<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number
0-9403
NBI, INC.
State of Incorporation IRS Employer I. D. Number
Delaware 84-0645110
1880 Industrial Circle, Suite F
Longmont, Colorado 80501
(303) 684-2700
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
[X] YES [ ] NO
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan of reorganization confirmed by a court.
[X] YES [ ] NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1995
- -------------------------------------- -----------------------------
Common Stock, par value $.01 per share 6,499,459
<PAGE>
PAGE 2
NBI, INC.
INDEX TO FORM 10-QSB
For Quarter Ended March 31, 1995
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
<S> <C>
Consolidated Financial Statements (Unaudited)................ 3-6
Supplementary Notes to Consolidated Financial
Statements (Unaudited).................................... 7-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 11-13
PART II - OTHER INFORMATION................................... 14
</TABLE>
<PAGE>
PAGE3
NBI, INC.
CONSOLIDATED BALANCE SHEET
(Amounts in Thousands Except Share Data)
<TABLE>
<CAPTION>
ASSETS
------
March 31, June 30,
1995 1994
------------ ----------
Current assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................... $ 1,266 $ 2,708
Trading securities.......................................... 4,216 --
Marketable securities....................................... -- 5,086
Receivables, net............................................ 532 750
Inventories................................................. 221 106
Other current assets........................................ 185 887
------- -------
Total current assets..................................... 6,420 9,537
Property and equipment, net................................... 102 230
Other assets.................................................. 303 44
------- -------
$ 6,825 $ 9,811
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-----------------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Current portion of income taxes............................ $ 2,457 $ 666
Short-term borrowings and current portion
of notes payable......................................... 1,080 1,530
Accounts payable........................................... 602 478
Accrued liabilities........................................ 1,001 953
------- -------
Total current liabilities............................... 5,140 3,627
Long-term income taxes....................................... 4,425 6,268
Notes payable............................................... 66 177
Long-term postemployment disability benefits................. 238 --
Stockholders' equity:
Common stock - $.01 par value; 20,000,000 shares
authorized; 10,001,270 shares issued...................... 100 100
Capital in excess of par value............................. 5,769 5,769
Accumulated deficit........................................ (7,705) (5,034)
Foreign currency translation adjustment.................... 308 304
------- -------
(1,528) 1,139
Less treasury stock, at cost (3,407,026 and 2,885,136
shares)................................................... (1,516) (1,400)
------- -------
Total stockholders' equity deficit......................... (3,044) (261)
------- -------
$ 6,825 $ 9,811
======= =======
</TABLE>
See accompanying notes.
<PAGE>
PAGE 4
NBI, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales............................. $ 465 $ 709 $ 1,707 $ 1,391
Service........................... 322 347 836 1,032
------ ------- ------- -------
787 1,056 2,543 2,423
Costs and expenses:
Cost of sales..................... 367 582 1,236 1,193
Cost of service................... 214 424 630 1,159
Product development and
engineering...................... 65 71 227 160
Marketing, general and
administrative................... 714 1,097 2,237 3,398
------ ------- ------- -------
1,360 2,174 4,330 5,910
------ ------- ------- -------
Loss from operations............... (573) (1,118) (1,787) (3,487)
Other income (expense):
Interest income................... 36 75 154 450
Gain (loss) on investments and
other income (exp)............... 364 (1,148) (220) 1,158
Interest expense.................. (191) (176) (553) (538)
------ ------- ------- -------
209 (1,249) (619) 1,070
Loss before income taxes, minority
interest and cumulative
effect of change in accounting
method.......................... (364) (2,367) (2,406) (2,417)
Income tax expense.................. -- -- -- --
------ ------- ------- -------
Net loss before minority interest
and cumulative effect of change
in accounting method............... (364) (2,367) (2,406) (2,417)
Minority interest................... 6 -- 6 --
------ ------- ------- -------
Net loss before cumulative effect
of change in accounting
method............................. (358) (2,367) (2,400) (2,417)
Cumulative effect of change in
accounting method.................. -- -- (271) --
------ ------- ------- -------
Net loss........................... $ (358) $(2,367) $(2,671) $(2,417)
====== ======= ======= =======
Loss per common share:
Net loss before cumulative effect
of change in accounting
method........................... $ (.05) $ (.32) $ (.35) $ (.32)
