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 MARCH 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
         --------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

                                   59-1548266
                     ---------------------------------------
                     (I.R.S. Employer Identification Number)

                   18191 NW 68TH AVENUE, MIAMI, FLORIDA 33015
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (305) 558-4777
               --------------------------------------------------
               Registrant's telephone number, including area code


         --------------------------------------------------------------
         Former name, former address and former fiscal year, if changed
            since last report.

Indicate by check / whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date. OUTSTANDING ON MAY 6, 1998: 7,109,069 SHARES.


<PAGE>

                    CATALINA LIGHTING, INC. AND SUBSIDIARIES

                                      INDEX

PART I    FINANCIAL INFORMATION                                        PAGE NO.
                                                                       --------
      Condensed consolidated balance sheets -
       March 31, 1998 and September 30, 1997...........................  3-4

      Condensed consolidated statements of operations -
       Three and six months ended March 31, 1998 and 1997..............  5

      Condensed consolidated statements of cash flows -
       Six months ended March 31, 1998 and 1997........................  6-7

      Notes to condensed consolidated financial statements.............  8-11

      Management's discussion and analysis of financial
       condition and results ofoperations..............................  12-18

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>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                            ASSETS                               MARCH 31,           SEPTEMBER 30,
                                                                   1998                   1997
                                                            ------------------     -----------------
                                                               (Unaudited)                *
<S>                                                         <C>                     <C>

Current assets

  Cash and cash equivalents                                 $           1,629       $         1,847
  Account receivable, net of allowances
      of $8,288 and $8,314 respectively                                24,888                24,169
  Inventories                                                          29,149                34,612
  Income taxes receivable                                               2,073                 2,380
  Other current assets                                                  6,903                 5,406
                                                            ------------------     -----------------

             Total current assets                                      64,642                68,414

Property and equipment, net                                            28,926                29,969
Restricted cash equivalents and short-term investments                  2,238                 1,883
Goodwill, net                                                          11,245                11,473
Other assets                                                            4,525                 4,842
                                                            ------------------     -----------------
                                                            $         111,576      $        116,581
                                                            ==================     =================
</TABLE>




(continued on page 4)

                                       3
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                    MARCH 31,         SEPTEMBER 30,
      LIABILITIES AND STOCKHOLDERS' EQUITY            1998               1997
                                                   -----------         ---------
                                                   (Unaudited)            *
<S>                                                 <C>                <C>
Current liabilities
 Notes payable - credit lines                         $  5,599          $  5,574
 Accounts and letters of credit payable                 15,698            18,099
 Current maturities of bonds payable                       980               970
 Current maturities of other long-term debt                484               476
 Other current liabilities                               5,004             5,586
                                                      --------          --------
       Total current liabilities                        27,765            30,705

  Notes payable - credit lines                          18,800            21,000
  Convertible subordinated notes                         7,600             7,600
  Bonds payable - real estate related                    9,110             9,195
  Other long-term debt                                   1,796             1,942
  Other liabilities                                      5,182             5,082
                                                      --------          --------
       Total liabilities                                70,253            75,524
                                                      --------          --------

Commitments and contingencies

Stockholders' equity
  Common stock, issued and outstanding 7,109
   shares and 7,095 shares, respectively                    71                71
  Additional paid-in capital                            26,422            26,311
  Retained earnings                                     14,830            14,675
                                                      --------          --------
       Total stockholders' equity                       41,323            41,057
                                                      --------          --------
                                                      $111,576          $116,581
                                                      ========          ========
</TABLE>



*Condensed from audited financial statements

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)

<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED                SIX MONTHS ENDED
                                                MARCH 31,                        MARCH 31,
                                       ------------------------------  ------------------------------
                                           1998            1997            1998            1997
                                       --------------  --------------  --------------  --------------
<S>                                    <C>             <C>             <C>             <C>     
Net sales                              $      40,246   $      44,874   $      77,229   $      89,969
Cost of sales                                 31,959          38,426          62,367          75,564
                                       --------------  --------------  --------------  --------------
Gross profit                                   8,287           6,448          14,862          14,405

