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, 1997
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: 12,076,029 shares of common
stock, $.01 par value, as of August 11, 1997.
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Balance Sheets at
December 31, 1996 and
June 30, 1997 (Unaudited).......................................3 - 4
Condensed Statements of Operations
for the six months ended
June 30, 1996 (Unaudited) and
June 30, 1997 (Unaudited)...........................................5
Condensed Statements of Operations
for the three months ended
June 30, 1996 (Unaudited) and
June 30, 1997 (Unaudited)...........................................6
Condensed Statements of Cash Flows
for the six months ended June 30, 1996 (Unaudited)
and June 30, 1997 (Unaudited).......................................7
Notes to Condensed Financial Statements.........................8 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................................10 - 13
SIGNATURES..................................................................14
2
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, JUNE 30,
1996 1997
---------- ----------
(Unaudited)
CURRENT ASSETS:
Cash $ 7,000 $ --
Accounts receivable, net of
allowance for doubtful
accounts of $381,000 at
December 31,1996 and
$183,000 at June 30, 1997 1,611,000 2,033,000
Inventories 4,172,000 4,219,000
Other current assets 1,013,000 934,000
---------- ----------
6,803,000 7,186,000
---------- ----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $1,262,000 at December 31,
1997 and $1,477,000 at June 30, 1997 1,517,000 1,554,000
---------- ----------
OTHER ASSETS 280,000 112,000
---------- ----------
$8,600,000 $8,852,000
========== ==========
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, JUNE 30,
1996 1997
------------ ------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long - term debt $ 19,000 $ 14,000
Current portion of notes payable
to stockholders 100,000 100,000
Accounts payable 1,347,000 1,211,000
Accrued expenses 579,000 574,000
------------ ------------
2,045,000 1,899,000
------------ ------------
LONG - TERM LIABILITIES:
Long - term debt, net of current portion 1,936,000 2,156,000
Notes payable to stockholders,
net of current portion 78,000 78,000
Subordinated convertible debt 3,253,000 1,422,000
Deferred rent 220,000 216,000
------------ ------------
5,487,000 3,872,000
------------ ------------
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 - 30,000,000 shares
Outstanding -
6,269,000 shares at December 31, 1996
10,320,000 shares at June 30, 1997
Issued -
6,784,000 shares at December 31, 1996
9,805,000 shares at June 30, 1997 63,000 103,000
Additional paid-in-capital 11,722,000 14,806,000
Less - Shares held in treasury (1,218,000) (1,218,000)
Deferred compensation (575,000) (542,000)
Retained deficit (8,924,000) (10,068,000)
------------ ------------
1,068,000 3,081,000
------------ ------------
$ 8,600,000 $ 8,852,000
============ ============
The accompanying notes are an integral part of these condensed balance sheets
4
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
NET SALES $ 6,446,000 $ 6,461,000
COST OF GOODS SOLD 3,073,000 3,806,000
----------- -----------
3,373,000 2,655,000
----------- -----------
OPERATING EXPENSES:
Selling 1,624,000 1,617,000
General and administrative 1,889,000 1,526,000
----------- -----------
3,513,000 3,143,000
----------- -----------
Loss from operations (140,000) (488,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 4,000 1,000
Interest expense - financing obligations (203,000) (148,000)
Interest expense - conversion discount, interest
and additional stock conversion bonus
for convertible notes -- (508,000)
Gain from legal settlement 1,137,000 --
Loss on licensing agreement (157,000) --
Other, net 10,000 --
----------- -----------
791,000 (655,000)
----------- -----------
Income (loss) before provision for income taxes 651,000 (1,143,000)
PROVISION FOR INCOME TAXES 20,000 1,000
----------- -----------
NET INCOME (LOSS) $ 631,000 $(1,144,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 5,358,000 9,249,000
=========== ===========
Fully Diluted 5,561,000 --
=========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 0.12 $ (0.12)
=========== ===========
Fully Diluted $ 0.11 --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements
5
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
NET SALES $ 3,079,000 $ 3,263,000
COST OF GOODS SOLD 1,314,000 1,975,000
----------- ------------
1,765,000 1,288,000
----------- ------------
OPERATING EXPENSES:
Selling 876,000 848,000
General and administrative 1,130,000 780,000
----------- ------------
2,006,000 1,628,000
----------- ------------
Loss from operations (241,000) (340,000)
----------- ------------
OTHER INCOME (EXPENSE):
Interest income 1,000 1,000
Interest expense - financing obligations (103,000) (77,000)
Interest expense - conversion discount, interest
and additional stock conversion bonus
for convertible notes (333,000)
Gain from legal settlement 1,137,000 --
