U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark one)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934
For the quarterly period ended June 30, 1996
--------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------------------- -------------------
Commission file number 0-24564
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FIBERSTARS, INC.
(Exact name of registrant as specified in its charter)
----------------------
California 94-3021850
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2883 Bayview Drive, Fremont, CA 94538
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (510) 490-0719
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
Number of shares of Common Stock outstanding as of June 30, 1996: 3,404,605
Index to Exhibits is at page 14
Page 1 of 15 pages
<PAGE>
FIBERSTARS, INC.
TABLE OF CONTENTS
Page
----
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements:
a. Balance Sheets
June 30, 1996 and December 31, 1995......................3
b. Statements of Operations
Three and six months ended June 30, 1996 and 1995........4
c. Statements of Cash Flows
Six months ended June 30, 1996 and 1995..................5
d. Notes to Financial Statements..........................6-7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8-11
Part II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Securities Holders........12
Item 6 Exhibits and Reports on Form 8-K.............................12
Signatures...................................................13
EXHIBITS
Index to Exhibits............................................14
Exhibit 11 Computation of Net Income (Loss) Per Share...................15
Exhibit 27 Financial Data Schedule
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIBERSTARS, INC.
BALANCE SHEETS
(amounts in thousands)
---------------
June 30, December 31,
1996 1995
---- ----
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,807 $ 1,756
Short-term investments 2,769 2,446
Accounts receivable, net 2,871 2,614
Inventories 1,967 1,904
Prepaid expenses and other assets 163 176
Deferred income taxes 493 668
------- -------
Total current assets 10,070 9,564
Fixed assets, net 831 754
Investment in joint ventures 37 342
Other assets 253 21
Deferred income taxes 813 813
------- -------
Total assets $12,004 $11,494
======= =======
LIABILITIES
Accounts payable $ 1,030 $ 1,098
Accrued expenses 1,284 977
Current portion of long-term debt 13 13
------- -------
Total current liabilities 2,327 2,088
Long-term debt, less current portion 33 40
------- -------
Total liabilities 2,360 2,128
------- -------
SHAREHOLDERS' EQUITY
Common stock 0 0
Additional paid-in capital 11,881 11,848
Notes receivable from shareholder (75) (75)
Accumulated deficit (2,162) (2,407)
------- -------
Total shareholders' equity 9,644 9,366
------- -------
Total liabilities and shareholders' equity $12,004 $11,494
======= =======
The accompanying notes are an integral
part of these financial statements
Page 3
<PAGE>
<TABLE>
FIBERSTARS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(Unaudited)
---------------
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 4,316 $2,891 $8,062 $5,580
Cost of sales 2,430 1,617 4,621 3,140
Gross profit 1,886 1,274 3,441 2,440
------ ------ ------ ------
Operating expenses:
Research and development 267 216 496 411
Sales and marketing 1,040 830 1,981 1,657
General and administrative 322 350 629 684
------ ------ ------ ------
Income (loss) from operations 257 (122) 335 (312)
Other income (expense):
Equity in joint ventures' income (loss) 0 15 (7) 43
Interest income and expense 43 35 92 76
------ ------ ------ ------
Income (loss) before income taxes 300 (72) 420 (193)
Benefit from (provision for) income taxes (123) 35 (175) 96
------ ------ ------ ------
Net income (loss) 177 $ (37) $ 245 $ (97)
====== ====== ====== ======
Net income (loss) per share 0.05 $(0.01) $ 0.07 $(0.03)
====== ====== ====== ======
Shares used in per share calculation 3,534 3,369 3,526 3,312
====== ====== ====== ======
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
FIBERSTARS INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
---------------
<CAPTION>
Six Months Ended June 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss $ 245 $ (97)
------- -------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 149 141
Provision for doubtful accounts receivable 19 24
Equity in joint ventures' (income) loss 7 (43)
Changes in assets & liabilities:
Decrease (increase) in accounts receivable (277) 834
Increase in inventories (63) (731)
Decrease in prepaid expenses and other current assets 13 23
Decrease (increase) in deferred income taxes 175 (97)
Decrease in other assets 8 0
Decrease in accounts payable (68) (265)
Increase (decrease) in accrued expenses 307 (62)
------- -------
Total adjustments 270 (176)
------- -------
Net cash provided by (used in) operating activities 515 (273)
------- -------
Cash flows from investing activities:
Increase in short-term investments (323) 0
Sale of equity in joint venture 59 0
Acquisition of fixed assets (226) (130)
------- -------
Net cash used in investing activities (490) (130)
------- -------
Cash flows from financing activities:
Cash proceeds from sale of common stock 33 820
Issuance of long term debt 0 32
Proceeds of short term borrowing 0 8
Repayment of short term debt 0 (90)
Repayment of long term debt (7) (28)
------- -------
Net cash provided by financing activities 26 742
------- -------
Net increase in cash and cash equivalents 51 339
Cash and cash equivalents, beginning of period 1,756 3,489
------- -------
Cash and cash equivalent, end of period $ 1,807 $ 3,828
======= =======
Supplemental schedule of non-cash investing and financing activities:
Note receivable from sale of investment in joint venture $ 239 $ 0
======= =======
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
Page 5
<PAGE>
FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
1. 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 accruals, 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 the Company at the interim balance sheet dates. The results of
operations for the interim periods presented are not necessarily indicative of
the results expected for the entire year.
