UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to ___________________
Commission file number 1-9917
CATALINA LIGHTING, INC
----------------------
(Exact name of registrant as specified in its chapter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
59-1548266
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(I.R.S. Employer Identification Number)
18191 NW 68th Avenue, Miami, Florida 33015
------------------------------------------
(Address of principal executive offices) (Zip Code)
(305) 558-4777
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Registrant's telephone number, including area code
----------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by checkmark 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. OUTSTANDING ON FEBRUARY 5, 1999: 7,183,869 SHARES.
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION PAGE NO.
--------
Condensed consolidated balance sheets -
December 31, 1998 and September 30, 1998................... 3
Condensed consolidated statements of operations -
Three months ended December 31, 1998 and 1997.............. 5
Condensed consolidated statements of cash flows -
Three months ended December 31, 1998 and 1997.............. 6
Notes to condensed consolidated financial statements......... 8
Management's discussion and analysis of financial
condition and results of operations........................ 12
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings.................................... 19
ITEM 4 Submission of Matters to a Vote of Security Holders.. 19
ITEM 6 Exhibits and Reports on Form 8-K..................... 19
2
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
ASSETS DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
(Unaudited) *
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,577 $ 1,790
Restricted cash equivalents and short-term investments 1,920 377
Accounts receivable, net of allowances
of $8,847 and 8,408, respectively 16,923 18,395
Inventories 26,677 28,257
Other current assets 8,087 6,897
--------- ---------
Total current assets 57,184 55,716
Property and equipment, net 27,342 27,922
Restricted cash equivalents and short-term investments - 1,430
Goodwill, net 10,903 11,017
Other assets 2,862 2,875
--------- ---------
$ 98,291 $ 98,960
========= =========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
------------ -------------
(Unaudited) *
<S> <C> <C>
Current liabilities
Notes payable - credit lines $ 2,450 $ 3,428
Accounts and letters of credit payable 12,027 12,423
Current maturities of bonds payable-real estate related 2,210 975
Current maturities of other long-term debt 465 485
Accrued litigation judgment under appeal 5,015 4,909
Other current liabilities 5,528 5,827
-------- --------
Total current liabilities 27,695 28,047
Notes payable - credit lines 11,300 10,500
Convertible subordinated notes 7,600 7,600
Bonds payable - real estate related 6,900 8,215
Other long-term debt 1,801 1,909
Other liabilities 304 365
-------- --------
Total liabilities 55,600 56,636
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, issued and outstanding 7,184
shares and 7,175 shares, respectively 72 72
Additional paid-in capital 26,492 26,475
Retained earnings 16,280 15,777
Treasury stock, 59 shares (153) -
-------- --------
Total stockholders' equity 42,691 42,324
-------- --------
$ 98,291 $ 98,960
======== ========
<FN>
*Condensed from audited financial statements
</FN>
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1998 1997
-------- ---------
Net sales $ 42,803 $ 36,983
Cost of sales 34,674 30,408
-------- --------
Gross profit 8,129 6,575
Selling, general and administrative
expenses 6,811 6,333
-------- --------
Operating income 1,318 242
-------- --------
Other income (expenses):
Interest expense (729) (1,024)
Other income (expenses) 112 294
-------- --------
Total other income (expenses) (617) (730)
-------- --------
Income (loss) before income taxes 701 (488)
Income tax benefit (provision) (198) 107
-------- --------
Net income (loss) $ 503 $ (381)
======== ========
Weighted average number of
shares outstanding
Basic 7,171 7,105
Diluted 7,282 7,105
Earnings (loss) per share
Basic $ 0.07 $ (0.05)
Diluted $ 0.07 $ (0.05)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1998 1997
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 503 $ (381)
Adjustments for non-cash items 2,132 1,129
Change in assets and liabilities 403 1,432
--------- --------
Net cash provided by (used in) operating activities 3,038 2,180
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net (554) (721)
Decrease (increase) in restricted cash equivalents and
short-term investments 112 103
--------- --------
Net cash provided by (used in) investing activities (442) (618)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 16 57
Net payments to repurchase common stock (153) -
Payments on other liabilities (189) (55)
Payments on bonds (80) (75)
Proceeds from notes payable - credit lines 10,900 6,500
Payments on notes payable - credit lines (11,050) (8,150)
Net proceeds from (payments on) notes payable -
credit lines due on demand (28) (655)
Sinking fund redemption payments on bonds (225) (225)
--------- --------
Net cash provided by (used in) financing activities (809) (2,603)
--------- --------
Net increase (decrease) in cash and cash equivalents 1,787 (1,041)
Cash and cash equivalents at beginning of period 1,790 1,847
--------- --------
Cash and cash equivalents at end of period $ 3,577 $ 806
========= ========
(continued on page 7)
6
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
THREE MONTHS ENDED
DECEMBER 31,
-----------------------------------
1998 1997
---------------- ---------------
(In thousands)
Cash paid for:
Interest $ 487 $ 788
Income taxes $ 1,334 $ 78
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the accounting policies described in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1998 and
should be read in conjunction with the consolidated financial statements and
notes which appear in that report. These statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, the condensed consolidated financial statements
include all adjustments (which consist mostly of normal, recurring accruals)
considered necessary for a fair presentation. The results of operations for the
three months ended December 31, 1998 may not necessarily be indicative of
operating results to be expected for the full fiscal year due to seasonal
fluctuations in the Company's business, changes in economic conditions and other
factors.
Certain amounts previously presented in the financial statements of prior
periods have been reclassified to conform to the current period's presentation.
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which establishes
standards for reporting and display of comprehensive income and its components.
The Company's net income for the three months ended December 30, 1998 equals
comprehensive income for the same period.
