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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995.
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______________ to _____________.
COMMISSION FILE NUMBER: 1-8497
KLEER-VU INDUSTRIES, INC.
(Exact 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (310) 603-9330
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Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $.10 Par Value American Stock Exchange
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Securities registered under Section 12(g) of the Exchange Act: NONE
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(Title of class)
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 past
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
computed based on the closing price of the registrant's common stock at April 8,
1996 of $2.25 per share was approximately $2,718,666.
There were 2,675,876 shares outstanding of the registrant's common stock,
$.10 par value, as of April 8, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
None
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KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Page
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Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 11
Item 8. Financial Statements and Supplementary Data . . . . . . . . 15
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . 17
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . . . . . 21
Item 13. Certain Relationships and Related Transactions. . . . . . . 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 124
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Kleer-Vu Industries, Inc. (the "Company") is a leading U. S. designer,
manufacturer and distributor of photo albums, storage and protection devices.
The business is conducted through five wholly-owned subsidiaries: Kleer Vu
Plastics Corporation ("KVP"), PAS Industry, Inc. ("PAS"), ProLine Storage
Corporation ("ProLine"), The Channel Group, Inc. ("Channel") and Style Frames,
Inc. ("Style"). The Company's products are sold to mass merchants and discount
drug chains (such as Walmart, Target and Jack Eckerd Co.), membership clubs
(including Price/Costco), department stores (including Kohls Department Stores)
and specialty stores (such as Wolf Camera).
On December 29, 1994, the Company entered into a license agreement with Eastman
Kodak Company (the "Kodak License") to manufacture photograph albums on a non-
exclusive basis, and distribute them under the "Kodak" name throughout the
United States, Canada and Mexico on an exclusive basis. Sales for the year
ended December 31, 1995 of Kodak licensed product amounted to approximately $3.6
million. The initial term of the Kodak License runs to June 30, 1996. The
Company has a right to renew the Kodak License for an additional six month term,
and thereafter for three successive one year terms provided the Company achieves
certain sales levels. The Company intends to renew the Kodak License and
continue to develop the line.
To finance the rollout and development of the Kodak photo album line and for
other working capital purposes, the Company borrowed $5,000,000 in senior
secured subordinated debt from Pacific Mezzanine Fund, L.P. (the "PMF Loan")
May 1, 1995. The Company also borrowed $1,500,000 from Signal Resources, L.P.
("Signal") an affiliate of the Co-chairman of the Company on substantially
the same terms as the PMF Loan. The PMF Loan and the Signal Loan bear
interest at a rate of 13% per annum payable quarterly. The PMF Loan is
secured by a first lien of the Company's machinery and equipment. The
Company is currently in payment default under the PMF loan, however the
Company has not received a notice of default, and pursuant to the PMF Loan, PMF
cannot take any remedial action until 120 days have elapsed following a
notice of default. Management believes but cannot assure that PMF will
convert the PMF loan into equity in conjunction with the closing of the
Company's anticipated Offering described below in "Restructuring and
Acquisitions".
The Company is a Delaware corporation with a history dating back to 1943.
RESTRUCTURING AND ACQUISITIONS
In December, 1995, the Company's Board of Directors retained a new management
team to return the Company to profitability. W. Blake Winchell was recruited to
join the Company as President and Chief Executive officer. As part of the
transaction, effective January 2, 1996, the Company acquired Channel and Style
from Mr. Winchell. Channel and Style, based in Anaheim, California, manufacture
and distribute photo frames to the mass merchant, department store and specialty
store distribution channels, and share several major customers with the Company.
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In December of 1995, the Board of Directors assembled a new management team
to return the Company to profitability. The new management team implemented a
multi-step plan to improve margins, reduce operational 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.
- Began an inventory liquidation program, reducing inventories by
over $5 million from October 1995, through March 31, 1996.
As a result of the turnaround strategy described above, restructuring charges
of $1,597,000 were recognized in December of 1995. Included in these
expenses is $108,000 related to the writeoff of leasehold improvements.
These restructuring costs include reserves for $333,000 related to the
closure of Mexico, $686,000 related to the closure of Tennessee, and $578,000
related to the termination of consulting agreements. These expenses will be
paid as incurred from working capital, mostly over the next twelve months.
In consideration for the acquisition of the Channel and Style common shares
described above, the Company assumed and agreed to indemnify Mr. Winchell
against any personal liability with regard to, the indebtedness (the
"Indebtedness") owed by Style to Well Fargo Bank, N.A. and Heller First
Financial corporation of an amount which would not be more than $1,000,000 plus
all costs, charges and fees associated with a default, if any, of such
Indebtedness. At January 2, 1996 the Indebtedness was $932,372. Channel and
Style combined had net assets of $865,000 as of January 2, 1996. As further
consideration, debt owed to Mr. Winchell of $301,069 as of January 2, 1996 was
assumed by the Company.
On March 4, 1996, the Company acquired the assets of Martin Holan Company
("Martin Holan"), a designer and marketer of photo albums, frames and wall
decor products. Martin Holan sells to a broad range of department and
specialty stores. The operations and financial position of Style, Channel and
Martin Holan are not material to the Company's results of operations or
financial position.
The Company is currently negotiating to raise an additional $3.5 million to
$4.0 million in capital (the "Offering") which it expects to close by the end
of the second quarter of 1996.
As a condition of closing the Offering certain subordinated debt holders and
affiliated debt holders have preliminarily agreed to convert an aggregate of
$10.2 million of debt into equity. Management can not assure that such
conversion will be consumated.
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NARRATIVE DESCRIPTION OF BUSINESS
INTRODUCTION
The Company designs, manufactures and distributes a broad range of products that
store, display and protect photographs, documents, negatives and mementos.
These products serve the consumer photo album markets and the professional
photography markets.
The Company's consumer photo albums are marketed through KVP and its other
products through ProLine. All of the Company's consumer photo album products
during 1995 were manufactured at either its Compton, California or Mexicali,
Mexico facilities and distributed to its customers from either its manufacturing
facility in Compton, California or its distribution warehouse in Brownsville,
Tennessee. The Company's other products were produced and distributed from its
facilities in Brownsville, Tennessee. Beginning in February 1996, all album
products will be manufactured at the California facilities.
The Company is committed to producing high quality products, delivered on time
at a competitive price. The Company has reorganized to improve the productivity
and effectiveness of its distribution system, and the quality of its services to
its customers. The Company has developed a sophisticated system of matching
orders, production, and shipments with certain principal customers through an
on-line computer system, which electronically interfaces with the computer
systems of these strategic business partners.
PRODUCTS
The Company offers a broad line of photo albums, stationery items and protective
sleeves for photographic accessories. In addition, the Company manufactures
custom folded plastic products to industrial customers' specifications.
The Company's photo album products include a broad range of styles and designs.
Styles include ring binder albums, which allow for the insertion and removal of
pages, and bound albums. The photo albums are available in various sizes,
ranging from pocket size to table top, and with various page formats and counts.
The pages contained in the photo albums, which are of two basic types - magnetic
adhesive and plastic pocket, allow for different photograph display combinations
including a combination of photograph sizes on a single page and other features
such as photo identification and negative storage. The Company does not use
pages containing PVC which has been found to be harmful to photographs over
time. The Company has a multitude of cover designs to suit the tastes of all
consumers. Designs include, but are not limited to, wildlife, wood grain,
marble, floral, traditional, and paisley motifs and themes. In May of 1995, the
Company began sales under its Kodak License agreement with the Eastman Kodak
Company. The license allows the Company to manufacture (on a non-exclusive
basis) and distribute (on an exclusive basis) a new line of Kodak branded photo
album products, in the U. S., Canadian and Mexican markets. (See PATENTS,
TRADEMARKS and LICENSES below.)
Beginning in 1996, the Company will design, import, manufacture and market a
line of photo frames under its Style and Martin Holan brands.
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MARKETING
The Company's products are sold through various divisions of KVP and ProLine as
follows:
KVP markets photo albums and stationery items throughout the U. S. using its own
direct sales force and manufacturing representatives. The two product lines of
KVP - the Kleer Vu line and the Kodak line - serve the mass merchant, department
store, drug chain, specialty store channels of distribution.
The custom products and government division of ProLine market their products
principally to industrial and commercial concerns and government entities,
respectively, through a direct sales force, manufacturing representatives, and
telemarketing.
ProLine's telemarketing division, markets a broad range of photographic
enclosures, archival pages, envelopes, and film cleaning chemicals principally
to professional photography stores and distributors and photo-finishing
concerns.
The Company also markets its products as an exhibitor at major trade shows
throughout the U.S. and additionally has begun to penetrate certain export
markets. Although foreign sales are currently insignificant to total revenue,
initial offerings of the Company's album products have been well received in
Canada and Mexico and ProLine sells products in Mexico and Europe.
The Style, Channel and Martin Holan products are marketed through a direct sales
force and manufacturing representatives.
Net sales of photo albums, custom products, and other products were $22,748,000,
$2,652,000, and $1,807,000, respectively, during 1995 and $23,921,000,
$2,817,000 and $2,621,000, respectively, during 1994 The sales volume of photo
albums to the mass merchants, department stores and specialty stores is such a
high percentage of its total sales volume, that KVP experiences greater sales
volume during the pre-Christmas holiday season than during other periods of the
year. Sales by KVP to the Wal-Mart and Target Stores totaled 42.3% and 10.1%
of consolidated revenues in 1995; 39.6% and 9.7% in 1994; and 30.2% and 16.8% in
1993, respectively. Loss of either of these customers would currently have a
material adverse effect on the Company.
SEASONALITY
The Company expects its highest level of net sales during the third and fourth
quarters due to the Christmas season. If for any reason, the Company's sales
were to be substantially below those normally expected during such quarters, the
Company's annual results would be adversely affected.
RAW MATERIALS AND INVENTORY
The Company's principal raw materials are paper, plastic film (polypropylene),
glue, metal rings, printed papers, leather and vinyl. While the Company has
more than one source of supply for each raw material, it purchases raw materials
from a few selected suppliers in order to obtain better quality, pricing and
delivery. During 1993 through November of 1995 film sourcing was conducted
principally through affiliated companies as more fully discussed in Note 11 to
the consolidated financial statements. Beginning in December of 1995, the
Company terminated its relationship with the affiliated trading company and
began sourcing film through an unaffiliated company. During the second half of
1994 through most of 1995, the Company and its industry experienced the effects
of a worldwide shortage of polypropylene, the primary plastic used in the
production of photo albums. The effects included cost increases approximating
30% for this material. Additionally, increased worldwide demand for paper
products strained capacity for these products, including those used in the
Company's production, with
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resultant cost increases of 8 - 30% for paper materials sourced by the Company.
The Company was able to maintain an adequate supply of materials during this
period, and, at the present time, believes it has sufficient sources of supply
and inventories of materials to satisfy its requirements. Polypropylene prices
peaked in the third quarter of 1995 and began to soften in the fourth quarter.
Paper prices peaked in the second quarter of 1995 and began to decrease during
the third quarter of 1995.
The cost of raw materials used by the Company have historically been highly
cyclical; however, due to changing worldwide economic dynamics, the cycle
periods are indeterminate. Further, the cost of plastics used is dependent in
part upon the cost of petroleum, a derivative material, to its vendors.
Management anticipates that any future increases or decreases in the cost of
petroleum will impact the cost of plastics used by the Company.
There is a general trend in the album industry and at the Company to carry
increasing quantities of finished good inventory to meet rapid delivery
requirements and to maintain continuous allotments of raw materials from vendors
to support these needs. The Company generally allows customers to return
merchandise found to be defective within a reasonable period of time. The
Company does not generally grant extended credit terms beyond sixty days to
customers.
Substantially all of the Company's sales consist of items normally manufactured
in a short period of time or items sold from stock. Additionally, there is a
trend in the album customer base towards just-in-time ordering. Consequently,
the Company does not consider its backlog of orders as of the end of its fiscal
year to be material for an understanding of its business.
COMPETITION
The sale of photo albums is extremely competitive, with principal competitive
factors historically consisting of design, quality, price, service and product
line range. There are approximately ten domestic manufacturers of photo albums
competing with the Company's album line, several of which are substantially
larger and have greater financial resources and distribution capabilities than
the Company. In addition, there are at least 25 importers of photo albums
competing with the Company's product line.
In the sale of all of its other products, the Company competes with a great
number of other business entities, both foreign and domestic, many of which are
larger than the Company in terms of sales, financial resources, product
development, facilities and channels of distribution.
PATENTS, TRADEMARKS AND LICENSES
KVP has developed recognition of certain of its trademarks and trade names over
the years and believes that such marks and names have become material to the
continuing operations of the business. These marks and names are registered
with the United States Government, with such registrations being renewed as they
expire. The Company has the non-exclusive rights to manufacture, and exclusive
right to distribute, Kodak branded photo album products in the U. S., Canada and
Mexico, and believes such rights are of significant value. The initial period
of the Kodak License runs to June 30, 1996. The Company has the right to renew
the Kodak License for an additional six month period, and thereafter for three
successive one year terms provided the Company achieves certain sales levels.
Additionally, on December 3, 1991, KVP received a patent on its process of
shrink-wrapping photo album covers. KVP initiated this technology in 1989 and
since then it has been widely imitated throughout the industry. Due to the
variety of alternative processing available to the industry, however, this
patent is not believed to provide significant competitive advantage and has not
been enforced. The Company intends to apply for protection on any patentable
products or processes associated with the
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Kodak line or any other products expected to have a long product life cycle.
The Company cannot give any assurance that it can afford to defend any actions
to protect its patents, or that a third party will not be able to successfully
challenge its patents.
RESEARCH AND DEVELOPMENT
For the years ended December 31, 1995, 1994 and 1993, KVP spent approximately
$390,000, $245,000 and $271,000 respectively on product development activities
relating primarily to the improvement of existing products and manufacturing
processes. All of these product development activities were sponsored
internally.
ENVIRONMENTAL REGULATION
Federal, state and local laws and regulations relating to the protection of the
environment have had no material effect upon the Company or upon its capital
expenditures, earnings, or competitive position.
EMPLOYEES
The Company usually employs additional production personnel at it facilities
during peak production seasons in order to meet production demands. The Company
hired additional personnel at peak production seasons in the past three years,
ranging from 5-10% of its total work force. As of April 8, 1996, the Company
employed 247 full-time employees consisting of 6 executives, 12 sales personnel
and 229 persons engaged in manufacturing and related support.
ITEM 2. PROPERTIES
The Company's Compton, California operations are conducted in a factory-office
building leased through November 2003, with renewal options through 2013. The
Company's Brownsville, Tennessee operations were conducted in a factory-office
building leased through 1995 and a distribution warehouse leased through
December 1996. As of February 6, 1996, the Company closed its Brownsville
manufacturing facility and moved the ProLine manufacturing operation to its
Anaheim, California facility. The Company will continue to operate its
distribution warehouse in Brownsville through the end of the lease. The
Company's Mexicali, Mexico operations were conducted in a factory building
leased through April 1997. As of February, 1996 the Mexicali operations were
also closed with its production consolidated into the Compton, California
facility. The operations of Style and Channel (acquired in January, 1996) are
conducted in an office/warehouse building located in Anaheim California. The
lease term ends on March 30, 1999 with an option to extend the lease for a
period of six years. The Company's properties are in good condition and
suitable for its present production and distribution requirements. In the
opinion of management, the properties are adequately covered by insurance.
The Company's executive offices are located with its manufacturing facility at
921 West Artesia Boulevard, Compton, California, 90220, telephone number
(310)603-9330. The Tennessee distribution center is located at Kleer-Vu Drive,
Brownsville, Tennessee, 38012, telephone number (901) 772-2500. The Anaheim
Operations are located at 353 B North Euclid Way, Anaheim, California, telephone
(714) 956-7140.
The Company also owns two parcels of undeveloped land in Houston, Texas totaling
approximately 97,000 square feet. While the book value of $65,000 was written
off in December of 1995, these properties are currently offered for sale.
Otherwise, the Company has no investments in real estate, or securities of, or
interest in, persons primarily engaged in real estate transactions.
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ITEM 3. LEGAL PROCEEDINGS
In October 1993, Olla Beauty Products, Inc. ("Olla") commenced a third party
action against Neslemur Company ("NLC") (a wholly-owned subsidiary of the
Company which discontinued operations in 1987 and was discharged in bankruptcy
under Chapter 7 of the Federal Bankruptcy Code in July 1991) and the Company in
the Supreme Court of the State of New York, Bronx County. The action arose from
a personal injury claim against Olla for $2,500,000 resulting from the use of
cosmetics. Olla claims that if it is found liable, then NLC and the Company are
liable to Olla. Olla has alleged that NLC was engaged in the business of
manufacturing, compounding, packaging and distributing the cosmetic product that
allegedly caused the injuries. The action is stayed against NLC by virtue of
NLC's bankruptcy. The Company has denied Olla's allegations. Settlement
negotiations in this matter are currently not being pursued since Olla's claims
will only become ripe if the plaintiff in the Humphrey Action prevails or agrees
to a settlement. NLC is and has been a corporation wholly separate and apart
from the Company, which is its sole parent. The Company believes that such
corporate insulation, among other things, is a meritorious defense to Olla's
claims against the Company and management believes that the likelihood that Olla
will prevail in an action to pierce the corporate veil is remote.
The Company and/or its subsidiaries are also subject to other legal proceedings
and claims which have arisen in the ordinary course of business. Although their
ultimate outcome cannot be predicted with certainty pending actual resolution,
in the opinion of management, the disposition of the above matters will not have
a material adverse effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the fourth quarter of the year ended
December 31, 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the American Stock Exchange (symbol
"KVU") and the following constitutes the high and low sales prices for such
stock as reported by that exchange for each quarter during the past two years.
On April 8, 1996, the closing price was $2.25.
