UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2004

or

[     ] 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 0-27202

ADVANCED LIGHTING TECHNOLOGIES, INC.

440 / 519-0500

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check (ü) 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 [    ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [    ] No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]

There were 1,131 shares of the Registrant’s Common Stock, $.001 par value per share, outstanding as of August 31, 2004.

Documents Incorporated by Reference

None

INDEX

Advanced Lighting Technologies, Inc.

1

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Report contains statements which constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of places in this Report and include statements regarding the intent, belief or current expectations of Advanced Lighting Technologies, Inc. and its subsidiaries (the “Company” or “ADLT”), its directors or its officers. For this purpose, any statement contained herein that is not a statement of historical fact may be deemed to be a forward-looking statement. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” and similar expressions are intended to identify forward-looking statements. On February 5, 2003, the Company, and six of its United States subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. On December 10, 2003, the Company put into effect its Plan of Reorganization, previously confirmed by the Bankruptcy Court, and emerged from bankruptcy protection. The forward looking statements include statements with respect to, among other things: (i) the Company’s financing plans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) continued growth of the metal halide lighting market; (iv) the Company’s operating strategy and growth strategy; (v) potential acquisitions or joint ventures by the Company; (vi) the declaration and payment of dividends; (vii) litigation affecting the Company; (viii) the timely development and market acceptance of new products; (ix) the ability to provide adequate incentives to retain and attract key employees; and (xi) the impact of competitive products and pricing. Prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward looking statements as a result of various factors. The accompanying information contained in this Report, including without limitation the information set forth under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” identifies important factors that could cause such differences.

PART I

Item 1. Business

Background

The Company was formed on May 19, 1995 and acquired ownership, primarily by merger of affiliated companies that were previously under common ownership and management (the “Predecessors”). Unless the context otherwise requires, the “Company” refers to Advanced Lighting Technologies, Inc., its subsidiaries and the Predecessors. Industry data in this Report with respect to the lighting industry is reported on a calendar year basis and includes the industrial, commercial and residential sectors but not the automotive sector. Unless otherwise stated herein, such industry data is derived from selected reports published by the National Electrical Manufacturers Association (“NEMA”).

The Company

Advanced Lighting Technologies, Inc. is an innovation-driven designer, manufacturer and marketer of metal halide and other lighting products that participates in the global lighting market. Metal halide lighting combines superior energy efficient illumination with long lamp (i.e., light bulb) life, excellent color rendition and compact lamp size. The Company believes that it is the only designer and manufacturer in the world focused primarily on metal halide lighting. As a result of this unique focus, the Company has developed substantial expertise in all aspects of metal halide lighting. The Company

2

believes that this focus enhances its responsiveness to customer demand and has contributed to its technologically advanced product development and manufacturing capabilities.

The Company has derived a substantial portion of its net sales from international business. Revenues from customers outside of the United States represented approximately 50% of net sales for fiscal 2004. The Company’s operations in India now produce about two-thirds of its component products sold worldwide. International markets represent long-term attractive opportunities for metal halide lighting products due to the increasing demand for energy-efficient lighting products. The energy efficiency of metal halide lighting is especially desirable in developing nations such as China due to the relatively higher cost of energy and the high cost of power plant construction in these countries.

In the United States, the metal halide market is the fastest growing segment of the lighting market, demonstrated by metal halide lamp sales having grown at a compound annual rate of approximately 10% in the past decade, although growth has varied substantially from year to year. In recent years, sales of metal halide products in calendar year 2003 were comparable to those in fiscal 2000, primarily due to the weakness of the U.S. economy over that past several years. However, sales in calendar 2002 and calendar 2003 were up 3% per year over the sales in the previous calendar year. In light of these results, the Company believes the U.S. metal halide industry is beginning to recover and that sales of metal halide lighting will begin to grow moderately. The Company’s strong market position, new product development capabilities, and participation in international markets have enabled the Company to increase its revenues in its core metal halide operations at rates in excess of the growth of the domestic metal halide market. The Company has integrated vertically to design, manufacture and market a broad range of metal halide products, including materials used in the production of lamps, and lamps and other components for lighting systems as well as metal halide lighting systems. The Company’s materials and components are used in the manufacture of its own lighting systems for sale to end-users and are sold to third-party manufacturers for use in the production of their metal halide products.

Metal Halide

Invented approximately 40 years ago, metal halide is the newest of all major lighting technologies and can produce the closest simulation to sunlight of any available lighting technology. Metal halide lighting is currently used primarily in commercial and industrial applications such as manufacturing facilities and distribution centers, outdoor site and landscape lighting, sports facilities and large retail spaces such as superstores. In addition, due to metal halide’s superior lighting characteristics, the Company believes many opportunities exist to “metal halidize” applications currently dominated by older incandescent and fluorescent lighting technologies. For example, a 100-watt metal halide lamp, which is approximately the same size as a household incandescent lamp, produces as much light as five 100-watt incandescent lamps and as much as three 34-watt, four-foot long fluorescent lamps. However, metal halide lamps are not compatible with the substantial installed base of incandescent and fluorescent lighting fixtures. While metal halide systems generally offer lower costs over the life of a system, the installation of a metal halide lighting system typically involves higher initial costs than incandescent and fluorescent lighting systems.

While domestic sales of incandescent and fluorescent lamps have grown at a compound annual rate of approximately 2% over the past decade, domestic metal halide lamp sales have grown at a compound annual rate of approximately 10% over the same period, making metal halide the fastest growing segment of the approximately $2.4 billion domestic lamp market. In 2003, metal halide accounted for approximately 10.5% of domestic lamp sales by dollar volume.

The Company believes that the growth of metal halide lighting noted above has occurred primarily in commercial and industrial applications. In recent years, metal halide systems have been introduced in

3

fiber optic, electronic display projectors and automotive headlamp applications, and the Company expects that these and other applications will continue to drive growth in metal halide lighting. The Company believes that additional opportunities for metal halide lighting exist in other applications where energy efficiency and light quality are important. As a result of the Company’s dominant position in metal halide materials, the Company expects to benefit from continued growth in metal halide markets. In addition, the Company expects to be a leader in metal halide’s continued market expansion by providing innovative metal halide system components and integrated systems.

Recent Developments

Emergence from Bankruptcy

On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its United States subsidiaries, (collectively, the “Debtors”), completed their previously announced financial restructuring when their Fourth Amended Chapter 11 Plan of Reorganization (the “Final Plan”) under the U.S. Bankruptcy Code (the “Bankruptcy Code”) became effective and was substantially consummated. ADLT’s non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S. subsidiary, were not a part of the proceedings under the Bankruptcy Code.

The Debtors filed for reorganization under the Bankruptcy Code on February 5, 2003 (the “Filing”). From February 5, 2003 to December 10, 2003, the Debtors operated their businesses as debtors-in-possession under court protection from their creditors and claimants. Following approval by the creditors, preferred shareholders and the common shareholders of the Predecessor Company entitled to vote on the reorganization plan, on December 8, 2003, the Bankruptcy Court entered an order confirming the Final Plan. On December 10, 2003, the Effective Date of the Final Plan occurred and the reorganization of the Company was substantially completed.

Pursuant to the terms of the Final Plan, Saratoga Lighting Holdings, LLC (“Saratoga”) received, in exchange for cancellation of its holdings of the Predecessor Company’s Series A Preferred Stock and Common Stock, and an $18 million cash investment, new redeemable preferred stock of the Reorganized Company, with an initial liquidation preference of $29 million, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis, assuming issuance of common stock of the Reorganized Company to its senior management pursuant to the new management incentive plan). Under the management incentive plan, shares equal to approximately 9% of the common stock of the Reorganized Company have been issued. The Final Plan also provided management fees to an affiliate of Saratoga. The fees consist of a one-time advisory fee of $1.8 million that was paid in July 2004 from excess working capital, and a quarterly management fee of $150,000 payable in advance. The advisory fee is included in payables to related parties.

The Final Plan provided that the holders of the Predecessor Company’s Common Stock (other than Saratoga and the Predecessor Company’s Chief Executive Officer) receive the benefit of certain equity investments held by the Predecessor Company in Fiberstars, Inc. and Hexagram, Inc., as well as a possible future payment, based on 3% of amounts received by Saratoga after providing Saratoga with a return of capital plus an agreed rate of return, as more fully described in the Final Plan. Options and warrants to purchase Predecessor Company Common Stock which were not exercised prior to the Effective Date were cancelled.

Effective December 10, 2003, the Predecessor Company’s secured banking facility was amended and restated to provide financing for the Reorganized Company following emergence from bankruptcy (the amended facility is referred to as the “Bank Credit Facility”). The Bank Credit Facility is a $30 million

4

facility that consists of a term loan that requires monthly principal payments of $183,000 ($9.9 million outstanding at June 30, 2004) with a revolving credit loan, subject to availability, making up the remainder of the facility. Availability under the revolving credit loan was $15.6 million and no balance was outstanding on the revolving credit loan at June 30, 2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus 1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit facility and the term loan is December 10, 2008. The financing arrangements are described in greater detail in Note E, “Financing Arrangements.”

With respect to the Predecessor Company’s $100 million 8% Senior Notes due 2008 (the “Old Notes”), the Company had not made the semi-annual interest payments due on September 16, 2002, March 15, 2003, and September 15, 2003. The Company had continued to accrue interest on the Old Senior Notes at 8% through December 31, 2003, and accrued and unpaid interest on the Old Senior Notes would have been $14.4 million as of that date. The Final Plan provided that the Old Notes be exchanged for an aggregate principal amount of $114.4 million 11% Senior Notes due 2009 (the “New Notes”). The New Notes bear interest at 11% from January 1, 2004, and become due on March 31, 2009. Upon the Effective Date of the Final Plan, pursuant to the approval of the Plan by holders of the Old Senior Notes, all then existing defaults under the Indenture relating to the Old Senior Notes were waived.

Saratoga Investment

Saratoga acquired all of the Common and Preferred shares owned by GE on August 15, 2003. As a result, Saratoga held 1,429,590 shares of Company Common Stock and 761,250 shares of the Company’s then existing Old Preferred Stock. Saratoga received, in exchange for cancellation of its holdings of the Predecessor Company’s Common Stock and Old Preferred Stock, and an $18 million cash investment, new redeemable preferred stock (the “New Series A Preferred”) of the Reorganized Company, with an initial liquidation preference of $29 million, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis, assuming issuance of common stock of the Reorganized Company to its senior management pursuant to the new management incentive plan). Under the management incentive plan, shares equal to approximately 9% of the common stock of the Reorganized Company have been issued.

The New Series A Preferred has a liquidation preference of $1,000 per share, plus dividends at the rate of 8% per annum, when and if declared. The cumulative undeclared dividends were $1.3 million as of June 30, 2004. The initial carrying amount of the New Series A Preferred was set at $29 million, the estimated fair value at the date of issuance. The Holder of the New Series A Preferred may, by notice, require the Company to redeem the outstanding New Series A Preferred within 21 days following the occurrence of certain corporate events. The Company may redeem the New Series A Preferred in whole, but not in part, at any time. The redemption price for the New Series A Preferred is equal to the liquidation preference amount for such shares. The New Series A Preferred shares are each entitled to one vote on each matter presented to shareholders of the Company, as well as one vote on each matter required to be voted upon by the New Series A Preferred as a class. As a consequence, the New Series A Preferred represents approximately 96.3% of the voting power of the Company at June 30, 2004. As of June 30, 2004, Saratoga held 98.8% of the voting power of the Company.

Executive Offices

The Company’s principal executive offices are located at 32000 Aurora Road, Solon, Ohio 44139 and its telephone number is 440/519-0500.

5

Lighting Industry and Opportunities in Metal Halide Lighting

The Company currently produces metal halide lighting products primarily for commercial and industrial applications. Until recently, metal halide technology served primarily the industrial and outdoor sectors, which the Company estimates, represents approximately one-third of U.S. lighting fixture sales. However, with the miniaturization of metal halide lamps and fixtures and the recognition of the benefits of metal halide technology, including improved light color, energy efficiency, lower operating temperature and safety of metal halide products relative to other technologies, significant opportunities for growth exist. Key factors driving growth in the metal halide industry include:

Demand for Specialized Lamps. The demand for specialized metal halide lamps has increased as the Company’s original equipment manufacturer (“OEM”) and lighting agent customers have recognized the benefits associated with using specialized metal halide products. Although GE, Philips and Sylvania are the lighting industry leaders, these companies have traditionally focused on the larger incandescent and fluorescent markets and have limited production of metal halide lamps to general applications, such as commercial and industrial applications. While these standard-type metal halide lamps represent a substantial majority of total metal halide lamp sales, they do not afford the OEM or lighting agent complete flexibility in designing lighting contract bids. When an agent places his bid for a lighting contract, he may specify the Company’s specialized metal halide lamps that give better light and greater energy savings in an attempt to differentiate his bid from a competitor who only specifies standard products.

Development of New and Advanced Metal Halide Power Supplies. Historically, the introduction of new metal halide lamps and systems has been constrained by the lack of complementary metal halide power supplies. Significant engineering expertise is required to adapt existing power supplies for new metal halide products. The Company believes that while domestic sales of metal halide power supplies approximated $200 million in 2003, power supply manufacturers, like lamp manufacturers, have focused on the larger fluorescent power supply market and, to a lesser extent, on the standard-type metal halide lamp market rather than development of new power supply products for specialized metal halide products and applications. Since the Company acquired its power supply manufacturing operations in 1997, the development of appropriate power supply sources focused on metal halide has enhanced the expansion of metal halide applications, reduced the development time required to introduce new metal halide products and improved the reliability and durability of existing metal halide products.

Opportunity for Integrated Metal Halide Systems. Metal halide systems for commercial and industrial applications are assembled primarily by fixture manufacturers, lighting agents, and intermediaries who are limited in their ability to integrate different components that comprise a metal halide system. The Company believes that significant growth opportunities exist through the packaging of compatible, reliable system components for OEM customers from a single supplier. In addition, the Company believes that metal halide systems have significant potential to displace older lighting technologies in traditional applications. Other more recent applications for metal halide systems include fiber optic systems and automotive headlamps.

