SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A-2
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended: March 31, 1999
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: 2,371,643 shares of common
stock, $.01 par value, as of May 10, 1999.
The registrant hereby amends and restate its 10-QSB for the quarter ended March
31, 1999 in its entirety as set forth herein.
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
INDEX
PART I. - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Condensed Balance Sheets at
December 31, 1998 and
March 31, 1999 (Unaudited)........................................3 - 4
Condensed Statements of Operations
for the three months ended
March 31, 1998 (Unaudited) and
March 31, 1999 (Unaudited)...........................................5
Condensed Statements of Cash Flows
for the three months ended March 31, 1998 (Unaudited)
and March 31, 1999 (Unaudited)........................................6
Notes to Unaudited Condensed Financial Statements................7 - 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................................................11 - 16
SIGNATURES....................................................................17
2
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 65,000 $ 87,000
Accounts receivable, net of
allowance for doubtful
accounts of $298,000 at
December 31, 1998, and
$300,000 at March 31, 1999 1,310,000 1,270,000
Inventories 3,492,000 3,121,000
Other current assets 218,000 225,000
------------ ------------
5,085,000 4,703,000
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $2,128,000 at December 31,
1998 and $1,706,000 at March 31, 1999 1,004,000 627,000
COST IN EXCESS OF NET BOOK VALUE OF
ASSETS PURCHASED, net of accumlated
amortization of $2,000 at December 31, 1998
and $6,000 at March 31, 1999 215,000 218,000
OTHER ASSETS 117,000 13,000
------------ ------------
$ 6,421,000 $ 5,561,000
============ ============
The accompanying notes are an integral part of these condensed balance sheets
-3-
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
(Unaudited)
CURRENT LIABILITIES:
Current portion of long - term debt $ 1,929,000 $ 1,559,000
Note payable - related parties 268,000 445,000
Accounts payable - affiliates -- 100,000
Accounts payable 1,260,000 1,315,000
Accrued expenses and other current liabilities 833,000 1,414,000
------------ ------------
4,290,000 4,833,000
------------ ------------
LONG - TERM LIABILITIES:
Long - term debt, net of current portion 92,000 90,000
Subordinated convertible notes 1,452,000 425,000
Deferred rent 179,000 --
------------ ------------
1,723,000 515,000
------------ ------------
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 -
1,145,017 shares at December 31, 1998
and 2,336,769 at March 31, 1999 12,000 23,000
Additional paid-in-capital 16,279,000 18,171,000
Less - Shares held in treasury (1,218,000) (1,218,000)
Deferred compensation (445,000) (107,000)
Retained deficit (14,220,000) (16,656,000)
------------ ------------
408,000 213,000
------------ ------------
$ 6,421,000 $ 5,561,000
============ ============
The accompanying notes are an integral part of these condensed balance sheets
-4-
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
1998 1999
----------- -----------
NET SALES $ 3,528,000 $ 2,592,000
COST OF GOODS SOLD 2,052,000 1,574,000
----------- -----------
1,476,000 1,018,000
----------- -----------
OPERATING EXPENSES:
Selling 696,000 662,000
General and administrative 647,000 1,700,000
Plant closure costs -- 700,000
----------- -----------
1,343,000 3,062,000
----------- -----------
Income (loss) from operations 133,000 (2,044,000)
----------- -----------
OTHER INCOME (EXPENSE):
Loss on disposal of fixed assets (302,000)
Interest expense - financing obligations (84,000) (57,000)
Interest expense - conversion discount
and additional stock conversion bonus
for convertible notes (35,000) (32,000)
Other -- --
----------- -----------
(119,000) (391,000)
----------- -----------
Income (loss) before provision
for income taxes 14,000 (2,435,000)
PROVISION FOR INCOME TAXES 1,000 1,000
----------- -----------
NET INCOME (LOSS) $ 13,000 $(2,436,000)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING - BASIC 1,042,462 1,542,268
=========== ===========
NET INCOME (LOSS)
PER COMMON SHARE - BASIC $ 0.01 $ (1.58)
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements
-5-
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CSL LIGHTING MANUFACTURING, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 13,000 $(2,436,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Loss on disposal of fixed assets -- 302,000
Deferred compensation 16,000 338,000
Depreciation and amortization 130,000 212,000
Provision for doubtful accounts 15,000 (20,000)
Increase (decrease) in assets:
Accounts receivable 184,000 60,000
Inventories 93,000 371,000
Other 79,000 (25,000)
