SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number
1-8232
Name of Registrant
NBI, INC.
State of Incorporation IRS Employer I. D. Number
Delaware 84-0645110
Address
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
Check whether the issuer (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 such filing
requirements for the past 90 days.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 17, 2000
- -------------------------------------- --------------------------------
Common Stock, par value $.01 per share 8,103,320
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended December 31, 1999
PAGE
_______
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements (Unaudited) 3 - 6
Supplementary Notes to Consolidated Financial
Statements (Unaudited) 7 - 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15 - 18
PART II - OTHER INFORMATION 19
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
December 31, June 30,
1999 1999
______________ ________
(Unaudited)
ASSETS
______
Current assets:
Cash and cash equivalents $ 66 $ 311
Trading securities -- 36
Accounts receivable, less allowance for doubtful
accounts of $240 and $223, respectively 1,330 1,243
Inventories 2,847 2,972
Other current assets 253 443
Net current assets of discontinued operations 59 --
-------- --------
Total current assets 4,555 5,005
Property, plant and equipment, net 4,129 4,140
Note receivable from related party 2,700 --
Other assets 7 9
Net long-term assets of discontinued operations 1,553 3,666
-------- --------
$12,944 $12,820
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Short-term borrowings and current portion
of notes payable $ 1,925 $ 1,719
Current portion of IRS debt and other income taxes payable 1,389 1,788
Accounts payable 1,194 1,372
Accrued liabilities 467 726
Net current liabilities of discontinued operations -- 173
-------- --------
Total current liabilities 4,975 5,778
Long-term liabilities:
Notes payable 195 260
Deferred income taxes 92 92
Postemployment disability benefits 256 264
Deferred gain from sale of discontinued operation, net of taxes 880 --
-------- --------
Total liabilities 6,398 6,394
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares authorized;
507,421 and 500,000 shares of Series A Cumulative Preferred
Stock issued and outstanding, respectively (liquidation
preference value of $5,074 and $5,000, respectively) 5 5
Capital in excess of par value - preferred stock 4,632 4,562
Common stock - $.01 par value; 20,000,000 shares
authorized; 10,130,520 and 10,115,520 shares issued, respectively 101 101
Capital in excess of par value - common stock 6,566 6,561
Accumulated deficit (3,890) (3,935)
-------- --------
7,414 7,294
Less treasury stock at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 6,546 6,426
-------- --------
$12,944 $12,820
======== ========
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
Revenues:
Sales $3,113 $4,331 $6,961 $8,229
------- ------- ------- -------
Costs and expenses:
Cost of sales 2,471 2,942 5,167 5,624
Marketing, general and administrative 734 741 1,479 1,427
------- ------- ------- -------
3,205 3,683 6,646 7,051
------- ------- ------- -------
Income (loss) from operations (92) 648 315 1,178
Other income (expense):
Net gain on investments 9 -- 57 --
Other income and expenses, net 7 2 10 14
Interest expense (49) (45) (97) (96)
------- ------- ------- -------
(33) (43) (30) (82)
------- ------- ------- -------
Income (loss) from continuing operations before
income taxes (125) 605 285 1,096
Income tax benefit (provision) 7 (169) (21) (228)
------- ------- ------- -------
Income (loss) before discontinued operations (118) 436 264 868
Income (loss) from discontinued operations,
net of income tax benefit (provision) of $(3),
$95, $(24) and $89, respectively 5 (185) 33 (184)
------- ------- ------- -------
Net income (loss) (113) 251 297 684
Dividend requirement on preferred stock (126) -- (252) --
------- ------- ------- -------
Income (loss) attributable to common stock $ (239) $ 251 $ 45 $ 684
======= ======= ======= =======
Income (loss) per common share - basic:
Income (loss) before discontinued operations $ (.03) $ .05 $ -- $ .11
Income (loss) from discontinued operations -- (.02) .01 (.03)
------- ------- ------- -------
Net income (loss) $ (.03) $ .03 $ .01 $ .08
======= ======= ======= =======
Income (loss) per common share - diluted:
Income (loss) before discontinued operations $ (.03) $ .05 $ -- $ .10
Income (loss) from discontinued operations -- (.02) .01 (.02)
------- ------- ------- -------
Net income (loss) $ (.03) $ .03 $ .01 $ .08
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,103 8,088 8,102 8,088
======= ======= ======= =======
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
1999 1998
Cash flows from operating activities:
Net income $ 297 $ 684
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation and amortization 483 386
Provision for bad debts and returns 23 42
Provision for (reversal of) writedown of inventory (1) 110
Provision for impairment of property and equipment and other
long-term assets -- 53
Gain on sales of property and equipment -- (8)
Net unrealized gain on trading securities (2) --
Other (8) 12
Changes in assets -- decrease (increase):
Trading securities 38 --
Accounts receivable (126) (486)
