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: June 30, 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: 5,401,909 shares of common
stock, $.01 par value, as of August 13, 1996.
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CSL LIGHTING MANUFACTURING, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheets at
June 30, 1996 (Unaudited) and
December 31, 1995...................................................3-4
Condensed Statements of Income
for the six months ended
June 30, 1995 (Unaudited) and
June 30, 1996 (Unaudited).............................................5
Condensed Statements of Income
for the three months ended
June 30, 1995 (Unaudited) and
June 30, 1996 (Unaudited).............................................6
Condensed Statements of Cash Flows
for the six Months Ended June 30, 1995 (Unaudited)
and June 30, 1996 (Unaudited).........................................7
Notes to Condensed Financial Statements............................8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.....................................................11-14
PART II - OTHER INFORMATION...................................................15
SIGNATURES....................................................................16
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, June 30,
1995 1996
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash $ 120,000 $ 1,808,000
Accounts receivable, net of
allowance for doubtful
accounts of $145,000 at
December 31, 1995 and
$409,000 at June 30, 1996 1,961,000 1,484,000
Inventories 3,135,000 4,512,000
Other current assets 270,000 555,000
----------- -----------
5,486,000 8,359,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $1,202,000 at December 31,
1995 and $1,404,000 at June 30, 1996 1,640,000 1,611,000
----------- -----------
OTHER ASSETS 257,000 345,000
----------- -----------
$ 7,383,000 $10,315,000
=========== ===========
The accompanying notes are an integral part of
these condensed balance sheets
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, June 30,
1995 1996
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long - term debt $ 412,000 $ 277,000
Current portion of notes payable
to stockholders 239,000 78,000
Short - term borrowings 3,409,000 3,064,000
Accounts payable 1,077,000 1,948,000
Accrued expenses 462,000 522,000
----------- -----------
5,599,000 5,889,000
----------- -----------
LONG - TERM DEBT, net of current portion 123,000 119,000
----------- -----------
NOTES PAYABLE TO STOCKHOLDERS,
net of current portion 200,000 100,000
----------- -----------
DEFERRED RENT 222,000 224,000
----------- -----------
7% - SUBORDINATED CONVERTIBLE NOTES -- 525,000
----------- -----------
12% - SUBORDINATED CONVERTIBLE NOTES -- 1,570,000
----------- -----------
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 -
4,400,000 shares at December 31, 1995
5,401,909 shares at June 30, 1996 44,000 59,000
Additional paid-in-capital 7,551,000 8,744,000
Less: Shares held in Treasury -- (1,223,000)
Deferred compensation (640,000) (607,000)
Retained deficit (5,716,000) (5,085,000)
----------- -----------
1,239,000 1,888,000
----------- -----------
$ 7,383,000 $10,315,000
=========== ===========
The accompanying notes are an integral part of
these condensed balance sheets
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1995 1996
------------- -------------
NET SALES $ 7,958,000 $ 6,446,000
COST OF GOODS SOLD 4,381,000 3,073,000
----------- -----------
3,577,000 3,373,000
----------- -----------
OPERATING EXPENSES:
Selling 1,832,000 1,624,000
General and administrative 1,349,000 1,889,000
----------- -----------
3,181,000 3,513,000
----------- -----------
Income (loss) from operations 396,000 (140,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 37,000 4,000
Interest expense (204,000) (203,000)
Gain from legal settlement -- 1,137,000
Loss on licensing agreement -- (157,000)
Other, net 15,000 10,000
----------- -----------
(152,000) 791,000
----------- -----------
Income before provision for income taxes 244,000 651,000
PROVISION FOR INCOME TAXES 1,000 20,000
----------- -----------
NET INCOME $ 243,000 $ 631,000
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 4,000,000 5,358,000
=========== ===========
Fully Diluted -- 5,561,000
=========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 0.06 $ 0.12
=========== ===========
Fully Diluted -- $ 0.11
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
1995 1996
------------- ------------
NET SALES $ 4,033,000 $ 3,079,000
COST OF GOODS SOLD 2,315,000 1,314,000
----------- -----------
1,718,000 1,765,000
----------- -----------
OPERATING EXPENSES:
Selling 925,000 876,000
General and administrative 659,000 1,130,000
----------- -----------
1,584,000 2,006,000
----------- -----------
Income (loss) from operations 134,000 (241,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 22,000 1,000
