<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 1998
Commission File Number: 1-13338
TIVOLI INDUSTRIES, INC.
________________________________________________________________________________
(Exact name of small business issuer as specifies in its charter)
California 95-2786709
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1513 East St. Gertrude Place, Santa Ana, California 92705
________________________________________________________________________________
(Address of principal executive offices) (Zip code)
(714) 957-6101
________________________________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark 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 [_]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1998
----- ----------------------------
Common stock, $.001 par value 3,937,871
<PAGE>
TIVOLI INDUSTRIES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
Balance Sheet June 30, 1998........................... 3
Statements of Operations
Three Months Ended June 30, 1998 and 1997............. 4
Statements of Operations
Nine Months Ended June 30, 1998 and 1997.............. 5
Statements of Cash Flows
Nine Months Ended June 30, 1998 and 1997.............. 6
Notes to Financial Statements......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..................................... 14
Item 2. Changes in Securities................................. 14
Item 3. Defaults upon Senior Securities....................... 14
Item 4. Submissions of Matters to a Vote of Security Holders.. 14
Item 5. Other Information..................................... 14
Item 6. Exhibits and Reports on Form 8-K...................... 14
Signatures........................................................... 15
2
<PAGE>
BALANCE SHEET
JUNE 30,1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents $1,484,186
Accounts receivable, less allowance
for doubtful accounts of $83,412 1,045,915
Inventories 1,982,544
Prepaid expenses and other 728,419
Total current assets ----------
5,241,064
----------
Property and equipment:
Machinery and equipment 282,704
Furniture and fixtures 346,685
Tooling 326,167
Computer equipment and software 610,095
----------
1,565,651
Less: accumulated depreciation (822,805)
----------
Net property and equipment 742,846
----------
Goodwill, net of accumulated
amortization of $152,116 507,422
Patents, net of accumulated
amortization of $210,664 195,887
Deferred tax asset 127,400
Deposits and other 102,237
----------
$6,916,856
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 990,427
Accrued expenses 192,839
Current maturities of obligations
under a capital lease 49,710
----------
Total current liabilities 1,232,976
Notes payable to bank, net
of current portion 667,500
Obligations under a capital lease,
net of current portion 130,646
Deferred tax liability 154,933
Minority Interest 248,964
----------
Total liabilities 2,435,019
----------
Stockholders' equity:
Preferred stock, $.001 par value;
1,000,000 shares authorized,
none outstanding -
Common stock, $.001 par value;
10,000,000 shares authorized,
3,937,871 shares outstanding 3,938
Additional paid-in capital 4,406,747
Retained earnings 71,152
----------
Total stockholders' equity 4,481,837
----------
$6,916,856
==========
</TABLE>
3
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net sales $2,138,021 $2,800,598
Cost of sales 1,236,048 1,605,261
---------- ----------
Gross profit 901,973 1,195,337
Selling, general and
administrative expenses 1,213,225 1,008,170
---------- ----------
(Loss) income from operations (311,252) 187,167
Net interest (income) expense 5,683 10,960
Minority interest in net losses
of consolidated subsidiary (29,358)
---------- ----------
(Loss) income before
provision for income taxes (287,577) 176,207
Provision for income taxes (101,000) 27,258
---------- ----------
Net (loss) income $ (186,577) $ 148,949
========== ==========
Basic earnings per share:
Earnings (loss) per share $ (0.05) $ 0.04
Weighted average shares 3,937,871 3,937,863
Diluted earnings per share:
Earnings (loss) per share $ (0.05) $ 0.03
Weighted average shares 3,937,871 4,278,863
</TABLE>
4
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June
------------------------
1998 1997
--------- ----------
<S> <C> <C>
Net sales $7,250,942 $7,260,696
Cost of sales 4,236,230 4,236,234
---------- ----------
Gross profit 3,014,712 3,024,462
Selling, general and administrative expenses 3,095,797 2,619,801
---------- ----------
(Loss) income from operations (81,085) 404,661
Net interest (income) expense 12,804 6,235
Minority interest in net losses of consolidated subsidiary (59,140)
---------- ----------
(Loss) income before provision for income taxes (34,749) 398,426
Provision (benefit) for income taxes 25,286
---------- ----------
Net (loss) income $ (34,749) $ 373,140
========== ==========
Basic earnings per share :
Earnings (loss) per share $(0.01) $ 0.10
Weighted average shares 3,937,871 3,926,568
Diluted earnings per share :
Earnings (loss) per share $(0.01) $ 0.09
Weighted average shares 3,937,871 4,160,776
</TABLE>
5
<PAGE>
TIVOLI INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30
-------------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (34,749) $ 373,140
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 223,512 112,473
Change in allowance for doubtful accounts (3,588)
Minority Interest (59,140)
Deferred income taxes
Warrants for the purchase of common stock
issued for services 15,000
Changes in operating assets and liabilities:
Accounts receivable 573,234 219,863
Inventories (268,991) (480,864)
Prepaid expenses and other (304,733) (82,599)
Accounts payable (138,978) 33,893
Accrued expenses and other current liabilities (25,207) 186,564
--------- ---------
Net cash provided by (used in) operating activities (23,640) 362,470
--------- ---------
Cash flows from investing activities:
Deposits and other (21,751) 26,285
Capital expenditures (110,312) (279,649)
Patent expenditures 11,073
Investment by minority interest 286,494
---------- ----------
Net cash provided by (used in) investing activities 154,431 (242,291)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit and notes payable
to bank (943) 15,460
Principal payments on capital lease obligations (35,382) (25,881)
---------- ----------
Net cash (used in) financing activities (35,325) (10,421)
---------- ----------
Net increase in cash and cash equivalents 94,466 109,758
Cash and cash equivalents, beginning of period 1,389,720 1,692,928
---------- ----------
Cash and cash equivalents, end of period $1,484,186 $1,802,686
========== ==========
</TABLE>
6
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statement
presentation.
