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

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~December 3031, ~~2003~~ 2004

[ ] 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.

(Exact name of registrant as specified in its charter)


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 [X] No [ ]

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

There were 231,~~807,347~~131 shares of the Registrant’s Common Stock, $.001 par value per share, outstanding as of ~~September~~December 3031, ~~2003~~2004.

TABLE OF CONTENTS

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
Part I			Financial Information
Item 1. Financial Statements (Unaudited)
Item 1.			Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets –
				Condensed Consolidated Balance Sheets — September 30, 2003 and June 30, 2003		2
Reorganized Company as of December 31 and June 30, 2004		2
				Condensed Consolidated Statements of Operations — Three months ended September 30, 2003 and 2002		4
Condensed Consolidated Statements of Operations –
				Condensed Consolidated Statement of Shareholders’ Equity — Three months ended September 30, 2003		5
Reorganized Company for the Three Months Ended December 31, 2004		4
				Condensed Consolidated Statements of Cash Flows — Three months ended September 30, 2003 and 2002		6
Reorganized Company for the Six Months Ended December 31, 2004		4
				Notes to Condensed Consolidated Financial Statements		7
Predecessor Company for the Three Months Ended December 31, 2003		4
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Predecessor Company for the Six Months Ended December 31, 2003		4
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			40
Condensed Consolidated Statement of Shareholders’ Equity –
Item 4.			Controls and Procedures			40
Reorganized Company for the Six Months Ended December 31, 2004		5
Part II			Other Information
Condensed Consolidated Statements of Cash Flows –
Item 1.			Legal Proceedings			41
Reorganized Company for the Six Months Ended December 31, 2004		6
Item 3.			Defaults Upon Senior Securities			41
Predecessor Company for the Six Months Ended December 31, 2003		6
Item 6.			Exhibits and Reports on Form 8-K			41
Notes to Condensed Consolidated Financial Statements		7
Signatures						43
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3. Quantitative and Qualitative Disclosures about Market Risk		22
Item 4. Controls and Procedures		22
Part II Other Information
Item 1. Legal Proceedings		23
Item 6. Exhibits and Reports on Form 8-K		23
Signatures		25
EX-12 Statement re: Computation of Ratio of Earnings to Fixed Charges
EX-31.1 Rule 13a-14(a)/15d-14(a) Certification
EX-31.2 Rule 13a-14(a)/15d-14(a) Certification
EX-32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

		(Unaudited)		~~(Unaudited)~~		(Audited)		~~(Audited)~~
				September 30,				June 30,
		December 31,				June 30,
				2003				2003
		2004				2004
Assets
Current assets:
Cash and cash equivalents	~~Cash and cash equivalents~~	$	2,296	$	~~4,001~~	$	4,701	$	~~4,167~~
	Trade receivables, less allowances of $1,016 and $979				29,909				31,312
Trade receivables, less allowances of $900 and $706			29,575				29,787
Inventories:	~~Inventories:~~
Finished goods		~~Finished goods~~	15,822		~~15,638~~		16,105		~~15,242~~
Raw materials and work-in-process		~~Raw materials and work-in-process~~	12,393		~~8,249~~		9,073		~~8,693~~
					23,887				23,935
			28,215				25,178
Prepaid expenses	~~Prepaid expenses~~		2,210		~~2,292~~		1,552		~~1,374~~
Total current assets			62,296		~~60,089~~		61,218		~~60,788~~
Property, plant and equipment:
Land and buildings	~~Land and buildings~~		18,638		~~34,048~~		18,165		~~33,822~~
Machinery and equipment	~~Machinery and equipment~~		29,761		~~73,125~~		29,100		~~72,583~~
Furniture and fixtures	~~Furniture and fixtures~~		2,240		~~18,255~~		1,880		~~17,912~~
					125,428				124,317
			50,639				49,145
Less accumulated depreciation	~~Less accumulated depreciation~~		4,319		~~37,752~~		2,118		~~35,981~~
					87,676				88,336
			46,320				47,027
Receivables from related parties			3,020		~~3,628~~		4,282		~~6,463~~
Investments in affiliates			2,201		~~8,684~~		2,360		~~8,668~~
Other assets			5,146		~~2,021~~		3,849		~~2,976~~
Intangible assets					2,540				2,572
Intangible assets, net			24,543				24,810
Excess of cost over net assets of businesses acquired, net					4,490				4,473
Goodwill			50,561				50,561
		$	194,087	$	~~169,128~~	$	194,107	$	~~174,276~~

See ~~notes~~Notes to ~~consolidated~~Condensed ~~financial~~Consolidated ~~statements~~Financial Statements, including Basis of Presentation describing the Reorganized Company.

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

		(Unaudited)		~~(Unaudited)~~	(Audited)			~~(Audited)~~
				September 30,				June 30,
		December 31,			June 30,
				2003				2003
		2004			2004
Liabilities and shareholders’ equity
Liabilities not subject to compromise:
Current liabilities:
	Current liabilities:
Short-term debt and current portion of long-term debt		$	3,299		$	4,184
		Short-term debt and current portion of long-term debt		$	1,140			$	2,241
Accounts payable			9,341			10,755
		Accounts payable			9,761				10,814
Payables to related parties			1,358			2,973
		Payables to related parties			177				790
Employee-related liabilities			4,732			6,197
		Employee-related liabilities			3,312				2,895
Accrued income and other taxes			1,538			1,414
		Accrued income and other taxes			1,260				1,294
Other accrued expenses and liabilities			11,449			9,216
		Other accrued expenses			8,126				6,839
Total current liabilities			31,717			34,739
		Debtor-in-Possession Facility			26,183				25,126
Long-term debt			125,328			126,679
	Total current liabilities				49,959				49,999
Deferred tax liabilities			812			700
	Long-term debt				5,256				5,324
Total liabilities			157,857			162,118
			Total liabilities not subject to compromise		55,215				55,323
Minority interest			1,816			1,477
Liabilities subject to compromise					117,191				116,214
Preferred stock, $.001 par value, 239 shares authorized; 29 Series A shares issued and outstanding			29,338			29,338
Total liabilities					172,406				171,537
Common shareholders’ equity
Minority interest					1,097				968
Common stock, $.001 par value, 80,000 shares authorized; 1 share issued and outstanding			1			1
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
Paid-in-capital			1,130			1,130
Common shareholders’ equity (deficit)
Accumulated other comprehensive income (loss)			1,023			(216	)
	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
Retained earnings			2,922			259
	Paid-in-capital				212,724				212,724
Total common shareholders’ equity			5,076			1,174
	Accumulated other comprehensive income (loss)				(414	)			(640	)
		$	194,087		$	194,107
	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

See ~~notes~~Notes to ~~consolidated~~Condensed ~~financial~~Consolidated ~~statements~~Financial Statements, including Basis of Presentation describing the Reorganized Company.

Advanced Lighting Technologies, Inc. Condensed Consolidated Statements of Operations (Unaudited) (Inin thousands~~, except per share dollar amounts~~)

			Three Months Ended
		Reorganized Company								Predecessor Company
			September 30,
		Quarter				Six Months				Quarter			Six Months
			2003				2002
		Ended				Ended				Ended			Ended
Net sales			$	32,832			$	33,587
		December 31,				December 31,				December 31,			December 31,
Costs and expenses:
		2004				2004				2003			2003
	Cost of sales			20,179				21,537
Net sales		$	41,122			$	79,700			$	37,678		$	70,510
	Marketing and selling			5,301				5,637
Costs and expenses:
	Research and development			1,386				1,634
Cost of sales			24,339				46,943				23,182			43,361
	General and administrative			3,089				3,233
Marketing and selling			5,947				11,842				6,010			11,311
	Gain on sale of property			—				(62	)
Research and development			1,570				3,112				1,709			3,095
	Amortization of intangible assets			88				85
General and administrative			3,603				7,474				3,119			6,208
Income from operations				2,789				1,523
Amortization of intangible assets			248				489				89			177
Other income (expense):
Income from operations			5,415				9,840				3,569			6,358
	Interest expense			(3,420	)			(2,789	)
Other income (expense):
	Interest income			83				138
Interest expense			(3,469	)			(6,892	)			(4,039	)		(7,459	)
	Income from investments			16				1
Interest income			104				197				105			188
	Reorganization expenses			(5,623	)			—
Income (Loss) from investments			3				489				(13	)		3
Income (loss) before income taxes and minority interest				(6,155	)			(1,127	)
Gain on restructuring			—				—				1,184			1,184
Income tax expense				88				277
Write-off of deferred loan costs			—				—				(2,251	)		(2,251	)
Income (loss) before minority interest				(6,243	)			(1,404	)
Reorganization expenses			—				—				(5,635	)		(11,258	)
Minority interest in income of consolidated subsidiary				(129	)			(77	)
Income (loss) before income taxes and minority interest			2,053				3,634				(7,080	)		(13,235	)
Net income (loss)			$	(6,372	)		$	(1,481	)
Income tax expense			259				632				272			360
Earnings (loss) per share — basic and diluted:			$	(.27	)		$	(.18	)
Income (loss) before minority interest			1,794				3,002				(7,352	)		(13,595	)
Weighted average shares outstanding — basic and diluted				23,807				23,628
Minority interest in income of consolidated subsidiary			(188	)			(339	)			(122	)		(251	)
Net income (loss)		$	1,606			$	2,663			$	(7,474	)	$	(13,846	)

See ~~notes~~Notes to ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements, including Basis of Presentation describing the Reorganized Company and Predecessor Company.

Advanced Lighting Technologies, Inc. Condensed Consolidated Statement of Shareholders’ Equity (Unaudited) ~~Three~~Six Months Ended ~~September~~December 3031, ~~2003~~2004 (in thousands)

																			Loan and
														Accumulated
															Accumulated				Interest								Common
														Other								Common
		Preferred	~~Preferred~~		Common Stock	~~Common Stock~~					Paid-In			Comprehensive	~~Other~~			Retained	~~Receivable~~			Shareholders'	~~Retained~~				~~Shareholders'~~
												Paid-In			Comprehensive				From				Earnings				Equity
		Stock			Shares			Par Value			Capital			Income (Loss)				Earnings				Equity				Total
			Stock			Shares			Par Value			Capital			Income (Loss)				Officer				(Deficit)				(Deficit)			Total
Balance at June 30, 2004		$	29,338			1		$	1		$	1,130		$	(216	)		$	259			$	1,174			$	30,512
Balance at July 1, 2003			$	24,475			23,807		$	24		$	212,724		$	(640	)		$	(4,344	)		$	(230,468	)		$	(22,704	)	$	1,771
Net income — reorganized company			—			—			—			—			—				2,663				2,663				2,663
Net income (loss)				—			—			—			—			—				—				(6,372	)			(6,372	)		(6,372	)
Foreign currency translation adjustment			—			—			—			—			1,239				—				1,239				1,239
Foreign currency
Balance at December 31, 2004		$	29,338			1		$	1		$	1,130		$	1,023			$	2,922			$	5,076			$	34,414
	translation adjustment			—			—			—			—			226				—				—				226			226
Balance at September 30, 2003			$	24,475			23,807		$	24		$	212,724		$	(414	)		$	(4,344	)		$	(236,840	)		$	(28,850	)	$	(4,375	)

See ~~notes~~Notes to ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements, including Basis of Presentation describing the Reorganized Company.

Advanced Lighting Technologies, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

					Three Months Ended
		Reorganized				Predecessor
					September 30,
		Company				Company
					2003				2002
		Six Months				Six Months
Operating activities
		Ended				Ended
	Net income (loss)				$	(6,372	)		$	(1,481	)
		December 31,				December 31,
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
		2004				2003
			Depreciation			1,687				1,586
Operating activities
			Amortization			88				85
Net income (loss)		$	2,663			$	(13,846	)
			Provision for doubtful accounts			70				37
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
			Income from investments			(16	)			(1	)
Depreciation			2,210				3,412
			Gain on sale of property			—				(62	)
Amortization			489				177
			Reorganization expenses, less cash payments of $3,900			1,723				—
Provision for doubtful accounts			166				381
			Changes in current assets and liabilities and other			3,620				3,227
Loss (income) from investments			(489	)			(3	)
				Net cash provided by operating activities		800				3,391
Gain on restructuring			—				(1,184	)
Investing activities
Write-off of deferred loan costs			—				2,251
	Capital expenditures					(988	)			(1,188	)
Reorganization expenses in excess of (less than) cash payments of reorganization expenses			(1,842	)			2,968
	Proceeds from sale of preferred stock investment					—				300
Old Senior Note interest accrued but not paid			—				4,000
	Proceeds from sale of real estate					—				1,326
Changes in current assets and liabilities and other			(1,753	)			6,032
				Net cash provided by (used in) investing activities		(988	)			438
Net cash provided by operating activities			1,444				4,188
Financing activities
Investing activities
	Proceeds from revolving credit facility					—				23,717
Capital expenditures			(2,063	)			(1,799	)
	Proceeds from debtor-in-possession facility					29,067				—
Investment in affiliate			—				(592	)
	Payments of revolving credit facility					—				(25,083	)
Proceeds from sale of investment			450				—
	Payments of debtor-in-possession facility					(28,010	)			—
Net cash used in investing activities			(1,613	)			(2,391	)
	Payments of long-term debt and capital leases					(1,035	)			(1,677	)
Financing activities
	Issuance of common stock					—				70
Net borrowings under revolving credit loan			642				—
				Net cash provided by (used in) financing activities		22				(2,973	)
Net borrowings (payments) under debtor in possession facility			—				(25,141	)
Increase (decrease) in cash and cash equivalents						(166	)			856
Proceeds from long-term debt			—				11,000
Cash and cash equivalents, beginning of period						4,167				2,874
Payments of long-term debt and capital leases			(2,878	)			(1,522	)
				Cash and cash equivalents, end of period	$	4,001			$	3,730
Investment by Saratoga Lighting Holdings, LLC			—				18,000
Supplemental cash flow information
Officer loan repayment			—				1,334
		Interest paid			$	518			$	626
Net cash provided by (used in) financing activities			(2,236	)			3,671
		Income taxes paid				66				33
Increase (decrease) in cash and cash equivalents			(2,405	)			5,468
		Capitalized interest				18				107
Cash and cash equivalents, beginning of period			4,701				4,167
Cash and cash equivalents, end of period		$	2,296			$	9,635
Supplemental cash flow information
Interest paid		$	7,034			$	1,200
Income taxes paid			188				159
Capitalized interest			13				37

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~September~~December 3031, ~~2003~~2004 (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 offocused on 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~~Basis ~~Filing~~of Presentation

OnThe ~~February 5,~~accompanying ~~2003,~~unaudited ~~Advanced~~condensed ~~Lighting~~consolidated ~~Technologies,~~financial ~~Inc.~~statements ~~(the~~have ~~“Company”~~been orprepared in ~~“ADLT”)~~conformity ~~and~~with ~~six~~accounting ofprinciples ~~its~~generally accepted in the United States ~~subsidiaries,~~of ~~(collectively,~~America ~~the~~for ~~“Debtors”),~~interim ~~filed~~financial ~~voluntary~~information ~~petitions~~and with the instructions for ~~reorganization~~Form ~~(the~~10-Q ~~“Filing”)~~and ~~under Chapter~~Article 1110 of ~~the~~Regulation S-X. ~~United~~Accordingly, ~~States~~they ~~Bankruptcy~~do ~~Code~~not ~~(“Chapter 11”~~include orall the information and disclosures required by generally ~~“Bankruptcy~~accepted ~~Code”)~~accounting inprinciples for complete financial statements. In the ~~United~~opinion ~~States~~of ~~Bankruptcy~~management, ~~Court~~the financial statements include all material adjustments necessary for ~~the~~a ~~Northern~~fair presentation, including ~~District~~adjustments of ~~Illinois,~~a ~~Eastern~~normal ~~Division~~and ~~(the~~recurring ~~“Bankruptcy~~nature ~~Court”).~~as ~~ADLT~~well as adjustments related to the Company’s ~~non-U~~emergence from bankruptcy.S. ~~operating~~For ~~subsidiaries~~further information, refer to the consolidated financial statements and ~~DSI,~~notes athereto ~~U.S.~~included ~~subsidiary,~~in ~~were~~the ~~not~~Company’s aAnnual ~~part~~Report of on Form 10-K for the ~~Filing~~year ended June 30, 2004.

