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, 2000
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
850 23rd Avenue, Suite D
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 9, 2001
- -------------------------------------- -------------------------------
Common Stock, par value $.01 per share 8,103,320
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended December 31, 2000
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,
2000 2000
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents $ 111 $ 33
Accounts receivable, less allowance for doubtful accounts
of $245 and $232, respectively 1,881 1,693
Inventories 2,996 3,000
Other current assets 271 234
Short-term deferred income taxes 57 56
Net current assets of discontinued operations 198 143
-------- --------
Total current assets 5,514 5,159
Property, plant and equipment, net 4,775 4,189
Note receivable from related party 2,700 2,700
Restricted cash and other assets 1,136 5
Net long-term assets of discontinued operations 1,444 1,480
-------- --------
$15,569 $13,533
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current portion of notes payable $ 3,118 $ 1,948
Current portion of IRS debt and other income taxes payable -- 918
Accounts payable 1,323 1,222
Accrued liabilities and other 688 1,277
-------- --------
Total current liabilities 5,129 5,365
Long-term liabilities:
Notes payable 2,287 130
Deferred income taxes 190 190
Postemployment disability benefits 146 153
Deferred gain from sale of discontinued operation, net of taxes 881 881
-------- --------
Total liabilities 8,633 6,719
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value; 5,000,000 shares authorized; 507,421
shares of Series A Cumulative Preferred Stock issued and
outstanding (liquidation preference value of $5,074) 5 5
Capital in excess of par value - preferred stock 4,380 4,380
Common stock - $.01 par value; 20,000,000 shares authorized;
10,130,520 shares issued 101 101
Capital in excess of par value - common stock 6,566 6,566
Accumulated deficit (3,248) (3,370)
-------- --------
7,804 7,682
Less treasury stock, at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 6,936 6,814
-------- --------
$15,569 $13,533
======== ========
<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,
2000 1999 2000 1999
Revenues:
Sales $3,926 $3,113 $7,832 $6,961
------- ------- ------- -------
Costs and expenses:
Cost of sales 3,280 2,471 6,089 5,167
Marketing, general and administrative 795 734 1,563 1,479
------- ------- ------- -------
4,075 3,205 7,652 6,646
------- ------- ------- -------
Income (loss) from operations (149) (92) 180 315
Other income (expense):
Interest income 65 8 121 10
Net gain on investments -- 9 -- 57
Other income and expenses, net (19) (1) (16) --
Interest expense (111) (49) (193) (97)
------- ------- ------- -------
(65) (33) (88) (30)
------- ------- ------- -------
Income (loss) from continuing operations before
income taxes (214) (125) 92 285
Income tax benefit (provision) 15 7 2 (21)
------- ------- ------- -------
Income (loss) before discontinued operations (199) (118) 94 264
Income (loss) from discontinued operations,
net of income tax benefit (provision) of $3,
$(3), $(21) and $(24), respectively (10) 5 28 33
------- ------- ------- -------
Net income (loss) (209) (113) 122 297
Dividend requirement on preferred stock (128) (126) (256) (252)
------- ------- ------- -------
Income (loss) attributable to common stock $ (337) $ (239) $ (134) $ 45
======= ======= ======= =======
Income (loss) per common share - basic:
Loss before discontinued operations $ (.04) $ (.03) $ (.02) $ --
Income from discontinued operations -- -- -- .01
------- ------- ------- -------
Net income (loss) $ (.04) $ (.03) $ (.02) $ .01
======= ======= ======= =======
Income (loss) per common share - diluted:
Loss before discontinued operations $ (.04) $ (.03) $ (.02) $ --
Income from discontinued operations -- -- -- .01
------- ------- ------- -------
Net income (loss) $ (.04) $ (.03) $ (.02) $ .01
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,103 8,103 8,103 8,102
======= ======= ======= =======
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
2000 1999
Cash flows from operating activities:
Net income $ 122 $ 297
Adjustments to reconcile net income to net cash flow
provided by operating activities:
Depreciation and amortization 534 483
Provision for bad debts and returns 55 23
Provision for writedown of inventories (3) (1)
Loss on sales of property and equipment 20 --
Net unrealized gain on trading securities -- (2)
Other (8) (8)
Changes in assets -- decrease (increase):
Trading securities -- 38
Accounts receivable (218) (126)
Inventory 6 134
Other current assets (40) 201
Other assets (23) (3)
Changes in liabilities -- (decrease) increase:
Accounts payable and accrued liabilities (397) (534)