The Company, in its opinion, has included all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results of
operations for the quarters ended June 30, 1998 and 1997. The financial
statements and notes thereto should be read in conjunction with the audited
financial statements and notes and form 10-KSB for the year ended September 30,
1997.
NOTE 2 - NEW ACCOUNTING STANDARD
- --------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No.128, "Earnings Per Share," which is required to be adopted for fiscal periods
ending after December 15, 1997 (fiscal 1998 for the Company).
The following tables represent the reconciliations of Basic EPS to Diluted EPS:
<TABLE>
<CAPTION>
For the quarters ending June 30,
1998 1997
------------------------------- ------------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available to
Shareholders $(186,577) 3,937,871 $(0.05) $148,949 3,937,863 $0.04
Effect of Dilutive Securities
Warrants 185,000
Stock Options 156,000
---------
Diluted EPS
Income (loss) available to
Shareholders $(186,577) 3,937,871 $(0.05) $148,949 4,278,863 $0.03
--------- --------- ------ -------- --------- -----
</TABLE>
7
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - NEW ACCOUNTING STANDARD - CONT.
- ----------------------------------------
<TABLE>
<CAPTION>
For the nine month period ending June 30,
1998 1997
------------------------------- ------------------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available to
Shareholders $(34,749) 3,937,871 $(0.01) $373,140 3,920,721 $0.10
Effect of Dilutive Securities
Warrants 129,444
Stock Options 110,611
---------
Diluted EPS
Income (loss) available to
Shareholders $(34,749) 3,937,871 $(0.01) $373,140 4,160,776 $0.09
-------- --------- ------ -------- --------- -----
</TABLE>
Options to purchase 523,500 shares of Common Stock at prices between $2.188 and
$3.75 per share were outstanding during the nine months ending June 30, 1998.
Options and warrants to purchase 430,444 shares of Common Stock at prices
between $2.80 and $3.75 per share were outstanding during the nine months
ending June 30, 1997. These options were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares. These options which expire between May 10,
2004 and November 14, 2005 were still outstanding at June 30, 1998.
NOTE 3 - Notes Payable to Bank
- ------------------------------
On March 31, 1998, the Company renewed its existing line of credit agreement
with Union Bank of California and increased the borrowing base from $750,000 to
$1,250,000. The agreement has an expiration date of March 1, 2000. The renewal
agreement contains interest at the bank's Reference Rate (8.5% at March 31,1998)
plus 1% per annum. The terms of the new agreement provide for borrowings of up
to the lessor of $1,250,000 or the aggregate of 80% of eligible accounts
receivable plus 50% of eligible inventory up to $400,000. At June 30, 1998, the
Company had approximately $432,500 available under this line of credit.
The renewal agreement also provides an additional line of credit of $250,000 to
be used for fixed asset purchases. This part of the agreement contains interest
at the bank's Reference Rate (8.5% at March 31, 1998) plus 1.0% per annum. The
Company may borrow, repay and re-borrow amounts up to $250,000, at any time
prior to March 3, 1999.The Company will then repay the balance by monthly
installments through February 3, 2002. At June 30, 1998, the Company had not
borrowed any amounts under this agreement.
8
<PAGE>
TIVOLI INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - Notes Payable to Bank - Continued
- ------------------------------------------
On June 4th 1998 Targetti USA LLC, obtained a line of credit of $150,000 with a
financial institution, bearing interest at the bank's Reference Rate (8.5% at
June 30, 1998) plus 1.0% per annum. The Company may borrow, repay and re-borrow
amounts up to $150,000, at any time prior to March 1, 1999. The arrangement is
secured by substantially all of the assets of Targetti USA LLC. There are no
restrictive covenants contained in the agreement. At June 30, 1998, the Company
had not borrowed any amounts under this agreement.