Interest expense (107,000) (103,000)
Gain from legal settlement -- 1,137,000
Loss on licensing agreement -- (157,000)
Other, net 10,000 10,000
----------- -----------
(75,000) 888,000
----------- -----------
Income before provision for income taxes 59,000 647,000
PROVISION FOR INCOME TAXES -- 20,000
----------- -----------
NET INCOME $ 59,000 $ 627,000
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 4,000,000 6,029,000
=========== ===========
Fully Diluted -- 6,131,000
=========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 0.01 $ 0.10
=========== ===========
Fully Diluted -- $ 0.10
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
1995 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 243,000 $ 631,000
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred Compensation -- 33,000
Depreciation and amortization 273,000 218,000
Provision for doubtful accounts 30,000 264,000
Gain on legal settlement -- (1,137,000)
Loss on licensing agreement -- 157,000
Loss on disposal of fixed assets -- 5,000
Decrease (increase) in assets:
Accounts receivable (563,000) 213,000
Inventories (626,000) (1,377,000)
Other (185,000) (355,000)
Increase (decrease) in liabilities:
Accounts payable (227,000) 871,000
Accrued expenses (511,000) 60,000
Deferred rent 9,000 2,000
----------- -----------
Net cash used in operating activities (1,557,000) (415,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable
from employees -- 70,000
Increase in notes receivable employees (131,000) --
Purchases of property and equipment (291,000) (180,000)
Other assets (99,000) (259,000)
----------- -----------
Net cash used in investing activities (521,000) (369,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to short-term borrowings 2,050,000 --
Repayments of short-term borrowings (1,640,000) (345,000)
Proceeds from the sale of subordinated
convertible debt -- 2,095,000
Repayments of long-term debt (154,000) (139,000)
Decrease in notes payable - stockholders (10,000) --
Net proceeds from sale of common stock -- 861,000
Additional costs associated with the
sale of common stock (19,000) --
----------- -----------
Net cash provided by financing activities 227,000 2,472,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,851,000) 1,688,000
CASH, beginning of period 1,866,000 120,000
----------- -----------
CASH, end of period $ 15,000 $ 1,808,000
=========== ===========
The accompanying notes are an integral part of
these condensed financial statements
- 7 -
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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. Certain amounts from the
prior year have been reclassified to conform to the June 30, 1996 presentation.
2. WEIGHTED AVERAGE NUMBER OF SHARES
Earnings per share are based upon the weighted average number of shares
outstanding during the period plus the dilutive effect of common stock
equivalents.
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 June 30, 1996:
December 31, June 30,
1995 1996
----------- -----------
Raw Material $ 781,000 $ 1,122,000
Finished Goods 2,354,000 3,390,000
----------- -----------
$ 3,135,000 $ 4,512,000
=========== ===========
4. INCOME TAXES
The Company accounts for income taxes in accordance with FASB Statement No. 109,
Accounting for Income Taxes. 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 and six months ended June
30, 1996, consists of amounts due under the alternative minimum tax calculation.
The provision for income taxes for the three and six months ended June 30, 1995
consists of the minimum state tax.
8
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5. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures for the six months ended June 30, 1995 and
1996 are as follows:
June 30, June 30,
1995 1996
-------- --------
Interest paid $204,000 $203,000
======== ========
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
contained several financial covenants, which the Company was not in compliance
with at December 31, 1995.
On March 29, 1996, the Company entered into a modification to the facility which
included the following terms:
- $625,000 of principal payments through August 31, 1996.
- Additional principal payments equal to 33 percent of monthly net income
(as defined) from April 1996 through August 1996.
- A revised interest rate equal to an annual rate of the bank's reference
rate plus 1.75 percent.
- Maturity of the facility on August 31, 1996.
- Monthly financial covenant review.
As a result of the August 31, 1996 maturity date, all amounts outstanding under
this credit facility have been classified as current liabilities in the
accompanying condensed balance sheet as of June 30, 1996.
Through June 30, 1996, the Company was in full compliance with its
principal payment obligations and financial covenants under the bank facility.
