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: September 30, 1998
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: 1,094,477 shares of common
stock, $.01 par value, as of November 14, 1998.
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Balance Sheets at
December 31, 1997 and
September 30, 1998 (Unaudited).....................................3 - 4
Condensed Statements of Operations
for the nine months ended
September 30, 1997 (Unaudited) and
September 30,1998 (Unaudited)..........................................5
Condensed Statements of Operations
for the three months ended
September 30, 1997 (Unaudited) and
September 30, 1998 (Unaudited)........................................6
Condensed Statements of Cash Flows
for the nine months ended September 30, 1997 (Unaudited)
and September 30, 1998 (Unaudited).....................................7
Notes to Unaudited Condensed Financial Statements.................8 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................................................11 - 15
PART II - OTHER INFORMATION...................................................15
SIGNATURES....................................................................16
2
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(Unaudited)
CURRENT ASSETS:
Cash $ 152,000 $ --
Accounts receivable, net of
allowance for doubtful accounts of $194,000
at December 31, 1997, and $241,000 at
September 30, 1998 2,228,000 1,609,000
Inventories 4,346,000 4,451,000
Other current assets 578,000 314,000
---------- ----------
7,304,000 6,374,000
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $1,696,000 at December 31,
1997 and $2,022,000 at September 30, 1998 1,365,000 1,073,000
OTHER ASSETS 116,000 113,000
---------- ----------
$8,785,000 $7,560,000
========== ==========
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, SEPTEMBER 30,
1997 1998
------------ -------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long - term debt $ 2,483,000 $ 1,991,000
Bank overdraft -- 30,000
Current portion of notes payable
to stockholders 78,000 78,000
Accounts payable 1,038,000 1,085,000
Accrued expenses 712,000 627,000
------------ ------------
4,311,000 3,811,000
------------ ------------
LONG - TERM LIABILITIES:
Long - term debt, net of current portion 119,000 119,000
Subordinated convertible notes 1,525,000 1,457,000
Deferred rent 206,000 189,000
------------ ------------
1,850,000 1,765,000
------------ ------------
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
Issued and Outstanding -
1,042,462 shares at December 31, 1997
1,094,477 shares at September 30, 1998 136,000 138,000
Additional paid-in-capital 16,075,000 16,148,000
Less - Shares held in treasury (1,218,000) (1,218,000)
Deferred compensation (510,000) (461,000)
Retained deficit (11,859,000) (12,623,000)
------------ ------------
2,624,000 1,984,000
------------ ------------
$ 8,785,000 $ 7,560,000
============ ============
The accompanying notes are an integral part of these condensed balance sheets
4
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
1997 1998
----------- -----------
NET SALES $ 9,541,000 $ 9,528,000
COST OF GOODS SOLD 5,626,000 5,821,000
----------- -----------
3,915,000 3,707,000
----------- -----------
OPERATING EXPENSES:
Selling 2,388,000 2,073,000
General and administrative 2,481,000 2,057,000
----------- -----------
4,869,000 4,130,000
----------- -----------
Loss from operations (954,000) (423,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest and other income 4,000 1,000
Interest expense - financing obligations (221,000) (239,000)
Interest expense - conversion discount, interest
and additional stock conversion bonus for
convertible notes (661,000) (103,000)
----------- -----------
(878,000) (341,000)
----------- -----------
Loss before provision for income taxes (1,832,000) (764,000)
PROVISION FOR INCOME TAXES 1,000 1,000
----------- -----------
NET LOSS $(1,833,000) $ (765,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 780,980 1,060,325
=========== ===========
NET LOSS PER COMMON SHARE - BASIC $ (2.35) $ (0.72)
=========== ===========
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 SEPTEMBER 30,
(UNAUDITED)
1997 1998
----------- -----------
NET SALES $ 3,080,000 $ 3,011,000
COST OF GOODS SOLD 1,820,000 1,967,000
----------- -----------
1,260,000 1,044,000
----------- -----------
OPERATING EXPENSES:
Selling 771,000 648,000
General and administrative 955,000 805,000
----------- -----------
1,726,000 1,453,000
----------- -----------
Loss from operations (466,000) (409,000)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 3,000 --
Interest expense - financing obligations (73,000) (76,000)
Interest expense - conversion discount, interest
and additional stock conversion bonus for
convertible notes (153,000) (31,000)
----------- -----------
(223,000) (107,000)
----------- -----------
Loss before provision for income taxes (689,000) (516,000)