International Demand for Metal Halide. International markets represent long-term attractive opportunities for metal halide products as developing nations continue to build infrastructure to support their growing economies. Facilities such as train stations, airports, government buildings, highways and factories all require substantial lighting for which metal halide products are well suited. In addition, given the high energy efficiency of metal halide and the high cost of energy in developing nations (including the high cost of power plant construction), the Company believes that the international metal halide market will grow faster than the United States market in the long term.

6

Strategy — Lighting

The Company believes that metal halide technology represents the best lighting technology for a wide variety of applications, many of which are not yet served by an appropriate metal halide product. As the principal supplier of metal halide materials to the metal halide lamp industry, the Company expects to benefit from continued growth in metal halide markets. The Company also expects to lead metal halide’s continued market expansion, by providing innovative metal halide system components and systems through the operating and growth strategies highlighted below.

The Company’s strategic objective for lighting is to remain focused on the metal halide market and expand its leadership position in the metal halide lighting industry by: (i) continuing to use its vertical integration to introduce new products and applications; (ii) using its experience and technology to continually reduce cost and improve quality to improve cash flow from operations; (iii) strengthening the Company’s relationships with OEMs and lighting agents to increase the number of metal halide applications and the penetration of the Company’s products in new metal halide installations; and (iv) seeking to demonstrate the superiority of metal halide lighting solutions, thereby stimulating domestic and international demand for the Company’s products.

The Company has sought to achieve its strategic objective through internal growth, acquisitions and strategic investments, and focus on cost and quality. The Company’s acquisitions and investments have been made in businesses that, when combined with the Company’s existing capabilities and metal halide focus, are intended to provide technological, product or distribution synergies and offer the potential to enhance the Company’s competitive position or accelerate development of additional metal halide market opportunities. In the future, the Company expects to achieve its strategic objectives primarily through internal growth and focus on cost and quality. However, to the extent its capital resources allow, the Company may consider other possible acquisition and strategic investment opportunities.

Operating Strategy — Lighting

The Company focuses its resources primarily on designing, manufacturing and marketing metal halide materials, system components, and systems. By focusing on metal halide, the Company believes it has developed unique design, manufacturing and marketing expertise. Such expertise provides the Company with significant competitive advantages, which enable the Company to deliver highly customized products to meet customer needs. The Company’s experienced workforce is dedicated to improving metal halide lighting products, production processes and developing new applications for this technology. In order to increase the number of metal halide applications and the penetration of the Company’s products, the Company pursues the following operating strategies:

Continue to Use Vertical Integration

The Company began operations as a manufacturer of metal halide salts and expanded into production of system components, initially lamps. The Company has expanded its focus to include magnetic and electronic power supplies. The Company has broadened its materials manufacturing capabilities to include filtering and optical coatings for lighting applications. Through this vertical integration, the Company is able to develop and package complementary system components which enable metal halide lighting to penetrate applications and markets currently served by older technologies. The Company will continue to use vertically integrated operations where we have competitive advantages based on patent-protected technology and first-to-market product leadership.

7

Improve Operating Cash Flow

In the past the Company depended on outside capital sources to fund growth. In order to reduce this dependence and to improve its operating results, the Company continues to focus primarily on its metal halide products and to use its experience in the design and manufacture of metal halide materials, components and systems and focused metal halide technology to reduce operating costs by improving production processes and product quality without substantial capital investment. The Company has also transferred a significant portion of its component manufacturing to India resulting in further significant reductions in its production cost. Management believes that achieving cost and quality goals will enhance operating cash flow to allow for profitable growth in a tight capital environment. The anticipated improvements should also improve overall financial performance, which will improve the Company’s access to capital for future investments in its business.

Strengthen OEM and Lighting Agent Relationships

The Company concentrates on developing strong relationships with lighting fixture OEMs by providing the key system components for a lighting fixture, either alone or packaged as a unit, tailored to meet their needs. Historically, the Company provided specialized lamps tailored to meet OEM needs. With its ability to design and manufacture power supplies, the Company expects to better meet OEM needs by packaging the principal system components (lamps, power supplies, switches and controls) for a lighting fixture. Frequent interaction with OEMs serves dual purposes, providing the Company with valuable ideas for new component products and providing OEMs with the information necessary to market the Company’s new products. Lamps and power supplies designed for a specific fixture are included with the fixture when sold by the OEM, increasing distribution of the Company’s products. The Company also enters into agreements with lighting agents to pay commissions for selling the Company’s lamps. These commissions provide the agent an incentive to include the Company’s metal halide lamps in its bids on a construction or renovation project.

Seek to Demonstrate Superiority of Metal Halide Lighting Solutions

The Company seeks to demonstrate the superiority of metal halide lighting solutions to its customer base, including OEMs, lighting agents and contractors, thereby stimulating domestic and international demand for the Company’s products. The Company believes that metal halide lighting systems have significant potential to displace older lighting technologies in traditional applications, as well as more recent applications such as fiber optic systems and automotive headlamps.

Long-Term Growth Strategy — Lighting

The Company is continuing to introduce more products for new applications and to expand the distribution channels for its products. The key elements of the Company’s long-term growth strategy include:

Introduce New Products and Systems

The Company believes it has introduced a majority of the new lamps in the domestic, metal halide lamp industry since 1985. As applications become increasingly complex, the advantage of simultaneous design of components as an integrated system is becoming more significant. The Company now manufactures and markets complementary component packages for OEMs. The Company intends to develop, manufacture and market additional types of high performance and technologically advanced metal halide materials, components and systems. Capitalizing on its expanding production and design capability and

8

unique metal halide focus, the Company expects to work with others in the further development of additional specialty systems, such as fiber optic lighting systems.

Increase Sales of Existing Products

By expanding existing relationships and developing new relationships with lighting agents and OEMs, the Company expects to increase sales of existing specialty lamps and power supplies. The Company also expects its sales of replacement lamps, as well as power supplies, to increase as the installed base of fixtures for the Company’s specialty lamps and power supplies increases. The Company expects to increase sales in the replacement lamp market, in part through a novel direct marketing approach to end users. The Company prints its toll-free phone number and web site on most lamps, and customers can order replacement lamps directly from the Company for express delivery. In addition, this interaction with customers provides the Company with the opportunity to market additional metal halide products.

Increase Participation in International Markets

The Company has and plans to continue to increase its participation in international markets in three ways. First, the Company directly exports its products to countries that do not impose restrictive tariffs, local content laws and other trade barriers. The primary countries and regions in which the Company directly markets products are the United Kingdom, Western Europe, Australia, Canada, China and Japan. Second, the Company has pursued and may pursue strategic acquisitions and has built or may build manufacturing facilities in international markets. Third, in countries that impose trade restrictions, the Company has sold production equipment or has entered into joint ventures with local lamp manufacturers. Purchasers of production equipment have become customers for the Company’s metal halide salts, lamp components and other materials. The Company has existing joint ventures in China and Korea.

Products

The Company designs, manufactures and sells metal halide materials, components and systems, which are used in a wide variety of applications and locations including:

- floodlighting		- sports arena lighting		- general lighting
- architectural area lighting		- commercial downlighting		- industrial highbays
- general industrial lighting		- airport and railway station lighting		- tunnel lighting
- billboard and sign lighting		- gas station canopy lighting		- indirect indoor sports and office lighting
- site lighting		- interior downlighting		- parking garage lighting
- soffit lighting		- decorative lighting		- security lighting
- hazardous location lighting		- retail store downlighting and track lighting		- landscape lighting
- accent lighting

The Company also designs, manufactures and sells thin film deposition equipment for the lighting, telecommunications, ophthalmic and optics industries.

Materials

The Company produces and sells metal halide salts, electrodes, amalgams and getters. Metal halide salts are the primary ingredients within the arc tube of metal halide lamps, which determine the lighting characteristics of the lamp. Electrodes form the electrical connections within the lamp. Amalgams are chemicals that are used in the arc tubes of high pressure sodium (“HPS”) lamps and in fluorescent lamps.

9

Getters are devices required to be included in each metal halide lamp to prevent impurities from interfering with lamp operation.

The Company produces over 300 different metal halide salts that can be used in metal halide lamps to produce different lighting characteristics. In addition to meeting its own needs, the Company believes it produces all of the metal halide salts used in metal halide lamps manufactured in the United States, including those manufactured by GE, Philips and Sylvania, and 80% of the metal halide salts used in metal halide lamps manufactured overseas. The Company serves all major lamp manufacturers, each of which uses different metal halide salts. The Company vigorously guards each customers’ specific formulas from other customers, including the Company’s own lamp engineers. Because of its ability to produce these ultra pure metal halide doses, the Company has also been called upon by its lamp manufacturer customer base to produce most of the amalgams used in the domestic production of HPS lighting and, most recently, to develop and supply a new amalgam for fluorescent applications.

The Company also produces optical thin film coatings, including coatings for lighting applications with particular emphasis on coatings on lamp burners, as well as antireflection coatings, and coatings for telecommunications products, multilayer magnetic films and emissivity modification films for classified government applications, and infrared multilayer optical films on flexible polymeric substrates. Through a reactive sputtering process, these coatings are chemically bonded to a product surface. When used in lighting applications, these coatings can significantly improve the optical performance of the light source, protect the system and its components from harmful ultra-violet and infrared radiation, and increase the energy efficiency of the entire system.

Components and Systems

A metal halide lighting system consists of at least a lamp and power supply, but may include a fixture, electronic controls, optical systems, housing, support systems or any other necessary components assembled into a product for an end user. The Company believes it will be able to combine its metal halide expertise and manufacturing capabilities to assist and encourage its customers to design, develop, produce and market metal halide systems for innovative applications.

The Company’s component products include specialty and standard lamps, magnetic and electronic power supplies, system controls and fiber optic components. Specialty lamps are lamps designed and manufactured for particular OEM applications. Standard lamps are high-volume lamps, which the Company primarily manufactures at its lamp manufacturing facility in India or sources from other lamp manufacturers. Power supplies are devices that regulate power and are necessary for operation of HID and fluorescent lamps. System controls are electrical components included in fixtures and systems.

The Company believes it differentiates itself from other metal halide lamp manufacturers by offering a wider variety of lamps, many of which have been customized to offer a specific solution to a lighting problem. Since 1985, the Company believes that it has introduced a majority of the new lamps in the domestic, metal halide lamp industry. Currently, the Company offers approximately 400 lamps ranging from 50 watts to 2,000 watts. In certain instances, the Company produces these products for its competitors on a private label basis in order to capture sales through competitors’ distribution channels. The Company also sells standard-type lamps, which it manufactures at its factory in India or sources from other manufacturers.

In fiscal 1999, the Company introduced its new line of Uni-Form® pulse start products. Uni-Form® pulse start products are a new generation of metal halide components and systems which permit (a) increased light output with lower power utilization, (b) faster starting, (c) a quicker restart of lamps

10

which have been recently turned off, and (d) better color uniformity. In fiscal 2001, the Company began to offer an expanded line of Uni-Form® pulse start lighting components and systems. As part of the expanded line, the Company offers unique retrofit kits that enable customers to convert to second-generation metal halide products without having to replace the entire lighting system. Many utility companies are offering rebates to their customers who purchase the energy-efficient retrofit kits in order to encourage energy conservation.

The Company also manufactures magnetic power supplies for HID lighting systems, currently offering over 450 power supply products. The Company also sells electronic power supplies and controls for metal halide lighting systems.

The Company also believes that it has a significant opportunity to work with others on the application of metal halide technology to fiber optic lighting systems. Because of metal halide lighting’s ability to produce varied lighting effects, it is particularly well suited to be adapted as the light source for fiber optic lighting systems. Fiber optic lighting systems are currently used in accent applications, such as swimming pool lighting or as replacement lighting for neon lighting. In applications such as these, it is important that electricity and heat be located separately from the desired point of light emission.

Production Equipment

The Company has the expertise to manufacture and sell turnkey lamp production manufacturing groups The Company has sold equipment to various unrelated entities in China. A metal halide lamp production equipment group consists of up to 50 different production machines. Each lamp production equipment group sells for between approximately $1.0 million to $5.0 million. In order to maintain manufacturing flexibility, the Company must continually update its own component production equipment, through the internal design and fabrication of production equipment. The Company has leveraged its manufacturing expertise by selling lamp production equipment groups in international markets to independent companies or to joint ventures with local lamp manufacturers. In connection with each lamp production equipment group sale, the Company is required to provide lamp designs and specifications, and production training, at the same time, creating a customer for its materials products.

The Company also manufactures and markets turnkey deposition equipment to produce thin film coatings for a variety of applications. These systems employ sputtering technology to place optically precise thin coatings on lighting components and other materials. When the Company sells a system to a customer, the Company will either operate the system for the customer at the Company’s facility or transfer the system to the customer’s facility.

International Sales

International sales aggregated $37.9 million (51% of net sales) for the six months ended June 30, 2004, $34.8 million (49% of net sales) for the six months ended December 31, 2003, $75.5 million (52% of net sales) for fiscal 2003, and $62.2 million (37% of net sales) for fiscal 2002. For information regarding the Company’s international operations, see Note M to “Notes to Consolidated Financial Statements.”

Product Design and Development

Management believes one of its key strengths is its ability to design and develop new products. The Company has dedicated research and development efforts in each of its product lines having invested $19.3 million or 4.2% of net sales into research and development over the last three full fiscal years. In the six months ended June 30, 2004, the Company invested $2.8 million (3.8% of net sales) in research

11

and development; in the six months ended December 31, 2003, $3.1 million (4.4% of net sales); in fiscal 2003, $6.5 million (4.5% of net sales); and in fiscal 2002, $6.9 million (4.2% of net sales). The Company has developed new applications for metal halide lighting, improved the quality of its materials, and introduced new specialized products, such as the Uni-Form® pulse start products. Uni-Form® pulse start products are a new generation of metal halide components and systems which permit (a) increased light output with lower power consumption, (b) faster starting, (c) a quicker restart of lamps which have been recently turned off, and (d) better color uniformity. Historically, the Company’s efforts primarily have been focused on the development of materials and system components.