2. INVENTORIES
Inventories consisted of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1998
--------------- ----------------
(In thousands)
Raw materials $ 3,476 $ 3,777
Work-in-progress 684 713
Finished goods 22,517 23,767
--------------- ----------------
Total inventories $ 26,677 $ 28,257
=============== ================
3. PROPERTY AND EQUIPMENT, NET
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of Go-Gro, and the Bureau of National Land Planning Bao-An
Branch of Shenzhen City entered into a Land Use Agreement covering approximately
467,300 square feet in Bao-An County, Shenzhen City, People's Republic of China
on April 11, 1995. The agreement provides SJE with non-transferable rights to
use this land until January 18, 2042. Under the terms of the SJE joint venture
agreement, ownership of the land and buildings of SJE is divided 70% to Go-Gro
and 30% to the other joint venture partner. Land costs, including the land use
rights, approximated $2.6 million of which Go-Gro has paid its 70% proportionate
share of $1.8 million. Under the terms of this agreement, as amended, SJE is
obligated to construct approximately 500,000 square feet of factory buildings
and 211,000 square feet of dormitories and offices, of which 40 percent was
required to be and was completed by April 1, 1997. The remainder of the
construction is required to be completed by December 31, 1999. The Company plans
to file an application to extend the completion deadline of December 1999. The
total cost for this project is estimated at $15.5 million (of which $10 million
had been expended as of December 31, 1998) and includes approximately $1 million
for a Municipal Coordination Facilities Fee (MCFF). The MCFF is based upon the
square footage to be constructed. The agreement calls for the MCFF to be paid in
installments beginning in January 1997 of which $163,659 had been paid as of
December 31, 1998. A 162,000 square foot factory, 77,000 square foot warehouse
and 60,000 square foot dormitory became fully operational in June 1997.
8
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES
LEGAL
On June 4, 1991, the Company was served with a copy of the Complaint in the
matter of Browder vs. Catalina Lighting, Inc., Robert Hersh, Dean S. Rappaport
and Henry Gayer, Case No. 91-23683, in the Circuit Court of the 11th Judicial
Circuit in and for Dade County, Florida. The plaintiff in the action, the former
President and Chief Executive Officer of the Company, contended that his
employment was wrongfully terminated and as such brought action for breach of
contract, defamation, slander, libel and intentional interference with business
and contractual relationships, including claims for damages in excess of $5
million against the Company and $3 million against the named directors. During
the course of the litigation the Company prevailed on its Motions for Summary
Judgment and the Court dismissed the plaintiff's claims of libel and
indemnification. On February 3, 1997, the plaintiff voluntarily dismissed the
remaining defamation claims against the Company and directors. The breach of
contract claim was tried in February, 1997 and the jury returned a verdict
against the Company for total damages of $2.4 million (including prejudgment
interest). On July 14, 1997, the Court also granted plaintiff's motion for
attorney fees and costs of $1.9 million. A provision of $4.3 million was
recorded by the Company during the quarter ended March 31, 1997 and a $787,000
provision for post-judgment interest was recorded through December 31, 1998. The
Company is appealing the verdict and attorney fee award and the appeal was
argued before the Third District Court of Appeal on December 18, 1998. The
Company believes its arguments are meritorious. No decision from the District
Court has been received to date.
On December 17, 1996 White Consolidated Industries, Inc. ("White"), which has
acquired certain limited trademark rights from Westinghouse Electric Corp.
("Westinghouse") to market certain household products under the
White-Westinghouse trademark, notified the Company of a lawsuit against
Westinghouse and the Company filed in the United States District Court, for the
Northern District of Ohio. The lawsuit challenged the Company's right to use the
Westinghouse trademarks on its lighting products and alleges trademark
infringement. On December 24, 1996, Westinghouse and the Company served a
Complaint and Motion for Preliminary Injunction against White, AB Electrolux,
Steel City Vacuum Co., Inc., Salton/Maxim Housewares, Inc., Newtech Electronics
Corp., and Windmere Durable Holdings, Inc. in the United States District Court,
Eastern District of Pennsylvania, Case No. 96-2294 alleging that the defendants
had violated Westinghouse's trademark rights, breached the Agreement between
Westinghouse and White and sought an injunction to enjoin White against
interference with their contractual arrangements. In October 1997, the cases
were consolidated in the Pennsylvania case and on November 7, 1997 White filed a
Counterclaim and Third Party Claims against Westinghouse, Catalina and Minami
International Corporation alleging trademark infringement, trademark dilution,
false designation of origin, false advertising and unfair competition and
seeking injunctive relief and damages. Both the Company and Westinghouse
vigorously dispute White's allegations. Pursuant to the License Agreement
between Westinghouse and the Company, Westinghouse is defending and indemnifying
the Company for all costs and expenses for claims, damages and losses, including
the costs of litigation. A trial date of June 21, 1999 has been set by the
Court.
During fiscal 1998 the Company received a number of claims relating to halogen
torchieres sold by the Company to various retailers. Management does not
currently believe these claims will result in a material uninsured liability to
the Company. However, as a result of these claims the Company experienced an
increase in its liability insurance premiums effective for the 1999 calendar
year and will now be self-insuring up to a maximum of $10,000 for each incident
occurring in calendar 1999. It is too early to assess the impact of these
changes on the Company's financial position or annual results of operations
during fiscal 1999. No assurance can be given that the number of claims will not
exceed historical experience or that claims will not exceed available insurance
coverage or that the Company will be able to maintain the same level of
insurance.
The Company is also a defendant in other legal proceedings arising in the course
of business. In the opinion of management the ultimate resolution of these other
legal proceedings will not have a material adverse effect on the financial
position or annual results of operations of the Company.
