be received from the DARPA for milestones achieved during the fiscal year are recorded as a credit to research and development expense. Net of payments to subcontractors, this amounted to $1,463,000 in 2003. In addition, we had additional research and development credits from National Institute of Standards and Technology, or NIST, of $583,000 in 2003, a decrease of $291,000 over NIST credits realized in 2002. The NIST project was completed in 2003 and as a result we will not realize further credits from this award in future years. The additional decrease in research and development expense in 2003 came as a result of lower personnel and project costs in non-government funded projects due to reductions in personnel. Research and development expenses were 5% of sales in 2003 compared to 7% of sales in 2002. We expect research and development expenses to increase in 2004.
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 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% of sales in 2002 compared to 10% of sales in 2001.
Sales and marketing expenses were $7,188,000 in 2003, a 9% decrease as compared to the $7,907,000 in sales and marketing expenses for 2002. The decrease in sales and marketing expenses was due in part to lower commissions expenses of $239,000 from the discontinuance of the Waterpik agency agreement in the middle of 2002. These savings were combined with decreases in personnel and travel expenses in both pool and spa lighting and commercial lighting due to headcount reductions. Sales and marketing expenses were 26% of sales in both 2003 and 2002. We expect sales and marketing expenses to increase in 2004.
Sales and marketing expenses were $7,907,000 in 2002, a 5% decrease as compared to the $8,371,000 in sales and marketing expenses for 2001. The decrease in sales and marketing expenses was due to lower commissions expenses of $662,000 from the mid-year discontinuance of the Waterpik agency agreement. These savings were partially offset by increases in personnel and travel expenses related to hiring sales representatives to replace the Waterpik agents. Sales and marketing expenses were 26% of sales in 2002, compared to 29% of sales in 2001.
General and administrative expenses were $2,435,000 in 2003, a 10% decrease as compared to $2,709,000 in 2002. The decrease in general and administrative expenses was largely due to a decrease in personnel expense due to headcount reductions, reduced bad debt expense, investor relations and computer costs in 2003 of $190,000. General and administrative expenses were 9% of sales in 2003 and 2002 and 12% of sales in 2001. We expect general and administrative expenses to increase slightly in 2004.
General and administrative expenses were $2,709,000 in 2002, a 25% decrease as compared to $3,627,000 in 2001. The decrease in general and administrative expenses was largely due to a decrease of $444,000 in amortization of goodwill due to a change in accounting method. Prior to 2002, goodwill was amortized over the life of the acquired assets, whereas in 2002 goodwill was no longer amortized but became subject to an annual impairment test according to Financial Accounting Standards Board, or FASB, 142. The balance of the decrease in general and administrative expense in 2002 was due to lower personnel, legal and other general and administrative expenses of $474,000.
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Other Income and Expenses
Interest expense, which consists of expense for bank interest, was $119,000 in 2003 as compared to $66,000 in 2002. The increase in interest expense was a result of more borrowings against our bank line of credit in 2003 as compared to 2002. The higher borrowings were used to fund operations. Net interest expense in 2002 decreased compared to net interest expense of $122,000 in 2001 due to a decrease in interest rates in 2002.
Total interest and other income includes interest income and other non-operating income. This was $80,000 in 2003, compared to $41,000 in 2002 and in 2001. Income from our joint venture is recognized under the equity method. This was $6,000 in 2003 compared to $16,000 in 2002 and $15,000 in 2001.
We have certain long-term leases. Payments due under these leases are disclosed in note 8 of the consolidated financial statements included elsewhere in this prospectus.
Income Taxes
We have a full valuation allowance against our deferred tax assets. There is no operating statement tax expense or benefit for U.S. operations in 2003 since the benefit expected is offset by an increase in the valuation allowance. We took a non-cash charge of $2,405,000 to record an initial valuation allowance against our deferred tax asset in the third fiscal quarter of 2002, in accordance with FASB 109. After an offset for tax benefits taken in 2002, the net tax provision including the charge was $2,078,000. The income tax benefit (provision) rate was (2)% in 2003 as compared to (144)% in 2002 and 37% in 2001.
Net Income
Due to the decrease in expenses in 2003, the amount of loss before income taxes decreased by $847,000 compared to 2002. After including taxes from international operations the loss was $608,000, an improvement of $2,911,000 over 2002. Because of the valuation allowance for deferred tax taken in 2002, the net loss increased to $3,519,000 in 2002 compared to a loss of $2,128,000 in 2001.
Liquidity and Capital Resources
Cash and Cash Equivalents
At March 31, 2004, our cash and cash equivalents were $1,648,000 as compared to $4,254,000 at December 31, 2003, a net cash decrease of $2,606,000 during the first quarter of 2004. This compares to a net cash decrease of $43,000 for the same period in 2003, and an ending cash balance of $188,000 as of March 31, 2003.
We had no bank borrowings against our U.S. line of credit at March 31, 2004 and at December 31, 2003.
At December 31, 2003, our cash and cash equivalents were $4,254,000 as compared to $231,000 at December 31, 2002. We had no bank borrowings against our U.S. line of credit at December 31, 2003 compared to $522,000 and an overdraft of $691,000 at the end of fiscal 2002.
Cash Used in Operating Activities
Cash decreased from operations during the first quarter of 2004 principally by a net loss of $764,000 an increase in accounts receivable of $2,161,000, an increase in prepaid expenses of $400,000, an increase in inventories of $193,000 and a decrease in accrued liabilities of $663,000. Our accounts receivable increased due to higher DARPA receivables and higher pool and spa accounts receivable, a result of our early buy program that allows customers to receive products in the fourth quarter of the calendar year, but pay for these products in the second quarter of the following calendar year. These uses of cash from operations were partially offset by depreciation and amortization of $233,000 and increases in accounts payable of $150,000. After these and other adjustments our total net cash used in operating activities in the first quarter of 2004 was $3,759,000 compared to $2,740,000 used in operating activities in the first quarter of 2003.
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Cash was decreased during 2003 by a net loss of $608,000 compared to a net loss of $3,519,000 during 2002. After adjusting for depreciation and amortization, and prepaids and other current assets there was a contribution of cash of $572,000 in 2003 as compared to a use of cash of $2,099,000 for 2002; additional cash was utilized in 2003 to fund a decrease in accounts receivable of $238,000, while further cash was contributed by an increase in accounts payable of $167,000 and a decrease in inventories of $398,000. After including cash used for working capital, there was a total of $705,000 in cash provided by operating activities in 2003 compared to $1,872,000 in cash used for operating activities in 2002.
Cash Used in Investing Activities
Investing activities used cash of $163,000 in the first quarter of 2004, compared to a use of cash of $29,000 for the same period of 2003. During both periods, cash was used for the acquisition of fixed assets.
There was a net utilization of cash of $717,000 in investing activities in 2003 primarily due to the acquisition of fixed assets compared to $793,000 spent on acquiring fixed assets in 2002.
Cash Provided by Financing Activities
Financing activities contributed $1,312,000 to cash during the first quarter of 2004. This contribution was due primarily to the net proceeds from the exercise of employee stock options. For the same period in 2003, financing activities, primarily bank borrowings, contributed $2,616,000 to cash. During both periods, we received cash contributions from the repayment of shareholder loans of $224,000 in 2004 and $75,000 in 2003.
There was a net contribution of $3,447,000 in cash in 2003 from financing activities. This net contribution was primarily due to the proceeds from the sale of our common stock and warrants in a private placement which 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 repayment of bank borrowings of $607,000 and a bank overdraft of $691,000.
As a result of the cash provided by operating and financing activities and the cash used in investing activities, there was a net increase in cash in 2003 of $4,023,000 that resulted in an ending cash balance of $4,254,000. This compares to a net increase in cash of $99,000 in 2002 resulting in an ending cash balance of $231,000 for 2002.
We have a $5,000,000 Loan and Security Agreement (Accounts Receivable and Inventory), dated 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 Loan and Security Agreement are collateralized by our assets and intellectual property. Specific borrowings are tied to accounts receivable and inventory balances, and we must comply with certain covenants with respect to effective net worth and financial ratios. We had no borrowings against this facility as of March 31, 2004 and had no borrowings as of December 31, 2003. As of April 2, 2004, Comerica Bank agreed to amend the Loan and Security Agreement to eliminate the profitability covenant.
We also have a $461,000 (in UK pounds sterling, based on the exchange rate at March 31, 2004) bank overdraft agreement with Lloyds Bank Plc through our UK subsidiary. There were no borrowings against this facility as of March 31, 2004 and December 31, 2003.
As of March 31, 2004, we had a total borrowing of $458,000 (in Euros, based on the exchange rate as of March 31, 2004) against a note payable secured by real property owned by our German subsidiary. As of December 31, 2003, we had $475,000 (in Euros, based on the exchange rate as of March 31, 2004) borrowed against this note. Additionally, we have a revolving credit line facility of $259,000 (in Euros, based on the exchange rate at March 31, 2004) with Sparkasse Neumarkt Bank. As of March 31, 2004, we had total borrowings of $132,000 against this facility. There were no borrowings against this facility as of December 31, 2003.
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Future payments for borrowings by our German subsidiary and minimum lease payments under operating leases, as of December 31, 2003, were as follows (in thousands):
Borrowings By | Non-Cancelable | ||||||||
German | Operating | ||||||||
Subsidiary | Leases | ||||||||
2004 | — | 1,061 | |||||||
2005 | — | 1,082 | |||||||
2006 | — | 808 | |||||||
Thereafter | 475 | — | |||||||
$ | 475 | $ | 2,951 |
As part of the acquisition of Lightly Expressed in 2000, we granted the Lightly Expressed shareholders warrants to purchase 100,000 shares of our common stock that may be exercised in three years if certain operating profitsoffered and sold from salestime to time by the Selling Shareholders. We will receive no proceeds from the sale of the products acquired are met. There were 50,000 warrants exercisable as of December 31, 2003.
In a March 2002 private placement, we 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 warrantin this offering.
On June 17, 2003,August 11, 2011, we entered into a securities purchase agreement to sell up to 1,350,233 sharesLetter 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, 2003Credit Agreement (“LOC”) with Fiberstars 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 Fiberstars 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 ofMark J. Plush, our 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 paidin capital. Under EITF 00-19, we 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, we realized a benefit of $8,000 that was included in other income in our 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, we realized a benefit of $15,000 that was included in other income in our condensed consolidated statement of operations in the third quarter of 2003. We are subject to certain indemnity provisions included in the stock purchase agreement entered into as part of the financing. In December 2003, we also issued warrants to purchase 81,104 shares of common stock to the firm Merriman Curhan and Ford & Co., formerly known as RTX Securities Corporation, as compensation as placement agent for the private placement. These warrants have the same terms as the warrants issued in the private placement.
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We believe that existing cash balances and funds available through our bank lines of credit together with funds that we anticipate generating from operations, will be sufficient to finance our 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 our cash position, and thereby affect operations. From time to time we may be required to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that such funding, if needed, will be available on terms acceptable to us, or at all. Furthermore, any additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. Strategic arrangements, if necessary to raise additional funds, may require that we relinquish rights to certain of our technologies or products. Failure to generate sufficient revenues or to raise capital when needed could have an adverse impact on our business, operating results and financial condition, as well as our ability to achieve intended business objectives.
Critical Accounting Policies
The preparation of financial statements requires us 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 which contains a discussion of our significant accounting policies. Critical accounting policies, judgments and estimates which we believe have the most significant impact on our financial statements are set forth below:
Revenue recognition;
Allowances for doubtful accounts, returns and discounts;
Valuation of inventories; and
Accounting for income taxes.
Revenue Recognition
We recognize 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. Our products are generally subject to warranties, and we provide 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.
We recognize 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 we have 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.
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Allowances for Doubtful Accounts, Returns and Discounts
We establish 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. The amount charged to revenue for returns and discounts was $141,000 in 2003, $956,000 in 2002 and $1,487,000 in 2001. The amount charged to expenses for doubtful accounts was $2,000 in 2003, $78,000 in 2002 and $274,000 in 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.
Valuation of Inventories
We state inventories at the lower of standard cost (which approximates actual cost determined using the first-in-first-out method) or market. We establish provisions for excess and obsolete inventories after evaluation of historical sales, current economic trends, forecasted sales, product lifecycles and current inventory levels. During 2003, $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.
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 from 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 March 31, 2004, we have recorded a full valuation allowance 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 May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2004, except for mandatory redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. The adoption of SFAS No. 150 did not have an impact on our financial position, results of operations or cash flows.
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In January 2003, the FASB issued FASB Interpretation No. 46, or 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. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have a material impact on our financial position or results of operations or cash flows.
