SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
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
0-9403
NBI, INC.
State of Incorporation IRS Employer I. D. Number
Delaware 84-0645110
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
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan of reorganization confirmed by a court.
[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 January 31, 1995
- -------------------------------------- -------------------------------
Common Stock, par value $.01 per share 6,594,639
PAGE 2
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended December 31, 1994
PART I - FINANCIAL INFORMATION PAGE
----
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
PAGE 3
NBI, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in Thousands Except Share Data)
December 31, June 30,
1994 1994
----------- -----------
(Unaudited)
ASSETS
------
Current assets:
Cash and cash equivalents............................ $ 1,226 $2,708
Trading securities................................... 3,623 --
Marketable securities................................ -- 5,086
Receivables, net..................................... 533 750
Inventories.......................................... 109 106
Other current assets................................. 652 887
------- -------
Total current assets.............................. 6,143 9,537
Property and equipment, net............................ 105 230
Other assets........................................... 30 44
------- -------
$ 6,278 $9,811
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------
Current liabilities:
Current portion of income taxes...................... $ 1,895 $ 666
Short-term borrowings and current portion
of notes payable................................... 147 1,530
Accounts payable..................................... 517 478
Accrued liabilities.................................. 974 953
------- -------
Total current liabilities......................... 3,533 3,627
Long-term income taxes................................. 5,039 6,268
Notes payable.......................................... 145 177
Long-term postemployment disability benefits........... 243 --
Stockholders' equity:
Common stock - $.01 par value; 20,000,000 shares
authorized; 10,001,270 shares issued................ 100 100
Capital in excess of par value....................... 5,769 5,769
Accumulated deficit.................................. (7,347) (5,034)
Foreign currency translation adjustment.............. 311 304
------- -------
(1,167) 1,139
Less treasury stock, at cost (3,405,590 and
2,885,136 shares)................................... (1,515) (1,400)
------- -------
Total stockholders' equity deficit................... (2,682) (261)
------- -------
$ 6,278 $ 9,811
======= =======
See accompanying notes.
PAGE 4
NBI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
---------- -------- --------- ----------
Revenues:
Sales............................ $ 606 $ 311 $ 1,242 $ 682
Service.......................... 250 313 514 685
------- ------- ------- -------
856 624 1,756 1,367
Costs and expenses:
Cost of sales.................... 398 290 869 611
Cost of service.................. 203 374 416 735
Product development and
engineering..................... 82 60 162 89
Marketing, general and
administrative.................. 761 1,193 1,523 2,301
------- ------- ------- -------
1,444 1,917 2,970 3,736
------- ------- ------- -------
Loss from operations.............. (588) (1,293) (1,214) (2,369)
Other income (expense):
Interest income.................. 61 161 118 375
Gain (loss) on investments and
other income (exp).............. (1,401) 979 (584) 2,306
Interest expense................. (181) (179) (362) (362)
------- ------- ------- -------
(1,521) 961 (828) 2,319
------- ------- ------- -------
Loss before income taxes and
cumulative effect of change
in accounting method............. (2,109) (332) (2,042) (50)
Income tax expense................. -- -- -- --
------- ------- ------- -------
Net loss before cumulative effect
of change in accounting method.... (2,109) (332) (2,042) (50)
Cumulative effect of change in
accounting method................. (271) -- (271) --
------- ------- ------- -------
Net loss........................... $(2,380) $ (332) $(2,313) $ (50)
======= ======= ======= =======
Loss per common share:
Net loss before cumulative
effect of change in accounting
method.......................... $ (.31) $ (.04) $ (.30) $ (.01)
Cumulative effect of change in
accounting method............... (.04) -- (.04) --
------- ------- ------- -------
Net loss......................... $ (.35) $ (.04) $ (.34) $ (.01)
======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding.................... 6,794 7,531 6,923 7,704
======= ======= ======= =======
See accompanying notes.