Selling, general and administrative
 expenses                                      6,636           6,287          13,120          12,442
Plant closing costs                                -             930               -             930
Litigation charges and
 related professional fees                        29           6,304            (122)          7,232
                                       --------------  --------------  --------------  --------------
Operating income (loss)                        1,622          (7,073)          1,864          (6,199)
                                       --------------  --------------  --------------  --------------

Other income (expenses):
 Interest expense                             (1,023)           (978)         (2,047)         (1,821)
 Other income (expenses)                         104             (15)            398             (17)
                                       --------------  --------------  --------------  --------------
Total other income (expenses)                   (919)           (993)         (1,649)         (1,838)
                                       --------------  --------------  --------------  --------------

Income (loss) before income taxes                703          (8,066)            215          (8,037)

Income tax benefit (provision)                  (167)          3,078             (60)          3,071
                                       --------------  --------------  --------------  --------------
Net income (loss)                      $         536   $      (4,988)  $         155   $      (4,966)
                                       ==============  ==============  ==============  ==============

Weighted average number of
  shares outstanding
       Basic                                   7,109           7,065           7,107           7,065
       Diluted                                 7,421           7,065           7,600           7,065

Earnings (loss) per share
       Basic                            $       0.08   $       (0.71)  $        0.02   $      (0.70)
       Diluted                          $       0.07   $       (0.71)  $        0.02   $      (0.70)

</TABLE>


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)

<TABLE>
<CAPTION>

                                                                             SIX MONTHS ENDED
                                                                                 MARCH 31,
                                                                    ----------------------------------
                                                                         1998               1997
                                                                    ----------------   ---------------
<S>                                                                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                                  $            155   $        (4,966)
 Adjustments for non-cash items:
  Plant closing costs                                                             -                930
  Litigation settlements                                                          -              4,274
  Other                                                                        2,385             3,223
 Change in assets and liabilities                                              1,190            (5,254)
                                                                    ----------------   ---------------
 Net cash provided by (used in) operating activities                           3,730            (1,793)
                                                                    ----------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES

 Capital expenditures, net                                                    (1,037)           (4,772)
 Payments for acquisitions                                                        -                (44)
 Decrease (increase) in restricted cash equivalents and
   short-term investments                                                         96               (11)
                                                                    ----------------   ---------------
 Net cash provided by (used in) investing activities                            (941)           (4,827)
                                                                    ----------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES

 Net proceeds from issuance of common stock                                       57                 5
 Payments on other liabilities                                                  (364)             (357)
 Payments on bonds                                                               (75)              (70)
 Proceeds from notes payable - credit lines                                   12,600            18,700
 Payments on notes payable - credit lines                                    (14,800)          (11,821)
 Net proceeds from (payments on) notes payable - credit lines
    due on demand                                                                 25            (1,153)
 Sinking fund redemption payments on bonds                                      (450)             (450)
                                                                    ----------------   ---------------
 Net cash provided by (used in) financing activities                          (3,007)            4,854
                                                                    ----------------   ---------------

 Net increase (decrease) in cash and cash equivalents                           (218)           (1,766)
 Cash and cash equivalents at beginning of period                              1,847             1,766
                                                                    ----------------   ---------------
 Cash and cash equivalents at end of period                         $          1,629   $            -
                                                                    ================   ===============

</TABLE>

(continued on page 7)

                                       6
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)


                       SUPPLEMENTAL CASH FLOW INFORMATION

                                       SIX MONTHS ENDED
                                           MARCH 31,
                               ----------------------------------
                                     1998              1997
                               ----------------  ----------------
                                        (IN THOUSANDS)

       Cash paid for:
        Interest               $        2,057    $         1,833
        Income taxes           $          141    $           888


       SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

During the six months ended March 31, 1998 and 1997, total capital lease
obligations incurred for new office, machinery and warehouse equipment
aggregated $124,000 and $617,000, respectively.