Loss on licensing agreement (157,000) --
Other, net 10,000 --
----------- ------------
888,000 (409,000)
----------- ------------
Income (loss) before provision for income taxes 647,000 (749,000)
PROVISION FOR INCOME TAXES 20,000 --
----------- ------------
NET INCOME (LOSS) $ 627,000 $ (749,000)
=========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 6,029,000 10,053,000
=========== ============
Fully Diluted 6,131,000 --
=========== ============
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Primary $ 0.10 $ (0.07)
=========== ============
Fully Diluted $ 0.10 --
=========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements
6
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 631,000 $(1,144,000)
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred compensation 33,000 33,000
Depreciation and amortization 218,000 310,000
Provision for doubtful accounts 264,000 (199,000)
Interest expense associated with fixed
conversion discounts and additional stock bonus -- 433,000
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 213,000 (223,000)
Inventories (1,377,000) (47,000)
Other (355,000) (281,000)
Increase (decrease) in liabilities:
Accounts payable 871,000 (136,000)
Accrued expenses 60,000 132,000
Deferred rent 2,000 (4,000)
----------- -----------
Net cash used in operating activities (415,000) (1,126,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable from employees 70,000 --
Purchases of property and equipment (180,000) (87,000)
Other assets (259,000) 4,000
----------- -----------
Net cash used in investing activities (369,000) (83,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings -- 220,000
Repayments of short-term borrowings (345,000) --
Proceeds from the sale of subordinated convertible debt 2,095,000 1,000,000
Repayments of long-term debt (139,000) (5,000)
Net proceeds from sale of common stock 861,000 --
Additional costs associated with the sale of common stock -- (13,000)
----------- -----------
Net cash provided by financing activities 2,472,000 1,202,000
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,688,000 (7,000)
CASH, beginning of period 120,000 7,000
----------- -----------
CASH, end of period $ 1,808,000 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements
7
<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,
1996 and 1995. 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 June 30,
1997 was 9,249,000. Net loss per share are based upon the weighted average
number of shares outstanding during the period. Outstanding stock options and
warrants were not included in the weighted average computation because they were
anti-dilutive.
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, 1996 and June 30, 1997:
December 31, June 30,
1996 1997
----------- -----------
Raw Material $ 749,000 $ 895,000
Finished Goods 3,423,000 3,324,000
----------- -----------
$ 4,172,000 $ 4,219,000
=========== ===========
4. INCOME TAXES
Under FASB Statement No. 109, Accounting for Income Taxes, 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 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, 1997 consist of the minimum state tax.
8
<PAGE>
5. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures at June 30, 1996 and 1997 are as follows:
June 30, June 30,
1996 1997
--------- --------
Interest paid $ 203,000 $138,000
========= ========
Income taxes paid $ 1,000 $ 1,000
========= ========
The Company incurred the following non cash transactions for the six months
ended June 30, 1997:
Write off of subordinated debt accrued interest canceled in connection
with the conversion of subordinated debt to common stock of $137,000;
Write off of subordinated debt issuance costs in connection with the
conversion of subordinated debt to common stock of $264,000;
Reclassification of other long term asset costs to property, plant and
equipment of $164,000;
The Company converted $2,831,000 of subordinated debt to common stock
during the first half of 1997.
6. SUBORDINATED DEBT
In February 1997, the Company raised $1,000,000 through the placement of 6
percent convertible debt notes due December 31, 1998. The notes are convertible
into common stock commencing 90 days after issuance at a conversion price equal
to 75 percent of the average bid price for the five trading days preceding
conversion. There is an additional 10 percent stock issuance, at no cost for
each conversion. In accordance with generally accepted accounting principles the
fixed discount on the conversion feature of this note is considered to be
interest expense and is recognized in the statement of operations during the
period from the issuance of the debt to the time at which the debt becomes
convertible (90 days). In addition, the 10% stock bonus upon conversion of this
subordinated debt is also deemed to be interest. Interest expense associated
with the fixed discount and additional stock issuance recorded during the second
quarter of 1997 was $289,000. During the first half of 1997 the Company recorded
$433,000 of interest expense relating to this transaction.
