<PAGE>
U. S. 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, 1995.
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: 1-8497
KLEER-VU INDUSTRIES, INC.
(Name of Registrant as specified in its charter)
DELAWARE 13-5671924
- - -------------------------------------- ------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
921 WEST ARTESIA BOULEVARD, COMPTON, CALIFORNIA 90220
- - ----------------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
(310) 603-9330
- - ----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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
------ ------
There were 2,665,076 shares outstanding of the issuer's common stock,
$0.10 par value, as of May 12, 1995.
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KLEER-VU INDUSTRIES, INC.
March 31, 1995
(Unaudited)
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of
March 31, 1995 (Unaudited) and December 31, 1994........... 3
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 1995
and 1994 (Unaudited)....................................... 4
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 1995
and 1994 (Unaudited)....................................... 5
Notes to Consolidated Condensed Financial
Statements (Unaudited)..................................... 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7-8
PART II - Other Information.......................................... 9-10
Signatures........................................................... 11
</TABLE>
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDTED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
(Unaudited)
---------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 86 $ 55
Trade receivables, less allowance of $293 and $287 4,194 7,594
Inventories 10,373 8,393
Deferred income taxes 263 263
Other 441 325
-------- ---------
Total current assets 15,357 16,630
Property and equipment, less accumulated depreciation and
amortization of $4,541 and $4,392 4,076 4,145
Cost in excess of net assets acquired, net of accumulated
amortization of $589 and $512 4,222 4,299
Deferred income taxes 318 318
Due from officers 189 173
Other 536 521
--------- ---------
$ 24,698 $ 26,086
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loans from affiliates $ 1,078 $ 624
Current maturities of long-term debt 147 219
Trade accounts payable 4,810 4,203
Cash overdraft 468 1,153
Accounts payable to affiliated company 2,077 1,453
Accrued expenses 1,454 1,301
-------- ---------
Total current liabilities 10,034 8,953
Long-term debt, less current portion 8,109 9,184
-------- ---------
Other noncurrent liabilities 341 353
-------- ---------
Stockholders' equity:
Preferred stock, $10 par value; 1,000,000 shares authorized;
900,000 shares issued, aggregate liquidation preference
of $900 9,000 9,000
Common stock, $0.10 par value; 10,000,000 shares authorized,
2,672,220 and 2,633,700 shares issued, respectively 267 263
Additional paid-in capital 16,384 16,160
Deficit (18,761) (17,245)
-------- -------
6,890 8,178
Less: Deferred compensation and notes from officers (633) (539)
Common stock held in treasury, at cost; 7,144 shares (43) (43)
-------- -------
Total stockholders' equity 6,214 7,596
-------- -------
$ 24,698 $ 26,086
-------- -------
-------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDTED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Revenues:
Net sales $ 5,795 $ 5,076
Costs and expenses:
Cost of goods sold 5,060 4,292
Selling, general and administrative 2,251 2,085
------- -------
Total costs and expenses 7,311 6,377
Net loss $(1,516) $(1,301)
------- -------
------- -------
Net loss per share $ (.57) $ (.66)
------- -------
------- -------
Weighted average common shares and common
share equivalents used in computation
of loss per share 2,651,808 1,962,236
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,516) $ (1,301)
Adjustments to reconcile loss to cash used by operations:
Depreciation and amortization 149 136
Deferred compensation and other amortization 219 204
Provision for bad debts 5 25
Changes in assets and liabilities:
Trade receivables 3,395 588
Due from officers (16)
Inventories (1,980) (372)
Other assets (131) (61)
Accounts and acceptance payable 1,231 (822)
Accrued expenses 133 (63)
------- -------
Net cash provided by (used in) operations 1,489 (1,666)
Cash flows from investing activities:
Capital expenditures (80) (138)
Proceeds from asset sales 85
------- -------
Net cash used in investing activities (80) (53)
------- -------
Cash flows from financing activities:
Notes payable and line of credit (1,063) 44
Loans from affiliate 454 1,250
Payments of long-term debt (84) (124)
Cash overdraft (685) 58
------- -------
Net cash provided by (used in) financing activities (1,378) 1,228
------- -------
Net increase (decrease) in cash 31 (491)
Cash and cash equivalents, beginning of period 55 938
------- -------
Cash and cash equivalents, end of period $ 86 $ 447
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of presentation:
The consolidated Financial statements include the accounts of Kleer Vu
Industries, Inc. (the Company) and its subsidiaries, Kleer Vu Plastics
Corporation (KVP), PAS Industry, Inc. (PAS), ProLine Storage Corporation
(ProLine), and Neslemur Company (NLC), which has been inactive since the
sale of its assets in 1987. All of the subsidiaries are wholly-owned and
all intercompany balances and transactions have been eliminated. In the
opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to a fair
presentation of the financial position as of March 31, 1995, and the
results of operations and the statements of cash flows for the three months
ended March 31, 1995 and 1994.
2. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, December 31,
1995 1994
--------- -----------
<S> <C> <C>
Raw materials $ 4,625 $ 4,371
Work-in process 89 87
Finished products 5,659 3,935
--------- -----------
$ 10,373 $ 8,393
--------- -----------
--------- -----------
</TABLE>
3. Subsequent Events:
On May 1, 1995, the Company closed a senior subordinated loan
transaction whereby the Company received $5,000,000 of loan proceeds from
Pacific Mezzanine Fund, L.P. and its participant (the "PMF Loan").
Additionally, in order to comply with a condition precedent to the closing
of the PMF Loan, Signal Resources, L.P. ("Signal"), an affiliate of the
Company, loaned $1,500,000 to the Company (the "Signal Loan") on
substantially the same terms as the PMF Loan, prior to the closing of the
PMF Loan. The PMF Loan also contemplates that Signal, Mr. H. P. Park (the
Company's Chairman and Co-Chief Executive Officer), Mr. David W. Hardee
(the Company's President and Co-Chief Executive Officer), and / or their
affiliates, or a syndicate arranged by any of them, will provide an
additional loan of $1,500,000 (the "Additional Loan") by April 21, 1996.
However, there is no penalty if this Additional Loan is not made. The PMF
Loan, Signal Loan and any Additional Loan will bear interest at the rate of
thirteen (13%) per cent per annum, payable quarterly. Repayment of
principal is also on a quarterly basis, commencing twenty-one (21) months
following the closing, through maturity on the seventh (7) anniversary date
of closing. Repayment of the PMF Loan and the Signal Loan is subordinate
to the Company's bank credit facility with LaSalle National Bank. The PMF
Loan is secured by a first lien on the Company's machinery and equipment.
The Company has agreed to use the loan proceeds to finance the development
of the Company's Kodak photograph album line, and for working capital
purposes.
In connection with their respective loans, PMF (including its
affiliate and its participant) and Signal received Warrants (the
"Warrants") to purchase 503,530 and 151,059 shares of the Company's common
stock, respectively. The Warrants are exercisable for a five (5) year
period commencing on March 31, 1996 at the exercise price of $6.00 per
share, with an automatic net issuance conversion if the closing price of
the Company's publicly traded common stock is at least $16.00 for twenty
(20) consecutive trading days. The closing price of the Company's common
stock on the American Stock Exchange on May 1, 1995 was $8 3/8 per share.
Page 6
<PAGE>
In the event Signal, Messrs. Park and / or Hardee or any of their
affiliates provide the $1,500,000 Additional Loan by April 21, 1996, such
lender(s) will receive Warrants to purchase an aggregate of 151,059 shares.
If an Additional Loan of less than $1,500,000 is made, the lender(s) will
receive a proportionately reduced number of Warrants. The issuance of
shares upon the exercise of the Warrants issued, or to be issued, to
Signal, affiliates of the Company, or members of a syndicate arranged by
them, in connection with the Signal Loan or the Additional Loan, is subject
to the approval of a majority of the stockholders of the Company, other
than Signal, Messrs. Park and Hardee and their affiliates.
In connection with the debt financing, the Company extended the term
of its bank borrowing facility with LaSalle National Bank for an additional
year through June 30, 1997. Other significant amendments to the loan
agreement included modifications to the monetary thresholds of the
covenants with respect to minimum net worth levels and the restriction of
funds movement from the Company's subsidiaries to the Company.