Increase (decrease) in liabilities:
Accounts payable (168,000) 55,000
Accounts payable - affiliates -- 100,000
Accrued expenses (104,000) 909,000
Deferred rent (5,000) (179,000)
----------- -----------
Net cash provided by (used in) operating activities 253,000 (313,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets -- (16,000)
Other assets (10,000) (2,000)
----------- -----------
Net cash used in investing activities (10,000) (18,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from notes payable - related parties -- 177,000
Repayments of long-term debt (350,000) (372,000)
Net proceeds from sale of common stock -- 548,000
----------- -----------
Net cash provided by (used in) financing activities (350,000) 353,000
----------- -----------
NET INCREASE (DECREASE) IN CASH (107,000) 22,000
CASH, beginning of period 152,000 65,000
----------- -----------
CASH, end of period $ 45,000 $ 87,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements
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<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,
1998 and 1997. 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. SALE OF EQUITY TO INTERIORS, INC.
On March 2, 1999, the Company, consummated the sale of 1,191,752 newly-issued
shares of its common stock, par value $0.01 per share (the "Shares"), to
Interiors, Inc., a Delaware corporation ("Interiors"), representing
approximately 51.0% of the outstanding shares of the Company's Common Stock as
of such date (giving effect to such issuance), pursuant to the terms of a Stock
Purchase Agreement, dated as of March 1, 1999 (the "Purchase Agreement"), by and
between the Company and Interiors. Pursuant to the terms of the Purchase
Agreement, Interiors acquired the Shares from the Company in exchange for (i)
the cancellation of approximately $1.4 million of outstanding Company
convertible debt and related obligations and (ii) $600,000 in cash. As
contemplated by the Purchase Agreement, the Company and Interiors entered into a
Standstill Agreement, dated as of March 1, 1999 (the "Standstill Agreement"), at
the time of the purchase of the Shares. Pursuant to the Standstill Agreement,
during a standstill period ending July 28, 1999 (which period is subject to
early termination in certain circumstances set forth in the Standstill
Agreement), Interiors and its "affiliates" (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended), executive officers
and directors (collectively, its "Affiliates") are prohibited from acquiring
additional shares of the Company's Common Stock (except by way of stock
dividends or other distributions or offerings made available to holders of the
Company's Common Stock generally) if the effect of such acquisition would be to
increase the number of shares of the Company's Common Stock then owned by
Interiors and its Affiliates to greater than 51.0% of the shares of the
Company's Common Stock then outstanding. Notwithstanding the foregoing, in the
event Interiors shall own less than 51.0% of the outstanding shares of the
Company's Common Stock during the standstill period, Interiors may acquire
additional shares of the Company's Common Stock during the standstill period,
provided that the effect of such acquisition would not increase the number of
shares of the Company's Common Stock then owned by Interiors and its Affiliates
to greater than 51.0% of the shares of the Company's Common Stock then
outstanding. In addition, pursuant to the terms of the Purchase Agreement, the
Board of Directors of the Company voted to expand the Board of Directors of the
Company from four to seven members and appointed four persons to fill vacancies
on the Board of Directors of the Company resulting from such expansion and the
resignation of one director, three of which persons were designated by Interiors
and one of which was mutually designated by the Company and Interiors. The
Purchase Agreement provides that for a period of not less than 150 days after
the closing date of the transaction, six of the seven members of the Board of
Directors of the Company shall consist of (a) three persons designated by the
pre-closing members of the Board of Directors of the Company, and (b) three
persons designated by Interiors. From the date on which the Board of Directors
holds its first meeting following the closing of the transactions contemplated
by
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the Purchase Agreement to the date which is 150 days following such closing
date, the seventh member of the Board of Directors shall be the person
previously mutually agreed upon by the Company's designees and Interior's
designees. The terms of the Purchase Agreement and the Standstill Agreement, and
the transactions contemplated thereby, were determined as a result of
arm's-length negotiations between representatives of both the Company and
Interior.