Materials

The Company is focused on improving the purity of, and production processes for, metal halide salts. The Company pursues these efforts proactively as well as in response to customer requests for specific metal halide salts. The Company focuses on designing and developing improved electrodes, amalgams and getters used in lamp manufacturing. The Company also expects to continue producing thin film coatings primarily for lighting applications with particular emphasis on coatings on lamp burners, as well as developing related software, and reliable, cost-effective application processes.

Components and Systems

The Company’s product design and development has focused on developing innovative components to meet the specialized needs of various customers, including lighting fixture OEMs. The Company’s product design teams work together with OEMs on the design, development and commercialization of new system components. Such collaborative development efforts have resulted in the design of improved metal halide lamps with reduced wattage, better energy efficiency, smaller size and increased life expectancy.

Marketing and Distribution

The marketing and distribution of the Company’s diverse range of commercial products varies by individual product and by product category, as described below. All sales data are exclusive of inter-company sales.

Materials

The Company markets materials (metal halide and other salts) and thin-film coatings directly to other high intensity discharge lamp manufacturers, primarily GE, Philips and Sylvania for use in their manufacture of lamps. The Company also markets lamp materials to its joint venture partners. In addition, the Company works very closely with its customers to manufacture materials according to their specifications. Certain customer-developed materials are considered proprietary to the Company’s customers. Other lamp components manufactured by the Company are used primarily in the manufacture of its own lamps. The principal customers for the thin-film coating products of the Company include major lamp manufacturers. In addition, the Company markets its thin-film coatings to government suppliers for use in aerospace applications and to fiber optic telecommunications systems manufacturers. Sales of materials accounted for approximately 25.5% of the Company’s revenues for the six months ended June 30, 2004, 24.3% for the six months ended December 31, 2003, 20.5% in fiscal 2003 and 15.5% in 2002.

12

System Components

Electrical distributors typically market only standard-type lamps, and the Company believes that its specialty lamp products do not lend themselves to the traditional marketing channels associated with standard-type lamp products. Accordingly, the Company has adopted innovative marketing techniques for its lamps. As a result, in initial distribution, the Company markets its metal halide system components through OEMs, which generally have been involved in the design of the lamp, and commissioned lighting agents, who package the Company’s lamps and power supplies in their bids on construction or renovation projects. Due to the fact that the Company’s lamps are produced to the specifications required to match a particular fixture or use by an OEM, the Company’s lamp will generally be included with the fixture each time the fixture is sold. The Company intends to market complementary lamps and power supplies as a package to provide better service to its OEM customers and lighting agents, as well as to increase sales.

The Company also has distributed its metal halide lamps through lighting agents. Unlike GE, Philips and Sylvania, which each have extensive local distributor relationships, the Company has entered into agency agreements with lighting agents who represent a full line of fixture manufacturers, under which the agent receives a commission for selling the Company’s lamps. The Company believes it is the only major lamp manufacturer to distribute its products through lighting agents. This relationship allows the lighting agent to package the Company’s metal halide lamps with the other products included in its bid on a project. By bidding a more complete or unique package, the lighting agent has a competitive advantage over less complete bids and, if selected, earns a commission on Company lamps sold, which agents generally do not receive from other lamp suppliers.

The Company intends to increase its sales of replacement lamps through direct marketing by exploiting both the Company’s internally developed capabilities. Since 1994, the Company has printed its toll-free number on most lamps that it sells, allowing a customer to call the Company, rather than an electrical distributor, to order a replacement lamp. This enables the customer to speak to a more knowledgeable representative, thereby increasing the accuracy and efficiency of service to the end user. This interaction also allows the Company to suggest enhanced products better suited for the end user’s needs. In addition, the Company telemarkets replacement lamps in connection with catalogue distributions. Lamps are delivered by express courier to end users, thereby providing service efficiency comparable to local electrical distributors. Replacement lamps are typically sold at a higher gross margin than lamps sold initially through OEMs or lighting agents.

In addition to packaging power supplies with lamps, the Company is continuing direct marketing to OEMs and sales through electrical distributors. Sales of system components accounted for approximately 66.1% of the Company’s revenues for the six months ended June 30, 2004, 66.6% for the six months ended December 31, 2003, 66.1% in fiscal 2003 and 55.4% in fiscal 2002.

Systems

Several of the Company’s foreign operations market Ruud Lighting systems. Prior to the sale of the Company’s fixture subsidiaries in December 2001, most of the Company’s commercial lighting system sales were made by these subsidiaries and were marketed primarily under the trade name “Ruud Lighting.” Ruud Lighting marketed and distributed its products primarily by direct marketing to lighting contractors. In addition to fixture products that are sold by some of the Company’s foreign operations including fixtures purchased from Ruud Lighting, the Company’s remaining system products are “retrofit kits,” which combine the Company’s lamps, power supplies and/or other components in a single system. These retrofit kits allow an end user to replace the lighting system within an installed fixture to improve

13

lighting and/or energy efficiency with minimal out-of-pocket cost. By marketing these retrofit metal halide systems, the Company believes it may capture a greater market share in the metal halide industry. See also “Recent Developments.”

Systems accounted for approximately 5.7% of the Company’s revenues for the six months ended June 30, 2004, 6.5% for the six months ended December 31, 2003, 6.2% in fiscal 2003 and 26.6% in fiscal 2002.

Production Equipment

The Company’s production equipment is manufactured for internal use and is marketed to existing companies for turnkey production of thin-film coatings and metal halide lamps. External sales of production equipment accounted for approximately 2.7% of the Company’s revenues for the six months ended June 30, 2004, 2.6% for the six months ended December 31, 2003, 7.2% in fiscal 2003 and 2.5% in fiscal 2002.

Manufacturing and Operations

The Company’s lamp manufacturing facility in Chennai (Madras), India operates six days a week, 16 hours a day, with the Company’s lamp manufacturing employees working in two eight-hour shifts each day. The Company’s lamp manufacturing facility in Solon, Ohio operates five days a week with one full shift and a partial second shift. The manufacturing of metal halide lamps consists of three primary processes. First, the quartz arc tube is shaped, electrodes for carrying the current are installed, the metal halide salt dose is introduced and the arc tube is sealed. The process is performed at high temperatures in carefully controlled conditions to ensure that the arc tube is properly sealed and that no impurities enter the arc tube. Second, the arc tube is mounted inside a borosilicate glass container and sealed. Finally, the lamp is finished by adding an electrical contact. Although light output of metal halide lamps is not affected by ambient temperatures, an outer bulb is used to prevent contact with the arc tube, which operates at extremely high temperatures. Quartz and borosilicate glass are used in the production of metal halide lamps because of their durability and ability to retain shape and function at extremely high temperatures. Finished lamps are inspected, tested and then shipped in accordance with customer instructions. The Solon facility also houses research and development operations and lamp production equipment operations.

The Company produces magnetic power supplies at its facility in Amherst, Nova Scotia, which operates five days a week with one full shift and a partial second shift. The Company also produces magnetic power supplies at its facility in Chennai (Madras) India, which operates six days a week with two full shifts. The manufacture of magnetic power supplies is a combination of batch and production line processes. The production line process starts with a coil winding department, progresses to an in-line coil and core operation and then to final assembly. Subassemblies for ignitors and capacitors are located off-line in a batch operation for inclusion in final assembly.

The Company produces all of the metal halide salts it uses and sells at its facility in Urbana, Illinois. The Urbana facility, with approximately 90 employees working a single shift, also produces precision metal pieces and high-speed dispensers for salts and metal pieces that are used by the Company and sold to other metal halide lamp manufacturers.

At the Company’s facility in Santa Rosa, California, the Company produces optical thin film coatings for a variety of applications, as well as equipment for deposition of thin film coatings. The facility operates five days per week with three eight-hour shifts per day. Coatings and systems are produced in accordance with exacting customer specifications. Management believes that its optical coatings operation has

14

expertise over a broad range of thin film deposition technologies allowing application of the coating technology most suitable for a particular client need.

Raw Materials and Suppliers

The Company sources its raw materials from a variety of suppliers. Presently, it sources most of its quartz tubing and borosilicate glass bulbs for lamps from GE and Osram-Sylvania. Although an interruption in these supplies could disrupt the Company’s operations, the Company believes that alternative sources of supply exist and could be arranged prior to the interruption having a material adverse effect on the Company’s operations or sales. The materials for the Company’s power supply products are readily available on the open market. The Company also purchases certain of its industrial standard-type lamps from GE.

Most of the raw materials used in the production of metal halide salts can be sourced from several suppliers. The Company has been the dominant supplier of metal halide salts to the metal halide lamp industry for many years. Therefore, the Company has focused on addressing any circumstance that could jeopardize the continued production of these vital materials. In this regard the Company has a 40% ownership interest in Aldrich-APL LLC, a manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications, which serves as one of the Company’s raw materials suppliers. Since the Company is the primary supplier of metal halide salts to the metal halide lamp industry, any disruption in supply would also affect each producer of the affected lamp type. Raw materials and components for coatings and equipment are sourced from outside suppliers. The Company has multiple qualified sources for critical materials and components.

Competition

General

Metal halide systems compete with other types of lighting technology for many applications. The Company’s metal halide lamps compete with lamps produced by other metal halide lamp manufacturers, primarily GE, Philips and Osram-Sylvania. Metal halide technology is the newest of all lighting technologies and although the market awareness and the uses of metal halide lamps continue to grow, competition exists from older technologies in each metal halide application.

Materials

The Company produces materials that are used by the Company and virtually all other manufacturers of metal halide lamps. In metal halide salts, where the Company has successfully used its technology focus and manufacturing capability to develop superior products, the Company believes it has no competitors in the United States and only several smaller competitors internationally. The competition in salts is based on the technological ability to develop salt formulation for customers and maintain product uniformity and purity. The Company believes it is the leading producer of salts because it is the leader in uniformity and purity. In other materials categories, the Company’s chief competition is internal production by GE, Philips and Sylvania. The competition in these products is based primarily on price and delivery, with some competition based on technological ability to create solutions for unique applications. The Company’s products compete most effectively for external sales where they are created for unique applications.

The Company’s optical coatings unit has one or two principal competitors in each of its traditional markets (lighting, coating equipment and government/aerospace). The Company believes that

15

competition in thin film coatings is generally based on quality of coatings, technological expertise to design and deliver customized coating solutions and customer service. The Company believes that it competes successfully on the basis of all three of these measures. While competition is strenuous with these existing competitors, management believes that the high technical content of the products and services in these markets make entry by new thin film coating manufacturers relatively difficult.

System Components

GE, Philips and Sylvania are the Company’s principal competitors in the production of metal halide lamps. Although GE, Philips and Sylvania have focused their efforts on the larger incandescent and fluorescent markets, all three companies produce metal halide lamps. These three companies have emphasized sales of a relatively small variety of standard-type metal halide lamps, such as those found in the most common commercial and industrial applications, which the Company believes represents approximately 75% of the total metal halide lamp segment.

Although the Company believes its technical and engineering expertise in the production of specialty metal halide lamps and its unique marketing approach give it a competitive advantage in this market, the Company’s three primary competitors have significantly longer operating histories, substantially greater financial, technical and other resources and larger marketing and distribution organizations than the Company and could expand their focus into specialty lamps.

The Company does not believe that the foreign lamp manufacturers to whom the Company has sold lamp production equipment compete with the Company’s specialty products. Due to the technical and engineering expertise required to produce a new type of metal halide lamp, these purchasers have typically only produced the standard-type lamps in which the Company has trained them. Although these purchasers could potentially produce specialty lamp types to compete with the Company, these purchasers would need to develop or acquire the expertise required to produce specialty metal halide lamps.

The Company’s power supply products compete primarily with products of two manufacturers, Advance Transformer, a subsidiary of Philips, and Universal/MagneTek, both headquartered in the United States. Both these companies have focused on the large fluorescent power supply market whereas the focus of the Company’s power supply operations has been in HID magnetic power supplies for use primarily in metal halide applications. Competition in power supplies has traditionally depended on price and delivery, which has resulted in the failure to develop power supplies to optimize metal halide lighting systems. The Company’s power supply operations intend to compete on the ability to deliver power supplies that are designed to enhance performance of metal halide lighting systems.

Systems

Lighting systems compete on the basis of system cost, operating cost, quality of light and service. The Company feels that metal halide systems compete effectively against other technologies in each of these areas in many applications. The lighting systems market is highly fragmented. Competitors generally market their systems through distributors and lighting agents.

16

Intellectual Property

The Company relies primarily on trade secret, trademark, and patent laws to protect its rights to certain aspects of its products, including proprietary manufacturing processes and technologies, product research and concepts and trademarks, all of which the Company believes are important to the success of its products and its competitive position. In the past, the Company has successfully taken legal action to enjoin misappropriation of trade secrets by other parties. Any litigation involving misappropriation of the Company’s trade secrets or other intellectual property rights could require the Company to increase significantly the resources devoted to such efforts. The patent positions of companies such as the Company can be highly uncertain and involve complex legal and factual questions, and therefore the breadth of claims allowed in such patents and their enforceability cannot be predicted. Nevertheless, as an innovation-driven designer and manufacturer, the Company will continue to develop new products and processes and will seek to protect its rights through the continued use of patents and other means.