<TABLE>
<CAPTION>
1994 HIGH LOW
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<S> <C> <C>
First Quarter $ 8.000 $ 4.250
Second Quarter $ 4.625 $ 4.000
Third Quarter $ 9.250 $ 4.125
Fourth Quarter $ 11.375 $ 8.000
1995
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First Quarter $ 10.250 $ 7.375
Second Quarter $ 9.125 $ 6.875
Third Quarter $ 6.875 $ 5.250
Fourth Quarter $ 6.375 $ 4.125
</TABLE>
The Company did not declare a cash dividend in 1994 or 1995. For 1996 and
beyond, there is no assurance that the Company will declare any cash dividends
since dividends to be paid by the Company are subject to the discretion of the
Board of Directors and will depend upon a number of factors, including future
earnings, financial condition, cash needs, general business conditions, and
present and future restrictions which are and may be imposed by lenders to the
Company. Pursuant to the terms of the Company's current bank line of credit
agreement, movement of funds are limited within the consolidated group and are
restricted from use in the payment of cash dividends without the bank's prior
approval. Additionally, the payment of cash dividends is restricted under the
PMF loan, and can not be paid without PMF's approval. Restrictions under the
PMF loan will terminate in the event that the loan is converted to equity. See
"Certain Relationships and Transactions" and "Business -- Restructuring and
Acquisitions"
As of April 8, 1996, there were approximately 1,577 stockholders of record of
the Company's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Net sales $27,207 $29,359 $24,392 $20,887 $19,848
Income (loss) from
continuing operations (14,020) (2,703) (2,952) 1,122 420
Income (loss) per share from
continuing operations (5.26) (1.21) (1.63) .73 .32
Working capital (3,235) 7,677 3,949 3,742 3,888
Total assets 20,056 26,086 24,473 10,316 9,022
Long term obligations 6,181 9,537 6,882 3,736 4,177
Shareholders' equity (deficit) (4,809) 7,596 7,238 2,935 1,461
Cash dividends declared per share -- -- -- .08 --
</TABLE>
Per share data above has been adjusted to give retroactive effect, as
appropriate, for stock dividends declared during the five year period.
The acquisition of PAS in May 1993 and subsequent restructurings of the
Company's operations materially affect the results of continuing operations and
balance sheet data above for 1993 through 1995. See Note 2 to the consolidated
financial statements for additional information related to the effect of these
events.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OVERVIEW
The Company sustained losses from continuing operations in each of the fiscal
years ending December 31, 1995, 1994, and 1993 in the amounts of $14,020,000,
$2,703,000 and $2,952,000, respectively. The net loss in 1995 of $14,020,000 or
$5.26 per share compares to the net loss in 1994 of $3,497,000 or $1.56 per
share, which includes a loss from discontinued operations of $794,000 or $.35
per share, and to a net loss in 1993 of $2,952,000 or $1.63 per share. During
the second half of 1994 through most of 1995, the Company and its industry
experienced the effects of a worldwide shortage of polypropylene, the primary
plastic used in the production of photo albums. The effects included cost
increases approximating 30% for this material. Additionally, increased
worldwide demand for paper products strained capacity for these products,
including those used in the Company's production, with resultant cost increases
of 8 - 30% for paper materials sourced by the Company. In most cases, the
Company was unable to pass these cost increases through to customers.
As more fully discussed in Note 2 to the consolidated financial statements, the
Company acquired PAS in May 1993. Shortly after the acquisition, the Company
began a consolidation of its album production into the PAS facilities in
California and Mexico. With this consolidation complete, the Company
restructured the remaining operations at KVP's Tennessee facility to discontinue
certain unprofitable businesses. This phase of the restructuring consisted of
the sale of the Company's microfilm, retail printing and office supply
businesses and the discontinuance of certain custom and government product
offerings which had become infeasible in the downsized operating environment of
the Tennessee facility.
In December of 1995 the Company, as part of new management's strategy to return
the Company to profitability, closed its manufacturing plant in Brownsville,
Tennessee laying off forty Brownsville employees and moved the ProLine
manufacturing operation to its Anaheim, California facility. The Company also
closed its Mexicali, Mexico assembly unit, laying off approximately ninety
employees and consolidated these operations into the Compton, California
facility. The Company also restructured its headquarters, eliminating an
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additional fifteen employees. In connection with the consolidation and
restructuring of its business, the Company incurred restructuring costs of
$1,597,000, $506,000 and $723,000 in 1995, 1994 and 1993, respectively. Net
restructuring costs in 1994 were $100,000, after an offset for gains on
related business disposals of $406,000. Included in the 1995 restructuring
costs of $1,597,000 was a writeoff of leasehold improvements of $108,000.
The restructuring costs comprise reserves for $333,000 related to the
closure of Mexico, $686,000 related to the closure of Tennessee, and $578,000
related to the termination of consulting agreements. These expenses will be
paid as incurred from working capital, mostly over the next twelve months.
The Company's financial statements for the year ended December 31 1995 have
been prepared on a going concern basis. The Company incurred a net loss of
$14,020,000 for the year ended December 31, 1995 and as of December 31, 1995
had a negative working capital of $3,235,000 and a stockholders' deficit of
$4,809,000 and has missed or is slow in making payments to vendors. As of
December 31, 1995, the Company was not in compliance with certain of its loan
covenants. These covenants were subsequently waived by the bank on April 5,
1996. Should the Offering not occur by year end, the Company may not comply
with certain loan covenants which become effective on that date. 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. The
Company's independent certified public accountants have stated that, if the
Company is successful in raising $3.5 million to $4.0 million in capital by
the end of the second quarter of 1996 and approximately $10.2 million of debt
is converted into equity by subordinated debt holders and affiliated debt
holders, they expect to remove the qualifying paragraph in their report.
Management is currently in negotiations to raise between $3.5 million and
$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 the
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.
RESULTS OF OPERATIONS
The tabulation that follows is a reformatting of amounts in the Consolidated
Statement of Operations that additionally provides sales data by division to
facilitate the discussion and analysis of operations below.
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Albums $22,748 $23,921 $ 18,643
Custom products 2,652 2,817 2,604
ProLine 1,484 1,529 1,331
Government 323 741 573
Microfilm 272 731
Other 79 510
-------- -------- --------
27,207 29,359 24,392
Cost of goods sold 25,024 23,449 19,412
-------- -------- --------
Gross profit 2,183 5,910 4,980
Selling, general, and administrative expenses (8,214) (7,440) (6,707)
Interest expense (1,835) (1,073) ( 512)
Restructuring costs, net (1,597) (100) ( 723)
Writeoff of costs in excess of net assets acquired (3,976)
Other revenues 10
Income tax expense (581)
-------- -------- --------
Loss from continuing operations (14,020) (2,703) (2,952)
Loss from discontinued operations (794)
-------- -------- --------
Net loss (14,020) $ (3,497) $(2,952)
-------- -------- --------
-------- -------- --------
</TABLE>
-12-
<PAGE>
CONTINUING OPERATIONS
1995 COMPARED TO 1994
The Company's sales volume for 1995 declined in all product categories. Album
sales decreased $1,173,000 or 5% and Custom Products declined $165,000 or 6%.
The decline in album sales resulted from an unusually high level of promotional
activity in the Company's largest customer in 1994 which was not repeated in
1995. Lower sales in Custom Products was caused by increased competition. The
net decline for the other divisions of $463,000 from 1995 to 1994 related to the
1994 business disposals accompanying the Company's 1994 restructuring.
Gross margin declined substantially from 20.1% in 1994 to 8.0% in 1995 due to
several factors. i) raw material prices increased substantially, and the
Company was not able to pass on these higher costs through price increases, ii)
the Company's lower sales volume resulted in higher unit costs related to
reduced capacity utilization and iii) manufacturing inefficiencies caused higher
unit costs. In December, 1995, the Company's senior manufacturing personnel
were replaced, and these inefficiencies have subsequently been eliminated.
Additionally, eliminating the Brownsville and Mexicali facilities in early 1996
reduced fixed manufacturing overhead, increasing overall capacity utilization.
Selling, general and administrative costs increased by 10.4% from $7,440,000 to
$8,214,000. The $774,000 increase includes a $200,000 increase in compensation,
a $250,000 increase in legal and other outside services and $100,000 in
additional artwork, primarily related to the launch of the Kodak product line.
The recent closing of the Brownsville, Tennessee facility and the reduction of
administrative personnel in Compton in early 1996 has reduced this category of
expense substantially.
Interest expense increased by $762,000 reflecting higher debt levels
throughout the year. The debt level reflects increased borrowings under the
bank facility and the issuance of $6,500,000 in senior secured subordinated
debt in April 1995. Interest expense for 1996 is expected to be lower pending
the conversion of certain subordinated and affiliated debt into equity in
conjunction with the anticipated Offering described above.
As a result of the new management strategy, the Company determined that certain
assets were impaired and as a result wroteoff costs in excess of net assets
acquired in the amount of $3,976,000 and deferred taxes in the amount of
$581,000.
No tax benefits were recorded for the losses in 1995, 1994 or 1993 due to
realizability considerations. As of December 31, 1994 and 1993, the Company had
recorded net deferred tax assets totalling $581,000, the realization of which
management believed was more likely than not that there would be future taxable
income. The balance of deferred taxes was written off in the fourth quarter of
1995 and no new deferred taxes were added in 1995 to reflect management's belief
that it is more likely than not that this asset is not realizable in the near
future.
1994 COMPARED TO 1993
The Company's growth in sales volume for 1994 was comprised of an increase in
Album sales of $5,278,000 or 28.3%, offset by a net decline in sales of $311,000
or 5.4% for the Company's other divisions. The net decline for the other
divisions included sales volume losses of $1,073,000 related to the business
disposals accompanying the Company's restructuring offset by sales increases of
$762,000 for the remaining operations located in Brownsville, Tennessee. Sales
increases generally represent market share gains for the respective businesses,
although sales pricing improved marginally overall due to the relatively lower
pricing in 1993 of the Album promotional sales which represented the bulk of the
sales increases for that year.
-13-
<PAGE>
Gross profit margins declined slightly from 20.4% in 1993 to 20.1% in 1994, as
the effects of material cost increases more than outweighed the favorable
effects of i) increased capacity utilization, ii) the elimination of the
inefficiencies and other duplicate costs associated with the 1993 move of the
Album operations, iii) the nonrecurrence of the promotional pricing of 1993, and
iv) the restructuring of the Brownsville, Tennessee operations. During the last
half of 1994, the Company incurred dramatic increases in the costs of
polypropylene, its primary plastic material, and the paper materials used in its
products. A worldwide shortage of these materials had the effect of increasing
the weighted average cost of the Company's Album products by approximately 20%.
Selling expenses were $3,215,000 and $2,872,000 for 1994 and 1993, respectively,
representing a decline in relation to sales from 11.8% in 1993 to 11% in 1994.
Incremental freight costs to transfer finished product from the Company's
California facility to Tennessee for distribution to its Album customers'
Central and Eastern locations were more than compensated for by relatively lower
outbound freight and commission levels due to favorable customer mix changes
between the years. General and administrative expenses increased by $390,000 or
10%. This represents the net impact of i) full year effects in 1994 of the
larger infrastructure implemented in 1993 to handle the expanded Album
operations and multiple locations, ii) full year amortization in 1994 of the
cost in excess of net assets acquired in the PAS acquisition, iii) the inclusion
in 1993 of write-offs of $233,000 of certain non-operations related assets, and
iv) those increases being reduced by the downsizing of the administrative
functions of the Brownsville, Tennessee operations. Interest expense increased
by $561,000 in 1994 due to higher average outstanding borrowings during the
period to support the Company's growth and increasing interest rates during the
year.
DISCONTINUED OPERATIONS
During 1994, the Company settled its two litigations related to Main Park
Properties, Inc. ("MPP"), a former subsidiary of the Company which was disposed
of in 1990, recording a loss from discontinued operations of $794,000, the
present value of the cash settlement payments to be made through 1999. The
Company's discontinued operations had no impact on 1995. Management anticipates
no future impact to results of operations from its previous businesses.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from continuing operations deteriorated significantly in 1995, 1994
and 1993 with the Company using $6,592,000, $6,291,000 and $5,492,000,
respectively. The increased usages resulted principally from the Company's
losses from continuing operations in 1995, 1994 and 1993, an increase in
accounts receivable of $3,715,000 in 1994 due to higher sales levels in the
fourth quarter, and an increase in inventories of $4,079,000 in 1993 to support
increasing sales levels. The losses in 1995 (less non cash charges of
$6,154,000 for restructuring costs and the writeoff of deferred income taxes and
cost in excess of net assets acquired) and 1994 from continuing operations
reflect increased raw material costs as well as lower plant utilization rates
described above.
Net cash used by investing activities in 1995 was $404,000, for capital
expenditures, compared to cash provided from these activities in 1994 of
$476,000. Net cash usage from investing activities was $917,000 in 1993. The
improvement in 1994 resulted from a decline in capital expenditures which
totalled $450,000 in 1994, coupled with the receipt in 1994 of $926,000 from the
sales of assets related to the downsizing of the Brownsville, Tennessee
operations.
Cash to finance the increased usages in 1995 and 1994 were obtained from
increased borrowings under the Company's bank line of credit of $318,000 and
$2,533,000 in 1995 and 1994, respectively, loans from affiliates of $1,453,000
and $2,251,000 in 1995 and 1994, respectively, and the issuance of $5,000,000 of
long term-debt in 1995. The loans from affiliates were principally from Hardee
Capital
-14-
<PAGE>
Partners, L.P., an institutional investor in the Company, and as discussed in
Note 11 to the consolidated financial statements, loans from affiliates of
$3,231,600 were converted into 646,320 shares of the Company's common stock in
1994.
In June 1993, KVP's bank borrowing facility was expanded to include PAS and the
total facility was increased from $6,000,000 to $11,300,000. In accordance with
the terms of the credit facility, movement of funds from KVP and PAS to the
parent Company is restricted. Consequently, the payment of future cash
dividends are not only contingent upon such factors as financial condition,
future earnings, and cash needs, but also require the bank's and PMF's approval.
At December 31, 1995 the Company had approximately $486,000 available for
additional borrowings under its borrowing facility based on its collateral
borrowing base as of that date, before deducting committed funds of $299,000
for outstanding checks, leaving a net availability of $187,000. As noted
above, 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.
The Company had no significant commitments for future capital expenditures at
December 31, 1995.
OUTLOOK
The dramatic structural and organizational changes which were made within the
Company during December of 1995 and January of 1996 are resulting in measurable
improvements to both the Company's operations and working capital. Through
March 31, 1996:
- Inventories have been reduced by $5,000,000 from the balance at
October 30, 1995.
- Gross margin, excluding close out sales, has increased to 19% during
the quarter ended March 31, 1996 due to higher capacity utilization
and elimination of inefficient manufacturing practices.
- Selling, general and administrative costs have been reduced by
$1,500,000 on an annual basis.
- The Company's redesigned product line has been well received by
current and potential customers.
In addition, certain events in the marketplace suggest that the downward
pressure on margins may begin to ease as a result of:
Prices for key raw materials were stable for the first quarter of 1996 and
in some cases the Company is benefiting from price decreases.
Marginal competitors are exiting the business.
Mass merchants are beginning to benefit from improvements in business.
Based upon the foregoing, the Company anticipates, but cannot assure, that
improvement to the Company's operations and working capital will continue for
the balance of 1996.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed of
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption to have a material
effect on its financial position at December 31, 1995 or results of operations.
-15-
<PAGE>
"Accounting for Stock-Based Compensation" (SFAS No. 123) issued by the (FASB) is
effective for specific transactions entered into after December 15, 1995, while
the disclosure requirement of SFAS No. 123 are effective for financial
statements for fiscal years beginning no later than December 15, 1995. The new
standard established a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or
services from non-employees in exchange for equity instruments. The Company
does not expect adoption to have a material effect on its financial position or
results of operations. At the present time, the Company has not determined if
it will change its accounting policy of stock based compensation or only provide
the required financial statement disclosures. As such, the impact on the
Company's financial position and results of operation is currently unknown.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section to this report on
pages F-1 through F-29.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-16-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company's Certificate of Incorporation provides for no less than three and
no more than twelve Directors, and provides for three classes of Directors. The
term of each class of Director is three years and the term of one class expires
each year in rotation. At the present time, there are a total of three
Directors. The Board of Directors is empowered to fill vacancies on the Board.
The Company's Directors and Executive Officers for the fiscal year ended
December 31, 1995 and currently are listed below:
<TABLE>
<CAPTION>
OFFICER AND/OR
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
- ---- --- --------------------- --------------
<S> <C> <C> <C>
Hee Poong Park 48 Co-Chairman of the Board 1993
David W. Hardee 49 Co-Chairman of the Board 1994
W. Blake Winchell 43 President, Chief Executive Officer 1995
and Director
</TABLE>
BUSINESS EXPERIENCE
Hee Poong Park served as Chairman of the Board of Directors since September 29,
1993 until he was appointed Co-Chairman on December 7, 1995. Mr. Park's current
term as a Director expires in 1996. Mr. Park was Co-Chairman of the Board from
May, 1993 to September, 1993. Mr. Park served as President from May, 1993 and
Chief Executive Officer from September, 1993 until December 7, 1995. Mr. Park
served as President of KVP from April 1, 1994 to December 7, 1995. Mr. Park
also served as Chief Executive Officer of two of the Company's subsidiaries, KVP
from May, 1993 to December 7, 1995 and PAS from May, 1992 to December 7, 1995.
Mr. Park continues to serve as Chairman of Signal Products, Inc., California, an
import and distribution company, since his appointment in 1992. During the
period from 1989 through 1992, Mr. Park was President of Techsan International,
Inc., Korea, a medical products distribution company.
David W. Hardee serves as Co-Chairman of the Board of Directors. He was
appointed as a Director of the Company by the Board of Directors on August 19,
1994, to fill a vacancy on the Board. Mr. Hardee was elected to a three year
term expiring in 1997 at the Company's annual meeting of stockholders on
December 16, 1994. Additionally, Mr. Hardee was appointed President and Co-
Chief Executive Officer of the Company on August 19, 1994 and served as
President of ProLine Storage Corporation, one of the Company's subsidiaries
until December 7, 1995 when he was appointed Co-Chairman of the Company, KVP,
PAS and ProLine. Mr. Hardee continues as CEO of ProLine, a post he has held
since August of 1994. In addition to his duties as Co-Chairman of the Company,
Mr. Hardee is managing general partner of Hardee Capital Partners, L.P. ("HCP"),
an investment partnership with offices in Santa Monica, California. HCP is a
principal stockholder of the Company. Mr. Hardee also serves as a Director of
Grip Technologies, Inc. Prior to setting up HCP on July 1, 1992, Mr. Hardee was
a partner of the Washington, D.C. law firm of Akin, Gump, Strauss, Hauer & Feld
for eight years. Mr. Hardee is a graduate of Washington & Lee University and
the Law School of Duke University.
