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, 1999
[ ] 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)
44259 Nobel 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 September 30, 1999: 3,987,261
Index to Exhibits is at page 15
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<TABLE>
FIBERSTARS, INC.
TABLE OF CONTENTS
<CAPTION>
Page
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<S> <C> <C>
Part I - FINANCIAL INFORMATION
Item 1 Financial Statements:
a. Consolidated Balance Sheets
September 30, 1999 and December 31, 1998....................................3
b. Consolidated Statements of Operations
Three and nine months ended September 30, 1999 and 1998.....................4
c. Consolidated Statements of Comprehensive Operation
Three and nine months ended September 30, 1999 and 1998.....................5
d. Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998...............................6
e. Notes to Financial Statements.............................................7-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................9-13
Part II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................................14
Signatures......................................................................14
EXHIBITS
Index to Exhibits...............................................................15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIBERSTARS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
September 30, December 31,
1999 1998
-------- --------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,096 $ 1,290
Accounts receivable trade, net 5,046 5,210
Notes and other accounts receivables 201 771
Inventories, net 4,017 4,179
Prepaids and other current assets 458 369
Deferred income taxes 163 507
-------- --------
Total current assets 12,981 12,326
Fixed assets, net 2,175 1,522
Goodwill, net 3,983 4,403
Investment in joint venture 2 18
Other assets 173 566
Deferred income taxes 89 89
-------- --------
Total assets $ 19,403 $ 18,924
======== ========
LIABILITIES
Current Liabilities:
Accounts payable $ 2,352 $ 2,598
Accrued expenses 2,084 2,198
Current portion of long-term debt 8 107
-------- --------
Total current liabilities 4,444 4,903
Long-term debt, less current portion 708 667
-------- --------
Total liabilities 5,152 5,570
-------- --------
SHAREHOLDERS' EQUITY
Common stock 0 0
Additional paid-in capital 13,946 13,930
Note receivable from shareholder (75) (86)
Cumulative translation adjustments (46) 0
Retained earnings (accumulated deficit) 426 (490)
-------- --------
Total shareholders' equity 14,251 13,354
-------- --------
Total liabilities and shareholders' equity $ 19,403 $ 18,924
======== ========
The accompanying notes are an integral
part of these financial statements
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<TABLE>
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 8,056 $ 5,477 $ 24,083 $ 16,298
Cost of sales 4,657 3,386 13,969 10,188
-------- -------- -------- --------
Gross profit 3,399 2,091 10,114 6,110
-------- -------- -------- --------
Operating expenses:
Research and development 368 301 1,021 952
Sales and marketing 1,874 1,192 5,833 3,812
General and administrative 666 372 1,818 1,151
-------- -------- -------- --------
Total operating expenses 2,908 1,865 8,672 5,915
-------- -------- -------- --------
Income from operations 491 226 1,442 195
Other income:
Equity in joint venture's loss 0 0 (15) (20)
Interest income, net 8 69 13 177
-------- -------- -------- --------
Income before income taxes 499 295 1,440 352
Provision for income taxes (180) (106) (524) (134)
-------- -------- -------- --------
Net income $ 319 $ 189 $ 916 $ 218
======== ======== ======== ========
Net income per share - basic $ 0.08 $ 0.05 $ 0.23 $ 0.06
======== ======== ======== ========
Shares used in per share calculation - basic 3,987 3,601 3,984 3,557
======== ======== ======== ========
Net income per share - diluted $ 0.08 $ 0.05 $ 0.23 $ 0.06
======== ======== ======== ========
Shares used in per share calculation - diluted 4,112 3,653 4,064 3,643
======== ======== ======== ========
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
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<TABLE>
FIBERSTARS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATION
(amounts in thousands except per share amounts)
(unaudited)
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income $ 319 $ 189 $ 916 $ 218
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 12 0 (46) 0
-------------- ------------- -------------- --------------
Comprehensive income $ 331 $ 189 $ 870 $ 218
============== ============= ============== ==============
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
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<TABLE>
FIBERSTARS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 916 $ 218
------- -------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 622 411
Provision for doubtful accounts receivable 56 72
Deferred income taxes 344 134
Equity in joint ventures' loss 15 20
Changes in assets & liabilities:
Accounts receivable 108 (207)
Notes and other receivable (50) 0
Inventories 162 (232)
Prepaid expenses and other current assets (89) (17)
Other assets 393 (100)
Accounts payable (246) (98)
Accrued expenses (113) 522
------- -------
Total adjustments 1,202 505
------- -------
Net cash provided by operating activities 2,118 723
------- -------
Cash flows from investing activities:
Sale of short-term investments 0 517
Repayment of loans made to officers 0 44
Loans made to officers 0 (30)
Acquisition of business, net of cash acquired 0 (260)
Repayment of loans made under notes receivable 620 0
Acquisition of fixed assets (954) (310)
------- -------
Net cash used in investing activities (334) (39)
------- -------
Cash flows from financing activities:
Cash proceeds from sale of common stock 27 182
Repayment of long term debt (57) (13)
------- -------
Net cash provided by (used in) financing activities (30) 169
------- -------
Effect of exchange rate changes on cash 52 0
------- -------
Net increase in cash and cash equivalents 1,806 853
Cash and cash equivalents, beginning of period 1,290 523
------- -------
Cash and cash equivalents, end of period $ 3,096 $ 1,376
======= =======
Non-cash investing activities:
Common stock issued in connection with acquisitions $ 0 $ 550
======= =======
<FN>
The accompanying notes are an integral
part of these financial statements
</FN>
</TABLE>
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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, 1998, contained in the Company's 1998 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.