~~Background~~The ofpreparation ~~Filing—In the fourth quarter~~ of ~~fiscal~~financial ~~2002,~~statements ~~the Company incurred a loss from operations and at June 30, 2002 was~~ in ~~default~~conformity onwith ~~its~~accounting ~~fourth quarter~~principles ~~fixed~~generally ~~charge coverage ratio under its then existing Bank Credit~~accepted ~~Facility. On September 16, 2002 ADLT and its bank group entered into a Forbearance Agreement. At the end of the second quarter of fiscal 2003 the Company was~~ in ~~default under~~ the ~~Forbearance~~United ~~Agreement.~~States ~~In addition, in accordance with the terms~~ of ~~the~~America ~~Forbearance~~requires ~~Agreement,~~management ~~the~~to ~~Company did not~~ make ~~the~~estimates 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~~assumptions ~~due~~that ~~and payable immediately on the 8% Senior Notes. The Filing by~~affect ~~ADLT~~reported ~~was~~amounts ~~made since it did not have the available funds to pay the noteholders~~ and ~~because~~related ~~of the uncertainty of the willingness of the bank group to grant continued forbearance under acceptable terms~~disclosures. ~~These~~Actual ~~defaults~~results ~~are~~could ~~discussed~~differ ~~in more detail in Note F. Under Chapter 11, the Debtors have continued to operate their businesses as debtors-in-possession under court protection~~ from ~~their creditors~~those ~~and claimants, 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~~estimates.

~~Consequence~~On ofDecember 10, ~~Filing—As~~2003, aAdvanced ~~consequence~~Lighting Technologies, Inc. and six of its United States subsidiaries, (collectively, the ~~Filing~~“Debtors”), ~~all~~completed ~~pre-petition~~their previously announced financial ~~liabilities~~restructuring when their Fourth Amended Chapter 11 Plan of Reorganization (the ~~Debtors~~“Final ~~are~~Plan”) ~~stayed~~under the ~~and~~U.S. noBankruptcy ~~party~~Code ~~may~~(the ~~take~~“Bankruptcy ~~any~~Code”) ~~action~~became toeffective and was substantially ~~realize~~consummated. ~~its~~ADLT’s ~~pre~~non-~~petition~~U.S. ~~claims~~operating ~~except~~subsidiaries ~~pursuant~~and toDeposition ~~order~~Sciences, ofInc., ~~the~~a ~~Bankruptcy Court~~U.S. subsidiary, Itwere isnot a part of the ~~Debtors’~~proceedings ~~intention~~under tothe ~~address~~Bankruptcy ~~all~~Code. ofThe ~~their~~Company’s ~~pre-petition~~emergence ~~claims~~from asChapter 11 ~~well~~bankruptcy asproceedings ~~the~~resulted ~~interests~~in ofa ~~their~~new ~~preferred~~reporting entity and ~~common~~the ~~shareholders~~adoption ~~and,~~of fresh start accounting in ~~that~~accordance ~~regard~~with Statement of Position No. 90-7, ~~filed~~Financial aReporting ~~plan~~by ofEntities in ~~reorganization~~Reorganization ~~with~~under the Bankruptcy ~~Court~~Code. ~~on April 28~~Also, ~~2003,~~as ~~and~~encouraged ~~amended~~under ~~plans~~SEC onStaff ~~August~~Accounting Bulletin No. 1554, ~~2003,~~Push ~~September 16,~~Down ~~2003,~~Basis ~~and October 3,~~of ~~2003.~~Accounting OnRequired ~~October 3,~~in ~~2003~~Certain Limited Circumstances, the Company ~~Bankruptcy~~has ~~Court~~reflected ~~approved~~an ~~the~~additional adjustment to establish a new basis for its assets and ~~adequacy~~liabilities ofbased on the ~~disclosure~~amount ~~statement~~paid ~~describing~~by ~~the~~Saratoga ~~plan~~Lighting Holdings, asLLC ~~amended.~~(“Saratoga”) Itfor isits ~~currently~~ownership. ~~impossible~~For tofinancial ~~predict~~reporting ~~with~~purposes, ~~any~~the ~~degree~~Company used an effective date of ~~certainty~~December 31, 2003. ~~whether~~References in these financial statements to “Predecessor Company” refer to the ~~plan,~~Company prior asto ~~amended~~December 31, ~~will~~2003. beReferences ~~accepted~~to by“Reorganized Company” refer to the Company’s ~~creditors~~on and ~~common~~after ~~shareholders.~~December 31, ~~Generally~~2003, ~~under~~after giving effect to the ~~provisions~~issuance of ~~the~~new ~~Bankruptcy~~securities ~~Code,~~in ~~holders~~exchange for the ofpreviously ~~equity~~outstanding ~~interests~~securities ~~may~~in ~~not~~accordance ~~participate~~with ~~under~~the aFinal ~~plan~~Plan, ofthe ~~reorganization~~additional ~~unless~~investment in the ~~claims~~Company by Saratoga, and the implementation of ~~creditors~~fresh ~~are~~start ~~satisfied~~and push down accounting.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~September~~December 3031, ~~2003~~2004 (Dollars in thousands~~, except per share data~~)

B. ~~Voluntary~~ ~~Bankruptcy~~Basis ~~Filing~~of Presentation (continued)

~~in full under the plan or unless creditors accept a reorganization plan that permits holders of equity interests to participate.~~ A ~~committee~~black ~~representing unsecured~~line ~~creditors,~~has ~~including the noteholders, and a committee representing equity security holders have~~ been ~~appointed~~drawn bybetween the ~~United~~results ~~States~~of ~~Trustee.~~operations ~~In accordance~~and ~~with~~statements ~~the provisions~~ of ~~the~~cash ~~Bankruptcy~~flows ~~Code, these committees have~~to ~~the~~distinguish ~~general~~between ~~right to be heard on all matters that come before~~ the ~~Bankruptcy Court~~Reorganized ~~under~~Company orand ~~in connection with~~ the ~~Filing~~Predecessor Company. The ~~Debtors~~results ~~are~~of ~~also required to~~operations ~~bear~~and ~~certain~~statements of ~~these~~cash ~~committees’~~flows ~~costs~~for ~~and~~the ~~expenses,~~Reorganized ~~including~~Company ~~those of their legal counsel~~ and ~~financial~~Predecessor ~~advisors.~~Company ~~Due~~are ~~to material uncertainties, it is~~ not ~~possible~~ ~~to predict the length of time the Debtors will operate under Chapter~~considered 11comparable ~~protection, the outcome of the reorganization~~ in ~~general,~~all ~~the effect on the~~respects. ~~Debtors’ business or the recovery by creditors of the Debtors and equity~~ ~~holders of ADLT.~~

~~The~~Reporting ~~accompanying condensed consolidated financial statements have been prepared~~Periods ~~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 of reorganization.

OnThe June 30, 2003, the Debtors obtained a new Debtor-in-Possession credit facility from two financial institutions (the “Replacement DIP Facility”). Proceeds from the Replacement DIP Facility were used to repay the DebtorsCompany’ ~~original~~s ~~Debtor-in-Possesion~~subsidiaries ~~credit~~have ~~facility~~fiscal ~~(the~~years ~~“Original~~that ~~DIP~~end ~~Facility”) and all remaining amounts due~~ on the ~~existing~~Sunday ~~secured~~closest ~~Bank~~to ~~Credit~~June 30 ~~Facility. The Replacement DIP Facility consists of a revolving loan~~ and ~~two term loans. The~~fiscal ~~revolving~~quarters ~~loan~~that ~~facility~~end ~~allows~~on the ~~Debtors~~Sunday toclosest ~~incur up~~ to ~~$18,500 in revolving loans, subject to~~ the ~~availability~~respective ofcalendar ~~adequate~~quarter ~~collateral~~end. ~~The~~As ~~revolving~~a ~~loan bears~~result, ~~interest at~~ the ~~prime rate plus 1% or at the London Interbank Borrowing~~ ~~Rate~~first ~~(“LIBOR”)~~six ~~plus~~months ~~3%. One~~ of ~~the~~fiscal ~~term~~2005 ~~loans~~consisted ~~is in the amount~~ of ~~$5,000, bears interest at the prime rate of interest plus 2% or at LIBOR plus 5%, and requires principal payments of $83 per month beginning October~~27 1,weeks ~~2003.~~as ~~The other~~compared ~~term~~to ~~loan~~the isfirst insix ~~the~~months ~~amount~~ of ~~$13,500 and bears interest at the prime~~fiscal ~~rate~~2004 ofthat ~~interest~~consisted ~~plus 6% per annum, with payment~~ of ~~2% per annum deferred until maturity~~26 weeks. The ~~Replacement~~three ~~DIP~~month ~~Facility~~periods ~~originally~~ended ~~extended to October~~December 31, ~~2003~~ 2004 and ~~does not require the Debtors to sell assets. The Company secured an amendment to the Replacement Facility dated September 16,~~ 2003~~, that extends~~ ~~the~~contained ~~term to February~~13 ~~28,~~weeks ~~2004, which would serve to extend the Replacement DIP Facility beyond the anticipated date of emergence from bankruptcy~~each. ~~The~~ ~~Bankruptcy Court issued a final order approving the extension of the~~ ~~Replacement DIP Facility on October 23, 2003.~~

AsIncome ~~part of the bankruptcy process, the Company is pursuing restructuring with~~Taxes ~~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~~

Actual income tax expense for the three 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 because under FAS No. 109, Accounting for Income Taxes, the tax benefit related to the U.S. loss for these interim periods was required to be reserved in a valuation allowance due to the uncertainty regarding the ultimate realization of the tax benefit of such losses. The income tax expense recognized for the interim periods relates to income taxes on certain foreign subsidiaries’ income.

C. Comprehensive Income (Loss)

For the quarters ended December 31, 2004 and 2003, the Company’s comprehensive income (loss) was $2,510 and $(6,341), respectively. For the six months ended December 31, 2004 and 2003, the Company’s comprehensive income (loss) was $3,902 and $(12,487), respectively. These amounts include the period’s net income (loss) and the Company’s other component of comprehensive income, foreign currency translation adjustments.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~September~~December 3031, ~~2003~~2004 (Dollars in thousands~~, except per share data~~)

BD. ~~Voluntary~~ ~~Bankruptcy~~Financing ~~Filing (continued)~~Facilities

~~honor~~The ~~certain~~Company’s ofBank ~~its~~Credit ~~pre-petition~~Facility ~~obligations~~is a $30,000 ~~including~~facility ~~claims~~that consists of ~~critical~~a term loan that requires ~~trade~~monthly ~~creditors~~principal payments of $183 ($8,800 ~~customer~~outstanding ~~warranty~~at ~~and~~December 31, ~~rebate~~2004) ~~programs~~with a revolving credit loan, ~~and~~subject ~~employee~~to ~~wages~~availability, making up the remainder of the facility. Availability of borrowings under the revolving credit loan is determined by the Company’s eligible account receivables and inventories. The amount outstanding under the revolving credit loan was $642 at ~~benefits~~December 31, 2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (6.00% at December 31, 2004). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus 1.50% (6.75% at December 31, 2004). The final maturity of the Bank Credit Facility is December 10, 2008. The revolving credit loan amount at December 31, 2004 has been classified as a current liability in accordance with the ~~ordinary~~provisions ~~course~~of Emerging Issues Task Force Issue No. 95-22, Balance Sheet Classification of ~~business~~Borrowings Outstanding under Revolving Credit Agreements that include Both a Subjective Acceleration Clause and a Lock-box Arrangement.

~~Plan of Reorganization—~~The ~~Company~~Bank ~~has~~Credit ~~had~~Facility ~~ongoing~~includes ~~negotiations~~affirmative ~~with~~and ~~the Official~~negative ~~Committee~~covenants ofcustomary ~~Unsecured~~for ~~Creditors~~this ~~(the~~type ~~“Creditors Committee”). In the absence~~ of an agreement ~~with the Creditors Committee~~, onprohibits ~~April 28,~~cash ~~2003~~dividends ~~the Company~~and ~~filed~~includes afinancial ~~Disclosure~~covenants ~~Statement~~relating ~~with respect~~ to aMinimum ~~Joint~~Adjusted EBITDA ~~Chapter 11~~and ~~Plan~~Capital ~~of Reorganization~~Expenditures. ~~(the~~The ~~“Original~~principal ~~Plan”)~~security ~~with~~for the ~~Bankruptcy~~Bank ~~Court~~Credit ~~based~~Facility is substantially onall ~~one~~ of ~~its last restructuring proposals to~~ the ~~Creditors Committee.~~personal ~~Under~~property ~~the proposed terms~~ of the ~~Original~~Company ~~Plan, unclassified claims, including administrative claims, priority tax claims~~ and ~~the~~each ~~DIP Facility claim, would have been paid in cash on the effective date~~ of ~~the~~its ~~Original~~North ~~Plan. In~~American ~~addition, the existing pre-petition Revolving Credit Facilities claim, other secured claims~~ and ~~classified priority claims would have been paid in~~United ~~cash~~Kingdom ~~(except~~subsidiaries. toThe ~~the~~term ~~extent~~loan ~~that~~is ~~the Company sought to reinstate~~ secured ~~claims),~~ ~~either~~by onsubstantially ~~the~~all ~~effective date~~ of the ~~Original~~Company’s ~~Plan~~machinery ~~or in installment~~and ~~payments,~~equipment ~~as provided~~ in ~~the~~North ~~Original~~America ~~Plan.~~and ~~Further,~~ the ~~Original~~United ~~Plan proposed~~Kingdom ~~exchanging for existing unsecured debt~~ and ~~preferred and common stock, a new debt issue and new preferred and common stock issues. Unsecured creditors of ADLT 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~~facility ~~Stock~~in ~~would~~Urbana, ~~have received common~~Illinois, ~~stock~~and ~~that~~is ~~would~~cross-collateralized ~~have~~and ~~been~~secured ~~diluted~~with ~~to 2% if~~ the ~~Company~~revolving ~~failed~~credit ~~to redeem the new preferred stock within three years~~loan.

~~Based~~On onDecember 10, ~~negotiations with the official Creditors Committee and General Electric Company (“GE”)~~2003, ~~which~~in atconnection ~~that~~with ~~time owned all of~~ the Company’s ~~Series A Preferred~~emergence ~~Stock~~from ~~outstanding,~~bankruptcy ~~subsequent to the filing of the Original Plan~~proceedings, the ~~Debtors determined that a consensual restructuring was more probable than the Original Plan. On May 28, 2003, the~~ Company’s ~~Board~~Old of8% ~~Directors~~Senior ~~approved~~Notes ~~a revised~~were ~~Plan~~cancelled ~~of Reorganization (the “Noteholder Plan”)~~ and, ~~an agreement~~ in ~~principle~~ onexchange ~~the~~for ~~Noteholder~~such ~~Plan~~Old ~~was~~Senior ~~reached~~Notes, ~~with~~ the ~~Creditors Committee and~~ ~~GE. The Noteholder Plan provided substantially the same treatment for creditors of the~~ Company asissued ~~under the Original Plan except as otherwise noted herein. In particular, the Noteholder Plan provided that the~~ $~~100~~114,~~000~~400 8of 11% Senior Notes ~~and unpaid interest~~ due onMarch 2009 ~~such~~(“New Notes”). ~~would~~The beaggregate ~~exchanged for new notes having a~~ principal amount of ~~$40,000. In addition,~~ the ~~holders~~New ~~of the~~ Notes ~~would~~is ~~have~~equal ~~received~~to ~~common~~the ~~stock representing in~~ aggregate ~~approximately 79.2%~~principal ofamount ~~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’s ~~would~~Old ~~have established a new~~Senior ~~management~~Notes, ~~incentive~~plus ~~plan~~interest which would have ~~had~~accrued ~~shares~~and ~~available~~been ~~equal~~unpaid ~~to approximately~~through ~~9.2%~~December 31, ~~of the common stock~~2003. The ~~holders~~New Notes ofare redeemable at the Company’s ~~Common Stock~~option, ~~including~~in ~~holders~~whole ofor ~~existing warrants and options who acquire shares pursuant to the terms of such instruments, would have received~~ in ~~aggregate $2~~part,~~850,~~ ~~less~~at ~~the~~any ~~professional~~time ~~fees~~at ~~(up~~a ~~to $350) incurred by the committee~~redemption ~~representing~~price ~~the~~equal ~~common shareholders. The Noteholder Plan also provided for incentives~~ to GEthe ~~for~~principal ~~incremental~~amount ~~purchases~~of ~~from~~ the ~~Company~~New ~~(other~~Notes ~~than~~plus ~~APL Engineered~~accrued ~~Materials, Inc~~interest.) ~~and~~Interest ~~management~~on ~~fees~~the ~~to certain noteholders, and, if~~New ~~management~~Notes ~~services~~is ~~were~~payable ~~requested~~semi-annually byon ~~the~~March 31 ~~Company,~~and ~~compensation to GE~~September 30. ~~The~~ ~~Noteholder Plan was not filed.~~

The Indenture for the New Notes 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.

