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 September 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)
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California 94-3021850
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
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Number of shares of Common Stock outstanding as of September 30, 1996: 3,407,521
Index to Exhibits is at page 12
Page 1 of 13 pages
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<TABLE>
FIBERSTARS, INC.
TABLE OF CONTENTS
<CAPTION>
Page
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Part I - FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements:
a. Balance Sheets
September 30, 1996 and December 31, 1995....................................3
b. Statements of Operations
Three and nine months ended September 30, 1996 and 1995.....................4
c. Statements of Cash Flows
Nine months ended September 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...........................................8-10
Part II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................................11
Signatures......................................................................11
EXHIBITS
Index to Exhibits...............................................................12
Exhibit 11 Computation of Net Income (Loss) Per Share......................................13
Exhibit 27 Financial Data Schedule.........................................................
</TABLE>
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIBERSTARS, INC.
BALANCE SHEETS
(amounts in thousands)
--------------------
September 30, December 31,
1996 1995
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,714 $ 1,756
Short-term investments 3,772 2,446
Accounts receivable, net 1,783 2,614
Inventories 1,874 1,904
Prepaid expenses and other assets 279 176
Deferred income taxes 437 668
-------- --------
Total current assets 9,859 9,564
Fixed assets, net 800 754
Investment in joint ventures 46 342
Other assets 74 21
Deferred income taxes 813 813
-------- --------
Total assets $ 11,592 $ 11,494
======== ========
LIABILITIES
Accounts payable $ 674 $ 1,098
Accrued expenses 1,135 977
Current portion of long-term debt 13 13
-------- --------
Total current liabilities 1,822 2,088
Long-term debt, less current portion 31 40
-------- --------
Total liabilities 1,853 2,128
-------- --------
SHAREHOLDERS' EQUITY
Common stock 0 0
Additional paid-in capital 11,884 11,848
Notes receivable from shareholder (75) (75)
Accumulated deficit (2,070) (2,407)
-------- --------
Total shareholders' equity 9,739 9,366
-------- --------
Total liabilities and
shareholders' equity $ 11,592 $ 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 Sept. 30, Nine Months Ended Sept. 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 3,573 $ 2,717 $ 11,635 $ 8,297
Cost of sales 2,101 1,555 6,722 4,695
-------- -------- -------- --------
Gross profit 1,472 1,162 4,913 3,602
Operating expenses:
Research and development 218 189 714 599
Sales and marketing 870 757 2,851 2,414
General and administrative 314 330 944 1,014
-------- -------- -------- --------
Income (loss) from operations 70 (114) 404 (425)
Other income (expense):
Equity in joint ventures' income 9 29 2 72
Interest income and expense 69 46 160 122
-------- -------- -------- --------
Income (loss) before income taxes 148 (39) 566 (231)
Benefit from (provision for) income taxes (56) 29 (229) 124
-------- -------- -------- --------
Net income (loss) $ 92 $ (10) $ 337 $ (107)
======== ======== ======== ========
Net income (loss) per share $ 0.03 $ (0.00) $ 0.10 $ (0.03)
======== ======== ======== ========
Shares used in per share calculation 3,554 3,372 3,533 3,332
======== ======== ======== ========
<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>
Nine months ended September 30,
1996 1995
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 337 $ (107)
------- -------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 244 210
Provision for doubtful accounts receivable 37 39
Equity in joint ventures' income (3) (72)
Changes in assets & liabilities:
Decrease in accounts receivable 794 1,820
Decrease (increase) in inventories 30 (692)
Increase in prepaid expenses and other current assets (103) (124)
Decrease (increase) in deferred income taxes 231 (125)
Decrease in other assets 187 0
Decrease in accounts payable (424) (320)
Increase (decrease) in accrued expenses 158 (74)
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Total adjustments 1,151 662
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Net cash provided by operating activities 1,488 555
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Cash flows from investing activities:
Increase in short-term investments (1,326) 0
Sale of equity in joint venture 59 0
Acquisition of fixed assets (290) (251)
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Net cash used in investing activities (1,557) (251)
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Cash flows from financing activities:
Cash proceeds from sale of common stock 36 819
Issuance of long term debt 0 40
Repayment of notes receivable from shareholders 0 3
Repayment of long term debt (9) (122)
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Net cash provided by financing activities 27 740
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Net increase (decrease) in cash and cash equivalents (42) 1,044
Cash and cash equivalents, beginning of period 1,756 3,489
------- -------
Cash and cash equivalents, end of period $ 1,714 $ 4,533
======= =======
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>
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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 (loss) 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):
September 30, December 31,
1996 1995
------ ------
(unaudited)
Raw materials $1,196 $1,111
Finished Goods 678 793
------ ------
$1,874 $1,904
====== ======
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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>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Net Sales ($000) $3,573 $2,717 32% $11,635 $8,297 40%
</TABLE>
For the third quarter and the first nine months of 1996, the increase in revenue
over 1995 is primarily attributable to 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 throughout 1996 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>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Gross Profit ($000) $1,472 $1,162 27% $4,913 $3,602 36%
Percentage of net sales 41% 43% 42% 43%
</TABLE>
The gross margin increase in absolute dollars is attributable to increased sales
in 1996 compared to 1995. The gross margin percentage decreased from the
comparable periods of 1995, primarily as a result of start-up costs and
increased manufacturing overhead associated with establishment of in-house fiber
processing operations. In-house fiber production began in the second quarter and
is being phased in gradually throughout 1996. The Company believes that it may
realize lower unit production costs of fiber products as in-house manufacturing
volume increases; however, there are uncertainties associated with the
implemention of in-house manufacturing, and the realization of expected cost
savings can not be assured.
