UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~March~~September 3130, 2003

~~[ ]~~ 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.

~~Ohio~~ (~~State~~Exact orname ~~other jurisdiction~~ of ~~incorporation~~registrant oras ~~organization)~~specified ~~34-1803229~~in ~~(I.R.S.~~its ~~Employer Identification No.~~charter)

32000 Aurora Road, Solon, Ohio (Address of principal executive offices) 44139 (Zip Code)


Ohio		34-1803229

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)









32000 Aurora Road, Solon, Ohio		44139

(Address of principal executive offices)		(Zip Code)

440 / 519-0500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ü No

~~Yes~~Indicate üby Nocheck ~~[ ]~~mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No ü

~~Indicate~~There bywere ~~check~~23,807,347 ~~mark~~shares ~~whether~~of the ~~registrant~~ isRegistrant’s anCommon ~~accelerated~~Stock, ~~filer~~$.001 ~~(as~~par ~~defined~~value per inshare, ~~Rule~~outstanding ~~12b-2~~as of ~~the Exchange~~September 30, ~~Act)~~2003.

Yes [ ] No ü

There were 23,807,347 shares of the Registrant’s Common Stock, $.001 par value per share, outstanding as of March 31, 2003.

TABLE OF CONTENTS

		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Operations (Unaudited)
		Condensed Consolidated Statement of Shareholders’ Equity
		Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
Part II. Other Information
	Item 1. Legal Proceedings
	Item 3. Defaults Upon Senior Securities
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1
Exhibit 10.2
Exhibit 12
Exhibit 99.1
Exhibit 99.2


Consolidated Balance Sheets
Consolidated Balance Sheets
Condensed Consolidated Statements of Operations (Unaudited)
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1 Consent-First Amend Loan and Sec Agmt
Exhibit 10.2 Second Amend-Loan and Security Agree
Exhibit 10.3 Third Amend-Loan and Security Agree
Exhibit 10.4 Settlement Agreement
Exhibit 10.5 Reorganization Lockup and Voting Agmt
Exhibit 12 Computation of Ratio of Earnings
Exhibit 31.3 Certification-302-CEO
Exhibit 31.4 Certification-302-CFO
Exhibit 32.1 906 Cert-CEO
Exhibit 32.2 906 Cert-CFO
Exhibit 99.1 Supplement to Disclosure

INDEX

Advanced Lighting Technologies, Inc.

		~~Page~~		Page
		~~No.~~		No.
Part I	~~Financial Information~~	Financial Information
Item 1.	~~Financial Statements (Unaudited)~~	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets — March 31, 2003 and June 30, 2002	2
			Condensed Consolidated Balance Sheets — September 30, 2003 and June 30, 2003		2
	Condensed Consolidated Statements of Operations — Three months and nine months ended March 31, 2003 and 2002	3
			Condensed Consolidated Statements of Operations — Three months ended September 30, 2003 and 2002		4
	Condensed Consolidated Statement of Shareholders’ Equity — Nine months ended March 31, 2003	4
			Condensed Consolidated Statement of Shareholders’ Equity — Three months ended September 30, 2003		5
	Condensed Consolidated Statements of Cash Flows — Nine months ended March 31, 2003 and 2002	5
			Condensed Consolidated Statements of Cash Flows — Three months ended September 30, 2003 and 2002		6
	~~Notes to Condensed Consolidated Financial Statements~~	6	Notes to Condensed Consolidated Financial Statements		7
Item 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	23Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.	~~Quantitative and Qualitative Disclosures about Market Risk~~	42Quantitative and Qualitative Disclosures about Market Risk			40
Item 4.	~~Controls and Procedures~~	42Controls and Procedures			40
Part II	~~Other Information~~	Other Information
Item 1.	~~Legal Proceedings~~	42Legal Proceedings			41
Item 3.	~~Defaults Upon Senior Securities~~	42Defaults Upon Senior Securities			41
Item 6.	~~Exhibits and Reports on Form 8-K~~	43Exhibits and Reports on Form 8-K			41
Signatures		45			43

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

				(Unaudited)		~~(Unaudited)~~		(Audited)		~~(Audited)~~
						March 31,				June 30,
				September 30,				June 30,
				2003		~~2003~~		2003		~~2002~~
Assets
Current assets:
	Cash and cash equivalents	~~Cash and cash equivalents~~		$	4,001	$	~~3,352~~	$	4,167	$	~~2,874~~
		Trade receivables, less allowances of $961 and $1,874					30,968				29,124
	Trade receivables, less allowances of $1,016 and $979				29,909				31,312
	Inventories:	~~Inventories:~~
		Finished goods	~~Finished goods~~		15,638		~~16,722~~		15,242		~~17,873~~
		Raw materials and work-in-process	~~Raw materials and work-in-process~~		8,249		~~8,933~~		8,693		~~8,818~~
							25,655				26,691
					23,887				23,935
	Prepaid expenses	~~Prepaid expenses~~			2,292		~~1,804~~		1,374		~~1,975~~
Total current assets					60,089		~~61,779~~		60,788		~~60,664~~
Property, plant and equipment:
	Land and buildings	~~Land and buildings~~			34,048		~~33,364~~		33,822		~~32,839~~
	Machinery and equipment	~~Machinery and equipment~~			73,125		~~74,848~~		72,583		~~76,929~~
	Furniture and fixtures	~~Furniture and fixtures~~			18,255		~~17,592~~		17,912		~~16,709~~
		Assets held for sale					2,171				4,557
					125,428				124,317
							127,975				131,034
	Less accumulated depreciation				37,752				35,981
		Less accumulated depreciation					33,993				29,535
					87,676				88,336
							93,982				101,499
Receivables from related parties					3,628				6,463
Receivables from related parties							7,319				7,982
Investments in affiliates					8,684				8,668
Investments in affiliates							9,508				10,264
Other assets					2,021				2,976
Other assets							2,408				5,842
Intangible assets					2,540				2,572
Intangible assets							2,582				3,191
Excess of cost over net assets of businesses acquired, net					4,490				4,473
Excess of cost over net assets of businesses acquired, net							4,411				4,258
				$	169,128			$	174,276
						$	181,989			$	193,700
Liabilities and shareholders’ equity
Liabilities not subject to compromise:
		Current liabilities:
			Short-term debt and current portion of long-term debt			$	1,520			$	4,113
			Accounts payable				10,380				15,485
			Payables to related parties				676				452
			Employee-related liabilities				2,891				2,788
			Accrued income and other taxes				954				180
			Other accrued expenses				7,233				8,901
			Senior unsecured 8% notes, due March 2008, in default				—				100,000
			Debtor-in-Possession Facility				12,841				—
			Bank Credit Facility, in default				12,037				28,218
		Total current liabilities					48,532				160,137
		Long-term debt					5,983				7,356
				Total liabilities not subject to compromise			54,515				167,493
Liabilities subject to compromise							114,557				—
Total liabilities							169,072				167,493
Minority interest							902				635
Preferred stock, $.001 par value, per share; 1,000 shares authorized; 761 Series A convertible redeemable shares issued and outstanding (redemption value — $26,902 at March 31, 2003)							24,475				22,290
Common shareholders’ equity (deficit)
		Common stock, $.001 par value, 80,000 shares authorized, 23,807 shares issued and outstanding as of March 31, 2003 and 23,588 shares issued and outstanding as of June 30, 2002					24				24
		Paid-in-capital					212,726				214,804
		Accumulated other comprehensive income (loss)					(2,135	)			(2,940	)
		Loan and interest receivable from officer, less reserve of $9,800					(4,344	)			(7,044	)
		Retained earnings (deficit)					(218,731	)			(201,562	)
							(12,460	)			3,282
						$	181,989			$	193,700

See notes to ~~condensed~~ consolidated financial statements

Advanced Lighting Technologies, Inc. ~~Condensed~~ Consolidated ~~Statements~~Balance ofSheets (in ~~Operations~~thousands, ~~(Unaudited~~except per share amounts)

(In thousands, except per share dollar amounts)


				(Unaudited)			(Audited)
				September 30,			June 30,
				2003			2003

Liabilities and shareholders’ equity




Liabilities not subject to compromise:




	Current liabilities:




		Short-term debt and current portion of long-term debt		$	1,140		$	2,241




		Accounts payable			9,761			10,814




		Payables to related parties			177			790




		Employee-related liabilities			3,312			2,895




		Accrued income and other taxes			1,260			1,294




		Other accrued expenses			8,126			6,839




		Debtor-in-Possession Facility			26,183			25,126

	Total current liabilities				49,959			49,999




	Long-term debt				5,256			5,324

			Total liabilities not subject to compromise		55,215			55,323




Liabilities subject to compromise					117,191			116,214

Total liabilities					172,406			171,537




Minority interest					1,097			968




Preferred stock, $.001 par value, per share; 1,000 shares authorized; 761 Series A convertible redeemable shares issued and outstanding (redemption value — $27,935 at September 30, 2003)					24,475			24,475









Common shareholders’ equity (deficit)




	Common stock, $.001 par value, 80,000 shares authorized, 23,807 shares issued and outstanding as of September 30, 2003 and June 30, 2003				24			24




	Paid-in-capital				212,724			212,724




	Accumulated other comprehensive income (loss)				(414	)		(640	)




	Loan and interest receivable from officer, less reserve of $9,800				(4,344	)		(4,344	)




	Accumulated deficit				(236,840	)		(230,468	)

					(28,850	)		(22,704	)

				$	169,128		$	174,276

		Three Months Ended						Nine Months Ended
		March 31,						March 31,
		2003			2002			2003			2002
Net sales		$	37,469		$	33,565		$	109,624		$	134,025
Costs and expenses:
	Cost of sales		23,252			22,706			68,774			87,859
	Marketing and selling		5,457			5,592			16,808			24,812
	Research and development		2,055			1,529			6,321			6,863
	General and administrative		2,628			3,602			8,934			11,857
	Provision for loan impairment		—			900			2,700			5,500
	Refinancing and non-recurring items		84			—			2,387			—
	Gain on settlement of lawsuit		—			—			—			(554	)
	Gain on sale of property		—			—			(62	)		—
	Special charges and asset impairment		—			—			6,714			9,009
	Amortization of intangible assets		86			83			256			253
Income (loss) from operations			3,907			(847	)		(3,208	)		(11,574	)
Other income (expense):
	Interest expense		(2,722	)		(2,559	)		(8,732	)		(8,616	)
	Interest income		140			82			415			144
	Income (loss) from investments		(104	)		(2,121	)		(756	)		(2,332	)
	Reorganization expenses		(3,963	)		—			(3,963	)		—
	Gain from sale of fixture subsidiaries		—			—			—			227
Income (loss) before income taxes, minority interest and cumulative effect of accounting change			(2,742	)		(5,445	)		(16,244	)		(22,151	)
Income tax expense			224			152			658			386
Income (loss) before minority interest and cumulative effect of accounting change			(2,966	)		(5,597	)		(16,902	)		(22,537	)
Minority interest in income of consolidated subsidiary			(108	)		(63	)		(267	)		(145	)
Income (loss) before cumulative effect of accounting change			(3,074	)		(5,660	)		(17,169	)		(22,682	)
Cumulative effect of accounting change			—			—			—			(71,171	)
Net income (loss)		$	(3,074	)	$	(5,660	)	$	(17,169	)	$	(93,853	)
Earnings (loss) per share — basic and diluted:
	Income (loss) before cumulative effect of accounting change	$	(.16	)	$	(.27	)	$	(.90	)	$	(1.06	)
	Cumulative effect of accounting change		—			—			—			(3.04	)
	Earnings (loss) per share — basic and diluted:	$	(.16	)	$	(.27	)	$	(.90	)	$	(4.10	)
Weighted average shares outstanding:
	Basic and diluted		23,807			23,462			23,733			23,383

See notes to consolidated financial statements

See notes to condensed consolidated financial statements

Advanced Lighting Technologies, Inc. Condensed Consolidated ~~Statement~~Statements of ~~Shareholders’~~Operations ~~Equity~~ (Unaudited) ~~Nine~~(In ~~Months~~thousands, ~~Ended~~except ~~March 31,~~per ~~2003 (in~~share ~~thousands~~dollar amounts)

															Accumulated
			Three Months Ended
						Common Stock									Other
			September 30,
		Preferred										Paid-In			Comprehensive
			2003				2002
		Stock				Shares				Par Value		Capital			Income (Loss)
Net sales			$	32,832			$	33,587
Balance at July 1, 2002		$	22,290				23,588			$	24	$	214,804		$	(2,940	)
Costs and expenses:
Net income (loss)			—				—				—		—			—
	Cost of sales			20,179				21,537
Preferred shares accretion			2,185				—				—		(2,185	)		—
	Marketing and selling			5,301				5,637
Warrants to be issued to General Electric Company			—				—				—		—			—
	Research and development			1,386				1,634
Reserve for loan impairment			—				—				—		—			—
	General and administrative			3,089				3,233
Stock purchases by employees			—				61				—		20			—
	Gain on sale of property			—				(62	)
Stock issued pursuant to employee benefit plan			—				158				—		87			—
	Amortization of intangible assets			88				85
Foreign currency translation adjustment			—				—				—		—			805
Income from operations				2,789				1,523
Balance at March 31, 2003		$	24,475				23,807			$	24	$	212,726		$	(2,135	)
Other income (expense):
	Interest expense			(3,420	)			(2,789	)
	Interest income			83				138
	Income from investments			16				1
	Reorganization expenses			(5,623	)			—
Income (loss) before income taxes and minority interest				(6,155	)			(1,127	)
Income tax expense				88				277
Income (loss) before minority interest				(6,243	)			(1,404	)
Minority interest in income of consolidated subsidiary				(129	)			(77	)
Net income (loss)			$	(6,372	)		$	(1,481	)
Earnings (loss) per share — basic and diluted:			$	(.27	)		$	(.18	)
Weighted average shares outstanding — basic and diluted				23,807				23,628

[Additional columns below]

[Continued from above table, first column(s) repeated]

	Loan and
	Interest						Common
	Receivable			Retained			Shareholders'
	From			Earnings			Equity
	Officer			(Deficit)			(Deficit)			Total
Balance at July 1, 2002	$	(7,044	)	$	(201,562	)	$	3,282		$	25,572
Net income (loss)		—			(17,169	)		(17,169	)		(17,169	)
Preferred shares accretion		—			—			(2,185	)		—
Warrants to be issued to General Electric Company		—			—			—			—
Reserve for loan impairment		2,700			—			2,700			2,700
Stock purchases by employees		—			—			20			20
Stock issued pursuant to employee benefit plan		—			—			87			87
Foreign currency translation adjustment		—			—			805			805
Balance at March 31, 2003	$	(4,344	)	$	(218,731	)	$	(12,460	)	$	12,015

See notes to condensed consolidated financial statements

Advanced Lighting Technologies, Inc. Condensed Consolidated ~~Statements~~Statement of ~~Cash~~Shareholders’ ~~Flows~~Equity (Unaudited) Three Months Ended September 30, 2003 (in thousands)

					Nine Months Ended
																Loan and
					March 31,
													Accumulated			Interest						Common
					2003			2002
			Preferred			Common Stock							Other			Receivable			Retained			Shareholders'
Operating activities
											Paid-In		Comprehensive			From			Earnings			Equity
	Net income (loss)				$	(17,169	)	$	(93,853	)
			Stock			Shares			Par Value		Capital		Income (Loss)			Officer			(Deficit)			(Deficit)			Total
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Balance at July 1, 2003			$	24,475			23,807		$	24	$	212,724	$	(640	)	$	(4,344	)	$	(230,468	)	$	(22,704	)	$	1,771
			Depreciation			4,789			5,458
Net income (loss)				—			—			—		—		—			—			(6,372	)		(6,372	)		(6,372	)
			Amortization			256			253
Foreign currency
			Provision for doubtful accounts			(771	)		1,215
	translation adjustment			—			—			—		—		226			—			—			226			226
			Loss from investments			756			2,443
Balance at September 30, 2003			$	24,475			23,807		$	24	$	212,724	$	(414	)	$	(4,344	)	$	(236,840	)	$	(28,850	)	$	(4,375	)
			Gain on sale of property			(62	)		—
			Gain on sale of subsidiaries			—			(227	)
			Cumulative effect of accounting change			—			71,171
			Special charges and asset impairment			6,714			4,337
			Provision for loan impairment			2,700			5,500
			Reorganization expenses, less cash payments of $1,207			2,756			—
			Changes in current assets and liabilities and other			7,589			2,714
				Net cash provided by (used in) operating activities		7,558			(989	)
Investing activities
	Capital expenditures					(3,703	)		(11,330	)
	Net proceeds from sale of subsidiaries					—			24,166
	Proceeds from sale of preferred stock investment					300			1,000
	Proceeds from sale of real estate					1,326			—
	Investment in affiliate					—			(88	)
				Net cash provided by (used in) investing activities		(2,077	)		13,748
Financing activities
	Proceeds from revolving credit facility					65,079			125,457
	Proceeds from debtor-in-possession facility					13,347			—
	Payments of revolving credit facility					(77,023	)		(124,385	)
	Payments of debtor-in-possession facility					(506	)		—
	Proceeds from long-term debt					—			132
	Payments of long-term debt and capital leases					(6,007	)		(14,687	)
	Loan to officer					—			(1,004	)
	Issuance of common stock					107			436
				Net cash (used in) financing activities		(5,003	)		(14,051	)
Increase (decrease) in cash and cash equivalents						478			(1,292	)
Cash and cash equivalents, beginning of period						2,874			3,652
				Cash and cash equivalents, end of period	$	3,352		$	2,360
Supplemental cash flow information
		Interest paid			$	2,414		$	11,201
		Income taxes paid				109			129
		Capitalized interest				339			892

See notes to condensed consolidated financial statements

Advanced Lighting Technologies, Inc. ~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows (Unaudited) ~~March 31, 2003~~ (~~Dollars~~ in thousands~~, except per share data~~)


					Three Months Ended
					September 30,

					2003			2002

Operating activities




	Net income (loss)				$	(6,372	)	$	(1,481	)




	Adjustments to reconcile net income (loss) to net cash provided by operating activities:




			Depreciation			1,687			1,586




			Amortization			88			85




			Provision for doubtful accounts			70			37




			Income from investments			(16	)		(1	)




			Gain on sale of property			—			(62	)




			Reorganization expenses, less cash payments of $3,900			1,723			—




			Changes in current assets and liabilities and other			3,620			3,227

				Net cash provided by operating activities		800			3,391




Investing activities




	Capital expenditures					(988	)		(1,188	)




	Proceeds from sale of preferred stock investment					—			300




	Proceeds from sale of real estate					—			1,326

				Net cash provided by (used in) investing activities		(988	)		438




Financing activities




	Proceeds from revolving credit facility					—			23,717




	Proceeds from debtor-in-possession facility					29,067			—




	Payments of revolving credit facility					—			(25,083	)




	Payments of debtor-in-possession facility					(28,010	)		—




	Payments of long-term debt and capital leases					(1,035	)		(1,677	)




	Issuance of common stock					—			70

				Net cash provided by (used in) financing activities		22			(2,973	)

Increase (decrease) in cash and cash equivalents						(166	)		856




Cash and cash equivalents, beginning of period						4,167			2,874

				Cash and cash equivalents, end of period	$	4,001		$	3,730

Supplemental cash flow information




		Interest paid			$	518		$	626




		Income taxes paid				66			33




		Capitalized interest				18			107

See notes to condensed consolidated financial statements

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

A. Organization

Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) is an innovation-driven designer, manufacturer and marketer of metal halide lighting products, including materials, system components, systems and equipment. The Company also develops, manufactures and markets passive optical telecommunications devices, components and equipment based on the optical coating technologies of its wholly-owned subsidiary, Deposition Sciences, Inc. (“DSI”).

B. Voluntary Bankruptcy Filing

On February 5, 2003, Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) and six of its United States subsidiaries, (collectively, the “Debtors”), filed voluntary petitions for reorganization (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (“Chapter 11” or the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). ADLT’s non-U.S. operating subsidiaries and DSI, a U.S. subsidiary, were not a part of the Filing.

Background of Filing — In the fourth quarter of fiscal 2002, the Company ~~incurred~~ incurred a loss from operations and at June 30, 2002 was in default on its ~~fourth~~ fourth quarter fixed charge coverage ratio under its then existing Bank Credit Facility. On September 16, 2002 ADLT and its bank group entered into a ~~Forbearance~~ Forbearance Agreement. At the end of the second quarter of fiscal 2003 the Company was in default under the Forbearance Agreement. In addition, in accordance with the terms of the Forbearance Agreement, the Company did not ~~make~~ make the September 16, 2002 semi-annual interest payment on its 8% Senior Notes which resulted in an Event of Default under the Senior Notes Indenture. As a result of the defaults, the trustee for the noteholders declared all principal and interest due and payable immediately on the 8% Senior Notes. The Filing by ADLT was made since it did not have the available funds to pay the noteholders and because of the uncertainty of the willingness of the bank group to grant continued forbearance under acceptable terms. These defaults are discussed in more detail in Note F ~~to the Condensed Consolidated Financial Statements~~. Under Chapter 11, the Debtors have continued to operate their businesses as debtors-in-possession under court protection from their creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the repayment of its ~~Bank Credit~~ Debtor-in-Possession Facility and 8% Senior Notes.

Consequence of Filing — As a consequence of the Filing, all pre-petition liabilities of the Debtors are stayed and no party may take any action to realize its pre-petition claims except pursuant to order of the Bankruptcy Court. It is the Debtors’ intention to address all of their pre-petition claims as well as the interests of their preferred and common shareholders and, in that regard, filed a plan of reorganization with the Bankruptcy Court on April 28, 2003., ~~The~~and ~~hearing~~amended plans on ~~the~~August 15, ~~adequacy~~2003, ofSeptember 16, ~~the~~2003, ~~disclosure statement has~~and ~~been~~October 3, ~~continued~~2003. ~~from~~On ~~time-to-time~~October 3, at2003, the ~~request~~Bankruptcy ofCourt ~~the~~approved ~~Debtors as they attempt~~the toadequacy ~~negotiate~~of the ~~terms~~disclosure ofstatement adescribing ~~consensual~~the plan, as amended. It is currently impossible to predict with any degree of certainty whether the plan, as amended, will be accepted by the Company’s creditors and ~~preferred and~~ common shareholders. Generally, under the provisions of the Bankruptcy Code, holders of equity interests may not participate under a plan of reorganization unless the claims of creditors are satisfied ~~in full under the~~ ~~plan or unless creditors accept a reorganization plan that permits holders of equity interests to participate. A committee representing~~

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2003 (Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

unsecured creditors, including the noteholders, and a committee representing equity security holders have been appointed by the United States Trustee. In accordance with the provisions of the Bankruptcy Code, these committees have the general right to be heard on all matters that come before the Bankruptcy Court under or in connection with the Filing. The Debtors are also required to bear certain of these committees’ costs and expenses, including those of their legal counsel and financial advisors. Due to material uncertainties, it is not possible to predict the length of time the Debtors will operate under Chapter 11 protection, the outcome of the reorganization in general, the effect on the Debtors’ business or the recovery by creditors of the Debtors and equity holders of ADLT.

The accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Filing, such realization of certain Debtors’ assets and liquidation of certain Debtors’ liabilities are subject to significant uncertainty and raises substantial doubt about the Company’s ability to continue as a going concern. Further, a plan of reorganization could materially change the amounts and classifications reported in the Condensed Consolidated Financial Statements, which do not give effect to any adjustments to the carrying value or classification of assets or liabilities that might be necessary as a consequence of a specific plan or reorganization.

A substantial portion of the Debtor’s pre-petition debt, excluding debt secured by mortgages, is now in default as a result of, among other things, the Filing. Accordingly, the accompanying Condensed Consolidated Balance Sheet as of March 31, 2003 reflects the classification of the Debtors’ secured bank debt as a current liability and all of the Debtors’ pre-petition unsecured debt as liabilities subject to compromise.

The Debtors have negotiated a debtor-in-possession credit facility with several financial institutions (the “DIP Facility”). The DIP Facility has a maturity of July 30, 2003 and bears interest at the prime rate plus 3%. The Bankruptcy Court issued a final order approving the DIP Facility on March 13, 2003, which allows the Debtors to draw on the DIP Facility in an amount not to exceed $26,096 (See Note F).

As part of the bankruptcy process, the Company hopes to refinance its DIP Facility and pursue restructuring with its noteholders, other creditors and equity holders. If the DIP Facility is not repaid by June 30, 2003, the DIP Facility requires the Debtors enter into agreements to sell assets sufficient to satisfy indebtedness to the Banks. See Note L “Subsequent Events.”

While the Company has continued to manage its business as a debtor-in-possession, it has received approval from the Bankruptcy Court to, among other things, pay or otherwise honor certain of its pre-petition obligations, including claims of critical trade creditors, customer warranty and rebate programs, and employee wages and benefits in the ordinary course of business.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

~~Plan~~in offull ~~Reorganization~~under ~~— The Company has had ongoing negotiations with~~ the ~~Official~~ ~~Committee~~plan ofor ~~Unsecured~~unless ~~Creditors~~creditors ~~(the~~accept ~~“Creditors Committee”). In the absence of an agreement with the Creditors Committee, on April 28, 2003 the Company filed~~ a ~~Disclosure~~reorganization ~~Statement~~plan ~~with respect to a Joint Chapter 11 Plan of~~that ~~Reorganization~~permits ~~(the~~holders ~~“Original Plan”) with the Bankruptcy Court based substantially on one~~ of ~~its~~equity ~~last~~interests ~~restructuring proposals~~ to ~~the Creditors Committee~~participate. ~~Under~~A ~~the~~committee ~~proposed~~representing unsecured ~~terms of the Original Plan~~creditors, ~~unclassified claims,~~ including ~~administrative~~the ~~claims~~noteholders, ~~priority tax claims~~ and ~~the~~a ~~DIP~~committee ~~Facility~~representing ~~claim,~~equity ~~would~~security beholders ~~paid~~have inbeen ~~cash~~appointed onby the ~~effective~~United ~~date~~States ~~of the Original Plan~~Trustee. In ~~addition,~~accordance with the ~~existing~~provisions ~~pre-petition~~of ~~Revolving~~the ~~Credit~~Bankruptcy ~~Facilities claim~~Code, ~~other secured~~these ~~claims~~committees ~~and classified priority claims would be paid in cash (except to~~have the ~~extent~~general ~~that~~right ~~the Company seeks~~ to ~~reinstate~~be ~~secured~~heard ~~claims),~~on ~~either~~all onmatters ~~the effective~~that ~~date~~come ofbefore the ~~Original~~Bankruptcy Court ~~Plan~~under or in ~~installment~~connection ~~payments,~~with ~~as provided in~~ the ~~Original Plan~~Filing. ~~Further,~~The ~~the~~Debtors ~~Original~~are ~~Plan~~also ~~proposed~~required ~~exchanging~~to bear ~~for~~certain ~~existing unsecured~~of ~~debt~~these ~~and~~committees’ ~~preferred~~costs and ~~common stock~~expenses, aincluding ~~new~~those ~~debt~~of ~~issue and new~~their ~~preferred~~legal counsel and ~~common~~financial ~~stock issues~~advisors. ~~Unsecured~~Due ~~creditors~~to ofmaterial ~~ADLT~~uncertainties, ~~would~~it beis not ~~provided~~possible ~~with~~to anpredict ~~option~~the onlength ~~form~~ of ~~payment;~~time ~~unsecured creditors of~~ the ~~other~~ Debtors ~~would~~will beoperate ~~paid~~under inChapter 11 ~~installment~~protection, ~~payments.~~the ~~Holders~~outcome of the ~~Company’s~~reorganization ~~Common Stock~~in ~~would~~general, ~~receive~~the ~~common~~effect ~~stock~~on ~~which would be diluted to 2% if~~ the ~~Company~~ ~~failed~~Debtors’ tobusiness ~~redeem~~or the ~~new~~recovery ~~preferred~~by ~~stock~~creditors ~~within~~of ~~three~~the ~~years.~~Debtors ~~See~~and ~~Note L~~equity ~~“Subsequent~~holders ~~Events~~of ADLT.”

~~Upon~~The ~~the~~accompanying ~~confirmation~~condensed ofconsolidated financial statements have been prepared on a ~~plan~~going concern basis, which contemplates continuity of ~~reorganization~~operations, realization of assets and liquidation of liabilities in the ~~Company’s~~ordinary course of ~~investment~~business. ~~banker~~However, ~~will~~as ~~receive~~a result of the Filing, insuch ~~addition~~realization toof ~~monthly~~certain Debtors’ ~~fees~~assets and ~~reimbursement~~ liquidation of ~~expenses,~~certain ~~fees~~Debtors’ ~~based~~liabilities onare ~~formulas~~subject ~~contained~~to significant inuncertainty and raises substantial doubt about the Company’s ability ~~agreement~~to continue as a going concern. Further, ~~which~~a plan of reorganization ~~will~~could ~~aggregate~~materially ~~between~~change ~~$1,000~~the amounts and $3classifications reported in the condensed consolidated financial statements,~~000.~~ ~~All~~which ~~such~~do ~~fees~~not ~~are~~give ~~subject~~effect to any ~~Bankruptcy~~adjustments ~~Court~~to ~~approval.~~the ~~The~~carrying ~~Company~~value ~~recorded~~or ~~$1,000~~classification of ~~fees~~assets asor liabilities ~~reorganization~~that ~~expenses~~might be necessary as a consequence of ~~March 31,~~a ~~2003~~specific plan of reorganization.

