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 September 30, 1998 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 1-8232 Name of Registrant NBI, INC. State of Incorporation IRS Employer I. D. Number Delaware 84-0645110 Address 1880 Industrial Circle, Suite F Longmont, Colorado 80501 (303) 684-2700 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at November 6, 1998 ---------------------------- ----------------------------------- Common Stock, par value $.01 per share 8,088,320 NBI, INC. INDEX TO FORM 10-QSB For Quarter Ended September 30, 1998 PAGE PART I - FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) 3 - 6 Supplementary Notes to Consolidated Financial Statements (Unaudited) 7 - 10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 - 13 PART II - OTHER INFORMATION 14 NBI, INC. CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share Data) September 30, June 30, 1998 1998 ------ ------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 255 $ 209 Accounts receivable, less allowance for doubtful accounts of $76 and $69, respectively 1,986 1,375 Inventories 2,755 2,750 Other current assets 210 156 -------- -------- Total current assets 5,206 4,490 Property, plant and equipment, net 7,420 7,436 Other assets 307 279 -------- -------- $ 12,933 $ 12,205 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- Current liabilities: Short-term borrowings and current portion of notes payable $ 1,923 $ 1,846 Current portion of IRS debt and other income taxes payable 3,534 3,527 Accounts payable 1,333 1,200 Accrued liabilities 914 796 -------- -------- Total current liabilities 7,704 7,369 Long-term liabilities: Income taxes payable 1,778 1,778 Notes payable 1,314 1,351 Deferred income taxes 223 223 Postemployment disability benefits 181 184 -------- -------- Total liabilities 11,200 10,905 -------- -------- Commitments and contingencies Stockholders' equity: Common stock - $.01 par value; 20,000,000 shares authorized; 10,115,520 shares issued 101 101 Capital in excess of par value 6,280 6,280 Accumulated deficit (3,780) (4,213) -------- -------- 2,601 2,168 Less treasury stock, at cost (2,027,200 shares) (868) (868) -------- -------- Total stockholders' equity 1,733 1,300 -------- -------- $ 12,933 $ 12,205 ======== ======== <FN> See accompanying notes. NBI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited) Three Months Ended September 30, 1998 1997 ------ ---- Revenues: Sales $3,929 $3,085 Service and rental 679 636 ------- ------- 4,608 3,721 Costs and expenses: Cost of sales 2,748 2,191 Cost of service and rental 438 414 Marketing, general and administrative 864 840 ------- ------- 4,050 3,445 ------ ------- Income from operations 558 276 Other income (expense): Net loss on investments -- (39) Other income and expenses, net 13 (8) Interest expense (73) (182) ------- ------- (60) (229) ------ ------- Income before provision for income taxes 498 47 Provision for income taxes (65) (28) ------- ------- Net income $ 433 $ 19 ======= ======= Net income per common share - basic and diluted $ .05 $ -- ======= ======= Weighted average number of common shares outstanding 8,088 8,044 ======= ======= <FN> See accompanying notes. NBI, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in Thousands) (Unaudited) Three Months Ended September 30, 1998 1997 ------ ----- Cash flows from operating activities: Net income $ 433 $ 19 Adjustments to reconcile net income to net cash flow provided by (used in) operating activities: Depreciation and amortization 193 176 Provision for bad debts and returns 21 34 Provision for writedown of inventories 40 17 Loss (gain) on sales of property and equipment (8) 50 Net unrealized loss (gain) on trading securities -- (53) Compensation expense related to stock option extensions -- 37 Changes in assets -- decrease (increase): Accounts receivable (632) (477) Inventories (45) 58 Other current assets (56) (34) Other assets (32) (24) Changes in liabilities -- (decrease) increase: Obligations for short-sale transactions -- (58) Accounts payable and accrued liabilities 415 (30) Income tax related accounts 7 (7) ------ ------ Net cash flow provided by (used in) operating activities 336 (292) ------ ------ Cash flows from investing activities: Proceeds from sales of property and equipment 9 1 Purchases of property and equipment (338) (112) ------ ------ Net cash flow used in investing activities (329) (111) ------ ------ Cash flows from financing activities: Collections from notes receivable 2 1 Proceeds from issuance of stock, net of offering costs -- (2) Proceeds from stock options exercised -- 29 Proceeds from borrowing -- 50 Payments on notes payable (66) (77) Net borrowings on line of credit 103 223 ------ ------ Net cash flow provided by financing activities 39 224 ------ ------ Net increase (decrease) in cash and cash equivalents 46 (179) Cash and cash equivalents at beginning of period 209 333 ------ ------ Cash and cash equivalents at end of period $ 255 $ 154 ====== ====== <FN> See accompanying notes. NBI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited) Three Months Ended September 30, 1998 1997 ------ ------ Supplemental disclosures of cash flow information: Interest paid $ 71 $ 166 ====== ====== Income taxes paid $ 27 $ 26 ====== ====== Noncash purchases of property, plant, and equipment included in accounts payable at end of period $ 82 $ 30 ====== ====== <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 which in the opinion of management are necessary in order to make the financial statements not misleading. The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and profits have been eliminated. Note 2 - 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 - Investments in Securities and Obligations from Short-Sale - - ---------------------------------------------------------------------------- Transactions - - ------------- The Company held no investments and had no realized or unrealized gains or losses for the quarter ended September 30, 1998. During the three months ended September 30, 1997 all of the Company's securities were classified as trading securities; no securities were classified as held-to-maturity or available-for-sale. An unrealized gain of $53,000 and a realized loss of $92,000 were recorded in the quarter ended September 30, 1997. 