Additionally, $1,750,000 of intercompany debt due to the Company from KVP
has been subordinated to the Company's bank credit facility.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results of continuing operations for the three months ended March 31, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1995 1994
--------- ---------
(In thousands)
<S> <C> <C>
Net sales $ 5,795 $ 5,076
Cost of goods sold 5,060 4,292
--------- ---------
Gross profit 735 784
Selling expenses (755) (717)
Interest, general and administrative expenses (1,496) (1,368)
--------- ---------
Net loss $ (1,516) $ (1,301)
--------- ---------
--------- ---------
</TABLE>
FIRST QUARTER 1995 VERSUS FIRST QUARTER 1994
Sales for the three month period in 1995 increased by $719,000 or
14.2% over those in 1994. Sales for the Company's album business posted a
sales increase of $1,363,000 or 40.0% for the quarter, primarily
attributable to market share gains. Sales for the Company's operations
located in Brownsville, Tennessee, operating as ProLine Storage Corporation
since September, 1994, decreased by $644,000 or 38.6%. Approximately
$900,000 of this decline was due to the disposition during 1994 of Dixie
Printing Company, the microfilm division and the government division's page
protector business, offset by sales increases of $256,000 for the remaining
divisions.
Gross profit margins declined from 15.4% in 1994 to 12.7% in 1995 due
to (i) significantly higher costs for polypropylene and paper, the
Company's principal raw materials and (ii) higher overhead costs associated
with the Company's expansion of capacity to handle future expected growth
including expenses in developing and launching the Kodak photo album line,
which is not expected to generate revenues until late in the second quarter
of 1995.
Selling expenses in relation to sales decreased from 14.1% in 1994 to
13.0% in 1995, due primarily to increased sales to accounts with relatively
lower sales commission.
Page 7
<PAGE>
Interest and general and administrative costs increased by $128,000.
The increase was comprised of (i) additional interest costs of $164,000 due
to higher average borrowing levels and increases in the bank's prime
lending rate, (ii) reduced general and administrative costs of $315,000 as
a result of the restructuring of the Company's Brownsville, Tennessee
operations, and (iii) increased costs associated with the expanded album
division operations to support the launch of the Company's Kodak photo
album line.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations of $1,489,000 in 1995 improved $3,097,000
over those for the comparable period in 1994, despite having incurred
larger losses than in 1994. The collection of trade receivables and an
increase in accounts payable and accrued expenses were primarily
responsible for providing cash from operations, and were offset somewhat
due to a buildup in inventories. The cash provided by operations was
principally used to repay borrowings under the Company's bank line of
credit. As discussed in Note 3 to the Consolidated Condensed Financial
Statements, and Part II Item 5, the Company consummated a Senior
Subordinated Loan on May 1, 1995. The Company expects that with the
proceeds from the subordinated loan and improved cash flows from
operations, it will be able to support the cash requirements for its
anticipated growth.
PROSPECTS
The Company's business strategy since 1993 has been to build the
infrastructure necessary to become the leading manufacturer in the
photograph album business. This investment for the future growth of the
Company has resulted in the Company's achievement of continuous and
significant market share gains during the past two years. The Company
achieved a quarterly profit in the fourth quarter of 1994, despite the
significant material cost increases experienced in the last half of 1994,
as it finally achieved sufficient volume levels to profitably utilize its
expanded fixed cost base. The losses experienced in the first quarter of
1995 were anticipated by the Company due to the seasonal nature of the
business. Sales volume during the second half of the year, particularly
during the pre-Christmas holiday season, is substantially greater than
during other periods of the year.
Due to changing global economic conditions, it is not possible to
predict with any assurance the movement of the costs of the plastic and
paper materials used in the Company's production. Historically, however,
movement of these material costs has been cyclical, and it is management's
belief there will be no significant downward movement until 1996. The
Company has achieved some success and is continuing to pursue opportunities
to recoup these cost increases through its product pricing programs.
