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, 2003
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
Check whether the registrant is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act).
[ ] YES [X] 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, 2003
- -------------------------------------- --------------------------
Common Stock, par value $.01 per share 8,103,320
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended March 31, 2003
PAGE
--------
PART I - FINANCIAL INFORMATION
<s> <c>
Consolidated Financial Statements (Unaudited) 3 - 6
Supplementary Notes to Consolidated Financial
Statements (Unaudited) 7 - 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations 16 - 23
Controls and Procedures 24
PART II - OTHER INFORMATION
Exhibits and Reports on Form 8-K 25
NBI, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
March 31, June 30,
2003 2002
--------- ---------
(Unaudited) (Audited)
ASSETS
------
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Current assets:
Cash and cash equivalents $ 141 $ 199
Accounts receivable, less allowance for doubtful accounts
of $291 and $279, respectively 680 1,127
Inventories 2,904 3,262
Other current assets 107 111
Current assets of discontinued operations -- 151
-------- --------
Total current assets 3,832 4,850
Property, plant and equipment, net 7,402 8,054
Note receivable from related party 2,228 2,300
Other assets 309 288
Long-term assets of discontinued operations -- 3
-------- --------
$13,771 $15,495
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Short-term borrowings and current portion of notes payable $ 4,748 $ 3,435
Current portion of capital lease obligation 51 41
Accounts payable 2,173 1,827
Accrued liabilities and other 886 722
Current liabilites of discontinued operations -- 31
-------- --------
Total current liabilities 7,858 6,056
Long-term liabilities:
Notes payable 1,027 2,951
Capital lease obligation 916 947
Deferred income taxes 64 64
Postemployment disability benefits 104 119
Deferred gain from sale of real estate, net of taxes 881 881
-------- --------
Total liabilities 10,850 11,018
-------- --------
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 (7,263) (5,707)
-------- --------
3,789 5,345
Less treasury stock, at cost (2,027,200 shares) (868) (868)
-------- --------
Total stockholders' equity 2,921 4,477
-------- --------
$13,771 $15,495
======== ========
<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,
2003 2002 2003 2002
------- ------- -------- --------
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Revenues:
Sales $2,367 $3,303 $ 7,790 $10,011
Rental and service 419 464 1,635 1,717
------- ------- -------- --------
2,786 3,767 9,425 11,728
------- ------- -------- --------
Costs and expenses:
Cost of sales 2,423 2,959 7,323 8,210
Cost of rental and service 382 385 1,269 1,268
Marketing, general and administrative 656 780 1,981 2,363
------- ------- -------- --------
3,461 4,124 10,573 11,841
------- ------- -------- --------
Loss from operations (675) (357) (1,148) (113)
Other income (expense):
Interest income 21 29 83 119
Other income and expenses, net (1) 1 19 4
Interest expense (109) (123) (343) (392)
------- ------- -------- --------
(89) (93) (241) (269)
------- ------- -------- --------
Loss from continuing operations before income taxes (764) (450) (1,389) (382)
Income tax benefit (provision) 10 (1) 1 (12)
------- ------- -------- --------
Loss before discontinued operations (754) (451) (1,388) (394)
Loss from discontinued operations (1) (91) (168) (177)
------- ------- -------- --------
Net loss (755) (542) (1,556) (571)
Dividend requirement on preferred stock (128) (128) (384) (384)
------- ------- -------- --------
Loss attributable to common stock $ (883) $ (670) $(1,940) $ (955)
======= ======= ======== ========
Loss per common share - basic and diluted:
Loss before discontinued operations $ (.11) $ (.07) $ (.22) $ (.10)
Loss from discontinued operations -- (.01) (.02) (.02)
------- ------- -------- --------
Net loss $ (.11) $ (.08) $ (.24) $ (.12)
======= ======= ======== ========
Weighted average number of common
shares outstanding 8,103 8,103 8,103 8,103
======= ======= ======== ========
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
March 31,
2003 2002
-------- ------
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Cash flows from operating activities:
Net loss $(1,556) $(571)
Adjustments to reconcile net loss to net cash
flow provided by operating activities:
Depreciation and amortization 792 963
Provision for bad debts and returns 31 48
Inventory reserve provisions 83 82
Gain on sales of property and equipment (10) --
Other (15) (14)
Changes in assets -- decrease (increase):
Accounts receivable 546 (199)
Inventories 275 (570)
Other current assets 25 31
Other assets (14) (3)
Changes in liabilities -- increase:
Accounts payable and accrued liabilities 457 508
-------- ------
Net cash flow provided by operating activities 614 275
-------- ------
Cash flows from investing activities:
Collections on note receivable 72 163
Proceeds from sales of property and equipment 69 --
Purchases of property and equipment (151) (230)
-------- ------
Net cash flow used in investing activities (10) (67)
-------- ------
Cash flows from financing activities:
Net borrowings (payments) on line of credit (299) 399
Payments on notes payable (311) (478)
Payments on capital lease obligation (22) (26)
Loan costs paid (30) --
-------- ------
Net cash used in financing activities (662) (105)
-------- ------
Net increase (decrease) in cash and cash equivalents (58) 103
Cash and cash equivalents at beginning of period 199 270
-------- ------
Cash and cash equivalents at end of period $ 141 $ 373
======== ======
<FN>
See accompanying notes.
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
March 31,
2003 2002
---- ----
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Supplemental disclosures of cash flow information:
Interest paid $327 $382
==== ====
Income taxes paid $ 18 $ 4
==== ====
Noncash purchases of property, plant and equipment included in
accounts payable and accrued liabilities at end of period $ 67 $ 82
==== ====
Loan fees incurred included in accounts payable at end of period $ 29 $ --
==== ====
<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 NBI, Inc. (the "Company") and its
wholly-owned subsidiaries. All significant intercompany accounts and profits
have been eliminated.
Revenue from sales of products is recognized when title passes, generally when
the goods are shipped, except for goods shipped on consignment. Revenue is
recognized from products shipped on consignment when the consignee sells the
goods. Freight charges billed to customers are included in revenue. Rental
and service revenue from the hotel operation is recognized when provided.
On August 19, 1999, the Board of Directors voted to sell the assets of the
Company's wholly-owned subsidiary, NBI Properties, Inc. ("NBI Properties"), to
an entity that is 100% owned and controlled by its CEO. Therefore, the
Company had classified its hotel operation as a discontinued operation at that
time. However, as of June 30, 2002, the Company determined that the sale
would not be completed within the next twelve months and, therefore the hotel
was a continuing operation. The hotel's operations for the three and nine
months ended March 31, 2002 have been reclassified to continuing operations.
There were no other adjustments in the financial statements as a result of
this change. On January 8, 2003, the Board of Directors decided not to renew
the license for its decoder business and to exit this business. Therefore,
the Company has discontinued its decoder business, and it has separately
reported the loss from this segment as discontinued operations for the three
and nine months ended March 31, 2003 and 2002 (see Note 3). Certain other
items in the fiscal 2002 financial statements have been reclassified to
conform to the 2003 manner of presentation.
Note 2 - Going Concern and Management's Plan
- ---------------------------------------------------
L.E. Smith Glass Company ("L.E. Smith"), a wholly-owned subsidiary, has
consistently been unable to repay the overborrowings on its revolving line of
credit with Sky Bank which are required to be repaid promptly. L.E. Smith was
also in arrears on certain payments related to its revolving line of credit
and bank term note payable in July and August, 2002. In addition, L.E. Smith
has not been able to meet certain financial ratios required under the loan
agreement covering L.E. Smith's revolving line of credit and bank term note
payable ("Loan Agreement"). However, on August 23, 2002, L.E. Smith and Sky
Bank entered into a forbearance agreement and amendment related to L.E.
