<PAGE>
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, 1998 1-10555
POLYVISION CORPORATION
----------------------
(Exact name of registrant as specified
in its charter)
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: (724) 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 June 30, 1998:
$12,407,146
The number of shares outstanding of the registrant's class of common stock, par
value $.001 per share, as of June 30, 1998:
8,561,762 shares
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POLYVISION CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED APRIL 30, 1998
TABLE OF CONTENTS
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . .8
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 16
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 17
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 23
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 26
<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.
Greensteel, Inc. ("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 markerboards), custom cabinets,
and work station and conference center casework primarily for schools and
offices. Posterloid Corporation ("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 signs used principally
by banks to display interest rates, currency exchange rates and other
information. APV, Inc. ("APV"), whose internal operations were discontinued
effective April 30, 1997, 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 for applications
in a number of display product markets.
RECENT DEVELOPMENTS
FINANCING
On June 25, 1998, the Company and Greensteel executed an amendment to
the Amended and Restated Master Credit Agreement with BankBoston, N.A., which
provides for an increase in the revolving credit facility with Greensteel
from $3,800,000 to $4,250,000 based on eligible accounts receivable and
inventory. Such amendment also provides for advances on progress billings and
revisions to certain financial performance ratios. All other provisions of
the existing credit agreement dated July 23, 1997 remained substantially
unmodified. On July 20, 1998, the Company executed another amendment to the
Amended and Restated Master Credit Agreement with BankBoston, N.A. to extend
the maturity date of the agreement to August 31, 1999.
ROYALTIES - CONNECTICUT INNOVATIONS, INC.
With the discontinuance of the operations of APV as of April 30,
1997, the Company entered into an agreement on June 9, 1998, terminating its
royalty arrangement with Connecticut Innovations, Inc. since no products were
ever developed. The agreement provides for the Company to deliver 9,509
registered shares of common stock of The Alpine Group, Inc. ("Alpine") and the
payment of $125,000 in the form of a promissory note in exchange for the
extinguishment of the $750,000 liability currently presented on the Company's
consolidated balance sheet. This will result in an extraordinary gain of
approximately $430,000 in the fiscal year ending April 30, 1999. The Company
anticipates that the purchase of the Alpine common stock will be financed by a
loan from Alpine.
SERIES A PREFERRED STOCK DIVIDEND
Effective February 1, 1998, the Company amended its Certificate of
Incorporation to cease the accrual of dividends on its Series A Preferred Stock.
BACKGROUND
In May 1995, the Company (then named Information Display Technology,
Inc. ("IDT") and consisting only of Greensteel) acquired by merger the
information display group of Alpine, consisting of Posterloid and APV (the
"Merger"). The Company issued approximately 7,400,000 shares of Common Stock
and 1,000,000 shares of its Series A Preferred Stock (liquidation
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preference $25.00 per share) to Alpine in connection with the Merger,
increasing Alpine's beneficial stock ownership percentage in the Company to
approximately 90%. Alpine had previously acquired, in a separate stock
transaction, control of the Company's principal shareholder, Adience, Inc.
("Adience") (currently known as Premier Refractories Inc.), a manufacturer of
refractory products, which then owned approximately 80% of such outstanding
shares. In June 1995, Alpine distributed approximately 73% of the
outstanding shares of Common Stock as a one-time dividend to its
stockholders, and retained approximately 17% of the shares of Common Stock.
Alpine remains the Company's largest single shareholder. See Item 13,
"Certain Relationships and Related Transactions."
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 independent dealers thus enabling 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
Greensteel's sales staff and that of its distributors, and are custom-made to
specifications. Successful marketing of these products is dependent upon the
maintenance of strong relationships with architects and general contractors.
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 writing surfaces, 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 writing surfaces
currently account for approximately 75% of all chalk and markerboard 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
dealers. 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 dealers.
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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 and indoor and outdoor display and bulletin board cases for schools,
hospitals, laboratories and business offices.
SALES AND MARKETS
Most of Greensteel's products are sold pursuant to 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 has converted its distribution
channels to sales efforts predominantly through independent dealers 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 dealers, installation work
that was previously done by Greensteel is performed by the dealers, resulting
in reduced revenues for Greensteel. For the year ended April 30, 1998, the
Company had a total of 67 dealers covering various geographical areas of
the United States. Total dealer sales increased by 40% in the year ended
April 30, 1998 compared to the previous year. Dealer sales comprised
approximately 58% and 44% of sales for fiscal 1998 and 1997, respectively.
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 that manufacture visual
display products (such as chalkboards, markerboards and tackboards) and
institutional cabinetry, primarily for sale in the education market (such as
schools, pre-schools and day-care centers). There are more than 100 companies
that compete in the sale of visual display products, of which approximately 20
companies compete in large geographical regions, and one of which, Claridge
Products & Equipment, Inc., competes nationally through a network of independent
distributors. The Company also competes with numerous local woodworking firms
with respect to its cabinetry, and at least nine such companies that sell
nationally, either through a system of dealers, direct sales offices, or both.
The Company derives a relatively small percentage of its revenues from the sale
of porcelain-enameled steel facings to other fabricators of visual display
products, and in this segment of its business, competes with Alliance
International Group, Inc.,
5
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Claridge Products & Equipment, Inc. and several foreign suppliers. 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
As of April 30, 1998, Greensteel's backlog was $16,761,000, as compared
with $11,874,000 as of April 30, 1997. 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 April 30, 1998, Greensteel employed approximately 240 people.
Approximately 100 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 25 persons
are union members not covered by collective bargaining agreements. Greensteel
considers relations with its employees to be good.
PATENTS AND TRADEMARKS
Greensteel holds a number of patents and trademarks covering various
products and processes relating to its business. The Company believes that its
"Greensteel" trademark is important because it 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 sufficient.
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 has not been a material cost to Greensteel
and has not had a material effect upon its capital expenditures, earnings or
competitive position.
In December 1997, the Ohio Environmental Protection Agency (the "Ohio EPA")
informed the Company that the Company's ongoing clean-up efforts at its
Alliance, Ohio manufacturing facility in respect of the former impoundment and
disposal of hazardous wastes at such site had been completed to the Ohio EPA's
satisfaction.
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Accordingly, the Ohio EPA informed the Company that it will not be required to
maintain financial assurance for any further clean-up costs at this site.
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, 1998, Posterloid had approximately 800 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 64 employees as of April
30, 1998 and considers its employee relations to be good. None of its employees
are covered by a collective bargaining agreement.
APV
In April 1997, the Company determined to discontinue APV's research
and development efforts and market APV's proprietary flat panel display
technology solely through third-party licensing agreements. Although the Company
is aware of several ongoing development programs by third parties to incorporate
such technology into product applications, the Company believes it is unlikely
that its existing third-party licensing agreements will result in material
revenues for the Company in the near term.
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ITEM 2. PROPERTIES
Greensteel owns two 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 199,200 --
Alliance, Ohio . . . . . . . . . . . . .Owned 28,000 --
Landis, North Carolina . . . . . . . . .Leased 16,000 1998
Riverside, California. . . . . . . . . .Leased 31,000 2002
Fraser, Michigan . . . . . . . . . . . .Leased 4,700 1999
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.
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 commenced but 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."
Posterloid is not involved in any pending or threatened litigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On March 24, 1998, the Company held its Annual Meeting of Shareholders
(the "Meeting").
(b) Not applicable.
