- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

As filed with the Securities and Exchange Commission on September 8, 1998

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
NBI, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
----------------------------
DELAWARE 6749 84-0645110
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Identification
organization) Code) Number)

1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
(Address and telephone number of principal executive offices)
----------------------------
Jay H. Lustig, Chief Executive Officer
NBI, Inc.
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
(Name, address and telephone number of agent for service)
Copies to:

John G. Lewis, Esq. Catherine DeBono Holmes, Esq.
Ireland, Stapleton, Pryor & Pascoe, P.C. Jeffer, Mangels, Butler & Marmaro LLP
1675 Broadway, 26th Floor 2121 Avenue of the Stars, 10th Floor
Denver, Colorado 80202 Los Angeles, California 90067
(303) 623-2700 (310) 201-3553

------------------

Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_________

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /_________

CALCULATION OF REGISTRATION FEE

- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Price(1) Amount of
Securities to be Registered Registered Share (1) Registration Fee
- -------------------------------------------------------------------------------------------------------------------------

Series A Cumulative Preferred Stock,
par value $0.01 1,000,000 $ 9.42 $9,420,000 $2,779
- -------------------------------------------------------------------------------------------------------------------------
Series A Cumulative Preferred Stock,
par value $.01, issuable upon 550,000 -- -- --
payment of dividends in kind on
Preferred Stock
- -------------------------------------------------------------------------------------------------------------------------
Warrants for purchase of Common 2,000,000 $0.29 $580,000 $171
Stock, par value $0.01
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01, 2,000,000 $1.20 $2,400,000 $708
issuable upon exercise of Warrants
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------

(1) Estimated pursuant to Rule 457 of the Securities Act of 1933 (the "Act"),
as amended, solely for the purpose of calculating the registration fee.

Pursuant to Rule 416 of the Act, this Registration Statement also covers
such additional shares of Common Stock as may become issuable as a result of the
anti-dilution provisions of the Warrants.

-------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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-ii-

SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 1998

NBI, INC.

A MINIMUM OF 370,000 UNITS AND
A MAXIMUM OF 1,000,000 UNITS
EACH UNIT CONSISTING OF
ONE SHARE OF SERIES A CUMULATIVE PREFERRED STOCK
AND TWO DETACHABLE COMMON STOCK PURCHASE WARRANTS, EXERCISABLE AT $1.20
PER SHARE

NBI, Inc. ("NBI" or the "Company") hereby offers a minimum of 370,000
Units (the "Minimum Offering Amount") and a maximum of 1,000,000 Units (the
"Maximum Offering Amount"), each Unit consisting of one (1) share of Series A
Cumulative Preferred Stock, par value $.01, ("Preferred Stock") and two (2)
Common Stock Purchase Warrants ("Warrants"), each exercisable for one (1)
share of Common Stock, par value $.01 ("Common Stock") per Warrant, at an
exercise price of $1.20 per Share, (the "Offering"). Holders of the Preferred
Stock will be entitled to 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 shares of Preferred Stock. The method of payment of
dividends is selected by each holder of Preferred Stock, and may be changed
annually by the holder subject to certain restrictions. Dividends will be
paid when and as declared by the Board of Directors out of funds legally
available for payment of dividends. To the extent that insufficient funds
are available to pay all dividends accrued as of each accrual date, dividends
will be paid first pro rata to all holders who have elected to receive
dividends payable in additional shares of Preferred Stock until all such
dividends accrued have been paid, and then pro rata to all holders who have
elected to receive dividends payable in cash. See "Description of Preferred
Stock--Dividends." The Preferred Stock is redeemable at the option of the
Company, in whole or in part, at the declining redemption prices set forth
herein. If the Preferred Stock has not been redeemed by December 31, 2004,
the dividend rate will thereafter increase to an annual rate per share of
either (a) $1.10 in cash, or (b) .12 additional shares of Preferred Stock, at
the option of the holder. See "Description of Preferred Stock--Optional
Redemption." Each Warrant entitles the registered holder to purchase one (1)
share of Common Stock, for an exercise price of $1.20, and is exercisable at
any time after issuance until December 31, 2004 (the "Warrant Expiration
Date"). See "Description of Capital Stock--Common Stock Purchase Warrants."
The Company's Common Stock is currently traded in the over-the-counter
market. Prior to this offering, there has been no public market for the
Preferred Stock or the Warrants.

------------------------------

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Underwriting
Discounts and
Offering Price Commissions(1) Proceeds to Company(2)
- --------------------------------------------------------------------------------------

Total Minimum $ 3,700,000 -0- $3,700,000
- --------------------------------------------------------------------------------------
Total Maximum $10,000,000 -0- $10,000,000
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------

(1) The Company intends to offer and sell Units without participation of any
securities broker-dealers. The Company reserves the right, however, to
engage one or more selected dealers to participate in the Offering, upon
terms and conditions to be negotiated with such selected dealers, provided
that the commission paid to any selected dealer shall not exceed $1.00
(i.e. 10.0%) per Unit. See "Plan of Distribution."

(2) Before deducting expenses of this Offering payable by the Company,
estimated at approximately $178,000 in the aggregate.

The date of this Prospectus is , 1998.

[Inside front cover.]

NBI -Registered Trademark- is a registered trademark of the Company. All
other trade names and trademarks appearing in this Prospectus are the property
of their respective holders.

-2-

- -------------------------------------------------------------------------------

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" OR "NBI" MEAN
NBI, INC. AND (A) ITS WHOLLY-OWNED SUBSIDIARIES, AMERICAN GLASS, INC, D/B/A
L.E. SMITH GLASS COMPANY ("L.E. SMITH"), NBI PROPERTIES, INC., ("NBI
PROPERTIES") THE OWNER AND OPERATOR OF THE BELLE VERNON HOLIDAY INN ("BELLE
VERNON HOLIDAY INN"), AND WILLOWBROOK PROPERTIES, INC. D/B/A NBI DEVELOPMENT
CORPORATION ("NBI DEVELOPMENT"), AND (B) ITS MAJORITY-OWNED SUBSIDIARY KRAZY
COLORS, INC. ("KRAZY COLORS").

THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
FORWARD-LOOKING STATEMENTS ARE IDENTIFIABLE BY THE PREFATORY LANGUAGE "MAY,"
"WILL," "EXPECTS," "ANTICIPATES," "ESTIMATES," "HOPES," "CONTINUES," "IF," OR
SYNONYMS OR VARIATIONS OF SUCH TERMS OR THE NEGATIVE OF SUCH TERMS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE PREDICTED
IN SUCH STATEMENTS. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS
PROSPECTUS, INCLUDING THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS,"
WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN
SUCH FORWARD-LOOKING STATEMENTS.

THE SHARE AND PER SHARE INFORMATION CONTAINED HEREIN DOES NOT REFLECT A
POTENTIAL REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS AND SUBMITTED FOR APPROVAL BY THE
STOCKHOLDERS OF THE COMPANY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
OCTOBER 14, 1998. THE PROPOSED REVERSE STOCK SPLIT WOULD BE EITHER 1 FOR 2.5
SHARES, 1 FOR 3 SHARES, OR 1 FOR 4 SHARES, AT THE DISCRETION OF THE BOARD OF
DIRECTORS, AND MAY BE EFFECTED AT ANY TIME AFTER APPROVAL BY THE STOCKHOLDERS
UNTIL THE MAILING OF THE PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD IN 1999. IF THE REVERSE STOCK SPLIT IS NOT EFFECTED BY THAT DATE,
THE AUTHORIZATION WILL TERMINATE.

THE COMPANY

NBI is a diversified holding company which currently operates in four
distinct business segments: (1) the manufacture and marketing of handmade
pressed crystal and colored glass giftware and lighting fixtures, through its
wholly-owned subsidiary, L.E. Smith of Mount Pleasant, Pennsylvania; (2) the
ownership and operation of the 80-room full service Belle Vernon Holiday Inn,
through its wholly-owned subsidiary NBI Properties; (3) the ownership and
development of an 88-acre parcel of undeveloped land in Belle Vernon,
Pennsylvania, through its wholly-owned subsidiary NBI Development; and (4)
the manufacture and marketing of children's novelty paints, through its
majority-owned subsidiary, Krazy Colors. The principal business office of
the Company is located at 1880 Industrial Circle, Suite F, Longmont, Colorado
80501, telephone (303) 684-2700.

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-3-

- -------------------------------------------------------------------------------

THE OFFERING

Securities Offered . . . . . A Minimum Offering Amount of 370,000 Units and a
Maximum Offering Amount of 1,000,000 Units, each
Unit consisting of one share of Series A
Cumulative Preferred Stock at a purchase price of
$9.42 per share and two Common Stock Purchase
Warrants at a purchase price of $0.29 per Warrant,
each Warrant exercisable at any time after
issuance until December 31, 2004 (the Warrant
Expiration Date) for one share of Common Stock at
an exercise price of $1.20 per share.

Minimum Investment . . . . . 10,000 Units ($100,000), which may be waived by
the Company in its sole discretion.

Dividends on Preferred Stock Cumulative from the date of original issue, at an
annual rate per share of Preferred Stock of either
(a) $1.00 in cash, or (b) .11 additional shares of
Preferred Stock, with the method of payment
selected by the holder, and which may be changed
annually by the holder subject to certain
restrictions. Dividends are accrued semi-annually
from the date of original issue commencing June
30, 1999, and each December 31 and June 30
thereafter, and are payable when and as declared
by the Board of Directors out of funds legally
available for payment of dividends. To the extent
that insufficient funds are available to pay all
dividends accrued as of each accrual date,
dividends will be paid first pro rata to all
holders who have elected to receive dividends
payable in additional shares of Preferred Stock
until all such dividends accrued have been paid,
and then pro rata to all holders who have elected
to receive dividends payable in cash. See
"Description of Preferred Stock--Dividends." If
the Preferred Stock has not been redeemed by
December 31, 2004, dividends will thereafter
accrue at the annual rate of either (a) $1.10 in
cash, or (b) .12 additional shares of Preferred
Stock, at the option of the holder. THERE CAN BE
NO ASSURANCE THAT THE COMPANY WILL HAVE SUFFICIENT
EARNINGS TO PAY DIVIDENDS AS ACCRUED ON THE
PREFERRED STOCK. See "Risk Factors -- Uncertainty
of Payment of Dividends on Preferred Stock" and
"Description of Preferred Stock--Dividends."

Fractional Shares. . . . . . The Company will not issue any fractional shares
of Preferred Stock in payment of dividends, but
will record on its books the amount of fractional
shares that each holder is entitled to receive
until the aggregate value of such fractional
interests equals one whole share of Preferred
Stock, which will be issued with the next payment
of dividends. Fractional shares shall not accrue
dividends or entitle the holder thereof to any
other rights as a stockholder of the Company. Any
fractional share interests held on the date of
redemption of Preferred Stock by the Company will
be paid in cash by the Company to the holders
thereof pro rata at the same rate as the
redemption price for whole shares.

Liquidation Preference . . . $10.00 per share of Preferred Stock, plus accrued
and unpaid dividends. See "Description of
Preferred Stock--Liquidation Rights."

Optional Redemption. . . . . The Preferred Stock (including Preferred Stock
issued as dividends) is redeemable at the option
of the Company, in whole or in part, at the
following declining per share redemption prices,
together with accrued and unpaid dividends, if
any.

If redeemed during the 12 month period beginning
January 1, 1999:

Year Redemption Price
---- ----------------

1999 $11.00
2000 10.80
2001 10.60
2002 10.40
2003 10.20
2004 and thereafter 10.00

See "Description of Preferred Stock--Optional
Redemption."

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-4-

- -------------------------------------------------------------------------------

Voting Rights. . . . . . . . Except as provided by law, holders of shares of
Preferred Stock will not be entitled to any
voting rights, except that certain applicable
provisions of the Company's Certificate of
Incorporation and Bylaws may not be amended
without the approval of the holders of in
excess of 50% of the Preferred Stock. See
"Description of Preferred Stock--Voting Rights".

Common Stock . . . . . . . . The Company's Common Stock is traded in the
over-the-counter market under the symbol
"NBII." As of August 18, 1998, there were
approximately 1,260 holders of record of the
Common Stock and the closing bid and asked
prices were $.78125 and $.9375, respectively.

Use of Proceeds. . . . . . . Substantially all of the net proceeds from the
sale of the Minimum Offering Amount will be
used to pay an installment of $3.5 million due
December 31, 1998, owed by the Company for
Federal income taxes relating to the years 1980
through 1988. Any net proceeds from sales of
Units in excess of the Minimum Offering Amount
are intended to be used first for payment of
approximately $1.0 million of certain
development costs in connection with the
commercial real estate project for the
Company's subsidiary, NBI Development (this
amount is an approximation of the equity
requirement anticipated to be imposed by a
permanent real estate lender). Any net
proceeds in excess of such amount are intended
to be used for working capital. Thereafter,
any net proceeds from additional sales of Units
are expected to be used to pay the remaining
$1.8 million balance due on December 31, 1999
owed by the Company for Federal income taxes
relating to the years 1980 through 1988. The
Company may temporarily invest a portion of the
proceeds of this Offering in excess of the
minimum offering amount in investment
securities, consistent with its investment
policies. See "Use of Proceeds".

Plan of Distribution . . . . The Company intends to offer and sell Units
without participation of any securities
broker-dealers. The Company reserves the
right, however, to engage one or more selected
dealers to participate in the Offering, upon
terms and conditions to be negotiated with such
selected dealers, provided that the commission
paid to any selected dealer shall not exceed
$1.00 (i.e. 10%) per Unit. See "Plan of
Distribution".

Lack of Liquid Trading
Market . . . . . . . . . . Preferred Stock and Warrants will be freely and
separately transferable immediately upon
issuance. However, there is no liquid public
trading market for the Preferred Stock or the
Warrants, and there is no assurance that a
market will develop. The Company's Common
Stock is traded in the over-the-counter market
under the symbol "NBII." See "Risk
Factors--Lack of Liquid Public Market for
Securities"; and "Limitations on Sales of
Common Stock".

Risk Factors . . . . . . . . THE PREFERRED STOCK AND WARRANTS OFFERED HEREBY
ARE SPECULATIVE, INVOLVE A HIGH DEGREE OF RISK
AND SHOULD NOT BE PURCHASED BY ANYONE WHO
CANNOT AFFORD THE LOSS OF HIS OR HER ENTIRE
INVESTMENT. PROSPECTIVE INVESTORS SHOULD
CAREFULLY REVIEW AND CONSIDER THE RISK FACTORS
SET FORTH IN THE SECTION OF THE PROSPECTUS
ENTITLED "RISK FACTORS" BEFORE SUBSCRIBING.

Offering Period. . . . . . . If the Minimum Offering Amount is not sold by
December 31, 1998 (the "Initial Offering
Expiration Date"), the offering will terminate
and all funds held in the escrow account will
be returned to investors, provided that the
Company may, in its discretion, extend the
Initial Offering Expiration Date by up to 60
days as long as the Company is not then in
default on its obligation to pay the debt owed
to the Internal Revenue Service ("IRS"). If
the Minimum Offering Amount is sold by the
Initial Offering Expiration Date, the Offering
may continue until the earliest to occur of (i)
the sale of all of the Units offered hereby;
(ii) December 31, 1999, or (iii) such earlier
date as the Company shall determine, in its
sole discretion (the "Final Offering Expiration
Date").

- -------------------------------------------------------------------------------

-5-

Escrow Account . . . . . . . All subscription funds delivered prior to
acceptance by the Company of the Minimum Offering
Amount will be held in an escrow account by
Southern California Bank as escrow agent. If the
Minimum Offering Amount is accepted by the Company
prior to the Initial Offering Expiration Date, the
Escrow Agent will release the subscription funds
held in the escrow account to the Company. If the
Minimum Offering Amount is not accepted by the
Company prior to the Initial Offering Expiration
Date, the Escrow Agent will return all
subscription funds to the subscribers, without
interest or deduction.

Subscription Procedures. . . Offerees who desire to purchase Units must
complete and execute a Subscription Agreement (the
form of which is provided with this Prospectus),
and deliver it to the Company.

PRIOR TO THE DATE OF ACCEPTANCE OF SUBSCRIPTIONS
FOR THE MINIMUM OFFERING AMOUNT: Subscribers must
deliver funds for the entire amount of Units
subscribed for to Southern California Bank. Funds
may be delivered by check payable to "SCB FBO NBI,
Inc. Escrow No. 11781-GG, sent to the attention of
Gloria Garriott, Southern California Bank, 4100
Newport Place, Suite 130, Newport Beach,
California 92660, or by wire transfer sent in
accordance with the following wire transfer
instructions:

Southern California Bank
Account No.: 1900307
ABA/Routing No.: 1222-2693-7
Escrow No.: 11781-GG
Wire sent from: (Name of Subscriber)

AFTER THE DATE OF ACCEPTANCE OF SUBSCRIPTIONS FOR
THE MINIMUM OFFERING AMOUNT: Subscribers must
deliver funds for the entire amount of Units
subscribed for to the Company. Funds may be
delivered by check payable to "NBI, Inc." sent to
the attention of Marjorie A. Cogan, Chief
Financial Officer, NBI, Inc., 1880 Industrial
Circle, Suite F, Longmont, Colorado 80501, or by
wire transfer sent in accordance with the
following wire transfer instructions:

Norwest Bank Colorado, N.A.
Account No.: 1823506550
ABA/Routing No.: 102000076
Wire sent from: (Name of subscriber)

-6-

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SUMMARY FINANCIAL INFORMATION

The following summary financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus. The statement of operations data
for each of the two years ended June 30, 1998 and 1997, and the balance sheet
data at June 30, 1998, are derived from, and should be read in conjunction with,
the Company's Consolidated Financial Statements and the Notes thereto audited by
BDO Seidman, LLP, Independent Certified Public Accountants, included elsewhere
in this Prospectus.