Cumulative effect of change in
accounting method................ -- -- (.04) --
------ ------- ------- -------
Net loss.......................... $ (.05) $ (.32) $ (.39) $ (.32)
====== ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding..................... 6,595 7,513 6,815 7,639
====== ======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
PAGE 5
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994
---------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................ $(2,671) $(2,417)
Adjustments to reconcile net loss to net cash
flow used in operating activities:
Depreciation and amortization....................... 102 147
Reduction in provision for bad debts................ (14) --
Provision for writedown of inventory................ 21 --
Provision for impairment of property and equipment.. 14 --
Loss (gain) on sales of property and equipment...... 8 (46)
Net realized gain on investments.................... ** (2,289)
Net unrealized loss on investments.................. 4 1,355
Cumulative effect of accounting change.............. 271 --
Other............................................... 27 101
Changes in assets -- decrease (increase):
Accounts receivable............................... 275 105
Inventory......................................... (60) (60)
Trading securities................................ (4,220) **
Marketable securities............................. 5,086 **
Other current assets.............................. 611 20
Changes in liabilities -- (decrease) increase:
Accounts payable and accrued liabilities.......... 36 407
------- -------
Net cash flow used in operating activities..... (510) (2,677)
------- -------
Cash flows from investing activities:
Proceeds from sales of property and equipment.......... 45 51
Collections from notes receivable...................... 350 247
Sales or redemption of marketable securities........... ** 6,197
Sales of long-term treasury investments................ ** 10,801
Purchases of property and equipment.................... (19) (210)
Issuance of notes receivable........................... (350) --
Purchases of marketable securities..................... ** (9,156)
Purchases of long-term treasury investments............ ** (5,189)
Payments for business acquisition...................... (288) (147)
------- -------
Net cash flow provided by (used in) investing
activities....................................... (262) 2,594
------- -------
</TABLE>
(continued on following page)
** With the Company's adoption of FAS 115 as of July 1, 1994, activity related
to trading securities is now classified as operating rather than investing.
See accompanying notes.
<PAGE>
PAGE 6
NBI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1995 1994
------- ------
<S> <C> <C>
Cash flows from financing activities:
Issuance of treasury stock........................... -- 14
Purchases of treasury stock.......................... (116) (620)
Payments on short-term borrowings and notes payable.. (2,931) (19)
Short-term borrowings................................ 2,370 --
------- ------
Net cash flow used in financing activities........ (677) (625)
------- ------
Effects of exchange rates on cash...................... 7 (1)
------- ------
Net decrease in cash and cash equivalents.............. (1,442) (709)
Cash and cash equivalents at beginning of period....... 2,708 3,932
------- ------
Cash and cash equivalents at end of period............. $ 1,266 $3,223
======= ======
Supplemental schedule of non-cash investing
and financing activities:
Net transfers of inventory from property and
equipment.......................................... $ -- $ 24
======= ======
Foreign currency translation adjustments............. $ 4 $ 4
======= ======
Supplemental disclosures of cash flow information:
Interest paid........................................ $ 549 $ 529
======= ======
Income taxes paid.................................... $ 52 $ --
======= ======
</TABLE>
See accompanying notes.
<PAGE>
PAGE 7
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Preparation
- -----------------------------
The accompanying financial statements have been prepared in accordance with the
requirements of Form 10-QSB. In the opinion of Management, the statements
reflect all adjustments necessary for a fair statement of the results of
operations for the interim periods. Certain items in the fiscal 1994 financial
statements have been reclassified to conform to the fiscal 1995 manner of
presentation. In addition, the accompanying Statements of Cash Flows have been
presented under the indirect method of reporting cash flows rather than the
direct method, as previously reported. All of the adjustments included in the
financial statements are of a normal recurring nature. The consolidated
financial statements include the accounts of the Company and its wholly owned
and majority owned subsidiaries. All significant intercompany accounts and
profits have been eliminated.
Note 2 - Cash and Cash Equivalents
- -----------------------------------
The Company's cash and cash equivalents of $1,266,000 at March 31, 1995,
included $113,000 of restricted cash. This represents the amount held in trust
for payments under self insurance plans.