(c) At the Meeting, the following matter was voted upon:
Election of two Class II Directors to the Board of Directors, each to
hold office until the 1999 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
---- --- --------- ----------------
Steven S. Elbaum 7,647,605 151,162 0
Lyman C. Hamilton, Jr. 7,658,265 140,502 0
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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 under
the symbol PLI. As of April 30, 1998, there were approximately 2,346
shareholders of record of the Common Stock.
The following table sets forth, for the fiscal periods shown (in May
1995, the Company changed its fiscal year to April 30 from December 31), the
high and low sales prices for the Common Stock as reported on the American
Stock Exchange:
High Low
---- ---
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 $ 3/4 $ 1/4
Second Quarter 1 3/8
Third Quarter 15/16 11/16
Fourth Quarter 1-1/2 3/4
FISCAL 1999
First Quarter (through June 30, 1998) $ 1-3/4 $ 7/8
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 the
Common Stock) while shares of the Company's Series A Preferred Stock remain
outstanding. Effective February 1, 1998, the Company amended its Certificate of
Incorporation to cease the accrual of dividends on its Series A Preferred Stock.
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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,
---------------------------------------------------------
Statement of Operations Data: 1998 1997(2) 1996 1995(1) 1994
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales from operations $34,167 $32,233 $35,627 $13,572 $ 5,108
======= ======= ======= ======= =======
Income (loss) from operations 1,392 (4,289) (5,245) (5,644) (25,692)
======= ======= ======= ======= =======
Net income (loss) 1,010 (5,109) (5,769) (5,728) (25,732)
======= ======= ======= ======= =======
Preferred stock dividends (1,545) (2,059) (2,040) (448) (448)
======= ======= ======= ======= =======
(Loss) applicable to
common stock (535) (7,168) (7,809) (6,176) (26,180)
======= ======= ======= ======= =======
Loss per share-basic and
diluted (0.06) (0.84) (0.94) (0.67) (2.56)
======= ======= ======= ======= =======
Balance Sheet Data:
Total assets 18,464 16,901 18,983 22,153 8,187
======= ======= ======= ======= =======
Long-term obligations 13,842 11,499 7,380 1,785 4,927
======= ======= ======= ======= =======
Preferred stock 25,731 25,731 25,731 25,502 6,933
======= ======= ======= ======= =======
Total stockholders' equity
(deficit) (3,475) (2,990) 4,084 11,090 1,472
======= ======= ======= ======= =======
</TABLE>
- --------------------
(1) Includes the results of Greensteel for the four months ended
April 30, 1995. See Item 1, "Business-Background" and Note 1 to Notes
to Consolidated Financial Statements.
(2) Includes a $650,000 restructuring charge for the discontinuance of APV's
operations.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the respective
amounts of Greensteel, APV and Posterloid:
FISCAL YEAR ENDED APRIL 30,
--------------------------------
1998 1997 1996
------- ------- -------
(in thousands, except percentages)
Net sales
Greensteel $27,813 $26,152 $30,070
Posterloid 6,354 6,081 5,557
------- ------- -------
34,167 32,233 35,627
Gross Profit
Greensteel 7,459 5,740 6,129
Posterloid 2,422 1,738 1,635
------- ------- -------
9,881 7,478 7,764
Gross Margin 28.9% 23.2% 21.8%
Greensteel 26.8% 21.9% 20.4%
Posterloid 38.1% 28.6% 29.4%
Selling, general and administrative expenses
Greensteel 6,184 6,967 6,356
Posterloid 1,725 1,668 1,766
APV and Corporate 435 1,179 1,856
------- ------- -------
8,344 9,814 9,978
Research and development-APV -- 1,158 2,886
Restructuring Expense-APV -- 650 --
Amortization of goodwill-Posterloid 145 145 145
Operating income (loss)
Greensteel 1,275 (1,227) (276)
Posterloid 552 (75) (227)
APV and Corporate (435) (2,987) (4,742)
------- ------- -------
1,392 (4,289) (5,245)
Net interest expense 839 910 516
Other (income) expense 472 90 8
FISCAL YEAR ENDED APRIL 30, 1998 COMPARED WITH FISCAL YEAR ENDED
APRIL 30, 1997
The Company's net sales for the fiscal year ended April 30, 1998
increased by 6% to $34,167,000 compared to net sales of $32,233,000 for the
fiscal year ended April 30, 1997. Sales at Greensteel improved by 6% to
$27,813,000, an increase of $1,661,000 over the previous fiscal year. The
Company's conversion to a dealer network using specialty school supply
dealers, rather than a direct sales effort, resulted in increased volume due
to better geographical coverage. Dealer revenue for the fiscal year ended
April 30, 1998 improved from the previous year by $4,713,000 or 40% and
represented 58% of total sales. This increase was partially offset by the
loss of installation work that was previously done by the Company
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and is currently performed by the dealer. Total bookings for the fiscal year
for Greensteel were $32,700,000 as compared to $26,438,000 for the prior year,
an increase of $6,262,000, or 24%. Backlog at April 30, 1998 was $16,761,000
as compared to $11,874,000 at the end of the previous year. Posterloid's net
sales for fiscal 1998 were $6,354,000 as compared to $6,081,000 for the
previous year, an increase of 4%. This increase was due to added sales of
menuboards to several restaurant and theater chains. Bookings for the fiscal
year were $6,541,000 as compared to $6,168,000 for the prior year, an
increase of 6%. The backlog at April 30, 1998 was $760,000 as compared to a
backlog at April 30, 1997 of $573,000, an increase of $187,000, or 33%.
Consolidated gross profit for the fiscal year ended April 30, 1998
improved by $2,403,000 to $9,881,000, or 32%, as compared to $7,478,000 in
the previous year. The gross margin increased to 28.9% from 23.2% of net
sales. Greensteel's gross margin improved to 26.8% from 21.9% reflecting
improved product mix related to additional sales to dealers and increased
plant throughput. The gross profit and gross margin for Posterloid were
higher in fiscal 1998 than in fiscal 1997, being $2,422,000 compared with
$1,738,000 and 38.1% compared with 28.6%.
Selling, general and administrative expenses for the fiscal year ended
April 30, 1998 decreased by $1,470,000 as compared to the previous year.
This decrease was due to lower bad debt expenses and lower selling expenses
resulting from the conversion to a dealer network, to rather than direct
sales.
In April 1997, the Company determined to discontinue its research and
development efforts and market its PolyVision-TM- display technology solely
through third-party licensing agreements. Therefore, in fiscal 1998 there
were no research and development costs. The restructuring costs in fiscal
1997 represented the costs to discontinue APV.
Other income in 1998 includes a $307,000 gain on the sale of the Company's
property in North Carolina.
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 had been in the
process of converting its distribution channels to sales through dealers
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 dealers,
installation work that was previously done by the Company is performed by the
dealer, resulting in reduced revenues. During fiscal 1997 the Company added
19 new dealers 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 were 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 permitted
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.
13
<PAGE>
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 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.
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 PolyVision-TM- displays is through third party
subcontractors. In this regard the Company did not exercise its option to renew
the lease at its Wallingford, Connecticut facility which expired in December
1996. In connection with this decision, depreciation and amortization expenses
have been accelerated while other PolyVision-TM- technology
manufacturing-related costs have been reduced, such that research and
development expenses for fiscal 1997 were 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.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended April 30, 1998, $538,000 of cash was used to
support operating activities. This included $247,000 due to an increase in
accounts receivable because of added sales volume in fiscal 1998 and also
$1,183,000 for increased inventories in order to provide for better customer
service. Another $336,000 was for an increase in other current assets,
primarily for insurance rebates. Accounts payable and accrued expenses
decreased by $119,000. Funds from operating activities were provided by net
income and depreciation from operations of $1,010,000 and $382,000,
respectively. Capital expenditures were $539,000, predominately for
installation of computer hardware and manufacturing systems software. The
sale of property in North Carolina contributed $307,000 in funds. Cash
financing was provided by an increase of $667,000 in the revolving credit
facility with BankBoston, N.A. and an increase in borrowings from Alpine of
$559,000. During fiscal 1998, $580,000 of long-term debt was repaid. For
the fiscal year ended April 30, 1998, Greensteel provided $119,000 from
operations while Posterloid used $49,000 for its operating activities.