PAGE 5
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
1994 1993
--------- ---------
Cash flows from operating activities:
Net loss......................................... $(2,313) $ (50)
Adjustments to reconcile net loss to net cash
flow used in operating activities:
Depreciation and amortization................ 82 104
Provision for writedown of inventory......... 21 --
Loss (gain) on sales of property and
equipment................................... 25 (44)
Net realized gain on investments............. ** (2,287)
Net unrealized loss on investments........... 303 196
Cumulative effect of accounting change....... 271 --
Other........................................ 14 34
Changes in assets -- decrease (increase):
Accounts receivable........................ 226 218
Inventory.................................. (24) 25
Trading securities......................... (3,926) **
Marketable securities...................... 5,086 **
Other current assets....................... 239 28
Changes in liabilities -- (decrease)
increase:
Accounts payable and accrued liabilities... 26 139
------- -------
Net cash flow provided by (used in)
operating activities................. 30 (1,637)
Cash flows from investing activities:
Proceeds from sales of property and equipment... 33 44
Collections from notes receivable............... -- 218
Sales or redemption of marketable securities.... ** 4,401
Sales of long-term treasury investments......... ** 5,682
Purchases of property and equipment............. (18) (192)
Purchases of marketable securities.............. ** (4,347)
Purchases of long-term treasury investments..... ** (5,189)
------- -------
Net cash flow provided by investing
activities................................ 15 617
Cash flows from financing activities:
Purchases of treasury stock..................... (115) (553)
Payments on short-term borrowings and notes
payable........................................ (2,815) (19)
Short-term borrowings........................... 1,400 --
------- -------
Net cash flow used in financing activities... (1,530) (572)
Effects of exchange rates on cash................. 3 (3)
------- -------
Net decrease in cash and cash equivalents......... (1,482) (1,595)
Cash and cash equivalents at beginning of period.. 2,708 3,932
------- -------
Cash and cash equivalents at end of period........ $ 1,226 $ 2,337
======= =======
** With the Company's adoption of FAS 115 as of July 1, 1994, activity related
to trading securities is now classified as operating rather than investing.
See accompanying notes.
PAGE 6
NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
December 31,
1994 1993
------- -------
Supplemental schedule of non-cash investing and financing activities:
Net transfers of inventory from property and equipment.................... $ -- $ 24
======== ========
Foreign currency translation adjustments.................................. $ 4 $ 4
======== ========
Supplemental disclosures of cash flow information:
Interest paid............................................................ $ 360 $ 362
======== ========
Income taxes paid........................................................ $ -- $ --
======== ========
See accompanying notes.
PAGE 7
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. In the opinion of Management, the statements
reflect all adjustments necessary for a fair statement of the results of
operations for the interim periods. Certain items in the fiscal 1994 financial
statements have been reclassified to conform to the fiscal 1995 manner of
presentation. In addition, the accompanying Statements of Cash Flows have been
presented under the indirect method of reporting cash flows rather than the
direct method, as previously reported. All of the adjustments included in the
financial statements are of a normal recurring nature. 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
- -----------------------------------
The Company's cash and cash equivalents of $1,226,000 at December 31, 1994,
included $175,000 of restricted cash. This represents the amount held in trust
for payments under self insurance plans.
Note 3 - Investments in Securities
- ----------------------------------
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115"). The Company adopted the provisions of
the new standard for investments held as of or acquired after July 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. There was no effect as
of July 1, 1994 from implementation of this standard, as the carrying value of
all of the Company's securities held at that date approximated market value.
The Company's accounting policies for investments in securities are as follows:
Trading securities: Trading securities are held for resale in anticipation of
- -------------------
short-term market movements. These types of securities, consisting of
marketable debt and equity securities, are stated at fair market value. Gains
and losses, both realized and unrealized, are included in net gain (loss) on
investments and other income (expense) when incurred. All dividends, interest
and discount or premium amortization is included in interest income as earned.
Cash flows from purchases and sales of trading securities are classified as cash
flows from operating activities rather than from investing activities.