Note 3 - Investments in Securities
- ----------------------------------
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115"). The Company adopted the provisions of
the new standard for investments held as of or acquired after July 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. There was no effect as
of July 1, 1994 from implementation of this standard, as the carrying value of
all of the Company's securities held at that date approximated market value.
The Company's accounting policies for investments in securities are as follows:
Trading securities: Trading securities are held for resale in anticipation of
- -------------------
short-term market movements. These types of securities, consisting of
marketable debt and equity securities, are stated at fair market value. Gains
and losses, both realized and unrealized, are included in net gain (loss) on
investments and other income (expense) when incurred. All dividends, interest
and discount or premium amortization is included in interest income as earned.
Cash flows from purchases and sales of trading securities are classified as cash
flows from operating activities rather than from investing activities.
Securities held-to-maturity: Debt securities are classified as held-to-maturity
- ----------------------------
when the Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost. Interest
earned on securities classified as held-to-maturity, including any discount or
premium amortization, is included in interest income as earned.
Available for Sale: Marketable equity securities and debt securities not
- -------------------
classified as either trading or held-to-maturity are classified as available-
for-sale. Available-for-sale securities are carried at fair market value, with
the unrealized gains and losses, net of tax, reported as a separate component of
shareholders' equity. Realized gains and losses and declines in value judged to
be other-than-temporary on available-for-sale securities are included in net
gain (loss) on investments and other income (expense) when incurred. The cost
of securities sold is based on the specific identification method. Interest and
dividends earned on securities classified as available-for-sale, including any
discount or premium amortization, are included in interest income as earned.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
<PAGE>
PAGE 8
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 - Investments in Securities (continued)
- ----------------------------------------------
During the three months and nine months ended March 31, 1995, all of the
Company's securities were classified as trading securities; no securities were
classified as held-to-maturity or available-for-sale. The Company recorded a
net realized gain of $56,000 and a net unrealized gain of $299,000 on
investments for the three months ended March 31, 1995. For the nine months then
ended, the Company recorded net realized and unrealized losses on investments of
$194,000 and $4,000, respectively.
The Company's investment portfolio may, at any point in time, include a
concentrated position in one security. As a result of this, the financial
results may fluctuate significantly and have larger fluctuations than with a
more diversified portfolio. Trading securities at March 31, 1995 did include a
concentrated position in one equity security from the airline industry, for
which the Company recorded a significant unrealized gain during the quarter
ended March 31, 1995. Alternately, for the nine months ended March 31, 1995,
the Company has recorded a significant unrealized loss on this equity security.
However, as of May 10, 1995, the market value of this security was significantly
higher than at March 31, 1995.
Note 4 - Other Current Assets
- -----------------------------
Other current assets at June 30, 1994, included $626,000 of restricted cash and
investments held in trust for the Company's indemnity obligations related to any
potential Directors' and Officers' liabilities arising from their service to the
Company. In December 1994, the trust expired and the Company transferred the
cash and investments held in trust, totaling $631,000, to its cash and trading
securities accounts.
Note 5 - Income Taxes
- ---------------------
On June 12, 1991, the Company reached a settlement with the Internal Revenue
Service (IRS) as to NBI's federal income tax liabilities for the fiscal years
ended June 30, 1980 through 1988. The full amount of the settlement for these
years was $12,795,000, which consists of approximately $6,325,000 in taxes, and
$6,470,000 in interest. Included in the $12,795,000 is approximately $2,600,000
related to a computer industry-wide issue which was being litigated by another
taxpayer. In 1993, the Tax Court ruled in favor of the taxpayer in this case.
On June 22, 1994, the Eighth Circuit Court of Appeals confirmed the Tax Court's
decision. Since the case is no longer subject to appeal, the Company reversed
$2.6 million from its long-term income taxes as of June 30, 1994. The agreement
with the IRS provides for payment of the liabilities over a six-year period.
Principal and interest payments are due quarterly from October 1, 1994, through
1997. Beginning after June 30, 1992, accelerated principal payments are
required within forty-five days after the end of any fiscal quarter in which the
Company's total domestic cash, cash equivalents, and treasury investments,
excluding restricted cash, exceed levels specified in the settlement agreement.
Any accelerated principal payment shall reduce the succeeding scheduled
principal payment(s).