Of particular significance, the Company announced, on January 10,
1995, the consummation of a license arrangement with Kodak to manufacture
and distribute a new line of Kodak branded photograph album products. The
product launch is scheduled for the second quarter of 1995. The
incremental pricing of these branded products will avail the company of a
distinct advantage over its competition in overcoming the higher material
costs currently being experienced by the industry. Further, consumer
recognition of a branded product should enhance the Company's ability to
grow its market share.
Page 8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Not applicable.
ITEM 2 - CHANGES IN SECURITIES
Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 - OTHER INFORMATION
On May 1, 1995, the Company closed a senior subordinate loan
transaction whereby the Company received $5,000,000 of loan proceeds from
Pacific Mezzanine Fund, L.P. and its participant (the "PMF Loan").
Additionally, in order to comply with a condition precedent to the closing
of the PMF Loan, Signal Resources, L.P. ("Signal"), an affiliate of the
Company, loaned $1,500,000 to the Company (the "Signal Loan") on
substantially the same terms as the PMF Loan, prior to the closing of the
PMF Loan. The PMF Loan also contemplates that Signal, Messrs. Park,
Hardee, and / or their affiliates, or a syndicate arranged by any of them,
will provide an additional loan of $1,500,000 (the "Additional Loan") by
April 21, 1996. However, there is no penalty if this Additional Loan is
not made. The PMF Loan, Signal Loan and any Additional Loan will bear
interest at the rate of thirteen (13%) per cent per annum, payable
quarterly. Repayment of principal is also on a quarterly basis, commencing
twenty-one (21) months following the closing, through maturity on the
seventh (7) anniversary date of closing. Repayment of the PMF Loan and the
Signal Loan is subordinate to the Company's bank credit facility with
LaSalle National Bank. The PMF Loan is secured by a first lien on the
Company's machinery and equipment. The Company has agreed to use the loan
proceeds to finance the development of the Company's Kodak photograph album
line, and for working capital purposes.
In connection with their respective loans, PMF (including its
affiliate and its participant) and Signal received Warrants (the
"Warrants") to purchase 503,530 and 151,059 shares of the Company's common
stock, respectively. The Warrants are exercisable for a five (5) year
period commencing on March 31, 1996 at the exercise price of $6.00 per
share, with an automatic net issuance conversion if the closing price of
the Company's publicly traded common stock is at least $16.00 for twenty
(20) consecutive trading days. The closing price of the Company's common
stock on the American Stock Exchange on May 1, 1995 was $8 3/8 per share.
In the event Signal, Messrs. Park and / or Hardee or any of their
affiliates provide the $1,500,000 Additional Loan by April 21, 1996, such
lender(s) will receive Warrants to purchase an aggregate of 151,059 shares.
If an Additional Loan of less than $1,500,000 is made, the lender(s) will
receive a proportionately reduced number of Warrants. The issuance of
shares upon the exercise of the Warrants issued, or to be issued, to
Signal, affiliates of the Company, or members of a syndicate arranged by
them, in connection with the Signal Loan or the Additional Loan, is subject
to the approval of a majority of the stockholders of the Company, other
than Signal, Messrs. Park and Hardee and their affiliates.
Page 9
<PAGE>
In connection with the debt financing, the Company extended the term
of its bank borrowing facility with LaSalle National Bank for an additional
year through June 30, 1997. Other significant amendments to the loan
agreement included modifications to the monetary thresholds of the
covenants with respect to minimum net worth levels and the restriction of
funds movement from the Company's subsidiaries to the Company.
Additionally, $1,750,000 of intercompany debt due to the Company from KVP
has been subordinated to the Company's bank credit facility.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
During the three months ended March 31, 1995, the Company filed the
following report on Form 8-K:
Dated March 3, 1995, reporting under Item 5, (i) the License Agreement
between Eastman Kodak Company and Kleer Vu Industries, Inc. dated December
29, 1994, and (ii) the retirement of Barry E. Reifler as the Company's
Chief Financial Officer effective February 28, 1995, and the appointment of
Brian E. Leneck as his successor.
Page 10
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
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.
KLEER-VU INDUSTRIES, INC.
Date: May 12, 1995 /s/ Brian E. Leneck
------------ --------------------------------
Brian E. Leneck
Vice President
Chief Financial Officer
Page 11
<TABLE> <S> <C>
<PAGE>
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