9
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. CONTINGENCIES (CONTINUED)
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company has developed and is currently executing a plan to make its computer
systems Year 2000 ready. The plan consists of five phases: (1) an inventory of
all systems and applications, including non-information technology systems; (2)
an assessment of the Year 2000 readiness of these existing systems and
applications; (3) remediation of Year 2000 problems identified in the assessment
phase; (4) testing of all systems and applications to verify the success of the
remediation phase and, if necessary (5) the implementation of contingency plans
for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1, 1998. The
Company is presently engaged in phases 3 and 4 and expects to complete these
phases by July 1, 1999.
The Company has determined that its non-information technology systems are not
significantly affected by the Year 2000 Issue. With respect to information
technology systems, in 1997 the Company, during the normal course of upgrading
its systems to address its business needs and add functionality and efficiency
to its business processes, began implementation of a new enterprise software to
replace the business applications supporting sales, distribution, inventory
management, finance and accounting for the Company's North American businesses.
The majority of the remainder of the Company's North American systems will be
made Year 2000 ready through purchased upgrades of commercial third-party
software packages. Go-Gro's systems and applications will be made Year 2000
ready through a combination of internal reprogramming/modification and purchased
upgrades of commercial third-party software packages. The internal
reprogramming/modifications of Go-Gro's systems and applications are presently
undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers and other
companies important to its business to attempt to determine the extent to which
the Company is vulnerable to such parties' failure to resolve their own Year
2000 issues.
The Company is currently and will continue utilizing both internal and external
resources to implement its Year 2000 plan. The total incremental cost to the
Company for the Year 2000 project (excluding internal resources, the costs
associated with the new enterprise system and scheduled hardware replacements
which would have been incurred regardless of the Year 2000 Issue), all of which
will be expensed as incurred, is approximately $150,000, none of which has been
incurred as of December 31, 1998. The Company plans to fund these costs with
cash flows from operations. The costs of the Year 2000 project and the timetable
in which the Company expects to finish its Year 2000 project are based on
management's best estimates and are dependent on a number of factors, including
the continued availability of personnel and external resources.
The Company expects to be Year 2000 compliant by October 1, 1999 and has
established contingency plans in the event remediation and testing efforts
indicate any of the Company's planned systems and applications will not be Year
2000 ready. The Company's new enterprise software has been represented as Year
2000 ready by its manufacturer but should such software prove to have Year 2000
problems, the existing legacy systems will be made Year 2000 compliant through
the upgrade of the underlying database product and a limited amount of
additional programming. Contingency plans for the Company's other systems and
applications contemplate additional purchases of third-party software packages
and expanded use of external resources in remediation efforts.
Year 2000 compliance is critical to the Company due to the importance of its
computer systems and applications to its business. The Company may also be
vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 Issue could have a material impact on the operations of
the Company.
10
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
OTHER
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate.
5. NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. SFAS No. 131 establishes standards for
the way that public companies report selected information about operating
segments in annual financial statements and requires that those companies report
selected information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131,
which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about major
customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997, with disclosures in interim financial statements not required in the year
of adoption. The Company has not determined the effects, if any, that SFAS No.
131 will have on the disclosures in its consolidated financial statements.
11
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, including without limitation
expectations as to future sales and profitability, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company and its subsidiaries to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
but are not limited to, the following: the highly competitive nature of the
lighting industry; reliance on certain key customers; consumer demand for
lighting products; dependence on imports from China; general economic and
business conditions; advertising and promotional efforts; brand awareness; the
existence or absence of adverse publicity; acceptance of new product offerings;
changing trends in customer tastes; availability, terms and deployment of
capital; availability and cost of raw materials and supplies; the costs and
other effects of legal and administrative proceedings; foreign exchange rates;
changes in the Company's effective tax rate (which is dependent on the Company's
U.S. and foreign source income) and other factors referenced in this Form 10-Q
and in the Company's annual report on Form 10-K for the year ended September 30,
1998. The Company will not undertake and specifically declines any obligation to
update or correct any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
In the following comparison of the results of operations, the three
months ended December 31, 1998 and 1997 are referred to as 1998 and 1997,
respectively.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
Net sales and gross profit for 1998 were $42.8 million and $8.1 million,
respectively, as compared to $37 million and $6.6 million, respectively, for
1997. The Company generated net income of $503,000 ($.07 per share) in 1998
compared to a net loss of $381,000 ($.05 per share) in 1997.
The $5.8 million increase in net sales from the prior year reflects
higher unit sales to U.S. customers reflecting additions to core programs and
promotional opportunities. Lamp sales increased by $5.8 million to $27.8 million
and net sales for the Company's other principal line of products, lighting
fixtures, remained the same at $15 million. Lamps and lighting fixtures
accounted for 65% and 35%, respectively, of net sales in 1998 compared to 59%
and 41% in 1997, respectively. In 1998 and 1997, Home Depot accounted for 28.1%
and 26.1%, respectively, of the Company's net sales.
Gross profit increased by $1.6 million in 1998 due to the increase in
net sales. The gross profit percentage increased to 19.0% in 1998 from 17.8% in
1997. The improvement in the gross profit percentage is attributable to the
increase in net sales, which lessened the effect on such percentage of
purchasing and warehousing costs as most of these costs are fixed.
Many of the Company's major customers (most notably Home Depot) purchase
from the Company primarily on a direct basis, whereby the merchandise is shipped
directly from the factory to the customer, rather than from the Company's
warehouses. Approximately 73% of the Company's sales in 1998 were made on a
direct basis as compared to 65% in 1997. Sales made by the Company on a direct
basis typically generate lower per unit margins than sales of the same items
from the Company's warehouses. The amount of the Company's sales made on a
direct basis is dependent upon customer buying preferences, which are influenced
by a number of factors that vary from customer to customer. Sales from the
Company's warehouses declined during the fiscal year ended September 30, 1998 as
compared to the fiscal year ended September 30, 1997. The Company is attempting
to compensate for this decline by pursuing new channels of distribution which
will be serviced out of the Company's U.S. warehouse. However, there can be no
assurance these efforts will be successful, and the Company may experience
further declines in sales made from its U.S. warehouse.