THE SHARE AND PER SHARE INFORMATION CONTAINED HEREIN DOES NOT REFLECT A
POTENTIAL REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, WHICH HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS AND SUBMITTED FOR APPROVAL BY THE
STOCKHOLDERS OF THE COMPANY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
OCTOBER 14, 1998. THE PROPOSED REVERSE STOCK SPLIT WOULD BE EITHER 1 FOR 2.5
SHARES, 1 FOR 3 SHARES, OR 1 FOR 4 SHARES, AT THE DISCRETION OF THE BOARD OF
DIRECTORS, AND MAY BE EFFECTED AT ANY TIME AFTER APPROVAL BY THE STOCKHOLDERS
UNTIL THE MAILING OF THE PROXY STATEMENT FOR THE NEXT ANNUAL MEETING OF
STOCKHOLDERS. IF THE REVERSE STOCK SPLIT IS NOT EFFECTED BY THAT DATE, THE
AUTHORIZATION WILL TERMINATE.

ACTUALS
YEAR ENDED JUNE 30,
-------------------
1998 1997
---- ----

(In thousands, except per
share data)
STATEMENT OF OPERATIONS DATA:

Revenues(1).............................................................. $14,693 $13,669
Costs and expenses(1)(2)................................................. 14,223 13,014
------- -------
Income from operations(1)................................................ 470 655
Other income (expense)(1)................................................ (660) 140
Benefit (provision) for income taxes(1).................................. 72 (105)
------- -------
Income (loss) before discontinued operations and extraordinary gain...... (118) 690

Income (loss) from discontinued operations, net of
income tax benefit of $24.............................................. -- 354
Extraordinary gain, net of income taxes of $149.......................... 290 --
------- -------
Net income............................................................... $ 172 $ 1,044
------- -------
------- -------
Income (loss) per common share - basic:
Income (loss) before discontinued operations and
extraordinary gain................................................... $ (.01) $ .09
Income from discontinued operations.................................... -- .04
Extraordinary gain..................................................... .03 --
------- -------
Net income.......................................................... $ .02 $ .13
------- -------
------- -------
Income (loss) per common share - diluted:
Income (loss) before discontinued operations
and extraordinary gain............................................... $ (.01) $ .08
Income from discontinued operations.................................... -- .04
Extraordinary gain..................................................... .03 --
------- -------
Net income............................................................. $ .02 $ .12
------- -------
------- -------
Weighted average number of common shares and
common equivalent shares outstanding
- basic................................................................ 8,077 7,991
------- -------
------- -------
- diluted.............................................................. 8,077 8,202
------- -------
------- -------

- -------------------------------------------------------------------------------

-7-

- -------------------------------------------------------------------------------

ACTUALS
YEAR ENDED JUNE 30,
-------------------
1998 1997
-------- --------

(In thousands)
OTHER FINANCIAL DATA:

EBITDA(3)........................................ $ 1,580 $ 2,402
------- -------
------- -------

JUNE 30, JUNE 30,
1998 1998
PROFORMA AS PROFORMA AS
ADJUSTED FOR ADJUSTED FOR
JUNE 30, MINIMUM MAXIMUM
1998 OFFERING OFFERING
ACTUAL AMOUNT(4) AMOUNT(4)
-------- ------------ ------------

(In thousands)

BALANCE SHEET DATA:

Cash and cash equivalents.............. $ 209 $ 209 $ 3,753
Working Capital........................ (2,879) 621 4,165
Total assets........................... 12,205 12,227 16,749
Current liabilities.................... 7,369 3,869 3,869
Long-term liabilities.................. 3,536 3,536 1,758
Total stockholders' equity............. 1,300 4,822 11,122

- ----------------

(1) The amounts shown for fiscal 1997 are from continuing operations.

(2) The amounts shown for fiscal 1998 include an impairment of goodwill
charge of $167,000.

(3) EBITDA is defined as net income plus interest expense, income taxes,
depreciation and amortization. EBITDA is a financial measure commonly
used in the Company's industries and should not be considered in
isolation or as a substitute for net income, net cash provided by
operating activities or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity. Because EBITDA
excludes some, but not all, items that affect net income and may vary
among companies, the EBITDA presented above may not be comparable to
similarly titled measures of other companies.

(4) Adjusted to give effect to the sale of the Units offered by the
Company and the application of a portion of the net proceeds
therefrom, assuming no selected brokers participate in the Offering.
See "Use of Proceeds" and "Capitalization."

- -------------------------------------------------------------------------------
-8-

RISK FACTORS

THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS
AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS
FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE MATTERS SET FORTH IN THIS
RISK FACTORS SECTION, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS.

THE PREFERRED STOCK AND WARRANTS OFFERED HEREBY ARE SPECULATIVE, INVOLVE A
HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD
THE LOSS OF THEIR ENTIRE INVESTMENT. IN MAKING AN INVESTMENT DECISION, EACH
PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY, IN ADDITION TO THE OTHER
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.

HOLDING COMPANY STRUCTURE

A substantial portion of the Company's assets and operations are located in
its subsidiaries and, to that extent, the Company is effectively a holding
company. The Company must rely on dividends, loan repayments and other
intercompany cash flows from its subsidiaries to generate the funds necessary to
meet the Company's debt service obligations and the payment of cash dividends on
the Preferred Stock. However, dividend payments from L.E. Smith and NBI
Properties are currently restricted by existing loan covenants. See "Note 10 to
the Consolidated Financial Statements". Claims of other creditors of the
Company's subsidiaries, including tax authorities and trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of indebtedness of the Company and of the Preferred
Stock. The Certificate of Designation establishing the Preferred Stock does not
contain any restrictions on the ability of the Company or its subsidiaries to
incur indebtedness.

LACK OF LIQUID PUBLIC MARKET FOR PREFERRED STOCK AND WARRANTS

Prior to this offering, there has been no public market for the Preferred
Stock or Warrants. There can be no assurance that an active and liquid trading
market will develop or be sustained after this offering. Neither the Company
nor the Preferred Stock currently qualify for listing on the Nasdaq Stock Market
or any exchange and there can be no assurance that the Company and the Preferred
Stock will ever qualify for such listing. Consequently, holders of Preferred
Stock and Warrants may not be able to liquidate their investment on a timely
basis, if at all. The market price of the shares of Preferred Stock and
Warrants may be highly volatile and significantly affected by factors such as
actual or anticipated fluctuations in the Company's operating results,
announcements of new products or new contracts by the Company, its competitors,
or their customers, government regulatory action, developments with respect to
proprietary rights, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations which have particularly affected the market prices for stock of
smaller companies and that have often been unrelated to the operating
performance of particular companies. These broad market fluctuations may also
adversely affect the market price of the Preferred Stock.

UNCERTAINTY OF PAYMENT OF DIVIDENDS ON PREFERRED STOCK

Under Delaware law, dividends or distributions to stockholders may be made
only from the surplus of the Company, or, in certain situations, from the net
profits for the current fiscal year or the fiscal year before which the dividend
or distribution is declared. The Company's ability to pay dividends in the
future will depend upon its financial results, liquidity and financial
condition. The Company does not have a history of generating positive cash flow
or profits to make periodic dividend payments, and there can be no assurances
that the Company will have the surplus or profits necessary to pay any
dividends. As a result, the Company may be unable to pay the semi-annual
installments of the cumulative annual dividend on the Preferred Stock. See
"Description of Preferred Stock." In addition, any new debt financing which may
be obtained by the Company may be senior in right of payment to the Preferred
Stock, and may restrict payment of cash dividends on the Preferred Stock.

UNCERTAIN ABILITY TO PAY DIVIDENDS IN KIND

In order to issue additional shares of Preferred Stock in payment of
dividends on Preferred Stock, the Company will be required to maintain the
effectiveness of a registration statement registering the shares of Preferred
Stock to be issued under the Securities Act of 1933, as amended, and to maintain
the effectiveness of registration or

-9-

qualification of the Preferred Stock with all of the states in which the
Preferred Stock will be held. If the Company is unable to maintain the
effectiveness of the Registration Statement, it will be unable to issue
additional shares of Preferred Stock unless an exemption from registration is
available. If the Company is unable as a practical matter to maintain the
effectiveness of registration or qualification of the Preferred Stock under
the state securities laws of any state in which the Preferred Stock may be
issued, the Company will be unable to issue shares of Preferred Stock in that
state. In the event that the Company is unable to issue additional shares of
Preferred Stock as dividends, whether at all or in particular states, the
Company will be required to accrue dividends payable in cash to the affected
holders of Preferred Stock, and the holders of such shares of Preferred Stock
will not be entitled to exercise their option to accrue dividends payable in
additional shares of Preferred Stock.

RESTRICTIONS ON ABILITY OF HOLDERS TO CHANGE METHOD OF PAYMENT OF DIVIDENDS

A holder of Preferred Stock who desires to change the method of payment of
dividends on such Preferred Stock from cash to in-kind, or from in-kind to cash,
will be required to return to the Company an election form for that purpose
within 30 days of receiving annual notice from the Company of the right to
change method of payment. Any holder who does not return the election form will
be deemed to elect the method of payment last selected by the holder for the
next year, until the next annual notice regarding changes in method of payment
is delivered by the Company.

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS

NBI historically has experienced significant quarterly fluctuations in
sales and operating results primarily due to seasonal variations in its
businesses. L.E. Smith and the Belle Vernon Holiday Inn typically have their
strongest revenue performance during the Company's first fiscal quarter.
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, during 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
uncertain whether this trend will continue. Because the Company generally
does not have a large backlog of orders, operating results in any quarter are
highly dependent on orders booked and shipped in that quarter. The Company's
production volume and operating expense levels are based largely upon the
Company's internal forecasts of future demand and not upon firm customer
orders. Failure by the Company to achieve those internal forecasts could
result in expense levels which are inconsistent with actual net sales, which
in turn could have a material adverse effect on the Company's business,
operating results and financial condition. Failure to achieve projected
shipments could result in higher inventories and product costs which could
adversely affect the Company's gross profit margins. The Company's quarterly
results also may be affected by fluctuating demand for, and declines in the
selling prices of, its products and services and by increases in the costs of
components used in manufacturing its products and the costs of its services,
as well as by fluctuations in investment results. See "--Investment Results"
and "Management's Discussion of Financial Condition and Results of Operations
1998-1997 Comparison".

LIMITATIONS ON SALES OF COMMON STOCK

Regulations under the Exchange Act regulate the trading of so-called "penny
stocks" (the "Penny Stock Rules"), which are generally defined as any security
not listed on a national securities exchange or Nasdaq, priced at less than
$5.00 per share and offered by an issuer with limited net tangible assets and
revenues. Currently, the Company's Common Stock is subject to the Penny Stock
Rules. Under these rules, broker-dealers must take certain steps prior to
selling a "penny stock" including (i) obtaining financial and investment
information from the investor, (ii) obtaining a written suitability
questionnaire and purchase agreement signed by the investor, and (iii) providing
the investor a written identification of the shares being offered and of what
quantity. If the Penny Stock Rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. Accordingly, the Penny Stock
Rules may make it more difficult for broker-dealers to sell the Company's Common
Stock and purchasers of the Company's Common Stock may have difficulty in
selling such securities in the secondary market. As a result, the Company's
ability to raise additional capital through the sale of additional Common Stock
may be impaired.

LIMITATION ON USE OF NET OPERATING LOSS CARRYFORWARD

Any change in ownership of the Company's voting stock, including the
issuance by the Company of Common Stock underlying the Warrants, which exceeds
50% during any three year period, will reduce the Company's ability to utilize
federal net operating loss carryforwards ("NOLs") which were approximately $62
million at June 30, 1998. Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), provides that if an "ownership change"

-10-

occurs with respect to the Company, the ability to use NOLs to offset future
taxable income of the Company is limited annually to the product of the value
of the Company immediately prior to the ownership change times the long-term
tax exempt rate determined by the Treasury Department (5.15% in June 1998).
Assuming that the Company did become subject to the annual limitation, based
upon the Company's market capitalization at June 30, 1998 and June 1998's
long-term tax exempt rate, the future use of the remaining NOLs would be
limited to approximately $325,000 per year.

NEED FOR ADDITIONAL FINANCING

Even if the Company is able to sell the Minimum Offering Amount, which
would raise net proceeds sufficient to pay the initial installment of $3.5
million owed to the IRS due on December 31, 1998, the Company will still owe an
additional $1.8 million to the IRS, which is due on December 31, 1999. Since
the amount due in 1999 does not bear interest, the Company intends to use any
additional net proceeds of the Offering raised in excess of the initial $3.5
million installment owed to the IRS for other corporate purposes, including
costs of its commercial property development project. However, the Company may
be unable to raise sufficient proceeds from later sales of Units to pay the
final $1.8 million installment owed to the IRS in 1999, and there can be no
assurance that the Company will have other funds available to pay this amount
when it becomes due. The Company's ability to continue as a going concern is
dependent upon attainment of financing sufficient to pay both installments of
the debt to the IRS when due. See "Report of Independent Certified Public
Accountants" and Notes 2 and 8 to the "Consolidated Financial Statements". See
also "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources". The IRS debt is collateralized by
a security interest in all of the stock of American Glass, Inc. and NBI
Properties, Inc.

ACCUMULATED DEFICIT; CONTINUATION AS A GOING CONCERN

As reflected in the financial statements set forth in the Company's Annual
Report on 10-KSB for the year ended June 30, 1998, the Company as of June 30,
1998 had a working capital deficit of approximately $2.9 million and had
approximately $5.3 million of debt due to the IRS, of which $3.5 million is due
on December 31, 1998 and the balance of approximately $1.8 million is due on
December 31, 1999. As a result, the Company's independent auditors stated in
their opinion on the financial statements for the fiscal year ended June 30,
1998, that these conditions raise substantial doubt about the Company's ability
to continue as a going concern. In order to pay the IRS debt, management
intends to obtain additional equity financing through this Offering. There can
be no assurance, however, that the Company will be able to attain financing
sufficient to pay off the IRS debt when due.

LIMITED OPERATING HISTORY; HISTORY OF LOSSES

The Company incurred net losses for fiscal years 1986 through 1995, except
in 1992 when the Company recorded net income due to the gain on forgiveness of
debt resulting from the Chapter 11 bankruptcy. The Company has recorded net
income for fiscal years 1996, 1997 and 1998, primarily due to the profitable
operating results of L.E. Smith, as well as an extraordinary gain recorded in
fiscal 1998, due to forgiveness of accrued interest on the IRS debt through
March 31, 1998, income from discontinued operations recorded in fiscal 1997, due
to a significant translation gain recognized as a result of the substantial
completion of the liquidation of the Company's subsidiary in the U.K., and a
significant net gain on investments recorded in both fiscal 1997 and 1996.
There can be no assurance that the Company will continue to operate profitably
in the future, or that any future net income will be sufficient to pay dividends
on the Preferred Stock.

CONFLICTS OF INTEREST

The Company purchased 80% of the stock of Krazy Colors in February 1995,
55% of the stock of which was then owned by Jay Lustig, the Company's Chief
Executive Officer ("CEO"). Under the terms of the purchase agreement, the
sellers of the stock are eligible to receive a continuing royalty payment from
the Company. See "Certain Transactions". Although the Board of Directors
believes that the terms of the purchase agreement are fair and reasonable to the
Company, there can be no assurance that the Company could not have obtained more
favorable terms had the agreement been negotiated with a non-affiliated third
party. These relationships may lead to conflicts of interest.

-11-

NO PARTICIPATION OF INDEPENDENT SECURITIES BROKER-DEALER

This offering is being conducted by the Company without participation of
any independent broker-dealer. As a result, the Company has not obtained any
valuation of the Units or review of the terms of this Offering by any
independent third party.

NO INDEPENDENT DIRECTORS

The Company currently has only two directors, both of whom are executive
officers of the Company. There are currently no independent directors of the
Company.

INVESTMENT RESULTS

From time to time in the past, the Company has made temporary investments
of available funds in options and other high yield financial instruments which
bear significant risk of loss. Although the Company presently has no such
investments, 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 Company's 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.

COMPETITION AND PRICING PRESSURES

The markets for certain of the Company's products and services are highly
competitive, including continuing pressure to hold prices. Certain of the
Company's current and prospective competitors may have significantly greater
financial, manufacturing and marketing resources and name recognition than the
Company. The Company believes that its ability to compete depends on product
design, quality and price, distribution and quality of service. There can be no
assurance that the Company will be able to compete successfully with respect to
these factors. See "Business--Competition".

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Company's Certificate of Incorporation and Bylaws
may be deemed to have anti-takeover effects and may discourage or make more
difficult a takeover attempt that a stockholder might consider in its best
interest. The Board of Directors may issue shares of undesignated preferred
stock in the future without stockholder approval upon such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying or preventing a
change in control of the Company without further action by the stockholders.
The Company has no present plans to issue any additional shares of preferred
stock. See "Description of Capital Stock--Preferred Stock" and "--Certain
Effects of Authorized But Unissued Stock".

The Company is subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 also could have the effect
of delaying or preventing a change of control of the Company. See "Description
of Capital Stock--Certain Provisions of Delaware Law".

In addition, because any takeover of the Company would probably result in
the loss of the Company's NOLs, potential acquirors may be deterred from
acquiring the Company. See "--Limitations on Sales of Common Stock; Loss of
NOLs".

LOSS OF SIGNIFICANT CUSTOMERS

-12-

Company's business, results of operations and financial position. However,
the Company's management believes that its relationship with this customer
will continue into the foreseeable future, due in part to the large number of
different items this customer purchases from L.E. Smith. In addition, L.E.
Smith is continually focusing its sales efforts on expanding its customer
base to lessen the impact this customer has on its business. See
"Business--Significant Customers and Suppliers".

DEPENDENCE UPON SUPPLIERS; AVAILABILITY OF RAW MATERIALS

The Company currently depends upon third parties as the sole source of
supply for some of its products and for the materials used in the manufacture of
other products. The Company does not have long-term agreements with any of its
suppliers and is generally not a major customer to any of its suppliers and
therefore may not be able to obtain inventory at a cost or on the schedule which
it requires in the event of any supply shortage. If the manufacturing of any of
the Company's products is interrupted for any extended period, or if the Company
is not able to purchase and deliver sufficient quantities of its products on a
timely basis, there could be a material adverse effect on the Company's
business, financial condition and results of operations.

LABOR DISPUTES

The employees of L.E. Smith and NBI Properties are covered by collective
bargaining agreements which expire in September and November 1998, respectively.
The Company is engaged in collective bargaining negotiations with a union
representing the production and maintenance employees at its L.E. Smith facility
and the Company anticipates reaching an agreement with that union in the near
future regarding wages and other terms and conditions of employment. The
Company expects to begin collective bargaining negotiations with a union
representing the service employees of NBI Properties in late October, and
expects that an agreement will also be reached with that union. If the Company
was unable to renew these agreements on a timely basis or on reasonable terms,
it could have a material adverse effect upon the Company's business, results of
operations and financial position.

