SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended Commission file number
April 30, 1997 1-10555
POLYVISION CORPORATION
New York 13-3482597
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
29 Laing Avenue
Dixonville, Pennsylvania 15734
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 254-4321
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value American Stock Exchange
$.001 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes |X| No |_|
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
of the registrant as of July 23, 1997:
$3,898,572
The number of shares outstanding of the registrant's class
of common stock as of July 23, 1997:
8,540,762 shares
Page 1 of 31 Pages
Exhibit Index Appears on Page 28
<PAGE>
POLYVISION CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
TABLE OF CONTENTS
PART I Page
----
Item 1. Business............................................................ 3
Item 2. Properties.......................................................... 8
Item 3. Legal Proceedings................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders................. 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................... 11
Item 6. Selected Financial Data............................................. 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation.......................................... 13
Item 8. Financial Statements and Supplementary Data......................... 18
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.......................................... 18
PART III
Item 10. Directors and Executive Officers of the Registrant................. 18
Item 11. Executive Compensation............................................. 21
Item 12. Security Ownership of Certain Beneficial Owners and Management..... 25
Item 13. Certain Relationships and Related Transactions..................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K... 28
<PAGE>
ITEM 1. BUSINESS
General
PolyVision Corporation, through its three wholly-owned subsidiaries:
Greensteel, Inc., Posterloid Corporation, and APV, Inc. (collectively the
"Company"), is engaged in the development, manufacture and sale of information
display products. The operations of APV, Inc. have been discontinued effective
April 30, 1997 as described below.
Greensteel, Inc. is engaged in the manufacture and sale of custom-designed
and engineered writing, projection and other visual display surfaces (such as
porcelain chalkboards and markerboards), custom cabinets, and work station and
conference center casework primarily for schools and offices. Posterloid
Corporation is engaged in the manufacture and sale of indoor and outdoor
menuboard display systems to the fast food and convenience store industries, and
changeable magnetic signs used principally by banks to display interest rates,
currency exchange rates and other information. APV, Inc. was engaged in the
research, development, licensing and testing of a proprietary technology known
as PolyVision(TM), a materials technology with electrochemical and physical
characteristics that allow it to address applications in a number of display
product markets.
Recent Developments
APV - Research and Development
In April, 1997, the Company decided to discontinue its research and
development efforts and market the PolyVision technology (through either a sale
of the technology or through) third-party licensing agreements. This decision
will allow the Company to better utilize its financial resources and resulted in
a fourth quarter charge of approximately $650,000, which includes severance pay
and benefits and the write-down of assets to net realizable value. As part of
the APV shutdown, management is currently negotiating to terminate an
outstanding royalty agreement. See Note 11 for further information.
Posterloid - New Facility
In order to facilitate better material flow and to provide for future
growth, in January 1997, Posterloid completed a move to a larger facility
providing for a more streamlined work flow. The Company paid $181,000 for moving
expenses in fiscal year 1997, $114,000 of which had been accrued last year. Also
capital expenditures of $160,000 were completed, which included leasehold
improvements and an exhaust system in order to comply with the air emission
codes of New York City.
Financing
On March 31, 1997, the Company and Greensteel signed a letter of intent
with the Bank of Boston to extend the previous credit agreement which matures
August 31, 1997. This agreement will provide credit facilities totaling
$4,800,000. The agreement provides for a maturity of two years from the closing
date and a floating interest rate equal to the prime rate plus one to one and a
half percent based on performance ratios. Greensteel has provided a first lien
to the bank on all tangible and intangible property and the agreement is subject
to standard covenants and financial ratios.
3
<PAGE>
Background
On December 21, 1994, Alpine purchased from certain stockholders of
Adience, Inc. ("Adience") a total of 82.3% of the outstanding shares of Adience
common stock (the "Adience Acquisition"), which, together with 4.9% of such
shares previously owned by Alpine, increased its ownership to 87.2% of the
outstanding shares of Adience common stock. At the time of the Adience
Acquisition, Adience owned 80.3% of the outstanding shares of IDT common stock,
and the remainder was publicly owned. As a result of such transaction, control
of IDT passed from Adience to Alpine.
On May 24, 1995, APV (a then 98% owned subsidiary of Alpine) and
Posterloid (a then wholly-owned subsidiary of Alpine) were merged (the "Merger")
with and into two separate wholly-owned subsidiaries of IDT pursuant to an
Agreement and Plan of Merger, dated as of December 21, 1994, as amended, among
Alpine, IDT, APV and Posterloid (the "Merger Agreement"), with each subsidiary
being the surviving corporation and remaining a wholly-owned subsidiary of the
Company. APV and Posterloid had comprised Alpine's information display group
("IDG"), a business segment of Alpine. The Merger was completed on May 24, 1995,
following the approval and adoption of the Merger Agreement by IDT shareholders
at the 1995 Annual Meeting of Shareholders of IDT. Because Alpine controlled
both IDG and IDT, the Merger was accounted for as a reorganization of entities
under common control and the merged entity adopted IDG's April 30 fiscal year
end. IDT has been included in the merged entity's financial statements from the
date Alpine acquired control of IDT, which was December 21, 1994.
On June 14, 1995, Alpine distributed to its stockholders approximately 73%
of the outstanding shares of PolyVision Common Stock, which were acquired by it
in the Merger (the "Distribution"). At the time of the Distribution, the Company
comprised all of Alpine's information display operations and assets. The
Distribution, when combined with shares of the Company common stock used as
partial consideration in connection with the Adience Acquisition and the
purchase of Adience's senior notes, resulted in the ownership by Alpine of
approximately 17% of the outstanding shares of Common Stock, and Alpine remains
the Company 's largest single shareholder. Alpine also owns 98% of the
outstanding preferred stock of the Company. As further described herein, the
Company continues to rely upon the financial support of The Alpine Group. The
decision to continue its financial support is made on an annual basis by Alpine.
Business Operations
Greensteel
Greensteel manufactures and sells custom-designed and engineered writing,
projection and other visual display surfaces (such as porcelain chalkboards and
markerboards), custom cabinets, and work station and conference center casework.
Greensteel combines its own direct marketing network with that of its dealers
and distributors this enables it to market its products to schools, health care
facilities, offices and other institutions throughout the country. Greensteel's
products are marketed under the trade name "Greensteel."
Greensteel has achieved its current position in the specialized markets it
serves due largely to its integrated approach to customer needs. In many cases,
Greensteel performs a full range of services, including the custom design,
production, installation and maintenance of its products. Greensteel believes
that this integrated approach, which many of its competitors do not provide,
enhances its responsiveness to customer needs. This approach, which allows the
customer to obtain a full line of products and services from a single source,
better enables Greensteel to establish an ongoing relationship with its
customers and to provide for their future requirements. Competition in
Greensteel's markets is based largely on price, product quality, customer
service and reliability.
Most of Greensteel's products are sold in connection with new facility
construction or renovation. Such products are generally sold as part of a bid
process conducted through architects and general contractors working with
4
<PAGE>
Greensteel's sales staff and that of its dealers, and are custom-made to
specifications. Successful marketing of these products is dependent upon the
maintenance of strong relationships with architects and general contractors,
particularly in the education and health care construction fields. Greensteel
has been advised by its customers that its products have achieved general
recognition as quality products.
Products
Greensteel manufactures custom-made systems incorporating chalkboards,
markerboards, tackboards and bulletin boards. Greensteel manufactures porcelain
enameled chalkboards and markerboards which are sold in new construction or as
replacements for traditional slate or glass blackboards. Porcelain products are
manufactured at Greensteel's Alliance, Ohio plant, where porcelain is fused to
sheet steel in electric furnaces. The porcelain-enameled product is then shipped
to one of three other Greensteel production facilities for fabrication into
chalkboards.
Porcelain chalkboards, which are available in a range of colors, are
virtually unbreakable and maintenance free, and are warranted by Greensteel to
retain their original writing and erasing qualities under normal usage and wear.
As a result of these product qualities and the reduced availability of slate for
chalkboard production, Greensteel believes that porcelain chalkboards currently
account for approximately 75% of all chalkboard sales in the United States.
Greensteel's chalkboards, tackboards, markerboards and cabinetry are
typically sold together as a package to finish wall surfaces in school rooms and
offices. These products are generally manufactured at one or more of
Greensteel's four production and fabrication facilities and are generally sold
together as part of a package to end-users through a sales force operating out
of Greensteel's regional sales offices and through independent distributors.
Greensteel's writing surface products are generally priced from $100 to $900 per
unit, depending on the surface's core material, dimension, gauge and trim, and
whether the products are being sold through its own sales staff or through
independent distributors.
In addition to chalkboards, Greensteel manufactures dry-marker boards,
which are high-gloss porcelain-enameled boards on which the user writes with a
dry erase felt-tip marker. Greensteel also manufactures a variety of other
information display surfaces for educational and institutional facilities, such
as tackboards.
Greensteel also manufactures and installs wood and plastic laminate
cabinetry for schools, hospitals, laboratories and industry. In addition,
Greensteel manufactures and installs indoor and outdoor display and bulletin
board cases.
Sales and Markets
Most of Greensteel's products are sold by a bid process conducted through
architects and general contractors working with Greensteel's sales staff.
Warranties made by Greensteel with respect to its products and services are
consistent with industry standards, except for a 50 year warranty on the writing
surface of its porcelain chalkboards, which is in excess of industry standards.
Greensteel markets its products through a direct sales staff of six persons,
most of whom work on a commission basis, and maintains four sales offices.
Greensteel is in the process of converting over its distribution channels to
sales predominantly through dealers and distributors which do not require
extended project management and are not subject to construction cost overruns or
increased working capital requirements for performance bonds and retainage. As a
result of selling through distributors, installation work that was previously
done by Greensteel is now performed by the distributors, resulting in reduced
revenues for Greensteel. During the year ended April 30, 1997, the Company added
19 new distributors covering various geographical areas of the United States and
as of July 23, 1997 has a total of 67 distributors. Total distributor sales
increased by 27% in the year ended April 30, 1997 compared to the prior year.
Distributor sales comprised approximately 44% and 31% of sales for 1997 and
1996, respectively.
5
<PAGE>
Sales to educational institutions and facilities accounts for a majority
of Greensteel's revenues. Most of Greensteel's business is concentrated in the
eastern half of the United States.
Raw Materials
The glass frit material used by Greensteel to produce its porcelain
writing surfaces is currently produced to its specifications by a single
supplier, Ferro Corp., so as to maintain consistent color and quality standards.
Management of Greensteel believes that alternative sources of supply of the
glass frit material used by Greensteel to produce its porcelain writing surfaces
are readily available. Greensteel has never experienced any difficulty with the
quantity or quality of product from its glass frit supplier. All other raw
materials are readily available from a variety of sources.
Competition
Greensteel competes with a variety of companies which manufacture or
distribute chalkboards, markerboards, tackboards and institutional cabinetry.
Greensteel is one of only three manufacturers in the United States of
porcelain-enameled steel facings, along with Claridge Products and Equipment
Inc. and Alliance International Group (which are privately-owned companies).
Claridge Products and Equipment Inc. sells its products through a network of
independent distributors and Alliance International Group sells the porcelain
facings only to laminators for further fabrication. Greensteel has attained its
competitive position primarily as a result of design quality and reliability,
both with respect to its products and installation.
Seasonality
Greensteel's business is seasonal and much of its revenues and most of its
operating profits occur in the third quarter of the calendar year. This occurs
primarily as a result of increased business activity in the summer months when
schools are closed and construction activity increases. Greensteel typically
incurs a loss in the winter months.
Backlog
At April 30, 1997, Greensteel's contract backlog was approximately
$11,873,000, as compared with approximately $11,310,000 at April 30, 1996.
Management expects that all of the backlog will be filled in its next fiscal
year. Revenues from sales of specific products are recorded when title
transfers, which is typically upon shipment. Revenues from construction of
custom installations under contracts are recorded on the
percentage-of-completion method of accounting, measured on the basis of costs
incurred to estimated total costs, which approximates contract performance to
date. See Note 2, "Revenue Recognition" to the Notes to Consolidated Financial
Statements included herein.
Employees
As of July 23, 1997 Greensteel employed approximately 240 people.
Approximately 106 employees at Greensteel's Dixonville, Pennsylvania plant are
members of the Carpenters Union, with the current labor contract expiring in
February, 1999. Of Greensteel's remaining employees, approximately 18 persons
are union members not covered by collective bargaining agreements.
Greensteel considers relations with its employees to be good.
Patents and Trademarks
6
<PAGE>
Greensteel holds a number of patents and trademarks covering various
products and processes relating to its business. Greensteel believes that its
"Greensteel" trademark is important as the name "Greensteel" is highly
recognized by customers, general contractors and architects in the education and
institutional markets as providers of quality products used in construction
projects. Greensteel periodically monitors for infringing uses of this mark and
has never encountered any such infringement. Management of Greensteel believes
that such infringement is unlikely. None of Greensteel's patents or other
trademarks are considered to be material to Greensteel's ongoing business.
Insurance
Greensteel maintains insurance with respect to its properties and
operations in such form, in such amounts and with such insurers as is customary
in the businesses in which Greensteel is engaged. Greensteel believes that the
amount and form of its insurance coverage is adequate at the present time.
Environmental Matters
Greensteel's manufacturing operations are subject to numerous federal,
state and local laws and regulations relating to the storage, handling,
emission, transportation and discharge of hazardous materials and waste
products. Compliance with these laws, as a result of the Adience indemnification
described below, has not been a material cost to Greensteel and has not had a
material effect upon its capital expenditures, earnings or competitive position.
In February 1992, the Company was cited by the Ohio Environmental
Protection Agency (the "Ohio EPA") for violations of Ohio's hazardous waste
regulations, including speculative accumulation of waste (holding waste on-site
beyond the legal time limit) and illegal disposal of hazardous waste on the site
of Greensteel's Alliance, Ohio manufacturing facility.
In December 1993, the Company and Adience signed a consent order with the
Ohio EPA and Ohio Attorney General that required the Company and Adience to pay
to the State of Ohio a civil penalty of $200,000 of which the Company paid
$175,000 and Adience paid $25,000. In addition, the consent order required the
payment of stipulated penalties of up to $1,000 per day for failure to satisfy
certain requirements of the consent order, including milestones in the closure
plan. Removal and remediation activities as contemplated under the consent order
have been completed.
The Company has submitted risk assessment reports which demonstrate, in
management's opinion, that no further cleanup actions will be required on the
remaining property area not addressed under the closure plan. Based on
administrative precedent, the Company believes that it is likely that the Ohio
EPA will agree with the risk assessment reports. The Company is currently
waiting for a determination from the Ohio EPA as to whether the submitted
reports are approved. If such an agreement is not reached, additional costs may
have to be incurred to complete additional remediation efforts. Although there
are no assurances that additional costs will not have to be incurred, the
Company believes that such costs will not be incurred. At April 30, 1997,
environmental accruals amounted to $26,000, which represents management's
reasonable estimate of the amounts to be incurred in the resolution of this
matter. Since 1991, the Company and Adience have together paid $1,449,000
(excluding the $200,000 civil penalty) for the environmental cleanup related to
the Alliance facility.