Selling, general and administrative expenses ("SG&A") increased by
$478,000 from the prior year reflecting an increase in the provision for
uncollectible accounts receivable ($160,000), an increase in professional fees
($142,000) and an increase in royalties ($145,000). However, SG&A expenses as a
percentage of sales were 15.9% in 1998 compared to 17.1% in 1997 as a result of
the increase in sales.
Interest expense decreased to $729,000 in 1998 from $1 million in 1997
due to lower average outstanding borrowings and a lower average interest rate.
12
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Other income for 1998 consisted primarily of rental income on the
Meridian facility and interest and other miscellaneous income.
The effective income tax rates for 1998 and 1997 were 28.2% and 21.9%,
respectively and reflect the projected impact of foreign income, which is taxed
at a significantly lower rate than U.S. income. As a result of recent Internal
Revenue Service rulings and proposed and temporary regulations, the Company is
in the process of restructuring its international operations in order to retain
favorable U.S. tax treatment of foreign source income. The Company believes it
should be successful in this restructuring. However, in the event the Company is
unsuccessful in this effort, the Company will likely experience an increase in
its consolidated effective income tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its short-term liquidity needs through cash provided
by operations, accounts payable, borrowings under various credit facilities with
banks, and the use of letters of credit from customers to fund certain of its
direct import sales activities. Lease obligations, mortgage notes, convertible
subordinated notes, bonds and capital stock are additional sources for the
longer-term liquidity and financing needs of the Company. Management believes
the Company's available sources of cash will enable it to fulfill its liquidity
requirements for the next year.
CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
The Company's operating, investing and financing activities resulted in
a net increase in cash and cash equivalents of $1.8 million from September 30,
1998 to December 31, 1998.
The net cash of $3 million provided by operating activities was used
primarily to pay for capital expenditures aggregating $554,000, to pay down
credit lines, to make sinking fund redemption payments on outstanding bonds and
to repurchase Company common stock.
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES
The Company has a $35 million credit facility with a group of commercial
banks. This facility provides credit in the form of a $950,000 non-revolving
loan and $34 million in revolving loans, acceptances, and trade and stand-by
letters of credit, matures September 30, 2000 and provides for quarterly
principal payments of $950,000 on the non-revolving loan. As the non-recurring
loan is reduced the remaining facility is increased by a similar amount. The
non-revolving loan bears interest, payable monthly, at prime plus 1% and other
borrowings under the facility bear interest, payable monthly, at the Company's
preference of either the prime rate or the LIBOR rate plus a variable spread
based upon earnings, debt and interest expense levels defined under the credit
agreement (LIBOR plus 1.8% at December 31, 1998). Obligations under this
facility are secured by substantially all of the Company's U.S. assets. The
Company is required to comply with various convenants in connection with this
facility and borrowings are subject to a borrowing base calculated from U.S.
receivables and inventory. In addition, the agreement prohibits the payment of
any cash dividends or other distribution on any shares of the Company's common
stock, other than dividends payable solely in shares of common stock, unless
approval is obtained from the lenders. At December 31, 1998, the Company had
used $13.5 million under this credit facility (loans amounted to $12.3 million
of which $950,000 was included in current notes payable-credit lines) and $8
million was available for additional borrowings under the borrowing base
calculation.
13
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES (CONTINUED)
The Company's Canadian and Hong Kong subsidiaries have credit facilities
with foreign banks of 4 million Canadian dollars (approximately U.S. $2.6
million) and 35 million Hong Kong dollars (approximately U.S. $4.5 million),
respectively. Borrowings under the Canadian facility are secured by
substantially all of the assets of the Canadian subsidiary and are limited under
a borrowing base defined as the aggregate of certain percentages of accounts
receivable and inventory. Canadian dollar advances bear interest at the Canadian
prime rate plus .5% (7.25% at December 31, 1998) and all U.S. dollar advances
bear interest at the U.S. base rate of the bank (8.25% at December 31, 1998). At
December 31, 1998, total Canadian and U.S. dollar borrowings amounted to U.S.
$1.5 million (included in current notes payable-credit lines) and U.S. $900,000
was available for additional borrowings under the borrowing base calculation.
The Hong Kong facility provides credit in the form of acceptances, trade and
stand-by letters of credit, overdraft protection and negotiation of discrepant
documents presented under export letters of credit issued by banks. Advances
bear interest at the Hong Kong prime rate plus .25% (9.25% at December 31,
1998). Each of these credit facilities are payable upon demand and are subject
to annual reviews by the banks. At December 31, 1998, there were no borrowings
under the Hong Kong facility and U.S. $3.9 million was available for borrowings.
With respect to the Canadian facility, the agreement prohibits the payment of
dividends and the Company is required to comply with various covenants, which
effectively restrict the amount of funds which may be transferred from the
Canadian subsidiary to the Company. The Hong Kong facility requires Go-Gro to
maintain a minimum net worth, prohibits the payment of dividends by Go-Gro
without the prior consent of the lender, and limits the amount of advances or
loans from Go-Gro to the Company at any time to 50% of Go-Gro's pre-tax profits
for the previous 12 months.
The Company has outstanding $7.6 million of 8% convertible subordinated
notes due March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $6.68 per share, subject to certain
anti-dilution adjustments (as defined in the Note Agreement), at any time prior
to maturity. The notes are subordinated in right of payment to all existing and
future senior indebtedness of the Company and the notes are callable at the
option of the Company with certain required premium payments. Principal payments
of approximately $2.5 million are required on March 15 in each of the years 2000
and 2001. The remaining outstanding principal and interest is due in full on
March 15, 2002. Interest is payable semiannually. The terms of the Note
Agreement require the Company to maintain specific interest coverage ratio
levels in order to increase its credit facilities or otherwise incur new debt
and to maintain a minimum consolidated net worth. In addition, the Note
Agreement prohibits the declaration or payment of dividends on any shares of the
Company's capital stock, except dividends or other distributions payable solely
in shares of the Company's common stock, and limits the purchase or retirement
of any shares of capital stock or other capital distributions.