As of March 31, 1995, NBI had approximately $6,882,000 of tax liabilities
remaining on its balance sheet, $6,757,000 of which is related to the agreement
with the IRS. There is no accelerated principal amount payable in the third
quarter of fiscal 1995, in accordance with the agreement, based upon the
Company's cash, cash equivalents and treasury investments at March 31, 1995.
Furthermore, any other accelerated principal payments due within the next twelve
months based upon subsequent quarter-end calculations are not determinable at
March 31, 1995. Therefore, only the scheduled principal payments due within the
next twelve months, totaling $2,457,000, have been classified as current at
March 31, 1995.
Note 6 - Short-term Borrowings and Current Portion of Notes Payable
- -------------------------------------------------------------------
Included in short-term borrowings and current portion of notes payable were
short-term borrowings of $970,000. These borrowings were collateralized by the
Company's marketable securities.
<PAGE>
PAGE 9
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 - Postemployment Benefits
- --------------------------------
During the second quarter of fiscal 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting For
Postemployment Benefits" ("FAS 112"). This standard was effective July 1, 1994,
however, its implementation was not recorded until October 1, 1994. The
cumulative effect as of July 1, 1994 of adopting this standard, which was
recorded in the second quarter of fiscal 1995, reduced net income by $271,000.
There was no other material effect to the first quarter of fiscal 1995.
The Company provides health care, life insurance, and disability benefits for
eligible active employees. Prior to adoption of FAS No. 112, the Company
recognized and funded the cost of these benefits over the employees' working
lives, except for self-insured long-term disability costs which were recognized
monthly as the disability continued. FAS No. 112 requires the Company to accrue
the expected costs over the employee service period.
As required by the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), the Company allows terminated employees who wish to continue health
care coverage to pay the expected costs to be incurred, as determined by the
insurance company administering the claims. However, because the Company is
self-insured for health care costs, it is liable for any actual costs incurred
in excess of the expected costs. As of March 31, 1995, there were no such known
amounts.
The Company's current life insurance and disability benefits are fully insured.
Accordingly, the Company has no further liability and no accrual is needed.
However, the Company previously had a disability benefit plan that was self-
insured, under which payments are still being made. In accordance with FAS No.
112, the Company has accrued the present value of the expected payments, as of
July 1, 1994, of $271,000, and recorded this as a cumulative effect of change in
accounting method during the second quarter of fiscal 1995. The expected
payments were calculated based upon the expected duration of each individual's
disability or the time remaining until the individual reaches the age of 65, at
which time the benefits cease if the individual is expected to remain disabled.
The total liability outstanding at March 31, 1995, is $256,000, of which
$238,000 is classified as long-term.
Note 8 - Stockholders' Equity
- -----------------------------
The Company has authorized 20,000,000 shares of $.01 par value common stock. At
March 31, 1995, 10,001,270 shares were issued including 3,407,026 shares held in
treasury. Therefore, the Company had 6,595,244 common shares outstanding at
March 31, 1995.
In February 1995, the Company issued warrants to purchase 1.7 million shares of
its common stock at $.89 per share in conjunction with an acquisition. (See Note
9.) These warrants are exercisable from December 31, 1995 through December 31,
2002.
On December 7, 1994, the Company's common stock was delisted from the Pacific
Stock Exchange due to its inability to meet certain minimum stockholders' equity
requirements. The Company's common stock is now traded over-the-counter.
<PAGE>
PAGE 10
NBI, INC.
SUPPLEMENTARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 - Related Party Transactions
- -----------------------------------
In February 1995, the Company entered into an agreement to acquire 80% of the
outstanding stock of a small novelty toy manufacturing company, effective as of
January 1, 1995. Prior to this agreement the Company's Chief Executive Officer
owned 55% of the outstanding stock of the manufacturer. Under the terms of the
purchase agreement, the Company paid $288,000 in cash for the stock, including
$158,000 paid to NBI's CEO. In addition, the sellers are eligible for royalty
payments based upon gross margin performance in excess of specified amounts. In
conjunction with the purchase agreement, the sellers were issued warrants to
purchase a total of 1.7 million shares of NBI's common stock at a price of $.89
per share. These warrants are exercisable from December 31, 1995 through
December 31, 2002.