Under the acquisition agreement pursuant to which the Company acquired the
Alliance facility from Adience, Adience represented and warranted that, except
as otherwise disclosed to the Company, no hazardous material has been stored or
disposed of on the property and agreed to indemnify the Company for any losses
in excess of $250,000. The Company has notified Adience that it is claiming the
right to indemnification for all costs in excess of $250,000 incurred by the
Company in this matter, and has received assurance that Adience will honor such
claim. Adience has reimbursed the Company $1,373,000 through June 30, 1997.
7
<PAGE>
Posterloid
Posterloid is engaged in the manufacture and sale of indoor and outdoor
menuboard display systems to the fast food and convenience store industries, and
changeable magnetic display signage used primarily by banks to display interest
rates, currency exchange rates and other information. Posterloid's displays are
custom manufactured in arrays of screen printed plastic strips for ceiling
hanging or for window or counter displays. During the fiscal year ended April
30, 1997, Posterloid had approximately 2,000 customers. Posterloid's marketing
activities are conducted through both a direct sales force and sales
representatives. Raw materials used in Posterloid's operations are widely
available but are purchased from a limited number of sources in order to obtain
favorable prices and terms. Posterloid competes with three other significant
national menuboard manufacturers and a large number of local manufacturers.
Menuboard products compete on the basis of design capability, price, quality and
ability to meet delivery requirements. Posterloid had 60 employees as of April
30, 1997 and considers its employee relations to be good.
APV
APV was engaged in the research, development, licensing and testing of a
proprietory technology known as PolyVision(TM) with potential commercial
applications in a range of industrial and consumer products. In April, 1997, the
Company made the decision to discontinue any further research and development
efforts and market this technology through third-party licensing agreements.
This resulted in a fourth quarter restructuring charge of $650,000.
ITEM 2. PROPERTIES
Greensteel owns three of its facilities. Real estate owned by Greensteel
is subject to mortgages. Greensteel believes that all of its facilities are
well-maintained, in good condition and adequate for its present business.
Greensteel's production facilities are currently utilized to the extent of one
production shift per day and are scheduled for additional shifts as demand
requires during the busy seasonal period. At such levels of utilization,
Greensteel's production facilities have sufficient capacity to meet the current
demand for Greensteel's products.
Certain information concerning the principal facilities of Greensteel is
set forth below:
Approximate
Owned or Floor Area Lease
Location Leased (Square Feet) Expiration
- -------- ------ ------------ ----------
Dixonville, Pennsylvania .............. Owned 199,226 --
Landis, North Carolina ................ Owned 46,800 --
Alliance, Ohio ........................ Owned 28,032 --
Corona, California .................... Leased 26,000 1997
Fraser, Michigan ...................... Leased 4,500 1997
The only facility used by Posterloid, which is leased, is as follows:
Approximate
Owned or Floor Area Lease
Location Leased (Square Feet) Expiration
- -------- ------ ------------ ----------
Long Island City, New York Leased 54,000 2001
The manufacturing facility and administrative office of Posterloid is located in
Long Island City, New York.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In 1994, Reliance Insurance Company of New York (the "Plaintiff")
commenced an action in the Supreme Court of the State of New York, County of
Suffolk, against several defendants including the Company seeking money damages
based on the purported sale and delivery by defendants of some 860 insulated
metal curtain wall panels manufactured by the Company in 1987 and of an
additional 520 replacement panels in 1991 and 1992. Plaintiff has alleged that
such panels were defective in their design and manufacture. Among the theories
of liability advanced by Plaintiff are breach of contract, breach of express
warranty and implied warranty. Pursuant to orders of the Court, the causes of
action based on the 1987 transaction were dismissed on statute of limitation
grounds. However, Plaintiff has been granted leave to serve an amended complaint
to allege, among other things, a claim under the New Jersey Consumer Fraud Act
(the "NJCFA") (which might permit treble damages), while preserving the right of
the defendants, including the Company to challenge the applicability of the
NJCFA. The amended complaint was served during April, 1997 and Plaintiff
currently seeks $1,405,000 in damages as well as treble damages under the NJCFA.
The Company has served its answer to the amended complaint substantially denying
Plaintiff's allegations of defective design and manufacture and pleading
affirmative defenses, as well as commencing third party claims against an
adhesives supplier whose product was utilized by the Company in fabricating the
subject panels. As of the date hereof, discovery has yet to commence and it is
premature to render an estimate of the outcome of this litigation.
For a description of certain environmental matters, see "Business --
Greensteel; Environmental Matters."
Neither APV nor Posterloid is involved in any pending or threatened
litigation.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On March 25, 1997, the Company held its Annual Meeting of
Shareholders (the "Meeting").
(b) Not applicable.
(c) At the Meeting, the following matters were voted upon:
(i) Election of three Class I Directors to the Board of Directors,
each to hold office until the 1998 Annual meeting and until
his successor is elected and qualified.
The following table sets forth the name of each nominee and the voting
with respect to each nominee for director:
Withhold
Name For Authority Broker Non-Votes
---- --- --------- ----------------
Ivan Berkowitz 6,844,461 333,605 0
Stephen C. Knup 6,844,125 333,941 0
Bragi F. Schut 6,844.467 333,599 0
(ii) The Reincorporation of the Company in Delaware.
With respect to the foregoing matter, 3,976,867 shares voted in favor,
310,871 shares against and 18,184 shares abstained. There were no broker
non-votes. This proposal was not approved by the requisite number of
shareholders.
(iii) Ratification of the adoption of the 1995 Directors Stock
Option Plan of the Company.
With respect to the foregoing matter, 3,603,130 shares voted in favor,
588,471 shares against and 132,328 shares abstained. There were no broker
non-votes.
(iv) Ratification of the adoption of the 1995 Directors Stock Grant
Plan of the Company.
With respect to the foregoing matter, 3,810,195 shares voted in favor,
744,021 shares against and 140,625 shares abstained. There were no broker
non-votes.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange
("AMEX") under the symbol PLI. As of April 30, 1997, there were approximately
2,398 holders of record of the Company's Common Stock.
The following table sets forth, for the fiscal periods shown (PolyVision
Corporation changed its fiscal year to April 30 from December 31 in connection
with the Merger), the high and low sales prices for PolyVision Common Stock as
reported on the AMEX. The amounts set forth below through the May 24, 1995 date
of the Merger have not been adjusted to reflect the 1-for-15 Reverse Stock
Split.
High Low
---- ---
Calendar 1995
First Quarter ................................... $ 11/16 $ 1/2
Second Quarter .................................. 3/4 1/2
Third Quarter ................................... 7/8 3/8
Fourth Quarter .................................. 13/16 1/2
Calendar 1996
First Quarter ................................... $ 11/16 $ 1/2
Second Quarter (through May 24, 1995) ........... 11/16 1/2
Fiscal 1996
First Quarter (from May 25, 1995) ............... $ 7-1/2 $3-1/16
Second Quarter .................................. 3-15/16 2-1/4
Third Quarter ................................... 2-9/16 1-3/4
Fourth Quarter .................................. 2-5/8 1-7/8
Fiscal 1997
First Quarter ................................... $ 2-1/4 $ 5/8
Second Quarter .................................. 1-1/8 5/8
Third Quarter ................................... 15/16 11/16
Fourth Quarter .................................. 3/4 1/4
Fiscal 1998
First Quarter (through July 15, 1997) ........... $ 3/4 $ 1/4
The Company has never declared or paid dividends on its common stock and
does not anticipate paying dividends at any time in the foreseeable future. The
terms of the Company's Series A Preferred Stock prohibits the Company from
paying dividends on all classes of stock junior to such stock (including its
common stock) while shares of the Company's Series A Preferred Stock remain
outstanding.
11
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements of the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included herein.
<TABLE>
<CAPTION>
Fiscal Year Ended April 30,
---------------------------------------------------------
1997 1996 1995(1) 1994 1993
---- ---- ------- ---- ----
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales from operations ..... $ 32,233 $ 35,627 $ 13,572 $ 5,108 $ 4,211
========= ========= ========= ======== =======
(Loss) from operations(3) ..... $ (4,289) $ (5,245) $ (5,644) $(25,692) $(8,564)
========= ========= ========= ======== =======
Net (loss) .................... $ (5,109) $ (5,769) $ (5,728) $(25,732) $(9,638)
========= ========= ========= ======== =======
Preferred stock dividends ..... $ (2,059) $ (2,040) $ (448) $ (448) $ (358)
========= ========= ========= ======== =======
(Loss) applicable to
common stock ............... $ (7,168) $ (7,809) $ (6,176) $(26,180) $(9,996)
========= ========= ========= ======== =======
Loss per share(2) ............. $ (0.84) $ (0.94) $ (0.67) $ (2.56) $ (1.14)
========= ========= ========= ======== =======
Total assets .................. $ 16,901 $ 18,983 $ 22,153 $ 8,187 $ 9,496
========= ========= ========= ======== =======
Long-term obligations ......... $ 7,400 $ 5,285 $ 1,865 $ 4,927 $ 9,430
========= ========= ========= ======== =======
Preferred stock ............... $ 25,731 $ 25,731 $ 25,502 $ 6,933 $ 5,485
========= ========= ========= ======== =======
Total stockholders' equity
(deficit) .................. $ (2,990) $ 4,084 $ 11,090 $ 1,472 $(1,350)
========= ========= ========= ======== =======
</TABLE>
- ----------
(1) Includes the results of the Greensteel Division of the Company for the
four months ended April 30, 1995. See Note 3 to Notes to Consolidated
Financial Statements for pro forma financial information.
(2) Restated for all periods to reflect the 1-for-15 reverse stock split
effected in May 1995.
(3) Includes a $650,000 restructuring charge for the discontinuance of the APV
operations. See also Note 11 regarding certain royalties payable.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Results of Operations
The following table summarizes, for the periods presented, the respective
amounts of Greensteel, APV and Posterloid:
Fiscal Year Ended April 30,
----------------------------------
1997 1996 1995
---- ---- ----
(in thousands, except percentages)
Net sales
Posterloid .............................. $ 6,081 $ 5,557 $ 4,918
Greensteel .............................. 26,152 30,070 8,654
-------- -------- --------
32,233 35,627 13,572
Gross Profit
Posterloid .............................. 1,738 1,635 1,484
Greensteel .............................. 5,740 6,129 1,453
-------- -------- --------
7,478 7,764 2,937
Gross Margin ............................... 23.2% 21.8% 21.6%
Selling, general and administrative expenses
Posterloid .............................. 1,668 1,766 1,514
Greensteel .............................. 6,967 6,356 2,364
APV and Corporate ....................... 1,179 1,856 1,334
-------- -------- --------
9,814 9,978 5,212
Research and development
APV ..................................... 1,158 2,886 3,224
Restructuring Expense
APV ..................................... 650 -- --
Amortization of goodwill
Posterloid .............................. 145 145 145
Operating income (loss)
Posterloid .............................. (75) (276) (175)
Greensteel .............................. (1,227) (227) (911)
APV and Corporate ....................... (2,987) (4,742) (4,558)
-------- -------- --------
(4,289) (5,245) (5,664)
Net interest expense ....................... 910 516 64
Other (income) expense ..................... 90 8 20
Fiscal Year Ended April 30, 1997 Compared with Fiscal Year Ended April 30,
1996
The Company's net sales for the fiscal year ended April 30, 1997 decreased
10% to $32,233,000 compared to net sales of $35,627,000 for the fiscal year
ended April 30, 1996. This decline resulted from reduced sales of $3,918,000 at
Greensteel. In fiscal 1997, Greensteel has been in the process of converting its
distribution channels to sales through dealers and distributors which do not
require extended project management and are not subject to
13
<PAGE>
construction cost overruns or increased working capital requirements for
performance bonds and retainage. As a result of selling through distributors,
installation work that was previously done by the Company is now performed by
the distributor, resulting in reduced revenues. During fiscal 1997 the Company
added 19 new distributors covering various geographic areas of the United
States. Distributor sales for fiscal 1997 increased by 27% compared to fiscal
1996. Net sales for Posterloid increased by $524,000 or 9% in fiscal 1997. These
additional sales are due to a significant increase in volume with a fast food
restaurant chain.
The Company's gross profit for fiscal 1997 decreased to $7,478,000 from
$7,764,000 for fiscal 1996. Gross profit decreased at Greensteel from $6,129,000
to $5,740,000 due to lower revenues. Gross profit margins improved, however, to
22.0% from 20.4% due to higher margins on dealer sales and lower benefits costs
due to a more favorable union contract. Posterloid increased its gross profit by
$103,000 due to higher revenues, however the gross margin decreased from 29.4%
in fiscal 1996 to 28.6% in fiscal 1997 due to increased costs.
Selling, general and administrative costs for fiscal 1997 were $9,814,000
compared to $9,978,000 for the prior year. The decrease was due to lower
administrative personnel expense and related items offset by higher bad debt
expense.
Interest expense increased by $394,000 for fiscal 1997 due to a higher
level of debt in order to fund working capital needs and research and
development expenses.
Research and development costs related to the PolyVision(TM) technology
decreased by $1,728,000 for fiscal 1997. In April, 1997 the Company made the
decision to discontinue its research and development efforts and market the
PolyVision(TM) technology through licensing agreements. This decision will allow
the Company to better utilize its financial resources and resulted in a charge
of $650,000 for restructuring expenses. This includes the estimated costs of
severance pay and benefits and the write-down of assets to net realizable value.
Fiscal Year Ended April 30, 1996 Compared with Fiscal Year Ended April 30,
1995
The fiscal 1996 comparative increase in net sales of approximately
$22,055,000, or 162%, was primarily attributable to a full year of Greensteel's
operations as compared to the four month period subsequent to its effective
purchase by Alpine on December 21, 1994 for the fiscal year ended April 30,
1995. Greensteel's comparable revenues for the year ended April 30, 1995 were
$32,611,000. The decrease in Greensteel's comparable revenues is primarily due
to comparably lower sales of third party provided casework in accordance with
Greensteel's decision in 1993 to discontinue reliance on third parties which had
led in the past to substantial cost overruns and late deliveries. In addition,
Posterloid's fiscal 1996 revenues increased approximately $639,000 or 13% with
increases in both the menuboard and Viscon banking product lines. Greensteel's
business is seasonal and a disproportionate amount of its sales and operating
profits occur in the third calendar quarter of the year. This occurs as a result
of increased business activity in the summer months when schools are closed and
construction activity increases.
Gross profit in fiscal 1996 increased on a comparative basis by
$4,827,000, while the gross margin percentage increased slightly to
approximately 21.8% in fiscal 1996 from 21.6% in fiscal 1995. The increase in
the gross profit as well as the increase in the gross margin percentage were
primarily attributable to Greensteel's operations. Greensteel's gross margin
increased to 20.4% for fiscal 1996 from 16.8% for the four months ended April
30, 1995, primarily due to comparing full year results with a four month period
of historically lower production volumes and related margins. Greensteel's
fiscal 1996 gross margin was negatively affected by a non-cash charge of
approximately $700,000 relating to a new three year union agreement at its
Dixonville, Pennsylvania location. In connection with the new union agreement
the Company anticipates cost savings in each of the next three years.