PROVISION FOR INCOME TAXES -- --
----------- -----------
NET LOSS $ (689,000) $ (516,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING 816,962 1,094,477
=========== ===========
NET LOSS PER COMMON SHARE - BASIC $ (0.84) $ (0.47)
=========== ===========
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 NINE MONTHS ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,833,000) $ (765,000)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Deferred compensation 49,000 49,000
Depreciation and amortization 469,000 377,000
Provision for doubtful accounts (185,000) 87,000
Interest expense associated with fixed
conversion discounts and additional stock bonus 556,000 --
Decrease (increase) in assets:
Accounts receivable (94,000) 532,000
Inventories (277,000) (105,000)
Other (282,000) 227,000
Increase (decrease) in liabilities:
Bank overdraft 81,000 30,000
Accounts payable (368,000) 47,000
Accrued expenses 77,000 (77,000)
Deferred rent (9,000) (17,000)
----------- -----------
Net cash (used in) provided by operating activities (1,816,000) 385,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (137,000) (34,000)
Other assets (6,000) (11,000)
----------- -----------
Net cash used in investing activities (143,000) (45,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term borrowings 219,000 --
Proceeds from the sale of subordinated convertible debt 2,100,000 --
Repayments of long-term debt (12,000) (492,000)
Repayment of note payable to shareholder (100,000) --
Subordinated debt issuance costs (172,000) --
Additional costs associated with the conversion of
subordinated debt to common stock (13,000) --
----------- -----------
Net cash (used in) provided by financing activities 2,022,000 (492,000)
----------- -----------
NET DECREASE IN CASH 63,000 (152,000)
CASH, beginning of period 7,000 152,000
----------- -----------
CASH, end of period $ 70,000 $ --
=========== ===========
</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,
1997 and 1996. 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 prior year financial information has been reclassified to conform to
current year presentation.
2. WEIGHTED AVERAGE NUMBER OF SHARES
Net income or loss per share is based upon the weighted average number of shares
outstanding during the period in accordance with SFAS 128 "Earnings Per Share".
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, 1997 and September 30, 1998:
December 31, September 30,
------------ -------------
1997 1998
---- ----
Raw Material $ 1,042,000 $ 1,099,000
Finished Goods 3,304,000 3,352,000
----------- -----------
$ 4,346,000 $ 4,451,000
=========== ===========
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 nine months ended September 30,
1998 consists of the minimum state tax.
8
<PAGE>
5. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures for the nine months ended September 30, 1997
and 1998 are as follows:
1997 1998
---- ----
Interest paid $206,000 $154,000
======== ========
Income taxes paid $ 1,000 $ 1,000
======== ========
The Company incurred the following non-cash transactions for the nine months
ended September 30, 1997:
Write off of subordinated debt issuance costs in connection with the
conversion of subordinated debt to common stock of $264,000;
Write off of subordinated debt accrued interest canceled in connection
with the conversion of subordinated debt to common stock of $137,000;
Reclassification of 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.
The Company incurred the following non-cash transactions for the nine months
ended September 30, 1998:
Write off of subordinated debt issuance costs in connection with the
conversion of subordinated debt to common stock of $7,000;
The Company converted $68,000 of subordinated debt to common stock during
the nine months ended September 30, 1998.
6. DEBT
Bank Debt
At September 30, 1998 the Company had an outstanding balance of $1,983,000 on
its bank line of credit and term loan. The line of credit and term loan bear
interest at 11.25 percent and 11.5 percent, respectively. On October 22, 1998
the Company renewed its line of credit and term loan with its bank through
October 2000. The terms of the Company's refinanced bank line call for a maximum
borrowing of $4,000,000 primarily based on a formula consisting of a percentage
of accounts receivable and inventory. The Company was also successful in
reducing its interest rate associated with this facility to prime plus 2.5
percent.
Subordinated Convertible Notes
During 1996 and 1997, the Company raised operating capital through the placement
of six different series of Subordinated Convertible Notes bearing interest at
rates ranging from six to twelve percent. Each series could be converted,
subject to certain terms and conditions, into common stock commencing 90 days
after issuance at discounted conversion prices based on 75 or 80 percent of the
average bid price of the Company's common stock for the five days preceding the
notice of conversion.
