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 March 31, 2001
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 May 8, 2001
Common Stock, par value $.01 per share 8,103,320
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended March 31, 2001
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 - 17
PART II - OTHER INFORMATION 18
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
March 31, June 30,
2001 2000
ASSETS
------
Current assets:
Cash and cash equivalents $ 56 $ 33
Accounts receivable, less allowance for doubtful accounts
of $249 and $232, respectively 1,686 1,693
Inventories 2,906 3,000
Other current assets 403 234
Short-term deferred income taxes 57 56
Net current assets of discontinued operations 149 143
-------- --------
Total current assets 5,257 5,159
Property, plant and equipment, net 6,151 4,189
Note receivable from related party 2,700 2,700
Other assets 32 5
Net long-term assets of discontinued operations 1,410 1,480
-------- --------
$15,550 $13,533
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current portion of notes payable $ 3,121 $ 1,948
Current portion of IRS debt and other income taxes payable -- 918
Accounts payable 1,758 1,222
Accrued liabilities and other 853 1,277
-------- --------
Total current liabilities 5,732 5,365
Long-term liabilities:
Notes payable 2,166 130
Deferred income taxes 190 190
Postemployment disability benefits 142 153
Deferred gain from sale of discontinued operation, net of taxes 881 881
-------- --------
Total liabilities 9,111 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 (3,745) (3,370)
-------- --------
7,307 7,682
Less treasury stock, at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 6,439 6,814
-------- --------
$15,550 $13,533
======== ========
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
Revenues:
Sales $3,223 $4,047 $11,055 $11,008
------- ------- -------- --------
Costs and expenses:
Cost of sales 2,910 3,003 8,999 8,170
Marketing, general and administrative 714 768 2,277 2,247
------- ------- -------- --------
3,624 3,771 11,276 10,417
------- ------- -------- --------
Income (loss) from operations (401) 276 (221) 591
Other income (expense):
Interest income 52 55 173 65
Net gain on investments -- -- -- 57
Other income and expenses, net -- 2 (16) 2
Interest expense (113) (268) (306) (365)
------- ------- -------- --------
(61) (211) (149) (241)
------- ------- -------- --------
Income (loss) from continuing operations before
income taxes (462) 65 (370) 350
Income tax benefit (provision) 30 (36) 32 (57)
------- ------- -------- --------
Income (loss) before discontinued operations (432) 29 (338) 293
Income (loss) from discontinued operations,
net of income tax benefit (provision) of $17,
$15, $(4) and $(9), respectively (65) (17) (37) 16
------- ------- -------- --------
Net income (loss) (497) 12 (375) 309
Dividend requirement on preferred stock (128) (126) (384) (378)
------- ------- -------- --------
Loss attributable to common stock $ (625) $ (114) $ (759) $ (69)
======= ======= ======== ========
Loss per common share - basic and diluted:
Loss before discontinued operations $ (.07) $ (.01) $ (.09) $ (.01)
Loss from discontinued operations (.01) -- -- --
------- ------- -------- --------
Net loss $ (.08) $ (.01) $ (.09) $ (.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)
Nine Months Ended
March 31,
2001 2000
Cash flows from operating activities:
Net income (loss) $ (375) $ 309
Adjustments to reconcile net income (loss) to net cash
flow provided by operating activities:
Depreciation and amortization 813 737
Provision for bad debts and returns 63 34
Reversal of excess inventory provisions (34) (1)
Gain on sales of property and equipment 18 --
Net unrealized gain on trading securities -- (2)
Other (12) (11)
Changes in assets -- decrease (increase):
Trading securities -- 38
Accounts receivable (34) (912)
Inventory 126 83
Other current assets (186) 142
Other assets (28) (2)
Changes in liabilities -- (decrease) increase:
Accounts payable and accrued liabilities (38) 639
Income taxes payable (42) (22)
-------- --------
Net cash flow provided by operating activities 271 1,032
-------- --------
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 2 --
Refund of a portion of deposit on sale of hotel (118) --
Purchases of property and equipment (2,412) (1,085)
-------- --------
Net cash flow used in investing activities (2,528) (533)
-------- --------
Cash flows from financing activities:
Collections on note receivable 4 22
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 --
Pay off of existing line of credit, term loan and interim loan (2,406) --