~~Accounting~~On ~~Impact~~June 30, —2003, ~~Beginning~~ the ~~third~~Debtors ~~quarter~~obtained ofa ~~fiscal~~new ~~2003,~~Debtor-in-Possession ~~ADLT was~~credit ~~required~~facility tofrom ~~follow~~two ~~Statement~~financial ofinstitutions ~~Position~~(the ~~90-7,~~“Replacement ~~Financial~~DIP ~~Reporting~~Facility”). Proceeds byfrom ~~Entities in~~the ~~Reorganization~~Replacement ~~Under~~DIP Facility were used to repay the ~~Bankruptcy~~Debtors’ original ~~Code~~Debtor-in-Possesion credit facility (the “~~SOP~~Original ~~90-7~~DIP Facility”) and all remaining amounts due on the existing secured Bank Credit Facility. ~~Pursuant~~The Replacement toDIP ~~SOP~~Facility consists of a revolving loan and two term loans. The ~~90-7,~~revolving ~~ADLT’s~~loan ~~pre-petition~~facility ~~liabilities~~allows ~~that~~the ~~are~~Debtors to incur up to $18,500 in revolving loans, subject to ~~compromise~~the ~~are~~availability of adequate collateral. The revolving loan ~~reported~~bears ~~separately~~interest onat the ~~balance~~prime ~~sheet~~rate plus 1% or at anthe ~~estimate~~London Interbank Borrowing Rate (“LIBOR”) plus 3%. One of the ~~amount~~term ~~that~~loans is ~~expected~~ toin bethe ~~allowed~~amount byof $5,000, bears interest at the ~~Bankruptcy~~prime ~~Court.~~rate ~~Obligations~~of interest plus 2% or at LIBOR plus 5%, and requires principal payments of ~~ADLT~~$83 per month beginning October 1, 2003. The ~~subsidiaries~~other ~~not~~term ~~covered~~loan byis in the ~~Filing~~amount ~~are~~of ~~classified~~$13,500 onand bears interest at the ~~consolidated~~prime ~~balance~~rate ~~sheet~~of ~~based~~interest ~~upon~~plus 6% per annum, with payment of 2% per annum deferred until maturity. ~~dates~~The orReplacement DIP Facility originally extended to October 31, 2003 and does not require the ~~expected~~Debtors ~~dates~~to ofsell ~~payment~~assets. ~~Liabilities~~ ~~subject~~The Company secured an amendment to ~~compromise~~the atReplacement ~~March~~Facility dated September 3116, 2003, ~~were~~that asextends the ~~follows:~~term to February 28, 2004, which would serve to extend the Replacement DIP Facility beyond the anticipated date of emergence from bankruptcy. The Bankruptcy Court issued a final order approving the extension of the Replacement DIP Facility on October 23, 2003.

8% Senior Notes, less issuance costs	$	97,262
Accounts payable		6,610
Accrued liabilities		8,575
Employee related liabilities		140
Promissory note payable		1,970
	$	114,557

As part of the bankruptcy process, the Company is pursuing restructuring with its noteholders, other creditors and equity holders. While the Company has continued to manage its business as a debtor-in-possession, it has received approval from the Bankruptcy Court to, among other things, pay or otherwise

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

~~the~~honor ~~additional~~certain ~~amount~~ of ~~claims~~its ~~that~~pre-petition ~~may arise or ultimately be filed~~obligations, orincluding toclaims ~~predict the length~~ of ~~time the Company will operate under the~~critical ~~protection~~trade ~~of Chapter 11. Further~~creditors, ~~uncertainties~~customer ~~exist~~warranty ~~regarding~~and ~~the~~rebate ~~outcome of the Chapter 11 proceedings in general~~programs, ~~whether~~and ~~the~~employee ~~Company~~wages ~~will continue to~~and ~~operate~~benefits ~~under~~in ~~its current organizational structure,~~ the ~~effect~~ordinary ofcourse ~~the proceedings on the business~~ of ~~ADLT and its subsidiaries or on the interests of the various creditors and security holders~~business.

~~Condensed~~Plan ~~Consolidated~~of ~~Financial~~Reorganization—The ~~Statements~~Company has had ongoing negotiations with the Official Committee of ~~Debtors-in-Possession~~Unsecured Creditors (the “Creditors Committee”). In the absence of an agreement with the Creditors Committee, on April 28, 2003 the Company filed a Disclosure Statement with respect to a Joint Chapter 11 Plan of Reorganization (~~Unaudited~~the “Original Plan”) —with ~~The~~the ~~following~~Bankruptcy ~~condensed~~Court ~~consolidated~~based substantially ~~financial~~on ~~statements~~one of its last restructuring proposals to the Creditors ~~Debtors~~Committee. atUnder ~~March 31~~the proposed terms of the Original Plan, ~~2003~~unclassified ~~and~~claims, including ~~for~~administrative claims, priority tax claims and the ~~period~~DIP ~~February 6~~Facility claim, ~~2003~~would (have been paid in cash on the effective date of the Original Plan. ~~subsequent~~In toaddition, the ~~Filing)~~existing topre-petition ~~March 31~~Revolving Credit Facilities claim, other ~~2003~~secured claims and classified priority claims would have been ~~prepared~~paid in cash (except to the extent that the Company sought to reinstate secured claims), either on the ~~same~~effective date of the Original Plan or in installment ~~basis~~payments, as provided in the ~~financial~~Original ~~statements~~Plan. Further, the Original Plan proposed exchanging for ~~ADLT~~existing unsecured debt and ~~presented~~preferred inand ~~accordance~~common stock, a new debt issue and new preferred and common stock issues. Unsecured creditors of ADLT would have been provided with ~~SOP~~an option on form of payment; ~~90-7:~~unsecured creditors of the other Debtors would have been paid in installment payments. Holders of the Company’s Common Stock would have received common stock that would have been diluted to 2% if the Company failed to redeem the new preferred stock within three years.

~~Condensed~~Based ~~Consolidated~~on ~~Balance~~negotiations ~~Sheet~~with the official Creditors Committee and General Electric Company (“GE”), which at that time owned all of the Company’s Series A Preferred Stock outstanding, subsequent to the filing of the Original Plan, the Debtors- determined that a consensual restructuring was more probable than the Original Plan. On May 28, 2003, the Company’s Board of Directors approved a revised Plan of Reorganization (the “Noteholder Plan”) and an agreement in~~-Possession~~ principle on the Noteholder Plan was reached with the Creditors Committee and GE. The Noteholder Plan provided substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the Noteholder Plan provided that the $100,000 8% Senior Notes and unpaid interest due on such Notes would be exchanged for new notes having a principal amount of $40,000. In addition, the holders of the Notes would have received common stock representing in aggregate approximately 79.2% of the common stock. The preferred shareholder would have received approximately 11.6% of the common stock and incentives for certain incremental business and cost savings initiatives. The Company would have established a new management incentive plan which would have had shares available equal to approximately 9.2% of the common stock. The holders of the Company’s Common Stock, including holders of existing warrants and options who acquire shares pursuant to the terms of such instruments, would have received in aggregate $2,850, less the professional fees (~~Unaudited~~up to $350) incurred by the committee ~~March 31~~representing the common shareholders. The Noteholder Plan also provided for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, ~~2003~~Inc.) and management fees to certain noteholders, and, if management services were requested by the Company, compensation to GE. The Noteholder Plan was not filed.

Current assets:
	Cash and cash equivalents			$	316
	Trade receivables, net				12,331
	Receivables from subsidiaries not in bankruptcy				17,716
	Inventories				9,866
	Other				740
		Total current assets			40,969
Property, plant and equipment, net					44,573
Receivables from related parties					7,747
Investments in affiliates					9,578
Investments in and loans to subsidiaries not in bankruptcy					72,151
Long-term receivables from subsidiaries not in bankruptcy					38,088
Other assets					2,224
		Total assets		$	215,330
Liabilities:
	Liabilities not subject to compromise
		Debt		$	19,789
		Payables to subsidiaries not in bankruptcy			13,804
		Other			11,255
			Total liabilities not subject to compromise		44,848
	Liabilities subject to compromise:
		Debt			99,232
		Other			15,325
			Liabilities subject to compromise		114,557
			Total liabilities		159,405
Preferred stock					24,476
Shareholders’ equity					31,449
	Total liabilities and equity			$	215,330

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

~~Condensed~~On ~~Consolidated~~August 15, ~~Statement~~2003, ofGE ~~Operations~~sold ofits ~~Debtors-~~equity interests in~~-Possession~~ the Company to Saratoga Lighting Holdings, LLC (~~Unaudited~~“Saratoga Lighting”) for cash consideration of $12,000. ~~For~~Immediately following Saratoga Lighting’s purchase of the ~~Period~~GE equity interests, and in accordance with the agreement between Saratoga Lighting and GE, Messrs. Breen and Mohn, who had been nominated by GE to the Company’s Board of ~~February~~Directors, resigned as directors of the Company. Following such acquisition, Saratoga Lighting informed the Company’s directors that it would not support the Noteholder Plan. As a result, the Company’s Board of Directors determined that there was a substantial risk that the Noteholder Plan was not confirmable. The Company’s Board of Directors approved a revised Plan of Reorganization (the “Saratoga Joint Plan”) on August 615, 2003. (The Saratoga Joint Plan provides substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the Saratoga Joint Plan provided that the $100,000 8% Senior Notes and unpaid interest due on such Notes will be exchanged for new notes having a principal amount of approximately $108,000. The unsecured creditors will be offered the option to be paid 85% of the amounts of their claims shortly after the effective date ~~subsequent~~of the Saratoga Joint Plan or 100% of the amounts of their claims, plus interest, over one year. The preferred shareholder will receive, in exchange for the existing Series A Stock and an $18,000 cash investment, new redeemable preferred stock and approximately 90.8% of the common stock. The Company will establish a new management incentive plan which would have shares available equal to ~~Bankruptcy~~approximately ~~Filing)~~9.2% of the common stock. Under the Saratoga Joint Plan as originally filed, the holders of the Company’s Common Stock, including holders of existing warrants and options who acquire shares pursuant to ~~March 31~~the terms of such instruments, would have received the same consideration as under the Noteholder Plan. Under the amended Saratoga Joint Plan, filed October 3, 2003, the Company would provide the common shareholders with the benefit of certain equity investments held by the Company in Fiberstars, Inc. and Hexagram, Inc., as well as a possible future payment, based on 3% of amounts received by Saratoga Lighting after providing investors with a return of capital plus an agreed rate of return, as more fully described in the amended Saratoga Joint Plan. The Saratoga Joint Plan also provides for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, Inc.) and management fees to an affiliate of Saratoga Lighting.

Net sales		$	14,710
Costs and expenses:
	Cost of sales		9,380
	Marketing and selling		1,960
	Research and development		655
	General and administrative		1,002
	Amortization of intangible assets		16
Income (loss) from operations			1,697
Other income (expense):
	Interest expense		(1,501	)
	Interest income		552
	Income (loss) from investments		(104	)
	Reorganization expenses		(2,756	)
Income (loss) before income taxes			(2,112	)
Income tax expense			—
Net Income(loss)			(2,112	)

On October 28, 2003, the Company, Saratoga, the Creditor’s Committee and certain holders of the Company’s 8% Senior Notes agreed, subject to Bankruptcy Court approval, to amend the Saratoga Joint Plan. The Bankruptcy Court approved the agreement and a supplement to the disclosure statement describing the terms of the agreement on October 30, 2003 and the above named parties entered into the agreement to amend the Saratoga Joint Plan on October 31, 2003. The amendments provide that the aggregate principal amount of the New Notes to be issued to holders of the 8% Senior Notes be set at $114,400, subject to adjustment if the Company emerges from bankruptcy protection after January 1, 2004, the interest rate on the New Notes be set at 11%, and the maturity date of the New Notes be set at March 31, 2009 and place certain limitations on transactions involving the CEO of the Company. The parties to the agreement have agreed to support the Saratoga Joint Plan following implementation of these amendments.

~~Condensed~~The ~~Consolidated~~description ~~Statement~~ of ~~Cash~~the ~~Flows~~Saratoga ofJoint ~~Debtors-in-Possession~~Plan ~~(Unaudited)~~is subject to revision and ~~For~~completion by the ~~Period~~Debtors ofand ~~February 6,~~to ~~2003~~review ~~(date~~and ~~subsequent~~approval toby the Bankruptcy ~~Filing)~~Court. The toDebtors ~~March 31,~~can ~~2003~~give no assurance that the Saratoga Joint

Operating activities
	Net income (loss)		$	(2,112	)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		Depreciation and amortization		613
		Loss from investments		104
		Reorganization expenses, less cash payments of $0		2,756
		Changes in current assets and liabilities and other		158
Net cash provided by operating activities				1,519
Investing activities
	Capital expenditures			(183	)
	Net cash (used in) investing activities			(183	)
Financing activities
	Proceeds from revolving credit facility			103
	Proceeds from debtor-in-possession facility			13,347
	Payments of revolving credit facility			(12,659	)
	Payments of debtor-in-possession facility			(506	)
	Payments of long-term debt and capital leases			(1,862	)
Net cash (used in) financing activities				(1,577	)
Increase (decrease) in cash and cash equivalents				(241	)
Cash and cash equivalents, beginning of period				557
Cash and cash equivalents, end of period			$	316

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

Plan will be approved by the Bankruptcy Court, that the Saratoga Joint Plan will receive the required approvals of the creditors and, if necessary, equity securityholders of the Debtors, or that the Debtors will be able to implement the Saratoga Joint Plan.

Upon the confirmation of a plan of reorganization the Company’s investment banker will receive, in addition to monthly fees and reimbursement of expenses, fees based on formulas contained in the Company’s agreement with the investment banker, which will aggregate between $1,000 and $3,000. All such fees are subject to Bankruptcy Court approval. The Company recorded $1,000 of fees as reorganization expenses in fiscal 2003 and $2,000 in the first quarter of fiscal 2004.

The Company incurred reorganization expenses of $5,623 during the quarter ended September 30, 2003, for consultants, investment bankers, attorneys and other costs related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy.

Accounting Impact—Beginning with the third quarter of fiscal 2003, ADLT was required to follow Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). Pursuant to SOP 90-7, ADLT’s pre-petition liabilities that are subject to compromise are reported separately on the balance sheet at an estimate of the amount that is expected to be allowed by the Bankruptcy Court. Obligations of ADLT subsidiaries not covered by the Filing are classified on the condensed consolidated balance sheet based upon maturity dates or the expected dates of payment. Liabilities subject to compromise at September 30, 2003 were as follows:


8% Senior Notes, less issuance costs	$	97,616




Accounts payable		4,961




Accrued liabilities		12,504




Employee related liabilities		140




Promissory note payable		1,970

	$	117,191

Under SOP 90-7 the Company is separately reporting certain expenses, and any realized gains and losses, and provisions for losses related to the Filing as reorganization expenses, which consist primarily of legal and investment and financial advisory fees. Due to material uncertainties, it is not possible to determine the additional amount of claims that may arise or ultimately be filed, or to predict the length of time the Company will operate under the protection of Chapter 11. Further, uncertainties exist regarding the outcome of the Chapter 11 proceedings in general, whether the Company will continue to operate under its current organizational structure, the effect of the proceedings on the business of ADLT and its subsidiaries or on the interests of the various creditors and security holders.

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)

Condensed Consolidated Financial Statements of Debtors-in-Possession (Unaudited)—The following condensed consolidated financial statements of the Debtors at September 30, 2003 and for the three months ended September 30, 2003 have been prepared on the same basis as the financial statements for ADLT, exclude the Company’s non-U.S. operating subsidiaries and DSI, and are presented in accordance with SOP 90-7:

Condensed Consolidated Balance Sheet of Debtors-in-Possession (Unaudited)

September 30, 2003


Current assets:




	Cash and cash equivalents				$	889




	Trade receivables, net					12,246




	Receivables from subsidiaries not in bankruptcy					18,298




	Inventories					9,592




	Other					950

		Total current assets				41,975




Property, plant and equipment, net						43,090




Receivables from related parties						3,619




Investments in affiliates						8,684




Investments in and loans to subsidiaries not in bankruptcy						77,956




Long-term receivables from subsidiaries not in bankruptcy						35,879




Other assets						3,026

		Total assets			$	214,229

Liabilities:




	Liabilities not subject to compromise




		Debt			$	26,724




		Payables to subsidiaries not in bankruptcy				12,538




		Other				12,498

				Total liabilities not subject to compromise		51,760




	Liabilities subject to compromise:




		Debt				99,586




		Other				17,605

				Liabilities subject to compromise		117,191

			Total liabilities			168,951




Preferred stock						24,475




Shareholders’ equity						20,803

	Total liabilities and equity				$	214,229

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

B. Voluntary Bankruptcy Filing (continued)


Condensed Consolidated Statement of Operations of Debtors-in-Possession (Unaudited)




For the Three Months Ended September 30, 2003




Net sales		$	20,450




Costs and expenses:




	Cost of sales		13,681




	Marketing and selling		2,781




	Research and development		929




	General and administrative		2,156




	Amortization of intangible assets		25

Income (loss) from operations			878









Other income (expense):




	Interest expense		(3,234	)




	Interest income		658




	Income (loss) from investments		16




	Reorganization expenses		(5,623	)

Income (loss) before income taxes			(7,305	)




Income tax expense			—

Net income (loss)		$	(7,305	)


Condensed Consolidated Statement of Cash Flows of Debtors-in-Possession (Unaudited)




For the Three Months Ended September 30, 2003




Operating activities




	Net income (loss)		$	(7,305	)




	Adjustments to reconcile net income (loss) to net cash used in operating activities:




		Depreciation and amortization		965




		Income from investments		16




		Reorganization expenses, less cash payments of $3,900		1,723




		Changes in current assets and liabilities and other		4,594

Net cash used in operating activities				(7	)









Investing activities




	Capital expenditures			(701	)

	Net cash used in investing activities			(701	)









Financing activities




	Proceeds from debtor-in-possession facility			29,067




	Payments of debtor-in-possession facility			(28,010	)




	Payments of long-term debt and capital leases			(27	)

Net cash provided by financing activities				1,030

Increase in cash and cash equivalents				322




Cash and cash equivalents, beginning of period				567

Cash and cash equivalents, end of period			$	889

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

C. Basis of Presentation and Accounting Change

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, the financial statements include all material adjustments necessary for a fair presentation, including adjustments of a normal and recurring nature as well as the impact of the Company’s Chapter 11 Filing~~, the special charges and asset impairment described in Note I, the reserve for loan impairment described in Note H, and the cumulative effect of accounting change described below~~. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2002~~2003. Operating results for the three months and ~~nine months~~ ended ~~March~~September 3130, 2003 are not necessarily indicative of the results that may be expected for the full-year ending June 30, ~~2003~~2004.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates.

Accounting Changes

In ~~July~~January ~~2001~~2003, the ~~Financial~~FASB ~~Accounting~~issued ~~Standards~~Interpretation ~~Board~~ (~~FASB~~FIN) ~~issued~~No. 46, ~~Statement~~ Consolidation of Variable ~~Financial~~Interest Entities, an Interpretation of Accounting ~~Standards~~Research ~~(FAS)~~ Bulletin No. ~~141~~51, ~~Business~~Consolidated ~~Combinations,~~Financial ~~and~~Statements. ~~FAS~~ The provisions of FIN No. ~~142,~~46 ~~Goodwill~~are effective ~~and~~immediately ~~Intangible~~for ~~Assets.~~interests ~~FAS~~acquired ~~No.~~in Variable Interest Entities (VIE) ~~141~~after January 31, 2003. The Company is ~~effective~~required to account for ~~all~~interests ~~business~~in ~~combinations~~VIEs ~~completed~~existing ~~after~~on ~~June~~January 3031, ~~2001~~2003, ~~and~~under ~~requires~~the ~~using~~provisions of FIN No. 46 as of July 1, 2003. The FIN addresses the consolidation of business enterprises of ~~purchase~~variable ~~method~~interest entities and certain required disclosures related to such relationships. The Company has determined that none of ~~accounting~~its investments meet the requirement for consolidation or disclosure under this FIN.

~~Major~~In ~~provisions~~May of2003, ~~FAS~~the ~~No. 142~~FASB ~~require~~issued ~~intangible~~Statement ~~assets~~of ~~acquired~~Financial inAccounting aStandards (FAS) ~~business~~No. 150, ~~combination~~Accounting tofor beCertain ~~recorded~~Financial ~~separately~~Instruments ~~from~~with ~~goodwill~~Characteristics ~~if they arise from~~of ~~contractual~~Both orLiabilities ~~other~~and ~~legal~~Equity. ~~rights~~FAS orNo. 150 ~~are~~changes ~~separable from~~ the ~~acquired~~classification ~~entity~~in ~~and~~the ~~can~~statement beof ~~sold,~~financial ~~transferred,~~position ~~licensed,~~of ~~rented~~certain orcommon ~~exchanged,~~financial instruments from either ~~individually~~equity or as ~~part~~mezzanine ofpresentation ato ~~related~~liabilities ~~contract,~~and ~~asset~~requires oran ~~liability. In addition, goodwill, as~~issuer ~~well~~of asthose ~~intangible~~financial ~~assets~~statements ~~with~~to ~~indefinite~~recognize ~~lives,~~changes ~~are~~in nofair ~~longer~~value ~~subject~~or toredemption ~~amortization effective July 1~~amount, ~~2001.~~as ~~Finally~~applicable, ~~goodwill~~in ~~and~~earnings. ~~intangible~~FAS ~~assets with~~No. 150 ~~indefinite~~is ~~lives~~effective ~~will be tested~~ for ~~impairment annually and whenever there is an impairment indicator. Previously,~~ the Company ~~measured goodwill and~~ ~~intangibles~~as ~~(to~~of beJuly 1, ~~held~~2003. ~~and~~The ~~used)~~provisions ~~with indefinite lives for impairment using undiscounted cash flows under the guidance~~ of FAS No. ~~121,~~150 ~~Accounting~~had ~~for~~no impact on the ~~Impairment~~condensed ofconsolidated ~~Long-Lived~~financial ~~Assets and for Long-Lived Assets to Be Disposed Of~~statements.

~~The Company adopted FAS No. 142 as of July 1, 2001. The Company evaluated~~14 ~~goodwill of $66,172 and intangible assets with indefinite lives of $11,874,~~ which represents tradenames. The Company used third party appraisals and expected future discounted cash flows to determine the fair value of the reporting units and whether any impairment of goodwill or indefinite lived intangible assets existed as of the above date. As a result of this evaluation, a cumulative effect of accounting change for the estimated

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

C. Basis of Presentation and Accounting Change (continued)

impairment of goodwill and other indefinite lived intangible assets of $71,171, or $(3.04) per share was recorded, as of the beginning of fiscal 2002.

The Company adopted Emerging Issues Task Force (“EITF”) Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer in the quarter ended March 31, 2002. EITF Issue 01-9 requires that expense associated with a free product or service delivered at the time of sale of another product or service should be classified as cost of sales. The Company’s fixture subsidiaries that were sold in the second quarter of fiscal 2002 had incurred and included such costs in marketing and selling expense. Accordingly, the Company has reclassified such amounts to cost of sales within these financial statements. The amount reclassified for the three months and nine months ended March 31, 2002 is $0 and $1,836, respectively.

In August 2001, the Financial Accounting Standards Board issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting for the impairment and disposal of long-lived assets, and supersedes FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company adopted FAS No. 144 as of July 1, 2002.

In November 2002, the FASB issued Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Recognition and measurement provisions of FIN No. 45 become effective for guarantees issued or modified on or after January 1, 2003.

The Company’s warranty policy generally provides for one to two year coverage for lighting systems and components sold world-wide. The Company’s policy is to accrue the estimated cost of warranty coverage and returns at the time the sale is recorded. The policy with respect to sales returns generally provides that a customer may not return inventory, except at the Company’s option. Expenses related to warranties are generally not material to the Company’s operations.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. The provisions of FIN No. 46 are effective immediately for interests acquired in Variable Interest Entities (VIE) after January 31, 2003. The Company must 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 is evaluating the impact of this FIN as to whether certain of its investments would meet the requirement for consolidation or disclosure under this FIN.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2003 (Dollars in thousands, except per share data)

C. Basis of Presentation and Accounting Change (continued)

Income Taxes

Actual income ~~taxes~~tax ~~(benefit)~~ expense for the three ~~and nine~~ month interim periods differ from the amounts computed by applying the U.S. Federal income tax rate of 35% to the income (loss) before income taxes ~~(benefit)~~ because under FAS No. 109, Accounting for Income Taxes, the tax benefit related to the loss for these interim periods was required to be reserved ~~for~~in a valuation allowance due to the uncertainty regarding the ultimate realization of the tax benefit of such losses ~~in the future~~. The income tax expense recognized for the interim periods relates to income taxes on certain foreign subsidiaries’ income.

Financial Statement Presentation Changes

Certain amounts for prior periods have been reclassified to conform to the current year reporting presentation for customer rebates. Customer rebates have been reclassified from marketing and selling expense to sales. The customer rebate amounts reclassified totaled $1,774 and $510 for the nine months ended March 31, 2003 and 2002, respectively, including $551 and $276 for the three months ended March 31, 2003 and 2002, respectively.

Stock Options

At ~~March~~September 3130, 2003 the Company had four stock option plans. The Company accounts for these plans under the recognition and measurement principles (the “intrinsic value” method) of APB Opinion No. 25 Accounting for Stock Issued to Employees, and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the grant date. The following table sets forth the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of FAS No. 123, Accounting for Stock-Based Compensation, to its stock options.

		~~Three Months Ended~~	Three Months Ended							~~Nine Months Ended~~
		March 31,								March 31,
			September 30,
		~~2003~~	2003			~~2002~~	2002			~~2003~~			~~2002~~
Net income (loss), as reported		$	~~(3,074~~$	)(6,372	)	$	~~(5,660~~$	)(1,481	)	$	~~(17,169~~	)	$	~~(93,853~~	)
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax benefits			~~351~~	(167	)		~~488~~	(464	)		~~1,244~~			~~1,038~~
Pro forma net income (loss)		$	~~(3,425~~$	)(6,539	)	$	~~(6,148~~$	)(1,945	)	$	~~(18,413~~	)	$	~~(94,891~~	)
Earnings (loss) per share
	(basic and diluted):
	As reported	$	~~(.16~~$	)(.27	)	$	~~(.27~~$	)(.18	)	$	~~(.90~~	)	$	~~(4.10~~	)
	Pro forma	$	~~(.18~~$	)(.27	)	$	~~(.29~~$	)(.20	)	$	~~(.96~~	)	$	~~(4.15~~	)

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2003 (Dollars in thousands, except per share data)

D. Comprehensive Income (Loss)

For the quarters ended ~~March~~September 3130, 2003 and 2002, the Company’s comprehensive income (loss) was $(26,~~479~~146) and $(51,~~438~~940), respectively. ~~For the nine months ended March 31, 2003 and 2002, the Company’s comprehensive income (loss) was $(16,364) and $(92,898), respectively.~~ These amounts include net income (loss) and the Company’s other component of comprehensive income, foreign currency translation adjustments.

E. 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 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 and served as Vice Chairman and Chief Operating Officer of the Company and holds 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. 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 are subject to a review process under the purchase agreement. The notes are payable December 1, 2006 and bear interest at 8% compounded semi-annually. 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. The Company sold this facility for $1,326 in September 2002. The Company remitted $428 to Ruud Lighting in October 2002 in accordance with the terms of the purchase agreement.

The sale of the subsidiaries resulted in a gain of $227 in the quarter ended December 31, 2001. The final amount of proceeds to be received and gain or loss realized will be based upon a review process as set forth under the purchase agreement and final negotiations with the buyers.

F. Financing Facilities

In fiscal 2002, the Company incurred a loss from operations of ($15,458) and, at June 30, 2002 was in default on its fourth quarter fixed charge coverage ratio under it Bank Credit Facility. On September 16, 2002, the Company and its bank group entered into a Forbearance Agreement, pursuant to which the bank group agreed to forbear from exercising their remedies under the Bank Credit Facility. The Forbearance Agreement was subsequently amended and extended allowing the Company access to its existing revolving credit facility and precluding the acceleration of the Bank Credit Facility maturity

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) March 31, 2003 (Dollars in thousands, except per share data)

F. Financing Facilities (continued)

until at least March 31, 2003. The Forbearance Agreement, as amended, contained various requirements and milestones that the Company was required to meet, including not making the semi-annual interest payment on its $100,000 8% Senior Notes, which was due on September 16, 2002. ADLT did not meet the covenant under the Forbearance Agreement to pursue an orderly sales process to sell its assets and repay the bank group with the proceeds from the sale. The non-payment of the semi-annual interest payment resulted in an Event of Default under the Senior Note Indenture. The Indenture Trustee was instructed by the holders of more than 25% of the Senior Notes to declare the entire principal amount of the Senior Notes to be due and payable immediately. As a result of the actions by the bank group and Indenture Trustee, the Company on February 5, 2003 filed a petition for reorganization under Chapter 11 (see Note B) and has classified both the Bank Credit Facility as a current liability and the 8% Senior Notes as a liability subject to compromise in the March 31, 2003 balance sheet. Accrued and unpaid interest on the Senior Notes was $8,467 as of March 31, 2003.