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, 1997 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, all adjustments (which consist mostly of normal,
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations for the three and six months ended March 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.

Earnings (loss) per Share

The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") for the quarter ended December 31, 1997 which
changes the method of calculating earnings per share. SFAS 128 requires the
presentation of "basic" earnings per share and "diluted" earnings per share on
the face of the statement of operations. Basic earnings per share is computed by
dividing the net income or loss attributable to common shareholders by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Upon adoption, earnings per share data for prior periods are required to
be restated. Earnings per share information presented in the accompanying
financial statements for the three and six months ended March 31, 1997 have been
restated to comply with SFAS No. 128.

2.   INVENTORIES

Inventories consisted of the following:

                               MARCH 31,          SEPTEMBER 30,
                                 1998                 1997
                           ------------------   ------------------
                                        (In thousands)

Raw materials              $           3,710    $           3,569
Work-in-progress                         910                1,006
Finished goods                        24,529               30,037
                           ------------------   ------------------
Total Inventories          $          29,149    $          34,612
                           ==================   ==================


3.   PROPERTY AND EQUIPMENT, NET

Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative joint
venture subsidiary of the Company's wholly-owned subsidiary Go-Gro Industries
Ltd. ("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 the right to use this land until
January 18, 2042. The land use rights are non-transferable. 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, with 40 percent of the construction required to be completed (which was
completed) by April 1, 1997 and the remainder by December 31, 1999. The Company
plans to file an application to extend the completion

                                       8
<PAGE>
 
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

3.   PROPERTY AND EQUIPMENT, NET (CONTINUED)

deadline of December 1999. The total cost for this project is estimated at $15.5
million (of which $10.4 million had been expended as of March 31, 1998), and
includes approximately $1.0 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. A 162,000 square foot factory, a 77,000 square foot warehouse and a 60,000
square foot dormitory, became operational in June 1997.

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 $470,000
provision for post-judgment interest has been recorded through March 31, 1998.
The Company is appealing the verdict and attorney fee award.

On February 23, 1993, Dana Lighting (now Catalina Industries, Inc.), a
subsidiary of the Company, and Nathan Katz, President of Dana, were served with
a copy of the Complaint in a matter captioned Holmes Products Corp. vs. Dana
Lighting, Inc. and Nathan Katz, Case No. 93-0249 in the Superior Court of the
Commonwealth of Massachusetts, City of Worcester, Massachusetts. The plaintiff
in the action alleges that Dana Lighting engaged in acts constituting tortious
interference with contractual actions, interference with prospective economic
relationship with plaintiff's supplier and unfair competition. Plaintiff seeks
injunctive relief and damages in excess of $10 million. Dana filed its Answer to
the Complaint on March 15, 1993 denying all allegations, and Plaintiff's request
for a temporary restraining order was denied by the Court. The supplier and
Dana's President have filed affidavits with the Court denying that Dana engaged
in such acts. In July 1994, Holmes Products Corp. amended the Complaint to
include allegations of a violation of civil RICO and a violation of the Federal
Antitrust laws. On July 22, 1994, Dana Lighting removed the case from State
Court to the United States District Court for the District Court of
Massachusetts. On March 19, 1997, the Court granted Dana's motion for summary
judgment and dismissed the claims against the Company regarding violation of
civil RICO, Federal Antitrust and State unfair competition. Subsequently, the
Federal Court remanded the counts alleging interference with contractual
relations and prospective business relations to the Massachusetts Superior
Court, City of Worcester. Plaintiff has filed an appeal of the Federal Court's
dismissal of the state unfair competition and unjust enrichment claims with the
federal appeals court. Management believes that the Complaint is totally without
merit and disputes that any of the alleged acts or damages occurred or that Dana
is liable in any matter. The Company intends to defend this case vigorously and
the outcome of this case cannot presently be determined. No provision for any
liability that may result from this litigation has been recorded in the
accompanying condensed consolidated financial statements.