Supplementary Financial Information
The following table sets forth selected unaudited financial information for Fiberstars for the nine quarters in the period ended March 31, 2004. This information has been prepared on the same basis as the audited and unaudited consolidated 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)
2004 QUARTER ENDED | MAR. 31 | |||||||||||||||
(unaudited) | ||||||||||||||||
Net sales | $ | 6,008 | ||||||||||||||
Gross profit | 2,101 | |||||||||||||||
As a percent of net sales | 35.0 | % | ||||||||||||||
Net income (loss) | (763 | ) | ||||||||||||||
As a percent of net sales | 12.7 | % | ||||||||||||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | (0.11 | ) | |||||||||||||
Diluted | $ | (0.11 | ) | |||||||||||||
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 | ) |
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* 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 we ceased amortizing goodwill as of December 31, 2001. Refer to note 5 of the notes to consolidated financial statements.
Qualitative or Quantitative Disclosures About Market Risk
As of March 31, 2004, we had $311,000 in cash held in foreign currencies based on the exchange rates at March 31, 2004. The balances for cash held overseas in foreign currencies are subject to exchange rate risk. We have a policy of maintaining cash balances in local currencies unless an amount of cash is occasionally transferred in order to repay intercompany debts. A change in the foreign currency rate would result in a revaluing of the cash for the overseas entity that would be included in cash in the Consolidated Balance Sheets.
As of March 31, 2004, we had a total borrowing of $458,000 (in Euros, based on the exchange rate at March 31, 2004) against a note payable secured by real property owned by our German subsidiary. As of December 31, 2003, we had $475,000 (in Euros, based on the exchange rate at December 31, 2004) borrowed against this note. We also have a revolving credit line facility of $259,000 (in Euros, based on the exchange rate at March 31, 2004) with Sparkasse Neumarkt Bank. As of March 31, 2004, we had $132,000 borrowed against this facility. We had no borrowings against this facility as of December 31, 2003.
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BUSINESS
Overview
Fiberstars, incorporated in California in 1985, develops and markets fiber optic lighting systems that are used in a variety of commercial and residential applications. We were one of the pioneers in the use of fiber optic technology in lighting. By continuing to improve the price and performance of our products and by expanding our marketing efforts, we believe Fiberstars has become the world’s leading supplier in this market.
Our 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. Technology 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. This 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.
We design, develop and manufacture our lighting systems and market and distribute our products worldwide, primarily through independent sales representatives, distributors and swimming pool builders.
Products
Our 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.
Illuminators
We manufacture a number of different illuminators for use in different applications. Most commercial illuminators utilize metal halide high intensity discharge, or 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 our specifications
New products introduced in 2003 include the Fiberstars FX 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 CPC non-imaging optical system for efficiency in fiber optic light delivery. The FX Light and FX Spa Light products complete our line in the market for in-pool electric lighting systems.
Fiber Tubing
Fiberstars EFO also takes advantage of a patented, proprietary large core fiber optic product called OptiCore, which has outstanding clarity with low attenuation for fiber optic lighting applications. The combination of CPC optics and OptiCore 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. We manufacture OptiCore™ in our Solon, Ohio facility.
We also market small diameter stranded fiber products, such as our patented BritePak fiber tubing that can maintain reasonably consistent brightness for side-lit fiber and runs up to 100 feet in length. For end-lit applications, a wide variety of fiber stock keeping units, or SKUs, are available to enable one illuminator to illuminate several spotlights, which are typically placed within twenty feet of the illuminator. We purchase stranded fiber from Mitsubishi and cable and/or encase it in a polyvinyl chloride, or PVC, tube at our Fremont, California facility.
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All of our fiber tubing products are manufactured in various lengths and diameters to meet the requirements of each particular market and application. We carry small amounts of finished goods inventory except during certain times of the year prior to heavy seasonal sales.
Fixtures and Accessories
We design and manufacture certain fixtures and accessories within product lines. Other fixtures and accessories are supplied by third parties. Our commercial lighting division produces a broad assortment of ceiling and landscape fixtures from which lighting designers may choose.
As part of our acquisition of Lightly Expressed, Ltd, or Lightly Expressed, in May 2000, we acquired a line of high-end display case fixtures and a process for the manufacture of lightbars. In 2003, we sourced an additional lightbar design under original equipment manufacturer, or OEM, contracts from a manufacturer in Canada to offer a complete product line to customers. We believe that fiber optics are ideal for case lighting because all of the light is directed within a 60-degree angle, which highlights merchandise well and does not generate heat like traditional incandescent lighting.
In 2004, we intend to sell lighted water feature systems through our 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
Our 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, New York Life, Tiffany, Nordstrom’s, Gertrude Hawk Chocolates, Marathon Coach, Sonic, Macy’s, JR Dunn Jewelers, Burdine’s, Chuck E. Cheese, Hobb’s Fountains, Wings, Cheescake Factory and Carnival Cruise Lines.
Our primary products for swimming pool and spa lighting are designed to provide underwater lighting for newly constructed pools. In addition, we market products for spa lighting, pool perimeter lighting, patios, decks and landscape lighting. Our 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 Australia.
Sales, Marketing and Distribution
Commercial Lighting Products
In the commercial lighting market, our marketing efforts are directed at creating specifications for our systems in plans developed by architects, professional lighting designers and building owners. We reach these professionals through our own national account sales personnel as well as approximately 66 independent lighting representative organizations throughout the United States, approximately 20 of which account for a substantial majority of our 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 our products. Our arrangements with our independent lighting representatives do not prohibit the handling of conventional lighting products, including products that may be competitive with ours, although these representatives typically do not handle competing fiber optic lighting products.
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Our products are sold in Europe through two subsidiaries, Crescent Lighting Ltd. in the United 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, our commercial lighting products are sold internationally in more than 29 countries by approximately 23 distributors, including Mitsubishi, ADLT Australia and Koto, in Japan.
Pool and Spa Products
Our 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 our lighting systems. We utilize regional sales representative 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 our products within its territory, receiving commissions on sales in its territory. In September 2002, we discontinued our agreement to sell through the organization of the Laars/Jandy Division of Waterpik Technologies Inc., 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 our products to fill orders received from swimming pool builders. Some of these distributors engage in limited marketing activities for our products.
We enter into incentive arrangements to encourage pool builders to purchase our products. We have entered into agreements with certain large national pool builders under which the builders may purchase Fiberstars systems directly from us and offer our products with their swimming pools. We provide pool builders and independent sales representatives with marketing tools, including promotional videos, showroom displays and demonstration systems. We also use trade advertising and direct mail in addition to an ongoing program of sales presentations to pool builders and distributors.
South Central Pools, or SCP, the largest pool distributor in the U.S. and our largest pool customer, accounted for approximately 11% of our net sales in 2003, 9% in 2002 and 8% in 2001, and 9% and 10% for the three months ended March 31, 2004 and 22003, respectively. We expect to maintain our business relationship with SCP; however, a cessation or substantial decrease in the volume of purchases by this customer could reduce availability of our products to endusers and, in turn, have a material adverse effect on our net sales and results of operations. SCP accounted for 14% and 13% of accounts receivable at December 31, 2003 and 2002, respectively, and 10% and 22% at March 31, 2004 and 2003, respectively.
We sell our spa products directly to spa manufacturers on an OEM basis throughout the U.S. and Canada, and through distributors in other locations.
Sales of our 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 our swimming pool lighting systems to date have been made in the U.S., Canada and Australia. However, we also sell through several distribution agreements in Europe. Pool lighting sales in Europe were not material in 2003, 2002 or 2001.
Geographic Areas and Product Lines
We sell our products worldwide and have 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 11 to our consolidated financial statements.
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Backlog
We normally ship 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. Our backlog at December 31, 2003 was $1,261,000 compared to $859,000 at December 31, 2002. We anticipate that all of the backlog will be filled within the current year.
Competition
Our products compete with a wide variety of lighting products, including conventional electric lighting in various forms, light emitting diode, or LEDs, and decorative neon lighting. We also experience 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.
We believe that our 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 our products is typically higher than conventional lighting, and our products are often less bright than conventional alternatives. We believe these deficiencies are being addressed in whole or in part by our CPC technology products including EFO. In the case of neon lighting, certain popular neon colors, such as bright red, cannot be achieved as effectively with our products.
We are engaged in ongoing efforts to develop and improve our products, adapt our products for new applications and design and engineer new products. We expect that our 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 our systems. In January 2003, we introduced a new, lower-priced illuminator based on our patented CPC optical technology. This technology improves performance by more efficiently capturing available lamp-light from highly efficient metal halide lamps. This product is an outgrowth of advanced technology acquired as part of our acquisition of Unison, which is described in “Research and Product Development.”
Providers of conventional lighting systems include large lamp manufacturers and lighting fixture companies that have substantially greater resources than we have. These conventional lighting companies may introduce new and improved products that may reduce or eliminate some of the competitive advantages of our products. In commercial lighting, also compete primarily with local and regional neon lighting manufacturers and craftspeople that, in many cases, are better established in their local markets than we are.
We also face direct competition from other fiber optic lighting products and pool lighting products. 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 our products. Certain large companies in the conventional lighting industry, manufacture or license fiber optic lighting systems that compete with our products. For example, Schott, a German glass fiber company, markets fiber optic lighting systems in the U.S. Many companies compete with us in Asia, including Mitsubishi, Bridgestone and Toray. Mitsubishi sells Fiberstars’ BritePak fiber tubing in Japan.
We cannot predict the impact of competition on our business. We believe that an increase in the rate of market expansion may be accompanied by an increase in competition. Increased competition could result in price reductions, reduced profit margins and loss of market share, which would adversely affect our operating results. There can be no assurance that we will be able to continue to compete successfully against current and future competitors.
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Assembly, Testing and Quality Assurance
Our illuminator manufacturing consists primarily of final assembly, testing and quality control. We use independent contractors to manufacture some components and sub-assemblies and have worked with a number of our vendors to design custom components to meet our specific needs. Inventories of domestically produced component parts are managed on a just-in-time basis when practicable. Our 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 2003, we continued our program to manufacture more of our products in offshore locations, mainly India and Mexico. As this process continues we expect that more high volume products will be sourced offshore where labor and component cost savings may be achieved. In October 2003, we entered 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 manufacturing facilities in Mexico, for the manufacturing and assembly of certain of our fiber optic systems and related equipment and components.
Under a supply agreement, which was renewed in January 2001, Mitsubishi is the sole supplier of our small diameter stranded fiber, which is our largest selling fiber product. Since the acquisition of Unison Fiber Optic Systems, LLC, or Unison, we have been manufacturing large core fiber. We expect to maintain our relationship with Mitsubishi. Mitsubishi owns approximately 2.0% of our outstanding common stock and distributes certain of our products in Japan. We also rely on sole source suppliers for certain lamps, reflectors, remote control devices and power supplies. Although we cannot predict the effect that the loss of one or more of these suppliers would have on us, any 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 our operating results.
Research and Product Development
We believe that growth in fiber optic lighting will be driven by improvements in technology to provide increased light output at lower costs. Accordingly, we are committing much of our research and development resources to those challenges. Optical technology we developed following the Unison acquisition has resulted in illuminator products for both the pool and spa and the commercial lighting division. We believe these new technology products are state-of-the-art in fiber optic lighting. In 2002, we completed the redesign of our high-end commercial illuminator, improving efficiency. The product shipped for the first time in January 2003, and the improved version shipped January 2004. Despite our ongoing development efforts, there can be no assurance that we 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 ours.
In 2000, we received a federal grant from the 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 us with $520,000 in funding for the eleven-month period ended September 2001, $914,000 for the one-year period ended September 2002 and $566,000 for the one-year period ended September 2003.
In February 2003, the Defense Advanced Research Projects Agency, or DARPA, through the Army Aviation and Missile Command, or AMCOM, awarded us and our 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, or HEDLight, project. Under this contract, we 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, we will receive $2,115,000, $2,599,000 and $2,104,000 for the calendar years ended December 31, 2003, 2004 and 2005, respectively. We received funds for the first year and we have congressional approval for the second year. Funds for 2005 are subject to budget approval.
On April 10, 2003, we announced that we 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. We will receive $300,000 of this amount for our portion of this research over a three year period. We have received funds for the first year. APL Engineered Materials is leading the light source project. We expect that the new high performance light source will provide improvements in efficacy and brightness and color rendering over the present Fiberstars EFO source. We received and aggregate of $1,463,000, net of payments to subcontractors, for DARPA contracts in 2003.
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We augment our internal research and development efforts by involving certain of our component suppliers, independent consultants and other third parties in the process of seeking improvements in our products and technology. We depend 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 our products and our 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.