<TABLE>
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):
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator - Basic and diluted EPS
Net income $ 319 $ 189 $ 916 $ 218
Denominator - Basic EPS
Weighted average shares outstanding 3,987 3,601 3,984 3,557
------ ------ ------ ------
Basic earnings per share $ 0.08 $ 0.05 $ 0.23 $ 0.06
====== ====== ====== ======
Denominator - Diluted EPS
Denominator - Basic EPS 3,987 3,601 3,984 3,557
Effect of dilutive securities:
Stock options 125 52 80 86
------ ------ ------ ------
4,112 3,653 4,064 3,643
------ ------ ------ ------
Diluted earnings per share $ 0.08 $ 0.05 $ 0.23 $ 0.06
====== ====== ====== ======
</TABLE>
Options and warrants to purchase 1,053,802 shares of common stock were
outstanding at September 30, 1999, but were not included in the calculation of
diluted EPS because their inclusion would have been antidilutive. At September
30, 1998, options and warrants to purchase 603,725 were outstanding, but were
not included in the calculation of diluted EPS because their inclusion would
have been antidilutive.
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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,
1999 1998
------ ------
(unaudited)
Raw materials $2,790 $2,780
Finished Goods 1,227 1,399
------ ------
$4,017 $4,179
====== ======
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 net sales, expenses, gains and losses that,
under generally accepted accounting principles, are excluded from net income. A
separate statement of comprehensive income has been presented with this report.
4. Significant Equity Transactions
There were no significant equity transactions during the quarter.
5. Segments and Geographic Sales
The Company operates in a single industry segment that manufactures, 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 geographic sales is as follows (in thousands):
Nine months ended September 30,
-------------------------------
1999 1998
------- -------
(unaudited) (unaudited)
U.S. Domestic $16,817 $14,025
Foreign 7,266 2,273
------- -------
$24,083 $16,298
======= =======
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Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
The following discussion should be read in conjunction with the attached
financial statements and notes thereto.
RESULTS OF OPERATIONS
Net sales increased 47% to $8,056,000 for the quarter ending September 30, 1999
as compared to the net sales for the same period in 1998. The increase was a
result of growth in the commercial lighting and pools product sales. Net sales
from companies acquired in 1998 also contributed to net sales growth in the 3rd
quarter. For the nine months ending September 30, 1999 net sales were
$24,083,000, a 48% increase over the prior year. Net sales year-to-date grew in
both pools and commercial lighting and was augmented by contributions from
companies acquired in 1998.
Gross profit increased to $3,399,000 in the 3rd quarter of 1999, a 63% increase
over the same period in the prior year. The gross profit margin was 42% for the
quarter, an increase from the 38% gross margin achieved in the 3rd quarter of
1998. The increase in gross margin was primarily a result of lower warranty and
freight costs in 1999 versus 1998. Gross profit year-to-date was $10,114,000,
66% above the gross profit for the same period in the prior year. The gross
profit margin year-to-date was 42% compared to 37% in the prior year. The
improvement was a result of lower costs for components along with lower warranty
expenses.
Research and development expenses were $368,000 in the 3rd quarter of 1999, a 6%
decrease over the 3rd quarter of 1998 due to lower travel and project costs.
Research and development expenses were 5% of sales in the 3rd quarter 1999
versus 5% in 1998. Year-to-date, research and development expenses were
$1,021,000 compared to $952,000 in the prior year. As a percentage of net sales,
research and development were 4% year-to-date versus 6% in the prior year
largely as a result of expenses remaining constant while net sales increased.