Smith's revolving line of credit and bank term note ("Forbearance Agreement
and Amendment"), whereby Sky Bank has agreed to forbear from exercising its
rights and remedies with respect to the existing defaults by L.E. Smith under
the Loan Agreement provided there is no event of default by L.E. Smith under
the terms of the Forbearance Agreement which expires on July 7, 2003. In
conjunction with the Forbearance Agreement and Amendment, the due date of the
bank term note was extended to March 5, 2008 with monthly interest only
payments allowed for September 5, 2002, and February 5, 2003 through August 5,
2003; monthly principal payments of $34,000 plus interest are due for all other
months during the term of the note. Sky Bank has authorized L.E. Smith to
exceed its borrowing base by a maximum of $800,000 ("Allowed Overborrowings").
In exchange, Bellevue Partners, L.P. ("Bellevue Partners"), an entity that
is 100% owned and controlled by NBI's CEO, has agreed to make unscheduled
principal payments totaling $500,000 on its note to the Company's wholly-owned
subsidiary, Willowbrook Properties, Inc. ("Willowbrook Properties") from the
sale of certain outparcels, and Willowbrook Properties has assigned its
interest in these payments to Sky Bank ( see Note 15 ). The Allowed
Overborrowings will be reduced by the amount of these payments as they are
received by the bank. As of May 5, 2003, the borrowings under L.E. Smith's
revolving line of credit exceeded the allowed borrowing base by $727,000,
$73,000 below the maximum Allowed Overborrowings. The Forbearance Agreement
prohibits L.E. Smith from making any payments to NBI or any of its
subsidiaries. The Forbearance Agreement also requires L.E. Smith to obtain
written agreements with its vendors and other creditors regarding revised
payment terms acceptable to the bank by an extended due date of March 5, 2003.
L.E. Smith has been working with its vendors and creditors on revised payment
terms and is in the process of obtaining written agreements with them.
However, L.E. Smith has not been able to obtain written agreements from all of
its creditors, including its natural gas supplier ( see Note 9 ). This
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
constitutes an event of default under the Forbearance Agreement which allows
the bank, at its option, to demand immediate payment of the entire outstanding
bank debt. Therefore, the Company has classified L.E. Smith's entire bank
debt as current at March 31, 2003. Management has been in discussions with
the bank regarding this situation and is working with the bank towards a
mutually acceptable resolution.
As of December 1, 2002, L.E. Smith was six months in arrears on its monthly
payments on its note payable to the Pennsylvania Department of Community and
Economic Development ("PADCED"). On December 13, 2002, L.E. Smith obtained
a six-month deferral of principal payments on this note. In January 2003,
L.E. Smith paid PADCED all of the past due interest as well as the regular
loan payment scheduled for January 1, 2003. However, L.E. Smith is in arrears
on the regular payments scheduled for March, April and May 2003, and has been
unable to pay various other liabilities when due as required under the PADCED
loan agreement. These conditions cause the note payable to PADCED to be
subject to immediate demand at the option of the holder. Therefore, the
Company has included the entire balance of this note payable in current
liabilities at March 31, 2003, as was also required at June 30, 2002.
The Company has incurred significant losses for the nine months ended March
31, 2003 and during fiscal 2002 and 2001 and had a significant working capital
deficit at March 31, 2003 and June 30, 2002. In addition, a large amount of
L.E. Smith's accounts payable are significantly past due. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern, as expressed by our independent auditors in an explanatory paragraph
in their audit report dated September 5, 2002, on our June 30, 2002 financial
statements. In addition, at March 31, 2003, L.E. Smith was in default on its
Forbearance Agreement with Sky Bank and continues to be in default on its
PADCED loan agreement. The accompanying Consolidated Financial Statements do
not contain any adjustments that might result from the outcome of these
uncertainties other than the reclassification of L.E. Smith's bank and PADCED
debts to current at March 31, 2003, as was also required at June 30, 2002 for
the PADCED note payable. The Forbearance Agreement and Amendment with Sky
Bank significantly reduces the amount of principal payments required on L.E.
Smith's long-term debt in fiscal 2003. L.E. Smith is also working with its
accounts payable vendors to obtain extended terms. Furthermore, management
has significantly reduced its costs and expenses, including significantly
reducing its health insurance costs through a new collective bargaining
agreement which it obtained on November 26, 2002, reductions in workforce and
savings from other cost control measures.
The Company also is working on increasing its sales volume and gross profit at
L.E. Smith. Due to intense foreign competition and the unfavorable economic
conditions in the United States during the last two years, it has been
difficult for L.E. Smith to generate sufficient sales volume to allow it to
obtain the critical mass required in its production facility for it to be
profitable.
L.E. Smith has been in discussions with other glass manufacturers to develop
marketing partnerships that would help increase sales volumes for each party.
This is possible when the companies offer different types of products and
consequently do not directly compete with one another. For example, one
company may be an automated glass manufacturer which sells to the mass market,
however, their manufacturing plant is not able to handle smaller quantities
efficiently. In those situations requiring smaller quantities, they would
sell L.E. Smith's handmade products. In return, L.E. Smith could sell some of
that company's products to its customers when large quantities were required.
In addition, L.E. Smith has the capability to produce colored and decorated
glass, whereas another company may have the ability to produce leaded crystal
which L.E. Smith does not. Through a marketing partnership, two or three
companies become stronger by capitalizing on each other's strength. However,
L.E. Smith has not been able to capitalize on any marketing partnerships
to-date, because the weak economy has also caused a slowdown in business for
the other parties.
In addition, L.E. Smith must find a way to be closer to the end-user. Today's
distribution methods are very expensive for manufacturers. In highly
competitive situations, L.E. Smith is often unable to sell its products or
does so at inadequate margins because of the mark-up required by the retailer.
For many years, L.E. Smith has had an on-site factory outlet store that has
been profitable. Therefore, L.E. Smith decided on a retail strategy of
opening retail stores in several outlet locations over the next year. These
stores will be opened both independently and through joint ventures with
marketing partners. These retail outlets are expected to do several things to
improve L.E. Smith. First,
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
it would improve gross margins due to the elimination of several layers of
distribution. Second, it would increase sales volume by taking advantage of
an increasing trend in retail markets towards outlet and discount stores, away
from pricey shopping malls. In October 2002, L.E. Smith acquired retail space
for an outlet store in Lancaster, Pennsylvania which it opened in mid-November
2002. Sales from this store have been very disappointing due to the poor
retail market and several months of inclement weather. In an effort to
increase the sales of the Lancaster store, L.E. Smith has retained the
services of a merchandising and advertising consultant, as of April 1, 2003.
Due to the poor results from its Lancaster store, L.E. Smith has delayed its
pursuit of any additional outlet locations at this time. L.E. Smith has also
increased its marketing efforts related to food service and hospitality
products as well as glass blocks used in various architectural projects. In
addition, L.E. Smith is exploring a direct marketing channel for one of its
newer product lines because it believes this would be more successful than
using traditional distribution methods for these products.
There can be no assurance that the bank will continue to work with the Company
towards a mutually acceptable resolution and not demand immediate payment of
all of L.E. Smith's bank debt; nor can there be any assurance that L.E.