LIABILITY INSURANCE

The Company has liability insurance policies that provide coverage for
liability claims arising out of the products it sells and the services it
provides. The Company has not been the subject of any material liability
claims; however, there can be no assurance that the Company's liability
insurance policies will cover any such claims, or that such policies can be
maintained at an acceptable cost. Any liability of the Company which is not
covered by such policies, or is in excess of the limits of liability of such
policies, could have a material adverse effect on the financial condition of the
Company.

CHANGING ECONOMIC CONDITIONS

Demand for certain of the Company's products and services may fluctuate
significantly based on numerous factors including inflation, general economic
conditions and the economic condition of the Company's customers. There can be
no assurance that the Company will not experience a decline in demand for its
products and services due to declines in general or customer economic
conditions. Any such decline may have a material adverse effect on the
Company's business, operating results and financial condition.

DEPENDENCE ON KEY PERSONNEL

The Company's future operating results depend in significant part upon the
continued contributions of its key senior management personnel, several of whom
would be difficult to replace. The Company's future operating results also
depend in significant part upon its ability to attract and retain qualified
personnel. Personnel that possess the requisite skills and experience to
perform certain functions for the Company have been in limited supply in the
past, and there can be no assurance that the Company will be successful in
attracting or retaining such personnel. The loss of any key employee, the
failure of any key employee to perform satisfactorily in his or her current
position or the Company's inability to attract and retain skilled employees as
needed, could materially and adversely affect the Company's business, operating
results and financial condition. The Company currently carries a $5.0 million
key-man insurance policy on its CEO.

YEAR 2000 RISKS

-13-

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 customers and vendors.

-14-

USE OF PROCEEDS

The net proceeds from the sale of the Units offered hereby are estimated to
be $3,522,000 if the Minimum Offering Amount is sold, and $9,822,000 if the
Maximum Offering Amount is sold, after deducting estimated expenses of the
Offering of $178,000 payable by the Company and assuming no selected dealers
participate in the Offering. If any selected dealers participate in the
Offering, the net proceeds would be reduced by a maximum of 10% times the amount
of any Units sold by such selected dealers. If all of the Units were sold by
selected dealers at the maximum commissions rate, the net proceeds from the sale
of Units are estimated at $3,152,000 if the Minimum Offering Amount is sold, or
$8,822,000 if the Maximum Offering Amount is sold.

Substantially all of the net proceeds of the Minimum Offering Amount will
be used to pay an installment of $3.5 million, due on December 31, 1998, owed by
the Company for Federal income taxes relating to the years 1980 through 1988.
Any net proceeds from sales of Units in excess of the Minimum Offering Amount
are intended to be used first for payment of approximately $1.0 million of
certain development costs in connection with the commercial real estate project
for the Company's subsidiary, NBI Development (this amount is an approximation
of the equity requirement anticipated to be imposed by a permanent real estate
lender). Any net proceeds in excess of such amount are intended to be used for
working capital. Thereafter, any net proceeds from additional sales of Units
are expected to be used to pay the remaining $1.8 million balance, due on
December 31, 1999, owed by the Company for Federal income taxes relating to the
years 1980 through 1988. The Company may temporarily invest a portion of the
proceeds of this Offering in excess of the minimum offering amount in investment
securities, consistent with its investment policies. See "Risk Factors --
Investment Results".

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying any dividends on the Common Stock in the
foreseeable future. In addition, the terms and conditions of the Preferred
Stock limit the Company's ability to pay dividends on the Common Stock. For a
discussion of the dividends payable on the Preferred Stock, see "Description of
Preferred Stock--Dividends".

PRICE RANGE OF COMMON STOCK

The Company's common stock is traded over-the-counter under the symbol
NBII. The following table sets forth the high and low bid prices, as quoted on
the OTC Bulletin Board, for the common stock for the fiscal periods specified.
The quotations of the Company's common stock reflect inter-dealer prices,
without any retail mark-up, mark-down or commissions, and may not necessarily
represent actual transactions.

Fiscal 1998 High Low
----------- ---- ----

First Quarter $0.75 $0.5625
Second Quarter $0.625 $0.53125
Third Quarter $0.875 $0.28125
Fourth Quarter $0.875 $0.78125

Fiscal 1997
-----------

First Quarter $0.875 $0.5625
Second Quarter $0.875 $0.375
Third Quarter $1.00 $0.75
Fourth Quarter $0.90625 $0.75

As of August 18, 1998, there were approximately 1,260 holders of record of
the Common Stock and the closing bid and asked prices were $.78125 and $.9375,
respectively.

There is no public trading market for the Preferred Stock or the Warrants.

-15-

CAPITALIZATION

The following table sets forth the Company's actual capitalization (i) at
June 30, 1998, (ii) as adjusted to reflect the sale by the Company of the
Minimum Offering Amount of 370,000 Units, less estimated Offering expenses, and
the application of $3.5 million of the estimated net proceeds for the payment of
the amount due on December 31, 1998 to the IRS, and (iii) as adjusted to reflect
the sale by the Company of the Maximum Offering Amount of 1,000,000 Units, less
estimated offering expenses, and the application of $3.5 million and $1.8
million of the estimated net proceeds for payments of the amounts due to the IRS
on December 31, 1998 and 1999, respectively. This table assumes that no
commissions are paid to any selected brokers. See "Use of Proceeds."

June 30, June 30,
1998 1998
Proforma as Proforma as
Adjusted for Adjusted for
June 30, Minimum Maximum
1998 Offering Offering
Actual Amount(4) Amount(4)
--------- ------------ ------------
(In thousands)

Long-term debt $ 3,313 $ 3,313 $ 1,535
--------- --------- ---------
Stockholders' equity:

Preferred Stock, $0.01 par value; 5,000,000 shares
authorized, issuable in series; no shares issued and
outstanding, actual; 370,000 shares issued and
outstanding, as adjusted, for Minimum Offering
Amount; and 1,000,000 shares issued and outstanding,
as adjusted, for Maximum Offering Amount -- 4 10

Common Stock, $0.01 par value; 20,000,000 shares
authorized; 10,115,520 shares issued, 2,027,200
shares held in treasury, and as adjusted (1) 101 101 101

Additional paid in capital 6,280 9,798 16,092

Treasury stock (868) (868) (868)

Accumulated deficit (4,213) (4,213) (4,213)
--------- ---------- ----------
Total stockholders' equit 1,300 4,822 11,122
--------- ---------- ----------
Total capitalization $ 4,613 $ 8,135 $ 12,657
--------- ---------- ----------
--------- ---------- ----------

- ----------------------
(1) Excludes 960,500 shares of Common Stock issuable upon exercise of
outstanding stock options at a weighted average exercise price of $.68 per
share, and 1,700,000 shares of Common Stock issuable upon exercise of
outstanding warrants at an exercise price of $.89 per share. See
"Management--Stock Option Plan" and "Description of Capital
Stock--Warrants".

-16-

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, THOSE SET FORTH UNDER THE CAPTION "RISK FACTORS."

RESULTS OF OPERATIONS 1998 - 1997 COMPARISON

The Company reported net income of $172,000 in fiscal 1998, compared to net
income of $1,044,000 in fiscal 1997. The primary reasons for the decline in net
income were the absence of $354,000 of income from discontinued operations in
fiscal 1998, a net loss of $39,000 on investments recorded in fiscal 1998
compared to a net gain of $601,000 included in fiscal 1997, and the inclusion of
an impairment of goodwill totaling $167,000 in fiscal 1998. However, these
items were partially offset by an extraordinary gain, net of income taxes, of
$290,000 recorded during fiscal 1998.

Sales revenues from continuing operations of $12.5 million for the year
ended June 30, 1998 reflected an increase of $822,000, or 7.03%, as compared to
fiscal 1997. The sales revenue growth was due to increased volume at L.E.
Smith, primarily resulting from a significant increase in orders from its
largest customer. This increase was partially offset by a significant decline
in revenues from Krazy Colors, due to a change in sales focus implemented late
in fiscal 1997 which, to-date, has been unsuccessful.

Service and rental revenues from continuing operations totaled $2.2 million
and $2.0 million, respectively, for the years ended June 30, 1998 and 1997. The
increased revenue was primarily related to an increase in the occupancy rate at
the Belle Vernon Holiday Inn, resulting from the absence of renovation
construction activity which limited the number of available rooms during the
second quarter and part of the third quarter of fiscal 1997. In addition, the
hotel experienced an increase in average daily room rates in fiscal 1998
compared to fiscal 1997, primarily because of the renovation completed during
fiscal 1997. The hotel also experienced a significant increase in restaurant
and bar business, due to increased occupancy and increased sales and marketing
efforts.

Total revenues are expected to increase moderately in fiscal 1999 as
compared to fiscal 1998, primarily due to a moderate increase in projected
revenues from L.E. Smith and a slight increase in expected revenues from the
hotel. Revenues from Krazy Colors are expected to remain relatively flat.
Because the Company is currently in the process of restructuring Krazy
Colors' operations, it expects a decline in Krazy Colors' revenues during the
first two quarters of fiscal 1999, anticipated to be offset by an increase in
Krazy Colors' revenues for the third and fourth quarters of fiscal 1999, when
compared to the same periods in fiscal 1998.

Cost of sales as a percentage of sales revenues for the years ended June
30, 1998 and 1997 was 72.1% and 71.1%, respectively. The resulting small
decline in gross margin was related to a significant decline in gross margin
from Krazy Colors, due to the decreased revenue volume. In addition, the
Company had slightly lower margins from L.E. Smith, primarily due to a change in
sales mix, with more sales of lower margin products, increased production costs
associated with the development of new products, and unusually high gas costs
incurred during the second fiscal quarter; however, this was partially offset by
manufacturing efficiencies realized due to the higher volume.

Cost of service as a percentage of service and rental revenue was 74.9% and
75.2% for the years ended June 30, 1998, and 1997, respectively. The slight
improvement in related gross margin was primarily due to the increased rooms
revenue without a corresponding increase in related costs, as the costs include
a significant amount of fixed expenses. However, this was partially offset by
increased depreciation expense resulting from the renovations of the Belle
Vernon Holiday Inn completed during fiscal 1997.

Total cost of sales, service and rentals as a percentage of total revenues
was 72.6% in fiscal 1998 and is expected to increase slightly in fiscal 1999.
The increase is primarily related to a small increase in service and rental
costs at the hotel, as general costs increases are expected to exceed savings
resulting from cost reduction measures. In addition, the Company expects a
slight increase in the cost of sales at L.E. Smith; however, this is expected to
be offset by lower cost of sales projected for Krazy Colors, due to cost
reduction measures.

-17-

Marketing, general and administrative expenses totaled $3.4 million for
the year ended June 30, 1998, an increase of $178,000 compared to the
previous fiscal year. The increase included expenses incurred in connection
with the IRS negotiations, executive severance for L.E. Smith, a non-cash
compensation expense for extensions of certain executive stock options, and
expenses resulting from increased sales and marketing activities. However,
these increases were partially offset by savings resulting from lower payroll
costs, due to fewer executives, and credits related to a reduction of a
reserve for "incurred but not reported" health claims, as the Company
converted to a fully-insured health plan for its corporate and Krazy Colors
employees effective January 1, 1998. Included in marketing, general and
administrative expenses incurred in fiscal 1998 were payroll and related
expenses of $1.4 million, commissions to sales representatives of $478,000,
legal, accounting, hotel management and other professional fees of $286,000,
and advertising costs of $175,000.

Total marketing, general and administrative expenses are expected to
increase slightly in fiscal 1999, compared to fiscal 1998, primarily due to
increased sales and marketing activities and general cost increases,
significantly offset by savings resulting from cost reduction measures at the
hotel and Krazy Colors.

During the third quarter of fiscal 1998, the Company recorded a non-cash
impairment loss of $167,000 related to a write-down of goodwill associated with
Krazy Colors. The revised carrying value of this asset was based upon the
estimated future cash flow of the business. The impairment occurred primarily
due to the unfavorable results of a change in sales focus which was implemented
late in fiscal 1997.

The Company recorded a net loss on investments of $39,000 in fiscal
1998, consisting of a net realized loss of $92,000 and a net unrealized gain
of $53,000. During fiscal 1997, the Company recorded a net gain on
investments of $601,000, consisting of a net realized gain of $419,000 and a
net unrealized gain of $182,000. 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 June 30, 1998, the Company has no investment
positions.

The Company recorded net other expense for the year ended June 30, 1998
totaling $33,000. This compared to net other income of $208,000 in fiscal year
1997, which included income of $348,000, net of legal fees, related to the
recovery of a note receivable for which the Company had previously established a
reserve, partially offset by expenses of $126,000 for architect fees related to
hotel improvement projects that the Company has decided not to pursue.

The Company recorded an income tax benefit from continuing operations of
$72,000 for the year ended June 30, 1998, which was net of state income tax
provisions of $118,000 primarily related to the Company's Pennsylvania
operations. In fiscal 1997, the Company recorded an income tax provision
from continuing operations of $105,000 which included state income tax
provisions of $123,000 primarily related to the Company's Pennsylvania
operations. 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, future utilization of any income tax
benefit from pre-reorganization net operating loss carryforwards are 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 loss
carryforwards were utilized during fiscal 1997; however, $28,000 of
pre-reorganization net operating loss carryforwards were utilized during
fiscal 1998.

DISCONTINUED OPERATIONS

There were no revenues and no income or loss from discontinued operations
for the year ended June 30, 1998. The Company reported net income from
discontinued operations in fiscal 1997 of $354,000, consisting primarily of a
gain on the disposition of NBI, Ltd. of $402,000, including a $316,000
translation gain recognized as a result of the substantial completion of the
company's liquidation.

EXTRAORDINARY GAIN

The entire outstanding principal balance on its IRS debt of $5,278,000 was
due in full on October 1, 1997. Effective April 9, 1998, the Company and the
IRS entered into an amended payment agreement revising the payment terms related
to the Company'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 balance of
approximately $1.8 million is due on or before December

-18-

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. Therefore, during the fourth quarter of fiscal 1998, the
Company recorded a net extraordinary gain of $290,000, consisting of forgiveness
of accrued interest recorded through March 31, 1998 totaling $439,000, less an
income tax provision of $149,000. 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.

FINANCIAL CONDITION

Total current assets of the Company increased $267,000 during fiscal year
1998 to $4.5 million at June 30, 1998. The increase in current assets was
primarily related to increased accounts receivable and inventories resulting
from the increase in sales and production volume at the glass manufacturing
company during fiscal 1998. However, this was partially offset by an overall
decrease of $124,000 in cash and cash equivalents experienced by the Company
during fiscal 1998 (see "Liquidity and Capital Resources").

Total assets of $12.2 million at June 30, 1998 reflected an increase of
$709,000 from June 30, 1997 and was primarily related to an increase in property
and equipment at L.E. Smith, because it is continually working on capital
improvement projects.

NBI Development is planning to begin construction on phase I of its
commercial real estate development project late in calendar 1998, with an
anticipated construction period of approximately ten months. The construction
costs will be capitalized during the construction period and are anticipated to
be approximately nine million dollars. The Company is currently in process of
seeking commercial financing to pay for these costs. (See "Liquidity and
Capital Resources".)

Current liabilities decreased $1.1 million to $7.4 million at June 30,
1998, primarily due to the reclassification of approximately $1.8 million of
the IRS debt to long-term liabilities during the fourth quarter of fiscal
1998, in accordance with an amended payment agreement (see also
"Extraordinary Gain" and "Liquidity and Capital Resources"). This decrease
was partially offset by an increase of $925,000 in short-term borrowings
resulting primarily from short-term borrowings used to fund capital
improvements at L.E. Smith and general working capital needs.

Stockholders' equity of $1.3 million at June 30, 1998 increased $275,000
from June 30, 1997, primarily reflecting net income of $172,000 for fiscal 1998,
as well as a credit of $48,000 related to the non-cash compensation expense
recorded by the Company during fiscal 1998 for the extension of certain
executive stock options.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents decreased $124,000 during fiscal 1998. The
decline was primarily due to substantial capital improvements made at L.E. Smith
which were funded by cash on hand, cash flow from operations and borrowings on
its line of credit.

The Company had negative working capital of $2.9 million and $4.2 million
at June 30, 1998 and 1997, respectively. The increase of $1.3 million in
working capital was primarily related to the reclassification of approximately
$1.8 million of the IRS debt to long-term during the fourth quarter of fiscal
1998, partially offset by an increase in short-term borrowings primarily used to
fund capital improvements at L.E. Smith.

Construction in progress totaled $312,000 at June 30, 1998 and consisted
primarily of various equipment refurbishments and a new computer system
installation at L.E. Smith. The Company estimates that it will cost
approximately $120,000 to complete the outstanding projects, all of which are
expected to be completed during fiscal 1999. The construction costs will
primarily be funded by short-term borrowings under L.E. Smith's existing line of
credit.

The entire outstanding principal balance on the IRS debt of $5,278,000 was
due in full on October 1, 1997. Effective April 9, 1998, the Company and the
IRS entered into an amended payment agreement revising the payment terms related
to the Company'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 balance of
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 debt or
equity financing. The Company's ability to continue as a going concern is
dependent upon

-19-

attainment of financing sufficient to pay off the IRS debt when due. See
also Report of Independent Certified Public Accountants and Notes 2 and 8 to
the Consolidated Financial Statements.

The Company expects its other working capital requirements in the next
fiscal year to be met by existing working capital at June 30, 1998, internally
generated funds and, for L.E. Smith's requirements, short-term borrowings under
an existing line of credit.

TAX LOSS CARRYFORWARDS

As discussed in Note 8 to the accompanying consolidated financial
statements, the Company has approximately $62 million of tax loss
carryforwards. A valuation allowance of approximately $23 million has been
established for the net deferred tax assets arising from the tax loss
carryforwards because the Company has not been able to determine that it is
more likely than not that the net deferred tax assets will be realized.

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 problem
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.

ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.

Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" which supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS No. 131
establishes standards for the way that public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS No. 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" which standardizes the
disclosure requirements for pensions and other postretirement benefits and
requires additional information on changes in the benefit obligations and fair
value of plan assets that will facilitate financial analysis.

-20-

SFAS No. 130, 131 and 132 are all effective for financial statements for
fiscal years beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Management has not yet fully
evaluated the impact, if any, they may have on future financial statement
disclosures. However, results of operations and financial position will be
unaffected by implementation of these standards.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting reporting
standards for derivative instruments including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. Management believes the
adoption of this statement will not have a material impact on the Company's
financial statements.

-21-

BUSINESS
OVERVIEW

NBI was incorporated in 1973, and until 1995 engaged only in the computer
technology and word processing systems industries. Management of NBI determined
in 1994 to discontinue most of its operations in those industries and focus on
the acquisition of new businesses. During fiscal 1997, NBI completed the
disposition of its remaining operations in the computer industry. In January
1995, NBI acquired 80% of Krazy Colors, Inc., a small children's paint
manufacturer located in Las Vegas, Nevada, which manufacturers roll-on, dot-on
and tempura paints. The Company is considering moving this operation to L.E.
Smith's facilities in Pennsylvania during fiscal 1999. In August 1995, NBI
acquired L.E. Smith Glass Company of Mount Pleasant, Pennsylvania. L.E. Smith
was founded in 1907 and is one of the few remaining handmade pressed glass
manufacturers in the United States, manufacturing and selling an assortment of
crystal and colored glass giftware and lighting fixtures for the domestic
consumer market. Also in August 1995, NBI acquired an 80-room full service
Holiday Inn in Belle Vernon, Pennsylvania, which completed a $1 million
renovation during fiscal 1997. In January 1997, NBI acquired 88 acres of
undeveloped land in Belle Vernon, Pennsylvania, which it plans to develop as a
three-stage mixed use retail center.

DOMESTIC OPERATIONS

L.E. SMITH GLASS COMPANY

In August 1995, American Glass, Inc., a wholly-owned subsidiary of the
Company, closed on its purchase of a majority of the assets, including the name,
of L.E. Smith Glass Company ("L.E. Smith", as previously defined) of Mount
Pleasant, Pennsylvania. Founded in 1907, L.E. Smith is one of the few remaining
handmade pressed glass manufacturers in the United States. The company
manufactures and sells an assortment of crystal and colored glass giftware and
lighting fixtures for the domestic consumer market. None of the products
manufactured by L.E. Smith contain lead. L.E. Smith produces its products with
highly skilled workers, utilizing manual and semi-automatic machines to mold,
press, and decorate glassware. L.E. Smith can be flexible in the types of
products it can make, which allows it to be responsive to smaller customers. In
addition, L.E. Smith has far greater flexibility in designing and manufacturing
those products with unusual shapes, sizes, and weights than automated machine
glassmakers. L.E. Smith maintains almost every glass mold it has used for the
past 90 years (in excess of 2,300 molds).

L.E. Smith sells its products through in-house sales managers and
manufacturer's representatives. The giftware products are sold primarily to
traditional and specialty retailers, manufacturers/wholesalers and the food
service market, as well as through an "on-site" company retail store. The
lighting fixture products are sold to manufacturers and retailers.

NBI PROPERTIES, INC.

In August 1995, the Company acquired 100% of the outstanding capital
stock of the Belle Vernon Motel Corporation now known as NBI Properties, Inc.
("NBI Properties", as previously defined). NBI Properties owns and operates
an 80-room full service Holiday Inn in Belle Vernon, Pennsylvania (the "Belle
Vernon Holiday Inn", as previously defined). The Company is licensed
pursuant to a license agreement with Holiday Inns Franchising, Inc. which
expires in August 2005, subject to renewal. The Holiday Inn hotel consists
of approximately 21,000 square feet and sits on approximately 5.8 acres of
land leased under an acquired land lease expiring in 2026 with an option to
extend for an additional 25-year term.

During fiscal year 1997, NBI Properties completed a significant renovation
of the Belle Vernon Holiday Inn. NBI Properties incurred indebtedness of $1.0
million in order to complete such renovation, which is secured by a mortgage on
the hotel.

KRAZY COLORS, INC.

In January 1995, the Company acquired a majority interest in Krazy Colors,
Inc. ("Krazy Colors", as previously defined) a small children's paint
manufacturer currently located in Las Vegas, Nevada, which manufactures roll-on
and dot-on paints for children, as well as bulk tempera paints. Krazy Colors
distributes its products primarily through national and international retail
chains and toy distributors. Krazy Colors is subject to a royalty agreement
which provides for royalty payments to the minority shareholders based upon
gross margin performance. (See "Certain Transactions" and Note 13 to
Consolidated Financial Statements).

-22-

Late in fiscal 1997, Krazy Colors transitioned its sales force from an
independent sales representative group, whose primary customers were small
specialty and gift shop retailers, to a new sales representative group whose
marketing focus is on the tier of retailers which are smaller than the top 100
retailers but significantly larger than the specialty and gift shop retailers on
which the previous representative group focused its efforts. However, during
fiscal 1998, the Company experienced unfavorable results from these efforts as
well as from the business' inability to sustain long-term customers. Therefore,
the Company is currently in process of restructuring Krazy Colors in order to
reduce its overhead. In conjunction with this restructuring, the Company is
considering moving Krazy Colors' operations to L.E. Smith's facilities in
Pennsylvania.

NBI DEVELOPMENT CORPORATION

In January 1997, the Company, through its wholly-owned subsidiary,
Willowbrook Properties, Inc. d/b/a, NBI Development Corporation ("NBI
Development", as previously defined) closed on the acquisition of a parcel of
property consisting of approximately 88 acres of farmland in Belle Vernon,
Pennsylvania. The acquisition cost was approximately $1.0 million, of which
$100,000 was paid in fiscal 1996 and the balance was paid in cash at the
closing. The property is situated along Route 51 in Belle Vernon and has
frontage for approximately 2,700 feet. NBI Development successfully obtained a
zoning variance to permit the development of a mixed use retail and residential
project for the property. The rezoned property has been appraised at $2.2
million, which is approximately $1.0 million in excess of the Company's carrying
value of the property.

Phase I of the project is planned to be a mixed use retail center. NBI
Development recently entered into a development and a leasing agreement with
Michael Joseph Development Corporation, a well-respected local real estate
development company. NBI Development is currently in negotiations with a number
of prospective tenants for phase I, including a nationally prominent grocery
store which would be the primary anchor tenant. NBI Development is currently
seeking commercial financing to pay for the construction costs of the center.
The Company plans to begin construction on phase I of the project late in
calendar 1998, with an anticipated construction period of approximately ten
months from commencement. The construction costs are anticipated to be
approximately nine million dollars.

After the successful development of phase I, the Company contemplates the
development of two additional phases for the project. Currently, the second
phase is projected to be additional retail stores with a town center concept,
and the third phase may include residential property.

HISTORY OF THE COMPANY

NBI was incorporated in 1973 to develop and market a proprietary word
processing system. The Company was the first to introduce a software-based word
processing system and within a few years became known as a leading provider of
dedicated word processing and office automation systems. Because of the
declining interest in purchasing entire system solutions, it was necessary to
restructure the Company in October, 1989 and shift its focus from manufacturing
to customer service and support and into development and marketing of word
processing software products for personal computers.

To further its reorganization efforts, in February 1991, NBI filed a
voluntary petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the District of
Colorado. NBI emerged from Chapter 11 on February 3, 1992, the effective date
of the Plan.

In 1990, NBI formed its domestic systems integration division to transition
the existing customer base from its proprietary hardware platforms to an open
platform. Because of the low margins, intense competition and long sales cycle,
NBI closed this business in June 1994.

In August 1992, NBI sold its domestic customer service and support
division. As of June 30, 1995, the Company discontinued all computer software
development activities.

Late in fiscal 1994, NBI acquired the AlphaNet division which was a network
infrastructure business located in southern Ohio. AlphaNet's market focus was
on the physical cable layer of networks, including utilization of fiberoptic
technology. In August 1996, NBI decided to dispose of its AlphaNet division and
in fiscal 1997 completed the disposition. With the disposition of the AlphaNet
division, the Company discontinued all of its operations in the computer
industry segment.

-23-

INTERNATIONAL OPERATIONS

NBI, Ltd. was a wholly-owned subsidiary of NBI, Inc. that sold integrated
document management solutions, workflow and COLD (Computer Output to Laser Disk)
to central and local government departments and commercial organizations
throughout the United Kingdom. Due to continuing losses incurred by this
subsidiary, NBI decided to sell the operation in fiscal 1995.

In April 1995, NBI, Ltd. completed a sale of certain assets of the company,
including its customer base. Under the terms of this agreement, NBI, Ltd.
retained certain assets and liabilities. NBI, Ltd. filed for voluntary
liquidation in the U.K. during fiscal 1996. As of June 30, 1997, the
liquidation of NBI, Ltd. was substantially complete. The gain on disposal of
NBI, Ltd., including a $316,000 translation gain recognized due to the
substantial completion of the company's liquidation, was included in income from
discontinued operations for the fiscal year ended June 30, 1997.

COMPETITION

The market segments in which the Company participates are extremely
competitive. Many of the Company's existing and potential competitors have
substantially greater financial, marketing and technological resources, as well
as established reputations for developing and distributing products and
providing services in the Company's markets. The Company expects that existing
and new competitors will continue to introduce products and provide services
that are competitive with those of the Company. There can be no assurance the
Company will be able to compete successfully in these markets.

L.E. SMITH. L.E. Smith's main competition in giftware is from imports,
primarily from Europe, South America and the Orient. Most of the competitive
glass from overseas is twenty-four percent leaded crystal, even though L.E.
Smith's giftware is unleaded crystal, because foreign manufacturers are able to
produce leaded glass less expensively due to significantly fewer environmental
restrictions and lower labor costs. The main competition for the glass lighting
fixtures is also imports from Europe, South America and the Orient. There are
also a few domestic companies that have competing products with certain portions
of L.E. Smith's giftware and lighting fixtures product lines. L.E. Smith is
able to compete with other domestic and foreign glass companies because it is
one of only a few hand pressed glass manufacturers remaining in the United
States. The company produces a large variety of unique designs using twelve
different colors of glass, and has a solid reputation for the quality and
reliability of its products. Also, its products are price competitive with
those of other domestic manufacturers. L.E. Smith can compete with foreign
competitors because it has the flexibility to meet shorter lead times without
the restrictive minimum quantities required by most foreign manufacturers.

BELLE VERNON HOLIDAY INN. The hotel has limited competition from other
full-service hotels in a relatively wide-spread area. However, it does compete
with several limited-service hotels in the wide-spread area including three
hotels which opened approximately 300 new rooms during fiscal 1996. The local
market includes several non-competitive motels in a different class as to price
and amenities.

KRAZY COLORS. Krazy Colors' primary competitors are children's finger
paint, paint and crayon manufacturers. Krazy Colors' roll-on and dot-on paints
have a unique bottle design that allows children to use non-toxic, washable
paint with little cleanup. Because of the high procurement costs for paint
(primarily due to freight costs), the company decided late in fiscal 1995 to
manufacture its own tempera paint for its roll-on and dot-on paints. This
enabled the company to more cost-effectively produce and package tempera and
finger paints under the Krazy Color label. The competitors for these products
are large, well-established companies with significantly better distribution
capabilities. Krazy Colors focuses the majority of its sales efforts on its
unique roll-on and dot-on paints.

NBI DEVELOPMENT. There is some competition to the proposed retail center
to be developed by NBI Development in the surrounding area; however, there are
competitive advantages in favor of NBI Development. The advantages include the
significant property frontage on Route 51 in Belle Vernon, the lack of
significant competition in the immediate area and the projected ease of access
to the property. Among the close competitors is a concentration of three
centers, also in Rostraver Township, which are approximately four to five miles
from NBI Development's property. These centers include retail shops, banks and
restaurants, many of which are regionally or nationally prominent, including a
Wal-Mart Supercenter, Kmart, Foodland, Giant Eagle and Lowe's. If the center is
successful, it could result in competition from entities that are better
capitalized than NBI Development.

-24-

SIGNIFICANT CUSTOMERS AND SUPPLIERS

L.E. Smith currently has many small to medium-sized customers and one
significant customer. Sales to its significant customer totaled approximately
34% and 28% of NBI's consolidated revenues for the years ended June 30, 1998 and
1997, respectively. The loss of this customer's business would have a material
adverse effect on NBI. L.E. Smith is focusing its sales efforts on expanding its
customer base to lessen the impact this customer has on its business. The
Company's management believes that its relationship with this customer will
continue into the foreseeable future, due in part to the large number of
different items this customer purchases from L.E. Smith.

L.E. Smith purchases a majority of its raw materials from only a few
vendors. Management believes that other suppliers could provide similar
materials on comparable terms.

SEASONAL VARIATIONS OF BUSINESSES

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 uncertain
whether this trend will continue.

EMPLOYEES

As of July 31, 1998, the Company employed a total of 237 employees
including 194 full-time employees. Currently, 166 of the total employees are
covered by collective bargaining agreements, including 131 employees of L.E.
Smith who are covered by a collective bargaining agreement which expires on
September 1, 1998, and 35 employees of NBI Properties who are covered by a
collective bargaining agreement which expires on November 7, 1998.

The Company is engaged in collective bargaining negotiations with a union
representing the production and maintenance employees at its L.E. Smith facility
and the Company anticipates reaching an agreement with that union in the near
future regarding wages and other terms and conditions of employment. The
Company expects to begin collective bargaining negotiations with a union
representing the service employees of NBI Properties in late October, and
expects that an agreement will also be reached with that union. If the
Company was unable to renew these agreements on a timely basis or on reasonable
terms, it could have a material adverse effect on the Company's business.

PROPERTIES

NBI leases approximately 5,100 square feet of office space for
administrative personnel at its corporate headquarters in Longmont, Colorado,
under a lease expiring in October 2000. The Company also leases approximately
10,000 square feet of warehouse space in Las Vegas, Nevada for its Krazy Colors
manufacturing operation, under a lease expiring in December 1999. The Company
is considering moving Krazy Colors' manufacturing to L.E. Smith's facilities in
Pennsylvania during fiscal 1999. The Company believes it will be able to
sublease the Las Vegas warehouse space in the near future. The Company believes
its leased facilities are adequate to meet its needs for the next several years
and anticipates that it would encounter little difficulty in locating
alternative or additional suitable facilities should its requirements change.

The Company acquired the building and improvements of the Belle Vernon
Holiday Inn Hotel in Belle Vernon, Pennsylvania as a result of its related
business acquisition in August 1995. The building consists of approximately
21,000 square feet and is on approximately 5.8 acres of land leased pursuant
to a land lease expiring in 2026, with an option to extend for an additional
25-year term. In connection with its franchise agreement, NBI Properties
completed approximately $1.1 million in renovations to the hotel during
fiscal 1997.

In August 1995, the Company acquired the land and buildings held by L.E.
Smith, including a total of approximately 194,000 square feet of manufacturing,
warehousing and office space on approximately 11.1 acres of land in Mount
Pleasant, Pennsylvania. During fiscal 1997 and 1998, L.E. Smith leased
approximately 6,000 square feet of temporary warehouse space, under a lease
expiring in December 1999, in order to facilitate certain property improvement
projects, and to accommodate additional space requirements resulting from the
growth of the Company.

-25-

In January 1997, NBI Development acquired 88 acres of undeveloped land in
southwestern Pennsylvania. The Company is pursuing commercial development of
the property and is currently exploring financing options to fund the project.
The property has been appraised at $2.2 million, which is approximately $1.0
million in excess of the Company's carrying value of the property. See
"Domestic Operations -- NBI Development Corporation".

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceeding.

-26-

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth information with respect to the directors
and executive officers of the Company.

NAME AGE POSITION
---- --- --------

Jay H. Lustig 43 Chairman of the Board and Chief
Executive Officer

Martin J. Noonan 46 Managing Director and Director

Marjorie A. Cogan 38 Chief Financial Officer and
Secretary

Morris D. Weiss 39 Senior Vice President and General
Counsel

JAY H. LUSTIG. Mr. Lustig has been Chairman of the Board since February
1992 and Chief Executive Officer since October 1993, although he began acting in
the capacity of chief executive officer in September 1992. Mr. Lustig has also
been President of J.H.L. Holdings, an investment management firm since 1989, and
President of Equibond, Inc., a securities broker-dealer and member of the
National Association of Securities Dealers, Inc., since 1995. Equibond, Inc.
will not participate in this Offering, and will not receive any compensation of
any kind in connection with this Offering. In addition, he is Chairman of the
Board of National Bancshares Corporation of Texas, a four-bank holding company
currently headquartered in Laredo, Texas.

MARTIN J. NOONAN. Mr. Noonan has been with the Company for twelve
years, Managing Director since June 1993 with the responsibility for managing
the day-to-day activities within the Company, and a member of the Board of
Directors since April 1994. Mr. Noonan has also been Interim President of
L.E. Smith Glass Company since October 1997. In addition, he was General
Manager of the systems integration operation from June 1992 to June 1994, and
Director of Marketing from September 1986 to June 1992.

MARJORIE A. COGAN. Ms. Cogan has been Chief Financial Officer of the
Company since October 1997, with responsibility for managing the accounting and
finance functions of the Company. She has also been Secretary of the Company
since May 1993 and was previously Corporate Controller of the Company from May
1993 until October 1997. She has been with the Company for eleven years in
various accounting positions. Prior to joining NBI, Ms. Cogan was an auditor
with a Denver-based CPA firm for four years. Ms. Cogan graduated from Regis
University SUMMA CUM LAUDE with a bachelor's degree in accounting and business
administration. Ms. Cogan obtained her CPA license in 1983.

MORRIS D. WEISS. Mr. Weiss has been Senior Vice President and General
Counsel since April 1997 with responsibilities for overseeing and managing the
legal affairs of the Company. Prior to joining the Company, Mr. Weiss was a
partner with the law firm of Weil, Gotshal & Manges, LLP from January 1994 until
April 1997, and had been an associate at such firm since October 1985. In
addition, Mr. Weiss has been General Counsel of Equibond, Inc. since April 1997,
and Senior Vice President and General Counsel of National Bancshares Corporation
of Texas since April 1997.

