SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
Commission file number: 1-12840
CSL LIGHTING MANUFACTURING, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4463033
(State of incorporation) (I.R.S. employer identification No.)
27615 Avenue Hopkins, Valencia, California 91355-3447
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: 805-257-4155
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO /_/
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,651,909 shares of common
stock, $.01 par value, as of May 10, 1996.
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
- - ------------------------------- ----
Item 1. Financial Statements
Condensed Balance Sheets at
March 31, 1996 (Unaudited) and
December 31, 1995....................................................3 - 4
Condensed Statements of Operations
for the three months ended
March 31, 1995(Unaudited) and
March 31, 1996 (Unaudited)........................................... 5
Condensed Statements of Cash Flows
for the three Months Ended March 31, 1995 (Unaudited)
and March 31, 1996 (Unaudited)....................................... 6
Notes to Condensed Financial Statements..............................7 - 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................................................9 - 11
PART II. - OTHER INFORMATION.............................................. 11
SIGNATURES................................................................ 12
2
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1995 1996
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 120,000 $ 419,000
Accounts receivable, net of
allowance for doubtful
accounts of $160,000 at
March 31, 1996, and
$145,000 at December 31, 1995 1,961,000 2,028,000
Inventories 3,135,000 3,732,000
Other current assets 270,000 547,000
----------- -----------
5,486,000 6,726,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $1,301,000 at March 31,
1996 and $1,202,000 at December 31, 1995 1,640,000 1,609,000
----------- -----------
OTHER ASSETS 257,000 281,000
----------- -----------
$ 7,383,000 $ 8,616,000
=========== ===========
The accompanying notes are an integral part of these condensed balance sheets
3
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
1995 1996
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long - term debt $ 412,000 $ 339,000
Current portion of notes payable
to stockholders 239,000 92,000
Short - term borrowings 3,409,000 3,409,000
Accounts payable 1,077,000 1,960,000
Accrued expenses 462,000 429,000
----------- -----------
5,599,000 6,229,000
----------- -----------
LONG - TERM DEBT, net of current portion 123,000 123,000
----------- -----------
NOTES PAYABLE TO STOCKHOLDERS,
net of current portion 200,000 200,000
----------- -----------
DEFERRED RENT 222,000 223,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized - 1,000,000 shares
Issued and Outstanding - none -- --
Common stock, $.01 par value:
Authorized - 10,000,000 shares
Issued and Outstanding -
5,166,909 shares at March 31, 1996
4,400,000 shares at December 31, 1995 44,000 52,000
Additional paid-in-capital 7,551,000 8,126,000
Deferred compensation (640,000) (624,000)
Retained deficit (5,716,000) (5,713,000)
----------- -----------
1,239,000 1,841,000
----------- -----------
$ 7,383,000 $ 8,616,000
=========== ===========
The accompanying notes are an integral part of these condensed balance sheets
4
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1995 1996
----------- -----------
NET SALES $ 3,925,000 $ 3,367,000
COST OF GOODS SOLD 2,066,000 1,759,000
----------- -----------
1,859,000 1,608,000
----------- -----------
OPERATING EXPENSES:
Selling 908,000 748,000
General and administrative 689,000 759,000
----------- -----------
1,597,000 1,507,000
----------- -----------
Income from operations 262,000 101,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 14,000 --
Interest expense (98,000) (100,000)
Other, net 5,000 3,000
----------- -----------
(79,000) (97,000)
----------- -----------
Income before provision for income taxes 183,000 4,000
PROVISION FOR INCOME TAXES 1,000 1,000
----------- -----------
NET INCOME $ 182,000 $ 3,000
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 4,000,000 4,844,360
=========== ===========
NET INCOME PER COMMON SHARE $ 0.05 $ 0.00
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
5
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1995 1996
----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 182,000 $ 3,000
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred Compensation -- 16,000
Depreciation and amortization 130,000 107,000
Provision for doubtful accounts 15,000 15,000
Increase in assets:
Accounts receivable (207,000) (82,000)
Inventories (200,000) (597,000)
Other (364,000) (347,000)
Increase (decrease) in liabilities:
Accounts Payable (119,000) 883,000
Accrued expenses (277,000) (33,000)
Deferred rent 5,000 1,000
----------- ---------
Net cash used in operating activities (835,000) (34,000)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable
from employees -- 70,000