Inventory 134 69
Other current assets 201 (70)
Other assets (3) 70
Changes in liabilities -- (decrease) increase:
Accounts payable and accrued liabilities (534) 214
Income tax related accounts (39) 55
------ --------
Net cash flow provided by operating activities 463 1,131
------ --------
Cash flows from investing activities:
Proceeds from sale of land and construction-in-progress,
net of selling expenses 552 --
Proceeds from sales of property and equipment -- 9
Purchases of property and equipment (889) (666)
------ --------
Net cash flow used in investing activities (337) (657)
------ --------
Cash flows from financing activities:
Collections on note receivable 20 4
Proceeds from issuance of preferred stock, net of offering costs -- 4,848
Dividends paid on preferred stock (182) --
Proceeds from stock option exercises 5 --
Payments on notes payable and line of credit from CEO (177) (131)
Net borrowings (payments) on line of credit 307 (102)
Payments on IRS debt (400) (3,500)
------ --------
Net cash flow provided by (used in) financing activities (427) 1,119
------ --------
Net increase (decrease) in cash and cash equivalents (301) 1,593
Less change in cash and cash equivalents included in net current assets
or liabilities of discontinued operations 56 (22)
Cash and cash equivalents at beginning of period 311 209
------ --------
Cash and cash equivalents at end of period $ 66 $ 1,780
====== ========
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
1999 1998
Supplemental disclosures of cash flow information:
Interest paid $ 159 $137
====== ====
Income taxes paid $ 80 $ 51
====== ====
Noncash purchases of property, plant and equipment included in
accounts payable at end of period $ 101 $237
====== ====
Noncash issuance of note receivable for sale of land and
construction-in-progress $2,700 $ --
====== ====
Deferred gain recorded from sale of discontinued operation,
net of taxes $ 880 $ --
====== ====
Preferred stock dividends paid in-kind $ 70 $ --
====== ====
<FN>
See accompanying notes.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Preparation
- ----------------------------------
The accompanying financial statements have been prepared in accordance with
the requirements of Form 10-QSB and include all adjustments (consisting of all
normal recurring adjustments) which in the opinion of management are necessary
in order to make the financial statements not misleading. The consolidated
financial statements include the accounts of the Company and its wholly-owned
and majority-owned subsidiaries. All significant intercompany accounts and
profits have been eliminated.
Note 2 - Going Concern
- --------------------------
As discussed in Note 8, the remaining balance of $1.8 million of the Company's
debt to the Internal Revenue Service ("IRS") was due on December 31, 1999. On
December 30, 1999, the Company paid the IRS $400,000 and as of December 31,
1999, $1,378,000 of the IRS debt was still outstanding. On January 5, 2000,
the IRS sent NBI notice of a default of its amended payment agreement with the
IRS dated April 8, 1998, due to the Company's failure to pay the remaining
$1,378,000 that was due on December 31, 1999. Per the terms of the agreement,
an event of default occurred on January 20, 2000, fifteen days after written
notice and demand from the IRS to NBI. Because an event of default has
occurred, the IRS has the right to declare the remaining principal amount due
and payable and interest thereon at the statutory rate provided under the
Internal Revenue Code since the last interest payment made by NBI, on July 1,
1997, under the original agreement, and to pursue any other available
remedies. On February 18, 2000, the Company paid the IRS $500,000 from a
deposit received from its CEO, Jay Lustig, related to NBI's pending sale of
all of the capital stock of a wholly-owned subsidiary, NBI Properties, Inc.
("NBI Properties") to an entity which is 100% owned and controlled by Mr.
Lustig. The Company is currently in discussions with the IRS in an effort to
obtain an extension on the remaining balance of $878,000, or to otherwise
satisfy its obligations. However, there can be no assurance that the Company
will be able to obtain an extension or satisfy its obligations. In order to
pay the remaining amount outstanding, management intends to generate
sufficient cash through the sale of the stock of NBI Properties; however,
there can be no assurance that the Company will be able to complete a sale of
this stock. This condition raises substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements
do not contain any adjustments that might result from the outcome of this
uncertainty. Management believes that after the Company has sold the stock of
NBI Properties and pays off its IRS debt, it will generate sufficient future
cash flows from its remaining operations to allow the Company to be a going
concern. (See Notes 4, 8 and 13).
Note 3 - Cash and Cash Equivalents
- ----------------------------------------
Cash and cash equivalents include investments that are readily convertible to
known amounts of cash and have original maturities of three months or less.
The Company places its cash and temporary cash investments with financial
institutions. At times, such investments may be in excess of federally
insured limits.