Payments on notes payable and line of credit from CEO (258) (216)
Net borrowings on lines of credit 202 492
Payments on IRS debt (878) (900)
-------- --------
Net cash flow provided by (used in) financing activities 2,314 (779)
-------- --------
Net increase (decrease) in cash and cash equivalents 57 (280)
Less change in cash and cash equivalents included in net current assets
or liabilities of discontinued operations (34) 93
Cash and cash equivalents at beginning of period 33 311
-------- --------
Cash and cash equivalents at end of period $ 56 $ 124
======== ========
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
March 31,
2001 2000
Supplemental disclosures of cash flow information:
Interest paid $ 634 $ 227
====== ======
Income taxes paid $ 89 $ 89
====== ======
Noncash purchases of property, plant and equipment included in
accounts payable at end of period $ 380 $ 107
====== ======
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 $ -- $ 881
====== ======
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 nine months ended March 31, 2001
and 2000 as follows:
Children's Real
Paint Hotel Estate
Manufacturing Operations Development Total
(Amounts in thousands)
For the Quarter Ended March 31, 2001:
- --------------------------------------
Revenues from discontinued operations $ -- $441 $ -- $441
===== ===== ===== =====
Loss from discontinued operations
before income taxes $ -- $(82) $ -- $(82)
Income tax benefit -- 17 -- 17
----- ----- ----- -----
Loss from operations -- (65) -- (65)
Loss on disposal -- -- -- --
----- ----- ----- -----
Net loss from discontinued operations $ -- $(65) $ -- $(65)
===== ===== ===== =====
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 March 31, 2000:
- -------------------------------------
Revenues from discontinued operations $ -- $ 476 $ -- $ 476
====== ====== ====== ======
Loss from discontinued operations
before income taxes $ -- $ (54) $ -- $ (54)
Income tax benefit -- 22 -- 22
------ ------ ------ ------
Loss from operations -- (32) -- (32)
Gain on disposal, net of income
tax provision of $7 15 -- -- 15
------ ------ ------ ------
Net income (loss) from discontinued
operations $ 15 $ (32) $ -- $ (17)
====== ====== ====== ======
For the Nine Months Ended March 31, 2001:
- -----------------------------------------
Revenues from discontinued operations $ -- $1,656 $ -- $1,656
====== ====== ====== ======
Loss from discontinued operations
before income taxes $ -- $ (33) $ -- $ (33)
Income tax provision -- (4) -- (4)
------ ------ ------ ------
Loss from operations -- (37) -- (37)
Loss on disposal -- -- -- --
------ ------ ------ ------
Net loss from discontinued
operations $ -- $ (37) $ -- $ (37)
====== ====== ====== ======
For the Nine Months Ended March 31, 2000:
- -----------------------------------------
Revenues from discontinued operations $ 21 $1,767 $ -- $1,788
====== ====== ====== ======
Income (loss) from discontinued operations
before income taxes $ -- $ 4 $ (1) $ 3
Income tax provision -- (2) -- (2)
------ ------ ------ ------
Income (loss) from operations -- 2 (1) 1
Gain on disposal, net of income tax
provision of $7 15 -- -- 15
------ ------ ------ ------
Net income (loss) from discontinued
operations $ 15 $ 2 $ (1) $ 16
====== ====== ====== ======
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. The Company
recorded a deferred gain on the sale of the real estate development during the
second quarter of fiscal 2000 and expects a significant gain overall from the
discontinued operations of the hotel, and therefore, no amount has been
recorded related to this disposal; these gains will be recognized when
realized. (See Notes 10 and 14).
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Discontinued Operations (continued)
The net long-term assets of discontinued operations at March 31, 2001
consisted primarily of the hotel's land, buildings, furniture, fixtures and
equipment, net of a long-term mortgage note payable by the hotel. The net
current assets of discontinued operations at March 31, 2001 consisted
primarily of cash, net of accounts payable and accrued liabilities.
Note 4 - Investments in Securities
The Company held no investments and had no realized or unrealized gains or
losses for the quarter or nine months ended March 31, 2001 and for the quarter
ended March 31, 2000. During the nine months ended March 31, 2000, 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
realized and unrealized gains on investments of $55,000 and $2,000,
respectively, for the nine months ended March 31, 2000.
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 March 31, 2001, the Company had
no investment positions.