In addition, in December 1994, the Company advanced $100,000 to the acquired
Company under the terms of a revolving line of credit, which expires on December
31, 1995. The debt bears interest at 1% per month. A portion of the funds
advanced in December 1994 were used by the borrower to paydown $85,000 of an
outstanding loan it had with NBI's CEO. The balance due under the line of
credit at March 31, 1995, was eliminated in consolidation.
In November 1994, the Company loaned its CEO $350,000 under the terms of a
promissory note. The note provided for interest at the rate of 10% per annum
and was paid in full in March 1995.
Note 10 - Subsequent Events
- ---------------------------
On April 28, 1995, NBI, Inc's. international subsidiary, NBI, Ltd., completed a
sale of certain assets of the company effective as of April 1, 1995. The sale
provided for the transfer of all customers and current employees to the
purchaser. Under the terms of this agreement, NBI, Ltd. will retain all cash
accounts receivable, accounts payable and certain accrued liabilities. NBI,
Ltd. will manage the disposition of these accounts until such time as it can
complete an orderly dissolution of the entity. A small gain on the transaction
is expected to be recorded in the fourth quarter of fiscal 1995.
<PAGE>
PAGE 11
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER - FISCAL 1995
RESULTS OF OPERATIONS
The Company incurred a net loss of $358,000 for the quarter ended March 31,
1995, a significant improvement as compared to the net loss of $2,367,000 for
the same period in fiscal year 1994. The improvement was primarily related to a
significant net unrealized gain recorded in the third quarter or fiscal 1995
compared to a substantial net unrealized loss recorded in the comparable period
of the prior fiscal year. In addition, operating expenses declined
significantly due to the closure of the Company's domestic systems integration
operation in June 1994. However, for the nine months ended March 31, 1995, the
Company incurred a net loss of $2,671,000 compared to a net loss of $2,417,000
for the comparable period in the prior fiscal year. The increased net loss
resulted primarily from the absence of substantial net realized gains on sales
of investments, as recorded in fiscal 1994, and the cumulative effect of an
accounting change recorded in fiscal 1995. These savings were partially offset
by a substantial decline in the year-to-date net unrealized loss on investments
and significant savings in operating expenses from the closure of the domestic
systems integration operation in fiscal 1995 as compared to fiscal 1994.
Sales revenue for the third quarter ended March 31, 1995, decreased 34.4% to
$465,000 from $709,000 in the same period of fiscal year 1994. This decline
resulted primarily from the absence of revenues from the Company's domestic
systems integration division which was closed in June 1994. However, for the
nine months ended March 31, 1995, sales revenues increased $316,000, or 22.7%,
to $1.7 million. The increase resulted primarily from the acquisition of the
Company's AlphaNet division and a majority owned novelty toy manufacturer,
effective March 1, 1994, and January 1, 1995, respectively. In addition,
international sales increased moderately year-to-date, primarily due to
increased sales activity with existing customers in the second quarter and early
in the third quarter.
Sales revenue for the fourth quarter of fiscal 1995 are expected to decrease
significantly compared to the same period in fiscal 1995, due to the disposition
of the international operations effective April 1, 1995 and the absence of
domestic systems integration sales. Furthermore, the addition of sales from the
majority owned novelty toy manufacturer will be insufficient to cover the
anticipated decline in sales resulting from the AlphaNet division's refocus on
services and away from product sales. Sales revenues for the fourth quarter of
fiscal 1995 are also expected to decline significantly compared to the third
quarter of fiscal 1995 primarily due to the absence of international sales
revenue.
Service revenues for the quarter and the nine months ended March 31, 1995 were
$322,000 and $836,000, reflecting decreases of $25,000 and $196,000 or 7.2% and
19.0%, respectively, as compared to the same periods of the prior fiscal year.
This resulted primarily from continued erosion in the international proprietary
maintenance base, as expected, as these revenues declined $132,000 to $26,000,
and $465,000 to $126,000, for the three and nine months ended March 31, 1995,
respectively. In addition, declines of $62,000 and $139,000 were experienced
for the three and nine months ended March 31, 1995, due to the absence of
domestic systems integration service revenues. However, these declines were
partially offset by increases in AlphaNet's service revenues totaling $72,000
and $250,000 for the three and nine months ended March 31, 1995, respectively.
