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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996
[ ] 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 33-85664
FIBERSTARS, INC.

(Exact name of small business issuer as specified in its charter)
California 94-3021850

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

incorporation or organization)
2883 Bayview Drive, Fremont CA 94538

(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 490-0719
Securities registered under

Section 12(b) of the Exchange Act: Title of Name of each exchange on

Each Class which registered

Common Stock Nasdaq National Market
Securities registered under section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports required

by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant was required

to file such reports) and (2) has been subject to such filing requirements for

the past 90 days.

Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405

of Regulation S-B is not contained herein, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-KSB or any amendments to

this Form 10-KSB. [ ]
Net sales of the registrant for the fiscal year ended December 31, 1996 were

$15,576,000.
The aggregate market value of the voting stock held by non-affiliates of the

registrant was approximately $9,691,000 as of March 26, 1997 based upon the last

trading price of the Common Stock of registrant on the Nasdaq National Market as

of that date. This calculation does not reflect a determination that any person

is an affiliate of the registrant for any other purpose.
As of March 26, 1997, there were 3,412,721 shares of the registrant's Common

Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-KSB incorporates information by reference

from registrant's definitive Proxy Statement to be used in connection with its

1997 Annual Meeting of Shareholders.
14

PART I
Item 1. Description of Business
Except for historical information contained herein, the following

material includes forward-looking statements that are subject to certain risks

and uncertainties. Discussion containing such forward-looking statements will be

found in the material set forth under, among other places in this Report,

"Description of Business," "Risk Factors," and "Management's Discussion and

Analysis of Financial Condition and Results of Operations. By way of example and

not limitation, this Report contains forward-looking statements regarding

prospective competition and the results thereof upon the Company's business and

operating results, the development of existing and future technologies, the

prospective impact of consolidation among the Company's customer base, and

trends discussed in Management's Discussion and Analysis of Financial Condition

and Results of Operations regarding the Company's results of operations. Actual

results could differ materially from those projected in the forward-looking

statements as a result of the factors discussed in this Report, including

without limitation the factors discussed in "Risk Factors." These factors should

be considered carefully by those considering transactions in the Company's

securities.
Overview
Fiberstars develops and markets fiber optic lighting systems, which are

used in a variety of commercial and residential applications. The Company

pioneered the use of fiber optic technology in lighting. By continuing to

improve the price and performance of its products and by expanding its marketing

efforts, Fiberstars has become the world's leading supplier in this emerging

market.
The Company's products often have advantages over conventional lighting

in areas of efficiency, safety, maintenance and beauty, and thus can be used in

place of conventional lighting in a number of applications. By delivering

special lighting effects which conventional lighting can not match, fiber optic

lighting systems are especially attractive for a wide range of decorative

applications, such as the lighting of swimming pools and spas, signage, "neon"

decoration, landscaping, and other segments within the commercial and

residential markets.
The Company designs, develops and manufactures its fiber optic lighting

systems and distributes its products worldwide, primarily through independent

sales representatives, distributors and swimming pool builders.
Products
Fiberstars lighting systems combine three types of products -

illuminators, fiber tubing, and fixtures in configurations which meet the needs

of specific market segments. The electrically powered illuminators generate and

focus light to enter into the ends of optical fiber. Fiber tubing products

connect to the illuminators and are designed to emit light either at the end of

the tube as a spot source of light, or along the length of the tube, similar in

effect to neon lighting. The systems can also include fixtures and other

accessories designed for specific applications.
Illuminators
The Company manufactures a number of different illuminators for use in

different applications. Most commercial illuminators utilize metal halide high

intensity discharge (H.I.D.) lamps to provide long life and maximum brightness.

Some include patented reflectors which have been designed by Fiberstars to

enhance performance. The Company's lower cost illuminators use quartz halogen
lamps, some of which are custom products manufactured to Fiberstars'

specifications. Illuminator advances during 1996 included a lower cost version

of the largest selling commercial illuminator, with available features which

include synchronization of colors among groups of illuminators, and DMX 512

protocol capability that enables computer-control of the units to produce

special effects.
Fiberstars' FS4 pool illuminator, introduced for the 1996 season,

provides light output at least equal to previous models at substantially lower

cost. This product led the way to a strong increase in pool lighting sales and

was the Company's most successful product in 1996. Late in 1996, the Company

introduced a new brighter system for the 1997 season.
Fiber Tubing
Fiber tubing products are manufactured in various lengths and diameters

to meet the requirements of each particular market and application. Fiberstars'

patented BritePak(R) products can maintain consistent brightness for side-lit

fiber runs up to 120 feet in length. For end-lit applications, several

spotlights are typically connected to a single illuminator and are placed no

farther than fifty feet from the illuminator.
In 1996, the Company introduced BritePak(R) II, a new version of its

side-emitting fiber product line, with up to 38% improvement in brightness. The

performance improvement in this product line was due in part to the Company's

use of new equipment installed at Fiberstars to bring fiber processing in house.
Fixtures and Accessories
Certain fixtures and accessories have been designed by Fiberstars to