The Company arranged for the issuance in 1995 of $10.5 million in State
of Mississippi Variable Rate Industrial Revenue Development Bonds to finance
(along with internally generated cash flow and the Company's $1 million leasing
facility) its warehouse located near Tupelo, Mississippi. The bonds have a
stated maturity of May 1, 2010 and require mandatory sinking fund redemption
payments, payable monthly, of $900,000 per year from 1996 to 2002, $600,000 per
year in 2003 and 2004, and $500,000 per year from 2005 to 2010. The bonds bear
interest at a variable rate (5.7% at December 31, 1998) that is adjustable
weekly to the rate the remarketing agent for the bonds deems to be the market
rate for such bonds. The bonds are secured by a lien on the land, building, and
all other property financed by the bonds. Additional security is provided by an
$8 million direct pay letter of credit which is not part of the Company's credit
line. The unpaid balance of these bonds was $7.8 million at December 31, 1998.
The Company financed the purchase and improvements of its Meridian
manufacturing facility through the issuance of a series of State of Mississippi
General Obligation Bonds (Mississippi Small Enterprise Development Finance Act
Issue, 1994 Series GG) with an aggregate available principal balance of
$1,605,000, a weighted average coupon rate of 6.23% and a contractual maturity
of November 1, 2009. The bonds are secured by a first mortgage on land, building
and improvements and a $1,713,000 standby letter of credit which is not part of
the Company's credit line. Interest on the bonds is payable semiannually and
principal payments are due annually. In June 1997, the Company ceased
manufacturing operations at Meridian and leased the facility to a
non-manufacturing entity and in August 1997 made a $1.5 million payment to
escrow on the bonds. The Company plans to redeem the bonds at their earliest
redemption date, approximately November 1, 1999.
14
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CREDIT AND LEASING FACILITIES, BONDS, MORTGAGE AND CONVERTIBLE SUBORDINATED
NOTES (CONTINUED)
The Company has a $1 million facility with a U.S. financial institution
to finance the purchase of equipment in the United States, of which $451,000 was
available at December 31, 1998. In addition, the Company has a leasing facility
for $9 million Hong Kong dollars (approximately U.S. $1.2 million) with a Hong
Kong financial institution to finance the purchase of equipment for its China
facilities of which $370,000 was available at December 31, 1998.
The Company financed its corporate headquarters in Miami, Florida with a
loan payable monthly through 2004, based on a 15 year amortization schedule,
with a balloon payment in 2004. The loan bears interest at 8% and is secured by
a mortgage on the land and building. The unpaid balance of this loan was $1
million at December 31, 1998.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has developed and is currently executing a plan to make its
computer systems Year 2000 ready. The plan consists of five phases: (1) an
inventory of all systems and applications, including non-information technology
systems; (2) an assessment of the Year 2000 readiness of these existing systems
and applications; (3) remediation of Year 2000 problems identified in the
assessment phase; (4) testing of all systems and applications to verify the
success of the remediation phase and, if necessary (5) the implementation of
contingency plans for all significant systems and applications.
Phases 1 and 2 of the Company's plan were completed as of September 1,
1998. The Company is presently engaged in phases 3 and 4 and expects to complete
these phases by July 1, 1999.
The Company has determined that its non-information technology systems
are not significantly affected by the Year 2000 Issue. With respect to
information technology systems, in 1997 the Company, during the normal course of
upgrading its systems to address its business needs and add functionality and
efficiency to its business processes, began implementation of a new enterprise
software to replace the business applications supporting sales, distribution,
inventory management, finance and accounting for the Company's North American
businesses. The majority of the remainder of the Company's North American
systems will be made Year 2000 ready through purchased upgrades of commercial
third-party software packages. Go-Gro's systems and applications will be made
Year 2000 ready through a combination of internal reprogramming/modification and
purchased upgrades of commercial third-party software packages. The internal
reprogramming/modifications of Go-Gro's systems and applications are presently
undergoing testing by an independent third party.
The Company has initiated communications with the customers, suppliers
and other companies important to its business to attempt to determine the extent
to which the Company is vulnerable to such parties' failure to resolve their own
Year 2000 issues.
The Company is currently and will continue utilizing both internal and
external resources to implement its Year 2000 plan. The total incremental cost
to the Company for the Year 2000 project (excluding internal resources, the
costs associated with the new enterprise system and scheduled hardware
replacements which would have been incurred regardless of the Year 2000 Issue),
all of which will be expensed as incurred, is approximately $150,000, none of
which has been incurred as of December 31, 1998. The Company plans to fund these
costs with cash flows from operations. The costs of the Year 2000 project and
the timetable in which the Company expects to finish its Year 2000 project are
based on management's best estimates and are dependent on a number of factors,
including the continued availability of personnel and external resources.
15
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
The Company expects to be Year 2000 compliant by October 1, 1999 and has
established contingency plans in the event remediation and testing efforts
indicate any of the Company's planned systems and applications will not be Year
2000 ready. The Company's new enterprise software has been represented as Year
2000 ready by its manufacturer but should such software prove to have Year 2000
problems, the existing legacy systems will be made Year 2000 compliant through
the upgrade of the underlying database product and a limited amount of
additional programming. Contingency plans for the Company's other systems and
applications contemplate additional purchases of third-party software packages
and expanded use of external resources in remediation efforts.