9
<PAGE>
At September 30, 1998 the Company had three series of Subordinated Convertible
Notes outstanding totaling $1,457,000. During the second quarter of 1998,
$68,000 of subordinated convertible notes was converted to approximately 48,154
shares of common stock. Interest rates for these notes range from seven to
twelve percent.
The $325,000 twelve percent Subordinated Convertible Note matured on November
27, 1997. The Company has informed the debt holder that such note is subordinate
to the bank.
7. CHANGES IN SHAREHOLDER EQUITY
Effective September 3, 1998 the Company implemented a 1 for 13 reverse stock
split. The number of outstanding shares in the accompanying balance sheets,
statements of operations and notes to the unaudited financial statements for all
periods presented have been adjusted to reflect the 1 for 13 reverse stock
split.
10
<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 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:
CSL Lighting Manufacturing Inc., (the Company) designs, manufactures and markets
a line of lighting fixtures utilizing both "low voltage" and standard "line
voltage" halogen light sources for sale directly to commercial and residential
end users.
The Company's strategy is to exploit new markets for its product offering,
increase the size and scope of its product offerings and maximize the
efficiencies of its manufacturing and distribution network on a worldwide basis.
In furtherance of this strategy, during 1996, 1997 and 1998 the Company expanded
its operations to include a presence in Asia, Europe and Africa. During the nine
months ended September 30, 1998 the Company introduced three new product
offerings, "Primary Colors", "Spotz", and "Tableau" for release in the third and
fourth quarters of 1998. Additionally, Management continues to implement cost
cutting procedures pertaining to general, selling and administrative expenses.
The Company will continue to offer new and innovative products while maintaining
its focus on its core product categories. For the nine months ended September
30, 1998 the Company realized significant benefits from its cost cutting
measures. As a result of these cost cutting measures and continued management of
its accounts receivables, accounts payables and inventory for the nine months
ended September 30, 1998 the Company generated cash flow form operations of
$385,000.
The Company currently has overseas joint venture distribution agreements in
China, Hong Kong, Singapore, The Philippines, Malaysia, Vietnam, The Sultanate
of Oman, Morocco, Indonesia and Taiwan. Management believes that its recent
entry into these markets together with the current fiscal crisis in Asia has
adversely impacted its ability to penetrate many of these markets. As such,
during 1998 the Company refocused its sales effort into the domestic
marketplace.
11
<PAGE>
Going Concern Consideration
The Company has suffered recurring losses from operations and has a retained
deficit at September 30, 1998 of $12,623,000 that raises substantial doubt about
the Company's ability to continue as a going concern. In addition, the Company's
common stock has been delisted from the Nasdaq SmallCap Market for failure to
meet the minimum bid price maintenance listing requirement. The Company's common
stock is currently traded on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. under the symbol CSLX. As a consequence, it may be
more difficult to sell or obtain quotations as to prices of the Company's common
stock, which may adversely impact the liquidity thereof.
Management has evaluated its current operations and has focused the Company's
efforts and developed plans to generate operating income and sustain the
Company's operations through fiscal 1998. Management's plans include the
following:
o The Company is currently in the process of exploring a strategic
partnership and/or a synergistic merger to expand its product offerings.
o The Company will continue to evaluate its costs and reduce expenditures as
warranted.
o The Company plans to expand its existing markets worldwide and increase
the size and scope of its product offerings. Management believes that the
continued development of its distribution relationships, along with
increasing the size and scope of its product offerings will support the
Company's growth effort in the worldwide markets.
o The Company will seek to raise additional capital as necessary.
There can be no assurance that the Company's expansion efforts, development of
distribution relationships, merger with a strategic partner or efforts to raise
additional capital will be successful or will enable the Company to meet its
current operating needs. In addition, there can be no assurance that the
Company's products will be successful in its foreign or domestic markets or that
the Company will be able to produce and distribute products in sufficient
quantities or at sufficient price levels to make its expansion effort
profitable.