Increase in notes receivable - stockholders (109,000) --
Increase in notes receivable - employees (22,000) --
Purchases of property and equipment (163,000) (68,000)
Other assets (44,000) (32,000)
----------- ---------
Net cash used in investing activities (338,000) (30,000)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to short-term borrowings 1,050,000 --
Repayments of short-term borrowings -- --
Additions to long-term borrowings -- --
Repayments of long-term debt (78,000) (73,000)
Net proceeds from sale of common stock -- 436,000
Additional costs associated with the sale
of common stock (19,000) --
-- --
Net cash provided by financing activities 953,000 363,000
----------- ---------
NET INCREASE (DECREASE) IN CASH (220,000) 299,000
CASH, beginning of period 1,866,000 120,000
----------- ---------
CASH, end of period $ 1,646,000 $ 419,000
=========== =========
The accompanying notes are an integral part of these
condensed financial statements
6
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with the requirements of Form 10-QSB and, therefore, do not include
all information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the Company's Annual report
on Form 10-KSB which contain audited financial information as of December 31,
1995 and 1994. In the opinion of management, these interim financial statements,
when read in conjunction with Management's Discussion and Analysis contained in
this report, reflect all adjustments necessary for a fair presentation of the
financial position and results of operations for the periods presented. The
results of operations and cash flows for such periods are not necessarily
indicative of results to be expected for the full year.
2. WEIGHTED AVERAGE NUMBER OF SHARES
The weighted average number of shares of common stock outstanding as of March
31, 1996 was 4,844,360. Net income per share are based upon the weighted average
number of shares outstanding during the period plus the dilutive effect of
outstanding stock options and warrants.
3. INVENTORIES
Inventories include costs of materials, labor and manufacturing overhead, and
are stated at the lower of cost (weighted average) or market and consist of the
following at December 31, 1995 and March 31, 1996:
December 31, March 31,
1995 1996
---- ----
Raw Material $ 781,000 $ 1,322,000
Finished Goods 2,354,000 2,410,000
----------- -----------
$ 3,135,000 $ 3,732,000
=========== ===========
4. INCOME TAXES
Upon conversion from a California Limited Partnership to a "C" corporation in
1994, the Company adopted FASB Statement No. 109, Accounting for Income Taxes,
as required by the Financial Accounting Standards Board. Under SFAS 109,
deferred tax assets may be recognized for temporary differences that will result
in deductible amounts in future periods and for loss carry-forwards. A valuation
allowance is recognized if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax asset will not
be realized. Based on the Company's limited operating history, and inception to
date accumulated deficit, all of the Company's deferred tax assets are offset by
a valuation allowance.
The current provision for income taxes for the three months ended March 31, 1995
and 1996 consists of minimum state tax.
7
<PAGE>
5. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures at March 31, 1995 and 1996 are as follows:
March 31, March 31,
1995 1996
---- ----
Interest paid $98,000 $100,000
======= ========
Income taxes paid $ 1,000 $ 1,000
======= ========
6. DEBT REFINANCING
On April 8, 1994, the Company established a $5.8 million credit facility with a
bank. The credit facility was comprised of a $5 million, two year revolving line
of credit and a $834,000 three year note. The entire credit facility is secured
by the Company's accounts receivable, inventory and equipment. The facility
contains several financial covenants, which the Company was not in compliance
with at December 31, 1995.
On March 29, 1996, the Company signed an amendment to the facility with the
following terms:
- The Company will make $625,000 of principal payments through August
31, 1996
- The Company will make additional principal payments equal to 33
percent of monthly net income (as defined) from April 1996
through August 1996.
- The interest rate has been revised to an annual rate of the bank's
reference rate plus 1.75 percent.
- The full balance of $3,409,000, plus the outstanding balance on the
term loan ($324,0000 at March 31, 1996), must be paid in full no
later than August 31, 1996.
- Required monthly financial covenant review.
As a result of the August 31, 1996 payoff requirement, all amounts outstanding
under this credit facility have been classified as current liabilities in the
accompanying condensed balance sheet as of March 31, 1996.
7. Changes in Equity
On February 2, 1996, the Company completed a private placement of 660,000 shares
of common stock and received net proceeds of $436,000. On March 18, 1996 the
Company converted a $147,000 note payable to a shareholder and current Chairman
of the Board into 106,909 shares of common stock.