Page 7
<PAGE>
<TABLE>
Research and Development
<CAPTION>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Research & Development ($000) $218 $189 15% $714 $599 19%
Percentage of net sales 6% 7% 6% 7%
</TABLE>
Research and Development expenses have increased in absolute dollars over the
comparable periods of 1995, primarily due to increases in project activity and
related expenses. Because of increased revenue, the expenses as a percentage of
sales have decreased. Third quarter research and development expenses were lower
than in the second quarter, reflecting a greater amount of non-recurring project
expenditures in the second quarter. 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>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Selling & Marketing ($000) $870 $757 15% $2,851 $2,414 18%
Percentage of net sales 24% 28% 25% 29%
</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>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
General & Administrative ($000) $314 $330 -5% $944 $1,014 -7%
Percentage of net sales 9% 12% 8% 12%
</TABLE>
General and administrative expenses decreased by 5% for the quarter and 7% for
the nine months ending September 30, 1996, versus the comparable periods of
1995. The nine month decrease is primarily due to a reduction in legal fees
associated with ongoing litigation.
<TABLE>
Other Income (Expense)
<CAPTION>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Other Income (Expense) ($000) $78 $75 4% $162 $194 -16%
Percentage of net sales 2% 3% 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 $69,000 for the quarter and
$160,000 year-to-date, from $46,000 and $122,000 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 $9,000 for the quarter and $2,000
year-to-date, from $29,000 and $72,000 for the comparable periods of 1995,
primarily because early in 1996 the Company sold its interest in
Page 8
<PAGE>
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.
<TABLE>
Net Income (loss)
<CAPTION>
Q3'96 Q3'95 change YTD'96 YTD'95 change
<S> <C> <C> <C> <C> <C> <C>
Net Income ($000) $92 ($10) ++ $337 ($107) ++
Percentage of net sales 3% (0%) 3% (1%)
</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.
Operating expenses have increased less rapidly than revenue.
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. For example,
American Products, the largest manufacturer of electric pool lights, introduced
fiber optic pool lighting in late 1995; and in September 1996, Hayward Pool
Products, a major pool product company, entered into a contract to distribute a
competitor's products into the pool market. The Company anticipates that any
future growth in fiber optic lighting will be accompanied by continuing
increases in competition, which could accelerate growth in the market for fiber
optic lighting, but 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
Page 9
<PAGE>
property rights or asserting intellectual property rights of others, the Company
has in the past received communications from third parties asserting rights in
the Company's patents or that the Company's technology infringes intellectual
property rights held by such third parties. Although, based on information
currently available to it, the Company does not believe that any such claims
involving its technology or patents are meritorious, 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 nine months ended September 30, 1996, cash and short term investments
increased by $1,284,000. Cash provided by operating activities totaled
$1,488,000, which was partly offset by $290,000 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 expire on June 28, 1997. At September 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 10
<PAGE>
PART II - OTHER INFORMATION
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.
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: November 11, 1996
By: /s/ William C. Lapworth
-------------------------------------
William C. Lapworth, Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 11
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
Number Number
- -------- ------
11 Computation of Net Income (Loss) per Share 13
27 Financial Data Schedule
Page 12
<TABLE>
Exhibit 11
FIBERSTARS INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
9/30/96 9/30/95 9/30/96 9/30/95
--------------------- ---------------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding for the period 3,405 3,372 3,394 3,332
Common equivalent shares assuming conversion of stock
options and warrants under the treasury stock method 149 -- 139 --
--------------------- ---------------------
Shares used in per share calculations 3,554 3,372 3,533 3,332
===================== =====================
Net income (loss) $ 92 ($ 10) $ 337 ($ 107)
Net income (loss) per share: $ 0.03 ($ 0.00) $ 0.10 ($ 0.03)
Calculated in accordance with the guidelines of item 601 of Regulation S-B.
Primary and fully diluted calculations are substantially the same.
</TABLE>
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,714
<SECURITIES> 3,772
<RECEIVABLES> 2,005
<ALLOWANCES> 222
<INVENTORY> 1,874
<CURRENT-ASSETS> 9,859
<PP&E> 1,933
<DEPRECIATION> 1,133
<TOTAL-ASSETS> 11,592
<CURRENT-LIABILITIES> 1,822
<BONDS> 0
<COMMON> 9,739
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,592
<SALES> 3,573
<TOTAL-REVENUES> 3,651
<CGS> 2,101
<TOTAL-COSTS> 2,101
<OTHER-EXPENSES> 1,402
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 148
<INCOME-TAX> 56
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
