<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, 1996.
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
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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 2,725,020 shares outstanding of the issuer's common stock, $0.10
par value, as of May 12, 1996.
<PAGE>
KLEER-VU INDUSTRIES, INC.
March 31, 1996
(Unaudited)
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets as of March 31,
1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations for
the Three Months Ended March 31, 1996 and 1995 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows for
the Three Months Ended March 31, 1996 and 1995 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information 9
Signatures 10
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
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<S> <C> <C>
Current Assets:
Cash $ 79 $ 87
Accounts receivables, less allowance of $383
and $366 4,538 5,676
Inventories 7,098 9,557
Other 113 129
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Total current assets 11,828 15,449
Property and equipment, less accumulated
depreciation and amortization of $5,057 and $4,785 3,828 3,857
Due from officers 68 68
Other 637 682
Assets acquired in excess of cost 1,016 -
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Cost in excess of net assets acquired $17,377 $20,056
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</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31,
1996 December 31,
(Unaudited) 1995
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<S> <C> <C>
Current Liabilities:
Loans from affiliates $ 700 $ 700
Bank line of credit 6,664 9,851
Accounts payable 3,726 3,253
Cash overdraft 371 299
Accounts payable to affiliated company 1,794 1,748
Restructuring costs 579 1,597
Accrued expenses 2,406 1,236
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Total current liabilities 16,240 18,684
Long-term debt
Loan from affiliate 1,382 1,377
Long-term debt 5,892 4,666
Other noncurrent liabilities 192 138
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7,466 6,181
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, $0.10 par value; 10,000,000
shares authorized, 2,725,020 shares issued 272 272
Additional paid-in capital 17,466 17,466
Deficit (32,785) (31,265)
-------- --------
(6,047) (4,527)
Less: Deferred compensation and notes from
officers (239) (239)
Common stock held in treasury, at cost;
7,144 shares (43) (43)
Total stockholders' equity (6,329) (4,809)
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$ 17,377 $ 20,056
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-------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
------------------------
1996 1995
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<S> <C> <C>
Net sales $ 6,864 $ 5,795
Costs and expenses:
Cost of goods sold 6,556 5,060
Selling 584 755
General and administrative 698 1,163
Interest expense 546 333
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Total costs and expenses 8,384 7,311
Net loss $(1,520) $(1,516)
--------- ---------
--------- ---------
Net loss per share $ (.56) $ (.57)
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--------- ---------
Weighted average common shares used in
computation of loss per share 2,725,020 2,651,808
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,520) $(1,516)
Adjustments to reconcile loss to cash used by
operations:
Depreciation and amortization 29 149
Deferred compensation and other amortization - 219
Provision for bad debts - 5
Changes in assets and liabilities:
Accounts receivable 1,138 3,395
Due from officers - (16)
Inventories 2,459 (1,980)
Other assets and liabilities 115 (131)
Accounts payable 519 1,231
Accrued expenses 1,170 133
Restructuring costs (1,018) -
Cost in excess of net assets acquired (1,016) -
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Net cash provided by (used in) operations 1,876 1,489
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Cash flows from investing activities:
Capital expenditures - (80)
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Net cash used in investing activities
Cash flows from financing activities:
Notes payable and line of credit (3,187) (1,063)
Loans from affiliate 5 454
Payments of long-term debt 1,226 (84)
Cash overdraft 72 (685)
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Net cash provided by (used in) financing
activities (1,884) (1,378)
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Net increase (decrease) in cash (8) 31
Cash, beginning of period 87 55
------- -------
Cash, end of period $ 79 $ 86
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 6
<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"), The Channel Group, Inc. ("Channel") and Style Frames, Inc.
("Style"). 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, 1996, and the results of operations and
the statements of cash flows for the three months ended March 31, 1996 and
1995.
The Company's financial statements for the year ended December 31, 1995 were
prepared on a going concern basis. The Company incurred a net loss of
$14,020,000 for the year ended December 31, 1995 and had significant net
losses in 1994 and 1993. Furthermore, as of December 31, 1995 the Company
had a stockholders' deficit of $4,809,000 and negative working capital of
$3,235,000 and missed or is slow in making payments to vendors. As of
December 31, 1995, the Company was not in compliance with certain of its bank
covenants. Compliance with these covenants were subsequently waived by the
bank on April 5, 1996 and the covenants were amended. Continued compliance
after year end is contingent upon the closing of an additional financing.
See Note 3 below for a description of an anticipated $3.5 million to $4.0
million offering. The Company's independent certified public accountants
have included an explanatory paragraph in their report indicating there is
substantial doubt with respect to the Company's ability to continue as a
going concern. Management plans to raise approximately $3.5 million to $4.0
million in capital during the second quarter of 1996. Management is
concurrently exploring other financing options. If the Company is unable to
obtain additional financing, management may have to reduce or stop planned
product expansion or scale back operations. There is no assurance that an
offering will be successful. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
2. Inventories:
Inventories consisted of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw materials $4,420 $4,613
Work-in process 31 31
Finished products 2,647 4,913
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$7,098 $9,557
------ ------
------ ------
</TABLE>
3. Subsequent Events:
The Company is currently exploring avenues to raise an additional $3.5 million
to $4.0 million in capital which it expects to close by the end of the second
quarter of 1996. The Company is also continuing discussions with certain
subordinated debt holders and affiliated debt holders to convert an aggregate of
approximately $10.2 million of debt into equity. Various conversion structures
are being discussed with these creditors. Management can not assure that it
will be able to raise such capital in the anticipated time frame, or at all, or
that such conversion of indebtedness will be consummated. The Company
contemplates that any conversion of indebtedness will occur contemporaneously
with the closing of an offering.