NOTE 4 - Selling, General & Administration Expenses
- ---------------------------------------------------
Selling, General & Administration "SG&A" expenses for the nine month period
ending June 30,1998 includes a payment of $250,000 for the settlement of a
trademark dispute. On March 31, 1998 the Company entered into an agreement with
Tivoli Systems, Inc. settling a trade mark dispute between the Company and
Tivoli Systems, Inc. As part of this settlement, Tivoli Systems, Inc. agreed to
pay the sum of $250,000 to the Company. The Company has agreed to terminate its
opposition proceedings against Tivoli Systems, Inc. concerning the use of
certain trade marks. The payment of $250,000 is included as a reduction to SG&A
expenses in the quarter ending March 31, 1998.
9
<PAGE>
TIVOLI INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section, as
well as in the Company's Form 10-KSB for the fiscal year ended September 30,
1997.
Overview
The Company, since its founding in 1967, has established a reputation as an
innovator and supplier of miniature and low voltage lighting products. From
1991 onward, the Company expanded its product range and is now regarded as a
designer, developer, manufacturer and supplier of specialty lighting and related
products, both domestically and internationally. Applications of the Company's
products, globally, are movie theater aisle, step, marquee and concession
lighting, illuminated ceiling systems, architectural cove, miniature lighting in
cabinetry, decorative, accent, task and energy efficient lighting in casinos,
hotels, restaurants, gaming vessels, cruise ships, specialty retail, themed
venues, and high end residential.
In 1991, the Company was acquired by its present management who implemented a
strategy to revitalize and expand the Company's market position through product
line expansion and aggressive market penetration programs. The Company
completed a successful public offering in September of 1994, and continued to
focus, refine and implement its strategic business plan which encompassed new
product and patent development, market penetration, literature and catalog
development and an international reciprocal joint venture with Targetti of
Florence, Italy. The joint venture, announced in November 1994, consisted of a
reciprocal license and distribution agreement between the Company and Targetti
in the U.S. market and provided the Company's products to Targetti's global
network of 66 representatives, distributors and sales offices. In November
1997, the scope of the joint venture was expanded with the formation of a
jointly owned Company in the U.S. - Targetti USA, LLC ("Targetti USA"), in which
the Company holds a 50% interest. Through this joint venture, Targetti offers a
wide range of product families developed by Targetti which broadens and
complements the Company's products.
In North America and Mexico, the Company's products are sold through
approximately 69 independent marketing representatives, and directly by the
Company's personnel to a large customer base consisting of electrical
distributors, contractors, owner representatives, hotels, showrooms, theater
distributors and other end users. The Company has an international subsidiary,
Tivoli de Mexico, S.A. de C.V., in Mexico City, Mexico, to support the Company's
sales in Mexico and Central America.
The Company currently holds eight U.S. patents on mechanical features and
three U.S. patents on design features. The Company's product families lines
include low voltage tube lighting, linear lighting systems, accent and task
lighting, chandelier and light curtains, decorative ceiling systems, specialized
vehicular, marine and aircraft lighting, long life, low voltage lamps, energy
efficient fluorescent cove, low voltage linear cove, illuminated surveillance
system, electronic transformers, dimmers and circuit protection devices, and
furniture, cabinet and kiosk lighting. The products offered through the
Targetti USA joint venture include low voltage track lighting, low voltage open
frame and open conductor systems, illuminated sky lights, low voltage recessed
lighting fixtures, precision adjustable projectors, energy efficient compact
fluorescent ("CF") down-lights, decorative wall sconces, and a variety of
lighting accessories and options.
Since the acquisition of the Company in 1991, annual sales have consistently
trended upward, with sales of $2,529,053 in fiscal 1992, $2,974,819 in fiscal
1993, $3,544,533 in fiscal year 1994, $4,518,502 in fiscal 1995, $6,638,063 in
fiscal 1996, and $9,846,174 in fiscal 1997. Management believes that its growth
strategies and expenditures account for the historical annual growth rate and
provide an expanded foundation to support future Company growth.
On August 6, 1998 the Company announced that its Board of Directors has
approved the repurchase of up to an aggregate of 250,000 shares of its Common
Stock. The repurchases will be made from time to time on the open market at
prevailing market prices or in negotiated transactions off the market. The
repurchase program is expected to continue over the next 12 months unless
shortened or extended by the Board of Directors.
10
<PAGE>
TIVOLI INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS - continued
---------------------------------
Results of Operations - Three Months Ended June 30, 1998 as Compared to Three
Months Ended June 30, 1997
Net sales of $2,138,021 for the third quarter of fiscal year 1998 were 24%
lower than net sales of $2,800,598 in the same period of the prior year. Net
sales in the third quarter of 1997 included a shipment of $498,565, which was
part of a large project order for a national customer. Sales of products not
related to this large project order decreased 7% from $2,302,033 in 1997, to
$2,138,021 in 1998 as a result of weaker market conditions in the gaming and
theater markets, brought about by delays in customer construction schedules. The
gross profit margin for the third quarter of the fiscal year 1998 was 42% of net
sales which was in line with the gross profit margin of 43% for the third
quarter of fiscal year 1997.