Additionally, international systems integration service revenues increased
$97,000 and $158,000, respectively to $218,000 and $413,000, for the quarter and
nine months ended March 31, 1995, as compared to the same periods in the prior
fiscal year due to increased sales activity with existing customers. Service
revenues are expected to decline significantly in the fourth quarter of fiscal
1995, as compared to the previous quarter of fiscal 1995 and the same period of
the prior fiscal year, primarily due to the absence of service revenues from the
Company's international subsidiary.
<PAGE>
PAGE 12
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER - FISCAL 1995
Cost of sales as a percentage of sales revenues for the three and nine months
ended March 31, 1995 were 78.9% and 72.4%, respectively, compared to 82.1% and
85.8% for the same periods in fiscal 1994. The improved margin resulted from
the closure of the Company's domestic systems integration division, which
produced unfavorable margins on its product sales, and the inclusion of AlphaNet
sales and Krazy Colors sales at higher margin rates than the total average sales
margin rates experienced in the comparable periods of fiscal 1994. Cost of
sales as a percentage of sales revenues from the AlphaNet division and from
Krazy Colors were 75.7% and 79.6% year-to-date, respectively. These
improvements in margin were partially offset by reduced margins on the
international systems integration sales due to the increasingly competitive
market and focus on disposition activities. Cost of these international sales
as a percentage of sales revenues increased to 77.5% and 70.5% for the three and
nine months ended March 31, 1995, respectively, from 64.3% and 65.7% for the
same periods in the previous year.
Cost of services as a percentage of service revenue was 66.5% and 75.4% for the
three and nine months ended March 31, 1995, compared to 122.2% and 112.3%,
respectively, for the same periods of fiscal 1994. The increased margin
performance was primarily due to a significant reduction in fixed costs related
to the domestic systems integration technical operations group, resulting from
the closure of this division, partially offset by reduced margins on the
international proprietary maintenance revenues, as cost reductions continued to
be insufficient to cover the decline in the related revenue.
Product development and engineering expenses totaled $65,000 and $227,000 for
the three and nine months ended March 31, 1995, compared to $71,000 and $160,000
in the same periods of the prior fiscal year. The increase in year-to-date
expenses resulted from increased software development activity during fiscal
1995. However, these expenses were reduced slightly this quarter and are
expected to remain at this lower level through the last quarter of the fiscal
year. The Company is actively pursuing various sales and marketing options for
its software product which was released late in the third quarter of fiscal
1995. However, there are still no assurances that the Company will find an
effective way to sell and market the product or that the product will gain
market acceptance.
Marketing, general and administrative costs totaled $714,000 and $2,237,000 for
the three and nine months ended March 31, 1995, compared to $1,097,000 and
$3,398,000 for the same periods in fiscal 1994. The decline is primarily
related to substantial savings realized in sales, marketing and administrative
expenses associated with the domestic systems integration division due to its
closure. These savings were partially offset by the addition of sales and
administrative expenses related to the Company's AlphaNet division, acquired in
March 1994, and the novelty toy manufacturer acquired effective January 1, 1995.
In addition, the Company's international subsidiary incurred increased general
and administrative expenses resulting from legal, consulting, travel and other
costs related to the subsidiary's disposition activities.
Interest income totaling $36,000 and $154,000 for the three and nine months
ended March 31, 1995, reflect decreases of $39,000 and $296,000 compared to the
same periods in fiscal 1994. The decrease in interest income is primarily due
to a lower level of average outstanding cash and investments in fiscal 1995, as
well as variances in the mix of debt and equity securities.