3. PLANT CLOSURE AND MANAGEMENT CHANGES
In connection with the sale of 51% of the Company, the Board of Directors has
determined to close the Company's operating facility in Valencia, California and
relocate its operations to a facility leased by Interiors. The Company estimates
that the move and subsequent rental of the Valencia facility will take
approximately one year. The Company has estimated the plant closure expenditures
at approximately $700,000 and has provided for those expenditures on the Balance
Sheet and Statement of Operations as of and for the three months ended March 31,
1999. In addition, as a result of the plant closure, for the three months ended
March 31, 1999 the Company wrote off $272,000 of property and equipment.
The Company has entered into an agreement ("Service Agreement") with Interiors
whereby Interiors provides office space, management services, office supplies,
personnel, and managerial and administrative services to the Company. Further,
Interiors provides various consulting services in the area of marketing,
production, finance and strategic planning. In addition, the Service Agreement
provides for working capital advances to the Company by Interiors. The working
capital advances are due on demand and bear an interest rate of 6.75% per annum.
The Company is required to pay Interiors actual costs for service used plus a
$100,000 management fee per quarter. The term of the service agreement runs from
March 1999 to February 2000. The Company believes that this arrangement will
result in significant reduction in the Company's general and administrative
expenses. As of March 31, 1999 the Company owed Interiors $100,000 pursuant to
the Service Agreement. This amount is shown as Account payable - affiliates as
of March 31, 1999.
On March 9, 1999, at a Special Meeting of the Board of Directors, the Board
terminated Scott Searle as President of the Company. On March 12, 1999, the
Company received a letter from Mr. Searle's counsel alleging certain claims
against the Company in the amount of $377,600 in connection with his affiliation
with the Company. The Company believes the claims are without merit and/or that
it has defenses to such allegations and intends to defend itself vigorously. In
association with Mr. Searle's termination the Company has expensed approximately
$109,000 of unamortized deferred compensation in connection with a 1995 deferred
stock grant.
In April 1999, the Company entered into a settlement and release agreement (the
"Agreement") with Mark Allen, the former Chief Executive Officer and then a
Director of the Company. Pursuant to the Agreement, the Company paid to Mr.
Allen the sum of $205,000 in full satisfaction of the Company's obligations
pursuant to Mr. Allen's employment agreement. The Company and Mr. Allen
exchanged general releases in connection with the transaction. In connection
with the payment to Mr. Allen, Interiors has loaned to the Company $205,000
pursuant to a convertible note bearing interest at 6.75% per annum due April 30,
2001. The note will be convertible on or after July 28, 1999, at the election of
the holder, into shares of Company Common Stock at a conversion price of $0.345
per share (the average closing price of the Common Stock on the thirty trading
days preceding March 22, 1999, the date the transaction was approved). As of
March 31, 1999 the Company has recorded an accrued liability of $250,000 on the
statement of financial conditions in connection with its settlement with Mr.
Allen. In addition, the Company has expensed approximately $217,000 of
unamortized deferred compensation in connection with Mr. Allen's 1995 deferred
stock grant.
8
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4. 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".
Due to the net losses for the three months ended March 31, 1999, stock options
and warrants were not included as common stock equivalents as the effect would
be anti-dilutive.
5. 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, 1998 and March 31, 1999:
December 31, March 31,
------------ ---------
1998 1999
---- ----
Raw Material $1,067,000 $1,067,000
Finished Goods 2,425,000 2,054,000
---------- ----------
$3,492,000 $3,121,000
========== ==========
6. 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 months ended March 31, 1999
consists of the minimum state tax.
7. STATEMENTS OF CASH FLOWS
Supplemental cash flows disclosures at March 31, 1998 and 1999 are as follows:
1998 1999
---------- ----------
Interest paid $ 80,000 $ 57,000
========== ==========
Income taxes paid $ 1,000 $ 1,000
========== ==========
In conjunction with the sale of 51% of its common stock to Interiors, the
Company has recorded $1,355,000 of subordinated debt and associated penalties
and interest as a non-cash transaction on the statement of cash flows for the
quarter ended March 31, 1999.