Selling, general and administrative expenses for the third quarter of fiscal
1998 increased to 57% of net sales or $1,213,225 as compared to 36% or
$1,008,170 in the same quarter of the prior year. This increase in SG&A expenses
is due to new product introductions and heightened sales and marketing
activities, incremental SG&A expenses of Targetti USA, and costs associated with
the Manufacturing Resource Planning ("MRP") system which was installed in
October 1997.
Operating loss for the third quarter of fiscal year 1998 was $311,252 or 15%
of net sales as compared to an operating profit of $187,167 or 7% of net sales
in the same quarter of fiscal year 1997.
Net interest expense for the third quarter of fiscal year 1998 was $5,683 and
consisted of interest income of $14,764 on the investment of the proceeds of IPO
funds, less interest expense on the bank loan of $16,255 and capital lease
interest of $4,192. Net interest expense for the third quarter of fiscal year
1997 was $10,960 and was derived from interest income of $16,900 on the
investment of IPO funds less interest expense on the bank loan of $16,123 and
capital lease interest of $11,737.
Minority interest in net losses of consolidated subsidiary was $29,358 in the
third quarter of fiscal year 1998, and represents 50% of the operating loss
generated by Targetti USA.
The provision for income tax was reduced by $101,000 in the third quarter of
fiscal year 1998 and represented decreased federal and state income tax
requirements. The provision for income tax in the same quarter of the prior
fiscal year was $27,258 and represented both the federal and state income tax
provisions.
As a result of the above factors, net loss for the third quarter of fiscal
year 1998 was $186,577 or $0.05 basic per share as compared to net income of
$148,949 or $0.04 basic earnings per share in the third quarter of fiscal year
1997.
11
<PAGE>
TIVOLI INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS - continued
---------------------------------
Results of Operations - Nine Months Ended June 30, 1998 as Compared to Nine
Months Ended June 30, 1997
Net sales of $7,250,942 for the first nine months of fiscal year 1998 were
less than 1% lower than net sales of $7,260,696 in the same period of the prior
year. Net sales in 1997 included $1,272,113 attributed to the shipment of a
large project order for a national customer. Sales of products not related to
this large project order increased 21% from $5,988,583 in 1997 to $7,250,942 in
1998 as a result of new product introductions and successful implementation of
market penetration programs in the core markets of theater, retail and casino
gaming during the first six months of the fiscal year. The gross profit margin
for the first nine months of the fiscal year 1998 was 42% of net sales which was
constant compared to the gross profit margin of 42% for the first nine months of
fiscal year 1997.
Selling, general and administrative expenses for the first nine months of
fiscal 1998 increased to 43% of net sales or $3,095,797 as compared to 36% or
$2,619,801 in the same period of the prior year. Included in the $3,095,797 of
SG&A expenses is a payment of $250,000 to the Company for settlement of a
trademark dispute (see Financial Statements Note 4). This increase in SG&A
expenses is due to incremental SG&A expenses of Targetti USA, increases in
marketing, engineering and sales staffs to support new product introductions,
the costs of the Las Vegas sales office which opened in March 1997, and
incremental costs associated with the MRP system which was installed in October
1997.
Operating loss for the first nine months of fiscal year 1998 was $81,085 or 1%
of net sales as compared to an operating profit of $404,661 or 6% of net sales
in the same quarter of fiscal year 1997.
Net interest expense for the first nine months of fiscal year 1998 was $12,804
and consisted of interest income of $46,154 on the investment of the proceeds of
IPO funds, less interest expense on the bank loan of $46,660 and capital lease
interest of $12,298. Net interest income for the first nine months of fiscal
year 1997 was $6,235 and was derived from interest income of $57,116 on the
investment of IPO funds less interest expense on the bank loan of $51,614 and
capital lease interest of $11,737.
Minority interest in net losses of consolidated subsidiary was $59,140 in the
first nine months of fiscal year 1998, and represents 50% of the operating loss
generated by Targetti USA.
There was no provision for income tax in the first nine months of fiscal year
1998 due to the year to date tax loss. The provision for income tax in the same
period of the prior fiscal year was $25,286 and represented both the federal and
state income tax provisions.
As a result of the above factors, net loss for the first nine months of fiscal
year 1998 was $34,749 or $0.01 basic loss per share as compared to net income of
$373,140 or $0.10 basic earnings per share in the first nine months of fiscal
year 1997.