Intellectual Property
We believe that the success of our business depends primarily on our technical innovations, marketing abilities and responsiveness to customer requirements, rather than on patents, trade secrets, trademarks, copyrights and other intellectual property rights. Nevertheless, we have a policy of seeking to protect our intellectual property through patents, license agreements, trademark registrations, confidential disclosure agreements and trade secrets. As of March 31, 2004, our intellectual property portfolio consisted of 40 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 that serve as the basis of national patent filings in countries of interest. Our 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 of the patent application. There can be no assurance, however, that our issued patents are valid or that any patents applied for will be issued. There can be no assurance that our competitors or customers will not copy aspects of our fiber optic lighting systems or obtain information that we regard as proprietary. There also can be no assurance that others will not independently develop products similar to those we sell. The laws of some foreign countries in which we sell or may sell our products do not protect our proprietary rights in our products to the same extent as do the laws of the United States.
We are aware that a large number of patents and pending patent applications exist in the field of fiber optic technology. We also are aware that some 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, we have in the past received communications from third parties asserting rights in its patents or that our technology infringes intellectual property held by such third parties. Based on information currently available 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. There can be no assurance that third parties will not assert claims that our 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, we may need to take legal action to enforce our intellectual property rights in the future. In the event of litigation to determine the validity of any third-party claims or claims by us against third-parties, any litigation, whether or not determined in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel from productive tasks. Also, in the event of an adverse ruling in any litigation, we 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 us and our failure to develop or license a substitute technology, our operating results could be adversely affected.
Employees
As of March 31, 2004, we had 121 full time employees, of whom 41 were involved in sales, marketing and customer service, 22 in research and product development, 45 in assembly and quality assurance, and 13 in finance and administration. From time to time we also employ part-time personnel in various capacities, primarily assembly and clerical support. We have never experienced a work stoppage, no employees are subject to any collective bargaining agreement, and we consider our employee relations to be good.
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We believe that our future success will depend to a large extent on the continued contributions of key employees, many of whom would be difficult to replace, and on our 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 of these persons could delay product development cycles, disrupt our operations or otherwise harm our business or results of operations.
Facilities
Our 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. We lease local offices in the United States in Solon, Ohio and in Thatcham, the United Kingdom. We also own a facility for our local office in Berching, Germany. Each local office is used for sales support, manufacturing, engineering and administrative operations. We believe that our current facilities are adequate to support our current and anticipated near-term operations and that we can obtain additional space we may need in the future at commercially reasonable terms.
Legal Proceedings
We are not currently a party to any material legal proceedings.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
(a) Previous independent accountants.
(i) On September 29, 2003, we dismissed PricewaterhouseCoopers LLP as our independent accountants. The change in independent accountants was approved by our Audit and Finance Committee.
(ii) The reports of PricewaterhouseCoopers LLP on our financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.
(iii) In connection with our audits for the two most recent fiscal years, there have been no disagreements with PricewaterhouseCoopers LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to make reference thereto in connection with their report on the financial statements for such years.
(iv) During the two most recent fiscal years, and through September 29, 2003, there have been no reportable events as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
(v) We provided PricewaterhouseCoopers LLP with a copy of the above statements and requested that PricewaterhouseCoopers LLP furnish it with a letter addressed to the SEC stating whether or not it agrees with such statements. A copy of such letter, dated September 30, 2003, is filed as Exhibit 16 to our Current Report on Form 8-K filed October 2, 2003.
(b) New independent accountants.
On September 29, 2003, we appointed Grant Thornton LLP as our new independent accountants. The appointment was approved by our Audit and Finance Committee. During the two most recent fiscal years and through September 29, 2003, we have not consulted with Grant Thornton LLP regarding either:
(i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided that Grant Thornton LLP concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or
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(ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding our executive officers and directors, and their ages as of April 30, 2004:
Vice President Finance, | ||||
Mr. Ruckert joined Fiberstars in November 1987 as President, Chief Operating Officer and a director. He has served as our Chief Executive Officer since October 1988 and served as our Secretary from February 1990 to February 1994. From June 1985 to October 1987, he was Executive Vice President of Greybridge, a toy company he co-founded that was later acquired by Worlds of Wonder in 1987. Prior to that time, he was Executive Vice President of Atari from October 1982 to June 1984 and was a Manager/Vice President of Bristol-Myers Company in New York from October 1966 to October 1982.
Mr. Davenport joined Fiberstars in November 1999 as Vice President, Chief Technology Officer and was appointed Chief Operating Officer in July 2003. Prior to joining Fiberstars, 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. Greenwald joined Fiberstars 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 Fiberstars, 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 Fiberstars 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.
Mr. Connors joined Fiberstars in July 1998 as Vice President, Finance, and Chief Financial Officer. From 1984 to 1998, Mr. Connors held a variety of positions, including Chief Financial Officer, and Chief Operating Officer, for Micro Focus Group Plc, a software company. Prior to Micro Focus Group Plc, Mr. Connors held senior finance positions with Eagle Computer and W. R. Grace.
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Mr. Buelow was appointed our Vice President, Engineering 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 four years as an engineer at General ElectricSecretary, in the Lighting division workingamount of $250,000. The LOC bears interest at the rate of 12.5% on several fiber optic lighting projects. Mr. Buelow holds BSthe face amount and MS degrees in Applied Mathematics and Systems Engineering from Case Western Reserve University, Cleveland, Ohio andhas a term of 24 months. It is collateralized by a Certified Quality Engineer with five utility patents.
Mr. des Enfants joined Fiberstars in January 2004 as Vice President and General Manager, Fiberstars EFO. From 1994 to 2003, Mr. des Enfants held a variety of positionscash deposit 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 Lightinginsurance company that had issued our contract performance bonds and from 1994 to 1998 held various sales and sales manager positions at GE Lighting.
Mr. Stuppin was elected Chairmanby 32% of the Board in May 1995 and has served as a director since 1993. Since September 1987, Mr. Stuppin has served in various executive capacities with Neurobiological Technologies, Inc.unpledged shares of capital stock of Crescent Lighting, Ltd., or NTI, a biomedical development company he co-founded, and he currently serves as a director of NTI. Mr. Stuppin also has been an investment banker and a venture capitalist, with over 25 years of experience in the founding and management of companies active in emerging technologies.
Mr. Brite joined our board in July 2003. From January 2002 to the present he has served as Director of Product Development for Gensler, a leading global design, planning and strategic consulting firm. From 1996 to 2002, prior to joining Gensler, Mr. Brite was partner and Chief Executive Officer of NeoRay, a lighting company which was sold to Cooper Lighting. Prior to joining NeoRay, Mr. Brite founded a lighting distribution business and a real estate firm.
Mr. Hellman became a director of Fiberstars in September 1997. Since May 1995, Mr. Hellman has been Chairman of the Board of Directors and Chief Executive Officer of Advanced Lighting Technologies, Inc., or ADLT. From 1983 until May 1995, Mr. Hellman founded a total of seventeen affiliated companies that specialize in the production and distribution of metal halide lighting systems, all of which were eventually acquired by ADLT. From 1968 until 1983, Mr. Hellman served in various capacities at General Electric Company, or GE, including Manager of Strategy Analysis for the GE Lighting Business Group, Manager of Engineering for the Photographic Lamp Department, and Manager of Metal Halide Product Engineering.
Mr. Krishnan joined our Board in April 2003. He has served as Chief Operating Officer of ADLT since February 2003. From 1998 to 2003, he served as Vice President of Indian Operations of ADLT. From 1992 to 1998, Mr. Krishnan was Vice President of South Asian Operations for Lighting Resources International, Inc., a lighting services company located in Ohio. From 1988 to 1995 he was with K&M International, Inc, in the machine parts and lamp division, serving most recently as Vice President. From 1981 to 1988, Mr. Krishnan was an engineering manager at Hindustan Machine Tools in India.
Mr. Traversi joined our Board in October 2002. He is currently a Managing Director of 2020 Growth Partners, LLC, a strategic advisory services firm. From 2000 to 2002, Mr. Traversi was co-founder and Chief Executive Officer of PRE Solutions, Inc., which founded and built an electronic processor of prepaid telecom products. From 1997 to 1999, he was President of Sirrom Capital Corporation, a financial services and investment firm. From 1989 to 1996, Mr. Traversi was a General Partner and Managing Director at Montgomery Securities (now Banc of America Securities, LLC).
Dr. Wolfson joined our board in January 1986. Since 1998, Dr. Wolfson has served as Chief Executive Officer of Phytos, Inc., an herbal medicine development company. He has been Assistant Clinical Professor at the University of California School of Medicine in San Francisco since 1986 and has maintained a private practice in psychiatric medicine since 1982. Dr. Wolfson also served as a director and a consultant to NTI from 1989 to 1992.
Director Compensation
Each non-employee director receives $1,000 per Board of Directors meeting attended to cover out-of-pocket expenses incurred in connection with attendance. During the fiscal year ended December 31, 2003, Messrs. Eliot, Feuer, Garet, Hellman, Stuppin, Wolfson, Traversi, Krishnan and Brite received aggregate payments of $5,650, $1,850, $2,800, $3,800, $5,650, $4,700, $5,650, $2,850 and $1,900 respectively, for their services as directors.
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Under the termsone of our 1994 Directors’ Stock Option Plan, each newly appointed non-employee director receivessubsidiaries. As an optionincentive to enter into the LOC, we issued to Mr. Plush a five-year detached warrant to purchase 10,000125,000 shares of our common stock at an exercise price of 100%$0.01 per share. Our shareholders approved the warrant at their June 16, 2010 Annual Meeting.
On May 19, 2004, the shareholders approved our 2004 Stock Incentive Plan. Ascovered by his warrant.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors currently consists of John B. Stuppin and Philip Wolfson. No director serving on the Compensation Committee is or has been an officer or employee of Fiberstars or any of our subsidiaries. No interlocking relationships exist between our Board of Directors or Compensation Committee and the board of directors or compensation committee of any other entity, nor has any interlocking relationship existed in the past.
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Executive Compensation
The following table sets forth all compensation for services rendered to us in all capacities for the three fiscal years ended December 31, 2003 for our Chief Executive Officer and our four other most highly compensated executive officers as of December 31, 2003.
Summary Compensation Table
Long-Term | ||||||||||||||
Compensation | ||||||||||||||
Annual Compensation | Awards | |||||||||||||
Securities | ||||||||||||||
Fiscal | Underlying | All Other | ||||||||||||
Name and Principal Position | Year | Salary($) | Bonus($) | Options(#) | Compensation(1) | |||||||||
David N. Ruckert | 2003 | $ | 207,923 | — | 25,000 | $ | 11,125 | |||||||
President and Chief | 2002 | 221,384 | — | — | 10,331 | |||||||||
Executive Officer | 2001 | 221,384 | — | — | 9,830 | |||||||||
Barry R. Greenwald | 2003 | 185,823 | — | — | 1,603 | |||||||||
Senior Vice President, Pool | 2002 | 78,180 | $ | 96,000 | — | 1,473 | ||||||||
& Spa Division | 2001 | 100,500 | 96,000 | — | 1,342 | |||||||||
John Davenport | 2003 | 187,500 | — | 20,000 | 773 | |||||||||
Chief Operating Officer/ | 2002 | 178,000 | — | 100,000 | 773 | |||||||||
Chief Technology Officer | 2001 | 156,000 | — | — | 773 | |||||||||
J. Steven Keplinger | 2003 | 148,720 | — | — | 742 | |||||||||
Senior Vice President, | 2002 | 144,159 | — | — | 679 | |||||||||
Operations and Retail | 2001 | 156,756 | — | — | 545 | |||||||||
Robert A. Connors | 2003 | 156,000 | — | 15,000 | 715 | |||||||||
Vice President, Finance | 2002 | 166,000 | — | — | 620 | |||||||||
Chief Financial Officer | 2001 | 166,000 | — | — | 620 |
(1) Represents premiums paid on life insurance policies for the officer’s benefit.
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Stock Options Granted in Fiscal 2003
The following table sets forth information for the year ended December 31, 2003 with respect to stock options granted to the individuals named in the Summary Compensation Table above.