On February 6, 2003, the Bankruptcy Court approved a new debtor-in-possession financing facility (“DIP Facility”) with the existing bank group for working capital purposes for the debtors and DSI. The maximum commitment under the DIP Facility is $26,096 less any outstanding domestic Pre-Petition borrowings ($6,422 at March 31, 2003) by the entities in Chapter 11 bankruptcy and DSI. In addition, the bank group limited borrowing under certain non-Debtor loans under its Bank Credit Facility to the Company’s subsidiaries in Canada and the United Kingdom to the then-outstanding aggregate amount of $5,587, plus accrued interest. Further, borrowings under the DIP Facility are limited based upon weekly budgeted amounts of cash collections and cash disbursements submitted to the Bankruptcy Court. Borrowings under the DIP Facility will be required to be repaid in full and the commitment will terminate on the earlier of July 30, 2003; the substantial consummation of a plan of reorganization that is confirmed by the Bankruptcy Court; or a material non-compliance by the Debtor with any of the terms, provisions or covenants of the DIP Facility. The DIP Facility contains certain affirmative and negative covenants customary for this type of agreement, including providing timely periodic budget and financial reports and maintaining certain collateral levels. Also, the Company is required to provide timely financial information and projections to the financial institutions. Borrowings under the DIP Facility bear interest at 3% above the prime rate (4.25% at March 31, 2003) through April 30, 2003 and 3.5% above the prime rate thereafter through July 30, 2003 and is payable monthly. The DIP Facility is secured by substantially all of the personal and real assets of the Company, except for assets of its Indian and Australian subsidiaries. See Note L “Subsequent Events.”

The above noted $100,000 8% Senior Notes contain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined therein) to incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase capital stock, make investments, create liens, engage in transactions with stockholders and affiliates, sell assets and, with respect to the Company, engage in mergers and consolidations.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

GE. ~~General~~Sale ~~Electric~~of ~~Company~~Fixture ~~Investment~~Subsidiaries

InOn ~~October 1999~~December 12, ~~General~~2001 ~~Electric~~the Company completed the sale of a significant portion of its lamp fixture business (~~“GE”~~its Ruud Lighting, Inc., Kramer Lighting, Inc. and Ruud Lighting Europe Ltd. subsidiaries) ~~completed~~to an ~~investment~~investor ingroup ~~the~~led by Alan J. ~~Company~~Ruud. From January 1998 until the time of ~~$20~~the transaction,~~554~~ Mr. Ruud Inwas ~~exchange~~a director ~~for~~of the ~~investment,~~Company GEand ~~received~~served ~~761,250~~as ~~shares~~Vice Chairman and Chief Operating Officer of the Company and holds in excess of 5% of the Company’s ~~newly~~outstanding ~~created~~common stock. ~~Series A~~The ~~Preferred~~fixture ~~Stock~~subsidiaries’ ~~convertible~~assets atconsisted ~~any~~primarily ~~time into~~of 3manufacturing equipment,~~045,000~~ ~~shares~~inventory ofand ~~Company~~accounts ~~Common~~receivable ~~Stock~~and ~~(subject~~the toRuud ~~adjustment)~~Lighting manufacturing facility located in Racine, Wisconsin. GEThe ~~also~~consideration received aby ~~Warrant (~~the ~~“Initial~~Company ~~Warrant”)~~consisted toof ~~purchase~~a ancash ~~additional~~payment 1of $28,000~~,000~~ (adjusted dollar ~~shares~~for ofdollar ~~Company~~to ~~Common~~reflect ~~Stock~~the ~~(subject~~amount toof ~~adjustment),~~any ~~which~~changes GEin ~~has~~working ~~fully~~capital and funded ~~exercised~~indebtedness tobetween ~~acquire~~September 2, ~~998~~2001 and December 3,~~703~~ ~~shares~~2001) ofand ~~Common~~promissory notes ~~Stock~~totaling $6,000. Preliminary estimates of the ~~Company.~~adjustment GEin ~~now~~the cash ~~holds~~consideration ~~1,429,590~~resulted ~~shares~~in a net reduction of ~~Company~~$2,458 ~~Common~~in ~~Stock~~the cash received at closing. The ~~Series A~~preliminary ~~Stock~~estimates ~~and~~were ~~the Common~~subject ~~Stock~~to ~~held~~a byreview GEprocess ~~represent~~under ~~approximately 16~~the agreement.7% The sale of the ~~voting~~subsidiaries ~~power~~resulted ~~and equity~~in ~~ownership~~a gain of ~~the~~$227 ~~Company~~in atthe quarter ~~March~~ended December 31, ~~2003~~2001.

The ~~Series A~~notes ~~Stock~~are ~~has~~payable aDecember 1, ~~liquidation~~2006, ~~preference~~although ofthe ~~$27~~Company ~~per~~had ~~share,~~the ~~plus an~~right, ~~amount~~subject ~~equal~~ to 8%Senior ~~per~~Noteholder ~~annum~~consent, ~~compounded~~to ~~annually~~require ~~from~~payment ~~the date~~ of ~~issuance~~$3,000 toin principal ~~the~~amount ~~date~~by surrender of ~~payment.~~1,500,000 ~~The~~shares of Company iscommon ~~required~~stock toat ~~redeem~~ any ~~shares~~time prior ofto ~~Series~~December ~~A Stock~~1, ~~which~~2002. ~~have~~As ~~not~~part ~~been~~of ~~converted~~this ortransaction, ~~retired~~funded onindebtedness of ~~September 30~~$9,005 ~~2010.~~continued ~~In addition,~~to GEbe ~~may,~~the byobligation ~~notice,~~of ~~require~~Ruud Lighting and the Company retained title to ~~redeem~~ the ~~outstanding Series A~~Rhode ~~Stock,~~Island ~~within~~manufacturing ~~one~~facility ~~year~~of ~~following~~Kramer ~~either~~Lighting. Upon sale of the facility in September ~~30,~~ ~~2004~~2002, or the Company paid Ruud Lighting ~~occurrence~~one-third of ~~certain~~the ~~corporate~~net ~~events~~proceeds or $427 in accordance with the terms of the agreement.

~~The~~On ~~terms~~May 29, of2003, ~~the~~Ruud GELighting, ~~investment~~Inc. ~~provide~~and ~~that~~its ~~the~~shareholders ~~Company~~filed ~~maintain~~claims anwith ~~interest~~the ~~coverage~~Bankruptcy ~~ratio~~Court ~~over~~in ~~certain~~connection ~~measurement~~with ~~periods. The Company failed to maintain~~ the ~~required~~final ~~interest~~settlement ~~coverage~~of ~~ratio~~purchase ~~over three measurement periods.~~price, Asalleged abreaches ~~result~~ of the ~~failure~~agreement toand ~~maintain~~post ~~the~~closing ~~interest~~administrative ~~coverage~~services ~~ratio: (i) GE has~~of ~~the~~approximately ~~ability~~$5,880. toIn ~~vote~~addition, ~~the~~Ruud ~~number~~Lighting, ofInc. ~~shares~~filed ~~currently~~claims ~~voted~~with by the Bankruptcy ~~CEO~~Court ofagainst the Company and ~~Alan~~its J.wholly-owned ~~Ruud~~subsidiary, ~~totaling~~Venture Lighting ~~approximately~~International, 5Inc.~~6 million~~ ~~shares~~relating atto ~~March 31,~~a ~~2003,~~product ~~(ii) GE~~warranty ~~has~~claim ~~the~~in ~~option~~an toamount exceeding ~~purchase~~$50,000. ~~shares~~The ~~from~~Company, ~~the~~Ruud ~~CEO~~Lighting, ofInc. ~~the Company~~ and ~~Alan~~the J. Ruud ~~which,~~Lighting shareholders ~~together~~entered ~~with~~into ~~the~~a ~~shares~~settlement ~~owned~~agreement bydated GESeptember 8, ~~would represent~~2003, ~~25%~~settling of the ~~voting~~Ruud ~~power~~claims, ofas ~~the~~well ~~Company,~~as ~~(iii) GE~~claims ~~has~~by the ~~right~~Debtors toagainst ~~receive from~~Ruud ~~the~~Lighting, ~~Company~~Inc. anand ~~additional~~its ~~warrant~~shareholders. Pursuant to ~~purchase~~the ~~approximately~~terms ~~6.75 million~~of ~~shares~~the settlement, atthe ~~$.63055~~original ~~per~~notes ~~share~~were ~~(the~~cancelled ~~average~~and of the ~~closing~~Company ~~prices~~received ~~for~~new notes from the Ruud 20Lighting, ~~trading~~Inc. ~~days~~shareholders ~~ended~~in ~~September 30,~~the ~~2002),~~aggregate ~~and~~amount ~~(iv) GE~~of ~~has~~$3,000. ~~the~~These ~~right~~notes are todue ~~receive~~December 1, ~~from~~2006, ~~the~~but ~~Company~~rebates anearned ~~additional~~on ~~warrant~~purchases toby ~~purchase approximately~~Ruud 18Lighting,~~000~~ Inc. ~~shares~~pursuant atto ~~$.298~~its ~~per~~current ~~share~~agreement (with the ~~average~~Debtors ofwill ~~the~~be ~~closing~~credited toward ~~prices~~prepayment ~~for~~of the 20principal ~~trading~~and ~~days~~interest ~~ended~~on ~~December 31,~~the ~~2002~~notes. The Company ~~intends~~will tono ~~file~~longer abe ~~motion~~required ~~seeking~~to ~~authority~~make ~~from~~payments ~~the~~on ~~Bankruptcy~~a ~~Court~~non-cancelable tooperating ~~issue~~lease for the ~~warrants.~~unused GEElkhorn, isWisconsin ~~not~~facility, ~~required~~but towill ~~purchase~~receive ~~additional~~from ~~shares~~Ruud ofLighting, ~~the Company~~Inc. ~~The~~one ~~number~~half of ~~shares~~the ~~that~~amount GEof ~~owns~~any orsublease ~~has~~payments ~~the~~received. ~~right~~In toaddition, ~~acquire and/or vote~~the ~~exceeds~~agreement ~~35%~~provides offor ~~the~~mutual ~~voting~~releases ~~power~~by of the ~~Company~~parties. ~~Consequently,~~The ~~the~~Bankruptcy ~~terms~~Court issued ofa ~~the Indenture~~final ~~relating~~order toapproving the ~~Company’s~~settlement ~~Senior~~on ~~Notes~~October 16, ~~require~~2003. ~~that~~As a result of this settlement, the Company ~~offer to~~recorded ~~repurchase~~a ~~the~~loss of $~~100~~1,~~000~~003 ~~principal~~in ~~amount~~the ofquarter ~~outstanding~~ended June 30, ~~Senior~~2003. ~~Notes~~At ~~due 2008~~September 30, at2003, as a ~~price~~result of ~~101%~~the issuance of the ~~principal~~final order ~~amount~~approving ~~thereof~~the settlement, ~~plus~~the ~~accrued~~Company ~~interest.~~recorded a reduction in its ~~The~~receivables ~~Company~~from ~~elected~~related ~~not~~parties toof ~~offer~~$2,786, toa ~~repurchase~~reduction ~~the~~in ~~Senior~~its ~~Notes~~liabilities subject to compromise of $1,463 and ~~therefore was~~a reduction in ~~default~~its ~~under~~special ~~the~~charge ~~Trust~~accrual of ~~Indenture~~$1,323.

The fair value of the warrants to be issued to General Electric Company is estimated to be $2,098 based on the Black-Scholes option pricing model and using an expected volatility of 78%, risk-free interest rate of 4.00%, and an expected life of 10 years with no dividend yield. The estimated value of the warrant is reflected in the calculation of earnings per share (see Note J).

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

HF. ~~Related~~Financing ~~Party Transaction~~Facilities

~~Pursuant~~On June 30, 2003, the Debtors obtained a replacement Debtor-in-Possession credit facility (“Replacement DIP Facility”) from two lending institutions and repaid the secured debt owed to the existing bank group. The Replacement DIP Facility is comprised of an ~~agreement~~$18,500 ~~dated~~revolving ~~October 8~~credit loan, ~~1998~~a $5,000 asTerm ~~amended~~A loan and a $13,500 ~~between~~Term B loan. Interest rates on the ~~Company~~revolving credit loan are ~~and~~based ~~its~~on ~~Chairman~~Libor ~~and~~plus ~~Chief~~3% ~~Executive~~or ~~Officer~~Prime plus 1% with a minimum rate of 5.25% (~~the~~5.25% ~~“CEO”)~~at September 30, 2003). Interest rates on the ~~Company,~~Term A loan are based on Libor plus ~~following~~5% ~~approval~~or byPrime ~~the~~plus ~~Company’s~~2% ~~Board~~(6% ofat ~~Directors~~September 30, ~~has~~2003). aInterest rates on the Term B loan ~~recorded~~are ~~for~~based on Prime plus 6% with a minimum rate of 10.25% (10.25% at ~~$14~~September 30,~~144~~ to2003). ~~its~~The ~~CEO,~~Term ~~including~~A loan requires principal payments of $1283 per month beginning October 1,~~789~~ ~~and~~2003, ~~accrued~~while ~~interest.~~the ~~The~~Term B loan requires no principal ~~proceeds~~payments. Availability of borrowings under the ~~loan~~revolving ~~were~~credit ~~used~~loan is determined by the Company’s ~~CEO~~eligible toaccount ~~reduce~~receivables ~~the~~and ~~principal~~inventories. The ~~balance~~Replacement ~~outstanding~~DIP ofFacility ~~margin~~carried ~~loan~~a ~~accounts~~closing fee of $550. InThe ~~connection~~Replacement ~~with~~DIP Facility ~~the~~originally ~~loan~~extended to October 31, 2003 and does not require the ~~Company’s~~Debtors ~~Board~~to ofsell ~~Directors~~assets. ~~obtained~~The ~~the~~Company ~~CEO’s~~secured ~~agreement~~an amendment to anthe ~~extension~~Replacement ofDIP ~~his~~Facility ~~employment~~dated ~~agreement~~September 16, 2003, that extends the term to ~~December~~February 3128, ~~2003~~2004, which would serve to extend the Replacement DIP Facility beyond the anticipated date of emergence from bankruptcy. The ~~margin~~Bankruptcy ~~loans~~Court ~~have~~issued ~~been fully~~a ~~repaid~~final ~~and~~order approving the ~~loan~~extension ~~agreement~~on ~~prohibits~~October 23, 2003. This facility must be replaced at the ~~CEO~~time of emergence from ~~encumbering~~bankruptcy ~~his~~proceedings ~~ADLT~~or February 28, 2004, ~~shares~~whichever inoccurs ~~any~~first. ~~manner~~A ~~without~~default of the ~~consent~~Replacement ofDIP facility occurred upon the ~~Company~~change in control that resulted from GE’s ~~Board~~sale of ~~Directors~~its equity interests in the Company to Saratoga Lighting on August 15, 2003. The Company obtained a waiver for this default.

OnThe ~~July 26,~~Replacement ~~2002,~~DIP ~~the~~Facility ~~Company~~contains ~~and~~certain ~~CEO~~affirmative ~~executed~~and annegative covenants ~~amendment~~customary tofor ~~the~~this ~~loan documents,~~type ~~implementing~~of ~~the~~ agreement, inprohibits ~~principle~~cash dividends, ~~reached~~and includes infinancial ~~January~~covenants ~~2002,~~related to ~~extend~~ ~~the~~Sales, ~~maturity~~Collections, ofDisbursements, Minimum ~~the~~Adjusted ~~loan~~EBITDA, toDebt ~~July 31~~Ratio, ~~2007.~~and ~~Under~~Capital ~~the~~Expenditures. ~~terms~~At ~~of the~~September ~~amendment~~30, 2003, the ~~CEO~~Company ~~will~~was ~~sell~~in ~~certain~~compliance ~~assets~~with inthe anterms ~~orderly~~of ~~manner~~the toReplacement ~~maximize~~DIP ~~the~~Facility. ~~net~~The ~~proceeds,~~principal ~~which~~security ~~will~~for bethe ~~used~~Replacement toDIP ~~pay~~Facility ais substantially ~~portion~~all of the ~~loan.~~personal ~~The~~property ~~CEO will~~of ~~continue~~the ~~his~~Company ~~10b5-1~~and ~~plan~~each toof ~~sell~~its ~~shares~~North American heand ~~now~~United ~~owns~~Kingdom ~~pursuant~~subsidiaries. toThe ~~Rule 144 should~~term ~~the~~loan ~~stock~~is ~~price~~secured ~~exceed~~by substantially ~~$15~~all ~~per~~of ~~share.~~the InCompany’s ~~addition,~~machinery ~~the~~and ~~CEO~~equipment ~~has~~in ~~agreed to~~North ~~apply~~America ~~any~~and the ~~after-tax~~United ~~cash~~Kingdom ~~bonuses~~and ~~earned~~is ~~from~~cross-collateralized ~~the~~and ~~Company~~secured ~~toward~~with ~~repayment~~the ofrevolving ~~the~~credit loan.

~~Interest~~During onfiscal 2002, the Company maintained a Bank Credit Facility provided by several financial institutions. The Bank Credit Facility consisted of a revolving credit loan ~~accrues~~of $25,000 and a term loan of $13,000. Interest rates on the revolving credit loans outstanding were based, at the ~~same~~Company’s option, on LIBOR plus 2.25% or the agent’s bank prime rate through December 12, 2001. From that date to March 31, 2002, interest rates on the revolving credit loans outstanding were based, at the Company’s ~~pays~~option, on ~~its~~LIBOR plus 2.75% or the ~~credit~~agent’s ~~facility~~bank prime rate. ~~Interest~~The ~~due~~Company inwas ~~fiscal~~also ~~2002~~obligated to pay a commitment fee of ~~$674~~.375% ~~and~~on ~~for~~the unused portion of the ~~nine~~revolving ~~months~~credit loan. Interest rates on ~~ended~~the ~~March 31~~term loan were based, ~~2003~~at ofthe ~~$588~~Company’s ~~has~~option, ~~not~~on ~~been~~LIBOR ~~paid~~plus 2.75% or ~~recognized~~the agent’s asbank ~~interest income~~prime rate through December 12, 2001. ~~The~~From that date to March 31, 2002, interest rates on the term loan ~~may~~were bebased, ~~accelerated~~at ifthe Company’s option, on LIBOR plus 3.25% or the ~~CEO~~agent’s ~~ceases~~bank toprime berate. ~~employed~~At byMarch 31, 2002, the Company aswas anot ~~result~~in ofcompliance ~~his~~with ~~voluntary~~the ~~resignation~~financial orcovenant ~~termination~~and obtained a waiver for ~~cause~~the quarter then ended. The Bank Credit Facility was amended to provide for a new measurement period for this

The Company’s ability to collect amounts due according to the contractual terms of the loan agreement is largely dependent on the ultimate realization of proceeds from the sale of assets owned by the CEO, including the CEO’s investment in common stock of the Company. When determining the fair value of investments in common stock, the Company considers both the current market price and also volatility in the stock price over the period in which the Company estimates it would take to sell those shares into the market.

In accordance with the provisions of FAS Statement No. 5, Accounting for Contingencies, and FAS Statement No. 114, Accounting by Creditors for Impairment of a Loan, the Company determined the above loan was impaired and recorded a valuation reserve against the loan. The Company recorded an impairment loss of $5,500 in the first nine months of fiscal 2002 ($7,100 total in fiscal 2002) and $2,700 in the first nine months of fiscal 2003 reflecting the amount by which the carrying value of the loan exceeded the underlying estimated fair value of the assets available to repay the loan. The Company will recognize any recoveries of amounts previously reserved after considering both the fair value of the underlying assets and cash repayments on the loan.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

IF. ~~Special~~Financing ~~Charges~~Arrangements ~~and Asset Impairment~~(continued)

Incovenant ~~fiscal~~commencing ~~2001~~April 1, ~~and~~ 2002, and the Company’s ~~subsidiary~~ability ~~Deposition~~to ~~Sciences, Inc.~~elect ~~(DSI) made~~LIBOR-based ~~significant~~interest ~~investments~~rates inon ~~building telecommunication product manufacturing equipment and related facilities to apply~~ its ~~thin-film~~loans ~~coating technology~~was tosuspended ~~telecom~~as ~~products. With the continuing decline in the global telecommunication business and uncertainty regarding the recovery~~ of ~~the telecom market~~May 13, ~~the Company recognized a $5,551 charge in the second quarter of fiscal 2003 related to the abandonment of certain long-lived assets and write down of certain assets held for sale to fair value~~2002. ~~Additionally, as a result~~The ofagent ~~the delisting of the Company~~bank’s ~~common~~prime ~~shares~~rate ~~from~~was ~~the~~4.75% ~~Nasdaq~~at ~~National Market~~June 30, ~~the Company recorded an asset impairment charge of $1,163 for the write-off of deferred costs associated with its shelf offerings in the second quarter of fiscal 2003~~2002.

~~During~~As ~~the~~of ~~year ended~~ June 30, 2002, the Company ~~recorded~~was ~~special~~also ~~charges related~~unable to ~~changes~~meet its financial covenant and was in default under its ~~operations~~Bank Credit Facility. As a result, on September 16, 2002, the Company entered into a Forbearance Agreement, which ~~are~~was ~~intended~~subsequently amended and extended, with its bank group allowing the Company access to ~~improve~~its existing revolving credit ~~efficiencies~~facility and ~~reduce~~precluding ~~costs~~the ~~world-wide~~acceleration of the Bank Credit Facility maturity until at least March 31, 2003. ~~The~~Under ~~special~~the ~~charges~~Forbearance ~~principally~~Agreement, interest rates ~~related~~under the Bank Credit Facility were increased to ~~consolidating~~2% over prime. The Forbearance Agreement, as amended, contained various requirements and milestones that the Company’s ~~power~~was ~~supply~~required ~~manufacturing~~to ~~operations~~meet, including not making the ~~into~~semi-annual interest payment on its ~~high-efficiency~~$100,000 ~~facility~~8% inSenior ~~Chennai~~Notes, ~~(Madras)~~which was due on September 16, ~~India;~~2002 ~~reducing~~and ~~staffing~~resulted in an Event of Default under the Senior Notes ~~levels~~Indenture. atThe ~~most~~Indenture ~~locations~~Trustee was instructed by the holders of more than 25% of the Senior Notes to declare the entire principal amount of the Senior Notes to be due and ~~evaluating~~payable ~~certain~~immediately. ~~equipment~~Additionally, the Company did not meet the covenant under the Forbearance Agreement to pursue an orderly sales process to sell its assets and ~~investments~~repay the bank group with the proceeds from the sale. The Company on February 5, 2003 filed a petition for reorganization under ~~impairment~~Chapter 11 (see Note B) and has classified the 8% Senior Notes as a liability subject to compromise in ~~light~~the ofSeptember 30 ~~its~~and ~~long-term~~June 30, ~~strategies~~2003 balance sheets.

~~The~~On ~~special~~February 6, ~~charges~~2003, ~~were~~the ~~determined~~Bankruptcy Court approved a new debtor-in-possession financing ~~accordance~~facility ~~with~~(“Original ~~formal~~DIP ~~plans~~Facility”) ~~developed by~~with the ~~Company’s~~existing ~~management,~~bank ~~approved~~group byfor working capital purposes for the ~~CEO~~debtors and ~~subsequently~~DSI. ~~reviewed~~The ~~with~~maximum commitment under the ~~Company’s~~Original ~~Board~~DIP ofFacility ~~Directors~~was ~~using~~$26,096 less the ~~best~~outstanding ~~information~~domestic Pre-Petition ~~available~~borrowings to($21,096) itby at the ~~time.~~entities Ain ~~total~~Chapter 11 ofBankruptcy ~~approximately~~and DSI. ~~250~~In ~~employees~~addition, ~~were~~the ~~terminated enterprise-wide~~bank ~~from~~group ~~almost~~limited ~~all~~borrowing ~~units~~under ofcertain non-Debtor loans to the Company.’s ~~Assets~~subsidiaries ~~related~~in toCanada and the ~~above~~ ~~actions~~United ~~are~~Kingdom noto ~~longer~~the then-outstanding inaggregate ~~use~~amount orof ~~are~~$5,587. ~~held~~Borrowings ~~for~~under ~~sale~~the ~~and~~Original DIP Facility were ~~written-down to~~at ~~their~~3% ~~estimated~~above ~~fair~~the ~~values.~~prime Asrate ofthrough ~~June~~April 30, ~~2002,~~2003 ~~all~~and ~~actions~~3.5% ~~required by~~above the ~~plans~~prime ~~were~~rate ~~completed~~through ~~and~~June 30, 2003, the ~~remaining~~date ~~liabilities~~at ~~relate~~which ~~primarily~~the toOriginal aDIP ~~long-term~~Facility ~~lease~~was ~~obligation that terminates in August 2006~~repaid.

~~Details~~In March 1998, the Company sold $100,000 of Senior Notes due March 2008, resulting in net proceeds of approximately $96,150. The Notes are redeemable at the ~~actions~~Company’s ~~and~~option, ~~related~~in ~~charges~~whole or in part, at certain preset redemption prices. During August 2000, the Company completed an exchange offer to existing noteholders, which resulted in reducing the interest rate on the Notes to 8.0% from 8.5%. Interest on the Notes is payable semi-annually on March 15 and September 15 ~~payments~~of ~~recorded~~each ~~during~~year. ~~fiscal~~The Company did not make the semi-annual interest payments due on September 16, 2002 and ~~the~~March 15, ~~first~~2003, ~~nine~~and ~~months~~September 15, of2003. The ~~fiscal~~Company has continued to accrue interest on the Notes at 8% through September 30, 2003, ~~are~~and ~~summarized~~accrued and unpaid interest on the Notes was $12,333 as of ~~follows:~~that date.

		Cash/	Charged to		Reclassi-			Charges		Liabilities at		Charges			Liabilities at
Description		Noncash	Operations		fications			Utilized		June 30, 2002		Utilized			Mar. 31, 2003
Consolidate power supply operations
	Severance	Cash	$	1,243	$	168		$	1,411	$	—	$	—		$	—
	Lease cancellations	Cash		1,835		—			225		1,610		(237	)		1,373
	Write-down of assets	Noncash		2,579		—			2,579		—		—			—
	Shut-down costs of facilities	Cash		265		(8	)		240		17		—			17
Reduce staffing requirements		Cash		2,017		(160	)		1,857		—		—			—
Impairment of long-lived assets		Noncash		2,977		—			2,977		—		—			—
Other		Noncash		333		—			333		—		—			—
			$	11,249	$	—		$	9,622	$	1,627	$	(237	)	$	1,390

The Notes Indenture contains covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined therein) to incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase capital stock, make investments, create liens, engage in transactions with stockholders and affiliates, sell assets and, with respect to the Company, engage in mergers and consolidations. There are no sinking fund requirements.

Total special charges for the fiscal year ended June 30, 2002 of $9,697 are classified in the consolidated statement of operations as cost of sales ($688) and special charges ($9,009). During the fourth quarter of fiscal 2002, the Company evaluated for impairment certain telecommunication equipment being held for sale. As a result, a charge of $1,552 was recorded for the difference between the carrying amount and the fair value of the equipment.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

JG. ~~Earnings~~ ~~Per~~General ~~Share~~ Electric Company Investment and Sale of General Electric Company Investment to Saratoga Lighting Holdings, LLC

~~Earnings~~In October 1999, General Electric Company (~~loss~~“GE”) completed an investment in the Company of $20,554. In exchange for the investment, GE received 761,250 shares of the Company’s newly created Series ~~per~~A ~~share~~Preferred isStock ~~computed~~convertible asat ~~follows:~~any time into 3,045,000 shares of Company Common Stock (subject to adjustment). GE also received a Warrant (the “Initial Warrant”) to purchase an additional 1,000,000 shares of Company Common Stock (subject to adjustment), which GE fully exercised to acquire 998,703 shares of Common Stock of the Company.

				Three Months Ended						Nine Months Ended
				March 31,						March 31,
				2003			2002			2003			2002
Income available to common shareholders:
	Income (loss) before cumulative effect of accounting change			$	(3,074	)	$	(5,660	)	$	(17,169	)	$	(22,682	)
	Cumulative effect of accounting change				—			—			—			(71,171	)
	Net income (loss)				(3,074	)		(5,660	)		(17,169	)		(93,853	)
	Preferred shares accretion				(742	)		(693	)		(2,185	)		(2,040	)
	Warrants to be issued to General Electric Company				—			—			(2,098	)		—
	Net income (loss) attributable to common shareholders			$	(3,816	)	$	(6,353	)	$	(21,452	)	$	(95,893	)
Weighted average shares — basic and diluted
	Outstanding at beginning of period				23,807			23,437			23,588			23,288
	Issued pursuant to employee stock purchase plan				—			8			36			27
	Issued pursuant to 401(k) plan				—			17			109			68
		Weighted average shares — basic and diluted			23,807			23,462			23,733			23,383
Earnings (loss) per share — basic and diluted
	Income (loss) before cumulative effect of accounting change			$	(.16	)	$	(.27	)	$	(.90	)	$	(1.06	)
	Cumulative effect of accounting change				—			—			—			(3.04	)
			Earnings (loss) per share attributable to
			common shareholders — basic and diluted	$	(.16	)	$	(.27	)	$	(.90	)	$	(4.10	)

Saratoga Lighting Holdings, LLC (“Saratoga Lighting”) acquired all of the Common and Preferred shares owned by GE on August 15, 2003. As a result, Saratoga Lighting now holds 1,429,590 shares of Company Common Stock. The Series A Stock and the Common Stock held by Saratoga Lighting represent approximately 16.7% of the equity ownership of the Company at September 30, 2003. Saratoga Lighting has beneficial ownership of approximately 37.4% of the voting power of the Company.

