Deco Lighting Needs a Buyer

An opinion: Based on conversations with management and a review of over 1000 pages of court records.

2021 04 Deco Lighting needs a buyer agent commission.jpg

We ask the CFO why $400K in total February sales resulted in $90.00 of total Agent Commission payments

It's been over a year since Deco Lighting filed for Chapter 11 bankruptcy protection. Filing for bankruptcy is often perceived to be the end, but that isn't always the case. It's the start of an arduous process to restructure a company, work with creditors and develop a court-approved strategic plan to emerge from bankruptcy. That is what Deco Lighting is doing and we applaud them for making proactive maneuvers that seem to be designed to help them emerge from these financial challenges.

The harsh reality is, though, the vast majority of companies that enter Chapter 11 protection don't successfully restructure and survive. That's partially why we believe Deco Lighting needs a buyer.

Over its years of growth, Deco Lighting had been very good at using marketing strategies to grow its brand. The company issued frequent marketing messages and press releases that helped position the brand as young, fun, somewhat differentiated and unique. Even the press release acknowledging its bankruptcy, was written in a way that may cause a casual reader to not understand that the company was discussing its bankruptcy filing.

DECO CORPORATE COMMUNICATION: Is it overstated?

The February 2020 press release that coincided with its bankruptcy filing was entitled "Deco Lighting Restructures to Support Technology Play" The release seemed to focus heavily on its Bluetooth-enabled Deco Mesh and made no mention of Chapter 11, bankruptcy or creditors. That press release was published and then subsequently deleted from another popular lighting industry website.

Last October, eight months into bankruptcy, Entrepreneur Asia Pacific published an article about Deco Lighting CEO Sam Sinai entitled "This Entrepreneur is Revolutionizing The Connected Lighting Industry." The article was authored by someone who we believe to be an associate of Deco leadership and not by an independent journalist who was sniffing out an important tech story. Around that time, we asked Sinai some probing questions about how he was concurrently revolutionizing the lighting industry while managing the gauntlet of bankruptcy. We had lots of dialogue, but didn't get the answers. We subsequently didn't publish the link to the article that he requested.

Last night, we were asked to post the most recent company press release entitled "Deco Lighting & Premium Quality Lighting Announce Strategic Alliance. Companies Ally to Offer the Most Complete and Innovative Lighting Solutions Platform." We won't be publishing that press release on our front page. You can read it with the link below and decide for yourself if the new Deco-PQL alliance offers the lighting industry's "Most Complete and Innovative Lighting Solutions Platform."
Press Release Link
Link to PQL website

DECO AGENT COMMISSIONS & FINANCIALS

Over the last nine months, inside.lighting has invested over $100 in purchasing over 1000 pages of public documents relating to the Deco bankruptcy and the related Ben Pouladian v. Deco Lighting case in which Deco cofounder Pouladian is suing the company for close to $500,000. Here are some of the takeaways:

2019 Agent Commissions:
The company has floated numerous statements through another lighting website about its plan to pay commission to active agents. What wasn't reported is that the plan is yet to be approved by the bankruptcy court and it calls for "active agents" to be paid past-due commissions in 18 equal monthly installments. It makes no mention of debts to agents who are no longer active. The plan is still a couple of months away from being reviewed and possibly approved by the court.

Recent Agent Commissions:
In February, another website published a Deco press release in which company stated "Deco continues to pay their current agents." We recently asked Deco Lighting CFO, Craig Allen, why February sales of approximately $400K resulted in a grand total of $90.00 agency commission payments (a sole payment to Visible Light in New Hampshire.) The explanation given was that it was a "timing issue" in the accounting department.

Inventory:
The company has told us that it has bolstered its inventory to $20M. Another lighting publication published that info, too. We're not saying that's inaccurate, but our review of Deco's monthly operating reports don't reveal millions of dollars of recent purchases. It's possible that the company received millions of dollars of products on credit, but it's our understanding that factories and vendors have been requiring Deco to prepay for materials and finished goods due to their financial situation.

Cash flow:
The company has significantly cut costs and reduced expenses. A skeleton crew of employees are seemingly keeping the company afloat. Revenues in recent months have the Deco Lighting brand pacing to be a less than $5M/year brand. Company executives Allen and Sinai are still receiving monthly payroll for their $260K and $200K salaries. The company claims to have secured financing of an undisclosed amount which possibly can help the company with the month-to-month cash flow.

There are many other financial vehicles in play which can possibly help Deco emerge from these challenges. We are rooting for them to succeed, but in the end it may take a life preserver from a strategic investor to acquire the company -- allowing the brand to exit bankruptcy and recalibrate. Discovery relating to the ongoing Pouladian lawsuit continues through December, which may possibly spook potential buyers.

Next steps:
All creditors and interest holders will be voting on Deco's proposed plan and a court hearing on the matter is scheduled for June.