Smith's other note will not be called for immediate payment. Furthermore,
there can be no assurance that L.E. Smith will be successful in increasing its
sales and gross profit; nor can there be any assurance that L.E. Smith's
creditors will grant it extended payment terms.
Note 3 - Discontinued Operations
- ------------------------------------
The Company's master license related to its decoder business expired on
September 30, 2002. During the second quarter of fiscal 2003, the Company
obtained a nonexclusive licence from the master licensor covering NBI and its
existing sublicensees for the period October 1 through December 31, 2002,
while it continued negotiations on revised terms for the second renewal period
under the master license. The Company was unable to negotiate acceptable
renewal terms for the license and, consequently, on January 8, 2003, the Board
of Directors decided not to renew the license and to exit its decoder
business. Therefore, the Company has discontinued its decoder business, and
it has separately reported the loss from this segment as discontinued
operations as follows:
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
------ ------ ------ ------
(Amounts in thousands)
<s> <c> <c> <c> <c>
Revenues from discontinued operations $-- $ 13 $ 21 $ 39
==== ===== ====== ======
Loss from discontinued operations
before income taxes $(1) $(91) $(168) $(177)
Income tax benefit (provision) -- -- -- --
---- ----- ------ ------
Net loss from discontinued operations $(1) $(91) $(168) $(177)
==== ===== ====== ======
There were minimal expenses associated with exiting this business, all of
which were incurred in the third quarter of fiscal 2003. The Company does not
expect to incur any additional expenses associated with its decoder business.
There were no assets or liabilities of discontinued operations at March 31,
2003.
Note 4 - 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.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Inventories
- -----------------------
Inventories are comprised of the following amounts, which are presented net of
reserves totaling $281,000 and $198,000 at March 31, 2003 and June 30, 2002,
respectively:
March 31, June 30,
2003 2002
------ ------
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Raw materials $ 476 $ 590
Work in process 570 638
Finished goods 1,841 2,017
Food and beverage inventory 17 17
------ ------
$2,904 $3,262
====== ======
Note 6 - Note Receivable from Related Party
- --------------------------------------------------
In conjunction with the sale of the land and construction-in-progress of
Willowbrook Properties, on December 17, 1999, the Company received a note
receivable in the amount of $2.7 million from Bellevue Partners, an entity
which is 100% owned and controlled by NBI's CEO (see Note 15). The note bears
interest at the rate of two-year Treasury Notes plus 200 basis points with a
rate of 5.05% determined on December 31, 2001 for all of calendar 2002, a rate
of 3.602% determined on December 31, 2002 for all of calendar 2003, and the
rate to be redetermined each succeeding December 31 for the following calendar
year's rate. The note is collateralized by a second security interest in the
property and 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. On August 23, 2002 Willowbrook
Properties assigned its rights to $500,000 of future payments on the note
receivable to Sky Bank (see Notes 2 and 15). At March 31, 2003, the note
receivable balance was $2,228,000.
Note 7 - Income Taxes
- -------------------------
The Company recorded income tax benefits of $10,000 and $1,000 for the three
and nine months ended March 31, 2003. Income tax provisions of $1,000 and
$12,000, respectively, were recorded for the same periods in the prior fiscal
year. These benefits and provisions include state and other income taxes and
are based upon book income. The net deferred tax assets arising from the
pre-tax losses incurred for the nine months ended March 31, 2003 have been
fully allowed for because the Company has not been able to determine that it
is more likely than not that such deferred tax assets will be realized.
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, 2003 or 2002.
Note 8 - Deferred Gain from Sale of Operation
- -----------------------------------------------------
The Company has accounted for the sale of a majority of the assets of
Willowbrook Properties in accordance with Statement of Financial Accounting
Standards ("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 Note 15.)
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Contingencies
- -------------------------
Historically, L.E. Smith has purchased natural gas under long-term contracts,
at a fixed cost per unit with no minimum volume requirements. L.E. Smith's
most recent contract expired on September 30, 2002 and due to L.E. Smith's
poor financial condition, it has been unable to obtain a contract for fixed
natural gas prices. Therefore, L.E. Smith has been purchasing its natural gas
on a month-to-month basis with its supplier. In November 2002, L.E. Smith
reached a verbal agreement regarding the purchase price for its natural gas.
However, since December 1, 2002, the supplier has been charging a
significantly higher rate than had been agreed upon. L.E. Smith is disputing
approximately $163,000 of natural gas charges in excess of the verbally
agreed-upon rate. The full amount of natural gas costs billed by its supplier
has been recorded and included in cost of sales and accounts payable at March
31, 2003. Because L.E. Smith does not have a contract for fixed natural gas
prices, the rates it will be charged for future consumption may vary
significantly and may not be limited. This could have a material adverse
impact on the Company's financial condition.
Note 10 - Stockholders' Equity
- ----------------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock.
At March 31, 2003, 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, 2003. At March 31, 2003, 1 million registered common stock
purchase warrants at $1.20 per share issued in conjunction with the Company's
preferred stock offering in fiscal 1999 were outstanding. 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, 2003, 507,421 registered shares of Series A
Cumulative Preferred Stock were issued and outstanding.
The Company reported dividend requirements of $128,000 and $384,000
attributable to its preferred stock for each of the three and nine month
periods ended on March 31, 2003 and 2002. 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 $1,922,000 as of March 31, 2003.
Note 11 - Income (Loss) Per Common Share
- -----------------------------------------------
NBI calculates earnings (loss) per share in accordance with SFAS No. 128,
which provides for the calculation of "Basic" and "Diluted" earnings (loss)
per share. Basic earnings (loss) per share includes no dilution and is
computed by dividing income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity.
Because the Company incurred a net loss attributable to common stockholders
for each of the three and nine month periods ended March 31, 2003 and 2002,
none of its outstanding options or 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, 2003 were as follows:
Number
Exercise Outstanding at
Price March 31, 2003
----- --------------
<s> <c>
Stock options:
$ .22 350,000
$ .38 201,000
$ .77 400,000
Warrants:
$1.20 1,000,000
---------
1,951,000
=========
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12 - Stock Options
- --------------------------
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure -- an Amendment of FASB Statement No. 123". This statement amends
SFAS No. 123, "Accounting for Stock - Based Compensation ", to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock - based employee
compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements effective December 31, 2002.
The following provides pro forma information regarding net income (loss) as if
compensation cost for the Company's stock option plan had been determined in
accordance with the fair value based method as required by SFAS No. 148.
Three months ended Nine months ended
March 31, March 31,
2003 2002 2003 2002
------ ------ -------- ------
(Amounts in thousands)
<s> <c> <c> <c> <c>
Net loss attributable to common
stockholders - as reported $(883) $(670) $(1,940) $(955)
====== ====== ======== ======
Net loss attributable to common
stockholders - proforma $(884) $(672) $(1,944) $(958)
====== ====== ======== ======
Net loss per common share - as reported $(.11) $(.08) $ (.24) $(.12)
====== ====== ======== ======
Net loss per common share - proforma $(.11) $(.08) $ (.24) $(.12)
====== ====== ======== ======
<FN>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
grants issued during fiscal 2002: no dividend yield; expected volatility of
85.15%; risk-free interest rate of 3.94%; and expected lives of 4 years. No
other options have been granted that would affect fiscal 2003 or 2002.