Securities held-to-maturity: Debt securities are classified as held-to-maturity
- ----------------------------
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost. Interest
earned on securities classified as held-to-maturity, including any discount or
premium amortization, is included in interest income as earned.
Available for Sale: Marketable equity securities and debt securities not
- -------------------
classified as either trading or held-to-maturity are classified as available-
for-sale. Available-for-sale securities are carried at fair market value, with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in net
gain (loss) on investments and other income (expense) when incurred. The cost
of securities sold is based on the specific identification method. Interest and
dividends earned on securities classified as available-for-sale, including any
discount or premium amortization, are included in interest income as earned.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
PAGE 8
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Investments in Securities (continued)
- ----------------------------------------------
During the three months and six months ended December 31, 1994, all of the
Company's securities were classified as trading securities; no securities were
classified as held-to-maturity or available-for-sale. The Company recorded a
net realized gain of $115,000 and a net unrealized loss of $1,500,000 on
investments for the three months ended December 31, 1994. For the six months
then ended, the Company recorded net realized and unrealized losses on
investments of $251,000 and $303,000, respectively.
The Company's investment portfolio may, at any point in time, include a
concentrated position in one security. As a result of this, the financial
results may fluctuate significantly and have larger fluctuations than with a
more diversified portfolio. Trading securities at December 31, 1994 did include
a concentrated position in one equity security from the airline industry, for
which the Company recorded a significant unrealized loss during the quarter
ended December 31, 1994. The Company had recorded a significant unrealized gain
in the first quarter on this same equity security, which partially offset the
unrealized loss experienced this quarter. As of February 11, 1995, the market
value of this security was slightly higher than at December 31, 1994.
Note 4 - Other Current Assets
- -----------------------------
Other current assets at June 30, 1994, included $626,000 of restricted cash and
investments held in trust for the Company's indemnity obligations related to any
potential Directors' and Officers' liabilities arising from their service to the
Company. During the quarter ended December 31, 1994, the trust expired and the
Company transferred the cash and investments held in trust, totaling $631,000,
to its cash and trading securities accounts.
Included in other current assets at December 31, 1994, is a $350,000 note
receivable from the Company's Chief Executive Officer. On November 3, 1994, the
Company granted this loan under the terms of a promissory note with the CEO,
previously approved by the Board of Directors. This note bears interest at the
rate of 10% per annum and principal and interest is due in full by March 15,
1995.
Also included in other current assets at December 31, 1994, is a $100,000
receivable outstanding under a revolving line of credit with the Company's newly
acquired majority-owned subsidiary. (See Note 9.) On December 28, 1994, the
Company advanced these funds under the terms of a revolving line of credit
previously approved by the Board of Directors. The debt bears interest at 1%
per month and is secured by 100% of the assets of the borrower. The maximum
principal balance outstanding allowed under the line of credit is $100,000. The
line of credit expires on December 31, 1995. A portion of the funds advanced in
December 1994, were used by the borrower to pay down $79,000 of an outstanding
loan it had with NBI's CEO.
Note 5 - Income Taxes
- ---------------------
On June 12, 1991, the Company reached a settlement with the Internal Revenue
Service (IRS) as to NBI's federal income tax liabilities for the fiscal years
ended June 30, 1980 through 1988. The full amount of the settlement for these
years was $12,795,000, which consists of approximately $6,325,000 in taxes, and
$6,470,000 in interest. Included in the $12,795,000 is approximately $2,600,000
related to a computer industry-wide issue which was being litigated by another
taxpayer. In 1993, the Tax Court ruled in favor of the taxpayer in this case.
On June 22, 1994, the Eighth Circuit Court of Appeals confirmed the Tax Court's
decision. Since the case is no longer subject to appeal, the Company reversed
$2.6 million from its long-term income taxes as of June 30, 1994. The agreement
with the IRS provides for payment of the liabilities over a six-year period.
Principal and interest payments are due quarterly from October 1, 1994, through
1997. Beginning after June 30, 1992, accelerated principal payments are
required within forty-five days after the end of any fiscal quarter in which the
Company's total domestic cash, cash equivalents, and treasury investments,
excluding restricted cash, exceed levels specified in the settlement agreement.