Sales and marketing expenses were $1,874,000 in the 3rd quarter of 1999 as
compared to $1,192,000 in 1998, an increase of 57%. The increase was primarily
due to $477,000 in additional expenses for the 3rd quarter of 1999 from the
companies acquired in 1998 for which there were no expenses in the 3rd quarter
of 1998. Sales and marketing expenses were 23% of sales in the 3rd quarter of
1999 compared to 22% in 1998. Year-to-date, sales and marketing expenses were
$5,833,000 compared to $3,812,000, a 53% increase. The increase was largely a
result of $1,334,000 in additional expenses from companies acquired in 1998 for
which there were no expenses in the nine months of 1998. Sales and marketing
expenses were 24% of net sales year-to-date in 1999 versus 23% for the same
period in the prior year.
General and administrative costs were $666,000 in the 3rd quarter 1999, an
increase of 79% over 1998 costs. This increase was largely a result of
additional general and administrative costs in the third quarter of 1999 from
companies acquired in 1998 for which there were no expenses in the 3rd quarter
of 1998, as well as moving costs associated with moving the main Fremont office
to a new location. General and administrative costs were 8% of net sales in the
quarter ending September 30, 1999 versus 7% for the same quarter in 1998.
Year-to-date, general and administrative expenses were $1,818,000 in 1999
compared to $1,151,000 for the same period in the prior year. Increases were
largely due to additional costs from companies acquired at the end
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of 1998. General and administrative costs were 8% of net sales year-to-date in
1999 versus 7% for the same period in the prior year.
Total operating expenses were 36% of net sales in the 3rd quarter of 1999
compared to 34% for the same period in the prior year. Year-to-date, total
operating expenses were 36% of net sales in 1999, the same as achieved for the
equivalent period in 1998.
Other income and expense includes income from joint ventures and interest income
and expense. Net interest income was $8,000 in the 3rd quarter of 1999 compared
to $69,000 in 1998. The decrease was due primarily to a use of cash in 1998 to
acquire three companies, along with a general decrease in interest rates since
the 3rd quarter of 1998. Year-to-date, the Company incurred losses from its
joint venture with its Australian distributor of $15,000 in 1999 compared to a
loss of $20,000 for the same period in 1998. The Company is working with its
Australian distributor to eliminate these losses in future periods. Net interest
income year-to-date was $13,000 in 1999 versus $177,000 for the same period in
1998, largely as a result of a decrease in the cash position from 1998 to 1999
due to the usage of cash for acquisitions.
The income tax rate in the 3rd quarter 1999 was 36%, the same rate recorded in
1998. The tax rate is lower than historical rates due to the recognition of
certain tax benefits accumulated over prior years. Year-to-date, the income tax
rate was 36%.
As a result of the increase in sales in the 3rd quarter of 1999 over the same
quarter in 1998 and the improvement in gross margin, the Company's net income
increased to $319,000 in the 3rd quarter of 1999 as compared to net income of
$189,000 for the same period in 1998. Year-to-date, net income was $916,000
compared to $218,000 for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
For the period ended September 30, 1999, cash and cash equivalents when combined
with short-term investments were $3,096,000 as compared to $1,290,000 for the
year ended December 31, 1998.
During the first nine months of 1999, net income contributed $916,000 to cash
compared to a $218,000 contribution from net income for the same period in 1998.
After adjusting for depreciation and amortization and deferred income taxes,
along with a small contribution from working capital, there was $2,118,000 in
cash contributed from operating activities in the nine month period as compared
to a total contribution from operating activities of $723,000 for the same
period in 1998. Cash utilized in 1999 to acquire fixed assets was partially
offset by cash received against loans outstanding for a divestiture made in
fiscal 1998, resulting in a net cash used of $334,000 for investing activities.
This compares to a use of $39,000 for investing activities in 1998. A
significant portion of the fixed assets acquired in 1999 were associated with
adding tenant improvements to the new Fremont office building which the company
moved into during the 3rd quarter. There was a net use of $30,000 in cash in
1999 for financing activities, primarily for paying down long term debt of
subsidiaries. This compares to a net provision of cash of $169,000 for the first
nine months of 1998. As a result of the cash provided from operating activities
and investing activities combined with exchange rate effects, there was a net
provision of cash in the first nine months of 1999 of $1,806,000 which resulted
in an ending cash balance of $3,096,000. This compares to a net provision of
$853,000 in cash for the same period in 1998, resulting in an ending cash
balance of $1,376,000 for that period. It is expected that the cash balances
will decrease during the 4th quarter of 1999 as a result of the seasonal
inventory purchases associated with distributor sales in the Pool market.
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The Company has a $2.5 million unsecured line of credit for working capital
purposes and a term loan commitment of $500,000 for equipment purchases. These
are renewed on an annual basis, with the most recent renewal in August 1999,
subsequent renewals will also be in August. As of September 30, 1999 the Company
had no borrowings outstanding against either of these lines of credit.