AtThe ~~March~~Series ~~31,~~A ~~2003,~~Stock ~~options~~has ~~and~~a ~~warrants~~liquidation topreference ~~purchase~~of ~~9,936,325~~$27 ~~shares~~per ofshare, ~~common~~plus an ~~stock~~amount ~~were~~equal ~~outstanding,~~to ~~but~~8% ~~were~~per ~~not~~annum ~~included~~compounded inannually from the ~~calculations~~date of ~~diluted~~issuance to ~~earnings~~the ~~per~~date ~~share~~of ~~because~~payment. ~~their~~The Company is required to redeem any shares of Series A ~~inclusion~~Stock, ~~would~~which have not been ~~antidilutive.~~converted ~~Options~~or ~~and~~retired ~~warrants~~on toSeptember 30, ~~purchase~~2010. In 2addition,~~311,947~~ ~~shares~~the Holder of ~~common~~the ~~stock~~Series A ~~were~~Stock ~~outstanding~~may, atby ~~March 31~~notice, ~~2002,~~require ~~but~~the ~~were~~Company ~~not~~to ~~included~~redeem in the ~~calculations~~outstanding ofSeries A ~~diluted~~Stock, ~~earnings~~within ~~per~~one ~~share~~year ~~because~~following ~~their~~either ~~inclusion~~September 30, ~~would~~2004, ~~have~~or ~~been~~the ~~antidilutive~~occurrence of certain corporate events.

Pursuant to the acquisition agreement, GE has agreed to transfer to Saratoga Lighting its rights with respect to Company securities described below. Saratoga Lighting is responsible for obtaining all approvals by the Company required for such transfer. The Company has not given any such approval.

The terms of the GE investment required that the Company maintain an interest coverage ratio over certain measurement periods. The Company failed to maintain the required interest coverage ratio over three measurement periods. As a result of the failure to maintain the interest coverage ratio GE has (subject to its agreement with Saratoga Lighting): (i) the ability to vote the number of shares currently voted by the CEO of the Company and Alan J. Ruud, totaling approximately 5.6 million shares at September 30, 2003, (ii) the option to purchase shares from the CEO of the Company and Alan J. Ruud which, together with the shares owned by GE, would represent 25% of the voting power of the Company, (iii) the right to receive from the Company an additional warrant to purchase approximately 6.75 million shares at $.63055 per share (the average of the closing prices for the 20 trading days ended September 30, 2002), and (iv) the right to receive from the Company an additional warrant to purchase approximately 18,000 shares at $.298 per share (the average of the closing prices for the 20 trading days ended December 31, 2002). Neither GE nor Saratoga is required to purchase additional shares of the Company.

The number of shares that GE owned or had the right to acquire and/or vote immediately following the third failure to maintain the coverage ratio exceeded 35% of the voting power of the Company. The number of shares that Saratoga Lighting now owns and has the right to acquire (subject to Company

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

KG. ~~Contingencies~~ General Electric Company Investment and Sale of General Electric Company Investment to Saratoga Lighting Holdings, LLC (continued)

Onconsent) ~~January 17,~~exceeds ~~2003,~~35% of the ~~Federal~~voting ~~Court~~power ~~judge~~of ~~presiding~~the ~~over~~Company. ~~all~~Consequently, ~~pending~~the ~~shareholder~~terms ~~litigation,~~of ~~described~~the ~~below,~~Indenture ~~entered~~relating ato ~~final~~the ~~order~~Company’s ~~approving settlement~~Senior ofNotes ~~the~~required ~~litigation~~that ~~and~~the Company ~~dismissing~~offer ~~all~~to ofrepurchase the ~~plaintiffs’~~$100,000 ~~claims~~principal ~~with~~amount of outstanding Senior ~~prejudice.~~Notes ~~The~~due ~~settlement~~2008 ~~included~~at a ~~payment~~price of ~~$8.4 million~~101% ~~in cash, all~~ of ~~which~~ ~~was~~the ~~paid~~principal byamount ~~the~~thereof, ~~Company’s~~plus ~~insurance carriers~~accrued interest. The ~~settlement~~Company ~~does~~elected not ~~constitute~~ ~~any~~to ~~admission~~offer ofto ~~wrongdoing~~repurchase on the ~~part~~Senior ofNotes ~~the~~and therefore ~~Company~~was orin default under the ~~individual~~ ~~defendants~~Trust Indenture.

InThe ~~April~~fair ~~and~~value ~~May~~of ~~1999,~~the ~~three~~warrants ~~class~~issuable ~~action~~to ~~suits~~GE ~~were~~(subject ~~filed~~to inits ~~the~~agreement ~~United States~~with ~~District~~Saratoga ~~Court,~~Lighting) ~~Northern~~is ~~District~~estimated ofto ~~Ohio~~be $2,098 bybased ~~certain~~on ~~alleged~~the ~~shareholders~~Black-Scholes ofoption ~~the~~pricing ~~Company~~model ~~on behalf of themselves~~ and ~~purported~~using ~~classes~~an ~~consisting~~expected volatility of ~~Company shareholders~~78%, ~~other~~risk-free ~~than~~interest ~~the~~rate of ~~defendants~~4.00%, and ~~their~~an ~~affiliates,~~expected ~~who~~life ~~purchased stock~~of ~~during the period from December~~10 ~~30,~~years ~~1997~~with ~~through~~no ~~September 30,~~dividend ~~1998~~yield. orThe ~~various~~estimated ~~portions~~value ~~thereof. A~~of ~~First Amended Class Action Complaint, consolidating~~ the ~~three lawsuits, was filed on September~~6.75 ~~30,~~million ~~1999.~~share ~~The~~warrant ~~named~~is ~~defendants~~reflected in the ~~case – styled In re~~ ~~Advanced~~calculation ~~Lighting~~of ~~Technologies,~~earnings ~~Inc.~~per ~~Securities~~share ~~Litigation,~~(see ~~Master~~Note ~~File No. 1:99CV836, were the Company and its Chairman and Chief Executive Officer (CEO~~I).

The First Amended Class Action Complaint alleged generally that certain disclosures attributed to the Company contained misstatements and omissions alleged to be violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, including claims for “fraud on the market” arising from alleged misrepresentations and omissions with respect to the Company’s financial performance and prospects and alleged violations of generally accepted accounting principles by, among other things, improperly recognizing revenue and improper inventory accountingH. ~~The~~Related ~~Complaint~~Party ~~sought certification of the purported class, unspecified compensatory and punitive damages, pre- and post-judgment interest and attorneys’ fees and costs.~~ Transaction

OnPursuant ~~December~~to 4an ~~and~~agreement ~~December 12,~~dated ~~2001 and January~~October 108, ~~2002~~1998, ~~separate~~as ~~lawsuits were~~amended, ~~filed~~between ~~by separate shareholders of~~ the Company ~~allegedly on behalf of the~~ ~~Company,~~and ~~derivatively,~~its ~~against~~Chairman ~~officers~~ and ~~directors~~Chief ofExecutive ~~the~~Officer ~~Company. The allegations in~~ (the ~~three cases were substantially similar~~“CEO”), ~~and~~ the ~~two cases filed in Ohio court~~Company, ~~Gobble v Hellman, et al. 1:02CV0076-AA and Miller v~~ ~~Hellman,~~following etapproval ~~al.~~by ~~1:02CV342, were removed to~~ the ~~United~~Company’s ~~States~~Board ~~District~~of ~~Court~~Directors, ~~Northern~~ ~~District~~has ofa ~~Ohio.~~loan ~~The~~recorded ~~suit originally filed in Federal Court, Tanigawa~~for ~~v Ruud~~$14,144 etto ~~al.~~its ~~1:01CV2807~~CEO, ~~was~~including ~~previously~~principal ~~voluntarily~~of ~~dismissed~~$12,789 byand ~~the plaintiff.~~accrued ~~The Company was a nominal defendant in these actions~~interest. The ~~individual~~ ~~defendants~~proceeds inof the ~~Tanigawa~~loan ~~case~~were ~~included,~~used ~~among~~by ~~others, Wayne R. Hellman,~~ the ~~Chief~~ ~~Executive~~Company’s ~~Officer~~CEO ~~and~~to ~~Chairman~~reduce of the ~~Board, who is also beneficial owner~~principal ofbalance ~~more than 5% of the~~ outstanding ~~common stock~~ of ~~the~~margin ~~Company,~~loan ~~Alan J~~accounts. ~~Ruud, former~~In ~~Chief~~connection ~~Operating~~with ~~Officer and Vice Chairman of~~ the ~~Board~~loan, ~~who is also~~the ~~beneficial~~Company’s ~~owner~~Board of ~~more~~Directors ~~than~~obtained 5%the ofCEO’s ~~the~~agreement ~~outstanding~~to ~~common~~an ~~stock~~extension of ~~the~~ ~~Company,~~his ~~and~~employment ~~Messrs. Francis~~agreement H.to ~~Beam~~December 31, ~~John E~~2003. ~~Breen,~~The ~~John~~margin R.loans ~~Buerkle,~~have ~~Theodore~~been A.fully ~~Filson,~~repaid ~~Louis S. Fisi, Thomas K. Lime~~ and Athe ~~Gordon~~loan ~~Tunstall,~~agreement ~~directors~~prohibits of the ~~Company.~~CEO ~~The~~from ~~Gobble~~encumbering ~~and~~his ~~Miller complaints named the same defendants, but~~ADLT ~~also~~shares ~~named~~in ~~Steven~~any C.manner ~~Potts,~~without ~~who~~the isconsent ~~Chief~~of ~~Financial~~the ~~Officer~~Company’s ~~and~~Board isof ~~a former director~~Directors.

~~The~~On ~~suits~~July 26, ~~alleged~~2002, ~~breaches~~the ofCompany ~~duties~~and byCEO ~~the~~executed ~~defendants~~an ~~relating~~amendment to the ~~matters~~loan ~~which~~documents, ~~are~~implementing the ~~subject~~agreement in principle, reached in January 2002, to extend the maturity of ~~The~~the ~~Advanced~~loan ~~Lighting~~to ~~Technologies~~July 31, ~~Inc~~2007. ~~Securities~~Under the terms of the ~~Litigation~~amendment, tothe ~~alleged~~CEO ~~insider~~will ~~trading~~sell by certain ~~directors~~assets in an orderly manner to maximize the net proceeds, which will be used to pay a portion of the loan. ~~made~~The CEO will continue his 10b5-1 plan to sell shares he now owns pursuant to Rule 144 Mrwhen the stock price exceeds $15 per share. ~~Hellman~~ ~~and~~In addition, the CEO is required to apply after-tax cash bonuses earned from the ~~sale~~Company and the after-tax proceeds of ~~certain~~sales ~~fixture~~of ~~facilities~~collateral and distributions relating to ancollateral ~~investment~~toward ~~group~~repayment ~~led~~of bythe loan.

Interest on the loan now accrues at the same rate that the Company pays on its credit facility. Interest due of $169 in the first quarter of fiscal 2004, $829 in fiscal 2003, $674 in fiscal 2002 has not been paid or recognized as interest income. The loan may be accelerated if the CEO ceases to be employed by the Company as a result of his voluntary resignation or termination for cause.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

KH. ~~Contingencies~~ Related Party Transaction (continued)

~~Mr. Ruud.~~the ~~The~~stock ~~Complaints~~price ~~primarily~~over ~~sought~~the ~~unspecified~~period ~~money~~in orwhich ~~compensatory~~the ~~and punitive~~Company ~~damages~~estimates ~~and~~it ~~attorneys’~~would ~~fees~~take ~~and~~to sell ~~costs~~those shares into the market.

OnIn ~~May 9,~~accordance ~~2003,~~with ~~a complaint was filed in~~ the ~~Cuyahoga~~provisions ~~County, Ohio Court~~ of ~~Common~~ ~~Pleas~~FAS byStatement ~~the widow of a former employee of Venture Lighting International, Inc~~No. 5, ~~who~~Accounting ~~died following an industrial accident at Venture~~for ~~Lighting’s~~Contingencies, ~~Solon~~and ~~facility.~~FAS ~~The~~Statement ~~suit~~No. 114, ~~styled~~Accounting ~~Karnosh,~~by ~~etc.~~Creditors vfor Impairment ~~ADLT~~of ~~Realty~~a ~~Corp I~~Loan, ~~Inc.,~~the etCompany aldetermined ~~(CV~~the 03above ~~500755),~~loan ~~alleges~~was ~~that~~impaired ~~Venture Lighting knowingly exposed~~and ~~the~~recorded ~~employee~~a tovaluation anreserve ~~unreasonably~~against ~~dangerous~~the ~~risk~~loan. InThe ~~addition,~~Company ~~the~~recorded ~~suit names~~impairment ~~ADLT~~losses ~~Realty~~of ~~Corp I~~$2,700 ~~Inc.,~~in ~~the~~fiscal ~~owner~~2003 ofand ~~the facility~~$7,100 ~~and~~in ~~certain~~fiscal ~~named~~2002 ~~and unnamed~~reflecting ~~defendants~~the ~~involved~~amount by inwhich the ~~installation~~carrying ~~and~~value ~~repair~~ of anthe ~~industrial garage~~loan ~~door~~exceeded ~~involved in~~ the ~~accident,~~underlying ~~alleging~~estimated ~~liability on various theories~~fair ~~involving~~value of the ~~failure~~assets available to ~~maintain~~repay the ~~door safely~~loan. The ~~suit~~Company ~~seeks~~will ~~compensatory~~recognize ~~damages~~recoveries ~~from~~on ~~all~~amounts ~~defendants~~previously inreserved anafter ~~amount~~considering ofboth ~~approximately~~the ~~$3,200,~~fair ~~together with~~value ~~unspecified damages for loss~~ of ~~consortium,~~the ~~pain~~underlying ~~and~~assets ~~suffering~~ and ~~punitive damages.~~evidence ~~The~~of ~~damages~~cash ~~sought~~repayments ~~are~~on ~~in addition to~~ the ~~employee’s prior recoveries under workers’ compensation laws~~loan. ~~The Company believes the lawsuit is without~~ ~~merit and intends to vigorously defend this action.~~

~~Ruud~~Following ~~Lighting,~~the ~~Inc.~~Company’s ~~has~~voluntary ~~incorporated~~Chapter 11 ~~certain~~filing, of the Company’s, ~~power~~the ~~supply~~CEO and ~~components~~the ~~into~~Official anUnsecured ~~innovative~~Creditors ~~metal~~Committee, ~~halide~~and ~~fixture.~~later, ~~Although~~the Company, the ~~rate~~CEO ofand ~~failure~~Saratoga ofLighting, ~~the~~have ~~Company’s~~been ~~power~~negotiating ~~supply~~to ~~components~~reach isan ~~consistent~~agreement ~~with~~pursuant ~~historical~~to ~~and~~which ~~industry~~the ~~failure~~CEO ~~rates,~~would ~~Ruud~~agree ~~Lighting,~~to ~~Inc.~~pay ~~has advised~~ the Company, ~~that~~over ~~it has~~time, ~~received~~an ~~some~~amount ~~complaints~~equal ~~from~~to ~~customers~~the total ~~due~~value toof ahis ~~particular~~assets ~~mode~~on ofthe ~~failure. Certain~~effective ~~customers~~date ~~have~~of ~~requested~~the ~~replacements~~reorganization, toreduced by ~~prevent~~the ~~any~~amount ~~additional such~~of ~~failures.~~security Oninterests ~~May~~with ~~29,~~priority ~~2003,~~over ~~Ruud~~the ~~Lighting,~~Company’s ~~Inc~~security interests., ~~filed a~~During ~~“contingent~~the ~~warranty”~~pendency ~~claim~~of ~~with~~the negotiations, the ~~Bankruptcy~~CEO ~~Court relating~~has tonot ~~replacements~~made ~~for~~required ~~all~~payments ~~such~~pursuant ~~fixtures~~to ~~and~~the ~~estimated~~Loan ~~the~~Agreement, ~~total~~in ~~cost~~an ofamount ~~these~~believed ~~replacements~~ to be ~~approximately~~in excess of $501,000., ~~The Company~~which ~~believes the claim~~ is ~~without~~net ~~merit~~of ~~and~~an assumed ~~intends~~estimated toincome ~~vigorously~~tax ~~contest any~~ liability ~~for~~owing by the ~~replacement~~CEO ofon ~~these products~~account thereof.

~~The~~As discussed in the Disclosure Statement approved October 3, 2003, as part of the reorganization, the Company, ~~from~~Saratoga ~~time~~Lighting toand ~~time~~the CEO, ishave agreed in principle, subject to ~~routine~~formal ~~litigation~~approval ~~incidental~~of the special committee (of independent directors) of the Company’s Board of Directors, formal documentation and Bankruptcy Court approval of the treatment of the CEO loan pursuant to a ~~its~~separate ~~business.~~motion ~~Although~~to ~~there~~be ~~can~~filed with the bankruptcy court, that the CEO loan documents would be nomodified ~~assurance~~to asreduce the amount of the outstanding indebtedness owed by the CEO to an amount (the ~~ultimate~~“Designated ~~disposition~~Amount”) equal to the difference between (1) the fair market value of ~~routine~~the ~~litigation,~~CEO’s ~~management~~personal assets and (2) the amounts owing to other secured creditors of the ~~Company~~CEO ~~believes~~that hold mortgages, ~~based~~liens and/or security interests upon or in property of the CEO, on a ~~information~~priority ~~available~~senior atto ~~this~~the ~~time~~liens and security interests securing the CEO’s loan from the Company, ~~that~~to the ~~ultimate~~extent ~~outcome~~of the fair market value of ~~these~~such ~~matters~~property. ~~will~~Additionally, ~~not~~it ~~have~~is aanticipated ~~material~~by ~~adverse~~the ~~effect~~Company that on or before the ~~operations~~effective date ~~and~~of ~~financial~~the plan, the proceeds from the CEO’s settlement of litigation of ~~condition~~approximately $1,300 (net of any income tax liability owing by the CEO on account thereof) will be paid to the Company for application to the CEO loan (the amount of these proceeds are included within the Designated Amount). Other than reducing the amount of the CEO loan as described above, the loan would otherwise remain in full force and effect.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~March~~September 3130, 2003 (Dollars in thousands, except per share data)

LI. ~~Subsequent~~ ~~Events~~ Earnings Per Share

OnEarnings ~~May~~(loss) ~~27,~~per ~~2003,~~share the Debtors filed a motion seeking Bankruptcy Court authorization for the Debtors to obtain a replacement debtor-in-possession facility and the repayment of the pre-petition and post-petition secured debt owed to the existing bank group. The replacement debtor-in-possession facility, with an anticipated closing fee of $550, will provide for an amount of total availability that is ~~similar~~computed toas ~~the existing bank facilities at~~follows: ~~interest costs that are similar in total to those charged under the current~~ facilities. The replacement debtor-in-possession facility will extend to October 31, 2003 and does not require the Debtors to sell assets. This facility must be replaced at the time of emergence from bankruptcy proceedings or October 31, 2003, whichever occurs first.

Based on negotiations with the official Creditors Committee and General Electric Company subsequent to the filing of the Original Plan, the Debtors determined that a consensual restructuring was more probable than the Original Plan. On May 28, 2003, the Company’s Board of Directors approved a revised Plan of Reorganization (the “Amended Plan”) and an agreement in principle on the Amended Plan was reached with the Creditors Committee and General Electric Company. The Amended Plan provides substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the Amended Plan provides that the $100,000 8% Senior Notes and unpaid interest due on such Notes will be exchanged for new notes having a principal amount of $40,000. In addition, the holders of the Notes will receive common stock representing in aggregate approximately 79.2% of the common stock. The preferred shareholder will receive approximately 11.6% of the common stock and incentives for certain incremental business and cost savings initiatives. The Company will establish a new management incentive plan which would have shares available equal to approximately 9.2% of the common stock. The holders of the Company’s Common Stock, including holders of existing warrants and options who acquire shares pursuant to the terms of such instruments, will receive in aggregate $2,850, less the professional fees (up to $350) incurred by the committee representing the common shareholders. The Amended Plan also provides for incentives to General Electric Company for incremental purchases from the Company (other than APL Engineered Materials, Inc.) and management fees to certain noteholders, and, if management services are requested by the Company, compensation to General Electric Company. The Company expects to file the Amended Plan after completion of the related documentation. The description of the Amended Plan is subject to revision and completion by the Debtors. The Amended Plan and related disclosure statement, when filed, are subject to review and approval by the court. The Debtors can give no assurance that the Amended Plan will be approved by the Bankruptcy Court, that the Amended Plan will receive the required approvals of the creditors and, if necessary, equity securityholders of the Debtors, or that the Debtors will be able to implement the Amended Plan.


			Three Months Ended
			September 30,

			2003			2002

Income available to common shareholders:




	Net income (loss)			(6,372	)		(1,481	)




	Preferred shares accretion			—			(699	)




	Warrants issuable to General Electric Company			—			(2,093	)

	Net income (loss) attributable to common shareholders		$	(6,372	)	$	(4,273	)

Weighted average shares — basic and diluted




	Outstanding at beginning of period			23,807			23,588




	Issued pursuant to employee stock purchase plan			—			7




	Issued pursuant to 401(k) plan			—			33

		Weighted average shares — basic and diluted		23,807			23,628

Earnings (loss) per share attributable to common shareholders — basic and diluted			$	(.27	)	$	(.18	)

At September 30, 2003, options and warrants (including issuable warrants) to purchase shares totaled 9,680,350, but were not included in the calculations of diluted earnings per share because their inclusion would have been antidilutive. Options and warrants (including issuable warrants) to purchase shares totaled 10,009,928 at September 30, 2002, but were not included in the calculations of diluted earnings per share because their inclusion would have been antidilutive.

As a result of the bankruptcy and the Saratoga Lighting transaction, the Company discontinued preferred share accretion as of March 31, 2003.

Advanced Lighting Technologies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2003
(Dollars in thousands, except per share data)

Contingencies

On May 9, 2003, a complaint was filed in the Cuyahoga County, Ohio Court of Common Pleas by the widow of a former 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), alleges that Venture Lighting knowingly exposed the employee to an unreasonably dangerous risk. In addition, the suit names 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 suit seeks compensatory damages from all defendants in an amount of approximately $3,200, together with unspecified damages for loss of consortium, pain and suffering and punitive damages. The damages sought are in addition to the employee’s prior recoveries under workers’ compensation laws. The Company believes the lawsuit is without merit and intends to vigorously defend this action.

Ruud Lighting, Inc. has incorporated certain of the Company’s power supply components into an innovative metal halide fixture. Although the rate of failure of the Company’s power supply components is consistent with historical and industry failure rates, Ruud Lighting, Inc. has advised the Company that it has received some complaints from customers due to a particular mode of failure. Certain customers have requested replacements to prevent any additional such failures. On May 29, 2003, Ruud Lighting, Inc. filed a “contingent warranty” claim with the Bankruptcy Court relating to replacements for all such fixtures and estimated the total cost of these replacements to be approximately $50,000.

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 (See Note E). 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 the quarter ended June 30, 2003. At September 30, 2003, as a result of the issuance of the final order approving the settlement, the Company recorded a reduction in its receivables from related parties of $2,786, a reduction in its liabilities subject to compromise of $1,463 and a reduction in its special charge accrual of $1,323.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollar amounts in thousands, except per share amounts)

This report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties. On February 5, 2003, the Company and six of its United States subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of the Untied States Bankruptcy Code. The operation of the Company and its subsidiaries under the protection of the bankruptcy court involves risks and uncertainties, including uncertainties associated with the restructuring process, the ability of the Company to successfully emerge from bankruptcy, the ability of the Company to operate successfully during the reorganization proceedings, and disruptions to the Company’s business relationships during the restructuring process. The Company currently has an agreement with ~~its~~two ~~existing~~financial ~~bank~~institutions ~~group~~ under a debtor-in-possession ~~financing~~ financing facility (“DIP Facility”) to continue to provide financing until ~~July 30, 2003~~ despite existing Events of Default under the Company’s prepetition credit facility with the banks. The DIP Facility will remain in place so long as there are no further defaults. The Company is currently seeking alternative financing sources to replace the DIP Facility. If the Company is unable to obtain alternative financing, it may be required to sell assets sufficient to repay the obligations to the banks by JulyFebruary 3028, ~~2003~~2004. The sale process, and the consummation of the sale of such assets, may have an adverse effect on the Company’s ability to operate successfully and to successfully emerge from bankruptcy. Other risks and uncertainties include the strength of the recovery of the U.S. economy, the Company’s financing plans, trends affecting the Company’s financial condition or results of operations, continued growth of the metal halide lighting market, the Company’s operating strategy and growth strategy, potential acquisitions or joint ventures by the Company, the declaration and payment of dividends, litigation affecting the Company, the timely development and market acceptance of new products, the possibility that any success at Deposition Sciences, Inc. (an ADLT subsidiary) will not be reflected in the value of the ADLT common stock, the ability to provide adequate incentives to retain and attract key employees, the impact of competitive products and pricing, and other risks which are detailed in the Company’s Form 10-K for the fiscal year ended June 30, ~~2002~~2003, in particular, see “Risk Factors.” 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. The Company’s actual results may differ materially from those indicated by such forward-looking statements based on the factors outlined above.

The following is management’s discussion and analysis of certain significant factors which have affected the results of operations and should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements and notes thereto.

General

The Company designs, manufactures and markets 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 warehouses, outdoor site and landscape lighting, sports facilities and large retail spaces such as superstores. The Company also develops, manufactures, and markets passive optical telecommunications devices, components and equipment based on the optical coating technologies of its wholly owned subsidiary, Deposition Sciences, Inc. (“DSI”). Systems, components and materials revenue is recognized when products are shipped, and equipment revenue is recognized under the percentage of completion method.

23Consistent 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 products. Uni-Form® pulse start products are a new

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 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 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. While research and development expenditures have declined over the last three fiscal years in connection with 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.

Recent Developments

Voluntary Bankruptcy Filing

On February 5, 2003, Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) and six of its United States subsidiaries, (collectively, the “Debtors”), filed voluntary petitions for reorganization (the “Filing”) under Chapter 11 of the United States Bankruptcy Code (“Chapter 11” or the “Bankruptcy Code”) in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). ADLT’s non-U.S. operating subsidiaries and Deposition Sciences, Inc., a U.S. subsidiary, were not a part of the Filing.

At the end of the second quarter of fiscal 2003 the Company was in default under a Forbearance Agreement with its bank group. In addition, the Company did not make the September 16, 2002 semi-annual interest payment on its 8% Senior Notes which resulted in an Event of Default under the Senior Notes Indenture. As a result of the defaults, the Indenture Trustee for the noteholders declared all principal and interest on the 8% Senior Notes due and payable immediately. The Filing by ADLT was made since it did not have the available funds to pay the noteholders and because of the uncertainty of the willingness of the bank group to grant continued forbearance under acceptable terms. These defaults are discussed in more detail in Note F to the Condensed Consolidated Financial Statements. Under Chapter 11, the Debtors have continued to operate their businesses as debtors-in-possession under court protection from their creditors and claimants, while using the Chapter 11 process to develop and implement a plan for addressing the repayment of its Bank Credit Facility and 8% Senior Notes.

As a consequence of the Filing, all pre-petition liabilities of the Debtors are stayed and no party may take any action to realize its pre-petition claims except pursuant to order of the Bankruptcy Court. It is the Debtors’ intention to address all of their pre-petition claims and a Plan of Reorganization (the “Original Plan”) has been filed with the Bankruptcy Court on April 28, 2003. The Original Plan as filed is discussed in more detail in Note B to the Condensed Consolidated Financial Statements.

Ingeneration ~~particular,~~of ~~the~~metal ~~Amended~~halide ~~Plan~~components ~~provides that the $100,000 8% Senior Notes~~ and ~~unpaid~~systems ~~interest~~which ~~due~~permit ~~on such Notes will be exchanged for new notes~~(a) increased ~~having~~light aoutput ~~principal~~with ~~amount~~lower ofpower ~~$40~~utilization,~~000.~~ In(b) faster ~~addition~~starting, ~~the~~(c) a ~~holders of the Notes~~quicker ~~will~~restart ~~receive common stock representing in aggregate approximately 79.2%~~ of ~~the common~~lamps ~~stock.~~which ~~The~~have ~~preferred~~been ~~shareholder~~recently ~~will~~turned ~~receive~~off, ~~approximately 11.6% of the common stock~~ and ~~incentives~~(d) better ~~for certain incremental business and cost~~color ~~savings initiatives~~uniformity. The Company ~~will~~has ~~establish~~spent aadditional ~~new~~amounts ~~management~~for ~~incentive~~manufacturing ~~plan~~process ~~which~~and ~~would~~efficiency ~~have shares available equal to approximately 9.2% of the common stock. The holders of the Company’s Common Stock~~enhancements, ~~including~~which ~~holders~~were ~~of existing~~charged ~~warrants and options who acquire shares pursuant~~ to ~~the~~cost ~~terms~~ of ~~such instruments,~~goods ~~will~~sold ~~receive in aggregate $2,850, less the professional fees (up~~when ~~to $350)~~ incurred ~~by the committee representing the common shareholders~~. ~~The Amended~~While ~~Plan~~research ~~also provides for incentives to General Electric Company for incremental purchases from the Company (other than APL Engineered Materials, Inc.)~~ and ~~management~~development ~~fees~~expenditures ~~to certain~~have ~~noteholders,~~declined ~~and,~~over ~~if management services are requested by~~ the ~~Company,~~ ~~compensation~~last tothree ~~General~~fiscal ~~Electric~~years ~~Company. Upon the confirmation of a plan of reorganization the Company’s investment banker will receive,~~ in ~~addition~~connection towith ~~monthly fees and reimbursement of expenses, fees based on formulas contained in~~ the Company’s ~~agreement,~~ ~~which~~commitment ~~will aggregate between $1,000 and $3,000. All such fees are subject~~ to ~~Bankruptcy Court approval. The Company recorded $1,000 of fees as~~generate ~~reorganization~~positive ~~expenses~~operating ascash ~~of March 31~~flow, ~~2003.~~the ~~The~~ Company expects to ~~file~~continue ~~the Amended~~to ~~Plan after completion of the related documentation. The description of~~make ~~the~~substantial ~~Amended~~expenditures ~~Plan~~on isresearch ~~subject to revision~~ and ~~completion~~development ~~by the Debtors. The Amended Plan and related disclosure statement, when filed, are subject~~ to ~~review~~ ~~and~~enhance ~~approval~~its byposition ~~the court. The Debtors can give no assurance that the~~as ~~Amended Plan will be approved by~~ the ~~Bankruptcy~~leading ~~Court,~~innovator ~~that~~in the ~~Amended~~metal ~~Plan will~~halide ~~receive~~lighting ~~the required approvals of the creditors and, if necessary, equity securityholders of the Debtors, or that the Debtors will be able to implement the Amended Plan~~industry.