Posterloid's comparative 1996 gross profit increased by approximately $151,000
while gross margin declined to 29.4% from 30.2%. Posterloid's comparative
decline in gross margin was primarily attributable to costs associated with the
move of the Viscon product line to Connecticut.
14
<PAGE>
Research and development expenses, excluding depreciation and amortization
charges, decreased $780,000 on a comparative basis from fiscal 1995. The Company
has determined that the most cost effective method in the event of full scale
production of PolyVisionTM displays is through third party subcontractors. In
this regard the Company will not exercise its option to renew the lease at its
Wallingford Connecticut facility which expires in December 1996 and the Company
is currently exploring alternate sites. In connection with this decision,
depreciation and amortization expenses have been accelerated while other
PolyVisionTM technology manufacturing-related costs have been reduced, such that
research and development expenses for fiscal 1997 are anticipated to be
approximately $1,200,000.
The comparative fiscal 1996 increase in selling, general and
administrative expense of $4,766,000 was primarily attributable to the inclusion
of Greensteel for the entire fiscal year ended April 30, 1996 and a comparative
increase of $522,000 of corporate expenses relating to the new management and
public company structure implemented in connection with the May 1995 Merger.
Since the Merger in May 1995, management of the Company has focused on
deployment of its asset base and its cost structure with a near-term goal of
achieving a break-even level on operating profit for fiscal 1997. At Greensteel,
the Company consolidated its Portland, Oregon manufacturing facility with its
Corona, California facility in September 1995. An expansion of Greensteel's
Alliance, Ohio facility was completed in February 1996 to provide more efficient
laminating and distribution of its porcelain enameled chalkboards and marker
boards. In June 1996, the consolidation of Greensteel's Landis, North Carolina
manufacturing facility with its Dixonville, Pennsylvania facility was completed.
In addition to the efficiencies expected from the foregoing, cost savings under
the new labor agreement and adoption of a new health care plan will further
enhance Greensteel's competitive position. In this regard, management of the
Company intends to focus its resources on aggressively increasing it market
share in fiscal 1997 for both its Greensteel and Posterloid subsidiaries.
Fiscal Year Ended April 30, 1995 Compared with Fiscal Year Ended April 30,
1994
The fiscal 1995 comparative increase in net sales of approximately
$8,464,000, or 166%, was attributable to the inclusion of $8,654,000 in revenues
from Greensteel's operations for the four month period subsequent to its
effective purchase by Alpine on December 21, 1994. Greensteel's comparable
revenues for the four months ended April 30, 1994 were $8,408,000. Partially
offsetting the revenue increase attributable to Greensteel was a decline in
Posterloid's fiscal 1995 revenue's of approximately $190,000 or 4%. Greensteel's
business is seasonal and a disproportionate amount of its sales and operating
profits occur in the third calendar quarter of the year. This occurs as a result
of increased business activity in the summer months when schools are closed and
construction activity increases.
Gross profit in fiscal 1995 increased on a comparative basis by
$1,007,000, while the gross margin percentage declined from approximately 37.8%
in fiscal 1994 to 21.6% in fiscal 1995. The increase in the gross profit as well
as the decline in the gross margin percentage were primarily attributable to the
inclusion of Greensteel's operations in fiscal 1995. Greensteel, which
historically has operated at gross margins below 19%, contributed a gross profit
during the period of its inclusion of approximately $1,453,000, representing a
gross margin percentage of approximately 16.8%. Posterloid's comparative 1995
gross profit decreased by approximately $446,000 while gross margin declined to
30.2% from 37.8%. Posterloid's comparative declines in gross profit and gross
margin represent a reduction in business from the higher margin banking sector.
The comparative fiscal 1995 increase in selling, general and
administrative expense of $2,681,000 was primarily attributable to the inclusion
of Greensteel for the four months ended April 30, 1995 and approximately
$632,000 of Merger-related professional fees and other administrative overhead
expenses charged by Alpine.
15
<PAGE>
Liquidity and Capital Resources
During fiscal 1997, the principal use of cash was $3,157,000 to support
operating activities. Approximately $689,000 was used to reduce accounts payable
and accrued expenses. Sources of funds included a $1,007,000 reduction in
accounts receivable and a $399,000 reduction in inventories. The Company spent
$400,000 on capital expenditures in fiscal 1997. They were used primarily for an
air filtration system at the new Posterloid facility and to develop and install
a new computer system at Greensteel. Also sources of funds include $1,046,000 in
working capital from the Bank of Boston and $2,476,000 from Alpine. During
fiscal 1997 $220,000 of the term loan with the Bank of Boston was repaid.
In April, 1996, Greensteel, as borrower, and the Company, as guarantor,
entered into a $5,000,000 Master Credit Agreement with the Bank of Boston
Connecticut to provide financing for Greensteel's general working capital
requirements. The Agreement provides for a revolving credit facility of up to
$3,800,000 based upon eligible accounts receivable and inventory (unused
borrowings were $1,036,000 at April 30, 1997) at the Bank's prime rate plus 1%
(9.50% at April 30, 1997) and $1,200,000 term loan payable in equal monthly
installments of $20,000 with interest at the Bank's prime rate plus 1-1/2%
(10.00% at April 30, 1997) beginning June 1, 1996 through August 1, 1997, with
the remaining unpaid principal amount of $900,000 due on August 31, 1997.
Substantially all of Greensteel's assets are pledged as collateral for the
credit facility. The Agreement requires Greensteel's compliance with certain
financial covenants including maintenance of a minimum net worth, current ratio,
debt to net worth and a minimum debt service coverage. Greensteel was not in
compliance with its financial covenants as of April 30, 1997. The bank has
provided a waiver for these covenants for the year ending April 30, 1997 through
July 30, 1997. On March 31, 1997, the Company and Greensteel signed a letter of
intent with the Bank of Boston to extend the existing credit agreement which
matures August 31, 1997. This agreement will provide credit facilities totaling
$4,800,000 and will be subject to standard ratios and covenants. The agreement
will provide for a maturity of two years from the closing date and a floating
interest rate equal to the prime rate plus one to one and a half percent based
on performance ratios. As collateral for this extended facility Greensteel will
continue the first lien in favor of the bank on all tangible and intangible
property.
On May 24, 1995, the Company entered into an agreement with Alpine
pursuant to which the Company may borrow from time to time, up to $5,000,000
from Alpine to be used by the Company to fund its working capital needs.
Borrowings under the agreement are unsecured and bear interest at a market rate
reflecting Alpine's cost of borrowing such funds. As of April 30,1997, Alpine
has advanced $5,000,000 to the Company under such agreement. On April 30, 1997,
pursuant to agreement between Alpine and the Company, Alpine loaned to the
Company $811,000 against a promissory note of the Company in like amount.
Borrowings under the note are at Alpine's cost of borrowing such funds (8-1/2%
at April 30, 1997). The Company's obligations to Alpine are comprised of accrued
dividends and indebtedness which total approximately $10,500,000 as of April 30,
1997. In addition, the indebtedness to Alpine increased by approximately
$3,000,000 during fiscal 1997. Alpine has agreed to advance further funds to the
company through April 30, 1998 as may be necessary for the company to meet its
financial committment to third parties incurred in the ordinary course of
business. The decision to continue to provide such financial support is made
annually by Alpine and future decisions will be based upon the conditions
existing at that time.
Contingencies
As more fully described in note 11 to the April 30, 1997 financial
statements, APV, Inc. received a $750,000 advance from Connecticut Innovations,
Inc. in 1992 to finance a portion of APV's product development
16
<PAGE>
costs. This advance was to be paid back along with additional amounts from
future royalties generated from the sale of the developed products up to a
maximum cumulative royalty payment of $3,250,000.
With the discontinuance of the operations of APV, Inc. as of April
30,1997, the Company is currently in negotiations with Connecticut Innovations
to terminate the royalty arrangement. Connecticut Innovations has asserted that
the entire royalty of $3,250,000 is due less any royalty payments already made
which approximates $300,000. In the opinion of management of the Company, the
two parties will negotiate a settlement to the royalty arrangement and the
settlement amount will not have a material adverse financial impact on the
Company. However, management cannot predict the ultimate outcome of these
negotiations.
Recent Accounting Pronouncements
In March 1995, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that the carrying value of long-lived operating assets,
when determined to be impaired, be adjusted so as not to exceed the estimated
undiscounted cash flows provided by such assets. SFAS No. 121 also addresses the
accounting for long-lived assets that are to be disposed of in future periods.
The Company adopted the provisions of SFAS No. 121 in fiscal year 1997. The
adoption of SFAS No. 121 did not have a material effect on the Company's
financial position or results of operations for the year ended April 30, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 recommends, but does not require, that companies
change their method of accounting for stock-based compensation plans to one that
attributes compensation costs equal to the fair value of a stock-based
compensation arrangement over the periods in which service is rendered.
Companies not electing to change their method of accounting are required, among
other things, to provide additional disclosure which in effect restates a
company's results for comparative periods as if the new method of accounting had
been adopted. The Company elected not to adopt the recognition provisions of
SFAS No. 123 but instead has complied with the related disclosure requirements.
Based on the exercise price of the Company's options, the market value of the
Company's stock and the historical operations of the Company, there would not be
any effect to net loss and net loss per common share with the adoption of the
SFAS No. 123 disclosure requirements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. The Company has adopted the
provisions of this statement effective January 1, 1997 with no impact on the
Company's operating or financial position.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock. The Company is required to
adopt the new standard for fiscal year ending April 30,1998. Based upon the
Company's initial evaluation, adoption is not expected to have a significant
impact on the Company's reported earnings per share.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." The disclosure requirements will have to be adopted by
the Company for fiscal year ending April 30,1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. The Company is required
to adopt the new standards for fiscal year ending April 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise." This statement establishes standards for the way that public
business enterprises report information about operating
17
<PAGE>
segments in annual financial statements and requires that those enterprises
report selected information in interim financial statements. The disclosure
requirements would have to be adopted by the Company for fiscal year ending
April 30, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data of the Company appear on
pages F-2 through F-24 of this Form 10-K, are indexed herein under Item
14(a)(1), and are incorporated herein by reference. See also the financial
statement schedule appearing herein under Item 14(a)(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names and ages of the directors and executive officers of the Company,
and their positions with the Company, as of July 23, 1997, are as follows:
Name Age Position
- ---- --- --------
David H. Holt 43 Chief Executive Officer
Joseph A. Menniti 60 President and Chief Operating Officer
Lawrence W. Hay 53 Vice President of Finance
Steven S. Elbaum 48 Chairman of the Board and Director
Ivan Berkowitz 51 Director
Stephen C. Knup 55 Director
Bragi F. Schut 55 Director
Lyman C. Hamilton 70 Director
- ----------
DAVID H. HOLT became Chief Executive Officer of the Company in April,
1997. From January 1996 to January 1997, he served as Group Vice President of
Beloit Corporation, a subsidiary of Harnischfeger Industries, which manufactures
and markets machinery and systems for the pulp and paper industry. From 1976 to
1996, Mr. Holt held various financial, marketing and general management
positions with Beloit Corporation.
JOSEPH A. MENNITI was elected President and Chief Operating Officer of the
Company in May, 1995. From 1989 to May 1995, Mr. Menniti was the President of
DNE Technologies, Inc., a wholly-owned subsidiary of
18
<PAGE>
Alpine which manufactures and markets electronic and communications products and
systems for the military, government and commercial sectors. Mr. Menniti held
various positions at Grumman Aerospace Corporation prior thereto.
LAWRENCE W. HAY was appointed Vice President of Finance of the Company
effective August 7, 1996. From 1985 to January 1996, Mr. Hay served as Vice
President of Finance and Administration of Ceramicus, Inc., a manufacturer of
ceramic tile located in East Sparta, Ohio. From February to July 1996, Mr. Hay
was an independent business consultant.
IVAN BERKOWITZ was elected a director of the Company in May, 1995. From
May, 1995 until April, 1997 he served as Chief Executive Officer of the Company.
From September 1993 to March 1995, he was the Managing General Partner of Steib
& Company, a private investment partnership. Since March 1995, Mr. Berkowitz has
also been a director of Propierre I, a public French real estate mutual fund,
and, since July 1995, a director of Harmony Holdings, Inc., a company engaged in
the commercial film production business. From 1978 through December 1994, Mr.
Berkowitz was a Managing Director of Chestnut Hill Securities, Inc., a
registered broker-dealer in Los Angeles, California.
STEVEN S. ELBAUM was elected Chairman of the Board and a director of the
Company in December, 1994. Mr. Elbaum has been a director of Alpine since 1980
and has served as its Chairman of the Board and Chief Executive Officer since
June 1984. Mr. Elbaum has been Chairman of the Board, President and Chief
Executive Officer of Superior Telecom since July, 1996. He is also a director of
Interim Services, Inc., a provider of value-added staffing and health care
services, and HumaScan, Inc., a developer of medical monitoring devices, and
also Broadway and Seymour, Inc., a developer and vendor of computer software
technologies.
STEPHEN C. KNUP was elected a director of the Company in May, 1995. Mr.
Knup has been the Executive Vice President and Chief Financial Officer of
Metallgesellschaft Corp., a raw materials company, from November 1994 to the
present. Mr. Knup formerly served as Chief Operating Officer of Frankel & Co.,
an insurance brokerage company, from May 1994 to November 1994, and as the
Senior Vice President and Chief Financial Officer of AMAX Inc., a natural
resource and a natural gas producer, from February 1988 to December 1993 and as
a consultant to Cyprus Amax Minerals Company, its successor by merger, from
January 1994 to March 1994.
BRAGI F. SCHUT was elected a director of the Company in December, 1994.
Mr. Schut has been a director of The Alpine Group, Inc., since 1984 and has been
Alpine's Executive Vice President since 1986 and its Secretary since 1990. Mr.
Schut is also a Director of Superior Telecom, Inc.
LYMAN C. HAMILTON, JR. was elected a director of the Company in May, 1995.
Mr. Hamilton is currently a private investor and served as President and Chief
Executive Officer of APV, Inc. from March 1991 to December 1992. From December
1989 to September 1990, Mr. Hamilton served as Chairman and Chief Executive
Officer of Imperial Corporation of America, a public bank holding company
(Imperial Corporation of America filed a petition under Chapter 11 of the U.S.
Bankruptcy Code on February 28, 1990); and from 1980 to December 1989, he served
as Chairman and President of Tamco Enterprises, Inc., a private investment
company. Mr. Hamilton currently serves on the Board of Directors of InterDigital
Communications Corp., a manufacturer of wireless telephone equipment,
Scan-Optics, Inc., a manufacturer of optical character recognition equipment,
and a member of the Advisory Boards of Desai Capital Management and UBS Asset
Management. Mr. Hamilton served on Alpine's Board of Directors from 1991 to
November 1993.
No family relationship exists among any of the directors or executive
officers of the Company. No arrangement or understanding exists between any
director or executive officer and any other person pursuant to which
19
<PAGE>
any director or executive officer was selected as a director or executive
officer of the Company. All executive officers are appointed annually by the
Board of Directors.