Notwithstanding such compliance, the bank has asserted that the Company was, at
June 30, 1996, in default of certain of its loan covenants including (a) its
failure to provide monthly cash-flow reports in a form acceptable to the bank;
(b) its failure to hire a business consultant reasonably acceptable to the bank;
and (c) its failure to obtain a loan commitment by June 30, 1996 for a
replacement facility.
The Company does not believe that a material default exists with respect to
the facility, which position it has expressed to the bank. All payment
obligations of the Company pursuant to the facility have been made. The Company
has provided the Bank with monthly cash-flow reports in a format which it deems
appropriate and responsive to the facility requirements. The Company believes
that it has reasonably fulfilled its obligation to hire a business consultant
and has asserted that the bank has unreasonably withheld its consent to the
Company's selection. The Company has consistently kept the bank apprised of the
ongoing status of its financing efforts. Finally, the Company is vigorously
pursuing a replacement loan facility which believes it will be able to obtain on
terms and conditions acceptable to the Company. 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 obtain a replacement facility
and/or the failure to repay the existing credit facility will have a material
adverse effect on the Company's operations.
9
<PAGE>
7. SUBORDINATED CONVERTIBLE NOTES
7% Subordinated Convertible Notes
During the second quarter of 1996, the Company raised $525,000 through the
placement of seven percent convertible notes due March 31, 2001. The notes are
convertible into common stock commencing 90 days after issuance at a conversion
price equal to 80% of the average bid price for the five trading days preceding
conversion.
12% Subordinated Convertible Notes
During the second quarter of 1996, the Company raised $1,570,000 through the
placement of twelve percent convertible notes due November 27, 1997. The notes
are convertible into common stock commencing 90 days after issuance at a
conversion price equal to 75% of the average bid price for the five trading days
preceding conversion.
8. CHANGE IN EQUITY
During the first six months of 1996, the Company completed a private placement
of 1,210,000 shares of common stock and received net proceeds of $861,000. On
March 18, 1996 the Company converted, at fair market value, a $147,000 note
payable to the current Chairman of the Board into 106,909 shares of common
stock. On April 18, 1996, as part of the private placement noted above, the
Company converted in aggregate $200,000 in notes payable to two Directors
(including the Chairman of the Board) into an aggregate of 200,000 shares of
common stock.
On April 19, 1996, the Company received 515,000 shares of its common stock in
settlement of its claims against its former CEO and Chairmen ("Zukerman"). These
shares were valued at $1,223,000, fair market value on April 19, 1996. These
shares are currently held in the Company's treasury.
9. LITIGATION
On April 19, 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 has been reflected in the Company's Statement of
Income for the three and six months ended June 30, 1996.
10
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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, to expand
operations worldwide 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 and delivery commenced during 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. During the first
six months of 1996 the Company began to realize the benefits of its new policies
and procedures through lower selling expenditures, increased gross profit
margins as a percentage of sales and the establishment of better working
relationships with its vendors, customers and joint venture partners.
In the first half of 1996, the Company entered into joint venture and
cooperative agreements as part of its global expansion. The Company has opened
and staffed offices in Shanghai and Dong Guan City, China and Singapore. The
Shanghai office will support the Company's manufacturing, marketing and sales
efforts throughout Asia. The Dong Guan City office will support the Company's
expansion in the South China Region. The Singapore office, which is an
architectural design facility, will support the Company's sales in Singapore,
Malaysia, Thailand and Indonesia.
During 1996, the Company has entered into joint venture and cooperative
agreements in Europe, Asia and the United States. 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 the Company has a 47.5% equity interest and shared control. Additionally,
in April, 1996 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 these products in the third
quarter of 1996. The Company is also collaborating with SIMES to distribute
certain CSL products in the European and Japanese marketplaces. Further, in July
1996, the Company entered into a cooperative and agency agreement with Xin Hua
Electronic Equipment Co. LTD, a diversified Chinese manufacturing and technology
company. Xin Hua and CSL will jointly design, manufacture and distribute energy
efficient lighting products in Europe, the United States and China. The Company
will continue to pursue strategic relationships and joint venture agreements in
the United States, Europe and Asia.