7. CHANGES IN EQUITY
During the first half of 1997 the Company converted $2,831,000 of subordinated
debt to 4,050,000 shares of common stock.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations:
Certain statements made in this form 10 - QSB are "forward looking - statements
(within the meaning of the Private Securities Litigation Reform Act of 1996)
regarding the plans and objectives of management for future operations. Such
statements involve known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The forward-looking
statements included herein are based on current expectations that involve
numerous risks and uncertainties. The Company's plans and objectives are based,
in part, on assumptions involving the continued expansion of business.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are difficult or impossible to predict accurately
and many of which are beyond the control of the Company. Although the Company
believes that its assumptions underlying the forward looking statements are
reasonable, any of the assumptions could prove inaccurate and, therefore, there
can be no assurance that the forward looking statements included in this report
will prove to be accurate. In light of the significant uncertainties inherent in
the forward-looking statements included herein, particularly in view of the
Company's operations, the inclusion of such information should not be regarded
as a representation by the Company or any other person that the objectives and
plans of the Company will be achieved.
Overview:
The Company's strategy is to exploit new markets for its product offerings and
maximize the efficiencies of its manufacturing and distribution network on a
world-wide basis. In furtherance of this strategy the Company expanded its
operations to include a presence in Asia, Southeast Asia, Europe and Africa. The
Company has entered into a number of joint venture and cooperative agreements in
Europe, Asia, Africa, Middle East and the United States. In the first half of
1997, the Company began to realize the benefits of its overseas investment
through the signing of distribution agreements in Singapore, Shanghai and The
Sulante of Oman. These distribution agreements have provided commitments for
approximately $1,600,000 of the Company's product in fiscal 1997.
The Company is pursuing the development of these types of distribution relations
in other parts of the world, including Saudi Arabia, Philippines, Indonesia and
Malaysia, and plans to formalize several more relationships during 1997.
Sales
Sales increased by $15,000 or .2% from $6,446,000 for the six months ended June
30, 1996, to $6,461,000 for the six months ended June 30, 1997, and sales
increased by $184,000 or 6.0% from $3,079,000 for the three months ended June
30, 1996, to $3,263,000 for the three months ended June 30, 1997. The increase
in sales for the three months ended June 30, 1997 over the three months ended
June 30, 1996 is attributable to the Company's foreign sales in Asia. The
decrease in overall domestic sales for the three and six months ended June 30,
1997 as compared to the three and six months ended June 30, 1996 is attributable
to the Company focusing on the release of its new product lines, the
discontinuing of its older lines, reduction of its product price, and
management's focus on development of its foreign operations.
10
<PAGE>
Gross Profit
Gross profit decreased by $718,000 or 21.3% from $3,373,000 for the six months
ended June 30, 1996, to $2,655,000 for the six months ended June 30, 1997. Gross
profit decreased by $477,000 or 27.0% from $1,765,000 for the three months ended
June 30, 1996, to $1,288,000 for the three months ended June 30, 1997. Gross
profit as a percentage of net sales decreased 11.2% from 52.3% for the six
months ended June 30, 1996, to 41.1% for the six months ended June 30, 1997.
Gross profit as a percentage of net sales decreased 17.8% from 57.3% for the
three months ended June 30, 1996, to 39.5% for the three months ended June 30,
1997. The decrease in margin as a percentage of sales is attributable to the
Company's fixed overhead not being absorbed by its sales. However, gross profit
margins for the three and six months ended June 30, 1997 are consistent with the
Company's 1996 annual gross margin of 41.5%.
Selling Expense
Selling expenses as a percentage of net sales for the six months ended June 30,
1996 and 1997 were 25.2%, and 25.0%, respectively. Selling expenses as a
percentage of net sales for the three months ended June 30, 1996 and 1997 were
28.5% and 26.0%, respectively. For the three and six months ended June 30, 1997,
selling expenses were $848,000 and $1,617,000, respectively. For the three and
six months ended June 30, 1996, selling expenses were $876,000 and $1,624,000,
respectively.
Selling expenses during the six and three month periods ended June 30, 1997
included expenditures for the Company's foreign operations. During the first
half of 1996 the Company had yet to establish its foreign operations. For the
three and six months ended June, 1997 the Company expended approximately
$110,000 and $298,000, respectively, on its foreign offices.