~~Due~~Recent ~~to material uncertainties, it is not possible to predict the length of time~~Developments ~~the Debtors will operate under Chapter 11 protection, the ultimate outcome of~~ ~~the reorganization in general, the effect on the Debtors’ business or the recovery by creditors of the Debtors and equityholders of ADLT.~~

~~The~~On ~~Debtors~~February 5, ~~have~~2003, ~~received~~Advanced ~~approval~~Lighting ~~from~~Technologies, Inc. (the ~~Bankruptcy~~“Company” ~~Court to pay~~ or ~~otherwise~~“ADLT”) ~~honor~~and ~~certain~~six of its ~~pre-petition~~United ~~obligations~~States subsidiaries, ~~including~~(collectively, ~~claims of~~the ~~critical trade creditors~~“Debtors”), ~~customer~~filed ~~warranty~~voluntary ~~and~~petitions ~~rebate~~for ~~programs,~~reorganization ~~and employee wages and benefits in~~ (the ~~ordinary~~“Filing”) ~~course~~under Chapter 11 of ~~business. As part of~~ the ~~bankruptcy~~ ~~process,~~United ~~the~~States ~~Company~~Bankruptcy ~~hopes~~Code to(“Chapter 11” ~~refinance~~or ~~its DIP Facility and pursue~~the ~~restructuring~~“Bankruptcy ~~with~~Code”) ~~its~~in ~~noteholders~~the ~~and~~United ~~equityholders.~~States InBankruptcy ~~addition,~~Court ~~under~~for the Northern ~~terms~~District of ~~the DIP Facility~~Illinois, ~~the~~Eastern ~~Debtors~~Division ~~are required to begin~~ (the ~~sale~~“Bankruptcy ~~process~~Court”). ADLT’s ofnon-U.S. ~~their~~operating ~~assets~~subsidiaries and ~~use~~DSI, ~~the~~a ~~net~~U.S. ~~proceeds~~subsidiary, towere ~~repay~~not ~~the~~a ~~DIP~~part ~~lenders~~of the Filing.

~~The~~Background ~~Debtors~~of ~~have~~Filing—In ~~negotiated~~the fourth quarter of fiscal 2002, the Company incurred a ~~debtor-~~loss from operations and at June 30, 2002 was in~~-possession~~ ~~credit~~default ~~facility~~on ~~with~~its ~~several~~fourth ~~financial~~quarter ~~institutions~~fixed ~~(the~~charge ~~“DIP~~coverage ~~Facility”).~~ratio ~~The~~under ~~DIP~~its ~~Facility~~then ~~has~~existing aBank ~~maturity~~Credit ofFacility. ~~July~~On September 3016, ~~2003~~2002 ADLT and ~~bears~~its ~~interest~~bank atgroup 3%entered ~~above~~into a Forbearance Agreement. At the ~~prime~~end ~~rate~~of (4the second quarter of fiscal 2003 the Company was in default under the Forbearance Agreement.~~25%~~ atIn ~~March~~addition, in 31accordance with the terms of the Forbearance Agreement, ~~2003)~~the ~~through~~Company ~~April~~did not make the September 3016, ~~2003~~2002 ~~and~~semi-annual ~~3.5~~interest payment on its 8% ~~above~~Senior Notes which resulted in an Event of Default under the ~~prime~~Senior ~~rate~~Notes ~~thereafter~~Indenture. As a ~~through~~result ~~July 30~~of the defaults, ~~2003~~the trustee for the noteholders declared all principal and interest due and payable immediately on the 8% Senior Notes. The ~~Bankruptcy~~Filing ~~Court~~by ADLT ~~issued~~was amade ~~final~~since ~~order~~it ~~approving~~did not have the available funds to pay the noteholders ~~DIP~~and ~~Facility,~~because ~~which~~of ~~allows~~the uncertainty of the ~~Debtors~~willingness of the bank group to ~~draw~~grant continued onforbearance ~~the~~under ~~DIP~~acceptable ~~Facility~~terms. These defaults are discussed in more andetail ~~amount~~in Note F to the Condensed Consolidated Financial Statements. ~~not~~Under Chapter 11, the Debtors have continued to ~~exceed~~operate ~~$26~~their businesses as debtors-in-possession under court protection from their creditors and claimants,~~096~~ while using the Chapter 11 process to develop and implement a plan for addressing the repayment of its Debtor-in-Possession Facility and 8% Senior Notes.

OnConsequence ~~May 27,~~of ~~2003~~Filing—As a consequence of the Filing, all pre-petition liabilities of the Debtors ~~filed~~are astayed ~~motion~~and ~~seeking~~no ~~Bankruptcy~~party ~~Court~~may take any action to ~~authorization~~realize ~~for~~its ~~the~~pre-petition ~~Debtors~~claims except pursuant to ~~obtain~~order aof ~~replacement~~the ~~debtor-in-possession~~Bankruptcy ~~facility~~Court. ~~and~~It is the ~~repayment~~Debtors’ intention to address all of ~~the~~their pre-petition claims as well as the interests of their preferred and ~~post-petition~~common ~~secured~~shareholders ~~debt~~and, ~~owed~~in tothat regard, filed a plan of reorganization with the ~~existing~~Bankruptcy ~~bank~~Court ~~group~~on April 28, 2003, and amended plans on August 15, 2003, September 16, 2003 and October 3, 2003. ~~The~~On ~~replacement~~October 3, ~~debtor-in-possession~~2003, the Bankruptcy Court approved the ~~facility~~adequacy of the disclosure statement describing the plan, ~~with~~as anamended. ~~anticipated~~It ~~closing~~is currently ~~fee~~impossible to predict with any degree of ~~$550~~certainty whether the plan,~~000~~ as amended, will ~~provide~~be ~~for~~accepted anby the Company’s creditors and common ~~amount~~shareholders. Generally, under the provisions of ~~total~~the ~~availability~~Bankruptcy ~~that~~Code, isholders of ~~similar~~equity tointerests ~~the~~may ~~existing~~not ~~bank~~participate ~~facilities~~under ata plan of reorganization unless ~~interest~~the ~~costs~~claims ~~that~~of creditors are ~~similar~~satisfied in ~~total~~full tounder ~~those~~the ~~charged~~plan ~~under~~or ~~the~~unless creditors ~~current~~accept a reorganization plan that permits holders of equity interests ~~facilities~~to participate. ~~The~~A ~~replacement~~committee ~~debtor-in-possession~~representing ~~facility~~unsecured ~~will~~creditors, ~~extend~~including tothe ~~October 31~~noteholders, ~~2003~~ and ~~does~~a ~~not~~committee representing equity security holders have been ~~require~~appointed by the ~~Debtors~~United toStates ~~sell assets~~Trustee. ~~This~~In ~~facility~~accordance ~~must~~with bethe ~~replaced~~provisions atof the Bankruptcy Code, these committees have the ~~time~~general right to be heard on all ofmatters ~~emergence~~that ~~from~~come ~~bankruptcy~~before ~~proceedings~~the Bankruptcy Court under or ~~October 31,~~in ~~2003,~~connection ~~whichever~~with ~~occurs~~the ~~first~~Filing. The Debtors ~~expect that the lenders~~are

~~under~~also ~~the~~required to bear certain of these committees’ costs and expenses, ~~replacement~~including ~~debtor-in-possession~~those ~~facility~~of ~~will~~their ~~make~~legal ~~replacement~~counsel ~~financing~~and financial advisors. Due to material ~~available~~uncertainties, atit is not possible to predict the length of time the Debtors will operate under Chapter 11 protection, the outcome of the reorganization in general, the effect on the Debtors’ ~~emergence~~business ~~from~~or ~~bankruptcy~~the ~~proceedings~~recovery by creditors of the Debtors and equity holders of ADLT.

~~Delisting~~The ~~from~~accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ~~Nasdaq~~ordinary ~~National~~course ~~Market~~of business. However, as a result of the Filing, such realization of certain Debtors’ assets and liquidation of certain Debtors’ liabilities are subject to significant uncertainty and raises substantial doubt about the Company’s ability to continue as a going concern. Further, a plan of reorganization could materially change the amounts and classifications reported in the condensed consolidated financial statements, which do not give effect to any adjustments to the carrying value or classification of assets or liabilities that might be necessary as a consequence of a specific plan of reorganization.

~~Pursuant~~On toJune 30, 2003, the Debtors obtained a ~~determination~~new byDebtor-in-Possession ~~the~~credit facility ~~Nasdaq~~from ~~Listing~~two ~~Qualifications~~financial ~~Panel,~~institutions (the “Replacement DIP Facility”). ~~Company’s~~Proceeds ~~Common~~from ~~Shares~~the Replacement DIP Facility were ~~delisted~~used byto repay the ~~Nasdaq~~Debtors’ original ~~National~~Debtor-in-Possession ~~Market~~credit ~~effective~~facility (the “Original DIP Facility”) and ~~January 10,~~all ~~2003.~~remaining ~~Subsequently,~~amounts due on the ~~Company’s~~existing ~~Common~~secured ~~Shares~~Bank ~~have~~Credit ~~been~~Facility. ~~quoted~~The onReplacement ~~the~~DIP ~~National~~Facility ~~Association~~consists of ~~Securities~~a ~~Dealers’~~revolving ~~OTC~~loan, ~~Bulletin~~and ~~Board,~~two ~~which~~term loans. The ~~was~~revolving ~~established~~loan ~~for~~facility ~~securities~~allows ~~that~~the doDebtors ~~not~~to ~~meet~~incur ~~the~~up ~~Nasdaq~~to ~~listing~~$18,500 in revolving ~~requirements.~~loans, ~~This~~subject ~~alternative~~to ~~trading~~the ~~market~~availability isof ~~generally~~adequate ~~considered~~collateral. ~~less~~The revolving loan ~~efficient~~bears ~~than~~interest at the ~~Nasdaq~~prime ~~National~~rate ~~Market~~plus 1% or ~~Nasdaq~~at ~~SmallCap~~the ~~Market.~~London Interbank Borrowing ~~Consequently,~~Rate ~~selling~~(“LIBOR”) plus 3%. One of the ~~Company’s~~term ~~common~~loans ~~shares~~is ~~could~~in bethe ~~more~~amount ~~difficult~~of $5,000, ~~because~~bears ~~smaller~~interest ~~volumes~~at the prime rate of ~~shares~~interest ~~would~~plus ~~likely~~2% beor ~~bought~~at LIBOR plus 5%, and requires ~~sold~~principal payments of $83 per month beginning October 1, ~~transactions~~2003. The ~~could~~other beterm ~~delayed~~loan is in the amount of $13,500 and ~~securities~~bears ~~analysts’~~interest ~~and~~it ~~news~~the ~~media~~prime rate ~~coverage~~of interest plus 6% per annum, with payment of ~~the~~2% per annum deferred until ~~Company~~maturity. ~~may~~The beReplacement ~~reduced~~DIP Facility has a maturity of October 31, 2003. The ~~These~~Bankruptcy ~~factors~~Court ~~could~~issued ~~result~~a infinal ~~lower~~order ~~prices~~approving ~~and~~the ~~larger~~Replacement DIP ~~spreads~~Facility inon June 25, 2003. On September 16, 2003, the ~~bid~~debtors and ~~ask~~these financial ~~prices~~institutions ~~for~~entered ~~common~~into ~~shares~~an amendment of the ~~Company~~Replacement DIP Facility to extend the maturity through February 28, 2004. The Bankruptcy Court issued a final order approving the extension of the Replacement DIP Facility on October 23, 2003.

As apart ~~result~~ of the ~~delisting~~bankruptcy process, the Company ~~wrote-off~~is $1pursuing restructuring with its noteholders,~~163~~ other creditors and equity holders. While the Company has continued to manage its business as a debtor-in-possession, it has received approval from the ~~second~~Bankruptcy Court to, among other things, pay or otherwise ~~quarter~~honor certain of ~~fiscal~~its ~~2003~~pre-petition ~~for~~obligations, ~~the~~including ~~impairment~~claims of ~~the~~critical trade ~~deferred~~creditors, ~~costs~~customer ~~related~~warranty toand ~~its~~rebate programs, and employee wages and ~~shelf~~benefits ~~offerings~~in the ordinary course of business.

~~Changes~~Plan ~~Pursuant~~of Reorganization—The Company has had ongoing negotiations with the Official Committee of Unsecured Creditors (the “Creditors Committee”). In the absence of an agreement with the Creditors Committee, on April 28, 2003 the Company filed a Disclosure Statement with respect to ~~General~~a ~~Electric~~Joint Chapter 11 Plan of Reorganization (the “Original Plan”) with the Bankruptcy Court based substantially on one of its last restructuring proposals to the Creditors Committee. Under the proposed terms of the Original Plan, unclassified claims, including administrative claims, priority tax claims and the DIP Facility claim, would have been paid in cash on the effective date of the Original Plan. In addition, the existing pre-petition Revolving Credit Facilities claim, other secured claims and classified priority claims would have been paid in cash (except to the extent that the Company ~~Investment~~sought to reinstate secured claims), either on the effective date of the Original Plan or in installment payments, as provided in the Original Plan. Further, the Original Plan proposed exchanging for existing unsecured debt and preferred and common stock, a

In October 1999, General Electric Company (“GE”) completed an investment in the Company of $20,554. In exchange for the investment, GE received 761,250 shares of the Company’s newly created Series A Preferred Stock convertible at any time into 3,045,000 shares of Company Common Stock (subject to adjustment). GE also received a Warrant (the “Initial Warrant”) to purchase an additional 1,000,000 shares of Company Common Stock (subject to adjustment), which GE has fully exercised to acquire 998,703 shares of Common Stock of the Company. GE now holds 1,429,590 shares of Company Common Stock. The Series A Stock and the Common Stock held by GE represent 16.7% of the voting power and equity ownership of the Company at March 31, 2003.

The terms of the GE investment provide that the Company maintain a specific financial ratio over certain measurement periods. The Company failed to maintain the required interest coverage ratio over three measurement periods. As a result of the failure to maintain the interest coverage ratio: (i) GE has the ability to vote the number of shares currently voted by the CEO of the Company and Alan J. Ruud, totaling approximately 5.6 million shares at March 31, 2003, (ii) GE has the option to purchase shares from the CEO of the Company and Alan J. Ruud which, together with the shares owned by GE, would represent 25% of the voting power of the Company, (iii) GE has the right to receive from the Company an additional warrant to purchase approximately 6.75 million shares at $.63055 per share, and (iv) GE has the right to receive from the Company an additional warrant to purchase approximately 18,000 shares at $.298 per share (the average of the closing prices for the 20 trading days ended December 31, 2002). The Company intends to file a motion seeking authority from the Bankruptcy Court to issue the warrants. GE is not required to purchase additional shares of the Company. The number of shares that GE owns or has the right to acquire and/or vote exceeds 35% of the voting power of the Company. Consequently, the terms of the Indenture relating to the Company’s Senior Notes require that the Company offer to repurchase the $100,000 principal amount of outstanding Senior Notes due 2008 at a price of 101% of the principal amount thereof, plus accrued interest. The Company elected not to offer to repurchase the Senior Notes and therefore was in default under the Trust Indenture.

~~Sale~~new debt issue and new preferred and common stock issues. Unsecured creditors of ~~Fixture~~ADLT ~~Subsidiaries~~would have been provided with an option on form of payment; unsecured creditors of the other Debtors would have been paid in installment payments. Holders of the Company’s Common Stock would have received common stock which would have been diluted to 2% if the Company failed to redeem the new preferred stock within three years.

OnBased ~~December 12,~~on ~~2001~~negotiations with the official Creditors Committee and General Electric Company ~~completed~~(“GE”) ~~the~~which ~~sale~~at ofthat atime ~~significant~~owned ~~portion~~all of the Company’s Series A ~~its~~Preferred ~~lamp~~Stock ~~fixture~~outstanding, ~~business~~subsequent ~~(its~~to ~~Ruud~~the ~~Lighting~~filing of the Original Plan, ~~Inc~~the Debtors determined that a consensual restructuring was more probable than the Original Plan., ~~Kramer~~On ~~Lighting~~May 28, ~~Inc.~~2003, ~~and~~the Company’s Board of Directors approved a ~~Ruud~~revised ~~Lighting~~Plan ~~Europe~~of ~~subsidiaries~~Reorganization (the “Noteholder Plan”) toand an ~~investor~~agreement ~~group~~in principle ~~led~~on bythe ~~Alan~~Noteholder J.Plan ~~Ruud.~~was reached with the Creditors Committee and ~~From~~GE. ~~January~~The ~~1998~~Noteholder ~~until~~Plan provided substantially the ~~time~~same treatment for creditors of the ~~transaction,~~Company ~~Mr. Ruud~~as ~~was~~under athe ~~director~~Original ofPlan except as otherwise noted herein. In particular, the ~~Company~~Noteholder ~~and~~Plan ~~served~~provided asthat ~~Vice~~the ~~Chairman~~$100,000 8% Senior Notes and ~~Chief~~unpaid ~~Operating~~interest ~~Officer~~due on such Notes would be exchanged for new notes having a principal amount of $40,000. In addition, the holders of the ~~Company~~Notes ~~and~~would ~~holds~~have received common stock representing in ~~excess~~aggregate approximately 79.2% of 5the common stock. The preferred shareholder would have received approximately 11.6% of the common stock and incentives for certain incremental business and cost savings initiatives. The Company’s ~~outstanding~~would have established a new management incentive plan which would have had shares available equal to approximately 9.2% of the common stock. The ~~fixture~~holders ~~subsidiaries~~of the Company’s ~~assets~~Common Stock, ~~consisted~~including ~~primarily~~holders of ~~manufacturing~~existing warrants and options who acquire shares ~~equipment~~pursuant to the terms of such instruments, ~~inventory~~would ~~and~~have ~~accounts~~received ~~receivable~~in ~~and~~aggregate $2,850, less the ~~Ruud~~professional ~~Lighting~~fees (up to $350) incurred by the committee ~~manufacturing~~representing ~~facility~~the ~~located~~common inshareholders. ~~Racine~~The Noteholder Plan also provided for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, ~~Wisconsin~~Inc.) and management fees to certain noteholders, and, if management services were requested by the Company, compensation to GE. The Noteholder Plan was not filed.

~~The~~On ~~consideration~~August 15, ~~received~~2003, byGE sold its equity interests in the Company ~~consisted~~to ofSaratoga Lighting aHoldings LLC (“Saratoga Lighting”) for cash ~~payment~~consideration of $2812,000. Immediately ~~(adjusted~~following ~~dollar~~the ~~for~~Saratoga ~~dollar~~Lighting’s topurchase ~~reflect~~of the ~~amount~~GE ofequity interests, ~~any~~and ~~changes~~ in ~~working~~ ~~capital~~accordance ~~and~~with ~~funded~~the ~~indebtedness~~agreement between ~~September 2,~~Saratoga ~~2001~~Lighting and ~~December~~ 3GE, ~~2001)~~Messrs. Breen and ~~promissory~~Mohn, ~~notes~~who ~~totaling~~had $6been nominated by GE to the Company’s Board of Directors,~~000.~~ ~~Preliminary~~resigned ~~estimates~~as directors of the Company. Following such acquisition, ~~adjustment~~Saratoga inLighting informed the ~~cash~~Company’s ~~consideration~~directors ~~resulted~~that init would not support the Noteholder Plan. As a ~~net~~result, ~~reduction~~the Company’s Board of ~~$2,458~~Directors indetermined that there was a substantial risk that the ~~cash~~Noteholder ~~received~~Plan atwas ~~closing.~~not confirmable. The ~~preliminary~~Company’s ~~estimates~~Board ~~are~~of ~~subject~~Directors toapproved a ~~review~~ ~~process~~revised ~~under~~Plan of Reorganization (the ~~purchase~~“Saratoga ~~agreement~~Joint Plan”) on August 15, 2003. The ~~notes~~Saratoga ~~are~~Joint ~~payable~~Plan provides ~~December 1~~substantially the same treatment for creditors of the Company as under the Original Plan except as otherwise noted herein. In particular, the ~~2006~~Saratoga ~~and~~Joint ~~bear~~Plan ~~interest~~provided atthat the $100,000 8% ~~compounded~~Senior ~~semi-annually.~~Notes Asand ~~part~~unpaid interest ofdue ~~this transaction,~~on ~~funded~~such ~~indebtedness~~Notes will be exchanged for new notes having a principal amount of approximately $9108,~~005~~000. ~~continued~~The unsecured creditors will be offered the option to be paid 85% of the ~~obligation~~amounts of their claims shortly after the ~~Ruud~~effective ~~Lighting~~date ~~and~~of the ~~Company~~Saratoga ~~retained~~Joint ~~title~~Plan toor 100% of the ~~Rhode~~amounts ~~Island~~of ~~manufacturing~~their ~~facility~~claims, ofplus ~~Kramer~~interest, ~~Lighting~~over one year. The ~~Company~~preferred ~~sold~~shareholder ~~this~~will ~~facility~~receive, in exchange for the existing Series A Stock and an $118,~~326~~000 incash investment, new ~~September~~redeemable ~~2002~~preferred stock and approximately 90.8% of the common stock. The Company will establish a new management incentive plan which would have shares available equal to approximately 9.2% of the common stock. Under the Saratoga Joint Plan as originally filed, the holders of the Company’s ~~remitted~~Common ~~$428~~Stock, including holders of existing warrants and options who acquire shares pursuant to ~~Ruud~~the ~~Lighting~~terms inof ~~October~~such ~~2002~~instruments, inwould have received the same consideration as ~~accordance~~under the Noteholder Plan. Under the amended Saratoga Joint Plan, filed October 3, 2003, the Company would provide the common shareholders with the ~~terms~~benefit of certain equity investments held by the ~~purchase~~Company, ~~agreement~~in Fiberstars, Inc. and Hexagram, Inc., as well as a possible future payment, based on 3% of amounts

Consolidation of Power Supply Production Operations and Restructuring of Worldwide Operations

The Company implemented plans in fiscal 2002 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. Amounts related to the lease will be paid over the term of the lease, which expires in 2006. 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~~received ~~above-noted~~by ~~employees,~~Saratoga ~~were~~Lighting ~~terminated~~after ~~and~~providing ~~total~~investors ~~severance~~with ~~and~~a ~~benefits~~return ~~costs~~of capital ~~for~~plus ~~this~~an ~~program~~agreed ~~were~~rate $1of return,~~857.~~ ~~All~~as ~~employees~~more ~~were~~fully ~~paid~~described byin the ~~end~~amended Saratoga ofJoint ~~fiscal 2002~~Plan. ~~Write-off~~The ofSaratoga ~~Long-lived~~Joint ~~Assets~~Plan ~~and~~also ~~Other~~provides ~~Charges.~~for ~~Due~~incentives to GE ~~the decline in current business conditions, certain long-lived assets and product lines were evaluated~~ for ~~impairment~~incremental inpurchases ~~light~~from ~~of future growth areas of~~ the ~~business~~Company ~~and~~(other athan ~~focus~~APL onEngineered Materials, ~~profit margins and core opportunities~~Inc.) ~~As a result, charges of $1,425~~ and ~~$1,552~~management ~~were~~fees ~~recorded in the first and fourth quarter of fiscal 2002, respectively,~~ to ~~recognize~~an ~~write-downs~~affiliate ~~in investments and equipment. In addition, a $333 charge was taken for the abandonment~~ of ~~certain~~Saratoga ~~projects and several existing product lines~~Lighting.

InOn October 28, 2003, the ~~first~~Company, ~~quarter~~Saratoga, ofthe ~~fiscal~~Creditor’s ~~2003~~Committee and certain holders of the Company’s ~~announced~~8% ~~that~~Senior itNotes ~~would~~agreed, subject to Bankruptcy ~~relocate~~Court ~~some~~approval, ofto ~~its~~amend ~~power~~the ~~supply~~Saratoga ~~production~~Joint ~~from~~Plan. ~~Nova~~The ~~Scotia,~~Bankruptcy ~~Canada~~Court ~~into~~approved the agreement and a supplement to the disclosure statement describing the terms ~~Chennai~~of ~~(Madras)~~the agreement on October 30, ~~India~~2003 ~~production~~and ~~facility~~the inabove ~~order~~named parties entered into the agreement to ~~further~~amend ~~reduce~~the ~~its costs~~Saratoga Joint Plan on October 31, 2003. The amendments ~~relocation~~provide ~~will~~that ~~result~~the inaggregate ~~the~~principal ~~elimination~~amount of ~~approximately~~the ~~100~~New Notes to be ~~positions~~issued to holders of the 8% Senior Notes be set at $114,400, subject to adjustment if the ~~Canadian~~Company ~~facility~~emerges ~~during~~from bankruptcy protection after January 1, 2004, the ~~last~~interest ~~nine~~rate ~~months~~on ofthe ~~fiscal~~New ~~2003.~~Notes be set at 11%, and the maturity date ~~Severance~~of the New Notes be set at March 31, 2009 and ~~other~~place ~~costs~~certain ~~related~~limitations toon transactions ~~this~~involving ~~relocation~~the ~~are~~CEO ~~expected~~of the Company. The parties to bethe agreement ~~minimal~~have agreed to support the Saratoga Joint Plan following implementation of these amendments.

The description of the Saratoga Joint Plan is subject to revision and completion by the Debtors and to review and approval by the Bankruptcy Court. The Debtors can give no assurance that the Saratoga Joint Plan will be approved by the Bankruptcy Court, that the Saratoga Joint Plan will receive the required approvals of the creditors and, if necessary, equity securityholders of the Debtors, or that the Debtors will be able to implement the Saratoga Joint Plan.

Saratoga Lighting Holdings, LLC Investment

On October 6, 1999, General Electric Company (“GE”) completed an investment in the Company of $20,554. In exchange for the investment, GE received 761,250 shares of the Company’s newly created Series A Stock convertible at any time into 3,045,000 shares of Company Common Stock (subject to adjustment). GE also received a Warrant (the “Initial Warrant”) which GE exercised to acquire 998,703 shares of Common Stock, increasing its holdings to 1,429,590 shares of Company Common Stock. Pursuant to the terms of the stock purchase agreement with GE, GE provided the Company with candidates for the Company’s Board of Directors who are not directors, officers, employees or 10% shareholders of GE. The Company was required to cause the number of such candidates serving on the Board to be equal to the greater of 20% of the number of members of the Board or the number of members which most nearly corresponds to GE’s percentage ownership interest in the Company.

Saratoga Lighting Holdings, LLC (“Saratoga Lighting”) acquired all of the Common and Preferred shares owned by GE on August 15, 2003. As a result, Saratoga Lighting now owns approximately 16.7% of the voting power and equity ownership of the Company. Immediately following the Saratoga Lighting purchase, the two GE nominees serving on the Board of Directors of the Company resigned. The Board of Directors has elected two Saratoga Lighting nominees to the Board of Directors to fill the resulting vacancies, subject to their acceptance. These nominees have not yet agreed to serve as directors.

~~Results~~Pursuant ofto ~~Operations~~its –agreement ~~Selected~~with ~~Items~~Saratoga asLighting, GE has agreed to transfer to Saratoga Lighting its rights with respect to Company securities described below. Saratoga Lighting is responsible for obtaining all approvals by the Company required for such transfer. The Company has not given any such approval. As a ~~Percentage~~result of ~~Net~~the ~~Sales~~agreement with Saratoga Lighting, GE disclaims any beneficial interest in Company stock.

~~The~~In ~~following~~addition ~~table~~to ~~sets~~GE’s ~~forth~~initial investment, asGE a(subject ~~percentage~~to ofits ~~net~~agreement ~~sales,~~with Saratoga ~~certain~~Lighting) ~~items~~is entitled to make additional investments in,and the right to vote additional shares of, Company Common Stock. GE and the Company’s ~~Condensed~~entered into ~~Consolidated~~a ~~Statements~~Contingent ofWarrant ~~Operations~~Agreement ~~for~~(“Contingent Warrant Agreement”). The Contingent Warrant Agreement defined the ~~indicated~~circumstances, which occurred during ~~periods:~~fiscal year 2003, under which GE would obtain these rights.