Year 2000 compliance is critical to the Company due to the importance of
its computer systems and applications to its business. The Company may also be
vulnerable to the failure of significant third parties with which the Company
does business to resolve their own Year 2000 issues. The impact on the Company
of failure by either the Company or the significant third parties with which it
does business to achieve Year 2000 compliance is not reasonably estimable,
however, the Year 2000 Issue could have a material adverse impact on the
operations of the Company.
OTHER
Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative
joint venture subsidiary of Go-Gro, and the Bureau of National Land Planning
Bao-An Branch of Shenzhen City entered into a Land Use Agreement covering
approximately 467,300 square feet in Bao-An County, Shenzhen City, People's
Republic of China on April 11, 1995. The agreement provides SJE with
non-transferable rights to use this land until January 18, 2042. Under the terms
of the SJE joint venture agreement, ownership of the land and buildings of SJE
is divided 70% to Go-Gro and 30% to the other joint venture partner. Land costs,
including the land use rights, approximated $2.6 million of which Go-Gro has
paid its 70% proportionate share of $1.8 million. Under the terms of this
agreement, as amended, SJE is obligated to construct approximately 500,000
square feet of factory buildings and 211,000 square feet of dormitories and
offices, of which 40 percent was required to be and was completed by April 1,
1997. The remainder of the construction is required to be completed by December
31, 1999. The Company plans to file an application to extend the completion
deadline of December 1999. The total cost for this project is estimated at $15.5
million (of which $10 million had been expended as of December 31, 1998) and
includes approximately $1 million for a Municipal Coordination Facilities Fee
(MCFF).
The MCFF is based upon the square footage to be constructed. The
agreement calls for the MCFF to be paid in installments beginning in January
1997 of which $163,659 had been paid as of December 31, 1998. A 162,000 square
foot factory, 77,000 square foot warehouse and 60,000 square foot dormitory
became fully operational in June 1997.
On April 26, 1996, the Company entered into a license agreement with
Westinghouse Electric Corporation to market and distribute a full range of
lighting fixtures, lamps and other lighting products under the Westinghouse
brand name in exchange for royalty payments. The agreement terminates on
September 30, 2001. Catalina has an option to extend the agreement for an
additional ten years. The royalty payments are due quarterly and are based on a
percent of the value of the Company's net shipments of Westinghouse branded
products, subject to annual minimum payments due. Commencing September 30, 1999
either party has the right to terminate the agreement during fiscal years 1999
to 2001 if the Company does not meet the minimum net shipments of $25 million
for fiscal 1999, $40 million for fiscal 2000, and $60 million for fiscal 2001.
Net sales of Westinghouse branded products amounted to $2.3 million and $1.7
million for 1998 and 1997, respectively. The Company's contractual rights to use
the Westinghouse brand name have been challenged by a third party. See Note 4 of
Notes to Consolidated Financial Statements attached.
As a result of recent Internal Revenue Service rulings and proposed and
temporary regulations, the Company is in the process of restructuring its
international operations in order to retain favorable U.S. tax treatment of
foreign source income. The Company believes it should be successful in this
restructuring. However, in the event the Company is unsuccessful in this effort,
the Company will likely experience an increase in its consolidated effective
income tax rate.
16
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER (CONTINUED)
On June 3, 1998, the President of the United States extended to the
People's Republic of China "Most Favored Nation" ("MFN") treatment for the entry
of goods into the United States for an additional year, beginning July 3, 1998.
The MFN trade status has been renamed "Normal Trade Relations" because it
applies to all but a handful of U.S. trading partners. In the context of United
States tariff legislation, such treatment means that products are subject to
favorable duty rates upon entry into the United States. On July 22, 1998 the
House of Representatives supported the President's decision and rejected a bill
to impose trade sanctions against China due to alleged human rights abuses,
nuclear proliferation policies and a growing U.S. trade deficit with China.
Members of Congress and the "human rights community" will continue to monitor
the human rights issues in China and adverse developments in human rights and
other trade issues in China could affect U.S. - China relations. As a result of
various political and trade disagreements between the U.S. Government and China,
it is possible restrictions could be placed on trade with China in the future
which could adversely impact the Company's operations and financial position.
During fiscal 1998 the Company received a number of claims relating to
halogen torchieres sold by the Company to various retailers. Management does not
currently believe these claims will result in a material uninsured liability to
the Company. However, as a result of these claims the Company experienced an
increase in its liability insurance premiums effective for the 1999 calendar
year and will now be self-insuring up to a maximum of $10,000 for each incident
occurring in calendar 1999. It is too early to assess the impact of these
changes on the Company's financial position or annual results of operations
during fiscal 1999. No assurance can be given that the number of claims will not
exceed historical experience or that claims will not exceed available insurance
coverage or that the Company will be able to maintain the same level of
insurance.
The Company's board of directors has authorized the repurchase of up to
$2 million of common shares of the Company from time to time in the open market
or in negotiated purchases. As of December 31, 1998, the Company had repurchased
58,700 shares for $153,000.
17
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was also issued in June 1997. SFAS No. 131 establishes standards
for the way that public companies report selected information about operating
segments in financial statements and requires that those companies report
selected information about segments in interim and annual financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. SFAS No.
131, which supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise", but retains the requirement to report information about
major customers, requires that a public company report financial and descriptive
information about its reportable operating segments. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. SFAS No. 131 requires that a public company report a
measure of segment profit or loss, certain specific revenue and expense items,
and segment assets. However, SFAS No. 131 does not require the reporting of
information that is not prepared for internal use if reporting it would be
impracticable. SFAS No. 131 also requires that a public company report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the enterprise's general-purpose financial statements, and changes
in the measurement, of segment amounts from period to period. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. The Company has not determined the effects, if any, that SFAS No. 131 will
have on the disclosures in its consolidated financial statements.