BOARD OF DIRECTORS AND COMMITTEES

The Company has standing audit, compensation and nominating committees,
each of which consists of Mr. Lustig and Mr. Noonan. The nominating committee
is responsible for the nomination of persons whose names shall appear on the
ballot for election of directors. The audit committee recommends engagement of
the Company's independent accountants, approves services performed by such
accountants, and reviews and evaluates the Company's accounting system of
internal controls. The compensation committee approves salaries and other
compensation arrangements for the officers of the Company; however, Mr. Lustig
does not vote on matters relating to his compensation.

The Company's Board of Directors met three times during fiscal year 1998.
Both directors participated by personally or telephonically attending, during
fiscal year 1998, all Board of Directors meetings.

-27-

COMPENSATION OF DIRECTORS

Directors who are not employees of the Company receive a fee of $1,000
per meeting attended, $500 per telephonic meeting, $500 per committee meeting
attended (except when attended in conjunction with a Board meeting) and
reimbursement of expenses incurred in attending meetings. This is the only
arrangement for compensation of directors. No directors' fees were incurred
during fiscal 1998, as all directors were also employees of the Company.

EXECUTIVE COMPENSATION

The following table shows all the compensation paid or to be paid by the
Company to its Chief Executive Officer (the "Named Executive Officer") during
the fiscal years ended June 30, 1998, 1997 and 1996. No executive officer was
paid more than $100,000 during any such year.

SUMMARY COMPENSATION TABLE

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ------------
SECURITIES
UNDERLYING
NAME, PRINCIPAL OPTIONS ALL OTHER
POSITION AND PERIOD SALARY ($) BONUS ($) OTHER ($) GRANTED (#) COMPENSATION ($)
- ---------------------- ---------- --------- --------- ------------ ----------------

Jay H. Lustig, Chief
Executive Officer

1998 $ 60,000 $ -- $6,475(1) 400,000(2) --
1997 60,000 22,000 -- -- --
1996 60,000 -- -- -- --

(1) Value of personal use of the company vehicle.

(2) This represents options for which the exercise date was extended on
January 13, 1998 to October 1, 2003, with no change in the exercise
price or other terms of the options. These options were originally
granted under the terms of his employment agreement and were scheduled
to expire on October 1, 1998.

OPTION GRANTS IN LAST FISCAL YEAR

No options were granted to the Named Executive Officer during the fiscal
year ended June 30, 1998.

AGGREGATE OPTIONS EXERCISED IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF
SHARES NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED, IN-THE-MONEY
ACQUIRED HELD AT JUNE 30, 1998 OPTIONS AT JUNE 30, 1998(1)
ON VALUE --------------------- ---------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------- --------- ----------- ----------- ------------- ----------- -------------

Jay H. Lustig 25,000 $10,156 400,000(2) -- $ 79,500 $ 0

- ---------------
(1) Based on the closing price as of June 30, 1998, of the underlying shares of
Common Stock of $.96875 per share, less the per share exercise price of
$.77 per share.

-28-

(2) Includes 400,000 shares underlying options issued during fiscal 1994 in
conjunction with the Named Officer's employment agreement. During fiscal
1998, the expiration date of these options was extended to October 1, 2003.

EMPLOYMENT AGREEMENT

The Company entered into an employment agreement effective October 1, 1993,
with Jay H. Lustig (the "CEO Agreement"). Pursuant to the terms of the CEO
Agreement, Mr. Lustig became an employee and Chief Executive Officer of the
Company as of October 1, 1993. Under the terms of this agreement, the Company
pays Mr. Lustig an annual salary of $60,000.

Mr. Lustig's position as CEO of the Company is a part-time position to
which he is required to dedicate no less than one-third of normal executive
business hours. In addition to Mr. Lustig's salary, the CEO Agreement 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 his termination from the position of CEO.
The Company has accrued but not paid a $22,000 bonus under the terms of this
agreement for fiscal year 1997. No other amounts have been paid or accrued
under the terms of this agreement, since its inception.

In addition to the salary and bonus described above, the CEO Agreement
required that Mr. Lustig be granted a non-qualified stock option to purchase
400,000 shares of the Company's common stock at an exercise price of $.77 per
share. Such price was approximately 400% of certain historic trading levels of
the Company's common stock. This option was effective as of October 1, 1993,
and contained a four year vesting at 25% per year with vesting continuing as
long as Mr. Lustig is CEO. As of October 1, 1997, 100% of the stock options are
vested. On January 13, 1998, the Company extended the expiration date of these
options to October 1, 2003.

The CEO Agreement runs for one year terms which automatically renew on July
1, unless terminated in writing by a majority of the Board of Directors prior to
such renewal date. As there was no action to terminate the CEO Agreement, it
automatically renewed for an additional one year term on July 1, 1998.

Effective April 7, 1997, the Company entered into a consulting agreement
with Morris D. Weiss. The agreement is for an initial term of three years and
automatically renews for successive one year periods unless one of the parties
elects not to extend the agreement. The agreement provides for Mr. Weiss to be
paid an annual consulting fee of $75,000 and requires the Company to grant Mr.
Weiss a stock option on terms similar to those available to other senior
executives. During fiscal year 1998, Mr. Weiss was granted an option to acquire
100,500 shares of common stock.

STOCK OPTION PLAN

GENERAL. The Company's Employee and Director Stock Option Plan (the
"Plan") was adopted for the purpose of granting employees and directors options
to purchase common stock so that they may have the opportunity to participate in
the growth of the Company and to provide them with an increased incentive to
promote the interests of the Company.

ADMINISTRATION OF THE PLAN. The Plan is administered by the Board of
Directors (the "Board") or, if available, a committee of disinterested members
of the Board. The Board may from time to time adopt such rules and regulations
as it deems advisable for the administration of the Plan, and may alter, amend
or rescind any such rules and regulations in its discretion. The Board has the
power to interpret, amend or discontinue the Plan.

GRANT OF OPTIONS. Options may be granted under the Plan for a total of
2,000,000 shares of Common Stock. Of these, 1,100,000 were granted to officers
and directors in 1992, all of which have expired. Any additional grants of
options may be made only to employees of the Company and any parent or
subsidiary. The Board determines the terms of options granted under the Plan,
including the type of option (which can be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or non-qualified stock options), the exercise price, the number of
shares subject to the option, and the exercisability thereof. The Board also
determines, at the time of grant, the period during which the option will be
exercisable.

TERMS AND CONDITIONS OF OPTIONS. The Board may impose on an option any
additional terms and conditions which it deems advisable and which are not
inconsistent with the Plan. The exercise price of any stock option

-29-

granted under the Plan must not be less than 100% or more than 150% of the
fair market value of a share of Common Stock on the date of grant, except
that as to an optionee who at the time an incentive stock option is granted
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, the exercise price of such incentive stock
option must be at least equal to 110% of the fair market value of the shares
as of the date prior to the date of the grant. In addition, no incentive
stock option can be granted to any employee where the aggregate fair market
value of the shares (determined at the date of such option grant) for which
such incentive stock options are exercisable for the first time in any
calendar year exceeds $100,000. In connection with a merger, sale of all of
the Company's assets, or other transaction which results in the replacement
of the Company's Common Stock with the stock of another corporation, the
Board may terminate stock options, accelerate the exercise date of stock
options, or provide for the assumption or replacement of stock options with
comparable options of such other corporation.

EXERCISE OF OPTIONS. An optionee may exercise less than all of the matured
portion of an option, in which case such unexercised, matured portion shall
continue to remain exercisable, subject to the terms of the Plan, until the
option terminates.

-30-

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of July 31, 1998, for (i) each director and
Named Executive Officer of the Company, (ii) all directors and executive
officers of the Company as a group, and (iii) each person known by the Company
to own beneficially 5% or more of the outstanding shares of Common Stock. All
beneficial ownership is sole and direct unless otherwise indicated.

Except as otherwise indicated, the address of each of the following persons
is c/o NBI, Inc., 1880 Industrial Circle, Suite F, Longmont, Colorado 80501.

SHARES BENEFICIALLY OWNED(1)
----------------------------
PERCENT
NAME OF BENEFICIAL OWNER NUMBER OF CLASS
------------------------ ------ --------

Jay H. Lustig(2).................................................... 1,874,565 19.9%
Martin J. Noonan(3)................................................. 100,500 1.2
Hakatak Enterprises, Inc.(4)........................................ 928,645 11.5
Harry J. and Patricia S. Brown(5)................................... 1,041,000 12.9
Transamerica Occidental Life Insurance Company(6)................... 445,029 5.5
All directors and executive officers as a group (4 persons)(7)...... 2,090,765 21.7

- ------------------
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as otherwise
indicated in the other footnotes to this table. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of Common Stock
subject to options or warrants held by that person that are currently
exercisable or exercisable within 60 days are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person.

(2) Includes 400,000 shares issuable upon exercise of options and 935,000
shares issuable upon exercise of warrants. Also includes 324,565 shares
owned indirectly by an investment partnership. Mr. Lustig has an ownership
interest in this partnership and controls the investment decisions of the
partnership.

(3) Consists of 100,500 shares issuable upon exercise of options.

(4) The address of the beneficial owner is P.O. Box 1623, Pacific Palisades, CA
90272.

(5) The address of the beneficial owners is 16079 Mesquite Circle, Fountain
Valley, CA 92708.

(6) The address of the beneficial owner is 1150 Olive Street, Los Angeles,
California 90015.

(7) Includes 601,000 shares issuable upon exercise of options and 935,000
shares issuable upon exercise of warrants.

-31-

CERTAIN TRANSACTIONS

In February 1995, the Company entered into an agreement to acquire 80% of
the outstanding stock of Krazy Colors, effective as of January 1, 1995. Prior
to this agreement the Company's CEO, Jay H. Lustig, owned 55% of the outstanding
stock of Krazy Colors. Under 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 to receive continuing annual royalty payments equal to a
specified percentage of annual gross margin. Royalties are calculated based
upon gross margin in excess of $150,000 in any calendar year and will be earned
at the rate of twenty percent when the gross margin is greater than $150,000 and
less than or equal to $300,000, twenty-five percent when the gross margin is
greater than $300,000 and less than or equal to $450,000, and thirty percent
when the gross margin is greater than $450,000. NBI's CEO will receive 55% of
any such royalty payments. The Company has the right to buy out the royalty
interest after five years, at a price equal to the higher of five times the
average annual royalties paid for the preceding five years or 3.6 times the
highest annual royalty payment for any of the preceding five years. No
royalties were incurred by the Company during the fiscal years ended June 30,
1998 and 1997. 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,
including warrants to purchase 935,000 shares issued to the Company's CEO, at a
price of $.89 per share. These warrants are exercisable through December 31,
2002.

During fiscal years 1998 and 1997, the Company utilized Equibond, Inc., a
securities broker-dealer owned by the CEO, to execute certain transactions on
its behalf. However, NBI uses another unrelated company to act as custodian and
clearing firm for its investment assets. Compensation paid to Equibond, Inc. in
connection with these transactions totaled $1,000 in the fiscal year ended June
30, 1998 and $90,000 for the fiscal year ended June 30, 1997.

During fiscal 1998, the Company borrowed a total of $100,000 from its CEO
for working capital needs. The borrowings are subject to the terms of a
revolving line of credit note which provides for interest to be paid at the rate
of ten percent per annum. The entire principal amount outstanding is due and
payable in full on December 31, 1998. On September 1, 1998, the due date of the
note was extended to December 31, 1999.

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. As a matter of policy, any future transactions between
the Company and any of its executive officers, directors or principal
stockholders will be subject to these same standards and will be approved by a
majority of the disinterested members of the Board of Directors.

-32-

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.01 par value per share. Subject to the approval of its
stockholders at the annual meeting to be held on October 14, 1998, the Company
will also have authorized for issuance 5,000,000 shares of preferred stock,
$0.01 par value per share. Also subject to the approval by the stockholders at
the annual meeting, the Company may, at any time until the mailing of the proxy
statement for the next annual meeting of stockholders, effect a reverse stock
split of the Company's Common Stock. The proposed reverse stock split would be
either 1 for 2.5 shares, 1 for 3 shares, or 1 for 4 shares, at the discretion of
the Board of Directors. The description of capital stock contained herein does
not reflect the adjustment to the number of outstanding shares of Common Stock
upon the completion of the proposed reverse stock split.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

Under the Company's Certificate of Incorporation, upon completion of the
Offering there will be 9,884,480 shares of authorized and unissued Common Stock
and between 4,000,000 (if the Maximum Offering Amount is sold) and 4,630,000 (if
the Minimum Offering Amount is sold) shares of preferred stock, issuable in one
or more classes, available for future issuance without stockholder approval.
These additional shares may be utilized for a variety of corporate purposes
including future public offerings to raise additional capital or to facilitate
corporate acquisitions.

One of the effects of the existence of unissued and unreserved Common Stock
and preferred stock may be to enable the Board of Directors to issue additional
shares in such a way or upon such terms as could render more difficult or
discourage an attempt by a third party to obtain control of the Company by means
of a merger, tender offer, proxy contest or otherwise, and thereby protect the
continuity of the Company's management. Such additional shares also could be
used to dilute the stock ownership of persons seeking to obtain control of the
Company.

The Board of Directors is authorized without any further action by the
stockholders to determine the rights, preferences, privileges and restrictions
of the unissued preferred stock. The Board of Directors may issue one or more
classes of preferred stock with more favorable voting, dividend, conversion, and
other terms, than the Preferred Stock. Such issuances could also, among other
things, have the effect of delaying, deferring or preventing a change in control
of the Company. However, any issuance of preferred stock with voting rights
could have the effect of further reducing or eliminating the Company's NOLs.
See "Risk Factors--Loss of NOLs."

Other than the Common Stock, Preferred Stock (including the Preferred Stock
to be issued as dividends) and Warrants to be registered, the Company does not
currently have any plans to issue additional shares of common stock or preferred
stock other than shares of Common Stock which may be issued upon the exercise of
options which have been granted or which may be granted in the future to the
Company's employees, non-employee directors and consultants, and of outstanding
warrants.

CERTAIN PROVISIONS OF DELAWARE LAW

Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by more
than 2,000 stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless (i) the corporation by action of its stockholders adopts an
amendment to its Certificate of Incorporation or Bylaws expressly electing not
to be governed by the Delaware anti-takeover law (which the Company has not
adopted), (ii) the business combination was approved by the board of directors
of the corporation before the other party to the business combination became an
interested stockholder, (iii) upon consummation of the transaction that made it
an interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement of the
transaction (excluding voting stock owned by directors who are also officers or
held in employee benefit plans in which the employees do not have a confidential
right to tender or vote stock held by the plan) or (iv) the business combination
was approved by the board of directors of the corporation and ratified by
holders of two-thirds of the voting stock which the interested stockholder did
not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporations' directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an "interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested

-33-

stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes a beneficial
owner of 15% or more of a Delaware corporation's voting stock.

COMMON STOCK PURCHASE WARRANTS

Each Warrant entitles the registered holder to purchase one (1) share of
Common Stock, par value $.01, at a purchase price of $1.20. The Warrants will
become exercisable and separately tradeable immediately upon issuance. The
Warrants will expire on December 31, 2004.

DESCRIPTION OF PREFERRED STOCK

The following is a summary of the terms of the Preferred Stock. This
summary is not intended to be complete and is subject to and qualified in its
entirety by reference to the Certificate of Designation to be filed with the
Secretary of State of the State of Delaware amending the Company's Certificate
of Incorporation (the "Certificate of Designation") and setting forth the
rights, preferences and limitations of the Preferred Stock, a form of which is
available from the Company.

The shares of the Preferred Stock, when issued and sold for the
consideration herein contemplated, will be duly and validly issued, fully paid
and nonassessable and the holders thereof will have no preemptive rights in
connection therewith. The Preferred Stock will not be subject to any sinking
fund or other obligation of the Company to redeem or retire the Preferred Stock.
Unless earlier redeemed by the Company, the Preferred Stock will have a
perpetual maturity. Any Preferred Stock redeemed or otherwise acquired by the
Company will, upon cancellation of such shares, have the status of authorized
but unissued preferred stock subject to reissuance by the Board of Directors as
Preferred Stock or as shares of preferred stock of any one or more other series.

DIVIDENDS

Holders of the Preferred Stock will be entitled to 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 shares of Preferred Stock. The method
of payment of dividends is selected by each holder of Preferred Stock, and may
be changed annually by the holder subject to certain restrictions. Dividends
will be paid when and as declared by the Board of Directors out of funds legally
available for payment of dividends. To the extent that insufficient funds are
available to pay all dividends accrued as of each accrual date, dividends will
be paid first pro rata to all holders who have elected to receive dividends
payable in additional shares of Preferred Stock until all such dividends accrued
have been paid, and then pro rata to all holders who have elected to receive
dividends payable in cash. The Preferred Stock is redeemable at the option of
the Company, in whole or in part, at the declining redemption prices set forth
herein. If the Preferred Stock has not been redeemed by December 31, 2004, the
dividend rate will thereafter increase to an annual rate per share of either (a)
$1.10 in cash, or (b) .12 additional shares of Preferred Stock, at the option of
the holder. See "Description of Preferred Stock--Optional Redemption."

The Company will not issue any fractional shares of Preferred Stock in
payment of dividends, but will register the amount of fractional shares that
each holder is entitled to receive until the aggregate value of such fractional
interests equals one whole share, which will be issued with the next payment of
dividends. Any fractional share interests held on the date of redemption of
Preferred Stock by the Company will be paid in cash by the Company to the
holders thereof pro rata at the same rate as the redemption price for whole
shares.

In order to exercise the holder's option to receive either cash or stock in
payment of dividends on the Preferred Stock, each holder of Preferred Stock will
receive a form for election of method of payment, together with a copy of the
Company's most recent Annual Report on Form 10-KSB, as filed with the Securities
and Exchange Commission, and any other information that the Company determines
material in connection with the holder's election. In order to make a change in
the holder's payment status, the holder will be required to execute and return
the election form to the Company within 30 days after the date the election form
is sent by the Company to the holder. If the holder does not return the form
requesting a change in payment status, the holder will be deemed to elect to
retain the same payment method last chosen by the holder until the next date
that the payment status may be changed. In the event that the Company is unable
to issue additional shares of Preferred Stock because it has not kept the
registration statement for such shares effective under the Securities Act of
1933, as amended, or because it has not obtained or maintained the registration
or qualification of shares of Preferred Stock in one or more of the

-34-

states in which such shares are to be issued, the Company will be required to
accrue dividends in cash on the Preferred Stock affected thereby.