Sales
Sales decreased by $13,000 from $9,541,000 for the nine months ended September
30, 1997, to $9,528,000 for the nine months ended September 30, 1998, and sales
decreased by $69,000 or 2.3% from $3,080,000 for the three months ended
September 30, 1997, to $3,011,000 for the three months ended September 30, 1998.
The decrease in sales for the three and nine months ended September 30, 1998
versus the three and nine months ended September 30, 1997 is attributable to the
Company's decrease in foreign sales primarily in Asia.
Gross Profit
Gross profit decreased by $208,000 from $3,915,000 for the nine months ended
September 30, 1997, to $3,707,000 for the nine months ended September 30, 1998.
Gross profit decreased by $216,000 from $1,260,000 for the three months ended
September 30, 1997 to $1,044,000 for the three months ended September 30, 1998.
Gross profit as a percentage of net sales decreased 2.1% from 41.0% for the nine
months ended September 30, 1997, to 38.9% for the nine months ended September
30, 1998. Gross profit as a percentage of net sales decreased 6.2% from 40.9%
for the three months ended September 30, 1997, to 34.7% for the three months
ended September 30, 1998. The decrease in the Company's gross profit as a
percentage of sales for the three and nine months ended September 30, 1998
versus the three and nine months ended
12
<PAGE>
September 30, 1997 is due to expenses incurred in the third quarter of 1998 in
connection with the settlement of certain warranty claims.
Selling Expense
Selling expenses as a percentage of net sales for the nine months ended
September 30, 1997 and 1998 were 25.0%, and 21.8%, respectively. Selling
expenses as a percentage of net sales for the three months ended September 30,
1997 and 1998 were 25.0% and 21.5%, respectively. For the three and nine months
ended September 30, 1998, selling expenses were $648,000 and $2,073,000,
respectively. For the three and nine months ended September 30, 1997, selling
expenses were $771,000 and $2,388,000, respectively.
The decrease in selling expense for the three and nine months ended September
30, 1998 compared to the three and nine months ended September 30, 1997, is
attributable to reduced expenditures for the Company's foreign operations,
primarily in China, and the reduction of certain sales and advertising salaries.
General and Administrative Expenses
General and administrative expenses decreased by $424,000 or 17.1% from
$2,481,000 for the nine months ended September 30, 1997, to $2,057,000 for the
nine months ended September 30, 1998. General and administrative expenses
decreased by $150,000 or 15.8% from $955,000 for the three months ended
September 30, 1997 to $805,000 for the three months ended September 30, 1998.
The decrease in general and administrative expenses for the three and nine
months ended September 30, 1998 as compared to the prior periods is attributable
to more efficient operations, reductions in salaries, foreign travel and related
expenses.
Other Income and (Expense)
Other income and expense as a percentage of net sales for the nine months ended
September 30, 1997 and 1998 were 9.2% and 3.6%, respectively. Other income and
expense expenses as a percentage of net sales for the three months ended
September 30, 1997 and 1998 were 7.2% and 3.6%, respectively. For the nine
months ended September 30, 1997 and 1998 other income and expense were $878,000
and $341,000, respectively. For the three months ended September 30, 1997 and
1998, other income and expense were $223,000 and $107,000, respectively. The
decrease in other income and expense for the three and nine months ended
September 30, 1998 as compared to the same prior periods is primarily due to the
Company, in 1997, recognizing $556,000 of interest expense from the issuance of
6% subordinated notes convertible into 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 these subordinated
convertible notes as interest expense. The Company has not issued any
convertible subordinated notes in fiscal 1998. The increase in the Company's
interest expense from financing is due to additional borrowings on the Company's
bank line of credit.
Provision for Income Taxes
The provision for income taxes for the nine months ended September 30, 1997 and
1998 reflects the minimum state tax due.
13
<PAGE>
Liquidity and Capital Resources
During 1998, the Company provided cash from operations of $385,000. The net cash
provided from operations is primarily attributable to the Company's earnings
before depreciation, amortization, non-cash interest, and other non-cash
expenses. In addition, the Company has aggressively pursued the collections of
its accounts receivable. Further, the Company used cash from operations to pay
down certain accrued expenses.
During 1998, net cash used in investing activities of $45,000, consists
primarily of costs relating to the purchase of equipment and costs relating to
secure trademarks.
