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, 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.
<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.......................................................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 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................10 - 14
PART II - OTHER INFORMATION...................................................14
SIGNATURES....................................................................15
2
<PAGE>
CSL LIGHTING MANUFACTURING, INC.
CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 65,000 $ 87,000
Accounts receivable, net of
allowance for doubtful
accounts of $298,000 at
December 31, 1998, and
$278,000 at March 31, 1999 1,310,000 1,346,000
Inventories 3,492,000 3,421,000
Other current assets 218,000 225,000
----------- -----------
5,085,000 5,079,000
PROPERTY AND EQUIPMENT, at cost,
net of accumulated depreciation and
amortization of $2,128,000 at December 31,
1998 and $2,196,000 at March 31, 1999 1,004,000 900,000
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 215,000 211,000
OTHER ASSETS 117,000 113,000
----------- -----------
$ 6,421,000 $ 6,303,000
=========== ===========
</TABLE>
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,
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long - term debt $ 1,929,000 $ 1,559,000
Note payable - related party 268,000 240,000
Accounts payable 1,260,000 1,247,000
Accrued expenses and other current liabilities 833,000 571,000
----------- -----------
4,290,000 3,617,000
----------- -----------
LONG - TERM LIABILITIES:
Long - term debt, net of current portion 92,000 90,000
Subordinated convertible notes 1,452,000 425,000
Deferred rent 179,000 172,000
----------- -----------
1,723,000 687,000
----------- -----------
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) (429,000)
Retained deficit (14,220,000) (14,548,000)
----------- -----------
408,000 1,999,000
----------- -----------
$ 6,421,000 $ 6,303,000
=========== ===========
</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)
1998 1999
----------- -----------
NET SALES $ 3,528,000 $ 2,592,000
COST OF GOODS SOLD 2,052,000 1,648,000
----------- -----------
1,476,000 944,000
----------- -----------
OPERATING EXPENSES:
Selling 696,000 600,000
General and administrative 647,000 567,000
----------- -----------
1,343,000 1,167,000
----------- -----------
Income (loss) from operations 133,000 (223,000)
----------- -----------
OTHER INCOME (EXPENSE):
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 -- (16,000)
----------- -----------
(119,000) (105,000)
----------- -----------
Income (loss) before provision
for income taxes 14,000 (328,000)
PROVISION FOR INCOME TAXES 1,000 1,000
----------- -----------
NET INCOME (LOSS) $ 13,000 $ (329,000)
=========== ===========
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 $ (0.21)
=========== ===========
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>
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 13,000 $(329,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Loss on disposal of fixed assets -- 18,000
Deferred compensation 16,000 16,000
Depreciation and amortization 130,000 144,000
Provision for doubtful accounts 15,000 (20,000)
Increase (decrease) in assets:
Accounts receivable 184,000 (16,000)
Inventories 93,000 71,000
Other 79,000 (25,000)
Decrease in liabilities:
Accounts payable (168,000) (13,000)
Accrued expenses (104,000) 66,000
Deferred rent (5,000) (7,000)
--------- ---------
Net cash provided by (used in) operating activities 253,000 (95,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets -- (16,000)
Other assets (10,000) (17,000)
--------- ---------
Net cash used in investing activities (10,000) (33,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (350,000) (400,000)
Net proceeds from sale of common stock -- 550,000
--------- ---------
Net cash provided by (used in) financing activities (350,000) 150,000
--------- ---------
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
- 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 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. and Management Change
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 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
7
<PAGE>
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.
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 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 closing price of the Common Stock on the thirty trading days
preceding March 22, 1999, the date the transaction was approved).
The Board of Directors has installed a new management team which has begun the
implementation of its fiscal 1999 plan (See Management Discussion and Analysis -
Overview). The Company's plan includes the closure of its main facility in
Valencia, California and the consolidation of those operations into facilities
occupied by Interiors. The Company anticipates recording a reserve for plant
closure in the second quarter of 1999, but has yet to determine its magnitude or
impact.
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".
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 their effect would
be 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, 1998 and March 31, 1999:
December, 31, March 31,
------------- ---------
1998 1998
---- ----
Raw Material $1,067,000 $1,067,000
Finished Goods 2,425,000 2,354,000
---------- ----------
3,492,000 3,421,000
========== ==========
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,
8
<PAGE>
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.