		Three Months Ended						Nine Months Ended
		March 31,						March 31,
		2003			2002			2003			2002
Net sales			100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
	Cost of sales		62.1			67.6			62.7			65.6
	Marketing and selling		14.6			16.7			15.3			18.5
	Research and development		5.5			4.6			5.8			5.1
	General and administrative		7.0			10.7			8.1			8.8
	Provision for loan impairment		—			2.7			2.5			4.1
	Refinancing and non-recurring items		0.2			—			2.2			—
	Gain on settlement of lawsuit		—			—			—			(0.4	)
	Gain on sale of property		—			—			—			—
	Special charges and asset impairment		—			—			6.1			6.7
	Amortization of intangible assets		0.2			0.2			0.2			0.2
Income (loss) from operations			10.4			(2.5	)		(2.9	)		(8.6	)
Other income (expense):
	Interest expense		(7.2	)		(7.6	)		(8.0	)		(6.4	)
	Interest income		0.4			0.2			0.4			0.1
	Income (loss) from investments		(0.3	)		(6.3	)		(0.7	)		(1.8	)
	Reorganization expenses		(10.6	)		—			(3.6	)		—
	Gain from sale of fixture subsidiaries		—			—			—			0.2
Income (loss) before income taxes, minority interest and cumulative effect of accounting change			(7.3	)		(16.2	)		(14.8	)		(16.5	)
Income tax expense			0.6			0.5			0.6			0.3
Income (loss) before minority interest and cumulative effect of accounting change			(7.9	)		(16.7	)		(15.4	)		(16.8	)
Minority interest in income of consolidated subsidiary			(0.3	)		(0.2	)		(0.2	)		(0.1	)
Income (loss) before cumulative effect of accounting change			(8.2	)		(16.9	)		(15.7	)		(16.9	)
Cumulative effect of accounting change			—			—			—			(53.1	)
Net income (loss)			(8.2	%)		(16.9	%)		(15.7	%)		(70.0	%)

Upon the Second Occurrence (defined below), which occurred following September 30, 2002, GE received the right (which is now subject to its agreement with Saratoga Lighting): (i) to vote the number of shares then owned by Wayne R. Hellman and Hellman, Ltd. pursuant to proxies granted by Messrs. Hellman and Ruud, (ii) to vote the number of shares as to which Mr. Hellman then has voting power pursuant to the Hellman Voting Trust or Irrevocable Proxies granted with respect to shares removed from the Hellman Voting Trust (all shares voted by Mr. Hellman, approximately 1.9 million shares at June 30, 2003, are referred to collectively as the “Hellman Shares”), and (iii) to purchase from Messrs. Hellman and Ruud at a price of $.63055 per share, the number of shares of Common Stock which, together with the shares owned by GE at that time, would represent 25% of the voting power of the Company. The Company was also required to grant to GE (now subject to its agreement with Saratoga Lighting) an additional warrant (the “First Contingent Warrant”) to purchase approximately 6.7 million shares of Company Common Stock at the same price.

~~Factors~~Upon ~~that~~the Third Occurrence (defined below), which occurred following December 31, 2002, GE received the right (which is now subject to its agreement with Saratoga Lighting): (i) to vote the number of shares then owned by Mr. Ruud, and the right to vote the number of shares as to which Mr. Ruud then has voting power pursuant to the Ruud Voting Trust or Irrevocable Proxies granted with respect to shares removed from the Ruud Voting Trust, currently approximately 3.6 million shares (the “Ruud Shares”) and (ii) to vote the Ruud Shares and would have ~~affected~~been entitled to exercise approximately 50.0% of the ~~results~~then outstanding voting power of ~~operations~~the ~~for~~Company (assuming GE had exercised the Contingent ~~third~~Warrants ~~quarter~~and no issuance of additional shares by the Company other ~~fiscal~~than ~~2003~~pursuant asto ~~compared~~the GE transaction) or approximately 47.8% of the voting power of the Company on a fully diluted basis. In addition, GE was entitled to receive an additional warrant (the ~~third~~“Second ~~quarter~~Contingent Warrant”) which would entitle GE (now subject to its agreement with Saratoga Lighting) to purchase approximately 18,000 additional shares of ~~fiscal~~Common ~~2002~~Stock ~~are~~at ~~discussed~~$.298 per share. The ~~below~~shares transferred to Saratoga Lighting plus the number of shares issuable pursuant to the First Contingent Warrant and the Second Contingent Warrant and the Hellman Shares and the Ruud shares aggregate approximately 50% plus one vote of the voting power of the Company. If the Company issues additional shares of Common Stock to anyone other than GE, GE will be entitled (subject to its agreement with Saratoga Lighting) to purchase, on the same terms given to the third party, the number of shares required to maintain GE’s voting power.

~~Quarter~~The ~~Ended~~Company ~~March 31~~also entered into a number of other agreements with GE in connection with the transaction. The Company has entered into a standard registration rights agreement, ~~2003~~which ~~Compared~~will require the Company, upon request, to register the sale of the shares of Company Common Stock issued in connection with ~~Quarter~~the ~~Ended~~investment. ~~March 31~~If a substantial number of shares were sold pursuant to such a registration, ~~2002~~it could adversely affect the market price of Company shares and the ability of the Company to sell equity securities.

Net Sales. Net sales increased 11.6% to $37,469 in the third quarter of fiscal 2003 from $33,565 in the third quarter of fiscal 2002. Third quarter metal halide sales increased 15% to $29,755 compared with

~~$25,964~~In inaddition to the ~~same~~proxies ~~period last~~granted ~~year.~~to ~~This~~GE ~~increase~~by inMessrs. Hellman ~~metal~~and ~~halide~~Ruud, ~~sales~~Messrs. Hellman isand ~~the~~Ruud ~~result~~have ofgranted ~~increases~~to ~~in sales~~GE ~~outside~~(now ~~the~~subject ~~U.S.~~to ~~including~~its ~~the~~agreement ~~sale~~with ~~of metal halide lamp production~~Saratoga ~~equipment~~Lighting) ~~into~~a ~~China~~first ~~totaling~~refusal ~~$1,177. Fiscal~~right ~~2003~~on ~~third~~the ~~quarter~~sale ~~sales~~ of ~~the~~their ~~Company’s~~shares. ~~second-generation~~This ~~metal halide~~agreement ~~lighting~~requires ~~product~~that ~~line,~~if ~~Uni-Form®~~Messrs. Hellman ~~pulse~~and ~~start~~Ruud, ~~grew~~or ~~21%~~Hellman ~~to $8~~Ltd.,~~410~~ ~~from~~wish ~~$6,934~~to insell shares ~~the~~of ~~comparable~~Company ~~quarter~~stock, athey ~~year~~must ~~ago.~~first ~~Sales~~offer ofthe ~~APL~~shares ~~materials~~to ~~increased~~GE ~~26%~~on ~~over~~ the same ~~quarter a year ago~~terms. Such ~~Geographically, these materials~~ sales ~~increased~~would ~~9% in~~eliminate ~~the~~GE’s ~~U.S.~~contractual ~~and~~right ~~38% outside the U.S. Non-metal halide lighting sales increased 10%, due primarily~~ to aachieve ~~37%~~complete ~~increase in non-metal halide material sales~~voting control.

~~Lighting~~Sale ~~sales inside the U.S. decreased 2% in the third quarter~~ of ~~fiscal~~Fixture ~~2003~~Subsidiaries ~~as compared to the same period a year ago. Lighting sales outside the U.S.~~ ~~increased 33% in total and 25% excluding the production equipment sales into China.~~

~~Pricing~~On inDecember 12, 2001 the ~~metal~~Company ~~halide~~completed ~~lighting~~the sale of a significant portion of its lamp fixture business is(its ~~competitive~~Ruud Lighting, Inc., Kramer Lighting, Inc. and Ruud ~~prices~~Lighting ~~for~~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 and served as Vice Chairman and Chief Operating Officer of the Company and holds in excess of 5% of the Company’s ~~products~~outstanding ~~have~~common stock. ~~remained~~The ~~flat~~fixture orsubsidiaries’ ~~declined~~assets ~~slightly~~consisted primarily of manufacturing equipment, inventory and accounts receivable and the Ruud Lighting manufacturing facility located in Racine, Wisconsin. The consideration ~~introduction~~received by the Company consisted of ~~new~~a ~~products~~cash ~~has~~payment ~~helped~~of $28,000 (adjusted dollar for dollar to ~~stabilize~~reflect the ~~Company’s~~amount ~~product~~of any changes in working capital and funded ~~pricing~~indebtedness between September 2, 2001 and December 3, 2001) and promissory notes totaling $6,000. 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.

~~DSI’s~~The ~~telecommunication~~notes ~~product~~are ~~sales~~payable ~~for~~December 1, ~~the~~2006, ~~third~~although ~~quarter~~the ofCompany ~~fiscal~~had ~~2003~~the ~~were $195~~right, subject ato ~~decrease~~Senior ofNoteholder ~~10%~~consent, ~~from~~to require payment of $~~216~~3,000 in ~~the~~principal amount ~~third~~by ~~quarter~~surrender of ~~fiscal~~1,500,000 ~~2002.~~shares ~~The decrease~~of isCompany ~~attributed~~common tostock ~~the~~at ~~overall~~any ~~decline~~time prior into ~~the~~December 1, ~~telecommunications industry~~2002. ~~Sales~~As part of ~~DSI’s~~this ~~non-telecom~~transaction, ~~materials~~funded ~~and~~indebtedness of ~~equipment~~$9,005 ~~declined~~continued 3% to ~~$2,732~~ inbe the ~~third~~obligation ~~quarter~~ of ~~fiscal~~Ruud ~~2003~~Lighting ~~from~~and ~~$2,826~~the inCompany retained title to the ~~third~~Rhode ~~quarter~~Island manufacturing facility of ~~fiscal~~ ~~2002~~Kramer Lighting. Upon Insale ~~spite~~ of ~~this~~the ~~slight~~facility ~~decline~~in September 2002, the Company ispaid ~~expecting~~Ruud ~~DSI to~~Lighting ~~experience~~one-third ~~moderate~~of ~~growth in~~ the ~~fourth~~net ~~quarter~~proceeds ~~and~~or $427 in ~~fiscal~~accordance ~~2004~~with the terms of the agreement.

~~Cost~~On ofMay 29, ~~Sales~~2003, Ruud Lighting, Inc. ~~Cost~~and ofits ~~sales~~shareholders ~~increased~~filed ~~2.4%~~claims towith ~~$23,252~~the Bankruptcy Court in connection with the ~~third~~final ~~quarter~~settlement of purchase price, alleged breaches of ~~fiscal~~the ~~2003~~agreement ~~from~~and post closing administrative services of approximately $225,~~706~~880. inIn ~~the~~addition, ~~third~~Ruud ~~quarter~~Lighting, ofInc. ~~fiscal~~filed ~~2002.~~claims Aswith athe ~~percentage~~Bankruptcy ofCourt ~~net~~against ~~sales~~the Company and its wholly-owned subsidiary, ~~cost~~Venture Lighting ofInternational, ~~sales~~Inc. ~~decreased~~relating to ~~62.1%~~a inproduct ~~the~~warranty ~~third~~claim ~~quarter~~in an amount ofexceeding ~~fiscal~~$50,000. ~~2003~~The ~~from~~Company, 67Ruud Lighting, Inc.6% inand the ~~third~~Ruud ~~quarter~~Lighting shareholders ofentered ~~fiscal~~into ~~2002.~~a ~~Cost~~settlement ofagreement ~~sales~~dated September 8, 2003, insettling ~~fiscal~~the ~~2002~~Ruud claims, ~~were~~as ~~negatively~~well ~~impacted~~as claims by ~~several~~the ~~unusual~~Debtors ~~items~~against ~~including~~Ruud ~~inventory write-downs~~Lighting, ~~additional~~Inc. ~~costs~~and ~~related~~its shareholders. Pursuant to the ~~move~~terms of the ~~European~~settlement, ~~power~~the ~~supply~~original ~~production~~notes towere ~~India,~~cancelled and ~~unfavorable~~the ~~overhead~~Company ~~variances~~received ~~resulting~~ new notes from the Ruud ~~decrease~~Lighting, Inc. shareholders in ~~production~~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’s ~~commitment~~will no longer be required to ~~significant~~make payments on a non-cancelable operating lease for the ~~reductions~~unused inElkhorn, ~~inventory~~Wisconsin ~~levels~~facility, but will receive from Ruud Lighting, Inc. one half of the amount of any sublease payments received. In addition, the agreement provides for mutual releases by the parties. The ~~benefits~~Bankruptcy Court issued a final order approving the settlement on October 16, 2003. As a result of this settlement, the ~~transfer~~Company recorded a loss of ~~power~~$1,003 ~~supply~~in the quarter ended ~~production~~June 30, ~~are~~2003. ~~beginning~~At toSeptember 30, be2003, ~~realized~~as a result of the issuance of the final order approving the settlement, the Company recorded a reduction in ~~fiscal~~its receivables ~~2003~~from ~~resulting~~related parties of $2,786, a reduction in anits liabilities ~~improving~~subject ~~gross~~to ~~margin~~compromise of $1,463 and a reduction in its special charge accrual of $1,323.

Marketing and Selling Expenses. Marketing and selling expenses decreased 2.4% to $5,457 in the third quarter of fiscal 2003 from $5,592 in the third quarter of fiscal 2002. As a percentage of net sales, marketing and selling expenses declined to 14.6% in the third quarter of fiscal 2003 from 16.7% in the third quarter of fiscal 2002.

Research and Development Expenses. Research and development expenses increased 34.4% in the third quarter of fiscal 2003 to $2,055 from $1,529 in the third quarter of fiscal 2002. 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) 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; (iii) continual development of new materials for the world’s major lighting manufacturers; and, (iv) development and testing of electronic and electromagnetic power supply systems. As a percentage of net sales, research and development expenses increased to 5.5% in the third quarter of fiscal 2003 from 4.6% in the third quarter of fiscal 2002. In spite of the Company’s commitment to generate positive operating cash flow,

~~the~~Results ~~Company~~of ~~expects~~Operations to– ~~continue~~Selected toItems ~~make substantial expenditures on research and development to enhance its position~~ as ~~the~~a ~~leading~~Percentage ~~innovator~~of inNet ~~the metal~~Sales ~~halide lighting industry.~~

~~General~~ The ~~and~~following ~~Administrative~~table ~~Expenses.~~sets ~~General and administrative expenses of $2~~forth,~~628~~ ~~were~~as ~~27.0%~~a ~~lower~~percentage ~~in the third quarter~~ of ~~fiscal~~net ~~2003~~sales, ~~compared~~certain toitems ~~$3,602~~ in the ~~third~~Company’s ~~quarter~~Condensed ofConsolidated ~~fiscal~~Statements ~~2002.~~of ~~The~~Operations ~~reduction~~for ~~was~~the ~~primarily due to a~~indicated ~~reduction in corporate costs including salaries, professional services and~~periods: ~~directors and officers insurance.~~

Provision for Loan Impairment. In the quarter ended March 31, 2002, the Company increased the valuation reserve for an impaired loan by $900 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 2003 and 2002.


		Three Months Ended
		September 30,

		2003			2002

Net sales			100.0	%		100.0	%




Costs and expenses:




	Cost of sales		61.5			64.1




	Marketing and selling		16.1			16.8




	Research and development		4.2			4.9




	General and administrative		9.4			9.6




	Gain on sale of property		—			(0.2	)




	Amortization of intangible assets		0.3			0.3

Income from operations			8.5			4.5




Other income (expense):




	Interest expense		(10.4	)		(8.3	)




	Interest income		0.3			0.4




	Income from investments		0.0			—




	Reorganization expenses		(17.1	)		—

Income (loss) before income taxes and minority interest			(18.7	)		(3.4	)




Income tax expense			0.3			0.8

Income (loss) before minority interest			(19.0	)		(4.2	)




Minority interest in income of consolidated subsidiary			(0.4	)		(0.2	)

Net income (loss)			(19.4	%)		(4.4	%)

~~Refinancing~~Factors ~~and~~that ~~Non-Recurring~~have ~~Expenses.~~affected ~~These expenses, totaling $84 in~~ the ~~quarter~~ ~~ended~~results ~~March 31,~~of ~~2003,~~operations ~~reflect~~for the ~~cost~~first ofquarter ~~consultants, investment~~of ~~bankers~~fiscal ~~and~~2003 ~~attorneys~~as ~~related~~compared to the ~~Company’s~~first ~~efforts~~quarter toof ~~refinance~~fiscal ~~its~~2002 ~~Bank Credit~~are ~~Facility and address its capital structure~~discussed below.

~~Amortization~~Quarter ofEnded ~~Intangible~~September 30, ~~Assets. Amortization expense of $86 in the third quarter of fiscal~~ 2003 ~~was~~Compared ~~comparable~~with toQuarter ~~amortization~~Ended ~~expense~~September 30, ~~of $83 in the third quarter of fiscal~~ 2002.

~~Income~~Net ~~(Loss) from Operations~~Sales. AsNet asales ~~result~~decreased of2.2 ~~the~~% ~~items~~to ~~noted above~~$32,832 ~~the Company realized income from operations~~ in the ~~third~~first quarter of fiscal ~~2003 of~~ ~~$3,907~~2004 ~~as compared to a loss~~ from ~~operations of~~ $~~(847)~~33,587 in the ~~third~~first quarter of fiscal ~~2002~~2003. ~~The~~First ~~income~~quarter ~~from~~metal halide ~~operations~~sales indecreased ~~the~~3% ~~third~~to ~~quarter~~$25,162 ofcompared ~~fiscal~~with ~~2003 includes~~$25,838 ~~refinancing~~in ~~and~~the ~~non-recurring~~same ~~items~~period last ~~of $84~~year. ~~The~~This ~~loss~~decrease ~~from operations~~ in ~~the~~metal ~~third~~halide ~~quarter~~sales ofis ~~fiscal~~the ~~2002~~result ~~includes~~of ~~the~~a ~~provision~~10% ~~for~~decrease in ~~loan~~U.S. ~~impairment of~~metal ~~$900~~halide sales.

~~Interest~~Fiscal ~~Expense.~~2004 ~~Interest~~first ~~expense~~quarter ~~increased~~sales toof ~~$2,722 in~~ the ~~third~~Company’s ~~quarter~~second-generation ofmetal halide ~~fiscal~~lighting ~~2003~~product ~~from $2~~line,~~559~~ inUni-Form® ~~the~~pulse ~~third~~start, ~~quarter~~declined of11% ~~fiscal~~to ~~2002.~~$7,449 ~~The Company~~from ~~accrued interest on its~~ $~~100~~8,~~000~~378 ofin 8%the ~~Senior~~comparable ~~Notes~~quarter ~~through~~a ~~the~~year ~~end~~ago. Sales of ~~the~~APL materials decreased ~~quarter,~~3% ~~however~~over the ~~semi-annual~~same ~~interest~~quarter ~~payments~~a ~~due~~year ~~September 16~~ago. Geographically, ~~2002~~these ~~and~~materials sales ~~March 15,~~decreased ~~2003~~13% ~~were~~in ~~not~~the ~~made~~U.S. ~~The~~and ~~increase~~increased in3% ~~interest~~outside ~~expense~~the ~~was~~U.S. ~~due~~Non-metal ~~to a~~halide ~~slight~~lighting ~~increase~~sales inremained ~~interest~~flat ~~rates~~compared ~~offset~~with bythe ayear ~~slight~~ago ~~reduction in debt outstanding~~period.

~~Interest~~Lighting ~~Income.~~sales ~~Interest~~inside ~~income~~the ~~increased~~U.S. todecreased ~~$140~~9% in the ~~third~~first quarter of fiscal ~~2003~~2004 as ~~from~~compared ~~$82~~to inthe same period a year ago. Lighting sales outside the ~~third~~U.S. increased ~~quarter~~5% ofin ~~fiscal~~total, ~~2002~~but were flat excluding the production equipment sales into China.

Income (Loss) from Investments. The income (loss) from investments in the third quarter of fiscal 2003 of $(104) represents the equity loss from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products. The income (loss) from investments in the third quarter of fiscal 2002 of $(2,121) consists of a loss on the sale of a preferred stock investment in Venture Lighting Japan of ($2,007) and an equity loss of $(114) from the Company’s investment in Fiberstars.

Reorganization Expenses. Reorganization expenses, totaling $3,963 in the third quarter, 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.

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 $(2,742) in the third quarter of fiscal 2003 as compared to a loss before income taxes, minority interest and cumulative effect of $(5,445) in the third quarter of fiscal 2002. The loss in the third quarter of fiscal 2003 includes refinancing and non-recurring items of $84 and reorganization expenses of $3,963. The

~~loss~~Pricing in ~~third~~the ofmetal ~~fiscal~~halide ~~2002~~lighting ~~includes~~business ~~the~~is ~~provision~~competitive, and prices for the ~~loan~~Company’s ~~impairment~~products ofhave ~~$900~~remained ~~and~~flat ~~a loss~~or ondeclined ~~the~~slightly. ~~sale~~The introduction of ~~the~~new ~~preferred~~products ~~stock~~has ~~investment~~helped ofto ~~$2,007~~stabilize the Company’s product pricing.

~~Income~~DSI’s ~~Tax~~telecommunication ~~Expense.~~product ~~Income~~sales ~~tax~~for ~~expense~~the ~~was~~first quarter of fiscal 2003 were $~~224~~196, ~~for~~an increase of 32% from $148 in the ~~third~~first quarter of fiscal 2003. asSales of ~~compared~~DSI’s non-telecom materials and equipment declined 6% to $~~152~~3,184 in the ~~third~~ first quarter of fiscal ~~2002.~~2004 ~~The income~~from ~~tax~~$3,387 ~~expense~~ in the ~~third~~first ~~quarters~~quarter of fiscal 2003. ~~and~~In spite ~~2002~~of ~~related~~this ~~to certain~~slight ofdecline, the Company’s ~~foreign~~is ~~operations~~expecting DSI to experience moderate growth in fiscal 2004.

AtCost ~~June 30~~of Sales. Cost of sales decreased 6.3% to $20,179 ~~2002~~in the first quarter of fiscal 2004 from $21,537 in the ~~Company~~first ~~had~~quarter ~~net~~of ~~operating~~fiscal ~~loss~~2003. ~~carryforwards~~As a percentage of ~~$96~~net sales,~~923 available~~ tocost ~~reduce~~of ~~future~~sales ~~United~~decreased ~~States~~to ~~federal~~61.5% ~~taxable~~in ~~income,~~the ~~which~~first ~~expire~~quarter inof ~~varying~~fiscal ~~amounts~~2004 from ~~2008~~64.1% toin ~~2022~~the first quarter of fiscal 2003. The ~~Company~~reduction ~~also~~in cost ~~had~~of asales ~~capital~~as ~~loss carryforward~~a percentage of ~~approximately~~sales ~~$35,000~~is ~~available~~primarily due to ~~reduce~~the ~~future~~transfer ~~capital~~of ~~gains.~~lamp ~~This~~and ~~carryforward~~power ~~expires~~supply production to India and improvements in ~~2007~~cost management.

~~The~~Marketing ~~Company~~and ~~also~~Selling ~~has~~Expenses. ~~research~~Marketing and ~~development~~selling ~~credit~~expenses ~~carryforwards~~decreased ~~for tax~~6.0% ~~purposes~~to ~~of approximately~~ $35,~~818,~~301 ~~which~~in ~~expire~~the ~~2008~~first toquarter ~~2015.~~of ~~Additionally~~fiscal 2004 from $5,637 in the first quarter ~~conjunction~~of ~~with~~fiscal ~~the~~2003. ~~Alternative~~As ~~Minimum~~a ~~Tax~~percentage ~~(“AMT”)~~of ~~rules~~net sales, ~~the~~marketing ~~Company~~and ~~had~~selling expenses ~~available~~declined ~~AMT~~to ~~credit~~16.1% ~~carryforwards~~in ~~for~~the ~~tax~~first ~~purposes~~quarter of ~~approximately~~fiscal ~~$98,~~2004 ~~which~~from 16.8% in the first ~~may~~quarter beof ~~used~~fiscal ~~indefinitely~~2003 due to ~~reduce~~an ~~regular~~emphasis ~~federal~~on ~~income~~cost ~~taxes~~reduction.

~~Also~~Research atand ~~June~~Development Expenses. Research and development expenses decreased 15.2% in the first quarter of fiscal 2004 to $1,386 from $1,634 in the first quarter of fiscal 2003. Research and development expenses incurred related to: (i) 30expansion and continued improvement of the line of Uni-Form® pulse start lamps (with improved energy efficiency, ~~2002~~quicker starting and restarting and a more compact arc source, which improves the ~~Company~~light ~~had~~and ~~foreign~~reduces ~~net~~material ~~operating~~costs) intended ~~loss~~to ~~carryforwards~~replace many first generation metal halide lamps in industrial and commercial applications; (ii) continual development of new materials for ~~tax~~the world’s ~~purposes~~major ~~totaling~~lighting $1manufacturers; (iii) development and testing of electronic and electromagnetic power supply systems; and,~~375~~ ~~that~~(iv) improving ~~expire~~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 4.2% in ~~varying~~the ~~amounts~~first quarter of fiscal 2004 from 4.9% in the first quarter of fiscal 2003. In spite of the Company’s commitment to generate positive operating cash flow, the Company expects to ~~2007~~continue to make substantial expenditures on research and ~~$7,268~~development ~~that~~to enhance ~~have~~its noposition ~~expiration~~as ~~dates~~the leading innovator in the metal halide lighting industry.

~~Nine~~General ~~Months~~and ~~Ended~~Administrative ~~March 31~~Expenses. General and administrative expenses of $3,089 were 4.5% lower in the first quarter of fiscal 2004 compared to $3,233 in the first quarter of fiscal 2003. ~~Compared~~The ~~with~~reduction ~~Nine~~was ~~Months~~primarily ~~Ended~~due ~~March 31~~to a reduction in corporate costs, ~~2002~~primarily professional services.

~~Net~~Gain ~~Sales.~~on ~~Net~~Sale ~~sales decreased 18.2% to $109,624 in the nine months~~ of ~~fiscal 2003 from $134,025 in the nine months of fiscal 2002~~Property. The ~~decrease~~Company inrecorded ~~sales~~a ~~is primarily~~gain ~~due~~on to the sale of ~~the fixture subsidiaries in December 2001.~~property ~~Excluding the fixture subsidiaries, sales for the nine months~~ of ~~fiscal 2003 were~~ $~~109,624~~62 ~~compared~~in ~~with $98,941 for~~ the ~~nine~~first ~~months~~quarter of fiscal ~~2002.~~2003 ~~Metal halide~~related ~~sales, excluding the fixture subsidiaries, increased 14%~~ to ~~$85,907 for~~ the ~~nine~~sale ~~months~~ of ~~fiscal~~a ~~2003~~building ~~compared with $76,352~~ in ~~the same period last~~ ~~year. This increase in metal halide sales is the primarily the result of the sale of metal halide lamp production equipment into China for $3~~Middletown,~~319~~ ~~and~~Rhode ~~lamp and~~Island ~~ballast~~that ~~sales~~formerly toserved ~~the~~as ~~former~~a fixture ~~subsidiaries that are now external~~manufacturing ~~sales~~facility. ~~Excluding these two items, metal halide sales increased 3% in the nine~~ ~~months of fiscal 2003 compared to the year-ago period.~~

~~Excluding~~Amortization ~~the~~of ~~fixture~~Intangible ~~subsidiaries,~~Assets. ~~fiscal~~Amortization ~~2003~~expense ~~nine month sales~~ of ~~the Company’s second-generation metal halide lighting product line, Uni-Form® pulse start, grew 15% to~~ $~~25,552~~88 ~~from $22,167~~ in the ~~comparable year ago period.~~first ~~This~~quarter ~~increase~~of isfiscal ~~due~~2004 inwas ~~part~~comparable to ~~sales~~amortization toexpense ~~the former fixture subsidiaries that are now external sales. Sales~~ of ~~APL~~$85 ~~materials increased 18% over the same period a year ago. Geographically, these sales of materials increased 21%~~ in ~~the~~ ~~U.S. and 16% outside~~ the ~~U.S. Excluding the fixture subsidiaries,~~ ~~non-metal~~first ~~halide~~quarter ~~lighting sales declined 1%, due to the managed decline~~ of ~~some non-metal~~fiscal ~~halide product sales offset by increases in sales of more profitable non-metal halide materials~~2003.

~~Excluding~~Income ~~the~~from ~~fixture subsidiaries, lighting sales inside the U~~Operations.S. ~~increased~~As ~~7% in~~a ~~the~~result ~~nine months~~ of ~~fiscal 2003 as compared to~~ the ~~same~~items ~~period~~noted aabove, ~~year ago. Excluding sales to~~ the ~~former fixture subsidiaries that are now external sales,~~Company ~~lighting~~realized ~~sales~~income ~~inside~~from ~~the~~operations ~~U.S. decreased 1%~~ in the ~~nine~~first ~~months~~quarter of fiscal ~~2003 compared~~2004 ~~with the nine months~~ of ~~fiscal 2002. Lighting sales outside the U.S.~~$2,789 ~~increased~~as ~~14%~~compared into ~~total~~$1,523 6%in ~~excluding~~ the ~~equipment~~year ~~sales~~ago period.

~~Pricing~~Interest Expense. Interest expense increased to $3,420 in the ~~metal~~first ~~halide~~quarter ~~lighting~~of fiscal ~~business~~2004 isfrom ~~competitive~~$2,789 ~~and~~in ~~prices for~~ the first quarter of fiscal 2003. The Company’s continued ~~products~~to ~~have~~accrue ~~remained~~interest ~~flat~~on orits ~~declined~~$100,000 ~~slightly~~of 8% Senior Notes through September 30, 2003. The increase in interest expense is primarily due to the ~~introduction~~amortization of ~~new~~deferred ~~products~~loan ~~has~~costs ~~helped~~related to ~~stabilize~~ the Company’s ~~product~~Replacement DIP ~~pricing~~Facility that totaled $558 in the first quarter of fiscal 2004.

~~DSI’s~~Interest ~~telecommunication~~Income. ~~product~~Interest ~~sales~~income ~~for~~decreased ~~the~~to ~~nine~~$83 ~~months~~in ofthe ~~fiscal~~first ~~2003~~quarter ~~were~~of ~~$506,~~fiscal a2004 ~~decrease of 42%~~ from $~~866~~138 in the ~~nine~~first ~~months~~quarter of fiscal ~~2002.~~2003 ~~The decrease~~due ~~is attributed~~ to the ~~overall decline in the telecommunications~~settlement ~~industry.~~with ~~However~~Ruud Lighting, ~~sales~~Inc ~~of DSI’s non-telecom materials~~ and ~~equipment increased~~its ~~28% to $9~~shareholders,~~559~~ inwhich ~~the~~lowered ~~nine months of fiscal 2003 from $7,484 in~~ the ~~nine~~ ~~months~~amount of ~~fiscal 2002 as the Company capitalized on DSI’s expertise in~~notes ~~thin-film~~receivable ~~optical~~from ~~coatings~~related ~~and optical coating equipment manufacturing opportunities~~parties.