Note 5 - Inventories
Inventories are comprised of the following amounts which are presented net of
reserves totaling $230,000:
March 31,
2001
(Amounts in thousands)
Raw materials $ 660
Work in process 592
Finished goods 1,654
------
$2,906
======
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 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 - Property, Plant and Equipment
On March 31, 2001, the L.E. Smith Glass Company ("L.E. Smith") placed in
service a new crystal tank for its manufacturing facility. The crystal tank
cost $2,159,000 and has an estimated useful life of 20 years with major
refurbishments costing approximately $500,000 required every seven years. The
tank was financed through a portion of the proceeds from a five-year bank note
payable and working capital. In addition, on April 18, 2001, the Company
closed on a low interest machinery and equipment loan from the Pennsylvania
Department of Community and Economic Development ("PADCED") which was used to
pay the final costs on the tank. (See Notes 9 and 15).
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 nine months ended March 31, 2001, the Company recorded
income tax benefits from continuing operations of $30,000 and $32,000,
respectively. The Company recorded income tax provisions from continuing
operations of $36,000 and $57,000 for the three and nine months ended March
31, 2000, 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 nine months ended March 31, 2001 or 2000.
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, whereas, the gain was deferred for financial
statement purposes (see Note 10). NBI did not incur any federal income
taxes payable from this gain, due to the availability of post-reorganization
capital loss carryforwards. However, it did incur approximately $40,000 of
Pennsylvania state income taxes on this gain because Willowbrook Properties'
did 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 (see also Notes 7 and 15); 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:
March 31,
2001
(Amounts in thousands)
Revolving bank credit note $2,531
Bank term note 2,756
------
Total notes payable and short-term borrowings 5,287
Less current portion 3,121
------
Long-term portion of notes payable $2,166
======
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 (8.0% at March
31, 2001) 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 (8.0% at March 31, 2001) 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.
The glass manufacturing company's revolving bank credit and term notes are
subject to a credit agreement which contains covenants requiring maintenance
of a minimum debt service coverage ratio and minimum 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. As of May 11, 2001, the borrowings under
the revolving line of credit exceeded the allowed borrowing base by
approximately $300,000. Also, the Company expects that it may not meet the
minimum financial ratios at its fiscal year-end as required under the credit
agreement. The Company has been in discussions with the bank regarding this
situation and is focusing on decreasing its cash requirements through
reductions in factory headcount, cost controls and sales of excess inventory.
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, 6, 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 March 31, 2001, 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 March 31, 2001.
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 March 31, 2001, 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 $897,000 as of March 31, 2001.
Note 12 - Loss 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 (loss) before discontinued operations:
For the quarters ended
March 31,
2001 2000
Basic Diluted Basic Diluted
(Amounts in thousands
except per share data)
Income (loss) before discontinued operations $ (432) $ (432) $ 29 $ 29
Dividend requirement on preferred stock (128) (128) (126) (126)
------- ------- ------- -------
Loss before discontinued operations
attributable to common stock $ (560) $ (560) $ (97) $ (97)
======= ======= ======= =======
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 $ (.07) $ (.07) $ (.01) $ (.01)
======= ======= ======= =======
<FN>
Because the Company had losses before discontinued operations attributable to
its common stock for the quarters ended March 31, 2001 and 2000, 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 - Loss Per Common Share (continued)
For the nine months ended
March 31,
2001 2000
Basic Diluted Basic Diluted
(Amounts in thousands
except per share data)
Income (loss) before discontinued operations $ (338) $ (338) $ 293 $ 293
Dividend requirement on preferred stock (384) (384) (378) (378)
------- ------- ------- -------
Loss before discontinued operations
attributable to common stock $ (722) $ (722) $ (85) $ (85)
======= ======= ======= =======
Weighted average number of common
shares outstanding 8,103 8,103 8,102 8,102
======= =======
Assumed conversions of stock options -- --
------- -------
8,103 8,102
======= =======
Loss per common share
before discontinued operations $ (.09) $ (.09) $ (.01) $ (.01)
======= ======= ======= =======
<FN>
Because the Company had losses before discontinued operations attributable to
its common stock for the nine months ended March 31, 2001 and 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.
The options and warrants outstanding at March 31, 2001 were as follows:
Number
Exercise Outstanding at
Price March 31, 2001
Stock options:
.38 201,000
.77 400,000
Warrants:
.89 1,700,000
1.20 1,000,000
---------
3,301,000
=========
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.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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, 6, 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 March 31,
2001. 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.