Advanced Lighting Technologies, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) ~~September~~December 3031, ~~2003~~2004 (Dollars in thousands~~, except per share data~~)

BE. ~~Voluntary~~ ~~Bankruptcy~~Saratoga ~~Filing (continued)~~Investment

OnSaratoga ~~August 15~~received, ~~2003, GE sold its equity interests~~ in ~~the~~exchange ~~Company to Saratoga Lighting Holdings, LLC (“Saratoga Lighting”)~~ for ~~cash~~cancellation ~~consideration~~ of ~~$12,000. Immediately~~its ~~following~~holdings ~~Saratoga Lighting’s purchase~~ of the GEPredecessor ~~equity~~Company’s ~~interests,~~Common Stock and inOld ~~accordance~~Preferred ~~with the agreement between Saratoga Lighting and GE~~Stock, ~~Messrs. Breen~~ and ~~Mohn,~~an ~~who had been nominated by GE to the Company’s Board of Directors~~$18,000 ~~resigned~~cash ~~as directors of the Company. Following such acquisition~~investment, ~~Saratoga~~new ~~Lighting~~redeemable ~~informed~~preferred ~~the~~stock 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~~Series A ~~Joint Plan~~Preferred”) ~~on August 15, 2003. The Saratoga Joint Plan provides substantially the same treatment for creditors~~ of the ~~Company~~ asReorganized ~~under the Original Plan except as otherwise noted herein. In particular~~Company, ~~the~~with ~~Saratoga~~an ~~Joint~~initial ~~Plan~~liquidation ~~provided~~preference ~~that the~~ of $~~100~~29,000, ~~8% Senior Notes~~ and ~~unpaid~~approximately ~~interest~~91% ~~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~~common tostock ~~be paid 85%~~ of the ~~amounts~~Reorganized ofCompany ~~their~~(on ~~claims~~a ~~shortly~~diluted ~~after~~basis, ~~the~~assuming ~~effective~~issuance ~~date~~ of ~~the~~common ~~Saratoga~~stock ~~Joint Plan or 100%~~ of the ~~amounts~~Reorganized ofCompany ~~their claims,~~to ~~plus~~its ~~interest,~~senior ~~over~~management ~~one~~pursuant ~~year. The preferred shareholder will receive,~~to ~~in exchange for~~ the ~~existing Series A Stock and an $18,000 cash investment,~~ new ~~redeemable~~ ~~preferred~~management ~~stock~~incentive ~~and approximately 90~~plan).8% ofUnder 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 Reorganized Company’s ~~Common Stock, including holders of existing warrants and options who acquire shares pursuant to the terms of such instruments, would~~ have ~~received~~been ~~the same consideration as under the Noteholder Plan~~issued. ~~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.

OnThe ~~October~~Series ~~28,~~A ~~2003,~~Preferred ~~the~~has ~~Company,~~a ~~Saratoga,~~liquidation ~~the~~preference ~~Creditor’s~~of ~~Committee~~$1 ~~and certain~~per ~~holders~~share, ofplus dividends at the ~~Company’s~~rate of 8% ~~Senior~~per ~~Notes agreed~~annum, ~~subject~~when toand ~~Bankruptcy Court~~if ~~approval,~~declared. toThe ~~amend~~cumulative ~~the~~undeclared ~~Saratoga~~dividends ~~Joint~~were ~~Plan.~~$2,489 ~~The~~as ~~Bankruptcy~~of ~~Court approved~~December ~~the~~31, ~~agreement~~2004. ~~and~~The ainitial ~~supplement~~carrying toamount of the ~~disclosure~~Series A ~~statement~~Preferred ~~describing~~was set at $29,000, the ~~terms~~estimated offair value at the ~~agreement~~date onof ~~October 30,~~issuance. ~~2003~~The ~~and~~Holder of the ~~above~~Series A ~~named~~Preferred ~~parties~~may, ~~entered~~by ~~into~~notice, require the ~~agreement~~Company to ~~amend~~redeem the ~~Saratoga~~outstanding ~~Joint~~Series A ~~Plan~~Preferred onwithin ~~October~~21 ~~31,~~days ~~2003~~following the occurrence of certain corporate events. The ~~amendments~~ ~~provide~~Company ~~that~~may redeem the ~~aggregate~~Series A ~~principal~~Preferred ~~amount~~in ofwhole, ~~the~~but ~~New~~not ~~Notes~~in ~~to be~~part, ~~issued~~at toany ~~holders~~time. ofThe ~~the~~redemption 8%price ~~Senior~~for ~~Notes~~the beSeries A ~~set~~Preferred atis ~~$114,400,~~equal ~~subject~~ to ~~adjustment~~ if the ~~Company~~liquidation preference ~~emerges~~amount ~~from~~for ~~bankruptcy~~such ~~protection~~shares. ~~after~~The ~~January~~Series ~~1, 2004,~~A ~~the~~Preferred ~~interest~~shares ~~rate~~are each entitled to one vote on each ~~the~~matter ~~New~~presented ~~Notes~~to beshareholders ~~set~~of atthe ~~11%~~Company, ~~and~~as ~~the~~well ~~maturity~~as ~~date of~~one ~~the~~vote ~~New~~on ~~Notes~~each matter required to be ~~set~~voted atupon ~~March~~by the Series ~~31,~~A ~~2009~~Preferred ~~and~~as ~~place~~a ~~certain~~class. ~~limitations~~As ona consequence, the Series A Preferred ~~transactions~~represents ~~involving~~approximately 96.3% of the ~~CEO~~voting power of the Company. ~~The~~at ~~parties~~December 31, to2004. ~~the~~As ~~agreement~~of ~~have~~December 31, ~~agreed~~2004, toSaratoga ~~support~~held ~~the~~98.5% ~~Saratoga~~of ~~Joint~~the ~~Plan~~voting ~~following~~power ~~implementation~~ of ~~these~~ ~~amendments~~the Company.

~~Advanced~~Item ~~Lighting~~2. ~~Technologies,~~Management’s ~~Inc. Notes~~Discussion toand ~~Condensed~~Analysis ~~Consolidated~~of Financial ~~Statements~~Condition ~~(Unaudited) September 30,~~and ~~2003 (Dollars~~Results inof ~~thousands, except per share data)~~ Operations

~~B. Voluntary~~(Dollars ~~Bankruptcy~~in ~~Filing (continued~~thousands)

~~Plan~~This ~~will~~report beon ~~approved~~Form by10-Q may contain forward-looking statements that involve risks and uncertainties. On February 5, 2003, the Company and six of its United States subsidiaries (the “Debtors”), filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy ~~Court~~Code. Effective December 10, ~~that~~2003, the ~~Saratoga~~Debtors ~~Joint~~emerged ~~Plan~~from bankruptcy protection ~~will~~pursuant ~~receive~~to the ~~required~~Bankruptcy Court’s confirmation of the Debtors’ Fourth Amended Chapter 11 Plan of ~~approvals~~Reorganization (the “Plan”). The operation of the ~~creditors~~Company and its subsidiaries following emergence from bankruptcy court protection involves risks and uncertainties, ifincluding ~~necessary~~the strength of the recovery of the U.S. economy, ~~equity~~trends ~~securityholders~~affecting the Company’s financial condition or results of operations, continued growth of the metal halide lighting market, the Company’s operating strategy ~~Debtors~~and growth strategy, potential acquisitions or ~~that~~joint ventures by the ~~Debtors~~Company, ~~will~~litigation affecting the Company, the timely development and market acceptance of new products, 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, 2004. For this purpose, any statement contained herein that is not a statement of historical fact may be ~~able~~deemed to ~~implement~~be a forward-looking statement. Without limiting the ~~Saratoga~~foregoing, the ~~Joint~~words ~~Plan~~“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.

~~Upon~~The ~~the~~following ~~confirmation~~is ~~of a plan of reorganization the Company~~management’s ~~investment banker~~discussion ~~will~~and ~~receive,~~analysis inof ~~addition~~certain tosignificant ~~monthly~~factors ~~fees~~which ~~and~~have affected ~~reimbursement~~the results of ~~expenses, fees~~operations ~~based~~and onshould ~~formulas~~be ~~contained~~read in ~~the~~conjunction ~~Company’s agreement~~ with the ~~investment~~accompanying ~~banker,~~unaudited ~~which~~Condensed ~~will~~Consolidated ~~aggregate~~Financial ~~between~~Statements ~~$1,000~~ and ~~$3,000.~~notes ~~All such fees are subject to Bankruptcy Court approval~~thereto. ~~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~~General ~~September 30, 2003, for consultants, investment bankers, attorneys and other~~ ~~costs related to the Company’s efforts to reorganize under Chapter 11~~ ~~Bankruptcy.~~

~~Accounting~~The ~~Impact—Beginning~~Company ~~with~~is ~~the~~an ~~third~~innovation-driven ~~quarter of fiscal 2003~~designer, ~~ADLT~~manufacturer ~~was required~~and tomarketer ~~follow~~focused ~~Statement~~on ofmetal ~~Position~~halide lighting ~~90-7~~products, ~~Financial~~including ~~Reporting~~materials, bysystem ~~Entities in~~components, ~~Reorganization~~systems ~~Under~~and ~~the~~equipment. ~~Bankruptcy~~Metal ~~Code~~halide lighting ~~(“SOP~~is ~~90-7”).~~currently ~~Pursuant~~used toprimarily ~~SOP 90-7,~~in ~~ADLT’s~~commercial ~~pre-petition~~and ~~liabilities~~industrial ~~that~~applications ~~are~~such ~~subject~~as ~~to compromise are~~factories ~~reported~~and ~~separately~~distribution oncenters, ~~the~~outdoor ~~balance~~site ~~sheet~~and atlandscape anlighting, ~~estimate~~sports offacilities ~~the~~and ~~amount~~large ~~that is~~retail ~~expected~~spaces tosuch beas ~~allowed by the Bankruptcy Court~~superstores. ~~Obligations~~Systems, ofcomponents ~~ADLT subsidiaries~~and ~~not~~materials ~~covered~~revenue byis ~~the~~recognized ~~Filing~~when products are ~~classified~~shipped, onand ~~the~~equipment ~~condensed consolidated~~revenue ~~balance~~is ~~sheet~~recognized ~~based~~under ~~upon maturity dates or~~ the ~~expected~~percentage ~~dates~~ of ~~payment.~~ ~~Liabilities~~completion ~~subject to compromise at September 30, 2003 were as~~method. ~~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

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 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.

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.

11 Table of Contents

~~Table~~Results of ~~Contents~~Operations

~~Advanced~~The ~~Lighting~~Company’s ~~Technologies~~emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start accounting in accordance with Statement of Position No. 90-7, ~~Inc~~Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. For financial reporting ~~Notes~~purposes, tothe ~~Condensed~~Company ~~Consolidated~~used ~~Financial~~an ~~Statements~~effective ~~(Unaudited)~~date of December 31, 2003. References to “Predecessor ~~September~~Company” refer to the Company prior to December 3031, 2003. References to “Reorganized Company” ~~(Dollars~~refer into ~~thousands~~the Company on and after December 31, ~~except~~2003. ~~per~~A ~~share~~black ~~data)~~line has been drawn between the results of operations noted below to distinguish between the Reorganized Company and the Predecessor Company. The results of operations for the Reorganized Company and Predecessor Company are not considered comparable in all respects.

~~B. Voluntary~~The ~~Bankruptcy~~following ~~Filing~~table ~~(continued)~~sets forth, as a percentage of net sales, certain items in the Company’s Condensed Consolidated Statements of Operations for the three months ended December 31, 2004 and 2003:

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:


	Reorganized Company					Predecessor Company
	Three Months Ended					Three Months Ended
	December 31, 2004					December 31, 2003
Net sales	$	41,122		100.0	%	$	37,678		100.0	%

Costs and expenses:
Cost of sales		24,339		59.2			23,182		61.5
Marketing and selling		5,947		14.5			6,010		16.0
Research and development		1,570		3.8			1,709		4.4
General and administrative		3,603		8.7			3,119		8.8
Amortization of intangible assets		248		0.6			89		0.3

Income from operations		5,415		13.2			3,569		9.0

Other income (expense):
Interest expense		(3,469	)	(8.4	)		(4,039	)	(10.6	)
Interest income		104		0.2			105		0.3
Income from investments		3		—			(13	)	—
Gain on restructuring		—		—			1,184		1.7
Write-off of deferred loan costs		—		—			(2,251	)	(3.2	)
Reorganization expenses		—		—			(5,635	)	(16.0	)

Income (loss) before income taxes and minority interest		2,053		5.0			(7,080	)	(18.8	)
Income tax expense		259		0.6			272		0.5

Income (loss) before minority interest		1,794		4.4			(7,352	)	(19.3	)
Minority interest in income of consolidated subsidiary		(188	)	(0.5	)		(122	)	(0.3	)

Net income (loss)	$	1,606		3.9	%	$	(7,474	)	(19.6	)%

~~Condensed~~Factors that have affected the results of operations for the second quarter of fiscal 2005 as ~~Consolidated~~compared ~~Balance~~to ~~Sheet~~the second quarter of ~~Debtors-in-Possession~~fiscal ~~(Unaudited)~~2004 are discussed below.

~~September 30, 2003~~12

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

Net Sales. Net sales increased 9.1% to $41,122 in the second quarter of fiscal 2005 from $37,678 in the second quarter of fiscal 2004. Second quarter metal halide product sales increased 12% to $31,616 compared with $28,154 in the same period last year. This increase in metal halide product sales is primarily the result of an increase in lamp and material sales. Sales of APL materials increased 5% over the same quarter a year ago. Geographically, these materials sales decreased 15% in the U.S. and increase 17% outside the U.S. Non-metal halide lighting product sales decreased 27% over the year ago period due primarily to a decrease in power supply sales.

~~Table~~Total lighting product sales inside the U.S. increased 5% in the second quarter of ~~Contents~~fiscal 2005 as compared to the same period a year ago due to a 12% increase in lamp sales offset by a decrease in U.S materials and power supplies sales. Total lighting product sales outside the U.S. increased 5% as compared to the year ago period due to increases in lamp and material sales offset by a decrease in non-metal halide power supply sales.

~~Advanced~~Pricing ~~Lighting~~in ~~Technologies~~the metal halide lighting business is competitive, ~~Inc.~~and prices for the Company’s products ~~Notes~~have toremained ~~Condensed~~flat ~~Consolidated~~or ~~Financial~~declined ~~Statements~~slightly. ~~(Unaudited) September 30,~~The ~~2003 (Dollars~~introduction inof ~~thousands,~~new ~~except~~products ~~per~~has ~~share~~helped ~~data)~~to stabilize the Company’s product pricing.

BCost of Sales. ~~Voluntary~~ ~~Bankruptcy~~Cost ~~Filing~~of sales increased 5.0% to $24,339 in the second quarter of fiscal 2005 from $23,182 in the second quarter of fiscal 2004. As a percentage of net sales, cost of sales decreased to 59.2% in the second quarter of fiscal 2005 from 61.5% in the second quarter of fiscal 2004. The reduction in cost of sales as a percentage of sales is due to the transfer of lamp and power supply production to India, improvements in cost management, an improvement in the product mix (~~continued~~more lamp and material sales and less power supply sales), and a reduction in depreciation expense of $532 related primarily to the effects of the application of fresh-start accounting principles.

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	)

Marketing and Selling Expenses. Marketing and selling expenses decreased 1.0% to $5,947 in the second quarter of fiscal 2005 from $6,010 in the second quarter of fiscal 2004. As a percentage of net sales, marketing and selling expenses decreased to 14.5% in the second quarter of fiscal 2005 from 16.0% in the second quarter of fiscal 2004. This decrease resulted from the significant increase in sales that occurred while marketing and sales expenses were held relatively constant.