The Company also had a total borrowing of $708,000 against a credit facility
held by its German subsidiary. This borrowing is largely held in order to
finance the building of new offices owned by the Company in Berching, Germany.
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.
OTHER FACTORS
This Report on Form 10QSB contains forward-looking statements. Such statements
generally concern future operating results, capital expenditures, product
development and enhancements, liquidity and strategy. Specific forward-looking
statements in this report include, without limitation, statements regarding
improvements in the Company's cash position. We may not update these forward
looking statements, and the occurrence of the events predicted in these
statements is subject to a number of risks and uncertainties, including those
discussed in this report. These risks and uncertainties could cause our actual
results to differ materially from the results predicted in our forward looking
statements. You are encouraged to consider all the information in this report
along with our other periodic reports on file with the SEC, prior to investing
in our stock.
BUSINESS RISKS AND UNCERTAINTIES
Our quarterly operating results can vary significantly depending upon a number
of factors. It is difficult to predict the lighting market's acceptance of our
products on a quarterly basis, and the level and timing of orders received can
fluctuate substantially. Our sales volumes also fluctuate. Historically we have
shipped a substantial portion of our quarterly sales in the last month of each
of the second and fourth quarters of the year. Significant portions of our
expenses are relatively fixed in advance based upon our forecasts of future
sales. If sales fall below our expectations in any given quarter, we will not be
able to make any significant adjustment in our operating expenses and our
operating results will be adversely affected. In addition, our product
development and marketing expenditures may vary significantly from quarter to
quarter and are made well in advance of potential resulting net sales.
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. Sales of commercial lighting products also depend
significantly upon the level of new building construction and the renovation of
existing buildings. Construction levels are affected by housing market trends,
interest rates, and the weather. Because of the seasonality of construction, our
sales of swimming pool and commercial lighting products, and thus our overall
net sales and income, have tended to be significantly lower in the first quarter
of each year. Various economic and other trends may alter these seasonal trends
from year to year, and we cannot predict the extent to which these seasonal
trends will continue. We believe our business has been favorably
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impacted by recent strength in the overall U.S. economy. If the U.S. economy
softens, our operating results will probably suffer.
Competition is increasing in a number of our markets. A number of companies
offer directly competitive products, including fiber optic lighting products for
downlighting, display case and water lighting, and neon and other lighted signs.
Our competitors include some very large and well established companies such as
Philips, Schott, 3M, Bridgestone, Mitsubishi, Osram/Siemens and Rohm &
Haas/Advanced Lighting Technologies. All of these companies have substantially
greater financial, technical and marketing resources than we do. We anticipate
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 also adversely affect our operating results to
the extent we do not compete effectively.
We believe the success of our business depends primarily on our continued
technical innovation, 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, 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, we may be required to engage in litigation
to protect our patent rights or to defend against the claims of others. In the
event of litigation to determine the validity of any third party claims or
claims by us against such third party, such litigation, whether or not
determined in our favor, could result in significant expense.
Our business is subject to additional risks that could materially and adversely
affect our future business, including:
o manufacturing risks, including the risks of shortages in materials or
components necessary to our manufacturing and assembly operations, and
the risks of increases in the prices of raw materials and components;
o sales and distribution risks, such as risks of changes in product mix
or distribution channels that result in lower margins;
o risks of the loss of a significant distributor or sales
representative;
o risks of the loss of a significant customer or swimming pool builder;
o risks of the effects of volume discounts that we grant from time to
time to our larger customers, including reduced profit margins;
o risks of product returns and exchanges; in this regard, as noted
above, we have increased our warranty reserve in the fourth quarter of
1998 in response to evidence of defective lamps in certain of our
products. We cannot assure you we will not experience similar
component problems in the future that could also require increased
warranty reserves and manufacturing costs;
o risks associated with product development and introduction problems,
such as increased research, development and marketing expenses
associated with new product introductions; and
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o risks associated with delays in the introduction of new products and
technologies, including lost sales and loss of market share.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are not capable
of distinguishing 20th century dates from 21st century dates. As a result,
within the next year, 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 information services 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 utilizes and is dependent upon data processing computer hardware and
software to conduct its business, and in 1998 completed an upgrade of hardware
and software at an approximate cost of $30,000. The Company has completed its
assessment of its own computer systems and based upon this assessment, 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 timely identified 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
condition. If unforeseen internal disruptions occur, the Company believes that
its existing disaster recovery program, which includes the manual processing of
certain key transactions, would significantly mitigate the impact.
