<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 December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
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
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(Address of principal executive offices) (Zip code)
(714) 957-6101
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(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 January 16, 1998
----- -------------------------------
Common stock, $.001 par value 3,778,671
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TIVOLI INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements (Unaudited)
<S> <C>
Balance Sheet December 31, 1998............................................................... 3
Consolidated Statements of Operations
Three Months Ended December 31, 1998 and 1997................................................. 4
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1998 and 1997................................................. 5
Notes to ConsolidatedFinancial Statements......................................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 9
Item 2. Changes in Securities......................................................................... 9
Item 3. Defaults upon Senior Securities............................................................... 9
Item 4 Submissions of Matters to a Vote of Security Holders.......................................... 9
Item 5 Other Information............................................................................. 9
Item 6. Exhibits and Reports on Form 8-K.............................................................. 9
Signatures...................................................................................................10
</TABLE>
2
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TIVOLI INDUSTRIES, INC.
BALANCE SHEET
DECEMBER 31,1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
Current assets:
<S> <C>
Cash and cash equivalents $1,061,457
Accounts receivable, less allowance for doubtful accounts of $79,482 1,885,269
Inventories 1,784,554
Prepaid expenses and other 589,525
----------
Total current assets 5,320,805
----------
Property and equipment :
Machinery and equipment 926,697
Furniture and fixtures 279,166
Tooling 336,378
----------
1,542,241
Less: accumulated depreciation (894,607)
----------
Net property and equipment 647,634
----------
Goodwill, net of accumulated amortization of $163,107 496,431
Patents, net of accumulated amortization of $182,691 109,451
Deferred tax asset 105,518
Deposits and other 173,836
----------
$6,853,675
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,354,673
Accrued expenses 259,532
Current maturities of obligations under a capital lease 57,326
Accrued state tax 800
----------
Total current liabilities 1,672,331
Bank line of credit 823,677
Obligations under a capital lease, net of current portion 103,738
Deferred tax liability 133,051
Minority Interest 109,697
----------
Total liabilities 2,842,494
----------
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares authorized,
none outstanding -
Common stock, $.001 par value; 10,000,000 shares authorized,
3,778,671 shares outstanding 3,779
Additional paid-in capital 4,389,776
Retained earnings (382,374)
----------
Total stockholders' equity 4,011,181
----------
$6,853,675
==========
</TABLE>
3
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended December
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net sales $2,643,841 $2,652,918
Cost of sales 1,496,021 1,519,289
---------- ----------
Gross profit 1,147,820 1,133,629
Selling, general and administrative expenses 1,006,622 997,996
---------- ----------
Income from operations 141,198 135,633
Other income (expense)
Interest expense (23,461) (19,050)
Interest income 11,298 15,516
---------- ----------
Total other income (expense) (12,163) (3,534)
Minority interest in net losses of consolidated subsidiary 9,834 8,976
---------- ----------
Income before provision for income taxes 138,869 141,075
Provision for income taxes 56,000
---------- ----------
Net income $ 138,869 $ 85,075
========== ==========
Basic earnings per share (Note 2) :
Earnings per share $0.04 $0.02
Weighted average shares 3,854,721 3,937,871
Diluted earnings per share (Note 2) :
Earnings per share $0.04 $0.02
Weighted average shares 3,854,721 4,068,727
</TABLE>
4
<PAGE>
TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended December 31
------------------------------
1998 1997
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 138,869 $ 85,075
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 62,263 73,510
Change in allowance for doubtful accounts 2,791 (7,518)
Minority Interest in net losses of consolidated subsidiary (9,834) (8,976)
Deferred income taxes
Warrants for the purchase of common stock
issued for services 15,000
Changes in operating assets and liabilities:
Accounts receivable (443,874) 208,833
Inventories 73,311 (77,059)
Prepaid expenses and other 18,690 (48,577)
Accounts payable (21,582) (12,241)
Accrued expenses and other current liabilities (23,192) 8,788
---------- ----------
Net cash (used in) provided by operating activities (202,558) 236,835
---------- ----------
Cash flows from investing activities:
Deposits and other (11,414)
Capital expenditures (10,629) (16,663)
---------- ----------
Net cash used in investing activities (22,043) (16,663)
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Cash flows from financing activities:
Investment by minority interest 286,494
Net borrowings under line of credit and notes payable
to bank (872)
Stock repurchase (59,491)
Principal payments on capital lease obligations (17,090) (11,525)
---------- ----------
Net cash (used in) provided by financing activities (76,581) 274,097
---------- ----------
Net increase (decrease) in cash and cash equivalents (301,182) 494,269
Cash and cash equivalents, beginning of period 1,362,639 1,389,720
---------- ----------
Cash and cash equivalents, end of period $1,061,457 $1,883,989
========== ==========
</TABLE>
5
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TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED 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 December 31, 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,
1998.