-17-
<PAGE>
W. Blake Winchell was appointed as President, Chief Executive Officer and a
Director of the Board on December 7, 1995 to fill a vacancy on the Board.
Additionally, Mr. Winchell was contemporaneously appointed as President, Chief
Executive Officer and Director of KVP and PAS and President and Director of
ProLine. Mr. Winchell has also been President and Chief Executive Officer of
Channel since June 1993 and Style since July 1993. Mr. Winchell is a graduate
of Dartmouth College with an MBA from Stanford University. He is a CPA and was
associated with Bain & Company and Leucadia National Corporation from 1978 to
1983 and 1985 to 1991, respectively.
FAMILY RELATIONSHIPS
No family relationship exists between any Director or executive officer of the
Company or any person contemplated to become such.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
To the Company's knowledge, based solely on a review of copies of Forms 3 and 4
furnished to the Company and written representations that no other reports were
required during the fiscal year ended December 31, 1995, all Section 16(a)
filing requirements applicable to the Company's officers, directors, and 10%
shareholders were complied with, except that Blake Winchell, a director of the
Company, filed a Form 3 late. No Form 5 was filed by any director in 1995, the
Company being unaware as to whether any such filing was required.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
AWARDS
- ----------------------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS
/SAR'S
(#)
- ----------------------------------------------------------------------
(a) (b) (c) (g)
- ----------------------------------------------------------------------
<S> <C> <C> <C>
HEE POONG PARK 1995 109,094(1)
Co-Chairman of the Board 1994 136,692(1)
1993 120,000(2)
----------------------------------------------------------------------
DAVID W. HARDEE 1995 109,231
Co-Chairman of the Board 1994 1(3)
1993 0
----------------------------------------------------------------------
W. BLAKE WINCHELL 1995 0(4) 500,000(4)
President and Chief Executive 1994 0
Officer 1993 0
</TABLE>
(1) Mr. Park's employment agreement was amended as of April 11, 1994, to reduce
Mr. Park's salary from $180,000 to $120,000 per annum. Mr. Park's salary
was further reduced in November of 1995 to $100,000. As of December 7,
1995, Mr. Park's salary was terminated.
-18-
<PAGE>
(2) Represents eight months of Mr. Park's annual salary of $180,000 under his
employment agreement with the Company which commenced in May, 1993 upon his
hiring by the Company.
(3) Mr. Hardee accepted $1 as compensation from August 19, 1994 through
December 31, 1994. Effective January 1, 1995 Mr. Hardee's salary was
increased to $120,000 per annum. Mr. Hardee's salary was reduced to
$100,000 in November of 1995 and was terminated on December 7, 1995. The
Company intends to renegotiate salary arrangements at some time in the
future.
(4) Mr. Winchell received options to purchase 500,000 shares of the
Company's common stock in lieu of compensation during the initial four
months of his tenure as Chief Executive Officer. As discussed below Mr.
Winchell does not have an employment agreement with the Company. Such
options are not included in salary.
STOCK OPTIONS
No stock appreciation rights were issued, exercised or outstanding during fiscal
1995 or prior thereto. Stock options to purchase 500,000 shares of the
Company's common stock were granted to Mr. Winchell on December 7, 1995 with an
expiration date of December 7, 2000. The options are exercisable at any time
after stockholder approval is obtained. The exercise price of Mr. Winchell's
options is not fixed. The exercise price is equal to (i) the lowest closing
price of the common stock on the American Stock Exchange commencing December 7,
1995 and ending on the earlier of the date the options are exercised, or the
fifteenth day following the date the Company files its 1995 annual report on
Form 10K, or (ii) the lowest price at which the Company's common stock is sold
by the Company to any other party, whichever is earlier. No stock options were
exercised during 1995. The following table depicts option exercise activity in
the last fiscal year and fiscal year-end option values with respect to each of
the executive officers named in the Summary Compensation Table.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR END AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
# OF UNEXERCISED VALUE OF
OPTIONS AT FISCAL UNEXERCISED
YEAR-END (#) IN-THE-MONEY
OPTIONS AT FISCAL
YEAR-END ($)
12/31/95 12/31/95
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEE POONG PARK 0/0 0/0
DAVID W. HARDEE 0/0 0/0
W. BLAKE WINCHELL 0/500,000 0/0(1)
</TABLE>
(1) The options are exercisable at any time after stockholder approval is
obtained. The exercise price of Mr. Winchell's options is not fixed. The
exercise price is equal to the lowest closing price of the common stock on the
American Stock Exchange commencing December 7, 1995 to the date the options are
exercised or the fifteenth day following the date the Company files its 1995
annual report on Form 10K, which ever is earlier
-19-
<PAGE>
or the lowest price at which the Company's common stock is sold by the Company
to any other party. Accordingly, a value can not be attributed to the options
at this time.
DEFINED BENEFIT PENSION PLAN
The Company has a non-contributory defined benefit pension plan which was
amended effective October 1, 1994, to freeze future benefit accruals. The
benefits are based on years of service and the employee's final
compensation level.
DIRECTOR'S REMUNERATION
Members of the Company's Board of Directors who are not employees of the
Company or any of its subsidiaries are to receive a monthly director's
fee of $500. During 1995, each of the Directors of the Company were also
employees, and consequently no Director's fees were paid.
EMPLOYMENT AGREEMENTS
On April 11, 1994, Mr. Park agreed to receive a base salary of $120,000
per annum. In November of 1995, Mr. Park's salary was reduced to $100,000
and subsequently terminated December 7, 1995.
Mr. Hardee does not have an employment agreement. Mr. Hardee received
$1 compensation for 1994 and a salary of $120,000 per annum commencing
January 1, 1995. In November of 1995, Mr. Hardee's salary was reduced to
$100,000 and subsequently terminated December 7, 1995. The Company intends
to renegotiate salary arrangements at some time in the future.
Mr. Winchell, who became President and Chief Executive Officer of the
Company December 7, 1995, does not have an employment agreement. Mr.
Winchell received options to purchase up to 500,000 shares of common
stock as compensation during the initial four month period of his
employment in conjunction with the Company's acquisition of Channel and
Style described in "Certain Relationships and Related Transactions". In
conjunction with the closing of the Offering, the Company and Mr. Winchell
will execute an employment agreement which is currently being negotiated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until December 7, 1995, the compensation committee of the Company was
comprised solely of Mr. Hee Poong Park. He served as Chairman of the
Board of Directors since September 29, 1993 until he was appointed
Co-Chairman on December 7, 1995. Mr. Park was Co-Chairman of the Board
from May, 1993 to September, 1993. Mr. Park served as President from
May, 1993 and Chief Executive Officer from September, 1993 until
December 7, 1995. Mr. Park served as President of KVP from April 1, 1994
to December 7, 1995. Mr. Park also served as Chief Executive Officer of
two of the Company's subsidiaries, KVP from May, 1993 to December 7, 1995
and PAS from May, 1992 to December 7, 1995. Park is the beneficial owner
of 31% of the voting stock of the Company. Mr. Hardee and Mr. Winchell
were appointed to the committee for 1996 to replace Mr. Park.
-20-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 8, 1996: (i) the name and
address of each person who owns of record or who is known by the Board of
Directors to be the beneficial owner of more than 5% of each class of the
company's outstanding voting securities, (ii) each of the Company's
directors and executive officers, and (ii) all of the Company's executive
officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER PERCENT OF CLASS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock, $.10 par value Hee Poong Park 396,876(1) 14.9%(1)
1207 Mahalo Drive
Compton, CA 90220
Common Stock, $.10 par value Hardee Capital Partners, L.P. 1,070,704(2) 40.2%(3)
1040 Fourth Street, Suite 401
Santa Monica, CA 90403
Common Stock, $.10 par value David W. Hardee 1,070,704(4) 40.2%(3)
Hardee Capital Partners, L.P.
1040 Fourth Street, Suite 401
Santa Monica, CA 90403
Common Stock, $.10 par value W. Blake Winchell 0 0.0%(5)
Kleer Vu Industries, Inc.
921 W. Artesia Boulevard
Compton, CA 90220
Common Stock, $.10 par value All of the Company's Executive 1,467,580(5) 55.1%(3)
Officers and Directors as a Group
(3 persons)
Preferred Stock, $10.00 par value Hee Poong Park 703,126(6) 78.0%
(see address above)
Preferred Stock, $10.00 par value Hee Kook Park 168,526(6) 19.0%
1207 Mahalo Drive
Compton, CA 90220
Preferred Stock, $.10 par value All of the Company's Executive 703,126 78.0%
Officers and Directors as a Group
(3 persons)
</TABLE>
- -------------------
(1) Percentage of Common Stock outstanding without giving effect to the
conversion of 703,126 shares of Preferred Stock owned by Mr. Park. If
all 900,000 outstanding shares of Preferred Stock were converted, Mr.
Park would own 1,100,002 shares of Common Stock or 31% of 3,575,876
outstanding shares of Common Stock. All of Mr. Park's common stock and
any subsequently acquired common stock, (including common stock issued
upon the conversion of his preferred stock and all of Mr. Park's
preferred stock) are pledged as collateral to a $2,700,000 promissory
note due on December 15, 1996, to Elk International Corporation, Limited
("Elk").
(2) Includes 105,860 shares owned by Mr. Hardee, the Managing General
Partner of Hardee Capital Partners, L.P., ("HCP") in his Individual
Retirement Account. 779,444 shares of common stock owned by HCP and any
common stock subsequently acquired are pledged as collateral to a
promissory note with a balance of $680,000 due on December 15, 1996 to
Elk and a $1,444,445 promissory note due on December 15, 1996 to
MicroTel International, Inc. ("MicroTel").
-21-
<PAGE>
(3) Does not give effect to the conversion of Preferred Stock. If the
Preferred Stock is converted, the percentage of ownership of the
outstanding Common Stock of the Company is as follows: HCP - 30%; David
W. Hardee - 30%; Hee Poong Park 30%; and all Directors and executive
officers as a group - 66%.
(4) Includes 964,844 shares owned by HCP. 779,444 shares of common stock
owned by HCP and any common stock subsequently acquired are pledged as
collateral to (i) a promissory note with a balance of $680,000 due on
December 15, 1996 to Elk and (ii) a $1,444,445 promissory note due on
December 15, 1996 to MicroTel.
(5) Excludes 500,000 common shares underlying options granted to Mr.
Winchell which are only exercisable following shareholder approval.
(6) Beneficial ownership of shares owned by Hee Kook Park, the brother of
Hee Poong Park, the Company's Co-Chairman, is not attributed to Hee
Poong Park. 250,000 shares of preferred stock are pledged as collateral
to Elk as security for Park's promissory note.
CHANGES IN CONTROL
On September 29, 1993, Park and HCP acquired substantially all of the
stockholdings in the Company (i.e. 540,000 shares of common stock ) owned
by Elk International Corporation Limited ("Elk"), a company whose sole
director is the brother of Daniel Dror, the former Co-Chairman of the
Company, for $2,000,000 in cash and promissory note of $4,500,000 in the
aggregate. One of HCP's promissory notes, in the amount of $1,444,445
(the"HCP/MicroTel Note") was assigned in 1994 by Elk to MicroTel
International, Inc. ("MicroTel"), a public company of which Mr. Dror is
Chairman of the Board and Elk is a principal shareholder. The promissory
notes were due and payable on December 31, 1995. The payment terms of the
notes were amended in January and February 1996 as follows. The HCP
$805,555 promissory note to Elk was extended whereby $125,000 was paid on
February 5, 1996 and $680,000 is to be paid on December 15, 1996. In
consideration of the extension, HCP agreed to pay $44,000 commencing in
February 1996 in equal monthly installments. The HCP/MicroTel Note
payment date was extended to December 15, 1996. The payment date of
Park's promissory notes were extended to December 15, 1996 and they were
consolidated and amended from $2,250,000 to $2,700,000, which included
$450,000 as consideration to extend the payment dates. Park's and HCP's
respective promissory notes are secured by their respective shares
comprising the 540,000 shares plus any other shares of Common Stock
which were acquired, or which will be acquired, by Park and HCP
subsequent to September 29, 1993. Additionally, Park has pledged 250,000
shares of Preferred Stock as additional collateral. Park and HCP have
pledged an aggregate of 1,176,320 shares of Common Stock (44% of the
outstanding common stock) and 250,000 shares of Preferred Stock, which
together with the pledged Common Stock represents 33% of the outstanding
voting stock of the Company, as security for the repayment of the
promissory notes. Giving effect to the conversion of certain warrants by
creditors of the Company, including the principal stockholders of the
Company, Park and HCP will hold 30.9% of the outstanding common stock and
45.5% of the outstanding voting stock (See "Certain Relationships and
Related Transactions"). Failure to make any payment under a promissory
note is an event of default with respect to such note. In the event Park
and/or HCP default on the repayment of their promissory notes and Elk
and/or MircoTel forecloses on the security and acquires the pledged
shares, Elk will become a principal stockholder of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From 1993 to December 1995, the Company had a supply arrangement with
Crown, a trading company affiliated with the Chairman of the Company, for
the purchasing of certain raw materials and subcomponents of its
photograph album business from foreign sources. The affiliate acted as an
intermediary in the sourcing of the materials, handling the logistics and
financing of the international purchases. The Company purchased the
related materials from the affiliate
-22-
<PAGE>
company at its cost plus a 4% handling fee and pays the affiliate a
finance charge at 2% over the prime rate from date of invoice until paid.
During 1995 and 1994, the Company purchased materials totalling
approximately $3,018,000 and $2,511,000, respectively, from Crown and
incurred related finance charges of approximately $188,000 and $151,000,
respectively. The balance due under this arrangement at December 31, 1995
and 1994 of $1,748,000 and $1,453,000, respectively. The supply
arrangement was discontinued in December of 1995 to use a nonaffiliated
trading company for sourcing its raw materials.
On April 7, 1995, Signal Resources, L.P. ("SRLP"), an investment
partnership owned 55% and 45% by Messrs. Park and Hardee, respectively,
and PMF, an institutional investor which has no affiliation with the
Company or the Company's affiliates, provided the Company with a Senior
Loan Facility of $6,500,000. SRLP provided $1.5 million of the funds and
PMF provided $5 million.
The loan bears interest at a rate of 13% per annum payable quarterly and
principal payments begin twenty-one months after closing in varying
quarterly amounts through the maturity of the facility on the seventh
anniversary of the closing. The PMF loan, is subordinated to the
Company's bank credit facility, is secured by a first lien on the
Company's machinery and equipment. In connection with the loan, SRLP
and PMF received warrants to purchase 151,059 and 503,530 shares of the
Company's common stock, respectively. The warrants are exercisable for
a five year period commencing on the first anniversary date of issuance
at $6.00 per share, with a mandatory net issuance when the Company's
common stock has traded on the American Stock Exchange at or above $16
per share for 20 consecutive business days. In the event that an
additional $1.5 million loan is not funded by April 21, 1996, additional
warrants to purchase 151,059 shares which were to be issued in
conjunction with that funding, will be issued to SRLP and PMF in the
amounts of 34,859 and 116,200 warrants, respectively. This additional
funding had not occurred as of December 31, 1995. The issuance of the
shares upon exercise of the warrants which are being issued to SRLP and
which will be issued to SRLP, or Mr. Park, Mr. Hardee or their
affiliates, if and when the remaining $1.5 million is funded by any of
those persons or entities, is subject to the approval by a majority of
the Company's stockholders other than Messrs. Park, Hardee and their
affiliates.
On June 14, 1993, Mr. Park, the Co-Chairman of the board of the Company,
borrowed funds from the Company for personal reasons. The unsecured loan
was for $98,500 payable in three years with interest at the annual rate
of one percent above prime. The aggregate amount of indebtedness at
December 31, 1995 is $110,858.
On January 2, 1996, Kleer-Vu Industries, Inc. acquired all of the
outstanding common shares of Channel and Style from their sole
stockholder W. Blake Winchell pursuant to an agreement dated December 7,
1995 (the "Stock Purchase Agreement").
In consideration for the Channel and Style common shares, the Company
assumed and agreed to indemnify Mr. Winchell against any personal
liability with regard to the indebtedness (the "Indebtedness") owed by
Style to Well Fargo Bank, N.A. and Heller First Financial corporation of
an amount which would not be more than $1,000,000 plus all costs, charges
and fees associated with a default, if any, of such Indebtedness.
Channel and Style combined had net assets of $865,000 as of January 2,
1996. At January 2, 1996 the Indebtedness was $932,372. As further
consideration, the debt owed to Mr. Winchell of $301,069 as of January 2,
1996 was assumed by the Company. Mr. Winchell's note is payable on
demand and bears interest at 8.0% payable annually in arrears.
Contemporaneously with the execution and delivery of the Stock Purchase
Agreement on December 7, 1995, the Board of Directors of the Company
elected Mr. Winchell (i) Director to fill an existing vacancy on the
Board and (ii) Chief Executive Officer andPresident of the Company
replacing David W. Hardee as Co-Chief Executive Officer and Hee Poong
Park as Co-Chief Executive Officer and
-23-
<PAGE>
President. Mr. Hardee and Mr. Park were named as Co-Chairman of the
Board of Directors. Winchell was also elected as a Director, Chief
Executive Officer and President of the Company's subsidiaries, KVP and
PAS and a Director and President of ProLine. Mr. Hardee and Mr. Park,
who prior to Mr. Winchell's appointment occupied the Posts of Chief
Executive Officer and President, respectively of each of the
subsidiaries, were named as Co-Chairmen of the Boards thereof, Mr.
Hardee continues as Chief Executive Officer of ProLine.