Note 13 - Seasonal Variations of Operations
- -------------------------------------------------
L.E. Smith: 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 third and fourth
fiscal quarters'revenues from L.E. Smith are moderately to significantly lower
than in the first and second quarters. However, historically these trends
have been materially affected by fluctuations in the timing of orders from its
significant customer, which do not have consistent trends. In fiscal 2002,
L.E. Smith did not experience the seasonal increase in sales during its first
and second quarters as seen historically, due to the slow economy. L.E. Smith
experienced a substantial decline in revenues during the first quarter
of fiscal 2003 primarily related to cash constraints imposed on L.E. Smith by
its bank due to its ongoing overborrowed position until August 23, 2002
when L.E. Smith obtained the Forbearance Agreement from the bank. These cash
constraints severely limited L.E. Smith's ability to produce and ship goods
during that time period.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Belle Vernon Holiday Inn: The Belle Vernon Holiday Inn generally has its
strongest revenue performance during the first fiscal quarter due to seasonal
variations, followed by the second fiscal quarter revenues which are
moderately lower. Typically revenues from the hotel in the fourth fiscal
quarter are significantly lower than in the first quarter and revenues in the
third fiscal quarter are substantially lower.
Note 14 - Segment Reporting
- -------------------------------
The Company's main operations are in the glass manufacturing and hotel
industries. The glass manufacturer sells its glass products primarily to
traditional and specialty retailers throughout the United States, as well as
to manufacturers/wholesalers, the food service market and through an on-site
retail store. The hotel is an 80-room full-service Holiday Inn hotel.
Information by segment and a reconciliation to reported amounts are as
follows:
Corporate,
Glass Hotel Other, and Consolidated
Manufacturing Operations Eliminations Total
------------- ---------- ------------ ------------
<s> <c> <c> <c> <c>
Three Months Ended March 31, 2003:
Revenues from external customers $ 2,367 $ 419 $ -- $ 2,786
======== ======= ======= ========
Operating loss $ (535) $ (75) $ (65) $ (675)
======== ======= ======= ========
Three Months Ended March 31, 2002:
Revenues from external customers $ 3,303 $ 464 $ -- $ 3,767
======== ======= ======= ========
Operating loss $ (258) $ (39) $ (60) $ (357)
======== ======= ======= ========
Nine Months Ended March 31, 2003:
Revenues from external customers $ 7,790 $1,635 $ -- $ 9,425
======== ======= ======= ========
Operating loss $ (927) $ (23) $ (198) $(1,148)
======== ======= ======= ========
Total assets at March 31, 2003 $ 9,498 $2,423 $1,850 $13,771
======== ======= ======= ========
Nine Months Ended March 31, 2002:
Revenues from external customers $10,011 $1,717 $ -- $11,728
======== ======= ======= ========
Operating profit (loss) $ (2) $ 65 $ (176) $ (113)
======== ======= ======= ========
Total assets at March 31, 2002 $11,725 $2,896 $1,695 $16,316
======== ======= ======= ========
Note 15 - 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. The Company has not yet
completed the sale of all of the capital stock of NBI Properties and does not
anticipate it being completed within the next year.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On December 17, 1999, the Company closed on the sale of a majority of the
assets of Willowbrook Properties, to Bellevue Partners, 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 approximately $48,000
and net of approximately $40,000 of related income taxes. The Company
obtained a note receivable from Bellevue Partners in conjunction with this
transaction. (See Notes 6 and 8.)
In conjunction with L.E. Smith's Forbearance Agreement and Amendment, Sky Bank
has authorized L.E. Smith to exceed its borrowing base by a maximum of
$800,000. In exchange, Bellevue Partners has agreed to make unscheduled
principal payments totaling $500,000 on its note to Willowbrook Properties
from the sale of certain outparcels, and Willowbrook Properties has assigned
its interest in these payments to Sky Bank. The Allowed Overborrowings will
be reduced by the amount of these payments as they are received by the bank.
(See Notes 2 and 6.)
The Company believes that these transactions were in its best interests, were
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and were in connection with bona fide business
purposes of the Company.
Note 16 - Recent Accounting Pronouncements
- -------------------------------------------------
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 was effective July 1, 2002 for the Company.
The adoption of this Statement had no material impact on the financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. The Company voluntarily adopted SFAS No. 144 early, effective July
1, 2001. The adoption of this Statement had no material impact on the
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS No. 145 requires the classification of gains and losses
from extinguishments of debt as extraordinary items only if they meet the
criteria for such classification in APB Opinion No. 30, "Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
Additionally, SFAS No. 145 requires sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. SFAS No. 145 was also effective July 1, 2002 for the Company.
The adoption of this Statement had no material impact on the financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company adopted this Statement during
the quarter ended March 31, 2003. The adoption of this statement had no
material impact on the financial statements.
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure -- an Amendment of FASB Statement No.
123". This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements effective December 31, 2002
(see Note 12).
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003
The statements in this discussion contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, that are not
historical facts. The forward-looking statements are based upon the Company's
current expectations and are subject to known and unknown risks,
uncertainties, assumptions and other factors. Should one or more of such
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, the actual results could differ materially from those contemplated
by the forward-looking statements. Factors that may affect such forward-
looking statements include, among others, ability to obtain financing, loss of
significant customers, reliance on key personnel, competitive factors and
pricing pressures, availability and pricing of raw materials and natural
resources, labor disputes, limitations on the utilization of net operating
loss carryforwards, adequacy of insurance coverage, inflation and general
economic conditions. The Company does not intend to update such forward-
looking statements.
CRITICAL ACCOUNTING POLICIES
We prepare the consolidated financial statements of NBI, Inc. in conformity
with accounting principles generally accepted in the United States of America.
As such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based upon the information available. These
estimates and assumptions affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. The significant
accounting policies which we believe are the most critical to aid in fully
understanding and evaluating our reported financial results include the
following:
Accounts Receivable: We perform ongoing credit evaluations of our customers
and adjust credit limits based upon payment history and the customer's current
creditworthiness, as determined by our review of their current credit
information. We continuously monitor collections and payments from our
customers and maintain a provision for estimated credit losses based upon our
historical experience and any specific customer collection issues that we have
identified. We continually review and refine these estimates; however, we
cannot guarantee that we will be able to accurately estimate credit losses on
our accounts receivable. L.E. Smith currently has one significant customer,
and at times has large sales to one or more individual customers that
constitute a significant amount of the Company's accounts receivable balance.
A significant change in the liquidity or financial position of such customer
could have a material adverse impact on the collectibility of our accounts
receivables and our future operating results.
Inventories: Inventories are valued at the lower of the actual cost to
manufacture or the current estimated market value. We regularly review
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated future usage and sales. Our
estimates of future product demand may prove to be inaccurate, in which case
we may have understated or overstated the provision required for excess and
obsolete inventory. In the future, if our inventory is determined to be
overvalued or undervalued, we would be required to recognize such operating
income or such costs, respectively, in our cost of goods sold at the time of
such determination. Any significant unanticipated changes in demand could
have a significant impact on the value of our inventory and our reported
operating results. In addition, the Company performs a physical inventory
each fiscal year-end and provides a provision during the year for the
estimated book-to-physical write-down based upon historical information. If
the actual book-to-physical write-down varies significantly from our estimate,
such variance would be recorded to cost of goods sold at fiscal year-end and
could have a significant impact on our reported operating results.