Any accelerated principal payment shall reduce the succeeding scheduled
principal payment(s).
PAGE 9
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Income Taxes (continued)
- ---------------------------------
As of December 31, 1994, NBI had approximately $6,934,000 of tax liabilities
remaining on its balance sheet, $6,809,000 of which is related to the agreement
with the IRS. There is no accelerated principal amount payable in the third
quarter of fiscal 1995, in accordance with the agreement, based upon the
Company's cash, cash equivalents and treasury investments at December 31, 1994.
Furthermore, any other accelerated principal payments due within the next twelve
months based upon subsequent quarter-end calculations are not determinable at
December 31, 1994. Therefore, only the scheduled principal payments due within
the next twelve months, totaling $1,895,000, have been classified as current at
December 31, 1994.
Note 6 - Short-term Borrowings and Current Portion of Notes Payable
- -------------------------------------------------------------------
Included in short-term borrowings and current portion of notes payable, were
short-term borrowings of $100,000 which were repaid in January 1995. These
borrowings were collateralized by the Company's marketable securities.
Note 7 - Postemployment Benefits
- --------------------------------
During the second quarter of fiscal 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting For
Postemployment Benefits" ("FAS 112"). This standard was effective July 1, 1994,
however, its implementation was not recorded until October 1, 1994. The
cumulative effect as of July 1, 1994 of adopting this standard, which was
recorded in the second quarter of fiscal 1995, reduced net income by $271,000.
There was no other material effect to the first quarter of fiscal 1995.
The Company provides health care, life insurance, and disability benefits for
eligible active employees. Prior to adoption of FAS No. 112, the Company
recognized and funded the cost of these benefits over the employees' working
lives, except for self-insured long-term disability costs which were recognized
monthly as the disability continued. FAS No. 112 requires the Company to accrue
the expected costs over the employee service period.
As required by the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), the Company allows terminated employees who wish to continue health
care coverage to pay the expected costs to be incurred, as determined by the
insurance company administering the claims. However, because the Company is
self-insured for health care costs, it is liable for any actual costs incurred
in excess of the expected costs. As of December 31, 1994, there were no such
known amounts.
The Company's current life insurance and disability benefits are fully insured.
Accordingly, the Company has no further liability and no accrual is needed.
However, the Company previously had a disability benefit plan that was self-
insured, under which payments are still being made. In accordance with FAS No.
112, the Company has accrued the present value of the expected payments, as of
July 1, 1994, of $271,000, and recorded this as a cumulative effect of change in
accounting method during the second quarter of fiscal 1995. The expected
payments were calculated based upon the expected duration of each individual's
disability or the time remaining until the individual reaches the age of 65, at
which time the benefits cease if the individual is expected to remain disabled.
The total liability outstanding at December 31, 1994, is $261,000, of which
$243,000 is classified as long-term.
Note 8 - Stockholders' Equity
- -----------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock. At
December 31, 1994, 10,001,270 shares were issued including 3,405,590 shares held
in treasury. Therefore, the Company had 6,595,680 common shares outstanding at
December 31, 1994.
In February 1995, the Company issued warrants to purchase 1.7 million shares of
its common stock at $.89 per share in conjunction with an acquisition. (See
Note 9.)
PAGE 10
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Related Party Transactions
- -----------------------------------
In February 1995, the Company entered into an agreement to acquire 80% of the
outstanding stock of a small novelty children's manufacturing company, effective
as of January 1, 1995. Prior to this agreement the Company's Chief Executive
Officer owned 55% of the outstanding stock of the manufacturer. Under the terms
of the purchase agreement, the Company paid $288,000 in cash for the stock,
including $158,000 paid to NBI's CEO. In addition, the sellers are eligible for
royalty payments based upon gross margin performance in excess of specified
amounts. In conjunction with the purchase agreement, the sellers were issued
warrants to purchase a total of 1.7 million shares of NBI's common stock at a
price of $.89 per share. These warrants are exercisable from December 31, 1995
through December 31, 2002.