12
<PAGE>
TIVOLI INDUSTRIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS - continued
---------------------------------
Financial Position, Capital Resources and Liquidity
The Company's primary source of cash during the first nine months of fiscal
year 1998 was $286,494 contributed by Targetti Sankey S.P.A. to Targetti USA
LLC. During the period operating activities used $23,640 which consisted of net
losses of $34,749 offset by net changes in other operating activities of
$11,109.
Working capital increased to $4,008,088 at June 30, 1998, as compared to
$3,725,303 at September 30, 1997. A portion of this increase was due to the
cash contribution of $286,494 by Targetti Sankey S.P.A. referenced above.
Accounts receivable as of June 30, 1998, decreased to $1,045,915 from
$1,615,561 at September 30, 1997. The days sales outstanding in accounts
receivable decreased to 44 days at June 30, 1998, as compared to 59 days at
September 30, 1997.
Inventories as of June 30, 1997, increased to $1,982,544 as compared to
$1,691,943 at September 30, 1997. The number of months costs of sales in
inventory at June 30, 1998, increased to 3.7 months as compared to 3.6 months at
September 30, 1997.
Accounts payable as of March 31, 1998, decreased to $990,427 as compared to
$1,129,405 at September 30, 1997. The number of days in accounts payable at
June 30, 1998 decreased to 40 days compared to 56 days September 30, 1997.
Capital expenditures in the first nine months of fiscal year 1998 totaled
$110,312 and consisted of new product tooling, and related machinery and
equipment.
The Company is currently assessing computer hardware and software difficulties
that may be experienced in connection with the so-called "Year 2000" problems.
The Company currently relies upon computer hardware and software systems from
various third party vendors to manage critical functions of the Company.
Internally generated software systems do not comprise a material element of the
Company's information technology. The Company is in the process of securing from
third party software and hardware vendors, including providers of telephone
services, certificates of compliance with Year 2000 issues for currently
installed systems that are material to the Company's operations. At this time,
the Company expects that its key information technology vendors will be
compliant with Year 2000 requirements. A failure by a third party vendor to
adequately address the Year 2000 issue could have a material adverse effect on
the Company. In addition, the magnitude of certain risks, for example those
associated with embedded chips, are unknown at this point, and could
nevertheless have a material adverse impact on the Company and other companies
in its industry.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits Index
Exhibit No Description
---------- -----------
10.2 Line of credit agreement between Targetti USA LLC and
Union Bank of California as at May 6, 1998
24 List of subsidiaries
27 Financial Data Schedules
b) Reports on Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 12, 1998 TIVOLI INDUSTRIES, INC.
/s/ Terrence C. Walsh
--------------------------------------------
Terrence C. Walsh
Chairman, Chief Executive Officer and
Director
/s/ Charles Kimmel
--------------------------------------------
Charles Kimmel
President, Chief Operation Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
EXHIBIT 10.2
UNION BANK OF CALIFORNIA
COMMERCIAL PROMISSORY NOTE
Borrower Name:
TARGETTI USA LLC
Borrower Address: Office: Loan Number:
1513 E. ST. GERTRUDE PLACE 04402 0001-00-0-001
SANTA ANA, CA 92705
Maturity Date: Amount:
MARCH 1, 1999 $150,000.00
- --------------------------------------------------------------------------------
DATE:
May 6, 1998 $150,000.00
FOR VALUE RECEIVED, on March 1, 1999 the undersigned ("Debtor") promises to pay
-------------
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the
principal sum of ONE HUNDRED FIFTY THOUSAND AND NO/100 ____________________
-------------------------------------
Dollars ($150,000.00), or so much thereof as is disbursed, together with
-----------
interest on the balance of such principal sum from time to time outstanding, at
a per annum rate equal to the Reference Rate plus one and no/1000 percent
---------------
(1.000%), such per annum rate to change as and when the Reference Rate shall
- ---------
change.
As used herein, the term "Reference Rate" shall mean the rate announced by Bank
from time to time at its corporate headquarters as its "Reference Rate." The
Reference Rate is an index rate determined by Bank from time to time as a means
of pricing certain extensions of credit and is neither directly tied to any
external rate of interest or index nor necessarily the lowest rate of interest
charged by Bank at any given time. All computations of interest under this note
shall be made on the basis of a year of 360 days, for actual days elapsed.
1. Interest Payments. Debtor shall pay interest MONTHLY. Should interest
-------
not be so paid, it shall become a part of the principal and thereafter bear
interest as herein provided.
At any time prior to the maturity of this note, the maker(s) may borrow, repay
and reborrow hereon so long as the total outstanding at any one time does not
exceed the principal amount of this note.
Debtor shall pay all amounts due under this note in lawful money of the United
States at Bank's South Orange County - BBC Office, or such other office as may
--------------------------
be designated by Bank, from time to time.