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,

                                       9
<PAGE>


                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

4.   CONTINGENCIES (CONTINUED)

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, accordingly no provision
for this matter has been recorded in the accompanying condensed consolidated
financial statements. Discovery is proceeding and the case could be tried in
late 1998.

The Company has recently received a number of claims relating to halogen
torchieres sold by the Company to various retailers. While the Company is still
in the process of evaluating these claims, management does not currently believe
they will result in a material uninsured liability to the Company.

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.

OTHER

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
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 system failure or
miscalculations. The Company is in the process of identifying and assessing the
systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The Company expects to complete the
assessment, formalize its plan for corrective action and estimate the potential
incremental costs required to address this issue by December 1998. The Company
is presently unable to determine what impact, if any, the Year 2000 issue will
have on its operations.

Substantially all of the products either purchased or manufactured by the
Company are imported from China. The continued importation into the U.S. of
products manufactured in China could be affected by any one of several
significant trade issues that presently impact U.S. - China relations. On May
29, 1997, 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, 1997. In the context of
United States tariff legislation, MFN treatment means that products are subject
to favorable duty rates upon entry into the United States. On June 24, 1997 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.
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.

5.   NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued. SFAS
No. 130 establishes standards for the reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that a
company (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effects, if any, that SFAS No. 130
will have on its consolidated financial statements.

                                       10
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                   (UNAUDITED)

5.   NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. 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; operating costs; advertising and promotional efforts; brand
awareness; the existence or absence of adverse publicity; acceptance of new
product offerings; changing trends in customer tastes; changes in business
strategy; availability, terms and deployment of capital; availability and cost
of raw materials and supplies; the costs and other effects of legal and
administrative proceedings; 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,
1997. 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 and
six months ended March 31, 1998 and 1997 are referred to as 1998 and 1997,
respectively.

COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997

      Net sales and gross profit for 1998 were $40.2 million and $8.3 million,
respectively, as compared to $44.9 million and $6.4 million, respectively, for
1997. The Company generated net income of $536,000 ($.07 per share) in 1998
compared to a net loss of $5 million ($.71 per share) in 1997.

      The $4.6 million decrease in net sales from the prior year is attributable
to a $4.7 million decline in unit sales of one product class, halogen
torchieres. The sales decline for the halogen torchieres is due in part to media
attention focused on incidents of fire associated with this product. Current
versions of the halogen torchiere sold by the Company incorporate new safety
devices exceeding the new safety requirements for this product recently
promulgated by Underwriters Laboratory. During the latter half of fiscal 1998
the Company expects to introduce new versions of the torchiere incorporating new
technologies to address the declining sales of this product category. However,
there can be no assurance these versions will be as successful as the previous
models and torchiere sales for the balance of fiscal 1998 are not expected to
equal fiscal 1997 sales levels. Another $883,000 of the decline related to sales
of Meridian lamps. Lamp sales decreased by $1.4 million and net sales for the
Company's other principal line of products, lighting fixtures, decreased by $3.2
million. Lamps and lighting fixtures accounted for 67% and 33%, respectively, of
net sales in 1998 compared to 63% and 37% in 1997, respectively. In 1998 and
1997, Home Depot accounted for 24% and 19.3%, respectively, of the Company's net
sales.

      Gross profit increased by $1.8 million in 1998. The gross profit
percentage of 20.6% for 1998 represented an increase from 1997, which was 17.8%
after eliminating the impact on the gross profit percentage of the Company's
discontinued Meridian Lamps manufacturing subsidiary. The improvement in the
gross profit percentage from 1997 to 1998 was attributable to improved margins
earned on direct sales due to new product placement and a more profitable
product mix.