18
<PAGE>
CATALINA LIGHTING, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.165 Renewal Mortgage Note between Catalina Lighting, Inc. and
SunTrust Bank, Central Florida, N.A. dated October 5,
1998.
11 Schedule of Computation of Diluted Earnings (Loss) per
Share.
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule for the year ended
September 30, 1998
(b) REPORTS ON FORM 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
/s/ ROBERT HERSH
----------------
Robert Hersh
Chief Executive Officer and
President
/s/ DAVID W. SASNETT
--------------------
David W. Sasnett
Chief Financial Officer and
Chief Accounting Officer
Date: February 15, 1999
20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.165 Renewal Mortgage Note between Catalina Lighting, Inc. and
SunTrust Bank, Central Florida, N.A. dated October 5, 1998.
11 Schedule of Computation of Diluted Earnings (Loss) per Share.
27.1 Financial Data Schedule.
27.2 Amended Financial Data Schedule for the Year ended
September 30, 1998
EXHIBIT 10.165
RENEWAL MORTGAGE NOTE
PRINCIPAL AMOUNT: $1,010,597.10
DATE OF NOTE: October 5, 1998
MATURITY DATE: March 31, 2004
INTEREST RATE: A fixed interest rate of eight percent (8%) per annum.
INSTALLMENT
PERIOD: From the date hereof through the Maturity Date.
INSTALLMENT
PAYMENT: The amount of $11,467.83, which amount includes
principal and interest, based on a fifteen (15) year
amortization.
FIRST INSTALLMENT
PAYMENT DATE: October 10, 1998
MAKER AND MAKER'S
ADDRESS: Catalina Lighting, Inc.
18191 N.W. 68th Avenue
Miami, Florida 33015
PAYEE AND PAYEE'S
ADDRESS: SunTrust Bank, Central Florida,
National Association,
a national banking association
Post Office Box 3467
Orlando, Florida 32802-3467
FOR VALUE RECEIVED, CATALINA LIGHTING, INC., a Florida corporation (the
"Maker"), does hereby covenant and promise to pay to the order of the Payee or
to its successors or assigns, at its principal office or at such other place as
the Payee may designate to the Maker in writing from time to time, in legal
tender of the United States, the Principal Amount of this Note, together with
interest at the Interest Rate from the date hereof on the unpaid balance of the
Principal Amount. In no event shall the amount of interest due and payable
hereunder exceed the maximum rate of interest allowed by applicable law. It is
the expressed intent hereof that the Maker not pay and the Payee not receive,
directly or indirectly, in any manner whatsoever, interest in excess of that
which may be lawfully paid by the Maker under applicable law. In the event it is
hereafter determined that the Payee of this Note has taken, charged or reserved
interest
<PAGE>
in excess of the permitted, whether due to prepayment, acceleration, or
otherwise, such excess shall be refunded to the Maker or credited against the
sums due the Payee hereunder.
The sums due and owing hereunder shall be payable during the
Installment Period in monthly installments, each in the amount of the
Installment Payment, the first such Installment Payment to be due on the First
Installment Payment Date and subsequent Installment Payments to be due on the
same day of each month thereafter until the Maturity Date, whereupon the entire
unpaid principal balance and all accrued but unpaid interest thereon shall
immediately become due and payable. Each such Installment Payment when made
shall be applied first to the payment of interest on the unpaid principal
balance at the Interest Rate and the remainder thereof to payment on account of
principal.
If any Installment Payment or other sum due hereunder shall not be paid
within five (5) days following the date due, then the entire Principal Amount
and accrued interest hereunder shall become due and payable at once or
thereafter, at the option of the Payee. The Payee may, at its option, collect a
late charge not to exceed five cents for each one dollar of each payment of
principal or interest not paid within ten (10) days following the date due, to
reimburse the Payee for the expense of servicing delinquent payments. Failure to
exercise these options shall not constitute a waiver of the right to exercise
the same in the event of any subsequent default.
Time is of the essence of this Note and, upon failure to pay any sum
hereunder within five (5) days following the date due, the Maker and each
endorser, surety and guarantor, jointly and severally, shall pay all costs of
collection of this Note including, but not limited to, reasonable attorney's
fees and court costs, whether at arbitration, trial, retrial or on appeal or in
bankruptcy proceedings. The Maker specifically agrees that in the event of any
bankruptcy of the Maker, the Payee shall be entitled to recover all its expenses
and reasonable attorneys' fees incurred in regard to any bankruptcy proceeding.
Interest under this Note shall be computed on the basis of a year containing 360
days, based on the actual number of days elapsed. Upon default, this Note and
all sums due hereunder shall bear interest at the lesser of (i) eighteen percent
(18%) per annum or (ii) the highest lawful rate of interest per annum permitted
by the laws of the State of Florida, from the date when the principal and
accrued interest under this Note shall be due and payable; provided, however,
the total interest payable hereunder shall not in any one year exceed the
highest lawful rate of interest permitted under the laws of the State of
Florida.
This Note is secured, INTER ALIA, by a Mortgage Deed and Security
Agreement dated September 28, 1994 and recorded on September 30, 1994 in O.R.
Book 16529, Page 4361, Public Records of Dade County, Florida, as amended by a
Mortgage Modification Agreement of even date herewith and to be recorded in the
aforesaid public records (collectively, the "Mortgage"), encumbering real
property situated in the State of Florida, and to which reference is hereby made
for a description of said real property, the nature and extent of the security,
the rights of the Payee in respect thereof and the terms and conditions upon
which this Note is issued.
2
<PAGE>
The Maker agrees that it shall be bound by any agreement extending the
time or modifying the above terms of payment made by the Payee and the owner or
owners of the property affected by the Mortgage, whether with or without notice
to the Maker, and the Maker shall continue to be liable to pay the amount due
hereunder, but with interest at a rate no greater than the Interest Rate,
according to the terms of any such agreement of extension or modification.