The Company has made 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 compliant, or will not become compliant on a timely basis. The Company
expects that the process of making inquiries with these customers and suppliers
will be ongoing through the end of 1999. As of this report, the Company has had
responses from a portion of these customers and suppliers. Of those responding,
the majority are compliant, with the rest indicating they will be compliant by
year end 1999. If Year 2000 problems prevent any of 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. However, the Company
currently estimates that its costs to address Year 2000 issues relating to its
suppliers will not be material, and that these costs will be funded from its
operating cash flows. The Company has identified and will continue to identify
alternative suppliers in the event its preferred suppliers become incapable of
timely delivering products or services required by the Company. The Company's
suppliers are generally locally or regionally based, which tends to lessen the
Company's exposure from the lack of readiness of any single supplier.
The Company may also face delays in receipt of payments from customers with
unresolved Year 2000 problems, and such delays could materially adversely affect
the Company's operating results. To the extent any such delays are significant
or protracted, the Company's quarterly results would be adversely affected. The
Company intends to continually reassess this risk as it receives communications
about the status of its customers with regard to Year 2000 issues, and if
necessary, adjust its account sales and policies accordingly.
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Year 2000 costs relating to the Company's own computer systems including
consulting fees and costs to remediate or replace hardware and software as well
as non-incremental costs resulting from redeployment of internal resources are
estimated to be immaterial. The Company is not able to accurately estimate
potential costs associated with the Year 2000 issues of its customers and
suppliers, and is in the process of verifying that these companies will be year
2000 compliant by the end of 1999. There can be no assurance that the estimated
costs for remediating the Company's own systems as well as estimated costs
associated with the potential non-compliance of its customers and suppliers are
correct, and actual results could differ materially from these estimates.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer costs, and similar
uncertainties.
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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 10.30 - Extension - Term Commitment Note of the
Registrant dated as of August 1, 1999, to
Wells Fargo Bank.
Exhibit 10.31 - Extension - Revolving Line of Credit Note of
the Registrant dated as of August 1, 1999, to
Wells Fargo Bank.
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: November 15, 1999 By: /s/ Robert A.Connors
-------------------------------
Robert A.Connors
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 15
<PAGE>
<TABLE>
INDEX TO EXHIBITS
<CAPTION>
Exhibit Page
Number Number
------ ------
<S> <C> <C>
10.30 Extension - Term Commitment Note of the Registrant dated as of
August 1, 1999, to Wells Fargo Bank. 16
10.31 Extension - Revolving Line of Credit Note of the Registrant dated
as of August 1, 1999, to Wells Fargo Bank. 21
27 Financial Data Schedule
</TABLE>
Page 16
EX-10.30
WELLS FARGO BANK TERM COMMITMENT NOTE
- --------------------------------------------------------------------------------
$500,000.00 San Jose, California
August 1, 1998
FOR VALUE RECEIVED, the undersigned FIBERSTARS, INC. ("Borrower") promises to
pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank") at its
office at Santa Clara Valley RCBO, 121 Park Center Plaza 3rd Flr, San Jose, CA
95115, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of $500,000.00, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
INTEREST/FEES:
(a) Interest. The outstanding principal balance of this Note shall bear
interest at a rate per annum (computed on the basis of a 360-day year, actual
days elapsed) .50000% above the Prime Rate in effect from time to time. The
"Prime Rate" is a base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are calculated for
those loans making reference thereto. Each change in the rate of interest
hereunder shall become effective on the date each Prime Rate change is announced
within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on the
28th day of each month, commencing August 28, 1999.
(c) Default Interest. From and after the maturity date of this Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
(d) Commitment Fee. Prior to the initial extension of credit under this Note,
Borrower shall pay to Bank a non-refundable commitment fee of $500.00.
(e) Collection of Payments. Borrower authorizes Bank to collect all interest
and fees due hereunder by charging Borrower's demand deposit account number
4124-053885 with Bank, or any other demand deposit account maintained by any
Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such demand deposit account to pay all such sums when due, the full
amount of such deficiency shall be immediately due and payable by Borrower.
BORROWING AND REPAYMENT:
(a) Use of Proceeds; Limitation on Borrowings. Each advance under this Note
shall be available solely to finance Borrower's purchase of new and/or used
equipment to be used in Borrower's business. Each advance shall be available to
a maximum of 80.0% of the cost or appraised value (as required by Bank) of the
new equipment purchased with the proceeds thereof, and 75.0% of the cost or
appraised value (as required by Bank) of the used equipment purchased with the
proceeds thereof, as evidenced by copies of invoices and/or appraisals
acceptable to Bank.