Environmental Regulation

The Company’s operations are subject to federal, state, local and foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials as well as laws relating to occupational health and safety. The Company believes that its business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations, many of which provide for substantial fines and criminal sanctions for violations. However, the operations of manufacturing plants entail risks in these areas, which could potentially result in significant expenditures in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

The Company believes that the overall impact of compliance with regulations and legislation protecting the environment will not have a material effect on its future financial position or results of operations. Capital expenditures and operating expenses in fiscal 2004, fiscal 2003 and fiscal 2002 attributable to compliance with such legislation were not material.

Employees

As of June 30, 2004, the Company had approximately 1,480 full-time employees, consisting of employees engaged in the designing, manufacturing and marketing of materials (170 employees), system components and systems (1,278 employees), and production equipment (20 employees) and 12 employees in corporate/administrative services. The Company believes that its employee relations are good. The Company’s employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage.

17

Item 2. Properties

The Company’s headquarters are located in Solon, Ohio, and the Company maintains manufacturing facilities in California, Ohio, Illinois, Chennai (Madras), India, and Nova Scotia, Canada. Set forth below is certain information with respect to the Company’s principal facilities as of June 30, 2004:

The Solon, Ohio facility is subject to a mortgage of $4.3 million as of June 30, 2004. The Urbana, Illinois facility is a portion of the security for the Bank Credit Facility (see Note E “Financing Arrangements,” in Notes to Consolidated Financial Statements in Item 8). The aggregate annual rental cost of leased facilities is approximately $1.2 million, and the average remaining lease term is 7 years.

18

Item 3. Legal Proceedings

On February 5, 2003, the Company and all of its U.S.-based subsidiaries (excluding Deposition Sciences, Inc.) each voluntarily filed for protection under the provisions of Chapter 11 of the Federal Bankruptcy Code. Following confirmation of the Company’s Fourth Amended Plan of Reorganization by the Bankruptcy Court on December 8, 2003, the Plan became effective on December 10, 2003. See “Emergence from Bankruptcy” under “Recent Developments” in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

On May 9, 2003, a complaint was filed in the Cuyahoga County, Ohio Court of Common Pleas by the widow of an employee of Venture Lighting International, Inc., who died following an industrial accident at Venture Lighting’s Solon facility. The suit, styled Karnosh, etc. v ADLT Realty Corp I, Inc., et al (CV 03 500755), alleged that Venture Lighting knowingly exposed the employee to an unreasonably dangerous risk. In addition, the suit named ADLT Realty Corp I, Inc., the owner of the facility, and certain named and unnamed defendants involved in the installation and repair of an industrial garage door involved in the accident, alleging liability on various theories involving the failure to maintain the door safely. The plaintiff voluntarily dismissed its claims against both Venture Lighting and ADLT Realty on May 19, 2004.

The Company’s reorganization proceedings have been terminated, however, the Bankruptcy Court has retained jurisdiction over a disputed creditor claim by Rohm and Haas Company of approximately $2.1 million. The claim relates to the payment of the purchase price for Rohm and Haas Company’s interest in Unison Fiber Optic Lighting Systems, LLC.(“Unison”). The Company purchased the Rohm and Haas interest in Unison for cash, a promissory note and certain other consideration in February 2000. The Company has contested Rohm and Haas Company’s claim to the unpaid portions of the consideration and is seeking repayment of a portion of the approximately $1.3 million the Company has already paid Rohm and Haas Company. The Company does not believe an adverse determination regarding this claim would have a material adverse affect on the Company or its operations.

The Company, from time to time, is subject to routine litigation incidental to its business. Although there can be no assurance as to the ultimate disposition of routine litigation, management of the Company believes, based upon information available at this time, that the ultimate outcome of these matters will not have a material adverse effect on the operations and financial condition of the Company.

19

PART II

Item 5.	Market for the Registrant’s Common Equity and Related Shareholder Matters

Pursuant to the Company’s Plan of Reorganization, the Company’s Common Stock, which had been registered under the Securities Exchange Act of 1934, was cancelled and Saratoga Lighting Holdings, LLC (“Saratoga”) became the owner of 100% of the voting securities of the Company. Subsequently, shares of Company Preferred Stock and Common Stock were sold to a director of the Company and shares of Common Stock were sold to certain executive officers of the Company. There is no established public market for the Company’s equity securities. There are no equity securities of the Company subject to any options, warrants or conversion rights, no shares of Company common stock currently may be sold pursuant to Rule 144 under the Securities Act of 1933 and the Company has not agreed to register the sale of equity securities by any shareholders.

In the fourth quarter of fiscal 2004, the Company sold 31.67 shares of its Common Stock and 338.33 shares of its Series A Preferred Stock to a member of its board of directors. The consideration was $1,000 per share. The proceeds were used for general corporate purposes. The sale of the shares was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant Section 4(2) of the Securities Act. The sales were made to a director of the Company for investment. The shares were not offered to other investors.

The terms of the Company’s $30 million Credit Facility prohibit the payment of dividends, other than dividends consisting of Company stock, without the consent of the lending banks. The Company’s Indenture relating to its 11% Senior Notes limits the payment of cash dividends to $2 million plus amounts determined by the Company’s earnings and equity investment in the Company after the effective date of the Company’s Plan of Reorganization. In addition, financial covenants, including ratios, contained in the Credit Facility, may limit payment of dividends indirectly.

The Company does not intend to declare or pay any cash dividends for the foreseeable future and intends to retain earnings, if any, for the future operation and expansion of the Company’s business.

The Company’s 2003 Equity Incentive Plan was approved by the Company’s sole shareholder and 2.20 shares of Company Common Stock are available for grant under the Plan.

20

Item 6. Selected Financial Data

The following table contains certain selected financial data and is qualified by the more detailed Consolidated Financial Statements and Notes thereto of the Company. The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Items 7 and 8 below.

21

(1)

In fiscal 2002, the Company recorded a gain on the settlement of a claim, net of legal fees, as a result of the enforcement of a non-compete agreement with several former employees of a subsidiary of the Company.

(2)

In fiscal 2001 and 2002 the Company’s subsidiary Deposition Sciences, Inc. (“DSI”) made significant investments in building telecommunication product manufacturing equipment and related facilities to apply its thin-film coating technology to telecom products. With the decline in the global telecommunication business and uncertainty regarding the recovery of the telecom market, the Company recognized a $10,433 charge in fiscal 2003 related to the abandonment of certain long-lived assets and write down of certain assets held for sale to fair value. The Company also recorded a charge of $1,150 in fiscal 2003 for an impairment related to a non-refundable option to purchase for $11,500 the building currently leased by DSI that was not likely to be exercised before its original expiration in March 2004. Additionally, as a result of the delisting of the Company’s common shares from the Nasdaq National Market, the Company recorded an asset impairment charge of $1,163 for the write-off of deferred costs associated with its shelf offerings in fiscal 2003. The Company also recognized a $411 charge in fiscal 2003 related to the abandonment of lamp manufacturing equipment. Fiscal 2002 results include special charges related to the consolidation of the Company’s power supply manufacturing operations into its high-efficiency facility in Chennai (Madras), India, reduction of staffing levels at most locations, and evaluation of equipment and investments in light of its long-term strategies. The amounts are classified in the fiscal 2002 statement of operations as: cost of sales — $688 and, special charges — $10,561.

(3)

In fiscal 2003, the Income (loss) from investments includes a charge of $703 related to impairment of its investment in a foreign joint venture involved in the manufacturing of metal halide lamps. In fiscal 2002, the loss from investments includes a loss from the sale of a preferred stock investment in Venture Lighting Japan of $2,007.

(4)

In the six months ended December 31, 2003, the Company recorded several items related to the Company’s reorganization and emergence from bankruptcy. The gain on restructuring of $1,184 includes a net increase in the receivable from officer of $1,169 related to the settlement related to the officer loan approved by the bankruptcy court, as well as the impact of the implementation of the court-approved plan and a settlement with General Electric related to amounts owed to and receivable from GE. The write-off of deferred loan costs of $2,251 is related to the accounting for the cancellation of the $100,000 8% Senior Notes in accordance with Emerging Issues Task Force No. 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Reorganization expenses of $11,258 represent the cost of consultants, investment bankers, and attorneys related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy. Reorganization expenses of $7,435 were also incurred in fiscal 2003.

(5)

In fiscal 2002, the Company recorded $71,171 as a cumulative effect of accounting change relating to the impairment of goodwill and other indefinite lived intangible assets in accordance with the Financial Accounting Standards Board Statement of Accounting Standards (FAS) No. 142, Goodwill and Intangible Assets. FAS 142 provides authoritative guidance on accounting for and financial reporting of goodwill and intangible assets acquired in business combinations. FAS 142 requires that these assets be tested for impairment, and as a result, the Company recorded $71,171 as a cumulative effect of accounting change as of July 1, 2001.

22

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands)

The following discussion should be read in connection with the Company’s Consolidated Financial Statements and Notes thereto included in Item 8 - Financial Statements and Supplementary Data.

General

The Company is an innovation-driven designer, manufacturer and marketer focused on metal halide lighting products, including materials, system components, systems and equipment. Metal halide lighting is currently used primarily in commercial and industrial applications such as factories and distribution centers, outdoor site and landscape lighting, sports facilities and large retail spaces such as superstores. Systems, components and materials revenue is recognized when products are shipped, and equipment revenue is recognized under the percentage of completion method.

Consistent with the Company’s strategy for new product introductions, the Company invests substantial resources in research and development to engineer materials and system components to be included in customers’ specialized systems. Such expenditures have enabled the Company to develop new applications for metal halide lighting, improve the quality of its materials, and introduce new specialized products, such as the Uni-Form® pulse start metal halide products. Uni-Form® pulse start products permit (a) increased light output with lower power utilization, (b) faster starting, (c) a quicker restart of lamps which have been recently turned off, and (d) better color uniformity. The Company has spent additional amounts for manufacturing process and efficiency enhancements, which were charged to cost of goods sold when incurred. See also Item 1. “Business — Recent Developments” above and “Liquidity and Capital Resources” below.

Recent Developments

Emergence from Bankruptcy

On December 10, 2003, Advanced Lighting Technologies, Inc. and six of its United States subsidiaries, (collectively, the “Debtors”), completed their previously announced financial restructuring when their Fourth Amended Chapter 11 Plan of Reorganization (the “Final Plan”) under the U.S. Bankruptcy Code (the “Bankruptcy Code”) became effective and was substantially consummated. ADLT’s non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S. subsidiary, were not a part of the proceedings under the Bankruptcy Code. For financial reporting purposes, the Company used an effective date of December 31, 2003. The results of operations for the period from December 10, 2003 to December 31, 2003 were not material.

The Debtors filed for reorganization under the Bankruptcy Code on February 5, 2003 (the “Filing”). From February 5, 2003 to December 10, 2003, the Debtors operated their businesses as debtors-in-possession under court protection from their creditors and claimants. Following approval by the creditors, preferred shareholders and the common shareholders of the Predecessor Company entitled to vote on the reorganization plan, on December 8, 2003, the Bankruptcy Court entered an order confirming the Final Plan. On December 10, 2003, the Effective Date of the Final Plan occurred and the reorganization of the Company was substantially completed.

Pursuant to the terms of the Final Plan, Saratoga Lighting Holdings, LLC (“Saratoga”) received, in exchange for cancellation of its holdings of the Predecessor Company’s Series A Preferred Stock and Common Stock, and an $18,000 cash investment, new redeemable preferred stock of the Reorganized

23

Company, with an initial liquidation preference of $29,000, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis, assuming issuance of common stock of the Reorganized Company to its senior management pursuant to the new management incentive plan). Under the management incentive plan, shares equal to approximately 9% of the common stock of the Reorganized Company have been issued. The Final Plan also provided management fees to an affiliate of Saratoga. The fees consist of a one-time advisory fee of $1,800 that was paid in July 2004 from excess working capital, and a quarterly management fee of $150 payable in advance. The advisory fee is included in payables to related parties.

The Final Plan provided that the holders of the Predecessor Company’s Common Stock (other than Saratoga and the Predecessor Company’s Chief Executive Officer) receive the benefit of certain equity investments held by the Predecessor Company in Fiberstars, Inc. and Hexagram, Inc., as well as a possible future payment, based on 3% of amounts received by Saratoga after providing Saratoga with a return of capital plus an agreed rate of return, as more fully described in the Final Plan. Options and warrants to purchase Predecessor Company Common Stock which were not exercised prior to the Effective Date were cancelled.

Effective December 10, 2003, the Predecessor Company’s secured banking facility was amended and restated to provide financing for the Reorganized Company following emergence from bankruptcy (the amended facility is referred to as the “Bank Credit Facility”). The Bank Credit Facility is a $30,000 facility that consists of a term loan that requires monthly principal payments of $183 ($9,900 outstanding at June 30, 2004) with a revolving credit loan, subject to availability, making up the remainder of the facility. Availability under the revolving credit loan was $15,600 and no balance was outstanding on the revolving credit loan at June 30, 2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus 1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit facility and the term loan is December 10, 2008. The Reorganized Company paid a closing fee of $110 in connection with the establishment of the Bank Credit Facility. The financing arrangements are described in greater detail in Note E, “Financing Arrangements.”

With respect to the Predecessor Company’s $100,000 8% Senior Notes due 2008 (the “Old Notes”), the Company had not made the semi-annual interest payments due on September 16, 2002, March 15, 2003, and September 15, 2003. The Company had continued to accrue interest on the Old Senior Notes at 8% through December 31, 2003, and accrued and unpaid interest on the Old Senior Notes would have been $14,400 as of that date. The Final Plan provided that the Old Notes be exchanged for an aggregate principal amount of $114,400 11% Senior Notes due 2009 (the “New Notes”). The New Notes bear interest at 11% from January 1, 2004, and become due on March 31, 2009. Upon the Effective Date of the Final Plan, pursuant to the approval of the Plan by holders of the Old Senior Notes, all then existing defaults under the Indenture relating to the Old Senior Notes were waived.