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 September 30, 1998, the Company had no investment positions. Note 4 - Inventories - - ------------------------ Inventories are comprised of the following: September 30, 1998 ------ (Amounts in thousands) Raw materials $ 897 Work in process 382 Finished goods 1,455 Food and beverage inventory 21 ------- $ 2,755 ======= Note 5 - Income Taxes - - -------------------------- IRS Debt: - - ---------- On April 28, 1998, the Company and the Internal Revenue Service ("IRS") entered into an amended payment agreement, revising the payment terms related to NBI Inc.'s IRS debt of $5,278,000. This agreement, effective NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) as of April 9, 1998, revised the terms of the agreement in principal with the IRS effective October 1, 1995 and the original settlement agreement with the IRS dated June 12, 1991, with respect to NBI's federal tax liabilities for the fiscal years ended June 30, 1980 through 1988. Under the new agreement, $3,500,000 of the IRS debt is due on or before December 31, 1998, and the remaining balance of $1,778,000 is due on or before December 31, 1999. The IRS debt continues to be collateralized by a security interest in all of the capital stock of American Glass, Inc. and NBI Properties, Inc. Provided no event of default occurs prior to payment of the IRS debt in full, NBI will not be obligated to pay any past, current or future interest related to the debt. In order to pay the restructured IRS debt, management intends to obtain additional equity financing through a public offering of preferred stock including warrants to purchase shares of the Company's common stock (see Note 6). There can be no assurance the Company will be able to sell the minimum offering amount, which is required in order to raise funds sufficient to pay the IRS installment due on December 31, 1998. The Company's ability to continue as a going-concern is dependent upon satisfaction of the IRS debt when due, including the installment due on December 31, 1999. Income tax provision: - - ------------------------ For the three months ended September 30, 1998 and 1997, the Company recorded income tax provisions of $65,000 and $28,000, respectively. These 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 months ended September 30, 1998 and 1997. Note 6 - Stockholders' Equity - - ----------------------------------- The Company has authorized 20,000,000 shares of $.01 par value common stock. At September 30, 1998, 10,115,520 shares were issued including 2,027,200 held in treasury. Therefore, the Company had 8,088,320 shares issued and outstanding at September 30, 1998. At the Company's annual meeting held on October 14, 1998, the stockholders approved an amendment to the Company's Certificate of Incorporation authorizing issuance of up to 5,000,000 shares of preferred stock with a par value of $.01 per share. The Company has designated 2,000,000 preferred shares as Series A Cumulative Preferred Stock with cumulative dividends from the date of original issue, accruing semi-annually, commencing June 30, 1999, and each December 31 and June 30 thereafter, at the annual rate per share of either (a) $1.00 in cash, or (b) .11 additional shares of Series A Preferred Stock, at the option of the holder, until December 31, 2004. Subsequent to December 31, 2004, the annual dividend rate per share will increase to either (a) $1.10 in cash or (b) .12 additional shares of Series A Preferred Stock, at the option of the holder. The Series A Cumulative Preferred Stock has a liquidation preference of $10 per share and is entitled to receive all accrued and unpaid dividends through the date of distribution. In addition, the Series A Cumulative Preferred Stock is redeemable at the option of the Company beginning January 1, 1999. The redemption price would be as follows for each calendar year: $11.00 per share if redeemed in 1999, $10.80 in 2000, $10.60 in 2001, $10.40 in 2002, $10.20 in 2003, and $10.00 in 2004 or thereafter. NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Company has registered and reserved 1,000,000 shares of the Series A Cumulative Preferred Stock through its Registration Statement on Form SB-2, effective November 9, 1998, in connection with its public offering of units consisting of one share of the Series A Cumulative Preferred Stock and two warrants to purchase the Company's common stock at $1.20 per share. In addition, 550,000 shares of the Series A Cumulative Preferred Stock and 2,000,000 shares of the Company's common stock have been registered and reserved for payments-in-kind of the preferred stock dividends and for the exercise of the common stock purchase warrants, respectively. The Company is in the process of filing the related amendments to its Certificate of Incorporation and Certificate of Designation with the Delaware Secretary of State. In addition, the