The year-end balance sheet information was derived from audited financial
statements, but does not include all disclosures required by 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, 1995, contained in the Company's 1995 Annual Report to
Shareholders.
Net Income (Loss) Per Share
Net income (loss) per share is computed by dividing net income by the weighted
average number of common and common equivalent (when dilutive) shares of common
stock outstanding during each period.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
June 30, December 31,
1996 1995
---- ----
(unaudited)
Raw materials $ 1,314 $ 1,111
Finished Goods 653 793
-------- --------
$ 1,967 $ 1,904
======== ========
3. Lines of Credit
As of June 28, 1996, the Company's bank lines of credit were renewed under terms
substantially the same as the previous borrowing arrangements. The current
arrangements consist of the following:
a) A $1.0 million revolving line of credit, bearing interest at prime plus
0.25%. Borrowings under this line are unsecured, and the Company must
maintain a zero balance for at least 30 consecutive days during each fiscal
year.
Page 6
<PAGE>
b) A $500,000 term loan commitment to finance equipment purchases. Under this
note, the Company may finance up to 80% of the cost of new equipment and
75% of the cost of used equipment. The note is secured by a security
interest in all equipment financed with the proceeds. Borrowings bear
interest at prime plus 0.75%. Interest only is payable monthly until June
28, 1997, after which the principal plus interest is repayable in 36
monthly installments.
These borrowing arrangements require the Company to meet certain financial
covenants with respect to net worth, liquidity and profitability. Both expire
June 28, 1997. At June 30, 1996, the Company had no borrowings outstanding
against either of these lines of credit.
Page 7
<PAGE>
FIBERSTARS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the attached
financial statements and notes thereto.
<TABLE>
Net Sales
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Net Sales ($000) $4,316 $2,891 49% $8,062 $5,580 44%
</TABLE>
The increase in revenue over 1995 results primarily from increased unit volume
in the swimming pool market and, to a lesser extent, increases in commercial and
medical product sales. The increase in pool lighting sales is attributable to an
increase in new pool construction compared to 1995, combined with broader market
acceptance of the Company's new, lower priced pool lighting systems.
<TABLE>
Gross Profit
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Gross Profit ($000) $1,886 $1,274 48% $3,441 $2,440 41%
Percentage of net sales 44% 44% 43% 44%
</TABLE>
The Company's gross margin of 43.7% in the second quarter was essentially equal
to the same period a year ago, but up from 41.5% in the immediately preceding
quarter. The Company increased fixed expenses by expanding its fiber production
operations during the first half of 1996, taking over certain processes
previously subcontracted to outside parties. Additional expansion is planned for
the second half of the year. The Company believes that in-house operation of
these previously subcontracted processes will result in lower cost of the
Company's fiber products. However, the manufacture of fiber products by the
Company remains subject to potential disruption or delay as a result of a number
of factors, including production difficulties, delays in the delivery of raw
materials or components, and acts of nature. Accordingly, no assurance can be
given that any potential savings will ultimately be realized. In addition, as
the Company phases in its expanded manufacturing operations through the
remainder of 1996, incremental costs of such expansion are expected to equal or
exceed savings resulting from in-house production.
Page 8
<PAGE>
<TABLE>
Research and Development
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Research & Development ($000) $267 $216 24% $496 $411 21%
Percentage of net sales 6% 7% 6% 7%
</TABLE>
Research and Development expenses have increased in absolute dollars, primarily
due to increases in personnel and project related expenses. Because of increased
revenue, the expenses as a percentage of sales have decreased. The Company
expects to continue investing significantly in research and product development;
however, dollars and percentages may vary from period to period.