The Final Plan permitted other unsecured creditors of the Debtors to choose payment of their claims (in the amount agreed or determined by the Bankruptcy Court, with interest at 1.32% per year from February 5, 2003 to December 10, 2003) in full, over 12 months following the Effective Date with interest at 1.32% per year, or within 45 days following the Effective Date or, if later, the date that the amount of claim is determined, at 85% of the amount of the claim. Elections of the “85% Now” alternative resulted in a $241 reduction in the amounts payable in respect of claims. The Final Plan provided that obligations of the Debtors to General Electric Company (“GE”) and its subsidiaries would be offset against obligations of GE and its subsidiaries to the Debtors and Deposition Sciences Inc., a non-Debtor subsidiary of the Company, and that any remaining pre-petition obligations of the Debtors to GE would be treated as unsecured indebtedness under the Final Plan. Additionally, the Company and GE agreed to

24

a settlement of disputed amounts that, together with GE’s election of the “85% Now” treatment of the remaining pre-petition amounts, resulted in a loss of $247. As described in the Disclosure Statement relating to the Final Plan, the Company has established incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, Inc.).

Upon the confirmation of the Final Plan, the Company’s investment banker became entitled to receive, in addition to monthly fees and reimbursement of expenses, fees based on formulas contained in the Company’s agreement with the investment banker, that were agreed between the parties to be $2,500, and approved by the Bankruptcy Court. The Company recorded $1,000 of these fees as reorganization expenses in fiscal 2003 and $1,500 in fiscal 2004. The Company incurred reorganization expenses of $11,258 for the six months ended December 31, 2003, for consultants, investment bankers, attorneys and other costs related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy. Reorganization expenses of $7,435 were also incurred in fiscal 2003.

Saratoga Investment

Saratoga acquired all of the Common and Preferred shares owned by GE on August 15, 2003. As a result, Saratoga held 1,429,590 shares of Company Common Stock and 761,250 shares of the Company’s then existing Old Preferred Stock. Saratoga received, in exchange for cancellation of its holdings of the Predecessor Company’s Common Stock and Old Preferred Stock, and an $18,000 cash investment, new redeemable preferred stock (the “New Series A Preferred”) of the Reorganized Company, with an initial liquidation preference of $29,000, and approximately 91% of the common stock of the Reorganized Company (on a diluted basis, assuming issuance of common stock of the Reorganized Company to its senior management pursuant to the new management incentive plan). Under the management incentive plan, shares equal to approximately 9% of the common stock of the Reorganized Company have been issued.

The New Series A Preferred has a liquidation preference of $1 per share, plus dividends at the rate of 8% per annum, when and if declared. The cumulative undeclared dividends were $1,293 as of June 30, 2004. The initial carrying amount of the New Series A Preferred was set at $29,000, the estimated fair value at the date of issuance. The Holder of the New Series A Preferred may, by notice, require the Company to redeem the outstanding New Series A Preferred within 21 days following the occurrence of certain corporate events. The Company may redeem the New Series A Preferred in whole, but not in part, at any time. The redemption price for the New Series A Preferred is equal to the liquidation preference amount for such shares. The New Series A Preferred shares are each entitled to one vote on each matter presented to shareholders of the Company, as well as one vote on each matter required to be voted upon by the New Series A Preferred as a class. As a consequence, the New Series A Preferred represents approximately 96.3% of the voting power of the Company at June 30, 2004. As of June 30, 2004, Saratoga held 98.5% of the voting power of the Company.

Highlights of Financial Performance After Emergence from Bankruptcy

The performance of the Company in the first six months after emergence from bankruptcy was generally in line with expectations. Sales for the six months ended June 30, 2004 were $74,075 as compared with the company’s projections for the six months of $74,191 in its October 3, 2003 Disclosure Statement. Income from operations was $7,529 for the six months ended June 30, 2004. The Disclosure Statement projection of income from operations before reorganization expenses for the six months ended June 30, 2004 was $9,750. The actual results for the six months ended June 30, 2004 included three significant items that substantially account for the difference between the actual income from operations for these six months and the projection in the Disclosure Statement.

25

First, in accordance with accounting standards generally accepted in the United States, inventory at December 31, 2003 was recorded at fair value in the Company’s condensed consolidated balance sheet for the Reorganized Company, which amount approximated $1,500 above manufacturing cost. Cost of sales in the third quarter of fiscal 2004 included this additional amount above the Company’s manufacturing cost and reduced reported gross margin and net profit as the inventory was sold. The second significant difference related to the CEO retention bonus of $2,027 recorded in the six months ended June 30, 2004 (this bonus was reflected in the Disclosure Statement projections in July 2004). The after-tax amount of this bonus, approximately $1,350, is scheduled to be applied against the Company’s receivable from the CEO upon payment of the bonus. An additional retention bonus amount of $2,027 is expected to be recorded ratably in fiscal 2005. The third notable difference was a reduction in depreciation expense of $1,461 related to the effects of the application of fresh-start accounting principles. While other differences occurred, the Company performed in line with the operating plan included in the Disclosure Statement for the six months ended June 30, 2004.

Consolidation of Power Supply Production Operations and Restructuring of Worldwide Operations

In fiscal 2002, the Company implemented plans to improve efficiencies in its power supply business, reduce costs worldwide and assess certain equipment and investments in light of its long-term strategies. The following paragraphs provide information related to special charges and asset impairment recorded as a result of certain actions taken by the Company:

Centralize Certain Power Supply Manufacturing Operations into India Operations. A charge of $6,082 was recorded in fiscal 2002 relating to the first quarter restructuring and centralizing certain power supply manufacturing operations into the Company’s high-efficiency and low-cost manufacturing plant in Chennai (Madras), India. Of this charge, costs of $2,293 were recorded for the closing of the Company’s manufacturing facilities in the United Kingdom, Australia and U.S., including costs of $2,036 associated with a non-cancelable lease. Severance and benefits to approximately 160 terminated employees at the above locations totaled $1,411 and were paid by the end of fiscal 2002. Property, primarily consisting of building, equipment and intangibles, was disposed of or written down to net realizable value resulting in a charge of $2,041. In addition, certain power supply product lines were exited which resulted in a write-down of inventory of $337. This amount is included in cost of goods sold.

Staffing Reductions. During the first quarter of fiscal 2002, a program was completed to reduce the number of employees across all business units. Approximately 90 employees, exclusive of the above-noted employees, were terminated and total severance and benefits costs for this program were $1,857. All employees were paid by the end of fiscal 2002.

Write-off of Long-lived Assets and Other Charges. Due to the decline in current business conditions, certain long-lived assets and product lines were evaluated for impairment in light of future growth areas of the business and a focus on profit margins and core opportunities. As a result, charges of $1,425 and $1,552 were recorded in the first and fourth quarter of fiscal 2002, respectively, to recognize write-downs in investments and equipment. In addition, a $333 charge was taken for the abandonment of certain projects and exiting several product lines.

26

In the first quarter of fiscal 2003 the Company announced that it would relocate some of its power supply production from Nova Scotia, Canada into the Chennai (Madras), India production facility in order to further reduce its costs. The relocation resulted in the elimination of approximately 100 positions at the Canadian facility during the third and fourth quarter of fiscal 2003. Severance and other costs related to this relocation were minimal.

Sale of Fixture Subsidiaries

On December 12, 2001 the Company completed the sale of a significant portion of its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and Ruud Lighting Europe Ltd. subsidiaries) to an investor group led by Alan J. Ruud. From January 1998 until the time of the transaction, Mr. Ruud was a director of the Company, served as its Vice Chairman and Chief Operating Officer, and held in excess of 5% of the Company’s outstanding common stock. The fixture subsidiaries’ assets consisted primarily of manufacturing equipment, inventory and accounts receivable and the Ruud Lighting manufacturing facility located in Racine, Wisconsin. The consideration received by the Company consisted of a cash payment of $28,000 (adjusted dollar for dollar to reflect the amount of any changes in working capital and funded indebtedness between September 2, 2001 and December 3, 2001) and promissory notes totaling $6,000 due December 1, 2006. As part of this transaction, funded indebtedness of $9,005 continued to be the obligation of Ruud Lighting and the Company retained title to the Rhode Island manufacturing facility of Kramer Lighting. Upon sale of the facility in September 2002, the Company paid Ruud Lighting one-third of the net proceeds or $427 in accordance with the terms of the agreement. Preliminary estimates of the adjustment in the cash consideration resulted in a net reduction of $2,458 in the cash received at closing. The preliminary estimates were subject to a review process under the agreement. The sale of the subsidiaries resulted in a gain of $227 in the quarter ended December 31, 2001.

In May 2003, Ruud Lighting, Inc. and its shareholders filed claims with the Bankruptcy Court in connection with the final settlement of purchase price, alleged breaches of the agreement and post closing administrative services of approximately $5,880. The Company, Ruud Lighting, Inc. and the Ruud Lighting shareholders entered into a settlement agreement dated September 8, 2003, settling the Ruud claims, as well as claims by the Debtors against Ruud Lighting, Inc. and its shareholders. Pursuant to the terms of the settlement, the original notes were cancelled and the Company received new notes from the Ruud Lighting, Inc. shareholders in the aggregate amount of $3,000. These notes are due December 1, 2006, but rebates earned on purchases by Ruud Lighting, Inc. pursuant to its current agreement with the Debtors will be credited toward prepayment of the principal and interest on the notes. The Company is no longer required to make payments on a non-cancelable operating lease for the unused Elkhorn, Wisconsin facility, and receives from Ruud Lighting, Inc. one half of the amount of any sublease payments received. In addition, the agreement provided for mutual releases by the parties. The Bankruptcy Court issued a final order approving the settlement on October 16, 2003. As a result of this settlement, the Company recorded a loss of $1,003 in fiscal 2003. As a result of the issuance of the final order approving the settlement, the Company recorded a reduction in its liabilities subject to compromise of $1,463 and a reduction in its special charge accrual related to the Elkhorn facility of $1,323.

27

Results of Operations

The Company’s emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start accounting in accordance with Statement of Position No. 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. For financial reporting purposes, the Company used an effective date of December 31, 2003. References to “Predecessor Company” refer to the Company prior to December 31, 2003. References to “Reorganized Company” refer to the Company on and after December 31, 2003. A black line has been drawn between the results of operations noted below to distinguish between the Reorganized Company and the Predecessor Company. Because the results of operations for the Reorganized Company and Predecessor Company are not considered comparable in all respects, the discussions below compare the last six months of fiscal 2004 with the last six months of fiscal 2003 and the first six months of fiscal 2004 with the first six months of fiscal 2003, rather than a single discussion of twelve month periods ended June 30, 2004 and 2003.

Six Months Ended June 30, 2004 Compared with Six Months Ended June 30, 2003

Factors, which have affected the results of operations for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 are discussed below. The six months ended June 30, 2004 are the first six months of operations following the reorganization.

28

Net Sales. Net sales increased 1.0% to $74,075 in the last six months of fiscal 2004 from $73,367 in the last six months of fiscal 2003. Metal halide product sales increased 7% to $58,771 compared with $55,126 in the same period last year. This increase in metal halide product sales is the result of an increase in lamp sales. Sales of APL materials decreased 1% over the same period a year ago. Geographically, these materials sales decreased 12% in the U.S. but increased 5% outside the U.S. Non-metal halide lighting product sales decreased 29% over the year ago period due primarily to a decrease in power supply sales. Sales of lamp manufacturing equipment decreased to $1,251 in the last six months of fiscal 2004 from $2,077 in the last six months of fiscal 2003.

Total lighting product sales inside the U.S. decreased 3% in the last six months of fiscal 2004 as compared to the same period a year ago due to a reduction in power supply sales that have a lower margin than the Company’s other products. Total lighting product sales outside the U.S. increased 2% as compared to the year ago period due to increases in lamp and material sales.

Pricing in the metal halide lighting business is competitive, and prices for the Company’s products have remained flat or declined slightly. The introduction of new products has helped to stabilize the Company’s product pricing.

Cost of Sales. Cost of sales decreased 7.9% to $43,230 in the last six months of fiscal 2004 from $46,925 in the last six months of fiscal 2003. In accordance with Statement of Position (“SOP”) 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, inventory as of December 31, 2003, was recorded at fair value, which amount approximated $1,500 above manufacturing cost in the Company’s condensed consolidated balance sheet as of December 31, 2003. Cost of sales in the last six months of fiscal 2004 includes this additional amount above the Company’s manufacturing cost and reduced reported gross margin and net profit as the inventory was sold. As a percentage of net sales, cost of sales, including the $1,500 described above, decreased to 58.4% in the last six months of fiscal 2004 from 64.0% in the last six months of fiscal 2003. The additional $1,500 represented 2.0% of sales for the six-month period. The reduction in cost of sales as a percentage of sales is due to the transfer of lamp and power supply production to India, improvements in cost management, an improvement in the product mix (more lamp and material sales and less power supply sales), and a reduction in depreciation expense of $1,461 related primarily to the effects of the application of SOP 90-7.

Marketing and Selling Expenses. Marketing and selling expenses increased 5.0% to $11,184 in the last six months of fiscal 2004 from $10,653 in the last six months of fiscal 2003. As a percentage of net sales, marketing and selling expenses increased to 15.1% in the last six months of fiscal 2004 from 14.5 % in the last six months of fiscal 2003.

Research and Development Expenses. Research and development expenses decreased 16.1% in the last six months of fiscal 2004 to $2,839 from $3,383 in the last six months of fiscal 2003. Research and development expenses incurred related to: (i) expansion and continued improvement of the line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs) intended to replace many first generation metal halide lamps in industrial and commercial applications; (ii) continual development of new materials for the world’s major lighting manufacturers; (iii) development and testing of electronic and electromagnetic power supply systems; and, (iv) improving the coating process of optical thin-films to broaden the applications, developing new thin-film materials, and using coatings to develop improvements to lighting and telecommunications technologies. As a percentage of net sales, research and development expenses decreased to 3.8% in the last six months of fiscal 2004 from 4.6% in the last six months of fiscal 2003. The Company expects to continue to make substantial expenditures on

29

research and development to enhance its position as the leading innovator in the metal halide lighting industry.