Page 17
<PAGE>
(b) Borrowing and Repayment. Borrower may from time to time during the term of
this Note borrow and partially or wholly repay its outstanding borrowings,
subject to all of the limitations, terms and conditions of this Note and of any
document executed in connection with, or at any time as a supplement to, this
Note; provided however, that amounts repaid may not be reborrowed; and provided
further, that the total borrowings under this Note shall not exceed the
principal amount stated above. The unpaid principal balance of this obligation
at any time shall be the total amounts advanced hereunder by the holder hereof
less the amount of any principal payments made hereon by or for any Borrower,
which balance may be endorsed hereon from time to time by the holder. The
outstanding principal balance of this Note shall be due and payable in full on
August 1, 1999, unless said balance is refinanced by Bank pursuant to the
provisions of (d) below.
(c) Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(i) DAVID N. RUCKERT or ROLAND DENNIS or BOB CONNORS, any one acting alone, who
are authorized to request advances and direct the disposition of any advances
until written notice of the revocation of such authority is received by the
holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any account of any Borrower with the holder,
which advances, when so deposited, shall be conclusively presumed to have been
made to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any Borrower.
(d) Refinancing. So long as Borrower is in compliance with all terms and
conditions contained herein and in any loan agreement or other loan documents in
effect between Borrower and Bank on the maturity date set forth above (or on
such earlier date as may be requested by Borrower), and Borrower executes a new
promissory note and such other documents as Bank shall require, all in form and
substance satisfactory to Bank, Bank agrees to refinance the then outstanding
principal balance of this Note on the following terms and conditions:
(i) The outstanding principal balance of this Note shall be amortized over 3
years and shall be repaid in 36 monthly installments over said term, as set
forth in the promissory note executed by Borrower to evidence such refinancing.
(ii) The outstanding principal balance so refinanced shall bear interest at
a rate per annum (computed on the basis of a 360-day year, actual days elapsed)
0.500% above Bank's Prime Rate in effect from time to time.
COLLATERAL:
As security for the payment and performance of all obligations of Borrower
under this Note, Borrower grants to Bank security interests of first priority
(except as agreed otherwise by Bank in writing) in the following property of
Borrower, now owned or at any time hereafter acquired: all equipment financed
with the proceeds of this note, together with security interests in all other
personal property of Borrower now or at any time hereafter pledged to Bank as
collateral for any other commercial credit accommodation granted by Bank to
Borrower. All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank shall
reasonably require, all in form and substance satisfactory to Bank. Borrower
shall reimburse Bank immediately upon demand for all costs and expenses incurred
by
Page 18
<PAGE>
Bank in connection with any of the foregoing security, including without
limitation, filing fees and allocated costs of collateral audits.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this Note,
or any defined event of default under any loan agreement now or at any time
hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of this
Note, at the holder's option, may declare all sums of principal, interest, fees
and charges outstanding hereunder to be immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are expressly
waived by each Borrower, and the obligation, if any, of the holder to extend any
further credit hereunder shall immediately cease and terminate. Each Borrower
shall pay to the holder immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of the holder's in-house
counsel), incurred by the holder in connection with the enforcement of the
holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any of the foregoing incurred in connection with any
bankruptcy proceeding relating to any Borrower.
(b) Obligations Joint and Several. Should more than one person or entity sign
this Note as a Borrower, the obligations of each such Borrower shall be joint
and several.
(c) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FIBERSTARS, INC.
By: /s/ David N. Ruckert
--------------------------------
Title: President, CEO
-----------------------------
Page 19
EX-10.31
EXHIBIT A
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$2,500,000.00 San Jose, California
August 1, 1999
FOR VALUE RECEIVED, the undersigned FIBERSTARS, INC. ("Borrower")
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank")
at its office at Santa Clara Valley RCBO, 121 Park Center Plaza, 3rd Floor, San
Jose, CA 95115, or at such other place as the holder hereof may designate, in
lawful money of the United States of America and in immediately available funds,
the principal sum of $2,500,000.00, or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
INTEREST/FEES:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days
elapsed) at a rate per annum .12500% above the Price Rate in effect
from time to time. The "Prime Rate" is a base rate that Bank from time
to time establishes and which serves as the basis upon which effective
rates of interest are calculated for those loans making reference
thereto. Each change in the rate of interest hereunder shall become
effective on the date each Prime Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable on
the 28th day of each month, commencing August 28, 1999.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and
payable by acceleration or otherwise, the outstanding principal
balance of this Note shall bear interest until paid in full at an
increased rate per annum (computed on the basis of a 360-day year,
actual day elapsed) equal to 4% above the rate of interest form time
to time applicable to this Note.
(d) Commitment Fee. Prior to the initial extension of credit under this
Note, Borrower shall pay to Bank a non-refundable commitment fee of
$6,250.
(e) Collection of Payments. Borrower authorizes Bank to collect all
interest and fees due hereunder by charging Borrower's demand deposit
account number 4124-053885 with Bank, or any other demand deposit
account maintained by any Borrower with Bank, for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrower.