~~Cost~~Income offrom ~~Sales~~Investments. ~~Cost~~The ofincome ~~sales~~from ~~decreased~~investments ~~21.7% to $68,774~~ in the ~~nine~~first ~~months~~quarter of fiscal ~~2003~~2004 ~~from~~of $~~87,859~~16 inand the ~~nine~~first ~~months~~quarter of fiscal ~~2002. The decrease is primarily attributable to the sale of the fixture subsidiaries. As a percentage of net sales, cost of sales decreased to 62.7% in the nine months of fiscal~~ 2003 ~~from 65.6% in the nine months~~ of ~~fiscal~~$1 ~~2002.~~represents ~~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~~equity ~~supply~~loss ~~production to India, and unfavorable overhead variances resulting~~ from the ~~decrease in production due to the~~ Company’s ~~commitment~~investment ~~to significant reductions~~ in ~~inventory~~Fiberstars, ~~levels~~Inc., ~~The~~a ~~benefits~~marketer ofand distributor ~~the transfer~~ of ~~power~~fiber ~~supply production~~optic ~~are~~lighting ~~beginning to be realized in fiscal 2003 resulting in an improving gross margin~~products.

~~Marketing~~Reorganization ~~and Selling~~ Expenses. ~~Marketing~~Reorganization ~~and selling~~ expenses, ~~decreased 32.3%~~totaling to $165,~~808~~623 in the ~~nine months of fiscal 2003 from $24~~first quarter,~~812~~ inreflect the ~~nine months~~cost of ~~fiscal 2002. As a percentage of net sales~~consultants, ~~marketing~~investment bankers and ~~selling~~attorneys ~~expenses~~related ~~declined~~ to ~~15.3% in~~ the ~~nine~~Company’s ~~months~~efforts ofto ~~fiscal~~reorganize ~~2003~~under ~~from~~Chapter 11 18Bankruptcy.~~5% in the~~ ~~nine months of fiscal 2002.~~ The ~~decrease~~Company inwill ~~both~~continue ~~amount~~to ~~and~~incur ~~percentage~~similar ofcosts ~~net sales~~in ~~is primarily attributable to~~ the ~~sale~~next ~~of the fixture subsidiaries, as marketing and selling expenses were higher as a percentage of net sales for these subsidiaries~~quarter.

~~Research~~Income ~~and~~(Loss) ~~Development~~before ~~Expenses.~~Income ~~Research~~Taxes and ~~development~~Minority ~~expenses declined 7~~Interest.9% inThe ~~the~~Company ~~nine~~had ~~months~~a loss ofbefore ~~fiscal~~income ~~2003~~taxes toand ~~$6,321~~minority ~~from~~interest of $(6,~~863~~155) in the ~~nine~~first ~~months~~quarter of fiscal ~~2002.~~2004 ~~The~~as ~~decrease~~compared ~~is primarily attributable~~ to ~~the~~a ~~sale~~loss ofbefore ~~the fixture~~income ~~subsidiaries.~~taxes ~~Research~~ and ~~development~~minority ~~expenses incurred related to:~~interest ~~(i) expansion and continued improvement~~ of ~~the line of Uni-Form® pulse start lamps~~ $(~~with improved energy efficiency~~1, ~~quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs~~127) ~~intended~~ ~~to replace many first generation metal halide lamps and fixtures~~ in ~~industrial~~ ~~and commercial applications; (ii) improving~~ the ~~coating~~first ~~process~~quarter of ~~optical~~ ~~thin-films~~fiscal to broaden the applications, developing new thin-film materials, and using coatings to develop improvements to lighting and telecommunications technologies; (iii) continual development of new materials for the world’s major lighting manufacturers; and, (iv) development and testing of electronic and electromagnetic power supply systems2003. AsThe aloss ~~percentage of net sales, research and development expenses increased to 5.8%~~ in the ~~nine~~first ~~months~~quarter of fiscal ~~2003~~2004 ~~from~~includes ~~5.1%~~reorganization inexpenses ~~the nine months~~ of ~~fiscal 2002. In spite of the Company’s commitment to generate positive operating cash flow~~$5, ~~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~~623.

~~General~~Income ~~and~~Tax ~~Administrative Expenses~~Expense. ~~General~~Income ~~and~~tax ~~administrative~~expense ~~expenses~~was of $~~8,934~~88 ~~were~~for ~~24.7% lower in~~ the ~~nine~~first ~~months~~quarter of fiscal ~~2003~~2004 as compared to $~~11,857~~ 277 in the ~~nine~~first ~~months~~quarter of fiscal ~~2002~~2003. The ~~decrease is primarily attributable to~~ ~~the~~income ~~sale~~tax ofexpense ~~the~~in ~~fixture~~both ~~subsidiaries~~quarters ~~and~~related ato ~~reduction~~certain of ~~corporate~~the ~~costs, including~~Company’s ~~salaries and professional services~~foreign operations.

At June 30, 2003, the Company had net operating loss carryforwards of $114,000 available to reduce future United States federal taxable income, which expire in varying amounts from 2008 to 2023. On August 15, 2003, Saratoga Lighting 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 will be effective with the fiscal year ending June 30, 2004. The Company also had a capital loss carryforward of approximately $40,118 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 for tax purposes of approximately $3,818, which expire 2008 to 2015. Additionally, in conjunction with the Alternative Minimum Tax (“AMT”) rules, the Company had available AMT credit carryforwards for tax purposes of approximately $97, 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, 2003, the Company had foreign net operating loss carryforwards for tax purposes totaling $1,562 that expire in 2006 and 2007 and $6,890 that have no expiration dates.

~~Provision~~Liquidity ~~for~~and ~~Loan~~Capital ~~Impairment. In the quarter ended December 31, 2002, the~~Resources ~~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 the first nine months of fiscal 2002, the Company increased the valuation reserve related to this loan by $5,500. No interest income was recorded or paid on the loan in fiscal 2003 and 2002.

~~Refinancing~~The Company’s sources of liquidity include cash and ~~Non~~cash equivalents from operations and amounts primarily available under its Debtor-~~Recurring~~in-Possession credit ~~Expenses~~facility (the “Replacement DIP Facility”). ~~These~~See ~~expenses~~Note F to the Condensed Consolidated Financial Statements for a description of the Replacement DIP Facility. The payment of interest on the $100,000 ~~totaling~~8% Senior Notes ($212,~~387~~333 accrued ~~for~~at September 30, 2003) has been suspended by the Chapter 11 bankruptcy filing on February 5, 2003. While the ~~nine~~Company ~~months~~did ofnot ~~fiscal~~make the semi-annual interest payments due September 16, 2002, March 15, 2003, ~~reflect~~and September 15, 2003, its liquidity will continue to be impacted by the ~~cost~~uncertainty of ~~consultants~~the bankruptcy proceedings, ~~investment bankers~~including restructuring and ~~attorneys~~settlement of prepetition obligations, the restructuring of the Senior Notes, the payment of professional fees related to the bankruptcy, the terms of the Replacement DIP Facility and the ability to obtain other financing. Also, liquidity will be affected by, among other things, the demand for the Company’s ~~efforts~~products, tothe ~~refinance~~availability ~~its~~and amount ~~Bank~~of trade credit and other business and operational issues. As a result ~~Credit~~of ~~Facility~~these uncertainties, there can be no assurance that existing or future sources of liquidity will be adequate. However, management believes that the Company’s reorganization and ~~address~~refinancing matters can be resolved in the Chapter 11 Bankruptcy filing and based on its ~~capital~~current ~~structure~~estimates, the Company should have adequate liquidity pending the acceptance of a Plan of Reorganization by its creditors.

~~Gain~~On June 30, 2003, the Debtors obtained the Replacement DIP Facility from two financial institutions and repaid the secured debt owed to the existing bank group. The Replacement DIP Facility is comprised of an $18,500 revolving credit loan, a $5,000 Term A loan and a $13,500 Term B loan. Interest rates on ~~Settlement~~the revolving credit loan are based on Libor plus 3% or Prime plus 1% with a minimum of ~~Lawsuit~~5.25% In(5.25% ~~fiscal~~at ~~2002~~September 30, 2003). Interest rates on the ~~Company~~Term ~~recorded~~A loan aare ~~gain~~based on Libor plus 5% or Prime plus 2% (6% at September 30, 2003). Interest rates on the ~~settlement~~Term B loan are based on Prime plus 6% with a minimum of 10.25% ~~lawsuit~~(10.25% ~~totaling~~at ~~$554~~September 30, ~~net~~2003). The Term A loan requires principal payments of ~~legal~~$83 ~~fees~~per month beginning October 1, as2003, while the Term B loan requires no principal payments. Availability of borrowings under the revolving credit loan is determined by the Company’s eligible account receivables and inventories. The Replacement DIP Facility carried a ~~result~~closing fee of $550. The Replacement DIP Facility originally extended to October 31, 2003 and does not require the Debtors to sell assets. The Company secured an amendment to the ~~enforcement~~Replacement DIP Facility dated September 16, 2003, that extends the term to February 28, 2004, which would serve to extend the Replacement DIP Facility beyond the anticipated date of emergence from bankruptcy. The Bankruptcy Court issued a ~~non-compete~~final ~~agreement~~order ~~with~~approving ~~several~~the ~~former~~extension ~~employees~~on October 23, 2003. This facility must be replaced at the time of aemergence from bankruptcy proceedings ~~subsidiary~~or February 28, 2004, whichever occurs first. The Debtors expect that the lenders under the Replacement DIP Facility will make replacement financing available at the time of the Debtors’ emergence from bankruptcy proceedings. A default of the Replacement DIP facility occurred upon the change in control that resulted from GE’s sale of its equity interests in the Company to Saratoga Lighting on August 15, 2003. The Company obtained a waiver for this default.

~~Gain~~The onReplacement ~~Sale~~DIP Facility contains certain affirmative and negative covenants customary for this type of ~~Property~~agreement, prohibits cash dividends, and includes financial covenants related to Sales, Collections, Disbursements, Minimum Adjusted EBITDA, Debt Ratio, and Capital Expenditures. ~~The~~At September 30, 2003, the Company ~~recorded~~was ain ~~gain~~compliance onwith the ~~sale~~terms of ~~property~~the Replacement DIP inFacility. The principal security for the ~~first~~Replacement ~~quarter~~DIP ofFacility ~~fiscal~~is substantially ~~2003~~all of ~~$62~~the ~~related~~personal toproperty of the ~~sale~~Company and each of aits ~~building~~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 ~~Middletown,~~the ~~Rhode~~United ~~Island~~Kingdom ~~that~~and ~~formerly~~is ~~served~~cross-collateralized asand asecured ~~fixture~~with ~~manufacturing~~the revolving ~~facility~~credit loan.

Special Charges and Asset Impairment. 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.

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 continuing 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 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 in the nine months fiscal 2003 and the nine months of fiscal 2002 was comparable.

Income (Loss) from Operations. As a result of the items noted above, the Company realized a loss from operations in the nine months of fiscal 2003 of $(3,208) as compared to a loss from operations of $(11,574) in the nine months of fiscal 2002. The loss from operations in the nine months of fiscal 2003 includes the provision for loan impairment of $2,700, refinancing and non-recurring items of $2,387, special charges and asset impairment of $6,714, and a gain on sale of property of $62. The loss from operations in the nine months of fiscal 2002 includes the provision for loan impairment of $5,500, special charges and asset impairment of $9,697, and the gain on settlement of lawsuit of $554.

Interest Expense. Interest expense increased to $8,732 in the nine months of fiscal 2003 from $8,616 in the nine months of fiscal 2002. The Company accrued interest on its $100,000 of 8% Senior Notes through the end of the nine-month period, however the semi-annual interest payment due September 16, 2002 and March 15, 2003 were not made. The increase in interest expense is attributable to a slight increase in interest rates and an increase of $499 in bank and legal costs related to the Company’s Bank

~~Credit~~Cash ~~Facility,~~decreased ~~Forbearance~~$166 ~~Agreement~~during ~~and~~the ~~related~~first ~~amendments~~quarter ~~and~~of ~~DIP~~fiscal ~~Facility,~~2004. ~~offset~~Cash provided by operating aactivities ~~reduction~~totaled $800, cash used in investing activities totaled ~~debt~~$988, ~~outstanding~~and ~~from~~cash ~~the~~provided ~~sale~~by offinancing ~~the~~activities ~~fixture~~totaled ~~subsidiaries~~$22.

~~Interest~~Net ~~Income~~Cash Provided by Operating Activities. ~~Interest~~Net ~~income~~cash ~~increased~~provided toby operating activities totaled $~~415~~800 in ~~the~~first ~~nine~~quarter ~~months~~ of fiscal ~~2003~~2004 ~~from~~and $~~144~~3,391 in the ~~nine~~first quarter ~~months~~ of fiscal ~~2002~~2003. The ~~increase~~most significant difference between the two quarters is that the Company made cash payments of $3,900 related to ~~attributable~~reorganization expenses in fiscal 2004 as compared to ~~interest~~no ~~earned~~such onpayments in the first quarter of fiscal 2003. The Company did not make the $64,000 ofpayments ~~notes~~due September 15, ~~receivable~~2002 ~~created~~or ~~by the~~September 15, ~~sale~~2003 ofrelated to the ~~fixture~~Company’s ~~subsidiaries~~$100,000 inof 8% ~~December~~Senior ~~2001~~Notes.

~~Income~~Net Cash Provided by (~~Loss~~Used in) ~~from~~Investing ~~Investments~~Activities. ~~The~~In ~~income~~the ~~(loss) from~~first ~~investments~~quarter ~~in the~~of ~~nine~~fiscal ~~months~~2004, ofnet ~~fiscal~~cash ~~2003~~used ofin investing activities totaled $~~(756)~~988, ~~consists~~all of anwhich related ~~equity~~to ~~loss~~capital ~~from~~expenditures ~~the Company’s~~for ~~investment~~plant inand ~~Fiberstars~~equipment, ~~Inc.,~~primarily amachinery and ~~marketer~~equipment ~~and~~to ~~distributor~~improve ofproduction ~~fiber~~processes, which should result in increased ~~optic~~productivity ~~lighting~~and ~~products~~capacity. The ~~Fiberstars’~~Company ~~loss~~plans ~~was~~to ~~primarily~~limit ~~due~~its tocapital ~~a provision~~expenditure ~~related~~program tofor athe ~~valuation~~next ~~allowance~~twelve ~~recorded~~months ~~against~~and ~~the~~estimates ~~Company’s~~its ~~deferred~~capital ~~tax~~expenditures will ~~assets~~approximate $5,400 in fiscal 2004. ~~The~~Future ~~income~~capital ~~(loss) from~~expenditures ~~investments~~beyond inthis level will be discretionary, as the ~~nine~~Company ~~months~~presently ofhas ~~fiscal~~sufficient ~~2002~~operating ofcapacities ~~$(2,332)~~to ~~consists~~support several years of asales ~~loss~~growth onat ~~the~~its ~~sale~~historical ofrates. The aoutflow ~~preferred~~for ~~stock~~capital ~~investment~~expenditures in ~~Venture~~ ~~Lighting~~the ~~Japan~~first quarter of ~~$(2,007)~~fiscal ~~and~~2003 anwas partially ~~equity~~offset ~~loss~~by ofthe ~~$(325)~~sale ~~from~~of the ~~Company’s~~ ~~investment~~building in ~~Fiberstars~~Middletown, Rhode Island that formerly served as a fixture manufacturing facility.

~~Reorganization~~Net ~~Expenses.~~Cash ~~Reorganization~~Provided ~~expenses,~~by ~~totaling~~(Used ~~$3,963~~ in) ~~the~~Financing ~~nine months~~Activities. ofIn ~~fiscal 2003, reflect~~ the ~~cost~~first quarter of fiscal ~~consultants~~2004, ~~investment~~net ~~bankers~~cash ~~and attorneys~~provided ~~related~~by tofinancing ~~the~~activities ~~Company’s~~was ~~efforts~~$22, torepresenting net ~~reorganize~~proceeds ~~under~~from ~~Chapter 11 Bankruptcy.~~the ~~The~~Replacement ~~Company~~DIP ~~will~~Facility ~~continue~~of to$1,057 ~~incur~~net ~~similar~~of ~~costs~~payments ~~for~~of long-term ~~the~~debt ~~next several~~of ~~quarters~~$1,035.

~~Income (Loss) before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change.~~ The ~~Company had a loss before income taxes, minority~~ interest-bearing ~~and~~obligations ~~cumulative effect~~ of ~~accounting~~the ~~change~~Company oftotaled $~~(16~~134,~~244)~~548 inas ~~the nine~~of ~~months~~September 30, ~~of fiscal~~ 2003 ~~as compared to a loss before income taxes~~, ~~minority interest~~ and ~~cumulative~~consisted ~~effect~~ of: ~~accounting change of~~ $~~(22~~26,~~151)~~183 ~~in the nine months~~ of ~~fiscal~~borrowings ~~2002.~~under ~~The loss in~~ the ~~nine months of fiscal 2003 includes a~~DIP ~~provision~~Facility; ~~for loan impairment of~~ $2100,~~700,~~000 ~~refinancing and non-recurring items~~ of ~~$2,387,~~ ~~special~~8% ~~charges~~Senior ~~and~~Notes; ~~asset~~mortgages ~~impairment~~ of $64,~~714,~~912; a ~~gain~~promissory ~~on sale of~~note ~~property~~ of $621,970; and ~~reorganization expenses of $3~~,~~963.~~ ~~The~~obligations ~~loss in the nine months~~ of ~~fiscal~~foreign ~~2002~~subsidiaries ~~includes the provision for loan impairment of $5,500, special charges~~ and ~~asset~~other ~~impairment~~debt of $91,~~697, a gain on settlement of lawsuit of $554, a loss on the sale of the preferred stock investment of $2,007, and a gain from sale of fixture subsidiaries of $227~~483.

~~Income~~Pursuant ~~Tax~~to ~~Expense.~~an ~~Income~~agreement ~~tax~~dated ~~expense~~October 8, ~~was~~1998, ~~$658~~as ~~for~~amended, between the ~~nine~~Company and ~~months~~its ofChairman ~~fiscal~~and Chief Executive Officer (the “CEO”), the Company, ~~2003~~following asapproval ~~compared~~by the Company’s Board of Directors, has a loan recorded for $14,144 to its CEO, including principal of $~~386~~12,789 inand accrued interest. The proceeds of the ~~nine~~loan ~~months~~were used by the Company’s CEO to reduce the principal balance outstanding of ~~fiscal~~margin ~~2002~~loan accounts. ~~The~~In ~~income~~connection ~~tax~~with the loan, the ~~expense~~Company’s inBoard of Directors obtained the ~~nine~~CEO’s ~~months~~agreement to an extension of his ~~fiscal~~employment agreement to December 31, 2003. The margin loans have been fully repaid and ~~2002~~the ~~related~~loan ~~primarily~~agreement toprohibits ~~certain~~the CEO from encumbering his ADLT shares in any manner without the consent of the Company’s ~~foreign~~Board ~~operations~~of Directors.

AtOn ~~June~~July 3026, 2002, the Company ~~had~~and ~~net~~CEO ~~operating~~executed ~~loss~~an ~~carryforwards~~amendment ofto ~~$96,923~~the loan ~~available~~documents, implementing the agreement in principle, reached in January 2002, to extend ~~reduce~~the ~~future~~maturity ~~United~~of ~~States~~the ~~federal~~loan ~~taxable~~to ~~income~~July 31, ~~which~~2007. ~~expire~~Under the terms of the amendment, the CEO will sell certain assets in ~~varying~~an ~~amounts~~orderly ~~from~~manner ~~2008~~to maximize the net proceeds, which will be used to ~~2022~~pay a portion of the loan. The ~~Company~~CEO will ~~also~~continue ~~had~~his a10b5-1 ~~capital~~plan ~~loss~~to sell shares he now owns pursuant to Rule 144 ~~carryforward~~when ofthe ~~approximately~~stock price exceeds $3515 per share. In addition,~~000~~ ~~available~~the CEO is required to ~~reduce~~apply ~~future~~after-tax ~~capital~~cash ~~gains.~~bonuses earned from the Company and the after-tax ~~This~~proceeds ~~carryforward~~of ~~expires~~sales inof ~~2007~~collateral and distributions relating to collateral toward repayment of the loan.

~~The~~Interest ~~Company~~on ~~also~~the ~~has~~loan ~~research~~now ~~and~~accrues ~~development~~at ~~credit~~the ~~carryforwards~~same ~~for~~rate ~~tax purposes~~that ofthe ~~approximately~~Company ~~$3,818,~~pays ~~which~~on ~~expire~~its credit ~~2008~~facility. toInterest ~~2015.~~due ~~Additionally,~~of $169 in ~~conjunction~~ ~~with~~ the ~~Alternative~~first ~~Minimum~~quarter ~~Tax~~of ~~(“AMT”)~~fiscal ~~rules~~2004, $829 ~~the~~in ~~Company~~fiscal ~~had available~~2003 ~~AMT~~and ~~credit~~$674 ~~carryforwards~~in ~~for~~fiscal ~~tax~~2002 ~~purposes~~has ofnot ~~approximately~~been ~~$98,~~paid ~~which~~or recognized as interest income. The loan may be ~~used~~accelerated ~~indefinitely~~if the CEO ceases to ~~reduce~~be ~~regular~~employed by ~~federal~~the ~~income~~Company ~~taxes~~as a result of his voluntary resignation or termination for cause.

Also at June 30, 2002, the Company had foreign net operating loss carryforwards for tax purposes totaling $1,375 that expire in varying amounts from 2003 to 2007 and $7,268 that have no expiration dates.

~~Cumulative~~The ~~Effect~~Company’s ofability ~~Accounting~~to ~~Change.~~collect ~~The~~amounts ~~Company~~due ~~adopted~~according ~~FAS~~to ~~142~~the incontractual ~~the~~terms ~~first~~of ~~quarter~~the ofloan ~~fiscal~~agreement ~~2002~~is ~~and~~largely ~~recorded~~dependent aon ~~cumulative~~the ~~effect~~ultimate realization of proceeds ~~change~~from ~~in accounting~~the ~~principle~~sale ~~for~~of assets owned by the ~~impairment~~CEO, ofincluding ~~goodwill~~the ~~and~~CEO’s ~~other~~investment ~~indefinite~~in ~~lived~~common ~~intangible~~stock ~~assets~~of the Company. When determining the fair value of investments ~~$71~~in common stock,~~171,~~ orthe ~~$(3.04)~~Company ~~per~~considers ~~share,~~both asthe current market ofprice and also volatility in the ~~beginning~~stock ofprice ~~fiscal~~over ~~2002~~the ~~(July 1,~~period ~~2001)~~in which the Company estimates it would take to sell those shares into the market.

~~Liquidity~~In accordance with the provisions of FAS Statement No. 5, Accounting for Contingencies, and ~~Capital~~FAS ~~Resources~~Statement No. 114, Accounting by Creditors for Impairment of a Loan, the Company determined the above loan was impaired and recorded a valuation reserve against the loan. The Company recorded impairment losses of $2,700 in fiscal 2003 and $7,100 in fiscal 2002 reflecting the amount by which the carrying value of the loan exceeded the underlying estimated fair value of the assets available to repay the loan. The Company will recognize recoveries on amounts previously reserved after considering both the fair value of the underlying assets and evidence of cash repayments on the loan.

~~The~~Following the Company’s ~~sources~~voluntary ofChapter 11 ~~liquidity~~filing, ~~include~~the ~~cash~~Company, the CEO and the ~~cash~~Official ~~equivalents~~Unsecured ~~from operations~~Creditors Committee, and ~~amounts~~later, ~~primarily~~the ~~available~~Company, ~~under~~the ~~its~~CEO ~~DIP~~and Saratoga ~~Facility.~~Lighting, ~~See~~have ~~Note~~been F negotiating to ~~the~~reach ~~Notes~~an toagreement ~~Condensed~~pursuant ~~Consolidated~~to which ~~Financial~~the ~~Statements~~CEO ~~for~~would aagree ~~description of~~to pay the ~~DIP~~Company, ~~Facility.~~over ~~The~~time, ~~payment~~an amount equal to the total value of ~~interest~~his assets on the ~~$100,000~~effective 8%date ~~Senior~~of ~~Notes ($8~~the reorganization,~~467~~ ~~accrued~~reduced by atthe ~~March 31,~~amount ~~2003)~~of ~~has~~security ~~been~~interests ~~suspended~~with bypriority over the ~~Chapter 11~~Company’s security ~~bankruptcy~~interests. ~~filing~~During onthe ~~February 5,~~pendency ~~2003.~~of ~~While~~the negotiations, the ~~Company~~CEO ~~did~~has not ~~make the~~made ~~semi-annual~~required ~~interest~~ payments ~~due~~pursuant ~~September 16,~~to ~~2002~~the ~~and~~Loan ~~March 15~~Agreement, ~~2003,~~in ~~its liquidity~~an ~~will~~amount ~~continue~~believed to be in ~~impacted~~excess of $1,000, which is net of an assumed estimated income tax liability owing by the ~~uncertainty~~CEO on account thereof. As part of the ~~bankruptcy~~reorganization, the ~~proceedings~~Company, ~~including~~Saratoga ~~restructuring~~Lighting and ~~settlement~~the ofCEO, ~~prepetition~~have ~~obligations~~agreed in principle, subject to formal approval of the ~~restructuring~~special committee (of independent directors) of the Company’s ~~Senior~~Board ~~Notes~~of Directors, formal documentation and Bankruptcy Court approval of the ~~payment~~treatment of ~~professional~~the ~~fees~~CEO ~~related~~ loan pursuant to a separate motion to be filed with the bankruptcy court, that the ~~terms~~CEO loan documents would be modified to reduce the amount of the ~~DIP~~outstanding ~~Facility~~indebtedness ~~and~~owed by the ~~ability~~CEO to ~~obtain~~an ~~other~~amount ~~financing.~~(the ~~Also,~~“Designated ~~liquidity~~Amount”) ~~will~~equal beto ~~affected~~the ~~by,~~difference ~~among~~between ~~other things,~~ (1) the fair ~~demand~~market ~~for~~value of the ~~Company~~CEO’s ~~products,~~personal assets and (2) the ~~availability~~amounts ~~and~~owing ~~amount~~to other secured creditors of ~~trade~~the ~~credit and~~CEO ~~other~~that ~~business~~hold mortgages, liens and/or ~~operational~~security interests ~~issues.~~upon Asor ain ~~result~~property of ~~these~~the ~~uncertainties~~CEO, on a priority senior to the liens and ~~there~~security ~~can~~interests besecuring nothe ~~assurance~~CEO’s ~~that~~loan ~~existing~~from orthe ~~future~~Company, ~~sources~~to the extent of the ~~liquidity~~fair ~~will~~market ~~be adequate~~value of such property. ~~However~~Additionally, ~~management~~it ~~believes~~is anticipated by the Company that on or before the ~~Company~~effective date of the plan, the proceeds from the CEO’s ~~reorganization~~settlement ~~and~~of litigation of approximately $1,300 (net of any income tax ~~refinancing~~liability ~~matters~~owing ~~can~~by the CEO on account thereof) will be ~~resolved~~paid into the ~~Chapter 11~~Company ~~bankruptcy~~for application ~~filing~~to ~~and~~the CEO loan (the amount of these proceeds are included within ~~based~~the onDesignated ~~its~~Amount). ~~current~~Other ~~estimates,~~than reducing the ~~Company~~amount ~~should~~of ~~have~~the ~~adequate~~CEO ~~liquidity~~loan as ~~pending~~described above, the ~~acceptance~~loan ofwould aotherwise ~~Plan~~remain ofin ~~Reorganization~~full byforce ~~its~~and ~~creditors~~effect.

OnCritical ~~May 27,~~Accounting ~~2003, the Debtors filed a motion seeking Bankruptcy Court~~Policies ~~authorization for the Debtors to obtain a replacement debtor-in-possession~~ facility and the repayment of the pre-petition and post-petition secured debt owed to the existing bank group. The replacement debtor-in-possession facility, with an anticipated closing fee of $550,000, will provide for an amount of total availability that is similar to the existing bank facilities at interest costs that are similar in total to those charged under the current facilities. The replacement debtor-in-possession facility will extend to October 31, 2003 and does not require the Debtors to sell assets. This facility must be replaced at the time of emergence from bankruptcy proceedings or October 31, 2003, whichever occurs first. The Debtors expect that the lenders under the replacement debtor-in-possession facility will make replacement financing available at the time of the Debtors’ emergence from bankruptcy proceedings.

~~Cash~~The ~~increased~~discussion ~~$478~~and ~~during~~analysis ~~the~~of ~~nine~~our ~~months~~financial condition and results of operations ~~fiscal~~is ~~2003~~based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. ~~Cash~~The ~~provided~~preparation byof these financial statements ~~operating~~requires ~~activities~~us ~~totaled~~to $7make estimates and judgments that effect the reported amounts of our assets,~~558~~ liabilities, ~~cash~~revenues ~~used~~and incosts ~~investing~~and ~~activities~~expenses, ~~totaled~~and related $2disclosure of contingent assets and liabilities. On an on-going basis,~~077~~ we evaluate our estimates, including those related to: valuation of accounts and notes ~~cash~~receivable ~~used~~and inloan ~~financing~~receivable ~~activities~~from ~~totaled~~officer, $5valuation of investments,~~003~~ 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

Net Cash Provided by (Used In) Operating Activities. Net cash provided by operating activities totaled $7,558 during the nine months of fiscal 2003 as compared to cash used in operating activities of $989 in the nine months of fiscal 2002. The primary reason for this change was the non-payment of the $8,000 in interest payments due on the Company’s 8% Senior Notes. Net cash provided by operating activities was reduced by cash payments of $3,595 related to the refinancing and reorganization costs.