On December 7, 1995 the Company granted to Mr. Winchell options (the
"Options") to purchase up to 500,000 Common Shares, which Options are
exercisable, subject to and commencing upon approval of the Company's
stockholders, for a period ending on December 7, 2000 at an exercise
price equal to the lowest price of the Company's common shares on the
American Stock Exchange during the period beginning on December 9, 1995
and ending on the earlier of (i) the date of any of the Options are first
exercised; or (ii) the fifteenth day following the filing of the
Company's Form 10-K for the fiscal year ending December 1995
("Form 10-K") with the Securities and Exchange Commission (the "SEC"); or
the lowest price at which the Company's common stock is sold by the
Company to any other party. The Company also agreed to use its best
efforts to register for resale the common shares underlying the Options
after the Form 10-K has been filed with the SEC and after stockholder
approval for the issuance of the Options has been obtained. The Options
were granted to Mr. Winchell as compensation during the initial four
month period of his employment. Winchell will not receive any cash
compensation during such initial four month period. Mr. Winchell has no
written employment contract with the Company or its subsidiaries. In
conjunction with the closing of the Offering, the Company and
Mr. Winchell will execute an employment agreement which is currently
being negotiated.
The Company is currently negotiating 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. As a condition of closing the Offering, certain
subordinated debt holders and affiliated debt holders have preliminarily
agreed to convert an aggregate of $10.2 million of debt into equity.
Management can not assure that such conversion will be consumated.
-24-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Part IV of this report:
Page
----
1. FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants
for the years ended December 31, 1995, 1994 and 1993 . . . . . F-1
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 . . . . . F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 . . . . . F-5
Notes to Consolidated Financial Statements
for the years ended December 31, 1995, 1994 and 1993 . . . . . F-6
through
F-29
2. FINANCIAL STATEMENT SCHEDULES:
The following financial statement schedules are included in Part IV of this
report:
For the years ended December 31, 1995, 1994 and 1993:
Schedule I - Condensed financial information of Company . . . . . . F-23
Schedule II - Valuation and qualifying accounts . . . . . . . . . . F-29
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. Columns
omitted from schedules filed are omitted because the information is not
applicable.
(b) Exhibits - The Exhibits listed below are filed as a separate section of or
incorporated by reference into this report.
<TABLE>
<CAPTION>
PAGE NUMBER OR
EXHIBIT INCORPORATION BY
NUMBER EXHIBIT REFERENCE TO:
- ------ ------- -------------
<S> <C> <C>
2 Plan of Reorganization and Agreement of Merger Exhibit 2 to Report
by and among the Company, PAS Industry, Inc. 8-K dated May 13,
and New PAS, Inc.. . . . . . . . . . . . . . . . 1993
-25-
<PAGE>
Exhibit 3 (a) to Report
10-K for fiscal year
3 (a) Restated Certificate of Incorporation, as amended. . December 31, 1995
Exhibit 3 (b) to Report
10-K for fiscal year
3 (b) By-laws of the Company. . . . . . . . . . . . . . . December 31, 1995
4 (a) DEMAND OR TIME NOTE for $6,800,000 made by
Kleer-Vu Plastics Corporation to the Exchange Exhibit 6 (1) to Report
National Bank of Chicago. . . . . . . . . . . . . . 8-K dated March 26, 1990
4 (b) SECURITY AGREEMENT between Kleer-Vu Plastics
Corporation and the Exchange National Bank Exhibit 6 (2) to Report
of Chicago. . . . . . . . . . . . . . . . . . . . . 8-K dated March 26, 1990
4 (c) Amendment to SECURITY AGREEMENT between
Kleer-Vu Plastics Corporation and the LaSalle Exhibit 10 (d) to Report
National Bank (formerly the Exchange National 10-K for fiscal year
Bank of Chicago) dated March 24, 1992 . . . . . . . December 31, 1992
4 (d) CONTINUING UNCONDITIONAL GUARANTY by Company Exhibit 6 (3) to Report
to the Exchange National Bank of Chicago. . . . . . 8-K dated March 26, 1990
4 (e) Amendment to SECURITY AGREEMENT between Exhibit 10(a) to
Kleer-Vu Plastics Corporation and the LaSalle Report 10-Q for quarter
National Bank dated June 4, 1993. . . . . . . . . . ended June 30, 1993
4 (f) First Amendment and Allonge to DEMAND OR
TIME NOTE originally for $6,800,000 made by Exhibit 10(b) to
Kleer-Vu Plastics Corporation to the LaSalle Report 10-Q for quarter
National Bank. . . . . . . . . . . . . . . . . . . . ended June 30, 1993
Exhibit 10(c) to
4 (g) DEMAND NOTE for $1,300,000 made by PAS Report 10-Q for quarter
Industry, Inc. to the LaSalle National Bank. . . . . ended June 30, 1993
Exhibit 10(d) to
4 (h) LOAN AND SECURITY AGREEMENT between PAS Report 10-Q for quarter
Industry, Inc. and LaSalle National Bank . . . . . . ended June 30, 1993
4 (i) CONTINUING UNCONDITIONAL GUARANTY by Company Exhibit 10(e) to
to LaSalle National Bank for PAS Industry, Inc. Report 10-Q for quarter
loan . . . . . . . . . . . . . . . . . . . . . . . . ended June 30, 1993
4 (j) Amendment to SECURITY AGREEMENT between Exhibit 4(k) to Report
Kleer-Vu Plastics Corporation and the LaSalle 10-KSB for fiscal year
National Bank dated November 12, 1993. . . . . . . . December 31, 1993
4 (k) Amendment to LOAN AND SECURITY AGREEMENT Exhibit 4(l) to Report
between PAS Industry, Inc. and LaSalle National 10-KSB for fiscal year
Bank dated November 12, 1993 . . . . . . . . . . . . December 31, 1993
-26-
<PAGE>
4 (l) Amendment to SECURITY AGREEMENT between Exhibit 4(l) to Report
Kleer Vu Plastics Corporation and the LaSalle 10-K for fiscal year
National Bank dated June 9, 1994. . . . . . . . . . December 31, 1995
4 (m) Amendment to LOAN AND SECURITY AGREEMENT Exhibit 4(m) to Report
between PAS Industry, Inc. and LaSalle 10-K for fiscal year
National Bank dated June 9, 1994. . . . . . . . . . December 31, 1995
4 (n) Time Note For $5,000,000 by Kleer Vu Plastics
Corporation("KVP"), PAS Industry, Inc.("PAS")
& ProLine Storage Corporation("ProLine") to Exhibit 4(a) to Report
Pacific Mezzanine Fund, L.P. ("PMF") dated 10-Q for quarter ended
April 28, 1995. . . . . . . . . . . . . . . . . . . June 30, 1995
4 (o) Time Note For $5,000,000 by Kleer-Vu Industries, Exhibit 4(b) to Report
Inc. ("Company") to Signal Resources, L.P. ("Signal") 10-Q for quarter ended
dated April 21, 1995. . . . . . . . . . . . . . . . June 30, 1995
4 (p) Senior Subordinated Loan & Security Agreement Exhibit 4(c) to Report
between KVP, PAS and ProLine, and PMF dated 10-Q for quarter ended
April 21, 1995. . . . . . . . . . . . . . . . . . . June 30, 1995
Exhibit 4(d) to Report
4 (q) KVI Subordinated Loan Agreement between the 10-Q for quarter ended
Company and Signal dated April, 21, 1995. . . . . . June 30, 1995
4 (r) Amendment to Security Agreement between KVP Exhibit 4(e) to Report
and LaSalle National Bank ("LaSalle") dated 10-Q for quarter ended
April 26, 1995. . . . . . . . . . . . . . . . . . . June 30, 1995
Exhibit 4(f) to Report
4 (s) Amendment to Security Agreement between KVP 10-Q for quarter ended
and LaSalle dated April 28, 1995. . . . . . . . . . June 30, 1995
Exhibit 4(g) to Report
4 (t) Amendment to Security Agreement between KVP 10-Q for quarter ended
and LaSalle dated June 15,1995. . . . . . . . . . . June 30, 1995
Exhibit 10 (e) to Report
10 (a) Kleer Vu Plastics Corporation 10-K for fiscal year
Pension Plan . . . . . . . . . . . . . . . . . . . . ended December 31,1991
10 (b) CONSULTING AGREEMENT between Company and Exhibit 2 to Form 8-K
Daniel Dror dated September 29, 1993 . . . . . . . . dated September 29, 1993
10 (c) DDC CONSULTING AGREEMENT dated Exhibit 3 to Form 8-K
September 29, 1993 . . . . . . . . . . . . . . . . . dated September 29, 1993
10 (d) NON-NEGOTIABLE CONVERTIBLE PROMISSORY NOTE
for $1,600,000 payable by Company to Exhibit 10(i) to Report
Hardee Capital Partners, L.P. dated 10-KSB for fiscal year
February 4, 1994 . . . . . . . . . . . . . . . . . . ended December 31, 1993
-27-
<PAGE>
10 (e) Settlement Agreement between Resolution Trust
Corporation, as Receiver for Columbia Federal Exhibit 10(i) to Report
Savings and Loan Association and Company effective 10-K for fiscal year
July 29, 1994 and related Final Judgement . . . . . December 31, 1995
10 (f) Compromise and Settlement Agreement between
Federal Deposit Insurance Corporation and Exhibit 10(j) to Report
Company dated October 20, 1994 and related 10-K for fiscal year
Agreed Judgement. . . . . . . . . . . . . . . . . . December 31, 1995
10 (g) License Agreement between Eastman Kodak and Exhibit 10.1 to Report
Company, dated December 29, 1994. . . . . . . . . . 8-K dated March 3, 1995
10 (h) Warrant Purchase Agreement between the
Company and PMF, BW Capital Corporation, Exhibit 10 to Report
Pacific Private Capital and Signal dated 10-Q for quarter ended
April 21, 1995. . . . . . . . . . . . . . . . . . . June 30, 1995
10 (i) Stock Purchase Agreement between Kleer-VU
Industries, Inc. and Mr. W. Blake Winchell
dated December 7, 1995. . . . . . . . . . . . . . . E-1
10 (j) Stock Option Agreement between Kleer-Vu
Industries, Inc. and Mr. W. Blake Winchell
dated December 7, 1995. . . . . . . . . . . . . . . E-6
10 (k) Amendment to Stock Option Agreement between
Kleer-Vu Industries, Inc. and Mr. W. Blake
Winchell dated December 7, 1995 . . . . . . . . . . E-13
21 List of Subsidiaries of the Company . . . . . . . . E-15
</TABLE>
(c) REPORTS ON FORM 8-K - There were no reports on Form 8-K filed during the
fourth quarter of the year ended December 31,
1995.
-28-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Kleer-Vu Industries, Inc.
We have audited the accompanying consolidated balance sheets of Kleer-Vu
Industries, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1995. We
have also audited the schedules for the three year period ended December 31,
1995 listed in the accompanying index. These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedules. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kleer-Vu Industries,
Inc. and their subsidiaries at December 31, 1995 and 1994 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedules for each of the three years in the period
ended December 31, 1995 present fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements and schedules have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the consolidated financial statements, the Company has
suffered recurring losses from operations, negative cash flows and working
capital and a negative stockholders' equity. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements and schedules do not include any adjustments that might result from
the outcome of this uncertainty.
BDO SEIDMAN, LLP
Los Angeles, California
March 25, 1996
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS (Note 5)
Current assets:
Cash $ 87 $ 55
Accounts receivable, less allowance of $366 and $287 5,676 7,594
Inventories (Note 3) 9,557 8,393
Deferred income taxes (Note 8) - 263
Other 129 325
-------- --------
Total current assets 15,449 16,630
Property and equipment, net (Note 4, 6) 3,857 4,145
Cost in excess of net assets acquired, net
of accumulated amortization of $512 (Note 2) - 4,299
Deferred income taxes (Note 8) - 318
Due from officers 68 173
Other 682 521
-------- --------
$ 20,056 $ 26,086
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Loans from affiliates (Note 11) $ 700 $ 624
Bank line of credit (Note 5) 9,851 219
Accounts payable 3,253 4,203
Cash overdraft 299 1,153
Accounts payable to affiliated company (Note 11) 1,748 1,453
Restructuring costs (Note 2) 1,597 100
Accrued expenses 1,236 1,201
-------- --------
Total current liabilities 18,684 8,953
Long-term debt:
Loan from affiliate (Note 11) 1,377 -
Long-term debt, less current portion (Note 5) 4,666 9,184
Other noncurrent liabilities 138 353
-------- --------
6,181 9,537
-------- --------
Commitments and contingencies (Notes 5, 6, 7)
Stockholders' equity (deficit) (Notes 7, 11, 13, 14):
Preferred stock, $10 par value; 1,000,000 shares authorized;
900,000 issued 9,000 9,000
Common stock, $.10 par value; 10,000,000 shares
authorized; 2,725,020 and 2,633,700 issued 272 263
Additional paid-in capital 17,466 16,160
Deficit (31,265) (17,245)
-------- --------
(4,527) 8,178
Less: Deferred compensation and notes from officers (239) (539)
Common stock held in treasury, at cost; 7,144 shares (43) (43)
-------- --------
Total stockholders' equity (deficit) (4,809) 7,596
-------- --------
$ 20,056 $ 26,086
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------
--------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales (Note 10) $ 27,207 $ 29,359 $ 24,402
Costs and expenses:
Cost of goods sold 25,024 23,449 19,412
Selling, general, and administrative 8,214 7,440 6,707
Interest expense 1,835 1,073 512
Restructuring costs, net (Note 2) 1,597 100 723
Writedown of costs in excess of
net assets acquired (Note 2) 3,976 - -
--------- --------- ---------
40,646 32,062 27,354
--------- --------- ---------
--------- --------- ---------
Loss from continuing operations
before income taxes (13,439) (2,703) (2,952)
Income tax expense (Note 8) 581
--------- --------- ---------
Loss from continuing operations (14,020) (2,703) (2,952)
Loss from discontinued operations - (794) -
--------- --------- ---------
Net loss $ (14,020) $ (3,497) $ (2,952)
--------- --------- ---------
--------- --------- ---------
Loss per common share:
Continuing operations $ (5.26) $ (1.21) $ (1.63)
Discontinued operations - (.35) -
--------- --------- ---------
Net loss $ (5.26) $ (1.56) $ (1.63)
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
------------------------------------------------
------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PREFERRED STOCK PAID-IN COMPENSATION TREASURY
-------------------- ----------------- CAPITAL & NOTES FROM COMMON
SHARES AMOUNT SHARES AMOUNT AND OTHER DEFICIT OFFICERS STOCK
--------- ------ ------- ------ --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,458,087 146 15,085 (10,796) (1,455) (45)
Net loss (2,952)
Issuance of shares for PAS 750,000 7,500 (2,512)
Issuance of shares in
private placement 140,000 14 1,386
20% stock dividend on
September 30 321,293 32 150,000 1,500 (1,533)
Issuance of shares in
private placement 50,000 5 395
Issuance of treasury stock
for services (236 shares) 2
Collection of note 75
Amortization of deferred compensation 391
--------- ------- ------- ------- ------- ------- ------- -------
Balance, December 31, 1993 1,969,380 197 900,000 9,000 12,821 (13,748) (989) (43)
Net loss (3,497)
Issuance of shares for
debt conversion 646,320 64 3,167
Issuance of shares for
consulting services 18,000 2 172
Amortization of deferred compensation 450
--------- ------- ------- ------- -------- -------- ------- -------
Balance, December 31, 1994 2,633,700 $ 263 900,000 $ 9,000 $ 16,160 $(17,245) $ (539) $ (43)
Net loss (14,020)
Exercise of stock options 38,520 4 224 (159)
Issuance of shares in private placement 10,800 1 90
Issuance of warrants with debt 589
Termination of consulting agreement 195
Shares to be issued in connection with
termination of consulting agreement 42,000 4 403
Amortization of deferred compensation 264
--------- ------- ------- ------- -------- -------- ------- -------
Balance, December 31, 1995 2,725,020 $ 272 900,000 $ 9,000 $ 17,466 $(31,265) $ (239) $ (43)
--------- ------- ------- ------- -------- -------- ------- -------
--------- ------- ------- ------- -------- -------- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
--------------------------------------------
--------------------------------------------
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH 1995 1994 1993
- ---------------------------- --------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(14,020) $ (2,703) $ (2,952)
Adjustments to reconcile loss to net
cash used in continuing operations:
Depreciation and amortization 468 671 652
Provision for bad debts 105 - 25
Deferred compensation and other amortization 623 782 603
Writeoff of deferred income taxes 581 - -
Writeoff cost in excess of net asset acquired 3,976 - -
Restructuring costs 1,597 100 723
Changes in assets and liabilities
(net of acquisition effects in 1993):
Accounts receivable 1,813 (3,696) 128
Due from officers 105 (75) (98)
Inventories (1,164) 177 (4,079)
Accounts payable (655) (789) 347
Accrued expenses 159 (841) (681)
Other liabilities (215) - -
Other assets 35 83 (160)
--------- --------- ---------
Net cash used in continuing operations (6,592) (6,291) (5,492)
Loss from discontinued operations - (794) -
Adjustments to reconcile loss to cash used in discontinued
operations:
Settlement costs - 794 -
--------- --------- ---------
Net cash used in discontinued operations - - -
--------- --------- ---------
Net cash used in operating activities (6,592) (6,291) (5,492)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from asset disposals - 926 -
Capital expenditures (404) (450) (917)
--------- --------- ---------
Net cash provided by (used in) investing activities (404) 476 (917)
--------- --------- ---------
Cash flows from financing activities:
Loans from affiliates 1,453 2,251 1,605
Notes payable and line of credit 318 2,533 3,271
Proceeds from issuance of long-term debt 5,000 130 399
Payments of long-term debt (204) (476) (547)
Cash overdraft (854) 494 659
Issuance of stock 908 - 1,800
Shares to be issued in connection with termination
of consulting agreement 407 - -
Collection of note from officer - - 75
Cash dividends and cash-in-lieu of fractional shares - - (30)
--------- --------- ---------
Net cash provided by financing activities 7,028 4,932 7,232
--------- --------- ---------
Net increase (decrease) in cash 32 (883) 823
Cash, beginning of period 55 938 115
--------- --------- ---------
Cash, end of period $ 87 $ 55 $ 938
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
--------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION
Kleer-Vu Industries, Inc. (the "Company") is a leading United States designer,
manufacturer and distributor of photo albums, storage and protection devices.