Income tax related accounts (38) (39)
-------- ------
Net cash flow provided by operating activities 10 463
-------- ------
Cash flows from investing activities:
Proceeds from sale of land and construction-in-progress,
net of selling expenses -- 552
Funding of restricted cash to be used for purchase of crystal tank (1,110) --
Refund of a portion of deposit on sale of hotel (118) --
Purchases of property and equipment (1,071) (889)
-------- ------
Net cash flow used in investing activities (2,299) (337)
-------- ------
Cash flows from financing activities:
Collections on note receivable 2 20
Dividends paid on preferred stock -- (182)
Proceeds from stock option exercises -- 5
Proceeds from new line of credit, term loan and interim loan 5,650 --
Payoff of existing line of credit, term loan and interim loan (2,406) --
Payments on notes payable and line of credit from CEO (129) (177)
Net borrowings (payments) on lines of credit 198 307
Payments on IRS debt (878) (400)
-------- ------
Net cash flow provided by (used in) financing activities 2,437 (427)
-------- ------
Net increase (decrease) in cash and cash equivalents 148 (301)
Less change in cash and cash equivalents included in net current assets
or liabilities of discontinued operations (70) 56
Cash and cash equivalents at beginning of period 33 311
-------- ------
Cash and cash equivalents at end of period $ 111 $ 66
======== ======
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
2000 1999
Supplemental disclosures of cash flow information:
Interest paid $499 $ 159
==== ======
Income taxes paid $ 87 $ 80
==== ======
Noncash purchases of property, plant and equipment included in
accounts payable at end of period $106 $ 101
==== ======
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
==== ======
Application of a portion of deposit on sale of hotel
towards accrued interest on note receivable from a related
party and other miscellaneous receivable $124 $ --
==== ======
<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.
Certain items in the fiscal 2000 financial statements have been reclassified
to conform to the fiscal 2001 manner of presentation.
Note 2 - 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 3 - 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, Inc.
("NBI Properties") and Willowbrook Properties, Inc. ("Willowbrook
Properties"), in order to pay the remaining balance of the IRS debt due on
December 31, 1999 (see Note 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,
2000 and 1999 as follows:
Children's Real
Paint Hotel Estate
Manufacturing Operations Development Total
(Amounts in thousands)
For the Quarter Ended December 31, 2000:
- ----------------------------------------
Revenues from discontinued operations $ -- $542 $ -- $542
===== ===== ===== =====
Loss from discontinued operations
before income taxes $ -- $(13) $ -- $(13)
Income tax benefit -- 3 -- 3
----- ----- ----- -----
Loss from operations -- (10) -- (10)
Loss on disposal ----- ----- ----- -----
Net loss from discontinued operations $ -- $(10) $ -- $(10)
===== ===== ===== =====
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Discontinued Operations(continued)
Children's Real
Paint Hotel Estate
Manufacturing Operations 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 Six Months Ended December 31, 2000:
- -----------------------------------------------
Revenues from discontinued operations $ -- $1,215 $ -- $1,215
===== ======= ====== =======
Income from discontinued operations
before income taxes $ -- $ 49 $ -- $ 49
Income tax provision -- (21) -- (21)
----- ------- ----- -------
Net income from operations -- 28 -- 28
Loss on disposal -- -- -- --
----- ------- ----- -------
Net income from discontinued operations $ -- $ 28 $ -- $ 28
===== ======= ===== =======
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
===== ======= ===== =======
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 NBI's CEO, Jay Lustig. The
Company intends to sell all of the capital stock of NBI Properties to an
entity which is also 100% owned and controlled by its CEO (see Note 14). The
Company recorded a deferred gain on the sale of the real estate development
during the second quarter of fiscal 2000 (see Notes 10 and 14) and expects a
significant gain overall
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Discontinued Operations(continued)
from the discontinued operations of the hotel, and therefore, no amount has
been recorded related to these disposals; these gains will be recognized when
realized.
The net long-term assets of discontinued operations at December 31, 2000
consisted primarily of land, buildings and hotel 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, 2000 consisted
primarily of cash, net of accounts payable and accrued liabilities.