Page 7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
In December of 1995, the Board of Directors assembled a new management team to
return the Company to profitability. The new management team immediately
implemented a multi-step plan to improve margins, reduce operating expenses,
lower working capital requirements and restructure the balance sheet. Since
December of 1995 the Company has:
- - Consolidated Brownsville, Tennessee manufacturing operations into the
California facilities.
- - Consolidated Mexicali, Mexico manufacturing operations into the California
facilities.
- - Significantly reduced corporate administrative personnel.
- - Implemented an inventory liquidation program, reducing inventories from $12
million at the end of October 1995 to approximately $7 million at the end of
March 1996.
For the quarter ended March 31, 1996, financial results reflect reduced
operating expenses and improved inventory turnover as a result of the new
operating strategy. Based upon the foregoing, the Company anticipates but can
not assure, that improvements to the Company's operations and working capital
will continue for the balance of 1996
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
Sales for the three month period ended March 31, 1996 increased by $1,069,000 or
18.5% over those for the same period in 1995. Sales for the Company's album
business posted a sales increase of $750,000 for the quarter, primarily
attributable to close-out sales. The increase in album sales was offset by a
$428,000 decrease in ProLine sales reflecting the relocation of the
manufacturing operations from Brownsville, Tennessee to California. Included in
the first quarter are sales of $747,000 from Channel and Style which were
acquired in January of 1996.
Gross profit margin decreased from 12.7% in 1995 to 5.0% in 1996 due to (i)
recognition of a $500,000 manufacturing variance incurred in 1995 which was
capitalized as part of inventory at year end and expensed as the related
inventory was sold during the first quarter of 1996, (ii) significant close-out
sales in the first quarter of 1996 which sold albums at a loss of approximately
$487,000 and (iii) inclusion of Channel and Style in operations. The gross
margin on album sales, excluding close-out sales of $474,000 and the 1995
manufacturing variance of $500,000, was approximately 19%. The gross margin on
frames sales by Channel and Style was approximately 12%.
Selling expenses decreased by $171,000, due primarily to the reduction in sales
staff.
General and administrative costs decreased by $465,000. The decrease was
comprised of (i) staff layoffs in the first quarter, and (ii) the elimination of
amortization of cost in excess of net assets acquired of $77,000.
Interest expense was $213,000 higher as a result of additional borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations of $1,876,000 in 1996 improved slightly over those
for the comparable period in 1995. The collection of accounts receivables, the
decrease in inventories and the increase accounts payable and accrued expenses
were primarily responsible for providing cash from operations and were offset
somewhat by a decrease in restructuring costs and cost in excess of net assets
acquired. The cash provided by operations was principally used to repay
borrowings under the Company's bank line of credit.
Page 8
<PAGE>
PROSPECTS
The losses experienced in the first quarter of 1996 were anticipated by the
Company due to the seasonal nature of the business and the amount of close-out
sales included in the first quarter of 1996. As noted above, management's plan
to return the Company to profitability has had the immediate impact of
increasing gross margin (the first quarter 1996 gross margin when adjusted for
close-out sales and the 1995 manufacturing variance was 19% as compared to 12.7%
for the first quarter of 1995) and lowering selling, general and administrative
expenses (first quarter 1996 selling, general and administrative expense was
$1,282,000 versus $1,918,000 for the first quarter in 1995). The Company's
debt outstanding under its line of credit has been reduced by $ 4 million since
management's plan was implemented, and inventories have been reduced by $5
million.
The new Kodak and Kleer-Vu product lines introduced during the first quarter of
1996 have been extremely well received by both existing customers and prospects,
and shipments are projected to continue to be strong for the second quarter of
1996. The Kodak product line is manufactured and distributed pursuant to a
license agreement (the "Kodak License") with Eastman Kodak Company ("Kodak").
The initial term of the Kodak License expires June 30, 1996. At the end of the
initial term, the Company has the right to renew the Kodak License for one six
month term and thereafter for three successive one year terms, provided the
Company has achieved certain net sales requirements. Management believes, but
can not assume, based upon anticipated shipment dates that the Company will
meet the net sales target by the June 30, 1996 deadline.
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
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
Page 9
<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, 1996 /s/ W. Blake Winchell
--------------------- -------------------------------------
W. Blake Winchell
President and Chief Executive Officer
Principal Financial Officer
Page 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000719729
<NAME> KLEER-VU INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 79
<SECURITIES> 0
<RECEIVABLES> 4,921
<ALLOWANCES> 383
<INVENTORY> 7,098
<CURRENT-ASSETS> 11,828
<PP&E> 8,885
<DEPRECIATION> (5,057)
<TOTAL-ASSETS> 17,377
<CURRENT-LIABILITIES> 16,240
<BONDS> 0
0
9,000
<COMMON> 272
<OTHER-SE> (15,601)
<TOTAL-LIABILITY-AND-EQUITY> 17,377
<SALES> 6,864
<TOTAL-REVENUES> 6,864
<CGS> 6,556
<TOTAL-COSTS> 8,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 546
<INCOME-PRETAX> (1,520)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,520)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,520)
<EPS-PRIMARY> (.56)
<EPS-DILUTED> (.56)
</TABLE>