Deferred Income Tax Assets: The Company has substantial federal and various
state net operating loss carryforwards and has provided a full valuation
allowance for the related net deferred tax assets. In the future, if
sufficient evidence of the Company's ability to generate future taxable income
becomes apparent, the Company may then be allowed to reduce its valuation
allowance. A significant portion of these carryforwards are from
pre-reorganization net operating losses and would be required to be utilized
first. In accordance with fresh start accounting adopted as of April 30,
1992, and as a result of the Company's reorganization under Chapter 11 of the
U.S. Bankruptcy Code, if the Company has a reduction in its valuation
allowance, any income tax benefit attributable to pre-reorganization net
operating losses are reported as an addition to capital in excess of par value
rather than credited to the income tax provision. Any reduction
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
in the valuation allowance attributable to post-reorganization net operating
losses would then be credited to the income tax provision.
Contingent Liabilities: We account for contingencies in accordance with SFAS
No. 5, "Accounting for Contingencies". SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information available prior to
issuance of our financial statements indicates that it is probable that an
asset has been impaired or a liability has been incurred at the date of the
financial statements and the amount of the loss can be reasonably estimated.
Accounting for contingencies such as legal actions, disputed charges and other
claims requires us to use our judgment. While we believe that our accruals for
these matters are adequate, if the actual loss from a loss contingency is
significantly different than the estimated loss, our results of operations may
be overstated or understated.
Revenue Recognition: The Company recognizes revenue from sales of products
when title passes, generally when the goods are shipped, except for goods
shipped on consignment. Revenue is recognized from products shipped on
consignment when the consignee sells the goods. Freight charges billed to
customers are included in revenue. Rental and service revenue from the hotel
operation is recognized when provided.
RESULTS OF OPERATIONS
Sales revenue totaled $2,367,000 for the three months ended March 31, 2003,
compared to sales revenue of $3,303,000 for the same period in the prior
fiscal year, reflecting a decline of $936,000, or 28.3% including a decrease
of $222,000 in revenues to a home-party customer that was new in fiscal 2002,
a decline of $69,000 in sales to L.E. Smith's significant customer, a decrease
of $119,000 in sales to one of its larger specialty store customers and large
decreases in sales to many other customers. The decreased revenues in the
third quarter of fiscal 2003 resulted from the poor economy, including the
effects of concern over the situation in Iraq, combined with sales momentum
and customer confidence lost due to the period of severe financial
difficulties before L.E. Smith obtained the Forbearance Agreement with its
bank on August 23, 2002. Sales revenue totaled $7,790,000 for the nine months
ended March 31, 2003 compared to sales revenue of $10,011,000 for the same
period in the prior fiscal year reflecting a decrease of $2,221,000, or 22.2%.
L.E. Smith has experienced significant declines in revenues to most of its
customers, particularly specialty and retail stores, as well as a decrease in
the number of active customers. In addition to declines resulting from the
poor economy and the decrease in sales momentum and customer confidence, L.E.
Smith experienced a substantial decline in revenues during July and August of
2002 compared to the prior year primarily because Sky Bank tightly restricted
L.E. Smith's borrowings under its line of credit due to its ongoing
overborrowed position until August 23, 2002 when L.E. Smith obtained the
Forbearance Agreement from the bank. These cash constraints severely limited
L.E. Smith's ability to produce and ship goods during that time period. In
addition, L.E. Smith closed one retail outlet in September and has had poor
results from its new Lancaster store which opened in mid-November. The
decreased sales for the nine months ended March 31, 2003 compared to 2002
included a decline of $77,000 in sales to its significant customer, a decrease
of $316,000 in sales to one of its larger specialty store customers and a
decline of $125,000 in sales to one its larger department store customers.
However, L.E. Smith did experience an increase of $95,000 in sales to a
home-party customer that was new in fiscal 2002.
Rental and service revenues totaled $419,000 for the third quarter of fiscal
2003, a decrease of $45,000, or 9.7% compared to $464,000 for the same period
in the prior fiscal year. Fiscal year-to-date, rental and service revenues
totaled $1,635,000, a decrease of $82,000 or 4.8% compared to $1,717,000 for
the nine months ended March 31, 2002. These decreases resulted primarily from
a moderate decrease in the occupancy rate during the second and third quarters
of fiscal 2003, partially offset by a slight increase in the average daily
room rate. The decline in occupancy rates was primarily due to the poor
economy as well as several months of inclement weather during the second and
third quarters of fiscal 2003. The occupancy rate was 51.5% and 66.3% for the
three and nine months ended March 31, 2003 compared to 57.1% and 70.9% for the
same periods in the prior fiscal year. In addition to the effect of the
decreased occupancy rates, the restaurant business also declined for the third
quarter of fiscal 2003 compared to 2002 because Easter Sunday occurred in
April 2003 whereas it was included in the third quarter of fiscal 2002.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
Cost of sales as a percentage of related revenue was 102.4% for the quarter
ended March 31, 2003, compared to 89.6% for the same period in fiscal 2002.
For the nine months ended March 31, 2003 and 2002, cost of sales as a
percentage of related revenue was 94.0% compared to 82.0%. The resulting
decline in gross margin for the three and nine months ended March 31, 2003
compared to the same periods in fiscal 2002 was primarily due to substantially
lower sales volume available to cover fixed costs, increased sales discounting,
and higher utilities expenses (increases of $128,000 and $52,000, respectively)
resulting from L.E. Smith's inability to obtain a long-term contract for its
natural gas requirements (see below). However, these items were partially
offset by significant declines in other expenses during the three and nine
months ended March 31, 2003 compared to the same periods in fiscal 2002,
resulting from lower activity and cost controls including (i) substantially
lower labor costs related to a reduction in the average factory headcount of
approximately 29%; (ii) declines of $38,000 and $97,000, respectively, in
factory supplies, repairs and general expenses; and (iii) decreases of
$102,000 and $63,000, respectively, in insurance expenses due to continued
reductions in manufacturing headcount, as well as an increase in the
employees' portion of health insurance premiums effective December 1, 2002,
resulting from a new union contract, partially offset by insurance cost
increases. In addition, L.E. Smith had decreases of $68,000 and $185,000,
respectively, in depreciation expense, as many of its assets became fully
depreciated in August 2002.
Historically, L.E. Smith has purchased natural gas under long-term contracts,
at a fixed cost per unit with no minimum volume requirements. L.E. Smith's
most recent contract expired on September 30, 2002 and due to L.E. Smith's
poor financial condition, it has been unable to obtain a contract for fixed
natural gas prices. Therefore, L.E. Smith has been purchasing its natural gas
on a month-to-month basis with its supplier. In November 2002, L.E. Smith
reached a verbal agreement regarding the purchase price for its natural gas.
However, since December 1, 2002, the supplier has been charging a
significantly higher rate than had been agreed upon. L.E. Smith is disputing
approximately $163,000 of natural gas charges in excess of the verbally
agreed-upon rate. The full amount of natural gas costs billed by its supplier
has been recorded and included in cost of sales and accounts payable at March
31, 2003. Because L.E. Smith does not have a contract for fixed natural gas
prices, the rates it will be charged for future consumption may vary
significantly and may not be limited. This could have a material adverse
impact on the Company's financial condition. (See Note 9).
As noted above, L.E. Smith reported negative gross margin of $56,000, or 2.4%,
for the third quarter of fiscal 2003. However, the natural gas charges included
in cost of sales for the third quarter of fiscal 2003 are significantly higher
than would be incurred with a long-term market rate and have been recorded as
period costs, not capitalized as part of L.E. Smith's inventory. The Company
believes that its inventory is properly stated at the lower of cost or market
and no adjustment to the carrying value of inventory is required at March
31, 2003.