9
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8. DEBT
Bank Debt
At March 31, 1999 the Company had an outstanding balance of $1,538,000 on its
bank line of credit and term loan. The line of credit and term loan bears
interest at 11.25 percent and 11.5 percent, respectively, and is due in October
2000.
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 into
common stock commencing 90 days after issuance at discounted conversion prices
based on 75 or 80 percent of the average bid price for the Company's common
stock on the five days preceding the notice of conversion.
The Company's 8% subordinated convertible notes of $1,027,000 were retired as
part of the consideration of the Company sale of 51% of its common stock to
Interiors (See Note 2 - "Sale of Common Stock to Interiors and Management
Change"). In addition, $328,000 of accrued interest and penalties were also
cancelled as part of this stock transaction.
The twelve percent Subordinated Convertible Note in the principal amount of
$325,000 at March 31, 1999 became due and payable on November 27, 1997. The
Company has informed the debt holder that the $325,000 of debt is subordinate to
the Company's line of credit and term financing with its bank.
9. RELATED PARTY TRANSACTIONS
The Company issued to Interiors a Convertible Note due April 30, 2001 in the
aggregate amount of $205,000 bearing interest at 6.75% per annum. The
Convertible Note is convertible at $.345 per share and is accounted for as Notes
payable - related parties on the Balance Sheet as of March 31, 1999.
In connection with the Service Agreement, the Company owes Interiors and
subsidiaries $100,000 for management fees under the service contract.
The Company has a note payable to a shareholder for $74,000.
In connection with the purchase of Ortek, the Company has a non interest bearing
note payable to an employee for $166,000. The note is payable in monthly
installments of $10,000.
10
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Item 2 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations:
Cautionary Statement Identifying Important Factors That Could Cause The
Company's Actual Results to Differ From Those Projected in Forward Looking
Statements. Pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, readers of this report are advised that this
document contain both statements of historical facts and forward looking
statements. Forward looking statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
indicated by the forward looking statements. Examples of forward looking
statements include, but are not limited to (i) projections of revenues, income
or loss, earnings per share, capital expenditures, dividends, capital structure
and other financial items, (ii) statements of the plans and objectives of the
Company or its management or Board of Directors, including product offerings,
and market opportunities, or estimates or predictions of actions by customers,
suppliers, competitors or regulatory authorities, (iii) statements of future
economic performance, and (iv) statements of assumptions underlying other
statements and statements about the Company and its business. The Company's
annual report on form 10 KSB for the year ended December 31, 1998 as filed with
the Securities and Exchange Commission identifies important factors which could
cause actual results to differ materially from those indicated by the forward
looking statements. These risks and uncertainties include the factors discussed
therein under the heading "Certain Factors That May Affect Future Growth". The
following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto appearing elsewhere in
this report.
Overview:
In March 1999, the Company completed a private placement of 1,191,752 shares of
its common stock, representing 51% of its outstanding shares, to Interiors, Inc.
("Interiors") for total consideration of approximately $2 million. In
conjunction with the transaction, Interiors and the Company entered into a
Standstill Agreement and the Company expanded its Board of Directors to seven
members, including three designees of Interiors (See footnote 2 - ."Sale of
Equity to Interiors, Inc.").
The Company has begun the process of closing its main facility in Valencia
California and relocating its operations within a facility leased by Interiors
in the City of Industry, California. In addition, the Company is exploring
strategic opportunities with Interiors to expand product sales through
cross-marketing arrangements. The Company has entered into an agreement with
Interiors whereby Interiors will provide office space, management services,
office supplies, personnel, managerial and administrative services. Further,
Interiors will provide various consulting services in the area of marketing,
production, finance and strategic planning. In addition, the agreement provides
for working capital advances to the Company by Interiors at a prevailing
commercial interest rate.
Management believes that the consolidation of administrative and manufacturing
functions will improve operating efficiencies and enhance shareholder value.
