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, 1998
----------------
[ ] 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 March 31, 1998: 3,537,140
Index to Exhibits is at page 13
Page 1 of 13 pages
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FIBERSTARS, INC.
TABLE OF CONTENTS
<CAPTION>
Page
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Part I - FINANCIAL INFORMATION
Item 1 Financial Statements:
a. Balance Sheets
March 31, 1998 and December 31, 1997........................................3
b. Statements of Operations
Three months ended March 31, 1998 and 1997..................................4
c. Statements of Cash Flows
Three months ended March 31, 1998 and 1997..................................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 6 Exhibits and Reports on Form 8-K................................................12
Signatures......................................................................12
EXHIBITS
Index to Exhibits...............................................................13
Exhibit 27 Financial Data Schedule...........................................................
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIBERSTARS, INC.
BALANCE SHEETS
(amounts in thousands)
____________________
March 31, December 31,
1998 1997
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 904 $ 523
Short-term investments 2,589 4,597
Accounts receivable, net 4,340 2,525
Notes and other account receivable 133 161
Inventories 3,038 3,068
Prepaid expenses and other assets 505 373
Deferred income taxes 677 677
-------- --------
Total current assets 12,186 11,924
Fixed assets, net 988 1,003
Investment in joint venture 40 40
Other assets 105 103
Deferred income taxes 201 54
-------- --------
Total assets $ 13,520 $ 13,124
======== ========
LIABILITIES
Current Liabilities:
Accounts payable $ 1,369 $ 1,068
Accrued expenses 1,598 1,318
Current portion of long-term debt 8 13
-------- --------
Total current liabilities 2,975 2,399
Long-term debt, less current portion 14 17
-------- --------
Total liabilities 2,989 2,416
======== ========
SHAREHOLDERS' EQUITY
Common stock 0 0
Additional paid-in capital 12,119 12,035
Note receivable from shareholder (75) (75)
Accumulated deficit (1,513) (1,252)
-------- --------
Total shareholders' equity 10,531 10,708
-------- --------
Total liabilities and shareholders' equity $ 13,520 $ 13,124
======== ========
The accompanying notes are an integral
part of these financial statements
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FIBERSTARS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(Unaudited)
__________
Three Months Ended
March 31,
1998 1997
------- -------
Net sales $ 4,659 $ 4,244
Cost of sales 3,144 2,306
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Gross profit 1,515 1,938
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Operating expenses:
Research and development 306 285
Sales and marketing 1,278 1,143
General and administrative 402 362
------- -------
Total operating expenses 1,986 1,790
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Income (loss) from operations (471) 148
Other income:
Interest income, net 63 52
------- -------
Income (loss) before income taxes (408) 200
Benefit from (provision for) income taxes 147 (80)
------- -------
Net income (loss) $ (261) $ 120
======= =======
Net income (loss) per share - basic $ (0.07) $ 0.04
======= =======
Shares used in per share calculation - basic 3,515 3,414
======= =======
Net income (loss) per share - diluted $ (0.07) $ 0.03
======= =======
Shares used in per share calculation - diluted 3,515 3,543
======= =======
The accompanying notes are an integral
part of these financial statements
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FIBERSTARS INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
__________
<CAPTION>
Three months ended March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (261) $ 120
------- -------
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 125 108
Provision for doubtful accounts receivable 29 17
Deferred income taxes (147) 80
Changes in assets & liabilities:
Accounts receivable (1,844) (2,101)
Notes and other receivables 28 (76)
Inventories 30 (377)
Prepaid expenses and other current assets (132) (68)
Other assets (2) 14
Accounts payable 301 445
Accrued expenses 280 235
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Total adjustments (1,332) (1,723)
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Net cash used in operating activities (1,593) (1,603)
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Cash flows from investing activities:
Sale of short-term investments 2,008 833
Acquisition of fixed assets (110) (112)
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Net cash provided by investing activities 1,898 721
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Cash flows from financing activities:
Cash proceeds from sale of common stock 84 1
Repayment of long term debt (8) (3)
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Net cash provided by (used in) financing activities 76 (2)
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Net increase (decrease) in cash and cash equivalents 381 (884)
Cash and cash equivalents, beginning of period 523 1,520
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Cash and cash equivalents, end of period $ 904 $ 636
======= =======
<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, 1997, contained in the Company's 1997 Annual Report to
Shareholders.