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

Research and Development Expenses. Research and development expenses decreased 8.1% in the second quarter of fiscal 2005 to $1,570 from $1,709 in the second quarter of fiscal 2004. Research and development expenses incurred related to: (i) expansion of the product line and continued improvement in lamp technology including the line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs) intended to replace many first generation metal halide lamps in industrial and commercial applications; (ii) continual development of new materials for the world’s major lighting manufacturers; (iii) development and testing of electronic and electromagnetic power supply systems; and, (iv) improvement of coating processes of optical thin-films to broaden the applications and development of new thin-film materials, and using coatings to develop improvements to lighting technologies. The Company expects to continue to make substantial expenditures on research and development to enhance its position as the leading innovator in the metal halide lighting industry.

13General and Administrative Expenses. General and administrative expenses increased 15.5% to $3,603 in the second quarter of fiscal 2005 from $3,119 in the second quarter of fiscal 2004. The increase in general and administrative expenses was due to an increase in bonus expense of $786, including $507 for the CEO retention bonus, offset by reductions in corporate overhead costs. The after-tax amount of the

~~Table of Contents~~13

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

~~C. Basis~~CEO ofretention ~~Presentation~~bonus, ~~and~~approximately ~~Accounting~~$286, ~~Change~~is scheduled to be applied against the Company’s receivable from the CEO in July 2005.

~~Basis~~Amortization of ~~Presentation~~Intangible Assets. Amortization expense increased to $248 in the second quarter of fiscal 2005 from $89 in the second quarter of fiscal 2004. The increase was due to the amortization of identifiable intangibles established in accordance with the provisions of fresh-start accounting.

~~The~~Income ~~accompanying~~from 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-XOperations. ~~Accordingly,~~As ~~they do~~a ~~not~~result ~~include all the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion~~ of ~~management,~~ the ~~financial~~items ~~statements~~noted ~~include all material adjustments necessary for a fair presentation~~above, ~~including adjustments of a normal and recurring nature as well as~~ the ~~impact of the~~ Company’s ~~Chapter 11 Filing.~~realized ~~For~~income ~~further information, refer to the consolidated financial~~from ~~statements~~operations ~~and notes thereto included~~ in the ~~Company’s~~second ~~Annual~~quarter ~~Report~~of onfiscal ~~Form 10-K~~2005 ~~for~~of ~~the year ended June 30~~$5,415 ~~2003.~~as ~~Operating~~compared ~~results~~to ~~for~~income ~~the~~from ~~three~~operations ~~months~~of ~~and ended September 30~~$3,569 ~~2003~~in ~~are not necessarily indicative of~~ the ~~results that may be expected for the full-~~year ~~ending~~ago ~~June 30, 2004~~period.

~~The~~Interest ~~preparation~~Expense. ofInterest ~~financial~~expense ~~statements~~decreased to $3,469 in ~~conformity~~the ~~with~~second ~~accounting~~quarter of fiscal 2005 from ~~principles~~$4,039 ~~generally~~in ~~accepted~~the second quarter of fiscal 2004. Interest expense in the ~~United~~second ~~States~~quarter of ~~America~~fiscal ~~requires~~2004 ~~management~~included to$1,302 ~~make~~of ~~estimates~~amortization and ~~assumptions~~write-off ~~that~~of ~~affect~~deferred ~~reported~~loan ~~amounts~~costs related to the Company’s Debtor-in-Possession Bank Facility and Old Senior Notes. Amortization of deferred loan costs ~~related~~totaled ~~disclosures~~$47 in the second quarter of fiscal 2005. ~~Actual~~The ~~results~~remainder ~~could~~of ~~differ~~the difference in interest expense is primarily due to the increase in the interest rate on the Company’s New Senior Notes to 11% from ~~those~~8% ~~estimates~~for the Old Senior Notes.

~~Accounting~~Income ~~Changes~~(Loss) from Investments. The income from investments in the second quarter of fiscal 2005 of $3 represents the equity income from the Company’s 40% ownership of Aldrich-APL LLC, a manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications. The loss from investments in the second quarter of fiscal 2004 of $(13) represents the equity loss from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products. The Final Plan provided that the holders of the Predecessor Company’s Common Stock (other than Saratoga Lighting and the Predecessor Company’s CEO) receive the benefit of certain equity investments held by the Predecessor in Fiberstars. As a result, no further equity income or loss related to this investment has been recorded subsequent to December 31, 2003.

InGain ~~January~~on ~~2003,~~Restructuring. ~~the~~The ~~FASB~~gain ~~issued~~on ~~Interpretation~~restructuring ~~(FIN) No. 46,~~in ~~Consolidation~~fiscal ~~of Variable~~2004 ~~Interest~~included ~~Entities,~~a annet ~~Interpretation~~increase ofin ~~Accounting Research Bulletin~~the ~~No. 51,~~receivable ~~Consolidated~~from ~~Financial~~officer ~~Statements. The provisions~~ of ~~FIN~~$1,169 ~~No. 46~~related ~~are effective~~to ~~immediately~~the ~~for~~settlement ~~interests~~approved ~~acquired~~by inthe ~~Variable~~bankruptcy ~~Interest Entities (VIE) after January 31, 2003~~court. The ~~Company is required to account for interests~~ ingain ~~VIEs existing~~ on ~~January 31,~~restructuring ~~2003,~~also ~~under~~includes the ~~provisions~~impact of ~~FIN~~the ~~No. 46~~implementation as of ~~July 1,~~ ~~2003. The FIN addresses~~ the ~~consolidation~~Plan ofapproved ~~business~~by ~~enterprises of~~the ~~variable~~court ~~interest entities~~ and ~~certain~~a ~~required~~settlement ~~disclosures~~with GE related to ~~such relationships.~~amounts ~~The~~owed ~~Company~~to ~~has~~and ~~determined~~receivable ~~that~~from ~~none of its investments meet the requirement for consolidation or disclosure under this FIN~~GE.

InWrite-off ~~May 2003, the FASB issued Statement~~ of ~~Financial~~Deferred ~~Accounting~~Loan ~~Standards (FAS) No~~Costs. ~~150,~~ ~~Accounting~~The ~~for~~write-off ~~Certain~~of ~~Financial~~deferred ~~Instruments~~loan ~~with~~costs ~~Characteristics~~ of ~~Both~~ ~~Liabilities~~$2,251 ~~and~~represented ~~Equity. FAS No. 150 changes~~ the ~~classification in the~~ ~~statement~~write-off of ~~financial~~deferred ~~position~~loan ofcosts ~~certain~~related ~~common financial instruments from either equity or mezzanine presentation~~ to ~~liabilities~~the ~~and~~$100,000 ~~requires~~8% anSenior ~~issuer of~~Notes ~~those financial statements to recognize changes~~ in ~~fair~~accordance ~~value or redemption~~with ~~amount,~~Emerging asIssues ~~applicable,~~Task inForce ~~earnings.~~Issue ~~FAS~~ No. ~~150~~ is(“EITF”) ~~effective for the Company as of July 1~~96-19, ~~2003.~~Debtor’s ~~The~~Accounting ~~provisions~~for ofa ~~FAS~~Modification ~~No. 150 had no impact on the~~or ~~condensed~~Exchange ~~consolidated~~of ~~financial~~Debt ~~statements~~Instruments.

14Reorganization Expenses. Reorganization expenses, totaling $5,635 in the second quarter of fiscal 2004, reflected the cost of consultants, investment bankers and attorneys related to the Company’s efforts to reorganize under Chapter 11 Bankruptcy.

~~Table~~Income (Loss) before Income Taxes and Minority Interest. The Company had income before income taxes and minority interest of ~~Contents~~$2,053 in the second quarter of fiscal 2005 as compared to a loss before income taxes and minority interest of $(7,080) in the second quarter of fiscal 2004.

~~Advanced~~Income ~~Lighting~~Tax ~~Technologies, Inc~~Expense. ~~Notes~~ toIncome ~~Condensed~~tax ~~Consolidated~~expense ~~Financial~~was ~~Statements~~$259 ~~(Unaudited) September 30,~~for ~~2003~~the second quarter of fiscal 2005 as compared ~~(Dollars~~to $272 in ~~thousands,~~the ~~except~~second ~~per~~quarter ~~share~~of ~~data)~~fiscal 2004. The income tax expense in both quarters related to certain of the Company’s foreign operations.

~~C. Basis of Presentation and Accounting Change (continued)~~14

IncomeTable Taxes of Contents

~~Actual~~At ~~income~~June 30, ~~tax~~2004, ~~expense~~the ~~for~~Company ~~the~~had ~~three~~net ~~month~~operating ~~interim~~loss ~~periods~~carryforwards ~~differ~~of ~~from~~$130,833 ~~the amounts~~available ~~computed~~to byreduce future ~~applying~~United ~~the~~States ~~U.S.~~federal ~~Federal~~taxable income, ~~tax~~which ~~rate~~expire of2008 ~~35%~~through to2024. ~~the income~~On ~~(loss)~~August ~~before~~15, ~~income~~2003, Saratoga ~~taxes~~purchased ~~because~~the ~~under~~preferred ~~FAS~~and Nocommon shares owned by GE. ~~109,~~ ~~Accounting~~This ~~for~~transaction caused an ~~Income~~ownership ~~Taxes,~~change ~~the~~greater ~~tax~~than ~~benefit~~50% ~~related~~which towill limit the ~~loss~~annual ~~for~~net ~~these~~operating ~~interim~~loss ~~periods~~the ~~was~~Company can ~~required~~use to beoffset ~~reserved~~any infuture ataxable ~~valuation~~income ~~allowance~~pursuant ~~due~~ to Section 382 of the ~~uncertainty~~Internal Revenue Code. This ~~regarding~~limitation is effective with the ~~ultimate~~fiscal ~~realization~~year ofended ~~the~~June 30, ~~tax~~2004. ~~benefit~~The Company also has a capital loss carryforward of ~~such~~$40,117 ~~losses~~available to reduce future capital gains. The usage of this ~~income~~carryforward ~~tax~~will ~~expense~~also ~~recognized~~be ~~for~~limited ~~the~~as ~~interim~~a ~~periods~~result ~~relates~~of tothe ~~income~~ownership ~~taxes on~~change. ~~certain~~This ~~foreign~~carryforward ~~subsidiaries’~~expires in ~~income~~2007.

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

AtAlso, ~~September~~at June 30, ~~2003~~2004, the Company had ~~four~~foreign ~~stock~~net ~~option~~operating ~~plans.~~loss ~~The~~carryforwards ~~Company accounts~~ for ~~these~~tax ~~plans under the recognition and measurement principles (the~~purposes ~~“intrinsic~~totaling ~~value” method) of APB Opinion No. 25 Accounting for Stock Issued to Employees~~$1,163 ~~and~~that ~~related~~expire ~~Interpretations.~~2006 ~~No stock-based compensation cost is reflected in net income, as all options granted under the plans had an exercise price equal~~ to ~~the~~2007 ~~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~~$9,395 ~~Accounting~~that ~~for~~have ~~Stock-Based~~no ~~Compensation,~~expiration ~~to its stock options~~dates.

		Three Months Ended
		September 30,
		2003			2002
Net income (loss), as reported		$	(6,372	)	$	(1,481	)
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax benefits			(167	)		(464	)
Pro forma net income (loss)		$	(6,539	)	$	(1,945	)
Earnings (loss) per share
	(basic and diluted):
	As reported	$	(.27	)	$	(.18	)
	Pro forma	$	(.27	)	$	(.20	)

D. ComprehensiveTable Incomeof (Loss) Contents

~~For~~The Company’s subsidiaries have fiscal years that end on the ~~quarters~~Sunday ~~ended~~closest ~~September~~to June 30, ~~2003~~ and ~~2002,~~fiscal quarters that end on the ~~Company’s~~Sunday ~~comprehensive~~closest to the respective calendar quarter end. The first six ~~income~~months ~~(loss)~~of fiscal 2005 consisted of 27 ~~was~~weeks ~~$(6,146)~~as ~~and~~compared ~~$(1,940),~~to ~~respectively.~~the ~~These~~first ~~amounts~~six ~~include~~months of fiscal 2004 that ~~net~~consisted ~~income~~of ~~(loss)~~26 weeks. As a result, an increase of approximately 4% in sales and costs and expenses resulted from the ~~Company’s~~additional ~~other~~week ~~component~~in the first six months of ~~comprehensive~~fiscal ~~income,~~2005 compared to the ~~foreign~~first ~~currency~~six ~~translation~~months ~~adjustments~~of fiscal 2004. The three month periods ended December 31, 2004 and 2003 contained 13 weeks each.

15The following table sets forth, as a percentage of net sales, certain items in the Company’s Condensed Consolidated Statements of Operations for the six months ended December 31, 2004 and 2003:


	Reorganized Company					Predecessor Company
	Six Months Ended					Six Months Ended
	December 31, 2004					December 31, 2003
Net sales	$	79,700		100.0	%	$	70,510		100.0	%

Costs and expenses:
Cost of sales		46,943		58.9			43,361		61.5
Marketing and selling		11,842		14.9			11,311		16.0
Research and development		3,112		3.9			3,095		4.4
General and administrative		7,474		9.4			6,208		8.8
Amortization of intangible assets		489		0.6			177		0.3

Income from operations		9,840		12.3			6,358		9.0

Other income (expense):
Interest expense		(6,892	)	(8.6	)		(7,459	)	(10.6	)
Interest income		197		0.3			188		0.3
Income from investments		489		0.6			3		—
Gain on restructuring		—		—			1,184		1.7
Write-off of deferred loan costs		—		—			(2,251	)	(3.2	)
Reorganization expenses		—		—			(11,258	)	(16.0	)

Income (loss) before income taxes and minority interest		3,634		4.6			(13,235	)	(18.8	)
Income tax expense		632		0.8			360		0.5

Income (loss) before minority interest		3,002		3.8			(13,595	)	(19.3	)
Minority interest in income of consolidated subsidiary		(339	)	(0.5	)		(251	)	(0.3	)

Net income (loss)	$	2,663		3.3	%	$	(13,846	)	(19.6	)%

~~Advanced~~Net ~~Lighting~~Sales. ~~Technologies~~Net sales increased 13.0% to $79,700 ~~Inc~~in the first six months of fiscal 2005 from $70,510 in the first six months of fiscal 2004. Approximately one-third of this increase was due ~~Notes~~to the Company’s subsidiaries having an additional week in the first six months of fiscal 2005 as compared to ~~Condensed~~the ~~Consolidated~~first ~~Financial~~six ~~Statements~~months ~~(Unaudited)~~of fiscal 2004. Metal halide product sales for the first six ~~September 30~~months of fiscal 2005 increased 18% to $61,967 ~~2003~~compared with $52,435 in the same period last year. This increase in metal halide product ~~(Dollars~~sales is partly due to the additional week in ~~thousands~~the quarter, ~~except~~but ~~per~~was ~~share~~primarily ~~data)~~the result of an increase in lamp and material sales. Sales of APL materials increased 9% over the same period a year ago, a portion of which was due to the additional week. Geographically, these materials sales decreased 6% in the U.S. and increased 18% outside the U.S. Non-metal halide lighting product sales decreased 23% over the year ago period due primarily to a decrease in power supply sales.

~~E. Sale of Fixture Subsidiaries~~16

OnTable December 12, 2001 the Company completed the sale of a significant portion of its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and Ruud Lighting Europe Ltd. subsidiaries) to an investor group led by Alan J. Ruud. From January 1998 until the time of the transaction, Mr. Ruud was a director of the Company 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 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. Contents

~~The~~Total ~~notes~~lighting ~~are~~product ~~payable~~sales ~~December 1,~~inside ~~2006,~~the ~~although~~U.S. ~~the~~increased ~~Company~~11% ~~had~~in the ~~right, subject~~first tosix ~~Senior~~months ~~Noteholder consent, to require payment~~ of ~~$3,000~~fiscal ~~in principal~~2005 ~~amount~~as bycompared ~~surrender~~to ofthe ~~1,500,000~~same ~~shares~~period ofa ~~Company~~year ~~common~~ago ~~stock~~due atto ~~any~~the ~~time prior~~additional toweek ~~December 1,~~and ~~2002.~~to Asa ~~part~~19% ofincrease ~~this~~in ~~transaction,~~lamp sales ~~funded~~offset ~~indebtedness of~~by ~~$9,005~~a ~~continued~~decrease toin beU.S. ~~the~~materials ~~obligation~~sales. ofTotal ~~Ruud~~lighting ~~Lighting~~product ~~and~~sales outside the ~~Company~~U.S. ~~retained~~increased ~~title~~9% as compared to the ~~Rhode~~year ~~Island~~ago ~~manufacturing~~period ~~facility~~due ofto ~~Kramer~~the ~~Lighting. Upon~~additional ~~sale~~week ofand ~~the~~to ~~facility~~increases in ~~September~~lamp and ~~2002,~~material ~~the~~sales ~~Company~~offset ~~paid~~by ~~Ruud Lighting one~~non-~~third~~metal ofhalide ~~the~~power ~~net~~supply ~~proceeds or $427 in accordance with the terms of the agreement~~sales.

