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, 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 registrant's classes of
common stock, as of the latest practicable date: 10,445,011 shares of common
stock, $.01 par value, as of May 13, 1997.
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
INDEX
<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheets at
March 31, 1997 (Unaudited) and
December 31, 1996....................................................3 - 4
Condensed Statements of Operations
for the three months ended
March 31, 1996(Unaudited) and
March 31,1997 (Unaudited)................................................5
Condensed Statements of Cash Flows
for the three Months Ended March 31, 1996 (Unaudited)
and March 31, 1997 (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
</TABLE>
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1996 1997
---------- ----------
(Unaudited)
CURRENT ASSETS:
Cash $ 7,000 $ 378,000
Accounts receivable, net of
allowance for doubtful
accounts of $258,000 at
March 31, 1997, and
$381,000 at December 31, 1996 1,611,000 1,879,000
Inventories 4,172,000 3,811,000
Other current assets 1,013,000 938,000
---------- ----------
6,803,000 7,006,000
---------- ----------
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $1,372,000 at March 31,
1997 and $1,262,000 at December 31, 1996 1,517,000 1,598,000
---------- ----------
OTHER ASSETS 280,000 115,000
---------- ----------
$8,600,000 $8,719,000
========== ==========
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
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long - term debt $ 19,000 $ 18,000
Current portion of notes payable
to stockholders 100,000 100,000
Accounts payable 1,347,000 732,000
Accrued expenses 579,000 490,000
------------ ------------
2,045,000 1,340,000
------------ ------------
LONG - TERM LIABILITIES:
Long - term debt, net of current portion 1,936,000 2,137,000
Notes payable to stockholders,
net of current portion 78,000 78,000
Subordinated convertible debt 3,253,000 1,602,000
Deferred rent 220,000 219,000
------------ ------------
5,487,000 4,036,000
------------ ------------
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 -
9,920,100 shares at March 31, 1997
6,269,000 shares at December 31, 1996 63,000 99,000
Additional paid-in-capital 11,722,000 14,338,000
Less - Shares held in treasury (1,218,000) (1,218,000)
Deferred compensation (575,000) (559,000)
Retained deficit (8,924,000) (9,317,000)
------------ ------------
1,068,000 3,343,000
------------ ------------
$ 8,600,000 $ 8,719,000
============ ============
</TABLE>
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)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
NET SALES $ 3,367,000 $ 3,198,000
COST OF GOODS SOLD 1,759,000 1,831,000
----------- -----------
1,608,000 1,367,000
----------- -----------
OPERATING EXPENSES:
Selling 748,000 769,000
General and administrative 759,000 746,000
----------- -----------
1,507,000 1,515,000
----------- -----------
Income (loss) from operations 101,000 (148,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense - financing obligations (100,000) (71,000)
Interest expense - conversion discount
and additional stock conversion bonus
for convertible notes -- (175,000)
Other, net 3,000 --
----------- -----------
(97,000) (246,000)
----------- -----------
Income (loss) before provision
for income taxes 4,000 (394,000)
PROVISION FOR INCOME TAXES 1,000 1,000
----------- -----------
NET INCOME (LOSS) $ 3,000 $ (395,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 4,844,360 8,525,354
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 0.00 $ (0.05)
=========== ===========
</TABLE>
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)
<TABLE>
<CAPTION>
1996 1997
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 3,000 $ (395,000)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Deferred compensation 16,000 16,000
Depreciation and amortization 107,000 153,000
Provision for doubtful accounts 15,000 (123,000)
Interest expense associated with fixed
conversion discounts and additional stock bonus -- 144,000
Increase (decrease) in assets:
Accounts receivable (82,000) (145,000)
Inventories (597,000) 361,000
Other (347,000) (185,000)
Increase (decrease) in liabilities:
Accounts payable 883,000 (615,000)
Accrued expenses (33,000) (2,000)
Deferred rent 1,000 (1,000)
--------- -----------
Net cash used in operating activities (34,000) (792,000)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable from employees 70,000 --
Purchases of property and equipment (68,000) (26,000)
Other assets (32,000) 1,000
--------- -----------
Net cash used in investing activities (30,000) (25,000)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings -- 201,000
Repayments of long-term debt (73,000) --
Proceeds from issuance of subordinated debt -- 1,000,000
Net proceeds from sale of common stock 436,000 --
Costs associated with registration statements -- (13,000)
--------- -----------
Net cash provided by financing activities 363,000 1,188,000
--------- -----------
NET INCREASE IN CASH 299,000 371,000
CASH, beginning of period 120,000 7,000
--------- -----------
CASH, end of period $ 419,000 $ 378,000
========= ===========
</TABLE>
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 contains 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 March
31, 1997 was 8,525,354. Net loss per share is 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 March 31, 1997:
December 31, March 31,
------------ ---------
1996 1997
---- ----
Raw Material $ 749,000 $ 907,000
Finished Goods 3,423,000 2,904,000
---------- -----------
$ 4,172,000 $ 3,811,000
=========== ===========
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 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, 1996
and 1997 consists of minimum state tax.
7
<PAGE>
5. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures at March 31, 1996 and 1997 are as follows:
March 31, March 31,
--------- ---------
1996 1997
---- ----
Interest paid $100,000 $67,000
======== ======
Income taxes paid $ 1,000 $1,000
======== ======
The Company incurred the following non cash transactions during the three months
ended March 31, 1997:
Write off of subordinated debt accrued interest canceled in connection
with the conversion of subordinated debt to common stock of $86,000.
Write off of subordinated debt issuance costs in connection with the
conversion of subordinated debt to common stock of $217,000.