Option Grants in Fiscal Year 2003
Individual Grants | ||||||||||||||||
Number of | % of Total | |||||||||||||||
Securities | Options Granted | Exercise or | Grant | |||||||||||||
Underlying Options | to Employees in | Base Price | Expiration | Date | ||||||||||||
Name | Granted (3) (1) | Fiscal Year (2) | ($/Share) (3) | Date (4) | Value (5) | |||||||||||
David N. Ruckert | 25,000 | 6.8 | % | $ | 7.23 | 12/04/2013 | $ | 49,444 | ||||||||
50,000 | (6) | 13.6 | 5.50 | 1/28/2013 | 81,888 | |||||||||||
John Davenport | 20,000 | 5.4 | 7.23 | 12/04/2013 | 65,510 | |||||||||||
Barry Greenwald | 30,000 | (7) | 8.1 | 5.50 | 2/28/2013 | 29,667 | ||||||||||
Steve Keplinger | 29,000 | (8) | 8.1 | 5.50 | 2/28/2013 | 29,667 | ||||||||||
Robert Connors | 29,000 | 7.9 | 7.23 | 12/04/2013 | 49,133 | |||||||||||
50,000 | (9) | 13.6 | 4.00 | 9/02/2013 | 89,485 |
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Option Exercises and Fiscal 2003 Year-End Value
The following table provides information concerning exercises of options to purchase our common stock in the fiscal year ended December 31, 2003, and unexercised options held as of December 31, 2003, by the individuals named in the Summary Compensation Table.
Aggregate Options Exercises in Last Fiscal Year andFiscal Year-End Option Values
Employment Agreements and Change in Control Agreements
We have entered into agreements with Barry R. Greenwald, John Davenport, J. Steven Keplinger and Robert A. Connors. Under these agreements, Messrs. Greenwald, Davenport, Keplinger and Connors are each entitled to receive severance payments in the event their employment with us is terminated without cause at any time within six months after a change in control in Fiberstars as that term is defined their agreements. The amount of the severance payments would be equal to the total cash compensation the officer was receiving prior to the change in control for a period of months equal to the total number of years of the officer’s employment with us.
We have issued offers of employment to Messrs. Greenwald, Davenport, Keplinger and Connors. These offer letters described the initial conditions of their employment including salary, car allowance, benefits, incentives and option grants as appropriate to each at the time of his employment.
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CERTAIN TRANSACTIONS
As of December 31, 2003, ADLT was a holder of approximately 20% of our outstanding common stock. In January 2000 as part of the acquisition of certain assets and liabilities of Unison Fiber Optic Lighting Systems, LLC, a wholly owned subsidiary of ADLT, or Unison, we executed a Supply Agreement with ADLT under which we buy certain lamps and components for our illuminators and through which we sell our finished products to ADLT. The terms of this agreement provide for specified pricing on products purchased from and sold to ADLT. We have purchased, and continue to purchase, components from ADLT under the terms of the Supply Agreement. Also, in January 2000, we entered into a Development Agreement with Unison, under which we provided development services for which we received $2 million in fees from October 1999 through January 2001. In exchange, we pay royalties on the sales of products these technologies produce at a rate of 3% for the first five years, 2% for the next two years and 1% for the next three years, after which we assume exclusive royalty-free rights to these products. We had sales to ADLT under terms of the Supply Agreement of $156,000 during 2003. Purchases made from ADLT under the Supply Agreement along with royalties paid under the Development Agreement amounted to $657,000 in 2003. Accounts receivable from ADLT was $39,000 at December 31, 2003. Accounts payable due to ADLT was $117,000 at December 31, 2003. Wayne R. Hellman, Chairman of the Board and Chief Executive Officer of ADLT, and Sabu Krishnan, Chief Operating Officer of ADLT, serve on our Board of Directors.
In connection with a Second Amended and Restated Investor Agreement dated March 18, 2004, or Investor Agreement, among Fiberstars, ADLT, the ADLT Class 7 Liquidating Trust, u/a/d January, 2004, or the Trust, and Unison, ADLT transferred 1,023,011ten investors 19,600,000 shares and warrants to purchase 518,000 shares of our common stock to the Trust in accordance with the plan of reorganization of ADLT. According to an amended Schedule 13D filed by ADLT on March 24, 2004, pursuant to the terms of the Trust and the ADLT plan of reorganization, ADLT has no interest in the Trust, other than the right to reimbursement of certain expenses, and does not have or share investment or voting power over the assets of the Trust. As a result, according to the amended Schedule 13D, ADLT no longer has any interest in shares of our common stock, other than warrants to purchase 407,000 shares.
Pursuant to the Investor Agreement, all of ADLT’s rights to nominate persons to our Board of Directors terminated, and the Trust acknowledged that it does not and will not receive any right to nominate persons to the Board. Other provisions of the Investor Agreement include:
Under the terms of the Investor Agreement, upon transfer of voting securities, any registration rights that may have existed prior to the transfer terminate, but we have agreed to certain Form S-3 registration rights conditioned upon the transferee agreeing to be bound by certain provisions of the Investor Agreement and Exhibit A thereto. According to an amended Schedule 13D filed by the Trust on April 5, 2004, on March 29, 2004, the Trust sold 1,000,000 shares of our common stock to private equity investors pursuant to a stock purchase agreement dated March 19, 2004, and as a result of this transaction, the Trust beneficially owns 541,011 shares or 7.8% of our common stock. These private equity investors are also selling shareholders.
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In addition, pursuant to the Investor Agreement, ADLT divided and assigned portions of a warrant to acquire up to an aggregate of 42,000 shares of our common stock to two former Unison employees in satisfaction of certain of ADLT’s commitments to them: specifically, the right to acquire up to 28,000 shares to John Davenport and the right to acquire up to 14,000 shares to Roger Buelow. Also pursuant to the Investor Agreement, ADLT divided and assigned portions of warrants to acquire up to an aggregate of 7.5% of the remaining shares of our common stock remaining under those warrants to two former Unison employees in satisfaction of certain of ADLT’s commitments to them: specifically, the right to acquire up to 22,000 shares to John Davenport, and the right to acquire up to 11,000 shares to Roger Buelow. Under the Investor Agreement, we agreed to grant our consent to these divisions and assignments. Mr. Davenport is currently our Chief Operating Officer and Chief Technology Officer. Mr. Davenport joined Fiberstars in November 1999 as Vice President, Chief Technology Officer and was appointed Chief Operating Officer in July 2003. Prior to joining Fiberstars, Mr. Davenport served as President of Unison from 1998 to 1999. Mr. Buelow has served as our Vice President of Engineering since February 2003. Prior to joining Fiberstars in 1999, he served as Director of Engineering for Unison from 1998 to 1999.
On June 17, 2003, we entered into a Securities Purchase Agreement with private investors to invest up to approximately $4,388,250 in a private placement of our common stock and warrants to purchase 9,800,000 shares. We sold the shares and warrants in units, each unit consisting of one share of common stock and one-half warrant to purchase one share of common stock. The purchase price of each unit was $0.25. We raised a total of $4.9 million in the offering. Each warrant separated immediately from the share of common stock in the unit, is fully exercisable at $0.54 per share, and expires three years from the date of purchase.
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their shares. We do not know how long the Selling Shareholders will hold the shares before selling them. We currently have no agreements, arrangements, or understandings with the Selling Shareholders regarding the sale of any of the shares.
The following table sets forth information regarding the beneficial ownership of common stock as of April 30, 2004 by:
Unless otherwise specified, the address for each officer and director is 44259 Nobel Drive, Fremont, California 94538.
On March 27, 2003 we entered into a letter agreement with Merriman Curhan Ford & Co., formerly known as RTX Securities Corporation, or Merriman, a selling shareholder, pursuant to which we agreed to issue a warrant to purchase a number of shares of our common stock in an amount equal to 6.0% ofowned by the aggregate number of common shares purchased by investors in a financing transaction, as compensation for Merriman’s placement agent services. Under that agreement, we agreed to register the shares under the Securities Act for resale to the public.
On March 18, 2004 we entered into a Second Amended and Restated Investor Agreement with Advanced Lighting Technologies, Inc., or ADLT, ADLT Class 7 Liquidating Trust, u/a/d January, 2004, or the Trust, and Unison Fiber Optic Lighting Systems, LLC, pursuant to which we resolved ambiguity with regard to the aggregateSelling Shareholders after this offering is completed. The number of shares in the column “Number of our common stock issuable upon exerciseShares Being Offered” represents all of warrants held by ADLT. Underthe shares that agreement, we agreed to registerthe Selling Shareholders may offer under the Securities Act for resale to the public, all shares of our common stock owned by ADLT and transferred to the Trust, including any of those shares transferred by the Trust. For more information regarding this transaction, see “Certain Transactions.”
To our knowledge, Merriman Curhan Ford & Co. is the only selling stockholder who is a registered broker-dealer. As such, this broker-dealer is an underwriter of our common stock. We do not have a material relationship with this broker-dealer, and it does not have the right to designate or nominate a member or members of our board of directors. We are not aware of any underwriting plan or agreement, underwriters’ or dealers’ compensation, or passive market making or stabilizing transactions involving the purchase or distribution of these securities by this stockholder. Unless otherwise described below or described under “Certain Transactions,” to our knowledge, no selling stockholders nor any of its affiliates has held any position or office with, been employed by or otherwise has had any material relationship with us or our affiliates during the three years prior to the date of this prospectus.
Information with respect to beneficial ownership The number of shares in the selling shareholders is based upon information furnished by the selling shareholders. Information with respect to shares owned beneficiallycolumn “Shares Owned after the offeringOffering” assumes the sale of all of the shares offered by the Selling Shareholder under this prospectus.