OnPricing ~~May 29, 2003, Ruud Lighting, Inc. and its shareholders filed claims with the Bankruptcy Court~~ in ~~connection with~~ the ~~final~~metal ~~settlement~~halide oflighting ~~purchase~~business ~~price~~is competitive, ~~alleged~~ ~~breaches of the agreement~~ and ~~post~~prices ~~closing~~for ~~administrative services of approximately $5,880. In addition, Ruud Lighting, Inc. filed claims with~~ the ~~Bankruptcy~~ ~~Court against the~~ Company’s ~~and its wholly-owned subsidiary, Venture~~products ~~Lighting~~have ~~International,~~remained ~~Inc.~~flat ~~relating~~or todeclined ~~a product warranty claim in an amount exceeding $50,000~~slightly. The ~~Company,~~introduction Ruud Lighting, Inc. and the Ruud Lighting shareholders entered into a settlement agreement dated September 8, 2003, settling the Ruud claims, as well as claims by the Debtors against Ruud Lighting, Inc. and its shareholders. Pursuant to the terms of ~~the settlement, the original notes were cancelled and the Company received~~ new ~~notes~~products ~~from~~has ~~the Ruud~~helped ~~Lighting, Inc. shareholders in the aggregate amount of $3,000. These notes are due December 1, 2006, but rebates earned on purchases by Ruud Lighting, Inc. pursuant~~ to ~~its current agreement with the Debtors will be credited toward~~stabilize ~~prepayment of~~ the ~~principal and interest on the notes. The~~ Company’s ~~will~~product ~~no longer be required to make payments on a non-cancelable operating lease for the unused Elkhorn, Wisconsin facility, but will receive from Ruud Lighting, Inc~~pricing. ~~one half of the amount of any sublease payments received. In addition, the~~ ~~agreement provides for mutual releases by the parties. The Bankruptcy Court~~ issued a final order approving the settlement on October 16, 2003. As a result of this settlement, the Company recorded a loss of $1,003 in 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.

16Cost of Sales. Cost of sales increased 8.3% to $46,943 in the first six months of fiscal 2005 from $43,361 in the first six months of fiscal 2004, due in part to the additional week during the first six months of fiscal 2005. As a percentage of net sales, cost of sales decreased to 58.9% in the first six months of fiscal 2005 from 61.5% in the first six months of fiscal 2004. The reduction in cost of sales as a percentage of sales is due to the transfer of lamp and power supply production to India, improvements in cost management, an improvement in the product mix (more lamp and material sales and less power supply sales), and a reduction in depreciation expense of $1,008 related primarily to the effects of the application of fresh-start accounting principles.

~~Table~~Marketing and Selling Expenses. Marketing and selling expenses increased 4.7% to $11,842 in the first six months of ~~Contents~~fiscal 2005 from $11,311 in the first six months of fiscal 2004, due primarily to the additional week during the first six months of fiscal 2005. As a percentage of net sales, marketing and selling expenses decreased to 14.9% in the first six months of fiscal 2005 from 16.0% in the first six months of fiscal 2004. The decrease resulted from the significant increase in sales that occurred while marketing and selling expenses were held relatively constant.

~~Advanced~~Research ~~Lighting~~and ~~Technologies~~Development Expenses. Research and development expenses increased 0.5% in the first six months of fiscal 2005 to $3,112 ~~Inc~~from $3,095 in the first six months of fiscal 2004, due to the additional week during the fiscal 2005 quarter. Research and development expenses incurred related ~~Notes~~to: (i) expansion of the product line and continued improvement in lamp technology including 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 ~~Condensed~~replace ~~Consolidated~~many ~~Financial~~first ~~Statements~~generation metal halide lamps in industrial and commercial applications; (~~Unaudited~~ii) continual development of new materials for the world’s major lighting ~~September~~manufacturers; (iii) ~~30,~~development ~~2003~~and testing of electronic and electromagnetic power supply systems; and, (~~Dollars~~iv) improvement inof ~~thousands~~coating processes of optical thin-films to broaden the applications and development of new thin-film materials, ~~except~~and ~~per~~using ~~share~~coatings ~~data)~~to develop improvements to lighting technologies. The Company expects to continue to make substantial expenditures on research and development to enhance its position as the leading innovator in the metal halide lighting industry.

FGeneral and Administrative Expenses. ~~Financing~~ ~~Facilities~~General and administrative expenses increased 20.4% to $7,474 in the first six months of fiscal 2005 from $6,208 in the first six months of fiscal 2004. The increase in general and administrative expenses was due to an increase in bonus expense of $1,571, including $1,014 for the CEO retention bonus, offset by reductions in corporate overhead costs. The after-tax amount of the CEO retention bonus, approximately $572, is scheduled to be applied against the Company’s receivable from the CEO in July 2005.

~~On June 30, 2003, the Debtors obtained a replacement Debtor-in-Possession~~17 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 $18,500 revolving credit loan, a $5,000 Term A loan and a $13,500 Term B loan. Interest rates on the revolving credit loan are based on Libor plus 3% or Prime plus 1% with a minimum rate of 5.25% (5.25% at September 30, 2003). Interest rates on the Term A loan are based on Libor plus 5% or Prime plus 2% (6% at September 30, 2003). Interest rates on the Term B loan are based on Prime plus 6% with a minimum rate of 10.25% (10.25% at September 30, 2003). The Term A loan requires principal payments of $83 per month beginning October 1, 2003, 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 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 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 final order approving the extension on October 23, 2003. This facility must be replaced at the time of emergence from bankruptcy proceedings or February 28, 2004, whichever occurs first. 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.

TheTable Replacement DIP Facility contains certain affirmative and negative covenants customary for this type of agreement, prohibits cash dividends, and includes financial covenants related to Sales, Collections, Disbursements, Minimum Adjusted EBITDA, Debt Ratio, and Capital Expenditures. At September 30, 2003, the Company was in compliance with the terms of the Replacement DIP Facility. The principal security for the Replacement DIP Facility is substantially all of the personal property of the Company and each of its North American and United Kingdom subsidiaries. The term loan is secured by substantially all of the Company’s machinery and equipment in North America and the United Kingdom and is cross-collateralized and secured with the revolving credit loan. Contents

~~During~~Amortization ~~fiscal~~of ~~2002,~~Intangible ~~the Company maintained a Bank Credit Facility provided by several financial institutions~~Assets. ~~The~~Amortization ~~Bank~~expense ~~Credit~~increased ~~Facility~~to ~~consisted of a revolving credit loan of~~ $~~25,000~~489 ~~and~~in ~~a term loan of $13,000. Interest rates on~~ the ~~revolving~~first ~~credit~~six ~~loans outstanding were based, at the Company’s option, on~~months ~~LIBOR~~of ~~plus~~fiscal ~~2.25%~~2005 orfrom ~~the~~$177 ~~agent’s~~in ~~bank prime rate through December 12, 2001. From that date to March 31, 2002, interest rates on~~ the ~~revolving~~first ~~credit~~six ~~loans outstanding~~months ~~were~~of ~~based,~~fiscal ~~at the Company’s option, on LIBOR plus 2~~2004.~~75%~~ ~~or the agent’s bank prime rate.~~ The ~~Company~~increase was ~~also~~due ~~obligated~~ to ~~pay a commitment fee~~the ofamortization ~~.375% on the unused portion~~ of ~~the~~identifiable ~~revolving~~intangibles ~~credit~~established loan. Interest rates on the term loan were based, at the Company’s option, on LIBOR plus 2.75% or the agent’s bank prime rate through December 12, 2001. From that date to March 31, 2002, interest rates on the term loan were based, at the Company’s option, on LIBOR plus 3.25% or the agent’s bank prime rate. At March 31, 2002, the Company was not in ~~compliance~~accordance with the ~~financial~~provisions ~~covenant and obtained a waiver~~of ~~for~~fresh-start ~~the quarter then ended~~accounting. ~~The Bank Credit Facility was amended to provide~~ ~~for a new measurement period for this~~

17Income from Operations. As a result of the items noted above, the Company realized income from operations in the first six months of fiscal 2005 of $9,840 as compared to income from operations of $6,358 in the year ago period.

~~Table~~Interest Expense. Interest expense decreased to $6,892 in the first six months of ~~Contents~~fiscal 2005 from $7,459 in the first six months of fiscal 2004. Interest expense in the first six months of fiscal 2004 included $1,993 of amortization and write-off of deferred loan costs related to the Company’s Debtor-in-Possession Bank Facility and Old Senior Notes. Amortization of deferred loan costs totaled $87 in the first six months of fiscal 2005. The remainder of the difference in interest expense is primarily due to the increase in the interest rate on the Company’s New Senior Notes to 11% from 8% for the Old Senior Notes.

~~Advanced~~Income ~~Lighting~~from ~~Technologies~~Investments. The income from investments in the first six months of fiscal 2005 of $489 represents $169 in equity income from the Company’s 40% ownership of Aldrich-APL LLC, ~~Inc~~a manufacturer and distributor of ultra-pure inorganics and metals for high-technology applications and a gain on the sale of an investment of $320. The income from investments in the first six ~~Notes~~months toof ~~Condensed~~fiscal ~~Consolidated~~2004 ~~Financial~~of ~~Statements~~$3 ~~(Unaudited)~~represents the equity income from the Company’s investment in ~~September 30~~Fiberstars, ~~2003~~Inc., a marketer and distributor of fiber optic lighting products. The Final Plan provided that the holders of the Predecessor Company’s Common Stock (~~Dollars~~other than Saratoga Lighting and the Predecessor Company’s CEO) receive the benefit of certain equity investments held by the Predecessor in ~~thousands~~Fiberstars. As a result, ~~except~~no ~~per~~further ~~share~~equity ~~data)~~income or loss related to this investment has been recorded subsequent to December 31, 2003.

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

~~covenant~~Write-off ~~commencing~~of ~~April 1,~~Deferred ~~2002~~Loan Costs. The write-off of deferred loan costs of $2,251 ~~and~~represented the write-off ~~Company’s~~of ~~ability~~deferred loan costs related to ~~elect LIBOR-based~~the ~~interest~~$100,000 ~~rates~~8% onSenior ~~its~~Notes ~~loans~~in ~~was~~accordance ~~suspended~~with Emerging asIssues ofTask ~~May 13,~~Force ~~2002~~Issue No. ~~The agent~~(“EITF”) ~~bank~~96-19, Debtor’s ~~prime~~Accounting ~~rate~~for ~~was~~a ~~4.75%~~Modification ator Exchange ~~June 30,~~of ~~2002~~Debt Instruments.

AsReorganization ~~of June 30, 2002, the Company was also unable to meet its financial covenant and was in default under its Bank Credit Facility~~Expenses. AsReorganization ~~a result~~expenses, ontotaling ~~September 16~~$11,258 ~~2002,~~in the ~~Company~~first ~~entered~~six ~~into~~months aof ~~Forbearance~~fiscal ~~Agreement~~2004, ~~which~~reflected ~~was subsequently amended and extended, with its bank group allowing~~ the ~~Company~~cost ~~access to its existing revolving credit facility and precluding the acceleration~~ of ~~the Bank Credit Facility maturity until at least March 31~~consultants, ~~2003.~~investment ~~Under~~bankers ~~the Forbearance Agreement, interest rates under the Bank Credit Facility were increased to 2% over prime. The Forbearance Agreement, as amended, contained various requirements~~ and ~~milestones~~ ~~that~~attorneys ~~the~~related ~~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 and resulted in an Event of Default under the Senior Notes 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. Additionally, the Company’s ~~did~~efforts ~~not meet the covenant under the Forbearance Agreement~~ to ~~pursue~~reorganize ~~an orderly sales process to sell its assets and repay the bank group with the proceeds from the sale. The Company on February 5, 2003 filed a petition for reorganization~~ under Chapter 11 ~~(see Note B) and has classified the 8% Senior Notes as a liability subject to compromise in the September 30 and June 30, 2003 balance sheets~~Bankruptcy.

OnIncome ~~February 6, 2003, the Bankruptcy Court approved a new debtor-in-possession financing facility~~ (~~“Original DIP Facility”~~Loss) ~~with~~before ~~the~~Income ~~existing~~Taxes ~~bank group for working capital purposes for the debtors~~ and ~~DSI~~Minority Interest. The ~~maximum~~Company ~~commitment~~had ~~under the~~income ~~Original~~before ~~DIP~~income taxes ~~Facility~~and ~~was~~minority ~~$26,096~~interest ~~less~~of ~~the outstanding domestic Pre-Petition borrowings (~~$213,~~096)~~634 byin the ~~entities~~first insix ~~Chapter 11~~months ~~Bankruptcy~~of ~~and DSI.~~fiscal In2005 ~~addition,~~as ~~the~~compared ~~bank~~to ~~group~~a ~~limited borrowing under certain non-Debtor~~loss ~~loans~~before toincome ~~the~~taxes ~~Company’s subsidiaries in Canada~~ and ~~the~~minority ~~United~~interest ~~Kingdom to the then-outstanding aggregate amount~~ of $5(13,~~587.~~235) ~~Borrowings~~in ~~under~~ the ~~Original~~first ~~DIP Facility~~six ~~were~~months atof 3%fiscal ~~above the prime rate through April 30, 2003 and 3~~2004.~~5% above~~ ~~the prime rate through June 30, 2003, the date at which the Original DIP~~ ~~Facility was repaid.~~

InIncome ~~March~~Tax ~~1998,~~Expense. ~~the~~Income ~~Company~~tax ~~sold~~expense ~~$100,000~~was ~~of Senior Notes due March 2008, resulting in net proceeds of approximately~~ $~~96,150.~~632 ~~The~~for ~~Notes are redeemable at~~ the ~~Company’s~~first ~~option,~~six inmonths ~~whole~~of orfiscal in2005 ~~part, at certain preset redemption~~as ~~prices.~~compared ~~During August 2000, the Company completed an exchange offer~~ to ~~existing noteholders,~~$360 ~~which resulted~~ in ~~reducing~~ the ~~interest~~first ~~rate~~six onmonths ~~the Notes to 8.0% from 8.5%. Interest on the Notes is payable semi-annually on March 15 and September 15~~ of ~~each~~fiscal ~~year~~2004. The ~~Company~~income ~~did~~tax ~~not~~expense ~~make~~in ~~the~~both ~~semi-annual interest~~periods ~~payments~~related ~~due on September 16, 2002 and March 15, 2003, and September 15, 2003. The Company has continued~~ to ~~accrue~~certain ~~interest~~of on the ~~Notes~~Company’s atforeign ~~8% through~~operations. ~~September 30, 2003, and accrued and unpaid interest on the Notes was $12,333 as~~ ~~of that date.~~

~~The Notes Indenture contains covenants that, among other things, limit the~~18 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.

18 Table of Contents

~~Table~~Liquidity ofand ~~Contents~~Capital Resources

~~Advanced~~The ~~Lighting~~Company’s ~~Technologies~~sources of liquidity include cash and cash equivalents, ~~Inc~~cash flow from operations and amounts available under its Bank Credit Facility. The Company believes these sources of liquidity ~~Notes~~are tosufficient ~~Condensed~~for ~~Consolidated~~at ~~Financial~~least ~~Statements~~the ~~(Unaudited)~~next several years. As a result of the exchange of the $100,000 8% ~~September~~Senior Notes due March 302008 for $114,400 ~~2003~~11% Senior Notes due March 2009, the Company has extended ~~(Dollars~~the inmaturity ~~thousands~~of most of its debt until 2009. The Company believes that its cash flow from operations will be more than adequate to service the debt, ~~except~~prior ~~per~~to ~~share~~the ~~data)~~maturity of the 11% Senior Notes.