In addition, in December 1994, the Company advanced $100,000 to the acquired
Company under the terms of a revolving line of credit. (See Note 4.)
In November 1994, the Company loaned its CEO $350,000 under the terms of a
promissory note. (See Note 4.)
PAGE 11
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER - FISCAL 1995
RESULTS OF OPERATIONS
The Company has incurred increased net losses for the three and six months ended
December 31, 1994, as compared to the same periods in fiscal year 1994, due to
significant declines in nonoperating income, including net gains (losses) on
investments, interest income, and other income (expense). However, the Company
did experience significant improvement in operating performance for the three
and six months ended December 31, 1994, with operating losses of $588,000 and
$1,214,000, respectively, as compared to $1,293,000 and $2,369,000 for the same
periods of the prior fiscal year. The improvement resulted primarily from a
significant reduction in operating costs resulting from the closure of the
Company's domestic systems integration operation in June 1994.
Total revenues for the three and six months ended December 31, 1994, as compared
to the same periods in fiscal 1994, increased 37.2% and 28.5% to $856,000 and
$1,756,000, respectively. While sales revenue has increased significantly,
service revenues continue to decline with the Company's closure of its domestic
systems integration operation and the contracting proprietary systems
maintenance base in the United Kingdom.
Sales revenue increased to $606,000 and $1,242,000 for the three months and six
months ended December 31, 1994, from $311,000 and $682,000 for the same periods
of the prior fiscal year. The revenue increase resulted primarily from sales
revenue totaling $137,000 and $559,000 for the three months and six months ended
December 31, 1994, generated by the Company's AlphaNet division, acquired in
March 1994. In addition, international systems integration operations
experienced a significant increase in sales revenue in the current quarter and a
moderate increase year-to-date, primarily due to increased sales activity with
existing customers. These increases were partially offset by the absence of the
domestic systems integration sales revenues. Sales revenues are expected to be
lower in the third quarter of fiscal 1995, compared to the same period of fiscal
1994, as the inclusion of sales revenues from the Company's recent acquisition
and its AlphaNet division, which was not acquired until late in the third
quarter of fiscal 1994, are not expected to exceed declines anticipated due to
the absence of domestic systems integration sales revenues and the potential
disposition of the Company's international operation. Additionally, the Company
anticipates sales revenues in the third quarter of fiscal 1995 to be less than
in the previous quarter of fiscal 1995, as the inclusion of revenues from its
recent acquisition is not expected to exceed the potential decline in
international sales revenues and a decline anticipated in sales revenues from
its AlphaNet division due to its refocus towards service and away from product
sales.
Service revenues for the quarter and the six months ended December 31, 1994 were
$250,000 and $514,000, respectively, reflecting decreases of $63,000 and
$171,000 or 20.1% and 25.0%, respectively, as compared to the same periods of
the prior fiscal year. This resulted primarily from continued erosion in the
international proprietary maintenance base, as expected, as these revenues
declined $169,000 to $46,000, and $333,000 to $100,000, for the three and six
months ended December 31, 1994, respectively. In addition, declines of $59,000
and $77,000 were experienced for the three and six months ended December 31,
1994, due to the absence of domestic systems integration service revenues.
However, these declines were partially offset by the addition of AlphaNet
service revenues totaling $134,000 and $178,000 for the three and six months
ended December 31, 1994. Additionally, international systems integration
service revenues increased $31,000 and $61,000, respectively to $70,000 and
$195,000, for the quarter and six months ended December 31, 1994 as compared to
the same periods in the prior fiscal year. Service revenues are expected to
decrease significantly in the third quarter of fiscal 1995, as compared to the
same period in fiscal 1994, due to the decline in the international proprietary
maintenance base, the absence of domestic systems integration revenues and the
potential disposition of the international operation. However, service revenues
from the Alphanet division are expected to increase due to the acquisition of
this division late in the third quarter of fiscal 1994. Service revenues are
expected to remain flat or decline in the third quarter of fiscal 1995, as
compared to the previous quarter of fiscal 1995, primarily due to the
anticipated disposition of the international subsidiary.