<TABLE>
Selling and Marketing
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C> <C>
Selling & Marketing ($000) $1,040 $830 25% $1,981 $1, 657 20%
Percentage of net sales 24% 29% 25% 30%
</TABLE>
Selling and marketing expenses have increased in absolute dollars over the
comparable periods of 1995, primarily due to increases in commissions and
certain promotional expenses that are directly related to sales volume. Total
selling and marketing expenses increased less rapidly than revenue, and thus
have decreased as a percentage of sales.
<TABLE>
General and Administrative
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
General & Administrative ($000) $322 $350 -8% $629 $684 -8%
Percentage of net sales 8% 12% 8% 12%
</TABLE>
General and administrative expenses have decreased by 8% vs. the comparable
periods of 1995, primarily due to a reduction in legal fees, resulting from
reduced activities associated with ongoing litigation.
<TABLE>
Other Income (Expense)
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Other Income (Expense) ($000) $43 $50 -14% $85 $119 -29%
Percentage of net sales 1% 2% 1% 2%
</TABLE>
Other income is primarily comprised of net interest income, which varies from
quarter to quarter based on fluctuations in interest rates and in the Company's
cash balances. Net interest income increased to $43,000 for the quarter and
$92,000 year-to-date, from $35,000 and $76,000 for the comparable periods of
1995. The increase is primarily attributable to higher cash balances. Other
income also includes the Company's equity interest in the income or loss of
joint ventures, which decreased to $0 for the quarter and ($7,000) year-to-date,
from $15,000 and $43,000 for the comparable periods of 1995, primarily because
early in 1996 the Company sold its interest in Fiber Optic Medical Products,
which accounted for most of the joint venture income in 1995. The Company
expects joint venture income to be immaterial for the foreseeable future.
Page 9
<PAGE>
<TABLE>
Net Income (loss)
<CAPTION>
Q2'96 Q2'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C>
Net Income ($000) $177 ($37) ++ $245 ($97) ++
Percentage of net sales 4% (1%) 3% (2%)
</TABLE>
The improvement in net income is attributable primarily to increases in net
sales, partly offset by increases in cost of goods sold and operating expenses.
Certain Factors Affecting Future Performance
This Report contains forward looking statements, including without limitation
those set forth in "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The Company's actual performance may vary from such
statements as a result of a variety of risk and other factors, including those
set forth in this Report.
The Company's operating results are subject to significant seasonal variations,
especially in the pool and spa market. In general, the Company's sales tend to
be strongest in the second and fourth quarters of the year. However, the
variable impact of weather conditions and other factors makes revenue and profit
levels difficult to predict.
In addition, a wide variety of factors influence the Company's quarterly and
annual operating results, any of which could materially affect revenues and
profitability. These include, among others, business factors such as increases
in competition and related pricing pressure, shortages or increases in prices of
materials, manufacturing constraints, changes in distribution channels,
variations in product mix, and potential problems and delays in new product
development and introduction; as well as national economic and other factors,
such as construction trends and interest rates.
Competition is increasing in a number of the Company's markets, including, for
example, fiber optic swimming pool lighting products introduced by competitors
in late 1995. The Company anticipates that any future growth in the fiber optic
lighting market will be accompanied by increasing competition, which could
adversely affect the Company's operating results.
The Company believes that the success of its business depends primarily on its
technical innovation, marketing abilities and responsiveness to customer
requirements, rather than on patents, trade secrets, trademarks, copyrights and
other intellectual property rights. Nevertheless, the Company has a policy of
seeking to protect its intellectual property through, among other things, the
prosecution of patents with respect to certain of the Company's technologies.