General and Administrative Expenses. General and administrative expenses increased 71.6% to $8,819 in the last six months of fiscal 2004 from $5,138 in the last six months of fiscal 2003. The increase in general and administrative expenses was primarily due to the accrual of $3,368 of bonuses, including $2,027 for the CEO retention bonus. The after-tax amount of this bonus accrual, approximately $1,350, is scheduled to be applied against the Company’s receivable from the CEO upon payment of the bonus. Fiscal 2004 also includes Saratoga management fees of $300.

Refinancing and Non-recurring Items. Refinancing and non-recurring items in fiscal 2003 reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to refinance its Bank Credit Facility and to restructure its $100,000 8% Senior Notes prior to the Company’s Chapter 11 filing.

Amortization of Intangible Assets. Amortization expense increased to $474 in the last six months of fiscal 2004 from $173 in the last six months of fiscal 2003. The increase was due to the amortization of identifiable intangibles established in accordance with the provisions of SOP 90-7.

Income from Operations. As a result of the items noted above, including the $1,500 inventory adjustment and the retention bonus of $2,027, the Company realized income from operations in the last six months of fiscal 2004 of $7,529 as compared to income from operations of $568 in the year ago period.

Interest Expense. Interest expense increased to $6,852 in the last six months of fiscal 2004 from $5,598 in the last six months of fiscal 2003. The increase in interest expense is primarily due to the increase in the interest rate on the Company’s New Senior Notes to 11% from 8% for the Old Senior Notes.

Interest Income. Interest income decreased to $231 in the last six months of fiscal 2004 from $287 in the last six months of fiscal 2003 due primarily to a reduction in interest expense on the notes due from Ruud Lighting, Inc and its shareholders, offset by an increase in the interest recognized on the loan receivable from officer.

Income (Loss) from Investments. The income from investments in the last six months of fiscal 2004 of $98 represents the equity income from the Company’s 40% ownership of Aldrich-APL LLC, a manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications. The loss from investments in the last six months of fiscal 2003 consists of a charge of $703 related to the impairment of the Company’s investment in a foreign joint venture involved in the manufacturing of metal halide lamps and an equity loss of $241 from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products. The Final Plan provided that the holders of the Predecessor Company’s Common Stock (other than Saratoga and the Predecessor Company’s CEO) receive the benefit of certain equity investments held by the Predecessor in Fiberstars. As a result, no further equity income or loss related to this investment has been recorded subsequent to December 31, 2003.

Reorganization Expenses. Reorganization expenses, totaling $7,435 in the last six months of fiscal 2003, reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy.

Loss from Sale of Fixtures Subsidiaries. See “Sale of Fixture Subsidiaries” above.

30

Income (Loss) before Income Taxes and Minority Interest. The Company had income before income taxes and minority interest of $1,006 in the last six months of fiscal 2004 as compared to a loss before income taxes and minority interest of $(14,125) in the last six months of fiscal 2003.

Income Tax Expense. Income tax expense was $489 for the last six months of fiscal 2004 as compared to $512 in the last six months of fiscal 2003. The income tax expense in both periods related to certain of the Company’s foreign operations.

At June 30, 2004, the Company had net operating loss carryforwards of $130,833 available to reduce future United States federal taxable income, which expire 2008 through 2024. On August 15, 2003, Saratoga purchased the preferred and common shares owned by GE. This transaction caused an ownership change greater than 50% which will limit the annual net operating loss the Company can use to offset any future taxable income pursuant to Section 382 of the Internal Revenue Code. This limitation is effective with the fiscal year ended June 30, 2004. The Company also has a capital loss carryforward of $40,117 available to reduce future capital gains. The usage of this carryforward will also be limited as a result of the ownership change. This carryforward expires in 2007.

The Company also had research and development credit carryforwards of approximately $3,818 available at June 30, 2004, which expire 2008 through 2020. Additionally, in conjunction with the Alternative Minimum Tax (“AMT”) rules, the Company had available AMT credit carryforwards for tax purposes of approximately $98, which may be used indefinitely to reduce regular federal income taxes. The usage of these credits will also be limited as a result of the ownership change.

Also, at June 30, 2004, the Company had foreign net operating loss carryforwards for tax purposes totaling $1,163 that expire 2006 to 2007 and $9,395 that have no expiration dates.

Due to the uncertainty of the ultimate realization of the deferred tax asset, valuation allowances of $10,379 were recorded by the Company as of June 30, 2004. The Company has net operating losses which, in accordance with the principles of fresh start accounting, were not recorded. These net operating losses are available to be utilized, and, to the extent the net operating losses are utilized, goodwill will be reduced accordingly for the benefit received.

31

Six Months Ended December 31, 2003 Compared with Six Months Ended December 31, 2002

Net Sales. Net sales decreased 1.7% to $70,510 in the first six months of fiscal 2004 from $71,720 in the first six months of fiscal 2003. Metal halide product sales decreased 2% to $52,370 in the first six months of fiscal 2004 compared with $53,575 in the same period last year. This decrease in metal halide sales is the result of a 7% decrease in U.S. metal halide sales.

Sales of APL materials increased 1% over the same period a year ago. Geographically, these materials sales decreased 6% in the U.S. and increased 6% outside the U.S. Non-metal halide lighting product sales increased 7% compared with the year ago period due primarily to an increase in power supply sales.

Total lighting product sales inside the U.S. decreased 6% in the first six months of fiscal 2004 as compared to the same period a year ago. Total lighting product sales outside the U.S. increased 2% as compared to the year ago period. Sales of lamp manufacturing equipment decreased to $1,403 in the first six months of fiscal 2004 from $2,142 in the first six months of fiscal 2003.

32

Pricing in the metal halide lighting business is competitive, and prices for the Company’s products have remained flat or declined slightly. The introduction of new products has helped to stabilize the Company’s product pricing.

Cost of Sales. Cost of sales decreased 6.2% to $43,361 in the first six months of fiscal 2004 from $46,242 in the first six months of fiscal 2003. As a percentage of net sales, cost of sales decreased to 61.5% in the first six months of fiscal 2004 from 64.5% in the first six months of fiscal 2003. The reduction in cost of sales as a percentage of sales is primarily due to the transfer of lamp and power supply production to India and improvements in cost management.

Marketing and Selling Expenses. Marketing and selling expenses of $11,311 in the first six months of fiscal 2004 were comparable to the $11,351 incurred in the first six months of fiscal 2003.

Research and Development Expenses. Research and development expenses of $3,095 in the first six months of fiscal 2004 were comparable to the $3,111 incurred in the first six months of fiscal 2003. Research and development expenses incurred related to: (i) expansion and continued improvement of the line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs) intended to replace many first generation metal halide lamps in industrial and commercial applications; (ii) continual development of new materials for the world’s major lighting manufacturers; (iii) development and testing of electronic and electromagnetic power supply systems; and, (iv) improving the coating process of optical thin-films to broaden the applications, developing new thin-film materials, and using coatings to develop improvements to lighting and telecommunications technologies. The Company expects to continue to make substantial expenditures on research and development to enhance its position as the leading innovator in the metal halide lighting industry.

General and Administrative Expenses. General and administrative expenses of $6,208 in the first six months of fiscal 2004 were comparable to the $6,306 incurred in the first six months of fiscal 2003.

Provision for Loan Impairment. In the quarter ended December 31, 2002, the Company increased its valuation reserve for an impaired officer loan of $2,700 related to the amount by which the carrying value of the loan receivable from officer exceeded the underlying fair value of the assets available to repay the loan. No interest income was recorded or paid on the loan in fiscal 2004 and 2003.

Refinancing and Non-recurring Items. Refinancing and non-recurring items in fiscal 2003 reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to refinance its Bank Credit Facility and to restructure its $100,000 8% Senior Notes prior to the Company’s Chapter 11 filing.

Gain on Sale of Property. The Company recorded a gain on the sale of property in the first six months of fiscal 2003 of $62 related to the sale of a building in Middletown, Rhode Island that formerly served as a fixture manufacturing facility.

Special Charges and Asset Impairment. In fiscal 2001 and 2002 the Company’s subsidiary Deposition Sciences, Inc. (DSI) made significant investments in building telecommunication product manufacturing equipment and related facilities to apply its thin-film coating technology to telecom products. With the decline in the global telecommunication business and uncertainty regarding the recovery of the telecom market, the Company recognized a $5,551 charge in the second quarter of fiscal 2003 related to the abandonment of certain long-lived assets and the write down of certain equipment held for sale to fair value. Additionally, as a result of the delisting of the Company’s common shares from the Nasdaq

33

National Market, the Company recorded an asset impairment charge of $1,163 for the write-off of deferred costs related to its shelf offerings.

Amortization of Intangible Assets. Amortization expense of $177 in the first six months of fiscal 2004 was comparable to amortization expense of $170 in the first six months of fiscal 2003.

Income (Loss) from Operations. As a result of the items noted above, the Company realized income from operations in the first six months of fiscal 2004 of $6,358 as compared to a loss of $(7,115) in the first six months of fiscal 2003.

Interest Expense. Interest expense increased to $7,459 in the first six months of fiscal 2004 from $6,010 in the first six months of fiscal 2003. The Company continued to accrue interest on its $100,000 of 8% Senior Notes through December 31, 2003. The increase in interest expense is primarily due to the increase in deferred loan cost amortization of $1,026 resulting from costs related to the Company’s Replacement Debtor-in-Possession Facility.

Interest Income. Interest income decreased to $188 in the first six months of fiscal 2004 from $275 in the first six months of fiscal 2003 due primarily to the settlement with Ruud Lighting, Inc and its shareholders, which lowered the amount of notes receivable from them.

Income (Loss) from Investments. The income from investments in the first six months of fiscal 2004 of $3 and the loss from investments in the first six months of fiscal 2003 of $(652) represents the equity income (loss) from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.

Gain on Restructuring. The gain on restructuring in fiscal 2004 includes a net increase in the receivable from officer of $1,169 related to the settlement approved by the bankruptcy court. The gain on restructuring also includes the impact of the implementation of the Plan approved by the court and a settlement with GE related to amounts owed to and receivable from GE.

Write-off of Deferred Loan Costs. The write-off of deferred loan costs of $2,251 represents the write-off of deferred loan costs related to the $100,000 8% Senior Notes in accordance with Emerging Issues Task Force Issue No. (“EITF”) 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments.

Reorganization Expenses. Reorganization expenses, totaling $11,258 in the first six months, reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy.

Income (Loss) before Income Taxes and Minority Interest. The Company had a loss before income taxes and minority interest of $(13,235) in the first six months of fiscal 2004 as compared to a loss before income taxes and minority interest of $(13,502) in the first six months of fiscal 2003.

Income Tax Expense. Income tax expense was $360 for the first six months of fiscal 2004 as compared to $434 in the first six months of fiscal 2003. The income tax expense in both periods related to certain of the Company’s foreign operations.

34

Overview of the Results of Operations — Fiscal 2003 Compared to Fiscal 2002

The Company’s operations for fiscal 2003 resulted in a loss before cumulative effect of accounting change of $(28,906) compared to income before cumulative effect of accounting change of $(29,826) for fiscal 2002. The Company realized a net loss of $(28,906) for fiscal 2003, compared to net loss of $(100,997) for fiscal 2002.

The following factors should be considered in comparing the Company’s operations for fiscal 2003 and fiscal 2002:

•

Results for fiscal 2003 include special charges and asset impairment of $13,157, provision for loan impairment of $2,700, refinancing and non-recurring items of $2,387, reorganization expenses of $7,435, a gain on the sale of property of $62, a loss from investment of $703, and a loss on the sale of fixture subsidiaries of $1,003.

•

Results for fiscal 2002 include special charges and asset impairment of $11,249, provision for loan impairment of $7,100, a loss on sale of preferred stock investment of $2,007, a gain on settlement of lawsuit of $554, a gain on the sale of fixture subsidiaries of $227, and a gain on the sale of property of $80.

Fiscal 2003 Compared with Fiscal 2002

Net Sales. Net sales decreased 12.0% to $145,087 in fiscal 2003 from $164,786 in fiscal 2002. The decrease in sales is due to the sale of the Company’s fixture subsidiaries in December 2001, offset by higher sales in the remainder of Company’s operations. Excluding the fixture subsidiaries, sales for fiscal 2003 were $145,087 compared with $129,702 for fiscal 2002. Metal halide sales, excluding the fixture subsidiaries, increased 13% to $112,920 for fiscal 2003 compared with $100,158 for fiscal 2002. This increase is due in part to the sale of metal halide lamp production equipment into China for a total of $4,219 and to lamp and ballast sales to the former fixture subsidiaries that are now external sales. Excluding these two items, metal halide sales increased 5% in fiscal 2003 compared to fiscal 2002, which was a result of growth in the sales of lamps, power supplies and materials outside the United States.

Excluding the fixture subsidiaries, fiscal 2003 sales of the Company’s second-generation metal halide lighting product line, Uni-Form® pulse start, grew 12% to $32,821 from $29,366 as compared to fiscal 2002. About half of this increase is due to sales to the former fixture subsidiaries that are now external sales. Sales of APL materials increased 17% as compared to fiscal 2002. Geographically, these sales of materials increased 17% in the U.S. and 18% outside the U.S. Excluding the fixture subsidiaries, non-metal halide lighting sales increased 6%, due to the managed decline of some non-metal halide product sales offset by increases in sales of more profitable non-metal halide materials.

Excluding the fixture subsidiaries, lighting sales inside the U.S. increased 3% in fiscal 2003 as compared to fiscal 2002. Excluding sales to the former fixture subsidiaries that are now external sales, lighting sales inside the U.S. decreased 3% in fiscal 2003 compared with fiscal 2002. The Company expects that a stronger U.S. economy will result in an improved lighting market for the Company’s products. Lighting sales outside the U.S. increased 23% in total, 16% excluding the equipment sales.