Earnings Per Share
The Company presents its earnings per share (EPS) in accordance with SFAS 128
which requires the presentation of basic and diluted EPS. Basic 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.
In accordance with the disclosure requirements of SFAS 128, a reconciliation of
the numerator and denominator of basic and diluted EPS is provided as follows
(in thousands, except per share amounts):
Three months ended
March 31,
----------------------
1998 1997
------- -------
Numerator - Basic and diluted EPS
Net income (loss) $ (261) $ 120
Denominator - Basic EPS
Weighted average shares outstanding 3,515 3,414
------- -------
Basic earnings per share $ (0.07) $ 0.04
======= =======
Denominator - Diluted EPS
Denominator - Basic EPS 3,515 3,414
Effect of dilutive securities:
Stock options and warrants -- 129
------- -------
3,515 3,543
Options and warrants to purchase 250,303 shares of common stock were outstanding
at March 31, 1998, but were not included in the calculation of diluted EPS
because their inclusion would have been antidilutive. At March 31, 1997, options
and warrants to purchase 678,081 were outstanding, but were not included in the
calculation of diluted EPS because their exercise prices
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FIBERSTARS, INC.
NOTES TO FINANCIAL STATEMENTS
were greater than the average fair market price of the common shares outstanding
during the period.
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,
1998 1997
------ ------
(unaudited)
Raw materials $1,829 $2,020
Finished Goods 1,209 1,048
------ ------
$3,038 $3,068
====== ======
3. Comprehensive Income
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998.
This statement requires the disclosure of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income is defined as net income plus revenues, expenses, gains and losses that,
under generally accepted accounting principles, are excluded from net income.
The Company does not have any components of comprehensive income which are
excluded from net income for the three months ended March 31, 1997 and 1998 and,
as such, no separate statement of comprehensive income has been presented
4. Significant Equity Transactions
During 1997, the Company began cooperative development efforts with Advanced
Lighting Technologies, Inc. (ADLT). ADLT acquired 18% of the Company's common
stock in private transaction during 1997 and in the first quarter of 1998 ADLT
acquired 353,600 shares increasing its ownership in the Company to almost 30%.
5. Recent Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"), which supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 changes current practice under SFAS 14 by
establishing a new framework on which to base segment reporting and also
requires interim reporting of segment information. SFAS 131 is effective for
fiscal years beginning after December disclosures would not be required until
the first quarter immediately subsequent to the fiscal year in which SFAS 131 is
effective. The Company is evaluating the requirements of SFAS 131 and the
effects, if any, on the Company's current reporting and disclosures.
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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
Q1'98 Q1'97 change
Net Sales ($000) $4,659 $4,244 10%
Net sales in the first quarter of 1998 increased 10% compared to the first
quarter of 1997. A sizable increase in the company's commercial lighting was
diluted by a decrease in sales in the pool division which was impacted
negatively by poor weather conditions.
Gross Profit
Q1'98 Q1'97 change
Gross Profit ($000) $1,515 $1, 938 (22%)
Percentage of net sales 32% 46%
The Company's gross margin decreased to 32% of net sales in the quarter ended
March 31, 1998, from 46% in the comparable period in 1997. The lower margin
resulted from higher than expected costs in the initial production of the
company's new Pool lighting System 2000(TM) products and efforts to meet
slipping deadlines on this line, as well as a sales mix that dispropotionally
favored illuminators over fiber. The company believes it will return to a more
traditional sales mix in future quarters. 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.
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Research and Development
Q1'98 Q1'97 change
Research & Development ($000) $306 $285 7%
Percentage of net sales 7% 7%
The increase in Research and Development expenses represents increased project
activity, including a new commercial lighting illuminator being designed and
developed for anticipated release in 1998. The Company expects to continue
investing in research and product development; however, dollars and percentages
may vary from period to period.
Selling and Marketing
Q1'98 Q1'97 change
Selling & Marketing ($000) $1,278 $1,143 12%
Percentage of net sales 27% 27%
Selling and marketing expenses increased by 12% in the first quarter of 1998
compared to the first quarter of 1997. The increase is primarily attributable to
higher commissions (associated with higher sales in its lighting division),
combined with increases in personnel and certain promotional expenses,
especially new literature for the commercial lighting line.