5. 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.
6. DEBT
Bank Debt
At March 31, 1999 the Company had an outstanding balance of $1,559,000 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
<PAGE>
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. and Management Changes")
In connection with the Company's private placement, the Board of Directors
installed a new management team that has begun the consolidation of the
Company's operations within Interiors Inc. The Company has begun the process of
closing its main facility in Valencia California and consolidating its
operations within Interiors West Coast division in the City of Industry,
California. The Company anticipates recording a reserve for plant closure in the
second quarter of 1999, but has yet to determine its magnitude or impact. In
addition, the Company is exploring strategic opportunities with Interiors to
expand product sales through cross-marketing arrangements. Management believes
that the consolidation of administrative and manufacturing functions will
improve operating efficiencies, achieve profitability 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 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
10
<PAGE>
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 $14,548,000 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 Inc., as a strategic
investor (See Footnote 2 "Sale of Equity to Interiors, Inc. and Management
Change".)
The closure of its Valencia, California facility and the consolidation of
operations within Interiors West Coast Division.
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 and synergistic
savings through the consolidation of certain administrative and
manufacturing functions with Interiors.
If, however, the Company experiences 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 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.
11
<PAGE>
Gross Profit
Gross profit decreased by $532,000 or 36.0% from $1,476,000 for the three months
ended March 31, 1998 to $944,000 for the three months ended March 31, 1999.
Gross profit as a percentage of net sales decreased 5.5% from 41.9% for the
three months ended March 31, 1998, to 36.4% for the three months ended March 31,
1999. The decrease in margin as a percentage of sales and dollars is
attributable to thean increase in 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 $96,000 or 13.8% from $696,000 for the three
months ended March 31, 1998 to $600,000 for the three months ended March 31,
1999. Selling expense as a percentage of net sales increased 3.3% from 19.8% for
the three months ended March 31, 1998 to 23.1% 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 3.3%, is attributable to increased freight
costs and commissions. The decrease of $96,000 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 decreased by $80,000 or 12.4% from $647,000
for the three months ended March 31, 1998 to $567,000 for the three months ended
March 31, 1999. General and administrative expense as a percentage of net sales
increased 3.6% from 18.43% for the three months ended March 31, 1998 to 21.9%
for the three months ended March 31, 1999.
The decrease in general and administrative expenses for the three months ended
March 31, 1998 versus the three months ended March 31, 1999 of $80,000 is
attributable to decreases in management salaries and related payroll taxes,
legal expenses, and telephone expenses.
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 4.1%, respectively. For the three months
ended March 31, 1998 and 1999, other income and expense were $119,000 and
$105,000, respectively. The decrease in other income and expense in dollar
volume is primarily attributable to reduced interest expense from lower bank
borrowings and subordinated debt instruments.
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.
12
<PAGE>
Liquidity and Capital Resources
During the first quarter of 1999, the Company used cash from operating
activities of $95,000. 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 use of inventory and increases in accrued
expenses.
During the first quarter of 1999, net cash used in investing activities, of
$33,000, 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
$150,000, consisted of $550,000 of net cash proceeds from the sale of common
stock (See footnote 2. "Sale of Equity to Interiors, Inc. and Management
Change") 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 partners. Key business partners are those
customers and vendors that have a material impact on
13
<PAGE>
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.
14
<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 13, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extacted 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-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 87,000
<SECURITIES> 0
<RECEIVABLES> 1,624,000
<ALLOWANCES> 278,000
<INVENTORY> 3,421,000
<CURRENT-ASSETS> 5,079,000
<PP&E> 3,096,000
<DEPRECIATION> 2,196,000
<TOTAL-ASSETS> 6,303,000
<CURRENT-LIABILITIES> 3,617,000
<BONDS> 2,314,000
0
0
<COMMON> 18,194,000
<OTHER-SE> (16,195,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,303,000
<SALES> 2,592,000
<TOTAL-REVENUES> 2,592,000
<CGS> 1,648,000
<TOTAL-COSTS> 2,815,000
<OTHER-EXPENSES> 105,000
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 89,000
<INCOME-PRETAX> (328,000)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (329,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329,000)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