8. Litigation
On April 13, 1996 the Company received 515,000 shares of its common stock
pursuant to the terms of the Zukerman litigation settlement agreement dated
December 18, 1995. These shares are currently held in the Company's treasury.
The effect of this settlement will be reflected in the Company's second quarter
results.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations:
Overview:
The Company's strategy is to continue to penetrate and acquire market
share in the Consumer Retail, Design and Specification marketplaces and to
continue to pursue strategic relationships and joint venture agreements in the
United States, Europe and Asia. Additionally, the Company has refoucsed its
product offerings into five specific product categories resulting in a reduction
in SKU's and the inventory necessary to support these discontinued product
lines. The Company's new product offerings were introduced in January 1996 for
delivery in the second quarter of 1996.
During 1995, the Company successfully installed a new management team
and Board of Directors. This management team has implemented significant new
internal accounting and financial controls and has restructured the Company's
product offerings to achieve maximum penetration of its target markets,
specifically the Specification and the Consumer Retail Markets. In the first
quarter of 1996 the Company began to realize the benefits of its new policies
and procedures through lower selling expenditures and establishment of better
working relationships with its vendors.
In early 1996, the Company entered into two strategic relationships. In
April 1996, the Company entered into a joint venture with MG Products Inc. to
design, manufacture and distribute a new recessed low voltage halogen lighting
product for the Electrical Distributor, Lighting Showroom and Home Center
Marketplaces. The joint venture is structured in the form of a Limited Liability
Corporation in which CSL Lighting Manufacturing, Inc. has a 47.5% equity
interest and shared control. Additionally, the Company entered into a
collaboration with SIMES, a large European manufacturer of specification grade
outdoor lighting products. Under this arrangement, CSL has exclusive rights in
the United States to the SIMES product line which is being marketed and
distributed under the trade name "CSL/SIMES". The Company expects to begin
shipping in the second quarter of 1996. The Company is also collaborating with
SIMES to distribute certain CSL products in the European and Japanese
marketplaces. The Company has and will continue to pursue strategic
relationships and joint venture agreements in the United States, Europe and
Asia.
Sales
Sales decreased by $558,000 or 14.2% from $3,925,000 for the three
months ended March 31, 1995 to $3,367,000 for the three months ended March 31,
1996. The decrease in sales is attributable to the Company focusing on the
release of its new product lines, and discontinuing its older lines. In
addition, the Company experienced a drop in sales in its core products and
energy efficient lines. Specific product lines contributing to the decrease in
overall sales were Mitelite, Teraluna, Tocatta bath bars, and Sure Task 1.
Further, the Company's sales have been hindered by the shortage of cash to fund
certain inventory purchases. However, with the additional funds from the equity
offerings (see "Liquidity and Capital Resources") the Company has been
successful in purchasing product in the first quarter with the expectation of
its arrival early in the second quarter.
9
<PAGE>
Gross Profit
Gross profit decreased by $251,000 or 13.5% from $1,859,000 for the
three months ended March 31, 1995, to $1,608,000 for the three months ended
March 31, 1996. Gross profit as a percentage of net sales was 47.4% for the
three months ended March 31, 1995 and 47.8% for the three months ended March 31,
1996. The gross profit dollar decrease is due to a drop in sales from the
previous period, however, as a percentage of sales margins have remained
consistent with the prior period.
Selling Expense
Selling expense as a percentage of net sales for the three months ended
March 31, 1995 and 1996 were 23.1% and 22.2%, respectively. For the three months
ended March 31, 1995 and 1996, selling expense were $908,000 and $748,000,
respectively. The decrease in selling expense during the comparable three month
period was primarily attributable to: (i) increased overall sales from
SimiLights (and do-it-yourself product lines) which also carry a lower
commission rate than the Company's other product lines, and (ii) reductions in
the Company's sales workforce along with the associated travel and entertainment
expenditures.
General and Administrative Expenses
General and administrative expenses as a percentage of net sales for
the three months ended March 31, 1995 and 1996 were 17.6% and 22.5%,
respectively. For the three months ended March 31, 1995 and 1996, general and
administrative expense were $689,000 and $759,000, respectively.
The increase in general and administrative expenses as a percentage of
net sales were attributable to increases in salaries and benefits associated
with new management, travel, and consulting fees.