Reclassification of other long term asset costs to property, plant and
equipment of $164,000.
The Company converted $2,651,000 of subordinated debt to common stock
during the first quarter of 1997.
6. CONVERTIBLE DEBT
In February 1997, the Company raised $1,000,000 through the placement of six
percent convertible 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
convertible note is also deemed to be interest. Interest expense associated with
the fixed discount and additional stock issuance recorded during the first
quarter of 1997 was $144,000. During the second quarter of 1997, the Company
will record the remaining interest expense of $289,000.
7. CHANGES IN EQUITY
During the first quarter of 1997 the Company converted $2,651,000 of
subordinated debt to 3,651,116 shares of common stock.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations:
Certain statements made in this 10QSB 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 early stage 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 and Africa. In 1997, the Company began to
realize the benefits of its overseas investment through the signing of a
distribution agreement with Eng Chai Electric Company, in Singapore and the
receipt of a $1,000,000 opening order to supply the Eng Chai Electric Company's
initial inventory needs.
The Company is developing these types of distribution relations in
other parts of the world and plans to formalize several more relationships
during 1997.
Sales
Sales decreased by $169,000 or 5.0% from $3,367,000 for the three
months ended March 31, 1996 to $3,198,000 for the three months ended March 31,
1997. The decrease in sales is attributable to the Company's focusing on the
release of its new product lines, the discontinuance of its older lines,
reduction of its product price, and management's focus on development of its
foreign operations.
9
<PAGE>
Gross Profit
Gross profit decreased by $241,000 or 15.0% from $1,608,000 for the
three months ended March 31, 1996, to $1,367,000 for the three months ended
March 31, 1997. Gross profit as a percentage of net sales was 47.8% for the
three months ended March 31, 1996 and 42.7% for the three months ended March 31,
1997. The gross profit dollar decrease was due to a drop in sales from the
previous period. The decrease in margin as a percentage of sales was
attributable to the Company's fixed overhead not being absorbed by the decrease
in sales and a reduction in the Company's sales price for certain of its
products.
Selling Expense
Selling expense as a percentage of net sales for the three months ended
March 31, 1996 and 1997 were 22.2% and 24.0%, respectively. For the three months
ended March 31, 1996 and 1997, selling expense was $748,000 and $769,000,
respectively. The increase in selling expense during the comparable three month
period was primarily attributable to the Company's foreign operations in
Singapore, China and Morocco. For the three months ended March 31, 1997, the
Company expended approximately $110,000 on its foreign offices. Domestic selling
expense as percentage of sales was approximately 20.6% for the three months
ended March 31, 1997 as compared to 22.2% for the three months ended March 31,
1996. The decrease in domestic sales expenses is attributable to a reduction in
the Company's sales staff and royalties paid.
General and Administrative Expenses
General and administrative expenses as a percentage of net sales for
the three months ended March 31, 1996 and 1997 were 22.5% and 23.3%,
respectively. For the three months ended March 31, 1996 and 1997, general and
administrative expenses were $759,000 and $746,000, respectively.
The increase in general and administrative expenses as a percentage of
net sales were attributable to increased amortization from debt issuance costs
and capitalized loan fees, legal and public relation fees. The dollar decrease
in general and administrative expenses was primarily attributable to a decrease
in salaries and accounting related fees offset by increased amortization of debt
issuance costs and capitalized loan fees.
Other Income and Expense
Other income and expense as a percentage of net sales for the three
months ended March 31, 1996 and 1997 were 2.9% and 7.7%, respectively. The
increase in other income and expense from $97,000 for the three months ended
March 31, 1996 to $246,000 for the three months ended March 31, 1996 was due to
increases in interest expense from the issuance of subordinated debt. The
increase in interest expense for the three months ended March 31, 1997 was due
to the issuance of 6% subordinated debt convertible into common stock at a 25%
discount. In accordance with generally accepted accounting principles, the
Company is required to account for the discount conversion feature of this
subordinated debt as interest expense. Accordingly, the Company recognized
$144,000 in interest expense during the first quarter of 1997 related to this
discount conversion feature (See Note 6 of Notes to Condensed Financial
Statements).
Provision for Income Taxes
The provision for income taxes as of March 31, 1996 and 1997, reflects
the minimum state tax due for each fiscal year.
10
<PAGE>
Liquidity and Capital Resources
During the first quarter of 1997 the Company utilized cash from
operations and proceeds from its 6% convertible subordinated debt offering to
fund operations and reduce trade accounts payable.
The Company believes that it will be able to generate sufficient cash
flows to support its operations through fiscal 1997. However, there can be no
assurance that the Company will generate sufficient cash flows, the failure of
which would have a material effect on the Company's operations and financial
position. If future losses are incurred the Company will be required to raise
additional funding to support the Company's operations. The failure to
consummate such financing will have a material effect on the Company's business.
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 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from March 31,
1997 10QSB and is qualified in it's entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 378,000
<SECURITIES> 0
<RECEIVABLES> 2,137,000
<ALLOWANCES> 258,000
<INVENTORY> 3,811,000
<CURRENT-ASSETS> 7,006,000
<PP&E> 2,970,000
<DEPRECIATION> 1,372,000
<TOTAL-ASSETS> 8,719,000
<CURRENT-LIABILITIES> 1,340,000
<BONDS> 3,935,000
0
0
<COMMON> 14,437,000
<OTHER-SE> (11,094,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,343,000
<SALES> 3,198,000
<TOTAL-REVENUES> 3,198,000
<CGS> 1,831,000
<TOTAL-COSTS> 3,346,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 246,000
<INCOME-PRETAX> (394,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (395,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (395,000)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