Holders of shares of Preferred Stock called for redemption on a redemption
date falling between a dividend payment record date and the dividend payment
date shall, in lieu of receiving such dividend on the dividend date fixed
therefor, receive such dividend payment together with all other accrued and
unpaid dividends on the date fixed for redemption.

Unless full cumulative dividends on the Preferred Stock have been paid or
sufficient funds set aside therefor, dividends may not be paid or declared and
set aside for payment and other distribution may not be made on the Common Stock
or any other stock of the Company ranking junior to the Preferred Stock as to
dividends nor may any Common Stock or any other stock of the Company ranking
junior to the Preferred Stock as to dividends be redeemed, repurchased or
otherwise acquired for any consideration by the Company.

Under Delaware law, dividends or distributions to stockholders may be made
only from the surplus of the Company or, in certain situations, from the net
profits for the current fiscal year or the fiscal year before which the dividend
or distribution is declared. The Company's ability to pay dividends on the
preferred stock in the future will depend upon its financial results, liquidity
and financial condition. In addition, the Company may be restricted under the
terms of any new debt financing from payment of cash dividends on the Preferred
Stock. See "Risk Factors--Uncertainty of Payment of Dividends on Preferred
Stock."

LIQUIDATION RIGHTS

In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, before any distribution of assets is made to holders
of Common Stock or any other stock of the Company ranking junior to the shares
of Preferred Stock upon liquidation, dissolution or winding up, the holders of
Preferred Stock shall receive a liquidation preference of $10 per share and
shall be entitled to receive all accrued and unpaid dividends through the date
of distribution. If, upon such a voluntary or involuntary liquidation,
dissolution or winding up of the Company, the assets of the Company are
insufficient to pay in full the amounts described above as payable with respect
to the Preferred Stock, the holders of the Preferred Stock will share ratably in
any such distributions of assets of the Company first in proportion to their
respective liquidation preferences until such preferences are paid in full, and
then in proportion to their respective amounts of accrued but unpaid dividends.
After payment of any such liquidation preference and accrued dividends, the
shares of Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Company.

A consolidation or merger of the Company with or into any other corporation
will not be deemed to be a liquidation, dissolution or winding up of the
Company.

OPTIONAL REDEMPTION

The shares of Preferred Stock (including Preferred Stock issued as
dividends) may be redeemed at the Company's option, out of funds legally
available therefor, on at least 30 but not more than 60 days notice, as a whole
or from time to time in part, at the following redemption prices per share, plus
in each case, an amount equal to accrued and unpaid dividends, if any, up to but
excluding the date fixed for redemption, whether or not earned or declared.

If redeemed during the 12 month period beginning January 1 and ending
December 31:

Year Redemption Price
---- ----------------

1999 $11.00
2000 10.80
2001 10.60
2002 10.40
2003 10.20
2004 and thereafter 10.00

If fewer than all of the shares of Preferred Stock are to be redeemed, the
shares to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Board of Directors of the Company in its sole
discretion. On and after the date fixed for redemption, provided that the
redemption price (including any

-35-

accrued and unpaid dividends to but excluding the date fixed for redemption)
has been duly paid or provided for, dividends shall cease to accrue on the
Preferred Stock called for redemption, such shares shall no longer be deemed
to be outstanding and all rights of the holders of such shares as
stockholders of the Company shall cease, except the right to receive the
monies payable upon such redemption, without interest thereon, upon surrender
of the certificates evidencing such shares.

VOTING RIGHTS

The holders of the Preferred Stock will have no voting rights except as
described below or as required by law. In exercising any such vote, each
outstanding share of Preferred Stock will be entitled to one vote, excluding
shares held by the Company or any affiliate of the Company, which shares shall
have no voting rights.

As long as any Preferred Stock is outstanding, the Company may not, without
the affirmative vote or consent of the holders of at least 50% (unless a higher
percentage shall then be required by applicable law) of the outstanding shares
of Preferred Stock, amend or repeal any provision of the Company's Certificate
of Incorporation (including the Certificate of Designation) or Bylaws which
would alter or change the preferences, rights, privileges, or powers of, or the
restrictions provided for the benefit of, the Preferred Stock.

TRANSFER AGENT AND REGISTRAR

______________ will act as transfer agent and registrar for the Preferred
Stock.

-36-

PLAN OF DISTRIBUTION

The Company intends to offer the Units through its own officers and
employees, without the payment of any commissions or other compensation in
connection with such sales. The Company reserves the right, however, to engage
one or more selected dealers who are members of the National Association of
Securities Dealers, Inc., to participate in the Offering. The Company will not,
however, engage Equibond, Inc., a securities broker-dealer owned by Jay Lustig,
the Chief Executive Officer of the Company. The Company will pay no more than
10% of the purchase price per Unit in commissions and expenses to any selected
dealer who may be engaged by the Company to participate in the Offering. It is
not anticipated that any selected dealer engaged by the Company will make a
market for the Preferred Stock or Warrants.

If the Minimum Offering Amount is not sold by December 31, 1998 (the
Initial Offering Expiration Date), the offering will terminate and all funds
held in the escrow account will be returned to investors, provided that the
Company may, in its discretion, extend the Initial Offering Expiration Date by
up to 60 days as long as the Company is not then in default on its obligation to
pay the debt owed to the IRS. If the Minimum Offering Amuont is sold by the
Initial Offering Expiration Date, the Offering may continue until the earliest
to occur of (i) the sale of all of the Units offered hereby; (ii) December 31,
1999, or (iii) such earlier date as the Company shall determine, in its sole
discretion (the Final Offering Expiration Date).

All subscription funds delivered prior to acceptance by the Company of the
Minimum Offering Amount will be held in an escrow account by Southern California
Bank as escrow agent. If the Minimum Offering Amount is accepted by the Company
prior to the Initial Offering Expiration Date, the Escrow Agent will release the
subscription funds held in the escrow account to the Company. If the Minimum
Offering Amount is not accepted by the Company prior to the Initial Offering
Expiration Date, the Escrow Agent will return all subscription funds to the
subscribers, without interest or deduction.

Offerees who desire to purchase Units must complete and execute the
Subscription Agreement included as an exhibit to this Registration Statement and
provide it to the Company, together with payment in full for the Units
subscribed for, as further described below. The Company reserves the right to
reject any subscription in whole or in part. Any subscription which is not
accompanied by a completed and signed Subscription Agreement will be rejected.
Until accepted by the Company, each subscription shall constitute an offer to
purchase a specified number of Units.

PRIOR TO THE DATE OF ACCEPTANCE OF SUBSCRIPTIONS FOR THE MINIMUM OFFERING
AMOUNT: Subscribers must deliver funds for the entire amount of Units subscribed
for, to Southern California Bank. Funds may be delivered by check payable to
"SCB FBO NBI, Inc. Escrow No. 11781-GG, sent to the attention of Gloria
Garriott, Southern California Bank, 4100 Newport Place, Suite 130, Newport
Beach, California 92660, or by wire transfer sent in accordance with the
following wire transfer instructions:

Southern California Bank
Account No.: 1900307
ABA/Routing No.: 1222-2693-7
Escrow No.: 11781-GG
Wire sent from: (Name of Subscriber)

AFTER THE DATE OF ACCEPTANCE OF SUBSCRIPTIONS FOR THE MINIMUM OFFERING
AMOUNT: Subscribers must deliver funds for the entire amount of Units subscribed
for, to the Company. Funds may be delivered by check payable to "NBI, Inc."
sent to the attention of Marjorie A. Cogan, Chief Financial Officer, NBI, Inc.,
1880 Industrial Circle, Suite F, Longmont, Colorado 80501, or by wire transfer
sent in accordance with the following wire transfer instructions:

Norwest Bank Colorado, N.A.
Account No.: 1823506550
ABA/Routing No.: 102000076
Wire sent from: (Name of subscriber)

-37-

LEGAL MATTERS

The validity of the Preferred Stock offered hereby, along with certain
legal matters relating to this Offering will be passed upon for the Company by
Ireland, Stapleton, Pryor & Pascoe, P.C., Denver, Colorado.

EXPERTS

The financial statements of NBI, Inc. for the two years ended June 30,
1998, included in this Prospectus and the Registration Statement of which it is
a part, have been audited by BDO Seidman LLP, independent certified public
accountants, as set forth in their report thereon (which contains an explanatory
paragraph regarding the Company's ability to continue as a going concern)
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of Preferred Stock offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement. For
further information, reference is made to the Registration Statement, including
the exhibits filed as a part thereof and otherwise incorporated therein.
Statements made in this Prospectus as to the contents of any document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such document filed as an exhibit to the Registration Statement, and
each such statement is qualified in all respects by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports and other information with the Commission.
The Registration Statement, including exhibits, as well as such other reports,
proxy statements and information filed by the Company may be inspected, without
charge, and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and at 7 World Trade Center, Suite 1300, New
York, New York 10048. Reports, proxy and information statements and other
information filed electronically by the Company with the Commission are
available at the Commission's World Wide Web site at http://www.sec.gov. Copies
of such material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.

-38-

INDEX TO FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants, BDO Seidman, LLP . . . . F-2
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity. . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . F-8

F-1

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of NBI, Inc.

We have audited the accompanying consolidated balance sheet of NBI, Inc. and
subsidiaries as of June 30, 1998, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended June 30, 1998
and 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NBI, Inc. and
subsidiaries at June 30, 1998, and the results of their operations and their
cash flows for the years ended June 30, 1998 and 1997 in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company may not be able to meet the payment terms
of the IRS debt within the contractual terms of the agreement. This condition
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

/s/ BDO Seidman, LLP
BDO Seidman, LLP

Denver, Colorado
July 31, 1998

F-2

NBI, INC.
CONSOLIDATED BALANCE SHEET
June 30, 1998
(Amounts in thousands, except share data)

ASSETS

Current assets:
Cash and cash equivalents $ 209
Accounts receivable, less allowance for doubtful accounts of $69 1,375
Inventories 2,750
Other current assets 156
--------
Total current assets 4,490

Property, plant and equipment, net 7,436
Other assets 279
--------

$ 12,205
--------
--------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Short-term borrowings and current portion of notes payable $ 1,846
Current portion of IRS debt and other income taxes payable 3,527
Accounts payable 1,200
Accrued liabilities 796
--------
Total current liabilities 7,369
Long-term liabilities:
Income taxes payable 1,778
Notes payable 1,351
Deferred income taxes 223
Postemployment disability benefits 184
--------
Total liabilities 10,905
--------

Commitments and contingencies

Stockholders' equity:
Common stock - $.01 par value (20,000,000 shares
authorized; 10,115,520 shares issued) 101
Capital in excess of par value 6,280
Accumulated deficit (4,213)
--------
2,168
Less treasury stock, at cost (2,027,200 shares) (868)
--------
Total stockholders' equity 1,300

$12,205
--------
--------

See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.

F-3

NBI, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended June 30, 1998 and 1997
(Amounts in thousands, except per share data)

1998 1997
------- -------

Revenues:
Sales $12,519 $11,697
Service and rental 2,174 1,972
------- -------
14,693 13,669
------- -------
Costs and expenses:
Cost of sales 9,032 8,314
Cost of service and rental 1,629 1,483
Marketing, general and administrative 3,395 3,217
Impairment of goodwill 167 --
------- -------
14,223 13,014
------- -------

Income from operations 470 655
------- -------

Other income (expense):
Interest income 5 17
Net gain (loss) on investments (39) 601
Other income (expense) (33) 208
Interest expense (593) (686)
------- -------
(660) 140
------- -------
Income (loss) from continuing operations before
provision for income taxes and extraordinary gain (190) 795
Benefit (provision) for income taxes 72 (105)
------- -------
Income (loss) before discontinued operations
and extraordinary gain (118) 690
Income from discontinued operations, net of
income tax benefit of $24 -- 354
Extraordinary gain, net of income taxes of $149 290 --
------- -------

Net income $172 $1,044
------- -------
------- -------

Income (loss) per common share - basic:
Income (loss) before discontinued operations
and extraordinary gain $(.01) $.09
Income from discontinued operations -- .04
Extraordinary gain .03 --
------- -------
Net income $.02 $.13
------- -------
------- -------

Income (loss) per common share - diluted:
Income (loss) before discontinued operations
and extraordinary gain $(.01) $.08
Income from discontinued operations -- .04
Extraordinary gain .03 --
------- -------
Net income $.02 $.12
------- -------
------- -------

See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.

F-4

NBI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1998 and 1997
(Amounts in thousands, except share data)

Common Foreign
Number of Stock Capital in Currency
Common (Par Value Excess of Accumulated Translation Treasury
Shares $.01) Par Value Deficit Adjustment Stock Total
---------- --------- ---------- ----------- ----------- -------- -----

Balance June 30, 1996 10,001,270 $100 $6,181 $(5,429) $316 $(868) $300

Issued under
Employee Stock
Option Plan 3,750 -- 2 -- -- -- 2

Realized translation gain
from discontinued
operations -- -- -- -- (316) -- (316)

Other -- -- (5) -- -- -- (5)

Net income for the year
ended June 30, 1997 -- -- -- 1,044 -- -- 1,044
---------- --- ----- ----- --- --- -----

Balance June 30, 1997 10,005,020 100 6,178 (4,385) -- (868) 1,025

Issued under
Employee Stock
Option Plan 110,500 1 28 -- -- -- 29

Utilization of
pre-reorganization
net operating loss
carryforwards -- -- 28 -- -- -- 28

Compensation expense
related to stock
option extensions -- -- 48 -- -- -- 48

Other -- -- (2) -- -- -- (2)

Net income for the year
ended June 30, 1998 -- -- -- 172 -- -- 172
---------- --- ----- ----- --- --- -----

Balance June 30, 1998 10,115,520 $101 $6,280 $(4,213) $ -- $(868) $1,300
---------- ---- ------ ------- ----- ------ ------
---------- ---- ------ ------- ----- ------ ------

See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.

F-5

NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
(Amounts in Thousands)

1998 1997
-------- -------

Cash flows from operating activities:

Net income $ 172 $ 1,044

Adjustments to reconcile net income to net cash
flow provided by operating activities:

Depreciation and amortization 738 591
Realized translation gain from discontinued operations -- (316)
Utilization of pre-reorganization net operating loss carryforwards 28 --
Provision for bad debts and returns 89 112
Provision for writedown of inventories 69 105
Provision for writedown of note receivable 10 --
Loss (gain) on sales of property and equipment 54 (9)
Impairment of goodwill 167 --
Net unrealized gain on trading securities (53) (182)
Compensation expense related to stock option extensions 48 --
Other (2) 7

Changes in assets -- decrease (increase):
Accounts receivable (226) 231
Inventory (349) (243)
Other current assets 22 586
Other assets (86) (11)
Changes in liabilities -- (decrease) increase:
Obligations for short-sale transactions (58) (200)
Accounts payable and accrued liabilities (259) (128)
Income tax related accounts 3 (88)
------- ------

Net cash flow provided by operating activities 367 1,499
------- ------

Cash flows from investing activities:

Proceeds from sales of property and equipment 2 23
Purchases of property and equipment (1,199) (2,868)
------- ------

Net cash flow used in investing activities (1,197) (2,845)
------- ------

(continued on following page)

See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.

F-6

NBI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30, 1998 and 1997
(Amounts in Thousands)

1998 1997
------ --------

Cash flows from financing activities:

Collections on notes receivable $ 5 $ --
Proceeds from issuance of stock, net of offering costs -- (5)
Proceeds from borrowing 105 1,650
Proceeds from stock option exercises 29 2
Payments on notes payable (270) (208)
Net borrowings (payments) on line of credit 837 (595)
----- -----

Net cash flow provided by financing activities 706 844
----- -----

Net decrease in cash and cash equivalents (124) (502)

Change in cash and cash equivalents included
in net assets of discontinued operations -- 53

Cash and cash equivalents at beginning of year 333 782
----- -----

Cash and cash equivalents at end of year $ 209 $ 333
----- -----
----- -----

Supplemental disclosures of cash flow information:

Interest paid $ 349 $663
----- -----
----- -----

Income taxes paid $ 88 $163
----- -----
----- -----

Noncash purchases of property, plant and equipment
included in accounts payable at end of year $ 190 $ 99
----- -----
----- -----

See accompanying Report of Independent Certified Public Accountants
and Notes to Consolidated Financial Statements.

F-7

NBI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS DESCRIPTION: The Company operates primarily in the glass manufacturing
and hotel operations industries. Both of these operations are located in
southwestern Pennsylvania. The Company also owns 80% of a small children's
paint manufacturing company in Las Vegas, Nevada. In January 1997, the Company
acquired 88 acres of undeveloped land in southwestern Pennsylvania. The Company
is pursuing commercial development of the property. Previously, the Company
operated primarily in the computer industry. Those operations have been
discontinued and reported separately (see Note 3).

PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries, and its 80% owned
children's paint manufacturing subsidiary. All significant intercompany
accounts, transactions and profits have been eliminated. The Company records
the minority interest in consolidated net assets equal to the minority's
percentage ownership in the net assets of the subsidiary entity, to the extent
the minority interest is positive. At June 30, 1998, the minority interest in
the children's paint manufacturing subsidiary was a deficit balance and was
limited to zero, accordingly. The minority's share of income (losses) is shown
as a separate component of consolidated net income, if significant. In
addition, the minority's share of losses are recorded only until the minority
interest in the net asset of the subsidiary has been reduced to zero.

USE OF ESTIMATES: Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions. These estimates or assumptions affect reported amounts of
assets, liabilities, revenue and expenses as reflected in the financial
statements. Actual results could differ from those estimates.

FAIR VALUES OF FINANCIAL INSTRUMENTS: Unless otherwise specified, the Company
believes the book value of financial instruments approximates their fair value.

RECENT ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.

Also, in June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS No. 131 establishes
standards for the way that public companies report information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued to
the public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits and requires
additional information on changes in the benefit obligations and fair value of
plan assets that will facilitate financial analysis.