2. Late payments. If any installment payment required by the terms of this
note shall remain unpaid ten days after due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. Interest Rate Following Default. In the event of default, at the option of
Bank, and, to the extend permitted by law, interest shall be payable on the
outstanding principal under this note at a par annum rate equal to five percent
(5%) in excess of the interest rate specified in the initial paragraph of this
note, calculated from the date of default until all amounts payable under this
note are paid in full.
4. Default and Acceleration of Time For Payment. Default shall include , but
not be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
other entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and
<PAGE>
any Obligor; (c) the insolvency of any Obligor or the failure of any Obligor
generally to pay such Obligor's debts as such debts become due; (d) the
commencement as to any Obligor of any voluntary or involuntary proceeding under
any laws relating to bankruptcy, insolvency, reorganization, arrangement, debt
adjustment or debtor relief; (e) the assignment by any Obligor's creditors; (f)
the appointment, or commencement of any proceedings for the appointment, of a
receiver, trustee, custodian or similar official for all or substantially all of
any Obligor's property; (g) the commencement of any proceeding for the
dissolution or liquidation of any Obligor; (h) the termination of existence or
death of any Obligor; (i) the revocation of any guaranty or subordination
agreement given in connection with this note (j) the failure of any Obligor to
comply with any order, judgment, injunction, decree, writ or demand of any court
or other public authority; (k) the filing or recording against any Obligor, or
the property of any authority; (k) the filing or recording against any Obligor,
or the property of any Obligor, of any notice of levy, notice to withhold, or
other legal process for taxes, other than property taxes (l) the default by any
Obligor personally liable for amounts owed hereunder on any obligation
concerning the borrowing of money; (m) the issuance against any Obligor, or the
property of any Obligor,of any writ of attachment, execution, or other judicial
lien; or (n) the deterioration of the financial condition of any Obligor which
results in Bank deeming itself, in good faith, insecure.
Upon the occurrence of any such default, Bank, in its discretion, may cease to
advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.
5. Additional Agreements of Debtor. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorney's fees, incurred by Bank in the collection of enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of
time and the full extent permitted by law, (a) waive diligence, presentment,
demand, notice of nonpayment, protest, notice of protest, and notice of every
kind; (b) waive the right to assert the defense of any statute of limitations to
any debt or obligation hereunder; and (c) consent to renewals and extensions of
time for the payment of any amounts due under this note. If this note is signed
by more than one party, the term "Debtor" includes each of the undersigned and
any successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such a check or other item of payment
is honored when presented for payment at the drawee bank. Bank may delay the
credit of such payment based upon Bank's schedule of funds availability, and
interest under this note shall accrue until the funds are deemed collected. In
any action brought under or arising out of this note, Debtor and any endorser of
this note, including their successors and assigns, hereby consents to the
jurisdiction of any competent court within the State of California, as provided
in any alternative dispute resolution agreement executed between Debtor and
Bank, and consents to service of process by any means authorized by California
law. The term "Bank" includes, without limitation, any holder of this note.
This note shall be construed in accordance with and governed by the laws of the
State of California. This note hereby incorporates any alternative dispute
resolution agreement previously, concurrently or hereafter executed between
Debtor and Bank.
TARGETTI USA LLC
TIVOLI INDUSTRIES, INC.
By: /s/ Terrence C. Walsh, CHAIRMAN/CEO
<PAGE>
SECURITY AGREEMENT
This Agreement executed at SANTA ANA, CALIFORNIA, on MAY 6, 1998, by TARGETTI
--------------------- ----------- --------
USA LLC (herein called "Debtor"). As security for the payment and performance of
- -------
all of Debtor's obligations to Union Bank of California, N.A., (herein called
"Bank"), irrespective of the manner in which or the time at which such
obligations arose or shall arise, and whether direct or indirect, alone or with
others, absolute or contingent, Debtor does hereby grant a continuing security
interest to Bank in all personal property (herein called "Collateral"), whether
now or hereafter owned or in existence described as
A. Motor Vehicles:
New or Number of
Year Trade Name Body Type Serial Number Used Cylinders
- ---- ---------- --------- ------------- ------ ---------
B. Other:
ALL ACCOUNTS, DEPOSIT ACCOUNTS, INSTRUMENTS, CHATTEL PAPER, DOCUMENTS, GENERAL
INTANGIBLES, INVENTORY, EQUIPMENT, FURNITURE, AND FIXTURES, NOW OR HEREAFTER
OWNED OR ACQUIRED BY DEBTOR, ALL PROCEEDS AND INSURANCE PROCEEDS OF THE
FOREGOING, ALL GUARANTEES AND OTHER SECURITY THEREFOR, AND ALL OF DEBTOR'S
PRESENT AND FUTURE BOOKS AND RECORDS RELATING THERETO (INCLUDING COMPUTER-STORED
INFORMATION AND ALL SOFTWARE RELATING THERETO) AND ALL CONTRACT RIGHTS WITH
THIRD PARTIES RELATING TO THE MAINTENANCE OF ANY SUCH BOOKS, RECORDS AND
INFORMATION.