G.The ~~General~~Bank ~~Electric~~Credit ~~Company~~Facility ~~Investment~~is ~~and~~a ~~Sale~~$30,000 facility that consists of ~~General~~a ~~Electric~~term ~~Company~~loan ~~Investment~~that requires monthly principal payments of $183 ($8,800 outstanding at December 31, 2004) with a revolving credit loan, subject to ~~Saratoga~~availability, ~~Lighting~~making ~~Holdings~~up the remainder of the facility. The amount outstanding under the revolving credit loan was $642 at December 31, ~~LLC~~2004. Interest rates on the revolving credit loan are based on Libor plus 2.75% or Prime plus .75% (6.00% at December 31, 2004). Interest rates on the term loan are based on Libor plus 3.50% or Prime plus 1.50% (6.75% at December 31, 2004). The final maturity of the revolving credit facility and the term loan is December 10, 2008.

InThe ~~October~~Bank ~~1999,~~Credit ~~General~~Facility ~~Electric~~contains ~~Company~~certain ~~(“GE”)~~affirmative ~~completed~~and annegative ~~investment~~covenants incustomary ~~the~~for this ~~Company~~type of ~~$20~~agreement,~~554~~ prohibits cash dividends, and includes financial covenants related to Minimum Adjusted EBITDA and Capital Expenditures. InAt ~~exchange~~December 31, ~~for~~2004, the ~~investment,~~Company GEwas ~~received~~in ~~761,250~~compliance ~~shares~~with the terms of the ~~Company’s~~Bank ~~newly~~Credit ~~created~~Facility. ~~Series A~~The ~~Preferred~~principal ~~Stock~~security ~~convertible~~for atthe ~~any~~Bank ~~time~~Credit Facility is ~~into~~substantially ~~3,045,000~~all ~~shares~~of the personal property of the Company ~~Common~~and ~~Stock~~each ~~(subject~~of toits ~~adjustment).~~North GEAmerican ~~also~~and United ~~received~~Kingdom asubsidiaries. ~~Warrant~~The ~~(the~~term ~~“Initial~~loan ~~Warrant”)~~is tosecured ~~purchase~~by ansubstantially ~~additional~~all ~~1,000,000 shares~~ of the Company’s ~~Common~~machinery ~~Stock~~and equipment ~~(subject~~in toNorth ~~adjustment),~~America ~~which~~and GEthe ~~fully exercised~~United toKingdom ~~acquire~~as ~~998~~well as the Company’s facility in Urbana,~~703~~ Illinois, ~~shares~~and ofis ~~Common~~cross-collateralized ~~Stock~~and ofsecured with the ~~Company~~revolving credit loan.

~~Saratoga~~Cash ~~Lighting~~decreased ~~Holdings~~$2,405 ~~LLC~~during ~~(“Saratoga Lighting”) acquired all of~~ the ~~Common~~ ~~and~~six ~~Preferred~~months ~~shares~~ended ~~owned by GE on August~~December 1531, ~~2003~~2004. AsCash aprovided ~~result,~~by operating ~~Saratoga~~activities ~~Lighting~~totaled ~~now holds~~ $1,~~429~~444,~~590~~ ~~shares~~cash ofused ~~Company~~in ~~Common~~investing ~~Stock.~~activities ~~The Series A~~totaled ~~Stock~~$1,613, and ~~the~~cash ~~Common~~used ~~Stock held by Saratoga Lighting represent~~in ~~approximately~~financing ~~16.7%~~activities oftotaled ~~the equity ownership of the Company at September 30~~$2, ~~2003~~236. ~~Saratoga Lighting has beneficial ownership of approximately 37.4% of the~~ ~~voting power of the Company.~~

~~The~~Net ~~Series A~~Cash ~~Stock~~Provided ~~has~~by aOperating ~~liquidation~~Activities. ~~preference~~Net ofcash ~~$27~~provided ~~per~~by ~~share,~~operating ~~plus~~activities antotaled ~~amount~~$1,444 ~~equal~~for ~~to 8% per annum compounded annually from~~ the ~~date~~six ofmonths ~~issuance~~ended ~~to the date of payment. The Company is required to redeem any shares of Series~~December ~~A Stock~~31, ~~which~~2004. ~~have~~This ~~not~~cash ~~been~~provided ~~converted~~by oroperating ~~retired~~activities ~~on September 30, 2010. In~~also ~~addition,~~reflects the ~~Holder~~impact of ~~the~~one-time ~~Series A~~payments ~~Stock~~of ~~may,~~reorganization byexpenses ~~notice~~totaling $1,842 ~~require~~related ~~the Company~~ to ~~redeem~~ the Company’s ~~outstanding~~emergence ~~Series A~~from ~~Stock, within one year following either September~~Chapter ~~30,~~11 ~~2004, or the occurrence of certain corporate events~~Bankruptcy.

~~Pursuant~~Net toCash Used in Investing Activities. In the ~~acquisition~~six ~~agreement~~months ended December 31, GE2004, ~~has~~net ~~agreed~~cash toused ~~transfer~~in investing activities totaled $1,613, including $2,063 related to ~~Saratoga~~capital expenditures for plant and ~~Lighting~~equipment, ~~its~~primarily ~~rights~~machinery ~~with~~and ~~respect~~equipment. toThe Company’s ~~securities~~capital ~~described~~expenditure ~~below.~~program is ~~Saratoga~~expected ~~Lighting~~to isapproximate ~~responsible~~between ~~for~~$5,000 ~~obtaining~~and ~~all~~$6,000 ~~approvals~~in byfiscal ~~the~~2005. ~~Company~~Future capital expenditures ~~required~~beyond ~~for~~this ~~such~~level ~~transfer.~~will ~~The~~be discretionary, as the Company presently has ~~not~~sufficient ~~given~~operating capacities ~~any~~to ~~such~~support ~~approval~~several years of sales growth at its historical rates.

~~The~~Net ~~terms~~Cash ofUsed ~~the~~in GEFinancing ~~investment required that the Company maintain an interest coverage ratio over certain measurement periods~~Activities. ~~The~~In ~~Company failed to maintain~~ the ~~required~~six ~~interest~~months ~~coverage~~ended ~~ratio~~December 31, ~~over~~2004, ~~three~~net ~~measurement~~cash ~~periods. As~~used ~~a result of the failure to maintain the interest coverage ratio GE has~~in ~~(subject~~financing toactivities ~~its~~was ~~agreement~~$2,236 ~~with~~resulting ~~Saratoga~~from ~~Lighting):~~an ~~(i) the~~increase ~~ability~~in toborrowings ~~vote~~on the ~~number~~ ~~of shares currently voted by the CEO of the~~ Company’s ~~and Alan J. Ruud,~~revolving ~~totaling~~credit ~~approximately~~loan ~~5.6 million~~of ~~shares at September 30~~$642, ~~2003,~~net ~~(ii) the option to purchase shares from the CEO~~ of ~~the Company and Alan J. Ruud which~~$2, ~~together~~878 ~~with~~of ~~the~~scheduled ~~shares~~payments ~~owned~~of bylong-term ~~GE,~~debt ~~would~~that ~~represent~~included ~~25% of~~ the one-time ~~voting~~payment ~~power~~ of ~~the Company~~$1,402 ~~(iii) the right~~ to ~~receive~~Rohm ~~from~~and ~~the~~Haas Company anrelated ~~additional warrant~~ to ~~purchase~~a ~~approximately~~promissory ~~6.75 million~~note ~~shares~~obligation ~~at $.63055 per share~~ (~~the average~~see ~~of the closing prices for the 20 trading days ended September~~Part 30II, ~~2002), and (iv)~~Item ~~the right to receive from the Company an additional warrant to purchase approximately 18,000 shares at $~~1.~~298~~ ~~per~~“Legal ~~share (the average of the closing prices for the 20 trading days ended December 31, 2002~~Proceedings”). ~~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~~19 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

19 Table of Contents

~~Table~~The interest-bearing obligations of ~~Contents~~the Company totaled $128,627 as of December 31, 2004, and consisted of: $9,442 outstanding under the Bank Credit Facility; $114,400 of 11% Senior Notes; mortgages of $4,400; and obligations of foreign subsidiaries and other debt of $385.

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

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

~~consent)~~We ~~exceeds~~have ~~35%~~identified of the ~~voting~~following ~~power~~policies ofas ~~the~~critical ~~Company. Consequently, the terms of the Indenture relating~~ to ~~the~~our ~~Company’s~~business ~~Senior~~operations ~~Notes~~and ~~required that~~ the ~~Company~~understanding ~~offer~~of toour ~~repurchase~~results ~~the $100,000 principal amount~~ of ~~outstanding~~operations. ~~Senior Notes~~For ~~due~~a ~~2008~~detailed atdiscussion aon ~~price~~the ofapplication ~~101%~~ of ~~the~~these and ~~principal~~other ~~amount~~accounting ~~thereof~~policies, ~~plus~~see ~~accrued interest.~~Note ~~The~~C ~~Company~~of ~~elected~~the ~~not~~“Notes to ~~offer~~Consolidated toFinancial ~~repurchase~~Statements” in the ~~Senior~~Annual ~~Notes~~Report ~~and therefore~~on ~~was~~Form in10-K ~~default~~for ~~under~~ the ~~Trust~~Period ~~Indenture~~Ended June 30, 2004.

~~The~~Valuation ~~fair value~~ of ~~the~~Accounts ~~warrants issuable to GE (subject to its agreement with Saratoga Lighting) is estimated to be $2,098 based on the Black-Scholes option pricing model~~ and ~~using~~Notes anReceivable ~~expected volatility of 78%, risk-free interest rate of 4.00%,~~ and anLoan ~~expected~~Receivable ~~life~~from ~~of 10 years with no dividend yield. The~~Officer ~~estimated value of the 6.75 million share warrant is reflected in the~~ ~~calculation of earnings per share (see Note I).~~

HManagement 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. ~~Related~~Management ~~Party~~analyzes ~~Transaction~~historical bad debts, customer credit-worthiness, and current economic trends in evaluating the adequacy of the allowance for doubtful accounts and whether there is any impairment in its notes receivable. In circumstances where the Company is aware of a certain customer’s inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the amount the Company believes will be collected. Material changes in the allowance for doubtful accounts may occur if the results of management’s evaluation change or if a different method is used to estimate possible losses. The accounts receivable balance was $29,575, net of an allowance of $900, as of December 31, 2004.

~~Pursuant~~The toCompany analso ~~agreement~~has ~~dated~~a ~~October 8,~~loan ~~1998,~~and asinterest ~~amended~~receivable of $2,871 ~~between~~from the ~~Company and its Chairman and~~ Chief Executive Officer. The ~~(the~~loan ~~“CEO”),~~documents ~~the~~require ~~Company, following~~that ~~approval by~~ the ~~Company’s~~after-tax ~~Board~~proceeds of ~~Directors,~~bonuses ~~has~~payable ~~a loan recorded for $14,144~~ to ~~its~~the CEO, ~~including~~be ~~principal~~applied against ofthe ~~$12,789~~loan and ~~accrued~~ interest. ~~The proceeds~~In of the ~~loan~~second ~~were~~quarter ~~used~~of byfiscal 2005, the Company’s ~~CEO~~applied ~~to reduce~~ the ~~principal~~ ~~balance~~after-tax ~~outstanding~~proceeds of ~~margin~~the ~~loan~~CEO ~~accounts.~~retention Inand ~~connection~~performance ~~with~~bonuses ~~the~~of ~~loan~~$1,314 to the balance ~~Company’s~~outstanding. ~~Board~~Management ofperiodically ~~Directors~~evaluates ~~obtained~~ the ~~CEO’s~~adequacy ~~agreement to an extension~~ of ~~his~~ ~~employment~~the ~~agreement~~underlying assets to ~~December 31,~~repay ~~2003~~this loan. The ~~margin~~Company ~~loans~~believes ~~have been fully repaid and~~ the loan ~~agreement~~receivable ~~prohibits~~amount ~~the~~will ~~CEO~~be ~~from~~realized ~~encumbering his ADLT shares~~ in ~~any~~accordance ~~manner~~with ~~without~~ the terms ~~consent~~ of ~~the~~loan ~~Company’s Board of Directors~~documents.

~~On July 26, 2002, the Company and CEO executed an amendment to the loan~~20 documents, implementing the agreement in principle, reached in January 2002, to extend the maturity of the loan to July 31, 2007. Under the terms of the amendment, the CEO will sell certain assets in an orderly manner to maximize the net proceeds, which will be used to pay a portion of the loan. The CEO will continue his 10b5-1 plan to sell shares he now owns pursuant to Rule 144 when the stock price exceeds $15 per share. In addition, the CEO is required to apply after-tax cash bonuses earned from the Company and the after-tax proceeds of sales of collateral and distributions relating to collateral toward repayment of the loan.

InterestTable 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. Contents

~~The~~Inventory ~~Company’s~~Valuation ~~ability to collect amounts due according to the contractual terms~~Reserves ~~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~~

20The 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.

~~Table~~Valuation of ~~Contents~~Long-Lived Assets

~~Advanced~~The ~~Lighting~~Company’s ~~Technologies~~emergence from Chapter 11 bankruptcy proceedings resulted in a new reporting entity and adoption of fresh start reporting in accordance with SOP No. 90-7, ~~Inc~~Financial Reporting by Entities in Reorganization Under the Bankruptcy Code. The Company’s tangible assets were adjusted ~~Notes~~in toaccordance ~~Condensed~~with ~~Consolidated~~SOP ~~Financial~~90-7 ~~Statements~~which resulted in a decrease in the Company’s real estate of $11,644 and a decrease in personal property (~~Unaudited~~machinery and equipment and furniture and fixtures) of ~~September 30~~$28,790. ~~2003~~The Company’s identifiable intangible assets were adjusted to $24,675 representing ~~(Dollars~~customer incontracts ~~thousands~~and relationships of $10,000, ~~except~~trademarks ~~per~~and ~~share~~tradenames ~~data)~~of $8,635, and technology of $6,040.

HIn addition to the above, the application of SOP 90-7 and SEC Staff Accounting Bulletin No. 54, Push ~~Related~~Down ~~Party~~Basis ~~Transaction~~of Accounting Required in Certain Limited Circumstances, resulted in the elimination of the existing goodwill and the establishment of a new amount of goodwill of $50,561, that represents the “reorganization value in excess of amounts allocable to identifiable assets.” In accordance with the provisions of Statement of Financial Accounting Standards (~~continued~~“FAS”) No. 142, Goodwill and Other Intangible Assets, no amortization of goodwill was recorded in fiscal 2003 or fiscal 2004. Additionally, the newly-established goodwill will not be amortized. Rather, the Company will evaluate this asset for impairment at least annually and whenever there is an impairment indicator using the fair value guidelines of FAS No. 142.

The Company evaluates the ~~stock~~carrying ~~price~~value ~~over~~of ~~the~~its ~~period~~investment in ~~which~~other ~~the~~long-lived ~~Company~~assets ~~estimates~~for impairment itsuch ~~would~~as ~~take~~property, toplant and equipment whenever there is an impairment indicator, ~~sell~~generally ~~those~~using ~~shares~~an ~~into~~undiscounted ~~the~~cash ~~market~~flow methodology.

InRevenue ~~accordance with the provisions of FAS Statement No. 5, Accounting for~~Recognition ~~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 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.

~~Following~~The ~~the~~ Company’s ~~voluntary~~has ~~Chapter 11~~entered ~~filing,~~into ~~the~~certain ~~Company,~~contracts with customers for the ~~CEO~~construction of lighting and ~~the~~thin-film ~~Official~~coating ~~Unsecured~~equipment. ~~Creditors~~The ~~Committee,~~Company ~~and~~also ~~later,~~has ~~the~~certain ~~Company,~~contracts related to the ~~CEO~~further development and ~~Saratoga~~ ~~Lighting,~~application ~~have~~of ~~been~~lighting ~~negotiating~~and tocoating ~~reach~~technologies anfor ~~agreement~~the ~~pursuant~~U.S. togovernment. Revenue ~~which~~is ~~the~~recognized ~~CEO~~on ~~would~~these ~~agree~~contracts toas ~~pay~~work on the ~~Company,~~contract ~~over~~progresses ~~time~~using the percentage of completion method of accounting, anwhich ~~amount~~relies ~~equal~~on toestimates ~~the~~ of total ~~value~~expected ofcontract ~~his~~revenues ~~assets~~and costs. onUnder ~~the~~this ~~effective~~method ~~date~~reasonable estimates of the ~~reorganization,~~costs ~~reduced by~~applicable to the ~~amount~~various stages of a ~~security~~contract ~~interests~~are ~~with~~made, ~~priority~~thus, ~~over~~impacting the ~~Company’s~~level ~~security~~of ~~interests~~recognized revenue. ~~During~~Since the financial reporting of these contracts depends on estimates, which are assessed continually during the ~~pendency~~term of the ~~negotiations~~contract, ~~the~~recognized ~~CEO~~revenues ~~has~~and ~~not~~profit ~~made~~are ~~required~~subject ~~payments~~to ~~pursuant~~revisions toas the ~~Loan~~contract progresses toward ~~Agreement,~~completion. Revisions in anprofit ~~amount~~estimates ~~believed~~are toreflected be in ~~excess~~the ofperiod ~~$1,000,~~in which the facts that give rise to the revision become known. Should estimates indicate a loss is ~~net~~expected ofto anbe incurred ~~assumed~~under ~~estimated~~a ~~income~~contract, ~~tax~~cost ~~liability~~of ~~owing~~sales byis ~~the~~charged ~~CEO~~with ona ~~account~~provision ~~thereof~~for such loss.