Pricing in the metal halide lighting business is competitive, and prices for the Company’s products have remained flat or declined slightly. The introduction of new products has helped to stabilize the Company’s product pricing.

35

Cost of Sales. Cost of sales decreased 15.1% to $93,167 in fiscal 2003 from $109,758 in fiscal 2002. The decrease is attributable to the sale of the fixture subsidiaries, offset by costs related to the higher level of the remaining operations. As a percentage of net sales, cost of sales decreased to 64.2% in fiscal 2003 from 66.6% in fiscal 2002. Cost of sales, in fiscal 2002, were negatively impacted by several unusual items including inventory write-downs, additional costs related to the move of the European power supply production to India, and unfavorable overhead variances resulting from the decrease in production due to the Company’s commitment to significant reductions in inventory levels. The benefits of the transfer of power supply production are beginning to be realized in fiscal 2003 resulting in an improving gross margin.

Marketing and Selling Expenses. Marketing and selling expenses decreased 28.5% to $22,004 in fiscal 2003 from $30,771 in fiscal 2002. As a percentage of net sales, marketing and selling expenses declined to 15.2% in fiscal 2003 from 18.7% in fiscal 2002. The decrease in both amount and percentage of net sales is primarily attributable to the sale of the fixture subsidiaries, as marketing and selling expenses were higher as a percentage of net sales for these subsidiaries. Additionally, the Company was able to reduce these costs in its remaining operations.

Research and Development Expenses. Research and development expenses declined 5.2% in fiscal 2003 to $6,494 from $6,850 in fiscal 2002. The decrease is partially attributable to the sale of the fixture subsidiaries. Fiscal 2002 expenditures for the fixture subsidiaries totaled $1,398. The Company increased expenditures in its remaining operations by $1,042, primarily in research and development related to materials. Research and development expenses incurred related to: (i) expansion and continued improvement of the line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs) intended to replace many first generation metal halide lamps and fixtures in industrial and commercial applications; (ii) continual development of new materials for the world’s major lighting manufacturers; (iii) improving the coating process of optical thin-films to broaden the applications, developing new thin-film materials, and using coatings to develop improvements to lighting and telecommunications technologies; and, (iv) development and testing of electronic and electromagnetic power supply systems. As a percentage of net sales, research and development expenses increased to 4.5% in fiscal 2003 from 4.2% in fiscal 2002. In spite of the Company’s commitment to generate positive operating cash flow, the Company expects to continue to make substantial expenditures on research and development to enhance its position as the leading innovator in the metal halide lighting industry.

General and Administrative Expenses. General and administrative expenses of $11,444 were 26.2% lower in fiscal 2003 compared to $15,502 in fiscal 2002. The decrease includes $2,100 attributable to the fixture subsidiaries in fiscal 2002 and a reduction of corporate costs, including salaries and professional services.

Provision for Loan Impairment. In fiscal 2003, the Company increased its valuation reserve for an impaired officer loan by $2,700 related to the amount by which the carrying value of the loan receivable from officer exceeded the underlying fair value of the assets available to repay the loan. In fiscal 2002, the Company increased the valuation reserve related to this loan by $7,100. No interest income was recorded or paid on the loan in fiscal 2003 and 2002.

Refinancing and Non-Recurring Expenses. These expenses, totaling $2,387 for fiscal 2003, reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to refinance its Bank Credit Facility and address its capital structure prior to the Company’s Chapter 11 Bankruptcy filing.

36

Gain on Settlement of Lawsuit. In fiscal 2002, the Company recorded a gain on the settlement of lawsuit totaling $554, net of legal fees, as a result of the enforcement of a non-compete agreement with several former employees of a subsidiary of the Company.

Gain on Sale of Property. The Company recorded a gain on the sale of property in the first quarter of fiscal 2003 of $62 related to the sale of a building in Middletown, Rhode Island that formerly served as a fixture manufacturing facility. A building formerly occupied by DSI was sold in the fourth quarter of fiscal 2002 and resulted in a gain of $80.

Special Charges and Asset Impairment. In fiscal 2001 and 2002 the Company’s DSI subsidiary made significant investments in building telecommunication product manufacturing equipment and related facilities to apply its thin-film coating technology to telecom products. With the decline in the global telecommunication business and uncertainty regarding the recovery of the telecom market, the Company recognized a $10,433 charge in fiscal 2003 related to the abandonment of certain long-lived assets and write down of certain assets held for sale to fair value. The Company also recorded a charge of $1,150 in fiscal 2003 for an impairment related to a non-refundable option to purchase for $11,500 the building currently leased by DSI that was not likely to be exercised before its original expiration in March 2004. As a result of the delisting of the Company’s common shares from the Nasdaq National Market, the Company recorded an asset impairment charge of $1,163 for the write-off of deferred costs associated with its shelf offerings in fiscal 2003. The Company recognized a $411 charge in fiscal 2003 related to the abandonment of lamp manufacturing equipment.

For a discussion of special charges and asset impairment in fiscal 2002, see “Consolidation of Power Supply Production Operations and Restructuring of Worldwide Operations” above.

Amortization of Intangible Assets. Amortization expense in fiscal 2003 and fiscal 2002 was comparable.

Income (Loss) from Operations. As a result of the items noted above, the Company realized a loss from operations in fiscal 2003 of $(6,547) as compared to a loss from operations of $(15,458) in fiscal 2002.

Interest Expense. Interest expense decreased to $11,608 in fiscal 2003 from $12,121 in fiscal 2002. The Company accrued interest on its $100,000 of 8% Senior Notes through the end of fiscal 2003, however the semi-annual interest payment due September 16, 2002 and March 15, 2003 were not made. The decrease in interest expense is attributable to a reduction in debt outstanding from the sale of the fixture subsidiaries, offset by a slight increase in interest rates in fiscal 2003.

Interest Income. Interest income increased to $562 in fiscal 2003 from $344 in fiscal 2002. The increase is attributable to interest earned on the $6,000 of notes receivable created by the sale of the fixture subsidiaries in December 2001.

Income (Loss) from Investments. The income (loss) from investments in fiscal 2003 of $(1,596) consists of a charge of $703 related to impairment of its investment in a foreign joint venture involved in the manufacturing of metal halide lamps and an equity loss of $893 from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products. The Fiberstars’ loss was primarily due to a provision related to a valuation allowance recorded against the Fiberstar’s deferred tax assets. The income (loss) from investments in the fiscal 2002 of $(2,347) consists of a loss on the sale of a preferred stock investment in Venture Lighting Japan of $(2,007) and an equity loss of $(340) from the Company’s investment in Fiberstars.

37

Reorganization Expenses. Reorganization expenses, totaling $7,435 in fiscal 2003, reflect the cost of consultants, investment bankers and attorneys related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy. The Company will continue to incur similar costs for the next several quarters.

Gain (Loss) from Sale of Fixture Subsidiaries. See “Sale of Fixture Subsidiaries” above.

Income (Loss) before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change. The Company had a loss before income taxes, minority interest and cumulative effect of accounting change of $(27,627) in fiscal 2003 as compared to a loss before income taxes, minority interest and cumulative effect of accounting change of $(29,355) in fiscal 2002.

Income Tax Expense. Income tax expense was $946 for fiscal 2003 as compared to $252 in fiscal 2002. The income tax expense in fiscal 2003 and 2002 related primarily to certain of the Company’s foreign operations.

Cumulative Effect of Accounting Change. The Company adopted FAS 142 in the first quarter of fiscal 2002 and recorded a cumulative effect of change in accounting principle for the impairment of goodwill and other indefinite lived intangible assets of $71,171, or $(3.04) per share, as of the beginning of fiscal 2002 (July 1, 2001).

Liquidity and Capital Resources

The Company’s sources of liquidity include cash and cash equivalents, cash flow from operations and amounts available under its Bank Credit Facility. See Note E to the Consolidated Financial Statements for a description of the Bank Credit Facility. The Company believes these sources of liquidity are sufficient for at least the next several years. As a result of the exchange of the $100,000 8% Senior Notes due March 2008 for $114,400 11% Senior Notes due March 2009, the Company has extended the maturity of most of its debt until 2009. The Company believes that its cash flow from operations will be more than adequate to service the debt, prior to the maturity of the 11% Senior Notes.

The Bank Credit Facility is a $30,000 facility that consists of a term loan that requires monthly principal payments of $183 ($9,900 outstanding at June 30, 2004) with a revolving credit loan, subject to availability, making up the remainder of the facility. Availability under the revolving credit loan was $15,600 and no balance was outstanding on the revolving credit loan at June 30, 2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (5.00% at June 30, 2004). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus 1.50% (5.75% at June 30, 2004). The final maturity of the revolving credit facility and the term loan is December 10, 2008. The Company paid a closing fee of $110 in connection with the establishment of the Bank Credit Facility.

The Bank Credit Facility contains certain affirmative and negative covenants customary for this type of agreement, prohibits cash dividends, and includes financial covenants related to Minimum Adjusted EBITDA and Capital Expenditures. At June 30, 2004, the Company was in compliance with the terms of the Bank Credit Facility. The principal security for the Bank Credit Facility is substantially all of the personal property of the Company and each of its North American and United Kingdom subsidiaries. The term loan is secured by substantially all of the Company’s machinery and equipment in North America and the United Kingdom as well as the Company’s facility in Urbana, Illinois, and is cross-collateralized and secured with the revolving credit loan.

38

Cash decreased $4,934 during the six months ended June 30, 2004. Cash provided by operating activities totaled $289, cash used in investing activities totaled $3,845, and cash used in financing activities totaled $1,378.

Net Cash Provided by Operating Activities. Net cash provided by operating activities totaled $289 for the six months ended June 30, 2004. This included payments of reorganization expenses totaling $5,049 and pre-petition liabilities of $4,371 as a result of the Company’s emergence from Chapter 11 Bankruptcy. Excluding these bankruptcy-related payments, net cash provided by operating activities during the six months totaled $9,709.

Net Cash Used in Investing Activities. In the six months ended June 30, 2004, net cash used in investing activities totaled $3,845, of which $3,018 related to capital expenditures for plant and equipment, primarily machinery and equipment. The Company’s capital expenditure program is expected to approximate between $5,000 and $6,000 in fiscal 2005. Future capital expenditures beyond this level will be discretionary, as the Company presently has sufficient operating capacities to support several years of sales growth at its historical rates. During the fiscal 2004 third quarter, the Company acquired certain assets of Narva Lighting Limited (“Narva”), located in London, England, for $827. Narva specializes in the distribution and marketing of metal halide lighting products in the United Kingdom and Europe.

Net Cash Provided by (Used in) Financing Activities. In the six months ended June 30, 2004, net cash used in financing activities was $(1,378) resulting from $1,847 of scheduled payments of long-term debt net of proceeds of $469 from the issuance of preferred and common stock to the Company’s management and a director.

The interest-bearing obligations of the Company totaled $131,313 as of June 30, 2004, and consisted of: $9,900 of term-loan borrowings under the Bank Credit Facility; $114,400 of 11% Senior Notes; mortgages of $4,456; a promissory note of $1,970; and obligations of foreign subsidiaries and other debt of $587.

Schedule of Certain Contractual Obligations

The following table details the Company’s projected payments for its significant contractual obligations as of June 30, 2004. The table is based upon available information and certain assumptions the Company believes are reasonable.

39

Market Risk Disclosures

Market Risk Disclosures. The following discussion about the Company’s market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. The following table provides information about the Company’s debt obligations and financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principle cash flows and related weighted-average interest rates by maturity dates as set forth in the respective lending agreement. Weighted-average variable rates are based on implied forward rates as derived from published spot rates.

Liabilities at June 30, 2003, included $106,934 of fixed-rate debt and $27,727 of variable-rate debt. Interest rates on the fixed-rate debt to maturity ranged from 2.9% to 10.0%, while interest rates on the variable-rate debt to maturity ranged from 4.50% to 15.0% as of June 30, 2003.

Foreign Currency Exchange Risk. The Company is exposed to foreign exchange rate differences and during the first eight months of fiscal 2003 minimized the effects of these exposures through the use of derivatives. Through the first eight months of fiscal 2004, the Company did not hedge its foreign currency exposure and, therefore, did not enter into any foreign currency derivative financial instruments. In March 2004 the Company resumed its use of derivatives to minimize the effects of these exposures on certain receivable and payable balances.

The Company sells products in foreign currencies, mainly the pound sterling, Euro, Canadian dollar, Japanese yen and Australian dollar. The majority of these products’ costs are incurred in U.S. dollars. Therefore, the Company is exposed to currency movements in that if the U.S. dollar strengthens, the translated value of the foreign currency and the resulting margin will be reduced. The Company does not change the price of its products for short-term exchange rate movements. Presently, the Company does not hedge this exposure.

40

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that effect the reported amounts of our assets, liabilities, revenues and costs and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to: valuation of accounts and notes receivable and loan receivable from officer, valuation of investments, valuation of long-lived assets, valuation of inventory valuation reserves, revenue recognition, and deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following policies as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see Note C of the “Notes to Consolidated Financial Statements.”

New Reporting Entity and Adoption of Fresh Start Accounting

The Company’s emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start reporting in accordance with Statement of Position (“SOP”) No. 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The consolidated financial statements as of and for the six months ended December 31, 2003 reflect reorganization adjustments for the discharge of debt and adoption of fresh start reporting. The reorganization value of the assets of the consolidated group of $170,000 prior to the investment by Saratoga, which served as the basis for the Final Plan approved by the bankruptcy court, was used to determine the value allocated to the assets and liabilities of the Reorganized Company in proportion to their relative fair values in conformity with Statement of Financial Accounting Standards No. 141, Business Combinations.