Cost of rental and service as a percentage of related revenue was 91.2% for
the third quarter of fiscal 2003 compared to 83.0% for the third quarter of
fiscal 2002. For the nine months ended March 31, 2003 and 2002, cost of
rental and service as a percentage of related revenue was 77.6% compared to
73.9%. The related declines in gross margin resulted from the decreased
revenue during the second and third quarters of fiscal 2003, as well as
general cost increases partially offset by lower depreciation expense,
as many of the hotel's assets became fully depreciated in August 2002.
Marketing, general and administrative expenses totaled $656,000 and $1,981,000
for the three and nine months ended March 31, 2003, respectively, compared to
$780,000 and $2,363,000 for the same periods in fiscal 2002, reflecting
decreases of $124,000, or 15.9%, and $382,000, or 16.2%, respectively. The
decreases were primarily due to significantly lower sales commissions
(decreases of $60,000 and $132,000, respectively), related to the decline in
sales revenue, the sales mix and increased price discounting, and significant
savings from lower activity and cost control measures, including (i) decreases
totaling $48,000 and $94,000, respectively, for payroll and related expenses,
and (ii) declines of $23,000 and $52,000, respectively, in L.E. Smith's
advertising, catalog and gift show expenses.
Interest income totaled $21,000 and $83,000 for the three and nine months
ended March 31, 2003 compared to $29,000 and $119,000 for the same periods in
the prior fiscal year. The decrease was primarily due to a decline in the
average interest rate and average balance outstanding on the note receivable
from a related party.
Interest expense totaled $109,000 and $343,000 for the three and nine months
ended March 31, 2003 compared to $123,000 and $392,000 for the same periods in
the prior fiscal year. The decrease was primarily due to lower interest
rates, related to declines in the prime rate, and a lower average balance of
debt outstanding, partially offset by a 1% increase in interest rates
effective October 1, 2001 (from prime to prime plus 1%) on L.E. Smith's bank
financing due to its failure to meet certain financial ratios during fiscal
2001.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
The Company recorded income tax benefits of $10,000 and $1,000 for the three
and nine months ended March 31, 2003. Income tax provisions totaling $1,000
and $12,000 were recorded for the same periods in the prior fiscal year.
These benefits and provisions include state and other income taxes and are
based upon book income. The net deferred tax assets arising from the pre-tax
losses incurred for the nine months ended March 31, 2003 have been fully
allowed for because the Company has not been able to determine that it is more
likely than not that such deferred tax assets will be realized. 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 non-cash components
included in the income tax benefit and provision for the nine months ended
March 31, 2003 or 2002.
DISCONTINUED OPERATIONS
On August 19, 1999, the Board of Directors voted to sell the assets of the
Company's wholly-owned subsidiary, NBI Properties, to an entity that is 100%
owned and controlled by its CEO. Therefore, the Company had classified its
hotel operation as a discontinued operation at that time. However, as of June
30, 2002, the Company determined that the sale would not be completed within
the next twelve months and, therefore the hotel was a continuing operation.
The hotel's operations for the three and nine months ended March 31, 2002 were
reclassified to continuing operations. There were no other adjustments in the
financial statements as a result of this change.
The Company's master license related to its decoder business expired on
September 30, 2002. During the second quarter of fiscal 2003, the Company
obtained a nonexclusive licence from the master licensor covering NBI and its
existing sublicensees for the period October 1 through December 31, 2002,
while it continued negotiations on revised terms for the second renewal period
under the master license. The Company was unable to negotiate acceptable
renewal terms for the license and, consequently, on January 8, 2003, the Board
of Directors decided not to renew the license and to exit its decoder
business. Therefore, the Company has discontinued its decoder business, and
it has separately reported the loss from this segment as discontinued
operations for the three and nine months ended March 31, 2003 and 2002.
There were no revenues from discontinued operations for the third quarter of
fiscal 2003 compared to revenues of $13,000 for the third quarter of fiscal
2002. Revenues from discontinued operations totaled $21,000 and $39,000 for
the nine months ended March 31, 2003 and 2002, respectively. The Company
recorded net losses from discontinued operations of $1,000 and $168,000 for
the three and nine months ended March 31, 2003 compared to net losses from
discontinued operations of $91,000 and $177,000 for the three and nine months
ended March 31, 2002, respectively. There were minimal expenses associated
with exiting the decoder business, all of which were incurred in the third
quarter of fiscal 2003. The Company does not expect to incur any additional
expenses associated with its decoder business. There were no assets or
liabilities of discontinued operations at March 31, 2003.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's total assets decreased $1.7 million to $13.8 million at March
31, 2003 from $15.5 million at June 30, 2002. The decrease was primarily due
to significant decreases in accounts receivable, due to the decline in sales,
inventory, resulting from low production related to cash constraints, and
property, plant and equipment, primarily related to depreciation. The Company
had working capital deficits of $4,026,000 and $1,206,000 at March 31, 2003
and June 30, 2002, respectively. The increase of $2,820,000 in the working
capital deficit was primarily due to the reclassification of $1.6 million of
L.E. Smith's bank debt to current at March 31, 2003 resulting from its default
under the terms of the Forbearance Agreement, as well as the resources
required to fund the loss and note payments during the nine months ended March
31, 2003.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
The Company significantly reduced its capital expenditures during fiscal 2002
and during fiscal 2003 and did not have any significant construction-in-
progress outstanding at March 31, 2003. The Company plans to continue
restricting its capital expenditures.
The Company expects its working capital requirements in the next fiscal year
to be met by internally generated funds including interest income and
unscheduled principal payments on the note receivable from a related party.
The hotel's bank loan agreement indirectly limits the amount of cash
distributions it can make to the parent company through a covenant requiring
the maintenance of a minimum cash flow to debt service ratio. Short-term
borrowings under an existing line of credit can also be used for L.E. Smith's
working capital requirements. However, L.E. Smith has consistently been
unable to repay the overborrowings on its revolving line of credit which are
required to be repaid promptly. L.E. Smith was also in arrears on certain
payments related to its revolving line of credit and bank term note payable in
July and August, 2002. In addition, L.E. Smith has not been able to meet
certain financial ratios required under the Loan Agreement covering L.E.
Smith's revolving line of credit and bank term note payable. Then, on August
23, 2002, L.E. Smith and Sky Bank entered into a Forbearance Agreement and
Amendment related to L.E. Smith's revolving line of credit and bank term note,
whereby Sky Bank has agreed to forbear from exercising its rights and remedies
with respect to the existing defaults by L.E. Smith under the Loan Agreement
provided there is no event of default by L.E. Smith under the terms of the
Forbearance Agreement which expires on July 7, 2003. In conjunction with the
Forbearance Agreement and Amendment, the due date of the bank term note was
extended to March 5, 2008 with monthly interest only payments allowed for
September 5, 2002, and February 5, 2003 through August 5, 2003; monthly
principal payments of $34,000 plus interest are due for all other months
during the term of the note. Sky Bank has authorized L.E. Smith to exceed its
borrowing base by a maximum of $800,000. In exchange, Bellevue Partners has
agreed to make unscheduled principal payments totaling $500,000 on its note to
Willowbrook Properties from the sale of certain outparcels, and Willowbrook
Properties has assigned its interest in these payments to Sky Bank. The
Allowed Overborrowings will be reduced by the amount of these payments as they
are received by the bank. As of May 5, 2003, the borrowings under L.E.