On July 23, 1997, Greensteel, as borrower, and the Company, as
guarantor, entered into an Amended and Restated Master Credit Agreement with
BankBoston, N.A. which amended the previous agreement, dated April 25, 1996.
The new agreement provides for a revolving credit line of up to $3,800,000,
based upon eligible accounts receivable and inventory, as defined (unused and
available borrowings were $835,000 at April 30, 1998) at the Bank's prime
rate plus a margin based on certain performance ratios (10.0% at April 30,
1998) and a $920,000 term loan payable in 17 consecutive equal monthly
installments of $20,000 with interest at the Bank's prime rate plus a margin
based on certain performance ratios (10.5% at April 30, 1998) with the
remaining unpaid principal amount of $580,000 due on May 31, 1999. The
agreement terminates on May 31, 1999 and provides for renewal at the Bank's
discretion. On June 25, 1998, the agreement was amended to increase the
revolving credit line to $4,250,000. On July 20, 1998, the agreement was
amended to extend the maturity date to August 31, 1999. As of April 30,
1998, the Company had reduced the balance of the term loan to $400,000.
Substantially all of Greensteel's assets are pledged as collateral under the
credit facility. The agreement requires Greensteel's compliance with certain
financial covenants including specific levels of earnings before interest,
taxes and depreciation, and specific current ratio levels and debt levels.
In May 1995, the Company entered into an agreement with Alpine,
pursuant to which the Company had the right to borrow prior to 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-TM- display technology.
Borrowings under the agreement are unsecured and bear interest at a market
rate reflecting Alpine's cost of borrowing such funds (currently
approximately 8-1/2%). As of April 30, 1998, $5,000,000 was outstanding
under this agreement.
The Company also executed a promissory note to Alpine to borrow an
additional $2,028,000, including accrued interest, to fund the Company's
corporate borrowing requirements. Borrowings under the agreement are at
Alpine's cost of borrowing such funds (8-1/2% at April 30, 1998). As of April
30, 1998, the Company owed Alpine a total of $7,028,000 under this note and the
foregoing agreement, including accrued interest of $658,000.
RECENT ACCOUNTING PRONOUNCEMENTS
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 the fiscal year ending April 30, 1999.
YEAR 2000 COMPLIANCE
In fiscal 1998, the Company began several information system improvement
initiatives that will require increased expenditures in future years. These
initiatives include the implementation of computer systems that are year 2000
compliant. The Company also is communicating with suppliers, dealers,
financial institutions and others with which it does business to coordinate
year 2000 requirements. These ongoing initiatives are not anticipated to be
material to the Company's results of operations, liquidity or its capital
resources.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. These forward-looking
statements are based largely on the Company's expectations and are subject to
a number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of, among other factors, risks related to the Company's
history of operating losses and accumulated deficit, product and technology
development, market acceptance of new products and continuing product demand,
the impact of competitive products and pricing, dependence on the construction
market generally, future capital requirements, changing economic conditions,
including changes in short-term interest rates, and other risks. In light of
these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this report will in fact occur.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data of the Company appear on
pages F-2 through S-6 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.
16
<PAGE>
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 15, 1998, are as follows:
NAME AGE POSITION
- ---- --- --------
Joseph A. Menniti 61 President, Chief Executive Officer and Director
Lawrence W. Hay 54 Vice President of Finance
Barry M. Puritz 55 Vice President of Marketing and Sales
Steven S. Elbaum 49 Chairman of the Board and Director
Ivan Berkowitz 52 Director
Stephen C. Knup 56 Director
Lyman C. Hamilton 71 Director
Bragi F. Schut 56 Director
- ------------------------------
JOSEPH A. MENNITI was appointed President and Chief Operating Officer of
the Company in May 1995. Mr. Menniti assumed the additional position of Chief
Executive Officer of the Company in March 1998 and was elected a Director of the
Company in May 1998. From 1989 to May 1995, Mr. Menniti was the Chief Executive
Officer of DNE Systems, Inc., then a wholly-owned subsidiary of Alpine, and
currently a subsidiary of Superior Telecom, Inc., which designs, 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 to 1989.
LAWRENCE W. HAY was appointed Vice President of Finance of the Company in
August 1996. From 1985 to January 1996, Mr. Hay served as Vice President of
Finance and Administration of Ceramicus, Inc., a manufacturer of ceramic tile.
BARRY M. PURITZ was appointed Vice President of Marketing and Sales of the
Company in May 1998. For one year prior to that, Mr. Puritz was the Executive
Vice President, Marketing and Sales of the Greensteel division of the Company.
From 1992 to 1997, Mr. Puritz was the President of the VisCon division of
Posterloid, responsible for its bank merchandising business and for the
development of new menuboard products for the restaurant business of Posterloid.
Mr. Puritz joined the Company upon the sale of VisCon, Inc., which he founded,
to the Company in 1992.
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 also been Chairman of the Board, President and Chief
Executive Officer of Superior Telecom, Inc., a manufacturer of copper
telecommunications wire and cable, since July 1996. Mr. Elbaum serves on the
Board of Directors of Interim Services, Inc., a provider of value-added staffing
17
<PAGE>
and health care services, HumaScan, Inc., a developer of medical monitoring
devices, and Broadway and Seymour, Inc., a developer and vendor of computer
software technologies.
IVAN BERKOWITZ was elected a director of the Company in May 1995, and
served as Chief Executive Officer of the Company from such date to April 1997.
Previously, 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.
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 MG
North America Holdings Inc. (formerly known as 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.
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 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.
From 1962 to 1979, Mr. Hamilton served in various senior executive officer
positions with ITT Corp. and was its Chief Executive Officer in 1978 and 1979
and a director from 1974 to 1979. 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.
BRAGI F. SCHUT was elected a director of the Company in December 1994. Mr.
Schut has been a director of Alpine since 1984 and its Executive Vice President
since 1986. Mr. Schut is also a director of Superior Telecom, Inc.
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 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 24, 1998,
Messrs. Elbaum and Hamilton were re-elected to the Company's Board of Directors
as Class II directors to hold office until the 1999 Annual Meeting of
Shareholders and until their successors are elected and qualified. Messrs.
Berkowitz, Knup and Schut were elected as Class I directors and hold office
until the 1998 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 June 30, 1998, Messrs. Elbaum, Hamilton and Knup
served on the Audit Committee, and Messrs. Berkowitz, Knup and Schut served on
the Compensation Committee.
18
<PAGE>
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, 1998, 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, except that Bragi
F. Schut, a director, made a late Form 4 filing due to administrative
oversight.