Other Income and Expense
Other income and expense as a percentage of net sales for the three
months ended March 31, 1995 and 1996 were 2.0% and 2.9%, respectively. The
increase in other income and expense from $79,000 for the three months ended
March 31, 1995 to $97,000 for the three months ended March 31, 1996 was due
primarily to increases in interest expense from additional borrowings on the
Company's line of credit and an increase in the rate paid for these borrowings.
Provision for Income Taxes
The provision for income taxes as of March 31, 1995 and 1996, reflects
the minimum state tax due for each fiscal year.
Liquidity and Capital Resources
For the three months ended March 31, 1996 the Company relied upon trade
credit to support its operations. During the quarter the Company completed a
private placement of common stock and received net proceeds of approximately
$436,000. These funds were used to finance the Company's operations and provide
for inventory purchases for the Company's new product lines. Subsequent to the
quarter, the Company consummated an additional private placement financing
yielding net proceeds of approximately $500,000. The Company continues to
explore financing alternatives in order to support its operations. There is no
assurance that
10
<PAGE>
additional financing can be obtained on terms acceptable to the Company, if at
all, the failure of which will have a material adverse effect on the Company.
On April 8, 1994, the Company established a $5.8 million credit
facility with a bank. The credit facility was comprised of a $5 million, two
year revolving line of credit and a $834,000 three year note. The entire credit
facility is secured by the Company's accounts receivable, inventory and
equipment. The facility contained several financial covenants, which the Company
was not in compliance with at December 31, 1994. The bank waived such
non-compliance at December 31, 1994 and revised the covenants in 1995. In
connection with the revised covenants, the Company was required to reduce, and
did reduce, the outstanding balance on the line by approximately $1.64 million.
At December 31, 1995, the Company was not in compliance with its financial
covenants. On March 29, 1996, the Company signed an amendment to its credit
agreement whereby the Company will be responsible for maintaining certain
revised financial covenants and has agreed to a monthly repayment schedule
through August 1996 of approximately $625,000 in the aggregate, and if
applicable, a portion of its monthly net income. This agreement with the bank
will expire on August 31, 1996 and the entire principal amount on the Company's
line of credit and term loan will be due. The Company is currently negotiating
with banks in an effort to establish an asset based line of credit to replace
its existing bank facility. However, there can be no assurance that the Company
will be able to obtain a replacement credit facility or otherwise raise funds to
repay its current outstanding credit facility when it becomes due on August 31,
1996. The failure to repay the existing credit facility upon maturity will have
a material adverse effect on the Company's operations.
The Company believes that it will be able to generate sufficient cash
flows to support its operations through fiscal 1996, supplemented by the
proceeds from the private placement of convertible debt and or equity. However,
there can be no assurance that the Company will generate sufficient cash flows
or raise sufficient capital, the failure of which would have a material adverse
effect on the Company's operations and financial position.
The Company believes that inflation has not had a material impact on it
operations.
PART II - OTHER INFORMATION
Not Applicable
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly authorized and caused the undersigned to sign this
Report on the Registrant's behalf.
CSL LIGHTING MANUFACTURING, INC.
By:/s/ Sylvan Gerber
---------------------------
Sylvan Gerber,
Chairman of the Board
Chief Executive Officer
By:/s/Mark Allen
---------------------------
Mark Allen,
Chief Operating Officer
Acting Principal Accounting
Officer, Director
Dated: May 10, 1996
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 419,000
<SECURITIES> 0
<RECEIVABLES> 2,188,000
<ALLOWANCES> 160,000
<INVENTORY> 3,732,000
<CURRENT-ASSETS> 6,726,000
<PP&E> 2,910,000
<DEPRECIATION> 1,301,000
<TOTAL-ASSETS> 8,616,000
<CURRENT-LIABILITIES> 6,229,000
<BONDS> 0
0
0
<COMMON> 52,000
<OTHER-SE> 1,789,000
<TOTAL-LIABILITY-AND-EQUITY> 8,616,000
<SALES> 3,367,000
<TOTAL-REVENUES> 3,367,000
<CGS> 1,759,000
<TOTAL-COSTS> 1,507,000
<OTHER-EXPENSES> (3,000)
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 100,000
<INCOME-PRETAX> 4,000
<INCOME-TAX> 1,000
<INCOME-CONTINUING> 3,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
