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 March 31, 1997
[ ] 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
FIBERSTARS, INC.
(Exact name of registrant as specified in its charter)
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
--- ---
Number of shares of Common Stock outstanding as of March 31, 1997: 3,412,721
Index to Exhibits is at page 12
Page 1 of 13
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FIBERSTARS, INC.
TABLE OF CONTENTS
Page
----
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements:
a. Balance Sheets
March 31, 1997 and December 31, 1996.......................3
b. Statements of Operations
Three months ended March 31, 1997 and 1996.................4
c. Statements of Cash Flows
Three months ended March 31, 1997 and 1996.................5
d. Notes to Financial Statements..............................6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................7-10
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 Per Share............................13
Exhibit 27 Financial Data Schedule..........................................
Page 2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIBERSTARS, INC.
BALANCE SHEETS
(amounts in thousands)
--------------------
March 31, December 31,
1997 1996
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 636 $ 1,520
Short-term investments 2,482 3,315
Accounts receivable, net 4,705 2,621
Other receivables 167 91
Inventories 2,545 2,168
Prepaid expenses and other assets 249 181
Deferred income taxes 505 585
-------- --------
Total current assets 11,289 10,481
Fixed assets, net 836 832
Investment in joint venture 52 52
Other assets 130 144
Deferred income taxes 553 553
-------- --------
Total assets $12,860 $12,062
======= =======
LIABILITIES
Current Liabilities:
Accounts payable $ 1,412 $ 967
Accrued expenses 1,357 1,122
Current portion of long-term debt 13 13
-------- --------
Total current liabilities 2,782 2,102
Long-term debt, less current portion 25 28
-------- --------
Total liabilities 2,807 2,130
-------- --------
SHAREHOLDERS' EQUITY
Common stock 0 0
Additional paid-in capital 11,904 11,903
Note receivable from shareholder (75) (75)
Accumulated deficit (1,776) (1,896)
-------- --------
Total shareholders' equity 10,053 9,932
-------- --------
Total liabilities and shareholders' $ 12,860 $12,062
equity ======= ========
The accompanying notes are an integral
part of these financial statements
Page 3
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FIBERSTARS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(Unaudited)
----------
Three Months Ended March 31,
1997 1996
------- -------
Net sales $ 4,244 $ 3,746
Cost of sales 2,306 2,192
------- -------
Gross profit 1,938 1,554
------- -------
Operating expenses:
Research and development 285 228
Sales and marketing 1,143 941
General and administrative 362 308
------- -------
Total operating expenses 1,790 1,477
------- -------
Income from operations 148 77
Other income (expense):
Equity in joint venture income (loss) 0 (7)
Interest income, net 52 49
------- -------
Income before income taxes 200 119
Provision for income taxes (80) (51)
------- -------
Net income $ 120 $ 68
======= =======
Net income per share $ 0.03 $ 0.02
======= =======
Shares used in per share calculation 3,543 3,506
======= =======
The accompanying notes are an integral
part of these financial statements
Page 4
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<TABLE>
FIBERSTARS INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
----------
<CAPTION>
Three months ended March 31,
1997 1996
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 120 $ 68
------- -------
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation 108 65
Provision for doubtful accounts receivable 17 6
Deferred income taxes 80 52
Equity in joint venture's income -- 7
Changes in assets & liabilities:
Accounts receivable (2,101) (1,525)
Other receivables (76)
Inventories (377) 100
Prepaid expenses and other current assets (68) (66)
Other assets 14 57
Accounts payable 445 (162)
Accrued expenses 235 96
------- -------
Total adjustments (1,723) (1,370)
------- -------
Net cash used in operating activities (1,603) (1,302)
------- -------
Cash flows from investing activities:
Sale of short-term investments 833 703
Sale of investment in joint venture -- 59
Acquisition of fixed assets (112) (103)
------- -------
Net cash provided by investing activities 721 659
------- -------
Cash flows from financing activities:
Cash proceeds from sale of common stock 1 8
Repayment of long term debt (3) (3)
------- -------
Net cash provided by (used in) financing activities (2) 5
------- -------
Net decrease in cash and cash equivalents (884) (638)
Cash and cash equivalents, beginning of period 1,520 1,756
------- -------
Cash and cash equivalents, end of period $ 636 $ 1,118
======= =======
Supplemental schedule of non-cash investing and financing activities:
Note receivable from sale of investment in joint venture $ 0 $ 239
======= =======
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
Page 5
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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, 1996, contained in the Company's 1996 Annual Report to
Shareholders.
Net Income Per Share
Net income per share is computed using the weighted average number of shares of
common stock outstanding and common equivalent shares. Common stock equivalent
shares from stock options and warrants are excluded to the extent that their
effect is antidilutive.
Recent Pronouncements
During February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," (SFAS 128) which specifies the computation,
presentation and disclosure requirements for Earnings per Share. SFAS 128 will
become effective for the Company's 1997 fiscal year. Adopting SFAS 128 is not
expected to have a material impact on the Company's financial condition or
results of operations.
2. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
March 31, December 31,
--------- ------------
1997 1996
------ ------
(unaudited)
Raw materials $1,920 $1,528
Finished Goods 625 640
------ ------
$2,545 $2,168
====== ======
Page 6
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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.