Shares Beneficially Owned | Shares Beneficially Owned | |||||||||
Prior to Offering(1) | After Offering(1) | |||||||||
Number of | ||||||||||
Name of Beneficial Owner | Shares | |||||||||
Being | ||||||||||
Number | Percent(2) | Offered | Number | Percent(2) | ||||||
5% Shareholders | ||||||||||
Glenn Doshay | ||||||||||
6279 Via Campo Verde | ||||||||||
Rancho Santa Fe, CA 92067(3)(20) | 450,000 | 6.8% | — | 450,000 | 6.8% |
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Shares Beneficially Owned | Shares Beneficially Owned | ||||||||||
Prior to Offering(1) | Number of | After Offering(1) | |||||||||
Shares | |||||||||||
Name of Beneficial Owner | Being | ||||||||||
Number | Percent(2) | Offered | Number | Percent(2) | |||||||
Entities affiliated with Trigran | |||||||||||
Investments, Inc. | |||||||||||
3201 Old Glenview Road, Suite 235 | |||||||||||
Wilmette, IL 60091(4) | 655,645 | 10.0 | — | 655,645 | 10.0 | ||||||
Directors and Named Executive Officers | |||||||||||
David N. Ruckert(5) | 416,573 | 6.1 | % | — | 416,573 | 6.1 | % | ||||
John B. Stuppin(6) | 214,575 | 3.3 | — | 214,575 | 3.3 | ||||||
Jeffrey H. Brite(7) | 9,167 | * | — | 9,167 | * | ||||||
Theodore L. Eliot, Jr.(8) | 51,000 | * | — | 51,000 | * | ||||||
Wayne R. Hellman(9) | 180,068 | 2.7 | — | 180,068 | 2.7 | ||||||
Sabu Krishnan(10) | 155,068 | 2.4 | — | 155,068 | 2.4 | ||||||
David Traversi(11) | 15,000 | * | — | 15,000 | * | ||||||
Philip Wolfson(12) | 153,342 | 2.3 | — | 153,342 | 2.3 | ||||||
John Davenport(13) | 67,500 | 1.0 | — | 67,500 | 1.0 | ||||||
Barry R. Greenwald(14) | 67,000 | 1.0 | 67,000 | 1.0 | |||||||
J. Steven Keplinger(15) | 66,560 | 1.0 | — | 66,560 | 1.0 | ||||||
Robert Connors(16) | 83,396 | 1.3 | — | 83,396 | 1.3 | ||||||
Roger Buelow(17) | 7,000 | * | — | 7,000 | * | ||||||
All executive officers and directors as a | |||||||||||
group (13 persons)(18) | 1,346,181 | 17.7 | — | 1,346,181 | 17.7 | ||||||
Selling Shareholders | |||||||||||
ADLT Class 7 Liquidating Trust, u/a/d | |||||||||||
January, 2004(19) | 541,011 | 8.3 | % | 541,011 | — | * | |||||
Doshay Family Trust of 1999(20) | 50,000 | * | 50,000 | — | * | ||||||
Glacier Partners(21) | 86,000 | 1.3 | 50,000 | 36,000 | * | ||||||
Langley Partners, L.P.(22) | 200,000 | 3.1 | 200,000 | — | * | ||||||
Lauro F. Guerro(23) | 139,230 | 2.1 | 50,000 | 89,230 | 1.4 | % | |||||
Merriman Curhan Ford & Co.(24) | 81,014 | 1.2 | 81,014 | — | * | ||||||
Michael Alessandro IRA Rollover(25) | 45,000 | * | 45,000 | — | * | ||||||
Michael Alessandro IRA(25) | 30,000 | * | 30,000 | — | * | ||||||
Omicron Master Trust(26) | 112,211 | 1.7 | 93,750 | 18,461 | * | ||||||
Proximity Fund L.P.(27) | 25,000 | * | 25,000 | — | * | ||||||
Proximity Partners L.P.(27) | 25,000 | * | 25,000 | — | * | ||||||
Robert Trobec IRA(28) | 25,000 | * | 25,000 | — | * | ||||||
Tailwind Investment Partners (AI), | * | ||||||||||
L.P.(29) | 2,951 | * | 2,951 | — | |||||||
Tailwind Investment Partners (QP), | * | ||||||||||
L.P.(29) | 65,281 | 1.0 | 65,281 | — | |||||||
Tailwind Investment Partners International, | |||||||||||
L.P.(30) | 8,018 | * | 8,018 | — | * | ||||||
Turning Point Capital LLC(31) | 135,001 | 2.1 | 50,000 | 85,001 | 1.3 | ||||||
Valor Capital Management LP(32) | 355,000 | 5.4 | 250,000 | 105,000 | 1.5 | ||||||
WEC Partners, L.P.(33) | 36,200 | * | 30,000 | 6,200 | * |
Shares Owned Before Offering (1) | Shares Being Offered | Shares Owned after Offering (1)(2) | ||||||||||||||||||||||
Name and Address | Number | Percent | Shares | Warrants | Number | Percent | ||||||||||||||||||
Cheng Bi No. 26 Yuantong Street Kunming, Yunnan, China | 0 | 0.00% | 4,000,000 | 2,000,000 | 0 | 0.00% | ||||||||||||||||||
Costar Partners II, LLC 53 East 34th Street Paterson, NJ 07514 | 0 | 0.00% | 4,000,000 | 2,000,000 | 0 | 0.00% | ||||||||||||||||||
5 Elements Energy Efficiencies (BVI) Ltd. P.O. Box 3444, Road Town Tortola, British Virgin Islands | 0 | 0.00% | 3,800,000 | 1,900,000 | 0 | 0.00% | ||||||||||||||||||
5 Elements Global Fund L.P. 114 W. 47th Street #1725 New York, NY 10036 | 400,000 | * | 1,800,000 | 900,000 | 400,000 | * | ||||||||||||||||||
Julianna Shao Hung 1415 S. Marengo Avenue Pasadena, CA 91106 | 0 | 0.00% | 120,000 | 60,000 | 0 | 0.00% | ||||||||||||||||||
Karen S. Hung 1415 S. Marengo Avenue Pasadena, CA 91106 | 0 | 0.00% | 120,000 | 60,000 | 0 | 0.00% | ||||||||||||||||||
Kenneth Shao Hung 1415 S. Marengo Avenue Pasadena, CA 91106 | 0 | 0.00% | 160,000 | 80,000 | 0 | 0.00% | ||||||||||||||||||
Jag International Ltd. P.O. Box 3444, Road Town Tortola, British Virgin Islands | 0 | 0.00% | 4,000,000 | 2,000,000 | 0 | 0.00% | ||||||||||||||||||
Lincoln Park Capital, LLC 440 N. Wells Street, Suite 620 Chicago, IL 60654 | 632,138 | 1.42% | 1,200,000 | 600,000 | 632,138 | 1.16% | ||||||||||||||||||
Chien Fong Tu 3F No. 18 Alley 342, Lane 150 Section 5, Xinyi Road Taipei City, Taiwan 110 | 0 | 0.00% | 400,000 | 200,000 | 0 | 0.00% | ||||||||||||||||||
Mark J. Plush 32000 Aurora Road Solon, Ohio 44139 | 50,000(3) | * | 0 | 125,000 | 50,000 | * | ||||||||||||||||||
Selling Shareholders Total | 1,082,138 | 2.43% | 19,600,000 | 9,925,000 | 1,082,138 | 1.99% |
(1) |
(2) | Assumes the |
(3) | In connection with the employment of Mr. Plush as Vice President Finance and |
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· | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
· | block trades in which the broker-dealer |
· | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
· | an exchange distribution in accordance with the rules of the applicable exchange; |
· | privately negotiated transactions; |
· | short sales effected after the date the registration statement of which this prospectus is a part is declared effective by the SEC; |
· | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
· | broker-dealers may agree with the Selling Shareholders to sell a specified number of such shares at a stipulated price per share; and |
· | a combination of any such methods of sale. |
If required,proceeds from this offering. Upon any exercise of the stock options by payment of cash, however, we will distribute a supplement to this prospectus to describe material changes inreceive the termsexercise price of the offering.
options.
The selling shareholdersSelling Shareholders also may resell all or a portion of the shares covered by this prospectus that qualify for sale under Rule 144 of the Securities Act in open market transactions in reliance upon Rule 144 under the Securities Act. Act, provided that they meet the criteria and conform to the requirements of that Rule.
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The selling shareholders and any broker-dealers, agents or underwriters that participate with the selling shareholders in the distribution of the sharesinterests therein may be deemed to be “underwriters” within the meaning of Section 2(11) of the Securities Act of 1933.Act. Any discounts, commissions, paidconcessions or any discounts or concessions allowed to any of those persons, and any profits receivedprofit they earn on theany resale of the shares purchased by them, may be deemed to be underwriting discounts and commissions or discounts under the Securities Act. BecauseSelling Shareholders who are “underwriters” within the selling shareholders may be deemed to be “underwriters,”meaning of Section 2(11) of the selling shareholdersSecurities Act will be subject to the prospectus delivery requirements of the Securities Act.
this prospectus. The selling shareholdersSelling Shareholders may agree to indemnify any agent, brokerdealer, or dealerbroker-dealer that participates in transactions involving sales of common stockthe shares if liabilities are imposed on that person by the Securities Act. In the opinion of the SEC, indemnification is against liabilities arising underpublic policy as expressed in the Securities Act from sales of common stock.
and is, therefore, unenforceable.
Fiberstars has agreed to bear all expenses of registration of the shares other than fees and expenses, if any, of counsel or other advisors to the selling shareholders. Any commissions, discounts, concessions or other fees, if any, payable to broker-dealers in connection with any sale of the shares will be borne by the selling shareholders selling those shares.
There can be no assurances that the selling shareholders will sell all or anyregistration of the shares of common stock offeredcovered by this prospectus.
Thisthe shelf registration statement toof which this prospectus relates is beinga part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.
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Common Stock.
The holders Holders of common stock are entitled to one vote per share on all matters to be voted upon by shareholders. In accordance with Delaware law, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present shall be the act of the shareholders. Subject to preferences that may be applicable to any outstanding preferredThe shares of common stock thehave no pre-emptive rights, no redemption or sinking fund provisions, and are not liable for further call or assessment.
Preferred Stock
We have 2,000,000 authorized shares of “blank check” preferred stock with the designations, rights and preferences as may be determined from time to time by our board of directors, without any further vote or action by ourthe shareholders. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of ourthe holders of any preferred stock that may be issued by us in the future. The issuance of preferred stock while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying deferring or preventing a change in control of Fiberstars. Furthermore, our preferred stock may have other rights, including economic rights, senior to our common stock, and as a result,us or make removal of management more difficult. Additionally, the issuance of preferred stock couldmay have a material aversethe effect onof decreasing the market valueprice of our common stock, and may adversely affect the voting and other rights of the holders of common stock. Although we have no present intention
In connection withevent a director or officer has to bring suit against us for indemnification and is successful, we will pay such director’s or officer’s expenses of prosecuting such claim; that indemnification provided for by the adoptionbylaws shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that we may purchase and maintain insurance on behalf of a Rights Plan to preventdirector or officer against hostile takeovers,any liability asserted against such officer or director and incurred by such officer or director in such capacity, whether or not we authorized Series A Participating Preferred Stock. The Board of Directors has declared a dividend distribution of one right to purchase one one-thousandth of a share of Series A Participating Preferred Stock at a purchase price of $30.00 per one-thousandth of a share, subject to adjustment. These rights are exercisable only uponwould have the occurrence of certain events, including a merger or business transaction, a sale of 50% or more of the our assets or earning power and the acquisition of an acquiring person of 15% or more of our outstanding common stock. Currently no shares of Series A Participating Preferred Stock are outstanding.
Indemnification
Section 317 of the California Corporations Code provides for the indemnification of officers, directors, and other corporate agents in terms sufficiently broad to indemnify such personsdirector or officer against such expense or liability the DGCL.
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Cowden & Humphrey Co. LPA, 4600 Euclid Avenue, Suite 400, Cleveland, Ohio 44103-3748.
The consolidated financial statements of Fiberstars, Inc. as of December 31, 2002 and for each of the two years in the period ended December 31, 2002 included in this prospectus have been included herein in reliance on the report of PricewaterhouseCoopers LLP,audited by Plante & Moran, PLLC, an independent registered public accounting firm, given onas stated in their report incorporated herein by reference, and are incorporated in reliance upon such report and upon the authority of saidsuch firm as experts in auditingaccounting and accounting.
auditing.
Commission’s public reference roomits Public Reference Room at 450 Fifth100 F Street, N.W.,NE, Washington, D.C. 20549.
Our Web site is http://www.fiberstars.com. We make available free of charge, on or through our Web site, our annual, quarterly and current reports, and any amendmentsto you by referring you to those reports, as soon as reasonably practicable after electronically filing such reports with the SEC. Information contained on our Web sitedocuments. The information incorporated by reference is notconsidered to be an important part of this registration statement.
prospectus. We incorporate by reference the documents listed below that we have filed with the CommissionSEC under Sections 13(a), 13(c), 14, or 15(d) of the Security Exchange Act of 1934 (other than information “furnished” rather than “filed”):
(a) | Our annual report on Form 10-K for our fiscal year ended December 31, 2011, SEC File No. 000-24230, filed with the SEC on March 30, 2012, and Amendment No. 1 to that annual report on Form 10-K/A, SEC File No. 000-24230, filed with the SEC on April 30, 2012. |
(b) | Our quarterly report on Form 10-Q for our fiscal quarter ended March 31, 2012, SEC File No. 000-24230, filed with the SEC on May 15, 2012. |
(c) | Our current reports on Form 8-K, SEC File No. 000-24230, filed with the SEC on March 5, 2012, March 16, 2012, March 30, 2012, April 3, 2012, May 16, 2012, and July 31, 2012. |
(d) | Our definitive proxy statement on Schedule 14A for our annual meeting of shareholders, SEC File No. 000-24230, filed with the SEC on June 15, 2012. |
SEC Filing Fee | $ | 845.89 | ||
Accounting Fees and Expenses | $ | 5,000.00 | ||
Legal Fees and Expenses | $ | 16,000.00 | ||
Miscellaneous | $ | 1,000.00 | ||
Total Expenses | $ | 22,845.89 |
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FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Fiberstars, Inc.Fremont, California
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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, onTLC Investments LLC, 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, CaliforniaFebruary 27, 2004
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Fiberstars, Inc.Fremont, California
In our opinion, the accompanying consolidated balance sheet 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 the results of their operations and their cash flows for each of the two 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 5 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, 2003San Jose, California
F-3
FIBERSTARS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
(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 | 5,610 | 5,208 | |||||
$435 in 2002 | |||||||
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 AND SHAREHOLDERS’ EQUITY | |||||||
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.
F-4
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(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 | ) | |||
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 | ) |
Weight average common shares — basic and diluted | 5,993 | 5,028 | 4,756 |
The accompanying notes are an integral part of these financial statements.
F-5
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the years ended December 31,
(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.
F-6
FIBERSTARS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2003, 2002 and 2001
(amounts in thousands)
Notes | Accumulated | (Accumulated | |||||||||||||||||||
Additional | Receivable | Other | Deficit) | ||||||||||||||||||
Common Stock | Paid-In | From | Comprehensive | Retained | |||||||||||||||||
Shares | Amount | Capital | Shareholder | Loss | Earnings | Total | |||||||||||||||
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.
F-7
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(amounts in thousands)
2003 | 2002 | 2001 | ||||||||
Cash flows from operating activities | ||||||||||
Net loss | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) | |
Adjustments to reconcile net loss to net cash provided by (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, net | 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 statements
F-8
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations:
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:
Basis of Presentation:
The consolidated financial statements include the accounts of Fiberstars, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
Certain prior period amounts have been reclassified to conform to the current year’s presentation.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect 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. Estimates include, but are notTennessee 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.
Cash Equivalents:
The Company considers all highly liquid investments purchased with an 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.
Revenue Recognition:
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.
F-9
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Inventories:
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 2001, respectively.