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, 1998
and the two prior fiscal years to its Chief Executive Officer and the only other
executive officer earning $100,000 per year (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
-------------------------------------- -------------------------
OTHER ANNUAL RESTRICTED COMMON STOCK
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION STOCK UNDERLYING
POSITION YEAR ($) ($) ($)(2) AWARDS (#) OPTIONS (#)
- ------------------ ------ ------ ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Menniti 1998 205,900 67,000 -- -- 30,000
President and Chief 1997 191,000 30,000 -- -- --
Executive Officer 1996 185,000 -- 32,000(1) 15,000 75,000
Barry M. Puritz 1998 109,400 30,000 -- -- 7,000
Vice President of 1997 107,400 -- -- -- --
Marketing and Sales 1996 133,700(3) -- -- -- --
</TABLE>
- --------------
(1) This amount was received as a signing bonus under Mr. Menniti's employment
agreement. See "Employment Agreements" below.
(2) The aggregate value of benefits to be reported under the "Other Annual
Compensation" column did not exceed the lesser of $50,000 or 10% of the
total of annual salary and bonus reported for the Named Executive Officer.
(3) The salary paid in 1996 included compensation for sales commissions.
19
<PAGE>
STOCK OPTIONS
The following table sets forth information with respect to grants of
options ("Options") to purchase Common Stock under the Company's 1994 Stock
Option Plan to the Named Executive Officers during the fiscal year ended April
30, 1998.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR ENDED APRIL 30, 1998
% OF TOTAL POTENTIAL REALIZED
OPTIONS VALUE AT ASSUMED
GRANTED TO EXERCISE ANNUAL RATE OF STOCK
OPTIONS EMPLOYEES PRICE EXPIRATION APPRECIATION FOR
NAME GRANTED(1) IN FISCAL YEAR ($/sh)(1) DATE OPTION TERM(2)
- ---- ---------- -------------- -------- ---------- --------------------
5% 10%
-------- --------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Menniti 30,000 25.0% $1.00 Dec. 2007 $11,100 $32,100
Barry M. Puritz 7,000 5.8% 1.00 Dec. 2007 2,600 7,500
</TABLE>
- -----------------------------
(1) All options were granted at or above market value on the date of grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on option exercises are dependent upon other factors,
including the future performance of the Common Stock and overall stock
market conditions.
AGGREGATED OPTIONS EXERCISED DURING FISCAL 1998 AND FISCAL
YEAR-END OPTION VALUES
The following table sets forth for the Named Executive Officers
information on options exercised, unexercised options and year-end option values
in each case with respect to options to purchase shares of the Company's
Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS
NAME EXERCISE(#) ($) APRIL 30, 1998(#) AT APRIL 30, 1998(1)
- ---- ------------ -------- ----------------------- ---------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph A. Menniti -0- -0- 67,500 37,500 $20,925 $11,625
Barry M. Puritz -0- -0- -0- 7,000 -0- 2,170
</TABLE>
- ------------------------
(1) Represents the difference between the last sale price of the Common Stock
on April 30, 1998 ($1.31 per share), and the exercise price of the option
multiplied by the applicable number of options.
20
<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. Employee directors are not separately
compensated for serving on the Board.
EMPLOYMENT AGREEMENTS
Pursuant to an Employment Agreement, dated as of May 1, 1995, between the
Company and Joseph A. Menniti, Mr. Menniti agreed to serve as the President 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 receives an annual base salary, subject to annual reviews, of $210,000,
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 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.
In March 1998, David H. Holt resigned from his position as the Company's
Chief Executive Officer and a director. Pursuant to the terms of Mr. Holt's
employment agreement, dated as of March 15, 1997, the Company paid Mr. Holt a
severance payment in the amount of $215,000 on account of all obligations owing
to him. All stock options held by Mr. Holt were cancelled. Mr. Holt remains
subject to all continuing requirements of confidentiality and noncompetition.
21
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors were
Bragi F. Schut, Ivan Berkowitz and Stephen C. Knup during the fiscal year ended
April 30, 1998. 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, 1998. 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, 1998, 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.
22
<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 June 30, 1998, by (i) each person known to the Company to be the
beneficial owner of more than 5% of the Common Stock; (ii) each director; (iii)
each executive officer named in the Summary Compensation Table herein; and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise indicated in the 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 PolyVision Corporation, 29 Laing Avenue,
Dixonville, Pennsylvania 15734.
Percent of
Number of Shares Common Stock
Name and Address of Beneficially Beneficially
Beneficial Owner Owned (1) Owned (1)
- ------------------- ---------------- -------------
The Alpine Group, Inc. 1,436,603 16.8%
1790 Broadway
New York, NY 10017
Steven S. Elbaum 472,444(2)(3) 5.5%
c/o The Alpine Group, Inc.
1790 Broadway
New York, NY 10019
Ivan Berkowitz 137,500(4) 1.6%
1790 Broadway
New York, NY 10019
Lyman C. Hamilton, Jr. 54,848(2)(3) *
69 Byron Drive
Avon, CT 06001
Stephen C. Knup 28,750(2)(3) *
c/o MG North America Holdings Inc.
520 Madison Avenue
New York, NY 10022
Bragi F. Schut 147,803(2)(3) 1.7%
c/o The Alpine Group, Inc.
1790 Broadway
New York, NY 10019
Joseph A. Menniti 95,250(5) 1.1%
All executive officers and 936,595(2)-(5) 10.9%
directors as a group
(6 persons)
- -------------------------
* Percentage ownership is less than 1%.
23
<PAGE>
(1) Includes, in accordance with Rule 13d-3(d)(1)(i) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), 8,561,762 shares of Common Stock
outstanding as of June 30, 1998, 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 plan 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 June 30, 1998, 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 in
October 1995. Under the terms of the 1995 Directors Stock Grant Plan, one-third
of such shares vested on the dates of the 1995, 1996 and 1997 Annual Meetings of
Shareholders.
(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 in October 1995 at an exercise price of $3.86 per share.
Under the terms of the 1995 Directors Stock Option Plan, such options are
exercisable over a four-year period, vesting as to one-fourth of the total
number of options granted in October of each year, commencing October 1996.
(4) Includes (i) 15,000 "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 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, and (iii) 35,000 shares received by Mr. Berkowitz pursuant to
his employment agreement.
(5) Includes (i) 9,000 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, 1999 and 2000, subject to certain conditions in the event
of Mr. Menniti's earlier termination of employment, (ii) stock options to
purchase 56,250 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
$1.00, with the remaining 18,750 shares to be exercisable on May 1, 1999,
subject to certain conditions in the event of Mr. Menniti's earlier termination
of employment, and (iii) stock options to purchase 30,000 shares of Common Stock
granted under the terms of the Company's 1994 Stock Option Plan at an exercise
price of $1.00 which fully vest on December 9, 1997.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1995, the Company entered into an agreement with Alpine, the
Company's largest single shareholder, pursuant to which the Company had the
right to borrow prior to 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 the display
technology of APV. Borrowings under the agreement are unsecured and bear
interest at a market rate reflecting Alpine's cost of borrowing such funds
(currently approximately 8-1/2%). 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. As of
April 30, 1998, $5,000,000 was outstanding under such agreement.
The Company also executed a promissory note to Alpine to borrow an
additional $2,028,000, including accrued interest, to fund the Company's
corporate borrowing requirements. Borrowings under the agreement are at
Alpine's cost of borrowing such funds (8-1/2% at April 30, 1998). As of
April 30, 1998, the Company owed Alpine a total of $7,028,000 under this note
and the foregoing agreement, including accrued interest of $658,000.
Adience (currently known as Premier Refractories Inc.) has performed in
the past certain management and administrative services for the Company.
These services included the use of Adience's management information system.
The fee paid by the Company for these services in fiscal 1997 and in prior
years, as agreed to by the Boards of Adience and the Company, was $300,000
per year. Effective May 1997, these services are no longer being provided by
Adience, as the Company currently performs them internally.