stockholders approved an amendment that allows the Company to effect a reverse stock split of either 1 for 2.5, 1 for 3, or 1 for 4 shares, at the discretion of the Board of Directors. Further, the Board of Directors has the discretion not to effect a reverse stock split. Note 7 - Net Income (Loss) Per Common Share - - ---------------------------------------------------- During the Company's second quarter of fiscal 1998, NBI, Inc. adopted Statement of Financial Accounting Standards ("SFAS") No. 128 issued by the Financial Accounting Standards Board. SFAS No. 128 provides for the calculation of "Basic" and "Diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing income (loss) available to common shareholders 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 the entity, similar to fully diluted earnings per share. The following reconciles the numerators and denominators of the basic and diluted earnings per common share computation for net income: For the quarters ended September 30, 1998 1997 ------ ------ Basic Diluted Basic Diluted ------ ------- ------ -------- (Amounts in thousands except per share data) Net income $ 433 $ 433 $ 19 $ 19 ======= ======= ====== ====== Weighted average number of common shares outstanding 8,088 8,088 8,044 8,044 ======= ======= Assumed conversions of stock options 179 143 ------- ------- 8,267 8,187 ======= ======= Net income per common share $ .05 $ .05 $ -- $ -- ======= ======= ======= ======= For the three months ended September 30, 1998, stock options outstanding with an exercise price of $.38, $.59 and $.77 per share were included in the computation of diluted earnings per share because their exercise price was less than the average market price of the common stock during such period. Stock options outstanding with an exercise price of $.25 and $.38 per share were included in the computation of diluted earnings per share for the three months ended September 30, 1997. Stock options previously outstanding with an exercise price of $.25 per share were not outstanding during the quarter ended September 30, 1998. NBI, INC. SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The options and warrants outstanding at September 30, 1998 were as follows: Number Exercise Outstanding at Price September 30, 1998 --------- --------------------- Stock options: $ .38 216,000 $ .59 100,500 $ .77 400,000 $ .88 244,000 Warrants: $ .89 1,700,000 --------- 2,660,500 ========= Note 8 - Comprehensive Income - - ----------------------------------- Effective July 1, 1998, the Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income includes all changes in equity except those resulting from investments by owners and distribution to owners. For the three months ended September 30, 1998 and 1997, the Company had no items of comprehensive income other than net income; therefore, a separate statement of comprehensive income has not been presented for these periods. Note 9 - Seasonal Variations of Operations - - -------------------------------------------------- L.E. Smith Glass Company ("L.E. Smith") and the Belle Vernon Holiday Inn typically have their strongest revenue performance during the first fiscal quarter due to seasonal variations in these businesses. Generally, the second and fourth fiscal quarters' revenues from these operations are moderately lower than in the first quarter, while the third fiscal quarter's revenue is usually significantly lower than the other quarters. However, in fiscal 1998, L.E. Smith received several large orders from its significant customer during the historically slower quarters, which created a more consistent revenue stream for the year. The Company is unsure whether this trend will continue. NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER, FISCAL YEAR 1999 The statements in this discussion contain both historical and "forward-looking" statements, as such term is defined in "The Private Securities Litigation Reform Act of 1995". The forward-looking statements are based upon current expectations and the actual results could differ materially from those anticipated. Factors that may affect such forward-looking statements include, among others, ability to obtain financing, loss of significant customers, reliance on key personnel, competitive factors and pricing pressures, availability of raw materials, labor disputes, investment results, adequacy of insurance coverage, inflation and general economic conditions. RESULTS OF OPERATIONS Revenues totaling $4.6 million for the first quarter of fiscal 1999 increased $887,000, or 23.8%, from $3.7 million for the three months ended September 30, 1997. Sales revenue increased $844,000, or 27.4% for the first quarter of fiscal 1999, compared to the same period in fiscal 1998, due to significantly increased volume at L.E. Smith, including a significant amount of revenues from new customers, as well as a significant increase in orders from its largest customer. However, this increase was slightly offset by a significant decline in revenues from Krazy Colors, Inc. ("Krazy Colors"), as expected, because the Company has been in the process of restructuring Krazy Colors' operations, which includes the assumption of additional management responsibilities by parent company personnel, concentrating on direct sales and limiting other sales and marketing activities, and temporarily laying off production personnel until sales activity improves. Service and rental revenue totaled $679,000 for the three months ended September 30, 1998, compared to $636,000 for the same quarter in fiscal 1998. The increased revenue was primarily related