Note 4 - Discontinued Operations
- ------------------------------------
On December 31, 1998, the Company established a plan to dispose of its Krazy
Colors, Inc. ("Krazy Colors") operation due to continuing losses incurred by
the operation, as well as the business' inability to sustain significant
long-term customers. On August 19, 1999, the Board of Directors voted to sell
the assets or stock of its wholly-owned subsidiaries, NBI Properties and
Willowbrook Properties, in order to pay the remaining balance of the IRS debt
due on December 31, 1999 (see Notes 2 and 8). Therefore, the Company has
discontinued its children's paint manufacturing, hotel and real estate
development operations, and it has separately reported the income or loss from
these segments as discontinued operations for the quarters and six months
ended December 31, 1999 and 1998 as follows:
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Children's Real
Paint Hotel Estate
Manufacturing Operation Development Total
------------ --------- ----------- ------
(Amounts in thousands)
For the Quarter Ended December 31, 1999:
Revenues from discontinued operations $ -- $ 605 $-- $ 605
====== ======= ==== =======
Income (loss) from discontinued operations
before income taxes $ -- $ 9 $(1) $ 8
Income tax provision -- (3) -- (3)
------ ------- ---- -------
Net income (loss) from operations -- 6 (1) 5
Loss on disposal -- -- -- --
------ ------- ---- -------
Net income (loss) from discontinued operations $ -- $ 6 $(1) $ 5
====== ======= ==== =======
For the Quarter Ended December 31, 1998:
- -------------------------------------------------
Revenues from discontinued operations $ 64 $ 573 $-- $ 637
====== ======= ==== =======
Loss from discontinued operations
before income taxes $ (60) $ (21) $(1) $ (82)
Income tax benefit 20 8 -- 28
------ ------- ---- -------
Net loss from operations (40) (13) (1) (54)
------ ------- ---- -------
Loss on disposal, including loss from operations
from January 1, 1999 through disposition of
$18 for the children's paint manufacturing (198) -- -- (198)
Income tax benefit 67 -- -- 67
------ ------- ---- -------
Net loss on disposal (131) -- -- (131)
------ ------- ---- -------
Net loss from discontinued operations $(171) $ (13) $(1) $ (185)
====== ======= ==== =======
For the Six Months Ended December 31, 1999:
- -------------------------------------------------
Revenues from discontinued operations $ 21 $1,291 $-- $1,312
====== ======= ==== =======
Income (loss) from discontinued operations
before income taxes $ -- $ 58 $(1) $ 57
Income tax provision -- (24) -- (24)
------ ------- ---- -------
Net income (loss) from operations -- 34 (1) 33
Loss on disposal -- -- -- --
------ ------- ---- -------
Net income (loss) from discontinued operations $ -- $ 34 $(1) $ 33
====== ======= ==== =======
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Children's Real
Paint Hotel Estate
Manufacturing Operations Development Total
------------- ---------- ----------- -----
(Amounts in thousands)
For the Six Months Ended December 31, 1998:
- -------------------------------------------
Revenues from discontinued operations $ 95 $1,252 $-- $1,347
====== ======= ==== =======
Income (loss) from discontinued operations
before income taxes $(125) $ 52 $(2) $ (75)
Income tax benefit (provision) 43 (21) -- 22
------ ------- ---- -------
Net income (loss) from operations (82) 31 (2) (53)
Loss on disposal, including loss from operations
from January 1, 1999 through disposition of
$18 for the children's paint manufacturing (198) -- -- (198)
Income tax benefit 67 -- -- 67
------ ------- ---- -------
Net loss on disposal (131) -- -- (131)
------ ------- ---- -------
Net loss from discontinued operations $(213) $ 31 $(2) $ (184)
====== ======= ==== =======
In determining the loss on disposal of its children's paint manufacturing
operation, which was recorded during the quarter ended December 31, 1998, the
Company estimated the net realizable value of the disposal of the discontinued
operation, including estimated costs and expenses directly associated with the
disposal and the estimated loss from operations through the expected disposal
date. The Company expects a significant gain overall from the discontinued
operations of both the hotel and land development, and therefore, no amount
has been recorded related to these disposals; the gain will be recognized when
realized.
The disposal of the children's paint manufacturing operation was substantially
complete as of September 30, 1999. On December 17, 1999, the Company sold a
majority of the assets of its real estate development, consisting of land and
construction-in-progress, to an entity which is 100% owned and controlled by
its CEO. The Company intends to sell all of the capital stock of NBI
Properties to an entity which is 100% owned and controlled by its CEO. (See
Note 13).
The net long-term assets of discontinued operations at December 31, 1999
consisted primarily of the hotel's building and furniture, fixtures and
equipment, net of a long-term mortgage note payable by the hotel. The net
current assets of discontinued operations at December 31, 1999 consisted
primarily of cash balances net of accounts payable and accrued liabilities.
Note 5 - Investments in Securities and Obligations from Short-Sale
- ---------------------------------------------------------------------------
Transactions
- ------------
During the three and six months ended December 31, 1999, all of the Company's
securities were classified as trading securities; no securities were
classified as held-to-maturity or available-for-sale. The Company recorded a
realized gain of $9,000 and no unrealized gain or loss for the quarter ended
December 31, 1999. Realized and unrealized investment gains of $55,000 and
$2,000, respectively, were recorded for the six months ended December 31,
1999. The Company held no investments and had no realized or unrealized gains
or losses for the quarter or six months ended December 31, 1998.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Investments in Securities and Obligations from Short-Sale
- ---------------------------------------------------------------------------
Transactions (cont'd)
- ---------------------
As part of its investment policies, the Company's investment portfolio may
include option instruments and may include a concentrated position in one or
more securities. As a result of this, the financial results may fluctuate
significantly and have larger fluctuations than with a more diversified
portfolio. In addition, the Company may invest in short-sale transactions of
trading securities. Short-sales can result in off-balance sheet risk, as
losses can be incurred in excess of the reported obligation if market prices
of the securities subsequently increase. At December 31, 1999, the Company
had no investment positions.
Note 6 - Inventories
- -----------------------
Inventories are comprised of the following amounts which are presented net of
reserves totaling $226,000:
December 31,
1999
----
(Amounts in thousands)
Raw materials $812
Work in process 388
Finished goods 1,647
-------
$2,847
=======
Note 7 - Note Receivable from Related Party
- --------------------------------------------------
In conjunction with the sale of Willowbrook Properties' land and
construction-in-progress (see Notes 4 and 13), on December 17, 1999, the
Company received a note receivable in the amount of $2.7 million from an
entity which is 100% owned and controlled by Jay Lustig, NBI's CEO. The note
bears interest at the rate of two-year Treasury Notes plus 200 basis points
with a rate of 8.14% determined at closing for the remainder of calendar 1999
and all of calendar 2000, and to be redetermined each succeeding December 31
for the following calendar year's rate. The note is payable in quarterly
installments of interest only with the entire outstanding principal balance
plus any accrued but unpaid interest to be paid in full on December 31, 2006.
Note 8 - Income Taxes
- -------------------------
IRS Debt:
- ----------
On April 28, 1998, the Company and the IRS entered into an amended payment
agreement, revising the payment terms related to NBI Inc.'s IRS debt of
$5,278,000. This agreement, effective April 9, 1998, revised the terms of the
agreement in principal with the IRS effective October 1, 1995 and the original
settlement agreement with the IRS dated June 12, 1991, with respect to NBI's
federal tax liabilities for the fiscal years ended June 30, 1980 through 1988.
Under the current agreement, $3,500,000 of the IRS debt was due and paid on
December 31, 1998, and the remaining balance of $1,778,000 was due on December
31, 1999. On December 30, 1999, the Company paid the IRS $400,000 and as of
December 31, 1999, $1,378,000 of the IRS debt was still outstanding. On January
5, 2000, the IRS sent NBI notice of a default of its amended payment agreement
with the IRS dated April 8, 1998, due to the Company's failure to pay the
remaining $1,378,000 that was due on December 31, 1999. Per the terms of the
agreement, an event of default occurred on January 20, 2000, fifteen days after
written notice and demand from the IRS to NBI. Because an event of default has
occurred, the IRS has the right to declare the remaining principal amount due
and payable and interest thereon at the statutory rate provided under the
Internal
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 - Income Taxes (cont'd)
- -----------------------------------
IRS Debt: (cont'd)
- --------------------
Revenue Code since the last interest payment made by NBI, on July 1, 1997,
under the original agreement, and to pursue any other available remedies. On
February 18, 2000, the Company paid the IRS $500,000 from a deposit received
from its CEO, Jay Lustig, related to NBI's pending sale of all of the capital
stock of NBI Properties to an entity which is 100% owned and controlled by Mr.
Lustig. The Company is currently in discussions with the IRS in an effort to
obtain an extension on the remaining balance of $878,000, or to otherwise
satisfy its obligations. However, there can be no assurance that the Company
will be able to obtain an extension or satisfy its obligations. In order to pay
the remaining amount outstanding, management intends to generate sufficient
cash through the sale of the stock of NBI Properties; however, there can be no
assurance that the Company will be able to complete a sale of this stock. This
condition raises substantial doubt about the Company's ability to continue as a
going concern. Management believes that after the Company has sold the stock
of NBI Properties and pays off its IRS debt, it will generate sufficient future
cash flows from its remaining operations to allow the Company to be a going
concern. (See Notes 2, 4 and 13). The IRS debt continues to be collateralized
by a security interest in all of the capital stock of American Glass, Inc.,
d/b/a L.E. Smith Glass Company ("L.E. Smith") and NBI Properties.
Income tax provision:
- -----------------------
The Company recorded an income tax benefit from continuing operations of
$7,000 and an income tax provision of $21,000 for the three and six months
ended December 31, 1999, respectively. For the three and six months ended
December 31, 1998, the Company recorded income tax provisions from continuing
operations of $169,000 and $228,000, respectively. These benefits and
provisions include state and other income taxes and are based upon book
income.
In accordance with fresh start accounting, which was adopted as of April 30,
1992, and as a result of the Company's reorganization under Chapter 11 of the
U.S. Bankruptcy Code, utilization of any income tax benefit from
pre-reorganization net operating losses is not credited to the income tax
provision, but rather, reported as an addition to capital in excess of par
value. No pre-reorganization net operating losses were utilized for the three
or six months ended December 31, 1999 or 1998.
Willowbrook Properties' Sale:
- -------------------------------
During the three months ended December 31, 1999, the Company recorded a
taxable gain of approximately $920,000 from the sale of a majority of the
assets of Willowbrook Properties, Inc. ("Willowbrook Properties"), whereas,
the gain has been deferred for financial statement purposes (see Note 13).
NBI does not expect to incur any federal income taxes payable from this gain,
due to the availability of post-reorganization capital loss carryforwards.
However, it does expect to incur approximately $40,000 of Pennsylvania state
income taxes on this gain because Willowbrook Properties' does not have
sufficient Pennsylvania net operating loss carryforwards available to offset
the entire gain. The income tax expense has been netted against the deferred
gain on the sale.
Note 9 - Stockholders' Equity
- ---------------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At December 31, 1999, 10,130,520 shares were issued including 2,027,200 held
in treasury. Therefore, the Company had 8,103,320 shares issued and
outstanding at December 31, 1999.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Stockholders' Equity
- ---------------------------------
The Company has authorized 5,000,000 shares of preferred stock with a par
value of $.01 per share, and has designated 2,000,000 preferred shares as
Series A Cumulative Preferred Stock. At December 31, 1999, 507,421 shares of
Series A Cumulative Preferred Stock were issued and outstanding.
On August 19, 1999, the Board of Directors declared the first semi-annual
dividend on its outstanding Series A Cumulative Preferred Stock to holders of
record as of August 19, 1999. On September 3, 1999, $252,000 in dividends
were paid, consisting of $182,000 in cash and 7,421 in additional shares of
preferred stock, valued at $70,000, per the elections of the holders.
Note 10 - Income Per Common Share
- ---------------------------------------
The Company reports earnings per common share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128 issued by the Financial
Accounting Standards Board. The following reconciles the numerators and
denominators of the basic and diluted earnings per common share computation
for income before discontinued operations:
For the quarters ended
December 31,
1999 1998
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
(Amounts in thousands
except per share data)
Income (loss) before discontinued operations $ (118) $ (118) $ 436 $ 436
Dividend requirement on preferred stock (126) (126) -- --
------- ------- ------ ------
Income (loss) before discontinued operations
attributable to common stock $ (244) $ (244) $ 436 $ 436
======= ======= ====== ======
Weighted average number of common
shares outstanding 8,103 8,103 8,088 8,088
======= ======
Assumed conversions of stock options -- 295
------- ------
8,103 8,383
======= ======
Income (loss) per common share
before discontinued operations $ (.03) $ (.03) $ .05 $ .05
======= ======= ====== ======
<FN>
Because the Company incurred a loss before discontinued operations for the
quarter ended December 31, 1999, none of its outstanding options or warrants
were included in the computation of diluted earnings per share, as their
effect would be anti-dilutive. For the quarter ended December 31, 1998, all
of the Company's outstanding options and warrants were included in the
computation of diluted earnings per share because their exercise price was
less than the average market price of the common stock during such period.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended
December 31,
1999 1998
---- ----
Basic Diluted Basic Diluted
----- ------- ----- -------
(Amounts in thousands
except per share data)
Income before discontinued operations $ 264 $ 264 $ 868 $ 868
Dividend requirement on preferred stock (252) (252) -- --
------- ------- ------ ------
Income before discontinued operations
attributable to common stock $ 12 $ 12 $ 868 $ 868
======= ======= ====== ======
Weighted average number of common
shares outstanding 8,102 8,102 8,088 8,088
======= ======
Assumed conversions of stock options 136 274
------- ------
8,238 8,362
======= ======
Income per common share
before discontinued operations $ -- $ -- $ .11 $ .10
======= ======= ====== ======
<FN>
For the six months ended December 31, 1999, only stock options outstanding
with an exercise price of $.38, $.59 and $.77 per share were included in the
computation of diluted earnings per share because their exercise price was
less than the average market price of the common stock during such period.
For the six months ended December 31, 1998, all of the Company's outstanding
options and warrants were included in the computation of diluted earnings per
share because their exercise price was less than the average market price of
the common stock during such period.
The options and warrants outstanding at December 31, 1999 were as follows:
Number
Exercise Outstanding at
Price December 31, 1999
----- -------------------
Stock options:
.38 201,000
.59 100,500
.77 400,000
.88 244,000
Warrants:
.89 1,700,000
1.20 1,000,000
---------
3,645,500
=========
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Comprehensive Income
- ----------------------------------
Effective July 1, 1998, the Company has adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." Comprehensive income includes all
changes in equity except those resulting from investments by owners and
distributions to owners. For the three and six months ended December 31, 1999
and 1998, the Company had no items of comprehensive income other than net
income; therefore, a separate statement of comprehensive income has not been
presented for these periods.
Note 12 - Seasonal Variations of Operations
- -------------------------------------------------
Excluding the effect of its significant customer, L.E. Smith typically has its
strongest revenue performance during the first and second fiscal quarters due
to seasonal variations. Generally, the fourth fiscal quarter's revenue is
moderately lower than in the first and second quarters, while the third fiscal
quarter's revenue is usually significantly lower than the other quarters.
However, historically these trends have been materially affected by
fluctuations in the timing of orders from its significant customer, which does
not have consistent trends.
Note 13 - Related Party Transactions
- -----------------------------------------
On December 17, 1999, the Company closed on the sale of a majority of the
assets of a wholly-owned subsidiary, Willowbrook Properties, to an entity
which is 100% owned and controlled by NBI's CEO. The terms and conditions of
the sale were previously approved at NBI's Annual Meeting of Stockholders held
on December 16, 1999. The Company has accounted for the sale in accordance
with SFAS No. 66, "Accounting for Sales of Real Estate." The terms of the
sale do not meet the requirements of SFAS No. 66 for recognition of gain until
the purchase price is paid in full in cash. Consequently, the Company
recorded a deferred gain on the sale of $880,000, as of December 31, 1999,
which is net of selling expenses of approximately $48,000 and net of
approximately $40,000 of related income taxes. The sale consisted of land and
construction-in-progress and was for a net purchase price of $3.3 million.
The purchase price was net of construction costs which were previously funded
by advances from Mr. Lustig. Concurrently with the closing of the Willowbrook
Properties sale transaction, such amounts were deemed to be expenses of the
buyer. The purchase price was paid by $600,000 in cash and a note payable in
the amount of $2.7 million. (See Notes 4, 7 and 8.)
In December, 1999, the Company paid Mr. Lustig approximately $148,000
consisting of repayment of a revolving line of credit balance of $100,000,
cumulative accrued interest thereon of $25,000 and an accrued bonus from
fiscal 1997 of $23,000.
Mr. Lustig has proposed to purchase all of the capital stock of NBI Properties
for $1,400,000 in cash and a note payable of $1.1 million. The terms and
conditions of the sale were approved at NBI's Annual Meeting of Stockholders
held on December 16, 1999. On February 18, 2000, Mr. Lustig paid the Company
a deposit of $500,000 related to this proposed purchase. Mr. Lustig is
currently working on obtaining the funds to enable him to close on this
transaction.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2000
The statements in this discussion contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, that are not
historical facts. The forward-looking statements are based upon the Company's
current expectations and are subject to known and unknown risks,
uncertainties, assumptions and other factors. Should one or more of such
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, the actual results could differ materially from those contemplated
by the forward-looking statements. Factors that may affect such
forward-looking statements include, among others, ability to obtain financing,
loss of significant customers, reliance on key personnel, competitive factors
and pricing pressures, availability of raw materials, labor disputes,
investment results, limitations on the utilization of net operating loss
carryforwards, adequacy of insurance coverage, inflation and general economic
conditions.
RESULTS OF OPERATIONS
Revenues from continuing operations totaling $3,113,000 for the second quarter
of fiscal 2000 reflected a decrease of $1.2 million, or 28.1%, from
$4,331,000 for the three months ended December 31, 1998. L.E. Smith
experienced a substantial decline, $1,044,000, in revenue from its largest
customer, as well as a decline of $215,000 in revenue from a customer that
declared Chapter 11 bankruptcy in March 1999. Although the Company expected a
substantial decline in revenues from its largest customer, the decline has
been far more severe than originally expected. Revenues from continuing
operations totaled $7.0 million for the six months ended December 31, 1999, a
decline of $1.2 million or 15.4%, compared to $8.2 million in revenues for the
same period in fiscal 1999, resulting from a decline of approximately
$1,335,000 in revenue from L.E. Smith's largest customer and a decline of
$317,000 in revenue from its customer that declared Chapter 11 bankruptcy in
March 1999. However, these declines were partially offset by sustained
revenue growth from its other customers.
Revenues from continuing operations are expected to decline significantly for
the three months ended March 31, 2000, compared to the same period in the
prior fiscal year, because L.E. Smith expects a substantial decline in revenue
from its largest customer which is expected to only be partially offset by
increased business from its other customers. Revenues from continuing
operations are expected to increase minimally for the third quarter of fiscal
2000 compared to the second quarter of fiscal 2000. Although the Company
expects a substantial decline in revenue from its largest customer during the
third quarter of fiscal 2000 compared to the same period in the prior year, it
expects a significant increase in revenues from this customer compared to the
second quarter of fiscal 2000. This improvement is expected to be
significantly offset by a decline in revenues anticipated due to seasonal
variations. The Company is still in the process of hiring a new sales
representative to concentrate on increasing the volume of the glass decorating
business in order to help offset the effect of the continuing decline in
revenues from L.E. Smith's largest customer.
Cost of sales from continuing operations as a percentage of related revenue
was 79.4% for the quarter ended December 31, 1999, compared to 67.9% for the
same period in fiscal 1999. For the six months ended December 31, 1999 and
1998, cost of sales from continuing operations as a percentage of related
revenue was 74.2% and 68.3%, respectively. The related significant decline in
gross margin was primarily due to a substantial decline in revenue volume
available to cover fixed costs, as well as higher depreciation expense,
resulting from a significant amount of capital improvements made in the prior
fiscal year, and general cost increases including significant increases in its
health and workmen's compensation insurance costs.
Cost of sales from continuing operations as a percentage of related revenue
for the third quarter of fiscal 2000 is expected to be moderately higher
compared to the third quarter of fiscal 1999, due to significantly higher
depreciation expense, general cost increases and a substantial decline in
expected sales volume causing unfavorable absorption of fixed costs. Cost of
sales from continuing operations as a percentage of related revenue for the
third quarter of fiscal 2000 is expected to be moderately lower compared to
the second quarter of fiscal 2000, primarily due to moderately lower labor
costs resulting from fewer holidays and the absence of year-end bonuses, as
well as an expected change in the sales mix.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2000 - CONTINUED
Marketing, general and administrative expenses from continuing operations
totaled $734,000 and $741,000 for the three months ended December 31, 1999 and
1998, respectively. Fiscal year-to-date, marketing, general and
administrative expenses from continuing operations increased $52,000, or 3.6%
to $1,479,000 for the six months ended December 31, 1999 compared to
$1,427,000 for the same period of fiscal 1999. These modest changes in
marketing, general and administrative expenses included increased sales
commissions and general cost increases as well as savings resulting from cost
control measures and the absence of a CEO bonus accrual. The increased sales
commissions were due to increased sales from outside sales representatives,
while the Company experienced a significant decline in revenues from its
largest customer which is a house account and is not subject to outside sales
commissions.
Marketing, general and administrative expenses are expected to increase
significantly for the three months ended March 31, 2000, compared to the same
period in the prior fiscal year resulting primarily from higher commissions,
due to the expected sales mix, general cost increases and the absence of
credits related to the reversal of a CEO bonus accrual and reduction of a
reserve for incurred but not reported claims of a previously self-insured
insurance plan, slightly offset by savings from cost control measures.
Marketing, general and administrative expenses are expected to decrease
moderately for the three months ended March 31, 2000, compared to the second
quarter of fiscal 2000 due to lower commissions from expected sales mix
variations and the absence of annual meeting costs and year-end bonuses,
partially offset by general cost increases.
For the three and six months ended December 31, 1999, the Company recorded
realized gains on investments of $9,000 and $55,000, respectively, and
unrealized gains on investments of $0 and $2,000, respectively compared to no
gain or loss on investments for the same periods in the prior fiscal year. As
part of its investment policy, the Company's investment portfolio may include
investments in option instruments and may include a concentrated position in
one or more securities. As a result of this, the financial results may
fluctuate significantly and have larger fluctuations than with a more
diversified portfolio. In addition, the Company may invest in short-sale
transactions of trading securities. Short-sales can result in off-balance
sheet risk, as losses can be incurred in excess of the reported obligation if
market prices of the securities subsequently increase. At December 31, 1999,
the Company had no investment positions.
The Company recorded an income tax benefit from continuing operations of
$7,000 and an income tax provision of $21,000 for the three and six months ended
December 31, 1999, respectively. For the three and six months ended December
31, 1998, the Company recorded income tax provisions from continuing
operations of $169,000 and $228,000, respectively. These benefits and
provisions include state and other income taxes and are based upon book
income. The state income tax provisions are related to the Company's
Pennsylvania operations and are based upon book income, because the continuing
operations do not have any net operating loss carryforwards available in
Pennsylvania. In accordance with fresh-start accounting, the income tax
provisions recorded include non-cash charges to the extent that the Company
expects to use its pre-reorganization net operating loss carryforwards. These
charges are reported as an addition to capital in excess of par value, rather
than as a credit through the income tax provision. There were no such
non-cash components included in the income tax provisions for the three or six
months ended December 31, 1999 or 1998.
DISCONTINUED OPERATIONS
On December 31, 1998, the Company established a plan to dispose of its Krazy
Colors operation due to continuing losses incurred by the operation, as well
as the business' inability to sustain significant long-term customers. On
August 19, 1999, the Board of Directors voted to sell the assets or stock of
its wholly-owned subsidiaries, NBI Properties and Willowbrook Properties in
order to pay the remaining balance of the IRS debt due on December 31, 1999
(see Notes 2, 4 and 13 to accompanying consolidated financial statements).
Therefore, the Company has discontinued its children's paint manufacturing,
hotel, and real estate development operations, and it has separately reported
the income or loss from these segments as discontinued operations for the
quarters ended December 31, 1999 and 1998.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2000 - CONTINUED
Revenues from discontinued operations totaled $605,000 and $1,312,000 for the
three and six months ended December 31, 1999, compared to $637,000 and
$1,347,000 for the same periods in the prior fiscal year.
The Company recorded net income from discontinued operations of $5,000 for the
three months ended December 31, 1999 compared to a net loss from discontinued
operations of $185,000 for the same period of the prior fiscal year.
Year-to-date, the Company recorded net income from discontinued operations of
$33,000 in fiscal 2000 compared to a net loss from discontinued operations of
$184,000 in fiscal 1999. The improvement resulted primarily from the absence
of a loss from the Krazy Colors operation because the estimated loss on
disposal of this operation was accrued for during the quarter ended December
31, 1998. In determining the loss on disposal of its Krazy Colors operation
which was recorded during the second quarter of fiscal 1999, the Company the
estimated the net realizable value of the disposal of the discontinued
operation, including estimated costs and expenses directly associated with the
disposal and the estimated loss from operations through the expected disposal
date. The Company expects a significant gain overall from the discontinued
operations of both the hotel and land development, and therefore, no amount
has been recorded related to these disposals; the gain will be recognized when
realized.
The disposal of the children's paint manufacturing operation was substantially
complete as of September 30, 1999. On December 17, 1999, the Company sold a
majority of the assets of its real estate development, consisting of land and
construction-in-progress. The Company intends to sell all of the capital
stock of NBI Properties to an entity which is 100% owned and controlled by its
CEO. (See Note 13).
The net long-term assets of discontinued operations at December 31, 1999
consisted primarily of the hotel's building and furniture, fixtures and
equipment, net of a long-term mortgage note payable by the hotel. The net
current assets of discontinued operations at December 31, 1999 consisted
primarily of cash balances net of accounts payable and accrued liabilities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased $124,000 to $12.9 million at December 31,
1999 from $12.8 million at June 30, 1999. The increase was primarily due to a
net gain on the sale of Willowbrook Properties' land and
construction-in-progress of $880,000, which was deferred for financial
statement purposes. However, this increase in assets was significantly offset
by a cash payment of $182,000 for a portion of the preferred dividends paid
during the first quarter of fiscal 2000 and the use of the net cash proceeds
from the Willowbrook Properties' sale to pay $400,000 on the IRS debt and
$148,000 to the Company's CEO to pay-off a revolving line of credit with
cumulative accrued interest, as well as an accrued bonus payable from fiscal
1997. The Company had negative working capital of $420,000 at December 31,
1999, compared to negative working capital of $773,000 at June 30, 1999. The
decrease in the working capital deficit resulted primarily from net cash
proceeds of $552,000 from the sale of Willowbrook Properties' land and
construction-in-progress, partially offset by cash and proceeds from
investment trades receivable, included in other current assets at June 30, 1999,
which were used to fund a portion of the land development costs incurred during
fiscal 2000, prior to its sale.
As discussed in Notes 2 and 8 to the Consolidated Financial Statements, the
remaining balance of $1.8 million of the Company's debt to the IRS was due on
December 31, 1999. On December 30, 1999, the Company paid the IRS $400,000 and
as of December 31, 1999, $1,378,000 of the IRS debt was still outstanding. On
January 5, 2000, the IRS sent NBI notice of a default of its amended payment
agreement with the IRS dated April 8, 1998, due to the Company's failure to pay
the remaining $1,378,000 that was due on December 31, 1999. Per the terms of
the agreement, an event of default occurred on January 20, 2000, fifteen days
after written notice and demand from the IRS to NBI. Because an event of
default has occurred, the IRS has the right to declare the remaining principal
amount due and payable and interest thereon at the statutory rate provided under
the Internal Revenue Code since the last interest payment made by NBI, on
July 1, 1997, under the original agreement, and to pursue any other available
remedies. On February 18, 2000, the Company paid the IRS $500,000 from a
deposit received from its CEO, Jay Lustig, related to NBI's pending sale of all
of the
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2000 - CONTINUED
capital stock of NBI Properties to an entity which is 100% owned and controlled
by Mr. Lustig. The Company is currently in discussions with the IRS in an
effort to obtain an extension on the remaining balance of $878,000, or to
otherwise satisfy its obligations. However, there can be no assurance that the
Company will be able to obtain an extension or satisfy its obligations. In
order to pay the remaining amount outstanding, management intends to generate
sufficient cash through the sale of the stock of NBI Properties; however, there
can be no assurance that the Company will be able to complete a sale of this
stock. This condition raises substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
contain any adjustments that might result from the outcome of this
uncertainty. Management believes that after the Company has sold the NBI
Properties stock and pays off its IRS debt, it will generate sufficient future
cash flows from its remaining operations to allow the Company to be a going
concern. (See Notes 2, 4, 8 and 13).
Construction-in-progress from continuing operations totaled $366,000 at
December 31, 1999 and included $76,000 for design and engineering costs
related to a new crystal tank for the glass manufacturing facility. The
Company estimates that it will cost approximately $1,735,000 to complete the
outstanding construction-in-progress, all of which is expected to be completed
during fiscal 2000. A majority of the estimated costs to complete the
outstanding projects is related to the new crystal tank. The new tank will
have an estimated useful life of 20 to 25 years, with major refurbishments,
costing approximately $500,000, required every seven years. The Company is
currently pursuing various financing alternatives for this capital
improvement.
The Company expects its other working capital requirements in the next fiscal
year to be met by existing working capital at December 31, 1999, internally
generated funds including interest income from the note receivable from its
CEO received in conjunction with the sale of Willowbrook Properties' land and
construction in progress, and for L.E. Smith's requirements, short-term
borrowings under an existing line of credit.
YEAR 2000 COMPLIANCE
Substantially all of the machinery and equipment used by the Company's glass
manufacturing operation is manually controlled and operated. In addition, the
hotel operation is not significantly reliant on computer technology, with the
exception of its reservation system, which is maintained and upgraded under a
contract with Holiday Inns Franchising, Inc. and has already been upgraded
and tested to be year 2000 compliant. The primary effect of the year 2000
issue is on the Company's accounting systems. The Company has completed
hardware and software conversions to become year 2000 compliant.
To-date, the Company has not experienced any material problems resulting from
the year 2000 issue, nor has it experienced any problems from its suppliers or
customers related to the year 2000 issue. NBI believes that as a result of
the completed conversions to new hardware and software, the year 2000 issue
has been mitigated.
NBI, INC.
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders
- ---------------------------------------------------
The Company's annual meeting was held of December 16, 1999. At this meeting,
Jay H. Lustig and Martin J. Noonan were elected to serve as directors. In
addition, one other proposal authorizing the terms and conditions of the
Company's plan to sell a majority of the assets of a wholly-owned subsidiary,
Willowbrook Properties, and all of the capital stock of a wholly-owned
subsidiary, NBI Properties, was voted on. The results of the voting were as
follows:
Affirmative Votes
Votes Against Abstentions Broker
Non-votes
----------- -------- ----------- ---------
1. PROPOSAL I
Election of Directors
Jay H. Lustig 4,675,863 52,568 -- --
Martin J. Noonan 4,675,863 52,568 -- --
2. PROPOSAL II
Approval of sale of the majority of assets of
Willowbrook Properties and all of the capital
stock of NBI Properties 4,142,307 41,136 544,988 --
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------------------
(a) Exhibits
10. Willowbrook Properties, Inc. Purchase and Sale Agreement
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 1999 or subsequently.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NBI, INC.
February 18, 2000 By: /s/ Marjorie A. Cogan
------------------- -----------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Chief Financial Officer, Secretary