The Company's marketing strategy during the first quarter of 1999 was to
continue to exploit new markets with its new product offerings and maximize the
efficiencies of its manufacturing and distribution network. During the year
ended December 31, 1998 the Company developed four new product offerings,
"Spotz", "Tableau", "Primary Colors" and "Counter Attack" which were released in
the third and fourth quarters of 1998 and in the first quarter of 1999. In 1998,
the Company also purchased substantially all of the assets of "Ortek" Lighting
thereby expanding its
11
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low-voltage downlight product offerings. During 1996 and 1997 the Company
expanded its operations to include a presence in Asia, Europe and Africa. In
1997 and 1998, due in part to the Asian fiscal crisis, the Company reduced its
exposure overseas by closing its Shanghai office and by focusing on domestic
sales. In March 1999, the Company closed its Singapore office. The Company
expects to incur approximately $45,000 in equipment writeoffs and loses as a
result of the Singapore office closure.
Going Concern Consideration
The Company has suffered recurring losses from operations and had an accumulated
deficit at March 31, 1999 of $16,656,000 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. In the past, the
Company's cash flow requirements have been met by the generation of capital
through public sales of equity borrowings and the issuance of convertible
debentures issued with "conversion at a discount" features, although no such
securities were issued during 1998 or the first quarter of 1999. No assurance
can be given that this source of financing will continue to be available and
demand for the Company's equity instruments will be sufficient to meet its
capital needs. If the Company is unable to generate profits and unable to
continue to obtain financing for its working capital requirements, it may have
to curtail its business sharply or cease business altogether.
Management has evaluated its current operations and has focused the Company's
efforts and developed plans to generate operating income and continue the
Company's operations through fiscal 1999. Management's plan includes the
following:
The sale of a 51% interest in the Company to Interiors as a strategic
investor (See Footnote 2 "Sale of Equity to Interiors, Inc.").
The closure of its Valencia, California facility and the relocation of
operations within Interiors in order to save certain administrative and
manufacturing costs. (See Footnote 3 "Plant Closure and Management
Change").
To evaluate its current product offerings and distribution arrangements.
To negotiate with vendors for reductions in unpaid balances and more
favorable credit terms.
To explore cross-marketing opportunities with Interiors.
If, however, the Company continues to experience losses from operations, it may
be required to raise additional working capital to support its operations.
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.
Sales
Sales decreased by $936,000 or 26.5% from $3,528,000 for the three months ended
March 31, 1998, to $2,592,000 for the three months ended March 31, 1999. In the
first quarter of 1998 the
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Company had generated sales from specific high profile jobs in Las Vegas. In the
first quarter of 1999 the Company did not replace those one time sales.
Gross Profit
Gross profit decreased by $458,000 or 31.0% from $1,476,000 for the three months
ended March 31, 1998 to $1,018,000 for the three months ended March 31, 1999.
Gross profit as a percentage of net sales decreased 2.6% from 41.8% for the
three months ended March 31, 1998, to 39.3% for the three months ended March 31,
1999. The decrease in margin as a percentage of sales and dollars is
attributable to an increase in obsolescence and overstock reserves of $300,000,
material expense and indirect labor for the quarter. In addition, certain fixed
overhead items have not been absorbed due to the Company's sale volume in the
first quarter of 1999.
Selling Expense
Selling expenses decreased by $34,000 or 4.89% from $696,000 for the three
months ended March 31, 1998 to $662,000 for the three months ended March 31,
1999. Selling expense as a percentage of net sales increased 5.8% from 19.7% for
the three months ended March 31, 1998 to 25.5% for the three months ended March
31, 1999.
The increase in selling expense as a percentage of sales for the three months
ended March 31, 1998 and 1999 of 5.8%, is attributable to increased freight
costs and commissions. The decrease of $34,000 of selling expenses for the three
months ended March 31, 1998 versus the three months ended March 31, 1999 is
attributable to lower sales commissions due to lower sales volume, and reduced
expenditures from oversea operations, primarily in Singapore.
General and Administrative Expenses
General and administrative expenses increased by $1,053,000 or 162.8% from
$647,000 for the three months ended March 31, 1998 to $1,700,000 for the three
months ended March 31, 1999. General and administrative expense as a percentage
of net sales increased 47.3% from 18.3% for the three months ended March 31,
1998 to 65.6% for the three months ended March 31, 1999.