Pursuant to the Company's Restated Certificate of Incorporation, the Board
is divided into two classes, with staggered two-year terms, and one class of
directors is elected at each Annual Meeting of Shareholders. On March 25, 1997,
Messrs. Berkowitz, Knup and Schut were re-elected to the Company's Board of
Directors as Class I directors to hold office until the 1998 Annual Meeting of
Shareholders and until their successors are elected and qualified. Messrs.
Elbaum and Hamilton were elected as Class II directors and hold office until the
1999 Annual Meeting of Shareholders and until their successors are elected and
qualified. The Company's Board maintains an Audit Committee and a Compensation
Committee. As of July 23, 1997, Messrs. Hamilton, Knup and Elbaum serve on the
Audit Committee, and Mr. Schut serves on the Compensation Committee.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely upon its review of the copies of reports required by Section
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
received by the Company, or representations from certain reporting persons that
no year-end Forms 5 were required for those persons, the Company believes that,
during the year ended April 30, 1997, all filing requirements applicable to its
executive officers, directors and greater than ten percent beneficial owners
under Section 16(a) of the Exchange Act were complied with.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation (including cash
bonuses) paid or accrued by the Company for its fiscal year ended April 30, 1997
and the two prior fiscal years to its Chief Executive Officer and to the two
other executive officers of the Company whose compensation exceeded $100,000 at
April 30, 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------------------ -------------------------------
Other Annual Common Stock
Name and Principal Fiscal Salary Bonus Compensation Restricted Stock Underlying
Position Year ($) ($) ($)(5) Awards (#) Options (#)
- ----------------------- ---- ------ ---- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
David H. Holt (1) 1997 $ 22,000 -- -- -- --
Chief Executive Officer
Ivan Berkowitz (2) 1997 206,000 35,000 -- -- --
Director 1996 200,000 -- -- 25,000 175,000
1995 -- -- -- -- --
Joseph A. Menniti (3) 1997 191,000 30,000 -- -- --
President & Chief 1996 185,000 -- $32,000(4) 15,000 75,000
Operating Officer 1995 -- -- -- -- --
</TABLE>
- ----------
(1) Mr. Holt became the Chief Executive Officer of the Company effective April
24, 1997.
(2) Mr. Berkowitz served as the Chief Executive Officer of the Company until
April 24, 1997.
(3) Mr. Menniti was elected the President and Chief Operating Officer of the
Company effective May 1, 1995.
(4) This amount was received as a signing bonus under Mr. Menniti's employment
agreement. See "Employment Agreements" below.
(5) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive Officer.
21
<PAGE>
Stock Options
The following table sets forth information with respect to grants of
options ("Options") to purchase Common Stock under the Company's 1994 Stock
Option Plan to the Named Executive Officers during the fiscal year ended April
30, 1997.
Option Grants in Fiscal Year Ended April 30, 1997
<TABLE>
<CAPTION>
% of Total Potential Realized
Options Value at Assumed
Granted to Exercise Annual Rate of Stock
Options Employees Price Expiration Appreciation for
Name Granted(1) In Fiscal Year ($/sh)(1) Date Option Term(2)
---- ---------- -------------- --------- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
------ -------
Ivan Berkowitz 35,000 16.3% $1.00 April 2002 $0 $0
Joseph A. Menniti 30,000 13.9% $1.00 May 2002 $0 $0
David H. Holt 150,000 69.8% $ .50 March 2000 $0 $0
</TABLE>
- ----------
(1) All options were granted at or above market value on the date of grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on option exercises are dependent upon other factors,
including the future performance of the Common Stock and overall stock
market conditions.
Aggregated Option Exercises During Fiscal 1997 and Fiscal Year-End
Option Values
The following table sets forth for the Named Executive Officers
information on options exercised, unexercised options and year-end option values
in each case with respect to options to purchase shares of the Company's Common
Stock.
<TABLE>
<CAPTION>
Number of Securities
Shares Value Underlying Value of Unexercised
Acquired on Realized Unexercised Options at in the Money Options
Name Exercise(#) ($) April 30, 1997(#) at April 30, 1997(1)
---- ----------- -------- ---------------------- --------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ivan Berkowitz -0- -0- 35,000 -0- $0 $0
Joseph A. Menniti -0- -0- 30,000 -0- $0 $0
David H. Holt -0- -0- -0- 150,000 $0 $0
</TABLE>
- ----------
(1) Represents the difference between the last sale price of the Common Stock
on April 30, 1997, and the exercise price of the option multiplied by the
applicable number of options.
22
<PAGE>
Directors' Compensation
In addition to grants made pursuant to the Company's 1995 Directors Stock
Option and Stock Grant Plans, non-employee directors receive $500 for each board
or committee meeting attended. All expenses in connection with attendance at
such meetings are paid by the Company.
Employment Agreements
In June 1997, Ivan Berkowitz resigned as the Chief Executive Officer of
the Company. Mr. Berkowitz received compensation and other benefits under his
employment agreement through June 30, 1997, at which time such agreement
terminated. Pursuant to the terms of his employment agreement, Mr. Berkowitz
received a bonus of $35,000 in respect of fiscal 1996 and a stock grant of
15,000 shares of the Company's Common Stock. Mr. Berkowitz additionally
received, as part of his fiscal 1996 bonus, fully-vested, non-qualified stock
options to purchase 35,000 shares of the Company's Common Stock at an exercise
price of $1.00 over a five-year period.
At the time of Mr. Berkowitz's resignation, the Company entered into an
employment agreement with David H. Holt to serve as the Company's Chief
Executive Officer through March 15, 2000. Under his employment agreement, Mr.
Holt is entitled to receive an annual base salary of $175,000, subject to annual
cost-of-living adjustments, and incentive compensation (payable in either cash
or restricted stock) of up to 40% of his annual base salary upon the achievement
of targeted corporate objectives, determined by the Company's Board of
Directors. Mr. Holt is also entitled to receive incentive stock options to
purchase 150,000 shares of the Company's Common Stock at an exercise price of
$.69, vesting in three equal installments on March 15, 1998, 1999 and 2000. In
addition, if Mr. Holt's employment is terminated by the Company for any reason
other than for "Cause" (as defined) or by Mr. Holt for "Good Reason" (as
defined) such executive is entitled to payment of one times his base salary plus
any amount due for incentive compensation. Mr. Holt agreed not to compete with
the Company during his term of employment and for two years thereafter.
Pursuant to an Employment Agreement, dated as of May 1, 1995, between the
Company and Joseph A. Menniti, Mr. Menniti has agreed to serve as the President
and Chief Operating Officer of the Company until either he or the Company elects
to terminate such employment upon prior written notice. Under the terms of the
Employment Agreement, Mr. Menniti is entitled to an annual base salary, subject
to annual reviews, of $185,000, for services rendered in such position, plus an
annual bonus of not less than 30% of such base salary in the event the Company
achieves annual targeted performance objectives set by the Company's Board of
Directors.
In addition, pursuant to the Employment Agreement, the Company agreed to
grant to Mr. Menniti stock options to purchase 75,000 shares of the Company's
Common Stock at an exercise price of $3.82 and vesting in five equal annual
installments. The Company also agreed to make restricted stock grants to Mr.
Menniti in the amount of 15,000 shares of the Company's Common Stock, to be held
by the Company and released at a rate of 3,000 shares per year. In addition, if
Mr. Menniti's employment is terminated by the Company for any reason other than
for "Cause" (as defined) or by Mr. Menniti, for "Good Reason" (as defined), he
is entitled to payment of one times his base salary if his termination occurs on
or before May 1, 1999 and one and one-half his salary if his termination occurs
thereafter, in each case together with the annual bonus that he would have been
entitled to had his employment not been so terminated. Mr. Menniti has agreed
not to compete with the Company during his term of employment and for two years
thereafter and not to disclose any part of the Company's proprietary technology
in perpetuity.
23
<PAGE>
Compensation Committee Interlocks and Insider Participation
The sole member of the Compensation Committee of the Board of Directors is
Bragi F. Schut. No member of the Board of Directors or the Compensation
Committee has any interlocking relationship with any other corporation that
requires disclosure under this heading.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee (the "Committee") of the Board of Directors of
the Company was established in 1990 and did not hold any meetings during the
fiscal year ended April 30, 1997. The duties and responsibilities of the
Committee include the following:
(a) approval of annual salaries and other benefits provided for
executive officers of the Company;
(b) approval of the adoption of compensation plans in which the
executive officers of the Company may be participants and awarding
of benefits under such plans; and
(c) undertaking studies and making recommendations with respect to the
Company's compensation structure and policies and the development of
management personnel.
The Committee's policies with respect to executive compensation are
intended to achieve the following goals. First, they are intended to create base
compensation levels sufficient to attract and retain talented and dedicated
executive officers. Second, the compensation policies are intended to provide a
direct link between performance during the year (both the performance of the
Company as a whole and the performance of the individual officer) as a part of
the officer's compensation. Third, the compensation policies are intended to
provide executive officers with the opportunity to acquire an equity stake in
the Company through the grant of options pursuant to the Company's stock-based
incentive plan.
During the fiscal year ended April 30, 1997, the full Board approved
bonuses and granted options to certain of its executive officers and certain
employees. In each case, the Board's decision was based upon the principles and
procedures outlined above.
24
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the shares of Common
Stock owned as of July 23, 1997, by (i) each person known to the Company to be
the beneficial owner of more than 5% of the Common Stock; (ii) each director and
executive officer of the Company who owns shares of Company Common Stock; and
(iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated in the table or footnotes following the table, (a) the
persons as to whom the information is given had sole voting and investment power
over the shares of Common Stock shown as beneficially owned by them, and (b) the
business address of each such person is c/o the Company, 4862 36th Street, Long
Island City, New York, New York 11101.
Percent of
Number of Shares Common Stock
Name and Address of Beneficially Beneficially
Beneficial Owner Owned (1) Owned (1)
- ------------------- ------------ ------------
The Alpine Group, Inc. 1,576,345 18.5%
1790 Broadway
New York, NY 10017
Steven S. Elbaum 421,610(2)(3) 4.9%
c/o The Alpine Group, Inc.
1790 Broadway
New York, NY 10019
Ivan Berkowitz 152,931(4)(6) 1.8%
Lyman C. Hamilton, Jr 45,264(2)(3) *
69 Byron Drive
Avon, CT 06001
Stephen C. Knup 19,166(2)(3) *
c/o MetallGesellschaft Corp.
520 Madison Avenue
New York, NY 10022
Bragi F. Schut 128,219(2)(3) 1.5%
c/o The Alpine Group, Inc.
1790 Broadway
New York, NY 10019
Joseph A. Menniti 46,929(5) *
All executive officers and 814,119(2)-(5) 9.5%
directors as a group
(6 persons)
- ----------
* Percentage ownership is less than 1%.
25
<PAGE>
(1) Includes, in accordance with Rule 13d-3(d)(1)(i) of the Securities and
Exchange Act of 1934, as amended ("Exchange Act"), 8,540,762 shares of
Common Stock outstanding as of July 23, 1997, and to the extent set forth
in the next sentence only, includes shares issuable upon the exercise of
options within 60 days of such date under the Company's stock option plans
held by the persons included in the table. For the purpose of computing
the percentage of outstanding shares beneficially owned by a particular
person, any securities not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable by that person
within 60 days of July 23, 1997, have been deemed to be outstanding, but
have not been deemed outstanding for the purpose of computing the
percentage of the class beneficially owned by any other person.
(2) Pursuant to the Company's 1995 Directors Stock Grant Plan, each of
Messrs. Elbaum, Hamilton, Knup and Schut were granted 10,000 shares of
Common Stock on October 2, 1995, subject to the approval of such plan by
the Company's shareholders at the Annual Meeting. Under the terms of the
1995 Directors Stock Grant Plan, one-third of such shares vested on the
date of the 1995 Annual Meeting of Shareholders, one-third of such shares
vest on the date of the Annual Meeting and one-third of such shares will
vest on the date of the 1997 Annual Meeting of Shareholders, so long as
such director remains a director of the Company following the respective
dates.
(3) Pursuant to the Company's 1995 Directors Stock Option Plan, each of
Messrs. Elbaum, Hamilton, Knup and Schut were granted stock options to
purchase 25,000 shares of Common Stock on October 2, 1995 at an exercise
price of $3.86 per share, subject to the approval of such plan by the
Company's shareholders at the Annual Meeting. Under the terms of the 1995
Directors Stock Option Plan, one-fourth of such shares were exercisable on
the date of the 1995 Annual Meeting of Shareholders, one-fourth of such
shares are exercisable on the date of the Annual Meeting and one-fourth of
such shares will be exercisable on the date of each of the 1997 and 1998
Annual Meetings of Shareholders, so long as such director remains a
director of the Company following the respective dates.
(4) Includes (i) 20,000 of the 25,000 "restricted" shares of Common Stock
granted to Mr. Berkowitz under the terms of his former employment
agreement with the Company, and (ii) stock options to purchase 87,500 of
the 175,000 shares of Common Stock granted to Mr. Berkowitz under the
terms of the Company's 1994 Stock Option Plan at an exercise price of
$3.86.
(5) Includes (i) 6,000 of the 15,000 "restricted" shares of Common Stock
granted to Mr. Menniti under the terms of his employment agreement with
the Company, with the remaining shares to be earned in equal 3,000 share
installments on May 1, 1998, 1999 and 2000, subject to certain conditions
in the event of Mr. Menniti's earlier termination of employment, and (ii)
stock options to purchase 37,500 of the 75,000 shares of Common Stock
granted to Mr. Menniti under the terms of the Company's 1994 Stock Option
Plan at an exercise price of $3.86, with the remaining options to be
exercisable in equal 18,750 share installments on May 1, 1998 and 1999,
subject to certain conditions in the event of Mr. Menniti's earlier
termination of employment.
(6) Includes 35,000 shares received by Mr. Berkowitz pursuant to his
employment agreement. These shares are fully vested and have an exercise
price of $1.00 per share over a five year period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 24, 1995, the Company entered into an agreement with Alpine, the
Company's largest single shareholder, pursuant to which the Company may borrow
from time to time, prior to May 24, 1997, up to
26
<PAGE>
$5,000,000 from Alpine to be used by the Company to fund its working capital
needs, including research, development and commercialization activities in
connection with the display technology of APV, Inc., a wholly-owned subsidiary
of the Company. Borrowings under the agreement are unsecured and will bear
interest at a market rate reflecting Alpine's cost of borrowing such funds
(currently approximately 8 1/2%), with interest payable semiannually in cash
(but added to the outstanding principal amount for the first 18 months). The
principal balance outstanding will be due on May 24, 2005, subject to mandatory
prepayment of principal and interest, in whole or in part, from the net cash
proceeds of any public or private, equity or debt financing made by the Company
at any time before maturity. Alpine's obligation to lend such funds to the
Company is subject to a number of conditions, including review by Alpine of the
proposed use of such funds by the Company. As of April 30, 1997 and April
30,1996, $5,000,000 and $3,335,000 was outstanding respectively under such
agreement.