NOTE 2 - EARNINGS PER SHARE
- ---------------------------
Effective December 31, 1997, the Company adopted statement of Financial
Accounting Standards No. (`Statement") No.128, "Earnings Per Share". In
accordance with Statement 128 , primary earnings per share have been replaced
with basic earnings per share, and fully diluted earnings per share have been
replaced with diluted earnings per share which includes potentially dilutive
securities such as outstanding stock options and warrants. Prior periods have
been restated to conform to Statement 128.
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
For the quarters ending December 31,
1998 1997
-------------------- --------------------
Income Shares Per Share Income Shares Per Share
Amount Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
Shareholders $138,869 3,854,721 $0.04 $85,075 3,937,871 $0.02
Effect of Dilutive Securities
Warrants 30,712
Stock Options 100,144
---------
Diluted EPS
Income available to
Shareholders $138,869 3,854,721 $0.04 $85,075 4,068,727 $0.02
-------- --------- --------- ------- --------- ---------
</TABLE>
Options to purchase 1,027,000 shares of Common Stock at prices between $1.375
and $3.31 per share were outstanding at December 31, 1998, but were not included
in the computation of diluted earnings per share for the three month period then
ended. Options to purchase 453,500 shares of Common Stock at prices between
$2.80 and $3.31 per share were outstanding at December 31, 1997, but were not
included in the computation of diluted earnings per share for the three month
period then ended. These options were excluded from the computation of diluted
EPS because the options' exercise price was greater than the average market
price of the common shares during the respective periods, and therefore the
effect would be antidilutive.
6
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TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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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,
1998.
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 Sankey
S.p.A. of Florence, Italy. In November 1997, the joint venture was expanded
with the formation of a jointly owned Company in the U.S., Targetti USA. LLC.
Through this joint venture, Targetti USA LLC offers a wide range of product
families, developed by Targetti Sankey S.p.A., which broadens and complements
the Company's products.
Results of Operations - Three months Ended December 31, 1998 as Compared to
Three Months Ended December 31, 1997
Net sales of $2,643,841 for the first quarter of fiscal year 1999 were
substantially the same as in the same period of the prior year, when sales were
$2,652,918. Sales of Targetti products in the quarter ending December 31, 1998,
were $304,307 which was 80% higher than the in same period in the prior year.
This increase was stimulated by new product introductions and increased market
penetration. Sales of theater related products were strong during the quarter at
$ 1,470,292, and accounted for 56% of total sales. Sales of other Tivoli
products were $869,242 during the quarter which was a decrease of 10% from the
same quarter in fiscal 1998.
The gross profit for the first quarter of the fiscal year 1999 was $1,147,820
or 43.4% of net sales compared to gross profit of $1,133,629 or 42.7% for the
first quarter of fiscal year 1998. This increase was due to cost-reduction
programs implemented during the quarter ending December 31, 1998.
Selling, general and administrative expenses for the first quarter of fiscal
1999 increased to 38.1% of net sales or $1,006,622 as compared to 37.6% or
$997,996 in the same quarter of the prior year. Although, SG & A expenses for
the quarter are substantially the same as the same period in the prior year,
there has been a 17% reduction since the quarter ending June 30,1998, and a 37%
reduction since the quarter ending September 30, 1998. Cost reductions
associated with the closure of the lighting showroom in Las Vegas during
September 1998, have enabled the Company to expand its direct sales force
without increasing total SG & A expenses.
Operating profits for the first quarter of fiscal year 1999 of $141,198 or
5.3% of net sales were essentially the same as the operating profits in the same
quarter of fiscal year 1998 which were $135,633 or 5.1% of net sales.
7
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TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS - continued
---------------------------------
Net interest expense for the first quarter of fiscal year 1999 was $12,163 and
consisted of interest income of $11,298 on the investment of the proceeds of IPO
funds, less interest expense on the bank loan of $19,122 and capital lease
interest of $4,339. Net interest expense for the first quarter of fiscal year
1998 was $3,534 and was derived from interest income of $15,516 on the
investment of IPO funds less interest expense on the bank loan of $14,886 and
capital lease interest of $4,164.
There was no provision for income tax in the first quarter of fiscal year
1999, since net operating loss carry forwards covered both the federal and state
income tax provisions. The provision for income tax in the first quarter of
fiscal year 1998 was $56,000 and represented both federal and state income tax
requirements.
As a result of the above factors, net income for the first quarter of fiscal
year 1999 was $138,869 or $0.04 per share as compared to net income of $85,075
or $0.02 per share in the first quarter of fiscal year 1998.
Financial Position, Capital Resources and Liquidity
The Company's primary use of cash during the first quarter of fiscal year 1999
were funds used by operations of $202,558, which consisted of an increase in
accounts receivable of $443,874 offset by net income of $138,869, depreciation
and amortization of $62,263, and net changes in other operating assets and
liabilities of $40,184.
On August 6, 1998 the Company announced that its Board of Directors had
approved the repurchase of up to an aggregate of 250,000 shares of its Common
Stock. During the quarter ended December 31, 1998, the Company purchased 112,200
shares at a total cost of $59,491. The total shares purchased to date at
December 31, 1998 is 159,200 at a total cost of $88,809.
The above factors contributed to a net decrease in cash of $ 301,182 during
the quarter.
Working capital increased to $3,648,474 at December 31, 1998, as compared to
$3,555,994 at September 30, 1998.
Accounts receivable as of December 31, 1998, increased to $1,885,269 from
$1,438,036 at September 30, 1998. The days sales outstanding in accounts
receivable increased to 63 days at December 31, 1998, as compared to 57 days at
September 30, 1998. Additional resources are being allocated to the cash
collection activity, in order to improve collections performance.
Inventories as of December 31, 1998, decreased to $1,784,554 as compared to
$1,857,865 at September 30, 1998. The number of months costs of sales in
inventory at December 31, 1998, decreased to 3.6 months as compared to 4.0
months at September 30, 1998. The improvement is the result of inventory
reduction programs implemented in the latter quarters of the prior fiscal year.
Accounts payable as of December 31, 1998, decreased to $1,354,673 as compared
to $1,376,254 at September 30, 1998. The number of days in accounts payable
increased from 55 days at September 30, 1998, to 70 days at December 31,1998,
due to lower monthly purchases during the quarter.
Capital expenditures in the first three months of fiscal year 1999 totaled
$10,629 and consisted of new product tooling, and related machinery and
equipment.
8
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TIVOLI INDUSTRIES, INC. AND SUBSIDIARY
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS - continued
---------------------------------
"Year 2000" Requirements
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 has identified its' manufacturing and financial
planning software as being most critical. The manufacturing and financial
planning software was purchased and installed in fiscal year ending September
30, 1997. The Company has received information from the vendor of this software
indicating that the software will properly handle dates for the year 2000 and
beyond. In addition, the Company currently relies upon computer hardware and
software systems from various third party vendors to manage other 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. 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. The Company does not have more than 10% of
its revenue with any one customer. Therefore, the financial exposure to the
Company of the failure of any one customer to be Year 2000 compliant is limited.
Should a number of customers not be Year 2000 compliant , or should a number the
Company's customers be negatively impacted by Year 2000 problems, the negative
consequences to the Company's customers could have a material adverse effect on
the Company's business, financial position, and results of operation. The costs
to become Year 2000 compliant and to obtain certificates from third party
vendors is not material to the Company. When its internal reviews and external
surveys are complete, the Company will prepare contingency plans to prepare for
problems that may reasonably be expected to arise. However, there can be no
assurance that any such plans will prevent Year 2000 problems which may have a
material adverse impact on the Company's business, financial position and
results of operation.
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
---------- -----------
27 Financial Data Schedules
b) Reports on Form 8-K None
9
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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: February 10, 1999 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)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,061,457
<SECURITIES> 0
<RECEIVABLES> 1,885,269
<ALLOWANCES> 79,482
<INVENTORY> 1,784,554
<CURRENT-ASSETS> 5,320,805
<PP&E> 1,542,241
<DEPRECIATION> 894,607
<TOTAL-ASSETS> 6,853,675
<CURRENT-LIABILITIES> 1,672,331
<BONDS> 0
0
0
<COMMON> 3,779
<OTHER-SE> 4,007,402
<TOTAL-LIABILITY-AND-EQUITY> 6,853,675
<SALES> 2,643,841
<TOTAL-REVENUES> 2,643,841
<CGS> 1,496,021
<TOTAL-COSTS> 2,502,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,461
<INCOME-PRETAX> 138,869
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,869
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