The increase in general and administrative expenses for the three months ended
March 31, 1998 versus the three months ended March 31, 1999 of $1,053,000 is
primarily attributable to Mr. Allen's settlement agreement and the write-off of
the unamortized deferred compensation associated with the 1995 stock grant for
Mr. Allen and Mr. Searle. In addition, the Company recorded a $100,000 quarterly
management fee in accordance with its Service Agreement. The increase in general
and administrative costs were offset by decreases in management salaries and
related payroll taxes, legal expenses, and telephone expenses.
Plant Closure Costs
In connection with the sale of 51% of the Company the Board of Directors has
determined to close the Company's facility in Valencia, California and relocate
its operations into a facility leased by Interiors. The Company estimates that
the move and subsequent rental of the Valencia facility will take approximately
one year. The Company has estimated the plant closure expenditures at
approximately $700,000 and has provided for those expenditures on the Balance
Sheet and Statement of Operations as of and for the three months ended March 31,
1999.
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Other Income and Expense
Other Income and expense as a percentage of net sales for the three months ended
March 31, 1998 and 1999 were 3.4% and 15.1%, respectively. For the three months
ended March 31, 1998 and 1999, other income and expense were $119,000 and
$391,000, respectively. The increase in other income and expense is primarily
attributable to the write-off of $302,000 of certain property and equipment
associated with the Company's move from its Valencia, California facility and
obsolete tools and dies.
Provision for Income Taxes
The provision for income taxes for the three months ended March 31, 1998 and
1999 reflects the minimum state tax due.
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Liquidity and Capital Resources
During the first quarter of 1999, the Company used cash from operating
activities of $313,000. The net cash used in operating activities is primarily
attributable to the Company's net loss for the quarter offset by positive
operating activities including increases in accrued expenses and obsolesce and
overstock reserves associated with inventory.
During the first quarter of 1999, net cash used in investing activities, of
$18,000, consisted primarily of costs relating to trademarks and purchases of
software upgrades, and improvements to the Company's Dallas Showroom.
During the first quarter of 1999, net cash provided by financing activities, of
$353,000, consisted of $548,000 of net cash proceeds from the sale of common
stock (See footnote 2. "Sale of Equity to Interiors, Inc."), $205,000 of
financing from Interiors and the repayment of $400,000 on the Company's bank
line of credit.
On March 31, 1999 the Company had an outstanding balance of $1,538,000 on its
bank line of credit and term loan. The line of credit and term loan bears
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 the 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.
With the implementation of its 1999 fiscal plan, the Company believes that it
will be able to generate sufficient cash flows to support its operations through
fiscal 1999. If, however, the Company experiences continued losses from
operations, it may be required to raise additional working capital to support
its operations. 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
adverse effect on the Company's operations and financial position.
The Company believes that inflation has not had a material impact on it
operations.
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
15
<PAGE>
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. The Company believes that inflation
has not had a material impact on it operations.
16
<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/ Max Munn
-----------------------------------
Max Munn
Chief Executive Officer
Acting Principle Accounting Officer
Dated: May 10, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from CSL Lighting
Manufacturing Inc. and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 87,000
<SECURITIES> 0
<RECEIVABLES> 1,570,000
<ALLOWANCES> 300,000
<INVENTORY> 3,121,000
<CURRENT-ASSETS> 4,703,000
<PP&E> 2,333,000
<DEPRECIATION> 1,706,000
<TOTAL-ASSETS> 5,661,000
<CURRENT-LIABILITIES> 4,833,000
<BONDS> 2,519,000
0
0
<COMMON> 18,194,000
<OTHER-SE> (17,981,000)
<TOTAL-LIABILITY-AND-EQUITY> 5,561,000
<SALES> 2,592,000
<TOTAL-REVENUES> 2,592,000
<CGS> 1,574,000
<TOTAL-COSTS> 4,636,000
<OTHER-EXPENSES> 391,000
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> (2,435,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (2,436,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436,000)
<EPS-BASIC> (1.58)
<EPS-DILUTED> (1.58)
</TABLE>