The Company's products are sold throughout the United States. The Company is a
Delaware corporation with a history dating back to 1943. The business is
conducted through the following wholly-owned subsidiaries: Kleer Vu Plastics
Corporation ("KVP"), PAS Industry, Inc. ("PAS"), and ProLine Storage Corporation
("ProLine"). The Company's products are sold to mass merchants and discount
drug chains (such as Walmart, Target and Jack Eckerd Co.), membership clubs
(including Price/Costco), department stores (including Kohls Department Stores)
and specialty stores (such as Wolf Camera). The consolidated financial
statements include the accounts of Kleer-Vu Industries, Inc. (the "Company") and
its subsidiaries, Kleer-Vu Plastics Corporation ("KVP"), Neslemur Company
("NLC"), PAS Industry, Inc. ("PAS"), since its acquisition on May 4, 1993, and
ProLine Storage Corporation ("ProLine"), since its formation on August 25, 1994.
All of the subsidiaries are wholly-owned and all intercompany balances and
transactions have been eliminated.
The Company's financial statements for the year ended December 31, 1995 have
been 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 has 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. These covenants were subsequently waived by the bank on April 5,
1996. Continued compliance after year end is contingent upon the closing of
an additional financing. See Note 15 "Subsequent Events" 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 the private placement 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.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in, first-out
basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment, which is stated at cost, is depreciated or amortized on
a straight-line basis over their estimated useful lives or related lease terms,
as appropriate, which range from 3 to 10 years.
F-6
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
LOSS PER SHARE
Loss per common share is based on the weighted average number of such shares
outstanding during 1995, 1994 and 1993 of 2,666,128, 2,240,291, and 1,814,179,
respectively. In 1995, 1994 and 1993, the exercise of stock options and the
conversion of convertible preferred stock to common stock are not assumed due to
their antidilutive effects.
COST IN EXCESS OF NET ASSETS ACQUIRED
Costs in excess of net assets of businesses acquired represented the excess
purchase price over the fair value of net assets acquired in connection with the
PAS acquisition and are being amortized on a straight-line basis over 15 years.
Such amortization was $323,000, $310,000, and $202,000 for 1995, 1994 and 1993,
respectively. The Company wrote off the remaining balance of the asset during
the fourth quarter of 1995 due to management's belief that realization was not
obtainable at this time.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Product
development costs were $390,000, $245,000, and $271,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
COMPETITION
The sale of photo albums is extremely competitive, with principal competitive
factors historically consisting of design, quality, price, service and product
line range. There are approximately ten domestic manufacturers of photo albums
competing with the Company's album line, several of which are substantially
larger and have greater financial resources and distribution capabilities than
the Company. In addition, there are at least 25 importers of photo albums
competing with the Company's product line.
In the sale of all of its other products, the Company competes with a great
number of other business entities, both foreign and domestic, many of which are
larger than the Company in terms of sales, financial resources, product
development, facilities and channels of distribution.
ACCOUNTING ESTIMATES
The preparation of financial statement in conformity with generally accepted
accounting principles requires management to make estimated assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
SEASONALITY
The Company expects its highest level of net sales during the third and fourth
quarters due to the Christmas season. If for any reason, the Company's sales
were to be substantially below those normally expected during such quarters, the
Company's annual results would be adversely affected.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued SFAS No. 107, Disclosures about
Fair Value of Financial Instruments, which is effective December 31, 1995. This
statement requires the disclosure of estimated fair values for all financial
instruments for which it is practicable to estimate fair value.
The carrying amounts of financial instruments including cash, accounts
receivable, current maturities of long-term debt, and accounts payable and
accrued expenses approximate fair value because of their short maturity.
The carrying amount of long-term debt approximates fair value because the
interest rate on these instruments approximate the rate the Company could borrow
at December 31, 1995 and 1994.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived assets to be Disposed of"
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes guidelines regarding when impairment losses
on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. The Company does not expect adoption to have a material
effect on its financial position at December 31, 1995 or results of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
(SFAS No. 123) issued by the (FASB) is effective for specific transactions
entered into after December 15, 1995, while the disclosure requirement of SFAS
No. 123 are effective for financial statements for fiscal years beginning no
later than December 15, 1995. The new standard established a fair value method
of accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from non-employees in exchange for equity
instruments. The Company does not expect adoption to have a material effect on
its financial position or results of operations. At the present time, the
Company has not determined if it will change its accounting policy of stock-
based compensation or only provide the required financial statement disclosures.
As such, the impact on the Company's financial position and results of operation
is currently unknown.
F-8
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
NOTE 2 - ACQUISITION AND RESTRUCTURING
On May 4, 1993, the Company acquired all the outstanding equity securities of
PAS for 750,000 shares of voting convertible preferred stock. Each share of the
preferred stock is convertible into one share of the Company's common stock,
subject to approval of this conversion by the common shareholders of the
Company. The preferred stock was valued at an aggregate of $4,987,500, or $6.65
per share, which on a per share basis represents a thirty percent (30%) discount
off the closing price of the Company's common stock on the effective date of the
acquisition. The discount is due to the restricted nature of the preferred
stock and the underlying common stock as they are not registered under the
Securities Act of 1933, as amended.
The transaction was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16. The excess of the purchase price of PAS over
the fair market value of its net assets of $4,811,000 was recorded as cost in
excess of net assets acquired, which included $200,000 recorded in 1994
resulting from the resolution of a preacquisition contingency related to
acquired inventories. The Company wrote off the remaining balance of costs in
excess of net assets acquired during the fourth quarter of 1995 due to
management's belief that realization was not obtainable at this time.
PAS' operations consisted of two photo album manufacturing plants, one located
in Compton, California, and the other in Mexicali, Mexico, which is operated
under the Mexican mequiladora statutes. PAS' business prior to the acquisition
was the manufacturing of photo albums for distribution principally to one
domestic competitor of the Company. PAS discontinued this business effective
with the acquisition and the production of the Company's consumer photo album
products was moved from the Company's manufacturing facility in Brownsville,
Tennessee to the PAS facilities.
The above relocation was completed in November 1993, and the Company further
decided effective December 1993 to additionally restructure the Brownsville,
Tennessee operations. The Company recorded a restructuring charge of $723,000
in 1993 for the costs of personnel and equipment relation to the PAS facilities
and employee severance related to the downsizing of the remaining Tennessee
operations. During 1994, the Company completed its restructuring through a
series of transactions which included the sale of its microfilm, retail printing
and office supply businesses and the equipment related to certain custom and
government product offerings which had become infeasible in the downsized
operating environment of the Tennessee facility. Proceeds from these 1994
dispositions totaled $926,000, yielding a gain of $406,000. Neither the net
assets or the results of operations of the operations disposed of were material
to the accompanying Consolidated Financial Statements.
The Company recorded an additional restructuring charge of $506,000 in 1994,
which reflects a $305,000 change in estimate of the severance related to the
downsizing of the Tennessee operations and $201,000 for severance related to the
termination in August, 1994, of the President of the ProLine, Custom Products
and Government Divisions of KVP (the operations remaining in Tennessee). This
restructuring charge is shown offset by aggregate gain of $406,000 related to
the above dispositions as net restructuring costs of $100,000 in the
accompanying 1994 Consolidated Statement of Operations. Further, on August 25,
1994, the ProLine, Custom Products and Government Divisions of KVP were
separately incorporated as ProLine Storage Corporation and this new entity began
operating under its separate identity effective September 1, 1994.
F-9
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
On December, 1995, the Company's Board of Directors decided to bring in a new
management team to return the company to profitability. W. Blake Winchell was
recruited to join the Company as President and Chief Executive Officer. As part
of the transaction, effective January 2, 1996 the Company acquired The Channel
Group, Inc. ("Channel") and Style Frames, Inc. ("Style") from Mr. Winchell.
Channel and Style, based in Anaheim, California, manufacture and distribute
photo frames to the mass merchant, department store and specialty store
distribution channels, and share several major customers with the Company. The
Company, as part of new management's strategy to return the company to
profitability, closed its manufacturing plant in Brownsville, Tennessee laying
off forty Brownsville employees and moved the ProLine manufacturing operation to
its Anaheim, California facility. The Company also closed its Mexicali, Mexico
assembly unit, laying off approximately ninety employees and consolidated these
operations into the Compton, California facility. The Company also restructured
its headquarters, eliminating an additional fifteen employees. In connection
with new management's restructuring, the Company incurred restructuring costs of
$1,597,000 in 1995. Included in these expenses is $108,000 related to the
writeoff of leasehold improvements. These restructuring costs include
reserves for $333,000 related to the closure of Mexico, $686,000 related to
the closure of Tennessee, and $578,000 related to the termination of
consulting agreements. These expenses will be paid as incurred from working
capital mostly over the next twelve months.
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
--------- ---------
<S> <C> <C>
Raw materials $ 4,613 $ 4,371
Work-in-process 31 87
Finished products 4,913 3,935
--------- ---------
$ 9,557 $ 8,393
--------- ---------
--------- ---------
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
-------- --------
<S> <C> <C>
Machinery and equipment including assets
utilized under capital leases $ 7,086 $ 6,633
Furniture and fixtures 896 789
Leasehold improvements 372 629
Construction in progress 288 486
-------- --------
8,642 8,537
Less accumulated depreciation and amortization 4,785 4,392
-------- --------
$ 3,857 $ 4,145
-------- --------
-------- --------
</TABLE>
F-10
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
NOTE 5 - DEBT AND FINANCING ARRANGEMENTS
Long-term debt consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
-------- --------
<S> <C> <C>
Long-term debt:
Bank line of credit (see below) $ - $ 9,030
Bank term loan (see below) 236
Subordinated debentures, 14%, matured
in January 1993, no sinking fund 3 5
Tennessee Small Business Energy Loan, 5%,
due monthly through April 1997 7 13
Senior Secured Subordinate notes, 13%
due quarterly through April 2002,
less discount of $410,000 4,590 -
Computer lease obligation, 12.2%, due quarterly
through April 1995 - 38
Other capital lease obligations 81 81
-------- --------
4,681 9,403
Less current maturities 15 219
-------- --------
Long-term debt less current maturities $4,666 $ 9,184
-------- --------
-------- --------
</TABLE>
In June 1993, KVP's bank borrowing facility was expanded to include PAS and the
total facility was increased from $6,000,000 to $11,300,000. The borrowing
facility matures June 30, 1997 and consists of a term loan and the remainder, a
revolving credit line from which borrowings are allowed based on specified
percentages of inventories and accounts receivable. The term loan is payable in
varying monthly installments plus interest through the term of the facility.
The entire facility bears interest at 1% over the bank's prime rate (8.5% at
December 31, 1995) with an annual commitment fee of .75% of total availability.
At December 31, 1995, KVP had approximately $486,000 available for additional
borrowings under the line of credit based on its collateral borrowing base as of
that date and had committed funds of $299,000 for outstanding checks.
The only specific financial covenants included in the loan agreement for the
credit facility are the achievement of fiscal net income beginning in 1994, the
maintenance of scaled minimum net worth levels, the restriction of funds
movement from KVP and PAS to the Company (see Note 13), and a limitation on
additional capital lease obligations. As of December 31, 1995, the Company was
not in compliance with certain of its loan covenants. These covenants were
subsequently waived by the bank on April 5, 1996. Should the Offering
not occur by year end the Company may not comply with certain loan covenants
which become effective on that date. See Note 15 "Subsequent Events" for a
description of the anticipated $3.5 million to $4.0 million Offering.
On May 1, 1995, the Company borrowed $5,000,000 in a senior secured subordinated
note from Pacific Mezzanine Fund, L.P. and its participant (the "PMF Loan").
Additionally, as a condition precedent to the closing of the PMF Loan, Signal
F-11
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
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 contemplated
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,
would provide an additional loan of $1,500,000 (the "Additional Loan") by
April 21, 1996. However, this Additional Loan has not been made to date.
The PMF Loan and the Signal Loan bear interest at the rate of thirteen (13%)
per cent per annum, payable quarterly. The Company missed the September 30
and the December 31 interest payments due to the bank restriction on debt
payments while the Company is in technical default of its bank loan
agreement. 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 loan proceeds were used to finance the
development of the Company's Kodak photo album line, and for working capital
purposes. In connection with the financing of $5,000,000 from Pacific
Mezzanine Fund, L.P. and its participant, and $1,500,000 from Signal
Resources, L. P., the Company recorded $589,000 of Original Issue Discount in
Additional paid-in capital to reflect the value of 654,589 warrants issued
which offset the related loans. See Note 13.
The aggregate maturities of long-term debt as follows: 1996, $14,972; 1997,
$258,172; 1998, $257,821; 1999, $758,640; 2000, $759,544 and thereafter
$3,041,709. Substantially all of the Company's assets are pledged as collateral
to the above long-term debt. Additionally, at December 31, 1995, the Company
had a letter-of-credit outstanding of $106,000 for inventory and $34,000 for the
Compton plant operating lease,.
See Note 11 for information on loans from affiliates of $2,077,000 and $624,000
at December 31, 1995 and 1994, respectively.
F-12
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
NOTE 6 - LEASES
Included in property and equipment are assets utilized under capital leases with
a net book value of approximately $132,000 and $188,000 at December 31, 1995 and
1994, respectively. The related obligations are included in long-term debt.
The Company leases certain of its manufacturing facilities, offices, and
equipment under noncancellable operating leases expiring at various dates to
2003. The future minimum lease payments for capital and all noncancellable
operating leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
-------------------------- -------- ----------
<S> <C> <C>
1996 $ 15 $ 592
1997 14 537
1998 14 533
1999 14 511
2000 14 519
Thereafter 42 1,572
-------- ---------
Total minimum lease payment 113 $ 4,264
----------
----------
Less imputed interest 32
--------
Present value of net minimum
lease payments $ 81
-------
-------
</TABLE>
Insurance and maintenance charges on all leased property are paid by the
Company. Total rentals charged to operations in 1995, 1994 and 1993 were
$1,010,000, $1,109,000, $707,000, respectively.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all employees of KVP. The plan was amended effective October 1,
1994 to freeze future benefit accruals. The benefits are based on years of
service and the employee's final compensation level. The Company's funding
policy is to contribute annually an amount determined in accordance with income
tax regulation, which includes amortization of prior service cost over ten
years.
Net periodic pension cost for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------ ----- ------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ - $ 37 $ 43
Interest cost on projected benefit obligation 29 42 38
Actual return on plan assets (8) 20 7
Net amortization and deferral (8) (66) 29
---- ---- -----
Net periodic pension cost $ 13 $ 33 $ 117
----- ----- -----
----- ----- -----
</TABLE>
F-13
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
As a result of the restructuring activities discussed in Note 2 and the above
noted 1994 plan amendment, a curtailment gain of $25,000 and a curtailment loss
of $53,000 is reflected in the net amortization and deferral component of net
periodic pension cost for 1994 and 1993, respectively.
The funded status of the plan and amounts recognized in the Company's
consolidated balance sheet at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(429) $(479)
------ ------
------ ------
Accumulated benefit obligation $(429) $(479)
------ ------
------ ------
Projected benefit obligation $429 $479
Plan assets at fair value (345) (331)
Projected benefit obligation in excess of
plan assets (84) (148)
Unrecognized net obligation 21 45
-------- --------
Pension liability included in accrued expenses $ (63) $ (103)
-------- --------
-------- --------
</TABLE>
For 1995 and 1994, the weighted-average interest rate used was 7.5%. The
expected long-term rate of return on assets was 7.0% for both years. Plan
assets are invested primarily in listed stocks and U.S. government securities
and include common stock of the Company of $26,000 and $50,000 at December 31,
1995 and 1994, respectively.
The Company has a qualified incentive stock option plan which provides for the
granting of options to key employees including officers, at prices not less than
market value at date of grant. Options are exercisable for such periods as the
Stock Option Committee shall determine, but not for more than ten years from
date of grant. At December 31, 1995, no shares remained available for grant
under this plan.
Options granted pursuant to the 1991 Stock Plan must be exercised within three
years from date of grant and must be granted at an exercise price not less than
90% of market value on the date of grant. In December 1994, the Company's
shareholders approved an amendment to increase the number of shares issuable
under the plan by 300,000. In total, 659,700 shares have been reserved for
issuance under this plan, and at December 31, 1995, 340,405 shares remained
available for issuance or grant under this plan.
In May 1993, the Board of Directors granted additional non-qualified stock
options to certain of the Company's executive officers not pursuant to a formal
plan. The grants were for options on 60,000 shares at an exercise price of
$6.75 (85% of the market value at date of grant as adjusted for a subsequent
stock dividend) and are exercisable for a period of ten years from the date of
grant. Compensation expense of $70,000 was recorded in 1993 related to these
below market grants. In 1994, options on 36,000 shares were canceled upon the
termination of an executive of the Company and $42,000 of the previously
recorded compensation was reversed.
F-14
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
A summary of stock option transactions under these plans for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- -------------------------- -----------------------
SHARES SHARES SHARES
UNDER OPTION UNDER OPTION UNDER OPTION
OPTION PRICE OPTION PRICE OPTION PRICE
------- ---------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
January 1 44,790 $2.58-6.75 89,212 $2.07-23.13 38,390 $2.07-24.10
Granted 60,000 $6.75
Exercised (38,520) $2.58-6.75
Canceled (44,422) $2.07-23.13 (9,178) $2.07-24.10
------- ----------- -------- ----------- -------- -----------
December 31 6,270 $3.44-4.73 44,790 $2.58 - 6.75 89,212 $2.07-23.13
------- ----------- -------- ----------- -------- -----------
------- ----------- -------- ----------- -------- -----------
</TABLE>
Options representing 6,270, 44,790 and 89,212 shares were exercisable under all
stock option arrangements at December 31, 1995, 1994 and 1993, respectively.
The only significant post-employment benefits offered by the Company relate to
severance arrangements for terminated employees (see Note 2), which are
accounted for on an accrual basis at the time of termination.