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."
25
<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, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years ended
April 30, 1998, 1997 and 1996 F-3
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years ended April 30, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the Years ended
April 30, 1998, 1997 and 1996 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, 1998, 1997 and 1996:
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)
26
<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)
27
<PAGE>
Exhibit No. Document
- ----------- --------
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)
22.1 Subsidiaries of the Company.(7)
27.1 Financial Data Schedule.
- ----------------------
(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.
28
<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 24, 1998 By: /s/ Joseph A. Menniti
--------------------------------------
Joseph A. Menniti
President and Chief Executive Officer
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 27, 1998
Steven S. Elbaum and Director
/s/ Joseph A. Menniti
- --------------------------- President, Chief Executive July 24, 1998
Joseph A. Menniti Officer and Director (principal
executive officer)
/s/ Ivan Berkowitz
- --------------------------- Director July 23, 1998
Ivan Berkowitz
/s/ Lawrence W. Hay
- --------------------------- Vice President of Finance July 22, 1998
Lawrence W. Hay (principal financial and
accounting officer)
/s/ Lyman C. Hamilton, Jr.
- --------------------------- Director July 27, 1998
Lyman C. Hamilton, Jr.
/s/ Stephen C. Knup
- --------------------------- Director July 21, 1998
Stephen C. Knup
/s/ Bragi F. Schut
- --------------------------- Director July 28, 1998
Bragi F. Schut
29
<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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1998, in conformity with generally accepted accounting principles.
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
July 20, 1998
F-1
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, 1998 and 1997
(amounts in thousands, except share amounts)
1998 1997
--------- ---------
ASSETS
- ------
Current Assets:
Cash $ 291 $ 415
Accounts receivable, net of allowance for
doubtful accounts of $795 and $1,013 7,267 7,020
Inventories 4,519 3,336
Costs and estimated earnings in excess of
billings on uncompleted contracts 719 690
Prepaid expenses and other current assets 453 146
--------- ---------
Total current assets 13,249 11,607
Property and equipment, net 1,513 1,442
Goodwill, net 3,692 3,836
Other assets 10 16
--------- ---------
TOTAL ASSETS $ 18,464 $ 16,901
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Short-term borrowings $ 2,965 $ 2,298
Current maturities of long-term debt 240 980
Accounts payable 2,499 2,361
Accrued expenses 2,014 2,494
Billings in excess of costs and estimated
earnings on uncompleted contracts 379 259
--------- ---------
Total current liabilities 8,097 8,392
Long-term debt, less current maturities 160 --
Indebtedness to The Alpine Group, Inc. 7,028 6,382
Accrued dividends 5,643 4,099
Royalties payable 750 750
Excess of net assets over purchase price
of acquisition 261 268
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 and outstanding
8,561,762 and 8,540,762 shares 9 9
Capital in excess of par value 38,668 38,618
Accumulated deficit (67,883) (67,348)
--------- ---------
Total stockholders' deficit (3,475) (2,990)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,464 $ 16,901
========= =========
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, 1998, 1997, and 1996
(amounts in thousands, except per share amounts)
1998 1997 1996
-------- -------- ---------
Net sales $ 34,167 $ 32,233 $ 35,627
Cost of goods sold 24,286 24,755 27,863
-------- -------- ---------
Gross profit 9,881 7,478 7,764
Selling, general and administrative 8,344 9,814 9,978
Research and development -- 1,158 2,886
Amortization of goodwill 145 145 145
Restructuring expenses -- 650 --
-------- -------- ---------
Operating income (loss) 1,392 (4,289) (5,245)
Interest income -- -- 71
Interest expense (839) (910) (587)
Other income (expense), net 472 90 (8)
-------- -------- ---------
Income (loss) before income taxes 1,025 (5,109) (5,769)
Income tax expense 15 -- --
-------- -------- ---------
Net income (loss) 1,010 (5,109) (5,769)
Preferred stock dividends 1,545 2,059 2,040
-------- -------- ---------
Loss applicable to common stock $ (535) $(7,168) $(7,809)
======== ======== ========
Loss per share of common stock-basic $ (0.06) $ (0.84) $ (0.94)
======== ======== ========
Loss per share of common stock-diluted $ (0.06) $ (0.84) $ (0.94)
======== ======== ========
Average common shares outstanding-basic 8,561,762 8,534,612 8,339,200
========= ========= =========
Average common shares outstanding-diluted 8,561,762 8,534,612 8,339,200
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
POLYVISION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the years ended April 30, 1998, 1997, and 1996
(Amounts in thousands, except share amounts)
Series A
Common Stock Preferred Stock Capital In
--------------------- --------------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit Total
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995 8,301,073 $ 8 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 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 10,689 94 94
Net (Loss) for the year ended April 30, 1997 (5,109) (5,109)
--------- --------- --------- --------- --------- --------- ---------
Balance at April 30, 1997 8,540,762 9 1,029,253 25,731 38,618 (67,348) (2,990)
Dividends on Preferred Stock (1,545) (1,545)
Compensation Expense Related to Stock Grants 21,000 50 50
Net Income for the year ended April 30, 1998 1,010 1,010
--------- --------- --------- --------- --------- --------- ---------
Balance at April 30, 1998 8,561,762 $ 9 1,029,253 $ 25,731 $ 38,668 $(67,883) $ (3,475)
========= ========= ========= ========= ========= ========= =========
</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, 1998, 1997, and 1996
(amounts in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Income (Loss) from operations $1,010 ($5,109) ($5,769)
Adjustments to reconcile income (loss) from
operations to net cash (used for) operations:
Depreciation and amortization 382 498 1,156
Compensation expense for stock grants 50 94 574
Deferred interest 87 571 229
Gain on sale of assets (307) -- --
Change in assets and liabilities:
Accounts receivable (247) 1,007 331
Inventories (1,183) 399 1,294
Other current assets (336) 332 31
Other assets 5 (16) --
Accounts payable and accrued expenses (119) (689) (1,468)
Other 120 (244) (19)
--------- --------- ---------
Cash (used for) operating activities (538) (3,157) (3,641)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (539) (435) (774)
Proceeds from sale of assets 307 35 --
--------- --------- ---------
Cash (used for) investing activities (232) (400) (774)
--------- --------- ---------
Cash flows from financing activities:
Net short-term borrowings (repayments) 667 1,046 (127)
Long-term borrowing 920 -- 1,200
Repayments of long-term borrowings (1,500) (220) (1,115)
Advances from The Alpine Group, Inc. 559 2,476 --
Promissory note borrowings -- -- 3,335
Net repayments of receivable from affiliates -- -- 1,532
--------- --------- ---------
Cash provided by financing activities 646 3,302 4,825
--------- --------- ---------
Net increase (decrease) in cash (124) (255) 410
Cash at beginning of period 415 670 260
--------- --------- ---------
Cash at end of period $ 291 $ 415 $ 670
========= ========= =========
</TABLE>
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, 1998, 1997, and 1996
(amounts in thousands)
(Continued)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures:
Interest paid $ 291 $ 245 $ 358
======= ======= =======
Non-cash investing and financing activities:
Conversion of The Alpine Group, Inc. indebtedness:
Preferred stock $ 229
======
Common stock issued in connection with Union Agreement $ 487
======
Property purchased through capital lease $ 26
=======
</TABLE>
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, 1998, 1997, and 1996
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
--------------------------------------------
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.