On April 30, 1997, the Company entered into an agreement with Alpine to
borrow $811,000 to fund its corporate borrowing requirements. Borrowings under
this agreement are at Alpine's cost of borrowing such funds.
The Company has historically relied upon the support of Alpine to meet its
working capital needs and financial commitments. The Company's obligations to
Alpine are comprised of accrued dividends and indebtedness which total
approximately $10,500,000 as of April 30, 1997. The indebtedness to Alpine
increased by approximately $3,000,000 during fiscal 1997. Alpine has provided a
legally binding commitment to the Company to provide financial support to meet
the Company's financial commitments and not demand payment of the indebtedness
and accrued dividends due to Alpine, through the period ending May 1, 1998. The
decision to continue to provide such financial support is made annually by
Alpine and future decisions will be based upon the conditions existing at that
time.
The Board of Directors of the Company and Alpine contain some of the same
members. See "Item 10. Directors and Executive Officers of the Registrant."
Adience, Inc., a wholly-owned subsidiary of Alpine, performs certain
management and administrative services for the Company. These services include
the use of Adience's management information system. The fee paid by the Company
for these services, as previously agreed to by the respective Boards of Adience
and the Company, is at the current rate of $300,000 per year.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements of PolyVision Corporation are submitted
in a separate section beginning on page F-1 pursuant to the requirements of Form
10-K, part II, Item 8 and Part IV, Items 14(a) and 14(d):
Page
----
Report of Independent Accountants .......................................... F-1
Consolidated Balance Sheets as of April 30, 1997 and 1996 .................. F-2
Consolidated Statements of Operations for the Years ended
April 30, 1997, 1996 and 1995 .............................................. F-3
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years ended April 30, 1997, 1996 and 1995 .............................. F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 1997, 1996 and 1995 .............................................. F-5
Notes to Consolidated Financial Statements ................................. F-7
(a)(2) Financial Statement Schedules.
The following schedules of PolyVision Corporation are submitted for the
years ended April 30, 1997, 1996 and 1995:
Page
----
Schedule I - Condensed Financial Information of Registrant ................. S-1
Schedule II - Valuation and Qualifying Accounts ............................ S-6
All other schedules are omitted because they are not applicable or are not
required, or because required information is included in the financial
statements or the notes thereto.
(a)(3) Exhibits.
Exhibit No. Document
- ----------- --------
2.1 Agreement and Plan of Merger, dated as of December 21, 1994, as
amended, among IDT, The Alpine Group, Inc., Alpine PolyVision, Inc.
and Posterloid Corporation.(1)
28
<PAGE>
Exhibit No. Document
- ----------- --------
3.1 Restated Certificate of Incorporation of the Company.(1)
3.2 By-laws of the Company. (2)
4.4 Specimen form of Common Stock Certificate of the Company.(3)
10.1 Asset Acquisition Agreement, dated as of April 24, 1990, relating to
the purchase of the Information Display Division of Adience, Inc. by
IDT.(4)
10.2 Management and Administrative Services Agreement, dated as of April
24, 1990, between IDT and Adience, Inc.(5)
10.4 Tax Sharing Agreement, dated as of April 24, 1990, between IDT and
Adience, Inc.(5)
10.7 1990 Stock Incentive Plan of IDT.(2)
10.15 1994 Stock Option Plan of the Company.(1)
10.16 Credit Commitment Letter Agreements, dated May 24, 1995, between the
Company and The Alpine Group, Inc.(3)
10.17 Registration Rights Agreement, dated May 24, 1995, between the
Company and The Alpine Group, Inc.(3)
10.18 Form of Indemnification Agreement for Directors of the Company. (3)
10.19 1996 Union Stock Grant Plan of the Company.(6)
10.20 1995 Directors Stock Grant Plan of the Company.(7)
10.21 1995 Directors Stock Option Plan of the Company.(7)
10.23 Amended and Restated Employment Agreement, dated as of May 1, 1995,
between the Company and Joseph A. Menniti.(7)
10.25 Articles of Agreement, dated February 28, 1996, between Greensteel
and The Carpenters' District Council of Western Pennsylvania.(7)
10.26 Master Credit Agreement, dated as of April 25, 1996, among Bank of
Boston Connecticut (the "Bank"), Greensteel and the Company.(7)
10.27 Security Agreement, dated as of April 25, 1996, between the Bank and
Greensteel.(7)
10.28 Pledge Agreement, dated as of April 25, 1996, between the Bank and
Greensteel.(7)
10.29 Unlimited Continuing Guaranty Agreement, dated as of April 25, 1996,
between the Bank and the Company.(7)
29
<PAGE>
10.30 Stock Pledge Agreement, dated as of April 25, 1996, between the Bank
and the Company.(7)
10.31 Agreement of Transfer, dated as of January 31, 1996, between the
Company and Greensteel.(7)
10.32 Employment Agreement dated as of March 15, 1997 between the Company
and David H. Holt.
22.1 Subsidiaries of the Company.
- ----------
(1) Incorporated herein by reference from Proxy Statement for the Annual
Meeting of Shareholders, dated May 1, 1995.
(2) Incorporated herein by reference from Current Report on Form 8-K, dated
April 24, 1990.
(3) Incorporated herein by reference to Registration Statement on Form S-2
(No. 33-93010), effective June 9, 1995.
(4) Incorporated herein by reference from Annual Report on Form 10-K for the
fiscal year ended December 31, 1990.
(5) Incorporated herein by reference from Post-Effective Amendment No. 1 to
Registration Statement No. 33-22701 NY.
(6) Incorporated herein by reference to Registration Statement on Form S-8
(No. 333-3897), effective May 16, 1996.
(7) Incorporated herein by reference from Annual Report on Form 10-K for the
fiscal year ended April 30, 1996.
(b) Reports on Form 8-K.
None.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
POLYVISION CORPORATION
Date: July 28, 1997 By: /s/ Lawrence W. Hay
--------------------
Lawrence W. Hay
Vice President of Finance
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Steven S. Elbaum Chairman of the Board July 28, 1997
- ----------------------------- and Director
Steven S. Elbaum
/s/ David H. Holt Chief Executive Officer July 28, 1997
- -----------------------------
David H. Holt
/s/ Ivan Berkowitz Director July 28, 1997
- -----------------------------
Ivan Berkowitz
/s/ Lawrence W. Hay Vice President of Finance July 28, 1997
- -----------------------------
Lawrence W. Hay
Director
- -----------------------------
Lyman C. Hamilton, Jr.
/s/ Stephen C. Knup Director July 28, 1997
- -----------------------------
Stephen C. Knup
/s/ Bragi F. Schut Director July 28, 1997
- -----------------------------
Bragi F. Schut
31
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PolyVision Corporation:
We have audited the accompanying consolidated balance sheets of PolyVision
Corporation, a New York corporation, and subsidiaries as of April 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period ended
April 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PolyVision Corporation and
subsidiaries as of April 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 1, previously issued consolidated financial statements of
Alpine PolyVision, Inc. and subsidiary as of April 30, 1994 and for the year
then ended have been retroactively restated to reflect "push down" accounting
for the acquisition of a minority interest.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index to the consolidated financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not a
required part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
June 30, 1997
F-1
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1997 and 1996
(amounts in thousands, except share amounts)
ASSETS 1997 1996
-------- --------
Current Assets:
Cash $ 415 $ 670
Accounts receivable, net of allowance for
doubtful accounts of $1,013 and $575 7,020 8,027
Inventories 3,336 3,735
Costs and estimated earnings in excess of billings
on uncompleted contracts 690 823
Prepaid expenses and other current assets 146 345
-------- --------
Total current assets 11,607 13,600
Property and equipment, net 1,442 1,402
Goodwill, net 3,836 3,981
Other assets 16 --
-------- --------
TOTAL ASSETS $ 16,901 $ 18,983
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 2,298 $ 1,252
Current maturities of long-term debt 980 220
Accounts payable 2,361 2,877
Accrued expenses 2,494 2,667
Accrued dividends 4,099 2,040
Billings in excess of costs and estimated earnings
on uncompleted contracts 259 503
-------- --------
Total current liabilities 12,491 9,559
Long-term debt, less current maturities -- 980
Indebtedness to The Alpine Group, Inc. 6,382 3,335
Royalties payable 750 750
Excess of net assets over purchase price of acquisition 268 275
Commitments and contingencies
Stockholders' Equity:
Series A Preferred Stock, $.01 par value, at $25 per
share liquidation value; authorized 1,500,000 shares,
issued and outstanding1,029,253 and 1,029,253 shares 25,731 25,731
Common stock, $.001 par value; authorized 25,000,000
shares, issued and outstanding 8,540,762 and
8,530,073 shares 9 9
Capital in excess of par value 38,618 38,524
Accumulated deficit (67,348) (60,180)
-------- --------
Total stockholders' equity (deficit) (2,990) 4,084
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 16,901 $ 18,983
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended April 30, 1997, 1996, and 1995
(amounts in thousands, except per share amounts)
1997 1996 1995
---- ---- ----
Net sales $ 32,233 $ 35,627 $ 13,572
Cost of goods sold 24,755 27,863 10,635
-------- -------- --------
Gross profit 7,478 7,764 2,937
Selling, general and administrative 9,814 9,978 5,212
Research and development 1,158 2,886 3,224
Amortization of goodwill 145 145 145
Restructuring expenses 650 -- --
-------- -------- --------
Operating loss (4,289) (5,245) (5,644)
Interest income -- 71 120
Interest expense (910) (587) (184)
Other income (expense), net 90 (8) (20)
-------- -------- --------
Loss before income taxes (5,109) (5,769) (5,728)
Income tax expense -- -- --
-------- -------- --------
Net loss (5,109) (5,769) (5,728)
Preferred stock dividends 2,059 2,040 448
-------- -------- --------
Loss applicable to common stock $ (7,168) $ (7,809) $ (6,176)
======== ======== ========
Loss per share of common stock $ (0.84) $ (0.94) $ (.067)
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended April 30, 1997, 1996, and 1995
(Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
8% Cumulative Series A
Common Stock Preferred Stock Preferred Stock Capital In
------------ --------------- --------------- Excess of Par Accumulated
Shares Amount Shares Amount Shares Amount Value Deficit Total
------ ------ ------ ------ ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994 10,241,922 $ 10 6,100 $6,933 $ 40,724 $ (46,195) $ 1,472
Dividends on Preferred Stock 448 (448)
Recaptialization (3,005,124) (3) 1,020,076 $25,502 (25,499)
Contribution of Capital by 5,346 5,346
The Alpine Group, Inc.
Acquisition of Greensteel 1,064,275 1 (6,100) (7,381) 17,380 10,000
Net (Loss) for the year ended
April 30, 1995 (5,728) (5,728)
----------- ------ ------ ------ --------- ------- --------- --------- --------
Balance at April 30, 1995 8,301,073 8 0 0 1,020,076 25,502 37,951 (52,371) 11,090
Dividends on Preferred Stock (2,040) (2,040)
Shares Issued in Connection
with Union Agreement 229,000 1 486 487
Issuance of Preferred Stock in
Lieu of Deferred Interest 9,177 229 229
Compensation Expense Related
to Stock Grants 87 87
Net (Loss) for the year ended
April 30, 1996 (5,769) (5,769)
----------- ------ ------ ------ --------- ------- --------- --------- --------
Balance at April 30, 1996 8,530,073 9 0 0 1,029,253 25,731 38,524 (60,180) 4,084
Dividends on Preferred Stock (2,059) (2,059)
Compensation Expense Related to
Stock Grants 94 94
Net (Loss) for the year ended
April 30, 1997 (5,109) (5,109)
----------- ------ ------ ------ --------- ------- --------- --------- --------
Balance at April 30, 1997 8,530,073 $ 9 0 $ 0 1,029,253 $25,731 $ 38,618 $ (67,348) $ (2,990)
=========== ====== ====== ====== ========= ======= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30, 1997, 1996, and 1995
(amounts in thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
(Loss) from operations $(5,109) $(5,769) $(5,728)
Adjustments to reconcile (loss) from operations
to net cash (used for) operations:
Depreciation and amortization 498 1,156 647
Compensation expense for stock grants 94 574 --
Deferred interest 571 229 --
Change in assets and liabilities:
Accounts receivable 1,007 331 1,506
Inventories 399 1,294 (897)
Other current assets 332 31 (260)
Other assets (16) -- --
Accounts payable and accrued expenses (689) (1,468) (98)
Other (244) (19) (149)
------- ------- -------
Cash (used for) operating activities (3,157) (3,641) (4,979)
------- ------- -------
Cash flows from investing activities:
Capital expenditures (435) (774) (432)
Net cash received in aquisition -- -- 315
Proceeds from sale equipment 35 -- --
------- ------- -------
Cash (used for) investing activities (400) (774) (117)
------- ------- -------
Cash flows from financing activities:
Net short-term borrowings (repayments) 1,046 (127) 579
Long-term borrowings -- 1,200 --
Repayments of long-term borrowings (220) (1,115) (70)
Advances from The Alpine Group, Inc. 2,476 -- 4,590
Promissory note borrowings -- 3,335 --
Net repayments of receivable from affiliates -- 1,532 234
Net proceeds from the sale of stock -- -- --
------- ------- -------
Cash provided by financing activities 3,302 4,825 5,333
------- ------- -------
Net increase (decrease) in cash (255) 410 237
Cash at beginning of period 670 260 23
------- ------- -------
Cash at end of period $ 415 $ 670 $ 260
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended April 30, 1997, 1996 and 1995
(Continued)
1997 1996 1995
---- ---- ----
(in thousands)
Supplemental disclosures:
Interest paid $ 245 $ 358 $ 196
======= ======= =======
Non-cash investing and financing activities:
Conversion of The Alpine Group, Inc.
indebtedness:
Preferred stock $ 229 $ 5,346
======= =======
Common stock issued in connection with
Union Agreement $ 487
=======
Acquisition (net of cash acquired):
Assets acquired $17,686
Liabilities assumed 8,001
-------
Common stock issued $ 9,685
=======
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
1. Basis of Presentation and Nature of Business
PolyVision Corporation (formerly Information Display Technology, Inc. or
"IDT") (the "Company"), through its wholly-owned subsidiaries, Greensteel,
Inc. ("Greensteel"), APV, Inc. ("APV") and Posterloid Corporation
("Posterloid"), is engaged in the development, manufacture and sale of
information display products. Greensteel is engaged in the manufacture and
sale of custom-designed and engineered writing, projection and other
visual display surfaces (such as porcelain chalkboards and marker boards),
custom cabinets, and work station and conference center casework. APV,
which became a wholly-owned subsidiary of the Company as a result of the
Merger (see below), is engaged in the research, development, licensing and
initial manufacturing and testing of a proprietary technology known as
PolyVision(TM), with applications in a number of product display markets,
including flat-panel displays and variable light transmission. Posterloid,
which also became a wholly-owned subsidiary as a result of the Merger, is
engaged in the manufacture and sale of indoor and outdoor menuboard
display systems to the fast food and convenience store industries, and
changeable magnetic signs used principally by banks to display interest
rates, currency exchange rates and other information. The operations of
APV were discontinued effective April 30, 1997.