The reorganization value of the Company was determined after negotiations between Saratoga and the Creditors Committee, and in consideration of several factors and by reliance on various valuation methods, including discounting cash flow and price/earnings and other applicable calculations. The factors considered by the parties to the bankruptcy included forecasted operating and cash flow results, discounted residual values at the end of the forecast period based on capitalized cash flows for the last year of that period, market share and position, competition and general economic considerations, projected sales growth, and potential profitability.

A black line has been drawn between the accompanying consolidated balance sheet as of June 30, 2004 and June 30, 2003 to distinguish between the Reorganized Company and the Predecessor Company. A black line has also been drawn between the consolidated statement of operations and of cash flows for the six months ended June 30, 2004 and the other periods presented to distinguish between the Reorganized Company and the Predecessor Company. The results of the periods shown for the Predecessor Company are not considered to be comparable to those of the Reorganized Company.

41

Reorganization adjustments recorded as of December 31, 2003 resulted primarily from the following:

•

Exchange of $100,000 of 8% Senior Notes and accrued interest through December 31, 2003 of $14,400 for $114,400 of 11% Senior Notes;

•

Issuance to Saratoga of 29,000 shares of the Company’s New Series A Preferred Shares and 1,000 of its New Common Shares in exchange for $18,000 and all of the equity interests of Saratoga in the Company purchased from GE for $12,000, including the 761,250 shares of the Company’s Old Preferred Stock and 1,429,590 shares of the Company’s Old Common Stock, and push-down of Saratoga’s investment;

•

Cancellation of the existing common stock in exchange for two investments of the company with a net book value of $7,192 as of the effective date of the Plan; and,

•

Increase in the receivable from officer of $1,169 resulting from a court-approved settlement and reclassification of the receivable to related party receivables from the equity section of the condensed consolidated balance sheet.

Fresh start adjustments recorded as of December 31, 2003 resulted primarily from the following:

•

Reduction of property, plant and equipment carrying values, including reduction of the Company’s real estate by $11,644 and personal property by $28,790;

•

Adjustment of the identifiable intangible assets to $24,675 including customer contracts and relationships of $10,000, trademarks and tradenames of $8,635, and technology of $6,040;

•

Reduction in the value of inventory of $1,997 related to inventory being disposed of by June 30, 2004; and,

•

Increase in the value of inventory of $1,500 related to an adjustment in accordance with FAS No. 141, which requires that inventory be recorded at fair value on the reorganized company’s balance sheet. The increase in inventory of $1,500 above manufacturing cost reduced reported gross margin and net profit in the third quarter of fiscal 2004 as the inventory was sold.

These preliminary adjustments were based upon the work of outside appraisers, as well as internal valuation estimates using discounted cash flow analyses, to determine the relative fair values of the Company’s assets and liabilities and are not expected to differ materially.

As encouraged under SEC Staff Accounting Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited Circumstances, the Company has reflected an additional adjustment to establish a new basis for its assets and liabilities based on the amount paid by Saratoga for its ownership at December 31, 2003.

Valuation of Accounts and Notes Receivable and Loan Receivable from Officer

Management evaluates and makes estimates of the collectibility of the Company’s accounts and notes receivable, including unbilled accounts receivable related to long-term equipment contracts, based on a combination of factors. Management analyzes historical bad debts, customer credit-worthiness, and current economic trends in evaluating the adequacy of the allowance for doubtful accounts and whether there is any impairment in its notes receivable. In circumstances where the Company is aware of a certain customer’s inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the amount the Company believes will be collected. Material changes in the allowance for doubtful accounts may occur if the results of management’s evaluation change or if a different method is used to estimate possible losses. The accounts receivable balance was $29,787, net of an allowance of $706 as of June 30, 2004.

42

The Company has notes receivable plus accrued interest from the Ruud Lighting, Inc. shareholders in the aggregate amount of $3,198. These notes are due December 1, 2006, but rebates earned on purchases by Ruud Lighting, Inc. pursuant to its current agreement with the Debtors will be credited toward prepayment of the principal and interest on the notes. The Company believes the total receivable amount will be realized in accordance with the terms of the notes.

The Company has a loan receivable from the Chief Executive Officer (“CEO”). Management periodically evaluates the adequacy of the underlying assets to repay this loan and when it estimates the proceeds from the sale of such assets are not adequate records a reserve. Based on its estimates, Management recorded an impairment charge of $9,800 on the loan receivable during the two previous fiscal years. No interest related to the loan was recorded in first six months of fiscal 2004 and all of two previous fiscal years. Interest on the loan accrues at the same rate as the Company pays on its credit facility and totaled $84 in the six months ended June 30, 2004.

As part of the reorganization, the officer loan documents were modified to reduce the amount of the outstanding indebtedness owed by the officer to an amount (the “Designated Amount”) equal to the difference between (1) the fair market value of the CEO’s personal assets and (2) the amounts owing to other secured creditors of the CEO that hold mortgages, liens and/or security interests upon or in property of the CEO, on a priority senior to the liens and security interests securing the CEO’s loan from the Company, to the extent of the fair market value of such property. The Designated Amount was set at $4,024. The Company believes the loan receivable amount will be realized in accordance with the terms of loan documents.

Valuation of Long-Lived Assets

The Company’s emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start reporting in accordance with SOP No. 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The Company’s tangible assets were adjusted in accordance with SOP 90-7 which resulted in a decrease in the Company’s real estate of $11,644 and a decrease in personal property (machinery and equipment and furniture and fixtures) of $28,790. The Company’s identifiable intangible assets were adjusted to $24,675 representing customer contracts and relationships of $10,000, trademarks and tradenames of $8,635, and technology of $6,040.

In addition to the above, the application of SOP 90-7 and SEC Staff Accounting Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited Circumstances, resulted in the elimination of the existing goodwill and the establishment of a new amount of goodwill of $51,011, that represents the “reorganization value in excess of amounts allocable to identifiable assets.” In accordance with the provisions of Statement of Financial Accounting Standards (“FAS”) No. 142, Goodwill and Other Intangible Assets, no amortization of goodwill was recorded in fiscal 2003 or fiscal 2004. Additionally, the newly-established goodwill will not be amortized. Rather, the Company will evaluate this asset for impairment at least annually and whenever there is an impairment indicator using the fair value guidelines of FAS No. 142.

The Company evaluates the carrying value of its investment in other long-lived assets for impairment such as property, plant and equipment whenever there is an impairment indicator, generally using an undiscounted cash flow methodology. During fiscal 2003, the Company recognized a $10,844 charge primarily related to the abandonment of certain of its telecommunication fixed assets due to the uncertainty of the recovery of the global telecom industry, and the write down of certain assets held for sale.

43

Inventory Valuation Reserves

The Company values its inventory for accounting purposes at the lower of cost (first-in, first-out method) or market. In circumstances where the Company is aware of a problem in the valuation of a certain item, a specific reserve is recorded to reduce the item to its net realizable value. For all other inventory, the Company records a reserve based on a combination of factors, including actual usage in recent history and projected usage in the future. If expected circumstances should change due to general economic or product obsolescence issues resulting in lower-than-expected usage, management’s estimate of the net realizable value could be reduced by a material amount.

Revenue Recognition

The Company has entered into certain contracts with customers for the construction of lighting and thin-film coating equipment. Revenue is recognized on these contracts as work on the contract progresses using the percentage of completion method of accounting, which relies on estimates of total expected contract revenues and costs. Under this method reasonable estimates of the costs applicable to the various stages of a contract are made, thus, impacting the level of recognized revenue. Since the financial reporting of these contracts depends on estimates, which are assessed continually during the term of the contract, recognized revenues and profit are subject to revisions as the contract progresses toward completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Should estimates indicate a loss is expected to be incurred under a contract, cost of sales is charged with a provision for such loss.

Deferred Tax Assets and Valuation Allowance

The Company had approximately $10,379 of net deferred tax assets related principally to certain unused tax credits and loss carryforwards as of June 30, 2004. The realization of these assets is based upon the Company generating future taxable income. Due to the Company’s historical results it is uncertain as to when it will realize taxable income that will allow it to utilize its tax credits and loss carryforwards and, accordingly, has recorded a valuation allowance of approximately $10,379. Additionally, on August 15, 2003, Saratoga purchased the preferred and common shares owned by GE. This transaction caused an ownership change greater than 50% which will limit the annual net operating loss and tax credit carryforwards the Company can use to offset any future taxable income pursuant to Section 382 of the Internal Revenue Code. This limitation is effective with the fiscal year ending June 30, 2004. The Company has net operating losses which, in accordance with the principles of fresh start accounting, were not recorded. These net operating losses are available to be utilized, and, to the extent the net operating losses are utilized, goodwill will be reduced accordingly for the benefit received. Management will continue to evaluate the realization of these deferred tax assets that are subject to the Company’s future operations. The Company’s future operations will be influenced by the general business environment, which is difficult to predict and beyond the control of the Company.

44

Impact of Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation (“FIN”) No. 46 Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. The Company was required to account for interests in VIEs existing on January 31, 2003, under the provisions of FIN No. 46 as of July 1, 2003, the beginning of the Company’s fiscal 2004 first quarter. The FIN addresses the consolidation of business enterprises of variable interest entities and certain required disclosures related to such relationships. The Company determined that none of its investments meet the requirement for consolidation or disclosure under this FIN.

In May 2003, the FASB issued Statement of Financial Accounting Standards (“FAS”) No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. FAS No. 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. FAS No. 150 was effective for the Company as of July 1, 2003. The provisions of FAS No. 150 had no impact on the condensed consolidated financial statements.

Impact of Inflation

Although inflation has slowed in recent years, it continues to be a factor in the economy. However, management does not believe that inflation has or will have a significant impact on its operations. Although the Company has not raised prices significantly in recent years, it has been able to lower overall costs sufficiently to offset inflation.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The information set forth under the subcaption “Market Risk Disclosures” contained in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.

45

Item 8. Financial Statements and Supplementary Data

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)

LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

CERTAIN EXHIBITS

FINANCIAL STATEMENT SCHEDULES

YEAR ENDED JUNE 30, 2004

ADVANCED LIGHTING TECHNOLOGIES, INC.

SOLON, OHIO

46

REPORT OF MANAGEMENT

Management of Advanced Lighting Technologies, Inc. is responsible for the preparation of the accompanying consolidated financial statements of the Company and its subsidiaries. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

The Company is responsible for the integrity and objectivity of the financial statements and, accordingly, the financial statements include amounts reported based upon informed judgments and estimates made by management to reflect the expected results of certain events and transactions. The Company maintains a system of internal accounting controls designed to provide reasonable assurance that the books and records reflect the transactions of the Company. The concept of reasonable assurance is based on the recognition that the cost of a system of internal controls must be related to the benefits derived.

The accompanying consolidated financial statements have been audited by Grant Thornton LLP and their report is included herein. Their audits were made in accordance with standards of the Public Company Accounting Oversight Board (United States). They obtained an understanding of the Company’s system of internal controls sufficient to plan their audit and determine the nature, timing and extent of procedures to be performed during their audit.

The Company has an audit committee composed of three Directors who are not members of management. The committee meets regularly with management and the independent auditors in connection with its review of matters relating to the Company’s financial statements, the Company’s system of internal accounting controls and the services of the independent auditors. The committee also meets with the independent auditors, without management present, to discuss appropriate matters. The committee also recommends to the Directors the appointment of the independent auditors.

August 31, 2004

47

LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES

Form 10-K—Item 14(a)(1) and (2), (c) and (d)
ADVANCED LIGHTING TECHNOLOGIES, INC.

The following consolidated financial statements of Advanced Lighting Technologies, Inc. are included in Item 8:

Audited Consolidated Financial Statements:

Financial Statement Schedules:

None

All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

F-1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders
Advanced Lighting Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Advanced Lighting Technologies, Inc. (the Reorganized Company) as of June 30, 2004, and the related consolidated statements of operations, shareholders’ equity and cash flows for the six months ended June 30, 2004. We have also audited the accompanying consolidated balance sheet of Advanced Lighting Technologies, Inc. (the Predecessor Company) as of June 30, 2003 and the related consolidated statements of operations, shareholders’ equity and cash flows for the six months ended December 31, 2003 and for each of the two years in the period ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based upon our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Advanced Lighting Technologies, Inc. (the Reorganized Company) as of June 30, 2004 and the consolidated results of its operations and its cash flows for the six months ended June 30, 2004 and the consolidated financial position of Advanced Lighting Technologies, Inc. (the Predecessor Company) as of June 30, 2003 and the consolidated results of its operations and its cash flows for the six months ended December 31, 2003 and for each of the two years in the period ended June 30, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note B to the consolidated financial statements, the United States Bankruptcy Court for the Northern District of Illinois confirmed the Company’s Amended Plan of Reorganization (the “plan”) on December 8, 2003. Confirmation of the plan and the Company’s emergence from bankruptcy resulted in the discharge of certain claims against the Company that arose before February 5, 2003 and the cancellation and exchange of equity interests as provided by the plan. The plan was substantially consummated and the Company emerged from bankruptcy on December 10, 2003. In connection with its emergence from bankruptcy, the Company adopted fresh start accounting as of December 31, 2003.

As discussed in Note C to the consolidated financial statements, in fiscal 2002 the Company changed its accounting method for goodwill and intangible assets.

Cleveland, Ohio.
August 27, 2004

F-2

Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

See Notes to Consolidated Financial Statements, including Emergence from
Bankruptcy describing the Reorganized Company and Predecessor Company.

F-3

Advanced Lighting Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

See Notes to Consolidated Financial Statements, including Emergence from
Bankruptcy describing the Reorganized Company and Predecessor Company.

F-4

Advanced Lighting Technologies, Inc.
Consolidated Statements of Operations
(in thousands, except per share dollar amounts)

See Notes to Consolidated Financial Statements, including Emergence from
Bankruptcy describing the Reorganized Company and Predecessor Company.

F-5

Advanced Lighting Technologies, Inc.
Consolidated Statements of Shareholders’ Equity
For the Three Years Ended June 30, 2004
(in thousands)