In May 1995, the Company (then named Information Display Technology,
Inc. ("IDT") and consisting only of Greensteel) acquired by merger (the
"Merger") the information display group, consisting of Posterloid and
APV, of The Alpine Group, Inc.("Alpine"). The Company issued
approximately 7,400,000 shares of Common Stock and 1,000,000 shares of
its Series A Preferred Stock (liquidiation preference $25.00 per share)
to Alpine in connection with the Merger, increasing Alpine's beneficial
stock ownership percentage in the Company to approximately 90%. Alpine
had previously acquired, in a separate stock transaction, control of the
Company's principal shareholder, Adience, Inc. ("Adience") (currently
known as Premier Refractories Inc.), a manufacturer of refractory
products, which then owned approximately 80% of such outstanding shares.
Shortly following the Merger, in June 1995, Alpine distributed
approximately 73% of the outstanding shares of Common Stock as a
one-time dividend to its stockholders, and retained approximately 17% of
the shares of Common Stock. Alpine remains the Company's largest single
shareholder. Alpine also owns 98% of the outstanding preferred stock of
the Company.
In April 1997, the Company determined to discontinue its research and
development efforts and market its PolyVision display technology solely
through third-party licensing agreements. This decision resulted in a
restructuring charge of $650,000 in 1997.
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 42% and 57% of Greensteel's
revenues, and approximately 52% and 65% of the related costs of
revenues were from contracts for the years ended April 30, 1998 and April
30, 1997, 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.
F-7
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
EARNINGS (Loss) PER COMMON SHARE
The Financial Accounting Standards Board issued Statement of Financial
Standards No.128, "Earnings per Share" in February 1997. This statement
simplifies the standards for computing earnings per share previously found
in APB opinion No. 15, "Earnings per Share." The Company adopted the
provisions of FASB 128 in 1998. Given the net loss to common shareholders
for all years presented there were no reconciling dilutive securities as
all options outstanding to purchase common stock would have been
antidilutive had they been exercised.
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 $1,540,000 and $1,396,000 at April 30, 1998
and 1997, respectively.
EXCESS OF NET ASSETS OVER PURCHASE PRICE OF ACQUISITION
Negative goodwill in the accompanying 1998 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 1).
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
F-8
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
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.
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 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 1997 consolidated financial
statements in order to present them in a manner consistent with 1998.
F-9
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
3. INVENTORIES
-----------
The components of inventories are as follows at April 30, 1998 and 1997 (in
thousands):
1998 1997
------ ------
Raw materials $3,242 $2,679
Work in process 967 527
Finished goods 310 130
------ ------
$4,519 $3,336
====== ======
4. CONTRACTS-IN-PROGRESS
---------------------
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1998 (in thousands):
COSTS AND ESTIMATED BILLINGS IN EXCESS
EARNINGS IN EXCESS OF COSTS AND
OF BILLINGS ESTIMATED EARNINGS TOTAL
------------------- ------------------ -------
Costs and estimated earnings $4,400 $4,015 $8,415
Billings 3,681 4,394 8,075
------ ------ -------
$ 719 $ (379) $ 340
====== ====== =======
The status of contract costs on uncompleted construction contracts was as
follows at April 30, 1997 (in thousands):
COSTS AND ESTIMATED BILLINGS IN EXCESS
EARNINGS IN EXCESS OF COSTS AND
OF BILLINGS ESTIMATED EARNINGS TOTAL
------------------- ------------------ -------
Costs and estimated earnings $2,779 $6,218 $8,997
Billings 2,089 6,477 8,566
------ ------ -------
$ 690 $ (259) $ 431
====== ====== =======
Accounts receivable at April 30, 1998 and 1997 included amounts billed but
not yet paid by customers under retainage provisions of approximately
$1,096,000 and $1,384,000, respectively. Such amounts are generally due
within one year.
F-10
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
5. PROPERTY AND EQUIPMENT
----------------------
Property and equipment are as follows at April 30, 1998 and 1997 (in
thousands):
1998 1997
------- -------
Furniture and fixtures $ 766 157
Machinery and equipment 853 2,125
Buildings & leasehold improvements 604 1,507
------- -------
2,223 3,789
Less accumulated depreciation
and amortization (710) (2,347)
------- -------
$ 1,513 $ 1,442
======= =======
Depreciation and amortization expense for the years ended April 30, 1998,
1997 and 1996 was $382, $498 and $1,156, respectively. The decrease in the
gross fixed assets from 1997 to 1998 is due to the discontinuance of the
APV operation and the removal of said assets.
6. DEBT
----
Debt consists of the following at April 30, 1998 and 1997 (in thousands):
1998 1997
------- -------
Revolving credit loans (a) $ 2,965 $ 2,298
Term loan (a) 400 980
Indebtedness to The Alpine Group, Inc.(b) 7,028 6,382
------- -------
Total 10,393 9,660
Less short-term borrowings, current
maturities and Indebtedness to
The Alpine Group, Inc. 10,233 9,660
------- -------
Long term bank debt $ 160 $ --
======= =======
(a) On April 25, 1996, Greensteel, as borrower, and the Company, as
guarantor, entered into a $5,000,000 Master Credit Agreement (the
"Agreement") with Bank of Boston Connecticut to provide financing for
Greensteel's general working capital requirements. The Agreement
provided 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 $835,000 at April 30, 1998 and $1,125,000
at April 30, 1997) at the Bank's prime rate plus 1% (10.00% at April 30,
1998 and 9.50% at April 30, 1997) 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 (10.50% at April 30, 1998 and 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. The Agreement
matured August 31, 1997 and provided for renewal at the Bank's sole and
absolute discretion.
F-11
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
Substantially all of Greensteel's assets are pledged as collateral for the
credit facility. The Agreement required Greensteel's compliance with
certain financial and non-financial covenants. Greensteel was not in
compliance with certain financial covenants as of April 30, 1998 and 1997.
The Bank provided a waiver for these covenants.
On July 23, 1997, Greensteel, as borrower, and the Company, as
guarantor, entered into an Amended and Restated Master Credit Agreement
with BankBoston, N.A. (successor to Bank of Boston Connecticut) which
amended the previous agreement, dated April 25, 1996. The new agreement
provides for a revolving credit line of up to $3,800,000, based upon
eligible accounts receivable and inventory, at the Bank's prime rate plus
a margin based on certain performance ratios (10.0% at April 30, 1998)
and a $920,000 term loan payable in 17 consecutive equal monthly
installments of $20,000 with interest at the Bank's prime rate plus a
margin based on certain performance ratios (10,5% at April 30, 1998)
with the remaining unpaid principal amount of $580,000 due on May 31,
1999. As of April 30, 1998 the Company had reduced the balance of the
term loan to $400,000. The agreement terminates on May 31, 1999 and
provides for renewal at the Bank's discretion. On June 25, 1998, the
agreement was amended to increase the revolving credit line to
$4,250,000. On July 20, 1998, the agreement was amended to extend the
maturity date to August 31, 1999. Substantially all of Greensteel's
assets are pledged as collateral under the credit facility and the
agreement requires Greensteel's compliance with certain financial and
non-financial covenants.
(b) In May 1995, the Company entered into an agreement with Alpine, pursuant
to which the Company had the right to borrow prior to 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-TM- display technology.
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, 1998, $5,000,000 was outstanding under this agreement.
The Company also executed a promissory note to Alpine to borrow an
additional $2,028,000, including accrued interest, to fund the Company's
corporate borrowing requirements. Borrowings under the agreement are at
Alpine's cost of borrowing such funds (8-1/2% at April 30, 1998). As of
April 30, 1998, the Company owed Alpine a total of $7,028,000 under this
note and the foregoing agreement, including accrued interest of $658,000.