Accounts Receivable:
The Company’s customers are currently concentrated in the United States and 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.
Income Taxes:
As part of the process of preparing its consolidated financial statements, the Company is required to estimate its income tax liability in each of the jurisdictions in which it does business. This process involves estimating the Company’s income tax liability in each of the jurisdictions in which it does business. This process involves estimating the 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 liabilities, which are included in the consolidated balance sheet. The Company must then assess the likelihood that these deferred tax assets will be recovered from future taxable income and, to the extent the Company believe that recovery is not more likely than not, or is unknown, the Company must establish a valuation allowance.
Significant management judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against such deferred tax assets. At December 31, 2003, the Company’s deferred tax assets primarily consist of certain net operating losses carried forward. The Company has recorded a full valuation allowance of $2,596,000 against these deferred tax assets, due to uncertainties related to its ability to utilize those deferred tax assets,. The valuation allowance is based on estimates of taxable income by jurisdiction and the periods over which its deferred tax assets could be recoverable.
F-10
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-lived Assets:
Goodwill represents the excess of acquisition cost over the fair value of tangible and identified intangible net assets of the businesses acquired. Goodwill is no longer 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, but in no casecompany (“TLC”), for a period longer than 10 years. Fixed assets are stated at costcombination of cash, debt, an earn-out, 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. 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.
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, 2003, one customer accounted for 14% of accounts receivable and at December 31, 2002, the same customer accounted for 13% of accounts receivable. The customer also accounted for 11%, 9% and 8% of net sales in 2003, 2002 and 2001, 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 2000 the Company received a federal grant from the National Institute of Standards and Technology (“NIST”) for to $2,000,000 over three years for research and development of large core fiber for lighting purposes. This award provided the Company with $520,000 in funding for the eleven-month period beginning November 2000 and ended September 2001 and $914,000 for the one-year period ended September 2002, and $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 $543,000 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.
F-11
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 have congressional budget approval and funds for subsequent years are subsequent to budget approval for those years.
Earnings Per Share:
Basic earnings (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 earnings (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 earnings (loss) per share is provided as follows(in thousands, except per share amounts):
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 earnings (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.
Options and warrants to purchase 1,989,017 shares, 1,598,076 shares and 1,529,678 shares of common stock were outstanding at December 31, 2003, 2002 and 2001, respectively, but were not included in the calculations of diluted earnings (loss) per share because the Company had a loss for these years.
Stock-Based Compensation:
As of December 31, 2003, the Company has four stock-based employee compensation plans, which are described more fully in Note 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.
F-12
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts):
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 and 2001:
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.
Advertising Expenses:
The Company expenses the costs of advertising as incurred. Advertising expenses were $119,000, $203,000 and $13,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
Product warranties:
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 future costs under product warranties is maintained based on estimated future warranty expense for products outstanding under warranty:
F-13
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year ended | |||||
December 31, | |||||
(in thousands) | |||||
2003 | 2002 | ||||
Balance at the beginning of the year | $ | 260 | 220 | ||
Accruals for warranties issued during the year | 637 | 619 | |||
Accruals related to pre-existing warranties (including changes in estimates) | — | — | |||
Settlements made during the year (in cash or in kind) | (567) | (579) | |||
Balance at the end of the year | $ | 330 | $260 |
Recent 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 5 of the Notes to Consolidated Financial Statements).
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. The 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.
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. The Company has adopted the disclosure provisions of FIN 45 relating to product warranty effective for the year ended December 31, 2002.
F-14
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2002. The Company has adopted the provisions of EITF Issue No. 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).
In January 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, 2002. For variable interest entities created or acquired prior to February 1, 2002, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2002. The Company has adopted the provisions of FIN 46. The company is continuing to evaluate the impact of FIN 46-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’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 instruments that have characteristics of both liabilities and equity. Instruments within the scope of 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.
F-15
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Inventories(in thousands):
December 31, | |||||||||
2003 | 2002 | ||||||||
Raw materials | $ | 5,955 | $ | 5,959 | |||||
Inventory reserve | (714 | ) | (653 | ) | |||||
Raw materials, net | 5,241 | 5,306 | |||||||
Finished goods | 1,377 | 1,502 | |||||||
$ | 6,618 | $ | 6,808 | ||||||
4. Fixed Assets (in thousands):
December 31, | ||||||
2003 | 2002 | |||||
Equipment (useful life 5 years) | $ | 3,602 | $ | 3,258 | ||
Tooling (useful life 2 - 5 years) | 1,668 | 1,515 | ||||
Furniture and fixtures (useful life 5 years) | 213 | 199 | ||||
Computer software (useful life 3 years) | 253 | 226 | ||||
Leasehold improvements (the shorter of useful life or lease life) | 1,824 | 1,423 | ||||
7,560 | 6,621 | |||||
Less accumulated depreciation and amortization | (4,926 | ) | (4,040 | ) | ||
$ | 2,634 | $ | 2,581 | |||
In 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. Goodwill and Intangibles
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 | ||||||||
Reported net loss | $ | (608 | ) | $ | (3,519 | ) | $ | (2,128 | ) | |
Add back: goodwill amortization | — | — | 220 | |||||||
Adjusted net loss | $ | (608 | ) | $ | (3,519 | ) | $ | (1,908 | ) | |
Basic and diluted loss per share: | ||||||||||
Reported net loss per share | $ | (0.10 | ) | $ | (0.70 | ) | $ | (0.45 | ) | |
Goodwill amortization per share | — | — | 0.05 | |||||||
Adjusted net loss per share | $ | (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.
F-16
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 annual impairment test in the fourth quarter of 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 years ended December 31, 2002 and 2003 were as follows (in thousands):
Goodwill | Intangibles | |||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||
Amount | Amortization | Amount | Amount | Amortization | 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.
The estimated annual amortization expense for intangibles is $156,000 for fiscal 2004 and $50,000 for each of fiscal 2005, 2006 and 2007.
6. Accruals and Other Current Liabilities(in thousands):
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 | |||
F-17
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Bank Borrowings:
The Company has a $5,000,000 Loan and Security Agreement (Accounts Receivable and Inventory) dated 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 Loan and Security Agreement are collateralized by the Company’s assets and intellectual property. Specific borrowings are tied to accounts receivable and inventory balances, and the Company must comply with certain covenants with respect to 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, 2003, the Company was not in conformity with the profit covenant, but has received a waiver to this covenant from the bank.
The Company also has a $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 borrowings against this facility as 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, the Company had $475,000 borrowed against this note. Additionally, there is a revolving line of credit of $254,000 (in 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 was $142,000 in borrowings against this facility.
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):
Minimum lease | |||||
Year ending December 31, | commitments | ||||
2004 | $ | 1,061 | |||
2005 | 1,082 | ||||
2006 | 808 | ||||
Total minimum lease payments | $ | 2,951 |
These leases included certain escalation clauses and thus rent expense was recorded on a straight-line basis. Rent expense approximated $891,000, $926,000 and $1,014,000 for the years ended December 31, 2003, 2002 and 2001, respectively.
At December 31, 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.
The Company is not currently a party to any material legal proceedings.
F-18
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Shareholders’ Equity:
Common Stock:
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 are borne by the Company.
Warrants:
As part of the acquisition of Unison, the Company provided ADLT with warrants to purchase one million shares of the Company’s common stock exercisablestock. The consideration that the Company paid for SRC included 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;promissory note for $500,000 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 issued1,000,000 shares of common stock. The warrants expire in January 2010.
As partprincipal amount 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. There were 50,000 warrants exercisable as of December 31, 2003.
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 pricepromissory note 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 stagedue 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 quartermaturity 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 2003.2013. The Companynote is subject to certain indemnity provisions included in the stock purchase agreement enteredconvertible into as part of the financing. In December 2003, the Company also issued warrants to purchase 81,104500,000 shares of common stock at any time from June 30, 2010 to the firm Merriman Curhanmaturity date. The Company registered the re-sale of the 1,000,000 shares that were part of the purchase price and Ford & Co. as compensation as placement agentthe 500,000 shares covered by the convertible promissory note.
F-19
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In a private placement in March 2002,event that the Company sold 328,633surety company seized their funds; collateralized by the Company’s shares of commoncapital stock for $972,000, net of feesits Crescent Lighting, Ltd. subsidiary located in London, England; and expenses of $28,000. In addition, each purchaser was issued a warrant to purchase a number of warrants to purchase 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 an 8.8% discount on the 10-day average price as of March 14, 2002. The purchase price of the common stockone warrant 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-day average price as of March 14, 2002, plus a $.03 premium because of the issuances of the warrants.every $2.00 deposited. The warrants have a five-year term and an initial exercise price of $4.30 per share, with$0.01. John M. Davenport, the Company’s President, and the Quercus Trust, Newport Beach, California, a life of 5 years.
Warrant activity comprised:
Warrants | ||||||||||
Outstanding | Warrants | |||||||||
Shares | Exercise Price | 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 | ||||
1988 Stock Option Plan:
Upon adoptionthen-significant shareholder of the 1994 Stock Option Plan (see below), the Company’s BoardCompany, made investments 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$250,000.00 and $300,000.00 respectively.
1994 Stock Option Plan:
At December 31, 2003, an aggregate of 1,550,000purchase up to 600,000 shares of the Company’s common stock had been reservedwith an exercise price of $0.65 per share and with a term ending on December 31, 2014. The warrants were subsequently re-priced to $0.49 per share as a result of the 2012 Private Placement, per the terms and conditions of the original warrant agreement. The warrants became exercisable only if SRC received from Woodstone Energy firm contracts or purchase orders for at least $10,000,000 by June 30, 2013. The warrants vested in two traunches: 400,000 shares when contracts or purchase orders between SRC and Woodstone reached $10,000,000, and an additional 200,000 shares when contracts or purchase orders between them reached an additional $5,000,000.
F-20
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity Under the Stock Option Plans: Option activity under all plans comprised:
Options | Weighted | ||||||
Available | Number of Shares | Average Exercise | |||||
For Grant | Outstanding | 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 and 2001, optionsfor a total consideration of $375,000. LPC also agreed to purchase 1,005,466 shares, 1,100,102 shares and 1,147,007up to an additional 3,650,000 shares of common stock, respectively, were exercisable at weighted average fair valuesover a 25-month period, as directed by the Company. The purchase price of $4.86, $4.54 and $4.67, respectively.
OPTIONS CURRENTLY | |||||||||||||
OPTIONS OUTSTANDING | EXERCISABLE | ||||||||||||
Weighted | |||||||||||||
Number of | Weighted | Weighted | Average | ||||||||||
Range of | Shares | Average Remaining | Average | Number | Exercise | ||||||||
Exercise Prices | Outstanding | ContractualLife | Exercise Price | Exercisable | 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, 2003, a total of 100,000those shares of common stock had been reserved for issuance underis based on 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 valueprices of the Company’s common stock at the beginning or endtime of the offering period. Employeessale without any fixed discount. The Company may end their participationsuspend purchases by LPC at any time duringand may, in its sole discretion, also accelerate or reduce purchases under certain circumstances. Upon entering into the purchase agreement, the Company issued to LPC 120,000 shares of its common stock as consideration for entering into the agreement and issues an equivalent amount of shares pro rata as LPC purchases the 3,650,000 shares. Under the purchase agreement, between March 17, 2010 and June 30, 2012, LPC has purchased 1,117,500 shares of common stock from the Company.
F-21
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shareholder Rights Plan
On September 12, 2001,registration statement.
10. Income Taxes:
principal for the investor’s own account and not with a view to or for distributing or re-selling the securities. In addition, the Company relied upon the consent of each investor to the placement of a restriction on transfer on the investor’s shares and warrants. The componentsCompany is registering the resale of the benefit from (provision for) income taxes are as follows(in thousands):
Years Ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
Current: | |||||||||
Federal | $ | — | $ | — | $ | 551 | |||
Foreign | (14 | ) | (43 | ) | (105 | ) | |||
State | — | — | (1 | ) | |||||
(14 | ) | (43 | ) | 445 | |||||
Deferred: | |||||||||
Federal | — | (1,605 | ) | 910 | |||||
State | — | (430 | ) | (102 | ) | ||||
— | (2,035 | ) | 808 | ||||||
Benefit from (provision for) income taxes | $ | (14 | ) | $ | (2,078 | ) | $ | 1,253 | |
The following table shows the geographic components of pretax income (loss) between U.S.shares sold and foreign subsidiaries:
December 31, | ||||||||||
2003 | 2002 | 2001 | ||||||||
U.S. | $ | (788 | ) | $ | (2,021 | ) | $ | (3,568 | ) | |
Foreign subsidiaries | 194 | 580 | 187 | |||||||
$ | (594 | ) | $ | (1,441 | ) | $ | (3,381 | ) | ||
F-22
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, | |||||||||
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(shares covered by the warrants in thousands):
December 31, | ||||||
2003 | 2002 | |||||
Allowance for doubtful accounts | $ | 118 | $ | 149 | ||
Accrued expenses and other reserves | 571 | 989 | ||||
Tax credits | 155 | 235 | ||||
Net operating loss | 1,519 | 836 | ||||
Other | 233 | — | ||||
Total deferred tax asset | 2,596 | 2,209 | ||||
Valuation allowance | (2,596 | ) | (2,209 | ) | ||
Net deferred tax asset | $ | — | $ | — | ||
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.