NOTE 8 - INCOME TAXES
The components of income taxes (benefit) for the years ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Deferred income taxes (benefit), exclusive
of components below $ - $ (914) $(1,171)
Benefit of capital loss carryforward - (186) -
Adjustment of valuation allowance due to
change in judgement of realizability 581 1,100 1,171
------ ------- -------
Deferred income taxes 581 - -
------ ------- -------
Income taxes - continuing operations $ 581 $ - $ -
------ ------- -------
------ ------- -------
</TABLE>
F-15
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
The income taxes (benefit) applicable to continuing operations for the years
ended December 31, 1995, 1994 and 1993 differs from that which would be obtained
by applying the Federal statutory rate of 34% to pretax loss as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Benefit at statutory rate (4,569) $ (1,189) $ (1,004)
State taxes net of Federal effects - 183 146
Change in deferred tax asset valuation allowance 581 1,100 1,171
Unrealized benefit (utilization) of
loss carryforward 3,107 (186) -
Non-deductible goodwill 1,462 118 77
Other - (26) (98)
-------- -------- --------
Income taxes (benefit) - continuing operations $ 581 $ - $ -
-------- -------- --------
-------- -------- --------
</TABLE>
Deferred tax assets (liabilities) are comprised of the following at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
---------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 5,845 $ 3,094
Capital loss carryforwards 26 88
Deferred compensation 513 419
Inventory reserves 193 246
Restructuring reserve 435 97
Other asset valuation allowance 223 133
Bad debt allowance 139 104
Vacation pay accrual 40 50
Lease treatment differences - 16
Other 15 14
-------- --------
Gross deferred tax assets 7,429 4,261
Deferred tax liabilities:
Depreciation (825) (740)
Other - (20)
-------- --------
Gross deferred tax liabilities (825) (760)
Valuation allowance (6,604) (2,920)
-------- --------
Net deferred tax assets $ - $ 581
-------- --------
-------- --------
</TABLE>
The net increase in the valuation allowance of $4,444,000 in 1995 was primarily
comprised of an increase of $2,751,000 to fully reserve the tax benefit of the
1995 loss, a writeoff of the previously capitalized net deferred tax assets of
$581,000 and an increase in the restructuring reserve of $337,000 to fully
reserve the related tax benefits all due to realizability considerations.
F-16
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
The net increase in the valuation allowance of $914,000 in 1994 was comprised of
an increase of $1,100,000 to fully reserve the tax benefit of the 1994 loss due
to realizability considerations net of a decrease of $186,000 due to utilization
of capital loss carryforward which were previously fully reserved. The valuation
allowance for deferred tax assets decreased by $948,000 in 1993. The net
decrease in the valuation allowance was comprised of a decrease of $2,119,000
due to the expiration of capital loss carryforwards during 1993 net of an
increase of $1,171,000 to fully reserve the tax benefit of the 1993 loss due to
realizability considerations.
No tax benefits were recorded for the losses in 1995, 1994 or 1993 due to
realizability considerations. As of December 31, 1994 and 1993, the Company had
recorded net deferred tax assets totalling $581,000, the realization of which
management believed was more likely than not that there would be future taxable
income. The balance of deferred taxes was written off in the fourth quarter of
1995 and no new deferred taxes were added in 1995 to reflect management's belief
that it is more likely than not that this asset is not realizable in the near
future.
At December 31, 1995, the Company has net operating loss carryforwards for tax
purposes of $17,193,000 which expire as follows: 2001 - $555,000; 2002 -
$108,000; 2003 - $1,759,000; 2004 - $1,085,000; 2005 - $372,000; 2008 -
$1,991,000; 2009 - $3,230,000; and 2010 - $8,093,000. The Company also has
capital loss carryforwards for tax purposes of $76,000 which expire in 1996.
Because of a change in the Company's ownership on September 29, 1993, there is
an annual limitation of approximately $1,400,000 on the usage on approximately
$5,700,000 of net operating loss carryforwards that originated prior to that
date.
NOTE 9 - DISCONTINUED OPERATIONS
Subsequent to the disposal in 1990 of a subsidiary of the Company which was in
the real estate business, the Company remained contingently liable on certain
debts collateralized by the real estate properties and was named a party to two
litigations related thereto (as discussed below).
The Resolution Trust Corporation ("RTC"), as receiver for Columbia Federal
Savings and Loan Association, commenced an action in the United States District
of Texas, Houston Division, against the Company, Damon Interests, Inc., Almeda
Stables, Inc., MPP, and MSC. The Company was served with the summons and
complaint on September 25, 1992 alleging that the Company was in default under a
promissory note for the unpaid balance of $4,087,498 representing an aggregate
sum of the principal due of $2,934,425 plus accrued interest through June 26,
1993, of $1,159,073, less $6,000 held in suspense for application against the
balance. On July 28, 1994, the Company and the RTC agreed to settlement terms
on the above action dismissing their claims against each other in the litigation
with prejudice. The action was settled for total cash payments of $570,000.
The Company will pay the RTC the $570,000 settlement amount in three (3)
installments: $300,000 was paid on August 27, 1994; $170,000 was paid on April
15, 1995; and $100,000 on or before December 31, 1996.
On April 9, 1993, the FDIC, as receiver for Texas National Bank, brought an
action against the Company in the United States District Court for the Southern
District of Texas to recover $1,300,000 plus interest under a promissory note
executed in 1986. Total claimed damages in the suit were approximately
$1,500,000. In a mediation on September 12, 1994, the FDIC extended an offer to
the
F-17
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
Company to settle the above action. According to its terms, the offer was
irrevocable until October 10, 1994 and required total cash payments of $360,000,
payable in installments as follows: $50,000 on or before October 15, 1994;
$50,000 on or before November 15, 1994; seven semi-annual payments of $30,000
beginning on October 15, 1995; and a final payment of $50,000 on April 15, 1999.
The Company accepted the settlement offer on October 10, 1994.
The loss from discontinued operations of $794,000 in 1994, represents the
present value of the stream of cash payments related to the litigation
settlements described above.
NOTE 10 -DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company historically has had a concentration of significant customers.
Although the Company considers its commercial relationships with its significant
customers to be good, a loss of these customers, or a significant decrease in
purchases by these customers, could have an adverse effect on the Company's
operations. The Company does not have any long-term contracts with any of its
customers and none are expected to be signed. Long-term contracts are not
customary in the retail industry. Sales to one customer totalled $10,510,000,
$11,640,000, and $7,359,000 in 1995, 1994, and 1993 respectively, representing
42.3%, 39.6% and 30.2% of total Company revenues, respectively. Additionally,
sales to one other customer totalled $2,520,000, $2,861,000 and $4,092,000 in
1995, 1994 and 1993, respectively, representing 10.1%, 9.7% and 16.8% of total
Company revenues, respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1993, the Company entered into a supply arrangement with a trading
company affiliated with the chairman of the Company for the purchasing of
certain raw materials and subcomponents of its photo album business from
foreign sources. The affiliate acted as an intermediary in the sourcing of the
materials, handling the logistics and financing of the international purchases.
The Company purchased the related materials from the affiliate company at its
cost plus a 4% handling fee and pays the affiliate a finance charge at 2% over
the prime rate from date of invoice until paid. During 1995 and 1994, the
Company purchased materials totalling approximately $3,018,000 and $2,511,000,
respectively, from the affiliated company and incurred related finance charges
of approximately $188,000 and $151,000, respectively. The balance due under
this arrangement at December 31, 1995 and 1994 of $1,748,000 and $1,453,000,
respectively, is reflected in the consolidated balance sheet in accounts payable
to affiliates. In December 1995, the Company discontinued this supply
arrangement and began purchasing raw materials and subcomponents from an
unaffiliated trading company. The Company will no longer enter into
transactions with the affiliated trading company.
On September 29, 1993, the Chairman of the Company and Hardee Capital Partners,
L.P. (HCP), an institutional investor in the Company, entered into an agreement
with the then vice-chairman to acquire substantially all of his stockholdings in
the Company. Concurrent with this agreement, this vice-chairman resigned from
the Company and his employment agreement was terminated and superseded by two
consulting agreements, one between the Company and himself and the other between
the Company and a company affiliated with him. These consulting agreements in
the aggregate provided for an initial consulting payment of $230,000, annual
fees totalling $240,000, payable monthly over the three year term of the
agreements, and 60,000 shares of the Company's common stock valued at
approximately
F-18
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
$581,000 issued in installments over the term of the agreements. The total
consideration for the consulting services was being recognized pro rata for the
three year term of the agreements in the Company's results of operations.
On November 18, 1993, HCP subscribed to purchase 200,000 shares of the Company's
restricted common stock in a private placement for an aggregate price of
$1,600,000 or $8.00 per share. The transaction was conditioned upon the
American Stock Exchange approving the Listing Application covering the shares.
The American Stock Exchange informed the Company on January 26, 1994 that it
could not approve the Listing Application for the shares. On February 4, 1994,
the Company and HCP mutually agreed to cancel the stock subscription agreement
and converted the $1,600,000 subscription price previously contributed into a
loan. The loan was payable on demand with interest at the annual rate of one
percent above prime and was convertible into common stock at the option of HCP
at $8.00 per share.
On August 1, 1994, effective as of July 28, 1994, HCP, Hee Poong Park (the
Company's Chairman and Chief Executive Officer), and David W. Hardee (the
General Partner of HCP and effective August 31, 1994, the Company's President
and Co-Chief Executive Officer) agreed with the Company to convert an aggregate
of $3,231,600 of demand debt (including accrued interest), payable under demand
Promissory Notes to HCP, Mr. Park and Mr. Hardee. The $3,231,600 of debt was
converted into an aggregate of 646,320 shares of common stock at a conversion
rate of $5.00 per share. HCP and Mr. Hardee converted $2,447,220 of debt into
489,444 shares. The conversion included $1,676,180 of principal and interest
due HCP under an Amended and Restated Non-negotiable Convertible Promissory Note
dated July 28, 1994. The Amended and Restated Convertible Promissory Note
amended the Non-negotiable Convertible Promissory Note dated February 4, 1994,
in the principal amount of $1,600,000 and modified the conversion rate from
$8.00 per share to $5.00 per share. The remaining $771,030 of debt converted by
HCP and Mr. Hardee was represented by four (4) Promissory Notes in the aggregate
amount of principal plus interest of $363,993, $259,228 and $97,809 due HCP and
$50,000 due Mr. Hardee, respectively.
Mr. Park converted $784,380 of debt into 156,876 shares of common stock. Mr.
Park acquired from HCP $784,380 of debt payable by the Company to HCP, by
assignment of HCP's rights as follows: (i) $672,852 of principal plus interest
under a Promissory Note to HCP dated March 11, 1994, and (ii) $111,528 of
principal to HCP under a Promissory Note dated March 1, 1994. Mr. Park acquired
the debt from HCP in consideration for a demand Promissory Note payable to HCP
in the amount of $784,380 plus interest accruing at an annual rate of the prime
rate plus 2% per annum.
Also during 1994, HCP and an individual affiliated with Mr. Park loaned the
Company additional funds as demand debt with interest at an annual rate of one
percent above prime. These loans plus accrued interest totalling $700,000 and
$624,000 are reflected in the consolidated balance sheet at December 31, 1995
and 1994, respectively, as loans from affiliates.
On May 1, 1995, the Company borrowed $5,000,000 in a senior secured subordinated
note from Pacific Mezzanine Fund, L.P. and its participant (the "PMF Loan").
See Note 5.
F-19
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
NOTE 12 - SUPPLEMENTAL CASH FLOW INFORMATION
Significant non-cash investing and financing activities not reflected elsewhere
in the consolidated financial statements are as follows:
In 1994, $3,231,600 of demand debt was converted into 646,320 shares of common
stock (see Note 11). Additionally, the Company incurred a capital lease
obligation of $162,000 for certain manufacturing equipment, and in connection
therewith received an initial credit of $75,000 against the obligation in trade
for certain other equipment net of related encumbrances as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1994
---------
<S> <C>
Net book value of traded equipment $127,000
Less related installment purchase notes 52,000
--------
Initial credit $ 75,000
--------
--------
</TABLE>
As discussed in Note 2, the Company purchased all of the stock of PAS in 1993
through the issuance of preferred stock. In conjunction with the acquisition,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1993
--------
<S> <C>
Fair values of assets acquired $ 4,543
Cost in excess of net assets acquired 4,811
Value of preferred stock issued (4,988)
--------
Liabilities assumed (including $160,000 direct
costs of acquisition) $ 4,366
--------
--------
</TABLE>
Interest paid during the years ended December 31, 1995, 1994 and 1993 was
$1,314,000, $851,000, and $505,000, respectively. Income taxes paid during the
years ended December 31, 1995, 1994 and 1993 were $32,000, $91,000 and $82,000,
respectively.
NOTE 13 - STOCKHOLDERS' EQUITY
The preferred stock of the Company is voting convertible preferred stock, with
each share being convertible into one share of the Company's common stock at the
holder's option after such conversion is approved by the vote of the common
shareholders. Holders of the preferred stock have the same voting rights as
holders of the Company's common stock and are entitled to the same dividends as
those paid on the common stock.
During 1993, the Company consummated three private placements of its restricted
common stock. On August 12, 1993, the Company issued 168,000 shares of
restricted common stock (post 20% stock dividend) at a price of $8 1/3 per share
to HCP for aggregate proceeds of $1,400,000. Then on November 15, 1993, the
Company issued 50,000 shares at the price of $8 per share; 25,000 shares each to
two individual investors, for aggregate proceeds of $400,000. There were no
underwriting expenses associated with any of these transactions and the
placement shares have piggy-back rights in the event of a registration of any
shares of the Company's stock.
F-20
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
Deductions from stockholders' equity at December 31, 1995 and 1994, include
deferred compensation and notes from officers as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
1995 1994
--------- ---------
<S> <C> <C>
Deferred compensation $ - $ 459
Notes from officers 239 80
--------- ---------
$ 239 $ 539
--------- ---------
--------- ---------
</TABLE>
During 1992, the Company granted three incentive awards of restricted common
stock totalling 312,695 shares to certain officers, directors and employees of
the Company under its 1991 Stock Plan. The related restricted shares are earned
over future periods of service to the Company and are cancelable on a pro rata
basis for any voluntary termination during those periods. The deferred
compensation deduction at December 31, 1994 represents the value of the
restricted shares at grant of $1,415,000 less amortization of $956,000 for
shares earned through December 31, 1994.
The notes from officers are unsecured notes receivable given by officers to
exercise stock options, bear interest at the AFR rate specified by the Internal
Revenue Service, and were due in 1995.
Movement of funds from KVP and PAS to the Company are restricted in accordance
with the terms of the Company's bank credit arrangement, such that at December
31, 1994, consolidated net assets of approximately 8,088,000 are restricted from
use in the payment of cash dividends without the bank's prior approval.
In connection with the PMF Loan and the Signal Loan (as fully discussed in Note
5), Signal and PMF received warrants to purchase 151,059 and 503,530 shares of
the Company's common stock, respectively. The warrants are exercisable for a
five year period commencing on the first anniversary date of issuance at $6.00
per share, with a mandatory net issuance when the Company's common stock has
traded on the American Stock Exchange at or above $16 per share for 20
consecutive business days. In the event that an additional $1.5 million loan is
not funded by April 21, 1996, additional warrants to purchase 151,059 shares
which were to be issued in conjunction with that funding, will be issued to
Signal and PMF in the amounts of 34,859 and 116,200 warrants, respectively.
This additional loan was not funded as of December 31, 1995. The issuance of
the shares upon exercise of the warrants which are being issued to Signal and
which will be issued to Signal, or Mr. Park, Mr. Hardee or their affiliates, if
and when the remaining $1.5 million is funded by any of those persons or
entities, is subject to the approval by a majority of the Company's stockholders
other than Messrs. Park, Hardee and their affiliates.
NOTE 14 - LEGAL PROCEEDINGS
In October 1993, Olla Beauty Products, Inc. ("Olla") commenced a third party
action against Neslemur Company (" NLC") (a wholly-owned subsidiary of the
Company which discontinued operations in 1987 and was discharged in bankruptcy
under Chapter 7 of the Federal Bankruptcy Code in July 1991) and the Company in
the Supreme Court of the State of New York, Bronx County. The action arose from
F-21
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
a personal injury claim against Olla for $2,500,000 resulting from the use of
cosmetics. Olla claims that if it is found liable, then NLC and the Company are
liable to Olla. Olla has alleged that NLC was engaged in the business of
manufacturing, compounding, packaging and distributing the cosmetic product that
allegedly caused the injuries. The action is stayed against NLC by virtue of
NLC's bankruptcy. The Company has denied Olla's allegations. Settlement
negotiations in this matter are currently not being pursued since Olla's claims
will only become ripe if the plaintiff in the Humphrey Action prevails or agrees
to a settlement. NLC is and has been a corporation wholly separate and apart
from the Company, which is its sole parent. The Company believes that such
corporate insulation, among other things, is a meritorious defense to Olla's
claims against the Company and management believes that the likelihood that Olla
will prevail in an action to pierce the corporate veil is remote.
The Company and/or its subsidiaries are also subject to other legal proceedings
and claims which have arisen in the ordinary course of business. Although their
ultimate outcome cannot be predicted with certainty pending actual resolution,
in the opinion of management, the disposition of the above matters will not have
a material adverse effect on the consolidated financial statements.
NOTE 15 - SUBSEQUENT EVENTS
On January 2, 1996, Kleer-Vu Industries, Inc. acquired all of the outstanding
common shares of The Channel Group., a California corporation ("Channel") and
Style Frames, Inc. a California corporation ("Style") from their sole
stockholder W. Blake Winchell pursuant to a stock purchase agreement.
In consideration for the Channel and Style common shares, the Company assumed
and agreed to indemnify Winchell against any personal liability with regard to,
the indebtedness (the "Indebtedness") owed by Style to Well Fargo Bank, N.A. and
Heller First Financial corporation of an amount which would not be more than
$1,000,000 plus all costs, charges and fees associated with a default, if any,
of such Indebtedness. Channel and Style combined had net assets of $865,000 as
of January 2, 1996. At January 2, 1996 the Indebtedness was $932,372. As
further consideration, debt owed to Mr. Winchell of $301,069 as of January 2,
1996 was assumed by the Company.
On December 7, 1995 the Company granted to Mr. Winchell options (the "Options")
to purchase up to 500,000 Common Shares, which Options are exercisable, subject
to and commencing upon approval of the Company's stockholders, for a period
ending on December 7, 2000 at an exercise price equal to the lowest price of the
Company's common shares on the American Stock Exchange during the period
beginning on November 1, 1995 and ending on the earlier of (i) the date of any
of the Options are first exercised; or (ii) the fifteenth day following the
filing of the Company's Form 10-K for the fiscal year ending December 1995
("Form 10-K") with the Securities and Exchange Commission (the SEC"); or the
lowest price at which the Company's common stock is sold by the Company to any
other party. The Company also agreed to use its best efforts to register for
resale the common shares underlying the Options after the Form 10-K has been
filed with the SEC and after stockholder approval for the issuance of the
Options has been obtained. The Options were granted to Mr. Winchell as
compensation during the initial four month period of his employment. Mr.