Sales
Sales decreased by $1,512,000 or 19.0% from $7,958,000 for the six months
ended June 30, 1995, to $6,446,000 for the six months ended June 30, 1996, and
sales decreased by
11
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$954,000 or 23.7% from $4,033,000 for the three months ended June 30, 1995, to
$3,079,000 for the three months ended June 30, 1996. While net sales have
declined the total number of units shipped have increased to 19,068 units, 2,164
more units than shipped in the prior six month period. The decrease in overall
domestic sales was attributable to the Company's elimination of marginal SKU's,
management focusing on the penetration of new overseas markets and an overall
reduction in product price points.
Gross Profit
Gross profit decreased by $204,000 or 5.7% from $3,577,000 for the six
months ended June 30, 1995, to $3,373,000 for the six months ended June 30,
1996. Gross profit increased by $47,000 or 2.7% from $1,718,000 for the three
months ended June 30, 1995, to $1,765,000 for the three months ended June 30,
1996. Gross profit as a percentage of net sales increased 7.3% from 45.0% for
the six months ended June 30, 1995, to 52.3% for the six months ended June 30,
1996. Gross profit as a percentage of net sales increased 14.7% from 42.6% for
the three months ended June 30, 1995, to 57.3% for the three months ended June
30, 1996. The gross profit dollar decrease was due to a drop in sales from the
previous period, however, as a percentage of sales, margins have improved over
the prior periods due to cost controls, lower material costs, and the
elimination of unprofitable product offerings.
Selling Expenses
Selling expenses as a percentage of net sales for the six months ended June
30, 1995 and 1996 were 23.0% and 25.2%, respectively. Selling expense as a
percentage of net sales for the three months ended June 30, 1995 and 1996 were
22.9% and 28.5%, respectively. For the quarter and six months ended June 30,
1996, selling expenses were $876,000 and $1,624,000, respectively. For the
quarter and six months ended June 30, 1995, selling expenses were $925,000 and
$1,832,000, respectively. The decrease in selling expenses during the comparable
quarter and six month period was primarily attributable to lower commission
expense caused by the lower sales volume and a reduction in sales salaries and
related benefits.
General and Administrative Expenses
General and administrative expenses as a percentage of net sales for the
six months ended June 30, 1995 and 1996 were 16.9% and 29.3%, respectively.
General and administrative expenses as a percentage of net sales for the three
months ended June 30, 1995 and 1996 were 16.3% and 36.7%, respectively. For the
six months ended June 30, 1995 and 1996, general and administrative expenses
were $1,349,000 and $1,889,000, respectively. For the three months ended June
30, 1995 and 1996, general and administrative expenses were $659,000 and
$1,130,000, respectively. The increase in general and administrative expenses
during the comparable quarter and six month periods as a percentage of net sales
were attributable to increases in travel, bad debt expense, bank and consulting
fees, and the initial costs associated with establishing its overseas offices
and joint venture partnerships.
Other Income (Expense)
Other income (expense) as a percentage of net sales for the quarter and six
months ended June 30, 1996, were 28.8% and 12.3%, respectively. Other income
(expense) as a percentage of net sales for the quarter and six months ended June
30, 1995 was (1.9)%. For the six months ended June 30, 1995 and 1996, other
income and (expense) was $(152,000) and $791,000, respectively. For the three
months ended June 30, 1995 and 1996, other income expense was $(75,000) and
$888,000, respectively. The increase in other income (expense) during the
comparable quarter and six month periods as a percentage of net sales was
12
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attributable to the recognition of the Zukerman legal settlement, partly offset
by the write-off a specific licensing agreement.
Provision for Income Taxes
The current provision for income taxes for the three and six months ended
June 30, 1996 consists of amounts due under the alternative minimum tax
calculation. The provision for income taxes for the three and six months ended
June 30, 1995 consists of the minimum state tax.
Net Income
For the reasons outlined above, net income for the six months period ended
June 30, 1995 and 1996 was $243,000 and $631,000, respectively. Net income for
the three months period ended June 30, 1995 and 1996 was $59,000 and $627,000,
respectively.
Liquidity and Capital Resources
For the six months ended June 30, 1996 the Company relied upon trade credit
and private placements of convertible debt and equity to support its operations
and growth. During the six months ended June 30, 1996 the Company raised
approximately $2,956,000, net of expenses, through debt and equity placements.