Page 20
<PAGE>
SIGHT AND USANCE COMMERCIAL AND STANDBY LETTER OF CREDIT SUBFEATURE:
(a) Letter of Credit Subfeature. As a substitute under this Note, Bank
agrees from time to time during the term hereof to issue standby
letters of credit for the account of Borrower to finance to guarantee
renal payments and/or sight commercial and usance commercial letters
of credit for the account of Borrower to finance Borrower's inventory
purchases (each, a "Letter of Credit" and collectively, "Letters of
Credit"); provided however, that the form and substance of each Letter
of Credit shall be subject to approval by Bank, in its sole
discretion; and provided further, that the aggregate undrawn amount of
all outstanding Letters of Credit shall not at any time exceed
$400,000.00. Each standby Letter of Credit shall be issued for a term
not to exceed 365 days, and each commercial Letter of Credit shall be
issued for a term not to exceed 180 days, as designated by Borrower;
provided however, that no standby Letter of Credit shall have an
expiration date subsequent to the maturity date of this Note, and no
commercial Letter of Credit shall have an expiration date of more than
90 days beyond the maturity date of this Note. The undrawn amount of
all Letters of Credit shall be reserved under this Note and shall not
be available for borrowings hereunder. Each Letter of Credit shall be
subject to the additional terms and conditions of the Letter of Credit
Agreement and related documents, if any, required by Bank in
connection with the issuance thereof. Each draft paid by Bank under a
Letter of Credit shall be deemed an advance under this Note and shall
be repaid by Borrower in accordance with the terms and conditions of
this Note; provided however, that if advances hereunder are not
available, for any reason, at the time any draft is paid by Bank, then
Borrower shall immediately pay to Bank the full amount of such draft,
together with interest thereon form the date such amount is paid by
Bank to the date such amount is fully repaid by Borrower, at the rate
of interest applicable to advances hereunder. In such event Borrower
agrees that Bank, in its sole discretion, may debit any demand deposit
account maintained by Borrower with Bank for the amount of any such
draft. Notwithstanding the foregoing, usance commercial Letters of
Credit shall be issued only to finance Borrower's importation of goods
into the United States, and shall contain such provisions and be
issued in such manner as to satisfy Bank that any bankers' acceptance
created by Bank's acceptance of a draft thereunder shall be eligible
for discount by a Federal Reserve Bank, will not result in a liability
of Bank subject to reserve requirements under any law, regulation or
administrative order, and will not cause Bank to violate any lending
limit imposed upon Bank by any law, regulation or administrative
order. Usance commercial Letters of Credit shall provide for drafts
thereunder with terms which do not exceed the lesser of 180 days or
such other period of time as may be necessary for the acceptance
created thereunder to be eligible for discount and otherwise comply
with the terms and conditions of this Note; provided however, that no
usance commercial Letter of Credit shall provide for drafts with terms
that extend more than 90 days beyond the maturity date of this Note.
The amount of each draft accepted by Bank under a usance commercial
Letter of Credit shall be paid by Borrower in accordance with the
terms and conditions of this Note applicable to Acceptance.
(b) Letter of Credit Fees. Borrower shall pay to Bank (i) fees upon the
issuance of each standby Letter of Credit equal to 1.000% per annum
(computed on the basis of a 360-day year, actual days elapsed) of the
face amount thereof, and (ii) fees upon the issuance of each
commercial Letter of Credit, upon the payment or
Page 21
<PAGE>
negotiation by Bank of each draft under any Letter of Credit and upon
the occurrence of any other activity with respect to any Letter of
Credit (including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with
Bank's standard fees and charges then in effect for such activity.
CLEAN AND DOCUMENTARY ACCEPTANCE SUBFEATURE:
(a) Acceptance Subfeature. As a subfeature under this Note, Bank agrees
from time to time during the term hereof to create bankers' acceptance
(each, an "Acceptance" and collectively, "Acceptances") for the
account of Borrower (i) by accepting drafts drawn on Bank by Borrower
for the purpose of financing Borrower's importation of goods in the
United States and (ii) by accepting time drafts presented under usance
commercial Letters of Credit issued by Bank for the account of
Borrower under this Note; provided however, that the form and
substance of each Acceptance shall be subject to approval by Bank, in
its sole discretion; and provided further, that the aggregate amount
of all outstanding Acceptances shall not at any time exceed
$400,000.00. Each Acceptance created by Bank's acceptance of a draft
drawn on Bank by Borrower shall be in the minimum amount of $5,000.00.