The Company recorded a net gain on investments and other income of $364,000 in
the third quarter of fiscal 1995, compared to a net loss on investments and
other income of $1,148,000 for the corresponding quarter of fiscal 1994. The
improvement was primarily related to a significant net unrealized gain recorded
in the third quarter or fiscal 1995 compared to a substantial net unrealized
loss recorded in the comparable period of the prior fiscal year. For the nine
months ended March 31, 1995, the Company recorded a net loss on investments and
other income of $220,000, compared to a net gain on investments and other income
of $1,158,000 for the comparable period of fiscal 1994. The decline in net gain
(loss) on investments and other income (expense) was primarily related to the
absence of substantial realized gains on investments, partially offset by a
substantial decline in the net unrealized
<PAGE>
PAGE 13
NBI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER - FISCAL 1995
loss on investments for the nine months ended March 31, 1995, as compared to the
same period of the prior fiscal year. Included in the net gain on investments
and other income for the three months ended March 31, 1995, were net realized
and unrealized gains on investments of $56,000 and $299,000, respectively. This
compares to a net realized gain on investments of $2,000 and net unrealized loss
of $1,159,000 recorded during the third quarter of fiscal 1994. For the nine
months ended March 31, 1995, the Company recorded net realized and unrealized
losses on investments of $194,000 and $4,000, respectively, while a net realized
gain of $2,289,000 and a net unrealized loss of $1,355,000 was included in the
nine months ended March 31, 1994. The Company has a concentrated position in
one equity security in the airline industry for which the Company recorded a
significant unrealized gain during the quarter ended March 31, 1995.
Alternately, for the nine months ended March 31, 1995, the Company recorded a
significant unrealized loss on this equity security. However, as of May 10,
1995, the market value of this security was significantly higher than at March
31, 1995.
During the second quarter of fiscal 1995, the Company implemented Financial
Accounting Standards Board Statement No. 112, "Employers' Accounting For
Postemployment Benefits" ("FAS 112") which was effective July 1, 1994. The
cumulative effect, as of July 1, 1994, of adopting this standard reduced net
income in the second fiscal quarter of 1995 by $271,000. This resulted from
accruing the present value of the expected disability benefits, to be paid out,
under the Company's prior self-insured disability benefits program, over the
next 12 years. The Company previously recognized these costs monthly as the
disability continued. Currently the disability payments total approximately
$4,000 per month for four individuals, expiring when the individuals reach the
age of 65, unless their condition changes. The effect of this accounting change
on future income is a reduction of costs approximating $4,000 each quarter
increasing over the next 12 years to a maximum of $12,000 per quarter. The
Company's current disability plan is fully insured.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The Company's working capital decreased $4.6 million from $5.9 million at June
30, 1994, to $1.3 million at March 31, 1995. The reduction of working capital
resulted primarily from the Company's net loss of $2.7 million for the nine
month period and from an increase of $1.8 million in the current portion of
income taxes, as principal payments on the IRS debt began in January 1995.
Total assets of $6.8 million at March 31, 1995, reflected a decline of $3.0
million from June 30, 1994. The decline in total assets occurred primarily due
to the net loss during the period of $2.7 million. Management currently
anticipates that working capital needs in the next year will be met by currently
available cash and investments and internally generated funds.
The Company continues to work towards profitability through cost reduction
measures and acquisition of or investment in domestic businesses. The Company
completed an acquisition of 80% of the stock of a small novelty toy manufacturer
effective the beginning of the third fiscal quarter, which is expected to be
profitable in calendar year 1995. In addition, in April 1995, the Company sold
certain assets of its subsidiary in the United Kingdom. The sales agreement
provided for the transfer of all customers and current employees to the
purchaser which will significantly reduce future net losses sustained by this
subsidiary. However, there are no assurances that these actions will be
sufficient enough to bring the Company to profitability.
<PAGE>
PAGE 14
NBI, INC.
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter ended
March 31, 1995.
<PAGE>
Page 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NBI, INC.
May 12, 1995 By: /s/ Marjorie A. Cogan
- --------------------------- -----------------------------------
(Date) Marjorie A. Cogan
As a duly authorized officer
Corporate Controller, Secretary
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,226
<SECURITIES> 4,216
<RECEIVABLES> 532
<ALLOWANCES> 0
<INVENTORY> 221
<CURRENT-ASSETS> 6,420
<PP&E> 102
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,825
<CURRENT-LIABILITIES> 5,140
<BONDS> 4,729
<COMMON> 100
0
0
<OTHER-SE> (3,144)
<TOTAL-LIABILITY-AND-EQUITY> 6,825
<SALES> 1,707
<TOTAL-REVENUES> 2,543
<CGS> 1,236
<TOTAL-COSTS> 1,866
<OTHER-EXPENSES> 227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 553
<INCOME-PRETAX> (2,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (271)
<NET-INCOME> (2,671)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