Winchell will not receive any cash compensation during such initial four month
period. Mr. Winchell has no written employment contract with the Company or its
subsidiaries. In conjunction with the closing of the Offering, the
Company and Mr. Winchell will execute an employment agreement which is currently
being negotiated.
F-22
<PAGE>
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(CONTINUED)
--------------------------------------------
--------------------------------------------
On March 4, 1996, the Company acquired the assets of Martin Holan Company
("Martin Holan"), a photo album, frame and wall decor company. The operations
and financial position of Stlye, Channel and Martin Holan are not material to
the Company's results of operations or financial position.
The Company is currently negotiating 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. As a condition of closing the Offering certain subordinated
debt holders and affiliated debt holders have preliminarily agreed to convert
an aggregate of $10.2 million of debt into equity. Management can not assure
that such conversion will be consumated.
NOTE 16 - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1995, the Company wrote off the costs in excess of
net assets acquired in the amount of $3,976,000 and deferred tax assets in the
amount of $581,000. The adjustments increased the loss per share by $1.71.
F-23
<PAGE>
SCHEDULE I
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
FOR YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
--------------------------------------------
--------------------------------------------
<TABLE>
<CAPTION>
ASSETS
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 14 $ 7
Other 18 84
-------- -------
Total current assets 32 91
-------- -------
Deferred income taxes - 97
Other assets - 234
Investment in subsidiaries (Note 1) (1,813) 8,448
-------- -------
Total assets $ (1,781) $ 8,870
-------- -------
-------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Loans from affiliates $ 2,077 $ 624
Other current liabilities - accounts payable and
accrued expenses 813 297
-------- -------
Total current liabilities 2,890 921
-------- -------
Total noncurrent liabilities 138 353
Contingencies (Note 5)
Stockholders' equity (deficit) (Note 5):
Preferred stock, $10 par value; 1,000,000
shares authorized, 900,000 issued 9,000 9,000
Common stock, $.10 par value; 10,000,000
shares authorized; issued 2,725,000 and
2,633,700 shares, respectively 272 263
Additional paid in capital 17,466 16,160
Deficit (31,265) (17,245)
-------- -------
(4,527) 8,178
Less:
Deferred compensation and notes from officers (239) (539)
Common stock held in treasury, at cost, 7,144 shares (43) (43)
-------- -------
Total stockholders' equity (deficit) (4,809) 7,596
-------- -------
Total liabilities and stockholders' equity (deficit) $ (1,781) $ 8,870
-------- -------
-------- -------
</TABLE>
See notes to condensed financial information.
F-24
<PAGE>
SCHEDULE I
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF OPERATIONS AND DEFICIT
FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------
--------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Management fee (Note 3) $ - $ 100 $ 100
Other (Note 2) - - 5
------- ------- -------
- 100 105
Administrative, general and interest expense 2,143 1,099 1,118
------- ------- -------
Loss from continuing operations before
loss of subsidiary company (2,143) (999) (1,013)
Loss from continuing operations of
subsidiary companies (11,877) (1,704) (1,939)
------- ------- -------
Loss from continuing operations (14,020) (2,703) (2,952)
Discontinued operations - (794) -
------- ------- -------
Net loss (14,020) (3,497) (2,952)
Deficit at beginning of the year (17,245) (13,748) (10,796)
------- ------- -------
Deficit at end of the year $(31,265) $(17,245) $(13,748)
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to condensed financial information.
F-25
<PAGE>
SCHEDULE I
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF CASH FLOW
FOR YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
--------------------------------------------------
--------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations and cumulative $(14,020) $ (2,703) $ (2,952)
Adjustments to reconcile income (loss) to net cash provided
by continuing operations:
Equity in loss of subsidiaries 11,877 1,704 1,939
Deferred compensation and other amortization 566 473 469
Deferred income taxes 97 81 -
Restructuring costs - 65 -
Changes in assets and liabilities 335 179 (420)
-------- -------- --------
Net cash used by continuing operations (1,145) (201) (964)
-------- -------- --------
Loss from discontinued operations - (794) -
Adjustments to reconcile loss to cash used by
discontinued operations:
Settlement costs - 794 -
Changes in net assets related to discontinued operations - (385) -
-------- -------- --------
Net cash used by discontinued operations - (385) -
-------- -------- --------
Net cash used by operating activities - (586) (964)
-------- -------- --------
Cash flows from investing activities:
Net advances to subsidiaries (1,616) (2,664) (1,549)
-------- -------- --------
Net cash used by investing activities (1,616) (2,664) (1,549)
-------- -------- --------
Cash flows from financing activities:
Loans from affiliates 1,453 2,251 1,605
Issuance of stock 908 - 1,800
Collection of note from officer - - 75
Shares to be issued in connection with termination
of consulting agreement 407 - -
Cash dividends and cash-in-lieu of fractional shares - - (30)
-------- -------- --------
Net cash provided by financing activities 2,768 2,251 3,450
-------- -------- --------
Net increase (decrease) in cash 7 (999) 937
Cash, beginning of period 7 1,006 69
-------- -------- --------
Cash, end of period $ 14 $ 7 $ 1,006
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to condensed financial information.
F-26
<PAGE>
SCHEDULE I
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
---------------------------------------------
---------------------------------------------
1. The condensed financial information of the Registrant (the Company) should
be read in conjunction with the consolidated financial statements and the
notes to consolidated financial statements, which are included elsewhere
herein.
Investment in subsidiaries is presented net of advances from or inclusive
of advances to the subsidiaries, as applicable.
2. Subsequent to the disposal in 1990 of Main Park Properties ("MPP"), a
subsidiary of the Company which was in the real estate business, the
Company remained contingently liable on certain debts collateralized by the
real estate properties and was named a party to two litigations related
thereto (as discussed below).
The Resolution Trust Corporation ("RTC"), as receiver for Columbia Federal
Savings and Loan Association, commenced an action in the United States
District of Texas, Houston Division, against the Company, Damon Interests,
Inc., Almeda Stables, Inc., MPP, and MSC. The Company was served with the
summons and complaint on September 25, 1992 alleging that the Company was
in default under a promissory note for the unpaid balance of $4,087,498
representing an aggregate sum of the principal due of $2,934,425 plus
accrued interest through June 26, 1993, of $1,159,073, less $6,000 held in
suspense for application against the balance. On July 28, 1994, the
Company and the RTC agreed to settlement terms on the above action
dismissing their claims against each other in the litigation with
prejudice. The action was settled for total cash payments of $570,000.
The Company will pay the RTC the $570,000 settlement amount in three (3)
installments: $300,000 was paid on August 27, 1994; $170,000 on April 15,
1995; and $100,000 on or before December 31, 1996. Additionally the RTC
retains the right to all proceeds from the sale of collateral which secured
the promissory note. The settlement does not effect the Company's cross
action against MSC, one of the defendants in the action, which asserts that
MSC is liable to satisfy any debt due under the Promissory Note because MSC
assumed the Company's liabilities in connection with the loan when MSC
acquired the capital stock of MPP in 1990. MSC, however, has subsequently
been involuntarily dissolved and no recovery appears likely.
On April 9, 1993, the FDIC, as receiver for Texas National Bank, brought
an action against the Company in the United States District Court for the
Southern District of Texas to recover $1,300,000 plus interest under a
promissory note executed in 1986. Total claimed damages in the suit were
approximately $1,500,000. In a mediation on September 12, 1994, the FDIC
extended an offer to the Company to settle the above action. According to
its terms, the offer was irrevocable until October 10, 1994 and required
total cash payments of $360,000, payable in installments as follows:
$50,000 on or before October 15, 1994; $50,000 on or before November 15,
1994; seven semi-annual payments of $30,000 beginning on October 15, 1995;
and a final payment of $50,000 on April 15, 1999. The Company accepted the
settlement offer on October 10, 1994.
The loss from discontinued operations of $794,000 in 1994, represents the
present value of the stream of cash payments related to the litigation
settlements described above.
F-27
<PAGE>
SCHEDULE I
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL INFORMATION (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
--------------------------------------------
--------------------------------------------
3. A flat management fee of $100,000 was charged the subsidiaries in 1994 and
1993, respectively.
4. The Company files a consolidated Federal income tax return with its
subsidiaries. Income tax allocations are based primarily on each
subsidiary filing a separate return with the exception that consolidated
tax loss carryforwards are available to each subsidiary regardless of their
origination. No tax benefit was recognized for the Company's losses in
1995, 1994 and 1993, as the Company and its subsidiaries, consolidated and
individually, are in a tax loss carryforward position and, therefore, the
determination that the realization's net benefit is more likely than not
cannot be made.
There were no tax related balances with subsidiaries at December 31, 1995
or 1994. See Note 8 to the Consolidated Financial Statements for further
information with respect to income taxes.
5. Pursuant to the terms of its subsidiaries' current bank credit agreement,
movement of funds from the subsidiaries to the Company are restricted from
use in the payment of cash dividends without the bank's prior approval.
The Company has also guaranteed all borrowings under this agreement, which
total $9,836,000 at December 31, 1995. Additionally, the payment of cash
dividends is restricted under the PMF loan, and can not be paid without
Pacific Mezzanine Fund L. P.'s approval.
F-28
<PAGE>
SCHEDULE II
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995, 1943 AND 1993
------------------------------------------------
------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------- ------------------------
ACCOUNTS CREDITED BALANCE
BALANCE CHARGED TO WRITTEN TO COST AT END
BEGINNING COSTS AND OFF NET OF AND OF
OF PERIOD EXPENSES RECOVERIES EXPENSES PERIOD
----------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
1995
- ----
Allowance for doubtful accounts: $ 287,000 $ 105,000 $ 26,000 $ 366,000
1994
- ----
Allowance for doubtful accounts: $ 345,000 $ 52,000 $ 6,000 $ 287,000
1993
- ----
Allowance for doubtful accounts: $ 335,000 $ 25,000 $ 15,000 $ 345,000
</TABLE>
F-29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
KLEER VU INDUSTRIES, INC.
----------------------------------------
By /s/ W. Blake Winchell
----------------------------------------
W. Blake Winchell
President and Chief Executive Officer
Principal Financial & Accounting Officer
Date: April 13, 1996
------------------------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ W. Blake Winchell
-----------------------------------------
W. Blake Winchell
President and Chief Executive Officer and
Principal Financial & Accounting Officer
Date: April 13, 1996
------------------------
By /s/ David W. Hardee
-----------------------------------------
David W. Hardee, Co-Chairman of the Board
Date: April 13, 1996
------------------------
By /s/ H. P. Park
-----------------------------------------
H. P. Park, Co-Chairman of the Board
Date: April 13, 1996
------------------------
<PAGE>
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into on December 7, 1995, by and between Kleer-Vu
Industries, Inc., a Delaware corporation (hereinafter referred to as "Buyer"),
and Mr. W. Blake Winchell, an individual residing in the State of California
(hereinafter referred to as "Seller").
R E C I T A L S
WHEREAS, Seller owns one hundred percent (100%) of the issued and
outstanding shares of both The Channel Group, Inc., a California corporation,
consisting of ten (10) shares of common stock, and Style Frames, Inc., a
California corporation, consisting of ten thousand (10,000) shares of common
stock (collectively, the "Companies," and the "Shares"), and desires to sell
said Shares to Buyer on the terms and conditions contained herein; and
WHEREAS, Buyer is willing to purchase all of the Shares owned by
Seller in the Companies on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T
1. PURCHASE OF STOCK.
a. AGREEMENT TO PURCHASE. Seller hereby agrees to sell to
Buyer, and Buyer hereby agrees to purchase from Seller, on January 2, 1996 (the
"Closing" and the "Closing Date"), all of the outstanding Shares in the
Companies held by Seller on the terms and conditions set forth herein. The
Closing shall take place at a location to be mutually agreed upon by the
parties, or if no agreement is reached, at 10:00 a.m. at the law offices of
Bronson, Bronson & McKinnon, 505 Montgomery Street, San Francisco, California.
b. PURCHASE PRICE. The consideration to be paid or given at
the Closing to acquire the Shares shall be:
(1) One Dollar ($1.00); plus
-1-
INITIAL HERE
--------
<PAGE>
(2) The assumption by Buyer of the financial obligations
the Companies have, as described in Paragraph 3 below, to: (a) Wells Fargo
Bank, N.A., or its successor institution ("WFB"); and (b) Heller First Financial
Corporation, a Delaware corporation, or its successor institution ("Heller"),
with respect to any loans, line(s) of credit, or other credit extensions or
other financial obligations which the Companies may have to either WFB or
Heller, said assumption not to exceed One Million Dollars ($1,000,000) of
principal in the aggregate, plus all costs, charges and fees of any kind
associated with a default of the same; and
(3) Buyer's full indemnification, as described below in
Paragraph 4, of Seller with respect to the personal liability which Seller may
have to WFB or Heller with respect to any loans, line(s) of credit, or other
credit extensions or other financial obligations which the Companies may have to
either WFB or Heller, said indemnification obligation not to exceed One Million
Dollars ($1,000,000) of principal with respect to such obligations in the
aggregate, plus all costs, charges and fees of any kind associated with a
default of the same.
c. DELIVERY OF SHARE CERTIFICATES. At the Closing, Seller
shall deliver to Buyer the share certificates representing the Shares to be
purchased by Buyer hereunder, together with executed endorsements thereon or
stock transfer assignments thereto sufficient to transfer ownership of all of
such shares to Buyer. Upon the receipt by Buyer of said share certificates
properly endorsed for transfer, Buyer agrees that: (i) it will deliver to
Seller the cash consideration provided for in Paragraph 1.b above; (ii) it will
have automatically, and without further action of any kind, assumed all
financial obligations associated with the Companies, as described in Paragraph 3
below; and (iii) it will be fully and unconditionally obligated to indemnify
Buyer as described below in Paragraph 4 hereof.
d. CONDITIONS TO CLOSE/LIQUIDATED DAMAGES. The parties agree
that Buyer's compliance with, and satisfaction of, the requirements set forth in
Paragraph 1(b)(2) and 1(b)(3) above shall be a condition to Seller's obligation
to close, with compliance to be determined by Seller in Seller's sole and
absolute discretion, and that a failure on the part of Buyer to satisfy the
requirements set forth in Paragraph 1(b)(2) and 1(b)(3) above shall result in
substantial damages to Seller. Accordingly, in the event Buyer fails to satisfy
the requirements set forth in Paragraph 1(b)(2) and 1(b)(3) on the Closing Date
to Seller's satisfaction, Buyer agrees to pay to Seller, as liquidated damages
and not as a penalty, an amount equal to the sum of amounts due and payable by
the Companies as of the Closing Date to WFB and Heller, plus all costs, charges
and fees associated with a default of the same. Buyer acknowledges and agrees
that the foregoing liquidated damages amount is reasonable and fair and does not
serve as or constitute a penalty of any kind to Buyer.
BUYER TO INITIAL HERE:
--------
-2-
INITIAL HERE:
--------
<PAGE>
e. ELIMINATION OF SELLER'S PERSONAL LIABILITY. Buyer further
agrees, notwithstanding anything contained herein to the contrary, that Buyer
shall use its best efforts to promptly negotiate separate agreements with Heller
and WFB by which Heller and WFB will remove and/or extinguish any and all
security interests or other encumbrances of any kind (e.g., agreements regarding
pledged property or property held as collateral for the repayment of the amounts
due to WFB and Heller) which may exist in favor of WFB or Heller with respect to
Seller's personal assets, and substitute therefore, if necessary, Buyer's assets
as collateral or security for such indebtedness.
2. WARRANTIES AND REPRESENTATIONS. Each party hereby warrants,
represents to and agrees with the other as follows:
a. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer hereby
represents and warrants to Seller as follows: (i) Buyer is a corporation duly
organized and existing under the laws of the State of Delaware and is in good
standing under such laws; (ii) all corporate actions on the part of Buyer, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by Buyer has been taken or will be taken prior
to the Closing Date; and (iii) this Agreement, when executed and delivered by
Buyer, shall constitute a valid and binding obligation of Buyer enforceable in
accordance with its terms.
b. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby
represents and warrants to Buyer as follows: (i) Seller is authorized to enter
into and perform this Agreement and has complete and absolute title to the
Shares being purchased by Buyer hereunder and such Shares constitute all of the
shares of capital stock of any kind or nature whatsoever in the Companies; (ii)
subject to the rights of those creditors of Seller described in Paragraph 4
below regarding Buyer's indemnification obligations, Seller's title to said
Shares is free and clear of any liens, charges or encumbrances, and by Seller's
sale to Buyer of said Shares, Seller warrants that Buyer shall receive good and
absolute title thereto, free from any liens, charges or encumbrances thereon;
and (iii) the principal and unpaid interest, if any, currently due and owing to
WFB and Heller is, in the aggregate, an amount not in excess of One Million
Dollars ($1,000,000).
3. BUYER'S ASSUMPTION OF DEBTS, OBLIGATIONS AND LIABILITIES OF THE
COMPANIES . Buyer shall, upon the transfer of the Shares to Buyer at the
Closing, assume the obligations of the Companies with respect to the loans,
line(s) of credit, or other credit extensions or other financial obligations
which the Companies may have to either WFB or Heller, said assumption not to
exceed One Million Dollars ($1,000,000) of principal in the aggregate, plus all
costs, charges and fees of any kind associated with a default of the same.
Consistent with the foregoing, Buyer shall also, upon the transfer of the Shares
to Buyer at the
-3-
INITIAL HERE
--------
<PAGE>
Closing, take any and all actions which may be necessary or appropriate, as
determined by Buyer's Chief Executive Officer, to cause Buyer to assume the
indebtedness, obligations or liabilities described above in this Paragraph.
4. INDEMNIFICATION. Upon the transfer of the Shares to Buyer at the
Closing, Buyer shall indemnify and hold Seller, as well as the directors,
officers, agents, representatives and employees of Seller, and their respective
successors, assigns, heirs and legal representatives, free and harmless from and
against any and all personal liability, of any kind whatsoever, which Seller may
have with respect to, or which may arise from, the extension of credit or the
lending of monies to the Companies by either WFB or Heller.