The Company's obligations to Alpine are comprised of accrued dividends and
indebtedness which total $12,671,000 as of April 30, 1998. In addition,
the indebtedness to Alpine increased by $646,000 during fiscal 1998. Alpine
has agreed not to seek repayment of its obligations until at least
July 31, 1999.
F-12
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
7. ACCRUED EXPENSES
----------------
Accrued expenses are as follows at April 30, 1998 and 1997 (in thousands):
1998 1997
------ ------
Accrued wages, salaries and employee benefits $1,133 $ 761
Accrued workers' compensation 500 507
Other accrued expenses 381 576
Restructuring expenses -- 650
------ ------
$2,014 $2,494
====== ======
8. 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% of compensation at a rate of 50%. Amounts charged against
income totaled $101,000, $164,000 and $179,000 in 1998, 1997 and 1996,
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.
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. In 1998 the Company incurred a settlement loss under the
defined benefit pension plan of approximately $260,000.
F-13
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
Certain union employees of Greensteel are covered by multiemployer defined
benefit retirement plans. Expenses relating to these plans amounted to
$79,000, $68,000 and $97,000 for the years ended 1998, 1997
and 1996.
9. STOCK OPTION AND STOCK GRANT PLANS
----------------------------------
On May 24, 1995, the Company adopted a stock option plan under which
400,000 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. In 1997, 87,500 of
these options were cancelled.
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
1997, 50,000 of these options were cancelled. 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 1998 and 1997 charges
relating to the current year vesting of these grants was $50,000 and
$94,000 respectively.
During the year ended April 30, 1997, options to purchase 185,000 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. In 1998, 150,000 of these options were
cancelled. 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 or were exercised or canceled
during fiscal 1997.
In fiscal 1998, the Company also issued options to purchase 120,000 shares.
All options were issued at an exercise price of $1.00 which was above
market value at the date of grant. 55,000 of these options are fully
vested while the remaining 65,000 vest over a three-year period.
The Company accounts for these plans under Accounting Principles Board
Statement No. 25, "Accounting for Stock Issued to Employees." Had
compensation costs for these plans been determined consistent with
Statement of Financial Accounting Standard No. 123, the net income (loss)
for 1998, 1997 and 1996 would have been $947,000, ($5,211,000) and
($5,862,000) respectively and the loss per common share for 1998, 1997 and
1996 would have been ($0.07), ($0.85) and ($0.95), respectively.
10. ROYALTIES PAYABLE
-----------------
Connecticut Innovations, Inc. ("CII") advanced amounts to APV pursuant
to a Development Agreement to finance a portion of APV's product
development costs. The Development Agreement provided for a minimum annual
royalty of $75,000 per annum or 5% of sponsored product sales up to a
cumulative royalty
F-14
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
of $3,250,000. Thereafter a royalty of 1/2% on sponsored product sales was
payable. The Development Agreement contained covenants relating to
technology licensing of the sponsored product. In addition, the
Development Agreement provided 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 as of April 30,1997,
the Company entered into an agreement June 9, 1998 which terminated the
royalty arrangement since no product was ever developed. The agreement
provides for the Company to deliver 9,509 registered shares of Alpine
common stock and a payment of $125,000 in the form of a promissory note
in exchange for the extinguishment of the $750,000 liability currently
reflected on the Company's consolidated balance sheet. The Company
anticipates that the purchase of the Alpine common stock will be
financed by loans from Alpine.
11. SERIES A PREFERRED STOCK
------------------------
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, 1998 and April 30, 1997) 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 Alpine in lieu of payment of deferred
interest in the amount of $229,425 (see Note 6).
Effective February 1, 1998, the Company amended the Certificate of
Incorporation of PolyVision Corporation to cease the accrual of dividends
on the Series A Preferred Stock. As such, the accompanying balance sheet
and income statement for fiscal 1998 only reflect nine months of accrued
dividends.
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
F-15
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
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.
12. 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.
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, 1998, APV and Posterloid had additional unused Federal net
operating loss carryforwards of approximately $11,498,000 and $2,312,000,
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, 1995, IDT, on a separate-company basis, had net
operating loss carryforwards for Federal income tax purposes of
approximately $2,109,000 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 31, 1995, Greensteel incurred tax
losses resulting in additional federal net operating loss carry forwards of
$2,543,000 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 the Company's history of prior operating losses, 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. Thus, the Company did not record any current or
deferred income tax expense during the fiscal years ended April 30, 1997
and 1996 due to losses incurred during such periods and the availability of
net operating loss carryforwards. In fiscal 1998, the Company recorded a
tax expense of $15,000 for Federal alternative minimum Income Tax.
F-16
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
The differences between the Company's Federal effective tax rate and the
statutory tax rate for the years ended April 30, 1998, 1997 and 1996 arises
from the following:
1998 1997 1996
---- ---- ----
Federal statutory rate (35)% (35)% (35)%
Increase resulting from:
Goodwill amortization not deductible 1 1 1
Increase in valuation allowance 34 34 34
Alternative minimum tax 1 -- --
---- ---- ----
1 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,
1998 and 1997 are as follows (in thousands):
1998 1997
------------------ ------------------
Current Long-Term Current Long-Term
Asset Asset Asset Asset
------- --------- ------- ---------
Bad debt reserve $334 $-- $ 425 --
Inventory related 132 -- 242 --
Accrued payroll
and related costs 293 -- 336 --
Fixed assets -- 320 -- 445
NOL carryforwards -- 11,324 -- 11,654
Other 72 -- 399 --
Valuation allowance (831) (11,644) (1,402) (12,099)
---- ------- ------ -------
$ -- $ -- $ -- $ --
==== ======= ====== =======
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.
13. RELATED-PARTY TRANSACTIONS
--------------------------
On May 24, 1995, the Company entered into an agreement with Alpine,
pursuant to which the Company had the right to borrow prior to 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-TM-display technology. Borrowings under the agreement are
unsecured and bear interest at a market rate reflecting Alpine's cost of
borrowing such funds. For the year ended April 30, 1996, Alpine agreed
with the Company to a modification of terms pursuant to which 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.
F-17
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
The Company also executed a promissory note to Alpine to borrow an
additional $2,028,000, including accrued interest, to fund the Company's
corporate borrowing requirements. Borrowings under the agreement are at
Alpine's cost of borrowing such funds (8-1/2% at April 30, 1998). As of
April 30, 1998, the Company owed Alpine a total of $7,028,000 under this
note and the foregoing agreement, including accrued interest of $658,000.
See also Notes 1, 6, 11 and 14 for certain other related party
transactions.
14. 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 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 commenced but it is premature to render an estimate of the
outcome of this litigation.
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. In December 1997, the Ohio Environmental Protection Agency (the
"Ohio EPA") informed the Company that the Company's ongoing clean-up
efforts at its Alliance, Ohio manufacturing facility in respect of the
former impoundment and disposal of hazardous wastes at such site had been
completed to the Ohio EPA's satisfaction. Accordingly, the Ohio EPA
informed the Company that it will not be required to maintain financial
assurance for any further clean-up costs at this site.
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.
F-18
<PAGE>
POLYVISION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1998, 1997, and 1996
(CONTINUED)
15. 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, $569,000 and $664,000
for the years ended April 30, 1998, 1997, and 1996, respectively.