Smith's revolving line of credit exceeded the allowed borrowing base by
$727,000, $73,000 below the maximum Allowed Overborrowings. The Forbearance
Agreement prohibits L.E. Smith from making any payments to NBI or any of its
subsidiaries. The Forbearance Agreement also requires L.E. Smith to obtain
written agreements with its vendors and other creditors regarding revised
payment terms acceptable to the bank by an extended due date of March 5, 2003.
L.E. Smith has been working with its vendors and creditors on revised payment
terms and is in the process of obtaining written agreements with them.
However, L.E. Smith has not been able to obtain written agreements from all of
its creditors, including its natural gas supplier (see Note 9). This
constitutes an event of default under the Forbearance Agreement which allows
the bank, at its option, to demand immediate payment of the entire outstanding
bank debt. Therefore, the Company has classified L.E. Smith's entire bank
debt as current at March 31, 2003. Management has been in discussions with
the bank regarding this situation and is working with the bank towards a
mutually acceptable resolution. (See Note 2 to the Consolidated Financial
Statements.)
As of December 1, 2002, L.E. Smith was six months in arrears on its monthly
payments on its note payable to PADCED. On December 13, 2002, L.E. Smith
obtained a six-month deferral of principal payments on this note. In January
2003, L.E. Smith paid PADCED all of the past due interest as well as the
regular loan payment scheduled for January 1, 2003. However, L.E. Smith is in
arrears on the regular payments scheduled for March, April and May 2003, and
has been unable to pay various other liabilities when due as required under
the PADCED loan agreement. These conditions cause the note payable to PADCED
to be subject to immediate demand at the option of the holder. Therefore, the
Company has included the entire balance of this note payable in current
liabilities at March 31, 2003, as was also required at June 30, 2002. (See
Note 2 to the Consolidated Financial Statements.)
The Company has incurred significant losses for the nine months ended March
31, 2003 and during fiscal 2002 and 2001 and had a significant working capital
deficit at March 31, 2003 and June 30, 2002. In addition, a large amount of
L.E. Smith's accounts payable are significantly past due. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern, as expressed by our independent auditors in an explanatory paragraph
in their audit report dated September 5, 2002, on our June 30, 2002 financial
statements. In addition, at March 31, 2003, L.E. Smith was in default on its
Forbearance Agreement with Sky Bank and continues to be in default
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
on its PADCED loan agreement. The accompanying Consolidated Financial
Statements do not contain any adjustments that might result from the outcome
of these uncertainties other than the reclassification of L.E. Smith's bank
and PADCED debts to current at March 31, 2003, as was also required at June
30, 2002 for the PADCED note payable. The Forbearance Agreement and Amendment
with Sky Bank significantly reduces the amount of principal payments required
on L.E. Smith's long-term debt in fiscal 2003. L.E. Smith is also working
with its accounts payable vendors to obtain extended terms. Furthermore,
management has significantly reduced its costs and expenses, including
significantly reducing its health insurance costs through a new collective
bargaining agreement which it obtained on November 26, 2002, reductions in
workforce and savings from other cost control measures.
The Company also is working on increasing its sales volume and gross profit at
L.E. Smith. Due to intense foreign competition and the unfavorable economic
conditions in the United States during the last two years, it has been
difficult for L.E. Smith to generate sufficient sales volume to allow it to
obtain the critical mass required in its production facility for it to be
profitable.
L.E. Smith has been in discussions with other glass manufacturers to develop
marketing partnerships that would help increase sales volumes for each party.
This is possible when the companies offer different types of products and
consequently do not directly compete with one another. For example, one
company may be an automated glass manufacturer which sells to the mass market,
however, their manufacturing plant is not able to handle smaller quantities
efficiently. In those situations requiring smaller quantities, they would sell
L.E. Smith's handmade products. In return, L.E. Smith could sell some of that
company's products to its customers when large quantities were required. In
addition, L.E. Smith has the capability to produce colored and decorated
glass, whereas another company may have the ability to produce leaded crystal
which L.E. Smith does not. Through a marketing partnership, two or three
companies become stronger by capitalizing on each other's strength. However,
L.E. Smith has not been able to capitalize on any marketing partnerships
to-date, because the weak economy has also caused a slowdown in business for
the other parties.
In addition, L.E. Smith must find a way to be closer to the end-user. Today's
distribution methods are very expensive for manufacturers. In highly
competitive situations, L.E. Smith is often unable to sell its products or
does so at inadequate margins because of the mark-up required by the retailer.
For many years, L.E. Smith has had an on-site factory outlet store that has
been profitable. Therefore, L.E. Smith decided on a retail strategy of
opening retail stores in several outlet locations over the next year. These
stores will be opened both independently and through joint ventures with
marketing partners. These retail outlets are expected to do several things to
improve L.E. Smith. First, it would improve gross margins due to the
elimination of several layers of distribution. Second, it would increase
sales volume by taking advantage of an increasing trend in retail markets
towards outlet and discount stores, away from pricey shopping malls. In
October 2002, L.E. Smith acquired retail space for an outlet store in
Lancaster, Pennsylvania which it opened in mid-November 2002. Sales from this
store have been very disappointing due to the poor retail market and inclement
weather. In an effort to increase the sales of the Lancaster store, L.E.
Smith has retained the services of a merchandising and advertising consultant,
as of April 1, 2003. Due to the poor results from its Lancaster store, L.E.
Smith has delayed pursuit of any additional outlet locations at this time.
L.E. Smith has also increased its marketing efforts related to food service
and hospitality products as well as glass blocks used in various architectural
projects. In addition, L.E. Smith is exploring a direct marketing channel for
one of its newer product lines because it believes this would be more
successful than using traditional distribution methods for these products.
There can be no assurance that the bank will continue to work with the Company
towards a mutually acceptable resolution and not demand immediate payment of
all of L.E. Smith's bank debt; nor can there be any assurance that L.E.
Smith's other note will not be called for immediate payment. Furthermore,
there can be no assurance that L.E. Smith will be successful in increasing its
sales and gross profit and reducing its costs and expenses; nor can there be
any assurance that L.E. Smith's creditors will grant it extended payment
terms. (See Note 2 to the Consolidated Financial Statements.)
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
The following summarizes the Company's aggregate contractual obligations as of
March 31, 2003:
Total payments due during
Three fiscal years ended June 30,
Months Ended --------------------------------
June 30, 2004 2006 There-
Total 2003 & 2005 & 2007 after
-------- ---------- -------- -------- --------
(Amounts in thousands)
<s> <c> <c> <c> <c> <c>
Line of credit(a) $ 2,502 $2,502 $ -- $ -- $ --
Long-term notes payable
- Sky Bank(a) 1,877 1,877 -- -- --
- State of Pennsylvania Machinery
& Equipment Loan Fund note(b) 309 309 -- -- --
- Other notes payable 1,087 13 126 259 689
Present value of capital
lease obligation 967 20 88 106 753
Operating leases 1,365 87 380 276 622
Purchase obligation 42 42 -- -- --
CEO employment agreement(c) 50 50 -- -- --
Other 14 10 4 -- --
------- ------ ---- ---- ------
Total contractual obligations $ 8,213 $4,910 $598 $641 $2,064
======= ====== ==== ==== ======
<FN>
(a) L.E. Smith has consistently been unable to repay the overborrowings on its
revolving line of credit which are required to be repaid promptly. L.E. Smith
was also in arrears on certain payments related to its revolving line of
credit and bank term note payable in July and August 2002. In addition, L.E.