Note 4 - Investments in Securities and Obligations from Short-Sale
Transactions
The Company held no investments and had no realized or unrealized gains or
losses for the quarter or six months ended December 31, 2000. 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.
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, 2000, the Company
had no investment positions.
Note 5 - Inventories
Inventories are comprised of the following amounts which are presented net of
reserves totaling $270,000:
December 31,
2000
(Amounts in thousands)
Raw materials $ 771
Work in process 613
Finished goods 1,612
------
$2,996
======
Note 6 - Note Receivable from Related Party
In conjunction with the sale of Willowbrook Properties' land and
construction-in-progress (see Notes 3 and 14), 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, a rate of 7.125% determined on December 31, 2000 for
all of calendar 2001, and the rate 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.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Restricted Cash and Other Assets
Included in other assets at December 31, 2000 was $1,110,000 of restricted
cash held in a savings account. The funds are from L.E. Smith's new bank
financing (see Note 9) and are to be used for payments on the purchase of a
new crystal tank for the glass manufacturing facility.
Note 8 - Income Taxes
At June 30, 2000, the Company was in default on its outstanding debt of
$878,000 to the Internal Revenue Service ("IRS"). On November 1, 2000, the
Company paid the IRS in full and cured its default with funds received from a
bank refinancing at L.E. Smith (see Note 9). The payment totaled $1,157,000
and consisted of the remaining principal balance of $878,000 and cumulative
accrued interest of $279,000.
Income tax provision:
For the three and six months ended December 31, 2000, the Company recorded
income tax benefits from continuing operations of $15,000 and $2,000,
respectively. 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. 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, 2000 or 1999.
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 10).
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 - Notes Payable and Short-term Borrowings
On October 3, 2000, the Company closed on an interim loan of $300,000 with a
new bank. The proceeds were used to fund a progress payment on the new
crystal tank until the long-term bank financing could be completed. On
October 31, 2000, the Company closed on new long-term bank financing for L.E.
Smith consisting of a $3.0 million revolving line of credit and a five-year
term note payable of $2,950,000. The proceeds were used to (i) payoff L.E.
Smith's existing line of credit, term note and interim loan; (ii) payoff all
of the outstanding principal and accrued interest on the Company's IRS debt;
(iii) fund a majority of the purchase price of a new crystal tank for L.E.
Smith; and (iv) provide additional working capital for L.E. Smith.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Notes Payable and Short-term Borrowings (continued)
The following summarizes the Company's notes payable and short-term borrowings
from continuing operations outstanding at:
December 31,
2000
(Amounts in thousands)
Revolving bank credit note $2,528
Bank term note 2,877
-----
Total notes payable and short-term borrowings 5,405
Less current portion 3,118
------
Long-term portion of notes payable $2,287
======
The revolving bank credit note has a maximum of $3,000,000, is due November
30, 2002, and has interest ranging from the bank's prime rate (9.50% at
December 31, 2000) less 1/2%, to the bank's prime rate plus 1%, depending upon
attainment of certain financial ratios as defined in the agreement. The note
is collateralized by a first security interest in all accounts receivable,
inventories, personal property and all of the capital stock of L.E. Smith. In
addition, the note is collateralized by a mortgage on the real property of
L.E. Smith.
The bank term note is payable in monthly installments of $62,143 including
interest ranging from the bank's prime rate (9.50% at December 31, 2000) less
1/2% to the bank's prime rate plus 1%, depending upon the attainment of
certain financial ratios, with the outstanding principal balance plus accrued
interest due in full on November 30, 2005. The note is cross-collateralized
with L.E. Smith's revolving bank credit note.
L.E. Smith's revolving bank credit note and bank term note are subject to a
credit agreement which contains covenants requiring maintenance of a minimum
debt service coverage ratio and maximum tangible net worth. In addition, it
prohibits certain activities of the glass manufacturing company without the
bank's approval, including creation of debt or liens, payment of dividends,
granting loans or making certain investments and participation in any mergers,
acquisitions or ownership changes. Also, the agreement limits the amount of
L.E. Smith's capital expenditures and dispositions of assets not in the
ordinary course of business. The Company is in full compliance with all of
the covenants on this loan.
Note 10 - Deferred Gain from Sale of Operation
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 $881,000 during fiscal 2000, which is
net of selling expenses of $48,000 and net of approximately $40,000 of related
income taxes. (See Notes 3, 8 and 14.)
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 - Stockholders' Equity
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At December 31, 2000, 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, 2000.
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, 2000, 507,421 registered
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. No
dividends have been declared or paid subsequently. Cumulative unpaid
dividends totaled approximately $766,000 as of December 31, 2000.
Note 12 - 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,
2000 1999
Basic Diluted Basic Diluted
(Amounts in thousands
except per share data)
Loss before discontinued operations $ (199) $ (199) $ (118) $ (118)
Dividend requirement on preferred stock (128) (128) (126) (126)
------- ------- ------- -------
Loss before discontinued operations
attributable to common stock $ (327) $ (327) $ (244) $ (244)
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,103 8,103 8,103 8,103
======= =======
Assumed conversions of stock options -- --
------- -------
8,103 8,103
======= =======
Loss per common share
before discontinued operations $ (.04) $ (.04) $ (.03) $ (.03)
======= ======= ======= =======
Because the Company incurred losses before discontinued operations for the
quarters ended December 31, 2000 and 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.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12 - Income Per Common Share(continued)
For the six months ended
December 31,
2000 1999
Basic Diluted Basic Diluted
(Amounts in thousands
except per share data)
Income before discontinued operations $ 94 $ 94 $ 264 $ 264
Dividend requirement on preferred stock (256) (256) (252) (252)
------- ------- ------- -------
Income (loss) before discontinued operations
attributable to common stock $ (162) $ (162) $ 12 $ 12
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,103 8,103 8,102 8,102
======= =======
Assumed conversions of stock options -- 136
------- -------
8,103 8,238
======= =======
Income per common share
before discontinued operations $ (.02) $ (.02) $ -- $ --
======= ======= ======= =======
Because the Company had a loss before discontinued operations attributable to
its common stock for the six months ended December 31, 2000, none of its
outstanding options and warrants were included in the computation of diluted
earnings per share, as their effect would be anti-dilutive. For the six
months ended December 31, 1999, 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.
The options and warrants outstanding at December 31, 2000 were as follows:
Number
Exercise Outstanding at
Price December 31, 2000
Stock options:
.38 201,000
.77 400,000
Warrants:
.89 1,700,000
1.20 1,000,000
---------
3,301,000
=========
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 13 - 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. In addition, sales to L.E. Smith's other
customers during the third quarter of fiscal 2000 were higher than in the
first and second quarters of fiscal 2000 because the Company had a large
increase in new customers during the third quarter.
Note 14 - Related Party Transactions
Prior to NBI's 1999 Annual Meeting of Stockholders, the Company received a
fairness opinion regarding its proposed sale of the majority of the assets of
Willowbrook Properties and all of the capital stock of NBI Properties to
entities which are 100% owned and controlled by its CEO. The fairness opinion
concluded that the transaction was fair from a financial point of view. The
terms and conditions of the proposed transaction were approved at NBI's Annual
Meeting of Stockholders on December 16, 1999.
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 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 $881,000
during fiscal 2000, which is net of selling expenses of $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 3, 8 and 10.)
Mr. Lustig has proposed to purchase all of the capital stock of NBI Properties
for $1.4 million in cash and a note payable of $1.1 million. On February 18,
2000, Mr. Lustig paid the Company a deposit of $500,000 related to this
proposed purchase. During the second quarter of fiscal 2001, the Company
refunded Mr. Lustig $118,000 of this deposit, applied $111,000 of the deposit
towards interest receivable for July 1 through December 31, 2000 on the note
receivable from a related party and applied $13,000 of the deposit towards a
miscellaneous receivable from a related party. The remaining balance of the
deposit of $258,000 was included in accrued liabilities and other at December
31, 2000. Mr. Lustig is still working on obtaining the funds to enable him to
close on this transaction. The Company is also having discussions with other
potential buyers.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2001
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, 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 totaled $3,926,000 and $7,832,000 for the
three and six months ended December 31, 2000, respectively, compared
$3,113,000 and $6,961,000 for the same periods in the prior fiscal year,
reflecting increases of $813,000, or 26.1%, and $871,000 or 12.5%,
respectively. L.E. Smith experienced increases of $729,000 and $651,000 in
revenues from its largest customer for the three and six months ended December
31, 2000, respectively. In addition, although the Company had a large
increase in revenues from several of its other larger customers, these
increases were significantly offset by decreased revenues from many of its
smaller customers. Overall, the Company's holiday orders were significantly
less than projected primarily due to customers' expectation of lower holiday
sales. In addition, the Company is experiencing delays in some large orders
from new customers due to their apprehension regarding the softening economy.
Revenues from continuing operations are expected to decrease significantly for
the three months ended March 31, 2001, compared to the same period in the
prior fiscal year because L.E. Smith expects substantial decline in revenues
from its largest customer. Although the Company expects some revenue growth
from its other customers, this growth is expected to be offset by the absence
of a large amount of initial sales to new customers as included in the third
quarter of fiscal 2000. Revenues from continuing operations are expected to
decrease significantly for the three months ended March 31, 2001, compared to
the second quarter of fiscal 2001 due to a substantial decline in revenues
from its largest customer, partially offset by modest revenue growth from its
other customers.
Cost of sales from continuing operations as a percentage of related revenue
was 83.5% for the quarter ended December 31, 2000, compared to 79.4% for the
same period in fiscal 2000. For the six months ended December 31, 2000 and
1999, cost of sales from continuing operations as a percentage of related
revenue was 77.7% and 74.2%, respectively. The related decline in gross
margin resulted from a substantial increase in natural gas costs, which were
even higher than originally projected. However, general cost increases and
production inefficiencies related to preparations for installation
of the new crystal tank were offset by favorable variances caused by the
higher revenue volume during the second quarter of fiscal 2001. The decline
in gross margin for the six months ended December 31, 2000 also resulted from
the absence of a $42,000 credit due to the reversal of excess reserves for a
prior self-insured workmen's compensation plan.
Cost of sales from continuing operations as a percentage of related revenue
for the third quarter of fiscal 2001 is expected to be substantially higher
compared to the third quarter of fiscal 2000 due to continued high natural gas
costs, projected production inefficiencies related to installation of the new
crystal tank (which is expected to take two months) and lower projected
revenues available to cover fixed costs. Cost of sales from continuing
operations as a percentage of related revenue for the third quarter of fiscal
2001 is expected to be slightly higher compared to the second quarter of
fiscal 2001 primarily due to the expected decline in revenues and production
inefficiencies related to installation of the new crystal tank partially
offset by the absence of year-end manufacturing bonuses.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2001 - CONTINUED
Marketing, general and administrative expenses from continuing operations
totaled $795,000 and $1,563,000 for the three and six months ended December
31, 2000, respectively compared to $734,000 and $1,479,000 for the same
periods in the prior fiscal year, reflecting increases of $61,000, or 8.3%,
and $84,000 or 5.7%, respectively. The increase in marketing, general and
administrative expenses was primarily related to general cost increases and
higher bad debt provisions resulting from higher sales and lower than usual
provisions included in the same periods of fiscal 2000. These increases were
partially offset by lower sales commissions resulting from the commissionable
sales mix including a significant increase 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 remain
relatively flat for the three months ended March 31, 2001, compared to the
same period in the prior fiscal year as general cost increases are expected to
be offset by savings in commissions and advertising expenses due to lower
sales and marketing activity. Marketing, general and administrative expenses
are expected to decrease moderately for the three months ended March 31, 2001
compared to the second quarter of fiscal 2001 due to the absence of year-end
bonuses and annual meeting expenses.
Interest income totaled $65,000 and $121,000 for the three and six months
ended December 31, 2000 compared to $8,000 and $10,000 for the same periods in
the prior fiscal year. The increase was primarily due to interest earned on a
note receivable from a related party received in conjunction with the sale of
Willowbrook Properties' land and construction-in-progress on December 17,
1999. In addition, during the second quarter of fiscal 2001, the Company had
interest income from restricted cash held in a savings account. (See Notes 6
and 7 to the consolidated financial statements).
The Company held no investments and had no realized or unrealized gains or
losses for the quarter or six months ended December 31, 2000. For the three
months ended December 31, 1999, the Company recorded a realized gain on
investments of $9,000 and no unrealized gain or loss. Realized and unrealized
gains of $55,000 and $2,000, respectively, were recorded for the six months
ended December 31, 1999. 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, 2000, the Company had no investment positions.
Interest expense totaled $111,000 and $49,000 for the three months ended
December 31, 2000 and 1999, respectively. The increase was primarily due to
significantly increased outstanding debt resulting from L.E. Smith's new
financing (see Note 9 to the accompanying consolidated financial statements).
Interest expense totaled $193,000 for the six months ended December 31, 2000
compared to $97,000 for the same period in the prior fiscal year. The
increase was primarily due to significantly increased outstanding debt
resulting from L.E. Smith's new financing, increased interest rates and
$27,000 of interest expense recorded on the Company's IRS debt during the
first quarter of fiscal 2001.
For the three and six months ended December 31, 2000, the Company recorded
income tax benefits from continuing operations of $15,000 and $2,000,
respectively. 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. 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
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2001 - CONTINUED
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, 2000 or 1999.
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 3, 8 and 14 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
three and six months ended December 31, 2000 and 1999.
Revenues from discontinued operations totaled $542,000 and $1,215,000 for the
three and six months ended December 31, 2000, compared to $605,000 and
$1,291,000 for the same periods in the prior fiscal year. The decline in
revenues was primarily related to lower occupancy at the Belle Vernon Holiday
Inn, resulting partly from the expiration of a long-term contract with a
construction company, and increased competition for the restaurant and bar
business.
The Company recorded a net loss from discontinued operations of $10,000 for
the three months ended December 31, 2000 compared to net income from
discontinued operations of $5,000 for the same period of the prior fiscal
year. Year-to-date, the Company recorded net income from discontinued
operations of $28,000 in fiscal 2001 compared to net income from discontinued
operations of $33,000 in fiscal 2000.
The net long-term assets of discontinued operations at December 31, 2000
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, 2000 consisted
primarily of cash balances net of accounts payable and accrued liabilities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased $2,036,000 to $15.6 million at December
31, 2000 from $13.5 million at June 30, 2000. The increase was primarily due
$1.8 million received in conjunction with L.E. Smith's new bank financing for
a new crystal tank of which $1.1 million was held in a restricted saving
account at December 31, 2000. The remaining funds were used for progress
payments on the new tank and were included in construction-in-progress at
December 31, 2000. The Company had working capital of $385,000 at December
31, 2000, compared to negative working capital of $206,000 at June 30, 2000.
The increase in working capital resulted primarily from payment of the IRS
debt and related accrued interest on November 1, 2000 with long-term debt
from L.E. Smith's new bank financing, partially offset by an increase in
current notes payable related to this financing. (See Notes 7 and 9 to
consolidated financial statements.)
Construction-in-progress from continuing operations totaled $735,000 at
December 31, 2000 and included $660,000 for costs related to a new crystal
tank for the glass manufacturing facility. The Company estimates that it will
cost approximately $1,473,000 to complete the outstanding
construction-in-progress, all of which is expected to be completed during
fiscal 2001. 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 held
$1,110,000 in a restricted cash account at December 31, 2000 from proceeds of
L.E. Smith's new bank financing for payments on the new crystal tank. In
addition, the Company has received a commitment letter for a $400,000 low
interest machinery and equipment loan from the Pennsylvania Department of
Community and Economic Development.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER, FISCAL YEAR 2001 - CONTINUED
The Company expects its other working capital requirements in the next fiscal
year, including any cash dividends on its preferred stock, to be met by
existing working capital at December 31, 2000, internally generated funds
including interest income from the note receivable from a related party,
remaining cash proceeds due in conjunction with the pending sale of the stock
of NBI Properties to the Company's CEO, and for L.E. Smith's requirements,
short-term borrowings under an existing line of credit.
NBI, INC.
PART II - OTHER INFORMATION
Item 4. Results of Votes of Security Holders
The Company's annual meeting was held of December 13, 2000. At this meeting,
Jay H. Lustig and Martin J. Noonan were elected to serve as directors. The
results of the voting were as follows:
Affirmative Votes Broker
Votes Against Abstentions Non-votes
1. PROPOSAL I
Election of Directors
Jay H. Lustig 6,999,445 47,717 -- --
Martin J. Noonan 7,013,713 33,449 -- --
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K were filed during the quarter ended
December 31, 2000 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 14, 2001 By: /s/ Marjorie A. Cogan
- ----------------- ----------------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Chief Financial Officer, Secretary