to a moderate increase in occupancy rates and a small increase in average daily room rates from the Belle Vernon Holiday Inn. In addition, for the first quarter of fiscal 1999 as compared to the same period in fiscal 1998, the Company experienced a significant increase in restaurant business, primarily due to increased occupancy; however, this was partially offset by a significant decrease in bar business, due to increased local competition. Total revenues are expected to increase significantly for the three months ended December 31, 1998, compared to the same period in the prior fiscal year, primarily due to a significant increase in projected revenues from L.E. Smith resulting from sustained growth from new and existing customers. However, this increase is expected to be slightly offset by a significant decrease in expected revenues from Krazy Colors, as the Company continues its restructuring efforts. Total revenues for the second quarter of fiscal 1999 are expected to decrease moderately compared to the first quarter of fiscal 1999, primarily due to a significant decrease in projected revenues from the Belle Vernon Holiday Inn resulting from seasonal variations. Cost of sales, service and rental as a percentage of total revenue was 69.1% for the quarter ended September 30, 1998, compared to 70.0% for the same period in fiscal 1998. Cost of sales as a percentage of sales revenue was 69.9% for the quarter ended September 30, 1998 compared to 71.0% for the first quarter of fiscal 1998. The resulting improvement in gross margin was primarily due to increased volume and production efficiency at L.E. Smith, causing favorable absorption of fixed costs. However, this improvement was partially offset by a significant decline in gross margin from Krazy Colors, due to the decreased revenue volume. Cost of service and rental as a percentage of service and rental revenue was 64.5% for the quarter ended September 30, 1998 compared to 65.1% for the first quarter of fiscal 1998. The related small improvement in gross margin was primarily due to the increased revenue volume available to cover fixed costs. NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER, FISCAL YEAR 1999 - CONTINUED Cost of sales, service and rental as a percentage of total revenue for the second quarter of fiscal 1999 is expected to be moderately lower, compared to the second quarter of fiscal 1998, due to greater absorption of fixed costs at L.E. Smith resulting from the projected increase in revenues. Cost of sales, service and rental as a percentage of total revenue for the second quarter of fiscal 1999 is expected to be slightly higher compared to the first quarter of fiscal 1999 due to seasonally lower revenue volume at the Belle Vernon Holiday Inn available to cover fixed costs. Marketing, general and administrative expenses totaled $864,000 and $840,000 for the three months ended September 30, 1998 and 1997, respectively. The increase was primarily related to increased sales and marketing activities, partially offset by the absence of non-cash compensation expense from extensions of certain executive stock options included in the same period of the prior fiscal year. Marketing, general and administrative expenses are expected to remain fairly constant for the three months ended December 31, 1998, compared to the same period in the prior fiscal year. During the second quarter of fiscal 1999, there is expected to be an increase in expenses resulting from greater sales and marketing activities, and the absence of a credit related to a reduction of a reserve for incurred but not reported health claims under a previously self-funded health plan as included in the second quarter of fiscal 1998. However, this expected increase will be mostly offset by the absence of executive severance also included in the second quarter of fiscal 1998. Marketing, general and administrative expenses are expected to increase moderately in the second quarter of fiscal 1999 compared to the first quarter of fiscal 1999, primarily due to higher expected sales and marketing activity. The Company recorded no gain or loss on investments during the first quarter of fiscal 1999, compared to a net loss of $39,000 for the three months ended September 30, 1997. 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 September 30, 1998, the Company had no investment positions. Interest expense for the three months ended September 30, 1998 totaled $73,000 compared to $182,000 for the same period of the prior fiscal year. This decline was primarily due to the absence of interest on the Company's IRS debt during the first quarter of fiscal 1999, resulting from the restructured agreement with the IRS. The Company recorded provisions for income taxes of $65,000 and $28,000 for the first quarter of fiscal 1999 and 1998, respectively, primarily due to the inclusion of Pennsylvania state income tax provisions. The state income tax provisions are related to the Company's Pennsylvania operations and are based upon book income, because NBI does 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 non-cash components included in the income tax provisions for the three months ended September 30, 1998 or 1997. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company's total assets increased $728,000 to $12.9 million at September 30, 1998 from $12.2 million at June 30, 1998. The increase was primarily due to a significant increase in trade accounts receivable resulting from the increased revenues recognized during the first quarter of fiscal 1999. The Company had negative working capital of $2.5 million at September 30, 1998, compared to negative working capital of $2.9 million at June 30, 1998. The NBI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER, FISCAL YEAR 1999 - CONTINUED favorable decline in the working capital deficit resulted primarily from the increase in trade accounts receivable partially offset by an increase in current liabilities due to the increased volume. The entire outstanding principal balance on the IRS debt of $5,278,000 was previously due in full on October 1, 1997. Effective as of April 9, 1998, the Company and the IRS entered into an amended payment agreement revising the payment terms related to NBI, Inc.'s IRS debt. Under the new agreement, $3.5 million of the IRS debt is due on or before December 31, 1998 and the remaining approximately $1.8 million is due on or before December 31, 1999. Provided no event of default occurs prior to payment of the debt in full, NBI will not be obligated to pay any past, current or future interest related to the debt. In order to pay the IRS debt, management intends to obtain additional equity financing through a public offering of preferred stock including warrants to purchase shares of the Company's common stock. During the first quarter of fiscal 1999, the Company filed a Form SB-2 with the Securities and Exchange Commission to register the related stock; the registration statement was declared effective as of November 9, 1998. There can be no assurance that the Company will be able to sell the minimum offering amount, which is required in order to raise sufficient funds to pay off the IRS installment due on December 31, 1998. The Company's ability to continue as a going-concern is dependent upon satisfaction of the IRS debt when due, including the installment due on December 31, 1999. The Company is currently pursuing various financing options for its real estate development activities. The Company expects its other working capital requirements in the next fiscal year to be met by existing working capital at September 30, 1998, internally generated funds and, for L.E. Smith Glass Company's requirements, short-term borrowings under an existing line of credit. YEAR 2000 COMPLIANCE The Company has completed a review and risk assessment of all technology items used in its operations. The Company believes that the year 2000 issue will pose no significant operational problems. Substantially all of the machinery and equipment used by the Company's glass manufacturing and children's paint manufacturing operations are manually controlled and operated. In addition, the hotel operation is not significantly reliant on computer technology, with the exception of its reservation system, which is maintained and upgraded under a contract with Holiday Inns Franchising, Inc. The Company expects the reservation system to be year 2000 compliant early in fiscal 1999. The primary effect of the year 2000 issue is on the Company's accounting systems. Year 2000 compliance will primarily be accomplished through purchases of new equipment and data processing hardware and software upgrades, with an estimated aggregate cost of approximately $140,000, a significant portion of which has already been purchased and most of which was previously planned and necessitated by other technological needs of the Company. The upgrading or replacement of equipment which is non-compliant, as well as the related testing of such equipment is expected to be substantially completed during fiscal 1999. L.E. Smith currently has one customer of such significance that if such customer were to experience year 2000 problems that resulted in the cancellation or deferral of orders, it could materially adversely affect the results of operations of the Company. The Company has discussed the year 2000 issue with this and other material customers and vendors and currently does not anticipate any significant problems. In addition, the Company will continue to review the status of the year 2000 issues with these and other customers and vendors. NBI, INC. PART II - OTHER INFORMATION Item 4. Results of Votes of Security Holders - - ----------------------------------------------------------- The Company's annual meeting was held on October 14, 1998. At this meeting, Jay H. Lustig and Martin J. Noonan were elected to serve as directors. In addition, three other proposals authorizing amendments to the Company's Articles of Incorporation were voted on. The results of the voting were as follows: Votes Affirmative Withheld Broker Votes or Against Abstentions Non-votes ----------- ----------- ----------- ----------- 1. PROPOSAL I: Election of Directors Jay H. Lustig 6,907,777 66,448 -- -- Martin J. Noonan 6,908,886 65,339 -- -- 2.PROPOSAL II: Authorization of issuance of up to five million shares of preferred stock. 5,149,188 99,947 17,958 1,707,132 3. PROPOSAL III: Authorization of a reverse stock split of either 1 for 2.5, 1 for 3, or 1 for 4 shares, at the discretion of the Board of Directors. 6,843,557 94,278 36,390 -- 4. PROPOSAL IV: Authorization of elimination of Article Eleventh of the Certificate of Incorporation regarding certain restrictions on transfers of stock. 5,099,358 114,379 53,356 1,707,132 Item 6. Exhibits and Reports on Form 8-K - - ----------------------------------------------- (a) Exhibits 27. Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended September 30, 1998 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. November 16, 1998 By: /s/ Marjorie A.Cogan - - ---------------------- -------------------------- (Date) Marjorie A. Cogan As a duly authorized officer Chief Financial Officer, Secretary