Net Cash Provided by (Used in) Investing Activities. During the nine months of fiscal 2003, net cash used in investing activities totaled $2,077. Capital expenditures of $3,703 in fiscal 2003 related primarily to machinery and equipment to improve production processes, which should result in increased productivity and capacity. The Company plans to limit its capital expenditure program for the next twelve months and estimates its capital expenditures will approximate $4,000 over the next twelve months. Future

~~capital expenditures beyond this level will be discretionary~~circumstances, as the ~~Company~~results ~~presently~~of ~~has sufficient~~which ~~operating capacities~~form tothe ~~support~~basis ~~several~~for ~~years~~making ofjudgments ~~sales growth at its historical rates.~~about ~~The~~the ~~outflow~~carrying ~~for~~value ~~capital~~of ~~expenditures~~assets ~~during~~and ~~the~~liabilities ~~first~~that ~~six~~are ~~months~~not ~~was~~readily ~~partially~~apparent from ~~offset~~other bysources. ~~the~~Actual ~~sale~~results ofmay ~~the~~differ ~~building~~from inthese ~~Middletown,~~estimates ~~Rhode~~under ~~Island that formerly~~different ~~served~~assumptions asor ~~a fixture manufacturing facility~~conditions.

~~Net~~We ~~Cash~~have ~~Provided~~identified bythe ~~(Used~~following ~~in)~~policies ~~Financing~~as ~~Activities.~~critical ~~During~~to our business operations and the ~~nine~~understanding ~~months~~of our results of operations. For a detailed ~~fiscal~~discussion ~~2003,~~on ~~net~~the ~~cash~~application ~~used~~of inthese ~~financing~~and ~~activities~~other ~~was~~accounting $5policies,~~003.~~ ~~This~~see ~~primarily~~Note ~~represents~~C ~~repayments~~ of ~~bank~~the ~~debt~~“Notes ~~under~~to ~~the~~Consolidated ~~Company’s~~Financial ~~Bank~~Statements” ~~Credit~~in ~~Facility~~the ~~and~~Annual Report on ~~DIP~~Form 10-K ~~Facility~~for the Period Ended June 30, 2003.

~~The~~Valuation ~~interest-bearing obligations~~ of ~~the~~Accounts ~~Company totaled $134,351 as of March 31, 2003,~~ and ~~consisted of: $24,878 of borrowings under the Bank Credit Facility and DIP Facility; $100,000 of 8% Senior~~ Notes; ~~mortgages~~Receivable ~~of $4,966; a promissory note of $1,970;~~ and, ~~obligations~~Loan ofReceivable ~~foreign~~from ~~subsidiaries of $2,537.~~Officer

~~Pursuant~~Management toevaluates anand ~~agreement~~makes ~~dated~~estimates ~~October 8,~~of ~~1998,~~the ascollectibility ~~amended,~~of ~~between~~ the Company’s accounts and ~~its~~notes ~~Chairman~~receivable, ~~and~~including ~~Chief~~unbilled ~~Executive~~accounts ~~Officer~~receivable ~~(the~~related to ~~“CEO”),~~long-term ~~the~~equipment ~~Company~~contracts, ~~following~~ ~~approval~~based byon ~~the~~a ~~Company’s~~combination ~~Board~~ of ~~Directors,~~factors. Management ~~has~~analyzes ahistorical ~~loan~~bad ~~recorded for $14~~debts,~~144~~ tocustomer ~~its CEO~~credit-worthiness, ~~including~~and current ~~principal~~economic oftrends ~~$12,789~~in ~~and~~evaluating ~~accrued~~the ~~interest.~~adequacy ~~The proceeds~~ of the ~~loan~~allowance ~~were~~for doubtful ~~used~~accounts byand ~~the~~whether ~~Company’s~~there ~~CEO~~is toany ~~reduce~~impairment ~~the~~in ~~principal balance~~its ~~outstanding~~notes ofreceivable. In ~~his~~circumstances ~~margin~~where ~~loan~~the ~~accounts.~~Company Inis ~~connection~~aware ~~with~~of ~~the~~a ~~loan, the~~certain ~~Company~~customer’s ~~Board~~inability to ofmeet ~~Directors~~its ~~obtained~~financial ~~the~~obligation, ~~CEO’s~~a ~~agreement~~specific reserve is recorded to anreduce ~~extension~~the ofreceivable ~~his~~to ~~employment~~the ~~agreement~~amount tothe ~~December 31,~~Company ~~2003~~believes will be collected. ~~The~~Material changes ~~margin~~in ~~loans~~the ~~have~~allowance ~~been fully~~for ~~repaid~~doubtful ~~and~~accounts may occur if the ~~loan~~results ~~agreement~~of management’s ~~prohibits~~evaluation ~~the~~change ~~CEO~~or ~~from~~if ~~encumbering~~a ~~his~~different ~~ADLT~~method is used to estimate ~~shares~~possible inlosses. ~~any~~The ~~manner~~accounts ~~without~~receivable ~~the~~balance ~~consent~~was $31,312, net of ~~the~~an allowance ~~Company’s~~of ~~Board~~$1,016 as of ~~Directors~~September 30, 2003.

On ~~July~~May 2629, ~~2002~~2003, ~~the~~Ruud ~~Company~~Lighting, Inc. and ~~CEO~~its ~~executed~~shareholders anfiled ~~amendment~~claims towith the ~~loan~~ ~~documents~~Bankruptcy Court in connection with the final settlement of purchase price, alleged ~~implementing~~breaches of the agreement inand ~~principle~~post closing administrative services of approximately $5,880. ~~reached~~In inaddition, ~~January~~Ruud ~~2002~~Lighting, ~~to extend~~Inc. filed claims with the Bankruptcy ~~maturity~~Court ofagainst the ~~loan~~Company and its wholly-owned subsidiary, Venture Lighting, Inc. relating to ~~July 31~~a product warranty claim in an amount exceeding $50,000. ~~2007~~The Company, Ruud Lighting, Inc. ~~Under~~and the ~~terms~~Ruud ofLighting ~~the~~shareholders ~~amendment~~have entered into a settlement agreement dated September 8, 2003, subject to Bankruptcy Court approval, settling the ~~CEO~~Ruud ~~will~~claims, ~~sell~~as ~~certain~~well ~~assets~~as inclaims anby ~~orderly~~the Debtors ~~manner~~against inRuud ~~order~~Lighting, Inc. and its shareholders. Pursuant to ~~maximize~~ the terms ~~net~~of ~~proceeds~~the settlement, ~~which~~the original notes will be ~~used~~cancelled toand ~~pay~~the aCompany will ~~portion~~receive ofnew notes from the ~~loan~~Ruud Lighting, Inc. shareholders in the ~~The~~aggregate ~~CEO~~amount of $3,000. These notes will ~~continue~~be ~~his~~due ~~10b5-~~December 1, ~~plan~~2006, tobut rebates ~~sell~~earned ~~shares~~on hepurchases ~~now~~by ~~owns~~Ruud Lighting, Inc. pursuant to its current ~~Rule 144~~agreement ~~should~~with the ~~stock~~Debtors ~~price~~will ~~exceed~~be ~~$15~~credited ~~per~~toward ~~share~~prepayment of the principal and interest on the notes. InRuud ~~addition~~Lighting, Inc. will pay the ~~CEO~~Company ~~has~~one half ~~agreed~~of tothe ~~apply~~amount of any ~~after-tax~~sublease ~~cash~~payments ~~bonuses~~received ~~earned~~with ~~from~~respect to the ~~Company toward~~Elkhorn, ~~repayment~~Wisconsin offacility. In addition, the ~~loan~~agreement provides for mutual releases by the parties.

~~Interest~~Prior onto the ~~loan~~settlement, ~~now~~the ~~accrues~~total atof the ~~lowest~~notes ~~rate~~receivable ~~that~~from ~~the~~Ruud ~~Company pays on~~Lighting, ~~its~~Inc. ~~revolving credit loan~~ and ~~totaled~~its ~~$674~~shareholders, inplus ~~fiscal~~accrued ~~2002~~interest ~~and~~through ~~$588~~June 30, ~~in the nine months of fiscal~~ 2003~~. During fiscal 2002 and 2003~~, ~~no interest income~~ was ~~recorded~~$6,789. orAs ~~paid~~a onresult ~~the~~of ~~loan.~~this ~~Further~~settlement, the Company recorded a ~~valuation~~ reserve ~~for~~against receivables ~~this~~from ~~impaired~~related ~~loan~~parties of $21,~~700~~003. inThe ~~the~~charge ~~second quarter of fiscal 2003 ($9,800 total at March 31, 2003)~~ related to ~~the~~this settlement ~~amount~~is byincluded ~~which~~in the ~~carrying value~~Consolidated Statements of ~~the~~Operations ~~loan~~under ~~exceeded~~ the caption ~~underlying~~“Gain ~~estimated~~(loss) from ~~fair~~sale ~~value~~ of ~~the~~fixture ~~assets available to repay the loan~~subsidiaries.” ~~The~~Subject ~~loan~~to ~~may~~Bankruptcy Court beapproval, ~~accelerated if~~ the ~~CEO~~settlement ~~ceases~~will ~~to be~~result ~~employed~~in ~~by the Company as~~ a ~~result~~reduction of ~~his~~receivables ~~voluntary resignation or~~from ~~termination~~related ~~for~~parties ~~cause.~~and ~~The~~liabilities ~~Board~~of ~~reserved~~$2,786, ~~the~~as ~~right~~of toJune 30, ~~demand payment to prevent an unacceptable strain on cash resources~~2003. The ~~Company’s ability to~~remaining ~~collect~~amount ~~amounts due according to the contractual terms~~ of ~~the~~notes ~~loan~~receivable ~~agreement~~from ~~is largely~~related ~~dependent~~parties onat ~~the~~June 30, ~~ultimate~~2003 ~~realization~~ of ~~proceeds from the sale of assets owned by the CEO~~$6, 108 (including ~~the~~interest ~~CEO’s~~of ~~investment~~$891) inare ~~common~~considered ~~stock of the Company~~realizable.

~~Critical~~The ~~Accounting~~Company ~~Policies~~has a loan receivable from an officer. 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 $2,700 on the loan receivable during fiscal 2003 and $7,100 during fiscal 2002. No interest related to

The discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. 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~~the ofloan ~~contingent~~has ~~assets~~been ~~and~~recorded ~~liabilities.~~in Onfiscal ~~an on-going basis~~2004, we2003 ~~evaluate our estimates, including those related to: valuation of accounts~~ and ~~notes receivable~~2002. ~~and~~The loan receivable from officer, ~~valuation~~balance ofwas ~~investments~~$4, ~~valuation of long-lived assets~~344, ~~valuation~~net of ~~inventory~~a valuation ~~reserves, revenue~~reserve ~~recognition~~of $9,800 ~~and deferred tax assets. We base our estimates on~~at ~~historical experience and on various other assumptions that we believe reasonable under the circumstances~~September 30, ~~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~~2003. ~~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” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2002.

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 $31,929, net of an allowance of $961 as of March 31, 2003. Notes receivable at March 31, 2003 of $6,978 (including interest of $778) are from related parties and are considered collectible.

The Company has a loan receivable from an officer. 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 $2,700 on the loan receivable for the nine months ended March 31, 2003. No interest related to the loan has been recorded in fiscal 2002 and 2003. The loan receivable from officer balance was $4,344, net of a valuation reserve of $9,800 at March 31, 2003.

Valuation of Investments

The Company has certain investments in both privately-held and publicly-held companies that are primarily in lighting-related businesses. The investments in privately-held companies, which are accounted for under the cost method, are inherently risky since there is no readily available market for these investments, and some of the companies are in foreign countries. The value of these investments is influenced by many factors, including the operating effectiveness of these companies, the overall health of the respective company’s industry, the strength of the private equity markets, the foreign currency markets and overall general market conditions. In fiscal 2003, the Company recorded a charge of $703 related to impairment of its investment in a foreign joint venture involved in the manufacturing of metal halide lamps. Although the market value of these investments is not readily determinable, management believes their current fair values approximate or exceed their carrying values as of ~~March~~ September 3130, 2003. However, in light of the circumstances noted above, it is possible that the fair value of these investments could decline in future periods. The market price for publicly-held Fiberstars, Inc., a marketer and distributor of fiber optic lighting products, can fluctuate significantly because the company’s stock is thinly traded and, thus the current market price may not necessarily reflect the value of the Company’s investment. The Company’s ~~carrying~~investment ~~value~~in ofthe ~~this~~common stock ~~investment~~of Fiberstars, which is accounted for under the equity method, istogether with the Company’s warrant to purchase additional shares of Fiberstars, are evaluated whenever there is an impairment indicator based on the market price of the common stock. Any future negative changes in the market price of the common stock of this company could result in a significant reduction in the carrying value of the Company’s investment.

on the market price of the common stock. Any future negative changes in the market price of the common stock of this company could result in a significant reduction in the carrying value of the Company’s investment.

Valuation of Long-Lived Assets

Effective July 1, 2001 the Company adopted Statement of Financial Accounting Standards (FAS) No. 142, Goodwill and Other Intangible Assets, and accordingly, ceased its amortization of any remaining goodwill. The Company evaluates goodwill for impairment at least annually and whenever there is an impairment indicator using the fair value guidelines of FAS No. 142. As of ~~March~~September 3130, ~~2003~~ 2003 the Company had approximately $4,~~411~~490 of goodwill, net of amortization.

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 ~~the~~fiscal ~~nine months ended March 31~~2003, ~~2003~~ the Company recognized a $510,~~551~~ 844 charge ~~related~~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.

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

The Company had approximately $5771,~~600~~100 of net deferred tax assets related principally to certain unused tax credits and loss carryforwards as of June 30, ~~2002~~2003. 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 $5771,~~600~~100. Additionally, on August 15, 2003, Saratoga Lighting 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. Management will continue to evaluate the realization of these deferred tax assets that are subject to the Company’s future operations which are influenced by the overall business environment, which is difficult to predict and beyond the control of the Company. To the extent that the Company generates taxable income in the future, a decrease in the valuation allowance would be required to recognize the deferred tax assets.

which are influenced by the overall business environment, which is difficult to predict and beyond the control of the Company. To the extent that the Company generates taxable income in the future, a decrease in the valuation allowance would be required to recognize the deferred tax assets.

Impact of Recently Issued Accounting Standards

In July, 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 141, Business Combinations, and FAS 142, Goodwill and Intangible Assets. FAS 141 is effective for all business combinations completed after June 30, 2001 and requires using the purchase method of accounting.

Major provisions of FAS 142 require intangible assets acquired in a business combination to be recorded separately from goodwill if they arise from contractual or other legal rights or are separable from the acquired entity and can be sold, transferred, licensed, rented or exchanged, either individually or as part of a related contract, asset or liability. In addition, goodwill, as well as intangible assets with indefinite lives, will no longer be subject to amortization effective July 1, 2001. Finally, goodwill and intangible assets with indefinite lives will be tested for impairment annually and whenever there is an impairment indicator. Previously, the Company measured goodwill and intangibles (to be held and used) with indefinite lives for impairment using undiscounted cash flows under the guidance of FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

The Company adopted FAS 142 as of July 1, 2001. The Company evaluated goodwill of $66,172 and intangible assets with indefinite lives of $11,874, which represents tradenames. The Company used third party appraisals and expected future discounted cash flows to determine the fair value of the reporting units and whether any impairment of goodwill or indefinite lived intangible assets existed as of the above date. As a result of this evaluation, the Company recorded a cumulative effect of change in accounting principle for the estimated impairment of goodwill and other indefinite lived intangible assets of $71,171, or $(3.04) per share, as of the beginning of fiscal 2002.

The Company adopted Emerging Issues Task Force (“EITF”) Issue 01-9 “Accounting for Consideration Given by a Vendor to a Customer” in the quarter ended March 31, 2002. EITF Issue 01-9 requires that expense associated with a free product or service delivered at the time of sale of another product or service should be classified as cost of sales. The Company’s fixture subsidiaries that were sold in the second quarter of fiscal 2002 had incurred and included such costs in marketing and selling expense. Accordingly, the Company has reclassified such amounts to cost of sales within these financial statements. The amount reclassified for the three months and six months ended December 31, 2001 is $749 and $1,836, respectively.

In August 2001, the Financial Accounting Standards Board issued FAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This statement addresses financial accounting for the impairment and disposal of long-lived assets, and supersedes FAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The Company adopted FAS No. 144 on July 1, 2002.

In November 2002, the FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Recognition and measurement provisions of FIN No. 45 become effective for guarantees issued or modified on or after January 1, 2003.

~~In January 2003, the FASB issued FIN No. 46 Consolidation of Variable Interest~~39 ~~Entities, an Interpretation of Accounting Research Bulletin No. 51,~~ Consolidated Financial Statements. The provisions of FIN No. 46 are effective immediately for interests acquired in Variable Interest Entities (VIE) after January 31, 2003. The Company must 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 is evaluating the impact of this FIN as to whether certain of its investments would meet the requirement for consolidation or disclosure under this FIN.

Foreign Currency

Approximately 29% of the Company’s net sales in fiscal 2002 were denominated in currencies other than U.S. dollars, principally pounds sterling, Australian dollars, Canadian dollars, and Japanese yen (36% excluding the fixture subsidiaries sold in fiscal 2002). A weakening of such currencies versus the U.S. dollar could have a material adverse effect on the Company. The Company started a program in fiscal 2002 to hedge a portion of its foreign currency balance sheet exposures which is intended to reduce any significant impact on earnings and cash flow.

In January 2003, the FASB issued FIN No. 46 Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. The provisions of FIN No. 46 are effective immediately for interests acquired in Variable Interest Entities (VIE) after January 31, 2003. The Company is 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 has 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 is effective for the Company as of July 1, 2003. The provisions of FAS No. 150 had no impact on the condensed consolidated financial statements.

Foreign Currency

Approximately 31% of the Company’s net sales in fiscal 2003 were denominated in currencies other than U.S. dollars, principally pounds sterling, Australian dollars, Canadian dollars, and Japanese yen. A weakening of such currencies versus the U.S. dollar could have a material adverse effect on the Company.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

During the ~~nine~~three months ended ~~March~~September 3130, 2003, there have been no material changes in the reported market risks presented in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~2002. The only change to this information would be to reflect the acceleration of the Bank Credit Facility and 8% Senior Notes to fiscal year~~ 2003 ~~in the interest rate sensitivity table~~.

The Company enters into forward exchange contracts to reduce its exposure to fluctuations in related foreign currencies. These contracts are with a major financial institution and the risk of loss is considered remote. The Company does not hold or issue derivative financial instruments for trading purposes. The total value of open contracts and any risk to the Company as a result of these arrangements is not material to the Company’s financial position, liquidity or results of operations.

Item 4. Controls and Procedures

The Company evaluated the design and operation of its disclosure controls and procedures as of September 30, 2003, to determine whether they are effective in ensuring that the disclosure of required information is timely made in accordance with the Exchange Act and the rules and forms of the Securities and Exchange Commission. This evaluation was made under the supervision and with the participation of management, including the Company’s principal executive officer and principal financial officer ~~within the 90-day period prior to the filing of this Quarterly Report on Form 10-Q~~. The principal executive officer and ~~principal~~ principal financial officer have concluded, based on their review, that the Company’s disclosure controls and procedures, as defined at Exchange Act Rules 13a-14(c) and 15d-14(c), are effective to ensure that information required to be be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. No significant changes were made to the Company’s internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation.

Part II. Other Information

Except as noted below, the items in Part II are inapplicable or, if applicable, would be answered in the negative. These items have been omitted and no other reference is made thereto.

Item 1. Legal Proceedings

The information included in Note KJ of the “Notes to Condensed Consolidated Financial Statements (Unaudited)” included in this Report on Form 10-Q is hereby incorporated by reference.

Item 3. Defaults Upon Senior Securities

~~The~~On ~~Company~~September 16, ~~did~~2002 ~~not~~ADLT ~~make~~and its bank group entered into a Forbearance Agreement that prevented the Company from making the September 16, 2002 interest payment on its Senior Notes due 2008. As a result, the Trustee under the Senior Notes has declared all principal and interest to be immediately due and payable. As of ~~June~~November 314, 2003, the accrued and unpaid interest on the Senior Notes ~~was~~is $913,~~733~~333. The information included in Note F of the “Notes to Condensed Consolidated Financial Statements (Unaudited)” included in this Report on Form 10-Q is hereby incorporated by reference.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit			~~Incorporated~~			Incorporated
Number		~~Title~~	~~by Reference~~Title			by Reference
~~3.1~~	3.1	~~Second Amended and Restated Articles of Incorporation filed September 26, 1995~~	Second Amended and Restated Articles of Incorporation filed September 26, 1995	(1	)		(1	)
~~3.2~~	3.2	~~Certificate of Adoption of Amended Articles of Incorporation filed February 12, 1997~~	Certificate of Adoption of Amended Articles of Incorporation filed February 12, 1997	(1	)		(1	)
~~3.3~~	3.3	~~Certificate of Adoption of Third Amendment to Second Amended and Restated Articles of Incorporation filed October 6, 1999~~	Certificate of Adoption of Third Amendment to Second Amended and Restated Articles of Incorporation filed October 6, 1999	(2	)		(2	)
~~3.4~~	3.4	~~Certificate of Adoption of Fourth Amendment to Second Amended and Restated Articles of Incorporation filed March 16, 2000~~	Certificate of Adoption of Fourth Amendment to Second Amended and Restated Articles of Incorporation filed March 16, 2000	(3	)		(3	)
~~3.5~~	3.5	~~Code of Regulations~~	Code of Regulations	(4	)		(4	)
~~4.1~~	4.1	~~Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5~~	Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
~~10.1~~	10.1	Post-Petition Credit Agreement among Advanced Lighting Technologies, Inc. and certain of its subsidiaries and PNC Bank, National Association, as Agent and Certain Financial Institutions Dated as of February 6, 2003	Consent and First Amendment to Loan and Security Agreement dated as of July 25, 2003 by and among Advanced Lighting Technologies, Inc. and certain of its subsidiaries, as Borrowers, and Ableco Finance LLC, as Lender and Wells Fargo Foothill, Inc. as Agent and Lender
~~10.2~~	10.2	~~Agreement between Advanced Lighting Technologies, Inc. and its Subsidiaries and Brown, Gibbons, Lang & Company Dated as of February 5, 2003~~	Second Amendment to Loan and Security Agreement dated as of August 21, 2003 by and among Advanced Lighting Technologies, Inc. and certain of its subsidiaries, as Borrowers, and Ableco Finance LLC, as Lender and Wells Fargo Foothill, Inc. as Agent and Lender
12		Statement Re: Computation of Ratio of Earnings to Fixed Charges
99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
(2)		Incorporated by reference to Exhibit 3.2 in Company’s Quarterly Report on Form 10-Q/A for the Quarterly Period ended September 30, 1999 filed January 14, 2000.
(3)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the Annual Period ended June 30, 2000 filed September 27, 2000.
(4)		Incorporated by reference to Exhibit 3.2 in Company’s Registration Statement on Form S-1, Registration No. 33-97902, effective December 11, 1995.

(b)		Reports on Form 8-K
		Two Reports on Form 8-K were filed during the quarter ended March 31, 2003.
		On January 9, 2003, the Company filed a Current Report dated January 8, 2003, reporting under Item 9 the receipt of a determination from a Nasdaq Listing Qualifications Panel that its Common Shares would be delisted by the Nasdaq National Market effective Friday, January 10, 2003.
		On February 5, 2003, the Company filed a Current Report dated February 5, 2003, reporting under Item 9 that all of its U.S. based operating subsidiaries (with the exception of Deposition Sciences, Inc.) voluntarily filed for protection under the provisions of Chapter 11 of the Federal Bankruptcy Code.

(a) Exhibits (continued)


Exhibit		Incorporated
Number	Title	by Reference

10.3	Third Amendment to Loan and Security Agreement dated as of September 30, 2003 by and among Advanced Lighting Technologies, Inc. and certain of its subsidiaries, as Borrowers, and Ableco Finance LLC, as Lender and Wells Fargo Foothill, Inc. as Agent and Lender









10.4	Settlement Agreement dated as of September 8, 2003 by and among Advanced Lighting Technologies, Inc., Venture Lighting International, Inc., Ruud Lighting, Inc., Alan J. Ruud, Susan Ruud, Theodore O. Sokoly, Christopher A. Ruud, and Cynthia A. Johnson









10.5	Reorganization Plan, Lock-up and Voting Agreement dated as of October 31, 2003









12	Statement Re: Computation of Ratio of Earnings to Fixed Charges









31.1	Rule 13a-14(a)/15d-14(a) Certification









31.2	Rule 13a-14(a)/15d-14(a) Certification









32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002









32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002









99.1	Supplement to Disclosure Statement with respect to Third Amended Chapter 11 Plan of Reorganization dated October 3, 2003

(1)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

(2)		Incorporated by reference to Exhibit 3.2 in Company’s Quarterly Report on Form 10-Q/A for the Quarterly Period ended September 30, 1999 filed January 14, 2000.

(3)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the Annual Period ended June 30, 2000 filed September 27, 2000.

(4)		Incorporated by reference to Exhibit 3.2 in Company’s Registration Statement on Form S-1, Registration No. 33-97902, effective December 11, 1995.

(b)		Reports on Form 8-K

		No Reports on Form 8-K were filed during the quarter ended September 30, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ADVANCED LIGHTING TECHNOLOGIES, INC.
Date: June 4, 2003		By:	/s/ Wayne R. Hellman
Date: November 12, 2003	By: /s/ Wayne R. Hellman Wayne R. Hellman Chief Executive Officer
			Wayne R. Hellman Chief Executive Officer
Date: November 12, 2003	By: /s/ Steven C. Potts Steven C. Potts Chief Financial Officer
Date: June 4, 2003		By:	/s/ Steven C. Potts
			Steven C. Potts Chief Financial Officer

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CERTIFICATIONS

I, Wayne R. Hellman, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Advanced Lighting Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 4, 2003

/s/ Wayne R. Hellman

CERTIFICATIONS

I, Steven C. Potts, certify that:

Date: June 4, 2003

/s/ Steven C. Potts

EXHIBIT INDEX

Exhibit			Incorporated
Number	Title	by Reference	~~by Reference~~
3.1	Second Amended and Restated Articles of Incorporation filed September 26, 1995			(1	)
3.2	Certificate of Adoption of Amended Articles of Incorporation filed February 12, 1997			(1	)
3.3	Certificate of Adoption of Third Amendment to Second Amended and Restated Articles of Incorporation filed October 6, 1999			(2	)
3.4	Certificate of Adoption of Fourth Amendment to Second Amended and Restated Articles of Incorporation filed March 16, 2000			(3	)
3.5	Code of Regulations			(4	)
4.1	Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5
10.1	~~Post-Petition~~Consent ~~Credit~~and First Amendment to Loan and Security Agreement dated as of July 25, 2003 by and among Advanced Lighting Technologies, Inc. and certain of its subsidiaries, ~~and~~as ~~PNC Bank~~Borrowers, ~~National~~and ~~Association~~Ableco Finance LLC, as ~~Agent~~Lender and ~~Certain~~Wells ~~Financial~~Fargo ~~Institutions~~Foothill, ~~Dated~~Inc. as ofAgent ~~February~~and ~~6, 2003~~Lender
10.2	Second Amendment to Loan and Security Agreement ~~between~~dated as of August 21, 2003 by and among Advanced Lighting Technologies, Inc. and ~~its~~certain ~~Subsidiaries~~of ~~and~~its ~~Brown~~subsidiaries, ~~Gibbons~~as Borrowers, ~~Lang~~and &Ableco ~~Company~~Finance ~~Dated~~LLC, as ofLender ~~February~~and 5Wells Fargo Foothill, ~~2003~~Inc. as Agent and Lender
10.3	Third Amendment to Loan and Security Agreement dated as of September 30, 2003 by and among Advanced Lighting Technologies, Inc. and certain of its subsidiaries, as Borrowers, and Ableco Finance LLC, as Lender and Wells Fargo Foothill, Inc. as Agent and Lender
10.4	Settlement Agreement dated as of September 8, 2003 by and among Advanced Lighting Technologies, Inc., Venture Lighting International, Inc., Ruud Lighting, Inc., Alan J. Ruud, Susan Ruud, Theodore O. Sokoly, Christopher A. Ruud, and Cynthia A. Johnson
10.5	Reorganization Plan, Lock-Up and Voting Agreement dated as of October 31, 2003
12	Statement Re: Computation of Ratio of Earnings to Fixed Charges
99.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.3	Rule 13a-14(a)/15d-14(a) Certification
99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
31.4	Rule 13a-14(a)/15d-14(a) Certification
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Supplement to Disclosure Statement with respect to Third Amended Chapter 11 Plan of Reorganization dated October 3, 2003

(1)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

(2)		Incorporated by reference to Exhibit 3.2 in Company’s Quarterly Report on Form 10-Q/A for the Quarterly Period ended September 30, 1999 filed January 14, 2000.

(3)		Incorporated by reference to Exhibit of same number in Company’s Annual Report on Form 10-K for the Annual Period ended June 30, 2000 filed September 27, 2000.

(4)		Incorporated by reference to Exhibit 3.2 in Company’s Registration Statement on Form S-1, Registration No. 33-97902, effective December 11, 1995.

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Filing Compare · ADVANCED LIGHTING TECHNOLOGIES INC