Note 15 - Subsequent Events
On April 18, 2001, L.E. Smith closed on a $400,000 low interest machinery and
equipment loan from PADCED. The proceeds were used to fund a portion of the
cost of a new crystal tank (see Note 7) and an oxygen fuel system to be used
in conjunction with the new crystal tank. The note provides for interest at
the rate of 5.25%; however, PADCED may increase the interest rate to prime
plus 2% should L.E. Smith fail to create and maintain a specified number of
manufacturing jobs within three years from the loan closing. The note
requires monthly principal and interest payments of approximately $8,000
beginning June 1, 2001 and is due in full on May 1, 2006. The note is
collateralized by a second security interest in all of L.E. Smith's accounts
receivable, inventories, intangibles, personal and real property and is
guaranteed by NBI, Inc.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD 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 $3,223,000 for the three months
ended March 31, 2001, compared to $4,047,000 for the same period in the prior
fiscal year, reflecting a decrease of $824,000, or 20.4%. L.E. Smith
experienced declines in sales to a majority of its customers, including a
decrease of $215,000 in revenues from its largest customer; however, these
declines were partially offset by $214,000 in revenues from one new customer.
The decreased revenues resulted primarily from the down-turn in the economy.
Many of L.E. Smith's existing customers have restricted their purchasing and
the Company is continuing to experience delays in some large orders from new
customers due to their apprehension regarding the weakening economy. Revenues
of $11,055,000 for the nine months ended March 31, 2001 were flat compared to
$11,008,000 for the same period in the prior fiscal year. Although L.E. Smith
had increased revenues year-to-date from some of its larger customers,
including an increase of $440,000 in sales to its largest customer and a large
order in the third quarter from one new customer, the Company experienced
declines in revenues from a majority of its other customers and a significant
slow-down in new business.
Revenues from continuing operations are expected to decrease substantially for
the three months ended June 30, 2001, compared to the same period in the prior
fiscal year because L.E. Smith expects a substantial decline in revenues from
its largest customer, as well as a significant decline in revenues from its
other customers due to the weakening economy. Revenues from continuing
operations are expected to decrease significantly for the three months ended
June 30, 2001, compared to the third quarter of fiscal 2001 due to a
significant decline in revenues from its largest customer as well as continued
declines in revenues from a majority of its other customers due to the
slow-down in the economy.
Cost of sales from continuing operations as a percentage of related revenue
was 90.3% for the quarter ended March 31, 2001, compared to 74.2% for the same
period in fiscal 2000. For the nine months ended March 31, 2001 and 2000,
cost of sales from continuing operations as a percentage of related revenue
was 81.4% and 74.2%, respectively. The related decline in gross margin
resulted primarily from a substantial increase in natural gas costs,
production inefficiencies related to installation of the new crystal tank,
unfavorable absorption of fixed costs due to the lower revenue volume during
the third quarter of fiscal 2001 and increased sales discounting.
Cost of sales from continuing operations as a percentage of related revenue
for the fourth quarter of fiscal 2001 is expected to be substantially higher
compared to the fourth quarter of fiscal 2000 primarily due to continued high
natural gas costs and substantially lower projected revenues available to
cover fixed costs. Cost of sales from continuing operations as a percentage
of related revenue for the fourth quarter of fiscal 2001 is expected to be
moderately higher compared to the third quarter of fiscal 2001 primarily due
to the expected decline in revenues and production inefficiencies resulting
from reductions in manufacturing head count, partially offset by the absence
of inefficiencies related to installation of the new tank.
Marketing, general and administrative expenses from continuing operations
totaled $714,000 for the three months ended March 31, 2001, compared to
$768,000 for the same period in the prior fiscal year, reflecting a decrease
of $54,000, or 7.0%. The decrease was primarily related to lower sales
commissions resulting from the decline in revenues and lower commission rates
associated with discounted sales. These savings were partially offset
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2001 - CONTINUED
by increased expenses for trade shows. For the nine months ended March 31,
2001, marketing general and administrative expenses increased $30,000, or 1.3%
to $2,277,000 as compared to the same period in the prior fiscal year.
Marketing, general and administrative expenses for the nine months ended March
31, 2001 included additional bad debt provisions required for receivables from
insolvent companies compared to lower than usual provisions included in the
same period of fiscal 2000, as well as increased general costs and trade show
expenses. However, these increases were significantly offset by decreased
expenses at the parent company level from cost saving measures, and lower
sales commissions resulting from lower commission rates associated with
discounted sales and 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 decrease
significantly for the three months ended June 30, 2001 compared to the same
period in the prior fiscal year, and slightly compared to the third quarter of
fiscal 2001, primarily due to lower sales commissions resulting from the
projected declines in revenue.