The Collateral described above will be maintained at 1513 E. ST. GERTRUDE
PLACE, SANTA ANA, CA 92705 AND ANY OTHER LOCATION (S).
C. All personal property of any kind which is delivered to or in the possession
or control of bank or its agents;
D. Proceeds of any of the above-described property. The grant of a security
interest in proceeds does not imply the right of Debtor to sell or dispose of
any Collateral described herein without the express consent in writing by Bank.
The maximum amount of indebtedness to be secured at any one time is unlimited
unless an amount is inserted N/A
--------------------------------------------------
($ N/A ).
- ----------------------------
To be completed only if an accommodation) N/A
--------------------------------------
- -------------------------------------------------------------------------------
is executing this Agreement as an Accommodation Debtor only and his liability is
limited to the security interest created in Collateral described herein. The
Debtor being accommodated is N/A
----------------------------------------------
- ---------------------------------------------------------------------------.
All terms and conditions on the reverse side hereof are incorporated herein as
though set forth in full.
TARGETTI USA LLC
TIVOLI INDUSTRIES, INC.
By: /s/ Terrence C. Walsh CHAIRMAN/CEO
<PAGE>
AGREEMENT
1. The term credit is used throughout this Agreement in its broadest and most
comprehensive sense. Credit may be granted at the request of any one Debtor
without further authorization or notice to any other Debtor, including an
Accommodation Debtor. Collateral shall be security for all obligations of
Debtor to Bank in accordance with the terms and conditions herein.
2. Debtor will: (a) execute such Financing Statement and other documents and do
such other acts and things, all as Bank may from time to time require, to
establish and maintain a valid security interest in Collateral, including
payment of all costs and fees in connection with any of the foregoing when
deemed necessary by Bank; (b) pay promptly when due all indebtedness to Bank;
(c) furnish Bank such information concerning Debtor and Collateral as Bank may
from time to time request, including but not limited to current financial
statements; (d) keep Collateral separate and identifiable and at the location
described herein and permit Bank and its representatives to inspect Collateral
and/or records pertaining thereto from time to time during normal business
hours; (e) not sell, assign or create or permit to exist any lien on or security
interest in Collateral in favor of anyone other than the Bank unless Bank
consents thereto in writing and at Debtor's expense upon Bank's request remove
any unauthorized lien or security interest and defend any claim affecting the
Collateral; (f) pay all charges against Collateral prior to delinquency
including but not limited to taxes, assessments, encumbrances, insurance and
diverse claims, and upon Debtor's failure to do so Bank may pay any such charge
as it deems necessary and add the amount paid to the indebtedness of Debtor
hereunder; (g) reimburse Bank for any expenses including but not limited to
reasonable attorneys' fees and legal expenses incurred by Bank in seeking to
protect, collect or enforce any rights in Collateral; (h) when required, provide
insurance in form and amounts and with companies acceptable to Bank and when
required assign the policies or the rights thereunder to Bank; (i) maintain
Collateral in good condition and not use Collateral for any unlawful purpose;
(j) at its own expense, upon request of Bank, notify any parties obligated to
Debtor on any Collateral to make payment to Bank and Debtor hereby irrevocably
grants Bank power of attorney to make said notifications and collections; (k)
and does hereby authorize Bank to perform any and all acts which Bank in good
faith deems necessary for the protection and preservation of Collateral or its
value or Bank's security interest therein, including transferring any Collateral
into its own name and receiving the income thereon as additional security
hereunder. Bank may not exercise any right under any corporate security which
might constitute the exercise of control by Bank so as to make any such
corporation an affiliate of Bank within the meaning of the banking laws until
after default.
3. The term default shall mean the occurrence of any of the following events:
(a) non-payment of any indebtedness when due or non-performance of any
obligation when due, whether required hereunder or otherwise; (b) deterioration
or impairment of the value of Collateral; (c) non-performance by Debtor under
this Agreement, default by Debtor of any other agreements with Bank dealing with
the extension of credit or with debt owing Bank or any misrepresentation of
Debtor or its representative to Bank whether or not contained herein; (d) a
change in the composition of any Debtor which is a business entity; or (e)
belief by Bank in good faith that there exists, or the actual existence of, any
deterioration or impairment in the ability of Debtor to meet its obligations to
Bank.