On December 21, 1994, The Alpine Group, Inc. ("Alpine"), acquired an
additional 82% of the outstanding common stock of Adience, Inc.
("Adience") to increase its ownership in Adience to approximately 87
percent, resulting in an indirect ownership in IDT of approximately 70%.
Also on December 21, 1994, the Company entered into a Merger Agreement
with Alpine and two of its subsidiaries, APV and Posterloid (together,
"IDG"), whereby the Company would merge with IDG and the Company would be
named PolyVision Corporation.
Because Alpine controlled both IDG and IDT, the Merger, which was
completed on May 24, 1995, resulted in a new reporting entity which was
accounted for as a reorganization of entities under common control. The
merged entity has adopted IDG's April 30 fiscal year end and, in order to
provide timely meaningful information, the accompanying financial
statements are presented as if the merger occurred on April 30, 1995. The
accompanying financial statements give effect to push-down accounting to
adjust IDT's accounting basis to fair value related to the December 21,
1994 acquisition of Adience by Alpine. Accordingly, the accompanying
financial statements for the year ended April 30, 1995 consist of the
historical financial statements of IDG adjusted to include the results of
operations of IDT from the December 21, 1994 acquisition date. All
significant intercompany transactions and accounts have been eliminated in
the accompanying consolidated financial statements.
In connection with the Merger, APV transferred its previously wholly-owned
subsidiary, PolyVision France S.A., to Alpine at its book value resulting
in an increase of amounts due to Alpine by APV of $702,000. Also in
connection with the Merger, Alpine distributed to its shareholders 76% of
its ownership in the Company resulting in Alpine retaining an approximate
17% ownership of the Company's common stock.
In connection with the Merger, APV's previously issued financial
statements have been retroactively restated to adopt accounting principles
required to be used in filings with the Securities and Exchange
Commission. Accordingly, in the accompanying consolidated financial
statements, Alpine's fiscal 1994 purchase of a minority interest in APV
has been reflected on a "push down" basis (see Note 14) pursuant to the
provisions of Staff Accounting Bulletins Nos. 54 and 73. In APV's
previously issued financial statements, parent
F-7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
company transactions were not pushed down to APV. The effect of this
change in accounting principle was to increase APV's capital surplus by
$20,645,000 and to record a purchased research and development charge of
$20,645,000, thereby increasing APV's previously reported fiscal 1994 net
loss by the same amount.
In April, 1997 the Company made the decision to market its proprietory
technology known as PolyVision. Therefore APV will discontinue its
research and development efforts and market this technology through
licensing agreements. This decision will allow the company to better
utilize its financial resources and resulted in a fourth quarter charge of
approximately $650,000.
As further described in Note 7, the Company is dependent on continued
financial support from Alpine.
2. Summary of Significant Accounting Policies
Cash flow reporting
The Company considers all highly liquid investments with an original
maturity of 3 months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, with cost
determined on the first-in, first-out basis.
Revenue recognition
Greensteel's revenues are from sales of specific products and construction
of custom installations under contracts. Revenues from sales of specific
products are recorded when title transfers, which is typically when
shipment occurs. Revenues from contracts are recorded on the
percentage-of-completion method of accounting, measured on the basis of
costs incurred to estimated total costs, which approximates contract
performance to date. Approximately 57 and 70 percent of Greensteel's
revenues, and approximately 65 and 75 percent of the related costs of
revenues were from contracts for the years ended April 30, 1997 and April
30, 1996 respectively. Provisions for losses on uncompleted contracts are
made if it is determined that a contract will ultimately result in a loss.
Posterloid recognizes revenues from sales of products when title
transfers, which is typically when shipment occurs.
Warranty claims
Warranty claims are accounted for on an accrual basis based on historical
experience. There have been no significant warranty claims to date.
Loss per common share
Loss per common share is computed by dividing net loss applicable to
common shares by the weighted average number of common shares outstanding.
Common equivalent shares are excluded from the computation as their effect
is anti-dilutive. For the years ended April 30, 1997, 1996 and 1995 the
weighted average number of shares used in computing loss per share was
8,534,612, 8,339,200 and 9,240,214, respectively.
F-8
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
Property and equipment
Plant and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are provided over the estimated useful lives
of the assets using the straight-line method. The estimated lives are as
follows:
Furniture and fixture 5-10 years
Machinery and equipment 2-10 years
Leasehold improvements The lesser of the lease term or estimated
useful life
Maintenance and repairs are charged to expense as incurred. Long-term
improvements are capitalized as additions to plant and equipment. Upon
retirement, or other disposal, the asset cost and related accumulated
depreciation are removed from the accounts and the net amount, less any
proceeds, is charged or credited to income.
Goodwill
Goodwill in the accompanying consolidated balance sheets represents the
excess of cost over the fair value of net assets acquired related to the
previous acquisition of Posterloid and is being amortized on a
straight-line basis over forty years. The Company reviews goodwill to
assess recoverability whenever events or changes in circumstances indicate
that its carrying value may not be recoverable. In performing such reviews
the Company estimates the future cash flows expected to result from
Posterloid's product line. If the sum of the expected future cash flows
(undiscounted and without interest charges) were to be less than the
carrying amount, an impairment loss would be recognized. As a result of
such reviews no impairment loss has been recognized. Accumulated
amortization of goodwill was $1,396,000 and $1,251,000 at April 30, 1997
and 1996, respectively.
Excess of net assets over purchase price of acquisition
Negative goodwill in the accompanying 1997 consolidated balance sheet
represents the excess of the fair value of net assets acquired over the
cost of IDT and is being amortized on a straight-line basis over forty
years (see Note 3).
Research and development
Research and development costs are expensed as incurred.
Workers' compensation
Greensteel was partially self-insured for workers' compensation claims.
The Company has accrued for its workers' compensation claims based on an
assessment of claims outstanding, as well as an estimate, based on
experience, of incurred workers' compensation claims which have not yet
been reported.
F-9
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
Stockholders' equity
Effective April 30, 1995, the Company effected a 1-for-15 reverse stock
split. The accompanying consolidated financial statements and notes
thereto have been retroactively restated to reflect this reverse stock
split.
Fair value of financial instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
Cash, accounts receivable and payable, accrued obligations and
royalties payable - Management believes that the carrying amount
approximates fair value because of the short maturity of those
instruments.
Line of credit and long-term debt - Management believes that the
carrying amounts are a reasonable estimate of fair value as the debt
is frequently repriced based on the prime rate, and there has been
no significant change in credit risk since the financing was
obtained.
Indebtedness to Alpine - The indebtedness is held by a related party
and is not traded. Management believes that the carrying amount is a
reasonable estimate of fair value as there has been no significant
change in credit risk since the financing was obtained.
Recent Accounting Pronouncements
In March 1995, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 requires that the carrying value of long-lived
operating assets, when determined to be impaired, be adjusted so as not to
exceed the estimated undiscounted cash flows provided by such assets. SFAS
No. 121 also addresses the accounting for long-lived assets that are to be
disposed of in future periods. The Company adopted the provisions of SFAS
No. 121 in fiscal year 1997. The adoption of SFAS No. 121 did not have a
material effect on the Company's financial position or results of
operations for the year ended April 30, 1997.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 recommends, but does not require, that
companies change their method of accounting for stock-based compensation
plans to one that attributes compensation costs equal to the fair value of
a stock-based compensation arrangement over the periods in which service
is rendered. Companies not electing to change their method of accounting
are required, among other things, to provide additional disclosure which
in effect restates a company's results for comparative periods as if the
new method of accounting had been adopted. The Company elected not to
adopt the recognition provisions of SFAS No. 123 but instead has complied
with the related disclosure requirements. Based on the exercise price of
the Company's options, the market value of the Company's stock and the
historical operations of the Company, there would not be any effect to net
loss and net loss per common share with the adoption of the SFAS No. 123
disclosure requirements.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS
125 provides accounting and reporting standards for transfers
F-10
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
and servicing of financial assets and extinguishments of liabilities. The
Company has adopted the provisions of this statement effective January 1,
1997 with no impact on the Company's operating or financial position.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
128 establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock. The Company is
required to adopt the new standard for fiscal year ending April 30,1998.
Based upon the Company's initial evaluation, adoption is not expected to
have a significant impact on the Company's reported earnings per share.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." The disclosure requirements will have to be
adopted by the Company for fiscal year ending April 30,1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." The statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. The Company
is required to adopt the new standards for fiscal year ending April 30,
1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise." This statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information in interim financial statements. The disclosure
requirements would have to be adopted by the Company for fiscal year
ending April 30, 1999.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the 1996 consolidated
financial statements in order to present them in a manner consistent with
1997.
3. Acquisitions
On December 21, 1994, Alpine acquired an additional 82 percent of the
outstanding common stock of Adience, resulting in an indirect ownership of
IDT of approximately 70 percent. The completion of the Merger Agreement
resulted in Alpine's direct and indirect ownership of 92.4% of the
Company.
The acquisition of IDT was accounted for as a purchase and, accordingly,
the results of operations of IDT have been included in the consolidated
statements of operations from the December 21, 1994 acquisition date. The
preliminary allocation of IDT's fair market value of $10,000,000 to IDT's
assets resulted in the recording of $1,035,000 of negative goodwill after
the elimination of IDT's non-current assets. In accordance with APB No.
16, the Company has adjusted the carrying values of certain liabilities on
IDT's opening balance sheet resulting in a $750,000 reduction of the
preliminary allocation of negative goodwill.
F-11
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
The unaudited pro forma results of operations which give effect to the IDT
acquisition and Merger as if they occurred on May 1, 1994 are presented
below. The pro forma amounts reflect purchase accounting adjustments under
APB Opinion No. 16 and the elimination of $587,000 of professional fees
directly related to the Merger which were included in IDT's historical
operating results prior to the acquisition. The pro forma financial
information does not purport to be indicative of either the results of
operations that would have occurred had the acquisition taken place at the
beginning of the periods presented or of future results of the operations.
Pro forma (unaudited)
---------------------
1995
----
(in thousands)
Net sales $ 37,529
Net loss (7,779)
Preferred dividends 2,040
Net loss for common stock (9,819)
Loss per common share $ (1.06)
4. Inventories
The components of inventories are as follows at April 30, 1997 and 1996
(in thousands):
1997 1996
---- ----
Raw materials $2,679 $3,206
Work in process 527 365
Finished goods 130 164
------ ------
$3,336 $3,735
====== ======
5. Contracts-in-Progress
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1997 (in thousands):
F-12
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
Costs and estimated Billings in excess
earnings in excess of costs and
of billings estimated earnings Total
----------- ------------------ -----
Costs and estimated $2,779 $6,218 $8,997
earnings of
Billings 2,089 6,477 8,566
------ ------ ------
$ 690 $ (259) $ 431
====== ====== ======
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1996 (in thousands):
Costs and estimated Billings in excess
earnings in excess of costs and
of billings estimated earnings Total
----------- ------------------ -----
Costs and estimated $5,132 $6,551 $11,683
earnings of
Billings 4,309 7,054 11,363
------ ------ -------
$ 823 $ (503) $ 320
====== ====== =======
Accounts receivable at April 30, 1997 and 1996 included amounts billed but not
yet paid by customers under retainage provisions of approximately $1,384,000 and
$1,754,000, respectively. Such amounts are generally due within 1 year.
F-13
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
6. Property and Equipment
Property and equipment are as follows at April 30, 1997 and 1996 (in
thousands):
1997 1996
---- ----
Furniture and fixtures $ 157 $ 142
Machinery and equipment 2,125 2,080
Buildings & leasehold improvements 1,507 1,320
------- -------
3,789 3,542
Less accumulated depreciation
and amortization (2,347) 2,140
------- -------
$ 1,442 $ 1,402
======= =======
Depreciation and amortization expense for the years ended April 30, 1997,
1996 and 1995 was $498,000, $1,016 and $502, respectively.
7. Debt
Debt consists of the following at April 30, 1997 and 1996 (in thousands):
1997 1996
---- ----
Revolving credit loans (a) & (b) $2,298 $1,252
Term loan (b) 980 1,200
Indebtedness to The Alpine Group, Inc.(c) 6,382 3,335
Total 9,660 5,787
Less short-term borrowings, current maturities
and Indebtedness to The Alpine Group, Inc. 9,660 4,807
------ ------
Long term bank debt $ -- $ 980
====== ======
(a) As of April 30, 1995, the Company had a $5,000,000 credit line under a
short-term credit facility with Congress Financial Corporation (Congress).
The credit facility was collateralized by accounts receivable, inventory
and equipment. The interest rate on loans under the credit facility was
2.5% over the prime rate (9% at April 30, 1995) and IDT paid a commitment
fee of .5% on the unused portion of the credit facility. As of April 30,
1995, $1,379,000 had been borrowed under this credit facility. In
addition, at April 30, 1995, IDT had an outstanding irrevocable standby
letter of credit totaling $700,000, which reduced the availability under
such credit facility in a like amount. The outstanding borrowings under
this financing agreement were repaid in full by Alpine on behalf of the
Company on July 21, 1995 and the line of credit agreement was terminated.
In addition, Alpine provided Congress with cash collateral of $770,000 to
continue the $700,000 letter of credit. Payments by Alpine to Congress on
behalf of the Company aggregated approximately $1,517,000 and were
comprised of the outstanding borrowings under the credit line of
$1,431,000 and $86,000 of accrued interest, fees and expenses (see Note
14).
F-14
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
The Company was also a guarantor of Adience's credit facility with
Congress and had pledged its own accounts receivable, inventory and
equipment to secure the guarantee. On July 21, 1995, Adience also repaid
their outstanding borrowings and terminated their financing agreement.
Accordingly, the Company is no longer a guarantor of the Adience credit
facility.
(b) On April 25, 1996, Greensteel as borrower and the Company as Guarantor
entered into a $5,000,000 Master Credit Agreement (the "Agreement") with
the Bank of Boston Connecticut to provide financing for Greensteel's
general working capital requirements. In connection with obtaining such
financing, Greensteel repaid $2,453,000 to Alpine on April 30, 1996
pursuant to a $2,500,000 temporary credit facility provided by Alpine (see
Note 14) The Agreement further provides for a revolving credit facility of
up to $3,800,000 based upon eligible accounts receivable and inventory as
defined (unused and available borrowings were $1,125,000 at April 30, 1997
and $1,611,000 at April 30, 1996) at the Bank's prime rate plus 1% (9.50%
at April 30, 1997 and 9.25% at April 30, 1996) and a $1,200,000 term loan
payable in equal monthly installments of $20,000 with interest at the
Bank's prime rate plus 1-1/2 (10.0% at April 30, 1997% and 9.75% at April
30, 1996) beginning June 1, 1996 through August 1, 1997 with the remaining
unpaid principal amount of $900,000 due on August 31, 1997. The Agreement
terminates August 31, 1997 and provides for renewal at the Bank's sole and
absolute discretion.
Substantially all of Greensteel's assets are pledged as collateral for the
credit facility. The Agreement requires Greensteel's compliance with
certain financial covenants. Greensteel was not in compliance with its
financial covenants as of April 30, 1997. The bank has provided a waiver
for these covenants.