Domestic selling expense as percentage of sales was approximately 22.6% and
20.4% for the three and six months ended June 30, 1997 as compared to 25.2% and
28.5% for the three and six months ended June 30, 1996. The decrease in
domestics sales expenses as a percentage of net sales for the three and six
months ended June 30, 1997 is attributable to a reduction in the Company's sales
staff from the prior periods. In addition, the Company reduced the amount of
royalties and commissions paid on its products and reduced its expenditures on
tradeshows. Increased expenditures over the prior periods include design and
production costs for new catalogs and literature.
General and Administrative Expenses
General and administrative expenses as a percentage of net sales for the six
months ended June 30, 1996 and 1997 were 29.3%, and 23.6%, respectively. General
and administrative expenses as a percentage of net sales for the three months
ended June 30, 1996 and 1997 were 36.7% and 23.9%, respectively. For the six
months ended June 30, 1996 and 1997, general and administrative expenses were
$1,889,000 and $1,526,000, respectively. For the three months ended June 30,
1996 and 1997, general and administrative expenses were $1,130,000 and $780,000,
respectively. The decrease in general and administrative expenses form the prior
periods is attributable to reductions in salaries, bad debt expense, and
insurance premiums.
11
<PAGE>
Other Income and (Expense)
Other income and expense as a percentage of net sales for the three and six
months ended June 30, 1996 and 1997 were 28.8% and (12.5)%, respectively, and
12.3% and (10.1)%, respectively. For the three and six months ended June 30,
1997, other expense, net was $409,000 and $655,000, respectively. For the three
and six months ended June 30, 1996, other income, net was $888,000 and $791,000,
respectively. The increase in other expense for the three and six month periods
ended June 30, 1997 over the comparable periods in 1996 is attributable to the
following transactions:
(i) In the first half of 1996 the Company recognized other income of
$1,137,000 from a legal settlement with its former Chairman of the Board
and CEO. In the first half of 1997 the Company had no significant other
income.
(ii) During the first half of 1997 the Company recognized $433,000 of interest
expense from the issuance of 6% subordinated debt convertible to common
stock at a 25% discount. In accordance with generally accepted accounting
principles the Company was required to account for the discount conversion
feature of this subordinated debt as interest expense (See Note 6 of Notes
to Condensed Financial Statements). In addition, during the first half of
1997 the Company recognized $75,000 in interest expense associated with
its convertible subordinated debt.
(iii) Offseting the increase in other expense was a reduction in interest
expense from the Company's financing obligations. The reduction in
interest expense from financing obligations was due to reduced borrowings
on the Company's line of credit.
Provision for Income Taxes
The provision for income taxes as of June 30, 1997 reflects the minimum state
tax due. The provision for income taxes for the three and six months ended June
30, 1996 consists of amounts due under the alternative minimum tax calculation.
12
<PAGE>
Liquidity and Capital Resources
During the first half of 1997 the Company utilized cash from operations and
proceeds from its 6% convertible subordinated debt offering and line of credit
to fund operations.
In August 1997, the Company raised an additional $1,100,000 through the issuance
of 8% subordinated debt, convertible to common stock at a 25% discount. The net
proceeds of this issuance will be used to support the Company's working capital
needs. In addition, the Company also believes that it will be able to generate
sufficient cash flows to help support its operations through fiscal 1997. If the
Company continues to generate losses from operations it may be required to raise
additional funding to support its operations. There can be no assurance that the
Company will be able to generate sufficient cash flows from operations, or raise
additional funding to support the Company's operations, the failure of which
would have a material 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
13
<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
By:/s/ Mark Allen
--------------------
Mark Allen,
Chief Operating Officer
Acting Principal Accounting
Officer, Director
Dated: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from CSL Lighting
Manufacturing Inc. 6/30/97 10QSB and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,216,000
<ALLOWANCES> 183,000
<INVENTORY> 4,219,000
<CURRENT-ASSETS> 7,186,000
<PP&E> 3,031,000
<DEPRECIATION> 1,477,000
<TOTAL-ASSETS> 8,852,000
<CURRENT-LIABILITIES> 1,899,000
<BONDS> 3,656,000
0
0
<COMMON> 14,909,000
<OTHER-SE> (11,828,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,852,000
<SALES> 6,461,000
<TOTAL-REVENUES> 6,461,000
<CGS> 3,806,000
<TOTAL-COSTS> 6,949,000
<OTHER-EXPENSES> (655,000)
<LOSS-PROVISION> (1,000)
<INTEREST-EXPENSE> (656,000)
<INCOME-PRETAX> (1,143,000)
<INCOME-TAX> (1,000)
<INCOME-CONTINUING> (1,144,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,144,000)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