Interest income totaled $173,000 for the nine months ended March 31, 2001
compared to $65,000 for the same period 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. Interest income for
the three months ended March 31, 2001 totaled $52,000 compared to $55,000 for
the same period in the prior fiscal year.
The Company held no investments and had no realized or unrealized gains or
losses for the quarter and nine months ended March 31, 2001 and the quarter
ended March 31, 2000. For the nine months ended March 31, 2000, the Company
recorded realized and unrealized gains on investments of $55,000 and $2,000,
respectively. 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 March
31, 2001, the Company had no investment positions.
Interest expense totaled $113,000 and $306,000 for the three and nine months
ended March 31, 2001, respectively compared to $268,000 and $365,000, for the
same periods in the prior fiscal year. The decrease was primarily due to
$219,000 of interest expense recorded on NBI's IRS debt during the third
quarter of fiscal 2000 resulting from the Company's default on this debt,
whereas only $27,000 was incurred in fiscal 2001 during the first quarter,
offset by higher interest from significantly increased outstanding debt
resulting from L.E. Smith's new financing (see Note 9 to the accompanying
consolidated financial statements).
For the three and nine months ended March 31, 2001, the Company recorded
income tax benefits from continuing operations of $30,000 and $32,000,
respectively. The Company recorded income tax provisions from continuing
operations of $36,000 and $57,000 for the three and nine months ended March
31, 2000, 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 nine months ended March 31, 2001 or 2000.
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
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2001 - CONTINUED
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 nine months ended March 31, 2001 and 2000.
Revenues from discontinued operations totaled $441,000 and $1,656,000 for the
three and nine months ended March 31, 2001, compared to $476,000 and
$1,767,000 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 $65,000 for
the three months ended March 31, 2001 compared to a net loss from discontinued
operations of $17,000 for the same period of the prior fiscal year.
Year-to-date, the Company recorded a net loss from discontinued operations of
$37,000 in fiscal 2001 compared to net income from discontinued operations of
$16,000 in fiscal 2000.
The net long-term assets of discontinued operations at March 31, 2001
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 March 31, 2001 consisted
primarily of cash, net of accounts payable and accrued liabilities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets increased $2,017,000 to $15.6 million at March 31,
2001 from $13.5 million at June 30, 2000. The increase was primarily due to
the completion of construction-in-progress on a new crystal tank for the glass
manufacturing facility. The Company had negative working capital of $475,000
at March 31, 2001, compared to negative working capital of $206,000 at June
30, 2000. The decrease in working capital resulted primarily from significant
increases in (i) short-term borrowings, used primarily to fund a portion of
the capital expenditures during this period; (ii) current portion of long-term
debt, related to L.E. Smith's new bank financing; and (iii) accounts payable,
which included $293,000 at March 31, 2001 for the final costs on the new
crystal tank. These items were partially offset by an increase in working
capital of $1,157,000 resulting from the payoff of the IRS debt and related
accrued interest on November 1, 2000 with long-term debt from L.E. Smith's new
bank financing. (See Notes 7 and 9 to consolidated financial statements.)
On March 31, 2001, L.E. Smith placed in service a new crystal tank for its
manufacturing facility. The crystal tank cost $2,159,000 and has an estimated
useful life of 20 years with major refurbishments costing approximately
$500,000 required every seven years. The tank was financed through a portion
of the proceeds from a five-year bank note payable and working capital. In
addition, on April 18, 2001, the Company closed on a low interest machinery
and equipment loan from PADCED which was used to pay the final costs on the
tank. (See Notes 9 and 15 to consolidated financial statements).
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
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.
However, as of May 11, 2001, the borrowings under the revolving line of credit
exceeded the allowed borrowing base by approximately $300,000. Also, the
Company expects that it may not meet the minimum financial ratios at its
fiscal year-end as required under the credit agreement. The Company has been
in discussions with the bank regarding this situation and is focusing on
decreasing its cash requirements through reductions in factory headcount, cost
controls and sales of excess inventory.
NBI, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter ended March
31, 2001 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.
May 15, 2001 By: /s/ Marjorie A. Cogan
------------ ----------------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Chief Financial Officer, Secretary