PAGE 12
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER - FISCAL 1995
Cost of sales as a percentage of sales revenues for the three and six months
ended December 31, 1994 were 65.7% and 70.0%, respectively, compared to 93.2%
and 89.5% for the same periods in fiscal 1994. The improved margin resulted
from the closure of the Company's domestic systems integration division, which
produced unfavorable margins on its product sales and the inclusion of AlphaNet
sales at a higher margin rate than the average sales margin rates experienced in
the comparable periods of fiscal 1994. Cost of sales as a percentage of sales
revenues from the AlphaNet Division were 72.3% and 74.0% for the three and six
months ended December 31, 1994, respectively.
Cost of services as a percentage of service revenue was 81.2% and 80.9% for the
three and six months ended December 31, 1994, compared to 119.5% and 107.3%,
respectively, for the same periods of fiscal 1994. The increased margin
performance was primarily due to a significant reduction in fixed costs related
to the domestic systems integration technical operations group, resulting from
the closure of this division, partially offset by reduced margins on the
international proprietary maintenance revenues, as cost reductions continue to
be insufficient to cover the decline in the related revenue.
Product development and engineering expenses totaled $82,000 and $162,000 for
the three and six months ended December 31, 1994, compared to $60,000 and
$89,000 in the same periods of the prior fiscal year. The increase in expenses
resulted from increased software development activity during fiscal 1995, which
is expected to continue through the year. The Company is actively pursuing
various sales and marketing options for its software product which is expected
to be released late in the third quarter of fiscal 1995. However, there are no
assurances that the Company will find an effective was to sell and market the
product or that the product will gain market acceptance.
Marketing, general and administrative costs totaled $761,000 and $1,523,000 for
the three and six months ended December 31, 1994, compared to $1,193,000 and
$2,301,000 for the same periods in fiscal 1994. The decline is primarily
related to substantial savings realized in sales, marketing and administrative
expenses associated with the domestic systems integration division, due to its
closure, partially offset by the addition of sales and administrative expenses
related to the Company's AlphaNet division.
Interest income totaling $61,000 and $118,000 for the three and six months ended
December 31, 1994 reflect decreases of $100,000 and $257,000 compared to the
same periods in fiscal 1994. The decrease in interest income is primarily due
to a lower level of average outstanding cash and investments in fiscal 1995, as
well as variances in the mix of debt and equity securities.
The Company recorded a net loss on investments and other expense of $1.4 million
in the second quarter of fiscal 1995, compared to a net gain on investments and
other income of $979,000 for the corresponding quarter of fiscal 1994. For the
six months ended December 31, 1994, the Company recorded a net loss on
investments and other expense of $584,000, compared to a net gain on investments
and other income of $2.3 million for the comparable period of fiscal 1994. The
decline for the three months ended December 31, 1994, as compared to the same
period in the prior fiscal year, was primarily related to a significant
unrealized loss on investments recorded in December 1994, as well as the absence
of significant realized gains as included in the second quarter of fiscal 1994.
For the six months ended December 31, 1994, the decline in net gain (loss) on
investments and other income (expense) was primarily related to the absence of
substantial realized gains on investments as recorded in the same period of the
prior fiscal year. Included in the net loss on investments and other expense
for the three months ended December 31, 1994, was a net realized gain and a net
unrealized loss on investments of $115,000 and $1,500,000, respectively. This
compares to a net realized gain on investments of $1,174,000 and net unrealized
loss of $195,000 recorded during the second quarter of fiscal 1994. For the
six months ended December 31, 1994, the Company recorded net realized and
unrealized losses on investments of $251,000 and $303,000, respectively, while a
net realized gain of $2,287,000 and a net unrealized loss of $195,000 was
included
PAGE 13
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER - FISCAL 1995
in the six months ended December 31, 1993. The Company has a concentrated
position in one equity security in the airline industry which accounted for most
of the significant unrealized loss reported this quarter. However, this
unrealized loss was significantly offset by the unrealized gain recorded on this
security in the first quarter fiscal 1995. As of February 11, 1995, the market
value of this security was slightly higher than at December 31, 1994.