      Many of the Company's major customers (most notably Home Depot and Kmart)
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 56% of the Company's sales in 1998 were made
on a direct basis as compared to 55% in 1997. Sales made by the Company on a
direct basis typically generate lower margins than sales 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.

                                       12
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

      Selling, general and administrative expenses ("SG&A") increased by
$349,000 primarily due to increased costs in the Orient to support the Company's
growth and restructuring of operations ($380,000) and an increase in royalties
($125,000). These increases were partially offset by a decrease of $126,000 in
SG&A incurred by Meridian which ceased operations in June 1997. SG&A expenses
were 16.5% of sales in 1998 compared to 14% in 1997. The increase in SG&A as a
percentage of sales is attributable to the factors mentioned above and the
decline in sales.

      In 1997, in conjunction with the decision to cease Meridian's operations,
the Company recorded a $930,000 charge to write down the plant and related
equipment to fair market value (less disposition costs) and to provide for
severance payments to Meridian's employees.

      Litigation charges and related professional fees in 1997 represented the
amount provided for an adverse jury verdict of $4.3 million on litigation with
the Company's former Chief Executive Officer, a payment of $1,000,000 to settle
patent litigation with Black & Decker, and the related professional fees
incurred for these two matters (see Note 4 of Notes to Condensed Consolidated
Financial Statements).

      Interest expense increased to $1 million in 1998 from $978,000 in 1997
reflecting a $106,000 provision for interest related to the $4.3 million adverse
jury verdict presently under appeal (see Note 4 of Notes to Condensed
Consolidated Financial Statements).

      Other income for 1998 consists primarily of a refund of excess pension
fund contributions and rental income on the Meridian facility.

      The effective income tax rates for 1998 and 1997 were 24% and 38%,
respectively. The lower effective tax rate for 1998 reflects the projected
impact for the fiscal year ended September 30, 1998 of higher proportionate
foreign income, which is taxed at a significantly lower rate than U.S. income.

MERIDIAN

      The Company ceased manufacturing operations and closed its Meridian Lamps
facility in June 1997. Net sales for 1997 were $883,000, cost of sales was $2.3
million and the pretax loss was $2.5 million.

COMPARISON OF SIX MONTHS ENDED MARCH 31, 1998 AND 1997

      Net sales and gross profit for 1998 were $77.2 million and $14.9 million,
respectively, as compared to $90 million and $14.4 million, respectively, for
1997. The Company generated net income of $155,000 ($.02 per share) in 1998
compared to a net loss of $5 million ($.70 per share) in 1997.

      The $12.7 million decrease in net sales from the prior year is
attributable to an $8.1 million decline in unit sales of one product class,
halogen torchieres and $2.9 million in sales of now discontinued products, the
Meridian lamps and "Hugger" flashlights. The sales decline for the halogen
torchieres is attributed in part to media attention focused on incidents of fire
associated with this product. Current versions of the halogen torchiere sold by
the Company incorporate new safety devices exceeding the new safety requirements
for this product recently promulgated by Underwriters Laboratory. During the
latter half of fiscal 1998 the Company expects to introduce new versions of the
torchiere incorporating new technologies to address the declining sales of this
product category. However, there can be no assurance these versions will be as
successful as the previous models and torchiere sales for the balance of fiscal
1998 are not expected to equal fiscal 1997 sales levels. Management believes the
remainder of the sales decrease is due to a variety of factors including the
consolidation of the customer base, delayed new product placement in Europe and
the purchasing patterns of the Company's customers in general, which can vary
from quarter to quarter. Sales during the third quarter of fiscal 1998 could
continue to be adversely affected by these factors. Lamp sales decreased by $7.7
million and net sales for the Company's other principal line of products,
lighting fixtures, decreased by $5 million. Lamps and lighting fixtures
accounted for 63% and 37%, respectively, of net sales in 1998 and 1997. In 1998
and 1997, Home Depot accounted for 25% and 16.5%, respectively, of the Company's
net sales.