~~As discussed in the Disclosure Statement approved October 3, 2003, as part of~~21 the reorganization, the Company, Saratoga Lighting and the CEO, have agreed in principle, subject to formal approval 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 separate motion to be filed with the bankruptcy court, that the CEO loan documents would be modified to reduce the amount of the outstanding indebtedness owed by the CEO to an amount (the “Designated Amount”) equal to the difference between (1) the fair market value of the CEO’s personal assets and (2) the amounts owing to other secured creditors of the CEO that hold mortgages, liens and/or security interests upon or in property of the CEO, on a priority senior to the liens and security interests securing the CEO’s loan from the Company, to the extent of the fair market value of such property. Additionally, it is anticipated by the Company that on or before the effective date of the plan, the proceeds from the CEO’s settlement of litigation of 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.

21 Table of Contents

~~Table~~Deferred ofTax ~~Contents~~Assets and Valuation Allowance

~~Advanced~~The ~~Lighting~~Company ~~Technologies~~had approximately $10,379 ~~Inc~~of net deferred tax assets related principally to certain unused tax credits and loss carryforwards as of June 30, 2004. The realization of these assets is ~~Notes~~based upon the Company generating future taxable income. Due to ~~Condensed~~the ~~Consolidated~~Company’s ~~Financial~~historical ~~Statements~~results it ~~(Unaudited)~~is uncertain as to when it will realize taxable income that will allow it to utilize its tax ~~September~~credits and loss carryforwards and, accordingly, has recorded a valuation allowance of approximately $10,379. Additionally, on August 3015, 2003, Saratoga purchased the preferred and ~~(Dollars~~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 ended June 30, 2004. The Company has net operating losses which, in accordance ~~thousands~~with the principles of fresh start accounting, ~~except~~were ~~per~~not ~~share~~recorded. ~~data)~~These net operating losses are available to be utilized, and, to the extent the net operating losses are utilized, goodwill will be reduced accordingly for the benefit received. Management will continue to evaluate the realization of these deferred tax assets that are subject to the Company’s future operations. The Company’s future operations will be influenced by the general business environment, which is difficult to predict and beyond the control of the Company.

I.Foreign ~~Earnings Per Share~~Currency

~~Earnings~~Approximately ~~(loss) per~~31% ~~share~~of isthe ~~computed~~Company’s asnet ~~follows:~~sales in fiscal 2004 were denominated in currencies other than U.S. dollars, principally pounds sterling, Australian dollars, Canadian dollars, Euros and Japanese yen. A significant weakening of such currencies versus the U.S. dollar could have a material adverse effect on the Company.

			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	)

Item 3. Quantitative and Qualitative Disclosures about Market Risk

AtDuring ~~September 30,~~the ~~2003,~~six ~~options~~months ~~and~~ended ~~warrants~~December 31, ~~(including~~2004, ~~issuable~~there ~~warrants)~~have ~~to purchase~~been ~~shares~~no ~~totaled~~material ~~9,680,350,~~changes ~~but were not included~~ in the ~~calculations of~~reported ~~diluted~~market ~~earnings~~risks ~~per~~presented ~~share~~in ~~because~~the ~~their~~Company’s ~~inclusion~~Annual ~~would~~Report ~~have~~on ~~been antidilutive.~~Form ~~Options~~10-K ~~and~~for ~~warrants~~the ~~(including~~year ~~issuable~~ended ~~warrants) to purchase shares totaled 10,009,928 at September~~June 30, ~~2002, but were not included in the~~ ~~calculations of diluted earnings per share because their inclusion would have been antidilutive~~2004.

AsItem a4. ~~result~~Controls ~~of the bankruptcy~~ and ~~the Saratoga Lighting transaction, the Company discontinued preferred share accretion as of March 31, 2003.~~ Procedures

22The Company evaluated the design and operation of its disclosure controls and procedures as of December 31, 2004, 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 chief accounting officer. The principal executive officer and chief accounting 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 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.

~~Table of Contents~~22

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

JPart II. ~~Contingencies~~Other Information

OnExcept ~~May 9,~~as ~~2003,~~noted ~~a complaint was filed in the Cuyahoga County~~below, ~~Ohio Court of Common Pleas by~~ the ~~widow~~items ofin aPart II ~~former~~are ~~employee~~inapplicable ~~of Venture Lighting International~~or, ~~Inc.,~~if ~~who died following an industrial accident at Venture Lighting’s Solon facility. The suit~~applicable, ~~styled~~would ~~Karnosh,~~be ~~etc. v ADLT Realty Corp~~answered 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~~negative. ~~The~~These ~~suit~~items ~~seeks~~have ~~compensatory damages~~been ~~from~~omitted ~~all defendants in an amount of approximately $3,200, together with unspecified damages for loss of consortium, pain~~ and ~~suffering~~no ~~and~~other ~~punitive damages.~~reference ~~The damages sought are in addition to the employee’s prior recoveries under workers’ compensation laws. The Company believes the lawsuit~~ is ~~without merit~~made ~~and intends to vigorously defend this action~~thereto.

~~Ruud~~Item ~~Lighting, Inc~~1. ~~has~~Legal 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. Proceedings

~~The~~On ~~Company~~February 5, ~~Ruud~~2003, Advanced Lighting Technologies, Inc. (the “Company” or “ADLT”) and six of its United States subsidiaries, (collectively, the ~~Ruud~~“Debtors”), ~~Lighting~~filed ~~shareholders~~voluntary ~~entered~~petitions for ~~into~~reorganization aunder ~~settlement~~Chapter 11 ~~agreement~~of ~~dated~~the ~~September 8,~~United ~~2003,~~States ~~settling~~Bankruptcy Code in the ~~Ruud~~United ~~claims~~States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Bankruptcy Court”). asThe ~~well~~cases aswere ~~claims~~jointly byadministered, under the ~~Debtors~~caption ~~against~~In ~~Ruud~~re Venture Lighting, International, Inc. ~~and~~et ~~its shareholders~~al (~~See~~Case ~~Note E~~No. O3-05255). ~~The~~As ~~Bankruptcy~~previously ~~Court~~reported, ~~issued~~the aCompany ~~final~~emerged ~~order~~from ~~approving~~reorganization ~~the~~in ~~settlement~~fiscal onyear ~~October 16~~2004, ~~2003.~~however, Asthe Bankruptcy Court retained jurisdiction over a ~~result~~disputed creditor claim by Rohm and Haas Company of ~~this~~approximately ~~settlement,~~$2.1 million. The claim related to the payment of the purchase price for Rohm and Haas Company’s ~~recorded~~interest ain ~~loss~~Unison ofFiber $1Optic Lighting Systems,~~003~~ LLC. inThe Company purchased the ~~quarter~~Rohm ~~ended~~and ~~June 30~~Haas interest in Unison for cash, ~~2003.~~a Atpromissory note and ~~September~~certain other consideration in February ~~30,~~2000. ~~2003,~~The asCompany acontested ~~result~~Rohm ofand Haas Company’s claim to the ~~issuance~~unpaid portions of the ~~final~~consideration ~~order~~and ~~approving~~ sought repayment of a portion of the ~~settlement,~~approximately $1.3 million consideration the Company ~~recorded~~had apreviously ~~reduction~~paid. inThese ~~its~~claims ~~receivables~~were ~~from~~settled pursuant to ~~related~~an ~~parties~~agreement ofapproved ~~$2,786,~~by athe ~~reduction~~Bankruptcy inCourt ~~its~~on ~~liabilities~~December 15, ~~subject~~2004. Pursuant to ~~compromise~~ the terms of $1the settlement,~~463~~ the Company paid Rohm and aHaas ~~reduction~~$1.4 million in ~~its~~full ~~special~~and ~~charge~~final ~~accrual~~settlement of ~~$1,323~~all claims.

~~The~~Item ~~Company, from time to time, is subject to routine litigation incidental to its business~~6. ~~Although~~Exhibits ~~there~~and ~~can~~Reports 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~~Form ~~operations and financial condition of the Company.~~ 8-K

23(a) Exhibits


Exhibit		Incorporated
Number	Title	by Reference
2.1	Venture Lighting International, Inc. et al. Fourth Amended Chapter 11 Plan of Reorganization confirmed December 8, 2003 effective December 10, 2003		(1	)

3.1	Third Amended and Restated Articles of Incorporation filed November 12, 2004		(2	)

3.2	Amended and Restated Code of Regulations		(2	)

4.1	Reference is made to Exhibit 2.1

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

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~23 ~~(Dollar amounts in thousands, except per share amounts)~~

ThisTable 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 two financial institutions under a debtor-in-possession financing facility (“DIP Facility”) to continue to provide financing until February 28, 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, 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. Contents

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.

(1)	Incorporated by reference to Exhibit of same number in Company’s Current Report on Form 8-K dated December 8, 2003, filed December 23, 2003.

(2)	Incorporated by reference to Exhibit of same number in Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, filed November 12, 2004.

(b)	Reports on Form 8-K

	No reports on Form 8-K were filed during the quarter ended December 31, 2004.

~~General~~24

TheTable 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. Contents

~~Consistent with the Company’s strategy for new product introductions, the~~SIGNATURES ~~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

24Pursuant 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: January 21, 2005	By:	/s/ Wayne R. Hellman
		Wayne R. Hellman
		Chief Executive Officer


Date: January 21, 2005	By:	/s/ Christopher F. Zerull
		Christopher F. Zerull
		Vice President and Chief Accounting Officer

~~generation of metal halide components and systems which permit (a) increased~~25 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.

RecentTable Developments of Contents

OnEXHIBIT ~~February 5, 2003, Advanced Lighting Technologies, Inc. (the “Company” or~~INDEX ~~“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 a loss from operations and at June 30, 2002 was in default on its 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 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 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 Debtor-in-Possession Facility and 8% Senior Notes.


Exhibit		Incorporated
Number	Title	by Reference
2.1	Venture Lighting International, Inc. et al. Fourth Amended Chapter 11 Plan of Reorganization confirmed December 8, 2003 effective December 10, 2003		(1	)

3.1	Third Amended and Restated Articles of Incorporation filed November 12, 2004		(2	)

3.2	Amended and Restated Code of Regulations		(2	)

4.1	Reference is made to Exhibit 2.1

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

~~Consequence~~(1) ofIncorporated ~~Filing—As~~by areference ~~consequence of the Filing, all pre-petition liabilities of the Debtors are stayed and no party may take any action~~ to ~~realize~~ ~~its~~Exhibit ~~pre-petition claims except pursuant to order~~ of ~~the~~same ~~Bankruptcy Court.~~number Itin ~~is the Debtors~~Company’s ~~intention~~Current toReport ~~address~~on ~~all~~Form ~~of their pre~~8-~~petition claims~~K asdated ~~well~~December ~~as the interests of their preferred and common shareholders and~~8, in ~~that regard~~2003, filed aDecember ~~plan of reorganization with the Bankruptcy Court on April 28~~23, 2003~~, and amended plans on August 15, 2003, September 16, 2003 and October 3, 2003~~. On October 3, 2003, the Bankruptcy Court approved the adequacy of the disclosure statement describing 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 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 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

25 (2) Incorporated by reference to Exhibit of same number in Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, filed November 12, 2004.

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 of reorganization.

On June 30, 2003, the Debtors obtained a new Debtor-in-Possession credit facility from two financial institutions (the “Replacement DIP Facility”). Proceeds from the Replacement DIP Facility were used to repay the Debtors’ original Debtor-in-Possession credit facility (the “Original DIP Facility”) and all remaining amounts due on the existing secured Bank Credit Facility. The Replacement DIP Facility consists of a revolving loan, and two term loans. The revolving loan facility allows the Debtors to incur up to $18,500 in revolving loans, subject to the availability of adequate collateral. The revolving loan bears interest at the prime rate plus 1% or at the London Interbank Borrowing Rate (“LIBOR”) plus 3%. One of the term loans is in the amount of $5,000, bears interest at the prime rate of interest plus 2% or at LIBOR plus 5%, and requires principal payments of $83 per month beginning October 1, 2003. The other term loan is in the amount of $13,500 and bears interest it the prime rate of interest plus 6% per annum, with payment of 2% per annum deferred until maturity. The Replacement DIP Facility has a maturity of October 31, 2003. The Bankruptcy Court issued a final order approving the Replacement DIP Facility on June 25, 2003. On September 16, 2003, the debtors and these financial institutions entered into an amendment of the 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 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 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.

Plan 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 a 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 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

new debt issue and new preferred and common stock issues. Unsecured creditors of ADLT 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.

Based on negotiations 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 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 (up to $350) incurred by the committee representing the common shareholders. The Noteholder Plan also provided for incentives to GE for incremental purchases from the Company (other than APL Engineered Materials, 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.

On August 15, 2003, GE sold its equity interests in the Company to Saratoga Lighting Holdings LLC (“Saratoga Lighting”) for cash consideration of $12,000. Immediately following the Saratoga Lighting’s purchase of the 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 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 15, 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 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 approximately 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 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.

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.

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.

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.

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.

Pursuant to its agreement with Saratoga Lighting, 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 result of the agreement with Saratoga Lighting, GE disclaims any beneficial interest in Company stock.

In addition to GE’s initial investment, GE (subject to its agreement with Saratoga Lighting) is entitled to make additional investments in,and the right to vote additional shares of, Company Common Stock. GE and the Company entered into a Contingent Warrant Agreement (“Contingent Warrant Agreement”). The Contingent Warrant Agreement defined the circumstances, which occurred during fiscal year 2003, under which GE would obtain these rights.

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.

Upon 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 been entitled to exercise approximately 50.0% of the then outstanding voting power of the Company (assuming GE had exercised the Contingent Warrants and no issuance of additional shares by the Company other than pursuant to 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 “Second Contingent Warrant”) which would entitle GE (now subject to its agreement with Saratoga Lighting) to purchase approximately 18,000 additional shares of Common Stock at $.298 per share. The 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.

The Company 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, which will require the Company, upon request, to register the sale of the shares of Company Common Stock issued in connection with the investment. If a substantial number of shares were sold pursuant to such a registration, it could adversely affect the market price of Company shares and the ability of the Company to sell equity securities.

In addition to the proxies granted to GE by Messrs. Hellman and Ruud, Messrs. Hellman and Ruud have granted to GE (now subject to its agreement with Saratoga Lighting) a first refusal right on the sale of their shares. This agreement requires that if Messrs. Hellman and Ruud, or Hellman Ltd., wish to sell shares of Company stock, they must first offer the shares to GE on the same terms. Such sales would eliminate GE’s contractual right to achieve complete voting control.

Sale of Fixture Subsidiaries

On December 12, 2001 the Company completed the sale of a significant portion of its lamp fixture business (its Ruud Lighting, Inc., Kramer Lighting, Inc. and Ruud Lighting Europe Ltd. subsidiaries) to an investor group led by Alan J. Ruud. From January 1998 until the time of the transaction, Mr. Ruud was a director of the Company 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 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.

The notes are payable December 1, 2006, although the Company had the right, subject to Senior Noteholder consent, to require payment of $3,000 in principal amount by surrender of 1,500,000 shares of Company common stock at any time prior to December 1, 2002. As part of this transaction, funded indebtedness of $9,005 continued to be the obligation of Ruud Lighting and the Company retained title to the Rhode Island manufacturing facility of Kramer Lighting. Upon sale of the facility in September 2002, the Company paid Ruud Lighting one-third of the net proceeds or $427 in accordance with the terms of the agreement.