Net Sales
Q1'97 Q1'96 change
Net Sales ($000) $4,244 $3,746 13%
Net sales in the first quarter increased 13% compared to the first quarter of
1996, due primarily to the introduction of new products in the pool and spa
market, including the improved FS5 illuminator series and Fiberstars
Catalyst(TM), a new chlorine-reducing product. In the commercial lighting
market, the dollar volume of booked orders trended upward during the quarter and
exceeded orders booked in the first quarter of 1996; however, shipments were
held slightly below 1996 levels due to customer considerations and the receipt
of orders late in the quarter. Based on the recent order rate, initial market
response to the Company's new products, and other market factors, the Company
expects second quarter sales to be well above year-ago levels in both of the
Company's major markets. The preceding forward looking statement is subject to
various risks and uncertainties, including the performance of new products,
actual demand for new and existing products, the timing of customer orders and
the Company's ability to meet production demands. Actual results may differ
materially from those projected.
Gross Profit
Q1'97 Q1'96 change
Gross Profit ($000) $1,938 $1, 554 25%
Percentage of net sales 46% 41%
The Company's gross margin increased to 46% in the quarter ended March 31, 1997,
from 41% in the comparable period in 1996. The improvement was primarily
attributable to a favorable product sales mix and a reduction in fiber tubing
production costs, as the Company's new fiber processing facility became fully
operational during the quarter. The Company expects the cost improvements
resulting from in-house fiber production to continue; however, the Company
experiences variations in gross margin based on changes in the Company's sales
volume, product mix, pricing, cost of materials and labor, and other factors;
and there can be no assurance that the Company's operations and gross margin
will not be adversely affected by changes in these factors or by disruptions in
supplies or production capacity, or other factors.
Page 7
<PAGE>
Research and Development
Q1'97 Q1'96 change
Research & Development ($000) $285 $228 25%
Percentage of net sales 7% 6%
The increase in Research and Development expenses represents increased project
activity, including several new commercial lighting illuminators being designed
and developed for anticipated release in 1997 and 1998. The Company expects to
continue investing significantly in research and product development; however,
dollars and percentages may vary from period to period.
Selling and Marketing
Q1'97 Q1'96 change
Selling & Marketing ($000) $1,143 $941 21%
Percentage of net sales 27% 25%
Selling and marketing expenses increased by 21% compared to the first quarter of
1996. The increase is primarily attributable to higher commissions (associated
with higher sales), combined with increases in personnel and certain promotional
expenses, especially in connection with seasonal marketing to the swimming pool
market.
General and Administrative
Q1'97 Q1'96 change
General & Administrative ($000) $362 $308 18%
Percentage of net sales 9% 8%
General and administrative expenses for the quarter increased by 18% compared to
the first quarter of 1996, largely due to increased personnel and other costs
associated with growth in the Company's business.
Other Income (Expense)
Q1'97 Q1'96 change
Other Income (Expense) ($000) $52 $42 24%
Percentage of net sales 1% 1%
Other income consists primarily of net interest income, which increased slightly
to $52,000 for the quarter, compared to $49,000 in the first quarter of 1996.
Interest income varies from quarter to quarter based on fluctuations in interest
rates and in the Company's cash balances.
Page 8
<PAGE>
Net Income
Q1'97 Q1'96 change
Net Income (Loss) ($000) $120 $68 76%
Percentage of net sales 3% 2%
The improvement in net income for the quarter is attributable to the increase in
net sales and gross margin, partly offset by increases in 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. 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. In addition, a number of companies
offer fiber optic lighting products for commercial lighting, some of which
compete directly with the Company's products. Some of these companies have
substantially greater financial, technical and marketing resources than the
Company. 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.
There are many issued patents and pending patent applications in the field of
fiber optic technology, and certain of the Company's competitors hold and have
applied for patents related to fiber optic lighting. Although to date the
Company has not been involved in litigation challenging its intellectual
property rights 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
Page 9
<PAGE>
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 three months ended March 31, 1997, cash and short term investments
decreased by $1.7 million to $3.1 million. Cash used in operating activities
totaled $1.6 million, consisting primarily of seasonal increases in accounts
receivable. $112,000 was 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, and the Company expects them to be renewed
at that time. At March 31, 1997, 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
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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 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, 4 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: May 9, 1997
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 per Share 13
27 Financial Data Schedule
Page 12
Exhibit 11
FIBERSTARS INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended
3/31/97 3/31/96
---------------
Weighted average common shares outstanding for the period 3,413 3,385
Common equivalent shares assuming conversion of stock
options and warrants under the treasury stock method 130 121
---------------
Shares used in per share calculations 3,543 3,506
===============
Net income $ 120 $ 68
Net income per share: $ 0.03 $ 0.02
Calculated in accordance with the guidelines of item 601 of Regulation S-B.
Primary and fully diluted calculations are substantially the same.
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 636
<SECURITIES> 2,482
<RECEIVABLES> 4,944
<ALLOWANCES> 239
<INVENTORY> 2,545
<CURRENT-ASSETS> 11,289
<PP&E> 2,182
<DEPRECIATION> 1,346
<TOTAL-ASSETS> 12,860
<CURRENT-LIABILITIES> 2,782
<BONDS> 0
<COMMON> 10,053
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,860
<SALES> 4,244
<TOTAL-REVENUES> 4,297
<CGS> 2,306
<TOTAL-COSTS> 2,306
<OTHER-EXPENSES> 1,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 200
<INCOME-TAX> 80
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