Asthis registration statement.
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.
11. Segments and Geographic Information:
Proceeds
F-23
FIBERSTARS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 | ||||
A summary of geographic long-lived assets (fixed assets and goodwill) is as follows(in thousands):
December 31, | ||||||
2003 | 2002 | |||||
U.S. Domestic | $ | 5,081 | $ | 5,501 | ||
Germany | 1,897 | 1,418 | ||||
Other Countries | 152 | 156 | ||||
$ | 7,130 | $ | 7,075 | |||
A summary of sales by product line is as follows(in thousands):
Years Ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
Pool and Spa Lighting | $ | 14,888 | $ | 17,925 | $ | 14,294 | |||
Commercial Lighting | 12,350 | 13,035 | 14,759 | ||||||
$ | 27,238 | $ | 30,960 | $ | 29,053 | ||||
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 discretionproceeds of the Board of Directors; however, no such contributions were made in 2003, 2002 or 2001.
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 sharessale of the Company’s common stock. The notes bear interest at rates ranging from 6%above shares to 8% per annumretire debt and are repayable at various dates through 2004. At December 31, 2003for general business and 2002, $16,000 and $62,000 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. 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.
F-24
FIBERSTARS, INC.
NOTES TO CONSOLIDATEDworking capital purposes.
As of December 31, 2003, ADLT was a holder of 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 fromand 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 pays royalties on the sales of products these technologies produce at a 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 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. Accounts receivable from ADLT were $39,000 and $79,000 at December 31, 2003 and 2002, respectively. Accounts payable due to ADLT were $117,000 and $105,000 at December 31, 2003 and 2002, respectively.
F-25
FINANCIAL INFORMATION
FOR THE THREE MONTHS ENDING MARCH 31, 3004
Exhibits |
Exhibit No. | Description | Where Located | |||
Instruments Defining the Rights of | Reference is made to Registrant’s Current Report on Form 8-K filed on November 27, 2006, together with the exhibits thereto, which are incorporated herein by reference. | ||||
Form of | Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on November 27, 2006. | ||||
Certificate of | Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on May 1, 2006. | ||||
F-26
FIBERSTARS, INC.
CONDENSEDCONSOLIDATED BALANCE SHEETS(amounts in thousands)
March 31, | December 31, | |||||
2004 | 2003 | |||||
(unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 1,648 | $ | 4,254 | ||
Accounts receivable trade, net | 7,791 | 5,610 | ||||
Notes and other accounts receivable | 97 | 143 | ||||
Inventories, net | 6,811 | 6,618 | ||||
Prepaids and other current assets | 651 | 246 | ||||
Total current assets | 16,998 | 16,871 | ||||
Fixed assets, net | 2,594 | 2,634 | ||||
Goodwill, net | 4,167 | 4,190 | ||||
Intangibles, net | 267 | 306 | ||||
Other assets | 137 | 118 | ||||
Total assets | $ | 24,163 | $ | 24,119 | ||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 2,381 | $ | 2,205 | ||
Accrued liabilities | 1,681 | 2,413 | ||||
Short-term bank borrowings | 163 | 30 | ||||
Total current liabilities | 4,225 | 4,648 | ||||
Other long-term liabilities | 37 | 46 | ||||
Long-term bank borrowings | 458 | 475 | ||||
Total liabilities | 4,720 | 5,169 | ||||
Commitments and contingencies (Note 11) | ||||||
Shareholders’ Equity | ||||||
Common stock | 1 | |||||
Additional paid-in capital | 25,531 | 24,531 | ||||
Note receivable from shareholder | — | (224 | ) | |||
Accumulated other comprehensive income | 450 | 428 | ||||
Accumulated deficit | (6,539 | ) | (5,786 | ) | ||
Total shareholders’ equity | 19,443 | 18,950 | ||||
Total liabilities and shareholders’ equity | $ | 24,163 | $ | 24,119 | ||
The accompanying notes are an integral part of these financial statements.
F-27
FIBERSTARS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS(amounts in thousands except per share amounts)(unaudited)
Three months | ||||||
ended March 31, | ||||||
2004 | 2003 | |||||
Net sales | $ | 6,008 | $ | 5,879 | ||
Cost of sales | 3,907 | 3,833 | ||||
Gross profit | 2,101 | 2,046 | ||||
Operating expenses: | ||||||
Research and development | 270 | 200 | ||||
Sales and marketing | 1,977 | 1,748 | ||||
General and administrative | 623 | 664 | ||||
Total operating expenses | 2,870 | 2,612 | ||||
Loss from operations | (769 | ) | (566 | ) | ||
Other income (expense): | ||||||
Non-operating income | 15 | — | ||||
Interest income (expense), net | (9 | ) | (32 | ) | ||
Loss before income taxes | (763 | ) | (598 | ) | ||
Provision for income taxes | (1 | ) | (24 | ) | ||
Net loss | $ | (764 | ) | $ | (622 | ) |
Net loss per share – basic and diluted | $ | (0.11 | ) | $ | (0.12 | ) |
Weighted average common shares – basic and | ||||||
diluted | 7,052 | 5,112 |
The accompanying notes are an integral part of these financial statements.
F-28
FIBERSTARS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(amounts in thousands) (unaudited)
Three months | ||||||
ended March 31, | ||||||
2004 | 2003 | |||||
Net loss | $ | (764 | ) | $ | (622 | ) |
Other comprehensive income (loss) net of tax: | ||||||
Foreign currency translation adjustment | 34 | 108 | ||||
Provision for income taxes | (12 | ) | (29 | ) | ||
Comprehensive loss | $ | (742 | ) | $ | (543 | ) |
The accompanying notes are an integral part of these financial statements.
F-29
FIBERSTARS, INC.
CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS(amounts in thousands)(unaudited)
Three months ended March 31, | ||||||
2004 | 2003 | |||||
Cash flows from operating activities: | ||||||
Net loss | $ | (764 | ) | $ | (622 | ) |
Adjustments to reconcile net loss to net cash provided | ||||||
by (used in) operating activities: | ||||||
Depreciation and amortization | 233 | 169 | ||||
Provision for doubtful accounts receivable | 15 | — | ||||
Changes in assets and liabilities: | ||||||
Accounts receivable | (2,161 | ) | (1,499 | ) | ||
Notes and other receivables | 43 | 145 | ||||
Inventories | (193 | ) | 27 | |||
Prepaids and other current assets | (400 | ) | (92 | ) | ||
Other assets | (19 | ) | 25 | |||
Accounts payable | 150 | (360 | ) | |||
Accrued liabilities | (663 | ) | (533 | ) | ||
Total adjustments | (2,995 | ) | (2,118 | ) | ||
Net cash used in operating activities | (3,759 | ) | (2,740 | ) | ||
Cash flows from investing activities: | ||||||
Acquisition of fixed assets | (163 | ) | (29 | ) | ||
Net cash used in investing activities | (163 | ) | (29 | ) | ||
Cash flows from financing activities: | ||||||
Cash proceeds from exercise of stock options | 1,000 | — | ||||
Repayment of short-term bank borrowings and bank | ||||||
overdraft | — | (692 | ) | |||
Proceeds from short-term bank borrowings and bank | ||||||
overdraft | 88 | 3,167 | ||||
Collection of loan made to shareholder | 224 | 75 | ||||
Other long term liabilities | — | 66 | ||||
Net cash provided by financing activities | 1,312 | 2,616 | ||||
Effect of exchange rate changes on cash | 4 | 110 | ||||
Net decrease in cash and cash equivalents | (2,606 | ) | (43 | ) | ||
Cash and cash equivalents, beginning of period | 4,254 | 231 | ||||
Cash and cash equivalents, end of period | $ | 1,648 | $ | 188 | ||
The accompanying notes are an integral part of these financial statements.
F-30
FIBERSTARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Summary of Significant Accounting Policies
Interim Financial Statements (unaudited)
Although unaudited, the interim financial statements in this report reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position, results of operations and cash flows for the interim periods covered and of the financial condition of Fiberstars, Inc. (the “Company”) at the interim balance sheet dates. These unaudited consolidated financial statements have been prepared in accordance with the rules of the Securities and Exchange Commission. Certain information and footnotes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations. The results of operations for the interim periods presented are not necessarily indicative of the results expected for the entire year or any other quarter in the year ending December 31, 2004. These unaudited financial statements should be read in conjunction with the December 31, 2003 audited consolidated financial statements included in this registration statement.
Year-end Balance Sheet
The year-end balance sheet information was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) generally accepted accounting principles. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2003, contained in the Company’s 2003 Annual Report on Form 10-K.
Foreign Currency Translation
The Company’s international subsidiaries use their local currency as their functional currency. 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 to a separate component of shareholders’ equity.
Earnings Per Share
Basic earnings per share (“EPS”) is computed by dividing income available to shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed by 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 and warrants.
A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (unaudited, in thousands, except per share amounts):
Three months | ||||||
ended March 31, | ||||||
2004 | 2003 | |||||
Numerator—Basic and Diluted EPS | ||||||
Net income (loss) | $ | (764 | ) | $ | (622 | ) |
Denominator—Basic and Diluted EPS | ||||||
Weighted average shares outstanding | 7,052 | 5,112 | ||||
Basic and Diluted net income (loss) per share | $ | (0.11 | ) | $ | (0.12 | ) |
F-31
FIBERSTARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The shares outstanding used for calculating basic and diluted EPS include 680,000 shares of common stock issuable for very little consideration upon of warrants held by Advanced Lighting Technologies, Inc. (“ADLT”). ADLT has a present contractual obligation to exercise those warrants as to 518,000 shares and transfer them to a certain liquidating trust known as the ADLT Class 7 Liquidating Trust which was formed in January 2004 after ADLT emerged from Chapter 11 bankruptcy protection.
At March 31, 2004, options and warrants to purchase 1,661,000 shares of common stock were outstanding, but were not included in the calculation of diluted EPS because their inclusion would have been antidilutive. Options to purchase 2,165,000 shares of common stock were outstanding at March 31, 2003, but were not included in the calculation of diluted EPS for the three months ended March 31, 2003 because their inclusion would have been antidilutive.
Stock Based Compensation
The Company accounts for stock-based compensation plans under the intrinsic value-based recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The Company accounts for stock based compensation to non-employees using Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“Statement”) No. 123, Accounting for Stock Based Compensation. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123 pursuant to the disclosure provisions required by FASB Statement No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure to stock-based employee compensation.
(in thousands, except per share amounts):
Three months | ||||||
ended March 31, | ||||||
2004 | 2003 | |||||
Net income (loss) | $ | (764 | ) | $ | (622 | ) |
Add: Stock-based employee compensation expense | ||||||
included in reported net income (loss), net of related tax | ||||||
effects | — | — | ||||
Deduct: Total stock-based employee compensation | ||||||
expense determined under fair value based method for all | ||||||
awards, net of tax related effects | (40 | ) | (79 | ) | ||
Net Loss-Pro forma | (804 | ) | (701 | ) | ||
Basic and Diluted net loss per share—As reported | $ | (0.11 | ) | $ | (0.12 | ) |
Basic and Diluted net loss per share—Pro forma | $ | (0.11 | ) | $ | (0.14 | ) |
Product Warranties
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 future costs under product warranties is maintained for products outstanding under warranty:
F-32
FIBERSTARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three months ended | ||||||
March 31, | ||||||
(in thousands) | ||||||
2004 | 2003 | |||||
Balance at the beginning of the period | $ | 330 | $ | 260 | ||
Accruals for warranties issued during the period | 142 | 145 | ||||
Accruals related to pre-existing warranties (including | ||||||
changes in estimates) | — | — | ||||
Settlements made during the period (in cash or in kind) | (107 | ) | (145 | ) | ||
Balance at the end of the period | $ | 345 | $ | 260 | ||
Inventories
Inventories are stated at the lower of standard cost (which approximates actual cost determined using the first-in, first-out cost method) or market and consist of the following (unaudited, in thousands):
March 31, | December 31, | |||||
2004 | 2003 | |||||
Raw materials | $ | 5,855 | $ | 5,923 | ||
Inventory reserve | (710 | ) | (683 | ) | ||
5,145 | 5,240 | |||||
Finished goods | 1,666 | 1,378 | ||||
$ | 6,811 | $ | 6,618 | |||
Bank Borrowings
The Company has a $5,000,000 Loan and Security Agreement (Accounts Receivable and Inventory) dated 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 Loan and Security Agreement are collateralized by the Company’s assets and intellectual property. Specific borrowings are tied to accounts receivable and inventory balances, and the Company must comply with certain covenants with respect to effective net worth and financial ratios. The Company had no borrowings against this facility as of March 31, 2004 and had no borrowings as of December 31, 2003.