These funds were used to finance the Company's operations and primarily to
provide for inventory purchases for the Company's new product lines and to
support the establishment of its overseas operations. The Company will
continuing to explore opportunities to raise additional funds through the
private placement of debt and or equity.
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 is responsible for maintaining certain revised
financial covenants and 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 a line of credit to replace its existing bank facility.
Through June 30, 1996, the Company was in full compliance with its
principal payment obligations and financial covenants under the bank facility.
Notwithstanding such compliance, the bank has asserted that the Company was, at
June 30, 1996, in default of certain of its loan covenants including (a) its
failure to provide monthly cash-flow reports in a form acceptable to the bank;
(b) its failure to hire a business consultant reasonably acceptable to the bank;
and (c) its failure to obtain a loan commitment by June 30, 1996 for a
replacement facility.
The Company does not believe that a material default exists with respect to
the facility, which position it has expressed to the bank. All payment
obligations of the Company pursuant to the facility have been made. The Company
has provided the Bank with monthly cash-flow reports in a format which it deems
appropriate and responsive to the facility requirements. The Company believes
that it has reasonably fulfilled its obligation to hire a business consultant
and has asserted
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<PAGE>
that the bank has unreasonably withheld its consent to the Company's selection.
The Company has consistently kept the bank apprised of the ongoing status of its
financing efforts. Finally, the Company is vigorously pursuing a replacement
loan facility which believes it will be able to obtain on terms and conditions
acceptable to the Company. 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 obtain a replacement facility and/or the failure to repay
the existing credit facility 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, raise
sufficient capital, or obtain a replacement credit facility, 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.
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PART II - OTHER INFORMATION
Item 3. Default upon Senior Securities
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 entered into a modification to the facility which
included the following terms:
- $625,000 of principal payments through August 31, 1996
- Additional principal payments equal to 33 percent of monthly net income
(as defined) from April 1996 through August 1996.
- A revised interest rate equal to an annual rate of bank's reference rate
plus 1.75 percent.
- Maturity of the facility on August 31, 1996.
- 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 June 30, 1996.
Through June 30, 1996, the Company was in full compliance with its
principal payment obligations and financial covenants under the bank facility.
Notwithstanding such compliance, the bank has asserted that the Company was, at
June 30, 1996, in default of certain of its loan covenants including (a) its
failure to provide monthly cash-flow reports in a form acceptable to the bank;
(b) its failure to hire a business consultant reasonably acceptable to the bank;
and (c) its failure to obtain a loan commitment by June 30, 1996 for a
replacement facility.
The Company does not believe that a material default exists with respect to
the facility, which position it has expressed to the bank. All payment
obligations of the Company pursuant to the facility have been made. The Company
has provided the Bank with monthly cash-flow reports in a format which it deems
appropriate and responsive to the facility requirements. The Company believes
that it has reasonably fulfilled its obligation to hire a business consultant
and has asserted that the bank has unreasonably withheld its consent to the
Company's selection. The Company has consistently kept the bank apprised of the
ongoing status of its financing efforts. Finally, the Company is vigorously
pursuing a replacement loan facility which believes it will be able to obtain on
terms and conditions acceptable to the Company.
15
<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: August 13, 1996
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
for the six months ended June 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,808,000
<SECURITIES> 0
<RECEIVABLES> 1,893,000
<ALLOWANCES> 409,000
<INVENTORY> 4,512,000
<CURRENT-ASSETS> 8,359,000
<PP&E> 3,015,000
<DEPRECIATION> 1,404,000
<TOTAL-ASSETS> 10,315,000
<CURRENT-LIABILITIES> 5,889,000
<BONDS> 2,538,000
0
0
<COMMON> 59,000
<OTHER-SE> 1,829,000
<TOTAL-LIABILITY-AND-EQUITY> 10,315,000
<SALES> 6,446,000
<TOTAL-REVENUES> 6,446,000
<CGS> 3,073,000
<TOTAL-COSTS> 6,586,000
<OTHER-EXPENSES> (994,000)
<LOSS-PROVISION> 266,000
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> 651,000
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 631,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 631,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.11
</TABLE>