The Company is aware that there are a large number of issued patents and pending
patent applications in the field of fiber optic technology, and the Company
believes that one or more of its competitors hold and may have applied for
patents related to fiber optic lighting. Although to date the Company has not
been involved in litigation challenging its intellectual property rights or
asserting intellectual property rights of others, the Company has recently
received from one of its competitors correspondence wherein such competitor
alleges that the Company is manufacturing and selling product which infringes
patent rights held by such competitor. The Company has begun an investigation
into the validity of such claims and, while no determination has yet been made
as to the merits of such claims, the Company intends to vigorously defend itself
against any allegation by such competitor of infringement by, among
Page 10
<PAGE>
other things, asserting the Company's own patent rights. In addition, based upon
the investigation to date, the Company believes that replacement of any
components potentially affected by the asserted patent would not be difficult
and would not have a material impact on the Company's business. However, there
can be no assurance that the Company will not be required to engage in
litigation to protect its patent rights or to defend the claims of others. In
the event of litigation to determine the validity of any third party claims or
claims by the Company against such third party, such litigation, whether or not
determined in favor of the Company, could result in significant expense to the
Company.
Liquidity and Capital Resources
For the six months ended June 30, 1996, cash and short term investments
increased by $374,000. Cash provided by operating activities totaled $515,000,
which was partly offset by $226,000 used for acquisition of fixed assets.
The Company has a $1 million unsecured line of credit for working capital
purposes and a $500,000 term loan commitment to finance equipment purchases.
Both lines were renewed in June 1996 and expire on June 28, 1997. At June 30,
1996, the Company had no borrowings outstanding against either of these lines of
credit.
The Company believes that existing cash balances, together with the Company's
bank lines of credit and funds that may be generated from operations, will be
sufficient to finance the Company's currently anticipated working capital
requirements and capital expenditure requirements for at least the next twelve
months.
Page 11
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securities Holders
At the Company's Annual Meeting of Stockholders held on May 22, 1996,
the shareholders elected the following persons to serve as directors in the
ensuing year:
VOTES VOTES BROKER
NAME FOR WITHHELD NON-VOTES
---- ----- -------- ---------
John B. Stuppin 2,730,818 14,668 -
David N. Ruckert 2,730,818 14,668 -
Theodore L. Eliot, Jr. 2,729,818 15,668 -
Michael D. Ernst 2,730,200 15,286 -
Michael Feuer, Ph.D. 2,730,818 14,668 -
B. J. Garet 2,730,818 14,668 -
Paul P. Wang, Ph.D. 2,730,818 14,668 -
Philip E. Wolfson, M.D. 2,729,818 15,668 -
The shareholders also ratified the appointment of Coopers & Lybrand
L.L.P. as the Corporation's independent auditors for fiscal 1996 (with 2,708,954
affirmative votes, 3,200 negative votes, 33,332 abstentions and zero broker
non-votes).
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits have been filed with this Report:
Exhibit 11 - Computation of Net Income (Loss) Per Share
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed by the Company during the
period covered by this report.
Items 1, 2, 3 and 5 are not applicable and have been omitted.
Page 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIBERSTARS, INC.
Date: August 14, 1996
By: /s/ William C. Lapworth
-----------------------------------------
William C. Lapworth, Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 13
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Number Number
------ ------
11 Computation of Net Income (Loss) per Share 15
27 Financial Data Schedule
Page 14
Exhibit 11
<TABLE>
FIBERSTARS INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
6/30/96 6/30/95 6/30/96 6/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary and Fully Diluted:
Weighted average common shares outstanding for the period 3,392 3,369 3,389 3,312
Common equivalent shares assuming conversion of stock
options and warrants under the treasury stock method 142 -- 137 --
------- ------ ------- ------
Shares used in per share calculations 3,534 3,369 3,526 3,312
======= ====== ======= ======
Net income (loss) $ 177 ($37) $ 245 ($97)
Net income (loss) per share: $ 0.05 ($0.01) $ 0.07 ($0.03)
<FN>
Calculated in accordance with the guidelines of item 601 of Regulation S-B.
Primary and fully diluted calculations are substantially the same.
</FN>
</TABLE>
Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000924168
<NAME> Fiberstars, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,807
<SECURITIES> 2,769
<RECEIVABLES> 3,031
<ALLOWANCES> 160
<INVENTORY> 1,967
<CURRENT-ASSETS> 10,070
<PP&E> 1,869
<DEPRECIATION> 1,038
<TOTAL-ASSETS> 12,004
<CURRENT-LIABILITIES> 2,327
<BONDS> 0
<COMMON> 11,806
0
0
<OTHER-SE> (2,162)
<TOTAL-LIABILITY-AND-EQUITY> 12,004
<SALES> 4,316
<TOTAL-REVENUES> 4,359
<CGS> 2,430
<TOTAL-COSTS> 2,430
<OTHER-EXPENSES> 1,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 300
<INCOME-TAX> 123
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