On March 31, 1997 the Company and Greensteel signed a letter of intent
with the Bank of Boston to extend the previous credit agreement which
matures August 31, 1997. The agreement will provide credit facilities
totaling $4,800,000. The agreement provides for a maturity of two years
from the closing date and a floating interest rate equal to the prime rate
plus one to one and a half percent based on performance ratios. Greensteel
has provided a first lien to the bank on all tangible and intangible
property and the agreement is subject to standard covenants and financial
ratios.
(c) On May 24, 1995, the Company entered into an agreement with Alpine,
pursuant to which the Company may borrow from time to time, until May 24,
1997, up to $5,000,000 from Alpine to be used by the Company to fund its
working capital needs, including research, development and
commercialization activities in connection with APV's PolyVisionTM display
technology. Borrowings under the agreement are unsecured and bear interest
at a market rate reflecting Alpine's cost of borrowing such funds, with
interest payable semiannually in cash (but added to the outstanding
principal amount for the first 18 months). For the year ended April 30,
1996, Alpine agreed with the Company to a modification of terms whereby
the Company issued 9,177 shares of the Company's Series A Preferred Stock
to Alpine in lieu of the addition of approximately $229,000 of interest to
the outstanding principal amount at April 30, 1996 (see Note 14).
On April 30, 1997, the Company entered into an agreement with Alpine to
borrow $811,000 to fund its corporate borrowing requirements including
research and development activities associated with APV's PolyVision
technology. Borrowings under the agreement are at Alpine's cost of
borrowing such funds (8 -1/2% at April 30, 1997). For the year ended April
30, 1997 the Company owed accrued interest to Alpine of $571,000.
F-15
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
The Company's obligations to Alpine are comprised of accrued dividends and
indebtedness which total approximately $10,500,000 as of July 31, 1997. In
addition, the indebtedness to Alpine increased by approximately $3,000,000
during fiscal 1997. Alpin has agreed Apline has agreed to advance further
funds to the Company through April 30, 1998 as may be necessary for the
Company to meet its financial commitment to third parties incurred in the
ordinary course of business. The decision to continue to provide such
financial support is made annually by Alpine and future decisions will be
based upon the conditions existing at that time.
8. Accrued Expenses
Accrued expenses are as follows at April 30, 1997 and 1996 (in thousands):
1997 1996
---- ----
Accrued wages, salaries and employee
benefits $ 761 $1,064
Accrued workers' compensation 507 450
Other accrued expenses 576 1,153
Restructuring expenses 650 --
------ ------
$2,494 $2,667
====== ======
9. Employee Benefits
401(k) savings plan
This plan covers substantially all nonbargaining employees who meet
minimum age and service requirements. The Company matches employee
contributions of up to 6 percent of compensation at a rate of 50 %.
Amounts charged against income totaled approximately $164,000, $179,000,
and $95,000 in 1997, 1996 and 1995, respectively.
Union Agreement
On February 28, 1996, Greensteel entered into a new three-year labor
agreement with the local bargaining unit of the Carpenters Union at its
Dixonville, Pennsylvania facility (the "Union"), whose members voted on
that date to accept the new labor agreement. The labor agreement provides
for a "working partnership" between Greensteel management and the Union
whereby bargaining unit members received an aggregate of 229,000 shares of
the Company's common stock and will share in 50% of the excess of
"targeted gross profit" generated at the Dixonville facility. In exchange
for such equity participation and the understanding of the importance of
reducing Greensteel's cost structure to the future growth of the business,
Union members agreed to an approximate 14% reduction in direct wages and a
6% reduction in benefits. The labor agreement further provided for the
termination of the bargaining employees' defined benefit pension plan with
any excess funding to be distributed to its participants. The issuance of
common stock and the termination of the pension plan resulted in a fourth
quarter charge of approximately $700,000 in the year ended April 30, 1996.
F-16
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
Defined benefit pension plan
Greensteel maintained a defined benefit pension plan covering
substantially all hourly employees. The plan provided pension benefits
based on the employee's years of service. Greensteel's funding policy was
to make annual contributions to the extent deductible for federal income
tax purposes. In connection with the Union agreement noted above, and
after required notice to the participants, benefits under the plan were
curtailed and ceased to accrue on March 31, 1996. The Company applied for
and received approval for termination of the plan from the Pension Benefit
Guarantee Corporation and the Internal Revenue Service. As such on March
10, 1997 benefits were paid to each plan participant in the form of a lump
sum distribution based on each participant's accrued benefit and the plan
was terminated.
Greensteel's pension plan benefit obligations and assets were valued as of
March 31, 1997 and 1996. Net pension cost for the twelve months ended
March 31, 1997 and the eleven months ended March 31, 1996 were as follows
(in thousands):
1997 1996
---- ----
Service cost - Benefits earned during
the period $ 0 $ 51
Interest cost on projected
benefit obligations 56 35
Return on plan assets (61) (54)
Amortization of net asset existing at date of adoption -- (8)
Amortization of actuarial gain -- --
Loss on curtailment -- 186
----- -----
Net pension cost $ (5) $ 210
===== =====
The following table sets forth the funding status of the plan and amounts
recognized in the accompanying balance sheets at April 30, 1997 and 1996
as follows (in thousands):
1997 1996
---- ----
Actual present value of benefit obligations:
Vested benefits $ 0 $(810)
Nonvested benefit 0 --
----- -----
Accumulated benefit obligations $ 0 $(810)
===== =====
Projected benefit obligations $ 0 $(810)
Assets available for benefits -
Funded assets at fair value 0 872
Funded status 0 62
Unrecognized transition amount -- --
Unrecognized net gain -- --
Excess funding to be distributed -- (62)
----- -----
Prepaid pension costs $ 0 $ 0
===== =====
F-17
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
Certain union employees of Greensteel are covered by multiemployer defined
benefit retirement plans. Expenses relating to these plans amounted to
approximately $68,000, $97,000 and $47,000 for the year and four months
ended 1997, 1996 and 1995, respectively.
10. Stock Option and Stock Grant Plans
On May 24, 1995, the Company adopted a stock option plan under which
6,000,000 shares are reserved for grants to key personnel. During the year
ended April 30, 1996, options to purchase an aggregate of 250,000 shares
were granted to key employees at an exercise price of $3.86 per share
which was above market value at the date of grant.
During the year ended April 30, 1996, the Board of Directors adopted the
1995 Directors Stock Option Plan and the 1995 Directors Stock Grant Plan.
The Company reserved for issuance 300,000 and 200,000 shares of the
Company's common stock for the stock option and stock grant plans,
respectively. Options to purchase an aggregate of 150,000 shares were
granted during fiscal 1996 by the Board of Directors at an exercise price
of $3.86 per share which was above market value at the date of grant. In
addition, the Board of Directors approved stock grants of an aggregate of
100,000 shares for directors and key employees. The options and grants are
generally subject to 3 to 5 year vesting requirements with all unexercised
options expiring 10 years after the date of grant. The fiscal 1997 and
1996 charges relating to the current year vesting of these grants was
$93,000 and $87,000 respectively.
During the year ended April 30, 1997, options to purchase 215,000 shares
of the Company's common stock were granted pursuant to employment
agreements with the Company. 150,000 of these shares vest over a period of
three years with an exercise price of $.50 per share, which was above
market value at the date of the grant. Also fully vested, non-qualified
stock options were issued to purchase 65,000 shares of the Company's
common stock over a five year period at an exercise price of $1.00, which
was above market value at the date of the grant. No options expired were
exercised or canceled during fiscal 1997
11. Royalties Payable
Connecticut Innovations, Inc. ("CII") has advanced amounts to APV pursuant
to a Development Agreement to finance a portion of APV's product
development costs. The Development Agreement provides for a minimum annual
royalty of $75,000 per annum or 5% of sponsored product sales up to a
cumulative royalty of $3,250,000. Thereafter a royalty of 1/2% on
sponsored product sales is payable. The Development Agreement contains
covenants relating to technology licensing of the sponsored product. In
addition, the Development Agreement provides for an assignment of and
collateral interest in the technology, including all patents and know-how.
Included in the accompanying consolidated balance sheets is a $750,000
liability representing the aggregate amount advanced by CII under the
terms of the agreement.
With the discontinuance of the operations of APV, Inc. as of April
30,1997, the Company is currently in negotiations with Connecticut
Innovations to terminate the royalty arrangement as no product was ever
developed. Connecticut Innovations has asserted that the royalty of
$3,250,000 is due less any royalty
F-18
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
payments already made (which approximates $300,000. In the opinion of
management of the Company, the two parties will negotiate a settlement to
the royalty arrangement and the settlement amount will not have a material
adverse financial impact on the Company.
12. Series A Preferred Stock
On January 6, 1995, Alpine and the APV minority shareholder exchanged
3,005,124 shares of APV common stock for 1,020,076 shares of APV Series A
Preferred Stock. In connection with the Merger, the APV Series A Preferred
Stock was exchanged for an equal number of PolyVision Series A Preferred
Stock (Series A Preferred).
The Company is authorized to issue up to 1,500,000 shares of Series A
Preferred. The Series A Preferred earns quarterly cash dividends at an
annual rate of $2.00 per share and has priority as to dividends over the
common stock. In the case of the voluntary or involuntary liquidation or
dissolution of the Company, the holders of the Series A Preferred will be
entitled to receive a liquidation price of $25.00 per share ($25,731,000
aggregate liquidation value at April 30, 1997 and April 30, 1996) plus any
accrued and unpaid dividends. The holders of the Series A Preferred have
no voting rights except as required by New York law as noted below.
Effective April 30, 1996, the Company agreed to issue an additional 9,177
shares of Series A Preferred Stock to The Alpine Group, Inc. in lieu of
payment of deferred interest in the amount of $229,425 (see Note 7).
The Company may at any time, at its option and subject to certain
restrictions and conditions, redeem all or part of the outstanding shares
of the Series A Preferred at a redemption price of $25.00 per share plus
accrued and unpaid dividends. In addition, so long as any shares of Series
A Preferred are outstanding and for a period of ten years from date of
issuance, not less than 30% of the net proceeds received by the Company in
a public offering (as defined) must be used to redeem an equivalent amount
of Series A Preferred Stock at $25.00 per share.
So long as any shares of Series A Preferred are outstanding, the Company
will not, without the affirmative vote of at least a majority of the
outstanding shares of Series A Preferred voting, (i) amend the Certificate
of Incorporation or By-laws if such change will adversely affect the
rights of the Series A Preferred, (ii) merge or consolidate with or into
another corporation, (iii) permit a sale of substantially all of the
assets of the Company, (iv) permit any liquidation or dissolution of the
Company or (v) declare or make any dividends or distributions on, or
redemptions or purchases of, any stock other than the Series A Preferred
Stock.
13. Income Taxes
The Company recognizes income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 utilizes the liability method and
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax basis of assets and
liabilities given the provisions of enacted tax laws. The Company and its
subsidiaries will file a consolidated Federal income tax return.
F-19
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
APV and Posterloid were included in Alpine's consolidated Federal return
through the effective date of the Merger. State tax returns for APV and
Posterloid are filed as separate companies.
Until November 10, 1993, APV filed Federal and state income tax returns as
a separate company. On November 10, 1993, Alpine acquired an additional
27% of APV's outstanding common stock from minority shareholders resulting
in Alpine increasing its equity interest from 71% to 98%. At November 10,
1993, APV had unused Federal net operating loss carryforwards of
approximately $8,500,000, that may be used to offset future taxable
income. Such carryforwards expire in various amounts from fiscal 2003 to
2009. The use of these carryforwards may be restricted as a result of
ownership changes under Section 382 of the Internal Revenue Code and other
limitations.
At April 30, 1997, APV and Posterloid had additional unused Federal net
operating loss carryforwards of approximately $11,429,000 and $2,942,000,
respectively, that may be used to offset future taxable income. These
carryforwards expire in various amounts from fiscal 2009 through 2012. The
use of these carryforwards may also be restricted as a result of ownership
changes under Section 382 of the Internal Revenue Code and other
limitations.
As of December 31, 1994, IDT, on a separate-company basis, had net
operating loss carryforwards for Federal income tax purposes of
approximately $1,648,000 which will expire in 2008 and 2009. Under
Internal Revenue Code Section 382 and other limitations, the use of the
loss carry forwards will be limited as a result of the December 21, 1994,
ownership change. Subsequent to December 21, 1994, IDT incurred tax losses
resulting in additional federal net operating loss carry forwards of
$3,222,000 which expire in various amounts from fiscal 2010 through 2012.
As a result of the transaction described further in Note 1, Posterloid's
and APV's loss carryforwards may not be available to Posterloid, APV or
Greensteel. Based on APV's history of prior operating losses and the
expenditures associated with current research, development and engineering
programs, no assurance can be given that sufficient taxable income will be
generated for utilization of any net operating loss carryforwards and
reversal of temporary differences.
Income taxes have been accounted for in the accompanying consolidated
financial statements as if the consolidated entity of APV, Greensteel and
Posterloid filed its own consolidated return. The Company did not record
any current or deferred income tax expense during the fiscal years ended
April 30, 1997, 1996 and 1995 due to losses incurred during such periods
and the availability of net operating loss carryforwards.
F-20
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
The differences between the Company's Federal effective tax rate and the
statutory tax rate for the years ended April 30, 1997, 1996 and 1995
arises from the following:
1997 1996 1995
---- ---- ----
Federal statutory rate (35)% (35)% (35)%
Increase resulting from:
Goodwill amortization not deductible 1 1 1
Increase in valuation allowance 34 34 34
--- --- ---
0 0 0
The tax effect of the primary temporary differences giving rise to the
Company's consolidated deferred tax assets and liabilities at April 30,
1997 and 1996 are as follows (in thousands):
1997 1996
--------------------- ---------------------
Current Long-Term Current Long-Term
Asset Asset Asset Asset
----- ----- ----- -----
Bad debt reserve $ 425 $ -- $ 242 --
Inventory related 242 -- 113 --
Accrued commissions
and payroll costs 294 -- 188 --
Reserve for future losses -- -- 53 --
Fixed assets -- 1,093 -- 1,060
NOL carryforwards -- 11,654 -- 9,974
Other 441 -- 220 296
Valuation allowance (1,402) (12,747) (816) (11,330)
-------- -------- -------- --------
$ -- $ -- $ -- $ --
======== ======== ======== ========
A valuation allowance has been recorded for the net deferred assets as a
result of uncertainties regarding the realization of the assets, including
the lack of profitability to date and the variability of operating
results.
14. Related-Party Transactions
On May 24, 1995, the company entered into an agreement with Alpine
pursuant to which PolyVision may borrow from time to time, prior to May
24, 1997, up to $5,000,000 from Alpine to be used by PolyVision to fund
its working capital needs (see Note 7). Alpine further agreed to fund
working capital deficiencies on a temporary basis and in an amount not to
exceed $2,500,000. As of April 30, 1995, the Company had an outstanding
receivable of $3,584,000 from Adience and an APV intercompany account due
to Alpine of $2,052,000, resulting in a net receivable from affiliates of
$1,532,000. In connection with Alpine's payoff of Greensteel's
indebtedness with Congress and APV indebtedness with the Connecticut
Development Authority, Greensteel's receivable from Adience and APV's
payable to Alpine were offset and the excess of the aggregate of
$2,618,000 paid by Alpine on behalf of the Company over the net receivable
and payable at July 21, 1995 was advanced pursuant to the foregoing
agreements. The net amount of interest income
F-21
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
recognized by the Company from Adience for fiscal 1996 was $71,000 through
July 21, 1995 and $118,000 for the four months ended April 30, 1995. In
addition, Adience performs certain financial and administrative services
for the Company for an annual fee of $300,000.
On April 30, 1997, the Company entered into an agreement with Alpine to
borrow $811,000 to fund its corporate borrowing requirements including
research and development activities associated with APV's PolyVision
technology. Borrowings under the agreement are at Alpine's cost of
borrowing such funds (8 -1/2% at April 30, 1997). For the year ended April
30, 1997 the Company owed accrued interest to Alpine of $571,000.
See also Notes 1, 3, 7, 12 and 15 for certain other related party
transactions.
15. Commitments and Contingencies
In 1994, Reliance Insurance Company of New York (the "Plaintiff")
commenced an action in the Supreme Court of the State of New York, County
of Suffolk, against several defendants including PolyVision seeking money
damages based on the purported sale and delivery by defendants of some 860
insulated metal curtain wall panels manufactured by the Company. Plaintiff
has alleged that such panels were defective in their design and
manufacture. In its original complaint, Plaintiff seeks $820,000 for
alleged damages. The alleged sales fall into two categories, an original
sale in 1987 and two or more sales in 1991 and 1992 of so-called
replacement panels. Among the theories of liability advanced by Plaintiff
are breach of contract, breach of express warranty and implied warranty.
Pursuant to orders of the Court, the causes of action based on the 1987
transaction were dismissed on statute of limitation grounds. However,
Plaintiff has been granted leave to serve an amended complaint to allege,
among other things, a claim under the New Jersey Consumer Fraud Act (which
might permit treble damages), while preserving the right of the
defendants, including PolyVision to challenge the applicability of such
Act. Since an amended complaint has not yet been served, Plaintiff's
theories of liability and damages are as yet not completely certain.
Moreover, since an answer to the amended complaint, if served, remains to
be served, and, as well, discovery has yet to commence, it is premature to
render an estimate of the outcome of this litigation.
In February 1992, the Company was cited by the Ohio Environmental
Protection Agency (the Ohio EPA) for violations of Ohio's hazardous waste
regulations, including speculative accumulation of waste and illegal
disposal of hazardous waste on the site of its Alliance, Ohio, facility.
In December 1993, the Company and Adience signed a consent order with the
Ohio EPA and Ohio Attorney General that required the Company and Adience
to pay to the State of Ohio a civil penalty of $200,000 of which the
Company paid $175,000 and Adience paid $25,000. In addition, the consent
order required the payment of stipulated penalties of up to $1,000 per day
for failure to satisfy certain requirements of the consent order,
including milestones in the closure plan. Removal and remediation
activities as contemplated under the consent order have been completed.
The Company has submitted risk assessment reports which demonstrate, in
management's opinion, that no further cleanup actions will be required on
the remaining property area not addressed under the closure plan. Based on
administrative precedent, the Company believes that it is likely that the
Ohio EPA will agree with the risk assessment reports. The Company is
currently waiting for a determination from the Ohio EPA as to
F-22
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
whether the submitted reports are approved. If such an agreement is not
reached, additional costs may have to be incurred to complete additional
remediation efforts. Although there are no assurances that additional
costs will not have to be incurred, the Company believes that such costs
will not need to be incurred. At April 30, 1997, environmental accruals
amounted to $26,000, which represents management's reasonable estimate of
the amounts to be incurred in the resolution of this matter. Since 1991,
the Company and Adience have together paid $1,449,000 (excluding the
$200,000 civil penalty) for the environmental cleanup related to the
Alliance facility.
Under the acquisition agreement pursuant to which the Company acquired the
Alliance facility from Adience, Adience represented and warranted that,
except as otherwise disclosed to the Company, no hazardous material had
been stored or disposed of on such property and agreed to indemnify the
Company for any losses in excess of $250,000. The Company has notified
Adience that it is claiming the right to indemnification for all costs in
excess of $250,000 incurred by the Company in this matter, and has
received assurance from Alpine that Adience will honor such claim. Adience
has reimbursed the Company $1,373,000 through June 30, 1997. If Adience is
financially unable to honor its remaining obligation, such costs would be
borne by the Company.
The Company is involved in other various matters of litigation incidental
to the normal conduct of its business. In management's opinion, the
disposition of that litigation will not have a material adverse impact on
the Company.
16. Lease Commitments
The Company and its subsidiaries lease property, plant and equipment under
a number of leases extending for varying periods of time. Operating lease
rental expense amounted to approximately $569,000, $664,000 and $398,000
for the years ended April 30, 1997, 1996, and 1995, respectively.
Minimum rental commitments as of April 30, 1996, under non-cancelable
leases with terms of more than one year, are as follows:
Year ending
April 30, Amount
----------- ------
(in thousands)
1998 $559
1999 477
2000 480
2001 492
2002 418
F-23
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997, 1996, and 1995
(CONTINUED)
17. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of trade receivables.
Greensteel's concentration of credit risk within the construction industry
is somewhat mitigated by the large number of customers comprising
Greensteel's customer base. In addition, a majority of Greensteel's
revenues are derived from educational institutions in the eastern half of
the United States. Most public school projects require performance bonds
from general contractors which allow Greensteel to make bond claims or
file liens in the event of nonpayment for bonafide contract work performed
by Greensteel. Ultimately the taxing authority of municipalities and
public school districts provides much of the funding for Greensteel's
business. Posterloid's revenues are derived from a large customer base of
fast food restaurant chains and outfitters of municipal arenas and theater
chains throughout the United States. Retrofits of large chains can result
in significant customer concentrations of credit risk to Posterloid from
time to time.
F-24
<PAGE>
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
POLYVISION CORPORATION
CONDENSED BALANCE SHEETS
April 30, 1997 and 1996
(amounts in thousands, except share amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ --
Accounts receivable, net of allowance for
doubtful accounts of $476 in 1995 -- --
Receivable from affiliate -- --
Inventories -- --
Costs and estimated earnings in excess of billings
on uncompleted contracts -- --
Prepaid expenses and other current assets -- --
--------- ---------
Total current assets -- --
Property and equipment, net -- --
Investment in subsidiaries 7,491 9,459
--------- ---------
TOTAL ASSETS $ 7,491 $ 9,459
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable $ -- $ --
Accounts payable -- --
Accrued expenses -- --
Accrued dividends 4,099 2,040
Billings in excess of costs and estimated earnings
on uncompleted contracts -- --
--------- ---------
Total current liabilities 4,099 2,040
Indebtedness to The Alpine Group, Inc. 6,382 3,335
Excess of net assets over purchase price of acquisition -- --
Commitments and contingencies
Stockholders' Equity:
Series A Preferred Stock, $.01 par value, at $25 per share
liquidation value; authorized 1,500,000 shares, issued
and outstanding 1,029,253 and 1,029,253 shares 25,731 25,731
Common stock, $.001 par value; authorized 25,000,000
shares, issued outstanding 8,540,762 and 8,530,073 shares 9 9
Capital in excess of par value 38,618 38,524
Accumulated deficit (67,348) (60,180)
--------- ---------
Total stockholders' equity (2,990) 4,084
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,491 $ 9,459
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-1
<PAGE>
SCHEDULE I - (CONTINUED)
POLYVISION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended April
30, 1997, 1996, and 1995
(amounts in thousands,
except per share amounts)
1997 1996 1995
---- ---- ----
Net sales $ -- $ 24,203 $ 8,654
Cost of goods sold -- 18,606 7,201
------- -------- -------
Gross profit -- 5,597 1,453
Selling, general and administrative 1,179 6,428 2,364
------- -------- -------
Operating (loss) (1,179) (831) (911)
Equity in loss of subsidiaries (3,265) (4,594) (4,901)
Interest income -- 71 118
Interest expense (665) (416) (19)
Other income (expense), net -- 1 (15)
------- -------- -------
Loss before income taxes (5,109) (5,769) (5,728)
Income tax expense -- -- --
------- -------- -------
Net loss (5,109) (5,769) (5,728)
Preferred stock dividends 2,059 2,040 448
------- -------- -------
Loss applicable to common stock ($7,168) ($ 7,809) ($6,176)
======= ======== =======
Loss per share of common stock ($ 0.84) ($ 0.94) ($ 0.67)
======= ======== =======
The accompanying notes are an integral part of these condensed financial
statements.
S-2
<PAGE>
SCHEDULE I - (CONTINUED)
POLYVISION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended April
30, 1997, 1996, and 1995
(amounts in thousands,
except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
(Loss) from operations ($5,109) ($5,769) ($5,728)
Adjustments to reconcile (loss) from operations
to net cash (used for) operations:
Equity in loss of subsidiaries 3,359 4,594 4,901
Depreciation and amortization -- 6 6
Deferred interest 571 229 --
Compensation expense for stock grants 94 87 --
Change in assets and liabilities:
Accounts receivable -- (352) 1,550
Inventories -- 1,489 (892)
Other current assets -- 273 (307)
Accounts payable and accrued expenses -- (2,514) (437)
Other -- -- (149)
------- ------- -------
Cash (used for) operating activities (1,085) (1,957) (1,056)
------- ------- -------
Cash flows from investing activities:
Capital expenditures -- (525) (72)
Net cash received in acquisition -- -- 315
------- ------- -------
Cash provided by (used for) investing activities -- (525) 243
------- ------- -------
Cash flows from financing activities:
Net short-term borrowings -- 1,121 579
Long term borrowings from The Alpine Group, Inc. 3,047 3,335 --
Net repayments of affiliate receivables -- 76 234
Additional investment in subsidiaries (1,962) (2,050) --
------- ------- -------
Cash provided by financing activities 1,085 2,482 813
------- ------- -------
Net increase (decrease) in cash -- -- --
Cash at beginning of period -- -- --
------- ------- -------
Cash at end of period $ -- $ -- $ --
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
S-3
<PAGE>
SCHEDULE I - (CONTINUED)
POLYVISION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
For the years ended April
30, 1997, 1996, and 1995
(amounts in thousands,
except per share amounts)
Years Ended April 30
------------------------
1997 1996 1995
---- ---- ----
(in thousands)
Supplemental disclosures:
Interest paid $ -- $182 $ 19
===== ==== =======
Non-cash investing and financing activities:
Conversion of The Alpine Group, Inc.
indebtedness to Preferred stock $ -- $ -- $ 229
===== ==== =======
Common stock issued in connection with
Union Agreement $ -- $ -- $ 487
===== ==== =======
Acquisition (net of cash acquired):
Assets acquired $ -- $ -- $17,686
Liabilities assumed -- -- 8,001
===== ==== =======
Common stock issued $ -- $ -- $ 9,685
===== ==== =======
The accompanying notes are an integral part of these condensed financial
statements.
S-4
<PAGE>
SCHEDULE I - (CONTINUED)
POLYVISION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
On April 25, 1996, the Company and Greensteel entered into a $5,000,000
Master Credit Agreement (the "Agreement") with the Bank of Boston
Connecticut. Among other things, the Agreement restricts the ability of
the Company to declare dividends or transfer funds from Greensteel to the
Company or the Company's other subsidiaries. As Greensteel's restricted
net assets of $4,358,000 are in excess of the Company's consolidated
equity of ($2,990,000) at April 30, 1997, separate presentation of parent
company financial statements is required. Prior to December 21, 1994 the
Company consisted only of APV and Posterloid with Greensteel's operations
included in the accompanying financial statements since that date. In
addition, the former Greensteel division was separately incorporated to
facilitate the above financing and has operated as a wholly-owned
subsidiary of the Company since February 1, 1996. Accordingly, the
accompanying presentation of parent company financial statements includes
the net assets of the former Greensteel division at April 30, 1995 and its
results of operations for the nine months ended January 31, 1996 and for
the four months ended April 30, 1995.
2. Indebtedness to The Alpine Group Inc.
On May 24, 1995, the Company entered into an agreement with Alpine,
pursuant to which the Company may borrow from time to time, until May 24,
1997, up to $5,000,000 from Alpine to be used by the Company to fund its
working capital needs, including research, development and
commercialization activities in connection with APV's PolyVision display
technology. Borrowings under the agreement are unsecured and bear interest
at a market rate reflecting Alpine's cost of borrowing such funds (13% at
April 30, 1996), with interest payable semiannually in cash (but added to
the outstanding principal amount for the first 18 months). For the year
ended April 30, 1996, Alpine agreed with the Company to a modification of
terms whereby the Company issued 9,177 shares of the Company's Series A
Preferred Stock to Alpine in lieu of the addition of approximately
$229,000 of interest to the outstanding principal amount at April 30, 1996
(see Note 7).
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
POLYVISION CORPORATION
(Dollars in thousands)
<TABLE>
<CAPTION>
Charged to Balance
Balance at Charged to Other Deduction at
Beginning Costs and Accounts- End of
of Period Expenses Describe Describe Period
--------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended April 30, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $575 $ 757 $319(1) $1,013
Inventory obsolescence reserve 270 270 540
---- ------ ------
Totals $845 $1,027 $319 $1,553
==== ====== ==== ======
Environmental Liability $ 20 $ 6(3) $ 26
==== ====== ======
Year ended April 30, 1996:
Deducted from asset columns:
Allowance for doubtful accounts $521 $ 289 $235(1) $ 575
Inventory obsolescence reserve 400 20 150(2) 270
---- ------ ---- ------
Totals $921 $ 309 $385 $ 845
==== ====== ==== ======
Environmental Liability $179 $ 159(3) $ 20
==== ====== ======
Year ended April 30, 1994:
Deducted from asset columns:
Allowance for doubtful accounts $ 8 $ 75 $462(4) $ 24(1) $ 521
Inventory obsolescence reserve 150 125 125(4) 400
---- ------ ---- ------
Totals $158 $ 200 $587 $ 24 $ 921
==== ====== ==== ====== ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Disposal of obsolete inventory in connection with plant consolidations.
(3) Payments made related to the Ohio EPA Consent Order (See Note 17).
(4) Accounts of Greensteel at the December 21, 1994 acquisition date.
S-6
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 7,020
<ALLOWANCES> 1,013
<INVENTORY> 3,336
<CURRENT-ASSETS> 11,607
<PP&E> 1,442
<DEPRECIATION> 353
<TOTAL-ASSETS> 16,901
<CURRENT-LIABILITIES> 12,491
<BONDS> 0
9
25,731
<COMMON> 25,731
<OTHER-SE> (67,348)
<TOTAL-LIABILITY-AND-EQUITY> 16,901
<SALES> 32,233
<TOTAL-REVENUES> 32,233
<CGS> 24,755
<TOTAL-COSTS> 36,522
<OTHER-EXPENSES> (90)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 910
<INCOME-PRETAX> (5,109)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,109)
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