During 1998, net cash used in financing activities of $492,000, consisted of
payments on the Company's bank line of credit.
At September 30, 1998 the Company had an outstanding balance of $1,983,000 on
its bank line of credit and term loan. The line of credit and term loan bear
interest at 11.25 percent and 11.5 percent, respectively. On October 22, 1998
the Company renewed its line of credit and term loan with its bank through
October 2000. The terms of the Company's refinanced bank line call for a maximum
borrowing of $4,000,000 primarily based on a formula consisting of a percentage
of accounts receivable and inventory. The Company was also successful in
reducing its interest rate associated with this facility to prime plus 2.5
percent.
The Company's common stock has been delisted from the Nasdaq SmallCap Market for
failure to meet the minimum bid price maintenance listing requirement. The
Company's common stock is currently traded on the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. under the symbol CSLX. As a
consequence, it may be more difficult to sell or obtain quotations as to prices
of the Company's common stock, which may adversely impact the liquidity thereof.
The Company believes that it will be able to generate sufficient cash flows to
support its operations through fiscal 1998. If, however, the Company experiences
losses from operations, it may be required to raise additional working capital
to support its operations and/or explore alternatives with respect to future
operations of its business including strategic partners or a potential
synergistic merger. The Company is currently in the process of exploring
strategic alliances or merger alternatives. However, there is no assurance that
the Company will consummate any such transaction; the failure of which, absent
other capital raising activity, will significantly impact the Company's ability
to continue operations as a going concern. Further, 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.
14
<PAGE>
Year 2000 Compliance
The Company is on schedule with a project that addresses the Year 2000 (Y2K)
issue of computer systems and other equipment with embedded chips or processors
not being able to properly recognize and process date-sensitive information
after December 31, 1999. Many systems use only two digits rather than four to
define the year and these systems will not be able to distinguish between the
year 1900 and the year 2000. This may lead to disruptions in the operations of
business and governmental entities resulting from miscalculations or system
failures. The project is designed to ensure the compliance of all of the
Company's applications, operating systems and hardware platforms, and to address
the compliance of key business partners. Key business partners are those
customers and vendors that have a material impact on the Company's operations.
All phases of the project should by completed by mid 1999 thus minimizing the
impact of the Y2K problem on the Company's operations.
The total estimated cost of the required modifications to become Y2K compliant
should not be material to the Company's financial position.
Failure to make all internal business systems Y2K compliant could result in an
interruption in, or a failure of, some of the Company's business activities or
operations. Y2K disruptions in customer operations could result in one or more
customers missing scheduled payments which could impact the Company's cash flow.
Y2K disruptions in the operations of key vendors could impact the Company's
ability to obtain components necessary for the manufacture of products and
fulfillment of contractual obligations. If one or more of these situations
occur, the Company's results of operations, liquidity and financial condition
could be materially and adversely affected. The Company is unable to determine
the readiness of its key business partners at this time and is therefore unable
to determine whether the consequences of Y2K failures will have a material
impact on the Company's results of operations, liquidity or financial condition.
The Y2K project is expected to significantly reduce the Company's level of
uncertainty about the Y2K problem and reduce the possibility of significant
interruptions of normal business operations.
PART II - OTHER INFORMATION
Not Applicable
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/ Mark Allen
----------------------------------------
Mark Allen,
Chief Executive Officer
Acting Principal Accounting Officer
Dated: November 14, 1998
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,850,000
<ALLOWANCES> 241,000
<INVENTORY> 4,451,000
<CURRENT-ASSETS> 6,374,000
<PP&E> 3,095,000
<DEPRECIATION> 2,022,000
<TOTAL-ASSETS> 7,560,000
<CURRENT-LIABILITIES> 3,811,000
<BONDS> 3,834,000
0
0
<COMMON> 16,286,000
<OTHER-SE> (14,302,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,560,000
<SALES> 9,528,000
<TOTAL-REVENUES> 9,528,000
<CGS> 5,821,000
<TOTAL-COSTS> 9,951,000
<OTHER-EXPENSES> 341,000
<LOSS-PROVISION> 87,000
<INTEREST-EXPENSE> 342,000
<INCOME-PRETAX> (764,000)
<INCOME-TAX> (1,000)
<INCOME-CONTINUING> (764,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (765,000)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