On May 29, 2003, Ruud Lighting, Inc. and its shareholders filed claims with the Bankruptcy Court in connection with the final settlement of purchase price, alleged breaches of the agreement and post closing administrative services of approximately $5,880. In addition, Ruud Lighting, Inc. filed claims with the Bankruptcy Court against the Company and its wholly-owned subsidiary, Venture Lighting International, Inc. relating to a product warranty claim in an amount exceeding $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. Pursuant to the terms of the settlement, the original notes were cancelled and the Company received new notes from the Ruud Lighting, Inc. shareholders in the aggregate amount of $3,000. These notes are due December 1, 2006, but rebates earned on purchases by Ruud Lighting, Inc. pursuant to its current agreement with the Debtors will be credited toward prepayment of the principal and interest on the notes. The Company will no longer be required to make payments on a non-cancelable operating lease for the unused Elkhorn, Wisconsin 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 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.

Results of Operations – Selected Items as a Percentage of Net Sales

The following table sets forth, as a percentage of net sales, certain items in the Company’s Condensed Consolidated Statements of Operations for the indicated periods:

		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	%)

Factors that have affected the results of operations for the first quarter of fiscal 2003 as compared to the first quarter of fiscal 2002 are discussed below.

Quarter Ended September 30, 2003 Compared with Quarter Ended September 30, 2002

Net Sales. Net sales decreased 2.2 % to $32,832 in the first quarter of fiscal 2004 from $33,587 in the first quarter of fiscal 2003. First quarter metal halide sales decreased 3% to $25,162 compared with $25,838 in the same period last year. This decrease in metal halide sales is the result of a 10% decrease in U.S. metal halide sales.

Fiscal 2004 first quarter sales of the Company’s second-generation metal halide lighting product line, Uni-Form® pulse start, declined 11% to $7,449 from $8,378 in the comparable quarter a year ago. Sales of APL materials decreased 3% over the same quarter a year ago. Geographically, these materials sales decreased 13% in the U.S. and increased 3% outside the U.S. Non-metal halide lighting sales remained flat compared with the year ago period.

Lighting sales inside the U.S. decreased 9% in the first quarter of fiscal 2004 as compared to the same period a year ago. Lighting sales outside the U.S. increased 5% in total, but were flat excluding the production equipment sales into China.

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

DSI’s telecommunication product sales for the first quarter of fiscal 2003 were $196, an increase of 32% from $148 in the first quarter of fiscal 2003. Sales of DSI’s non-telecom materials and equipment declined 6% to $3,184 in the first quarter of fiscal 2004 from $3,387 in the first quarter of fiscal 2003. In spite of this slight decline, the Company is expecting DSI to experience moderate growth in fiscal 2004.

Cost of Sales. Cost of sales decreased 6.3% to $20,179 in the first quarter of fiscal 2004 from $21,537 in the first quarter of fiscal 2003. As a percentage of net sales, cost of sales decreased to 61.5% in the first quarter of fiscal 2004 from 64.1% in the first quarter of fiscal 2003. The reduction in cost of sales as a percentage of sales is primarily due to the transfer of lamp and power supply production to India and improvements in cost management.

Marketing and Selling Expenses. Marketing and selling expenses decreased 6.0% to $5,301 in the first quarter of fiscal 2004 from $5,637 in the first quarter of fiscal 2003. As a percentage of net sales, marketing and selling expenses declined to 16.1% in the first quarter of fiscal 2004 from 16.8% in the first quarter of fiscal 2003 due to an emphasis on cost reduction.

Research and 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) expansion and continued improvement of the line of Uni-Form® pulse start lamps (with improved energy efficiency, quicker starting and restarting and a more compact arc source, which improves the light and reduces material costs) intended to replace many first generation metal halide lamps in industrial and commercial applications; (ii) continual development of new materials for the world’s major lighting manufacturers; (iii) development and testing of electronic and electromagnetic power supply systems; and, (iv) improving the coating process of optical thin-films to broaden the applications, developing new thin-film materials, and using coatings to develop improvements to lighting and telecommunications technologies;. As a percentage of net sales, research and development expenses decreased to 4.2% in the 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 continue to make substantial expenditures on research and development to enhance its position as the leading innovator in the metal halide lighting industry.

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

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

Amortization of Intangible Assets. Amortization expense of $88 in the first quarter of fiscal 2004 was comparable to amortization expense of $85 in the first quarter of fiscal 2003.

Income from Operations. As a result of the items noted above, the Company realized income from operations in the first quarter of fiscal 2004 of $2,789 as compared to $1,523 in the year ago period.

Interest Expense. Interest expense increased to $3,420 in the first quarter of fiscal 2004 from $2,789 in the first quarter of fiscal 2003. The Company continued to accrue interest on its $100,000 of 8% Senior Notes through September 30, 2003. The increase in interest expense is primarily due to the amortization of deferred loan costs related to the Company’s Replacement DIP Facility that totaled $558 in the first quarter of fiscal 2004.

Interest Income. Interest income decreased to $83 in the first quarter of fiscal 2004 from $138 in the first quarter of fiscal 2003 due to the settlement with Ruud Lighting, Inc and its shareholders, which lowered the amount of notes receivable from related parties.

Income from Investments. The income from investments in the first quarter of fiscal 2004 of $16 and the first quarter of fiscal 2003 of $1 represents the equity loss from the Company’s investment in Fiberstars, Inc., a marketer and distributor of fiber optic lighting products.

Reorganization Expenses. Reorganization expenses, totaling $5,623 in the first 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 in the next quarter.

Income (Loss) before Income Taxes and Minority Interest. The Company had a loss before income taxes and minority interest of $(6,155) in the first quarter of fiscal 2004 as compared to a loss before income taxes and minority interest of $(1,127) in the first quarter of fiscal 2003. The loss in the first quarter of fiscal 2004 includes reorganization expenses of $5,623.

Income Tax Expense. Income tax expense was $88 for the first quarter of fiscal 2004 as compared to $277 in the first quarter of fiscal 2003. The income tax expense in both quarters related to certain of the Company’s 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.

Liquidity and Capital Resources

The Company’s sources of liquidity include cash and cash equivalents from operations and amounts primarily available under its Debtor-in-Possession credit facility (the “Replacement DIP Facility”). See Note F to the Condensed Consolidated Financial Statements for a description of the Replacement DIP Facility. The payment of interest on the $100,000 8% Senior Notes ($12,333 accrued at September 30, 2003) has been suspended by the Chapter 11 bankruptcy filing on February 5, 2003. While the Company did not make the semi-annual interest payments due September 16, 2002, March 15, 2003, and September 15, 2003, its liquidity will continue to be impacted by the uncertainty of the bankruptcy proceedings, including restructuring and 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 products, the availability and amount of trade credit and other business and operational issues. As a result of 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 refinancing matters can be resolved in the Chapter 11 Bankruptcy filing and based on its current estimates, the Company should have adequate liquidity pending the acceptance of a Plan of Reorganization by its creditors.

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 the revolving credit loan are based on Libor plus 3% or Prime plus 1% with a minimum of 5.25% (5.25% at September 30, 2003). Interest rates on the Term A loan are based on Libor plus 5% or Prime plus 2% (6% at September 30, 2003). Interest rates on the Term B loan are based on Prime plus 6% with a minimum of 10.25% (10.25% at September 30, 2003). The Term A loan requires principal payments of $83 per month beginning October 1, 2003, 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 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 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 final order approving the extension on October 23, 2003. This facility must be replaced at the time of emergence from bankruptcy proceedings 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.

The Replacement DIP Facility contains certain affirmative and negative covenants customary for this type of agreement, prohibits cash dividends, and includes financial covenants related to Sales, Collections, Disbursements, Minimum Adjusted EBITDA, Debt Ratio, and Capital Expenditures. At September 30, 2003, the Company was in compliance with the terms of the Replacement DIP Facility. The principal security for the Replacement DIP Facility is substantially all of the personal property of the Company and each of its North American and United Kingdom subsidiaries. The term loan is secured by substantially all of the Company’s machinery and equipment in North America and the United Kingdom and is cross-collateralized and secured with the revolving credit loan.

Cash decreased $166 during the first quarter of fiscal 2004. Cash provided by operating activities totaled $800, cash used in investing activities totaled $988, and cash provided by financing activities totaled $22.

Net Cash Provided by Operating Activities. Net cash provided by operating activities totaled $800 in first quarter of fiscal 2004 and $3,391 in the first quarter of fiscal 2003. The most significant difference between the two quarters is that the Company made cash payments of $3,900 related to reorganization expenses in fiscal 2004 as compared to no such payments in the first quarter of fiscal 2003. The Company did not make the $4,000 payments due September 15, 2002 or September 15, 2003 related to the Company’s $100,000 of 8% Senior Notes.

Net Cash Provided by (Used in) Investing Activities. In the first quarter of fiscal 2004, net cash used in investing activities totaled $988, all of which related to capital expenditures for plant and equipment, primarily 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 $5,400 in fiscal 2004. Future capital expenditures beyond this level will be discretionary, as the Company presently has sufficient operating capacities to support several years of sales growth at its historical rates. The outflow for capital expenditures in the first quarter of fiscal 2003 was partially offset by the sale of the building in Middletown, Rhode Island that formerly served as a fixture manufacturing facility.

Net Cash Provided by (Used in) Financing Activities. In the first quarter of fiscal 2004, net cash provided by financing activities was $22, representing net proceeds from the Replacement DIP Facility of $1,057 net of payments of long-term debt of $1,035.

The interest-bearing obligations of the Company totaled $134,548 as of September 30, 2003, and consisted of: $26,183 of borrowings under the DIP Facility; $100,000 of 8% Senior Notes; mortgages of $4,912; a promissory note of $1,970; and, obligations of foreign subsidiaries and other debt of $1,483.

Pursuant to an agreement dated October 8, 1998, as amended, between the Company and its Chairman and Chief Executive Officer (the “CEO”), the Company, following approval by the Company’s Board of Directors, has a loan recorded for $14,144 to its CEO, including principal of $12,789 and accrued interest. The proceeds of the loan were used by the Company’s CEO to reduce the principal balance outstanding of margin loan accounts. In connection with the loan, the Company’s Board of Directors obtained the CEO’s agreement to an extension of his employment agreement to December 31, 2003. The margin loans have been fully repaid and the loan agreement prohibits the CEO from encumbering his ADLT shares in any manner without the consent of the Company’s Board of Directors.

On July 26, 2002, the Company and CEO executed an amendment to the loan documents, implementing the agreement in principle, reached in January 2002, to extend the maturity of the loan to July 31, 2007. Under the terms of the amendment, the CEO will sell certain assets in an orderly manner to maximize the net proceeds, which will be used to pay a portion of the loan. The CEO will continue his 10b5-1 plan to sell shares he now owns pursuant to Rule 144 when the stock price exceeds $15 per share. In addition, the CEO is required to apply after-tax cash bonuses earned from the Company and the after-tax proceeds of sales of collateral and distributions relating to collateral toward repayment of the 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 and $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.

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 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.

Following the Company’s voluntary Chapter 11 filing, the Company, the CEO and the Official Unsecured Creditors Committee, and later, the Company, the CEO and Saratoga Lighting, have been negotiating to reach an agreement pursuant to which the CEO would agree to pay the Company, over time, an amount equal to the total value of his assets on the effective date of the reorganization, reduced by the amount of security interests with priority over the Company’s security interests. During the pendency of the negotiations, the CEO has not made required payments pursuant to the Loan Agreement, in an amount believed to be in excess of $1,000, which is net of an assumed estimated income tax liability owing by the CEO on account thereof. As part of the reorganization, the Company, Saratoga Lighting and the CEO, have agreed in principle, subject to formal approval 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 separate motion to be filed with the bankruptcy court, that the CEO loan documents would be modified to reduce the amount of the outstanding indebtedness owed by the CEO to an amount (the “Designated Amount”) equal to the difference between (1) the fair market value of the CEO’s personal assets and (2) the amounts owing to other secured creditors of the CEO that hold mortgages, liens and/or security interests upon or in property of the CEO, on a priority senior to the liens and security interests securing the CEO’s loan from the Company, to the extent of the fair market value of such property. Additionally, it is anticipated by the Company that on or before the effective date of the plan, the proceeds from the CEO’s settlement of litigation of 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.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that effect the reported amounts of our assets, liabilities, revenues and costs and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to: valuation of accounts and notes receivable and loan receivable from officer, valuation of investments, valuation of long-lived assets, valuation of inventory valuation reserves, revenue recognition, and deferred tax assets. We base our estimates on historical experience and on various other assumptions that we believe reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following policies as critical to our business operations and the understanding of our results of operations. For a detailed discussion on the application of these and other accounting policies, see Note C of the “Notes to Consolidated Financial Statements” in the Annual Report on Form 10-K for the Period Ended June 30, 2003.

Valuation of Accounts and Notes Receivable and Loan Receivable from Officer

Management evaluates and makes estimates of the collectibility of the Company’s accounts and notes receivable, including unbilled accounts receivable related to long-term equipment contracts, based on a combination of factors. Management analyzes historical bad debts, customer credit-worthiness, and current economic trends in evaluating the adequacy of the allowance for doubtful accounts and whether there is any impairment in its notes receivable. In circumstances where the Company is aware of a certain customer’s inability to meet its financial obligation, a specific reserve is recorded to reduce the receivable to the amount the Company believes will be collected. Material changes in the allowance for doubtful accounts may occur if the results of management’s evaluation change or if a different method is used to estimate possible losses. The accounts receivable balance was $31,312, net of an allowance of $1,016 as of September 30, 2003.

On May 29, 2003, Ruud Lighting, Inc. and its shareholders filed claims with the Bankruptcy Court in connection with the final settlement of purchase price, alleged breaches of the agreement and post closing administrative services of approximately $5,880. In addition, Ruud Lighting, Inc. filed claims with the Bankruptcy Court against the Company and its wholly-owned subsidiary, Venture Lighting, Inc. relating to a product warranty claim in an amount exceeding $50,000. The Company, Ruud Lighting, Inc. and the Ruud Lighting shareholders have entered into a settlement agreement dated September 8, 2003, subject to Bankruptcy Court approval, settling the Ruud claims, as well as claims by the Debtors against Ruud Lighting, Inc. and its shareholders. Pursuant to the terms of the settlement, the original notes will be cancelled and the Company will receive new notes from the Ruud Lighting, Inc. shareholders in the aggregate amount of $3,000. These notes will be 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. Ruud Lighting, Inc. will pay the Company one half of the amount of any sublease payments received with respect to the Elkhorn, Wisconsin facility. In addition, the agreement provides for mutual releases by the parties.

Prior to the settlement, the total of the notes receivable from Ruud Lighting, Inc. and its shareholders, plus accrued interest through June 30, 2003, was $6,789. As a result of this settlement, the Company recorded a reserve against receivables from related parties of $1,003. The charge related to this settlement is included in the Consolidated Statements of Operations under the caption “Gain (loss) from sale of fixture subsidiaries.” Subject to Bankruptcy Court approval, the settlement will result in a reduction of receivables from related parties and liabilities of $2,786, as of June 30, 2003. The remaining amount of notes receivable from related parties at June 30, 2003 of $6,108 (including interest of $891) are considered realizable.

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 during fiscal 2003 and $7,100 during fiscal 2002. No interest related to

the loan has been recorded in fiscal 2004, 2003 and 2002. The loan receivable from officer balance was $4,344, net of a valuation reserve of $9,800 at September 30, 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 September 30, 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 investment in the common stock of Fiberstars, which is accounted for under the equity method, together 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.

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 September 30, 2003 the Company had approximately $4,490 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 fiscal 2003, the Company recognized a $10,844 charge primarily related to the abandonment of certain of its telecommunication fixed assets due to the uncertainty of the recovery of the global telecom industry, and the write down of certain assets held for sale.

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 $71,100 of net deferred tax assets related principally to certain unused tax credits and loss carryforwards as of June 30, 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 $71,100. 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.

Impact of Recently Issued Accounting Standards

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.

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 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 three months ended September 30, 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, 2003.

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. The principal executive officer and 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 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 J 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

On September 16, 2002 ADLT 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 November 14, 2003, the accrued and unpaid interest on the Senior Notes is $13,333. 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
Number		Title	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	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	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

(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: November 12, 2003		By: /s/ Wayne R. Hellman Wayne R. Hellman Chief Executive Officer
Date: November 12, 2003		By: /s/ Steven C. Potts Steven C. Potts Chief Financial Officer

EXHIBIT INDEX

Exhibit			Incorporated
Number	Title	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	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	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
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
31.3	Rule 13a-14(a)/15d-14(a) Certification
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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