4. Whenever a default exists, Bank, at its option may: (a) without notice
accelerate the maturity of any part or all of the secured obligations and
terminate any agreement for the granting of further credit to Debtor; (b) sell,
lease or otherwise dispose of Collateral at public or private sale; unless
Collateral is perishable and threatens to decline speedily in value or is a type
customarily sold on a recognized market, Bank will give Debtor at least five (5)
days prior written notice of the time and place of any public sale or of the
time after which any private sale or any other intended disposition may be made;
(c) transfer any Collateral into its own name or that of its nominee; (d) retain
Collateral in satisfaction of obligations secured hereby, with notice of such
retention sent to Debtor as required by law; (e) notify any parties obligated on
any Collateral consisting of accounts, instruments, chattel paper, chooses in
action or the like to
<PAGE>
make payment to Bank and enforce collection of any Collateral herein; (f)
require Debtor to assemble and deliver any Collateral to Bank at a reasonable
convenient place designated by Bank; (g) apply all sums received or collected
from or on account of Collateral including the proceeds of any sales thereof to
the payment of the costs and expenses incurred in preserving and enforcing
rights of Bank including but not limited to reasonable attorneys' fees, and
indebtedness secured hereby in such order and manner as Bank in its sole
discretion determines; Bank shall account to Debtor for any surplus remaining
thereafter, and shall pay such surplus to the party entitled thereto, including
any second secured party who has made a proper demand upon Bank and has
furnished proof to Bank as requested in the manner provided by law; in like
manner, Debtor, unless an Accommodation Debtor only, agrees to pay to Bank
without demand any deficiency after any Collateral has been disposed of and
proceeds applied as aforesaid; and (h) exercise its banker's lien or right of
setoff in the same manner as though the credit were unsecured. Bank shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
of California in any jurisdiction where enforcement is sought, whether in
California or elsewhere. All rights, powers and remedies of Bank hereunder shall
be cumulative and not alternative. No delay on the part of Bank in the exercise
of any right or remedy shall constitute a waiver thereof and no exercise by Bank
of any right or remedy shall preclude the exercise of any other right or remedy
or further exercise of the same remedy.
5. Debtor waives: (a) all right to require Bank to proceed against any other
person including any other Debtor hereunder or to apply any Collateral Bank may
hold at any time or to pursue any other remedy; Collateral, endorsers or
guarantors may be released, substituted or added without affecting the liability
of Debtor hereunder; (b) the defense of the Statute of Limitations in any action
upon any obligations of Debtor secured hereby; (c) if he is an Accommodation
Debtor, all rights under Uniform Commercial Code Section 9112; and (d) any right
of subrogation and any right to participate in Collateral until all obligations
hereby secured have been paid in full.
6. Debtor warrants: (a) that it is or will be the lawful owner of all
Collateral free of all claims, liens or encumbrances whatsoever, other than the
security interest granted pursuant hereto; (b) all information, including but
not limited to financial statements furnished by Debtor to Bank heretofore or
hereafter, whether oral or written, is and will be correct and true as of the
date given; and (c) if Debtor is a business entity, the execution, delivery and
performance hereof are within its powers and have been duly authorized.
7. The right of Bank to have recourse against Collateral shall not be affected
in any way by the fact that the credit is secured by a mortgage, deed or trust
or other lien upon real property.
8. Debtor may terminate this Agreement at any time upon written notice to Bank
of such termination; provided however, that such termination shall not affect
his obligations then outstanding, any extensions or renewals thereof, nor the
security interest granted herein which shall continue until such obligations are
satisfied in full. Such termination shall not affect the obligations of other
Debtors if more than one executes this Agreement.
9. If more than one Debtor executes this Agreement, the obligations hereunder
are joint and several. All words used herein in the singular shall be deemed to
have been used in the plural when the context and construction so require. Any
married persons who sign this Agreement expressly agree that recourse may be had
against his/her separate property for all of his/her obligations to Bank.
10. This Agreement shall inure to the benefit of and bind Bank, its successors
and assigns and each of the undersigned, their respective heirs, executors,
administrators and successors in interest. Upon transfer by Bank of any part of
the obligations secured hereby, Bank shall be fully discharged from all
liability with respect to Collateral transferred therewith.
11. Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but, if any
provision of this Agreement shall be prohibited or invalid under applicable law,
such provisions shall be ineffective to the extend of such prohibition or
invalidity without invalidating the remainder of such or the remaining
provisions of this Agreement.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,484,186
<SECURITIES> 0
<RECEIVABLES> 1,045,915
<ALLOWANCES> 83,412
<INVENTORY> 1,982,544
<CURRENT-ASSETS> 5,241,064
<PP&E> 1,565,651
<DEPRECIATION> 822,805
<TOTAL-ASSETS> 6,916,856
<CURRENT-LIABILITIES> 1,232,976
<BONDS> 0
0
0
<COMMON> 3,938
<OTHER-SE> 4,477,899
<TOTAL-LIABILITY-AND-EQUITY> 6,916,856
<SALES> 2,138,021
<TOTAL-REVENUES> 2,138,021
<CGS> 1,236,048
<TOTAL-COSTS> 2,449,273
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,683
<INCOME-PRETAX> (287,577)
<INCOME-TAX> (101,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,577)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