The unpaid principal balance of the Principal Amount, plus accrued
interest, shall become due and payable at the option of the Payee upon the
happening of any event by which said balance shall or may become due and payable
under the terms of the Mortgage.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
All parties to this Note, whether Maker, principal, surety, guarantor
or endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor, and expressly agree jointly and severally to
remain and continue bound for the payment of the principal and interest provided
for by the terms of this Note, notwithstanding any extension or extensions of
the time of or for the payment of said principal or interest, or any change or
changes by way of release or surrender or substitution of any real property and
other collateral or either, held as security for this Note, and waive all and
every kind of notice of such extension or extensions, change or changes, and
agree that the same may be made without the joinder of the Maker.
The provisions of this Note shall be construed and interpreted and all
rights and obligations of the parties hereunder determined in accordance with
the laws of the State of Florida.
The Maker may prepay from time to time all or any part of the
outstanding principal balance of this Note, provided, at the time of such
prepayment, all accrued and unpaid interest due under this Note to the date of
prepayment is paid in full. All such prepayments shall be applied to the
reduction of the loan evidenced hereby in the manner determined by the Payee, in
its sole and absolute discretion.
THIS NOTE RENEWS THAT CERTAIN MORTGAGE NOTE DATED SEPTEMBER 28, 1995
FROM THE MAKER TO THE PAYEE IN THE FACE AMOUNT OF $1,200,000.00 (THE "EXISTING
NOTE"). THE EXISTING NOTE IS ATTACHED HERETO. FLORIDA DOCUMENTARY STAMP TAX IN
THE REQUIRED AMOUNT WAS PAID ON THE EXISTING NOTE AND AFFIXED TO THE MORTGAGE
UPON RECORDATION. THE MAKER STATES AND AGREES THAT THE UNPAID PRINCIPAL BALANCE
DUE ON THE EXISTING NOTE AS OF THE DATE HEREOF IS THE FACE AMOUNT OF THIS NOTE,
AND THAT SAID AMOUNT IS ABSOLUTELY AND UNCONDITIONALLY DUE AND OWING TO THE
PAYEE AND IS NOT SUBJECT TO ANY CLAIMS, COUNTERCLAIMS, DEFENSES OR OTHER
3
<PAGE>
RIGHTS OF OFF-SET OR RECOUPMENT WHATSOEVER. DOCUMENTARY STAMP TAXES ARE NOT DUE
ON THIS NOTE AS THIS NOTE IS A RENEWAL NOTE ONLY. THIS NOTE HAS BEEN SIGNED BY
THE ORIGINAL OBLIGOR WHO SIGNED THE EXISTING NOTE AS THE MAKER AND IS IN AN
AMOUNT EQUAL TO THE UNPAID PRINCIPAL BALANCE DUE THE PAYEE BY THE MAKER UNDER
THE EXISTING NOTE ON AND AS OF THE DATE OF THIS NOTE.
MAKER:
CATALINA LIGHTING, INC., a Florida corporation
By: /s/ THOMAS M. BLUTH
--------------------------------------
Name: Thomas M. Bluth
Title: Treasurer
4
CATALINA LIGHTING, INC. AND SUBSIDIARIES
EXHIBIT 11
<TABLE>
<CAPTION>
SCHEDULE OF COMPUTATION OF DILUTED EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1998 1997
<S> <C> <C>
Net income (loss) for diluted earnings (loss) per share $ 503,000 $ (381,000)
=========== ==========
Weighted average number of common shares
outstanding during the period 7,171,000 7,105,000
Add: common equivalent shares determined
using the Treasury Stock method
representing shares issuable upon exercise
of stock options and warrants and shares
issuable under contractual agreements 111,000 -
----------- ----------
Weighted average number of shares used in
calculation of diluted earnings (loss) per share 7,282,000 7,105,000
=========== ==========
Diluted earnings (loss) per share $ 0.07 $ (0.05)
=========== ==========
<FN>
Note
Subordinated notes convertible into 1,038,000 common shares in 1998 and
1,040,000 common shares in 1997 were not included because their effect is
anti-dilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-Q
and is qualified in its entirety by reference to such financial, statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,577
<SECURITIES> 0
<RECEIVABLES> 16,923
<ALLOWANCES> 8,847
<INVENTORY> 26,677
<CURRENT-ASSETS> 57,184
<PP&E> 27,342
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,291
<CURRENT-LIABILITIES> 27,695
<BONDS> 6,900
0
0
<COMMON> 72
<OTHER-SE> 42,619
<TOTAL-LIABILITY-AND-EQUITY> 98,291
<SALES> 42,803
<TOTAL-REVENUES> 42,803
<CGS> 34,674
<TOTAL-COSTS> 34,674
<OTHER-EXPENSES> 6,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 729
<INCOME-PRETAX> 701
<INCOME-TAX> 198
<INCOME-CONTINUING> 503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from 10-K
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 1,790
<SECURITIES> 0
<RECEIVABLES> 18,395
<ALLOWANCES> 8,408
<INVENTORY> 28,257
<CURRENT-ASSETS> 55,716
<PP&E> 27,922
<DEPRECIATION> 13,168
<TOTAL-ASSETS> 98,960
<CURRENT-LIABILITIES> 28,047
<BONDS> 8,215
0
0
<COMMON> 72
<OTHER-SE> 42,252
<TOTAL-LIABILITY-AND-EQUITY> 98,960
<SALES> 161,860
<TOTAL-REVENUES> 161,860
<CGS> 130,763
<TOTAL-COSTS> 130,763
<OTHER-EXPENSES> 26,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,801
<INCOME-PRETAX> 1,467
<INCOME-TAX> 365
<INCOME-CONTINUING> 1,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