feature in the Company's product lines. Other fixtures are supplied by third

parties. A new paver fixture, one of the four end-lit fixtures introduced in

1996, received an "Award of Distinction" in the New Product Showcase at

Lightfair 1996, the main commercial lighting tradeshow in the United States.
Applications and End-Users
The Company's fiber optic lighting products are specified by

architects, professional lighting designers, swimming pool builders or

end-users.
The Company's products have been installed for commercial lighting

applications in fast food restaurants such as Burger King and McDonald's; retail

stores such as Albertson's, Giant Food and Toys R Us; hotels such as Hyatt and

the Stratosphere Tower in Las Vegas; and entertainment facilities such as theme

parks operated by the Walt Disney Company and Universal Studios. Fiberstars

commercial lighting systems also have been used in a number of specialty

applications, including theatrical productions, bridges, theater aisles and

ceilings, the Monterey Bay Aquarium, Marathon Coach, HBO Studios, AMC theaters,

Chevron and New York Life.
The Company's primary products for pool and spa lighting are designed

to provide underwater lighting for newly constructed pools. In addition,

Fiberstars markets pool products for spa lighting, pool perimeter lighting,

patios, decks and landscape lighting. The Company's underwater lighting systems

are installed in pools and spas built by major national pool builders, as well

as numerous regional and local pool builders throughout the United States and

Canada.
Sales, Marketing and Distribution
Commercial Lighting Products
In the commercial lighting market, The Company's marketing efforts are

directed at creating specifications for Fiberstars systems in plans developed by

architects, professional lighting designers and building owners. The Company

reaches these professionals through approximately 60 independent lighting

representative organizations throughout the United States, approximately 20 of

which account for a substantial majority of the Company's commercial lighting

product sales. The independent lighting representatives assist in the

specification process, directing orders to electrical equipment distributors,

who in turn typically purchase products from Fiberstars. Domestic distributors

of commercial lighting products typically do not engage in marketing efforts or

stock any inventory of the Company's products. The Company's arrangements with

its independent representatives do not prohibit the handling of conventional

lighting products, including products that may be competitive with those of the

Company, although such representatives typically do not handle competing fiber

optic lighting products.
Fiberstars' commercial lighting products are sold internationally by

approximately 19 distributors that sell into more than 45 countries, including

Crescent Lighting in the U.K., which oversees other distributors in Europe;

Mitsubishi in Japan; and Fiberstars Australasia Pty Ltd., a 46%-owned joint

venture that sells products in Australia, New Zealand and Fiji. These

distributors are primarily responsible for any marketing activities in their

territories.
Swimming Pool and Spa Products
The Company's underwater lighting products are sold primarily for

installation in new swimming pools and spas. Accordingly, the marketing of the

Company's swimming pool and spa products depends substantially on swimming pool

builders to recommend the Company's products to their customers and to adapt

their swimming pool designs to include Fiberstars lighting systems. The Company

utilizes regional sales representative organizations that specialize in swimming

pool products sold to pool builders and pool product distributors. Each

representative organization typically has the exclusive right to sell the

Company's products within its territory, receiving commissions on sales in its

territory. Regional and national distributors in the swimming pool market stock

the Company's products to fill orders received from swimming pool builders, and

some of these distributors engage in limited marketing activities for the

Company's products.
The Company enters into incentive arrangements to encourage pool

builders to purchase the Company's products. The Company also has entered into

agreements with certain large national pool builders, under which the builders

purchase Fiberstars systems directly from the Company and offer the Company's

products with their swimming pools. The Company provides pool builders and

independent sales representatives with marketing tools, including promotional

videos, showroom displays and demonstration systems. The Company also uses trade

advertising and direct mail in addition to an ongoing program of sales

presentations to pool builders and distributors.
In the second half of 1996, the Company's largest customer, BLN (a pool

products distributor) was acquired by South Central Pools, another pool

distributor and also a Fiberstars customer. Together these customers accounted

for 21% of the Company's 1996 net sales. The Company expects its business

relationship with South Central to continue satisfactorily; however, a cessation

or substantial decrease in the volume of purchases by this customer could reduce

availability of the Company's products to end users and could in turn have a

material adverse effect on the Company's net sales and results of operations.
Substantially all sales of the Company's swimming pool lighting systems

to date have been made in the United States and Canada.
Backlog
The Company normally ships product within a few days after receipt of

an order and generally does not have a significant backlog of orders. The

Company does not consider backlog to be an indicator of future performance.
Competition
The Company's products compete with a wide variety of lighting

products, including conventional electric lighting in various forms and

decorative neon lighting. The Company has also experienced increasing

competition from other companies offering products containing fiber optic

technology. Principal competitive factors include price, performance (including

brightness, reliability and other factors), aesthetic appeal (including color

and color variation), market presence, installation and maintenance

requirements, power consumption and safety.
The Company believes its products compete favorably against

conventional lighting in such areas as aesthetic appeal, ease of installation

and maintenance, power consumption and safety. In addition, the unique

characteristics of fiber optic lighting (such as no heat or electricity at the

light, ability to change colors, and remote lamp replacement) enable the
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