F-8

SFAS No. 130, 131 and 132 are all effective for financial statements for fiscal
years beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Management has not yet fully evaluated the
impact, if any, they may have on future financial statement disclosures.
However, results of operations and financial position will be unaffected by
implementation of these standards.

CASH: 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.

INVESTMENTS IN SECURITIES: 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 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 stockholders' 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.

The Company computes realized gains or losses based upon the specific
identification method.

INVENTORIES: Inventories are stated at the lower of cost (at standard which
approximates first-in, first-out method) or market and were comprised of the
following:

June 30,
1998
----
(Amounts in thousands)

Raw Materials $ 807
Work in Process 390
Finished Goods 1,539
Food and Beverage Inventory 14
-----------
$ 2,750
-----------
-----------

LONG-TERM ASSETS: The Company applies SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets". Under SFAS No. 121, long-lived assets and
certain identifiable intangibles are reported at the lower of the carrying
amount or their estimated recoverable amounts.

F-9

PROPERTY, PLANT AND EQUIPMENT: Capital assets are recorded at cost and are
depreciated on a straight-line basis over the following lives:

Asset Type Life
---------- ----

Land N/A
Buildings and building improvements 20-25 years
Machinery and equipment 3-15 years
Office and hotel furniture, fixtures 5-10 years
Construction-in-progress N/A

TRANSLATION OF FOREIGN CURRENCIES: Accounts of foreign subsidiaries were
maintained in the currencies of the countries in which they operated and were
translated to U.S. dollars in conformity with generally accepted accounting
principles. Adjustments resulting from the translation of foreign currency
financial statements were deferred and classified as a separate component of
stockholders' equity.

The translation adjustment at June 30, 1996 was related to the Company's foreign
subsidiary, NBI Ltd. which filed for voluntary liquidation in the U.K. during
fiscal 1996 (see Note 3). Because this liquidation was substantially complete
at June 30, 1997, the translation adjustment was recorded as a realized gain and
included in the net gain from disposal of discontinued operations.

STOCK OPTION PLAN: The Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its stock
option plan. Under APB Opinion No. 25, no compensation cost has been recognized
for stock options granted, as the option price equals or exceeds the market
price of the underlying common stock on the date of grant. SFAS No. 123,
"Accounting for Stock-Based Compensation" requires the Company to provide pro
forma information regarding net income as if compensation cost for the Company's
stock option plan had been determined in accordance with the fair value based
method prescribed in SFAS No. 123. To provide the required pro forma
information, the Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model.

REVENUE RECOGNITION: Revenue from sales of products from all operations is
recognized when title passes, generally when the goods are shipped. Service and
rental revenue from the hotel operations is recognized when provided.

ADVERTISING COSTS: The Company expenses the production costs of advertising the
first time the advertising takes place, except for costs related to the
production of new catalogs. These cost are capitalized and amortized over three
years, their expected period of future benefits. Included in other current
assets at June 30, 1998 were capitalized catalog advertising costs of $65,000.
These costs are net of accumulated amortization of $120,000.

The Company also has a contract for billboard advertising for the hotel. These
costs were capitalized and are being amortized over ten years, the life of the
contract. Included in other assets at June 30, 1998 were capitalized billboard
costs of $9,000, which are net of accumulated amortization of $1,000.

Advertising expense was $174,000 and $133,000 for the years ended June 30, 1998
and 1997, respectively.

INCOME TAXES: The Company accounts for income taxes in conformity with FAS 109.
Under the provisions of FAS 109, a deferred tax liability or asset (net of a
valuation allowance) is provided in the financial statements by applying the
provisions of applicable tax laws to measure the deferred tax consequences of
temporary differences which result in net taxable or deductible amounts in
future years as a result of events recognized in the financial statements in the
current or preceding years.

NET INCOME (LOSS) PER SHARE: During fiscal 1998, NBI, Inc. adopted SFAS No. 128,
which 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 an entity,
similar to fully diluted earnings per share. (See Note 16.)

F-10

RECLASSIFICATIONS AND ADJUSTMENTS: Certain items in the 1997 financial
statements have been reclassified to conform to the 1998 manner of presentation.

2. GOING CONCERN

As discussed in Note 8, $3.5 million of the Company's debt to the Internal
Revenue Service ("IRS") is due on December 31, 1998 and the balance of
approximately $1.8 million is due on December 31, 1999. This condition raises
substantial doubt about the Company's ability to continue as a going concern.
In order to pay such amount, management intends to obtain additional debt or
equity financing. The Company is currently pursuing various financing
alternatives; however there can be no assurance that the Company will be able to
obtain such financing. The Company's ability to continue as a going concern is
dependent upon attainment of financing sufficient to pay off the IRS debt when
due. The accompanying financial statements do not contain any adjustments that
might result from the outcome of this uncertainty.

3. DISCONTINUED OPERATIONS

During April 1995, NBI, Ltd. completed a sale of certain assets of the company
including its customer base. NBI, Ltd. filed for voluntary liquidation in the
U.K. during fiscal 1996. As of June 30, 1997, the liquidation of NBI, Ltd. was
substantially complete.

On August 27, 1996, the Company decided to dispose of its AlphaNet division.
During fiscal 1997, the Company completed its disposition of this division
through a sale of certain assets and the assumption of certain liabilities of
the operation.

With the decision to dispose of its AlphaNet division, the Company discontinued
all of its operations in the computer industry segment. Therefore, it
separately reported the income from this segment as discontinued operations for
the years ended June 30, 1998 and 1997 as follows:

1998 1997
------- -------
(Amounts in thousands)

Revenues from discontinued operations $ -- $ 395
------- -------
------- -------

Income from discontinued operations before
income taxes $ -- $ --
Income tax provision -- --
------- -------
Net income from discontinued operations $ -- $ --
------- -------

Gain (loss) on disposal
NBI, Ltd. $ -- 402
AlphaNet Division
(including loss from operations of $67,000
from August 27, 1996 through its disposition) -- (72)
Income tax benefit -- 24
------- -------
$ -- $ 354
------- -------

Net income from discontinued operations $ -- $ 354
------- -------
------- -------

The gain on disposal of NBI, Ltd. included a $316,000 translation gain
recognized as a result of the substantial completion of the company's
liquidation. No federal or state income taxes were recorded related to the gain
on disposal of NBI, Ltd., as it was a foreign entity.

F-11

4. INVESTMENTS IN SECURITIES AND OBLIGATIONS FROM SHORT-SALE TRANSACTIONS

During the years ended June 30, 1998 and 1997, 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 loss of $92,000 and a net unrealized gain of $53,000 on
investments for the year ended June 30, 1998. For the year ended June 30,
1997, a net realized gain of $419,000 and a net unrealized gain of $182,000
were recorded.

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 June 30, 1998, the Company had no
investment positions.

5. OTHER CURRENT ASSETS

Included in other current assets totaling $156,000 at June 30, 1998, was
restricted cash of $3,000, representing amounts held in trust for payments under
self insurance plans.

6. PROPERTY, PLANT AND EQUIPMENT

June 30,
1998
------
(Amounts in thousands)

Land $ 1,269
Buildings 3,356
Machinery and equipment 3,851
Office and hotel furniture and fixtures 828
Construction in-progress 312
---------
9,616
Accumulated depreciation (2,180)
---------
$ 7,436
---------
---------

Total depreciation expense from continuing operations was $705,000 and $552,000
for the years ended June 30, 1998 and 1997, respectively. The Company estimates
that it will cost approximately $120,000 to complete the outstanding projects,
all of which are expected to be competed during fiscal 1999. The Company is
continually working on capital improvement projects at the glass manufacturing
facility.

7. OTHER ASSETS

Included in other assets of $279,000 at June 30, 1998, was $29,000 of goodwill
and other intangibles related to the acquisition of 80% of the outstanding stock
of Krazy Colors during fiscal 1995. The goodwill and other intangibles are net
of accumulated amortization totaling $265,000 at June 30, 1998. Related
amortization expense was $24,000 and $29,000 for the years ended June 30, 1998
and 1997, respectively. In addition, the Company recorded a non-cash impairment
loss of $167,000 during fiscal year 1998 related to a write-down of the Krazy
Color's goodwill. The revised carrying value of this asset was based upon the
estimated undiscounted future cash flow of the business. The impairment
occurred primarily due to the unfavorable results of a change in sales focus
which was implemented late in fiscal 1997, as well as the business' inability to
sustain long-term customers.

F-12

8. INCOME TAXES

IRS DEBT:

On April 28, 1998, the Company and the 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 April 9, 1998, revises 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, as to NBI's federal tax
liabilities for the fiscal years ended June 30, 1980 through 1988. Under the
current 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 debt in full, NBI
will not be obligated to pay any past, current or future interest related to the
IRS debt. Therefore, during the fourth quarter of fiscal 1998, the Company
recorded a net extraordinary gain of $290,000, consisting of forgiveness of
accrued interest recorded through March 31, 1998 totaling $439,000, less an
income tax provision of $149,000.

In order to pay the newly restructured IRS debt, management intends to obtain
additional debt or equity financing. The Company is currently pursuing various
financing options; however there can be no assurances the Company will be able
to obtain such financing. The Company's ability to continue as a going-concern
is dependent upon satisfaction of the IRS debt. (See Note 2.)

INCOME TAX PROVISION AND DEFERRED INCOME TAXES:

For the years ended June 30, 1998 and 1997, the benefit (provision) for income
taxes was included in the consolidated statements of operations as follows:

1998 1997
---- ----
(Amounts in thousands)

Continuing operations benefit (provision) $ 72 $(105)
Discontinued operations benefit -- 24
Extraordinary gain (149) --
----- -----
$ (77) $ (81)
----- -----
----- -----

The benefit (provision) for income taxes from continuing operations for the
years ended June 30, 1998 and 1997 consisted of:

1998 1997
---- ----
(Amounts in thousands)

Federal:
Current $ -- $ --
Deferred 121 (24)
----- -----
121 (24)
----- -----
State and other:
Current (110) (40)
Deferred 61 (41)
----- -----
(49) (81)
----- -----
Total $ 72 $(105)
----- -----
----- -----

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
United States Bankruptcy Code, future utilization of any income tax benefit from
pre-reorganization net operating losses are not credited to the income tax
provision, but rather, reported as an addition to capital in excess of par
value. The Company utilized $28,000 and no pre-reorganization net operating
loss carryforwards in fiscal 1998 and 1997, respectively.

F-13

The reconciliation of income taxes from continuing operations at the U.S.
federal statutory tax rate to the effective tax rate for the years ended June
30, 1998 and 1997 are as follows:

1998 1997
---- ----
(Amounts in thousands)

Federal tax benefit (expense) computed at 34% on
income (loss) from continuing operations before
provision for income taxes and extraordinary gain $ 65 $(270)

State taxes, net of federal benefit (78) (81)

Change in the balance of the valuation
allowance for deferred tax assets and other 85 246
---- -----
Income tax benefit (provision) from
continuing operations $ 72 $(105)
---- -----
---- -----

Significant components of the Company's deferred tax assets and liabilities as
of June 30, 1998 were as follows:

1998
----------------
(Amounts in thousands)

Deferred tax assets:
Current
Deductible portion of IRS Settlement amount $ 915
Other 225
Noncurrent
Net operating loss carryforwards 20,886
Capital loss carryforwards 585
Tax basis in subsidiaries 570
Other - net 89
----------
Total deferred tax assets 23,270

Valuation allowance for deferred tax assets (22,725)
----------
Net deferred tax assets 545
----------
Deferred tax liabilities:
Noncurrent
Other 300
Basis difference in fixed assets assumed
with Belle Vernon Holiday Inn acquisition 468
----------
Total deferred tax liabilities: 768
----------
Net deferred tax liability $ (223)
----------
----------

The net change in the valuation allowance was a decrease of $351,000 for the
year ended June 30, 1998, and a decrease of $184,000 for the year ended June
30, 1997. The valuation allowance of $22,725,000 at June 30, 1998 was
established because the Company has not been able to determine that it is more
likely than not that the net deferred tax assets will be realized.

The tax loss carryforward at June 30, 1998 is approximately $62,000,000, of
which approximately $18,000,000, $14,000,000, $14,000,000, $7,000,000,
$4,000,000, $3,000,000, $1,000,000 and $1,000,000 expire in fiscal years 2004,
2005, 2006, 2008, 2009, 2010, 2011 and 2012, respectively.

F-14

9. ACCRUED LIABILITIES

June 30,
1998
----------
(Amounts in thousands)

Accrued interest $ 23
Payroll and related benefits and taxes 365
Acquired liabilities under previously self-insured
health and other benefit plans 171
Other 237
------
$ 796
------
------

10. NOTES PAYABLE AND SHORT-TERM BORROWINGS

The following summarizes the Company's notes payable and short-term borrowings
outstanding at:

June 30,
1998
------------
(Amounts in thousands)

Revolving bank credit note of $2,000,000, due November 1, 1998, interest
at bank's prime rate (8.50% at June 30, 1998) plus 1/2% or less,
depending upon attainment of certain financial ratios as defined in the
agreement; collateralized by a first security interest in all accounts
receivable, inventories and personal property of the glass manufacturing
company. $1,490

8.75% bank note payable; payable in monthly installments of $8,333 plus
interest through July 1999; cross collateralized with the revolving credit
note above. 100

Bank note payable in monthly installments of $10,834 plus interest at
bank's prime rate (8.50% at June 30, 1998) plus 1/2% or less, depending
upon the attainment of certain financial ratios, commencing on June 1, 1997,
with the outstanding principal balance plus accrued interest due in full on
May 1, 2002. The note is cross-collateralized with the glass manufacturing
company's revolving bank credit note and 8.75% bank note payable. 520

Bank mortgage note of $1,000,000 obtained December 3, 1996 for hotel
renovations. Principal and interest at 8.85% is payable in monthly
installments of $8,983 beginning July 1, 1997. On July 1, 2002, the
interest rate changes to U.S. Treasury rate plus 2.7%. Note is due in
full on July 1, 2007 and is collateralized by a first security interest
in hotel assets. 979

Revolving line of credit from the Company's CEO; interest at ten percent;
outstanding principal and interest due in full on December 31, 1998. 100

Other 8
--------
Total notes payable and short-term borrowings $3,197

Less current portion 1,846
--------
Long-term portion of notes payable $1,351
--------
--------

F-15

At June 30, 1998, the principal maturities of notes payable and short-term
borrowings for each of the five subsequent fiscal years ending June 30 are: 1999
- - $1,846,000; 2000 - $152,000; 2001 - $154,000; 2002 - $157,000; and 2003 -
$31,000.

The glass manufacturing company's revolving bank credit note is subject to a
credit agreement which contains covenants requiring maintenance of a minimum
interest expense coverage ratio and a maximum leverage ratio. In addition, it
prohibits certain activities of the glass manufacturing company without the
bank's approval, including creation of debt or liens, sales of assets, granting
loans or making certain investments and participation in any mergers or
acquisitions. Also, the agreement limits the glass manufacturing company's
ability to pay dividends and the amount of dividends payable.

The hotel's bank mortgage note contains covenants requiring maintenance of a
minimum cash flow to debt service ratio and specifying the maximum amount of
capital expenditures that can be made in any year. In addition, it prohibits
certain activities of the hotel without the bank's approval, including the
creation of debts or liens, sales of assets and participation in any mergers or
acquisitions.

11. POSTEMPLOYMENT BENEFITS

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.

The Company's current health, 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 accrued the present value of the expected payments
discounted at 10%, as of July 1, 1994, of $271,000. The expected payments were
calculated based upon the earlier of 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. The total liability outstanding at June 30,
1998, was $216,000, of which $184,000 is classified as long-term.

12. EMPLOYEE BENEFIT PLANS

The Company has contributory savings and retirement 401(k) plans for a majority
of its employees. An employee may elect to contribute up to 15% of their
compensation during each plan year, subject to the maximum allowed by the IRS.
The Company's contributions to the union employees' plans are governed by union
labor contracts. The Company's contributions to its other plans are determined
by the Board of Directors. No liability exists for any future contributions,
except as may subsequently be determined by the Board of Directors. The
contributions expense for these plans totaled $62,000 and $58,000 for the years
ended June 30, 1998 and 1997, respectively.

13. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS:

The Company's hotel operations leases the land supporting its hotel, under an
operating lease expiring in the year 2026, with an option to extend for an
additional 25 years. The monthly lease payments are based upon 3% of room and
related revenue and 1% of other revenues of the hotel, with a minimum annual
rental of $8,000. Rent expense under this lease was $47,000 and $44,000, for
the years ended June 30, 1998 and 1997, respectively.

The Company also leases various office facilities and equipment. The office
facilities and equipment leases from continuing operations have expiration dates
that extend through December 2001. Total rental expense for continuing
operations was $155,000 and $138,000 for the years ended June 30, 1998 and 1997,
respectively.

F-16

The future minimum rental commitments for continuing operations for the next
five fiscal years, under non-cancellable leases, are: 1999 - $146,000; 2000 -
$109,000; 2001 - $28,000, 2002 - $9,000; and 2003 - $8,000.

OTHER COMMITMENTS AND CONTINGENCIES:

In conjunction with NBI's acquisition of Krazy Colors, Inc. in February 1995,
the stock purchase agreement provided for continuing annual royalty payments to
the sellers, including NBI's CEO, based upon gross margin performance.
Royalties are calculated based upon gross margin in excess of $150,000 in any
calendar year and will be earned at the rate of twenty percent when the gross
margin is greater than $150,000 and less than or equal to $300,000, twenty-five
percent when the gross margin is greater than $300,000 and less than or equal to
$450,000, and thirty percent when the gross margin is greater than $450,000. No
royalties were incurred during the fiscal years ended June 30, 1998 and 1997.
(See also Note 19.)

14. STOCKHOLDERS' EQUITY

The Company has authorized 20,000,000 shares of $.01 par value common stock. At
June 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 June 30, 1998.

In accordance with the provisions of the Company's fiscal 1992 Plan of
Reorganization, on February 3, 1997, the fifth anniversary of its effective
date, all of the new common stock held for unexchanged holders of NBI's old
common stock and convertible debentures reverted to the Company. As a result,
the Company received 23,164 shares of its common stock at no cost. These shares
are held in treasury.

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. These
warrants are exercisable through December 31, 2002. As of June 30, 1998, no
warrants had been exercised. (See also Note 19.)