The Company also has a $461,000 (contracted in UK pounds sterling, based on the exchange rate at March 31, 2004) bank overdraft agreement with Lloyds Bank Plc through its UK subsidiary. There were no borrowings against this facility as of March 31, 2004 and December 31, 2003.
As of March 31, 2004, the Company had a total borrowing of $458,000 (contracted in Euros, based on the exchange rate at March 31, 2004) against a note payable secured by real property owned by its German subsidiary. As of December 31, 2003, the Company had $475,000 (contracted in Euros, based on the exchange rate at December 31, 2004) borrowed against this note. Additionally, there is a revolving line of credit of $259,000 (contracted in Euros, based on the exchange rate at March 31, 2004) with Sparkasse Neumarkt Bank. As of March 31, 2004, there was a total borrowing of $132,000 against this facility. There were no borrowings under this facility as of December 31, 2003.
F-33
FIBERSTARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as net income (loss) plus sales, expenses, gains and losses that, under generally accepted accounting principles, are included in comprehensive income (loss) but excluded from net income (loss). A separate statement of comprehensive operations has been presented with this report.
Segments and Geographic Information
The Company operates in a single industry segment that manufactures, markets and sells fiber optic lighting products. 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.
A summary of sales by geographic area is as follows (unaudited, in thousands):
Three months ended March 31, | ||||||
2004 | 2003 | |||||
U.S. | $ | 4,012 | $ | 4,253 | ||
Germany | 842 | 747 | ||||
U.K. | 1,000 | 718 | ||||
Other countries | 154 | 158 | ||||
$ | 6,008 | $ | 5,879 | |||
Geographic sales are categorized based on the location of the customer to whom the sales are made.
A summary of sales by product line is as follows (unaudited, in thousands):
Three months ended March 31, | ||||||
2004 | 2003 | |||||
Pool and Spa Lighting | $ | 3,058 | $ | 2,876 | ||
Commercial Lighting | 2,950 | 3,003 | ||||
$ | 6,008 | $ | 5,879 | |||
A summary of geographic long lived assets (fixed assets, goodwill and intangibles) is as follows (in thousands):
March 31, | December 31, | |||||
2004 | 2003 | |||||
(unaudited) | ||||||
U.S. | $ | 5,029 | $ | 5,306 | ||
Germany | 1,872 | 1,458 | ||||
Other countries | 127 | 164 | ||||
$ | 7,028 | $ | 6,928 | |||
F-34
FIBERSTARS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recent Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2004, except for mandatory redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the statement and still existing at the beginning of the interim period of adoption. The adoption of SFAS No. 150 did not have an impact on the Company’s financial position, results of operations or cash flows.
In January 2003, 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. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have a material impact on the Company’s financial position or results of operations or cash flows.
Purchased In-process Research and Development
In February 2000, the Company purchased certain assets of Unison Fiber Optic Systems, Inc. (“Unison”) and accounted for the acquisition as a purchase. Acquired intangible assets are being amortized using the straight-line method over the estimated useful life of the assets ranging from 3 to 7 years.
Income Taxes
A full valuation allowance is recorded against the Company’s U.S. deferred tax assets as management cannot conclude, based on available objective evidence, when the gross value of its deferred tax assets will be realized. The Company accrues foreign tax expenses or benefits as these are incurred.
Commitments and Contingencies
Refer to Note 8 of the Company’s Notes to Consolidated Financial Statements included elsewhere in this prospectus.
F-35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the Registrant in connection with the sale and distribution of the securities being registered hereby. Normal commission expenses and brokerage fees are payable individually by the selling shareholders. All amounts are estimated except the SEC registration fee.
Amount | |||
SEC registration fee | $ | 1,834 | |
Accounting fees and expenses | $ | 22,000 | |
Legal fees and expenses | $ | 15,000 | |
Miscellaneous fees and expenses | $ | 1,166 | |
Total | $ | 40,000 | |
Item 14. Indemnification of Directors and Officers
Section 317 of the California Corporations Code provides for the indemnification of officer, directors, and other corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act. Article IV of the Registrant’s Amended and Restated Articles of Incorporation (Exhibit 3.1 to the Registrant’s Form 10-K for the fiscal year ended December 31, 2001 (File No. 000-24230)) and Article VI of the Registrant’s Bylaws (Exhibit 3(ii) to the Registrant’s Form 10-Q for the quarterly period ended March 31, 2003 (File No. 000-24230)) provide for indemnification of the Registrant’s directors, officers, employees and other agents to the extent and under the circumstances permitted by the California Corporations Code. The Registrant has also entered into agreements with its directors and officers that will require the Registrant, to among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent not prohibited by law.
Item 15. Unregistered Securities
None.
Item 16. Exhibits
Agreement and Plan of | Incorporated by reference to Appendix C to the Registrant’s Definitive Proxy Statement filed on May 1, 2006. | |||
Certificate of Ownership and | Incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 10, 2007. | |||
4.6 | Bylaws of the Registrant | Incorporated by reference to Appendix C to the Registrant’s Current Report on Form 8-K filed on November 27, 2006. | ||
4.7 | Form of Common Stock Purchase Warrant for the purchase of shares of common stock | Incorporated by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form 10-K filed on March 31, 2010. | ||
4.8 | Form of Common Stock Purchase Warrant for the | |||
Incorporated by reference to Exhibit | ||||
5.1 | Opinion of Cowden & Humphrey Co. LPA | Filed herewith. | ||
10.1* | 1994 Employee Stock Purchase Plan, amended as of May 8, 2012 | Incorporated by reference to Appendix A to the Registrant’s Preliminary Proxy Statement on Form PRER14A filed on June 8, 2012. | ||
10.2 | Form of Agreement between the Registrant | Incorporated by reference to Exhibit |
II-1
10.3* | Form of Indemnification Agreement | Incorporated by reference to Exhibit | ||
10.4* | Form of Indemnification Agreement | Incorporated by reference to Exhibit | ||
10.5 | Production Share Agreement dated | Incorporated by reference to Exhibit | ||
10.6 | First Amendment | Incorporated by reference to Exhibit | ||
10.7 | Modification to Sublease between the Registrant | Incorporated by reference to Exhibit | ||
Form of Indemnification Agreement for directors and officers of the Registrant | Incorporated by reference to Exhibit | |||
10.9 | Form of Securities Purchase Agreement dated as | Incorporated by reference to Exhibit | ||
10.10* | 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 on December | ||
10.11* | 2004 Stock |
II-2
Incorporated by reference to Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 (Commission File No. | ||||
10.12 | Member Interest Purchase Agreement | Incorporated by reference to Exhibit | ||
10.13 | Convertible Promissory Note from the | |||
Incorporated by reference to Exhibit | ||||
10.14 | Warrant Acquisition Agreement between Registrant and Woodstone Energy, LLC dated December 31, | |||
Incorporated by reference to Exhibit | ||||
10.15 | Form of Bonding Support Agreement dated as of | Incorporated by reference to Exhibit | ||
10.16 | Form of Warrant Acquisition for bonding support dated as of | Incorporated by reference to Exhibit | ||
10.17* | Form of | Incorporated by reference to Exhibit | ||
10.18 | Purchase Agreement between Registrant and Lincoln Park Capital Fund, LLC dated | Incorporated by reference to Exhibit | ||
II-3
10.19 | Registration Rights Amendment between Registrant and | Incorporated by reference to Exhibit | ||
10.20 | Note Purchase Agreement between Registrant and EF Energy Partners LLC dated March 30, 2010 | Incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form | ||
10.21 | Secured Subordinated Promissory Note from the Registrant | Incorporated by reference to Exhibit | ||
10.22 | Warrant Acquisition Agreement among the Registrant and | Incorporated by reference to Exhibit | ||
10.23* | Form of Management Continuity Agreement | Incorporated by reference to Exhibit | ||
10.24* | 2008 Incentive Stock Plan (as amended November 19, 2008, February 25, 2010, and May 6, 2012) | Incorporated by reference to Appendix B to the Registrant’s Preliminary Proxy Statement on Form PRER14A filed on June 8, 2012. | ||
10.25 | Form of Notice of Stock Option Grant for | Incorporated by reference to Exhibit | ||
10.26 | Modification to Sublease between Registrant and Keystone Ruby, LLC and Cognovit Promissory Note as of September 1, 2010 | Incorporated by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form 10-K | ||
10.27 | Financing Agreement between the Registrant and | |||
Form of Securities Purchase Agreement between the Registrant and | Incorporated by reference to | |||
10.29 | Collaboration Agreement between the Registrant and | Incorporated by reference to Exhibit |
II-4
21.1 | Subsidiaries of the Registrant | Incorporated by reference to Exhibit | ||
23.1 | Consent of Plante & Moran, PLLC, Independent | Filed herewith. | ||
23.2 | ||||
Consent of | Filed herewith. | |||
24.1 | Power of Attorney | Filed herewith. |
a. | The undersigned registrant hereby undertakes: |
II-5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ONregistration statement:
Our auditinclude any prospectus required by Section 10(a)(3) of the consolidated financial statements referred toSecurities Act of 1933;
/s/ Grant Thornton LLPSan Francisco, CaliforniaFebruary 27, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMONFINANCIAL STATEMENT SCHEDULE
Torules and regulation s prescribed by the Board of Directors of Fiberstars, Inc.:
Our auditsSEC under Section 305(b)(2) of the consolidated financial statements referred to in our report dated February 14, 2003 appearing in this Form S-1 also included an auditTrust Indenture Act.
/s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaFebruary 14, 2003
SCHEDULE II
FIBERSTARS, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
Balance at | |||||||||||||||
Beginning of | Charges | Charges | Balance at | ||||||||||||
Description | Year | To Revenue | To Expenses | Deductions | End of Year | ||||||||||
(Amounts in thousands) | |||||||||||||||
Year Ended December 31, 2003 | |||||||||||||||
Allowance for doubtful accounts and | $ | 604 | $ | — | $ | 1 | $ | 141 | $ | 465 | |||||
returns | |||||||||||||||
Valuation allowance for deferred tax | 2,035 | — | 400 | — | 2,435 | ||||||||||
assets | |||||||||||||||
Year Ended December 31, 2002 | |||||||||||||||
Allowance for doubtful accounts and | 585 | — | 78 | 59 | 604 | ||||||||||
returns | |||||||||||||||
Valuation allowance for deferred tax | — | — | 2,035 | — | 2,035 | ||||||||||
Assets | |||||||||||||||
Year Ended December 31, 2001 | |||||||||||||||
Allowance for doubtful accounts and | 1,526 | 740 | 274 | 1,955 | 585 | ||||||||||
returns |
II-6
Item 17. Undertakings
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement;
Provided, however, that paragraphs (i) and (ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-7
ENERGY FOCUS, INC. | |||
By: | /s/ | ||
Joseph G. Kaveski Chief |
Signature | ||||||||
/s/ JOSEPH G. KAVESKI | Chief Executive Officer and Director | |||||||
Joseph G. Kaveski | (Principal Executive Officer) | |||||||
/s/ | President and Director | |||||||
/s/ MARK J. PLUSH | Vice President of Finance and Chief Financial Officer | |||||||
Mark J. Plush | (Principal Financial and Accounting Officer) | |||||||
/s/ | Lead Director | |||||||
Paul von Paumgartten | ||||||||
/s/ | ||||||||
J. JAMES FINNERTY | Director | |||||||
J. James Finnerty | ||||||||
/s/ | ||||||||
R. LOUIS SCHNEEBERGER | Director | |||||||
R. Louis Schneeberger | ||||||||
/s/ | ||||||||
JENNIFER CHENG | Director | |||||||
Jennifer Cheng | ||||||||
/s/ | ||||||||
SIMON CHENG | Director | |||||||
Simon Cheng |
II-8
Exhibit Number | ||
Description of | ||
5.1 | Opinion of |
23.1 | Consent of | |
* Confidential treatment has been granted with respect to certain portions of this agreement.