General and Administrative
Q1'98 Q1'97 change
General & Administrative ($000) $402 $362 11%
Percentage of net sales 9% 9%
General and administrative expenses for the quarter increased by 11% compared to
the first quarter of 1997, largely due to increased personnel cost and costs
associated with implementation of new financial software.
Other Income
Q1'98 Q1'97 change
Other Income ($000) $63 $52 21%
Percentage of net sales 1% 1%
Other income consists primarily of interest income, which increased slightly to
$63,000 for the quarter, compared to $52,000 in the first quarter of 1997.
Interest income varies from quarter to quarter based on fluctuations in interest
rates and in the Company's cash balances.
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Net Income
Q1'98 Q1'97
Net Income (Loss) ($000) $(261) $120
Percentage of net sales (6%) 3%
The loss for the quarter is attributable to the increase in the cost of goods
related to a product sales mix that resulted in lower margins.
Liquidity and Capital Resources
For the three months ended March 31, 1998, cash and short term investments
decreased by $1.6 million to $3.5 million. Cash used in operating activities
totaled $1.6 million, consisting primarily of seasonal increases in accounts
receivable.
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, 1998, and the Company expects them to be renewed
at that time. At March 31, 1998, 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.
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 intense in each of the Company's markets. In the fiber optic pool
lighting market, the Company competes with American Products, the largest
manufacturer of electric pool lights, and Hayward Pool Products, a major pool
product company which distributes one of the Company's 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
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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.
Year 2000 Compliance
Many currently installed computer systems are not capable of
distinguishing 20th century dates from 21st century dates. As a result, in less
than two years, computers systems and/or software used by many companies in a
very wide variety of applications will experience operating difficulties unless
they are modified or upgraded to adequately process information involving,
related to or dependent upon the century change. Significant uncertainty exists
in the software and other industries concerning the scope and magnitude of
problems associated with the century change. In light of the potentially broad
effects of the year 2000 on a wide range of business systems, the Company's
products and services may be affected. The Company is currently assessing the
potential overall impact of the impending century change on the Company's
business, financial condition and results of operations.
The Company utilizes and is dependent upon data processing computer
hardware and software to conduct its business, and recently completed an upgrade
of all such hardware and software. Based on the Company's assessment to date,
the Company believes its computer systems are "Year 2000 compliant;" that is,
capable of adequately distinguishing 21st century dates from 20th century dates.
However, there can be no assurance that the Company has or will timely identify
and remediate all significant Year 2000 problems in its own computer systems,
that remedial efforts subsequently made will not involve significant time and
expense, or that such problems will not have a material adverse effect on the
Company's business, operating results and financial conditions.
The Company has currently made only limited efforts to determine the
extent of and minimize the risk that the computer systems of the Company's
suppliers or customers are not Year 2000 complaint, or will not become complaint
on a timely basis. If Year 2000 problems prevent any the Company's suppliers
from timely delivery of products or services required by the Company, the
Company's operating results could be materially adversely affected. Further, if
the Company's customers face Year 2000 problems that result in the deferral or
cancellation of such customers' purchases of the Company's products and
services, the Company's business, operating results and financial conditions
could be materially adversely affected.
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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 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 14, 1998
By: /s/ David N. Ruckert
-----------------------------
David N. Ruckert
President, CEO
(Principal Executive, Financial and
Accounting Officer)
Page 12
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INDEX TO EXHIBITS
Exhibit Page
Number Number
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27 Financial Data Schedule
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 904
<SECURITIES> 2,589
<RECEIVABLES> 4,656
<ALLOWANCES> 316
<INVENTORY> 3,038
<CURRENT-ASSETS> 12,186
<PP&E> 2,804
<DEPRECIATION> 1,816
<TOTAL-ASSETS> 13,520
<CURRENT-LIABILITIES> 2,975
<BONDS> 0
<COMMON> 12,119
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 13,520
<SALES> 4,659
<TOTAL-REVENUES> 4,722
<CGS> 3,144
<TOTAL-COSTS> 3,144
<OTHER-EXPENSES> 1,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (408)
<INCOME-TAX> (147)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (261)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