During the second quarter of fiscal 1995, the Company implemented Financial
Accounting Standards Board Statement No. 112, "Employers' Accounting For
Postemployment Benefits" ("FAS 112") which was effective July 1, 1994. The
cumulative effect, as of July 1, 1994, of adopting this standard reduced net
income in the second fiscal quarter of 1995 by $271,000. This resulted from
accruing the present value of the expected disability benefits, to be paid out,
under the Company's prior self-insured disability benefits program, over the
next 12 years. The Company previously recognized these costs monthly as the
disability continued. Currently the disability payments total approximately
$4,000 per month for four individuals, expiring when the individuals reach the
age of 65, unless their condition changes. The effect of this accounting change
on future income is a reduction of costs approximating $4,000 each quarter
increasing over the next 12 years to a maximum of $12,000 per quarter. The
Company's current disability plan is fully insured.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company's working capital decreased $3.3 million from $5.9 million at June
30, 1994, to $2.6 million at December 31, 1994. The reduction of working
capital resulted mainly from the Company's net loss for the six month period of
$2.3 million and from a $1.2 million increase in the current portion of income
taxes, as principal payments on the IRS debt begin in January 1995. Total
assets of $6.3 million at December 31, 1994, reflected a decline of $3.5 million
from June 30, 1994. The decline in assets occurred primarily due to the net
loss and the net payments on short-term borrowings during the period of $2.3
million and $1.4 million, respectively. Management currently anticipates that
working capital needs in the next year will be met by currently available cash
and investments and internally generated funds.
The Company continues to work towards profitability through cost reduction
measures and acquisition of or investment in domestic businesses. The Company
recently completed an acquisition of 80% of the stock of a small specialty toy
manufacturer, which is expected to be profitable in calendar year 1995. In
addition, the Company is currently pursuing the disposition of its subsidiary in
the United Kingdom, due to its continued losses. However, there are no
assurances that these actions will be sufficient enough to bring the Company to
profitability.
PAGE 14
NBI, INC.
PART II - OTHER INFORMATION
Item 4 Results of votes of security holders
- ------ ------------------------------------
The Company's annual meeting was held on January 12, 1995. At this
meeting, Jay H. Lustig and Martin J. Noonan were elected to serve as
directors. The voting results were as follows:
Votes
Affirmative Withheld Broker
Votes or Against Abstentions Non-votes
------------- ----------- ------------ ----------
1. To elect the nominee for the
Board of Directors:
Jay H. Lustig 5,844,430 218,349 -- --
Martin J. Noonan 5,834,627 228,152 -- --
2. To approve the First Amendment
to the Certificate of Incorporation
and Bylaws of the Company 4,871,285 505,264 24,725 661,505
3. To approve the Second Amendment
to the Certificate of Incorporation
and Bylaws of the Company 4,147,169 594,567 27,456 1,293,587
4. To approve the Third Amendment
to the and Bylaws of the Company 4,829,244 537,323 34,707 661,505
5. To approve the Fourth Amendment
to the and Bylaws of the Company 5,128,300 232,195 40,779 661,505
Item 6 Exhibits and Reports on Form 8-K
- ------ ---------------------------------
(a) Exhibits
10. Material Contracts
a. Stock Purchase Agreement
b. Shareholder Agreement
c. Warrant Certificate
d. Revolving Line of Credit
27. Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter ended
December 31, 1994.
PAGE 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NBI, INC.
February 13, 1995 By: /s/ MARJORIE A. COGAN
- ------------------------------ -------------------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Corporate Controller, Secretary
(Principal Financial and Accounting Officer)