      Gross profit increased by $457,000 in 1998. The gross profit percentage of
19.2% for 1998 represented an increase from 1997, which was 17.5% after
eliminating the impact of sales of discontinued products and discontinued
operations. The improvement in the gross profit percentage from 1997 to 1998 was
attributable to improved margins earned on direct sales due to new product
placement and a more profitable product mix.

                                       13
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

      Many of the Company's major customers (most notably Home Depot and Kmart)
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 59% of the Company's sales in 1998 were made
on a direct basis as compared to 55% in 1997. Sales made by the Company on a
direct basis typically generate lower margins than sales 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. 

      Selling, general and administrative expenses ("SG&A") increased by
$678,000 due to increased costs in the Orient to support the Company's growth
and restructuring of operations ($652,000) and higher U.S. personnel costs
($279,000). These increases were partially offset by a decrease of $261,000 in
SG&A incurred by Meridian which ceased operations in June 1997. SG&A expenses
were 17% of sales in 1998 compared to 13.8% in 1997. The increase in SG&A as a
percentage of sales is attributable to the factors mentioned above and the
decline in sales.

      In 1997, in conjunction with the decision to cease Meridian's operations,
the Company recorded a $930,000 charge to write down the plant and related
equipment to fair market value (less disposition costs) and to provide for
severance payments to Meridian's employees.

      Litigation charges and related professional fees in 1997 represented the
amount provided for an adverse jury verdict of $4.3 million on litigation with
the Company's former Chief Executive Officer, a payment of $1,000,000 to settle
patent litigation with Black & Decker, and the related professional fees
incurred for these two matters (see Note 4 of Notes to Condensed Consolidated
Financial Statements).

      Interest expense increased to $2 million in 1998 from $1.8 million in 1997
reflecting a $212,000 provision for interest related to the $4.3 million adverse
jury verdict presently under appeal (see Note 4 of Notes to Condensed
Consolidated Financial Statements).

      Other income for 1998 includes a gain of $164,000 on the sale of
marketable equity securities, with the remainder consisting primarily of rental
income on the Meridian facility.

      The effective income tax rates for 1998 and 1997 were 28% and 38%,
respectively. The lower effective tax rate for 1998 reflects the projected
impact for the fiscal year ended September 30, 1998 of higher proportionate
foreign income, which is taxed at a significantly lower rate than U.S. income.

MERIDIAN

      The Company ceased manufacturing operations and closed its Meridian Lamps
facility in June 1997. Net sales for 1997 were $1.6 million, cost of sales was
$3.3 million and the pretax loss was $3.1 million.

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 SIX MONTHS ENDED MARCH 31, 1998

      The Company's operating, investing and financing activities resulted in a
net decrease in cash and cash equivalents of $218,000 from September 30, 1997 to
March 31, 1998.

     The net cash of $3.7 million provided by operating activities was used
primarily to pay for capital expenditures aggregating $1 million, to pay down
credit lines and to make sinking fund redemption payments on outstanding bonds.
Such capital expenditures included $760,000 in costs incurred by Go-Gro for the
purchase of machinery, molds and equipment and building improvements.

                                       14
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

CREDIT AND LEASING FACILITIES, CONVERTIBLE SUBORDINATED NOTES, MORTGAGE AND
BONDS

      The Company has a $65 million credit facility with a group of commercial
banks. This facility provides credit in the form of a $7.6 million non-revolving
loan and $57.4 million in revolving loans, acceptances, and trade and stand-by
letters of credit, matures September 30, 1999 and provides for quarterly
principal payments of $950,000 on the non-revolving loan which commenced on June
1, 1997. The non-revolving loan bears interest 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 + 2.5% at March 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 March 31, 1998, the Company had used $24
million under its credit facility and $4.9 million was available for additional
borrowings under the borrowing base calculation.

      The Company's Canadian and Hong Kong subsidiaries have credit facilities
with foreign banks of $2.9 million and $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. Advances
bear interest at the Canadian prime rate plus .5% (7% at March 31, 1998). At
March 31, 1998, borrowings amounted to U.S. $1.8 million and U.S. $423,000 was
available for additional borrowings under the borrowing base calculation.
Borrowings under the Hong Kong facility are secured by substantially all the
assets of Go-Gro. The 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% at March 31,
1998). At March 31, 1998, there were no borrowings under this facility and $1.1
million was available for borrowings. Each of these credit facilities are
payable upon demand and are subject to annual reviews by the banks. 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 limits the payment of
dividends that may be paid to the Company but does not limit advances or loans
from Go-Gro to the Company.

      The Company has outstanding $7.6 million of 8% convertible subordinated
notes due on March 15, 2002. The notes are convertible into common shares of the
Company's stock at a conversion price of $7.31 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 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) a 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 (5.65% at March 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 $8.9
million direct pay letter of credit which is not part of the Company's credit
line.

                                       15
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

CREDIT AND LEASING FACILITIES, CONVERTIBLE SUBORDINATED NOTES, MORTGAGE AND
BONDS (CONTINUED)

      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 6.36% and a contractual maturity
of 15 years. The bonds are secured by a first mortgage on land, building and
improvements and a $1.4 million 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 in
escrow with respect to the bonds. The Company plans to redeem the bonds at their
earliest redemption date, approximately November 1, 1999.

      The Company has a $1 million leasing facility with a financial institution
to finance the purchase of equipment in the United States, of which $645,000 was
available at March 31, 1998. In addition, the Company has a leasing facility for
$9 million Hong Kong dollars (U.S. $1.2 million) with a Hong Kong financial
institution to finance the purchase of machinery and equipment for its China
facilities of which U.S. $370,000 was available at March 31, 1998.

      The Company financed its corporate headquarters in Miami, Florida with a
loan payable monthly through 1999, based on a 15 year amortization schedule,
with a balloon payment in 1999, bearing interest at 8% and secured by a mortgage
on the land and building.

NEW ACCOUNTING PRONOUNCEMENTS

      In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that a company (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The Company has not determined the effects, if any, that SFAS No. 130
will have on its consolidated financial statements.

In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. 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.

                                       16
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

OTHER

      Shenzhen Jiadianbao Electrical Products Co., Ltd. ("SJE"), a cooperative
joint venture subsidiary of the Company's wholly-owned subsidiary Go-Gro
Industries Ltd. ("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 the right to use this land
until January 18, 2042. The land use rights are non-transferable. 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, with 40 percent of the construction required to be completed (which was
completed) by April 1, 1997 and the remainder 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 $10.4
million had been expended as of March 31, 1998), and includes approximately $1.0
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. A 162,000 square foot
factory, a 77,000 square foot warehouse and a 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 ("Westinghouse") 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. Either party has the
right to terminate the agreement during years three through five of the
agreement if the Company does not meet the minimum net shipments required under
the agreement. Net sales of Westinghouse branded products amounted to $3.5
million and $4.0 million for the six months ended March 31, 1998 and 1997,
respectively.

      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, accordingly no provision for this matter has been
recorded in the financial statements. Discovery is proceeding and the case could
be tried in late 1998.

      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
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 system failure or
miscalculations. The Company is in the process of identifying and assessing the
systems that could be affected by the Year 2000 Issue and is developing an
implementation plan to resolve the issue. The Company expects to complete the
assessment, formalize its plan for corrective action, and estimate the potential
incremental costs required to address this issue by December 1998. The Company
is presently unable to determine what impact, if any, the Year 2000 issue will
have on its operations.

                                       17
<PAGE>
                    CATALINA LIGHTING, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS (CONTINUED)

RENEWAL OF CHINA'S MOST FAVORED NATION STATUS

      Substantially all of the products either purchased or manufactured by the
Company are imported from China. The continued importation into the U.S. of
products manufactured in China could be affected by any one of several
significant trade issues that presently impact U.S. - China relations. On May
29, 1997, 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, 1997. In the context of
United States tariff legislation, MFN treatment means that products are subject
to favorable duty rates upon entry into the United States. On June 24, 1997 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.
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.

ECONOMIC CONDITIONS

      During late 1997 various countries in Southeast Asia (including Thailand,
South Korea, Malaysia, the Philippines and Indonesia) were involved in an
emerging crisis impacting their economies and characterized by currency
devaluations, rising interest rates, deteriorating economic growth and declining
capital markets. The Company does not conduct business with, or have a
significant investment in, any of these countries. However, this crisis could
have serious adverse repercussions on the financial stability of all countries
in the region, including Hong Kong and China, and has implications for the
global financial system as well, including the United States. The Company is
presently unable to determine what impact, if any, this Asian economic crisis
will have on its business.

                                       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

         10.154   Seventh Amendment to Letter of Credit Agreement between
                  Catalina Industries, Inc. and SunTrust Bank, Central Florida,
                  N.A. dated December 31, 1997.

         10.155   Twelfth Amendment to Third Amended and Restated Credit
                  Agreement between Catalina Lighting, Inc. and SunTrust Bank,
                  Central Florida, N.A. dated December 31, 1997.

         10.156   Second Amendment to Financing Agreement between Catalina
                  Lighting Canada (1992), Inc. and National Bank of Canada dated
                  December 19, 1997.

         10.157   Eighth Amendment to Letter of Credit Agreement between
                  Catalina Industries, Inc. and SunTrust Bank, Central Florida,
                  N.A. dated March 31, 1998.

         10.158   Thirteenth Amendment to Third Amended and Restated Credit
                  Agreement between Catalina Lighting, Inc. and SunTrust Bank,
                  Central Florida, N.A. dated March 31, 1998.

         11       Schedule of Computation of Diluted Earnings (Loss) per Share.

         27.1     Financial Data Schedule

         27.2     Restated Financial Data Schedule 

(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/ DAVID W. SASNETT
                                                  ----------------------------
                                                   DAVID W. SASNETT
                                                   SENIOR VICE PRESIDENT

                                                  /s/ DAVID W. SASNETT
                                                  ----------------------------
                                                   DAVID W. SASNETT
                                                   CHIEF FINANCIAL OFFICER AND
                                                   CHIEF ACCOUNTING OFFICER

Date:  May 15, 1998

                                       20


<PAGE>
                                 EXHIBIT INDEX


   EXHIBITS                                DESCRIPTION
   --------                                -----------

     10.154    Seventh Amendment to Letter of Credit Agreement between Catalina
               Industries, Inc. and SunTrust Bank, Central Florida, N.A. dated
               December 31, 1997.

     10.155    Twelfth Amendment to Third Amended and Restated Credit Agreement
               between Catalina Lighting, Inc. and SunTrust Bank, Central
               Florida, N.A. dated December 31, 1997.

     10.156    Second Amendment to Financing Agreement between Catalina Lighting
               Canada (1992), Inc. and National Bank of Canada dated December
               19, 1997.

     10.157    Eighth Amendment to Letter of Credit Agreement between
               Catalina Industries, Inc. and SunTrust Bank, Central Florida,
               N.A. dated March 31, 1998.

     10.158    Thirteenth Amendment to Third Amended and Restated Credit
               Agreement between Catalina Lighting, Inc. and SunTrust Bank,
               Central Florida, N.A. dated March 31, 1998.

     11        Schedule of Computation of Diluted Earnings (Loss) per Share.

     27.1      Financial Data Schedule

     27.2      Restated Financial Data Schedule