Each Acceptance shall be subject to the additional terms and
conditions of an Acceptance Agreement in form and substance
satisfactory to Bank. Each Acceptance shall be created for a term not
to exceed the lesser of 365 days, as designated by Borrower, or such
period of time as may be necessary to comply with the terms of the
Acceptance Agreement; provided however, that no Acceptance shall
mature more than 90 days beyond the maturity date of this Note. The
outstanding amount of all Acceptances shall be reserved under this
Note and shall not be available for borrowings hereunder. The amount
of each Acceptance which matures shall be deemed an advance under this
Note and shall be repaid by Borrower in accordance with the terms and
conditions of this Note; provided however, that if advances hereunder
are not available, for any reason, at the time any Acceptance matures,
then Borrower shall immediately pay to Bank the full amount of such
matured Acceptance, together with interest thereon form the date such
Acceptance matures to the date such amount if fully repaid by
Borrower, at the rate of interest applicable to advances hereunder. In
such event Borrower agrees that Bank, in its sole discretion, may
debit any demand deposit account maintained by Borrower with Bank for
the amount of any such Acceptance. All Acceptances created by Bank's
acceptance of drafts drawn on Bank by Borrower shall be discounted
with Bank. Bank shall not be obligated to discount Acceptances created
by Bank's acceptance of time drafts presented under usance commercial
Letters of Credit.
(b) Acceptance Fees. For each Acceptance created hereunder, Borrower shall
pay to Bank on the date such Acceptance is created an acceptance fee
determined in accordance with Bank's standard fees and charges then in
effect for the creation of Acceptances.
Page 22
<PAGE>
BORROWING AND REPAYMENT:
(a) Use of Proceeds. Advances under this Note shall be available solely to
finance working capital requirements.
(b) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection
with, or at any time as a supplement to, this Note; provided however,
that the total outstanding borrowings under this Note shall not at any
time exceed the principal amount stated above; and provided further,
that Borrower shall maintain a zero balance on advances under this
Note for a period of at least 30 consecutive days during each fiscal
year. The unpaid principal balance of this obligation at any time
shall be the total amounts advanced hereunder by the holder hereof
less the amount of any principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by
the holder. The outstanding principal balance of this Note shall be
due and payable in full on August 15, 1999; except with respect to any
draft paid by Bank under a commercial Letter of Credit and any
Acceptance which matures subsequent to said date, the full amount of
which shall be due and payable by Borrower immediately upon payment by
Bank or at such maturity as applicable.
(c) Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written
request of (i) David N. Ruckert or Roland Dennis or Bob Connors, any
one acting alone, who are authorized to request advances and direct
the disposition of any advances until written notice of the revocation
of such authority is received by the holder at the office designated
above, or (ii) any person, with respect to advances deposited to the
credit of any account of any Borrower with the holder, which advances,
when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that
persons other than those authorized to request advances may have
authority to draw against such account. The holder shall have no
obligation to determine whether any person requesting an advance is or
has been authorized by any Borrower.
EVENTS OF DEFAULT:
Any default in the payment or performance of any obligation under this Note, or
any defined event of default under any loan agreement now or at an time
hereafter in effect between Borrower and Bank (whether executed prior to,
concurrently with or at any time after this Note), shall constitute an "Event of
Default" under this Note.
MISCELLANEOUS:
a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal,
interest, fees and charges outstanding hereunder to be immediately due
and payable without presentment, demand, notice of nonperformance,
notice of protest, protest or notice of dishonor, all of which are
expressly waived be each Borrower, and the obligation, if any, of the
holder to extend any further credit hereunder shall immediately cease
and terminate. Each Borrower shall pay to the holder immediately upon
demand the full amount of all payments, advances, charges,
Page 23
<PAGE>
costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's in-house
counsel), expanded or incurred by the holder in connection with the
enforcement of the holder's rights and/or the collection of any
amounts which become due to the holder under this Note, and the
prosecution or defense of any action in any way related to this Note,
including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion
brought by Bank or any other person) relating to any Borrower or any
other person or entity.
b) Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each
such Borrower shall be joint and several.
c) Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
FIBERSTARS, INC.
By: /s/ David N. Ruckert
---------------------------------------
David N. Ruckert, President/Chief
Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,096
<SECURITIES> 0
<RECEIVABLES> 5,114
<ALLOWANCES> 68
<INVENTORY> 4,017
<CURRENT-ASSETS> 12,981
<PP&E> 5,014
<DEPRECIATION> 2,839
<TOTAL-ASSETS> 19,403
<CURRENT-LIABILITIES> 4,444
<BONDS> 0
<COMMON> 13,946
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 19,403
<SALES> 24,083
<TOTAL-REVENUES> 24,096
<CGS> 13,969
<TOTAL-COSTS> 13,969
<OTHER-EXPENSES> 8,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,440
<INCOME-TAX> 524
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 916
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
</TABLE>