5. ADDITIONAL DOCUMENTS. Each party agrees to execute and deliver,
at the request of the other, any and all such documents or other written
instruments as may be reasonably necessary or appropriate to carry out and
effectuate the purpose of this Agreement.
6. MISCELLANEOUS.
a. NO AGENTS OR BROKERS. Buyer and Seller both represent that
neither of them has employed any broker or entered into any agreement for the
payment of any fees, compensation, or expenses to any firm, person, or
corporation in connection with this transaction, and agree that each shall
indemnify the other against any such fees, compensation, or expenses that may be
suffered by reason thereof, including any claim for a finder's fee.
b. AMENDMENTS/APPLICABLE LAW. No amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties.
This Agreement shall be governed in all respects, whether as to validity,
construction, capacity, performance or otherwise, by the laws of the State of
California, without regard to that body of law known as conflicts of law.
c. ATTORNEYS' FEES. In the event of any litigation concerning
any controversy, claim or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach hereof, or the interpretation hereof,
the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees and costs incurred in connection therewith
or in the enforcement or collection of any judgment or award rendered therein.
The "prevailing party" means the party determined by the court to have most
nearly prevailed, even if such party did not prevail in all matters, not
necessarily the one in whose favor a judgment is rendered.
d. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives.
-4-
INITIAL HERE:
--------
<PAGE>
e. NO STRICT CONSTRUCTION/PARAGRAPH HEADINGS/SEVERABILITY. The
language used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any person. The paragraph headings used in
this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
f. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
g. SEVERABILITY. In the event any provision or portion of a
provision of this Agreement is held to be invalid, void or unenforceable, the
rest of the Agreement shall, nonetheless, remain in full force and effect and
shall in no way be affected, impaired, or invalidated.
h. SURVIVAL OF PARAGRAPHS 2, 3 AND 4. Notwithstanding anything
contained herein to the contrary, the provisions of Paragraphs 2, 3 and 4 shall
survive and be enforceable after the execution of this Agreement and after the
Closing.
i. VENUE/FORUM SELECTION/SERVICE OF PROCESS. The parties
hereto: (i) agree that any disputes shall be heard in and by any state or
federal court located within the County of San Francisco, State of California;
(ii) hereby waive any objection to jurisdiction of said courts with respect to
any action instituted against them as provided herein; and (iii) agree not to
assert any defense based on lack of jurisdiction or argue that said courts are a
"forum non conveniens." Each party hereto also waives personal service of any
and all process upon it and consents that all such service of process shall be
made by certified mail directed to said party at the address set forth below the
signature of each party's authorized representative.
j. NOTICES. Except as may be otherwise provided for herein,
all notices and other communications provided for in this Agreement, if any,
shall be given or made by certified or registered mail (return receipt
requested), or delivered personally or by an established overnight express
delivery service (e.g., DHL, FedEx) to the address set forth below (or such
other address as may be designated by any method permitted by this subparagraph
6(j). All such communications shall be deemed to have been duly given when
delivered, personally or by an established overnight express delivery service,
or seven (7) days after mailing (via certified or registered mail) postage
prepaid, to the address set forth below.
-5-
INITIAL HERE:
--------
<PAGE>
If to Seller: Mr. W. Blake Winchell
10 Arastradero
Portola Valley, CA 94028
If to Buyer: Kleer-Vu Industries, Inc.
921 West Artesia Blvd.
Compton, CA 90220
k. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties respecting the sale of the Shares to Buyer, and
supersedes all prior understandings, previous negotiations, and any memoranda or
understanding with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year first written above.
"Buyer" "Seller"
Kleer-Vu Industries, Inc., W. Blake Winchell
a Delaware corporation
By: /s/ H. P. Park /s/ W. Blake Winchell
------------------------- ------------------------------
Its: Chairman W. Blake Winchell
-------------------------
<PAGE>
STOCK OPTION AGREEMENT
THIS AGREEMENT is made effective as of December 7, 1995, by and
between Kleer-Vu Industries, Inc., a Delaware corporation (hereinafter referred
to as "KVU"), and Mr. W. Blake Winchell, an individual residing in the State of
California (hereinafter referred to as "Optionee")
R E C I T A L S
WHEREAS, KVU has requested that Optionee forego cash compensation for
the services to be rendered by Optionee to or for the benefit of KVU during the
initial four (4) month period of employment in exchange for Optionee being
granted the right to acquire Five Hundred Thousand (500,000) shares of KVU's
common stock in accordance with the terms and conditions contained herein (the
"Option");
WHEREAS, Optionee has agreed to serve as KVU's chief executive
officer, as described above, in exchange for the irrevocable Option granted
herein;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T
1. GRANT OF OPTION/REGISTRATION OBLIGATION. KVU hereby: (a) grants
to Optionee a fully vested and irrevocable right to purchase Five Hundred
Thousand (500,000) shares of KVU common stock (the "Shares"), said option rights
to be exercisable at any time up to and including December 7, 2000, all on the
terms and conditions set forth herein; and (b) agrees to use, promptly after the
filing by KVU of its next 10-K statement with the Securities and Exchange
Commission, its best efforts, at its sole cost and expense, to cause the Shares
which are to be issued to Optionee hereunder to be registered and freely-
tradable on the American Stock Exchange, and free of transfer restrictions of
any kind (other than any applicable transfer limitations or restrictions imposed
under state or federal law on Optionee as an officer of a company whose shares
are publicly-traded on the American Stock Exchange), on the date such Shares are
issued to Optionee pursuant to an exercise of the Option granted herein.
2. PURCHASE PRICE. The per Share purchase price for the Shares to
be purchased hereunder shall be equal to the lowest price at which KVU's common
stock was sold on the American Stock Exchange during the period beginning on
-1-
<PAGE>
November 1, 1995, and ending on the earlier of: (i) the date the Option
granted herein is exercised; or (ii) the fifteenth (15th) day following the
first filing after January 1, 1996, with the Securities and Exchange
Commission of a 10-K statement by KVU.
3. RIGHT OF EXERCISE. Optionee may exercise the Option granted
hereunder as to all or part of the shares, provided that no exercise for less
than a whole number of Shares will be permitted.
4. METHOD OF EXERCISE.
a. NOTICE. Optionee may exercise this Option by giving written
notice to KVU pursuant to Paragraph 7.c. The notice shall be signed by Optionee
and shall specify the election to exercise this Option and the number of Shares
for which it is being exercised. Optionee shall deliver to KVU, at the time of
giving the notice, payment in cash for the full amount of the Purchase Price.
b. TRANSFER OF SHARES. After receiving a proper notice of
exercise, KVU shall immediately cause to be transferred to Optionee a
certificate or certificates for the Shares as to which this Option has been
exercised.
5. PAYMENT FOR STOCK. The entire Purchase Price shall be paid in
U.S. Dollars.
6. NO TRANSFER OR ASSIGNMENT OF OPTION. This Option and the rights
and privileges conferred hereby shall not be transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) and shall not
be subject to sale under execution, attachment or similar process. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this
Option, or of any right or privilege conferred hereby, contrary to the
provisions hereof, or upon any attempted sale under any execution, attachment or
similar process upon the rights and privileges conferred hereby, this Option and
the rights and privileges conferred hereby shall immediately become null and
void.
7. KVU'S REPRESENTATIONS AND WARRANTIES. KVU hereby represents and
warrants to Optionee as follows: (i) KVU is a corporation duly organized and
existing under the laws of the State of Delaware and is in good standing under
such laws; (ii) all corporate action on the part of KVU, its directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement by KVU has been taken or, with respect to the
issuance and delivery of the Shares to Optionee as contemplated hereunder, will
be taken promptly upon Optionee's exercising of the Option(s) granted herein;
(iii) this Agreement, when
-2-
<PAGE>
executed and delivered by KVU, shall constitute a valid and binding obligation
of KVU enforceable in accordance with its terms; and (iv) the Shares, when
issued in compliance with the provisions of this Agreement, will be validly
issued, fully paid, non-assessable, registered and freely-tradable on the
American Stock Exchange (subject, however, to any applicable transfer
limitations or restrictions imposed under state or federal law on Optionee as an
officer of a company whose shares are publicly-traded on the American Stock
Exchange). The foregoing representations and warranties shall survive the
expiration, or the exercise of all rights granted under, this Agreement.
8. CAPITAL ADJUSTMENTS.
a. KVU'S FREEDOM TO ACT. The existence of this Agreement shall
not affect in any way the right or power of KVU, its controlled entities, or its
shareholders to make or authorize any or all adjustments, recapitalizations,
reorganizations, or other changes in KVU's capital structure or its business, or
any merger or consolidation of KVU or any issue of bonds, debentures, preferred
or preference stocks affecting the Shares or the rights thereof, or of any
right, options, or warrants to purchase any capital stock of KVU, or the
dissolution or liquidation of KVU, any sale or transfer of all or any part of
its assets or business, or any other corporate act or proceedings of KVU,
whether of a similar character or otherwise.
b. ADJUSTMENT OF OPTIONED SHARES. The Shares with respect to
which this Option is granted are Shares of KVU as presently constituted; but, if
and whenever, prior to the delivery by KVU of all of the Shares with respect to
which these options are granted, KVU shall effect a subdivision or consolidation
or other capital readjustment of its common shares, the payment of a common
stock dividend, or other increase or reduction of the number of common shares
outstanding without receiving compensation therefor in money, services, or
property, the number of the Shares then remaining subject to the Option
hereunder shall (i) in the event of an increase in the number of outstanding
common shares, be proportionately increased, and the cash consideration payable
per Share shall be proportionately reduced; and (ii) in the event of a reduction
in the number of outstanding common shares, be proportionately reduced, and the
cash consideration payable per Share shall be proportionately increased.
9. MISCELLANEOUS PROVISIONS.
a. WITHHOLDING TAXES. In the event that KVU determines that it
is required to withhold a Federal, state or local tax as a result of the
exercise of this Option, Optionee, as a condition to the exercise of this
Option, shall make arrangements satisfactory to KVU to enable it to satisfy all
withholding requirements.
-3-
<PAGE>
b. NO RIGHTS AS A SHAREHOLDER. Optionee shall have no rights
as a shareholder with respect to any Shares subject to this Option until such
Shares have been issued in the name of Optionee.
c. NOTICES. Except as may be otherwise provided for herein,
all notices and other communications provided for in this Agreement, if any,
shall be given or made by certified or registered mail (return receipt
requested), or delivered personally or by an established overnight express
delivery service (e.g., DHL, FedEx) to the address set forth below (or such
other address as may be designated by any method permitted by this subparagraph
9(c). All such communications shall be deemed to have been duly given when
delivered, personally or by an established overnight express delivery service,
or seven (7) days after mailing (via certified or registered mail) postage
prepaid, to the address set forth below.
d. VENUE/FORUM SELECTION/SERVICE OF PROCESS. The parties
hereto: (i) agree that any disputes shall be heard in and by any state or
federal court located within the County of San Francisco, State of California;
(ii) hereby waive any objection to jurisdiction of said courts with respect to
any action instituted against them as provided herein; and (iii) agree not to
assert any defense based on lack of jurisdiction or argue that said courts are a
"forum non conveniens." Each party hereto also waives personal service of any
and all process upon it and consents that all such service of process shall be
made by certified mail directed to said party at the address set forth below the
signature of each party's authorized representative.
e. AMENDMENTS/APPLICABLE LAW. No amendments or additions to
this Agreement shall be binding unless in writing and signed by both parties.
This Agreement shall be governed in all respects, whether as to validity,
construction, capacity, performance or otherwise, by the laws of the State of
California, without regard to that body of law known as conflicts of law.
f. ATTORNEYS' FEES. In the event of any litigation concerning
any controversy, claim or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach hereof, or the interpretation hereof,
the prevailing party shall be entitled to recover from the losing party
reasonable expenses, attorneys' fees and costs incurred in connection therewith
or in the enforcement or collection of any judgment or award rendered therein.
The "prevailing party" means the party determined by the court to have most
nearly prevailed, even if such party did not prevail in all matters, not
necessarily the one in whose favor a judgment is rendered.
-4-
<PAGE>
g. BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives.
h. NO STRICT CONSTRUCTION/PARAGRAPH HEADINGS/SEVERABILITY. The
language used in this Agreement shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any person. The paragraph headings used in
this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
i. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
j. SEVERABILITY. In the event any provision or portion of a
provision of this Agreement is held to be invalid, void or unenforceable, the
rest of the Agreement shall, nonetheless, remain in full force and effect and
shall in no way be affected, impaired, or invalidated.
k. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with regard to the subject matter thereof,
except as provided above and shall be binding upon and shall inure to the
benefit of the successors, assigns and legal representatives of the parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
"KVU": "Optionee":
Kleer-Vu Industries, Inc.
921 West Artesia Blvd.
Compton, CA 90220
By: /s/ H. P. Park /s/ W. Blake Winchell
------------------------- ------------------------------
Its: Chairman Mr. W. Blake Winchell
------------------------- 10 Arastradero
Portola Valley, CA 90403
-5-
<PAGE>
AMENDMENT TO STOCK OPTION AGREEMENT
THIS AMENDMENT TO STOCK OPTION AGREEMENT (the "Amendment"), effective as of
December 7, 1995, is made by and between Kleer-Vu Industries, Inc., a Delaware
corporation (hereinafter referred to as "KVU"), and Mr. W. Blake Winchell, an
individual residing in the State of California (hereinafter referred to as
"Optionee").
R E C I T A L S
WHEREAS, the parties hereto executed that certain Stock Option Agreement
effective December 7, 1995 (the "Agreement");
WHEREAS, the parties have subsequently discovered that the language
contained in Paragraph 2 of the Agreement stated only that the exercise price
was to be the lowest price traded on the American Stock Exchange;
WHEREAS, the parties agree that, due to error, Paragraph 2 should have also
reflected the fact that, if lower, the shares could be purchased by Optionee at
the lowest price such shares are sold by KVU in any type of private placement
transaction during the same defined period;
WHEREAS, the parties agree that, in light of the foregoing, Paragraph 2
shall be amended to read as set forth below;
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
A G R E E M E N T
A. AMENDED SECTION 2. As described above in the recitals,
which are incorporated herein by this reference, the parties hereby agree that
Paragraph 2 of the Agreement is hereby amended to read as follows:
2 PURCHASE PRICE. The per Share purchase price for the Shares
to be purchased hereunder shall be equal to the lesser of: (i) the
lowest price at which KVU's common stock was sold on the American
Stock Exchange during the period beginning on November 1, 1995, and
ending on the earlier of: (a) the date the Option granted herein is
exercised; or (b) the fifteenth (15th) day following the first filing
after January 1, 1996, with the Securities and Exchange Commission of
a 10-K statement by KVU; or (ii) the lowest price at which KVU's
common stock is sold by KVU to any other party
B. MISCELLANEOUS.
(1) COUNTERPARTS. This Amendment may be executed in any number
of identical counterparts, each of which shall be deemed to be an original, and
all of which together shall be deemed to be one and the same instrument when
each party has signed one such counterpart.
(2) AMENDMENTS/APPLICABLE LAW. No amendments or additions to
this
<PAGE>
Amendment shall be binding unless in writing and signed by both parties. This
Amendment shall be governed in all respects, whether as to validity,
construction, capacity, performance or otherwise, by the laws of the State of
California.
(3) BINDING EFFECT/ASSIGNMENT. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors, assigns, heirs and personal representatives.
(4) PARAGRAPH HEADINGS. The paragraph headings used in this
Amendment are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Amendment.
(5) SEVERABILITY. In the event any provision or portion of a
provision of this Amendment is held to be invalid, void or unenforceable, the
rest of the Amendment shall, nonetheless, remain in full force and effect and
shall in no way be affected, impaired, or invalidated.
(6) ENTIRE AGREEMENT. This instrument constitutes the entire
agreement between the parties regarding the amendment of Paragraph 2 of the
Agreement and, subject to the terms of the Agreement not modified herein (and
which remain in effect), supersedes all prior understandings, previous
negotiations, and any memoranda or understanding with respect to the subject
matter hereof.
(7) NO STRICT CONSTRUCTION. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed effective as of the day and year first above written.
"KVU": "Optionee":
Kleer-Vu Industries, Inc.
921 West Artesia Blvd.
Compton, CA 90220
By: /s/ H. P. Park /s/ W. Blake Winchell
----------------------- -----------------------------
Its: Chairman Mr. W. Blake Winchell
----------------------- 10 Arastradero
Portola Valley, CA 90403
<PAGE>
EXHIBIT 21
KLEER-VU INDUSTRIES, INC. AND SUBSIDIARIES
LIST OF SUBSIDIARIES OF REGISTRANT
---------------------------------------
---------------------------------------
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
SUBSIDIARY INCORPORATION NAMES
- ------------------------- ---------------- ------------------------------
<S> <C> <C>
Kleer Vu Plastics Corporation Delaware Kleer Vu Plastics Corporation
PAS Industry, Inc. California PAS Industry, Inc.,
Kleer Vu Plastics Corporation
ProLine Storage Corporation Tennessee ProLine Storage Corporation,
Kleer Vu Custom Products,
ProLine
Photo Album Specialties Mexico Photo Album Specialties De
De Mexico, S.A. de C.V. Mexico, S.A. de C.V.
(A Subsidiary of PAS Industry, Inc.)
Neslemur Company, Inc. Delaware --Inactive--
Style Frames, Inc. California Style Frames, Inc.
The Channel Group, Inc. California The Channel Group, Inc.
</TABLE>
E-15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000719729
<NAME> KLEER-VU INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 6,042
<ALLOWANCES> (366)
<INVENTORY> 9,557
<CURRENT-ASSETS> 15,449
<PP&E> 8,642
<DEPRECIATION> (4,785)
<TOTAL-ASSETS> 20,056
<CURRENT-LIABILITIES> 18,684
<BONDS> 0
0
9,000
<COMMON> 272
<OTHER-SE> (14,081)
<TOTAL-LIABILITY-AND-EQUITY> 20,056
<SALES> 27,207
<TOTAL-REVENUES> 27,207
<CGS> 25,024
<TOTAL-COSTS> 38,811
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,835
<INCOME-PRETAX> (13,439)
<INCOME-TAX> 581
<INCOME-CONTINUING> (14,020)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,020)
<EPS-PRIMARY> (5.26)
<EPS-DILUTED> (5.26)
</TABLE>