15. STOCK OPTIONS

The Employee Stock Option Plan was established pursuant to the Company's Plan of
Reorganization. At June 30, 1998, 885,750 shares were reserved under the
Employee Stock Option Plan. Options granted under this plan have an exercise
price of no less than fair market value and no more than 150% of fair market
value. The employee options are exercisable for a period of five years from the
date of the grant, unless previously forfeited. During fiscal 1998, the Company
extended 201,000 options held by certain executives for an additional five years
and recorded related noncash compensation expense of $48,000. These options
were fully vested prior to the extension date. Options vest over four years at
25% per year with vesting continuing as long as the optionee is employed by the
Company. Options are forfeited by the optionee three months following
termination of employment with the Company. The options granted under this plan
prior to fiscal 1996 are intended to be non-qualified stock options. Those
issued subsequent to fiscal 1995 are intended to be incentive stock options.

Options to purchase 150,000 shares of stock were outstanding at June 30, 1997,
that were issued to directors of the Company during fiscal 1993. These options
were not issued pursuant to an existing stock option plan and were immediately
exercisable on the grant date. All of these options were either exercised or
forfeited during fiscal 1998.

Options to purchase 400,000 shares of stock were issued to the Chief Executive
Officer during fiscal 1994. These options were not issued pursuant to an
existing stock option plan. These options vested over four years at 25% per
year and were fully vested as of October 1, 1997. During fiscal 1998, the
Company extended these options for an additional five years. No compensation
expense was recorded as a result of the extension because the exercise price was
greater than the fair market value of the stock on the extension date.

At June 30, 1998, 450,000 shares were reserved for options issued outside of the
Stock Option Plan.

F-17

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Had compensation cost been
determined based upon the fair value at the grant date for the options,
consistent with the provisions of SFAS No. 123, the Company's net income and
earnings per share for the years ended June 30, 1998 and 1997 would have been
reduced to the proforma amounts as follows:

1998 1997
---------- ----------
(amounts in thousands,
except per share data)

Net income - as reported $172 $1,044
--------- ---------
--------- ---------
Net income - proforma $ 81 $1,011
--------- ---------
--------- ---------
Net income per share - as reported $.02 $ .13
--------- ---------
--------- ---------
Net income per share - proforma $.01 $ .13
--------- ---------
--------- ---------

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 or extended during fiscal 1996 through fiscal 1998: no dividend yield;
expected volatility of 43.35% to 45.61%; risk-free interest rate of 5.51% to
6.18%; and expected lives of 4 to 4.75 years.

During the initial phase-in period of SFAS 123, the above numbers do not include
the effect of options granted prior to July 1, 1995.

The following table summarizes, by number of shares, option transactions under
all plans:

Employee Other Weighted-Average
Plan Options Total Exercise Price
--------- -------- -------- ----------------

Outstanding June 30, 1996 601,500 550,000 1,151,500 $ .65

Granted -- -- -- --
Exercised (3,750) -- (3,750) .38
Forfeited (27,250) -- (27,250) .67
----------- ---------- -----------
Outstanding June 30, 1997 570,500 550,000 1,120,500 .66

Granted (1) 301,500 400,000 701,500 .63
Exercised (10,500) (100,000) (110,500) .26
Forfeited (1) (301,000) (450,000) (751,000) .65

Outstanding June 30, 1998 560,500 400,000 960,500 .69
----------- ---------- -----------
----------- ---------- -----------
Options exercisable
at June 30, 1998 334,250 400,000 734,250 $ .68
----------- ---------- -----------
----------- ---------- -----------

(1) Amounts include options for 201,000 shares and 400,000 shares under
the employee plan and other, respectively, that were extended during fiscal
1998.

F-18

Employee Other
Plan Options
------------ ----------

Weighted-average fair value of
options granted for the year
ended June 30, 1998 $ .26 $ --
------------ ----------
------------ ----------
Weighted-average fair value of
options granted for the year
ended June 30, 1997 $ -- $ --
------------ ----------
------------ ----------

The following table summarizes information about the stock options outstanding
at June 30, 1998:

Weighted-Average
Remaining
Exercise Number Number Contractual
Price Outstanding Exercisable Life
---------- ----------- ------------ -----------------

$ .38 216,000 212,250 4.15 years
$ .59 100,500 -- 4.42 years
$ .77 400,000 400,000 5.25 years
$ .88 244,000 122,000 2.45 years
--------- ----------
960,500 734,250
--------- ----------
--------- ----------

16. INCOME (LOSS) PER COMMON SHARE

During the Company's second quarter of fiscal 1998, NBI, Inc. adopted 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 an entity, similar to
fully diluted earnings per share. Fiscal 1997's earnings per share data has
been restated to reflect the requirements of SFAS No. 128.

The following reconciles the numerators and denominators of the basic and
diluted earnings per common share computation for income (loss) before
discontinued operations and extraordinary gain for the years ended June 30, 1998
and 1997:

1998 1997
---- ----
Basic Diluted Basic Diluted
----- ------- ----- --------
(Amounts in thousands
except per share data)

Income (loss) before discontinued
operations and extraordinary gain $ (118) $ (118) $ 690 $ 690
------- ------- ------ --------
------- ------- ------ --------
Weighted average number of common
shares outstanding 8,077 8,077 7,991 7,991
------- ------
------- ------

Assumed conversions of stock options -- 211
------- --------
8,077 8,202
------- --------
------- --------
Income (loss) per common share before
discontinued operations and
extraordinary gain $ (.01) $ (.01) $ .09 $ .08
------- ------- ------ --------
------- ------- ------ --------

F-19

Because the Company incurred a loss before discontinued operations and
extraordinary gain for the year ended June 30, 1998, none of its outstanding
options or warrants were included in the computation of diluted earnings per
share as their effect would be anti-dilutive.

For the year ended June 30, 1997, the Company's $.25 and $.38 stock options
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
outstanding.

The options and warrants outstanding at June 30, 1998 were as follows:

Number
Exercise Outstanding at
Price June 30, 1998
----- -------------

Stock options:
$ .38 216,000
$ .59 100,500
$ .77 400,000
$ .88 244,000
Warrants:
$ .89 1,700,000
---------
2,660,500
---------
---------

17. SEGMENT INFORMATION

The Company operates primarily in the glass manufacturing and hotel
operations industries. Both of these operations are located in southwestern
Pennsylvania. Previously, the Company operated primarily in the computer
industry. Those operations have been discontinued and reported separately
(See Note 3). The segment information presented below excludes amounts
related to general corporate activities.

The Company's glass manufacturer sells its glass giftware primarily to
traditional and specialty retailers, manufacturers/wholesalers and the food
service market throughout the United States. L.E. Smith Glass Company
currently has one significant customer. Sales to this customer totaled
approximately 34% and 28% of NBI's consolidated revenues in fiscal 1998 and
1997, respectively. In addition, this customer constituted approximately 33%
of the Company's consolidated accounts receivable at June 30, 1998.

In addition, the glass manufacturer purchases a majority of its raw materials
from only a few vendors. Management believes that other suppliers could
provide similar materials on comparable terms.

As of June 30, 1998, approximately 70% of the Company's employees were
covered by collective bargaining agreements expiring in fiscal 1999.

1998 1997
------- -------
(Amounts in thousands)

Revenue from continuing operations:
Glass manufacturing $12,233 $11,052
------- -------
------- -------
Hotel operations $ 2,174 $ 1,972
------- -------
------- -------
Children's paint manufacturing $ 286 $ 645
------- -------
------- -------
Land development $ -- $ --
------- -------
------- -------

F-20

1998 1997
------ ------
(Amounts in thousands)

Operating income (loss):
Glass manufacturing $1,391 $1,376
------ ------
------ ------
Hotel operations $ 38 $ 5
------ ------
------ ------
Children's paint manufacturing $ (447) $ (114)
------ ------
------ ------
Land development $ (24) $ (7)
------ ------
------ ------

Identifiable assets:
Glass manufacturing $7,751 $6,595
------ ------
------ ------
Hotel operations $2,862 $2,919
------ ------
------ ------
Children's paint manufacturing $ 290 $ 563
------ ------
------ ------
Land development $1,183 $1,131
------ ------
------ ------

Additions to property, plant and equipment:
Glass manufacturing $1,237 $ 701
------ ------
------ ------
Hotel operations $ 38 $1,154
------ ------
------ ------
Children's paint manufacturing $ 1 $ 41
------ ------
------ ------
Land development $ 52 $1,105
------ ------
------ ------

Depreciation and amortization:
Glass manufacturing $ 513 $ 405
------ ------
------ ------
Hotel operations $ 181 $ 137
------ ------
------ ------
Children's paint manufacturing $ 39 $ 41
------ ------
------ ------
Land development $ -- $ --
------ ------
------ ------

18. OTHER INCOME AND EXPENSE

Included in other income and expense for the year ended June 30, 1997 was
income of $348,000, net of legal fees, related to the recovery of a note
receivable for which the Company had previously established a reserve,
partially offset by expenses of $126,000 for architect fees related to hotel
improvement projects that the Company has decided not to pursue.

19. RELATED PARTY TRANSACTIONS

In February 1995, the Company entered into an agreement to purchase 80% of
the outstanding stock of Krazy Colors effective January 1, 1995. Prior to
this agreement, the Company's Chief Executive Officer ("CEO"), Jay H. Lustig,
owned 55% of the outstanding stock of the manufacturer. Subsequent to this
transaction, the CEO owns 11% of the stock in Krazy Colors, Inc. As a part
of the purchase agreement, the sellers are eligible to receive continuing
annual royalty payments based upon gross margin performance in excess of
specified amounts (see Note 13). NBI's CEO will receive 55% of any such
royalty payments. No royalties were incurred by the Company during fiscal
years ended June 30, 1998 or 1997. In addition, in conjunction with the
purchase agreement, the sellers were issued warrants to purchase 1.7 million
shares of the Company's common stock, including warrants to purchase 935,000
shares issued to the Company's CEO, at a price of $.89 per share. All of the
warrants are still outstanding and are exercisable through December 31, 2002.

F-21

During fiscal 1998 and 1997, the Company utilized a stock brokerage firm,
which is 100% owned by its CEO, to execute certain transactions on its
behalf. However, NBI uses another unrelated company to act as custodian and
clearing firm for its investment assets. Gross revenues earned by the
brokerage firm related to investment transactions by NBI in fiscal 1998 and
1997, totaled $1,000 and $90,000, respectively, on purchase and sale
transactions totaling $1,250,000 and $47,968,000 before fees, respectively.

During fiscal 1998, the Company borrowed a total of $100,000 from its Chief
Executive Officer for working capital needs. This amount was included in
short-term borrowings at June 30, 1998. The borrowings are subject to the
terms of a revolving line of credit note which provides for interest to be
paid at the rate of ten percent per annum. The entire principal amount
outstanding is due and payable in full on December 31, 1998.

20. SUBSEQUENT EVENT

On August 1, 1998, the Company entered into a development and a leasing
agreement with a real estate developer for phase I of its planned commercial
real estate project in Belle Vernon, Pennsylvania. The development agreement
provides for a development fee of $250,000 to be paid over the construction
period, with a minimum fee of $15,000 if the Company is unsuccessful in
obtaining adequate financing for the project. The leasing agreement requires
a leasing commission based upon the square footage of the space leased,
payable 50% upon execution of the lease and 50% upon tenant occupancy. In
addition, the leasing agreement provides for a sales commission based upon
the gross proceeds of the sale of an outparcel, payable upon closing of the
sale.

F-22

No dealer, salesperson or other individual has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer made by this Prospectus and, if given
or made, such information or representations must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute
an offer to sell or the solicitation of an offer to buy any securities
offered by this Prospectus, nor does it constitute an offer to sell or a
solicitation of an offer to buy the Preferred Stock by any person in any
jurisdiction in which such an offer or solicitation is not authorized, or in
which the individual making such offer or solicitation is not qualified to do
so, or to any individual to whom it is unlawful to make such an offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to the date
hereof or that there has been no change in the affairs of the Company since
that date.

___________________________________

TABLE OF CONTENTS

Page
----

Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . .
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . .

UNTIL __________________, 199__ (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THIS PREFERRED STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS.

1,000,000 UNITS

NBI, INC.

[ ] 1998

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company's Bylaws and Certificate of Incorporation provide that the
Company shall, to the full extent permitted by the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all directors
and officers of the Company. Section 145 of the Delaware General Corporation
Law provides in part that a corporation shall have the power to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent
of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such persons against expenses (including attorneys' fees)
actually and reasonably incurred in defense or settlement of any threatened,
pending or completed action or suit by or in the right of the corporation, if
such person acted in good faith and in a manner he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and
provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific
case upon a determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable
standard of conduct. The indemnitee is presumed to be entitled to
indemnification and the Company has the burden of proof to overcome that
presumption. Where an officer or a director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation
must indemnify him or her against the expenses which such officer or director
actually or reasonably incurred.

The Certificate of Incorporation also provides that directors shall have
no personal liability to the Company or its stockholders for breach of
fiduciary duty as a director. This provision does not eliminate the
liability of a director (i) for a breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions by the director
not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for liability arising under Section 174 of the
Delaware General Corporation Law (relating to the declaration of dividends
and purchase or redemption of shares in violation of the Delaware General
Corporation Law); or (iv) for any transaction from which the director derived
an improper personal benefit.

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses payable by the
Company in connection with the sale of the Units being registered (all
amounts are estimated except the SEC Registration Fee).

SEC Registration Fee. . . . . . . . . . . . . . . . . . . . . . . . . $ 3,658
Blue Sky Qualification Fees and Expenses (including legal fees) . . . . . . *
Printing Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Legal Fees and Expenses (other than blue sky) . . . . . . . . . . . . . . . *
Auditors' Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . *
Transfer Agent and Registrar Fees . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous Expenses. . . . . . . . . . . . . . . . . . . . . . . . *
--------
Total estimated expenses . . . . . . . . . . . . . . . . . . . . $ 178,000

_____________

* To be supplied by amendment.

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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

Within the past three years, the Registrant has sold its securities
pursuant to the following transactions, all of which were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Act").

In March 1996, the Company sold 1,500,000 shares of Common Stock to one
individual and one corporation for $.70 per share. These shares were issued
in a private offering pursuant to the exemption from registration contained
in Section 4(2) of the Act. The purchasers were sophisticated investors and
were familiar with the business and financial affairs of the Registrant. The
offerings were not made by means of any general solicitation, shares were
acquired without a view toward distribution thereof, and the purchasers
represented that they were able to bear the economic risk of their
investment. The shares were issued with an investment legend thereon and stop
transfer instructions were given to the Registrant's transfer agent.

ITEM 27. EXHIBITS.

Exhibit
Number Description of Exhibits
------ -----------------------

1.2 Form of Selected Dealer Agreement.*

3.1 Amended and Restated Certificate of Incorporation of the Company.(3)

3.2 Amended and Restated Bylaws of the Company.(3)

3.3 Form of Certificate of Designation of Series A Preferred Stock, subject to approval of
stockholders.(6)

4.1 Form of Series A Preferred Stock Certificate.*

4.2 Warrant Agreement and Form of Warrant.(6)

5.1 Form of Opinion of Ireland, Stapleton, Pryor & Pascoe, P.C. as to the legality of issuance
of the Company's Preferred Stock.*

10.1 NBI, Inc. Employee and Director Stock Option Plan(1)

10.2 Form of NBI, Inc. Director Non-Qualified Stock Option Agreement.(1)

10.3 Form of NBI, Inc. Chief Executive Officer Non-Qualified Stock Option Agreement. (1)

10.4 Krazy Colors, Inc. Stock Purchase Agreement.(2)

10.5 Krazy Colors, Inc. Shareholder Agreement.(2)

10.6 Jay H. Lustig Warrant Certificate.(2)

10.7 Belle Vernon Motel Corporation Land Lease Agreement.(3)

10.8 Agreement between L.E. Smith Glass Company and The American Flint Glass Workers'
Union.(3)

10.9 Amended Payment Agreement with the Internal Revenue Service. (4)

10.10 Consulting Agreement between the Company and Morris D. Weiss.(5)

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10.11 Revolving Line of Credit from Chief Executive Officer. (5)

11.1 Statement re: computation of per share earnings. See Item 22 - Financial Statements
herein.

21.1 Subsidiaries of Registrant - See Item 6 - Business, herein.

23.1 Consent of BDO Seidman, LLP.(6)

23.2 Consent of Ireland, Stapleton, Pryor & Pascoe, P.C. (see Exhibit 5.1).*

25.1 Power of Attorney - See Page II-5.

_________________

* To be filed by amendment.
(1) Incorporated by reference to Registration Statement No. 33-73334.
(2) Incorporated by reference to the Company's report on Form 10-QSB for
the quarter ended December 31, 1994.
(3) Incorporated by reference to the Company's report on Form 10-KSB for
the fiscal year ended June 30, 1995.
(4) Incorporated by reference to the Company's report on Form 10-QSB for
the quarter ended March 31, 1998.
(5) Incorporated by reference to the Company's report on Form 10-KSB for
the fiscal year ended June 30, 1998.
(6) Filed herewith.

ITEM 28. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include
any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.

(2) that, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a

II-3

form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(3) that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereto.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Longmont,
Colorado, on this 8th day of September, 1998.

NBI, INC.

By: /S/ JAY H. LUSTIG
-------------------------
Jay H. Lustig
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

The undersigned directors and/or officers of the Registrant, by virtue
of their signatures to this Registration Statement appearing below, hereby
constitute and appoint Jay H. Lustig or Marjorie A. Cogan, or either of them,
with full power of substitution, as attorney-in-fact in their names, places
and steads to execute any and all amendments to this Registration Statement
in the capacities set forth opposite their names and hereby ratify all that
said attorneys-in-fact may do by virtue hereof.

IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
AND ON THE DATES STATED.

Signatures Title Date
---------- ----- ----

/S/ JAY H. LUSTIG Chief Executive Officer September 8, 1998
- ------------------------- and Chairman of the Board
Jay H. Lustig (Principal Executive Officer)

/S/ MARJORIE A. COGAN Chief Financial Officer and September 8, 1998
- ------------------------- Secretary (Principal Financial
Marjorie A. Cogan and Accounting Officer)

/S/ MARTIN J. NOONAN Director September 8, 1998
- -------------------------
Martin J. Noonan

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