Minimum rental commitments as of April 30, 1998, under non-cancelable
leases with terms of more than one year, are as follows:
Year ending
April 30, Amount
----------- ------
(in thousands)
1999 $684
2000 651
2001 649
2002 385
2003 93
16. 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-19
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
POLYVISION CORPORATION
CONDENSED BALANCE SHEETS
April 30, 1998 and 1997
(amounts in thousands, except share amounts)
1998 1997
-------- --------
ASSETS
- ------
Current Assets:
Cash $ -- $ --
Accounts receivable -- --
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 9,196 7,491
-------- --------
TOTAL ASSETS $ 9,196 $ 7,491
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Note payable $ -- $ --
Accounts payable -- --
Accrued expenses -- --
Billings in excess of costs and estimated
earnings on uncompleted contracts -- --
-------- --------
Total current liabilities -- --
Indebtedness to The Alpine Group, Inc. 7,028 6,382
Accrued dividends 5,643 4,099
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 and outstanding
8,561,762 and 8,540,762 shares 9 9
Capital in excess of par value 38,668 38,618
Accumulated deficit (67,883) (67,348)
-------- --------
Total stockholders' (deficit) (3,475) (2,990)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,196 $ 7,491
======== ========
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, 1998, 1997, and 1996
(amounts in thousands, except per share amounts)
1998 1997 1996
--------- --------- ---------
Net sales $ -- $ -- $ 24,203
Cost of goods sold -- -- 18,606
--------- --------- ---------
Gross profit -- -- 5,597
Selling, general and administrative 50 1,179 6,428
--------- --------- ---------
Operating (loss) (50) (1,179) (831)
Equity in income (loss) of subsidiaries 1,576 (3,265) (4,594)
Interest income -- -- 71
Interest expense (501) (665) (416)
Other income (expense), net -- -- 1
--------- --------- ---------
Income/(loss) before income taxes 1,025 (5,109) (5,769)
Income tax expense 15 -- --
--------- --------- ---------
Net income (loss) 1,010 (5,109) (5,769)
Preferred stock dividends 1,545 2,059 2,040
--------- --------- ---------
Loss applicable to common stock $( 535) $( 7,168) $( 7,809)
========= ========= =========
Loss per share of common stock - basic $ ( 0.06) $ ( 0.84) $( 0.94)
========= ========= =========
Loss per share of common stock - diluted $( 0.06) $( 0.84) $( 0.94)
========= ========= =========
Average common shares outstanding-basic 8,561,762 8,534,612 8,339,200
========= ========= =========
Average common shares outstanding-diluted 8,561,762 8,534,612 8,339,200
========= ========= =========
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, 1998, 1997, and 1996
(amounts in thousands, except per share amounts)
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Income (loss) from operations $1,010 ($5,109) ($5,769)
Adjustments to reconcile income (loss)
from operations to net cash
(used for) operations:
Equity in loss of subsidiaries (1,576) 3,359 4,594
Depreciation and amortization -- -- 6
Deferred interest 501 571 229
Compensation expense for stock grants 50 94 87
Change in assets and liabilities:
Accounts receivable -- -- (352)
Inventories -- -- 1,489
Other current assets -- -- 273
Accounts payable and accrued expenses -- -- (2,514)
Other -- -- --
--------- --------- ---------
Cash (used for) operating activities (15) (1,085) (1,957)
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures -- -- (525)
Net cash received in acquisition -- -- --
--------- --------- ---------
Cash (used for) investing activities -- -- (525)
--------- --------- ---------
Cash flows from financing activities:
Net short-term borrowings -- -- 1,121
Long term borrowings from
The Alpine Group, Inc. 145 3,047 3,335
Net repayments of affiliate receivables -- -- 76
Additional investment in subsidiaries (130) (1,962) (2,050)
--------- --------- ---------
Cash provided by financing activities 15 1,085 2,482
--------- --------- ---------
Net increase (decrease) in cash -- -- --
Cash at beginning of period -- -- --
--------- --------- ---------
Cash at end of period $ -- $ -- $ --
========= ========= =========
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, 1998, 1997, and 1996
(amounts in thousands, except per share amounts)
Years Ended April 30
----------------------------------
1998 1997 1996
--------- --------- ---------
Supplemental disclosures:
Interest paid $ -- $ -- $ 182
========= ========= =========
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 Bank of Boston
Connecticut. Among other things, the Agreement restricted 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 $5,410,000 are in excess of the Company's consolidated
deficit of ($3,475,000) at April 30, 1998, 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 and its results of
operations for the nine months ended January 31, 1996.
On July 23, 1997, the Company and Greensteel executed an Amended and
Restated Master Credit Agreement with BankBoston N.A. to extend the
previous credit agreement which was to mature August 31, 1997. The new
agreement provides credit facilities totaling $4,720,000. The agreement
provides for a maturity date of May 31, 1999 and a floating interest
rate equal to the prime rate plus one to one and a half percent based on
performance ratios. Greensteel granted a first lien to the Bank on all
tangible and intangible property and the agreement is subject to
standard covenants and financial ratios.
On June 25, 1998, the Company and Greensteel executed an amendment to
the Amended and Restated Master Credit Agreement. This amendment
provides for an increase in the revolving credit line of $450,000 to a
total of $4,250,000. On July 20, 1998, the Agreement was amended to
extend the maturity date to August 31, 1999.
2. INDEBTEDNESS TO THE ALPINE GROUP, INC.
--------------------------------------
In May 1995, the Company entered into an agreement with Alpine, pursuant
to which the Company had the right to borrow prior to 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. 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 6).
The Company also executed a promissory note to Alpine to borrow an
additional $2,028,000, including accrued interest, to fund the Company's
corporate borrowing requirements. Borrowings under the agreement are at
Alpine's cost of borrowing such funds (8-1/2% at April 30, 1998). As of
April 30, 1998, the Company owed Alpine a total of $7,028,000 under this
note and the foregoing agreement, including accrued interest of $658,000.
The Company's obligations to Alpine are comprised of accrued dividends and
indebtedness which total $12,671,000 as of April 30, 1998. In addition,
the indebtedness to Alpine increased by $646,000 during fiscal 1998.
Alpine has agreed not to seek repayment of its obligations until at least
July 31, 1999.
S-5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
POLYVISION CORPORATION
(Dollars in thousands)
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, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts $ 1,013 $ 289 $ 507(1) $ 795
Inventory obsolescence reserve 540 225(4) 315
-------- -------- --------- --------
Totals $ 1553 $ 289 $ 732 $ 1,110
======== ======== ========= ========
Environmental Liability $ 26 $ 26(3) $ 0
======== ========
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 accounts:
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
======== ======== ========
- ----------------------
(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) Disposal of obsolete inventory and change of Greensteel's inventory reserve policy.
</TABLE>
S-6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 291
<SECURITIES> 0
<RECEIVABLES> 7,267
<ALLOWANCES> 795
<INVENTORY> 4,519
<CURRENT-ASSETS> 13,249
<PP&E> 1,513
<DEPRECIATION> 237
<TOTAL-ASSETS> 18,464
<CURRENT-LIABILITIES> 8,097
<BONDS> 0
25,731
25,731
<COMMON> 9
<OTHER-SE> (67,883)
<TOTAL-LIABILITY-AND-EQUITY> 18,464
<SALES> 34,167
<TOTAL-REVENUES> 34,167
<CGS> 24,286
<TOTAL-COSTS> 32,775
<OTHER-EXPENSES> 472
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 839
<INCOME-PRETAX> 1,025
<INCOME-TAX> 15
<INCOME-CONTINUING> 1,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,010
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