Smith has not been able to meet certain financial ratios required under the
Loan Agreement. However, on August 23, 2002, L.E. Smith and Sky Bank entered
into a Forbearance Agreement and Amendment to L.E. Smith's revolving line of
credit and bank term note, whereby Sky Bank has agreed to forbear from
exercising its rights and remedies with respect to the existing defaults by
L.E. Smith under the Loan Agreement provided there is no event of default by
L.E. Smith under the terms of the Forbearance Agreement which expires on July
7, 2003. As of May 5, 2003, the borrowings under L.E. Smith's revolving line
of credit exceeded the allowed borrowing base by $727,000, $73,000 below the
maximum allowed overborrowings. L.E. Smith has not been able to obtain
written agreements from all of its creditors, including its natural gas
supplier, which were required to be obtained by the extended due date of March
5, 2003. This constitutes an event of default under the Forbearance Agreement
which allows the bank, at its option, to demand immediate payment of the
entire outstanding debt. Therefore, the Company has classified L.E. Smith's
entire bank debt as current at March 31, 2003. Management has been in
discussions with the bank regarding this situation and is working with the
bank towards a mutually acceptable resolution. See previous discussion in
this "Liquidity and Capital Resources" section.
(b) As of December 1, 2002, L.E. Smith was six months in arrears on its
monthly payments on its note payable to PADCED. On December 13, 2002, L.E.
Smith obtained a six-month deferral of principal payments on this note. In
January 2003, L.E. Smith paid PADCED all of the past due interest as well as
the regular loan payment scheduled for January 1, 2003. However, L.E. Smith
is in arrears on the regular payments scheduled for March, April and May 2003,
and has been unable to pay various other liabilities when due as required
under the PADCED loan agreement. These conditions cause the note payable to
PADCED to be subject to immediate demand at the option of the holder.
Therefore, the Company has included the entire balance of this note payable in
current liabilities at March 31, 2003, as was also required at June 30, 2002.
(c) Under the terms of an agreement with the Company's CEO ("CEO Agreement"),
the Company pays its CEO, Jay H. Lustig, an annual salary of $60,000. The CEO
Agreement runs for one-year terms which expire on June 30. The CEO Agreement
also provides that the Company will pay Mr. Lustig an annual bonus of 10% of
the Company's pre-tax profits, if any, derived from all sources, but only to
the extent such 10% figure exceeds Mr. Lustig's base salary. Mr. Lustig
remains eligible for such bonus for twelve months after termination from the
position of CEO. The Company suspended salary payments to Mr. Lustig as of
August 1, 2002 but is accruing his salary for future payment when the
Company's cash flow improves.
The Company has no other long-term contractual obligations or commercial
commitments.
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER, FISCAL YEAR 2003 - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires the fair value of a liability for an
asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 was effective July 1, 2002 for the Company.
The adoption of this Statement had no material impact on the financial
statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 requires that long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. The Company voluntarily adopted SFAS No. 144 early, effective July
1, 2001. The adoption of this Statement had no material impact on the
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS No. 145 requires the classification of gains and losses
from extinguishments of debt as extraordinary items only if they meet the
criteria for such classification in APB Opinion No. 30, "Reporting the Results
of Operations, Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
Additionally, SFAS No. 145 requires sale-leaseback accounting for certain
lease modifications that have economic effects similar to sale-leaseback
transactions. SFAS No. 145 was also effective July 1, 2002 for the Company.
The adoption of this Statement had no material impact on the financial
statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
SFAS No. 146 is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The Company adopted this Statement during
the quarter ended March 31, 2003. The adoption of this statement had no
material impact on the financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure -- an Amendment of FASB Statement No.
123". This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements effective December 31, 2002
(see Note 12).
NBI, INC.
Item 3. Controls and Procedures
In order to ensure that the information the Company must disclose in its
filings with the Securities and Exchange Commission is recorded, processed,
summarized and reported on a timely basis, the Company has formalized its
disclosure controls and procedures. The Company's principal executive officer
and principal financial officer have reviewed and evaluated the Company's
disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended as of a date within 90
days prior to the filing date of this report (the "Evaluation Date"). Based
on such evaluation, such officers have concluded that, as of the Evaluation
Date, the Company's disclosure controls and procedures are effective in
bringing to their attention on a timely basis material information relating to
the Company required to be included in the Company's periodic filings under
the Securities Exchange Act of 1934.
Since the Evaluation Date, there have not been any significant changes in the
internal controls of the Company, or in other factors that could significantly
affect these controls subsequent to the Evaluation Date.
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, 2003 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, 2003 By: /s/ Marjorie A. Cogan
- -------------- -----------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Chief Financial Officer, Secretary
CERTIFICATIONS
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF NBI, INC.
PURSUANT OF 18 U.S.C. SECTION 1350
I, Jay H. Lustig, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NBI, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of NBI,Inc. as of, and for, the periods presented in this
quarterly report.
4. NBI, Inc's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as
defined in Exchange Act Rules 13a-14 and 15d-14, for NBI, Inc.
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to NBI, Inc., including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which the
quarterly report is being prepared;
b. evaluated the effectiveness of NBI, Inc.'s disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. NBI, Inc.'s other certifying officer and I have disclosed, based on
our most recent evaluation, to NBI Inc.'s auditors and the audit
committee of NBI, Inc.'s board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect NBI Inc.'s ability
to record, process, summarize, and report financial data and have
identified for NBI Inc.'s auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in NBI Inc.'s internal
controls.
6. NBI Inc.'s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ JAY H. LUSTIG
-------------- ----------------------
Jay H. Lustig
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF NBI, INC.
PURSUANT OF 18 U.S.C. SECTION 1350
I, Marjorie A. Cogan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of NBI, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of NBI, Inc. as of, and for, the periods presented in this
quarterly report.
4. NBI, Inc's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as
defined in Exchange Act Rules 13a-14 and 15d-14, for NBI, Inc. and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to NBI, Inc., including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which the
quarterly report is being prepared;
b. evaluated the effectiveness of NBI, Inc.'s disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. NBI, Inc.'s other certifying officer and I have disclosed, based on
our most recent evaluation, to NBI Inc.'s auditors and the audit
committee of NBI, Inc.'s board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect NBI Inc.'s ability
to record, process, summarize, and report financial data and
have identified for NBI Inc.'s auditors any material weaknesses
in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in NBI Inc.'s internal
controls.
6. NBI Inc.'s other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 14, 2003 /s/ MARJORIE A. COGAN
-------------- ----------------------------
Marjorie A. Cogan
Chief Financial Officer, Secretary
CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF NBI, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of NBI, Inc. on Form 10-QSB for the
period ending March 31, 2003 as filed with the Securities and Exchange
Commission on May 15, 2003 (the "Report"), Jay H. Lustig, as Chief Executive
Officer of NBI, Inc., hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best
of his knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of NBI, Inc.
Date: May 14, 2003 /s/ JAY H. LUSTIG
-------------- ----------------------
Jay H. Lustig
Chief Executive Officer
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
CERTIFICATION OF CHIEF FINANCIAL OFFICER OF NBI, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of NBI, Inc. on Form 10-QSB for the
period ending March 31, 2003 as filed with the Securities and Exchange
Commission on May 15, 2003 (the "Report" ), Marjorie A. Cogan, as Chief
Financial Officer of NBI, Inc., hereby certifies, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to the best of her knowledge, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of NBI, Inc.
Date: May 14, 2003 /s/ MARJORIE A. COGAN
-------------- ----------------------------
Marjorie A. Cogan
Chief Financial Officer
This certification accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended.